e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
WASHINGTON, D.C.
20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31, 2006
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OR
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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
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Commission File Number
000-51360
Liberty Global, Inc.
(Exact name of
Registrant as specified in its charter)
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State of Delaware
(State or other
jurisdiction of
incorporation or organization)
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20-2197030
(I.R.S. Employer
Identification No.)
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12300 Liberty Boulevard
Englewood, Colorado
(Address of principal
executive offices)
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80112
(Zip Code)
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Registrants telephone number, including area code:
(303) 220-6600
Securities registered pursuant to Section 12(b) of the Act:
none
Securities registered pursuant to Section 12(g) of the Act:
Series A Common Stock, par value $0.01 per share
Series B Common Stock, par value $0.01 per share
Series C Common Stock, par value $0.01 per share
Indicate by check mark if the Registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the Registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
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 if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. 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. Check one:
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Large
Accelerated Filer þ
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Accelerated
Filer o
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Non-Accelerated
Filer o
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Indicate by check mark whether the registrant is a shell company
as defined in
Rule 12b-1
of the Exchange
Act. Yes o No þ
State the aggregate market value of the voting and non-voting
common equity held by non-affiliates, computed by reference to
the price at which the common equity was last sold, or the
average bid and ask price of such common equity, as of the last
business day of the registrants most recently completed
second fiscal quarter: $8.9 billion.
The number of outstanding shares of Liberty Global, Inc.s
common stock as of February 16, 2007 was:
191,956,430 shares of Series A common stock;
7,284,384 shares of Series B common stock; and
192,147,050 shares of Series C common stock.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the
Registrants 2007 Annual Meeting of Stockholders are
incorporated by reference in Part III of this
Form 10-K.
LIBERTY
GLOBAL, INC.
2006
ANNUAL REPORT ON
FORM 10-K
TABLE OF CONTENTS
PART I
General
Development of Business
Liberty Global, Inc. (LGI) is an international broadband
communications provider of video, voice and broadband Internet
access services, with consolidated broadband operations at
December 31, 2006, in 16 countries (excluding Belgium). Our
operations are primarily in Europe, Japan and Chile. Through our
indirect wholly owned subsidiaries UPC Holding BV (UPC Holding)
and Liberty Global Switzerland, Inc. (LG Switzerland), we
provide broadband communications services in 10 European
countries (excluding Belgium). As described below, our broadband
operations in Belgium ceased to be consolidated on
December 31, 2006. LG Switzerland holds our 100% ownership
interest in Cablecom Holdings AG (Cablecom), a broadband
communications operator in Switzerland. The broadband
communications operations of UPC Holding and LG Switzerland are
collectively referred to as the UPC Broadband Division. 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 Global Com, S.A. (VTR), we provide broadband
communications services in Chile. We also have
(i) consolidated
direct-to-home
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 our indirect
wholly owned subsidiary Chellomedia BV (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 and
some of our other broadband operations.
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. 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). 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 indicated otherwise, convenience translations into U.S.
dollars are calculated as of December 31, 2006 and
operational data, including subscriber statistics, are as of
December 31, 2006.
Recent
Developments
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Contributions
and Acquisitions
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On March 2, 2006, our subsidiary, UPC Austria GmbH,
acquired all the outstanding shares of INODE
Telekommunikationsdienstleistungs GmbH (INODE) for cash
consideration before direct acquisition costs of
93 million ($111 million at the transaction
date). INODE is one of Austrias leading digital subscriber
line (DSL) companies.
On August 9, 2006, (i) our indirect subsidiary,
Liberty Global Europe NV (Liberty Global Europe), 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 BV (Unite
Holdco), subject to regulatory approvals, and (ii) Unite
Holdco entered into a share purchase agreement to acquire for
322.5 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 BV. On
September 18, 2006, Unite Holdco acquired Karneval for
aggregate cash consideration of 331.1 million
($420.1 million at the transaction date) before direct
acquisition costs, including
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8.6 million ($10.9 million at the transaction
date) 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. On December 28, 2006,
following receipt of applicable regulatory approvals, Liberty
Global Europe completed its acquisition of Unite Holdco and
(indirectly) Karneval and settled the total return swap
agreements, with each of AIL and Deutsche.
On September 28, 2006, J:COM paid aggregate cash
consideration of ¥55.8 billion ($472.5 million at
the transaction date) before direct acquisition costs to
increase its ownership interest in Cable West Inc. (Cable West)
from an 8.6% non-controlling interest to an 85.0% controlling
interest. On November 15, 2006, J:COM paid aggregate cash
consideration of ¥7,736 million ($65.5 million at
the transaction date) to increase its ownership interest in
Cable West to 95.6%. Cable West is a broadband communications
provider in Japan. In connection with the acquisition of Cable
West, J:COM entered into new term loan agreements in September
2006. See Financings below.
On November 13, 2006, an indirect majority owned subsidiary
of Chellomedia, Belgian Cable Investors, a Delaware partnership
(Belgian Cable Investors), exercised call options to purchase
6,750,000 shares of Telenet Group Holding NV (Telenet) for
a total purchase price of 135.0 million
($172.9 million at the transaction date) before direct
acquisition costs. We acquired those shares from various members
of the Mixed Intercommunales, which are entities comprised of
certain Flanders municipalities and Electrabel NV. The Mixed
Intercommunales and certain of our subsidiaries are members of a
syndicate (the Telenet Syndicate) that controls Telenet by
virtue of the Telenet Syndicates collective ownership of a
majority of the outstanding Telenet shares. Although we obtained
sufficient governance rights to allow us to exercise voting
control over Telenet, we could not exercise such control until
February 26, 2007, when we obtained regulatory approval.
In addition, (i) in November 2006, LGI Ventures BV (LGI
Ventures), formerly Chellomedia Investments BV, a wholly owned
subsidiary of Chellomedia, paid cash consideration of
22.2 million ($28.4 million at the transaction
date), before direct acquisition costs, to acquire 931,138
Telenet shares and 136,464 warrants to purchase Telenet shares
from certain of our co-investors in Telenet, and (ii) in
December 2006, Liberty Global Europe, the indirect parent of
Chellomedia, paid cash consideration of 17.2 million
($22.5 million at the transaction date), before direct
acquisition costs, to acquire 800,000 Telenet shares through
open market purchases.
Also in November 2006, certain entities that are majority owned
by Belgian Cable Investors (the Investcos) distributed 680,062
Telenet shares and 1,159 warrants to purchase Telenet shares to
certain of our co-investors in Telenet in exchange for the
redemption of Investcos securities that were held by these
Telenet co-investors. These shares and warrants were in turn
sold by the Telenet co-investors to LGI Ventures for cash
consideration of 14.0 million ($18.0 million at
the transaction date) before direct acquisition costs. The
warrants acquired in these transactions are each exercisable for
three Telenet shares.
In addition to the foregoing, during 2006, we completed various
other smaller acquisitions in the normal course of business. See
note 5 to our consolidated financial statements.
On January 19, 2006, we sold 100% of our Norwegian
broadband communications operator, UPC Norge AS, to an unrelated
third party for cash proceeds of approximately
444.8 million ($536.7 million at the transaction
date).
On June 19, 2006, we sold 100% of our Swedish broadband
communications operator, NBS Nordic Broadband Services AB, to a
consortium of unrelated third parties 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 SEK
251 million ($34.0 million at the transaction date).
On July 19, 2006, we sold 100% of our French broadband
communications operator, UPC France SA, 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.
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On December 31, 2006, we sold UPC Belgium NV/SA (UPC
Belgium), which owns and operates broadband communications
systems in Belgium, to Telenet for cash proceeds of
184.5 million ($243.3 million at the transaction
date), after deducting cash received to settle net cash and
working capital adjustments of 20.9 million
($27.6 million at the transaction date). At that date, we
had a 28.8% indirect interest in Telenet based on the number of
Telenet shares then outstanding. Accordingly, we continue to
hold an interest in UPC Belgium after the sale.
In addition, during 2006, we completed other smaller
dispositions in the normal course of business. See note 6
to our consolidated financial statements.
UPC Holding. On May 10, 2006, UPC
Broadband Holding BV (UPC Broadband Holding), a wholly owned
subsidiary of UPC Holding, amended its senior secured credit
facility (the UPC Broadband Holding Bank Facility) to refinance
the Facility F, G and H term loans thereunder with a portion of
the borrowings of new Facility J and K terms loans under the UPC
Broadband Holding Bank Facility. The amounts borrowed under
Facilities J and K aggregated 1,800 million and
$1,775 million, with each denomination split evenly between
Facilities J and K. On July 3, 2006, UPC Broadband Holding
entered into an additional facility accession agreement for
Facility L, an 830 million multicurrency repayable
and redrawable term loan facility under the UPC Broadband
Holding Bank Facility. Facility L replaces Facility A, the
500 million multicurrency revolving credit facility,
that was due to mature in June 2008, and the credit agreement
under which Facility A was issued has been cancelled.
As of December 31, 2006, there are four facilities under
the UPC Broadband Holding Bank Facility; Facilities I, J, K and
L. Facilities I and L are repayable and redrawable term loans
with maximum borrowing capacity of 500 million
($659.5 million) and 830 million
($1,094.7 million), respectively. At December 31,
2006, there were no borrowings outstanding under either Facility
I or L. Borrowings under Facility I are due and payable in one
installment on April 1, 2010. Borrowings under Facility L
are to be repaid in one installment on July 3, 2012. At
December 31, 2006, the amounts outstanding under Facilities
J and K aggregated 1,695 million
($2,235.6 million) and $1,775 million. Amounts
outstanding under each of Facilities J and K are to be repaid in
one installment on March 31, 2013 and December 31,
2013, respectively.
J:COM. In December 2005, J:COM entered into a
credit facility agreement with a syndicate of banks (the J:COM
Credit Facility). Originally, the J:COM Credit Facility
consisted of three facilities: a ¥30 billion
($251.9 million) five-year revolving credit loan (the J:COM
Revolving Loan); an ¥85 billion ($713.8 million)
five-year amortizing term loan (J:COM Tranche A Term Loan);
and a ¥40 billion ($335.9 million) seven-year
amortizing term loan (J:COM Tranche B Term Loan). As
discussed below, J:COM has refinanced 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, the proceeds of the J:COM Tranche A and
Tranche B Term Loans were used, together with available
cash, to repay in full outstanding loans totaling
¥128 billion ($1,100 million at the transaction
date) under J:COMs then existing credit facilities.
During April and May of 2006, J:COM refinanced
¥38 billion ($323 million at the transaction
date) and ¥2,000 million ($18 million at the
transaction date), respectively, of the J:COM Tranche B
Term Loan with ¥20 billion of fixed-interest rate
loans and ¥20 billion of variable-interest rate loans.
These loans are each to be repaid in one installment on their
respective maturity dates in 2013.
In connection with the September 2006 acquisition of Cable West,
J:COM entered into (i) a ¥2,000 million
variable-interest rate term loan agreement, (ii) a
¥20 billion seven-year fixed-interest rate term loan
agreement, and (iii) a ¥30 billion syndicated
term loan agreement. The ¥2,000 million
($17 million at the transaction date) and
¥20 billion ($169.7 million at the transaction
date) term loans were fully drawn in September 2006, and
¥14 billion from the J:COM Revolving Loan was also
drawn. The full amount of the ¥30 billion
($252.6 million at the transaction date) syndicated term
loan was drawn on October 27, 2006, and a portion of the
proceeds was used to repay the then outstanding balance of the
J:COM Revolving Loan (¥14 billion or
$117.9 million at the transaction date). The new term loans
mature between 2011 and 2013. At December 31, 2006,
¥30 billion ($251.9 million) was available for
borrowing under the J:COM Revolving Loan.
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Cablecom. On December 5, 2005, Cablecom
Luxembourg S.C.A. (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 redeemed the balance of all of Cablecom
Luxembourgs senior secured floating rate notes that were
not tendered prior to the expiration in December 2005 of the
change of control offer, which Cablecom Luxembourg
was required to effect in connection with our acquisition of
Cablecom. The redemption price paid was 102% of the respective
principal amounts of such senior secured floating rate notes,
plus accrued interest through the redemption date. The
redemption price was funded by borrowings of term loans under
the Cablecom Luxembourg Bank Facility. The Cablecom Luxembourg
Bank Facility provides for two term loan facilities with maximum
aggregate borrowings of CHF 1,330 million
($1,090.3 million). Both of these term loans were fully
drawn at December 31, 2006.
On October 31, 2006, Cablecom Luxembourg sold
300.0 million ($383.2 million at the transaction
date) principal amount of its 8.0% Senior Notes due 2016 (the
Cablecom Luxembourg New Senior Notes) pursuant to a purchase
agreement dated October 26, 2006, among Cablecom
Luxembourg, UPC Holding, JP Morgan Securities Ltd. and Deutsche.
The net proceeds from the sale of the Cablecom Luxembourg New
Senior Notes, together with available cash, has been 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 Cablecom Luxembourg Old Fixed
Rate Notes) in connection with the covenant defeasance of such
Notes. This covenant defeasance eliminated substantially all of
the covenants and other obligations of Cablecom Luxembourg
contained in the Cablecom Luxembourg Old Fixed Rate Notes and
the relevant indenture until redemption of the Cablecom
Luxembourg Old Fixed Rate Notes on April 15, 2007. The cash
deposited into the Cablecom Luxembourg Defeasance Account
(331.6 million or $437.4 million at
December 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
Cablecom Luxembourg Old Fixed Rate Notes.
The indenture for the Cablecom Luxembourg New Senior 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, 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 Cablecom Luxembourg New Senior 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 Cablecom Luxembourg New Senior 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.
VTR. On September 20, 2006, VTR replaced
its then existing bank credit facility with a new senior secured
credit agreement (the VTR Bank Facility) consisting of
(i) a CLP 122.6 billion ($229.5 million) Chilean
peso-denominated seven-year amortizing term loan (the VTR
Tranche A Term Loan), (ii) a $475 million U.S.
dollar-denominated eight-year term loan due in 2014 (the VTR
Tranche B Term Loan), and (iii) a CLP
13.8 billion ($25.8 million) Chilean peso-denominated
six and a half-year revolving loan (the VTR Tranche C
Revolving Loan.)
At closing on September 20, 2006, the full
$475 million of the VTR Tranche B Term Loan was drawn.
Proceeds were used to (i) repay the CLP 175.5 billion
($326.7 million on the transaction date) outstanding
balance of VTRs then existing bank credit 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.
LFP LLC. We own a 99.9% 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
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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 August 2 of the years 2017 and 2022.
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. LFP LLC has pledged all 345,000 shares
of the ABC Family preferred stock as security for the borrowing,
which matures on August 1, 2007. 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.
Austar. On August 3, 2006, a subsidiary
of Austar United Communications Limited (Austar) entered into a
new senior secured debt facility (the Austar Bank Facility) with
a syndicate of local and international banks. The Austar Bank
Facility is comprised of three facilities: (i) a AUD
275.0 million ($216.8 million) five-year term loan
facility; (ii) a AUD 300.0 million
($236.5 million) seven-year term loan facility; and
(iii) a AUD 25.0 million ($19.7 million) six-year
revolving loan facility. Borrowings under the Austar Bank
Facility mature between 2011 and 2013. 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
($144.4 million at the transaction date) and (ii) to
fund a AUD 201.6 million ($151.7 million at the
transaction date) capital distribution to Austars
shareholders on September 20, 2006, including a AUD
107.2 million ($80.7 million at the transaction date)
distribution to our company.
Chellomedia. On December 12, 2006,
Chellomedia Programming Financing Holdco B.V. (Chellomedia PFH),
an indirect subsidiary of Chellomedia, consummated a senior
secured credit facility (the Chellomedia Bank Facility) with
certain banks and financial institutions as lenders. The
Chellomedia Bank Facility provides the terms and conditions upon
which the lenders have made available to Chellomedia PFH the
following: (a) four term facilities: (i) a seven-year
87.4 million ($115.3 million) term loan
facility, (ii) a seven-year 17.6 million
($23.2 million) term loan facility, (iii) a seven-year
$74.9 million term loan facility and (iv) a seven-year
$15.1 million term loan facility; (b) a seven-year
25.0 million ($33.0 million) delayed draw
facility (which may be drawn through June 8, 2007); and
(c) a six-year 25.0 million ($33.0 million)
revolving facility (which may also be drawn in Hungarian
forints). As of December 31, 2006, the four term facilities
have been drawn in full and the delayed draw facility and
revolving facility have no outstanding borrowings. The proceeds
of the four term facilities have been applied (i) to
refinance the 65.0 million ($86.0 million at the
transaction date) senior secured credit facility for Plator
Holding B.V. dated November 23, 2005, (ii) to repay a
43.0 ($56.7 million at the transaction date)
intercompany loan, and (iii) to loan
34.7 million ($45.8 million) and
$90.0 million to its parent entities.
Puerto Rico. 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. This new bank credit facility also
provides for a $10 million seven-year revolving loan.
During the first quarter of 2006, we purchased
$121.1 million of our LGI Series A and Series C
common stock pursuant to a stock repurchase program authorized
in June 2005. In March 2006, our board of directors approved a
new stock repurchase program under which we may acquire an
additional $250 million of our LGI Series A and
Series C common stock through open market transactions or
privately negotiated transactions, which may include derivative
transactions. The timing of the repurchase of shares pursuant to
this program is dependent on a variety of factors, including
market conditions. This program may be suspended or discontinued
at any time. Under this program, we acquired $132.1 million
of our LGI Series A and Series C common stock during
the second and third quarters of 2006.
On June 21, 2006, we purchased 10,000,000 shares of
our LGI Series A common stock at $25.00 per share and
10,288,066 shares of our LGI Series C common stock at
$24.30 per share, for an aggregate purchase price of
$500.0 million before direct acquisition costs, pursuant to
two self-tender offers. On September 15, 2006, we purchased
20,000,000 shares of our LGI Series A common stock at
$25.00 per share and 20,534,000 shares of our
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LGI Series C common stock at $24.35 per share, for an
aggregate purchase price of $1.0 billion before direct
acquisition costs, pursuant to two modified Dutch auction
self-tender offers. On January 10, 2007, we purchased
5,084,746 shares of our LGI Series A common stock at
$29.50 per share and 5,246,590 shares of our LGI
Series C common stock at $28.59 per share, for an aggregate
purchase price of $300.0 million before direct acquisition
costs, pursuant to two modified Dutch auction self-tender
offers. Shares purchased pursuant to the foregoing tender offers
are not applied against our previously announced stock
repurchase program.
Pursuant to the foregoing stock repurchase programs and
self-tender offers, during the year ended December 31,
2006, we repurchased a total of 32,698,558 shares of LGI
Series A common stock at a weighted average price of $24.79
per share and 40,528,748 shares of LGI Series C common
stock at a weighted average price of $23.35 per share, for an
aggregate cash purchase price of $1,756.9 million,
including direct acquisition costs. As of December 31,
2006, we were authorized under the March 2006 stock repurchase
program to acquire an additional $117.9 million of LGI
Series A and Series C common stock.
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*
Certain statements in this Annual Report on
Form 10-K
constitute forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. To the extent
that statements in this Annual 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 1. Business,
Item 2. Properties, Item 3. Legal Proceedings,
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations and Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
contain forward-looking statements. 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 evaluating these
statements, you should consider the risks and uncertainties
discussed under Item 1.A Risk Factors and Item 7.A
Quantitative and Qualitative Disclosures About Market Risk, as
well as the following list of 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, and the entities in which we have
interests, operate;
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fluctuations in currency exchange rates and interest rates;
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|
consumer disposable income and spending levels, including the
availability and amount of individual consumer debt;
|
|
|
|
changes in consumer television viewing preferences and habits;
|
|
|
|
consumer acceptance of existing service offerings, including our
newer digital video, voice and broadband Internet access
services;
|
|
|
|
consumer acceptance of new technology, programming alternatives
and broadband services that we may offer such as our digital
migration project in The Netherlands;
|
|
|
|
our ability to manage rapid technological changes;
|
|
|
|
our ability to increase the number of subscriptions to our
digital video, voice and broadband Internet access services and
our average revenue per household;
|
|
|
|
the competitive environment in the broadband communications and
programming industries in the countries in which we, and the
entities in which we have interests, operate;
|
|
|
|
competitor responses to our products and services, and the
products and services of the entities in which we have interests;
|
|
|
|
continued consolidation of the foreign broadband distribution
industry;
|
I-6
|
|
|
|
|
changes in, or failure or inability to comply with, government
regulations in the countries in which we, and the entities in
which we have interests, operate and adverse outcomes from
regulatory proceedings;
|
|
|
|
our ability to obtain regulatory approval and satisfy other
conditions necessary to close acquisitions, as well as our
ability to satisfy conditions imposed by competition and other
regulatory authorities in connection with acquisitions;
|
|
|
|
government intervention that opens our broadband distribution
networks to competitors;
|
|
|
|
our ability to successfully negotiate rate increases with local
authorities;
|
|
|
|
changes in laws or treaties relating to taxation, or the
interpretation thereof, in countries in which we, or the
entities in which we have interests, operate;
|
|
|
|
uncertainties inherent in the development and integration of new
business lines and business strategies;
|
|
|
|
capital spending for the acquisition and/or development of
telecommunications networks and services;
|
|
|
|
our ability to successfully integrate and recognize anticipated
efficiencies from the businesses we acquire;
|
|
|
|
problems we may discover post-closing with the operations,
including the internal controls and financial reporting
processes, of businesses we acquire;
|
|
|
|
the impact of our future financial performance, or market
conditions generally, on the availability, terms and deployment
of capital;
|
|
|
|
the ability of suppliers and vendors to timely deliver products,
equipment, software and services;
|
|
|
|
the availability of attractive programming for our digital video
services at reasonable costs;
|
|
|
|
the outcome of any pending or threatened litigation;
|
|
|
|
the loss of key employees and the availability of qualified
personnel;
|
|
|
|
changes in the nature of key strategic relationships with
partners and joint ventures; and
|
|
|
|
events that are outside of our control, such as political unrest
in international markets, terrorist attacks, natural disasters,
pandemics and other similar events.
|
The broadband communications services industries are changing
rapidly, and, therefore, the forward-looking statements of
expectations, plans and intent in this Annual 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 Annual
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.
|
|
|
Financial
Information About Operating Segments
|
Financial information about our reportable segments appears in
note 22 to our consolidated financial statements included
in Part II of this report.
|
|
|
Narrative
Description of Business
|
Overview
We offer a variety of broadband distribution services over our
cable television systems, including video, broadband Internet
access and telephony. Available service offerings depend on the
bandwidth capacity of our systems and whether they have been
upgraded for two-way communications. In select markets, we also
offer video services through
direct-to-home
satellite, or DTH, or through multi-channel
multipoint (microwave) distribution
I-7
systems, or MMDS. 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, or
NVoD, and
video-on-demand,
or 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 Austria, Chile, Czech Republic,
Hungary, Ireland, Japan, The Netherlands, Poland, Puerto Rico,
Romania, Slovak Republic, and Switzerland, primarily over our
broadband networks. In Austria, Chile, Hungary, Ireland, Japan
and The Netherlands, we provide circuit switched telephony
services and
voice-over-Internet-protocol,
or VoIP telephony services. Telephony services in
the remaining countries are provided using VoIP technology. In
select markets, we also offer mobile telephony services using
third party networks.
We operate our broadband distribution businesses in Europe
principally through the UPC Broadband Division of Liberty Global
Europe, Inc. (LG Europe); in Japan principally through J:COM, a
subsidiary of LGI/Sumisho Super Media LLC (Super Media); in The
Americas principally through VTR and Liberty Cablevision of
Puerto Rico Ltd. (Liberty Puerto Rico); and in Australia
principally through Austar. Each of LG Europe, Super Media, VTR,
Liberty Puerto Rico and Austar is a consolidated subsidiary.
I-8
The following table presents certain operating data, as of
December 31, 2006, with respect to the broadband
distribution systems of our subsidiaries in Europe, Japan, The
Americas and Australia. For purposes of this presentation, we
refer to Puerto Rico and the countries of South America
collectively as The Americas. This table reflects 100% of the
operational data applicable to each subsidiary regardless of our
ownership percentage.
Consolidated
Operating Data
December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Two-way
|
|
|
|
|
|
|
|
|
Video
|
|
|
|
|
|
Internet
|
|
|
Telephone
|
|
|
|
Homes
|
|
|
Homes
|
|
|
Customer
|
|
|
Total
|
|
|
Analog Cable
|
|
|
Digital Cable
|
|
|
DTH
|
|
|
MMDS
|
|
|
Total
|
|
|
Homes
|
|
|
|
|
|
Homes
|
|
|
|
|
|
|
Passed(1)
|
|
|
Passed(2)
|
|
|
Relationships(3)
|
|
|
RGUs(4)
|
|
|
Subscribers(5)
|
|
|
Subscribers(6)
|
|
|
Subscribers(7)
|
|
|
Subscribers(8)
|
|
|
Video
|
|
|
Serviceable(9)
|
|
|
Subscribers(10)
|
|
|
Serviceable(11)
|
|
|
Subscribers(12)
|
|
|
UPC Broadband Division
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
|
2,677,400
|
|
|
|
2,589,700
|
|
|
|
2,200,900
|
|
|
|
3,151,400
|
|
|
|
1,695,200
|
|
|
|
501,800
|
|
|
|
|
|
|
|
|
|
|
|
2,197,000
|
|
|
|
2,589,700
|
|
|
|
565,700
|
|
|
|
2,478,600
|
|
|
|
388,700
|
|
Switzerland(13)
|
|
|
1,827,100
|
|
|
|
1,283,400
|
|
|
|
1,560,600
|
|
|
|
2,224,400
|
|
|
|
1,420,600
|
|
|
|
138,500
|
|
|
|
|
|
|
|
|
|
|
|
1,559,100
|
|
|
|
1,432,200
|
|
|
|
411,900
|
|
|
|
1,432,200
|
|
|
|
253,400
|
|
Austria
|
|
|
978,200
|
|
|
|
974,900
|
|
|
|
698,300
|
|
|
|
1,076,500
|
|
|
|
455,700
|
|
|
|
49,200
|
|
|
|
|
|
|
|
|
|
|
|
504,900
|
|
|
|
974,900
|
|
|
|
398,400
|
|
|
|
941,000
|
|
|
|
173,200
|
|
Ireland
|
|
|
858,300
|
|
|
|
307,700
|
|
|
|
599,300
|
|
|
|
650,900
|
|
|
|
278,800
|
|
|
|
198,600
|
|
|
|
|
|
|
|
117,800
|
|
|
|
595,200
|
|
|
|
307,700
|
|
|
|
55,300
|
|
|
|
91,800
|
|
|
|
400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
6,341,000
|
|
|
|
5,155,700
|
|
|
|
5,059,100
|
|
|
|
7,103,200
|
|
|
|
3,850,300
|
|
|
|
888,100
|
|
|
|
|
|
|
|
117,800
|
|
|
|
4,856,200
|
|
|
|
5,304,500
|
|
|
|
1,431,300
|
|
|
|
4,943,600
|
|
|
|
815,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
1,125,100
|
|
|
|
1,049,100
|
|
|
|
1,019,000
|
|
|
|
1,254,800
|
|
|
|
735,900
|
|
|
|
|
|
|
|
170,900
|
|
|
|
|
|
|
|
906,800
|
|
|
|
1,049,100
|
|
|
|
209,000
|
|
|
|
1,032,000
|
|
|
|
139,000
|
|
Romania
|
|
|
1,988,900
|
|
|
|
1,316,600
|
|
|
|
1,419,400
|
|
|
|
1,594,600
|
|
|
|
1,362,300
|
|
|
|
6,600
|
|
|
|
50,300
|
|
|
|
|
|
|
|
1,419,200
|
|
|
|
1,191,300
|
|
|
|
119,000
|
|
|
|
1,135,400
|
|
|
|
56,400
|
|
Poland
|
|
|
1,940,800
|
|
|
|
1,304,600
|
|
|
|
1,058,900
|
|
|
|
1,275,500
|
|
|
|
1,005,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,005,600
|
|
|
|
1,304,600
|
|
|
|
206,300
|
|
|
|
1,259,400
|
|
|
|
63,600
|
|
Czech Republic
|
|
|
1,258,000
|
|
|
|
964,700
|
|
|
|
744,500
|
|
|
|
902,900
|
|
|
|
529,300
|
|
|
|
27,300
|
|
|
|
134,500
|
|
|
|
|
|
|
|
691,100
|
|
|
|
964,700
|
|
|
|
186,400
|
|
|
|
961,800
|
|
|
|
25,400
|
|
Slovak Republic
|
|
|
441,700
|
|
|
|
260,200
|
|
|
|
304,900
|
|
|
|
334,900
|
|
|
|
264,000
|
|
|
|
|
|
|
|
19,600
|
|
|
|
18,600
|
|
|
|
302,200
|
|
|
|
243,100
|
|
|
|
32,400
|
|
|
|
165,600
|
|
|
|
300
|
|
Slovenia
|
|
|
133,200
|
|
|
|
89,400
|
|
|
|
113,200
|
|
|
|
137,200
|
|
|
|
113,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
113,200
|
|
|
|
89,400
|
|
|
|
24,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
6,887,700
|
|
|
|
4,984,600
|
|
|
|
4,659,900
|
|
|
|
5,499,900
|
|
|
|
4,010,300
|
|
|
|
33,900
|
|
|
|
375,300
|
|
|
|
18,600
|
|
|
|
4,438,100
|
|
|
|
4,842,200
|
|
|
|
777,100
|
|
|
|
4,554,200
|
|
|
|
284,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total UPC Broadband Division
|
|
|
13,228,700
|
|
|
|
10,140,300
|
|
|
|
9,719,000
|
|
|
|
12,603,100
|
|
|
|
7,860,600
|
|
|
|
922,000
|
|
|
|
375,300
|
|
|
|
136,400
|
|
|
|
9,294,300
|
|
|
|
10,146,700
|
|
|
|
2,208,400
|
|
|
|
9,497,800
|
|
|
|
1,100,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J:COM (Japan)
|
|
|
9,206,100
|
|
|
|
9,206,100
|
|
|
|
2,512,200
|
|
|
|
4,338,000
|
|
|
|
1,020,400
|
|
|
|
1,088,900
|
|
|
|
|
|
|
|
|
|
|
|
2,109,300
|
|
|
|
9,206,100
|
|
|
|
1,108,800
|
|
|
|
9,166,400
|
|
|
|
1,119,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Americas:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VTR (Chile)
|
|
|
2,343,700
|
|
|
|
1,499,900
|
|
|
|
940,700
|
|
|
|
1,684,400
|
|
|
|
697,200
|
|
|
|
106,300
|
|
|
|
|
|
|
|
|
|
|
|
803,500
|
|
|
|
1,499,900
|
|
|
|
413,800
|
|
|
|
1,465,100
|
|
|
|
467,100
|
|
Puerto Rico
|
|
|
334,100
|
|
|
|
334,100
|
|
|
|
126,300
|
|
|
|
173,400
|
|
|
|
|
|
|
|
108,300
|
|
|
|
|
|
|
|
|
|
|
|
108,300
|
|
|
|
334,100
|
|
|
|
46,900
|
|
|
|
334,100
|
|
|
|
18,200
|
|
Brazil & Peru
|
|
|
83,100
|
|
|
|
65,800
|
|
|
|
28,500
|
|
|
|
31,900
|
|
|
|
11,100
|
|
|
|
|
|
|
|
|
|
|
|
15,000
|
|
|
|
26,100
|
|
|
|
65,800
|
|
|
|
5,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total The Americas
|
|
|
2,760,900
|
|
|
|
1,899,800
|
|
|
|
1,095,500
|
|
|
|
1,889,700
|
|
|
|
708,300
|
|
|
|
214,600
|
|
|
|
|
|
|
|
15,000
|
|
|
|
937,900
|
|
|
|
1,899,800
|
|
|
|
466,500
|
|
|
|
1,799,200
|
|
|
|
485,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Austar (Australia)
|
|
|
2,441,700
|
|
|
|
|
|
|
|
516,500
|
|
|
|
601,400
|
|
|
|
|
|
|
|
8,800
|
|
|
|
592,400
|
|
|
|
|
|
|
|
601,200
|
|
|
|
30,400
|
|
|
|
200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grand Total
|
|
|
27,637,400
|
|
|
|
21,246,200
|
|
|
|
13,843,200
|
|
|
|
19,432,200
|
|
|
|
9,589,300
|
|
|
|
2,234,300
|
|
|
|
967,700
|
|
|
|
151,400
|
|
|
|
12,942,700
|
|
|
|
21,283,000
|
|
|
|
3,783,900
|
|
|
|
20,463,400
|
|
|
|
2,705,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
I-9
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(1) |
|
Homes Passed are homes that can be connected to our networks
without further extending the distribution plant, except for DTH
and MMDS homes. Our Homes Passed counts are based on census data
that can change based on either revisions to the data or from
new census results. With the exception of Austar, we do not
count homes passed for DTH. With respect to Austar, we count all
homes in the areas that Austar is authorized to serve as Homes
Passed. With respect to MMDS, one Home Passed is equal to one
MMDS subscriber. Due to the fact that we do not own the partner
networks (defined below) used by Cablecom in Switzerland, or the
unbundled loop and shared access network used by INODE in
Austria, we do not report homes passed for Cablecoms
partner networks or for INODE. See note 13 below. |
|
(2) |
|
Two-way Homes Passed are Homes Passed by our networks where
customers can request and receive the installation of a two-way
addressable set-top converter, cable modem, transceiver and/or
voice port which, in most cases, allows for the provision of
video and Internet services and, in some cases, telephone
services. Due to the fact that we do not own the partner
networks used by Cablecom in Switzerland or the unbundled loop
and shared access network used by INODE in Austria, we do not
report two-way homes passed for Cablecoms partner networks
or for INODE. |
|
(3) |
|
Customer Relationships are the number of customers who receive
at least one level of service without regard to which service(s)
they subscribe. We exclude mobile customers from customer
relationships. |
|
(4) |
|
Revenue Generating Unit (RGU) is separately an Analog Cable
Subscriber, Digital Cable Subscriber, DTH Subscriber, MMDS
Subscriber, Internet Subscriber or Telephone Subscriber. A home
may contain one or more RGUs. For example, if a residential
customer in our Austrian system subscribed to our digital cable
service, telephone service and broadband Internet access
service, the customer would constitute three RGUs. Total RGUs is
the sum of Analog Cable, Digital Cable, DTH, MMDS, Internet and
Telephone Subscribers. In some cases, non-paying subscribers are
counted as subscribers during their free promotional service
period. Some of these subscribers choose to disconnect after
their free service period. |
|
(5) |
|
Analog Cable Subscriber is comprised of analog cable customers
that are counted on a per connection or equivalent billing unit
(EBU) basis. In Europe we have approximately 748,400
lifeline customers that are counted on a per
connection basis, representing the least expensive regulated
tier of basic cable service, with only a few channels. |
|
(6) |
|
Digital Cable Subscriber is a customer with one or more digital
converter boxes that receives our digital video service. We
count a subscriber with one or more digital converter boxes that
receives our digital video service as just one subscriber. A
Digital Cable Subscriber is not counted as an Analog Cable
Subscriber. Subscribers to digital video services provided by
Cablecom over partner networks receive analog video services
from the partner networks as opposed to Cablecom. As we migrate
customers from analog to digital video services, we report a
decrease in our Analog Cable Subscribers equal to the increase
in our Digital Cable Subscribers. In The Netherlands where our
digital migration project is underway, a subscriber is moved
from the Analog Cable Subscriber count to the Digital Cable
Subscriber count when such subscriber accepts delivery of our
digital converter box and agrees to accept digital video service
regardless of when the subscriber begins to receive our digital
video service. Through December 31, 2006, the digital video
service and the digital converter box were provided at the
analog rate for six months after which the subscriber had the
option to discontinue the digital service or pay an additional
amount to continue to receive the digital service. Effective
January 1, 2007, this promotional period was reduced from
six months to three months. An estimated 10% to 15% of The
Netherlands Digital Cable Subscribers at December 31, 2006
have accepted but not installed their digital converter boxes. |
|
(7) |
|
DTH Subscriber is a home or commercial unit that receives our
video programming broadcast directly to the home via a
geosynchronous satellite. |
|
(8) |
|
MMDS Subscriber is a home or commercial unit that receives our
video programming via a multi-channel multipoint (microwave)
distribution system. |
|
(9) |
|
Internet Homes Serviceable are homes that can be connected to
our broadband networks, or a partner network with which we have
a service agreement, where customers can request and receive
broadband Internet access services. With respect to INODE, we do
not report Internet homes serviceable as INODEs service is
not |
I-10
|
|
|
|
|
delivered over our network but instead is delivered over an
unbundled loop, or in certain cases, over a shared access
network. |
|
(10) |
|
Internet Subscriber is a home or commercial unit or EBU with one
or more cable modem connections to our broadband networks, or
that we service through a partner network, where a customer has
requested and is receiving broadband Internet access services.
At December 31, 2006, our Internet Subscribers in Austria
included 89,200 residential digital subscriber lines or DSL
subscribers of INODE that are not serviced over our networks.
Our Internet Subscribers do not include customers that receive
services via resale arrangements or from
dial-up
connections. |
|
(11) |
|
Telephone Homes Serviceable are homes that can be connected to
our networks, or a partner network with which we have a service
agreement, where customers can request and receive voice
services. With respect to INODE, we do not report telephone
homes serviceable as service is delivered over an unbundled loop
rather than our network. |
|
(12) |
|
Telephone Subscriber is a home or commercial unit or EBU
connected to our networks, or that we service through a partner
network, where a customer has requested and is receiving voice
services. Telephone Subscribers as of December 31, 2006,
exclude an aggregate of 149,100 mobile telephone subscribers in
The Netherlands and Australia. Also, our Telephone Subscribers
do not include customers that receive services via resale
arrangements. At December 31, 2006, our Telephone
Subscribers in Austria included 22,600 residential subscribers
of INODE. |
|
(13) |
|
Pursuant to service agreements, Cablecom offers digital video,
broadband Internet access and telephony services over networks
owned by third party cable operators or partner
networks. A partner network RGU is only recognized if
Cablecom has a direct billing relationship with the customer.
Homes Serviceable for partner networks represent the estimated
number of homes that are technologically capable of receiving
the applicable service within the geographic regions covered by
Cablecoms service agreements. Internet and Telephone Homes
Serviceable and Customer Relationships with respect to partner
networks have been estimated by Cablecom. These estimates may
change in future periods as more accurate information becomes
available. Cablecoms partner network information generally
is presented one quarter in arrears such that information
included in our December 31, 2006 subscriber table is based
on September 30, 2006 data. In our December 31, 2006
subscriber table, Cablecoms partner networks account for
46,000 Customer Relationships, 74,800 RGUs, 20,100 Digital Cable
Subscribers, 148,800 Internet and Telephone Homes Serviceable,
35,000 Internet Subscribers, and 19,700 Telephone Subscribers.
In addition, partner networks account for 490,000 digital video
homes serviceable that are not included in Homes Passed or
Two-way Homes Passed in our December 31, 2006 subscriber
table. |
Additional General Notes to Tables:
With respect to Chile, Japan and Puerto Rico, residential
multiple dwelling units with a discounted pricing structure for
video, broadband Internet or telephony services are counted on
an EBU basis. With respect to commercial establishments, such as
bars, hotels and hospitals, to which we provide video and other
services primarily for the patrons of such establishments, the
subscriber count is generally calculated on an EBU basis by our
subsidiaries. EBU is calculated by dividing the bulk price
charged to accounts in an area by the most prevalent price
charged to non-bulk residential customers in that market for the
comparable tier of service. On a
business-to-business
basis, certain of our subsidiaries provide data, telephony and
other services to businesses, primarily in The Netherlands,
Switzerland, Austria, Ireland and Romania. We generally do not
count customers of these services as subscribers, customers or
RGUs.
While we take appropriate steps to ensure that subscriber
statistics are presented on a consistent and accurate basis at
any given balance sheet date, the variability from country to
country in (i) the nature and pricing of products and
services, (ii) the distribution platform,
(iii) billing systems, (iv) bad debt collection
experience, and (v) other factors adds complexity to the
subscriber counting process. We periodically review our
subscriber counting policies and underlying systems to improve
the accuracy and consistency of the data reported. Accordingly,
we may from time to time make appropriate adjustments to our
subscriber statistics based on those reviews.
Subscriber information for acquired entities is preliminary and
subject to adjustment until we have completed our review of such
information and determined that it is presented in accordance
with our policies.
I-11
Programming
Services
We own programming networks that provide video programming
channels to multi-channel distribution systems owned by us and
by third parties. We also represent programming networks owned
by others. Our programming networks distribute their services
through a number of distribution technologies, principally cable
television and DTH. Programming services may be delivered to
subscribers as part of a video distributors basic package
of programming services for a fixed monthly fee, or may be
delivered as a premium programming service for an
additional monthly charge or on a VoD or
pay-per-view
basis. Whether a programming service is on a basic or premium
tier, the programmer generally enters into separate affiliation
agreements, providing for terms of one or more years, with those
distributors that agree to carry the service. Basic programming
services generally derive their revenue from per-subscriber
license fees received from distributors and the sale of
advertising time on their networks or, in the case of shopping
channels, retail sales. Premium services generally do not sell
advertising and primarily generate their revenue from per
subscriber license fees. Programming providers generally have
two sources of content: (1) rights to productions that are
purchased from various independent producers and distributors,
and (2) original productions filmed for the programming
provider by internal personnel or third party contractors. We
operate our programming businesses in Europe principally through
our subsidiary Chellomedia; in Japan principally through our
affiliate Jupiter TV Co., Ltd. (Jupiter TV); in the Americas
principally through our subsidiary Pramer S.C.A. and a joint
venture interest in MGM Networks Latin America, LLC; and in
Australia principally through our joint venture interest in XYZ
Networks Pty Ltd. (XYZ Networks).
Operations
Europe
LG Europe
Our European operations are conducted through our wholly owned
subsidiary, LG Europe, which provides services in 10 countries
in Europe (excluding Belgium). LG Europes operations are
currently organized into two principal divisions: UPC Broadband
and Chellomedia. Through its UPC Broadband Division, LG Europe
provides video, broadband Internet access, telephony and mobile
services over its networks and operates the largest cable
network in each of Austria, Czech Republic, Hungary, Ireland,
Poland, Romania, Slovak Republic, Slovenia and Switzerland, in
each case in terms of number of video subscribers. LG
Europes broadband Internet access service is provided over
the UPC Broadband Division network infrastructure generally
under the brand name chello. Depending on the
capacity of the particular network, LG Europe may provide up to
nine tiers of broadband Internet access. For information
concerning the Chellomedia Division, see Chellomedia
and Other below.
Provided below is country-specific information with respect to
the broadband distribution services of our UPC Broadband
Division:
The
Netherlands
The subscribers in UPC Broadband Divisions operations in
The Netherlands, which we refer to as UPC Netherlands, are
located in six broad regional clusters, including the major
cities of Amsterdam and Rotterdam. Its cable networks are 97%
upgraded to two-way capability, and almost all of its cable
homes passed are served by a network with a bandwidth of at
least 860 MHz. Thirty-five percent of video cable households in
The Netherlands receive video cable service from UPC
Netherlands. For its analog customers, UPC Netherlands offers 25
to 40 video channels, depending on a customers
location, and 39 radio channels. The type of programming
available to analog customers varies between locations.
In October 2005, UPC Netherlands initiated a program to migrate
over time its analog video cable customers to digital video
service, which we refer to as the
digital-for-all
or D4A program. Ninety-one percent of UPC
Netherlands homes passed are capable of receiving digital
cable service. In the D4A program, UPC Netherlands provides the
customer with a digital interactive television box and, for a
promotional period following acceptance of the box, the digital
entry level service at no incremental charge to the customer
over the standard analog rate. In 2007, UPC Netherlands will
continue the D4A program; however, the promotional pricing
period will be reduced from six months to three months and a
more targeted approach to distributing the digital interactive
box to subscribers will be implemented. As a result, the pace of
the D4A program will be more gradual than when it was initially
implemented.
I-12
At the end of the promotional pricing period, the customer has
the option to discontinue the digital service or to pay an
additional amount, on top of the standard analog rate, to
continue the digital service. As of December 31, 2006, the
promotional pricing period had elapsed for over 50% of UPC
Netherlands digital video subscribers. Although we have
had 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. Due to the relatively short time frame that
these digital video subscribers have been retained beyond the
promotional pricing period, these results are not, however,
necessarily an accurate indication of future subscriber
retention rates.
The digital entry level service currently includes over 40 video
channels and over 70 radio channels, an electronic program
guide, interactive services and the functionality for NVoD
service. For an additional incremental monthly charge, the
digital subscriber may upgrade to a digital basic tier
subscription which includes all the channels and features of the
digital entry level service, plus an extra channel package of
approximately 50 general entertainment, sports, movies, music
and ethnic channels. Digital video customers may also subscribe
to premium channels, such as Film 1 and Sport 1
NL, alone or in combination, for additional monthly charges.
The NVoD service may be used for a separate fee for each movie
or event ordered. UPC Netherlands expects to make true VoD
services available to its digital video customers in 2007.
Currently, a customer also has the option to upgrade the digital
box to one with personal video recorder, or PVR,
functionality for an incremental monthly charge and UPC
Netherlands expects to make high definition, or HD,
boxes available in 2007. A minimum subscription period of one
year is required for customers upgrading to PVR or HD boxes or
subscribing to premium channels.
UPC Netherlands offers six tiers of chello branded broadband
Internet access service with download speeds ranging from 384
Kbps to 20 Mbps. Multi-feature telephony services are also
available from UPC Netherlands to 93% of its homes passed. At
December 31, 2006, 93% of two-way homes in UPC
Netherlands service area were VoIP ready for service. Of
UPC Netherlands customers (excluding mobile customers),
16% subscribe to two services (double-play customers) and 13%
subscribe to three services (triple-play customers) offered by
UPC Netherlands (video, broadband Internet and telephony).
UPC Netherlands offers a self-install option for its digital
cable services and its broadband Internet access services,
allowing subscribers to install the technology themselves and
save money on the installation fee. Almost all of its new
digital and broadband Internet subscribers have chosen to
self-install their new service.
UPC Netherlands offers mobile service to all consumers in The
Netherlands. The product is a pre-paid mobile offering. UPC
Netherlands is operating as a mobile virtual network operator
reselling leased network capacity. In addition, through Priority
Telecom BV (Priority Telecom), UPC Netherlands offers a range of
voice, broadband Internet access, private data networks and
customized network services to business customers primarily in
its core metropolitan networks.
Switzerland
UPC Broadband Divisions operations in Switzerland are
operated by Cablecom. Cablecom provides video cable service to
55% of Swiss cable television households. Its cable networks are
70% upgraded to two-way capability and 70% of its cable homes
passed are served by a network with a bandwidth of at least 606
MHz.
For 65% of its analog subscribers, Cablecom maintains billing
relationships with landlords or housing associations, which
typically provide analog cable service for an entire building
and do not terminate service each time there is a change of
tenant in the landlords or housing associations
premises. Seventy-four percent of Cablecoms homes passed
are capable of receiving digital cable service. Cablecom offers
its digital cable subscribers a digital entry package consisting
of 50 video channels and 30 radio channels and a range of
additional pay television programming in a variety of foreign
language program packages. The third television product is NVoD
services, which is available to all of Cablecoms digital
cable customers. In 2006, Cablecom introduced a digital
television recorder (DVR), enabling users to create a
personalized television experience. Cablecoms digital
cable service is sold directly to the end user as an add-on to
its analog cable services.
Cablecom offers nine tiers of broadband Internet access service
with download speeds ranging from 300 Kbps to six Mbps. In
January 2007, Cablecom launched a broadband Internet access
product with a download speed of 10
I-13
Mbps. In addition, Cablecom continues to offer
dial-up
Internet services on a limited basis. Of Cablecoms homes
passed, 70% are capable of receiving Cablecoms Internet
services.
Telephony services are available from Cablecom to 70% of its
homes passed. Cablecom was the first to offer a flat rate
telephone plan in Switzerland, known as Unlimited24.
In addition, Cablecom offers digital telephony services through
VoIP.
Cablecom offers advanced data services to the Swiss business
market. Cablecom provides broadband Internet access, multi-site
data connectivity, virtual private network, security, messaging
and hosting and other value added services to business customers
on a retail basis. The acquisition of Unified Business Solutions
in May 2005 provided Cablecom with a suite of converged voice
and data products and an established customer base.
Cablecom provides full or partial analog television signal
delivery services, network maintenance services and engineering
and construction services to its partner networks. Cablecom also
offers digital television, broadband Internet and fixed line
telephony service directly to the analog cable subscribers of
those partner networks that enter into service operating
contracts with Cablecom. Cablecom has the direct customer
billing relations with the subscribers who take these services
on the partner networks. By permitting Cablecom to offer some or
all of its digital television, broadband Internet and fixed line
telephony products directly to those partner network
subscribers, Cablecoms service operating contracts have
expanded the addressable markets for Cablecoms digital
products. In exchange for the right to provide digital products
directly to the partner network subscribers, Cablecom pays to
the partner network a share of the revenue generated from those
subscribers.
At the end of 2005, Cablecom launched a pre-paid mobile
telephony service, followed by the launch, at the beginning of
2006, of a post-paid offering. Therefore, Cablecom is the first
telecommunications provider in Switzerland to offer television,
Internet, fixed line telephony and mobile telephony
also known as quadruple-play from a
single provider. Of its customers (excluding mobile customers),
15% are double-play customers and 14% are triple-play customers.
Austria
UPC Broadband Divisions operations in Austria (excluding
the Austrian portion of Cablecoms network), which we refer
to as UPC Austria, are located in regional clusters encompassing
the capital city of Vienna, two other regional capitals and two
smaller cities. Each of the cities in which UPC Austria operates
owns, directly or indirectly, 5% of the local operating company
of UPC Austria. UPC Austrias cable network is almost
entirely upgraded to two-way capability and 97% of its cable
homes passed are served by a network with a bandwidth of at
least 860 MHz.
UPC Austria provides a single offering to its analog cable
subscribers that consists of 38 channels, mostly in the German
language. UPC Austrias digital platform offers more than
100 basic and premium television channels, plus NVoD,
interactive services, television-based
e-mail and
an electronic program guide. UPC Austrias premium content
includes first run movies and specific ethnic offerings,
including Serb and Turkish channels.
UPC Austria offers five tiers of chello branded broadband
Internet access service with download speeds ranging from 600
Kbps to 16 Mbps and a student package. UPC Austrias
broadband Internet access is available in all of the cities in
its operating area.
Multi-feature telephony services are available from UPC Austria
to 96% of its homes passed. UPC Austria offers basic dial tone
service as well as value-added services. UPC Austria also offers
a bundle of fixed line and mobile telephony in a co-branding
arrangement with the telephony operator One GmbH. In March 2006,
UPC Austria began offering its telephony services through VoIP.
Of UPC Austrias customers (excluding mobile customers),
32% are double-play customers and 11% are triple-play customers.
UPC Austria, through INODE and Priority Telecom, offers a range
of voice, data, lease line and asymmetric digital subscriber
lines, or ADSL, services to business customers
throughout Austria with a primary focus on cities, including
Vienna, Graz, Klagenfurt, Villach, St. Polten, Dombirn,
Leibnitz, Leoben, Salzburg, Linz and Insbruck.
I-14
Ireland
UPC Broadband Divisions operations in Ireland, which we
refer to as UPC Ireland, include the networks of NTL
Communications (Ireland) Limited, NTL Irish Networks Limited and
certain related assets (collectively, NTL Ireland) and the
networks of Chorus Communications Ltd (Chorus). UPC Ireland is
Irelands largest video cable service provider, based on
customers served. Its operations are located in five regional
clusters, including the cities of Dublin and Cork. UPC
Irelands cable network is 36% upgraded to two-way
capability, and 36% of its cable homes passed are served by a
network with a bandwidth of at least 550 MHz. UPC Ireland makes
digital services available to 79% of its homes passed, including
its MMDS customers. The UPC Ireland MMDS customers on the NTL
Ireland networks receive digital service and the UPC Ireland
MMDS customers on the Chorus networks can receive either analog
or digital services.
UPC Ireland offers an analog cable package with up to 24
channels and a digital cable package with up to
140 channels. For the MMDS customers on the NTL Ireland
networks, UPC Ireland offers a basic package of 19 digital
channels. For the MMDS customers on the Chorus networks, UPC
Ireland offers an analog cable package of up to 19 channels and
a digital cable package of up to 66 channels. The program
offerings for each type of service include domestic, foreign,
sport and premium movie channels. In addition, digital customers
can receive event channels such as seasonal sport and real life
entertainment events. UPC Ireland also distributes up to seven
Irish channels. To complement its digital offering, UPC Ireland
also offers its digital subscribers 16 channels of premium
service. In 2007, UPC Ireland plans to migrate to its digital
cable service those of its analog cable customers who subscribe
to premium services.
UPC Ireland offers four tiers of chello branded broadband
Internet access service with download speeds ranging from one
Mbps to six Mbps. UPC Ireland offers VoIP multi-feature
telephony services to 11% of its homes passed. It offers basic
dial tone service as well as value-added services. Of UPC
Irelands customers, 9% are double-play customers.
Hungary
The cable networks of UPC Broadband Divisions operations
in Hungary, which we refer to as UPC Hungary, are 93% upgraded
to two-way capability, and 61% of its cable homes passed are
served by a network with a bandwidth of at least 750 MHz. UPC
Hungary offers up to three tiers of analog cable programming
services (between six and 54 channels) and three premium
channels, depending on the technical capability of the network.
Seven percent of the video cable subscribers receive lifeline
service only. Programming consists of the national Hungarian
terrestrial broadcast channels and selected European satellite
and local programming that consist of proprietary and third
party channels.
UPC Hungary offers four tiers of chello branded broadband
Internet access service with download speeds ranging from 512
Kbps to 6 Mbps. UPC Hungary provides these broadband Internet
services to 193,300 subscribers in 22 cities, including
Budapest. It also had 15,700 ADSL subscribers at
December 31, 2006, on its twisted copper pair network
located in the southeast part of Pest County.
UPC Hungary offers traditional circuit switched telephony
services over a twisted copper pair network in the southeast
part of Pest County. UPC Hungary offers VoIP telephony services
over its cable network in Budapest. Of UPC Hungarys
customers, 12% are double-play customers and 5% are triple-play
customers.
Other
Central and Eastern Europe
UPC Broadband Division also operates networks in Czech Republic
(UPC Czech), Poland (UPC Poland), Romania (UPC Romania), Slovak
Republic (UPC Slovakia), and Slovenia (UPC Slovenia). In each of
these operations, over 50% of the cable networks are upgraded to
two-way capability, and over 50% of homes passed are served by a
network with a bandwidth of at least 860 MHz.
|
|
|
|
|
Czech Republic. UPC Czechs operations
include Karneval and are located in more than 100 cities and
towns in the Czech Republic, including Pilsen, Prague, Brno,
Ostrava and Northern Bohemia. UPC Czech offers two tiers of
analog cable programming services with up to 40 channels, and
two premium channels in the network operated by Karneval and
four premium channels in the rest of the UPC Czech network.
|
I-15
|
|
|
|
|
Karneval also offers its subscribers digital programming
services with 41 channels consisting of three core services and
nine tiers, including six premium services. Of Karnevals
video cable subscribers, 39% subscribe to the lifeline analog
service only and of the remaining UPC Czech video cable
subscribers, 54% subscribe to the lifeline analog service only.
UPC Czech (excluding Karneval) offers seven tiers of chello
branded broadband Internet access service with download speeds
ranging from 512 Kbps to 12 Mbps, and Karneval offers five tiers
of broadband Internet access with download speeds ranging from
one Mbps to seven Mbps. In September 2006, Karneval also
launched VoIP multi-feature telephony services. Of UPC
Czechs customers, 17% are double-play customers and 2% are
triple-play customers.
|
|
|
|
|
|
Poland. UPC Polands operations are
located in regional clusters encompassing eight of the 10
largest cities in Poland, including Warsaw and Katowice. UPC
Poland offers analog cable subscribers three packages of cable
television service. Its lowest tier, the broadcast package,
includes four to 12 channels and the intermediate package
includes 12 to 29 channels. Thirty-five percent of UPC
Polands video cable subscribers receive lifeline analog
cable service only. For the higher tier, the full package
includes the broadcast package, plus up to 63 additional
channels with such themes as sports, children,
science/educational, news, film and music. For an additional
monthly charge, UPC Poland offers two premium television
services, the HBO Poland package and Canal+ Multiplex, and a
Polish-language
premium package of three movie, sport and general entertainment
channels. UPC Poland offers five tiers of chello branded
broadband Internet access service in portions of its network
with download speeds ranging from 512 Kbps to 12 Mbps. UPC
Poland makes VoIP multi-feature telephony services available to
65% of its homes passed. UPC Poland offers basic dial tone
service as well as value-added services. Of UPC Polands
customers, 10% are double-play customers and 5% are triple-play
customers.
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Romania. UPC Romanias operations are
located in nine of the 12 largest cities in Romania, including
Bucharest, Timisoara, Cluj and Conotanta. UPC Romania offers
analog cable service with 32 to 44 channels in all of its
cities, which include Romanian terrestrial broadcast channels,
European satellite programming and regional local programming.
In the main cities, it also offers four extra basic packages of
five to 12 channels each and Premium Pay TV (HBO
Romania, Telesport and Adult). UPC Romania
offers three tiers of broadband Internet access service branded
UPC and Astral Online, with download speeds ranging from 512
Kbps to 1.5 Mbps, and has rolled out VoIP multi-feature
telephony services to 57% of its homes passed in the aggregate.
UPC Romania offers basic dial tone service as well as
value-added services. In addition, UPC Romania, through Astral
Telecom SA, offers a wide range of voice, leased line and
broadband data products to its large business customers and its
small office at home, or SOHO, customers. Of UPC
Romanias customers, 5% are double-play customers and 4%
are triple-play customers.
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Slovak Republic. UPC Slovakia offers analog
cable service in 30 cities and towns in the Slovak Republic,
including the four largest cities of Bratislava, Kosice, Banska
Bystrica and Zilina. UPC Slovakia offers two tiers of analog
cable service and three premium services. Its lower tier, the
lifeline package, includes four to eight channels. Almost 25% of
UPC Slovakias video cable subscribers subscribe to the
lifeline analog service only. UPC Slovakias most popular
tier, the basic package, includes 12 to 42 channels that
generally offer all Slovak Republic terrestrial, cable and local
channels, selected European satellite programming and other
third-party programming. For an additional monthly charge, UPC
Slovakia offers three premium services HBO Slovakia
package, the channel Private Gold and the UPC Komfort
package consisting of six thematic third-party channels. In
Bratislava, UPC Slovakia offers five tiers of chello branded
broadband Internet access service with download speeds ranging
from one Mbps to 10 Mbps. Of UPC Slovakias customers, 10%
are double-play customers.
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Slovenia. UPC Slovenia systems mainly serve
Ljubljana, the capital city. UPC Slovenias most popular
tier, the analog basic package, includes on average 60 video and
30 radio channels and generally offers all Slovenian
terrestrial, cable and local channels, selected European
satellite programming and other third-party programming. For an
additional monthly charge, UPC Slovenia offers one premium movie
service. UPC Slovenia offers six tiers of broadband Internet
access service with download speeds ranging from 128 Kbps
to 24 Mbps. Of UPC Slovenias customers, 21% are
double-play customers.
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UPC Direct. Our DTH satellite business, known
as UPC Direct, provides DTH services to customers in UPC Czech,
UPC Hungary and UPC Slovakia. Depending on location, subscribers
receive 40 to 45 channels at the entry level service. For an
additional monthly charge, a subscriber may upgrade to a basic
tier package, plus various premium package options for specialty
channels. UPC Direct provides DTH services to 19% of UPC
Czechs total video subscribers, 19% of UPC Hungarys
total video subscribers and 6% of UPC Slovakias total
video subscribers. Through another subsidiary, UPC Broadband
Division also provides DTH services to 4% of UPC Romanias
total video subscribers.
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Chellomedia
and Other
LG Europes Chellomedia Division provides interactive
digital products and services, produces and markets thematic
channels, operates a digital media center and manages our
investments in various businesses in Europe. Below is a
description of the operations of our Chellomedia Division:
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Interactive Services. Chellomedias
Interactive Services group develops and delivers Internet and
interactive television based entertainment and related
technology services. On the Internet, this group publishes web
portals for UPC Broadband Division and other broadband
subscribers in UPC Broadband Divisions territories. This
involves aggregating content, including video entertainment, and
commercializing these services through advertising and on
subscriptions or transactions. Interactive television services
are also closely integrated with UPC Broadband Divisions
digital television products and include the provision and
commercialization of entertainment oriented applications and
other services to programmers, advertisers and other parties.
Activities in interactive television include the aggregation and
publishing of interactive entertainment services on UPC
Broadband Divisions digital television products, the
delivery of interactive advertising capabilities and the
provision of software applications such as electronic program
guides.
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Programming. Chellomedias programming
operations include the following:
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Chellomedia On Demand (Transactional
Television). Chellomedia On Demand aggregates NVoD
entertainment content into transactional television offers for
UPC Broadband Division and other distributors throughout Europe.
The main product category for NVoD services is feature movies.
As of February 28, 2007, NVoD services are offered through
UPC Broadband Division in The Netherlands, Austria and
Switzerland and through non-affiliates in Norway and, until
March 31, 2007, in Sweden. Chellomedia On Demand is
developing VoD entertainment content for transactional
television to be offered later in 2007 to UPC Netherlands
customers. VoD services will include movies, international and
local drama, documentaries and childrens entertainment.
Global Thematics. Chellomedia produces and markets a
number of widely distributed multi-territory thematic channels.
These channels target the following genres: extreme sports and
lifestyles (Extreme), horror films (Horror), real
life stories (RealityTV), womens information and
entertainment (Club and Romantica), art house
basic movies (Europa Europa), science fiction and fantasy
(Fantasy), and prime time movies (Thriller). In
addition, Chellomedia has a channel representation business,
which represents both wholly owned and third party channels
across Europe.
Chellomedia Benelux. Chellomedia owns and manages a
premium sports channel (Sport 1 NL) and a premium movie
channel (Film 1) in The Netherlands. Sport 1 NL
has exclusive pay television rights for a variety of sports,
but it is primarily football oriented. These exclusive pay
television rights expire at various dates through 2009. For
Film 1, Chellomedia has exclusive pay television output
deals with key Hollywood studios that expire at various dates
through 2014.
The channels originate from Chellomedias digital media
center, or DMC, located in Amsterdam. The DMC is a
technologically advanced production facility that services UPC
Broadband Division and third-party clients with channel
origination, post-production and satellite and fiber
transmission. The DMC delivers high-quality, customized
programming by integrating different video elements, languages
(either in dubbed or
sub-titled
form) and special effects and then transmits the final product
to various customers in numerous countries through affiliated
and unaffiliated cable systems and DTH platforms.
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Chellomedia Iberia. Through its subsidiaries IPS
C.V. and Multicanal S.L. (collectively IPS), Chellomedia owns
and manages a suite of seven thematic channels carried on most
major pay television platforms in Spain and Portugal. IPS has
five wholly owned thematic channels (Canal Hollywood, Odisea,
Sol Musica, Canal Panda and Canal Cocina) and two
joint venture channels with A&E Television Networks
(Canal de Historia and The Biography Channel).
Chellomedia Central & Eastern
Europe. Chellomedia has a controlling 80% interest in a
joint venture with an unrelated third party that owns and
manages a sports channel (Sport 1 CEE). Sport 1 CEE
is distributed through UPC Direct to UPC Broadband
Divisions operations in Hungary, Czech Republic, Slovak
Republic and Romania and to other broadband operators. The
programming for Sport 1 CEE varies by country, but is
predominately football-oriented. In addition, Chellomedia owns
and operates Sport 2, a multiplex channel, which is
distributed in Hungary.
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Investments. Chellomedia is an investor in
equity ventures for the development of country-specific Pan
European programming, including The MGM Channel Central
Europe, Xtra Music, Fox Kids Poland,
Minimax (Central European childrens channel) and
Donatus (Dutch weather channel). Chellomedia also owns or
manages LG Europes minority interests in other European
businesses. These include a 50% interest in Melita Cable PLC,
the only cable television and broadband network in Malta; a 25%
interest in Telewizyjna Korporacja Partycypacyjna S.A., a DTH
platform in Poland; and our investment in Telenet described
below.
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Telenet Ownership. Telenet is the largest provider
of broadband cable services in Belgium in terms of the number of
subscribers. At December 31, 2006, we indirectly owned
29,092,474 or 28.8% of Telenets then outstanding ordinary
shares, including 10,134,118 shares that were held by our
indirect wholly owned subsidiaries, and 18,958,356 shares
that were held through Belgian Cable Investors. The shares held
by Belgian Cable Investors at December 31, 2006 include
6,750,000 shares that are held directly by Belgian Cable
Investors and 12,208,356 shares that are held by the
Investcos. The Investcos hold in the aggregate 12.1% of the
Telenet common stock, all of which is attributable to Belgian
Cable Investors.
Belgian Cable Holdings, a Delaware partnership and an indirect
wholly owned subsidiary of LGI Ventures, owns a majority common
equity interest and a 100% preferred interest in Belgian Cable
Investors. Belgian Cable Holdings provided 100% of the funding
for Belgian Cable Investors exercise of its call options
to acquire 6,750,000 Telenet shares on November 13, 2006,
as described above. In connection with this funding, the
interest in Belgian Cable Investors of Cable Partners Belgium
LLC (Cable Partners Belgium), an unrelated third party and a
minority investor in Belgian Cable Investors, was diluted
effective January 9, 2007, from 21.6% to 10.5%. As a
result, Belgian Cable Holdings holds 89.5% of the common equity
interests and 100% of the preferred interests in Belgian Cable
Investors.
Belgian Cable Investors also holds certain call options,
expiring in 2007 and 2009 (subject to earlier expiration in
certain circumstances), to acquire an additional
18,668,826 shares in Telenet from existing shareholders at
a price of 25.0 ($32.97) per share.
LGI Ventures also holds certain warrants that are exercisable at
a price of 13.33 ($17.58) per share for 412,869 Telenet
shares and the Investcos hold certain warrants that are
attributable to Belgian Cable Investors and are exercisable at
the same price per share for 79,251 Telenet shares. These
warrants expire on August 9, 2009.
Cable Partners Belgium has the right to require Belgian Cable
Holdings to purchase all of its 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. Belgian Cable Holdings has the
corresponding right to require Cable Partners Belgium to sell
all of its interest in Belgian Cable Investors to Belgian Cable
Holdings for the appraised fair value during the first
30 days of every six-month period beginning in December
2009.
Telenet Shareholder Agreements. The shareholders
agreement governing the Investcos contains both rights of first
refusal in favor of Belgian Cable Investors and rights of first
sale to which Belgian Cable Investors is subject in respect of a
total of 1,475,960 warrants held by or attributed to other
Investco shareholders that are convertible at a price of
13.33 ($17.58) per share into a total of 4,427,880 Telenet
ordinary shares.
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Under the agreement between the Telenet Syndicate shareholders
(the Syndicate Agreement) we have the right (which we could not
exercise until we obtained competition clearance from the
European Commission on February 26, 2007) to nominate
nine of the 17 members of the Telenet Board and the other
Telenet Syndicate shareholders are obligated to vote for such
nominees at the relevant Telenet shareholders meeting.
Under the Syndicate Agreement and the Telenet Articles of
Association, certain Telenet Board decisions must receive the
affirmative vote of varying majorities of the directors
nominated by the other Telenet Syndicate shareholders in order
to be effective. Based on the shareholdings of the other Telenet
Syndicate shareholders at December 31, 2006, these special
voting requirements currently apply only to certain
minority-protective decisions including affiliate transactions,
incurrence of debt in excess of that required to fund
Telenets business plan and dispositions of assets
representing more than 20% of Telenets fair market value.
Under the Syndicate Agreement, the subsidiaries through which we
hold our interests in Telenet have rights of first offer in
respect of market sales and offerings of Telenet shares by other
Telenet Syndicate shareholders, subject to certain limited
exceptions. All Telenet Syndicate shareholders, including the
Investcos and LGI Ventures, are subject to mutual rights of
first offer in respect of transfers to third parties of Telenet
shares that are not effected through market sales or through a
public or private offering and any transfer of certain warrants
that are convertible into Telenet shares upon exercise.
Telenet Operations. Telenet offers video cable,
broadband Internet and fixed and mobile telephony service in
Belgium, primarily to residential customers in the cities of
Flanders and Brussels. Telenet also offers a range of voice,
data and Internet services to business customers throughout
Belgium under the brand Telenet Solutions. As of
December 31, 2006, Telenet reported 2.8 million RGUs,
including 1.6 million cable television RGUs (including
226,000 interactive digital cable RGUs), 729,000 broadband
Internet RGUs and 455,000 telephony RGUs (excluding mobile). Of
Telenets subscribers, 21% are double-play customers and
15% are triple-play customers. UPC Belgium, which Telenet
acquired on December 31, 2006, has an additional 137,300
cable RGUs and 41,900 broadband Internet RGUs.
Asia/Pacific
We have operations in Japan and Australia. Our Japanese
operations are conducted primarily through Super Media and its
subsidiary J:COM, and through Jupiter TV. As of
December 31, 2006, we owned a 58.7% controlling interest in
Super Media, Super Media owned a 62.5% controlling ownership
interest in J:COM, and we owned a 50% ownership interest in our
affiliate Jupiter TV. Our Australia operations are conducted
primarily through Austar in which we owned a 53.4% controlling
ownership interest at December 31, 2006.
Jupiter
Telecommunications Co., Ltd.
J:COM is a leading broadband provider of bundled entertainment,
data and communication services in Japan. As of
December 31, 2006, J:COM is the largest multiple-system
operator, or MSO, in Japan, as measured by the total
number of homes passed and customers. J:COM operates its
broadband networks through 24 managed local cable companies,
which J:COM refers to as its managed franchises, 23 of which
were consolidated subsidiaries as of December 31, 2006.
J:COM owns a 45% equity interest in its one unconsolidated
managed franchise. As described below, J:COMs services
include video, broadband Internet and telephony. Of its
customers (excluding mobile customers), approximately 28% are
double-play customers and approximately 22% are triple-play
customers.
Twenty-three of J:COMs managed franchises are clustered
around three metropolitan areas of Japan, consisting of the
Kanto region (which includes Tokyo), the Kansai region (which
includes Osaka and Kobe) and the Kyushu region (which includes
Fukuoka and Kita-Kyushu). In addition, J:COM owns and manages a
local franchise in the Sapporo area of Japan that is not part of
a cluster.
Each managed franchise consists of headend facilities receiving
television programming from satellites, traditional terrestrial
television broadcasters and other sources, and a distribution
network composed of a
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combination of fiber-optic and coaxial cable, which transmits
signals between the headend facility and the customer locations.
Almost all of J:COMs cable networks are upgraded to
two-way capability, with all of its cable homes passed served by
a system with a bandwidth of 750 or 770 MHz. J:COM provides its
managed franchises with experienced personnel, operating and
administrative services, sales and marketing, training,
programming and equipment procurement assistance and other
management services. J:COMs managed franchises use
J:COMs centralized customer management system to support
sales, customer and technical services, customer call centers
and billing and collection services.
J:COM offers analog and digital cable services in all of its
managed franchises. J:COM analog television service consists of
approximately 46 channels of cable programming and analog
terrestrial broadcasting and broadcast satellite channels, not
including premium services. A typical channel
line-up
includes popular channels in the Japanese market such as
Movie Plus, a top foreign movie channel, the Jupiter
Shop Channel, a home-shopping network, J Sports 1, J
Sports 2 and Sports ESPN, three popular sports channels, the
Discovery Channel, the Golf Network, the Disney
Channel and Animal Planet, in addition to
retransmission of analog terrestrial and satellite television
broadcasts. At December 31, 2006, J:COMs digital
television service includes approximately 62 channels of
cable programming, digital terrestrial broadcasting, and
broadcast satellite channels, not including audio and data
channels and premium services. The channel
line-up for
the digital service includes 18 HD channels. J:COM provides its
digital cable subscribers VoD and,
pay-per-view
functionality, allowing those subscribers, generally for an
additional fee, to receive programming that is not available to
J:COMs analog cable subscribers. In April 2006, J:COM
introduced to its digital television customers a digital video
recording service, which utilizes digital set top boxes equipped
with an internal hard disk drive capable of recording up to 20
hours of digital HD programming and ability to record two
programs in competing time slots. J:COM also offers both its
analog and digital subscribers optional subscriptions for an
additional fee to premium channels, including movies, sports,
horseracing and other special entertainment programming, either
individually or in packages. J:COM offers package discounts to
customers who subscribe to bundles of J:COM services. In
addition to the services offered to its cable television
subscribers, J:COM also provides terrestrial broadcast
retransmission services to more than four million additional
households in its consolidated franchise areas as of
December 31, 2006, including compensation
households for which J:COM receives up-front fees pursuant to
long-term contracts to provide such retransmission services.
J:COM offers broadband Internet access in all of its managed
franchises through its wholly owned subsidiary, @NetHome Co.,
Ltd, and its subsidiary, Kansai Multimedia Services (KMS). These
broadband Internet access services offer downstream speeds of
mainly either 30 Mbps or 8 Mbps. At December 31, 2006,
J:COM held a 76.5% interest in KMS, which provides broadband
Internet access in the Kansai region of Japan. J:COM offers the
J:COM NET Hikari service for multiple dwelling units connected
to J:COMs network by optical fiber cables. J:COM NET
Hikari offers downstream speeds of up to 100 Mbps. In January
2007, J:COM announced plans to launch a very high-speed
broadband Internet service for single dwelling units, individual
homes and smaller apartment buildings. The new service, which is
scheduled to launch in April 2007 in the Kansai area, will
deliver downstream speeds of up to 160 Mbs and upstream speeds
of 10 Mbs.
J:COM offers telephony services over its own network in all of
its consolidated franchise areas. J:COMs headend
facilities contain equipment that routes calls from the local
network to telephony switches (a majority of which J:COM owns),
which in turn transmit voice signals and other information over
the network. J:COM also utilizes VoIP technology in certain
franchise areas. J:COM provides a single line to the majority of
its telephony customers, most of whom are residential customers.
J:COM charges its telephony subscribers a fee for basic
telephony service (together with charges for calls made) and
offers additional premium services, including call-waiting,
call-forwarding, caller identification and three-way calling,
for a fee. In partnership with WILLCOM, Inc, a personal
handphone system service provider in Japan, in March 2006 J:COM
began offering a mobile phone service called J:COM MOBILE. J:COM
MOBILE customers receive discounted phone service when bundled
with J:COMs other telephone service, including free and
discounted calling plans.
In addition to its 24 managed franchises, J:COM owns
non-controlling equity interests of 5.5% and 20% in two cable
franchises that are operated and managed by third-party
franchise operators.
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J:COM sources its programming through multiple suppliers,
including Jupiter TV. J:COMs relationship with Jupiter TV
enables the two companies to work together to identify and bring
key programming genres to the Japanese market and to expedite
the development of quality programming services. J:COM and
Jupiter TV each owns a 50% interest in Jupiter VoD Co., Ltd., a
joint venture formed in 2004 to obtain VoD programming content
to offer VoD services to J:COM franchises. J:COM now offers VoD
services to its digital customers in a majority of its
franchises. Because J:COM is usually a programmers largest
cable customer in Japan, J:COM is generally able to negotiate
favorable terms with its programmers.
Our interest in J:COM is held through Super Media, an entity
that is owned 58.7% by us and 41.3% by Sumitomo Corporation
(Sumitomo). Pursuant to the operating agreement of Super Media,
our and Sumitomos entire interest in J:COM is now held
through Super Media. Sumitomo and we are generally required to
contribute to Super Media any additional shares of J:COM that
either of us acquires and to permit the other party to
participate in any additional acquisition of J:COM shares during
the term of Super Media.
Our interest in Super Media is held through five separate
corporations, four of which are wholly owned. Four individuals,
including one of our executive officers, an officer of one of
our subsidiaries and one of LMIs former directors, own
common stock representing an aggregate of 18.8% of the common
equity in the fifth corporation, which owns a 4.3% indirect
interest in J:COM.
Super Media is managed by a management committee consisting of
two members, one appointed by us and one appointed by Sumitomo.
The management committee member appointed by us has a casting or
tie-breaking vote with respect to any management committee
decision that we and Sumitomo are unable to agree on, which
casting vote will remain in effect for the term of Super Media.
Certain decisions with respect to Super Media require the
consent of both members rather than the management committee.
These include a decision to engage in any business other than
holding J:COM shares, sell J:COM shares, issue additional units
in Super Media, make in-kind distributions or dissolve Super
Media, in each case other than as contemplated by the Super
Media operating agreement. While Super Media effectively has the
ability to elect J:COMs entire board, pursuant to the
Super Media operating agreement, Super Media is required to vote
its J:COM shares in favor of the election to J:COMs board
of three non-executive directors designated by Sumitomo and
three non-executive directors designated by us.
Because of our casting vote, we indirectly control J:COM through
our control of Super Media, which owns a controlling interest in
J:COM, and therefore consolidate J:COMs results of
operations for financial reporting purposes. Super Media will be
dissolved five years after our casting vote became effective on
February 18, 2005, unless Sumitomo and we mutually agree to
extend the term. Super Media may also be dissolved earlier under
certain circumstances.
Jupiter
TV Co., Ltd.
Jupiter TV, an equity affiliate, is a joint venture between
Sumitomo and us that primarily develops, manages and distributes
pay television services in Japan on a platform-neutral basis
through various distribution infrastructures, principally cable
and DTH service providers, and more recently, alternative
broadband service providers using
fiber-to-the-home
or FTTH, and ADSL platforms. As of December 31,
2006, Jupiter TV owned four channels through wholly or majority
owned subsidiaries and had investments ranging from 10% to 50%
in 14 additional channels. Jupiter TVs majority owned
channels are a home shopping network (Jupiter Shop Channel,
in which Jupiter TV has a 70% interest and Home Shopping
Network has a 30% interest), a movie channel (Movie
Plus), a golf channel (Jupiter Golf Network), and a
womens entertainment channel (LaLa TV). Channels in
which Jupiter TV holds investments include four sports channels
owned by J Sports Broadcasting Corporation (J Sports
Broadcasting), which is a 34% owned joint venture with Sony
Broadcast Media Co. Ltd. (Sony), Fuji Television Network, Inc.,
SOFTBANK Broadmedia Corporation, Skyperfect Communications Inc.
and Itochu Corporation; Animal Planet Japan, a one-third
owned joint venture with Discovery Networks and BBC Worldwide;
Discovery Channel Japan and Discovery HD through a
50% owned joint venture with Discovery Networks; AXN Japan,
a 35% owned joint venture with Sony; and Reality TV
Japan, a 50% owned joint venture with Zonemedia Enterprises
Ltd., an indirect subsidiary of Chellomedia. Jupiter TV provides
affiliate sales services and in some cases advertising sales and
other services to channels in which it has an investment for a
fee.
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The market for multi-channel television services in Japan is
highly complex with multiple cable systems, DTH satellite
platforms and alternative broadband service providers. Cable
systems in Japan served 19.3 million homes at
December 31, 2006. A large percentage of these homes,
however, are served by systems (referred to as compensation
systems) whose service principally consists of retransmitting
free television services to homes whose reception of such
broadcast signals has been blocked. Higher capacity systems and
larger cable systems that offer a full complement of cable and
broadcast channels, of which J:COM is the largest in terms of
subscribers, served 6.2 million households as of
December 31, 2006. The majority of channels in which
Jupiter TV holds an interest are marketed as basic television
services to cable system operators, with distribution at
December 31, 2006, ranging from 16.9 million homes for
Jupiter Shop Channel (which is carried in many
compensation systems as well as in multi-channel cable systems)
to 870,000 homes for more recently launched channels, such as
Discovery HD.
Each of the channels in which Jupiter TV has an interest, except
for Discovery HD, is also offered on SkyPerfecTV1, a
digital satellite platform that delivers approximately 160
linear video channels (24 hours a day) a la carte and in an
array of basic and premium packages, from two satellites
operated by JSAT Corporation (JSAT). Each of the channels,
except for Reality TV Japan and Discovery HD, is
also offered on SkyPerfecTV2, another satellite platform in
Japan, which delivers approximately 65 linear channels (24 hours
a day). Under Japans complex regulatory scheme for
satellite broadcasting, a person engaged in the business of
broadcasting programming must obtain a broadcast license that is
perpetual, although subject to revocation by the relevant
governmental agency, and then lease from a satellite operator
the bandwidth capacity on satellites necessary to transmit the
programming to cable and other distributors and DTH subscribers.
In the case of distribution of Jupiter TVs 33% or greater
owned channels on SkyPerfecTV1, these licenses and satellite
capacity leases are held through its subsidiaries, Jupiter
Satellite Broadcasting Corporation (JSBC) and JSBC2, except for
AXN Japan and the J Sports Broadcasting channels which
hold their own licenses. The broadcast licenses and satellite
capacity leases for those of Jupiter TVs 33% or greater
owned channels that are delivered by SkyPerfecTV2 are held by
four other companies that are majority owned by unaffiliated
entities. JSBCs leases with JSAT for bandwidth capacity on
JSATs two satellites expire in March 2007 when JSAT will
convert to annual leases with service fees based on fixed rates
for all JSBCs channels. JSBC2s lease with JSAT
expires in May 2008. The leases for bandwidth capacity with
respect to the SkyPerfecTV2 platform expire between 2012 and
2014. JSBC, JSBC2 and other licensed broadcasters then contract
with the platform operator, such as SkyPerfecTV, for customer
management and marketing services (sales and marketing, billing
and collection) and for encoding services (compression, encoding
and multiplexing of signals for transmission) on behalf of the
licensed channels. The majority of channels in which Jupiter TV
holds an interest are marketed as basic television services to
DTH subscribers, with distribution at December 31, 2006
ranging from 3.5 million homes for Jupiter Shop Channel
(which is carried as a free service to all DTH subscribers)
to 416,000 homes for Jupiter Golf Network, which is a
premium channel on one of the SkyPerfecTV platforms.
Distribution of multi-channel television services in Japan,
through alternative broadband platforms, such as FTTH and ADSL,
is not yet widespread. The majority of channels in which Jupiter
TV holds an interest are marketed as basic television services
to alternative broadband subscribers, with distribution at
December 31, 2006, ranging from 166,000 homes for
Jupiter Shop Channel (which is carried as a free service
to broadband television subscribers) to under 100,000 homes for
most other channels.
Jupiter TV operates Jupiter VoD, a 50% owned joint venture with
J:COM, which has access to 922,000 VoD-enabled digital cable
subscribers at December 31, 2006. Jupiter TV also operates
Online TV, a 55% owned joint venture with SECOM Co. Ltd.,
Tohokushinsha Film Corporation and Nikkei Shinbun. Online TV is
a content aggregation platform for broadband television services
supplying channels, including the majority of channels in which
Jupiter TV holds an interest, to several broadband Internet
service providers.
Eighty-eight percent of Jupiter TVs 2006 consolidated
revenue was attributable to retail revenue generated by the
Jupiter Shop Channel. Cable operators are paid
distribution fees to carry the Jupiter Shop Channel,
which are either fixed rate per subscriber fees or the
greater of fixed rate per subscriber fees and a percentage of
revenue generated through sales to the cable operators
viewers. SkyPerfecTV is paid a fixed rate per subscriber
distribution fee to provide the Jupiter Shop Channel to
its DTH subscribers. Alternative broadband platforms are also
paid a fixed rate fee per subscriber that is able to view
Jupiter Shop Channel through their platform. After
Jupiter Shop Channel, J Sports Broadcastings four
sports channels generate the most revenue of the channels in
which Jupiter
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TV has an interest. The majority of this revenue is derived from
cable and satellite subscriptions. As of year-end 2006,
advertising sales are not a significant component of Jupiter
TVs revenue.
Sumitomo and we each own a 50% interest in Jupiter TV. Pursuant
to a stockholders agreement we entered into with Jupiter TV and
Sumitomo, Sumitomo and we each have preemptive rights to
maintain our respective equity interests in Jupiter TV, and
Sumitomo and we each appoint an equal number of directors
provided we maintain our equal ownership interests. No board
action may be taken with respect to certain material matters
without the unanimous approval of the directors appointed by us
and Sumitomo, provided that Sumitomo and we each own 30% of
Jupiter TVs equity at the time of any such action.
Sumitomo and we each hold a right of first refusal with respect
to the others interests in Jupiter TV, and Sumitomo and we
have each agreed to provide Jupiter TV with a right of first
opportunity with respect to the acquisition of more than a 10%
equity position in, or the management of or any similar
participation in, any programming business or service in Japan
and any other country to which Jupiter TV distributes its
signals, in each case subject to specified limitations.
Japan
Other
We also own an interest in Mediatti Communications, Inc.
(Mediatti). Mediatti is a provider of cable television and
broadband Internet access services in Japan with approximately
157,000 video customers and 90,000 broadband Internet customers.
Our interest in Mediatti is held through Liberty Japan MC, LLC
(Liberty Japan MC), a company of which, as of December 31,
2006, we owned 95.2% and Sumitomo owned 4.8%. At
December 31, 2006, Liberty Japan MC owned a 45.6% voting
interest in Mediatti.
Liberty Japan MC and certain affiliates of Olympus Capital
(Olympus) and two minority shareholders of Mediatti have entered
into a shareholders agreement pursuant to which Liberty Japan MC
has the right to nominate three of Mediattis seven
directors and which requires that significant actions by
Mediatti be approved by at least one director nominated by
Liberty Japan MC.
The Mediatti shareholders who are party to the shareholders
agreement have granted to each other party whose ownership
interest is greater than 10% a right of first refusal with
respect to transfers of their respective interests in Mediatti.
Each shareholder also has tag-along rights with respect to such
transfers. 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 market 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 market 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 market value. If neither the
Olympus put right nor the Liberty Japan MC call right is
exercised during the first exercise period, either may
thereafter exercise its put or call right, as applicable, until
October 2010.
Australia
As of December 31, 2006, we owned a 53.4% controlling
interest in Austar. Austar is Australias leading pay
television service provider to regional and rural Australia and
the capital cities of Hobart and Darwin. Austar also provides
broadband Internet access and mobile telephony services to
subscribers in these markets. Additionally, Austar has begun the
development of a personal digital recorder, or PDR,
to be offered to subscribers in 2007.
Austars pay television services are primarily provided
through DTH satellite. FOXTEL Management Pty Ltd. (FOXTEL), the
other main provider of pay television services in Australia, has
leased space on an Optus C1 satellite. Austar and FOXTEL have
entered into an agreement pursuant to which Austar is able to
use a portion of FOXTELs leased satellite space to provide
its DTH services. This agreement will expire in 2017. FOXTEL
manages the satellite platform on Austars behalf as part
of such agreement.
Austars DTH service is available to 2.4 million
households, which is approximately one-third of Australian
homes. Of Austars homes passed, 24% subscribe to
Austars DTH service. Austars territory covers all of
Tasmania and the Northern Territory and the regional areas
outside of the capital cities in South Australia, Victoria, New
South Wales and Queensland. Austar does not provide DTH service
to Western Australia. FOXTELs service area is concentrated
in metropolitan areas and covers the balance of the other two
thirds of Australian homes. FOXTEL
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and Austar do not compete with each other with the exception of
the Gold Coast area in Queensland. Austar also operates a small
digital cable network in Darwin.
Austars DTH service offers over 120 premier channels, NVoD
and interactive services. Austars channel offerings
include movies, sport, lifestyle programs, childrens
programs, documentaries, drama and news. The NVoD service is
comprised of 30 channels, dedicated to recently released movies.
The interactive services include Sports Active,
Weather Active and SKY News Active, three games
services and more than 20 digital radio channels. For the base
level service a subscriber receives 33 channels. In addition to
residential subscribers, Austar also provides its television
services to commercial premises including hotel, retail and
licensed venues.
Austar owns a 50% interest in XYZ Networks. XYZ Networks is the
exclusive owner and/or distributor of 11 key programming
channels: Discovery Channel, Nickelodeon, Nick
Jr., arena, The LifeStyle Channel,
LifeStyle Food, Channel [v], Club [v],
MAX, CMC and The Weather Channel. These
channels are distributed throughout Australia. Austars
partner in XYZ Networks is FOXTEL. Through XYZ Networks and
other agreements, Austar has a number of long-term key exclusive
programming agreements for its regional territory.
Austar offers a
dial-up
Internet service, which is outsourced and available throughout
Australia. In addition, Austar offers mobile telephony services
through reseller agreements.
Austar owns significant holdings of 2.3 GHz and 3.5 GHz spectrum
throughout its regional territory. This spectrum is ideally
suited for new Worldwide Interoperability for Microwave Access
(WiMAX) based telecommunications services. In 2006, Austar
launched WiMAX in two trial markets for broadband Internet
services.
In addition to our interests in Austar, we own a 20% equity
interest in Premium Movie Partnership (PMP), which supplies
three premium movie-programming channels to both Austar and
FOXTEL. PMPs partners include Showtime, Twentieth Century
Fox, Sony Pictures, Paramount Pictures and Universal Studios.
The
Americas
Our operations in the Americas are conducted primarily through
our 80% owned subsidiary VTR in Chile and our wholly owned
subsidiary Liberty Puerto Rico. We also have subsidiaries that
are broadband providers operating in Brazil and Peru, as well as
a joint venture interest in MGM Networks Latin America and a
subsidiary in Argentina, both of which offer programming content
to the Latin America market. Our partner in VTR,
Cristalerías de Chile S.A. (Cristalerías), has a put
right which will allow Cristalerías to require us to
purchase all, but not less than all, of its 20% interest in VTR
at fair value, subject to a minimum price. This put right is
exercisable until April 13, 2015.
VTR
Our primary Latin American operation, VTR, is Chiles
largest multi-channel television provider in terms of homes
passed and number of subscribers, and is a leading broadband
Internet access provider, and Chiles second largest
provider of residential telephony services in terms of lines in
service. VTR provides services in Santiago, Chiles largest
city, the large regional cities of Iquique, Antofagasta,
Concepción, Viña del Mar, Valparaiso and Rancagua, and
smaller cities across Chile. Of VTRs customers, 15% are
double-play customers and 32% are triple-play customers.
All of VTRs video subscribers are served by wireline
cable, with the vast majority reached through aerial plant.
VTRs cable network is 64% upgraded to two-way capability
and 79% of cable homes passed are served by a network with a
bandwidth of at least 750 MHz. VTR has an approximate 80% market
share of cable television services throughout Chile and an
approximate 98% market share within Santiago. VTRs channel
lineup consists of 22 to 83 channels segregated into two tiers
of analog cable service: a basic service with 22 to 68 channels
and a premium service with an additional three to 15 channels.
VTR offers basic tier programming similar to the basic tier
program lineup in the United States, but includes more premium
channels such as HBO, Cinemax and Cinecanal
on the basic tier. As a result, subscription to its existing
premium service package is limited because its basic analog
package contains similar channels. VTR obtains programming from
the United States, Europe, Argentina and Mexico. Domestic cable
television programming in Chile is only just beginning to
develop around local events such as soccer matches. VTR also
offers a digital platform as a premium service with programming
options of 42 video
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channels, 40 music channels, 10
pay-per-view
channels and VoD. Almost 58% of VTRs homes passed are
capable of receiving digital cable service, most of which are
located in the greater Santiago area.
VTR offers several alternatives of always on, unlimited-use
broadband Internet access to residences and SOHO offices under
the brand name Banda Ancha in 25 communities within Santiago and
18 cities outside Santiago. Subscribers can purchase one of six
services with download speeds ranging from 100 Kbps to 10 Mbps.
For a moderate to heavy Internet user, VTRs broadband
Internet service is generally less expensive than a
dial-up
service with its metered usage.
VTR offers telephony service over its cable network to customers
in 25 communities within Santiago and 18 cities outside Santiago
via either switched circuits or VoIP, depending on location. VTR
offers basic dial tone service as well as several value-added
services. VTR primarily provides service to residential
customers who require one or two telephony lines. It also
provides service to SOHO customers. VTR offers telephony
services through VoIP to its two-way homes passed. Almost 30% of
VTRs telephony subscribers are served using VoIP
technology.
In December 2005, the Subsecretaria de Telecomunicaciones de
Chile awarded VTR regional concessions for wireless service in
the frequency band of
3400-3600
MHz. Using this spectrum, VTR plans to offer broadband telephony
and data services through WiMax technology. WiMax is a wireless
alternative to cable and DSL for the last mile of broadband
access. VTR anticipates WiMax will allow it to expand its
service area by 1.3 million homes and increase the number
of two-way homes passed by 540,000 on a more cost-effective
basis than if it had to install cable, thereby allowing VTR to
meet its regulatory requirements for two-way homes passed by the
end of 2007.
VTR is subject to certain regulatory conditions as a result of
the combination with Metrópolis Intercom S.A. in April
2005. The most significant conditions require that the combined
entity (i) re-sell broadband capacity to third party
Internet service providers on a wholesale basis;
(ii) activate two-way service to two million homes passed
within five years from the consummation date of the combination;
and (iii) for three years after the consummation date of
the combination, limit basic tier price increases to the rate of
inflation, plus a programming cost escalator. Another condition
expressly prohibits us, as the controlling shareholder of VTR,
from owning an interest, directly or indirectly through related
parties, in any business that provides microwave or satellite
television services in Chile. The DirecTV Group, Inc. (DirecTV)
owns a satellite television distribution service that operates
in Chile and elsewhere in the Americas. On December 12,
2006, Liberty Media announced publicly that it had agreed to
acquire an approximate 39% interest in DirecTV. VTR and we have
received written inquiries from Chilean regulatory authorities
seeking to determine whether Liberty Medias acquisition of
the DirecTV interest would violate or otherwise conflict with
the regulatory condition prohibiting us from owning an interest
in Chilean satellite or microwave television businesses.
Regulatory
Matters
Overview
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
or EU. 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.
Foreign regulations affecting distribution and programming
businesses fall into several general categories. Our businesses
are generally required to obtain licenses, permits or other
governmental authorizations from, or to notify or register with,
relevant local or national regulatory authorities to own and
operate their respective distribution systems and to offer
services across them. In most countries, these licenses and
registrations are non-exclusive and, in some circumstances, they
may be of limited duration. In most countries where we provide
video services, we must comply with restrictions on, or
requirements to carry, programming content. Local or national
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regulatory authorities in some countries where we provide video
services also impose pricing restrictions and subject certain
price increases to prior approval or subsequent control by the
relevant local or national authority.
Europe
Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark,
Estonia, Finland, France, Germany, Greece, Hungary, Ireland,
Italy, Latvia, Lithuania, Luxembourg, Malta, The Netherlands,
Poland, Portugal, Romania, Slovak Republic, Slovenia, Spain,
Sweden and the United Kingdom are Member States of the EU. As
such, these countries are required to enact national legislation
that implements EU directives. As a result, most of the markets
in Europe in which our businesses operate have been
significantly affected by the regulatory framework that has been
developed by the EU. The exception to this is Switzerland, which
is not an EU Member State and is currently not seeking any such
membership. Regulation in Switzerland is discussed separately
below.
Communications
Services and Competition Directives
A number of legal measures, which we refer to as the Directives,
are the basis of the regulatory regime concerning communications
services across the EU. They include the following:
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Directive for a New Regulatory Framework for Electronic
Communications Networks and Services (referred to as the
Framework Directive);
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Directive on the Authorization of Electronic Communications
Networks and Services (referred to as the Authorization
Directive);
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Directive on Access to and Interconnection of Electronic
Communications Networks and Services (referred to as the Access
Directive);
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Directive on Universal Service and Users Rights relating
to Electronic Networks and Services (referred to as the
Universal Service and Users Rights Directive);
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Directive on Privacy and Electronic Communications (referred to
as the Privacy Directive); and
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Directive on Competition in the Markets for Electronic
Communications and Services (referred to as the Competition
Directive).
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In addition to the Directives, the European Parliament and
European Council made a decision intended to ensure the
efficient use of radio spectrum within the EU. Existing EU
member countries were required to implement the Framework,
Authorization, Access and the Universal Service and Users
Rights Directives by July 25, 2003. The Privacy Directive
was to have been implemented by October 31, 2003. The
Competition Directive is self-implementing and does not require
any national measures to be adopted. The 12 countries that
joined the EU since the date of the Directives should be in
compliance with the Directives as of the date of their
accession. Measures seeking to implement the Directives are in
force in most Member States.
The Directives seek, among other things, to harmonize national
regulations and licensing systems and further increase market
competition. These policies seek to harmonize licensing
procedures, reduce administrative fees, ease access and
interconnection, and reduce the regulatory burden on
telecommunications companies. Another important objective of the
new Directives is to implement one new regime for the
development of communications networks and communications
services, including the delivery of video services, irrespective
of the technology used.
Many of the obligations included within the Directives apply
only to operators or service providers with Significant
Market Power (SMP) in a relevant market. For example, the
provisions of the Access Directive allow Member States to
mandate certain access obligations only for those operators and
service providers that are deemed to have SMP. For purposes of
the Directives, an operator or service provider will be deemed
to have SMP where, either individually or jointly with others,
it enjoys a position of significant economic strength affording
it the power to behave to an appreciable extent independently of
competitors, customers and consumers.
As part of the implementation of certain of the Directives, the
National Regulatory Authority or NRA is obliged to
analyze 18 markets predefined by the European Commission (EU
Commission) to determine if any
I-26
operator or service provider has SMP. Such markets are referred
to as the 18 predefined markets. We have been found to have SMP
in some markets in some countries and further such findings are
possible. In particular, in those markets where we offer
telephony services, we have been found to have SMP in the
termination of calls on our own network. In addition, in some
countries we have been found to have SMP in the wholesale
distribution of television channels. NRAs might also seek to
define us as having SMP in another of the 18 predefined markets
or define and analyze additional markets, such as the retail
market for the reception of radio and television packages. In
the event that we are found to have SMP in any particular
market, a NRA could impose certain conditions on us to prevent
abusive behavior by us.
Under the Directives, the EU Commission has the power to veto
the assessment by a NRA of SMP in any market not set out in
their predefined list as well as any finding by a NRA of SMP in
any market whether or not it is set out in the list.
Certain key elements introduced by the Directives are set forth
below, followed by a discussion of certain other regulatory
matters and a description of regulation for three countries
where we have large operations. This description in not intended
to be a comprehensive description of all regulation in this area.
Licensing. Individual licenses for electronic
communications services are not required for the operation of an
electronic communications network or the offering of electronic
communications services. A simple registration is required in
these cases. Member States are limited in the obligations that
they may place on someone who has so registered; the only
obligations that may be imposed are specifically set out in the
Authorizations Directive.
Access Issues. The Access Directive sets forth
the general framework for interconnection of, and third party
access to, networks, including cable networks. Public
telecommunications network operators are required to negotiate
interconnection agreements on a non-discriminatory basis with
each other. In addition, some specific obligations are provided
for in this Directive such as an obligation to distribute
wide-screen television broadcasts in that format and certain
requirements to provide access to conditional access systems.
Other access obligations can be imposed on operators identified
as having SMP in a particular market. These obligations are
based on the outcomes that would occur under general competition
law.
Must Carry Requirements. In most
countries where we provide video and radio services, we are
required to transmit to subscribers certain must
carry channels, which generally include public national
and local channels. In some European countries, we may be
obligated to transmit quite a large number of channels by virtue
of these requirements. Until recently, there was no meaningful
oversight of this issue at the EU level. This changed when the
Directives came into effect. Member States are only permitted to
impose must carry obligations where they are necessary to meet
clearly defined general interest objectives and where they are
proportionate and transparent. Any such obligations must be
subject to periodic review. It is not clear what effect this new
rule is having in practice but we expect it to lead to a
reduction of the size of must-carry packages in some countries.
Consumer Protection Issues and Pricing
Restrictions. Under the Directives, we may face
various consumer protection restrictions if we are in a dominant
position in a particular market. However, before the
implementation of the Directives, local or national regulatory
authorities in many European countries where we provide video
services already imposed pricing restrictions. This is often a
contractual provision rather than a regulatory requirement.
Often, the relevant local or national authority must approve
basic tier price increases. In certain countries, price
increases will only be approved if the increase is justified by
an increase in costs associated with providing the service or if
the increase is less than or equal to the increase in the
consumer price index, or CPI. Even in countries
where rates are not regulated, subscriber fees may be challenged
if they are deemed to constitute anti-competitive practices.
Other. Our European operating companies must
comply with both specific and general legislation concerning
data protection, data retention, content provider liability and
electronic commerce. These issues are broadly harmonized or
being considered for harmonization at the EU level. For example,
the EU recently agreed to a new Directive on data retention,
which will likely increase the amount of data we must store for
law enforcement purposes and the length of time we must store it.
In late 2005, the EU Commission announced a call for input on a
review of the regulatory framework described above. In 2006, the
EU Commission invited comments on the future of the 18
predefined markets. This review has
I-27
progressed through 2006 and, during 2007, is expected to lead to
proposals for new legislation and a change to the list of the 18
predefined markets. Any such processes could lead to material
changes in the regime described above.
Broadcasting. Broadcasting is an area outside
the scope of the Directives. Generally, broadcasts originating
in and intended for reception within a country must respect the
laws of that country. However, pursuant to another Directive, EU
Member States are required to allow broadcast signals of
broadcasters in another EU Member State to be freely transmitted
within their territory so long as the broadcaster complies with
the law of the originating EU Member State. An international
convention extends this right beyond the EUs borders into
the majority of the European territories into which we sell our
channels. This EU directive also establishes quotas for the
transmission of European-produced programming and programs made
by European producers who are independent of broadcasters. The
EU legal framework governing broadcast television currently is
under review and the EU Commission issued a proposal for a new
Directive at the end of 2005. The draft (which had its first
reading by the European Parliament in December 2006) is
under discussion and subject to amendment by the European
Council and the European Parliament who would jointly adopt any
new Directive. Any new Directive adopted by these institutions
would then be transposed into the laws of the various Member
States over a defined timescale. Such a process could lead to
substantial changes in the regulation of broadcasting; however,
we do not expect any material effect on our programming business.
Competition
Law and Other Matters
EU directives and national consumer protection and competition
laws in many of our European markets impose limitations on the
pricing and marketing of bundled packages of services, such as
video, telephony and Internet access services. Although our
businesses may offer their services in bundled packages in
European markets, they are sometimes not permitted to make
subscription to one service, such as cable television,
conditional upon subscription to another service, such as
telephony. In addition, providers cannot abuse or enhance a
dominant market position through unfair anti-competitive
behavior. For example, cross-subsidization having this effect
would be prohibited.
As our businesses become larger throughout the EU and in
individual countries in terms of service area coverage and
number of subscribers, they may face increased regulatory
scrutiny. Regulators may prevent certain acquisitions or permit
them only subject to certain conditions.
The
Netherlands
The Netherlands has a communications law that broadly transposes
the Directives. Onafhankelijke Post en Telecommunicatie
Autoriteit (OPTA), The Netherlands NRA, has finished its
analysis of the 18 predefined markets, which are relevant to our
business, in order to determine which, if any, operator or
service provider has SMP. OPTA has found our subsidiary UPC
Nederland BV (UPC NL) to have SMP in two of the 18 predefined
markets (market 9 relating to call termination on individual
public telephone networks, and market 18 relating to wholesale
video broadcasting transmission services) and a third market not
on the EU list (market 19 relating to retail transmission of
radio and video services). With respect to market 9, the
obligations imposed are to provide access to interconnecting
operators on a transparent and reasonable basis along with
tariff regulation. The tariff regulation is derived from the
regulated interconnect charges of Royal KPN NV (KPN).
OPTAs decision with respect to market 18 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 platform. 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
for 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 be further
developed by the creation of guidelines by OPTA and/or by the
development of case law.
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The decision with respect to the retail market is limited to one
year and will expire March 17, 2007. 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 all three decisions on the above-mentioned SMP
findings. The decision on the appeal of the SMP findings in
markets 18 and 19 is expected in second quarter 2007. A decision
on the appeal of the SMP findings in market 9 is expected in
March 2007.
Switzerland
As Switzerland is not a member of the EU, it is not obliged to
follow EU legislation. However, the liberalization of the Swiss
telecommunications market to a certain extent has moved in
parallel, although delayed, with liberalization in the EU. The
current regulatory framework governing telecommunications
services in Switzerland was established on January 1, 1998,
with the enactment of the Telecommunications Act and a
concurrent restatement of the Radio and Television Act (RTVA).
This regulatory regime opened both the telecommunications and
cable television markets to increased competition.
The RTVA regulates the operation, distribution and
redistribution, and receipt of radio and television programs. A
distributor who creates a program and aims to broadcast such
program requires a programming license. The redistribution of
programs requires a redistribution license. As in the EU,
must-carry rules require us to redistribute certain national and
regional television and radio programs, such as programs of the
Swiss Broadcasting Corporation. The RTVA has undergone a
comprehensive review in order to keep up with technological and
market developments. A revised RTVA was adopted by the Swiss
Parliament in March 2006 and is expected to enter into force on
April 1, 2007. It will include a number of changes
affecting our business. The license system will be replaced by a
notification system, which will mean that we will no longer be
required to hold a programming license or a redistribution
license.
Under the revised RTVA, the terms of carriage for programming,
other than must carry programming, can be commercially
negotiated subject to non-discrimination. The rules requiring us
to carry certain programs will be expanded, but at the same time
the maximum number of such channels will be fixed and
broadcasters will only be permitted to use the digital
distribution platform as long as it allows the provision of
state of the art services, indicating that broadcasters in
principle cannot request unbundled access to the digital
platform.
To ensure interoperability or to maintain freedom of
information, the authorities may, however, impose technical
standards. In this regard, secondary legislation has been
proposed which would force us to provide a conditional access
module allowing reception of our digital television services
over set top boxes provided by third parties.
The transmission of voice and data information through
telecommunications devices is regulated by the
Telecommunications Act. Such Act requires any operator that
provides telecommunications services and independently operates
a significant portion of a network to obtain a license. Dominant
telecommunications service providers must provide
interconnection to other providers on a non-discriminatory basis
and in accordance with a transparent and cost-based pricing
policy, stating the conditions and prices separately for each
interconnection service. We have not been found to have a
dominant market position under the Telecommunications Act, but
cannot exclude the possibility that we might be in the future.
A revised Telecommunications Act was adopted by the Swiss
Parliament in March 2006, aiming to strengthen competition in
the telecommunication market, in particular by introducing the
unbundling of the local loop by a formal act and to increase
transparency for customers. The revised Telecommunications Act
is expected to take effect on April 1, 2007. Only Swisscom
AG (Swisscom), as the incumbent operator, will be required to
provide full line access as well as bitstream access on a
transparent, non-discriminatory and cost-based basis. The
obligation to offer bitstream access will be limited to a period
of four years. In addition, all operators will be required to
take action against spamming. The licensing system will be
replaced by a notification system. Universal service
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obligations will be imposed, and all operators will be required
to contribute to the costs for the provision of universal
services if the licensees are not able to provide such services
in a cost efficient manner.
Under the Act on the Surveillance of Prices, the Swiss Price
Regulator has the power to prohibit price increases or to order
price reductions in the event a company with market power
implements prices that are deemed to be abusively high, unless
the Swiss Price Regulator and the company can come to a mutual
agreement. For purposes of the Act on the Surveillance of
Prices, a price is considered to be abusively high if it is not
the result of effective competition. We are subject to price
regulation regarding our analog television offering and entered
into a contract with the price regulator that determined the
retail prices for analog television services until the end of
2006. As of 2007, we are no longer subject to an agreement with
the Swiss Price Regulator. However, the Swiss Price Regulator
has defined key terms regarding our products and prices until
2009, which we will have to take into account in order to avoid
regulatory intervention on our pricing.
Hungary
Hungary has a communications law that broadly transposes the
Directives. The NRA has virtually finished the process of
analyzing the 18 predefined markets to determine if any operator
or service provider has SMP with the only exception of relevance
to our business being the ongoing analysis of the wholesale
broadcast transmission market. The operations of our telephony
subsidiary, Monor Telefon Tarsasag RT (Monor) have been found to
have SMP in the call termination and origination market in our
own telecommunications network, as well as in the markets for
wholesale unbundled access and for wholesale broadband access,
together with all other similar network operators. This has led
to a variety of requirements, including the need to provide
interconnection and access to, and use of, specific network
facilities, non-discrimination, transparency, accounting
separation and price control. We are also required to produce a
wholesale ADSL offer on the Monor telecommunication network
based on a discount from our retail prices (retail minus price
regulation).
Monor has further been found to have SMP in a variety of retail
markets relating to the provision of network access to business
and to residential customers where our price increases have been
capped at the rise in the CPI and in the markets for long
distance and international calls for residential and business
customers where we have been required to offer carrier
pre-selection services.
Asia/Pacific
Japan
Regulation of the Cable Television
Industry. The two key laws governing cable
television broadcasting services in Japan are the Cable
Television Broadcast Law and the Wire Telecommunications Law.
The Cable Television Broadcast Law was enacted in 1972 to
regulate the installation and operation of cable television
broadcast facilities and the provision of cable television
broadcast services. The Wire Telecommunications Law is the basic
law in Japan governing wire telecommunications, and it regulates
all wire telecommunications equipment, including cable
television broadcast facilities.
Under the Cable Television Broadcast Law, any business seeking
to install cable television facilities with more than 500 drop
terminals must obtain a license from the Ministry of Internal
Affairs and Communications, commonly referred to as the MIC.
Under the Wire Telecommunications Law, if these facilities have
fewer than 500 drop terminals, only prior notification to the
MIC is required. If a license is required, the license
application must provide an installation plan, including details
of the facilities to be constructed and the frequencies to be
used, financial estimates, and other relevant information.
Generally, the license holder must obtain prior permission from
the MIC in order to change certain items included in the
original license application. The Cable Television Broadcast Law
also provides that any business that wishes to furnish cable
television broadcast services must file prior notification with
the MIC before commencing service. This notification must
identify the service area and facilities to be used (unless the
facilities are owned by the provider) and outline the proposed
cable television broadcasting services and other relevant
information, regardless of whether these facilities are leased
or owned. Generally, the cable television provider must notify
the MIC of any changes to these items.
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Prior to the commencement of operations, a cable television
provider must notify the MIC of all charges and tariffs for its
cable television broadcast services. Those charges and tariffs
to be incurred in connection with the mandatory re-broadcasting
of television content require the approval of the MIC. A cable
television provider must also give prior notification to the MIC
of all amendments to existing tariffs or charges (but MIC
approval of these amendments is not required, except for the
aforementioned approval matters for mandatory re-broadcasting).
A cable television provider must comply with specific
guidelines, including: (1) editing standards;
(2) making its facilities available for third party use for
cable television broadcasting services, subject to the
availability of broadcast capacity; (3) providing service
within its service area to those who request it absent
reasonable grounds for refusal; (4) obtaining
retransmission consent where retransmission of television
broadcasts occur, unless such retransmission is required under
the Cable Television Broadcast Law for areas having difficulties
receiving television signals; and (5) obtaining permission
to use public roads for the installation and use of cable.
The MIC may revoke a facility license if the license holder
breaches the terms of its license; fails to comply with
technical standards set forth in, or otherwise fails to meet the
requirements of, the Cable Television Broadcast Law; or fails to
implement a MIC improvement order relating to its cable
television broadcast facilities or its operation of cable
television broadcast services.
Regulation of the Telecommunications
Industry. As providers of broadband Internet
access and telephony, our businesses in Japan also are subject
to regulation by the MIC under the Telecommunications Business
Law. The Telecommunications Business Law and related regulations
subject carriers to a variety of licensing, registration and
filing requirements depending upon the nature of their networks
and services. Carriers may generally negotiate terms and
conditions with their users (including fees and charges), except
those relating to basic telecommunications services.
Carriers who provide Basic Telecommunications Services, defined
as telecommunications that are indispensable to the lives of the
citizenry as specified in MIC ordinances, are required to
provide such services in an appropriate, fair and consistent
manner. Carriers providing Basic Telecommunications Services
must do so pursuant to terms and conditions and for rates that
have been filed in advance with the MIC. The MIC may order
modifications to contract terms and conditions it deems
inappropriate for certain specified reasons.
Carriers, other than those exceeding certain standards specified
in the Telecommunications Business Law (such as Nippon
Telephone & Telegraph (NTT)), may set interconnection
tariffs and terms and conditions through independent
negotiations without MIC approval.
Telecommunication carriers that own their telecommunication
circuit facilities are required to maintain such facilities in
conformity with specified technical standards. The MIC may order
a carrier that fails to meet such standards to improve or repair
its telecommunication facilities.
Australia
Subscription television, Internet access and mobile telephony
services are regulated in Australia by a number of Commonwealth
statutes. In addition, State and Territory laws, including
environmental and consumer protection legislation, may influence
aspects of Austars business.
Broadly speaking, the regulatory framework in Australia
distinguishes between the regulation of content services and the
regulation of facilities used to transmit those services. The
Australian Broadcasting Services Act 1992 (Cth) (BSA)
regulates the ownership and operation of all categories of
television and radio services in Australia and also aspects of
Internet content. The technical delivery of Austars
services is separately licensed under the Radiocommunications
Act 1992 (Cth) (the Radiocommunications Act) or the
Telecommunications Act 1997 (Cth), depending on the
delivery technology utilized. Other legislation of key relevance
to Austar is the Trade Practices Act 1974 (Cth), which
includes competition and consumer protection regulation.
The BSA regulates subscription television broadcasting services
through a licensing regime managed by the Australian
Communications and Media Authority (ACMA). Austar and its
related companies hold broadcasting licenses under the BSA.
Subscription television broadcasting licenses are for an
indefinite period. Each subscription television broadcasting
license is issued subject to general license conditions, which
may be revoked or varied
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by the Australian Government, and may include specific
additional conditions. License conditions include a prohibition
on cigarette or other tobacco advertising; a requirement that
subscription fees must be the predominant source of revenue for
the service; a requirement that the licensee must remain a
suitable licensee under the BSA; a requirement that
customers must have the option to rent domestic reception
equipment and a requirement to comply with provisions relating
to anti-siphoning and the broadcast of R-rated material.
An additional obligation on subscription television licensees
who provide a service predominantly devoted to drama programs is
to spend at least 10% of its annual program expenditure on new
Australian drama programs. Austar has made the required
investments in such programming.
The BSA prohibits subscription television broadcasting licensees
from obtaining exclusive rights to certain events that the
Australia Government considers should be made freely available
to the public. These events, which are specified on the
anti-siphoning list, include a number of highly
popular sporting events in Australia, and are currently
protected until 2010.
Currently, under the BSA, a foreign person must not have
company interests of more than 20% in a subscription
television broadcasting license and foreign persons must not, in
aggregate, have company interests of more than 35%
in a subscription television broadcasting license. Company
interests under the BSA include a beneficial entitlement
to, or an interest in, shares of the company. The companies that
hold the BSA licenses used by Austar to deliver its pay
television services meet these requirements. Amendments to the
foreign ownership rules in the BSA were passed in 2006, lifting
these restrictions, although media is to be retained as a
sensitive sector and foreign investment in the media
sector is to remain subject to Treasurer approval. The
amendments will be effective in 2007 at a date yet to be
announced.
Changes to media laws were passed in October 2006 regarding the
implementation of digital services by
free-to-air
television providers and use of the two spare terrestrial
channels available throughout Australia. The changes set a date
for analog switch-off between
2010-2012,
relaxed simulcasting requirements as well as cross and media
ownership restrictions, continued the moratorium on a fourth
commercial network until the end of the switch-off period; and
announced the intention to introduce a use it or lose
it scheme for anti-siphoning. One spare terrestrial
channel has been made available for datacasting and
narrowcasting channels and the second spare channel will be used
for emerging new digital services such as mobile TV.
The BSA establishes a regime for the regulation of Internet
content. Internet service providers or Internet content hosts
are not primarily liable for the content of material carried on
their service; however, once notified of the existence of
illegal or highly offensive material on their service, they have
a responsibility to remove or block access to such material.
In addition to licenses issued under the BSA, certain companies
in the Austar group hold spectrum licenses issued under and
regulated by the Radiocommunications Act. The Austar group
currently holds 24 spectrum licenses in the 2.3 GHz Band and 26
licenses in the 3.5 GHz Band covering geographic areas similar
to Austars subscription television areas. These licenses
expire in 2015. The spectrum licenses authorize the use of
spectrum space rather than the use of a specific device or
technology. Austar is using this spectrum to provide WiMAX based
broadband Internet services in two trial markets. Similar to the
BSA, licenses issued under the Radiocommunications Act are
subject to general license conditions and may be subject to
specific license conditions, which can be added to, revoked or
varied by written notice during the term of the license.
Spectrum licensees must comply with core conditions of the
license and be compatible with the technical framework for the
bands. There are no restrictions on ownership/control of
spectrum licenses except that the licensee must be a resident of
Australia.
A subsidiary of Austar also holds a carrier license issued under
the Telecommunications Act 1997 and a number of Austar companies
operate as carriage service providers. These companies are
required to comply with Australian telecommunications
legislation, including legislation that establishes various
access regimes. Companies in the Austar group provide
dial-up and
broadband Internet service and mobile telephony services.
Internet service providers are considered carriage service
providers for the purposes of the Telecommunications Act and
must observe statutory obligations, including in relation to
access, law enforcement and national security, and interception,
and must become a member of the Telecommunications Industry
Ombudsman scheme. Internet
I-32
service providers and Internet content hosts must also observe
various industry codes of practice relating to Internet content
and Internet gambling.
The
Americas
Chile
As described above, VTR is subject to certain regulatory
conditions as a result of its combination with Metrópolis
Intercom S.A. in April 2005. These conditions are in addition to
the regulations described below.
Video. Cable television services are regulated
in Chile by the Ministry of Transportation and
Telecommunications (the Ministry). VTR has permits to provide
wireline cable television services in the major cities,
including Santiago, and in most of the medium-sized markets in
Chile. Wireline cable television permits are granted for
indefinite terms and are non-exclusive, meaning there may be
more than one operator in the same service area. As these
permits do not use the radio-electric spectrum, they are granted
without ongoing duties or royalties. Wireless cable television
services are also regulated by the Ministry. VTR has been
awarded wireless fixed telephony concessions under which it
plans to offer cable television services using its WiMax
technology, which is allowed under the concessions. Wireless
fixed telephony concessions are granted for renewable terms of
30 years. Such concessions are non-exclusive (subject to
spectrum availability as determined by the Subsecretaria de
Telecomunicaciones de Chile).
Cable television service providers in Chile are not required to
carry any specific programming, but some restrictions may apply
with respect to allowable programming. The National Television
Council has authority over programming content, and it may
impose sanctions on providers who are found to have run
programming containing excessive violence, pornography or other
objectionable content. Cable television providers have
historically retransmitted programming from broadcast
television, without paying any compensation to the broadcasters.
However, certain broadcasters have filed lawsuits against VTR
claiming that VTR breached their intellectual property rights by
retransmitting their signals. The current state of the law in
this area is unclear.
Internet. Internet access services are
considered complementary telecommunication services and,
therefore, do not require concessions, permits or licenses.
Telephony. The Ministry also regulates
telephone services. The provision of telephony services (both
fixed and mobile) requires a public telecommunication service
concession. VTR has telecommunications concessions to provide
wireline fixed telephony in most major and medium-sized markets
in Chile. Telephony concessions are non-exclusive and have
renewable
30-year
terms. The original term of VTRs wireline fixed telephony
concessions expires in November 2025. Telephone long distance
services are considered intermediate telecommunications services
and, as such, are also regulated by the Ministry. VTR has
concessions to provide this service, which is non-exclusive and
has a
30-year
renewable term.
Local service concessionaires are obligated to provide telephony
service to all customers that are within their service area or
are willing to pay for an extension to receive service. All
local service providers, including VTR, must give long distance
telephony service providers equal access to their network
connections at regulated prices and must interconnect with all
other public services concessionaires of the same type. Under
the regulations, public services concessionaires of the same
type are those whose systems are technically compatible among
themselves.
The Chilean Antitrust Tribunal has found that the local
telephone market in Chile is not competitive. As a result, the
incumbent local telephony service provider in each market in
Chile (typically Telefonica CTC) must have its local telephone
service rates set by regulatory authorities. VTR is not the
incumbent service provider in any of the telephony markets where
it operates and, therefore, it is not subject to rate
regulation. In the future, these telephony markets may be
determined by the Chilean Antitrust Tribunal to be competitive,
in which case the incumbent operators would no longer be subject
to price regulation. Long distance service rates are not
currently regulated, since the long distance market is
considered highly competitive.
Interconnect charges (including access charges and charges for
network unbundling services) are determined by the regulatory
authorities. This rate regulation is applicable to incumbent
operators and all local and mobile telephone companies,
including VTR. The maximum rates that may be charged by each
operator for the
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corresponding service are made on a
case-by-case
basis, and are effective for five years. VTRs
interconnection rates were established in June 2002 and must be
renewed in June 2007.
Competition
Markets for broadband distribution, including cable and
satellite distribution, broadband Internet access and telephony
services, and video programming generally are highly competitive
and rapidly evolving. Consequently, our businesses expect to
face increased competition in these markets in the countries in
which they operate, and specifically as a result of deregulation
in the EU. The percentage information for UPC Broadband on
market share is based on information published by Screen Digest,
for 2005, which includes estimates for 2006, and Dataxis for the
third quarter of 2006. For Japan, all percentage information on
market share is based on information obtained from the website
of the Japanese Ministry of Internal Affairs and Communications,
dated as of December 31, 2005, and internal market studies
as of December 31, 2006. For Chile, the percentage
information is based on internal market studies, information as
of September 30, 2006 obtained from public filings by
competitors and market information published by the
International Data Corporation. The competition in certain
countries in which we operate is described more specifically
after the respective competition overview on video, broadband
Internet and telephony.
Broadband
Distribution
Video
Distribution
Our businesses compete directly with a wide range of providers
of news, information and entertainment programming to consumers.
Depending upon the country and market, these may include:
(1) over-the-air
broadcast television services; (2) DTH satellite service
providers; (3) digital terrestrial television, or
DTT, broadcasters; (4) other cable operators in
the same communities that we serve; (5) other fixed line
telecommunications carriers and broadband providers, including
the incumbent telecommunications operators, offering video
products using DSL or ADSL technology or over fiber optic lines
of FTTH networks; (6) satellite master antenna television
systems, commonly known as SMATVs, which generally serve
condominiums, apartment and office complexes and residential
developments; (7) MMDS operators; and (8) movie
theaters, video stores and home video products. Our businesses
also compete to varying degrees with more traditional sources of
information and entertainment, such as newspapers, magazines,
books, live entertainment/concerts and sporting events.
In parts of Poland and Romania, our businesses face significant
competition from other cable operators where our systems are
over built, while in other countries the primary competition is
from DTH satellite service providers, DTT broadcasters and/or
other distributors of video programming using broadband
networks. In some of our largest markets, including The
Netherlands, Switzerland and Japan, we are facing increasing
competition from video services offered by or over the network
of the incumbent telecommunications operator. We seek to compete
by offering attractive content and by upgrading our service
offerings, such as digital television, to include the
functionality for VoD, HD, PVRs and other advanced services.
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Europe. The competitive situation in Europe
tends to vary from country to country, which is partly
reflective of the respective countrys history. For
example, in some countries such as Switzerland and The
Netherlands, there has long been high cable penetration and in
Austria and Ireland there are long-established satellite
platforms. Nevertheless, broad competitive trends can be seen in
many of the European countries in which we operate.
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For video services, the key competition has traditionally come
either from
over-the-air
broadcasts or from satellite distribution. DTT is increasingly a
competitive reality in Europe via a range of different business
models from full-blown encrypted pay television offers on DTT to
free-to-air.
DTT is a growing service in most countries and further launches
are expected. During 2006, we experienced increased competition
for video services 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 the Slovak Republic, increased competition and other
factors have resulted in the loss of a number of MMDS customers
during 2006. In other countries, competition from SMATV or MMDS
can be a factor.
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Also, television over DSL networks, which is either provided
directly by the owner of that network or by a third party, is
fast becoming a significant part of the competitive environment.
The ability of incumbent operators to now offer the so-called
triple-play of video, broadband Internet and
telephony services is expected to exert growing competitive
pressure on cable-delivered video services. FTTH networks are,
so far, rare in Europe although they are present or planned in a
number of countries. In addition, there is increasing
willingness from government and quasi-government entities in
Europe to consider investing their money in such networks which
would create a new source of competition.
Netherlands. The Netherlands has one of the highest
cable penetration rates in Europe with 92% of all households
subscribing to a cable service. UPC Netherlands provides video
cable services to 35% of the total video cable households in The
Netherlands. Satellite television penetration is 10% of the
total video households. In addition to satellite television, we
face competition from the DTT service, Digitenne, and from
broadband Internet connection, or IPTV, products
offered over DSL networks. KPN, the incumbent telecommunications
operator, is the majority owner of Digitenne. KPN launched an
IPTV service in the second quarter of 2006, which includes VoD,
an electronic program guide, and a PVR. With its nationwide
telecommunications network and ability to offer bundled
triple-play services, KPN is expected to be a significant
competitor.
Switzerland. We are the largest cable television
provider in Switzerland based on number of video cable
subscribers and are the sole provider in substantially all of
our network area. There is limited terrestrial television in
Switzerland and DTT is at present only available in parts of
Switzerland. DTH satellite services are also limited due to
various legal restrictions such as construction and zoning
regulations or rental agreements that prohibit or impede
installation of satellite dishes. Given technical improvements,
such as the availability of smaller satellite antennae, as well
as the continuous improvements of DTH offerings, we expect
increased competition from satellite television operators.
Swisscom, the incumbent telecommunications operator, launched
its IPTV service in late 2006.
Austria. In Austria, we are the largest cable
company based on number of video cable subscribers. Our primary
competition for video customers is from
free-to-air
television received via satellite. Approximately 50% of Austrian
households receive free television compared to approximately 38%
of Austrian households receiving cable services. Fifty-one
percent of the homes passed by UPC Austrias network
subscribe to our cable services (analog and digital). UPC
Austria may face increased competition in the future from
developing technologies. The incumbent telecommunications
operator, Telekom Austria AG, launched an IPTV service in early
2006, and the public broadcaster, ORF, launched its DTT services
in Vienna in October 2006, already reaching 70% of all
households.
Hungary. In Hungary, we are the largest cable
service provider based on number of video cable subscribers. Of
the Hungarian households receiving cable television, 41% receive
their cable service from UPC Hungary. In addition, UPC Hungary
provides satellite service to 54% of Hungarian DTH households.
Digi TV, a third party DTH service, launched in April 2006,
provides new competition to our DTH satellite business branded
UPC Direct. UPC Hungary faces competition from Antenna Hungaria
Rt., a digital MMDS provider (recently purchased by Swisscom),
and from the incumbent telecommunication company Magyar Telekom
Rt. (in which Deutshe Telekom has a majority stake), which
launched an IPTV service in early 2006 and offers a VoD service
to Internet subscribers of its Internet service provider (ISP)
subsidiary.
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Asia/Pacific. Our principal competition in our
Japanese cable television business comes from alternative
distributors of television signals, including DTH satellite
television providers and DTT, as well as from other distributors
of video programming using broadband networks. Our current
competitors in the satellite television industry include Japan
Broadcasting Corporation and WOWOW Inc., which offer broadcast
satellite analog and broadcast satellite digital television, and
SkyPerfecTV for communications satellite digital television. The
Law Concerning Broadcast on Telecommunications Service gives
broadcast companies that do not have their own facilities the
ability to provide broadcasting services over lines owned by
other telecommunications companies. As a result, our Japanese
operations face increasing competition from video services
offered by broadband providers, established fixed line
telecommunications providers, including NTT and KDDI Corporation
(KDDI), and other FTTH-based video service providers, including
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Opticast, Inc., K- Opticom Corporation and Itochu
Corporations I-Cast Inc. Other cable television companies
are not considered significant competitors in Japan due to the
fact that their franchise areas rarely overlap with ours, and
the investments required to install new cable would not be
justified considering the competition in overlapping franchise
areas. As of December 31, 2006, J:COMs share of the
multi-channel video market in Japan was approximately 9%.
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The Americas. VTR competes primarily with DTH
satellite service providers in Chile. VTRs share of the
video market in Chile was 82%, compared to 15% for DTH satellite
service providers and 3% for all others. VTR may face
competition in the future from video services offered by or over
the networks of fixed line telecommunications operators using
DSL or ADSL technology or FTTH networks or new DTH carriers that
might enter the market. For example, the incumbent Chilean
telecommunications operator (CTC) has announced plans to launch
IPTV. To effectively compete, VTR plans to expand its digital
platform to additional neighborhoods and has launched VoD
service.
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Internet
With respect to broadband Internet access services and online
content, our businesses face competition in a rapidly evolving
marketplace from incumbent and non-incumbent telecommunications
companies, other cable-based ISPs, non-cable-based ISPs and
Internet portals, many of which have substantial resources. The
Internet services offered by these competitors include both
traditional
dial-up
Internet services and broadband Internet access services using
DSL, ADSL or FTTH, in a range of product offerings with varying
speeds and pricing, as well as interactive computer-based
services, data and other non-video services to homes and
businesses. As the technology develops, competition from
wireless services using WiMax and other technologies may become
significant in the future. We seek to compete on speed and
price, including by increasing the maximum speed of our
connections and offering varying tiers of service and varying
prices, as well as a bundled product offering and a range of
value added services.
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Europe. Across Europe, our key competition in
this product market is from the offering of broadband Internet
access products using various DSL-based technologies both by the
incumbent phone companies and third parties. The introduction of
cheaper and ever faster broadband offerings into the market is
further increasing the competitive pressure in this market.
Broadband wireless services, however, are not yet well
established.
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In The Netherlands, we face competition from KPN, the largest
broadband Internet access provider, and operators using the
unbundled local loop. As of December 31, 2006, UPC
Netherlands provides broadband Internet services to 12% of the
total broadband Internet market (or about 20% of our current
footprint).
In Switzerland, Swisscom is the largest provider of broadband
Internet access services, with an estimated market share of
two-thirds of all broadband Internet customers. Cablecom serves
20% of all broadband Internet customers. As fully unbundled,
shared or bitstream access to Swisscoms network has not
yet been implemented in Switzerland, alternative DSL service
providers are currently reliant on Swisscoms wholesale
offering or are required to construct their own access network
to provide broadband Internet access services.
UPC Austrias largest competitor with respect to Internet
access services is the incumbent telecommunications company,
Telkom Austria. Telkom Austria provides services via DSL. In
addition, UPC Austria faces competition from unbundled local
loop access by operators who can offer broadband Internet
services for lower costs. To compete, UPC Austria is offering
its triple-play option at a discount for subscribers who switch
from another provider.
In Hungary, the Internet market is growing rapidly. Our primary
competitor is the incumbent telecommunications company, Magyar
Telekom. As of December 31, 2006, UPC Hungary provides
broadband Internet services to 19% of the total broadband
Internet market.
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Asia/Pacific. In Japan, we compete with FTTH
providers that offer broadband Internet access through
fiber-optic lines. FTTH-based players, including NTT, Usen
Corporation, Tokyo Electric Power Company Incorporated, KDDI and
K-Opticom Corporation, currently offer broadband Internet access
services
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through FTTH. Broadband Internet access using FTTH technology
has become more widely available, and pricing for these services
has declined. We compete directly with ADSL providers, such as
Softbank Corporation, that offer broadband Internet access to
subscribers. ADSL providers often offer their broadband Internet
access services at a cost lower than ours. If continued
technological advances or investments by our competitors further
improve the services offered through ADSL or FTTH, or make them
more affordable or more widely available, cable modem Internet
access may become less attractive to our existing or potential
subscribers. As of December 31, 2006, J:COMs share of
the high-speed (128 kbps and greater) broadband Internet access
market in Japan was approximately 5%.
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The Americas. In Chile, VTR faces competition
primarily from non-cable-based Internet service providers such
as Telefónica S.A and Entel S.A. VTR expects increased
pricing pressure as these companies bundle their Internet access
service with other services. VTRs share of the high-speed
(128 kbps and greater) broadband Internet access market in Chile
was 41%, compared to 46% for Telefónica and 13% for all
others.
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Telephony
With respect to telephony services, our businesses face
competition from the incumbent telecommunications operator in
each country. These operators have substantially more experience
in providing telephony services, greater resources to devote to
the provision of telephony services and longstanding customer
relationships. In many countries, our businesses also face
competition from other cable telephony providers, wireless
telephony providers, FTTH-based providers or other indirect
access providers. Competition in both the residential and
business telephony markets will increase with certain market
trends and regulatory changes, such as general price
competition, the introduction of carrier pre-selection, number
portability, continued deregulation of telephony markets, the
replacement of fixed line with mobile telephony, and the growth
of VoIP services. As a result, we seek to compete on pricing as
well as product innovation, such as personal call manager and
unified messaging, and increasing the services we offer.
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Europe. Across Europe our telephony businesses
are generally rather small compared to the existing business of
the incumbent phone company. The incumbent telephone companies
remain our key competitor but mobile operators and new entrant
VoIP operators offering service across broadband lines are also
important in these markets. Generally, we expect telephony
markets to remain extremely competitive.
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In The Netherlands, KPN is the dominant telephony provider, but
all of the large MSOs, including UPC Netherlands, as well as
ISPs, are now offering VoIP services and gaining market share.
In Switzerland, we are the largest VoIP service provider, but
Swisscom is the dominant fixed telephony service provider
followed by two carriers that offer pre-select services. In the
future we may face increased competition in Switzerland as the
unbundling of the local loop is implemented.
In Austria and in Hungary, the incumbent telephone companies
dominate the telephony market. Most of the competition to the
incumbent telephone operators in these countries is from
entities that provide carrier pre-select services. Carrier
pre-select allows the end user to choose the voice services of
operators other than the incumbent while using the
incumbents network. We also compete with ISPs that offer
VoIP services. In Austria, we serve our subscribers via our time
division multiplex telephony platform and, beginning March 2006,
via VoIP over our cable plant. In Hungary, we provide circuit
switched telephony services over our copper wire telephony
network and VoIP telephony services over our cable plant. We
also launched our VoIP telephony service in the Czech Republic,
Ireland, Poland and Slovak Republic in 2006.
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Asia/Pacific. In Japan, our principal
competition in our telephony business comes from NTT and KDDI.
We also face increasing competition from new common carriers in
the telephony market, as well as ISPs, such as Softbank
Corporation, and FTTH-based providers, including K-Opticom
Corporation. Further, Japan Telecom Co. Ltd. and KDDI each offer
low-cost fixed line telephony services. Many of these carriers
offer VoIP, and call volume over fixed line services has
generally declined as VoIP and mobile phone usage have
increased. If competition in the fixed line telephony market
continues to intensify, we may lose existing or potential
subscribers to our competitors. As of December 31, 2006,
J:COMs share of the fixed line telephony market in Japan
was approximately 2%.
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The Americas. In Chile, VTR faces competition
from the incumbent telecommunications operator, CTC, and other
telecommunications operators such as Telsur, GTD Chile S.A. and
Entel S.A. CTC and Telsur operators have substantial experience
in providing telephony services, resources to devote to the
provision of telephony services and longstanding customer
relationships. VTR is also facing stiff competition from
wireless telephony providers such as Telefónica
Móviles S.A., Smartcom PCS and Entel PCS Telecomunicaciones
S.A., and from indirect access providers. Competition in both
the residential and business telephony markets is expected to
increase over time with certain market trends and regulatory
changes, such as general price competition, number portability,
the replacement of fixed line with mobile telephony, and the
growth of VoIP services. VTR offers circuit switched and VoIP
telephony services over its cable network. VTRs share of
the fixed line telephony market in Chile was 15%, compared to
69% for CTC and 16% for all others.
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Programming
Services
The business of providing programming for cable and satellite
television distribution is highly competitive. Our programming
businesses directly compete with other programmers for
distribution on a limited number of channels. Once distribution
is obtained, these programming services compete, to varying
degrees, for viewers and advertisers with other cable and
over-the-air
broadcast television programming services as well as with other
entertainment media, including home video (generally video
rentals), online activities, movies and other forms of news,
information and entertainment.
Employees
As of December 31, 2006, we, including our consolidated
subsidiaries, had an aggregate of approximately 20,500
employees, certain of which belong to organized unions and works
councils. We believe that our employee relations are good.
Financial
Information About Geographic Areas
Financial information related to the geographic areas in which
we do business appears in note 22 to our consolidated
financial statements included in Part II of this report.
Available
Information
All our filings with the Securities and Exchange Commission
(SEC) as well as amendments to such filings are available on our
Internet website free of charge generally within 24 hours
after we file such material with the SEC. Our website address is
www.lgi.com. The information on our website is not
incorporated by reference herein.
In addition to the other information contained in this Annual
Report on
Form 10-K,
you should consider the following risk factors in evaluating our
results of operations, financial condition, business and
operations or an investment in our stock.
The risk factors described in this section have been separated
into five groups:
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risks that relate to our operating in overseas markets and being
subject to foreign regulation;
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risks that relate to the technology used in our businesses and
the competition we face;
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risks that relate to our investments and other financial matters;
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other risks, including risks that relate to our capitalization
and the obstacles faced by anyone who may seek to acquire
us; and
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risks that relate to the LGI Combination in which LMI and UGC
became our subsidiaries.
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Although we describe below and elsewhere in this Annual Report
on
Form 10-K
the risks we consider to be the most material, there may be
other unknown or unpredictable economic, business, competitive,
regulatory or other
I-38
factors that also could have material adverse effects on our
results of operations, financial condition, business or
operations in the future. In addition, past financial
performance may not be a reliable indicator of future
performance and historical trends should not be used to
anticipate results or trends in future periods.
If any of the events described below, individually or in
combination, were to occur, our businesses, prospects, financial
condition, results of operations
and/or cash
flows could be materially adversely affected.
Factors
Relating to Overseas Operations and Foreign Regulation
Our businesses are conducted almost exclusively outside of
the United States, which gives rise to numerous operational
risks. Our businesses operate almost
exclusively in countries outside the United States and are
thereby subject to the following inherent risks:
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difficulties in staffing and managing international operations;
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economic instability and related impacts on foreign currency
exchange rates;
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potentially adverse tax consequences;
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export and import restrictions, custom duties, tariffs and other
trade barriers;
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increases in taxes and governmental fees;
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changes in foreign and domestic laws and policies that govern
operations of foreign-based companies; and
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disruptions of services or loss of property or equipment that
are critical to overseas businesses due to expropriation,
nationalization, war, insurrection, terrorism or general social
or political unrest.
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We are exposed to 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 any of our operating subsidiaries
or affiliates will cause us to experience unrealized foreign
currency translation losses (gains) with respect to amounts
already invested in such foreign currencies. In addition, our
company and our operating subsidiaries and affiliates are
exposed to foreign currency risk to the extent that we or they
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 our respective functional currencies.
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 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 income (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 us is to the Japanese yen
and the euro due to the percentage of our U.S. dollar
revenue that is derived from countries where these currencies
are the functional currency. In addition, our operating results
and financial condition are expected to be significantly
impacted by changes in the exchange rates for the Swiss franc,
the Chilean peso, the Hungarian forint and other local
currencies in Europe.
Our businesses are subject to risks of adverse regulation
by foreign governments. Our businesses are
subject to the unique regulatory regimes of the countries in
which they operate. Cable and telecommunications businesses are
subject to licensing eligibility rules and regulations, which
vary by country. The provision of telephony services requires
licensing from, or registration with, the appropriate regulatory
authorities and entrance into interconnection arrangements with
the incumbent phone companies. It is possible that countries in
which we operate may adopt laws and regulations regarding
electronic commerce which could dampen the growth of the
Internet access services being offered and developed by these
businesses. In a number of countries, our ability to increase
the prices we charge for our cable television service or make
changes to the programming packages we
I-39
offer is limited by regulation or conditions imposed by
competition authorities or is subject to review by regulatory
authorities. In addition, regulatory authorities may grant new
licenses to third parties, resulting in greater competition in
territories where our businesses may already be licensed, and
may require that third parties be granted access to our
bandwidth, frequency capacity, facilities or services.
Programming businesses are subject to regulation on a country by
country basis, including programming content requirements,
requirements to make programming available on non-discriminatory
terms, and service quality standards. In some cases, ownership
restrictions may apply to broadband communications
and/or
programming businesses. Consequently, our businesses must adapt
their ownership and organizational structure as well as their
pricing and service offerings to satisfy the rules and
regulations to which they are subject. A failure to comply with
these rules and regulations could result in penalties,
restrictions on such business or loss of required licenses.
Businesses that offer multiple services, such as video
distribution as well as Internet access and telephony, or both
video distribution and programming content, are facing increased
regulatory review from competition authorities in several
countries in which we operate, with respect to their businesses
and proposed business combinations. For example, the regulatory
authorities in several countries in which we do business have
considered from time to time what access rights, if any, should
be afforded to third parties for use of existing cable
television networks and in certain countries have imposed access
obligations. Depending on the terms on which third parties are
granted access to our distribution infrastructure for the
delivery of video, audio, Internet or other services, those
providers could compete with services similar to those which our
businesses offer, which could lead to significant price
competition and loss of market share.
When we acquire additional communications companies, these
acquisitions may require the approval of governmental
authorities, which can block, impose conditions on, or delay an
acquisition.
We cannot be certain that we will be successful in
acquiring new businesses or integrating acquired businesses with
our existing operations. Historically, our
businesses have grown, in part, through selective acquisitions
that enabled them to take advantage of existing networks, local
service offerings and region-specific management expertise. We
expect to seek to continue growing our businesses through
acquisitions in selected markets. Our ability to acquire new
businesses may be limited by many factors, including debt
covenants, availability of financing, the prevalence of complex
ownership structures among potential targets and government
regulation. In addition, we have faced increased competition for
potential acquisition targets, primarily from private equity
funds. Even if we were successful in acquiring new businesses,
the integration of new businesses may present significant costs
and challenges, including: realizing economies of scale in
interconnection, programming and network operations; eliminating
duplicative overheads; and integrating personnel, networks,
financial systems and operational systems. We cannot assure you
that we will be successful in acquiring new businesses or
realizing the anticipated benefits of any completed acquisition.
In addition, we anticipate that most, if not all, companies
acquired by us will be located outside the United States.
Foreign companies may not have disclosure controls and
procedures or internal controls over financial reporting that
are as thorough or effective as those required by
U.S. securities laws. While we intend to conduct
appropriate due diligence and to implement appropriate controls
and procedures as we integrate acquired companies, we may not be
able to certify as to the effectiveness of these companies
disclosure controls and procedures or internal controls over
financial reporting until we have fully integrated them.
We may have to pay U.S. taxes on earnings of certain
of our foreign subsidiaries regardless of whether such earnings
are actually distributed to us, and we may be limited in
claiming foreign tax credits; since substantially all of our
revenue is generated through foreign investments, these tax
risks could have a material adverse impact on our effective
income tax rate, financial condition and
liquidity. Certain foreign corporations in
which we have interests, particularly those in which we have
controlling interests, are considered to be controlled
foreign corporations under U.S. tax law. In general,
our pro rata share of certain income earned by our subsidiaries
that are controlled foreign corporations during a taxable year
when such subsidiaries have current or accumulated earnings and
profits will be included in our income when the income is
earned, regardless of whether the income is distributed to us.
This income, typically referred to as Subpart F
income, generally includes, but is not limited to, such
items as interest, dividends, royalties, gains from the
disposition of certain property, certain currency exchange gains
in excess of currency exchange losses, and certain related party
sales and services income. In addition, a
I-40
U.S. stockholder of a controlled foreign corporation may be
required to include in income its pro rata share of the
controlled foreign corporations increase for the year in
current or accumulated earnings and profits (other than Subpart
F income) invested in U.S. property, regardless of whether
the U.S. stockholder received any actual cash distributions
from the controlled foreign corporation. Since we are investors
in foreign corporations, we could have significant amounts of
Subpart F income. Although we intend to take reasonable tax
planning measures to limit our tax exposure, we cannot assure
you that we will be able to do so or that any of such measures
will not be challenged.
In general, a U.S. corporation may claim a foreign tax
credit against its U.S. federal income taxes for foreign
income taxes paid or accrued. A U.S. corporation may also
claim a credit for foreign income taxes paid or accrued on the
earnings of certain foreign corporations paid to the
U.S. corporation as a dividend. Our ability to claim a
foreign tax credit for dividends received from our foreign
subsidiaries is subject to various limitations. Some of our
businesses are located in countries with which the United States
does not have income tax treaties. Because we lack treaty
protection in these countries, we may be subject to high rates
of withholding taxes on distributions and other payments from
our businesses and may be subject to double taxation on our
income. Limitations on our ability to claim a foreign tax
credit, our lack of treaty protection in some countries, and our
inability to offset losses in one foreign jurisdiction against
income earned in another foreign jurisdiction could result in a
high effective U.S. federal income tax rate on our
earnings. Since substantially all of our revenue is generated
abroad, including in jurisdictions that do not have tax treaties
with the United States, these risks are proportionately greater
for us than for companies that generate most of their revenue in
the United States or in jurisdictions that have such treaties.
Factors
Relating to Technology and Competition
Changes in technology may limit the competitiveness of and
demand for our services, which may adversely impact our business
and stock value. Technology in the video,
telecommunications and data services industries is changing
rapidly. This significantly influences the demand for the
products and services that are offered by our businesses. The
ability to anticipate changes in technology and consumer tastes
and to develop and introduce new and enhanced products on a
timely basis will affect our ability to continue to grow,
increase our revenue and number of subscribers and remain
competitive. New products, once marketed, may not meet consumer
expectations or demand, can be subject to delays in development
and may fail to operate as intended. A lack of market acceptance
of new products and services which we may offer, or the
development of significant competitive products or services by
others, could have a material adverse impact on our revenue,
growth and stock price. Alternatively, if consumer demand for
new services in a specific country or region exceeds our
expectations, meeting that demand could overburden our
infrastructure, which could result in service interruptions and
a loss of customers.
Our digital migration project in The Netherlands may not
generate anticipated levels of incremental
revenue. In our digital migration or D4A
project, we provide a digital interactive television box and
digital entry-level video service at no incremental charge to
the analog rate during a promotional period to those analog
customers who accept delivery of the digital box and agree to
accept the services. After the promotional period, the
subscriber may elect to return the box and discontinue the
service or to continue the service by paying an incremental fee
over the analog rate. The promotional period was for six months
during 2006 and will be for three months during 2007. Further
incremental revenue would be generated as we offer additional
tiers of services and additional box functionality for
additional fees. Failure to achieve sufficient levels of
customer acceptance of our digital product or to generate
sufficient incremental revenue from those customers who do
subscribe to our digital service may adversely affect the
operating results of our Netherlands operating segment and the
return on our investment in this project.
Failure in our technology or telecommunications systems
could significantly disrupt our operations, which could reduce
our customer base and result in lost
revenues. Our success depends, in part, on
the continued and uninterrupted performance of our information
technology and network systems as well as our customer service
centers. The hardware supporting a large number of critical
systems for our cable network in a particular country or
geographic region is housed in a relatively small number of
locations. Our systems are vulnerable to damage from a variety
of sources, including telecommunications failures, power loss,
malicious human acts and natural disasters. Moreover, despite
security measures, our servers are potentially vulnerable to
physical or electronic break-ins, computer viruses and similar
disruptive problems. Despite the precautions we have taken,
unanticipated problems affecting our systems could cause
failures in our information technology systems or disruption in
the transmission
I-41
of signals over our networks. Sustained or repeated system
failures that interrupt our ability to provide service to our
customers or otherwise meet our business obligations in a timely
manner would adversely affect our reputation and result in a
loss of customers and net revenue.
We operate in increasingly competitive markets, and there
is a risk that we will not be able to effectively compete with
other service providers. The markets for
cable television, broadband Internet access and
telecommunications in many of the regions in which we operate
are highly competitive. In the provision of video services we
face competition from other cable television service providers,
DTH service providers, DTT broadcasters and video provided over
FTTH networks or using DSL technology, among others. Our
operating businesses in The Netherlands, Switzerland and Japan
are facing increasing competition from video services provided
by or over the networks of incumbent telecommunications
operators. Our operating businesses in Central and Eastern
Europe are facing increasing competition from other DTH
providers. In the provision of telephone and broadband Internet
access services, we primarily compete with the incumbent
telecommunications operators in each country in which we
operate. These operators typically dominate the market for these
services and have the advantage of nationwide networks and
greater resources than we have to devote to the provision of
these services. In many countries, we also compete with other
operators using the unbundled local loop of the incumbent
telecommunications operator to provide these services, other
facilities-based operators and wireless providers. Developments
in the DSL technology used by the incumbent telecommunications
operators and alternative providers as well as advances in
wireless technology, such as WiMax, may improve the
attractiveness of our competitors products and services
and strengthen their competitive position.
The market for programming services is also highly competitive.
Programming businesses compete with other programmers for
distribution on a limited number of channels. Once distribution
is obtained, program offerings must then compete for viewers and
advertisers with other programming services as well as with
other entertainment media, such as home video, online activities
and movies.
We expect the level and intensity of competition to increase in
the future from both existing competitors and new market
entrants as a result of changes in the regulatory framework of
the industries in which we operate, advances in communications
technology, the influx of new market entrants and strategic
alliances and cooperative relationships among industry
participants. Increased competition may result in increased
customer churn, reduce the rate of customer acquisition and lead
to significant price competition, in each case resulting in
decreases in cash flows, operating margins and profitability.
The inability to compete effectively may result in the loss of
subscribers, and our revenue and stock price may suffer.
We may not be able to obtain attractive programming at
reasonable cost for our digital video services, thereby lowering
demand for our services. We rely on
programming suppliers for the bulk of our programming content.
We may not be able to obtain sufficient high-quality programming
for our digital video services on satisfactory terms or at all
in order to offer compelling digital video services. This may
reduce demand for our services, thereby lowering our future
revenue. It may also limit our ability to migrate customers from
lower tier programming to higher tier programming, thereby
inhibiting our ability to execute our business plans.
Furthermore, we may not be able to obtain attractive
country-specific programming for video services. This could
further lower revenue and profitability. In addition, must-carry
requirements may consume channel capacity otherwise available
for other services.
Factors
Relating to Certain Financial Matters
We may not report net earnings. We
reported losses from continuing operations of
$334.0 million and $59.6 million during 2006 and 2005,
respectively. In light of our historical financial performance,
we cannot assure you that we will report net earnings in the
near future or at all.
We may not freely access the cash of our operating
companies. Our operations are conducted
through our subsidiaries. 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. The
ability of our operating subsidiaries to pay dividends or to
make other payments or advances to us depends on
I-42
their individual operating results and any statutory, regulatory
or contractual restrictions to which they may be or may become
subject and in some cases our receipt of such payments or
advances may be subject to onerous tax consequences. Most of our
operating subsidiaries are subject to credit agreements or
indentures that restrict sales of assets and prohibit or limit
the payment of dividends or the making of distributions, loans
or advances to stockholders and partners, including us. In
addition, because these subsidiaries are separate and distinct
legal entities they have no obligation to provide us funds for
payment obligations, whether by dividends, distributions, loans
or other payments. With respect to those companies in which we
have less than a majority voting interest, we do not have
sufficient voting control to cause those companies to pay
dividends or make other payments or advances to any of their
partners or stockholders, including us.
Certain of our subsidiaries are subject to various debt
instruments that contain restrictions on how we finance our
operations and operate our businesses, which could impede our
ability to engage in beneficial
transactions. Certain of our subsidiaries are
subject to significant financial and operating restrictions
contained in outstanding credit agreements, indentures and
similar instruments of indebtedness. These restrictions will
affect, and in some cases significantly limit or prohibit, among
other things, the ability of those subsidiaries to:
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incur or guarantee additional indebtedness;
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pay dividends or make other upstream distributions;
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make investments;
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transfer, sell or dispose of certain assets, including
subsidiary stock;
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merge or consolidate with other entities;
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engage in transactions with us or other affiliates; or
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create liens on their assets.
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As a result of restrictions contained in these credit
facilities, the companies party thereto, and their subsidiaries,
could be unable to obtain additional capital in the future to:
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fund capital expenditures or acquisitions that could improve
their value;
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meet their loan and capital commitments to their business
affiliates;
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invest in companies in which they would otherwise invest;
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fund any operating losses or future development of their
business affiliates;
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obtain lower borrowing costs that are available from secured
lenders or engage in advantageous transactions that monetize
their assets; or
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conduct other necessary or prudent corporate activities.
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In addition, some of the credit agreements to which these
subsidiaries are parties require them to maintain financial
ratios, including ratios of total debt to operating cash flow
and operating cash flow to interest expense. Their ability to
meet these financial ratios and tests may be affected by events
beyond their control, and we cannot assure you that they will be
met. In the event of a default under such subsidiaries
credit agreements or indentures, the lenders may accelerate the
maturity of the indebtedness under those agreements or
indentures, which could result in a default under other
outstanding credit facilities. We cannot assure you that any of
these subsidiaries will have sufficient assets to pay
indebtedness outstanding under their credit agreements and
indentures. Any refinancing of this indebtedness is likely to
contain similar restrictive covenants.
We are exposed to interest rate risks. Shifts in such
rates may adversely affect the debt service obligation of our
subsidiaries. We are exposed to the risk of
fluctuations in interest rates, primarily through the credit
facilities of certain of our subsidiaries, which are indexed to
EURIBOR, LIBOR, TIBOR or other base rates. Although we enter
into various derivative transactions to manage exposure to
movements in interest rates, there can be no assurance that we
will continue to be able to do so at a reasonable cost.
I-43
Our substantial leverage could limit our ability to obtain
additional financing and have other adverse
effects. 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 our consolidated operating cash flow (as defined in
note 22 to our consolidated financial statements). At
December 31, 2006, our total consolidated outstanding debt
and capital lease obligations was $12.2 billion, of which
$1,384.9 million is due over the next 12 months. While
we currently believe we will have the financial resources to
meet our financial obligations when they come due, we cannot
anticipate what our future condition will be. 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. Accordingly, if our cash provided by operations
declines or we encounter other material liquidity requirements,
we may be required to seek additional debt or equity financing
in order to meet our debt obligations and other liquidity
requirements as they come due. In addition, our current debt
levels may limit our ability to incur additional debt financing
to fund working capital needs, acquisitions, capital
expenditures, or other general corporate requirements. We can
give no assurance that any additional debt financing will be
available on terms that are as favorable as the terms of our
existing debt. During 2006, we used our available liquidity to
purchase $1,756.9 million of LGI Series A and
Series C common stock. Any cash used by our company in
connection with any future purchases of our common stock would
not be available for other purposes, including the repayment of
debt.
We are subject to increasing operating costs and inflation
risks which may adversely affect our
earnings. While our operations attempt to
increase our subscription rates to offset increases in operating
costs, there is no assurance that they will be able to do so.
Therefore, operating costs may rise faster than associated
revenue, resulting in a material negative impact on our cash
flow and earnings. We are also impacted by inflationary
increases in salaries, wages, benefits and other administrative
costs, the effects of which to date have not been material.
The liquidity and value of our interests in our
subsidiaries and affiliates may be adversely affected by
stockholder agreements and similar agreements to which we are a
party. We own equity interests in a variety
of international broadband distribution and video programming
businesses. Certain of these equity interests are held pursuant
to stockholder agreements, partnership agreements and other
instruments and agreements that contain provisions that affect
the liquidity, and therefore the realizable value, of those
interests. Most of these agreements subject the transfer of such
equity interests to consent rights or rights of first refusal of
the other stockholders or partners. In certain cases, a change
in control of the company or the subsidiary holding the equity
interest will give rise to rights or remedies exercisable by
other stockholders or partners. Some of our subsidiaries and
affiliates are parties to loan agreements that restrict changes
in ownership of the borrower without the consent of the lenders.
All of these provisions will restrict the ability to sell those
equity interests and may adversely affect the prices at which
those interests may be sold.
We do not have the right to manage the businesses or affairs of
any of the companies in which we hold less than a majority
voting interest. Rather, such rights may take the form of
representation on the board of directors or a partners or
similar committee that supervises management or possession of
veto rights over significant or extraordinary actions. The scope
of veto rights varies from agreement to agreement. Although
board representation and veto rights may enable us to exercise
influence over the management or policies of an affiliate, they
do not enable us to cause those affiliates to take actions, such
as paying dividends or making distributions to their
stockholders or partners.
Other
Factors
The loss of certain key personnel could harm our
business. We have experienced employees at
both the corporate and operational levels who possess
substantial knowledge of our business and operations. We cannot
assure you that we will be successful in retaining their
services or that we would be successful in hiring and training
suitable replacements without undue costs or delays. As a
result, the loss of any of these key employees could cause
significant disruptions in our business operations, which could
materially adversely affect our results of operations.
I-44
John C. Malone has significant voting power with respect
to corporate matters considered by our
stockholders. John C. Malone beneficially
owns outstanding shares of our common stock representing 25% of
our aggregate voting power as of February 16, 2007.
Including stock options held by Mr. Malone, the voting
power of the shares beneficially owned by him was 30.7% at that
date. By virtue of Mr. Malones voting power in our
company, as well as his position as our Chairman of the Board,
Mr. Malone may have significant influence over the outcome
of any corporate transaction or other matters submitted to our
stockholders for approval. Mr. Malones rights to vote
or dispose of his equity interests in our company are not
subject to any restrictions in favor of us other than as may be
required by applicable law and except for customary transfer
restrictions pursuant to incentive award agreements.
It may be difficult for a third party to acquire us, even
if doing so may be beneficial to our
stockholders. Certain provisions of our
restated certificate of incorporation and bylaws may discourage,
delay or prevent a change in control of our company that a
stockholder may consider favorable. These provisions include the
following:
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authorizing a capital structure with multiple series of common
stock: a Series B that entitles the holders to 10 votes per
share; a Series A that entitles the holders to one vote per
share; and a Series C that, except as otherwise required by
applicable law, entitles the holder to no voting rights;
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authorizing the issuance of blank check preferred
stock, which could be issued by our board of directors to
increase the number of outstanding shares and thwart a takeover
attempt;
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classifying our board of directors with staggered three-year
terms, which may lengthen the time required to gain control of
our board of directors;
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limiting who may call special meetings of stockholders;
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prohibiting stockholder action by written consent, thereby
requiring all stockholder actions to be taken at a meeting of
the stockholders;
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establishing advance notice requirements for nominations of
candidates for election to our board of directors or for
proposing matters that can be acted upon by stockholders at
stockholder meetings;
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|
requiring stockholder approval by holders of at least 80% of its
voting power or the approval by at least 75% of our board of
directors with respect to certain extraordinary matters, such as
a merger or consolidation of our company, a sale of all or
substantially all of our assets or an amendment to our restated
certificate of incorporation or bylaws; and
|
|
|
|
the existence of authorized and unissued stock, which would
allow our board of directors to issue shares to persons friendly
to current management, thereby protecting the continuity of our
management, or which could be used to dilute the stock ownership
of persons seeking to obtain control of our company.
|
Our incentive plan may also discourage, delay or prevent a
change in control of our company even if such change of control
would be in the best interests of our stockholders.
LMI and UGC are parties to pending class action lawsuits
relating to the LGI Combination. LMI and UGC
are parties to twenty-two lawsuits filed by third parties
seeking monetary damages in connection with the LGI Combination.
Predicting the outcome of these lawsuits is difficult; and an
adverse judgment for monetary damages could have a material
adverse effect on our operations.
LMIs potential indemnity liability to Liberty Media
if the spin off is treated as a taxable transaction as a result
of the LGI Combination could materially adversely affect our
prospects and financial condition. LMI
entered into a tax sharing agreement with Liberty Media in
connection with LMIs spin off from Liberty Media on
June 7, 2004. In the tax sharing agreement, LMI agreed to
indemnify Liberty Media and its subsidiaries, officers and
directors for any loss, including any adjustment to taxes of
Liberty Media, resulting from (1) any action or failure to
act by LMI or any of LMIs subsidiaries following the
completion of the spin off that would be inconsistent with or
prohibit the spin off from qualifying as a tax-free transaction
to Liberty Media and to Liberty Medias stockholders under
Section 355 of the Internal Revenue Code of 1986, as
amended (the Code) or (2) any breach of any representation
or covenant given by LMI or one of LMIs subsidiaries in
connection with any tax opinion delivered to Liberty Media
relating to the qualification of the spin off as a tax-free
distribution described in Section 355 of the Code.
LMIs indemnification obligations to Liberty Media and its
subsidiaries, officers and
I-45
directors are not limited in amount or subject to any cap. If
LMI is required to indemnify Liberty Media and its subsidiaries,
officers and directors under the circumstances set forth in the
tax sharing agreement, LMI may be subject to substantial
liabilities.
|
|
Item 1B.
|
UNRESOLVED
STAFF COMMENTS
|
None.
During 2006, we leased our executive offices in Englewood,
Colorado. All of our other real or personal property is owned or
leased by our subsidiaries and affiliates.
Our subsidiaries and affiliates own or lease the fixed assets
necessary for the operation of their respective businesses,
including office space, transponder space, headend facilities,
rights of way, cable television and telecommunications
distribution equipment, telecommunications switches and customer
premises equipment and other property necessary for their
operations. The physical components of their broadband networks
require maintenance and periodic upgrades to support the new
services and products they introduce. Our management believes
that our current facilities are suitable and adequate for our
business operations for the foreseeable future.
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|
Item 3.
|
LEGAL
PROCEEDINGS
|
From time to time, our subsidiaries and affiliates have become
involved in litigation relating to claims arising out of their
operations in the normal course of business. The following is a
description of certain legal proceedings to which one of our
subsidiaries or another company in which we hold an interest is
a party. In our opinion, the ultimate resolution of these legal
proceedings would not likely have a material adverse effect on
our business, results of operations, financial condition or
liquidity.
Cignal. On April 26, 2002, Liberty Global
Europe received a notice that certain former shareholders of
Cignal Global Communications (Cignal) filed a lawsuit against
Liberty Global Europe in the District Court in 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
initial public offering 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. A hearing on the appeal is scheduled
for May 22, 2007.
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 initial public offering 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.
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 has been filed 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
I-46
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 paid in connection
with the LGI Combination and intend to vigorously defend this
action.
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Item 4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
None.
I-47
PART II
|
|
Item 5.
|
MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
|
General
The capitalized terms used in PART II of this Annual Report
on
Form 10-K
have been defined in the notes to our 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.
Market
Information
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 in the LGI Combination. Unless the context
otherwise indicates, pre-LGI Combination shares of LMI common
stock or UGC common stock are presented in terms of the number
of shares of LGI common stock issued in exchange for such LMI or
UGC shares in the LGI Combination.
We have three series of common stock, LGI Series A, LGI
Series B and LGI Series C, which trade on the Nasdaq
National Market under the symbols LBTYA,
LBTYB and LBTYK, respectively. Regular
way trading in LGI Series A, Series B and
Series C common stock began on June 8, 2004. The
following table sets forth the range of high and low sales
prices of shares of LGI Series A, Series B and
Series C common stock for the periods indicated:
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|
|
|
|
|
|
|
|
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|
|
|
|
|
|
Series A
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Series B
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Series C
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High
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|
|
Low
|
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|
High
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|
|
Low
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|
High
|
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Low
|
|
|
Year ended December 31, 2006
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|
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|
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|
|
|
|
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|
|
|
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First quarter
|
|
$
|
22.49
|
|
|
$
|
18.21
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|
|
$
|
22.74
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|
|
$
|
19.05
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|
|
$
|
21.11
|
|
|
$
|
17.43
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|
Second quarter
|
|
$
|
23.80
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|
|
$
|
20.17
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|
|
$
|
24.18
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|
|
$
|
19.94
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|
|
$
|
23.25
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|
|
$
|
19.54
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Third quarter
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|
$
|
26.04
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|
|
$
|
20.33
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|
|
$
|
26.00
|
|
|
$
|
20.85
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|
|
$
|
25.45
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|
|
$
|
19.87
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Fourth quarter
|
|
$
|
29.33
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|
|
$
|
25.04
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|
|
$
|
29.39
|
|
|
$
|
25.05
|
|
|
$
|
28.19
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|
|
$
|
24.31
|
|
Year ended December 31, 2005
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|
|
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|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
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First quarter
|
|
$
|
24.50
|
|
|
$
|
21.81
|
|
|
$
|
26.33
|
|
|
$
|
23.76
|
|
|
$
|
23.56
|
|
|
$
|
21.12
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|
Second quarter
|
|
$
|
24.86
|
|
|
$
|
20.86
|
|
|
$
|
26.10
|
|
|
$
|
22.89
|
|
|
$
|
23.62
|
|
|
$
|
20.27
|
|
Third quarter
|
|
$
|
27.35
|
|
|
$
|
23.40
|
|
|
$
|
29.00
|
|
|
$
|
24.92
|
|
|
$
|
26.38
|
|
|
$
|
22.39
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Fourth quarter
|
|
$
|
27.20
|
|
|
$
|
21.66
|
|
|
$
|
29.36
|
|
|
$
|
22.15
|
|
|
$
|
26.01
|
|
|
$
|
20.60
|
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Holders
As of February 16, 2007, there were 2,746, 144 and 2,870
record holders of LGI Series A, Series B and
Series C common stock, respectively (which amounts do not
include the number of shareholders whose shares are held of
record by banks, brokerage houses or other institutions, but
include each such institution as one record holder).
Dividends
We have not paid any cash dividends on LGI Series A,
Series B and Series C common stock, and we have no
present intention of so doing. Payment of cash dividends, if
any, in the future will be determined by our Board of Directors
in light of our earnings, financial condition and other relevant
considerations. Except for the foregoing, there are currently no
restrictions on our ability to pay dividends in cash or stock,
although credit facilities to which certain of our subsidiaries
are parties would restrict our ability to access their cash for,
among other things, our payment of dividends.
Recent
Sales of Unregistered Securities; Use of Proceeds from
Registered Securities
None.
II-1
Issuer
Purchase of Equity Securities
None were purchased during the fourth quarter of 2006.
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|
Item 6.
|
SELECTED
FINANCIAL DATA
|
The following tables present selected historical financial
information of (i) certain international cable television
and programming subsidiaries and assets of LMIs
predecessor, LMC International, for periods prior to the
June 7, 2004 spin off transaction, whereby LMIs
common stock was distributed on a pro rata basis to Liberty
Medias stockholders as a dividend, and (ii) LGI (as
the successor to LMI) and its consolidated subsidiaries for
periods following such date. Upon consummation of the spin off,
LGI became the owner of the assets that comprise LMC
International. The following selected financial data was derived
from the audited consolidated financial statements of LGI and
its predecessors as of December 31, 2006, 2005, 2004 and
2003 and for the each of the four years ended December 31,
2006. Data for 2002 has been derived from unaudited information.
This information is only a summary, and should be read together
with our consolidated financial statements included elsewhere
herein.
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December 31,
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|
|
2006(1)
|
|
|
2005(1)
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|
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2004(2)
|
|
|
2003
|
|
|
2002
|
|
|
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amounts in millions
|
|
|
Summary Balance Sheet
Data:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Investment in affiliates
|
|
$
|
1,062.7
|
|
|
$
|
789.0
|
|
|
$
|
1,865.6
|
|
|
$
|
1,740.6
|
|
|
$
|
1,145.4
|
|
Other investments
|
|
$
|
477.6
|
|
|
$
|
569.0
|
|
|
$
|
838.6
|
|
|
$
|
450.1
|
|
|
$
|
187.8
|
|
Property and equipment, net
|
|
$
|
8,136.9
|
|
|
$
|
7,991.3
|
|
|
$
|
4,303.1
|
|
|
$
|
97.6
|
|
|
$
|
89.2
|
|
Intangible assets (including
goodwill), net
|
|
$
|
11,698.0
|
|
|
$
|
10,839.9
|
|
|
$
|
3,280.6
|
|
|
$
|
693.5
|
|
|
$
|
696.1
|
|
Total assets
|
|
$
|
25,569.3
|
|
|
$
|
23,378.5
|
|
|
$
|
13,702.4
|
|
|
$
|
3,687.0
|
|
|
$
|
2,800.9
|
|
Debt and capital lease
obligations, including current portion
|
|
$
|
12,230.1
|
|
|
$
|
10,115.0
|
|
|
$
|
4,992.7
|
|
|
$
|
54.1
|
|
|
$
|
35.3
|
|
Stockholders equity
|
|
$
|
7,247.1
|
|
|
$
|
7,816.4
|
|
|
$
|
5,237.1
|
|
|
$
|
3,418.6
|
|
|
$
|
2,708.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2006(1)
|
|
|
2005(1)
|
|
|
2004(2)
|
|
|
2003
|
|
|
2002
|
|
|
|
amounts in millions, except per share amounts
|
|
|
Summary Statement of Operations
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
6,487.5
|
|
|
$
|
4,517.3
|
|
|
$
|
2,112.8
|
|
|
$
|
108.4
|
|
|
$
|
100.3
|
|
Operating income (loss)
|
|
$
|
352.3
|
|
|
$
|
250.1
|
|
|
$
|
(275.8
|
)
|
|
$
|
(1.5
|
)
|
|
$
|
(39.1
|
)
|
Share of results of affiliates, net
|
|
$
|
13.0
|
|
|
$
|
(23.0
|
)
|
|
$
|
38.7
|
|
|
$
|
13.7
|
|
|
$
|
(331.2
|
)
|
Earnings (loss) from continuing
operations(3)
|
|
$
|
(334.0
|
)
|
|
$
|
(59.6
|
)
|
|
$
|
7.0
|
|
|
$
|
20.9
|
|
|
$
|
(329.9
|
)
|
Earnings (loss) from continuing
operations per common share (pro forma for spin off in 2004 and
2003)(4)
|
|
$
|
(0.76
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
0.02
|
|
|
$
|
0.07
|
|
|
|
N/A
|
|
|
|
|
(1) |
|
Prior to 2005, we accounted for our interest in Super
Media/J:COM using the equity method. As a result of a change in
the corporate governance of Super Media that occurred on
February 18, 2005, we began accounting for Super Media and
J:COM as consolidated subsidiaries effective January 1,
2005. In addition, on June 15, 2005, we completed the LGI
Combination 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. We also completed a number of other
acquisitions during 2006 and 2005. For additional information,
see note 5 to our consolidated financial statements. |
|
(2) |
|
Prior to January 1, 2004, the substantial majority of our
operations were conducted through equity method affiliates,
including UGC, J:COM and Jupiter TV. In January 2004, we
completed a transaction that increased our companys
ownership in UGC and enabled our company to fully exercise our
voting rights with respect to our historical investment in UGC.
As a result, UGC has been accounted for as a consolidated
subsidiary and |
II-2
|
|
|
|
|
included in our consolidated financial position and results of
operations since January 1, 2004. For additional
information regarding the consolidation of UGC and other 2004
acquisitions, see note 5 to our consolidated financial
statements. |
|
(3) |
|
Our net loss in 2002 included our share of UGCs net losses
of $190.2 million. Because we had no commitment to make
additional capital contributions to UGC, we suspended recording
our share of UGCs losses when our carrying value was
reduced to zero in 2002. In addition, our net loss in 2002
included $247.4 million of
other-than-temporary
declines in fair values of investments. |
|
(4) |
|
Earnings per common share amounts for 2004 and 2003 were
computed assuming that the shares issued in the spin off were
outstanding since January 1, 2003. For additional
information, see note 3 to our consolidated financial
statements. |
|
|
Item 7.
|
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 and should be
read in conjunction with our consolidated financial statements.
This discussion is organized as follows:
|
|
|
|
|
Overview. This section provides a general
description of our business and recent events.
|
|
|
|
Results of Operations. This section provides
an analysis of our results of operations for the years ended
December 31, 2006, 2005 and 2004.
|
|
|
|
Liquidity and Capital Resources. This section
provides an analysis of our corporate and subsidiary liquidity,
consolidated cash flow statements, our off balance sheet
arrangements and contractual commitments.
|
|
|
|
Critical Accounting Policies, Judgments and
Estimates. This section discusses those
accounting policies that contain uncertainties and require
significant judgment in their application.
|
|
|
|
Quantitative and Qualitative Disclosures about Market
Risk. This section provides discussion and
analysis of the foreign currency, interest rate and other market
risks that our company faces.
|
Unless otherwise indicated, convenience translations into U.S.
dollars are calculated as of December 31, 2006.
Overview
We are an international broadband communications provider of
video, voice and broadband Internet access services with
consolidated broadband operations at December 31, 2006 in
16 countries (excluding Belgium see note 7 to
our consolidated financial statements). Our operations are
primarily in Europe, Japan and Chile. Through our indirect
wholly owned subsidiaries, UPC Holding and LG Switzerland, we
provide broadband communications services in 10 European
countries (excluding Belgium). LG Switzerland holds our 100%
ownership in Cablecom, a broadband communications operator in
Switzerland. The broadband communications operations of UPC
Holding and LG Switzerland are collectively referred to as the
UPC Broadband Division. 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 certain of
our broadband operations, primarily in Europe.
Through our subsidiaries and affiliates, we are the largest
international broadband communications operator in terms of
subscribers. At December 31, 2006, our consolidated
subsidiaries (excluding UPC Belgium) owned and operated networks
that passed 27.6 million homes and served 19.4 million
revenue generating units (RGUs),
II-3
consisting of 12.9 million video subscribers,
3.8 million broadband Internet subscribers and
2.7 million telephony subscribers.
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%. At December 31, 2006, we owned an
indirect 36.6% interest in J:COM through our 58.7% controlling
interest in Super Media and Super Medias 62.5% 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
that have expanded our footprint and the scope of our business.
In Europe, our recent acquisitions include:
|
|
|
|
(i)
|
PHL, the immediate parent of Chorus Communications Limited
(Chorus), a broadband communications provider in Ireland, on
May 20, 2004;
|
|
|
(ii)
|
a controlling interest in Zonemedia, a video programming company
in Europe, on January 7, 2005;
|
|
|
(iii)
|
NTL Ireland, a broadband communications provider in Ireland, on
May 9, 2005 (as further described below);
|
|
|
(iv)
|
Telemach, a broadband communications provider in Slovenia, on
February 10, 2005;
|
|
|
(v)
|
Astral, a broadband communications provider in Romania, on
October 14, 2005;
|
|
|
(vi)
|
Cablecom, a broadband communications provider in Switzerland on
October 24, 2005;
|
|
|
(vii)
|
IPS, an indirect subsidiary of Chellomedia that provides
thematic television channels in Spain and Portugal, on
November 23, 2005;
|
|
|
(viii)
|
INODE, an unbundled DSL provider in Austria, on March 2,
2006; and
|
|
|
(ix)
|
Karneval, a broadband communications provider in the Czech
Republic, on September 18, 2006 (as further described
below).
|
UPC Ireland, through its contractual relationship with MS Irish
Cable and MSDW Equity, began consolidating NTL Ireland effective
May 1, 2005 for financial reporting purposes, 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, 2005 and 2004 operating
results.
In connection with Unite Holdcos September 18, 2006
acquisition of Karneval, 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. On December 28, 2006,
following the receipt of regulatory approvals, Liberty Global
Europe completed its acquisition of Unite Holdco and settled the
total return swap agreements with each of AIL and Deutsche. In
the following discussion and analysis of our results of
operations, we collectively refer to the September 18, 2006
consolidation and the December 28, 2006 acquisition of
Karneval as the acquisition of Karneval, with such
acquisition considered to be effective as of September 30,
2006 for purposes of comparing our 2006 and 2005 operating
results.
In Japan, J:COM acquired (i) a 92% ownership interest in
J:COM Chofu Cable on February 25, 2005, (ii) a 100%
interest in J:COM Setamachi on September 30, 2005 and
(iii) 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.
On April 13, 2005, VTR acquired a controlling interest in
Metrópolis, a broadband communications provider in Chile.
In connection with this transaction, UGCs ownership
interest in VTR decreased from 100% to 80%.
II-4
In addition, on December 14, 2005 we completed a
transaction that increased our indirect ownership of Austar 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.
We have also completed a number of less significant acquisitions
in Europe and Japan. For additional information concerning our
closed acquisitions, see note 5 to our consolidated
financial statements.
On December 31, 2006 we completed the sale of our
operations in Belgium to Telenet. Due to our continuing
ownership interest in Telenet, we have not accounted for UPC
Belgium as a discontinued operation. See note 7 to our
consolidated financial statements.
As further discussed in note 6 to our consolidated
financial statements, our 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 cash flows that we present and discuss
are those of our continuing operations.
From a strategic perspective, 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 22 to our 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. We also seek to
leverage the reach of our broadband distribution systems to
create new content opportunities in order to increase our
distribution presence and maximize operating efficiencies. As
discussed further under Liquidity and Capital
Resources Capitalization below, we also seek to
maintain our debt at levels that provide for attractive equity
returns without assuming undue risk.
From an operational perspective, we focus on achieving organic
revenue growth in our broadband communications operations by
developing and marketing bundled entertainment, information and
communications services, and extending and upgrading the quality
of our networks where appropriate. (As we use the term, organic
growth excludes the effects of foreign currency exchange rate
fluctuations and acquisitions.) While we seek to obtain new
customers, we also seek to increase the average revenue we
receive from each household by increasing the penetration of our
digital video, broadband Internet and telephony services with
existing customers through product bundling and upselling or by
migrating analog video customers to digital video services that
include various incremental service offerings, as described
below. We plan to continue to employ this strategy to achieve
organic revenue and RGU growth in 2007. Although we continue to
believe that demand for our service offerings is strong, our
ability to sustain our current level of organic revenue and RGU
growth in future periods may be impacted by competitive,
technological or regulatory developments outside of our control.
Moreover, our ability to maintain or increase our monthly
subscription fees for our service offerings is limited by
competitive and, to a lesser extent, regulatory factors. As
such, we expect that most of our organic revenue growth in 2007
will be attributable to RGU growth.
Including the effects of acquisitions, our continuing operations
added a total of 2.5 million RGUs during 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 1.6 million
during 2006. Most of our organic RGU growth is attributable to
the growth of our broadband 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.
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
and premium programming and, in some markets, incremental
service offerings such as enhanced
pay-per-view
programming (including
video-on-demand
and near
video-on-demand),
personal video recorders and high definition television services.
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
II-5
modems. We determine pricing for each different tier of
broadband Internet access service through analysis of speed,
data limits, market conditions and other factors.
We offer telephony services in Austria, Chile, Czech Republic,
Hungary, Ireland, Japan, The Netherlands, Poland, Puerto Rico,
Romania, Slovak Republic, and Switzerland, primarily over our
broadband networks. In Austria, Chile, Hungary, Ireland, Japan
and The Netherlands, we provide circuit switched telephony
services and
voice-over-Internet-protocol,
or VoIP telephony services. Telephony services in
the remaining countries are provided using VoIP technology. In
select markets, we also offer mobile telephony services using
third party networks.
The video, telephony and broadband 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 broadband Internet access technology changes and
competition increases, we may 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.
Results
of Operations
In addition to the Discussion and Analysis of our Historical
Operating Results, we have also included an analysis of our
operating results based on the approach we use to analyze our
reportable segments. This approach includes J:COMs
revenue, operating expenses, SG&A expenses and operating
cash flow on a consolidated basis during 2004, notwithstanding
the fact that we used the equity method to account for J:COM
during 2004. As further described below, we believe that the
Discussion and Analysis of our Reportable Segments that
appears below provides a more meaningful basis for comparing our
revenue, operating expenses and SG&A expenses than does our
historical discussion. The Discussion and Analysis of our
Historical Operating Results immediately follows the
Discussion and Analysis of our Reportable Segments.
The comparability of our operating results during 2006, 2005 and
2004 is affected by acquisitions, including (i) our
acquisitions of INODE and Karneval, and J:COMs acquisition
of Cable West during 2006, (ii) our consolidation of J:COM,
our acquisitions of Cablecom, NTL Ireland, Astral, Austar, IPS,
Telemach, Zonemedia and Metrópolis, and J:COMs
acquisitions of Chofu Cable and J:COM Setamachi during 2005, and
(iii) our acquisition of Chorus during 2004. 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. In the following discussion, we quantify the impact
of acquisitions on our results of operations. The acquisition
impact represents our estimate of the difference between the
operating results of the periods under comparison that is
attributable to the timing of an acquisition. In general, we
base our estimate of the acquisition impact on an acquired
entitys operating results during the first three months
following the acquisition date such that changes from those
operating results in subsequent periods are considered to be
organic changes.
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 Japanese yen and the euro. In this regard,
29.4% and 28.5% of our U.S. dollar revenue during 2006 was
derived from subsidiaries whose functional currency is the
Japanese yen and the euro, 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 December 31, 2006, we owned, an indirect 36.6% interest
in J:COM that we hold through our interest in Super Media, an
80% interest in VTR and a 53.4% interest in Austar (which we
report in our corporate and other category for segment reporting
purposes). However, as we control Super Media/J:COM, VTR, and
Austar, GAAP requires that we consolidate 100% of the revenue
and expenses of these entities in our consolidated statements of
operations. The minority owners interests in the operating
results of J:COM, VTR, Austar and other less significant
II-6
majority owned subsidiaries are reflected in minority interests
in losses (earnings) of subsidiaries, net, in our consolidated
statements of operations. 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, the other member of Super Media, effectively has the
ability to prevent our company from consolidating J:COM after
February 2010.
Discussion
and Analysis of our Reportable Segments
For purposes of evaluating the performance of our reportable
segments, we compare and analyze 100% of the revenue and
operating cash flow of our reportable segments regardless of
whether we use the consolidation or equity method to account for
such reportable segments. Accordingly, in the following tables,
we have presented 100% of the revenue, operating expenses,
SG&A expenses and operating cash flow of our reportable
segments, notwithstanding the fact that we used the equity
method to account for our investment in J:COM during 2004. The
revenue, operating expenses, SG&A expenses and operating
cash flow of J:COM for 2004 is then eliminated to arrive at the
reported amounts. It should be noted, however, that this
presentation is not in accordance with GAAP since the results of
equity method investments are required to be reported on a net
basis.
All of the reportable segments set forth below provide broadband
communications services, including video, voice and broadband
Internet access services. Certain segments also provide CLEC and
other business-to-business communications (B2B) services. During
2006, our operating segments in the UPC Broadband Division
provided services in 11 European countries, including our
operations in Belgium, which we sold to Telenet on
December 31, 2006. Other Western Europe included 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. J:COM provides
broadband communications services in Japan. VTR provides
broadband communications services in Chile. 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 Peru and video programming and other services in
Europe and Argentina and (ii) our corporate category.
Intersegment eliminations primarily represents 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 systems, network operations, technology,
marketing, facilities, finance, legal and other administrative
costs. During 2005 and 2004, the UPC Broadband Divisions
central and corporate costs included certain programming costs
that were considered to be in excess of market rates. 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.
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 (loss) before income taxes, minority
interests and discontinued operations, see note 22 to our
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
II-7
compensation expense in accordance with our definition of
operating cash flow) as well as an analysis of operating cash
flow by reportable segment for 2006, as compared to 2005, and
2005, as compared to 2004. In each case, the tables present
(i) the amounts reported by each of our reportable segments
for the comparative 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.
We also provide a table showing the operating cash flow margins
(operating cash flow divided by revenue) of our reportable
segments for 2006, 2005 and 2004 at the end of this section.
As discussed above, acquisitions have significantly affected the
comparability of the results of operations of our reportable
segments. For additional information, see the discussion under
Overview above and note 5 to our consolidated
financial statements.
Revenue
of our Reportable Segments
Revenue
Years ended December 31, 2006 and 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
|
|
|
|
|
|
|
(decrease)
|
|
|
Year ended December 31,
|
|
Increase (decrease)
|
|
excluding FX
|
|
|
2006
|
|
2005
|
|
$
|
|
%
|
|
%
|
|
|
amounts in millions, except % amounts
|
|
UPC Broadband Division:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$
|
923.9
|
|
|
$
|
857.3
|
|
|
$
|
66.6
|
|
|
|
7.8
|
|
|
|
6.7
|
|
Switzerland
|
|
|
771.8
|
|
|
|
122.1
|
|
|
|
649.7
|
|
|
|
532.1
|
|
|
|
505.0
|
|
Austria
|
|
|
420.0
|
|
|
|
329.0
|
|
|
|
91.0
|
|
|
|
27.7
|
|
|
|
26.3
|
|
Other Western Europe
|
|
|
306.4
|
|
|
|
228.2
|
|
|
|
78.2
|
|
|
|
34.3
|
|
|
|
31.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
2,422.1
|
|
|
|
1,536.6
|
|
|
|
885.5
|
|
|
|
57.6
|
|
|
|
54.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
307.1
|
|
|
|
281.4
|
|
|
|
25.7
|
|
|
|
9.1
|
|
|
|
14.8
|
|
Other Central and Eastern Europe
|
|
|
578.1
|
|
|
|
370.3
|
|
|
|
207.8
|
|
|
|
56.1
|
|
|
|
48.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
885.2
|
|
|
|
651.7
|
|
|
|
233.5
|
|
|
|
35.8
|
|
|
|
34.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central and corporate operations
|
|
|
17.9
|
|
|
|
3.3
|
|
|
|
14.6
|
|
|
|
442.4
|
|
|
|
418.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total UPC Broadband Division
|
|
|
3,325.2
|
|
|
|
2,191.6
|
|
|
|
1,133.6
|
|
|
|
51.7
|
|
|
|
48.7
|
|
J:COM (Japan)
|
|
|
1,906.3
|
|
|
|
1,662.1
|
|
|
|
244.2
|
|
|
|
14.7
|
|
|
|
21.2
|
|
VTR (Chile)
|
|
|
558.9
|
|
|
|
444.2
|
|
|
|
114.7
|
|
|
|
25.8
|
|
|
|
19.8
|
|
Corporate and other
|
|
|
768.3
|
|
|
|
264.2
|
|
|
|
504.1
|
|
|
|
190.8
|
|
|
|
189.1
|
|
Intersegment eliminations
|
|
|
(71.2
|
)
|
|
|
(44.8
|
)
|
|
|
(26.4
|
)
|
|
|
(58.9
|
)
|
|
|
(56.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated LGI
|
|
$
|
6,487.5
|
|
|
$
|
4,517.3
|
|
|
$
|
1,970.2
|
|
|
|
43.6
|
|
|
|
43.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General. 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 B2B services. In the following discussion, we use the term
subscription revenue to refer to amounts received
from subscribers, excluding installation fees and mobile
telephony revenue.
The Netherlands. The Netherlands revenue
increased $66.6 million or 7.8% during 2006, as compared to
2005. Excluding the effects of foreign exchange rate
fluctuations and an acquisition, The Netherlands revenue
increased $51.3 million or 6.0%. This increase is
attributable to an increase in subscription revenue and, to a
lesser extent, higher non-subscription revenue.
II-8
The increase in subscription revenue during 2006 is due
primarily to higher average RGUs, as increases in average
telephony and broadband Internet RGUs were only partially offset
by a decline in average video RGUs. The decline in average video
RGUs includes a decline in average analog video RGUs that was
not fully offset by a gain in digital video RGUs. The decline in
average video RGUs is due largely to the effects of competition.
A slight increase in the average monthly subscription revenue
received per RGU (ARPU) also contributed to the increase, as the
positive effects of (i) a January 2006 rate increase for
analog video services and (ii) an increase of
$6.6 million, due primarily to the release of deferred
revenue (including $4.8 million of deferred revenue that
was released during the fourth quarter of 2006) in
connection with rate settlements with certain municipalities,
were largely offset by the following negative factors:
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|
a decrease in the average rates charged for digital video
services due to price decreases during the fourth quarter of
2005 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 below);
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an increase in discounting in connection with campaigns designed
to promote product bundling;
|
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|
|
a decrease in ARPU from broadband Internet services due to a
higher proportion of customers selecting lower-priced tiers and
competitive factors; and
|
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|
|
a decrease in ARPU from telephony services due to competitive
factors and lower call volumes.
|
As discussed below, we would expect our video services revenue
to be positively impacted to the extent that new subscribers to
our digital video services are retained beyond the applicable
promotional period.
The increase in The Netherlands non-subscription revenue
during 2006 is due primarily to increases in revenue from B2B
services, mobile telephony services (including mobile handset
sales) and interconnect fees, partially offset by lower revenue
from installation fees. Revenue from B2B services, after taking
into account intercompany eliminations, contributed
$13.8 million to the increase in The Netherlands
non-subscription revenue during 2006. Revenue from mobile
telephony services was higher in 2006 primarily because such
services were not offered by The Netherlands until the third
quarter of 2005. The lower installation fees are principally
related to a higher percentage of customers performing
self-installations.
In October 2005, we initiated a program to migrate over time The
Netherlands analog video cable customers to digital video
service, which we refer to as the
digital-for-all
or D4A program. In the D4A program, we provide the
customer with a digital interactive television box and, for a
promotional period following acceptance of the box, the digital
entry level service at no incremental charge to the customer
over the standard analog rate. Effective January 1, 2007,
this promotional pricing period was reduced from six months to
three months. To the extent that digital video subscribers are
retained after the promotional pricing period has elapsed, The
Netherlands ARPU from video services will be positively
impacted. As of December 31, 2006, the promotional pricing
period had elapsed for over 50% of The Netherlands digital
video subscribers. 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. 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 significantly higher operating,
marketing and other costs during 2006 as compared to 2005, in
connection with the D4A 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 D4A program in an attempt to determine the most
cost-effective way to convert analog video subscribers to
digital video subscribers. During the second half of 2006, we
added a lower number of digital video RGUs as compared to the
first half of 2006. This decline is principally associated with
the adoption of a more selective approach to distributing
digital interactive television boxes to subscribers. As a result
of the adoption of this more selective approach, we expect a
more gradual pacing of our D4A 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
II-9
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 D4A program and in
the following periods, no assurance can be given as to the
impact of this program on The Netherlands future operating
results.
The rates charged for The Netherlands analog video
services are subject to rate regulation. For a description of
recent regulatory developments in The Netherlands, see
note 21 to our consolidated financial statements. Adverse
outcomes from regulatory initiatives could have a significant
negative impact on our ability to maintain or increase revenue
in The Netherlands.
Switzerland. Switzerlands revenue
increased $649.7 million or 532.1% during 2006, as compared
to 2005. This increase includes a $576.0 million increase
that is attributable to the impact of the October 2005 Cablecom
acquisition. Excluding the effects of foreign exchange rate
fluctuations and the Cablecom acquisition, Switzerlands
revenue increased $40.6 million or 33.3%, including organic
growth that occurred during the ten months ended
October 31, 2006. Most of this increase is attributable to
an increase in subscription revenue as the number of average
broadband Internet, telephony and video RGUs was higher in 2006
as compared to 2005. ARPU increased slightly during 2006, as the
positive effects of a January 2006 price increase for analog
video services and a higher proportion of subscribers selecting
digital video services over analog video services were only
partially offset by lower ARPU from telephony and broadband
Internet services. ARPU from telephony service decreased during
2006 primarily due to the impact of competitive factors. ARPU
from broadband Internet services decreased during 2006 primarily
due to customers selecting lower-priced tiers of service.
Excluding organic revenue growth that occurred during the ten
months ended October 31, 2006, Switzerlands revenue
increased 16.5% during the two months ended December 31,
2006, as compared to the corresponding prior year period in
which we owned Cablecom. Due in part to the fact that we do not
expect to increase our rates for analog video services in
Switzerland during 2007, we expect that Switzerlands
revenue growth rate during 2007 will decline to a rate that will
range from 8% to 10%.
Austria. Austrias revenue increased
$91.0 million or 27.7% during 2006, as compared to 2005.
This increase includes a $73.7 million increase that is
attributable to the impact of the March 2006 INODE acquisition.
Excluding the effects of the INODE acquisition and foreign
exchange rate fluctuations, Austrias revenue increased
$13.0 million or 3.9%. The majority of this increase is
attributable to an increase in subscription revenue, as the
positive effects of higher average RGUs were partially offset by
a slight decline in ARPU. The increase in average RGUs during
2006 is attributable to a significant increase in the average
number of broadband Internet RGUs, as a small increase in the
average number of telephony RGUs largely offset a small decrease
in the average number of video RGUs. The slight decline in ARPU
during 2006 is attributable to lower ARPU from broadband
Internet and telephony services, primarily as a result of an
increase in discounting due to competitive factors. In addition,
ARPU from telephony services decreased due to (i) the 2006
introduction in Austria of VoIP telephony services, which
generally are priced slightly lower than Austrias circuit
switched telephony service and (ii) lower telephony call
volume resulting from increased customer usage of
off-network
calling plans. These negative factors were partially offset by
the positive impact of a January 2006 rate increase for analog
video services and an increase in subscribers selecting premium
digital services. Telephony revenue in Austria decreased
somewhat during 2006, as the negative effect of the decrease in
telephony ARPU more than offset the positive impact of higher
average telephony RGUs. Increases in revenue from B2B services,
installation fees and other non-subscription revenue also
contributed to the increase in Austrias revenue.
Other Western Europe. Other Western
Europes revenue increased $78.2 million or 34.3%
during 2006 as compared to 2005. This increase includes a
$47.8 million increase that is attributable to the May 2005
NTL Ireland acquisition. Excluding the effects of the NTL
Ireland acquisition and foreign exchange rate fluctuations,
Other Western Europes revenue increased $24.3 million
or 10.6%. Most of this increase is attributable to higher
subscription revenue, as the number of average broadband
Internet and video RGUs was higher in 2006 as compared to 2005.
A slight increase in ARPU also contributed to the increase in
subscription revenue, as the positive impact of a January 2006
rate increase for analog video services in Ireland was only
partially offset by the
II-10
negative effects of (i) higher discounting due to
competitive factors and (ii) an increase in the proportion
of subscribers selecting lower-priced broadband Internet tiers.
Hungary. Hungarys revenue increased
$25.7 million or 9.1% during 2006, as compared to 2005.
Excluding the effects of foreign exchange rate fluctuations,
Hungarys revenue increased $41.6 million or 14.8%.
This increase is attributable to an increase in subscription
revenue that was only partially offset by a decrease in
telephony transit revenue, as discussed below. Most of this
increase in subscription revenue is attributable to increases in
the average number of broadband Internet, telephony and DTH RGUs
and, to a lesser extent, analog video RGUs. An increase in ARPU
also contributed to the increase in subscription revenue as the
positive effect of a January 2006 rate increase for analog video
services was only partially offset by the negative impacts on
ARPU of (i) an increase in discounting due to competitive
factors, (ii) a higher proportion of customers selecting
lower-priced broadband Internet tiers, (iii) growth in
Hungarys VoIP telephony services, which generally are
priced lower than Hungarys circuit switched telephony
services, and (iv) lower telephony call volume. During each
of the last three quarters of 2006, Hungary experienced slight
organic declines in video RGUs, primarily due to the effects of
competition from an alternative DTH provider. As noted above,
Hungarys comparatively low-margin telephony transit
service revenue decreased by $10.3 million during 2006, as
compared to 2005. This decrease 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
$207.8 million or 56.1% during 2006, as compared to 2005.
This increase includes a $113.6 million increase that is
attributable to the aggregate impact of the October 2005 Astral
and the February 2005 Telemach acquisitions and other less
significant acquisitions. Excluding the effects of these
acquisitions and foreign exchange rate fluctuations, Other
Central and Eastern Europes revenue increased
$64.4 million or 17.4% during 2006. This increase is
attributable to an increase in subscription revenue, as the
number of average RGUs was higher in 2006 as compared to 2005.
Higher ARPU during 2006 also contributed to the increase in
subscription revenue. The growth in RGUs during 2006 is
attributable to increases in the average number of broadband
Internet, video and telephony RGUs, with most of the broadband
Internet growth occurring in Poland, Romania and the Czech
Republic, most of the video growth occurring in the Czech
Republic and Romania, and most of the telephony growth
attributable to the expansion of VoIP telephony services in
Poland and Romania. ARPU increased during 2006 as the positive
effects of rate increases for video services in certain
countries and an increase in the number of customers selecting
premium video services in Romania more than offset the negative
effects of a higher proportion of broadband Internet subscribers
selecting lower-priced tiers and higher discounting related to
increased competition. 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 the Slovak
Republic, increased competition and other factors have resulted
in the loss of a number of multi-channel multi-point (microwave)
distribution system (MMDS) RGUs during 2006.
J:COM (Japan). J:COMs revenue increased
$244.2 million or 14.7% during 2006, as compared to 2005.
This increase includes a $139.8 million increase that is
attributable to the aggregate impact of the September 2006 Cable
West, February 2005 J:COM Chofu Cable and the September 2005
J:COM Setamachi acquisitions and other less significant
acquisitions. Excluding the effects of these acquisitions and
foreign exchange rate fluctuations, J:COMs revenue
increased $212.1 million or 12.8%. Most of this increase is
attributable to an increase in subscription revenue, primarily
due to increases in the average number of J:COMs
telephony, broadband Internet and video RGUs during 2006. ARPU
remained relatively constant, as the positive effects of an
increased proportion of subscribers selecting digital video
services over analog video services and higher-speed broadband
Internet services over lower-speed alternatives were largely
offset by the negative effects of an increase in product
bundling discounts and lower telephony ARPU due to decreases in
customer call volumes. Increases in construction services and
advertising revenue and other non-subscription revenue also
contributed to the increase in J:COMs revenue.
VTR (Chile). VTRs revenue increased
$114.7 million or 25.8% during 2006, as compared to 2005.
This increase includes a $19.2 million increase
attributable to the April 2005 Metrópolis acquisition.
Excluding the effects of the Metrópolis acquisition and
foreign exchange rate fluctuations, VTRs revenue increased
$68.6 million or 15.5%. Most of this increase is
attributable to an increase in subscription revenue, due
primarily to growth in the
II-11
average number of VTRs broadband Internet, telephony and
digital video RGUs. ARPU declined slightly during 2006, as the
positive effects of (i) January and August 2006 inflation
adjustments to rates for video services and (ii) an
increase in the proportion of subscribers selecting digital
video services over analog video services were more than offset
by the negative impacts of an increase in product bundling and
promotional discounts.
Revenue
Years ended December 31, 2005 and 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
|
|
|
|
|
|
|
(decrease)
|
|
|
Year ended December 31,
|
|
Increase (decrease)
|
|
excluding FX
|
|
|
2005
|
|
2004
|
|
$
|
|
%
|
|
%
|
|
|
amounts in millions, except % amounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UPC Broadband Division:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$
|
857.3
|
|
|
$
|
793.7
|
|
|
$
|
63.6
|
|
|
|
8.0
|
|
|
|
8.0
|
|
Switzerland
|
|
|
122.1
|
|
|
|
|
|
|
|
122.1
|
|
|
|
N.M.
|
|
|
|
N.M.
|
|
Austria
|
|
|
329.0
|
|
|
|
313.2
|
|
|
|
15.8
|
|
|
|
5.0
|
|
|
|
4.9
|
|
Other Western Europe
|
|
|
228.2
|
|
|
|
86.1
|
|
|
|
142.1
|
|
|
|
165.0
|
|
|
|
167.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
1,536.6
|
|
|
|
1,193.0
|
|
|
|
343.6
|
|
|
|
28.8
|
|
|
|
28.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
281.4
|
|
|
|
217.4
|
|
|
|
64.0
|
|
|
|
29.4
|
|
|
|
27.6
|
|
Other Central and Eastern Europe
|
|
|
370.3
|
|
|
|
252.3
|
|
|
|
118.0
|
|
|
|
46.8
|
|
|
|
35.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
651.7
|
|
|
|
469.7
|
|
|
|
182.0
|
|
|
|
38.7
|
|
|
|
31.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central and corporate operations
|
|
|
3.3
|
|
|
|
1.2
|
|
|
|
2.1
|
|
|
|
175.0
|
|
|
|
200.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total UPC Broadband Division
|
|
|
2,191.6
|
|
|
|
1,663.9
|
|
|
|
527.7
|
|
|
|
31.7
|
|
|
|
29.7
|
|
J:COM (Japan)
|
|
|
1,662.1
|
|
|
|
1,504.7
|
|
|
|
157.4
|
|
|
|
10.5
|
|
|
|
13.5
|
|
VTR (Chile)
|
|
|
444.2
|
|
|
|
300.0
|
|
|
|
144.2
|
|
|
|
48.1
|
|
|
|
35.6
|
|
Corporate and other
|
|
|
264.2
|
|
|
|
165.7
|
|
|
|
98.5
|
|
|
|
59.4
|
|
|
|
60.2
|
|
Intersegment eliminations
|
|
|
(44.8
|
)
|
|
|
(16.8
|
)
|
|
|
(28.0
|
)
|
|
|
(166.7
|
)
|
|
|
(168.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total LGI before elimination of
equity affiliate
|
|
|
4,517.3
|
|
|
|
3,617.5
|
|
|
|
899.8
|
|
|
|
24.9
|
|
|
|
24.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Elimination of equity affiliate
(J:COM)
|
|
|
|
|
|
|
(1,504.7
|
)
|
|
|
1,504.7
|
|
|
|
N.M.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated LGI
|
|
$
|
4,517.3
|
|
|
$
|
2,112.8
|
|
|
$
|
2,404.5
|
|
|
|
113.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N.M. Not Meaningful
The Netherlands. The Netherlands revenue
increased $63.6 million or 8.0% during 2005, as compared to
2004. Excluding the effects of foreign exchange rate
fluctuations and an acquisition, The Netherlands revenue
increased $44.4 million or 5.6%. The majority of this
increase is attributable to an increase in subscription revenue,
due primarily to higher average RGUs, as increases in average
telephony and broadband Internet RGUs were only partially offset
by a decrease in average video RGUs. ARPU during 2005 increased
as compared to 2004, as the positive impact of a rate increase
in January 2005 for video services was only partially offset by
the negative impact of decreases in ARPU from broadband Internet
and telephony services due to competitive factors and an
increase in the proportion of broadband Internet customers
selecting lower priced tiers. The decrease in broadband Internet
ARPU, which was only partially offset by an increase in average
broadband Internet RGUs, resulted in a slight decrease in The
Netherlands subscription revenue from broadband Internet
services during 2005, as compared to 2004. Increases in revenue
from B2B services and other non-subscription revenue also
contributed to the increase in The Netherlands revenue.
In October 2005, we initiated a program to migrate substantially
all of our analog video subscribers to digital video services in
The Netherlands. For further information on The
Netherlands D4A program, see above discussion under
Revenue Years ended December 31, 2006 and
2005 The Netherlands.
II-12
Austria. Austrias revenue increased
$15.8 million or 5.0% during 2005, as compared to 2004.
Excluding the effects of foreign exchange rate fluctuations,
Austrias revenue increased $15.4 million or 4.9%.
Most of this increase is attributable to higher subscription
revenue, due primarily to higher average broadband Internet RGUs
during 2005. ARPU during 2005 increased slightly as compared to
2004, reflecting the net effect of (i) higher ARPU
associated with rate increases in January 2005 for analog video
services, (ii) lower ARPU from broadband Internet services
reflecting competitive factors and an increase in the proportion
of subscribers selecting lower tiered products and (iii) a
decrease in ARPU from digital video services, primarily due to
increased competition.
Other Western Europe. Other Western
Europes revenue increased $142.1 million or 165.0%
during 2005, as compared to 2004. This increase includes a
$128.5 million increase attributable to the aggregate
impact of the Chorus and NTL Ireland acquisitions. Excluding the
effects of these acquisitions and foreign exchange rate
fluctuations, Other Western Europes revenue increased
$13.5 million or 15.8%.
Most of this increase is attributable to higher subscription
revenue, due primarily to an increase in ARPU. The increase in
ARPU is primarily attributable to increases in the proportion of
video subscribers selecting the digital product. A slightly
higher average number of broadband Internet and digital video
RGUs also contributed somewhat to the increase in subscription
revenue.
Hungary. Hungarys revenue increased
$64.0 million or 29.4% during 2005, as compared to 2004.
Excluding the effects of foreign exchange rate fluctuations,
Hungarys revenue increased $59.9 million or 27.6%.
Most of this increase is attributable to an increase in
subscription revenue, due primarily to a higher average number
of broadband Internet, DTH and telephony RGUs and, to a lesser
extent, analog RGUs. Subscription revenue was also positively
impacted by higher ARPU, due primarily to rate increases in
January 2005 for video services. The increase in telephony RGUs
was primarily driven by VoIP telephony sales. Increases in
revenue from the comparatively low margin telephony transit
service business and other non-subscription revenue also
contributed to the increase in Hungarys revenue.
Other Central and Eastern Europe. Other
Central and Eastern Europes revenue increased
$118.0 million or 46.8% during 2005, as compared to 2004.
This increase includes a $51.8 million increase
attributable to the aggregate impact of the Telemach and Astral
acquisitions and another less significant acquisition. Excluding
the effects of these acquisitions and foreign exchange rate
fluctuations, Other Central and Eastern Europes revenue
increased $37.7 million or 14.9% during 2005, as compared
to 2004. Most of this increase is due to an increase in
subscription revenue attributable to growth in average RGUs and
higher ARPU. The growth in RGUs during 2005 is primarily
attributable to increases in the average number of broadband
Internet and video RGUs, with most of the broadband Internet
growth in Poland and the Czech Republic, and most of the video
growth in Romania.
J:COM (Japan). J:COMs revenue increased
$157.4 million or 10.5% during 2005, as compared to 2004.
This increase includes a $29.9 million increase
attributable to the aggregate impact of the Chofu Cable and
J:COM Setamachi acquisitions and another less significant
acquisition. Excluding the effects of these acquisitions and
foreign exchange rate fluctuations, J:COMs revenue
increased $173.4 million or 11.5% during 2005, as compared
to 2004. The increase is due to an increase in subscription
revenue due primarily to increases in the average number of
telephony, broadband Internet and video RGUs during 2005, as
compared to 2004. ARPU remained relatively constant as the
negative effects of a decrease in customer call volumes and an
increase in the amount of bundling discounts were offset by 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. Non-subscription revenue decreased
slightly during 2005 as a decrease in installation revenue, due
primarily to increased discounting, was partially offset by
individually insignificant increases in other items.
VTR (Chile). VTRs revenue increased
$144.2 million or 48.1% during 2005, as compared to 2004.
This increase includes a $52.8 million increase
attributable to the impact of the Metrópolis acquisition.
Excluding the effects of the Metrópolis acquisition and
foreign exchange rate fluctuations, VTRs revenue increased
$53.9 million or 18.0% during 2005, as compared to 2004.
Most of the increase is attributable to higher subscription
revenue, primarily due to growth in the average number of
VTRs broadband Internet, telephony and video RGUs. Higher
overall ARPU also contributed to the increase.
II-13
|
|
|
Operating
Expenses of our Reportable Segments
|
Operating
expenses Years ended December 31, 2006 and
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
|
|
|
|
|
|
|
(decrease)
|
|
|
Year ended December 31,
|
|
Increase (decrease)
|
|
excluding FX
|
|
|
2006
|
|
2005
|
|
$
|
|
%
|
|
%
|
|
|
amounts in millions, except % amounts
|
|
UPC Broadband Division:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$
|
328.2
|
|
|
$
|
288.7
|
|
|
$
|
39.5
|
|
|
|
13.7
|
|
|
|
12.4
|
|
Switzerland
|
|
|
268.9
|
|
|
|
51.6
|
|
|
|
217.3
|
|
|
|
421.1
|
|
|
|
398.8
|
|
Austria
|
|
|
152.8
|
|
|
|
112.0
|
|
|
|
40.8
|
|
|
|
36.4
|
|
|
|
35.0
|
|
Other Western Europe
|
|
|
149.3
|
|
|
|
109.3
|
|
|
|
40.0
|
|
|
|
36.6
|
|
|
|
34.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
899.2
|
|
|
|
561.6
|
|
|
|
337.6
|
|
|
|
60.1
|
|
|
|
56.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
116.8
|
|
|
|
119.7
|
|
|
|
(2.9
|
)
|
|
|
(2.4
|
)
|
|
|
2.9
|
|
Other Central and Eastern Europe
|
|
|
219.4
|
|
|
|
141.2
|
|
|
|
78.2
|
|
|
|
55.4
|
|
|
|
47.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
336.2
|
|
|
|
260.9
|
|
|
|
75.3
|
|
|
|
28.9
|
|
|
|
27.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central and corporate operations
|
|
|
77.8
|
|
|
|
75.5
|
|
|
|
2.3
|
|
|
|
3.0
|
|
|
|
2.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total UPC Broadband Division
|
|
|
1,313.2
|
|
|
|
898.0
|
|
|
|
415.2
|
|
|
|
46.2
|
|
|
|
43.4
|
|
J:COM (Japan)
|
|
|
791.9
|
|
|
|
690.1
|
|
|
|
101.8
|
|
|
|
14.8
|
|
|
|
21.1
|
|
VTR (Chile)
|
|
|
240.1
|
|
|
|
190.3
|
|
|
|
49.8
|
|
|
|
26.2
|
|
|
|
20.0
|
|
Corporate and other
|
|
|
501.6
|
|
|
|
184.1
|
|
|
|
317.5
|
|
|
|
172.5
|
|
|
|
170.1
|
|
Intersegment eliminations
|
|
|
(71.9
|
)
|
|
|
(43.2
|
)
|
|
|
(28.7
|
)
|
|
|
(66.4
|
)
|
|
|
(64.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses excluding
stock-based compensation expense
|
|
|
2,774.9
|
|
|
|
1,919.3
|
|
|
|
855.6
|
|
|
|
44.6
|
|
|
|
44.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
7.0
|
|
|
|
9.9
|
|
|
|
(2.9
|
)
|
|
|
(29.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated LGI
|
|
$
|
2,781.9
|
|
|
$
|
1,929.2
|
|
|
$
|
852.7
|
|
|
|
44.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General. Operating expenses include
programming, network operations, interconnect, customer
operations, customer care, stock-based compensation expense and
other direct costs. We do not include stock-based compensation
in the following discussion and analysis of the operating
expenses of our reportable segments as stock-based compensation
expense is not included in the performance measures of our
reportable segments. Stock-based compensation expense is
discussed under the Discussion and Analysis of Our Historical
Operating Results below. 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 $415.2 million
or 46.2% during 2006, as compared to 2005. This increase
includes a $329.0 million increase attributable to the
aggregate impact of the Karneval, Cablecom, NTL Ireland, Astral,
INODE and Telemach acquisitions and other less significant
acquisitions. Excluding the effects of these acquisitions,
foreign exchange rate fluctuations and stock-based compensation
expense, the UPC Broadband Divisions operating expenses
increased $60.7 million or 6.8%, primarily due to the net
effect of the following factors:
|
|
|
|
|
An increase in direct programming and copyright costs of
$20.3 million or 7.7% during 2006, representing the net
effect of (i) a $29.1 million increase in costs for
content and interactive digital services related to subscriber
growth on the digital and DTH platforms and, to a lesser extent,
higher rates charged by certain content providers, and
(ii) an $8.8 million decrease related to the
termination of an unfavorable programming contract in May 2005;
|
II-14
|
|
|
|
|
An increase in telephony network usage and hosting costs of
$14.1 million or 39.3% during 2006, primarily related to an
increase in overall call volumes in The Netherlands;
|
|
|
|
An increase in network related expenses of $8.5 million or
8.3% during 2006, primarily attributable to higher maintenance
costs, primarily in The Netherlands, and an increase in the
costs required to support the higher level of average RGUs
during 2006, as compared to 2005;
|
|
|
|
An increase in salaries and other staff related costs of
$7.2 million or 4.4% during 2006, primarily reflecting
(i) increased overall staffing levels, including the
replacement of temporary personnel and external contractors with
full-time employees, particularly in the customer care and
customer operations areas and (ii) annual wage increases.
These increases were partially offset by a lower number of
full-time employees in Switzerland, cost savings in Ireland
related to the integration of NTL Ireland and Chorus, and higher
levels of labor costs allocated to certain capital projects,
including projects associated with The Netherlands D4A
program and various 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 D4A program, which was launched in October
2005; and
|
|
|
|
increased customer service standard levels.
|
|
|
|
|
|
A $6.9 million decrease (including a $6.1 million
decrease during the fourth quarter of 2006) resulting from
The Netherlands release of accruals during 2006 in
connection with the resolution of certain operational
contingencies;
|
|
|
|
An increase in bad debt expense of $6.4 million during
2006, due primarily to higher revenue from our increasing
subscriber base; and
|
|
|
|
Other individually insignificant increases during 2006,
including increases in the cost of mobile handsets sold in The
Netherlands, and increases in general facilities, outsourced
labor and consultancy, information technologies, postage, travel
and other costs associated with the increased scope of the UPC
Broadband Divisions business.
|
As discussed under Revenue of our Reportable
Segments Years ended December 31, 2006 and
2005 The Netherlands above, we have incurred
significant operating costs during 2006 and, to a lesser extent,
2005 in connection with The Netherlands D4A program.
J:COM (Japan). J:COMs operating expenses
increased $101.8 million or 14.8%, during 2006, as compared
to 2005. This increase includes a $30.9 million increase
that is attributable to the aggregate impact of the Cable West,
J:COM Chofu Cable, J:COM Setamachi acquisitions and other less
significant acquisitions. Excluding the effects of these
acquisitions, foreign exchange rate fluctuations and stock-based
compensation expense, J:COMs operating expenses increased
$114.7 million or 16.6%. This increase, which is primarily
attributable to growth in J:COMs subscriber base, includes
(i) an increase of $46.7 million in programming and
related costs as a result of growth in the number of digital
video customers, (ii) an increase in the costs incurred by
J:COM in connection with construction services provided by J:COM
to affiliates and third parties, (iii) increases in network
operating expenses, maintenance and technical support costs,
(iv) increases in salaries and other staff related costs
and (v) other individually insignificant items.
VTR (Chile). VTRs operating expenses
increased $49.8 million or 26.2%, during 2006, as compared
to 2005. This increase includes an $11.1 million increase
that is attributable to the impact of the Metrópolis
acquisition. Excluding the effects of the Metrópolis
acquisition, foreign exchange rate fluctuations and stock-based
compensation expense, VTRs operating expenses increased
$27.0 million or 14.2%. This increase, which is primarily
attributable to growth in VTRs subscriber base, is
primarily the result of increases in customer care, technical
support, labor, telephony and broadband Internet access charges
and programming costs.
II-15
Operating
expenses Years ended December 31, 2005 and
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
|
|
|
|
|
|
|
(decrease)
|
|
|
Year ended December 31,
|
|
Increase (decrease)
|
|
excluding FX
|
|
|
2005
|
|
2004
|
|
$
|
|
%
|
|
%
|
|
|
amounts in millions, except % amounts
|
|
UPC Broadband Division
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$
|
288.7
|
|
|
$
|
231.2
|
|
|
$
|
57.5
|
|
|
|
24.9
|
|
|
|
25.1
|
|
Switzerland
|
|
|
51.6
|
|
|
|
|
|
|
|
51.6
|
|
|
|
N.M.
|
|
|
|
N.M.
|
|
Austria
|
|
|
112.0
|
|
|
|
107.3
|
|
|
|
4.7
|
|
|
|
4.4
|
|
|
|
4.3
|
|
Other Western Europe
|
|
|
109.3
|
|
|
|
38.6
|
|
|
|
70.7
|
|
|
|
183.2
|
|
|
|
186.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
561.6
|
|
|
|
377.1
|
|
|
|
184.5
|
|
|
|
48.9
|
|
|
|
49.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
119.7
|
|
|
|
90.6
|
|
|
|
29.1
|
|
|
|
32.1
|
|
|
|
30.2
|
|
Other Central and Eastern Europe
|
|
|
141.2
|
|
|
|
100.6
|
|
|
|
40.6
|
|
|
|
40.4
|
|
|
|
29.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
260.9
|
|
|
|
191.2
|
|
|
|
69.7
|
|
|
|
36.5
|
|
|
|
29.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central and corporate operations
|
|
|
75.5
|
|
|
|
86.4
|
|
|
|
(10.9
|
)
|
|
|
(12.6
|
)
|
|
|
(12.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total UPC Broadband Division
|
|
|
898.0
|
|
|
|
654.7
|
|
|
|
243.3
|
|
|
|
37.2
|
|
|
|
35.3
|
|
J:COM (Japan)
|
|
|
690.1
|
|
|
|
621.0
|
|
|
|
69.1
|
|
|
|
11.1
|
|
|
|
14.4
|
|
VTR (Chile)
|
|
|
190.3
|
|
|
|
126.2
|
|
|
|
64.1
|
|
|
|
50.8
|
|
|
|
38.1
|
|
Corporate and other
|
|
|
184.1
|
|
|
|
99.4
|
|
|
|
84.7
|
|
|
|
85.2
|
|
|
|
86.1
|
|
Intersegment eliminations
|
|
|
(43.2
|
)
|
|
|
(16.5
|
)
|
|
|
(26.7
|
)
|
|
|
(161.8
|
)
|
|
|
(163.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total LGI excluding stock-based
compensation expense and before elimination of equity affiliate
|
|
|
1,919.3
|
|
|
|
1,484.8
|
|
|
|
434.5
|
|
|
|
29.3
|
|
|
|
28.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
9.9
|
|
|
|
12.4
|
|
|
|
(2.5
|
)
|
|
|
(20.2
|
)
|
|
|
|
|
Elimination of equity affiliate
(J:COM)
|
|
|
|
|
|
|
(621.0
|
)
|
|
|
621.0
|
|
|
|
N.M.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated LGI
|
|
$
|
1,929.2
|
|
|
$
|
876.2
|
|
|
$
|
1,053.0
|
|
|
|
120.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N.M. Not Meaningful
UPC Broadband Division. The UPC Broadband
Divisions operating expenses increased $243.3 million
or 37.2%, during 2005, as compared to 2004. This increase
includes a $145.2 million increase that is attributable to
the aggregate impact of the Cablecom, NTL Ireland, Chorus,
Astral and Telemach acquisitions and another less significant
acquisition. Excluding the effects of these acquisitions,
foreign exchange rate fluctuations and stock-based compensation
expense, the UPC Broadband Divisions operating expenses
increased $85.8 million or 13.1% during 2005, as compared
to 2004, primarily due to the following factors:
|
|
|
|
|
Increases in direct programming and copyright costs of
$17.9 million or 9.0% during 2005, representing the net
effect of (i) a $47.9 million increase in costs for
content and interactive digital services related to subscriber
growth on the digital and DTH platforms and, to a lesser extent,
higher rates charged by certain content providers, and
(ii) a $30.0 million decrease related to the
termination of an unfavorable programming contract in May 2005;
|
|
|
|
Increases in interconnect costs of $16.5 million or 28.9%
during 2005, primarily due to growth in telephony transit
service activity in Hungary and growth in VoIP telephony
subscribers in The Netherlands, Hungary, Poland and Romania;
|
II-16
|
|
|
|
|
Increases in salaries and other staff related costs of
$12.9 million or 10.3% during 2005, primarily reflecting
increased staffing levels including increased use of temporary
personnel, particularly in the customer care and customer
operations areas, to sustain the higher levels of activity
resulting from:
|
|
|
|
|
|
higher subscriber numbers;
|
|
|
|
the greater volume of calls per subscriber in The Netherlands
and elsewhere that the increased proportion of digital video,
broadband Internet and telephony subscribers give rise to
compared to an analog video subscriber;
|
|
|
|
The Netherlands program to migrate subscribers from analog
video to digital video services, which was launched in October
2005 and continued throughout 2006;
|
|
|
|
increased customer service standard levels; and
|
|
|
|
annual wage increases.
|
|
|
|
|
|
Increases in outsourced labor and consultancy fees of
$11.0 million or 32.4% during 2005, driven by projects to
increase service levels, network improvements and development of
new products in certain of our operations, primarily the launch
of the D4A program in The Netherlands;
|
|
|
|
Increases in network related expenses of $8.6 million or
10.8% during 2005, primarily driven by higher costs in The
Netherlands and Hungary;
|
|
|
|
Increases in bad debt and collection expenses of
$4.2 million during 2005, due largely to the significant
increase in revenue; and
|
|
|
|
Other individually insignificant increases during 2005.
|
J:COM (Japan). J:COMs operating expenses
increased $69.1 million or 11.1%, during 2005, as compared
to 2004. This increase includes a $10.5 million increase
that is attributable to the aggregate impact of the Chofu Cable
and J:COM Setamachi acquisitions and another less significant
acquisition. Excluding the effects of these acquisitions,
foreign exchange rate fluctuations and stock-based compensation
expense, J:COMs operating expenses increased
$78.7 million or 12.7% during 2005, as compared to
2004. This increase primarily is due to increases of
(i) $23.7 million in salaries and other staff related
costs as a result of increased staffing levels,
(ii) $22.8 million in programming and related costs as
a result of growth in the number of digital video customers and
(iii) $11.0 million in telephony interconnect costs
due primarily to growth in telephony customers. Increases in
network operating expenses, maintenance and technical support
costs associated with RGU growth and the expansion of
J:COMs network and the effects of other individually
insignificant items accounted for the remaining increase.
VTR (Chile). VTRs operating expenses
increased $64.1 million or 50.8%, during 2005, as compared
to 2004. This increase includes a $30.6 million increase
that is attributable to the impact of the Metrópolis
acquisition. Excluding the effects of the Metrópolis
acquisition, foreign exchange rate fluctuations and stock-based
compensation expense, VTRs operating expenses increased
$17.4 million or 13.8% during 2005, as compared to 2004.
This increase, which is primarily attributable to growth in
VTRs subscriber base, includes (i) increases in labor
and other staff related costs; (ii) increases in local and
cellular access charges, due primarily to an increase in
customer traffic, and in the case of local access charges, an
increase in rates and (iii) increases in technical service
and maintenance costs.
II-17
SG&A
Expenses of our Reportable Segments
SG&A
expenses Years ended December 31, 2006 and
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
|
|
|
|
|
|
|
(decrease)
|
|
|
Year ended December 31,
|
|
Increase (decrease)
|
|
excluding FX
|
|
|
2006
|
|
2005
|
|
$
|
|
%
|
|
%
|
|
|
amounts in millions, except % amounts
|
|
UPC Broadband Division:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$
|
143.8
|
|
|
$
|
121.7
|
|
|
$
|
22.1
|
|
|
|
18.2
|
|
|
|
16.8
|
|
Switzerland
|
|
|
149.2
|
|
|
|
26.9
|
|
|
|
122.3
|
|
|
|
454.6
|
|
|
|
430.8
|
|
Austria
|
|
|
71.5
|
|
|
|
51.3
|
|
|
|
20.2
|
|
|
|
39.4
|
|
|
|
37.6
|
|
Other Western Europe
|
|
|
53.1
|
|
|
|
38.5
|
|
|
|
14.6
|
|
|
|
37.9
|
|
|
|
34.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
417.6
|
|
|
|
238.4
|
|
|
|
179.2
|
|
|
|
75.2
|
|
|
|
70.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
45.0
|
|
|
|
38.3
|
|
|
|
6.7
|
|
|
|
17.5
|
|
|
|
23.3
|
|
Other Central and Eastern Europe
|
|
|
92.2
|
|
|
|
60.9
|
|
|
|
31.3
|
|
|
|
51.4
|
|
|
|
42.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
137.2
|
|
|
|
99.2
|
|
|
|
38.0
|
|
|
|
38.3
|
|
|
|
35.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central and corporate operations
|
|
|
146.3
|
|
|
|
131.4
|
|
|
|
14.9
|
|
|
|
11.3
|
|
|
|
9.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total UPC Broadband Division
|
|
|
701.1
|
|
|
|
469.0
|
|
|
|
232.1
|
|
|
|
49.5
|
|
|
|
46.2
|
|
J:COM (Japan)
|
|
|
375.8
|
|
|
|
335.7
|
|
|
|
40.1
|
|
|
|
11.9
|
|
|
|
18.3
|
|
VTR (Chile)
|
|
|
120.3
|
|
|
|
102.4
|
|
|
|
17.9
|
|
|
|
17.5
|
|
|
|
11.7
|
|
Corporate and other
|
|
|
178.5
|
|
|
|
104.9
|
|
|
|
73.6
|
|
|
|
70.2
|
|
|
|
69.8
|
|
Inter-segment eliminations
|
|
|
0.7
|
|
|
|
(1.6
|
)
|
|
|
2.3
|
|
|
|
143.8
|
|
|
|
150.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total SG&A expenses excluding
stock-based compensation expense
|
|
|
1,376.4
|
|
|
|
1,010.4
|
|
|
|
366.0
|
|
|
|
36.2
|
|
|
|
36.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
63.0
|
|
|
|
49.1
|
|
|
|
13.9
|
|
|
|
28.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated LGI
|
|
$
|
1,439.4
|
|
|
$
|
1,059.5
|
|
|
$
|
379.9
|
|
|
|
35.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General. SG&A expenses include human
resources, information technology, general services, management,
finance, legal, marketing, stock-based compensation and other
general expenses. We do not include stock-based compensation in
the following discussion and analysis of the SG&A expenses
of our reportable segments as stock-based compensation expense
is not included in the performance measures of our reportable
segments. Stock-based compensation expense is discussed under
the Discussion and Analysis of Our Historical Operating
Results below.
UPC Broadband Division. The UPC Broadband
Divisions SG&A expenses increased $232.1 million
or 49.5%, during 2006 as compared to 2005. This increase
includes a $162.4 million increase that is attributable to
the aggregate impact of the Karneval, Cablecom, NTL Ireland,
Astral, INODE, Telemach and other less significant acquisitions.
Excluding the effects of these acquisitions, foreign exchange
rate fluctuations and stock-based compensation expense, the UPC
Broadband Divisions SG&A expenses increased
$54.2 million or 11.6%, primarily due to the net effect of
the following factors:
|
|
|
|
|
An increase in sales and marketing expenses and commissions of
$32.4 million or 34.9% during 2006, reflecting the cost of
marketing campaigns designed to promote the D4A program in The
Netherlands, RGU growth (including campaigns designed to promote
the growth of VoIP telephony services), product bundling and
brand awareness;
|
|
|
|
An increase in salaries and other staff related costs of
$19.7 million or 15.7% during 2006, reflecting
(i) increased staffing levels in sales and marketing,
finance and information technology functions, including the
addition of full-time employees to replace temporary personnel
and external contractors, (ii) increased costs related to
new employee bonus plans that were implemented in 2006 and
(iii) annual wage increases. These increases were partially
offset by a lower number of full-time employees in Switzerland.
|
II-18
|
|
|
|
|
A decrease in outsourced labor and consulting fees of
$7.6 million or 15.6% during 2006, primarily due to
(i) lower fees attributable to our internal controls
attestation process and (ii) the replacement of external
consultants with full-time employees, particularly in our
information technology department;
|
|
|
|
An increase in utilities and facilities costs of
$4.5 million or 8.3% during 2006, primarily due to
increased office space requirements related to headcount
increases throughout the UPC Broadband Division and
|
|
|
|
Other individually insignificant increases during 2006,
including increases in the cost of information technologies,
travel and other costs associated with the increased scope of
the UPC Broadband Divisions business.
|
As discussed under Revenue of our Reportable
Segments Years ended December 31, 2006 and
2005 The Netherlands above, we have incurred
significant SG&A costs during 2006 and, to a lesser extent,
2005 in connection with The Netherlands D4A program.
J:COM (Japan). J:COMs SG&A expenses
increased $40.1 million or 11.9% during 2006, as compared
to 2005. This increase includes a $57.8 million increase
that is attributable to the aggregate impact of the Cable West,
J:COM Chofu Cable, J:COM Setamachi acquisitions and other less
significant acquisitions. Excluding the effects of these
acquisitions, foreign exchange rate fluctuations and stock-based
compensation expense, J:COMs SG&A expenses increased
$3.6 million or 1.1%. The increase is attributable
primarily to the net effect of (i) higher labor and related
overhead costs associated with an increase in staffing levels
and annual wage increases, (ii) 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 and
(iii) other individually insignificant decreases.
VTR (Chile). VTRs SG&A expenses
increased $17.9 million or 17.5% during 2006, as compared
to 2005. This increase includes a $5.6 million increase
that is attributable to the impact of the Metrópolis
acquisition. Excluding the effects of the Metrópolis
acquisition, foreign exchange rate fluctuations and stock-based
compensation expense, VTRs SG&A expenses increased
$6.4 million or 6.3%. The increase is primarily
attributable to increases in sales commissions, offset in part
by lower labor and related costs. The lower labor and related
costs are due largely to non-recurring labor costs that were
incurred during 2005 in connection with the integration
activities that followed the Metrópolis combination.
II-19
SG&A
expenses Years ended December 31, 2005 and
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
|
|
|
|
|
|
|
(decrease)
|
|
|
Year ended December 31,
|
|
Increase (decrease)
|
|
excluding FX
|
|
|
2005
|
|
2004
|
|
$
|
|
%
|
|
%
|
|
|
amounts in millions, except % amounts
|
|
UPC Broadband Division:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$
|
121.7
|
|
|
$
|
107.5
|
|
|
$
|
14.2
|
|
|
|
13.2
|
|
|
|
13.6
|
|
Switzerland
|
|
|
26.9
|
|
|
|
|
|
|
|
26.9
|
|
|
|
N.M.
|
|
|
|
N.M.
|
|
Austria
|
|
|
51.3
|
|
|
|
53.3
|
|
|
|
(2.0
|
)
|
|
|
(3.8
|
)
|
|
|
(3.7
|
)
|
Other Western Europe
|
|
|
38.5
|
|
|
|
15.6
|
|
|
|
22.9
|
|
|
|
146.8
|
|
|
|
149.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
238.4
|
|
|
|
176.4
|
|
|
|
62.0
|
|
|
|
35.1
|
|
|
|
35.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
38.3
|
|
|
|
30.1
|
|
|
|
8.2
|
|
|
|
27.2
|
|
|
|
26.3
|
|
Other Central and Eastern Europe
|
|
|
60.9
|
|
|
|
41.4
|
|
|
|
19.5
|
|
|
|
47.1
|
|
|
|
36.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
99.2
|
|
|
|
71.5
|
|
|
|
27.7
|
|
|
|
38.7
|
|
|
|
32.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central and corporate operations
|
|
|
131.4
|
|
|
|
122.7
|
|
|
|
8.7
|
|
|
|
7.1
|
|
|
|
7.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total UPC Broadband Division
|
|
|
469.0
|
|
|
|
370.6
|
|
|
|
98.4
|
|
|
|
26.6
|
|
|
|
25.5
|
|
J:COM (Japan)
|
|
|
335.7
|
|
|
|
294.1
|
|
|
|
41.6
|
|
|
|
14.1
|
|
|
|
17.3
|
|
VTR (Chile)
|
|
|
102.4
|
|
|
|
65.0
|
|
|
|
37.4
|
|
|
|
57.5
|
|
|
|
43.9
|
|
Corporate and other
|
|
|
104.9
|
|
|
|
86.0
|
|
|
|
18.9
|
|
|
|
22.0
|
|
|
|
22.2
|
|
Inter-segment eliminations
|
|
|
(1.6
|
)
|
|
|
(0.3
|
)
|
|
|
(1.3
|
)
|
|
|
(433.3
|
)
|
|
|
(366.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total LGI excluding stock-based
compensation expense and before elimination of equity affiliate
|
|
|
1,010.4
|
|
|
|
815.4
|
|
|
|
195.0
|
|
|
|
23.9
|
|
|
|
23.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
49.1
|
|
|
|
130.2
|
|
|
|
(81.1
|
)
|
|
|
(62.3
|
)
|
|
|
|
|
Elimination of equity affiliate
(J:COM)
|
|
|
|
|
|
|
(294.1
|
)
|
|
|
294.1
|
|
|
|
N.M.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated LGI
|
|
$
|
1,059.5
|
|
|
$
|
651.5
|
|
|
$
|
408.0
|
|
|
|
62.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N.M. Not Meaningful
UPC Broadband Division. The UPC Broadband
Divisions SG&A expenses increased $98.4 million
or 26.6%, during 2005, as compared to 2004. This increase
includes a $65.5 million increase that is attributable to
the impact of the aggregate effect of the Cablecom, NTL Ireland,
Chorus, Astral, and Telemach acquisitions, and another less
significant acquisition. Excluding the effects of these
acquisitions, foreign exchange rate fluctuations and stock-based
compensation expense, the UPC Broadband Divisions SG&A
expenses increased $29.1 million or 7.8% during 2005, as
compared to 2004, primarily due to:
|
|
|
|
|
Increases in sales and marketing expenses and commissions of
$14.5 million or 19.5% during 2005, reflecting the cost of
marketing campaigns designed to promote RGU growth, and support
the growth of VoIP telephony services, and the launch of
mass-market digital video services in The Netherlands. An
increase in the number of gross subscriber additions for
broadband Internet and telephony services, particularly in The
Netherlands, also contributed to the increase;
|
|
|
|
Increase in outsourced labor and consultancy cost of
$10.8 million or 29.7% during 2005, reflecting the
development of new products in certain of our operations,
primarily the launch of the D4A program in The Netherlands;
|
II-20
|
|
|
|
|
Increases in salaries and other staff related costs of
$8.1 million or 7.3% during 2005, reflecting increased
staffing levels, particularly in The Netherlands, in sales and
marketing and information technology functions, as well as
annual wage increases; and
|
|
|
|
Other individually insignificant increases during 2005.
|
These increases were partially offset by decreases in certain
SG&A expenses, primarily the decrease of audit and legal
expenses of $8.6 million or 37.1%, reflecting the
conclusion of certain litigation and lower fees attributable to
our internal controls attestation process.
J:COM.(Japan). J:COMs SG&A expenses
increased $41.6 million or 14.1%, during 2005, as compared
to 2004. This increase includes a $10.9 million increase
that is attributable to the aggregate impact of the Chofu Cable
and J:COM Setamachi acquisitions and another less significant
acquisition. Excluding the effects of these acquisitions,
foreign exchange rate fluctuations and stock-based compensation
expense, J:COMs SG&A expenses increased
$40.0 million or 13.6% during 2005, as compared to 2004.
This increase primarily is attributable to increases in labor
and related overhead costs associated with an increase in the
scope of J:COMs business. The increase also reflects
higher marketing, advertising and promotional costs, including
costs incurred in connection with J:COMs rebranding
initiative during the first half of 2005.
VTR (Chile). VTRs SG&A expenses
increased $37.4 million or 57.5%, during 2005, as compared
to 2004. This increase includes a $15.3 million increase
that is attributable to the impact of the Metrópolis
acquisition. Excluding the effects of the Metrópolis
acquisition, foreign exchange rate fluctuations and stock-based
compensation expense, VTRs SG&A expenses increased
$13.2 million or 20.3% during 2005, as compared to 2004.
This increase, which is largely attributable to growth in
VTRs subscriber base, reflects increases in sales
commissions, labor and various other costs. The increase in
labor costs is due primarily to non-recurring labor costs
incurred during 2005 in connection with the integration
activities that followed the Metrópolis combination.
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 depreciation and
amortization, stock-based compensation 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. In addition, our
internal decision makers believe our measure of operating cash
flow is important because analysts and investors use it to
compare our performance to other companies in our industry.
However, our definition of operating cash flow may differ from
cash flow measurements provided by other public companies.
Operating cash flow should be viewed 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. For a
reconciliation of total segment operating cash flow to our
consolidated earnings (loss) before income taxes, minority
interests and discontinued operations, see note 22 to our
consolidated financial statements.
II-21
Operating
Cash Flow Years ended December 31, 2006 and
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
|
|
|
|
|
|
|
(decrease)
|
|
|
Year ended December 31,
|
|
Increase (decrease)
|
|
excluding FX
|
|
|
2006
|
|
2005
|
|
$
|
|
%
|
|
%
|
|
|
amounts in millions, except % amounts
|
|
UPC Broadband Division:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$
|
451.9
|
|
|
$
|
446.9
|
|
|
$
|
5.0
|
|
|
|
1.1
|
|
|
|
0.3
|
|
Switzerland
|
|
|
353.7
|
|
|
|
43.6
|
|
|
|
310.1
|
|
|
|
711.2
|
|
|
|
676.9
|
|
Austria
|
|
|
195.7
|
|
|
|
165.7
|
|
|
|
30.0
|
|
|
|
18.1
|
|
|
|
17.0
|
|
Other Western Europe
|
|
|
104.0
|
|
|
|
80.4
|
|
|
|
23.6
|
|
|
|
29.4
|
|
|
|
26.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
1,105.3
|
|
|
|
736.6
|
|
|
|
368.7
|
|
|
|
50.1
|
|
|
|
47.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
145.3
|
|
|
|
123.4
|
|
|
|
21.9
|
|
|
|
17.7
|
|
|
|
23.7
|
|
Other Central and Eastern Europe
|
|
|
266.5
|
|
|
|
168.2
|
|
|
|
98.3
|
|
|
|
58.4
|
|
|
|
51.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
411.8
|
|
|
|
291.6
|
|
|
|
120.2
|
|
|
|
41.2
|
|
|
|
39.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central and corporate operations
|
|
|
(206.2
|
)
|
|
|
(203.6
|
)
|
|
|
(2.6
|
)
|
|
|
(1.3
|
)
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total UPC Broadband Division
|
|
|
1,310.9
|
|
|
|
824.6
|
|
|
|
486.3
|
|
|
|
59.0
|
|
|
|
55.8
|
|
J:COM (Japan)
|
|
|
738.6
|
|
|
|
636.3
|
|
|
|
102.3
|
|
|
|
16.1
|
|
|
|
22.8
|
|
VTR (Chile)
|
|
|
198.5
|
|
|
|
151.5
|
|
|
|
47.0
|
|
|
|
31.0
|
|
|
|
24.9
|
|
Corporate and other
|
|
|
88.2
|
|
|
|
(24.8
|
)
|
|
|
113.0
|
|
|
|
455.6
|
|
|
|
455.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,336.2
|
|
|
$
|
1,587.6
|
|
|
$
|
748.6
|
|
|
|
47.2
|
|
|
|
47.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Cash Flow Years ended December 31, 2005 and
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
|
|
|
|
|
|
|
(decrease)
|
|
|
Year ended December 31,
|
|
Increase (decrease)
|
|
excluding FX
|
|
|
2005
|
|
2004
|
|
$
|
|
%
|
|
%
|
|
|
amounts in millions, except % amounts
|
|
UPC Broadband Division:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$
|
446.9
|
|
|
$
|
455.0
|
|
|
$
|
(8.1
|
)
|
|
|
(1.8
|
)
|
|
|
(2.0
|
)
|
Switzerland
|
|
|
43.6
|
|
|
|
|
|
|
|
43.6
|
|
|
|
N.M.
|
|
|
|
N.M.
|
|
Austria
|
|
|
165.7
|
|
|
|
152.6
|
|
|
|
13.1
|
|
|
|
8.6
|
|
|
|
8.4
|
|
Other Western Europe
|
|
|
80.4
|
|
|
|
31.9
|
|
|
|
48.5
|
|
|
|
152.0
|
|
|
|
154.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
736.6
|
|
|
|
639.5
|
|
|
|
97.1
|
|
|
|
15.2
|
|
|
|
14.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
123.4
|
|
|
|
96.7
|
|
|
|
26.7
|
|
|
|
27.6
|
|
|
|
25.5
|
|
Other Central and Eastern Europe
|
|
|
168.2
|
|
|
|
110.3
|
|
|
|
57.9
|
|
|
|
52.5
|
|
|
|
40.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
291.6
|
|
|
|
207.0
|
|
|
|
84.6
|
|
|
|
40.9
|
|
|
|
33.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central and corporate operations
|
|
|
(203.6
|
)
|
|
|
(207.9
|
)
|
|
|
4.3
|
|
|
|
2.1
|
|
|
|
1.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total UPC Broadband Division
|
|
|
824.6
|
|
|
|
638.6
|
|
|
|
186.0
|
|
|
|
29.1
|
|
|
|
26.5
|
|
J:COM (Japan)
|
|
|
636.3
|
|
|
|
589.6
|
|
|
|
46.7
|
|
|
|
7.9
|
|
|
|
10.7
|
|
VTR (Chile)
|
|
|
151.5
|
|
|
|
108.8
|
|
|
|
42.7
|
|
|
|
39.2
|
|
|
|
27.7
|
|
Corporate and other
|
|
|
(24.8
|
)
|
|
|
(19.7
|
)
|
|
|
(5.1
|
)
|
|
|
(25.9
|
)
|
|
|
(27.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total LGI before elimination of
equity affiliate
|
|
|
1,587.6
|
|
|
|
1,317.3
|
|
|
|
270.3
|
|
|
|
20.5
|
|
|
|
19.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Elimination of equity affiliate
(J:COM)
|
|
|
|
|
|
|
(589.6
|
)
|
|
|
589.6
|
|
|
|
N.M.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,587.6
|
|
|
$
|
727.7
|
|
|
$
|
859.9
|
|
|
|
118.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N.M. Not Meaningful
II-22
Operating
Cash Flow Margin Years ended December 31, 2006,
2005 and 2004
The following table sets forth the operating cash flow margins
(operating cash flow divided by revenue) of our reportable
segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
UPC Broadband Division:
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
|
48.9
|
|
|
|
52.1
|
|
|
|
57.3
|
|
Switzerland
|
|
|
45.8
|
|
|
|
35.7
|
|
|
|
|
|
Austria
|
|
|
46.6
|
|
|
|
50.4
|
|
|
|
48.7
|
|
Other Western Europe
|
|
|
33.9
|
|
|
|
35.2
|
|
|
|
37.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
45.6
|
|
|
|
47.9
|
|
|
|
53.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
47.3
|
|
|
|
43.9
|
|
|
|
44.5
|
|
Other Central and Eastern Europe
|
|
|
46.1
|
|
|
|
45.4
|
|
|
|
43.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
46.5
|
|
|
|
44.7
|
|
|
|
44.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total UPC Broadband Division,
including central and corporate costs
|
|
|
39.4
|
|
|
|
37.6
|
|
|
|
38.4
|
|
J:COM (Japan)
|
|
|
38.7
|
|
|
|
38.3
|
|
|
|
39.2
|
|
VTR (Chile)
|
|
|
35.5
|
|
|
|
34.1
|
|
|
|
36.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total LGI, including corporate and
other before elimination of equity affiliate
|
|
|
36.0
|
|
|
|
35.1
|
|
|
|
36.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total LGI, after elimination of
equity affiliate (J:COM)
|
|
|
36.0
|
|
|
|
35.1
|
|
|
|
34.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The UPC Broadband Division, VTR, and to a lesser extent, J:COM
experienced improvements in their respective 2006 operating cash
flow margins, as compared to 2005. In general, the operating
cash flow margins of these segments were positively impacted by
revenue growth coupled with cost reductions and operating
efficiencies resulting from the integration of recent
acquisitions and other measures. In the case of the UPC
Broadband Division, the benefit of these margin improvements was
partially offset by costs associated with the negative impact of
The Netherlands D4A program and other factors described
above. Although no assurance can be given, we expect that the
operating cash flow margins of the UPC Broadband Division, J:COM
and VTR will improve in 2007 provided that competitive or other
factors outside of our control do not adversely impact our
ability to sustain revenue growth and control costs in these
segments. We expect that a significant portion of the UPC
Broadband Divisions margin improvement in 2007 will be
attributable to reductions in certain of The Netherlands
operating, marketing and other costs, as discussed in greater
detail under Revenue The Netherlands above.
No assurance can be given that our expectations with respect to
the 2007 operating cash flow margins of our reportable segments
will not vary from actual results. For additional discussion of
the factors contributing to the changes in the operating cash
flow margins of our reportable segments, see the above analyses
of revenue, operating expenses and SG&A expenses.
The UPC Broadband Division, VTR, and to a lesser extent, J:COM
experienced declines in their respective operating 2005
operating cash flow margins as compared to 2004. The declines in
the operating cash flow margins of the UPC Broadband Division
and VTR were primarily attributable to the initial impact of
2005 acquisitions, higher marketing and advertising costs
associated with continued RGU growth and, in the case of the UPC
Broadband Division, costs associated with The Netherlands
D4A program. For additional discussion of the factors
contributing to the changes in the operating cash flow margins
of our reportable segments, see the above analyses of revenue,
operating expenses and SG&A expenses.
II-23
Discussion
and Analysis of our Historical Operating Results
Years
ended December 31, 2006 and 2005
General
As noted above, the effects of acquisitions have affected the
comparability of our results of operations during 2006 and 2005.
Unless otherwise indicated in the discussion below, the
significant increases in our historical revenue, expenses and
other items during 2006, as compared to 2005, 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.
Revenue
Our total consolidated revenue increased $1,970.2 million
during 2006, as compared to 2005. This increase includes a
$1,415.1 million increase that is attributable to the
impact of acquisitions. Excluding the effects of acquisitions
and foreign exchange rate fluctuations, total consolidated
revenue increased $565.4 million or 12.5% during 2006, as
compared to 2005. As discussed in greater detail under
Discussion and Analysis of Reportable Segments above,
most of these increases are attributable to RGU growth.
Operating
expense
Our total consolidated operating expense increased
$852.7 million during 2006, as compared to 2005. Our
operating expenses include stock-based compensation expense,
which decreased $2.9 million. For additional information,
see discussion following SG&A expense below. This
increase includes a $617.5 million increase that is
attributable to the impact of acquisitions. Excluding the
effects of acquisitions, foreign exchange rate fluctuations and
stock-based compensation expense, total consolidated operating
expense increased $241.2 million or 12.6% during 2006, as
compared to 2005. 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
net 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.
SG&A
expense
Our total consolidated SG&A expense increased
$379.9 million during 2006, as compared to 2005. Our
SG&A expense includes stock-based compensation expense,
which increased $13.9 million. For additional information,
see discussion in the following paragraph. This increase
includes a $304.5 million increase that is attributable to
the impact of acquisitions. Excluding the effects of
acquisitions, foreign exchange rate fluctuations and stock-based
compensation expense, total consolidated SG&A expense
increased $61.1 million or 6.0% during 2006, as compared to
2005. As discussed in more detail under Discussion and
Analysis of Reportable Segments above, these increases
generally reflect increases in (i) labor costs,
(ii) marketing and advertising costs and sales commissions
and (iii) less significant net decreases in other expense
categories. 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 intrinsic value method
prescribed by APB No. 25 to account for stock-based
incentive awards. Our stock-based compensation expense for 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
II-24
certain other subsidiary common stock. The stock-based
compensation expense associated with J:COM common stock consists
of the amounts recorded by J:COM with respect to its stock-based
compensation plans during 2006 and 2005 and amounts recorded
with respect to the Liberty Jupiter stock plan during 2005.
A summary of the aggregate stock-based compensation expense that
is included in our SG&A and operating expenses is set forth
below:
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
amounts in millions
|
|
|
LGI common stock(a)
|
|
$
|
58.0
|
|
|
$
|
28.8
|
|
J:COM common stock(b)
|
|
|
2.9
|
|
|
|
23.1
|
|
Other
|
|
|
9.1
|
|
|
|
7.1
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
70.0
|
|
|
$
|
59.0
|
|
|
|
|
|
|
|
|
|
|
Operating expense
|
|
$
|
7.0
|
|
|
$
|
9.9
|
|
SG&A expense
|
|
|
63.0
|
|
|
|
49.1
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
70.0
|
|
|
$
|
59.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
As discussed above, stock-based compensation during 2006 was
determined in accordance with the provisions of
SFAS 123(R). As permitted under SFAS 123(R), we use
the straight-line method to recognize stock-based compensation
expense for our outstanding stock awards granted after
January 1, 2006 that do not contain a performance condition
and the accelerated expense attribution method for our
outstanding stock awards granted prior to January 1, 2006.
As required by SFAS 123(R), we use the accelerated
attribution method to recognize stock-based compensation expense
for all stock awards granted after January 1, 2006 that
contain a performance condition with graded vesting. Our
stock-based compensation expense for 2006 does not include any
amounts related to our Senior Executive and Key Employee
Performance Plans. As no awards were granted during 2006 and as
the requisite service period does not begin until
January 1, 2007, we will not begin recording compensation
expense under the Senior Executive and Key Employee Performance
Plans until the first quarter of 2007. Stock-based compensation
recorded under the Performance Plans in 2007 and future periods
could be significant. 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 during 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 2005 includes (i) stock-based compensation
recorded by J:COM of $20.9 million, including amounts
recorded due to adjustments to the terms of J:COMs
outstanding awards that were made in connection with
J:COMs March 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 $2.2 million. 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 share-based compensation plan
and have reclassified the liability as of January 1, 2006
to minority interests in consolidated subsidiaries in our
consolidated balance sheet. |
For additional information concerning our stock-based
compensation, see notes 3 and 15 to our consolidated
financial statements.
Depreciation
and amortization
Our total consolidated depreciation and amortization expense
increased $610.7 million during 2006, as compared to 2005.
This increase includes a $453.6 million increase that is
attributable to the impact of acquisitions. Excluding the effect
of acquisitions and foreign exchange rate fluctuations,
depreciation and amortization expense increased
$158.1 million or 12.4% during 2006, as compared to 2005.
This increase is due primarily to (i) increases associated
with capital expenditures related to the installation of
customer premise equipment, the expansion and
II-25
upgrade of our networks and other capital initiatives and
(ii) a $14.8 million increase related to J:COMs
acceleration of the depreciation of certain property and
equipment that was targeted for replacement, primarily in
connection with the migration of customers from analog video to
digital video services and the upgrade of J:COMs broadband
communications network.
Impairment
of long-lived assets
We incurred impairment charges of $15.5 million and
$8.3 million during 2006 and 2005, respectively. These
amounts include various individually insignificant impairments
of our property and equipment and intangible assets.
Restructuring
and other operating charges (credits), net
We incurred restructuring and other operating charges, net, of
$13.7 million during 2006 and restructuring and other
operating credits, net, of $3.8 million during 2005. The
2006 amount includes restructuring charges aggregating
$10.8 million related to the cost of terminating certain
employees in connection with the integration of our broadband
communications operations in Ireland and various other
individually insignificant amounts. The 2005 amount includes a
$7.7 million reversal of a reserve recorded by The
Netherlands during 2004 due to our 2005 decision to reoccupy a
building. For additional information, see note 18 to our
consolidated financial statements.
Interest
expense
Our total consolidated interest expense increased
$277.3 million during 2006, as compared to 2005. Excluding
the effects of foreign exchange rate fluctuations, interest
expense increased $268.2 million during 2006, as compared
to 2005. This increase is primarily attributable to a
$3,749.8 million or 55.0% increase in our average
outstanding indebtedness during 2006, as compared to 2005. The
increase in debt is primarily attributable to debt incurred or
assumed in connection with acquisitions and recapitalizations.
Increases in certain interest rates and a $10.0 million
increase in the amortization of deferred financing costs also
contributed to the overall increase in interest expense during
2006. The effects of these factors were partially offset by a
decrease in non-cash interest expense of $31.6 million,
representing the net effect of (i) a $30.0 million
decrease in non-cash interest recorded with respect to certain
mandatorily redeemable securities issued by the Investcos, the
entities through which Belgian Cable Investors holds certain of
its Telenet shares, (ii) a $26.3 million decrease in
non-cash interest expense related to the UGC Convertible Notes,
and (iii) a $30.2 million increase in non-cash
interest accrued on the LG Switzerland PIK Loan. The decrease
related to the mandatorily redeemable securities of the
Investcos primarily is associated with an increase in the
estimated redemption amount of these securities that we recorded
in connection with Telenets October 2005 IPO and
(ii) the redemption of most of these securities following
the completion of the Telenet IPO in October 2005. The decrease
in the non-cash interest expense associated with the UGC
Convertible Notes is 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
notes 7, 11 and 23 to our consolidated financial statements.
Interest
and dividend income
Our total consolidated interest and dividend income increased
$8.6 million during 2006, as compared to 2005. The increase
represents the net result of an increase in the average interest
rate earned on our average consolidated cash and cash equivalent
balances that was only partially offset by a decrease in such
average balances.
II-26
Share of
results of affiliates, net
The following table reflects our share of results of affiliates,
net, including any
other-than-temporary
declines in value:
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
amounts in millions
|
|
|
Telenet
|
|
$
|
(24.3
|
)
|
|
$
|
(33.5
|
)
|
Jupiter TV
|
|
|
34.4
|
|
|
|
27.8
|
|
Mediatti
|
|
|
(5.3
|
)
|
|
|
(6.9
|
)
|
Austar
|
|
|
|
|
|
|
13.1
|
|
Other
|
|
|
8.2
|
|
|
|
(23.5
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
13.0
|
|
|
$
|
(23.0
|
)
|
|
|
|
|
|
|
|
|
|
Our share of results of affiliates includes losses related to
other-than-temporary
declines in the value of our equity method investments of
$0.4 million and $29.2 million during 2006 and 2005,
respectively. The 2005
other-than-temporary
losses are primarily related to TyC (included in other in the
above table), which we sold during 2005. For additional
information concerning our equity method affiliates, see
note 7 to our consolidated financial statements.
Realized
and unrealized gains (losses) on financial and derivative
instruments, net
The details of our realized and unrealized gains (losses) on
financial and derivative instruments, net, are as follows for
the indicated periods:
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
amounts in millions
|
|
|
Cross-currency and interest rate
exchange contracts(a)
|
|
$
|
(312.0
|
)
|
|
$
|
216.0
|
|
Embedded derivatives(b)
|
|
|
(22.8
|
)
|
|
|
70.0
|
|
UGC Convertible Notes(c)
|
|
|
(82.8
|
)
|
|
|
|
|
Foreign exchange contracts
|
|
|
21.3
|
|
|
|
11.7
|
|
Call and put contracts(d)
|
|
|
44.5
|
|
|
|
8.8
|
|
Other
|
|
|
4.2
|
|
|
|
3.5
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(347.6
|
)
|
|
$
|
310.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The losses on the cross-currency and interest rate exchange
contracts for 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 Chilean pesos,
(iii) gains associated with increases in market interest
rates in U.S. dollar, euro, Swiss franc and Australian dollar
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 2005 are 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 in euro, U.S. dollar, Swiss franc and Australian dollar
markets. |
|
(b) |
|
Includes gains and losses associated with the embedded
derivative component of the UGC Convertible Notes during 2005
and the forward sale of News Corp. Class A common stock
during 2006 and 2005. As discussed in note 23 to our
consolidated financial statements, we changed our method of
accounting for the UGC Convertible Notes effective
January 1, 2006. |
II-27
|
|
|
(c) |
|
Represents the change in the fair value of the UGC Convertible
Notes during 2006 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. |
|
(d) |
|
The gains on call and put options during 2006 are primarily
attributable to gains on call options that we hold with respect
to Telenet ordinary shares. |
For additional information concerning our derivative
instruments, see note 9 to our consolidated financial
statements. Also, for information concerning the market
sensitivity of our derivative and financial instruments, see
Quantitative and Qualitative Disclosure about Market Risk
below.
Foreign
currency transaction gains (losses), net
The details of our foreign currency transaction gains (losses),
net, are as follows for the indicated periods:
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
amounts in millions
|
|
|
U.S. dollar debt issued by a
European subsidiary
|
|
$
|
193.4
|
|
|
$
|
(219.8
|
)
|
Euro denominated debt issued by
UGC (UGC Convertible Notes)
|
|
|
(63.5
|
)
|
|
|
64.2
|
|
Cash denominated in a currency
other than the entities functional currency
|
|
|
5.6
|
|
|
|
(33.0
|
)
|
Intercompany notes denominated in
a currency other than the entities functional currency
|
|
|
76.3
|
|
|
|
(17.0
|
)
|
Swiss franc debt issued by a
European subsidiary
|
|
|
12.8
|
|
|
|
0.7
|
|
Other
|
|
|
11.5
|
|
|
|
(4.3
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
236.1
|
|
|
$
|
(209.2
|
)
|
|
|
|
|
|
|
|
|
|
For information regarding how we manage our exposure to foreign
currency risk, see Quantitative and Qualitative Disclosure
about Market Risk below.
Other-than-temporary-declines
in fair value of investments
We recognized
other-than-temporary
declines in fair values of investments of $13.8 million and
$3.4 million during 2006 and 2005, respectively. These
amounts are associated with declines in the fair value of the
ABC Family preferred stock held by our company.
Losses on
extinguishment of debt
We recognized losses on extinguishment of debt of
$40.8 million and $33.7 million during 2006 and 2005,
respectively. The loss for 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 Cablecom Old Note Redemption, (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 Cablecom Old Note Redemption. The 2005 loss includes
(i) a $21.1 million write-off of unamortized deferred
financing costs in connection with the December 2005 refinancing
of the J:COM Credit Facility and (ii) a $12.0 million
write-off of deferred financing costs in connection with the
March 2005 refinancing of the UPC Broadband Holding Bank
Facility. For additional information, see note 11 to our
consolidated financial statements.
II-28
Gains on
disposition of assets, net
We recognized gains on the disposition of assets, net, of
$206.4 million and $115.2 million during 2006 and
2005, respectively. The 2006 amount includes (i) a
$104.7 million gain on the December 31, 2006 sale of
UPC Belgium to Telenet, (ii) a $45.3 million gain on
the February 2006 sale of our cost investment in Sky Mexico,
(iii) a $35.8 million gain on the August 2006 sale of
our investment in Primacom, and (iv) a $16.9 million
gain on the August 2006 sale of our investment in Sky Brasil.
Due to our continuing ownership interest in Telenet, we have not
accounted for UPC Belgium as a discontinued operation.
The 2005 amount includes (i) an $89.1 million gain in
connection with the November 2005 disposition of our 19%
ownership interest in SBS, (ii) 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, (iii) a $40.5 million gain
recognized in connection with the February 2005 sale of our
subscription right to purchase newly-issued Cablevisión
shares in connection with its debt restructuring, (iv) a
$28.2 million gain on the January 2005 sale of UGCs
investment in EWT, and (v) a $17.3 million gain on the
June 2005 sale of our investment in The Wireless Group plc.
For additional information regarding our dispositions, see
notes 6 and 7 to our consolidated financial statements.
Income
tax benefit (expense)
We recognized income tax benefit of $7.9 million and income
tax expense of $28.7 million during 2006 and 2005,
respectively. The tax benefit for 2006 differs from the expected
tax benefit of $59.6 million (based on the U.S. federal 35%
income tax rate) due primarily to (i) a net decrease in our
valuation allowance established against deferred tax assets,
including tax benefits of ¥6,505 million
($55.4 million at the average rate for the period)
recognized in 2006 associated with the release of valuation
allowances by J:COM and AUD 39.6 million
($30.4 million at the average rate for the period)
recognized in 2006 associated with the release of valuation
allowances by Austar, and a tax benefit of
48.7 million ($64.2 million at the average rate
for the period) related to the reduction of valuation allowances
against deferred tax assets as a result of tax rate reductions
in The Netherlands, partially offset by tax expense resulting
from the establishment of valuation allowances in other
jurisdictions against currently arising deferred tax assets and
(ii) the impact of certain permanent differences between
the financial and tax accounting treatment of interest,
investments in subsidiaries and other items that resulted in
nondeductible expenses or tax-exempt income in the tax
jurisdiction. The items mentioned above are more than offset by
(i) the reduction of deferred tax assets in The Netherlands
due to an enacted tax law change, (ii) the impact of
differences in the statutory local tax rates in certain
jurisdictions in which we operate, (iii) the impact of
certain permanent differences between the financial and tax
accounting treatment of interest and other items related to
investments in subsidiaries, and (iv) the realization of
taxable foreign currency gains and losses in certain
jurisdictions not recognized for financial reporting purposes,
and (v) other items that resulted in nondeductible expenses
and tax-exempt income in the tax jurisdiction as well as
differences between the financial and tax accounting treatment
of interest expense.
The income tax expense for 2005 differs from the expected tax
expense of $30.1 million (based on the U.S. federal 35%
income tax rate) due primarily to (i) the realization of
taxable foreign currency gains and losses in certain
jurisdictions not recognized for financial reporting purposes,
(ii) losses recognized on dispositions of consolidated
investments for which no deferred taxes were historically
provided, and (iii) a net decrease in our valuation
allowance established against deferred tax assets, including a
tax benefit of ¥11.9 billion ($108.1 million at
the average rate for the period) recognized in 2005 associated
with the release of valuation allowances by J:COM, which is
largely offset by the establishment of valuation allowances in
other jurisdictions against currently arising deferred tax
assets. The items mentioned above are largely offset by
(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, and
(ii) the reduction of deferred tax assets in The
Netherlands due to an enacted tax law change.
For additional information, see note 13 to our consolidated
financial statements.
II-29
Years
ended December 31, 2005 and 2004
General
As noted above, the effects of our January 1, 2005
consolidation of Super Media/J:COM and acquisitions have
affected the comparability of our results of operations during
2005 and 2004. Unless otherwise indicated in the discussion
below, the significant increases in our historical revenue,
expenses and other items during 2005, as compared to 2004, are
primarily attributable to the effects of these transactions. 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.
Revenue
Our total consolidated revenue increased $2,404.5 million
during 2005, as compared to 2004. This increase includes a
$2,102.6 million increase that is attributable to the
impact of acquisitions and the consolidation of Super
Media/J:COM.
Excluding the effects of these transactions and foreign exchange
rate fluctuations, total consolidated revenue increased
$232.4 million or 11.0% during 2005, as compared to 2004.
As discussed in greater detail under Discussion and Analysis
of Reportable Segments above, most of these increases are
attributable to RGU growth.
Operating
expense
Our total consolidated operating expense increased
$1,053.0 million during 2005, as compared to 2004. Our
operating expenses include stock-based compensation expense,
which decreased $2.5 million during 2005, as compared to
2004. For additional information, see discussion following
SG&A expense below. This increase includes a
$901.9 million increase that is attributable to the impact
of acquisitions and the consolidation of Super Media/J:COM.
Excluding the effects of these transactions and foreign exchange
rate fluctuations, total consolidated operating expense
increased $125.8 million or 14.6% during 2005, as compared
to 2004. As discussed in more detail under Discussion and
Analysis of Reportable Segments above, these increases
generally reflect increases in (i) labor costs,
(ii) interconnect costs, (iii) programming 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.
SG&A
expense
Our total consolidated SG&A expense increased
$408.0 million during 2005, as compared to 2004. Our
SG&A expense includes stock-based compensation expense,
which decreased $81.1 million during 2005, as compared to
2004. For additional information, see discussion in the
following paragraph. This increase includes a
$436.9 million increase that is attributable to the impact
of acquisitions and the consolidation of Super Media/J:COM.
Excluding the effects of these transactions and foreign exchange
rate fluctuations, total consolidated SG&A expense increased
$39.9 million or 7.7% during 2005, as compared to 2004. As
discussed in more detail under Discussion and Analysis of
Reportable Segments above, these increases generally reflect
increases in (i) marketing, advertising and commissions and
(ii) labor costs. The increases in our marketing,
advertising and commissions expenses primarily are attributable
to our efforts to increase our RGUs and launch new product
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.
II-30
Stock-based
compensation expense
A summary of our stock-based compensation expense is set forth
below:
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
|
amounts in millions
|
|
|
LGI common stock
|
|
$
|
28.8
|
|
|
$
|
135.4
|
|
J:COM common stock
|
|
|
23.1
|
|
|
|
7.2
|
|
Other
|
|
|
7.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
59.0
|
|
|
$
|
142.6
|
|
|
|
|
|
|
|
|
|
|
Operating expense
|
|
$
|
9.9
|
|
|
$
|
12.4
|
|
SG&A expense
|
|
|
49.1
|
|
|
|
130.2
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
59.0
|
|
|
$
|
142.6
|
|
|
|
|
|
|
|
|
|
|
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 the amounts recorded by
J:COM pursuant to its stock compensation plans, and amounts
recorded by LGI with respect to the Liberty Jupiter stock plan.
As a result of adjustments to certain terms of the former UGC
and LMI stock incentive awards in connection with (i) their
respective rights offerings in February 2004 and July 2004 and
(ii) the LGI Combination in June 2005, most of the LGI
stock incentive awards outstanding at December 31, 2005
were accounted for as variable-plan awards. The stock-based
compensation expense for 2004 includes a $50.4 million
charge to reflect a change from fixed-plan accounting to
variable-plan accounting as a result of modifications to the
terms of former UGC stock options in connection with UGCs
February 2004 rights offering. Other fluctuations in our
stock-based compensation expense during 2005 are largely a
function of changes in the market price of the underlying common
stock. The increase in J:COM stock-based compensation expense is
primarily attributable to adjustments to the terms of
J:COMs outstanding awards that were made in connection
with J:COMs March 2005 IPO and to increases in
J:COMs stock price following its IPO. For additional
information concerning our stock-based compensation, see
notes 3 and 15 to our consolidated financial statements.
Depreciation
and amortization
Our total consolidated depreciation and amortization expense
increased $490.2 million during 2005, as compared to 2004.
This increase includes a $583.6 million increase that is
attributable to the impact of the consolidation of Super
Media/J:COM, acquisitions and the LGI Combination. Excluding the
effects of these transactions and foreign exchange rate
fluctuations, depreciation and amortization expense decreased
$105.7 million or 13.5% during 2005, as compared to 2004.
This decrease is due primarily to (i) the impact of certain
of the UPC Broadband Divisions information technology and
other assets becoming fully depreciated during the last half of
2004 and (ii) the impact during the 2004 periods of the UPC
Broadband Divisions acceleration of the depreciation of
certain customer premise equipment that was targeted for
replacement. These decreases were partially offset by increases
associated with capital expenditures related to the installation
of customer premise equipment, the expansion and upgrade of our
networks and other capital initiatives.
Impairment
of long-lived assets
We incurred impairment charges of $8.3 million and
$50.8 million during 2005 and 2004, respectively. The 2005
amount includes a number of individually insignificant
impairments of our property and equipment and intangible assets.
The 2004 amount includes (i) a $26.0 million
impairment charge of enterprise level goodwill that was
associated with our consolidated programming entity in
Argentina, (ii) $11.0 million related to the
write-down of certain of the UPC Broadband Divisions
tangible fixed assets in The Netherlands, and (iii) other
less significant charges.
II-31
Restructuring
and other operating charges (credits), net
We incurred restructuring and other operating credits, net, of
$3.8 million during 2005 and restructuring and other
operating charges, net, of $26.3 million during 2004. The
2005 amount includes (i) a $7.7 million reversal of a
reserve recorded by The Netherlands during 2004 due to our 2005
decision to reoccupy a building and (ii) other individually
insignificant amounts. The 2004 amount includes
$21.7 million related to the restructuring of the UPC
Broadband Divisions operations in The Netherlands. For
additional information, see note 18 to our consolidated
financial statements.
Interest
expense
Our total consolidated interest expense increased
$131.5 million during 2005, as compared to 2004. Excluding
the effects of foreign exchange rate fluctuations, interest
expense increased $129.5 million during 2005, as compared
to 2004. This increase is primarily attributable to a
$5,122.2 million increase in our outstanding indebtedness
during 2005, most of which is attributable to debt incurred or
assumed in connection with the Cablecom acquisition, the
consolidation of Super Media/J:COM and other acquisitions. The
increase also includes the net effect of (i) a
$34.1 million increase associated with non-cash interest
expense representing the increase during 2005 in the estimated
redemption value of certain mandatorily redeemable securities
issued by the Investcos, (ii) a $7.8 million increase
in the interest expense incurred during 2005 on the UGC
Convertible Notes, which were issued in April 2004, and
(iii) a $7.5 million decrease in interest expense
resulting from lower amortization of deferred financing costs,
due primarily to debt extinguishments and the application of
purchase accounting. An increase in our weighted average
interest rate during 2005 also contributed to the overall
increase in interest expense. Most of the increase in the
estimated fair value of the mandatorily redeemable securities of
the Investcos was recorded in connection with Telenets
October 2005 IPO. For additional information concerning Telenet,
see note 7 to our consolidated financial statements.
Interest
and dividend income
Our total consolidated interest and dividend income increased
$11.5 million during 2005, as compared to 2004 due
primarily to dividends received on our investment in shares of
ABC Family preferred stock. We acquired a 99.9% interest in this
preferred stock from Liberty Media in connection with the June
2004 spin off. The impact of this increase was partially offset
by a decrease in guarantee fees received from J:COM, due
primarily to the elimination of most of such guarantees in
connection with J:COMs December 2004 bank refinancing. An
increase in the interest earned on our weighted average cash and
cash equivalent balances also contributed to the increase.
Share of
results of affiliates, net
The following table reflects our share of results of affiliates,
net, including any
other-than-temporary
declines in value:
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
|
amounts in millions
|
|
|
Telenet
|
|
$
|
(33.5
|
)
|
|
$
|
|
|
Jupiter TV
|
|
|
27.7
|
|
|
|
14.6
|
|
Austar
|
|
|
13.1
|
|
|
|
1.0
|
|
Mediatti
|
|
|
(6.9
|
)
|
|
|
(2.3
|
)
|
Super Media/J:COM
|
|
|
|
|
|
|
45.1
|
|
Other
|
|
|
(23.4
|
)
|
|
|
(19.7
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(23.0
|
)
|
|
$
|
38.7
|
|
|
|
|
|
|
|
|
|
|
Our share of results of affiliates includes losses related to
other-than-temporary
declines in the value of our equity method investments of
$29.2 million and $26.0 million during 2005 and 2004,
respectively. Such
other-than-temporary
declines primarily relate to our investments in TyC, Metropolis
and FPAS, which are included in other in the above table. During
2005, we sold our investments in TyC and FPAS and began
II-32
consolidating Metropolis. For additional information concerning
our equity method investments, see note 7 to our
consolidated financial statements.
Realized
and unrealized gains (losses) on financial and derivative
instruments, net
The details of our realized and unrealized gains (losses) on
financial and derivative instruments, net, are as follows for
the indicated periods:
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
|
amounts in millions
|
|
|
Cross-currency and interest rate
exchange contracts(a)
|
|
$
|
216.0
|
|
|
$
|
(64.1
|
)
|
Embedded derivatives(b)
|
|
|
70.0
|
|
|
|
23.0
|
|
Foreign exchange contracts
|
|
|
11.7
|
|
|
|
0.2
|
|
Call and put contracts
|
|
|
8.8
|
|
|
|
1.7
|
|
Other
|
|
|
3.5
|
|
|
|
3.4
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
310.0
|
|
|
$
|
(35.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The gains on the cross currency and interest rate exchange
contracts is attributable to the net effect of (i) larger
notional amounts in 2005, as compared to 2004, (ii) market
movements with respect to the appreciation of the U.S. dollar
exchange rate compared to the euro that caused the value of
these contracts to increase and (iii) market movements
leading to lower interest rates, which decreased the market
value of the contracts. |
|
(b) |
|
Includes gains and losses associated with the embedded
derivative component of the UGC Convertible Notes during 2005
and the prepaid forward sale of News Corp. Class A common
stock during 2006 and 2005. For additional information, see
note 9 to our consolidated financial statements. |
Foreign
currency transaction gains (losses), net
The details of our foreign currency transaction gains (losses),
net, are as follows for the indicated periods:
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
|
amounts in millions
|
|
|
U.S. dollar debt issued by our
European subsidiaries
|
|
$
|
(219.8
|
)
|
|
$
|
35.7
|
|
Euro denominated debt issued by
UGC (UGC Convertible Notes)
|
|
|
64.2
|
|
|
|
(51.9
|
)
|
Cash denominated in a currency
other than the entities functional currency
|
|
|
(33.0
|
)
|
|
|
33.6
|
|
Intercompany notes denominated in
a currency other than the entities functional currency
|
|
|
(17.0
|
)
|
|
|
46.2
|
|
Swiss franc debt issued by a
European subsidiary
|
|
|
0.7
|
|
|
|
|
|
Repayment of yen denominated
shareholder loans(a)
|
|
|
|
|
|
|
56.1
|
|
Other
|
|
|
(4.3
|
)
|
|
|
(2.3
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(209.2
|
)
|
|
$
|
117.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
On December 21, 2004, we received cash proceeds of
¥43.8 billion ($420.2 million at the transaction
date) in connection with the repayment by J:COM and another
affiliate of all principal and interest due to our company
pursuant to then outstanding shareholder loans. In connection
with this transaction, we recognized in our statement of
operations the foreign currency translation gains that
previously had been reflected in accumulated other comprehensive
earnings (loss). |
II-33
Other-than-temporary-declines
in fair value of investments
We recognized
other-than-temporary
declines in fair values of investments of $3.4 million and
$18.5 million during 2005 and 2004, respectively. The 2005
amount represents the excess of the carrying cost over the fair
value of ABC Family preferred stock held by us at
December 31, 2005. The 2004 amount includes
$12.4 million representing the excess of the carrying cost
over the fair value of the Telewest shares held by us at
December 31, 2004.
Gains
(losses) on extinguishment of debt
We recognized a loss on extinguishment of debt of
$33.7 million during 2005 and a gain on extinguishment of
debt of $24.1 million during 2004. The 2005 loss includes
(i) a $21.1 million write-off of unamortized deferred
financing costs in connection with the December 2005 refinancing
of the J:COM Credit Facility, and (ii) a $12.0 million
write-off of deferred financing costs in connection with the
March 2005 refinancing of the UPC Broadband Holding Bank
Facility. The 2004 gain includes a $31.9 million gain
recognized in connection with the first quarter 2004
consummation of the plan of reorganization of UPC Polska, Inc.,
an indirect subsidiary of UGC.
Gains on
disposition of assets, net
We recognized gains on disposition of non-operating assets, net,
of $115.2 million and $43.7 million during 2005 and
2004, respectively. The 2005 amount includes (i) an
$89.1 million gain in connection with the November 2005
disposition of our 19% ownership interest in SBS, (ii) 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, (iii) a
$40.5 million gain recognized in connection with the
February 2005 sale of our subscription right to purchase
newly-issued Cablevisión shares in connection with its debt
restructuring, (iv) a $28.2 million gain on the
January 2005 sale of UGCs investment in EWT, and
(v) a $17.3 million gain on the June 2005 sale of our
investment in The Wireless Group plc. The 2004 amount includes
(i) a $37.2 million gain on the sale of News Corp.
Class A common stock, (ii) a $25.3 million gain
in connection with our April 2004 contribution of certain equity
interests to Jupiter TV and (iii) a $16.4 million net
loss on the disposition of 18,417,883 Telewest shares. For
additional information regarding our dispositions, see
notes 6 and 7 to our consolidated financial statements.
Gain on
exchange of investment securities
We recognized a pre-tax gain aggregating $178.8 million
during 2004 on exchanges of investment securities, including a
$168.3 million pre-tax gain that is attributable to the
July 19, 2004 conversion of our investment in Telewest
Communications plc Senior Notes and Senior Discount Notes into
18,417,883 shares or 7.5% of the then issued and
outstanding common stock of Telewest. This gain represents the
excess of the fair value of the Telewest common stock received
over our cost basis in the Senior Notes and Senior Discount
Notes.
Income
tax benefit (expense)
We recognized income tax expense of $28.7 million and an
income tax benefit of $13.9 million during 2005 and 2004,
respectively. The income tax expense for 2005 differs from the
expected tax expense of $30.1 million (based on the U.S.
federal 35% income tax rate) due primarily to (i) the
realization of taxable foreign currency gains and losses in
certain jurisdictions not recognized for financial reporting
purposes, (ii) losses recognized on dispositions of
consolidated investments for which no deferred taxes were
historically provided, and (iii) a net decrease in our
valuation allowance established against deferred tax assets,
including a tax benefit of ¥11.9 billion
($108.1 million at the average rate for the period)
recognized in 2005 associated with the release of valuation
allowances by J:COM, which is largely offset by the
establishment of valuation allowances in other jurisdictions
against currently arising deferred tax assets. The items
mentioned above are largely offset by (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, and (ii) the reduction of deferred
tax assets in The Netherlands due to an enacted tax law change.
II-34
The income tax benefit for 2004 of $13.9 million differs
from the expected tax benefit of $47.7 million (based on
the U.S. federal 35% income tax rate) primarily due to
(i) the reversal of a deferred tax liability originally
recorded for a gain on extinguishment of debt in a 2002 merger
transaction as a result of the emergence of Old UGC from
bankruptcy in November 2004, (ii) losses recognized on
dispositions of consolidated investments for which no deferred
taxes were historically provided, (iii) the impact of
certain permanent differences between the financial and tax
accounting treatment of interest and other items associated
investments in subsidiaries as well as other items that resulted
in tax-exempt income in the tax jurisdiction, and (iv) a
deferred tax benefit that we recorded during the third quarter
of 2004 to reflect a reduction in the estimated blended state
tax rate used to compute our net deferred tax liabilities. These
items are more than offset by (i) the reduction of
UGCs deferred tax assets as a result of tax rate
reductions in The Netherlands, the Czech Republic, and Austria,
(ii) the impact of certain permanent differences between
the financial and tax accounting treatment of interest and other
items that resulted in nondeductible expenses, (iii) a net
increase in our valuation allowance established against rising
deferred tax assets that were only partially offset by the
release of valuation allowances in other jurisdictions,
(iv) the realization of taxable foreign currency gains and
losses in certain jurisdictions not recognized for financial
reporting purposes and (v) the impact of certain permanent
differences between the financial and tax accounting treatment
of interest and other items related to investments in
subsidiaries.
For additional information, see note 13 to our consolidated
financial statements.
Liquidity
and Capital Resources
Sources
and Uses of Cash
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, J:COM, Cablecom Luxembourg and
VTR, restrict our ability to access the assets of these
subsidiaries. UPC Broadband Holding, J:COM, Cablecom Luxembourg
and VTR collectively account for most of our net assets. In
addition, our ability to access the liquidity of our
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 December 31, 2006
are set forth in the following table (amounts in millions):
|
|
|
|
|
Cash and cash equivalents held
by:
|
|
|
|
|
LGI and its non-operating
subsidiaries
|
|
$
|
819.7
|
|
UPC Broadband Division:
|
|
|
|
|
UPC Holding
|
|
|
0.9
|
|
UPC Broadband Holding and its
unrestricted subsidiaries
|
|
|
625.6
|
|
Cablecom Luxembourg and its
unrestricted subsidiaries
|
|
|
130.9
|
|
J:COM
|
|
|
172.0
|
|
VTR
|
|
|
49.2
|
|
Chellomedia
|
|
|
42.8
|
|
Austar
|
|
|
21.4
|
|
Liberty Puerto Rico
|
|
|
12.1
|
|
Other operating subsidiaries
|
|
|
5.9
|
|
|
|
|
|
|
Total cash and cash equivalents
|
|
$
|
1,880.5
|
|
|
|
|
|
|
II-35
LGI and
its Non-operating Subsidiaries
The cash and cash equivalent balances of $819.7 million
held by LGI and its non-operating subsidiaries represented
available liquidity at the corporate level at December 31,
2006. Our remaining cash and cash equivalents of
$1,060.8 million at December 31, 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 operating subsidiaries. As described in
greater detail below, our current sources of corporate liquidity
include (i) the cash and cash equivalents held by LGI and
its non-operating subsidiaries, (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 2006. Most of this
cash was used to purchase LGI common stock.
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.
During 2006, we repurchased a total of 32,698,558 shares of
LGI Series A common stock at a weighted average price of
$24.79 and 40,528,748 shares of LGI Series C common
stock at a weighted average price of $23.35, for an aggregate
cash purchase price of $1,756.9 million, including direct
acquisition costs. On January 10, 2007, we purchased
5,084,746 shares of our LGI Series A common stock and
5,246,590 shares of our LGI Series C common stock for
an aggregate purchase price of $300 million before direct
acquisition costs, pursuant to two modified Dutch auction
self-tender offers. At December 31, 2006, we were
authorized under the March 8, 2006 stock repurchase plan to
acquire an additional $117.6 million of LGI Series A
and Series C common stock. For additional information, see
note 14 to our consolidated financial statements.
Operating
Subsidiaries
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
each of UPC Broadband Holding, VTR, Cablecom GmbH, J:COM,
Austar, Chellomedia and Liberty Puerto Rico, borrowing
availability under their respective debt instruments. For the
details of the borrowing availability of such entities at
December 31, 2006, see note 11 to our 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,
see the discussion under Consolidated Cash Flow Statements
below.
During 2006, we received proceeds upon the sale of UPC Norway
(444.8 million or $536.7 million at the
transaction date), UPC Sweden (SEK 2,984 million or
$403.9 million at the transaction date), UPC France
(1,253.2 million or $1,578.4 million at the
transaction date) and certain other non-strategic assets. During
2006, we also acquired 100% interests in Karneval and INODE, and
J:COM acquired a controlling interest in Cable West, for cash
proceeds, before direct acquisition costs, of
331.1 million ($420.1 million at the transaction
dates), 93 million ($111 million at the
transaction date) and ¥63.5 billion
($538.0 million at the transaction dates), respectively.
For additional information concerning our acquisitions and
dispositions, see notes 5 and 6 to our consolidated
financial statements.
Capitalization
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 our consolidated
operating cash flow. The ratio of our December 31, 2006
consolidated debt to our annualized consolidated operating cash
flow for the quarter ended December 31, 2006 was 4.8 and
the ratio of our December 31, 2006 consolidated net debt
(debt less cash and cash equivalents and
II-36
restricted cash balances related to our debt instruments) to our
annualized consolidated operating cash flow for the quarter
ended December 31, 2006 was 3.9.
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 9 to
our 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.
During 2006, UPC Broadband Holding, Cablecom, VTR, Liberty
Puerto Rico, Chellomedia and Austar completed financing
transactions. The proceeds from these financing transactions
generally were used to repay existing debt and, to a lesser
extent, make distributions or loans to LGI and its non-operating
subsidiaries.
At December 31, 2006, our outstanding consolidated debt and
capital lease obligations aggregated $12,230.1 million,
including $1,384.9 million that is classified as current in
our consolidated balance sheet. The current portion of our debt
and capital lease obligations includes the $424.8 million
carrying value of the Cablecom Luxembourg Old Fixed Rate Notes
and the $345.0 million outstanding principle of our secured
borrowing on ABC Family preferred stock. The repayment of the
Cablecom Luxembourg Old Fixed Rate Notes will be funded with
restricted cash and we expect that the source of our repayment
of the secured borrowing on the ABC Family preferred stock will
be the underlying shares of ABC Family preferred stock. At
December 31, 2006, our investment in shares of ABC Family
Preferred Stock was included in other investments in our
consolidated balance sheet. We believe that we have sufficient
resources to repay or refinance the current portion of our debt
and capital lease obligations during 2007.
All of our outstanding debt and capital lease obligations at
December 31, 2006 had been borrowed or incurred by our
subsidiaries.
For additional information concerning our debt balances at
December 31, 2006, see note 11 to our consolidated
financial statements.
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.
2006 Consolidated Cash Flow Statement. During
2006, we used net cash provided by our operating activities of
$1,878.0 million to fund net cash used by our investing
activities of $104.4 million and net cash used by our
financing activities of $1,211.8 million and a
$561.8 million increase in our existing cash and cash
equivalent balances (excluding a $116.5 million increase
due to changes in foreign exchange rates).
The net cash provided by our investing activities during 2006
includes cash proceeds of $2,548.1 million received upon
the disposition of UPC France, UPC Sweden, UPC Norway, UPC
Belgium and certain less significant assets, cash paid for
capital expenditures of $1,507.9 million, and cash paid of
$1,254.2 million in connection with acquisitions, including
our acquisitions of Karneval and INODE and J:COMs
acquisition of a controlling interest in Cable West.
The UPC Broadband Division accounted for $827.0 million and
$538.9 million of our consolidated capital expenditures
during 2006 and 2005, respectively. The increase in the UPC
Broadband Divisions capital expenditures during 2006, as
compared to 2005, is due primarily to (i) the effects of
acquisitions, and (ii) increased costs associated with the
purchase and installation of customer premise equipment as
organic RGU additions increased during 2006, as compared to
2005, due largely to growth in digital video, broadband Internet
and VoIP telephony services, with The Netherlands D4A
program accounting for most of the growth in digital video RGUs.
During 2006 and 2005, the UPC Broadband Divisions capital
expenditures represented 24.9% and 24.6%, respectively, of
II-37
its revenue. We expect that the 2007 capital expenditures of the
UPC Broadband Division, as a percentage of the UPC Broadband
Divisions revenue, will fall within a range of 24% to 26%.
VTR accounted for $138.2 million and $98.6 million of
our consolidated capital expenditures during 2006 and 2005,
respectively. The increase in VTRs capital expenditures
during 2006, as compared to 2005, is due primarily to
(i) increased costs associated with the purchase and
installation of customer premise equipment as organic RGU
additions increased during 2006, as compared to 2005, due
largely to growth in digital video, broadband Internet and VoIP
telephony services and (ii) increased expenditures for new
build and upgrade projects to expand digital video and other
advanced services, increase network capacity and improve
VTRs competitive position, and to meet certain regulatory
commitments. During 2006 and 2005, VTRs capital
expenditures represented 24.7% and 22.2%, respectively, of its
revenue. We expect that the 2007 capital expenditures of VTR, as
a percentage of 2007 revenue, will fall within a range of 23% to
25%.
J:COM accounted for $416.7 million and $358.8 million
of our consolidated capital expenditures during 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 consolidated statements of
cash flows. Including $149.4 million and
$145.1 million of expenditures that were financed under
capital lease arrangements, J:COMs capital expenditures
aggregated $566.1 million and $503.9 million during
2006 and 2005, respectively. The increase in J:COMs
capital expenditures (including amounts financed under capital
lease arrangements) during 2006, as compared to 2005, is due
primarily to (i) the effects of acquisitions;
(ii) increased costs associated with the purchase and
installation of customer premise equipment; and (iii) other
factors such as information technology upgrades and expenditures
for general support systems. During 2006 and 2005, J:COMs
capital expenditures (including amounts financed under capital
lease arrangements) represented 29.7% and 30.3%, respectively,
of its revenue. J:COM management currently expects that
J:COMs 2007 capital expenditures (including amounts
financed under capital lease arrangements), as a percentage of
J:COMs 2007 revenue, will fall within a range of 27% to
29%.
The actual amount of the 2007 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 2006, the cash used by our financing activities was
$1,211.8 million. Such amount includes net borrowings of
debt and capital lease obligations of $1,091.2 million and
stock repurchases of $1,756.9 million.
2005 Consolidated Cash Flow Statement. During
2005, we used net cash provided by our operating activities of
$1,576.1 million, net cash provided by financing activities
of $2,191.8 million and $1,166.8 million of our
existing cash and cash equivalent balances (excluding a
$160.1 million decrease due to changes in foreign exchange
rates) to fund net cash used in our investing activities of
$4,934.7 million.
The net cash used by our investing activities during 2005
includes cash paid in connection with the LGI Combination of
$703.5 million, cash paid for acquisitions of
$3,586.3 million, capital expenditures of
$1,046.2 million, net proceeds received upon dispositions
of $464.5 million, and the net effect of other less
significant sources and uses of cash. For additional information
concerning our 2005 acquisitions, see note 5 to our
consolidated financial statements.
The UPC Broadband Division and VTR accounted for
$538.9 million and $98.6 million, respectively of our
consolidated capital expenditures during 2005, and
$323.9 million and $41.7 million, respectively, during
2004. J:COM accounted for $358.8 million of our
consolidated capital expenditures during 2005. Including
$145.1 million of expenditures that were financed under
capital lease arrangements, J:COMs capital expenditures
aggregated $503.9 million during 2005. The majority of our
capital expenditures during 2005 was associated with RGU growth
and the related purchase and installation of customer premise
equipment.
During 2005, the cash provided by our financing activities was
$2,191.8 million. This amount includes net proceeds
received on a consolidated basis from the issuance of stock by
subsidiaries of $873.6 million (including
II-38
$853.4 million of proceeds received by J:COM in connection
with its IPO) and net borrowings of debt and capital lease
obligations of $1,556.1 million.
Off
Balance Sheet Arrangements and Aggregate Contractual
Obligations
Off
Balance Sheet Arrangements
At December 31, 2006, J:COM guaranteed
¥8.8 billion ($73.9 million) of the debt of
certain of its non-consolidated investees. 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.
As further described in note 21 to our consolidated
financial statements, we have a number of contingent obligations
pursuant to which our co-investors in certain entities could
require us to purchase their ownership interests.
Contractual
Commitments
As of December 31, 2006, the U.S. dollar equivalent (based
on December 31, 2006 exchange rates) of our consolidated
contractual commitments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due during:
|
|
|
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
Thereafter
|
|
|
Total
|
|
|
|
amounts in millions
|
|
|
Debt (excluding interest)
|
|
$
|
1,273.6
|
|
|
$
|
221.3
|
|
|
$
|
318.9
|
|
|
$
|
723.4
|
|
|
$
|
388.1
|
|
|
$
|
8,855.0
|
|
|
$
|
11,780.3
|
|
Capital leases (excluding interest)
|
|
|
111.3
|
|
|
|
97.3
|
|
|
|
86.6
|
|
|
|
70.9
|
|
|
|
42.4
|
|
|
|
41.3
|
|
|
|
449.8
|
|
Operating leases
|
|
|
136.8
|
|
|
|
105.8
|
|
|
|
90.4
|
|
|
|
74.4
|
|
|
|
44.9
|
|
|
|
143.3
|
|
|
|
595.6
|
|
Programming, satellite and other
purchase obligations
|
|
|
130.4
|
|
|
|
73.5
|
|
|
|
41.1
|
|
|
|
11.6
|
|
|
|
6.6
|
|
|
|
39.0
|
|
|
|
302.2
|
|
Other commitments
|
|
|
50.0
|
|
|
|
9.1
|
|
|
|
8.4
|
|
|
|
5.9
|
|
|
|
5.1
|
|
|
|
9.8
|
|
|
|
88.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,702.1
|
|
|
$
|
507.0
|
|
|
$
|
545.4
|
|
|
$
|
886.2
|
|
|
$
|
487.1
|
|
|
$
|
9,088.4
|
|
|
$
|
13,216.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected cash interest payments
on debt and capital lease obligations*
|
|
$
|
640.3
|
|
|
$
|
582.3
|
|
|
$
|
544.9
|
|
|
$
|
536.7
|
|
|
$
|
426.2
|
|
|
$
|
959.1
|
|
|
$
|
3,689.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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* |
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Based on interest rates and contractual maturities in effect as
of December 31, 2006. |
Programming commitments consist of obligations associated with
certain of our programming, studio output and sports rights
contracts that are enforceable and legally binding on us in that
we have agreed to pay minimum fees, without regard to
(i) the actual number of subscribers to the programming
services, (ii) whether we terminate cable service to a
portion of our subscribers or dispose of a portion of our cable
systems, or (iii) whether we discontinue our premium film
or sports services. The amounts reflected in the table with
respect to these contracts are significantly less than the
amounts we expect to pay in these periods under these contracts.
Payments to programming vendors have in the past represented,
and are expected to continue to represent in the future, a
significant portion of our operating costs. The ultimate amount
payable in excess of the contractual minimums of our studio
output contracts, which expire at various dates through 2014, is
dependent upon the number of subscribers to our premium movie
service and the theatrical success of the films that we exhibit.
Satellite commitments consist of obligations associated with
satellite carriage services provided to our company. Other
purchase obligations include commitments to purchase customer
premise equipment that are enforceable and legally binding on us.
II-39
Other commitments consist of commitments to rebuild or upgrade
broadband communications networks and to extend the cable
network to new developments, and other fixed minimum contractual
commitments associated with our agreements with franchise or
municipal authorities. The amount and timing of the payments
included in the table with respect to our rebuild, upgrade and
network extension commitments are estimated based on the
remaining capital required to bring the cable distribution
system into compliance with the requirements of the applicable
franchise agreement specifications.
In addition to the commitments set forth in the table above, we
have commitments under agreements with programming vendors,
franchise authorities and municipalities, and other third
parties pursuant to which we expect to make payments in future
periods. Such amounts are not included in the above table
because they are not fixed or determinable due to various
factors.
Critical
Accounting Policies, Judgments and Estimates
In connection with the preparation of our consolidated financial
statements, we make estimates and assumptions that affected the
reported amounts of assets and liabilities, revenue and
expenses, and related disclosure of contingent assets and
liabilities at the date of our consolidated financial
statements. Actual results may differ from those estimates under
different assumptions or conditions. Critical accounting
policies are defined as those policies that are reflective of
significant judgments and uncertainties, which would potentially
result in materially different results under different
assumptions and conditions. We believe our judgments and related
estimates associated with the carrying value of our long-lived
assets, the valuation of our acquisition related assets and
liabilities, the capitalization of our construction and
installation costs, income tax accounting, accounting for our
derivative instruments and accounting for our stock-based
compensation to be critical in the preparation of our
consolidated financial statements. These accounting estimates or
assumptions are critical because of the levels of judgment
necessary to account for matters that are inherently uncertain
or susceptible to change.
Property
and Equipment and Intangible Assets
Carrying Value. The aggregate carrying value
of our property and equipment and intangible assets (including
goodwill) that were held for use comprised 78% and 81% of our
total assets of our continuing operations at December 31,
2006 and 2005, respectively. Pursuant to SFAS 142 and
SFAS 144, we are required to assess the recoverability of
our long-lived assets.
SFAS 144 requires that we periodically review the carrying
amounts of our property and equipment and our intangible assets
(other than goodwill and indefinite-lived intangible assets) to
determine whether current events or circumstances indicate that
such carrying amounts may not be recoverable. If the carrying
amount of the asset is greater than the expected undiscounted
cash flows to be generated by such asset, an impairment
adjustment is recognized. Such adjustment is measured by the
amount that the carrying value of such assets exceeds their fair
value. We generally measure fair value by considering sale
prices for similar assets or by discounting estimated future
cash flows using an appropriate discount rate. For purposes of
impairment testing, long-lived assets are grouped at the lowest
level for which cash flows are largely independent of other
assets and liabilities. Assets to be disposed of are carried at
the lower of their financial statement carrying amount or fair
value less costs to sell.
Pursuant to SFAS 142, we evaluate the goodwill, franchise
rights and other indefinite-lived intangible assets for
impairment at least annually on October 1 and whenever other
facts and circumstances indicate that the carrying amounts of
goodwill and indefinite-lived intangible assets may not be
recoverable. For purposes of the goodwill evaluation, we compare
the fair value of each of our reporting units to their
respective carrying amounts. If the carrying value of a
reporting unit were to exceed its fair value, we would then
compare the implied fair value of the reporting units
goodwill to its carrying amount, and any excess of the carrying
amount over the fair value would be charged to operations as an
impairment loss. Any excess of the carrying value over the fair
value for franchise rights or other indefinite-lived intangible
assets is also charged to operations as an impairment loss.
Considerable management judgment is necessary to estimate the
fair value of assets; accordingly, actual results could vary
significantly from such estimates.
II-40
In 2006, 2005 and 2004, we recorded impairments of our property
and equipment and intangible assets aggregating
$15.5 million, $8.3 million and $50.8 million,
respectively.
Capitalization of Construction and Installation
Costs. In accordance with SFAS 51,
Financial Reporting by Cable Television Companies, we
capitalize costs associated with the construction of new cable
transmission and distribution facilities and the installation of
new cable services. Capitalized construction and installation
costs include materials, labor and applicable overhead costs.
Installation activities that are capitalized include
(i) the initial connection (or drop) from our cable system
to a customer location, (ii) the replacement of a drop, and
(iii) the installation of equipment for additional
services, such as digital cable, telephone or broadband Internet
service. The costs of other customer-facing activities such as
reconnecting customer locations where a drop already exists,
disconnecting customer locations and repairing or maintaining
drops, are expensed as incurred. Significant judgment is
involved in the determination of the nature and amount of
internal costs to be capitalized with respect to construction
and installation activities.
Depreciation. We depreciate our property and
equipment on a straight-line basis over the estimated useful
life of the assets. Due to rapid changes in technology, expected
use of assets and other factors, the determination of estimated
useful lives requires significant management judgment. We
regularly review whether changes to estimated useful lives are
required in order to accurately reflect the economic use of our
property and equipment. Any changes to estimated useful lives
are reflected prospectively beginning in the period that the
change is deemed necessary. Total depreciation expense for 2006,
2005 and 2004 totaled $1,635.8 million,
$1,163.9 million and $724.7 million, respectively.
Fair
Value of Acquisition Related Assets and
Liabilities
We allocate the purchase price of acquired companies or
acquisitions of minority interests of a subsidiary to the
identifiable assets acquired and liabilities assumed based on
their estimated fair values. In determining fair value, we are
required to make estimates and assumptions that affect the
recorded amounts. Third party valuation specialists generally
are engaged to assist in the valuation of certain of these
assets and liabilities. Estimates used in valuing acquired
assets and liabilities include, but are not limited to, expected
future cash flows, market comparables and appropriate discount
rates, remaining useful lives of long-lived assets, replacement
costs of property and equipment, fair values of debt, and the
amounts to be recovered in future periods from acquired net
operating losses and other deferred tax assets. Our estimates in
this area impact the amount of depreciation and amortization,
impairment charges, interest expense and income tax expense or
benefit that we report in the periods following the acquisition
date. Managements estimates of fair value are based upon
assumptions believed to be reasonable, but which are inherently
uncertain.
Income
Tax Accounting
We are required to estimate the amount of tax payable or
refundable for the current year and the deferred tax assets and
liabilities for the future tax consequences attributable to
differences between the financial statement carrying amounts and
income tax basis of assets and liabilities and the expected
benefits of utilizing net operating loss and tax credit
carryforwards, using enacted tax rates in effect for each taxing
jurisdiction in which we operate for the year in which those
temporary differences are expected to be recovered or settled.
This process requires our management to make assessments
regarding the timing and probability of the ultimate tax impact
of such items. Net deferred tax assets are reduced by a
valuation allowance if we believe it more-likely-than-not such
net deferred tax assets will not be realized. Establishing a tax
valuation allowance requires us to make assessments about the
timing of future events, including the probability of expected
future taxable income and available tax planning opportunities.
At December 31, 2006, the aggregate valuation allowance
provided against deferred tax assets was $1,921.5 million.
Actual income taxes could vary from these estimates due to
future changes in income tax law or interpretations thereof in
the jurisdictions in which we operate, our inability to generate
sufficient future taxable income, differences between estimated
and actual results, or unpredicted results from the final
determination of each years liability by taxing
authorities. Any of such factors could have a material effect on
our current and deferred tax position as reported in our
consolidated financial statements. A high degree of judgment is
required to assess the impact of possible future outcomes on our
current and deferred tax positions. For additional information,
see note 13 to our consolidated financial statements.
II-41
Derivative
Instruments
As further described in note 9 to our consolidated
financial statements, we have entered into various derivative
instruments, including interest rate and foreign currency
derivative instruments. In addition, we have entered into other
contracts, such as the UGC Convertible Notes, that contain
embedded derivative financial instruments. All derivatives are
required to be recorded on the balance sheet at fair value. If
the derivative is designated as a fair value hedge, the changes
in the fair value of the derivative and of the hedged item
attributable to the hedged risk are recognized in earnings. If
the derivative is designated as a cash flow hedge, the effective
portions of changes in the fair value of the derivative are
recorded in other comprehensive earnings. Ineffective portions
of changes in the fair value of cash flow hedges are recognized
in earnings. If the derivative is not designated as a hedge,
changes in the fair value of the derivative are recognized in
earnings. With the exception of J:COMs interest rate
swaps, none of the derivative instruments that were in effect
during the three years ended December 31, 2006 were
designated as hedges.
We use the Black-Scholes option-pricing model to estimate the
fair value of certain derivative instruments that we hold. We
may also use a binomial model to value certain of our derivative
instruments. These models incorporate a number of variables in
determining such fair values, including expected volatility of
the underlying security, an appropriate discount rate and the
foreign currency exchange rate. The volatility rates that we use
generally represent the expected volatility of the underlying
security over the term of the derivative instrument based on
realized historic volatilities and implied market volatilities
(when available), and are adjusted quarterly. Foreign currency
exchange rates are based on published indices, and are adjusted
quarterly. Considerable management judgment is required in
estimating these variables. Actual results upon settlement of
our derivative instruments may differ materially from these
estimates.
Stock-based
Compensation
As further described in note 3 to our consolidated
financial statements, on January 1, 2006, we adopted the
provisions of SFAS 123(R) using the modified prospective
adoption method. SFAS 123(R) generally requires all
share-based payments to employees, including grants of employee
stock options and SARs, to be recognized in the financial
statements based on their grant-date fair values. We calculate
the fair value of stock options and SARs using the Black-Scholes
option pricing model. Calculating the fair value of share-based
payments at grant date requires judgment in determining the
estimates and assumptions underlying certain variables, such as
the expected stock price volatility over the term of the awards,
the expected length of time employees will retain their vested
stock options prior to exercising and the number of options that
will ultimately be forfeited prior to completion of their
vesting requirements. Beginning in 2007, we will record
compensation expense with respect to our Senior Executive and
Key Employee Performance Plans based on our assessment of the
awards that are probable to be earned. This assessment will be
based primarily on our expectations with respect to our
operating results in 2008 and will be reassessed on a quarterly
basis. Changes in our estimates and assumptions related to our
stock-based compensation can materially affect the calculation
of the fair value of share-based compensation. For further
information regarding our stock option plans, see note 15
to our consolidated financial statements.
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Item 7A.
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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.
Cash
and Investments
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
II-42
December 31, 2006, J:COM held cash balances of
$172.0 million that were denominated in Japanese yen and we
held cash balances of $1,182.0 million that were
denominated in euros. Subject to applicable debt covenants,
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 December 31, 2006, the
aggregate fair value of our equity method and
available-for-sale
investments that was subject to price risk was
$941.2 million.
Foreign
Currency Risk
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
contracts, 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 Japanese yen and the euro as 29.4% and
28.5% of our U.S. dollar revenue during 2006 was derived from
subsidiaries whose functional currency is the Japanese yen and
the euro, respectively. In addition, we have significant
exposure to changes in the exchange rates for the Swiss franc,
Chilean peso, the Hungarian forint, the Australian dollar and
other local currencies in Europe.
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:
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December 31,
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Spot rates:
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2006
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2005
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2004
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Euro
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0.7582
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0.8451
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0.7333
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Swiss Franc
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1.2198
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1.3153
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1.1319
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Japanese yen
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119.08
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117.95
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102.41
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Chilean peso
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534.25
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514.01
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559.19
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Hungarian forint
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190.65
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213.52
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180.59
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Australian dollar
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1.2686
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1.3631
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1.2837
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II-43
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Year ended December 31,
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Average rates:
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2006
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2005
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2004
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Euro
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0.7969
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0.8043
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0.8059
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Swiss Franc
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1.2533
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1.2924
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1.2400
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Japanese yen
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116.36
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109.81
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107.44
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Chilean peso
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530.40
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558.42
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609.22
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Hungarian forint
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210.21
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199.49
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202.84
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Australian dollar
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1.3278
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1.3449
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1.3051
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Inflation
and Foreign Investment Risk
Certain of our operating companies operate in countries where
the rate of inflation is higher than that in the United States.
While our affiliated companies attempt to increase their
subscription rates to offset increases in operating costs, there
is no assurance that they will be able to do so. Therefore,
operating costs may rise faster than associated revenue,
resulting in a material negative impact on reported earnings. We
are also impacted by inflationary increases in salaries, wages,
benefits and other administrative costs, the effects of which to
date have not been material. Our foreign operating companies are
all directly affected by their respective countries
government, economic, fiscal and monetary policies and other
political factors.
Interest
Rate Risks
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 our company to otherwise pay lower
market rates.
Weighted Average Variable Interest Rate At
December 31, 2006, our variable rate indebtedness
(exclusive of the effects of interest rate exchange agreements)
aggregated approximately $8,569.2 million, and the
weighted-average interest rate (including margin) on such
variable rate indebtedness was approximately 6.3% (7.1%
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 $42.8 million. As discussed
above and in note 9 to our consolidated financial
statements, we use interest rate exchange contracts to manage
our exposure to increases in variable interest rates such that
increases in the fair value of these contracts generally would
be expected to largely offset the economic impact of increases
in market interest rates.
Derivative
Instruments
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 9 to our 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.
II-44
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 December 31, 2006 would have
increased (decreased) the aggregate fair value of the UPC
Broadband Holding cross-currency and interest rate exchange
contracts by approximately 149.7 million
($197.4 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 December 31, 2006 would have
increased (decreased) the aggregate value of the UPC Broadband
Holding cross-currency and interest rate exchange contracts by
approximately 145.2 million ($191.5 million),
(iii) an instantaneous increase in the relevant base rate
of 50 basis points (0.50%) at December 31, 2006 would have
increased the aggregate fair value of the UPC Broadband Holding
cross-currency and interest rate exchange contracts and caps by
approximately 46.5 million ($61.3 million), and
(iv) an instantaneous decrease in the relevant base rate of
50 bases points (0.50%) at December 31, 2006 would have
decreased the aggregate fair value of the UPC Broadband Holding
cross-currency and interest rate exchange contracts and caps by
approximately 51.2 million ($67.5 million).
LG
Switzerland Cross-currency and Interest Rate Exchange
Contracts
Holding all other factors constant, (i) an instantaneous
increase (decrease) of 10% in the value of the Swiss franc
relative to the euro at December 31, 2006 would have
decreased (increased) the aggregate fair value of the LG
Switzerland cross-currency and interest rate exchange contracts
by approximately 57.5 million ($75.8 million),
and (ii) an instantaneous increase (decrease) in the
relevant base rate of 50 basis points (0.50%) at
December 31, 2006 would have increased (decreased) the
aggregate fair value of the LG Switzerland cross-currency and
interest rate exchange contracts and caps by approximately
0.7 million ($0.9 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 December 31, 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 CHF 63.9 million
($52.4 million), (ii) an instantaneous increase in the
relevant base rate (excluding margin) of 50 basis points (0.50%)
at December 31, 2006 would have increased the aggregate
fair value of the Cablecom GmbH cross-currency and interest rate
exchange contracts by approximately CHF 29.0 million
($23.8 million), and (iii) an instantaneous decrease
in the relevant base rate of 50 basis points (0.50%) at
December 31, 2006 would have deceased the aggregate fair
value of the Cablecom GmbH cross-currency and interest rate
exchange contracts by approximately CHF 29.9 million
($24.5 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 U.S. dollar
relative to the Chilean peso at December 31, 2006 would
have increased (decreased) the aggregate fair value of the VTR
cross-currency and interest rate exchange contracts by
approximately CLP 28.3 billion ($53.0 million),
(ii) an instantaneous increase in the relevant base rate
(excluding margin) of 50 basis points (0.50%) at
December 31, 2006 would have increased the aggregate fair
value of the VTR cross-currency and interest rate exchange
contracts by approximately CLP 8,700 million
($16.3 million), and (iii) an instantaneous decrease
in the relevant base rate of 50 basis points (0.50%) at
December 31, 2006 would have decreased the aggregate fair
value of the VTR cross-currency and interest rate exchange
contracts by approximately CLP 9,000 million
($16.8 million).
UGC
Convertible Notes
Holding all other factors constant, (i) an instantaneous
increase of 10% in the value of the euro relative to the U.S.
dollar at December 31, 2006 would have decreased the fair
value of the UGC Convertible Notes by approximately
33.5 million ($44.2 million), (ii) an
instantaneous decrease of 10% in the value of the euro relative
to the U.S. dollar at December 31, 2006 would have
increased the fair value of the UGC Convertible Notes by
approximately 44.0 million ($58.0 million),
(iii) an instantaneous increase (decrease) in the risk free
rate of 50 basis points (0.50%) at December 31, 2006 would
have decreased (increased) the fair value of the UGC Convertible
II-45
Notes by approximately 2.8 million
($3.7 million), and (iv) an instantaneous increase
(decrease) of 10% in the combined per share market price of LGI
Series A and Series C common stock at
December 31, 2006 would have increased (decreased) the fair
value of the UGC Convertible Notes by approximately
40.0 million ($52.8 million).
Credit
Risk
We are exposed to the risk that the counterparties to our
derivative instruments will default on their obligations to us.
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
default, we do not expect that any such default will occur.
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Item 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
The consolidated financial statements of LGI are filed under
this Item, beginning on
page II-50.
Financial statement schedules and separate financial statements
of subsidiaries not consolidated and 50 percent or less
owned persons are filed under Item 15 of this Annual Report
on
Form 10-K.
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Item 9.
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CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
None.
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|
Item 9A.
|
CONTROLS
AND PROCEDURES
|
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 December 31, 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 December 31, 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.
Internal
control over financial reporting
(a) Managements Annual Report on Internal Control
over Financial Reporting
Managements annual report on internal control over
financial reporting is included herein on
page II-47.
(b) Attestation Report of the Independent Registered
Public Accounting Firm
The attestation report of KPMG LLP is included herein on
page II-48.
(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 fourth fiscal quarter
covered by this Annual Report on
Form 10-K
that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
Item 9B. OTHER
INFORMATION
Not applicable.
II-46
Managements
Annual Report on Internal Control over Financial
Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term
is defined in
Rule 13a-15(f)
of the Securities Exchange Act of 1934. Our internal control
over financial reporting is designed to provide reasonable
assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in
accordance with accounting principles generally accepted in the
United States of America. Because of its inherent limitations,
internal control over financial reporting may not prevent or
detect misstatements. Projections of any evaluation of
effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures
may deteriorate.
Our management assessed the effectiveness of internal control
over financial reporting as of December 31, 2006, using the
criteria in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Our evaluation of internal control over
financial reporting did not include the internal control of the
following subsidiaries we acquired in 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue included
|
|
|
|
Total assets included in
|
|
|
in our consolidated
|
|
|
|
our consolidated financial
|
|
|
financial statements for
|
|
|
|
statements as of
|
|
|
the year ended
|
|
|
|
December 31, 2006
|
|
|
December 31, 2006
|
|
|
|
amounts in millions
|
|
|
Cable West, Inc.
|
|
$
|
810.6
|
|
|
$
|
47.9
|
|
Karneval Media s.r.o. and
Forecable s.r.o.
|
|
|
448.0
|
|
|
|
16.8
|
|
INODE
Telekommunikationsdienstleistungs GmbH
|
|
|
115.2
|
|
|
|
78.9
|
|
Other
|
|
|
162.5
|
|
|
|
30.7
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,536.3
|
|
|
$
|
174.3
|
|
|
|
|
|
|
|
|
|
|
The aggregate amount of consolidated assets and revenues of
these subsidiaries included in our consolidated financial
statements as of and for the year ended December 31, 2006
was $1,536.3 million and $174.3 million, respectively.
Based on this evaluation, our management believes that our
internal control over financial reporting was effective as of
December 31, 2006. Our managements assessment of the
effectiveness of our internal control over financial reporting
has been audited by KPMG LLP, an independent registered public
accounting firm, as stated in their report included herein.
II-47
Report of
Independent Registered Public Accounting Firm
The Board of Directors
Liberty Global, Inc.:
We have audited managements assessment, included in the
accompanying Managements Annual Report on Internal Control
over Financial Reporting, that Liberty Global, Inc.
maintained effective internal control over financial reporting
as of December 31, 2006, based on criteria established in
Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Liberty Global, Inc.s management is responsible
for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of
internal control over financial reporting. Our responsibility is
to express an opinion on managements assessment and an
opinion on the effectiveness of the Companys internal
control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, evaluating
managements assessment, testing and evaluating the design
and operating effectiveness of internal control, and performing
such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, managements assessment that Liberty
Global, Inc. maintained effective internal control over
financial reporting as of December 31, 2006, is fairly
stated, in all material respects, based on criteria established
in Internal Control Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Also, in our opinion, Liberty Global, Inc.
maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2006, based on
criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway
II-48
Commission (COSO). Managements evaluation of the
effectiveness of Liberty Global, Inc.s internal control
over financial reporting as of December 31, 2006 excluded
the following subsidiaries acquired in 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue included in
|
|
|
|
Total assets included in the
|
|
|
the consolidated
|
|
|
|
consolidated financial
|
|
|
financial statements for
|
|
|
|
statements as of
|
|
|
the year ended
|
|
|
|
December 31, 2006
|
|
|
December 31, 2006
|
|
|
|
amounts in millions
|
|
|
Cable West, Inc.
|
|
$
|
810.6
|
|
|
$
|
47.9
|
|
Karneval Media s.r.o. and
Forecable s.r.o.
|
|
|
448.0
|
|
|
|
16.8
|
|
INODE
Telekommunikationsdienstleistungs GmbH
|
|
|
115.2
|
|
|
|
78.9
|
|
Other
|
|
|
162.5
|
|
|
|
30.7
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,536.3
|
|
|
$
|
174.3
|
|
|
|
|
|
|
|
|
|
|
The aggregate amount of total assets and revenues of these
subsidiaries included in the consolidated financial statements
of Liberty Global, Inc. as of and for the year ended
December 31, 2006 was $1,536.3 million and
$174.3 million, respectively. Our audit of internal control
over financial reporting of Liberty Global, Inc. also excluded
an evaluation of the internal control over financial reporting
of these subsidiaries.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Liberty Global, Inc. and
subsidiaries as of December 31, 2006 and 2005, and the
related consolidated statements of operations, comprehensive
earnings (loss), stockholders equity, and cash flows for
each of the years in the three-year period ended
December 31, 2006, and our report dated February 28,
2007 expressed an unqualified opinion on those consolidated
financial statements and related financial statement schedules.
KPMG LLP
Denver, Colorado
February 28, 2007
II-49
Report of
Independent Registered Public Accounting Firm
The Board of Directors
Liberty Global, Inc.:
We have audited the accompanying consolidated balance sheets of
Liberty Global, Inc. and subsidiaries as of December 31,
2006 and 2005, and the related consolidated statements of
operations, comprehensive earnings (loss), stockholders
equity and cash flows for each of the years in the three-year
period ended December 31, 2006. In connection with our
audits of the consolidated financial statements, we have also
audited the related financial statement schedules I and II.
These consolidated financial statements and financial statement
schedules are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Liberty Global, Inc. and subsidiaries as of
December 31, 2006 and 2005, and the results of their
operations and their cash flows for each of the years in the
three-year period ended December 31, 2006, in conformity
with U.S. generally accepted accounting principles. Also in our
opinion, the related financial statement schedules, when
considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material
respects, the information set forth therein.
As discussed in note 23, in 2006 Liberty Global, Inc.
changed its methods of accounting for a hybrid financial
instrument, defined benefit pension plans, and share-based
compensation.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of Liberty Global, Inc.s internal control
over financial reporting as of December 31, 2006, based on
criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO), and our report dated
February 28, 2007 expressed an unqualified opinion on
managements assessment of, and the effective operation of,
internal control over financial reporting.
KPMG LLP
Denver, Colorado
February 28, 2007
II-50
LIBERTY
GLOBAL, INC.
(See note 1)
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
amounts in millions
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,880.5
|
|
|
$
|
1,202.2
|
|
Trade receivables, net
|
|
|
726.5
|
|
|
|
597.9
|
|
Other receivables, net
|
|
|
110.3
|
|
|
|
112.5
|
|
Restricted cash (note 11)
|
|
|
496.1
|
|
|
|
56.8
|
|
Current assets of discontinued
operations (note 6)
|
|
|
|
|
|
|
14.7
|
|
Other current assets
|
|
|
349.1
|
|
|
|
278.3
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
3,562.5
|
|
|
|
2,262.4
|
|
|
|
|
|
|
|
|
|
|
Investments in affiliates,
accounted for using the equity method, and related receivables
(note 7)
|
|
|
1,062.7
|
|
|
|
789.0
|
|
Other investments (note 8)
|
|
|
477.6
|
|
|
|
569.0
|
|
Property and equipment, net
(note 10)
|
|
|
8,136.9
|
|
|
|
7,991.3
|
|
Goodwill (note 10)
|
|
|
9,942.6
|
|
|
|
9,020.1
|
|
Franchise rights and other
intangible assets not subject to amortization
|
|
|
177.1
|
|
|
|
218.0
|
|
Intangible assets subject to
amortization, net (note 10)
|
|
|
1,578.3
|
|
|
|
1,601.8
|
|
Long-term assets of discontinued
operations (note 6)
|
|
|
|
|
|
|
329.9
|
|
Other assets, net
|
|
|
631.6
|
|
|
|
597.0
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
25,569.3
|
|
|
$
|
23,378.5
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
II-51
LIBERTY
GLOBAL, INC.
(See note 1)
CONSOLIDATED BALANCE SHEETS (Continued)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
amounts in millions
|
|
|
LIABILITIES AND
STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
710.7
|
|
|
$
|
715.6
|
|
Accrued liabilities and other
|
|
|
752.0
|
|
|
|
669.0
|
|
Deferred revenue and advance
payments from subscribers and others (note 12)
|
|
|
640.1
|
|
|
|
596.0
|
|
Accrued interest
|
|
|
257.0
|
|
|
|
145.5
|
|
Current liabilities of
discontinued operations (note 6)
|
|
|
|
|
|
|
35.3
|
|
Current portion of debt and
capital lease obligations (note 11)
|
|
|
1,384.9
|
|
|
|
270.0
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
3,744.7
|
|
|
|
2,431.4
|
|
Long-term debt and capital lease
obligations (including $702.3 million measured at fair
value at December 31, 2006) (note 11)
|
|
|
10,845.2
|
|
|
|
9,845.0
|
|
Deferred tax liabilities
(note 13)
|
|
|
537.1
|
|
|
|
546.0
|
|
Long-term liabilities of
discontinued operations (note 6)
|
|
|
|
|
|
|
9.6
|
|
Other long-term liabilities
(note 12)
|
|
|
1,283.7
|
|
|
|
933.6
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
16,410.7
|
|
|
|
13,765.6
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
(note 21)
|
|
|
|
|
|
|
|
|
Minority interests in subsidiaries
|
|
|
1,911.5
|
|
|
|
1,796.5
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity
(note 14):
|
|
|
|
|
|
|
|
|
Series A common stock, $.01
par value. Authorized 500,000,000 shares; issued
196,896,880 and 232,334,708 shares at December 31,
2006 and 2005, respectively
|
|
|
2.0
|
|
|
|
2.3
|
|
Series B common stock, $.01
par value. Authorized 50,000,000 shares; issued and
outstanding 7,284,799 and 7,323,570 shares at
December 31, 2006 and 2005, respectively
|
|
|
0.1
|
|
|
|
0.1
|
|
Series C common stock, $.01
par value. Authorized 500,000,000 shares; issued
197,256,404 shares and 239,820,997 shares at
December 31, 2006 and 2005, respectively
|
|
|
2.0
|
|
|
|
2.4
|
|
Additional paid-in capital
|
|
|
8,093.5
|
|
|
|
9,992.2
|
|
Accumulated deficit
|
|
|
(1,020.3
|
)
|
|
|
(1,732.5
|
)
|
Accumulated other comprehensive
earnings (loss), net of taxes (note 20)
|
|
|
169.8
|
|
|
|
(262.9
|
)
|
Deferred compensation
|
|
|
|
|
|
|
(15.6
|
)
|
Treasury stock, at cost
(note 5)
|
|
|
|
|
|
|
(169.6
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
7,247.1
|
|
|
|
7,816.4
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity
|
|
$
|
25,569.3
|
|
|
$
|
23,378.5
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
II-52
LIBERTY
GLOBAL, INC.
(See note 1)
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
amounts in millions, except per share amounts
|
|
|
Revenue (note 16)
|
|
$
|
6,487.5
|
|
|
$
|
4,517.3
|
|
|
$
|
2,112.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (other than
depreciation) (including stock-based compensation of
$7.0 million, $9.9 million and $12.4 million,
respectively) (notes 15 and 16)
|
|
|
2,781.9
|
|
|
|
1,929.2
|
|
|
|
876.2
|
|
Selling, general and
administrative (SG&A) (including stock-based compensation of
$63.0 million, $49.1 million, and $130.2 million,
respectively) (notes 15 and 16)
|
|
|
1,439.4
|
|
|
|
1,059.5
|
|
|
|
651.5
|
|
Depreciation and amortization
(note 10)
|
|
|
1,884.7
|
|
|
|
1,274.0
|
|
|
|
783.8
|
|
Impairment of long-lived assets
|
|
|
15.5
|
|
|
|
8.3
|
|
|
|
50.8
|
|
Restructuring and other operating
charges (credits), net (note 18)
|
|
|
13.7
|
|
|
|
(3.8
|
)
|
|
|
26.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,135.2
|
|
|
|
4,267.2
|
|
|
|
2,388.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
352.3
|
|
|
|
250.1
|
|
|
|
(275.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense (note 16)
|
|
|
(673.4
|
)
|
|
|
(396.1
|
)
|
|
|
(264.6
|
)
|
Interest and dividend income
(note 16)
|
|
|
85.4
|
|
|
|
76.8
|
|
|
|
65.3
|
|
Share of results of affiliates,
net (note 7)
|
|
|
13.0
|
|
|
|
(23.0
|
)
|
|
|
38.7
|
|
Realized and unrealized gains
(losses) on financial and derivative instruments, net
(note 9)
|
|
|
(347.6
|
)
|
|
|
310.0
|
|
|
|
(35.8
|
)
|
Foreign currency transaction gains
(losses), net
|
|
|
236.1
|
|
|
|
(209.2
|
)
|
|
|
117.4
|
|
Other-than-temporary
declines in fair values of investments (note 8)
|
|
|
(13.8
|
)
|
|
|
(3.4
|
)
|
|
|
(18.5
|
)
|
Gains (losses) on extinguishment
of debt (note 11)
|
|
|
(40.8
|
)
|
|
|
(33.7
|
)
|
|
|
24.1
|
|
Gains on disposition of assets,
net (note 6)
|
|
|
206.4
|
|
|
|
115.2
|
|
|
|
43.7
|
|
Gain on exchange of investment
securities (note 6)
|
|
|
|
|
|
|
|
|
|
|
178.8
|
|
Other income (expense), net
|
|
|
12.2
|
|
|
|
(0.6
|
)
|
|
|
(9.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(522.5
|
)
|
|
|
(164.0
|
)
|
|
|
139.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before income
taxes, minority interests and discontinued operations
|
|
|
(170.2
|
)
|
|
|
86.1
|
|
|
|
(136.4
|
)
|
Income tax benefit (expense)
(note 13)
|
|
|
7.9
|
|
|
|
(28.7
|
)
|
|
|
13.9
|
|
Minority interests in losses
(earnings) of subsidiaries
|
|
|
(171.7
|
)
|
|
|
(117.0
|
)
|
|
|
129.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing
operations
|
|
|
(334.0
|
)
|
|
|
(59.6
|
)
|
|
|
7.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations
(note 6):
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from operations,
net of tax expense of nil, $1.7 million and
$2.9 million, respectively
|
|
|
6.8
|
|
|
|
(20.5
|
)
|
|
|
(28.5
|
)
|
Gain on disposal of discontinued
operations
|
|
|
1,033.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,040.2
|
|
|
|
(20.5
|
)
|
|
|
(28.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
706.2
|
|
|
$
|
(80.1
|
)
|
|
$
|
(21.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical and pro forma earnings
(loss) per common share basic and diluted
(note 3):
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.76
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
0.02
|
|
Discontinued operations
|
|
|
2.37
|
|
|
|
(0.05
|
)
|
|
|
(0.09
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.61
|
|
|
$
|
(0.19
|
)
|
|
$
|
(0.07
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
II-53
LIBERTY
GLOBAL, INC.
(See note 1)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
amounts in millions
|
|
|
Net earnings (loss)
|
|
$
|
706.2
|
|
|
$
|
(80.1
|
)
|
|
$
|
(21.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive earnings
(loss), net of taxes (note 20):
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
adjustments
|
|
|
397.8
|
|
|
|
(298.8
|
)
|
|
|
165.3
|
|
Reclassification adjustment for
foreign currency translation losses (gains) included in net
earnings (loss)
|
|
|
9.0
|
|
|
|
54.8
|
|
|
|
(36.2
|
)
|
Unrealized gains (losses) on
available-for-sale
securities
|
|
|
5.7
|
|
|
|
19.6
|
|
|
|
(1.5
|
)
|
Reclassification adjustment for
net losses (gains) on
available-for-sale
securities included in net earnings (loss)
|
|
|
13.8
|
|
|
|
(56.5
|
)
|
|
|
(120.8
|
)
|
Unrealized gains (losses) on cash
flow hedges
|
|
|
(7.2
|
)
|
|
|
10.8
|
|
|
|
|
|
Reclassification adjustment for
losses (gains) on cash flow hedges included in net earnings
(loss)
|
|
|
6.0
|
|
|
|
(6.0
|
)
|
|
|
|
|
Effect of change in estimated
blended state income tax rate (note 13)
|
|
|
|
|
|
|
(0.8
|
)
|
|
|
2.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive earnings (loss)
|
|
|
425.1
|
|
|
|
(276.9
|
)
|
|
|
9.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive earnings (loss)
|
|
$
|
1,131.3
|
|
|
$
|
(357.0
|
)
|
|
$
|
(12.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
II-54
LIBERTY
GLOBAL, INC.
(See note 1)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
comprehensive
|
|
|
Treasury
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
Common stock
|
|
|
paid-in
|
|
|
Accumulated
|
|
|
earnings (loss),
|
|
|
stock,
|
|
|
Parents
|
|
|
stockholders
|
|
|
|
|
|
|
Series A
|
|
|
Series B
|
|
|
Series C
|
|
|
capital
|
|
|
deficit
|
|
|
net of taxes
|
|
|
at cost
|
|
|
investment
|
|
|
equity
|
|
|
|
|
|
|
amounts in millions
|
|
|
|
|
|
Balance at January 1, 2004
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(1,630.9
|
)
|
|
$
|
(46.6
|
)
|
|
$
|
|
|
|
$
|
5,096.1
|
|
|
$
|
3,418.6
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21.5
|
)
|
|
|
|
|
Other comprehensive earnings, net
of tax (note 20)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.5
|
|
|
|
|
|
|
|
|
|
|
|
9.5
|
|
|
|
|
|
Intercompany tax allocation
(note 13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.1
|
|
|
|
6.1
|
|
|
|
|
|
Allocation of corporate overhead
(note 16)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.4
|
|
|
|
9.4
|
|
|
|
|
|
Issuance of Liberty Media
Corporation common stock in acquisition (note 5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
152.1
|
|
|
|
152.1
|
|
|
|
|
|
Contribution of cash, investments
and other net liabilities in connection with spin off
(note 2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51.1
|
|
|
|
|
|
|
|
304.6
|
|
|
|
355.7
|
|
|
|
|
|
Assumption by Liberty Media
Corporation of obligation for stock appreciation rights in
connection with spin off (note 2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.8
|
|
|
|
5.8
|
|
|
|
|
|
Adjustments due to changes in
subsidiaries equity and other, net (note 14)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.0
|
|
|
|
7.0
|
|
|
|
|
|
Net cash transfers from parent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
654.3
|
|
|
|
654.3
|
|
|
|
|
|
Change in capitalization in
connection with spin off (note 2)
|
|
|
1.4
|
|
|
|
0.1
|
|
|
|
1.5
|
|
|
|
6,226.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,229.4
|
)
|
|
|
|
|
|
|
|
|
Common stock issued in rights
offering (note 14)
|
|
|
0.3
|
|
|
|
|
|
|
|
0.3
|
|
|
|
735.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
735.7
|
|
|
|
|
|
Stock issued for stock option
exercises (note 15)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12.0
|
|
|
|
|
|
Repurchase of common stock
(note 14)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(127.9
|
)
|
|
|
|
|
|
|
(127.9
|
)
|
|
|
|
|
Stock-based compensation
(notes 3 and 15)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004
|
|
$
|
1.7
|
|
|
$
|
0.1
|
|
|
$
|
1.8
|
|
|
$
|
6,999.9
|
|
|
$
|
(1,652.4
|
)
|
|
$
|
14.0
|
|
|
$
|
(127.9
|
)
|
|
$
|
|
|
|
$
|
5,237.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
II-55
LIBERTY
GLOBAL, INC.
(See note 1)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
comprehensive
|
|
|
|
|
|
Treasury
|
|
|
Total
|
|
|
|
Common stock
|
|
|
paid-in
|
|
|
Accumulated
|
|
|
earnings (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, 2005
|
|
$
|
1.7
|
|
|
$
|
0.1
|
|
|
$
|
1.8
|
|
|
$
|
6,999.9
|
|
|
$
|
(1,652.4
|
)
|
|
$
|
14.0
|
|
|
$
|
|
|
|
$
|
(127.9
|
)
|
|
$
|
5,237.2
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(80.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(80.1
|
)
|
Other comprehensive loss, net of
tax (note 20)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(276.9
|
)
|
|
|
|
|
|
|
|
|
|
|
(276.9
|
)
|
Adjustment due to issuance of stock
by J:COM (note 5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
120.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
120.7
|
|
Adjustment due to issuance of stock
by Telenet (note 7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38.4
|
|
Cancellation of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(127.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
127.9
|
|
|
|
|
|
Issuance of restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16.7
|
|
|
|
|
|
|
|
|
|
|
|
(16.7
|
)
|
|
|
|
|
|
|
|
|
Shares issued in LGI Combination,
net of issuance costs (note 5)
|
|
|
0.6
|
|
|
|
|
|
|
|
0.6
|
|
|
|
2,876.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(90.6
|
)
|
|
|
2,786.6
|
|
Minority interest in deficit of
Austar at acquisition date (note 5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(52.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(52.4
|
)
|
Stock issued (acquired) in
connection with equity incentive plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
28.2
|
|
Repurchase of common stock
(note 14)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(78.9
|
)
|
|
|
(78.9
|
)
|
Stock-based compensation, net of
taxes (notes 3 and 15)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.8
|
|
|
|
|
|
|
|
|
|
|
|
1.1
|
|
|
|
|
|
|
|
6.9
|
|
Reclassification of SARs obligation
(note 14)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50.3
|
|
Tax benefits allocated from Liberty
Media Corporation pursuant to Tax Sharing Agreement
(note 13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26.7
|
|
Adjustments due to changes in
subsidiaries equity and other, net (note 14)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005
|
|
$
|
2.3
|
|
|
$
|
0.1
|
|
|
$
|
2.4
|
|
|
$
|
9,992.2
|
|
|
$
|
(1,732.5
|
)
|
|
$
|
(262.9
|
)
|
|
$
|
(15.6
|
)
|
|
$
|
(169.6
|
)
|
|
$
|
7,816.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
II-56
LIBERTY
GLOBAL, INC.
(See note 1)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
comprehensive
|
|
|
|
|
|
Treasury
|
|
|
Total
|
|
|
|
Common stock
|
|
|
paid-in
|
|
|
Accumulated
|
|
|
earnings (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 23)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15.6
|
)
|
|
|
6.0
|
|
|
|
|
|
|
|
15.6
|
|
|
|
|
|
|
|
6.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2006, as
adjusted for accounting changes
|
|
|
2.3
|
|
|
|
0.1
|
|
|
|
2.4
|
|
|
|
9,976.6
|
|
|
|
(1,726.5
|
)
|
|
|
(262.9
|
)
|
|
|
|
|
|
|
(169.6
|
)
|
|
|
7,822.4
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
706.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
706.2
|
|
Other comprehensive earnings, net
of tax (note 20)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
425.1
|
|
|
|
|
|
|
|
|
|
|
|
425.1
|
|
Repurchase of common stock
(note 14)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,756.9
|
)
|
|
|
(1,756.9
|
)
|
Cancellation of treasury stock
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
(0.4
|
)
|
|
|
(1,925.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,926.5
|
|
|
|
|
|
Stock-based compensation, net of
taxes (notes 3 and 15)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63.1
|
|
Minority owners share of
distribution paid by Austar (note 11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(71.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(71.0
|
)
|
Stock issued in connection with
equity incentive plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.8
|
|
Adjustment to initially apply
SFAS 158, net of taxes (note 19)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.6
|
|
|
|
|
|
|
|
|
|
|
|
7.6
|
|
Adjustments due to changes in
subsidiaries equity and other, net (note 14)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
$
|
2.0
|
|
|
$
|
0.1
|
|
|
$
|
2.0
|
|
|
$
|
8,093.5
|
|
|
$
|
(1,020.3
|
)
|
|
$
|
169.8
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
7,247.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
II-57
LIBERTY
GLOBAL, INC.
(See note 1)
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
amounts in millions
|
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
706.2
|
|
|
$
|
(80.1
|
)
|
|
$
|
(21.5
|
)
|
Net loss (earnings) from
discontinued operations
|
|
|
(1,040.2
|
)
|
|
|
20.5
|
|
|
|
28.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) from
continuing operations
|
|
|
(334.0
|
)
|
|
|
(59.6
|
)
|
|
|
7.0
|
|
Adjustments to reconcile earnings
(loss) from continuing operations to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
70.0
|
|
|
|
59.0
|
|
|
|
142.6
|
|
Depreciation and amortization
|
|
|
1,884.7
|
|
|
|
1,274.0
|
|
|
|
783.8
|
|
Impairment of long-lived assets
|
|
|
15.5
|
|
|
|
8.3
|
|
|
|
50.8
|
|
Restructuring and other operating
charges (credits)
|
|
|
13.7
|
|
|
|
(3.8
|
)
|
|
|
26.3
|
|
Amortization of deferred financing
costs and non-cash interest
|
|
|
82.2
|
|
|
|
103.8
|
|
|
|
40.2
|
|
Share of results of affiliates,
net of dividends
|
|
|
(7.3
|
)
|
|
|
23.0
|
|
|
|
(38.7
|
)
|
Realized and unrealized losses
(gains) on financial and derivative instruments, net
|
|
|
347.6
|
|
|
|
(310.0
|
)
|
|
|
35.8
|
|
Foreign currency transaction
losses (gains), net
|
|
|
(236.1
|
)
|
|
|
209.2
|
|
|
|
(117.4
|
)
|
Other-than-temporary
declines in fair values of investments
|
|
|
13.8
|
|
|
|
3.4
|
|
|
|
18.5
|
|
Losses (gains) on extinguishment
of debt
|
|
|
40.8
|
|
|
|
33.7
|
|
|
|
(24.1
|
)
|
Gains on disposition of assets, net
|
|
|
(206.4
|
)
|
|
|
(115.2
|
)
|
|
|
(43.7
|
)
|
Gain on exchange of investment
securities
|
|
|
|
|
|
|
|
|
|
|
(178.8
|
)
|
Deferred income tax benefit
|
|
|
(100.6
|
)
|
|
|
(75.6
|
)
|
|
|
(80.2
|
)
|
Minority interests in earnings
(losses) of subsidiaries
|
|
|
171.7
|
|
|
|
117.0
|
|
|
|
(129.5
|
)
|
Non-cash charges from Liberty
Media Corporation
|
|
|
|
|
|
|
|
|
|
|
15.5
|
|
Changes in operating assets and
liabilities, net of the effects of acquisitions and dispositions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables and other operating
assets
|
|
|
166.7
|
|
|
|
5.1
|
|
|
|
(95.4
|
)
|
Payables and accruals
|
|
|
(119.2
|
)
|
|
|
(9.0
|
)
|
|
|
158.3
|
|
Net cash provided by operating
activities of discontinued operations
|
|
|
74.9
|
|
|
|
312.8
|
|
|
|
172.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating
activities
|
|
|
1,878.0
|
|
|
|
1,576.1
|
|
|
|
743.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds received upon disposition
of discontinued operations, net of disposal costs
|
|
|
2,548.1
|
|
|
|
|
|
|
|
|
|
Capital expended for property and
equipment
|
|
|
(1,507.9
|
)
|
|
|
(1,046.2
|
)
|
|
|
(397.1
|
)
|
Cash paid in connection with
acquisitions, net of cash acquired
|
|
|
(1,254.2
|
)
|
|
|
(3,586.3
|
)
|
|
|
(508.8
|
)
|
Proceeds received upon
dispositions of assets
|
|
|
380.8
|
|
|
|
464.5
|
|
|
|
312.9
|
|
Investments in and loans to
affiliates and others
|
|
|
(255.7
|
)
|
|
|
(133.7
|
)
|
|
|
(257.0
|
)
|
Net cash received (paid) to
purchase or settle derivative instruments
|
|
|
50.5
|
|
|
|
82.4
|
|
|
|
(159.0
|
)
|
Change in restricted cash
|
|
|
11.6
|
|
|
|
21.0
|
|
|
|
(26.3
|
)
|
Proceeds received from sale of
short-term liquid investments
|
|
|
2.6
|
|
|
|
101.4
|
|
|
|
247.0
|
|
Cash paid in connection with LGI
Combination
|
|
|
|
|
|
|
(703.5
|
)
|
|
|
|
|
Return of cash previously paid
into escrow in connection with 2004 acquisition
|
|
|
|
|
|
|
56.9
|
|
|
|
|
|
Purchases of short-term liquid
investments
|
|
|
|
|
|
|
(55.1
|
)
|
|
|
(293.7
|
)
|
Cash paid for acquisition to be
refunded by seller
|
|
|
|
|
|
|
|
|
|
|
(52.1
|
)
|
Proceeds received upon repayment
of principal amounts loaned to affiliates
|
|
|
|
|
|
|
|
|
|
|
535.1
|
|
Proceeds received upon repayment
of debt securities
|
|
|
|
|
|
|
|
|
|
|
115.6
|
|
Deposits received in connection
with pending asset sales
|
|
|
|
|
|
|
|
|
|
|
80.3
|
|
Other investing activities, net
|
|
|
12.3
|
|
|
|
35.3
|
|
|
|
(13.7
|
)
|
Net cash used by investing
activities of discontinued operations
|
|
|
(92.5
|
)
|
|
|
(171.4
|
)
|
|
|
(109.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by investing
activities
|
|
$
|
(104.4
|
)
|
|
$
|
(4,934.7
|
)
|
|
$
|
(526.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
II-58
LIBERTY
GLOBAL, INC.
(See note 1)
CONSOLIDATED STATEMENTS OF CASH
FLOWS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
amounts in millions
|
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings of debt
|
|
$
|
7,774.5
|
|
|
$
|
6,968.4
|
|
|
$
|
2,301.2
|
|
Repayments of debt and capital
lease obligations
|
|
|
(6,683.3
|
)
|
|
|
(5,412.3
|
)
|
|
|
(1,855.2
|
)
|
Repurchase of common stock
|
|
|
(1,756.9
|
)
|
|
|
(78.9
|
)
|
|
|
(127.9
|
)
|
Change in cash collateral
|
|
|
(394.2
|
)
|
|
|
(57.2
|
)
|
|
|
41.7
|
|
Payment of deferred financing costs
|
|
|
(91.9
|
)
|
|
|
(101.3
|
)
|
|
|
(66.0
|
)
|
Cash distributions by subsidiaries
to minority interest owners
|
|
|
(95.3
|
)
|
|
|
|
|
|
|
|
|
Proceeds from issuance of stock by
subsidiaries
|
|
|
18.5
|
|
|
|
873.6
|
|
|
|
488.4
|
|
Net proceeds received from rights
offering
|
|
|
|
|
|
|
|
|
|
|
735.7
|
|
Contributions from Liberty Media
Corporation
|
|
|
|
|
|
|
|
|
|
|
704.3
|
|
Other financing activities, net
|
|
|
16.8
|
|
|
|
7.8
|
|
|
|
12.4
|
|
Net cash used by financing
activities of discontinued operations
|
|
|
|
|
|
|
(8.3
|
)
|
|
|
(2.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by
financing activities
|
|
|
(1,211.8
|
)
|
|
|
2,191.8
|
|
|
|
2,232.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash
|
|
|
116.5
|
|
|
|
(160.1
|
)
|
|
|
66.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
695.9
|
|
|
|
(1,460.0
|
)
|
|
|
2,455.6
|
|
Discontinued operations
|
|
|
(17.6
|
)
|
|
|
133.1
|
|
|
|
60.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
and cash equivalents
|
|
|
678.3
|
|
|
|
(1,326.9
|
)
|
|
|
2,516.4
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
1,202.2
|
|
|
|
2,529.1
|
|
|
|
12.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
1,880.5
|
|
|
$
|
1,202.2
|
|
|
$
|
2,529.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
474.6
|
|
|
$
|
286.7
|
|
|
$
|
280.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash paid for taxes
|
|
$
|
65.9
|
|
|
$
|
35.6
|
|
|
$
|
4.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
II-59
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and 2004
(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. We refer to these assets and subsidiaries of Liberty
Media prior to June 2004 collectively as LMC International. 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 broadband Internet access services, with
consolidated broadband operations at December 31, 2006 in
16 countries (excluding Belgium see note 7).
Our operations are primarily in Europe, Japan and Chile. Through
our indirect wholly owned subsidiaries, UPC Holding BV (UPC
Holding) and Liberty Global Switzerland, Inc. (LG Switzerland),
we provide broadband communications services in 10 European
countries (excluding Belgium). LG Switzerland holds our 100%
ownership interest in Cablecom Holdings AG (Cablecom), a
broadband communications operator in Switzerland. The broadband
communications operations of UPC Holding and LG Switzerland are
collectively referred to as the UPC Broadband Division. 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 Global Com, 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 BV
(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 interactive digital services to certain
of our broadband operations, primarily in Europe.
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 consolidated financial statements. As UPC Sweden, UPC France
and PT Norway were designated as discontinued operations
subsequent to December 31, 2005, the assets and liabilities
of these entities have not been included in discontinued
operations in our December 31, 2005 consolidated balance
II-60
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
sheet. However, these entities, along with UPC Norway, are
included in the amounts reported as discontinued operations in
our consolidated statements of operations and cash flows and
related footnote disclosures for all periods presented. See
note 6.
Unless otherwise indicated, convenience translations into U.S.
dollars are calculated as of December 31, 2006.
(2) Spin
Off Transaction
On June 7, 2004 (the Spin Off Date), our common stock was
distributed on a pro rata basis to Liberty Medias
shareholders as a dividend in connection with a spin off
transaction. In connection with the spin off, holders of Liberty
Media common stock on June 1, 2004 (the Record Date)
received in the aggregate 139,921,145 shares of LMI
Series A common stock and 139,921,145 shares of LMI
Series C common stock for their shares of Liberty Media
Series A common stock owned on the Record Date and
6,053,173 shares of LMI Series B common stock and
6,053,173 shares of LMI Series C common stock for
their shares of Liberty Media Series B common stock owned
on the Record Date. The number of shares of LMI common stock
distributed in the spin off was based on a ratio of .05 of a
share of LMI common stock for each share of Liberty Media common
stock. The spin off was intended to qualify as a tax-free spin
off.
In addition to the contributed subsidiaries and net assets that
comprised our company at the time of the spin off, Liberty Media
also contributed certain other assets and liabilities to our
company in connection with the spin off, as set forth in the
following table (amounts in millions):
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
50.0
|
|
Available-for-sale
securities
|
|
|
561.1
|
|
Net deferred tax liability
|
|
|
(253.2
|
)
|
Other net liabilities
|
|
|
(2.2
|
)
|
|
|
|
|
|
|
|
$
|
355.7
|
|
|
|
|
|
|
The contributed
available-for-sale
securities included 10,000,000 shares of The News
Corporation Limiteds (News Corp.) Class A non-voting
common stock (News Corp. Class A common stock) and a 99.9%
economic interest in 345,000 shares of ABC Family
Worldwide, Inc. (ABC Family) Series A preferred stock.
Liberty Media also contributed a variable forward transaction
with respect to the News Corp. Class A common Stock. For
financial reporting purposes, the contribution of the cash,
available-for-sale
securities, related deferred tax liability and other net
liabilities is deemed to have occurred on June 1, 2004.
All of the net assets contributed to our company by Liberty
Media in connection with the spin off have been recorded at
Liberty Medias historical cost.
As a result of the spin off, we operate independently from
Liberty Media, and neither we nor Liberty Media have any stock
ownership, beneficial or otherwise, in the other. In connection
with the spin off, we and Liberty Media entered into certain
agreements in order to govern certain of the ongoing
relationships between Liberty Media and our company after the
spin off and to provide for an orderly transition. These
agreements include a Reorganization Agreement, a Tax Sharing
Agreement (see note 13) and Aircraft Joint Ownership
and Management Agreements. In addition, Liberty Media and our
company entered into a Short-Term Credit Facility and a
Facilities and Services Agreement that have since been
terminated.
The Reorganization Agreement provides for, among other things,
the principal corporate transactions required to effect the spin
off, the issuance of LMI stock options upon adjustment of
certain Liberty Media stock incentive awards and the allocation
of responsibility for LMI and Liberty Media stock incentive
awards, cross indemnities and other matters. Such cross
indemnities are designed to make (i) our company
responsible for all liabilities related
II-61
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
to the businesses of our company prior to the spin off, as well
as for all liabilities incurred by our company following the
spin off, and (ii) Liberty Media responsible for all of our
potential liabilities that are not related to our businesses,
including, for example, liabilities arising as a result of our
company having been a subsidiary of Liberty Media.
(3) Summary
of Significant Accounting Policies
Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the U.S. (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, stock-based compensation and
actuarial liabilities associated with certain benefit plans.
Actual results could differ from those estimates.
Reclassifications
Certain prior year amounts have been reclassified to conform to
the current year presentation.
Principles
of Consolidation
The accompanying consolidated financial statements include our
accounts and the accounts of all voting interest entities where
we exercise a controlling financial interest through the
ownership of a direct or indirect controlling voting interest
and variable interest entities for which our company is the
primary beneficiary. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Cash
and Cash Equivalents and Restricted Cash
Cash equivalents consist of all investments that are readily
convertible into cash and have maturities of three months or
less at the time of acquisition.
Restricted cash includes cash held in escrow and cash held as
collateral for lines of credit and other compensating balances.
Cash restricted to a specific use is classified based on the
expected timing of the disbursement. At December 31, 2006
and 2005, our restricted cash balances aggregated $496.1 and
$86.3 million, respectively. The December 31, 2005
amount includes $29.5 million that is included in our other
long-term assets in our consolidated balance sheet. At
December 31, 2006, our restricted cash balances included
$437.4 million that is required to be used to redeem the
Cablecom Luxembourg Old Fixed Rate Notes and $33.5 million
that provides security for cash interest payments on the LG
Switzerland PIK Loan. For additional information, see
note 11.
Our significant non-cash investing and financing activities are
disclosed in our statements of stockholders equity and in
notes 5, 6, 7, 10 and 14.
Receivables
Receivables are reported net of an allowance for doubtful
accounts. Such allowance aggregated $76.5 million and
$73.6 million at December 31, 2006 and 2005,
respectively. The allowance for doubtful accounts is based upon
our assessment of probable loss related to uncollectible
accounts receivable. We use a number of factors in
II-62
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
determining the allowance, including, among other things,
collection trends, prevailing and anticipated economic
conditions and specific customer credit risk. The allowance is
maintained until either receipt of payment or the likelihood of
collection is considered to be remote.
Concentration of credit risk with respect to trade receivables
is limited due to the large number of customers and their
dispersion across many different countries worldwide. We also
manage this risk by disconnecting services to customers whose
accounts are delinquent.
Investments
All debt and marketable equity securities held by our company
that do not provide our company with the ability to exercise
significant influence over the investee are classified as
available-for-sale
and are carried at fair value. Unrealized holding gains and
losses on securities that are classified as
available-for-sale
are carried net of taxes as a component of accumulated other
comprehensive earnings (loss) in stockholders equity.
Realized gains and losses are determined on an average cost
basis. Other investments in which our ownership interest is less
than 20% and that are not considered marketable securities are
carried at cost, subject to
other-than-temporary
impairment. Securities transactions are recorded on the trade
date.
For those investments in affiliates in which we have the ability
to exercise significant influence, the equity method of
accounting is used. Generally, we exercise significant influence
through a voting interest between 20% and 50% or board
representation and management authority. Under the equity
method, the investment, originally recorded at cost, is adjusted
to recognize our share of net earnings or losses of the
affiliates as they occur rather than as dividends or other
distributions are received, limited to the extent of our
investment in, and advances and commitments to, the investee. In
situations where our investment in the common stock of an
affiliate is reduced to zero as a result of the prior
recognition of the affiliates net losses, and we hold
investments in other more senior securities of the affiliate, we
continue to record losses from the affiliate to the extent of
the carrying amount of these additional investments. The amount
of additional losses recorded would be determined based on
changes in the hypothetical amount of proceeds that would be
received by us if the affiliate were to experience a liquidation
of its assets at their current book values. In accordance with
Statement of Financial Accounting Standards (SFAS) No. 142,
Goodwill and Other Intangible Assets (SFAS 142), the
portion of the difference between our investment and our share
of the net assets of the investee that represents goodwill
(equity method goodwill) is not amortized, but continues to be
considered for impairment under Accounting Principles Board
Opinion (APB) No. 18 (APB 18). Our share of net earnings or
losses of affiliates also includes any
other-than-temporary
declines in fair value recognized during the period.
Changes in our proportionate share of the underlying share
capital of a subsidiary or equity method investee, including
those which result from the issuance of additional equity
securities by such subsidiary or equity investee, are recognized
as increases or decreases to additional paid-in capital.
We continually review our investments to determine whether a
decline in fair value below the cost basis is
other-than-temporary.
The primary factors we consider in our determination are the
length of time that the fair value of the investment is below
our companys carrying value and the financial condition,
operating performance and near term prospects of the investee.
In addition, we consider the reason for the decline in fair
value, such as (i) general market conditions,
(ii) industry specific or investee specific factors,
(iii) changes in stock price or valuation subsequent to the
balance sheet date and (iv) our intent and ability to hold
the investment for a period of time sufficient to allow for a
recovery in fair value. If the decline in fair value is deemed
to be
other-than-temporary,
the cost basis of the security is written down to fair value. In
situations where the fair value of an investment is not evident
due to a lack of a public market price or other factors, we use
our best estimates and assumptions to arrive at the estimated
fair value of such investment. Writedowns for cost investments
and
available-for-sale
securities are
II-63
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
included in the consolidated statements of operations as
other-than-temporary
declines in fair values of investments. Writedowns for equity
method investments are included in share of results of
affiliates.
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 consolidated financial
statements. For information concerning these entities, see
note 7.
Financial
Instruments
The carrying value of cash and cash equivalents, restricted
cash, short-term liquid investments, receivables, trade and
other receivables, other current assets, accounts payable,
accrued liabilities, subscriber advance payments and deposits
and other current liabilities approximate fair value, due to
their short maturity. The fair values of equity securities are
based upon quoted market prices, to the extent available, at the
reporting date. The fair value of our debt instruments generally
is based on the average of applicable bid and offer prices. See
note 11 for information concerning the fair value of our
debt instruments.
Derivative
Instruments
As further described in note 9, we have entered into
various derivative instrument contracts, including interest rate
and foreign currency derivative instruments. In accordance with
SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities (SFAS 133), all derivatives,
whether designated in hedging relationships or not, are required
to be recorded on the balance sheet at fair value. If the
derivative is designated as a fair value hedge, the changes in
the fair value of the derivative and of the hedged item
attributable to the hedged risk are recognized in earnings. If
the derivative is designated as a cash flow hedge, the effective
portions of changes in the fair value of the derivative are
recorded in other comprehensive earnings (loss). Ineffective
portions of changes in the fair value of cash flow hedges are
recognized in earnings. If the derivative is not designated as a
hedge, changes in the fair value of the derivative are
recognized in earnings. With the exception of J:COMs
interest rate swaps, none of the derivative instruments that
were in effect during the three years ended December 31,
2006 were designated as hedges for financial reporting purposes.
Property
and Equipment
Property and equipment is stated at cost less accumulated
depreciation. In accordance with SFAS No. 51,
Financial Reporting by Cable Television Companies
(SFAS 51), we capitalize costs associated with the
construction of new cable transmission and distribution
facilities and the installation of new cable services.
Capitalized construction and installation costs include
materials, labor and applicable overhead costs. Installation
activities that are capitalized include (i) the initial
connection (or drop) from our cable system to a customer
location, (ii) the replacement of a drop, and
(iii) the installation of equipment for additional
services, such as digital cable, telephone or broadband Internet
service. The costs of other customer-facing activities such as
reconnecting customer locations where a drop already exists,
disconnecting customer locations and repairing or maintaining
drops, are expensed as incurred. Interest capitalized with
respect to construction activities was not material during any
of the periods presented.
Depreciation is computed using the straight-line method over
estimated useful lives of 3 to 25 years for cable
distribution systems, 10 to 40 years for buildings and
leasehold improvements and 2 to 20 years for support
equipment. The useful lives used to depreciate cable
distribution systems are assessed periodically and are adjusted
when warranted. The useful lives of systems that are undergoing
a rebuild are adjusted such that property and equipment to be
retired will be fully depreciated by the time the rebuild is
completed.
II-64
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
Additions, replacements and improvements that extend the asset
life are capitalized. Repairs and maintenance are charged to
operations.
Pursuant to SFAS No. 143, Accounting for Asset
Retirement Obligations, as interpreted by FASB
Interpretation No. 47, we recognize a liability for asset
retirement obligations in the period in which it is incurred if
sufficient information is available to make a reasonable
estimate of fair values. In addition, we recognize asset
retirement obligations that arise from the European Union
Directive on Waste Electrical and Electronic Equipment (WEEE
Directive) pursuant to FASB Staff Position
No. 143-1.
The WEEE Directive creates certain legal obligations to dispose
of electrical and electronic equipment, which incorporates
equipment used in our European operations. The majority of our
obligations under the WEEE Directive is related to customer
premise equipment.
Asset retirement obligations may arise from rights of way that
we obtain from local municipalities or other relevant
authorities. Under certain circumstances, the authority can
cause us to have to remove our network, such as if we
discontinue using the equipment or the authority does not renew
our access rights. We expect to maintain our rights of way for
the foreseeable future as these rights are necessary to remain a
going concern. In addition, the authorities have the incentive
to indefinitely renew our rights of way and in our past
experience, renewals have always been granted. We also have
obligations in lease agreements to restore the property to its
original condition or remove our property at the end of the
lease term. Sufficient information is not available to estimate
the fair value of our asset retirement obligations in certain of
our lease arrangements. This is the case in long-term lease
arrangements in which the underlying leased property is integral
to our operations, there is not an acceptable alternative to the
leased property and we have the ability to indefinitely renew
the lease. Accordingly, for most of our rights of way and
certain lease agreements, the possibility is remote that we will
incur significant removal costs in the foreseeable future, and
as such we do not have sufficient information to make a
reasonable estimate of fair value for these asset retirement
obligations.
As of December 31, 2006 and 2005, the recorded fair value
of our asset retirement obligations was $43.3 million and
$34.6 million, respectively.
Intangible
Assets
Our primary intangible assets are goodwill, customer
relationships, cable television franchise rights, and trade
names. Goodwill represents the excess purchase price over the
fair value of the identifiable net assets acquired in a business
combination. Cable television franchise rights, customer
relationships, and trade names were originally recorded at their
fair values in connection with business combinations.
Pursuant to SFAS 142, goodwill and intangible assets with
indefinite useful lives are not amortized, but instead are
tested for impairment at least annually in accordance with the
provisions of SFAS 142. Pursuant to SFAS 142,
intangible assets with definite lives are amortized over their
respective estimated useful lives to their estimated residual
values, and reviewed for impairment in accordance with
SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (SFAS 144).
We do not amortize our franchise rights and certain other
intangible assets as these assets have indefinite-lives. Our
customer relationship intangible assets are amortized on a
straight line basis over estimated useful lives ranging from 3
to 10 years.
Impairment
of Property and Equipment and Intangible Assets
SFAS 144 requires that we periodically review the carrying
amounts of our property and equipment and our intangible assets
(other than goodwill and indefinite-lived intangible assets) to
determine whether current events or circumstances indicate that
such carrying amounts may not be recoverable. If the carrying
amount of the asset is greater than the expected undiscounted
cash flows to be generated by such asset, an impairment
adjustment is
II-65
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
recognized. Such adjustment is measured by the amount that the
carrying value of such assets exceeds their fair value. We
generally measure fair value by considering sale prices for
similar assets or by discounting estimated future cash flows
using an appropriate discount rate. For purposes of impairment
testing, long-lived assets are grouped at the lowest level for
which cash flows are largely independent of other assets and
liabilities. Assets to be disposed of are carried at the lower
of their financial statement carrying amount or fair value less
costs to sell.
Pursuant to SFAS 142, we evaluate the goodwill, franchise
rights and other indefinite-lived intangible assets for
impairment at least annually on October 1 and whenever other
facts and circumstances indicate that the carrying amounts of
goodwill and indefinite-lived intangible assets may not be
recoverable. For purposes of the goodwill evaluation, we compare
the fair value of each of our reporting units to their
respective carrying amounts. If the carrying value of a
reporting unit were to exceed its fair value, we would then
compare the implied fair value of the reporting units
goodwill to its carrying amount, and any excess of the carrying
amount over the fair value would be charged to operations as an
impairment loss. Any excess of the carrying value over the fair
value of indefinite-lived intangible assets is charged to
operations as an impairment loss.
Income
Taxes
Income taxes are accounted for under the asset and liability
method. We recognize deferred tax assets and liabilities for the
future tax consequences attributable to differences between the
financial statement carrying amounts and income tax basis of
assets and liabilities and the expected benefits of utilizing
net operating loss and tax credit carryforwards, using enacted
tax rates in effect for each taxing jurisdiction in which we
operate for the year in which those temporary differences are
expected to be recovered or settled. Net deferred tax assets are
then reduced by a valuation allowance if we believe it
more-likely-than-not such net deferred tax assets will not be
realized. Most of our valuation allowances at December 31,
2006 are related to deferred tax assets acquired in purchase
method business combinations. Any future release of the
valuation allowance against these deferred tax assets will
result in a corresponding reduction of goodwill. The effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment
date. Deferred tax liabilities related to investments in foreign
subsidiaries and foreign corporate joint ventures that are
essentially permanent in duration are not recognized until it
becomes apparent that such amounts will reverse in the
foreseeable future.
Defined
benefit plans
Certain of our indirect subsidiaries maintain various employee
pension plans that are treated as defined benefit pension plans.
Certain assumptions and estimates must be made in order to
determine the costs and future benefits that will be associated
with these plans. These assumptions include the estimated
long-term rates of return to be earned by plan assets, the
estimated discount rates used to value the projected benefit
obligations and estimated wage increases. We generally use a
model portfolio of high quality bonds whose expected rate of
return is estimated to match the plans expected cash flows
as a basis to determine the most appropriate discount rates. For
the long-term rates of return, we use a model portfolio based on
the subsidiaries targeted asset allocation. Effective
December 31, 2006, we adopted 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).
For additional information, see notes 19 and 23.
Foreign
Currency Translation and Transactions
The reporting currency of our company is the U.S. dollar. The
functional currency of our foreign operations generally is the
applicable local currency for each foreign subsidiary and equity
method investee. Assets and liabilities of foreign subsidiaries
(including intercompany balances for which settlement is not
anticipated in the foreseeable future) and equity investees are
translated at the spot rate in effect at the applicable
reporting date, and
II-66
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
the consolidated statements of operations and our companys
share of the results of operations of our equity affiliates
generally are translated at the average exchange rates in effect
during the applicable period. The resulting unrealized
cumulative translation adjustment, net of applicable income
taxes, is recorded as a component of accumulated other
comprehensive earnings (loss) in the consolidated statement of
stockholders equity. Cash flows from our operations in
foreign countries are translated at actual exchange rates when
known or at the average rate for the period. The effect of
exchange rates on cash balances held in foreign currencies are
reported as a separate line item below cash flows from financing
activities.
Transactions denominated in currencies other than our or our
subsidiaries functional currencies are recorded based on
exchange rates at the time such transactions arise. Subsequent
changes in exchange rates result in transaction gains and losses
which are reflected in the statements of operations as
unrealized (based on the applicable period end translation) or
realized upon settlement of the transactions.
Revenue
Recognition
Cable Network Revenue. We recognize revenue
from the provision of video, telephone and broadband Internet
access services over our cable network to customers in the
period the related services are provided. Installation revenue
(including reconnect fees) related to these services over our
cable network is recognized as revenue in the period in which
the installation occurs to the extent these fees are equal to or
less than direct selling costs, which costs are expensed as
incurred. To the extent installation revenue exceeds direct
selling costs, the excess revenue is deferred and amortized over
the average expected subscriber life. Costs related to
reconnections and disconnections are recognized in the
consolidated statement of operations as incurred.
Other Revenue. We recognize revenue from the
provision of DTH, telephone and data services to customers
outside of our cable network in the period the related services
are provided. Installation revenue (including reconnect fees)
related to these services outside of our cable network is
deferred and amortized over the average expected subscriber life.
Promotional Discounts. For subscriber
promotions, such as discounted or free services during an
introductory period, revenue is recorded at the discounted
monthly rate, if any, charged to the subscriber.
Subscriber Advance Payments and
Deposits. Payments received in advance for
distribution services are deferred and recognized as revenue
when the associated services are provided. Deposits are recorded
as a liability upon receipt and refunded to the subscriber upon
disconnection.
Deferred Construction and Maintenance
Revenue. As further described in note 12,
J:COM enters into agreements whereby it receives up-front
compensation to construct and maintain certain cable facilities.
Revenue from these arrangements has been deferred and is being
recognized on a straight-line basis over the terms of the
agreements, which are generally 20 years.
Sales, Use and Other Value Added
Taxes. Revenue is recorded net of applicable
sales, use and other value added taxes.
Stock
Based Compensation
2006
In December 2004, the Financial Accounting Standards Board
(FASB) issued 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 APB
No. 25, Accounting for Stock Issued to Employees
(APB 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
II-67
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
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 deferred taxes on 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, reduces net
operating cash flows and increases 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 and (ii) estimating forfeitures for purposes
of recognizing the remaining fair value of all unvested awards.
In addition, for our outstanding stock awards granted after
January 1, 2006 that do not contain a performance
condition, we use the straight-line method to recognize
stock-based compensation expense and the accelerated expense
attribution method for our outstanding stock awards granted
prior to January 1, 2006. As required by SFAS 123(R),
we use the accelerated attribution method to recognize
stock-based compensation expense for all stock awards granted
after January 1, 2006 that contain a performance condition
with graded vesting. 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
consolidated statement of stockholders equity.
We have calculated the expected life of options and stock
appreciation rights (SARs) granted by LGI to employees using the
simplified method set forth in Staff Accounting
Bulletin No. 107. The expected volatility for LGI
options and SARs 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.
2005 and
2004
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. Through December 31, 2005, we recorded
stock-based compensation expense for our variable-plan options
and 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 LGI stock options outstanding
during 2005 and 2004 were accounted for as variable-plan awards.
As a result of the spin off and the related issuance of options
to acquire LGI common stock, certain persons who remained
employees of Liberty Media immediately following the spin off
hold options to purchase LGI
II-68
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
common stock and certain persons who are our employees hold
options, SARs and options with tandem SARs with respect to
Liberty Media common stock. Pursuant to the Reorganization
Agreement between our company and Liberty Media, we are
responsible for all stock incentive awards related to LGI common
stock and Liberty Media is responsible for all stock incentive
awards related to Liberty Media common stock regardless of
whether such stock incentive awards are held by our or Liberty
Medias employees. Notwithstanding the foregoing, our
stock-based compensation expense is based on the stock incentive
awards held by our employees regardless of whether such awards
relate to LGI or Liberty Media common stock. Accordingly, any
stock-based compensation that we include in our consolidated
statements of operations with respect to Liberty Media stock
incentive awards is treated as a capital transaction that is
reflected as an adjustment of additional paid-in capital.
The exercise price of employee stock options granted prior to
the initial public offering (IPO) by J:COM on March 23,
2005 was subject to adjustment depending on the IPO price. As
such, J:COM used variable-plan accounting for such stock
options. Prior to March 23, 2005, no compensation was
recorded with respect to these options.
Our stock-based compensation for the years ended
December 31, 2005 and 2004 has not been restated in
connection with the implementation of SFAS 123(R). The
following table illustrates the pro forma effect on net earnings
(loss) from continuing operations and earnings (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 prescribed by APB
25. As the accounting for restricted stock and SARs is the same
under APB 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:
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
|
amounts in millions,
|
|
|
|
except per share amounts
|
|
|
Earnings (loss) from continuing
operations
|
|
$
|
(59.6
|
)
|
|
$
|
7.0
|
|
Add stock-based compensation
charges as determined under the intrinsic value method, net of
taxes
|
|
|
7.1
|
|
|
|
51.5
|
|
Deduct stock compensation charges
as determined under the fair value method, net of taxes
|
|
|
(35.0
|
)
|
|
|
(33.0
|
)
|
|
|
|
|
|
|
|
|
|
Pro forma earnings (loss) from
continuing operations
|
|
$
|
(87.5
|
)
|
|
$
|
25.5
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings (loss)
from continuing operations per share:
|
|
|
|
|
|
|
|
|
As reported
|
|
$
|
(0.14
|
)
|
|
$
|
0.02
|
|
|
|
|
|
|
|
|
|
|
Pro forma
|
|
$
|
(0.21
|
)
|
|
$
|
0.08
|
|
|
|
|
|
|
|
|
|
|
See note 15 for additional information concerning our stock
awards.
Earnings
(Loss) per Common Share
Basic earnings (loss) per common share is computed by dividing
net earnings (loss) by the weighted average number of common
shares (excluding nonvested common shares) outstanding for the
period. Diluted earnings (loss) per common share presents the
dilutive effect, if any, on a per share basis of potential
common shares (e.g. options and convertible securities) as if
they had been exercised or converted at the beginning of the
periods presented.
II-69
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
In connection with the spin off, holders of Liberty Media common
stock on June 1, 2004 received in the aggregate
139,921,145 shares of LGI Series A common stock,
6,053,143 shares of LGI Series B common stock and
145,974,288 shares of LGI Series C common stock.
The pro forma net earnings (loss) per share for the year ended
December 31, 2004 set forth in our consolidated statements
of operations was computed assuming that the shares issued in
the spin off were issued and outstanding since January 1,
2004. In addition, the weighted average share amounts for
periods prior to July 26, 2004, the date that certain
subscription rights were distributed to stockholders pursuant to
the rights offering conducting by LMI on July 26, 2004 (the
LMI Rights Offering), have been increased to give effect to the
benefit derived by our stockholders as a result of the
distribution of such subscription rights. The details of the
calculations of our weighted average common shares outstanding
are set forth in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Weighted average common shares
outstanding before adjustment
|
|
|
438,135,460
|
|
|
|
415,277,683
|
|
|
|
317,194,444
|
|
Adjustment for July 2004 LMI
Rights Offering
|
|
|
|
|
|
|
|
|
|
|
7,767,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares, as
adjusted (basic EPS computation)
|
|
|
438,135,460
|
|
|
|
415,277,683
|
|
|
|
324,961,452
|
|
Incremental shares attributable to
the assumed exercise of outstanding options (treasury stock
method)
|
|
|
|
|
|
|
|
|
|
|
215,597
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares, as
adjusted (diluted EPS computation)
|
|
|
438,135,460
|
|
|
|
415,277,683
|
|
|
|
325,177,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We reported losses from continuing operations during 2006 and
2005. Therefore, the dilutive effect at December 31, 2006
and 2005 of the aggregate number of then outstanding options,
SARs, and nonvested shares of approximately 32.1 million
and 32.4 million, respectively, and the aggregate number of
shares issuable pursuant to the then outstanding convertible
debt securities and other contracts that may be settled in cash
or shares of approximately 39.4 million and
41.1 million, respectively, have not been included in the
computation of diluted loss per share because their inclusion
would have been anti-dilutive to the computation. As of
December 31, 2004, there were 4.6 million options not
included in the computation of diluted earnings per share from
continuing operations for 2004 because their inclusion would
have been anti-dilutive.
(4) Recent
Accounting Pronouncements
FIN 48
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 yet completed our evaluation
of the impact of this standard on our consolidated financial
statements.
II-70
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
SFAS 157
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 GAAP, and expands disclosures about fair value
measurements. SFAS 157 is effective for financial
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.
SFAS 159
In February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities
(SFAS 159). SFAS 159 permits entities to choose to
measure financial assets and financial liabilities at fair
value. Unrealized gains and losses on items for which the fair
value option has been elected are reported in earnings.
SFAS 159 is effective for fiscal years beginning after
November 15, 2007. We have not completed our evaluation of
the impact of this standard on our consolidated financial
statements.
(5) Acquisitions
Significant
2006 Acquisitions
During 2006, our significant acquisitions included
(i) J:COMs acquisition of a controlling interest in
Cable West effective September 28, 2006 and (ii) the
consolidation of Karneval effective September 18, 2006.
These acquisitions, which are described below, are collectively
referred to herein as the Significant 2006 Acquisitions.
A summary of the purchase prices, opening balance sheets and the
effective acquisition dates for financial reporting purposes of
the Significant 2006 Acquisitions is presented following the
descriptions of these transactions below.
Acquisition
of Cable West
On September 28, 2006, J:COM paid aggregate cash
consideration of ¥55.8 billion ($472.5 million at
the transaction date) before direct acquisition costs to
increase its ownership interest in Cable West Inc. (Cable West)
from an 8.6% non-controlling interest to an 85.0% controlling
interest. On November 15, 2006, J:COM paid aggregate cash
consideration of ¥7,736 million ($65.5 million at
the transaction date) to increase its ownership interest in
Cable West to 95.6%. Cable West is a broadband communications
provider in Japan. For financial reporting purposes, J:COM began
consolidating Cable West effective September 30, 2006.
J:COM acquired Cable West in order to achieve certain financial,
operational and strategic benefits through the integration of
Cable West with its existing operation.
J:COMs acquisitions of additional Cable West ownership
interests during the third and fourth quarters of 2006 have been
accounted for as step acquisitions by our company of ownership
interests in Cable West of 76.4% and 10.6%, respectively. The
total cash consideration, together with direct acquisition
costs, and the September 28, 2006 carrying value of our
cost method investment in Cable West, has been allocated to the
identifiable assets and liabilities of Cable West based on
preliminary assessments of their respective fair values (taking
into account the respective 76.4% and 10.6% Cable West ownership
interests that we acquired during the third and fourth quarters
of 2006, respectively), and the excess of the purchase prices
over the adjusted preliminary fair values of such identifiable
net assets was allocated to goodwill.
II-71
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
Acquisition
of Karneval
On August 9, 2006, we announced that (i) our indirect
subsidiary, Liberty Global Europe NV (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 BV (Unite Holdco), subject to
regulatory approvals, and (ii) Unite Holdco had entered
into a share purchase agreement to acquire for
322.5 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 BV. On
September 18, 2006, Unite Holdco acquired Karneval for
aggregate cash consideration of 331.1 million
($420.1 million at the transaction date) before direct
acquisition costs, including 8.6 million
($10.9 million at the transaction date) 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. We acquired Karneval in order to achieve certain
financial, operational and strategic benefits through the
integration of Karneval with our existing operations in the
Czech Republic. On December 28, 2006, following the receipt
of regulatory approvals, Liberty Global Europe completed its
acquisition of Unite Holdco and settled the total return swap
agreements with each of AIL and Deutsche.
In connection with the total return swap and share purchase
agreements described above, Liberty Global Europe 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. Liberty
Global Europes indemnity agreement with AIL and Deutsche
was considered to be a variable interest in Unite Holdco, which
was considered to be a variable interest entity under the
provisions of FASB Interpretation No. 46(R),
Consolidation of Variable interest Entities
(FIN 46(R)). As Liberty Global Europe was responsible
for all losses incurred by AIL and Deutsche in connection with
their acquisition, ownership and ultimate disposition of Unite
Holdco, Liberty Global Europe was considered to be Unite
Holdcos primary beneficiary, as defined by FIN 46(R),
and Liberty Global Europe was 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 did not have equity at risk in Unite Holdco, the
full amount of Unite Holdcos results during the fourth
quarter of 2006 was allocated to Liberty Global Europe. For
financial reporting purposes, we began consolidating Unite
Holdco effective September 30, 2006.
Our acquisition of Karneval through Unite Holdco 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 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.
II-72
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
Opening
Balance Sheet Information of the Significant 2006
Acquisitions
A summary of the purchase prices, opening balance sheets and the
effective acquisition or consolidation dates for financial
reporting purposes of the Significant 2006 Acquisitions is
presented in the following table. The opening balance sheets
presented in this table are based on preliminary purchase price
allocations and are therefore subject to adjustment:
|
|
|
|
|
|
|
|
|
|
|
Cable West(b)
|
|
|
Karneval
|
|
Effective acquisition or consolidation date for financial
|
|
September 30,
|
|
|
September 30,
|
|
reporting purposes
|
|
2006
|
|
|
2006
|
|
LGI ownership interest at December 31, 2006
|
|
95.6%
|
|
|
100%
|
|
|
|
amounts in millions
|
|
|
Cash
|
|
$
|
15.1
|
|
|
$
|
12.4
|
|
Other current assets
|
|
|
45.4
|
|
|
|
2.6
|
|
Other investments
|
|
|
(16.4
|
)
|
|
|
|
|
Property and equipment, net
|
|
|
300.5
|
|
|
|
119.3
|
|
Goodwill
|
|
|
362.3
|
|
|
|
257.9
|
|
Intangible assets subject to
amortization(a)
|
|
|
110.0
|
|
|
|
40.2
|
|
Other assets, net
|
|
|
3.0
|
|
|
|
16.2
|
|
Current liabilities
|
|
|
(73.1
|
)
|
|
|
(8.7
|
)
|
Long-term debt and capital lease
obligations
|
|
|
(65.1
|
)
|
|
|
(1.8
|
)
|
Other long-term liabilities
|
|
|
(135.0
|
)
|
|
|
(10.0
|
)
|
Minority interests in subsidiaries
|
|
|
(6.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
540.3
|
|
|
$
|
428.1
|
|
|
|
|
|
|
|
|
|
|
Purchase price:
|
|
|
|
|
|
|
|
|
Cash consideration
|
|
$
|
538.0
|
|
|
$
|
420.1
|
|
Direct acquisition costs
|
|
|
2.3
|
|
|
|
8.0
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
540.3
|
|
|
$
|
428.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The amounts reflected as intangible assets subject to
amortization primarily relate to our preliminary assessment of
the fair value of customer relationships. Such acquired
intangible assets for Cable West and Karneval had preliminary
weighted average lives of 10 and 5 years, respectively, at
the respective acquisition dates. |
|
(b) |
|
The Cable West column reflects the preliminary allocation of the
aggregate purchase price associated with the Cable West
interests acquired during the third and fourth quarters of 2006.
The other investments amount for Cable West represents the
elimination of the carrying amount of J:COMs cost method
investment in Cable West. |
The purchase accounting for each of the Significant 2006
Acquisitions, as reflected in these 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, intangible assets and, in the
case of Cable West, deferred revenue, 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 items and to the related depreciation and
amortization (including amortization of deferred revenue). In
addition, our final assessment of the purchase price
II-73
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
allocation could lead to adjustments to the amount of acquired
deferred tax assets or assumed deferred tax liabilities.
Other
2006 Acquisition
INODE On March 2, 2006 we acquired INODE
Telekommunikationsdienstleistungs GmbH (INODE), an unbundled
Digital Subscriber Line (DSL) provider in Austria, for cash
consideration before direct acquisition costs of
93 million ($111 million at the transaction
date). The INODE 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 INODE based
on their respective fair values, and the excess of the purchase
price over the fair value of such net identifiable assets was
allocated to goodwill.
Significant
2005 Acquisitions
During 2005 we completed the following significant acquisitions,
each of which is described in detail below: (i) the LGI
Combination effective June 15, 2005, (ii) the
acquisition of Cablecom effective October 24, 2005,
(iii) the acquisition of Astral Telecom SA (Astral)
effective October 14, 2005, (iv) the acquisition of
NTL Ireland effective May 9, 2005, (v) the acquisition
of a controlling interest in Austar United Communications
Limited (Austar) effective December 14, 2005 and
(vi) VTRs acquisition of a controlling interest in
Metrópolis Intercom SA (Metrópolis) effective
April 13, 2005. These acquisitions are collectively
referred to herein as the Significant 2005 Acquisitions. As
further described below, we also began consolidating LGI/Sumisho
Super Media LLC (Super Media) and J:COM on January 1, 2005.
A summary of the purchase prices, opening balance sheets and the
effective acquisition dates for financial reporting purposes of
the Significant 2005 Acquisitions and the Super Media/J:COM
consolidation is presented following the descriptions of these
transactions below.
LGI
Combination
On June 15, 2005, we completed the LGI Combination 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. Among other matters, the LGI Combination
was completed in order to eliminate the dual public holding
company structure in which LMIs principal consolidated
asset was its majority interest in UGC, another public company.
In the LGI Combination, (i) each outstanding share of LMI
Series A and Series C common stock was exchanged for
one share of the corresponding series of LGI common stock, and
(ii) each outstanding share of UGC Class A common
stock, UGC Class B common stock and UGC Class C common
stock (other than those shares owned by LMI and its wholly owned
subsidiaries) was converted into the right to receive for each
share of common stock owned either (i) 0.2155 of a share of
LGI Series A common stock and 0.2155 of a share of LGI
Series C common stock (plus cash for any fractional share
interest) or (ii) $9.58 in cash. Cash elections were
subject to proration so that the aggregate cash consideration
paid to UGCs stockholders would not exceed 20% of the
aggregate value of the merger consideration payable to
UGCs public stockholders. The effects of the LGI
Combination have been included in our historical consolidated
financial statements beginning with the June 15, 2005
acquisition date.
The LGI Combination has been accounted for as a step acquisition
by our company of the remaining minority interest in UGC. The
purchase price in this step acquisition includes the
consideration issued to UGC public stockholders to acquire the
UGC interest not already owned by our company and the direct
acquisition costs
II-74
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
incurred by our company. The details of the purchase price are
presented in the following table (dollar amounts in millions):
|
|
|
|
|
Shares of LGI Series A common
stock issued to UGC stockholders other than LMI and its wholly
owned subsidiaries (including 2,067,786 shares issued to
UGC subsidiaries)
|
|
|
65,694,765
|
|
Shares of LGI Series C common
stock issued to UGC stockholders other than LMI and its wholly
owned subsidiaries (including 2,067,786 shares issued to
UGC subsidiaries)
|
|
|
65,694,765
|
|
|
|
|
|
|
|
|
|
131,389,530
|
|
|
|
|
|
|
Fair value of LGI Series A
and Series C common stock issued to UGC stockholders other
than LMI and its wholly owned subsidiaries
|
|
$
|
2,878.2
|
|
Fair value of LGI Series A
and Series C common stock issued to UGC subsidiaries
|
|
|
(90.6
|
)
|
|
|
|
|
|
Fair value of outstanding LGI
Series A and Series C common stock issued to UGC
stockholders
|
|
|
2,787.6
|
|
Cash consideration
|
|
|
694.5
|
|
Direct acquisitions costs
|
|
|
9.0
|
|
|
|
|
|
|
Total purchase price
|
|
|
3,491.1
|
|
Elimination of minority interest
in UGC
|
|
|
(994.8
|
)
|
|
|
|
|
|
Purchase price allocated to the
net assets of UGC
|
|
$
|
2,496.3
|
|
|
|
|
|
|
The fair value of the shares issued to UGC stockholders other
than LMI in the LGI Combination was derived from a fair value of
$43.812 per share of LGI Series A common stock, which was
the average of the quoted market price per share of LGI
Series A common stock (before giving effect to the
September 6, 2005 stock split in the form of a stock
dividend, pursuant to which holders received one share of LGI
Series C common stock for each share of LGI Series A
common and one share of LGI Series C common stock for each
share of LGI Series B common stock) for the period
beginning two trading days before and ending two trading days
after the date that the LGI Combination was agreed to and
announced (January 18, 2005). After eliminating the
minority interest in UGC from our consolidated balance sheet, we
allocated the remaining purchase price to the identifiable
assets and liabilities of UGC based on their respective fair
values (taking into account the 46.6% UGC ownership interest
that LGI acquired in the LGI Combination), and the excess of the
purchase price over the adjusted fair values of such
identifiable net assets was allocated to goodwill.
Consolidation
of Super Media/J:COM
On December 28, 2004, our 45.5% ownership interest in
J:COM, and a 19.8% interest in J:COM owned by Sumitomo
Corporation (Sumitomo) were combined in LGI/Sumisho 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 69.7%
noncontrolling interest in Super Media, and Super Media held a
65.3% controlling interest in J:COM at December 31, 2004.
Due to certain veto rights held by Sumitomo that precluded us
from controlling Super Media, we accounted for our 69.7%
ownership interest in Super Media using the equity method of
accounting at December 31, 2004. On February 18, 2005,
J:COM announced an IPO of its common shares in Japan. Under the
terms of the operating
II-75
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
agreement of Super Media, our casting or tie-breaking vote with
respect to decisions of the management committee of Super Media
became effective upon this announcement. Super Media is managed
by a management committee consisting of two members, one
appointed by our company and one appointed by Sumitomo. From and
after February 18, 2005, the management committee member
appointed by our company has a casting or deciding vote with
respect to any management committee decision on which our
company and Sumitomo are unable to agree. Certain decisions with
respect to Super Media will continue to require the consent of
both members rather than the management committee. These include
any decision to (i) engage in any business other than
holding J:COM shares, (ii) sell J:COM shares,
(iii) issue additional units in Super Media, (iv) make
in-kind distributions or (v) dissolve Super Media, in each
case subject to certain exceptions contemplated by the Super
Media operating agreement. Super Media will be dissolved in
February 2010 unless we and Sumitomo mutually agree to extend
the term. Super Media may also be earlier dissolved under
specified circumstances.
As a result of the above-described change in the governance of
Super Media, we began accounting for Super Media and J:COM as
consolidated subsidiaries effective January 1, 2005. As we
paid no monetary consideration to Sumitomo to acquire the
above-described casting vote, we have recorded the consolidation
of Super Media/J:COM at historical cost.
On March 23, 2005, J:COM received net proceeds of
¥82.043 billion ($774.3 million at the
transaction date) in connection with an 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. Also on March 23,
2005, Sumitomo contributed additional J:COM shares to Super
Media, increasing Sumitomos interest in Super Media to
32.4%, and decreasing our companys interest in Super Media
to 67.6%. Sumitomo and our company are generally required to
contribute to Super Media any additional shares of J:COM that
either party acquires and to permit the other party to
participate in any additional acquisition of J:COM shares during
the term of Super Media. After giving effect to Sumitomos
additional contribution of J:COM shares to Super Media and the
consummation of J:COMs IPO, including the subsequent
exercise of the underwriters over-allotment option, Super
Medias ownership interest in J:COM was 54.5%.
In connection with the dilution of our ownership interest that
resulted from (i) J:COMs issuance of common shares in
March and April 2005 pursuant to its IPO and (ii) the
exercise of stock options, we recorded a $120.7 million
gain, which is reflected as an increase to additional paid-in
capital in our consolidated statement of stockholders
equity for the year ended December 31, 2005. We provided no
income taxes on this gain as we ceased providing income taxes on
our outside basis in Super Media/J:COM when we began
consolidating these entities on January 1, 2005.
Sumitomo also held an 8.3% direct interest in J:COM until
September 26, 2005, when such interest was contributed to
Super Media.
The March 2005 and September 2005 contributions of
Sumitomos J:COM interests to Super Media were recorded at
historical cost and resulted in an aggregate non-cash increase
to goodwill of $31.5 million.
At December 31, 2006, Super Media owned
3,987,238 shares of J:COM, or 62.5% of the issued and
outstanding shares of J:COM, and LGIs ownership interest
in Super Media was 58.7%.
See notes 7 and 22 for additional information concerning
J:COM.
Acquisition
of Cablecom
On October 24, 2005, LG Switzerland purchased from Glacier
Holdings S.C.A. all of the issued share capital of Cablecom, the
parent company of a Swiss broadband communications company, for
a cash purchase price before
II-76
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
direct acquisition costs of 2,826 million Swiss Francs
(CHF) ($2,212.3 million at the transaction date). We
acquired Cablecom in order to expand the markets in which we
operate in Europe.
The Cablecom acquisition was funded through a combination of
(i) a 550 million ($667 million at the
transaction date) 9.5 year split-coupon floating rate
payment-in-kind
loan (the PIK Loan) entered into by LG Switzerland, (ii) a
new offering of 300 million ($363 million at the
transaction date) principal amount of 8.6% Senior Notes due 2014
by UPC Holding, a sister corporation of LG Switzerland and
(iii) available cash. At the acquisition date, Cablecom
reported outstanding debt of CHF 1.7 billion
($1.4 billion at the transaction date). For additional
information concerning the LG Switzerland, UPC Holding and
Cablecom debt, see note 11.
The Cablecom 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 Cablecom
based on their respective fair values, and the excess of the
purchase price over the fair values of such identifiable net
assets was allocated to goodwill.
Acquisition
of Astral
On October 14, 2005, we completed the acquisition of
Astral, a broadband communications operator in Romania, for a
cash purchase price of $407.1 million, before direct
acquisition costs. We acquired Astral in order to achieve
certain financial, operational and strategic benefits through
the integration of Astral with our existing operations in
Romania. The Astral 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 Astral
based on their respective fair values, and the excess of the
purchase price over the fair values of such identifiable net
assets was allocated to goodwill.
Acquisition
of NTL Ireland
On May 9, 2005, we announced that our indirect subsidiary,
UPC Ireland BV. (UPC Ireland), had signed a sale and purchase
agreement to acquire MS Irish Cable Holdings BV (MS Irish
Cable), subject to regulatory approval. MS Irish Cable, an
affiliate of Morgan Stanley Dean Witter Equity Funding, Inc.
(MSDW Equity), acquired NTL Communications (Ireland) Limited,
NTL Irish Networks Limited and certain related assets (together
NTL Ireland) on May 9, 2005 with funds provided by a loan
from UPC Ireland. NTL Ireland, a cable television operator in
Ireland, provides cable television and broadband Internet
services to residential customers and managed network services
to corporate customers. We acquired NTL Ireland in order to
achieve certain financial, operational and strategic benefits
through the integration of NTL Ireland with our existing
operations in Ireland.
On December 12, 2005, following the receipt of regulatory
approval, UPC Ireland completed its acquisition of MS Irish
Cable. Upon closing, UPC Ireland paid MSDW Equity, as
consideration for all of the outstanding share capital of MS
Irish Cable and any MS Irish Cable indebtedness owed to MSDW
Equity and its affiliates, an amount equal to MSDW Equitys
net investment in MS Irish Cable plus interest on the amount of
the net investment and expenses incurred by MSDW Equity in
connection with the transaction.
In connection with the sale and purchase agreement, UPC Ireland
agreed to make MSDW Equity whole with respect to any economic
effect on MSDW Equity regarding the acquisition, ownership and
subsequent transfer of the NTL Ireland interest. The make whole
arrangement with MSDW Equity was considered to be a variable
interest in MS Irish Cable, which is a variable interest entity
under the provisions of FIN 46(R). As UPC Ireland was
responsible for all losses incurred by MSDW Equity in connection
with its acquisition, ownership and ultimate disposition of MS
Irish Cable, UPC Ireland was MS Irish Cables primary
beneficiary, as defined by FIN 46(R), and UPC Ireland was
therefore required to consolidate MS Irish Cable and its
subsidiaries, including NTL Ireland, upon the May 9, 2005
closing of MS Irish Cables acquisition of NTL Ireland. As
MSDW Equity had no equity at risk in
II-77
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
MS Irish Cable, the full amount of MS Irish Cables results
from May 9, 2005 through December 12, 2005 was
allocated to UPC Ireland.
The acquisition of NTL Ireland through MS Irish Cable has been
accounted for using the purchase method of accounting. The total
purchase consideration of 349.4 million
($448.8 million at the transaction date), including direct
acquisition costs of 16.0 million ($20.6 million
at the transaction date), has been allocated to the acquired
identifiable net assets of NTL Ireland based on their respective
fair values, and the excess of the purchase price over the fair
values of such identifiable net assets was allocated to goodwill.
Acquisition
of Controlling Interest in Austar
On December 14, 2005 we completed a transaction that
increased our indirect ownership of Austar, a DTH company in
Australia, from a 36.7% non-controlling indirect ownership
interest to a 55.2% controlling interest. We acquired a
controlling interest in Austar in order to increase our
investment in the Australian DTH industry. As a result of this
transaction, we began using the consolidation method to account
for our investment in Austar. Prior to obtaining a controlling
interest in Austar, UGC used the equity method to account for
its indirect investment in Austar.
Prior to December 14, 2005, Austars share capital was
owned 20.3% by the public and 79.7% (968 million shares) by
United Austar Partners (UAP). UAP was 46% (446 million
shares) owned by United Asia Pacific Communications (UAPC), an
indirect wholly owned subsidiary of UGC, and 54%
(522 million shares) owned by an independent third party,
Castle Harlan Australia Mezzanine Partners Pty. Limited and
Castle Harlan, Inc. (collectively, CHAMP).
On December 14, 2005, CHAMP sold to United AUN, Inc., a
wholly owned subsidiary of UAPC (together with UAPC, the United
Partners), units in UAP representing 224 million shares in
Austar for net cash consideration of AUD 204.9 million
($155.0 million at the transaction date) before direct
acquisition costs, and UAP transferred 298 million Austar
shares to CHAMP in cancellation of their remaining units in
Austar. Upon completion of this transaction, the United Partners
owned 100% of the UAP partnership interest, CHAMP ceased to be a
partner in UAP, and UAP owned a 55.2% economic and voting
interest in Austar.
The December 14, 2005 transaction has been accounted for as
a step acquisition by our company of an 18.5% interest in
Austar. The total cash consideration, together with direct
acquisition costs and our carryover basis in our equity method
investment in Austar, has been allocated to the identifiable
assets and liabilities of Austar based on their respective fair
values (taking into account the 18.5% Austar ownership interest
that we acquired in the December 14, 2005 step
acquisition), and the excess of the purchase price over the
adjusted fair values of such identifiable net assets was
allocated to goodwill.
VTR
Acquisition of Metrópolis
On April 13, 2005, VTR completed its previously announced
combination with 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 SA (Cristalerías). As
consideration for Cristalerías interest in
Metrópolis, (i) VTR issued 11,438,360 shares of
its common stock to Cristalerías, representing 20% of the
outstanding economic and voting shares of VTR subsequent to the
transaction, (ii) VTR assumed certain indebtedness owed by
Metrópolis to CristalChile Inversiones SA (CCI), an
affiliate of Cristalerías, in the amount of CLP
6,067 million ($10.5 million at the transaction date),
and (iii) UGC granted Cristalerías the right to put
its 20% interest in VTR to UGC at fair value, subject to a
minimum purchase price of $140 million, which put is
exercisable until April 13, 2015. The acquisition of
Cristalerías interest in Metrópolis included the
assumption of $25.8 million in debt payable to a Chilean
telecommunications company (CTC) and CLP 30.335 billion
II-78
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
($51.8 million at the transaction date) of bank debt. The
bank debt was repaid in April 2005 and the debt owed to CTC was
repaid in July 2005 using proceeds from the Old VTR Bank
Facility. See note 11. VTR merged with Metrópolis to
achieve certain financial, operational and strategic benefits
through the integration of Metrópolis with its existing
operations.
The final regulatory approval for the combination, which was
obtained in March 2005, imposed certain conditions on the
combined entity. The most significant of these conditions
require that the combined entity (i) re-sell broadband
capacity to third party broadband Internet service providers on
a wholesale basis; (ii) activate two-way capacity on
2.0 million Homes Passed within five years from the
consummation date of the combination; and (iii) for three
years after the consummation date of the combination, limit
basic tier price increases to the rate of inflation plus a
programming cost escalator. Another condition expressly
prohibits us, as the controlling shareholder of VTR, from owning
an interest, directly or indirectly through related parties, in
any business that provides microwave or satellite television
services in Chile. The DirecTV Group, Inc. (DirecTV) owns a
satellite television distribution service that operates in Chile
and elsewhere in the Americas. On December 12, 2006,
Liberty Media announced publicly that it had agreed to acquire
an approximate 39% interest in DirecTV. VTR and we have received
written inquiries from Chilean regulatory authorities seeking to
determine whether Liberty Medias acquisition of the
DirecTV interest would violate or otherwise conflict with the
regulatory condition prohibiting us from owning an interest in
Chilean satellite or microwave television businesses. We
currently are unable to predict the outcome of this inquiry.
In the absence of quoted market prices for VTR common stock, we
estimated the fair value of the 20% interest in VTR that was
exchanged for Cristalerías interest in
Metrópolis to be $180 million. The estimate was based
on a discounted cash flow analysis and other available market
data. Including the approximate $11.8 million fair value at
April 13, 2005 of the put right that UGC granted to
Cristalerías and $3.4 million in direct acquisition
costs, the purchase price for Cristalerías interest
in Metrópolis totaled $195.2 million. We accounted for
this merger as (i) a step acquisition by our company of an
additional 30% interest in Metrópolis, and (ii) the
sale of a 20% interest in VTR. Under the purchase method of
accounting, the purchase price was allocated to the acquired
identifiable tangible and intangible assets and liabilities
based upon their respective fair values (taking into account the
30% Metrópolis interest acquired), and the excess of the
purchase price over the fair value of such identifiable net
assets was allocated to goodwill. Our proportionate share of
Metrópolis net assets represented by our historical
50% interest in Metrópolis was recorded at historical cost.
UGC recorded a $4.6 million reduction of additional paid-in
capital associated with the dilution of its indirect ownership
interest in VTR from 100% to 80% as a result of the transaction.
Our share of this loss was reflected as a reduction of
additional paid-in capital in our consolidated statement of
stockholders equity for the year ended December 31,
2005.
II-79
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
Opening
Balance Sheet Information of Significant 2005
Acquisitions
A summary of the purchase prices, opening balance sheets and the
effective acquisition or consolidation dates for financial
reporting purposes of the Significant 2005 Acquisitions and the
Super Media / J:COM consolidation is presented in the following
table. The opening balance sheets presented in this table
reflect our final purchase price allocations, including certain
purchase accounting adjustments that were recorded in 2006 upon
the finalization of purchase accounting:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Super
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Media/
|
|
|
|
|
|
NTL
|
|
|
LGI
|
|
|
|
|
|
|
|
|
|
|
|
|
J:COM
|
|
|
Metrópolis
|
|
|
Ireland
|
|
|
Combination
|
|
|
Astral
|
|
|
Cablecom
|
|
|
Austar
|
|
Effective acquisition or consolidation date
|
|
January 1,
|
|
|
April 1,
|
|
|
May 1,
|
|
|
June 15,
|
|
|
October 1,
|
|
|
October 31,
|
|
|
December 31,
|
|
for financial reporting purposes
|
|
2005
|
|
|
2005
|
|
|
2005
|
|
|
2005
|
|
|
2005
|
|
|
2005
|
|
|
2005
|
|
LGIs ownership at
December 31, 2006
|
|
|
36.6
|
%
|
|
|
80.0
|
%(d)
|
|
|
100
|
%
|
|
|
100
|
%(e)
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
53.4
|
%(f)
|
|
|
amounts in millions
|
Cash
|
|
$
|
101.7
|
|
|
$
|
7.4
|
|
|
$
|
9.3
|
|
|
$
|
|
|
|
$
|
12.0
|
|
|
$
|
27.8
|
|
|
$
|
9.5
|
|
Other current assets
|
|
|
165.5
|
|
|
|
6.0
|
|
|
|
16.3
|
|
|
|
|
|
|
|
10.5
|
|
|
|
199.8
|
|
|
|
27.4
|
|
Investments in affiliates(a)
|
|
|
(987.3
|
)
|
|
|
(55.0
|
)
|
|
|
|
|
|
|
184.9
|
|
|
|
1.9
|
|
|
|
5.7
|
|
|
|
(123.1
|
)
|
Property and equipment, net
|
|
|
2,441.2
|
|
|
|
138.0
|
|
|
|
282.5
|
|
|
|
223.6
|
|
|
|
111.5
|
|
|
|
1,295.5
|
|
|
|
92.4
|
|
Goodwill
|
|
|
1,875.3
|
|
|
|
224.3
|
|
|
|
208.5
|
|
|
|
1,610.7
|
|
|
|
265.2
|
|
|
|
2,241.2
|
|
|
|
316.1
|
|
Intangible assets subject to
amortization(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
622.5
|
|
|
|
74.7
|
|
|
|
325.1
|
|
|
|
72.8
|
|
Other assets, net
|
|
|
142.4
|
|
|
|
7.3
|
|
|
|
10.0
|
|
|
|
(77.4
|
)
|
|
|
|
|
|
|
8.1
|
|
|
|
4.3
|
|
Current liabilities
|
|
|
(398.5
|
)
|
|
|
(82.2
|
)
|
|
|
(70.9
|
)
|
|
|
|
|
|
|
(33.7
|
)
|
|
|
(361.5
|
)
|
|
|
(61.5
|
)
|
Long-term debt and capital lease
obligations
|
|
|
(2,112.7
|
)
|
|
|
(38.4
|
)
|
|
|
|
|
|
|
(11.7
|
)
|
|
|
(14.5
|
)
|
|
|
(1,415.3
|
)
|
|
|
(217.3
|
)
|
Other long-term liabilities
|
|
|
(415.1
|
)
|
|
|
(12.2
|
)
|
|
|
(6.9
|
)
|
|
|
(56.3
|
)
|
|
|
(18.2
|
)
|
|
|
(88.8
|
)
|
|
|
(17.5
|
)
|
Minority interests in subsidiaries
|
|
|
(812.5
|
)
|
|
|
|
|
|
|
|
|
|
|
994.8
|
|
|
|
|
|
|
|
(11.7
|
)
|
|
|
|
|
Additional paid-in capital(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
|
|
|
$
|
195.2
|
|
|
$
|
448.8
|
|
|
$
|
3,491.1
|
|
|
$
|
409.4
|
|
|
$
|
2,225.9
|
|
|
$
|
155.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase price:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash consideration
|
|
$
|
|
|
|
$
|
|
|
|
$
|
428.2
|
|
|
$
|
694.5
|
|
|
$
|
407.1
|
|
|
$
|
2,212.3
|
|
|
$
|
155.0
|
|
Direct acquisition costs
|
|
|
|
|
|
|
3.4
|
|
|
|
20.6
|
|
|
|
9.0
|
|
|
|
2.3
|
|
|
|
13.6
|
|
|
|
0.5
|
|
Issuance of derivative instrument
|
|
|
|
|
|
|
11.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of LGI stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,787.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of VTR common stock
|
|
|
|
|
|
|
180.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
195.2
|
|
|
$
|
448.8
|
|
|
$
|
3,491.1
|
|
|
$
|
409.4
|
|
|
$
|
2,225.9
|
|
|
$
|
155.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The investment in affiliate amounts for Super Media/J:COM,
Austar and Metrópolis include reductions of
$1,052.5 million, $161.8 million and
$55.0 million, respectively, related to the elimination of
the carrying amount of our equity method investment in such
entities upon our acquisition of a controlling interest. |
|
(b) |
|
The amounts reflected as intangible assets subject to
amortization primarily relate to customer relationships. Such
acquired intangible assets had a weighted average life of
9.1 years at the respective acquisition dates. |
|
(c) |
|
The amount reflected in the Austar column represents the
minority interests share in the deficit of Austar at the
transaction date, which has been recorded as a reduction of
additional paid-in capital in accordance with the guidance set
forth in EITF D-84, Accounting for Subsequent Investments in
an Investee After Suspension of Equity Method Loss Recognition
When an Investor Increases Its Ownership Interest from
Significant Interest to Control through a Market Purchase of
Voting Securities. |
|
(d) |
|
The amounts reflected in the Metrópolis column represent
the opening balance sheet of Metrópolis after applying step
acquisition accounting. The column does not give effect to the
consolidated impact of the related |
II-80
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
|
|
|
|
|
sale of 20% of VTR to Cristalerías. On a consolidated
basis, the sale of a 20% minority interest in VTR resulted in a
$198.2 million non-cash increase to minority interests in
subsidiaries. |
|
(e) |
|
The amounts reflected in the LGI Combination column represents
the adjustments to the consolidated assets and liabilities of
UGC at June 15, 2005 resulting from the application of step
acquisition accounting in connection with the LGI Combination.
As a result of the LGI Combination, our interest in UGC
increased from 53.4% to 100%. |
|
(f) |
|
The amounts reflected in the Austar column represent the opening
balance sheet of Austar after applying step acquisition
accounting. At December 31, 2006, we owned 676,258,394 or
53.4% of the issued and outstanding shares of Austar. |
Other
2005 Acquisitions
Acquisition of the Remaining 19.9% Minority Interest in UPC
Broadband France In April 2005, a subsidiary of
UPC Holding exercised the call right acquired in connection with
the July 2004 Suez-Lyonnaise Télécom SA (Noos)
acquisition (see discussion under Significant 2004
Acquisitions below) and purchased the remaining 19.9%
minority interest in UPC Broadband France SAS (UPC Broadband
France) that it did not already own for 90.1 million
($116.0 million at the transaction date) in cash. UPC
Broadband France was an indirect wholly owned subsidiary and
owner of our French broadband video and broadband Internet
access operations. This acquisition was accounted for as a step
acquisition of the remaining minority interest. As UPC Broadband
France was a consolidated subsidiary at the time of this
transaction, the purchase price was first applied to eliminate
the minority interest in UPC Broadband France from our
consolidated balance sheet, and the remaining purchase price has
been allocated on a pro rata basis to the identifiable assets
and liabilities of UPC Broadband France, taking into account
their respective fair values at April 6, 2005 and the 19.9%
interest acquired. The excess purchase price that remained after
amounts had been allocated to the net identifiable assets of UPC
Broadband France was recorded as goodwill.
Zonemedia In January 2005, Chellomedia
acquired the Class A shares of Zonemedia. The consideration
for the transaction consisted of (i) $50.0 million in
cash, before considering direct acquisition costs of
$2.2 million, and (ii) 351,110 shares of LGI
Series A common stock and 351,110 shares of LGI
Series C common stock valued at $15.0 million. As part
of the transaction, Chellomedia contributed to Zonemedia its 49%
interest in Reality TV Ltd. and Chellomedias Club channel
business. Zonemedia is a programming company focused on the
ownership, management and distribution of pay television
channels.
The Zonemedia Class A shares purchased by Chellomedia
represented an 87.5% interest in Zonemedia on a fully diluted
basis. Subject to certain vesting conditions,
Class B1 shares that initially represented 12.5% of
Zonemedias outstanding equity were issued to a group of
selling shareholders of Zonemedia, who were retained as
employees. In addition, the retained employees were entitled to
receive the LGI Series A and Series C common stock
that we issued as purchase consideration, subject to an escrow
agreement. In light of the service and vesting conditions
associated with the Zonemedia Class B1 and LGI
Series A and Series C shares, we are recording
stock-based compensation expense with respect to these
agreements.
In April 2006, Chellomedia acquired further
Class B1 shares from certain (now former) employees of
Zonemedia in return for cash, bringing Chellomedias
holding in Zonemedia to 90%. In addition, such employees
received a portion of the LGI Series A and Series C
common stock held in escrow.
As further described in note 21, the Zonemedia
Class B1 shares are subject to certain put and call
rights.
Telemach On February 10, 2005, we
acquired 100% of the shares in Telemach d.o.o., a broadband
communications provider in Slovenia, for 71.0 million
($91.4 million at the transaction date) in cash.
II-81
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
J:COM Chofu Cable On February 25, 2005,
J:COM completed a transaction with Sumitomo, Microsoft
Corporation (Microsoft) and our company whereby J:COM paid
aggregate cash consideration of ¥4,420 million
($41.9 million at the transaction date) to acquire each
entities respective interests in J:COM Chofu Cable, Inc.
(J:COM Chofu Cable), a Japanese broadband communications
provider, and to acquire from Microsoft equity interests in
certain telecommunications companies. Our share of the
consideration was ¥972 million ($9.2 million at
the transaction date). As a result of this transaction, J:COM
acquired an approximate 92% equity interest in J:COM Chofu Cable.
J:COM Setamachi On September 30, 2005,
J:COM paid cash of ¥9,200 million ($81.0 million
at the transaction date) and assumed debt and capital lease
obligations of ¥5,480 million ($48.3 million at
the transaction date) to purchase 100% of the outstanding shares
of J:COM Setamachi Co. Ltd. (J:COM Setamachi). J:COM immediately
repaid ¥3,490 million ($30.7 million at the
transaction date) of the assumed debt. J:COM Setamachi is a
broadband communications provider in Japan.
IPS On November 23, 2005, Plator
Holdings BV (Plator Holdings), an indirect subsidiary of
Chellomedia, paid cash consideration of $62.8 million to
acquire the 50% interests that it did not already own in certain
businesses that provide thematic television channels in Spain
and Portugal (IPS). Plator Holdings financed the purchase price
with new bank borrowings. Prior to this transaction, we used the
equity method to account for our investment in IPS. We have
accounted for this transaction as a step acquisition of a 50%
interest in IPS.
Accounting Treatment of UPC Broadband France, Zonemedia,
Telemach, J:COM Chofu Cable, J:COM Setamachi and IPS
Acquisitions We have used the purchase method to
account for the interests acquired in UPC Broadband France,
Zonemedia, Telemach, J:COM Chofu Cable, J:COM Setamachi and IPS.
Under the purchase method of accounting, the purchase price 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.
Pro
Forma Information for 2006 and 2005 Acquisitions
The following unaudited pro forma consolidated operating results
for 2006 and 2005 give effect to (i) the Significant 2006
Acquisitions as if they had been completed as of January 1,
2006 (for 2006 results) and January 1, 2005 (for 2005
results) and (ii) the Significant 2005 Acquisitions as if
they had been completed as of January 1, 2005 (for 2005
results). No effect has been given to the 2006 acquisition of
INODE or the 2005 acquisitions of Zonemedia, Telemach, J:COM
Chofu Cable, J:COM Setamachi or IPS, since they would not have
had a material impact on our results of operations if they had
occurred at the beginning of the applicable periods. No effect
has been given to the April 2005 acquisition of the minority
interest in UPC Broadband France because, as described in
note 6, UPC Frances operations have been reclassified
to discontinued operations.
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.
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
amounts in millions,
|
|
|
|
except per share amounts
|
|
|
Revenue
|
|
$
|
6,671.5
|
|
|
$
|
5,788.5
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations
|
|
$
|
(341.6
|
)
|
|
$
|
(353.3
|
)
|
|
|
|
|
|
|
|
|
|
Loss per share from continuing
operations basic and diluted
|
|
$
|
(0.78
|
)
|
|
$
|
(0.75
|
)
|
|
|
|
|
|
|
|
|
|
II-82
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
Pro
Forma Information for 2005 Acquisitions
The following unaudited pro forma consolidated operating results
for 2005 and 2004 give effect to (i) the Significant 2005
Acquisitions and (ii) the consolidation of Super
Media/J:COM, as if such transactions had been completed as of
January 1, 2005 (for 2005 results) and January 1, 2004
(for 2004 results). No effect has been given to the 2005
acquisitions of Zonemedia, Telemach, J:COM Chofu Cable, J:COM
Setamachi or IPS, since they would not have had a material
impact on our results of operations if they had occurred at the
beginning of the applicable periods. No effect has been given to
the July 2004 acquisition of Noos and the April 2005 acquisition
of the minority interest in UPC Broadband France because, as
described in note 6, UPC Frances operations have been
reclassified to discontinued operations.
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.
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
|
amounts in millions,
|
|
|
|
except per share amounts
|
|
|
Revenue
|
|
$
|
5,561.3
|
|
|
$
|
4,746.2
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations
|
|
$
|
(337.0
|
)
|
|
$
|
(508.1
|
)
|
|
|
|
|
|
|
|
|
|
Loss per share from continuing
operations basic and diluted
|
|
$
|
(0.71
|
)
|
|
$
|
(1.12
|
)
|
|
|
|
|
|
|
|
|
|
Significant
2004 Acquisitions
During 2004 we completed the following significant acquisitions,
each of which is described in detail below: (i) the
acquisition of a controlling interest in UGC, and (ii) the
acquisition of a controlling interest in Noos. These
acquisitions are collectively referred to herein as the
Significant 2004 Acquisitions.
Acquisition
of Controlling Interest in UGC
On January 5, 2004, we completed a transaction pursuant to
which UGCs founding shareholders (the Founders)
transferred 8.2 million shares of UGC Class B common
stock to our company in exchange for 12.6 million shares of
Liberty Media Series A common stock valued, for financial
reporting purposes, at $152.1 million and a cash payment of
$12.8 million. We also incurred $3.0 million of direct
acquisition costs in connection with this transaction (the UGC
Founders Transaction). The UGC Founders Transaction was the last
of a number of independent transactions that occurred from 2001
through January 2004 pursuant to which we acquired our
controlling interest in UGC.
Our acquisition of 281.3 million shares of UGC common stock
in January 2002 gave us a greater than 50% economic interest in
UGC, but due to certain voting and standstill arrangements, we
used the equity method to account for our investment in UGC
through December 31, 2003. Upon closing of the
January 5, 2004 transaction, the restrictions on the
exercise by us of our voting power with respect to UGC
terminated, and we gained voting control of UGC. Accordingly,
UGC has been accounted for as a consolidated subsidiary and
included in our financial position and results of operations
since January 1, 2004. We have accounted for our
acquisition of UGC as a step acquisition, and have allocated our
investment basis to our pro rata share of UGCs assets and
liabilities at each significant acquisition date based on the
estimated fair values of such assets and liabilities on such
dates. Prior to the acquisition of the Founders shares,
our investment basis in UGC had been reduced to zero as a result
of the
II-83
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
prior recognition of our share of UGCs losses. The
following table reflects the amounts allocated to our assets and
liabilities upon completion of the January 2004 acquisition of
the Founders shares (amounts in millions):
|
|
|
|
|
Cash
|
|
$
|
310.4
|
|
Other current assets
|
|
|
298.8
|
|
Property and equipment
|
|
|
3,386.3
|
|
Goodwill
|
|
|
2,023.4
|
|
Customer relationships(1)
|
|
|
379.1
|
|
Trade names
|
|
|
62.4
|
|
Other intangible assets
|
|
|
4.5
|
|
Investments and other assets
|
|
|
347.5
|
|
Current liabilities
|
|
|
(1,407.3
|
)
|
Long-term debt
|
|
|
(3,615.9
|
)
|
Deferred income taxes
|
|
|
(754.1
|
)
|
Other liabilities
|
|
|
(259.5
|
)
|
Minority interest
|
|
|
(607.7
|
)
|
|
|
|
|
|
Aggregate purchase price
|
|
|
167.9
|
|
Issuance of Liberty Media common
stock
|
|
|
(152.1
|
)
|
|
|
|
|
|
Aggregate cash consideration
(including direct acquisition costs)
|
|
$
|
15.8
|
|
|
|
|
|
|
|
|
|
(1) |
|
The estimated weighted-average amortization period on
January 1, 2004 for the intangible asset associated with
customer relationships was 4.9 years. |
During 2004, we also purchased an additional 20 million
shares of UGC Class A common stock pursuant to certain
pre-emptive rights granted to our company by UGC. The
$152.3 million purchase price for such shares was comprised
of (i) the cancellation of indebtedness due from
subsidiaries of UGC to certain of our subsidiaries in the amount
of $104.5 million (including accrued interest) and
(ii) $47.8 million in cash. As UGC was one of our
consolidated subsidiaries at the time of these purchases, the
effect of these purchases was eliminated in consolidation.
Also, in January 2004, UGC initiated a rights offering pursuant
to which holders of each of UGCs Class A,
Class B and Class C common stock received 0.28
transferable subscription rights to purchase a like class of
common stock for each share of UGC common stock owned by them on
January 21, 2004. The rights offering expired on
February 12, 2004. UGC received cash proceeds of
$1,020 million from the rights offering. As a holder of UGC
Class A, Class B and Class C common stock, we
participated in the rights offering and exercised our rights to
purchase 90.7 million shares for a total cash purchase
price of $544.3 million.
Acquisitions
of Controlling Interest in Noos
On July 1, 2004, UPC Broadband France acquired Noos from
Suez SA (Suez). Noos is a provider of digital and analog cable
television services and high-speed broadband Internet access
services in France. The preliminary purchase price was subject
to a review of certain historical financial information of Noos
and UPC Broadband France. In January 2005, we completed our
purchase price review with Suez, which resulted in the return of
43.7 million ($56.9 million as of
January 19, 2005) to our company from an escrow
account. The final purchase price for Noos was approximately
567.1 million ($690.0 million at the transaction
dates), consisting of 487.1 million
($592.6 million at the transaction date) in cash, a 19.9%
equity interest in UPC Broadband France,
II-84
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
valued at 71.3 million ($86.8 million at the
transaction date) and 8.7 million ($10.6 million
at the transaction date) of direct acquisition costs. We
acquired a controlling interest in Noos in order to achieve
certain financial, operational and strategic benefits through
the integration of Noos with our existing operations in France.
We accounted for this transaction as the acquisition of an 80.1%
interest in Noos and the sale of a 19.9% interest in UPC
Broadband France. Under the purchase method of accounting, the
purchase price was allocated to the acquired identifiable
tangible and intangible assets and liabilities based upon their
respective fair values. UGC recorded a loss of
9.7 million ($12.8 million) associated with the
dilution of its ownership interest in UPC Broadband France as a
result of the Noos transaction. Our $6.1 million share of
this loss is reflected as a reduction of additional paid-in
capital in our consolidated statement of stockholders
equity.
The following table presents the purchase price allocation for
UGCs acquisition of an 80.1% interest in Noos, together
with the effects of the sale of a 19.9% interest in UGCs
historical French operations (amounts in millions):
|
|
|
|
|
Working capital
|
|
$
|
(106.7
|
)
|
Property, plant and equipment
|
|
|
769.9
|
|
Intangible assets(1)
|
|
|
11.8
|
|
Other long-term assets
|
|
|
4.0
|
|
Other long-term liabilities
|
|
|
(7.1
|
)
|
Minority interest(2)
|
|
|
(85.4
|
)
|
Equity in UPC Broadband France
|
|
|
6.1
|
|
|
|
|
|
|
Cash consideration for Noos
|
|
|
592.6
|
|
Less cash acquired
|
|
|
(18.8
|
)
|
|
|
|
|
|
Net cash consideration for Noos
|
|
$
|
573.8
|
|
|
|
|
|
|
|
|
|
(1) |
|
The estimated weighted-average amortization period for the
intangible assets (favorable programming contract and tradename)
at acquisition was 3.8 years. |
|
(2) |
|
Minority interest was computed based on 19.9% of the fair value
of our historical French operations and 19.9% of the historical
carrying amount of Noos. |
As discussed above under Other 2005 Acquisitions, in
April 2005 a subsidiary of UPC Holding exercised its call right
and purchased the remaining 19.9% minority interest in UPC
Broadband France that it did not already own for
90.1 million ($116.0 million at the transaction
date) in cash. No effect has been given to the July 2004
acquisition of Noos and the April 2005 acquisition of the
minority interest in UPC Broadband France in the pro forma
information presented above because, as described in
note 6, UPC Frances operations have been reclassified
to discontinued operations.
Other
2004 Acquisition
PHL On May 20, 2004, we acquired all of
the issued and outstanding ordinary shares of Princes Holdings
Limited (PHL) for 2.4 million, including
0.4 million of acquisition costs ($2.9 million
at the transaction date). PHL, through its subsidiary Chorus
Communications Limited, owns and operates broadband
communications systems in Ireland. In connection with this
acquisition, we loaned an aggregate of 75.0 million
($89.5 million at the transaction date) to PHL. The
proceeds from this loan were used to provide funds to discharge
liabilities pursuant to a debt restructuring plan and to provide
funds for capital expenditures and working capital. We accounted
for this acquisition using the purchase method of accounting.
For financial reporting purposes, the PHL
II-85
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
acquisition is deemed to have occurred on June 1, 2004. Our
results of operations would not have been materially affected if
the PHL acquisition had occurred on January 1, 2004.
(6) Dispositions
Discontinued
Operations
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
the UPC Broadband Holding Bank Facility. See note 11. The
amounts repaid may be reborrowed subject to covenant compliance.
In accordance with SFAS 144, we have presented UPC Norway
as a discontinued operation in our 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 consolidated
statement of operations. Prior to its disposal, we included UPC
Norway in our Other Western Europe reportable segment.
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 SEK 251 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
borrowings 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 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 consolidated statement of operations. Prior to
its disposal, we included UPC Sweden in our Other Western Europe
reportable segment.
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
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 ($138.5 million) of the amounts
held in the UPC Holding restricted account, together with
available cash of 25.0 million ($33 million), to
repay amounts outstanding under the UPC Broadband Holding Bank
Facility. During the fourth quarter of 2006, the UPC Broadband
Bank Facility was amended to eliminate the requirement to use
the remaining 185.0 million ($244.0 million) to
prepay borrowings under the UPC Broadband Holding Bank Facility
provided that such amount was reinvested in the business prior
to a specified date. As a result of this
II-86
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
amendment, the funds were withdrawn from the blocked account in
December 2006 and reinvested in the business. 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 consolidated statements of operations. Prior
to its disposal, we presented UPC France as a separate
reportable segment.
PT Norway On June 9, 2006, our
subsidiary, Priority Telecom BV (Priority Telecom), disposed of
its 100% interest in PT Norway. Effective June 1, 2006, we
began accounting for PT Norway as a discontinued operation in
our consolidated financial statements in accordance with
SFAS 144. In connection with the 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 consolidated statement of operations. Prior to
its disposal, we included PT Norway in our corporate and other
category.
Operating
Results of Discontinued Operations
The operating results that are included in discontinued
operations are presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
|
|
|
2006(1)
|
|
|
2005(2)
|
|
|
2004(2)
|
|
|
|
|
|
|
amounts in millions
|
|
|
|
|
|
Revenue
|
|
$
|
325.4
|
|
|
$
|
767.3
|
|
|
$
|
531.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
25.1
|
|
|
$
|
16.8
|
|
|
$
|
(38.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before income
taxes and minority interests
|
|
$
|
7.0
|
|
|
$
|
(31.2
|
)
|
|
$
|
(66.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) from
discontinued operations
|
|
$
|
6.8
|
|
|
$
|
(20.5
|
)
|
|
$
|
(28.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes UPC Sweden, UPC France and PT Norway. |
|
(2) |
|
Includes UPC Norway, UPC Sweden, UPC France and PT Norway. |
As noted above, we were required to use proceeds from the UPC
Norway, UPC Sweden and UPC France dispositions to repay certain
amounts outstanding under the UPC Broadband Holding Bank
Facility. Interest expense related to such required debt
repayments of $17.9 million, $43.9 million and
$29.5 million for the years ended December 31, 2006,
2005 and 2004, respectively, is included in discontinued
operations in our consolidated statements of operations.
The major assets and liabilities of UPC Norway that are included
in discontinued operations in our consolidated balance sheet as
of 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
|
|
|
|
|
|
|
II-87
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
Other
Dispositions
UPC Belgium NV/SA On December 31, 2006,
we sold UPC Belgium NV/SA (UPC Belgium), a wholly owned
subsidiary of UPC Holding that owns and operates broadband
communications systems in Belgium, to Telenet Group Holding NV,
an equity method affiliate that also owns and operates broadband
communication systems in Belgium. For additional information,
see note 7.
Sky Brasil 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.
Primacom On August 10, 2006, we sold our
equity method investment in PrimaCom AG. We recognized a
$35.8 million pre-tax gain in connection with this
transaction.
Sky Mexico 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.
SBS Investment On November 8, 2005, we
received cash consideration of 276.4 million
($325.6 million at the transaction date) in connection with
the disposition of our 19% ownership interest in SBS
Broadcasting SA (SBS), a European commercial television and
radio broadcasting company. We recorded a pre-tax gain of
$89.1 million in connection with this transaction.
Consistent with our classification of our SBS shares as
available-for-sale
securities, the above-described gain was reflected as a
component of our accumulated other comprehensive earnings (loss)
account prior to its reclassification into our consolidated
statement of operations.
The Wireless Group Investment In June 2005,
we sold our equity method investment in The Wireless Group plc
for cash proceeds of £20.3 million ($37.1 million
at the transaction date). We recorded a pre-tax gain of
$17.3 million in connection with this transaction.
TyC and FPAS Equity Method Investments On
April 29, 2005, we sold our equity method investment in Fox
Pan American Sports, LLC (FPAS), and a $4 million
convertible subordinated note issued by FPAS, to another
unaffiliated member of FPAS for a cash purchase price of
$5 million. In addition, our majority owned subsidiary,
Liberty Programming Argentina, LLC (LPA LLC), sold its equity
method investment in Torneos y Competencias SA (TyC) to an
unrelated entity for total consideration of $20.9 million,
consisting of $13.0 million in cash and a $7.9 million
secured promissory note issued by FPAS and assigned to our
company by the purchaser. The owner of the minority interest in
LPA LLC received $3.6 million of the total consideration
received in connection with the sale of TyC upon the redemption
of such interest. At March 31, 2005, we considered our
investments in TyC and FPAS to be held for sale. As a result, we
included cumulative foreign currency translation losses of
$86.0 million in the carrying value of our investment in
TyC for purposes of our March 31, 2005 impairment
assessment. As a result of this analysis, we recorded a
$25.4 million impairment charge during the three months
ended March 31, 2005 to write-off the full amount of our
investment in the equity of TyC at March 31, 2005. This
impairment charge is included in share of results of affiliates,
net, in our consolidated statement of operations. In the second
quarter of 2005, we recognized an additional pre-tax loss of
$62.7 million in connection with the April 29, 2005
sale of TyC and the related realization of cumulative foreign
currency translation losses. Pursuant to GAAP, the recognition
of cumulative foreign currency translation gains or losses is
permitted only when realized upon sale or upon complete or
substantially complete liquidation of the investment in the
foreign entity.
II-88
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
Cablevisión Subscription Rights In March
2005, we completed the sale of a subscription right with respect
to Cablevisión SA (Cablevisión) to an unaffiliated
third party for aggregate cash consideration of
$40.5 million. For additional information, see note 17.
EWT Holding GmbH Investment In January 2005,
we sold our equity method investment in EWT Holding GmbH (EWT),
which indirectly owned a broadband communications provider in
Germany, for 30.0 million ($39.1 million at the
transaction dates) in cash. We received 27.0 million
($35.4 million at the transaction date) of the sale price
in January 2005, and we received the remainder in June 2005. We
recorded a pre-tax gain of $28.2 million in connection with
this transaction.
Telewest Investment On July 19, 2004,
our investment in Telewest Communications plc Senior Notes and
Senior Discount Notes was converted into 18,417,883 shares
or 7.5% of the then issued and outstanding common stock of
Telewest Global Inc. (Telewest), the successor to Telewest
Communications plc. In connection with this transaction, we
recognized a pre-tax gain of $168.3 million, representing
the excess of the fair value of the Telewest common stock
received over our cost basis in the Senior Notes and Senior
Discount Notes. During the third and fourth quarters of 2004, we
sold all of the acquired Telewest shares for aggregate cash
proceeds of $215.7 million, resulting in a pre-tax loss of
$16.4 million. Based on our third quarter 2004
determination that we would dispose of all remaining Telewest
shares during the fourth quarter of 2004, the $12.4 million
excess of the carrying value over the fair value of the Telewest
shares that we held as of September 30, 2004 was included
in
other-than-temporary
declines in fair values of investments in our consolidated
statement of operations. Consistent with our classification of
the Senior Notes and Senior Discount Notes and the Telewest
common stock as
available-for-sale
securities, the above-described gains and losses were reflected
as components of our accumulated other comprehensive earnings
(loss) account prior to their reclassification into our
consolidated statements of operations.
(7) Investments
in Affiliates Accounted for Using the Equity
Method
Our equity method affiliates generally are engaged in the cable
and/or programming businesses in various foreign countries. The
following table includes our carrying value and percentage
ownership of certain of our investments in affiliates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
December 31, 2006
|
|
|
2005
|
|
|
|
Percentage
|
|
|
Carrying
|
|
|
Carrying
|
|
|
|
ownership
|
|
|
amount
|
|
|
amount
|
|
|
|
amounts in millions
|
|
|
Telenet Group Holding NV (Telenet)
|
|
|
(a
|
)
|
|
$
|
523.3
|
|
|
$
|
293.5
|
|
Jupiter TV Co., Ltd. (Jupiter TV)
|
|
|
50
|
%
|
|
|
293.3
|
|
|
|
266.4
|
|
Mediatti Communications, Inc.
(Mediatti)
|
|
|
(b
|
)
|
|
|
61.3
|
|
|
|
59.1
|
|
Other
|
|
|
Various
|
|
|
|
184.8
|
|
|
|
170.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,062.7
|
|
|
$
|
789.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
For a description of our indirect ownership interest in Telenet,
see the discussion under Telenet below. |
|
(b) |
|
At December 31, 2006, we held our ownership interest in
Mediatti through a 95.2% owned subsidiary, which in turn owned a
45.6% voting interest in Mediatti. |
II-89
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
The following table sets forth our share of earnings (losses) of
affiliates including any losses for
other-than-temporary
declines in fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
amounts in millions
|
|
|
Telenet
|
|
$
|
(24.3
|
)
|
|
$
|
(33.5
|
)
|
|
$
|
|
|
Jupiter TV
|
|
|
34.4
|
|
|
|
27.8
|
|
|
|
14.6
|
|
Mediatti
|
|
|
(5.3
|
)
|
|
|
(6.9
|
)
|
|
|
(2.3
|
)
|
Austar
|
|
|
|
|
|
|
13.1
|
|
|
|
1.0
|
|
Super Media/J:COM
|
|
|
|
|
|
|
|
|
|
|
45.1
|
|
Other
|
|
|
8.2
|
|
|
|
(23.5
|
)
|
|
|
(19.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13.0
|
|
|
$
|
(23.0
|
)
|
|
$
|
38.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our share of results of affiliates includes losses related to
other-than-temporary
declines in the value of our equity method investments of
$0.4 million, $29.2 million and $26.0 million
during 2006, 2005 and 2004, respectively. The 2005 and 2004
other-than-temporary
losses are primarily related to our investments in TyC,
Metrópolis and FPAS, which are included in other in the
above tables. See notes 5 and 6.
At December 31, 2006 and 2005, the aggregate carrying
amount of our investments in affiliates exceeded our
proportionate share of our affiliates net assets by
$690.0 million and $566.8 million, respectively. Any
calculated excess costs on investments are allocated on an
estimated fair value basis to the underlying assets and
liabilities of the investee. Amounts associated with assets
other than goodwill and indefinite lived intangible assets are
amortized over their estimated useful lives. At
December 31, 2006, such estimated useful lives ranged from
5 to 10 years.
Telenet
General Telenet is the largest broadband
communications operator in Belgium in terms of number of
subscribers. At December 31, 2006 and 2005, we indirectly
owned 29,092,474 or 28.8% and 20,611,336 or 20.6%, respectively,
of Telenets then outstanding ordinary shares, including
10,134,118 and 7,722,918 shares, respectively, that were
held by our indirect wholly owned subsidiaries, and 18,958,356
and 12,888,418 shares, respectively, that were held through
Belgian Cable Investors, a Delaware partnership (Belgian Cable
Investors) and a majority owned subsidiary of Chellomedia. The
shares held by Belgian Cable Investors at December 31, 2006
include 6,750,000 shares that are held directly by Belgian
Cable Investors and 12,208,356 shares that are held by
certain entities that are majority owned by Belgian Cable
Investors (the Investcos). The December 31, 2005 share
amounts include 680,062 shares owned by the Investcos that
were attributed to other co-investors in Telenet. At
December 31, 2006 and 2005, our Telenet shares had a market
value of 624.0 million ($823.0 million) and
325.7 million ($385.3 million), respectively.
2006 Transactions Acquisition of
Additional Telenet Interests As discussed in
greater detail below, we acquired 8,481,138 of Telenets
outstanding ordinary shares from third parties during November
and December of 2006.
On November 13, 2006, Belgian Cable Investors, paid cash
consideration of 135.0 million ($172.9 million
at the transaction date) or 20.00 ($25.62 at the
transaction date) per share, before direct acquisition costs, to
exercise certain call options to acquire 6,750,000 ordinary
shares of Telenet from various members of the Mixed
Intercommunales (entities comprised of certain Flanders
municipalities and Electrabel NV). The Mixed Intercommunales and
certain of our subsidiaries are members of a syndicate (the
Telenet Syndicate) that controls
II-90
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
Telenet by virtue of the Telenet Syndicates collective
ownership of a majority of the outstanding Telenet shares. As a
result of this transaction and as further described below, we
obtained sufficient governance rights to allow us to exercise
voting control over Telenet. As we did not obtain regulatory
approval to exercise our voting control over Telenet until
February 26, 2007, we continued to use the equity method to
account for Telenet through December 31, 2006. We will
begin accounting for Telenet as a consolidated subsidiary
effective January 1, 2007.
Under the agreement between the Telenet Syndicate shareholders
(the Syndicate Agreement) we have the right (which we could not
exercise until we obtained competition clearance from the
European Commission on February 26, 2007) to nominate nine
of the 17 members of the Telenet Board and the other Telenet
Syndicate shareholders are obligated to vote for such nominees
at the relevant Telenet shareholders meeting. Under the
Syndicate Agreement and the Telenet Articles of Association,
certain Telenet Board decisions must receive the affirmative
vote of varying majorities of the directors nominated by the
other Telenet Syndicate shareholders in order to be effective.
Based on the shareholdings of the other Telenet Syndicate
shareholders at December 31, 2006, these special voting
requirements currently apply only to certain minority-protective
decisions including affiliate transactions, incurrence of debt
in excess of that required to fund Telenets business plan
and dispositions of assets representing more than 20% of
Telenets fair market value.
Belgian Cable Holdings, a Delaware partnership (Belgian Cable
Holdings) an indirect subsidiary of Chellomedia owns a majority
common equity interest and a 100% preferred interest in Belgian
Cable Investors. Belgian Cable Holdings provided 100% of the
funding for Belgian Cable Investors acquisition of
6,750,000 Telenet shares on November 13, 2006, as described
above. In connection with this funding, the interest in Belgian
Cable Investors of Cable Partners Belgium LLC (Cable Partners
Belgium), an unrelated third party and the minority investor in
Belgian Cable Investors was diluted effective in January 2007
from 21.6% to 10.5%. At December 31, 2006 and 2005, the
accreted value of Belgian Cable Holdings preferred
interest in Belgian Cable Investors was $216.1 million and
$182.6 million, respectively.
In addition, in November 2006, LGI Ventures BV (LGI Ventures),
formerly Chellomedia Investments BV, a wholly owned subsidiary
of Chellomedia, paid cash consideration of
22.2 million ($28.4 million at the transaction
date), before direct acquisition costs, to acquire 931,138
Telenet shares and 136,464 warrants to purchase 409,392 Telenet
shares from certain of our co-investors in Telenet. In December
2006, Liberty Global Europe, the indirect parent of Chellomedia,
paid cash consideration of 17.2 million
($22.5 million at the transaction date), before direct
acquisition costs, to acquire 800,000 Telenet shares through
open market purchases.
Also in November 2006, the Investcos distributed 680,062 Telenet
shares and 1,159 warrants to purchase 3,477 Telenet shares
to certain of our co-investors in Telenet in exchange for the
redemption of 14.0 million ($18.0 million at the
transaction date) of the then redemption value of certain
mandatorily redeemable securities of the Investcos that were
held by these Telenet co-investors. These shares and warrants
were in turn sold by the Telenet co-investors to LGI Ventures
for cash consideration of 14.0 million
($18.0 million at the transaction date), before direct
acquisition costs. With the exception of the redemption of the
Investcos mandatorily redeemable securities (which
securities are further described below), the impact of these
transactions is eliminated in consolidation as each of LGI
Ventures and the Investcos were consolidated subsidiaries of
Chellomedia at the transaction date. Following this redemption,
the estimated redemption value of the remaining outstanding
mandatorily redeemable securities of the Investcos that were
held by third parties was reduced to an insignificant amount.
The Investcos securities mentioned above have been
mandatorily redeemable at the option of the third-party holders
since the October 2005 IPO of Telenet (see below). The estimated
redemption value of the Investcos securities held by third
parties is included in debt in our consolidated balance sheets
and changes in the estimated redemption value of the
Investcos securities held by third parties are included in
interest expense in our consolidated statements of operations.
During 2006 and 2005, we recorded increases to the estimated
redemption
II-91
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
value of these securities aggregating 3.3 million
($4.1 million at the average rate during the period) and
28.3 million ($34.1 million at the average rate
during the period), respectively.
2006 Transactions Sale of UPC Belgium to
Telenet On December 31, 2006, we sold UPC
Belgium to Telenet for cash consideration of
184.5 million ($243.3 million at the transaction
date), after deducting cash received to settle net cash and
working capital adjustments of 20.9 million
($27.6 million at the transaction date). The terms of this
transaction were voted on and approved by Telenets board
of directors, with the Telenet board members affiliated with LGI
abstaining from the vote. In connection with this transaction,
we recognized a pre-tax gain of $104.7 million after
eliminating the percentage of the gain equal to our ownership
interest in Telenet at December 31, 2006. The pre-tax gain
recognized includes realized foreign currency transaction gains
of $7.3 million. Due to our continuing ownership interest
in Telenet, we have not accounted for UPC Belgium as a
discontinued operation.
2005 Transactions On October 14, 2005,
Telenet completed an IPO at a price of 21 ($25.26 at the
transaction date) per share of 30,553,293 ordinary shares held
by existing shareholders, and 13,333,333 newly issued Telenet
ordinary shares. In connection with the dilution of the
Investcos ownership interest in Telenet from 18.9% to
16.4% as a result of the Telenet IPO, we recorded a gain of
31.5 million ($38.4 million at the transaction
date), which is reflected as an increase to additional paid-in
capital in our consolidated statement of stockholders
equity. No deferred income taxes were required to be provided on
this gain.
In connection with the Telenet IPO, LGI Ventures purchased
7,722,918 of Telenets ordinary shares on October 14,
2005 for an aggregate cash purchase price of
160.2 million ($193.7 million at the transaction
date). As a result of the purchases, LGI Ventures and Belgian
Cable Investors increased their combined economic ownership in
the outstanding ordinary shares of Telenet from 14.1% to 19.9%,
representing the 7,722,918 shares purchased by LGI Ventures
and Belgian Cable Investors attributed ownership of
12,208,356 or 94.7% of the 12,888,418 shares then held
directly by the Investcos. Following the completion of the
Telenet IPO and related transactions (including the LGI Ventures
purchases), LGI Ventures and Belgian Cable Investors together
exercised voting control over a total of 21.5% of the Telenet
shares outstanding following the Telenet IPO.
In connection with the consummation of the Telenet IPO on
October 14, 2005, the Investcos securities held by
third parties became immediately redeemable at the option of the
holder, and the Investcos redeemed 73.0 million
($88.2 million at the transaction date) of the then
estimated redemption value of these securities subsequent to the
Telenet IPO in October 2005. In connection with Telenets
October 2005 IPO, we recorded a 33.3 million
($41.6 million at the average rate for the period) increase
in the estimated redemption value of the Investcos
securities.
2004 Transactions On December 16, 2004,
certain indirect wholly owned subsidiaries of Chellomedia,
acquired LMIs wholly owned subsidiary Belgian Cable
Holdings for $121.1 million in cash. Belgian Cable
Holdings only assets were debt securities of Cable
Partners Belgium, its parent, Cable Partners Europe and one of
the Investcos and related contract rights. The purchase price
was equal to LMIs carrying value for the debt securities,
which included an unrealized gain of $10.5 million. On
December 17, 2004, UGC entered into a restructuring
transaction with Cable Partners Belgium and certain other
parties. In this restructuring, Belgian Cable Holdings purchased
equity of Belgian Cable Investors, consisting of a majority
common equity interest and a 100% preferred equity interest for
cash proceeds of $138.0 million and the Investco debt
security. Belgian Cable Investors then distributed
$115.6 million of these proceeds to Cable Partners Belgium,
which used the proceeds to repurchase the Cable Partners Belgium
debt securities held by Belgian Cable Investors. As previously
described in this note, Cable Partners Belgiums common
equity interest in Belgian Cable Investors was diluted from
21.6% to 10.5% in connection with Belgian Cable Investors
November 13, 2006 acquisition of an additional interest in
Telenet.
II-92
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
Other We hold certain call options and
warrants with respect to Telenet ordinary shares. For additional
information, see note 9.
As further described in note 21, Cable Partners Belgium has
the right to require Belgian Cable Holdings to purchase all of
Cable Partners Belgiums 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.
Summarized financial information of Telenet for the periods in
which we used the equity method to account for Telenet is as
follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
amounts in millions
|
|
|
Financial
Position
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
221.9
|
|
|
$
|
399.9
|
|
Property and equipment, net
|
|
|
1,291.4
|
|
|
|
1,116.9
|
|
Goodwill
|
|
|
1,295.8
|
|
|
|
1,201.7
|
|
Other assets, net
|
|
|
606.5
|
|
|
|
374.5
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,415.6
|
|
|
$
|
3,093.0
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
551.2
|
|
|
$
|
616.6
|
|
Debt
|
|
|
1,786.1
|
|
|
|
1,577.8
|
|
Other liabilities
|
|
|
121.4
|
|
|
|
57.5
|
|
Shareholders equity
|
|
|
956.9
|
|
|
|
841.1
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
shareholders equity
|
|
$
|
3,415.6
|
|
|
$
|
3,093.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
amounts in millions
|
|
|
Results of
Operations
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
1,020.8
|
|
|
$
|
916.2
|
|
Operating, selling, general and
administrative expenses
|
|
|
(568.4
|
)
|
|
|
(505.2
|
)
|
Depreciation and amortization
|
|
|
(272.8
|
)
|
|
|
(246.2
|
)
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
179.6
|
|
|
|
164.8
|
|
Interest expense, net
|
|
|
(111.7
|
)
|
|
|
(239.4
|
)
|
Other, net
|
|
|
(53.9
|
)
|
|
|
(15.9
|
)
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
14.0
|
|
|
$
|
(90.5
|
)
|
|
|
|
|
|
|
|
|
|
Jupiter
TV
Jupiter TV, formerly Jupiter Programming Co., Ltd., a 50% joint
venture formed in 1996 by our company and Sumitomo, is a
programming company in Japan, which owns and invests in a
variety of channels including Jupiter Shop Channel.
On April 22, 2004, Jupiter TV issued 24,000 shares of
Jupiter TV ordinary shares to Sumitomo for
¥6,000 million ($54.3 million at the transaction
date). On April 26, 2004, Jupiter TV paid
¥3,000 million ($27.7 million at the transaction
date) to each of our company and Sumitomo to redeem
12,000 shares of Jupiter TV
II-93
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
ordinary shares from each shareholder. On April 27, 2004,
we transferred our 100% indirect ownership interest in Liberty
J-Sports, Inc. (Liberty J-Sports), the owner of an indirect
minority interest in J-SPORTS Broadcasting Corporation, to
Jupiter TV in exchange for 24,000 ordinary shares of Jupiter TV
valued at ¥6,000 million ($54.8 million at the
transaction date). We recognized a $25.3 million gain on
this transaction, representing the excess of the cash received
from the earlier share redemption over 50% of our historical
cost basis in Liberty J-Sports.
Summarized financial information of Jupiter TV is as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
amounts in millions
|
|
|
Financial
Position
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
320.8
|
|
|
$
|
237.4
|
|
Investments
|
|
|
70.5
|
|
|
|
70.6
|
|
Property and equipment, net
|
|
|
63.6
|
|
|
|
47.1
|
|
Intangible and other assets, net
|
|
|
58.8
|
|
|
|
59.2
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
513.7
|
|
|
$
|
414.3
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
193.7
|
|
|
$
|
179.1
|
|
Long-term debt and capital leases
|
|
|
17.3
|
|
|
|
31.1
|
|
Other liabilities
|
|
|
10.3
|
|
|
|
6.3
|
|
Minority interest
|
|
|
77.8
|
|
|
|
48.7
|
|
Owners equity
|
|
|
214.6
|
|
|
|
149.1
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and owners
equity
|
|
$
|
513.7
|
|
|
$
|
414.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
amounts in millions
|
|
|
Results of
Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
961.2
|
|
|
$
|
798.1
|
|
|
$
|
562.9
|
|
Operating, selling, general and
administrative expenses
|
|
|
(752.3
|
)
|
|
|
(636.5
|
)
|
|
|
(478.9
|
)
|
Depreciation and amortization
|
|
|
(21.2
|
)
|
|
|
(16.2
|
)
|
|
|
(12.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
187.7
|
|
|
|
145.4
|
|
|
|
71.2
|
|
Other, net
|
|
|
(108.1
|
)
|
|
|
(77.1
|
)
|
|
|
(38.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations
|
|
$
|
79.6
|
|
|
$
|
68.3
|
|
|
$
|
32.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
68.8
|
|
|
$
|
55.1
|
|
|
$
|
29.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mediatti
Mediatti is a provider of cable television and broadband
Internet access services in Japan. During 2004, we completed
three transactions that resulted in our acquisition of 21,572
Mediatti shares for an aggregate cash purchase price of
¥6,257 million ($52.5 million). In 2005 we
acquired an additional 5,863 Mediatti shares for an aggregate
cash purchase price of ¥1,701 million
($14.3 million). Our interest in Mediatti is held through
Liberty Japan MC LLC, (Liberty Japan MC), a company of which we
own 95.2% and Sumitomo owns 4.8%.
II-94
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
In February 2006, Liberty Japan MC acquired an additional 3.1%
voting interest in Mediatti for cash consideration of
¥1,044 million ($8.8 million at the transaction
date). At December 31, 2006, Liberty Japan MC owned a 45.6%
voting interest in Mediatti.
Summarized financial information of Mediatti is as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
amounts in millions
|
|
|
Financial
Position
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
48.7
|
|
|
$
|
36.9
|
|
Investments
|
|
|
6.7
|
|
|
|
6.4
|
|
Property and equipment, net
|
|
|
197.2
|
|
|
|
130.2
|
|
Intangibles and other assets, net
|
|
|
71.2
|
|
|
|
45.3
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
323.8
|
|
|
$
|
218.8
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
39.2
|
|
|
$
|
32.2
|
|
Debt
|
|
|
143.6
|
|
|
|
70.2
|
|
Other liabilities
|
|
|
52.5
|
|
|
|
28.1
|
|
Minority interests
|
|
|
3.5
|
|
|
|
1.6
|
|
Shareholders equity
|
|
|
85.0
|
|
|
|
86.7
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
shareholders equity
|
|
$
|
323.8
|
|
|
$
|
218.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
amounts in millions
|
|
|
Results of
Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
87.5
|
|
|
$
|
78.4
|
|
|
$
|
51.7
|
|
Operating, selling, general and
administrative expenses
|
|
|
(67.0
|
)
|
|
|
(56.9
|
)
|
|
|
(38.9
|
)
|
Depreciation and amortization
|
|
|
(27.9
|
)
|
|
|
(32.0
|
)
|
|
|
(20.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(7.4
|
)
|
|
|
(10.5
|
)
|
|
|
(7.2
|
)
|
Other, net
|
|
|
(4.5
|
)
|
|
|
(7.1
|
)
|
|
|
(2.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(11.9
|
)
|
|
$
|
(17.6
|
)
|
|
$
|
(9.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Super
Media/J:COM
As further described in note 5, we accounted for our
ownership interests in Super Media/J:COM using the equity method
of accounting through December 31, 2004. As a result of a
February 2005 change in the governance of Super Media, we began
accounting for Super Media and J:COM as consolidated
subsidiaries effective January 1, 2005.
On August 6, 2004, J:COM used cash proceeds received
pursuant to capital contributions from our company, Sumitomo and
Microsoft to repay shareholder loans with an aggregate principal
amount of ¥30 billion ($275.7 million at the
transaction date). Such amount includes
¥14.065 billion ($129.2 million at the
transaction date) of shareholder loans held by us that were
effectively converted to equity in these transactions. Such
transactions did not materially impact the J:COM ownership
interests of our company, Sumitomo or Microsoft.
II-95
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
On December 21, 2004, we received cash proceeds of
¥42.755 billion ($410.1 million at the
transaction date) in repayment of all principal and interest due
to our company from J:COM pursuant to then outstanding
shareholder loans. In connection with this transaction, we
recognized a pre-tax gain of $55.4 million in our statement
of operations related to foreign currency translation gains that
previously had been reflected in accumulated other comprehensive
earnings (loss).
Summarized results of operations information of J:COM for 2004,
the period in which we used the equity method to account for
J:COM is as follows (amounts in millions):
|
|
|
|
|
Results of
Operations
|
|
|
|
|
Revenue
|
|
$
|
1,504.7
|
|
Operating, selling, general and
administrative expenses
|
|
|
(915.9
|
)
|
Depreciation and amortization
|
|
|
(378.9
|
)
|
|
|
|
|
|
Operating income
|
|
|
209.9
|
|
Interest expense, net
|
|
|
(94.9
|
)
|
Other, net
|
|
|
(15.5
|
)
|
|
|
|
|
|
Net earnings
|
|
$
|
99.5
|
|
|
|
|
|
|
Austar
As described in note 5, we completed a transaction on
December 14, 2005 that increased our indirect ownership of
Austar, a DTH company in Australia, from an indirect 36.7%
non-controlling ownership interest to a 55.2% controlling
interest. As a result of this transaction, we began using the
consolidation method to account for our investment in Austar.
Prior to obtaining a controlling interest in Austar, we used the
equity method to account for our indirect investment in Austar.
Summarized results of operations of Austar for the periods in
which we used the equity method to account for Austar are
presented below:
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
|
amounts in millions
|
|
|
Results of
Operations
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
345.7
|
|
|
$
|
284.2
|
|
Operating, selling, general and
administrative expenses
|
|
|
(245.7
|
)
|
|
|
(218.1
|
)
|
Depreciation and amortization
|
|
|
(49.4
|
)
|
|
|
(43.8
|
)
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
50.6
|
|
|
|
22.3
|
|
Interest expense, net
|
|
|
(23.4
|
)
|
|
|
(23.0
|
)
|
Other, net
|
|
|
17.8
|
|
|
|
3.9
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
45.0
|
|
|
$
|
3.2
|
|
|
|
|
|
|
|
|
|
|
Other
We have various other current and former equity affiliates,
including (i) an indirect 50% ownership interest in Melita
Cable Plc (Melita), a broadband operator in Malta,
(ii) certain businesses that own thematic channels in Spain
and Portugal (IPS), which became consolidated subsidiaries of
LGI in November 2005 and (iii) PrimaCom AG (PrimaCom), a
broadband communications provider in Germany, which we sold in
August 2006. Summarized
II-96
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
financial information of these equity method affiliates for the
periods in which we used the equity method to account for these
entities are presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Melita
|
|
|
PrimaCom
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2005
|
|
|
|
amounts in millions
|
|
|
Financial
Position
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
13.7
|
|
|
$
|
7.5
|
|
|
$
|
25.2
|
|
Property and equipment, net
|
|
|
69.6
|
|
|
|
57.7
|
|
|
|
280.6
|
|
Intangible and other assets, net
|
|
|
|
|
|
|
|
|
|
|
268.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
83.3
|
|
|
$
|
65.2
|
|
|
$
|
574.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
53.9
|
|
|
$
|
33.3
|
|
|
$
|
113.6
|
|
Debt and capital leases
|
|
|
6.2
|
|
|
|
12.9
|
|
|
|
373.2
|
|
Other liabilities
|
|
|
|
|
|
|
|
|
|
|
31.6
|
|
Minority interest
|
|
|
|
|
|
|
|
|
|
|
0.5
|
|
Owners equity
|
|
|
23.2
|
|
|
|
19.0
|
|
|
|
55.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and owners
equity
|
|
$
|
83.3
|
|
|
$
|
65.2
|
|
|
$
|
574.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Melita
|
|
|
IPS
|
|
|
PrimaCom(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
Ten months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ended
|
|
|
Year ended
|
|
|
Year ended
|
|
|
|
Year ended December 31,
|
|
|
October 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2005
|
|
|
2004
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
amounts in millions
|
|
|
|
|
|
|
|
|
Results of
Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
39.8
|
|
|
$
|
34.2
|
|
|
$
|
29.7
|
|
|
$
|
43.6
|
|
|
$
|
51.8
|
|
|
$
|
147.1
|
|
|
$
|
151.4
|
|
Operating, selling, general and
administrative expenses
|
|
|
(20.2
|
)
|
|
|
(15.3
|
)
|
|
|
(14.7
|
)
|
|
|
(23.9
|
)
|
|
|
(25.4
|
)
|
|
|
(88.5
|
)
|
|
|
(89.6
|
)
|
Depreciation and amortization
|
|
|
(5.6
|
)
|
|
|
(4.8
|
)
|
|
|
(4.7
|
)
|
|
|
(1.0
|
)
|
|
|
(0.9
|
)
|
|
|
(53.2
|
)
|
|
|
(56.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
14.0
|
|
|
|
14.1
|
|
|
|
10.3
|
|
|
|
18.7
|
|
|
|
25.5
|
|
|
|
5.4
|
|
|
|
5.2
|
|
Other, net
|
|
|
(6.2
|
)
|
|
|
(6.6
|
)
|
|
|
(4.8
|
)
|
|
|
(9.7
|
)
|
|
|
(9.7
|
)
|
|
|
130.6
|
|
|
|
(89.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing
operations
|
|
$
|
7.8
|
|
|
$
|
7.5
|
|
|
$
|
5.5
|
|
|
$
|
9.0
|
|
|
$
|
15.8
|
|
|
$
|
136.0
|
|
|
$
|
(84.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
7.8
|
|
|
$
|
7.5
|
|
|
$
|
5.5
|
|
|
$
|
9.0
|
|
|
$
|
15.8
|
|
|
$
|
300.3
|
|
|
$
|
(136.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
As discussed in note 6, we disposed of our investment in
PrimaCom on August 10, 2006. Although we used the equity
method to account for PrimaCom through August 10, 2006,
this presentation does not include PrimaComs summarized
results of operations data for the 2006 period ended on
August 10, 2006. This data has been omitted because
(i) such information is not readily available and
(ii) PrimaComs results of operations during the 2006
period had no significant impact on our operating results due to
the fact that our share of PrimaComs losses during the
period ended August 10, 2006 was limited to the
$4.9 million carrying value of our investment in PrimaCom
at December 31, 2005. |
II-97
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
Dispositions
During 2006 and 2005, we sold a number of our equity method
investments. For additional information, see note 6.
(8) Other
Investments
The following table sets forth the carrying amount of our other
investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
amounts in millions
|
|
|
|
|
|
ABC Family
|
|
$
|
351.0
|
|
|
$
|
365.1
|
|
|
|
|
|
News Corp.
|
|
|
118.1
|
|
|
|
85.5
|
|
|
|
|
|
Other
|
|
|
8.5
|
|
|
|
118.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other investments
|
|
$
|
477.6
|
|
|
$
|
569.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our investments in ABC Family and News Corp. are accounted for
as
available-for-sale
securities.
ABC
Family
At December 31, 2006, we owned a 99.9% beneficial interest
in 345,000 shares of the 9% Series A preferred stock
of ABC Family with an aggregate liquidation value of
$345 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. Liberty Media contributed this interest to
our company in connection with the spin off. We recognized
dividend income on our investment in shares of ABC Family
preferred stock of $31.1 million during each of 2006 and
2005 and $18.2 million during the period from the Spin Off
Date through December 31, 2004. During 2006 and 2005, we
recognized losses of $13.8 million and $3.4 million,
respectively, to reflect
other-than-temporary
declines in the fair value of our investment in ABC Family
preferred stock. As further described in note 11, our
interest in ABC Family preferred stock is pledged as security
for certain indebtedness.
News
Corp.
Liberty Media contributed 10,000,000 shares of News Corp.
Class A common stock to our company in connection with the
spin off. During the fourth quarter of 2004, we sold
4,500,000 shares of News Corp. Class A common stock
for aggregate cash proceeds of $83.7 million
($29.8 million of which was received in 2005), resulting in
a pre-tax gain of $37.2 million. Accordingly, we owned
5,500,000 shares of News Corp. Class A common stock at
December 31, 2006 and 2005. In August 2005, we entered into
a prepaid forward sale transaction with respect to our
investment in News Corp. Class A common stock. See
note 9.
II-98
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
Unrealized
holding gains and losses
Unrealized holding gains related to investments in
available-for-sale
securities that are included in accumulated other comprehensive
earnings (loss), net of tax, are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
Equity
|
|
|
Debt
|
|
|
Equity
|
|
|
Debt
|
|
|
|
securities
|
|
|
Securities
|
|
|
securities
|
|
|
securities
|
|
|
|
amounts in millions
|
|
|
Gross unrealized holding gains
|
|
$
|
61.3
|
|
|
$
|
|
|
|
$
|
28.7
|
|
|
$
|
|
|
Dispositions
During 2006, 2005 and 2004, we sold a number of our cost and
available-for-sale
investments. For additional information, see note 6.
|
|
(9)
|
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
consolidated statements of operations. The following table
provides details of the fair value of our financial and
derivative instrument assets (liabilities), net:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
amounts in millions
|
|
|
Cross-currency and interest rate
exchange contracts
|
|
$
|
(174.6
|
)
|
|
$
|
174.6
|
|
Embedded derivatives(1)
|
|
|
3.1
|
|
|
|
1.0
|
|
Foreign exchange contracts
|
|
|
28.0
|
|
|
|
6.3
|
|
Call and put contracts
|
|
|
37.4
|
|
|
|
12.9
|
|
Other
|
|
|
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
Total(1)
|
|
$
|
(106.1
|
)
|
|
$
|
195.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current asset
|
|
$
|
51.0
|
|
|
$
|
7.3
|
|
Long-term asset
|
|
|
166.5
|
|
|
|
227.9
|
|
Current liability
|
|
|
(40.3
|
)
|
|
|
(22.4
|
)
|
Long-term liability
|
|
|
(283.3
|
)
|
|
|
(17.2
|
)
|
|
|
|
|
|
|
|
|
|
Total(1)
|
|
$
|
(106.1
|
)
|
|
$
|
195.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Excludes embedded derivative components of the UGC Convertible
Notes (see note 11) at December 31, 2005 and the
prepaid forward sale of News Corp. Class A common stock at
December 31, 2006 and 2005, as all amounts related to these
items are included in long-term debt and capital lease
obligations in our consolidated balance sheets. As discussed in
note 23, we changed our method of accounting for the UGC
Convertible Notes effective January 1, 2006. |
II-99
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
Realized and unrealized gains (losses) on financial and
derivative instruments are comprised of the following amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
amounts in millions
|
|
|
Cross-currency and interest rate
exchange contracts
|
|
$
|
(312.0
|
)
|
|
$
|
216.0
|
|
|
$
|
(64.1
|
)
|
Embedded derivatives(1)
|
|
|
(22.8
|
)
|
|
|
70.0
|
|
|
|
23.0
|
|
UGC Convertible Notes(2)
|
|
|
(82.8
|
)
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
|
21.3
|
|
|
|
11.7
|
|
|
|
0.2
|
|
Call and put contracts
|
|
|
44.5
|
|
|
|
8.8
|
|
|
|
1.7
|
|
Other
|
|
|
4.2
|
|
|
|
3.5
|
|
|
|
3.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(347.6
|
)
|
|
$
|
310.0
|
|
|
$
|
(35.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes gains and losses associated with the embedded
derivative component of the UGC Convertible Notes during 2005
and 2004 and the forward sale of the News Corp. Class A
common stock during 2006 and 2005. As discussed in note 23,
we changed our method of accounting for the UGC Convertible
Notes effective January 1, 2006. |
|
(2) |
|
Represents the change in the fair value of the UGC Convertible
Notes during 2006 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. |
II-100
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
Cross-currency
and Interest Rate Exchange Contracts
The terms of significant outstanding contracts at
December 31, 2006, were as follows:
Cross-currency
Interest Rate Swaps:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate (on
|
|
|
|
|
|
|
Notional amount
|
|
|
|
|
|
notional amount)
|
|
|
Interest rate (on
|
|
|
|
due from
|
|
|
Notional amount due
|
|
|
due from
|
|
|
notional amount)
|
|
Maturity date
|
|
counterparty
|
|
|
to counterparty
|
|
|
counterparty
|
|
|
due to counterparty
|
|
|
|
amounts in millions
|
|
|
|
|
|
|
|
|
UPC Broadband Holding BV (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
|
%
|
|
|
6.58
|
%
|
September 2012(d)
|
|
|
50.0
|
|
|
|
1,900.0
|
|
|
|
5.46
|
%
|
|
|
6.04
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75.0
|
|
|
|
SKK 2,851.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 2009(e)
|
|
|
410.0
|
|
|
|
HUF 118,937.5
|
|
|
|
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
|
%
|
January 2010(g)
|
|
|
60.0
|
|
|
|
213.1
|
|
|
|
5.50
|
%
|
|
|
9.65
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
260.0
|
|
|
|
RON 922.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chellomedia Programming Financing
Holdco BV (Chellomedia PFH), an indirect subsidiary of
Chellomedia:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 2013(h)
|
|
|
32.5
|
|
|
|
HUF 8,632.0
|
|
|
|
5.50
|
%
|
|
|
9.55
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cablecom Luxembourg S.C.A.
(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
|
%
|
|
|
11.34
|
%
|
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 for the
indicated period. |
|
(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 for the indicated period. |
II-101
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
|
|
|
(c) |
|
Swap contract effectively converts the indicated notional amount
from a euro-denominated fixed rate instrument to a Czech koruna
(CZK)-denominated fixed rate instrument for the indicated period. |
|
(d) |
|
Swap contract effectively converts the indicated notional amount
from a euro-denominated fixed rate instrument to a Slovakian
koruna (SKK)-denominated fixed rate instrument for the indicated
period. |
|
(e) |
|
Swap contract effectively converts the indicated notional amount
from a euro-denominated fixed rate instrument to a Hungarian
forint (HUF)-denominated fixed rate instrument for the indicated
period. |
|
(f) |
|
Swap contract effectively converts the indicated notional amount
from a euro-denominated fixed rate instrument to a Polish zloty
(PLN)-denominated fixed rate instrument for the indicated period. |
|
(g) |
|
Swap contract effectively converts the indicated notional amount
from a euro-denominated fixed rate instrument to a Romanian new
lei (RON)-denominated fixed rate instrument for the indicated
period. |
|
(h) |
|
Swap contract effectively converts the indicated notional amount
from a euro-denominated fixed rate instrument to a
HUF-denominated fixed-rate instrument for the indicated period. |
|
(i) |
|
Swap contract effectively converts the underlying principal
amount of Cablecom Luxembourg 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 underlying principal
amount of VTRs U.S. dollar-denominated LIBOR-indexed
floating rate debt to CLP-denominated fixed rate debt. |
Interest
Rate Swaps:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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%
|
|
|
|
|
|
|
|
|
6 month
|
July 2008
|
|
|
393.5
|
|
|
3 month EURIBOR
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chellomedia PFH:
|
|
|
|
|
|
|
|
|
December 2013(b)
|
|
$
|
90.0
|
|
|
LIBOR
|
|
4.98%
|
|
|
|
|
|
|
|
|
|
December 2013(c)
|
|
|
105.0
|
|
|
EURIBOR
|
|
3.95%
|
|
|
|
|
|
|
|
|
|
LG Switzerland:
|
|
|
|
|
|
|
|
|
April 2007(d)
|
|
|
588.1
|
|
|
EURIBOR
|
|
2.82%
|
|
|
|
|
|
|
|
|
|
Cablecom Luxembourg(e):
|
|
|
|
|
|
|
|
|
December 2010
|
|
CHF
|
618.5
|
|
|
CHF LIBOR
|
|
2.19%
|
September 2012
|
|
|
711.5
|
|
|
CHF LIBOR
|
|
2.33%
|
|
|
|
|
|
|
|
|
|
|
|
CHF
|
1,330.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Austar(f):
|
|
|
|
|
|
|
|
|
August 2011
|
|
AUD
|
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
|
505.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
II-102
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate
|
|
Interest rate
|
|
|
|
|
|
due from
|
|
due to
|
Maturity date
|
|
Notional amount
|
|
|
counterparty
|
|
counterparty
|
|
|
amounts in millions
|
|
|
|
|
|
|
Liberty Cablevision of Puerto Rico
Ltd. (Liberty Puerto Rico):
|
|
|
|
|
|
|
|
|
June 2013(g)
|
|
$
|
150.0
|
|
|
LIBOR
|
|
5.06%
|
|
|
|
|
|
|
|
|
|
VTR(h):
|
|
|
|
|
|
|
|
|
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(i):
|
|
|
|
|
|
|
|
|
June 2009
|
|
¥
|
29,394.7
|
|
|
TIBOR
|
|
0.52%
|
December 2009
|
|
|
5,500.0
|
|
|
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%
|
October 2011
|
|
|
5,000.0
|
|
|
¥ LIBOR
|
|
1.33%
|
October 2011
|
|
|
5,000.0
|
|
|
¥ LIBOR
|
|
1.38%
|
April 2013
|
|
|
10,000.0
|
|
|
¥ LIBOR
|
|
1.75%
|
April 2013
|
|
|
5,000.0
|
|
|
¥ LIBOR
|
|
1.71%
|
April 2013
|
|
|
5,000.0
|
|
|
¥ LIBOR
|
|
1.81%
|
October 2013
|
|
|
5,000.0
|
|
|
¥ LIBOR
|
|
1.59%
|
October 2013
|
|
|
5,000.0
|
|
|
¥ LIBOR
|
|
1.67%
|
October 2013
|
|
|
5,000.0
|
|
|
¥ LIBOR
|
|
1.69%
|
October 2013
|
|
|
4,500.0
|
|
|
¥ LIBOR
|
|
1.58%
|
|
|
|
|
|
|
|
|
|
|
|
¥
|
93,894.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Each contract effectively fixes the EURIBOR on the underlying
principal amount of UPC Broadband Holdings
euro-denominated debt, as indicated in the table. |
|
(b) |
|
This contract effectively fixes the LIBOR on the underlying
principal amount of Chellomedia PFHs
U.S. dollar-denominated debt. |
|
(c) |
|
This contract effectively fixes the EURIBOR on the underlying
principal amount of Chellomedia PFHs euro-denominated debt. |
|
(d) |
|
At December 31, 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 597.9 million ($788.6 million)
and remains at that level through the maturity date of the
contract. |
|
(e) |
|
Each contract effectively fixes the CHF LIBOR on the underlying
principal amount of Cablecom Luxembourgs CHF-denominated
debt. |
|
(f) |
|
Each contract effectively fixes the AUD BBSY (Australian Bank
Bill Swap Rate) on the underlying principal amount of
Austars AUD-denominated debt. |
|
(g) |
|
This contract effectively fixes the LIBOR on the underlying
principal amount of the U.S. dollar-denominated debt of our
Puerto Rico subsidiary. |
|
(h) |
|
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. |
|
(i) |
|
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
on other J:COM debt. See note 11. J:COM accounts for these
derivative instruments as cash flow hedging instruments.
Accordingly, |
II-103
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
|
|
|
|
|
the effective component of the change in the fair value of these
instruments is reflected in other comprehensive earnings (loss),
net. |
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
|
%
|
|
|
|
News
Corp. prepaid forward sale
|
On August 2, 2005, we entered into a prepaid forward sale
transaction with respect to 5,500,000 shares of News Corp.
Class A common stock, which we account for as an
available-for-sale
investment. In consideration for entering into the forward
contract, we received cash consideration of $75.0 million.
The forward contract includes a debt host instrument and an
embedded derivative. The embedded derivative has the combined
economics of a put exercisable by LGI and a call exercisable by
the counterparty. As the net fair value of the embedded
derivative at the inception date was zero, the full
$75.0 million received at the inception date is associated
with the debt host contract and such amount represents the
present value of the amount to be paid upon the maturity of the
forward contract. The forward contract is scheduled to mature on
July 7, 2009, at which time we are required to deliver a
variable number of shares of News Corp. Class A common
stock to the counterparty not to exceed 5,500,000 shares
(or the cash value thereof). If the per share price of News
Corp. Class A common stock at the maturity of the forward
contract is less than or equal to $16.24, then we are required
to deliver 5,500,000 shares to the counterparty or the cash
value thereof. If the per share price at the maturity is greater
than $16.24, we are required to deliver less than
5,500,000 shares to the counterparty or the cash value of
such lesser amount, with the number of such shares to be
delivered or cash to be paid in this case depending on the
extent that the share price exceeds $16.24 on the maturity date.
The delivery mechanics of the forward contract effectively
permit us to participate in the price appreciation of the
underlying shares up to an agreed upon price. We have pledged
5,500,000 shares of News Corp. Class A common stock to
secure our obligations under the forward contract. We account
for the embedded derivative separately at fair value with
changes in fair value reported in our consolidated statements of
operations. The fair value of the embedded derivative and the
accreted value of the debt host instrument are presented
together in the caption long-term debt and capital lease
obligations in our consolidated balance sheets, as set forth
below:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
amounts in millions
|
|
|
Debt host contract
|
|
$
|
79.9
|
|
|
$
|
76.4
|
|
Embedded equity derivative
|
|
|
21.0
|
|
|
|
(3.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
100.9
|
|
|
$
|
72.9
|
|
|
|
|
|
|
|
|
|
|
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
II-104
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
consolidated statements of operations. The following table
summarizes our outstanding foreign currency forward contracts at
December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency
|
|
|
Currency
|
|
|
|
|
|
purchased
|
|
|
sold
|
|
|
|
LGI subsidiary
|
|
forward
|
|
|
forward
|
|
|
Maturity dates
|
|
|
amounts in millions
|
|
|
|
|
UPC Broadband Holding
|
|
|
166.0
|
|
|
CZK
|
4,700.0
|
|
|
January 2007 March
2007
|
J:COM
|
|
$
|
12.1
|
|
|
¥
|
1,399.2
|
|
|
January 2007 January
2008
|
VTR
|
|
$
|
32.1
|
|
|
CLP
|
17,082.9
|
|
|
January 2007 November
2007
|
LG Switzerland
|
|
|
606.4
|
|
|
CHF
|
925.1
|
|
|
April 2007
|
Austar
|
|
$
|
35.9
|
|
|
AUD
|
48.4
|
|
|
January 2007 December
2008
|
Liberty Global Europe Financing BV
|
|
$
|
36.4
|
|
|
CLP
|
19,360.0
|
|
|
March 2007
|
Liberty Global Europe Financing BV
|
|
$
|
175.0
|
|
|
|
131.1
|
|
|
January 2007
|
Cristalerías
Put Right
In connection with VTRs April 2005 acquisition of
Metrópolis, UGC granted a put right to Cristalerías
with respect to the 20% interest in VTR owned by
Cristalerías. We account for the Cristalerías put
right at fair value, with changes in fair value reported in
realized and unrealized gains (losses) on financial and
derivative instruments, net. For additional information, see
note 5.
Telenet
Call Options and Warrants
At December 31, 2006, Belgian Cable Investors held call
options to acquire an additional 18,668,826 shares in
Telenet, or 18.5% of the total shares outstanding at that date.
The call options are priced at 25.00 ($32.97) per share
and include 10,093,041 options that expire in August 2007 and
8,575,785 options that expire in August 2009, or earlier under
certain circumstances. In addition, at December 31, 2006,
the Investcos and LGI Ventures held certain warrants that are
convertible at a price of 13.33 ($17.58) per share into
116,523 and 412,869 Telenet ordinary shares, respectively. The
warrants held by the Investcos at December 31, 2006 include
warrants exercisable for 37,272 shares that are
attributable to our co-investors in Telenet. These warrants
expire on August 9, 2009. In November 2006, we exercised
certain other Telenet call options. For additional information
see note 7.
Since the consummation of Telenets IPO in October 2005
(see note 7), we have accounted for our Telenet call
options and warrants as derivative instruments that are carried
at fair value, with changes in fair value included in realized
and unrealized gains (losses) on financial and derivative
instruments in our consolidated statements of operations. Prior
to the consummation of the Telenet IPO, these instruments were
included with our equity method investment in Telenet and
carried at cost, subject to
other-than-temporary
impairment, due to the fact that the instruments did not then
meet the definition of a derivative instrument.
II-105
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
(10) Long-lived
Assets
Property
and Equipment
The details of property and equipment and the related
accumulated depreciation are set forth below:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
amounts in millions
|
|
|
Cable distribution systems
|
|
$
|
9,835.5
|
|
|
$
|
8,559.8
|
|
Support equipment, buildings and
land
|
|
|
1,224.5
|
|
|
|
1,161.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,060.0
|
|
|
|
9,721.5
|
|
Accumulated depreciation
|
|
|
(2,923.1
|
)
|
|
|
(1,730.2
|
)
|
|
|
|
|
|
|
|
|
|
Net property and equipment
|
|
$
|
8,136.9
|
|
|
$
|
7,991.3
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense related to our property and equipment was
$1,635.8 million, $1,163.9 million and
$724.7 million for the years ended December 31, 2006,
2005 and 2004, respectively.
At December 31, 2006 and 2005, the amount of property and
equipment, net, recorded under capital leases was $428.6 and
$342.7 million, respectively. Amortization of assets under
capital leases is included in depreciation and amortization in
our consolidated statements of operations. Equipment under
capital leases is amortized on a straight-line basis over the
shorter of the lease term or estimated useful life of the asset.
During the years ended December 31, 2006 and 2005, we
recorded $150.4 million and $153.2 million of non-cash
increases to our property and equipment, respectively, as a
result of assets acquired under capital lease arrangements. Most
of these lease arrangements were entered into by J:COM. Our
capital lease additions were not significant in 2004.
II-106
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
Goodwill
Changes in the carrying amount of goodwill during 2006 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassified
|
|
|
Release of
|
|
|
currency
|
|
|
|
|
|
|
|
|
|
Acquisition
|
|
|
|
|
|
to
|
|
|
pre-acquisition
|
|
|
translation
|
|
|
|
|
|
|
January 1,
|
|
|
related
|
|
|
Sale of UPC
|
|
|
discontinued
|
|
|
valuation
|
|
|
adjustments
|
|
|
December 31,
|
|
|
|
2006
|
|
|
adjustments
|
|
|
Belgium
|
|
|
operations
|
|
|
allowance
|
|
|
and other
|
|
|
2006
|
|
|
|
amounts in millions
|
|
|
UPC Broadband Division:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$
|
1,270.9
|
|
|
$
|
10.0
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(20.2
|
)
|
|
$
|
142.7
|
|
|
$
|
1,403.4
|
|
Switzerland
|
|
|
2,165.4
|
|
|
|
41.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
142.8
|
|
|
|
2,349.9
|
|
France
|
|
|
94.4
|
|
|
|
0.8
|
|
|
|
|
|
|
|
(96.9
|
)
|
|
|
|
|
|
|
1.7
|
|
|
|
|
|
Austria
|
|
|
646.1
|
|
|
|
77.1
|
|
|
|
|
|
|
|
|
|
|
|
(11.9
|
)
|
|
|
79.8
|
|
|
|
791.1
|
|
Other Western Europe
|
|
|
492.0
|
|
|
|
(23.6
|
)
|
|
|
(93.0
|
)
|
|
|
(159.6
|
)
|
|
|
|
|
|
|
34.2
|
|
|
|
250.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
4,668.8
|
|
|
|
106.0
|
|
|
|
(93.0
|
)
|
|
|
(256.5
|
)
|
|
|
(32.1
|
)
|
|
|
401.2
|
|
|
|
4,794.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
352.3
|
|
|
|
13.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36.2
|
|
|
|
402.3
|
|
Other Central and Eastern Europe
|
|
|
613.4
|
|
|
|
287.4
|
|
|
|
|
|
|
|
|
|
|
|
(5.6
|
)
|
|
|
153.2
|
|
|
|
1,048.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
965.7
|
|
|
|
301.2
|
|
|
|
|
|
|
|
|
|
|
|
(5.6
|
)
|
|
|
189.4
|
|
|
|
1,450.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total UPC Broadband Division
|
|
|
5,634.5
|
|
|
|
407.2
|
|
|
|
(93.0
|
)
|
|
|
(256.5
|
)
|
|
|
(37.7
|
)
|
|
|
590.6
|
|
|
|
6,245.1
|
|
J:COM (Japan)
|
|
|
2,006.3
|
|
|
|
441.9
|
|
|
|
|
|
|
|
|
|
|
|
(13.8
|
)
|
|
|
(79.8
|
)
|
|
|
2,354.6
|
|
VTR (Chile)
|
|
|
569.9
|
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
|
|
(19.8
|
)
|
|
|
(22.1
|
)
|
|
|
527.6
|
|
Corporate and other
|
|
|
809.4
|
|
|
|
(24.4
|
)
|
|
|
|
|
|
|
|
|
|
|
(5.0
|
)
|
|
|
35.3
|
|
|
|
815.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total LGI
|
|
$
|
9,020.1
|
|
|
$
|
824.3
|
|
|
$
|
(93.0
|
)
|
|
$
|
(256.5
|
)
|
|
$
|
(76.3
|
)
|
|
$
|
524.0
|
|
|
$
|
9,942.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in the carrying amount of goodwill during 2005 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
Reclassified
|
|
|
Release of
|
|
|
currency
|
|
|
|
|
|
|
|
|
|
|
|
|
acquisition
|
|
|
to
|
|
|
pre-acquisition
|
|
|
translation
|
|
|
|
|
|
|
January 1,
|
|
|
LGI
|
|
|
related
|
|
|
discontinued
|
|
|
valuation
|
|
|
adjustments
|
|
|
December 31,
|
|
|
|
2005
|
|
|
Combination
|
|
|
adjustments
|
|
|
operations
|
|
|
allowances
|
|
|
and other
|
|
|
2005
|
|
|
|
amounts in millions
|
|
|
UPC Broadband Division:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$
|
823.5
|
|
|
$
|
573.8
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(5.6
|
)
|
|
$
|
(120.8
|
)
|
|
$
|
1,270.9
|
|
Switzerland
|
|
|
|
|
|
|
|
|
|
|
2,196.7
|
|
|
|
|
|
|
|
|
|
|
|
(31.3
|
)
|
|
|
2,165.4
|
|
France
|
|
|
6.5
|
|
|
|
66.6
|
|
|
|
26.8
|
|
|
|
|
|
|
|
(0.4
|
)
|
|
|
(5.1
|
)
|
|
|
94.4
|
|
Austria
|
|
|
545.2
|
|
|
|
183.9
|
|
|
|
|
|
|
|
|
|
|
|
(7.3
|
)
|
|
|
(75.7
|
)
|
|
|
646.1
|
|
Other Western Europe
|
|
|
282.0
|
|
|
|
200.0
|
|
|
|
208.1
|
|
|
|
(122.9
|
)
|
|
|
(2.0
|
)
|
|
|
(73.2
|
)
|
|
|
492.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
1,657.2
|
|
|
|
1,024.3
|
|
|
|
2,431.6
|
|
|
|
(122.9
|
)
|
|
|
(15.3
|
)
|
|
|
(306.1
|
)
|
|
|
4,668.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
193.0
|
|
|
|
198.5
|
|
|
|
|
|
|
|
|
|
|
|
(0.9
|
)
|
|
|
(38.3
|
)
|
|
|
352.3
|
|
Other Central and Eastern Europe
|
|
|
121.4
|
|
|
|
218.3
|
|
|
|
290.0
|
|
|
|
|
|
|
|
(3.1
|
)
|
|
|
(13.2
|
)
|
|
|
613.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
314.4
|
|
|
|
416.8
|
|
|
|
290.0
|
|
|
|
|
|
|
|
(4.0
|
)
|
|
|
(51.5
|
)
|
|
|
965.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total UPC Broadband Division
|
|
|
1,971.6
|
|
|
|
1,441.1
|
|
|
|
2,721.6
|
|
|
|
(122.9
|
)
|
|
|
(19.3
|
)
|
|
|
(357.6
|
)
|
|
|
5,634.5
|
|
J:COM (Japan)(1)
|
|
|
2,077.9
|
|
|
|
|
|
|
|
123.8
|
|
|
|
|
|
|
|
(40.3
|
)
|
|
|
(155.1
|
)
|
|
|
2,006.3
|
|
VTR (Chile)
|
|
|
199.1
|
|
|
|
101.5
|
|
|
|
226.9
|
|
|
|
|
|
|
|
(26.3
|
)
|
|
|
68.7
|
|
|
|
569.9
|
|
Corporate and Other
|
|
|
294.0
|
|
|
|
74.7
|
|
|
|
443.9
|
|
|
|
|
|
|
|
|
|
|
|
(3.2
|
)
|
|
|
809.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total LGI(1)
|
|
$
|
4,542.6
|
|
|
$
|
1,617.3
|
|
|
$
|
3,516.2
|
|
|
$
|
(122.9
|
)
|
|
$
|
(85.9
|
)
|
|
$
|
(447.2
|
)
|
|
$
|
9,020.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The January 1, 2005 balance includes $1,875.3 million
that is associated with the January 1, 2005 consolidation
of Super Media / J:COM. See note 5. |
II-107
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
During the years ended December 31, 2006 and 2005, certain
of our subsidiaries reversed valuation allowances for deferred
tax assets in various tax jurisdictions due to the realization
or expected realization of tax benefits from these assets. The
valuation allowances were originally recorded as part of the
purchase accounting for prior business combinations, and
accordingly, the reversal of the valuation allowance resulted in
a reduction to goodwill recorded in the acquisition rather than
as an income tax benefit.
Intangible
Assets Subject to Amortization, Net
The details of our amortizable intangible assets are set forth
below:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
amounts in millions
|
|
|
Gross carrying
amount
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
1,797.0
|
|
|
$
|
1,600.3
|
|
Other
|
|
|
120.0
|
|
|
|
75.2
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,917.0
|
|
|
$
|
1,675.5
|
|
|
|
|
|
|
|
|
|
|
Accumulated
amortization
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
(308.2
|
)
|
|
$
|
(65.2
|
)
|
Other
|
|
|
(30.5
|
)
|
|
|
(8.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(338.7
|
)
|
|
$
|
(73.7
|
)
|
|
|
|
|
|
|
|
|
|
Net carrying
amount
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
1,488.8
|
|
|
$
|
1,535.1
|
|
Other
|
|
|
89.5
|
|
|
|
66.7
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,578.3
|
|
|
$
|
1,601.8
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangible assets with finite useful lives was
$248.9 million, $110.1 million and $59.1 million
in 2006, 2005 and 2004, respectively. Based on our amortizable
intangible assets, including amounts classified as discontinued
operations subsequent to December 31, 2006, we expect that
amortization expense will be as follows for the next five years
and thereafter (amounts in millions):
|
|
|
|
|
2007
|
|
$
|
278.4
|
|
2008
|
|
|
271.4
|
|
2009
|
|
|
225.9
|
|
2010
|
|
|
212.8
|
|
2011
|
|
|
145.3
|
|
Thereafter
|
|
|
444.5
|
|
|
|
|
|
|
Total
|
|
$
|
1,578.3
|
|
|
|
|
|
|
II-108
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
(11) Debt
The U.S. dollar equivalents of the components of our
companys consolidated debt and capital lease obligations
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Unused borrowing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
average
|
|
|
capacity (b)
|
|
|
Fair value
|
|
|
Carrying value (c)
|
|
|
|
interest
|
|
|
Local
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
rate (a)
|
|
|
currency
|
|
|
US $
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
amounts in millions
|
|
|
|
|
|
|
|
|
Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UPC Broadband Holding Bank Facility
|
|
|
6.45
|
%
|
|
|
1,330.0
|
|
|
$
|
1,754.2
|
|
|
$
|
4,025.3
|
|
|
$
|
4,059.5
|
|
|
$
|
4,010.6
|
|
|
$
|
4,052.8
|
|
Cablecom Luxembourg Bank Facility
and Cablecom GmbH Revolving Facility
|
|
|
4.63
|
%
|
|
CHF
|
150.0
|
|
|
|
123.0
|
|
|
|
1,097.6
|
|
|
|
204.3
|
|
|
|
1,094.7
|
|
|
|
204.3
|
|
Cablecom Luxembourg Old Senior Notes
|
|
|
9.38
|
%
|
|
|
|
|
|
|
|
|
|
|
423.5
|
|
|
|
1,140.5
|
|
|
|
424.8
|
|
|
|
1,174.0
|
|
Cablecom Luxembourg New Senior Notes
|
|
|
8.00
|
%
|
|
|
|
|
|
|
|
|
|
|
396.9
|
|
|
|
|
|
|
|
395.7
|
|
|
|
|
|
LG Switzerland PIK Loan
|
|
|
11.74
|
%
|
|
|
|
|
|
|
|
|
|
|
775.7
|
|
|
|
650.8
|
|
|
|
775.7
|
|
|
|
650.8
|
|
J:COM Credit Facility
|
|
|
0.97
|
%
|
|
¥
|
30,000.0
|
|
|
|
251.9
|
|
|
|
647.3
|
|
|
|
1,059.8
|
|
|
|
642.5
|
|
|
|
1,059.8
|
|
Other J:COM debt
|
|
|
1.15
|
%
|
|
¥
|
5,700.0
|
|
|
|
47.9
|
|
|
|
971.8
|
|
|
|
183.2
|
|
|
|
966.7
|
|
|
|
183.2
|
|
UGC Convertible Notes
|
|
|
1.75
|
%
|
|
|
|
|
|
|
|
|
|
|
702.3
|
|
|
|
556.2
|
|
|
|
702.3
|
|
|
|
565.5
|
|
UPC Holding Senior Notes 7.75%
|
|
|
7.75
|
%
|
|
|
|
|
|
|
|
|
|
|
665.3
|
|
|
|
553.3
|
|
|
|
659.5
|
|
|
|
591.6
|
|
UPC Holding Senior Notes 8.63%
|
|
|
8.63
|
%
|
|
|
|
|
|
|
|
|
|
|
412.5
|
|
|
|
342.6
|
|
|
|
395.7
|
|
|
|
355.0
|
|
VTR Bank Facility
|
|
|
8.37
|
%
|
|
CLP
|
136,391.6
|
|
|
|
255.3
|
|
|
|
471.1
|
|
|
|
341.4
|
|
|
|
475.0
|
|
|
|
341.4
|
|
Secured borrowing on ABC Family
preferred stock
|
|
|
7.46
|
%
|
|
|
|
|
|
|
|
|
|
|
345.0
|
|
|
|
|
|
|
|
345.0
|
|
|
|
|
|
Austar Bank Facility
|
|
|
7.90
|
%
|
|
AUD
|
210.0
|
|
|
|
165.5
|
|
|
|
306.4
|
|
|
|
139.4
|
|
|
|
306.4
|
|
|
|
139.4
|
|
Chellomedia Bank Facility
|
|
|
7.31
|
%
|
|
|
50.0
|
|
|
|
65.9
|
|
|
|
226.8
|
|
|
|
|
|
|
|
229.1
|
|
|
|
|
|
Liberty Puerto Rico Bank Facility
|
|
|
7.48
|
%
|
|
$
|
10.0
|
|
|
|
10.0
|
|
|
|
150.7
|
|
|
|
127.5
|
|
|
|
149.9
|
|
|
|
127.5
|
|
Other
|
|
|
7.17
|
%
|
|
|
|
|
|
|
|
|
|
|
210.4
|
|
|
|
280.9
|
|
|
|
206.7
|
|
|
|
280.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
6.11
|
%
|
|
|
|
|
|
$
|
2,673.7
|
|
|
$
|
11,828.6
|
|
|
$
|
9,639.4
|
|
|
|
11,780.3
|
|
|
|
9,726.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J:COM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
423.8
|
|
|
|
326.6
|
|
Other subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26.0
|
|
|
|
62.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital lease obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
449.8
|
|
|
|
388.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt and capital lease
obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,230.1
|
|
|
|
10,115.0
|
|
Current maturities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,384.9
|
)
|
|
|
(270.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt and capital lease
obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,845.2
|
|
|
$
|
9,845.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Represents the weighted average interest rate in effect at
December 31, 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 9. |
|
(b) |
|
Unused borrowing capacity represents the maximum availability
under the applicable facility at December 31, 2006 without
regard to covenant compliance calculations. At December 31,
2006, the full amount of unused borrowing capacity was available
to be borrowed under each of the respective facilities except as
indicated |
II-109
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
|
|
|
|
|
below. At December 31, 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 December 31, 2006 covenant
compliance calculations, the aggregate amount that will be
available for borrowing when the December 31, 2006 bank
reporting requirements have been completed is
136.5 million ($180.0 million) under the UPC
Broadband Holding Bank Facility and AUD 163.1 million
($128.6 million) under the Austar Bank Facility. |
|
(c) |
|
Includes unamortized debt discount or premium, if applicable. |
UPC
Broadband Holding Bank Facility
The UPC Broadband Holding Bank Facility, as amended, is the
senior secured credit facility of UPC Broadband Holding. The UPC
Broadband Holding Bank Facility is secured by a pledge over the
shares of UPC Broadband Holding and the shares of UPC Broadband
Holdings majority owned operating companies. The UPC
Broadband Holding Bank Facility is also guaranteed by UPC
Holding, the immediate parent of UPC Broadband Holding, and is
senior to other long-term debt obligations of UPC Broadband
Holding and UPC Holding. The agreement governing the UPC
Broadband Holding Bank Facility contains covenants that limit
among other things, UPC Broadband Holdings ability to
merge with or into another company, acquire other companies,
incur additional debt, dispose of any assets unless in the
ordinary course of business, enter into or guarantee a loan and
enter into a hedging arrangement.
The UPC Broadband Holding Bank Facility permits UPC Broadband
Holding to transfer funds to its parent company (and indirectly
to LGI) through loans, advances or dividends provided that UPC
Broadband Holding maintains compliance with applicable
covenants. If a change of control occurs, as defined in the UPC
Broadband Holding Bank Facility, the facility agent may cancel
each Facility and demand full payment. The UPC Broadband Holding
Bank Facility requires compliance with various financial
covenants such as: (i) senior debt to annualized EBITDA (as
defined in the UPC Broadband Holding Bank Facility),
(ii) EBITDA to total cash interest, (iii) EBITDA to
senior debt service, (iv) EBITDA to senior interest and
(v) total debt to annualized EBITDA.
As of December 31, 2006, there are four facilities under
the UPC Broadband Holding Bank Facility: Facilities I, J, K and
L, respectively. Facilities I and L are repayable and redrawable
term loans with maximum borrowing capacity of
500 million ($659.5 million) and
830 million ($1,094.7 million), respectively. At
December 31, 2006, there were no borrowings outstanding
under either Facility I or L. Borrowings under Facility I are
due and payable in one installment on April 1, 2010.
Borrowings under Facility L are to be repaid in one installment
on July 3, 2012. At December 31, 2006, the amounts
borrowed under Facilities J and K aggregated
1,695 million ($2,235.6 million) and
$1,775 million, with each denomination split evenly between
Facilities J and K. Amounts outstanding under each of Facilities
J and K are to be repaid in one installment on March 31,
2013 and December 31, 2013,
II-110
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
respectively. The U.S. dollar equivalents of the components of
the UPC Broadband Holding Bank Facility at December 31,
2006 are summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Unused
|
|
|
Outstanding
|
|
|
|
Denomination
|
|
|
|
|
|
|
|
|
borrowing
|
|
|
principal
|
|
Facility
|
|
Currency
|
|
|
Maturity
|
|
|
Interest rate (1)
|
|
|
capacity (2)
|
|
|
amount
|
|
|
|
|
|
|
|
|
|
|
|
|
amounts in millions
|
|
|
I
|
|
|
Euro
|
|
|
|
April 1, 2010
|
|
|
|
EURIBOR + 2.50
|
%
|
|
$
|
659.5
|
|
|
$
|
|
|
J(3)
|
|
|
USD
|
|
|
|
March 31, 2013
|
|
|
|
LIBOR + 2.00
|
%
|
|
|
|
|
|
|
887.5
|
|
J
|
|
|
Euro
|
|
|
|
March 31, 2013
|
|
|
|
EURIBOR + 2.25
|
%
|
|
|
|
|
|
|
1,048.5
|
|
K(3)
|
|
|
USD
|
|
|
|
December 31, 2013
|
|
|
|
LIBOR + 2.00
|
%
|
|
|
|
|
|
|
887.5
|
|
K
|
|
|
Euro
|
|
|
|
December 31, 2013
|
|
|
|
EURIBOR + 2.25
|
%
|
|
|
|
|
|
|
1,187.1
|
|
L
|
|
|
Euro
|
|
|
|
July 3, 2012
|
|
|
|
EURIBOR + 2.25
|
%
|
|
|
1,094.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,754.2
|
|
|
$
|
4,010.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The interest rate margin is variable and is adjusted based on
certain leverage ratios. Interest rate information shown in the
table does not reflect the impact of interest rate exchange
agreements. As of December 31, 2006, the EURIBOR rate was
3.26% and the LIBOR rate was 5.64%. Excluding the effects of
interest rate exchange agreements, the weighted-average interest
rate on all Facilities at December 31, 2006 was 6.45%. |
|
(2) |
|
Facilities I and L are repayable and redrawable term loans. The
borrowing capacity under each facility can be used to finance
additional permitted acquisitions and for general corporate
purposes, subject to covenant compliance. Based on the
December 31, 2006 covenant compliance calculations, the
aggregate amount that was available for borrowing under
Facilities I and L was 136.5 million
($180.0 million), subject to the completion of UPC
Holdings fourth quarter bank reporting requirements.
Facilities I and L provide for an annual commitment fee of 0.75%
of the unused portion of each Facility. |
|
(3) |
|
These U.S. dollar facilities include call protection through
May 10, 2007, such that any amounts voluntarily prepaid
during that period will need to include an additional 1% on the
aggregate amount repaid. |
The covenant in the UPC Broadband Holding Facility relating to
disposals of assets includes a basket for permitted disposals of
assets, which allows for disposals of assets, the Annualized
EBITDA of which does not exceed a certain percentage of the
Annualized EBITDA of the borrower group, with the capitalized
term having the meaning set forth in the UPC Broadband Holding
Bank Facility. The UPC Broadband Holding Bank Facility includes
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 UPC Broadband Holding Bank Facility includes a mandatory
prepayment requirement of four times Annualized EBITDA, as
defined in the UPC Broadband Holding Bank Facility, of disposed
assets. The prepayment amount may be allocated to one or more of
the facilities at UPC Broadband Holdings 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 ($131.9 million), then no
prepayment is required (subject to pro forma covenant
compliance). No such prepayment is required to be made where an
amount, equal to the amount that would otherwise be required to
be prepaid, is deposited in a blocked account on terms that the
principal amount deposited may only be released in order to make
the relevant prepayment or to reinvest in assets in accordance
with the terms of the UPC Broadband Holding Bank Facility, which
expressly includes permitted acquisitions and capital
expenditures. Any amounts deposited in the blocked account that
have not been reinvested (or contracted to be so reinvested),
within 12 months
II-111
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
of the relevant permitted disposal, are required to be applied
in prepayment in accordance with the terms of the UPC Broadband
Holding Bank Facility.
In connection with refinancings of the UPC Broadband Holding
Bank Facility that occurred in May and July 2006 and March 2005,
we recognized debt extinguishment losses of $22.2 million
and $12.0 million during 2006 and 2005, respectively,
primarily representing the write-off of deferred financing costs
and creditor fees.
Cablecom
Luxemboug Old Senior Notes
At December 31, 2005, the Cablecom Luxembourg Old Senior
Notes were comprised of (i) CHF 259.0 million
($212.3 million) principal amount of Cablecom Luxembourg
Series A Floating Rate Senior Secured Notes due 2010 (the
Cablecom Luxembourg Old Series A CHF Notes), (ii)
157.9 million ($208.3 million) principal amount
of Cablecom Luxembourg Floating Rate Senior Secured Notes due
2010 (the Cablecom Luxembourg Old Series A Euro Notes) and
335.7 million ($442.8 million) principal amount
of Cablecom Luxembourg Series B Floating Rate Senior
Secured Notes due 2012 (the Cablecom Luxembourg Old
Series B Euro Notes, and together with the Cablecom
Luxembourg Old Series A CHF Notes and Cablecom Luxembourg
Old Series A Euro Notes, the Cablecom Luxembourg Old
Floating Rate Notes) and (iii) 289.9 million
($382.4 million) principal amount of 9.375% Senior Notes
due 2014 (the Cablecom Luxembourg Old Fixed Rate Notes). The
principal amounts disclosed in this paragraph do not include the
premiums recorded as a result of the application of purchase
accounting in connection with the Cablecom acquisition.
In connection with the Cablecom acquisition, under the terms of
the Indentures for the Cablecom Luxembourg Old Senior Notes,
Cablecom Luxembourg was required to effect a change of control
offer (the Change of Control Offer) for the Cablecom Luxembourg
Old Senior Notes at 101% of their respective principal amounts.
Pursuant to the Change of Control Offer, Cablecom Luxembourg on
December 8, 2005 used CHF 268.7 million
($223.2 million at the transaction date) of proceeds from
the Facility A term loan under the Cablecom Luxembourg Bank
Facility (see below) to (i) purchase CHF 133.0 million
($101.7 million at the transaction date) of the Cablecom
Luxembourg Old Series A CHF Notes, (ii) purchase
42.8 million ($50.5 million at the transaction
date) of the Cablecom Luxembourg Old Series A Euro Notes,
(iii) purchase 40.0 million ($47.1 million
at the transaction date) principal amount of the Cablecom
Luxembourg Old Series B Euro Notes and (iv) fund the
costs and expenses of the Change of Control Offer. All of the
purchased amounts set forth above include principal, call
premium and accrued interest.
On January 20, 2006, Cablecom Luxembourg used the remaining
available proceeds from the Facility A and Facility B term loans
under the Cablecom Luxembourg Bank Facility to fund the
redemption of all of the Cablecom Luxembourg Old Floating Rate
Notes that were not tendered in the Change of Control Offer (the
Cablecom Old Note Redemption). The Cablecom Old Note Redemption
price paid was 102% of the respective principal amounts plus
accrued and unpaid interest through the Cablecom Old Note
Redemption date. We recognized a $7.6 million loss on the
extinguishment of the Cablecom Luxembourg Old Floating Rate
Notes during the three months ended March 31, 2006. This
loss represents the difference between the redemption and
carrying amounts of the Cablecom Luxembourg Old Floating Rate
Notes at the date of the Cablecom Old Note Redemption.
The Cablecom Luxembourg Old Fixed Rate Notes mature on
April 15, 2014. At any time on or after April 15,
2007, Cablecom Luxembourg is permitted to redeem some or all of
the Cablecom Luxembourg Old Fixed Rate Notes at the following
redemption prices (expressed as a percentage of the principal
amount) plus accrued and
II-112
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
unpaid interest to the applicable redemption date, if redeemed
during the twelve-month period commencing on April 15 of the
years set out below:
|
|
|
|
|
Year
|
|
Percentage
|
|
|
2007
|
|
|
109.375
|
%
|
2008
|
|
|
107.031
|
%
|
2009
|
|
|
104.688
|
%
|
2010
|
|
|
103.125
|
%
|
2011
|
|
|
101.563
|
%
|
2012 and thereafter
|
|
|
100.000
|
%
|
As described below, the Cablecom Luxembourg Old Fixed Rate Notes
will be redeemed in full on April 15, 2007.
Cablecom
Luxembourg New Senior Notes
On October 31, 2006, Cablecom Luxembourg issued
300.0 million ($383.2 million at the transaction
date) principal amount of 8.0% Senior Notes due 2016 (the
Cablecom Luxembourg New Senior Notes) and the net proceeds from
the sale of the Cablecom Luxembourg New Senior Notes, together
with available cash, were placed into an escrow account (the
Cablecom Luxembourg Defeasance Account) for the benefit of the
holders of the Cablecom Luxembourg Old Fixed Rate Notes in
connection with the covenant defeasance of such Notes. This
covenant defeasance eliminated substantially all of the
covenants and other obligations of Cablecom Luxembourg contained
in the Cablecom Luxembourg Old Fixed Rate Notes and the relevant
indenture until redemption of the Cablecom Luxembourg Old Fixed
Rate Notes on April 15, 2007. The cash deposited into the
Cablecom Luxembourg Defeasance Account (331.6 million
or $437.4 million at December 31, 2006) is
reserved for the payment of the redemption price plus, accrued
interest that will be due in connection with the April 15,
2007 redemption of the Cablecom Luxembourg Old Fixed Rate Notes.
In addition, pursuant to the terms of the LG Switzerland PIK
Loan (see below), the redemption of the Cablecom Luxembourg Old
Fixed Rate Notes will require the repayment of the LG
Switzerland PIK Loan.
The indenture for the Cablecom Luxembourg New Senior 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, 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 Cablecom Luxembourg New Senior 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 (see below)
outstanding on the issue date of the Cablecom Luxembourg New
Senior Notes. As discussed below, the Cablecom Luxembourg Bank
Facility contains a similar 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.
As the Cablecom Luxembourg Old Fixed Rate Notes will be redeemed
on April 15, 2007 with funds held in the Cablecom
Luxembourg Defeasance Account, we have included in our
December 31, 2006 consolidated balance sheet (i) the
outstanding principal amount of the Cablecom Luxembourg Old
Fixed Rate Notes in current portion of debt and capital lease
obligations and (ii) the funds held in the Cablecom
Luxembourg Defeasance Account in the current balance of
restricted cash. We have not eliminated the Cablecom Luxembourg
Old Fixed Rate Notes or the
II-113
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
Cablecom Luxembourg Defeasance Account from our consolidated
balance sheet as the Cablecom Luxembourg Old Fixed Rate Notes
were not legally defeased as of December 31, 2006.
Cablecom
Luxembourg Bank Facility
On December 5, 2005, Cablecom Luxembourg and Cablecom GmbH
entered into a facilities agreement (the Cablecom Luxembourg
Bank Facility) with certain banks and financial institutions as
lenders. The Cablecom Luxembourg Bank Facility provides the
terms and conditions upon which (i) the lenders have made
available to Cablecom Luxembourg two term loans (Facility A and
Facility B) in an aggregate principal amount not to exceed
CHF 1,330 million ($1,090.3 million).
The Facility A term loan, which matures on December 31,
2010 and is available to be drawn in Swiss francs up to an
aggregate principal amount of CHF 618 million
($506.6 million), was fully drawn at December 31,
2006. In January 2006, the remaining availability under the
Facility A term loan was drawn to fund the Cablecom Old Note
Redemption. The interest rate applicable to the Facility A term
loan is equal to CHF LIBOR plus a margin of 2.50% through
June 5, 2007 (thereafter the margin adjusts based on a
leverage ratio), plus any mandatory costs.
The Facility B term loan, which matures on September 30,
2012 and is available to be drawn in Swiss francs,
U.S. dollars or euros up to an aggregate principal amount
equivalent to CHF 712 million ($583.7 million), was
fully drawn at December 31, 2006. In connection with the
January 2006 funding of the Cablecom Old Note Redemption, the
Facility B term loan was drawn in full in the form of CHF
355.8 million ($277.3 million at the transaction date)
and 229.1 million ($277.1 million at the
transaction date). The interest rate applicable to principal
denominated in Swiss francs under the Facility B term loan is
equal to CHF LIBOR plus a margin of 2.75% to September 5,
2006 and thereafter 2.50% plus, in each case, any mandatory
costs. The interest rate applicable to principal denominated in
euros under the Facility B term loan is equal to EURIBOR
plus a margin of 2.50% plus any mandatory costs.
Amounts outstanding under the Facility A and B term loans
are subject to scheduled repayment dates. In addition, the
Facility A and B term loans must be prepaid on the occurrence of
certain events, including a change of control of
Liberty Global Europe, Inc. (LG Europe), Cablecom, Cablecom
Luxembourg or Cablecom GmbH. The Facility A and B term
loans may also be voluntarily prepaid in whole or in part,
without premium or penalty but subject to break funding costs.
The Cablecom Luxembourg Bank Facility also provides the
structure for a CHF 150.0 million ($123.0 million)
revolving credit facility (the Cablecom Luxembourg Revolving
Facility) to be available to replace an existing
CHF 150.0 million ($123.0 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 Cablecom
Luxembourg Revolving Facility. Any amounts borrowed under the
Cablecom Luxembourg Revolving Facility would be subject to
scheduled repayments through the December 31, 2010 maturity
date and to change of control and prepayment
provisions similar to those described above for the Facility A
and B term loans. Cablecom Luxembourg will guarantee any amounts
borrowed under the Cablecom Luxembourg Revolving Facility.
Based on the December 31, 2006 covenant compliance
calculations, the full amount of the Cablecom GmbH Revolving
Facility was available for borrowing, subject to the completion
of Cablecom GmbHs fourth quarter bank reporting
requirements. The Cablecom GmbH Revolving Facility provides for
an annual commitment fee of 0.75% on undrawn balances.
The Cablecom Luxembourg Bank Facility includes 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, at
any time, subject to there being no actual event of default (as
defined therein) under the Cablecom Luxembourg Bank Facility or
actual or potential event of default (as defined therein)
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LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
under the UPC Broadband Holding Bank Facility and provided that
any amendments or waivers granted by the lenders under the UPC
Broadband Holding Bank Facility have been approved by the
applicable term loan lenders.
In addition to customary restrictive covenants, prepayment
requirements and events of default, the Cablecom Luxembourg Bank
Facility requires compliance with various financial covenants
such as: (i) Total Debt to EBITDA, (ii) Senior Debt to
EBITDA, (iii) EBITDA to Total Cash Interest and
(iv) EBITDA to Debt Service, each capitalized term as
defined in the Cablecom Luxembourg Bank Facility. The Cablecom
Luxembourg Bank Facility permits Cablecom Luxembourg to transfer
funds to its parent company (and indirectly to LGI) through
loans, dividends or other distributions provided that Cablecom
Luxembourg maintains compliance with applicable covenants.
The Cablecom Luxembourg Bank Facility is secured by pledges over
(i) the shares of Cablecom GmbH and (ii) certain
intercompany loan notes. Cablecom Luxembourg and Cablecom
Gmbh will guarantee any amounts borrowed under the Cablecom
Luxembourg Revolving Facility.
LG
Switzerland PIK Loan
The 550 million ($667 million at the transaction
date), 9.5 year split-coupon floating rate
Payment-In-Kind
(PIK) Loan was executed on October 7, 2005 pursuant to a
PIK Loan Facility Agreement, dated September 30, 2005 as
amended and restated on October 10, 2005 (the PIK Loan).
The PIK Loan bears interest at a rate per annum equal to
(i) three-month EURIBOR (payable quarterly in cash), which
was 3.49% at December 31, 2006, plus (ii) a margin of
1.75% (payable quarterly in cash), plus (iii) a PIK margin
of 6.50% (to be capitalized and added to principal at the end of
each interest period or, at the election of LG Switzerland, paid
in cash) plus (iv) with respect to any period, or part
thereof, after April 15, 2008, an additional PIK margin of
2.50% (to be capitalized and added to principal at the end of
each interest period or, at the election of LG Switzerland, paid
in cash). The net proceeds received from the PIK Loan of
531.7 million ($647.8 million at the transaction
date), less 50 million ($60.9 million at the
transaction date) placed in escrow to secure cash interest
payments, were used to finance the Cablecom acquisition.
The PIK Loan is unsecured senior debt of LG Switzerland and pari
passu or senior in right of payment to all other indebtedness of
LG Switzerland. The PIK Loan is structurally subordinated to all
indebtedness of LG Switzerlands subsidiaries, including
the Cablecom Luxembourg Bank Facility and the Cablecom
Luxembourg New Senior Notes and Cablecom Luxembourg Old Fixed
Rate Notes and any other future debt incurred by LG
Switzerlands subsidiaries. The PIK Loan is not guaranteed
by Cablecom or any of its subsidiaries.
The PIK Loan contains covenants and events of default similar to
the covenants governing the Cablecom Luxembourg Old Fixed Rate
Notes described above. In addition, the PIK Loan requires LG
Switzerland to make a prepayment offer at 101% of par following
a Change of Control, as defined in the PIK Loan.
The PIK Loan may not be optionally prepaid prior to
April 16, 2007. From and following April 16, 2007, the
PIK Loan may be prepaid by LG Switzerland in designated minimum
amounts. Optional prepayments during the
12-month
period beginning on April 16, 2007 will be made at par. The
PIK Loan matures on April 15, 2015. As discussed above, all
amounts outstanding under the PIK Loan are required to be repaid
in connection with the redemption of the Cablecom Luxembourg Old
Fixed Rate Notes in April 2007. In light of this requirement, we
have included 248.1 million ($327.2 million) of
the borrowings outstanding under the PIK Loan at
December 31, 2006 in current portion of debt and capital
lease obligations in our consolidated balance sheet. The
remaining outstanding balance of 340.0 million
($448.4 million) at December 31, 2006 is expected to
be refinanced with available long-term debt, and accordingly, we
have continued to include that amount in long-term debt and
capital lease obligations in our consolidated balance sheet.
II-115
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
J:COM
Credit Facility
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 ($251.9 million) five-year revolving
credit loan (the J:COM Revolving Loan); an ¥85 billion
($713.8 million) five-year amortizing term loan (the J:COM
Tranche A Term Loan); and a ¥40 billion
($335.9 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. Amounts
repaid under the J:COM Tranche A and B Term Loans may not
be reborrowed. On December 21, 2005 the proceeds of the
J:COM Tranche A and B Term Loans were used, together with
available cash, to repay in full outstanding loans totaling
¥128 billion ($1,100 million at the transaction
date), under J:COMs then existing credit facilities. As
discussed below, J:COM refinanced the J:COM Tranche B Term
Loan during the second quarter of 2006. In connection with its
2006 and 2005 debt refinancings, J:COM recognized debt
extinguishment losses of ¥378.0 million
($3.3 million at the average exchange rate for the period)
and ¥2,469 million ($21.1 million at the average
exchange rate for the period), respectively, primarily
representing the write-off of deferred financing costs.
The J:COM Revolving Loan and the J:COM Tranche A Term Loan
bear interest equal to TIBOR plus a variable margin to be
adjusted based on the leverage ratio of J:COM. The
weighted-average interest rate, including applicable margins, on
the J:COM Tranche A Term Loan at December 31, 2006 was
0.973%. Borrowings under the J:COM Revolving Loan may be
used by J:COM for general corporate purposes. Amounts drawn
under the J:COM Tranche A Term Loan have a final maturity
date of December 31, 2010, and amortize in quarterly
installments commencing March 31, 2006. The final maturity
date of all amounts outstanding under the J:COM Revolving Loan
is December 31, 2010 and will be available for drawdown
until one month prior to its final maturity. In addition to
customary restrictive covenants and events of default, the
unsecured J:COM Credit Facility requires compliance with various
financial covenants such as: (i) Maximum Senior Debt to
EBITDA, (ii) Minimum Debt Service Coverage Ratio and
(iii) a Total Shareholders Equity test, each
capitalized term as defined in the J:COM Credit Facility. The
J:COM Credit Facility permits J:COM to transfer funds to its
shareholders (and indirectly to LGI) through loans, dividends or
other distributions provided that J:COM maintains compliance
with applicable covenants. At December 31, 2006,
¥30 billion ($251.9 million) was available for
borrowing under the J:COM Revolving Loan. The J:COM Revolving
Loan provides for an annual commitment fee of 0.20% on the
unused portion.
Other
J:COM debt
During April and May of 2006, J:COM refinanced
¥38 billion ($323 million at the transaction
date) and ¥2,000 million ($18 million at the
transaction date), respectively, of the J:COM Tranche B
Term Loan with ¥20 billion of fixed-interest rate
loans and ¥20 billion of variable-interest rate loans.
At December 31, 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% (0.8% as of
December 31, 2006 including margin). These 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 ¥2,000 million
variable-interest rate term loan agreement, (ii) a
¥20 billion seven-year fixed-interest rate term loan
agreement, and (iii) a ¥30 billion syndicated
term loan agreement. The ¥2,000 million
($17 million at the transaction date) and
¥20 billion ($169.7 million at the transaction
date) term loans were fully drawn in September 2006. On
October 27, 2006, the full amount of the
¥30 billion syndicated term loan ($252.6 million
at the transaction date) was drawn and a portion of the proceeds
was used to repay the then outstanding balance of the J:COM
Revolving Loan (¥14 billion or $117.9 million at
the transaction date). The new term loans mature between 2011
and 2013. The interest rate on
II-116
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
the ¥2,000 million term loan is based on the six-month
TIBOR plus a margin of 0.25% (0.757% as of December 31,
2006 including margin). The ¥20 billion term 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% (0.8% as of December 31, 2006 including
margin) as to the ¥10 billion ($84.0 million)
principal amount that is due in October 2011, (ii) Japanese
yen LIBOR plus a margin of 0.35% (0.9% as of December 31,
2006 including margin) as to the ¥19.5 billion
($163.8 million) principal amount that is due in October
2013, and (iii) a fixed rate of 2.05% as to the
¥500 million ($4.2 million) principal amount that
is due in October 2013. These loans contain covenants similar to
those of the J:COM Credit Facility.
UGC
Convertible Notes
On April 6, 2004, UGC completed the offering and sale of
500.0 million ($604.6 million at the transaction
date)
13/4%
euro-denominated convertible senior notes (UGC Convertible
Notes) due April 15, 2024. Interest is payable
semi-annually on April 15 and October 15 of each year.
The UGC Convertible Notes are senior unsecured obligations that
rank equally in right of payment with all of UGCs existing
and future senior and unsecured indebtedness and ranks senior in
right of payment to all of UGCs existing and future
subordinated indebtedness. The UGC Convertible Notes are
effectively subordinated to all existing and future indebtedness
and other obligations of UGCs subsidiaries. The Indenture
governing the UGC Convertible Notes does not contain any
financial or operating covenants. The UGC Convertible Notes may
be redeemed at UGCs option, in whole or in part, on or
after April 20, 2011 at a redemption price in euros equal
to 100% of the principal amount, together with accrued and
unpaid interest. Holders of the UGC Convertible Notes have the
right to tender all or part of their notes for purchase by UGC
on April 15, 2011, April 15, 2014 and April 15,
2019, for a purchase price equal to 100% of the principal
amount, plus accrued and unpaid interest. If a change in control
(as defined in the Indenture) has occurred, each holder of the
UGC Convertible Notes may require UGC to purchase their notes,
in whole or in part, at a price equal to 100% of the principal
amount, plus accrued and unpaid interest. The UGC Convertible
Notes are convertible into 11,044,375 shares of LGI
Series A common stock and 11,044,375 shares of LGI
Series C common stock at an aggregate conversion price of
45.27 ($59.71) for one share of LGI Series A common
stock and one share of LGI Series C common stock, which was
equivalent to a conversion price of $55.68 for one share of LGI
Series A common stock and one share of LGI Series C
common stock and a conversion rate of 22.09 shares of LGI
Series A common stock and 22.09 shares of LGI
Series C common stock per 1,000 principal amount of
the UGC Convertible Notes on the date of issue. Holders of the
UGC Convertible Notes may surrender their notes for conversion
prior to maturity in the following circumstances: (i) the
price of LGI Series A common stock reaches a specified
threshold, (ii) the combined price of LGI Series A and
Series C common stock reaches a specified threshold,
(iii) UGC has called the UGC Convertible Notes for
redemption, (iv) the trading price for the UGC Convertible
Notes falls below either of two specified thresholds or
(v) we make certain distributions to holders of LGI
Series A common stock or specified corporate transactions
occur.
The UGC Convertible Notes are compound financial instruments
that contain a foreign currency debt component and an equity
component that is indexed to LGI Series A common stock, LGI
Series C common stock and to currency exchange rates (euro
to U.S. dollar). Through December 31, 2005, we accounted
for the embedded equity derivative separately at fair value,
with changes in fair value reported in our consolidated
statements of operations. Effective January 1, 2006, we
began accounting for the UGC Convertible Notes at fair value.
See note 23. At December 31, 2005, the fair value of
the embedded equity derivative and the accreted value
II-117
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
of the debt host contract were presented together in the caption
long-term debt and capital lease obligations in our consolidated
balance sheet, as follows (amounts in millions):
|
|
|
|
|
Debt host contract
|
|
$
|
437.5
|
|
Embedded equity derivative
|
|
|
128.0
|
|
|
|
|
|
|
|
|
$
|
565.5
|
|
|
|
|
|
|
UPC
Holding Senior Notes
On July 29, 2005 UPC Holding issued 500 million
($607 million at the transaction date) principal amount of
7.75% Senior Notes. On October 10, 2005, UPC Holding issued
300 million ($363 million at the transaction
date) principal amount of 8.625% Senior Notes. Both issues of
the UPC Holding Senior Notes mature on January 15, 2014.
Both issues of the UPC Holding Senior Notes are senior
obligations that rank equally with all of the existing and
future senior debt and senior to all existing and future
subordinated debt of UPC Holding. The UPC Holding Senior Notes
are secured by a first-ranking pledge of all shares of UPC
Holding.
At any time prior to July 15, 2008, UPC Holding may redeem
some or all of the UPC Holding Senior Notes by paying a
make-whole premium, which is the present value of
all scheduled interest payments until July 15, 2008 using
the discount rate equal to the yield of the comparable German
government bond (BUND) issue as of the redemption date plus 50
basis points.
At any time on or after July 15, 2008, UPC Holding may
redeem some or all of the UPC Holding Senior Notes at the
following redemption prices (expressed as a percentage of the
principal amount) plus accrued and unpaid interest and
additional amounts, if any, to the applicable redemption date,
if redeemed during the twelve-month period commencing on
July 15 of the years set out below:
|
|
|
|
|
|
|
|
|
|
|
Redemption price
|
|
|
|
7.75% Senior
|
|
|
8.625% Senior
|
|
Year
|
|
Notes
|
|
|
Notes
|
|
|
2008
|
|
|
107.750
|
%
|
|
|
108.625
|
%
|
2009
|
|
|
103.875
|
%
|
|
|
104.313
|
%
|
2010
|
|
|
101.938
|
%
|
|
|
102.156
|
%
|
2011 and thereafter
|
|
|
100.000
|
%
|
|
|
100.000
|
%
|
In addition, at any time prior to July 15, 2008, UPC
Holding may redeem up to 35% of the UPC Holding Senior Notes (at
redemption price of 107.75% and 108.625% of the respective
principal amounts) with the net proceeds from one or more
specified equity offerings.
UPC Holding may redeem all of the UPC Holding Senior Notes at a
price equal to their principal amount plus accrued and unpaid
interest upon the occurrence of certain changes in tax law. If
UPC Holding or certain of its subsidiaries sell certain assets
or experience specific changes in control, UPC Holding must
offer to repurchase the UPC Holding Senior Notes at a redemption
price of 101%.
VTR
Bank Facility
On September 20, 2006, VTR replaced its then existing bank
credit facility (the Old VTR Bank Facility) with a new senior
secured credit agreement (the VTR Bank Facility) consisting of
(i) a CLP 122.6 billion ($229.5 million) Chilean
peso-denominated seven-year amortizing term loan (the VTR
Tranche A Term Loan), which would bear interest, if and
when drawn, at TAB plus 2.5% (8.62% at December 31, 2006
including margin) and has a three-year
II-118
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
availability period, which commenced September 20, 2006,
(ii) a $475 million U.S. dollar-denominated eight-year
term loan due in 2014 (the VTR Tranche B Term Loan), which
bears interest at LIBOR plus 3.0% (8.37% at December 31,
2006 including margin), and (iii) a CLP 13.8 billion
($25.8 million) CLP-denominated six and a half-year
revolving loan (the VTR Tranche C Revolving Loan), which
would bear interest, if and when drawn, at TAB plus 2.5% (8.62%
at December 31, 2006 including margin).
At closing on September 20, 2006, the full
$475 million of the VTR Tranche B Term Loan was drawn.
Proceeds were used to (i) repay the CLP 175.5 billion
($326.7 million at the transaction date) outstanding
balance of the Old VTR Bank Facility, (ii) repay an
intercompany loan payable to one of our subsidiaries
($50.7 million principal amount outstanding at 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. VTR recognized a $4.6 million loss
in connection with the September 2006 refinancing of the Old VTR
Bank Facility.
Based on the December 31, 2006 covenant compliance
calculations, the full amount of each of the VTR Tranche A
Term Loan and the VTR Tranche C Revolving Loan was
available for borrowing, subject to the completion of VTRs
fourth quarter bank reporting requirements. The VTR
Tranche A Term Loan has a commitment fee on undrawn
balances of 0.825% in the first year and 1.375% in the second
and third year of the availability period. The VTR
Tranche C Revolving Loan has a commitment fee on undrawn
balances of 0.50% per year.
In addition to customary restrictive covenants, prepayment
requirements and events of default, the VTR Bank Facility
requires compliance with various financial covenants such as:
(i) Senior Debt to Annualized Operating Cash Flow,
(ii) Operating Cash Flow to Interest Expense and
(iii) Operating Cash Flow to Senior Debt Service, each
capitalized term as defined in the VTR Bank Facility. The VTR
Bank Facility permits VTR to transfer funds to its parent
company (and indirectly to LGI) through loans, dividends or
other distributions provided that VTR maintains compliance with
applicable covenants.
The VTR Bank Facility is secured by pledges over (i) the
VTR shares owned by our company, (ii) the shares of certain
VTR subsidiaries and (iii) certain network and other assets
of VTR and certain of its subsidiaries. The VTR Bank
Facility is also guaranteed by VTR (in respect of other
obligors obligations) and certain of its subsidiaries.
During the third and fourth quarters of 2006, VTR made cash
distributions to its shareholders aggregating
CLP 53.6 billion ($99.3 million at the
transaction dates), including CLP 42.9 billion
($79.4 million at the transaction dates) distributed to our
company.
In July 2005, VTR borrowed CLP 14.724 billion
($25.5 million as of the transaction date) under the Old
VTR Bank Facility to fund the repayment of an existing
obligation to CTC, a Chilean telecommunications company. In
September 2005, the Old VTR Bank Facility was amended to improve
the maturity and other terms of the existing facility, raising
proceeds of CLP 70.674 billion ($132.3 million as of
September 20, 2005). These proceeds were used to repay a
total of $119.6 million in shareholder loans and accrued
interest owed to our subsidiaries and $10.4 million of
principal and accrued interest owed to an affiliate of
Cristalerías. See note 5.
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 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
II-119
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
ABC Family preferred stock was $351.0 million and
$365.1 million at December 31, 2006 and
December 31, 2005, respectively, and is included in other
investments in our 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.
Austar
Bank Facility
On August 3, 2006, Austar Entertainment Pty Ltd. (Austar
Entertainment), a subsidiary of 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 Entertainment to borrow up to AUD
600.0 million ($473.0 million). The Austar Bank
Facility is comprised of (i) Tranche A, an
AUD-denominated, five-year term loan facility due in 2011 for
AUD 275.0 million ($216.8 million), which bears
interest at BBSY plus margins ranging from 0.9% to 1.4% (the
Austar Tranche A Term Loan); (ii) Tranche B, an
AUD-denominated, seven-year term loan facility due in 2013 for
AUD 300.0 million ($236.5 million), which bears
interest at BBSY plus margins ranging from 1.3% to 1.7% (the
Austar Tranche B Term Loan); and (iii) an
AUD-denominated, six-year revolving loan facility for
AUD 25.0 million ($19.7 million) (the Austar
Revolving Loan), 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 December 31,
2006, AUD 275.0 million ($216.8 million), AUD
90.0 million ($70.9 million), and AUD
23.7 million ($18.68 million) of the Austar
Tranche A Term Loan, the Austar Tranche B Term Loan
and the Austar Revolving Loan, respectively, were outstanding
under the Austar Bank Facility at a 7.90% weighted average rate
(including margin).
Austar Entertainment used the initial borrowings under the
Austar Bank Facility, together with available cash, (i) to
repay all amounts outstanding under Austar Entertainments
old bank facility of AUD 190.0 million ($144.4 million
at the transaction date) and (ii) to fund a AUD
201.6 million ($151.7 million at the transaction date)
capital distribution to Austars shareholders on
September 20, 2006, including a AUD 107.2 million
($80.7 million at the transaction date) distribution to our
company. The AUD 94.4 million ($71.0 million at the
transaction date) 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.
In addition to customary restrictive covenants, prepayment
requirements and events of default, the Austar Bank Facility
requires compliance with various financial covenants such as:
(i) Adjusted Total Debt to EBITDA and (ii) EBITDA to
Total Interest Expense, each capitalized term as defined in the
Austar Bank Facility. The Austar Bank Facility permits Austar
Entertainment to transfer funds to Austar (and indirectly to
Austars shareholders, including subsidiaries of LGI)
through loans, dividends or distributions provided that Austar
Entertainment maintains compliance with applicable covenants.
The Austar Bank Facility is secured by pledges over
(i) Austar Entertainment shares (ii) shares of certain
of Austars subsidiaries and (iii) certain other
assets of Austar and certain of its subsidiaries. The Austar
Bank Facility is also guaranteed by Austar and certain of its
subsidiaries.
II-120
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
Chellomedia
Bank Facility
On December 12, 2006, Chellomedia PFH, an indirect
subsidiary of Chellomedia, consummated a senior secured credit
facility (the Chellomedia Bank Facility) with certain banks and
financial institutions as lenders. The Chellomedia Bank Facility
provides the terms and conditions upon which the lenders have
made available to Chellomedia PFH the following: (a) four
term facilities: (i) a seven-year 87.4 million
($115.3 million) term loan facility, (ii) a seven-year
17.6 million ($23.2 million) term loan facility,
(iii) a seven-year $74.9 million term loan facility
and (iv) a seven-year $15.1 million term loan
facility; (b) a seven-year 25.0 million
($33.0 million) delayed draw facility (which may be drawn
through June 8, 2007); and (c) a six-year
25.0 million ($33.0 million) revolving facility
(which may also be drawn in Hungarian forints). As of
December 31, 2006, the four term facilities have been drawn
in full and the delayed draw facility and revolving facility
have no outstanding borrowings. The proceeds of the four term
facilities have been applied (i) to refinance the
65.0 million ($86.0 at the transaction date) senior
secured credit facility for Plator Holding dated
November 23, 2005, (ii) to repay a 43.0
($56.7 million at the transaction date) intercompany loan
related to an August 2006 acquisition and (iii) to loan
34.7 million ($45.8 million) and
$90.0 million to its parent entities. The margin for the
term facilities and delayed draw facility is 3.00% per annum
(over LIBOR or, in relation to any loan in euro, EURIBOR) and
the margin for the revolving facility is 2.75% per annum (over
EURIBOR or, in relation to any loan in Hungarian forints, BUBOR)
with a downward adjustment to 2.50% per annum if a specified
leverage ratio is obtained.
In addition to customary restrictive covenants, prepayment
requirements and events of default, the Chellomedia Bank
Facility requires Chellomedia PFH to comply with various
financial covenants such as: (i) Total Net Debt to
Annualized EBITDA, (ii) Senior Net Debt to Annualized
EBITDA and (iii) EBITDA to Total Cash Interest Payable,
each capitalized term as defined in the Chellomedia Bank
Facility. The Chellomedia Bank Facility permits Chellomedia PFH
to transfer funds to its parent company (and indirectly to LGI)
through loans, dividends or other distributions provided that
Chellomedia PFH maintains compliance with applicable covenants.
The Chellomedia Bank Facility is secured by pledges over
(i) the shares of Chellomedia PFH and certain of its
material subsidiaries and (ii) certain bank accounts and
intercompany loan receivables of Chellomedia PFHs
immediate parent company, Chellomedia PFH and certain of its
subsidiaries. The Chellomedia Bank Facility is also guaranteed
by Chellomedia PFHs immediate parent company, Chellomedia
PFH (in respect of other obligors obligations) and certain
of Chellomedia PFHs subsidiaries.
Liberty
Puerto Rico Bank Facility
On March 1, 2006, Liberty Puerto Rico 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
Liberty Puerto Rico Bank Facility). The Liberty Puerto Rico Bank
Facility also provides for a $10 million seven-year
revolving loan. Borrowings under the Liberty Puerto Rico Bank
Facility 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.
In addition to customary restrictive covenants, prepayment
requirements and events of default, the Liberty Puerto Rico Bank
Facility requires compliance with various financial covenants
such as: (i) Net Debt to Annualized EBITDA and
(ii) Annualized EBITDA to Total Cash Interest Charges, each
capitalized term as defined in the Liberty Puerto Rico Bank
Facility. The Liberty Puerto Rico Bank Facility permits Liberty
Puerto Rico to transfer funds to its parent company (and
indirectly to LGI) through loans, dividends or other
distributions provided that Liberty Puerto Rico maintains
compliance with applicable covenants.
II-121
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
The Liberty Puerto Rico Bank Facility is secured by pledges over
(i) the Liberty Puerto Rico shares indirectly owned by our
company and (ii) certain other assets owned by Liberty
Puerto Rico. The Liberty Puerto Rico Bank Facility is also
guaranteed by Liberty Puerto Ricos material subsidiaries.
Other
Debt
Other debt at December 31, 2006 includes the
$100.9 million carrying amount of the News Corp. prepaid
forward sales transaction (see note 9) and the
$90.7 million carrying amount of Austars subordinated
transferable adjustable redeemable securities.
Maturities
of Debt and Capital Lease Obligations
Debt maturities for the next five years and thereafter are as
follows (amounts in millions):
|
|
|
|
|
Year ended December 31:
|
|
|
|
|
2007
|
|
$
|
1,231.3
|
|
2008
|
|
|
221.3
|
|
2009
|
|
|
307.3
|
|
2010
|
|
|
723.4
|
|
2011
|
|
|
388.1
|
|
Thereafter
|
|
|
8,812.1
|
|
|
|
|
|
|
Total debt maturities
|
|
|
11,683.5
|
|
Unamortized premiums and discounts
and embedded equity derivatives, net
|
|
|
96.8
|
|
|
|
|
|
|
Total debt
|
|
$
|
11,780.3
|
|
|
|
|
|
|
Current portion
|
|
$
|
1,273.6
|
|
|
|
|
|
|
Noncurrent portion
|
|
$
|
10,506.7
|
|
|
|
|
|
|
Maturities of capital lease obligations for the next five years
and thereafter are as follows (amounts in millions):
|
|
|
|
|
Year ended December 31:
|
|
|
|
|
2007
|
|
$
|
114.9
|
|
2008
|
|
|
100.6
|
|
2009
|
|
|
89.6
|
|
2010
|
|
|
73.5
|
|
2011
|
|
|
44.7
|
|
Thereafter
|
|
|
50.1
|
|
|
|
|
|
|
|
|
|
473.4
|
|
Less: amount representing interest
|
|
|
(23.6
|
)
|
|
|
|
|
|
Present value of net minimum lease
payments
|
|
$
|
449.8
|
|
|
|
|
|
|
Current portion
|
|
$
|
111.3
|
|
|
|
|
|
|
Noncurrent portion
|
|
$
|
338.5
|
|
|
|
|
|
|
II-122
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
The current portion of our debt and capital lease obligations at
December 31, 2006 is as follows (amounts in millions):
|
|
|
|
|
Debt:
|
|
|
|
|
Cablecom Luxembourg Old Fixed Rate
Notes
|
|
$
|
424.8
|
|
Secured borrowing on ABC Family
preferred stock
|
|
|
345.0
|
|
LG Switzerland PIK Loan
|
|
|
327.3
|
|
J:COM Credit Facility
|
|
|
107.1
|
|
Other J:COM debt
|
|
|
45.4
|
|
Other
|
|
|
24.0
|
|
|
|
|
|
|
Total current portion of debt
|
|
$
|
1,273.6
|
|
|
|
|
|
|
Capital lease obligations:
|
|
|
|
|
J:COM
|
|
|
108.2
|
|
UPC Broadband Division
|
|
|
3.1
|
|
|
|
|
|
|
Total current portion of capital
lease obligations
|
|
|
111.3
|
|
|
|
|
|
|
Total current portion of debt and
capital lease obligations
|
|
$
|
1,384.9
|
|
|
|
|
|
|
(12) Deferred
Construction and Maintenance Revenue
J:COM and its subsidiaries provide rebroadcasting services to
noncable television viewers who receive poor reception of
broadcast television signals as a result of obstacles that have
been constructed by third parties. J:COM and its subsidiaries
enter into agreements with these third parties, whereby J:COM
receives up-front compensation to construct and maintain cable
facilities to provide rebroadcasting services to the affected
viewers at no cost to the viewers during the agreement period.
Revenue from these agreements has been deferred and is being
recognized on a straight-line basis over the terms of the
agreements, which generally are 20 years. During the years
ended December 31, 2006 and 2005, J:COM recognized revenue
under these arrangements totaling ¥4,367.0 million
($37.5 million at the average exchange rate for the period)
and ¥3,327.4 million ($30.3 million at the
average exchange rate for the period), respectively. Deferred
revenue recorded under these arrangements is included in our
current and long-term liabilities as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
amounts in millions
|
|
|
Current liabilities
Deferred revenue and advance payments from subscribers and others
|
|
$
|
31.0
|
|
|
$
|
26.9
|
|
Other long-term liabilities
|
|
|
462.2
|
|
|
|
376.0
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
493.2
|
|
|
$
|
402.9
|
|
|
|
|
|
|
|
|
|
|
(13) Income
Taxes
Prior to the Spin Off Date, LMC International and its
80%-or-more-owned domestic subsidiaries (the LMC International
Tax Group) were included in the consolidated federal and state
income tax returns of Liberty Media. LMC Internationals
income taxes included those items in the consolidated income tax
calculation applicable to the LMC International Tax Group
(intercompany tax allocation) and any taxes on income of LMC
Internationals consolidated foreign or domestic
subsidiaries that were excluded from the consolidated federal
and state income tax
II-123
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
returns of Liberty Media. The intercompany tax amounts owed to
Liberty Media as a result of these allocations were contributed
to our equity in connection with the spin off.
In connection with the spin off, LMI (together with its
80%-or-more-owned domestic subsidiaries, the LMI Tax Group),
(i) became a separate tax paying entity, and
(ii) entered into a Tax Sharing Agreement with Liberty
Media. Under the Tax Sharing Agreement, Liberty Media is
responsible for U.S. federal, state, local and foreign income
taxes reported on a consolidated, combined or unitary return
that includes the LMI Tax Group, on the one hand, and Liberty
Media or one of its subsidiaries on the other hand, subject to
certain limited exceptions. We are responsible for all other
taxes that are attributable to the LMI Tax Group, whether
accruing before, on or after the spin off. The Tax Sharing
Agreement requires that we will not take, or fail to take, any
action where such action, or failure to act, would be
inconsistent with or prohibit the spin off from qualifying as a
tax-free transaction. Moreover, we will indemnify Liberty Media
for any loss resulting from such action or failure to act, if
such action or failure to act precludes the spin off from
qualifying as a tax-free transaction. Pursuant to the Tax
Sharing Agreement, Liberty Media allocated certain tax benefits
aggregating $26.7 million to our company during 2005. The
allocation of these tax benefits was treated as a capital
transaction and reflected as an increase to additional paid-in
capital in our consolidated statement of stockholders
equity.
As a result of the LGI Combination, LGI succeeded LMI as the
entity responsible for filing consolidated domestic tax returns
and UGC became a part of the LGI consolidated tax group. The
income taxes of domestic and foreign subsidiaries not included
within the consolidated U.S. tax group are presented in our
financial statements based on a separate return basis for each
tax-paying entity or group.
Periodically, we reevaluate the estimated blended state tax rate
used to compute certain of our deferred tax balances. As a
result of the LMI Tax Group becoming a separate tax paying
entity in connection with the June 2004 spin off, we concluded
that the blended state tax rate should be decreased. In
connection with the June 2005 LGI Combination, we concluded that
the estimated blended state tax rate should be increased. As a
result of these changes in estimates, we recorded a
$4.6 million deferred tax expense during 2005 and a
$22.9 million deferred tax benefit during 2004.
II-124
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
Income tax benefit (expense) consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
Deferred
|
|
|
Total
|
|
|
|
amounts in millions
|
|
|
Year ended December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(28.2
|
)
|
|
$
|
58.6
|
|
|
$
|
30.4
|
|
State and local
|
|
|
(2.2
|
)
|
|
|
3.1
|
|
|
|
0.9
|
|
Foreign
|
|
|
(62.3
|
)
|
|
|
38.9
|
|
|
|
(23.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(92.7
|
)
|
|
$
|
100.6
|
|
|
$
|
7.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(56.4
|
)
|
|
$
|
17.6
|
|
|
$
|
(38.8
|
)
|
State and local
|
|
|
(4.0
|
)
|
|
|
(1.7
|
)
|
|
|
(5.7
|
)
|
Foreign
|
|
|
(43.9
|
)
|
|
|
59.7
|
|
|
|
15.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(104.3
|
)
|
|
$
|
75.6
|
|
|
$
|
(28.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(51.9
|
)
|
|
$
|
69.5
|
|
|
$
|
17.6
|
|
State and local
|
|
|
(4.6
|
)
|
|
|
13.7
|
|
|
|
9.1
|
|
Foreign
|
|
|
(9.8
|
)
|
|
|
(3.0
|
)
|
|
|
(12.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(66.3
|
)
|
|
$
|
80.2
|
|
|
$
|
13.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
II-125
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
Income tax benefit (expense) attributable to our companys
earnings (loss) before taxes, minority interest and discontinued
operations differs from the amounts computed by applying the
U.S. federal income tax rate of 35%, as a result of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
amounts in millions
|
|
|
Computed expected tax
benefit (expense)
|
|
$
|
59.6
|
|
|
$
|
(30.1
|
)
|
|
$
|
47.7
|
|
Change in valuation allowance
|
|
|
119.7
|
|
|
|
40.7
|
|
|
|
(52.8
|
)
|
Enacted tax law, case law and rate
changes
|
|
|
(65.1
|
)
|
|
|
(12.7
|
)
|
|
|
(106.5
|
)
|
International rate differences
|
|
|
(41.1
|
)
|
|
|
(6.9
|
)
|
|
|
6.5
|
|
Income recognized for tax
purposes, but not for financial reporting purposes
|
|
|
(40.7
|
)
|
|
|
(23.7
|
)
|
|
|
(25.8
|
)
|
Non-deductible or taxable foreign
currency exchange results
|
|
|
(18.3
|
)
|
|
|
60.6
|
|
|
|
(27.7
|
)
|
Non-taxable investment income
(loss)
|
|
|
16.8
|
|
|
|
(34.0
|
)
|
|
|
23.7
|
|
Non-deductible interest and other
expenses
|
|
|
(15.6
|
)
|
|
|
(53.9
|
)
|
|
|
(75.0
|
)
|
Foreign taxes
|
|
|
(6.8
|
)
|
|
|
(3.4
|
)
|
|
|
0.3
|
|
State and local income taxes, net
of federal income taxes
|
|
|
0.6
|
|
|
|
(5.5
|
)
|
|
|
1.6
|
|
Losses on sale of investments,
affiliates and other assets
|
|
|
|
|
|
|
46.8
|
|
|
|
84.7
|
|
Change in estimated blended state
tax rate
|
|
|
|
|
|
|
(4.6
|
)
|
|
|
22.9
|
|
Gain on extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
107.9
|
|
Other, net
|
|
|
(1.2
|
)
|
|
|
(2.0
|
)
|
|
|
6.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7.9
|
|
|
$
|
(28.7
|
)
|
|
$
|
13.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The current and non-current components of our deferred tax
assets (liabilities) are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
amounts in millions
|
|
|
Current deferred tax assets
|
|
$
|
131.6
|
|
|
$
|
155.7
|
|
Non-current deferred tax assets
|
|
|
184.2
|
|
|
|
75.7
|
|
Current deferred tax liabilities
|
|
|
(5.6
|
)
|
|
|
(2.5
|
)
|
Non-current deferred tax
liabilities
|
|
|
(537.1
|
)
|
|
|
(546.0
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
(226.9
|
)
|
|
$
|
(317.1
|
)
|
|
|
|
|
|
|
|
|
|
Our deferred income tax valuation allowance decreased
$140.4 million in 2006. Such decrease reflects the net
effect of (i) net tax benefits recorded in the statement of
operations of $119.7 million, (ii) acquisitions and
similar transactions, (iii) foreign currency translation
adjustments, (iv) valuation allowances released to
goodwill, and (v) other.
Approximately $1,595 million of the valuation allowance
recorded as of December 31, 2006 was attributable to
deferred tax assets for which any subsequently recognized tax
benefits will be allocated to reduce goodwill and other
noncurrent intangible assets related to various business
combinations.
II-126
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities are presented below:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
amounts in millions
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
2,314.6
|
|
|
$
|
2,225.8
|
|
Debt
|
|
|
249.8
|
|
|
|
135.2
|
|
Property and equipment, net
|
|
|
188.0
|
|
|
|
242.9
|
|
Deferred revenue
|
|
|
157.0
|
|
|
|
123.9
|
|
Intangible assets, net
|
|
|
27.3
|
|
|
|
57.0
|
|
Deferred compensation and severance
|
|
|
22.7
|
|
|
|
34.6
|
|
Investments
|
|
|
8.4
|
|
|
|
15.9
|
|
Other future deductible amounts
|
|
|
190.1
|
|
|
|
136.7
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
|
3,157.9
|
|
|
|
2,972.0
|
|
Valuation allowance
|
|
|
(1,921.5
|
)
|
|
|
(2,061.9
|
)
|
|
|
|
|
|
|
|
|
|
Deferred tax assets, net of
valuation allowance
|
|
|
1,236.4
|
|
|
|
910.1
|
|
|
|
|
|
|
|
|
|
|
Deferred tax
liabilities:
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
|
(457.9
|
)
|
|
|
(416.1
|
)
|
Investments
|
|
|
(410.1
|
)
|
|
|
(377.6
|
)
|
Property and equipment
|
|
|
(352.5
|
)
|
|
|
(276.2
|
)
|
Other future taxable amounts
|
|
|
(242.8
|
)
|
|
|
(157.3
|
)
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
(1,463.3
|
)
|
|
|
(1,227.2
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
(226.9
|
)
|
|
$
|
(317.1
|
)
|
|
|
|
|
|
|
|
|
|
II-127
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
The significant components of our tax loss carryforwards and
related tax assets at December 31, 2006 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax loss
|
|
|
Related tax
|
|
|
Expiration
|
Country
|
|
carryforward
|
|
|
asset
|
|
|
date
|
|
|
amounts in millions
|
|
Switzerland
|
|
$
|
3,627.3
|
|
|
$
|
800.3
|
|
|
|
2007-2013
|
The Netherlands
|
|
|
2,975.5
|
|
|
|
758.7
|
|
|
|
2011-2015
|
France
|
|
|
924.4
|
|
|
|
318.2
|
|
|
|
Indefinite
|
Ireland
|
|
|
424.3
|
|
|
|
53.0
|
|
|
|
Indefinite
|
Luxembourg
|
|
|
361.2
|
|
|
|
109.7
|
|
|
|
Indefinite
|
Chile
|
|
|
274.8
|
|
|
|
46.7
|
|
|
|
Indefinite
|
Australia
|
|
|
231.0
|
|
|
|
69.3
|
|
|
|
Indefinite
|
Austria
|
|
|
205.9
|
|
|
|
51.5
|
|
|
|
Indefinite
|
Japan
|
|
|
153.4
|
|
|
|
61.4
|
|
|
|
2009-2013
|
Poland
|
|
|
60.3
|
|
|
|
11.5
|
|
|
|
2007-2010
|
United States
|
|
|
36.6
|
|
|
|
13.2
|
|
|
|
2022-2026
|
Other
|
|
|
70.8
|
|
|
|
21.1
|
|
|
|
Various
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
9,345.5
|
|
|
$
|
2,314.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our tax loss carryforwards within each jurisdiction combine all
companies tax losses in that jurisdiction, however,
certain tax jurisdictions limit the ability to offset taxable
income of a separate company or different tax group with the tax
losses associated with another separate company or group. Some
losses are limited in use due to change in control or same
business tests. We intend to indefinitely reinvest earnings from
certain foreign operations except to the extent the earnings are
subject to current U.S. income taxes. At December 31, 2006,
U.S. and
non-U.S.
income and withholding taxes for which a deferred tax might
otherwise be required have not been provided on an estimated
$4.5 billion of cumulative temporary differences
(including, for this purpose, any difference between the tax
basis in stock of a consolidated subsidiary and the amount of
the subsidiarys net equity determined for financial
reporting purposes) related to investments in foreign
subsidiaries. The determination of the additional U.S. and
non-U.S.
income and withholding tax that would arise upon a reversal of
the temporary differences is subject to offset by available
foreign tax credits, subject to certain limitations, and it is
impractical to estimate the amount of income and withholding tax
that might be payable.
Because we do business in foreign countries and have a
controlling interest in most of our subsidiaries, such
subsidiaries are considered to be controlled foreign
corporations (CFCs) under U.S. tax law. In general, our
pro rata share of certain income earned by these subsidiaries
that are CFCs during a taxable year when such subsidiaries have
positive current or accumulated earnings and profits will be
included in our income to the extent of the earnings and profits
when the income is earned, regardless of whether the income is
distributed to us. The income, often referred to as
Subpart F income, generally includes, but is not
limited to, such items as interest, dividends, royalties, gains
from the disposition of certain property, certain exchange gains
in excess of exchange losses, and certain related party sales
and services income.
In addition, a U.S. corporation that is a shareholder in a CFC
may be required to include in its income its pro rata share of
the CFCs increase in the average adjusted tax basis of any
investment in U.S. property held by a wholly or majority owned
CFC to the extent that the CFC has positive current or
accumulated earnings and profits. This is the case even though
the U.S. corporation may not have received any actual cash
distributions from the CFC.
II-128
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
Although we intend to take reasonable tax planning measures to
limit our tax exposure, there can be no assurance we will be
able to do so.
In general, a U.S. corporation may claim a foreign tax credit
against its U.S. federal income tax expense for foreign income
taxes paid or accrued. A U.S. corporation may also claim a
credit for foreign income taxes paid or accrued on the earnings
of a foreign corporation paid to the U.S. corporation as a
dividend.
Our ability to claim a foreign tax credit for dividends received
from our foreign subsidiaries or foreign taxes paid or accrued
is subject to various significant limitations under U.S. tax
laws including a limited carry back and carry forward period.
Some of our operating companies are located in countries with
which the United States does not have income tax treaties.
Because we lack treaty protection in these countries, we may be
subject to high rates of withholding taxes on distributions and
other payments from these operating companies and may be subject
to double taxation on our income. Limitations on the ability to
claim a foreign tax credit, lack of treaty protection in some
countries, and the inability to offset losses in one foreign
jurisdiction against income earned in another foreign
jurisdiction could result in a high effective U.S. federal tax
rate on our earnings. Since substantially all of our revenue is
generated abroad, including in jurisdictions that do not have
tax treaties with the U.S., these risks are proportionately
greater for us than for companies that generate most of their
revenue in the U.S. or in jurisdictions that have these treaties.
Through our subsidiaries, we maintain a presence in many foreign
countries. Many of these countries maintain tax regimes that
differ significantly from the system of income taxation used in
the United States. We have accounted for the effect of foreign
taxes based on what we believe is reasonably expected to apply
to us and our subsidiaries based on tax laws currently in effect
and/or reasonable interpretations of these laws. Because some
foreign jurisdictions do not have systems of taxation that are
as well established as the system of income taxation used in the
United States or tax regimes used in other major industrialized
countries, it may be difficult to anticipate how foreign
jurisdictions will tax our and our subsidiaries current
and future operations.
(14) Stockholders
Equity
Capitalization
Our authorized capital stock consists of
(i) 1,050,000,000 shares of common stock, par value
$.01 per share, of which 500,000,000 shares are designated
LGI Series A common stock, 50,000,000 shares are
designated LGI Series B common stock and
500,000,000 shares are designated LGI Series C common
stock and (ii) 50,000,000 shares of LGI preferred
stock, par value $.01 per share. LGIs restated certificate
of incorporation authorizes the board of directors to authorize
the issuance of one or more series of preferred stock.
Under LGIs restated certificate of incorporation, holders
of LGI Series A common stock are entitled to one vote for
each share of such stock held, and holders of LGI Series B
common stock are entitled to 10 votes for each share of such
stock held, on all matters submitted to a vote of LGI
stockholders at any annual or special meeting. Holders of LGI
Series C common stock are not entitled to any voting
powers, except as required by Delaware law (in which case
holders of LGI Series C common stock are entitled to
1/100th of a vote per share).
Each share of LGI Series B common stock is convertible into
one share of LGI Series A common stock. One share of LGI
Series A common stock is reserved for issuance for each
share of LGI Series B common stock that is either issued or
subject to future issuance pursuant to outstanding stock
options. At December 31, 2006, there were 6,748,229,
3,066,716 and 9,566,033 shares of LGI Series A,
Series B and Series C common stock, respectively,
reserved for issuance pursuant to outstanding stock options,
5,652,674 and 5,651,058 shares of LGI Series A and
Series C common stock, respectively, reserved for issuance
pursuant to outstanding SARs and 11,044,375 shares of each
of LGI Series A and Series C common stock reserved for
issuance upon conversion of the UGC Convertible Notes. In
addition to these amounts, one share of LGI Series A common
stock is reserved for issuance for each share
II-129
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
of LGI Series B common stock that is either issued
(7,284,799 shares) or subject to future issuance pursuant
to outstanding stock options (3,066,716 shares).
Subject to any preferential rights of any outstanding series of
our preferred stock, the holders of LGI Series A,
Series B and Series C common stock will be entitled to
such dividends as may be declared from time to time by our board
from funds available therefor. Except with respect to certain
share distributions, whenever a dividend is paid to the holder
of one of our series of common stock, we shall also pay to the
holders of the other series of our common stock an equal per
share dividend. There are currently no restrictions on our
ability to pay dividends in cash or stock.
In the event of our liquidation, dissolution and winding up,
after payment or provision for payment of our debts and
liabilities and subject to the prior payment in full of any
preferential amounts to which our preferred stockholders may be
entitled, the holders of LGI Series A, Series B and
Series C common stock will share equally, on a share for
share basis, in our assets remaining for distribution to the
holders of LGI common stock.
LMI
Rights Offering
On July 26, 2004, we commenced the LMI Rights Offering,
whereby holders of record of LMI common stock on that date
received 0.20 transferable subscription rights for each share of
LMI common stock held. Each whole right to purchase LMI
Series A common stock entitled the holder to purchase one
share of LMI Series A common stock and one share of LMI
Series C common stock at a combined subscription price of
$25.00. Each whole right to purchase LMI Series B common
stock entitled the holder to purchase one share of LMI
Series B common stock and one share of LMI Series C
common stock at a combined subscription price of $27.50. Each
whole right entitled the holder to subscribe, at the same
applicable subscription price pursuant to an oversubscription
privilege, for additional shares of the applicable series of LMI
common stock, subject to proration. The LMI Rights Offering
expired in accordance with its terms on August 23, 2004.
Pursuant to the terms of the LMI Rights Offering, we issued
28,245,000 shares of LMI Series A common stock,
1,211,157 shares of LMI Series B common stock and
29,456,157 shares of LMI Series C common stock in
exchange for aggregate cash proceeds of $739.4 million,
before deducting related offering costs of $3.7 million.
Structured
Stock Repurchase Instruments
Pursuant to the guidance contained in EITF
00-19,
Accounting for Derivative Financial Instruments Indexed to,
and Potentially Settled in, a Companys Own Stock (EITF
00-19), we
accounted for the following call agreements as equity
instruments.
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 November 2005, we paid $12.0 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 $24.35 and
(ii) purchased call options on an equivalent number of
shares of LGI Series A common stock with an exercise price
of zero. At the expiration of this contract in December 2005, we
exercised our call options and acquired 500,000 shares of
LGI Series A common stock.
In October 2005, we paid $11.8 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 $24.25 and
(ii) purchased call options on an equivalent number of
shares of LGI Series A common stock with an exercise
II-130
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
price of zero. In connection with the November 2005 expiration
of this agreement, we received a cash payment of
$12.1 million.
In July 2005, we paid $11.2 million to enter into a call
option agreement pursuant to which we contemporaneously
(i) sold call options on 250,000 shares of LGI
Series A common stock and 250,000 shares of LGI
Series C common stock at a combined exercise price of
$46.14 and (ii) purchased call options on an equivalent
number of shares of LGI Series A and Series C common
stock with an exercise price of zero. In connection with the
August 2005 expiration of this agreement, we received a cash
payment of $11.5 million.
Stock
Repurchases
During 2004, we purchased 3 million shares of our LGI
Series A and Series C common stock from Comcast
Corporation in a private transaction for a cash purchase price
of $127.9 million. These shares were cancelled during the
second quarter of 2005.
On June 20, 2005, our board of directors authorized a stock
repurchase program. Under the program, we may acquire from time
to time up to $200 million in LGI Series A and
Series C common stock. During 2005, we repurchased under
this program 2,048,231 and 1,455,859 shares of LGI
Series A and Series C common stock, respectively, for
aggregate cash consideration of $78.9 million.
During the first quarter of 2006, we purchased an additional
$121.1 million of our LGI Series A and Series C
common stock pursuant to the June 20, 2005 stock repurchase
program.
On March 8, 2006, our board of directors approved a new
stock repurchase program under which we may acquire an
additional $250 million of our LGI Series A and
Series C common stock 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. Under this program, we acquired $132.1 million
of our LGI Series A and Series C common stock during
the second and third quarters of 2006. At December 31,
2006, we were authorized under the March 8, 2006 stock
repurchase program to acquire an additional $117.9 million
of our LGI Series A and Series C common stock.
On June 21, 2006, we purchased 10,000,000 shares of
our LGI Series A common stock at $25.00 per share and
10,288,066 shares of our LGI Series C common stock at
$24.30 per share, for an aggregate purchase price of
$500.0 million before acquisition costs, pursuant to two
self-tender offers. On September 15, 2006, we purchased
20,000,000 shares of our LGI Series A common stock at
$25.00 per share and 20,534,000 shares of our LGI
Series C common stock at $24.35 per share, for an aggregate
purchase price of $1.0 billion before acquisition costs,
pursuant to two modified Dutch auction self-tender offers. On
January 10, 2007, we purchased 5,084,746 shares of our
LGI Series A common stock at $29.50 per share and
5,246,590 shares of our LGI Series C common stock at
$28.59 per share, for an aggregate purchase price of
$300.0 million before acquisition costs, pursuant to two
modified Dutch auction self-tender offers. Shares purchased
pursuant to the foregoing tender offers are not applied against
our March 8, 2006 stock repurchase program.
Pursuant to the foregoing stock repurchase programs and the June
and September 2006 self-tender offers, during 2006, we
repurchased a total of 32,698,558 shares of our LGI
Series A common stock at a weighted average price of $24.79
per share and 40,528,748 shares of our LGI Series C
common stock at a weighted average price of $23.35 per share,
for an aggregate cash purchase price of $1,756.9 million,
including direct acquisition costs.
II-131
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
Stock
Split
On September 6, 2005, LGI effected a stock split in the
form of a stock dividend of LGI Series C common stock to
holders of record of LGI Series A and Series B common
stock. Pursuant to the terms of this stock dividend, holders of
record received one share of LGI Series C common stock for
each share of LGI Series A common stock, and one share of
LGI Series C common stock for each share of LGI
Series B common stock. Unless otherwise indicated, all LGI
share and per share amounts presented herein have been
retroactively adjusted to give effect to this stock dividend.
Treasury
Stock
In connection with the LGI Combination, we issued
2,067,786 shares of each of LGI Series A and
Series C common stock to subsidiaries of UGC. During 2006,
all of such shares were cancelled.
Equity
Transactions of Subsidiaries and Affiliates
During 2006, 2005 and 2004, we recorded adjustments to
additional paid-in capital associated with the dilution of our
ownership interests and the equity transactions of certain of
our subsidiaries and affiliates. See notes 5 and 7.
SARs
Reclassification
During the fourth quarter of 2005, we concluded that we had both
the ability and intent to satisfy most of our obligations under
LGI SARs with shares of LGI common stock. As a result, we have
reclassified $50.3 million of our obligations under LGI
SARs from liability accounts to additional paid-in capital.
Restricted
Net Assets
At December 31, 2006, $6,907.5 million of our net
assets represented net assets of certain of our subsidiaries
that were not available to be transferred to our company in the
form of dividends, loans or advances due to restrictions
contained in the credit facilities of these subsidiaries.
|
|
(15)
|
Stock
Incentive Awards
|
As discussed in note 3, our stock-based compensation
expense is based on the stock incentive awards held by our and
our subsidiaries employees, including stock incentive
awards related to LGI common stock, J:COM common stock,
Zonemedia common stock and the common stock of certain of our
other subsidiaries. The following table summarizes our
stock-based compensation expense for the indicated periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
amounts in millions
|
|
|
LGI Series A, Series B
and Series C common stock
|
|
$
|
58.0
|
|
|
$
|
28.8
|
|
|
$
|
135.4
|
|
J:COM ordinary shares
|
|
|
2.9
|
|
|
|
23.1
|
|
|
|
7.2
|
|
Restricted shares of LGI and
Zonemedia
|
|
|
7.1
|
|
|
|
5.1
|
|
|
|
|
|
Other
|
|
|
2.0
|
|
|
|
2.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
70.0
|
|
|
$
|
59.0
|
|
|
$
|
142.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
II-132
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
The following table provides certain information related to
nonvested stock awards as of December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2006
|
|
|
|
LGI Series A,
|
|
|
|
|
|
|
|
|
|
|
|
|
Series B and
|
|
|
|
|
|
|
|
|
|
|
|
|
Series C
|
|
|
J:COM
|
|
|
Restricted shares
|
|
|
SARs on VTR
|
|
|
|
common
|
|
|
ordinary
|
|
|
of LGI and
|
|
|
common
|
|
|
|
stock (a)
|
|
|
shares (b)
|
|
|
Zonemedia (c)
|
|
|
stock
|
|
|
Total compensation cost related to
nonvested awards not yet recognized (in millions)
|
|
$
|
76.9
|
|
|
$
|
1.2
|
|
|
$
|
12.4
|
|
|
$
|
5.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average period remaining
for expense recognition (in years)
|
|
|
2.63
|
|
|
|
0.46
|
|
|
|
3.00
|
|
|
|
3.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Amounts relate to the LGI incentive plans (including the
Transitional Plan) and the UGC incentive plans described 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
common stock held by employees of Zonemedia. For additional
information, see note 5. |
II-133
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
The following table summarizes certain information related to
the LGI common stock-incentive awards granted and exercised
pursuant to the LGI and UGC incentive plans described below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
dollar amounts in millions, except per share amounts
|
|
|
LGI Series A,
Series B and Series C common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumptions used to estimate fair
value of awards granted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free interest rate
|
|
|
4.58 5.20%
|
|
|
|
3.70 4.55%
|
|
|
|
3.61 4.09%
|
|
Expected life
|
|
|
4.5 6.0 years
|
|
|
|
4.0 6.0 years
|
|
|
|
6.0 years
|
|
Expected volatility
|
|
|
24.80 29.60%
|
|
|
|
25.25 45.60%
|
|
|
|
25.00 100%
|
|
Expected dividend yield
|
|
|
none
|
|
|
|
none
|
|
|
|
none
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average grant-date fair
value per share of awards granted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
$
|
6.52
|
|
|
$
|
7.64
|
|
|
$
|
9.01
|
|
SARs
|
|
$
|
6.36
|
|
|
$
|
5.16
|
|
|
$
|
14.03
|
|
Restricted stock
|
|
$
|
20.28
|
|
|
$
|
22.23
|
|
|
$
|
22.19
|
|
Total intrinsic value of awards
exercised:
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
$
|
10.9
|
|
|
$
|
17.8
|
|
|
$
|
7.0
|
|
SARs
|
|
$
|
22.4
|
|
|
$
|
24.9
|
|
|
$
|
12.0
|
|
Total share-based liabilities paid
|
|
$
|
|
|
|
$
|
24.9
|
|
|
$
|
12.0
|
|
Cash received from exercise of
options
|
|
$
|
17.5
|
|
|
$
|
20.8
|
|
|
$
|
16.1
|
|
Income tax benefit related to
stock-based compensation
|
|
$
|
14.2
|
|
|
$
|
0.7
|
|
|
$
|
36.2
|
|
Income tax expense related to
exercise of options SARs and restricted stock
|
|
$
|
(5.4
|
)
|
|
$
|
|
|
|
$
|
|
|
Stock
Incentive Plans LGI Common Stock
The
LGI Incentive Plan
The Liberty Global, Inc. 2005 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
II-134
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
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 seven
years after the grant date. The LGI Incentive Plan had
35,430,183 shares available for grant as of
December 31, 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.
In 2004, our company entered into an option agreement with John
C. Malone, our Chairman of the Board, pursuant to which our
company granted to Mr. Malone, under the LGI Incentive
Plan, options to acquire 1,568,562 shares of LGI
Series B common stock at an exercise price per share of
$19.26 and 1,568,562 shares of LGI Series C common
stock at an exercise price per share of $17.49. These options
were fully exercisable immediately; however,
Mr. Malones rights with respect to the options and
any shares issued upon exercise vest at the rate of 20% per year
on each anniversary of the Spin Off Date, provided that
Mr. Malone continues to have a qualifying relationship
(whether as a director, officer, employee or consultant) with
LGI. If Mr. Malone ceases to have such a qualifying
relationship (subject to certain exceptions for his death or
disability or termination without cause), his unvested options
will be terminated and/or LGI will have the right to require
Mr. Malone to sell to our company, at the exercise price of
the options, any shares of LGI common stock previously acquired
by Mr. Malone upon exercise of options which have not
vested as of the date on which Mr. Malone ceases to have a
qualifying relationship with our company.
As a protective measure in order to avoid the potential
application of additional taxes under Section 409A of the
Internal Revenue Code of 1986 (Section 409A), we entered
into a modification agreement with Mr. Malone effective
December 22, 2005 (the Section 409A Modification
Effective Date), to increase the exercise prices of such
options, which were not vested as of December 31, 2004. The
exercise price per share of Mr. Malones options to
acquire 1,568,562 shares of LGI Series B common stock
was increased from $19.26 to $20.10, and the exercise price per
share of Mr. Malones options to acquire
1,568,562 shares of LGI Series C common stock was
increased from $17.49 to $18.26.
On December 22, 2005, we paid Mr. Malone
$2.5 million of consideration equal to the aggregate amount
of the increase in the exercise price of Series B Stock and
Series C Stock underlying these options. The consideration
was paid through a grant under the LGI Incentive Plan of 59,270
restricted shares of LGI Series B common stock and 58,403
restricted shares of LGI Series C common stock using fair
market values as of the Section 409A Modification Effective
Date. The restriction period with respect to these restricted
shares expired or will expire with respect to 40% of the
original number of restricted shares on June 7, 2006 and
with respect to an additional 20% of the original number of
these restricted shares on each June 7 thereafter through 2009.
The
LGI Directors Incentive Plan
The Liberty Global, Inc. 2005 Nonemployee 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, SARs,
restricted shares, stock units or any combination of the
foregoing under the LGI Directors Incentive Plan (collectively,
awards). Only non-employee members of our
II-135
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
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 9,697,054 shares available for
grant as of December 31, 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.
The
Transitional Plan
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, Series B and
Series 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
The following tables summarize the activity during 2006 in LGI
stock awards under the LGI and UGC incentive plans, as described
above. The tables also include activity related to LGI stock
awards held by Zonemedia employees and Liberty Media employees:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
880,850
|
|
|
$
|
20.67
|
|
|
|
|
|
|
|
|
|
Expired or canceled
|
|
|
(9,475
|
)
|
|
$
|
79.11
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(127,614
|
)
|
|
$
|
22.26
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(527,570
|
)
|
|
$
|
15.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31,
2006
|
|
|
6,748,229
|
|
|
$
|
20.24
|
|
|
|
5.64
|
|
|
$
|
73.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31,
2006
|
|
|
3,946,138
|
|
|
$
|
19.41
|
|
|
|
5.05
|
|
|
$
|
52.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
II-136
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 December 31,
2006
|
|
|
3,066,716
|
|
|
$
|
20.01
|
|
|
|
5.83
|
|
|
$
|
28.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31,
2006
|
|
|
3,066,716
|
|
|
$
|
20.01
|
|
|
|
5.83
|
|
|
$
|
28.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
880,850
|
|
|
$
|
20.11
|
|
|
|
|
|
|
|
|
|
Expired or canceled
|
|
|
(9,475
|
)
|
|
$
|
74.89
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(127,614
|
)
|
|
$
|
21.24
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(627,561
|
)
|
|
$
|
14.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31,
2006
|
|
|
9,566,033
|
|
|
$
|
19.11
|
|
|
|
5.72
|
|
|
$
|
97.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31,
2006
|
|
|
6,763,942
|
|
|
$
|
18.58
|
|
|
|
5.41
|
|
|
$
|
76.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
|
|
|
Weighted average
|
|
|
|
Number of
|
|
|
grant-date
|
|
|
remaining
|
|
Restricted stock LGI Series A common stock:
|
|
shares
|
|
|
fair value per share
|
|
|
contractual term
|
|
|
|
|
|
|
|
|
|
in years
|
|
|
Outstanding at January 1, 2006
|
|
|
347,797
|
|
|
$
|
23.01
|
|
|
|
|
|
Granted
|
|
|
587,076
|
|
|
$
|
20.56
|
|
|
|
|
|
Expired or canceled
|
|
|
(68,269
|
)
|
|
$
|
22.80
|
|
|
|
|
|
Forfeited
|
|
|
(22,270
|
)
|
|
$
|
20.71
|
|
|
|
|
|
Released from restrictions
|
|
|
(184,145
|
)
|
|
$
|
22.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31,
2006
|
|
|
660,189
|
|
|
$
|
21.19
|
|
|
|
3.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
II-137
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
|
|
|
Weighted average
|
|
|
|
Number of
|
|
|
grant-date
|
|
|
remaining
|
|
Restricted stock LGI Series B common stock:
|
|
shares
|
|
|
fair value per share
|
|
|
contractual term
|
|
|
|
|
|
|
|
|
|
in years
|
|
|
Outstanding at January 1, 2006
|
|
|
59,270
|
|
|
$
|
22.23
|
|
|
|
|
|
Granted
|
|
|
|
|
|
$
|
|
|
|
|
|
|
Expired or canceled
|
|
|
|
|
|
$
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
$
|
|
|
|
|
|
|
Released from restrictions
|
|
|
(23,708
|
)
|
|
$
|
22.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31,
2006
|
|
|
35,562
|
|
|
$
|
22.23
|
|
|
|
3.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
|
|
|
Weighted average
|
|
|
|
Number of
|
|
|
grant-date
|
|
|
remaining
|
|
Restricted stock LGI Series C common stock:
|
|
shares
|
|
|
fair value per share
|
|
|
contractual term
|
|
|
|
|
|
|
|
|
|
in years
|
|
|
Outstanding at January 1, 2006
|
|
|
406,164
|
|
|
$
|
21.62
|
|
|
|
|
|
Granted
|
|
|
587,080
|
|
|
$
|
20.00
|
|
|
|
|
|
Expired or canceled
|
|
|
(68,269
|
)
|
|
$
|
21.58
|
|
|
|
|
|
Forfeited
|
|
|
(22,270
|
)
|
|
$
|
20.11
|
|
|
|
|
|
Released from restrictions
|
|
|
(207,470
|
)
|
|
$
|
21.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31,
2006
|
|
|
695,235
|
|
|
$
|
20.47
|
|
|
|
3.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
(196,359
|
)
|
|
$
|
17.16
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,225,090
|
)
|
|
$
|
10.64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31,
2006
|
|
|
5,652,674
|
|
|
$
|
15.54
|
|
|
|
6.56
|
|
|
$
|
54.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31,
2006
|
|
|
1,305,967
|
|
|
$
|
16.21
|
|
|
|
6.55
|
|
|
$
|
13.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
II-138
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
(196,359
|
)
|
|
$
|
16.30
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,216,174
|
)
|
|
$
|
10.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31,
2006
|
|
|
5,651,058
|
|
|
$
|
14.78
|
|
|
|
6.56
|
|
|
$
|
53.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31,
2006
|
|
|
1,304,351
|
|
|
$
|
15.38
|
|
|
|
6.55
|
|
|
$
|
12.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2006, total SARs outstanding included
1,213,567 LGI Series A common stock capped SARs and
1,213,567 LGI Series C common stock capped SARs and total
SARs exercisable included 207,557 LGI Series A common stock
capped SARs and 207,557 LGI Series C common stock capped
SARs. The holder of an LGI Series A common stock capped SAR
will receive the difference between $6.84 and the lesser of
$10.90 or the market price of LGI Series A common stock on
the date of exercise. The holder of a LGI Series C common
stock capped SAR will receive the difference between $6.48 and
the lesser of $10.31 or the market price of LGI Series C
common stock on the date of exercise.
LGI
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 for our senior executives (the
Senior Executive Performance Plan) pursuant to the LGI Incentive
Plan. The aggregate amount of the maximum achievable awards that
may be allocated under the Senior Executive Performance Plan, as
finalized in February 2007, is $313.5 million. In February
2007, the full amount of the maximum achievable awards were
allocated or reserved for allocation to participants including
our President and Chief Executive Officer, and each of our other
executive officers. On January 12, 2007, the compensation
committee of our board authorized the implementation of a
similar performance-based incentive plan (the Key Employee
Performance Plan) pursuant to the LGI Incentive Plan, for
certain key employees not participating in the Senior Executive
Performance Plan. The aggregate amount of the maximum achievable
awards under the Key Employee Performance Plan, as finalized in
February 2007, is $86.5 million.
Each 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. At the
end of the two-year performance period, each participant may
become eligible to receive varying percentages of the maximum
achievable award specified for such participant based on
achievement of specified compound annual growth rates in
consolidated operating cash flow (see note 22), adjusted
for events such as acquisitions, dispositions and changes in
foreign currency exchange rates that affect comparability (OCF
CAGR).
If OCF CAGR is less than 12%, no participant will be eligible to
receive any amount under the Performance Plans. At OCF CAGRs
ranging from 12% to 17%, the percentages of the maximum
achievable awards that participants will become eligible to
receive will range from 50% to 100%, subject to the other
requirements of the Performance Plans. The amount of the award
initially determined on this basis may be reduced at the
discretion of the compensation committee based on an assessment
of the participants individual job performance during the
performance period.
II-139
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
Awards will be paid or will vest during the following three-year
period, and will be subject to forfeiture upon certain events of
termination of employment or acceleration in certain
circumstances. Further the compensation committee will have the
discretion to reduce the unpaid balance of an award based on an
assessment of the participants individual job performance
during the service period. Awards may be settled in cash,
restricted or unrestricted shares of LGI Series A and
Series C common stock, or any combination of the foregoing,
at the discretion of the compensation committee. Payments will
be made or will vest in equal semi-annual installments on each
March 31 and September 30. Participants in the Senior
Executive Performance Plan will generally not be eligible to
receive any equity incentive awards that would otherwise be
granted in 2007 and 2008.
The compensation committee has determined that its current
intention is to settle awards earned under each Performance Plan
using restricted or unrestricted stock, although it reserves the
right to change that determination in the future. In light of
the compensation committees current intention, we will
account for awards granted under the Performance Plans as
liability-based awards pursuant to the provisions of
SFAS No. 123(R). As no awards were granted during 2006
and as the requisite service period does not begin until
January 1, 2007, we will not begin recording compensation
expense under the Performance Plans until January 2007.
Compensation expense under the Performance Plans will be
(i) recognized using the accelerated attribution method
based on our assessment of the awards that are probable to be
earned and (ii) reported as stock-based compensation in our
consolidated statements of operations, notwithstanding the fact
that the compensation committee could elect at a future date to
cash settle all or any portion of vested awards under the
Performance Plans.
J:COM
Stock Option Plans
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. With the exception of the options granted in 2006,
these options generally expire at dates ranging from August 2010
to August 2012. As of December 31, 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 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
|
|
|
(2,404
|
)
|
|
¥
|
80,000
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(692
|
)
|
|
¥
|
80,000
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(18,771
|
)
|
|
¥
|
80,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31,
2006
|
|
|
155,941
|
|
|
¥
|
80,030
|
|
|
|
4.72
|
|
|
¥
|
2,490.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31,
2006
|
|
|
147,745
|
|
|
¥
|
80,152
|
|
|
|
4.65
|
|
|
¥
|
2,341.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The exercise price of these options was significantly below the
market price of J:COM common stock on the date of grant. These
options expire in March 2026. |
II-140
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
During 2006 and 2005, J:COM received cash proceeds of
$13.2 million and $8.5 million, respectively, in
connection with the exercise of stock options.
Austar
Stock Option Plans
At December 31, 2006 and 2005, our majority owned
subsidiary, Austar, had 50,000 options outstanding to purchase
ordinary shares at an exercise price of $4.70. All options
outstanding at December 31, 2006 and 2005 were fully vested
and exercisable and expire in 2009. No additional options are
expected to be issued pursuant to this plan.
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
December 31, 2006, none of the 54,025,795 Class B
shares have been converted into ordinary shares, as they have
not vested. During 2006, all of the remaining 20,840,817
Class A shares were converted into ordinary shares.
Stock-based compensation expense with respect to Austars
compensatory plans was not significant during 2006.
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 18.8% common stock interest in 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 share-based compensation plan
and have reclassified the liability as of January 1, 2006
to minority interests in consolidated subsidiaries in our
consolidated balance sheet. See note 21.
VTR
Phantom SARs Plan
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 compensation
committee that administers the VTR Plan. On April 12, 2006,
the VTR compensation committee granted a total of 945,000 SARs,
each with a base price of 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 compensation committee. As the
outstanding SARs under this plan currently must be settled in
cash, we use the liability method to account for the VTR phantom
SARs.
II-141
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
A summary of the VTR Plan activity during 2006 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted average
|
|
|
|
|
|
|
Number of
|
|
|
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
|
|
|
|
|
|
CLP
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(302,000
|
)
|
|
CLP
|
10,440
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
CLP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31,
2006(a)
|
|
|
643,000
|
|
|
CLP
|
10,440
|
|
|
|
3.50
|
|
|
CLP
|
4,782.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31,
2006
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The fair value of these awards at December 31, 2006 was
calculated using an expected volatility of 24.8%, an expected
life of 3.0 years and a risk-free return of 5.61%. In
addition, we were required to estimate the fair value of VTR
common stock at December 31, 2006. Accordingly, the fair
value of these awards is remeasured each reporting period, and
compensation expense is adjusted to reflect the updated fair
value. |
United
Chile Synthetic Option Plan
Pursuant to a synthetic option plan (the United Chile Synthetic
Option Plan) that was adopted in December 2006 to replace the
former UIH Latin America, Inc. Stock Option Plan, certain of our
directors, executive officers and officers, and one of our
employees, hold an aggregate of 574,843 synthetic options with
respect to hypothetical shares of United Chile LLC (United
Chile), the owner of our 80% ownership interest in VTR. These
synthetic options represent a 2.8% fully diluted equity interest
in United Chile. For purposes of determining the value
attributable to these synthetic options, United Chile is assumed
to have a specified share capital and intercompany indebtedness.
These assumptions are designed to replicate at United Chile the
share capital and indebtedness, net of the value of certain
assets, that UIH Latin America, Inc. would have had absent
certain intercompany transactions that occurred in 2006. All of
the synthetic options outstanding under the United Chile Phantom
Plan are fully vested and expire between 2009 and 2011. These
synthetic options had no intrinsic value and minimal fair value
at December 31, 2006. No new grants may be made under the
United Chile Synthetic Option Plan. We account for the United
Chile Synthetic Option Plan awards as liability-based awards.
|
|
(16)
|
Related
Party Transactions
|
Prior to the LGI Combination, Liberty Media may have been deemed
to be an affiliate of LMI by virtue of John C. Malones
voting power in Liberty Media and LMI, as well as his positions
as Chairman of the Board of Liberty Media and Chairman of the
Board, Chief Executive Officer and President of LMI, and the
fact that six of LMIs eight directors were also directors
of Liberty Media. As a result of (i) the dilution of
Mr. Malones voting power, (ii) his ceasing to be
our Chief Executive Officer and President and (iii) the
reduction in the number of common directors between LGI and
Liberty Media that occurred in connection with the June 15,
2005 LGI Combination, we believe that Liberty Media is no longer
an affiliate of our company. Accordingly, transactions with
Liberty Media or its subsidiaries that occurred after the LGI
Combination are not disclosed below.
Prior to the Spin Off Date in 2004, Liberty Media loaned one of
our subsidiaries $116.7 million. This loan was repaid
during the third quarter of 2004. In connection with the spin
off, we entered into certain agreements with Liberty Media,
pursuant to which Liberty Media allocated administrative,
facilities and aircraft costs to our
II-142
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
company. Most of the intercompany amounts owed to Liberty Media
as a result of these arrangements at the Spin Off Date were
contributed to our equity in connection with the spin off.
Amounts allocated to our company pursuant to these arrangements
through the date of the LGI Combination were considered to be
related party transactions. Other agreements between our company
and Liberty Media that were entered into in connection with the
spin off include the Reorganization Agreement (see
note 2) and the Tax Sharing Agreement (see
note 13).
Our related party transactions, which include related party
transactions of J:COM during the 2006 and 2005 periods in which
we consolidated J:COM, are summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
amounts in millions
|
|
|
Revenue earned from related
parties of:
|
|
|
|
|
|
|
|
|
|
|
|
|
J:COM(a)
|
|
$
|
54.4
|
|
|
$
|
52.3
|
|
|
$
|
|
|
LGI and consolidated subsidiaries
other than J:COM(b)
|
|
|
2.1
|
|
|
|
6.6
|
|
|
|
5.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total LGI
|
|
$
|
56.5
|
|
|
$
|
58.9
|
|
|
$
|
5.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses charged by
related parties of:
|
|
|
|
|
|
|
|
|
|
|
|
|
J:COM(c)
|
|
$
|
55.0
|
|
|
$
|
73.6
|
|
|
$
|
|
|
LGI and consolidated subsidiaries
other than J:COM(d)
|
|
|
20.0
|
|
|
|
18.4
|
|
|
|
15.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total LGI
|
|
$
|
75.0
|
|
|
$
|
92.0
|
|
|
$
|
15.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SG&A expenses charged by
related parties of:
|
|
|
|
|
|
|
|
|
|
|
|
|
J:COM(e)
|
|
$
|
11.4
|
|
|
$
|
13.5
|
|
|
$
|
|
|
LGI and consolidated subsidiaries
other than J:COM(f)
|
|
|
|
|
|
|
1.5
|
|
|
|
12.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total LGI
|
|
$
|
11.4
|
|
|
$
|
15.0
|
|
|
$
|
12.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense charged by
related parties of:
|
|
|
|
|
|
|
|
|
|
|
|
|
J:COM(g)
|
|
$
|
10.1
|
|
|
$
|
9.5
|
|
|
$
|
|
|
LGI and consolidated subsidiaries
other than J:COM(h)
|
|
|
|
|
|
|
0.2
|
|
|
|
2.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total LGI
|
|
$
|
10.1
|
|
|
$
|
9.7
|
|
|
$
|
2.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income
recognized from related parties of LGI and consolidated
subsidiaries other than J:COM(i)
|
|
$
|
0.7
|
|
|
$
|
2.2
|
|
|
$
|
11.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease
additions related parties of J:COM(j)
|
|
$
|
142.7
|
|
|
$
|
144.3
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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, 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. |
|
(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 2005 |
II-143
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
|
|
|
|
|
for broadband 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) |
|
The 2005 and 2004 amounts include administrative, facility and
aircraft allocations from Liberty Media. The 2005 amount
includes allocations through the June 15, 2005 date of the
LGI Combination. We believe such allocated amounts to be
reasonable. |
|
(g) |
|
Amounts consist of related party interest expense, primarily
related to assets leased from the aforementioned Sumitomo
entities. |
|
(h) |
|
The 2004 amount includes $1.5 million of interest charges
from Liberty Media. |
|
(i) |
|
Amounts primarily represent interest recognized on loans to
equity affiliates (primarily J:COM in 2004). |
|
(j) |
|
J:COM leases, in the form of capital leases, customer premise
equipment, various office equipment and vehicles from the
aforementioned Sumitomo entities. At December 31, 2006 and
2005, capital lease obligations of J:COM aggregating
¥41.5 billion ($348.5 million) and
¥34.5 billion ($292.5 million), respectively,
were owed to these Sumitomo entities. |
On December 31, 2006, we sold our 100% interest in UPC
Belgium to Telenet, an equity method affiliate. For additional
information, see note 7.
As discussed in more detail in note 5, on February 25,
2005, J:COM completed a transaction with Sumitomo, Microsoft and
our company whereby J:COM paid aggregate cash consideration of
¥4,420 million ($41.9 million at the transaction
date) to acquire each entities respective interests in
Chofu Cable, and to acquire from Microsoft equity interests in
certain telecommunications companies.
(17) Transactions
with Officers
VLG
Acquisition Corp.
Prior to March 2, 2005, Liberty Media owned an indirect
78.2% economic and non-voting interest in VLG Argentina LLC (VLG
Argentina), an entity that owned a 50% interest in
Cablevisión, the largest cable television company in
Argentina. VLG Acquisition Corp. (VLG Acquisition), an entity in
which neither Liberty Media nor our company has any ownership
interests, owned the remaining 21.8% economic interest and all
of the voting power in VLG Argentina. A former executive officer
and an officer of one of our subsidiaries, each of whom was then
an officer of LMI, were shareholders of VLG Acquisition. Prior
to joining our company, they sold their equity interests in VLG
Acquisition to the remaining shareholder, but each retained a
contractual right to 33% of any proceeds in excess of $100,000
from the sale of VLG Acquisitions interest in VLG
Argentina, or from distributions to VLG Acquisition by VLG
Argentina in connection with a sale of VLG Argentinas
interest in Cablevisión. Although we have no direct or
indirect equity interest in Cablevisión, we had the right
and obligation pursuant to Cablevisións debt
restructuring agreement to contribute $27.5 million to
Cablevisión in exchange for newly issued Cablevisión
shares representing approximately 40.0% of
Cablevisións fully diluted equity (the Subscription
Right).
On November 2, 2004, a subsidiary of our company, Liberty
Media, VLG Acquisition and the then sole shareholder of VLG
Acquisition entered into an agreement with a third party to
transfer all of the equity in VLG Argentina and all of our
rights and obligations with respect to the Subscription Right to
the third party for aggregate consideration of $65 million.
This agreement provided that $40.5 million of such proceeds
would be allocated to
II-144
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
our company for the Subscription Right. We received 50% of such
proceeds as a down payment in November 2004 and we received the
remainder in March 2005. We recognized a gain of
$40.5 million during the three months ended March 31,
2005 in connection with the closing of this transaction.
As a result of the foregoing transactions, the former executive
officer and the officer of one of our subsidiaries who retained
the above-described contractual rights with respect to VLG
Acquisition received aggregate cash distributions of
$7.3 million in respect of such rights during the fourth
quarter of 2004 and the first quarter of 2005.
For a description of certain transactions involving stock
options held by our Chairman of the Board, see note 15.
(18) Restructuring
Charges
Restructuring
Charges
A summary of our restructuring charge activity in 2006 is set
forth in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Programming and
|
|
|
|
|
|
|
|
|
|
Employee severance
|
|
|
Office
|
|
|
lease contract
|
|
|
|
|
|
|
|
|
|
and termination
|
|
|
closures
|
|
|
termination
|
|
|
Other
|
|
|
Total
|
|
|
|
amounts in millions
|
|
|
Restructuring liability as of
January 1, 2006
|
|
$
|
14.1
|
|
|
$
|
13.4
|
|
|
$
|
30.3
|
|
|
$
|
9.4
|
|
|
$
|
67.2
|
|
Restructuring charges (credits)
|
|
|
15.7
|
|
|
|
1.0
|
|
|
|
(1.0
|
)
|
|
|
(0.7
|
)
|
|
|
15.0
|
|
Cash paid
|
|
|
(19.6
|
)
|
|
|
(4.8
|
)
|
|
|
(5.8
|
)
|
|
|
(5.9
|
)
|
|
|
(36.1
|
)
|
Acquisitions and other
|
|
|
2.8
|
|
|
|
0.4
|
|
|
|
1.5
|
|
|
|
(1.0
|
)
|
|
|
3.7
|
|
Foreign currency translation
adjustments
|
|
|
1.3
|
|
|
|
1.4
|
|
|
|
0.8
|
|
|
|
(0.2
|
)
|
|
|
3.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring liability as of
December 31, 2006
|
|
|
14.3
|
|
|
|
11.4
|
|
|
|
25.8
|
|
|
|
1.6
|
|
|
|
53.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term portion
|
|
|
11.2
|
|
|
|
2.7
|
|
|
|
4.5
|
|
|
|
1.6
|
|
|
|
20.0
|
|
Long-term portion
|
|
|
3.1
|
|
|
|
8.7
|
|
|
|
21.3
|
|
|
|
|
|
|
|
33.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
14.3
|
|
|
$
|
11.4
|
|
|
$
|
25.8
|
|
|
$
|
1.6
|
|
|
$
|
53.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our 2006 restructuring charges include 8.6 million
($10.8 million at the average exchange rate during the
period) related primarily to the cost of terminating certain
employees in connection with the integration of our broadband
communications operations in Ireland.
II-145
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
A summary of our restructuring charge activity in 2005 is set
forth in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Programming and
|
|
|
|
|
|
|
|
|
|
Employee severance
|
|
|
Office
|
|
|
lease contract
|
|
|
|
|
|
|
|
|
|
and termination
|
|
|
closures
|
|
|
termination
|
|
|
Other
|
|
|
Total
|
|
|
|
amounts in millions
|
|
|
Restructuring liability as of
January 1, 2005
|
|
$
|
10.6
|
|
|
$
|
30.0
|
|
|
$
|
30.5
|
|
|
$
|
1.5
|
|
|
$
|
72.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges (credits):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
2.6
|
|
|
|
(8.6
|
)
|
|
|
4.3
|
|
|
|
(0.2
|
)
|
|
|
(1.9
|
)
|
Discontinued operations
|
|
|
1.6
|
|
|
|
|
|
|
|
|
|
|
|
(0.8
|
)
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.2
|
|
|
|
(8.6
|
)
|
|
|
4.3
|
|
|
|
(1.0
|
)
|
|
|
(1.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid
|
|
|
(14.8
|
)
|
|
|
(4.1
|
)
|
|
|
(4.8
|
)
|
|
|
(1.3
|
)
|
|
|
(25.0
|
)
|
Acquisitions and other
|
|
|
15.0
|
|
|
|
(0.7
|
)
|
|
|
0.4
|
|
|
|
9.4
|
|
|
|
24.1
|
|
Foreign currency translation
adjustments
|
|
|
(0.9
|
)
|
|
|
(3.2
|
)
|
|
|
(0.1
|
)
|
|
|
0.8
|
|
|
|
(3.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring liability as of
December 31, 2005
|
|
$
|
14.1
|
|
|
$
|
13.4
|
|
|
$
|
30.3
|
|
|
$
|
9.4
|
|
|
$
|
67.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term portion
|
|
$
|
10.6
|
|
|
$
|
2.3
|
|
|
$
|
4.7
|
|
|
$
|
9.4
|
|
|
$
|
27.0
|
|
Long-term portion
|
|
|
3.5
|
|
|
|
11.1
|
|
|
|
25.6
|
|
|
|
|
|
|
|
40.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
14.1
|
|
|
$
|
13.4
|
|
|
$
|
30.3
|
|
|
$
|
9.4
|
|
|
$
|
67.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In June 2005, the UPC Broadband Division made the decision to
occupy certain corporate office space that had been previously
exited by its operations in The Netherlands. As a result of this
decision, we reduced our restructuring liability by
6.2 million ($7.7 million at the average rate
during the period). In connection with our acquisition of
Cablecom in October 2005 and VTRs acquisition of a
controlling interest in Metrópolis in April 2005,
restructuring liabilities of $9.5 million and
$10.2 million, respectively, were recorded to provide for
the cost of terminating certain executive management and other
redundant employees of the target companies, and in the case of
Metrópolis, to also provide for the cost to remove
Metrópolis redundant broadband distribution systems.
In addition, certain of our other acquisitions during 2005
resulted in additions to our restructuring liability.
II-146
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
A summary of our restructuring charge activity in 2004 is set
forth in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Programming and
|
|
|
|
|
|
|
|
|
|
Employee severance
|
|
|
Office
|
|
|
lease contract
|
|
|
|
|
|
|
|
|
|
and termination
|
|
|
closures
|
|
|
termination
|
|
|
Other
|
|
|
Total
|
|
|
|
amounts in millions
|
|
|
Restructuring liability as of
January 1, 2004
|
|
$
|
8.4
|
|
|
$
|
16.8
|
|
|
$
|
34.4
|
|
|
$
|
2.4
|
|
|
$
|
62.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges (credits):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
5.9
|
|
|
|
16.9
|
|
|
|
|
|
|
|
(0.2
|
)
|
|
|
22.6
|
|
Discontinued operations
|
|
|
2.2
|
|
|
|
|
|
|
|
|
|
|
|
1.0
|
|
|
|
3.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.1
|
|
|
|
16.9
|
|
|
|
|
|
|
|
0.8
|
|
|
|
25.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid
|
|
|
(6.9
|
)
|
|
|
(5.7
|
)
|
|
|
(7.6
|
)
|
|
|
(1.1
|
)
|
|
|
(21.3
|
)
|
Foreign currency translation
adjustments
|
|
|
1.0
|
|
|
|
2.0
|
|
|
|
3.7
|
|
|
|
(0.6
|
)
|
|
|
6.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring liability as of
December 31, 2004
|
|
$
|
10.6
|
|
|
$
|
30.0
|
|
|
$
|
30.5
|
|
|
$
|
1.5
|
|
|
$
|
72.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term portion
|
|
$
|
5.0
|
|
|
$
|
5.3
|
|
|
$
|
3.8
|
|
|
$
|
0.3
|
|
|
$
|
14.4
|
|
Long-term portion
|
|
|
5.6
|
|
|
|
24.7
|
|
|
|
26.7
|
|
|
|
1.2
|
|
|
|
58.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10.6
|
|
|
$
|
30.0
|
|
|
$
|
30.5
|
|
|
$
|
1.5
|
|
|
$
|
72.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2004, we recorded an aggregate charge of
$5.7 million for severance benefits as a result of a
restructuring plan to change the management structure of our
operations in The Netherlands from a three-region model to a
centralized management organization, eliminating certain
redundancies and vacating space under an office lease. In
December 2004, we changed our estimate regarding the timing and
amount of
sub-lease
income related to a restructuring plan that was finalized in
2001. Accordingly, the restructuring liability was increased by
$16.0 million to reflect our then best estimate regarding
future
sub-lease
income for the vacated property.
(19) Defined
Benefit Plans
Certain of our indirect subsidiaries in Europe and Japan
maintain various funded and unfunded defined benefit pension
plans for their employees. Annual service cost for these
employee benefit plans is determined using the projected unit
credit actuarial method. The subsidiaries that maintain funded
plans have established investment policies for assets. The
investment strategies are long-term in nature and designed to
meet the following objectives:
|
|
|
|
|
Ensure that funds are available to pay benefits as they become
due;
|
|
|
|
Maximize the trusts total returns subject to prudent risk
taking; and
|
|
|
|
Preserve and/or improve the funded status of the trusts over
time.
|
Allocations to real estate occur over multiple time periods.
Assets targeted to real estate, but not yet allocated, are
invested in fixed income securities with corresponding
adjustments to fixed income rebalancing guidelines.
The subsidiaries review the asset mix of the funds on a regular
basis. Generally, asset mix will be rebalanced to the target mix
as individual portfolios approach their minimum or maximum
levels.
II-147
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
As discussed in note 23, effective December 31, 2006,
we adopted SFAS 158. The incremental effect on the
individual line items in our balance sheet as of
December 31, 2006 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before application
|
|
|
|
|
|
After application
|
|
|
|
of SFAS 158
|
|
|
Adjustments
|
|
|
of SFAS 158
|
|
|
|
amounts in millions
|
|
|
Other long-term liabilities
(includes liability for pension benefits of $48.1 million
at December 31, 2006)
|
|
$
|
1,292.2
|
|
|
$
|
(8.5
|
)
|
|
$
|
1,283.7
|
|
Non-current deferred tax
liabilities
|
|
$
|
536.2
|
|
|
$
|
0.9
|
|
|
$
|
537.1
|
|
Total liabilities
|
|
$
|
16,418.3
|
|
|
$
|
(7.6
|
)
|
|
$
|
16,410.7
|
|
Accumulated other comprehensive
earnings, net of taxes
|
|
$
|
188.4
|
|
|
$
|
7.6
|
|
|
$
|
196.0
|
|
Total stockholders equity
|
|
$
|
7,265.7
|
|
|
$
|
7.6
|
|
|
$
|
7,273.3
|
|
The following is a summary of the funded status of the pension
plans:
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
amounts in millions
|
|
|
Projected benefit obligations at
beginning of period
|
|
$
|
159.8
|
|
|
$
|
47.8
|
|
Acquisitions(a)
|
|
|
17.6
|
|
|
|
136.0
|
|
Service cost
|
|
|
10.8
|
|
|
|
4.5
|
|
Interest cost
|
|
|
6.1
|
|
|
|
2.7
|
|
Actuarial loss (gain)
|
|
|
(5.2
|
)
|
|
|
2.7
|
|
Realized gain on settlement
|
|
|
|
|
|
|
(6.0
|
)
|
Plan participants
contributions
|
|
|
5.6
|
|
|
|
1.4
|
|
Benefits paid
|
|
|
(15.5
|
)
|
|
|
(22.0
|
)
|
Effect of change in exchange rates
|
|
|
14.2
|
|
|
|
(7.3
|
)
|
|
|
|
|
|
|
|
|
|
Projected benefit obligations at
end of period
|
|
$
|
193.4
|
|
|
$
|
159.8
|
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligations at
end of period
|
|
$
|
184.4
|
|
|
$
|
147.0
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at
beginning of period
|
|
$
|
116.1
|
|
|
$
|
10.6
|
|
Acquisitions(a)
|
|
|
8.3
|
|
|
|
102.8
|
|
Actual return on plan assets
|
|
|
7.3
|
|
|
|
3.6
|
|
Group contributions
|
|
|
12.5
|
|
|
|
2.2
|
|
Participants contributions
|
|
|
5.6
|
|
|
|
1.4
|
|
Benefits paid
|
|
|
(15.0
|
)
|
|
|
(1.0
|
)
|
Effect of change in exchange rates
|
|
|
10.5
|
|
|
|
(3.5
|
)
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end
of period
|
|
$
|
145.3
|
|
|
$
|
116.1
|
|
|
|
|
|
|
|
|
|
|
Funded status of the plans:
|
|
|
|
|
|
|
|
|
Funded status of the plans
|
|
$
|
(48.1
|
)
|
|
|
(43.7
|
)
|
Unrecognized net actuarial gain
|
|
|
|
|
|
|
(1.3
|
)
|
|
|
|
|
|
|
|
|
|
Net liability in the balance sheet
|
|
$
|
(48.1
|
)
|
|
$
|
(45.0
|
)
|
|
|
|
|
|
|
|
|
|
II-148
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
|
|
|
(a) |
|
Amounts primarily relate to the October 2005 Cablecom
acquisition and include purchase accounting adjustments recorded
during 2006 to increase Cablecoms projected benefit
obligation and fair value of plan assets by $13.4 million
and $8.3 million, respectively. |
Actuarial
Assumptions
The measurement date used to determine pension plan assumptions
was December 31 for each of 2006 and 2005. The actuarial
assumptions used to compute the net periodic pension cost are
based on information available as of the beginning of the
period, specifically market interest rates, past experience and
managements best estimate of future economic conditions.
Changes in these assumptions may impact future benefit costs and
obligations. In computing future costs and obligations, the
subsidiaries must make assumptions about such items as employee
mortality and turnover, expected salary and wage increases,
discount rate, expected long-term rate of return on plan assets
and expected future cost increases.
The subsidiaries set their discount rates annually based upon
the yields on high-quality fixed-income investments available at
the measurement date and expected to be available during the
period to maturity of the pension benefits.
The expected rates of return on the assets of the funded plans
are the long-term rates of return the subsidiaries expect to
earn on their trust assets. The rates of return are determined
by the investment composition of the plan assets and the
long-term risk and return forecast for each asset category. The
forecasts for each asset class are generated using historical
information as well as an analysis of current and expected
market conditions. The expected risk and return characteristics
for each asset class are reviewed annually and revised, as
necessary, to reflect changes in the financial markets. To
compute the expected return on plan assets, the subsidiaries
apply an expected rate of return to the fair value of the plan
assets.
The weighted average assumptions used in determining benefit
obligations are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Expected rate of salary increase
|
|
|
2.14%
|
|
|
|
2.17%
|
|
Discount rate
|
|
|
3.09%
|
|
|
|
3.25%
|
|
Return on plan assets
|
|
|
4.56%
|
|
|
|
4.60%
|
|
The components of net periodic pension cost recorded in our
consolidated statements of operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
amounts in millions
|
|
|
Service cost
|
|
$
|
10.8
|
|
|
$
|
4.5
|
|
Interest cost
|
|
|
6.1
|
|
|
|
2.7
|
|
Expected return on plan assets
|
|
|
(5.8
|
)
|
|
|
(1.8
|
)
|
Realized gain on settlement
|
|
|
|
|
|
|
(6.0
|
)
|
Amortization of actuarial loss
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost (benefit)
|
|
$
|
11.1
|
|
|
$
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
|
II-149
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
The allocation of the assets of the funded plans is as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Debt securities
|
|
|
43
|
%
|
|
|
48
|
%
|
Equity securities
|
|
|
39
|
%
|
|
|
32
|
%
|
Real estate
|
|
|
9
|
%
|
|
|
17
|
%
|
Other
|
|
|
9
|
%
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
The weighted average target asset mix established for the funded
plans is as follows:
|
|
|
|
|
Debt securities
|
|
|
50
|
%
|
Equity securities
|
|
|
31
|
%
|
Real estate
|
|
|
10
|
%
|
Other
|
|
|
9
|
%
|
|
|
|
|
|
|
|
|
100
|
%
|
|
|
|
|
|
Total group contributions expected to be paid during 2007 are
$13 million. The expected benefits to be paid with respect
to pensions as of December 31, 2006 were as follows
(amounts in millions):
|
|
|
|
|
2007
|
|
$
|
3.6
|
|
2008
|
|
$
|
3.9
|
|
2009
|
|
$
|
4.2
|
|
2010
|
|
$
|
5.0
|
|
2011
|
|
$
|
5.2
|
|
2012 - 2015
|
|
$
|
33.9
|
|
II-150
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
(20) Other
Comprehensive Earnings (Loss)
Accumulated other comprehensive earnings (loss) included in our
companys consolidated balance sheets and statements of
stockholders equity reflect the aggregate of foreign
currency translation adjustments, unrealized holding gains and
losses on securities classified as
available-for-sale,
unrealized gains on cash flow hedges and other items. The change
in the components of accumulated other comprehensive earnings
(loss), net of taxes, is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Accumulated
|
|
|
|
currency
|
|
|
Unrealized gains
|
|
|
gains (losses)
|
|
|
|
|
|
other
|
|
|
|
translation
|
|
|
(losses) on
|
|
|
on cash flow
|
|
|
|
|
|
comprehensive
|
|
|
|
adjustments
|
|
|
securities
|
|
|
hedges
|
|
|
Other
|
|
|
earnings (loss)
|
|
|
|
amounts in millions
|
|
|
Balance at January 1, 2004
|
|
$
|
(174.4
|
)
|
|
$
|
127.8
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(46.6
|
)
|
Other comprehensive earnings (loss)
|
|
|
129.1
|
|
|
|
(122.3
|
)
|
|
|
|
|
|
|
|
|
|
|
6.8
|
|
Effect of change in estimated
blended state income tax rate (note 13)
|
|
|
2.2
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
2.7
|
|
Spin off transaction (note 2)
|
|
|
|
|
|
|
51.1
|
|
|
|
|
|
|
|
|
|
|
|
51.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004
|
|
|
(43.1
|
)
|
|
|
57.1
|
|
|
|
|
|
|
|
|
|
|
|
14.0
|
|
Other comprehensive earnings (loss)
|
|
|
(244.0
|
)
|
|
|
(36.9
|
)
|
|
|
4.8
|
|
|
|
|
|
|
|
(276.1
|
)
|
Effect of change in estimated
blended state income tax rate (note 13)
|
|
|
(0.6
|
)
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
(0.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005
|
|
|
(287.7
|
)
|
|
|
20.0
|
|
|
|
4.8
|
|
|
|
|
|
|
|
(262.9
|
)
|
Other comprehensive earnings (loss)
|
|
|
406.8
|
|
|
|
19.5
|
|
|
|
(1.2
|
)
|
|
|
|
|
|
|
425.1
|
|
Adjustment to initially adopt
SFAS 158, net of taxes (notes 19 and 23)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.6
|
|
|
|
7.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
$
|
119.1
|
|
|
$
|
39.5
|
|
|
$
|
3.6
|
|
|
$
|
7.6
|
|
|
$
|
169.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of other comprehensive earnings (loss) are
reflected in our companys consolidated statements of
comprehensive earnings (loss), net of taxes. The following table
summarizes the tax effects related
II-151
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
to each component of other comprehensive earnings (loss), net of
amounts reclassified to our statements of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before-tax
|
|
|
Tax benefit
|
|
|
Net-of-tax
|
|
|
|
amount
|
|
|
(expense)
|
|
|
amount
|
|
|
|
amounts in millions
|
|
|
Year ended December 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
adjustments
|
|
$
|
133.7
|
|
|
$
|
(4.6
|
)
|
|
$
|
129.1
|
|
Unrealized gains (losses) on
securities
|
|
|
(210.0
|
)
|
|
|
87.7
|
|
|
|
(122.3
|
)
|
Effect of change in estimated
blended state income tax rate (note 13)
|
|
|
|
|
|
|
2.7
|
|
|
|
2.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive earnings (loss)
|
|
$
|
(76.3
|
)
|
|
$
|
85.8
|
|
|
$
|
9.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
adjustments
|
|
$
|
(236.8
|
)
|
|
$
|
(7.2
|
)
|
|
$
|
(244.0
|
)
|
Unrealized gains (losses) on
securities
|
|
|
(58.6
|
)
|
|
|
21.7
|
|
|
|
(36.9
|
)
|
Unrealized gains on cash flow
hedges
|
|
|
4.8
|
|
|
|
|
|
|
|
4.8
|
|
Effect of change in estimated
blended state income tax rate (note 13)
|
|
|
|
|
|
|
(0.8
|
)
|
|
|
(0.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive earnings (loss)
|
|
$
|
(290.6
|
)
|
|
$
|
13.7
|
|
|
$
|
(276.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
adjustments
|
|
$
|
404.7
|
|
|
$
|
2.1
|
|
|
$
|
406.8
|
|
Unrealized gains (losses) on
securities
|
|
|
30.5
|
|
|
|
(11.0
|
)
|
|
|
19.5
|
|
Unrealized losses on cash flow
hedges
|
|
|
(1.2
|
)
|
|
|
|
|
|
|
(1.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive earnings (loss)
|
|
$
|
434.0
|
|
|
$
|
(8.9
|
)
|
|
$
|
425.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21)
|
Commitments
and Contingencies
|
Commitments
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 and construction activities. We
expect that in the normal course of business, operating leases
that expire generally will be renewed or replaced by similar
leases. As of December 31, 2006, the U.S. dollar
equivalents (based on December 31, 2006 exchange rates) of
such commitments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due during
|
|
|
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
Thereafter
|
|
|
Total
|
|
|
|
amounts in millions
|
|
|
Operating leases
|
|
$
|
136.8
|
|
|
$
|
105.8
|
|
|
$
|
90.4
|
|
|
$
|
74.4
|
|
|
$
|
44.9
|
|
|
$
|
143.3
|
|
|
$
|
595.6
|
|
Programming, satellite and other
purchase obligations
|
|
|
130.4
|
|
|
|
73.5
|
|
|
|
41.1
|
|
|
|
11.6
|
|
|
|
6.6
|
|
|
|
39.0
|
|
|
|
302.2
|
|
Other commitments
|
|
|
50.0
|
|
|
|
9.1
|
|
|
|
8.4
|
|
|
|
5.9
|
|
|
|
5.1
|
|
|
|
9.8
|
|
|
|
88.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
317.2
|
|
|
$
|
188.4
|
|
|
$
|
139.9
|
|
|
$
|
91.9
|
|
|
$
|
56.6
|
|
|
$
|
192.1
|
|
|
$
|
986.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Programming commitments consist of obligations associated with
certain of our programming, studio output, and sports right
contracts that are enforceable and legally binding on us in that
we have agreed to pay minimum
II-152
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
fees, without regard to (i) the actual number of
subscribers to the programming services, (ii) whether we
terminate cable service to a portion of our subscribers or
dispose of a portion of our cable systems, or (iii) whether
we discontinue our premium movie and sports services. The
amounts reflected in the table with respect to these contracts
are significantly less than the amounts we expect to pay in
these periods under these contracts. Payments to programming
vendors have in the past represented, and are expected to
continue to represent in the future, a significant portion of
our operating costs. The ultimate amount payable in excess of
the contractual minimums of our studio output contracts, which
expire at various dates through 2014, is dependent upon the
number of subscribers to our premium movie service and the
theatrical success of the films that we exhibit. Satellite
commitments consist of obligations associated with satellite
carriage services provided to our company. Other purchase
obligations include commitments to purchase customer premise
equipment that are enforceable and legally binding on us.
Other commitments consist of commitments to rebuild or upgrade
cable systems and to extend the cable network to new
developments, and other fixed minimum contractual commitments
associated with our agreements with franchise or municipal
authorities. The amount and timing of the payments included in
the table with respect to our rebuild, upgrade and network
extension commitments are estimated based on the remaining
capital required to bring the cable distribution system into
compliance with the requirements of the applicable franchise
agreement specifications.
In addition to the commitments set forth in the table above, we
have commitments under agreements with programming vendors,
franchise authorities and municipalities, and other third
parties pursuant to which we expect to make payments in future
periods. Such amounts are not included in the above table
because they are not fixed or determinable due to various
factors.
Rental expense under non-cancelable operating lease arrangements
amounted to $120.8 million, $119.9 million and
$71.4 million, in 2006, 2005 and 2004, respectively. It is
expected that in the normal course of business, operating leases
that expire generally will be renewed or replaced by similar
leases.
We have established various defined contribution benefit plans
for our employees. The aggregate expense for matching
contributions under our various defined contribution employee
benefit plans was $36.0 million, $14.7 million and
$10.8 million in 2006, 2005 and 2004, respectively.
Contingent
Obligations
Our equity method investment in Mediatti is owned by our
consolidated subsidiary, Liberty Japan MC. Another shareholder
of Mediatti, Olympus Capital and certain of its affiliates
(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 are not 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.
Cable Partners Belgium has the right to require Belgian Cable
Holdings to purchase all of Cable Partners Belgiums
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. Belgian Cable
Holdings has the corresponding right to require Cable Partners
Belgium to sell all of its interest in Belgian Cable Investors
to Belgian Cable
II-153
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
Holdings for the then appraised fair value during the first
30 days of every six-month period following December 2009.
Upon Cable Partners Belgiums 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 Cable Partners Belgiums interest in Belgian Cable
Investors. For additional information, see note 7.
Zonemedias Class B1 shareholders have the right,
subject to vesting, to put 60% and 100% of their
Class B1 shares to Chellomedia at fair value (limited
to a maximum of 10 times Zonemedia EBITDA, as defined in the
Zonemedia shareholders agreement) on or after January 7,
2008 and January 7, 2010, respectively. Chellomedia has a
corresponding call right that is not subject to any fair value
limitations. The put and call rights are to be settled in cash.
In connection with the April 13, 2005 combination of VTR
and Metrópolis, Cristalerías acquired the right to
require UGC to purchase Cristalerías equity interest
in VTR at fair value, subject to a $140 million floor
price. This put right is exercisable by Cristalerías until
April 13, 2015. Upon the exercise of this put right by
Cristalerías, we have the option to use cash or shares of
LGI common stock to acquire Cristalerías interest in
VTR. We have reflected the $5.9 million fair value of this
put obligation at December 31, 2006 in other current
liabilities in our consolidated balance sheet.
The minority owner of Sport1, one of our European programming
subsidiaries, has the right to put all (but not part) of its
interest in Sport1 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. Chellomedia
has a corresponding call right. The price payable upon exercise
of the put or call right will be the then fair value of the
minority owners interest in Sport1. In the event the then
fair value of Sport 1 on exercise of the put right exceeds a
multiple of ten times EBITDA, calculated as the average
annualized EBITDA for the six full calendar months immediately
prior to the date of the relevant put exercise, Chellomedia may
in its sole discretion elect not to acquire the minority
interest and the put right lapses for that year, with the
minority shareholder being instead entitled to sell its minority
interest to a third party within 3 months of such date,
subject to Chellomedias right of first refusal. After such
three month period elapses, the minority shareholder cannot sell
its shares without Chellomedias consent. The put and call
rights are to be settled in cash.
As described in note 15, four individuals own an 18.8%
common stock interest in Liberty Jupiter, which owned an
approximate 4.3% indirect interest in J:COM at December 31,
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 December 31, 2006, J:COM guaranteed
¥8.8 billion ($73.9 million) of the debt of
certain of its non-consolidated investees. The maturities of the
guaranteed debt range from 2007 to 2017.
In the ordinary course of business, we have provided
indemnifications to purchasers of certain of our assets, our
lenders, our vendors and certain 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.
II-154
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
Legal
Proceedings and Other Contingencies
Cignal On April 26, 2002, Liberty Global
Europe received a notice that certain former shareholders of
Cignal Global Communications (Cignal) filed a lawsuit against
Liberty 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. A
hearing on the appeal is scheduled for May 22, 2007.
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 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.
II-155
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
The Netherlands Regulatory Developments On
September 28, 2005, the Dutch competition authority, NMA,
informed UPC Nederland BV (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 Court (of Rotterdam). On February 6, 2007,
the Administrative Court declared KPNs appeal of the NMA
decision of September 2005 admissible. If the NMA determines to
appeal the Administrative Courts decision, it has six
weeks from the date of the decision to do so.
As part of the process of implementing certain directives
promulgated by the European Union in 2003, the Dutch national
regulatory authority (OPTA) analyzed 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 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 be further developed by the creation of
guidelines by OPTA
and/or by
the development of case law.
The OPTA decision with respect to market 19 (retail delivery of
radio and television packages) imposed retail price regulation
on a cost oriented basis for UPC NLs analog cable
television offerings. The decision is limited to one year 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. A court hearing took place on
February 1, 2007. The court is expected to render its
opinion during the second quarter of 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.
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
II-156
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
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 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,
broadband 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. As discussed
in note 5, we have received an inquiry from regulatory
authorities in Chile as to whether Liberty Medias proposed
acquisition of a 39% interest in DirecTV would violate or
otherwise conflict with one of the regulatory conditions imposed
on VTRs combination with Metrópolis.
In addition to the foregoing items, we have contingent
liabilities related to (i) legal proceedings,
(ii) wage, property and sales tax issues,
(iii) disputes over interconnection fees and
(iv) 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.
|
|
(22)
|
Information
about Operating Segments
|
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
II-157
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
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. In addition, our
internal decision makers believe our measure of operating cash
flow is important because analysts and investors use it to
compare our performance to other companies in our industry.
However, our definition of operating cash flow may differ from
cash flow measurements provided by other public companies. A
reconciliation of total segment operating cash flow to our
consolidated loss before income taxes, minority interests and
discontinued operations is presented below. Operating cash flow
should be viewed 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.
We have identified the following consolidated operating segments
as our reportable segments:
The Netherlands
Switzerland (Cablecom)
Austria
Other Western Europe
Hungary
Other Central and Eastern Europe
J:COM (Japan)
VTR (Chile)
All of the reportable segments set forth above provide broadband
communications services, including video, voice and broadband
Internet access services. Certain segments also provide CLEC and
other
business-to-business
communications services. At December 31, 2006, our
operating segments in the UPC Broadband Division provided
services in 10 European countries (excluding Belgium). Other
Western Europe includes our operating segments in Ireland and,
through December 30, 2006, Belgium. Other Central and
Eastern Europe includes our operating segments in Poland, Czech
Republic, Slovak Republic, Romania and Slovenia. J:COM provides
broadband communications services in Japan. VTR is an 80%-owned
subsidiary that provides broadband communications services in
Chile. 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 category. 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 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 systems, network operations, technology,
marketing, facilities, finance, legal and other administrative
costs. During 2005 and 2004, the UPC Broadband Divisions
central and corporate costs also included certain programming
costs that were considered to be in excess
II-158
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
of market rates. 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 notes 5 and 6.
Both Cablecom and UPC Holding have separate financial reporting
requirements in connection with their separate financing
arrangements. For purposes of these separate reporting
requirements, certain of UPC 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.
Performance
Measures of Our Reportable Segments
The amounts presented below represent 100% of each
businesss revenue and operating cash flow. These amounts
are combined and are then adjusted to remove the amounts related
to Super Media/J:COM for 2004 to arrive at the reported
consolidated amounts. As we control Super Media/J:COM, VTR 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 consolidated statements of
operations. The minority owners interests in the operating
results of J:COM, VTR, Austar and other less significant
majority owned subsidiaries are reflected in minority interests
in (losses) earnings of subsidiaries, net in our consolidated
statements of operations. 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.
II-159
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
Operating
|
|
|
|
|
|
Operating
|
|
|
|
|
|
Operating
|
|
|
|
Revenue
|
|
|
cash flow
|
|
|
Revenue
|
|
|
cash flow
|
|
|
Revenue
|
|
|
cash flow
|
|
|
|
|
|
|
|
|
|
amounts in millions
|
|
|
|
|
|
|
|
|
Performance Measures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UPC Broadband Division:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands(a)
|
|
$
|
923.9
|
|
|
$
|
451.9
|
|
|
$
|
857.3
|
|
|
$
|
446.9
|
|
|
$
|
793.7
|
|
|
$
|
455.0
|
|
Switzerland
|
|
|
771.8
|
|
|
|
353.7
|
|
|
|
122.1
|
|
|
|
43.6
|
|
|
|
|
|
|
|
|
|
Austria(b)
|
|
|
420.0
|
|
|
|
195.7
|
|
|
|
329.0
|
|
|
|
165.7
|
|
|
|
313.2
|
|
|
|
152.6
|
|
Other Western Europe
|
|
|
306.4
|
|
|
|
104.0
|
|
|
|
228.2
|
|
|
|
80.4
|
|
|
|
86.1
|
|
|
|
31.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
2,422.1
|
|
|
|
1,105.3
|
|
|
|
1,536.6
|
|
|
|
736.6
|
|
|
|
1,193.0
|
|
|
|
639.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
307.1
|
|
|
|
145.3
|
|
|
|
281.4
|
|
|
|
123.4
|
|
|
|
217.4
|
|
|
|
96.7
|
|
Other Central and Eastern Europe
|
|
|
578.1
|
|
|
|
266.5
|
|
|
|
370.3
|
|
|
|
168.2
|
|
|
|
252.3
|
|
|
|
110.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
885.2
|
|
|
|
411.8
|
|
|
|
651.7
|
|
|
|
291.6
|
|
|
|
469.7
|
|
|
|
207.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central and corporate operations
|
|
|
17.9
|
|
|
|
(206.2
|
)
|
|
|
3.3
|
|
|
|
(203.6
|
)
|
|
|
1.2
|
|
|
|
(207.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total UPC Broadband Division
|
|
|
3,325.2
|
|
|
|
1,310.9
|
|
|
|
2,191.6
|
|
|
|
824.6
|
|
|
|
1,663.9
|
|
|
|
638.6
|
|
J:COM (Japan)
|
|
|
1,906.3
|
|
|
|
738.6
|
|
|
|
1,662.1
|
|
|
|
636.3
|
|
|
|
1,504.7
|
|
|
|
589.6
|
|
VTR (Chile)
|
|
|
558.9
|
|
|
|
198.5
|
|
|
|
444.2
|
|
|
|
151.5
|
|
|
|
300.0
|
|
|
|
108.8
|
|
Corporate and other
|
|
|
768.3
|
|
|
|
88.2
|
|
|
|
264.2
|
|
|
|
(24.8
|
)
|
|
|
165.7
|
|
|
|
(19.7
|
)
|
Intersegment eliminations
|
|
|
(71.2
|
)
|
|
|
|
|
|
|
(44.8
|
)
|
|
|
|
|
|
|
(16.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total LGI before elimination of
equity affiliates
|
|
|
6,487.5
|
|
|
|
2,336.2
|
|
|
|
4,517.3
|
|
|
|
1,587.6
|
|
|
|
3,617.5
|
|
|
|
1,317.3
|
|
Elimination of equity affiliate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,504.7
|
)
|
|
|
(589.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated LGI
|
|
$
|
6,487.5
|
|
|
$
|
2,336.2
|
|
|
$
|
4,517.3
|
|
|
$
|
1,587.6
|
|
|
$
|
2,112.8
|
|
|
$
|
727.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Revenue includes $91.0 million, $77.2 million and
$69.4 million, respectively, after giving effect to
adjustments to related intercompany eliminations, from Priority
Telecoms CLEC operations. Operating cash flow includes
$18.6 million, $18.6 million and $15.6 million,
respectively from Priority Telecoms CLEC operations. |
|
(b) |
|
Revenue includes $7.6 million, $7.0 million and
$7.2 million, respectively, after giving effect to
adjustments to related intercompany eliminations, from Priority
Telecoms CLEC operations. Operating cash flow includes
$3.1 million, $2.2 million and $2.9 million,
respectively from Priority Telecoms CLEC operations. |
II-160
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
The following table provides a reconciliation of total segment
operating cash flow to earnings (loss) before income taxes,
minority interests and discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
amounts in millions
|
|
|
Total segment operating cash flow
|
|
$
|
2,336.2
|
|
|
$
|
1,587.6
|
|
|
$
|
727.7
|
|
Stock-based compensation expense
|
|
|
(70.0
|
)
|
|
|
(59.0
|
)
|
|
|
(142.6
|
)
|
Depreciation and amortization
|
|
|
(1,884.7
|
)
|
|
|
(1,274.0
|
)
|
|
|
(783.8
|
)
|
Impairment of long-lived assets
|
|
|
(15.5
|
)
|
|
|
(8.3
|
)
|
|
|
(50.8
|
)
|
Restructuring and other operating
credits (charges), net
|
|
|
(13.7
|
)
|
|
|
3.8
|
|
|
|
(26.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
352.3
|
|
|
|
250.1
|
|
|
|
(275.8
|
)
|
Interest expense
|
|
|
(673.4
|
)
|
|
|
(396.1
|
)
|
|
|
(264.6
|
)
|
Interest and dividend income
|
|
|
85.4
|
|
|
|
76.8
|
|
|
|
65.3
|
|
Share of results of affiliates, net
|
|
|
13.0
|
|
|
|
(23.0
|
)
|
|
|
38.7
|
|
Realized and unrealized gains
(losses) on financial and derivative instruments, net
|
|
|
(347.6
|
)
|
|
|
310.0
|
|
|
|
(35.8
|
)
|
Foreign currency transaction gains
(losses), net
|
|
|
236.1
|
|
|
|
(209.2
|
)
|
|
|
117.4
|
|
Other-than-temporary
declines in fair values of investments
|
|
|
(13.8
|
)
|
|
|
(3.4
|
)
|
|
|
(18.5
|
)
|
Gains (losses) on extinguishment
of debt
|
|
|
(40.8
|
)
|
|
|
(33.7
|
)
|
|
|
24.1
|
|
Gains on disposition of assets, net
|
|
|
206.4
|
|
|
|
115.2
|
|
|
|
43.7
|
|
Gain on exchange of investment
securities
|
|
|
|
|
|
|
|
|
|
|
178.8
|
|
Other income (expense), net
|
|
|
12.2
|
|
|
|
(0.6
|
)
|
|
|
(9.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before income
taxes, minority interests and discontinued operations
|
|
$
|
(170.2
|
)
|
|
$
|
86.1
|
|
|
$
|
(136.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
II-161
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
Balance
Sheet Data of our Reportable Segments
Selected balance sheet data of our reportable segments is set
forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in affiliates
|
|
|
Long-lived assets
|
|
|
Total assets
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
|
amounts in millions
|
|
|
UPC Broadband Division:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$
|
0.1
|
|
|
$
|
0.3
|
|
|
$
|
3,013.5
|
|
|
$
|
2,775.6
|
|
|
$
|
3,105.5
|
|
|
$
|
2,801.6
|
|
Switzerland
|
|
|
30.8
|
|
|
|
5.6
|
|
|
|
3,907.6
|
|
|
|
3,754.0
|
|
|
|
4,867.6
|
|
|
|
4,125.3
|
|
Austria
|
|
|
|
|
|
|
|
|
|
|
1,232.4
|
|
|
|
1,017.3
|
|
|
|
1,273.6
|
|
|
|
1,052.5
|
|
Other Western Europe
|
|
|
|
|
|
|
|
|
|
|
651.9
|
|
|
|
688.0
|
|
|
|
691.0
|
|
|
|
725.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
30.9
|
|
|
|
5.9
|
|
|
|
8,805.4
|
|
|
|
8,234.9
|
|
|
|
9,937.7
|
|
|
|
8,704.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
|
|
|
|
|
|
|
|
812.0
|
|
|
|
699.0
|
|
|
|
851.9
|
|
|
|
754.7
|
|
Other Central and Eastern Europe
|
|
|
0.6
|
|
|
|
2.7
|
|
|
|
2,055.9
|
|
|
|
1,365.4
|
|
|
|
2,188.8
|
|
|
|
1,449.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
0.6
|
|
|
|
2.7
|
|
|
|
2,867.9
|
|
|
|
2,064.4
|
|
|
|
3,040.7
|
|
|
|
2,204.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central and corporate operations
|
|
|
21.6
|
|
|
|
|
|
|
|
276.4
|
|
|
|
238.8
|
|
|
|
1,750.6
|
|
|
|
759.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total UPC Broadband Division
|
|
|
53.1
|
|
|
|
8.6
|
|
|
|
11,949.7
|
|
|
|
10,538.1
|
|
|
|
14,729.0
|
|
|
|
11,668.1
|
|
J:COM (Japan)
|
|
|
20.7
|
|
|
|
43.7
|
|
|
|
5,347.2
|
|
|
|
4,448.8
|
|
|
|
5,912.6
|
|
|
|
5,112.9
|
|
VTR (Chile)
|
|
|
|
|
|
|
0.5
|
|
|
|
1,059.5
|
|
|
|
1,158.3
|
|
|
|
1,347.4
|
|
|
|
1,362.8
|
|
Corporate and other
|
|
|
988.9
|
|
|
|
736.2
|
|
|
|
1,478.5
|
|
|
|
1,331.8
|
|
|
|
3,580.3
|
|
|
|
3,408.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated LGI
continuing operations
|
|
|
1,062.7
|
|
|
|
789.0
|
|
|
|
19,834.9
|
|
|
|
17,477.0
|
|
|
|
25,569.3
|
|
|
|
21,552.5
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,679.9
|
|
|
|
|
|
|
|
1,826.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated LGI
|
|
$
|
1,062.7
|
|
|
$
|
789.0
|
|
|
$
|
19,834.9
|
|
|
$
|
19,156.9
|
|
|
$
|
25,569.3
|
|
|
$
|
23,378.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
II-162
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
Capital
Expenditures of our Reportable Segments
The capital expenditures of our reportable segments are set
forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
amounts in millions
|
|
|
UPC Broadband Division:
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$
|
197.1
|
|
|
$
|
166.1
|
|
|
$
|
97.5
|
|
Switzerland
|
|
|
178.8
|
|
|
|
27.0
|
|
|
|
|
|
Austria
|
|
|
52.0
|
|
|
|
50.4
|
|
|
|
55.9
|
|
Other Western Europe
|
|
|
83.9
|
|
|
|
52.5
|
|
|
|
29.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
511.8
|
|
|
|
296.0
|
|
|
|
182.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
73.5
|
|
|
|
70.8
|
|
|
|
39.8
|
|
Other Central and Eastern Europe
|
|
|
145.4
|
|
|
|
84.6
|
|
|
|
39.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
218.9
|
|
|
|
155.4
|
|
|
|
79.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central and corporate operations
|
|
|
96.3
|
|
|
|
87.5
|
|
|
|
61.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total UPC Broadband Division
|
|
|
827.0
|
|
|
|
538.9
|
|
|
|
323.9
|
|
J:COM (Japan)
|
|
|
416.7
|
|
|
|
358.8
|
|
|
|
295.9
|
|
VTR (Chile)
|
|
|
138.2
|
|
|
|
98.6
|
|
|
|
41.7
|
|
Corporate and other
|
|
|
126.0
|
|
|
|
49.9
|
|
|
|
31.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total LGI before elimination of
equity affiliate
|
|
|
1,507.9
|
|
|
|
1,046.2
|
|
|
|
693.0
|
|
Elimination of equity affiliate
|
|
|
|
|
|
|
|
|
|
|
(295.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated LGI
|
|
$
|
1,507.9
|
|
|
$
|
1,046.2
|
|
|
$
|
397.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
II-163
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
Geographic
Segments
Revenue
The revenue of our geographic segments is set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
amounts in millions
|
|
|
Europe:
|
|
|
|
|
|
|
|
|
|
|
|
|
UPC Broadband Division:
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$
|
923.9
|
|
|
$
|
857.3
|
|
|
$
|
793.7
|
|
Switzerland
|
|
|
771.8
|
|
|
|
122.1
|
|
|
|
|
|
Austria
|
|
|
420.0
|
|
|
|
329.0
|
|
|
|
313.2
|
|
Ireland
|
|
|
262.6
|
|
|
|
188.1
|
|
|
|
48.7
|
|
Belgium
|
|
|
43.8
|
|
|
|
40.1
|
|
|
|
37.4
|
|
Hungary
|
|
|
307.1
|
|
|
|
281.4
|
|
|
|
217.4
|
|
Romania
|
|
|
187.4
|
|
|
|
67.2
|
|
|
|
26.9
|
|
Poland
|
|
|
173.8
|
|
|
|
137.6
|
|
|
|
110.5
|
|
Czech Republic
|
|
|
137.9
|
|
|
|
101.4
|
|
|
|
82.2
|
|
Slovak Republic
|
|
|
48.8
|
|
|
|
39.5
|
|
|
|
32.7
|
|
Slovenia
|
|
|
30.2
|
|
|
|
24.6
|
|
|
|
|
|
Central and corporate operations(a)
|
|
|
17.9
|
|
|
|
3.3
|
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total UPC Broadband Division
|
|
|
3,325.2
|
|
|
|
2,191.6
|
|
|
|
1,663.9
|
|
Chellomedia(b)
|
|
|
250.8
|
|
|
|
128.4
|
|
|
|
36.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Europe
|
|
|
3,576.0
|
|
|
|
2,320.0
|
|
|
|
1,699.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Japan
|
|
|
1,906.3
|
|
|
|
1,662.1
|
|
|
|
1,504.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Americas:
|
|
|
|
|
|
|
|
|
|
|
|
|
Chile
|
|
|
558.9
|
|
|
|
444.2
|
|
|
|
300.0
|
|
Other(c)
|
|
|
140.9
|
|
|
|
135.8
|
|
|
|
129.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total The Americas
|
|
|
699.8
|
|
|
|
580.0
|
|
|
|
429.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Australia
|
|
|
376.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment eliminations
|
|
|
(71.2
|
)
|
|
|
(44.8
|
)
|
|
|
(16.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total LGI before elimination of
equity affiliates
|
|
|
6,487.5
|
|
|
|
4,517.3
|
|
|
|
3,617.5
|
|
Elimination of equity affiliate
|
|
|
|
|
|
|
|
|
|
|
(1,504.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated LGI
|
|
$
|
6,487.5
|
|
|
$
|
4,517.3
|
|
|
$
|
2,112.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The UPC Broadband Divisions central and corporate
operations are located primarily in The Netherlands. The revenue
reported by the UPC Broadband Divisions central and
corporate operations during 2006 primarily relates to
transitional services provided to the buyers of certain of our
discontinued operations pursuant to agreements that expire at
various dates in 2007. |
|
(b) |
|
Chellomedias geographic segments are located primarily in
the United Kingdom, The Netherlands, Spain and other European
countries. |
|
(c) |
|
Includes certain less significant operating segments that
provide broadband services in Puerto Rico, Brazil and Peru and
video programming services in Argentina. |
II-164
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
Long-lived
Assets
The long-lived assets of our geographic segments are set forth
below:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
amounts in millions
|
|
|
Europe:
|
|
|
|
|
|
|
|
|
UPC Broadband Division:
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$
|
3,013.5
|
|
|
$
|
2,775.6
|
|
Switzerland
|
|
|
3,907.6
|
|
|
|
3,754.0
|
|
Austria
|
|
|
1,232.4
|
|
|
|
1,017.3
|
|
Ireland
|
|
|
651.9
|
|
|
|
565.5
|
|
Belgium
|
|
|
|
|
|
|
122.5
|
|
Hungary
|
|
|
812.0
|
|
|
|
699.0
|
|
Romania
|
|
|
632.2
|
|
|
|
501.5
|
|
Poland
|
|
|
370.3
|
|
|
|
339.0
|
|
Czech Republic
|
|
|
819.4
|
|
|
|
327.5
|
|
Slovak Republic
|
|
|
125.7
|
|
|
|
105.3
|
|
Slovenia
|
|
|
108.3
|
|
|
|
92.1
|
|
Central and corporate operations(a)
|
|
|
276.4
|
|
|
|
238.8
|
|
|
|
|
|
|
|
|
|
|
Total UPC Broadband Division
|
|
|
11,949.7
|
|
|
|
10,538.1
|
|
Chellomedia(b)
|
|
|
371.5
|
|
|
|
271.8
|
|
|
|
|
|
|
|
|
|
|
Total Europe
|
|
|
12,321.2
|
|
|
|
10,809.9
|
|
|
|
|
|
|
|
|
|
|
Japan
|
|
|
5,474.2
|
|
|
|
4,575.8
|
|
|
|
|
|
|
|
|
|
|
The Americas:
|
|
|
|
|
|
|
|
|
U.S.(c)
|
|
|
70.2
|
|
|
|
63.3
|
|
Chile
|
|
|
1,059.5
|
|
|
|
1,158.3
|
|
Other(d)
|
|
|
394.8
|
|
|
|
394.1
|
|
|
|
|
|
|
|
|
|
|
Total The Americas
|
|
|
1,524.5
|
|
|
|
1,615.7
|
|
|
|
|
|
|
|
|
|
|
Australia
|
|
|
515.0
|
|
|
|
475.6
|
|
|
|
|
|
|
|
|
|
|
Total consolidated LGI
continuing operations
|
|
|
19,834.9
|
|
|
|
17,477.0
|
|
Discontinued operations
|
|
|
|
|
|
|
1,679.9
|
|
|
|
|
|
|
|
|
|
|
Total consolidated LGI
|
|
$
|
19,834.9
|
|
|
$
|
19,156.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The UPC Broadband Divisions central and corporate
operations are located primarily in The Netherlands. |
|
(b) |
|
Chellomedias geographic segments are located primarily in
the United Kingdom, The Netherlands, Spain and other European
countries. |
|
(c) |
|
Primarily represents the assets of our corporate category. |
|
(d) |
|
Includes certain less significant operating segments that
provide broadband services in Puerto Rico, Brazil and Peru and
video programming services in Argentina. |
II-165
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
(23) Accounting
Changes
SFAS No. 155
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 11) 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 $3.3 million,
as a $6.0 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.
SFAS 158
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 as other
comprehensive earnings (losses) in the year in which the changes
occur. SFAS 158 also requires that the defined benefit plan
assets and obligations be measured as of the date of the
employers fiscal year-end balance sheet. We adopted
SFAS 158 effective December 31, 2006. See note 19.
SFAS No. 123(R)
Effective January 1, 2006, we adopted
SFAS No. 123(R) (revised 2004). SFAS 123(R) is a
revision of SFAS No. 123 and supersedes APB 25
and its related implementation guidance. See notes 3 and 15.
II-166
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
|
|
(24)
|
Quarterly
Financial Information (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
1st
|
|
|
2nd
|
|
|
3rd
|
|
|
4th
|
|
|
|
quarter
|
|
|
quarter
|
|
|
quarter
|
|
|
quarter
|
|
|
|
amounts in millions, except per share amounts
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As previously reported
|
|
$
|
1,625.9
|
|
|
$
|
1,586.1
|
|
|
$
|
1,622.4
|
|
|
$
|
1,790.1
|
|
Effect of discontinued operations
(note 6)
|
|
|
(137.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As adjusted
|
|
$
|
1,488.9
|
|
|
$
|
1,586.1
|
|
|
$
|
1,622.4
|
|
|
$
|
1,790.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As previously reported
|
|
$
|
87.2
|
|
|
$
|
93.5
|
|
|
$
|
115.0
|
|
|
$
|
53.3
|
|
Effect of discontinued operations
(note 6)
|
|
|
3.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As adjusted
|
|
$
|
90.5
|
|
|
$
|
93.5
|
|
|
$
|
115.0
|
|
|
$
|
53.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As previously reported
|
|
$
|
43.4
|
|
|
$
|
(184.3
|
)
|
|
$
|
(172.9
|
)
|
|
$
|
(31.2
|
)
|
Effect of discontinued operations
(note 6)
|
|
|
11.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As adjusted
|
|
|
54.4
|
|
|
$
|
(184.3
|
)
|
|
$
|
(172.9
|
)
|
|
$
|
(31.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
268.2
|
|
|
$
|
24.2
|
|
|
$
|
445.0
|
|
|
$
|
(31.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing
operations per common share (note 3) basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As previously reported
|
|
$
|
0.09
|
|
|
$
|
(0.40
|
)
|
|
$
|
(0.40
|
)
|
|
$
|
(0.08
|
)
|
Effect of discontinued operations
(note 6)
|
|
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As adjusted
|
|
$
|
0.12
|
|
|
$
|
(0.40
|
)
|
|
$
|
(0.40
|
)
|
|
$
|
(0.08
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing
operations per common share (note 3) diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As previously reported
|
|
$
|
0.07
|
|
|
$
|
(0.40
|
)
|
|
$
|
(0.40
|
)
|
|
$
|
(0.08
|
)
|
Effect of discontinued operations
(note 6)
|
|
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As adjusted
|
|
$
|
0.09
|
|
|
$
|
(0.40
|
)
|
|
$
|
(0.40
|
)
|
|
$
|
(0.08
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per common share
(note 3) basic
|
|
$
|
0.57
|
|
|
$
|
0.05
|
|
|
$
|
1.04
|
|
|
$
|
(0.08
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per common share
(note 3) diluted
|
|
$
|
0.52
|
|
|
$
|
0.05
|
|
|
$
|
1.04
|
|
|
$
|
(0.08
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
II-167
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006, 2005 and
2004 (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
1st
|
|
|
2nd
|
|
|
3rd
|
|
|
4th
|
|
|
|
quarter
|
|
|
quarter
|
|
|
quarter
|
|
|
quarter
|
|
|
|
amounts in millions, except per share amounts
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As previously reported
|
|
$
|
1,179.0
|
|
|
$
|
1,084.0
|
|
|
$
|
1,105.1
|
|
|
$
|
1,443.1
|
|
Effect of discontinued operations
(note 6)
|
|
|
(137.0
|
)
|
|
|
|
|
|
|
|
|
|
|
(156.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As adjusted
|
|
$
|
1,042.0
|
|
|
$
|
1,084.0
|
|
|
$
|
1,105.1
|
|
|
$
|
1,286.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As previously reported
|
|
$
|
88.3
|
|
|
$
|
39.7
|
|
|
$
|
29.1
|
|
|
$
|
84.7
|
|
Effect of discontinued operations
(note 6)
|
|
|
9.7
|
|
|
|
|
|
|
|
|
|
|
|
(1.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As adjusted
|
|
$
|
98.0
|
|
|
$
|
39.7
|
|
|
$
|
29.1
|
|
|
$
|
83.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As previously reported
|
|
$
|
17.2
|
|
|
$
|
(109.3
|
)
|
|
$
|
(123.0
|
)
|
|
$
|
141.2
|
|
Effect of discontinued operations
(note 6)
|
|
|
5.3
|
|
|
|
|
|
|
|
|
|
|
|
9.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As adjusted
|
|
$
|
22.5
|
|
|
$
|
(109.3
|
)
|
|
$
|
(123.0
|
)
|
|
$
|
150.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
16.5
|
|
|
$
|
(114.0
|
)
|
|
$
|
(127.9
|
)
|
|
$
|
145.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing
operations per common share (note 3) basic and
diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As previously reported
|
|
$
|
0.05
|
|
|
$
|
(0.30
|
)
|
|
$
|
(0.26
|
)
|
|
$
|
0.29
|
|
Effect of discontinued operations
(note 6)
|
|
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As adjusted
|
|
$
|
0.07
|
|
|
$
|
(0.30
|
)
|
|
$
|
(0.26
|
)
|
|
$
|
0.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per common share
(note 3) basic and diluted
|
|
$
|
0.05
|
|
|
$
|
(0.31
|
)
|
|
$
|
(0.27
|
)
|
|
$
|
0.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
II-168
PART III
Except as indicated below, the following required information is
incorporated by reference to our definitive proxy statement for
our 2007 Annual Meeting of shareholders, which we intend to hold
during the second quarter of 2007.
|
|
Item 10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
|
|
Item 11.
|
EXECUTIVE
COMPENSATION
|
|
|
Item 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
The information required by Item 201(d) of
Regulation S-K
is included below and accordingly will not be incorporated by
reference to our definitive proxy statement.
|
|
Item 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
|
|
Item 14.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
We intend to file our definitive proxy statement for our 2007
Annual Meeting of shareholders with the Securities and Exchange
Commission on or before April 30, 2007.
III-1
|
|
Item 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
Securities
Authorized for Issuance Under Equity Compensation
Plans
The
following table sets forth information as of December 31,
2006 with respect to shares of our common stock authorized for
issuance under our equity compensation plans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
securities
|
|
|
|
|
|
|
|
|
|
available for
|
|
|
|
Number of
|
|
|
|
|
|
future issuance
|
|
|
|
securities to be
|
|
|
|
|
|
under equity
|
|
|
|
issued upon
|
|
|
Weighted average
|
|
|
compensation
|
|
|
|
exercise of
|
|
|
exercise price of
|
|
|
plans (excluding
|
|
|
|
outstanding
|
|
|
outstanding
|
|
|
securities
|
|
|
|
options, warrants
|
|
|
options, warrants
|
|
|
reflected in the
|
|
Plan Category
|
|
and rights (1)(2)
|
|
|
and rights (1)(2)
|
|
|
first column)
|
|
|
Equity compensation plans
approved by security holders:
|
|
|
|
|
Liberty Global, Inc. 2005
Incentive Plan (As Amended and Restated Effective
October 31, 2006)
|
|
|
|
|
|
|
|
|
|
|
|
|
LGI Series A common stock
|
|
|
4,895,330
|
|
|
$
|
22.51
|
|
|
|
35,430,183
|
(6)
|
LGI Series B common stock
|
|
|
1,568,562
|
|
|
$
|
20.10
|
|
|
|
|
|
LGI Series C common stock
|
|
|
6,463,892
|
|
|
$
|
20.70
|
|
|
|
|
|
Liberty Global, Inc. 2005
Non-employee Director Incentive Plan (As Amended and Restated
Effective November 1, 2006)(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
LGI Series A common stock
|
|
|
132,576
|
|
|
$
|
22.30
|
|
|
|
9,697,054
|
(7)
|
LGI Series B common stock
|
|
|
|
|
|
$
|
|
|
|
|
|
|
LGI Series C common stock
|
|
|
132,576
|
|
|
$
|
21.33
|
|
|
|
|
|
Liberty Media International,
Inc. Transitional Stock Adjustment Plan(3)(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
LGI Series A common stock
|
|
|
863,828
|
|
|
$
|
17.47
|
|
|
|
|
|
LGI Series B common stock
|
|
|
1,498,154
|
|
|
$
|
19.92
|
|
|
|
|
|
LGI Series C common stock
|
|
|
2,320,266
|
|
|
$
|
17.55
|
|
|
|
|
|
UGC Plans(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
LGI Series A common stock
|
|
|
6,509,169
|
|
|
$
|
14.77
|
|
|
|
|
|
LGI Series B common stock
|
|
|
|
|
|
$
|
|
|
|
|
|
|
LGI Series C common stock
|
|
|
6,300,357
|
|
|
$
|
14.13
|
|
|
|
|
|
Equity compensation plans not
approved by security holders:
|
|
|
|
|
|
|
|
|
|
|
|
|
None
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
|
|
|
|
|
|
|
|
|
|
LGI Series A common stock
|
|
|
12,400,903
|
|
|
|
|
|
|
|
45,127,237
|
(6)(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LGI Series B common stock
|
|
|
3,066,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LGI Series C common stock
|
|
|
15,217,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
This table includes stock appreciation rights (SARs) with
respect to 5,652,674 and 5,651,058 shares of LGI
Series A and Series C common stock, respectively. Upon
exercise, the appreciation of a SAR, which is the difference
between the base price of the SAR and the then-market value of
the underlying series of LGI common stock or in certain cases,
if lower, a specified price, may be paid in shares of the
applicable series of LGI common stock. Based upon the respective
market prices of LGI Series A and Series C common
stock at December 31, 2006 and excluding any related tax
effects, 1,879,574 and 1,901,056 shares of LGI
Series A and |
III-2
|
|
|
|
|
Series C common stock, respectively, would have been issued
if all outstanding SARs had been exercised on December 31,
2006. For further information, see note 15 to our
consolidated financial statements. |
|
(2) |
|
In addition to the option and SAR information included in this
table, there are outstanding under the various incentive plans
restricted shares of LGI common stock. |
|
(3) |
|
Prior to LMIs spin off from Liberty Media, Liberty Media
approved each of the non-employee director incentive plan and
the transitional plan in its capacity as the then sole
shareholder of LMI. |
|
(4) |
|
The transitional plan was adopted in connection with LMIs
spin off from Liberty Media to provide for the supplemental
award of options to purchase shares of LGI common stock and
restricted shares of LGI common stock, in each case, pursuant to
adjustments made to outstanding Liberty Media stock incentive
awards in accordance with the anti-dilution provisions of
Liberty Medias stock incentive plans. No additional awards
will be made under the transitional plan. |
|
(5) |
|
The UGC Plans are comprised of the UnitedGlobalCom, Inc. 1993
Stock Option Plan, amended and restated as of January 22,
2004; the UnitedGlobalCom, Inc. Stock Option Plan for
Non-Employee Directors, effective June 1, 1993, amended and
restated as of January 22, 2004; the UnitedGlobalCom, Inc.
Stock Option Plan for Non-Employee Directors, effective
March 20, 1998, amended and restated as of January 22,
2004; and the UnitedGlobalCom Equity Incentive Plan, amended and
restated effective October 17, 2003. Awards outstanding
under each of these plans were converted into awards with
respect to LGI common stock in the LGI Combination. No
additional awards will be made under these plans. |
|
(6) |
|
The incentive plan permits grants of, or with respect to, LGI
Series A, Series B or Series C common stock
subject to a single aggregate limit of 50,000,000 shares
(of which no more than 25,000,000 shares may consist of
Series B shares), subject to anti-dilution adjustments. As
of December 31, 2006, an aggregate of
35,430,183 shares of common stock were available for
issuance pursuant to the incentive plan (of which no more than
23,372,168 may consist of LGI Series B shares). |
|
(7) |
|
The non-employee director incentive plan permits grants of, or
with respect to, LGI Series A, Series B or
Series C common stock subject to a single aggregate limit
of 10,000,000 shares (of which no more than
5,000,000 shares may consist of LGI Series B shares),
subject to anti-dilution adjustments. As of December 31,
2006, an aggregate of 9,697,054 shares of common stock were
available for issuance pursuant to the non-employee director
incentive plan (of which no more than 5,000,000 shares may
consist of LGI Series B shares). |
III-3
PART IV
|
|
Item 15.
|
EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES.
|
|
|
(a)(1)
|
FINANCIAL
STATEMENTS
|
The financial statements required under this Item begin on
page II-50
of this Annual Report.
|
|
(a)(2)
|
FINANCIAL
STATEMENT SCHEDULES
|
The financial statement schedules required under this Item are
as follows:
|
|
|
|
|
Schedule I
Condensed Financial Information of Registrant (Parent Company
Information)
|
|
|
|
|
Liberty Global, Inc. Condensed
Balance Sheets as of December 31, 2006 and 2005 (Parent
Company Only)
|
|
|
IV-9
|
|
Liberty Global, Inc. Condensed
Statements of Operations for the year ended December 31,
2006 and for the six months ended December 31, 2005 (Parent
Company Only)
|
|
|
IV-10
|
|
Liberty Global, Inc. Condensed
Statements of Cash Flows for the year ended December 31,
2006 and for the six months ended December 31, 2005 (Parent
Company Only)
|
|
|
IV-11
|
|
Liberty Media International, Inc.
Condensed Statements of Operations for the six months ended
June 30, 2005 and the seven months ended December 31,
2004 (Parent Company Only)
|
|
|
IV-12
|
|
Liberty Media International, Inc.
Condensed Statements of Cash Flows for the six months ended
December 31, 2004 and the seven months ended
December 31, 2004 (Parent Company Only)
|
|
|
IV-13
|
|
Schedule II
Valuation and Qualifying Accounts
|
|
|
IV-14
|
|
Separate Financial Statements of
Subsidiaries Not Consolidated and 50 Percent or Less Owned
Persons:
|
|
|
|
|
Jupiter TV Co., Ltd. and
Subsidiaries
|
|
|
|
|
Report of Independent Registered
Accounting Firm
|
|
|
IV-15
|
|
Consolidated Balance Sheets as of
December 31, 2006 and 2005
|
|
|
IV-16
|
|
Consolidated Statements of
Operations for the years ended December 31, 2006, 2005 and
2004
|
|
|
IV-18
|
|
Consolidated Statements of
Shareholders Equity and Comprehensive Income for the years
ended December 31, 2006, 2005 and 2004
|
|
|
IV-19
|
|
Consolidated Statements of Cash
Flows for the years ended December 31, 2006, 2005 and 2006
|
|
|
IV-20
|
|
Notes to Consolidated Financial
Statements
|
|
|
IV-22
|
|
Jupiter Telecommunications Co.,
Ltd. and Subsidiaries
|
|
|
|
|
Report of Independent Registered
Accounting Firm
|
|
|
IV-48
|
|
Consolidated Balance Sheets as of
December 31, 2003 and 2004
|
|
|
IV-49
|
|
Consolidated Statements of
Operations for the years ended December 31, 2003 and 2004
|
|
|
IV-51
|
|
Consolidated Statements of
Shareholders Equity for the years ended December 31,
2003 and 2004
|
|
|
IV-52
|
|
Consolidated Statements of Cash
Flows for the years ended December 31, 2003 and 2004
|
|
|
IV-53
|
|
Notes to Consolidated Financial
Statements
|
|
|
IV-54
|
|
Torneos y Competencias S.A.
|
|
|
|
|
Independent Auditors Report
|
|
|
IV-75
|
|
Consolidated Balance Sheets as of
December 31, 2004 and 2003
|
|
|
IV-76
|
|
Consolidated Statements of
Operations and Comprehensive Income (Loss) for the years ended
December 31, 2004, 2003 and 2002
|
|
|
IV-77
|
|
IV-1
|
|
|
|
|
Consolidated Statements of Changes
in Stockholders Equity for the years ended
December 31, 2004, 2003 and 2002
|
|
|
IV-78
|
|
Consolidated Statements of Cash
Flows for the years ended December 31, 2004, 2003 and 2002
|
|
|
IV-79
|
|
Notes to Consolidated Financial
Statements
|
|
|
IV-80
|
|
Cordillera Comunicaciones Holding
Limitada and Subsidiaries
|
|
|
|
|
Report of Independent Registered
Public Accounting Firm
|
|
|
IV-98
|
|
Consolidated Balance Sheets as of
December 31, 2003 and 2004
|
|
|
IV-99
|
|
Consolidated Income Statements for
the years ended December 31, 2002, 2003 and 2004
|
|
|
IV-100
|
|
Consolidated Statements of Cash
Flows for the years ended December 31, 2002, 2003 and 2004
|
|
|
IV-101
|
|
Notes to the Consolidated
Financial Statements
|
|
|
IV-103
|
|
Fox Pan American Sports, LLC and
Subsidiary
|
|
|
|
|
Report of Independent Registered
Public Accounting Firm
|
|
|
IV-137
|
|
Consolidated Balance Sheets at
December 31, 2004 and 2003
|
|
|
IV-138
|
|
Consolidated Statements of
Operations for the years ended December 31, 2004, 2003 and
period from February 5, 2002 through December 31, 2002
|
|
|
IV-139
|
|
Consolidated Statements of Changes
in Members (Deficit) Equity for the years ended
December 31, 2004, 2003 and period from February 5,
2002 through December 31, 2002
|
|
|
IV-140
|
|
Consolidated Statements of Cash
Flows for the years ended December 31, 2004, 2003 and
period from February 5, 2002 through December 31, 2002
|
|
|
IV-141
|
|
Notes to Consolidated Financial
Statements
|
|
|
IV-142
|
|
Telenet
Group Holdings NV (Telenet)
We have an investment in Telenet and we account for this
investment using the equity method of accounting. SEC
Rule 3-09
of
Regulation S-X
requires that we include or incorporate by reference Telenet
financial statements in this Annual Report on
Form 10-K
since our investment in Telenet was considered to be significant
in the context of
Rule 3-09
for the year ended December 31, 2005. LGI expects to file
an amendment to this Annual Report on
Form 10-K
on or before June 30, 2007 to include the audited
consolidated financial statements of Telenet as of and for the
years ended December 31, 2006 and 2005.
IV-2
(a) (3) EXHIBITS
Listed below are the exhibits filed as part of this Annual
Report (according to the number assigned to them in
Item 601 of
Regulation S-K):
|
|
|
|
|
3 Articles of
Incorporation and 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,
filed June 16, 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).
|
4 Instruments Defining
the Rights of Securities Holders, including Indentures:
|
|
4
|
.1
|
|
Specimen certificate for shares of
the Registrants Series A common stock, par value
$.01 per share (incorporated by reference to
Exhibit 4.1 to the
Merger 8-K).
|
|
4
|
.2
|
|
Specimen certificate for shares of
the Registrants Series B common stock, par value
$.01 per share (incorporated by reference to
Exhibit 4.2 to the
Merger 8-K).
|
|
4
|
.3
|
|
Specimen certificate for shares of
the Registrants Series C Common Stock, par value
$.01 per share (incorporated by reference to Exhibit 3
to the Registrants Registration Statement on
Form 8-A,
filed August 24, 2005 (File No. 000-51360)).
|
|
4
|
.4
|
|
Amendment and Restatement
Agreement, dated March 7, 2005, among UPC Broadband Holding
BV (UPC Broadband Holding) and UPC Financing Partnership (UPC
Financing), as Borrowers, the guarantors listed therein, the
banks and financial institutions listed therein as Lenders, TD
Bank Europe Limited, as Facility Agent and Security Agent, and
certain others, amending and restating the 1,072,000,000
Credit Agreement originally dated January 16, 2004 (the
First Amended and Restated Senior Credit Facility) (incorporated
by reference to Exhibit 10.32 to the UnitedGlobalCom, Inc.
(UGC) Annual Report on
Form 10-K,
filed March 14, 2005 (File No. 000-49658) (UGC
2004 10-K)).
|
|
4
|
.5
|
|
Additional Facility Accession
Agreement, dated March 9, 2005, among UPC Broadband
Holding, as Borrower, TD Bank Europe Limited, as Facility Agent
and Security Agent, and the banks and financial institutions
listed therein as Additional Facility I Lenders, under the First
Amended and Restated Senior Credit Facility (incorporated by
reference to Exhibit 10.41 to the UGC
2004 10-K).
|
|
4
|
.6
|
|
Amendment, dated December 15,
2005, among UPC Broadband Holding and UPC Financing, as
Borrowers, the guarantors listed therein, and Toronto-Dominion
(Texas) LLC, as Facility Agent, to the First Amended and
Restated Senior Credit Facility (incorporated by reference to
Exhibit 4.3 to the Registrants Current Report on
Form 8-K
filed December 19, 2005 (File No. 000-51360)).
|
|
4
|
.7
|
|
Deed of Amendment and Restatement,
dated May 10, 2006, among UPC Broadband Holding and UPC
Financing, as Borrowers, the guarantors listed therein, and the
Senior Hedging Banks listed therein, with Toronto Dominion
(Texas) LLC, as Facility Agent, and TD Bank Europe Limited, as
Existing Security Agent, including as Schedule 2 thereto the
Amended and Restated Senior Secured Credit Facility Agreement,
amending and restating the First Amended and Restated Senior
Credit Facility (the Second Amended and Restated Senior Credit
Facility) (incorporated by reference to Exhibit 4.1 to the
Registrants Quarterly Report on
Form 10-Q,
filed May 10, 2006 (the March 31,
2006 10-Q)).
|
|
4
|
.8
|
|
Additional Facility Accession
Agreement, dated May 10, 2006, among UPC Broadband Holding,
as Borrower, Toronto Dominion (Texas) LLC, as Facility Agent, TD
Bank Europe Limited, as Existing Security Agent, and the
Additional Facility J Lenders listed therein, under the Second
Amended and Restated Senior Credit Facility.*
|
IV-3
|
|
|
|
|
|
4
|
.9
|
|
Additional Facility Accession
Agreement, dated May 10, 2006, among UPC Broadband Holding,
as Borrower, Toronto Dominion (Texas) LLC, as Facility Agent, TD
Bank Europe Limited, as Existing Security Agent, and the
Additional Facility K Lenders listed therein, under the Second
Amended and Restated Senior Credit Facility.*
|
|
4
|
.10
|
|
Additional Facility Accession
Agreement, dated July 3, 2006, among UPC Broadband Holding,
as Borrower, Toronto Dominion (Texas) LLC, as Facility Agent, TD
Bank Europe Limited, as Security Agent, and the Additional
Facility L Lenders listed therein, under the Second Amended and
Restated Senior Credit Facility (incorporated by reference to
Exhibit 4.1 to the Registrants Current Report on
Form 8-K,
filed July 7, 2006 (File No. 000-51360)).
|
|
4
|
.11
|
|
Amendment Letter, dated
December 11, 2006, among UPC Broadband Holding and UPC
Financing, as Borrowers, the guarantors listed therein and
Toronto Dominion (Texas) LLC, as Facility Agent, to the Second
Amended and Restated Senior Credit Facility (incorporated by
reference to Exhibit 4.1 to the Registrants Current
Report on
Form 8-K,
filed December 12, 2006 (File No. 000-5160)).
|
|
4
|
.12
|
|
The Registrant undertakes to
furnish to the Securities and Exchange Commission, upon request,
a copy of all instruments with respect to long-term debt not
filed herewith.
|
10 Material Contracts:
|
|
10
|
.1
|
|
Liberty Global, Inc. 2005
Incentive Plan (As Amended and Restated Effective
October 31, 2006) (the Incentive Plan) (incorporated by
reference to Exhibit 99.1 to the Registrants Current
Report on
Form 8-K,
filed November 6, 2006 (File No. 000-51360) (the November
2006 8-K)).
|
|
10
|
.2
|
|
Form of the Non-Qualified Stock
Option Agreement under the Incentive Plan (incorporated by
reference to Exhibit 99.1 to the Registrants Current
Report on
Form 8-K,
filed August 19, 2005 (File No. 000-51360) (the Incentive
Plan 8-K)).
|
|
10
|
.3
|
|
Form of Stock Appreciation Rights
Agreement under the Incentive Plan (incorporated by reference to
Exhibit 99.2 to the Incentive
Plan 8-K).
|
|
10
|
.4
|
|
Form of Restricted Shares
Agreement under the Incentive Plan (incorporated by reference to
Exhibit 99.3 to the Incentive
Plan 8-K).
|
|
10
|
.5
|
|
Non-Qualified Stock Option
Agreement, dated as of June 7, 2004, between John C. Malone
and the Registrant (as assignee of Liberty Media International,
Inc., the predecessor issuer to the Registrant (LMI)) under the
Incentive Plan (the Malone Award Agreement) (incorporated by
reference to Exhibit 7(A) to Mr. Malones
Schedule 13D/A (Amendment No. 1) with respect to
LMIs common stock, filed July 14, 2004 (File No.
005-79904)).
|
|
10
|
.6
|
|
Form of Amendment to the Malone
Award Agreement (incorporated by reference to Exhibit 99.3 to
the Registrants Current Report on
Form 8-K,
filed December 27, 2005 (File
No. 000-51360)
(the
409A 8-K)).
|
|
10
|
.7
|
|
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 November
2006 8-K).
|
|
10
|
.8
|
|
Form of Restricted Shares
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), filed August 11, 2006 (File No.
000-51360), amending the June
2006 8-K
(as defined below)).
|
|
10
|
.9
|
|
Form of Non-Qualified Stock Option
Agreement under the Director Plan (incorporated by reference to
Exhibit 10.3 to the
Merger 8-K).
|
|
10
|
.10
|
|
Liberty Global, Inc. Compensation
Policy for Nonemployee Directors (As Amended and Restated
Effective June 7, 2006) (incorporated by reference to
Exhibit 10.1 to the Registrants Current Report on
Form 8-K,
filed June 12, 2006 (File No. 000-51360) (the June
2006 8-K)).
|
|
10
|
.11
|
|
Liberty Global, Inc. Senior
Executive Performance Incentive Plan effective November 1,
2006 (the SEP Incentive Plan).*
|
IV-4
|
|
|
|
|
|
10
|
.12
|
|
Form of Participation Certificate
under the SEP Incentive Plan.*
|
|
10
|
.13
|
|
Liberty Global, Inc. 2006 Annual
Bonus Plan for executive officers and key employees under the
Incentive Plan (description of said plan is incorporated by
reference to the description thereof included in Item 1.01
of the Registrants Current Report on
Form 8-K,
filed March 14, 2006 (File No. 000-51360)).
|
|
10
|
.14
|
|
Liberty Media International, Inc.
Transitional Stock Adjustment Plan (the Transitional Plan)
(incorporated by reference to Exhibit 4.5 to LMIs
Registration Statement on
Form S-8,
filed June 23, 2004 (File
No. 333-116790)).
|
|
10
|
.15
|
|
Form of Non-Qualified Stock Option
Exercise Price Amendment under the Transitional Plan
(incorporated by reference to Exhibit 99.1 to the
409A 8-K).
|
|
10
|
.16
|
|
Form of Non-Qualified Stock Option
Amendment under the Transitional Plan (incorporated by reference
to Exhibit 99.2 to the
409A 8-K).
|
|
10
|
.17
|
|
UnitedGlobalCom, Inc. Equity
Incentive Plan (amended and restated effective October 17,
2003).*
|
|
10
|
.18
|
|
UnitedGlobalCom, Inc. 1993 Stock
Option Plan (amended and restated effective January 22,
2004) (incorporated by reference to Exhibit 10.6 to the UGC
2003 10-K).
|
|
10
|
.19
|
|
Form of Amendment to Stock
Appreciation Rights Agreement under the UnitedGlobalCom, Inc.
2003 Equity Incentive Plan (amended and restated effective
October 17, 2003) (incorporated by reference to
Exhibit 99.1 to the Registrants Current Report on
Form 8-K,
filed December 6, 2005 (File No. 000-51360)).
|
|
10
|
.20
|
|
Stock Option Plan for Non-Employee
Directors of UGC, effective June 1, 1993, amended and
restated as of January 22, 2004 (incorporated by reference
to Exhibit 10.7 to the UGC
2003 10-K).
|
|
10
|
.21
|
|
Stock Option Plan for Non-Employee
Directors of UGC, effective March 20, 1998, amended and
restated as of January 22, 2004 (incorporated by reference
to Exhibit 10.8 to the UGC
2003 10-K).
|
|
10
|
.22
|
|
Form of Letter Agreement dated
December 22, 2006, between United Chile LLC and certain
employees of the Registrant, including three executive officers
and a director.*
|
|
10
|
.23
|
|
Form of Indemnification Agreement
between the Registrant and its Directors (incorporated by
reference to Exhibit 10.19 to the Registrants Annual
Report on
Form 10-K,
filed March 14, 2006 (File No. 000-51360) (the
2005 10-K)).
|
|
10
|
.24
|
|
Form of Indemnification Agreement
between the Registrant and its Executive Officers (incorporated
by reference to Exhibit 10.20 of the
2005 10-K).
|
|
10
|
.25
|
|
Personal Usage of Aircraft Policy
(incorporated by reference to Exhibit 99.1 to the
Registrants Current Report on
Form 8-K,
filed November 21, 2005 (File No. 000-51360) (the
Aircraft 8-K)).
|
|
10
|
.26
|
|
Form of Aircraft Time Sharing
Agreement (incorporated by reference to Exhibit 99.2 to the
Aircraft 8-K).
|
|
10
|
.27
|
|
Executive Service Agreement, dated
December 15, 2004, between UPC Services Limited and Charles
Bracken (incorporated by reference to Exhibit 10.15 to the
UGC
2004 10-K).
|
|
10
|
.28
|
|
Employment Agreement, effective
April 19, 2000, among UGC, United Pan-Europe Communications
NV, now known as Liberty Global Europe NV (Liberty Global
Europe), and Gene Musselman (incorporated by reference to
Exhibit 10.27 to the UGC
2003 10-K).
|
|
10
|
.29
|
|
Addendum to Employment Agreement,
dated as of September 3, 2003, among UGC, Liberty Global
Europe and Gene Musselman (incorporated by reference to
Exhibit 10.28 to the UGC
2003 10-K).
|
|
10
|
.30
|
|
Contract Extension Letter, dated
November 2, 2005, among UGC, Liberty Global Europe and Gene
Musselman (incorporated by reference to Exhibit 10.26 to
the
2005 10-K).
|
IV-5
|
|
|
|
|
|
10
|
.31
|
|
Executive Service Agreement, dated
January 10, 2005, between UPC Services Limited and Shane
ONeill (incorporated by reference to Exhibit 10.16 to
the UGC
2004 10-K).
|
|
10
|
.32
|
|
Executive Service Agreement, dated
November 30, 2006, between Liberty Global Europe Ltd. and
Miranda Curtis (incorporated by reference to Exhibit 99.1
to the Registrants Current Report on
Form 8-K,
filed December 4, 2006 (File No. 000-51360)).
|
|
10
|
.33
|
|
Employment Agreement, dated
January 5, 2004, between the Registrant (as assignee of
UGC) and Gene W. Schneider (incorporated by reference to
Exhibit 10.5 to UGCs Current Report on
Form 8-K,
filed January 6, 2004 (File No. 000-49658)).
|
|
10
|
.34
|
|
Letter from UGC to Gene W.
Schneider, dated April 17, 2003 regarding the Split Dollar
Life Insurance Agreement included as Exhibit 10.35 below
(incorporated by reference to Exhibit 10.87 to UGCs
Amendment No. 10 to its Registration Statement on
Form S-1,
filed December 11, 2003 (File
No. 333-82776)
(the UGC
Form S-1)).
|
|
10
|
.35
|
|
Split Dollar Life Insurance
Agreement, dated February 15, 2001, between UGC and Mark L.
Schneider, Tina M. Wildes and Carla Shankle, as trustees under
The Gene W. Schneider 2001 Trust, dated February 12, 2001
(incorporated by reference to Exhibit 10.88 to the UGC
Form S-1).
|
|
10
|
.36
|
|
Amended and Restated
Stockholders Agreement, dated as of May 21, 2004,
among the Registrant (as successor to LMI), Liberty Media
International Holdings, LLC, Robert R. Bennett, Miranda Curtis,
Graham Hollis, Yasushige Nishimura, Liberty Jupiter, Inc., and,
solely for purposes of Section 9 thereof, Liberty Media
Corporation (incorporated by reference to Exhibit 10.23 to
Amendment No. 1 to LMIs Registration Statement on
Form 10, filed May 25, 2004 (File No. 000-50671)).
|
|
10
|
.37
|
|
Form of Tax Sharing Agreement
between Liberty Media Corporation and the Registrant (as
successor to LMI) (incorporated by reference to
Exhibit 10.5 to Amendment No. 1 to LMIs
Registration Statement on Form 10, filed May 25, 2004
(File No. 000-50671)).
|
|
10
|
.38
|
|
Amended and Restated Operating
Agreement, dated November 26, 2004, among Liberty Japan,
Inc., Liberty Japan II, Inc., LMI Holdings Japan, LLC,
Liberty Kanto, Inc., Liberty Jupiter, Inc. and Sumitomo
Corporation, and, solely with respect to Sections 3.1(c), 3.1(d)
and 16.22 thereof, the Registrant (as successor to LMI)
(incorporated by reference to Exhibit 10.27 of LMIs
Annual Report on
Form 10-K,
filed March 14, 2005 (File No. 000-50671)).
|
|
10
|
.39
|
|
Share Purchase Agreement, dated
September 30, 2005, between Glacier Holdings S.C.A. and
United ACM Holdings, Inc. (the Cablecom Agreement) (incorporated
by reference to Exhibit 2.1 to the Registrants
Current Report on
Form 8-K,
filed October 5, 2005 (File No. 000-51360) (the
Cablecom 8-K)).
|
|
10
|
.40
|
|
Excerpts from Schedule 4.6 to the
Cablecom Agreement (incorporated by reference to
Exhibit 2.2 to the
Cablecom 8-K).
|
|
10
|
.41
|
|
Deed, dated September 30,
2005, between LMI and Glacier Holdings S.C.A. (incorporated by
reference to Exhibit 99.1 to the
Cablecom 8-K).
|
|
10
|
.42
|
|
Agreement for the Sale and
Purchase of the Share Capital of UPC France SA, dated
June 6, 2006, among UPC Broadband France SAS, UPC Broadband
Holding, Altice France EST SAS and ENO France SAS (incorporated
by reference to Exhibit 2.1 to the June
2006 8-K).
|
|
10
|
.43
|
|
Agreement for the Sale and
Purchase of the Share Capital of NBS Nordic Broadband Services
AB (publ), dated April 4, 2006, among UPC Scandinavia
Holding BV, UPC Holdco VI BV, UPC Broadband Holding and Nordic
Cable Acquisition Company II AB (incorporated by reference
to Exhibit 99.1 to the Registrants Current Report on
Form 8-K,
filed June 23, 2006 (File No. 000-51360)).
|
IV-6
|
|
|
|
|
21 List of
Subsidiaries*
|
23 Consent of Experts
and Counsel:
|
|
23
|
.1
|
|
Consent of KPMG LLP*
|
|
23
|
.2
|
|
Consent of KPMG AZSA &
Co.*
|
|
23
|
.3
|
|
Consent of KPMG AZSA &
Co.*
|
|
23
|
.4
|
|
Consent of Sibille (Formerly
Finsterbusch Pickenhayn Sibille)*
|
|
23
|
.5
|
|
Consent of Ernst & Young
LTDA.*
|
|
23
|
.6
|
|
Consent of KPMG LLP*
|
31
Rule 13a-14(a)/15d-14(a)
Certification:
|
|
31
|
.1
|
|
Certification of President and
Chief Executive Officer*
|
|
31
|
.2
|
|
Certification of Senior Vice
President and Co-Chief Financial Officer (Principal Financial
Officer)*
|
|
31
|
.3
|
|
Certification of Senior Vice
President and Co-Chief Financial Officer (Principal Accounting
Officer)*
|
32 Section 1350
Certification *
|
* Filed herewith
IV-7
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Liberty Global, Inc.
Dated: February 28, 2007
|
|
|
|
By
|
/s/ Elizabeth
M. Markowski
|
Elizabeth M. Markowski
Senior Vice President, Secretary and General Counsel
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
date indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
/s/ John
C. Malone
John
C. Malone
|
|
Chairman of the Board
|
|
February 28, 2007
|
|
|
|
|
|
/s/ Michael
T. Fries
Michael
T. Fries
|
|
Chief Executive Officer, President
and Director
|
|
February 28, 2007
|
|
|
|
|
|
/s/ John
P. Cole
John
P. Cole
|
|
Director
|
|
February 28, 2007
|
|
|
|
|
|
/s/ John
W. Dick
John
W. Dick
|
|
Director
|
|
February 28, 2007
|
|
|
|
|
|
/s/ Paul
A. Gould
Paul
A. Gould
|
|
Director
|
|
February 28, 2007
|
|
|
|
|
|
/s/ David
E. Rapley
David
E. Rapley
|
|
Director
|
|
February 28, 2007
|
|
|
|
|
|
/s/ Larry
E. Romrell
Larry
E. Romrell
|
|
Director
|
|
February 28, 2007
|
|
|
|
|
|
/s/ Gene
W.
Schneider
Gene
W. Schneider
|
|
Director
|
|
February 28, 2007
|
|
|
|
|
|
/s/ J.
C. Sparkman
J.
C. Sparkman
|
|
Director
|
|
February 28, 2007
|
|
|
|
|
|
/s/ J.
David Wargo
J.
David Wargo
|
|
Director
|
|
February 28, 2007
|
|
|
|
|
|
/s/ Charles
H.R.
Bracken
Charles
H.R. Bracken
|
|
Senior Vice President and Co-Chief
Financial Officer
(Principal Financial Officer)
|
|
February 28, 2007
|
|
|
|
|
|
/s/ Bernard
G. Dvorak
Bernard
G. Dvorak
|
|
Senior Vice President and Co-Chief
Financial Officer
(Principal Accounting Officer)
|
|
February 28, 2007
|
IV-8
LIBERTY
GLOBAL, INC.
SCHEDULE I
CONDENSED
FINANCIAL INFORMATION OF REGISTRANT
(Parent
Company Information See Notes to Consolidated
Financial Statements)
CONDENSED BALANCE SHEETS
(Parent Company Only)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
amounts in millions
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
20.3
|
|
|
$
|
3.9
|
|
Other current assets
|
|
|
3.1
|
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
23.4
|
|
|
|
4.9
|
|
|
|
|
|
|
|
|
|
|
Investments in consolidated
subsidiaries, including intercompany balances
|
|
|
7,201.7
|
|
|
|
7,824.8
|
|
Property and equipment, at cost
|
|
|
1.2
|
|
|
|
0.3
|
|
Accumulated depreciation
|
|
|
(0.2
|
)
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
1.0
|
|
|
|
0.2
|
|
Deferred tax asset
|
|
|
36.0
|
|
|
|
17.4
|
|
Other non-current assets
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
7,262.3
|
|
|
$
|
7,847.3
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
2.1
|
|
|
$
|
26.0
|
|
Accrued liabilities and other
|
|
|
12.5
|
|
|
|
4.9
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
14.6
|
|
|
|
30.9
|
|
Other long-term liabilities
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
15.2
|
|
|
|
30.9
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders Equity:
|
|
|
|
|
|
|
|
|
Series A common stock,
$.01 par value. Authorized 500,000,000 shares;
196,898,880 and 232,334,708 shares issued at
December 31, 2006 and 2005, respectively
|
|
|
2.0
|
|
|
|
2.3
|
|
Series B common stock,
$.01 par value. Authorized 50,000,000 shares; issued
and outstanding 7,284,799 and 7,323,570 shares at
December 31, 2006 and 2005, respectively
|
|
|
0.1
|
|
|
|
0.1
|
|
Series C common stock,
$.01 par value. Authorized 500,000,000 shares;
197,256,404 and 239,820,997 shares issued at
December 31, 2006 and 2005, respectively
|
|
|
2.0
|
|
|
|
2.4
|
|
Additional paid-in capital
|
|
|
8,093.5
|
|
|
|
9,992.2
|
|
Accumulated deficit
|
|
|
(1,020.3
|
)
|
|
|
(1,732.5
|
)
|
Accumulated other comprehensive
earnings (loss), net of taxes
|
|
|
169.8
|
|
|
|
(262.9
|
)
|
Deferred compensation
|
|
|
|
|
|
|
(15.6
|
)
|
Treasury stock, at cost
|
|
|
|
|
|
|
(169.6
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
7,247.1
|
|
|
|
7,816.4
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity
|
|
$
|
7,262.3
|
|
|
$
|
7,847.3
|
|
|
|
|
|
|
|
|
|
|
IV-9
LIBERTY
GLOBAL, INC.
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(Parent Company Information See Notes to
Consolidated Financial Statements)
CONDENSED STATEMENTS OF OPERATIONS
(Parent Company Only)
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
|
Six months
|
|
|
|
ended
|
|
|
ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
amounts in millions
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
Selling, general and
administrative (including stock-based compensation charges
(credits) of $27.6 million and ($11.9 million),
respectively)
|
|
$
|
66.4
|
|
|
$
|
4.0
|
|
Depreciation and amortization
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(66.6
|
)
|
|
|
(4.0
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
Interest and dividend income
|
|
|
14.6
|
|
|
|
1.1
|
|
Related party interest expense, net
|
|
|
(21.0
|
)
|
|
|
(10.9
|
)
|
Foreign currency transaction
losses, net
|
|
|
|
|
|
|
(8.5
|
)
|
Other income, net
|
|
|
0.1
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6.3
|
)
|
|
|
(18.1
|
)
|
|
|
|
|
|
|
|
|
|
Loss before income taxes and
equity in earnings of consolidated subsidiaries, net
|
|
|
(72.9
|
)
|
|
|
(22.1
|
)
|
Equity in earnings of consolidated
subsidiaries, net
|
|
|
756.7
|
|
|
|
31.4
|
|
Income tax benefit
|
|
|
22.4
|
|
|
|
8.1
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
706.2
|
|
|
$
|
17.4
|
|
|
|
|
|
|
|
|
|
|
IV-10
LIBERTY
GLOBAL, INC.
SCHEDULE I
CONDENSED
FINANCIAL INFORMATION OF REGISTRANT
(Parent
Company Information See Notes to Consolidated
Financial Statements)
CONDENSED STATEMENT OF CASH FLOWS
(Parent Company Only)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months
|
|
|
|
Year ended
|
|
|
ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
amounts in millions
|
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
706.2
|
|
|
$
|
17.4
|
|
Adjustments to reconcile net
earnings to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Equity in earnings of consolidated
subsidiaries, net
|
|
|
(756.7
|
)
|
|
|
(31.4
|
)
|
Stock-based compensation
|
|
|
27.6
|
|
|
|
(11.9
|
)
|
Depreciation and amortization
|
|
|
0.2
|
|
|
|
|
|
Deferred income tax expense
(benefit)
|
|
|
3.6
|
|
|
|
(8.1
|
)
|
Changes in operating assets and
liabilities:
|
|
|
|
|
|
|
|
|
Receivables and other operating
assets
|
|
|
(2.4
|
)
|
|
|
3.2
|
|
Payables and accruals
|
|
|
(15.6
|
)
|
|
|
34.9
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by
operating activities
|
|
|
(37.1
|
)
|
|
|
4.1
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
|
Net distributions and advances
received from subsidiaries and affiliates
|
|
|
1,793.7
|
|
|
|
77.0
|
|
Capital expended for property and
equipment
|
|
|
(0.8
|
)
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing
activities
|
|
|
1,792.9
|
|
|
|
76.8
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
Repurchase of common stock
|
|
|
(1,756.9
|
)
|
|
|
(78.9
|
)
|
Proceeds from issuance of stock
|
|
|
17.5
|
|
|
|
5.7
|
|
Other financing activities, net
|
|
|
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
Net cash used by financing
activities
|
|
|
(1,739.4
|
)
|
|
|
(72.6
|
)
|
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash
|
|
|
|
|
|
|
(8.5
|
)
|
Net increase (decrease) in cash
and cash equivalents
|
|
|
16.4
|
|
|
|
(0.2
|
)
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
3.9
|
|
|
|
4.1
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
20.3
|
|
|
$
|
3.9
|
|
|
|
|
|
|
|
|
|
|
IV-11
LIBERTY
MEDIA INTERNATIONAL, INC.
SCHEDULE I
CONDENSED
FINANCIAL INFORMATION OF REGISTRANT
(Parent
Company Information See Notes to Consolidated
Financial Statements)
CONDENSED STATEMENTS OF OPERATIONS
(Parent Company Only)
|
|
|
|
|
|
|
|
|
|
|
Pre-LGI Combination
|
|
|
|
Six months
|
|
|
Seven months
|
|
|
|
ended
|
|
|
ended
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
|
amounts in millions
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
Selling, general and
administrative (including stock-based compensation of
$5.2 million and $20.4 million, respectively)
|
|
$
|
12.4
|
|
|
$
|
28.9
|
|
Depreciation and amortization
|
|
|
0.4
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(12.8
|
)
|
|
|
(29.3
|
)
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
Interest and dividend income
|
|
|
14.9
|
|
|
|
8.7
|
|
Realized and unrealized gains
(losses) on derivative instruments, net
|
|
|
8.0
|
|
|
|
(4.1
|
)
|
Other, net
|
|
|
(0.6
|
)
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22.3
|
|
|
|
6.0
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before income
taxes and equity in earnings (loss) of consolidated
subsidiaries, net
|
|
|
9.5
|
|
|
|
(23.3
|
)
|
Equity in earnings (loss) of
consolidated subsidiaries, net
|
|
|
(109.8
|
)
|
|
|
97.4
|
|
Income tax benefit
|
|
|
2.8
|
|
|
|
5.8
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
(97.5
|
)
|
|
$
|
79.9
|
|
|
|
|
|
|
|
|
|
|
IV-12
LIBERTY
MEDIA INTERNATIONAL, INC.
SCHEDULE I
CONDENSED
FINANCIAL INFORMATION OF REGISTRANT
(Parent
Company Information See Notes to Consolidated
Financial Statements)
CONDENSED STATEMENTS OF CASH FLOWS
(Parent Company Only)
|
|
|
|
|
|
|
|
|
|
|
Pre-LGI Combination
|
|
|
|
Six months
|
|
|
Seven months
|
|
|
|
ended
|
|
|
ended
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
|
amounts in millions
|
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
(97.5
|
)
|
|
$
|
79.9
|
|
Adjustments to reconcile net
earnings (loss) to net cash provided (used) by operating
activities:
|
|
|
|
|
|
|
|
|
Equity in earnings (loss) of
consolidated subsidiaries, net
|
|
|
109.8
|
|
|
|
(97.4
|
)
|
Stock-based compensation
|
|
|
5.2
|
|
|
|
20.4
|
|
Realized and unrealized losses on
derivative instruments, net
|
|
|
(8.0
|
)
|
|
|
4.1
|
|
Depreciation and amortization
|
|
|
0.4
|
|
|
|
0.4
|
|
Deferred income tax expense
|
|
|
(2.8
|
)
|
|
|
(4.4
|
)
|
Other non-cash items, net
|
|
|
(10.4
|
)
|
|
|
30.1
|
|
Changes in operating assets and
liabilities:
|
|
|
|
|
|
|
|
|
Receivables, pre-paids and other
|
|
|
|
|
|
|
(0.3
|
)
|
Payables and accruals
|
|
|
(1.3
|
)
|
|
|
2.2
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by
operating activities
|
|
|
(4.6
|
)
|
|
|
35.0
|
|
|
|
|
|
|
|
|
|
|
Cash flows (used) provided by
investing activities:
|
|
|
|
|
|
|
|
|
Investments in and loans to
subsidiaries and affiliates
|
|
|
(554.3
|
)
|
|
|
|
|
Net distributions and advances
received from subsidiaries and affiliates
|
|
|
|
|
|
|
400.3
|
|
Net cash received (paid) to
purchase or settle derivative instruments
|
|
|
57.1
|
|
|
|
(35.7
|
)
|
Other investing activities, net
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by
investing activities
|
|
|
(497.3
|
)
|
|
|
364.6
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
Net proceeds received from rights
offering
|
|
|
|
|
|
|
735.7
|
|
Treasury stock purchase
|
|
|
|
|
|
|
(127.9
|
)
|
Proceeds from stock option
exercises
|
|
|
5.2
|
|
|
|
12.0
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing
activities
|
|
|
5.2
|
|
|
|
619.8
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
and cash equivalents
|
|
|
(496.7
|
)
|
|
|
1,019.4
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
1,070.0
|
|
|
|
50.6
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
573.3
|
|
|
$
|
1,070.0
|
|
|
|
|
|
|
|
|
|
|
IV-13
LIBERTY
GLOBAL, INC.
SCHEDULE II
VALUATION
AND QUALIFYING ACCOUNTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
|
|
|
|
|
Additions
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
|
|
|
|
Balance at
|
|
|
to costs
|
|
|
|
|
|
|
|
|
currency
|
|
|
Balance at
|
|
|
|
beginning
|
|
|
and
|
|
|
|
|
|
Deductions
|
|
|
translation
|
|
|
end of
|
|
|
|
of period
|
|
|
expenses
|
|
|
Acquisition
|
|
|
or write-offs
|
|
|
adjustments
|
|
|
period
|
|
|
|
amounts in millions
|
|
|
Year ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
$
|
14.0
|
|
|
|
22.7
|
|
|
|
51.4
|
|
|
|
(30.3
|
)
|
|
|
3.6
|
|
|
$
|
61.4
|
|
2005
|
|
$
|
61.4
|
|
|
|
39.9
|
|
|
|
31.9
|
|
|
|
(54.6
|
)
|
|
|
(5.0
|
)
|
|
$
|
73.6
|
|
2006
|
|
$
|
73.6
|
|
|
|
46.0
|
|
|
|
2.4
|
|
|
|
(50.4
|
)
|
|
|
4.9
|
|
|
$
|
76.5
|
|
IV-14
Report of
Independent Registered Public Accounting Firm
The Board of Directors
Jupiter TV Co., Ltd.
We have audited the accompanying consolidated balance sheets of
Jupiter TV Co., Ltd. (formerly, Jupiter Programming Co., Ltd.)
and subsidiaries as of December 31, 2006 and 2005, and the
related consolidated statements of operations,
shareholders equity and comprehensive income, and cash
flows for each of the years in the three-year period ended
December 31, 2006. These consolidated financial statements
are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Jupiter TV Co., Ltd. and subsidiaries as of
December 31, 2006 and 2005, and the results of their
operations and their cash flows for each of the years in the
three-year period ended December 31, 2006, in conformity
with U.S. generally accepted accounting principles.
KPMG AZSA & Co.
Tokyo, Japan
February 23, 2007
IV-15
JUPITER
TV CO., LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2006 and 2005
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(Yen in Thousands)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
Related party
|
|
¥
|
14,850,000
|
|
|
¥
|
7,210,000
|
|
Other
|
|
|
8,368,450
|
|
|
|
7,807,758
|
|
Accounts receivable (less allowance
for doubtful accounts of ¥7,986 thousand in 2006 and
¥6,885 thousand in 2005):
|
|
|
|
|
|
|
|
|
Related party
|
|
|
235,832
|
|
|
|
247,412
|
|
Other
|
|
|
7,560,107
|
|
|
|
5,820,921
|
|
Retail inventories
|
|
|
3,516,137
|
|
|
|
3,271,723
|
|
Program rights and language
versioning, net (Note 4)
|
|
|
695,410
|
|
|
|
776,225
|
|
Deferred income taxes (Note 14)
|
|
|
2,267,201
|
|
|
|
1,920,446
|
|
Prepaid and other current assets
|
|
|
704,309
|
|
|
|
944,943
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
38,197,446
|
|
|
|
27,999,428
|
|
|
|
|
|
|
|
|
|
|
Investments (Note 5)
|
|
|
8,396,505
|
|
|
|
8,323,586
|
|
Property and equipment, net
(Note 6)
|
|
|
7,577,906
|
|
|
|
5,558,196
|
|
Software development costs, net
(Note 7)
|
|
|
4,443,317
|
|
|
|
4,125,115
|
|
Program rights and language
versioning, excluding current portion, net (Note 4)
|
|
|
284,071
|
|
|
|
346,059
|
|
Goodwill (Note 9)
|
|
|
286,263
|
|
|
|
294,244
|
|
Other intangible assets, net
(Note 8)
|
|
|
192,143
|
|
|
|
218,624
|
|
Deferred income taxes (Note 14)
|
|
|
841,607
|
|
|
|
811,465
|
|
Other assets, net
|
|
|
951,909
|
|
|
|
1,187,959
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
¥
|
61,171,167
|
|
|
¥
|
48,864,676
|
|
|
|
|
|
|
|
|
|
|
IV-16
JUPITER TV CO., LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
December 31, 2006 and 2005
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(Yen in Thousands)
|
|
|
LIABILITIES AND
SHAREHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Short-term debt (related party)
(Note 13):
|
|
¥
|
290,000
|
|
|
¥
|
275,000
|
|
Current portion of long-term debt
(Note 13):
|
|
|
1,600,000
|
|
|
|
1,600,000
|
|
Obligations under capital leases,
current installments (related party) (Note 12)
|
|
|
467,289
|
|
|
|
418,757
|
|
Accounts payable:
|
|
|
|
|
|
|
|
|
Related party
|
|
|
412,072
|
|
|
|
199,768
|
|
Other
|
|
|
7,894,053
|
|
|
|
8,175,159
|
|
Accrued liabilities:
|
|
|
|
|
|
|
|
|
Related party
|
|
|
1,291,395
|
|
|
|
1,199,511
|
|
Other
|
|
|
1,789,467
|
|
|
|
1,601,439
|
|
Income taxes payable
|
|
|
5,573,428
|
|
|
|
5,035,948
|
|
Advances from affiliate
|
|
|
2,180,000
|
|
|
|
1,700,000
|
|
Deferred income taxes (Note 14)
|
|
|
1,797
|
|
|
|
7,195
|
|
Other current liabilities
|
|
|
1,566,732
|
|
|
|
914,454
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
23,066,233
|
|
|
|
21,127,231
|
|
Long-term debt, excluding current
portion (Note 13):
|
|
|
800,000
|
|
|
|
2,400,000
|
|
Obligations under capital leases,
excluding current installments (related party) (Note 12)
|
|
|
1,265,684
|
|
|
|
1,271,550
|
|
Accrued pension and severance cost
(Note 16)
|
|
|
507,648
|
|
|
|
394,404
|
|
Deferred income taxes (Note 14)
|
|
|
379,227
|
|
|
|
347,427
|
|
Other liabilities
|
|
|
331,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
26,349,895
|
|
|
|
25,540,612
|
|
|
|
|
|
|
|
|
|
|
Minority interests
|
|
|
9,270,294
|
|
|
|
5,740,286
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity
(Note 18):
|
|
|
|
|
|
|
|
|
Common stock, no par value;
|
|
|
11,434,000
|
|
|
|
11,434,000
|
|
Authorized 460,000 shares;
issued and outstanding 360,680 shares
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
7,266,129
|
|
|
|
7,266,129
|
|
Retained earnings (deficit)
|
|
|
6,850,849
|
|
|
|
(1,154,532
|
)
|
Accumulated other comprehensive
income
|
|
|
|
|
|
|
38,181
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
25,550,978
|
|
|
|
17,583,778
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
shareholders equity
|
|
¥
|
61,171,167
|
|
|
¥
|
48,864,676
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
IV-17
JUPITER
TV CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 2006, 2005 and 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(Yen in Thousands)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail sales, net
|
|
¥
|
98,581,185
|
|
|
¥
|
75,676,822
|
|
|
¥
|
50,010,854
|
|
Television programming revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Related party
|
|
|
2,068,552
|
|
|
|
1,894,734
|
|
|
|
1,662,786
|
|
Other
|
|
|
8,796,869
|
|
|
|
7,550,155
|
|
|
|
6,764,580
|
|
Services and other revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Related party
|
|
|
1,127,181
|
|
|
|
957,801
|
|
|
|
866,157
|
|
Other
|
|
|
1,269,414
|
|
|
|
1,564,716
|
|
|
|
1,176,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
111,843,201
|
|
|
|
87,644,228
|
|
|
|
60,480,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of retail sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
Related party
|
|
|
3,586,299
|
|
|
|
2,870,371
|
|
|
|
2,212,430
|
|
Other
|
|
|
54,629,263
|
|
|
|
41,227,980
|
|
|
|
28,038,763
|
|
Cost of programming and
distribution:
|
|
|
|
|
|
|
|
|
|
|
|
|
Related party
|
|
|
2,961,635
|
|
|
|
2,770,766
|
|
|
|
2,742,401
|
|
Other
|
|
|
8,841,068
|
|
|
|
8,732,559
|
|
|
|
7,482,238
|
|
Selling, general and administrative
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Related party
|
|
|
1,345,305
|
|
|
|
1,052,691
|
|
|
|
1,234,015
|
|
Other
|
|
|
16,167,992
|
|
|
|
13,234,077
|
|
|
|
9,736,571
|
|
Depreciation and amortization
|
|
|
2,467,685
|
|
|
|
1,783,999
|
|
|
|
1,380,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
89,999,247
|
|
|
|
71,672,443
|
|
|
|
52,826,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
21,843,954
|
|
|
|
15,971,785
|
|
|
|
7,653,945
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Related party
|
|
|
(50,297
|
)
|
|
|
(41,390
|
)
|
|
|
(45,258
|
)
|
Other
|
|
|
(36,021
|
)
|
|
|
(72,215
|
)
|
|
|
(77,245
|
)
|
Foreign exchange gain
|
|
|
174,408
|
|
|
|
477,351
|
|
|
|
126,482
|
|
Equity in income of equity-method
affiliates (Note 5)
|
|
|
72,919
|
|
|
|
53,925
|
|
|
|
22,888
|
|
Gain on sale of investment in
affiliate (Note 5)
|
|
|
|
|
|
|
116,441
|
|
|
|
|
|
Impairment loss on investment
(Note 5)
|
|
|
|
|
|
|
(30,000
|
)
|
|
|
|
|
Other income (expense), net
|
|
|
53,129
|
|
|
|
16,487
|
|
|
|
(9,241
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
214,138
|
|
|
|
520,599
|
|
|
|
17,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
before income taxes and minority interests
|
|
|
22,058,092
|
|
|
|
16,492,384
|
|
|
|
7,671,571
|
|
Income tax expense (Note 14)
|
|
|
(9,317,087
|
)
|
|
|
(6,397,810
|
)
|
|
|
(3,126,897
|
)
|
Minority interests in earnings, net
of tax
|
|
|
(3,475,008
|
)
|
|
|
(2,594,393
|
)
|
|
|
(1,077,972
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing
operations
|
|
|
9,265,997
|
|
|
|
7,500,181
|
|
|
|
3,466,702
|
|
Net loss from discontinued
operation (Note 3)
|
|
|
(1,260,616
|
)
|
|
|
(1,446,996
|
)
|
|
|
(256,644
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
¥
|
8,005,381
|
|
|
¥
|
6,053,185
|
|
|
¥
|
3,210,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
IV-18
JUPITER
TV CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY AND
COMPREHENSIVE INCOME
Years ended December 31, 2006, 2005 and 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(Yen in Thousands)
|
|
|
Common stock (Note 18):
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
¥
|
11,434,000
|
|
|
¥
|
11,434,000
|
|
|
¥
|
16,834,000
|
|
Transfer from common stock
|
|
|
|
|
|
|
|
|
|
|
(8,400,000
|
)
|
Issuance of common stock
|
|
|
|
|
|
|
|
|
|
|
3,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
|
11,434,000
|
|
|
|
11,434,000
|
|
|
|
11,434,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital
(Note 18):
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
7,266,129
|
|
|
|
6,788,054
|
|
|
|
|
|
Gain on issuance of common stock by
equity- method investee,
net of income tax of ¥282,787 thousand (Note 5)
|
|
|
|
|
|
|
478,075
|
|
|
|
|
|
Transfer from common stock
|
|
|
|
|
|
|
|
|
|
|
6,587,064
|
|
Issuance of common stock
|
|
|
|
|
|
|
|
|
|
|
3,000,000
|
|
Carryover basis adjustment related
to LJS acquisition (Note 2)
|
|
|
|
|
|
|
|
|
|
|
(2,799,010
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
|
7,266,129
|
|
|
|
7,266,129
|
|
|
|
6,788,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained earnings (deficit):
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
(1,154,532
|
)
|
|
|
(7,207,717
|
)
|
|
|
(12,230,711
|
)
|
Transfer from common stock
|
|
|
|
|
|
|
|
|
|
|
1,812,936
|
|
Net income
|
|
|
8,005,381
|
|
|
|
6,053,185
|
|
|
|
3,210,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
|
6,850,849
|
|
|
|
(1,154,532
|
)
|
|
|
(7,207,717
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
38,181
|
|
|
|
(16,705
|
)
|
|
|
|
|
Net change in unrecognized gains
(losses) on derivative instruments, net of income tax benefit of
¥26,194 thousand in 2006, income tax expense of
¥37,653 thousand in 2005 and income tax benefit of
¥11,460 thousand in 2004 (Note 10):
|
|
|
(38,181
|
)
|
|
|
54,886
|
|
|
|
(16,705
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
|
|
|
|
|
38,181
|
|
|
|
(16,705
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury stock at cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
|
|
|
|
|
|
|
|
|
|
Redemption of common stock, held as
treasury stock (Note 18)
|
|
|
|
|
|
|
|
|
|
|
(6,000,000
|
)
|
Issuance of treasury stock related
to LJS acquisition (Note 2)
|
|
|
|
|
|
|
|
|
|
|
6,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
¥
|
25,550,978
|
|
|
¥
|
17,583,778
|
|
|
¥
|
10,997,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for the year
|
|
¥
|
8,005,381
|
|
|
¥
|
6,053,185
|
|
|
¥
|
3,210,058
|
|
Net unrealized gain (loss) on
derivative instruments, net of income tax expense of
¥30,252 thousand in 2005 and income tax benefit of
¥11,460 thousand in 2004
|
|
|
|
|
|
|
44,096
|
|
|
|
(16,705
|
)
|
Reclassification adjustment for
gain (loss) included in net income, net of income tax benefit of
¥26,194 thousand in 2006 and income tax expense of
¥7,401 thousand in 2005
|
|
|
(38,181
|
)
|
|
|
10,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
¥
|
7,967,200
|
|
|
¥
|
6,108,071
|
|
|
¥
|
3,193,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
IV-19
JUPITER
TV CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2006, 2005 and 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(Yen in Thousands)
|
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
¥
|
8,005,381
|
|
|
¥
|
6,053,185
|
|
|
¥
|
3,210,058
|
|
Adjustments to reconcile net income
to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operation,
net of income taxes
|
|
|
1,260,616
|
|
|
|
1,446,996
|
|
|
|
256,644
|
|
Depreciation and amortization
|
|
|
2,467,685
|
|
|
|
1,783,999
|
|
|
|
1,380,432
|
|
Amortization of program rights and
language versioning
|
|
|
2,149,491
|
|
|
|
1,810,630
|
|
|
|
1,732,435
|
|
Provision for doubtful accounts
|
|
|
1,101
|
|
|
|
(838
|
)
|
|
|
(3,519
|
)
|
Equity in income of equity-method
affiliates
|
|
|
(72,919
|
)
|
|
|
(53,925
|
)
|
|
|
(22,888
|
)
|
Deferred income taxes
|
|
|
586,788
|
|
|
|
(121,381
|
)
|
|
|
(102,730
|
)
|
Minority interest in earnings
|
|
|
3,475,008
|
|
|
|
2,594,393
|
|
|
|
1,077,972
|
|
Gain on sale of investment in
affiliate
|
|
|
|
|
|
|
(116,441
|
)
|
|
|
|
|
Impairment loss on investment
|
|
|
|
|
|
|
30,000
|
|
|
|
|
|
Changes in assets and liabilities,
net of effects of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of program rights and
language versioning
|
|
|
(2,006,688
|
)
|
|
|
(2,247,145
|
)
|
|
|
(1,631,074
|
)
|
Increase in accounts receivable
|
|
|
(1,728,707
|
)
|
|
|
(1,387,858
|
)
|
|
|
(1,307,561
|
)
|
Increase in retail inventories
|
|
|
(245,298
|
)
|
|
|
(270,074
|
)
|
|
|
(763,453
|
)
|
Increase in accounts payable
|
|
|
372,611
|
|
|
|
2,436,146
|
|
|
|
863,382
|
|
(Decrease) increase in accrued
liabilities
|
|
|
(4,833
|
)
|
|
|
961,950
|
|
|
|
217,633
|
|
Increase in income taxes payable
|
|
|
537,490
|
|
|
|
2,844,746
|
|
|
|
674,288
|
|
Other, net
|
|
|
920,011
|
|
|
|
(162,895
|
)
|
|
|
(17,795
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating
activities of continuing operations
|
|
|
15,717,737
|
|
|
|
15,601,488
|
|
|
|
5,563,824
|
|
Net cash used in operating
activities of discontinued operation
|
|
|
(1,825,767
|
)
|
|
|
(1,515,993
|
)
|
|
|
(371,235
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating
activities
|
|
|
13,891,970
|
|
|
|
14,085,495
|
|
|
|
5,192,589
|
|
IV-20
JUPITER TV CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
Years ended December 31, 2006, 2005 and 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(Yen in Thousands)
|
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(3,750,927
|
)
|
|
|
(3,257,335
|
)
|
|
|
(3,886,668
|
)
|
Acquisition of subsidiary, net of
cash acquired
|
|
|
|
|
|
|
(46,365
|
)
|
|
|
(391,887
|
)
|
Proceeds from sale of investment in
affiliate
|
|
|
|
|
|
|
275,102
|
|
|
|
|
|
Investments in affiliates
|
|
|
|
|
|
|
(767,500
|
)
|
|
|
(748,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing
activities of continuing operations
|
|
|
(3,750,927
|
)
|
|
|
(3,796,098
|
)
|
|
|
(5,027,055
|
)
|
Net cash used in investing
activities of discontinued operation
|
|
|
(34,954
|
)
|
|
|
(527,352
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing
activities
|
|
|
(3,785,881
|
)
|
|
|
(4,323,450
|
)
|
|
|
(5,027,055
|
)
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds (repayments) on short-term
debt
|
|
|
|
|
|
|
|
|
|
|
(46,000
|
)
|
Proceeds from advances from
affiliate
|
|
|
480,000
|
|
|
|
762,000
|
|
|
|
938,000
|
|
Proceeds from issuance of
short-term debt (related party)
|
|
|
15,000
|
|
|
|
275,000
|
|
|
|
|
|
Principal payments on external loan
|
|
|
(1,600,000
|
)
|
|
|
|
|
|
|
|
|
Principal payments on shareholders
loan
|
|
|
|
|
|
|
(1,000,000
|
)
|
|
|
(176,000
|
)
|
Principal payments on obligations
under capital leases
|
|
|
(365,974
|
)
|
|
|
(319,060
|
)
|
|
|
(429,014
|
)
|
Proceeds from issuance of common
stock
|
|
|
|
|
|
|
|
|
|
|
6,000,000
|
|
Proceeds from minority shareholder
|
|
|
55,000
|
|
|
|
90,000
|
|
|
|
|
|
Payments to acquire treasury stock
|
|
|
|
|
|
|
|
|
|
|
(6,000,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by
financing activities of continuing operations
|
|
|
(1,415,974
|
)
|
|
|
(192,060
|
)
|
|
|
286,986
|
|
Net cash used in financing
activities of discontinued operation
|
|
|
(532,527
|
)
|
|
|
(35,455
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by
financing activities
|
|
|
(1,948,501
|
)
|
|
|
(227,515
|
)
|
|
|
286,986
|
|
Net effect of exchange rate changes
on cash and cash equivalents
|
|
|
43,104
|
|
|
|
130,617
|
|
|
|
(4,677
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash
equivalents
|
|
|
8,200,692
|
|
|
|
9,665,147
|
|
|
|
447,843
|
|
Cash and cash equivalents at
beginning of year
|
|
|
15,017,758
|
|
|
|
5,352,611
|
|
|
|
4,904,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of
year
|
|
¥
|
23,218,450
|
|
|
¥
|
15,017,758
|
|
|
¥
|
5,352,611
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
¥
|
8,192,819
|
|
|
¥
|
3,674,446
|
|
|
¥
|
2,551,301
|
|
Interest
|
|
|
134,977
|
|
|
|
91,860
|
|
|
|
90,711
|
|
Acquisition of BBF (Note 2)
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of assets acquired
(including cash acquired of ¥158,113 thousand)
|
|
|
|
|
|
|
|
|
|
|
705,657
|
|
Fair value of liabilities assumed
|
|
|
|
|
|
|
|
|
|
|
(87,657
|
)
|
Accrued estimated additional
purchase consideration
|
|
|
|
|
|
|
|
|
|
|
(68,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets acquired under capital leases
|
|
|
941,168
|
|
|
|
931,620
|
|
|
|
1,037,505
|
|
Asset retirement costs incurred
|
|
|
299,691
|
|
|
|
|
|
|
|
|
|
Accrual for purchase of property
and equipment
|
|
|
732,677
|
|
|
|
532,023
|
|
|
|
241,622
|
|
Acquisition of LJS through issuance
of treasury stock (Note 2)
|
|
|
|
|
|
|
|
|
|
|
3,200,990
|
|
Elimination of long-term loan from
LJS
|
|
|
|
|
|
|
|
|
|
|
840,000
|
|
See accompanying notes to consolidated financial statements.
IV-21
JUPITER
TV CO., LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
1.
|
Description
of Business and Summary of Significant Accounting Policies and
Practices
|
|
|
(a)
|
Description
of Business
|
Jupiter TV Co., Ltd. (the Company), formerly Jupiter
Programming Co., Ltd., and its subsidiaries (hereafter
collectively referred to as JTV) invest in, develop,
manage and distribute television programming through cable,
satellite and broadband platforms systems in Japan. Jupiter Shop
Channel Co., Ltd (Shop Channel), through which JTV
markets and sells a wide variety of consumer products and
accessories, is JTVs largest channel in terms of revenue,
comprising approximately 89%, 86%, and 83%, of total revenues
for the years ended December 31, 2006, 2005 and 2004,
respectively. JTVs business activities are conducted in
Japan and serve the Japanese market.
The Company is owned 50% by Liberty Global, Inc
(LGI), formerly Liberty Media International, Inc.,
through its wholly owned subsidiaries Liberty Programming Japan,
Inc. (43%) and Liberty Programming Japan II, LLC (7%), and
50% by Sumitomo Corporation. The Company was incorporated in
1996 in Japan under the name Kabushiki Kaisha Jupiter
Programming, Jupiter Programming Co., Ltd. in English, and
changed its name to Kabushiki Kaisha Jupiter TV Co., Ltd.,
Jupiter TV Co., Ltd. in English, effective from January 1,
2006.
|
|
(b)
|
Basis
of Consolidated Financial Statements
|
The Company and its subsidiaries maintain their books of account
in accordance with accounting principles generally accepted in
Japan. The consolidated financial statements presented herein
have been prepared in a manner and reflect certain adjustments
that are necessary to conform them to U.S. generally
accepted accounting principles. The major areas requiring such
adjustment are accounting for derivative instruments and hedging
activities, assets held under finance lease arrangements,
goodwill and other intangible assets, employers accounting
for pensions, compensated absence, deferred taxes, cooperative
marketing arrangements and certain customer discounts, asset
retirement obligations, merger transactions by equity
affiliates, and non-cash contribution of Liberty J Sports, Inc.
(LJS), from Liberty Media International, Inc. in
2004.
|
|
(c)
|
Principles
of Consolidation
|
The consolidated financial statements include the financial
statements of the Company and all of its majority owned
subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
JTV accounts for investments in variable interest entities in
accordance with the provisions of the Revised Interpretation of
the FASB Interpretation (FIN) No. 46
Consolidation of Variable Interest Entities, issued
in December 2003. The Revised Interpretation of
FIN No. 46 provides guidance on how to identify a
variable interest entity (VIE), and determines when
the assets, liabilities, non-controlling interests, and results
of operations of a VIE must be included in a companys
consolidated financial statements. A company that holds variable
interests in an entity is required to consolidate the entity if
the companys interest in the VIE is such that the company
will absorb a majority of the VIEs expected losses
and/or
receive a majority of the entitys expected residual
returns, if any. VIEs created after December 31, 2003 must
be accounted for under the Revised Interpretation of
FIN No. 46. JTV consolidates Reality TV Japan, which
was incorporated in January 2005, and in which JTV owns a 50%
interest, in accordance with the provisions of the Revised
Interpretation of FIN No. 46. Reality TV Japan is a
television channel specializing in the reality genre,
distributed through cable, satellite and broadband platforms,
which complements JTVs other channel businesses.
Cash equivalents consist of highly liquid debt instruments with
an initial maturity of three months or less from the date of
purchase.
IV-22
JUPITER TV CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
(e)
|
Allowance
for Doubtful Accounts
|
Allowance for doubtful accounts is computed based on historical
bad debt experience and includes estimated uncollectible amounts
based on an analysis of certain individual accounts, including
claims in bankruptcy.
Retail Inventories, consisting primarily of products held for
sale on Shop Channel, are stated at the lower of cost or market
value. Cost is determined using the
first-in,
first-out method.
|
|
(g)
|
Program
Rights and Language Versioning
|
Rights to programming acquired for broadcast on the programming
channels and language versioning are stated at the lower of cost
and net realizable value. Program right licenses generally state
a fixed time period within which a program can be aired, and
generally limit the number of times a program can be aired. The
licensor retains ownership of the program upon expiration of the
license. Programming rights and language versioning costs are
amortized over the license period for the program rights based
on the nature of the contract or program. Where airing runs are
limited, amortization is generally based on runs usage, where
usage is unlimited, a straight line basis is used as an estimate
of actual usage for amortization purposes. Certain sports
programs are amortized fully upon first airing. Such
amortization is included in programming and distribution expense
in the accompanying consolidated statements of operations.
The portion of unamortized program rights and language
versioning costs expected to be amortized within one year is
classified as a current asset in the accompanying consolidated
balance sheets.
For those investments in affiliates in which JTVs voting
interest is 20% to 50% or JTV otherwise has the ability to
exercise significant influence over the affiliates
operations and financial policies, the equity method of
accounting is used. Under this method, the investment is
originally recorded at cost and is adjusted to recognize
JTVs share of the net earnings or losses of its
affiliates. JTV recognizes its share of losses of an equity
method affiliate until its investment and net advances, if any,
are reduced to zero and only provides for additional losses in
the event that it has guaranteed obligations of the equity
method affiliate or is otherwise committed to provide further
financial support.
The difference between the carrying value of JTVs
investment in the affiliate and the underlying equity in the net
assets of the affiliate is recorded as equity method intangible
assets where appropriate and amortized over a relevant period of
time, or as residual goodwill. Equity method goodwill is not
amortized but is reviewed for impairment in accordance with
Accounting Principles Board (APB) Opinion
No. 18, The Equity-Method Accounting for Investments
in Common Stock which requires that an
other-than-temporary
decline in value of an investment be recognized as an impairment
loss.
Investments in other securities carried at cost represent
non-marketable equity securities in which JTVs ownership
is less than 20% and JTV does not have the ability to exercise
significant influence over the entities operation and
financial policies.
JTV evaluates its investments in affiliates and non-marketable
equity securities for impairment due to declines in value
considered to be
other-than-temporary.
In performing its evaluations, JTV utilizes various sources of
information, as available, including cash flow projections,
independent valuations and, as applicable, stock price analysis.
In the event of a determination that a decline in value is
other-than-temporary, a charge to income is recorded for the
loss, and a new cost basis in the investment is established.
IV-23
JUPITER TV CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
(i)
|
Derivative
Financial Instruments
|
Under Statement of Financial Accounting Standards
(SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended, entities
are required to carry all derivative instruments in the
consolidated balance sheets at fair value. The accounting for
changes in the fair value (that is, gains or losses) of a
derivative instrument depends on whether it has been designated
and qualifies as part of a hedging relationship and, if so, on
the reason for holding the instrument. If certain conditions are
met, entities may elect to designate a derivative instrument as
a hedge of exposures to changes in fair values, cash flows, or
foreign currencies. If the hedged exposure is a fair value
exposure, the gain or loss on the derivative instrument is
recognized in earnings in the period of change together with the
offsetting loss or gain on the hedged item attributable to the
risk being hedged. If the hedged exposure is a cash flow
exposure, the effective portion of the gain or loss on the
derivative instrument is reported initially as a component of
other comprehensive income (loss) and subsequently reclassified
into earnings when the forecasted transaction affects earnings.
Any amounts excluded from the assessment of hedge effectiveness
as well as the ineffective portion of the gain or loss are
reported in earnings immediately. If the derivative instrument
is not designated as a hedge, the gain or loss is recognized in
income in the period of change.
JTV uses foreign exchange forward contracts to manage currency
exposure, resulting from changes in foreign currency exchange
rates, on purchase commitments for contracted programming rights
and other contract costs and for forecasted inventory purchases
in U.S. dollars. JTV enters into these contracts to hedge
its U.S. dollar denominated net monetary exposures. Hedges
relating to purchase commitments for contracted programming
rights and other contract costs may have qualified for hedge
accounting under the hedging criteria specified by
SFAS No. 133. However prior to January 1, 2004,
JTV elected not to designate any qualifying transactions as
hedges. For certain qualifying transactions entered into since
January 1, 2004, JTV has designated the transactions as
cash flow hedges and the effective portion of the gain or loss
on the derivative instrument is reported as a component of other
comprehensive income (loss). For JTVs foreign exchange
forward contracts that do not qualify for hedge accounting under
the hedging criteria specified by SFAS No. 133,
changes in the fair value of derivatives are recorded in the
consolidated statements of operations in the period of the
change.
JTV does not, as a matter of policy, enter into derivative
transactions for the purpose of speculation.
|
|
(j)
|
Property
and Equipment
|
Property and equipment are stated at cost.
Depreciation and amortization is generally computed using the
straight line method over the estimated useful lives of the
respective assets as follows:
|
|
|
Furniture and fixtures
|
|
2-20 years
|
Leasehold and building improvements
|
|
3-18 years
|
Equipment and vehicles
|
|
2-15 years
|
Buildings
|
|
37-50 years
|
Equipment under capital leases is initially stated at the
present value of minimum lease payments. Equipment under capital
leases is amortized using the straight line method over the
shorter of the lease term and the estimated useful lives of the
respective assets, which generally range from three to nine
years.
|
|
(k)
|
Software
Development Costs
|
JTV capitalizes certain costs incurred to purchase or develop
software for internal-use. Costs incurred to develop software
for internal use are expensed as incurred during the preliminary
project stage, including costs associated with making strategic
decisions and determining performance and system requirements
regarding the project, and vendor demonstration costs. Labor
costs incurred subsequent to the preliminary project stage
through implementation are capitalized. JTV also expenses costs
incurred for internal-use software projects in the post
IV-24
JUPITER TV CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
implementation stage such as costs for training and maintenance.
The capitalized cost of software is amortized on a straight-line
basis over the estimated useful life, which is generally two to
five years.
|
|
(l)
|
Goodwill
and Other Intangible Assets
|
Goodwill represents the excess of costs over fair value of net
assets of businesses acquired, and is accounted for under the
provisions of SFAS No. 141, Business
Combinations, and SFAS No. 142, Goodwill
and Other Intangible Assets. SFAS No. 141
requires the use of the purchase method of accounting for
business combinations and establishes certain criteria for the
recognition of intangible assets separately from goodwill. Under
SFAS No. 142 goodwill is no longer amortized, but
instead is tested for impairment at least annually. Intangible
assets with definite useful lives are amortized over their
respective estimated useful lives and reviewed for impairment in
accordance with SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. Any
recognized intangible assets determined to have an indefinite
useful life are not amortized, but instead are tested for
impairment until their life is determined to be no longer
indefinite.
JTV performs its annual impairment test for goodwill and
indefinite-life intangible assets at the end of each year. JTV
completed its annual impairment tests at December 31, 2006,
2005 and 2004, respectively, with no indication of impairment
identified.
|
|
(m)
|
Long-Lived
Assets and Long-Lived Assets to be Disposed Of
|
JTV accounts for long-lived assets in accordance with the
provisions of SFAS No. 144. SFAS No. 144
requires that long-lived assets and certain identifiable
intangibles with definite useful lives be reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net
undiscounted cash flows expected to be generated by the asset.
If such assets are considered to be impaired, the impairment to
be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets.
Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell. Fair value is
determined by independent third party appraisals, projected
discounted cash flows, or other valuation techniques as
appropriate.
JTV accounts for its obligations associated with the retirement
of tangible long-lived assets in accordance with
SFAS No. 143, Accounting for Asset Retirement
Obligations. Pursuant to SFAS No. 143,
obligations associated with the retirement of tangible
long-lived assets are recorded as liabilities when those
obligations are incurred, with the amount of the liability
initially measured at fair value. The associated asset
retirement costs are capitalized as part of the carrying amount
of the long-lived asset.
JTV accounts for the conditional asset retirement obligations in
accordance with FIN No. 47, Accounting for
Conditional Asset Retirement Obligations which requires
conditional asset retirement obligations to be recognized if a
legal obligation exists to perform asset retirement activities
and a reasonable estimate of the fair value of the obligation
can be made. FIN No. 47 also provides guidance as to
when an entity would have sufficient information to reasonably
estimate the fair value of an asset retirement obligation.
|
|
(n)
|
Accrued
Pension and Severance Costs
|
The Company and certain of its subsidiaries provide a Retirement
Allowance Plan (RAP) for eligible employees. The RAP
is an unfunded retirement allowance program in which benefits
are based on years of service which in turn determine a multiple
of final monthly compensation. JTV accounts for the RAP in
accordance with the provisions of SFAS No. 87,
Employers Accounting for Pensions. Effective
December 31, 2006, JTV adopted 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) which requires
an employer to recognize in its statement of financial position
the overfunded or underfunded status of a defined benefit
postretirement plan
IV-25
JUPITER TV CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
measured as the difference between the fair value of plan assets
and the benefit obligation. Employers must also recognize as a
component of other comprehensive income, net of tax, the
actuarial gains and losses and the prior service costs and
credits that arise during the period. The adoption of this
statement did not have any effect on the consolidated financial
statements.
In addition, JTV employees participate in an Employees
Pension Fund (EPF) Plan. The EPF Plan is a
multi-employer plan consisting of approximately 120
participating companies, mainly affiliates of Sumitomo
Corporation. The plan is composed of substitutional portions
based on the pay-related part of the old age pension benefits
prescribed by the Welfare Pension Insurance Law in Japan, and
corporate portions based on contributory defined benefit pension
arrangements established at the discretion of the Company and
its subsidiaries. Benefits under the EPF Plan are based on years
of service and the employees compensation during the five
years before retirement.
The assets of the EPF Plan are co-mingled and no assets are
separately identifiable for any one participating company. JTV
accounts for the EPF Plan in accordance with the provisions of
SFAS No. 87, governing multi-employer plans. Under
these provisions, JTV recognizes a net pension expense for the
required contribution for each period and recognizes a liability
for any contributions due but unpaid at the end of each period.
Any shortfalls in plan funding are charged to participating
companies on a
share-of-contribution
basis through special contributions spread over a
period of years determined by the EPF Plan as being appropriate.
Retail
Sales
Revenue from sales of products by Shop Channel is recognized
when the products are delivered to customers, which is when
title and risk of loss transfers. Shop Channels retail
sales policy allows merchandise to be returned at the
customers discretion, generally up to 30 days after
the date of sale. Retail sales revenue is reported net of
discounts, and of estimated returns, which are based upon
historical experience.
Television
Programming Revenue
Television programming revenue includes subscription and
advertising revenue.
Subscription revenue is recognized in the periods in which
programming services are provided to cable, satellite and
broadband subscribers. JTVs channels distribute
programming to individual satellite platform subscribers through
an agreement with the platform operator which provides
subscriber management services to channels in return for a fee
based on subscription revenues. Individual satellite subscribers
pay a monthly fee for programming channels under the terms of
rolling one-month subscription contracts. Cable and broadband
service providers generally pay a per-subscriber fee for the
right to distribute JTVs programming on their systems
under the terms of generally annual distribution contracts.
Subscription revenue is recognized net of satellite platform
commissions and certain cooperative marketing and advertising
funds paid to cable system operators. Satellite platform
commissions for the years ended December 31, 2006, 2005 and
2004 were ¥1,985,917 thousand, ¥1,833,329 thousand,
and ¥1,639,055 thousand, respectively. Cooperative
marketing and advertising funds paid to cable system operators
for the years ended December 31, 2006, 2005 and 2004 were
¥311,282 thousand, ¥264,794 thousand, and
¥225,572 thousand, respectively.
The Company generates advertising revenue on all of its
programming channels except Shop Channel. Advertising revenue is
recognized, net of agency commissions, when advertisements are
broadcast on JTVs programming channels.
IV-26
JUPITER TV CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Services
and Other Revenue
Services and other revenue mainly comprises cable and
advertising sales fees and commissions, and technical broadcast
facility and production services provided by the Company and
certain subsidiaries, and is recognized in the periods in which
such services are provided to customers.
Cost of retail sales consists of the cost of products marketed
to customers by Shop Channel, including write-downs for
inventory obsolescence, shipping and handling costs and
warehouse costs. Product costs are recognized as cost of retail
sales in the accompanying consolidated statements of operations
when the products are delivered to customers and the
corresponding revenue is recognized.
|
|
(q)
|
Cost
of Programming and Distribution
|
Cost of programming consists of costs incurred to acquire or
produce programs airing on the channels distributed to cable,
satellite and broadband subscribers. Distribution costs include
the costs of delivering the programming channels via satellite,
including the costs incurred for uplink services and use of
satellite transponders, costs of distribution of certain
channels over optical fiber to cable platforms, and payments
made to cable and satellite platforms for carriage of Shop
Channel.
Advertising expense is recognized as incurred and is included in
selling, general and administrative expenses or, if appropriate,
as a reduction of subscription revenue. Cooperative marketing
costs are recognized as an expense to the extent that an
identifiable benefit is received and the fair value of the
benefit can be reasonably measured, otherwise as a reduction of
subscription revenue. Advertising expense included in selling,
general and administrative expenses for the years ended
December 31, 2006, 2005 and 2004 was ¥2,180,782
thousand, ¥1,676,707 thousand, and ¥1,333,596
thousand, respectively.
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss
and tax credit carry-forwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the
enactment date.
|
|
(t)
|
Issuance
of Stock by Subsidiaries and Investee Affiliates
|
The change in the Companys proportionate share in the
underlying net equity of a consolidated subsidiary and
equity-method investee from the issuance of their common stock
is recorded in additional paid-in capital in the consolidated
financial statements.
|
|
(u)
|
Foreign
Currency Transactions
|
Financial assets and liabilities denominated in foreign
currencies are translated at the applicable current rates on the
balance sheet dates. All revenue and expenses denominated in
foreign currencies are converted at the rates of exchange
prevailing when such transactions occur. The resulting exchange
gains or losses are reflected in other income (expense) in the
accompanying consolidated statements of operations.
IV-27
JUPITER TV CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Management of JTV has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of
the consolidated financial statements, and the reported amounts
of revenues and expenses during the reporting period, to prepare
these consolidated financial statements in conformity with
U.S. generally accepted accounting principles. Significant
items subject to such estimates and assumptions include
valuation allowances for accounts receivable, retail
inventories, long-lived assets, investments, deferred tax
assets, retail sales returns, contingencies, and obligations
related to employees retirement plans. Actual results
could differ from estimates.
|
|
(w)
|
New
Accounting Standards
|
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements. The statement defines fair
value, establishes a framework for measuring fair value in
generally accepted accounting principles, and enhances
disclosures about fair value measurements. This statement
applies when other accounting pronouncements require fair value
measurements; it does not require new fair value measurements.
SFAS No. 157 is effective for financial statements
issued for fiscal years beginning after November 15, 2007,
and interim periods within those years, with early application
permitted provided the entity has not yet issued financial
statements, including financial statements for any interim
period for that fiscal year. JTV does not expect the adoption of
this statement will have a material effect on its consolidated
financial statements.
In September 2006, the FASB issued SFAS No. 158, which
requires an employer to recognize in its statement of financial
position, the overfunded or underfunded status of a defined
benefit postretirement plan measured as the difference between
the fair value of the plan assets and the benefit obligation.
The statement also requires fiscal year-end measurements of plan
assets and benefit obligations, eliminating the use of earlier
measurement dates currently permissible. This measurement date
provision will be effective for fiscal years ending after
December 15, 2008. JTV does not expect the adoption of this
measurement date provision will have a material effect on its
consolidated financial statements.
In June 2006, the FASB issued FIN No. 48,
Accounting for Uncertainty in Income Taxes an
interpretation of FASB Statement No. 109. The
interpretation of SFAS No. 109 Accounting for
Income Taxes, prescribes a recognition threshold and
measurement attribute for the financial statement recognition
and measurement, under SFAS No. 109, of a tax position
taken or expected to be taken in a tax return. This
Interpretation provides guidance on de-recognition,
classification, interest and penalties, and accounting in
interim periods. It also requires additional financial statement
disclosures about uncertain tax positions. FIN No. 48
is effective for fiscal years beginning after December 15,
2006. JTV does not expect the adoption of this statement will
have a material effect on its consolidated financial statements.
Certain prior year amounts have been reclassified for
comparability with the current year presentation.
In April 2004, JTV acquired all of the issued and outstanding
common stock of LJS from LGI, in exchange for 24,000 shares
of JTVs common stock held in treasury having a fair value,
as determined by independent appraisal, of
¥250,000 per share. The aggregate purchase price
amounted to ¥6,000,000 thousand. Immediately prior to the
acquisition, LJS held 33.3% of the issued and outstanding shares
of voting common stock of Jupiter Sports, Inc., with JTV holding
the remaining 66.7%. Jupiter Sports Inc. is a holding company
with its only principal asset being an investment representing,
at that time, approximately 42.8% of the issued and outstanding
voting common stock in JSports Broadcasting Corporation
(JSB). As a result of the acquisition of LJS, JTV
increased its indirect ownership in JSB from 28.5% to 42.8%. JSB
is a sports channel broadcasting company that operated three
channels
IV-28
JUPITER TV CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
of various sports related contents. Jupiter Sports Inc. accounts
for its investment in JSB using the equity method of accounting
as it is able to exercise significant influence over the
operations of JSB. Upon consummation of the acquisition, LJS was
converted to a limited liability company with the Certificate of
Conversion filed with the Secretary of State of Delaware, and
renamed J Sports LLC.
The acquisition was consummated in concert with a series of
capital transactions as described in Note 18 to the
consolidated financial statements.
The Company accounted for the acquisition to the extent of the
¥3,000,000 thousand cash paid to LGI in an earlier
redemption of shares of common stock (Note 18) in a
manner similar to a partial step acquisition. Accordingly, the
excess of ¥3,000,000 thousand over 50% of the fair value of
the assets acquired and liabilities assumed with respect to the
underlying investment in JSB was recorded as a component of
JTVs investment in JSB and accordingly was classified as
equity method goodwill. Management determined that the fair
value of the assets acquired and liabilities assumed
approximated their respective carrying values at the date of
acquisition, and that there were no material intangible assets
applicable to the underlying investment in JSB. The balance of
the underlying investment acquired in JSB has been accounted for
at historical cost using carryover basis with the difference of
¥3,000,000 thousand over such historical cost amount being
reflected as a deduction from additional paid in capital.
Goodwill from the acquisition is not deductible for tax purposes.
The following table summarizes the allocation of the acquisition
consideration:
|
|
|
|
|
|
|
(Yen in Thousands)
|
|
|
Purchase accounting:
|
|
|
|
|
50% of acquisition consideration
|
|
¥
|
3,000,000
|
|
Fair value of 50% of underlying net
assets acquired
|
|
|
200,990
|
|
Equity method goodwill
|
|
|
2,799,010
|
|
Carryover basis:
|
|
|
|
|
50% of acquisition consideration
|
|
|
3,000,000
|
|
Historical cost of 50% of
underlying net assets acquired
|
|
|
200,990
|
|
Carryover basis reduction of
additional paid in capital
|
|
|
2,799,010
|
|
On December 28, 2004, JTV acquired 100% of the outstanding
shares of BB Factory Corporation Ltd. (BBF), a
television programming company. The acquisition was accounted
for as a purchase. The aggregate purchase price was
¥596,365 thousand, of which ¥550,000 thousand was paid
in cash on December 28, 2004. The balance of ¥46,365
thousand was paid in cash on April 28, 2005. At
December 31, 2004, the estimated additional purchase
consideration at that time of ¥68,000, which was determined
with reference to the net asset value of BBF at January 31,
2005, pending final approval by both parties to the transaction,
was accrued. The difference between the estimated purchase price
and the final purchase price amounted to ¥21,635 thousand
and reduced goodwill in 2005 (Note 9). JTV has recognized
subscriber-related intangible assets in the amount of
¥200,000 thousand representing estimated financial benefits
from taking over Channel BBs position in
direct-to-home
channel packaging alliances, which is being amortized over a ten
year period commencing in 2005. The results of operations of BBF
were included in JTVs consolidated statements of
operations from January 1, 2005. Goodwill from the
acquisition of BBF is not deductible for tax purposes.
During 2005, previously unrecognized tax benefits in the form of
net operating loss carryforwards acquired in connection with the
acquisition of BBF amounting to ¥154,252 thousand were
realized during the year. Accordingly, the Company reduced the
carrying value of goodwill by a similar amount (Note 9).
IV-29
JUPITER TV CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The following table summarizes the estimated fair value of the
assets acquired and liabilities assumed, as recorded at the date
of acquisition of BBF:
|
|
|
|
|
|
|
(Yen in Thousands)
|
|
|
Current assets
|
|
¥
|
224,471
|
|
Intangible assets
|
|
|
200,000
|
|
Goodwill
|
|
|
281,186
|
|
|
|
|
|
|
|
|
|
|
|
Total assets acquired
|
|
|
705,657
|
|
Current liabilities assumed
|
|
|
(6,277
|
)
|
Deferred tax liabilities
|
|
|
(81,380
|
)
|
|
|
|
|
|
|
|
|
|
|
Net assets acquired
|
|
¥
|
618,000
|
|
|
|
|
|
|
|
|
3.
|
Discontinued
Operation
|
In December 2005, a decision was made to place the launch of a
new television channel business, PartiTV, on hold while JTV
reconsidered the feasibility and social appropriateness of the
content and business model based on new information obtained
during the developmental period. At that point, the business had
been developed to a stage such that management recognized it as
a component of the JTV business. JTV then proceeded to evaluate
the feasibility of re-deploying PartiTV infrastructure assets
and commitments, including in connection with the potential
launch of an auction channel that was being studied. Auction was
planned to be one programming genre in the original PartiTV
business model.
In July 2006 the Companys Board concluded that the bulk of
the PartiTV assets and infrastructure was not suitable for the
auction channel plan being developed, and approval was given to
sell or terminate all PartiTV infrastructure assets and
commitments. At that point JTV classified the PartiTV business
component as a discontinued operation in accordance with the
provisions of SFAS No. 144. Certain employees of
PartiTV were advised in December 2005 and the bulk of employees
were advised in 2006 that they would retire from the Company,
and that their contracts
and/or
employment status within the PartiTV division would expire or
would be terminated on the basis of certain compensation
packages.
At December 31, 2006, substantially all of the PartiTV
business component assets had been disposed of or re-deployed
within the group, and commitments settled. There were no
significant assets and liabilities, except for employee
severance costs payable of ¥259,185 thousand, of the
PartiTV component at December 31, 2006.
The Company has incurred certain employee severance costs and
contract termination costs directly related to the disposal of
the PartiTV business. These costs are included as a component of
the discontinued operations, and a summary of the activities
related to these costs is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of
|
|
|
|
|
|
|
|
|
Balance as of
|
|
|
|
December 31, 2005
|
|
|
Costs Incurred
|
|
|
Cash Payments
|
|
|
December 31, 2006
|
|
|
|
(Yen in Thousands)
|
|
|
Employee severance costs
|
|
¥
|
|
|
|
¥
|
393,139
|
|
|
¥
|
133,954
|
|
|
¥
|
259,185
|
|
Contract termination costs
|
|
|
|
|
|
|
350,923
|
|
|
|
350,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
¥
|
|
|
|
¥
|
744,062
|
|
|
¥
|
484,877
|
|
|
¥
|
259,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IV-30
JUPITER TV CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The results for the PartiTV business component for the years
ended December 31, 2006, 2005 and 2004, recognized in the
consolidated statements of operations as net loss from
discontinued operation, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(Yen in Thousands)
|
|
|
Revenue from discontinued operation
|
|
¥
|
|
|
|
¥
|
|
|
|
¥
|
|
|
Operating loss from discontinued
operation
|
|
|
(717,659
|
)
|
|
|
(2,386,900
|
)
|
|
|
(432,095
|
)
|
Loss on disposal of discontinued
operation
|
|
|
(1,407,147
|
)
|
|
|
|
|
|
|
|
|
Income tax benefit from
discontinued operation
|
|
|
864,190
|
|
|
|
939,904
|
|
|
|
175,451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from discontinued operation
|
|
¥
|
(1,260,616
|
)
|
|
¥
|
(1,446,996
|
)
|
|
¥
|
(256,644
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.
|
Program
Rights and Language Versioning
|
Program rights and language versioning as of December 31,
2006 and 2005 were composed of the following:
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(Yen in Thousands)
|
|
|
Program rights
|
|
¥
|
1,795,575
|
|
|
¥
|
1,326,661
|
|
Language versioning
|
|
|
333,952
|
|
|
|
130,389
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,129,527
|
|
|
|
1,457,050
|
|
Less accumulated amortization
|
|
|
(1,150,046
|
)
|
|
|
(334,766
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
979,481
|
|
|
|
1,122,284
|
|
Less current portion
|
|
|
(695,410
|
)
|
|
|
(776,225
|
)
|
|
|
|
|
|
|
|
|
|
|
|
¥
|
284,071
|
|
|
¥
|
346,059
|
|
|
|
|
|
|
|
|
|
|
Amortization expense related to program rights and language
versioning for the years ended December 31, 2006, 2005 and
2004, was ¥2,149,491 thousand, ¥1,810,630 thousand,
and ¥1,732,435 thousand, respectively, which is included in
cost of programming and distribution in the consolidated
statements of operations in respective years.
IV-31
JUPITER TV CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Investments, including advances, as of December 31, 2006
and 2005, were composed of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
Percentage
|
|
|
Carrying
|
|
|
Percentage
|
|
|
Carrying
|
|
|
|
ownership
|
|
|
amount
|
|
|
ownership
|
|
|
amount
|
|
|
|
(Yen in Thousands)
|
|
|
Investments accounted for under the
equity method:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discovery Japan, Inc.
|
|
|
50.0
|
%
|
|
¥
|
1,107,064
|
|
|
|
50.0
|
%
|
|
¥
|
894,321
|
|
Animal Planet Japan, Co. Ltd.
|
|
|
33.3
|
%
|
|
|
197,449
|
|
|
|
33.3
|
%
|
|
|
197,928
|
|
InteracTV Co., Ltd.
|
|
|
42.5
|
%
|
|
|
36,439
|
|
|
|
42.5
|
%
|
|
|
38,399
|
|
JSports Broadcasting Corporation
|
|
|
33.4
|
%
|
|
|
4,834,792
|
|
|
|
33.4
|
%
|
|
|
4,783,458
|
|
AXN Japan, Inc.
|
|
|
35.0
|
%
|
|
|
940,149
|
|
|
|
35.0
|
%
|
|
|
909,480
|
|
Jupiter VOD Co., Inc.
|
|
|
50.0
|
%
|
|
|
549,512
|
|
|
|
50.0
|
%
|
|
|
768,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity method investments
|
|
|
|
|
|
|
7,665,405
|
|
|
|
|
|
|
|
7,592,486
|
|
Investments accounted for at cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NikkeiCNBC Japan, Inc.
|
|
|
9.8
|
%
|
|
|
100,000
|
|
|
|
9.8
|
%
|
|
|
100,000
|
|
Kids Station, Inc.
|
|
|
15.0
|
%
|
|
|
304,500
|
|
|
|
15.0
|
%
|
|
|
304,500
|
|
AT-X, Inc.
|
|
|
12.3
|
%
|
|
|
236,000
|
|
|
|
12.3
|
%
|
|
|
236,000
|
|
Nihon Eiga Satellite Broadcasting
Corporation
|
|
|
10.0
|
%
|
|
|
66,600
|
|
|
|
10.0
|
%
|
|
|
66,600
|
|
Satellite Service Co. Ltd.
|
|
|
12.0
|
%
|
|
|
24,000
|
|
|
|
12.0
|
%
|
|
|
24,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost method investments
|
|
|
|
|
|
|
731,100
|
|
|
|
|
|
|
|
731,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
¥
|
8,396,505
|
|
|
|
|
|
|
¥
|
8,323,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following investments represent participation in programming
businesses:
Discovery Japan, Inc., a general documentary channel business
currently operating two channels;
Animal Planet Japan, Co. Ltd., an animal-specific documentary
channel;
JSports Broadcasting Corporation, a sports channel business
currently operating four channels;
AXN Japan, Inc., a general entertainment channel;
NikkeiCNBC Japan, Inc., a news service channel;
Kids Station, Inc., a childrens entertainment channel;
AT-X, Inc., an animation genre channel;
Nihon Eiga Satellite Broadcasting Corporation, a Japanese period
drama and movie channels business
currently operating two channels; and
Jupiter VOD Co., Inc. a multi-genre video on demand programming
service
The following investments represent participation in broadcast
license-holding companies through which channels are consigned
to subscribers to the CS110 degree East
Direct-to-home
satellite service:
InteracTV Co., Ltd., holds licenses for Movie Plus, Lala, Golf
Network and Shop channels, among others;
Satellite Service Co. Ltd., holds licenses for Discovery and
Animal Planet channels, among others.
IV-32
JUPITER TV CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The following reflects JTVs share of earnings (losses) of
investments accounted for under the equity method for the years
ended December 31, 2006, 2005 and 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(Yen in Thousands)
|
|
|
Discovery Japan, Inc.
|
|
¥
|
212,743
|
|
|
¥
|
313,865
|
|
|
¥
|
298,763
|
|
Animal Planet Japan, Co. Ltd.
|
|
|
(479
|
)
|
|
|
(125,581
|
)
|
|
|
(283,913
|
)
|
InteracTV Co., Ltd.
|
|
|
(1,960
|
)
|
|
|
(188
|
)
|
|
|
(219
|
)
|
JSports Broadcasting Corporation
|
|
|
51,334
|
|
|
|
135,845
|
|
|
|
135,973
|
|
AXN Japan, Inc.
|
|
|
30,669
|
|
|
|
12,351
|
|
|
|
(43,982
|
)
|
Jupiter VOD Co., Inc.
|
|
|
(219,388
|
)
|
|
|
(282,367
|
)
|
|
|
(83,734
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
¥
|
72,919
|
|
|
¥
|
53,925
|
|
|
¥
|
22,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On November, 1, 2005, JSports Broadcasting Corporation
(JSB) acquired Sports-iESPN, another sports channel
business. The acquisition was accounted for as a purchase by
JSB. Common stock representing approximately 19.5% of the
combined business was issued to the shareholders of Sports-iESPN
in consideration for the purchase. The stock issuance resulted
in JTVs equity share of JSB diluting from 42.8% to 34.5%.
The difference between JTVs share of the underlying net
equity of JSB immediately prior to the acquisition of
Sports-iESPN and subsequent thereto has been accounted for by
the Company as an increase in the carrying value of its
investment with a corresponding increase in additional paid-in
capital in the amount of ¥478,075 (net of income tax of
¥282,787) in a manner analogous to Staff Accounting
Bulletin No. 51, Accounting for Sales of Stock
by a Subsidiary. Immediately following the acquisition of
Sports-iESPN by JSB, JTV sold 770 shares of its investment
in common stock of JSB to other unrelated shareholders pursuant
to a shareholding adjustment arrangement in exchange for cash
proceeds, further diluting its investment in JSB from a 34.5%
owned equity-method investment to a 33.4% owned equity-method
investment. JTV recognized a ¥116,441 thousand gain on sale
of those shares in earnings.
In December 2004, the Company invested ¥485,000 thousand
and acquired a 50% voting interest in Jupiter VOD Co., Ltd.
(JVOD). In December 2005, a further equity
investment was made in the amount of ¥650,000 thousand,
maintaining a 50% voting interest in JVOD. JVOD is a video on
demand programming service providing on-demand video services
primarily to digitized cable systems capable of receiving its
service.
The carrying amount of investments in affiliates as of
December 31, 2006 and 2005 included ¥751,940 thousand
for AXN Japan, Inc. (AXN) and ¥2,180,084
thousand for JSB of excess cost of the investments over the
Companys equity in the net assets. The amount of that
excess costs represents equity method goodwill.
JTV holds 33.3% of the ordinary shares of Animal Planet Japan,
Co. Ltd, and records its share of the earnings and losses in
accordance with that ordinary shareholding ratio. The Company
entered into an Amendment To Funding Agreement with effect from
March 31, 2005, under which it has funding obligations in
accordance with its ordinary shareholding ratio up to a maximum
of ¥1,500,000 thousand. During the years ended
December 31, 2006 and 2005, the Company invested ¥0
and ¥100,000 thousand, respectively, and had made an
aggregate investment of ¥1,395,000 thousand as of
December 31, 2006, in Animal Planet Japan, Co. Ltd.
The aggregate cost of JTVs cost method investments totaled
¥731,100 thousand at December 31, 2006 and 2005. JTV
performs an impairment test for cost method investments whenever
events or changes in circumstances indicate that the carrying
amount of an investment may not be recoverable. At
December 31, 2006, JTV estimated that the fair value of
each of the investments exceeded the cost of the investment, and
therefore concluded that no impairment had occurred. At
December 31, 2005, the fair value of the investment in
AT-X, Inc, based on a discounted cash flow analysis of available
business plans, indicated that an
other-than-temporary
decline in value had occurred. The amount of the associated
impairment write-down for the year ended December 31, 2005
was ¥30,000 thousand and is included in other income
(expense) in the accompanying statements of operations.
IV-33
JUPITER TV CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Financial information for the companies in which the Company has
an investment accounted for under the equity method is presented
as combined as the companies are similar in nature and operate
in the same business area. Condensed combined financial
information is as follows:
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(Yen in Thousands)
|
|
|
Combined financial position at
December 31,
|
|
|
|
|
|
|
|
|
Current assets
|
|
¥
|
11,591,623
|
|
|
¥
|
10,546,734
|
|
Other assets
|
|
|
7,191,268
|
|
|
|
5,464,831
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
18,782,891
|
|
|
|
16,011,565
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
4,658,638
|
|
|
|
3,620,947
|
|
Other liabilities
|
|
|
3,395,045
|
|
|
|
1,676,786
|
|
Shareholders equity
|
|
|
10,729,208
|
|
|
|
10,713,832
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
shareholders equity
|
|
¥
|
18,782,891
|
|
|
¥
|
16,011,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(Yen in Thousands)
|
|
|
Combined operations for the year
ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
¥
|
28,166,813
|
|
|
¥
|
22,852,521
|
|
|
¥
|
21,682,192
|
|
Operating expenses
|
|
|
27,511,715
|
|
|
|
22,648,732
|
|
|
|
21,998,685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
655,098
|
|
|
|
203,789
|
|
|
|
(316,493
|
)
|
Other (expense) income, net,
including income taxes
|
|
|
(562,015
|
)
|
|
|
(1,027
|
)
|
|
|
783,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
¥
|
93,083
|
|
|
¥
|
202,762
|
|
|
¥
|
467,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.
|
Property
and Equipment
|
Property and equipment as of December 31, 2006 and 2005,
were comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(Yen in Thousands)
|
|
|
Furniture and fixtures
|
|
¥
|
286,972
|
|
|
¥
|
267,031
|
|
Leasehold and building improvements
|
|
|
2,112,082
|
|
|
|
1,463,370
|
|
Equipment and vehicles
|
|
|
6,598,613
|
|
|
|
4,924,584
|
|
Buildings
|
|
|
1,001,485
|
|
|
|
851,485
|
|
Land
|
|
|
437,147
|
|
|
|
437,147
|
|
Construction in progress
|
|
|
932,788
|
|
|
|
14,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,369,087
|
|
|
|
7,957,805
|
|
Less accumulated depreciation and
amortization
|
|
|
(3,791,181
|
)
|
|
|
(2,399,609
|
)
|
|
|
|
|
|
|
|
|
|
|
|
¥
|
7,577,906
|
|
|
¥
|
5,558,196
|
|
|
|
|
|
|
|
|
|
|
Property and equipment include assets held under capitalized
lease arrangements (Note 12). Depreciation and amortization
expense related to property and equipment for the years ended
December 31, 2006, 2005 and 2004 was ¥1,497,830
thousand, ¥1,070,502 thousand, and ¥772,907 thousand,
respectively.
At December 31, 2005 JTV reviewed its long-lived assets,
including capitalized leases, developed for the PartiTV business
for impairment, due to a decision that the channel would not be
launched (Note 3). A determination of impairment was made
with respect to the PartiTV long-lived assets to be held and
used based on a comparison of the carrying amount of an asset to
future net undiscounted cash flows expected to be generated by
the assets in accordance with the provisions of
SFAS No. 144. At that time the PartiTV assets were
written down to their estimated fair market value. The fair
value was determined by estimating the market value in a current
IV-34
JUPITER TV CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
transaction between willing parties, that is, other than in a
forced or liquidation sale, in reference to prices for assets or
asset groups with similar functionality, having similar
remaining useful lives. The amount of the associated impairment
write-down for the year ended December 31, 2005 was
¥524,140 thousand, and is included in net loss from
discontinued operation in the accompanying consolidated
statements of operations.
At December 31, 2006 JTV had disposed of, or re-deployed
within the group, substantially all of the long-lived assets,
including capitalized leases, developed for the PartiTV
business. Remaining assets were reviewed for impairment and were
written down to their estimated fair market value which was
determined with reference to the experience from selling the
bulk of the PartiTV assets during the year. The amount of the
associated impairment write-down for the year ended
December 31, 2006 was ¥54,508 thousand and is included
in net loss from discontinued operation in the accompanying
consolidated statements of operations.
|
|
7.
|
Software
Development Costs
|
Capitalized software development costs for internal-use as of
December 31, 2006 and 2005, were as follows:
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(Yen in Thousands)
|
|
|
Software development costs
|
|
¥
|
8,021,193
|
|
|
¥
|
6,686,711
|
|
Less accumulated amortization
|
|
|
(3,577,876
|
)
|
|
|
(2,561,596
|
)
|
|
|
|
|
|
|
|
|
|
|
|
¥
|
4,443,317
|
|
|
¥
|
4,125,115
|
|
|
|
|
|
|
|
|
|
|
Significant software development additions during 2006 and 2005
included development of Shop Channel core systems,
e-commerce,
and new call center infrastructure, all of which are for
internal use.
Aggregate amortization expense for the years ended
December 31, 2006, 2005 and 2004 was ¥1,017,224
thousand, ¥728,573 thousand, and ¥584,340 thousand,
respectively. The future estimated amortization expenses for
each of five years relating to amounts currently recorded in the
consolidated balance sheet are as follows:
|
|
|
|
|
Year ending December 31,
|
|
(Yen in Thousands)
|
|
|
2007
|
|
¥
|
1,101,866
|
|
2008
|
|
|
1,079,195
|
|
2009
|
|
|
1,054,985
|
|
2010
|
|
|
959,031
|
|
2011
|
|
|
173,713
|
|
JTV reviewed its software development costs related to the
PartiTV business for impairment using the same methodology as
for long-lived assets review (Note 6). The amount of the
associated impairment write-down for the years ended
December 31, 2006 and 2005 was ¥18,000 thousand and
¥211,209 thousand, respectively, and is included in net
loss from discontinued operation in the accompanying
consolidated statements of operations.
Intangible assets acquired during the years ended
December 31, 2006, 2005 and 2004, were ¥2,407
thousand, ¥15,029 thousand, and ¥214,936 thousand,
respectively. The weighted average amortization period is six
years.
IV-35
JUPITER TV CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The details of intangible assets other than software and
goodwill as of December 31, 2006 and 2005, were as follows:
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(Yen in Thousands)
|
|
|
Intangible assets subject to
amortization, net of accumulated amortization of ¥131,232
thousand in 2006 and ¥54,264 thousand in 2005:
|
|
|
|
|
|
|
|
|
Channel packaging arrangements
|
|
¥
|
160,000
|
|
|
¥
|
180,000
|
|
Other
|
|
|
27,070
|
|
|
|
33,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
187,070
|
|
|
|
213,551
|
|
Other intangible assets not subject
to amortization:
|
|
|
5,073
|
|
|
|
5,073
|
|
|
|
|
|
|
|
|
|
|
Total other intangible assets
|
|
¥
|
192,143
|
|
|
¥
|
218,624
|
|
|
|
|
|
|
|
|
|
|
Channel packaging arrangements represent estimated value to be
derived from existing channel position in packaging alliances on
the
direct-to-home
satellite distribution platform, and are being amortized over
their estimated useful life of ten years. The aggregate
amortization expense of other intangible assets subject to
amortization for the years ended December 31, 2006, 2005
and 2004 was ¥28,888 thousand, ¥48,258 thousand, and
¥22,257 thousand, respectively. The future estimated
amortization expenses for each of five years relating to amounts
currently recorded in the consolidated balance sheet are as
follows:
|
|
|
|
|
Year ending December 31,
|
|
(Yen in Thousands)
|
|
|
2007
|
|
¥
|
23,150
|
|
2008
|
|
|
23,109
|
|
2009
|
|
|
23,109
|
|
2010
|
|
|
23,044
|
|
2011
|
|
|
22,838
|
|
The changes in the carrying amount of goodwill for the years
ended December 31, 2006, 2005 and 2004, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(Yen in Thousands)
|
|
|
Balance at beginning of year
|
|
¥
|
294,244
|
|
|
¥
|
470,131
|
|
|
¥
|
188,945
|
|
Acquisitions
|
|
|
|
|
|
|
|
|
|
|
281,186
|
|
Adjustment
|
|
|
(7,981
|
)
|
|
|
(175,887
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
¥
|
286,263
|
|
|
¥
|
294,244
|
|
|
¥
|
470,131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill of ¥281,186 thousand recorded during 2004 was
related to the purchase of BBF (Note 2). The adjustments to
the carrying value of goodwill of ¥175,887 thousand
recorded in 2005 included ¥154,252 thousand of previously
unrecognized tax benefits, and ¥21,635 thousand
attributable to the finalization of the purchase price, of BBF
(Note 2). The adjustment to the carrying value of goodwill
of ¥7,981 thousand recorded in 2006 represents previously
unrecognized tax benefits in another subsidiary.
|
|
10.
|
Derivative
Instruments and Hedging Activities
|
JTV uses foreign exchange forward contracts that extend 10 to
12 months to manage currency exposure, resulting from
changes in foreign currency exchange rates, on purchase
commitments for contracted programming rights and other contract
costs and for forecasted inventory purchases in
U.S. dollars. JTV enters into these contracts to hedge its
U.S. dollar denominated monetary exposures.
IV-36
JUPITER TV CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
JTV does not enter into derivative financial transactions for
trading or speculative purposes.
JTV is exposed to credit-related losses in the event of
non-performance by the counterparties to derivative financial
instruments, but they do not expect the counterparties to fail
to meet their obligations because of the high credit rating of
the counterparties.
For certain qualifying transactions entered into from
January 1, 2004, JTV designates the transactions as cash
flow hedges and the effective portion of the gain or loss on the
derivative instrument is reported as a component of accumulated
other comprehensive income. The amount of hedge ineffectiveness
recognized currently in foreign exchange gain was not material
for the years ended December 31, 2006, 2005 and 2004. These
amounts are reclassified into earnings through gain (loss) on
forward exchange contracts when the hedged items impact
earnings. The balance of accumulated other comprehensive income
at December 31, 2006 is ¥0. Accumulated gains, net of
taxes, of ¥38,181 thousand, were included in accumulated
other comprehensive income at December 31, 2005.
No cash flow hedges were discontinued during the years ended
December 31, 2006, 2005 and 2004 as a result of forecasted
transactions that are no longer probable to occur.
JTV has entered into foreign exchange forward contracts
designated but not qualified as hedging instruments under
SFAS No. 133 as a means of hedging certain foreign
currency exposures. JTV records these contracts on the balance
sheet at fair value. The changes in fair value of such
instruments are recognized currently in earnings and are
included in foreign exchange gain.
At December 31, 2006 and 2005, the fair value of forward
exchange contracts recognized in the consolidated balance sheets
was an asset of ¥84,852 thousand and ¥249,725,
respectively.
|
|
11.
|
Fair
Value of Financial Instruments
|
The carrying amounts for financial instruments in JTVs
consolidated financial statements at December 31, 2006 and
2005 approximate their estimated fair values. Fair value
estimates are made at a specific point in time based on relevant
market information and information about the financial
instrument. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and,
therefore, cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
The following methods and assumptions were used to estimate the
fair value of each class of financial instruments:
Cash and cash equivalents, accounts receivable, accounts
payable, accrued liabilities, income taxes payable, and other
current liabilities (non-derivatives): The
carrying amounts approximate fair value because of the short
duration of these instruments.
Foreign exchange forward contracts: The
carrying amount is reflective of fair value. The fair value of
currency forward contracts is estimated based on quotes obtained
from financial institutions. At December 31, 2006 and 2005,
fair value of foreign exchange forward contracts of ¥84,852
thousand and ¥249,725 thousand was included in other
current assets in the accompanying consolidated balance sheets.
Long-term debt, including current maturities and short-term
debt: The fair value of JTVs long-term debt
is estimated by discounting the future cash flows of each
instrument by a proxy for rates expected to be incurred on
similar borrowings at current rates. Borrowings bear interest
based on certain financial ratios that determine a margin over
Euroyen TIBOR, and are therefore variable. JTV believes the
carrying amount approximates fair value based on the variable
rates and currently available terms and conditions for similar
debt.
Obligations under capital leases, including current
installments: The carrying amount is reflective
of fair value. The fair value of JTVs capital lease
obligations is estimated by discounting the future cash flows of
each instrument at rates currently offered to JTV by leasing
companies.
IV-37
JUPITER TV CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
JTV is obligated under various capital leases for certain
equipment and other assets that expire at various dates,
generally during the next five years. At December 31, 2006
and 2005, the gross amount of equipment and the related
accumulated amortization recorded under capital leases were as
follows:
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(Yen in Thousands)
|
|
|
Equipment and vehicles
|
|
¥
|
2,206,592
|
|
|
¥
|
2,115,924
|
|
Others
|
|
|
303,799
|
|
|
|
155,775
|
|
Less accumulated amortization
|
|
|
(920,631
|
)
|
|
|
(960,409
|
)
|
|
|
|
|
|
|
|
|
|
|
|
¥
|
1,589,760
|
|
|
¥
|
1,311,290
|
|
|
|
|
|
|
|
|
|
|
Amortization of assets held under capital leases is included
with depreciation and amortization expense. Leased equipment is
included in property and equipment (Note 6).
Future minimum capital lease payments as of December 31,
2006, were as follows:
|
|
|
|
|
Year ending December 31,
|
|
(Yen in Thousands)
|
|
|
2007
|
|
|
¥512,039
|
|
2008
|
|
|
476,316
|
|
2009
|
|
|
463,558
|
|
2010
|
|
|
213,188
|
|
2011
|
|
|
134,813
|
|
Thereafter
|
|
|
5,908
|
|
|
|
|
|
|
Total minimum lease payments
|
|
|
1,805,822
|
|
Less amount representing interest
(at rates ranging from 1.43% to 6.33%)
|
|
|
(72,849
|
)
|
|
|
|
|
|
Present value of minimum capital
lease payments
|
|
|
1,732,973
|
|
Less current installments
|
|
|
(467,289
|
)
|
|
|
|
|
|
|
|
|
¥1,265,684
|
|
|
|
|
|
|
The Company leases four principal office and operational
premises. JTV headquarters has a three-year lease agreement from
August 2004, with a rolling two-year right of renewal, that
provides for annual rental costs of ¥289,669 thousand. Shop
Channel has a
15-year
office lease agreement expiring in October 2013 with an annual
rental cost of ¥180,924 thousand, a two-year call center
lease agreement from March 2006, with a rolling two-year right
of renewal, that provides for annual rental costs of
¥181,992 thousand, and a five-year logistics center lease
agreement from June 2006, with a rolling two-year right of
renewal, that provides for annual rental costs of ¥732,384
thousand.
These and other leases for office and studio space are mainly
cancelable upon six months notice. Accordingly, the schedule
below detailing future minimum lease payments under
non-cancelable operating leases includes the lease costs for the
Companys premises for only a six-month period.
JTV contracts, through subsidiaries and affiliate licensed
broadcasting companies, to utilize capacity on three satellites
from two transponder service providers. JTVs historical
transponder service contracts were generally ten years in
duration, were entered into prior to 2004, and were disclosed by
JTV as commitments other than leases (Note 21). In
September 2006, one of the transponder providers significantly
revised the terms under which they provide transponder capacity.
Following a six-month transitional contract period to March
2007, new contracts will be one year in duration and service
fees are based on fixed rates. Under the provisions of EITF
01-8
Determining Whether an Arrangement Contains a Lease,
the contracts renewed under the revised terms are treated as
operating leases.
IV-38
JUPITER TV CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Future minimum lease payments for the noncancelable portion of
operating leases as of December 31, 2006, were as follows:
|
|
|
|
|
Year ending December 31,
|
|
(Yen in Thousands)
|
|
|
2007
|
|
¥
|
1,328,540
|
|
2008
|
|
|
4,980
|
|
2009
|
|
|
4,980
|
|
2010
|
|
|
4,980
|
|
2011
|
|
|
4,980
|
|
Thereafter
|
|
|
101,675
|
|
|
|
|
|
|
Total minimum lease payments
|
|
¥
|
1,450,135
|
|
|
|
|
|
|
JTV also has several operating leases, primarily for office
space, that expire over the next 10 years, and a
30-year
lease for land that expires in 27 years. Rent expense for
the years ended December 31, 2006, 2005 and 2004 was
¥1,187,904 thousand, ¥445,094 thousand, and
¥332,530 thousand, respectively.
Short-term debt as of December 31, 2006 and 2005, consisted
of the following:
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(Yen in Thousands)
|
|
|
Loans from minority shareholder
|
|
¥
|
290,000
|
|
|
¥
|
275,000
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2006 and 2005, JTV had outstanding
short-term borrowings of ¥290,000 thousand and
¥275,000 thousand, respectively, from Zonemedia Limited
(Zonemedia), formerly Zone Vision Enterprises
Limited, a 50% shareholder in Reality TV Japan. The borrowings
comprise a series of loans pursuant to a shareholder finance
agreement entered into between JTV and Zonemedia for the
specified purpose of financing Reality TV Japan, a consolidated
joint venture (Note 1(c)). Each of the series of loans
bears interest at a rate of 3.5% per annum.
Long-term debt as of December 31, 2006 and 2005, consisted
of the following:
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(Yen in Thousands)
|
|
|
Term loan borrowings from banks
|
|
¥
|
2,400,000
|
|
|
¥
|
4,000,000
|
|
Less: current portion
|
|
|
(1,600,000
|
)
|
|
|
(1,600,000
|
)
|
|
|
|
|
|
|
|
|
|
Long-term debt, excluding current
portion
|
|
¥
|
800,000
|
|
|
¥
|
2,400,000
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2004, the Company had a ¥10,000,000
thousand credit facility (the Facility) available
for immediate and full borrowing with a group of banks, to be
drawn upon until December 25, 2005. That Facility, which is
guaranteed by certain of the Companys subsidiaries,
comprised an ¥8,000,000 thousand five-year term loan, and a
¥2,000,000 thousand
364-day
revolving facility renewable in June of each year. The Company
decided in December 2005 not to draw down the remaining
¥4,000,000 thousand available term loan amount. Outstanding
borrowings under the five-year term loan at December 31,
2006 and 2005 were ¥2,400,000 thousand and ¥4,000,000
thousand, respectively. Repayment of the term loan principal
began on March 31, 2006, by quarterly installments of
¥400,000 thousand, until fully repaid on June 25, 2008.
The Company decided in June 2006 not to renew the
364-day
revolving facility. There were no borrowings outstanding under
the 364-day
revolving facility as of December 31, 2005.
Interest on outstanding borrowings is based on certain financial
ratios and can range from Euroyen TIBOR + 0.75% to TIBOR + 2.00%
for the five-year term loan and from TIBOR + 0.70% to TIBOR +
1.00% for the
364-day
IV-39
JUPITER TV CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
revolving facility. The interest rates charged at
December 31, 2006 and 2005 for the five-year term loan were
1.163% and 0.84%, respectively.
The Facility contains certain financial and other restrictive
covenants. The financial covenants consist of: (i) EBITDA,
as defined by the Facility agreement and reported on a Japanese
Corporate Law, formerly Commercial Code of Japan, basis, shall
be equal to or exceed, for year 2005, ¥3,500,000 thousand;
for year 2006, ¥4,000,000 thousand; for year 2007,
¥5,000,000 thousand; and (ii) Actual Amount of
Investment, as defined by the Facility agreement, shall
not exceed Maximum Amount of Investment as defined,
provided that, in respect of a year, an amount equal to the
excess of Maximum over Actual amount of investment shall be
added to the Maximum Amount of Investment of the next following
year. Maximum amounts of investment are defined relative to
prior year EBITDA and other specified amounts.
Restrictive covenants contained in the Facility agreement
include certain restrictions on: (i) creation of
contractual security interests over the Companys assets;
(ii) sale of assets that would result in material adverse
effect, or would comprise over 10% of total assets;
(iii) corporate reorganization that would result in
material adverse effect; (iv) sale of shares in principal
subsidiaries; (v) distribution of dividends, repurchase of
own shares, and repayment of subordinated loans;
(vi) amendment of subordinated loan agreements;
(vii) transactions with related parties other than in
normal course of business, (viii) changes in fundamental
nature of business; (ix) incursion of interest-bearing debt
not contemplated in the Facility agreement; (x) transfer,
creation of security interests on, or otherwise disposal of the
Companys shares; (xi) changes in control of the
Company management by parent companies; (xii) purchase of
shares in companies in unrelated business areas; and
(xiii) changes in scope of the business of a particular
subsidiary. JTV was in compliance with these covenants at
December 31, 2006.
The aggregate maturities of long-term debt for each of the five
years subsequent to December 31, 2006, were as follows:
|
|
|
|
|
Year ending December 31,
|
|
2006
|
|
|
|
(Yen in Thousands)
|
|
|
2007
|
|
¥
|
1,600,000
|
|
2008
|
|
|
800,000
|
|
2009
|
|
|
|
|
2010
|
|
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
¥
|
2,400,000
|
|
|
|
|
|
|
The components of the provision for income taxes from continuing
operations for the years ended December 31, 2006, 2005 and
2004, recognized in the consolidated statements of operations
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(Yen in Thousands)
|
|
|
Current taxes
|
|
¥
|
8,730,299
|
|
|
¥
|
6,519,191
|
|
|
¥
|
3,229,627
|
|
Deferred taxes
|
|
|
586,788
|
|
|
|
(121,381
|
)
|
|
|
(102,730
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
¥
|
9,317,087
|
|
|
¥
|
6,397,810
|
|
|
¥
|
3,126,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IV-40
JUPITER TV CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Amounts provided for income taxes for the years ended
December 31, 2006, 2005 and 2004 were allocated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(Yen in Thousands)
|
|
|
Income taxes on income from
continuing operations
|
|
¥
|
9,317,087
|
|
|
¥
|
6,397,810
|
|
|
¥
|
3,126,897
|
|
Income tax on loss from
discontinued operation
|
|
|
(864,190
|
)
|
|
|
(939,904
|
)
|
|
|
(175,451
|
)
|
Other comprehensive (income) loss
|
|
|
(26,194
|
)
|
|
|
37,653
|
|
|
|
(11,460
|
)
|
Additional paid-in capital by
issuance of common stock by equity-method investee
|
|
|
|
|
|
|
282,787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
¥
|
8,426,703
|
|
|
¥
|
5,778,346
|
|
|
¥
|
2,939,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All pre-tax income and income tax expense is related to
operations in Japan. The tax effects of temporary differences
that give rise to significant portions of the deferred tax
assets and deferred tax liabilities as of December 31, 2006
and 2005, are presented below:
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(Yen in Thousands)
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Retail inventories
|
|
¥
|
972,366
|
|
|
¥
|
981,641
|
|
Property and equipment
|
|
|
331,936
|
|
|
|
447,081
|
|
Accrued liabilities
|
|
|
603,939
|
|
|
|
737,945
|
|
Enterprise tax payable
|
|
|
414,286
|
|
|
|
414,534
|
|
Return provision
|
|
|
335,701
|
|
|
|
89,201
|
|
Equity-method investments
|
|
|
617,746
|
|
|
|
631,242
|
|
Net operating loss carryforwards
|
|
|
1,039,333
|
|
|
|
584,009
|
|
Net assets discontinued operation
|
|
|
336,498
|
|
|
|
318,190
|
|
Others
|
|
|
523,918
|
|
|
|
349,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,175,723
|
|
|
|
4,553,358
|
|
|
|
|
|
|
|
|
|
|
Less valuation allowance
|
|
|
(2,029,740
|
)
|
|
|
(1,712,785
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
3,145,983
|
|
|
|
2,840,573
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Equity-method investment
|
|
|
(315,916
|
)
|
|
|
(282,787
|
)
|
Intangibles
|
|
|
(65,104
|
)
|
|
|
(73,242
|
)
|
Unrealized foreign exchange
|
|
|
(35,384
|
)
|
|
|
(97,060
|
)
|
Others
|
|
|
(1,795
|
)
|
|
|
(10,195
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(418,199
|
)
|
|
|
(463,284
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
¥
|
2,727,784
|
|
|
¥
|
2,377,289
|
|
|
|
|
|
|
|
|
|
|
The valuation allowance for deferred tax assets as of
January 1, 2004 was ¥2,901,655 thousand. The net
changes in the total valuation allowance for the years ended
December 31, 2006, 2005 and 2004, were an increase of
¥316,955 thousand, a decrease of ¥452,587
thousand, and a decrease of ¥736,283 thousand, respectively.
The valuation allowance for deferred tax assets that will be
treated as a reduction of goodwill upon subsequent recognition
of related tax benefits as of December 31, 2006 amounted to
¥7,237 thousand.
In assessing the realizability of deferred tax assets, the
Company considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized.
The ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income during the periods
in which those temporary differences become deductible or in
which the operating losses are available for use. The Company
considers the scheduled reversal of deferred tax liabilities,
projected future taxable income, and tax planning strategies in
making this
IV-41
JUPITER TV CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
assessment. Based upon the level of historical taxable income
and projections for future taxable income over the periods in
which the deferred tax assets are deductible, management
believes it is more likely than not that the Company will
realize the benefit of these deferred tax assets, net of the
existing valuation allowance. The amount of the deferred tax
asset considered realizable, however, could be reduced in the
near term if estimates of the future taxable income during the
carryforward period are reduced.
As of December 31, 2006, JTV and its subsidiaries had total
net operating loss carryforwards attributable to continuing
operations for income tax purposes of approximately
¥3,098,740 thousand, which are available to offset future
taxable income, if any. JTV and its subsidiaries have elected to
be subject to taxation on a stand-alone basis and net operating
loss carryforwards may not be utilized against other group
company profits. Aggregated net operating loss carryforwards, if
not utilized, expire as follows:
|
|
|
|
|
Year ending December 31,
|
|
(Yen in Thousands)
|
|
|
2007
|
|
|
|
|
2008
|
|
|
11,155
|
|
2009
|
|
|
285,806
|
|
2010
|
|
|
229,092
|
|
2011
|
|
|
216,213
|
|
2012
|
|
|
532,635
|
|
2013
|
|
|
1,823,839
|
|
|
|
|
|
|
|
|
|
¥3,098,740
|
|
|
|
|
|
|
The Company and its subsidiaries were subject to Japanese
National Corporate tax of 30%, an Inhabitant tax of 6% and a
deductible Enterprise tax of 7.2%, which in aggregate result in
a statutory tax rate of 40.7%. On March 24, 2003, the
Japanese Diet approved the Amendments to Local Tax Law, reducing
the standard enterprise tax rate from 10.08% to 7.2%. The
amendments to the tax rates became effective for fiscal years
beginning on or after April 1, 2004. Consequently, the
statutory income tax rate was lowered from 42.1% to 40.7% for
deferred tax assets and liabilities expected to be settled or
realized on or after January 1, 2005. As a result of the
decrease in the statutory tax rate, when compared with the
amounts based on the tax rate applied before this revision, the
net deferred tax assets decreased by approximately ¥47,119
thousand at December 31, 2004. A reconciliation of the
Japanese statutory income tax rate and the effective income tax
rate as a percentage of income before income taxes for
continuing operations for the years ended December 31,
2006, 2005 and 2004 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Statutory tax rate
|
|
|
40.7%
|
|
|
|
40.7%
|
|
|
|
42.1%
|
|
Non-deductible expenses
|
|
|
0.6
|
|
|
|
0.6
|
|
|
|
1.3
|
|
Change in valuation allowance
|
|
|
1.7
|
|
|
|
0.8
|
|
|
|
(1.1
|
)
|
Income tax credits
|
|
|
(0.5
|
)
|
|
|
(2.9
|
)
|
|
|
(0.8
|
)
|
Additional tax deduction due to
intercompany transfer of assets
|
|
|
(0.4
|
)
|
|
|
(0.5
|
)
|
|
|
(1.1
|
)
|
Effect of tax rate change
|
|
|
|
|
|
|
|
|
|
|
0.5
|
|
Others
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate for
continuing operations
|
|
|
42.2%
|
|
|
|
38.8%
|
|
|
|
40.8%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15.
|
Asset
Retirement Obligations
|
JTV has asset retirement obligations primarily associated with
restoration activities to be carried out at the time JTV vacates
certain leased premises, accounted for in accordance with
SFAS No. 143 and FIN No. 47 (Note 1(m)),
which are included in other liabilities in the accompanying
consolidated balance sheets. The following table
IV-42
JUPITER TV CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
presents the activity for the asset retirement obligations for
the years ended December 31, 2006, while there were no
comparable activity during 2005:
|
|
|
|
|
|
|
2006
|
|
|
|
(Yen in Thousands)
|
|
|
Balance at beginning of year
|
|
¥
|
|
|
Incurred during the year
|
|
|
299,691
|
|
Accretion expenses
|
|
|
1,362
|
|
|
|
|
|
|
Balance at end of year
|
|
¥
|
301,053
|
|
|
|
|
|
|
|
|
16.
|
Accrued
Pension and Severance Cost
|
Net periodic cost of the Company and its subsidiaries
unfunded RAP accounted for in accordance with
SFAS No. 87 for the years ended December 31,
2006, 2005 and 2004, and SFAS No. 158, effective
December 31, 2006, included the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(Yen in Thousands)
|
|
|
Service cost benefits
earned during the year
|
|
¥
|
92,297
|
|
|
¥
|
65,013
|
|
|
¥
|
49,768
|
|
Interest cost on projected benefit
obligation
|
|
|
5,916
|
|
|
|
5,696
|
|
|
|
4,332
|
|
Recognized actuarial loss
|
|
|
40,139
|
|
|
|
44,420
|
|
|
|
24,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic cost
|
|
¥
|
138,352
|
|
|
¥
|
115,129
|
|
|
¥
|
78,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The reconciliation of beginning and ending balances of the
benefit obligations of the Company and its subsidiaries
plans accounted for in accordance with SFAS No. 87 and
SFAS No. 158 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(Yen in Thousands)
|
|
|
Change in projected benefit
obligations:
|
|
|
|
|
|
|
|
|
Benefit obligations, beginning of
year
|
|
¥
|
394,403
|
|
|
¥
|
284,796
|
|
Service cost
|
|
|
92,297
|
|
|
|
65,013
|
|
Interest cost
|
|
|
5,916
|
|
|
|
5,696
|
|
Actuarial loss
|
|
|
40,139
|
|
|
|
44,420
|
|
Benefits paid
|
|
|
(25,107
|
)
|
|
|
(5,521
|
)
|
|
|
|
|
|
|
|
|
|
Projected benefit obligations, end
of year
|
|
¥
|
507,648
|
|
|
¥
|
394,404
|
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligations,
end of year
|
|
¥
|
374,752
|
|
|
¥
|
290,871
|
|
|
|
|
|
|
|
|
|
|
Actuarial gains and losses are recognized fully in the year in
which they occur. The weighted-average discount rate used in
determining net periodic cost of the Company and its
subsidiaries plans was 1.50%, 2.00% and 2.00% for the
years ended December 31, 2006, 2005 and 2004, respectively.
The weighted-average discount rate used in determining benefit
obligations as of December 31, 2006 and 2005 was 1.50% and
1.50%, respectively. Assumed salary increases ranged from 1.00%
to 3.99% depending on employees age for the years ended
December 31, 2006, 2005 and 2004.
IV-43
JUPITER TV CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The following benefit payments, which reflect expected future
service, as appropriate, are expected to be paid:
|
|
|
|
|
Year ending December 31,
|
|
(Yen in Thousands)
|
|
|
2007
|
|
¥
|
30,590
|
|
2008
|
|
|
36,851
|
|
2009
|
|
|
45,252
|
|
2010
|
|
|
41,259
|
|
2011
|
|
|
47,040
|
|
Years
2012-2016
|
|
|
303,285
|
|
JTV uses a measurement date of December 31 for all of its
unfunded RAP.
In addition, employees of the Company and certain of its
subsidiaries participate in a multi-employer defined benefit EPF
plan. The Company contributions to this plan amounted to
¥105,747 thousand, ¥87,408 thousand, and ¥44,510
thousand for the years ended December 31, 2006, 2005 and
2004, respectively, and are included in selling, general and
administrative expenses in the accompanying consolidated
statements of operations. During 2005, JTV approved the start of
a process to withdraw from the EPF plan. At December 31,
2005 the planned withdrawal was considered probable, and
therefore the estimated obligation to fund JTVs share
of shortfalls in the EPF plan funding, calculated by the EPF and
amounting to ¥170,920 thousand, was accrued an exit
liability at December 31, 2005, in accordance with
SFAS No. 5, Accounting for Contingencies,
and was included in selling, general and administrative expenses
in the accompanying consolidated statements of operations. At
December 31, 2006, JTV has decided not to proceed with a
withdrawal from the EPF plan in the near future. Therefore the
exit liability accrued at December 31, 2005 has been
reversed during 2006, with the resulting credit amounting to
¥170,920 thousand also included in selling, general and
administrative expenses in the accompanying consolidated
statements of operations.
In December 2006, the Companys subsidiary Shop Channel
learned from the Japan Fair Trade Commission (FTC)
of a preliminary decision regarding a product that had been
under investigation during 2006 due to their concern that Shop
Channel was not able to adequately substantiate certain
representations made about the product on the channel. The FTC
subsequently finalised a Cease and Desist Order on
February 1, 2007, which required Shop Channel to make a
public announcement stating claims made about the product had
given customers the impression that the efficacy of the product
was better than it was. JTV determined that the appropriate
further action to take following such an order is to offer every
customer who purchased the product the opportunity to return the
item for a full refund if they are not satisfied with the
product. JTV has made an estimate of the expenses related to
taking such action including the refund value and the external
administrative and logistics processing costs. The total cost
estimate was determined by estimating the expected returns
percentage based on previous experience of product returns and
recalls. At December 31, 2006 the full estimated refund
amount of ¥393,600 thousand and associated processing costs
amounting to ¥172,200 thousand, were accrued at
December 31, 2006 in accordance with SFAS No. 5,
and were included in cost of retail sales, and selling, general
and administrative expenses, respectively, in the accompanying
consolidated statements of operations.
The Commercial Code of Japan was revised as Japanese Corporate
Law during 2006 and certain restrictions on the amount that can
be paid as a cash dividend have been removed. Dividends can be
issued to the extent of retained earnings available at the end
of the previous year, and upon preparation of extraordinary
financial statements, dividends can be issued from current year
retained earnings at extraordinary balance date, subject to
retained earnings at year end being positive. There is no longer
a requirement to maintain a legal reserve up to 25% of the
issued capital.
IV-44
JUPITER TV CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The Company paid no cash dividends for the years ended
December 31, 2006, 2005 and 2004. The amount immediately
available for dividends under the Japanese Corporate Law is
based on the unappropriated retained earnings recorded in the
Companys books of account and amounted to ¥0 at
December 31, 2006.
On January 30, 2004, the total number of the Companys
ordinary shares authorized to be issued was increased from
450,000 to 460,000 shares.
On March 5, 2004, the Company transferred ¥8,400,000
thousand of common stock to additional paid in capital
(¥6,587,064 thousand) and accumulated deficit
(¥1,812,936 thousand). The transfer was approved by the
Companys shareholders in accordance with the Commercial
Code of Japan, which allows a company to make a purchase of its
own shares, as contemplated in the further transaction noted
below, only from specified additional paid in capital or
retained earnings reserves. JTV purchased its own shares using
the resulting additional paid in capital, and elected at the
same time to eliminate its accumulated deficit and generate
positive retained earnings on a single entity basis. On a
consolidated basis, JTV continued to show an accumulated deficit
immediately after that transfer. Such transfer did not impact
JTVs total equity, cash position or liquidity. Had the
Company been subject to corporate law generally applicable to
United States companies for similar transactions, the retained
earnings (deficit) at December 31, 2006 and 2005 would be
¥1,812,936 thousand less (more) than the amount included in
the accompanying consolidated financial statements.
During March and April 2004 the following capital transactions
occurred and were based on an independent third party valuation
of the common stock of the Company:
|
|
|
|
1)
|
Issuance of 24,000 newly issued shares of common stock to
Sumitomo Corporation at a rate of ¥250,000 per common
share (¥6,000,000 thousand), ¥3,000,000 thousand of
which was allocated to common stock with the remaining
¥3,000,000 thousand allocated to additional paid-in capital;
|
|
|
2)
|
Redemption of 12,000 shares of common stock from Sumitomo
Corporation at a rate of ¥250,000 per common share
(¥3,000,000 thousand) to be held as treasury stock;
|
|
|
3)
|
Redemption of 12,000 shares of common stock from Liberty
Programming Japan, Inc. at a rate of ¥250,000 per
common share (¥3,000,000 thousand) to be held as treasury
stock;
|
|
|
4)
|
Issuance of 24,000 shares of common stock held in treasury
shares to Liberty Programming Japan II, LLC in return for
1,000 shares of common stock in LJS. LJS was then converted
to a limited liability company with Certificate of Conversion
filed with the Delaware Secretary of State, and was subsequently
renamed J Sports LLC. J Sports LLC is a wholly owned
subsidiary of the Company (Note 2).
|
|
|
19.
|
Related
Party Transactions
|
JTV engages in a variety of transactions in the normal course of
business. Significant related party balances, income and
expenditures have been separately identified in the consolidated
balance sheets and statements of operations. A list of related
parties and a description of main types of transactions with
each party follows:
Sumitomo Corporation, shareholder, and its subsidiaries and
affiliates: television programming advertising revenues, cost of
retail sales, costs of programming and distribution, selling,
general and administrative expenses for equipment operating
leases and staff secondment fees, property and equipment capital
leases, cash deposits and interest thereon;
Liberty Global Inc., shareholder, and its subsidiaries: selling,
general and administrative expenses for staff secondment fees
and recharge of project development costs;
Discovery Japan, Inc., and Animal Planet Japan, Co. Ltd,
affiliate companies: services and other revenues from cable and
advertising sales activities and broadcasting, marketing and
office support services; costs of programming, distribution
relating to
direct-to-home
subscription revenue and receipt of cash advances;
IV-45
JUPITER TV CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
JSports Broadcasting Corporation, affiliate company: services
and other revenues from cable and advertising sales activities
and recovery of staff costs for seconded staff and advertising
revenues thereon.
InteracTV Co., Ltd, affiliate company: pass through of
direct-to-home
television programming subscription revenues to JTV, costs of
programming and distribution payments for transponder services;
Jupiter Telecommunications Co., Ltd, an affiliated company of
LGI and Sumitomo Corporation at December 31, 2004, and an
indirect consolidated subsidiary of LGI effective
January 1, 2005: television programming cable subscription
and advertising revenues, costs of programming and distribution
for carriage of Shop Channel by cable systems;
Jupiter VOD Co., Inc., affiliate company: services and other
revenues from office support services and advertising revenues.
Zonemedia Limited, formerly Zone Vision Enterprises Limited, 50%
shareholder in Reality TV Japan and subsidiary of LGI: costs of
programming, distribution relating to management and royalty
fees, purchases of programming, and shareholder loans and
interest thereon.
|
|
20.
|
Concentration
of Credit Risk
|
As of December 31, 2006 and 2005, SkyPerfecTV, an unrelated
party, and Jupiter Telecommunications Co., Ltd
(J:Com), a related party, agent for sales of
programming delivered via satellite and most significant cable
system operator, respectively, represented concentrations of
credit risk for the Company.
For the years ended December 31, 2006, 2005 and 2004,
subscription revenues of ¥3,833,171 thousand,
¥3,501,730 thousand, and ¥3,095,526 thousand,
respectively, received through SkyPerfecTV, accounted for
approximately 44%, 44% and 44%, respectively, of subscription
revenues, and 3%, 4% and 5%, respectively, of total revenues. As
of December 31, 2006, 2005 and 2004, SkyPerfecTV accounted
for approximately 5%, 5% and 6%, respectively, of accounts
receivable.
For the years ended December 31, 2006, 2005 and 2004,
subscription revenues of ¥1,751,627 thousand,
¥1,543,063 thousand, and ¥1,464,167 thousand,
respectively, received through J:Com, accounted for
approximately 20%, 20% and 21%, respectively, of subscription
revenues, and 2%, 2% and 2%, respectively, of total revenues. As
of December 31, 2006, 2005 and 2004, J:Com accounted for
approximately 2%, 2% and 3%, respectively, of accounts
receivable.
|
|
21.
|
Commitments,
Other Than Leases
|
As of December 31, 2006, JTV has commitments to purchase
various program rights as follows:
|
|
|
|
|
Year ending December 31,
|
|
(Yen in Thousands)
|
|
|
2007
|
|
|
¥ 1,584,086
|
|
2008
|
|
|
923,601
|
|
2009
|
|
|
978,961
|
|
2010
|
|
|
919,401
|
|
2011
|
|
|
|
|
|
|
|
|
|
Total program rights purchase
commitments
|
|
|
¥ 4,406,049
|
|
|
|
|
|
|
JTV contracts, through subsidiaries and affiliate licensed
broadcasting companies, to utilize capacity on three satellites
from two transponder service providers. The satellites generally
have a fifteen year usable life. JTV channels contract for a
portion of the capacity available on a transponder according to
the bandwidth needs of individual channels. Those licensed
broadcasting companies also contract for uplink services from a
third company in order to transmit each channels signal to
the satellite.
IV-46
JUPITER TV CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Transponder service contracts have historically been generally
ten years in duration. In September 2006, one of the transponder
providers significantly revised the terms under which they
provide transponder capacity. Following a six-month transitional
contract period to March 2007, new contracts will be one year in
duration with service fees based on fixed rates. Under the
provisions of EITF
01-8, the
contracts renewed under the revised terms are treated as
operating leases (Note 12).
Under the historical transponder service contracts that were
entered into prior to 2004, service fees are based on a fixed
portion plus a variable portion based on platform subscriber
numbers, and termination is possible subject to payment of a
penalty fee calculated in part on future variable contract
obligations. Uplink service fees are based on fixed rates and
termination is possible subject to payment of a penalty fee upon
cease of use. Practically, other regulatory requirements make
immediate termination of the service contracts not possible, and
due to the unclear nature the actual commitment as of balance
date, commitments are disclosed for the full amounts under the
service contracts.
As of December 31, 2006, JTV has commitments for uplink
services and transponder services under historical service
contracts as follows:
|
|
|
|
|
Year ending December 31,
|
|
(Yen in Thousands)
|
|
|
2007
|
|
¥
|
533,200
|
|
2008
|
|
|
321,572
|
|
2009
|
|
|
263,317
|
|
2010
|
|
|
280,054
|
|
2011
|
|
|
280,054
|
|
Thereafter
|
|
|
137,884
|
|
|
|
|
|
|
Total transponder and uplink
services commitments
|
|
¥
|
1,816,081
|
|
|
|
|
|
|
In January 2007, the Companys subsidiary Shop Channel was
notified that a small number of customers had been injured as a
consequence of their misuse of a combination of two products
sold to them by Shop Channel. One item, powered by a disposable
battery, was sold throughout 2006 without reported incident, and
in January 2007 a battery charger unit including two
rechargeable batteries was sold complimentary to, but separately
from, the original item. Contrary to handbook instructions, the
customers re-charged the disposable batteries in the battery
charger and used them in the original item, causing the battery
to combust. JTV management believes that neither product
contained any design fault or inherent risk to customer safety.
JTV has requested every customer who purchased either product to
return the items for a full refund in order to demonstrate the
importance Shop Channel places on their customers safety.
JTV has estimated the associated expenses as approximately
¥200,000 thousand (comprising the refund of the sales price
of all units sold and external administrative costs). As sales
of the combination of the two products began on January 22,
2007, Shop Channel does not consider that a liability had been
incurred at the date of the accompanying consolidated financial
statements, and in accordance with SFAS No. 5, the cost
will be recorded in 2007 when the liability is incurred.
At the date of issuance of the accompanying consolidated
financial statements there had been no indication of any
litigation against JTV in respect of this matter. In the event
that any claim for product liability is received, it will be
directed to the product importer who is responsible for product
liability matters under Japanese law. In the event that any
claim for negligence is received and upheld, it will be covered
by Shop Channels insurance policy. No estimate of loss or
possible loss can be made regarding possible claims or
litigation with respect to this matter.
IV-47
Report of
Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of
Jupiter Telecommunications Co., Ltd. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of
Jupiter Telecommunications Co., Ltd. (a Japanese corporation)
and subsidiaries as of December 31, 2003 and 2004, and the
related consolidated statements of operations,
shareholders equity and cash flows for each of the years
in the two-year period ended December 31, 2004. These
consolidated financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Jupiter Telecommunications Co., Ltd. and
subsidiaries as of December 31, 2003 and 2004, and the
results of their operations and their cash flows for each of the
years in the two-year period ended December 31, 2004, in
conformity with U.S. generally accepted accounting principles.
KPMG AZSA & Co.
Tokyo, Japan
February 14, 2005
IV-48
JUPITER
TELECOMMUNICATIONS CO., LTD. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2003
|
|
|
2004
|
|
|
|
(Yen in thousands)
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
¥
|
7,785,978
|
|
|
¥
|
10,420,109
|
|
Restricted cash
|
|
|
1,773,060
|
|
|
|
|
|
Accounts receivable, less allowance
for doubtful accounts of ¥229,793 thousand in 2003 and
¥245,504 thousand in 2004
|
|
|
7,907,324
|
|
|
|
8,823,311
|
|
Loans to related party (Note 5)
|
|
|
|
|
|
|
4,030,000
|
|
Prepaid expenses and other current
assets (Note 8)
|
|
|
1,596,150
|
|
|
|
4,099,032
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
19,062,512
|
|
|
|
27,372,452
|
|
Investments:
|
|
|
|
|
|
|
|
|
Investments in affiliates
(Notes 3 and 5)
|
|
|
2,794,533
|
|
|
|
3,773,360
|
|
Investments in other securities, at
cost
|
|
|
2,891,973
|
|
|
|
2,901,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,686,506
|
|
|
|
6,674,926
|
|
Property and equipment, at cost
(Notes 5 and 7):
|
|
|
|
|
|
|
|
|
Land
|
|
|
1,826,787
|
|
|
|
1,796,217
|
|
Distribution system and equipment
|
|
|
312,330,187
|
|
|
|
344,207,670
|
|
Support equipment and buildings
|
|
|
11,593,849
|
|
|
|
12,612,896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
325,750,823
|
|
|
|
358,616,783
|
|
Less accumulated depreciation
|
|
|
(81,523,580
|
)
|
|
|
(108,613,916
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
244,227,243
|
|
|
|
250,002,867
|
|
Other assets:
|
|
|
|
|
|
|
|
|
Goodwill, net (Notes 2 and 4)
|
|
|
139,853,596
|
|
|
|
140,658,718
|
|
Other (Note 4 and 8)
|
|
|
13,047,229
|
|
|
|
14,582,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
152,900,825
|
|
|
|
155,241,101
|
|
|
|
|
|
|
|
|
|
|
|
|
¥
|
421,877,086
|
|
|
¥
|
439,291,346
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes to consolidated financial statements
are
an integral part of these balance sheets.
IV-49
JUPITER
TELECOMMUNICATIONS CO., LTD. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2003
|
|
|
2004
|
|
|
|
(Yen in thousands)
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Short-term loans
|
|
¥
|
|
|
|
¥
|
250,000
|
|
Long-term debt current
portion (Notes 6 and 12)
|
|
|
2,438,480
|
|
|
|
5,385,980
|
|
Capital lease
obligations current portion (Notes 5, 7
and 12):
|
|
|
|
|
|
|
|
|
Related parties
|
|
|
7,673,978
|
|
|
|
8,237,323
|
|
Other
|
|
|
1,800,456
|
|
|
|
1,291,918
|
|
Accounts payable
|
|
|
17,293,932
|
|
|
|
17,164,463
|
|
Accrued expenses and other
liabilities
|
|
|
3,576,708
|
|
|
|
6,155,380
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
32,783,554
|
|
|
|
38,485,064
|
|
Long-term debt, less current
portion (Notes 6 and 12):
|
|
|
|
|
|
|
|
|
Related parties
|
|
|
149,739,250
|
|
|
|
|
|
Other
|
|
|
72,092,465
|
|
|
|
194,088,485
|
|
Capital lease obligations, less
current portion (Notes 5, 7 and 12):
|
|
|
|
|
|
|
|
|
Related parties
|
|
|
17,704,295
|
|
|
|
19,714,799
|
|
Other
|
|
|
3,951,900
|
|
|
|
2,560,511
|
|
Deferred revenue
|
|
|
41,635,426
|
|
|
|
41,699,497
|
|
Severance and retirement allowance
(Note 9)
|
|
|
2,023,706
|
|
|
|
2,718,792
|
|
Redeemable preferred stock of
consolidated subsidiary (Note 10)
|
|
|
500,000
|
|
|
|
500,000
|
|
Other liabilities
|
|
|
3,411,564
|
|
|
|
180,098
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
323,842,160
|
|
|
|
299,947,246
|
|
|
|
|
|
|
|
|
|
|
Minority interest
|
|
|
1,266,287
|
|
|
|
974,227
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
(Note 14)
|
|
|
|
|
|
|
|
|
Shareholders equity
(Note 11):
|
|
|
|
|
|
|
|
|
Ordinary shares no par value
|
|
|
63,132,998
|
|
|
|
78,133,015
|
|
Authorized 15,000,000 shares;
issued and outstanding 4,684,535.74 shares at December 31,
2003
and 5,146,074.74 shares at December 31, 2004
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
122,837,273
|
|
|
|
137,930,774
|
|
Accumulated deficit
|
|
|
(88,506,887
|
)
|
|
|
(77,685,712
|
)
|
Accumulated other comprehensive loss
|
|
|
(694,745
|
)
|
|
|
(8,204
|
)
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
96,768,639
|
|
|
|
138,369,873
|
|
|
|
|
|
|
|
|
|
|
|
|
¥
|
421,877,086
|
|
|
¥
|
439,291,346
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes to consolidated financial statements
are
an integral part of these balance sheets.
IV-50
JUPITER
TELECOMMUNICATIONS CO., LTD. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2003
|
|
|
2004
|
|
|
|
(Yen in thousands, except share and per share amounts)
|
|
|
Revenue (Note 5):
|
|
|
|
|
|
|
|
|
Subscription fees
|
|
¥
|
123,214,958
|
|
|
¥
|
140,826,446
|
|
Other
|
|
|
19,944,074
|
|
|
|
20,519,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
143,159,032
|
|
|
|
161,346,271
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
Operating and programming costs
(Note 5)
|
|
|
62,961,783
|
|
|
|
66,569,614
|
|
Selling, general and administrative
(inclusive of stock compensation expense of ¥120,214
thousand in 2003 and ¥84,267 thousand in 2004)
(Notes 5 and 11)
|
|
|
30,584,236
|
|
|
|
31,611,717
|
|
Depreciation and amortization
|
|
|
36,410,894
|
|
|
|
40,573,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
129,956,913
|
|
|
|
138,754,497
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
13,202,119
|
|
|
|
22,591,774
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
Interest expense, net:
|
|
|
|
|
|
|
|
|
Related parties (Note 5)
|
|
|
(4,562,594
|
)
|
|
|
(4,055,343
|
)
|
Other
|
|
|
(3,360,674
|
)
|
|
|
(6,045,939
|
)
|
Other income, net
|
|
|
316,116
|
|
|
|
37,574
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income
taxes and other items
|
|
|
5,594,967
|
|
|
|
12,528,066
|
|
Equity in earnings of affiliates
(inclusive of stock compensation expense of ¥(2,855)
thousand in 2003 and ¥9,217 thousand in 2004) (Note 11)
|
|
|
414,756
|
|
|
|
610,110
|
|
Minority interest in net
(income) losses of consolidated subsidiaries
|
|
|
(448,668
|
)
|
|
|
(458,624
|
)
|
|
|
|
|
|
|
|
|
|
Income (loss) before income
taxes
|
|
|
5,561,055
|
|
|
|
12,679,552
|
|
Income taxes (Note 8)
|
|
|
(209,805
|
)
|
|
|
(1,858,377
|
)
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
¥
|
5,351,250
|
|
|
¥
|
10,821,175
|
|
|
|
|
|
|
|
|
|
|
Per share data:
|
|
|
|
|
|
|
|
|
Net income (loss) per
share basic and diluted
|
|
¥
|
1,214
|
|
|
¥
|
2,221
|
|
Weighted average number of ordinary
shares outstanding basic and diluted
|
|
|
4,407,046
|
|
|
|
4,871,169
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes to consolidated financial statements are
an integral part of these statements.
IV-51
JUPITER
TELECOMMUNICATIONS CO., LTD. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Comprehensive
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
Ordinary
|
|
|
Paid-in
|
|
|
Income
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Shareholders
|
|
|
|
Shares
|
|
|
Capital
|
|
|
(Loss)
|
|
|
Deficit
|
|
|
Loss
|
|
|
Equity
|
|
|
|
(Yen in thousands, except per share amounts)
|
|
|
Balance at January 1,
2003
|
|
¥
|
47,002,623
|
|
|
¥
|
106,589,539
|
|
|
|
|
|
|
¥
|
(93,858,137
|
)
|
|
¥
|
|
|
|
¥
|
59,734,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
¥
|
5,351,250
|
|
|
|
5,351,250
|
|
|
|
|
|
|
|
5,351,250
|
|
Other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on cash flow hedge
|
|
|
|
|
|
|
|
|
|
|
(694,745
|
)
|
|
|
|
|
|
|
(694,745
|
)
|
|
|
(694,745
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
¥
|
4,656,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation (Notes 1
and 11)
|
|
|
|
|
|
|
117,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
117,359
|
|
Ordinary shares issued upon
conversion of long-term debt; 750,250 shares at ¥43,000 per
share (Note 6)
|
|
|
16,130,375
|
|
|
|
16,130,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,260,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31,
2003
|
|
¥
|
63,132,998
|
|
|
¥
|
122,837,273
|
|
|
|
|
|
|
¥
|
(88,506,887
|
)
|
|
¥
|
(694,745
|
)
|
|
¥
|
96,768,639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
¥
|
10,821,175
|
|
|
|
10,821,175
|
|
|
|
|
|
|
|
10,821,175
|
|
Other comprehensive gain:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on cash flow hedge
|
|
|
|
|
|
|
|
|
|
|
686,541
|
|
|
|
|
|
|
|
686,541
|
|
|
|
686,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
¥
|
11,507,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation (Notes 1
and 11)
|
|
|
|
|
|
|
93,484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93,484
|
|
Ordinary shares issued; 461,539
shares at ¥65,000 per share (Note 1)
|
|
|
15,000,017
|
|
|
|
15,000,017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,000,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31,
2004
|
|
¥
|
78,133,015
|
|
|
¥
|
137,930,774
|
|
|
|
|
|
|
¥
|
(77,685,712
|
)
|
|
¥
|
(8,204
|
)
|
|
¥
|
138,369,873
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes to consolidated financial statements are
an integral part of these statements.
IV-52
JUPITER
TELECOMMUNICATIONS CO., LTD. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2003
|
|
|
2004
|
|
|
|
(Yen in thousands)
|
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
¥
|
5,351,250
|
|
|
¥
|
10,821,175
|
|
Adjustments to reconcile net income
(loss) to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Gain on forgiveness of subsidiary
debt
|
|
|
(400,000
|
)
|
|
|
|
|
Depreciation and amortization
|
|
|
36,410,894
|
|
|
|
40,573,166
|
|
Equity in earnings of affiliates
|
|
|
(414,756
|
)
|
|
|
(610,110
|
)
|
Minority interest in net income of
consolidated subsidiaries
|
|
|
448,668
|
|
|
|
458,624
|
|
Stock compensation expense
|
|
|
120,214
|
|
|
|
84,267
|
|
Deferred income taxes
|
|
|
|
|
|
|
45,591
|
|
Provision for retirement allowance
|
|
|
417,335
|
|
|
|
647,592
|
|
Changes in operating assets and
liabilities, excluding effects of business combinations:
|
|
|
|
|
|
|
|
|
Decrease/(increase) in accounts
receivable, net
|
|
|
1,712,904
|
|
|
|
(431,162
|
)
|
Decrease in prepaid expenses and
other current assets
|
|
|
349,147
|
|
|
|
4,866
|
|
(Increase)/decrease in other assets
|
|
|
(325,769
|
)
|
|
|
2,443,960
|
|
(Decrease)/increase in accounts
payable
|
|
|
171,705
|
|
|
|
(1,184,539
|
)
|
Increase in accrued expenses and
other liabilities
|
|
|
2,665,162
|
|
|
|
39,279
|
|
Increase/(decrease) in deferred
revenue
|
|
|
458,315
|
|
|
|
(380,578
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating
activities
|
|
|
46,965,069
|
|
|
|
52,512,131
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(32,478,389
|
)
|
|
|
(31,792,956
|
)
|
Acquisition of new subsidiaries,
net of cash acquired
|
|
|
|
|
|
|
(442,910
|
)
|
Investments in and advances to
affiliates
|
|
|
(172,500
|
)
|
|
|
(359,500
|
)
|
(Increase)/decrease in restricted
cash
|
|
|
(1,773,060
|
)
|
|
|
1,773,060
|
|
Loans to related party
|
|
|
|
|
|
|
(4,030,000
|
)
|
Acquisition of minority interest in
consolidated subsidiaries
|
|
|
(25,565
|
)
|
|
|
(4,960,484
|
)
|
Other investing activities
|
|
|
(76,891
|
)
|
|
|
(69,427
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing
activities
|
|
|
(34,526,405
|
)
|
|
|
(39,882,217
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common
stock
|
|
|
|
|
|
|
30,000,034
|
|
Net increase/(decrease) in
short-term loans
|
|
|
(228,785,000
|
)
|
|
|
250,000
|
|
Proceeds from long-term debt
|
|
|
239,078,000
|
|
|
|
185,302,000
|
|
Principal payments of long-term debt
|
|
|
(8,184,980
|
)
|
|
|
(210,097,730
|
)
|
Principal payments under capital
lease obligations
|
|
|
(10,843,024
|
)
|
|
|
(11,887,363
|
)
|
Other financing activities
|
|
|
(3,464,440
|
)
|
|
|
(3,562,724
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
financing activities
|
|
|
(12,199,444
|
)
|
|
|
(9,995,783
|
)
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash
equivalents
|
|
|
239,220
|
|
|
|
2,634,131
|
|
Cash and cash equivalents at
beginning of year
|
|
|
7,546,758
|
|
|
|
7,785,978
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of
year
|
|
¥
|
7,785,978
|
|
|
¥
|
10,420,109
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes to consolidated financial statements are
an integral part of these statements.
IV-53
JUPITER
TELECOMMUNICATIONS CO., LTD. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
1.
|
Description
of Business, Basis of Financial Statements and Summary of
Significant Accounting Policies
|
|
|
|
Business
and Organization
|
Jupiter Telecommunications Co., Ltd. (Jupiter) and
its subsidiaries (the Company) own and operate cable
telecommunication systems throughout Japan and provide cable
television services, telephony and high-speed Internet access
services (collectively, Broadband services). The
telecommunications industry in Japan is highly regulated by the
Ministry of Internal Affairs and Communications
(MIC). In general, franchise rights granted by the
MIC to the Companys subsidiaries for operation of cable
telecommunications systems in their respective localities are
not exclusive. Currently, cable television services account for
a majority of the Companys revenue. Telephony operations
accounted for approximately 13% and 15% of total revenue for the
years ended December 31, 2003 and 2004, respectively.
Internet operations accounted for approximately 24% and 25% of
total revenue for the years ended December 31, 2003 and
2004, respectively.
The Companys beneficial ownership at December 31,
2004 was as follows:
|
|
|
|
|
LMI/Sumisho Super Media, LLC
(SM)
|
|
|
65.23%
|
|
Microsoft Corporation
(Microsoft)
|
|
|
19.46%
|
|
Sumitomo Corporation
(SC)
|
|
|
12.25%
|
|
Mitsui & Co., Ltd.
|
|
|
1.53%
|
|
Matsushita Electric Industrial Co.,
Ltd.
|
|
|
1.53%
|
|
In August 2004, Liberty Media International, Inc.
(LMI), SC and Microsoft made capital contributions
to the Company in the following amounts: LMI:
¥14,065 million for 216,382 shares:
SC: ¥9,913 million for 152,505 shares; and
Microsoft ¥6,022 million for 92,652 shares. The shares
of common stock issued in exchange for the capital contributions
were based on fair value at the date of the transaction. As a
result of the transaction, their beneficial ownership in the
Company increased to 45.45%, 32.03% and 19.46%, respectively.
The proceeds from the capital contributions were used to repay
subordinated debt owed to each of LMI, SC and Microsoft in the
same amounts as contributed by each shareholder respectively
(see Note 6).
On December 28, 2004, LMI contributed all of its then
45.45% beneficial ownership interest and SC contributed 19.78%
of its then ownership interest in the Company to SM, a company
owned 69.7% by LMI and 30.3% by SC. As a result, SM became a
65.23% shareholder of the Company while SCs direct
ownership interest was reduced to 12.25%. SC is obligated to
contribute its remaining 12.25% direct ownership interest in the
Company to SM within six months of an initial public offering
(IPO) in Japan by the Company.
The Company has historically relied on financing from its
principle shareholders to meet liquidity requirements. However,
in December 2004, the Company entered into a new syndicated
facility and repaid all outstanding debt with its principal
shareholders. For additional information concerning the 2004
refinancing, see Note 6.
|
|
|
Basis
of Financial Statements
|
The Company maintains its books of account in conformity with
financial accounting standards of Japan. The consolidated
financial statements presented herein have been prepared in a
manner and reflect certain adjustments which are necessary to
conform to accounting principles generally accepted in the
United States of America (U.S. GAAP). These
adjustments include those related to the scope of consolidation,
accounting for business combinations, accounting for income
taxes, accounting for leases, accounting for stock-based
compensation, revenue recognition of certain revenues,
post-retirement benefits, depreciation and amortization and
accruals for certain expenses.
IV-54
JUPITER TELECOMMUNICATIONS CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Summary
of Significant Accounting Policies
The accompanying consolidated financial statements include the
accounts of the Company and all of its majority-owned
subsidiaries which are primarily cable system operators
(SOs). All significant intercompany balances and
transactions have been eliminated. For the consolidated
subsidiaries with a negative equity position, the Company has
recognized the entire amount of cumulative losses of such
subsidiaries regardless of its ownership percentage.
|
|
|
(b) Cash
and Cash Equivalents
|
Cash and cash equivalents include all highly liquid debt
instruments with an initial maturity of three months or less.
|
|
|
(c) Allowance
for Doubtful Accounts
|
Allowance for doubtful accounts is computed based on historical
bad debt experience and includes estimated uncollectible amounts
based on analysis of certain individual accounts, including
claims in bankruptcy.
For those investments in affiliates in which the Companys
voting interest is 20% to 50% and the Company has the ability to
exercise significant influence over the affiliates
operation and financial policies, the equity method of
accounting is used. Under this method, the investment is
originally recorded at cost and adjusted to recognize the
Companys share of the net earnings or losses of its
affiliates. Prior to the adoption on January 1, 2002 of
Statement of Financial Accounting Standard (SFAS)
No. 142, Goodwill and Other Intangible Assets, the excess
of the Companys cost over its percentage interest in the
net assets of each affiliate was amortized, primarily over a
period of 20 years. Subsequent to the adoption of
SFAS No. 142, such excess is no longer amortized. All
significant intercompany profits from these affiliates have been
eliminated.
Investments in other securities carried at cost represent
non-marketable equity securities in which the Companys
ownership is less than 20% and the Company does not have the
ability to exercise significant influence over the
entities operation and financial policies.
The Company evaluates its investments in affiliates and
non-marketable equity securities for impairment due to declines
in value considered to be other than temporary. In performing
its evaluations, the Company utilizes various information, as
available, including cash flow projections, independent
valuations, industry multiples and, as applicable, stock price
analysis. In the event of a determination that a decline in
value is other than temporary, a charge to earnings is recorded
for the loss, and a new cost basis in the investment is
established.
|
|
|
(e) Property
and Equipment
|
Property and equipment, including construction materials, are
carried at cost, which includes all direct costs and certain
indirect costs associated with the construction of cable
television transmission and distribution systems, and the costs
of new subscriber installations. Depreciation is computed on a
straight-line method using estimated useful lives ranging from
10 to 15 years for distribution systems and equipment, from
15 to 60 years for buildings and structures and from 8 to
15 years for support equipment. Equipment under capital
leases is stated at the present value of minimum lease payments.
Equipment under capital leases is amortized on a straight-line
basis over the shorter of the lease term or estimated useful
life of the asset, which ranges from 2 to 21 years.
Ordinary maintenance and repairs are charged to income as
incurred. Major replacements and improvements are capitalized.
When property and equipment is retired or otherwise disposed of,
the cost and related accumulated depreciation accounts are
relieved of the applicable amounts and any differences are
included in depreciation
IV-55
JUPITER TELECOMMUNICATIONS CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
expense. The impact of such retirements and disposals resulted
in additional depreciation expense of
¥2,041,347 thousand and ¥2,558,513 thousand
for the years ended December 31, 2003 and 2004,
respectively.
Goodwill represents the difference between the cost of the
acquired cable television companies and amounts allocated to the
estimated fair value of their net assets. The Company performs
an assessment of goodwill for impairment at least annually, and
more frequently if an indicator of impairment has occurred,
using a two-step process. The first step requires identification
of reporting units and determination of the fair value for each
individual reporting unit. The fair value of each reporting unit
is then compared to the reporting units carrying amount
including assigned goodwill. To the extent a reporting
units carrying amount exceeds its fair value, the second
step of the impairment test is performed by comparing the
implied fair value of the reporting units goodwill to its
carrying amount. If the implied fair value of a reporting
units goodwill is less than its carrying amount, an
impairment loss is recorded. The Company performs its annual
impairment test on the first day of October in each year. The
Company has determined its reporting units to be the same as its
reportable segments. The Company had no impairment charges of
goodwill for the years ended December 31, 2003 and 2004.
The Company and its subsidiaries long-lived assets,
excluding goodwill, are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of assets to be
held and used is measured by comparing the carrying amount of an
asset to future net cash flows (undiscounted and without
interest) expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized
is measured by the amount by which the carrying amount of the
assets exceeds the estimated fair value of the assets. Assets to
be disposed of are reported at the lower of the carrying amount
or fair value less costs to sell.
In June 2001, the FASB issued SFAS No. 143,
Accounting for Asset Retirement Obligations. The standard
requires that obligations associated with the retirement of
tangible long-lived assets be recorded as liabilities when those
obligations are incurred, with the amount of the liability
initially measured at fair value. The associated asset
retirement costs are capitalized as part of the carrying amount
of the long-lived asset. SFAS No. 143 is effective for
financial statements issued for fiscal years beginning after
June 15, 2002. The Company and its subsidiaries adopted
SFAS No. 143 on January 1, 2003 and the adoption did not
have a material effect on its results of operations, financial
position or cash flows.
Other assets include certain development costs associated with
internal-use software capitalized, including external costs of
material and services, and payroll costs for employees devoting
time to the software projects. These costs are amortized over a
period not to exceed five years beginning when the asset is
substantially ready for use. Costs incurred during the
preliminary project stage, as well as maintenance and training
costs are expensed as incurred. Other assets also include
deferred financing costs, primarily legal fees and bank facility
fees, incurred to negotiate and secure the facility. These costs
are amortized to interest expense using the effective interest
method over the term of the facility. For additional information
concerning the Companys debt facilities, see Note 6.
|
|
|
(i) Derivative
Financial Instruments
|
The Company uses certain derivative financial instruments to
manage its foreign currency and interest rate exposure. The
Company may enter into forward contracts to reduce its exposure
to short-term (generally no more than one year) movements in
exchange rates applicable to firm funding commitments that are
denominated in currencies other than the Japanese yen. The
Company uses interest rate risk management derivative
instruments, such as interest rate swap and interest cap
agreements, to manage interest costs to achieve an overall
desired mix of
IV-56
JUPITER TELECOMMUNICATIONS CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
fixed and variable rate debt. As a matter of policy, the Company
does not enter into derivative contracts for trading or
speculative purposes.
The Company accounts for its derivative instruments in
accordance with SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities and
SFAS No. 138, Accounting for Certain Derivative
Instruments and Certain Hedging Activities, an amendment of
SFAS No. 133. SFAS No. 133, as amended,
requires that all derivative instruments be reported on the
balance sheet as either assets or liabilities measured at fair
value. For derivative instruments designated and effective as
fair value hedges, changes in the fair value of the derivative
instrument and of the hedged item attributable to the hedged
risk are recognized in earnings. For derivative instruments
designated as cash flow hedges, the effective portion of any
hedge is reported in other comprehensive income until it is
recognized in earnings in the same period in which the hedged
item affects earnings. The ineffective portion of all hedges
will be recognized in current earnings each period. Changes in
fair value of derivative instruments that are not designated as
a hedge will be recorded each period in current earnings.
The Company formally documents all relationships between hedging
instruments and hedged items, as well as its risk-management
objective and strategy for undertaking hedge transactions. This
process includes linking all derivatives that are designated as
fair value or cash flow hedges to specific assets and
liabilities on the balance sheet or to specific firm commitments
or forecasted transactions. The Company discontinues hedge
accounting prospectively when (1) it is determined that the
derivative is no longer effective in offsetting changes in the
fair value of cash flows of a hedged item; (2) the
derivative expires or is sold, terminated, or exercised;
(3) it is determined that the forecasted hedged transaction
will no longer occur; (4) a hedged firm commitment no
longer meets the definition of a firm commitment, or
(5) management determines that the designation of the
derivative as a hedge instrument is no longer appropriate.
Ongoing assessments of effectiveness are being made every three
months.
The Company had several outstanding forward contracts with a
commercial bank to hedge foreign currency exposures related to
U.S. dollar-denominated equipment purchases and other firm
commitments. As of December 31, 2003 and 2004, such forward
contracts had an aggregate notional amount of ¥3,134,242
thousand and ¥5,658,147 thousand, respectively, and expire
on various dates through December 2005. The forward contracts
have not been designated as hedges as they do not meet the
effectiveness criteria specified by SFAS No. 133.
However, management believes such forward contracts are closely
related with the firm commitments designated in
U.S. dollars, thus managing associated currency risk.
Forward contracts not designated as hedges are marked to market
each period. Included in other income, net, in the accompanying
consolidated statements of operations are losses on forward
contracts not designated as hedges of ¥65,195 thousand and
¥72,223 thousand for the years ended December 31, 2003
and 2004, respectively.
In May 2003, the Company entered into several interest rate swap
agreements and an interest rate cap agreement to manage variable
rate debt as required under the terms of its facility agreement
(see Note 6). These interest rate exchange agreements
effectively convert ¥60 billion of variable rate debt
based on TIBOR into fixed rate debt and mature on June 30,
2009. These interest rate exchange agreements are considered
cash flow hedging instruments as they are expected to
effectively convert variable interest payments on certain debt
instruments into fixed payments. Changes in fair value of these
interest rate agreements designated as cash flow hedges are
reported in accumulated other comprehensive loss. The amounts
will be subsequently reclassified into interest expense as a
yield adjustment in the same period in which the related
interest on the variable rate debt affects earnings. The
counterparties to the interest rate exchange agreements are
banks participating in the facility agreement, therefore the
Company does not anticipate nonperformance by any of them on the
interest rate exchange agreements. In December 2004, the Company
entered into a new debt facility, which replaced its former
facility (see Note 6). Under the terms of the new facility,
the Company was required to cancel certain interest rate swap
agreements and an interest rate cap agreement with an aggregate
notional amount of ¥24 billion, as the counterparties
elected not to participate in the new facility. Such agreements
were canceled in January 2005. As a result, these agreements are
no longer considered cash flow hedging instruments and their
respective fair value changes were reclassified into
IV-57
JUPITER TELECOMMUNICATIONS CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
interest expense, net in the accompanying consolidated
statements of operations for the year ended December 31,
2004. The remaining aggregate notional amount of
¥36 billion of interest rate swap agreements have been
permitted to be carried over to the new facility as the
counterparties are participants in the new facility. The Company
has re-designated such interest swap agreements as cash flow
hedging instruments.
|
|
|
(j) Severance
and Retirement Plans
|
The Company and its subsidiaries have unfunded noncontributory
defined benefit severance and retirement plans which are
accounted for in accordance with SFAS No. 87,
Employers Accounting for Pensions.
The Company and its subsidiaries account for income taxes under
the asset and liability method. Deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date.
|
|
|
(l) Cable
Television System Costs, Expenses and Revenues
|
The Company and its subsidiaries account for costs, expenses and
revenues applicable to the construction and operation of cable
television systems in accordance with SFAS No. 51,
Financial Reporting by Cable Television Companies.
Currently, there is no significant system that falls in a
prematurity period as defined by SFAS No. 51.
Operating and programming costs in the Companys
consolidated statements of operations include, among other
things, cable service related expenses, billing costs, technical
and maintenance personnel and utility expenses related to the
cable television network.
The Company and its subsidiaries recognize cable television,
high-speed Internet access, telephony and programming revenues
when such services are provided to subscribers. Revenues derived
from other sources are recognized when services are provided,
events occur or products are delivered. Initial subscriber
installation revenues are recognized in the period in which the
related services are provided to the extent of direct selling
costs. Any remaining amount is deferred and recognized over the
estimated average period that the subscribers are expected to
remain connected to the cable television system. Historically,
installation revenues have been less than related direct selling
costs, therefore such revenues have been recognized as
installations are completed.
The Company and its subsidiaries provide poor reception
rebroadcasting services to noncable television viewers suffering
from poor reception of television waves caused by artificial
obstacles. The Company and its subsidiaries enter into
agreements with parties that have built obstacles causing poor
reception for construction and maintenance of cable facilities
to provide such services to the affected viewers at no cost to
them during the agreement period. Under these agreements, the
Company and its subsidiaries receive up-front, lump-sum
compensation payments for construction and maintenance. Revenues
from these agreements have been deferred and are being
recognized in income on a straight-line basis over the agreement
periods which are generally 20 years. Such revenues are
included in revenue other in the accompanying
consolidated statements of operations.
See Note 5 for a description of revenue from affiliates
related to construction-related sales and programming fees which
are recorded in revenue other in the accompanying
consolidated statements of operations.
IV-58
JUPITER TELECOMMUNICATIONS CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Advertising expense is charged to income as incurred.
Advertising expense amounted to ¥3,921,229 thousand and
¥2,915,403 thousand and for the years ended
December 31, 2003 and 2004, respectively, and is included
in selling, general and administrative expenses in the
accompanying consolidated statements of operations.
|
|
|
(o) Stock-Based
Compensation
|
The Company and its subsidiaries account for stock-based
compensation plans to employees using the intrinsic value based
method prescribed by Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees
(APB No. 25) and FASB Interpretation
No. 44, Accounting for Certain Transactions Involving
Stock Compensation an Interpretation of APB
No. 25. (FIN No. 44). As such,
compensation expense is measured on the date of grant only if
the current fair value of the underlying stock exceeds the
exercise price. The Company accounts for its stock-based
compensation plans to nonemployees and employees of
unconsolidated affiliated companies using the fair market value
based method prescribed by SFAS No. 123, Accounting for
Stock-Based Compensation, and Emerging Issues Task Force
Issue 00-12,
Accounting by an Investor for Stock-Based Compensation
Granted to Employees of an Equity Method Investee
(EITF 00-12).
Under SFAS No. 123, the fair value of the stock based
award is determined using the Black-Scholes option pricing
method, which is remeasured each period end until a commitment
date is reached, which is generally the vesting date. The fair
value of the subscription rights and stock purchase warrants
granted each year was calculated using the Black-Scholes
option-pricing model with the following assumptions: no
dividends, volatility of 40%, risk-free rate of 3.0% and an
expected life of three years. Expense associated with
stock-based compensation for certain management employees is
amortized on an accelerated basis over the vesting period of the
individual award consistent with the method described in FASB
Interpretation No. 28, Accounting for Stock Appreciation
Rights and Other Variable Stock Option or Award Plans.
Otherwise, compensation expense is generally amortized evenly
over the vesting period. Compensation expense is recorded in
operating costs and expenses for the Companys employees
and nonemployees and in equity in earnings of affiliates for
employees of affiliated companies in the accompanying
consolidated statements of operations.
SFAS No. 123 allows companies to continue to apply the
provisions of APB No. 25, where applicable, and provide pro
forma disclosure for employee stock option grants as if the fair
value based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the
provisions of APB No. 25 for stock-based compensation plans
to its employees and provide the pro forma disclosure required
by SFAS No. 123. The following table illustrates the effect
on net income and net income per share for the years ended
December 31, 2003 and 2004, if the Company had applied the
fair value recognition provisions of SFAS No. 123 (Yen in
thousands, except share and per share amounts):
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
2004
|
|
|
Net income (loss), as reported
|
|
¥
|
5,351,250
|
|
|
|
¥10,821,175
|
|
Add stock-based compensation
expense included in reported net income (loss)
|
|
|
|
|
|
|
|
|
Deduct stock-based compensation
expense determined under fair value based method for all awards,
net of applicable taxes
|
|
|
(454,172
|
)
|
|
|
(607,655
|
)
|
|
|
|
|
|
|
|
|
|
Pro forma net income (loss)
|
|
¥
|
4,897,078
|
|
|
|
¥10,213,520
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted per share data:
|
|
|
|
|
|
|
|
|
Net income (loss) per share,
as reported (Yen)
|
|
|
1,214
|
|
|
|
2,221
|
|
Net income (loss) per share,
pro forma (Yen)
|
|
|
1,111
|
|
|
|
2,097
|
|
Earnings per share (EPS) is presented in accordance
with the provisions of SFAS No. 128, Earnings Per
Share. Under SFAS No. 128, basic EPS excludes dilution
for potential ordinary shares and is computed by dividing net
income (loss) by the weighted average number of ordinary shares
outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to
issue ordinary shares were exercised
IV-59
JUPITER TELECOMMUNICATIONS CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
or converted into ordinary shares. Basic and diluted EPS are the
same in 2003 and 2004, as all potential ordinary share
equivalents, consisting of stock options, are anti-dilutive.
The Company reports operating segment information in accordance
with SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information. SFAS No. 131
defined operating segments as components of an enterprise about
which separate financial information is available that is
regularly evaluated by the chief operating decision-maker in
deciding how to allocate resources to an individual segment and
in assessing performance of the segment.
The Company has determined that each individual consolidated
subsidiary and unconsolidated managed equity affiliate SO is an
operating segment because each SO represents a legal entity and
serves a separate geographic area. The Company has evaluated the
criteria for aggregation of the operating segments under
paragraph 17 of SFAS No. 131 and believes it meets
each of its respective criteria. Accordingly, management has
determined that the Company has one reportable segment,
Broadband services.
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities
and the disclosure of contingent assets and liabilities at the
date of the consolidated financial statements and the reported
amounts of revenues and expenses during the reporting period to
prepare these consolidated financial statements in conformity
with U.S. GAAP. Significant judgments and estimates include
derivative financial instruments, depreciation and amortization
costs, impairments of property and equipment and goodwill,
income taxes and other contingencies. Actual results could
differ from those estimates.
|
|
|
(s) Recent
Accounting Pronouncements
|
The FASB issued SFAS No. 123 (Revised 2004) (SFAS
No. 123R) in December 2004. SFAS No. 123R is a
revision of SFAS No. 123. SFAS No. 123R supersedes APB
No. 25 and its related implementation guidance. SFAS
No. 123R focuses primarily on accounting for transactions
in which an entity obtains employee services in share-based
payment transactions. SFAS No. 123R requires a public
entity to measure the cost of employee services received in
exchange for an award of equity instruments based on the
grant-date fair value of the award (with limited exceptions).
That cost will be recognized over the period during which an
employee is required to provide service in exchange for the
award. This statement is effective as of the beginning of the
first interim or annual reporting period that begins after
June 15, 2005. We have not yet determined the impact SFAS
No. 123R will have on our results of operations.
2. Acquisitions
The Company acquired varying interests in cable television
companies during the periods presented. The Company utilized the
purchase method of accounting for all such acquisitions and,
accordingly, has allocated the purchase price based on the
estimated fair value of the assets and liabilities of the
acquired companies. The assets, liabilities and operations of
such companies have been included in the accompanying
consolidated financial statements since the dates of their
respective acquisitions.
In March 2004, the Company purchased a controlling interest in
Izumi Otsu from certain of its shareholders. The total purchase
price of such Izumi Otsu shares was ¥160,000 thousand and
gave the Company a 66.7% interest. The results of Izumi Otsu
have been included as a consolidated subsidiary from
April 1, 2004. In August 2004, the Company and certain
shareholders entered into an agreement and merged Izumi Otsu
into the Companys 84.2% consolidated subsidiary,
J-COM
Kansai. After the merger, the Company has an 84.0% equity
interest in
J-COM Kansai.
IV-60
JUPITER TELECOMMUNICATIONS CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
In July 2004, the Company purchased a 100% controlling interest
in Cable System Engineering Corporation (CSE), whose
business is cable network construction and installation. The
total purchase price of CSE was ¥577,210 thousand. No
goodwill was recognized in connection with this acquisition. The
result of operations for CSE have been included from
August 1, 2004.
The impact to revenue, net income (loss) and net income (loss)
per share for the years ended December 31, 2003 and 2004,
as if the transactions were completed as of the beginning of
those years, is not significant.
The aggregate purchase price of the business combinations during
the year ended December 31, 2004 was allocated based upon
fair values as follows (Yen in thousands):
|
|
|
|
|
|
|
2004
|
|
|
Cash, receivables and other assets
|
|
¥
|
2,073,191
|
|
Property and equipment
|
|
|
791,856
|
|
Goodwill
|
|
|
4,228,117
|
|
Debt and capital lease obligations
|
|
|
|
|
Other liabilities
|
|
|
(1,395,471
|
)
|
|
|
|
|
|
|
|
¥
|
5,697,693
|
|
|
|
|
|
|
3. Investments
in Affiliates
The Companys affiliates are engaged primarily in the
Broadband services business in Japan. At December 31, 2004,
the Company held investments in
J-COM
Shimonoseki (50.0%),
J-COM
Fukuoka (45.0%), Jupiter VOD Co. Ltd. (50.0%), Kansai Multimedia
Service Co., Ltd. (Kansai Multimedia) (25.8%), CATV
Kobe (20.4%) and Green City Cable TV Corporation (20.0%).
The carrying value of investments in affiliates as of
December 31, 2003 and 2004 includes ¥730,910 thousand
and ¥761,053 thousand of unamortized excess cost of
investments over the Companys equity in the net assets of
the affiliates. All significant intercompany profits from these
affiliates have been eliminated according to the equity method
of accounting.
The carrying value of investments in affiliates as of
December 31, 2003 and 2004 includes ¥2,019,000
thousand and ¥1,945,000 thousand of short-term loans the
Company made to certain managed affiliates. The interest rate on
these loans was 3.23% and 2.48% as of December 31, 2003 and
2004.
Condensed financial information of the Companys
unconsolidated affiliates at December 31, 2003, and 2004
and for each of the two years ended December 31, 2003 and
2004 are as follows (Yen in thousands):
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
2004
|
|
|
Combined Financial Position:
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
¥
|
29,696,602
|
|
|
¥
|
29,578,096
|
|
Other assets, net
|
|
|
6,201,251
|
|
|
|
7,545,469
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
¥
|
35,897,853
|
|
|
¥
|
37,123,565
|
|
|
|
|
|
|
|
|
|
|
Debt
|
|
¥
|
17,998,825
|
|
|
¥
|
15,577,345
|
|
Other liabilities
|
|
|
16,030,950
|
|
|
|
17,224,152
|
|
Shareholders equity
|
|
|
1,868,078
|
|
|
|
4,322,068
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
¥
|
35,897,853
|
|
|
¥
|
37,123,565
|
|
|
|
|
|
|
|
|
|
|
IV-61
JUPITER TELECOMMUNICATIONS CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
2004
|
|
|
Combined Operations:
|
|
|
|
|
|
|
|
|
Total revenue
|
|
¥
|
19,776,603
|
|
|
¥
|
21,784,795
|
|
Operating, selling, general and
administrative expenses
|
|
|
(13,430,881
|
)
|
|
|
(15,080,471
|
)
|
Depreciation and amortization
|
|
|
(3,682,641
|
)
|
|
|
(4,164,827
|
)
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
2,663,081
|
|
|
|
2,539,497
|
|
Interest expense, net
|
|
|
(478,609
|
)
|
|
|
(427,400
|
)
|
Other expense, net
|
|
|
(1,013,158
|
)
|
|
|
(428,107
|
)
|
|
|
|
|
|
|
|
|
|
Net income
|
|
¥
|
1,171,314
|
|
|
¥
|
1,683,990
|
|
|
|
|
|
|
|
|
|
|
4. Goodwill
and Other Assets
The changes in the carrying amount of goodwill, net, for the
years ended December 31, 2003 and 2004 consisted of the
following (Yen in thousands):
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
2004
|
|
|
Goodwill, net, beginning of year
|
|
¥
|
139,827,277
|
|
|
¥
|
139,853,596
|
|
Goodwill acquired during the year
|
|
|
26,319
|
|
|
|
4,228,117
|
|
Initial recognition of acquired tax
benefits allocated to reduce goodwill of acquired entities
(Note 8)
|
|
|
|
|
|
|
(3,422,995
|
)
|
|
|
|
|
|
|
|
|
|
Goodwill, net, end of year
|
|
¥
|
139,853,596
|
|
|
¥
|
140,658,718
|
|
|
|
|
|
|
|
|
|
|
Other assets, excluding goodwill, at December 31, 2003 and
2004, consisted of the following (Yen in thousands):
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
2004
|
|
|
Lease and other deposits
|
|
¥
|
4,295,947
|
|
|
¥
|
4,313,742
|
|
Deferred financing costs
|
|
|
3,763,785
|
|
|
|
3,540,302
|
|
Capitalized computer software, net
|
|
|
3,022,557
|
|
|
|
3,351,115
|
|
Long-term loans receivable, net
|
|
|
300,380
|
|
|
|
270,885
|
|
Deferred tax assets
|
|
|
|
|
|
|
1,308,582
|
|
Other
|
|
|
1,664,560
|
|
|
|
1,797,757
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
¥
|
13,047,229
|
|
|
¥
|
14,582,383
|
|
|
|
|
|
|
|
|
|
|
5. Related
Party Transactions
The Company purchases cable system materials and supplies from
third-party suppliers and resells them to its subsidiaries and
affiliates. The sales to unconsolidated affiliates amounted to
¥2,888,046 thousand and ¥2,385,495 thousand
for the years ended December 31, 2003 and 2004,
respectively, and are included in revenue other in
the accompanying consolidated statements of operations.
The Company provides programming services to its subsidiaries
and affiliates. The revenue from unconsolidated affiliates for
such services provided and the related products sold amounted to
¥1,092,724 thousand and ¥1,379,744 thousand
for the years ended December 31, 2003 and 2004,
respectively, and are included in revenue other in
the accompanying consolidated statements of operations.
The Company provides management services to its subsidiaries and
managed affiliates. Fees for such services related to managed
affiliates amounted to ¥468,219 thousand and
¥521,670 thousand for the years ended
December 31, 2003 and 2004, respectively, and are included
in revenue other in the accompanying consolidated
statements of operations.
IV-62
JUPITER TELECOMMUNICATIONS CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
In July 2002, the Company began providing management services to
Chofu Cable Inc.
(J-COM
Chofu), an affiliated company that is 92% jointly owned by
LMI, Microsoft and SC. Fees for such services amounted to
¥60,882 thousand and ¥87,446 thousand for
the years ended December 31, 2003 and 2004 respectively,
and are included in revenue other in the
accompanying consolidated statements of operations. As part of
the 2004 refinancing,
J-COM Chofu
became party to the Companys new debt facility (see
Note 6). At December 31, 2004, the Company had
advanced ¥4,030 million of short term loans to
J-COM Chofu
and the interest rate on these loans were 2.48%.
The Company purchases certain cable television programs from
Jupiter Programming Co., Ltd. (JPC), an affiliated
company jointly owned by SC and a wholly owned subsidiary of
LMI. Such purchases, including purchases from JPCs
affiliates, amounted to ¥3,155,139 thousand and
¥3,915,345 thousand for the years ended
December 31, 2003 and 2004, respectively, and are included
in operating and programming costs in the accompanying
consolidated statements of operations. Additionally, the Company
receives a distribution fee to carry the Shop Channel, a
majority owned subsidiary of JPC, for the greater of a fixed
rate per subscriber or a percentage of revenue generated through
sales in the Companys territory. Such fees amounted to
¥939,438 thousand and ¥1,063,678 thousand
for the years ended December 31, 2003 and 2004,
respectively, and are included as revenue other in
the accompanying consolidated statements of operations.
The Company purchased stock of affiliated companies from SC in
the amounts of ¥0 thousand, and
¥5,091,864 thousand in the years ended
December 31, 2003 and 2004, respectively.
AJCC K.K. (AJCC) is a subsidiary of SC and its
primary business is the sale of home terminals and related goods
to cable television companies. Sumisho Lease Co., Ltd. and
Sumisho Auto Leasing Co., Ltd. (collectively Sumisho
leasing) are a subsidiary and affiliate, respectively, of
SC and provide to the Company various office equipment and
vehicles. The Company and its subsidiaries purchases of
such goods, primarily as capital leases, from both AJCC and
Sumisho leasing, amounted to ¥6,087,645 thousand and
¥12,621,284 thousand for the years ended
December 31, 2003 and 2004, respectively.
The Company pays monthly fees to its affiliates, @NetHome and
Kansai Multimedia, based on an agreed-upon percentage of
subscription revenue collected by the Company from its customers
for the @NetHome and Kansai Multimedia services. Payments made
to Kansai Multimedia under these arrangements amounted to
¥3,226,764 thousand and ¥3,380,148 thousand
for the years ended December 31, 2003 and 2004,
respectively. Such payments are included in operating and
programming costs in the accompanying consolidated statements of
operations. In March 2002, @Net Home became a consolidated
subsidiary of the Company (see Note 2). Therefore, since
April 1, 2002, through @NetHome, the Company receives the
monthly fee from its unconsolidated affiliates. Such service
fees amounted to ¥1,071,891 thousand and
¥1,242,550 thousand for the years ended
December 31, 2003 and 2004, respectively, and are included
in revenue-subscription fees in the accompanying consolidated
statements of operations.
The Company has management service agreements with SC and LMI
under which officers and management level employees are seconded
from SC and LMI to the Company, whose services are charged as
service fees to the Company based on their payroll costs. The
service fees paid to SC amounted to ¥706,303 thousand
and ¥784,122 thousand for the years ended
December 31, 2003 and 2004, respectively. The service fees
paid to LMI amounted to ¥714,986 thousand and
¥665,354 thousand for the years ended
December 31, 2003 and 2004, respectively. These amounts are
included in selling, general and administrative expenses in the
accompanying consolidated statements of operations.
SC, LMI and Microsoft had long-term subordinated loans to the
Company of ¥52,894,625 thousand,
¥52,894,625 thousand and
¥43,950,000 thousand, respectively, at
December 31, 2003. In December 2004, the Company refinanced
and replaced these subordinated shareholder loans under a new
facility. See Note 6.
The Company pays fees on debt guaranteed by SC, LMI and
Microsoft. The guarantee fees incurred were
¥84,224 thousand to SC, ¥73,470 thousand to LMI
and ¥51,890 thousand to Microsoft for the year ended
IV-63
JUPITER TELECOMMUNICATIONS CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
December 31, 2003. The guarantee fees incurred were
¥41,071 thousand to SC, ¥41,071 thousand to
LMI and ¥16,332 thousand to Microsoft for the year
ended December 31, 2004. Such fees are included in interest
expense, net-related parties in the accompanying consolidated
statements of operations. In December 2004 these guarantees were
replaced by a guarantee facility with a syndicate of lenders.
See Note 6.
6. Long-term
Debt
A summary of long-term debt as of December 31, 2003 and
2004 is as follows (Yen in thousands):
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
2004
|
|
|
¥140 billion Facility
term loans, due fiscal 2005 2009
|
|
¥
|
53,000,000
|
|
|
¥
|
|
|
¥175 billion Facility
term loans, due fiscal 2005 2011
|
|
|
|
|
|
|
130,000,000
|
|
Mezzanine Facility Subordinated
loan due fiscal 2012
|
|
|
|
|
|
|
50,000,000
|
|
8 yr Shareholder Subordinated
loans, due fiscal 2011
|
|
|
117,739,250
|
|
|
|
|
|
8 yr Shareholder
Tranche B Subordinated loans, due fiscal 2011
|
|
|
32,000,000
|
|
|
|
|
|
0% unsecured loans from Development
Bank of Japan, due fiscal 2005 2019
|
|
|
12,223,720
|
|
|
|
|
|
Unsecured loans from Development
Bank of Japan, due fiscal 2005 2019, interest from
0.65% to 6.8%
|
|
|
3,895,400
|
|
|
|
|
|
0% secured loans from Development
Bank of Japan, due fiscal 2005 2019
|
|
|
5,354,735
|
|
|
|
15,810,095
|
|
Secured loans from Development Bank
of Japan, due fiscal 2005 2019, interest at 0.95% to
6.8%
|
|
|
|
|
|
|
3,614,200
|
|
0% unsecured loans from others, due
fiscal 2012
|
|
|
57,090
|
|
|
|
50,170
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
224,270,195
|
|
|
|
199,474,465
|
|
Less: current portion
|
|
|
(2,438,480
|
)
|
|
|
(5,385,980
|
)
|
|
|
|
|
|
|
|
|
|
Long-term debt, less current portion
|
|
¥
|
221,831,715
|
|
|
¥
|
194,088,485
|
|
|
|
|
|
|
|
|
|
|
2003
Financing
On January 31, 2003, the Company entered into a
¥140 billion bank syndicated facility for certain of
its managed subsidiaries and affiliates
(¥140 billion Facility). In connection
with the ¥140 billion Facility, on February 6,
2003, the Company entered into eight-year subordinated loans
with each of SC, LMI and Microsoft (Principal
Shareholders), which initially aggregated
¥182 billion (Shareholder Subordinated
Loans).
The ¥140 billion Facility was for the financing of
Jupiter, sixteen of its consolidated managed affiliates and one
managed affiliate accounted for under the equity method of
accounting. The financing was used for permitted general
corporate purposes, capital expenditures, financing costs and
limited purchase of minority shares and capital calls of the
affiliates participating in the ¥140 billion Facility.
The ¥140 billion Facility provided for term loans of
up to ¥120 billion and a revolving loan facility up to
¥20 billion with the final maturity of June 30,
2009. ¥32 billion of the total term loan portion of
the ¥140 billion Facility was considered provided by
the shareholders under the Tranche B Subordinated Loans.
Interest was based on TIBOR, as defined in the
¥140 billion Facility, plus margin which changed based
upon a leverage ratio of Total Debt to EBITDA as set forth in
the ¥140 billion Facility agreement. At
December 31, 2003, the interest rate was 2.83%. The
Shareholder Subordinated Loans, which were subordinated to the
¥140 billion Facility, consisted of eight-year
subordinated loans and eight-year Tranche B Subordinated
Loans. The ¥140 billion Facility had requirements to
make mandatory prepayments under specific circumstances as
defined in the agreements. Such prepayments are designated as
restricted cash on the consolidated balance sheets.
In May 2003, LMI and SC converted ¥32 billion of
Shareholder Subordinated Loans for 750,250 shares of common
stock of the company. At December 31, 2003, the interest
rate was 2.08%.
IV-64
JUPITER TELECOMMUNICATIONS CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
In December 2003, a consolidated subsidiary of the Company
became party to the ¥140 billion Facility. Immediately
prior to this transaction, the consolidated subsidiary had
outstanding ¥3,686,090 thousand to third-party
creditors. In connection with this transaction, a third-party
debt holder forgave ¥400,000 thousand of debt owed to
it. As a result, the Company recorded a gain of
¥400,000 thousand in other non-operating income in the
accompanying consolidated statement of operations for the year
ended December 31, 2003. Additionally, the third-party debt
holder was issued ¥500,000 thousand of preferred stock
of the consolidated subsidiary in exchange for
¥500,000 thousand of debt owed to it (see
Note 10). The remaining ¥2,686,090 thousand of
third-party debt was repaid from proceeds of the
¥140 billion Facility.
In March 2004, the Company entered into additional shareholder
subordinated loans of ¥2,431,000 thousand each with SC
and LMI. The aggregate ¥4,862,000 thousand of loan
proceeds were used for the purchase of the remaining shares of
@NetHome (see Note 2). These additional shareholder
subordinated loans had identical terms to the Shareholder
Subordinated Loans discussed above.
In August 2004, LMI, SC and Microsoft made a capital
contribution to the Company in the aggregate amount of
¥30,000 million. The proceeds of this contribution
were used to repay an aggregate of ¥30,000 million of
Shareholder Subordinated Loans owed respectively in the same
amounts as contributed by LMI, SC and Microsoft (see
Note 1).
2004
Refinancing
On December 15, 2004, for the purpose of the refinancing
the ¥140 billion Facility, the Company entered into a
¥175 billion senior syndicated facility
(¥175 billion Facility) which consists of
a ¥130 billion term loan facility (Term Loan
Facility), a ¥20 billion revolving facility
(Revolving Facility) and a ¥25 billion
guarantee facility (Guarantee Facility).
Concurrently the Company entered into a ¥50 billion
subordinated syndicated loan facility (Mezzanine
Facility). Consistent with the ¥140 billion
Facility, the ¥175 billion Facility will be utilized
for the financing of Jupiter, sixteen of its consolidated
managed affiliates, one managed affiliate under the equity
method accounting and one managed affiliate, which the Company
has no equity investment (Jupiter Combined Group).
On December 21, 2004, the Company made full drawdowns from
each of the ¥130 billion Term Loan Facility and the
¥50 billion Mezzanine Facility. The proceeds from the
December 2004 drawdown were used to repay all outstanding loans
under the ¥140 billion Facility and all outstanding
Shareholder Subordinated Loans.
The ¥130 billion Term Loan Facility consists of a five
year ¥90 billion Tranche A Term Loan Facility
(Tranche A Facility) and a seven year
¥40 billion Tranche B Term Loan Facility
(Tranche B Facility). Final maturity dates of
the Tranche A Facility and Tranche B Facility are
December 31, 2009 and December 31, 2011, respectively.
Loan repayment of the Tranche A Facility and the
Tranche B Facility commence on September 30, 2005 and
March 31, 2009, respectively, each based on a defined rate
reduction each quarter thereafter until maturity.
The ¥20 billion Revolving Facility will be available
for drawdown until one month prior to its final maturity of
December 31, 2009. A commitment fee of 0.50% per annum is
payable on the unused available Revolving Facility during its
availability period.
The ¥25 billion Guarantee Facility provides for seven
years of bank guarantees on loans from the Development Bank of
Japan owed by affiliates of the Jupiter Combined Group. The
Guarantee Facility commitment reduces gradually according to the
amount and schedule as defined in the ¥175 billion
Facility agreement until final maturity at December 31,
2011. As of December 31, 2004 the guarantee commitment is
¥25 billion. Such guarantee commitment will be reduced
to ¥23.1 billion by December 2005;
¥21.6 billion by December 2006;
¥20.0 billion by December 2007;
¥18.6 billion by December 2008;
¥17.2 billion by December 2009;
¥15.8 billion by December 2010; and to
¥13.2 billion by December 2011. A commitment fee of
0.50% per annum is payable on the unused available Guarantee
Facility during its availability period.
Interest on the Tranche A Facility, Tranche B Facility
and the Revolving Facility is based on TIBOR, as defined in the
agreement, plus the applicable margin. Each facilitys
applicable margin is reducing based upon a
IV-65
JUPITER TELECOMMUNICATIONS CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
leverage ratio of Senior Debt to EBITDA as such terms are
defined in the ¥175 billion Facility agreement. When
the leverage ratio is greater than or equal to 4.0:1, the margin
on the Tranche A Facility and the Revolving Facility is
1.50% per annum and the margin of the Tranche B Facility
ranges from 1.80% to 2.00% per annum; when less than 4.0:1 but
greater than or equal to 2.5:1 the margin on the Tranche A
Facility and the Revolving Facility is 1.38% per annum and the
margin of the Tranche B Facility ranges from 1.69% to 1.88%
per annum; when less than 2.5:1 but greater than or equal to
1.5:1 the margin on the Tranche A Facility and the
Revolving Facility is 1.25% per annum and the margin of the
Tranche B Facility ranges from 1.58% to 1.75% per annum;
and when less than 1.5:1 the margin on the Tranche A
Facility and the Revolving Facility is 1.00% per annum and the
margin of the Tranche B Facility ranges from 1.35% to 1.50%
per annum. In regards to the fees due on the Guarantee Facility,
when the leverage ratio is greater than 4.00:1, the interest
rate is 3.00% per annum; when less than 4.00:1 but greater than
or equal to 3.75:1 the interest rate is 2.00%; when less than
3.75:1 but greater than or equal to 3.50:1 the interest rate is
1.50%; when less than 3.50:1 but greater than or equal to 3.00:1
the interest rate is 1.00%; when less than 3.00:1 but greater
than or equal to 2.00:1 the interest rate is 0.75%; and when
less than 2.00:1, the interest rate is 0.50% per annum. As of
December 31, 2004 the interest rates for the outstanding
Tranche A Facility, Tranche B Facility, and Guarantee
Facility, were 1.6%, 1.9%, and 1.0% respectively.
The ¥175 billion Facility has requirements to make
mandatory prepayments in the amount equal to (1) 50% of the
Group Free Cash Flow, as defined in the agreement, until the
later of (a) March 31, 2007 and (b) the first
quarter for which the ratio of Senior Debt to EBITDA, as defined
in the agreement, is less than 2.50:1.00; (2) 50% of third
party contributions received when the ratio of Senior Debt to
EBITDA is greater than 4.00:1.00; (3) proceeds from the
sale of assets exceeding ¥500 million that are not
reinvested within six months; (4) insurance proceeds
exceeding ¥500 million that are not used to repair or
replace the damaged assets within twelve months; and
(5) proceeds of any take-out securities as defined in the
¥175 billion Facility agreement. The
¥175 billion Facility requires the Jupiter Combined
Group to comply with various financial covenants, such as
Maximum Senior Debt to EBITDA Ratio, Maximum Senior Debt to
Combined Total Capital Ratio, Minimum Debt Service Coverage
Ratio and Minimum Interest Coverage Ratio as such terms are
defined in the ¥175 billion Facility agreement. In
addition, the ¥175 billion Facility contains certain
limitations or prohibitions on additional indebtedness.
Additionally, the ¥175 billion Facility requires the
Company to maintain interest hedging agreements on at least 50%
of the outstanding amounts under the Tranche A Facility.
Due to the ¥175 billion Facility closing on
December 15, 2004, the Company was not required to
calculate financial covenants for the fiscal year 2004.
The Mezzanine Facility contains a bullet repayment upon final
maturity at June 30, 2012. However, in the event of an IPO
by the Company, there is a mandatory prepayment of the Mezzanine
Facility of 100% from the proceeds of such IPO. Interest on the
Mezzanine Facility is based on TIBOR, as defined in the
agreement, plus an increasing margin. The initial margin is
3.25% per annum and increases 0.25% each successive three month
period from closing up to a maximum margin of 9.00% per annum.
The Mezzanine Facility has identical financial covenants as the
¥175 billion Facility.
As of December 31, 2004 the Company had
¥20 billion revolving loans available for immediate
borrowing under the ¥175 billion Facility.
Development
Bank of Japan Loans
The loans represent institutional loans from the Development
Bank of Japan, which have been made available to
telecommunication companies operating in specific local areas
designated as Teletopia by the MIC to facilitate
development of local telecommunication network. Requirements to
qualify for such financing include use of optical fiber cables,
equity participation by local/municipal government and guarantee
by third parties, among other things. These loans are obtained
by the Companys subsidiaries and were primarily
guaranteed, directly or indirectly, by SC, LMI and Microsoft. In
connection with the 2004 refinancing described above, the
guarantees by SC, LMI and Microsoft have been cancelled and
replaced with guarantees pursuant to the Guarantee Facility.
IV-66
JUPITER TELECOMMUNICATIONS CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Securities
on Long-term Debt
At December 31, 2004, subsidiaries shares owned by
the Company, trademark and franchise rights held by the Company
and substantially all equipment held by the Companys
subsidiaries were pledged to secure the loans from the
Development Bank of Japan and the Companys bank
facilities. The aggregate annual maturities of long-term debt
outstanding at December 31, 2004 are as follows (Yen in
thousands):
|
|
|
|
|
Year ending December 31,
|
|
|
|
2005
|
|
¥
|
5,385,980
|
|
2006
|
|
|
11,648,720
|
|
2007
|
|
|
20,461,660
|
|
2008
|
|
|
31,474,610
|
|
2009
|
|
|
42,981,060
|
|
Thereafter
|
|
|
87,522,435
|
|
|
|
|
|
|
|
|
¥
|
199,474,465
|
|
|
|
|
|
|
7. Leases
The Company and its subsidiaries are obligated under various
capital leases, primarily for home terminals, and other
noncancelable operating leases, which expire at various dates
during the next seven years. See Note 5 for further
discussion of capital leases from subsidiaries and affiliates of
SC.
At December 31, 2003 and 2004, the amount of equipment and
related accumulated depreciation recorded under capital leases
were as follows (Yen in thousands):
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
2004
|
|
|
Distribution system and equipment
|
|
¥
|
45,170,512
|
|
|
¥
|
48,061,224
|
|
Support equipment and buildings
|
|
|
6,656,913
|
|
|
|
6,594,499
|
|
Less: accumulated depreciation
|
|
|
(22,111,664
|
)
|
|
|
(24,129,460
|
)
|
Other assets, at cost, net of
depreciation
|
|
|
292,511
|
|
|
|
209,669
|
|
|
|
|
|
|
|
|
|
|
|
|
¥
|
30,008,272
|
|
|
¥
|
30,735,932
|
|
|
|
|
|
|
|
|
|
|
Depreciation of assets under capital leases is included in
depreciation and amortization in the accompanying consolidated
statements of operations.
Future minimum lease payments under capital leases and
noncancelable operating leases as of December 31, 2004 are
as follows (Yen in thousands):
|
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
Operating
|
|
Year ending December 31,
|
|
Leases
|
|
|
Leases
|
|
|
2005
|
|
¥
|
10,479,258
|
|
|
¥
|
901,131
|
|
2006
|
|
|
8,298,826
|
|
|
|
750,754
|
|
2007
|
|
|
5,997,212
|
|
|
|
626,332
|
|
2008
|
|
|
4,102,122
|
|
|
|
399,496
|
|
2009
|
|
|
2,810,622
|
|
|
|
383,100
|
|
More than five years
|
|
|
2,686,635
|
|
|
|
703,288
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
|
34,374,675
|
|
|
¥
|
3,764,101
|
|
|
|
|
|
|
|
|
|
|
Less: amount representing interest
(rates ranging from 1.10% to 5.99%)
|
|
|
(2,570,124
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value of net minimum
payments
|
|
|
31,804,551
|
|
|
|
|
|
Less: current portion
|
|
|
(9,529,241
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent portion
|
|
¥
|
22,275,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IV-67
JUPITER TELECOMMUNICATIONS CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The Company and its subsidiaries occupy certain offices under
cancelable lease arrangements. Rental expenses for such leases
for the years ended December 31, 2003 and 2004, totaled
¥4,134,249 thousand and ¥3,970,228 thousand,
respectively, and were included in selling, general and
administrative expenses in the accompanying consolidated
statements of operations. Also, the Company and its subsidiaries
occupy certain transmission facilities and use poles and other
equipment under cancelable lease arrangements. Rental expenses
for such leases for the years ended December 31, 2003 and
2004, totaled ¥8,542,845 thousand and ¥8,943,602
thousand, respectively, and are included in operating costs and
programming costs in the accompanying consolidated statements of
operations.
8. Income
Taxes
The Company and its subsidiaries are subject to Japanese
national corporate tax of 30%, an inhabitant tax of 6% and a
deductible enterprise tax of 10%, which in aggregate result in a
statutory tax rate of 42%. On March 24, 2003, the Japanese
Diet approved the Amendments to Local Tax Law, reducing the
enterprise tax from 10.08% to 7.2%. The amendments to the tax
rates will be effective for fiscal years beginning on or after
April 1, 2004. Consequently, the statutory income tax rate
will be lowered to approximately 40% for deferred tax assets and
liabilities expected to be settled or realized on or after
January 1, 2005 for the Company.
All pretax income/loss and related tax expense/benefit are
derived solely from Japanese operations. Income tax expense for
the years ended December 31, 2003 and 2004 is as follows
(Yen in thousand):
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
2004
|
|
|
Current
|
|
¥
|
209,805
|
|
|
¥
|
1,812,786
|
|
Deferred
|
|
|
|
|
|
|
45,591
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
¥
|
209,805
|
|
|
¥
|
1,858,377
|
|
|
|
|
|
|
|
|
|
|
The effective rates of income tax (benefit) expense
relating to losses (income) incurred differs from the rate
that would result from applying the normal statutory tax rates
for the years ended December 31, 2003 and 2004 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
2004
|
|
|
Normal effective statutory tax rate
|
|
|
42.0%
|
|
|
|
42.0%
|
|
Adjustment to deferred tax assets
and liabilities for enacted changes in tax laws and rates
|
|
|
|
|
|
|
0.1
|
|
Increase/(decrease) in valuation
allowance
|
|
|
(41.2
|
)
|
|
|
(27.4
|
)
|
Other
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
3.8%
|
|
|
|
14.7%
|
|
|
|
|
|
|
|
|
|
|
IV-68
JUPITER TELECOMMUNICATIONS CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The effects of temporary differences and carryforwards that give
rise to deferred tax assets and liabilities at December 31,
2003 and 2004 are as follows (Yen in thousands):
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
2004
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Operating loss carryforwards
|
|
¥
|
29,921,448
|
|
|
¥
|
21,649,833
|
|
Deferred revenue
|
|
|
14,165,581
|
|
|
|
14,455,010
|
|
Lease obligation
|
|
|
12,452,252
|
|
|
|
12,721,820
|
|
Retirement and other allowances
|
|
|
1,390,741
|
|
|
|
1,459,068
|
|
Investment in affiliates
|
|
|
794,896
|
|
|
|
567,766
|
|
Accrued expenses and other
|
|
|
2,485,228
|
|
|
|
3,978,505
|
|
|
|
|
|
|
|
|
|
|
Total gross deferred tax assets
|
|
|
61,210,146
|
|
|
|
54,832,002
|
|
Less: valuation allowance
|
|
|
(45,846,086
|
)
|
|
|
(35,240,909
|
)
|
|
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
|
15,364,060
|
|
|
|
19,591,093
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
12,680,631
|
|
|
|
13,796,923
|
|
Tax deductible goodwill
|
|
|
633,155
|
|
|
|
|
|
Other
|
|
|
2,050,274
|
|
|
|
2,416,766
|
|
|
|
|
|
|
|
|
|
|
Total gross deferred tax liabilities
|
|
|
15,364,060
|
|
|
|
16,213,689
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
¥
|
|
|
|
¥
|
3,377,404
|
|
|
|
|
|
|
|
|
|
|
The net changes in the total valuation allowance for the years
ended December 31, 2003 and 2004 were decreases of
¥6,543,162 thousand and ¥10,605,177 thousand,
respectively.
Current deferred tax assets in the amount of ¥2,068,822
thousand are included in prepaid expenses and non-current
deferred tax assets in the amount of ¥1,308,582 thousand
are included in other in non-current assets in the accompanied
consolidated balance sheet at December 31, 2004.
In assessing the realizability of deferred tax assets, the
Company considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized.
The ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income during the periods
in which those temporary differences become deductible. The
Company considers the scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax planning
strategies in making this assessment. Based upon the level of
historical taxable income and projections for future taxable
income over the periods in which the deferred tax assets are
deductible, management expects to realize its deferred tax
assets net of existing valuation allowance. The Company had
¥343,918 thousand of tax deductible goodwill as of
December 31, 2004.
The amount of unrecognized tax benefits at December 31,
2003 and 2004 acquired in connection with business combinations
were ¥12,000 million and ¥7,267 million (net
of ¥3,423 million recognized during 2004),
respectively. If the deferred tax assets are realized or the
valuation allowance is reversed, the tax benefit realized is
first applied to i) reduce to zero any goodwill related to
acquisition, ii) second to reduce to zero other non-current
intangible assets related to the acquisition and iii) third
to reduce income tax expense. See Note 4.
IV-69
JUPITER TELECOMMUNICATIONS CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
At December 31, 2004, the Company and its subsidiaries had
net operating loss carryforwards for income tax purposes of
¥54,124,581 thousand which were available to offset
future taxable income. Net operating loss carryforwards, if not
utilized, will expire in each of the next five years as follows
(Yen in thousands):
|
|
|
|
|
Year ending December 31,
|
|
|
|
|
2005
|
|
¥
|
17,501,242
|
|
2006
|
|
|
20,094,037
|
|
2007
|
|
|
|
|
2008
|
|
|
55,494
|
|
2009
|
|
|
10,751,591
|
|
2010-2011
|
|
|
5,722,217
|
|
|
|
|
|
|
|
|
¥
|
54,124,581
|
|
|
|
|
|
|
9. Severance
and Retirement Plans
Under unfunded severance and retirement plans, substantially all
full-time employees terminating their employment after the three
year vesting period are entitled, under most circumstances, to
lump-sum severance payments determined by reference to their
rate of pay at the time of termination, years of service and
certain other factors. No assumptions are made for future
compensation levels as the plans have flat-benefit formulas. As
a result, the accumulated benefit obligation and projected
benefit obligation are the same. December 31, 2004 was used
as the measurement date.
Net periodic cost of the Company and its subsidiaries
plans accounted for in accordance with SFAS No. 87 for
the years ended December 31, 2003 and 2004, included the
following components (Yen in thousands):
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
2004
|
|
|
Service cost benefits
earned during the year
|
|
¥
|
257,230
|
|
|
¥
|
265,608
|
|
Interest cost on projected benefit
obligation
|
|
|
40,159
|
|
|
|
40,120
|
|
Recognized actuarial loss
|
|
|
158,371
|
|
|
|
463,216
|
|
|
|
|
|
|
|
|
|
|
Net periodic cost
|
|
¥
|
455,760
|
|
|
¥
|
768,944
|
|
|
|
|
|
|
|
|
|
|
The reconciliation of beginning and ending balances of the
benefit obligations of the Company and its subsidiaries
plans accounted for in accordance with SFAS No. 87 are
as follows (Yen in thousands):
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
2004
|
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
Benefit obligation, beginning of
year
|
|
¥
|
1,606,371
|
|
|
¥
|
2,006,011
|
|
Service cost
|
|
|
257,230
|
|
|
|
265,608
|
|
Interest cost
|
|
|
40,159
|
|
|
|
40,120
|
|
Acquisitions (Note 2)
|
|
|
|
|
|
|
30,630
|
|
Actuarial loss
|
|
|
158,371
|
|
|
|
432,586
|
|
Benefits paid
|
|
|
(56,120
|
)
|
|
|
(93,288
|
)
|
|
|
|
|
|
|
|
|
|
Benefit obligation, end of year
|
|
¥
|
2,006,011
|
|
|
¥
|
2,681,667
|
|
|
|
|
|
|
|
|
|
|
IV-70
JUPITER TELECOMMUNICATIONS CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The weighted-average discount rate used in the determination of
projected benefit obligation and net pension cost of the Company
and its subsidiaries plans as of and for the year ended
December 31, 2003, and 2004 is as follows:
|
|
|
|
|
|
|
|
|
Projected benefit obligation
|
|
2003
|
|
|
2004
|
|
|
Discount rate
|
|
|
2.0%
|
|
|
|
2.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net pension cost
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
2.0%
|
|
|
|
2.0%
|
|
The estimated future benefit payments are (Yen in thousands):
|
|
|
|
|
Estimated Future Benefit Payments
|
|
|
|
2005
|
|
¥
|
105,753
|
|
2006
|
|
|
116,145
|
|
2007
|
|
|
172,494
|
|
2008
|
|
|
138,000
|
|
2009
|
|
|
167,641
|
|
2010 to 2014
|
|
|
996,298
|
|
|
|
|
|
|
|
|
¥
|
1,696,331
|
|
|
|
|
|
|
In addition, employees of the Company and certain of its
subsidiaries participate in a multi-employer defined benefit
plan. The Company contributions to this plan amounted to
¥342,521 thousand and ¥292,546 thousand for the years
ended December 31, 2003 and 2004, respectively, and are
included in provision for retirement allowance in selling,
general and administrative expenses in the accompanying
consolidated statements of operations.
10. Redeemable
Preferred Stock
On December 29, 2003, in connection with being included as
a party to the ¥140 billion Facility, a consolidated
subsidiary of the Company issued ¥500,000 thousand of
preferred stock to a third-party in exchange for debt owed to
that third party. All or a part of the preferred stock can be
redeemed after 2010, up to a half of the preceding years
net income, at the holders demand. The holder of the
preferred stock has a priority to receive dividends, however,
the amount of such dividends will be decided by the
subsidiarys board of directors and such dividend will not
exceed ¥1,000 per preferred stock for any fiscal year and
will not accumulate.
11. Shareholders
Equity
Dividends
Under the Japanese Commercial Code (the Code), the
amount available for dividends is based on retained earnings as
recorded on the books of the Company maintained in conformity
with financial accounting standards of Japan. Certain
adjustments not recorded on the Companys books are
reflected in the consolidated financial statements for reasons
described in Note 1. At December 31, 2004, the
accumulated deficit recorded on the Companys books of
account was ¥16,024,828 thousand. Therefore, no dividends
may be paid at the present time.
The Code provides that an amount equivalent to at least 10% of
cash dividends paid and other cash outlays resulting from
appropriation of retained earnings be appropriated to a legal
reserve until such reserve and the additional paid-in capital
equal 25% of the issued capital. The Code also provides that
neither additional paid-in capital nor the legal reserve are to
be used for cash dividends, but may be either (i) used to
reduce a capital deficit, by resolution of the shareholders;
(ii) capitalized, by resolution of the Board of Directors;
or (iii) used for purposes other than those provided in
(i) and (ii), such as refund made to shareholders or
acquisition of treasury stocks, but only up to an amount equal
to the additional paid-in capital and the legal reserve less 25%
of the issued capital, by
IV-71
JUPITER TELECOMMUNICATIONS CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
resolution of the shareholders. The Code provides that at least
one-half of the issue price of new shares be included in capital.
Stock-Based
Compensation Plans
The Company maintains subscription-rights option plans and stock
purchase warrant plans for certain directors, corporate auditors
and employees of the Companys consolidated managed
franchises and to directors, corporate auditors and employees of
the Companys unconsolidated managed franchises and other
non-employees (collectively the Jupiter Option
Plans). The Companys board of directors and
shareholders approved the grant of the Companys ordinary
shares at an initial exercise price of ¥92,000 per share.
The exercise price is subject to adjustment upon an effective
IPO to the lower of ¥92,000 per share or the IPO offering
price.
Under Jupiter Option Plans, the number of ordinary shares
issuable will be adjusted for stock splits, reverse stock splits
and certain other recapitalizations and the subscription rights
will not be exercisable until the Companys ordinary shares
are registered with the Japan Securities Dealers Association or
listed on a stock exchange. Non-management employees will,
unless the grant agreement provides otherwise, vest in two years
from date of grant. Management employees will, unless the grant
agreement provides otherwise, vest in four equal installments
from date of grant. Options under the Jupiter Option Plans
generally expire 10 years from date of grant, currently
ranging from August 23, 2010 to August 23, 2012.
The Company has accounted for awards granted to the
Companys and its consolidated managed franchises
directors, corporate auditors and employees under APB
No. 25 and FIN No. 44. Based on the
Companys estimated fair value per ordinary share, there
was no intrinsic value at the date of grant under the Jupiter
Option Plans. As the exercise price at the date of grant is
uncertain, the Jupiter Option Plans are considered variable
awards. Under APB No. 25 and FIN 44, variable awards
will have stock compensation recognized each period to the
extent the market value of the ordinary shares granted exceeds
the exercise price. The Company will be subject to variable
accounting for grants to employees under the Jupiter Option
Plans until all options granted are exercised, forfeited, or
expired. At December 31, 2003 and 2004, the market value of
the Companys ordinary shares did not exceed the exercise
price and no compensation expense was recognized.
The Company has accounted for awards granted to directors,
corporate auditors and employees of the Companys
unconsolidated managed franchises and to other non-employees, in
accordance with SFAS No. 123 and
EITF 00-12.
As a result of cancellations, options outstanding to directors,
corporate auditors and employees of the Companys
unconsolidated managed franchises and to other non-employees
were 21,916 ordinary shares and 11,476 ordinary shares at
December 31, 2003 and 2004, respectively. The Company
recorded compensation expense related to the directors,
corporate auditors and employees of the Companys
unconsolidated managed franchises and other non-employees of
¥117,359 thousand and ¥93,484 thousand for the years
ended December 31, 2003 and 2004, respectively, which has
been included in selling, general and administrative expense for
the Companys non-employees and in equity in earnings of
affiliates for employees of affiliated companies in the
accompanying consolidated statements of operations.
IV-72
JUPITER TELECOMMUNICATIONS CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The following table summarizes activity under the Jupiter Option
Plans:
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
2004
|
|
|
Outstanding at beginning of the year
|
|
|
159,004
|
|
|
|
191,764
|
|
Granted
|
|
|
41,958
|
|
|
|
29,730
|
|
Canceled
|
|
|
(9,198
|
)
|
|
|
(8,418
|
)
|
|
|
|
|
|
|
|
|
|
Outstanding at end of the year
|
|
|
191,764
|
|
|
|
213,076
|
|
|
|
|
|
|
|
|
|
|
Weighted average exercise price
|
|
¥
|
92,000
|
|
|
¥
|
92,000
|
|
|
|
|
|
|
|
|
|
|
Weighted average remaining
contractual life
|
|
|
7.4 years
|
|
|
|
6.6 years
|
|
|
|
|
|
|
|
|
|
|
Options exercisable, end of period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average fair value of
options granted
|
|
¥
|
18,340
|
|
|
¥
|
24,545
|
|
|
|
|
|
|
|
|
|
|
12. Fair
Value of Financial Instruments
For financial instruments other than long-term loans, lease
obligations and interest rate swap agreements, the carrying
amount approximates fair value because of the short maturity of
these instruments. Based on the borrowing rates currently
available to the Company for bank loans with similar terms and
average maturities, the fair value of long-term debt and capital
lease obligations at December 31, 2003 and 2004 are as
follows (Yen in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
2004
|
|
|
|
Carrying
|
|
|
|
|
|
Carrying
|
|
|
|
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Long-term debt
|
|
¥
|
224,270,195
|
|
|
¥
|
220,114,532
|
|
|
|
¥199,474,465
|
|
|
|
¥199,127,222
|
|
Lease obligation
|
|
|
31,130,629
|
|
|
|
32,328,048
|
|
|
|
31,804,551
|
|
|
|
30,125,734
|
|
Interest rate swap agreements
|
|
|
694,745
|
|
|
|
694,745
|
|
|
|
8,204
|
|
|
|
8,204
|
|
13. Supplemental
Disclosures to Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
2004
|
|
|
|
(Yen in thousands)
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
Interest
|
|
¥
|
4,408,426
|
|
|
¥
|
8,588,285
|
|
|
|
|
|
|
|
|
|
|
Income tax
|
|
¥
|
378,116
|
|
|
¥
|
323,144
|
|
|
|
|
|
|
|
|
|
|
Cash acquisitions of new
subsidiaries:
|
|
|
|
|
|
|
|
|
Fair value of assets acquired
|
|
¥
|
|
|
|
¥
|
1,688,442
|
|
Liabilities assumed
|
|
|
|
|
|
|
1,245,532
|
|
|
|
|
|
|
|
|
|
|
Cash paid, net of cash acquired
|
|
¥
|
|
|
|
¥
|
442,910
|
|
|
|
|
|
|
|
|
|
|
Property acquired under capital
leases during the year
|
|
¥
|
6,057,250
|
|
|
¥
|
12,561,285
|
|
|
|
|
|
|
|
|
|
|
Conversion of long-term debt into
equity
|
|
¥
|
32,260,750
|
|
|
¥
|
|
|
|
|
|
|
|
|
|
|
|
14. Commitments
In connection with the September 1, 2000 acquisition of
Titus Communications Corporation (Titus), Microsoft
and the Company entered into a gain recognition agreement with
respect to the Titus shares and assets acquired. The Company
agreed not to sell during any 18-month period, without Microsoft
consent, any shares of Titus, or sell any of Titus assets,
valued at $35 million or more, in a transaction that would
result in taxable income to Microsoft. Microsoft will retain
this consent right until the earlier of June 30, 2006 or
the date Microsoft owns
IV-73
JUPITER TELECOMMUNICATIONS CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
less than 5% of the Companys ordinary shares and Microsoft
has sold, in taxable transactions, 80% of the Companys
ordinary shares issued to it in connection with the Titus
acquisition.
The Company has guaranteed payment of certain bank loans for its
equity method affiliate investee, CATV Kobe, and its cost method
investee Bay Communications Inc. The guarantees are based on an
agreed-upon proportionate share of the bank loans among certain
of the entities shareholders, considering each of their
respective equity interest. The term of the guarantee ranges
from 5 to 12 years and the aggregate guaranteed amounts
were ¥722,531 thousand and ¥179,072 thousand
as of December 31, 2003 and 2004, respectively. Management
believes that the likelihood the Company would be required to
perform or otherwise incur any significant losses associated
with any of these guarantees is remote.
15. Subsequent
Events
On February 9, 2005, the Company entered into a share
purchase agreement to purchase from Microsoft, LMI, and SC all
of their interest in
J-COM Chofu,
as well as all of the equity interest owned by Microsoft in
Tu-Ka Cellular Tokyo, Inc. and Tu-Ka Cellular Tokai, Inc.
(Tu-Ka) on or about February 25, 2005. The
Company will pay approximately $24 million (approximately
¥2,500 million) to Microsoft, approximately
¥972 million to LMI and approximately
¥940 million to SC for their respective Chofu or
Tu-Ka
shares. Consideration for
J-COM Chofu
shares will be in cash at closing, and the Tu-Ka shares will be
transferred in exchange for a non-interest-bearing promissory
note to Microsoft that is payable 5 business days after a
successful IPO in Japan by the Company.
IV-74
INDEPENDENT
AUDITORS REPORT
The Board of Directors and Stockholders
Torneos y Competencias S.A.:
We have audited the accompanying consolidated balance sheets of
Torneos y Competencias S.A. and its subsidiaries as of
December 31, 2004 and 2003 and the related consolidated
statements of operations and comprehensive income (loss), of
changes in stockholders equity and of cash flows for each
of the years in the three-year period ended December 31,
2004. These consolidated financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes consideration
of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Companys internal control over
financial reporting. Accordingly, we express no such opinion. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of Torneos y Competencias S.A.
and its subsidiaries as of December 31, 2004 and 2003, and
the consolidated results of their operations and their cash
flows for each of the years in the three-year period ended
December 31, 2004, in conformity with accounting principles
generally accepted in the United States of America.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. As disclosed in Note 1 to the consolidated
financial statements, the Company is in default with respect to
two bank loans and certain loans are past due. In addition, at
December 31, 2004, the Company has a net working capital
deficiency. These matters raise substantial doubt about the
Companys ability to continue as a going concern.
Managements plans with regards to these matters are also
described in Note 1. The consolidated financial statements
do not include any adjustments that might result from the
outcome of this uncertainty.
Finsterbusch Pickenhayn Sibille(*)
Buenos Aires, Argentina
March 11, 2005
(*) Finsterbusch Pickenhayn Sibille is the Argentine member
firm of KPMG International, a Swiss cooperative.
IV-75
TORNEOS Y
COMPETENCIAS S.A.
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2004
|
|
|
2003
|
|
|
|
(In thousands of
|
|
|
|
Argentine pesos)
|
|
ASSETS
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash
|
|
A$
|
2,641
|
|
|
A$
|
2,224
|
|
Accounts receivable, net
|
|
|
19,007
|
|
|
|
15,116
|
|
Related party receivables
(Note 6)
|
|
|
15,426
|
|
|
|
9,087
|
|
Programming rights, net
|
|
|
3,210
|
|
|
|
7,268
|
|
Advances to soccer clubs
|
|
|
1,180
|
|
|
|
2,216
|
|
Tax receivables
|
|
|
2,805
|
|
|
|
5,877
|
|
Building held for sale
(Notes 6.d and 11.a)
|
|
|
2,940
|
|
|
|
|
|
Prepaid expenses and other current
assets
|
|
|
3,466
|
|
|
|
2,375
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
50,675
|
|
|
|
44,163
|
|
|
|
|
|
|
|
|
|
|
Related party receivables
(Note 6)
|
|
|
2,885
|
|
|
|
774
|
|
Programming rights, net
|
|
|
19,050
|
|
|
|
9,291
|
|
Advances to soccer clubs
|
|
|
2,421
|
|
|
|
4,660
|
|
Deferred income taxes (Note 9)
|
|
|
1,360
|
|
|
|
2,054
|
|
Investments in affiliates accounted
for under the equity method (Note 4)
|
|
|
21,132
|
|
|
|
19,185
|
|
Property and equipment, net
(Note 5)
|
|
|
15,690
|
|
|
|
15,914
|
|
Other assets
|
|
|
1,214
|
|
|
|
1,165
|
|
Assets associated with discontinued
operations (Note 6.d)
|
|
|
|
|
|
|
5,909
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
A$
|
114,427
|
|
|
A$
|
103,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and accrued
liabilities
|
|
A$
|
28,532
|
|
|
A$
|
11,743
|
|
Related party liabilities
(Note 6)
|
|
|
6,216
|
|
|
|
15,880
|
|
Debt (Note 7)
|
|
|
|
|
|
|
|
|
Related party debt
|
|
|
8,419
|
|
|
|
8,306
|
|
Third party debt
|
|
|
8,333
|
|
|
|
9,024
|
|
Taxes payable
|
|
|
6,588
|
|
|
|
5,331
|
|
Deferred income
|
|
|
6,906
|
|
|
|
16,133
|
|
Other liabilities
|
|
|
4,816
|
|
|
|
4,203
|
|
|
|
|
|
|
|
|
|
|
Total current
liabilities
|
|
|
69,810
|
|
|
|
70,620
|
|
|
|
|
|
|
|
|
|
|
Investments in affiliates accounted
for under the equity method (Note 4)
|
|
|
|
|
|
|
3,715
|
|
Other liabilities
|
|
|
2,076
|
|
|
|
3,476
|
|
Liabilities associated with
discontinued operations (Note 6.d)
|
|
|
3,700
|
|
|
|
3,208
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
A$
|
75,586
|
|
|
A$
|
81,019
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
(Note 10)
|
|
|
|
|
|
|
|
|
Minority interest in subsidiaries
|
|
|
(31
|
)
|
|
|
8
|
|
Stockholders
equity:
|
|
|
|
|
|
|
|
|
Common stock, A$1 par value.
50,160,000 shares authorized, issued and outstanding
|
|
|
50,160
|
|
|
|
50,160
|
|
Additional paid-in capital
|
|
|
|
|
|
|
107,812
|
|
Accumulated other comprehensive
losses, net of taxes
|
|
|
(6,768
|
)
|
|
|
(6,717
|
)
|
Legal reserve
|
|
|
|
|
|
|
1,597
|
|
Accumulated deficit
|
|
|
(4,520
|
)
|
|
|
(130,764
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders
equity
|
|
A$
|
38,872
|
|
|
A$
|
22,088
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY
|
|
A$
|
114,427
|
|
|
A$
|
103,115
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
IV-76
TORNEOS Y
COMPETENCIAS S.A.
COMPREHENSIVE INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
|
(In thousands of Argentine pesos, except number of shares and
per share amounts)
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Related party (Note 6)
|
|
A$
|
74,941
|
|
|
A$
|
76,977
|
|
|
A$
|
69,974
|
|
Third party
|
|
|
28,126
|
|
|
|
18,553
|
|
|
|
10,729
|
|
Operating costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (other than depreciation)
|
|
|
|
|
|
|
|
|
|
|
|
|
Related party (Note 6)
|
|
|
(814
|
)
|
|
|
(1,676
|
)
|
|
|
(1,253
|
)
|
Third party
|
|
|
(58,948
|
)
|
|
|
(44,970
|
)
|
|
|
(36,490
|
)
|
Selling, general and administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
Related party (Note 6)
|
|
|
(70
|
)
|
|
|
(143
|
)
|
|
|
(400
|
)
|
Third party
|
|
|
(25,565
|
)
|
|
|
(23,360
|
)
|
|
|
(20,003
|
)
|
Provision for doubtful accounts and
other receivables
|
|
|
(3,798
|
)
|
|
|
(709
|
)
|
|
|
(7,293
|
)
|
Depreciation
|
|
|
(1,404
|
)
|
|
|
(1,424
|
)
|
|
|
(1,719
|
)
|
Impairment of goodwill (Note 2)
|
|
|
|
|
|
|
|
|
|
|
(95,663
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
(loss)
|
|
|
12,468
|
|
|
|
23,248
|
|
|
|
(82,118
|
)
|
Share of earnings
(losses) from equity affiliates (Note 4)
|
|
|
12,901
|
|
|
|
9,427
|
|
|
|
(10,589
|
)
|
Interest expense
|
|
|
(7,215
|
)
|
|
|
(10,042
|
)
|
|
|
(18,321
|
)
|
Foreign currency transaction gains
(losses)
|
|
|
4,167
|
|
|
|
5,365
|
|
|
|
(9,236
|
)
|
Other income (expenses), net
|
|
|
(709
|
)
|
|
|
459
|
|
|
|
(2,082
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from
continuing operations before income tax and minority
interest
|
|
|
21,612
|
|
|
|
28,457
|
|
|
|
(122,346
|
)
|
Income tax expense (Note 9)
|
|
|
(5,027
|
)
|
|
|
(7,886
|
)
|
|
|
(1,698
|
)
|
Minority interest in losses
(earnings) of subsidiaries
|
|
|
11
|
|
|
|
(16
|
)
|
|
|
116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from
continuing operations
|
|
|
16,596
|
|
|
|
20,555
|
|
|
|
(123,928
|
)
|
Discontinued operations, net of tax
(including gain on disposal of A$239 during 2004 and impairment
of goodwill of A$6,074 during 2002) (Note 6.d)
|
|
|
239
|
|
|
|
(604
|
)
|
|
|
(9,658
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
A$
|
16,835
|
|
|
A$
|
19,951
|
|
|
A$
|
(133,586
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss)
income, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
adjustment
|
|
|
(51
|
)
|
|
|
1,136
|
|
|
|
(6,222
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
(loss)
|
|
A$
|
16,784
|
|
|
A$
|
21,087
|
|
|
A$
|
(139,808
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) per share from
continuing operations
|
|
|
0.33
|
|
|
|
0.41
|
|
|
|
(2.47
|
)
|
Income (loss) per share from
discontinued operations
|
|
|
0.01
|
|
|
|
(0.01
|
)
|
|
|
(0.19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per
share
|
|
|
0.34
|
|
|
|
0.40
|
|
|
|
(2.66
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of
common shares outstanding
|
|
|
50,160,000
|
|
|
|
50,160,000
|
|
|
|
50,160,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
IV-77
TORNEOS Y
COMPETENCIAS S.A.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
comprehensive
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Common
|
|
|
paid-in
|
|
|
losses,
|
|
|
Legal
|
|
|
Accumulated
|
|
|
stockholders
|
|
|
|
stock
|
|
|
capital
|
|
|
net of taxes
|
|
|
reserve
|
|
|
deficit
|
|
|
equity
|
|
|
|
(In thousands of Argentine pesos)
|
|
|
Balance as of January 1, 2002
|
|
A$
|
50,160
|
|
|
A$
|
107,812
|
|
|
A$
|
(1,631
|
)
|
|
A$
|
1,597
|
|
|
A$
|
(17,129
|
)
|
|
A$
|
140,809
|
|
Foreign currency translation
adjustment
|
|
|
|
|
|
|
|
|
|
|
(6,222
|
)
|
|
|
|
|
|
|
|
|
|
|
(6,222
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(133,586
|
)
|
|
|
(133,586
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2002
|
|
|
50,160
|
|
|
|
107,812
|
|
|
|
(7,853
|
)
|
|
|
1,597
|
|
|
|
(150,715
|
)
|
|
|
1,001
|
|
Foreign currency translation
adjustment
|
|
|
|
|
|
|
|
|
|
|
1,136
|
|
|
|
|
|
|
|
|
|
|
|
1,136
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,951
|
|
|
|
19,951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2003
|
|
|
50,160
|
|
|
|
107,812
|
|
|
|
(6,717
|
)
|
|
|
1,597
|
|
|
|
(130,764
|
)
|
|
|
22,088
|
|
Foreign currency translation
adjustment
|
|
|
|
|
|
|
|
|
|
|
(51
|
)
|
|
|
|
|
|
|
|
|
|
|
(51
|
)
|
Absorption of accumulated deficit
as required under Argentine law (Note 8)
|
|
|
|
|
|
|
(107,812
|
)
|
|
|
|
|
|
|
(1,597
|
)
|
|
|
109,409
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,835
|
|
|
|
16,835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2004
|
|
A$
|
50,160
|
|
|
A$
|
|
|
|
A$
|
(6,768
|
)
|
|
A$
|
|
|
|
A$
|
(4,520
|
)
|
|
A$
|
38,872
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
IV-78
TORNEOS Y
COMPETENCIAS S.A.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
|
(In thousands of Argentine pesos)
|
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations
|
|
A$
|
16,596
|
|
|
A$
|
20,555
|
|
|
A$
|
(123,928
|
)
|
Adjustments to reconcile income
(loss) from continuing operations to net cash provided by
(used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for doubtful accounts and
other receivables
|
|
|
3,798
|
|
|
|
709
|
|
|
|
7,293
|
|
Depreciation
|
|
|
1,404
|
|
|
|
1,424
|
|
|
|
1,719
|
|
Share of (earnings) losses
from equity affiliates
|
|
|
(12,901
|
)
|
|
|
(9,427
|
)
|
|
|
10,589
|
|
Impairment of goodwill
|
|
|
|
|
|
|
|
|
|
|
95,663
|
|
Minority interest in losses
(earnings) of subsidiaries
|
|
|
(11
|
)
|
|
|
16
|
|
|
|
(116
|
)
|
Deferred tax expense
|
|
|
694
|
|
|
|
4,170
|
|
|
|
1,698
|
|
Changes in operating assets and
liabilities, net of the effect of dispositions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables, programming rights and
others
|
|
|
(17,098
|
)
|
|
|
13,847
|
|
|
|
3,775
|
|
Payable and other current
liabilities
|
|
|
2,194
|
|
|
|
(24,639
|
)
|
|
|
30,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
operating activities
|
|
|
(5,324
|
)
|
|
|
6,655
|
|
|
|
26,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(1,430
|
)
|
|
|
(1,162
|
)
|
|
|
|
|
Cash distribution from equity
affiliates
|
|
|
7,500
|
|
|
|
|
|
|
|
2,718
|
|
Proceeds from the sale of property
and equipment
|
|
|
250
|
|
|
|
|
|
|
|
732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
investing activities
|
|
|
6,320
|
|
|
|
(1,162
|
)
|
|
|
3,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt proceeds
|
|
|
4,338
|
|
|
|
1,213
|
|
|
|
10,537
|
|
Repayment of debt
|
|
|
(4,917
|
)
|
|
|
(5,063
|
)
|
|
|
(43,649
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing
activities
|
|
|
(579
|
)
|
|
|
(3,850
|
)
|
|
|
(33,112
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
discontinued operations
|
|
|
|
|
|
|
(26
|
)
|
|
|
172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
417
|
|
|
|
1,617
|
|
|
|
(2,778
|
)
|
Cash at beginning of year
|
|
|
2,224
|
|
|
|
607
|
|
|
|
3,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at end of year
|
|
A$
|
2,641
|
|
|
A$
|
2,224
|
|
|
A$
|
607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
IV-79
TORNEOS Y
COMPETENCIAS S.A.
December 31, 2004, 2003 and 2002
(In thousands of Argentine pesos, except as otherwise
mentioned)
|
|
1.
|
Description
of business, liquidity and basis of presentation
|
Description
of business
Torneos y Competencias S.A. (TyC or the
Company) is an independent producer of Argentine
sports and entertainment programming that, through various
affiliates, operates a sports programming cable channel;
commercializes rights to televise sporting events via cable,
satellite and broadcast television; and manages two sports
magazines and several thematic soccer bars. TyCs emphasis
is on soccer, and it has an exclusive agreement (except for
certain cable broadcast rights held by an affiliate) with the
Asociación de Fútbol Argentino, or
AFA, to produce and distribute programs related to
matches between clubs in the Argentine professional soccer
leagues. This agreement expires in 2010 unless extended to 2014
at TyCs request. TyC produces or co-produces, with its
three television studios and the production facilities of its
production partners, a number of soccer-based programs, such as
Fútbol de Primera, El clásico del Domingo and
Fútbol de Verano.
TyC has interests in two magazines: El Grafico, which covers
Argentine and international sports, with special emphasis on
soccer; and Golf Digest, the Argentine and Chilean editions of
the American golf magazine.
TyC also has the rights to broadcast friendly summer season
tournaments in different Argentine cities through 2007.
The Companys principal shareholders are:
|
|
|
|
|
|
|
Ownership
|
|
Shareholders
|
|
percentage
|
|
|
ACH Acquisitions Co.
|
|
|
20%
|
|
Telefónica de Contenidos S.A.
Unipersonal
|
|
|
20%
|
|
A y N Argentina LLC
|
|
|
20%
|
|
Liberty Argentina, Inc, a
subsidiary of Liberty Media International, Inc (LMI)
|
|
|
40%
|
|
TyCs 50% owned affiliate, Televisión
Satelital Codificada S.A., or TSC holds the
commercial rights in Argentina, with certain exceptions, to
televise selected official soccer matches of AFAs Premier
Ligue. TSC sells the rights to televise specific matches to
cable operators, to an over-the-air broadcast television channel
in and around Buenos Aires and, in certain cases, exclusively to
the TyC Sports Channel.
Another 50% owned affiliate of TyC, TELE-RED
Imagen S.A., or TRISA owns the TyC Sports
Channel, the first dedicated sports cable channel in Argentina,
which packages soccer programming co produced by Torneos and
other sporting events to which TRISA holds commercial rights.
TRISA also holds commercial rights to produce and distribute
certain motor car racing, basketball and boxing events.
T&T Sports Marketing Inc. (T&T), a
50% owned affiliate of the Company, has entered into
agreements with the Confederación Sudamericana de
Fútbol (Conmebol) for the acquisition of
the Copa Libertadores and Copa
Sudamericana broadcasting rights up to 2010. See Notes
4 and 6.
Liquidity
The Company is in default with respect to two bank loans. In
addition, the Companys loans from LMI are past due.
Principal and interest under these bank and LMI loans of
A$13,346 and A$4,088, respectively, have been classified as
current liabilities at December 31, 2004. See Note 7.
In addition, at December 31, 2004, current liabilities
exceed current assets by A$19,135. The Company plans to
renegotiate these loans to extend the repayment terms. Although
the Company expects that it will be able to successfully
renegotiate the bank loans that are in default and the past due
loans from LMI, no assurance can be given that the Company will
be successful. In the event that the Companys efforts in
this regard are not successful, the Companys ability to
continue as a going
IV-80
TORNEOS Y
COMPETENCIAS S.A.
NOTES TO
CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
concern could be adversely affected in that the Company may not
have sufficient funds available to meet its current liabilities
as they become due and payable, particularly if payment is
demanded under the aforementioned bank or LMI loans.
Basis
of presentation
The accompanying consolidated financial statements include the
accounts of TyC and all voting interest entities where TyC
exercises a controlling interest through the ownership of a
direct or indirect majority voting interest and variable
interest entities for which TyC is the primary beneficiary. All
significant intercompany accounts and transactions have been
eliminated in consolidation. TyC management concluded that the
Company holds no interest in entities that meet the definition
of variable interest entities pursuant to Financial Accounting
Standards Board Interpretation No. 46(R).
TyCs operating subsidiaries and TyCs most
significant equity affiliates as of December 31, 2004 are
set forth below:
Operating subsidiaries as of December 31, 2004
Avilacab S.A. (Avilacab)
South American Sports S.A. (SAS)
TyC Minor S.A. (TyC Minor)
Significant equity affiliates as of December 31, 2004
TSC
TRISA
T&T
For additional information concerning TyCs equity
affiliates, see Note 4.
In the following notes, references to the Company refer to TyC
and its consolidated subsidiaries.
|
|
2.
|
Summary
of significant accounting policies
|
The Company maintains its books of account in conformity with
financial accounting standards of the City of Buenos Aires,
Argentina. The accompanying consolidated statements have been
prepared in a manner and reflect certain adjustments which are
necessary to conform to accounting principles generally accepted
in the United States of America (US GAAP).
Use
of estimates
The preparation of these consolidated financial statements in
conformity with US GAAP requires the Company 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, allowances for uncollectible accounts,
deferred income taxes and related valuation allowances, loss
contingencies, fair values and useful lives of long-lived assets
and any related impairment. Actual results could differ from
those estimates.
The Company does not control the decision making process or
business management practices of TyCs equity affiliates.
Accordingly, the Company relies on management of these
affiliates and their independent auditors to provide us with
accurate financial information prepared in accordance with US
GAAP that we use in the application of the equity method. The
Company is not aware, however, of any errors in or possible
misstatements of the financial information provided by
TyCs equity affiliates that would have a material effect
on Companys financial statements. For information
concerning TyCs equity method investments, see Note 4.
IV-81
TORNEOS Y
COMPETENCIAS S.A.
NOTES TO
CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
Inflation
adjustment
Argentine generally accepted accounting principles require the
restatement of assets and liabilities into constant Argentine
pesos.
Under US GAAP, account balances and transactions are stated in
the units of currency of the period when the transactions
originated. This accounting model is commonly known as the
historical cost basis of accounting. The Company has excluded
the effect of the general price level restatement for the
preparation of these financial statements in accordance with US
GAAP.
Accounts
receivable, net
Accounts receivable are reflected net of an allowance for
doubtful accounts. Such allowance amounted to A$6,810 and
A$4,521 at December 31, 2004 and 2003, respectively. The
allowance for doubtful accounts is based upon the Companys
assessment of probable loss related to uncollectible accounts
receivable. A number of factors are used in determining the
allowance, including, among other things, collection trends,
prevailing and anticipated economic conditions and specific
customer credit risk. The allowance is maintained until either
receipt of payment or collection of the account is no longer
being pursued.
The Company has five clients whose balances aggregate
approximately 40% and 79% of the total balances of accounts
receivable, net, as of December 31, 2004 and 2003,
respectively, and approximately 75%, 80% and 87% of the revenue
for the years ended December 31, 2004, 2003 and 2002,
respectively.
Programming
rights, net
The Company and certain equity investees have multi-year
contracts for telecast rights of sporting events and rights to
the image and sound archives related to all of the
countrys national soccer teams. Pursuant to these
contracts, an asset is recorded for the rights acquired and a
liability is recorded for the obligation incurred when the
programs or sporting events are available for telecast. Program
rights for sporting events which are for a specified number of
games are amortized on an event-by-event basis, and those which
are for a specified season or period are amortized over the term
of such period on a straight-line basis.
Non-current programming rights represent telecast and production
rights of sporting events available for telecast beyond one year
from the balance sheet date.
Investments
in affiliates accounted for under the equity
method
Investments in affiliates in which TyC has the ability to
exercise significant influence are accounted for using the
equity method. Under this method, the investment, originally
recorded at cost, is adjusted to recognize TyCs share of
net earnings or losses of the affiliates as they occur rather
than as dividends or other distributions are received, limited
to the extent of TyCs investment in, and advances and
commitments to, the investee. If the investment in the common
stock of an affiliate is reduced to zero as a result of the
prior recognition of the affiliates net losses, TyC would
continue to record losses from the affiliate to the extent of
its commitments to the affiliate and would include the negative
investment in other liabilities.
Impairment
of investments
The Company continually reviews its investments in affiliates to
determine whether a decline in fair value below the cost basis
is other than non-temporary. The primary factors that the
Company considers in its determination are the length of time
that the fair value of the investment is below Companys
carrying value and the financial condition, operating
performance and near term prospects of the investee, industry
specific or investee specific changes in stock price or
valuation subsequent to the balance sheet date, and
Companys intent and ability to hold the investment for a
period of time sufficient to allow for recovery in fair value.
In situations where
IV-82
TORNEOS Y
COMPETENCIAS S.A.
NOTES TO
CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
the fair value of an investment is not evident due to a lack of
public market price or other factors, the Company uses its best
estimates and assumptions to arrive at the estimated fair value
of such investment. Writedowns for equity method investments are
included in Share of earning (losses) from equity
affiliates, and a new cost basis in the investment is
established.
Property
and equipment, net
Property and equipment is recorded at cost, net of the
respective accumulated depreciation.
Depreciation has been calculated on the straight-line method
over the assets estimated useful lives as follows:
|
|
|
|
|
Estimated useful
|
|
|
life (years)
|
|
Buildings
|
|
50
|
Furniture and fixtures
|
|
10
|
Technical equipment, vehicles and
TV studio
|
|
5
|
Computer hardware
|
|
2 to 3
|
Additions, replacements and improvements that extend the asset
life are capitalized. Repairs and maintenance are charged to
operation expenses.
Statement of Financial Accounting Standards No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets (Statement 144) requires the Company
to periodically review the carrying amount of property and
equipment, to determine whether current events or circumstances
indicate that such carrying amounts may not be recoverable. If
the carrying amount of the assets is greater than the expected
undiscounted cash flow to be generated by such assets, an
impairment adjustment is to be recognized. Such adjustment is
measured by the amount that the carrying value of such assets
exceeds their fair value. The Company generally measures fair
value by considering sales prices for similar assets or
discounting estimated future cash flows using an appropriate
discount rate. For purposes of impairment testing, long-lived
assets are grouped at the lowest level for which cash flows are
largely independent of other assets and liabilities. Assets to
be disposed of are carried at the lower of the carrying amount
or fair value less costs to sell.
Building
held for sale
Represents a building received in connection with the
transaction related to the sale of Red Celeste y Blanca S.A.
(La Red), which is available for sale. It is
recorded at its fair value at the date of the disposition of La
Red, which does not exceed its fair value as of
December 31, 2004. See Note 6.d.
Goodwill
Goodwill represents the excess of purchase price over the fair
value of identifiable assets acquired, in acquisitions of equity
interests in subsidiaries and affiliates.
Impairment
of Goodwill
Effective January 1, 2002, the Company adopted Statement of
Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets (Statement 142).
Statement 142 requires that goodwill and other intangible
assets with indefinite useful lives (collectively,
indefinite lived intangible assets) no longer be
amortized, but instead be tested for impairment at least
annually in accordance with the provisions of
Statement 142. Equity method goodwill is also no longer
amortized, but continues to be considered for impairment under
Accounting Principles Board Opinion No. 18.
Statement 142 also requires that intangible assets with
estimable useful lives be amortized over their respective
estimated useful lives and reviewed for impairment in accordance
with Statement 144.
IV-83
TORNEOS Y
COMPETENCIAS S.A.
NOTES TO
CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
Statement 142 required the Company to perform an assessment
of whether there was an indication that goodwill was impaired as
of the date of adoption. To accomplish this, the Company
identified its reporting units and determined the carrying value
of each reporting unit by assigning the assets and liabilities,
including the existing goodwill and intangible assets, to those
reporting units as of the date of adoption. Statement 142
requires the Company to consider equity method affiliates as
separate reporting units.
The Company determined the fair value of its reporting units
using discounted cash flows. The Company then compared the fair
value of each reporting unit to the reporting units
carrying amount. To the extent a reporting units carrying
amount exceeded its fair value, the Company performed the second
step of the transitional impairment test. In the second step,
the Company compared the implied fair value of the reporting
units goodwill, determined by allocating the reporting
units fair value to all of its assets (recognized and
unrecognized) and liabilities in a manner similar to a purchase
price allocation, to its carrying amount, both of which were
measured as of the date of adoption. This allocation is
performed for goodwill impairment testing purposes only and does
not change the reported carrying value of the investment. If the
carrying amount of the reporting units goodwill exceeds
the implied fair value of that goodwill, an impairment loss is
recognized in an amount equal to that excess. Based on this
analysis, the Company recorded an impairment loss of A$101,737
for the year ended December 31, 2002 to write-off all of
its then existing goodwill, including A$6,074 related to
La Red that has been included in Discontinued operations,
net of tax in the accompanying consolidated financial
statements. Since this analysis used projections made during the
time of unfavorable economic events in Argentina in early 2002,
the adjustment was recognized as a component of operating costs
and expenses and not as a transition adjustment.
As noted above, the Companys enterprise-level goodwill is
allocable to reporting units, whether they are consolidated
subsidiaries or equity method investments. The following table
summarizes the allocation of the impairment loss recorded for
the year ended December 31, 2002, corresponding to
continuing operations.
|
|
|
|
|
Entity
|
|
Impairment loss
|
|
|
SAS
|
|
A$
|
7,132
|
|
Sobre Golf S.A.
|
|
|
420
|
|
TSC
|
|
|
50,317
|
|
TRISA and Tele Net Image
Corp.
|
|
|
37,794
|
|
|
|
|
|
|
Total enterprise-level goodwill
|
|
A$
|
95,663
|
|
|
|
|
|
|
Income
Taxes
The Company accounts for income taxes in accordance with the
liability method whereby deferred tax asset and liability
account balances are determined based on differences between
financial reporting and tax based assets and liabilities and are
measured using the enacted tax rates.
Net deferred tax assets are reduced by a valuation allowance
calculated based on the estimation of future results prepared by
the Companys management. Deferred tax liabilities related
to investments in equity investees that are essentially
permanent in duration are not recognized until it becomes
apparent that such amounts will reverse in the foreseeable
future. See Note 9.
Minority
interest
Recognition of the minority interests share of losses of
subsidiaries is generally limited to the amount of such minority
interests allocable portion of the common equity of those
subsidiaries.
IV-84
TORNEOS Y
COMPETENCIAS S.A.
NOTES TO
CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
Foreign
currency translation
The functional currency of the Company is the Argentine Peso.
The functional currency of the Companys foreign equity
affiliate T&T is the United States dollar. The
Companys share of the assets and liabilities of T&T is
translated at the spot rate in effect at the applicable
reporting date and the Companys share of the results of
operations of T&T is determined based on results translated
at the average exchange rates in effect during the applicable
period. The resulting unrealized cumulative translation
adjustment is recorded as a component of Accumulated other
comprehensive losses, net of taxes, in the Companys
statements of stockholders equity.
Transactions denominated in currencies other than the
Companys functional currency are recorded at the exchange
rates prevailing at the time such transactions arise. Subsequent
changes in exchange rates result in transaction gains and losses
which are reflected in the statements of operations.
Revenue
recognition
The Companys principal sources of revenue are:
Broadcasting Program rights: Broadcast program
rights revenue are recognized when the matches are broadcasted.
Sport TV programs production: Revenue from
sports TV programs production services are recognized when the
services are rendered.
Others: Other revenue includes, among others,
advertising and sports event organization. Advertising revenue,
including the stadium based advertising, are recognized in the
period during which underlying advertisements are broadcast.
Sports events organization revenue are recognized when services
are rendered.
Deferred income: corresponds to revenue
collected by TyC in advance, whose recognition is deferred until
matches or related advertising are available for telecast.
Earnings
per share
The Company computes net income (loss) per share by dividing net
income (loss) for the year by the weighted average number of
common shares outstanding. There were no potential common shares
outstanding during any of the periods presented.
|
|
3.
|
Supplemental
consolidated statements of cash flows disclosures
|
|
|
|
a) Income
tax, minimum presumed income tax and interests
|
During the years ended December 31, 2004, 2003 and 2002,
the Company paid A$4,352, A$3,716 and A$0 for income tax and
minimum presumed income tax, respectively. Additionally, during
the years ended December 31, 2004, 2003 and 2002 the
Company paid A$732, A$498 and A$13,891, respectively, in
interest related to operating activities.
|
|
|
b) Noncash
investing and financing activities
|
The Company sold all of its interest in La Red to Avila
Inversora S.A. (AISA) and Carlos Avila Enterprise
S.A. (CAE) (related companies, see Note 6) for
consideration of A$6,640. In conjunction with the sale,
receivables were originated and a building was received as
follows:
|
|
|
|
|
Related party receivable
|
|
A$
|
3,700
|
(1)
|
Building
|
|
|
2,940
|
(2)
|
|
|
|
|
|
|
|
A$
|
6,640
|
|
|
|
|
|
|
IV-85
TORNEOS Y
COMPETENCIAS S.A.
NOTES TO
CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|
|
|
(1) |
|
The accounts receivable will be settled by AISA by effectively
assuming the obligation to repay up to A$3,700 of principal and
interest of a financial debt payable by TyC, currently in
default. See Notes 6.d and 7. If as a result of the
renegotiation of the loan in default, TyC pays an amount lower
than A$3.7 million, the difference will be settled by AISA
through the provision of advertising by América T.V. S.A.
(América TV), a related company of the
purchasers. |
|
(2) |
|
Fair value was determined based on an option held by TyC to
return the building to CAE for an amount of US$1 million as
per the related sales agreement signed between the parties. See
note 6.d. |
|
|
4.
|
Investments
in affiliates accounted for under the equity method
|
The following table includes TyCs carrying value and
percentage ownership of its investments in affiliates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2004
|
|
|
December 31, 2003
|
|
|
|
Percentage
|
|
|
Carrying
|
|
|
Carrying
|
|
|
|
ownership
|
|
|
amount
|
|
|
amount
|
|
|
TSC
|
|
|
50%
|
|
|
A$
|
10,062
|
|
|
A$
|
7,196
|
|
TRISA
|
|
|
50%
|
|
|
|
9,162
|
|
|
|
11,983
|
|
T&T
|
|
|
50%
|
|
|
|
1,902
|
|
|
|
(3,715
|
)(1)
|
Others
|
|
|
|
|
|
|
6
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
A$
|
21,132
|
|
|
A$
|
15,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
As the Companys investment in T&T was negative as of
December 31, 2003, it has been classified in Non-current
liabilities-Investments in affiliates accounted for under the
equity method because the Company is ready to provide financial
support, as may be necessary, to allow T&T to continue
operating as going concern. |
The following table reflects TyCs share of earnings
(losses) from equity affiliates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
TSC
|
|
A$
|
2,868
|
|
|
A$
|
3,502
|
|
|
A$
|
(193
|
)
|
TRISA
|
|
|
4,678
|
|
|
|
8,539
|
|
|
|
(10,084
|
)
|
T&T
|
|
|
5,668
|
|
|
|
4,055
|
|
|
|
2,492
|
|
Sale of Pro Entertainment S.A.(1)
|
|
|
|
|
|
|
(5,706
|
)
|
|
|
|
|
Others
|
|
|
(313
|
)
|
|
|
(963
|
)
|
|
|
(2,804
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
A$
|
12,901
|
|
|
A$
|
9,427
|
|
|
A$
|
(10,589
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Relates to TyC forgiveness in 2003 of an accounts receivable
maintained with Pro Entertainment S.A., as a result of the sale
of such company by T&T in fiscal year 2002. |
For the years ended December, 31, 2004, 2003 and 2002, the
Companys share of earnings (losses) from equity affiliates
includes losses related to other-than-temporary declines in the
fair value of equity method investments of A$0, A$0 and A$2,493,
respectively.
During the years ended December 31, 2004, 2003 and 2002,
TRISA distributed cash dividends, of which the Company collected
A$7,500, A$0 and A$2,718, respectively.
IV-86
TORNEOS Y
COMPETENCIAS S.A.
NOTES TO
CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
TSC
Summarized financial information for TSC follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2004
|
|
|
2003
|
|
|
Financial Position
|
|
|
|
|
|
|
|
|
Current assets(1)
|
|
A$
|
50,111
|
|
|
A$
|
45,716
|
|
Non-current assets
|
|
|
10,487
|
|
|
|
8,661
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
A$
|
60,598
|
|
|
A$
|
54,377
|
|
|
|
|
|
|
|
|
|
|
Current portion of long term debt
|
|
A$
|
11,500
|
|
|
A$
|
5,728
|
|
Other current liabilities(2)
|
|
|
24,863
|
|
|
|
30,905
|
|
Non current liabilities
|
|
|
4,111
|
|
|
|
3,352
|
|
Stockholders equity
|
|
|
20,124
|
|
|
|
14,392
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity
|
|
A$
|
60,598
|
|
|
A$
|
54,377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes outstanding amounts receivable from Cablevisión
S.A. (Cablevisión), a related party, of A$2,497
and A$2,497 at December 31, 2004 and 2003, respectively.
See Note 6. |
|
(2) |
|
Includes outstanding amounts payable to TyC of A$3,893 and
A$5,466 at December 31, 2004 and 2003, respectively. See
Note 6. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue(1)
|
|
A$
|
127,023
|
|
|
A$
|
128,762
|
|
|
A$
|
117,833
|
|
Operating, selling, general and
administrative expense(2)
|
|
|
(118,149
|
)
|
|
|
(113,599
|
)
|
|
|
(104,423
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
8,874
|
|
|
|
15,163
|
|
|
|
13,410
|
|
Interest expense
|
|
|
(2,459
|
)
|
|
|
(4,638
|
)
|
|
|
(14,773
|
)
|
Interest income
|
|
|
56
|
|
|
|
984
|
|
|
|
680
|
|
Foreign exchange gain (loss)
|
|
|
35
|
|
|
|
(671
|
)
|
|
|
2,370
|
|
Other, net
|
|
|
(123
|
)
|
|
|
91
|
|
|
|
(1,701
|
)
|
Income tax expense
|
|
|
(647
|
)
|
|
|
(3,925
|
)
|
|
|
(372
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
A$
|
5,736
|
|
|
A$
|
7,004
|
|
|
A$
|
(386
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes revenue from Cablevisión, a related party, for an
amount of A$39,172, A$39,899 and A$29,052 for the years ended
December 31, 2004, 2003 and 2002, respectively. See
Note 6. |
|
(2) |
|
Includes services provided by TyC for an amount of A$10,468,
A$10,205 and A$8,456 for the years ended December 31, 2004,
2003 and 2002, respectively. See Note 6. |
IV-87
TORNEOS Y
COMPETENCIAS S.A.
NOTES TO
CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
TRISA
Summarized financial information for TRISA follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2004
|
|
|
2003
|
|
|
Financial Position
|
|
|
|
|
|
|
|
|
Current assets(1)
|
|
A$
|
68,196
|
|
|
A$
|
80,357
|
|
Property and equipment, net
|
|
|
11,813
|
|
|
|
9,812
|
|
Investments
|
|
|
853
|
|
|
|
794
|
|
Other non-current assets
|
|
|
28,621
|
|
|
|
17,827
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
A$
|
109,483
|
|
|
A$
|
108,790
|
|
|
|
|
|
|
|
|
|
|
Current portion of long term debt
|
|
A$
|
4,348
|
|
|
A$
|
4,272
|
|
Other current liabilities(2)
|
|
|
43,721
|
|
|
|
43,384
|
|
Non-current debt
|
|
|
25,986
|
|
|
|
29,808
|
|
Other non-current liabilities
|
|
|
17,105
|
|
|
|
7,359
|
|
Stockholders equity
|
|
|
18,323
|
|
|
|
23,967
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity
|
|
A$
|
109,483
|
|
|
A$
|
108,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes outstanding amounts receivable from Cablevisión, a
related party, of A$3,136 and A$3,036 at December 31, 2004
and 2003, respectively. See Note 6. |
|
(2) |
|
Includes outstanding amounts payable to TyC of A$3,202 and
A$2,173 at December 31, 2004 and 2003, respectively. See
Note 6. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue(1)
|
|
A$
|
125,011
|
|
|
A$
|
109,598
|
|
|
A$
|
98,041
|
|
Operating, selling, general and
administrative expenses(2)
|
|
|
(115,732
|
)
|
|
|
(97,707
|
)
|
|
|
(81,911
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
9,279
|
|
|
|
11,891
|
|
|
|
16,130
|
|
Interest expense
|
|
|
(5,490
|
)
|
|
|
(3,451
|
)
|
|
|
(2,291
|
)
|
Interest income
|
|
|
2,367
|
|
|
|
4,487
|
|
|
|
4,379
|
|
Foreign exchange gain (loss)
|
|
|
(636
|
)
|
|
|
5,379
|
|
|
|
(31,575
|
)
|
Share of earnings (losses) from
equity affiliates
|
|
|
61
|
|
|
|
(356
|
)
|
|
|
(1,462
|
)
|
Other, net
|
|
|
926
|
|
|
|
509
|
|
|
|
4,234
|
|
Income tax benefit (expense)
|
|
|
2,849
|
|
|
|
(1,381
|
)
|
|
|
(9,583
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
A$
|
9,356
|
|
|
A$
|
17,078
|
|
|
A$
|
(20,168
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes revenues from Cablevisión, a related party, for an
amount of A$32,938, A$34,126 and A$25,902 and from TyC for an
amount of A$532, A$184 and A$149 for the years ended
December 31, 2004, 2003 and 2002, respectively. See
Note 6. |
|
(2) |
|
Includes services provided by TyC for an amount of A$14,272,
A$10,119 and A$5,713 for the years ended December 31, 2004,
2003 and 2002, respectively. See Note 6. |
IV-88
TORNEOS Y
COMPETENCIAS S.A.
NOTES TO
CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
T&T
In December 2004, the Company sold its ownership interest (50%)
in T&T to an unrelated third party for cash proceeds of
US$270 thousand. In connection with this sale, the Company
retained a call right to repurchase the 50% interest in T&T
for a price of US$285 thousand during the one-year period ended
December 29, 2005. Due to the Companys unilateral
ability to repurchase this interest and the favorable call price
relative to the fair value of the interest, the Company did not
meet the criteria for treating this transaction as a sale, and
accordingly, has recorded the cash received as a current
liability in the accompanying balance sheet as of
December 31, 2004.
Summarized
financial information for T&T follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2004
|
|
|
2003
|
|
|
Financial Position
|
|
|
|
|
|
|
|
|
Current assets(1)
|
|
A$
|
10,441
|
|
|
A$
|
11,987
|
|
Non-current assets
|
|
|
60
|
|
|
|
1,411
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
A$
|
10,501
|
|
|
A$
|
13,398
|
|
|
|
|
|
|
|
|
|
|
Current portion of long term debt
|
|
A$
|
|
|
|
|
288
|
|
Other current liabilities(2)
|
|
|
6,697
|
|
|
|
19,806
|
|
Non-current liabilities
|
|
|
|
|
|
|
735
|
|
Stockholders equity
|
|
|
3,804
|
|
|
|
(7,431
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity
|
|
A$
|
10,501
|
|
|
A$
|
13,398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes outstanding amounts receivable from Fox Sports Latin
America S.A. (Fox Sports), a related party, of A$0
and A$374 at December 31, 2004 and 2003, respectively. See
Note 6. |
|
(2) |
|
Includes outstanding amounts payable to Fox Sports, a related
party, of A$3,675 and A$5,438 at December 31, 2004 and
2003, respectively. See Note 6. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue(1)
|
|
A$
|
117,713
|
|
|
A$
|
110,962
|
|
|
A$
|
127,827
|
|
Operating, selling, general and
administrative expenses(2)
|
|
|
(106,351
|
)
|
|
|
(103,556
|
)
|
|
|
(126,113
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
A$
|
11,362
|
|
|
A$
|
7,406
|
|
|
A$
|
1,714
|
|
Share of earnings from equity
affiliates
|
|
|
|
|
|
|
|
|
|
|
3,312
|
|
Other, net
|
|
|
(26
|
)
|
|
|
705
|
|
|
|
(42
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
A$
|
11,336
|
|
|
A$
|
8,111
|
|
|
A$
|
4,984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes revenues from Fox Sports, a related party, for an
amount of A$93,933, A$85,689 and A$115,254 for the years ended
December 31, 2004, 2003 and 2002, respectively. See
Note 6. |
|
(2) |
|
Includes services provided by TyC for an amount of A$9,239,
A$2,938 and A$3,227, for the years ended December 31, 2004,
2003 and 2002, respectively. See Note 6. |
IV-89
TORNEOS Y
COMPETENCIAS S.A.
NOTES TO
CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
5. Property
and Equipment
The details of property and equipment and the related
accumulated depreciation are set forth below:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2004
|
|
|
2003
|
|
|
Buildings
|
|
A$
|
14,544
|
|
|
A$
|
14,794
|
|
Furniture and fixtures
|
|
|
7,267
|
|
|
|
5,311
|
|
Technical equipment, vehicles and
TV studio
|
|
|
7,339
|
|
|
|
6,109
|
|
Computer hardware
|
|
|
1,367
|
|
|
|
1,429
|
|
|
|
|
|
|
|
|
|
|
Total property and equipment
|
|
|
30,517
|
|
|
|
27,643
|
|
Less: Accumulated depreciation
|
|
|
(14,827
|
)
|
|
|
(11,729
|
)
|
|
|
|
|
|
|
|
|
|
Net property and equipment
|
|
A$
|
15,690
|
|
|
A$
|
15,914
|
|
|
|
|
|
|
|
|
|
|
Loans amounting to A$2,856 are secured by certain of the
Companys premises. See Note 7.
6. Related
Party Transactions
(a) Companys
affiliated entities:
Detailed information about Companys affiliated entities is
provided in Note 4.
(b) Balances
and transactions with related parties
Entities in which TyC has significant influence: TSC,
TRISA, T&T and Theme Bar Management S.A.
Companies with common shareholders or
directors: Cablevisión, Pramer S.C.A. and the
following companies pertaining to the Fox Group: Fox Pan
American Sports LLC, Fox Sports, International Sports
Programming LLC and Fox Sports International Distribution Ltd.
(hereinafter referred to individually or together as
FPAS).
Companies with equity interests in TyC, either direct or
indirect: LMI.
Companies where TyCs chairman has an equity interest,
either direct or indirect: CAE, AISA and América TV.
IV-90
TORNEOS Y
COMPETENCIAS S.A.
NOTES TO
CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
The Company entered into transactions in the normal course of
business with related parties. The following is a summary of the
balances and transactions with related parties:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2004
|
|
|
2003
|
|
|
Receivables
Current:
|
|
|
|
|
|
|
|
|
América TV
|
|
A$
|
1,458
|
|
|
A$
|
1,091
|
|
TRISA
|
|
|
3,202
|
|
|
|
2,173
|
|
TSC
|
|
|
3,893
|
|
|
|
5,466
|
|
FPAS
|
|
|
5,047
|
|
|
|
|
|
AISA
|
|
|
1,550
|
(1)
|
|
|
357
|
|
Others
|
|
|
276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A$
|
15,426
|
|
|
A$
|
9,087
|
|
|
|
|
|
|
|
|
|
|
Receivables Non
Current:
|
|
|
|
|
|
|
|
|
América TV
|
|
A$
|
735
|
|
|
A$
|
774
|
|
AISA
|
|
|
2,150
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A$
|
2,885
|
|
|
A$
|
774
|
|
|
|
|
|
|
|
|
|
|
Payables
Current:
|
|
|
|
|
|
|
|
|
América TV
|
|
A$
|
1,297
|
|
|
A$
|
312
|
|
FPAS
|
|
|
4,207
|
|
|
|
14,921
|
|
Others
|
|
|
712
|
|
|
|
647
|
|
|
|
|
|
|
|
|
|
|
|
|
A$
|
6,216
|
|
|
A$
|
15,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Accounts receivable related to the sale of La Red
See item (d) below in this note.
|
See Note 7 regarding Related Party Loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
Revenue
|
|
Transaction description
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
TRISA
|
|
Advertising, Production,
Rights and Others
|
|
A$
|
14,272
|
|
|
|
10,119
|
|
|
|
5,713
|
|
TSC
|
|
Production and Rights
|
|
|
10,468
|
|
|
|
10,205
|
|
|
|
8,456
|
|
T&T
|
|
Production and Rights
|
|
|
9,239
|
|
|
|
2,938
|
|
|
|
3,227
|
|
América TV
|
|
Production
|
|
|
1
|
|
|
|
855
|
|
|
|
343
|
|
FPAS
|
|
Advertising, Production,
Rights and Others
|
|
|
40,918
|
|
|
|
52,679
|
|
|
|
51,783
|
|
Others
|
|
|
|
|
43
|
|
|
|
181
|
|
|
|
452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A$
|
74,941
|
|
|
A$
|
76,977
|
|
|
A$
|
69,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IV-91
TORNEOS Y
COMPETENCIAS S.A.
NOTES TO
CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
Services received
|
|
Transaction Description
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
Operating (other than
depreciation) expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
América TV
|
|
|
|
A$
|
(282)
|
|
|
|
(1,477)
|
|
|
|
(849)
|
|
TRISA
|
|
Production and rights
|
|
|
(532)
|
|
|
|
(184)
|
|
|
|
(149)
|
|
Pramer S.C.A.
|
|
Production
|
|
|
|
|
|
|
(15)
|
|
|
|
(255)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating (other
than depreciation)
expenses
|
|
A$
|
(814)
|
|
|
|
(1,676)
|
|
|
|
(1,253)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and
administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
CAE
|
|
Other
|
|
A$
|
(39)
|
|
|
|
(100)
|
|
|
|
(296)
|
|
Others
|
|
Rights and others
|
|
|
(31)
|
|
|
|
(43)
|
|
|
|
(104)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total selling, general and
administrative expenses
|
|
A$
|
(70)
|
|
|
A$
|
(143)
|
|
|
A$
|
(400)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company believes that the transactions discussed above were
made on terms no less favorable to the Company than would have
been obtained from unaffiliated third parties.
In April 2003, TyC agreed with FPAS to forgive four monthly
payments that were due from April to July 2004 pursuant to a
contract that expired in July 2004. TyC has recognized the
forgiven payments as a reduction of revenue from the date of the
agreement through July 2004 on a straight-line basis.
|
|
(d)
|
Discontinued
operations Sale of La Red
|
On January 7, 2004, TyC sold its interest in La Red to CAE
and AISA.
As stated in the sales agreement, the sales price was
A$8.7 million, comprised of: a) A$5.0 million through
the transfer of a building (see Building held for
sale Note 2), and b) A$3.7 million, which
will be paid by AISA through the assumption of a financial debt
held by TyC, currently in default (see Note 7). As provided
in such agreement, if as a result of the renegotiation of the
loan in default, TyC pays an amount lower than
A$3.7 million, the difference will be settled by AISA
through the provision of advertising by América T.V., a
related company of the purchasers, as determined based on fair
market value. As collateral for payment, all transferred shares
were pledged in favor of the seller.
Additionally, as per the agreement, TyC had the option to return
the building to CAE for consideration of US$1 million,
equivalent to A$2,940 as of the date of the transaction, in the
event that during the one-year period ending January 7, 2005,
TyC was not able to sell such building. TyC considered this
amount to be the fair value of the building as of the date of
the transaction.
The difference between the book value of the Companys
equity interest in La Red as of the date of disposition and the
fair value of the total consideration received amounts to
A$3,939. The Company considered the earnings process was not
substantially complete with respect to the uncollected
A$3.7 million related party receivable. Consequently, the
Company recognized a gain of A$239, which is included in
Discontinued operations, net of tax; and deferred a gain of
A$3,700, which is included in Liabilities associated with
discontinued operations, in the accompanying consolidated
balance sheet as of December 31, 2004.
As mentioned in Note 11, in January 2005, the building was
sold for cash consideration of A$6.0 million.
IV-92
TORNEOS Y
COMPETENCIAS S.A.
NOTES TO
CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
As a result of this transaction, the Company has disposed of its
entire radio broadcasting business. Accordingly, the assets and
liabilities, revenue, costs and expenses, and cash flows of La
Red have been excluded from the respective captions in the
accompanying consolidated balance sheets, statements of
operation and statements of cash flows and have been reported
separately in such consolidated financial statements. In
addition, unless specifically noted, amounts disclosed in the
notes to the accompanying consolidated financial statements are
for continuing operations.
The following table summarizes certain information related to
discontinued operations:
|
|
|
|
|
|
|
December 31, 2003
|
|
|
Current assets
|
|
A$
|
4,357
|
|
Non-current assets
|
|
|
1,552
|
|
|
|
|
|
|
Total assets
|
|
A$
|
5,909
|
|
|
|
|
|
|
Current liabilities
|
|
A$
|
2,790
|
|
Non-current liabilities
|
|
|
418
|
|
|
|
|
|
|
Total liabilities
|
|
A$
|
3,208
|
|
|
|
|
|
|
Stockholders equity
|
|
A$
|
2,701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
December 31,
|
|
|
|
2003
|
|
|
2002
|
|
|
Revenue
|
|
A$
|
5,672
|
|
|
A$
|
3,820
|
|
Pre-tax loss (including impairment
of goodwill of A$6,074 in 2002)
|
|
A$
|
(253
|
)
|
|
A$
|
(9,658
|
)
|
Loss from discontinued operations,
net of tax
|
|
A$
|
(604
|
)
|
|
A$
|
(9,658
|
)
|
|
|
|
|
|
|
|
|
|
The Companys debt as of December 31, 2004 and 2003 is
summarized below:
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
2003
|
|
|
Bank loans
|
|
A$
|
8,333
|
|
|
A$
|
9,024
|
|
Related Party
|
|
|
8,419
|
|
|
|
8,306
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
A$
|
16,752
|
|
|
A$
|
17,330
|
|
|
|
|
|
|
|
|
|
|
Bank Loans:
The bank debt is denominated in Argentine pesos with interest
rates ranging from 9% to 11% and maturities as follows:
|
|
|
|
|
Past due
|
|
A$
|
4,927
|
|
2005
|
|
A$
|
3,406
|
|
|
|
|
|
|
Total debt
|
|
A$
|
8,333
|
(1)
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes A$2,635 for which one of the purchasers of La Red has
effectively assumed the obligation to repay up to A$3,700 of
principal and interest. See Note 6.
|
The total amount of loans denominated in Argentine pesos at
December 31, 2004 includes A$4,927 corresponding to loans
that are in default and are being renegotiated. Such loans are
classified as current liabilities.
IV-93
TORNEOS Y
COMPETENCIAS S.A.
NOTES TO
CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
Loans amounting to A$2,856 are secured by certain of the
Companys premises.
Related
Party Loans:
Represents loans primarily from LMI. The loans from LMI, which
bear interest at 9% and are denominated in US dollars, are
past due. Such loans are classified as current liabilities.
TyC believes that the carrying amount of debt approximates fair
value at December 31, 2004, with the exception of related
party loans and bank loans in default, for which TyC considers
that it is not practical to estimate fair value.
The Company is subject to certain restrictions on the
distribution of profits. Under the Argentine Commercial Law, a
minimum of 5% of net income for the year calculated in
accordance with Argentine GAAP must be appropriated by
resolution of the shareholders to a legal reserve until such
reserve reaches 20% of the outstanding capital (common stock
plus inflation adjustment of common stock accounts, and
additional Paid-in Capital). This legal reserve may be used only
to absorb accumulated deficits.
Additionally, under Argentine Commercial Law, in the event that
accumulated deficit is higher than 50% of common stock, plus
100% of additional paid-in-capital and legal reserve, the
Company is required to absorb the related accumulated deficit
against such equity accounts. Consequently on July 8, 2004, TyC
stockholders approved the absorption of accumulated deficit in
the amount of A$109,409, by offsetting such balance against
additional paid-in-capital and legal reserve outstanding as of
that date.
Income tax expense for the years ended December 31, 2004,
2003 and 2002 consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
Current tax expense
|
|
A$
|
(4,231
|
)
|
|
A$
|
(3,611
|
)
|
|
A$
|
|
|
Deferred tax expense
|
|
|
(694
|
)
|
|
|
(4,170
|
)
|
|
|
(1,698
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total
|
|
|
(4,925
|
)
|
|
|
(7,781
|
)
|
|
|
(1,698
|
)
|
Minimum presumed income tax
|
|
|
(102
|
)
|
|
|
(105
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
A$
|
(5,027
|
)
|
|
A$
|
(7,886
|
)
|
|
A$
|
(1,698
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IV-94
TORNEOS Y
COMPETENCIAS S.A.
NOTES TO
CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
The tax effects of temporary differences and tax loss
carryforwards that give rise to significant portions of the
Companys deferred tax assets and liabilities are presented
below:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2004
|
|
|
2003
|
|
|
Allowance for doubtful accounts
|
|
A$
|
2,506
|
|
|
A$
|
1,467
|
|
Directors fees
|
|
|
|
|
|
|
660
|
|
Accumulated tax losses
|
|
|
499
|
|
|
|
567
|
|
Accumulated tax losses from the
sale of controlled subsidiaries
|
|
|
5,754
|
|
|
|
|
|
Items accrued not yet deducted
|
|
|
597
|
|
|
|
884
|
|
Deferred income
|
|
|
|
|
|
|
1,202
|
|
Programming rights
|
|
|
(2,133
|
)
|
|
|
(1,623
|
)
|
Unpaid interest on foreign loans
from related parties
|
|
|
1,290
|
|
|
|
|
|
Others
|
|
|
48
|
|
|
|
91
|
|
|
|
|
|
|
|
|
|
|
Sub-total
|
|
|
8,561
|
|
|
|
3,248
|
|
Less: Valuation allowance on
deferred tax asset
|
|
|
(7,201
|
)
|
|
|
(1,194
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset at tax rate
(35%)
|
|
A$
|
1,360
|
|
|
A$
|
2,054
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit) for the years ended
December 31, 2004, 2003 and 2002 differ from the amounts
computed by applying the Companys statutory income tax
rate to pre-tax income (loss) as a result of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
Income (loss) before taxes
and discontinued operations
|
|
A$
|
21,623
|
|
|
A$
|
28,441
|
|
|
A$
|
(122,230
|
)
|
Prevailing tax rate
|
|
|
35
|
%
|
|
|
35
|
%
|
|
|
35
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected tax benefit
(expense) from continuing operations
|
|
|
(7,568
|
)
|
|
|
(9,954
|
)
|
|
|
42,781
|
|
Impairment of intangible assets
|
|
|
|
|
|
|
|
|
|
|
(33,482
|
)
|
Increase in accumulated tax losses
from the sale of controlled subsidiaries
|
|
|
5,754
|
|
|
|
|
|
|
|
|
|
Imputed interest
|
|
|
|
|
|
|
(246
|
)
|
|
|
(1,075
|
)
|
Directors fees
|
|
|
|
|
|
|
|
|
|
|
(1,268
|
)
|
Share of earnings
(losses) from equity affiliates
|
|
|
4,515
|
|
|
|
3,299
|
|
|
|
(3,706
|
)
|
Non-recoverable receivables
|
|
|
(236
|
)
|
|
|
(363
|
)
|
|
|
(1,824
|
)
|
Non-deductible expenses
|
|
|
(1,485
|
)
|
|
|
(467
|
)
|
|
|
(2,747
|
)
|
Change in valuation allowance on
deferred tax assets
|
|
|
(6,007
|
)
|
|
|
(155
|
)
|
|
|
(377
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense from continuing
operations
|
|
A$
|
(5,027
|
)
|
|
A$
|
(7,886
|
)
|
|
A$
|
(1,698
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2004, the Company has accumulated tax
loss carryforwards of A$17.9 million (equivalent to
A$6.3 million at prevailing tax rate), which expire through
year 2009.
The Company is subject to a minimum presumed income tax. This
tax is supplementary to income tax. The tax is calculated by
applying the effective tax rate of 1% on certain production
assets valued according to the tax regulations in effect as of
the end of each year. The Companys tax liabilities will be
the higher of income tax or minimum presumed income tax.
However, if the minimum presumed income tax exceeds income tax
during any fiscal year, such excess may be computed as a
prepayment of any income tax excess over the minimum presumed
income tax that may arise in the next ten fiscal years. Each of
TyC and its controlled companies file separate tax
IV-95
TORNEOS Y
COMPETENCIAS S.A.
NOTES TO
CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
returns. The minimum presumed income tax charge for the years
ended December 31, 2004 and 2003 correspond to controlled
companies that generate tax losses.
|
|
10.
|
Commitments
and contingencies
|
(a) Long-term
Rights Contracts
The Company has long-term rights contracts which require
payments through 2010. Future minimum payments, including
unrecorded amounts, by year are as follows at December 31,
2004:
Year
ending December 31:
|
|
|
|
|
2005
|
|
A$
|
8,625
|
|
2006
|
|
A$
|
16,755
|
|
2007
|
|
A$
|
5,589
|
|
2008
|
|
A$
|
1,589
|
|
2009
|
|
A$
|
1,589
|
|
Thereafter
|
|
A$
|
723
|
|
Additionally, TyC has long-term rights contracts which require,
for the period from 2007 to 2014, payments of 50% of the revenue
derived form the related rights.
(b) Litigation
The Company has contingent liabilities related to legal and
other matters arising in the ordinary course of business. A
liability of A$2,664 has been included in the Companys
consolidated balance sheet as of December 31, 2004 to
provide for probable and estimable potential losses under these
claims.
In addition, the Company is subject to other claims and legal
actions that have arisen in the ordinary course of business.
Although there can be no assurance as to the ultimate
disposition of these matters, it is the opinion of the
Companys management based upon the information available
at this time and consultation with external legal counsel, that
the expected outcome of these other claims and legal actions,
individually or in the aggregate, will not have a material
effect on the Companys financial position or results of
operations. Accordingly, no additional liabilities have been
established for the outcome of these matters.
(a) Sale
of building held for sale
On January 6, 2005 the Company sold to a third party the
building held for sale included in current assets in the
accompanying consolidated financial statements, for cash
consideration of A$6 million.
(b) Agreement
with FPAS
The Companys contracts with FPAS for the provision of
production of content, advertising sales and operating and
administrative service to the signal Fox Sports expired on
December 31, 2004. On January 1, 2005, the
IV-96
TORNEOS Y
COMPETENCIAS S.A.
NOTES TO
CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
Company signed new service agreements with FPAS that expire in
December 2010. The annual payments due to the Company under
these contracts are as follows:
Amounts
in thousands of US$
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
2005
|
|
|
Administrative services
|
|
|
658
|
|
|
|
658
|
|
Production of content
|
|
|
4,344
|
|
|
|
5,544
|
|
Advertising commission (range)
|
|
|
From 17.5% to 20%
|
|
|
|
From 17.5% to 20%
|
|
Regarding production of content, the amount of the payments
increases to US$5,844 thousand and US$6,244 thousand for years
2006 and 2007, respectively, and to US$6,744 thousand for years
2008 to 2010.
The value of administrative services will not change throughout
the period from 2005 to 2010.
In the case of certain changes in the direct or indirect TyC
ownership, FPAS has the right to terminate any or all service
agreements by delivering written notice 60 days prior to
such termination.
On January 1, 2005 the Company also extended from 2007 to
2010 the revenue agreements related to Clásico del
Domingo and Futbol de Primera rights for América
(except Argentina) and the Summer Soccer rights for América
in the same terms and conditions prevailing in the former
agreements.
IV-97
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of
Cordillera Comunicaciones Holding Limitada:
We have audited the accompanying consolidated balance sheets of
Cordillera Comunicaciones Holding Limitada and subsidiaries (the
Company) as of December 31, 2003 and 2004, and
the related consolidated statements of income and cash flows for
each of the three years in the period ended December 31,
2004. These financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. We were not engaged to perform an
audit of the Companys internal control over financial
reporting. Our audits included consideration of internal control
over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of
the Companys internal control over financial reporting.
Accordingly we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of Cordillera Comunicaciones
Holding Limitada and Subsidiaries at December 31, 2003 and
2004, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended
December 31, 2004 in conformity with accounting principles
generally accepted in Chile, which differ in certain respects
from accounting principles generally accepted in the United
States of America (see Note 27 to the consolidated
financial statements).
ERNST & YOUNG LTDA.
Santiago, February 25, 2005
IV-98
Cordillera
Comunicaciones Holding Limitada and Subsidiaries
for the years ended December 31
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2003
|
|
|
2004
|
|
|
2004
|
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
ThUS$
|
|
|
|
|
|
|
|
|
|
Note 2(e)
|
|
|
ASSETS
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
210,523
|
|
|
|
211,672
|
|
|
|
380
|
|
Time deposits (Note 3)
|
|
|
6,936,432
|
|
|
|
4,033,512
|
|
|
|
7,236
|
|
Trade receivables, net (Note 4)
|
|
|
2,580,504
|
|
|
|
2,022,823
|
|
|
|
3,629
|
|
Notes receivable (Note 4)
|
|
|
92,652
|
|
|
|
114,250
|
|
|
|
205
|
|
Miscellaneous receivables
(Note 4)
|
|
|
2,673,926
|
|
|
|
1,426,134
|
|
|
|
2,559
|
|
Notes and accounts receivable from
related companies (Note 5)
|
|
|
232,509
|
|
|
|
228,921
|
|
|
|
411
|
|
Recoverable income taxes, net
(Note 6)
|
|
|
76,634
|
|
|
|
79,553
|
|
|
|
143
|
|
Prepaid expenses (Note 7)
|
|
|
988,849
|
|
|
|
631,278
|
|
|
|
1,133
|
|
Deferred income taxes net
(Note 6)
|
|
|
1,375,702
|
|
|
|
1,505,421
|
|
|
|
2,701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
15,167,731
|
|
|
|
10,253,564
|
|
|
|
18,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROPERTY, PLANT AND EQUIPMENT
(Note 8)
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
|
500,019
|
|
|
|
500,019
|
|
|
|
897
|
|
Buildings and other infrastructure
|
|
|
118,466,606
|
|
|
|
120,942,228
|
|
|
|
216,976
|
|
Machinery and equipment
|
|
|
12,044,082
|
|
|
|
13,453,463
|
|
|
|
24,136
|
|
Furniture and fixtures
|
|
|
4,126,938
|
|
|
|
4,380,580
|
|
|
|
7,859
|
|
Other property, plant and equipment
|
|
|
15,092,271
|
|
|
|
14,424,263
|
|
|
|
25,878
|
|
Less: Accumulated depreciation
|
|
|
(34,686,655
|
)
|
|
|
(44,929,770
|
)
|
|
|
(80,602
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment,
net
|
|
|
115,543,261
|
|
|
|
108,770,783
|
|
|
|
195,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in other companies, net
(Note 9)
|
|
|
233,512
|
|
|
|
225,341
|
|
|
|
403
|
|
Goodwill, net (Note 10)
|
|
|
62,349,750
|
|
|
|
58,057,299
|
|
|
|
104,156
|
|
Intangibles, net
|
|
|
1,711,696
|
|
|
|
1,539,410
|
|
|
|
2,761
|
|
Deferred income taxes, net
(Note 6)
|
|
|
8,349,411
|
|
|
|
9,536,666
|
|
|
|
17,109
|
|
Other assets (Note 11)
|
|
|
11,585,426
|
|
|
|
10,682,574
|
|
|
|
19,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
|
84,229,795
|
|
|
|
80,041,290
|
|
|
|
143,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
|
214,940,787
|
|
|
|
199,065,637
|
|
|
|
357,134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS EQUITY
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Banks and financial institutions,
short-term (Note 12)
|
|
|
|
|
|
|
59,325
|
|
|
|
106
|
|
Banks and financial institutions,
current portion (Note 12)
|
|
|
7,631,787
|
|
|
|
7,587,230
|
|
|
|
13,612
|
|
Accounts payable (Note 13)
|
|
|
9,258,399
|
|
|
|
7,289,371
|
|
|
|
13,077
|
|
Notes payable (Note 14)
|
|
|
12,133
|
|
|
|
12,193
|
|
|
|
22
|
|
Miscellaneous payables
(Note 15)
|
|
|
1,041,968
|
|
|
|
14,508,434
|
|
|
|
26,029
|
|
Notes and accounts payable to
related companies (Note 5)
|
|
|
753,025
|
|
|
|
11,893,748
|
|
|
|
21,338
|
|
Provisions and withholdings
(Note 16)
|
|
|
1,297,142
|
|
|
|
1,432,338
|
|
|
|
2,570
|
|
Unearned revenues (Note 17)
|
|
|
736,997
|
|
|
|
680,687
|
|
|
|
1,221
|
|
Deferred taxes (Note 6)
|
|
|
161,459
|
|
|
|
|
|
|
|
|
|
Other current liabilities
(Note 18)
|
|
|
4,292,744
|
|
|
|
842,019
|
|
|
|
1,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
liabilities
|
|
|
25,185,654
|
|
|
|
44,305,345
|
|
|
|
79,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Banks and financial institutions,
non-current portion (Note 12)
|
|
|
30,246,442
|
|
|
|
22,650,889
|
|
|
|
40,637
|
|
Long-term notes payables
(Note 15)
|
|
|
14,761,670
|
|
|
|
|
|
|
|
|
|
Notes and accounts payable to
related companies (Note 5)
|
|
|
|
|
|
|
872,688
|
|
|
|
1,566
|
|
Deferred taxes (Note 6)
|
|
|
3,204,918
|
|
|
|
3,015,508
|
|
|
|
5,410
|
|
Other long-term liabilities
|
|
|
375,491
|
|
|
|
314,247
|
|
|
|
564
|
|
Deferred gains (Note 19)
|
|
|
1,474,427
|
|
|
|
1,400,705
|
|
|
|
2,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term
liabilities
|
|
|
50,062,948
|
|
|
|
28,254,037
|
|
|
|
50,690
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest
|
|
|
4,131,190
|
|
|
|
3,670,536
|
|
|
|
6,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
(Note 24)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS EQUITY
(Note 20)
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid-in capital
|
|
|
205,865,408
|
|
|
|
205,865,408
|
|
|
|
369,332
|
|
Price-level restatement
|
|
|
1,852,790
|
|
|
|
1,852,790
|
|
|
|
3,324
|
|
Accumulated deficit
|
|
|
(58,374,521
|
)
|
|
|
(72,157,203
|
)
|
|
|
(129,451
|
)
|
Net loss for the year
|
|
|
(13,782,682
|
)
|
|
|
(12,725,276
|
)
|
|
|
(22,832
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Shareholders
equity
|
|
|
135,560,995
|
|
|
|
122,835,719
|
|
|
|
220,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and
Shareholders equity
|
|
|
214,940,787
|
|
|
|
199,065,637
|
|
|
|
357,134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
IV-99
Cordillera
Comunicaciones Holding Limitada and Subsidiaries
for the years ended December 31
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
2004
|
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
ThUS$
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 2(e)
|
|
|
OPERATING INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue
|
|
|
47,911,196
|
|
|
|
46,100,072
|
|
|
|
45,547,636
|
|
|
|
81,714
|
|
Operating costs
|
|
|
(43,594,223
|
)
|
|
|
(39,034,899
|
)
|
|
|
(39,864,637
|
)
|
|
|
(71,519
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin
|
|
|
4,316,973
|
|
|
|
7,065,173
|
|
|
|
5,682,999
|
|
|
|
10,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Administrative and selling expenses
|
|
|
(15,958,113
|
)
|
|
|
(14,279,993
|
)
|
|
|
(14,328,858
|
)
|
|
|
(25,707
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(11,641,140
|
)
|
|
|
(7,214,820
|
)
|
|
|
(8,645,859
|
)
|
|
|
(15,512
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-OPERATING INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial revenue
|
|
|
372,907
|
|
|
|
218,122
|
|
|
|
59,530
|
|
|
|
107
|
|
Other non-operating income
|
|
|
58,583
|
|
|
|
306,224
|
|
|
|
416,010
|
|
|
|
746
|
|
Financial expenses
|
|
|
(2,431,445
|
)
|
|
|
(2,708,735
|
)
|
|
|
(2,335,803
|
)
|
|
|
(4,191
|
)
|
Other non-operating expenses
(Note 21)
|
|
|
(1,567,912
|
)
|
|
|
(1,129,243
|
)
|
|
|
(410,524
|
)
|
|
|
(736
|
)
|
Goodwill amortization
(Note 10)
|
|
|
(4,207,744
|
)
|
|
|
(4,289,132
|
)
|
|
|
(4,225,945
|
)
|
|
|
(7,582
|
)
|
Price-level restatement, net
(Note 22)
|
|
|
294,056
|
|
|
|
75,810
|
|
|
|
349,259
|
|
|
|
627
|
|
Foreign currency translation
(Note 22)
|
|
|
(974,908
|
)
|
|
|
(1,296,437
|
)
|
|
|
(213,322
|
)
|
|
|
(383
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating loss
|
|
|
(8,456,463
|
)
|
|
|
(8,823,391
|
)
|
|
|
(6,360,795
|
)
|
|
|
(11,412
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before taxes and minority
interest
|
|
|
(20,097,603
|
)
|
|
|
(16,038,211
|
)
|
|
|
(15,006,654
|
)
|
|
|
(26,924
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefit (Note 6)
|
|
|
2,449,618
|
|
|
|
2,088,982
|
|
|
|
1,820,722
|
|
|
|
3,267
|
|
Minority interest
|
|
|
88,679
|
|
|
|
166,547
|
|
|
|
460,656
|
|
|
|
825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the year
|
|
|
(17,559,306
|
)
|
|
|
(13,782,682
|
)
|
|
|
(12,725,276
|
)
|
|
|
(22,832
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
IV-100
Cordillera
Comunicaciones Holding Limitada and Subsidiaries
for the years ended December 31
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
2004
|
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
ThUS$
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 2(e)
|
|
|
CASH FLOWS FROM OPERATING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(17,559,306
|
)
|
|
|
(13,782,682
|
)
|
|
|
(12,725,276
|
)
|
|
|
(22,832
|
)
|
Charges (credits) to
income that do not represent cash flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
8,764,859
|
|
|
|
9,748,814
|
|
|
|
10,296,535
|
|
|
|
18,471
|
|
Software and other amortization
|
|
|
321,353
|
|
|
|
448,062
|
|
|
|
686,750
|
|
|
|
1,232
|
|
Amortization of residential cable
TV installations
|
|
|
2,833,638
|
|
|
|
3,621,253
|
|
|
|
4,252,345
|
|
|
|
7,629
|
|
Other current amortization
|
|
|
|
|
|
|
(14,227
|
)
|
|
|
(71,300
|
)
|
|
|
(128
|
)
|
Loss on sale of fixed assets
|
|
|
|
|
|
|
32,309
|
|
|
|
25,036
|
|
|
|
46
|
|
Deferred taxes
|
|
|
(2,622,653
|
)
|
|
|
(2,056,674
|
)
|
|
|
(1,810,281
|
)
|
|
|
(3,247
|
)
|
Write-offs
|
|
|
675,653
|
|
|
|
290,492
|
|
|
|
276,638
|
|
|
|
496
|
|
Allowance for doubtful accounts
|
|
|
3,113,675
|
|
|
|
1,263,257
|
|
|
|
1,005,935
|
|
|
|
1,805
|
|
Vacation accrual
|
|
|
169,081
|
|
|
|
157,742
|
|
|
|
139,771
|
|
|
|
251
|
|
Valuation and obsolescence
provision
|
|
|
130,627
|
|
|
|
144,568
|
|
|
|
|
|
|
|
|
|
Goodwill amortization
|
|
|
4,207,744
|
|
|
|
4,289,132
|
|
|
|
4,225,945
|
|
|
|
7,582
|
|
Price-level restatement
|
|
|
(294,056
|
)
|
|
|
(75,810
|
)
|
|
|
(349,259
|
)
|
|
|
(627
|
)
|
Foreign Currency Translation
|
|
|
974,908
|
|
|
|
1,296,437
|
|
|
|
213,322
|
|
|
|
383
|
|
Accrued interest
|
|
|
915,808
|
|
|
|
856,174
|
|
|
|
|
|
|
|
|
|
Investment price level restatement
|
|
|
320,720
|
|
|
|
(198,421
|
)
|
|
|
39,646
|
|
|
|
71
|
|
Unrealised gain (loss) on forward
operations
|
|
|
859,354
|
|
|
|
300,314
|
|
|
|
(3,587,789
|
)
|
|
|
(6,437
|
)
|
Other
|
|
|
(106,523
|
)
|
|
|
(101,597
|
)
|
|
|
(74,159
|
)
|
|
|
(133
|
)
|
Decrease (increase) in
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade receivables, net
|
|
|
(3,725,551
|
)
|
|
|
(10,629
|
)
|
|
|
(448,254
|
)
|
|
|
(804
|
)
|
Miscellaneous receivables
|
|
|
(707,723
|
)
|
|
|
(943,853
|
)
|
|
|
1,222,435
|
|
|
|
2,193
|
|
Notes and accounts receivable from
related parties
|
|
|
116,186
|
|
|
|
113,671
|
|
|
|
(1,058
|
)
|
|
|
|
|
Income taxes recoverable, net
|
|
|
842,846
|
|
|
|
10,498
|
|
|
|
(2,919
|
)
|
|
|
(5
|
)
|
Prepaid expenses
|
|
|
1,522,124
|
|
|
|
(109,591
|
)
|
|
|
66,394
|
|
|
|
119
|
|
Other current assets, net
|
|
|
409,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts and notes payable
|
|
|
(3,925,898
|
)
|
|
|
(3,871,445
|
)
|
|
|
(2,083,614
|
)
|
|
|
(3,738
|
)
|
Miscellaneous payables
|
|
|
(9,918
|
)
|
|
|
725,923
|
|
|
|
(1,092,492
|
)
|
|
|
(1,960
|
)
|
Accrued liabilities and
withholdings
|
|
|
270,724
|
|
|
|
(55,487
|
)
|
|
|
150,899
|
|
|
|
271
|
|
Notes and accounts payable to
related parties
|
|
|
816,683
|
|
|
|
(647,855
|
)
|
|
|
124,655
|
|
|
|
224
|
|
Unearned revenues
|
|
|
475,007
|
|
|
|
(112,226
|
)
|
|
|
(56,310
|
)
|
|
|
(101
|
)
|
Other current liabilities
|
|
|
|
|
|
|
313,475
|
|
|
|
137,064
|
|
|
|
246
|
|
Short-term bank obligations
|
|
|
|
|
|
|
|
|
|
|
59,325
|
|
|
|
106
|
|
Minority interest
|
|
|
(88,678
|
)
|
|
|
(166,547
|
)
|
|
|
(396,710
|
)
|
|
|
(712
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IV-101
Cordillera
Comunicaciones Holding Limitada and Subsidiaries
for the years ended December 31
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
2004
|
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
ThUS$
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 2(e)
|
|
|
Total cash flows provided from
(used in) operating activities
|
|
|
(1,299,561
|
)
|
|
|
1,465,077
|
|
|
|
223,274
|
|
|
|
401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of subsidiary shares
|
|
|
|
|
|
|
5,047,718
|
|
|
|
|
|
|
|
|
|
Loan proceeds
|
|
|
18,365,974
|
|
|
|
|
|
|
|
11,900,000
|
|
|
|
21,349
|
|
Related company proceeds
|
|
|
|
|
|
|
2,612
|
|
|
|
|
|
|
|
|
|
Other payments to related companies
|
|
|
|
|
|
|
(7,289
|
)
|
|
|
|
|
|
|
|
|
Payments for bank obligations
|
|
|
|
|
|
|
(63,068
|
)
|
|
|
(7,421,738
|
)
|
|
|
(13,315
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash flows from financing
activities
|
|
|
18,365,974
|
|
|
|
4,979,973
|
|
|
|
4,478,262
|
|
|
|
8,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of property, plant and
equipment
|
|
|
|
|
|
|
206,299
|
|
|
|
33,663
|
|
|
|
60
|
|
Purchase of property, plant and
equipment
|
|
|
(3,687,334
|
)
|
|
|
(8,420,557
|
)
|
|
|
(4,039,429
|
)
|
|
|
(7,247
|
)
|
Purchase of software and licenses
|
|
|
(381,386
|
)
|
|
|
(453,475
|
)
|
|
|
(508,737
|
)
|
|
|
(913
|
)
|
Additions to residential Cable TV
installations
|
|
|
(4,533,873
|
)
|
|
|
(3,505,310
|
)
|
|
|
(2,915,939
|
)
|
|
|
(5,231
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash flows used in
investing activities
|
|
|
(8,602,593
|
)
|
|
|
(12,173,043
|
)
|
|
|
(7,430,442
|
)
|
|
|
(13,331
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net cash flow for the
year
|
|
|
8,463,820
|
|
|
|
(5,727,993
|
)
|
|
|
(2,728,906
|
)
|
|
|
(4,896
|
)
|
Effect of inflation on cash and
cash equivalents
|
|
|
(445,612
|
)
|
|
|
(129,719
|
)
|
|
|
(172,865
|
)
|
|
|
(310
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) of cash and
cash equivalents during the year
|
|
|
8,018,208
|
|
|
|
(5,857,712
|
)
|
|
|
(2,901,771
|
)
|
|
|
(5,206
|
)
|
Cash and cash equivalents at
the beginning of the year
|
|
|
4,986,459
|
|
|
|
13,004,667
|
|
|
|
7,146,955
|
|
|
|
12,822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at
the end of the year
|
|
|
13,004,667
|
|
|
|
7,146,955
|
|
|
|
4,245,184
|
|
|
|
7,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
IV-102
Cordillera
Comunicaciones Holding Limitada and Subsidiaries
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
Cordillera Comunicaciones Holding Limitada (the
Company) was incorporated on December 31, 1994.
On that date, the founders of the Company contributed 100% of
the shares of cable television systems serving the communities
of Santiago, Temuco, Viña del Mar, Valdivia, Puerto Montt,
Puerto Varas and Los Angeles, Chile. This contribution resulted
in dissolution of the underlying companies, with the Company
assuming all of the assets and liabilities of the predecessor
companies. Included in the assets of the predecessor companies
are cash, property, plant and equipment and certain
organizational costs contributed by the founders to the various
companies prior to their dissolution.
|
|
Note 2.
|
Significant
Accounting Policies:
|
The consolidated financial statements of the Company have been
prepared in accordance with generally accepted accounting
principles in Chile and the regulations established by the SVS
(collectively Chilean GAAP). Certain accounting
practices applied by the Company that conform with generally
accepted accounting principles in Chile do not conform with
generally accepted accounting principles in the United States
(U.S. GAAP). A reconciliation of Chilean GAAP
to U.S. GAAP is provided in Note 27. Certain amounts
in the prior years financial statements have been
reclassified to conform to the current years presentation.
The preparation of financial statements in conformity with
Chilean GAAP, along with the reconciliation to U.S. GAAP
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities,
disclosures of contingent assets and liabilities as of the date
of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. Actual
results could differ from those estimates.
In certain cases generally accepted accounting principles
require that assets or liabilities be recorded or disclosed at
their fair values. The fair value is the amount at which an
asset could be bought or sold or the amount at which a liability
could be incurred or settled in a current transaction between
willing parties, other than in a forced or liquidation sale.
Where available, quoted market prices in active markets have
been used as the basis for the measurement; however, where
quoted market prices in active markets are not available, the
Company has estimated such values based on the best information
available, including using modeling and other valuation
techniques.
The accompanying financial statements reflect the consolidated
operations of Cordillera Comunicaciones Holding Limitada and
subsidiaries. All significant intercompany transactions have
been eliminated in consolidation. The Company consolidates the
financial statements of companies in which it controls over 50%
of the voting shares.
The Company consolidates the following subsidiaries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
Pacific Televisión Limitada
|
|
|
99.5
|
|
|
|
99.5
|
|
|
|
99.5
|
|
Metrópolis Intercom S.A.
|
|
|
99.5
|
|
|
|
95.1
|
|
|
|
95.1
|
|
Cordillera Comunicaciones Limitada
|
|
|
99.5
|
|
|
|
99.5
|
|
|
|
99.5
|
|
These financial statements reflect the Companys financial
position of its balance sheet as of December 31, 2003 and
2004 and its operating results and its cash flows for the years
ended December 31, 2002, 2003 and 2004.
IV-103
Cordillera
Comunicaciones Holding Limitada and Subsidiaries
Notes to
the Consolidated Financial
Statements (Continued)
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
|
|
(c)
|
Price-level
restatement:
|
The Companys financial statements have been restated to
reflect the effects of variations in the purchasing power of
Chilean pesos during the year. For this purpose non-monetary
assets and liabilities, equity and income statement accounts
have been restated in terms of year-end constant pesos based on
the change in the Chilean consumer price index during the years
ended December 31, 2002, 2003 and 2004 at 3.0%, 1.0% and
2.5%, respectively.
|
|
(d)
|
Assets
and liabilities denominated in foreign currency:
|
Balances in foreign currencies have been translated into Chilean
Pesos at the Observed Exchange Rate as reported by the Central
Bank of Chile as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
|
Ch$
|
|
|
Ch$
|
|
|
Ch$
|
|
|
U.S. Dollar
|
|
|
718.61
|
|
|
|
593.8
|
|
|
|
557.4
|
|
Unidad de Fomento
|
|
|
16,744.12
|
|
|
|
16,920.00
|
|
|
|
17,317.05
|
|
Transactions in foreign currencies are recorded at the exchange
rate prevailing when the transactions occur. Foreign currency
balances are translated at the exchange rate prevailing at the
month end.
|
|
(e)
|
Convenience
translation to U.S. Dollars:
|
The Company maintains its accounting records and prepares its
financial statements in Chilean pesos. The United States dollar
amounts disclosed in the accompanying financial statements are
presented solely for the convenience of the reader and have been
translated at the closing exchange rate of Ch$557.40 per
US$1 as of December 31, 2004. This translation should not
be construed as representing that the Chilean peso amounts
actually represent or have been, or could be, converted into
United States dollars at that exchange rate or at any other rate
of exchange.
This account corresponds to fixed term deposits in Chilean
pesos, which are recorded at cost, plus inflation-indexation and
accrued interest at year end.
|
|
(g)
|
Marketable
securities:
|
This account corresponds to investments in mutual funds, which
are presented at their redemption value at the end of each
accounting period.
Trade receivables include sales of advertising and rendering of
monthly cable television service. This balance is stated net of
an allowance for uncollectible receivables. The allowance was
determined by considering 100% of the receivables from
subscribers who are connected to the Companys network and
are over three months past due, and specifically identified
debtors who have been disconnected from the Companys
network or are in the process of being disconnected.
IV-104
Cordillera
Comunicaciones Holding Limitada and Subsidiaries
Notes to
the Consolidated Financial
Statements (Continued)
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
Program costs, movies, series and documentaries, are capitalized
and charged to expense when broadcasted or are amortized over
the term of the contract, whichever is greater.
|
|
(j)
|
Property,
plant and equipment:
|
Property, plant and equipment are stated at their acquisition
value and are price-level restated. Depreciation is computed
using the straight-line method over the estimated remaining
useful lives of the assets, which are as follows:
|
|
|
|
|
|
|
Years
|
|
|
Buildings and other infrastructure
|
|
|
20 - 38
|
|
Machinery and equipment
|
|
|
7 - 10
|
|
Furniture and equipment
|
|
|
5 - 10
|
|
Other
|
|
|
5 - 7
|
|
The Company depreciates its fiber optic external network using a
progressive method based on the projected number of subscribers
per product line.
The Company has entered into financing lease agreements for
property, plant and equipment, which include options to purchase
at the end of the term of the agreement. These assets are not
legally owned by the Company and cannot be freely disposed of
until the purchase option is exercised. These assets are shown
at the present value of the contract, determined by discounting
the value of the installments and the purchase option at the
interest rate established in the respective agreement.
The cost of the computer applications purchased from external
vendors needed for managing the Companys business is
amortized using the straight-line method over an estimated
useful life of four years. For the years ended December 31,
2002, 2003 and 2004 amortization charged to income amounted to
ThCh$321,353, ThCh$448,062 and ThCh$686,750, respectively.
|
|
(m)
|
Investment
in other companies:
|
Investments in other companies are recorded at the lower of cost
adjusted by pricelevel restatement or market value.
Goodwill is calculated as the excess of the purchase price of
cable television operations acquired over their net book value
and is amortized on a straight-line basis over 20 years.
Other assets primarily consist of deferred costs of Cable TV
residence installations or drops, which are amortized over their
remaining estimated useful life which is estimated as
5 years. For the years ended December 31,
IV-105
Cordillera
Comunicaciones Holding Limitada and Subsidiaries
Notes to
the Consolidated Financial
Statements (Continued)
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
2002, 2003 and 2004 the amount amortized was ThCh$2,833,638,
ThCh$3,621,253 and ThCh$4,252,345 respectively.
|
|
(p)
|
Accrued
vacation expense:
|
In accordance with Technical Bulletin No. 47 issued by
the Chilean Association of Accountants, employee vacation
expenses are recorded on the accrual basis.
|
|
(q)
|
Revenue
recognition and unearned revenues:
|
Revenues from cable subscriptions are recognized during the
month that the services are to be performed and revenues from
advertising are recognized when the advertising is broadcast.
Unearned revenues relate to advance billing on advertising
contracts, which have not yet been broadcast. As of
December 31, 2003 and 2004, deferred revenues were
ThCh$736,997 and ThCh$680,687, respectively.
|
|
(r)
|
Current
and deferred income taxes:
|
Deferred income taxes are recorded based on timing differences
between accounting and taxable income. As a transitional
provision, a contra asset or liability has been recorded
offsetting the effects of the deferred tax assets and
liabilities not recorded prior to January 1, 2000. Such
contra asset or liability amounts must be amortized to income
over the estimated average reversal periods corresponding to the
underlying temporary differences to which the deferred tax asset
or liability relates calculated using the tax rates to be in
effect at the time of reversal.
|
|
(s)
|
Financial
derivatives:
|
As of December 31, 2003, the Company maintained investments
in forward contracts in order to hedge future payments related
to liabilities denominated in U.S. dollars. Gains and
losses on forward contracts were recorded at the closing spot
exchange rate. Furthermore, gains or losses related to
anticipated transactions were deferred and recorded net in other
current assets or liabilities, until the sale date of the
contracts.
The contracts held by the Company as of December 31, 2004
are investment contracts which are recorded at their fair values
using the year-end spot exchange rate while the results are
recognized in the Income Statement.
|
|
(t)
|
Cash
and cash equivalents:
|
Cash and cash equivalents are comprised of cash, time deposits,
repurchase agreements and marketable securities with a remaining
maturity of 90 days or less as of each year-end. The detail
of cash and cash equivalents as of December 31, 2003 and
2004 is as follows:
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
2004
|
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
Cash
|
|
|
210,523
|
|
|
|
211,672
|
|
Time deposits
|
|
|
6,936,432
|
|
|
|
4,033,512
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
7,146,955
|
|
|
|
4,245,184
|
|
|
|
|
|
|
|
|
|
|
IV-106
Cordillera
Comunicaciones Holding Limitada and Subsidiaries
Notes to
the Consolidated Financial
Statements (Continued)
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
The detail of Time Deposits as of December 31, 2003 and
2004 is as follows:
2003:
|
|
|
|
|
|
|
|
|
|
|
Financial
|
|
|
|
|
|
|
Capital
|
|
Final
|
Institution
|
|
Currency
|
|
Interest Rate
|
|
|
balance
|
|
Balance
|
|
|
|
|
|
|
|
ThCh$
|
|
ThCh$
|
|
Banco BCI
|
|
Chilean Pesos
|
|
|
0.20%
|
|
|
1,064,668
|
|
1,064,738
|
Banco Santander-Santiago
|
|
Chilean Pesos
|
|
|
0.27%
|
|
|
928,240
|
|
931,165
|
Banco Santander-Santiago
|
|
Chilean Pesos
|
|
|
0.25%
|
|
|
2,050,000
|
|
2,054,783
|
Banco Santander-Santiago
|
|
Chilean Pesos
|
|
|
0.25%
|
|
|
1,121,760
|
|
1,124,378
|
Banco Santander-Santiago
|
|
Chilean Pesos
|
|
|
0.22%
|
|
|
824,100
|
|
825,308
|
Banco Corpbanca-Santiago
|
|
Chilean Pesos
|
|
|
0.23%
|
|
|
935,415
|
|
936,060
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
6,924,183
|
|
6,936,432
|
|
|
|
|
|
|
|
|
|
|
|
2004:
|
|
|
|
|
|
|
|
|
|
|
Financial
|
|
|
|
|
|
|
Capital
|
|
Final
|
Institution
|
|
Currency
|
|
Interest Rate
|
|
|
balance
|
|
Balance
|
|
|
|
|
|
|
|
ThCh$
|
|
ThCh$
|
|
Banco BCI
|
|
Chilean Pesos
|
|
|
0.20%
|
|
|
1,450,000
|
|
1,450,097
|
Banco Santander-Santiago
|
|
Chilean Pesos
|
|
|
0.18%
|
|
|
704,500
|
|
705,092
|
Banco Santander-Santiago
|
|
Chilean Pesos
|
|
|
0.27%
|
|
|
817,093
|
|
817,460
|
Banco Santander-Santiago
|
|
Chilean Pesos
|
|
|
0.18%
|
|
|
1,060,800
|
|
1,060,863
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
4,032,393
|
|
4,033,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 4.
|
Trade,
Notes, and Miscellaneous Receivables:
|
The detail of Trade receivables as of December 31, 2003 and
2004 is as follows:
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
2004
|
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
Cable Services
|
|
|
7,111,253
|
|
|
|
7,637,629
|
|
Invoiced advertising receivable
|
|
|
1,767,767
|
|
|
|
1,525,687
|
|
|
|
|
|
|
|
|
|
|
Sub-total
|
|
|
8,879,020
|
|
|
|
9,163,316
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful
accounts-cable services monthly services
|
|
|
(6,165,459
|
)
|
|
|
(7,019,201
|
)
|
Allowance for doubtful accounts on
advertisement
|
|
|
(133,057
|
)
|
|
|
(121,292
|
)
|
|
|
|
|
|
|
|
|
|
Total allowance for doubtful
accounts
|
|
|
(6,298,516
|
)
|
|
|
(7,140,493
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,580,504
|
|
|
|
2,022,823
|
|
|
|
|
|
|
|
|
|
|
IV-107
Cordillera
Comunicaciones Holding Limitada and Subsidiaries
Notes to
the Consolidated Financial
Statements (Continued)
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term Receivables
|
|
|
|
|
|
|
|
|
|
More than 90 days and
|
|
|
|
|
|
|
|
|
Long-term Receivables
|
|
|
|
Up to 90 days
|
|
|
up to 1 Year
|
|
|
Subtotal
|
|
|
Total Short-term Receivables (net)
|
|
|
Total Long-term Receivables
|
|
|
|
62003
|
|
|
2004
|
|
|
2003
|
|
|
2004
|
|
|
2003
|
|
|
2004
|
|
|
2003
|
|
|
2004
|
|
|
2003
|
|
|
2004
|
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
Trade receivable
|
|
|
2,580,504
|
|
|
|
2,022,823
|
|
|
|
6,298,516
|
|
|
|
7,140,493
|
|
|
|
8,879,020
|
|
|
|
9,163,316
|
|
|
|
2,580,504
|
|
|
|
2,022,823
|
|
|
|
|
|
|
|
|
|
Allowances for doubtful accounts
|
|
|
|
|
|
|
|
|
|
|
(6,298,516
|
)
|
|
|
(7,140,493
|
)
|
|
|
(6,298,516
|
)
|
|
|
(7,140,493
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes receivable
|
|
|
92,652
|
|
|
|
114,250
|
|
|
|
190,395
|
|
|
|
197,923
|
|
|
|
283,047
|
|
|
|
312,173
|
|
|
|
92,652
|
|
|
|
114,250
|
|
|
|
|
|
|
|
|
|
Allowances for doubtful accounts
|
|
|
|
|
|
|
|
|
|
|
(190,395
|
)
|
|
|
(197,923
|
)
|
|
|
(190,395
|
)
|
|
|
(197,923
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Miscellaneous Receivables
|
|
|
2,673,926
|
|
|
|
1,426,134
|
|
|
|
90,842
|
|
|
|
102,346
|
|
|
|
2,764,768
|
|
|
|
1,528,480
|
|
|
|
2,673,926
|
|
|
|
1,426,134
|
|
|
|
|
|
|
|
|
|
Allowances for doubtful accounts
|
|
|
|
|
|
|
|
|
|
|
(90,842
|
)
|
|
|
(102,346
|
)
|
|
|
(90,842
|
)
|
|
|
(102,346
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
5,347,082
|
|
|
|
3,563,207
|
|
|
|
|
|
|
|
|
|
|
|
5,347,082
|
|
|
|
3,563,207
|
|
|
|
5,347,082
|
|
|
|
3,563,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in allowances for doubtful accounts for the years ended
December 31, 2002, 2003 and 2004 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
Beginning balance
|
|
|
2,149,165
|
|
|
|
5,262,840
|
|
|
|
6,579,753
|
|
Charged to expense
|
|
|
3,007,655
|
|
|
|
1,232,446
|
|
|
|
1,005,935
|
|
Other
|
|
|
106,020
|
|
|
|
84,467
|
|
|
|
(144,926
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
|
5,262,840
|
|
|
|
6,579,753
|
|
|
|
7,440,762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Miscellaneous receivables as of December 31, 2003 and 2004
are as follows:
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
2004
|
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
Raw materials
|
|
|
294,580
|
|
|
|
94,147
|
|
Advances to suppliers
|
|
|
412,515
|
|
|
|
120,254
|
|
Advances to employees
|
|
|
4,782
|
|
|
|
23,494
|
|
Receivables from cable services
|
|
|
1,070,971
|
|
|
|
733,776
|
|
Receivables from advertising rights
|
|
|
206,661
|
|
|
|
|
|
Network receivables
|
|
|
512,093
|
|
|
|
199,331
|
|
Receivables from Intercom
communications
|
|
|
34,672
|
|
|
|
|
|
Other receivables
|
|
|
137,652
|
|
|
|
255,132
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,673,926
|
|
|
|
1,426,134
|
|
|
|
|
|
|
|
|
|
|
IV-108
Cordillera
Comunicaciones Holding Limitada and Subsidiaries
Notes to
the Consolidated Financial
Statements (Continued)
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
|
|
Note 5.
|
Balances
and Transactions with Related Companies:
|
(a) Short-term notes and accounts receivable from related
companies as of December 31, 2003 and 2004 are as follows:
|
|
|
|
|
|
|
|
|
|
|
Identification
|
|
|
|
Short-term
|
|
Number
|
|
Company
|
|
2003
|
|
|
2004
|
|
|
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
86.547.900-K
|
|
S.A. Viña Santa Rita
|
|
|
14,797
|
|
|
|
1,568
|
|
79.952.350-7
|
|
Red Televisiva Megavisión S.A.
|
|
|
1,245
|
|
|
|
185
|
|
96.539.380-3
|
|
Ediciones Financieras S.A.
|
|
|
|
|
|
|
225
|
|
Foreign Entity
|
|
Crown Media
|
|
|
25,983
|
|
|
|
41,105
|
|
Foreign Entity
|
|
Bresnan Communications de Chile
S.A.
|
|
|
190,484
|
|
|
|
185,838
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
232,509
|
|
|
|
228,921
|
|
|
|
|
|
|
|
|
|
|
|
|
(b) Notes and accounts payable to related companies as of
December 31, 2003 and 2004 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Identification
|
|
|
|
Short-term
|
|
Long-term
|
Number
|
|
Company
|
|
2003
|
|
2004
|
|
2003
|
|
|
2004
|
|
|
|
|
ThCh$
|
|
ThCh$
|
|
ThCh$
|
|
|
ThCh$
|
|
83.032.100-4
|
|
S.y C. Hendaya S.A.
|
|
|
|
2
|
|
|
|
|
|
|
Foreign Entity
|
|
Bresnan Communications Company Ltd
partnership
|
|
173,051
|
|
158,481
|
|
|
|
|
|
|
86.547.900-K
|
|
S.A. Viña Santa Rita
|
|
24,654
|
|
1,140
|
|
|
|
|
|
|
79.952.350-7
|
|
Red Televisiva Megavisión S.A.
|
|
64,769
|
|
182,566
|
|
|
|
|
|
|
Foreign Entity
|
|
Pramer
|
|
30,432
|
|
66,311
|
|
|
|
|
|
|
Foreign Entity
|
|
Crown Media
|
|
69,994
|
|
2,669
|
|
|
|
|
|
|
Foreign Entity
|
|
Discovery
|
|
356,059
|
|
300,790
|
|
|
|
|
|
|
Foreign Entity
|
|
DMX
|
|
8,746
|
|
10,101
|
|
|
|
|
|
|
Foreign Entity
|
|
USA Network
|
|
25,320
|
|
6,750
|
|
|
|
|
|
|
Foreign Entity
|
|
Liberty Media International, Inc.
|
|
|
|
6,018,813
|
|
|
|
|
|
|
90.331.006-6
|
|
Cristal Chile S.A.
|
|
|
|
5,146,125
|
|
|
|
|
|
872,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
753,025
|
|
11,893,748
|
|
|
|
|
|
872,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IV-109
Cordillera
Comunicaciones Holding Limitada and Subsidiaries
Notes to
the Consolidated Financial
Statements (Continued)
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
(c) Transaction with related companies during the years
ended December 31, 2002, 2003 and 2004 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Effect in Income Statement
|
|
|
|
|
|
|
|
|
|
Transactions
|
|
|
Gain (Loss)
|
|
Company
|
|
RUT
|
|
Relationship
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
S.A. Viña Santa
Rita
|
|
86.547.900-K
|
|
Indirect
|
|
Advertising Contract
|
|
|
15,848
|
|
|
|
19,739
|
|
|
|
9,447
|
|
|
|
15,461
|
|
|
|
19,739
|
|
|
|
9,447
|
|
|
|
|
|
|
|
Sale of Products
|
|
|
|
|
|
|
28,088
|
|
|
|
958
|
|
|
|
|
|
|
|
(7,809
|
)
|
|
|
(958
|
)
|
Red Televisiva
Megavisión S.A.
|
|
79.952.350-7
|
|
Indirect
|
|
Advertising Contract
|
|
|
|
|
|
|
1,543
|
|
|
|
25,500
|
|
|
|
|
|
|
|
1,543
|
|
|
|
25,500
|
|
Red Televisiva
Megavisión S.A.
|
|
79.952.350-7
|
|
Indirect
|
|
Advertising Contract
|
|
|
330,831
|
|
|
|
208,126
|
|
|
|
508,456
|
|
|
|
322,762
|
|
|
|
(208,126
|
)
|
|
|
(508,456
|
)
|
|
|
79.952.350-8
|
|
Indirect
|
|
Loans receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,009
|
|
|
|
|
|
|
|
|
|
Ediciones
Financieras
|
|
96.539.380-3
|
|
Indirect
|
|
Advertising Contract
|
|
|
|
|
|
|
83,279
|
|
|
|
26,035
|
|
|
|
|
|
|
|
(83,279
|
)
|
|
|
(26,035
|
)
|
|
|
|
|
|
|
Advertising Contract
|
|
|
|
|
|
|
64,877
|
|
|
|
|
|
|
|
|
|
|
|
64,877
|
|
|
|
|
|
|
|
|
|
|
|
Advertising Contract
|
|
|
|
|
|
|
|
|
|
|
128
|
|
|
|
|
|
|
|
|
|
|
|
128
|
|
Pramer
|
|
Foreign entity
|
|
Indirect
|
|
Programming Signals
|
|
|
|
|
|
|
84,488
|
|
|
|
230,673
|
|
|
|
|
|
|
|
(84,488
|
)
|
|
|
(230,673
|
)
|
Discovery
|
|
Foreign entity
|
|
Indirect
|
|
Programming Signals
|
|
|
1,705,076
|
|
|
|
1,490,038
|
|
|
|
1,374,604
|
|
|
|
1,705,076
|
|
|
|
(1,490,383
|
)
|
|
|
(1,374,604
|
)
|
DMX
|
|
Foreign entity
|
|
Indirect
|
|
Programming Signals
|
|
|
11,151
|
|
|
|
44,385
|
|
|
|
1,532
|
|
|
|
11,151
|
|
|
|
(44,385
|
)
|
|
|
(1,532
|
)
|
CROWN MEDIA
|
|
Foreign entity
|
|
Indirect
|
|
Programming Signals
|
|
|
215,016
|
|
|
|
211,219
|
|
|
|
40,713
|
|
|
|
(318,541
|
)
|
|
|
(211,219
|
)
|
|
|
(40,713
|
)
|
Liberty Media
International, Inc.
|
|
Foreign entity
|
|
Stockholder
|
|
Short-term loans
|
|
|
|
|
|
|
|
|
|
|
6,018,813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cristal Chile
S.A.
|
|
|
|
Stockholder
|
|
Short-term loans
|
|
|
|
|
|
|
|
|
|
|
6,018,813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 6.
|
Income
Taxes and Deferred Taxes:
|
a)
Income taxes recoverable
As of December 31, 2003 and 2004, the Company had the
following income taxes recoverable:
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
2004
|
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
Current income taxes and
Article 21
|
|
|
(4,777
|
)
|
|
|
(2,213
|
)
|
Monthly income tax installments
|
|
|
11,565
|
|
|
|
11,283
|
|
Credit for training expenses
|
|
|
67,821
|
|
|
|
68,459
|
|
Credit value-added tax
|
|
|
2,025
|
|
|
|
2,024
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
76,634
|
|
|
|
79,553
|
|
|
|
|
|
|
|
|
|
|
b) Income
taxes
Income tax benefits for the years ended December 31, 2002,
2003, and 2004 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
Credit for absorbed earnings
|
|
|
(167,509
|
)
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
2,622,653
|
|
|
|
2,093,759
|
|
|
|
1,822,935
|
|
First category tax provision
|
|
|
(5,526
|
)
|
|
|
(4,777
|
)
|
|
|
(2,213
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,449,618
|
|
|
|
2,088,982
|
|
|
|
1,820,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IV-110
Cordillera
Comunicaciones Holding Limitada and Subsidiaries
Notes to
the Consolidated Financial
Statements (Continued)
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
c)
Deferred Income Taxes:
In accordance with Technical Bulletin No. 60 issued by
the Chilean Association of Accountants on deferred income taxes,
the Company has recorded deferred taxes for temporary
differences as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2003
|
|
|
As of December 31, 2004
|
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Assets
|
|
|
Liabilities
|
|
|
|
Short-term
|
|
|
Long-term
|
|
|
Short-term
|
|
|
Long-term
|
|
|
Short-term
|
|
|
Long-term
|
|
|
Short-term
|
|
|
Long-term
|
|
|
Allowance for doubtful accounts
|
|
|
1,105,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,247,088
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goods and services provision
|
|
|
16,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets provision
|
|
|
|
|
|
|
308,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
348,334
|
|
|
|
|
|
|
|
|
|
Unearned revenues
|
|
|
182,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
146,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vacation provision
|
|
|
71,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation
|
|
|
|
|
|
|
3,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,174
|
|
|
|
|
|
|
|
|
|
Forward contracts
|
|
|
|
|
|
|
|
|
|
|
(161,459
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax loss carry forwards(1)
|
|
|
|
|
|
|
14,755,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,898,544
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leasing
|
|
|
|
|
|
|
58,022
|
|
|
|
|
|
|
|
(65,889
|
)
|
|
|
|
|
|
|
61,298
|
|
|
|
|
|
|
|
(71,751
|
)
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,052,475
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,780,206
|
)
|
Trademark rights
|
|
|
|
|
|
|
2,424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,836
|
|
|
|
|
|
|
|
|
|
Software
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(289,160
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(260,283
|
)
|
Leased installations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(128,829
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(124,575
|
)
|
Difference of accelerated
depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,294,439
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,141,979
|
)
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Complementary account
|
|
|
|
|
|
|
(6,778,520
|
)
|
|
|
|
|
|
|
2,625,874
|
|
|
|
|
|
|
|
(6,778,520
|
)
|
|
|
|
|
|
|
2,363,286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,375,702
|
|
|
|
8,349,411
|
|
|
|
(161,459
|
)
|
|
|
(3,204,918
|
)
|
|
|
1,505,421
|
|
|
|
9,536,666
|
|
|
|
|
|
|
|
(3,015,508
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In accordance with Law No. 19,753, the corporate income tax
rate increased to 16.5% for the year 2003 and increased to 17%
for the year 2004 and thereafter.
|
|
|
(1) |
|
In accordance with the current enacted tax law in Chile,
accumulated tax losses can be carried-forward indefinitely. |
IV-111
Cordillera
Comunicaciones Holding Limitada and Subsidiaries
Notes to
the Consolidated Financial
Statements (Continued)
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
Note 7. Prepaid
Expenses:
Prepaid expenses as of December 31, 2003 and 2004 are
follows:
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
2004
|
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
Programming rights
|
|
|
24,874
|
|
|
|
20,926
|
|
Advertising rights
|
|
|
180,839
|
|
|
|
173,657
|
|
Prepaid transmission post usage
rights
|
|
|
378,272
|
|
|
|
13,544
|
|
Prepaid rent
|
|
|
15,922
|
|
|
|
9,789
|
|
System maintenance services
|
|
|
|
|
|
|
60,509
|
|
Rental space for fiber optics
|
|
|
196,800
|
|
|
|
192,000
|
|
Other
|
|
|
192,142
|
|
|
|
160,853
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
988,849
|
|
|
|
631,278
|
|
|
|
|
|
|
|
|
|
|
IV-112
Cordillera
Comunicaciones Holding Limitada and Subsidiaries
Notes to
the Consolidated Financial
Statements (Continued)
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
|
|
Note 8.
|
Property,
Plant and Equipment:
|
Property, Plant and Equipment as of December 31, 2003 and
2004 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2003
|
|
|
December 31, 2004
|
|
|
|
Gross
|
|
|
Accumulated
|
|
|
|
|
|
Gross
|
|
|
Accumulated
|
|
|
|
|
|
|
Value
|
|
|
Depreciation
|
|
|
Depreciation
|
|
|
Value
|
|
|
Depreciation
|
|
|
Depreciation
|
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
Land
|
|
|
500,019
|
|
|
|
|
|
|
|
|
|
|
|
500,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Land
|
|
|
500,019
|
|
|
|
|
|
|
|
|
|
|
|
500,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buildings and construction:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buildings
|
|
|
129,330
|
|
|
|
(25,150
|
)
|
|
|
(3,317
|
)
|
|
|
129,331
|
|
|
|
(43,311
|
)
|
|
|
(4,490
|
)
|
External Networks
|
|
|
115,016,029
|
|
|
|
(18,826,777
|
)
|
|
|
(6,092,788
|
)
|
|
|
117,426,344
|
|
|
|
(25,122,856
|
)
|
|
|
(6,296,079
|
)
|
Head Installations
|
|
|
1,611,503
|
|
|
|
(784,885
|
)
|
|
|
(102,687
|
)
|
|
|
1,629,638
|
|
|
|
(897,113
|
)
|
|
|
(112,229
|
)
|
Equipment Hub
|
|
|
1,709,744
|
|
|
|
(98,553
|
)
|
|
|
(44,585
|
)
|
|
|
1,756,915
|
|
|
|
(184,391
|
)
|
|
|
(85,837
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total buildings and
construction
|
|
|
118,466,606
|
|
|
|
(19,735,365
|
)
|
|
|
(6,243,377
|
)
|
|
|
120,942,228
|
|
|
|
(26,247,671
|
)
|
|
|
(6,498,635
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Machinery and Equipment
|
|
|
12,044,082
|
|
|
|
(7,284,298
|
)
|
|
|
(1,488,070
|
)
|
|
|
13,453,463
|
|
|
|
(9,011,896
|
)
|
|
|
(1,727,597
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total machinery and
equipment
|
|
|
12,044,082
|
|
|
|
(7,284,298
|
)
|
|
|
(1,488,070
|
)
|
|
|
13,453,463
|
|
|
|
(9,011,896
|
)
|
|
|
(1,727,597
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office furniture and fixtures
|
|
|
4,126,938
|
|
|
|
(2,825,005
|
)
|
|
|
(502,389
|
)
|
|
|
4,380,580
|
|
|
|
(3,281,016
|
)
|
|
|
(469,760
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total office furniture and
fixtures
|
|
|
4,126,938
|
|
|
|
(2,825,005
|
)
|
|
|
(502,389
|
)
|
|
|
4,380,580
|
|
|
|
(3,281,016
|
)
|
|
|
(469,760
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other property, plant and equipment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vehicles
|
|
|
650,300
|
|
|
|
(451,829
|
)
|
|
|
(118,173
|
)
|
|
|
601,342
|
|
|
|
(492,286
|
)
|
|
|
(93,794
|
)
|
Tools and instruments
|
|
|
156,390
|
|
|
|
(64,252
|
)
|
|
|
(27,247
|
)
|
|
|
170,301
|
|
|
|
(95,478
|
)
|
|
|
(31,226
|
)
|
Fixed assets in transit
|
|
|
59,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rented office installations
|
|
|
1,225,051
|
|
|
|
(467,233
|
)
|
|
|
(72,610
|
)
|
|
|
1,288,550
|
|
|
|
(555,756
|
)
|
|
|
(88,523
|
)
|
Cable TV materials
|
|
|
4,255,507
|
|
|
|
|
|
|
|
|
|
|
|
1,764,499
|
|
|
|
|
|
|
|
|
|
Work in progress
|
|
|
1,464,705
|
|
|
|
|
|
|
|
|
|
|
|
588,888
|
|
|
|
|
|
|
|
|
|
Decoding equipment
|
|
|
6,938,997
|
|
|
|
(3,844,929
|
)
|
|
|
(1,292,481
|
)
|
|
|
9,523,417
|
|
|
|
(5,180,464
|
)
|
|
|
(1,335,543
|
)
|
Leased assets
|
|
|
341,483
|
|
|
|
(13,744
|
)
|
|
|
(4,467
|
)
|
|
|
487,266
|
|
|
|
(65,203
|
)
|
|
|
(51,457
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other property, plant and
equipment
|
|
|
15,092,271
|
|
|
|
(4,841,987
|
)
|
|
|
(1,514,978
|
)
|
|
|
14,424,263
|
|
|
|
(6,389,187
|
)
|
|
|
(1,600,543
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property, plant and
equipment
|
|
|
150,229,916
|
|
|
|
(34,686,655
|
)
|
|
|
(9,748,814
|
)
|
|
|
153,700,553
|
|
|
|
(44,929,770
|
)
|
|
|
(10,296,535
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 9.
|
Investment
in Other Companies:
|
The Company has investments in other companies valued at their
cost of acquisition plus price level restatement.
IV-113
Cordillera
Comunicaciones Holding Limitada and Subsidiaries
Notes to
the Consolidated Financial
Statements (Continued)
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
Investments in other companies as of December 31, 2003 and
2004 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
2004
|
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
Bazuca.Com Chile S.A.
|
|
|
157,041
|
|
|
|
143,819
|
|
Internet Holding S.A.
|
|
|
283,560
|
|
|
|
283,560
|
|
Provision
|
|
|
(207,089
|
)
|
|
|
(202,038
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
233,512
|
|
|
|
225,341
|
|
|
|
|
|
|
|
|
|
|
2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2003
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Gross Value
|
|
|
Amortization
|
|
|
Net Value
|
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
Metropolis
|
|
|
50,137,914
|
|
|
|
(30,773,552
|
)
|
|
|
19,364,362
|
|
Goodwill generated from the
purchase of CTC stocks
|
|
|
53,086,511
|
|
|
|
(6,635,814
|
)
|
|
|
46,450,697
|
|
Price-level restatement
|
|
|
1,032,245
|
|
|
|
(377,274
|
)
|
|
|
654,971
|
|
Amortization
|
|
|
|
|
|
|
(4,279,614
|
)
|
|
|
(4,279,614
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
104,256,670
|
|
|
|
(42,066,254
|
)
|
|
|
62,190,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill generated from the
purchase of CTC Plataforma Técnica Red Multimedia S.A.
|
|
|
193,133
|
|
|
|
(24,281
|
)
|
|
|
168,852
|
|
Amortization of CTC
|
|
|
|
|
|
|
(9,518
|
)
|
|
|
(9,518
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
193,133
|
|
|
|
(33,799
|
)
|
|
|
159,334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31,
2003
|
|
|
104,449,803
|
|
|
|
(42,100,053
|
)
|
|
|
62,349,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2004
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Gross Value
|
|
|
Amortization
|
|
|
Net Value
|
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
Metropolis
|
|
|
49,404,189
|
|
|
|
(41,040,248
|
)
|
|
|
8,363,941
|
|
Goodwill generated from the
purchase of CTC stocks
|
|
|
52,309,635
|
|
|
|
|
|
|
|
52,309,635
|
|
Price-level restatement
|
|
|
2,542,846
|
|
|
|
(1,092,511
|
)
|
|
|
1,450,335
|
|
Amortization
|
|
|
|
|
|
|
(4,216,289
|
)
|
|
|
(4,216,289
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
104,256,670
|
|
|
|
(46,349,048
|
)
|
|
|
57,907,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill generated from the
purchase of CTC Plataforma Técnica Red Multimedia S.A.
|
|
|
193,133
|
|
|
|
(33,799
|
)
|
|
|
159,334
|
|
Amortization of CTC
|
|
|
|
|
|
|
(9,657
|
)
|
|
|
(9,657
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
193,133
|
|
|
|
(43,456
|
)
|
|
|
149,677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31,
2004
|
|
|
104,449,803
|
|
|
|
(46,392,504
|
)
|
|
|
58,057,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IV-114
Cordillera
Comunicaciones Holding Limitada and Subsidiaries
Notes to
the Consolidated Financial
Statements (Continued)
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
Goodwill amortization charge to income for the years ended
December 31, 2002, 2003 and 2004 amounted to
ThCh$4,207,744, ThCh$4,289,132 and ThCh$4,225,945, respectively.
Other assets as of December 31, 2003 and 2004 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
2004
|
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
Other investments
|
|
|
2,104
|
|
|
|
2,084
|
|
Rental guarantees
|
|
|
118,168
|
|
|
|
114,453
|
|
Residential cable TV installations
|
|
|
20,390,501
|
|
|
|
23,352,776
|
|
Accumulated amortization of
Residential Cable TV installations
|
|
|
(9,830,394
|
)
|
|
|
(14,082,739
|
)
|
Rental hubs, external net
|
|
|
422,779
|
|
|
|
931,205
|
|
Administrative
projects-in-progress
|
|
|
34,837
|
|
|
|
41,520
|
|
Other assets
|
|
|
447,431
|
|
|
|
322,275
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
11,585,426
|
|
|
|
10,682,574
|
|
|
|
|
|
|
|
|
|
|
The amortization charge to income for residential cable TV
installations for the years ended December 31, 2002, 2003
and 2004 amounted to ThCh$2,833,638, ThCh$3,621,253, and
ThCh$4,252,345, respectively.
|
|
Note 12.
|
Banks and
Financial Institutions:
|
(a) Short term obligations with banks and financial
institutions as of December 31, 2003 and 2004 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Types of currency and readjustment
|
|
|
|
U.S. Dollars
|
|
|
UF
|
|
|
TOTAL
|
|
Bank or Institution
|
|
2003
|
|
|
2004
|
|
|
2003
|
|
|
2004
|
|
|
2003
|
|
|
2004
|
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
Short-term
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Banco BCI
|
|
|
|
|
|
|
59,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
59,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital owed
|
|
|
|
|
|
|
59,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59,296
|
|
Annual Average Interest
Rate
|
|
|
|
|
|
|
3.46
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.46
|
%
|
Current portion of
long-term
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Banco Santander-Santiago
|
|
|
|
|
|
|
|
|
|
|
3,077,651
|
|
|
|
3,061,244
|
|
|
|
3,077,651
|
|
|
|
3,061,244
|
|
Banco BCI
|
|
|
|
|
|
|
|
|
|
|
1,470,568
|
|
|
|
1,461,600
|
|
|
|
1,470,568
|
|
|
|
1,461,600
|
|
Banco Estado
|
|
|
|
|
|
|
|
|
|
|
1,541,565
|
|
|
|
1,532,298
|
|
|
|
1,541,565
|
|
|
|
1,532,298
|
|
Banco Corpbanca
|
|
|
|
|
|
|
|
|
|
|
1,542,003
|
|
|
|
1,532,088
|
|
|
|
1,542,003
|
|
|
|
1,532,088
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
7,631,787
|
|
|
|
7,587,230
|
|
|
|
7,631,787
|
|
|
|
7,587,230
|
|
Total Capital owed
|
|
|
|
|
|
|
|
|
|
|
7,561,611
|
|
|
|
7,550,296
|
|
|
|
|
|
|
|
|
|
Annual Average Interest
Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.14
|
%
|
|
|
|
|
|
|
|
|
IV-115
Cordillera
Comunicaciones Holding Limitada and Subsidiaries
Notes to
the Consolidated Financial
Statements (Continued)
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2003
|
|
|
2004
|
|
|
Total short-term liabilities
denominated in foreign currency
|
|
|
0.0
|
%
|
|
|
0.8
|
%
|
Total short-term liabilities
denominated in local currency
|
|
|
100.0
|
%
|
|
|
99.2
|
%
|
(b) Long-term obligations with banks and financial
institutions:
On July 8, 2001, the Company entered into a syndicated loan
agreement led by Banco Santander-Santiago of up to UF2,823,800
with interest rates fixed at the date of issuance based on the
current 180 day Chilean Active Banking Rate (TAB) plus
1.4% due semi-annually, maturing in December 15, 2008.
Scheduled maturities of long-term bank obligations as of
December 31, 2003 and 2004 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
December 31, 2004
|
|
|
|
|
|
|
Interest
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
rate
|
|
|
Long-term
|
|
|
Due in
|
|
|
Due in
|
|
|
Due in
|
|
|
More than
|
|
|
|
|
|
Long-term
|
|
Financial institution
|
|
Currency
|
|
|
%
|
|
|
Obligations
|
|
|
1-2 Years
|
|
|
2-3 Years
|
|
|
3-5 Years
|
|
|
5 Years
|
|
|
Maturity
|
|
|
Obligations
|
|
|
|
|
|
|
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
|
|
|
ThCh$
|
|
|
Banco Santander-Santiago
|
|
|
U.F.
|
|
|
|
3.00%
|
|
|
|
12,206,882
|
|
|
|
3,047,154
|
|
|
|
3,047,154
|
|
|
|
3,047,155
|
|
|
|
|
|
|
|
Dec-2008
|
|
|
|
9,141,463
|
|
Banco BCI
|
|
|
U.F.
|
|
|
|
3.13%
|
|
|
|
5,825,926
|
|
|
|
1,454,302
|
|
|
|
1,454,302
|
|
|
|
1,454,302
|
|
|
|
|
|
|
|
Dec-2008
|
|
|
|
4,362,906
|
|
Banco Corpbanca
|
|
|
U.F.
|
|
|
|
3.13%
|
|
|
|
6,106,824
|
|
|
|
1,524,422
|
|
|
|
1,524,422
|
|
|
|
1,524,422
|
|
|
|
|
|
|
|
Dec-2008
|
|
|
|
4,573,266
|
|
Banco Estado
|
|
|
U.F.
|
|
|
|
3.00%
|
|
|
|
6,106,810
|
|
|
|
1,524,418
|
|
|
|
1,524,418
|
|
|
|
1,524,418
|
|
|
|
|
|
|
|
Dec-2008
|
|
|
|
4,573,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
30,246,442
|
|
|
|
7,550,296
|
|
|
|
7,550,296
|
|
|
|
7,550,297
|
|
|
|
|
|
|
|
|
|
|
|
22,650,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2003
|
|
|
2004
|
|
|
Total liabilities denominated in
foreign currency
|
|
|
0.0%
|
|
|
|
0.0%
|
|
Total liabilities denominated in
local currency
|
|
|
100.0%
|
|
|
|
100.0%
|
|
|
|
Note 13.
|
Accounts
Payable:
|
The detail of Accounts payable as of December 31, 2003 and
2004 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
2004
|
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
Suppliers
|
|
|
5,501,600
|
|
|
|
4,778,425
|
|
Programming
|
|
|
2,804,636
|
|
|
|
1,959,010
|
|
Fees
|
|
|
5,416
|
|
|
|
5,920
|
|
Other accounts payable
|
|
|
946,747
|
|
|
|
546,016
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
9,258,399
|
|
|
|
7,289,371
|
|
|
|
|
|
|
|
|
|
|
IV-116
Cordillera
Comunicaciones Holding Limitada and Subsidiaries
Notes to
the Consolidated Financial
Statements (Continued)
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
Notes payable as of December 31, 2003 and 2004 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
2004
|
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
Uncollected stale dated checks
|
|
|
12,133
|
|
|
|
12,193
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
12,133
|
|
|
|
12,193
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 15.
|
Miscellaneous
Payables:
|
Balance of short-term miscellaneous payable as of
December 31, 2003 and 2004 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
2004
|
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
Telefónica CTC Chile S.A.(1)
|
|
|
219,227
|
|
|
|
14,496,161
|
|
Comunicaciones Intercom S.A.
|
|
|
85,531
|
|
|
|
|
|
San Felipe-Los Andes network
|
|
|
724,217
|
|
|
|
|
|
Others
|
|
|
12,993
|
|
|
|
12,273
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,041,968
|
|
|
|
14,508,434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
On July 30, 2001, in connection with the purchase
transaction involving Companía de Telecomunicaciones de
Chile S.A. (CTC), the Company entered into a loan agreement with
CTC for a total of ThUS$20,000 payable over 5 years with an
annual interest rate of 6%. The accounts payable balance
resulting from this transaction as of December 31, 2003 was
classified as long-term debt and amounted to ThCh$14,761,670. In
2004, the long-term debt was reclassified to short-term and as
of December 31, 2004 amounted to ThCh$14,496,161. |
The balance of long-term notes payable as of December 31,
2003 and 2004 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
|
|
Principal
|
|
Principal
|
|
|
2003
|
|
|
2004
|
|
ThUS$
|
|
ThUS$
|
|
|
ThUS$
|
|
|
ThUS$
|
|
|
20,000
|
|
|
11,146,000
|
|
|
|
14,761,670
|
|
|
|
|
|
|
|
Note 16.
|
Provisions
and withholdings:
|
The balance of provisions and withholdings as of
December 31, 2003 and 2004 is as follows:
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
2004
|
|
|
|
ThUS$
|
|
|
ThUS$
|
|
|
Vacations
|
|
|
487,092
|
|
|
|
520,943
|
|
Audit fees
|
|
|
3,467
|
|
|
|
3,463
|
|
Withholdings
|
|
|
686,627
|
|
|
|
799,376
|
|
Suppliers
|
|
|
89,644
|
|
|
|
73,945
|
|
Others
|
|
|
30,312
|
|
|
|
34,611
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,297,142
|
|
|
|
1,432,338
|
|
|
|
|
|
|
|
|
|
|
IV-117
Cordillera
Comunicaciones Holding Limitada and Subsidiaries
Notes to
the Consolidated Financial
Statements (Continued)
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
|
|
Note 17.
|
Unearned
Revenues:
|
Unearned revenues correspond to advertising contracts which have
not yet been realized. As of December 31, 2003 and 2004
unearned revenue amounted to ThCh$736,997 and ThCh$680,687,
respectively.
|
|
Note 18.
|
Other
Current Liabilities:
|
Other current liabilities as of December 31, 2003 and 2004
are as follows:
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
2004
|
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
Forward contract rights
|
|
|
(24,573,611
|
)
|
|
|
(7,246,200
|
)
|
Forward contract obligations
|
|
|
29,927,432
|
|
|
|
8,108,271
|
|
Deferred loss from forward contract
|
|
|
(949,758
|
)
|
|
|
|
|
Deferred interest from forward
contract
|
|
|
(484,948
|
)
|
|
|
(47,803
|
)
|
Deferred interest amortization
from forward contract
|
|
|
373,629
|
|
|
|
27,751
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,292,744
|
|
|
|
842,019
|
|
|
|
|
|
|
|
|
|
|
The forward contracts held by the Company as of
December 31, 2004 are investments contracts and the results
have been recognized in the Income Statement.
As of December 31, 2003, the Company maintained investments
in hedge contracts in order to minimize US$ currency
exchange differences (cash-flow and fair value hedges).
In accordance with Technical Bulletin No. 57
(BT No. 57) issued by Colegio de
Contadores de Chile A.G. any income (loss) generated on these
forward contracts to cover exchange rate fluctuations in US
dollar obligations must be recognized simultaneously with the
payment terms of the US dollar obligation.
In addition in according with BT No. 57 forward contracts
undertaken and timed to cover future cash payments of foreign
programming suppliers are deferred and recognized in income at
the date contract of maturity.
Forward contracts as of December 31, 2003 are detailed as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
Institution
|
|
Amount in US$
|
|
|
Maturity
|
|
Rate
|
|
Income (loss)
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
Th$
|
|
|
Th$
|
|
BCI
|
|
|
250,000
|
|
|
01-06-04
|
|
2.13%
|
|
|
|
|
|
(33,683)
|
SECURITY
|
|
|
1,000,000
|
|
|
01-02-04
|
|
1.61%
|
|
|
|
|
|
(139,949)
|
SECURITY
|
|
|
500,000
|
|
|
01-02-04
|
|
1.26%
|
|
|
|
|
|
(68,700)
|
SECURITY
|
|
|
500,000
|
|
|
01-02-04
|
|
1.17%
|
|
|
|
|
|
(68,344)
|
SECURITY
|
|
|
1,000,000
|
|
|
01-05-04
|
|
0.97%
|
|
|
|
|
|
(132,126)
|
SECURITY
|
|
|
250,000
|
|
|
01-05-04
|
|
1.41%
|
|
|
|
|
|
(33,840)
|
SECURITY
|
|
|
250,000
|
|
|
01-06-04
|
|
2.27%
|
|
|
|
|
|
(33,935)
|
SECURITY
|
|
|
250,000
|
|
|
01-06-04
|
|
2.04%
|
|
|
|
|
|
(33,251)
|
CORPBANCA
|
|
|
500,000
|
|
|
01-06-04
|
|
1.07%
|
|
|
|
|
|
(66,406)
|
CORPBANCA
|
|
|
250,000
|
|
|
01-06-04
|
|
1.45%
|
|
|
|
|
|
(33,909)
|
CORPBANCA
|
|
|
250,000
|
|
|
01-06-04
|
|
2.10%
|
|
|
|
|
|
(33,620)
|
BCI
|
|
|
500,000
|
|
|
01-30-04
|
|
1.50%
|
|
|
|
|
|
(78,147)
|
SECURITY
|
|
|
500,000
|
|
|
01-31-04
|
|
0.00%
|
|
|
|
|
|
(83,896)
|
SECURITY
|
|
|
500,000
|
|
|
02-01-04
|
|
3.10%
|
|
|
|
|
|
(82,045)
|
SECURITY
|
|
|
500,000
|
|
|
02-02-04
|
|
1.76%
|
|
|
|
|
|
(83,447)
|
SECURITY
|
|
|
500,000
|
|
|
02-03-04
|
|
1.75%
|
|
|
|
|
|
(83,401)
|
IV-118
Cordillera
Comunicaciones Holding Limitada and Subsidiaries
Notes to
the Consolidated Financial
Statements (Continued)
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
Institution
|
|
Amount in US$
|
|
|
Maturity
|
|
Rate
|
|
Income (loss)
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
Th$
|
|
|
Th$
|
|
SECURITY
|
|
|
500,000
|
|
|
02-04-04
|
|
1.71%
|
|
|
|
|
|
(83,262)
|
SECURITY
|
|
|
500,000
|
|
|
02-05-04
|
|
1.78%
|
|
|
|
|
|
(83,494)
|
SECURITY
|
|
|
500,000
|
|
|
02-06-04
|
|
1.68%
|
|
|
|
|
|
(83,170)
|
SECURITY
|
|
|
1,000,000
|
|
|
02-07-04
|
|
2.33%
|
|
|
|
|
|
(168,878)
|
SECURITY
|
|
|
500,000
|
|
|
02-08-04
|
|
1.48%
|
|
|
|
|
|
(86,718)
|
CORPBANCA
|
|
|
500,000
|
|
|
02-09-04
|
|
2.48%
|
|
|
|
|
|
(82,931)
|
CORPBANCA
|
|
|
500,000
|
|
|
02-10-04
|
|
2.30%
|
|
|
|
|
|
(82,282)
|
CORPBANCA
|
|
|
500,000
|
|
|
02-11-04
|
|
2.81%
|
|
|
|
|
|
(84,066)
|
BCI
|
|
|
500,000
|
|
|
02-12-04
|
|
2.52%
|
|
|
|
|
|
(87,201)
|
BCI
|
|
|
500,000
|
|
|
02-13-04
|
|
2.67%
|
|
|
|
|
|
(87,669)
|
BCI
|
|
|
500,000
|
|
|
02-14-04
|
|
2.55%
|
|
|
|
|
|
(87,286)
|
BCI
|
|
|
250,000
|
|
|
02-15-04
|
|
2.64%
|
|
|
|
|
|
(43,792)
|
SECURITY
|
|
|
500,000
|
|
|
02-16-04
|
|
2.32%
|
|
|
|
|
|
(86,720)
|
SECURITY
|
|
|
500,000
|
|
|
02-17-04
|
|
0.87%
|
|
|
(81,781
|
)
|
|
|
SECURITY
|
|
|
500,000
|
|
|
02-18-04
|
|
0.75%
|
|
|
|
|
|
(78,310)
|
SECURITY
|
|
|
500,000
|
|
|
02-19-04
|
|
1.08%
|
|
|
(74,423
|
)
|
|
|
BCI
|
|
|
550,000
|
|
|
02-20-04
|
|
1.53%
|
|
|
|
|
|
(76,646)
|
BCI
|
|
|
500,000
|
|
|
02-21-04
|
|
1.49%
|
|
|
|
|
|
(69,565)
|
BCI
|
|
|
500,000
|
|
|
02-22-04
|
|
1.47%
|
|
|
|
|
|
(69,527)
|
BCI
|
|
|
250,000
|
|
|
02-23-04
|
|
2.43%
|
|
|
|
|
|
(35,358)
|
BCI
|
|
|
250,000
|
|
|
02-24-04
|
|
2.23%
|
|
|
|
|
|
(35,084)
|
BCI
|
|
|
500,000
|
|
|
02-25-04
|
|
2.43%
|
|
|
|
|
|
(70,716)
|
BCI
|
|
|
1,000,000
|
|
|
02-26-04
|
|
2.23%
|
|
|
|
|
|
(140,316)
|
BCI
|
|
|
1,000,000
|
|
|
02-27-04
|
|
2.09%
|
|
|
|
|
|
(139,550)
|
BCI
|
|
|
500,000
|
|
|
02-28-04
|
|
2.05%
|
|
|
|
|
|
(69,660)
|
BCI
|
|
|
500,000
|
|
|
02-29-04
|
|
2.20%
|
|
|
|
|
|
(70,082)
|
SECURITY
|
|
|
600,000
|
|
|
03-01-04
|
|
0.72%
|
|
|
|
|
|
(86,075)
|
SECURITY
|
|
|
2,500,000
|
|
|
03-02-04
|
|
1.74%
|
|
|
|
|
|
(351,342)
|
SECURITY
|
|
|
750,000
|
|
|
03-03-04
|
|
1.53%
|
|
|
(102,090
|
)
|
|
|
SECURITY
|
|
|
750,000
|
|
|
03-04-04
|
|
1.12%
|
|
|
(98,624
|
)
|
|
|
CORPBANCA
|
|
|
450,000
|
|
|
03-05-04
|
|
1.52%
|
|
|
|
|
|
(62,693)
|
SECURITY
|
|
|
3,000,000
|
|
|
03-06-04
|
|
1.76%
|
|
|
|
|
|
(354,082)
|
SECURITY
|
|
|
1,000,000
|
|
|
03-07-04
|
|
2.48%
|
|
|
|
|
|
(120,464)
|
SECURITY
|
|
|
500,000
|
|
|
03-08-04
|
|
2.48%
|
|
|
|
|
|
(60,232)
|
SECURITY
|
|
|
500,000
|
|
|
03-09-04
|
|
2.43%
|
|
|
|
|
|
(60,122)
|
SECURITY
|
|
|
1,000,000
|
|
|
03-10-04
|
|
1.69%
|
|
|
|
|
|
(118,089)
|
CORPBANCA
|
|
|
750,000
|
|
|
03-11-04
|
|
2.13%
|
|
|
(94,050
|
)
|
|
|
ESTADO
|
|
|
750,000
|
|
|
03-12-04
|
|
2.00%
|
|
|
(90,699
|
)
|
|
|
ESTADO
|
|
|
750,000
|
|
|
03-13-04
|
|
1.98%
|
|
|
(90,632
|
)
|
|
|
ESTADO
|
|
|
300,000
|
|
|
03-14-04
|
|
1.76%
|
|
|
(38,305
|
)
|
|
|
ESTADO
|
|
|
200,000
|
|
|
03-15-04
|
|
1.69%
|
|
|
(25,500
|
)
|
|
|
ESTADO
|
|
|
250,000
|
|
|
03-16-04
|
|
1.53%
|
|
|
(31,748
|
)
|
|
|
ESTADO
|
|
|
500,000
|
|
|
03-17-04
|
|
1.38%
|
|
|
(62,029
|
)
|
|
|
ESTADO
|
|
|
500,000
|
|
|
03-18-04
|
|
1.23%
|
|
|
(61,805
|
)
|
|
|
ESTADO
|
|
|
500,000
|
|
|
03-19-04
|
|
0.75%
|
|
|
(51,336
|
)
|
|
|
ESTADO
|
|
|
500,000
|
|
|
03-20-04
|
|
0.69%
|
|
|
(46,736
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
37,350,000
|
|
|
|
|
|
|
|
(949,758
|
)
|
|
(4,304,081)
|
IV-119
Cordillera
Comunicaciones Holding Limitada and Subsidiaries
Notes to
the Consolidated Financial
Statements (Continued)
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
Institution
|
|
Amount in US$
|
|
|
Maturity
|
|
Rate
|
|
Income (loss)
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
Th$
|
|
|
Th$
|
|
ESTADO
|
|
|
500,000
|
|
|
01-30-04
|
|
2.49%
|
|
|
|
|
|
1,491
|
ESTADO
|
|
|
1,500,000
|
|
|
02-27-04
|
|
1.58%
|
|
|
|
|
|
4,124
|
ESTADO
|
|
|
1,000,000
|
|
|
01-30-04
|
|
0.94%
|
|
|
|
|
|
5,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
3,000,000
|
|
|
|
|
|
|
|
|
|
|
11,337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
40,350,000
|
|
|
|
|
|
|
|
(949,758
|
)
|
|
(4,292,744)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward contracts as of December 31, 2004 are detailed as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
Net
|
|
Institution
|
|
Amount in US$
|
|
|
Maturity
|
|
|
Rate
|
|
|
Income (loss)
|
|
|
income
|
|
|
|
|
|
|
|
|
|
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
ESTADO
|
|
|
1,125,000
|
|
|
|
07-01-05
|
|
|
|
0.70
|
%
|
|
|
|
|
|
|
(38,369
|
)
|
ESTADO
|
|
|
2,250,000
|
|
|
|
07-01-05
|
|
|
|
1.11
|
%
|
|
|
|
|
|
|
(148,894
|
)
|
SECURITY
|
|
|
250,000
|
|
|
|
07-01-05
|
|
|
|
0.08
|
%
|
|
|
|
|
|
|
(13,086
|
)
|
SECURITY
|
|
|
250,000
|
|
|
|
07-01-05
|
|
|
|
(0.11
|
)%
|
|
|
|
|
|
|
(12,862
|
)
|
SECURITY
|
|
|
250,000
|
|
|
|
07-01-05
|
|
|
|
0.04
|
%
|
|
|
|
|
|
|
(12,120
|
)
|
SECURITY
|
|
|
375,000
|
|
|
|
07-01-05
|
|
|
|
0.43
|
%
|
|
|
|
|
|
|
(25,970
|
)
|
ESTADO
|
|
|
300,000
|
|
|
|
07-01-05
|
|
|
|
(0.40
|
)%
|
|
|
|
|
|
|
(17,142
|
)
|
ESTADO
|
|
|
500,000
|
|
|
|
07-01-05
|
|
|
|
(0.14
|
)%
|
|
|
|
|
|
|
(25,657
|
)
|
ESTADO
|
|
|
1,000,000
|
|
|
|
07-01-05
|
|
|
|
0.13
|
%
|
|
|
|
|
|
|
(48,896
|
)
|
ESTADO
|
|
|
375,000
|
|
|
|
07-01-05
|
|
|
|
0.20
|
%
|
|
|
|
|
|
|
(25,604
|
)
|
ESTADO
|
|
|
1,125,000
|
|
|
|
07-01-05
|
|
|
|
0.24
|
%
|
|
|
|
|
|
|
(77,164
|
)
|
SECURITY
|
|
|
1,125,000
|
|
|
|
07-01-05
|
|
|
|
0.27
|
%
|
|
|
|
|
|
|
(77,325
|
)
|
ESTADO
|
|
|
500,000
|
|
|
|
07-01-05
|
|
|
|
1.10
|
%
|
|
|
|
|
|
|
(39,535
|
)
|
ESTADO
|
|
|
1,000,000
|
|
|
|
07-01-05
|
|
|
|
1.45
|
%
|
|
|
|
|
|
|
(80,367
|
)
|
ESTADO
|
|
|
750,000
|
|
|
|
07-01-05
|
|
|
|
0.11
|
%
|
|
|
|
|
|
|
(59,660
|
)
|
ESTADO
|
|
|
825,000
|
|
|
|
07-01-05
|
|
|
|
1.00
|
%
|
|
|
|
|
|
|
(69,043
|
)
|
SECURITY
|
|
|
1,000,000
|
|
|
|
07-01-05
|
|
|
|
(0.57
|
)%
|
|
|
|
|
|
|
(70,325
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
13,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(842,019
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 19. Deferred
Gains:
During the year ended December 31, 2003, the Companys
subsidiary Metropolis Intercom S.A. issued an additional
3,923,834 shares raising ThCh$4,924,603 in cash. The
Company did not subscribe to any of the shares. As the cash
received was greater than the related increase in minority
interest, the Company recorded a deferred gain of ThCh$1,493,092
which will be amortized to income over future periods and as of
December 31, 2003 and 2004 was ThCh$1,474,427 and
ThCh$1,400,705, respectively. The amortization recognized as of
December 31, 2003 and 2004 was ThCh$18,665 and ThCh$73,721,
respectively.
IV-120
Cordillera
Comunicaciones Holding Limitada and Subsidiaries
Notes to
the Consolidated Financial
Statements (Continued)
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
Note 20. Shareholders
Equity:
The changes in shareholders equity in the years ended
December 31, 2002, 2003 and 2004 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid-in
|
|
|
Price-level
|
|
|
Accumulated
|
|
|
Net loss
|
|
|
|
|
|
|
Capital
|
|
|
restatement
|
|
|
Deficit
|
|
|
for the year
|
|
|
Total
|
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
Balance as of January 1,
2002
|
|
|
193,063,828
|
|
|
|
1,737,575
|
|
|
|
(24,279,630
|
)
|
|
|
(13,997,522
|
)
|
|
|
156,524,251
|
|
Reclassification of prior year net
loss
|
|
|
|
|
|
|
|
|
|
|
(13,997,522
|
)
|
|
|
13,997,522
|
|
|
|
|
|
Price-level restatement
|
|
|
5,791,915
|
|
|
|
52,126
|
|
|
|
(1,148,315
|
)
|
|
|
|
|
|
|
4,695,726
|
|
Net loss for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,961,416
|
)
|
|
|
(16,961,416
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31,
2002
|
|
|
198,855,743
|
|
|
|
1,789,701
|
|
|
|
(39,425,467
|
)
|
|
|
(16,961,416
|
)
|
|
|
144,258,561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price-level restatement for
comparison purposes
|
|
|
200,844,300
|
|
|
|
1,807,600
|
|
|
|
(39,819,722
|
)
|
|
|
(17,131,030
|
)
|
|
|
145,701,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1,
2003
|
|
|
198,855,743
|
|
|
|
1,789,701
|
|
|
|
(39,425,467
|
)
|
|
|
(16,961,416
|
)
|
|
|
144,258,561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification of prior year net
loss
|
|
|
|
|
|
|
|
|
|
|
(16,961,416
|
)
|
|
|
16,961,416
|
|
|
|
|
|
Price-level restatement
|
|
|
1,988,557
|
|
|
|
17,899
|
|
|
|
(563,869
|
)
|
|
|
|
|
|
|
1,442,587
|
|
Net loss for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,446,519
|
)
|
|
|
(13,446,519
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31,
2003
|
|
|
200,844,300
|
|
|
|
1,807,600
|
|
|
|
(56,950,752
|
)
|
|
|
(13,446,519
|
)
|
|
|
132,254,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price-level restatement for
comparison purposes
|
|
|
205,865,408
|
|
|
|
1,852,790
|
|
|
|
(58,374,521
|
)
|
|
|
(13,782,682
|
)
|
|
|
135,560,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1,
2004
|
|
|
200,844,300
|
|
|
|
1,807,600
|
|
|
|
(56,950,752
|
)
|
|
|
(13,446,519
|
)
|
|
|
132,254,629
|
|
Reclassification of prior year net
loss
|
|
|
|
|
|
|
|
|
|
|
(13,446,519
|
)
|
|
|
13,446,519
|
|
|
|
|
|
Price-level restatement
|
|
|
5,021,108
|
|
|
|
45,190
|
|
|
|
(1,759,932
|
)
|
|
|
|
|
|
|
3,306,366
|
|
Net loss for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,725,276
|
)
|
|
|
(12,725,276
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31,
2004
|
|
|
205,865,408
|
|
|
|
1,852,790
|
|
|
|
(72,157,203
|
)
|
|
|
(12,725,276
|
)
|
|
|
122,835,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IV-121
Cordillera
Comunicaciones Holding Limitada and Subsidiaries
Notes to
the Consolidated Financial
Statements (Continued)
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
|
|
Note 21.
|
Other
non-operating expenses:
|
The composition of other non-operating expenses for the years
ended December 31, 2002, 2003 and 2004 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
Disposal of equipment
|
|
|
(811,091
|
)
|
|
|
(290,492
|
)
|
|
|
(280,536
|
)
|
Write-off of investments
|
|
|
(209,155
|
)
|
|
|
|
|
|
|
|
|
Provision for obsolescence
|
|
|
(121,037
|
)
|
|
|
(144,568
|
)
|
|
|
|
|
Other
|
|
|
(426,629
|
)
|
|
|
(694,183
|
)
|
|
|
(129,988
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(1,567,912
|
)
|
|
|
(1,129,243
|
)
|
|
|
(410,524
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 22.
|
Price-Level Restatement
and Foreign Currency Translation:
|
|
|
(a)
|
Price
Level Restatement
|
The detail of price-level restatement credited (charged) to
income for the year ended December 31 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
Shareholders equity
|
|
|
(4,885,680
|
)
|
|
|
(1,486,080
|
)
|
|
|
(3,322,980
|
)
|
Non-monetary assets
|
|
|
6,190,388
|
|
|
|
1,982,111
|
|
|
|
4,574,684
|
|
Liabilities denominated in foreign
currencies
|
|
|
(1,045,644
|
)
|
|
|
(405,590
|
)
|
|
|
(832,510
|
)
|
Revenue accounts
|
|
|
34,992
|
|
|
|
(14,631
|
)
|
|
|
(69,935
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price-level restatement,
net
|
|
|
294,056
|
|
|
|
75,810
|
|
|
|
349,259
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(b)
|
Foreign
Currency Translation
|
The detail of foreign currency translation charged to income for
the year ended December 31 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
Non-monetary assets
|
|
|
1,594,773
|
|
|
|
(5,566,768
|
)
|
|
|
(1,336,350
|
)
|
Non-monetary liabilities
|
|
|
(2,569,681
|
)
|
|
|
4,270,331
|
|
|
|
1,123,028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for foreign currency
translation
|
|
|
(974,908
|
)
|
|
|
(1,296,437
|
)
|
|
|
(213,322
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 23.
|
Board of
Directors Compensation:
|
During the years ended December 31, 2002, 2003 and 2004 the
Board of Directors did not receive compensation for their
services.
IV-122
Cordillera
Comunicaciones Holding Limitada and Subsidiaries
Notes to
the Consolidated Financial
Statements (Continued)
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
|
|
Note 24.
|
Contingencies
and Commitments:
|
On June 8, 2001, the Company obtained a syndicated loan
with Banco Santiago, Banco del Estado de Chile, Banco
Crédito Inversiones and CorpBanca, for UF 2,823,800. To
guarantee the loans, Metrópolis Intercom S.A. pledged the
following assets in favor of the aforementioned banks: Hybrid
Fiber optic Coaxial Network (HFC), its equipment and
other real estate.
The Companys syndicated loan has certain restrictive
covenants, the most significant of which are summarized below:
a) The Company must have a financial expense coverage ratio
equal to or greater than 4 times.
b) Debt to asset ratio must be less than or equal to 0.85.
The Company has received bank waivers which releases them from
the obligation to meet the financial coverage ratio and permits
the Company not to consider liabilities to shareholders in the
calculation of the debt to asset ratio. In accordance with the
above, the Company as of December 31, 2004, is in
compliance with these covenants or has received the appropriate
bank waivers.
1) The Company is party to various lawsuits arising in the
ordinary course of its business. Management considers it
unlikely that any losses associated with the pending lawsuits
will significantly affect the Company or its subsidiaries
results of operations, financial position and cash flows,
although no assurance can be given to such effect. Accordingly,
the Company has not established a provision for these lawsuits.
2) Complaint filed by TVN y Corporación de
Televisión UCTV against the Company, before the 26th Civil
Court of Santiago. Claim against alleged infractions of
intellectual property rights, in which the complainant solicits
retroactive termination of the use of the intellectual property,
starting from the notification date of the lawsuit. The amounts
involved in the case have not been disclosed.
3) Counter claim filed by Metrópolis Intercom S.A.
against channels 7 and 13 for fees to which Metrópolis
Intercom S.A. claims it has rights because it incurs significant
increases in advertising investments related to carrying signals
for these channels. The Company is suing for 20% of the total
amount related to advertising investments received by channels 7
and 13 since 1996.
4) On December 9, 2004, the Chilean Subsecretary of
Telecomunications (Subtel) notified the Company that
the regulatory agency considered Metropoliss Intercom
Voice Over Internet Protocol (MIs VOIP)
services were in violation of Article No. 8 of the
General Telecomunications Law. Subtel alleged that the Company
was exploiting a public utility (telephone service) without the
express consent of the appropriate regulatory agency and ordered
that the Company cease commercial operations related to that
service until the issue was resolved.
As the matter is not yet resolved by the relevant authority, the
Minister of Telecommunications, the Company has requested that
the order be suspended. This suspension was subsequently granted
for a period of 60 days.
Furthermore, on December 19, 2004, the Company filed its
defense to the allegations made by Subtel, and is currently
awaiting the next step of this legal matter.
Currently, the Company is awaiting Subtels decision with
respect to the Companys observations. Most likely, Subtel
will decide to accept evidence from the Company that supports
its position.
IV-123
Cordillera
Comunicaciones Holding Limitada and Subsidiaries
Notes to
the Consolidated Financial
Statements (Continued)
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
The eventual decision of the Minister of Transportation and
Telecommunications can be appealed before the Court of Appeals.
If the resolution if confirmed by the Court, determining that
the service does not meet current regulations, the Company will
be obligated to suspend or modify its services, as determined by
Subtel.
|
|
Note 25.
|
Relevant
Events:
|
On January 9, 2004, Cristal Chile Comunicaciones S.A., 50%
owner of the Company, reached an agreement of understanding with
Liberty Media International, indirect owner of the remaining 50%
of the Company and majority shareholder of VTR S.A. in order to
merge Metropolis and VTR. The agreement is subject to numerous
conditions, among them, drafting of a final agreement, approval
by the board of directors of related parties of Liberty Media
including UnitedGlobalCom, Inc., approval by the Chilean
Anti-Monopoly Commission, and approval by the board of directors
of CristalChile Comunicaciones S.A.
Note 26. Subsequent
Events (Unaudited):
On March 11, 2005 the Supreme Court gave its permission for
the merger of Metropolis-Intercom S.A. and VTR S.A. to proceed,
thereby overcoming the last legal obstacle for the merger to be
approved. As a result Cordillera Comunicaciones Holding Limitada
was liquidated as of March 29, 2005 and its investment in
Metropolis was transferred to VTR S.A. Metropolis will continue
its operation as a separate legal entity. Other assets and
liabilities were assumed by the shareholders of Cordillera
Comunicaciones Holding Limitada.
Note 27. Differences
between Chilean and United States Generally Accepted Accounting
Principles:
Accounting principles generally accepted in Chile vary in
certain important aspects from those generally accepted in the
United States of America. Such differences involve certain
methods for measuring the amounts included in the financial
statements as well as additional disclosures required by
U.S. GAAP.
The principal differences between Chilean GAAP and
U.S. GAAP are described below together with explanations,
where appropriate, of the method used in the determination of
the adjustments that affect net income and total
shareholders equity. References made below to the United
States Statements of Financial Accounting Standards are
abbreviated as SFAS.
The preparation of financial statements in conformity with
Chilean GAAP, along with the reconciliation to U.S. GAAP,
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities,
disclosures of contingent assets and liabilities as of the date
of the financial statements and the reported amounts of revenues
and expenses during the reported period. Actual results could
differ from those estimates.
|
|
I.
|
Differences
in measurement methods
|
The principal methods applied in the preparation of the
accompanying financial statements, which have resulted in
amounts that differ from those that would have otherwise been
determined under U.S. GAAP, are as follows:
(a) Inflation
accounting:
The cumulative inflation rate in Chile as measured by the
Consumer Price Index for the three years ended December 31,
2004 was 6.6%.
Chilean GAAP requires that the financial statements be restated
to reflect the full effects of the loss in the purchasing power
of the Chilean peso on the financial position and results of
operations of reporting entities.
IV-124
Cordillera
Comunicaciones Holding Limitada and Subsidiaries
Notes to
the Consolidated Financial
Statements (Continued)
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
The method, described in Note 2(c), is based on a model
which enables calculation of net inflation gains or losses
caused by monetary assets and liabilities exposed to changes in
the purchasing power of local currency, by restating all
non-monetary accounts in the financial statements. The model
prescribes that the historical cost of such accounts be restated
for general price-level changes between the date of origin of
each item and the year-end, but requires that latest cost values
be used for the restatement of inventories. Under
U.S. GAAP, financial statement amounts must be reported in
historical currency.
The inclusion of price-level adjustments in the accompanying
financial statements is considered appropriate under the
prolonged inflationary conditions affecting the Chilean economy
even though the cumulative inflation rate for the last three
years does not exceed 100%. The reconciliation included herein
of consolidated net income and Shareholders equity, as
determined with U.S. GAAP, does not include adjustments to
eliminate the effect of inflation accounting under Chilean GAAP.
(b) Deferred
income taxes:
Starting January 1, 2000, the Company recorded income taxes
in accordance with Technical Bulletin No. 60
(BT No. 60) of the Chilean Association of Accountants,
recognizing, using the liability method, the deferred tax
effects of temporary differences between the financial and tax
values of assets and liabilities. As a transitional provision, a
contra asset or liability (complementary account)
has been recorded offsetting the effects of the deferred tax
assets and liabilities not recorded prior to January 1,
2000. Such contra asset or liability must be amortized to income
over the estimated average reversal periods corresponding to the
underlying temporary differences to which the deferred tax asset
or liability relates.
Under U.S. GAAP, companies must account for deferred taxes
in accordance with Statement of Financial Accounting Standards
(SFAS) No. 109 Accounting for Income
Taxes, which requires an asset and liability approach for
financial accounting and reporting of income taxes, under the
following basic principles:
|
|
|
|
(i)
|
A deferred tax liability or asset is recognized for the
estimated future tax effects attributable to temporary
differences and tax loss carry-forwards.
|
|
|
(ii)
|
The measurement of deferred tax liabilities and assets is based
on the provisions of the enacted tax law. The effects of future
changes in tax laws or rates are not anticipated.
|
|
|
(iii)
|
The measurement of deferred tax assets are reduced by a
valuation allowance, if based on the weight of available
evidence, it is more likely than not that some portion of the
deferred tax assets will not be realized.
|
Temporary differences are defined as any difference between the
financial reporting basis and the tax basis of an asset and
liability that at some future date will reverse, thereby
resulting in taxable income or expense. Temporary differences
ordinarily become taxable or deductible when the related asset
is recovered or the related liability is settled. A deferred tax
liability or asset represents the amount of taxes payable or
refundable in future years as a result of temporary differences
at the end of the current year.
As of December 31, 2003 and 2004, a valuation allowance was
recorded under U.S. GAAP to reduce the deferred tax asset
resulting from tax loss carry-forwards to the amount that is
more likely than not to be realized.
The effect of the differences mentioned above and the effects of
deferred taxes over the adjustments to U.S. GAAP on the net
loss and shareholders equity of the Company are included
in paragraph (j) below.
IV-125
Cordillera
Comunicaciones Holding Limitada and Subsidiaries
Notes to
the Consolidated Financial
Statements (Continued)
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
(c) Goodwill:
Under Chilean GAAP at the time of related acquisitions, assets
acquired and liabilities assumed were recorded based on their
carrying value in the records of the acquired company, and the
excess of the purchase price over the carrying value was
recorded as goodwill. Such amounts are currently being amortized
over a maximum period of 20 years.
Under U.S. GAAP, assets acquired and liabilities assumed
are recorded at their estimated fair values, and the excess of
the purchase price over the estimated fair value of the net
identifiable assets and liabilities acquired is recorded as
goodwill, unless the transaction is between entities under
common control, in which case the related party transaction
would be recorded using book values and no goodwill would be
recorded. Prior to July 1, 2002 under U.S. GAAP, the
Company amortized goodwill on a straight-line basis over the
estimated useful lives of the assets, ranging from 20 to
40 years.
Under Chilean GAAP, the Company has evaluated the carrying
amount of goodwill for impairment. The evaluation of impairment
was based on the fair value of the investment which the Company
determined using a discounted cash flow approach, stock
valuations and recent comparable transactions in the market. In
order to estimate fair value, the Company made assumptions about
future events that are highly uncertain at the time of
estimation. The results of this analysis showed that the
Companys goodwill was not impaired.
In accordance with U.S. GAAP, the Company adopted
SFAS No. 142 Goodwill and Other Intangible
Assets, (SFAS 142) as of January 1,
2002. SFAS 142 applies to all goodwill and identified
intangible assets acquired in a business combination. Under the
new standard, all goodwill, including that acquired before
initial application of the standard, and indefinite-lived
intangible assets are not amortized, but must be tested for
impairment at least annually.
Previously, the Company evaluated the carrying amount of
goodwill, in relation to the operating performance and future
undiscounted cash flows of the underlying business and the
transitional impairment test required by the standard, which was
performed during the first half of 2003, which resulted in no
impairment of the Companys recorded goodwill.
The following effects are included in the net loss and
shareholders equity reconciliation to U.S. GAAP under
paragraph (j) below:
(a) Adjustment to record differences in goodwill
amortization between Chile GAAP and U.S. GAAP as of
December 31, 2001, and
(b) The reversal of goodwill amortization recorded under
Chilean GAAP for the years ended December 31, 2002, 2003
and 2004.
Impairment is recorded based on an estimate of future discounted
cash flows, as compared to current carrying amounts. For the
years ended December 31, 2002, 2003, and 2004 no additional
amounts were recorded for impairment under U.S. GAAP.
IV-126
Cordillera
Comunicaciones Holding Limitada and Subsidiaries
Notes to
the Consolidated Financial
Statements (Continued)
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
Goodwill under U.S. GAAP as of December 31 2002, 2003
and 2004 is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
Goodwill
|
|
|
104,449,801
|
|
|
|
104,449,801
|
|
|
|
104,449,801
|
|
Accumulated amortization
|
|
|
(25,926,695
|
)
|
|
|
(25,926,695
|
)
|
|
|
(25,926,695
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill, net
|
|
|
78,523,106
|
|
|
|
78,523,106
|
|
|
|
78,523,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The effect of these differences on the net loss and
shareholders equity of the Company is included in
paragraph (j) below.
(d) Derivative
instruments:
For the years ended December 31, 2002, 2003 and 2004, the
Company continued to have foreign currency forward exchange
contracts for the purpose of transferring risk from exposure in
U.S. dollars to an exposure in Chilean peso. Under Chilean
GAAP, the Company deferred forward contract gains and losses
when the contracts are hedges for future program payments and
other cash out flows to be made in U.S. dollars. The
hedging criteria and documentation requirements under Chilean
GAAP are less onerous than U.S. GAAP. The Company recorded
a net liability of ThCh$4,292,744 as of December 31, 2003
and a net liability of ThCh$842,019 as of December 31,
2004. Fair values under Chilean GAAP have been estimated using
the closing spot exchange rate at year end, under US GAAP the
fair value is calculated using a forward rate as of
year-end.
Beginning January 1, 2002, under U.S. GAAP, the
accounting for derivative instruments is described in
SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities and other complementary
rules and amendments. SFAS No. 133, as amended,
establishes accounting and reporting standards requiring that
every derivative instrument, including certain derivative
instruments embedded in other contracts, be recorded in the
balance sheet as either an asset or liability measured at its
fair value. SFAS No. 133 requires that changes in the
derivative instruments fair value be recognized currently
in earnings unless specific hedge accounting criteria are met.
Special accounting for qualifying hedges allows a derivative
instruments gains or losses to offset against related
results on the hedged item in the income statement, to the
extent effective, and requires that a company must formally
document, designate, and assess the effectiveness of
transactions that receive hedge accounting.
SFAS No. 133, in part, allows special hedge accounting
for fair value and cash flow hedges.
SFAS No. 133 provides that the gain or loss on a
derivative instrument designated and qualifying as a fair
value hedging instrument as well as the offsetting loss or
gain on the hedged item attributable to the hedged risk be
recognized currently in earnings in the same accounting period.
While the Company enters into derivatives for the purpose of
mitigating its global financial and commodity risks, these
operations do not meet the documentation requirements to qualify
for hedge accounting under U.S. GAAP. Therefore changes in
the respective fair values of all derivatives are reported in
earnings when they occur.
The effect of the adjustment between the current market values
and the fair value for the years ended December 31, 2002,
2003 and 2004 is included in paragraph (j) below
(e) Depreciation:
Under Chilean GAAP, the Company depreciates the external network
using a progressive method based on the projected number of
subscribers per product line. Under U.S. GAAP, the method
of depreciation used has continued to be the
straight-line
method.
IV-127
Cordillera
Comunicaciones Holding Limitada and Subsidiaries
Notes to
the Consolidated Financial
Statements (Continued)
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
The effect of accounting for this difference in accordance with
U.S. GAAP is included in the reconciliation of net loss and
shareholders equity in paragraph (j) below.
(f) Revenue
recognition:
The Company recognizes cable television, high speed Internet
access, telephony and programming revenues when such services
are provided to subscribers. Revenues derived from other sources
are recognized when services are provided, events occur or
products are delivered. Initial subscriber installation revenues
are recognized in the period in which the related services are
provided to the extent of direct selling cost. Any remaining
amount is deferred and recognized over the estimated average
period that the subscribers are expected to remain connected to
the cable television system. Historically, installation revenues
have been less than related direct selling costs, therefore such
revenues have been recognized as installations are completed.
(g) Investments
in marketable securities:
Under Chilean GAAP, investments in debt and equity securities
are accounted for at the lower of cost or market value. Under
U.S. GAAP investments in debt and equity securities are
accounted for according to the purpose for which these
investments are held. U.S. GAAP defines three distinct
purposes for holding investments:
|
|
|
|
|
Investments held for trading purposes
|
|
|
|
Investments available-for-sale
|
|
|
|
Investments held to maturity
|
The Company considers that all of its investments are
available-for-sale.
The effect of recording the marketable securities at fair value
is not material and is not included in the effects on
shareholders equity under paragraph (j) below.
(h) Issuance
of shares in subsidiary:
During the year ended December 31, 2003 Metropolis Intercom
S.A. issued an additional 3,923,834 shares representing
4.4% of Metropolis Intercom S.A. to related parties. The Company
did not subscribe to any of these shares.
Under Chilean GAAP, as the cash received was greater than the
related increase in minority interest the Company recorded a
deferred gain of ThCh$1,455,918 (historic value), which will be
amortized into income in future periods.
Under U.S. GAAP, the transfer would be recorded at the
lower of carrying value or fair value, since the cash received
was less than the carrying value of Metropolis Intercom S.A.
under U.S. GAAP. Consequently under U.S. GAAP, the
difference between the cash proceeds and the carrying value has
been recorded as a distribution to shareholders. The effect of
eliminating the income statement impact of this transaction from
net loss as determined under Chilean GAAP and recording this
transaction under U.S. GAAP is included in
paragraph (j) below.
|
|
|
(i) Effect
of minority interests on U.S. GAAP adjustments:
|
The effects of recording minority interests on U.S. GAAP
adjustments are included in the reconciliation to U.S. GAAP
in paragraph (j) below.
IV-128
Cordillera
Comunicaciones Holding Limitada and Subsidiaries
Notes to
the Consolidated Financial
Statements (Continued)
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
(j) Effect
of conforming net loss and shareholders equity to
U.S. GAAP:
The adjustments required to conform reported net loss to
U.S. GAAP are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
Net loss in accordance with
Chilean GAAP
|
|
|
(17,559,306
|
)
|
|
|
(13,782,682
|
)
|
|
|
(12,725,276
|
)
|
Deferred taxes (paragraph b)
|
|
|
(2,023,771
|
)
|
|
|
(1,042,069
|
)
|
|
|
(1,124,442
|
)
|
Amortization of goodwill
(paragraph c)
|
|
|
4,269,791
|
|
|
|
4,289,132
|
|
|
|
4,225,945
|
|
Derivative instruments
(paragraph d)
|
|
|
153,218
|
|
|
|
(1,155,215
|
)
|
|
|
1,039,953
|
|
Depreciation (paragraph e)
|
|
|
(1,254,758
|
)
|
|
|
(1,531,846
|
)
|
|
|
(742,030
|
)
|
Issuance of subsidiaries shares
(paragraph h)
|
|
|
|
|
|
|
(18,665
|
)
|
|
|
(73,721
|
)
|
Effect of minority interests on
U.S. GAAP adjustments (paragraph i)
|
|
|
|
|
|
|
309,040
|
|
|
|
82,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and comprehensive loss
in accordance with U.S. GAAP
|
|
|
(16,414,826
|
)
|
|
|
(12,932,305
|
)
|
|
|
(9,316,601
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The adjustments required to conform reported shareholders
equity to U.S. GAAP are as follows:
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2003
|
|
|
2004
|
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
Shareholders equity, in
accordance with Chilean GAAP
|
|
|
135,560,995
|
|
|
|
122,835,719
|
|
Deferred income taxes
(paragraph b)
|
|
|
(3,225,187
|
)
|
|
|
(4,349,629
|
)
|
Effect in amortization of goodwill
(paragraph c)
|
|
|
16,239,862
|
|
|
|
20,465,806
|
|
Derivative instruments
(paragraph d)
|
|
|
(998,224
|
)
|
|
|
41,729
|
|
Depreciation (paragraph e)
|
|
|
(4,320,097
|
)
|
|
|
(5,062,127
|
)
|
Issuance of subsidiary shares
(paragraph h)
|
|
|
(972,327
|
)
|
|
|
(1,046,048
|
)
|
Effect of minority interests on
U.S. GAAP adjustments (paragraph i)
|
|
|
309,039
|
|
|
|
392,010
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity, in
accordance with U.S. GAAP
|
|
|
142,594,061
|
|
|
|
133,277,460
|
|
|
|
|
|
|
|
|
|
|
The following summarizes the changes in shareholders
equity under U.S. GAAP during the years ended
December 31, 2002, 2003 and 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
Balance as of January 1
|
|
|
172,894,854
|
|
|
|
156,480,028
|
|
|
|
142,594,061
|
|
Issuance of subsidiary shares
(paragraph h)
|
|
|
|
|
|
|
(953,662
|
)
|
|
|
|
|
Net loss and comprehensive loss in
accordance with U.S. GAAP
|
|
|
(16,414,826
|
)
|
|
|
(12,932,305
|
)
|
|
|
(9,316,601
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of
December 31
|
|
|
156,480,028
|
|
|
|
142,594,061
|
|
|
|
133,277,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IV-129
Cordillera
Comunicaciones Holding Limitada and Subsidiaries
Notes to
the Consolidated Financial
Statements (Continued)
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
II. Additional
disclosure requirements
The following additional disclosures are required under
U.S. GAAP:
(a) Income
taxes:
Deferred tax assets (liabilities) are summarized as follows
as of December 31 under U.S. GAAP:
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
2004
|
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
Deferred Tax Assets
|
|
|
|
|
|
|
|
|
Allowance for doubtful debts
|
|
|
1,105,571
|
|
|
|
1,247,088
|
|
Goods and services provision
|
|
|
16,665
|
|
|
|
35,240
|
|
Assets provision
|
|
|
|
|
|
|
|
|
Unearned revenues
|
|
|
182,172
|
|
|
|
146,889
|
|
Vacation provision
|
|
|
71,294
|
|
|
|
76,204
|
|
Forward contract
|
|
|
169,698
|
|
|
|
(7,094
|
)
|
Tax loss carry-forwards
|
|
|
14,755,016
|
|
|
|
15,898,544
|
|
Trademarks
|
|
|
|
|
|
|
|
|
Assets provision
|
|
|
308,839
|
|
|
|
348,334
|
|
Leasing
|
|
|
58,022
|
|
|
|
61,298
|
|
Trademark rights
|
|
|
2,424
|
|
|
|
2,836
|
|
Accumulated depreciation
|
|
|
738,046
|
|
|
|
864,735
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax
assets
|
|
|
17,407,747
|
|
|
|
18,674,074
|
|
|
|
|
|
|
|
|
|
|
Deferred Tax
Liabilities
|
|
|
|
|
|
|
|
|
Forward contracts
|
|
|
(161,459
|
)
|
|
|
|
|
Leasing operations
|
|
|
(65,889
|
)
|
|
|
(71,751
|
)
|
Accumulated depreciation
|
|
|
(2,294,439
|
)
|
|
|
(2,141,979
|
)
|
Goodwill
|
|
|
(4,972,368
|
)
|
|
|
(4,933,213
|
)
|
Software
|
|
|
(289,160
|
)
|
|
|
(260,283
|
)
|
Rented installations
|
|
|
(128,829
|
)
|
|
|
(124,575
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax
liabilities
|
|
|
(7,912,144
|
)
|
|
|
(7,531,801
|
)
|
Net deferred tax asset
(liability) before valuation allowance
|
|
|
9,495,603
|
|
|
|
11,142,273
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
(6,362,054
|
)
|
|
|
(7,465,323
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
(liability)
|
|
|
3,133,549
|
|
|
|
3,676,950
|
|
|
|
|
|
|
|
|
|
|
The classification of the net deferred tax asset before
valuation allowance detailed above is as follows:
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
2004
|
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
Short-term
|
|
|
1,383,942
|
|
|
|
1,498,327
|
|
Long-term
|
|
|
8,111,661
|
|
|
|
9,643,946
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax
liabilities
|
|
|
9,495,603
|
|
|
|
11,142,273
|
|
|
|
|
|
|
|
|
|
|
IV-130
Cordillera
Comunicaciones Holding Limitada and Subsidiaries
Notes to
the Consolidated Financial
Statements (Continued)
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
The deferred income tax benefit in accordance with
U.S. GAAP is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
Deferred income tax benefit, Chile
GAAP Note 6
|
|
|
2,449,618
|
|
|
|
2,088,982
|
|
|
|
1,820,722
|
|
Additional deferred tax
adjustment, U.S. GAAP, net
|
|
|
(2,023,771
|
)
|
|
|
(1,042,069
|
)
|
|
|
(1,124,442
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax benefit
under U.S. GAAP
|
|
|
425,847
|
|
|
|
1,046,913
|
|
|
|
696,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Permanent
differences
Amortization of goodwill is the only permanent income tax
difference.
(b) Foreign
currency forward contract capacity:
The Companys Board of Directors approves policies on
risk-management of forward currency risk through the use of U.F.
to U.S. dollar forward contracts. The Company petitions
several Chilean and foreign banks to approve forward contract
limits on a yearly basis, which in the aggregate, total
US$73 million, US$50 million and US$50 million as
of December 31, 2002, 2003 and 2004, respectively. There
was US$24.8 million, US$9.7 million and
US$39.9 million available as of December 31, 2002,
2003 and 2004, respectively.
(c) Lease
agreements:
The Company leases computer equipment and office space by way of
capital lease payable in installments through 2016, with a
bargain purchase option at the end of the lease.
Minimum lease payments under capital leases are as follows:
|
|
|
|
|
|
|
Capital
|
|
|
|
ThCh$
|
|
|
2005
|
|
|
51,070
|
|
2006
|
|
|
32,518
|
|
2007
|
|
|
29,808
|
|
2008
|
|
|
32,518
|
|
Thereafter
|
|
|
230,354
|
|
|
|
|
|
|
Total future minimum lease payments
|
|
|
376,268
|
|
Interest
|
|
|
(99,603
|
)
|
|
|
|
|
|
Present value of net minimum
lease payments
|
|
|
276,665
|
|
|
|
|
|
|
Lease obligations for the years ended December 31, 2003 and
2004 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
2004
|
|
|
Short-term
|
|
|
38,625
|
|
|
|
94,313
|
|
Long-term
|
|
|
278,357
|
|
|
|
275,519
|
|
(d) Advertising
costs:
Advertising costs are expensed as incurred and amounted to
ThCh$2,096,739, ThCh$2,473,895 and ThCh$2,138,229 for the years
ended December 31, 2002, 2003 and 2004, respectively.
IV-131
Cordillera
Comunicaciones Holding Limitada and Subsidiaries
Notes to
the Consolidated Financial
Statements (Continued)
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
(e) Reclassification
differences between Chilean GAAP and U.S. GAAP:
The following reclassifications are required to conform the
presentation of Chilean GAAP income statement information to
that required under U.S. GAAP for the years ended
December 31, 2002, 2003 and 2004. The reclassification
amounts are determined in accordance with Chilean GAAP.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2002
|
|
|
|
|
|
|
|
|
|
U.S. GAAP
|
|
|
|
Chilean GAAP
|
|
|
Reclassification
|
|
|
Presentation
|
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
Operating loss
|
|
|
(11,641,140
|
)
|
|
|
(5,286,981
|
)
|
|
|
(16,928,121
|
)
|
Non-operating expenses
|
|
|
(8,456,463
|
)
|
|
|
5,286,981
|
|
|
|
(3,169,482
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2003
|
|
|
|
|
|
|
|
|
|
U.S. GAAP
|
|
|
|
Chilean GAAP
|
|
|
Reclassification
|
|
|
Presentation
|
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
Operating loss
|
|
|
(7,214,820
|
)
|
|
|
(4,894,029
|
)
|
|
|
(12,108,849
|
)
|
Non-operating expenses
|
|
|
(8,823,391
|
)
|
|
|
4,894,029
|
|
|
|
(3,929,362
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2004
|
|
|
|
|
|
|
|
|
|
U.S. GAAP
|
|
|
|
Chilean GAAP
|
|
|
Reclassification
|
|
|
Presentation
|
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
Operating loss
|
|
|
(8,645,859
|
)
|
|
|
(4,220,459
|
)
|
|
|
(12,866,318
|
)
|
Non-operating expenses
|
|
|
(6,360,795
|
)
|
|
|
4,220,459
|
|
|
|
(2,140,336
|
)
|
The following reclassifications are required to conform the
presentation of Chilean GAAP balance sheet information to that
required under U.S. GAAP for the years ended
December 31, 2003 and 2004. The reclassification amounts
are determined in accordance with Chilean GAAP.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2003
|
|
|
|
|
|
|
|
|
|
U.S. GAAP
|
|
|
|
Chilean GAAP
|
|
|
Reclassification
|
|
|
Presentation
|
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
Total current assets
|
|
|
15,167,731
|
|
|
|
949,757
|
|
|
|
16,117,488
|
|
Total current liabilities
|
|
|
25,185,654
|
|
|
|
949,757
|
|
|
|
24,235,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2004
|
|
|
|
|
|
|
|
|
|
U.S. GAAP
|
|
|
|
Chilean GAAP
|
|
|
Reclassification
|
|
|
Presentation
|
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
Total current liabilities
|
|
|
44,305,345
|
|
|
|
22,650,889
|
|
|
|
66,956,234
|
|
Total long-term liabilities
|
|
|
28,254,037
|
|
|
|
(22,650,889
|
)
|
|
|
5,603,148
|
|
For US GAAP purposes, as of December 31, 2004 long-term
obligation has been reclassified to short-term in accordance
with EITF 86-30, Classification of obligation when a
violation is waived by the creditor.
IV-132
Cordillera
Comunicaciones Holding Limitada and Subsidiaries
Notes to
the Consolidated Financial
Statements (Continued)
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
(f) Condensed
balance sheet and income statement in accordance to US
GAAP:
The condensed consolidated balance sheet for the years ended
December 31 under US GAAP and classified in accordance with
US GAAP is presented as follows:
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
2004
|
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
ASSETS
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash and equivalents
|
|
|
7,146,955
|
|
|
|
4,245,184
|
|
Receivables
|
|
|
5,579,591
|
|
|
|
3,792,128
|
|
Other current assets
|
|
|
3,390,942
|
|
|
|
2,216,252
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
16,117,488
|
|
|
|
10,253,564
|
|
PROPERTY, PLANT AND
EQUIPMENT
|
|
|
|
|
|
|
|
|
PP&E
|
|
|
150,229,916
|
|
|
|
153,700,553
|
|
Accumulated depreciation
|
|
|
(39,006,752
|
)
|
|
|
(49,991,897
|
)
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment,
net
|
|
|
111,223,164
|
|
|
|
103,708,656
|
|
OTHER ASSETS
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
78,523,106
|
|
|
|
78,523,106
|
|
Other long-term assets
|
|
|
18,551,666
|
|
|
|
17,641,457
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
|
97,074,772
|
|
|
|
96,164,563
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
224,415,424
|
|
|
|
210,126,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
CURRENT-TERM
LIABILITIES
|
|
|
|
|
|
|
|
|
Banks and financial inst.
|
|
|
7,631,787
|
|
|
|
30,297,444
|
|
Payables
|
|
|
11,065,525
|
|
|
|
33,703,746
|
|
Other
|
|
|
8,266,625
|
|
|
|
2,920,409
|
|
|
|
|
|
|
|
|
|
|
Total current-term
liabilities
|
|
|
26,963,937
|
|
|
|
66,921,599
|
|
LONG-TERM LIABILITIES
|
|
|
|
|
|
|
|
|
Banks and financial inst
|
|
|
30,246,442
|
|
|
|
|
|
Other
|
|
|
18,342,079
|
|
|
|
4,202,444
|
|
|
|
|
|
|
|
|
|
|
Total long-term
liabilities
|
|
|
48,588,521
|
|
|
|
4,202,444
|
|
Minority interest
|
|
|
6,268,905
|
|
|
|
5,725,280
|
|
SHAREHOLDERS
EQUITY
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
155,526,366
|
|
|
|
142,594,061
|
|
Net loss
|
|
|
(12,932,305
|
)
|
|
|
(9,316,601
|
)
|
|
|
|
|
|
|
|
|
|
Total shareholders
equity
|
|
|
142,594,061
|
|
|
|
133,277,460
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and
shareholders equity
|
|
|
224,415,424
|
|
|
|
210,126,783
|
|
|
|
|
|
|
|
|
|
|
IV-133
Cordillera
Comunicaciones Holding Limitada and Subsidiaries
Notes to
the Consolidated Financial
Statements (Continued)
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
The condensed consolidated statements of income for the years
ended December 31 under US GAAP and classified in
accordance with US GAAP are presented as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
OPERATING INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
47,911,196
|
|
|
|
46,100,072
|
|
|
|
45,547,636
|
|
Operating costs
|
|
|
(46,358,310
|
)
|
|
|
(41,389,764
|
)
|
|
|
(40,601,181
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin
|
|
|
1,552,886
|
|
|
|
4,710,308
|
|
|
|
4,946,455
|
|
Administrative and selling expenses
|
|
|
(15,958,113
|
)
|
|
|
(14,279,993
|
)
|
|
|
(14,328,858
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(14,405,227
|
)
|
|
|
(9,569,685
|
)
|
|
|
(9,382,403
|
)
|
NON-OPERATING INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial income (expenses)
|
|
|
(2,058,538
|
)
|
|
|
(2,490,613
|
)
|
|
|
(2,276,273
|
)
|
Other non-operating income
|
|
|
153,218
|
|
|
|
|
|
|
|
1,039,953
|
|
Other non-operating expense
|
|
|
|
|
|
|
(1,173,880
|
)
|
|
|
(73,721
|
)
|
Goodwill amortization
|
|
|
62,047
|
|
|
|
|
|
|
|
|
|
Price-level restatement and
Foreign currency translation
|
|
|
(680,852
|
)
|
|
|
(1,220,627
|
)
|
|
|
135,937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating loss
|
|
|
(2,524,125
|
)
|
|
|
(4,885,120
|
)
|
|
|
(1,174,104
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before taxes and minority
interest
|
|
|
(16,929,352
|
)
|
|
|
(14,454,805
|
)
|
|
|
(10,556,507
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefit
|
|
|
425,847
|
|
|
|
1,046,913
|
|
|
|
696,280
|
|
Minority interest
|
|
|
88,679
|
|
|
|
475,587
|
|
|
|
543,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the year
|
|
|
(16,414,826
|
)
|
|
|
(12,932,305
|
)
|
|
|
(9,316,601
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(g) Estimated
fair value of financial instruments and derivative financial
instruments:
|
The accompanying tables provide disclosure of the estimated fair
value of financial instruments owned by the Company. Various
limitations are inherent in the presentation, including the
following:
|
|
|
|
|
The data excludes non-financial assets and liabilities, such as
property, plant and equipment, and goodwill.
|
|
|
|
While the data represents managements best estimates, the
data is subjective and involves significant estimates regarding
current economic and market conditions and risk characteristics.
|
The methodologies and assumptions used depend on the terms and
risk characteristics of the various instruments and include the
following:
|
|
|
|
|
Cash and cash equivalents approximate fair value because of the
short-term maturity of these instruments.
|
|
|
|
For current liabilities that are contracted at variable interest
rates, the book value is considered to be equivalent to their
fair value.
|
|
|
|
For interest-bearing liabilities with an original contractual
maturity of greater than one year, the fair values are
calculated by discounting contractual cash flows at current
market origination rates with similar terms.
|
IV-134
Cordillera
Comunicaciones Holding Limitada and Subsidiaries
Notes to
the Consolidated Financial
Statements (Continued)
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
The following is a detail of the Companys financial
instruments Chilean GAAP carrying amount and estimated
fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2003
|
|
|
2004
|
|
|
|
Chilean
|
|
|
|
|
|
Chilean
|
|
|
|
|
|
|
GAAP
|
|
|
|
|
|
GAAP
|
|
|
|
|
|
|
Carrying
|
|
|
Estimated
|
|
|
Carrying
|
|
|
Estimated
|
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Amount
|
|
|
Fair Value
|
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
Assets
|
Cash and cash equivalents
|
|
|
7,146,726
|
|
|
|
7,146,726
|
|
|
|
4,245,184
|
|
|
|
4,245,184
|
|
Short-term accounts receivable
|
|
|
2,580,504
|
|
|
|
2,580,504
|
|
|
|
2,022,823
|
|
|
|
2,022,823
|
|
Notes receivable
|
|
|
92,652
|
|
|
|
92,652
|
|
|
|
114,250
|
|
|
|
114,250
|
|
Miscellaneous receivables
|
|
|
2,673,926
|
|
|
|
2,673,926
|
|
|
|
1,426,134
|
|
|
|
1,426,134
|
|
Notes and accounts receivable from
related companies
|
|
|
232,509
|
|
|
|
232,509
|
|
|
|
228,921
|
|
|
|
228,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
Short-term bank debt
|
|
|
|
|
|
|
|
|
|
|
(59,325
|
)
|
|
|
(59,325
|
)
|
Current portion of long-term bank
debt
|
|
|
(7,631,787
|
)
|
|
|
(7,631,787
|
)
|
|
|
(7,587,230
|
)
|
|
|
(7,587,230
|
)
|
Accounts payable
|
|
|
9,258,399
|
|
|
|
9,258,399
|
|
|
|
7,289,371
|
|
|
|
7,289,371
|
|
Current notes and accounts payable
to related companies
|
|
|
753,025
|
|
|
|
753,025
|
|
|
|
11,893,748
|
|
|
|
11,893,748
|
|
Forward contracts
|
|
|
(4,292,744
|
)
|
|
|
(5,290,969
|
)
|
|
|
(842,019
|
)
|
|
|
(800,290
|
)
|
Notes payable
|
|
|
(12,133
|
)
|
|
|
(12,133
|
)
|
|
|
(12,193
|
)
|
|
|
(12,193
|
)
|
Miscellaneous payables
|
|
|
1,041,968
|
|
|
|
1,041,968
|
|
|
|
14,508,434
|
|
|
|
14,508,434
|
|
Long-term bank debt
|
|
|
(30,246,442
|
)
|
|
|
(30,246,442
|
)
|
|
|
(22,650,889
|
)
|
|
|
(22,650,889
|
)
|
Long-term notes payable
|
|
|
(14,761,670
|
)
|
|
|
(14,761,670
|
)
|
|
|
|
|
|
|
|
|
Long-term notes and accounts
payable to related companies
|
|
|
|
|
|
|
|
|
|
|
872,688
|
|
|
|
872,688
|
|
(h) Cash
and cash equivalents:
Under Chilean GAAP cash and cash equivalents are considered to
be all highly liquid investments with a remaining maturity of
less than 90 days as of the closing date of the financial
statements, whereas, U.S. GAAP considers cash and cash
equivalents to be all highly liquid investments with an original
maturity date of less than 90 days. The difference between
the balance under U.S. GAAP and Chilean GAAP of cash and
cash equivalents is not material for the periods presented.
Supplementary
Cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
Assets acquired under capital
leases
|
|
|
|
|
|
|
|
|
|
|
85,440
|
|
Interest paid during the year
|
|
|
(1,500,630
|
)
|
|
|
(1,852,560
|
)
|
|
|
(1,268,197
|
)
|
IV-135
Cordillera
Comunicaciones Holding Limitada and Subsidiaries
Notes to
the Consolidated Financial
Statements (Continued)
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
Revenues and expenses recognized from barter transactions for
the years ended December 31 2002, 2003 and 2004 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
ThCh$
|
|
|
Revenues recognized from barter
transactions
|
|
|
774,333
|
|
|
|
725,574
|
|
|
|
518,338
|
|
Expenses recognized from barter
transactions
|
|
|
31,593
|
|
|
|
62,601
|
|
|
|
24,957
|
|
(i) Defaults:
On June 8, 2001, the Company obtained a syndicated loan
with Banco Santiago, Banco del Estado de Chile, Banco
Crédito Inversiones and CorpBanca, for UF 2,823,800. To
guarantee the loans, Metrópolis Intercom S.A. pledged the
following assets in favor of the aforementioned banks: Hybrid
Fiber optic Coaxial Network (HFC), its equipment and
other real estate.
The Companys syndicated loan has certain restrictive
covenants.
The Company has received bank waivers which releases them from
the obligation to meet the financial coverage ratio and permits
the Company not to consider liabilities to shareholders in the
calculation of the debt to asset ratio.
The amount of the obligation as of December 31, 2004 is
ThCh$20,650,889, and the period of the waiver is 180 days.
For US GAAP purposes, the long-term obligation has been
reclassified to the short-term in accordance to
EITF 86-30,
Classification of obligation when a violation is waived by
the creditor.
(j) Recently
issued accounting pronouncement:
Amendment
of Statement 133 on Derivative Instruments and Hedging
Activities
In May 2004 the FASB issued Statement No. 149
Amendment of Statement 133 on Derivative Instruments
and Hedging Activities. This Statement amends and
clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded
in other contracts (collectively referred to as derivatives) and
for hedging activities under FASB Statement No. 133
Accounting for Derivative Instruments and Hedging
Activities. This Statement is effective for contracts
entered into or modified after June 30, 2003, except for
hedging relationships designated after June 30, 2003. In
addition, all provisions of this Statement should be applied
prospectively with exceptions. The provisions of this Statement
that relate to Statement 133 Implementation Issues that
have been effective for fiscal quarters that began prior to
June 15, 2003, should continue to be applied in accordance
with their respective effective dates. In addition,
paragraphs 7(a) and 23(a) of that Statement, which relate
to forward purchases or sales of when-issued securities or other
securities that do not yet exist, should be applied to both
existing contracts and new contracts entered into after
June 30, 2003. The implementation of SFAS No. 149
had no material impact on the results of operations or financial
position of the Company.
IV-136
Report of
Independent Registered Public Accounting Firm
The Board of Directors
Fox Pan American Sports, LLC and its Subsidiary:
We have audited the accompanying consolidated balance sheet as
of December 31, 2004 and the related consolidated
statements of operations, changes in members
(deficit) equity and cash flows for the year then ended of
Fox Pan American Sports, LLC and its subsidiary (the Company).
These financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes consideration
of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Companys internal control over
financial reporting. Accordingly, we express no such opinion. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Fox Pan American Sports, LLC, and its subsidiary as
of December 31, 2004, and the results of their operations
and their cash flows for the year then ended, in conformity with
accounting principles generally accepted in the United States of
America.
KPMG LLP
Miami, Florida
April 16, 2005
IV-137
FOX PAN
AMERICAN SPORTS, LLC AND SUBSIDIARY
CONSOLIDATED
BALANCE SHEETS
December 31,
2004 and 2003
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
Unaudited
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
6,947,650
|
|
|
$
|
12,370,241
|
|
Accounts receivable, net of
allowance of doubtful accounts of $2,622,128 and $4,574,337,
respectively
|
|
|
25,418,844
|
|
|
|
22,680,843
|
|
Due from affiliates
|
|
|
747,187
|
|
|
|
906,469
|
|
Broadcast rights, net
|
|
|
3,405,589
|
|
|
|
9,837,575
|
|
Prepaid expenses and other current
assets
|
|
|
1,796,695
|
|
|
|
626,730
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
38,315,965
|
|
|
|
46,421,858
|
|
Property and equipment, net
|
|
|
631,762
|
|
|
|
393,835
|
|
Other assets
|
|
|
2,180,686
|
|
|
|
748,268
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
41,128,413
|
|
|
$
|
47,563,961
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND MEMBERS
(DEFICIT) EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
5,581,428
|
|
|
$
|
8,306,630
|
|
Accrued expenses
|
|
|
5,220,339
|
|
|
|
5,291,422
|
|
Broadcast rights payable
|
|
|
3,383,745
|
|
|
|
8,180,097
|
|
Current portion notes payable to
members
|
|
|
7,500,000
|
|
|
|
|
|
Due to affiliates
|
|
|
2,280,231
|
|
|
|
3,183,068
|
|
Income taxes payable
|
|
|
600,000
|
|
|
|
|
|
Deferred revenue
|
|
|
2,990,444
|
|
|
|
966,669
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
27,556,187
|
|
|
|
25,927,886
|
|
Notes payable to members
|
|
|
19,700,000
|
|
|
|
22,745,424
|
|
Accrued interest to members
|
|
|
4,768,169
|
|
|
|
1,684,109
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
52,024,356
|
|
|
|
50,357,419
|
|
Commitments
|
|
|
|
|
|
|
|
|
Members deficit
|
|
|
(10,895,943
|
)
|
|
|
(2,793,458
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
41,128,413
|
|
|
$
|
47,563,961
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
IV-138
FOX PAN
AMERICAN SPORTS, LLC AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF OPERATIONS
Years
ended December 31, 2004 and 2003, and
period from February 5, 2002 (date of merger) through
December 31, 2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
|
|
|
|
Unaudited
|
|
|
Unaudited
|
|
|
Net advertising and subscriber
revenue
|
|
$
|
90,804,007
|
|
|
$
|
80,507,973
|
|
|
$
|
57,034,958
|
|
Sale of broadcast rights
|
|
|
6,772,714
|
|
|
|
6,001,730
|
|
|
|
9,427,462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
97,576,721
|
|
|
|
86,509,703
|
|
|
|
66,462,420
|
|
Cost of revenue
|
|
|
77,724,516
|
|
|
|
85,118,256
|
|
|
|
93,859,489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin (loss)
|
|
|
19,852,205
|
|
|
|
1,391,447
|
|
|
|
(27,397,069
|
)
|
Selling, general, and
administrative expenses
|
|
|
19,306,028
|
|
|
|
19,610,630
|
|
|
|
20,358,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
546,177
|
|
|
|
(18,219,183
|
)
|
|
|
(47,755,584
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(3,084,060
|
)
|
|
|
(1,684,109
|
)
|
|
|
|
|
Other income (expense), net
|
|
|
(411,340
|
)
|
|
|
1,207,027
|
|
|
|
(487,654
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss before income taxes
|
|
|
(2,949,223
|
)
|
|
|
(18,696,265
|
)
|
|
|
(48,243,238
|
)
|
Income tax expense
|
|
|
(5,121,238
|
)
|
|
|
(4,173,940
|
)
|
|
|
(2,870,825
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(8,070,461
|
)
|
|
$
|
(22,870,205
|
)
|
|
$
|
(51,114,063
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
IV-139
FOX PAN
AMERICAN SPORTS, LLC AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF CHANGES IN MEMBERS (DEFICIT) EQUITY
Years
ended December 31, 2004 and 2003, and
period from February 5, 2002 (date of merger) through
December 31, 2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Members
|
|
|
other
|
|
|
|
|
|
|
|
|
|
capital
|
|
|
comprehensive
|
|
|
Accumulated
|
|
|
Total members
|
|
|
|
contributions
|
|
|
income
|
|
|
deficit
|
|
|
(deficit) equity
|
|
|
Balance at February 5, 2002
(date of merger) (unaudited)
|
|
$
|
31,776,237
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
31,776,237
|
|
Capital contributions (unaudited)
|
|
|
33,541,416
|
|
|
|
|
|
|
|
|
|
|
|
33,541,416
|
|
Net loss (unaudited)
|
|
|
|
|
|
|
|
|
|
|
(51,114,063
|
)
|
|
|
(51,114,063
|
)
|
Foreign currency translation
adjustment (unaudited)
|
|
|
|
|
|
|
3,908,958
|
|
|
|
|
|
|
|
3,908,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(47,205,105
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2002
(unaudited)
|
|
|
65,317,653
|
|
|
|
3,908,958
|
|
|
|
(51,114,063
|
)
|
|
|
18,112,548
|
|
Capital contributions (unaudited)
|
|
|
4,791,461
|
|
|
|
|
|
|
|
|
|
|
|
4,791,461
|
|
Net loss (unaudited)
|
|
|
|
|
|
|
|
|
|
|
(22,870,205
|
)
|
|
|
(22,870,205
|
)
|
Foreign currency translation
adjustment (unaudited)
|
|
|
|
|
|
|
(2,827,262
|
)
|
|
|
|
|
|
|
(2,827,262
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25,697,467
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2003
(unaudited)
|
|
|
70,109,114
|
|
|
|
1,081,696
|
|
|
|
(73,984,268
|
)
|
|
|
(2,793,458
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
(8,070,461
|
)
|
|
|
(8,070,461
|
)
|
Foreign currency translation
adjustment
|
|
|
|
|
|
|
(32,024
|
)
|
|
|
|
|
|
|
(32,024
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,102,485
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004
|
|
$
|
70,109,114
|
|
|
$
|
1,049,672
|
|
|
$
|
(82,054,729
|
)
|
|
$
|
(10,895,943
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
IV-140
FOX PAN
AMERICAN SPORTS, LLC AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF CASH FLOWS
Years
ended December 31, 2004 and 2003, and
period from February 5, 2002 (date of merger) through
December 31, 2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
|
|
|
|
Unaudited
|
|
|
Unaudited
|
|
|
Net loss
|
|
$
|
(8,070,461
|
)
|
|
$
|
(22,870,205
|
)
|
|
$
|
(51,114,063
|
)
|
Adjustments to reconcile net loss
to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Bad-debt expense
|
|
|
1,868,463
|
|
|
|
1,687,504
|
|
|
|
4,790,420
|
|
Equity in earnings of investment,
net of amortization
|
|
|
(1,056,361
|
)
|
|
|
(533,710
|
)
|
|
|
105,967
|
|
Depreciation and amortization
|
|
|
106,280
|
|
|
|
19,779
|
|
|
|
18,483
|
|
Deferred income taxes
|
|
|
|
|
|
|
200,940
|
|
|
|
(200,940
|
)
|
Changes in operating assets and
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(5,208,686
|
)
|
|
|
(2,648,885
|
)
|
|
|
(16,435,972
|
)
|
Prepaid expense and other assets
|
|
|
(1,352,179
|
)
|
|
|
(1,057,510
|
)
|
|
|
4,326,198
|
|
Accounts payable
|
|
|
1,374,325
|
|
|
|
3,233,976
|
|
|
|
1,783,825
|
|
Accrued expenses
|
|
|
(1,889,614
|
)
|
|
|
3,957,291
|
|
|
|
123,008
|
|
Due from/to affiliates
|
|
|
287,270
|
|
|
|
(243,651
|
)
|
|
|
12,120,987
|
|
Accrued interest
|
|
|
3,084,060
|
|
|
|
1,684,109
|
|
|
|
|
|
Deferred revenue
|
|
|
2,023,775
|
|
|
|
959,624
|
|
|
|
(245,037
|
)
|
Broadcast rights
|
|
|
1,632,589
|
|
|
|
(943,080
|
)
|
|
|
1,289,674
|
|
Income taxes payable
|
|
|
414,123
|
|
|
|
71,233
|
|
|
|
28,987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating
activities
|
|
|
(6,786,416
|
)
|
|
|
(16,482,585
|
)
|
|
|
(43,372,463
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(581,562
|
)
|
|
|
(127,330
|
)
|
|
|
(308,970
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing
activities
|
|
|
(581,562
|
)
|
|
|
(127,330
|
)
|
|
|
(308,970
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Members capital contributions
|
|
|
|
|
|
|
4,791,461
|
|
|
|
36,957,840
|
|
Proceeds from notes payable from
affiliates and members
|
|
|
1,954,576
|
|
|
|
15,245,424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing
activities
|
|
|
1,954,576
|
|
|
|
20,036,885
|
|
|
|
36,957,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease (increase) in cash
and cash equivalents
|
|
|
(5,413,402
|
)
|
|
|
3,426,970
|
|
|
|
(6,723,593
|
)
|
Cash and cash equivalents,
beginning of period
|
|
|
12,370,241
|
|
|
|
9,283,174
|
|
|
|
15,495,751
|
|
Effect of foreign currency on cash
flow
|
|
|
(9,189
|
)
|
|
|
(339,903
|
)
|
|
|
511,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of
period
|
|
$
|
6,947,650
|
|
|
$
|
12,370,241
|
|
|
$
|
9,283,174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for taxes
|
|
$
|
4,644,046
|
|
|
$
|
4,512,817
|
|
|
$
|
2,862,867
|
|
Non-cash transactions
|
|
$
|
2,500,000
|
|
|
$
|
7,500,000
|
|
|
$
|
|
|
See accompanying notes to consolidated financial statements.
IV-141
FOX PAN
AMERICAN SPORTS, LLC AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Years
ended December 31, 2004 and 2003, and
period
from February 5, 2002 (date of merger) through
December 31, 2002
|
|
(1)
|
Organization
and Nature of Business
|
|
|
(a)
|
Description
of Business
|
Fox Pan American Sports, LLC (FPAS) was formed on
January 29, 2002 as a limited liability company in the
State of Delaware. FPAS was formed to provide spanish language
television sports programming service to key markets and sale of
broadcast rights within North, Central and South America and the
Caribbean through pay television sports networks owned by its
subsidiary FSLA Holdings, Inc. (FSLAH) and FSLAHs
subsidiaries, Fox Sports Latin America, Ltd. (FSLA), Fox Sports
World Espanol, LLC (FSE), Fox Sports Mexico Distribution, LLC
(FSMD), Fox Sports Chile Ltda. (FS Chile), Fox Sports Latin
America S.A. (FS Argentina) and Fox Pan American Sports Brazil,
Ltd.
On February 5, 2002, FPAS entered into an agreement with
Fox Sports International SPV, Inc. (FSI SPV), a wholly owned
subsidiary of International Sports Programming, LLC, doing
business as Fox Sports International (FSI), a division of News
Corporation, Pan American Sports Enterprises
(PASE) Company, a wholly owned subsidiary of PSE Holdings,
LLC, a partnership controlled by Hicks, Muse, Tate, and Furst,
Inc. and Liberty Finance, LLC (LFC) a wholly owned
subsidiary of Liberty Media Corporation (collectively known as
the Contributing Members) whereby FSI SPV contributed 100% of
FSLA Holdings, Inc., which included 100% of Fox Sports Latin
America, Ltd., 100% of Fox Sports World Espanol, LLC and 100% of
Fox Sports Mexico Distribution, LLC, the sports business of its
operations in Argentina and Chile, and cash of $7,500,000; PASE
contributed a 50% interest in T&T Sports Marketing Limited
(T&T) and cash of $5,833,328; and LFC contributed cash of
$5,833,438 for certain equity interests in FPAS (the
Contribution Agreement).
The above transaction has been deemed to be a roll up
transaction with PASE being the acquiring entity and as such
accounted for pursuant to the provisions of Statement of
Financial Accounting Standard (SFAS) No. 141 Business
Combinations. Accordingly all contributions by PASE have
been recorded on the historical basis and all contributions by
FSI and LFC have been recorded at their fair values as of
February 5, 2002. See Note 1(f).
|
|
(b)
|
Basis
of Financial Statement Presentation
|
The accompanying consolidated financial statements include FPAS,
its subsidiary FSLAH and its subsidiaries (Company) and have
been prepared in conformity with accounting principles generally
accepted in the United States of America. In preparing the
accompanying consolidated financial statements, management is
required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the
balance sheets and revenue and expenses for the periods
presented. Actual results could differ significantly from those
estimates.
|
|
(2)
|
Liquidity
and Capital Requirements
|
As of December 31, 2004, the Company had cash and cash
equivalents of $6.9 million. The Company has had recurring
losses since inception and has relied on capital contributions
and other funding from its members. Although the Company
believes its cash flow from operations and working capital will
fund its ongoing operations, it is possible that the Company may
need to seek additional funding in the future.
|
|
(3)
|
Summary
of Significant Accounting Policies
|
|
|
(a)
|
Cash
and Cash Equivalents
|
Cash and cash equivalents consist of cash on hand and money
market accounts with original maturity terms of less than
90 days.
IV-142
FOX PAN AMERICAN SPORTS, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Revenues are derived from commercial advertisements, subscriber
fees, and the resale of programming rights. Revenues from
commercial advertisements are recognized as the commercials are
aired, net of agency commissions. Subscriber fees received from
cable systems and operators are recognized in the period that
services are provided. Amounts received in advance of the
advertisement period are reflected as deferred revenue on the
consolidated opening balance sheets. Revenues generated from all
other services are recognized as the services are provided. The
Company sells the rights to broadcast certain sporting events.
Revenue is recognized when the events occur.
Revenues from customers are generated in the United States and
Latin America (Central and South America). The following table
presents revenues from customers by geographic area for the
years ended December 31, 2004 and 2003 and the period
February 5, 2002 (date of merger) to December 31, 2002:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
|
|
|
|
Unaudited
|
|
|
Unaudited
|
|
|
United States
|
|
$
|
28,351,516
|
|
|
$
|
24,608,432
|
|
|
$
|
19,734,131
|
|
Latin America
|
|
|
69,225,205
|
|
|
|
61,901,271
|
|
|
|
46,728,289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
$
|
97,576,721
|
|
|
$
|
86,509,703
|
|
|
$
|
66,462,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c)
|
Allowance
for Doubtful Accounts Receivable
|
The Companys allowance for doubtful accounts receivable is
maintained for estimated losses resulting from the inability or
unwillingness of its customers to make required payments. The
Company looks at historical write-offs and composition of
accounts receivable when determining the allowance for doubtful
accounts.
|
|
(d)
|
Property
and Equipment
|
Property and equipment reflects contributions made by FSI and as
such are stated at their fair value pursuant to the provisions
of SFAS 141 (see note 1) as of February 5, 2002
(date of merger). Major additions and improvements are
capitalized while maintenance and repairs which do not extend
the lives of the assets are expensed as incurred. Gain or loss
on the disposition of property, plant and equipment is
recognized in operations when realized. The Company depreciates
the cost of its property and equipment using the straight-line
method over the respective estimated useful lives which range
from 3 to 5 years. Amortization of leasehold improvements
is provided over the shorter of their useful lives or the
remaining term of the lease using the straight line method.
|
|
(e)
|
Impairment
of Long-Lived Assets and Long-Lived Assets to Be Disposed
Of
|
The Company accounts for long-lived assets in accordance with
the provisions of SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. This Statement
requires that long-lived assets be reviewed for impairment
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash
flows expected to be generated by the asset. If the carrying
amount of an asset exceeds its estimated future cash flows, an
impairment charge is recognized by the amount by which the
carrying amount of the asset exceeds the fair value of the
asset. SFAS No. 144 requires companies to separately
report discontinued operations and extends that reporting to a
component of an entity that either has been disposed of (by
sale, abandonment, or in a distribution to owners) or is
classified as held for sale. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less
costs to sell. As of December 31, 2004 management believes
that their assets are not impaired.
IV-143
FOX PAN AMERICAN SPORTS, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
(f)
|
Investments
in T&T Sports Marketing Ltd
|
Investment in T&T is comprised of a 50% investment in
T&T Sports Marketing Ltd (T&T). T&T is responsible
for and owns several broadcasting rights for sports programming
matches in South America and sells these rights to open cable
television channels. Although the Company owns a 50% interest in
T&T, it does not have financial or operational control of
the entity and accordingly accounts for its investment in
T&T under the equity method. The Company initially recorded
its investment based on the historical cost basis of the excess
of liabilities over assets of T&T ($3.3 million) and
also recorded an intangible asset related to the broadcast
rights of T&T of an equal amount, which is being amortized
over a five year period. As of December 31, 2004, the
Companys investment and the unamortized intangible asset
was $1.5 million and is included in other assets and has
purchase commitments of $183.6 million through 2010 but no
other funding commitments.
Condensed financial information for T&T consists of the
following as of and for the years ended December 31, 2004
and 2003 and for the period from February 5, 2002 (date of
merger) through December 31, 2002:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
|
Unaudited
|
|
|
Unaudited
|
|
|
Unaudited
|
|
|
Current assets
|
|
$
|
3,503,653
|
|
|
$
|
4,077,109
|
|
|
$
|
6,633,826
|
|
Noncurrent assets
|
|
|
20,000
|
|
|
|
480,000
|
|
|
|
20,000
|
|
Current liabilities
|
|
|
2,247,157
|
|
|
|
6,834,637
|
|
|
|
8,270,904
|
|
Noncurrent liabilities
|
|
|
|
|
|
|
250,000
|
|
|
|
3,669,174
|
|
Stockholders equity
|
|
|
1,276,496
|
|
|
|
(2,527,528
|
)
|
|
|
(5,286,252
|
)
|
Revenue
|
|
|
39,500,871
|
|
|
|
37,742,137
|
|
|
|
37,930,912
|
|
Net income
|
|
|
3,804,024
|
|
|
|
2,758,724
|
|
|
|
1,478,955
|
|
Income taxes are accounted for under the asset and liability
method. Deferred tax asset and liabilities are recognized for
the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss
and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the
enactment date.
No provision for Federal income taxes is made by FPAS since the
members are treated as partners for Federal income tax purposes.
All Federal income tax consequences are required by such
members. Provision for state taxes is made for states in which
limited liability companies are liable for such taxes. The
Company has certain foreign subsidiaries that are liable for
income taxes in their local jurisdiction. Provision for income
taxes has been made for jurisdictions in which the
Companys subsidiaries are liable for such taxes.
The Company incurs various marketing and promotional costs to
add and maintain viewership. These costs are charged to expense
in the period incurred. Marketing costs for the years ended
December 31, 2004 and 2003 and the period ended
December 31, 2002, were $3.9 million,
$2.9 million, and $2.3 million, respectively.
|
|
(i)
|
Foreign
Currency Translation
|
The functional currency of the Companys operations in
Argentina is the applicable local currency. The functional
currency for all other international operations is the
U.S. dollar. The translation of the applicable foreign
IV-144
FOX PAN AMERICAN SPORTS, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
currency into U.S. dollars is performed for balance sheet
accounts using current exchange rates in effect at the balance
sheet date and for revenue and expense accounts using the
weighted average rates of exchange prevailing during the
respective period. The unrealized gains and losses resulting
from such translation are included as a separate component of
members equity in accumulated other comprehensive income.
The Company acquires broadcast rights of sports programming to
broadcast on its television network. The costs incurred in
acquiring sports programming is capitalized and amortized
primarily on a straight-line basis, based on the license period
or projected useful life of the programming. Broadcast rights
and the related liabilities are recorded at the gross amount of
the liabilities when the license period has begun, the cost of
the program is determinable, and the program is accepted and
available for airing. The Company has single and multi-year
commitments to purchase broadcast rights of sports programming.
(See note 8.) The Company evaluates the recoverability of
broadcast rights costs associated therein against the revenues
directly associated with the program material and related
expenses. Where an evaluation indicates that a programming
contract will result in an ultimate loss, additional
amortization is provided to recognize that loss.
Comprehensive income consists of foreign currency translation
adjustments.
|
|
(l)
|
Concentration
of Credit and Other Risks
|
The Company has no significant concentration of credit risk with
respect to accounts receivable because of the large number of
customers. The Company has operations in Argentina which has
experienced significant political and economic changes including
severe recessionary conditions and political uncertainty. The
Companys operations may be negatively impacted as the
conditions in Argentina remain unstable.
|
|
(m)
|
Fair
Value of Financial Instruments
|
The Companys financial instruments consist primarily of
cash and cash equivalents, trade accounts and notes receivables,
payables, and long-term debt. The carrying values for the
Companys financial instruments approximate fair value with
the exception at times of long-term debt. As of
December 31, 2004, and 2003, the fair value of debt
obligations approximated the recorded value.
|
|
(n)
|
Recent
Accounting Pronouncements
|
In December 2003, the FASB issued a revised Interpretation
No. 46, Consolidation of Variable Interest Entities, an
Interpretation of Accounting Research Bulletin No. 51
(FIN 46R). FIN 46R requires the consolidation of
variable interest entities in which an enterprise absorbs a
majority of the entitys expected losses, receives a
majority of the entitys expected residual returns, or
both, as a result of ownership, contractual or other financial
interests in the entity. Currently entities are generally
consolidated by an enterprise when it has a controlling
financial interest through ownership of a majority voting
interest in the entity. The provisions of FIN 46R state
that nonpublic entities must apply FIN 46R immediately to
all entities created after December 31, 2003, and to all
other entities, regardless of the date of creation, no later
than the beginning of the first annual reporting period
beginning after December 31, 2004.
As the Company is not a public company, thus it is not required
to adopt FIN 46R until the fiscal year ended
December 31, 2005. The Company owns a 50% interest in
T&T, a company that owns and sells sports programming
rights. T&T derived $30.1 million or 77% of its revenue from
the Company during the year ended December 31, 2004.
IV-145
FOX PAN AMERICAN SPORTS, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
(4)
|
Property
and Equipment
|
Property and equipment consist of the following at:
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
Unaudited
|
|
|
Furniture and fixtures
|
|
$
|
737,372
|
|
|
$
|
456,727
|
|
Less accumulated depreciation
|
|
|
(105,610
|
)
|
|
|
(62,892
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
631,762
|
|
|
$
|
393,835
|
|
|
|
|
|
|
|
|
|
|
|
|
(5)
|
Related-Party
Transactions
|
Fox
Sports International
During 2004, 2003 and 2002, the Company has had several service
agreements with FSI to provide programming, advertising,
affiliate sales, production, technical, corporate and personnel
services. The Company recorded expenses related to these
services of $21.3 million, $34.8 million, and
$37.3 million for 2004, 2003, and 2002, respectively. The
ongoing commitments under these agreements are included in
note (8).
Torneos
y Competencias S.A.
During 2004, 2003, and 2002, the Company has had several
services agreements with Torneos y Competencias, S. A. (TyC) an
Argentine company and an affiliate of one of the Companys
members to provide advertising and affiliate sales, production
and technical services and corporate services. The Company
recorded expenses of $2.3 million, $1.7 million and
$1.5 million for 2004, 2003, and 2002, respectively. The
ongoing commitments under these agreements are included in
note (8).
T&T
Sports Marketing Company Ltd
The Company has agreements with T&T for the purchase of
broadcast rights in relation to sporting events from
February 5, 2002 (date of merger) to 60 days
subsequent to the last event of the 2010 season. T&T holds
the rights for these sporting events in the United States of
America, Canada, South America and the Caribbean. The annual
license fees incurred to T&T for the sporting events are
$30.6 million, $29.0 million and $36.0 million for
December 31, 2004, 2003, and 2002, respectively.
In addition, the Company has entered into a
month-to-month
agreement for the use of T&Ts banner rights and pays
for those rights directly to the third party vendor.
The components of income tax expense (benefit) for the years
ended December 31, 2004 and 2003 and the period from
February 5, 2002 through December 31, 2002 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
|
|
|
|
Unaudited
|
|
|
Unaudited
|
|
|
Current foreign
|
|
$
|
5,121,238
|
|
|
$
|
3,973,000
|
|
|
$
|
3,071,765
|
|
Deferred foreign
|
|
|
|
|
|
|
200,940
|
|
|
|
(200,940
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense
|
|
$
|
5,121,238
|
|
|
$
|
4,173,940
|
|
|
$
|
2,870,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IV-146
FOX PAN AMERICAN SPORTS, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The tax effects based on jurisdictions in which the Company does
business of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities as of
December 31, 2004, and 2003 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
Unaudited
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Accounts receivable, principally
due to allowance for doubtful accounts
|
|
$
|
2,359,784
|
|
|
$
|
2,157,768
|
|
Accrued liabilities
|
|
|
1,332,167
|
|
|
|
1,872,673
|
|
Other items
|
|
|
3,859
|
|
|
|
3,858
|
|
Deferred revenues
|
|
|
1,153,928
|
|
|
|
373,069
|
|
Net operating loss and tax credit
carryforwards
|
|
|
17,062,146
|
|
|
|
17,908,661
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
21,911,884
|
|
|
|
22,316,029
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset before
valuation allowance
|
|
|
21,911,884
|
|
|
|
22,316,029
|
|
Less valuation allowance
|
|
|
(21,911,884
|
)
|
|
|
(22,316,029
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense on income from continuing operations differs
from the amount computed by applying the U.S. Federal
income tax rate of 35% for 2004, 2003, and 2002 to income from
continuing operations before income tax because of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
|
|
|
|
Unaudited
|
|
|
Unaudited
|
|
|
Expected income tax benefit
|
|
$
|
(1,032,228
|
)
|
|
$
|
(6,543,693
|
)
|
|
$
|
(16,885,533
|
)
|
State income taxes
|
|
|
(21,731
|
)
|
|
|
(305,443
|
)
|
|
|
(1,345,215
|
)
|
Meals & entertainment
|
|
|
159,270
|
|
|
|
61,011
|
|
|
|
58,450
|
|
Devaluation reserve
|
|
|
412,300
|
|
|
|
(225,400
|
)
|
|
|
1,400,000
|
|
Impact of LLC status
|
|
|
1,217,946
|
|
|
|
1,184,152
|
|
|
|
856,488
|
|
Changes in valuation allowance
|
|
|
(404,074
|
)
|
|
|
6,359,093
|
|
|
|
15,956,935
|
|
Foreign income taxes
|
|
|
4,521,000
|
|
|
|
3,973,000
|
|
|
|
2,726,000
|
|
Differential in tax rates
|
|
|
350,730
|
|
|
|
348,120
|
|
|
|
(109,800
|
)
|
Flow through of income/loss from
deemed foreign income
|
|
|
(681,975
|
)
|
|
|
(676,900
|
)
|
|
|
213,500
|
|
Miscellaneous other
|
|
|
600,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,121,238
|
|
|
$
|
4,173,940
|
|
|
$
|
2,870,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that
some portion or all of the deferred tax assets will not be
realized. The ultimate realization of the deferred tax assets is
dependent on the generation of future taxable income during the
periods in which temporary differences are deductible.
Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax planning
strategies in making this assessment. Based upon these factors,
management has recorded a valuation allowance of $21,911,884 and
$22,316,029 for December 31, 2004 and 2003, respectively,
to bring the deferred tax assets to a realizable amount.
IV-147
FOX PAN AMERICAN SPORTS, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
At December 31, 2004, and 2003, the Company has net
operating loss and tax credit carryforwards for federal and
foreign income tax purposes, which are available to offset
future taxable income, if any, through 2024 and 2023,
respectively.
|
|
(6)
|
Notes Payable
to Members
|
Notes payable to members consists of the following at
December 31, 2004:
|
|
|
|
|
|
Senior promissory notes with due
dates beginning on April 28, 2005, bearing interest at an
annual rate of 8%
|
|
$
|
10,000,000
|
|
Subordinated Convertible Credit
Agreement due March 1, 2009, bearing interest at an annual
rate of 12%
|
|
|
17,200,000
|
|
|
|
|
|
|
|
|
$
|
27,200,000
|
|
Current portion of notes payable
to members
|
|
|
7,500,000
|
|
|
|
|
|
|
|
|
$
|
19,700,000
|
|
|
|
|
|
|
On April 28, 2003, the members entered into a Subordinated
Convertible Credit Agreement with the Company whereby the
members agreed to lend the Company an aggregate amount of
$17.2 million in the form of notes payable of which
$15.2 million was funded on April 28, 2003 and
$2 million on March 1, 2004. These notes bear interest
at a rate of 12% per annum and all mature on March 1,
2009 and are convertible in whole or in part at the option of
each member at a conversion price of $0.3179 per LLC unit.
No lender may convert its loans unless all members agree to
convert their respective loans. The loans will automatically
convert upon a change in control. The Company has accrued
interest of approximately $3.8 million and
$1.4 million as of December 31, 2004 and 2003,
respectively.
On April 28, 2003, one of the members entered into a Senior
Promissory Note agreement whereby the member agreed to lend the
Company an aggregate amount of $10.0 million in certain
increments. Each loan will mature two (2) years from
advance date and will bear interest at the rate of 8% per
annum. The Company has accrued interest of approximately
$1.0 million and $0.3 million as for December 31,
2004 and 2003, respectively.
The following is a schedule of the future debt payments as of
December 31, 2004:
|
|
|
|
|
|
2005
|
|
$
|
7,500,000
|
|
2006
|
|
|
2,500,000
|
|
2007
|
|
|
|
|
2008
|
|
|
|
|
2009
|
|
|
17,200,000
|
|
|
|
|
|
|
|
|
$
|
27,200,000
|
|
|
|
|
|
|
IV-148
FOX PAN AMERICAN SPORTS, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The Company has one class of Members Equity. Profits and
losses are shared by all members based on their respective
percentage of ownership interest. No member shall be liable for
any debts of the Company or be required to contribute any
additional capital related to deficits incurred. The
members ownership percentages are as follows:
|
|
|
|
|
|
|
Percentage
|
|
Member
|
|
ownership
|
|
|
Pan American Sports Enterprises,
Co.
|
|
|
52
|
%
|
FSI SPV, Inc.
|
|
|
38
|
|
Liberty Finance, LLC
|
|
|
10
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
|
|
|
|
The ownership percentages above are not reflective of the
members equity balances as stated on the accompanying
consolidated balance sheets.
The Company has commitments under several agreements for varying
lengths of time until 2010 to pay for certain sports related
broadcasting and programming rights and service agreements. The
following is a schedule of future minimum commitments for
broadcast rights and programming and service agreements as of
December 31, 2004:
|
|
|
|
|
2005
|
|
$
|
55,078,437
|
|
2006
|
|
|
53,232,500
|
|
2007
|
|
|
40,369,324
|
|
2008
|
|
|
39,002,000
|
|
2009
|
|
|
39,002,000
|
|
Thereafter
|
|
|
39,002,000
|
|
|
|
|
|
|
|
|
$
|
265,686,261
|
|
|
|
|
|
|
|
|
(9)
|
Event
Subsequent to Date of Report of Independent Registered Public
Accounting Firm (Unaudited)
|
On April 28, 2005, the Company purchased an additional 25%
of the common stock of T&T for cash of $2,060,000 and a
promissory note having an original principal balance of
$7,940,000. The note bears interest at an annual rate of three
percent above the one-year London Interbank Offered Rate and
matures on December 31, 2006.
IV-149
EXHIBIT
INDEX
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
3 Articles of
Incorporation and 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,
filed June 16, 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).
|
4 Instruments Defining
the Rights of Securities Holders, including Indentures:
|
|
4
|
.1
|
|
Specimen certificate for shares of
the Registrants Series A common stock, par value
$.01 per share (incorporated by reference to
Exhibit 4.1 to the
Merger 8-K).
|
|
4
|
.2
|
|
Specimen certificate for shares of
the Registrants Series B common stock, par value
$.01 per share (incorporated by reference to
Exhibit 4.2 to the
Merger 8-K).
|
|
4
|
.3
|
|
Specimen certificate for shares of
the Registrants Series C Common Stock, par value
$.01 per share (incorporated by reference to Exhibit 3
to the Registrants Registration Statement on
Form 8-A,
filed August 24, 2005 (File No. 000-51360)).
|
|
4
|
.4
|
|
Amendment and Restatement
Agreement, dated March 7, 2005, among UPC Broadband Holding
BV (UPC Broadband Holding) and UPC Financing Partnership (UPC
Financing), as Borrowers, the guarantors listed therein, the
banks and financial institutions listed therein as Lenders, TD
Bank Europe Limited, as Facility Agent and Security Agent, and
certain others, amending and restating the 1,072,000,000
Credit Agreement originally dated January 16, 2004 (the
First Amended and Restated Senior Credit Facility) (incorporated
by reference to Exhibit 10.32 to the UnitedGlobalCom, Inc.
(UGC) Annual Report on
Form 10-K,
filed March 14, 2005 (File No. 000-49658) (UGC
2004 10-K)).
|
|
4
|
.5
|
|
Additional Facility Accession
Agreement, dated March 9, 2005, among UPC Broadband
Holding, as Borrower, TD Bank Europe Limited, as Facility Agent
and Security Agent, and the banks and financial institutions
listed therein as Additional Facility I Lenders, under the First
Amended and Restated Senior Credit Facility (incorporated by
reference to Exhibit 10.41 to the UGC
2004 10-K).
|
|
4
|
.6
|
|
Amendment, dated December 15,
2005, among UPC Broadband Holding and UPC Financing, as
Borrowers, the guarantors listed therein, and Toronto-Dominion
(Texas) LLC, as Facility Agent, to the First Amended and
Restated Senior Credit Facility (incorporated by reference to
Exhibit 4.3 to the Registrants Current Report on
Form 8-K
filed December 19, 2005 (File No. 000-51360)).
|
|
4
|
.7
|
|
Deed of Amendment and Restatement,
dated May 10, 2006, among UPC Broadband Holding and UPC
Financing, as Borrowers, the guarantors listed therein, and the
Senior Hedging Banks listed therein, with Toronto Dominion
(Texas) LLC, as Facility Agent, and TD Bank Europe Limited, as
Existing Security Agent, including as Schedule 2 thereto the
Amended and Restated Senior Secured Credit Facility Agreement,
amending and restating the First Amended and Restated Senior
Credit Facility (the Second Amended and Restated Senior Credit
Facility) (incorporated by reference to Exhibit 4.1 to the
Registrants Quarterly Report on
Form 10-Q,
filed May 10, 2006 (the March 31,
2006 10-Q)).
|
|
4
|
.8
|
|
Additional Facility Accession
Agreement, dated May 10, 2006, among UPC Broadband Holding,
as Borrower, Toronto Dominion (Texas) LLC, as Facility Agent, TD
Bank Europe Limited, as Existing Security Agent, and the
Additional Facility J Lenders listed therein under the Second
Amended and Restated Senior Credit Facility.*
|
IV-150
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
4
|
.9
|
|
Additional Facility Accession
Agreement, dated May 10, 2006, among UPC Broadband Holding,
as Borrower, Toronto Dominion (Texas) LLC, as Facility Agent, TD
Bank Europe Limited, as Existing Security Agent, and the
Additional Facility K Lenders listed therein under the Second
Amended and Restated Senior Credit Facility.*
|
|
4
|
.10
|
|
Additional Facility Accession
Agreement, dated July 3, 2006, among UPC Broadband Holding,
as Borrower, Toronto Dominion (Texas) LLC, as Facility Agent, TD
Bank Europe Limited, as Security Agent, and the Additional
Facility L Lenders listed therein under the Second Amended and
Restated Senior Credit Facility (incorporated by reference to
Exhibit 4.1 to the Registrants Current Report on
Form 8-K,
filed July 7, 2006 (File No. 000-51360)).
|
|
4
|
.11
|
|
Amendment Letter, dated
December 11, 2006, among UPC Broadband Holding and UPC
Financing, as Borrowers, the guarantors, listed therein and
Toronto Dominion (Texas) LLC, as Facility Agent, to the Second
Amended and Restated Senior Credit Facility (incorporated by
reference to Exhibit 4.1 to the Registrants Current
Report on
Form 8-K,
filed December 12, 2006 (File No. 000-5160)).
|
|
4
|
.12
|
|
The Registrant undertakes to
furnish to the Securities and Exchange Commission, upon request,
a copy of all instruments with respect to long-term debt not
filed herewith.
|
10 Material Contracts:
|
|
10
|
.1
|
|
Liberty Global, Inc. 2005
Incentive Plan (As Amended and Restated Effective
October 31, 2006) (the Incentive Plan) (incorporated by
reference to Exhibit 99.1 to the Registrants Current
Report on
Form 8-K,
filed November 6, 2006 (File No. 000-51360) (the November
2006 8-K)).
|
|
10
|
.2
|
|
Form of the Non-Qualified Stock
Option Agreement under the Incentive Plan (incorporated by
reference to Exhibit 99.1 to the Registrants Current
Report on
Form 8-K,
filed August 19, 2005 (File No. 000-51360) (the Incentive
Plan 8-K)).
|
|
10
|
.3
|
|
Form of Stock Appreciation Rights
Agreement under the Incentive Plan (incorporated by reference to
Exhibit 99.2 to the Incentive
Plan 8-K).
|
|
10
|
.4
|
|
Form of Restricted Shares
Agreement under the Incentive Plan (incorporated by reference to
Exhibit 99.3 to the Incentive
Plan 8-K).
|
|
10
|
.5
|
|
Non-Qualified Stock Option
Agreement, dated as of June 7, 2004, between John C. Malone
and the Registrant (as assignee of Liberty Media International,
Inc., the predecessor issuer to the Registrant (LMI)) under the
Incentive Plan (the Malone Award Agreement) (incorporated by
reference to Exhibit 7(A) to Mr. Malones
Schedule 13D/A (Amendment No. 1) with respect to
LMIs common stock, filed July 14, 2004 (File No.
005-79904)).
|
|
10
|
.6
|
|
Form of Amendment to the Malone
Award Agreement (incorporated by reference to Exhibit 99.3 to
the Registrants Current Report on
Form 8-K,
filed December 27, 2005 (File
No. 000-51360)
(the
409A 8-K)).
|
|
10
|
.7
|
|
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 November
2006 8-K).
|
|
10
|
.8
|
|
Form of Restricted Shares
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), filed August 11, 2006 (File No.
000-51360), amending the June
2006 8-K
(as defined below)).
|
|
10
|
.9
|
|
Form of Non-Qualified Stock Option
Agreement under the Director Plan (incorporated by reference to
Exhibit 10.3 to the
Merger 8-K).
|
|
10
|
.10
|
|
Liberty Global, Inc. Compensation
Policy for Nonemployee Directors (As Amended and Restated
Effective June 7, 2006) (incorporated by reference to
Exhibit 10.1 to the Registrants Current Report on
Form 8-K,
filed June 12, 2006 (File No. 000-51360) (the June
2006 8-K)).
|
IV-151
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
10
|
.11
|
|
Liberty Global, Inc. Senior
Executive Performance Incentive Plan effective November 1,
2006 (the SEP Incentive Plan).*
|
|
10
|
.12
|
|
Form of Participation Certificate
under the SEP Incentive Plan.*
|
|
10
|
.13
|
|
Liberty Global, Inc. 2006 Annual
Bonus Plan for executive officers and key employees under the
Incentive Plan (description of said plan is incorporated by
reference to the description thereof included in Item 1.01
of the Registrants Current Report on
Form 8-K,
filed March 14, 2006 (File No. 000-51360)).
|
|
10
|
.14
|
|
Liberty Media International, Inc.
Transitional Stock Adjustment Plan (the Transitional Plan)
(incorporated by reference to Exhibit 4.5 to LMIs
Registration Statement on
Form S-8,
filed June 23, 2004 (File
No. 333-116790)).
|
|
10
|
.15
|
|
Form of Non-Qualified Stock Option
Exercise Price Amendment under the Transitional Plan
(incorporated by reference to Exhibit 99.1 to the
409A 8-K).
|
|
10
|
.16
|
|
Form of Non-Qualified Stock Option
Amendment under the Transitional Plan (incorporated by reference
to Exhibit 99.2 to the
409A 8-K).
|
|
10
|
.17
|
|
UnitedGlobalCom, Inc. Equity
Incentive Plan (amended and restated effective October 17,
2003).*
|
|
10
|
.18
|
|
UnitedGlobalCom, Inc. 1993 Stock
Option Plan (amended and restated effective January 22,
2004) (incorporated by reference to Exhibit 10.6 to the UGC
2003 10-K).
|
|
10
|
.19
|
|
Form of Amendment to Stock
Appreciation Rights Agreement under the UnitedGlobalCom, Inc.
2003 Equity Incentive Plan (amended and restated effective
October 17, 2003) (incorporated by reference to
Exhibit 99.1 to the Registrants Current Report on
Form 8-K,
filed December 6, 2005 (File No. 000-51360)).
|
|
10
|
.20
|
|
Stock Option Plan for Non-Employee
Directors of UGC, effective June 1, 1993, amended and
restated as of January 22, 2004 (incorporated by reference
to Exhibit 10.7 to the UGC
2003 10-K).
|
|
10
|
.21
|
|
Stock Option Plan for Non-Employee
Directors of UGC, effective March 20, 1998, amended and
restated as of January 22, 2004 (incorporated by reference
to Exhibit 10.8 to the UGC
2003 10-K).
|
|
10
|
.22
|
|
Form of Letter Agreement dated
December 22, 2006, between United Chile LLC and certain
employees of the Registrant, including three executive officers
and a director.*
|
|
10
|
.23
|
|
Form of Indemnification Agreement
between the Registrant and its Directors (incorporated by
reference to Exhibit 10.19 to the Registrants Annual
Report on
Form 10-K,
filed March 14, 2006 (File No. 000-51360) (the
2005 10-K)).
|
|
10
|
.24
|
|
Form of Indemnification Agreement
between the Registrant and its Executive Officers (incorporated
by reference to Exhibit 10.20 of the
2005 10-K).
|
|
10
|
.25
|
|
Personal Usage of Aircraft Policy
(incorporated by reference to Exhibit 99.1 to the
Registrants Current Report on
Form 8-K,
filed November 21, 2005 (File No. 000-51360) (the
Aircraft 8-K)).
|
|
10
|
.26
|
|
Form of Aircraft Time Sharing
Agreement (incorporated by reference to Exhibit 99.2 to the
Aircraft 8-K).
|
|
10
|
.27
|
|
Executive Service Agreement, dated
December 15, 2004, between UPC Services Limited and Charles
Bracken (incorporated by reference to Exhibit 10.15 to the
UGC
2004 10-K).
|
|
10
|
.28
|
|
Employment Agreement, effective
April 19, 2000, among UGC, United Pan-Europe Communications
NV, now known as Liberty Global Europe NV (Liberty Global
Europe), and Gene Musselman (incorporated by reference to
Exhibit 10.27 to the UGC
2003 10-K).
|
IV-152
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
10
|
.29
|
|
Addendum to Employment Agreement,
dated as of September 3, 2003, among UGC, Liberty Global
Europe and Gene Musselman (incorporated by reference to
Exhibit 10.28 to the UGC
2003 10-K).
|
|
10
|
.30
|
|
Contract Extension Letter, dated
November 2, 2005, among UGC, Liberty Global Europe and Gene
Musselman (incorporated by reference to Exhibit 10.26 to
the
2005 10-K).
|
|
10
|
.31
|
|
Executive Service Agreement, dated
January 10, 2005, between UPC Services Limited and Shane
ONeill (incorporated by reference to Exhibit 10.16 to
the UGC
2004 10-K).
|
|
10
|
.32
|
|
Executive Service Agreement, dated
November 30, 2006, between Liberty Global Europe Ltd. and
Miranda Curtis (incorporated by reference to Exhibit 99.1
to the Registrants Current Report on
Form 8-K,
filed December 4, 2006 (File No. 000-51360)).
|
|
10
|
.33
|
|
Employment Agreement, dated
January 5, 2004, between the Registrant (as assignee of
UGC) and Gene W. Schneider (incorporated by reference to
Exhibit 10.5 to UGCs Current Report on
Form 8-K,
filed January 6, 2004 (File No. 000-49658)).
|
|
10
|
.34
|
|
Letter from UGC to Gene W.
Schneider, dated April 17, 2003 regarding the Split Dollar
Life Insurance Agreement included as Exhibit 10.35 below
(incorporated by reference to Exhibit 10.87 to UGCs
Amendment No. 10 to its Registration Statement on
Form S-1,
filed December 11, 2003 (File
No. 333-82776)
(the UGC
Form S-1)).
|
|
10
|
.35
|
|
Split Dollar Life Insurance
Agreement, dated February 15, 2001, between UGC and Mark L.
Schneider, Tina M. Wildes and Carla Shankle, as trustees under
The Gene W. Schneider 2001 Trust, dated February 12, 2001
(incorporated by reference to Exhibit 10.88 to the UGC
Form S-1).
|
|
10
|
.36
|
|
Amended and Restated
Stockholders Agreement, dated as of May 21, 2004,
among the Registrant (as successor to LMI), Liberty Media
International Holdings, LLC, Robert R. Bennett, Miranda Curtis,
Graham Hollis, Yasushige Nishimura, Liberty Jupiter, Inc., and,
solely for purposes of Section 9 thereof, Liberty Media
Corporation (incorporated by reference to Exhibit 10.23 to
Amendment No. 1 to LMIs Registration Statement on
Form 10, filed May 25, 2004 (File No. 000-50671)).
|
|
10
|
.37
|
|
Form of Tax Sharing Agreement
between Liberty Media Corporation and the Registrant (as
successor to LMI) (incorporated by reference to
Exhibit 10.5 to Amendment No. 1 to LMIs
Registration Statement on Form 10, filed May 25, 2004
(File No. 000-50671)).
|
|
10
|
.38
|
|
Amended and Restated Operating
Agreement, dated November 26, 2004, among Liberty Japan,
Inc., Liberty Japan II, Inc., LMI Holdings Japan, LLC,
Liberty Kanto, Inc., Liberty Jupiter, Inc. and Sumitomo
Corporation, and, solely with respect to Sections 3.1(c), 3.1(d)
and 16.22 thereof, the Registrant (as successor to LMI)
(incorporated by reference to Exhibit 10.27 of LMIs
Annual Report on
Form 10-K,
filed March 14, 2005 (File No. 000-50671)).
|
|
10
|
.39
|
|
Share Purchase Agreement, dated
September 30, 2005, between Glacier Holdings S.C.A. and
United ACM Holdings, Inc. (the Cablecom Agreement) (incorporated
by reference to Exhibit 2.1 to the Registrants
Current Report on
Form 8-K,
filed October 5, 2005 (File No. 000-51360) (the
Cablecom 8-K)).
|
|
10
|
.40
|
|
Excerpts from Schedule 4.6 to the
Cablecom Agreement (incorporated by reference to
Exhibit 2.2 to the
Cablecom 8-K).
|
|
10
|
.41
|
|
Deed, dated September 30,
2005, between LMI and Glacier Holdings S.C.A. (incorporated by
reference to Exhibit 99.1 to the
Cablecom 8-K).
|
|
10
|
.42
|
|
Agreement for the Sale and
Purchase of the Share Capital of UPC France SA, dated
June 6, 2006, among UPC Broadband France SAS, UPC Broadband
Holding, Altice France EST SAS and ENO France SAS (incorporated
by reference to Exhibit 2.1 to the June
2006 8-K).
|
IV-153
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
10
|
.43
|
|
Agreement for the Sale and
Purchase of the Share Capital of NBS Nordic Broadband Services
AB (publ), dated April 4, 2006, among UPC Scandinavia
Holding BV, UPC Holdco VI BV, UPC Broadband Holding and Nordic
Cable Acquisition Company II AB (incorporated by reference
to Exhibit 99.1 to the Registrants Current Report on
Form 8-K,
filed June 23, 2006 (File No. 000-51360)).
|
21 List of
Subsidiaries*
|
23 Consent of Experts
and Counsel:
|
|
23
|
.1
|
|
Consent of KPMG LLP*
|
|
23
|
.2
|
|
Consent of KPMG AZSA &
Co.*
|
|
23
|
.3
|
|
Consent of KPMG AZSA &
Co.*
|
|
23
|
.4
|
|
Consent of Sibille (Formerly
Finsterbusch Pickenhayn Sibille)*
|
|
23
|
.5
|
|
Consent of Ernst & Young
LTDA.*
|
|
23
|
.6
|
|
Consent of KPMG LLP*
|
31
Rule 13a-14(a)/15d-14(a)
Certification:
|
|
31
|
.1
|
|
Certification of President and
Chief Executive Officer*
|
|
31
|
.2
|
|
Certification of Senior Vice
President and Co-Chief Financial Officer (Principal Financial
Officer)*
|
|
31
|
.3
|
|
Certification of Senior Vice
President and Co-Chief Financial Officer (Principal Accounting
Officer)*
|
32 Section 1350
Certification *
|
* Filed herewith
IV-154