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, 2007
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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:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Series A Common Stock, par value $0.01 per share
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NASDAQ Global Select Market
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Series B Common Stock, par value $0.01 per share
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NASDAQ Global Select Market
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Series C Common Stock, par value $0.01 per share
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NASDAQ Global Select Market
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Securities registered pursuant to Section 12(g) of the Act:
none
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, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company 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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Smaller reporting
company o
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(Do not check if a smaller
reporting company)
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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: $14.7 billion.
The number of outstanding shares of Liberty Global, Inc.s
common stock as of February 21, 2008 was:
170,687,421 shares of
Series A common stock;
7,255,853 shares of Series B common stock; and
165,643,069 shares of Series C common stock.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the
Registrants 2008 Annual Meeting of Stockholders are
incorporated by reference in Part III of this
Form 10-K.
LIBERTY
GLOBAL, INC.
2007
ANNUAL REPORT ON
FORM 10-K
TABLE OF
CONTENTS
PART I
General
Development of Business
Liberty Global, Inc. (LGI) is an international provider of
video, voice and broadband Internet services, with consolidated
broadband communications and/or direct-to-home (DTH) satellite
operations at December 31, 2007, in 15 countries, primarily
in Europe, Japan and Chile. Through our indirect wholly owned
subsidiary, UPC Holding BV (UPC Holding), we provide video,
voice and broadband Internet services in 10 European countries
and in Chile. UPC Holdings European broadband
communications operations are collectively referred to as the
UPC Broadband Division. Through our 51.1% indirect controlling
ownership interest in Telenet Group Holding NV (Telenet), we
provide broadband communications services in Belgium. Through
our indirect 37.9% controlling ownership interest in Jupiter
Telecommunications Co., Ltd. (J:COM), we provide broadband
communications services in Japan. Through our indirect 53.4%
owned subsidiary Austar United Communications Limited (Austar),
we provide DTH satellite services in Australia. We also have
(i) consolidated broadband communications operations in
Puerto Rico and (ii) consolidated interests in certain
programming businesses in Europe, Japan (through J:COM) and
Argentina. Our consolidated programming interests in Europe are
primarily held through Chellomedia BV (Chellomedia), which also
provides interactive digital products and services and owns or
manages investments in various businesses in Europe. Certain of
Chellomedias subsidiaries and affiliates provide
programming and interactive digital services to our broadband
communications operations, primarily in Europe.
LGI was formed on January 13, 2005, for the purpose of
effecting the combination of LGI International, Inc., formerly
known as Liberty Media International, Inc. (LGI International),
and UnitedGlobalCom, Inc. (UGC). LGI International 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 15, 2005, we completed certain mergers whereby LGI
acquired all of the capital stock of UGC that LGI International
did not already own and LGI International 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, 2007,
and operational data, including subscriber statistics and
ownership percentages, are as of December 31, 2007.
Recent
Developments
Acquisitions
Telenet. At the end of 2006, Chellomedia
indirectly owned 28.8% of the then outstanding ordinary shares
of Telenet, including shares held through its then majority
owned subsidiary Belgian Cable Investors. These shares
represented a majority ownership interest in the Telenet shares
owned by a syndicate (the Telenet Syndicate) that controls
Telenet by virtue of its collective ownership of a majority of
the outstanding Telenet shares. Subject to our obtaining
competition approval from the European Commission (EU
Commission), our majority ownership interest in the Telenet
Syndicate shares gave us certain governance rights under the
agreement among the Telenet Syndicate shareholders (the
Syndicate Agreement) that provided us with the ability to
exercise voting control over Telenet.
Competition approval was obtained on February 26, 2007, and
we began accounting for Telenet as a consolidated subsidiary
effective January 1, 2007. Pursuant to the rights provided
us under the Syndicate Agreement, on May 31, 2007, we
nominated seven additional members to the Telenet Board,
bringing our total number of representatives to nine of the 17
total members.
During 2007, we acquired an aggregate of 26,769,047 additional
Telenet ordinary shares through transactions with third parties,
the conversion of warrants and the exercise of options to
acquire Telenet shares from certain of the Telenet Syndicate
shareholders. We also purchased from a third party the remaining
10.5% interest in Belgian Cable
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Investors that we did not already own. For these acquisitions,
we paid aggregate cash consideration, before direct acquisitions
costs, of $930.8 million and exercised options and
converted warrants with an aggregate fair value of
$65.2 million. See note 4 to our consolidated
financial statements.
After giving effect to these transactions, as well as the
issuance of shares by Telenet to third parties upon conversion
of their warrants, we indirectly own 55,861,521 shares or
51.1% of Telenets outstanding ordinary shares. Only one
third-party shareholder remains within the Telenet Syndicate and
our governance rights under the Syndicate Agreement and the
Telenet Articles of Association allow the Telenet directors
nominated by us to control all Telenet Board decisions, other
than certain minority-protective decisions that must receive the
affirmative vote of specified directors in order to be
effective. These decisions include selling certain cable assets
or terminating cable service.
JTV Thematics. On July 2, 2007, Jupiter
TV Co., Ltd. (Jupiter TV), our Japanese programming joint
venture with Sumitomo Corporation (Sumitomo), was split into two
separate companies through the spin-off of the thematics channel
business (JTV Thematics). The business of JTV Thematics consists
of the operations that invest in, develop, manage and distribute
fee-based television programming through cable, satellite and
broadband platform systems in Japan. Following the spin-off of
JTV Thematics, Jupiter TV was renamed SC Media &
Commerce Inc. (SC Media). SC Medias business primarily
focuses on the operation of Jupiter Shop Channel Co., Ltd.,
through which a wide variety of consumer products and
accessories are marketed and sold. We exchanged our interest in
SC Media for shares of Sumitomo common stock on July 3,
2007. See Dispositions below.
On September 1, 2007, JTV Thematics and J:COM executed a
merger agreement under which JTV Thematics was merged with
J:COM, with Liberty Global Japan II, LLC, our wholly owned
indirect subsidiary, and Sumitomo receiving 253,675 and 253,676
J:COM shares, respectively. Sumitomo owns a minority interest in
LGI/Sumisho Super Media LLC (Super Media), our indirect majority
owned subsidiary that owns a controlling interest in J:COM. The
J:COM shares issued in the merger of JTV Thematics into J:COM
are to be voted by us and Sumitomo in the same way that Super
Media votes its shares of J:COM and are subject to restrictions
on transfer. See Operations
Asia/Pacific Jupiter Telecommunications Co.,
Ltd. below, and notes 4 and 5 to our consolidated
financial statements.
Telesystems Tirol. On October 2, 2007,
our operating subsidiary in Austria acquired Telesystems Tirol
GmbH & Co KG, a broadband communications operator in
Austria, for cash consideration of 84.3 million
($119.3 million at the transaction date), including working
capital adjustments and direct acquisition costs.
For additional information on the foregoing acquisitions, see
note 4 to our consolidated financial statements. In
addition, during 2007, we completed various other smaller
acquisitions in the normal course of business.
Dispositions
SC Media. On July 3, 2007, pursuant to a
share-for-share exchange agreement with Sumitomo, we exchanged
all of our shares in SC Media for 45,652,043 shares of
Sumitomo common stock with a transaction date market value of
¥104.5 billion ($854.7 million at the transaction
date). During the second quarter of 2007, we executed a zero
cost collar transaction with respect to the Sumitomo shares. See
note 8 to our consolidated financial statements.
Melita Cable Plc (Melita). On July 26,
2007, an indirect wholly owned subsidiary of Chellomedia sold
its 50% interest in Melita to an unrelated third party for cash
consideration of 73.6 million ($101.1 million at
the transaction date).
Redemption of ABC Family Preferred
Stock. Prior to August 2, 2007, we owned a
99.9% beneficial interest in the 9% Series A preferred
stock of ABC Family Worldwide, Inc. (ABC Family). Our ABC Family
preferred stock was pledged as security for $345.0 million
principal amount of the outstanding borrowings of one of our
subsidiaries. On August 2, 2007, the ABC Family preferred
stock was redeemed and we used the resulting proceeds to repay
in full the related secured borrowings.
For additional information on the foregoing dispositions, see
note 5 to our consolidated financial statements. In
addition, during 2007, we completed other smaller dispositions
in the normal course of business.
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Financings
LGI Revolving Credit Facility. In June 2007,
LGI entered into a $215.0 million unsecured senior
revolving facility agreement (the LGI Credit Facility). The LGI
Credit Facility is available to be used to fund the general
corporate and working capital requirements of LGI and its
subsidiaries. The final maturity date of June 25,
2009 may be extended, at LGIs option, to
June 25, 2010. Amounts that are repaid by LGI under the LGI
Credit Facility may be re-borrowed. At December 31, 2007,
the full amount of the LGI Credit Facility was available to be
drawn.
UPC Broadband Holding Bank Facility Refinancing
Transactions. In April and May 2007, UPC
Holdings subsidiaries, UPC Financing Partnership and UPC
Broadband Holding BV (UPC Broadband Holding), as the Borrowers,
entered into six additional facility accession agreements
(collectively, the 2007 Accession Agreements) pursuant to UPC
Broadband Holdings senior secured credit agreement (as
amended and restated, the UPC Broadband Holding Bank Facility).
The 2007 Accession Agreements each provided for an additional
term loan under new Facilities M and N of the UPC Broadband
Holding Bank Facility. In connection with the 2007 Accession
Agreements, we transferred our 100% ownership interest in
Cablecom Holdings GmbH (Cablecom), a broadband communications
operator in Switzerland, and our 80% ownership interest in VTR
GlobalCom, S.A. (VTR), a broadband communications operator in
Chile, to members of the Borrower Group (as defined in the UPC
Broadband Holding Bank Facility).
At December 31, 2007, the amounts outstanding under
Facilities M and N aggregated 3,640.0 million
($5,308.2 million) and $1,900.0 million, respectively.
The amounts borrowed under the 2007 Accession Agreements
(together with available cash) were used as follows: (i) to
refinance outstanding borrowings under the UPC Broadband Holding
Bank Facility; (ii) to refinance certain outstanding
indebtedness of affiliates of Cablecom; (iii) to fund the
cash collateral account securing the senior secured credit
facility for VTR; and (iv) for general corporate and
working capital purposes. Amounts outstanding under each of
Facilities M and N mature on the earlier of
(i) December 31, 2014 and (ii) the date (the
Relevant Date) falling 90 days prior to the date on which
UPC Holdings existing Senior Notes due 2014 fall due if
such Senior Notes have not been repaid, refinanced or redeemed
prior to such Relevant Date. Any voluntary prepayment of all or
part of the principal amount of Facility M (other than
Tranche 4) or Facility N made on or before
May 16, 2008, will include a premium of 1% such that the
prepaid amount will equal 101% of such principal amount plus
accrued interest. Any voluntary prepayment of all or part of the
principal amount of Tranche 4 made within 12 months of
the date of the last drawing under this Tranche will include a
premium of 1% such that the prepaid amount will equal 101% of
such principal amount plus accrued interest.
UPC Holding Facility. In June 2007, UPC
Holding entered into a 250.0 million
($364.6 million) secured term loan facility (the UPC
Holding Facility). The UPC Holding Facility was fully drawn on
June 19, 2007. UPC Holding may, at its option, on or before
May 31, 2008, require each lender under the UPC Holding
Facility to become an additional facility lender under the UPC
Broadband Holding Bank Facility and the outstanding commitments
of the lenders under the UPC Holding Facility will be rolled
over into Facility M under the UPC Broadband Holding Bank
Facility (the Conversion). The terms and conditions of the UPC
Holding Facility are similar to the terms of the indenture for
UPC Holdings existing Senior Notes due 2014; however, in
the event UPC Holding elects to effect the Conversion, the UPC
Holding Facility will be part of Facility M and will be subject
to the terms and conditions of the UPC Broadband Holding Bank
Facility. The final maturity date of the UPC Holding Facility is
December 31, 2014, unless the Conversion does not occur, in
which case, it will be May 31, 2008. Any voluntary
prepayment of all or part of the principal amount of the UPC
Holding Facility made on or prior to May 16, 2008, will
include a premium of 1% such that the prepaid amount will equal
101% of such principal amount plus accrued interest.
Redemption of Cablecom Luxembourg Old Fixed Rate
Notes. On April 16, 2007, Cablecoms
subsidiary, Cablecom Luxembourg S.C.A. (Cablecom Luxembourg),
redeemed in full its 9.375% Senior Notes due 2014 (the
Cablecom Luxembourg Old Fixed Rate Notes) at a redemption price
of 109.375% of the principal amount plus accrued interest
through the redemption date. The total amount of the redemption
of 330.7 million ($448.1 million at the
transaction date) was funded by the Cablecom Luxembourg
Defeasance Account, an escrow account created in October 2006
for the benefit of the holders of the Cablecom Luxembourg Old
Fixed Rate Notes in connection with the covenant defeasance of
such Notes.
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Assumption of Cablecom Luxembourg Senior Notes by UPC
Holding. On April 17, 2007, Cablecom
Luxembourgs 300.0 million ($437.5 million)
8.0% Senior Notes due 2016 became a direct obligation of
UPC Holding on terms substantially identical (other than as to
interest, maturity and redemption) to those governing UPC
Holdings existing Senior Notes due 2014.
Telenet Refinancing and Capital
Distribution. On August 1, 2007 (the Signing
Date), Telenet BidCo NV, an indirect subsidiary of Telenet,
executed a new senior secured credit facility agreement, as
amended and restated by supplemental agreements dated
August 22, 2007, September 11, 2007 and
October 8, 2007 (the 2007 Telenet Credit Facility). The
2007 Telenet Credit Facility provides for (i) a
530.0 million ($772.9 million) Term Loan A
Facility (the Telenet TLA Facility) maturing five years from the
Signing Date, (ii) a 307.5 million
($448.4 million) Term Loan B1 Facility (the Telenet TLB1
Facility) maturing 78 months from the Signing Date,
(iii) a 225.0 million ($328.1 million) Term
Loan B2 Facility (the Telenet TLB2 Facility) maturing
78 months from the Signing Date, (iv) a
1,062.5 million ($1,549.5 million) Term Loan C
Facility (the Telenet TLC Facility) maturing eight years from
the Signing Date, and (v) a 175.0 million
($255.2 million) Revolving Facility (the Telenet Revolving
Facility) maturing seven years from the Signing Date.
On October 10, 2007, the Telenet TLA Facility, the Telenet
TLB1 Facility and the Telenet TLC Facility were drawn in full.
The proceeds of the Telenet TLA Facility, the Telenet TLB1
Facility and the first 462.5 million
($654.8 million at the transaction date) drawn under the
Telenet TLC Facility have been used primarily to (i) redeem
in full Telenets Senior Discount Notes and the
9% Senior Notes issued by one of its subsidiaries, and
(ii) repay in full the outstanding borrowings under the
senior credit facility of certain of its subsidiaries.
On November 19, 2007, Telenet commenced the distribution of
655.9 million ($961.6 million at the transaction
date) to its shareholders. This capital distribution was funded
with available borrowings under the 2007 Telenet Credit
Facility. Our share of this capital distribution was
335.2 million ($491.4 million at the transaction
date).
The Telenet TLB2 Facility, which was undrawn at
December 31, 2007, is available to be drawn up to and
including July 31, 2008. The Telenet Revolving Facility is
available to be drawn through June 2014. Borrowings under these
Facilities may be used for general corporate purposes (including
permitted acquisitions).
The Telenet TLA Facility and the Telenet TLC Facility are
payable in full at maturity. The Telenet TLB1 Facility and the
Telenet TLB2 Facility are payable in three equal installments,
the first installment on the date falling 66 months after
the Signing Date, the second installment on the date falling
72 months after the Signing Date and the final installment
payable at maturity. Advances under the Telenet Revolving
Facility are permitted to be paid at the end of the applicable
interest period and in full at maturity.
Refinancing of Austar Bank Facility. On
August 28, 2007, a subsidiary of Austar refinanced, amended
and restated its existing bank facility to, among other things,
provide for increased borrowing capacity. The amended and
restated senior secured bank facility (the 2007 Austar Bank
Facility) provides for (i) a term loan for AUD
225.0 million ($197.3 million), which matures in
August 2011, (ii) a term loan for AUD 500.0 million
($438.4 million), which matures in August 2013, and
(iii) a revolving facility for AUD 100.0 million
($87.7 million), which matures in August 2012. The 2007
Austar Bank Facility also provides for an agreement with a
single bank for a AUD 25.0 million ($21.9 million)
working capital facility that matures in August 2012. The 2007
Austar Bank Facility is guaranteed by Austar and certain of its
subsidiaries. Borrowings under the 2007 Austar Bank Facility
were advanced to Austar to fund (i) the October 31,
2007 redemption of Austars subordinated transferable
adjustable redeemable securities, and (ii) Austars
November 1, 2007 capital distribution to its shareholders,
of which our share was AUD 160.1 million
($146.7 million at the transaction date). Borrowings under
the 2007 Austar Bank Facility may also be used to
fund Austars capital expenditures or for general
corporate purposes. At December 31, 2007, AUD
75.1 million ($65.8 million) of the 2007 Austar Bank
Facility was available to be drawn.
LGJ Holdings Credit Facility. On
October 31, 2007, LGJ Holdings LLC, our wholly owned
indirect subsidiary, entered into a senior secured credit
facility agreement with a syndicate of banks (the LGJ Holdings
Credit Facility). The LGJ Holdings Credit Facility provides for
an initial term loan of ¥75.0 billion
($655.0 million at the transaction date), which was fully
drawn on November 5, 2007 (the Closing Date). The proceeds
were used to make a distribution to the sole member of LGJ
Holdings LLC and to pay fees, costs and expenses incurred in
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connection with the term loan. This term loan is to be repaid in
two installments: (i) 2.5% of the outstanding principal
amount four and one-half years from the Closing Date and
(ii) 97.5% of the outstanding principal amount five years
from the Closing Date. The LGJ Holdings Credit Facility is
guaranteed by our subsidiaries that are members of Super Media
(J:COM Holdcos). In addition, the LGJ Holdings Credit Facility
is secured by pledges over shares of the J:COM Holdcos and the
membership interests in LGJ Holdings LLC. In connection with the
LGJ Holdings Credit Facility, we entered into a limited recourse
guarantee, which guarantees the payment of interest, certain
costs and expenses and, under certain limited circumstances, the
payment of principal and other obligations under the LGJ
Holdings Credit Facility.
For a further description of the terms of the above financings
and certain other transactions affecting our consolidated debt
in 2007, see note 10 to our consolidated financial
statements.
Stock
Repurchases
Pursuant to our stock repurchase programs and our January 2007,
April 2007 and September 2007 self-tender offers, during the
year ended December 31, 2007, we repurchased a total of
24,119,005 shares of LGI Series A common stock at a
weighted average price of $36.66 per share and
26,843,180 shares of LGI Series C common stock at a
weighted average price of $36.39 per share, for an aggregate
cash purchase price of $1,861.0 million, including direct
acquisition costs. As of December 31, 2007, we were
authorized under the November 2007 stock repurchase program to
acquire an additional $60.6 million of LGI Series A
and Series C common stock, which was fully utilized in
January 2008.
On January 7, 2008, we announced the authorization of a new
stock repurchase program under which we may acquire an
additional $500.0 million of our LGI Series A and LGI
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. At February 21, 2008, the remaining amount
authorized under this program was $170.7 million.
* * * *
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, including statements
regarding business, product, acquisition, disposition and
finance strategies, our capital expenditure priorities,
subscriber growth and retention rates, competition, the maturity
of our markets, anticipated cost increases and target leverage
levels. Where, in any forward-looking statement, we express an
expectation or belief as to future results or events, such
expectation or belief is expressed in good faith and believed to
have a reasonable basis, but there can be no assurance that the
expectation or belief will result or be achieved or
accomplished. In evaluating these statements, you should
consider the risks and uncertainties discussed under
Item 1A. Risk Factors and Item 7A. 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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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;
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competitor responses to our products and services, and the
products and services of the entities in which we have interests;
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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;
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changes in consumer television viewing preferences and habits;
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consumer acceptance of existing service offerings, including our
digital video, voice and broadband Internet services;
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consumer acceptance of new technology, programming alternatives
and broadband services that we may offer;
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our ability to manage rapid technological changes;
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our ability to increase the number of subscriptions to our
digital video, voice and broadband Internet services and our
average revenue per household;
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the outcome of any pending or threatened litigation;
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Telenets ability to favorably resolve negotiations and
litigation with four associations of municipalities in Belgium,
which we refer to as the pure intercommunales (the PICs), with
respect to the broadband network owned by the PICs;
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continued consolidation of the foreign broadband distribution
industry;
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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;
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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;
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government intervention that opens our broadband distribution
networks to competitors;
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our ability to successfully negotiate rate increases with local
authorities;
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changes in laws or treaties relating to taxation, or the
interpretation thereof, in countries in which we, or the
entities in which we have interests, operate;
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uncertainties inherent in the development and integration of new
business lines and business strategies;
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capital spending for the acquisition
and/or
development of telecommunications networks and services;
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our ability to successfully integrate and recognize anticipated
efficiencies from the businesses we acquire;
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problems we may discover post-closing with the operations,
including the internal controls and financial reporting process,
of businesses we acquire;
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the impact of our future financial performance, or market
conditions generally, on the availability, terms and deployment
of capital;
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the ability of suppliers and vendors to timely deliver products,
equipment, software and services;
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the availability of attractive programming for our digital video
services at reasonable costs;
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the loss of key employees and the availability of qualified
personnel;
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changes in the nature of key strategic relationships with
partners and joint ventures; and
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events that are outside of our control, such as political unrest
in international markets, terrorist attacks, natural disasters,
pandemics and other similar events.
|
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 significant degree of risk.
I-6
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 21 to our consolidated financial statements included
in Part II of this report.
Narrative
Description of Business
Overview
Broadband
Distribution
We offer a variety of broadband services over our cable
television systems, including video, broadband Internet 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 DTH or through multi-channel multipoint
(microwave) distribution systems (MMDS). Our analog cable
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 cable service offerings include basic
programming, premium services and
pay-per-view
programming, including high definition (HD),
near-video-on-demand (NVoD), and
video-on-demand
(VoD), in some markets. We offer broadband Internet services in
all of our markets. Our residential subscribers can access the
Internet, generally 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
service through analysis of speed, data limits, market
conditions and other factors.
We offer telephony services in all of our broadband
communications markets. In Austria, Belgium, Chile, Hungary,
Japan and the Netherlands, we provide circuit switched telephony
services and voice-over-Internet-protocol (VoIP) telephony
services. Telephony services in the remaining countries are
provided using VoIP technology. In select markets, including
Australia, we also offer mobile telephony services using third
party networks.
We operate our broadband distribution businesses in Europe
through the UPC Broadband Division of Liberty Global Europe, NV.
(Liberty Global Europe) and Liberty Global Europes
indirect subsidiary, Telenet; in Japan through J:COM, a
subsidiary of Super Media; and in the Americas through VTR and
Liberty Cablevision of Puerto Rico Ltd. (Liberty Puerto Rico);
and our satellite distribution business in Australia through
Austar. Each of Liberty Global Europe, Super Media, VTR, Liberty
Puerto Rico and Austar is a consolidated subsidiary. Except as
otherwise noted, we refer to Liberty Puerto Rico and the
countries of South America collectively as the Americas.
I-7
The following table presents certain operating data, as of
December 31, 2007, with respect to the broadband
communications and DTH systems of our subsidiaries in Europe,
Japan, The Americas and Australia. This table reflects 100% of
the operational data applicable to each subsidiary regardless of
our ownership percentage.
Consolidated
Operating Data
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
2,705,200
|
|
|
|
2,602,100
|
|
|
|
2,155,400
|
|
|
|
3,281,500
|
|
|
|
1,601,800
|
|
|
|
550,300
|
|
|
|
|
|
|
|
|
|
|
|
2,152,100
|
|
|
|
2,602,100
|
|
|
|
640,300
|
|
|
|
2,534,000
|
|
|
|
489,100
|
|
Switzerland (13)
|
|
|
1,850,800
|
|
|
|
1,309,800
|
|
|
|
1,552,500
|
|
|
|
2,294,500
|
|
|
|
1,298,400
|
|
|
|
252,700
|
|
|
|
|
|
|
|
|
|
|
|
1,551,100
|
|
|
|
1,499,800
|
|
|
|
454,900
|
|
|
|
1,497,800
|
|
|
|
288,500
|
|
Austria
|
|
|
1,076,000
|
|
|
|
1,076,000
|
|
|
|
759,400
|
|
|
|
1,185,900
|
|
|
|
490,600
|
|
|
|
59,600
|
|
|
|
|
|
|
|
|
|
|
|
550,200
|
|
|
|
1,076,000
|
|
|
|
441,700
|
|
|
|
1,076,000
|
|
|
|
194,000
|
|
Ireland
|
|
|
856,000
|
|
|
|
408,200
|
|
|
|
592,300
|
|
|
|
675,900
|
|
|
|
253,700
|
|
|
|
226,100
|
|
|
|
|
|
|
|
105,200
|
|
|
|
585,000
|
|
|
|
408,200
|
|
|
|
80,500
|
|
|
|
231,000
|
|
|
|
10,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
6,488,000
|
|
|
|
5,396,100
|
|
|
|
5,059,600
|
|
|
|
7,437,800
|
|
|
|
3,644,500
|
|
|
|
1,088,700
|
|
|
|
|
|
|
|
105,200
|
|
|
|
4,838,400
|
|
|
|
5,586,100
|
|
|
|
1,617,400
|
|
|
|
5,338,800
|
|
|
|
982,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
1,166,600
|
|
|
|
1,117,100
|
|
|
|
988,400
|
|
|
|
1,343,100
|
|
|
|
706,000
|
|
|
|
|
|
|
|
168,000
|
|
|
|
|
|
|
|
874,000
|
|
|
|
1,117,100
|
|
|
|
281,400
|
|
|
|
1,119,700
|
|
|
|
187,700
|
|
Romania
|
|
|
2,056,200
|
|
|
|
1,561,300
|
|
|
|
1,337,500
|
|
|
|
1,615,700
|
|
|
|
1,185,100
|
|
|
|
37,400
|
|
|
|
115,000
|
|
|
|
|
|
|
|
1,337,500
|
|
|
|
1,436,000
|
|
|
|
181,800
|
|
|
|
1,374,200
|
|
|
|
96,400
|
|
Poland
|
|
|
1,966,800
|
|
|
|
1,564,400
|
|
|
|
1,064,700
|
|
|
|
1,421,300
|
|
|
|
1,011,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,011,300
|
|
|
|
1,564,400
|
|
|
|
297,300
|
|
|
|
1,516,700
|
|
|
|
112,700
|
|
Czech Republic
|
|
|
1,270,100
|
|
|
|
1,065,900
|
|
|
|
775,500
|
|
|
|
1,031,700
|
|
|
|
445,800
|
|
|
|
124,200
|
|
|
|
129,400
|
|
|
|
|
|
|
|
699,400
|
|
|
|
1,065,900
|
|
|
|
249,000
|
|
|
|
1,063,000
|
|
|
|
83,300
|
|
Slovak Republic
|
|
|
463,100
|
|
|
|
331,400
|
|
|
|
305,400
|
|
|
|
352,100
|
|
|
|
261,600
|
|
|
|
3,200
|
|
|
|
26,900
|
|
|
|
7,900
|
|
|
|
299,600
|
|
|
|
303,300
|
|
|
|
42,600
|
|
|
|
168,500
|
|
|
|
9,900
|
|
Slovenia
|
|
|
196,900
|
|
|
|
141,300
|
|
|
|
154,800
|
|
|
|
209,800
|
|
|
|
150,100
|
|
|
|
1,100
|
|
|
|
|
|
|
|
3,600
|
|
|
|
154,800
|
|
|
|
141,300
|
|
|
|
45,000
|
|
|
|
141,300
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
7,119,700
|
|
|
|
5,781,400
|
|
|
|
4,626,300
|
|
|
|
5,973,700
|
|
|
|
3,759,900
|
|
|
|
165,900
|
|
|
|
439,300
|
|
|
|
11,500
|
|
|
|
4,376,600
|
|
|
|
5,628,000
|
|
|
|
1,097,100
|
|
|
|
5,383,400
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total UPC Broadband Division
|
|
|
13,607,700
|
|
|
|
11,177,500
|
|
|
|
9,685,900
|
|
|
|
13,411,500
|
|
|
|
7,404,400
|
|
|
|
1,254,600
|
|
|
|
439,300
|
|
|
|
116,700
|
|
|
|
9,215,000
|
|
|
|
11,214,100
|
|
|
|
2,714,500
|
|
|
|
10,722,200
|
|
|
|
1,482,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telenet (Belgium) (14)
|
|
|
1,920,000
|
|
|
|
1,920,000
|
|
|
|
2,043,800
|
|
|
|
3,152,300
|
|
|
|
1,340,700
|
|
|
|
390,800
|
|
|
|
|
|
|
|
|
|
|
|
1,731,500
|
|
|
|
2,743,800
|
|
|
|
872,900
|
|
|
|
2,743,800
|
|
|
|
547,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J:COM (Japan)
|
|
|
9,438,200
|
|
|
|
9,438,200
|
|
|
|
2,659,100
|
|
|
|
4,712,200
|
|
|
|
717,800
|
|
|
|
1,470,200
|
|
|
|
|
|
|
|
|
|
|
|
2,188,000
|
|
|
|
9,438,200
|
|
|
|
1,211,600
|
|
|
|
9,415,300
|
|
|
|
1,312,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Americas:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VTR (Chile)
|
|
|
2,441,200
|
|
|
|
1,652,400
|
|
|
|
992,800
|
|
|
|
1,926,800
|
|
|
|
669,300
|
|
|
|
183,300
|
|
|
|
|
|
|
|
|
|
|
|
852,600
|
|
|
|
1,652,400
|
|
|
|
520,300
|
|
|
|
1,625,400
|
|
|
|
553,900
|
|
Puerto Rico
|
|
|
340,800
|
|
|
|
340,800
|
|
|
|
114,500
|
|
|
|
162,800
|
|
|
|
|
|
|
|
85,200
|
|
|
|
|
|
|
|
|
|
|
|
85,200
|
|
|
|
340,800
|
|
|
|
58,000
|
|
|
|
340,800
|
|
|
|
19,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total The Americas
|
|
|
2,782,000
|
|
|
|
1,993,200
|
|
|
|
1,107,300
|
|
|
|
2,089,600
|
|
|
|
669,300
|
|
|
|
268,500
|
|
|
|
|
|
|
|
|
|
|
|
937,800
|
|
|
|
1,993,200
|
|
|
|
578,300
|
|
|
|
1,966,200
|
|
|
|
573,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Austar (Australia)
|
|
|
2,462,200
|
|
|
|
|
|
|
|
669,100
|
|
|
|
669,100
|
|
|
|
|
|
|
|
9,300
|
|
|
|
659,500
|
|
|
|
|
|
|
|
668,800
|
|
|
|
30,400
|
|
|
|
300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grand Total
|
|
|
30,210,100
|
|
|
|
24,528,900
|
|
|
|
16,165,200
|
|
|
|
24,034,700
|
|
|
|
10,132,200
|
|
|
|
3,393,400
|
|
|
|
1,098,800
|
|
|
|
116,700
|
|
|
|
14,741,100
|
|
|
|
25,419,700
|
|
|
|
5,377,600
|
|
|
|
24,847,500
|
|
|
|
3,916,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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(1) |
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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 (see
note 13) and Telenet in Belgium (see note 14), or
the unbundled loop and shared access network used by one of our
Austrian subsidiaries, UPC Austria GmbH (Austria GmbH), we do
not report homes passed for Cablecoms and Telenets
partner networks or for Austria GmbHs unbundled loop and
shared access network. |
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(2) |
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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 and Telenet in Belgium
or the unbundled loop and shared access network used by Austria
GmbH, we do not report two-way homes passed for Cablecoms
and Telenets partner networks or for Austria GmbHs
unbundled loop and shared access network. |
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(3) |
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Customer Relationships are the number of customers who receive
at least one level of service without regard to which service(s)
they subscribe. To the extent that Revenue Generating Units
include equivalent billing unit (EBU) adjustments, we reflect
corresponding adjustments to our Customer Relationship counts.
We exclude mobile customers from Customer Relationships. |
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(4) |
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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 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. |
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(5) |
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Analog Cable Subscriber is comprised of analog cable customers
that are counted on a per connection or EBU basis. In Europe, we
have approximately 652,600 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. Telenets Analog Cable Subscribers at
December 31, 2007, include 23,800 subscribers who receive
Telenets premium video service on a stand alone basis over
the Telenet partner network. Each such premium video subscriber
is assumed to represent one customer relationship. |
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(6) |
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Digital Cable Subscriber is a customer with one or more digital
converter boxes that receives our digital cable service. We
count a subscriber with one or more digital converter boxes that
receives our digital cable service as just one subscriber. A
Digital Cable Subscriber is not counted as an Analog Cable
Subscriber. Individuals who receive digital cable service
through a purchased digital set-top box but do not pay a monthly
digital service fee are only counted as Digital Cable
Subscribers to the extent we can verify that such individuals
are subscribing to analog cable service. We include this group
of subscribers in Telenets Digital Cable Subscribers, but
exclude them from Cablecoms Digital Cable Subscribers.
Subscribers to digital cable services provided by Cablecom over
partner networks receive analog cable services from the partner
networks as opposed to Cablecom. As we migrate customers from
analog to digital cable services, we report a decrease in our
Analog Cable Subscribers equal to the increase in our Digital
Cable Subscribers. |
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(7) |
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DTH Subscriber is a home or commercial unit that receives our
video programming broadcast directly to the home via a
geosynchronous satellite. |
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(8) |
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MMDS Subscriber is a home or commercial unit that receives our
video programming via a multi-channel multipoint (microwave)
distribution system. |
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(9) |
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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 services. With respect to Austria GmbH, we do
not report as Internet Homes Serviceable those homes served
either over an unbundled loop or over a shared access network
because they are not serviced over our networks. |
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(10) |
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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 services. Our
Internet Subscribers in Austria include residential digital
subscriber line (DSL) subscribers of Austria GmbH 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. |
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(11) |
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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 Austria GmbH, we do not report as
Telephone Homes Serviceable those homes served over an unbundled
loop rather than our network. |
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(12) |
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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, 2007,
exclude an aggregate of 150,800 mobile telephone subscribers in
the Netherlands, Australia and Belgium. Also, our Telephone
Subscribers do not include customers that receive services via
resale arrangements. Our Telephone Subscribers in Austria
include residential subscribers served by Austria GmbH through
an unbundled loop. |
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(13) |
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Pursuant to service agreements, Cablecom offers digital cable,
broadband Internet and telephony services over networks owned by
third party cable operators (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, 2007 subscriber table is based on
September 30, 2007 data. In our December 31, 2007
subscriber table, Cablecoms partner networks account for
54,800 Customer Relationships, 102,300 RGUs, 31,400 Digital
Cable Subscribers, 190,000 Internet Homes Serviceable, 188,000
Telephone Homes Serviceable, 37,400 Internet Subscribers, and
33,500 Telephone Subscribers. In addition, partner networks
account for 373,800 digital cable homes serviceable that are not
included in Homes Passed or Two-way Homes Passed in our
December 31, 2007 subscriber table. |
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(14) |
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Pursuant to certain agreements, Telenet offers premium video,
broadband Internet and telephony services over a Telenet partner
network. A partner network RGU is only recognized if Telenet 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 the
Telenet partner network. In our December 31, 2007
subscriber table, Telenets partner network accounts for
465,800 RGUs, 823,800 Internet Homes Serviceable and Telephone
Homes Serviceable, 23,800 premium video subscribers (included in
our Analog Cable Subscribers), 267,200 Internet Subscribers and
174,800 Telephone Subscribers. In addition, Telenets
partner network accounts for 823,800 Homes Passed and Two-way
Homes Passed that are not included in our December 31, 2007
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 (with the exception of Telenet, which counts
commercial establishments on a per connection basis). EBU is
calculated by dividing the bulk price charged to accounts in an
area by the most prevalent price charged to
I-10
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, Belgium 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.
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
subsidiary J:COM; and in the Americas principally through our
subsidiary Pramer S.C.A. We also own joint venture interests in
MGM Networks Latin America, LLC, a programming business that
serves the Americas, and in XYZ Networks Pty Ltd. (XYZ
Networks), a programming business in Australia.
Operations
Europe
Liberty Global Europe
Our European operations are conducted through our wholly owned
subsidiary, Liberty Global Europe, which provides video, voice
and broadband Internet services in 11 countries in Europe.
Liberty Global Europes operations are currently organized
into the UPC Broadband Division, Telenet and the Chellomedia
Division. Through the UPC Broadband Division and Telenet,
Liberty Global Europe provides video, broadband Internet,
telephony and mobile services over its networks and operates the
largest cable network in each of Austria, Belgium, Czech
Republic, Hungary, Ireland, Poland, Slovak Republic, Slovenia
and Switzerland, in each case in terms of number of video
subscribers. For information concerning the Chellomedia
Division, see Chellomedia and Other below.
Provided below is country-specific information with respect to
the broadband communications services of our UPC Broadband
Division and Telenet.
The
Netherlands
The subscribers in the 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 96%
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. For its analog cable customers, UPC
Netherlands offers 25 to 40 video channels, depending on a
customers location, and 40 radio channels.
I-11
In October 2005, UPC Netherlands initiated a program to migrate
over time its analog cable customers to digital cable service by
offering analog cable customers a digital interactive television
box. Then, for a promotional period (currently three months)
following acceptance of the box, UPC Netherlands provides the
customer the digital entry level service at no incremental
charge over the standard analog rate. In the second half of
2006, UPC Netherlands began a more targeted approach to
distributing the digital interactive box to subscribers. Due in
part to this more targeted approach, the pace of the migration
program has been more gradual than when it was initially
implemented. Ninety-two percent of UPC Netherlands homes
passed are capable of receiving digital cable service.
The digital entry level service currently includes over 50 video
channels and over 70 radio channels, an electronic program
guide, interactive services and the functionality for VoD
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 40 general entertainment, sports, movies, music
and ethnic channels. Digital cable customers may also subscribe
to premium channels, such as Film 1 and Sport 1
NL, alone or in combination, for additional monthly charges.
The VoD service includes both subscription-based VoD and
transaction-based VoD. UPC Netherlands made these true VoD
services available to its digital cable customers starting in
April 2007. By September 2007, all digital cable customers were
able to access VoD services. A customer also has the option for
an incremental monthly charge to upgrade the digital box to one
with digital video recorder (DVR) functionality, which was first
made available to digital cable customers in November 2006. UPC
Netherlands also started making HD boxes available to digital
cable customers in the second quarter of 2007.
UPC Netherlands offers five tiers of broadband Internet service
with download speeds ranging from 384 Kbps to 20 Mbps
and, starting in February 2008, 24 Mbps. Multi-feature
telephony services are also available from UPC Netherlands to
94% of its homes passed. UPC Netherlands offers both traditional
switched circuit telephony and VoIP. Of UPC Netherlands
total customers (excluding mobile customers), 11% subscribe
to two services (double-play customers) and 21% 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, its broadband Internet services and its
telephony services, allowing subscribers to install the
technology themselves and save money on the installation fee.
Almost all of its new digital, broadband Internet and telephony
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 Netherlands BV, UPC
Netherlands offers a range of voice, broadband Internet, private
data networks and customized network services to business
customers primarily in its core metropolitan networks.
Switzerland
The UPC Broadband Divisions operations in Switzerland are
operated by Cablecom. Cablecoms cable networks are 71%
upgraded to two-way capability and 75% of its cable homes passed
are served by a network with a bandwidth of at least
650 MHz.
For 64% of its analog cable 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. Ninety-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 90 video channels and 40
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 DVR functionality, 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 introduced HD
boxes to its digital cable subscribers in the fourth quarter of
2007.
I-12
In April 2007, Cablecom initiated a program to migrate over time
its analog cable customers to digital cable service. At that
time, Cablecom changed the package of digital services by, among
other things, offering an introductory package with a digital
television box at a low rate.
Cablecom offers eight tiers of broadband Internet service with
download speeds ranging from 500 Kbps to 10 Mbps. As
of January 15, 2008, Cablecom increased the download speed
to 25 Mbps. In addition, Cablecom continues to offer
dial-up
Internet services on a limited basis. Of Cablecoms homes
passed, 81% are capable of receiving Cablecoms Internet
services.
Telephony services are available from Cablecom to 81% of its
homes passed. Cablecom was the first to offer a flat rate
telephone plan in Switzerland, known as Unlimited24.
Cablecom offers its digital telephony services through VoIP.
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 total customers (excluding mobile
customers), 16% are double-play customers and 16% are
triple-play customers.
In addition, Cablecom offers advanced data services to the Swiss
business market. Cablecom provides broadband Internet,
multi-site data connectivity, virtual private network, security,
messaging and hosting and other value added services to business
customers on a retail basis.
Austria
The UPC Broadband Divisions operations in Austria
(excluding the Austrian portion of Cablecoms network),
which we refer to as UPC Austria, is comprised of both coaxial
cable and unbundled DSL operations. The coaxial cable operations
are located in regional clusters encompassing the capital city
of Vienna, three other regional capitals and two smaller cities.
Four of these cities, directly or indirectly, own 5% of the
local operating company of UPC Austria; the others are 100%
owned by Liberty Global Europe. The DSL services are provided
over an unbundled loop or in certain cases, over a shared access
network. The unbundled DSL operations are available in the
majority of the country, wherever the incumbent
telecommunications operator has implemented DSL technology. UPC
Austrias cable network is 100% upgraded to two-way
capability and all of its cable homes passed are served by a
network with a bandwidth of at least 860 MHz.
The majority of UPC Austrias video cable subscribers
receive a package of 38 channels, mostly in the German language,
plus over 30 radio channels. In the fourth quarter of 2007, UPC
Austria rolled out a new program to migrate analog cable
customers to digital cable service over time. Customers desiring
digital service may request a digital interactive television box
from UPC Austria. The digital entry level service includes over
50 video channels and over 30 radio channels, an electronic
program guide, interactive services and the functionality for
NVoD service. UPC Austria provides this digital entry level
service at no incremental charge over the standard analog rate.
For an additional incremental monthly charge, the digital cable
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 30 general entertainment, sports, movies, music
and ethnic channels. Digital cable customers may also subscribe
to premium channels (including ethnic channels, for example Serb
and Turkish offerings), alone or in combination, for additional
monthly charges. The NVoD service may be used for a separate
I-13
fee for each movie or event ordered. Currently, a customer also
has the option to upgrade the digital box to one with DVR
functionality for an incremental monthly charge and UPC Austria
expects to make HD boxes available in 2008.
UPC Austria offers five tiers of broadband Internet service with
download speeds ranging from one Mbps to 25.6 Mbps and a
student package over its cable network. Over DSL technology, UPC
Austria offers three tiers of unbundled DSL broadband Internet,
plus additional tiers via wholesale offerings. It also offers a
double-play package of broadband Internet and telephony over DSL.
Multi-feature telephony services are available from UPC Austria
to 100% of the homes passed by its cable network. 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, which is now available to all
customers. It also continues to offer telephony services through
traditional switched telephony services. Of UPC Austrias
total customers (excluding mobile customers), 32% are
double-play customers and 12% are triple-play customers.
UPC Austria offers a range of voice, data, lease line and
asymmetric digital subscriber line (ADSL) services to business
customers throughout Austria with a primary focus on business
customers in cities, including Vienna, Graz, Klagenfurt,
Villach, St. Polten, Dombirn, Leibnitz, Leoben, Salzburg, Linz
and Innsbruck.
Ireland
The UPC Broadband Divisions operations in Ireland, which
we refer to as UPC Ireland, are located in five regional
clusters, including the cities of Dublin and Cork. Its cable
network is 48% upgraded to two-way capability, and 56% 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 89% of its homes passed, including its MMDS
customers. The UPC Ireland MMDS customers receive digital
service and in some cases can receive either analog or digital
services. UPC Ireland continues to pro-actively migrate its
remaining analog cable, analog premium and analog MMDS customers
to its digital service to provide its customers with a wider
range of channels and to release additional bandwidth for other
digital services. Under the current promotional pricing, the
digital service is provided at the same rate as the analog
service for the first six months.
UPC Ireland offers an analog cable package with up to 22
channels and a digital cable package with up to
150 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 28 channels of premium service.
UPC Ireland offers four tiers of broadband Internet service with
download speeds ranging from one Mbps to six Mbps. UPC Ireland
offers VoIP multi-feature telephony services to 27% of its homes
passed. It offers basic dial tone service as well as value-added
services. Of UPC Irelands total customers, 11% are
double-play customers.
In addition, UPC Ireland offers to business customers a complete
range of telecommunications solutions from standard voice and
Internet services to more advanced services such as Ethernet LAN
extensions, corporate voice services and high speed Internet.
These services are offered to large corporations, public
organizations and small to medium size businesses throughout
Ireland, covering Cork, Dublin, Galway, Limerick and Waterford.
Hungary
The cable networks of the UPC Broadband Divisions
operations in Hungary, which we refer to as UPC Hungary, are 96%
upgraded to two-way capability, and 63% of its cable homes
passed are served by a network with a bandwidth of at least
750 MHz. UPC Hungary offers up to four tiers of analog
cable programming services (between 5 and 55 channels) and two
premium channels, depending on the technical capability of the
network. Programming consists of the national Hungarian
terrestrial broadcast channels and selected European satellite
and local programming that consist of proprietary and third
party channels.
I-14
UPC Hungary offers five tiers of broadband Internet service with
download speeds ranging from 128 Kbps to 20 Mbps. UPC
Hungary provides these broadband Internet services to 281,400
subscribers in 18 cities, including Budapest. It also had
23,500 ADSL subscribers at December 31, 2007, on its
twisted copper pair network located in the southeast part of
Pest County. On this copper pair network, UPC Hungary also
offers traditional circuit switched telephony services to 57,700
subscribers. It offers VoIP telephony services over its two-way
capable cable network throughout Hungary and had 130,000 VoIP
telephony subscribers at the end of 2007. Of our total customers
in Hungary, 19% are double-play customers and 8% are triple-play
customers.
UPC Hungary offers business customers a variety of Internet and
telephony packages, managed leased lines and virtual private
network services primarily to its small office at home (SOHO)
customers and small to medium size business customers.
Other
Central and Eastern Europe
The UPC Broadband Division also operates cable networks in Czech
Republic (UPC Czech), Poland (UPC Poland) and Romania (UPC
Romania), and cable and MMDS networks in Slovak Republic (UPC
Slovakia) and Slovenia (UPC Slovenia). In each of these
operations, at least 72% of the cable networks are upgraded to
two-way capability, and at least 69% of the homes passed are
served by a network with a bandwidth of at least 860 MHz.
Through UPC Direct and another subsidiary, the UPC Broadband
Division also has DTH operations in certain of these countries.
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Czech Republic. UPC Czechs operations
are located in more than 94 cities and towns in the Czech
Republic, including Prague, Brno, Ostrava, Pilsen and Northern
Bohemia. UPC Czech offers two tiers of analog cable programming
services with up to 44 channels, and two premium channels on its
cable network. Of UPC Czechs analog cable subscribers,
55% subscribe to the lifeline analog service. UPC Czech
also offers its subscribers digital programming services with 55
channels, consisting of three tiers, and an additional four
tiers of premium services. UPC Czech offers seven tiers of
broadband Internet service with download speeds ranging from two
Mbps to 16 Mbps. UPC Czech makes VoIP multi-featured
telephony services available to 84% of its homes passed. Of our
total customers in Czech Republic, 23% are double-play customers
and 5% are triple-play customers.
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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 tiers of cable
television service. Its lowest tier, the broadcast package,
includes six to 10 channels and the intermediate package
includes 14 to 31 channels. Almost 31% of UPC Polands
analog cable subscribers receive lifeline analog cable service.
For the higher tier, the full package includes the broadcast
package, plus up to 49 additional channels with such themes as
sports, children, science/educational, news, film and music. For
an additional monthly charge, UPC Poland offers three premium
television services, the HBO Poland package, Canal+ Multiplex,
and a
Polish-language
premium package of four movie, sport and general entertainment
channels. UPC Poland offers four tiers of broadband Internet
service in portions of its network with download speeds ranging
from 512 Kbps to 20 Mbps. UPC Poland makes VoIP
multi-feature telephony services available to 77% of its homes
passed. UPC Poland offers basic dial tone service as well as
value-added services. Of UPC Polands customers, 17% are
double-play customers and 8% 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 Constanta. 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 other programming. In the
main cities, it also offers four extra basic packages of five to
12 channels each and premium pay television (HBO Romania
and Adult). UPC Romania also offers to its cable
subscribers in Bucharest digital programming with 107 channels,
consisting of three tiers of service. UPC Romania offers three
tiers of broadband Internet service, with download speeds
ranging from one Mbps to 20 Mbps, and has rolled out VoIP
multi-feature telephony services to 67% of its homes passed. UPC
Romania offers basic dial tone service as well as value-added
services. Of our total customers in Romania, 6% are double-play
customers and 7% are triple-play customers. In addition, UPC
Romania offers a wide range of voice, leased line and broadband
data products to its large business customers and its SOHO
customers.
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Slovak Republic. UPC Slovakia offers analog
cable service in 29 cities and towns in the Slovak
Republic, including the four largest cities of Bratislava,
Kosice, Banska Bystrica and Zilina. UPC Slovakia offers its
analog cable and MMDS subscribers two tiers of analog service
and three premium services. Its lower tier, the lifeline
package, includes four to eight channels. Of UPC Slovakias
analog cable subscribers, 24% subscribe to the lifeline
analog service. UPC Slovakias most popular tier, the basic
package, includes 12 to 50 channels that generally offer all
Slovak Republic terrestrial, cable and local channels, selected
European satellite programming and other programming. For an
additional monthly charge, UPC Slovakia offers three premium
services HBO Slovakia package, an adult channel and
the UPC Komfort package consisting of five thematic third-party
channels. UPC Slovakia also offers its cable subscribers digital
programming services with 72 channels, consisting of two tiers,
with an additional five premium services available. In
Bratislava, UPC Slovakia offers eight tiers of broadband
Internet service with download speeds ranging from 128 Kbps
to 15 Mbps. UPC Slovakia makes VoIP multi-featured
telephony services available to 36% of its homes passed. Of our
total customers in Slovak Republic, 10% are double-play
customers.
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Slovenia. UPC Slovenias operations are
located in seven of the 10 largest cities in Slovenia, including
Ljubljana and Maribor. UPC Slovenias most popular tier,
the analog basic package, includes on average 58 video and
30 radio channels and generally offers all Slovenian
terrestrial, cable and local channels, selected European
satellite programming and other programming. For an additional
monthly charge, UPC Slovenia offers two premium movie services
(HBO Slovenia and Adult). UPC Slovenia also offers
its subscribers digital programming services via MMDS in two
regions covered by three transmitters with 60 video and
30 radio channels. Two premium services are also available.
UPC Slovenia offers five tiers of broadband Internet service
with download speeds ranging from 512 Kbps to 20 Mbps.
UPC Slovenia makes VoIP multi-featured telephony service
available to 72% of its homes passed. Of our total customers in
Slovenia, 23% are double-play customers and 6% are triple-play
customers.
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UPC Direct. Our DTH satellite business, known
as UPC Direct, provides DTH services to customers in Czech
Republic, Hungary and Slovak Republic. Depending on location,
subscribers receive 61 to 76 channels for basic service.
For an additional monthly charge, a subscriber may upgrade to an
extended basic tier package, plus various premium package
options for specialty channels. UPC Direct provides DTH services
to 19% of our total video subscribers in Czech Republic, 19% of
our total video subscribers in Hungary and 9% of our total video
subscribers in Slovak Republic. Through another subsidiary, the
UPC Broadband Division also provides DTH services to 9% of our
total video subscribers in Romania.
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Telenet
(Belgium)
Liberty Global Europes operations in Belgium are operated
by Telenet. We indirectly own 51.1% of Telenets
outstanding ordinary shares. 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. Its cable networks are 100% upgraded to
two-way capability and 100% of its cable homes passed are served
by a network with a bandwidth of 450MHz.
All of Telenets homes passed are capable of receiving
digital cable service. Telenet offers its digital cable
subscribers a digital basic package consisting of 46 video
channels and 23 radio channels, interactive services and the
functionality for VoD service. For an additional incremental
monthly charge, the digital subscriber may upgrade to a premium
package, which includes all the channels and features of the
digital basic package, plus six general entertainment, sports
and movie channels. In addition, digital cable customers may
also subscribe to premium channels, including documentary,
foreign language, kids, sports, adult and movies, alone or in
combination, for an additional monthly charge. Telenets
digital customers who subscribe to interactive services can
receive over 100 channels depending on the packages selected. A
customer has the option to upgrade the digital box to one with
DVR functionality for an incremental monthly charge. Telenet
made HD boxes available in December 2007 and offers two HD
channels. Telenets digital cable service is sold directly
to the end user as an add-on to its analog cable services.
Telenet offers four tiers of broadband Internet service with
download speeds ranging from one Mbps to 20 Mbps. In
addition, Telenet continues to offer
dial-up
Internet services on a limited basis. Of Telenets homes
passed, 100% are capable of receiving Telenets Internet
services.
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Telephony services are available from Telenet to 100% of its
homes passed. Telenet offers digital telephony services through
VoIP and traditional circuit switched telephony services, as
well as value-added services. In addition, Telenet offers a
bundle of fixed line and mobile telephony. Of Telenets
customers, 24% are double-play customers and 15% are triple-play
customers.
Telenet also offers a range of voice, data and Internet services
to business customers throughout Belgium under the brand
Telenet Solutions.
Telenet has the exclusive right to provide point-to-point
services and the non-exclusive right to provide certain other
services on the partner network owned by the PICs. Through these
rights, Telenet offers broadband Internet and fixed line
telephony service directly to the analog cable subscribers of
those partner networks that enter into service operating
contracts with Telenet. Telenet has the direct customer billing
relations with the subscribers who take these services on the
partner networks. By permitting Telenet to offer broadband
Internet and fixed line telephony products directly to those
partner network subscribers, Telenets service operating
contracts have expanded the addressable markets for
Telenets digital products. In connection with these usage
rights, Telenet is required to make payments to the PICs on an
ongoing basis under its agreements with the PICs. Telenet has
been negotiating with the PICs to increase the capacity
available to Telenet on the partner networks. This increase is
to avoid possible future degradation of service due to
congestion that may arise in future years. Telenet is also
involved in litigation with the PICs with respect to the scope
of Telenets exclusive right to provide point-to-point
services and the PICs desire to provide VoD and related digital
interactive services over the partner network. In November 2007,
the parties announced a non-binding agreement in principle for
the acquisition by Telenet of the analog and digital television
activities of the PICs. This agreement in principle is being
challenged by the incumbent telecommunications operator and
there can be no assurance that the transaction will be
consummated. For additional information, see note 20 to our
consolidated financial statements.
Liberty Global Europes interest in Telenet is held by
certain indirect subsidiaries of Chellomedia. Under the
Syndicate Agreement, these subsidiaries have rights of first
offer in respect of market sales and offerings of Telenet shares
by the other Telenet Syndicate shareholder to certain persons.
All Telenet Syndicate shareholders, including these
subsidiaries, 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. Also under the Syndicate
Agreement and the Telenet Articles of Association, certain
minority-protective Telenet Board decisions must receive the
affirmative vote of specified directors in order to be effective.
Chellomedia
and Other
Liberty Global Europes Chellomedia Division provides
interactive digital products and services, produces and markets
27 thematic channels, operates a digital media center and
manages our investments in various businesses in Europe. Below
is a description of the business unit operations of our
Chellomedia Division:
Chello Zone. Chellomedia produces and markets a
number of widely distributed multi-territory thematic channels.
These channels target the following genres: extreme sports and
lifestyles (the Extreme Sports Channel), horror films
(Zone Horror), real life stories (Zone Reality),
womens information and entertainment (Zone Club and
Zone Romantica), art house basic movies (Zone
Europa), science fiction and fantasy (Zone Fantasy),
prime time movies (Zone Thriller) and childrens
pre-school (Jim Jam). In addition, Chellomedia has a
channel representation business, which represents both wholly
owned and third party channels across Europe.
Chello 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.
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The channels originate from Chellomedias digital media
center (DMC), located in Amsterdam. The DMC is a technologically
advanced production facility that services the Chellomedia
Division, the 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.
Chello Central & Eastern
Europe. Chellomedia has a controlling 80% interest in a
joint venture with an unrelated third party that owns and
manages sports channels (Sport 1 and Sport 2). The
programming on these channels varies by country, but is
predominately football oriented. Chellomedia also owns 100% of
the childrens channel Minimax, the thematic
channels Filmmuzeum (a Hungarian library film channel),
TV Paprika (a cooking channel) and TV Deko (a home
and lifestyle channel). Sport 1 and Minimax are
distributed to the UPC Broadband Division and other broadband
operators in Hungary, Czech Republic, Slovak Republic, Romania
and Serbia. Sport 2 and Filmmuzeum are distributed
in Hungary. TV Paprika and TV Deko are distributed
in Hungary, Czech Republic and Slovak Republic.
Chello Multicanal. Through its subsidiaries IPS C.V.
and Multicanal S.L. (collectively, IPS), Chellomedia owns and
manages a suite of eight thematic channels carried on a number
of major pay television platforms in Spain and Portugal. IPS has
six wholly owned thematic channels (Canal Hollywood, Odisea,
Sol Musica, Canal Panda, Canal Cocina and Decasa) and
two joint venture channels with A&E Television Networks
(Canal de Historia and The Biography Channel).
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Chello Interactive. Chello Interactive
develops and delivers Internet and interactive television based
entertainment and related technology services. On the Internet,
this group publishes web portals for the UPC Broadband Division
and other broadband subscribers in the 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 the 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 the 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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Chello On Demand (Transactional
Television). Chello On Demand aggregates
entertainment content into transactional television offers for
the UPC Broadband Division. During 2007, Chello On Demand
launched VoD services through the UPC Broadband Division in the
Netherlands. This service offers movies, international and local
drama, documentaries and childrens entertainment on the
subscribers request. Chello On Demand continues to offer
NVoD services for feature movies in Austria and Switzerland, and
anticipates offering VoD services in these countries in 2008.
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Investments. Chellomedia is an investor in
equity ventures, among others, for the development of
country-specific Pan European programming, including The MGM
Channel Central Europe, Jetix Poland, Donatus
(Dutch weather channel) and City Channel. Chellomedia
also owns a 25% interest in Telewizyjna Korporacja
Partycypacyjna S.A., a DTH platform in Poland, and is the
subsidiary through which Liberty Global Europe owns its 51.1%
interest in Telenet.
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Asia/Pacific
We have operations in Japan and Australia. Our Japanese
operations are conducted primarily through Super Media and its
subsidiary J:COM. We have an indirect controlling ownership
interest in J:COM of 37.9%. Our Australian operations are
conducted primarily through Austar in which we own a 53.4%
controlling ownership interest.
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Jupiter
Telecommunications Co., Ltd.
J:COM is a leading broadband provider of bundled entertainment,
data and communication services in Japan. As of
December 31, 2007, J:COM is the largest multiple-system
operator (MSO), in Japan, as measured by the total number of
homes passed and customers. J:COM operates its broadband
networks through 22 managed local cable companies, which J:COM
refers to as its managed franchises, 20 of which were
consolidated subsidiaries as of December 31, 2007. J:COM
owns a 46.6% and 45.0% equity interest in its two unconsolidated
managed franchises. As described below, J:COMs services
include video, broadband Internet and telephony. Of its total
customers (excluding mobile customers), approximately 28% are
double-play customers and approximately 25% are triple-play
customers.
Twenty-one 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, Kobe and Kyoto) 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 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 at
least 750 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:COMs analog television service
consists of approximately 45 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, LaLa TV,
a womens entertainment channel, J sports 1,
J sports 2 and J 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, 2007, J:COMs digital
television service includes approximately 66 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 21 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 the 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 4.2 million
additional households in its consolidated franchise areas as of
December 31, 2007, 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 services in all of its managed
franchises through its wholly owned subsidiary, @NetHome Co.,
Ltd, and its subsidiary, Kansai Multimedia Services (KMS). These
broadband Internet services offer downstream speeds of mainly
either 30 Mbps or eight Mbps. J:COM holds a 76.5% interest
in KMS, which provides broadband Internet services 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 April 2007, J:COM launched a very
high-speed broadband Internet service for single dwelling units,
individual homes and smaller apartment buildings in a portion of
the Kansai area, which delivers downstream speeds of up to
160 Mbps.
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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, J:COM offers 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 22 managed franchises, J:COM owns
non-controlling equity interests of 5.5% and 20.0% in two cable
franchises that are operated and managed by third-party
franchise operators.
J:COM sources its programming through multiple suppliers,
including JTV Thematics. J:COM acquired JTV Thematics on
September 1, 2007, after it was spun-off from
Jupiter TV. See Recent Developments
Dispositions above. JTV Thematics invests in,
develops, manages and distributes fee-based television
programming. This acquisition enables J:COM to bring key
programming genres to the Japanese market and to promote the
development of quality programming services.
Through JTV Thematics, J:COM 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 (FTTH), and
ADSL platforms. As of December 31, 2007, J:COM owned four
channels through wholly or majority owned subsidiaries and had
investments ranging from 10% to 50% in ten additional channels.
J:COMs majority owned channels are a movie channel
(Movie Plus), a golf channel (Jupiter Golf
Network), a womens entertainment channel
(LaLa TV) and a new channel that is planned to be
launched in April 2008 (Channel Ginga). Channels in which
J:COM holds investments include four sports channels owned by
J SPORTS Broadcasting Corporation, which is a 33% owned
joint venture with Sony Broadcast Media Co. Ltd., Fuji
Television Network, Inc., Club iT Corporation, SKY Perfect
Communications Inc. and Itochu Corporation; Animal Planet
Japan, a one-third owned joint venture with Discovery Asia,
Inc. and Worldwide America Investments, Inc.; Discovery
Channel Japan and Discovery HD through a 50% owned
joint venture with Discovery Asia, Inc.; and AXN Japan, a
35% owned joint venture with Sony Pictures Entertainment. J:COM
provides affiliate sales services and in some cases advertising
sales and other services to channels in which it has an
investment for a fee.
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 21.5 million homes at
September 30, 2007. 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 6.5 million households as of
December 31, 2007. The majority of channels in which J:COM
holds an interest are marketed to cable system operators as
basic television services, with distribution at
December 31, 2007, ranging from 5.7 million homes for
Movie Plus to 1.1 million homes for more recently
launched channels, such as Discovery HD.
Each of the channels in which J:COM has an interest, except for
Discovery HD, is also offered on SKY PerfecTV, a
digital satellite platform that delivers approximately
190 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. Each of the channels,
except for Discovery HD, is also offered on e2 by SKY
PerfecTV, another satellite platform in Japan, which delivers
approximately 70 linear channels (24 hours a day). The
majority of channels in which J:COM holds an interest are
marketed to DTH subscribers as basic television services, with
distribution at December 31, 2007, ranging from
1.2 million homes for Movie Plus to
435,000 homes for Jupiter Golf Network, which is a
premium channel on one of the SKY PerfecTV platforms.
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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 to alternative
broadband subscribers as basic television services, with
distribution at December 31, 2007, ranging from 266,000
homes for Discovery to approximately 150,000 homes
for most other channels.
J:COM owns a 100% interest in Jupiter Entertainment Co.,
Ltd., which offers VoD services to J:COM franchises. J:COM
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 primarily through Super Media, an
entity that is owned 58.7% by us and 41.3% by
Sumitomo. We also own, through a wholly owned subsidiary, an
additional 3.7% in J:COM. Pursuant to the operating agreement of
Super Media, most of our interest and most of Sumitomos
interest in J:COM is held through Super Media. Sumitomo and our
subsidiary 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.
Pursuant to an amendment to such operating agreement, the shares
received in the JTV Thematics merger by us and Sumitomo
will not be contributed to Super Media but we each agreed to
vote such shares in the same manner that Super Media votes its
shares of J:COM and to restrictions on transfer.
Our interest in Super Media is held through two separate
corporations, one of which is wholly owned. Three individuals,
including one of our executive officers and an officer of one of
our subsidiaries, own common stock representing an aggregate of
14.3% of the common equity in the second corporation, which owns
a 4.0% 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 on February 18, 2010, unless Sumitomo and we
mutually agree to extend the term. Super Media may also be
dissolved earlier under certain circumstances.
Japan Other
We also own an interest in Mediatti Communications, Inc.
(Mediatti). Mediatti is a provider of cable television and
broadband Internet services in Japan with approximately
166,000 video customers and 100,000 broadband Internet
customers. 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%. Liberty Japan MC owns a 45.5%
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
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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
We own 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.
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, 27% 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 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 90 premier channels, as
well as 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 game services and more than 30 digital radio channels. For
the base level service, a subscriber receives 41 channels,
including six timeshifted channels. Additionally, Austar
launched DVR functionality to a select number of subscribers in
November 2007 and to all satellite subscribers in early 2008. 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 has an
ownership interest in or distributes the following channels:
Discovery Channel, Nickelodeon, Nick Jr.,
arena, The LifeStyle Channel, LifeStyle
Food, Channel [v], [v]2, MAX,
Country Music Channel 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 and broadband Internet service in two markets as
described below. In addition, Austar offers mobile telephony
services through reseller agreements.
Since 2000, Austar has owned 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 a WiMax
network in two trial markets for broadband Internet services
with download speeds ranging from 256 Kbps to
one Mbps. On January 7, 2008, Austar announced the
proposed sale of these spectrum holdings to a consortium, which
is to be the recipient of government funding to build wireless
and fixed broadband networks in regional Australia. Under the
proposed deal, which is subject to certain conditions, Austar
would receive AUD 65.0 million, and enter into various
wholesale agreements with the consortium members to allow it to
resell DSL, WiMax, fixed telephony, mobile and other 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.
I-22
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 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 allows
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 a leading provider of
broadband Internet and residential telephony services. 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, 16% are double-play
customers and 39% 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 68% upgraded to two-way capability
and 82% of cable homes passed are served by a network with a
bandwidth of at least 750 MHz. VTR has an approximate 70%
market share of cable television services throughout Chile.
VTRs channel lineup consists of 22 to
116 channels segregated into three tiers of cable service:
a low tier service with 22 to 47 channels, a basic
service with up to 74 channels, and a digital premium
service with an additional offer of up to 42 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. VTR obtains programming from the United States,
Europe, Argentina and Mexico. There is also domestic cable
television programming in Chile, based on local events such as
soccer matches and regional content. VTRs digital service
also offers programming options of 40 music channels, four
pay-per-view
channels, more than 1,000 titles in VoD, DVR and one
HD channel. Almost 80% of VTRs homes passed are
capable of receiving digital cable service, which are located in
Santiago and important regional cities. At December 31,
2007, 21% of VTRs video subscribers are digital.
VTR offers several alternatives of always on, unlimited-use
broadband Internet services to residences and SOHO offices under
the brand name Banda Ancha in 26 communities within Santiago and
21 cities outside Santiago. Subscribers can purchase one of
nine services with download speeds ranging from 300 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 26 communities within Santiago and 21 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. Forty-six
percent of VTRs telephony subscribers are served using
VoIP technology.
In December 2005, the Subsecretaria de Telecomunicaciones de
Chile awarded VTR regional concessions for wireless fixed
telephony 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.
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.
I-23
Another condition expressly prohibits us, as the controlling
shareholder of VTR, from owning an interest, directly or
indirectly through related parties, in any company 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. On
August 1, 2007, VTR received formal written notice from the
Chilean Federal Economic Prosecutor (FNE) that Liberty
Medias acquisition of the DirecTV interest would violate
the regulatory condition prohibiting us from owning an interest
in Chilean satellite or microwave television businesses. If the
FNE ultimately determines that a violation has occurred, it will
commence an action before the Chilean Antitrust Court. We
currently are unable to predict the outcome of this matter.
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
(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
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 and are directly bound by some
other elements of EU law. 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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I-24
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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 have been 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, although in
practice the EU Commission produces regular reports noting
problems with implementation across the Member States and takes
periodic compliance action. In the Member States in which we
operate the Directives have been largely transposed, although we
regularly raise concerns either with the national authorities or
with the EU Commission where we see a problem with an
existing or proposed regulation.
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
Directives is to implement one 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 elements of the
Directives, the National Regulatory Authority (NRA), is obliged
to analyze certain markets predefined by the EU Commission
to determine if any operator or service provider has SMP. Until
November 2007, there were 18 such markets but on
November 13, 2007, the EU Commission adopted a new
recommendation reducing the list of markets to seven with
immediate effect. Such markets are referred to as the seven
predefined markets. The effect of the new recommendation is that
those Member States who have not analyzed one of the deleted
markets, or who have analyzed such a market and found no SMPs
are no longer required to carry out any analysis in that market.
Member States who have analyzed one of the deleted markets and
found SMP will have to re-analyze that market and, if they still
find SMP, notify the EU Commission as a finding of SMP outside
the seven predefined markets. Pending such re-analysis, the
prior finding of SMP will remain in effect until the end of its
duration (most of the decisions are valid for three years).
There is no specific timetable for such re-analysis, although
the EU Commission tends to pressure Member States if it
sees them as being slow in performing market analyses.
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 (a
market which remains on the revised list). In addition, in the
Netherlands we have been found to have SMP in the wholesale
distribution of television channels (a market which is no longer
on the list of predefined markets).
NRAs might also seek to define us as having SMP in another of
the seven predefined markets or they may 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
conditions on us to prevent
I-25
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 included in the Directives are set forth
below, followed by a discussion of certain other regulatory
matters and a description of regulation for four countries where
we have large operations. This description is 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
Authorization Directive. Possible obligations include financial
charges for universal service or for the costs of regulation,
environmental requirements, data privacy and other consumer
protection rules, must carry obligations, provision of customer
information to law enforcement agencies, access obligation and
so on. Certain of these are discussed further elsewhere in this
section.
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. Under the Directives, 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. To date, Member
States have not felt meaningfully bound by this restriction and
the EU Commission has not made meaningful efforts to
enforce it. Thus in several Member States we face must carry
obligations, which, to us, seem inconsistent with the Directives.
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 was often a
contractual provision rather than a regulatory requirement.
Often, the relevant local or national authority had to approve
basic tier price increases. Generally, these kinds of
arrangements are now rare. In certain countries, however, 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 (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, on March 15, 2006, the EU adopted a 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. Few Member States, however, have implemented
this Directive to date.
I-26
Since 2005 the Commission has been engaged in a process of
reviewing the Directives. On November 13, 2007, the
Commission published revised legislative proposals. Among other
things the proposals include a suggestion for a European level
communications regulator, the possibility for national
regulators to impose functional separation on operators, and
changes to radio spectrum licensing. The proposals will be
considered, and any revised Directive eventually adopted, by the
European Parliament and the European Council. There can be no
assurance when this will happen nor what the final form of the
revised Directives will be nor how they will affect us.
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,
commonly call Television without Frontiers Directive (TVWF), 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. In respect of many
of our channels, The European Convention on Transfrontier
Television extends this right beyond the EUs borders into
the majority of the European territories into which we sell our
channels. TVWF also establishes quotas for the transmission of
European-produced programming and programs made by European
producers who are independent of broadcasters.
TVWF has been under review for some time and on
November 29, 2007 a new Directive, replacing TVWF, called
Audiovisual Media Services Directive (AVMS), completed its
legislative path. We expect this directive to be published in
the EUs Official Journal shortly after which Member States
will have two years to amend their national laws in light of the
new rule. In essence, we do not expect AVMS to have any material
effect on our programming business. EU Member States will still
be required to allow the channels 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. However, among other things,
AVMS extends the scope of TVWF somewhat to apply to TV-like
services other than traditional TV channels (such as video on
demand) as well as making other changes to the general EU
broadcasting framework such as a relaxation of the rule on TV
advertising.
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 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.
Currently the telecommunications equipment we provide our
customers, such as digital set top boxes, is not subject to
regulations regarding energy consumption. The EU Commission is,
however, considering the need for mandatory requirements
regarding energy consumption of such equipment. Similar
discussions are already underway in Switzerland. We have been
participating in discussions and studies regarding energy
consumption with various parts of the EU Commission, with
experts working on their behalf, and with the Swiss authorities.
In addition, we are working with suppliers of our digital set
top boxes to lower power consumption as well as looking at
possibilities through software to lower the power consumption of
the existing fleet of digital set top boxes.
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 an electronic communications law that
broadly transposes the Directives. Onafhankelijke Post en
Telecommunicatie Autoriteit (OPTA), the Netherlands NRA, has
finished its first round and started, for several markets, a
second round of analysis of the original 18 predefined markets
in order to determine which, if any, operator or service
provider has SMP.
I-27
In its first round, OPTA 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). All three decisions of OPTA were
successfully challenged by UPC NL. College van Beroep voor het
bedrijfsleven (CBb), the administrative supreme court, annulled
on May 11, 2007, the SMP designation of UPC NL on
market 9 consequently meaning that there are no legal
grounds for imposing obligations. Further, CBb annulled on
July 24, 2007, the obligations imposed on UPC NL relating
to market 18 and market 19. With respect to the
market 19, CBb decided, however, that the legal
consequences of the annulled obligations remained in force. This
has no practical consequences for us, however, as the decision
of OPTA was restricted in time, expiring March 17, 2007.
In its rulings CBb ordered OPTA to take new or amended decisions
relating to market 9 and 18. A new draft decision
relating to market 9 was published in December 2007. The
national consultation procedure ends in February 2008.
With respect to market 18, the CBb annulled the decision
because OPTA was not able to demonstrate that the remedies were
proportionate. On December 21, 2007, OPTA issued a new
decision in relation to market 18, which decision came into
force on January 1, 2008. The decision imposes exactly the
same obligations on UPC NL as the previous decision, as
further described below, while at the same time purporting to
address the proportionality concerns of the CBb. UPC NL has
filed an appeal against this new decision because it believes
that OPTA did not comply with the decision of the CBb. The new
decision of OPTA, like its original decision, 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.
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
regulatory framework liberalizing 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 has undergone a comprehensive review in order to keep
up with technological and market developments. A revised RTVA
entered into force on April 1, 2007. It regulates the
operation, distribution and redistribution, and receipt of radio
and television programs. As in the EU, must carry rules require
us to redistribute certain international, national and regional
television and radio programs, such as programs of the Swiss
Broadcasting Corporation and certain public broadcasters
programs of neighboring countries.
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 has been fixed and
broadcasters must use the cable operators digital
distribution platform unless that platform cannot offer state of
the art services. Thus, as long as we offer a modern state of
the art platform, broadcasters will be obliged to use our
digital platform for the broadcasting of their programs on our
network.
I-28
To ensure interoperability or to maintain freedom of
information, the authorities may, however, impose technical
standards. Encryption of our digital offering is permissible
under the revised law though there is an initiative pending in
parliament with the aim to prohibit the encryption of the
digital basic offering.
The transmission of voice and data information through
telecommunications devices is regulated by the
Telecommunications Act. A revised Telecommunications Act 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 took
effect on April 1, 2007. 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.
Only Swisscom AG (Swisscom), as the incumbent operator, was
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 is limited to a period of
four years. In addition, all operators are required to take
action against spamming. The licensing system has been replaced
by a notification system. Universal service obligations have
been imposed, and all operators are 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. In July 2007,
Hungary implemented new regulations for broadcast transmission
access similar to market 18, which related to wholesale
video broadcasting transmission services. UPC Hungary is
considering a challenge of the new regulations as certain
obligations, including the distribution obligation, seem to be
outside the Directives. The new regulations include the
obligation to conclude contracts with program providers for the
distribution of up to 40 channels, if the channels serve
the goals of cultural diversity and media pluralism.
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.
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.
I-29
The IP telephony operation of UPC Magyarország Kft., our
cable subsidiary, has been designated as SMP in the call
termination market. As a result, our subsidiary must provide
interconnection on a non-discriminatory and transparent basis.
According to these requirements, it must publish its terms of
interconnection and termination prices on its website.
Belgium
(Telenet)
Belgium has transposed the Directives into national law. The new
communications law entered into force as of July 2005. Some
of the market analyses, however, have not been finalized yet.
Telenet has been declared a SMP operator on market 9
relating to call termination on an individual fixed public
telephone network. With respect to the market for call
termination on individual fixed networks, an on-going three year
reduction of termination rates was imposed on Telenet beginning
January 1, 2007. After the rate reduction in
January 2009, this reduction will end with near reciprocal
termination tariffs (Telenet will charge the interconnection
rate of the incumbent telecommunications operator, Belgacom
NV/SA (Belgacom), plus 15%).
In Belgium both the federal regulator Belgisch Intituut voor
Post en Telecommunicatie (BIPT), and the regional media
regulators (Vlaamse Media Regulator (Flanders), Conseil
Supérieur de lAudiovisuel (Wallonia), and Medienrat
(in the German speaking community)) have to approve the
wholesale broadband market analysis. In practice this means that
the BIPT makes a draft analysis and submits it to the regional
regulators for comments, which the BIPT has done. During the
regional consultation, the Flemish media regulator asked that a
new market analysis on the wholesale broadband market be
launched within 18 months. This is at odds with the
BIPTs position on the European framework, which provides
that a market analyses is in principle valid for a three year
period, except for substantial changes in the broadband market.
The BIPT has notified its findings on this market to the
EU Commission. In January 2008, this market analysis
was approved by the EU Commission and formally adopted by
the BIPT. The BIPT has not bound itself to re-analyze the market
within 18 months, although it may do so. In the analysis
the BIPT found that cable was not included in the wholesale
broadband market and was not subject to regulation.
The wholesale broadcasting market analysis has to be conducted
by the Flemish media regulator for our activities in Flanders
and by the BIPT for our activities in Brussels. Neither has
started yet. We understand that the Flemish media regulator will
not analyze the market now that the EU Commission has
deleted the wholesale broadcasting market from the list of
relevant markets.
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
less 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 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 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. Government policies likely to affect the
media and communications sector are currently in flux due to the
Federal election in November 2007, which resulted in a
Labor Government coming to power for the first time in
Austars history.
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 and mobile 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.
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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 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
Australian 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. Effective January 1, 2007, changes to
the anti-siphoning regime were introduced through the
implementation of a use it or lose it
scheme the free to air (FTA) broadcasters use
of sporting events are monitored, and the listed sporting
events, which do not receive adequate coverage or which are not
acquired by the FTA broadcasters, may be considered for
permanent (or partial) removal from the anti-siphoning list.
Despite its introduction, the use it or lose it
scheme has not been effective to date.
Changes to media laws were passed in October 2006. Foreign
ownership restrictions under the BSA were lifted in
April 2007, although the media has been retained as a
sensitive sector and foreign investment in the media
sector remains subject to Treasurer approval. Cross media
ownership rules have been amended to allow cross media
transactions so that an operator can own two out of three types
of media assets in a market, subject to there being at least
five voices in metro markets and four voices in regional
markets. The media reforms also included clarification on the
following issues which impact Austar: (1) analogue
switch-off to be targeted for
2010-2012;
(2) no fourth commercial network until the end of the
switch-off period; (3) FTA broadcasters to be permitted to
provide one standard definition (SD) multi-channel from Jan
2009, although full multi-channeling to be prohibited for the
FTA broadcasters until the end of the switch-off period;
(4) the FTA restriction on simulcast of SD and HD was
lifted such that FTA HD offerings can be enhanced with
additional programming, however no FTA channel can broadcast
listed sporting events on their SD or HD multi-channel unless
the listed event has been or is being shown on the SD main
channel; and (5) the public broadcasters restriction
on the content of their multi-channels was lifted to enable
their program offerings to be enhanced. The auction of two spare
terrestrial television channels was to be delayed until
switch-off. Of the two channels up for auction, Channel A is
available for datacasting, community and narrowcasting services
(FTA broadcasters are specifically excluded from controlling
these services), and Channel B will be used for emerging new
digital services such as mobile TV. Neither channel can be used
for traditional in home commercial television or subscription
broadcasting services. These policies are under review following
the appointment of the Labor Government. Labor has indicated
that they intend to fix an analogue switch-off date in 2013 and
have suggested that they may conduct the license A and B
auctions and will consider the introduction of a fourth
commercial network prior to switch-off.
The BSA currently regulates Internet content. Internet service
providers (ISPs) 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. There is also a
prohibition on ISPs providing access to certain interactive
gambling services to Australian-based customers or to provide
certain Australian-based interactive gambling services to
customers in designated countries. It is an offense to advertise
interactive gambling services in Australia.
The Content Services Act was passed on June 21, 2007, and
will become effective on January 20, 2008. It effectively
prohibits the supply of certain Internet and mobile content to
the public Refused Classification and X18+; and
Restricted 18+ and Mature Audiences 15+ content that is not
subject to a restricted access system. The Act amends the BSA
and replaces the current regulation of Internet content. The
objective of the legislation is to
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ensure providers of content respect community standards and
establish measures that protect children from inappropriate
content. The Act sets up a complaints based scheme under which
the ACMA can issue a notice to remove or disable access to
prohibited or potentially prohibited content, or require
providers to place such content behind a restricted access
system designed to verify the age of those seeking access.
Industry Code(s) are currently being developed to deal with
content providers obligations to pre-assess content, the
provision of consumer information and complaints handling
mechanisms. There are exceptions for licensed broadcasting
services (including ancillary subscription television content
services such as on demand services) and retransmitted services,
and for operators who do no more than provide a carriage
service. The new regulation will impact the provision of
Internet and mobile content by Austar as well as its role as an
ISP.
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. As described under
Operations Asia/Pacific
Australia, Austar has announced the proposed sale of these
spectrum holdings, subject to the satisfaction of certain
conditions. Until completion of the sale, the Austar group will
continue to hold 19 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 and
will continue to operate in these markets following completion
of the sale until the purchaser can provide an alternative
network. 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. ISPs
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. ISPs
must also observe various industry codes of practice relating to
Internet content and Internet gambling. Mobile service providers
must observe various regulation and industry codes of practice
relating to mobile service provision, such as billing and mobile
content.
The
Americas
Chile
As described under Operations The
Americas, 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.
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
I-33
broadcasters. However, certain broadcasters have filed lawsuits
against VTR claiming that VTR breached their intellectual
property rights by retransmitting their signals. This issue is
still pending before the Chilean courts and a final judicial
decision is not expected until 2009.
Internet. Internet 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.
VTR has been awarded wireless fixed telephony concessions under
which it has an exclusive right to use a specific block of
spectrum in 3,400 MHz in most of the Chilean regions. With
these concessions, VTR plans to offer telephone and Internet
services using 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.
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 Compañia de Telecomunicaciones de Chile SA
(Telefónica)) 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 corresponding service are made on a
case-by-case
basis, and are effective for five years. VTRs
interconnection and unbundling rates were established in June
2002, and are in the process to be renewed during the first
quarter of 2008, for an additional five-year period.
Finally, in addition to the conditions on pricing imposed as a
result of VTRs combination with Metrópolis Intercom
S.A. (see Operations The Americas), with
respect to VTRs ability to increase the price of its
different telecommunication services to its subscribers, the
general Consumer Protection Laws contain provisions that may be
interpreted by the authorities to require that any increase in
rates to existing subscribers must be previously accepted and
agreed to by those subscribers. VTR disagrees with this
interpretation and is evaluating its options for adjusting or
increasing its subscriber rates in compliance with applicable
laws.
Competition
The markets for video, broadband Internet and telephony
services, and for video programming, generally are highly
competitive and rapidly evolving. Consequently, our businesses
have faced and are expected to continue 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 provided below for UPC Broadband is
based on information from the website of DataXis for the second
and third quarters of 2007. The percentage information for
Telenet is based on information from the Internet Services
Providers Association of Belgium for the third quarter of 2007
for
I-34
Internet and on internal market studies for video as of
December 31, 2007, and for telephony as of
September 30, 2007. For Japan, all percentage information
is based on information obtained from the website of the
Japanese Ministry of Internal Affairs and Communications, dated
as of various dates from December 31, 2006 to
December 31, 2007, and internal market studies as of
December 31, 2007. For Chile, the percentage information is
based on internal market studies, information obtained from
public filings by competitors as of December 1, 2007, and
market information provided by Latin Panel Chile SA. 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
Communications
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 (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 (a) through broadband Internet connections
over networks using DSL or ADSL technology (which we refer to as
DSL-TV),
(b) through DTH satellite systems, or (c) 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 other
sources of information and entertainment, such as newspapers,
magazines, books, live entertainment/concerts and sporting
events.
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Europe. In Europe, historically our principal
competition in the provision of video services came from
over-the-air broadcasters in all markets; DTH satellite
providers in many markets, such as Austria and Ireland where we
compete with long-established satellite platforms; and cable
operators in certain markets, such as Poland and Romania where
portions of our systems have been overbuilt. In some markets,
competition from SMATV or MMDS could be a factor.
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Today we are facing increased competition from both new entrants
and established competitors using advanced technologies and
aggressively priced services. DTT is increasingly a competitive
reality in Europe via a number of different business models
which range from full blown encrypted pay television to FTA
television. Similarly
DSL-TV,
which is either provided directly by the owner of the network or
by a third party, is fast becoming a significant part of the
competitive environment. Further launches of DTT and
DSL-TV are
expected in 2008.
In most of our Central and Eastern European markets, we are also
experiencing significant competition from the DTH platform of a
Romanian cable, telephony and Internet service provider, which
is targeting our analog cable, MMDS and DTH customers with
aggressively priced DTH packages, in addition to overbuilding
portions of our cable network in Romania. The incumbent
telecommunications operator in Romania also operates a competing
DTH platform.
In most of our European markets, competitive video services are
now being offered by the incumbent telecommunications operator,
whose video strategies include
DSL-TV, DTH
and DTT. The ability of incumbent operators to offer the
so-called triple-play of video, broadband Internet
and telephony services is exerting growing competitive pressure
on our operations, including the pricing and bundling of our
video products. In order to gain video market share, the
incumbent operators in a number of our larger markets have begun
pricing their
DSL-TV video
packages at a discount to the retail price of the comparable
digital cable service and including DVRs as a standard feature.
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 invest in such networks, which would
create a new source of competition.
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We seek to compete by accelerating the migration of our
customers from analog to digital services, upgrading our digital
television service to include the functionality for VoD, HD,
DVRs and other advanced products and services, and offering
attractive content packages and bundles of services at
reasonable prices.
The Netherlands. The Netherlands has one of the
highest cable penetration rates in Europe with 83% of all
households subscribing to a cable service. UPC Netherlands
provides video cable services to 37% of the total video
households in the Netherlands. Satellite television penetration
is nine percent of the total video households. In addition to
satellite television, we face increasing competition from DTT
and DSL-TV
services offered by Royal KPN NV, the incumbent
telecommunications operator (KPN). KPN is the majority owner of
the Dutch DTT service, Digitenne. It also launched a
DSL-TV
service in the second quarter of 2006, which includes VoD, an
electronic program guide and a DVR. KPN is targeting our price
sensitive analog customers and, more recently, our digital
customers with discounted Digitenne and
DSL-TV video
packages, respectively. With its nationwide telecommunications
network and ability to offer bundled triple-play services, KPN
is expected to be a significant competitor. In 2007, UPC
Netherlands launched VoD services across its entire digital
subscriber base. DVR and HD boxes are also available to all UPC
Netherlands digital customers.
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. Due to a small program offering, competition
from terrestrial television in Switzerland is limited, although
DTT is now available in most 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
DSL-TV
service in late 2006 and has grown to 60,000 subscribers through
the end of the third quarter of 2007. In 2007, Cablecom rolled
out a digital television platform, which provides the ability to
offer premium video services such as VoD and interactive
television in the future.
Austria. In Austria, we are the largest cable
company based on number of video cable subscribers. Our primary
competition for video customers is from FTA television received
via satellite. Approximately 61% of Austrian households receive
free television compared to approximately 39% of Austrian
households receiving cable services. UPC Austria provides video
cable services to approximately 65% of the households in Austria
receiving cable services. UPC Austria faces increased
competition in the future from developing technologies. The
incumbent telecommunications operator, Telekom Austria AG,
launched a
DSL-TV
service in early 2006, which incorporates advanced product
features such as VoD. The public broadcaster, ORF, launched its
DTT services in Vienna in October 2006. To stay competitive, in
the fourth quarter of 2007, UPC Austria launched a new digital
television platform with DVR functionality. This platform will
be expanded to include HD channels and HD DVR functionality in
2008.
Hungary. In Hungary, we are the largest cable
service provider based on number of video cable subscribers. Of
the Hungarian households receiving cable television, 34% receive
their cable service from UPC Hungary. In addition, UPC Hungary
provides satellite service, branded UPC Direct, to 36% of
Hungarian DTH households. Digi TV, a DTH service launched in
April 2006, is an aggressive competitor targeting our analog
cable and DTH subscribers with low-priced video packages. UPC
Hungary also faces competition from Antenna Hungaria Rt., a
digital MMDS provider (recently purchased by Swisscom), and from
the incumbent telecommunications company Magyar Telekom Rt. (in
which Deutshe Telekom has a majority stake), which launched a
DSL-TV
service in early 2006, including a VoD service to Internet
subscribers of its ISP subsidiary, and is now offering
triple-play packages. To meet such competition, UPC Hungary will
be launching a digital television platform in the second quarter
of 2008. The platform will include interactive television
content and standard and HD DVR boxes. Programming options will
also be expanded to include more premium channels and a
selection of HD channels.
Belgium. In Belgium, we are the largest cable
service provider based on number of video cable subscribers.
Telenet provides video cable services to approximately 40% of
the total video households in Belgium.
I-36
Telenets principal competitor is Belgacom, the incumbent
telecommunications operator, which launched interactive digital
television in June 2005 and is expected to launch HD
service as part of its video offer in mid-2008. Belgacom also
offers double-play and triple-play packages. We also face
competition from TV Vlaanderen, which provides digital
television via satellite. Our ability to expand our digital
interactive services or any other video cable service on the
partner networks will largely depend on legal actions related to
a non-binding agreement in principle between Telenet and the
PICs. See Operations Europe
Liberty Global Europe Telenet (Belgium).
Notwithstanding, we believe our extensive cable network and the
broad acceptance of our basic cable television services,
together with our extensive program options, allow us to compete
effectively.
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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
SKY PerfecTV 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. In addition, changes in the
Cable Television Broadcast law will make it easier for
alternative distributors to retransmit terrestrial television
signals in the future. As a result, we anticipate that our
Japanese operations will face increasing competition from other
broadband providers of video services. These competitors include
fixed line telecommunications operators, such as NTT, the
incumbent operator, and KDDI Corporation (KDDI), each of whom
currently offers video packages over their own FTTH networks
that include popular cable and satellite, but not broadcast,
channels. KDDI is also the majority shareholder of the second
largest MSO in Japan. K-Opticom Corporation (K-Opticom), a
subsidiary of a power company in the Kansai region that
distributes its video service over its own FTTH network, and
Opticast, Inc., a SKY PerfecTV affiliate that, in a marketing
alliance with NTT, distributes its video service through
NTTs FTTH network, offer the full complement of popular
video channels, including broadcast. Other competitors such as
Softbank Corporation (Softbank) and Usen Corporation provide
video content, including VoD-type content, through a website
that may be accessed through their own and third party networks
(both DSL and FTTH). 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, 2007, J:COMs share of the
multi-channel video market in Japan was approximately 8.5%.
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The Americas. VTR competes primarily with DTH
satellite service providers in Chile, including the incumbent
Chilean telecommunications operator Telefónica,
Telefónica de Sur (TelSur), Telmex Internacional SAB de CV
(Telmex) and DirecTV Chile. Telefónica launched DTH service
in June 2006 and offers double-play and triple-play packages of
video, voice and Internet. Other competition comes from video
services offered by or over the networks of fixed line
telecommunications operators using DSL or ADSL technology (such
as TelSur in the southern regions). GTD Manquehue offers
triple-play packages over its hybrid fiber coaxial cable
networks in localized areas of Santiago. Telmex is offering
triple-play packages using DTH but is also starting to build a
hybrid fiber coaxial cable network in certain areas of Santiago.
As of December 1, 2007, VTRs share of the video
market in Chile was 70%, compared to 19% for Telefónica and
11% for all others. To effectively compete, VTR is expanding its
digital platform to additional neighborhoods and has launched
VoD, DVR and HD services.
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Internet
With respect to broadband Internet 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 services using DSL,
ADSL or FTTH, in a range of product offerings with varying
speeds and pricing, as well as interactive computer-
I-37
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 are already seeing competition in
Europe from mobile carriers that offer mobile data cards
allowing a laptop user to access the carriers broadband
wireless data network with varying speeds and pricing. We seek
to compete on speed and price, including 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
products using various DSL-based technologies both by the
incumbent phone companies and third parties. The introduction of
cheaper and ever faster broadband offerings is further
increasing the competitive pressure in this market. Broadband
wireless services, however, are not yet well established, but
mobile data card offers are beginning to have an impact.
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In the Netherlands, we face competition from KPN, the largest
broadband Internet provider, and operators using the unbundled
local loop. As of December 31, 2007, UPC Netherlands
provided broadband Internet services to 12% of the total
broadband Internet market (or about 25% of our current
footprint).
In Switzerland, Swisscom is the largest provider of broadband
Internet services, with an estimated market share of half of all
broadband Internet customers. Cablecom serves 20% of all
broadband Internet customers.
UPC Austrias largest competitor with respect to Internet
services is the incumbent telecommunications company, Telekom
Austria AG. In addition, UPC Austria faces competition from
unbundled local loop access and mobile broadband operators,
which has increased the competition in the broadband Internet
market. The Austrian broadband Internet market is developing
into a segmented market based on price, with a strong focus on
the low and medium priced markets due to a general price
decrease in the Austrian market. To compete, UPC Austria has
launched new bundled offers specifically aimed at these market
segments. UPC Austria uses its triple-play bundling capabilities
across all market segments to encourage customers to switch from
other providers to UPC Austrias services and to reduce
churn in the existing customer base.
In Hungary, the Internet market is growing rapidly. Our primary
competitor is the incumbent telecommunications company, Magyar
Telekom. More recently, we are also experiencing competition
from mobile broadband operators. As of December 31, 2007,
UPC Hungary provided broadband Internet services to 24% of the
total broadband Internet market.
In Belgium, the internet market continues to grow at a
significant pace. Telenets primary competitor is Belgacom
and other DSL service providers. Belgacom is currently upgrading
its network to enable enhanced Internet speeds. To compete,
Telenet offers an always on broadband Internet
service, with one of the fastest speeds available to residential
customers. As of September 30, 2007, Telenet provided
broadband Internet service to 37% of the total broadband
Internet market in Belgium.
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Asia/Pacific. In Japan, we compete with FTTH
providers that offer broadband Internet through fiber-optic
lines. FTTH-based players, including NTT, Usen Corporation, KDDI
and K-Opticom, currently offer broadband Internet services
through FTTH. Broadband Internet using FTTH technology has
become more widely available, and pricing for these services has
declined. We compete directly with ADSL providers, such as
Softbank, that offer broadband Internet to subscribers. ADSL
providers often offer their broadband Internet 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 may become less
attractive to our existing or potential subscribers. As of
December 31, 2007, J:COMs share of the high-speed
(128 kbps and greater) broadband Internet market in Japan was
approximately 4.5%.
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The Americas. In Chile, VTR faces competition
primarily from non-cable-based Internet service providers such
as Telefónica and Telmex. VTR expects increased pricing and
bandwidth pressure as these companies bundle their Internet
service with other services. As of December 1, 2007,
VTRs share of the residential high-speed (128 kbps and
greater) broadband Internet market in Chile was 47%, compared to
49% for Telefónica and four percent for all others. To
effectively compete, VTR is expanding its two-way coverage and
offering attractive bundling with telephony and digital video
service.
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I-38
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 small compared to the existing business of the
incumbent phone company. The incumbent telephone companies
remain our key competitors 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, offer VoIP services and continue to gain market share from
KPN. 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 Belgium, Belgacom is the dominant telephony provider with an
estimated 72% of the fixed-line telephony market in Flanders,
excluding wholesale, at September 30, 2007. To gain market
share, we offer VoIP telephony service and emphasize customer
service and provide innovative plans to meet the needs of our
customers. We also compete with mobile operators, including
Belgacom, in the provision of our mobile service in Belgium.
In Austria and in Hungary, the incumbent telephone companies
dominate the telephony market. Most of the fixed line
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 and mobile operators. In Austria, we serve
our subscribers with circuit switched telephony services and
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
continue to gain market share with our VoIP telephony service
offerings in the Czech Republic, Hungary, Ireland, Poland,
Romania, Slovak Republic and Slovenia.
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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, and
FTTH-based providers, including K-Opticom. Further, Softbank
Telecom Corp. 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, 2007, J:COMs share of the fixed line
telephony market in Japan was approximately 2.4%.
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The Americas. In Chile, VTR faces competition
from the incumbent telecommunications operator, Telefónica,
and other telecommunications operators such as TelSur, GTD
Manquehue and Telmex. Telmex launched a telephony service
through WiMax in March 2007. Telefónica and TelSur have
substantial experience in providing telephony services,
resources to devote to the provision of telephony services and
longstanding customer relationships. Claro Chile S.A.,
Telefonica Moviles Chile S.A. and Entel PCS Telecomunicaciones
S.A. are the primary companies that offer mobile telephony in
Chile. 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, and the growth of VoIP
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I-39
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services. VTR offers circuit switched and VoIP telephony
services over its cable network. Although mobile phone use has
increased, call volume over our fixed line services has
continued to increase because of our flat fee offers. As of
December 1, 2007, VTRs share of the fixed line
telephony market in Chile was 25%, compared to 60% for
Telefónica and 15% for all others. To compete, VTR launched
an unlimited flat fee service in September 2007.
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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, 2007 we, including our consolidated
subsidiaries, had an aggregate of approximately
22,000 employees, certain of whom belong to organized
unions and works councils. Certain of our subsidiaries also use
contract and temporary employees, which are not included in this
number, for various projects. 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 21 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 four groups:
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risks that relate to the competition we face and the technology
used in our businesses;
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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 certain financial matters; and
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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.
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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 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.
I-40
Factors
Relating to Competition and Technology
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 and telephony in many of
the regions in which we operate are highly competitive. In the
provision of video services we face competition from DTT
broadcasters, video provided over satellite platforms, networks
using DSL or ADSL technology, FTTH networks and, in some
countries where parts of our systems are overbuilt, cable
networks, among others. Our operating businesses in Europe 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 experiencing significant competition from other DTH
providers. In the provision of telephone and broadband Internet
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. Many of the incumbent operators are now offering
double-play and triple-play bundles of 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 have improved the attractiveness of
our competitors products and services and strengthened
their competitive position. Developments in wireless technology,
such as WiMax, may lead to additional competitive challenges.
In some European markets, national and local government agencies
may seek to become involved, either directly or indirectly, in
the establishment of FTTH networks, DTT systems or other
communications systems. We intend to pursue available options to
restrict such involvement or to ensure that such involvement is
on commercially reasonable terms. There can be no assurance,
however, that we will be successful in these pursuits. As a
result, we may face competition from entities not requiring a
normal commercial return on their investments. In addition, we
may face more vigorous competition than would have been the case
if there was no government involvement.
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 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 revenue,
operating margins, profitability and cash flows. The inability
to compete effectively may result in the loss of subscribers,
and our revenue and stock price may suffer.
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 capital expenditures may not generate a positive
return. The video, broadband Internet and
telephony 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. No assurance can be given that our future upgrades will
generate a positive return or that we will have adequate capital
available to finance such future
I-41
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.
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 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 may not be able to obtain attractive programming at
reasonable cost for our digital cable 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 cable services on satisfactory terms or at all
in order to offer compelling digital cable 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 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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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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economic instability and related impacts on foreign currency
exchange rates; and
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changes in foreign and domestic laws and policies that govern
operations of foreign-based companies.
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Operational risks that we experienced in certain countries in
the past and may again experience in the future as we seek to
expand our operations into new countries include 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.
We are exposed to potentially volatile fluctuations of the
U.S. dollar (our reporting 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. We also are exposed
to foreign currency risk in situations where our debt is
denominated in a currency other than the currency of the entity
whose cash flows support our ability to repay or refinance such
debt. 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
I-42
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 euro and the Japanese yen 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, the
Australia dollar 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 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 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 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
I-43
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 positive 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
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 in the average
adjusted tax basis of any investment in U.S. property held
by the controlled foreign corporation to the extent the
controlled foreign corporation has positive current or
accumulated earnings and profits (other than Subpart F income).
This is the case even though the U.S. stockholder may not
have 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 Certain Financial Matters
We may not report net earnings. We
reported losses from continuing operations of
$422.6 million, $334.0 million and $59.6 million
during 2007, 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) interest and dividend income received on our cash and
cash equivalents and investments, and (iii) proceeds
received upon the
I-44
exercise of stock options. LGI also has access to
$215.0 million of borrowings pursuant to the LGI Credit
Facility. From time to time, we also receive distributions,
loans or loan repayments from our subsidiaries or affiliates and
proceeds upon the disposition of investments and other assets.
The ability of our operating subsidiaries to pay dividends or to
make other payments or advances to us depends on 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.
|
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
I-45
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 be able
to continue to do so at a reasonable cost.
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 21 to our consolidated financial statements). At
December 31, 2007, our total consolidated outstanding debt
and capital lease obligations was $18.4 billion, of which
$383.2 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 or equity financing
will be available on terms that are as favorable as the terms of
our existing debt or at all, particularly in light of current
market conditions. During 2007, we used our available liquidity
to purchase $1,861.0 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 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 communications 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 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.
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.
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 27.1%
of our aggregate voting power as of February 21, 2007.
Including stock options held by Mr. Malone, the voting
power of the shares beneficially owned by him was 33.1% 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
I-46
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 equity
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 the
voting power of our outstanding common stock 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
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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.
LGI Internationals potential indemnity liability to
Liberty Media if the spin off is treated as a taxable
transaction could materially adversely affect our prospects and
financial condition. LGI International
entered into a tax sharing agreement with Liberty Media in
connection with LGI Internationals spin off from Liberty
Media on June 7, 2004. In the tax sharing agreement, LGI
International 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 LGI International or
any of LGI Internationals 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 LGI International or one of LGI
Internationals 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. LGI Internationals
indemnification obligations to Liberty Media and its
subsidiaries, officers and directors are not limited in amount
or subject to any cap. If LGI International is required to
indemnify Liberty Media and its subsidiaries, officers and
directors under the circumstances set forth in the tax sharing
agreement, LGI International may be subject to substantial
liabilities.
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Item 1.B.
|
UNRESOLVED
STAFF COMMENTS
|
None.
I-47
During 2007, 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 certain of our
subsidiaries are parties. 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 (the 2002
Cignal Action) against Liberty Global Europe in the District
Court in Amsterdam, the Netherlands, claiming damages for
Liberty Global Europes alleged failure to honor certain
option rights that were granted to those shareholders pursuant
to a Shareholders Agreement entered into in connection with the
acquisition of Cignal by Liberty Global Europes
subsidiary, Priority Telecom NV (Priority Telecom). The
Shareholders Agreement provided that in the absence of an IPO,
as defined in the Shareholders Agreement, of shares of Priority
Telecom by October 1, 2001, the Cignal Shareholders would
be entitled until October 31, 2001, to exchange their
Priority Telecom shares into shares of Liberty Global Europe,
with a cash equivalent value of $200 million in the
aggregate, or cash at Liberty Global Europes discretion.
Liberty Global Europe believes that it complied in full with its
obligations to the Cignal shareholders through the successful
completion of the IPO of Priority Telecom on September 27,
2001, and accordingly, the option rights were not exercisable.
On May 4, 2005, the District Court rendered its decision in
the 2002 Cignal Action 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, nine individual
plaintiffs, rather than all former Cignal shareholders,
continued to pursue their claims. Based on the share ownership
information provided by the nine plaintiffs, the damage claims
remaining subject to the 2002 Cignal Action are approximately
$28 million in the aggregate before statutory interest. A
hearing on the appeal was held on May 22, 2007. On
September 13, 2007, the Court of Appeals rendered its
decision that no IPO within the meaning of the Shareholders
Agreement had been realized and accordingly the plaintiffs
should have been allowed to exercise their option rights. In the
same decision, the Court of Appeals directed the plaintiffs to
present more detailed calculations and substantiation of the
damages they claimed to have suffered as a result of Liberty
Global Europes nonperformance with respect to their option
rights, and stated that Liberty Global Europe will be allowed to
respond to the calculations submitted by the plaintiffs by
separate statement. The Court of Appeals gave the parties leave
to appeal to the Dutch Supreme Court and deferred all further
decisions and actions, including the calculation and
substantiation of the damages, pending such appeal. Liberty
Global Europe filed the appeal with the Dutch Supreme Court on
December 13, 2007. On February 15, 2008, the
plaintiffs filed a conditional appeal with the Dutch Supreme
Court, challenging certain aspects of the Court of Appeals
decision in the event that Liberty Global Europes appeal
is not dismissed by the Dutch Supreme Court.
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 (the 2006 Cignal Action) purportedly on
behalf of all former Cignal shareholders and provisionally for
the nine plaintiffs in the 2002 Cignal Action. The 2006 Cignal
Action claims, among other things, that the listing of Priority
Telecom on Euronext Amsterdam NV in September 2001 did not meet
the requirements of the applicable listing rules and,
accordingly, the IPO was not valid and did not satisfy
I-48
Liberty Global Europes obligations to the Cignal
shareholders. Aggregate claims of $200 million, plus
statutory interest, are asserted in this action, which amount
includes the amount provisionally claimed by the nine plaintiffs
in the 2002 Cignal Action. A hearing in the 2006 Cignal Action
took place on October 9, 2007, following which, on
December 19, 2007, the District Court rendered its decision
dismissing the plaintiffs claims against Liberty Global
Europe and the other defendants. We expect the plaintiffs will
appeal the District Courts decision to the Court of
Appeals.
Class Action Lawsuits Relating to the LGI
Combination. In the first quarter of 2005, 21
lawsuits were filed in the Delaware Court of Chancery, and one
lawsuit was 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 LGI International 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 LGI International. 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, In
re UnitedGlobalCom, Inc. Shareholders Litigation (C.A.
No. 1012-VCS).
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 that court, pending the final
resolution of the consolidated action in Delaware. On
January 7, 2008, the Delaware Chancery Court was formally
advised that the parties had reached a binding agreement,
subject to the Courts approval, to settle the consolidated
action for total consideration of $25 million (inclusive of
any award of fees and expenses to plaintiffs counsel). A
stipulation of settlement setting forth the terms of the
settlement and release of claims was filed with the Delaware
Chancery Court on February 20, 2008. The stipulation of
settlement is subject to customary conditions, including Court
approval following notice to class members and a hearing by the
Court to determine the fairness, adequacy and reasonableness of
the settlement, and entry of an agreed upon final judgment. If
the Court determines not to approve the settlement, the
stipulation of settlement will terminate. The defendants
continue to believe that a fair process was followed and a fair
price was paid in connection with the LGI Combination.
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Item 4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
None.
I-49
PART II
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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
We have three series of common stock, LGI Series A, LGI
Series B and LGI Series C, which trade on the NASDAQ
Global Select Market under the symbols LBTYA,
LBTYB and LBTYK, respectively. 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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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, 2007
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First quarter
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$
|
33.23
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|
$
|
28.38
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|
$
|
33.75
|
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|
$
|
28.88
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|
$
|
30.79
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|
$
|
26.90
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Second quarter
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|
$
|
41.27
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|
$
|
32.79
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|
$
|
41.17
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|
$
|
33.15
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|
|
$
|
39.60
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$
|
30.06
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Third quarter
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|
$
|
45.00
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|
$
|
38.22
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|
$
|
45.00
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|
$
|
38.50
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|
$
|
42.74
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|
$
|
36.39
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Fourth quarter
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|
$
|
42.86
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|
$
|
34.91
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|
$
|
45.05
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|
|
$
|
35.14
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|
|
$
|
39.89
|
|
|
$
|
33.25
|
|
Year ended December 31, 2006
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|
|
|
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|
|
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|
|
First quarter
|
|
$
|
22.49
|
|
|
$
|
18.21
|
|
|
$
|
22.74
|
|
|
$
|
19.05
|
|
|
$
|
21.11
|
|
|
$
|
17.43
|
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Second quarter
|
|
$
|
23.80
|
|
|
$
|
20.17
|
|
|
$
|
24.18
|
|
|
$
|
19.94
|
|
|
$
|
23.25
|
|
|
$
|
19.54
|
|
Third quarter
|
|
$
|
26.04
|
|
|
$
|
20.33
|
|
|
$
|
26.00
|
|
|
$
|
20.85
|
|
|
$
|
25.45
|
|
|
$
|
19.87
|
|
Fourth quarter
|
|
$
|
29.33
|
|
|
$
|
25.04
|
|
|
$
|
29.39
|
|
|
$
|
25.05
|
|
|
$
|
28.19
|
|
|
$
|
24.31
|
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Holders
As of February 21, 2008, there were 2,574, 126 and 2,627
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 including applicable Delaware law. There are
currently no contractual 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 cash dividends.
Recent
Sales of Unregistered Securities; Use of Proceeds from
Registered Securities
None.
II-1
Issuer
Purchase of Equity Securities
The following table sets forth information concerning our
companys purchase of its own equity securities during the
three months ended December 31, 2007:
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|
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|
|
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Approximate
|
|
|
|
|
|
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|
|
|
|
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|
dollar value
|
|
|
|
|
|
|
|
|
|
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of shares that
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|
|
|
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|
|
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may yet be
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|
|
|
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Total number of shares
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|
purchased
|
|
|
|
|
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|
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purchased as part of
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under the
|
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Total number of
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Average price
|
|
|
publicly announced
|
|
|
plans or
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|
Period
|
|
shares purchased
|
|
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paid per share (a)
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|
|
plans or programs
|
|
|
programs
|
|
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October 1, 2007 through
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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October 31, 2007
|
|
|
Series A:
|
|
|
|
|
|
|
|
Series A:
|
|
|
$
|
|
|
|
|
Series A:
|
|
|
|
|
|
|
|
|
|
|
|
|
Series C:
|
|
|
|
|
|
|
|
Series C:
|
|
|
$
|
|
|
|
|
Series C:
|
|
|
|
|
|
|
$
|
(b
|
)
|
November 1, 2007 through
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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November 30, 2007
|
|
|
Series A:
|
|
|
|
2,100,411
|
|
|
|
Series A:
|
|
|
$
|
36.76
|
|
|
|
Series A:
|
|
|
|
2,100,411
|
|
|
|
|
|
|
|
|
Series C:
|
|
|
|
2,951,346
|
|
|
|
Series C:
|
|
|
$
|
35.08
|
|
|
|
Series C:
|
|
|
|
2,951,346
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|
|
$
|
(b
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)
|
December 1, 2007 through
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December 31, 2007
|
|
|
Series A:
|
|
|
|
3,368,986
|
|
|
|
Series A:
|
|
|
$
|
39.69
|
|
|
|
Series A:
|
|
|
|
3,368,986
|
|
|
|
|
|
|
|
|
Series C:
|
|
|
|
7,290,544
|
|
|
|
Series C:
|
|
|
$
|
37.71
|
|
|
|
Series C:
|
|
|
|
7,290,544
|
|
|
$
|
(b
|
)
|
Total October 1, 2007 through December 31,
2007
|
|
|
Series A:
|
|
|
|
5,469,397
|
|
|
|
Series A:
|
|
|
$
|
38.57
|
|
|
|
Series A:
|
|
|
|
5,469,397
|
|
|
|
|
|
|
|
|
Series C:
|
|
|
|
10,241,890
|
|
|
|
Series C:
|
|
|
$
|
36.95
|
|
|
|
Series C:
|
|
|
|
10,241,890
|
|
|
$
|
(b
|
)
|
|
|
|
(a) |
|
Average price paid per share includes direct acquisition costs
where applicable. |
|
(b) |
|
Under the 2007 Repurchase Program, we were authorized to acquire
up to $500 million of our LGI Series A and
Series C common stock, or any combination of our LGI
Series A and Series C common stock through open market
transactions and/or privately negotiated transactions, which may
include derivative transactions. At December 31, 2007, the
remaining amount authorized under the 2007 Repurchase Plan was
$60.6 million. In January 2008, we purchased the remaining
amount authorized under the 2007 Repurchase Plan and our board
of directors authorized the 2008 Repurchase Plan, which provides
for additional repurchases of up to $500 million of our LGI
Series A and Series C common stock or any combination
of our LGI Series A and Series C common stock. At
February 21, 2008, the remaining amount authorized under
the 2008 Repurchase Plan was $170.7 million. |
In addition to the shares listed in the table above,
25,982 shares of LGI Series A common stock and
25,981 shares of LGI Series C common stock were
surrendered during the fourth quarter of 2007 by certain of our
officers and employees to pay withholding taxes and other
deductions in connection with the release of restrictions on
restricted stock.
II-2
|
|
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 LGI
Internationals predecessor for periods prior to the
June 7, 2004 Spin-Off transaction, whereby LGI
Internationals common stock was distributed on a pro rata
basis to Liberty Medias stockholders as a dividend, and
(ii) LGI (as the successor to LGI International) and its
consolidated subsidiaries for periods following such date. The
following selected financial data was derived from the audited
consolidated financial statements of LGI and its predecessors as
of and for the years ended December 31, 2007, 2006, 2005,
2004 and 2003. This information is only a summary, and should be
read together with our consolidated financial statements
included elsewhere herein.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007 (a)
|
|
|
2006 (a)
|
|
|
2005 (a)
|
|
|
2004 (b)
|
|
|
2003
|
|
|
|
amounts in millions
|
|
|
Summary Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in affiliates
|
|
$
|
388.6
|
|
|
$
|
1,062.7
|
|
|
$
|
789.0
|
|
|
$
|
1,865.6
|
|
|
$
|
1,740.6
|
|
Property and equipment, net
|
|
$
|
10,608.5
|
|
|
$
|
8,136.9
|
|
|
$
|
7,991.3
|
|
|
$
|
4,303.1
|
|
|
$
|
97.6
|
|
Intangible assets (including goodwill), net
|
|
$
|
15,315.4
|
|
|
$
|
11,698.0
|
|
|
$
|
10,839.9
|
|
|
$
|
3,280.6
|
|
|
$
|
693.5
|
|
Total assets
|
|
$
|
32,618.6
|
|
|
$
|
25,569.3
|
|
|
$
|
23,378.5
|
|
|
$
|
13,702.4
|
|
|
$
|
3,687.0
|
|
Debt and capital lease obligations, including current portion
|
|
$
|
18,353.4
|
|
|
$
|
12,230.1
|
|
|
$
|
10,115.0
|
|
|
$
|
4,992.7
|
|
|
$
|
54.1
|
|
Stockholders equity
|
|
$
|
5,836.1
|
|
|
$
|
7,247.1
|
|
|
$
|
7,816.4
|
|
|
$
|
5,237.1
|
|
|
$
|
3,418.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2007 (a)
|
|
|
2006 (a)
|
|
|
2005 (a)
|
|
|
2004 (b)
|
|
|
2003
|
|
|
|
amounts in millions, except per share amounts
|
|
|
Summary Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
9,003.3
|
|
|
$
|
6,483.9
|
|
|
$
|
4,517.3
|
|
|
$
|
2,112.8
|
|
|
$
|
108.4
|
|
Operating income (loss)
|
|
$
|
666.8
|
|
|
$
|
352.3
|
|
|
$
|
250.1
|
|
|
$
|
(275.8
|
)
|
|
$
|
(1.5
|
)
|
Earnings (loss) from continuing operations
|
|
$
|
(422.6
|
)
|
|
$
|
(334.0
|
)
|
|
$
|
(59.6
|
)
|
|
$
|
7.0
|
|
|
$
|
20.9
|
|
Earnings (loss) from continuing operations per share
Series A, Series B and Series C common stock (pro
forma for Spin-Off in 2004 and 2003) (c)
|
|
$
|
(1.11
|
)
|
|
$
|
(0.76
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
0.02
|
|
|
$
|
0.07
|
|
|
|
|
(a) |
|
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/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 LGI International did not already own
and LGI International and UGC each became wholly owned
subsidiaries of LGI. Prior to 2007, we accounted for our
interest in Telenet using the equity method. Effective
January 1, 2007, we began accounting for Telenet as a
consolidated subsidiary. We also completed a number of other
acquisitions during 2007, 2006 and 2005. For additional
information, see note 4 to our consolidated financial
statements. |
|
(b) |
|
Prior to January 1, 2004, the substantial majority of our
operations were conducted through equity method affiliates,
including UGC, J:COM and SC Media. 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 included
in our consolidated financial position and results of operations
since January 1, 2004. |
|
(c) |
|
Pro forma 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. |
II-3
|
|
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, 2007, 2006 and 2005.
|
|
|
|
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, 2007.
Overview
We are an international provider of video, voice and broadband
Internet services with consolidated broadband communications
and/or DTH
satellite operations at December 31, 2007 in
15 countries, primarily in Europe, Japan and Chile. Through
our indirect wholly-owned subsidiary UPC Holding, we provide
video, voice and broadband Internet services in 10 European
countries and in Chile. As further described in note 10 to
our consolidated financial statements, (i) our 100%
ownership interest in Cablecom, a broadband communications
operator in Switzerland, and (ii) our 80% ownership
interest in VTR, a broadband communications operator in Chile,
were transferred from certain of our other indirect subsidiaries
to UPC Broadband Holding during the second quarter of 2007. UPC
Broadband Holdings European broadband communications
operations, including Cablecom, are collectively referred to as
the UPC Broadband Division. Through our indirect controlling
ownership interest in Telenet (51.1% at December 31, 2007),
which we began accounting for as a consolidated subsidiary
effective January 1, 2007 (as further described in
note 4 to our consolidated financial statements), we
provide broadband communications services in Belgium. Through
our indirect controlling ownership interest in J:COM (37.9% at
December 31, 2007), we provide broadband communications
services in Japan. Through our indirect majority ownership
interest in Austar (53.4% at December 31, 2007), we provide
DTH satellite services in Australia. We also have
(i) consolidated broadband communications operations in
Puerto Rico and (ii) consolidated interests in certain
programming businesses in Europe, Japan (through J:COM) and
Argentina. 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 communications operations,
primarily in Europe.
As further described in note 4 to our consolidated
financial statements, we have completed a number of transactions
that impact the comparability of our 2007, 2006 and 2005 results
of operations. Certain of the more significant of these
transactions are listed below:
|
|
|
|
(i)
|
the acquisition of JTV Thematics, the thematics channel business
of SC Media, through the September 1, 2007 merger of JTV
Thematics with J:COM;
|
|
|
(ii)
|
the consolidation of Telenet, a broadband communications
provider in Belgium, effective January 1, 2007 for
financial reporting purposes;
|
|
|
(iii)
|
J:COMs acquisition of a controlling interest in Cable
West, a broadband communications provider in Japan, on
September 28, 2006;
|
II-4
|
|
|
|
(iv)
|
the consolidation of Karneval, a broadband communications
provider in the Czech Republic, effective September 18,
2006;
|
|
|
(v)
|
the acquisition of a controlling interest in Austar, a DTH
satellite provider in Australia, on December 14, 2005;
|
|
|
(vi)
|
the acquisition of Cablecom, a broadband communications provider
in Switzerland, on October 24, 2005;
|
|
|
(vii)
|
the acquisition of Astral, a broadband communications provider
in Romania, on October 14, 2005;
|
|
|
(viii)
|
the acquisition of the remaining 46.6% interest in UGC that we
did not already own through the consummation of the LGI
Combination on June 15, 2005;
|
|
|
(ix)
|
the consolidation of NTL Ireland, a broadband communications
provider in Ireland, effective May 9, 2005; and
|
|
|
(x)
|
VTRs acquisition of Metrópolis, a broadband
communications provider in Chile, on April 13, 2005.
|
In addition to the transactions listed above, we have also
completed a number of less significant acquisitions in Europe
and Japan during 2007, 2006 and 2005.
As further discussed in note 5 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
communications and video programming businesses that have strong
prospects for future growth in revenue and operating cash flow
(as defined in note 21 to our consolidated financial
statements). 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, acquisitions and dispositions. While we seek to
obtain new customers, we also seek to maximize the average
revenue we receive from each household by increasing the
penetration of our digital cable, broadband Internet and
telephony services with existing customers through product
bundling and upselling, or by migrating analog cable customers
to digital cable services that include various incremental
service offerings, such as video on demand, digital video
recorders and high definition programming. We plan to continue
to employ this strategy to achieve organic revenue and customer
growth.
Through our subsidiaries and affiliates, we are the largest
international broadband communications operator in terms of
subscribers. At December 31, 2007, our consolidated
subsidiaries owned and operated networks that passed 30,210,100
homes and served 24,034,700 revenue generating units (RGUs),
consisting of 14,741,100 video subscribers, 5,377,600 broadband
Internet subscribers and 3,916,000 telephony subscribers.
Including the effects of acquisitions, we added a total of
4,602,500 RGUs during 2007. Excluding the effects of
acquisitions (RGUs added on the acquisition date), but including
post-acquisition RGU additions, we added 1,445,800 RGUs on an
organic basis during 2007 (including 163,100 added by Telenet),
as compared to 1,631,000 RGUs that were added on an organic
basis during 2006. Our organic RGU growth during 2007 is
attributable to the growth of our broadband Internet services,
which added 782,100 RGUs, and our digital telephony services,
which added 741,100 RGUs. We experienced a net organic decline
of 77,400 video RGUs during 2007, as decreases in our analog
cable RGUs of 1,110,700 and our multi-channel multi-point
(microwave) distribution system (MMDS) video RGUs of 24,400 were
not fully offset by increases in our digital cable RGUs of
926,600 and our DTH video RGUs of 131,100. We expect that
competitive and other factors will continue to adversely impact
our ability to maintain or increase our video RGUs, particularly
in Europe.
II-5
As discussed under Discussion and Analysis of our
Consolidated Operating Results below, our consolidated
revenue increased 9.3% on an organic basis during 2007, as
compared to a 12.4% organic increase during 2006. The decline in
our organic revenue growth rate is due primarily to increasing
competition and the continuing maturation of certain of our
broadband communications markets. In particular, increasing
competition in the Netherlands, Austria, Romania, the Czech
Republic and other parts of Europe has contributed to a lower
number of organic RGU additions in our European broadband
communications markets in 2007, as compared to 2006. In Romania,
where we are seeing significant competition from several
alternate providers, we experienced an organic decline of 26,900
RGUs during 2007, as significant declines in Romanias
video RGUs were only partially offset by increases in broadband
Internet and telephony RGUs. Competition also negatively
impacted our ability to maintain or increase our monthly
subscription fees for our service offerings during 2007, as we
increasingly used bundling and promotional discounts to maintain
or increase our RGUs. In this regard, we experienced declines
from 2006 to 2007 in the average monthly subscription revenue
earned per average RGU (ARPU) from broadband Internet and
telephony services in most of our broadband communications
markets. The negative impact of these declines was somewhat
offset by improvements in (i) the mix of services provided
in most of our markets, and (ii) video ARPU in certain of
our markets, particularly those where we are offering digital
cable services, as the ARPU from digital cable services is
significantly higher than the ARPU we receive for analog cable
services. Although we monitor and respond to competition in each
of our markets, no assurance can be given that our efforts to
improve our competitive position will be successful, and
accordingly, that we will be able to reverse negative trends
such as those described above. For additional information
concerning the revenue trends of our reportable segments, see
Discussion and Analysis of our Reportable
Segments Revenue 2007 compared to 2006
below.
Despite the competitive pressures that we experienced during
2007, we were able to manage our operating and SG&A
expenses such that we experienced expansion in the operating
cash flow margins (operating cash flow divided by revenue) of
each of our reportable segments (except for our Telenet
(Belgium) segment, which reflects the consolidation of Telenet
effective January 1, 2007). For additional information, see
the discussion of the operating and SG&A expenses and the
operating cash flow margins of our reportable segments under
Discussion and Analysis of our Reportable Segments below.
Over the next few years, we believe that we will continue to be
challenged to maintain recent historical organic revenue and RGU
growth rates as we expect that competition will continue to grow
and that the markets for certain of our service offerings will
continue to mature. During this time frame, we expect that
(i) increases in our digital cable, telephony, broadband
Internet and DTH RGUs will more than offset decreases in our
analog cable RGUs and (ii) the ARPU of our reportable
segments will remain relatively unchanged, as the negative
impact of competitive factors, particularly with respect to our
broadband Internet and telephony services, is expected to offset
the positive impacts of (a) the continued migration of
video subscribers from analog to digital cable services and
(b) other improvements in the mix of services provided to
our subscriber base. We also believe that during this time frame
we will see (i) modest improvements in our operating cash
flow margins and (ii) declines in our aggregate capital
expenditures and capital lease additions, as a percentage of
revenue. Notwithstanding the above, we expect that we will be
challenged to maintain or improve our current subscriber
retention rates as competition grows. To the extent that we
experience higher subscriber disconnect rates, we expect that it
will be more difficult to control certain components of our
operating, marketing and capital costs. Our expectations with
respect to the items discussed in this paragraph are subject to
competitive developments and other factors outside of our
control, and no assurance can be given that actual results in
future periods will not differ materially from our expectations.
The video, broadband Internet and telephony 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 noted
above, we expect that the percentage of revenue represented by
our aggregate capital expenditures and capital lease additions
will decline over the next few years, due primarily to our
belief that the capital required to upgrade our broadband
communications networks will decline over this time frame. No
assurance can be given that actual results will not differ
materially from our expectations as factors outside of our
control, such as significant increases in competition or the
introduction of new technologies, could cause us to decide to
undertake previously unplanned upgrades of our broadband
communications networks in the impacted markets. In addition, no
assurance can be given that our future upgrades will generate a
positive return or that we will have adequate capital available
to
II-6
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.
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
product and service offerings such as enhanced
pay-per-view
programming (including
video-on-demand
and near
video-on-demand),
digital video recorders and high definition television services.
We offer broadband Internet services in all of our broadband
communications markets. Our residential subscribers generally
access the Internet via cable modems connected to their personal
computers at various speeds depending on the tier of service
selected. We determine pricing for each different tier of
broadband Internet service through analysis of speed, data
limits, market conditions and other factors.
We offer telephony services in all of our broadband
communications markets. In Austria, Belgium, 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 markets are provided using VoIP technology. In select
markets, including Australia, we also offer mobile telephony
services using third-party networks.
Results
of Operations
As noted under Overview above, the comparability of our
operating results during 2007, 2006 and 2005 is affected by
acquisitions. In the following discussion, we quantify the
impact of acquisitions on our operating results. 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 euro and the Japanese yen. In this regard,
38.8% and 25.0% of our U.S. dollar revenue during 2007 was
derived from subsidiaries whose functional currency is the euro
and the Japanese yen, respectively. In addition, our operating
results are impacted by changes in the exchange rates for the
Swiss franc, the Chilean peso, the Hungarian forint, the
Australian dollar and other local currencies in Europe.
The amounts presented and discussed below represent 100% of each
businesss revenue and operating cash flow. As we have the
ability to control Telenet, 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 despite
the fact that third parties own significant interests in these
entities. The third-party owners interests in the
operating results of Telenet, J:COM, VTR, Austar and other less
significant majority owned subsidiaries are reflected in
minority interests in 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 note that other
third-party entities own significant interests in Telenet,
J:COM, VTR and Austar and that Sumitomo effectively has the
ability to prevent our company from consolidating J:COM after
February 2010.
Discussion
and Analysis of our Reportable Segments
All of the reportable segments set forth below derive their
revenue primarily from broadband communications services,
including video, voice and broadband Internet services. Certain
segments also provide CLEC and other B2B services. At
December 31, 2007, our operating segments in the UPC
Broadband Division provided services in
II-7
10 European countries. Our Other Central and Eastern Europe
segment includes our operating segments in Czech Republic,
Poland, Romania, Slovak Republic and Slovenia. Telenet, J:COM
and VTR provide broadband communications services in Belgium,
Japan and Chile, respectively. Our corporate and other category
includes (i) Austar and other less significant operating
segments that provide broadband communications services in
Puerto Rico 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 broadband communications and
programming operations, primarily in Europe.
As further discussed in notes 4 and 5 to our consolidated
financial statements, we sold UPC Belgium to Telenet on
December 31, 2006, and we began accounting for Telenet as a
consolidated subsidiary effective January 1, 2007. As a
result, we began reporting a new segment as of January 1,
2007 that includes Telenet from the January 1, 2007
consolidation date and UPC Belgium for all periods presented.
The new reportable segment is not a part of the UPC Broadband
Division. Segment information for all periods presented has been
restated to reflect the transfer of UPC Belgium to the Telenet
segment. 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 21 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 compensation expense in
accordance with our definition of operating cash flow) as well
as an analysis of operating cash flow by reportable segment for
(i) 2007 as compared to 2006, and (ii) 2006 as
compared to 2005. 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 of
our reportable segments for 2007, 2006 and 2005 at the end of
this section.
Substantially all of the significant increases during 2007, as
compared to 2006, in our revenue, operating expenses and
SG&A expenses for our Telenet (Belgium) segment are
attributable to the effects of our January 1, 2007
consolidation of Telenet, and accordingly, we do not separately
discuss the results of our Telenet (Belgium) segment below.
Telenet provides services over broadband networks owned by
Telenet and the Telenet Partner Network owned by the PICs (as
further described in note 10 to our consolidated financial
statements), with the networks owned by Telenet accounting for
approximately 70% of the aggregate homes passed by the combined
networks and the Telenet Partner Network accounting for the
remaining 30%. For information concerning Telenets ongoing
negotiations and litigation with the PICs with respect to the
Telenet Partner Network, see note 20 to our consolidated
financial statements. Telenets organic revenue growth rate
in 2008 is expected to fall within a range of 5% to 6%. This
growth rate reflects, among other factors, the effects of
anticipated declines in Telenets revenue from set top box
sales and interconnect fees in 2008, as compared to 2007. No
assurance can be given that actual results in future periods
will not differ materially from our expectations.
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 for CLEC and other B2B services. In
the following discussion, we use the term subscription
revenue to refer to amounts received from subscribers for
ongoing services, excluding installation fees and mobile
telephony revenue.
The rates charged for certain video services offered by our
broadband communications operations in Europe and Chile are
subject to rate regulation. Additionally, in Europe, our ability
to bundle or discount our services may be constrained if we are
held to be dominant with respect to any product we offer. The
amounts we charge and incur
II-8
with respect to telephony interconnection fees are also subject
to regulatory oversight in many of our markets. Adverse outcomes
from rate regulation or other regulatory initiatives could have
a significant negative impact on our ability to maintain or
increase our revenue.
Revenue
of our Reportable Segments
Revenue
2007 compared to 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
|
|
|
|
Year ended
|
|
|
|
|
|
(decrease)
|
|
|
|
December 31,
|
|
|
Increase (decrease)
|
|
|
excluding FX
|
|
|
|
2007
|
|
|
2006
|
|
|
$
|
|
|
%
|
|
|
%
|
|
|
|
in millions
|
|
|
|
|
|
|
|
|
|
|
|
UPC Broadband Division:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$
|
1,060.6
|
|
|
$
|
923.9
|
|
|
$
|
136.7
|
|
|
|
14.8
|
|
|
|
5.2
|
|
Switzerland
|
|
|
873.9
|
|
|
|
771.8
|
|
|
|
102.1
|
|
|
|
13.2
|
|
|
|
8.3
|
|
Austria
|
|
|
503.1
|
|
|
|
420.0
|
|
|
|
83.1
|
|
|
|
19.8
|
|
|
|
9.9
|
|
Ireland
|
|
|
307.2
|
|
|
|
262.6
|
|
|
|
44.6
|
|
|
|
17.0
|
|
|
|
7.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
2,744.8
|
|
|
|
2,378.3
|
|
|
|
366.5
|
|
|
|
15.4
|
|
|
|
7.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
377.1
|
|
|
|
307.1
|
|
|
|
70.0
|
|
|
|
22.8
|
|
|
|
7.4
|
|
Other Central and Eastern Europe
|
|
|
806.1
|
|
|
|
574.0
|
|
|
|
232.1
|
|
|
|
40.4
|
|
|
|
24.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
1,183.2
|
|
|
|
881.1
|
|
|
|
302.1
|
|
|
|
34.3
|
|
|
|
18.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central and corporate operations
|
|
|
11.1
|
|
|
|
17.9
|
|
|
|
(6.8
|
)
|
|
|
(38.0
|
)
|
|
|
(40.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total UPC Broadband Division
|
|
|
3,939.1
|
|
|
|
3,277.3
|
|
|
|
661.8
|
|
|
|
20.2
|
|
|
|
10.0
|
|
Telenet (Belgium)
|
|
|
1,291.3
|
|
|
|
43.8
|
|
|
|
1,247.5
|
|
|
|
N.M.
|
|
|
|
N.M.
|
|
J:COM (Japan)
|
|
|
2,249.5
|
|
|
|
1,902.7
|
|
|
|
346.8
|
|
|
|
18.2
|
|
|
|
19.4
|
|
VTR (Chile)
|
|
|
634.9
|
|
|
|
558.9
|
|
|
|
76.0
|
|
|
|
13.6
|
|
|
|
11.7
|
|
Corporate and other
|
|
|
975.7
|
|
|
|
772.3
|
|
|
|
203.4
|
|
|
|
26.3
|
|
|
|
16.2
|
|
Intersegment eliminations
|
|
|
(87.2
|
)
|
|
|
(71.1
|
)
|
|
|
(16.1
|
)
|
|
|
(22.6
|
)
|
|
|
(12.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated LGI
|
|
$
|
9,003.3
|
|
|
$
|
6,483.9
|
|
|
$
|
2,519.4
|
|
|
|
38.9
|
|
|
|
31.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N.M. Not Meaningful
The Netherlands. The Netherlands revenue
increased $136.7 million or 14.8% during 2007, as compared
to 2006. Excluding the effects of foreign exchange rate
fluctuations, the Netherlands revenue increased
$48.0 million or 5.2%. This increase is attributable to an
increase in subscription revenue, primarily due 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 cable RGUs that was not fully offset by a gain
in average digital cable RGUs. The decline in average video RGUs
is largely due to the effects of competition from KPN, the
incumbent telecommunications operator in the Netherlands. We
believe that most of the declines in the Netherlands
analog cable RGUs during 2007 were attributable to competition
from KPN. We expect that we will continue to face significant
competition from KPN in future periods.
ARPU was relatively unchanged during 2007, as the positive
impacts of (i) an improvement in the Netherlands RGU
mix, attributable to a higher proportion of digital cable,
telephony and broadband Internet RGUs, and (ii) an increase
in ARPU from video services were offset by decreases in ARPU
from broadband Internet and telephony services. The increase in
ARPU from video services primarily is attributable to
(i) the positive impact of growth in the Netherlands
digital cable services, and (ii) a January 2007 price
increase for certain analog cable services. The decrease in ARPU
from broadband Internet services primarily is attributable to a
higher proportion of broadband Internet customers selecting
lower-priced tiers of service and higher bundling discounts. The
decrease in ARPU from telephony services during 2007 is due
primarily to higher promotional and bundling discounts.
II-9
Subscription revenue for the 2006 period includes
$9.6 million related to the release of deferred revenue
(including $4.8 million that was released during the fourth
quarter of 2006) in connection with rate settlements with
certain municipalities. There were no such releases during 2007.
As compared to 2006, the net number of digital cable RGUs added
by the Netherlands during 2007 declined substantially. This
decline is due in part to the continued emphasis on more
selective marketing strategies. Although the Netherlands
emphasis on more selective marketing strategies has resulted in
a more gradual pacing of the Netherlands digital migration
efforts, we have seen the positive impact of these strategies in
2007 in the form of reductions in certain marketing, operating
and capital costs and improved subscriber retention rates.
Switzerland. Switzerlands revenue
increased $102.1 million or 13.2% during 2007, as compared
to 2006. Excluding the effects of foreign exchange rate
fluctuations, Switzerlands revenue increased
$64.3 million or 8.3%. 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 during 2007, as compared to 2006. ARPU remained
relatively constant during 2007, as the positive impact of an
improvement in Switzerlands RGU mix, attributable to a
higher proportion of telephony, broadband Internet and digital
cable RGUs, was offset by a decrease in ARPU from telephony and
broadband Internet services. ARPU from video services remained
relatively unchanged during 2007 as the positive impact of
Switzerlands digital migration efforts was offset by the
negative impact of Switzerlands adoption of certain
provisions of the regulatory framework established by the Swiss
Price Regulator in November 2006. In order to comply with this
regulatory framework, Switzerland began offering a lower-priced
tier of digital cable services and decreased the rental price
charged for digital cable set top boxes during the second
quarter of 2007. ARPU from telephony services decreased during
2007 primarily due to the impact of lower call volumes and
competitive factors. The decrease in ARPU from broadband
Internet services primarily is attributable to customers
selecting lower-priced tiers of service and competitive factors.
An increase in revenue from B2B services and other
non-subscription revenue also contributed to the increase in
Switzerlands revenue.
Austria. Austrias revenue increased
$83.1 million or 19.8% during 2007, as compared to 2006.
This increase includes a $21.4 million increase that is
attributable to the impacts of the March 2006 INODE acquisition
and the October 2007 Tirol acquisition. Excluding the effects of
the INODE and Tirol acquisitions and foreign exchange rate
fluctuations, Austrias revenue increased
$20.2 million or 4.8%. The majority of this increase is
attributable to an increase in subscription revenue, as the
number of average broadband Internet RGUs and, to a lesser
extent, telephony and video RGUs, was higher during 2007, as
compared to 2006. ARPU remained relatively unchanged during
2007, as the positive impacts of (i) an improvement in
Austrias RGU mix, primarily attributable to a higher
proportion of broadband Internet RGUs, and (ii) a January
2007 rate increase for analog cable services were offset by the
negative impacts of lower ARPU from broadband Internet and
telephony services. The decrease in ARPU from broadband Internet
services is attributable to higher discounting in response to
increased competition and a higher proportion of customers
selecting lower-priced tiers of service. The decrease in ARPU
from telephony services primarily is due to (i) lower call
volumes, (ii) an increase in the proportion of subscribers
selecting VoIP telephony service, which generally is priced
lower than Austrias circuit switched telephony service,
and (iii) higher discounting. Telephony revenue in Austria
decreased slightly on an organic basis during 2007, as the
negative effect of the decrease in telephony ARPU was only
partially offset by the positive impact of higher average
telephony RGUs. An increase in revenue from B2B services also
contributed to the increase in Austrias revenue during
2007.
Ireland. Irelands revenue increased
$44.6 million or 17.0% during 2007 as compared to 2006.
Excluding the effects of foreign exchange rate fluctuations,
Irelands revenue increased $19.1 million or 7.3%.
This increase is attributable to an increase in subscription
revenue as a result of higher average RGUs and slightly higher
ARPU during 2007, as compared to 2006. The increase in average
RGUs primarily is attributable to an increase in the average
number of broadband Internet RGUs. The increase in ARPU during
2007 primarily is due to the positive effects of (i) an
improvement in Irelands RGU mix, primarily attributable to
a higher proportion of digital cable RGUs, (ii) a November
2006 price increase for certain broadband Internet and MMDS
video services and (iii) lower promotional discounts for
broadband Internet services.
Hungary. Hungarys revenue increased
$70.0 million or 22.8% during 2007, as compared to 2006.
This increase includes $1.9 million attributable to the
impact of a January 2007 acquisition. Excluding the effects of
the acquisition and foreign exchange rate fluctuations,
Hungarys revenue increased $20.9 million or 6.8%. The
II-10
majority of this increase is attributable to higher subscription
revenue, as higher average numbers of broadband Internet and
telephony RGUs were only partially offset by lower average
numbers of analog cable and DTH RGUs. ARPU declined slightly
during 2007, as the positive effects of (i) improvements in
Hungarys RGU mix, primarily attributable to a higher
proportion of broadband Internet RGUs, and (ii) a January
2007 rate increase for analog cable services were more than
offset by the negative impacts of (a) increases in
discounting due to competitive factors, (b) a higher
proportion of customers selecting lower-priced broadband
Internet tiers, (c) growth in Hungarys VoIP telephony
service, which generally is priced slightly lower than
Hungarys circuit switched telephony services, and
(d) lower telephony call volume. Due primarily to the
decline in ARPU from telephony services, Hungary also
experienced a slight organic decline in revenue from telephony
services during 2007, as compare to 2006. Hungary is continuing
to experience organic declines in analog cable RGUs, primarily
due to the effects of competition from an alternative DTH
provider. The majority of Hungarys analog cable subscriber
losses during 2007 have occurred in certain municipalities where
the technology of our networks limits our ability to create a
less expensive tier of service that would more effectively
compete with the alternative DTH provider. Due to a decrease in
the average number of DTH and analog cable RGUs and lower ARPU
from DTH video services as a result of competitive and other
factors, Hungary experienced a slight decline in revenue from
video services during 2007, as compared to 2006. An increase in
revenue from B2B services, which more than offset decreases in
certain other categories of non-subscription revenue, also
contributed to the increase in Hungarys revenue during
2007.
Other Central and Eastern Europe. Other
Central and Eastern Europes revenue increased
$232.1 million or 40.4% during 2007, as compared to 2006.
This increase includes $69.2 million attributable to the
aggregate impact of the September 2006 consolidation of Karneval
and other less significant acquisitions. Excluding the effects
of these acquisitions and foreign exchange rate fluctuations,
Other Central and Eastern Europes revenue increased
$68.6 million or 11.9%. This increase primarily is
attributable to an increase in subscription revenue as a result
of higher average RGUs during 2007, as compared to 2006. The
increase in average RGUs during 2007 is attributable to higher
average numbers of (i) broadband Internet RGUs (mostly in
Poland, Romania and the Czech Republic), (ii) telephony
RGUs (mostly related to the expansion of VoIP telephony services
in Poland, the Czech Republic and Romania) and, (iii) to a
much lesser extent, video RGUs as increases in average video
RGUs in Slovenia, the Czech Republic and Poland were partially
offset by decreases in Romania. ARPU in our Other Central and
Eastern Europe segment increased slightly during 2007 as the
positive effects of (i) an improvement in RGU mix,
primarily attributable to a higher proportion of broadband
Internet RGUs, (ii) January 2007 rate increases for video
services in certain countries and (iii) somewhat higher
ARPU from telephony services due to increased call volumes
(primarily in Poland and Romania) were offset by the negative
effects of higher discounting related to increased competition
and a higher proportion of broadband Internet subscribers
selecting lower-priced tiers.
We continue to experience increased competition in Romania, the
Czech Republic and other parts of Central and Eastern Europe,
due largely to the effects of competition from alternative
providers. In Romania, where we are facing intense competition
from multiple alternative providers (two of which are also
offering telephony and broadband Internet services), we
experienced significant organic declines in video RGUs during
2007. In response to the elevated level of competition in
Romania, we are implementing aggressive pricing and marketing
strategies in order to mitigate or reverse organic analog cable
RGU declines. These strategies, which are expected to adversely
impact Romanias organic revenue growth rates and result in
increased capital expenditures in the near term, are being
implemented with the objective of maintaining our market share
in Romania and enhancing our prospects for continued revenue
growth in future periods. In light of the foregoing discussion,
we expect Romanias organic revenue growth rate in 2008 to
be significantly lower than Romanias organic revenue
growth rate during 2007, and that the overall organic revenue
growth rate for our Other Central and Eastern Europe segment
will be somewhat impacted by the lower growth rate in Romania.
No assurance can be given that actual results in future periods
will not differ materially from our expectations.
J:COM (Japan). J:COMs revenue increased
$346.8 million or 18.2% during 2007, as compared to 2006.
This increase includes a $194.0 million increase that is
attributable to the aggregate impact of (i) the September
2007 acquisition of JTV Thematics, (ii) the September 2006
acquisition of Cable West and (iii) other less significant
acquisitions. Excluding the effects of these acquisitions and
foreign exchange rate fluctuations, J:COMs revenue
increased $175.6 million or 9.2%. Most of this increase is
attributable to an increase in subscription revenue, due
primarily to a higher average number of video, telephony and
broadband Internet RGUs during 2007. ARPU
II-11
remained relatively unchanged during 2007, as the positive
effects of (i) a higher proportion of digital cable RGUs
and (ii) a higher proportion of broadband Internet
subscribers selecting higher-priced tiers of service were
largely offset by the negative effects of bundling discounts and
lower telephony ARPU due to decreases in customer call volumes.
VTR (Chile). VTRs revenue increased
$76.0 million or 13.6% during 2007, as compared to 2006.
Excluding the effects of foreign exchange rate fluctuations,
VTRs revenue increased $65.1 million or 11.7%. Most
of this increase is attributable to an increase in subscription
revenue, due primarily to a higher average number of broadband
Internet, telephony and video RGUs during 2007. ARPU decreased
somewhat during 2007, as the positive impacts of
(i) inflation adjustments to certain rates for analog cable
and broadband Internet services, (ii) increases in the
proportion of subscribers selecting higher-speed broadband
Internet services over the lower-speed alternatives and digital
cable over analog cable services, and (iii) the migration
of a significant number of telephony subscribers to a fixed-rate
plan were more than offset by the negative effects of
(a) higher bundling discounts, (b) an increase in the
proportion of subscribers selecting lower-priced tiers of analog
video services and (c) lower call volumes for telephony
subscribers that remain on a usage-based plan.
Revenue
2006 compared to 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
|
|
|
|
Year ended
|
|
|
|
|
|
(decrease)
|
|
|
|
December 31,
|
|
|
Increase (decrease)
|
|
|
excluding FX
|
|
|
|
2006
|
|
|
2005
|
|
|
$
|
|
|
%
|
|
|
%
|
|
|
|
in millions
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Ireland
|
|
|
262.6
|
|
|
|
188.1
|
|
|
|
74.5
|
|
|
|
39.6
|
|
|
|
36.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
2,378.3
|
|
|
|
1,496.5
|
|
|
|
881.8
|
|
|
|
58.9
|
|
|
|
57.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
307.1
|
|
|
|
281.4
|
|
|
|
25.7
|
|
|
|
9.1
|
|
|
|
14.8
|
|
Other Central and Eastern Europe
|
|
|
574.0
|
|
|
|
368.5
|
|
|
|
205.5
|
|
|
|
55.8
|
|
|
|
48.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
881.1
|
|
|
|
649.9
|
|
|
|
231.2
|
|
|
|
35.6
|
|
|
|
33.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central and corporate operations
|
|
|
17.9
|
|
|
|
3.3
|
|
|
|
14.6
|
|
|
|
442.4
|
|
|
|
418.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total UPC Broadband Division
|
|
|
3,277.3
|
|
|
|
2,149.7
|
|
|
|
1,127.6
|
|
|
|
52.5
|
|
|
|
50.6
|
|
Telenet (Belgium)
|
|
|
43.8
|
|
|
|
40.1
|
|
|
|
3.7
|
|
|
|
9.2
|
|
|
|
8.4
|
|
J:COM (Japan)
|
|
|
1,902.7
|
|
|
|
1,662.1
|
|
|
|
240.6
|
|
|
|
14.5
|
|
|
|
20.9
|
|
VTR (Chile)
|
|
|
558.9
|
|
|
|
444.2
|
|
|
|
114.7
|
|
|
|
25.8
|
|
|
|
19.8
|
|
Corporate and other
|
|
|
772.3
|
|
|
|
266.0
|
|
|
|
506.3
|
|
|
|
190.3
|
|
|
|
188.8
|
|
Intersegment eliminations
|
|
|
(71.1
|
)
|
|
|
(44.8
|
)
|
|
|
(26.3
|
)
|
|
|
(58.7
|
)
|
|
|
(56.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated LGI
|
|
$
|
6,483.9
|
|
|
$
|
4,517.3
|
|
|
$
|
1,966.6
|
|
|
|
43.5
|
|
|
|
43.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
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 cable RGUs that was
not fully offset by a gain in digital cable RGUs. The decline in
average video RGUs is due largely to the effects of competition.
A slight increase in ARPU also contributed to the increase, as
the positive effects of (i) an improvement in the
Netherlands
II-12
RGU mix, attributable to a higher proportion of telephony,
broadband Internet and digital cable RGUs, (ii) a January
2006 rate increase for analog cable services and (iii) an
increase of $6.6 million, due primarily to the release of
deferred revenue (including $4.8 million 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:
|
|
|
|
|
a decrease in the average rates charged for digital cable
services due to price decreases during the fourth quarter of
2005 for pre-existing digital cable subscribers to harmonize
rates and promotional discounts implemented in connection with
the Netherlands digital migration efforts (as discussed
below);
|
|
|
|
an increase in discounting in connection with campaigns designed
to promote product bundling;
|
|
|
|
a decrease in ARPU from broadband Internet services due to a
higher proportion of customers selecting lower-priced tiers and
competitive factors; and
|
|
|
|
a decrease in ARPU from telephony services due to competitive
factors and lower call volumes.
|
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.
In October 2005, we initiated a program to migrate over time the
Netherlands analog cable customers to digital cable
service. In this program, we provided 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. During the second half of 2006, we added a lower
number of digital cable RGUs as compared to the first half of
2006. This decline principally was associated with the adoption
of a more selective approach to distributing digital cable
interactive television boxes to subscribers.
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 (i) an improvement in
Switzerlands RGU mix, attributable to a higher proportion
of telephony, broadband Internet and digital cable, and
(ii) a January 2006 price increase for analog cable
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.
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 effects of (i) an improvement in
Austrias RGU mix, primarily attributable to a higher
proportion of broadband Internet RGUs, (ii) a January 2006
rate increase for analog cable services and (iii) an
increase in subscribers selecting premium digital services.
Telephony revenue in Austria decreased somewhat
II-13
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.
Ireland. Irelands revenue increased
$74.5 million or 39.6% 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, Irelands revenue increased
$20.9 million or 11.1%. 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 effects of
(i) an improvement in Irelands RGU mix, primarily
attributable to a higher proportion of digital cable RGUs, and
(ii) a January 2006 rate increase for analog cable services
in Ireland were only partially offset by the negative effects of
higher discounting due to competitive factors and 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 cable RGUs. An increase in ARPU
also contributed to the increase in subscription revenue as the
positive effects of improvements in Hungarys RGU mix,
primarily attributable to a higher proportion of broadband
Internet RGUs, and a January 2006 rate increase for analog cable
services were 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
$205.5 million or 55.8% during 2006, as compared to 2005.
This increase includes a $113.5 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
$62.1 million or 16.9% 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 (i) an improvement in RGU mix, primarily
attributable to a higher proportion of broadband Internet RGUs,
(ii) rate increases for video services in certain countries
and (iii) 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.
J:COM (Japan). J:COMs revenue increased
$240.6 million or 14.5% during 2006, as compared to 2005.
This increase includes a $141.8 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 $206.2 million or 12.4%. Most of this increase is
attributable to an increase in
II-14
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 cable over analog cable 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 average number of VTRs
broadband Internet, telephony and digital cable 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 cable over analog cable
services were more than offset by the negative impacts of an
increase in product bundling and promotional discounts.
Operating
Expenses of our Reportable Segments
Operating
expenses 2007 compared to 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
|
|
|
|
Year ended
|
|
|
|
|
|
(decrease)
|
|
|
|
December 31,
|
|
|
Increase (decrease)
|
|
|
excluding FX
|
|
|
|
2007
|
|
|
2006
|
|
|
$
|
|
|
%
|
|
|
%
|
|
|
|
in millions
|
|
|
|
|
|
|
|
|
|
|
|
UPC Broadband Division:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$
|
362.8
|
|
|
$
|
328.2
|
|
|
$
|
34.6
|
|
|
|
10.5
|
|
|
|
1.4
|
|
Switzerland
|
|
|
304.4
|
|
|
|
268.9
|
|
|
|
35.5
|
|
|
|
13.2
|
|
|
|
8.1
|
|
Austria
|
|
|
180.0
|
|
|
|
152.8
|
|
|
|
27.2
|
|
|
|
17.8
|
|
|
|
8.2
|
|
Ireland
|
|
|
156.2
|
|
|
|
136.5
|
|
|
|
19.7
|
|
|
|
14.4
|
|
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
1,003.4
|
|
|
|
886.4
|
|
|
|
117.0
|
|
|
|
13.2
|
|
|
|
5.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
137.7
|
|
|
|
116.8
|
|
|
|
20.9
|
|
|
|
17.9
|
|
|
|
3.0
|
|
Other Central and Eastern Europe
|
|
|
295.9
|
|
|
|
217.8
|
|
|
|
78.1
|
|
|
|
35.9
|
|
|
|
20.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
433.6
|
|
|
|
334.6
|
|
|
|
99.0
|
|
|
|
29.6
|
|
|
|
14.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central and corporate operations
|
|
|
80.7
|
|
|
|
77.8
|
|
|
|
2.9
|
|
|
|
3.7
|
|
|
|
(5.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total UPC Broadband Division
|
|
|
1,517.7
|
|
|
|
1,298.8
|
|
|
|
218.9
|
|
|
|
16.9
|
|
|
|
6.8
|
|
Telenet (Belgium)
|
|
|
495.4
|
|
|
|
12.8
|
|
|
|
482.6
|
|
|
|
N.M.
|
|
|
|
N.M.
|
|
J:COM (Japan)
|
|
|
890.2
|
|
|
|
788.3
|
|
|
|
101.9
|
|
|
|
12.9
|
|
|
|
14.1
|
|
VTR (Chile)
|
|
|
254.7
|
|
|
|
240.1
|
|
|
|
14.6
|
|
|
|
6.1
|
|
|
|
4.3
|
|
Corporate and other
|
|
|
656.8
|
|
|
|
503.1
|
|
|
|
153.7
|
|
|
|
30.6
|
|
|
|
19.4
|
|
Intersegment eliminations
|
|
|
(86.5
|
)
|
|
|
(71.8
|
)
|
|
|
(14.7
|
)
|
|
|
(20.5
|
)
|
|
|
(9.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses excluding stock-based compensation
expense
|
|
|
3,728.3
|
|
|
|
2,771.3
|
|
|
|
957.0
|
|
|
|
34.5
|
|
|
|
26.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
12.2
|
|
|
|
7.0
|
|
|
|
5.2
|
|
|
|
74.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated LGI
|
|
$
|
3,740.5
|
|
|
$
|
2,778.3
|
|
|
$
|
962.2
|
|
|
|
34.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N.M. Not Meaningful
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-
II-15
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
Consolidated 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 (exclusive of stock-based
compensation expense) increased $218.9 million or 16.9%
during 2007, as compared to 2006. This increase includes a
$35.2 million increase attributable to the aggregate impact
of the INODE, Karneval, Tirol and other less significant
acquisitions. Excluding the effects of these acquisitions and
foreign exchange rate fluctuations, the UPC Broadband
Divisions operating expenses increased $53.6 million
or 4.1%, primarily due to the net effect of the following
factors:
|
|
|
|
|
An increase in outsourced labor and consulting fees of
$16.6 million or 20.4% during 2007, due primarily to
(i) the use of third parties to manage excess call center
volume associated with growth in digital cable, broadband
Internet and VoIP telephony services, primarily in Switzerland
and Ireland, and (ii) increased costs related to network
maintenance and upgrade activity in Ireland;
|
|
|
|
An increase in programming and copyright costs of
$16.1 million or 6.0% during 2007, primarily due to an
increase in costs for content and interactive digital services
related to subscriber growth on the digital platform, primarily
in the Netherlands;
|
|
|
|
An increase in interconnect costs of $14.2 million or 5.0%
during 2007, primarily due to growth in telephony subscribers in
the Netherlands;
|
|
|
|
A decrease in personnel costs of $14.1 million or 4.9%
during 2007, largely due to decreased headcount in (i) the
Netherlands, primarily due to the integration of the
Netherlands B2B and broadband communications operations,
and (ii) Switzerland, primarily due to increased usage of
third parties to manage excess call volume. These decreases were
partially offset by an increase in personnel costs in our
customer care centers, primarily in Austria, Poland and Romania;
|
|
|
|
An increase in bad debt expense of $10.9 million or 24.4%
during 2007, due primarily to (i) an increase in
uncollectible accounts and collection costs in Romania and
(ii) higher revenue in 2007, as compared to 2006. The
increase in Romania is due in part to higher levels of
subscriber disconnects resulting from increased competition.
These increases are partially offset by lower bad debt expense
in Austria, primarily due to improved collection
efforts; and
|
|
|
|
An $8.0 million increase (including a $7.4 million
increase during the fourth quarter of 2007) resulting
primarily from the Netherlands release of accruals during
2006 in connection with the resolution of certain operational
contingencies.
|
J:COM (Japan). J:COMs operating expenses
(exclusive of stock-based compensation expense) increased
$101.9 million or 12.9%, during 2007, as compared to 2006.
This increase includes a $66.6 million increase that is
attributable to the aggregate impact of the JTV Thematics, Cable
West and other less significant acquisitions. Excluding the
effects of these acquisitions and foreign exchange rate
fluctuations, J:COMs operating expenses increased
$44.5 million or 5.6%. This increase, which is primarily
attributable to growth in J:COMs subscriber base, includes
the following factors:
|
|
|
|
|
An increase in programming and related costs of
$22.4 million or 9.9% as a result of growth in the number
of video RGUs and a higher proportion of subscribers selecting
digital cable over analog cable services; and
|
|
|
|
An increase in salaries and other staff related costs of
$11.4 million or 7.6%.
|
II-16
VTR (Chile). VTRs operating expenses
(exclusive of stock-based compensation expense) increased
$14.6 million or 6.1%, during 2007, as compared to 2006.
Excluding the effects of foreign exchange rate fluctuations,
VTRs operating expenses increased $10.3 million or
4.3%. This increase, which is due largely to the increased scope
of VTRs business, is primarily attributable to (i) a
$5.0 million or 18.4% increase in technical services and
network maintenance costs and (ii) a $4.8 million or
7.2% increase in programming costs.
Operating
expenses 2006 compared to 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
|
|
|
|
Year ended
|
|
|
|
|
|
(decrease)
|
|
|
|
December 31,
|
|
|
Increase (decrease)
|
|
|
excluding FX
|
|
|
|
2006
|
|
|
2005
|
|
|
$
|
|
|
%
|
|
|
%
|
|
|
|
in millions
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Ireland
|
|
|
136.5
|
|
|
|
96.8
|
|
|
|
39.7
|
|
|
|
41.0
|
|
|
|
38.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
886.4
|
|
|
|
549.1
|
|
|
|
337.3
|
|
|
|
61.4
|
|
|
|
59.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
116.8
|
|
|
|
119.7
|
|
|
|
(2.9
|
)
|
|
|
(2.4
|
)
|
|
|
2.9
|
|
Other Central and Eastern Europe
|
|
|
217.8
|
|
|
|
140.1
|
|
|
|
77.7
|
|
|
|
55.5
|
|
|
|
47.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
334.6
|
|
|
|
259.8
|
|
|
|
74.8
|
|
|
|
28.8
|
|
|
|
27.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central and corporate operations
|
|
|
77.8
|
|
|
|
75.5
|
|
|
|
2.3
|
|
|
|
3.0
|
|
|
|
2.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total UPC Broadband Division
|
|
|
1,298.8
|
|
|
|
884.4
|
|
|
|
414.4
|
|
|
|
46.9
|
|
|
|
45.0
|
|
Telenet (Belgium)
|
|
|
12.8
|
|
|
|
12.5
|
|
|
|
0.3
|
|
|
|
2.4
|
|
|
|
2.0
|
|
J:COM (Japan)
|
|
|
788.3
|
|
|
|
690.1
|
|
|
|
98.2
|
|
|
|
14.2
|
|
|
|
20.6
|
|
VTR (Chile)
|
|
|
240.1
|
|
|
|
190.3
|
|
|
|
49.8
|
|
|
|
26.2
|
|
|
|
20.0
|
|
Corporate and other
|
|
|
503.1
|
|
|
|
185.2
|
|
|
|
317.9
|
|
|
|
171.7
|
|
|
|
169.5
|
|
Intersegment eliminations
|
|
|
(71.8
|
)
|
|
|
(43.2
|
)
|
|
|
(28.6
|
)
|
|
|
(66.2
|
)
|
|
|
(64.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses excluding stock-based compensation
expense
|
|
|
2,771.3
|
|
|
|
1,919.3
|
|
|
|
852.0
|
|
|
|
44.4
|
|
|
|
44.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
7.0
|
|
|
|
9.9
|
|
|
|
(2.9
|
)
|
|
|
(29.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated LGI
|
|
$
|
2,778.3
|
|
|
$
|
1,929.2
|
|
|
$
|
849.1
|
|
|
|
44.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UPC Broadband Division. The UPC Broadband
Divisions operating expenses (exclusive of stock-based
compensation expense) increased $414.4 million or 46.9%
during 2006, as compared to 2005. This increase includes a
$328.9 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 and foreign exchange
rate fluctuations, the UPC Broadband Divisions operating
expenses increased $60.0 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;
|
|
|
|
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;
|
II-17
|
|
|
|
|
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. 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 cable,
broadband Internet and telephony subscribers. On a per
subscriber basis, these services typically generate more calls
than our analog cable service;
|
|
|
|
The Netherlands digital migration efforts; and
|
|
|
|
increased customer service standard levels.
|
|
|
|
|
|
A $6.9 million decrease (including a $6.1 million
decrease during the fourth quarter of 2006) resulting
primarily 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 other costs associated with the increased scope
of the UPC Broadband Divisions business.
|
We incurred significant operating costs during 2006 and, to a
lesser extent, 2005 in connection with the Netherlands
digital migration efforts.
J:COM (Japan). J:COMs operating expenses
(exclusive of stock-based compensation expense) increased
$98.2 million or 14.2%, during 2006, as compared to 2005.
This increase includes a $32.4 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 and foreign exchange rate fluctuations,
J:COMs operating expenses increased $109.4 million or
15.9%. This increase, which is primarily attributable to growth
in J:COMs subscriber base, includes (i) a
$46.7 million increase in programming and related costs as
a result of growth in the number of digital cable 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) an increase in network
operating expenses, maintenance and technical support costs and
(iv) an increase in salaries and other staff related costs.
VTR (Chile). VTRs operating expenses
(exclusive of stock-based compensation expense) 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 and
foreign exchange rate fluctuations, 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, interconnect charges
and programming costs.
II-18
SG&A
Expenses of our Reportable Segments
SG&A
expenses 2007 compared to 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
|
|
|
|
Year ended
|
|
|
|
|
|
(decrease)
|
|
|
|
December 31,
|
|
|
Increase (decrease)
|
|
|
excluding FX
|
|
|
|
2007
|
|
|
2006
|
|
|
$
|
|
|
%
|
|
|
%
|
|
|
|
in millions
|
|
|
|
|
|
|
|
|
|
|
|
UPC Broadband Division:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$
|
141.3
|
|
|
$
|
143.8
|
|
|
$
|
(2.5
|
)
|
|
|
(1.7
|
)
|
|
|
(9.8
|
)
|
Switzerland
|
|
|
150.2
|
|
|
|
149.2
|
|
|
|
1.0
|
|
|
|
0.7
|
|
|
|
(3.9
|
)
|
Austria
|
|
|
85.6
|
|
|
|
71.5
|
|
|
|
14.1
|
|
|
|
19.7
|
|
|
|
9.5
|
|
Ireland
|
|
|
46.3
|
|
|
|
46.2
|
|
|
|
0.1
|
|
|
|
0.2
|
|
|
|
(7.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
423.4
|
|
|
|
410.7
|
|
|
|
12.7
|
|
|
|
3.1
|
|
|
|
(4.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
49.5
|
|
|
|
45.0
|
|
|
|
4.5
|
|
|
|
10.0
|
|
|
|
(3.8
|
)
|
Other Central and Eastern Europe
|
|
|
106.2
|
|
|
|
91.8
|
|
|
|
14.4
|
|
|
|
15.7
|
|
|
|
2.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
155.7
|
|
|
|
136.8
|
|
|
|
18.9
|
|
|
|
13.8
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central and corporate operations
|
|
|
168.2
|
|
|
|
146.3
|
|
|
|
21.9
|
|
|
|
15.0
|
|
|
|
5.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total UPC Broadband Division
|
|
|
747.3
|
|
|
|
693.8
|
|
|
|
53.5
|
|
|
|
7.7
|
|
|
|
(1.1
|
)
|
Telenet (Belgium)
|
|
|
198.8
|
|
|
|
6.9
|
|
|
|
191.9
|
|
|
|
N.M.
|
|
|
|
N.M.
|
|
J:COM (Japan)
|
|
|
447.7
|
|
|
|
375.8
|
|
|
|
71.9
|
|
|
|
19.1
|
|
|
|
20.3
|
|
VTR (Chile)
|
|
|
131.0
|
|
|
|
120.3
|
|
|
|
10.7
|
|
|
|
8.9
|
|
|
|
7.1
|
|
Corporate and other
|
|
|
183.1
|
|
|
|
178.9
|
|
|
|
4.2
|
|
|
|
2.3
|
|
|
|
(1.9
|
)
|
Inter-segment eliminations
|
|
|
(0.7
|
)
|
|
|
0.7
|
|
|
|
(1.4
|
)
|
|
|
(200.0
|
)
|
|
|
(171.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total SG&A expenses excluding stock-based compensation
expense
|
|
|
1,707.2
|
|
|
|
1,376.4
|
|
|
|
330.8
|
|
|
|
24.0
|
|
|
|
18.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
181.2
|
|
|
|
63.0
|
|
|
|
118.2
|
|
|
|
187.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated LGI
|
|
$
|
1,888.4
|
|
|
$
|
1,439.4
|
|
|
$
|
449.0
|
|
|
|
31.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N.M. Not Meaningful.
General. SG&A expenses include human
resources, information technology, general services, management,
finance, legal and marketing costs, 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
Consolidated Operating Results below.
UPC Broadband Division. The UPC Broadband
Divisions SG&A expenses (exclusive of stock-based
compensation expense) increased $53.5 million or 7.7%,
during 2007 as compared to 2006. This increase includes
$21.3 million attributable to the aggregate impact of the
INODE, Karneval, Tirol and other less significant acquisitions.
Excluding the effects of these acquisitions and foreign exchange
rate fluctuations, the UPC Broadband Divisions SG&A
expenses decreased $29.0 million or 4.2%. The decrease in
the UPC Broadband Divisions SG&A expenses primarily
is attributable to the following factors:
|
|
|
|
|
A decrease in personnel costs of $14.6 million or 5.0%
during 2007, due to lower staffing levels, primarily due to the
integration of certain components of our operations within the
Czech Republic, the Netherlands and Ireland;
|
|
|
|
A decrease in sales and marketing expenses and commissions of
$5.1 million or 2.9% during 2007, primarily related to
(i) lower costs incurred in connection with the Netherlands
digital migration efforts, primarily due
|
II-19
|
|
|
|
|
to an emphasis on more selective marketing strategies, and
(ii) a decrease in sales and marketing costs in Hungary,
primarily due to cost containment efforts. These decreases were
partially offset by increased sales and marketing expenses and
commissions in Ireland, Romania and Austria, primarily due to
competitive factors; and
|
|
|
|
|
|
A decrease in outsourced labor and consulting costs of
$4.9 million or 23.5% during 2007, primarily due to
professional fees incurred in Switzerland during 2006 related to
integration activities subsequent to the acquisition of Cablecom.
|
J:COM (Japan). J:COMs SG&A expenses
(exclusive of stock-based compensation expense) increased
$71.9 million or 19.1% during 2007, as compared to 2006.
This increase includes $57.2 million attributable to the
aggregate impact of the JTV Thematics, Cable West and other less
significant acquisitions. Excluding the effects of these
acquisitions and foreign exchange rate fluctuations,
J:COMs SG&A expenses increased $18.9 million or
5.0%. This increase primarily is attributable to an increase in
labor and related overhead costs of $16.2 million or 5.8%
associated with higher staffing levels and annual wage increases.
VTR (Chile). VTRs SG&A expenses
(exclusive of stock-based compensation expense) increased
$10.7 million or 8.9% during 2007, as compared to 2006.
Excluding the effects of foreign exchange rate fluctuations,
VTRs SG&A expenses increased $8.5 million or
7.1%. This increase, which is due largely to the increased scope
of VTRs business, is primarily attributable to an increase
in labor and related costs (including consulting and
outsourcing) of $5.0 million or 13.3%.
SG&A
expenses 2006 compared to 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
|
|
Increase
|
|
|
|
December 31,
|
|
|
Increase
|
|
|
excluding FX
|
|
|
|
2006
|
|
|
2005
|
|
|
$
|
|
|
%
|
|
|
%
|
|
|
|
in millions
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Ireland
|
|
|
46.2
|
|
|
|
32.4
|
|
|
|
13.8
|
|
|
|
42.6
|
|
|
|
39.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
410.7
|
|
|
|
232.3
|
|
|
|
178.4
|
|
|
|
76.8
|
|
|
|
74.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
45.0
|
|
|
|
38.3
|
|
|
|
6.7
|
|
|
|
17.5
|
|
|
|
23.3
|
|
Other Central and Eastern Europe
|
|
|
91.8
|
|
|
|
60.4
|
|
|
|
31.4
|
|
|
|
52.0
|
|
|
|
43.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
136.8
|
|
|
|
98.7
|
|
|
|
38.1
|
|
|
|
38.6
|
|
|
|
35.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central and corporate operations
|
|
|
146.3
|
|
|
|
131.4
|
|
|
|
14.9
|
|
|
|
11.3
|
|
|
|
9.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total UPC Broadband Division
|
|
|
693.8
|
|
|
|
462.4
|
|
|
|
231.4
|
|
|
|
50.0
|
|
|
|
47.7
|
|
Telenet (Belgium)
|
|
|
6.9
|
|
|
|
6.1
|
|
|
|
0.8
|
|
|
|
13.1
|
|
|
|
12.5
|
|
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
|
|
|
178.9
|
|
|
|
105.4
|
|
|
|
73.5
|
|
|
|
69.7
|
|
|
|
69.5
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UPC Broadband Division. The UPC Broadband
Divisions SG&A expenses (exclusive of stock-based
compensation expense) increased $231.4 million or 50.0%,
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
II-20
Ireland, Astral, INODE, Telemach and other less significant
acquisitions. Excluding the effects of these acquisitions and
foreign exchange rate fluctuations, the UPC Broadband
Divisions SG&A expenses increased $53.3 million
or 11.5%, 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 Netherlands
digital migration efforts, 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;
|
|
|
|
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; and
|
|
|
|
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 personnel
increases throughout the UPC Broadband Division.
|
We incurred significant SG&A costs during 2006 and, to a
lesser extent, 2005 in connection with the Netherlands
digital migration efforts.
J:COM (Japan). J:COMs SG&A expenses
(exclusive of stock-based compensation expense) increased
$40.1 million or 11.9% during 2006, as compared to 2005.
This increase includes a $58.3 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 and foreign exchange rate fluctuations,
J:COMs SG&A expenses increased $3.1 million or
0.9%. This increase is primarily attributable to higher labor
and related overhead costs associated with an increase in
staffing levels and annual wage increases, partially offset by
lower marketing and advertising costs during 2006, as costs
incurred in connection with a rebranding initiative undertaken
by J:COM during the first half of 2005 were not repeated during
2006.
VTR (Chile). VTRs SG&A expenses
(exclusive of stock-based compensation expense) 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 and
foreign exchange rate fluctuations, VTRs SG&A
expenses increased $6.4 million or 6.3%. This 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.
Operating
Cash Flow of our Reportable Segments
Operating cash flow is the primary measure used by our chief
operating decision maker to evaluate segment operating
performance and to decide how to allocate resources to segments.
As we use the term, operating cash flow is defined as revenue
less operating and SG&A expenses (excluding stock-based
compensation, depreciation and amortization, provisions for
litigation, and impairment, restructuring and other operating
charges or credits). For additional information concerning this
performance measure and for a reconciliation of total segment
operating cash flow to our consolidated earnings (loss) before
income taxes, minority interests and discontinued operations,
see note 21 to our consolidated financial statements.
II-21
Operating
Cash Flow 2007 compared to 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
|
|
|
|
Year ended
|
|
|
|
|
|
(decrease)
|
|
|
|
December 31,
|
|
|
Increase (decrease)
|
|
|
excluding FX
|
|
|
|
2007
|
|
|
2006
|
|
|
$
|
|
|
%
|
|
|
%
|
|
|
|
in millions
|
|
|
|
|
|
|
|
|
|
|
|
UPC Broadband Division:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$
|
556.5
|
|
|
$
|
451.9
|
|
|
$
|
104.6
|
|
|
|
23.1
|
|
|
|
12.7
|
|
Switzerland
|
|
|
419.3
|
|
|
|
353.7
|
|
|
|
65.6
|
|
|
|
18.5
|
|
|
|
13.6
|
|
Austria
|
|
|
237.5
|
|
|
|
195.7
|
|
|
|
41.8
|
|
|
|
21.4
|
|
|
|
11.4
|
|
Ireland
|
|
|
104.7
|
|
|
|
79.9
|
|
|
|
24.8
|
|
|
|
31.0
|
|
|
|
19.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
1,318.0
|
|
|
|
1,081.2
|
|
|
|
236.8
|
|
|
|
21.9
|
|
|
|
13.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
189.9
|
|
|
|
145.3
|
|
|
|
44.6
|
|
|
|
30.7
|
|
|
|
14.5
|
|
Other Central and Eastern Europe
|
|
|
404.0
|
|
|
|
264.4
|
|
|
|
139.6
|
|
|
|
52.8
|
|
|
|
34.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
593.9
|
|
|
|
409.7
|
|
|
|
184.2
|
|
|
|
45.0
|
|
|
|
27.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central and corporate operations
|
|
|
(237.8
|
)
|
|
|
(206.2
|
)
|
|
|
(31.6
|
)
|
|
|
(15.3
|
)
|
|
|
(5.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total UPC Broadband Division
|
|
|
1,674.1
|
|
|
|
1,284.7
|
|
|
|
389.4
|
|
|
|
30.3
|
|
|
|
19.1
|
|
Telenet (Belgium)
|
|
|
597.1
|
|
|
|
24.1
|
|
|
|
573.0
|
|
|
|
N.M.
|
|
|
|
N.M.
|
|
J:COM (Japan)
|
|
|
911.6
|
|
|
|
738.6
|
|
|
|
173.0
|
|
|
|
23.4
|
|
|
|
24.7
|
|
VTR (Chile)
|
|
|
249.2
|
|
|
|
198.5
|
|
|
|
50.7
|
|
|
|
25.5
|
|
|
|
23.3
|
|
Corporate and other
|
|
|
135.8
|
|
|
|
90.3
|
|
|
|
45.5
|
|
|
|
50.4
|
|
|
|
31.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,567.8
|
|
|
$
|
2,336.2
|
|
|
$
|
1,231.6
|
|
|
|
52.7
|
|
|
|
43.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Cash Flow 2006 compared to 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
|
|
|
|
Year ended
|
|
|
|
|
|
(decrease)
|
|
|
|
December 31,
|
|
|
Increase (decrease)
|
|
|
excluding FX
|
|
|
|
2006
|
|
|
2005
|
|
|
$
|
|
|
%
|
|
|
%
|
|
|
|
in millions
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Ireland
|
|
|
79.9
|
|
|
|
58.9
|
|
|
|
21.0
|
|
|
|
35.7
|
|
|
|
32.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
1,081.2
|
|
|
|
715.1
|
|
|
|
366.1
|
|
|
|
51.2
|
|
|
|
49.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
145.3
|
|
|
|
123.4
|
|
|
|
21.9
|
|
|
|
17.7
|
|
|
|
23.7
|
|
Other Central and Eastern Europe
|
|
|
264.4
|
|
|
|
168.0
|
|
|
|
96.4
|
|
|
|
57.4
|
|
|
|
50.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
409.7
|
|
|
|
291.4
|
|
|
|
118.3
|
|
|
|
40.6
|
|
|
|
39.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central and corporate operations
|
|
|
(206.2
|
)
|
|
|
(203.6
|
)
|
|
|
(2.6
|
)
|
|
|
(1.3
|
)
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total UPC Broadband Division
|
|
|
1,284.7
|
|
|
|
802.9
|
|
|
|
481.8
|
|
|
|
60.0
|
|
|
|
58.5
|
|
Telenet (Belgium)
|
|
|
24.1
|
|
|
|
21.5
|
|
|
|
2.6
|
|
|
|
12.1
|
|
|
|
10.9
|
|
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
|
|
|
90.3
|
|
|
|
(24.6
|
)
|
|
|
114.9
|
|
|
|
467.1
|
|
|
|
464.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,336.2
|
|
|
$
|
1,587.6
|
|
|
$
|
748.6
|
|
|
|
47.2
|
|
|
|
47.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N.M. Not Meaningful
II-22
Operating
Cash Flow Margin 2007, 2006 and 2005
The following table sets forth the operating cash flow margins
of our reportable segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
%
|
|
|
UPC Broadband Division:
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
|
52.5
|
|
|
|
48.9
|
|
|
|
52.1
|
|
Switzerland
|
|
|
48.0
|
|
|
|
45.8
|
|
|
|
35.7
|
|
Austria
|
|
|
47.2
|
|
|
|
46.6
|
|
|
|
50.4
|
|
Ireland
|
|
|
34.1
|
|
|
|
30.4
|
|
|
|
31.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
48.0
|
|
|
|
45.5
|
|
|
|
47.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
50.4
|
|
|
|
47.3
|
|
|
|
43.9
|
|
Other Central and Eastern Europe
|
|
|
50.1
|
|
|
|
46.1
|
|
|
|
45.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
50.2
|
|
|
|
46.5
|
|
|
|
44.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total UPC Broadband Division, including central and corporate
costs
|
|
|
42.5
|
|
|
|
39.2
|
|
|
|
37.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telenet (Belgium)
|
|
|
46.2
|
|
|
|
55.0
|
|
|
|
53.6
|
|
J:COM (Japan)
|
|
|
40.5
|
|
|
|
38.8
|
|
|
|
38.3
|
|
VTR (Chile)
|
|
|
39.3
|
|
|
|
35.5
|
|
|
|
34.1
|
|
The improvement in the operating cash flow margins of our
reportable segments during 2007 and 2006 is generally
attributable to improved operational leverage resulting from
revenue growth that is more than offsetting the accompanying
increases in our operating and SG&A expenses. Cost
containment efforts and synergies and cost savings resulting
from the continued integration of acquisitions have also
positively impacted the operating cash flow margins of our
reportable segments. The significant improvement in the
operating cash flow margin of the Netherlands during 2007 is
principally due to cost reductions associated with the more
gradual pacing of the Netherlands digital migration
efforts and personnel reductions associated with the integration
of the Netherlands B2B and broadband communications
operations. The decrease in the operating cash flow margin of
our Telenet (Belgium) segment during 2007 is due to the fact
that 2006 does not include the results of Telenet. 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 the revenue, operating expenses and
SG&A expenses of our reportable segments. Due largely to
the anticipated continuation of our cost containment efforts, we
expect that the operating cash flow margins of the UPC Broadband
Division, Telenet, J:COM and VTR will improve in 2008, as
compared to 2007. As discussed under Overview and
Revenue of our Reportable Segments above, our broadband
communications operations are experiencing significant
competition, particularly in Europe. Sustained or increased
competition could adversely affect our ability to maintain or
improve the operating cash flow margins of our reportable
segments. No assurance can be given that the actual 2008
operating cash flow margins achieved by our reportable segments
will not vary from our current expectations.
II-23
Discussion
and Analysis of our Consolidated Operating Results
General
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.
2007
compared to 2006
Revenue
Our total consolidated revenue increased $2,519.4 million
during 2007, as compared to 2006. This increase includes a
$1,414.4 million increase that is attributable to the
impact of acquisitions. Excluding the effects of acquisitions
and foreign exchange rate fluctuations, total consolidated
revenue increased $600.1 million or 9.3% during 2007, as
compared to 2006. As discussed in greater detail under
Discussion and Analysis of Reportable Segments
Revenue 2007 compared to 2006 above, most of
these increases are attributable to RGU growth. For information
regarding the competitive environment in certain of our markets,
see Overview and Discussion and Analysis of our
Reportable Segments above.
Operating
expenses
Our total consolidated operating expenses increased
$962.2 million during 2007, as compared to 2006. This
increase includes a $533.2 million increase that is
attributable to the impact of acquisitions. Our operating
expenses include stock-based compensation expense, which
increased $5.2 million during 2007. For additional
information, see discussion following SG&A expenses
below. Excluding the effects of acquisitions, foreign exchange
rate fluctuations and stock-based compensation expense, total
consolidated operating expenses increased $206.5 million or
7.5% during 2007, as compared to 2006. As discussed in more
detail under Discussion and Analysis of Reportable Segments
Operating Expenses 2007 compared to 2006
above, this increase generally reflects (i) increases
in programming costs, (ii) increases in labor costs,
(iii) increases in interconnect 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
expenses
Our total consolidated SG&A expenses increased
$449.0 million during 2007, as compared to 2006. This
increase includes a $271.0 million increase that is
attributable to the impact of acquisitions. Our SG&A
expenses include stock-based compensation expense, which
increased $118.2 million. For additional information, see
discussion in the following paragraph. Excluding the effects of
acquisitions, foreign exchange rate fluctuations and stock-based
compensation expense, total consolidated SG&A expenses
decreased $19.6 million or 1.4% during 2007, as compared to
2006. For additional information, see discussion under
Discussion and Analysis of Reportable Segments
SG&A Expenses 2007 compared to 2006 above.
II-24
Stock-based
compensation expense (included in operating and SG&A
expenses)
We record stock-based compensation that is associated with LGI
shares and the shares of certain of our subsidiaries. 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,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
in millions
|
|
|
LGI Series A, Series B and Series C common stock:
|
|
|
|
|
|
|
|
|
LGI Performance Plans
|
|
$
|
108.2
|
|
|
$
|
|
|
Stock options, SARs, restricted stock and restricted stock units
|
|
|
47.3
|
|
|
|
58.0
|
|
Restricted Shares of LGI and Zonemedia (a)
|
|
|
16.2
|
|
|
|
7.1
|
|
Austar Performance Plan
|
|
|
9.5
|
|
|
|
|
|
Other
|
|
|
12.2
|
|
|
|
4.9
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
193.4
|
|
|
$
|
70.0
|
|
|
|
|
|
|
|
|
|
|
Operating expense
|
|
$
|
12.2
|
|
|
$
|
7.0
|
|
SG&A expense
|
|
|
181.2
|
|
|
|
63.0
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
193.4
|
|
|
$
|
70.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
These restricted shares were issued in connection with our
January 2005 acquisition of Zonemedia. The 2007 amount includes
stock-based compensation related to restricted shares of
Zonemedia and LGI stock held by certain Zonemedia employees of
$16.2 million, of which $12.8 million was recognized
on an accelerated basis in connection with the third quarter
2007 execution of certain agreements between a subsidiary of
Chellomedia and the holders of these restricted shares. No
further compensation expense will be recognized in connection
with these restricted stock awards. |
For additional information concerning our stock-based
compensation, see notes 2 and 14 to our consolidated
financial statements.
Depreciation
and amortization
Our total consolidated depreciation and amortization expense
increased $608.4 million during 2007, as compared to 2006.
This increase includes a $390.3 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
$85.5 million or 4.5% during 2007, as compared to 2006.
This increase is due primarily to the net effect of
(i) increases associated with capital expenditures related
to the installation of customer premise equipment, the expansion
and upgrade of our networks and other capital initiatives, and
(ii) decreases associated with certain of VTRs
network assets becoming fully depreciated.
Provisions
for litigation
As further described in note 20 to our consolidated
financial statements, we recorded provisions for litigation of
(i) $146.0 million during the third quarter of 2007,
representing our estimate of the loss that we may incur upon the
ultimate disposition of the 2002 and 2006 Cignal Actions, and
(ii) $25.0 million during the fourth quarter of 2007,
representing the binding agreement that was reached in January
2008, subject to the Courts approval, to settle the
shareholder litigation related to the LGI Combination. For
additional information, see note 20 to our consolidated
financial statements.
Impairment,
restructuring and other operating charges, net
Our total consolidated impairment, restructuring and other
operating charges, net, increased $14.3 million during
2007, as compared to 2006. This increase is primarily
attributable to (i) a $7.2 million increase in net
II-25
restructuring charges, primarily related to (i) the cost of
terminating certain employees in connection with integration of
our B2B and broadband communications operations in the
Netherlands and (ii) the cost of terminating certain
employees in connection with the restructuring of our broadband
communications operations in Ireland. For additional information
regarding our restructuring charges, see note 17 to our
consolidated financial statements.
Interest
expense
Our total consolidated interest expense increased
$308.7 million during 2007, as compared to 2006. Excluding
the effects of foreign exchange rate fluctuations, interest
expense increased $242.5 million during 2007, as compared
to 2006. This increase is primarily attributable to a
$4.8 billion or 45.0% increase in our average outstanding
indebtedness. The increase in debt primarily is attributable to
debt incurred or assumed in connection with recapitalizations
and acquisitions. Our weighted average interest rate remained
relatively unchanged during 2007, as compared to 2006, primarily
due to increases in certain interest rates that were partially
offset by decreases associated with the refinancing of the LG
Switzerland PIK Loan Facility. For additional information, see
notes 8 and 10 to our consolidated financial statements.
Interest
and dividend income
Our total consolidated interest and dividend income increased
$29.9 million during 2007, as compared to 2006. The
increase is attributable to an increase in interest income
related to higher average consolidated cash and cash equivalent
balances and, to a lesser extent, higher average interest rates
earned on such balances. Dividend income decreased slightly
during 2007 as dividend income on the Sumitomo common stock that
we acquired on July 3, 2007 only partially offset the loss
of dividend income on the ABC Family preferred stock that was
redeemed on August 2, 2007. Our interest and dividend
income for 2007 includes $18.1 million of dividends earned
on our investment in ABC Family preferred stock. The terms of
the Sumitomo Collar effectively fix the dividends that we will
receive on the Sumitomo common stock during the term of the
Sumitomo Collar. We report the full amount of dividends received
from Sumitomo as dividend income and the dividend adjustment
that is payable to, or receivable from, the counterparty to the
Sumitomo Collar is reported as a component of realized and
unrealized gains (losses) on financial and derivative
instruments, net, in our consolidated statements of operations.
For additional information, see notes 5, 7 and 8 to our
consolidated financial statements.
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,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
in millions
|
|
|
SC Media (a)
|
|
$
|
16.7
|
|
|
$
|
34.4
|
|
TKP Poland
|
|
|
7.7
|
|
|
|
(1.2
|
)
|
XYZ Network
|
|
|
5.5
|
|
|
|
4.3
|
|
Mediatti
|
|
|
(0.9
|
)
|
|
|
(5.3
|
)
|
Melita (b)
|
|
|
2.1
|
|
|
|
3.7
|
|
Telenet (c)
|
|
|
|
|
|
|
(24.3
|
)
|
Other
|
|
|
2.6
|
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
33.7
|
|
|
$
|
13.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
On July 2, 2007, SC Media was split into two separate
companies through the spin-off of JTV Thematics. We exchanged
our investment in SC Media for Sumitomo shares on July 3,
2007 and J:COM acquired a 100% interest in JTV Thematics on
September 1, 2007. As a result of these transactions, we no
longer own an interest in SC Media. |
|
(b) |
|
We sold our interest in Melita in July 2007. |
II-26
|
|
|
(c) |
|
Effective January 1, 2007, we began accounting for Telenet
as a consolidated subsidiary. See note 4 to our
consolidated financial statements. |
For additional information concerning our equity method
affiliates, see note 6 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,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
in millions
|
|
|
Equity-related derivatives (a)
|
|
$
|
239.8
|
|
|
$
|
21.7
|
|
Cross-currency and interest rate derivative contracts (b)
|
|
|
(150.7
|
)
|
|
|
(312.0
|
)
|
UGC Convertible Notes (c)
|
|
|
(111.1
|
)
|
|
|
(82.8
|
)
|
Foreign exchange contracts
|
|
|
(19.3
|
)
|
|
|
21.3
|
|
Other
|
|
|
2.6
|
|
|
|
4.2
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(38.7
|
)
|
|
$
|
(347.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes (i) gains during 2007 associated with the Sumitomo
Collar of $209.6 million and (ii) gains and losses
during 2007 and 2006 associated with (a) the call options
we held with respect to Telenet ordinary shares and (b) the
forward sale of News Corp. Class A common stock. |
|
(b) |
|
The losses on the cross-currency and interest rate derivative
contracts for 2007 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 an increase in the value of the Chilean peso relative to
the U.S. dollar, (iii) gains associated with an increase in
market interest rates in euro Swiss franc and Australian dollar
markets, (iv) gains associated with a decrease in the value
of the Swiss franc relative to the euro, (v) losses
associated with an increase in the value of the Polish zloty,
Czech koruna, Hungarian forint and Slovakian koruna relative to
the euro, (vi) losses associated with a decrease in market
interest rates in U.S. dollar, Japanese yen and Chilean peso
markets and (vii) gains associated with a decline in the
value of the Romanian lei relative to the euro. The losses on
the cross-currency and interest rate derivative contracts for
2006 include a CLP 12.3 billion ($23.3 million at the
average exchange rate for the period) unrealized loss during the
second quarter of 2006 related to certain cross-currency and
interest rate derivative contracts entered into by VTR in
anticipation of the refinancing of its then existing credit
facility. Most of this unrealized loss is associated with the
market spreads contained in these contracts due to the large
notional amount of these contracts relative to the standard size
of similar transactions in Chile. The remaining losses during
2006 are attributable to the net effect of (i) gains
associated with increases in market interest rates,
(ii) losses associated with a decrease in the value of the
euro relative to the Swiss franc and (iii) losses
associated with a decrease in the value of the U.S. dollar
relative to the euro. |
|
(c) |
|
Represents the change in the fair value of the UGC Convertible
Notes 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, in our consolidated statements of operations. 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. |
For additional information concerning our derivative
instruments, see note 8 to our consolidated financial
statements. For information concerning the market sensitivity of
our derivative and financial instruments, see Quantitative
and Qualitative Disclosure about Market Risk below.
II-27
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,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
in millions
|
|
|
U.S. dollar denominated debt issued by a European subsidiary
|
|
$
|
221.0
|
|
|
$
|
193.4
|
|
Yen denominated debt issued by a U.S. subsidiary
|
|
|
(92.7
|
)
|
|
|
|
|
Euro denominated UGC Convertible Notes
|
|
|
(89.3
|
)
|
|
|
(63.5
|
)
|
Cash denominated in a currency other than the entities
functional currency
|
|
|
(55.2
|
)
|
|
|
5.6
|
|
U.S. dollar denominated debt issued by a Latin American
subsidiary
|
|
|
33.4
|
|
|
|
|
|
Swiss franc debt issued by a European subsidiary
|
|
|
21.5
|
|
|
|
12.8
|
|
Intercompany notes denominated in a currency other than the
entities functional currency
|
|
|
(18.7
|
)
|
|
|
76.3
|
|
Other
|
|
|
0.5
|
|
|
|
11.5
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
20.5
|
|
|
$
|
236.1
|
|
|
|
|
|
|
|
|
|
|
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 $212.6 million and $13.8 million during
2007 and 2006, respectively. The 2007 amount includes a
$206.6 million decline in the fair value of our Sumitomo
common stock and a $6.0 million decline in the fair value
of our ABC Family preferred stock. The 2006 amount is associated
with a decline in the fair value of our ABC Family preferred
stock. For additional information, see note 7 to our
consolidated financial statements.
Losses on
extinguishment of debt
We recognized losses on extinguishment of debt of
$112.1 million and $40.8 million during 2007 and 2006,
respectively. The losses during 2007 include (i) a
$88.3 million loss in connection with Telenets fourth
quarter 2007 refinancing transactions, which loss includes
(a) $71.8 million representing the excess of the
redemption values over the carrying values of the Telenet Senior
Discount Notes and the Telenet Senior Notes and
(b) $16.5 million related to the write-off of
unamortized deferred financing fees, (ii) a
$19.5 million loss resulting from the write-off of deferred
financing costs in connection with the May 2007 refinancing of
VTRs bank facility, (iii) an $8.4 million loss
resulting from the write-off of deferred financing costs in
connection with the second quarter 2007 refinancing of the UPC
Broadband Holding Bank Facility and (iv) a
$5.2 million gain on the April 2007 redemption of the
Cablecom Luxembourg Old Fixed Rate Notes.
The losses during 2006 include (i) a $22.2 million
write-off of deferred financing costs and creditor fees in
connection with the May and July 2006 refinancings of the UPC
Broadband Holding Bank Facility, (ii) a $7.6 million
loss associated with the first quarter 2006 redemption of the
Cablecom Luxembourg Old Floating Rate Notes, (iii) a
$4.6 million loss recognized by VTR in connection with the
September 2006 refinancing of its bank debt and (iv) a
$3.3 million loss recognized by J:COM in connection with
its refinancing activities. The gain on the April 2007
redemption of the Cablecom Luxembourg Old Fixed Rate Notes and
the loss on the first quarter 2006 redemption of the Cablecom
Luxembourg Floating Rate Senior Notes each represent the
difference between the redemption and carrying amounts at the
respective dates of redemption.
For additional information regarding our debt extinguishments,
see note 10 to our consolidated financial statements.
II-28
Gains on
disposition of assets, net
We recognized gains on the disposition of assets, net, of
$557.6 million and $206.4 million during 2007 and
2006, respectively. The gains during 2007 primarily are related
to the recognition of (i) a $489.3 million pre-tax
gain in connection with the July 2007 exchange of our interest
in SC Media for Sumitomo common stock and (ii) a
45.2 million ($62.2 million at the transaction
date) gain in connection with the July 2007 sale of Melita. The
gains during 2006 include (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.
For additional information regarding our dispositions, see
note 5 to our consolidated financial statements.
Income
tax benefit (expense)
We recognized income tax expense of $233.1 million and
income tax benefit of $7.9 million during 2007 and 2006,
respectively.
The income tax expense for 2007 differs from the expected income
tax expense of $17.4 million (based on the
U.S. federal 35% income tax rate) due primarily to the net
effect of (i) the negative impacts of (a) a reduction
in deferred tax assets in the Netherlands due to an enacted
change in tax law, (b) items that resulted in nondeductible
expenses in certain tax jurisdictions as well as differences
between the financial and tax accounting treatment of interest
expense, (c) a difference between the financial and tax
accounting treatment of provisions for litigation,
(d) differences in the statutory and local tax rates in
certain jurisdictions in which we operate and (e) the
write-off of goodwill not deductible for tax purposes related to
the sale of our investment in SC Media, and (ii) the
positive impacts of (a) certain permanent items associated
with investments in subsidiaries and affiliates and intercompany
loans and (b) the recognition of $34.6 million of
previously unrecognized tax benefits that met the FIN 48
recognition criteria during the period. Our effective tax rate
was not significantly impacted by changes in our valuation
allowances as (i) tax benefits of $86.3 million and
$29.0 million recognized by Telenet and J:COM,
respectively, upon the release of valuation allowances and
(ii) a tax benefit of $56.2 million recognized by the
Netherlands to reduce valuation allowances due to a tax rate
decrease, were more than offset by tax expense resulting from
the establishment of valuation allowances in other jurisdictions
against currently arising deferred tax assets. The full amount
of the tax benefit recognized by Telenet upon the release of
valuation allowances was allocated to the minority interest
owners of Telenet.
The income 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 net effect of (i) the
positive impact of a net decrease in our valuation allowance
established against deferred tax assets, including tax benefits
recognized in 2006 of $55.4 million associated with the
release of valuation allowances by J:COM, $30.4 million
associated with the release of valuation allowances by Austar
and $64.2 million 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 negative impacts of (a) a
reduction of deferred tax assets in the Netherlands due to an
enacted tax law change, (b) the impact of differences in
the statutory local tax rates in certain jurisdictions in which
we operate, (c) certain permanent items associated with
investments in subsidiaries and affiliates and intercompany
loans, (d) the realization of taxable foreign currency
gains and losses in certain jurisdictions not recognized for
financial reporting purposes and (e) items that resulted in
nondeductible expenses in certain tax jurisdictions as well as
differences between the financial and tax accounting treatment
of interest expense.
For additional information, see note 12 to our consolidated
financial statements.
2006
compared to 2005
Revenue
Our total consolidated revenue increased $1,966.6 million
during 2006, as compared to 2005. This increase includes a
$1,417.0 million increase that is attributable to the
impact of acquisitions. Excluding the effects of
II-29
acquisitions and foreign exchange rate fluctuations, total
consolidated revenue increased $560.0 million or 12.4%
during 2006, as compared to 2005. As discussed in greater detail
under Discussion and Analysis of Reportable
Segments Revenue 2006 compared to 2005
above, most of these increases are attributable to RGU
growth.
Operating
expenses
Our total consolidated operating expenses increased
$849.1 million during 2006, as compared to 2005. This
increase includes a $616.8 million increase that is
attributable to the impact of acquisitions. Our operating
expenses include stock-based compensation expense, which
decreased $2.9 million during 2006. For additional
information, see discussion following SG&A expenses
below. Excluding the effects of acquisitions, foreign exchange
rate fluctuations and stock-based compensation expense, total
consolidated operating expenses increased $238.3 million or
12.4% during 2006, as compared to 2005. As discussed in more
detail under Discussion and Analysis of Reportable
Segments Operating Expenses 2006
compared to 2005 above, this increase generally reflects
(i) increases in programming costs, (ii) increases in
labor costs, (iii) increases in 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
expenses
Our total consolidated SG&A expenses increased
$379.9 million during 2006, as compared to 2005. This
increase includes a $307.1 million increase that is
attributable to the impact of acquisitions. Our SG&A
expenses include stock-based compensation expense, which
increased $13.9 million during 2006. For additional
information, see discussion in the following paragraph.
Excluding the effects of acquisitions, foreign exchange rate
fluctuations and stock-based compensation expense, total
consolidated SG&A expenses increased $58.4 million or
5.8% during 2006, as compared to 2005. As discussed in more
detail under Discussion and Analysis of Reportable
Segments SG&A Expenses 2006
compared to 2005 above, this increase generally reflects
(i) increases in labor costs, (ii) increases in
marketing and advertising costs and sales commissions and
(iii) less significant net decreases in other expense
categories. The increases in our labor costs primarily are a
function of the increased levels of activity associated with the
increase in our customer base. 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.
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 and the shares of
certain of our subsidiaries.
II-30
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
|
|
|
|
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 and vest on a graded basis. Most
of the LGI stock incentive awards outstanding during 2005 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 2 and 14 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 increases associated with
(i) capital expenditures related to the installation of
customer premise equipment, the expansion and upgrade of our
networks and other capital initiatives and
(ii) 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 cable to digital cable services and the
upgrade of J:COMs broadband communications network.
Impairment,
restructuring and other operating charges, net
We incurred impairment, restructuring and other operating
charges, net of $29.2 million and $4.5 million during
2006 and 2005, respectively. The 2006 amount includes
restructuring charges aggregating $10.8 million
II-31
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. These amounts also include various individually
insignificant impairments of our property and equipment and
intangible assets. For additional information concerning our
restructuring charges, see note 17 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,
(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 expense on the
LG Switzerland PIK Loan Facility. 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 3, 4 and 10 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.
Share of
results of affiliates, net
The following table reflects our share of results of affiliates,
net, including any losses related to other-than-temporary
declines in fair value:
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
in millions
|
|
|
SC Media
|
|
$
|
34.4
|
|
|
$
|
27.8
|
|
Telenet
|
|
|
(24.3
|
)
|
|
|
(33.5
|
)
|
Mediatti
|
|
|
(5.3
|
)
|
|
|
(6.9
|
)
|
XYZ Network
|
|
|
4.3
|
|
|
|
|
|
Melita
|
|
|
3.7
|
|
|
|
3.7
|
|
TKP Poland
|
|
|
(1.2
|
)
|
|
|
(0.4
|
)
|
Austar
|
|
|
|
|
|
|
13.1
|
|
Other
|
|
|
1.4
|
|
|
|
(26.8
|
)
|
|
|
|
|
|
|
|
|
|
Total (a)
|
|
$
|
13.0
|
|
|
$
|
(23.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
The 2005 amount includes losses related to other-than-temporary
declines in fair value of $29.2 million, primarily related
to our then investment in TyC (included in other in the above
table).
|
II-32
For additional information concerning our equity method
affiliates, see note 6 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
|
|
|
|
in millions
|
|
|
Cross-currency and interest rate derivative contracts (a)
|
|
$
|
(312.0
|
)
|
|
$
|
216.0
|
|
UGC Convertible Notes (b)
|
|
|
(82.8
|
)
|
|
|
|
|
Equity-related derivatives (c)
|
|
|
21.7
|
|
|
|
78.8
|
|
Foreign exchange contracts
|
|
|
21.3
|
|
|
|
11.7
|
|
Other
|
|
|
4.2
|
|
|
|
3.5
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(347.6
|
)
|
|
$
|
310.0
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
The losses on the cross-currency and interest rate derivative
contracts for 2006 include a CLP 12.3 billion
($23.3 million at the average exchange rate for the period)
unrealized loss during the second quarter of 2006 related to
certain cross-currency and interest rate derivative contracts
entered into by VTR in anticipation of the refinancing of its
then existing credit facility. Most of this unrealized loss is
associated with the market spreads contained in these contracts
due to the large notional amount of these contracts relative to
the standard size of similar transactions in Chile. The
remaining losses during 2006 are attributable to the net effect
of (i) gains associated with increases in market interest
rates, (ii) losses associated with a decrease in the value
of the euro relative to the Swiss franc and (iii) losses
associated with a decrease in the value of the U.S. dollar
relative to the euro. The gains on the cross-currency and
interest rate derivative 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) |
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, in our consolidated statements of operations. 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.
|
|
|
(c) |
Includes (i) gains and losses during 2006 and 2005
associated with (a) the embedded derivative component of
the forward sale of News Corp. Class A common stock and
(b) the call options that we held with respect to Telenet
ordinary shares and (ii) gains during 2005 associated with
the embedded derivative component of the UGC Convertible Notes.
As discussed in note 3 to our consolidated financial
statements, we changed our method of accounting for the UGC
Convertible Notes effective January 1, 2006.
|
For additional information concerning our derivative
instruments, see note 8 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.
II-33
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
|
|
|
|
in millions
|
|
|
U.S. dollar denominated debt issued by a European subsidiary
|
|
$
|
193.4
|
|
|
$
|
(219.8
|
)
|
Intercompany notes denominated in a currency other than the
entities functional currency
|
|
|
76.3
|
|
|
|
(17.0
|
)
|
Euro denominated UGC Convertible Notes
|
|
|
(63.5
|
)
|
|
|
64.2
|
|
Swiss franc debt issued by a European subsidiary
|
|
|
12.8
|
|
|
|
0.7
|
|
Cash denominated in a currency other than the entities
functional currency
|
|
|
5.6
|
|
|
|
(33.0
|
)
|
Other
|
|
|
11.5
|
|
|
|
(4.3
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
236.1
|
|
|
$
|
(209.2
|
)
|
|
|
|
|
|
|
|
|
|
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 regarding our debt
extinguishments, see note 10 to our consolidated financial
statements.
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
note 5 to our consolidated financial statements.
II-34
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 income 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 the net effect of
(i) the positive impact of a net decrease in our valuation
allowance established against deferred tax assets, including tax
benefits recognized in 2006 of $55.4 million associated
with the release of valuation allowances by J:COM,
$30.4 million associated with the release of valuation
allowances by Austar and $64.2 million 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 negative impacts
of (a) a reduction of deferred tax assets in the
Netherlands due to an enacted tax law change, (b) the
impact of differences in the statutory local tax rates in
certain jurisdictions in which we operate, (c) certain
permanent items associated with investments in subsidiaries and
affiliates and intercompany loans, (d) the realization of
taxable foreign currency gains and losses in certain
jurisdictions not recognized for financial reporting purposes
and (e) items that resulted in nondeductible expenses in
certain tax jurisdictions 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 the net effect of
(i) the positive impacts of (a) the realization of
taxable foreign currency gains and losses in certain
jurisdictions not recognized for financial reporting purposes
and (b) a net decrease in our valuation allowance
established against deferred tax assets, including a tax benefit
of $108.1 million 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, and
(ii) the negative impacts of (a) items that resulted
in nondeductible expenses in certain tax jurisdictions as well
as differences between the financial and tax accounting
treatment of interest expense, (b) the reduction of
deferred tax assets in the Netherlands due to an enacted tax law
change and (c) certain permanent items associated with
investments in subsidiaries and affiliates and intercompany
loans.
For additional information, see note 12 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, Telenet, VTR, Austar,
Chellomedia and Liberty Puerto Rico, may restrict our ability to
access the assets of these subsidiaries. As set forth in the
table below, these subsidiaries accounted for a significant
portion of our consolidated cash and cash equivalents at
December 31, 2007. In addition, our ability to access the
liquidity of these and other subsidiaries may be limited by tax
considerations, the presence of minority interest owners and
other factors.
II-35
Cash and
cash equivalents
The details of the U.S. dollar equivalent balances of our
consolidated cash and cash equivalents at December 31, 2007
are set forth in the following table. With the exception of LGI
and UPC Holding, which are reported on a stand alone basis, the
amounts reported below include the cash and cash equivalents of
the named entity and its subsidiaries unless otherwise noted (in
millions):
|
|
|
|
|
Cash and cash equivalents held by:
|
|
|
|
|
LGI and non-operating subsidiaries:
|
|
|
|
|
LGI
|
|
$
|
61.9
|
|
Non-operating subsidiaries
|
|
|
1,349.9
|
|
|
|
|
|
|
Total LGI and non-operating subsidiaries
|
|
|
1,411.8
|
|
|
|
|
|
|
Operating subsidiaries:
|
|
|
|
|
UPC Broadband Division:
|
|
|
|
|
UPC Holding
|
|
|
1.1
|
|
UPC Broadband Holding (excluding VTR)
|
|
|
156.9
|
|
J:COM
|
|
|
204.8
|
|
Telenet
|
|
|
111.7
|
|
VTR
|
|
|
66.1
|
|
Chellomedia
|
|
|
48.3
|
|
Austar
|
|
|
26.2
|
|
Liberty Puerto Rico
|
|
|
4.9
|
|
Other operating subsidiaries
|
|
|
3.7
|
|
|
|
|
|
|
Total operating subsidiaries
|
|
|
623.7
|
|
|
|
|
|
|
Total cash and cash equivalents
|
|
$
|
2,035.5
|
|
|
|
|
|
|
Liquidity
of LGI and its Non-operating Subsidiaries
The $61.9 million of cash and cash equivalents held by LGI,
and subject to certain tax considerations, the
$1,349.9 million of cash and cash equivalents held by
LGIs non-operating subsidiaries represented available
liquidity at the corporate level at December 31, 2007. Our
remaining cash and cash equivalents of $623.7 million at
December 31, 2007 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) cash and cash equivalents
held by LGI and, subject to certain tax considerations,
LGIs non-operating subsidiaries, (ii) interest and
dividend income received on our cash and cash equivalents and
investments and (iii) proceeds received upon the exercise
of stock options. LGI also has access to $215.0 million of
borrowings pursuant to the LGI Credit Facility. At
December 31, 2007, the full amount of the LGI Credit
Facility was available to be drawn.
From time to time, LGI and its non-operating subsidiaries may
also receive (i) proceeds in the form of distributions or
loan repayments from LGIs operating subsidiaries or
affiliates upon the completion of recapitalizations,
refinancings, asset sales or similar transactions by these
entities, (ii) proceeds upon the disposition of investments
and other assets of LGI and its non-operating subsidiaries and
(iii) proceeds received in connection with borrowings by
LGI and its non-operating subsidiaries. In this regard, during
2007, a significant amount of cash was transferred from
LGIs operating subsidiaries to LGI and its non-operating
subsidiaries in the form of loans, loan repayments and
distributions, including distributions received from Telenet and
Austar in November 2007 of 335.2 million
($491.4 million at the transaction date) and AUD
160.1 million ($146.8 million at the transaction
date), respectively, that were funded by debt refinancings. In
addition to the above-described cash transfers from our
operating subsidiaries, certain of our non-operating
subsidiaries raised cash proceeds upon the completion of new
derivative transactions and debt facilities during 2007. In this
regard, in June 2007, Liberty Programming Japan
II-36
received ¥93.660 billion ($757.6 million at the
transaction date) pursuant to the Sumitomo Collar Loan and in
November 2007, LGJ Holdings borrowed ¥75.0 billion
($655.0 million at the transaction date) pursuant to the
LGJ Holdings Credit Facility. We used the cash received from our
operating and non-operating subsidiaries primarily to fund
purchases of LGI common stock and to repay and make loans to our
subsidiaries. For additional information, see notes 8, 10
and 13 to our consolidated financial statements.
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, the Sumitomo
Collar Loan, the LGJ Holdings Credit Facility and any borrowings
outstanding under the LGI Credit Facility. From time to time,
LGI and its non-operating subsidiaries may also require funding
in connection with the satisfaction of contingent liabilities,
acquisitions, the repurchase of LGI common stock, or other
investment opportunities. In light of current market conditions,
no assurance can be given that any such funding would be
available on favorable terms, or at all.
Pursuant to our stock repurchase programs and our January 2007,
April 2007 and September 2007 self-tender offers, we repurchased
during 2007 a total of 24,119,005 shares of our LGI
Series A common stock at a weighted average price of $36.66
per share and 26,843,180 shares of our LGI Series C
common stock at a weighted average price of $36.39 per share,
for an aggregate purchase price of $1,861.0 million,
including direct acquisition costs.
At December 31, 2007, the remaining amount authorized under
the 2007 Repurchase Plan was $60.6 million. In January
2008, we purchased the remaining amount authorized under the
2007 Repurchase Plan and our board of directors authorized the
2008 Repurchase Plan, which provides for additional repurchases
of up to $500 million of our LGI Series A and
Series C common stock or any combination of our LGI
Series A and Series C common stock. At
February 21, 2008, the remaining amount authorized under
the 2008 Repurchase Plan was $170.7 million.
Liquidity
of 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
UPC Broadband Holding, VTR, Telenet, J:COM, Austar and Liberty
Puerto Rico, borrowing availability under their respective debt
instruments. For the details of the borrowing availability of
such entities at December 31, 2007, see note 10 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, recapitalizations or other
investment opportunities. In light of current market conditions,
no assurance can be given that any such funding would be
available on favorable terms, or at all.
We began consolidating Telenet effective January 1, 2007.
As a result, we experienced a significant increase in our
consolidated debt and capital lease obligations and our
consolidated operating cash flow. Including the effects of the
refinancing and recapitalization transactions that Telenet
completed during the fourth quarter of 2007, Telenets
total outstanding indebtedness, including capital lease
obligations, was 2,039.0 million
($2,973.6 million) at December 31, 2007. For
information concerning Telenets debt instruments, see
note 10 to our consolidated financial statements.
During 2007, we paid cash to acquire significant additional
interests in Telenet. For information concerning our acquisition
of Telenet interests and other acquisitions and dispositions
that were completed during 2007, see note 4 to our
consolidated financial statements.
On November 1, 2007, Austar used available borrowings under
the 2007 Austar Bank Facility to fund the distribution of AUD
299.9 million ($274.8 million at the transaction date)
to its shareholders. On November 19, 2007, Telenet
commenced the distribution of 655.9 million
($961.6 million at the transaction date) to its
shareholders. The Telenet distribution was funded with available
borrowings under the 2007 Telenet Credit Facility.
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,
II-37
2007 consolidated debt to our annualized consolidated operating
cash flow for the quarter ended December 31, 2007 was 4.8
and the ratio of our December 31, 2007 consolidated net
debt (debt less cash and cash equivalents and restricted cash
balances related to our debt instruments) to our annualized
consolidated operating cash flow for the quarter ended
December 31, 2007 was 4.1.
When it is cost effective, 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 8 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 2007, LGI, UPC Broadband Holding, Telenet, Liberty
Programming Japan, Austar, LGJ Holdings and Liberty Puerto Rico
completed financing transactions. The proceeds from these
financing transactions generally were used to repay existing
debt and make distributions or loans to LGI and its
non-operating subsidiaries.
At December 31, 2007, our outstanding consolidated debt and
capital lease obligations aggregated $18.4 billion,
including $383.2 million that is classified as current 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 2008 and to
fund our foreseeable liquidity requirements. Accordingly, we do
not believe that the recent adverse changes in the credit
markets will adversely impact our ability to meet our
foreseeable financial obligations.
All of our outstanding debt and capital lease obligations at
December 31, 2007 had been borrowed or incurred by our
subsidiaries. For additional information concerning our debt
balances at December 31, 2007, see note 10 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.
2007
Consolidated Cash Flow Statement
General. During 2007, we used net cash
provided by our operating activities of $2,549.8 million,
net cash provided by our financing activities of
$341.1 million and $6.0 million of our existing cash
and cash equivalent balances (excluding a $161.0 million
increase due to changes in foreign exchange rates) to fund net
cash used by our investing activities of $2,896.9 million.
Operating Activities. Net cash flows from
operating activities increased $671.8 million, from
$1,878.0 million during 2006 to $2,549.8 million
during 2007. This increase, which includes the effects of
changes in foreign currency exchange rates, primarily is
attributable to an increase in revenue during 2007 that was only
partially offset by (i) increases in cash used for our
operating and SG&A expenses, (ii) an increase in cash
paid for interest and (iii) an increase in cash used as a
result of changes in our working capital accounts.
Investing Activities. Net cash used by
investing activities during 2007 was $2,896.9 million,
compared to $104.4 million during 2006. This change, which
includes the effects of changes in foreign currency exchange
rates, primarily is attributable to (i) the 2006 receipt of
$2,548.1 million of proceeds upon the disposition of
discontinued operations, net of disposal costs, and (ii) a
$526.6 million increase in capital expenditures.
The UPC Broadband Division accounted for $1,068.8 million
and $822.1 million of our consolidated capital expenditures
during 2007 and 2006, respectively. The increase in the capital
expenditures of the UPC Broadband Division primarily is due to
(i) increased expenditures for new build and upgrade
projects to expand services and improve our competitive
position, (ii) increased expenditures for the purchase and
installation of customer premise equipment, (iii) increases
due to the effects of acquisitions and (iv) other factors
such as information technology upgrades and expenditures for
general support systems. During 2007 and 2006, the UPC Broadband
Divisions capital expenditures represented 27.1% and
25.1%, respectively, of its revenue.
II-38
Our Telenet segment accounted for $237.6 million and
$4.5 million of our consolidated capital expenditures
during 2007 and 2006, respectively. This increase primarily is
attributable to our consolidation of Telenet effective
January 1, 2007. Telenet uses capital lease arrangements to
finance a portion of its capital expenditures. Including
$22.7 million of expenditures that were financed under
capital lease arrangements, Telenets capital expenditures
aggregated $260.3 million during 2007. Telenets
capital expenditures during the 2007 period primarily relate to
(i) expenditures for new build and upgrade projects to
expand services, (ii) the purchase and installation of
customer premise equipment and (iii) other factors such as
expenditures for buildings and general support systems. During
2007, the capital expenditures of our Telenet (Belgium) segment
(including amounts financed under capital lease arrangements)
represented 20.2% of its revenue.
J:COM accounted for $395.5 million and $416.7 million
of our consolidated capital expenditures during 2007 and 2006,
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 $161.0 million and
$149.4 million of expenditures that were financed under
capital lease arrangements, J:COMs capital expenditures
aggregated $556.5 million and $566.1 million during
2007 and 2006, respectively. The decrease in J:COMs
capital expenditures (including amounts financed under capital
lease arrangements) is primarily due to the net effect of
(i) lower expenditures for new build and upgrade projects
to expand services, (ii) increased expenditures related to
the effects of acquisitions and (iii) increased
expenditures for the purchase and installation of customer
premise equipment. During 2007 and 2006, J:COMs capital
expenditures (including amounts financed under capital lease
arrangements) represented 24.7% and 29.8%, respectively, of its
revenue.
VTR accounted for $157.7 million and $138.2 million of
our consolidated capital expenditures during 2007 and 2006,
respectively. The increase in the capital expenditures of VTR is
primarily due to (i) increased expenditures related to
information technology upgrades and expenditures for general
support systems, (ii) increased costs for the purchase and
installation of customer premise equipment and
(iii) increased expenditures for new build and upgrade
projects to expand services and improve our competitive position
and to meet increased traffic and certain regulatory
commitments. During 2007 and 2006, VTRs capital
expenditures represented 24.8% and 24.7%, respectively, of its
revenue.
We expect that the percentage of revenue represented by the 2008
capital expenditures (including capital lease additions) of each
of the UPC Broadband Division, Telenet, J:COM and VTR generally
will approximate each entitys comparable
2007 percentage, as set forth above. The actual amount of
the 2008 capital expenditures of the UPC Broadband Division,
Telenet, J:COM and VTR may vary from the expected amounts for a
variety of reasons, including (i) changes in (a) the
competitive or regulatory environment, (b) business plans
or (c) our current or expected future operating results,
and (ii) the availability of sufficient capital.
Accordingly, no assurance can be given that actual results will
not vary materially from our expectations.
Financing Activities. Net cash provided by
financing activities during 2007 was $341.1 million,
compared to net cash used by financing activities of
$1,211.8 million during 2006. This change, which includes
the effects of changes in foreign currency exchange rates,
primarily is attributable to (i) a $1,546.7 million
increase in cash received from net borrowings of debt and
capital lease obligations, (ii) a $400.4 million
increase related to changes in cash collateral and (iii) a
$106.4 million increase in proceeds received from the
issuance of stock by our subsidiaries. These increases were
partially offset by (i) a $501.2 million increase in
cash distributions by our subsidiaries to minority interest
holders and (ii) a $39.9 million increase in cash paid
to repurchase our LGI Series A and Series C common
stock.
2006
Consolidated Cash Flow Statement
General. 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).
II-39
Operating Activities. Net cash flows from
operating activities increased $301.9 million, from
$1,576.1 million during 2005 to $1,878.0 million
during 2006. This increase, which includes the effects of
changes in foreign currency exchange rates, primarily is
attributable to increases in revenue and cash provided as a
result of changes in our working capital accounts during 2006
that were only partially offset by increases in cash used for
our operating and SG&A expenses and an increase in cash
paid for interest.
Investing Activities. Net cash used by
investing activities during 2006 was $104.4 million,
compared to $4,934.7 million during 2005. This change,
which includes the effects of changes in foreign currency
exchange rates, primarily is attributable to the net effect of
(i) the 2006 receipt of $2,548.1 million of proceeds
upon the disposition of discontinued operations, net of disposal
costs, (ii) a $2,332.1 million decrease in cash paid
in connection with acquisitions, net of cash acquired, and
(iii) a $461.7 million increase in capital
expenditures.
The UPC Broadband Division accounted for $822.1 million and
$534.6 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 cable, broadband Internet
and VoIP telephony services, with the Netherlands digital
migration program accounting for most of the growth in digital
cable RGUs. During 2006 and 2005, the UPC Broadband
Divisions capital expenditures represented 25.1% and
24.9%, respectively, of its revenue.
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 29.8% and 30.3%, respectively,
of its revenue.
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 cable, broadband Internet and VoIP
telephony services and (ii) increased expenditures for new
build and upgrade projects to expand digital cable 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.
Financing Activities. Net cash used by
financing activities during 2006 was $1,211.8 million,
compared to cash provided by financing activities of
$2,191.8 million during 2006. This change, which includes
the effects of changes in foreign currency exchange rates,
primarily is attributable to the net effect of (i) a
$1,678.0 million increase in cash paid to repurchase common
stock, (ii) a $464.9 million decrease in cash received
from net borrowings of debt and capital lease obligations and
(iii) a $855.1 million decrease in cash proceeds
received from the issuance of stock by our subsidiaries.
Off
Balance Sheet Arrangements and Aggregate Contractual
Obligations
Off
Balance Sheet Arrangements
At December 31, 2007, J:COM guaranteed
¥7.9 billion ($70.7 million) of the debt of
certain of its non-consolidated investees. The maturities of the
guaranteed debt range from 2008 to 2014.
II-40
In the ordinary course of business, we have provided
indemnifications to (i) purchasers of certain of our
assets, (ii) our lenders, (iii) our vendors and
(iv) other parties. In addition, we have provided
performance
and/or
financial guarantees to local municipalities, our customers and
vendors. Historically, these arrangements have not resulted in
our company making any material payments and we do not believe
that they will result in material payments in the future.
As further described in note 20 to our consolidated
financial statements, we have a number of contingent obligations
pursuant to which our co-investors in certain entities could
require us to purchase their ownership interests.
Contractual
Commitments
As of December 31, 2007, the U.S. dollar equivalent
(based on December 31, 2007 exchange rates) of our
consolidated contractual commitments are as follows:
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Payments due during
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2008
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2009
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2010
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2011
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2012
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Thereafter
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Total
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in millions
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Debt (excluding interest)
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$
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243.8
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$
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308.4
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$
|
207.6
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$
|
385.3
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$
|
1,699.6
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|
|
$
|
14,726.3
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$
|
17,571.0
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Capital leases (excluding interest)
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139.4
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|
|
|
126.6
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|
|
|
111.7
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|
|
|
82.9
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|
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55.1
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|
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88.0
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|
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603.7
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Operating leases
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174.9
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129.5
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103.2
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63.8
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45.3
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133.9
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650.6
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Programming, satellite and other purchase obligations
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277.9
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|
|
108.7
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|
43.5
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|
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15.3
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|
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9.3
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|
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33.3
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|
|
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488.0
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Other commitments
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|
24.9
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|
|
9.8
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|
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8.4
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|
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5.8
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4.3
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|
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291.3
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|
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344.5
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|
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Total (a)
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$
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860.9
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$
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683.0
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$
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474.4
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|
|
$
|
553.1
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|
|
$
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1,813.6
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|
|
$
|
15,272.8
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|
|
$
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19,657.8
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|
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|
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Projected cash interest payments on debt and capital lease
obligations (b)
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$
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1,215.9
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$
|
1,018.9
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|
|
$
|
1,009.1
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|
|
$
|
999.0
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|
|
$
|
982.0
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$
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1,988.3
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$
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7,213.2
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(a) |
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The commitments reflected in this table do not reflect any
liabilities that are included in our December 31, 2007
balance sheet other than debt and capital lease obligations. Our
liability for uncertain tax positions in the various
jurisdictions in which we operate ($97.6 million at
December 31, 2007) has been excluded from the table as
the amount and timing of any related payments are not subject to
reasonable estimation. |
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(b) |
|
Amounts are based on interest rates and contractual maturities
in effect as of December 31, 2007. The amounts presented do
not include the impact of our interest rate derivative
agreements, deferred financing costs or commitments fees, all of
which affect our overall cost of borrowing. |
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-41
Other commitments relate primarily to Telenets fixed
minimum commitments in years 21 through 50 of its agreements
with the PICs, and other fixed minimum contractual commitments
associated with our agreements with franchise or municipal
authorities. For a further description of Telenets
commitments with respect to its agreements with the PICs, see
note 10 to our consolidated financial statements.
In addition to the commitments set forth in the table above, we
have commitments under derivative instruments and 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 affect the
reported amounts of assets and liabilities, revenue and
expenses, and related disclosure of contingent assets and
liabilities. Critical accounting policies are defined as those
policies that are reflective of significant judgments, estimates
and uncertainties, which would potentially result in materially
different results under different assumptions and conditions. We
believe the following accounting policies are critical in the
preparation of our consolidated financing statements because of
the judgment necessary to account for these matters and the
significant estimates involved, which are susceptible to change:
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Impairment of long-lived assets and indefinite-lived assets;
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Costs associated with construction and installation activities;
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Useful lives of long-lived assets;
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Fair value of acquisition-related assets and liabilities;
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Income tax accounting;
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Derivative instruments;
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Carrying value of investments.
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We have discussed the selection of the aforementioned critical
accounting policies with the Audit Committee of our Board of
Directors. For additional information concerning our accounting
policies, see note 2 to our consolidated financial
statements.
Impairment
of Long-Lived and Indefinite-Lived Assets
Carrying Value. The aggregate carrying value
of our property and equipment and intangible assets (including
goodwill) that were held for use comprised 79% and 78% of the
total assets of our continuing operations at December 31,
2007 and 2006, 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 review, when circumstances
warrant, the carrying amounts of our property and equipment and
our intangible assets (other than goodwill and indefinite-lived
intangible assets) to determine whether such carrying amounts
continue to be recoverable. Such events or changes in
circumstance may include, among others, an expectation of a sale
or disposal of a long-lived asset or asset group, adverse
changes in market or competitive conditions, an adverse change
in legal factors or business climate in the markets in which we
operate, and operating or cash flow losses. If the carrying
amount of the asset or asset group 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. 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
II-42
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.
Under both SFAS 144 and SFAS 142, considerable
management judgment is necessary to estimate the fair value of
reporting units and underlying long-lived and indefinite-lived
assets. We typically determine fair value using an income-based
or, in some cases, a market-based approach, based on assumptions
in our long-range business plans, which we update at least
annually. The timing and amount of future cash flows under these
business plans require estimates, among others, of subscriber
growth rates and churn, rates charged per product, expected
gross margin and operating cash flow margin and expected capital
expenditures. The development of these cash flows, and the
discount rate applied to the cash flows, is subject to inherent
uncertainties, and actual results could vary significantly from
such estimates.
In order to evaluate the sensitivity of our reporting unit fair
value determinations used for our goodwill impairment
calculations, we applied a hypothetical 10% decrease in the
estimated fair value of each reporting unit. Such hypothetical
decrease would have had no impact on the impairment analysis for
all but one of our reporting units. A hypothetical decline of
10% in the estimated fair value of such reporting unit at
October 1, 2007 would have resulted in an excess of
carrying value over estimated fair value. Based on the estimated
implied fair value of this reporting units goodwill, the
hypothetical decline would have resulted in a loss on impairment
of goodwill of approximately $110 million.
In 2007, 2006 and 2005, we recorded impairments of our property
and equipment and intangible assets aggregating
$12.3 million, $15.5 million and $8.3 million,
respectively.
Costs
Associated with Construction and Installation
Activities
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.
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.
The nature and amount of labor and other costs to be capitalized
with respect to construction and installation activities
involves significant judgment. In addition to direct external
and internal labor and materials, we also capitalize other costs
directly attributable to our construction and installation
activities, including dispatch costs, quality control costs,
vehicle-related costs, certain warehouse expenses and tools. We
continuously monitor the appropriateness of our capitalization
policy and update the policy when necessary to respond to
changes in facts and circumstances, such as the development of
new products and services, and changes in the manner that
installations or construction activities are performed.
Useful
Lives of Long-Lived Assets
We depreciate our property and equipment on a straight-line
basis over the estimated economic useful life of the assets. The
determination of the economic useful lives of property and
equipment requires significant management judgment, based on
factors such as the estimated physical lives of the assets,
technological change, changes in anticipated use, legal and
economic factors, rebuild and equipment swap-out plans, and
other factors. Our intangible assets with definite lives
primarily consist of customer relationships. Customer
relationship intangibles are amortized on a straight-line basis
over the estimated weighted average life of the customer
relationships. The determination of customer relationship
intangible assets requires significant management judgment, and
is primarily based on historical and forecasted churn rates,
adjusted when necessary for risk associated with demand,
competition, technical changes and other economic factors. We
regularly review whether
II-43
changes to estimated useful lives are required in order to
accurately reflect the economic use of our property and
equipment and intangible assets with definite lives. Any changes
to estimated useful lives are reflected prospectively beginning
in the period that the change is deemed necessary. Depreciation
and amortization expense for 2007, 2006 and 2005 was
$2,493.1 million, $1,884.7 million and
$1,274.0 million, respectively. A 10% increase in the
aggregate amount of our depreciation and amortization expense
during 2007 would have resulted in a $249.3 million or
37.4% decrease in our 2007 operating income.
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. From December 31, 2004 to December 31,
2007, our long-lived assets increased by $18.3 billion or
242%. A significant portion of this increase is attributable to
the identifiable long-lived assets of acquired companies for
which we were required to assess fair values in connection with
our determination of the respective purchase price allocations.
For additional information concerning our purchase price
allocations, see note 4 to our consolidated financial
statements.
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 strategies. At
December 31, 2007, the aggregate valuation allowance
provided against deferred tax assets was $2,333.7 million.
The actual amount of deferred income tax benefits realized in
future periods may differ from the net deferred tax assets
reflected in our December 31, 2007 balance sheet 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.
Tax laws in jurisdictions in which we operate are subject to
varied interpretation, and many tax positions we take are
subject to significant uncertainty regarding whether the
position will be ultimately sustained after review by the
relevant tax authority. We recognize the financial statement
effects of a tax position when it is more-likely-than-not, based
on technical merits, that the position will be sustained upon
examination. The determination of whether the tax position meets
the more-likely-than-not threshold requires a facts-based
judgment using all information available. In a number of cases,
we have concluded that the more-likely-than-not threshold is not
met, and accordingly, the amount of tax benefit recognized in
the financial statements is different than the amount taken or
expected to be taken in our tax returns. As of December 31,
2007, the amount of unrecognized tax benefits for
II-44
financial reporting purposes, but taken or expected to be taken
on tax returns, was equal to $570.0 million. We are
required to continually assess our tax positions, and the
results of tax examinations or changes in judgment can result in
substantial changes to our unrecognized tax benefits.
We have taxable outside basis differences on certain investments
in foreign subsidiaries. We do not recognize the deferred tax
liabilities associated with these outside basis differences when
the difference is considered essentially permanent in duration.
In order to be considered essentially permanent in duration,
sufficient evidence must indicate that the foreign subsidiary
has invested or will invest its undistributed earnings
indefinitely, or that earnings will be remitted in a tax-free
liquidation. If circumstances change and it becomes apparent
that some or all of the undistributed earnings will be remitted
in the foreseeable future, a deferred tax liability must be
recorded for some or all of the outside basis difference. The
assessment of whether these outside basis differences are
considered permanent in nature requires significant judgment and
is based on management intentions to reinvest the earnings of a
foreign subsidiary indefinitely and other relevant factors. As
of December 31, 2007, we have approximately
$2.8 billion of taxable outside basis differences that have
not been recognized. If our plans or intentions change in the
future, the recognition of all or a part of these outside basis
differences would have a significant impact our consolidated
income tax expense and net earnings (loss).
For additional information concerning our income taxes, see
note 12 to our consolidated financial statements.
Derivative
Instruments
As further described in note 8 to our consolidated
financial statements, we have entered into various derivative
instruments, including interest rate and foreign currency
derivative instruments. All derivatives are required to be
recorded on the balance sheet at fair value.
We use models based on published par yield curves, which are
adjusted quarterly, from which zero coupon yield curves, forward
rates and discount factors are derived to estimate the fair
value of certain cross currency and interest rate derivative
instruments that we hold. Certain of the inputs to these models
are subject to judgment given liquidity and other considerations
that may impact our fair value determinations. Considerable
management judgment is required in estimating these variables,
which for certain currencies includes the judgment as to which
yield curve to use.
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
applicable 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.
For information concerning the sensitivity of the fair value of
certain of our more significant derivative instruments to
changes in market conditions, see Quantitative and
Qualitative Disclosures About Market Risk Derivative
Instruments below. See also note 8 to our consolidated
financial statements.
Carrying
Value of Investments
We continually review our investments to determine if decreases
in fair value below carrying value are other than temporary. If
a decline in fair value is considered other than temporary, we
are required to record such decline as a loss in our statement
of operations.
The primary factors we consider in our determination are the
extent and length of time that the fair value of the investment
is below our companys carrying value, the financial
condition, operating performance and near-term prospects of the
investee, changes in the stock price or valuation subsequent to
the balance sheet date, and the impacts of exchange rates, if
applicable. In addition, we consider the reason for the decline
in fair value, such as
II-45
(i) general market conditions and (ii) industry
specific or investee specific factors, as well as our intent and
ability to hold the investment for a period of time sufficient
to allow for a recovery in fair value. Fair values of publicly
traded investments are based on the market prices of the
investments on the balance sheet date. We estimate the fair
values of our other cost and equity method investments using a
variety of methodologies, including cash flow multiples,
discounted cash flows, or values of comparable public or private
companies. As our assessment of the fair value of our
investments and any resulting impairment losses and the timing
of when to recognize such charges requires a high degree of
judgment and includes significant estimates and assumptions,
actual results could differ materially from our estimates and
assumptions.
During the fourth quarter of 2007, we recognized a pre-tax loss
on impairment of $206.6 million related to our investment
in Sumitomo. The amount of the impairment was based on the
publicly traded market price of Sumitomo shares as of
December 31, 2007. The decline in fair value was considered
other than temporary primarily due to the extent and length of
time that fair value was below carrying value and uncertainties
regarding the near-term prospects for the recovery of the market
price of Sumitomo shares. For additional information, see
note 7 to our consolidated financial statements.
We have elected the fair value option for certain of our cost
and equity methods pursuant to SFAS 159. Beginning on
January 1, 2008, changes in fair value for these
investments will be recorded in earnings each period, and as
such, these investments will no longer be subject to judgment
regarding other than temporary impairment. Rather,
managements judgment with respect to these investments
will be focused on estimating appropriate fair value
measurements. The fair value option has been elected for our
investments in Sumitomo, News Corp., and a number of equity
method investments.
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Item 7A.
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QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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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 euros, Japanese yen and, to a lesser degree,
other currencies. At December 31, 2007, our European
subsidiaries held cash balances of $1,242.3 million that
were denominated in euros and J:COM held cash balances of
$204.8 million that were denominated in Japanese yen.
Subject to applicable debt covenants, these euro and Japanese
yen cash balances are available to be used for future 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, 2007, the
aggregate fair value of our equity method and available-for-sale
investments that was subject to price risk was
$760.8 million.
Foreign
Currency Risk
We are exposed to unfavorable and potentially volatile
fluctuations of the U.S. dollar (our reporting 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 us to experience unrealized foreign
currency translation losses (gains) with respect to amounts
already invested in such foreign currencies. We also are exposed
to foreign currency risk in situations where our debt is
denominated in a currency other than the currency of the entity
whose cash flows support our ability to repay or refinance such
debt. 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
II-46
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 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 stockholders 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. Our primary exposure to foreign currency risk is
to the euro and the Japanese yen as 38.8% and 25.0% of our
U.S. dollar revenue during 2007 was derived from
subsidiaries whose functional currency is the euro and the
Japanese yen, respectively. In addition, we have significant
exposure to changes in the exchange rates for the Swiss franc,
the Chilean peso, the Hungarian forint, the Australian dollar
and other local currencies in Europe.
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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2007
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2006
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2005
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Euro
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0.6857
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0.7582
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0.8451
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Swiss franc
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1.1360
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1.2198
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1.3153
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Japanese yen
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111.79
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119.08
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117.95
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Chilean peso
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498.10
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534.25
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514.01
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Hungarian forint
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173.30
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190.65
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213.52
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Australian dollar
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1.1406
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1.2686
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1.3631
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Year ended
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December 31,
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Average rates:
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2007
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2006
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2005
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Euro
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0.7305
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0.7969
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0.8043
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Swiss franc
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1.2001
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1.2533
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1.2924
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Japanese yen
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117.77
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116.36
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109.81
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Chilean peso
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522.24
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530.40
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558.42
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Hungarian forint
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183.59
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210.21
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199.49
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Australian dollar
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1.1954
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1.3278
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1.3449
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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 U.S. 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. 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-rate and variable-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, the EURIBOR-indexed
debt
II-47
of Telenet, the Japanese yen LIBOR-indexed and TIBOR-indexed
debt of J:COM and LGJ Holdings, the LIBOR-indexed debt of LGI,
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 derivative
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 and
collar agreements that lock in a maximum interest rate if
variable rates rise, but also allow our company to benefit from
declines in market rates. For additional information, see
note 8 to our consolidated financial statements.
Weighted Average Variable Interest Rate At
December 31, 2007, our variable rate indebtedness
(exclusive of the effects of interest rate derivative
agreements) aggregated $13.7 billion, and the
weighted-average interest rate (including margin) on such
variable-rate indebtedness was approximately 6.4%. Assuming no
change in the amount outstanding, and without giving effect to
any interest rate derivative 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
$68.3 million. As discussed above and in note 8 to our
consolidated financial statements, we use interest rate
derivative 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 offset most of
the economic impact of increases in the variable interest rates
applicable to our indebtedness to the extent and during the
period that principal amounts are matched with interest rate
derivative contracts.
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 8 to our consolidated financial
statements. Information concerning the sensitivity of the fair
value of certain of our more significant derivative and
financial instruments to changes in market conditions is set
forth below.
UPC
Broadband Holding Cross-currency and Interest Rate Derivative
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, 2007 would have
increased (decreased) the aggregate fair value of the UPC
Broadband Holding cross-currency and interest rate derivative
contracts by approximately 90.1 million
($131.4 million), (ii) an instantaneous increase
(decrease) of 10% in the value of the euro relative to the Swiss
franc, the Czech koruna, the Slovakian koruna, the Hungarian
forint, the Polish zloty and the Romanian lei at
December 31, 2007 would have decreased (increased) the
aggregate fair value of the UPC Broadband Holding cross-currency
and interest rate derivative contracts by approximately
321.1 million ($468.3 million), (iii) an
instantaneous increase (decrease) of 10% in the value of the
Chilean peso relative to the U.S. dollar at
December 31, 2007 would have decreased (increased) the
aggregate value of the UPC Broadband Holding cross-currency and
interest rate derivative contracts by approximately
29.6 million ($43.2 million), (iv) an
instantaneous increase in the relevant base rate of
50 basis points (0.50%) at December 31, 2007 would
have increased the aggregate fair value of the UPC Broadband
Holding cross-currency and interest rate derivative contracts by
approximately 69.8 million ($101.8 million) and
(v) an instantaneous decrease in the relevant base rate of
50 basis points (0.50%) at December 31, 2007 would
have decreased the aggregate fair value of the UPC Broadband
Holding cross-currency and interest rate derivative contracts by
approximately 71.9 million ($104.9 million).
VTR
Cross-currency and Interest Rate Derivative Contracts
Holding all other factors constant, (i) an instantaneous
increase (decrease) of 10% in the value of the Chilean peso
relative to the U.S. dollar at December 31, 2007 would
have decreased (increased) the aggregate fair value of the VTR
cross-currency and interest rate derivative contracts by
approximately CLP 34.1 billion ($68.5 million),
(ii) an instantaneous increase in the relevant base rate
(excluding margin) of 50 basis points (0.50%) at
December 31, 2007 would have increased the aggregate fair
value of the VTR cross-currency and interest rate derivative
contracts
II-48
by approximately CLP 8.7 billion ($17.5 million) and
(iii) an instantaneous decrease in the relevant base rate
of 50 basis points (0.50%) at December 31, 2007 would
have decreased the aggregate fair value of the VTR
cross-currency and interest rate derivative contracts by
approximately CLP 9.0 billion ($18.1 million).
Telenet
Interest Rate Caps and Interest Rate Collars
Holding all other factors constant, (i) an instantaneous
increase in the relevant base rate of 50 basis points
(0.50%) at December 31, 2007 would have increased the
aggregate fair value of the Telenet interest rate cap and
interest rate collar contracts by approximately
22.9 million ($33.4 million) and (ii) an
instantaneous decrease in the relevant base rate of
50 basis points (0.50%) at December 31, 2007 would
have decreased the aggregate fair value of the Telenet interest
rate cap and interest rate collar contracts by approximately
15.3 million ($22.3 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, 2007 would have decreased
the fair value of the UGC Convertible Notes by approximately
42.5 million ($62.0 million), (ii) an
instantaneous decrease of 10% in the value of the euro relative
to the U.S. dollar at December 31, 2007 would have
increased the fair value of the UGC Convertible Notes by
approximately 55.0 million ($80.2 million),
(iii) an instantaneous increase (decrease) in the risk free
rate of 50 basis points (0.50%) at December 31, 2007
would have decreased (increased) the fair value of the UGC
Convertible Notes by approximately 2.0 million
($2.9 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, 2007 would have increased (decreased) the fair
value of the UGC Convertible Notes by approximately
42.0 million ($61.3 million).
Sumitomo
Collar
Holding all other factors constant, (i) an instantaneous
increase of 10% in the per share market price of Sumitomos
common stock would have decreased the aggregate fair value of
the Sumitomo collar by approximately ¥5.98 billion
($53.5 million) and (ii) an instantaneous decrease of
10% in the per share market price of Sumitomos common
stock would have increased the aggregate fair value of the
Sumitomo collar by approximately ¥5.94 billion
($53.1 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.
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FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
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The consolidated financial statements of LGI are filed under
this Item, beginning on
page II-54.
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.
|
|
Item 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
None.
II-49
|
|
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, 2007. 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, 2007, in making known to
them material information on a timely basis 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-51.
(b) Attestation Report of the Independent Registered
Public Accounting Firm
The attestation report of KPMG LLP is included herein on
page II-52.
(c) Changes in Internal Control over Financial
Reporting
There have been no changes in our internal control 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-50
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, 2007, using the
criteria in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on this evaluation, our management
believes that our internal control over financial reporting was
effective as of December 31, 2007. 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. Our evaluation of
internal control over financial reporting did not include the
internal control of the following subsidiaries we acquired in
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue included
|
|
|
|
Total assets included in
|
|
|
in our consolidated
|
|
|
|
our consolidated financial
|
|
|
financial statements
|
|
|
|
statements as of
|
|
|
for the year ended
|
|
|
|
December 31, 2007
|
|
|
December 31, 2007
|
|
|
|
in millions
|
|
|
Telenet Group Holding NV
|
|
$
|
3,994.2
|
|
|
$
|
1,293.4
|
|
JTV Thematics
|
|
|
266.8
|
|
|
|
26.2
|
|
Other
|
|
|
133.4
|
|
|
|
7.1
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,394.4
|
|
|
$
|
1,326.7
|
|
|
|
|
|
|
|
|
|
|
The aggregate amount of consolidated assets and revenue of these
subsidiaries included in our consolidated financial statements
as of and for the year ended December 31, 2007 was
$4,394.4 million and $1,326.7 million, respectively.
II-51
Report of
Independent Registered Public Accounting Firm
The Board of Directors
Liberty Global, Inc.:
We have audited Liberty Global, Inc.s internal control
over financial reporting as of December 31, 2007, 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, included in the accompanying Managements Annual
Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on 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, assessing the risk
that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk. Our audit also included 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, Liberty Global, Inc. maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2007, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission. Managements evaluation of the effectiveness of
Liberty Global, Inc.s internal control over financial
reporting as of December 31, 2007 excluded the following
subsidiaries acquired in 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue included
|
|
|
|
Total assets included in the
|
|
|
in the consolidated
|
|
|
|
consolidated financial
|
|
|
financial statements
|
|
|
|
statements as of
|
|
|
for the year ended
|
|
|
|
December 31, 2007
|
|
|
December 31, 2007
|
|
|
|
in millions
|
|
|
Telenet Group Holding NV
|
|
$
|
3,994.2
|
|
|
$
|
1,293.4
|
|
JTV Thematics
|
|
|
266.8
|
|
|
|
26.2
|
|
Other
|
|
|
133.4
|
|
|
|
7.1
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,394.4
|
|
|
$
|
1,326.7
|
|
|
|
|
|
|
|
|
|
|
II-52
The aggregate amount of total assets and revenue of these
subsidiaries included in the consolidated financial statements
of Liberty Global, Inc. as of and for the year ended
December 31, 2007 was $4,394.4 million and
$1,326.7 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. as of
December 31, 2007 and 2006, 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, 2007, and our
report dated February 26, 2008 expressed an unqualified
opinion on those consolidated financial statements.
KPMG LLP
Denver, Colorado
February 26, 2008
II-53
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,
2007 and 2006, 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, 2007. In connection with our
audits of the consolidated financial statements, we also have
audited 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 did not audit the consolidated
financial statements of Telenet Group Holding NV, a
partially-owned subsidiary, which statements reflect total
assets constituting 2,738.8 million
($3,994.2 million) as of December 31, 2007 and total
revenue constituting 942.8 million
($1,293.4 million) for the year then ended, of the related
consolidated totals. Those statements were audited by other
auditors whose report has been furnished to us, and our opinion,
insofar as it relates to the amounts included for Telenet Group
Holding NV, is based solely on the report of the other auditors.
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, based on our audits and the report of the other
auditors, 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, 2007 and 2006, and the results of their
operations and their cash flows for each of the years in the
three-year period ended December 31, 2007, in conformity
with U.S. generally accepted accounting principles. Also in
our opinion, based on our audits and the report of the other
auditors, 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 3, in 2007 Liberty Global, Inc.
changed its method of accounting for income taxes. In 2006
Liberty Global, Inc. changed its method 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),
Liberty Global, Incs internal control over financial
reporting as of December 31, 2007, 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 26, 2008 expressed an unqualified opinion on the
effectiveness of the Companys internal control over
financial reporting.
KPMG LLP
Denver, Colorado
February 26, 2008
II-54
Report of
Independent Registered Public Accounting Firm
To Board of Directors and Shareholders of Telenet Group Holding
NV
We have audited the accompanying consolidated balance sheets of
Telenet Group Holding NV and its subsidiaries as of
December 31, 2007, and the related consolidated income
statement, statement of cash flows and of shareholders
equity for the year then ended. 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 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 Telenet Group Holding NV and its subsidiaries at
December 31, 2007, and the results of their operations and
their cash flows for the year then ended in conformity with
International Financial Reporting Standards as adopted by the EU.
International Financial Reporting Standards as adopted by the EU
vary in certain significant respects from accounting principles
generally accepted in the United States of America. Information
relating to the nature and effect of such differences is
presented in Note 29 to the consolidated financial
statements.
Antwerp Belgium, February 22, 2008
PricewaterhouseCoopers Bedrijfsrevisoren bcvba
Represented by
/s/ B. Gabriëls
Partner
II-55
LIBERTY
GLOBAL, INC.
(See note 1)
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
in millions
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
2,035.5
|
|
|
$
|
1,880.5
|
|
Trade receivables, net
|
|
|
1,003.7
|
|
|
|
726.5
|
|
Other receivables, net
|
|
|
95.7
|
|
|
|
110.3
|
|
Restricted cash (note 10)
|
|
|
28.5
|
|
|
|
496.1
|
|
Deferred income taxes (note 12)
|
|
|
319.1
|
|
|
|
131.6
|
|
Derivative instruments (note 8)
|
|
|
230.5
|
|
|
|
51.0
|
|
Other current assets
|
|
|
211.6
|
|
|
|
166.5
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
3,924.6
|
|
|
|
3,562.5
|
|
Restricted cash (note 10)
|
|
|
475.5
|
|
|
|
|
|
Investments in affiliates, accounted for using the equity
method, and related receivables (note 6)
|
|
|
388.6
|
|
|
|
1,062.7
|
|
Other investments (note 7)
|
|
|
782.9
|
|
|
|
477.6
|
|
Property and equipment, net (note 9)
|
|
|
10,608.5
|
|
|
|
8,136.9
|
|
Goodwill (note 9)
|
|
|
12,626.8
|
|
|
|
9,942.6
|
|
Intangible assets subject to amortization, net (note 9)
|
|
|
2,504.9
|
|
|
|
1,578.3
|
|
Franchise rights and other intangible assets not subject to
amortization
|
|
|
183.7
|
|
|
|
177.1
|
|
Other assets, net (notes 8 and 12)
|
|
|
1,123.1
|
|
|
|
631.6
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
32,618.6
|
|
|
$
|
25,569.3
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
II-56
LIBERTY
GLOBAL, INC.
(See note 1)
CONSOLIDATED BALANCE SHEETS (Continued)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
in millions
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
804.9
|
|
|
$
|
652.4
|
|
Deferred revenue and advance payments from subscribers and
others (note 11)
|
|
|
933.8
|
|
|
|
640.1
|
|
Current portion of debt and capital lease obligations
(notes 8 and 10)
|
|
|
383.2
|
|
|
|
1,384.9
|
|
Accrued interest
|
|
|
341.2
|
|
|
|
257.0
|
|
Accrued capital expenditures
|
|
|
194.1
|
|
|
|
111.7
|
|
Other accrued and current liabilities
|
|
|
1,200.3
|
|
|
|
698.6
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
3,857.5
|
|
|
|
3,744.7
|
|
Long-term debt and capital lease obligations (including
$902.3 million and $702.3 million, respectively,
measured at fair value) (notes 8 and 10)
|
|
|
17,970.2
|
|
|
|
10,845.2
|
|
Deferred tax liabilities (note 12)
|
|
|
743.7
|
|
|
|
537.1
|
|
Other long-term liabilities (notes 8, 11 and 12)
|
|
|
1,765.1
|
|
|
|
1,283.7
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
24,336.5
|
|
|
|
16,410.7
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (notes 10, 12, 14 and 20)
|
|
|
|
|
|
|
|
|
Minority interests in subsidiaries
|
|
|
2,446.0
|
|
|
|
1,911.5
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity (note 13):
|
|
|
|
|
|
|
|
|
Series A common stock, $.01 par value. Authorized
500,000,000 shares; issued and outstanding 174,687,478 and
196,896,880 shares, respectively
|
|
|
1.7
|
|
|
|
2.0
|
|
Series B common stock, $.01 par value. Authorized
50,000,000 shares; issued and outstanding 7,256,353 and
7,284,799 shares, respectively
|
|
|
0.1
|
|
|
|
0.1
|
|
Series C common stock, $.01 par value. Authorized
500,000,000 shares; issued and outstanding 172,129,524 and
197,256,404 shares, respectively
|
|
|
1.7
|
|
|
|
2.0
|
|
Additional paid-in capital
|
|
|
6,293.2
|
|
|
|
8,093.5
|
|
Accumulated deficit
|
|
|
(1,319.1
|
)
|
|
|
(1,020.3
|
)
|
Accumulated other comprehensive earnings, net of taxes
(note 19)
|
|
|
858.5
|
|
|
|
169.8
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
5,836.1
|
|
|
|
7,247.1
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
32,618.6
|
|
|
$
|
25,569.3
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
II-57
LIBERTY
GLOBAL, INC.
(See note 1)
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
in millions, except per share amounts
|
|
|
Revenue (note 15)
|
|
$
|
9,003.3
|
|
|
$
|
6,483.9
|
|
|
$
|
4,517.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (other than depreciation and amortization) (including
stock-based compensation of $12.2 million,
$7.0 million and $9.9 million, respectively)
(notes 14 and 15)
|
|
|
3,740.5
|
|
|
|
2,778.3
|
|
|
|
1,929.2
|
|
Selling, general and administrative (SG&A) (including
stock-based compensation of $181.2 million,
$63.0 million and $49.1 million, respectively)
(notes 14 and 15)
|
|
|
1,888.4
|
|
|
|
1,439.4
|
|
|
|
1,059.5
|
|
Depreciation and amortization (note 9)
|
|
|
2,493.1
|
|
|
|
1,884.7
|
|
|
|
1,274.0
|
|
Provisions for litigation (note 20)
|
|
|
171.0
|
|
|
|
|
|
|
|
|
|
Impairment, restructuring and other operating charges, net
(note 17)
|
|
|
43.5
|
|
|
|
29.2
|
|
|
|
4.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,336.5
|
|
|
|
6,131.6
|
|
|
|
4,267.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
666.8
|
|
|
|
352.3
|
|
|
|
250.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense (note 15)
|
|
|
(982.1
|
)
|
|
|
(673.4
|
)
|
|
|
(396.1
|
)
|
Interest and dividend income (note 15)
|
|
|
115.3
|
|
|
|
85.4
|
|
|
|
76.8
|
|
Share of results of affiliates, net (note 6)
|
|
|
33.7
|
|
|
|
13.0
|
|
|
|
(23.0
|
)
|
Realized and unrealized gains (losses) on financial and
derivative instruments, net (note 8)
|
|
|
(38.7
|
)
|
|
|
(347.6
|
)
|
|
|
310.0
|
|
Foreign currency transaction gains (losses), net
|
|
|
20.5
|
|
|
|
236.1
|
|
|
|
(209.2
|
)
|
Other-than-temporary declines in fair values of investments
(note 7)
|
|
|
(212.6
|
)
|
|
|
(13.8
|
)
|
|
|
(3.4
|
)
|
Losses on extinguishment of debt, net (note 10)
|
|
|
(112.1
|
)
|
|
|
(40.8
|
)
|
|
|
(33.7
|
)
|
Gains on disposition of assets, net (note 5)
|
|
|
557.6
|
|
|
|
206.4
|
|
|
|
115.2
|
|
Other income (expense), net
|
|
|
1.3
|
|
|
|
12.2
|
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(617.1
|
)
|
|
|
(522.5
|
)
|
|
|
(164.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before income taxes, minority interests and
discontinued operations
|
|
|
49.7
|
|
|
|
(170.2
|
)
|
|
|
86.1
|
|
Income tax benefit (expense) (note 12)
|
|
|
(233.1
|
)
|
|
|
7.9
|
|
|
|
(28.7
|
)
|
Minority interests in earnings of subsidiaries, net
|
|
|
(239.2
|
)
|
|
|
(171.7
|
)
|
|
|
(117.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(422.6
|
)
|
|
|
(334.0
|
)
|
|
|
(59.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations (note 5):
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from operations, net of tax expense of nil, nil
and $1.7 million, respectively
|
|
|
|
|
|
|
6.8
|
|
|
|
(20.5
|
)
|
Gain on disposal of discontinued operations
|
|
|
|
|
|
|
1,033.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,040.2
|
|
|
|
(20.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
(422.6
|
)
|
|
$
|
706.2
|
|
|
$
|
(80.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings (loss) per share
Series A, Series B and Series C common stock
(note 2):
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(1.11
|
)
|
|
$
|
(0.76
|
)
|
|
$
|
(0.14
|
)
|
Discontinued operations
|
|
|
|
|
|
|
2.37
|
|
|
|
(0.05
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(1.11
|
)
|
|
$
|
1.61
|
|
|
$
|
(0.19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding basic
and diluted
|
|
|
380,223,355
|
|
|
|
438,135,460
|
|
|
|
415,277,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
II-58
LIBERTY
GLOBAL, INC.
(See note 1)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
in millions
|
|
|
Net earnings (loss)
|
|
$
|
(422.6
|
)
|
|
$
|
706.2
|
|
|
$
|
(80.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive earnings (loss), net of taxes (note 19):
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
677.2
|
|
|
|
397.8
|
|
|
|
(298.8
|
)
|
Reclassification adjustment for foreign currency translation
losses included in net earnings (loss)
|
|
|
9.6
|
|
|
|
9.0
|
|
|
|
54.8
|
|
Unrealized gains (losses) on available-for-sale securities
|
|
|
(139.7
|
)
|
|
|
5.7
|
|
|
|
19.6
|
|
Reclassification adjustment for net losses (gains) on
available-for-sale securities included in net earnings (loss)
|
|
|
136.0
|
|
|
|
13.8
|
|
|
|
(56.5
|
)
|
Unrealized gains (losses) on cash flow hedges
|
|
|
(1.2
|
)
|
|
|
(7.2
|
)
|
|
|
10.8
|
|
Reclassification adjustment for losses (gains) on cash flow
hedges included in net earnings (loss)
|
|
|
(5.5
|
)
|
|
|
6.0
|
|
|
|
(6.0
|
)
|
Pension related adjustments and other
|
|
|
12.3
|
|
|
|
|
|
|
|
(0.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive earnings (loss)
|
|
|
688.7
|
|
|
|
425.1
|
|
|
|
(276.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive earnings (loss)
|
|
$
|
266.1
|
|
|
$
|
1,131.3
|
|
|
$
|
(357.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
II-59
LIBERTY
GLOBAL, INC.
(See note 1)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
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 19)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(276.9
|
)
|
|
|
|
|
|
|
|
|
|
|
(276.9
|
)
|
|
|
|
|
Adjustment due to issuance of stock by J:COM (note 4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
120.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
120.7
|
|
|
|
|
|
Adjustment due to issuance of stock by Telenet (note 6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 4)
|
|
|
0.6
|
|
|
|
|
|
|
|
0.6
|
|
|
|
2,876.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(90.6
|
)
|
|
|
2,786.6
|
|
|
|
|
|
Minority interest in deficit of Austar at acquisition date
(note 4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(52.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(52.4
|
)
|
|
|
|
|
Stock issued (acquired) in connection with equity incentive plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
28.2
|
|
|
|
|
|
Repurchase of common stock (note 13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(78.9
|
)
|
|
|
(78.9
|
)
|
|
|
|
|
Stock-based compensation, net of taxes (notes 2 and 14)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.8
|
|
|
|
|
|
|
|
|
|
|
|
1.1
|
|
|
|
|
|
|
|
6.9
|
|
|
|
|
|
Reclassification of stock appreciation rights (SARs) obligation
(note 13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50.3
|
|
|
|
|
|
Tax benefits allocated from Liberty Media Corporation pursuant
to Tax Sharing Agreement (note 12)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26.7
|
|
|
|
|
|
Adjustments due to changes in subsidiaries equity and
other, net (note 13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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-60
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
|
|
|
|
in millions
|
|
|
Balance at January 1, 2006, before effect of accounting
changes
|
|
$
|
2.3
|
|
|
$
|
0.1
|
|
|
$
|
2.4
|
|
|
$
|
9,992.2
|
|
|
$
|
(1,732.5
|
)
|
|
$
|
(262.9
|
)
|
|
$
|
(15.6
|
)
|
|
$
|
(169.6
|
)
|
|
$
|
7,816.4
|
|
Accounting changes (note 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15.6
|
)
|
|
|
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 19)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
425.1
|
|
|
|
|
|
|
|
|
|
|
|
425.1
|
|
Repurchase of common stock (note 13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 2 and 14)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63.1
|
|
Minority owners share of distribution paid by Austar
(note 13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.6
|
|
|
|
|
|
|
|
|
|
|
|
7.6
|
|
Adjustments due to changes in subsidiaries equity and
other, net (note 13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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-61
LIBERTY
GLOBAL, INC.
(See note 1)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
comprehensive
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
paid-in
|
|
|
Accumulated
|
|
|
earnings,
|
|
|
stockholders
|
|
|
|
|
|
|
|
|
|
Series A
|
|
|
Series B
|
|
|
Series C
|
|
|
capital
|
|
|
deficit
|
|
|
net of taxes
|
|
|
equity
|
|
|
|
|
|
|
|
|
|
in millions
|
|
|
Balance at January 1, 2007, before effect of accounting
change
|
|
$
|
2.0
|
|
|
$
|
0.1
|
|
|
$
|
2.0
|
|
|
$
|
8,093.5
|
|
|
$
|
(1,020.3
|
)
|
|
$
|
169.8
|
|
|
$
|
7,247.1
|
|
|
|
|
|
|
|
|
|
Accounting change (note 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71.4
|
|
|
|
123.8
|
|
|
|
|
|
|
|
195.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2007, as adjusted for accounting
change
|
|
|
2.0
|
|
|
|
0.1
|
|
|
|
2.0
|
|
|
|
8,164.9
|
|
|
|
(896.5
|
)
|
|
|
169.8
|
|
|
|
7,442.3
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(422.6
|
)
|
|
|
|
|
|
|
(422.6
|
)
|
|
|
|
|
|
|
|
|
Other comprehensive earnings, net of tax (note 19)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
688.7
|
|
|
|
688.7
|
|
|
|
|
|
|
|
|
|
Repurchase and cancellation of common stock (note 13)
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
(0.3
|
)
|
|
|
(1,860.4
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,861.0
|
)
|
|
|
|
|
|
|
|
|
Stock-based compensation, net of taxes (notes 2 and 14)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55.9
|
|
|
|
|
|
|
|
|
|
|
|
55.9
|
|
|
|
|
|
|
|
|
|
Stock issued in connection with equity incentive plans, net of
employee tax withholding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12.4
|
|
|
|
|
|
|
|
|
|
|
|
12.4
|
|
|
|
|
|
|
|
|
|
Adjustment related to minority owners share of
distribution paid by Austar (note 13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(114.1
|
)
|
|
|
|
|
|
|
|
|
|
|
(114.1
|
)
|
|
|
|
|
|
|
|
|
Adjustments due to issuance of stock by Telenet (note 4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(47.2
|
)
|
|
|
|
|
|
|
|
|
|
|
(47.2
|
)
|
|
|
|
|
|
|
|
|
Adjustments due to issuance of stock by J:COM (note 4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55.2
|
|
|
|
|
|
|
|
|
|
|
|
55.2
|
|
|
|
|
|
|
|
|
|
Adjustments due to other changes in subsidiaries equity
and other, net (note 13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26.5
|
|
|
|
|
|
|
|
|
|
|
|
26.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
$
|
1.7
|
|
|
$
|
0.1
|
|
|
$
|
1.7
|
|
|
$
|
6,293.2
|
|
|
$
|
(1,319.1
|
)
|
|
$
|
858.5
|
|
|
$
|
5,836.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
II-62
LIBERTY
GLOBAL, INC.
(See note 1)
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
in millions
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
(422.6
|
)
|
|
$
|
706.2
|
|
|
$
|
(80.1
|
)
|
Net loss (earnings) from discontinued operations
|
|
|
|
|
|
|
(1,040.2
|
)
|
|
|
20.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) from continuing operations
|
|
|
(422.6
|
)
|
|
|
(334.0
|
)
|
|
|
(59.6
|
)
|
Adjustments to reconcile earnings (loss) from continuing
operations to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
193.4
|
|
|
|
70.0
|
|
|
|
59.0
|
|
Depreciation and amortization
|
|
|
2,493.1
|
|
|
|
1,884.7
|
|
|
|
1,274.0
|
|
Provisions for litigation
|
|
|
171.0
|
|
|
|
|
|
|
|
|
|
Impairment, restructuring and other operating charges
|
|
|
43.5
|
|
|
|
29.2
|
|
|
|
4.5
|
|
Amortization of deferred financing costs and non-cash interest
|
|
|
74.3
|
|
|
|
82.2
|
|
|
|
103.8
|
|
Share of results of affiliates, net of dividends
|
|
|
(28.5
|
)
|
|
|
(7.3
|
)
|
|
|
23.0
|
|
Realized and unrealized losses (gains) on financial and
derivative instruments, net
|
|
|
38.7
|
|
|
|
347.6
|
|
|
|
(310.0
|
)
|
Foreign currency transaction losses (gains), net
|
|
|
(20.5
|
)
|
|
|
(236.1
|
)
|
|
|
209.2
|
|
Other-than-temporary declines in fair values of investments
|
|
|
212.6
|
|
|
|
13.8
|
|
|
|
3.4
|
|
Losses on extinguishment of debt
|
|
|
112.1
|
|
|
|
40.8
|
|
|
|
33.7
|
|
Gains on disposition of assets, net
|
|
|
(557.6
|
)
|
|
|
(206.4
|
)
|
|
|
(115.2
|
)
|
Deferred income tax expense (benefit)
|
|
|
130.1
|
|
|
|
(100.6
|
)
|
|
|
(75.6
|
)
|
Minority interests in earnings of subsidiaries
|
|
|
239.2
|
|
|
|
171.7
|
|
|
|
117.0
|
|
Changes in operating assets and liabilities, net of the effects
of acquisitions and dispositions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables and other operating assets
|
|
|
105.4
|
|
|
|
166.7
|
|
|
|
5.1
|
|
Payables and accruals
|
|
|
(234.4
|
)
|
|
|
(119.2
|
)
|
|
|
(9.0
|
)
|
Net cash provided by operating activities of discontinued
operations
|
|
|
|
|
|
|
74.9
|
|
|
|
312.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
2,549.8
|
|
|
|
1,878.0
|
|
|
|
1,576.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expended for property and equipment
|
|
|
(2,034.5
|
)
|
|
|
(1,507.9
|
)
|
|
|
(1,046.2
|
)
|
Cash paid in connection with acquisitions, net of cash acquired
|
|
|
(1,178.8
|
)
|
|
|
(1,254.2
|
)
|
|
|
(3,586.3
|
)
|
Proceeds received upon dispositions of assets
|
|
|
481.7
|
|
|
|
380.8
|
|
|
|
464.5
|
|
Investments in and loans to affiliates and others
|
|
|
(43.5
|
)
|
|
|
(255.7
|
)
|
|
|
(133.7
|
)
|
Net cash received (paid) to purchase or settle derivative
instruments
|
|
|
(110.4
|
)
|
|
|
50.5
|
|
|
|
82.4
|
|
Proceeds received from sale of short-term liquid investments
|
|
|
|
|
|
|
2.6
|
|
|
|
101.4
|
|
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
|
)
|
Other investing activities, net
|
|
|
(11.4
|
)
|
|
|
23.9
|
|
|
|
56.3
|
|
Proceeds received upon disposition of discontinued operations,
net of disposal costs
|
|
|
|
|
|
|
2,548.1
|
|
|
|
|
|
Net cash used by investing activities of discontinued operations
|
|
|
|
|
|
|
(92.5
|
)
|
|
|
(171.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by investing activities
|
|
$
|
(2,896.9
|
)
|
|
$
|
(104.4
|
)
|
|
$
|
(4,934.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
II-63
LIBERTY
GLOBAL, INC.
(See note 1)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
in millions
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings of debt
|
|
$
|
11,952.5
|
|
|
$
|
7,774.5
|
|
|
$
|
6,968.4
|
|
Repayments of debt and capital lease obligations
|
|
|
(9,314.6
|
)
|
|
|
(6,683.3
|
)
|
|
|
(5,412.3
|
)
|
Repurchase of LGI common stock
|
|
|
(1,796.8
|
)
|
|
|
(1,756.9
|
)
|
|
|
(78.9
|
)
|
Cash distribution by subsidiaries to minority interest owners
|
|
|
(596.5
|
)
|
|
|
(95.3
|
)
|
|
|
|
|
Proceeds from issuance of stock by subsidiaries
|
|
|
124.9
|
|
|
|
18.5
|
|
|
|
873.6
|
|
Payment of deferred financing costs
|
|
|
(95.3
|
)
|
|
|
(91.9
|
)
|
|
|
(101.3
|
)
|
Proceeds from issuance of LGI common stock upon exercise of
stock options
|
|
|
42.9
|
|
|
|
17.5
|
|
|
|
20.8
|
|
Change in cash collateral
|
|
|
6.2
|
|
|
|
(394.2
|
)
|
|
|
(57.2
|
)
|
Other financing activities, net
|
|
|
17.8
|
|
|
|
(0.7
|
)
|
|
|
(13.0
|
)
|
Net cash used by financing activities of discontinued operations
|
|
|
|
|
|
|
|
|
|
|
(8.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by financing activities
|
|
|
341.1
|
|
|
|
(1,211.8
|
)
|
|
|
2,191.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash
|
|
|
161.0
|
|
|
|
116.5
|
|
|
|
(160.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
155.0
|
|
|
|
695.9
|
|
|
|
(1,460.0
|
)
|
Discontinued operations
|
|
|
|
|
|
|
(17.6
|
)
|
|
|
133.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
155.0
|
|
|
|
678.3
|
|
|
|
(1,326.9
|
)
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
1,880.5
|
|
|
|
1,202.2
|
|
|
|
2,529.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
2,035.5
|
|
|
$
|
1,880.5
|
|
|
$
|
1,202.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
887.1
|
|
|
$
|
485.6
|
|
|
$
|
296.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash paid for taxes
|
|
$
|
76.2
|
|
|
$
|
65.9
|
|
|
$
|
35.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
II-64
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and 2005
|
|
(1)
|
Basis
of Presentation
|
Liberty Global, Inc. (LGI) was formed on January 13, 2005,
for the purpose of effecting the combination of LGI
International, Inc. (LGI International) (formerly Liberty Media
International, Inc.) and UnitedGlobalCom, Inc. (UGC). LGI
International 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) (the
Spin-Off), including a majority interest in UGC, an
international broadband communications provider. On June 7,
2004 (the Spin-Off Date), Liberty Media distributed to its
stockholders, on a pro rata basis, all of the outstanding shares
of LGI Internationals common stock, and LGI International
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 LGI International
did not already own and LGI International and UGC each became
wholly owned subsidiaries of LGI (the LGI Combination). As LGI
International is the predecessor to LGI, the historical
financial statements of LGI International 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 LGI International common stock or UGC common stock
in terms of the number of shares of LGI common stock issued in
exchange for such LGI International or UGC shares in the LGI
Combination.
LGI is an international provider of video, voice and broadband
Internet services, with consolidated broadband communications
and/or
direct-to-home (DTH) satellite operations at December 31,
2007 in 15 countries, primarily in Europe, Japan and Chile.
Through our indirect wholly owned subsidiary UPC Holding BV (UPC
Holding), we provide video, voice and broadband Internet
services in 10 European countries and in Chile. As further
described in note 10, (i) our 100% ownership interest
in Cablecom Holdings GmbH (Cablecom), a broadband communications
operator in Switzerland, and (ii) our 80% ownership
interest in VTR Global Com S.A. (VTR), a broadband
communications operator in Chile, were transferred from certain
of our other indirect subsidiaries to UPC Broadband Holding BV
(UPC Broadband Holding), a subsidiary of UPC Holding, during the
second quarter of 2007. UPC Broadband Holdings European
broadband communications operations, including Cablecom, are
collectively referred to as the UPC Broadband Division. Through
our indirect controlling ownership interest in Telenet Group
Holding NV (Telenet) (51.1% at December 31, 2007), which we
began accounting for as a consolidated subsidiary effective
January 1, 2007 (as further described in note 4), we
provide broadband communications services in Belgium. Through
our indirect controlling ownership interest in Jupiter
Telecommunications Co., Ltd. (J:COM) (37.9% at December 31,
2007), we provide broadband communications services in Japan.
Through our indirect majority ownership interest in Austar
United Communications Limited (Austar) (53.4% at
December 31, 2007), we provide DTH satellite services in
Australia. We also have (i) consolidated broadband
communications operations in Puerto Rico and
(ii) consolidated interests in certain programming
businesses in Europe, Japan (through J:COM) and Argentina. 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 communications
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
II-65
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
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. See note 5.
Unless otherwise indicated, convenience translations into
U.S. dollars are calculated as of December 31, 2007.
|
|
(2)
|
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 as current or
long-term based on the expected timing of the disbursement. At
December 31, 2007 and 2006, our restricted cash balances
aggregated $504.0 million and $496.1 million,
respectively. At December 31, 2007, our restricted cash
balances included $470.3 million that is required to fund a
cash collateral account in an amount equal to the outstanding
principal and interest under the 2007 VTR Bank Facility, as
defined in note 10.
Our significant non-cash investing and financing activities are
disclosed in our statements of stockholders equity and in
notes 4, 5 and 9.
Receivables
Receivables are reported net of an allowance for doubtful
accounts. Such allowance aggregated $125.4 million and
$76.5 million at December 31, 2007 and 2006,
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-66
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (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
control or 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
an other-than-temporary impairment assessment. 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, with our recognition of losses
generally 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 is not
amortized, but continues to be considered for impairment under
Accounting Principles Board Opinion (APB) No. 18 (APB 18).
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 extent and 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, changes in the stock price
or valuation subsequent to the balance sheet date, and the
impacts of exchange rates, if applicable. In addition, we
consider the reason for the decline in fair value, such as
(i) general market conditions and (ii) industry
specific or investee specific factors, as well as 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.
II-67
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
Writedowns for cost investments and available-for-sale
securities are included in our consolidated statement of
operations as other-than-temporary declines in fair values of
investments. Writedowns of equity method investments are
included in share of results of affiliates.
Financial
Instruments
The carrying value of cash and cash equivalents, short-term
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 10 for the estimated fair value
of our debt instruments.
Derivative
Instruments
All derivatives, whether designated as hedging relationships or
not, are 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) and subsequently
reclassified into our consolidated statements of operations when
the hedged forecasted transaction affects 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 certain of
J:COMs derivative instruments, none of the derivative
instruments that were in effect during the three years ended
December 31, 2007 were designated as hedges for financial
reporting purposes.
Property
and Equipment
Property and equipment are 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. 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. 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.
Additions, replacements and improvements that extend the asset
life are capitalized. Repairs and maintenance are charged to
operations.
II-68
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
Pursuant to SFAS No. 143, Accounting for Asset
Retirement Obligations, as interpreted by the Financial
Accounting Standards Board (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 the loss of rights
of way that we obtain from local municipalities or other
relevant authorities. Under certain circumstances, the
authorities could require us to remove our network equipment
from an area if, for example, we were to discontinue using the
equipment for an extended period of time or the authorities were
to decide not to renew our access rights. However, because the
rights of way are integral to our ability to deliver broadband
communications services to our customers, we expect to conduct
our business in a manner that will allow us to maintain these
rights for the foreseeable future. In addition, we have no
reason to believe that the authorities will not renew our rights
of way and, historically, 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, 2007 and 2006, the recorded fair value
of our asset retirement obligations was $53.4 million and
$43.3 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 business
combinations. 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 for broadband communications and DTH satellite
customer relationships and 10 to 18 years for programming
distribution customer relationships.
Impairment
of Property and Equipment and Intangible Assets
SFAS 144 requires that we review, when circumstances
warrant, the carrying amounts of our property and equipment and
our intangible assets (other than goodwill and indefinite-lived
intangible assets) to determine
II-69
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
whether such carrying amounts continue to 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 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. We recognize the financial
statement effects of a tax position when it is
more-likely-than-not, based on the technical merits, that the
position will be sustained upon examination. 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. The majority of our valuation allowances at
December 31, 2007 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. Interest and penalties related to income tax
liabilities are included in income tax expense.
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 (i) the
estimated long-term rates of return to be earned by plan assets,
(ii) the estimated discount rates used to value the
projected benefit obligations and (iii) 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 3 and 18.
II-70
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
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 our 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
our 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 consolidated 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
services over our cable network to customers in the period the
related services are provided. Installation revenue (including
reconnect fees) related to services provided 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 our
consolidated statements of operations as incurred.
Other Revenue. We recognize revenue from DTH,
telephone and data services that are not provided over our cable
network in the period the related services are provided.
Installation revenue (including reconnect fees) related to
services that are not provided over 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 recognized only to the extent of
the discounted monthly fee, 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 11,
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 generally range from 15 to 20 years.
Sales, Use and Other Value Added
Taxes. Revenue is recorded net of applicable
sales, use and other value added taxes.
II-71
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
Stock
Based Compensation
2007 and
2006
On January 1, 2006, we adopted the provisions of
SFAS No. 123(R) (revised 2004), Share-Based Payment
(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, 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.
In addition, SFAS 123(R) 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.
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, 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 and
vest on a graded basis. 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 SARs granted
by LGI to employees using the simplified method set
forth in Staff Accounting Bulletin (SAB) 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
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
II-72
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
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 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 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
(see note 15), 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.
As noted above, our stock-based compensation for the year ended
December 31, 2005 has not been restated in connection with
the implementation of SFAS 123(R). The following table
illustrates the pro forma effect on our 2005 loss from
continuing operations and loss from continuing operations per
share as if we had applied the fair value method to our
outstanding stock-based awards that we have accounted for under
the intrinsic value method:
|
|
|
|
|
|
|
Year ended
|
|
|
|
December 31, 2005
|
|
|
|
in millions, except
|
|
|
|
per share amounts
|
|
|
Loss from continuing operations
|
|
$
|
(59.6
|
)
|
Add stock-based compensation charges as determined under the
intrinsic value method, net of taxes
|
|
|
7.1
|
|
Deduct stock compensation charges as determined under the fair
value method, net of taxes
|
|
|
(35.0
|
)
|
|
|
|
|
|
Pro forma loss from continuing operations
|
|
$
|
(87.5
|
)
|
|
|
|
|
|
Basic and diluted earnings (loss) from continuing operations per
share Series A, Series B and Series C
common stock:
|
|
|
|
|
As reported
|
|
$
|
(0.14
|
)
|
|
|
|
|
|
Pro forma
|
|
$
|
(0.21
|
)
|
|
|
|
|
|
See note 14 for additional information concerning our stock
incentive 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)
II-73
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
per common share presents the dilutive effect, if any, on a per
share basis of potential common shares (e.g. options, nonvested
common shares and convertible securities) as if they had been
exercised, vested or converted at the beginning of the periods
presented.
We reported losses from continuing operations during 2007, 2006
and 2005. Therefore, the dilutive effect at December 31,
2007, 2006 and 2005 of (i) the aggregate number of then
outstanding options, SARs, and nonvested shares of approximately
26.7 million, 32.1 million and 32.4 million,
respectively, (ii) the aggregate number of shares issuable
pursuant to the then outstanding convertible debt securities and
other obligations that may be settled in cash or shares of
approximately 42.0 million, 39.4 million and
41.1 million, respectively, and (iii) the number of
shares contingently issuable pursuant to LGIs
performance-based incentive plans of 9.9 million, nil and
nil, respectively, were not included in the computation of
diluted loss per share because their inclusion would have been
anti-dilutive to the computation.
|
|
(3)
|
Accounting
Changes and Recent Accounting Pronouncements
|
Accounting
Changes
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
SFAS No. 109, Accounting for Income Taxes
(SFAS 109). FIN 48 prescribes the recognition
threshold and provides guidance for the financial statement
recognition and measurement of uncertain tax positions 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.
In connection with our January 1, 2007 adoption of
FIN 48, we recognized (i) a $157.9 million
decrease to our other long-term liabilities related to uncertain
income tax positions, (ii) a $187.3 million increase
to our deferred tax assets, net of related valuation allowances,
(iii) a $123.8 million decrease to our accumulated
deficit and (iv) a $145.5 million decrease to our
goodwill. In addition, we recorded a $71.4 million increase
to additional paid-in capital and a $4.5 million increase
to minority interests in subsidiaries related to the minority
interest owners share of the decrease to the
January 1, 2007 stockholders deficit of a
majority-owned subsidiary. See note 13.
For information concerning our unrecognized tax benefits, see
note 12.
SFAS 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. Effective January 1,
2006, we adopted SFAS 155 and elected to account for the
UGC Convertible Notes (see note 10) 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.
II-74
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
SFAS 158
In September 2006, the FASB issued 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. The incremental effect on the
individual line items in our balance sheet as of
December 31, 2006 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before
|
|
|
|
|
|
After
|
|
|
|
application of
|
|
|
|
|
|
application of
|
|
|
|
SFAS 158
|
|
|
Adjustments
|
|
|
SFAS 158
|
|
|
|
|
|
|
in millions
|
|
|
|
|
|
Other long-term liabilities (includes liability for pension
benefits of $48.1 million)
|
|
$
|
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
|
|
$
|
162.2
|
|
|
$
|
7.6
|
|
|
$
|
169.8
|
|
Total stockholders equity
|
|
$
|
7,239.5
|
|
|
$
|
7.6
|
|
|
$
|
7,247.1
|
|
SFAS No. 123(R)
Effective January 1, 2006, we adopted SFAS 123(R). See
notes 2 and 14.
Recent
Accounting Pronouncements
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. However, the effective date of
SFAS 157 as it relates to fair value measurement requirements
for nonfinancial assets and liabilities that are not remeasured
at fair value on a recurring basis has been deferred to fiscal
years beginning after November 15, 2008 and interim periods
within those years. We will adopt SFAS 157 (exclusive of
the deferred provisions discussed above) effective
January 1, 2008 and do not expect this adoption to have a
material impact 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
on an
instrument-by-instrument
basis. 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. Upon our January 1, 2008 adoption
of SFAS 159, we will adopt the fair value method of
accounting for certain equity method and available-for-sale
investments. We currently expect that the cumulative after-tax
effect of the adoption of the fair value method of accounting
for these investments will result in a reduction to our
January 1, 2008 accumulated deficit that will range between
$280 million and $360 million.
II-75
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
SFAS 141(R)
In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations (SFAS 141(R)).
SFAS 141(R) replaces SFAS 141, Business
Combinations, and generally requires an acquirer in a
business combination to recognize (i) the assets acquired,
(ii) the liabilities assumed (including those arising from
contractual contingencies), (iii) any contingent
consideration and (iv) any noncontrolling interest in the
acquiree at the acquisition date, at fair values as of that
date. The requirements of SFAS 141(R) will result in the
recognition by the acquirer of goodwill attributable to the
noncontrolling interest in addition to that attributable to the
acquirer. SFAS 141(R) amends SFAS 109 to require the
acquirer to recognize changes in the amount of its deferred tax
benefits that are recognizable because of a business combination
either in income from continuing operations in the period of the
combination or directly in contributed capital, depending on the
circumstances. SFAS 141(R) also amends SFAS 142, to,
among other things, provide guidance on the impairment testing
of acquired research and development intangible assets and
assets that the acquirer intends not to use. SFAS 141(R)
applies prospectively to business combinations for which the
acquisition date is on or after the beginning of the first
annual reporting period beginning on or after December 15,
2008. We have not completed our analysis of the impact of this
standard on our consolidated financial statements.
SFAS 160
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial Statements
(SFAS 160). SFAS 160 establishes accounting and
reporting standards for the noncontrolling interest in a
subsidiary and for the deconsolidation of a subsidiary. It also
clarifies that a noncontrolling interest in a subsidiary is an
ownership interest in a consolidated entity that should be
reported as equity in the consolidated financial statements. In
addition, SFAS 160 requires (i) that consolidated net
income include the amounts attributable to both the parent and
noncontrolling interest, (ii) that a parent recognize a
gain or loss in net income when a subsidiary is deconsolidated
and (iii) expanded disclosures that clearly identify and
distinguish between the interests of the parent owners and the
interests of the noncontrolling owners of a subsidiary.
SFAS 160 is effective for fiscal periods, and interim
periods within those fiscal years, beginning on or after
December 15, 2008. We have not completed our analysis of
the impact of this standard on our consolidated financial
statements.
EITF
06-10
In March 2007, the Emerging Issues Task Force (EITF)
reached a consensus on EITF Issue
No. 06-10,
Accounting for Deferred Compensation and Postretirement
Benefit Aspects of Collateral Assignment Split-Dollar Life
Insurance Arrangements
(EITF 06-10).
EITF 06-10
provides guidance for determining whether a liability for the
postretirement benefit associated with a collateral assignment
split-dollar life insurance arrangement should be recorded in
accordance with either SFAS No. 106,
Employers Accounting for Postretirement Benefits Other
Than Pensions (if, in substance, a postretirement benefit
plan exists), or APB No. 12, Omnibus Opinion (if the
arrangement is, in substance, an individual deferred
compensation contract).
EITF 06-10
also provides guidance on how a company should recognize and
measure the asset in a collateral assignment split-dollar life
insurance contract. We will adopt
EITF 06-10
on January 1, 2008 and do not expect this adoption to have
a material impact on our consolidated financial statements.
SAB 110
In December 2007, the United States Securities and Exchange
Commission (SEC) issued SAB No. 110 (SAB 110),
which amends the view of the SEC staff regarding the use of the
simplified method in developing an estimate of
expected term of plain vanilla share options and
allows usage of the simplified method for share
option grants prior to December 31, 2007. SAB 110
allows public companies which do not have historically
II-76
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
sufficient experience to provide a reasonable estimate to
continue use of the simplified method for estimating
the expected term of plain vanilla share option
grants after December 31, 2007. SAB 110 is not
expected to have a material impact on our consolidated financial
statements.
Significant
2007 Acquisitions
During 2007, our significant acquisitions included (i) our
consolidation of Telenet effective January 1, 2007 and our
acquisition of additional direct and indirect Telenet interests
during the year and (ii) J:COMs acquisition of JTV
Thematics (as defined below) on September 1, 2007. These
acquisitions, which are described below, are collectively
referred to herein as the Significant 2007 Acquisitions.
A summary of the purchase prices, opening balance sheets and the
effective acquisition dates for financial reporting purposes of
the Significant 2007 Acquisitions is presented following the
descriptions of these transactions below.
Acquisition
of Telenet
General As further described below, it was
not until February 2007 that we were able to exercise the voting
control associated with the Telenet shares we acquired in
November 2006. Accordingly, the November and December 2006
transactions that led to our January 1, 2007 consolidation
of Telenet are described below, along with the additional
interests that we acquired in 2007.
2006 Transactions As discussed in greater
detail below, we acquired 8,481,138 or 8.4% of Telenets
then-outstanding ordinary shares from third parties during
November and December of 2006.
LGI Telenet I BV, a Dutch BV (LGI Telenet I) (formerly Belgian
Cable Holdings, a Delaware partnership) is an indirect
subsidiary of Chellomedia and, prior to June 2007 (see below),
owned a majority common equity interest and a 100% preferred
interest in Belgian Cable Investors, a Delaware partnership
(Belgian Cable Investors). Belgian Cable Investors was dissolved
in December 2007 and the net assets of Belgian Cable Investors
were transferred to LGI Telenet I. LGI Telenet I provided 100%
of the funding for Belgian Cable Investors
November 13, 2006 acquisition of 6,750,000 Telenet shares,
as described below. In connection with this funding, the
interest in Belgian Cable Investors of Cable Partners Belgium
LLC (Cable Partners Belgium), an unrelated third party and, at
the time, the minority investor in Belgian Cable Investors, was
diluted effective in January 2007 from 21.6% to 10.5%.
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 NV (Liberty Global Europe), the
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, at the time, were
majority owned by Belgian Cable Investors (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
II-77
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
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 note 6. The
estimated redemption value of the Investcos securities
held by third parties was included in debt in our consolidated
balance sheets and changes in the estimated redemption value of
the Investcos securities held by third parties were
included in interest expense in our consolidated statements of
operations. During 2006 and 2005, we recorded increases to the
estimated redemption 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.
On November 13, 2006, Belgian Cable Investors, then a
majority owned subsidiary of Chellomedia, 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). At the time, the Mixed
Intercommunales were, along with certain of our subsidiaries,
members of a syndicate (the Telenet Syndicate) that controlled
Telenet by virtue of the Telenet Syndicates collective
ownership of a majority of the outstanding Telenet shares. As a
result of this transaction, we obtained a majority ownership
interest in the Telenet shares owned by the Telenet Syndicate,
thereby acquiring certain governance rights that provided us
with the ability to exercise voting control over Telenet, as
further described below. However, as we did not obtain
regulatory approval to exercise our voting control over Telenet
until February 26, 2007, we accounted for Telenet using the
equity method through December 31, 2006. Effective
January 1, 2007, we began accounting for Telenet as a
consolidated subsidiary. We obtained control of Telenet to
enhance our strategic alternatives with respect to our
investment position in Telenet.
2007 Transactions. During the first quarter of
2007, we acquired 2,720,970 or 2.7% of Telenets then
outstanding ordinary shares through transactions with third
parties and the conversion of certain warrants, for an aggregate
cost of 63.9 million ($83.8 million at the
average rate for the period), including direct acquisition costs
and the 4.9 million ($6.4 million at the average
rate for the period) fair value of the converted warrants.
On May 31, 2007, pursuant to the rights provided us under
the agreement among the Telenet Syndicate shareholders (the
Syndicate Agreement), we nominated seven additional members to
the Telenet Board, bringing our total number of representatives
to nine of the 17 total members. Under the Syndicate Agreement
and the Telenet Articles of Association, certain limited Telenet
Board decisions must receive the affirmative vote of specified
directors in order to be effective. Based on the shareholdings
of the other Telenet Syndicate shareholders at the time, these
special voting requirements applied only to certain
minority-protective decisions, including (i) affiliate
transactions, (ii) incurrence of debt in excess of that
required to fund Telenets business plan and
(iii) dispositions of assets representing more than 20% of
Telenets fair market value.
On June 29, 2007, LGI Telenet I paid cash consideration of
35.3 million ($47.6 million at the transaction
date) to acquire from a third party the remaining 10.5% interest
in Belgian Cable Investors that we did not already own.
On July 4, 2007, Belgian Cable Investors paid cash
consideration of 466.7 million, or 25.00 per
share ($635.7 million or $34.05 per share at the
transaction date), before direct acquisition costs, to exercise
options to acquire 18,668,826 Telenet shares from certain of the
Telenet Syndicate shareholders. As a result of this transaction,
only one third-party shareholder (the Financial Consortium)
remained within the Telenet Syndicate and our
II-78
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
governance rights increased such that the only Telenet Board
decisions that we do not control under the Syndicate Agreement
and the Telenet Articles of Association are certain
minority-protective decisions, including decisions to sell
certain cable assets or terminate cable services.
On August 7, 2007, we exercised 26,417 warrants to purchase
Telenet ordinary shares and on or around the same date, certain
third-party holders of these warrants exercised in the aggregate
a further 3,261,960 warrants. On August 10, 2007, Telenet
issued (i) 7,461,533 ordinary shares in the aggregate to
the Financial Consortium and other third parties and
(ii) 79,251 ordinary shares to our company upon the
exercise of these warrants. In connection with the dilution of
our Telenet ownership interest that resulted from the exercise
of the warrants by third-party holders, we recognized a loss of
35.8 million ($49.2 million at the transaction
date), which is reflected as a decrease to additional paid-in
capital in our consolidated statement of stockholders
equity for the year ended December 31, 2007. No deferred
income taxes were required to be provided on this loss.
On September 24, 2007, we purchased 5,300,000 Telenet
ordinary shares in privately negotiated transactions for total
cash consideration of 117.8 million
($165.9 million at the transaction date), including direct
acquisition costs. These shares are subject to the terms of the
Syndicate Agreement.
As of December 31, 2007, we indirectly owned
55,861,521 shares or 51.1% of Telenets then
outstanding ordinary shares.
We have accounted for our acquisitions of Telenet and Belgian
Cable Investors interests as step acquisitions, and have
allocated our investment basis to our pro rata share of
Telenets assets and liabilities at each significant
acquisition date based on the estimated fair values of such
assets and liabilities on such dates, and the excess of our
investment basis over the adjusted estimated fair values of such
identifiable net assets has been allocated to goodwill. The
purchase accounting for the 2007 Telenet and Belgian Cable
Investors step 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
Telenet. Although most items remain open in the valuation
process associated with the interests acquired during 2007, we
expect that the most significant adjustments to the preliminary
purchase price allocation will involve property and equipment,
intangible assets and deferred income taxes.
See note 6 for information regarding transactions related
to Telenet that occurred during 2005.
Acquisition
of JTV Thematics
Sumitomo Corporation (Sumitomo) is the owner of a minority
interest in LGI/Sumisho Super Media, LLC (Super Media), our
indirect majority owned subsidiary and the owner of a
controlling interest in J:COM. On July 2, 2007, Jupiter TV
Co., Ltd. (Jupiter TV), our Japanese programming joint venture
with Sumitomo, was split into two separate companies through the
spin-off of the thematics channel business (JTV Thematics). The
business of the newly incorporated JTV Thematics consists of the
operations that invest in, develop, manage and distribute
fee-based television programming through cable, satellite and
broadband platforms systems in Japan. Following the spin-off of
JTV Thematics, Jupiter TV was renamed SC Media &
Commerce, Inc. (SC Media). SC Medias business primarily
focuses on the operation of Jupiter Shop Channel Co., Ltd.
(Jupiter Shop Channel), through which a wide variety of consumer
products and accessories are marketed and sold.
As further described in note 5, we exchanged our interest
in SC Media for shares of Sumitomo common stock on July 3,
2007.
On September 1, 2007, JTV Thematics and J:COM executed a
merger agreement under which JTV Thematics was merged with
J:COM. The merger of J:COM and JTV Thematics has been treated as
the acquisition of JTV Thematics by J:COM. J:COM acquired JTV
Thematics to increase its presence in the programming
distribution
II-79
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
business in Japan. J:COM has accounted for the acquisition of
JTV Thematics under the provisions of SFAS 141 whereby the
JTV Thematics interest acquired from Sumitomo has been accounted
for using the purchase method of accounting and the JTV
Thematics interest acquired from our company has been treated as
a transaction between entities under common control.
Accordingly, for accounting purposes, J:COMs cost to
acquire JTV Thematics includes (i) ¥26,839 million
($231.7 million at the transaction date) representing the
value assigned to the 253,676 J:COM ordinary shares issued to
Sumitomo based on the average quoted market price of J:COM
ordinary shares for the period beginning two trading days before
and ending two trading days after the terms of the merger were
agreed to and announced (May 22, 2007), (ii)
¥6,708 million ($57.9 million at the transaction
date) representing the value assigned to the 253,675 J:COM
ordinary shares issued to one of our wholly owned indirect
subsidiaries, based on our historical cost basis in JTV
Thematics at September 1, 2007 and (iii)
¥385.0 million ($3.3 million at the transaction
date) representing direct acquisition costs.
The aggregate cost basis assigned to the JTV Thematics interests
acquired by J:COM, as detailed above, has been allocated to the
acquired identifiable net assets of JTV Thematics based on
preliminary assessments of their respective fair values, and the
excess of the aggregate cost basis over the preliminary fair
values of such identifiable net assets was allocated to
goodwill. The allocation of this aggregate cost basis by J:COM,
as reflected in these consolidated financial statements, is
preliminary and subject to adjustment based on J:COMs
final assessment of the fair values of the identifiable assets
and liabilities of JTV Thematics. Although most items in the JTV
Thematics valuation process remain open, we expect that the most
significant adjustments to the preliminary allocation will
involve intangible assets and deferred income taxes.
In connection with the dilution of our J:COM ownership interest
that resulted from the issuance of the J:COM shares to Sumitomo,
we recorded a $53.0 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, 2007. No deferred income taxes were required
to be provided on this gain.
II-80
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
Opening
Balance Sheet Information of the Significant 2007
Acquisitions
A summary of the purchase prices, opening balance sheets and the
effective acquisition or consolidation dates for financial
reporting purposes of the Significant 2007 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:
|
|
|
|
|
|
|
|
|
|
|
Telenet
|
|
|
JTV Thematics
|
|
Effective acquisition or consolidation date for financial
|
|
January 1,
|
|
|
September 1,
|
|
reporting purposes:
|
|
2007
|
|
|
2007
|
|
|
|
in millions
|
|
|
Cash
|
|
$
|
77.6
|
|
|
$
|
6.3
|
|
Other current assets
|
|
|
159.1
|
|
|
|
22.3
|
|
Investments in affiliates
|
|
|
|
|
|
|
121.7
|
|
Property and equipment, net
|
|
|
1,417.9
|
|
|
|
8.8
|
|
Goodwill
|
|
|
1,983.7
|
|
|
|
154.6
|
|
Intangible assets subject to amortization (a)
|
|
|
918.7
|
|
|
|
119.4
|
|
Other assets, net
|
|
|
22.9
|
|
|
|
14.5
|
|
Current liabilities
|
|
|
(575.6
|
)
|
|
|
(48.9
|
)
|
Long-term debt and capital lease obligations
|
|
|
(1,810.7
|
)
|
|
|
(25.0
|
)
|
Other long-term liabilities
|
|
|
(295.1
|
)
|
|
|
(80.6
|
)
|
Minority interests (b)
|
|
|
(378.3
|
)
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
1,520.2
|
|
|
$
|
292.9
|
|
|
|
|
|
|
|
|
|
|
Purchase price:
|
|
|
|
|
|
|
|
|
Cash consideration
|
|
$
|
930.8
|
|
|
$
|
|
|
Issuance of J:COM stock to Sumitomo
|
|
|
|
|
|
|
231.7
|
|
Investment in affiliates (c)
|
|
|
523.3
|
|
|
|
57.9
|
|
Options and warrants (d)
|
|
|
65.2
|
|
|
|
|
|
Direct acquisition costs
|
|
|
0.9
|
|
|
|
3.3
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,520.2
|
|
|
$
|
292.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The amounts reflected as intangible assets subject to
amortization primarily include intangible assets related to
customer relationships and certain network-related rights. At
January 1, 2007 and the respective 2007 step acquisition
dates, the weighted average useful life of Telenets
intangible assets was approximately 16 years. At
September 1, 2007, the useful life of JTV Thematics
intangible assets was approximately 15 years. |
|
(b) |
|
The Telenet amount represents the minority interest owners
share of Telenets net assets. |
|
(c) |
|
These amounts represent the carrying values of our equity method
investments in Telenet and JTV Thematics, which were eliminated
upon our respective acquisitions of controlling interests in
these entities. |
|
(d) |
|
Amount represents the fair value of options and warrants to
acquire Telenet ordinary shares on the date of exercise. |
II-81
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
Other
2007 Acquisition
Telesystems Tirol On October 2, 2007,
our operating subsidiary in Austria acquired Telesystem Tirol
GmbH & Co KG (Tirol), a broadband communications
operator in Austria, for cash consideration of
84.3 million ($119.3 million at the transaction
date), including working capital adjustments and direct
acquisition costs.
Significant
2006 Acquisitions
During 2006, our significant acquisitions included
(i) J:COMs acquisition of a controlling interest in
Cable West, Inc. (Cable West) effective September 28, 2006
and (ii) the consolidation of Karneval Media s.r.o. and
Forecable s.r.o. (together 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 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. On January 1, 2008,
Cable West was merged with certain other J:COM entities to
form J:COM West Co., Ltd.
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
J:COMs cost method investment in Cable West, has been
allocated to the identifiable assets and liabilities of Cable
West based on 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 fair values of such identifiable net
assets was allocated to goodwill.
Acquisition
of Karneval
On August 9, 2006, we announced that (i) 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 all interests in
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
II-82
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
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 assessments of their respective
fair values, and the excess of the purchase price over the fair
values of such identifiable net assets was allocated to goodwill.
II-83
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (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 reflect our final purchase price
allocations, including certain purchase accounting adjustments
that were recorded in 2007 prior to the finalization of purchase
accounting.
|
|
|
|
|
|
|
|
|
|
|
Cable West
|
|
|
Karneval
|
|
Effective acquisition or consolidation date
|
|
September 30,
|
|
|
September 30,
|
|
for financial reporting purposes:
|
|
2006
|
|
|
2006
|
|
|
|
in millions
|
|
|
Cash
|
|
$
|
15.1
|
|
|
$
|
12.4
|
|
Other current assets
|
|
|
45.6
|
|
|
|
2.6
|
|
Property and equipment, net
|
|
|
300.5
|
|
|
|
172.9
|
|
Goodwill
|
|
|
365.9
|
|
|
|
233.0
|
|
Intangible assets subject to amortization (a)
|
|
|
110.0
|
|
|
|
20.9
|
|
Other assets, net
|
|
|
2.9
|
|
|
|
14.9
|
|
Current liabilities
|
|
|
(73.6
|
)
|
|
|
(10.0
|
)
|
Long-term debt and capital lease obligations
|
|
|
(65.1
|
)
|
|
|
(1.8
|
)
|
Other long-term liabilities
|
|
|
(138.2
|
)
|
|
|
(16.5
|
)
|
Minority interests in subsidiaries
|
|
|
(6.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
556.7
|
|
|
$
|
428.4
|
|
|
|
|
|
|
|
|
|
|
Purchase price:
|
|
|
|
|
|
|
|
|
Cash consideration
|
|
$
|
538.0
|
|
|
$
|
420.1
|
|
Other investment (b)
|
|
|
16.4
|
|
|
|
|
|
Direct acquisition costs
|
|
|
2.3
|
|
|
|
8.3
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
556.7
|
|
|
$
|
428.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The amounts reflected as intangible assets subject to
amortization primarily relate to our assessment of the fair
value of customer relationships. Such acquired intangible assets
for Cable West and Karneval had weighted average lives of 10 and
5 years, respectively, at the respective acquisition dates. |
|
(b) |
|
The Cable West amount represents the $16.4 million carrying
value of J:COMs cost method investment in Cable West as of
September 27, 2006, which was eliminated upon J:COMs
acquisition of a controlling interest. |
Other
2006 Acquisition
INODE On March 2, 2006 we acquired UPC
Austria GmbH (formerly 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.
II-84
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
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 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 Super Media/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 LGI
International did not already own and LGI International 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 LGI
Internationals principal consolidated asset was its
majority interest in UGC, another public company.
In the LGI Combination, (i) each outstanding share of LGI
International 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 LGI
International 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) $9.58
in cash. Cash elections were subject to proration so that the
aggregate cash consideration paid to UGCs stockholders
would not exceed 20% of the aggregate value of the merger
consideration payable to UGCs public stockholders. The
effects of the LGI Combination have been included in our
historical consolidated financial statements beginning with the
June 15, 2005 acquisition date.
II-85
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
The LGI Combination has been accounted for as a step acquisition
by our company of the remaining minority interest in UGC. The
purchase price in this step acquisition includes the
consideration issued to UGC public stockholders to acquire the
UGC interest not already owned by our company and the direct
acquisition costs incurred by our company. The details of the
purchase price are presented in the following table ($ in
millions):
|
|
|
|
|
Shares of LGI Series A common stock issued to UGC
stockholders other than LGI International 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 LGI International 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 LGI International 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 LGI International 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 were
combined in 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-86
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (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, 2007, Super Media owned
3,987,238 shares of J:COM, or 58.2% of the outstanding
shares of J:COM, and certain of our subsidiaries owned an
aggregate 58.7% ownership interest in Super Media.
See note 21 for additional information concerning J:COM.
Acquisition
of Cablecom
On October 24, 2005, Liberty Global Switzerland, Inc.
(LG Switzerland), our indirect wholly-owned subsidiary,
purchased from Glacier Holdings S.C.A. all of the issued share
capital of Cablecom, the parent
II-87
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
company of a Swiss broadband communications company, for a cash
purchase price before 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
(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).
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
II-88
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
the May 9, 2005 closing of MS Irish Cables
acquisition of NTL Ireland. As MSDW Equity had no equity at risk
in 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 204.9 million
Australian dollars (AUD) ($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, 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, LGI
International owned a 50% interest in Metrópolis, with the
remaining 50% interest owned by Cristalerías de Chile S.A.
(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
6,067 million Chilean pesos (CLP) ($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
II-89
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
CLP 30.335 billion ($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 2005 VTR Bank Facility. See note 10. 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. On August 1, 2007,
VTR received formal written notice from the Chilean Federal
Economic Prosecutor (FNE) that Liberty Medias acquisition
of the DirecTV interest would violate one of the conditions
imposed by the Chilean Antitrust Court on VTRs combination
with Metrópolis prohibiting VTR and its control group from
participating, directly or indirectly through related persons,
in Chilean satellite or microwave television businesses. If the
FNE ultimately determines that a violation has occurred, it will
commence an action before the Chilean Antitrust Court. We
currently are unable to predict the outcome of this matter.
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-90
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (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 prior to the finalization of purchase accounting:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Super Media/
|
|
|
|
|
|
NTL
|
|
|
LGI
|
|
|
|
|
|
|
|
|
|
|
|
|
J:COM
|
|
|
Metrópolis (d)
|
|
|
Ireland
|
|
|
Combination (e)
|
|
|
Astral
|
|
|
Cablecom
|
|
|
Austar (f)
|
|
Effective acquisition or consolidation
|
|
January 1,
|
|
|
April 1,
|
|
|
May 1,
|
|
|
June 15,
|
|
|
October 1,
|
|
|
October 31,
|
|
|
December 31,
|
|
date for financial reporting purposes:
|
|
2005
|
|
|
2005
|
|
|
2005
|
|
|
2005
|
|
|
2005
|
|
|
2005
|
|
|
2005
|
|
|
|
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
|
|
|
65.2
|
|
|
|
|
|
|
|
|
|
|
|
184.9
|
|
|
|
1.9
|
|
|
|
5.7
|
|
|
|
38.7
|
|
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 (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 (b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
1,052.5
|
|
|
$
|
250.2
|
|
|
$
|
448.8
|
|
|
$
|
3,491.1
|
|
|
$
|
409.4
|
|
|
$
|
2,225.9
|
|
|
$
|
317.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Investments in affiliates (c)
|
|
|
1,052.5
|
|
|
|
55.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
161.8
|
|
Issuance of derivative instrument
|
|
|
|
|
|
|
11.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of LGI stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,787.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of VTR common stock
|
|
|
|
|
|
|
180.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,052.5
|
|
|
$
|
250.2
|
|
|
$
|
448.8
|
|
|
$
|
3,491.1
|
|
|
$
|
409.4
|
|
|
$
|
2,225.9
|
|
|
$
|
317.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
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. |
|
(b) |
|
The amount reflected in the Austar column represents the
minority interests share in the stockholders 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 Influence to Control through a Market
Purchase of Voting Securities. |
II-91
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
|
|
|
(c) |
|
These amounts represent the carrying values of our equity method
investments in Super Media/J:COM, Austar and Metrópolis of
$1,052.5 million, $161.8 million and
$55.0 million, respectively, which were eliminated upon our
respective acquisitions of controlling interests in these
entities. |
|
(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 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, 2007, we owned 676,258,394 or
53.4% of the issued and outstanding shares of Austar. |
Other
2005 Acquisitions
UPC Broadband France In April 2005, UPC
France paid 90.1 million ($116.0 million at the
transaction date) to exercise a call right to acquire the 19.9%
remaining minority interest in UPC Broadband France SAS (UPC
Broadband France) it did not already own. UPC Broadband France
was an indirect subsidiary of UPC Broadband Holding and the
owner of our French broadband communications operations prior to
our disposition of UPC France in July 2006. The call right was
originally acquired in connection with our July 2004 acquisition
of Suez-Lyonnaise Télécom SA (Noos), a broadband
communications operator in France. 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 initially 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 initially were retained
as employees. In addition, these individuals 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 recorded stock-based
compensation expense with respect to these agreements through
the third quarter of 2007.
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 individuals
II-92
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
received a portion of the LGI Series A and Series C
common stock held in escrow. In July 2007, Chellomedia acquired
all of the remaining Class B1 shares of Zonemedia for
cash consideration of $21.4 million, after first agreeing
to accelerate the remaining vesting requirements on the
Class B1 shares. See note 14.
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.
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 Zonemedia, Telemach, J:COM Chofu
Cable and J:COM Setamachi Acquisitions We have
used the purchase method to account for the interests acquired
in Zonemedia, Telemach, J:COM Chofu Cable and J:COM Setamachi.
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.
II-93
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
Pro
Forma Information for 2007 and 2006 Significant
Acquisitions
The following unaudited pro forma consolidated operating results
for 2007 and 2006 give effect to (i) the Significant 2007
Acquisitions as if they had been completed as of January 1,
2007 (for 2007 results) and January 1, 2006 (for 2006
results) and (ii) the Significant 2006 Acquisitions as if
they had been completed as of January 1, 2006 (for 2006
results). No effect has been given to the acquisitions of INODE
and Tirol since they would not have had a material impact on our
results of operations for the indicated periods. 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,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
in millions, except per share amounts
|
|
|
Revenue
|
|
$
|
9,061.7
|
|
|
$
|
7,776.3
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations
|
|
$
|
(430.3
|
)
|
|
$
|
(344.5
|
)
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share from continuing
operations Series A, Series B and
Series C common stock
|
|
$
|
(1.13
|
)
|
|
$
|
(0.79
|
)
|
|
|
|
|
|
|
|
|
|
Pro
Forma Information for 2006 and 2005 Significant
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 5, 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
|
|
|
|
in millions, except per share amounts
|
|
|
Revenue
|
|
$
|
6,667.9
|
|
|
$
|
5,788.5
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations
|
|
$
|
(337.2
|
)
|
|
$
|
(353.3
|
)
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share from continuing
operations Series A, Series B and
Series C common stock
|
|
$
|
(0.77
|
)
|
|
$
|
(0.75
|
)
|
|
|
|
|
|
|
|
|
|
II-94
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
|
|
(5)
|
Dispositions
and Discontinued Operations
|
2007
Dispositions
SC Media On July 3, 2007, pursuant to a
share-for-share exchange agreement with Sumitomo, we exchanged
all of our shares in SC Media for 45,652,043 shares of
Sumitomo common stock with a transaction date market value of
¥104.5 billion ($854.7 million at the transaction
date). As a result of this exchange transaction, we recognized a
pre-tax gain of $489.3 million, representing the excess of
the market value of the Sumitomo shares received over the
carrying value of our investment in SC Media, after deducting a
$19.4 million foreign currency translation loss that was
reclassified from our accumulated other comprehensive earnings
to our consolidated statement of operations in connection with
this exchange transaction. During the second quarter of 2007, we
executed a zero cost collar transaction with respect to the
Sumitomo shares. See note 8. During the fourth quarter of
2007, we recorded a loss due to an other-than-temporary decline
in the fair value of our investment in Sumitomo common stock.
See note 7.
Melita Cable Plc (Melita) On July 26,
2007, an indirect wholly owned subsidiary of Chellomedia sold
its 50% interest in Melita to an unrelated third party for cash
consideration of 73.6 million ($101.1 million at
the transaction date). We recognized a gain of
45.2 million ($62.2 million at the transaction
date) in connection with this transaction.
2006
Dispositions
UPC Belgium NV/SA (UPC Belgium) 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.
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 (PrimaCom). 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.
II-95
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
2005
Dispositions
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.
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. We recognized a pre-tax gain of
$40.5 million in connection with this transaction. For
additional information, see note 16.
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.
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 10. 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
II-96
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
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 2006 consolidated statement of operations.
Prior to its disposal, we included UPC Norway in our then
reportable segment, Other Western Europe.
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 then reportable
segment, Other Western Europe.
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 ($153.1 million) of the amounts
held in the UPC Holding restricted account, together with
available cash of 25.0 million ($36.5 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
($269.8 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 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 Holding BV, 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.
II-97
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
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 (a)
|
|
|
2005 (b)
|
|
|
|
in millions
|
|
|
Revenue
|
|
$
|
325.4
|
|
|
$
|
767.3
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
25.1
|
|
|
$
|
16.8
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before income taxes and minority interests
|
|
$
|
7.0
|
|
|
$
|
(31.2
|
)
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) from discontinued operations
|
|
$
|
6.8
|
|
|
$
|
(20.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes UPC Sweden, UPC France and PT Norway. |
|
(b) |
|
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 and $43.9 million for the
years ended December 31, 2006 and 2005, respectively, is
included in discontinued operations in our consolidated
statements of operations.
|
|
(6)
|
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,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
Percentage
|
|
|
Carrying
|
|
|
Carrying
|
|
|
|
ownership
|
|
|
Amount
|
|
|
amount
|
|
|
|
in millions
|
|
|
Mediatti Communications, Inc. (Mediatti)
|
|
|
|
(a)
|
|
$
|
64.4
|
|
|
$
|
61.3
|
|
Discovery Japan, Inc. (Discovery Japan) (b)
|
|
|
50.0
|
%
|
|
|
56.0
|
|
|
|
|
|
JSports Broadcasting Corporation (JSports) (c)
|
|
|
33.4
|
%
|
|
|
52.5
|
|
|
|
|
|
XYZ Network, Pty LTD (XYZ Network) (d)
|
|
|
50.0
|
%
|
|
|
48.2
|
|
|
|
40.8
|
|
Telewizyjna Korporacja Partycypacyjna S.A. (TKP Poland) (e)
|
|
|
25.0
|
%
|
|
|
46.4
|
|
|
|
33.1
|
|
Telenet
|
|
|
|
(f)
|
|
|
|
|
|
|
523.3
|
|
SC Media
|
|
|
|
(g)
|
|
|
|
|
|
|
293.3
|
|
Melita
|
|
|
|
(h)
|
|
|
|
|
|
|
36.3
|
|
Other
|
|
|
Various
|
|
|
|
121.1
|
|
|
|
74.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
388.6
|
|
|
$
|
1,062.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Our interest in Mediatti, a provider of broadband communications
services in Japan, is held through Liberty Japan MC LLC (Liberty
Japan MC), a company of which we own 95.2% and Sumitomo owns
4.8%. At December 31, 2007, Liberty Japan MC owned a 45.5%
voting interest in Mediatti. |
II-98
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
|
|
|
(b) |
|
Our interest in Discovery Japan, a general documentary channel
business currently operating two channels in Japan, is held by
J:COM. |
|
(c) |
|
Our interest in JSports, a sports channel business currently
operating four channels in Japan, is held by J:COM. |
|
(d) |
|
Our interest in XYZ Network, a provider of programming services
in Australia, is held by Austar. |
|
(e) |
|
Our interest in TKP Poland, a provider of DTH services in
Poland, is held by Chellomedia. |
|
(f) |
|
Effective January 1, 2007, we began accounting for Telenet
as a consolidated subsidiary. See note 4. |
|
(g) |
|
See below and notes 4 and 5 for information regarding
recent transactions related to SC Media. |
|
(h) |
|
In July 2007, we sold our interest in Melita, a broadband
communications operator in Malta. See note 5. |
The following table sets forth our share of results of
affiliates, net, including any losses related to
other-than-temporary declines in fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
in millions
|
|
|
SC Media
|
|
$
|
16.7
|
|
|
$
|
34.4
|
|
|
$
|
27.8
|
|
TKP Poland
|
|
|
7.7
|
|
|
|
(1.2
|
)
|
|
|
(0.4
|
)
|
XYZ Network
|
|
|
5.5
|
|
|
|
4.3
|
|
|
|
|
|
Mediatti
|
|
|
(0.9
|
)
|
|
|
(5.3
|
)
|
|
|
(6.9
|
)
|
Melita
|
|
|
2.1
|
|
|
|
3.7
|
|
|
|
3.7
|
|
Telenet
|
|
|
|
|
|
|
(24.3
|
)
|
|
|
(33.5
|
)
|
Austar
|
|
|
|
|
|
|
|
|
|
|
13.1
|
|
Other
|
|
|
2.6
|
|
|
|
1.4
|
|
|
|
(26.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (a)
|
|
$
|
33.7
|
|
|
$
|
13.0
|
|
|
$
|
(23.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The 2005 amount includes losses related to other-than-temporary
declines in fair value of $29.2 million, primarily related
to our then investment in TyC (included in other in the above
table). See note 5. |
At December 31, 2007 and 2006, the aggregate carrying
amount of our investments in affiliates exceeded our
proportionate share of our affiliates net assets by
$237.5 million and $690.0 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, 2007, such estimated useful lives ranged from
5 to 15 years.
II-99
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
Mediatti
Summarized financial information of Mediatti is as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
in millions
|
|
|
Financial Position
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
35.8
|
|
|
$
|
48.7
|
|
Investments
|
|
|
7.3
|
|
|
|
6.7
|
|
Property and equipment, net
|
|
|
208.4
|
|
|
|
197.2
|
|
Intangibles and other assets, net
|
|
|
73.8
|
|
|
|
71.2
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
325.3
|
|
|
$
|
323.8
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
53.2
|
|
|
$
|
39.2
|
|
Debt
|
|
|
138.7
|
|
|
|
143.6
|
|
Other liabilities
|
|
|
43.0
|
|
|
|
52.5
|
|
Minority interests
|
|
|
1.9
|
|
|
|
3.5
|
|
Shareholders equity
|
|
|
88.5
|
|
|
|
85.0
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
325.3
|
|
|
$
|
323.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
in millions
|
|
|
Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
124.2
|
|
|
$
|
87.5
|
|
|
$
|
78.4
|
|
Operating, selling, general and administrative expenses
|
|
|
(86.7
|
)
|
|
|
(67.0
|
)
|
|
|
(56.9
|
)
|
Depreciation and amortization
|
|
|
(36.2
|
)
|
|
|
(27.9
|
)
|
|
|
(32.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
1.3
|
|
|
|
(7.4
|
)
|
|
|
(10.5
|
)
|
Other, net
|
|
|
(3.5
|
)
|
|
|
(4.5
|
)
|
|
|
(7.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2.2
|
)
|
|
$
|
(11.9
|
)
|
|
$
|
(17.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telenet
We began accounting for Telenet as a consolidated subsidiary
effective January 1, 2007. For information concerning
transactions involving our Telenet ownership interests during
2007 and 2006, see note 4.
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.
II-100
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
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.
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
|
|
|
|
in millions
|
|
|
Financial Position
|
|
|
|
|
Current assets
|
|
$
|
221.9
|
|
Property and equipment, net
|
|
|
1,291.4
|
|
Goodwill
|
|
|
1,295.8
|
|
Other assets, net
|
|
|
606.5
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,415.6
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
551.2
|
|
Debt
|
|
|
1,786.1
|
|
Other liabilities
|
|
|
121.4
|
|
Shareholders equity
|
|
|
956.9
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
3,415.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
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
|
)
|
|
|
|
|
|
|
|
|
|
II-101
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
SC
Media
SC Media, a 50% joint venture formed in 1996 by our company and
Sumitomo, was a programming company in Japan, which owned and
invested in a variety of channels including Jupiter Shop
Channel. As a result of the exchange of our investment in SC
Media for Sumitomo shares on July 3, 2007 and J:COMs
acquisition of a 100% interest in JTV Thematics on
September 1, 2007, we no longer own an interest in SC Media
and certain of the equity method investments formerly owned by
SC Media are now owned by J:COM, including a 50% interest in
Discovery Japan and a 33.4% interest in JSports. For additional
information, see notes 4 and 5.
Summarized financial information of SC Media for the periods in
which we used the equity method to account for SC Media is as
follows:
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
|
in millions
|
|
|
Financial Position
|
|
|
|
|
Current assets
|
|
$
|
320.8
|
|
Investments
|
|
|
70.5
|
|
Property and equipment, net
|
|
|
63.6
|
|
Intangible and other assets, net
|
|
|
58.8
|
|
|
|
|
|
|
Total assets
|
|
$
|
513.7
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
193.7
|
|
Long-term debt and capital leases
|
|
|
17.3
|
|
Other liabilities
|
|
|
10.3
|
|
Minority interest
|
|
|
77.8
|
|
Owners equity
|
|
|
214.6
|
|
|
|
|
|
|
Total liabilities and owners equity
|
|
$
|
513.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months
|
|
|
|
|
|
|
|
|
|
ended
|
|
|
Year ended
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
in millions
|
|
|
Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
449.8
|
|
|
$
|
961.2
|
|
|
$
|
798.1
|
|
Operating, selling, general and administrative expenses
|
|
|
(368.7
|
)
|
|
|
(752.3
|
)
|
|
|
(636.5
|
)
|
Depreciation and amortization
|
|
|
(12.7
|
)
|
|
|
(21.2
|
)
|
|
|
(16.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
68.4
|
|
|
|
187.7
|
|
|
|
145.4
|
|
Other, net
|
|
|
(38.7
|
)
|
|
|
(108.1
|
)
|
|
|
(77.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations
|
|
$
|
29.7
|
|
|
$
|
79.6
|
|
|
$
|
68.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
29.7
|
|
|
$
|
68.8
|
|
|
$
|
55.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
II-102
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
Austar
As described in note 4, 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 period in
which we used the equity method to account for Austar are as
follows:
|
|
|
|
|
|
|
Year ended
|
|
|
|
December 31,
|
|
|
|
2005
|
|
|
|
in millions
|
|
|
Results of Operations
|
|
|
|
|
Revenue
|
|
$
|
345.7
|
|
Operating, selling, general and administrative expenses
|
|
|
(245.7
|
)
|
Depreciation and amortization
|
|
|
(49.4
|
)
|
|
|
|
|
|
Operating income
|
|
|
50.6
|
|
Interest expense, net
|
|
|
(23.4
|
)
|
Other, net
|
|
|
17.8
|
|
|
|
|
|
|
Net earnings
|
|
$
|
45.0
|
|
|
|
|
|
|
Other
Summarized financial information of certain of our former equity
affiliates for the periods in which we used the equity method to
account for these affiliates is presented below. These former
equity affiliates include (i) Melita, which we sold in July
2007, (ii) PrimaCom, which we sold in August 2006, and
(iii) IPS, which we began consolidating in November 2005:
|
|
|
|
|
|
|
Melita
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
|
in millions
|
|
|
Financial Position
|
|
|
|
|
Current assets
|
|
$
|
13.7
|
|
Property and equipment, net
|
|
|
69.6
|
|
|
|
|
|
|
Total assets
|
|
$
|
83.3
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
53.9
|
|
Debt and capital leases
|
|
|
6.2
|
|
Owners equity
|
|
|
23.2
|
|
|
|
|
|
|
Total liabilities and owners equity
|
|
$
|
83.3
|
|
|
|
|
|
|
II-103
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Melita
|
|
|
IPS
|
|
|
|
|
|
|
Six months
|
|
|
|
|
|
|
|
|
Ten months
|
|
|
PrimaCom (a)
|
|
|
|
ended
|
|
|
Year ended
|
|
|
ended
|
|
|
Year ended
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
October 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2005
|
|
|
2005
|
|
|
|
in millions
|
|
|
Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
22.3
|
|
|
$
|
39.8
|
|
|
$
|
34.2
|
|
|
$
|
43.6
|
|
|
$
|
147.1
|
|
Operating, selling, general and administrative expenses
|
|
|
(12.4
|
)
|
|
|
(20.2
|
)
|
|
|
(15.3
|
)
|
|
|
(23.9
|
)
|
|
|
(88.5
|
)
|
Depreciation and amortization
|
|
|
(3.3
|
)
|
|
|
(5.6
|
)
|
|
|
(4.8
|
)
|
|
|
(1.0
|
)
|
|
|
(53.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
6.6
|
|
|
|
14.0
|
|
|
|
14.1
|
|
|
|
18.7
|
|
|
|
5.4
|
|
Other, net
|
|
|
(3.1
|
)
|
|
|
(6.2
|
)
|
|
|
(6.6
|
)
|
|
|
(9.7
|
)
|
|
|
130.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations
|
|
$
|
3.5
|
|
|
$
|
7.8
|
|
|
$
|
7.5
|
|
|
$
|
9.0
|
|
|
$
|
136.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
3.5
|
|
|
$
|
7.8
|
|
|
$
|
7.5
|
|
|
$
|
9.0
|
|
|
$
|
300.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
As discussed in note 5, 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.
|
The following table sets forth the carrying amount of our other
investments:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
in millions
|
|
|
Sumitomo (a)
|
|
$
|
648.1
|
|
|
$
|
|
|
The News Corporation Limited (News Corp.) (a)
|
|
|
112.7
|
|
|
|
118.1
|
|
ABC Family Worldwide, Inc. (ABC Family) (a)
|
|
|
|
|
|
|
351.0
|
|
Other
|
|
|
22.1
|
|
|
|
8.5
|
|
|
|
|
|
|
|
|
|
|
Total other investments
|
|
$
|
782.9
|
|
|
$
|
477.6
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
Classified as an available-for-sale investment.
|
Sumitomo
At December 31, 2007, we owned 45,652,043 shares of
Sumitomo common stock. Our Sumitomo shares, which, as further
described in note 5, we acquired on July 3, 2007,
represented 3.7% of Sumitomos outstanding common stock at
September 30, 2007, the latest date for which information
with respect to Sumitomos outstanding shares is publicly
available. During the fourth quarter of 2007, the value of our
investment in Sumitomo common stock declined to a level at
December 31, 2007 that was nearly 25% below our then cost
basis of ¥104.5 billion
II-104
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
($854.7 million at the transaction date). The decline in
fair value was considered other-than-temporary primarily due to
the extent and length of time that fair value was below carrying
value and uncertainties regarding the near-term prospects for
the recovery of the market price of Sumitomo shares.
Accordingly, we recognized a $206.6 million pre-tax loss in
December 2007. This loss is included in other-than-temporary
declines in fair values of investments in our consolidated
statement of operations. Our investment in Sumitomo common stock
is pledged as security for borrowings under the Sumitomo Collar,
which among other matters, effectively hedges our exposure to
declines in the market price of Sumitomo common stock below a
specified amount. For additional information, see note 8.
News
Corp.
At December 31, 2007 and 2006, we held
5,500,000 shares of News Corp. Class A common stock.
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 8.
ABC
Family
At December 31, 2006, we owned a 99.9% beneficial interest
in the 9% Series A preferred stock of ABC Family with an
aggregate liquidation value of $345.0 million (ABC Family
preferred stock). As further described in note 10, our ABC
Family preferred stock was pledged as security for
$345.0 million principal amount of the outstanding
borrowings of one of our subsidiaries. On August 2, 2007,
the ABC Family preferred stock was redeemed and we used the
resulting proceeds to repay in full the related secured
borrowings. We recognized dividend income on our investment in
shares of ABC Family preferred stock of $18.1 million
during 2007 and $31.1 million during each of 2006 and 2005.
During 2007, 2006 and 2005, we recognized losses of
$6.0 million, $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.
Unrealized
holding gains and losses
At December 31, 2007 and 2006, unrealized holding gains
related to investments in available-for-sale securities of
$55.9 million and $61.3 million, respectively, are
included in accumulated other comprehensive earnings, net of
tax, in our consolidated financial statements.
|
|
(8)
|
Derivative
Instruments
|
Through our subsidiaries, we have entered into various
derivative instruments to manage interest rate and foreign
currency exposure with respect to the U.S. dollar, the
euro, the Czech koruna (CZK), the Slovakian koruna (SKK), the
Hungarian forint (HUF), the Polish zloty (PLN), the Romanian lei
(RON), the Swiss franc, the Chilean peso, the Japanese yen and
the Australian dollar. With the exception of certain of
J:COMs derivative instruments, which are accounted for as
cash flow hedges, we do not apply hedge accounting to our
derivative instruments.
II-105
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
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,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
in millions
|
|
|
Cross-currency and interest rate derivative contracts
|
|
$
|
(280.3
|
)
|
|
$
|
(174.6
|
)
|
Equity-related derivatives
|
|
|
210.8
|
|
|
|
37.4
|
|
Foreign exchange contracts
|
|
|
(5.9
|
)
|
|
|
28.0
|
|
Other
|
|
|
5.0
|
|
|
|
3.1
|
|
|
|
|
|
|
|
|
|
|
Total (a)
|
|
$
|
(70.4
|
)
|
|
$
|
(106.1
|
)
|
|
|
|
|
|
|
|
|
|
Current asset
|
|
$
|
230.5
|
|
|
$
|
51.0
|
|
Long-term asset
|
|
|
421.7
|
|
|
|
166.5
|
|
Current liability
|
|
|
(116.2
|
)
|
|
|
(40.3
|
)
|
Long-term liability
|
|
|
(606.4
|
)
|
|
|
(283.3
|
)
|
|
|
|
|
|
|
|
|
|
Total (a)
|
|
$
|
(70.4
|
)
|
|
$
|
(106.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
Excludes the prepaid forward sale of News Corp. Class A
common stock, which is included in long-term debt and capital
lease obligations in our consolidated balance sheets.
|
The details of our realized and unrealized gains (losses) on
financial and derivative instruments, net, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
in millions
|
|
|
Equity-related derivatives (a)
|
|
$
|
239.8
|
|
|
$
|
21.7
|
|
|
$
|
78.8
|
|
Cross-currency and interest rate derivative contracts
|
|
|
(150.7
|
)
|
|
|
(312.0
|
)
|
|
|
216.0
|
|
UGC Convertible Notes (b)
|
|
|
(111.1
|
)
|
|
|
(82.8
|
)
|
|
|
|
|
Foreign exchange contracts
|
|
|
(19.3
|
)
|
|
|
21.3
|
|
|
|
11.7
|
|
Other
|
|
|
2.6
|
|
|
|
4.2
|
|
|
|
3.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(38.7
|
)
|
|
$
|
(347.6
|
)
|
|
$
|
310.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
Includes (i) gains during 2007 associated with the Sumitomo
Collar (as described below) of $209.6 million,
(ii) gains and losses during 2007, 2006 and 2005 associated
with (a) the call options we held with respect to Telenet
ordinary shares and (b) the forward sale of the News Corp.
Class A common stock and (iii) gains during 2005
associated with the embedded derivative component of the UGC
Convertible Notes (see note 10). As discussed in
note 3, we changed our method of accounting for the UGC
Convertible Notes effective January 1, 2006.
|
|
|
(b) |
Represents the change in the fair value of the UGC Convertible
Notes during 2007 and 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, in our consolidated
statements of operations.
|
II-106
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
Cross-currency
and Interest Rate Derivative Contracts
Cross-currency
Interest Rate Swaps:
The terms of our outstanding cross-currency interest rate swap
contracts at December 31, 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional amount
|
|
|
Notional amount
|
|
|
Interest rate
|
|
Interest rate
|
Subsidiary / Final
|
|
due from
|
|
|
due to
|
|
|
due from
|
|
due to
|
maturity date (a)
|
|
counterparty
|
|
|
counterparty
|
|
|
counterparty
|
|
counterparty
|
|
|
in millions
|
|
|
|
|
|
|
UPC Broadband Holding:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 2013
|
|
$
|
200.0
|
|
|
|
150.9
|
|
|
3 mo. LIBOR + 2.0%
|
|
5.73%
|
December 2014
|
|
|
885.0
|
|
|
|
668.0
|
|
|
3 mo. LIBOR + 1.75%
|
|
5.72%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,085.0
|
|
|
|
818.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 2009
|
|
|
60.0
|
|
|
CZK
|
1,703.1
|
|
|
5.50%
|
|
5.15%
|
February 2010
|
|
|
105.8
|
|
|
|
3,018.7
|
|
|
5.50%
|
|
4.88%
|
July 2010
|
|
|
60.0
|
|
|
|
1,703.1
|
|
|
5.50%
|
|
5.33%
|
September 2012
|
|
|
200.0
|
|
|
|
5,800.0
|
|
|
5.46%
|
|
5.30%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
425.8
|
|
|
CZK
|
12,224.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 2009
|
|
|
25.0
|
|
|
SKK
|
951.1
|
|
|
5.50%
|
|
6.58%
|
July 2010
|
|
|
25.0
|
|
|
|
951.1
|
|
|
5.50%
|
|
5.67%
|
September 2012
|
|
|
50.0
|
|
|
|
1,900.0
|
|
|
5.46%
|
|
6.04%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0
|
|
|
SKK
|
3,802.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 2009
|
|
|
410.0
|
|
|
HUF
|
118,937.5
|
|
|
5.50%
|
|
8.75%
|
July 2010
|
|
|
410.0
|
|
|
|
118,937.5
|
|
|
5.50%
|
|
7.82%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
820.0
|
|
|
HUF
|
237,875.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 2009
|
|
|
245.0
|
|
|
PLN
|
1,000.6
|
|
|
5.50%
|
|
7.00%
|
July 2010
|
|
|
245.0
|
|
|
|
1,000.6
|
|
|
5.50%
|
|
6.52%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
490.0
|
|
|
PLN
|
2,001.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 2010
|
|
|
200.0
|
|
|
RON
|
709.1
|
|
|
5.50%
|
|
10.98%
|
January 2011
|
|
|
60.0
|
|
|
|
213.1
|
|
|
5.50%
|
|
9.57%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
260.0
|
|
|
RON
|
922.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 2012
|
|
|
229.1
|
|
|
CHF
|
355.8
|
|
|
6 mo. EURIBOR + 2.5%
|
|
6 mo. CHF LIBOR + 2.46%
|
December 2014
|
|
|
1,240.8
|
|
|
|
2,024.0
|
|
|
6 mo. EURIBOR + 2.0%
|
|
6 mo. CHF LIBOR + 1.95%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,469.9
|
|
|
CHF
|
2,379.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 2014
|
|
$
|
340.0
|
|
|
CLP
|
181,322.0
|
|
|
6 mo. LIBOR + 1.75%
|
|
8.76%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VTR:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 2014
|
|
$
|
470.25
|
|
|
CLP
|
260.283.4
|
|
|
6 mo. LIBOR + 3.0%
|
|
11.16%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chellomedia Programming Financing Holdco BV (Chellomedia PFH),
an indirect subsidiary of Chellomedia:
|
|
|
|
|
|
|
|
|
|
|
|
|
July 2013
|
|
|
32.5
|
|
|
HUF
|
8,632.0
|
|
|
5.50%
|
|
9.55%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
For each subsidiary, the notional
amount of multiple derivative instruments that mature within the
same calendar month are shown in the aggregate and interest
rates are presented on a weighted average basis.
|
II-107
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
Interest
Rate Swaps:
The terms of our outstanding interest rate swap contracts at
December 31, 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate
|
|
Interest rate
|
|
|
|
|
|
due from
|
|
due to
|
Subsidiary / Final maturity date (a)
|
|
Notional amount
|
|
|
counterparty
|
|
counterparty
|
|
|
in millions
|
|
|
|
|
|
|
UPC Broadband Holding:
|
|
|
|
|
|
|
|
|
July 2008
|
|
|
393.5
|
|
|
3 mo. EURIBOR
|
|
4.04%
|
January 2009
|
|
|
210.0
|
|
|
6 mo. EURIBOR
|
|
3.58%
|
January 2009
|
|
|
1,000.0
|
|
|
1 mo. EURIBOR
|
|
6 mo. EURIBOR 0.14%
|
January 2009
|
|
|
1,900.0
|
|
|
1 mo. LIBOR
|
|
6 mo. LIBOR 0.14%
|
January 2009
|
|
|
2,640.0
|
|
|
1 mo. EURIBOR + 0.13%
|
|
6 mo. EURIBOR
|
April 2010
|
|
|
1,000.0
|
|
|
6 mo. EURIBOR
|
|
3.28%
|
January 2011
|
|
|
193.5
|
|
|
6 mo. EURIBOR
|
|
3.83%
|
September 2012
|
|
|
500.0
|
|
|
3 mo. EURIBOR
|
|
2.96%
|
December 2013
|
|
|
90.5
|
|
|
6 mo. EURIBOR
|
|
3.84%
|
January 2014
|
|
|
185.0
|
|
|
6 mo. EURIBOR
|
|
4.04%
|
December 2014
|
|
|
1,000.0
|
|
|
6 mo. EURIBOR
|
|
4.66%
|
|
|
|
|
|
|
|
|
|
|
|
|
9,112.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 2010
|
|
CHF
|
618.5
|
|
|
6 mo. CHF LIBOR
|
|
2.19%
|
September 2012
|
|
|
711.5
|
|
|
6 mo. CHF LIBOR
|
|
2.33%
|
December 2014
|
|
|
2,380.0
|
|
|
6 mo. CHF LIBOR
|
|
3.54%
|
|
|
|
|
|
|
|
|
|
|
|
CHF
|
3,710.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 2013
|
|
CLP
|
110,700.0
|
|
|
6.78%
|
|
6 mo. TAB
|
|
|
|
|
|
|
|
|
|
Chellomedia PFH:
|
|
|
|
|
|
|
|
|
December 2013
|
|
$
|
89.1
|
|
|
6 mo. LIBOR
|
|
4.98%
|
|
|
|
|
|
|
|
|
|
December 2013
|
|
|
128.9
|
|
|
6 mo. EURIBOR
|
|
4.07%
|
|
|
|
|
|
|
|
|
|
Austar Entertainment Pty Ltd. (Austar Entertainment), a
subsidiary of Austar:
|
|
|
|
|
|
|
|
|
August 2011
|
|
AUD
|
250.0
|
|
|
3 mo. AUD BBSY
|
|
6.21%
|
August 2013
|
|
|
455.0
|
|
|
3 mo. AUD BBSY
|
|
6.79%
|
|
|
|
|
|
|
|
|
|
|
|
AUD
|
705.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liberty Cablevision of Puerto Rico Ltd. (Liberty Puerto Rico):
|
|
|
|
|
|
|
|
|
June 2014
|
|
$
|
169.3
|
|
|
3 mo. LIBOR
|
|
5.14%
|
|
|
|
|
|
|
|
|
|
VTR:
|
|
|
|
|
|
|
|
|
July 2013
|
|
CLP
|
110,700.0
|
|
|
6 mo. TAB
|
|
7.78%
|
|
|
|
|
|
|
|
|
|
Telenet NV, an indirect wholly owned subsidiary of Telenet:
|
|
|
|
|
|
|
|
|
September 2008
|
|
|
25.0
|
|
|
3 mo. EURIBOR
|
|
4.49%
|
September 2010
|
|
|
50.0
|
|
|
3 mo. EURIBOR
|
|
4.70%
|
December 2011
|
|
|
50.0
|
|
|
3 mo. EURIBOR
|
|
5.29%
|
|
|
|
|
|
|
|
|
|
|
|
|
125.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telenet Bidco NV (Telenet Bidco), an indirect wholly owned
subsidiary of Telenet:
|
|
|
|
|
|
|
|
|
September 2009
|
|
|
34.4
|
|
|
3 mo. EURIBOR
|
|
4.52%
|
|
|
|
|
|
|
|
|
|
LGJ Holdings LLC (LGJ Holdings):
|
|
|
|
|
|
|
|
|
November 2012
|
|
¥
|
75,000.0
|
|
|
6 mo. TIBOR
|
|
1.34%
|
|
|
|
|
|
|
|
|
|
J:COM:
|
|
|
|
|
|
|
|
|
June 2009
|
|
¥
|
22,794.7
|
|
|
3 mo. TIBOR
|
|
0.52%
|
December 2009
|
|
|
8,000.0
|
|
|
3 mo. TIBOR
|
|
0.63%
|
September 2010
|
|
|
3,000.0
|
|
|
3 mo. TIBOR
|
|
1.46%
|
September 2011
|
|
|
2,000.0
|
|
|
3 mo. TIBOR
|
|
1.37%
|
October 2011
|
|
|
10,000.0
|
|
|
3 mo. ¥ LIBOR
|
|
1.35%
|
April 2013
|
|
|
20,000.0
|
|
|
3 mo. ¥ LIBOR
|
|
1.75%
|
October 2013
|
|
|
19,500.0
|
|
|
3 mo. ¥ LIBOR
|
|
1.63%
|
|
|
|
|
|
|
|
|
|
|
|
¥
|
85,294.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
For each subsidiary, the notional
amount of multiple derivative instruments that mature within the
same calendar month are shown in the aggregate and interest
rates are presented on a weighted average basis.
|
II-108
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
Telenet
Interest Rate Caps:
Each contract establishes the maximum EURIBOR rate payable on
the indicated notional amount, as detailed below:
|
|
|
|
|
|
|
|
|
Telenet subsidiary / Final maturity date
|
|
Notional amount
|
|
|
Maximum rate
|
|
|
|
in millions
|
|
|
|
|
|
Telenet NV:
|
|
|
|
|
|
|
|
|
September 2009
|
|
|
27.3
|
|
|
|
4.0
|
%
|
Telenet Bidco:
|
|
|
|
|
|
|
|
|
September 2014
|
|
|
850.0
|
|
|
|
4.68
|
%
|
September 2015
|
|
|
650.0
|
|
|
|
4.75
|
%
|
Telenet
Interest Rate Collars:
Each contract establishes the minimum and maximum EURIBOR rate
payable on the indicated notional amount, as detailed below:
|
|
|
|
|
|
|
|
|
|
|
|
|
Telenet subsidiary / Final maturity date
|
|
Notional amount
|
|
|
Minimum rate
|
|
|
Maximum rate
|
|
|
|
in millions
|
|
|
|
|
|
|
|
|
Telenet NV:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 2009
|
|
|
300.0
|
|
|
|
2.5
|
%
|
|
|
5.5
|
%
|
December 2011
|
|
|
50.0
|
|
|
|
2.5
|
%
|
|
|
4.5
|
%
|
December 2011
|
|
|
25.0
|
|
|
|
2.5
|
%
|
|
|
5.5
|
%
|
Equity-Related
Derivatives
Sumitomo Collar and Secured Borrowing. During
the second quarter of 2007, our wholly owned indirect
subsidiary, Liberty Programming Japan LLC (Liberty Programming
Japan), executed a zero cost share collar transaction (the
Sumitomo Collar) with respect to the underlying ordinary shares
of Sumitomo stock received by Liberty Programming Japan from
Sumitomo in exchange for Liberty Programming Japans
interest in SC Media. See note 5. The Sumitomo Collar is
comprised of purchased put options exercisable by Liberty
Programming Japan and written call options exercisable by the
counterparty. The Sumitomo Collar effectively hedges the value
of our investment in Sumitomo shares from losses due to market
price decreases below a per share value of ¥2,118.50
($18.95) while retaining gains from market price increases up to
a per share value of ¥2,787.50 ($24.94). The Sumitomo
Collar provides for a projected gross cash ordinary dividend to
be paid per Sumitomo share during the term of the Sumitomo
Collar. If the actual dividend paid does not exactly match the
projected dividend, then an adjustment amount shall be payable
between the parties to the Sumitomo Collar depending on the
dividend actually paid by Sumitomo. The Sumitomo Collar may, at
the option of Liberty Programming Japan, be settled in Sumitomo
shares or in cash. The Sumitomo Collar also includes a purchased
fair value put option, which effectively provides Liberty
Programming Japan with the ability to sell the Sumitomo shares
when the market price is trading between the put and call strike
prices. The Sumitomo Collar matures in five equal semi-annual
installments beginning on May 22, 2016.
We account for the Sumitomo Collar at fair value with changes in
fair value reported in realized and unrealized gains (losses) on
derivative instruments, net, in our consolidated statements of
operations. The fair value of the Sumitomo Collar as of
December 31, 2007 was an asset of $213.9 million.
The Sumitomo Collar and related agreements also provide Liberty
Programming Japan with the ability to borrow funds on a secured
basis. Borrowings under these agreements, which are secured by a
pledge of 100% of the
II-109
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
Sumitomo shares owned by Liberty Programming Japan, bear
interest at 1.883%, mature in five equal semi-annual
installments beginning on May 22, 2016, and are included in
long-term debt and capital lease obligations in our consolidated
balance sheet. On June 28, 2007, Liberty Programming Japan
borrowed ¥93.660 billion ($757.6 million at the
transaction date) under these agreements (the Sumitomo Collar
Loan). The pledge arrangement entered into by Liberty
Programming Japan provides that Liberty Programming Japan will
be able to exercise all voting and consensual rights and,
subject to the terms of the Sumitomo Collar, receive dividends
on the Sumitomo shares.
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,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
in millions
|
|
|
Debt host contract
|
|
$
|
83.5
|
|
|
$
|
79.9
|
|
Embedded equity derivative
|
|
|
11.3
|
|
|
|
21.0
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
94.8
|
|
|
$
|
100.9
|
|
|
|
|
|
|
|
|
|
|
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, in our consolidated
statements of operations. For additional information, see
note 4.
II-110
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
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, net, in our consolidated
statements of operations. The following table summarizes our
outstanding foreign currency forward contracts at
December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency
|
|
|
Currency
|
|
|
|
|
|
purchased
|
|
|
sold
|
|
|
|
LGI subsidiary
|
|
forward
|
|
|
forward
|
|
|
Maturity dates
|
|
|
in millions
|
|
|
|
|
UPC Broadband Holding
|
|
CZK
|
205.0
|
|
|
|
7.7
|
|
|
January 2008
|
UPC Broadband Holding
|
|
HUF
|
5,300.0
|
|
|
|
20.8
|
|
|
January 2008
|
UPC Broadband Holding
|
|
PLN
|
36.6
|
|
|
|
10.1
|
|
|
January 2008
|
J:COM
|
|
$
|
22.1
|
|
|
¥
|
2,480.2
|
|
|
January 2008 October 2010
|
VTR
|
|
$
|
37.1
|
|
|
CLP
|
19,318.4
|
|
|
January 2008 November 2008
|
Telenet NV
|
|
$
|
11.0
|
|
|
|
7.7
|
|
|
January 2008 April 2008
|
Austar Entertainment
|
|
$
|
27.7
|
|
|
AUD
|
36.2
|
|
|
January 2008 March 2009
|
Liberty Global Europe Financing BV
|
|
$
|
75.1
|
|
|
CLP
|
37,277.0
|
|
|
January 2008
|
Property
and Equipment, Net
The details of property and equipment and the related
accumulated depreciation are set forth below:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
in millions
|
|
|
Cable distribution systems
|
|
$
|
13,839.4
|
|
|
$
|
9,835.5
|
|
Support equipment, buildings and land
|
|
|
1,926.4
|
|
|
|
1,224.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,765.8
|
|
|
|
11,060.0
|
|
Accumulated depreciation
|
|
|
(5,157.3
|
)
|
|
|
(2,923.1
|
)
|
|
|
|
|
|
|
|
|
|
Total property and equipment, net
|
|
$
|
10,608.5
|
|
|
$
|
8,136.9
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense related to our property and equipment was
$2,136.3 million, $1,635.8 million and
$1,163.9 million during 2007, 2006 and 2005, respectively.
At December 31, 2007 and 2006, the amount of property and
equipment, net, recorded under capital leases was
$693.2 million and $428.6 million, respectively.
Amortization of assets under capital leases is included in
depreciation and amortization in our consolidated statements of
operations.
During 2007 and 2006, we recorded $196.5 million and
$150.4 million of non-cash increases to our property and
equipment, respectively, as a result of assets acquired under
capital lease arrangements. These increases include
$172.3 million and $149.4 million, respectively,
related to lease arrangements entered into by J:COM.
II-111
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
Goodwill
Changes in the carrying amount of goodwill during 2007 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Release of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
pre-acquisition
|
|
|
|
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
valuation
|
|
|
|
|
|
currency
|
|
|
|
|
|
|
|
|
|
Acquisition
|
|
|
Disposition of
|
|
|
allowances and
|
|
|
Adoption of
|
|
|
translation
|
|
|
|
|
|
|
January 1,
|
|
|
related
|
|
|
investment in SC
|
|
|
other income tax
|
|
|
FIN 48
|
|
|
adjustments
|
|
|
December 31,
|
|
|
|
2007
|
|
|
adjustments
|
|
|
Media (note 5)
|
|
|
related adjustments
|
|
|
(note 3)
|
|
|
and other
|
|
|
2007
|
|
|
|
in millions
|
|
|
UPC Broadband Division:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$
|
1,403.4
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(152.7
|
)
|
|
$
|
(27.3
|
)
|
|
$
|
143.6
|
|
|
$
|
1,367.0
|
|
Switzerland
|
|
|
2,349.9
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
169.3
|
|
|
|
2,519.8
|
|
Austria
|
|
|
791.1
|
|
|
|
75.0
|
|
|
|
|
|
|
|
(69.3
|
)
|
|
|
(8.8
|
)
|
|
|
84.4
|
|
|
|
872.4
|
|
Ireland
|
|
|
250.0
|
|
|
|
1.3
|
|
|
|
|
|
|
|
(16.8
|
)
|
|
|
(0.4
|
)
|
|
|
26.5
|
|
|
|
260.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
4,794.4
|
|
|
|
76.9
|
|
|
|
|
|
|
|
(238.8
|
)
|
|
|
(36.5
|
)
|
|
|
423.8
|
|
|
|
5,019.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
402.3
|
|
|
|
3.3
|
|
|
|
|
|
|
|
(17.9
|
)
|
|
|
(9.6
|
)
|
|
|
43.1
|
|
|
|
421.2
|
|
Other Central and Eastern Europe
|
|
|
1,048.4
|
|
|
|
3.3
|
|
|
|
|
|
|
|
(24.0
|
)
|
|
|
(11.6
|
)
|
|
|
93.1
|
|
|
|
1,109.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
1,450.7
|
|
|
|
6.6
|
|
|
|
|
|
|
|
(41.9
|
)
|
|
|
(21.2
|
)
|
|
|
136.2
|
|
|
|
1,530.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total UPC Broadband Division
|
|
|
6,245.1
|
|
|
|
83.5
|
|
|
|
|
|
|
|
(280.7
|
)
|
|
|
(57.7
|
)
|
|
|
560.0
|
|
|
|
6,550.2
|
|
Telenet (Belgium)
|
|
|
|
|
|
|
1,983.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
199.3
|
|
|
|
2,183.0
|
|
J:COM (Japan)
|
|
|
2,354.6
|
|
|
|
194.5
|
|
|
|
|
|
|
|
(10.0
|
)
|
|
|
|
|
|
|
138.2
|
|
|
|
2,677.3
|
|
VTR (Chile)
|
|
|
527.6
|
|
|
|
|
|
|
|
|
|
|
|
(24.9
|
)
|
|
|
(4.8
|
)
|
|
|
36.4
|
|
|
|
534.3
|
|
Corporate and other
|
|
|
815.3
|
|
|
|
38.3
|
|
|
|
(100.9
|
)
|
|
|
(5.9
|
)
|
|
|
(83.0
|
)
|
|
|
18.2
|
|
|
|
682.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total LGI
|
|
$
|
9,942.6
|
|
|
$
|
2,300.0
|
|
|
$
|
(100.9
|
)
|
|
$
|
(321.5
|
)
|
|
$
|
(145.5
|
)
|
|
$
|
952.1
|
|
|
$
|
12,626.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in the carrying amount of goodwill during 2006 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
currency
|
|
|
|
|
|
|
|
|
|
Acquisition
|
|
|
|
|
|
Reclassified to
|
|
|
Release of
|
|
|
translation
|
|
|
|
|
|
|
January 1,
|
|
|
related
|
|
|
Sale of UPC
|
|
|
discontinued
|
|
|
pre-acquisition
|
|
|
adjustments
|
|
|
December 31,
|
|
|
|
2006
|
|
|
adjustments
|
|
|
Belgium
|
|
|
operations
|
|
|
valuation allowance
|
|
|
and other
|
|
|
2006
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
II-112
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
Intangible
Assets Subject to Amortization, Net
The details of our amortizable intangible assets subject to
amortization are set forth below:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
in millions
|
|
|
Gross carrying amount:
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
2,746.3
|
|
|
$
|
1,797.0
|
|
Other
|
|
|
507.7
|
|
|
|
120.0
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,254.0
|
|
|
$
|
1,917.0
|
|
|
|
|
|
|
|
|
|
|
Accumulated amortization:
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
(655.3
|
)
|
|
$
|
(308.2
|
)
|
Other
|
|
|
(93.8
|
)
|
|
|
(30.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(749.1
|
)
|
|
$
|
(338.7
|
)
|
|
|
|
|
|
|
|
|
|
Net carrying amount:
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
2,091.0
|
|
|
$
|
1,488.8
|
|
Other
|
|
|
413.9
|
|
|
|
89.5
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,504.9
|
|
|
$
|
1,578.3
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangible assets with finite useful lives was
$356.8 million, $248.9 million and $110.1 million
during 2007, 2006 and 2005, respectively. Based on our
amortizable intangible asset balances at December 31, 2007,
we expect that amortization expense will be as follows for the
next five years and thereafter (in millions):
|
|
|
|
|
2008
|
|
$
|
393.3
|
|
2009
|
|
|
337.4
|
|
2010
|
|
|
325.7
|
|
2011
|
|
|
253.3
|
|
2012
|
|
|
221.4
|
|
Thereafter
|
|
|
973.8
|
|
|
|
|
|
|
Total
|
|
$
|
2,504.9
|
|
|
|
|
|
|
II-113
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
The U.S. dollar equivalents of the components of our
consolidated debt and capital lease obligations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Unused borrowing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
average
|
|
|
capacity (b)
|
|
|
Estimated fair value
|
|
|
Carrying value (c)
|
|
|
|
interest
|
|
|
Borrowing
|
|
|
U.S. $
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
rate (a)
|
|
|
currency
|
|
|
equivalent
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
in millions
|
|
|
Parent:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LGI Credit Facility
|
|
|
|
|
|
$
|
215.0
|
|
|
$
|
215.0
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Subsidiaries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UPC Broadband Holding Bank Facility
|
|
|
6.52
|
%
|
|
|
1,080.0
|
|
|
|
1,575.0
|
|
|
|
6,843.5
|
|
|
|
4,025.3
|
|
|
|
7,208.2
|
|
|
|
4,010.6
|
|
UPC Holding 7.75% Senior Notes due 2014
|
|
|
7.75
|
%
|
|
|
|
|
|
|
|
|
|
|
694.2
|
|
|
|
665.3
|
|
|
|
729.2
|
|
|
|
659.5
|
|
UPC Holding 8.63% Senior Notes due 2014
|
|
|
8.63
|
%
|
|
|
|
|
|
|
|
|
|
|
432.2
|
|
|
|
412.5
|
|
|
|
437.5
|
|
|
|
395.7
|
|
UPC Holding 8.0% Senior Notes due 2016 (formerly the
Cablecom Luxembourg 8.0% Senior Notes) (d)
|
|
|
8.00
|
%
|
|
|
|
|
|
|
|
|
|
|
415.5
|
|
|
|
396.9
|
|
|
|
437.5
|
|
|
|
395.7
|
|
UPC Holding Facility
|
|
|
7.09
|
%
|
|
|
|
|
|
|
|
|
|
|
345.9
|
|
|
|
|
|
|
|
364.6
|
|
|
|
|
|
2007 Telenet Credit Facility
|
|
|
7.05
|
%
|
|
|
400.0
|
|
|
|
583.3
|
|
|
|
2,694.6
|
|
|
|
|
|
|
|
2,770.8
|
|
|
|
|
|
J:COM Credit Facility
|
|
|
1.31
|
%
|
|
¥
|
30,000.0
|
|
|
|
268.4
|
|
|
|
485.1
|
|
|
|
647.3
|
|
|
|
485.1
|
|
|
|
642.5
|
|
Other J:COM debt
|
|
|
1.42
|
%
|
|
¥
|
18,000.0
|
|
|
|
161.0
|
|
|
|
1,010.2
|
|
|
|
971.8
|
|
|
|
1,010.2
|
|
|
|
966.7
|
|
UGC Convertible Notes (e)
|
|
|
1.75
|
%
|
|
|
|
|
|
|
|
|
|
|
902.3
|
|
|
|
702.3
|
|
|
|
902.3
|
|
|
|
702.3
|
|
Sumitomo Collar Loan (f)
|
|
|
1.88
|
%
|
|
|
|
|
|
|
|
|
|
|
850.4
|
|
|
|
|
|
|
|
837.8
|
|
|
|
|
|
2007 and 2006 Austar Bank Facilities
|
|
|
8.19
|
%
|
|
AUD
|
75.1
|
|
|
|
65.8
|
|
|
|
644.4
|
|
|
|
306.4
|
|
|
|
678.3
|
|
|
|
306.4
|
|
LGJ Holdings Credit Facility
|
|
|
4.07
|
%
|
|
|
|
|
|
|
|
|
|
|
670.9
|
|
|
|
|
|
|
|
670.9
|
|
|
|
|
|
2007 and 2006 VTR Bank Facilities (g)
|
|
|
7.42
|
%
|
|
CLP
|
136,391.6
|
|
|
|
273.8
|
|
|
|
470.3
|
|
|
|
471.1
|
|
|
|
470.3
|
|
|
|
475.0
|
|
Chellomedia Bank Facility
|
|
|
7.56
|
%
|
|
|
|
|
|
|
|
|
|
|
305.9
|
|
|
|
226.8
|
|
|
|
313.8
|
|
|
|
229.1
|
|
Liberty Puerto Rico Bank Facility
|
|
|
6.99
|
%
|
|
$
|
10.0
|
|
|
|
10.0
|
|
|
|
159.9
|
|
|
|
150.7
|
|
|
|
169.3
|
|
|
|
149.9
|
|
LG Switzerland PIK Loan Facility
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
775.7
|
|
|
|
|
|
|
|
775.7
|
|
Secured borrowing on ABC Family preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
345.0
|
|
|
|
|
|
|
|
345.0
|
|
Cablecom Luxembourg Bank Facility
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,097.6
|
|
|
|
|
|
|
|
1,094.7
|
|
Cablecom Luxembourg Old Senior Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
423.5
|
|
|
|
|
|
|
|
424.8
|
|
Other
|
|
|
8.47
|
%
|
|
|
|
|
|
|
|
|
|
|
263.9
|
|
|
|
210.4
|
|
|
|
263.9
|
|
|
|
206.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
5.91
|
%
|
|
|
|
|
|
$
|
3,152.3
|
|
|
$
|
17,189.2
|
|
|
$
|
11,828.6
|
|
|
|
17,749.7
|
|
|
|
11,780.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J:COM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
499.7
|
|
|
|
423.8
|
|
Telenet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75.8
|
|
|
|
|
|
Other subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28.2
|
|
|
|
26.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital lease obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
603.7
|
|
|
|
449.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt and capital lease obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,353.4
|
|
|
|
12,230.1
|
|
Current maturities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(383.2
|
)
|
|
|
(1,384.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt and capital lease obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
17,970.2
|
|
|
$
|
10,845.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
II-114
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
|
|
|
(a) |
|
Represents the weighted average interest rate in effect at
December 31, 2007 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 derivative agreements, deferred financing costs or
commitment fees, all of which affect our overall cost of
borrowing. See note 8. |
|
(b) |
|
Unused borrowing capacity represents the maximum availability
under the applicable facility at December 31, 2007 without
regard to covenant compliance calculations. At December 31,
2007, the full amount of unused borrowing capacity was available
to be borrowed under each of the respective facilities except as
indicated below. At December 31, 2007, the availability of
the unused borrowing capacity of the UPC Broadband Holding Bank
Facility and the 2007 Telenet Credit Facility was limited by
covenant compliance calculations. Based on the December 31,
2007 covenant compliance calculations, the aggregate amount that
will be available for borrowing when the December 31, 2007
bank reporting requirements have been completed is
646.5 million ($942.8 million) under the UPC
Broadband Holding Bank Facility and 350.0 million
($510.4 million) under the 2007 Telenet Credit Facility. |
|
(c) |
|
Includes unamortized debt discount or premium, if applicable. |
|
(d) |
|
As further described below, the Cablecom Luxembourg
8.0% Senior Notes due 2016 were assumed by UPC Holding on
April 17, 2007. |
|
(e) |
|
The UGC Convertible Notes are reported at fair value. |
|
(f) |
|
See note 8 for information regarding the Sumitomo Collar
Loan. |
|
(g) |
|
Pursuant to the deposit arrangements with the lender in relation
to the 2007 VTR Bank Facility (see below), we are required to
fund a cash collateral account in an amount equal to the
outstanding principal and interest under the 2007 VTR Bank
Facility. This cash collateral account had a balance of
$470.3 million at December 31, 2007, of which
$4.8 million is presented as short-term restricted cash in
our consolidated balance sheet, and the remaining amount is
presented as long-term restricted cash. |
LGI
Credit Facility
In June 2007, LGI entered into a $215.0 million Senior
Revolving Facility Agreement (the LGI Credit Facility). The LGI
Credit Facility is available to be used to fund the general
corporate and working capital requirements of LGI and its
subsidiaries. The applicable interest payable under the LGI
Credit Facility is LIBOR plus 2.5%. The final maturity date of
June 25, 2009 may be extended, at LGIs option,
to June 25, 2010. Amounts that are repaid by LGI under the
LGI Credit Facility may be re-borrowed. The LGI Credit Facility
is an unsecured senior obligation that ranks equally with all of
the existing and future senior debt of LGI. The LGI Credit
Facility has a commitment fee on undrawn and uncancelled
commitments of 0.75% per year. At December 31, 2007, the
full amount of the LGI Credit Facility was available to be drawn.
UPC
Broadband Holding Bank Facility
The UPC Broadband Holding Bank Facility, as amended most
recently in 2007, is the senior secured credit facility of UPC
Broadband Holding. For further information regarding 2007
refinancing transactions related to the UPC Broadband Holding
Bank Facility, see below. The security package for the UPC
Broadband Holding Bank Facility includes a pledge over the
shares of UPC Broadband Holding and the shares of certain 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
II-115
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
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 assets, provide loans and guarantees 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 (if
required by the majority lenders) cancel each facility and
declare all outstanding amounts immediately due and payable. 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,
each capitalized term as defined in the UPC Broadband Holding
Bank Facility.
The covenant in the UPC Broadband Holding Facility relating to
disposals of assets includes a basket for permitted 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 certain
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 ($145.8 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 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 April and May 2007, the UPC Broadband Holding Bank Facility
was amended and six additional facility accession agreements
(collectively, the 2007 Accession Agreements) were executed. In
connection with the execution of the 2007 Accession Agreements,
each of which provided for an additional term loan under new
II-116
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
Facilities M and N of the UPC Broadband Holding Bank Facility,
the then-existing Facilities J1, J2, K1 and K2 were refinanced.
The uses of the proceeds from the borrowings under Facilities M
and N and certain other information regarding the UPC Broadband
Holding Bank Facility at December 31, 2007 are summarized
in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
|
|
|
Facility amount
|
|
|
Unused
|
|
|
Outstanding
|
|
|
|
|
|
(in borrowing
|
|
|
borrowing
|
|
|
principal
|
|
Facility
|
|
Interest rate
|
|
currency)
|
|
|
capacity
|
|
|
amount
|
|
|
|
|
|
|
|
|
in millions
|
|
|
I
|
|
EURIBOR + 2.50%
|
|
|
250.0
|
|
|
$
|
364.6
|
|
|
$
|
|
|
L
|
|
EURIBOR + 2.25%
|
|
|
830.0
|
|
|
|
1,210.4
|
|
|
|
|
|
M Tranches 1, 2 and 3 (a)
|
|
EURIBOR + 2.00%
|
|
|
3,390.0
|
|
|
|
|
|
|
|
4,943.6
|
|
M Tranche 4 (b)
|
|
EURIBOR + 2.00%
|
|
|
250.0
|
|
|
|
|
|
|
|
364.6
|
|
N Tranches 1 and 2 (c)
|
|
LIBOR + 1.75%
|
|
$
|
1,900.0
|
|
|
|
|
|
|
|
1,900.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
$
|
1,575.0
|
|
|
$
|
7,208.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Tranches 1, 2 and 3 under Facility M became effective on
April 17, 2007, April 16, 2007 and May 18, 2007,
respectively. The 1,695.0 million
($2,471.8 million) of proceeds received under Facility
M Tranche 1 were used to refinance all of the
outstanding borrowings under Facility J1 and Facility K1 under
the UPC Broadband Holding Bank Facility. The
1,175 million ($1,713.5 million) of proceeds
received under Facility M Tranche 2 were
indirectly used to repay the outstanding borrowings under the
senior secured credit facility agreement for Cablecom Luxembourg
S.C.A. (Cablecom Luxembourg) and Cablecom GmbH, dated
December 5, 2005 (the Cablecom Luxembourg Bank Facility),
and, together with available cash of 207.2 million
($280.8 million at the transaction date), to repay the
outstanding borrowings under the PIK facility agreement of LG
Switzerland, dated September 30, 2005 (the LG Switzerland
PIK Loan Facility). Effective April 16, 2007, Cablecom and
its subsidiaries became subsidiaries of UPC Broadband Holding
(the Cablecom Transfer). The 520.0 million
($758.3 million) of proceeds received under Facility
M Tranche 3 were used to fund the cash
collateral account that secures the 2007 VTR Bank Facility, as
defined below, and for general corporate and working capital
purposes. See below. Tranches 1, 2 and 3 under Facility M were
combined into a single facility on October 17, 2007. |
|
(b) |
|
Tranche 4 under Facility M became effective on May 14,
2007. The proceeds received under Facility M
Tranche 4 were fully drawn in September 2007 for general
corporate purposes. |
|
(c) |
|
Tranches 1 and 2 under Facility N became effective on
May 16, 2007 and May 18, 2007, respectively. The
$1,775.0 million of proceeds received under Facility
N Tranche 1 were used to refinance all of the
outstanding borrowings under Facility J2 and Facility K2 under
the UPC Broadband Holding Bank Facility. The $125.0 million
of proceeds received under Facility N Tranche 2
were used for general corporate and working capital purposes.
Tranches 1 and 2 under Facility N were combined into a single
facility on October 10, 2007. |
Facilities I and L are repayable and redrawable term loans with
borrowings due and payable in one installment on April 1,
2010 and July 3, 2012, respectively. Facilities M and N are
term loans that have a final maturity date falling on the
earlier of (i) December 31, 2014 and (ii) the
date (the Relevant Date) falling 90 days prior to the date
on which UPC Holdings existing Senior Notes due 2014 fall
due if such Senior Notes have not been repaid, refinanced or
redeemed prior to such Relevant Date. Any voluntary prepayment
of all or part of the principal amount of Facility M (other than
Tranche 4) or Facility N made on or before
May 16, 2008 will include a premium of 1% such that the
prepaid amount will equal 101% of such principal amount plus
accrued interest. Any voluntary
II-117
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
prepayment of all or part of the principal amount of Facility
M Tranche 4 made within 12 months of the
relevant date of the last drawing under this facility will
include a premium of 1% such that the prepaid amount will equal
101% of such principal amount plus accrued interest.
Pursuant to an amendment letter dated April 16, 2007, the
UPC Broadband Holding Bank Facility was amended to permit the
acquisition of LGIs indirect 80% interest in VTR (either
directly or indirectly by the acquisition of its holding
company) and its subsidiaries by a member of the Borrower Group
(as defined in the UPC Broadband Holding Bank Facility) (the VTR
Transfer). The amendment letter also amended the terms of the
UPC Broadband Holding Bank Facility to, among other things,
permit security interests granted under VTRs then existing
bank facilities (the 2006 VTR Bank Facility), including any
refinancing thereof, and over related deposits or similar
arrangements and to permit the disposal of all or any part of
any member of the VTR Group (consisting of VTR, its subsidiaries
and its parent holding company) without impact on the ability to
dispose of other assets in the Borrower Group under applicable
covenants.
The VTR Transfer was completed on May 23, 2007, when
certain of our subsidiaries that collectively own an 80%
interest in VTR were transferred to a subsidiary of UPC
Broadband Holding. In connection with the VTR Transfer, a single
lender acquired the interests and was subrogated to the rights
of the lenders under the then existing VTR Tranche B Term
Loan (see below) under the 2006 VTR Bank Facility. The existing
VTR Tranche B Term Loan was then amended and restated
pursuant to an Amended and Restated Senior Secured Credit
Facility Agreement dated May 18, 2007 and effective
May 25, 2007 (the 2007 VTR Bank Facility). The amendments
included, among other things, a 100 basis point reduction
in the interest rate margin payable under the VTR Tranche B
Term Loan and the elimination of certain restrictive covenants
and undertakings. VTRs then existing undrawn term loan and
revolving loan facilities (see below) were cancelled and
replaced in the 2007 VTR Bank Facility on substantially the same
terms. Pursuant to the deposit arrangements with the lender in
relation to the 2007 VTR Bank Facility, we are required to fund
a cash collateral account in an amount equal to the outstanding
principal and interest payable under the 2007 VTR Bank Facility.
In this regard, we used borrowings under Facility M
Tranche 3 to fund a deposit with the new lender securing
VTRs obligations under the 2007 VTR Bank Facility. In
connection with the refinancing of VTRs bank facilities,
VTR recognized debt extinguishment losses of CLP
10.3 billion ($19.5 million at the average rate for
the period) during the second quarter of 2007, representing the
write-off of unamortized deferred financing costs.
In connection with the refinancing of Facilities J1, J2, K1 and
K2, UPC Broadband Holding recognized debt extinguishment losses
of 6.2 million ($8.4 million at the average rate
for the period) during the second quarter of 2007, representing
the write-off of unamortized deferred financing costs. In
connection with refinancings of the UPC Broadband Holding Bank
Facility that occurred in May 2006, 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.
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 (the 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 (the 8.625% Senior Notes). The
7.75% and 8.625% Senior Notes each mature on
January 15, 2014. On April 17, 2007, the
300.0 million ($437.5 million) principal amount
of 8.0% Senior Notes due 2016 (the 8.0% Senior Notes,
and collectively with the 7.75% and 8.625% Senior Notes,
the UPC Holding Senior Notes) issued on October 31, 2006 by
Cablecom Luxembourg became the direct obligation of UPC Holding
on terms substantially identical (other than as to interest,
maturity and redemption) to those governing UPC Holdings
existing Senior Notes due 2014. The 8.0% Senior Notes
mature on November 1, 2016.
II-118
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
Each issue of the UPC Holding Senior Notes are senior
obligations that rank equally with all of the existing and
future senior debt and are senior to all existing and future
subordinated debt of UPC Holding. The UPC Holding Senior Notes
are secured by a first-ranking pledge of the shares of UPC
Holding.
At any time prior to July 15, 2008 for the 7.75% and
8.625% Senior Notes, and November 1, 2009 for the
8.0% Senior Notes, UPC Holding may redeem some or all of
the Senior Notes by paying a make-whole premium,
which is the present value of all scheduled interest payments
until July 15, 2008 for the 7.75% and 8.625% Senior
Notes, and November 1, 2009 for the 8.0% Senior Notes,
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 in the case of the
7.75% and 8.625% Senior Notes, and November 1, 2009 in
the case of the 8.0% Senior Notes, 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 in the case of the
7.75% and 8.625% Senior Notes and November 1 in the case of
the 8.0% Senior Notes of the years set out below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redemption price
|
|
|
|
7.75% Senior
|
|
|
8.625% Senior
|
|
|
8.0% Senior
|
|
Year
|
|
Notes
|
|
|
Notes
|
|
|
Notes
|
|
|
2008
|
|
|
107.750
|
%
|
|
|
108.625
|
%
|
|
|
N.A.
|
|
2009
|
|
|
103.875
|
%
|
|
|
104.313
|
%
|
|
|
108.000
|
%
|
2010
|
|
|
101.938
|
%
|
|
|
102.156
|
%
|
|
|
106.000
|
%
|
2011
|
|
|
100.000
|
%
|
|
|
100.000
|
%
|
|
|
104.000
|
%
|
2012
|
|
|
100.000
|
%
|
|
|
100.000
|
%
|
|
|
102.660
|
%
|
2013
|
|
|
100.000
|
%
|
|
|
100.000
|
%
|
|
|
101.330
|
%
|
2014 and thereafter
|
|
|
100.000
|
%
|
|
|
100.000
|
%
|
|
|
100.000
|
%
|
N.A. Not applicable.
In addition, at any time prior to July 15, 2008 for the
7.75% and 8.625% Senior Notes, and November 1, 2009
for the 8.0% Senior Notes, UPC Holding may redeem up to 35%
of the UPC Holding Senior Notes (at a redemption price of
107.75%, 108.625% and 108.000% 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%.
UPC
Holding Facility
In June 2007, UPC Holding entered into a 250 million
($364.6 million) secured term loan facility (the UPC
Holding Facility). The UPC Holding Facility was fully drawn on
June 19, 2007. UPC Holding may, at its option, on or before
May 31, 2008 (the Conversion Date), require each lender
under the UPC Holding Facility to become an additional facility
lender under the UPC Broadband Holding Bank Facility and the
outstanding commitments of the lenders under the UPC Holding
Facility will be rolled over into Facility M under the UPC
Broadband Holding Bank Facility (the Conversion). The terms and
conditions of the UPC Holding Facility are similar to the terms
of the indenture for UPC Holdings existing Senior Notes
due 2014, however, in the event UPC Holding elects to effect the
Conversion, the UPC Holding Facility will be part of Facility M
and will be subject to the terms and conditions
II-119
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
of the UPC Broadband Holding Bank Facility. The applicable
interest payable under the UPC Holding Facility is
(i) EURIBOR plus 2.75% until the later of May 16, 2008
and the date of the Conversion (being no later than May 31,
2008) and (ii) thereafter, EURIBOR plus 2.0%. The
final maturity date of the UPC Holding Facility is
December 31, 2014 unless the Conversion does not occur, in
which case, it will be May 31, 2008. Any voluntary
prepayment of all or part of the principal amount of the UPC
Holding Facility made on or prior to May 16, 2008 will
include a premium of 1% such that the prepaid amount will equal
101% of such principal amount plus accrued interest.
2007
Telenet Credit Facility
On August 1, 2007 (the Signing Date), Telenet Bidco
executed a new senior credit facility agreement, as amended and
restated by supplemental agreements dated August 22, 2007,
September 11, 2007 and October 8, 2007 (the 2007
Telenet Credit Facility). The 2007 Telenet Credit Facility
provides for (i) a 530.0 million
($772.9 million) Term Loan A Facility (the Telenet TLA
Facility) maturing five years from the Signing Date, (ii) a
307.5 million ($448.4 million) Term Loan B1
Facility (the Telenet TLB1 Facility) maturing seventy-eight
months from the Signing Date, (iii) a
225.0 million ($328.1 million) Term Loan B2
Facility (the Telenet TLB2 Facility) maturing seventy-eight
months from the Signing Date, (iv) a
1,062.5 million ($1,549.5 million) Term Loan C
Facility (the Telenet TLC Facility) maturing eight years from
the Signing Date and (v) a 175.0 million
($255.2 million) Revolving Facility (the Telenet Revolving
Facility) maturing seven years from the Signing Date.
On October 10, 2007, the Telenet TLA Facility, the Telenet
TLB1 Facility and the Telenet TLC Facility were drawn in full.
The Telenet TLB2 Facility, which was undrawn as of
December 31, 2007, is available to be drawn up to and
including July 31, 2008. The Telenet Revolving Facility is
available to be drawn through June 2014. The proceeds of the
Telenet TLA Facility, the Telenet TLB1 Facility and the first
462.5 million ($654.8 million at the transaction
date) drawn under the Telenet TLC Facility have been used
primarily to (i) redeem in full the Telenet Senior Discount
Notes, (ii) redeem in full the Telenet Senior Notes and
(iii) repay in full the amounts outstanding under the 2006
Telenet Credit Facility. During the fourth quarter of 2007,
Telenet recognized debt extinguishment losses of
62.4 million ($88.3 million at the transaction
date) in the aggregate in connection with the redemption of the
Telenet Senior Discount Notes and the Telenet Senior Notes, and
the repayment of the 2006 Telenet Credit Facility. These losses
include the 50.7 million ($71.8 million at the
transaction date) excess of the redemption values over the
carrying values of the Telenet Senior Discount Notes and Telenet
Senior Notes, and 11.7 million ($16.5 million at
the transaction date) related to the write-off of applicable
unamortized deferred financing fees.
The applicable margin for the Telenet TLA Facility is 2.25% per
annum over EURIBOR. The applicable margin for the Telenet TLB1
Facility is 2.50% per annum over EURIBOR. The margins of the
Telenet TLB2 and Telenet TLC Facilities are subject to certain
market flex conditions. The applicable margin for the Telenet
Revolving Facility is 2.125% per annum over EURIBOR. The
applicable margin for the Telenet TLB2 Facility is 2.50% per
annum over EURIBOR. The applicable margin for the Telenet TLC
Facility is 2.75% per annum over EURIBOR.
On November 19, 2007, Telenet used the remaining funds
borrowed under the Telenet TLC Facility to fund a distribution
to shareholders by way of a capital reduction. See note 13.
The Telenet TLA Facility and the Telenet TLC Facility will be
repaid in full at maturity. The Telenet TLB1 Facility and the
Telenet TLB2 Facility will each be repaid in three equal
installments, the first installment on the date falling
66 months after the Signing Date, the second installment on
the date falling 72 months after the Signing Date and the
final installment payable at maturity. Advances under the
Telenet Revolving Facility will be repaid at the end of the
applicable interest period and all advances outstanding will be
repaid in full at maturity.
In addition to customary restrictive covenants, prepayment
requirements and events of default, the 2007 Telenet Credit
Facility requires compliance with a Net Total Debt to
Consolidated Annualized EBITDA covenant
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(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
and a Consolidated EBITDA to Total Cash Interest covenant, each
capitalized term as defined in the 2007 Telenet Credit Facility.
Under the 2007 Telenet Credit Facility, Telenet Bidco is
permitted to make certain distributions and restricted payments
to its shareholders subject to compliance with applicable
covenants. The 2007 Telenet Credit Facility is secured by
(i) pledges over the shares of Telenet Bidco and certain of
its subsidiaries, (ii) pledges over certain intercompany
and subordinated shareholder loans and (iii) pledges over
certain receivables, real estate and other assets of Telenet
Bidco, Telenet and certain other Telenet subsidiaries, in line
with the 2006 Telenet Credit Facility.
The Telenet TLB2 Facility has a commitment fee on undrawn and
uncancelled commitments of 40% of the applicable margin of the
Telenet TLB2 Facility subject to a maximum of 1.00%. The Telenet
Revolving Facility has a commitment fee on undrawn and
uncancelled commitments of 40% of the applicable margin of the
Telenet Revolving Facility subject to a maximum of 0.75%.
Refinanced
Telenet Debt
2006 Telenet Credit Facility. In May 2006,
certain direct and indirect subsidiaries of Telenet
Communications NV (Telenet Communications), a wholly owned
subsidiary of Telenet, (as borrowers and guarantors) replaced
the then existing bank credit facility with a new senior credit
facility agreement (the 2006 Telenet Credit Facility), with
certain banks and financial institutions as lenders.
On October 10, 2007, Telenet used a portion of the proceeds
from the 2007 Telenet Credit Facility to repay in full the 2006
Telenet Credit Facility.
Telenet Senior Discount Notes. On
December 22, 2003, Telenet issued Senior Discount Notes
(the Telenet Senior Discount Notes) at 57.298% of par value with
a principal amount due at maturity of $558.0 million,
receiving net proceeds of $300.3 million. Interest on the
Telenet Senior Discount Notes began accreting from
December 22, 2003 at an annual rate of 11.5%, compounded
semi-annually.
On October 10, 2007, Telenet used 257.0 million
($363.8 million at the transaction date) of the proceeds
from the 2007 Telenet Credit Facility to redeem the Telenet
Senior Discount Notes at a redemption price equal to 100% of the
accreted value of the Telenet Senior Notes plus a
$46.0 million make-whole premium.
Telenet Senior Notes. On December 22,
2003, Telenet Communications issued 500.0 million
($619.1 million at the transaction date) principal amount
of 9.0% Senior Notes (the Telenet Senior Notes). During the
fourth quarter of 2005, a portion of the outstanding principal
amount of the Telenet Senior Notes was redeemed.
On October 10, 2007, Telenet used 413.5 million
($585.4 million at the transaction date) of the proceeds
from the 2007 Telenet Credit Facility to redeem the Telenet
Senior Notes at a redemption price equal to 100% of the
principal amount (plus accrued and unpaid interest) of the
Telenet Senior Notes plus a 34.5 million
($47.1 million at the transaction date)
make-whole premium.
Other
Telenet Obligations
Pursuant to agreements with four associations of municipalities
in Belgium, which we refer to as the pure intercommunales or the
PICs, Telenet has the exclusive right to provide
point-to-point services and the non-exclusive right to provide
certain other services on the broadband network owned by the
PICs (the Telenet Partner Network). In return for these usage
rights, Telenet issued stock to the PICs and, in addition,
agreed to pay for the capital upgrade of the Telenet Partner
Network so that the Telenet Partner Network would be
technologically capable of providing two-way communications
services (the two-way upgrade). The present values of amounts
payable by Telenet to the PICs pursuant to these agreements that
correspond to the two-way upgrade of the Telenet
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(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
Partner Network have been reflected as financed obligations,
with corresponding amounts reflected as intangible assets
associated with Telenets right to use the Telenet Partner
Network, as described above. As of December 31, 2007, these
financed obligations totaled 87.1 million
($127.0 million), and are included within other debt in the
above table.
Telenet is required to make payments to the PICs under these
agreements during the term of its usage rights. The usage rights
were granted for an initial term of 50 years, expiring in
2046, and automatically renew for consecutive terms of
15 years unless terminated with ten years notice. Because
the life of the two-way upgrade was estimated to be
20 years at inception, contractual payments after year 20
of the agreements have not been reflected as an asset or in the
financed obligation mentioned above. In addition, Telenet has a
legal obligation to reimburse the PICs for 20% of the
replacements and extensions to the Telenet Partner Network that
are in excess of the cost of the two-way upgrade. Amounts
recorded with respect to this obligation are treated as
additions to the aforementioned intangible assets.
The intangible assets associated with our usage rights include
components that are being amortized over periods ranging from 10
to 40 years, based on their respective estimated useful
lives. We include amortization of these intangible assets in
amortization expense in our consolidated statements of
operations. The carrying value of these intangible assets has
been increased as a result of the application of purchase
accounting in connection with our acquisition of Telenet
interests in 2007 and 2006. See note 4.
Pursuant to a separate agreement, Telenet also compensates the
PICs for operations and maintenance services performed with
respect to the Telenet Partner Network. Amounts incurred with
respect to this agreement are included in operating expenses in
our consolidated statement of operations.
As further described in note 20, certain aspects of the
above-described agreements between Telenet and the PICs are the
subject of ongoing negotiations and litigation.
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 ($268.4 million) five-year revolving
credit loan (the J:COM Revolving Loan); an ¥85 billion
($760.4 million) five-year amortizing term loan (the J:COM
Tranche A Term Loan); and a ¥40 billion
($357.8 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
2005 debt refinancings, J:COM recognized debt extinguishment
losses of ¥2,469 million ($21.1 million at the
average exchange rate for the period), 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, 2007 was
1.309%. 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.
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
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(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
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, 2007, ¥30 billion
($268.4 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, 2007, 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%. 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 these
refinancings, J:COM recognized debt extinguishment losses of
¥378.0 million ($3.3 million at the average
exchange rate for the period) during 2006.
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 the ¥2,000 million term
loan is based on the six-month TIBOR plus a margin of 0.25%. 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%
as to the ¥10 billion ($89.5 million) principal
amount that is due in October 2011, (ii) Japanese yen LIBOR
plus a margin of 0.35% as to the ¥19.5 billion
($174.4 million) principal amount that is due in October
2013 and (iii) a fixed rate of 2.05% as to the
¥500 million ($4.5 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) 1.75% 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
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(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
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.
Prior to September 11, 2007, the UGC Convertible Notes in
the aggregate were convertible into 11,044,375 shares of
LGI Series A common stock and 11,044,375 shares of LGI
Series C common stock based on the then conversion price
for one share of LGI Series A common stock and the related
Series C Dividend Shares Amount (as defined in the
indenture governing the UGC Convertible Notes), which was
equivalent to a conversion rate of 22.09 LGI Series A
shares and 22.09 LGI Series C shares for each 1,000
principal amount of UGC Convertible Notes. Effective
September 11, 2007, the conversion price of the UGC
Convertible Notes was adjusted to give effect to the cumulative
impact of our self-tender offers since the issuance of the UGC
Convertible Notes. As a result, as of such date, the UGC
Convertible Notes in the aggregate were convertible into
11,159,319 LGI Series A shares and 11,044,375 LGI
Series C shares, which is equivalent to a conversion rate
of 22.32 shares of LGI Series A common stock and
22.09 shares of LGI Series C common stock for each
1,000 principal amount of UGC Convertible Notes.
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, (v) we make certain distributions to holders of
LGI Series A common stock or (vi) specified corporate
transactions occur.
2007
and 2006 Austar Bank Facilities
On August 28, 2007, Austar Entertainment refinanced,
amended and restated its then existing bank facility (the 2006
Austar Bank Facility) to, among other matters, provide for
increased borrowing capacity. The amended and restated facility
(the 2007 Austar Bank Facility) allows Austar Entertainment to
borrow up to AUD 850.0 million ($745.3 million) and
provides for (i) an AUD-denominated term loan for AUD
225.0 million ($197.3 million), which bears interest
at BBSY plus margins ranging from 0.90% to 1.70% and matures in
August 2011, (ii) an AUD-denominated term loan for AUD
500.0 million ($438.4 million), which bears interest
at BBSY plus margins ranging from 1.30% to 2.00% and matures in
August 2013 and (iii) an AUD-denominated revolving facility
for AUD 100.0 million ($87.7 million), which bears
interest at BBSY plus margins ranging from 0.90% to 1.70% and
matures in August 2012. The 2007 Austar Bank Facility also
provides for an agreement with a single bank for a AUD
25.0 million ($21.9 million) working capital facility
that matures in August 2012. Borrowings under the 2007 Austar
Bank Facility were advanced to Austar to fund (i) the
October 31, 2007 redemption of the Austar Subordinated
Transferable Adjustable Redeemable Securities (STARS) (see
below) and (ii) Austars November 1, 2007
distribution to its shareholders (see note 13). Borrowings
under the 2007 Austar Bank Facility also may be used to fund
capital expenditures or for general corporate purposes.
In addition to customary restrictive covenants, prepayment
requirements and events of default, the 2007 Austar Bank
Facility requires compliance with various financial covenants
including (i) Net Total Debt to EBITDA and (ii) EBITDA
to Total Interest Expense, each capitalized term as defined in
the 2007 Austar Bank Facility. The 2007 Austar Bank Facility has
a commitment fee on undrawn and uncancelled balances of 0.5% per
year. The 2007 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 2007
Austar Bank Facility is also guaranteed by Austar and certain of
its subsidiaries.
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(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
As Austar Entertainments refinancing of the 2006 Austar
Bank Facility did not represent a substantial modification of
terms, we did not recognize a debt extinguishment gain or loss
upon the completion of this refinancing transaction.
The 2006 Austar Bank Facility allowed Austar Entertainment to
borrow up to AUD 600.0 million ($526.0 million) and
was comprised of (i) Tranche A, an AUD-denominated,
five-year term loan facility due in 2011 for AUD
275.0 million ($241.1 million), which bore interest at
BBSY plus margins ranging from 0.9% to 1.4%,
(ii) Tranche B, an AUD-denominated, seven-year term
loan facility due in 2013 for AUD 300.0 million
($263.0 million), which bore interest at BBSY plus margins
ranging from 1.3% to 1.7% and (iii) an AUD-denominated,
six-year revolving loan facility for AUD 25.0 million
($21.9 million), which bore interest at BBSY plus margins
ranging from 0.9% to 1.4%.
Austar Entertainment used the initial borrowings under the 2006
Austar Bank Facility, together with available cash, (i) to
repay the AUD 190.0 million ($144.4 million at the
transaction date) amount outstanding under Austar
Entertainments previous bank facility and (ii) to
fund a capital distribution to Austars shareholders (see
note 13).
Redemption
of STARS
On October 31, 2007, Austar redeemed in full its STARS for
a total cash redemption amount of AUD 115.0 million
($106.6 million at the transaction date). As of
December 31, 2006, the STARS had a carrying value of AUD
115.0 million ($100.8 million) and were included in
other debt.
LGJ
Holdings Credit Facility
On October 31, 2007, LGJ Holdings, our wholly owned
indirect subsidiary, executed a new senior secured credit
facility agreement (the LGJ Holdings Credit Facility). The LGJ
Holdings Credit Facility provides for an initial term loan
facility in the amount of ¥75.0 billion
($655.0 million at the transaction date) (the Term Loan
Facility) which was drawn in full on November 5, 2007 (the
Closing Date). The proceeds of the Term Loan Facility have been
used to make a distribution to the sole member of LGJ Holdings
and to pay fees, costs and expenses incurred in connection with
granting the Term Loan Facility. The Term Loan Facility will be
repaid in two installments with (i) 2.5% of the outstanding
principal amount of the Term Loan Facility being repayable four
and a half years from the Closing Date and (ii) 97.5% of
the outstanding principal amount of the Term Loan Facility
repayable five years from the Closing Date. The applicable
margin for the Term Loan Facility is 3.25% per annum over TIBOR.
The LGJ Holdings Credit Facility contains a mechanism whereby
additional term facilities may be entered into subject to
compliance with applicable covenants and certain other
restrictions. In addition to customary restrictive covenants,
prepayment requirements and events of default, the LGJ Holdings
Credit Facility requires compliance with various financial
covenants including (i) J:COM Ten Day Average Market Price
to Facilities Net Debt and (ii) Total Net Debt To J:COM
Annualized EBITDA, each capitalized term as defined in the LGJ
Holdings Credit Facility. The LGJ Holdings Credit Facility is
secured by (i) pledges over the membership interests in LGJ
Holdings and the stock of its two subsidiaries, Liberty Japan,
Inc. (Liberty Japan), a wholly owned direct subsidiary of LGJ
Holdings, and Liberty Jupiter, Inc. (Liberty Jupiter), an 85.7%
owned direct subsidiary of LGJ Holdings, (ii) a pledge over
a bank account of LGJ Holdings and (iii) a security
agreement in respect of certain future assets of LGJ Holdings,
Liberty Japan and Liberty Jupiter. Liberty Japan and Liberty
Jupiter are members of Super Media through which we indirectly
own our interest in J:COM. LGJ Holdings obligations are
guaranteed by Liberty Japan and Liberty Jupiter. LGI has
provided a limited recourse guarantee with respect to the
payment of interest under the LGJ Holdings Credit Facility and,
under certain limited circumstances, the payment of principal
and other obligations.
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(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
2006
VTR Bank Facility
As discussed above, the 2006 VTR Bank Facility was replaced with
the 2007 VTR Bank Facility in connection with the VTR Transfer
and the related refinancing transactions completed by UPC
Broadband Holding during the second quarter of 2007.
On September 20, 2006, VTR replaced its then existing bank
credit facility (the 2005 VTR Bank Facility) with the 2006 VTR
Bank Facility, new senior secured credit agreements consisting
of (i) a CLP 122.6 billion ($246.1 million)
Chilean peso-denominated seven-year amortizing term loan,
(ii) a $475 million U.S. dollar-denominated
eight-year term loan due in 2014 (the VTR Tranche B Term
Loan), which bore interest at LIBOR plus 3.0% and (iii) a
CLP 13.8 billion ($27.7 million) CLP-denominated six
and a half-year revolving loan.
At closing on September 20, 2006, the full
$475.0 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 2005 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 2005
VTR Bank Facility.
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.
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 (i) four term facilities:
(a) a seven-year 86.6 million
($126.3 million) term loan facility, (b) a seven-year
17.4 million ($25.4 million) term loan facility,
(c) a seven-year $74.2 million term loan facility and
(d) a seven-year $14.9 million term loan facility,
(ii) a seven-year 25.0 million
($36.5 million) delayed draw facility and (iii) a
six-year 25.0 million ($36.5 million) revolving
facility (which may also be drawn in Hungarian forints). As of
December 31, 2007, the four term facilities, the delayed
draw facility and the revolving facility have been drawn in
full. 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 2.50% per annum (over EURIBOR or, in relation to any loan in
Hungarian forints, BUBOR).
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 including (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.
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GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
Liberty
Puerto Rico Bank Facility
On June 15, 2007, Liberty Puerto Rico refinanced its then
existing bank facility pursuant to a new senior secured bank
credit facility (the Liberty Puerto Rico Bank Facility). The
Liberty Puerto Rico Bank Facility provides for (i) a
$150 million seven-year amortizing term loan (the LPR Term
Loan), (ii) a $20 million seven-year delayed draw
Senior Credit Facility (the LPR Delayed Draw Term Loan) and
(iii) a $10 million six-year revolving loan (the LPR
Revolving Loan). Borrowings under the Liberty Puerto Rico Bank
Facility, to the extent not already used to repay the amounts
outstanding under Liberty Puerto Ricos prior bank
facility, may be used to fund the general corporate and working
capital requirements of Liberty Puerto Rico. All amounts
borrowed under the Liberty Puerto Rico Bank Facility bear
interest at a margin of 2.00% over LIBOR. The LPR Revolving Loan
has a final maturity in 2013 and the LPR Term Loan and LPR
Delayed Draw Term Loan each have a final maturity in 2014. The
LPR Delayed Draw Term Loan was drawn in full on November 7,
2007. The LPR Revolving Loan, which was undrawn as of
December 31, 2007, has a commitment fee on undrawn balances
of 0.5% per year.
In addition to customary restrictive covenants, prepayment
requirements and events of default, the Liberty Puerto Rico Bank
Facility requires compliance with the following financial
covenants: (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.
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 also requires
that Liberty Puerto Rico maintain a $10 million cash
collateral account to protect against losses in connection with
an uninsured casualty event, which is included as long-term
restricted cash in our consolidated balance sheet.
Prior to June 15, 2007, Liberty Puerto Rico had a
$150 million seven-year amortizing term loan under an
amended and restated senior secured bank credit facility, which
also provided for a $10 million six-year revolving loan.
Borrowings under this credit facility bore interest at a margin
of 2.25% over LIBOR. The $10 million revolving loan had a
commitment fee on undrawn balances of 0.50% per year.
Borrowing
Secured by ABC Family Preferred Stock
Liberty Family Preferred, LLC (LFP LLC) was an entity in
which LGI held a 99.9% beneficial ownership interest. Prior to
August 2, 2007, LFP LLC owned 345,000 shares of ABC
Family preferred stock.
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 bore interest at three-month
LIBOR plus 2.1%. LFP LLC had pledged all 345,000 shares of
the ABC Family preferred stock as security for the borrowing.
On August 2, 2007, the ABC Family preferred stock was
redeemed and we used the resulting proceeds to repay in full the
related secured borrowings. No significant gain or loss was
recorded in connection with the repayment of the secured
borrowings. Subsequent to this transaction, LFP LLC was
dissolved.
Cablecom
Luxembourg Old Senior Notes
Prior to their redemption in 2007 and 2006 as described below,
the Cablecom Luxembourg Old Senior Notes were comprised of
(i) CHF 259.0 million ($228.0 million) principal
amount of Cablecom Luxembourg Series A
II-127
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
Floating Rate Senior Secured Notes due 2010 (the Cablecom
Luxembourg Old Series A CHF Notes), (ii)
157.9 million ($230.3 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 ($489.6 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
($422.8 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 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.
On April 16, 2007, Cablecom Luxembourg redeemed in full the
Cablecom Luxembourg Old Fixed Rate Notes at a redemption price
of 109.375% of the principal amount plus accrued interest
through the redemption date. The total amount of the redemption
of 330.7 million ($448.1 million at the
transaction date) was funded by an escrow account created in
October 2006 for the benefit of the holders of the Cablecom
Luxembourg Old Fixed Rate Notes (the Cablecom Luxembourg
Defeasance Account) in connection with the covenant defeasance
of such Notes. At December 31, 2006, the amount held in the
Cablecom Luxembourg Defeasance Account (331.6 million
($437.4 million at the December 31, 2006 exchange
rate)) was included in current restricted cash in our
consolidated balance sheets. In connection with the redemption
of the Cablecom Luxembourg Old Fixed Rate Notes, Cablecom
Luxembourg recognized a gain on extinguishment of debt of CHF
6.3 million ($5.2 million at the average rate for the
period), representing the write-off of unamortized premium.
Pursuant to the terms of the LG Switzerland PIK Loan Facility
(see below), the redemption of the Cablecom Luxembourg Old Fixed
Rate Notes required the repayment of the LG Switzerland PIK Loan
Facility.
Cablecom
Luxembourg New Senior Notes
On October 31, 2006, Cablecom Luxembourg issued
300.0 million ($437.5 million) 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 the Cablecom Luxembourg Defeasance Account, as
described above.
II-128
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
On April 17, 2007, the Cablecom Luxembourg New Senior Notes
became the direct obligation of UPC Holding on terms
substantially identical (other than as to interest, maturity and
redemption) to those governing UPC Holdings existing
Senior Notes due 2014.
Cablecom
Luxembourg Bank Facility
The Cablecom Luxembourg Bank Facility provided the terms and
conditions upon which (i) the lenders 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 ($1,170.8 million).
The CHF 618 million ($544.0 million) Facility A term
loan was fully drawn at December 31, 2006. In January 2006,
the then 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 was equal to CHF
LIBOR plus a margin of 2.50%. The Facility B term loan, which
was available to be drawn in Swiss francs, U.S. dollars or
euros up to an aggregate principal amount equivalent to CHF
712 million ($626.8 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 was 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 was equal to EURIBOR plus a margin of
2.50% plus any mandatory costs.
In connection with the above-described Cablecom Transfer, the
outstanding borrowings under the Cablecom Luxembourg Bank
Facility were repaid in full on April 16, 2007.
LG
Switzerland PIK Loan Facility
The 550 million ($667 million at the transaction
date), 9.5 year split-coupon floating LG Switzerland PIK
Loan Facility was executed on October 7, 2005. The LG
Switzerland PIK Loan Facility bore interest at a rate per annum
equal to (i) three-month EURIBOR (payable quarterly in
cash), 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). The net proceeds
received from the LG Switzerland PIK Loan Facility 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.
In connection with the above-described Cablecom Transfer, the
outstanding borrowings under the LG Switzerland PIK Loan
Facility were repaid in full on April 16, 2007.
Other
Debt
Other debt at December 31, 2007 includes the
$94.8 million carrying amount of the News Corp. prepaid
forward sales transaction. See note 8.
II-129
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
Maturities
of Debt and Capital Lease Obligations
Debt maturities for the next five years and thereafter are as
follows (in millions):
|
|
|
|
|
Year ended December 31:
|
|
|
|
|
2008
|
|
$
|
243.8
|
|
2009
|
|
|
308.4
|
|
2010
|
|
|
207.6
|
|
2011
|
|
|
385.3
|
|
2012
|
|
|
1,699.6
|
|
Thereafter
|
|
|
14,726.3
|
|
|
|
|
|
|
Total debt maturities
|
|
|
17,571.0
|
|
Net unamortized premiums, discounts and embedded equity
derivatives
|
|
|
178.7
|
|
|
|
|
|
|
Total debt
|
|
$
|
17,749.7
|
|
|
|
|
|
|
Current portion
|
|
$
|
243.8
|
|
|
|
|
|
|
Noncurrent portion
|
|
$
|
17,505.9
|
|
|
|
|
|
|
Maturities of capital lease obligations for the next five years
and thereafter are as follows (in millions):
|
|
|
|
|
Year ended December 31:
|
|
|
|
|
2008
|
|
$
|
160.5
|
|
2009
|
|
|
144.6
|
|
2010
|
|
|
125.6
|
|
2011
|
|
|
93.0
|
|
2012
|
|
|
62.1
|
|
Thereafter
|
|
|
114.7
|
|
|
|
|
|
|
|
|
|
700.5
|
|
Less: amount representing interest
|
|
|
(96.8
|
)
|
|
|
|
|
|
Present value of net minimum lease payments
|
|
$
|
603.7
|
|
|
|
|
|
|
Current portion
|
|
$
|
139.4
|
|
|
|
|
|
|
Noncurrent portion
|
|
$
|
464.3
|
|
|
|
|
|
|
II-130
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
The current portion of our debt and capital lease obligations at
December 31, 2007 is as follows (in millions):
|
|
|
|
|
Debt:
|
|
|
|
|
J:COM Credit Facility
|
|
$
|
161.7
|
|
Other J:COM debt
|
|
|
52.4
|
|
Other
|
|
|
29.7
|
|
|
|
|
|
|
Total current portion of debt
|
|
|
243.8
|
|
|
|
|
|
|
Capital lease obligations:
|
|
|
|
|
J:COM
|
|
|
130.8
|
|
Telenet
|
|
|
5.4
|
|
UPC Broadband Division
|
|
|
3.2
|
|
|
|
|
|
|
Total current portion of capital lease obligations
|
|
|
139.4
|
|
|
|
|
|
|
Total current portion of debt and capital lease obligations
|
|
$
|
383.2
|
|
|
|
|
|
|
|
|
(11)
|
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 range from 15 to 20 years.
During 2007, 2006 and 2005, J:COM recognized revenue under these
arrangements totaling ¥5,604.0 million
($47.6 million at the average exchange rate for the
period), ¥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,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
in millions
|
|
|
Current liabilities Deferred revenue and advance
payments from subscribers and others
|
|
$
|
36.2
|
|
|
$
|
31.0
|
|
Other long-term liabilities
|
|
|
489.4
|
|
|
|
462.2
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
525.6
|
|
|
$
|
493.2
|
|
|
|
|
|
|
|
|
|
|
Following the Spin-Off, LGI International (together with its
80%-or-more-owned domestic subsidiaries, the LGI International
Tax Group), (i) became a separate tax-paying entity from
Liberty Media 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 LGI International 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
LGI International 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
II-131
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
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 LGI
International 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.
Income tax benefit (expense) consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
Deferred
|
|
|
Total
|
|
|
|
in millions
|
|
|
Year ended December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
33.4
|
|
|
$
|
(84.3
|
)
|
|
$
|
(50.9
|
)
|
State and local
|
|
|
1.7
|
|
|
|
(4.4
|
)
|
|
|
(2.7
|
)
|
Foreign
|
|
|
(138.1
|
)
|
|
|
(41.4
|
)
|
|
|
(179.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(103.0
|
)
|
|
$
|
(130.1
|
)
|
|
$
|
(233.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
II-132
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (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,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
in millions
|
|
|
Computed expected tax benefit (expense)
|
|
$
|
(17.4
|
)
|
|
$
|
59.6
|
|
|
$
|
(30.1
|
)
|
Enacted tax law and rate changes
|
|
|
(69.2
|
)
|
|
|
(65.1
|
)
|
|
|
(12.7
|
)
|
Non-deductible interest and other expenses
|
|
|
(64.2
|
)
|
|
|
(15.6
|
)
|
|
|
(53.9
|
)
|
Non-deductible provisions for litigation
|
|
|
(59.9
|
)
|
|
|
|
|
|
|
|
|
International rate differences
|
|
|
(50.0
|
)
|
|
|
(41.1
|
)
|
|
|
(6.9
|
)
|
Differences in the treatment of items associated with
investments in subsidiaries and affiliates
|
|
|
42.9
|
|
|
|
(23.9
|
)
|
|
|
(10.9
|
)
|
Write-off of goodwill in connection with disposition of
investment in SC Media
|
|
|
(35.3
|
)
|
|
|
|
|
|
|
|
|
Recognition of previously unrecognized tax benefits
|
|
|
34.6
|
|
|
|
|
|
|
|
|
|
Foreign taxes
|
|
|
(15.8
|
)
|
|
|
(6.8
|
)
|
|
|
(3.4
|
)
|
Non-deductible or non-taxable foreign currency exchange results
|
|
|
7.9
|
|
|
|
(18.3
|
)
|
|
|
60.6
|
|
Change in valuation allowance
|
|
|
(1.8
|
)
|
|
|
119.7
|
|
|
|
40.7
|
|
State and local income taxes, net of federal income taxes
|
|
|
(1.7
|
)
|
|
|
0.6
|
|
|
|
(5.5
|
)
|
Other, net
|
|
|
(3.2
|
)
|
|
|
(1.2
|
)
|
|
|
(6.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(233.1
|
)
|
|
$
|
7.9
|
|
|
$
|
(28.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The current and non-current components of our deferred tax
assets (liabilities) are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
in millions
|
|
|
Current deferred tax assets
|
|
$
|
319.1
|
|
|
$
|
131.6
|
|
Non-current deferred tax assets
|
|
|
301.5
|
|
|
|
184.2
|
|
Current deferred tax liabilities
|
|
|
(6.4
|
)
|
|
|
(5.6
|
)
|
Non-current deferred tax liabilities
|
|
|
(743.7
|
)
|
|
|
(537.1
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
(129.5
|
)
|
|
$
|
(226.9
|
)
|
|
|
|
|
|
|
|
|
|
II-133
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (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,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
in millions
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss and other carryforwards
|
|
$
|
3,145.6
|
|
|
$
|
2,314.6
|
|
Debt
|
|
|
344.7
|
|
|
|
249.8
|
|
Deferred revenue
|
|
|
174.8
|
|
|
|
157.0
|
|
Property and equipment, net
|
|
|
90.8
|
|
|
|
188.0
|
|
Stock-based compensation
|
|
|
41.2
|
|
|
|
22.7
|
|
Investments
|
|
|
16.3
|
|
|
|
8.4
|
|
Intangible assets, net
|
|
|
15.6
|
|
|
|
27.3
|
|
Other future deductible amounts
|
|
|
221.6
|
|
|
|
190.1
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
|
4,050.6
|
|
|
|
3,157.9
|
|
Valuation allowance
|
|
|
(2,333.7
|
)
|
|
|
(1,921.5
|
)
|
|
|
|
|
|
|
|
|
|
Deferred tax assets, net of valuation allowance
|
|
|
1,716.9
|
|
|
|
1,236.4
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
|
(715.0
|
)
|
|
|
(457.9
|
)
|
Investments
|
|
|
(476.5
|
)
|
|
|
(410.1
|
)
|
Property and equipment
|
|
|
(369.6
|
)
|
|
|
(352.5
|
)
|
Other future taxable amounts
|
|
|
(285.3
|
)
|
|
|
(242.8
|
)
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
(1,846.4
|
)
|
|
|
(1,463.3
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
(129.5
|
)
|
|
$
|
(226.9
|
)
|
|
|
|
|
|
|
|
|
|
Our deferred income tax valuation allowance increased
$412.2 million in 2007. This increase reflects the net
effect of (i) net tax expense recorded in our consolidated
statement of operations of $1.8 million,
(ii) acquisitions and similar transactions,
(iii) foreign currency translation adjustments,
(iv) valuation allowances released to goodwill and
(v) other. The net tax expense recorded in our consolidated
statement of operations of $1.8 million for the change in
valuation allowance includes (i) tax benefits of
$86.3 million and $29.0 million recognized by Telenet
and J:COM, respectively, upon the release of valuation
allowances and (ii) a tax benefit of $56.2 million
recognized by the Netherlands to reduce valuation allowances due
to a tax rate decrease. These tax benefits were more than offset
by tax expense resulting from the establishment of valuation
allowances in other jurisdictions against currently arising
deferred tax assets.
Approximately $1,357.6 million of the valuation allowance
recorded as of December 31, 2007 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-134
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
The significant components of our tax loss carryforwards and
related tax assets at December 31, 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax loss
|
|
|
Related tax
|
|
|
Expiration
|
|
Country
|
|
carryforward
|
|
|
asset
|
|
|
date
|
|
|
|
in millions
|
|
|
|
|
|
The Netherlands
|
|
$
|
3,949.1
|
|
|
$
|
1,007.0
|
|
|
|
2011-2014
|
|
Switzerland
|
|
|
2,882.7
|
|
|
|
627.8
|
|
|
|
2008-2014
|
|
Belgium
|
|
|
1,121.5
|
|
|
|
381.2
|
|
|
|
Indefinite
|
|
France
|
|
|
940.7
|
|
|
|
323.8
|
|
|
|
Indefinite
|
|
Luxembourg
|
|
|
806.4
|
|
|
|
238.9
|
|
|
|
Indefinite
|
|
Australia
|
|
|
734.2
|
|
|
|
220.3
|
|
|
|
Indefinite
|
|
Ireland
|
|
|
474.8
|
|
|
|
59.4
|
|
|
|
Indefinite
|
|
United States
|
|
|
288.1
|
|
|
|
104.2
|
|
|
|
2012-2027
|
|
Austria
|
|
|
238.6
|
|
|
|
59.7
|
|
|
|
Indefinite
|
|
Chile (VTR)
|
|
|
227.8
|
|
|
|
38.7
|
|
|
|
Indefinite
|
|
Japan
|
|
|
82.7
|
|
|
|
33.6
|
|
|
|
2009-2014
|
|
Hungary
|
|
|
62.7
|
|
|
|
10.1
|
|
|
|
Indefinite
|
|
Czech Republic
|
|
|
40.5
|
|
|
|
8.5
|
|
|
|
2008-2012
|
|
Puerto Rico
|
|
|
31.3
|
|
|
|
12.2
|
|
|
|
2011-2014
|
|
Poland
|
|
|
30.2
|
|
|
|
5.7
|
|
|
|
2008-2011
|
|
Other
|
|
|
62.9
|
|
|
|
14.5
|
|
|
|
Various
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
11,974.2
|
|
|
$
|
3,145.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating losses arising from the deduction of stock-based
compensation are not included in the above table. These net
operating losses, which aggregated $33.2 million at
December 31, 2007, will not be recognized for financial
reporting purposes until such time as these tax benefits can be
realized as a reduction of income taxes payable.
Our tax loss carryforwards within each jurisdiction combine all
companies tax losses (both capital and ordinary 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, 2007, 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
$2.8 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 have controlling interests in subsidiaries that do
business in foreign countries, 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
II-135
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
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. 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 highly complex 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 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.
We and our subsidiaries file various consolidated and stand
alone income tax returns in U.S. federal and state
jurisdictions, and in various foreign jurisdictions. In the
normal course of business, our income tax filings are subject to
review by various taxing authorities. In connection with such
reviews, disputes could arise with the taxing authorities over
the interpretation or application of certain income tax rules
related to our business in that tax jurisdiction. Such disputes
may result in future tax and interest assessments by these
taxing authorities. The ultimate resolution of tax contingencies
will take place upon the earlier of (i) the settlement date
with the applicable taxing authorities in either cash or
agreement of income tax positions or (ii) the date when the
tax authorities are statutorily prohibited from adjusting the
companys tax computations.
With a few exceptions in certain foreign jurisdictions, tax
returns filed by our company or our subsidiaries for years prior
to 2001 are no longer subject to examination by tax authorities.
During the second quarter of 2006, the Internal Revenue Service
(IRS) commenced examinations of most of the U.S. federal
income tax returns that we or our subsidiaries filed for the
2004 tax year. Most of these audits are anticipated to be
completed in 2008. Through December 31, 2007, the IRS has
not proposed significant adjustments to tax positions taken in
the 2004 returns that are under examination. Certain of our
foreign subsidiaries are also currently involved in income tax
examinations in
II-136
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
various foreign jurisdictions in which we operate, including
Argentina (2001), Chile (2002, 2005 and 2006), Puerto Rico
(2003), Austria (2003 through 2005), and Switzerland (2001, 2003
and 2004). We do not anticipate that any adjustments that might
arise from the foregoing examinations would have a material
impact on our consolidated financial position or results of
operations.
The changes in our unrecognized tax benefits during 2007 are
summarized below (in millions):
|
|
|
|
|
Balance at January 1, 2007
|
|
$
|
454.2
|
|
Additions based on tax positions related to the current year
|
|
|
136.8
|
|
Additions for tax positions of prior years
|
|
|
207.7
|
|
Reductions for tax positions of prior years
|
|
|
(220.0
|
)
|
Lapse of statute of limitations
|
|
|
(39.1
|
)
|
Currency translation
|
|
|
30.4
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
$
|
570.0
|
|
|
|
|
|
|
No assurance can be given that any of these tax benefits will be
recognized or realized.
Our December 31, 2007 unrecognized tax benefits include
$204.6 million of tax benefits that would have a favorable
impact on our effective income tax rate if ultimately
recognized, after considering amounts that we would record as
reductions of goodwill or that we would expect to be offset by
valuation allowances.
During 2008, it is reasonably possible that the resolution of
currently ongoing examinations by tax authorities could result
in changes to our unrecognized tax benefits related to tax
positions taken as of December 31, 2007. Although we do not
expect that any such changes will have a material impact on our
2008 effective tax rate, we cannot estimate a reasonable range
for the impact that any such possible changes might have on our
December 31, 2007 unrecognized tax benefits. No assurance
can be given as to the nature or impact of changes in our
unrecognized tax positions during 2008.
During 2007, 2006, and 2005, we recognized income tax expense
(benefit) of ($3.9 million), $9.8 million and
$6.2 million, respectively, representing the net accrual
(release) of interest and penalties during the period. In
addition, our other long-term liabilities include accrued
interest and penalties of $10.8 million at
December 31, 2007.
|
|
(13)
|
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).
II-137
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
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, 2007, there were 5,894,850,
3,066,716 and 8,797,137 shares of LGI Series A,
Series B and Series C common stock, respectively,
reserved for issuance pursuant to outstanding stock options;
3,828,895 and 3,830,352 shares of LGI Series A and
Series C common stock, respectively, reserved for issuance
pursuant to outstanding SARs; 11,159,319 and
11,044,375 shares of LGI Series A and Series C
common stock, respectively, reserved for issuance upon
conversion of the UGC Convertible Notes; and 267,565 and
267,571 shares of LGI Series A and Series C
common stock, respectively, reserved for issuance pursuant to
outstanding restricted stock units. In addition to these
amounts, 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 (7,256,353 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.
Stock
Repurchases
On June 20, 2005, March 8, 2006, and November 21,
2007, our board of directors authorized stock repurchases
programs, under which we were authorized to acquire from time to
time up to $200 million, $250 million and
$500 million, respectively, of our LGI Series A and
Series C common stock. On July 25, 2007, our board of
directors increased the then remaining aggregate amount
authorized under the March 8, 2006 stock repurchase plan
from $75.3 million to $150 million. Under these plans,
we were authorized to acquire the specified amount of our LGI
Series A and Series C common stock from time to time
through open market transactions or privately negotiated
transactions, which may include derivative transactions. With
the exception of $60.6 million that remained outstanding
under the November 21, 2007 stock repurchase plan (the 2007
Stock Repurchase Plan), the amounts
II-138
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
authorized under these plans were fully utilized as of
December 31, 2007. In addition to the share repurchase
programs described above, we completed five separate modified
Dutch auction self-tender offers during 2007 and 2006. The
following table provides details of our stock repurchases during
2007, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LGI Series A common stock
|
|
|
LGI Series C common stock
|
|
|
|
|
|
|
Shares
|
|
|
Average price
|
|
|
Shares
|
|
|
Average price
|
|
|
|
|
Purchase date
|
|
purchased
|
|
|
paid per share (a)
|
|
|
purchased
|
|
|
paid per share (a)
|
|
|
Total (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in millions
|
|
|
Stock purchased pursuant to Repurchase Programs during:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2,048,231
|
|
|
$
|
23.30
|
|
|
|
1,455,859
|
|
|
$
|
21.45
|
|
|
$
|
78.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2,698,558
|
|
|
$
|
21.85
|
|
|
|
9,706,682
|
|
|
$
|
20.04
|
|
|
$
|
253.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
5,469,397
|
|
|
$
|
38.57
|
|
|
|
11,361,890
|
|
|
$
|
37.06
|
|
|
$
|
632.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock purchased pursuant to modified Dutch auction self-tender
offers (b):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 21, 2006
|
|
|
10,000,000
|
|
|
$
|
25.08
|
|
|
|
10,288,066
|
|
|
$
|
24.38
|
|
|
$
|
501.6
|
|
September 15, 2006
|
|
|
20,000,000
|
|
|
|
25.04
|
|
|
|
20,534,000
|
|
|
|
24.39
|
|
|
|
1,001.8
|
|
January 10, 2007
|
|
|
5,084,746
|
|
|
|
29.66
|
|
|
|
5,246,590
|
|
|
|
28.74
|
|
|
|
301.6
|
|
April 25, 2007
|
|
|
7,882,862
|
|
|
|
35.21
|
|
|
|
724,183
|
|
|
|
32.86
|
|
|
|
301.4
|
|
September 17, 2007
|
|
|
5,682,000
|
|
|
|
43.09
|
|
|
|
9,510,517
|
|
|
|
40.09
|
|
|
|
626.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pursuant to self-tender offers
|
|
|
48,649,608
|
|
|
$
|
29.29
|
|
|
|
46,303,356
|
|
|
$
|
28.24
|
|
|
$
|
2,732.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total purchases (including purchases pursuant to self-tender
offers) during:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2,048,231
|
|
|
$
|
23.30
|
|
|
|
1,455,859
|
|
|
$
|
21.45
|
|
|
$
|
78.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
32,698,558
|
|
|
$
|
24.79
|
|
|
|
40,528,748
|
|
|
$
|
23.35
|
|
|
$
|
1,756.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
24,119,005
|
|
|
$
|
36.66
|
|
|
|
26,843,180
|
|
|
$
|
36.39
|
|
|
$
|
1,861.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes direct acquisition costs. |
|
(b) |
|
Shares purchased pursuant to the self-tender offers are not
applied against the authorized amounts of our stock repurchase
programs. |
In January 2008, we purchased the remaining amount authorized
under the 2007 Repurchase Plan and our board of directors
authorized additional repurchases of up to $500 million of
our LGI Series A and Series C common stock or any
combination of our LGI Series A and Series C common
stock (the 2008 Repurchase Plan). At February 21, 2008, the
remaining amount authorized under the 2008 Repurchase Plan was
$170.7 million.
Subsidiaries
Equity
Austars stockholders deficit
position. In connection with our December 2005
acquisition of a controlling interest in Austar, we recorded the
minority interests share of Austars
stockholders deficit at the acquisition date as a decrease
to our additional paid-in capital. With the exception of a
period during the first three quarters of 2007 when Austar
reported stockholders equity and we recorded the minority
interests share of Austars equity movements as
adjustments of minority interests in subsidiaries in our
consolidated balance sheet, we have recorded all subsequent
changes in the minority interests share of Austars
equity movements as adjustments to our
II-139
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
additional paid-in capital. During the third quarter of 2007,
Austars stockholders equity returned to a deficit
position as a result of Austars declaration and accrual of
a capital distribution that was subsequently completed on
November 1, 2007, as described below.
Capital Distributions of Subsidiaries. On
November 1, 2007, Austar distributed AUD 299.9 million
($274.8 million at the transaction date) to its
shareholders. Our share of this capital distribution was AUD
160.1 million ($146.7 million at the transaction
date). On September 20, 2006, Austar distributed AUD
201.6 million ($151.7 million at the transaction date)
to its shareholders. Our share of this capital distribution was
AUD 107.2 million ($80.7 million at the transaction
date). As discussed above, AUD 124.5 million
($114.1 million at the transaction date) and AUD
94.4 million ($71.0 million at the transaction date)
of Austars respective capital distributions that were paid
to Austars minority interest owners have been reflected as
reductions of our additional paid-in capital during 2007 and
2006, respectively.
On November 19, 2007, Telenet commenced the distribution of
655.9 million ($961.6 million at the transaction
date) to its shareholders. Our share of this capital
distribution was 335.2 million ($491.4 million
at the transaction date).
Other Equity Transactions of Subsidiaries and
Affiliates. During 2007, 2006 and 2005, 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 4 and 6.
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
reclassified $50.3 million of our obligations under LGI
SARs from liability accounts to additional paid-in capital.
Restricted
Net Assets
At December 31, 2007, approximately $4.2 billion 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.
II-140
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
|
|
(14)
|
Stock
Incentive Awards
|
As discussed in note 2, 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 shares and the shares of certain of our
other subsidiaries. The following table summarizes our
stock-based compensation expense for the indicated periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
in millions
|
|
|
LGI Series A, Series B and Series C common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
LGI Performance Plans (a)
|
|
$
|
108.2
|
|
|
$
|
|
|
|
$
|
|
|
Stock options, SARs, restricted stock and restricted stock units
|
|
|
47.3
|
|
|
|
58.0
|
|
|
|
28.8
|
|
Restricted shares of LGI and Zonemedia (b)
|
|
|
16.2
|
|
|
|
7.1
|
|
|
|
5.1
|
|
Austar Performance Plan
|
|
|
9.5
|
|
|
|
|
|
|
|
|
|
J:COM ordinary shares
|
|
|
1.2
|
|
|
|
2.9
|
|
|
|
23.1
|
|
Other
|
|
|
11.0
|
|
|
|
2.0
|
|
|
|
2.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
193.4
|
|
|
$
|
70.0
|
|
|
$
|
59.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
For additional information concerning the LGI Performance Plans,
see discussion below. |
|
(b) |
|
These restricted shares were issued in connection with our
January 2005 acquisition of Zonemedia. The 2007 amount includes
$12.8 million of stock-based compensation that was
recognized on an accelerated basis in connection with the third
quarter 2007 execution of certain agreements between a
subsidiary of Chellomedia and the holders of these restricted
shares. No further compensation expense will be recognized in
connection with these restricted stock awards. |
The following table provides certain information related to
stock-based compensation not yet recognized as of
December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
LGI Series A,
|
|
|
|
|
|
|
|
|
Series B and
|
|
|
|
|
|
SARs on
|
|
|
Series C
|
|
LGI
|
|
Austar
|
|
VTR
|
|
|
common
|
|
Performance
|
|
Performance
|
|
common
|
|
|
stock (a)
|
|
Plans (b)
|
|
Plan (c)
|
|
stock (d)
|
|
Total compensation expense not yet recognized (in millions)
|
|
$
|
74.1
|
|
|
$
|
280.8
|
|
|
$
|
30.8
|
|
|
$
|
7.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average period remaining for expense recognition (in
years)
|
|
|
2.6
|
|
|
|
3.8
|
|
|
|
3.8
|
|
|
|
2.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Amounts relate to the LGI incentive plans (including the
Transitional Plan) and the UGC incentive plans described below. |
|
(b) |
|
Amounts relate to the LGI Senior Executive Performance Plan and
the LGI Management Performance Plan described below. |
|
(c) |
|
Amounts relate to the Austar Performance Plan described below. |
|
(d) |
|
Amounts relate to the incentive plan of VTR described below. |
II-141
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
The following table summarizes certain information related to
the incentive awards granted and exercised pursuant to the LGI
and UGC incentive plans described below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
dollars 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
|
|
|
4.56 5.02%
|
|
|
|
4.58 5.20%
|
|
|
|
3.70 4.55%
|
|
Expected life
|
|
|
4.5 6.0 years
|
|
|
|
4.5 6.0 years
|
|
|
|
4.0 6.0 years
|
|
Expected volatility
|
|
|
22.40 25.20%
|
|
|
|
24.80 29.60%
|
|
|
|
25.25 45.60%
|
|
Expected dividend yield
|
|
|
none
|
|
|
|
none
|
|
|
|
none
|
|
Weighted average grant-date fair value per share of awards
granted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
$
|
10.69
|
|
|
$
|
6.52
|
|
|
$
|
7.64
|
|
SARs
|
|
$
|
10.19
|
|
|
$
|
6.36
|
|
|
$
|
5.16
|
|
Restricted stock
|
|
$
|
36.46
|
|
|
$
|
20.28
|
|
|
$
|
22.42
|
|
Total intrinsic value of awards exercised:
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
$
|
44.4
|
|
|
$
|
10.9
|
|
|
$
|
17.8
|
|
SARs
|
|
$
|
75.0
|
|
|
$
|
22.4
|
|
|
$
|
24.9
|
|
Total share-based liabilities paid
|
|
$
|
|
|
|
$
|
|
|
|
$
|
24.9
|
|
Cash received from exercise of options
|
|
$
|
42.9
|
|
|
$
|
17.5
|
|
|
$
|
20.8
|
|
Income tax benefit related to stock-based compensation
|
|
$
|
30.1
|
|
|
$
|
14.2
|
|
|
$
|
0.7
|
|
Income tax expense related to the 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
II-142
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
person may be granted in any calendar year awards covering more
than 4 million shares of our common stock, of which no more
than 2 million shares may consist of LGI Series B
common stock. In addition, no person may receive payment for
cash awards during any calendar year in excess of
$10 million. Shares of our common stock issuable pursuant
to awards made under the incentive plan are made available from
either authorized but unissued shares or shares that have been
issued but reacquired by our company. Options and SARs under the
LGI Incentive Plan issued prior to the LGI Combination generally
vest at the rate of 20% per year on each anniversary of the
grant date and expire 10 years after the grant date.
Options and SARs under the LGI Incentive Plan issued after the
LGI Combination generally (i) vest 12.5% on the six month
anniversary of the grant date and then vest at a rate of 6.25%
each quarter thereafter and (ii) expire seven years after
the grant date. The LGI Incentive Plan had
33,046,665 shares available for grant as of
December 31, 2007 before considering any shares that might
be issued in satisfaction of our obligations under the LGI
Performance Plans, as described below. 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 our
Chairman of the Board, pursuant to which our company granted to
our Chairman, 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, our Chairmans 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 our
Chairman continues to have a qualifying relationship (whether as
a director, officer, employee or consultant) with LGI. If our
Chairman 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 or LGI
will have the right to require our Chairman to sell to our
company, at the exercise price of the options, any shares of LGI
common stock previously acquired by our Chairman upon exercise
of options which have not vested as of the date on which our
Chairman 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 our Chairman 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 our Chairmans 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 our Chairmans 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 our Chairman
$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
II-143
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
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 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, and expire
10 years after the grant date. The LGI Directors Incentive
Plan had 9,545,457 shares available for grant as of
December 31, 2007. These shares may be awarded at or above
fair value in any series of stock, except that no more than five
million shares may be awarded in LGI Series B common stock.
During 2007, the exercise price of certain options granted in
2004 by UGC to two of our current non-employee directors was
increased. This repricing was effected in order to comply with
the terms of the plan pursuant to which such options were
issued. In order to compensate such directors for the decrease
in value associated with this repricing, we granted an aggregate
7,862 restricted stock units for LGI Series A common stock
and 7,912 restricted stock units for LGI Series C common
stock to said directors, under the LGI Directors Incentive Plan.
Each restricted stock unit represents a right to receive one
share of LGI Series A or Series C common stock, as the
case may be. The aggregate grant date fair value of these
restricted stock units is equal to the aggregate decrease in
value associated with the repricing. All of the restricted stock
units vested in full on January 5, 2008.
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 LGI
Internationals directors and employees, Liberty
Medias directors and certain of its employees pursuant to
the LGI International 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.
II-144
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
Stock
Award Activity LGI Common Stock
The following tables summarize the activity during 2007 in LGI
stock awards under the LGI and UGC incentive plans, as described
above. The tables also include activity related to LGI stock
awards granted to Liberty Media employees in connection with the
Spin-Off and to the then employees of Zonemedia in connection
with our January 2005 acquisition of Zonemedia:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2007
|
|
|
6,748,229
|
|
|
$
|
20.24
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
497,253
|
|
|
$
|
37.93
|
|
|
|
|
|
|
|
|
|
Expired or canceled
|
|
|
(31,470
|
)
|
|
$
|
79.36
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(67,878
|
)
|
|
$
|
21.67
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,251,284
|
)
|
|
$
|
18.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
5,894,850
|
|
|
$
|
21.90
|
|
|
|
4.94
|
|
|
$
|
111.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2007
|
|
|
3,663,911
|
|
|
$
|
20.19
|
|
|
|
4.44
|
|
|
$
|
79.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2007
|
|
|
3,066,716
|
|
|
$
|
20.01
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Expired or canceled
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
3,066,716
|
|
|
$
|
20.01
|
|
|
|
4.83
|
|
|
$
|
58.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2007
|
|
|
3,066,716
|
|
|
$
|
20.01
|
|
|
|
4.83
|
|
|
$
|
58.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2007
|
|
|
9,566,033
|
|
|
$
|
19.11
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
497,253
|
|
|
$
|
35.40
|
|
|
|
|
|
|
|
|
|
Expired or canceled
|
|
|
(31,470
|
)
|
|
$
|
75.13
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(67,878
|
)
|
|
$
|
20.62
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,166,801
|
)
|
|
$
|
17.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
8,797,137
|
|
|
$
|
20.11
|
|
|
|
4.94
|
|
|
$
|
154.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2007
|
|
|
6,566,198
|
|
|
$
|
18.98
|
|
|
|
4.66
|
|
|
$
|
124.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
II-145
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
|
|
|
Weighted average
|
|
Restricted stock and restricted stock units
|
|
Number of
|
|
|
grant-date
|
|
|
remaining
|
|
LGI Series A common stock:
|
|
shares
|
|
|
fair value per share
|
|
|
contractual term
|
|
|
|
|
|
|
|
|
|
in years
|
|
|
Outstanding at January 1, 2007
|
|
|
660,189
|
|
|
$
|
21.19
|
|
|
|
|
|
Granted
|
|
|
303,022
|
|
|
$
|
37.75
|
|
|
|
|
|
Expired or canceled
|
|
|
(33,664
|
)
|
|
$
|
22.80
|
|
|
|
|
|
Forfeited
|
|
|
(21,239
|
)
|
|
$
|
23.03
|
|
|
|
|
|
Released from restrictions
|
|
|
(273,391
|
)
|
|
$
|
23.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
634,917
|
|
|
$
|
28.00
|
|
|
|
2.67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
|
|
|
Weighted average
|
|
Restricted stock and restricted stock units
|
|
Number of
|
|
|
grant-date
|
|
|
remaining
|
|
LGI Series B common stock:
|
|
shares
|
|
|
fair value per share
|
|
|
contractual term
|
|
|
|
|
|
|
|
|
|
in years
|
|
|
Outstanding at January 1, 2007
|
|
|
35,562
|
|
|
$
|
22.23
|
|
|
|
|
|
Granted
|
|
|
|
|
|
$
|
|
|
|
|
|
|
Expired or canceled
|
|
|
|
|
|
$
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
$
|
|
|
|
|
|
|
Released from restrictions
|
|
|
(11,854
|
)
|
|
$
|
22.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
23,708
|
|
|
$
|
22.23
|
|
|
|
1.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
|
|
|
Weighted average
|
|
Restricted stock and restricted stock units
|
|
Number of
|
|
|
grant-date
|
|
|
remaining
|
|
LGI Series C common stock:
|
|
shares
|
|
|
fair value per share
|
|
|
contractual term
|
|
|
|
|
|
|
|
|
|
in years
|
|
|
Outstanding at January 1, 2007
|
|
|
695,235
|
|
|
$
|
20.47
|
|
|
|
|
|
Granted
|
|
|
303,028
|
|
|
$
|
35.17
|
|
|
|
|
|
Expired or canceled
|
|
|
(33,664
|
)
|
|
$
|
21.58
|
|
|
|
|
|
Forfeited
|
|
|
(21,239
|
)
|
|
$
|
22.17
|
|
|
|
|
|
Released from restrictions
|
|
|
(285,075
|
)
|
|
$
|
22.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
658,285
|
|
|
$
|
26.34
|
|
|
|
2.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2007
|
|
|
5,652,674
|
|
|
$
|
15.54
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
590,077
|
|
|
$
|
37.74
|
|
|
|
|
|
|
|
|
|
Expired or canceled
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(225,858
|
)
|
|
$
|
17.48
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(2,187,998
|
)
|
|
$
|
15.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
3,828,895
|
|
|
$
|
19.12
|
|
|
|
5.68
|
|
|
$
|
58.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2007
|
|
|
932,131
|
|
|
$
|
16.51
|
|
|
|
5.63
|
|
|
$
|
16.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
II-146
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (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, 2007
|
|
|
5,651,058
|
|
|
$
|
14.78
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
590,121
|
|
|
$
|
35.12
|
|
|
|
|
|
|
|
|
|
Expired or canceled
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(225,858
|
)
|
|
$
|
16.61
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(2,184,969
|
)
|
|
$
|
14.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
3,830,352
|
|
|
$
|
18.09
|
|
|
|
5.68
|
|
|
$
|
54.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2007
|
|
|
933,544
|
|
|
$
|
15.67
|
|
|
|
5.63
|
|
|
$
|
15.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2007, total SARs outstanding included
645,108 LGI Series A common stock capped SARs and 645,108
LGI Series C common stock capped SARs and total SARs
exercisable included 165,541 LGI Series A common stock
capped SARs and 165,541 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 Plans
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
LGI Senior Executive Performance Plan) pursuant to the LGI 2005
Incentive Plan. The aggregate amount of the maximum achievable
awards that may be allocated under the LGI Senior Executive
Performance Plan is $313.5 million. At December 31,
2007, maximum achievable awards of $302.5 million were
allocated to participants in the LGI Senior Executive
Performance Plan, including our President and Chief Executive
Officer, and certain 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 LGI Management Performance Plan and together
with the LGI Senior Executive Performance Plan, the LGI
Performance Plans) pursuant to the LGI Incentive Plan, for
certain management-level employees not participating in the LGI
Senior Executive Performance Plan. The aggregate amount of the
maximum achievable awards under the LGI Management Performance
Plan, as finalized in February 2007, is $86.5 million. At
December 31, 2007, the maximum achievable awards under the
LGI Management Performance Plan were fully allocated to
participants.
The LGI Performance Plans are five-year plans, 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 21), 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 LGI 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
II-147
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
the LGI 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.
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 six equal semi-annual installments on
each March 31 and September 30 commencing on March 31,
2009. Participants in the LGI 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 the LGI Performance
Plans using restricted or unrestricted shares, although it
reserves the right to change that determination in the future.
In light of the compensation committees current intention,
we account for awards granted under the LGI Performance Plans
pursuant to the provisions of SFAS No. 123(R). The LGI
Performance Plans are accounted for as a liability-based plan
given that it is intended that a variable number of shares will
be issued to settle the fixed obligation that will be determined
at the end of the performance period. Compensation expense under
the LGI Performance Plans is (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 LGI Performance Plans. We
began recording stock compensation with respect to the LGI
Performance Plans on January 1, 2007, the date after which
all awards were granted and the date that the requisite vesting
periods began.
The LGI Senior Executive Performance Plan provides for the
accelerated payment of awards under certain circumstances
following the occurrence of specified change in control-type
transactions. In the event any such acceleration gives rise to
the imposition of certain excise taxes on participants in the
LGI Senior Executive Performance Plan who are U.S. tax
payers, we have agreed to make additional payments in amounts
that are sufficient to fully reimburse such participants for
these excise taxes after consideration of all taxes due on the
additional payments.
Stock
Incentive Plans Austar Common Stock
Austar
Performance Plan
The Austar Long Term Incentive Plan (the Austar Performance
Plan) is a five-year plan, with a two-year performance period,
beginning on January 1, 2007, and a three-year service
period beginning on 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
Austars consolidated EBITDA, as defined by the Austar
Performance Plan.
The participants in the Austar Performance Plan include
Austars Chief Executive Officer, certain of Austars
other executive officers and certain of Austars key
employees. The aggregate amount of the maximum awards under the
Austar Performance Plan is AUD 63.8 million
($55.9 million). At December 31, 2007, the maximum
achievable awards under the Austar Performance Plan were fully
allocated to participants.
II-148
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
If the compound annual growth rate (CAGR) for Austars
consolidated EBITDA from 2006 to 2008, as adjusted for events
such as acquisitions and dispositions that affect comparability,
is less than 15%, no participant will be eligible to receive any
amount under the Austar Performance Plan. At CAGRs ranging from
15% to 20%, the percentages of the maximum achievable awards
that participants will become eligible to receive will range
from 50% to 100%, respectively, subject to the other
requirements of the Austar Performance Plan.
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, Austars remuneration 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, ordinary restricted or unrestricted shares
of Austar, or any combination of the foregoing, at the
discretion of Austars remuneration committee. Payments
will be made or will vest in six equal semi-annual installments
on each March 31 and September 30, commencing on
March 31, 2009.
In the event a change of control of Austar is announced before
April 1, 2008, the Austar Performance Plan will be
terminated and no amounts will be awarded to participants.
Changes in control that are announced after April 1, 2008
will result in awards of (i) at least 50% of the earned
amount, subject to upward adjustment based on the discretion of
Austars remuneration committee, if the change in control
is announced during the two-year performance period, or
(ii) 100% of the earned amount, adjusted to present value,
if the change in control is announced during the three-year
service period.
The Austar remuneration committee has determined that its
current intention is to settle awards earned under the Austar
Performance Plan using restricted or unrestricted shares,
although it reserves the right to change that determination in
the future. In light of the Austar remuneration committees
current intention, we account for awards granted under the
Austar Performance Plan pursuant to the provisions of
SFAS No. 123(R). The Austar Performance Plan is
accounted for as a liability-based plan given that it is
intended that a variable number of shares will be issued to
settle the fixed obligation that will be determined at the end
of the performance period. Compensation expense under the Austar
Performance Plan is (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 Austar remuneration committee
could elect at a future date to cash settle all or any portion
of vested awards under the Austar Performance Plan. Austar began
recording stock compensation with respect to the Austar
Performance Plan on May 2, 2007, the date that the Austar
Performance Plan participants were notified of their awards.
Other
Austar Stock Incentive Plans
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, 2007, none of the 54,025,795 Class B
shares have been converted into ordinary shares, as they are not
scheduled to vest until April 2008. During 2006, all of the
remaining 20,840,817 Class A shares were converted into
ordinary shares. Stock-based compensation expense with respect
to these compensatory plans was not significant during 2007 and
2006 and is not expected to be material in the future.
II-149
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
Stock
Incentive Plans Other Subsidiaries
Telenet
Option Plan
During periods ended prior to January 1, 2007, Telenet
granted Class A and Class B options to certain members
of Telenet management. At December 31, 2007, 1,502,824
Class A options and 594,874 Class B options were
outstanding with a weighted average exercise price per profit
certificate of 5.08 ($7.41) and 6.35 ($9.26),
respectively. All of the Class A options and 407,451 of the
Class B options were vested at December 31, 2007.
Stock-based compensation recorded by Telenet with respect to the
Class A and Class B options was 0.5 million
($0.7 million at the average rate for the period) during
2007. In connection with Telenets November 19, 2007
capital distribution (see note 13), the number of
Class A and Class B options outstanding at that date
were increased by 356,824 and 157,627, respectively, and the
exercise prices for all then outstanding Class A and
Class B options were reduced proportionately so that the
fair value of the Class A and Class B options
outstanding before and after the capital distribution remained
the same for all option holders.
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 and
2007, these options generally expire at dates ranging from
August 2010 to August 2012. The 2006 and 2007 options expire in
2026 and 2027, respectively. As of December 31, 2007, J:COM
has granted the maximum number of options under existing
authorized plans.
A summary of the J:COM Stock Option Plan activity during 2007 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, 2007
|
|
|
155,941
|
|
|
¥
|
80,030
|
|
|
|
|
|
|
|
|
|
Granted (a)
|
|
|
243
|
|
|
¥
|
1
|
|
|
|
|
|
|
|
|
|
Expired or canceled
|
|
|
(11,903
|
)
|
|
¥
|
80,996
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(930
|
)
|
|
¥
|
80,000
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(37,395
|
)
|
|
¥
|
80,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
105,956
|
|
|
¥
|
79,625
|
|
|
|
3.87
|
|
|
¥
|
1,650.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2007
|
|
|
104,107
|
|
|
¥
|
79,955
|
|
|
|
3.79
|
|
|
¥
|
1,587.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The exercise price of these options was significantly below the
market price of J:COM common stock on the date of grant. |
During 2007, 2006 and 2005, J:COM received cash proceeds of
$24.9 million, $13.2 million and $8.5 million,
respectively, in connection with the exercise of stock options.
II-150
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
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 three- or
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 9,503 and a vesting commencement
date of January 1, 2006. On June 25, 2007, the VTR
compensation committee granted a total of 401,000 SARs, each
with a base price of CLP 12,588, and a vesting commencement date
of January 1, 2007. 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.
A summary of the VTR Plan activity during 2007 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, 2007
|
|
|
643,000
|
|
|
CLP
|
9,503
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
401,000
|
|
|
CLP
|
12,588
|
|
|
|
|
|
|
|
|
|
Expired or canceled
|
|
|
|
|
|
CLP
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(81,458
|
)
|
|
CLP
|
9,629
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(49,250
|
)
|
|
CLP
|
9,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007 (a)
|
|
|
913,292
|
|
|
CLP
|
10,846
|
|
|
|
2.0
|
|
|
CLP
|
5,592.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2007
|
|
|
387,119
|
|
|
CLP
|
10,563
|
|
|
|
2.0
|
|
|
CLP
|
2,480.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The fair value of these awards at December 31, 2007 was
calculated using an expected volatility of 25.0%, an expected
life of 2.0 years and a risk-free return of 6.27%. In
addition, we were required to estimate the fair value of VTR
common stock at December 31, 2007. 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 564,843 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
Synthetic Option Plan are fully vested and expire between 2009
and 2011. Assuming expected volatility of 100%, a risk-free
interest rate of approximately 3.2% and a weighted average
expected life of 2.8 years, we calculated an aggregate fair
value for
II-151
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
these synthetic options of $5.8 million as of
December 31, 2007. 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.
|
|
(15)
|
Related
Party Transactions
|
Prior to the LGI Combination, Liberty Media may have been deemed
to be an affiliate of LGI International by virtue of our
Chairman of the Boards voting power in Liberty Media and
LGI International, as well as his positions as Chairman of the
Board of Liberty Media and Chairman of the Board, Chief
Executive Officer and President of LGI International, and the
fact that six of LGI Internationals eight directors were
also directors of Liberty Media. As a result of (i) the
dilution of our Chairmans 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.
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
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, which is
described below, and the Tax Sharing Agreement, which is
described in note 12.
The Reorganization Agreement provides for, among other things,
the principal corporate transactions required to effect the
Spin-Off, the issuance of LGI International stock options upon
adjustment of certain Liberty Media stock incentive awards and
the allocation of responsibility for LGI International 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 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.
II-152
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
Our related party transactions consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
in millions
|
|
|
Revenue earned from related parties of:
|
|
|
|
|
|
|
|
|
|
|
|
|
J:COM (a)
|
|
$
|
52.8
|
|
|
$
|
54.4
|
|
|
$
|
52.3
|
|
LGI and consolidated subsidiaries other than J:COM (b)
|
|
|
9.9
|
|
|
|
2.1
|
|
|
|
6.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total LGI
|
|
$
|
62.7
|
|
|
$
|
56.5
|
|
|
$
|
58.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses charged by related parties of:
|
|
|
|
|
|
|
|
|
|
|
|
|
J:COM (c)
|
|
$
|
51.8
|
|
|
$
|
55.0
|
|
|
$
|
73.6
|
|
LGI and consolidated subsidiaries other than J:COM (d)
|
|
|
25.4
|
|
|
|
20.0
|
|
|
|
18.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total LGI
|
|
$
|
77.2
|
|
|
$
|
75.0
|
|
|
$
|
92.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SG&A expenses charged by related parties of:
|
|
|
|
|
|
|
|
|
|
|
|
|
J:COM (e)
|
|
$
|
11.8
|
|
|
$
|
11.4
|
|
|
$
|
13.5
|
|
LGI and consolidated subsidiaries other than J:COM (f)
|
|
|
(0.5
|
)
|
|
|
|
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total LGI
|
|
$
|
11.3
|
|
|
$
|
11.4
|
|
|
$
|
15.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense charged by related parties of:
|
|
|
|
|
|
|
|
|
|
|
|
|
J:COM (g)
|
|
$
|
12.0
|
|
|
$
|
10.1
|
|
|
$
|
9.5
|
|
LGI and consolidated subsidiaries other than J:COM
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total LGI
|
|
$
|
12.0
|
|
|
$
|
10.1
|
|
|
$
|
9.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income recognized from related parties of LGI
and consolidated subsidiaries
|
|
$
|
0.9
|
|
|
$
|
0.9
|
|
|
$
|
2.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease additions related parties of
J:COM (h)
|
|
$
|
157.5
|
|
|
$
|
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 SC Media, a subsidiary of Sumitomo. See
note 5. |
|
(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 its affiliates, (ii) incurs rental expense for the use
of certain vehicles and equipment under operating leases with
two subsidiaries of Sumitomo and (iii) paid monthly fees to
an equity method affiliate during 2005 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. |
II-153
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
|
|
|
(f) |
|
The 2007 amount represents the reimbursement of marketing and
director fees from an equity affiliate of Austar. The 2005
amount includes administrative, facility and aircraft
allocations from Liberty Media 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) |
|
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, 2007 and
2006, capital lease obligations of J:COM aggregating
¥46.0 billion ($411.5 million) and
¥41.5 billion ($371.2 million), respectively,
were owed to these Sumitomo entities. |
Certain of J:COMs equity method affiliates deposit excess
funds with J:COM. The aggregate amount owed by J:COM to these
equity method affiliates at December 31, 2007 was
¥3,536.0 million ($31.6 million) and is included
in other accrued and current liabilities in our consolidated
balance sheet.
As discussed in more detail in notes 4 and 5, on
July 2, 2007, SC Media was split into two separate
companies through the spin-off of JTV Thematics. We exchanged
our investment in SC Media for Sumitomo shares on July 3,
2007 and J:COM acquired a 100% interest in JTV Thematics on
September 1, 2007.
On December 31, 2006, we sold our 100% interest in UPC
Belgium to Telenet, an equity method affiliate at that date. For
additional information, see note 5.
As discussed in more detail in note 4, 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.
|
|
(16)
|
Transactions
with Officers and Directors
|
O3B
Networks Limited
On January 4, 2008, we subscribed for and purchased a
convertible preferred equity interest in O3B Networks Limited
(O3B), a
start-up
company headquartered in Jersey, United Kingdom, that plans to
engage in a satellite-based data backhaul business. We paid an
aggregate of 3.5 million ($5.2 million at the
transaction date) to O3B for the preferred interest, which
represented approximately 6.7% of O3Bs outstanding common
shares (calculated on an as converted basis) immediately
following the acquisition. We also have the right, prior to
June 30, 2008, to purchase additional preferred shares in
O3B, up to an aggregate additional purchase price of
5.2 million ($7.6 million), at the same price
per share as our initial investment. O3B has the right, subject
to the satisfaction of certain conditions on or before
December 31, 2008, to require us to purchase additional
preferred shares in O3B, up to an aggregate additional purchase
price of 10.4 million ($15.2 million) (less any
amounts paid pursuant to our investment right described above),
also at the same price per share as our initial investment.
Immediately following our investment in O3B, one of our
directors, who is a founder of O3B, owned an approximate 11.0%
common interest in O3B, another director owned an approximate
0.6% common interest in O3B, which he acquired from the other
founder of O3B, and the other founder of O3B, who is unrelated
to us, owned an approximate 81.7% common interest in O3B. The
ownership percentages for our directors set forth above are
calculated on an as converted basis with respect to our
preferred interest.
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
II-154
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
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 LGI International, 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 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.
Other
For a description of certain transactions involving stock
options held by our Chairman of the Board and certain of our
directors, see note 14.
|
|
(17)
|
Restructuring
Liabilities
|
A summary of changes in our restructuring liabilities during
2007 is set forth in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Programming and
|
|
|
|
|
|
|
|
|
|
Employee severance
|
|
|
Office
|
|
|
lease contract
|
|
|
|
|
|
|
|
|
|
and termination
|
|
|
closures
|
|
|
termination
|
|
|
Other
|
|
|
Total
|
|
|
|
in millions
|
|
|
Restructuring liability as of January 1, 2007
|
|
$
|
14.3
|
|
|
$
|
11.4
|
|
|
$
|
25.8
|
|
|
$
|
1.6
|
|
|
$
|
53.1
|
|
Restructuring charges (credits)
|
|
|
14.7
|
|
|
|
7.6
|
|
|
|
(0.3
|
)
|
|
|
0.2
|
|
|
|
22.2
|
|
Cash paid
|
|
|
(18.7
|
)
|
|
|
(3.2
|
)
|
|
|
(4.3
|
)
|
|
|
(1.5
|
)
|
|
|
(27.7
|
)
|
Acquisitions and other
|
|
|
(2.2
|
)
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
(0.2
|
)
|
|
|
(2.7
|
)
|
Foreign currency translation adjustments
|
|
|
0.6
|
|
|
|
1.4
|
|
|
|
0.1
|
|
|
|
|
|
|
|
2.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring liability as of December 31, 2007
|
|
$
|
8.7
|
|
|
$
|
16.9
|
|
|
$
|
21.3
|
|
|
$
|
0.1
|
|
|
$
|
47.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term portion
|
|
$
|
6.8
|
|
|
$
|
4.0
|
|
|
$
|
4.5
|
|
|
$
|
0.1
|
|
|
$
|
15.4
|
|
Long-term portion
|
|
|
1.9
|
|
|
|
12.9
|
|
|
|
16.8
|
|
|
|
|
|
|
|
31.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8.7
|
|
|
$
|
16.9
|
|
|
$
|
21.3
|
|
|
$
|
0.1
|
|
|
$
|
47.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
II-155
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
Our 2007 restructuring charges include (i)
6.3 million ($8.6 million at the average
exchange rate during the period) related primarily to the cost
of terminating certain employees in connection with integration
of our business-to-business (B2B) and broadband communications
operations in the Netherlands and (ii) 4.5 million
($6.2 million at the average exchange rate during the
period) related primarily to the cost of terminating certain
employees in connection with the restructuring of our broadband
communications operations in Ireland.
A summary of changes in our restructuring liabilities during
2006 is set forth in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Programming and
|
|
|
|
|
|
|
|
|
|
Employee severance
|
|
|
Office
|
|
|
lease contract
|
|
|
|
|
|
|
|
|
|
and termination
|
|
|
closures
|
|
|
termination
|
|
|
Other
|
|
|
Total
|
|
|
|
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-156
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
A summary of changes in our restructuring liabilities during
2005 is set forth in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Programming and
|
|
|
|
|
|
|
|
|
|
Employee severance
|
|
|
Office
|
|
|
lease contract
|
|
|
|
|
|
|
|
|
|
and termination
|
|
|
closures
|
|
|
termination
|
|
|
Other
|
|
|
Total
|
|
|
|
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.
|
|
(18)
|
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 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-157
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
The following is a summary of the funded status of the pension
plans:
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
in millions
|
|
|
Projected benefit obligation at beginning of period
|
|
$
|
193.4
|
|
|
$
|
159.8
|
|
Acquisitions (a)
|
|
|
28.8
|
|
|
|
17.6
|
|
Service cost
|
|
|
17.6
|
|
|
|
10.8
|
|
Interest cost
|
|
|
9.0
|
|
|
|
6.1
|
|
Actuarial gain
|
|
|
(17.5
|
)
|
|
|
(5.2
|
)
|
Participants contributions
|
|
|
7.3
|
|
|
|
5.6
|
|
Benefits paid
|
|
|
(25.1
|
)
|
|
|
(15.5
|
)
|
Effect of change in exchange rates
|
|
|
18.1
|
|
|
|
14.2
|
|
Other
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at end of period
|
|
$
|
233.0
|
|
|
$
|
193.4
|
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligation at end of period
|
|
$
|
220.9
|
|
|
$
|
184.4
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of period
|
|
$
|
145.3
|
|
|
$
|
116.1
|
|
Acquisitions (a)
|
|
|
27.6
|
|
|
|
8.3
|
|
Actual return on plan assets
|
|
|
2.9
|
|
|
|
7.3
|
|
Group contributions
|
|
|
15.8
|
|
|
|
12.5
|
|
Participants contributions
|
|
|
7.3
|
|
|
|
5.6
|
|
Benefits paid
|
|
|
(20.6
|
)
|
|
|
(15.0
|
)
|
Effect of change in exchange rates
|
|
|
14.4
|
|
|
|
10.5
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of period
|
|
$
|
192.7
|
|
|
$
|
145.3
|
|
|
|
|
|
|
|
|
|
|
Net liability in the balance sheet
|
|
$
|
40.3
|
|
|
$
|
48.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The 2007 amounts primarily relate to Telenet. The 2006 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. |
The change in the amount of net actuarial gain not yet
recognized as a component of net periodic pension costs during
2007 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before-tax
|
|
|
|
|
|
Net-of-tax
|
|
|
|
amount
|
|
|
Tax expense
|
|
|
amount
|
|
|
|
in millions
|
|
|
Balance at January 1, 2007
|
|
$
|
8.5
|
|
|
$
|
(0.9
|
)
|
|
$
|
7.6
|
|
Change in net actuarial gain
|
|
|
12.8
|
|
|
|
(0.2
|
)
|
|
|
12.6
|
|
Amount recognized as a component of earnings
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
$
|
21.0
|
|
|
$
|
(1.1
|
)
|
|
$
|
19.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We expect that the amount of net actuarial gain to be recognized
in our 2008 consolidated statement of operations will not be
significant.
II-158
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
Actuarial
Assumptions
The measurement date used to determine pension plan assumptions
was December 31 for each of 2007 and 2006. 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,
|
|
|
|
2007
|
|
|
2006
|
|
|
Expected rate of salary increase
|
|
|
2.37%
|
|
|
|
2.14%
|
|
Discount rate
|
|
|
4.03%
|
|
|
|
3.09%
|
|
Return on plan assets
|
|
|
4.74%
|
|
|
|
4.56%
|
|
The components of net periodic pension cost recorded in our
consolidated statements of operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
in millions
|
|
|
Service cost
|
|
$
|
17.6
|
|
|
$
|
10.8
|
|
Interest cost
|
|
|
9.0
|
|
|
|
6.1
|
|
Expected return on plan assets
|
|
|
(9.6
|
)
|
|
|
(5.8
|
)
|
Other
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost
|
|
$
|
18.1
|
|
|
$
|
11.1
|
|
|
|
|
|
|
|
|
|
|
II-159
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
The allocation of the assets of the funded plans is as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Debt securities
|
|
|
32%
|
|
|
|
43%
|
|
Equity securities
|
|
|
30%
|
|
|
|
39%
|
|
Guarantee investment contracts
|
|
|
18%
|
|
|
|
|
|
Real estate
|
|
|
7%
|
|
|
|
9%
|
|
Other
|
|
|
13%
|
|
|
|
9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100%
|
|
|
|
100%
|
|
|
|
|
|
|
|
|
|
|
The weighted average target asset mix established for the funded
plans is as follows:
|
|
|
|
|
Debt securities
|
|
|
38
|
%
|
Equity securities
|
|
|
30
|
%
|
Guarantee investment contracts
|
|
|
18
|
%
|
Real estate
|
|
|
8
|
%
|
Other
|
|
|
6
|
%
|
|
|
|
|
|
|
|
|
100
|
%
|
|
|
|
|
|
Our subsidiaries contributions to their respective pension
plans in 2008 are expected to aggregate $13.5 million. The
expected benefits to be paid with respect to pensions as of
December 31, 2007 were as follows (in millions):
|
|
|
|
|
2008
|
|
$
|
5.4
|
|
2009
|
|
$
|
6.3
|
|
2010
|
|
$
|
7.1
|
|
2011
|
|
$
|
6.4
|
|
2012
|
|
$
|
9.1
|
|
2013 - 2017
|
|
$
|
52.1
|
|
II-160
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
|
|
(19)
|
Accumulated
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 and losses on cash flow hedges and pension
related adjustments. The change in the components of accumulated
other comprehensive earnings (loss), net of taxes, is summarized
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
|
currency
|
|
|
Unrealized
|
|
|
gains (losses)
|
|
|
Pension
|
|
|
Accumulated other
|
|
|
|
translation
|
|
|
gains (losses)
|
|
|
on cash
|
|
|
related
|
|
|
comprehensive
|
|
|
|
adjustments
|
|
|
on securities
|
|
|
flow hedges
|
|
|
adjustments
|
|
|
earnings (loss)
|
|
|
|
|
|
|
|
|
|
in millions
|
|
|
|
|
|
|
|
|
Balance at January 1, 2005
|
|
$
|
(43.1
|
)
|
|
$
|
57.1
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
14.0
|
|
Other comprehensive earnings (loss)
|
|
|
(244.6
|
)
|
|
|
(37.1
|
)
|
|
|
4.8
|
|
|
|
|
|
|
|
(276.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
(note 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.6
|
|
|
|
7.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
|
119.1
|
|
|
|
39.5
|
|
|
|
3.6
|
|
|
|
7.6
|
|
|
|
169.8
|
|
Other comprehensive earnings (loss)
|
|
|
686.8
|
|
|
|
(3.7
|
)
|
|
|
(6.7
|
)
|
|
|
12.3
|
|
|
|
688.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
$
|
805.9
|
|
|
$
|
35.8
|
|
|
$
|
(3.1
|
)
|
|
$
|
19.9
|
|
|
$
|
858.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
II-161
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
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 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
|
|
|
|
in millions
|
|
|
Year ended December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
$
|
(236.8
|
)
|
|
$
|
(7.2
|
)
|
|
$
|
(244.0
|
)
|
Unrealized losses on securities
|
|
|
(58.6
|
)
|
|
|
21.7
|
|
|
|
(36.9
|
)
|
Unrealized gains on cash flow hedges
|
|
|
4.8
|
|
|
|
|
|
|
|
4.8
|
|
Other
|
|
|
|
|
|
|
(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 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
$
|
692.9
|
|
|
$
|
(6.1
|
)
|
|
$
|
686.8
|
|
Unrealized losses on securities
|
|
|
(5.7
|
)
|
|
|
2.0
|
|
|
|
(3.7
|
)
|
Unrealized losses on cash flow hedges
|
|
|
(12.0
|
)
|
|
|
5.3
|
|
|
|
(6.7
|
)
|
Pension related adjustments
|
|
|
12.3
|
|
|
|
|
|
|
|
12.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive earnings
|
|
$
|
687.5
|
|
|
$
|
1.2
|
|
|
$
|
688.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20)
|
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-cancellable operating leases,
programming contracts, satellite carriage commitments, purchases
of customer premise equipment and other items. 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, 2007, the U.S. dollar equivalents (based
on December 31, 2006 exchange rates) of such commitments
that are not reflected in our consolidated balance sheet are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due during
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
Thereafter
|
|
|
Total
|
|
|
|
in millions
|
|
|
Operating leases
|
|
$
|
174.9
|
|
|
$
|
129.5
|
|
|
$
|
103.2
|
|
|
$
|
63.8
|
|
|
$
|
45.3
|
|
|
$
|
133.9
|
|
|
$
|
650.6
|
|
Programming, satellite and other purchase obligations
|
|
|
277.9
|
|
|
|
108.7
|
|
|
|
43.5
|
|
|
|
15.3
|
|
|
|
9.3
|
|
|
|
33.3
|
|
|
|
488.0
|
|
Other commitments
|
|
|
24.9
|
|
|
|
9.8
|
|
|
|
8.4
|
|
|
|
5.8
|
|
|
|
4.3
|
|
|
|
291.3
|
|
|
|
344.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
477.7
|
|
|
$
|
248.0
|
|
|
$
|
155.1
|
|
|
$
|
84.9
|
|
|
$
|
58.9
|
|
|
$
|
458.5
|
|
|
$
|
1,483.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
II-162
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
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 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 relate primarily to Telenets fixed
minimum commitments in years 21 through 50 of its agreements
with the PICs, and other fixed minimum contractual commitments
associated with our agreements with franchise or municipal
authorities. For a further description of Telenets
commitments with respect to its agreements with the PICs, see
note 10.
In addition to the commitments set forth in the table above, we
have commitments under derivative instruments and 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 $157.0 million, $120.8 million and
$119.9 million in 2007, 2006 and 2005, 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 and our subsidiaries employees. The aggregate
expense for matching contributions under the various defined
contribution employee benefit plans was $24.2 million,
$17.5 million and $13.0 million in 2007, 2006 and
2005, 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,
Liberty Japan MC has the option to use cash, or subject to
certain conditions being met, marketable securities, including
LGI common stock, to acquire Olympus interest in Mediatti.
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, UGC
II-163
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
has the option to use cash or shares of LGI common stock to
acquire Cristalerías interest in VTR. We have
reflected the $3.0 million fair value of this put option at
December 31, 2007 in other current liabilities in our
consolidated balance sheet.
The minority owner of Sport 1 Holding Zrt (Sport 1), a
subsidiary of Chellomedia in Hungary, 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 Sport 1. In the event the then fair value of Sport 1
on exercise of the put right exceeds a multiple of ten times
EBITDA, as defined in the underlying agreement, 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 three months of such date,
subject to Chellomedias right of first refusal. After such
three month period elapses, the minority shareholder cannot sell
its shares to third parties without Chellomedias consent.
The put and call rights are to be settled in cash. At
December 31, 2007, the fair value of the Sport 1 interest
subject to the put and call rights was not significant.
Three individuals, including one of our executive officers and
an officer of one of our subsidiaries, own a 14.3% common stock
interest in Liberty Jupiter, which owned a 4.0% indirect
interest in J:COM at December 31, 2007. 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.
As further described in note 16, O3B has the right, subject
to the satisfaction of certain conditions on or before
December 31, 2008, to require us to purchase additional
preferred shares in O3B, up to an aggregate additional purchase
price of 10.4 million ($15.2 million).
Guarantees
and Other Credit Enhancements
At December 31, 2007, J:COM guaranteed
¥7.9 billion ($70.7 million) of the debt of
certain of its non-consolidated investees. The maturities of the
guaranteed debt range from 2008 to 2014.
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.
Legal
Proceedings and Other Contingencies
Cignal On April 26, 2002, Liberty Global
Europe received a notice that the former shareholders of Cignal
Global Communications (Cignal) filed a lawsuit (the 2002 Cignal
Action) against Liberty Global Europe in the District Court of
Amsterdam, the Netherlands, claiming damages for Liberty Global
Europes alleged failure to honor certain option rights
that were granted to those shareholders pursuant to a
Shareholders Agreement entered into in connection with the
acquisition of Cignal by Priority Telecom NV (Priority Telecom).
The Shareholders Agreement provided that in the absence of an
IPO, as defined in the Shareholders Agreement, of shares of
Priority Telecom by October 1, 2001, the Cignal
shareholders would be entitled until October 30, 2001 to
exchange their Priority Telecom shares into shares of Liberty
Global Europe, with a cash equivalent value of $200 million
in the
II-164
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
aggregate, or cash at Liberty Global Europes discretion.
Liberty Global Europe believes that it complied in full with its
obligations to the Cignal shareholders through the successful
completion of the IPO of Priority Telecom on September 27,
2001, and accordingly, the option rights were not exercisable.
On May 4, 2005, the District Court rendered its decision in
the 2002 Cignal Action, 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, nine individual
plaintiffs, rather than all former Cignal shareholders,
continued to pursue their claims. Based on the share ownership
information provided by the nine plaintiffs, the damage claims
remaining subject to the 2002 Cignal Action are approximately
$28 million in the aggregate before statutory interest. A
hearing on the appeal was held on May 22, 2007. On
September 13, 2007, the Court of Appeals rendered its
decision that no IPO within the meaning of the Shareholders
Agreement had been realized and accordingly the plaintiffs
should have been allowed to exercise their option rights. In the
same decision, the Court of Appeals directed the plaintiffs to
present more detailed calculations and substantiation of the
damages they claimed to have suffered as a result of Liberty
Global Europes nonperformance with respect to their option
rights, and stated that Liberty Global Europe will be allowed to
respond to the calculations submitted by the plaintiffs by
separate statement. The Court of Appeals gave the parties leave
to appeal to the Dutch Supreme Court and deferred all further
decisions and actions, including the calculation and
substantiation of the damages, pending such appeal. Liberty
Global Europe filed an appeal with the Dutch Supreme Court on
December 13, 2007. On February 15, 2008, the
plaintiffs filed a conditional appeal against the decision with
the Dutch Supreme Court, challenging certain aspects of the
Court of Appeals decision in the event that Liberty Global
Europes appeal is not dismissed by the Supreme Court.
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 (the 2006 Cignal Action) purportedly on
behalf of all the other former Cignal shareholders and
provisionally for the nine plaintiffs in the 2002 Cignal Action.
The 2006 Cignal Action claims, among other things, that the
listing of Priority Telecom on Euronext Amsterdam NV 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. Aggregate claims of $200 million, plus
statutory interest, are asserted in this action, which amount
includes the amount provisionally claimed by the nine plaintiffs
in the 2002 Cignal Action. A hearing in the 2006 Cignal Action
took place on October 9, 2007 following which, on
December 19, 2007, the District Court rendered its decision
dismissing the plaintiffs claims against Liberty Global
Europe and the other defendants. We expect the plaintiffs to
appeal the District Courts decision to the Court of
Appeals.
In light of the September 13, 2007 decision by the Court of
Appeals and other factors, we recorded a provision of
$146.0 million during the third quarter of 2007,
representing our estimate of the loss that we may incur upon the
ultimate disposition of the 2002 and 2006 Cignal Actions. This
provision has been recorded notwithstanding our appeal of the
Court of Appeals decision in the 2002 Cignal Action to the Dutch
Supreme Court and the fact that the Court of Appeals decision is
not binding with respect to the 2006 Cignal Action. We have not
adjusted the provision as a result of the December 19, 2007
District Court decision in the 2006 Cignal Action, because we
expect the plaintiffs to appeal that decision.
Class Action Lawsuits Relating to the LGI
Combination In the first quarter of 2005, 21
lawsuits were 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 LGI International of the agreement and plan
of merger for the combination of the two companies under LGI
(the LGI Combination). The defendants named in these actions
include UGC, former directors of UGC, and LGI International. 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
II-165
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
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 that court
pending the final resolution of the consolidated action in
Delaware. On January 7, 2008, the Delaware Chancery Court
was formally advised that the parties have reached a binding
agreement, subject to the Courts approval, to settle the
consolidated action for total consideration of $25 million
(inclusive of any award of fees and expenses to the
plaintiffs counsel). A stipulation of settlement setting
forth the terms of the settlement and release of claims was
filed with the Delaware Chancery Court on February 20, 2008. The
stipulation of settlement is subject to customary conditions,
including Court approval following notice to class members and a
hearing by the Court to determine the fairness, adequacy and
reasonableness of the settlement, and entry of an agreed upon
final judgment. If the Court determines not to approve the
settlement, the stipulation of settlement will terminate. In
light of our binding agreement to settle this litigation, we
recorded a provision of $25 million during the fourth
quarter of 2007, representing our estimate of the loss that we
expect to incur upon the ultimate resolution of this matter.
Telenet Partner Network Negotiations At
December 31, 2007, Telenet provided services over broadband
networks owned by Telenet and the Telenet Partner Network owned
by the PICs (as further described in note 10), with the
networks owned by Telenet accounting for approximately 70% of
the aggregate homes passed by the combined networks and the
Telenet Partner Network accounting for the remaining 30%.
Telenet has been negotiating with the PICs to increase the
capacity available to Telenet on the Telenet Partner Network.
Telenet is seeking the additional capacity in order to avoid a
possible future degradation of service due to congestion that
may arise in future years.
Telenet and the PICs had also been discussing the PICs
desire to provide
video-on-demand
and related digital interactive services over the Telenet
Partner Network. These discussions were complicated by
differences in the parties interpretation of the precise
scope of the long-term exclusive right to provide point-to-point
services over the Telenet Partner Network that the PICs
contributed to Telenet in exchange for stock in 1996. Telenet
learned that the PICs intended to launch certain digital
interactive services in breach of Telenets exclusive right
to provide point-to-point services on the Telenet Partner
Network and therefore lodged summary proceedings with the
President of the Court of First Instance of Brussels to protect
its rights. On July 5, 2007, the President issued an
injunction, prohibiting the PICs from offering
video-on-demand
and other interactive services on the Telenet Partner Network.
The PICs appealed the court decision on July 28, 2007. If
the appeal were to be determined in a manner unfavorable to
Telenet, Telenets operations and revenue are likely to be
adversely affected, although the extent of such adverse effect
is difficult to predict at this time.
On November 26, 2007, Telenet and the PICs announced a
non-binding
agreement-in-principle
to transfer the analog and digital television activities of the
PICs, including all existing subscribers, to Telenet for
purchase consideration of 170 million
($247.9 million). Among other matters, the
agreement-in-principle
provides that the PICs would remain the legal owners of the
cable network, and that Telenet would receive full rights to use
the network under a long-term lease for a period of
38 years via a user right in rem, for which it will pay
annual fees in addition to the fees payable under the existing
structure. It is also provided that the PICs will afterwards be
able to use limited bandwidth for certain public interest
services.
On December 26, 2007, Belgacom NV/SA (Belgacom), the
incumbent telecommunications operator in Belgium, lodged summary
proceedings with the President of the Court of First Instance of
Antwerp with a view to obtaining a provisional injunction
preventing the PICs from effecting the
agreement-in-principle.
Belgacoms claim is based on the allegation that the PICs
should have organized a market consultation prior to entering
into the
II-166
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
agreement-in-principle.
The PICs are challenging this allegation, and Telenet intervened
in this litigation in order to protect its interests. Oral
pleadings have been scheduled for February 12, 2008 and a
decision should be rendered in March 2008. Belgacom also sent a
letter expressing their interest in making a competing offer to
the PICs and have started a procedure on the merits claiming the
annulment of the
agreement-in-principle.
This procedure is expected to last for years.
In parallel, Belgacom filed a complaint with the Government
Commissioner who needs to make a decision whether the Board
approvals of the PICs of the agreement-in principle should be
suspended. This decision is expected by the beginning of March.
Furthermore, Belgacom also initiated a suspension and annulment
procedure before the Council of State against these Board
approvals. The outcome of the suspension procedure is expected
in the coming months. The final judgment in the annulment case
is expected to take more than one year.
No assurance can be given as to the outcome of the various
Belgacom proceedings or whether Telenet will be able to enter
into a definitive agreement with the PICs on the terms mentioned
above, on a timely basis, or at all. To the extent that Telenet
cannot conclude its negotiations with the PICs on satisfactory
terms and Telenet has exhausted other means to resolve network
congestion issues, it is possible that certain areas on the
Telenet Partner Network would over time begin to experience
congestion, resulting in a deterioration in the quality of
service that Telenet would be able to provide to its subscribers
and possible damage to Telenets reputation and its ability
to maintain or increase revenue and subscribers in the affected
areas.
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 cable 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 cable services market.
Royal KPN NV (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. The NMA appealed the Administrative Courts
decision and UPC NL joined NMA in its appeal. In December 2007,
KPN withdrew its appeal and the case was subsequently closed.
As part of the process of implementing certain directives
promulgated by the European Union (EU) 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 19th 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 included 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. The OPTA decision with respect to
market 19 expired on March 17, 2007.
UPC NL appealed the OPTA decisions on April 28, 2006 with
the highest administrative court. On July 24, 2007, the
court rendered its decision with respect to the appeal, whereby
the court annulled the OPTA decision in relation to market 18
because OPTA was not able to demonstrate that the remedies were
proportionate. On December 21, 2007, OPTA issued a new
decision in relation to market 18, which decision became
effective on January 1, 2008. This decision imposes exactly
the same obligation on UPC NL as the previous decision while at
the same time purporting to address the proportionality concerns
of the court. In January 2008, UPC NL filed an appeal against
this new decision.
II-167
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
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. On
December 12, 2006, Liberty Media announced publicly that it
had agreed to acquire an approximate 39% interest in DirecTV. On
August 1, 2007, VTR received formal written notice from the
Chilean Federal Economic Prosecutor (FNE) that Liberty
Medias acquisition of the DirecTV interest would violate
one of the conditions imposed by the Chilean Antitrust Court on
VTRs combination with Metrópolis prohibiting VTR and
its control group from participating, directly or indirectly
through related persons, in Chilean satellite or microwave
television businesses. If the FNE ultimately determines that a
violation has occurred, it will commence an action before the
Chilean Antitrust Court. We currently are unable to predict the
outcome of this matter.
Other In addition to the foregoing items, we
have contingent liabilities related to (i) legal
proceedings, (ii) wage, property, sales and other 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.
|
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(21)
|
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, provisions for
litigation, 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
(i) readily view operating trends, (ii) perform
analytical comparisons and benchmarking between segments and
(iii) identify strategies to improve operating performance
in the different countries in which we operate. 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
II-168
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
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 earnings (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:
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UPC Broadband Division:
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The Netherlands
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Switzerland
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|
|
Austria
|
|
|
|
Ireland
|
|
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|
Hungary
|
|
|
|
Other Central and Eastern Europe
|
|
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|
|
|
Telenet (Belgium)
|
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|
J:COM (Japan)
|
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VTR (Chile)
|
All of the reportable segments set forth above derive their
revenue primarily from broadband communications services,
including video, voice and broadband Internet services. Certain
segments also provide Competitive Local Exchange Carrier (CLEC)
and other B2B communications services. At December 31,
2007, our operating segments in the UPC Broadband Division
provided services in 10 European countries. Our other Central
and Eastern Europe segment includes our operating segments in
Czech Republic, Poland, Romania, Slovak Republic and Slovenia.
Telenet, J:COM and VTR provide broadband communications services
in Belgium, Japan and Chile, respectively. Our corporate and
other category includes (i) Austar and other less
significant consolidated operating segments that provide
broadband communications services in Puerto Rico 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 broadband communications and programming operations,
primarily in Europe.
As further discussed in notes 4 and 5, we sold UPC Belgium
to Telenet on December 31, 2006, and we began accounting
for Telenet as a consolidated subsidiary effective
January 1, 2007. As a result, we began reporting a new
segment as of January 1, 2007 that includes Telenet from
the January 1, 2007 consolidation date and UPC Belgium for
all periods presented. The new reportable segment is not a part
of the UPC Broadband Division. Segment information for all
periods presented has been restated to reflect the transfer of
UPC Belgium to the Telenet segment.
Performance
Measures of Our Reportable Segments
The amounts presented below represent 100% of each of our
reportable segments revenue and operating cash flow. As we
have the ability to control Telenet, 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
despite the fact that third parties own significant interests in
these entities. The third-party owners interests in the
operating results of Telenet, J:COM, VTR, Austar and other less
significant
II-169
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
majority owned subsidiaries are reflected in minority interests
in 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 note that other third-party entities own significant
interests in Telenet, J:COM, VTR and Austar and that Sumitomo
effectively has the ability to prevent our company from
consolidating J:COM after February 2010.
|
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|
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|
|
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|
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Year ended December 31,
|
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|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
Operating
|
|
|
|
|
|
Operating
|
|
|
|
|
|
Operating
|
|
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Revenue
|
|
|
cash flow
|
|
|
Revenue
|
|
|
cash flow
|
|
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Revenue
|
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|
cash flow
|
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in millions
|
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|
Performance Measures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
UPC Broadband Division:
|
|
|
|
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|
|
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|
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|
|
|
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|
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|
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The Netherlands
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|
$
|
1,060.6
|
|
|
$
|
556.5
|
|
|
$
|
923.9
|
|
|
$
|
451.9
|
|
|
$
|
857.3
|
|
|
$
|
446.9
|
|
Switzerland
|
|
|
873.9
|
|
|
|
419.3
|
|
|
|
771.8
|
|
|
|
353.7
|
|
|
|
122.1
|
|
|
|
43.6
|
|
Austria
|
|
|
503.1
|
|
|
|
237.5
|
|
|
|
420.0
|
|
|
|
195.7
|
|
|
|
329.0
|
|
|
|
165.7
|
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Ireland
|
|
|
307.2
|
|
|
|
104.7
|
|
|
|
262.6
|
|
|
|
79.9
|
|
|
|
188.1
|
|
|
|
58.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
2,744.8
|
|
|
|
1,318.0
|
|
|
|
2,378.3
|
|
|
|
1,081.2
|
|
|
|
1,496.5
|
|
|
|
715.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
377.1
|
|
|
|
189.9
|
|
|
|
307.1
|
|
|
|
145.3
|
|
|
|
281.4
|
|
|
|
123.4
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|
Other Central and Eastern Europe
|
|
|
806.1
|
|
|
|
404.0
|
|
|
|
574.0
|
|
|
|
264.4
|
|
|
|
368.5
|
|
|
|
168.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
1,183.2
|
|
|
|
593.9
|
|
|
|
881.1
|
|
|
|
409.7
|
|
|
|
649.9
|
|
|
|
291.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central and corporate operations
|
|
|
11.1
|
|
|
|
(237.8
|
)
|
|
|
17.9
|
|
|
|
(206.2
|
)
|
|
|
3.3
|
|
|
|
(203.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total UPC Broadband Division
|
|
|
3,939.1
|
|
|
|
1,674.1
|
|
|
|
3,277.3
|
|
|
|
1,284.7
|
|
|
|
2,149.7
|
|
|
|
802.9
|
|
Telenet (Belgium)
|
|
|
1,291.3
|
|
|
|
597.1
|
|
|
|
43.8
|
|
|
|
24.1
|
|
|
|
40.1
|
|
|
|
21.5
|
|
J:COM (Japan)
|
|
|
2,249.5
|
|
|
|
911.6
|
|
|
|
1,902.7
|
|
|
|
738.6
|
|
|
|
1,662.1
|
|
|
|
636.3
|
|
VTR (Chile)
|
|
|
634.9
|
|
|
|
249.2
|
|
|
|
558.9
|
|
|
|
198.5
|
|
|
|
444.2
|
|
|
|
151.5
|
|
Corporate and other
|
|
|
975.7
|
|
|
|
135.8
|
|
|
|
772.3
|
|
|
|
90.3
|
|
|
|
266.0
|
|
|
|
(24.6
|
)
|
Intersegment eliminations
|
|
|
(87.2
|
)
|
|
|
|
|
|
|
(71.1
|
)
|
|
|
|
|
|
|
(44.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated LGI
|
|
$
|
9,003.3
|
|
|
$
|
3,567.8
|
|
|
$
|
6,483.9
|
|
|
$
|
2,336.2
|
|
|
$
|
4,517.3
|
|
|
$
|
1,587.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
II-170
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (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,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
in millions
|
|
|
Total segment operating cash flow
|
|
$
|
3,567.8
|
|
|
$
|
2,336.2
|
|
|
$
|
1,587.6
|
|
Stock-based compensation expense
|
|
|
(193.4
|
)
|
|
|
(70.0
|
)
|
|
|
(59.0
|
)
|
Depreciation and amortization
|
|
|
(2,493.1
|
)
|
|
|
(1,884.7
|
)
|
|
|
(1,274.0
|
)
|
Provisions for litigation
|
|
|
(171.0
|
)
|
|
|
|
|
|
|
|
|
Impairment, restructuring and other operating charges, net
|
|
|
(43.5
|
)
|
|
|
(29.2
|
)
|
|
|
(4.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
666.8
|
|
|
|
352.3
|
|
|
|
250.1
|
|
Interest expense
|
|
|
(982.1
|
)
|
|
|
(673.4
|
)
|
|
|
(396.1
|
)
|
Interest and dividend income
|
|
|
115.3
|
|
|
|
85.4
|
|
|
|
76.8
|
|
Share of results of affiliates, net
|
|
|
33.7
|
|
|
|
13.0
|
|
|
|
(23.0
|
)
|
Realized and unrealized gains (losses) on financial and
derivative instruments, net
|
|
|
(38.7
|
)
|
|
|
(347.6
|
)
|
|
|
310.0
|
|
Foreign currency transaction gains (losses), net
|
|
|
20.5
|
|
|
|
236.1
|
|
|
|
(209.2
|
)
|
Other-than-temporary declines in fair values of investments
|
|
|
(212.6
|
)
|
|
|
(13.8
|
)
|
|
|
(3.4
|
)
|
Losses on extinguishment of debt
|
|
|
(112.1
|
)
|
|
|
(40.8
|
)
|
|
|
(33.7
|
)
|
Gains on disposition of assets, net
|
|
|
557.6
|
|
|
|
206.4
|
|
|
|
115.2
|
|
Other income (expense), net
|
|
|
1.3
|
|
|
|
12.2
|
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before income taxes, minority interests and
discontinued operations
|
|
$
|
49.7
|
|
|
$
|
(170.2
|
)
|
|
$
|
86.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
II-171
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (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,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
in millions
|
|
|
UPC Broadband Division:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$
|
|
|
|
$
|
0.1
|
|
|
$
|
3,009.6
|
|
|
$
|
3,013.5
|
|
|
$
|
3,101.6
|
|
|
$
|
3,105.5
|
|
Switzerland
|
|
|
31.1
|
|
|
|
30.8
|
|
|
|
4,088.9
|
|
|
|
3,907.6
|
|
|
|
4,441.2
|
|
|
|
4,867.6
|
|
Austria
|
|
|
|
|
|
|
|
|
|
|
1,355.4
|
|
|
|
1,232.4
|
|
|
|
1,410.2
|
|
|
|
1,273.6
|
|
Ireland
|
|
|
|
|
|
|
|
|
|
|
759.4
|
|
|
|
651.9
|
|
|
|
801.4
|
|
|
|
691.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
31.1
|
|
|
|
30.9
|
|
|
|
9,213.3
|
|
|
|
8,805.4
|
|
|
|
9,754.4
|
|
|
|
9,937.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
|
|
|
|
|
|
|
|
860.7
|
|
|
|
812.0
|
|
|
|
914.6
|
|
|
|
851.9
|
|
Other Central and Eastern Europe
|
|
|
|
|
|
|
0.6
|
|
|
|
2,328.9
|
|
|
|
2,062.1
|
|
|
|
2,459.4
|
|
|
|
2,190.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
|
|
|
|
0.6
|
|
|
|
3,189.6
|
|
|
|
2,874.1
|
|
|
|
3,374.0
|
|
|
|
3,042.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central and corporate operations
|
|
|
|
|
|
|
21.6
|
|
|
|
283.9
|
|
|
|
269.7
|
|
|
|
2,577.2
|
|
|
|
1,743.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total UPC Broadband Division
|
|
|
31.1
|
|
|
|
53.1
|
|
|
|
12,686.8
|
|
|
|
11,949.2
|
|
|
|
15,705.6
|
|
|
|
14,724.0
|
|
Telenet (Belgium)
|
|
|
|
|
|
|
|
|
|
|
4,632.2
|
|
|
|
|
|
|
|
5,127.2
|
|
|
|
|
|
J:COM (Japan)
|
|
|
174.5
|
|
|
|
20.7
|
|
|
|
6,013.6
|
|
|
|
5,347.2
|
|
|
|
6,808.6
|
|
|
|
5,912.6
|
|
VTR (Chile)
|
|
|
2.4
|
|
|
|
|
|
|
|
1,134.8
|
|
|
|
1,059.5
|
|
|
|
1,483.5
|
|
|
|
1,347.4
|
|
Corporate and other
|
|
|
180.6
|
|
|
|
988.9
|
|
|
|
1,456.5
|
|
|
|
1,479.0
|
|
|
|
3,493.7
|
|
|
|
3,585.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated LGI
|
|
$
|
388.6
|
|
|
$
|
1,062.7
|
|
|
$
|
25,923.9
|
|
|
$
|
19,834.9
|
|
|
$
|
32,618.6
|
|
|
$
|
25,569.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
II-172
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
Capital
Expenditures of our Reportable Segments
The capital expenditures of our reportable segments are set
forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
in millions
|
|
|
Capital Expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
UPC Broadband Division:
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$
|
201.6
|
|
|
$
|
197.1
|
|
|
$
|
166.1
|
|
Switzerland
|
|
|
210.9
|
|
|
|
178.8
|
|
|
|
27.0
|
|
Austria
|
|
|
76.9
|
|
|
|
52.0
|
|
|
|
50.4
|
|
Ireland
|
|
|
127.9
|
|
|
|
79.4
|
|
|
|
48.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
617.3
|
|
|
|
507.3
|
|
|
|
291.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
68.4
|
|
|
|
73.5
|
|
|
|
70.8
|
|
Other Central and Eastern Europe
|
|
|
236.1
|
|
|
|
145.0
|
|
|
|
84.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
304.5
|
|
|
|
218.5
|
|
|
|
155.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central and corporate operations
|
|
|
147.0
|
|
|
|
96.3
|
|
|
|
87.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total UPC Broadband Division
|
|
|
1,068.8
|
|
|
|
822.1
|
|
|
|
534.6
|
|
Telenet (Belgium)
|
|
|
237.6
|
|
|
|
4.5
|
|
|
|
4.1
|
|
J:COM (Japan)
|
|
|
395.5
|
|
|
|
416.7
|
|
|
|
358.8
|
|
VTR (Chile)
|
|
|
157.7
|
|
|
|
138.2
|
|
|
|
98.6
|
|
Corporate and other
|
|
|
174.9
|
|
|
|
126.4
|
|
|
|
50.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated LGI
|
|
$
|
2,034.5
|
|
|
$
|
1,507.9
|
|
|
$
|
1,046.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
II-173
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
Geographic
Segments
Revenue
The revenue of our geographic segments is set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
in millions
|
|
|
Europe:
|
|
|
|
|
|
|
|
|
|
|
|
|
UPC Broadband Division:
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$
|
1,060.6
|
|
|
$
|
923.9
|
|
|
$
|
857.3
|
|
Switzerland
|
|
|
873.9
|
|
|
|
771.8
|
|
|
|
122.1
|
|
Austria
|
|
|
503.1
|
|
|
|
420.0
|
|
|
|
329.0
|
|
Ireland
|
|
|
307.2
|
|
|
|
262.6
|
|
|
|
188.1
|
|
Hungary
|
|
|
377.1
|
|
|
|
307.1
|
|
|
|
281.4
|
|
Romania
|
|
|
237.2
|
|
|
|
187.4
|
|
|
|
67.2
|
|
Poland
|
|
|
229.3
|
|
|
|
169.7
|
|
|
|
135.8
|
|
Czech Republic
|
|
|
226.8
|
|
|
|
137.9
|
|
|
|
101.4
|
|
Slovak Republic
|
|
|
62.1
|
|
|
|
48.8
|
|
|
|
39.5
|
|
Slovenia
|
|
|
50.7
|
|
|
|
30.2
|
|
|
|
24.6
|
|
Central and corporate operations (a)
|
|
|
11.1
|
|
|
|
17.9
|
|
|
|
3.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total UPC Broadband Division
|
|
|
3,939.1
|
|
|
|
3,277.3
|
|
|
|
2,149.7
|
|
Belgium
|
|
|
1,291.3
|
|
|
|
43.8
|
|
|
|
40.1
|
|
Chellomedia (b)
|
|
|
361.5
|
|
|
|
254.8
|
|
|
|
130.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Europe
|
|
|
5,591.9
|
|
|
|
3,575.9
|
|
|
|
2,320.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Japan
|
|
|
2,249.5
|
|
|
|
1,902.7
|
|
|
|
1,662.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Americas:
|
|
|
|
|
|
|
|
|
|
|
|
|
Chile
|
|
|
634.9
|
|
|
|
558.9
|
|
|
|
444.2
|
|
Other (c)
|
|
|
139.7
|
|
|
|
140.9
|
|
|
|
135.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total The Americas
|
|
|
774.6
|
|
|
|
699.8
|
|
|
|
580.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Australia
|
|
|
474.5
|
|
|
|
376.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment eliminations
|
|
|
(87.2
|
)
|
|
|
(71.1
|
)
|
|
|
(44.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated LGI
|
|
$
|
9,003.3
|
|
|
$
|
6,483.9
|
|
|
$
|
4,517.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 primarily relates to transitional services
provided to the buyers of certain of our discontinued operations
pursuant to agreements that expired at various dates in 2007. |
|
(b) |
|
Chellomedias geographic segments are located primarily in
the United Kingdom, the Netherlands, Spain, Hungary and other
European countries. |
|
(c) |
|
Includes certain less significant operating segments that
provide broadband communications and video programming services. |
II-174
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
The long-lived assets of our geographic segments are set forth
below:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
in millions
|
|
|
Europe:
|
|
|
|
|
|
|
|
|
UPC Broadband Division:
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$
|
3,009.6
|
|
|
$
|
3,013.5
|
|
Switzerland
|
|
|
4,088.9
|
|
|
|
3,907.6
|
|
Austria
|
|
|
1,355.4
|
|
|
|
1,232.4
|
|
Ireland
|
|
|
759.4
|
|
|
|
651.9
|
|
Hungary
|
|
|
860.7
|
|
|
|
812.0
|
|
Romania
|
|
|
690.4
|
|
|
|
632.2
|
|
Poland
|
|
|
416.1
|
|
|
|
369.8
|
|
Czech Republic
|
|
|
921.7
|
|
|
|
826.1
|
|
Slovak Republic
|
|
|
139.9
|
|
|
|
125.7
|
|
Slovenia
|
|
|
160.8
|
|
|
|
108.3
|
|
Central and corporate operations (a)
|
|
|
283.9
|
|
|
|
269.7
|
|
|
|
|
|
|
|
|
|
|
Total UPC Broadband Division
|
|
|
12,686.8
|
|
|
|
11,949.2
|
|
Belgium
|
|
|
4,632.2
|
|
|
|
|
|
Chellomedia (b)
|
|
|
494.7
|
|
|
|
372.0
|
|
|
|
|
|
|
|
|
|
|
Total Europe
|
|
|
17,813.7
|
|
|
|
12,321.2
|
|
|
|
|
|
|
|
|
|
|
Japan
|
|
|
6,013.6
|
|
|
|
5,474.2
|
|
|
|
|
|
|
|
|
|
|
The Americas:
|
|
|
|
|
|
|
|
|
U.S. (c)
|
|
|
91.2
|
|
|
|
70.2
|
|
Chile
|
|
|
1,134.8
|
|
|
|
1,059.5
|
|
Other (d)
|
|
|
380.6
|
|
|
|
394.8
|
|
|
|
|
|
|
|
|
|
|
Total The Americas
|
|
|
1,606.6
|
|
|
|
1,524.5
|
|
|
|
|
|
|
|
|
|
|
Australia
|
|
|
490.0
|
|
|
|
515.0
|
|
|
|
|
|
|
|
|
|
|
Total consolidated LGI
|
|
$
|
25,923.9
|
|
|
$
|
19,834.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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, Hungary and other
European countries. |
|
(c) |
|
Primarily represents the assets of our corporate category. |
|
(d) |
|
Includes certain less significant operating segments that
provide broadband communications and video programming services. |
II-175
LIBERTY
GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007, 2006 and
2005 (Continued)
|
|
(22)
|
Quarterly
Financial Information (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
1st
|
|
|
2nd
|
|
|
3rd
|
|
|
4th
|
|
|
|
quarter
|
|
|
quarter
|
|
|
quarter
|
|
|
quarter
|
|
|
|
in millions, except per share amounts
|
|
|
Revenue
|
|
$
|
2,106.0
|
|
|
$
|
2,180.6
|
|
|
$
|
2,255.3
|
|
|
$
|
2,461.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
181.8
|
|
|
$
|
210.2
|
|
|
$
|
86.8
|
|
|
$
|
188.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
(136.1
|
)
|
|
$
|
(129.7
|
)
|
|
$
|
40.4
|
|
|
$
|
(197.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share Series A,
Series B and Series C common stock (note 2)
|
|
$
|
(0.35
|
)
|
|
$
|
(0.34
|
)
|
|
$
|
0.11
|
|
|
$
|
(0.54
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share Series A,
Series B and Series C common stock (note 2)
|
|
$
|
(0.35
|
)
|
|
$
|
(0.34
|
)
|
|
$
|
0.10
|
|
|
$
|
(0.54
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
1st
|
|
|
2nd
|
|
|
3rd
|
|
|
4th
|
|
|
|
quarter
|
|
|
quarter
|
|
|
quarter
|
|
|
quarter
|
|
|
|
in millions, except per share amounts
|
|
|
Revenue
|
|
$
|
1,489.3
|
|
|
$
|
1,590.2
|
|
|
$
|
1,622.6
|
|
|
$
|
1,781.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
90.5
|
|
|
$
|
93.5
|
|
|
$
|
115.0
|
|
|
$
|
53.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations
|
|
$
|
54.4
|
|
|
$
|
(184.3
|
)
|
|
$
|
(172.9
|
)
|
|
$
|
(31.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
268.2
|
|
|
$
|
24.2
|
|
|
$
|
445.0
|
|
|
$
|
(31.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) from continuing operations per
share Series A, Series B and Series C
common stock (note 2)
|
|
$
|
0.12
|
|
|
$
|
(0.40
|
)
|
|
$
|
(0.40
|
)
|
|
$
|
(0.08
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) from continuing operations per
share Series A, Series B and Series C
common stock (note 2)
|
|
$
|
0.09
|
|
|
$
|
(0.40
|
)
|
|
$
|
(0.40
|
)
|
|
$
|
(0.08
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share Series A,
Series B and Series C common stock (note 2)
|
|
$
|
0.57
|
|
|
$
|
0.05
|
|
|
$
|
1.03
|
|
|
$
|
(0.08
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share Series A,
Series B and Series C common stock (note 2)
|
|
$
|
0.52
|
|
|
$
|
0.05
|
|
|
$
|
1.03
|
|
|
$
|
(0.08
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
II-176
PART III
Except as indicated below, the following required information is
incorporated by reference to our definitive proxy statement for
our 2008 Annual Meeting of shareholders, which we intend to hold
during the second quarter of 2008.
|
|
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 2008
Annual Meeting of shareholders with the Securities and Exchange
Commission on or before April 30, 2008.
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, 2007 with respect to shares of our common
stock authorized for issuance under our equity compensation
plans.
Equity
Compensation Plan Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
securities
|
|
|
|
|
|
|
|
|
|
available for
|
|
|
|
Number of
|
|
|
|
|
|
future issuance
|
|
|
|
securities to be
|
|
|
|
|
|
under equity
|
|
|
|
issued upon
|
|
|
Weighted average
|
|
|
compensation plans
|
|
|
|
exercise of
|
|
|
exercise price of
|
|
|
(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
|
|
|
4,599,272
|
|
|
$
|
25.71
|
|
|
|
33,046,665
|
(6)
|
LGI Series B common stock
|
|
|
1,568,562
|
|
|
$
|
20.10
|
|
|
|
|
|
LGI Series C common stock
|
|
|
6,215,415
|
|
|
$
|
22.80
|
|
|
|
|
|
Liberty Global, Inc. 2005 Non-employee Director Incentive
Plan (As Amended and Restated Effective November 1,
2006) (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
LGI Series A common stock
|
|
|
197,576
|
|
|
$
|
28.03
|
|
|
|
9,545,457
|
(7)
|
LGI Series B common stock
|
|
|
|
|
|
$
|
|
|
|
|
|
|
LGI Series C common stock
|
|
|
197,576
|
|
|
$
|
26.65
|
|
|
|
|
|
Liberty Media International, Inc. Transitional Stock
Adjustment Plan (3)(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
LGI Series A common stock
|
|
|
418,724
|
|
|
$
|
17.51
|
|
|
|
|
|
LGI Series B common stock
|
|
|
1,498,154
|
|
|
$
|
19.92
|
|
|
|
|
|
LGI Series C common stock
|
|
|
1,835,181
|
|
|
$
|
17.81
|
|
|
|
|
|
UGC Plans (5)
|
|
|
|
|
|
|
|
|
|
|
|
|
LGI Series A common stock
|
|
|
4,508,173
|
|
|
$
|
15.79
|
|
|
|
|
|
LGI Series B common stock
|
|
|
|
|
|
$
|
|
|
|
|
|
|
LGI Series C common stock
|
|
|
4,379,317
|
|
|
$
|
15.19
|
|
|
|
|
|
Equity compensation plans not approved by security
holders:
|
|
|
|
|
|
|
|
|
|
|
|
|
None
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
|
|
|
|
|
|
|
|
|
|
LGI Series A common stock
|
|
|
9,723,745
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LGI Series B common stock
|
|
|
3,066,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LGI Series C common stock
|
|
|
12,627,489
|
|
|
|
|
|
|
|
42,592,122
|
(6)(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
This table includes stock appreciation rights (SARs) with
respect to 3,828,895 and 3,830,352 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 |
III-2
|
|
|
|
|
LGI common stock. Based upon the respective market prices of LGI
Series A and Series C common stock at
December 31, 2007 and excluding any related tax effects,
1,501,381 and 1,480,301 shares of LGI Series A and
Series C common stock, respectively, would have been issued
if all outstanding SARs had been exercised on December 31,
2007. For further information, see note 14 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 and restricted share unit awards with respect
to LGI common stock. |
|
(3) |
|
Prior to LGI Internationals 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 LGI International. |
|
(4) |
|
The transitional plan was adopted in connection with LGI
Internationals 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, 2007, an aggregate of
33,046,665 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,
2007, an aggregate of 9,545,457 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-54
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)
|
|
|
|
|
|
|
|
IV-9
|
|
|
|
|
IV-10
|
|
|
|
|
IV-11
|
|
|
|
|
IV-12
|
|
|
|
|
IV-13
|
|
|
|
|
IV-14
|
|
Separate Financial Statements of Subsidiaries Not Consolidated
and 50 Percent or Less Owned Persons:
|
|
|
|
|
SC Media & Commerce Inc. and Subsidiaries
|
|
|
|
|
|
|
|
IV-15
|
|
|
|
|
IV-16
|
|
|
|
|
IV-18
|
|
|
|
|
IV-19
|
|
|
|
|
IV-20
|
|
|
|
|
IV-21
|
|
|
|
|
IV-23
|
|
Telenet Group Holding NV
|
|
|
|
|
|
|
|
IV-50
|
|
|
|
|
IV-51
|
|
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IV-52
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IV-53
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IV-54
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IV-55
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|
IV-1
(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).
|
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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
|
|
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
|
.5
|
|
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, amending
and restating the senior secured credit agreement originally
dated January 16, 2004, as amended and restated from time to
time, among the Borrowers, Toronto Dominion (Texas) LLC, as
facility agent, and other banks and financial institutions named
therein (the Facility Agreement) (incorporated by reference to
Exhibit 4.1 to the Registrants Quarterly Report on Form
10-Q, filed May 10, 2006).
|
|
4
|
.6
|
|
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 Facility Agreement (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
|
.7
|
|
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 Facility Agreement (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
|
.8
|
|
Additional Facility Accession Agreement, dated April 12, 2007,
among UPC Broadband Holding and UPC Financing, as Borrowers,
Toronto Dominion (Texas) LLC, as Facility Agent, TD Bank Europe
Limited, as Security Agent, and the Additional Facility M
Lenders listed therein under the Facility Agreement
(incorporated by reference to Exhibit 4.1 to the
Registrants Current Report on Form 8-K, filed April 17,
2007 (File No. 000-51360) (the Facility M 8-K)).
|
|
4
|
.9
|
|
Additional Facility Accession Agreement, dated April 13, 2007,
among UPC Broadband Holding and UPC Financing, as Borrowers,
Toronto Dominion (Texas) LLC, as Facility Agent, TD Bank Europe
Limited, as Security Agent, and the Additional Facility M
Lenders listed therein, under the Facility Agreement
(incorporated by reference to Exhibit 4.2 to the Facility M
8-K).
|
IV-2
|
|
|
|
|
|
4
|
.10
|
|
Amendment Letter, dated April 16, 2007, among UPC Broadband
Holding and UPC Financing, as Borrowers, the guarantors listed
therein, and Toronto Dominion (Texas) LLC, as Facility Agent, to
the Facility Agreement (incorporated by reference to Exhibit 4.3
to the
Facility M 8-K).
|
|
4
|
.11
|
|
Additional Facility M Accession Agreement, dated May 4, 2007,
among UPC Broadband Holding, as Borrower, Toronto Dominion
(Texas) LLC, as Facility Agent, TD Bank Europe Limited, as
Security Agent, and the Additional Facility M Lenders listed
therein, under the Facility Agreement (incorporated by reference
to Exhibit 4.4 to the Registrants Quarterly Report on Form
10-Q filed May 10, 2007 (the May 10, 2007 10-Q)).
|
|
4
|
.12
|
|
Additional Facility Accession Agreement, dated May 11, 2007
among UPC Broadband Holding and UPC Financing, as Borrowers,
Toronto Dominion (Texas) LLC as Facility Agent and TD Bank
Europe as Security Agent, and the Additional Facility N Lenders
listed therein under the Facility Agreement (incorporated by
reference to Exhibit 4.1 to the Registrants Current Report
on Form 8-K/A filed May 15, 2007 (File No. 000-51360)).
|
|
4
|
.13
|
|
Additional Facility Accession Agreement, dated May 18, 2007,
among UPC Broadband Holding and UPC Financing, as Borrowers,
Toronto Dominion (Texas) LLC as Facility Agent and TD Bank
Europe Limited as Security Agent, and the Additional Facility M
Lenders listed therein, under the Facility Agreement
(incorporated by reference to Exhibit 4.1 to the
Registrants Current Report on Form 8-K filed May 22, 2007
(File No. 000-51360) (the Facilities M&N 8-K)).
|
|
4
|
.14
|
|
Additional Facility Accession Agreement, dated May 18, 2007,
among UPC Broadband Holding and UPC Financing, as Borrowers,
Toronto Dominion (Texas) LLC as Facility Agent and TD Bank
Europe Limited as Security Agent, and the Additional Facility N
Lenders listed therein under the Facility Agreement
(incorporated by reference to Exhibit 4.2 to the Facilities
M&N 8-K).
|
|
4
|
.15
|
|
2,300,000,000 Credit Agreement, originally dated August 1,
2007, and as amended and restated by a supplemental agreements
dated August 22, 2007, September 11, 2007, October 8, 2007 and
November 19, 2007, among Telenet Bidco NV as Borrower, the
parties listed therein as Original Guarantors, ABN AMRO Bank
N.V., BNP Paribas S.A. and J.P. Morgan PLC as Mandated Lead
Arrangers, BNP Paribas S.A. as Facility Agent, KBC Bank NV as
Security Agent and the financial institutions listed therein as
Initial Original Lenders (incorporated by reference to Exhibit
4.1 to the Registrants Current Report of Form 8-K, filed
October 10, 2007 (File No. 000-51360)).
|
|
4
|
.16
|
|
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 10.5 to the
May 10, 2007 10-Q).
|
|
10
|
.3
|
|
Form of Stock Appreciation Rights Agreement under the Incentive
Plan (incorporated by reference to Exhibit 10.6 to the May 10,
2007 10-Q).
|
|
10
|
.4
|
|
Form of Restricted Shares Agreement under the Incentive Plan
(incorporated by reference to Exhibit 99.3 to the
Registrants Current Report on Form 8-K filed August 19,
2005 (File No. 000-51360).
|
|
10
|
.5
|
|
Form of Restricted Share Units Agreement under the Incentive
Plan (incorporated by reference to Exhibit 10.1 to the May 10,
2007 10-Q).
|
IV-3
|
|
|
|
|
|
10
|
.6
|
|
Non-Qualified Stock Option Agreement, dated as of June 7, 2004,
between John C. Malone and the Registrant (as assignee of LGI
international, Inc., fka Liberty Media International, Inc., the
predecessor issuer to the Registrant (LGI International)) 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 LGI Internationals
common stock, filed July 14, 2004 (File No. 005-79904)).
|
|
10
|
.7
|
|
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
|
.8
|
|
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
|
.9
|
|
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
|
.10
|
|
Form of Non-Qualified Stock Option Agreement under the Director
Plan (incorporated by reference to Exhibit 10.3 to the Merger
8-K).
|
|
10
|
.11
|
|
Form of Restricted Share Units Agreement under the Director Plan
(incorporated by reference to Exhibit 10.4 to the May 10, 2007
10-Q).
|
|
10
|
.12
|
|
Form of Restricted Share Units Agreement under the Director Plan
for April 20, 2007 grants to directors of the Registrant, John
Dick and Paul Gould. *
|
|
10
|
.13
|
|
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
|
.14
|
|
Liberty Global, Inc. Senior Executive Performance Incentive Plan
(As Amended and Restated Effective May 2, 2007) (the SEP
Incentive Plan) (incorporated by reference to Exhibit 10.2 to
the May 10, 2007 10-Q).
|
|
10
|
.15
|
|
Form of Participation Certificate under the SEP Incentive Plan
(incorporated by reference to Exhibit 10.3 to the May 10, 2007
10-Q).
|
|
10
|
.16
|
|
Liberty Global, Inc. 2007 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 5.02(e) of the Registrants
Current Report on Form 8-K, filed March 2, 2007 (File No.
000-51360)).
|
|
10
|
.17
|
|
Liberty Media International, Inc. Transitional Stock Adjustment
Plan (the Transitional Plan) (incorporated by reference to
Exhibit 4.5 to LGI Internationals Registration Statement
on
Form S-8,
filed June 23, 2004 (File No. 333-116790)).
|
|
10
|
.18
|
|
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
|
.19
|
|
Form of Non-Qualified Stock Option Amendment under the
Transitional Plan (incorporated by reference to Exhibit 99.2 to
the 409A 8-K).
|
|
10
|
.20
|
|
UnitedGlobalCom, Inc. Equity Incentive Plan (amended and
restated effective October 17, 2003) (incorporated by reference
to Exhibit 10.17 to the Registrants Annual Report on
Form 10-K, filed March 1, 2007 (File No. 000-51360) (the
2006 10-K)).
|
|
10
|
.21
|
|
UnitedGlobalCom, Inc. 1993 Stock Option Plan (amended and
restated effective January 22, 2004) (incorporated by reference
to Exhibit 10.6 to the UGC Annual Report on Form 10-K, filed
March 15, 2004 (File No. 000-49658) (the UGC 2003 10-K)).
|
IV-4
|
|
|
|
|
|
10
|
.22
|
|
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
|
.23
|
|
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
|
.24
|
|
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 (incorporated by
reference to Exhibit 10.22 to the 2006 10-K).
|
|
10
|
.25
|
|
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
|
.26
|
|
Form of Indemnification Agreement between the Registrant and its
Executive Officers (incorporated by reference to Exhibit 10.20
of the 2005 10-K).
|
|
10
|
.27
|
|
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)).
|
|
10
|
.28
|
|
Form of Aircraft Time Sharing Agreement. *
|
|
10
|
.29
|
|
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
|
.30
|
|
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
|
.31
|
|
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
|
.32
|
|
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
|
.33
|
|
Employment Agreement, effective November 1, 2007, between
Liberty Global Services II, LLC and Shane ONeill
(incorporated by reference to Exhibit 10.2 to the
Registrants Quarterly Report on Form 10-Q, filed November
8, 2007 (the November 8, 2007 10-Q)).
|
|
10
|
.34
|
|
Executive Service Agreement, effective November 1, 2007, between
Chellomedia Services Ltd. and Shane ONeill (incorporated
by reference to Exhibit 10.3 to the November 8, 2007 10-Q).
|
|
10
|
.35
|
|
Deed of Indemnity, effective November 1, 2007, between the
Registrant and Shane ONeill (incorporated by reference to
Exhibit 10.4 to the November 8, 2007 10-Q).
|
|
10
|
.36
|
|
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
|
.37
|
|
Employment Agreement, effective July 2, 2007, between Liberty
Global Services, LLC and Mauricio Ramos (incorporated by
reference to Exhibit 10.8 to the Registrants Quarterly
Report on Form 10-Q, filed August 9, 2007 (the August 9, 2007
10-Q)).
|
|
10
|
.38
|
|
Employment Contract, effective July 2, 2007, between VTR Global
Com S.A. and Mauricio Ramos (free translation of the Spanish
original) (incorporated by reference to Exhibit 10.9 to the
August 9, 2007 10-Q).
|
|
10
|
.39
|
|
VTR Global Com S.A. 2006 Phantom SAR Plan (the VTR Plan). *
|
|
10
|
.40
|
|
Form of Grant Agreement for U.S. Taxpayers under the VTR
Plan. *
|
IV-5
|
|
|
|
|
|
10
|
.41
|
|
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
|
.42
|
|
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
|
.43
|
|
Split Dollar Life Insurance Agreement, dated February 15, 2001,
between Old UGC, Inc. and Mark L. Schneider, Tina M. Wildes and
Carla Shankle, as trustees under The Gene W. Schneider 2001
Trust, dated February 12, 2001 (the Trust) (incorporated by
reference to Exhibit 10.88 to the UGC Form S-1).
|
|
10
|
.44
|
|
Assignment and Assumption Agreement, dated as of August 15, 2007
between Old UGC, Inc. and UGC, together with the Consent to
Assignment and Release by the Trust.*
|
|
10
|
.45
|
|
Second Amended and Restated Stockholders Agreement, dated
as of August 14, 2007, among the Registrant, Miranda Curtis,
Graham Hollis, Yasushige Nishimura, Liberty Jupiter, Inc., and,
solely for purposes of Section 7 thereof, LGI International,
Inc. and Liberty Media International Holdings, LLC,
(incorporated by reference to Exhibit 10.1 to Registrants
Quarterly Report Form 10-Q, filed November 8, 2005 (File No.
000-51360)).
|
|
10
|
.46
|
|
Form of Tax Sharing Agreement between Liberty Media Corporation
and the Registrant (as successor to LGI International)
(incorporated by reference to Exhibit 10.5 to Amendment No. 1 to
LGI Internationals Registration Statement on Form 10,
filed May 25, 2004
(File No. 000-50671)).
|
|
10
|
.47
|
|
Amended and Restated Operating Agreement, dated November 26,
2004 (the Operating Agreement), among Liberty Japan, Inc.,
Liberty Japan II, Inc., Liberty Global Japan LLC, fka LMI
Holdings Japan LLC, Liberty Kanto, Inc., Liberty Jupiter, Inc.
and Sumitomo Corporation, and solely with respect to certain
provisions thereof, the Registrant (as successor to LGI
International) (incorporated by reference to Exhibit 10.27 of
LGI Internationals Annual Report on Form 10-K, filed March
14, 2005 (File No. 0000-50671)).
|
|
10
|
.48
|
|
First Amendment dated as of May 22, 2007, to the Operating
Agreement, among Liberty Japan, Inc., Liberty Japan II, Inc.,
Liberty Global Japan LLC, fka LMI Holdings Japan, LLC, Liberty
Kanto, Inc., Liberty Jupiter, Inc. and Sumitomo Corporation,
and, solely with respect to certain provisions thereof, the
Registrant (incorporated by reference to Registrants
Current Report on Form 8-K, filed June 26, 2007 (File No.
000-51360)).
|
|
10
|
.49
|
|
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
|
.50
|
|
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)).
|
|
10
|
.51
|
|
Preemptive Rights Agreement dated as of January 4, 2008, among
O3B Networks Limited,
|
|
|
|
|
LGI Ventures BV, Gregory Wyler and John Dick. *
|
|
10
|
.52
|
|
Right of First Offer Agreement dated as of January 4, 2008,
among O3B Networks
|
|
|
|
|
Limited, LGI Ventures BV, Gregory Wyler and John Dick. *
|
|
10
|
.53
|
|
Right of First Offer Agreement dated as of January 4, 2008,
among O3B Networks
|
|
|
|
|
Limited, LGI Ventures BV, Gregory Wyler and Paul Gould. *
|
IV-6
|
|
|
|
|
21 List of
Subsidiaries *
|
23 Consent of
Experts and Counsel:
|
|
23
|
.1
|
|
Consent of KPMG LLP *
|
|
23
|
.2
|
|
Consent of PricewaterhouseCoopers Bedrijfsrevisoren bcvba *
|
|
23
|
.3
|
|
Consent of KPMG AZSA & Co. *
|
|
23
|
.4
|
|
Consent of PricewaterhouseCoopers Bedrijfsrevisoren bcvba *
|
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 *
|
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 26, 2008
|
|
|
|
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 26, 2008
|
/s/ Michael
T. Fries
Michael
T. Fries
|
|
Chief Executive Officer, President and Director
|
|
February 26, 2008
|
/s/ John
P. Cole
John
P. Cole
|
|
Director
|
|
February 26, 2008
|
/s/ John
W. Dick
John
W. Dick
|
|
Director
|
|
February 26, 2008
|
/s/ Paul
A. Gould
Paul
A. Gould
|
|
Director
|
|
February 26, 2008
|
/s/ David
E. Rapley
David
E. Rapley
|
|
Director
|
|
February 26, 2008
|
/s/ Larry
E. Romrell
Larry
E. Romrell
|
|
Director
|
|
February 26, 2008
|
/s/ Gene
W. Schneider
Gene
W. Schneider
|
|
Director
|
|
February 26, 2008
|
/s/ J.
C. Sparkman
J.
C. Sparkman
|
|
Director
|
|
February 26, 2008
|
/s/ J.
David Wargo
J.
David Wargo
|
|
Director
|
|
February 26, 2008
|
/s/ Charles
H.R. Bracken
Charles
H.R. Bracken
|
|
Senior Vice President and Co-Chief Financial Officer (Principal
Financial Officer)
|
|
February 26, 2008
|
/s/ Bernard
G. Dvorak
Bernard
G. Dvorak
|
|
Senior Vice President and Co-Chief Financial Officer (Principal
Accounting Officer)
|
|
February 26, 2008
|
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,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
in millions
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
62.0
|
|
|
$
|
20.3
|
|
Other current assets
|
|
|
0.2
|
|
|
|
3.1
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
62.2
|
|
|
|
23.4
|
|
|
|
|
|
|
|
|
|
|
Investments in consolidated subsidiaries, including intercompany
balances
|
|
|
5,901.0
|
|
|
|
7,201.7
|
|
Property and equipment, at cost
|
|
|
1.6
|
|
|
|
1.2
|
|
Accumulated depreciation
|
|
|
(0.5
|
)
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
1.1
|
|
|
|
1.0
|
|
Deferred income taxes
|
|
|
58.4
|
|
|
|
36.0
|
|
Other assets, net
|
|
|
3.0
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
6,025.7
|
|
|
$
|
7,262.3
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
66.0
|
|
|
$
|
2.1
|
|
Accrued liabilities and other
|
|
|
15.4
|
|
|
|
12.5
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
81.4
|
|
|
|
14.6
|
|
Accrued stock-based compensation
|
|
|
108.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities
|
|
|
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
189.6
|
|
|
|
15.2
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Series A common stock, $.01 par value. Authorized
500,000,000 shares; issued and outstanding 174,687,478 and
196,896,880 shares, respectively
|
|
|
1.7
|
|
|
|
2.0
|
|
Series B common stock, $.01 par value. Authorized
50,000,000 shares; issued and outstanding 7,256,353 and
7,284,799 shares, respectively
|
|
|
0.1
|
|
|
|
0.1
|
|
Series C common stock, $.01 par value. Authorized
500,000,000 shares; issued and outstanding 172,129,524 and
197,256,404 shares, respectively
|
|
|
1.7
|
|
|
|
2.0
|
|
Additional paid-in capital
|
|
|
6,293.2
|
|
|
|
8,093.5
|
|
Accumulated deficit
|
|
|
(1,319.1
|
)
|
|
|
(1,020.3
|
)
|
Accumulated other comprehensive earnings, net of taxes
|
|
|
858.5
|
|
|
|
169.8
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
5,836.1
|
|
|
|
7,247.1
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
6,025.7
|
|
|
$
|
7,262.3
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months
|
|
|
|
Year ended
|
|
|
ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
in millions
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative (including stock-based
compensation charges (credits) of $75.1 million,
$27.6 million and ($11.9 million), respectively)
|
|
$
|
128.6
|
|
|
$
|
66.4
|
|
|
$
|
4.0
|
|
Depreciation and amortization
|
|
|
0.3
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(128.9
|
)
|
|
|
(66.6
|
)
|
|
|
(4.0
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income (expense), net
|
|
|
(4.7
|
)
|
|
|
0.3
|
|
|
|
1.1
|
|
Foreign currency transaction losses, net
|
|
|
|
|
|
|
|
|
|
|
(8.5
|
)
|
Other income, net
|
|
|
|
|
|
|
0.1
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4.7
|
)
|
|
|
0.4
|
|
|
|
(7.2
|
)
|
Loss before income taxes and equity in earnings (losses) of
consolidated subsidiaries, net
|
|
|
(133.6
|
)
|
|
|
(66.2
|
)
|
|
|
(11.2
|
)
|
Equity in earnings (losses) of consolidated subsidiaries, net
|
|
|
(337.9
|
)
|
|
|
752.4
|
|
|
|
24.5
|
|
Income tax benefit
|
|
|
48.9
|
|
|
|
20.0
|
|
|
|
4.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
(422.6
|
)
|
|
$
|
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,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
in millions
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
(422.6
|
)
|
|
$
|
706.2
|
|
|
$
|
17.4
|
|
Adjustments to reconcile net earnings (loss) to net cash
provided (used) by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in losses (earnings) of consolidated subsidiaries, net
|
|
|
337.9
|
|
|
|
(752.4
|
)
|
|
|
(24.5
|
)
|
Stock-based compensation
|
|
|
75.1
|
|
|
|
27.6
|
|
|
|
(11.9
|
)
|
Amortization of deferred financing costs
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
0.3
|
|
|
|
0.2
|
|
|
|
|
|
Deferred income tax expense (benefit)
|
|
|
(22.5
|
)
|
|
|
3.6
|
|
|
|
(8.1
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables and other operating assets
|
|
|
3.0
|
|
|
|
(2.4
|
)
|
|
|
3.2
|
|
Payables and accruals
|
|
|
66.8
|
|
|
|
(15.6
|
)
|
|
|
34.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by operating activities
|
|
|
38.6
|
|
|
|
(32.8
|
)
|
|
|
11.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net distributions and advances received from subsidiaries and
affiliates
|
|
|
1,760.9
|
|
|
|
1,789.4
|
|
|
|
70.1
|
|
Capital expended for property and equipment
|
|
|
(0.4
|
)
|
|
|
(0.8
|
)
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities
|
|
|
1,760.5
|
|
|
|
1,788.6
|
|
|
|
69.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of common stock
|
|
|
(1,796.8
|
)
|
|
|
(1,756.9
|
)
|
|
|
(78.9
|
)
|
Proceeds from issuance of LGI common stock upon exercise of
stock options
|
|
|
42.9
|
|
|
|
17.5
|
|
|
|
5.7
|
|
Other financing activities, net
|
|
|
(3.5
|
)
|
|
|
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by financing activities
|
|
|
(1,757.4
|
)
|
|
|
(1,739.4
|
)
|
|
|
(72.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash
|
|
|
|
|
|
|
|
|
|
|
(8.5
|
)
|
Net increase (decrease) in cash and cash equivalents
|
|
|
41.7
|
|
|
|
16.4
|
|
|
|
(0.2
|
)
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
20.3
|
|
|
|
3.9
|
|
|
|
4.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
62.0
|
|
|
$
|
20.3
|
|
|
$
|
3.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IV-11
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)
|
|
|
|
|
|
|
Pre-LGI
|
|
|
|
Combination
|
|
|
|
Six months
|
|
|
|
ended
|
|
|
|
June 30,
|
|
|
|
2005
|
|
|
|
in millions
|
|
|
Operating costs and expenses:
|
|
|
|
|
Selling, general and administrative (including stock-based
compensation of $5.2 million)
|
|
$
|
12.4
|
|
Depreciation and amortization
|
|
|
0.4
|
|
|
|
|
|
|
Operating loss
|
|
|
(12.8
|
)
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
Interest income
|
|
|
13.5
|
|
Realized and unrealized gains on derivative instruments, net
|
|
|
8.0
|
|
Other, net
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
|
|
20.9
|
|
|
|
|
|
|
Earnings before income taxes and equity in loss of consolidated
subsidiaries, net
|
|
|
8.1
|
|
Equity in losses of consolidated subsidiaries, net
|
|
|
(108.9
|
)
|
Income tax benefit
|
|
|
3.3
|
|
|
|
|
|
|
Net loss
|
|
$
|
(97.5
|
)
|
|
|
|
|
|
IV-12
LIBERTY
GLOBAL, 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
|
|
|
|
ended
|
|
|
|
June 30,
|
|
|
|
2005
|
|
|
|
in millions
|
|
|
Cash flows from operating activities:
|
|
|
|
|
Net loss
|
|
$
|
(97.5
|
)
|
Adjustments to reconcile net loss to net cash used by operating
activities:
|
|
|
|
|
Equity in losses of consolidated subsidiaries, net
|
|
|
108.9
|
|
Stock-based compensation
|
|
|
5.2
|
|
Realized and unrealized gains on derivative instruments, net
|
|
|
(8.0
|
)
|
Depreciation and amortization
|
|
|
0.4
|
|
Deferred income tax expense
|
|
|
(2.8
|
)
|
Other non-cash items, net
|
|
|
(10.4
|
)
|
Changes in operating assets and liabilities payables
and accruals
|
|
|
(1.3
|
)
|
|
|
|
|
|
Net cash used by operating activities
|
|
|
(5.5
|
)
|
|
|
|
|
|
Cash flows used by investing activities:
|
|
|
|
|
Investments in and loans to subsidiaries and affiliates
|
|
|
(553.4
|
)
|
Net cash received to purchase or settle derivative
|
|
|
57.1
|
|
Other investing activities, net
|
|
|
(0.1
|
)
|
|
|
|
|
|
Net cash used by investing activities
|
|
|
(496.4
|
)
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
Proceeds from stock option exercises
|
|
|
5.2
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
5.2
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(496.7
|
)
|
Cash and cash equivalents:
|
|
|
|
|
Beginning of period
|
|
|
1,070.0
|
|
|
|
|
|
|
End of period
|
|
$
|
573.3
|
|
|
|
|
|
|
IV-13
LIBERTY
GLOBAL, INC.
SCHEDULE II
VALUATION
AND QUALIFYING ACCOUNTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
|
|
|
|
Balance at
|
|
|
Additions
|
|
|
|
|
|
|
|
|
currency
|
|
|
Balance at
|
|
|
|
beginning
|
|
|
to costs
|
|
|
|
|
|
Deductions
|
|
|
translation
|
|
|
end of
|
|
|
|
of period
|
|
|
and expenses
|
|
|
Acquisition
|
|
|
or write-offs
|
|
|
adjustments
|
|
|
period
|
|
|
|
in millions
|
|
|
Year ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
2007
|
|
$
|
76.5
|
|
|
|
73.6
|
|
|
|
23.7
|
|
|
|
(57.9
|
)
|
|
|
9.5
|
|
|
$
|
125.4
|
|
IV-14
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
SC Media & Commerce Inc.
We have audited the accompanying consolidated balance sheets of
SC Media & Commerce Inc. (formerly Jupiter TV Co.,
Ltd.) and subsidiaries as of June 30, 2007 and
December 31, 2006, and the related consolidated statements
of operations, comprehensive income, shareholders equity,
and cash flows for the six-month period ended June 30, 2007
and each of the years in the two-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 SC Media & Commerce Inc. and subsidiaries
as of June 30, 2007 and December 31, 2006, and the
results of their operations and their cash flows for the
six-month period ended June 30, 2007 and each of the years
in the two-year period ended December 31, 2006, in
conformity with U.S. generally accepted accounting
principles.
KPMG AZSA & Co.
Tokyo, Japan
February 15, 2008
IV-15
SC
MEDIA & COMMERCE INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
June 30, 2007
|
|
|
December 31, 2006
|
|
|
|
(Yen in Thousands)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
Related party (Note 19)
|
|
¥
|
14,100,000
|
|
|
¥
|
14,850,000
|
|
Other
|
|
|
12,001,778
|
|
|
|
8,368,450
|
|
Accounts receivable, less allowance for doubtful accounts of
¥7,857 thousand in 2007 and ¥7,986 thousand in 2006
|
|
|
|
|
|
|
|
|
Related party (Note 19)
|
|
|
262,835
|
|
|
|
235,832
|
|
Other
|
|
|
6,197,749
|
|
|
|
7,560,107
|
|
Retail inventories
|
|
|
4,797,966
|
|
|
|
3,516,137
|
|
Program rights and language versioning, net (Note 4)
|
|
|
952,981
|
|
|
|
695,410
|
|
Deferred income taxes (Note 14)
|
|
|
2,155,189
|
|
|
|
2,267,201
|
|
Prepaid and other current assets
|
|
|
589,391
|
|
|
|
704,309
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
41,057,889
|
|
|
|
38,197,446
|
|
|
|
|
|
|
|
|
|
|
Investments (Note 5)
|
|
|
8,613,754
|
|
|
|
8,396,505
|
|
Property and equipment, net (Notes 6, 12 and 15)
|
|
|
7,740,121
|
|
|
|
7,577,906
|
|
Software development costs, net (Note 7)
|
|
|
4,654,526
|
|
|
|
4,443,317
|
|
Program rights and language versioning, excluding current
portion, net (Note 4)
|
|
|
80,897
|
|
|
|
284,071
|
|
Goodwill (Note 9)
|
|
|
286,263
|
|
|
|
286,263
|
|
Other intangible assets, net (Note 8)
|
|
|
179,491
|
|
|
|
192,143
|
|
Deferred income taxes (Note 14)
|
|
|
676,970
|
|
|
|
841,607
|
|
Other assets, net
|
|
|
979,026
|
|
|
|
951,909
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
¥
|
64,268,937
|
|
|
¥
|
61,171,167
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
IV-16
SC
MEDIA & COMMERCE INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS (Continued)
|
|
|
|
|
|
|
|
|
|
|
June 30, 2007
|
|
|
December 31, 2006
|
|
|
|
(Yen in Thousands)
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Short-term debt (related party) (Notes 13 and 19)
|
|
¥
|
3,940,000
|
|
|
¥
|
290,000
|
|
Current portion of long-term debt (Note 13)
|
|
|
|
|
|
|
1,600,000
|
|
Obligations under capital leases, current installments (related
party) (Notes 12 and 19):
|
|
|
591,142
|
|
|
|
467,289
|
|
Accounts payable:
|
|
|
|
|
|
|
|
|
Related party (Note 19)
|
|
|
158,527
|
|
|
|
412,072
|
|
Other
|
|
|
4,916,893
|
|
|
|
7,894,053
|
|
Accrued liabilities:
|
|
|
|
|
|
|
|
|
Related party (Note 19)
|
|
|
1,606,375
|
|
|
|
1,291,395
|
|
Other
|
|
|
2,419,457
|
|
|
|
1,789,467
|
|
Income taxes payable
|
|
|
3,448,564
|
|
|
|
5,573,428
|
|
Advances from affiliate
|
|
|
3,370,000
|
|
|
|
2,180,000
|
|
Deferred income taxes (Note 14)
|
|
|
2,430
|
|
|
|
1,797
|
|
Accrued pension and severance costs (Note 16)
|
|
|
193,528
|
|
|
|
30,590
|
|
Other current liabilities
|
|
|
1,582,307
|
|
|
|
1,566,732
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
22,229,223
|
|
|
|
23,096,823
|
|
Long-term debt, excluding current portion (Notes 13)
|
|
|
|
|
|
|
800,000
|
|
Obligations under capital lease, excluding current portion
(Notes 12 and 19):
|
|
|
1,367,796
|
|
|
|
1,265,684
|
|
Accrued pension and severance costs (Note 16)
|
|
|
347,536
|
|
|
|
477,058
|
|
Deferred income taxes (Note 14)
|
|
|
410,126
|
|
|
|
379,227
|
|
Other liabilities (Notes 15)
|
|
|
333,379
|
|
|
|
331,103
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
24,688,060
|
|
|
|
26,349,895
|
|
|
|
|
|
|
|
|
|
|
Minority interests
|
|
|
10,452,366
|
|
|
|
9,270,294
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 12, 17 and 21)
|
|
|
|
|
|
|
|
|
Shareholders equity (Note 18):
|
|
|
|
|
|
|
|
|
Common stock no par value:
|
|
|
|
|
|
|
|
|
Authorized 460,000 shares; issued and outstanding
360,681 shares in 2007 and 360,680 shares in 2006
|
|
|
11,434,364
|
|
|
|
11,434,000
|
|
Additional paid-in capital
|
|
|
7,266,493
|
|
|
|
7,266,129
|
|
Retained earnings
|
|
|
10,419,144
|
|
|
|
6,850,849
|
|
Accumulated other comprehensive income
|
|
|
8,510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
29,128,511
|
|
|
|
25,550,978
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
¥
|
64,268,937
|
|
|
¥
|
61,171,167
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
IV-17
SC
MEDIA & COMMERCE INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended
|
|
|
Year ended
|
|
|
Year ended
|
|
|
|
June 30, 2007
|
|
|
December 31, 2006
|
|
|
December 31, 2005
|
|
|
|
(Yen in Thousands)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail sales, net
|
|
¥
|
46,882,903
|
|
|
¥
|
98,581,185
|
|
|
¥
|
75,676,822
|
|
Television programming revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Related party (Note 19)
|
|
|
1,274,938
|
|
|
|
2,068,552
|
|
|
|
1,894,734
|
|
Other
|
|
|
4,661,864
|
|
|
|
8,796,869
|
|
|
|
7,550,155
|
|
Services and other revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Related party (Note 19)
|
|
|
602,919
|
|
|
|
1,127,181
|
|
|
|
957,801
|
|
Other
|
|
|
594,136
|
|
|
|
1,269,414
|
|
|
|
1,564,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
54,016,760
|
|
|
|
111,843,201
|
|
|
|
87,644,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of retail sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
Related party (Note 19)
|
|
|
1,724,043
|
|
|
|
3,586,299
|
|
|
|
2,870,371
|
|
Other
|
|
|
27,372,731
|
|
|
|
54,629,263
|
|
|
|
41,227,980
|
|
Cost of programming and distribution:
|
|
|
|
|
|
|
|
|
|
|
|
|
Related party (Note 19)
|
|
|
1,486,015
|
|
|
|
2,961,635
|
|
|
|
2,770,766
|
|
Other
|
|
|
4,889,835
|
|
|
|
8,841,068
|
|
|
|
8,732,559
|
|
Selling, general and administrative expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Related party (Note 19)
|
|
|
776,458
|
|
|
|
1,345,305
|
|
|
|
1,052,691
|
|
Other
|
|
|
8,023,133
|
|
|
|
16,167,992
|
|
|
|
13,234,077
|
|
Depreciation and amortization
|
|
|
1,526,667
|
|
|
|
2,467,685
|
|
|
|
1,783,999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
45,798,882
|
|
|
|
89,999,247
|
|
|
|
71,672,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
8,217,878
|
|
|
|
21,843,954
|
|
|
|
15,971,785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income (expense), net:
|
|
|
|
|
|
|
|
|
|
|
|
|
Related parties (Note 19)
|
|
|
6,153
|
|
|
|
(50,297
|
)
|
|
|
(41,390
|
)
|
Other
|
|
|
(30,452
|
)
|
|
|
(36,021
|
)
|
|
|
(72,215
|
)
|
Foreign exchange gain
|
|
|
98,281
|
|
|
|
174,408
|
|
|
|
477,351
|
|
Equity in income of equity-method affiliates (Note 5)
|
|
|
225,811
|
|
|
|
72,919
|
|
|
|
53,925
|
|
Gain on sale of investment in affiliate (Note 5)
|
|
|
11
|
|
|
|
|
|
|
|
116,441
|
|
Impairment loss on investment (Note 5)
|
|
|
|
|
|
|
|
|
|
|
(30,000
|
)
|
Other income (expense), net
|
|
|
(26,632
|
)
|
|
|
53,129
|
|
|
|
16,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income
|
|
|
273,172
|
|
|
|
214,138
|
|
|
|
520,599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes and
minority interest
|
|
|
8,491,050
|
|
|
|
22,058,092
|
|
|
|
16,492,384
|
|
Income tax expense (Note 14)
|
|
|
(3,743,463
|
)
|
|
|
(9,317,087
|
)
|
|
|
(6,397,810
|
)
|
Minority interest in earnings, net of income taxes
|
|
|
(1,175,464
|
)
|
|
|
(3,475,008
|
)
|
|
|
(2,594,393
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
|
3,572,123
|
|
|
|
9,265,997
|
|
|
|
7,500,181
|
|
Net loss from discontinued operations (Note 3), net of
income tax benefit of ¥2,627, ¥864,190 and
¥939,904, respectively
|
|
|
(3,828
|
)
|
|
|
(1,260,616
|
)
|
|
|
(1,446,996
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
¥
|
3,568,295
|
|
|
¥
|
8,005,381
|
|
|
¥
|
6,053,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
IV-18
SC
MEDIA & COMMERCE INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended
|
|
|
Year ended
|
|
|
Year ended
|
|
|
|
June 30, 2007
|
|
|
December 31, 2006
|
|
|
December 31, 2005
|
|
|
|
(Yen in Thousands)
|
|
|
Net income for the period
|
|
¥
|
3,568,295
|
|
|
¥
|
8,005,381
|
|
|
¥
|
6,053,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized (loss) gain on derivative instruments, net of
income taxes
|
|
|
(666
|
)
|
|
|
|
|
|
|
44,096
|
|
Reclassification adjustment for loss (gain) included in net
income, net of income taxes
|
|
|
9,176
|
|
|
|
(38,181
|
)
|
|
|
10,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
8,510
|
|
|
|
(38,181
|
)
|
|
|
54,886
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
¥
|
3,576,805
|
|
|
¥
|
7,967,200
|
|
|
¥
|
6,108,071
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
IV-19
SC
MEDIA & COMMERCE INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended
|
|
|
Year ended
|
|
|
Year ended
|
|
|
|
June 30, 2007
|
|
|
December 31, 2006
|
|
|
December 31, 2005
|
|
|
|
(Yen in Thousands)
|
|
|
Common stock (Note 18):
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
¥
|
11,434,000
|
|
|
¥
|
11,434,000
|
|
|
¥
|
11,434,000
|
|
Issuance of common stock
|
|
|
364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
|
11,434,364
|
|
|
|
11,434,000
|
|
|
|
11,434,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital (Note 18):
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
|
7,266,129
|
|
|
|
7,226,129
|
|
|
|
6,788,054
|
|
Gain on the issuance of common stock by equity-method investee,
net of income tax expense of ¥282,787 thousand (Note 5)
|
|
|
|
|
|
|
|
|
|
|
478,075
|
|
Issuance of common stock
|
|
|
364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
|
7,266,493
|
|
|
|
7,266,129
|
|
|
|
7,266,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained earnings (accumulated deficit):
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
|
6,850,849
|
|
|
|
(1,154,532
|
)
|
|
|
(7,207,717
|
)
|
Net income
|
|
|
3,568,295
|
|
|
|
8,005,381
|
|
|
|
6,053,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
|
10,419,144
|
|
|
|
6,850,849
|
|
|
|
(1,154,532
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
|
|
|
|
|
38,181
|
|
|
|
(16,705
|
)
|
Other comprehensive income (loss)
|
|
|
8,510
|
|
|
|
(38,181
|
)
|
|
|
54,886
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
|
8,510
|
|
|
|
|
|
|
|
38,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
¥
|
29,128,511
|
|
|
¥
|
25,550,978
|
|
|
¥
|
17,583,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
IV-20
SC
MEDIA & COMMERCE INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended
|
|
|
Year ended
|
|
|
Year ended
|
|
|
|
June 30, 2007
|
|
|
December 31, 2006
|
|
|
December 31, 2005
|
|
|
|
(Yen in Thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
¥
|
3,568,295
|
|
|
¥
|
8,005,381
|
|
|
¥
|
6,053,185
|
|
Adjustments to reconcile net income to net cash provided by
operating
|
|
|
|
|
|
|
|
|
|
|
|
|
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of income taxes
|
|
|
3,828
|
|
|
|
1,260,616
|
|
|
|
1,446,996
|
|
Depreciation and amortization
|
|
|
1,526,667
|
|
|
|
2,467,685
|
|
|
|
1,783,999
|
|
Amortization of program rights and language versioning
|
|
|
1,461,862
|
|
|
|
2,149,491
|
|
|
|
1,810,630
|
|
Provision for (release of) allowance for doubtful accounts
|
|
|
(131
|
)
|
|
|
1,101
|
|
|
|
(838
|
)
|
Equity in income of equity-method affiliates
|
|
|
(225,811
|
)
|
|
|
(72,919
|
)
|
|
|
(53,925
|
)
|
Deferred income taxes
|
|
|
320,394
|
|
|
|
586,788
|
|
|
|
(121,381
|
)
|
Minority interest in earnings
|
|
|
1,175,464
|
|
|
|
3,475,008
|
|
|
|
2,594,393
|
|
Gain on the sale of investment in affiliate
|
|
|
(11
|
)
|
|
|
|
|
|
|
(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
|
|
|
(1,516,259
|
)
|
|
|
(2,006,688
|
)
|
|
|
(2,247,145
|
)
|
Decrease (increase) in accounts receivable
|
|
|
1,382,245
|
|
|
|
(1,728,707
|
)
|
|
|
(1,387,858
|
)
|
Increase in retail inventories
|
|
|
(1,281,829
|
)
|
|
|
(245,298
|
)
|
|
|
(270,074
|
)
|
Increase (decrease) in accounts payable
|
|
|
(3,153,536
|
)
|
|
|
372,611
|
|
|
|
2,436,146
|
|
Increase (decrease) in accrued liabilities
|
|
|
2,065,726
|
|
|
|
(4,833
|
)
|
|
|
961,950
|
|
Increase (decrease) in income taxes payable
|
|
|
(2,131,484
|
)
|
|
|
537,490
|
|
|
|
2,844,746
|
|
Other, net
|
|
|
(549,217
|
)
|
|
|
920,011
|
|
|
|
(162,895
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities of continuing
operations
|
|
|
2,646,203
|
|
|
|
15,717,737
|
|
|
|
15,601,488
|
|
Net cash used in operating activities of discontinued operations
|
|
|
(149,975
|
)
|
|
|
(1,825,767
|
)
|
|
|
(1,515,993
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
2,496,228
|
|
|
|
13,891,970
|
|
|
|
14,085,495
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(1,930,996
|
)
|
|
|
(3,750,927
|
)
|
|
|
(3,257,335
|
)
|
Net cash acquired (paid) in connection with business combinations
|
|
|
106,220
|
|
|
|
|
|
|
|
(46,365
|
)
|
Proceeds from sale of investment in affiliate
|
|
|
8,574
|
|
|
|
|
|
|
|
275,102
|
|
Investments in affiliates
|
|
|
|
|
|
|
|
|
|
|
(767,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities of continuing operations
|
|
|
(1,816,202
|
)
|
|
|
(3,750,927
|
)
|
|
|
(3,796,098
|
)
|
Net cash used in investing activities of discontinued operations
|
|
|
|
|
|
|
(34,954
|
)
|
|
|
(527,352
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(1,816,202
|
)
|
|
|
(3,785,881
|
)
|
|
|
(4,323,450
|
)
|
See accompanying notes to consolidated financial statements.
IV-21
SC
MEDIA & COMMERCE INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended
|
|
|
Year ended
|
|
|
Year ended
|
|
|
|
June 30, 2007
|
|
|
December 31, 2006
|
|
|
December 31, 2005
|
|
|
|
(Yen in Thousands)
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from advances from affiliate
|
|
|
1,190,000
|
|
|
|
480,000
|
|
|
|
762,000
|
|
Proceeds from issuance of short-term debt (related party)
|
|
|
3,650,000
|
|
|
|
15,000
|
|
|
|
275,000
|
|
Principal payments on external loan
|
|
|
(2,400,000
|
)
|
|
|
(1,600,000
|
)
|
|
|
|
|
Principal payments on shareholder loan
|
|
|
|
|
|
|
|
|
|
|
(1,000,000
|
)
|
Principal payments on obligations under capital leases
|
|
|
(269,919
|
)
|
|
|
(365,974
|
)
|
|
|
(319,060
|
)
|
Other financing activities
|
|
|
728
|
|
|
|
55,000
|
|
|
|
90,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities of
continuing operations
|
|
|
2,170,809
|
|
|
|
(1,415,974
|
)
|
|
|
(192,060
|
)
|
Net cash used in financing activities of discontinued operations
|
|
|
(15,987
|
)
|
|
|
(532,527
|
)
|
|
|
(35,455
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
2,154,822
|
|
|
|
(1,948,501
|
)
|
|
|
(227,515
|
)
|
Net effect of exchange rate changes on cash and cash equivalents
|
|
|
48,480
|
|
|
|
43,104
|
|
|
|
130,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
2,883,328
|
|
|
|
8,200,692
|
|
|
|
9,665,147
|
|
Cash and cash equivalents at beginning of period
|
|
|
23,218,450
|
|
|
|
15,017,758
|
|
|
|
5,352,611
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
¥
|
26,101,778
|
|
|
¥
|
23,218,450
|
|
|
¥
|
15,017,758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended
|
|
|
Year ended
|
|
|
Year ended
|
|
|
|
June 30, 2007
|
|
|
December 31, 2006
|
|
|
December 31, 2005
|
|
|
|
(Yen in Thousands)
|
|
|
Supplemental information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
¥
|
5,547,933
|
|
|
¥
|
8,192,819
|
|
|
¥
|
3,674,446
|
|
Interest
|
|
|
10,076
|
|
|
|
134,977
|
|
|
|
91,860
|
|
Non-cash activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets acquired under capital leases
|
|
|
176,578
|
|
|
|
941,168
|
|
|
|
931,620
|
|
Asset retirement costs accrued
|
|
|
|
|
|
|
299,691
|
|
|
|
|
|
Accrual for purchase of property and equipment
|
|
|
114,650
|
|
|
|
732,677
|
|
|
|
532,023
|
|
See accompanying notes to consolidated financial statements.
IV-22
SC
MEDIA & COMMERCE INC. AND SUBSIDIARIES
|
|
1.
|
Description
of Business and Summary of Significant Accounting Policies and
Practices
|
|
|
(a)
|
Description
of Business
|
SC Media & Commerce Inc., (the Company or
SMC), formerly Jupiter TV Co., Ltd., and its
subsidiaries invest in, develop, manage and distribute
television programming through cable, satellite and broadband
platforms in Japan. Jupiter Shop Channel Co., Ltd (Shop
Channel), through which SMC markets and sells a wide
variety of consumer products and accessories, is SMCs
largest channel in terms of revenue, comprising approximately
87%, 89%, and 86%, of total revenues for the six- month period
ended June 30, 2007 and the years ended December 31,
2006 and 2005, respectively. SMCs business activities are
conducted in Japan and serve the Japanese market.
At June 30, 2007, the Company was owned 49.99986% by
Liberty Global, Inc (LGI), through certain of its
indirect wholly owned subsidiaries and 50.00014% by Sumitomo
Corporation (SC). 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) on January 1, 2006, and
then to Kabushiki Kaisha SC Media & Commerce Inc. (SC
Media & Commerce Inc. in English) effective from
July 2, 2007.
On May 22, 2007, the Company executed a comprehensive
business restructuring agreement with its shareholders, which
included the following matters.
On May 22, 2007, the Companys shareholders
meeting resolved to issue one new share of the Companys
common stock to SC on May 23, 2007, resulting in SC and LGI
owning 50.00014% and 49.99986% of the Company, respectively.
Prior to that transaction SC and LGI each held 50% of the
Company.
On May 24, 2007, the Companys Board resolved that it
would split into two separate companies with a planned effective
date of July 2, 2007. The split plan was subsequently
approved by the Companys shareholders on June 8,
2007. SC and LGI established Jupiter TV Co., Ltd (New
Jupiter TV) as a newly incorporated company and certain
assets were distributed to New Jupiter TV by the Company as a
dividend in kind on July 2, 2007. The business of New
Jupiter TV consisted of the operations that invest in, develop,
manage and distribute fee-based television programming through
cable, satellite and broadband platforms systems in Japan, while
the existing Jupiter TV Co. Ltd. was renamed SC
Media & Commerce Inc., effective July 2, 2007 and
its business centers around the operation of Shop Channel, and
On-line TV Co. Ltd., a broadband broadcasting business in Japan.
On May 22, 2007, the Companys Board resolved to enter
into a share-for-share exchange agreement with SC under which
all of LGIs shares in SMC were exchanged for SCs
common stock on July 3, 2007, resulting in SMC becoming a
wholly owned subsidiary of SC on that date. That agreement was
approved by the Companys shareholders on June 8, 2007.
On May 22, 2007, the Company, Jupiter Telecommunication
Co., Ltd (J:Com), which is a consolidated subsidiary
of LGI, SC and LGI agreed that New Jupiter TV and J:Com would
enter into an agreement on July 17, 2007, under which New
Jupiter TV became a wholly owned subsidiary of J:COM on
September 3, 2007 following a share exchange between LGI
and SC.
|
|
(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 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, and merger transactions by equity
affiliates.
IV-23
SC
MEDIA & COMMERCE INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The consolidated financial statements of the Company are
presented on a going-concern basis, which contemplates the
realization of assets and the satisfaction of liabilities in the
normal course of business. Subsequent to June 30, 2007, the
Company completed a series of reorganization steps (see
Note 1(a)) including a spin-off of the net assets of New
Jupiter TV followed by its merger with J:Com. The accompanying
financial statements do not include any adjustments or
reclassification of recorded assets that might arise as a result
of those reorganization activities.
|
|
(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.
SMC accounts for investments in variable interest entities in
accordance with the provisions of the Revised Interpretation of
the Financial Accounting Standards Board (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. SMC consolidates Reality TV Japan
(RTVJ), which was incorporated in January 2005, and
in which SMC owns a 50% interest, in accordance with the
provisions of the Revised Interpretation of
FIN No. 46. RTVJ is a television channel specializing
in the reality genre, distributed through cable, satellite and
broadband platforms, which complements SMCs other channel
businesses. For additional information concerning RTVJ, see
Note 22.
Cash equivalents consist of highly liquid debt instruments with
an initial maturity of three months or less from the date of
purchase.
|
|
(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.
IV-24
SC
MEDIA & COMMERCE INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 SMCs voting
interest is 20% to 50% or SMC 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
SMCs share of the net earnings or losses of its
affiliates. SMC 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 SMCs
investment in the affiliate and the underlying equity in the net
assets of the affiliate is recorded as (i) equity method
intangible assets where appropriate and amortized over a
relevant period of time, or (ii) 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 SMCs ownership
is less than 20% and SMC does not have the ability to exercise
significant influence over the entities operation and
financial policies.
SMC 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, SMC 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.
|
|
(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 a
net investment in a foreign operation. 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.
SMC uses foreign exchange forward contracts to manage currency
exposure, resulting from changes in foreign currency exchange
rates, on firm purchase commitments for contracted programming
rights and other contract costs and for forecasted inventory
purchases in U.S. dollars. SMC enters into these contracts
to hedge its U.S. dollar denominated net monetary
exposures. Hedges relating to firm purchase commitments for
contracted programming rights and other contract costs may have
qualified for hedge accounting under the hedging criteria
specified by
IV-25
SC
MEDIA & COMMERCE INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
SFAS No. 133. However prior to January 1, 2004,
SMC elected not to designate any qualifying transactions as
hedges. For certain qualifying transactions entered into since
January 1, 2004, SMC 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 SMCs 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.
SMC 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
|
SMC 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. SMC also expenses costs
incurred for internal-use software projects in the post
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.
SMC performs its annual impairment test for goodwill and
indefinite-life intangible assets at the end of each reporting
period. SMC completed its impairment tests at June 30, 2007
and December 31, 2006 and 2005, with no indication of
impairment identified.
IV-26
SC
MEDIA & COMMERCE INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(m)
|
Long-Lived
Assets and Long-Lived Assets to be Disposed Of
|
SMC 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.
SMC 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.
SMC 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. SMC accounts for the RAP in
accordance with the provisions of SFAS No. 87,
Employers Accounting for Pensions. Effective
December 31, 2006, SMC 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 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, SMC 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. SMC
accounts for the EPF Plan in accordance with the provisions of
SFAS No. 87, governing multi-employer plans. Under
these provisions, SMC 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.
IV-27
SC
MEDIA & COMMERCE INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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. SMCs 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 SMCs 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 six-month period ended June 30, 2007
and the years ended December 31, 2006 and 2005 were
¥1,006,100 thousand, ¥1,985,917 thousand, and
¥1,833,329 thousand, respectively.
Cooperative marketing and advertising funds paid to cable system
operators for the six-month period ended June 30, 2007 and
the years ended December 31, 2006 and 2005 were
¥168,189 thousand, ¥311,282 thousand, and
¥264,794 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 SMCs programming channels.
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.
IV-28
SC
MEDIA & COMMERCE INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 six-month period
ended June 30, 2007 and the years ended December 31,
2006 and 2005 was ¥1,193,618 thousand, ¥2,180,782
thousand, and ¥1,676,707 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 or
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.
Management of SMC 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 June 2006, the FASB issued FIN No. 48,
Accounting for Uncertainty in Income Taxes an
Interpretation of FASB Statement No. 109, which
clarifies the accounting for uncertainty in income taxes
recognized in the financial statements in accordance with
SFAS No. 109, Accounting for Income Taxes.
FIN No. 48 prescribes the recognition threshold and
provides guidance for the financial statement recognition and
measurement of uncertain tax positions taken or expected to be
taken in a tax return. FIN No. 48 also provides
guidance on de-recognition, classification, interest and
penalties, accounting in interim periods, disclosures, and
transition. Nonpublic entities
IV-29
SC
MEDIA & COMMERCE INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
are first required to apply the provisions of
FIN No. 48 in connection with the preparation of
annual financial statements for the years beginning after
December 15, 2007. The adoption of FIN No. 48 is
not expected to have a material impact on SMCs
consolidated financial statements.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements. SFAS No. 157
defines fair value, establishes a framework for measuring fair
value under GAAP, and expands disclosures about fair value
measurements. SFAS No. 157 is effective for financial
statements issued for fiscal years and interim periods beginning
after November 15, 2007. In November 2007, the FASB
proposed a one-year deferral of SFAS No. 157s
fair-value measurement requirements for nonfinancial assets and
liabilities that are not required or permitted to be measured at
fair value on a recurring basis. The adoption of
SFAS No. 157 is not expected to have a material impact
on SMCs consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and Financial
Liabilities. SFAS No. 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 No. 159 is effective for fiscal years beginning
after November 15, 2007. The adoption of
SFAS No. 159 is not expected to have a material impact
on SMCs consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations. SFAS No. 141(R)
replaces SFAS No. 141, Business
Combinations, and generally requires an acquirer in a
business combination to recognize (i) the assets acquired,
(ii) the liabilities assumed (including those arising from
contractual contingencies), (iii) any contingent
consideration and (iv) any noncontrolling interest in the
acquiree at the acquisition date, at fair values as of that
date. The requirements of SFAS No. 141(R) will result
in the recognition by the acquirer of goodwill attributable to
the noncontrolling interest in addition to that attributable to
the acquirer. SFAS No. 141(R) amends
SFAS No. 109 to require the acquirer to recognize
changes in the amount of its deferred tax benefits that are
recognizable because of a business combination either in income
from continuing operations in the period of the combination or
directly in contributed capital, depending on the circumstances.
SFAS No. 141(R) also amends SFAS No. 142,
to, among other things, provide guidance on the impairment
testing of acquired research and development intangible assets
and assets that the acquirer intends not to use.
SFAS No. 141(R) applies prospectively to business
combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or
after December 15, 2008. SMC has not completed its analysis
of the impact of this standard on its consolidated financial
statements.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements. SFAS No. 160 establishes accounting
and reporting standards for the noncontrolling interest in a
subsidiary and for the deconsolidation of a subsidiary. It also
clarifies that a noncontrolling interest in a subsidiary is an
ownership interest in consolidated entity that should be
reported as equity in the consolidated financial statements. In
addition, SFAS No. 160 requires (i) that
consolidated net income include the amounts attributable to both
the parent and noncontrolling interest, (ii) that a parent
recognize a gain or loss in net income when a subsidiary is
deconsolidated and (iii) expanded disclosures that clearly
identify and distinguish between the interests of the parent
owners and the interests of the noncontrolling owners of a
subsidiary. SFAS No. 160 is effective for fiscal
periods, and interim periods within those fiscal years,
beginning on or after December 15, 2008. SMC has not
completed its analysis of the impact of this standard on its
consolidated financial statements.
Certain prior year amounts have been reclassified for
comparability with the current year presentation.
On December 28, 2004, SMC acquired 100% of the outstanding
shares of JSBC2 Co. Ltd. (JSBC2) (formerly BB Factory
Corporation Ltd), a television programming company. The
acquisition was accounted for as a purchase.
IV-30
SC
MEDIA & COMMERCE INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 JSBC2 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). SMC 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
JSBC2 were included in SMCs consolidated statements of
operations from January 1, 2005. Goodwill from the
acquisition of JSBC2 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 JSBC2 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).
The following table summarizes the estimated fair value of the
assets acquired and liabilities assumed, as recorded at the date
of acquisition of JSBC2:
|
|
|
|
|
|
|
(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
|
|
|
|
|
|
|
On March 29, 2007, SMC acquired 89% of the outstanding
shares of EP Broadcasting Co. Ltd. (EPB), a licensed
television broadcasting company. The aggregate purchase price
was ¥1,790 thousand, which was paid in cash. The results of
operations of EPB were included in SMCs consolidated
statements of operations from April 1, 2007.
The following table summarizes the estimated fair value of the
assets acquired and liabilities assumed, as recorded at the date
of acquisition of EPB:
|
|
|
|
|
|
|
(Yen in Thousands)
|
|
|
Cash
|
|
¥
|
108,010
|
|
Current assets
|
|
|
56,503
|
|
Fixed assets under capital lease
|
|
|
217,343
|
|
Other assets
|
|
|
31,249
|
|
|
|
|
|
|
Total assets acquired
|
|
|
413,105
|
|
Current liabilities assumed
|
|
|
(69,417
|
)
|
Lease obligation
|
|
|
(335,291
|
)
|
Minority interest
|
|
|
(6,607
|
)
|
|
|
|
|
|
Net assets acquired
|
|
¥
|
1,790
|
|
|
|
|
|
|
The excess of the estimated fair value of net assets acquired
over cash paid has been allocated to reduce the amounts
allocated to long-lived assets.
IV-31
SC
MEDIA & COMMERCE INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
3.
|
Discontinued
Operation
|
In December 2005, a decision was made to place the launch of a
new television channel business, PartiTV, on hold while SMC
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 SMC business. SMC 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 SMC 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.
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:
|
|
|
|
|
|
|
|
|
|
|
Six months ended
|
|
|
Year ended
|
|
|
|
June 30, 2007
|
|
|
December 31, 2006
|
|
|
|
(Yen in Thousands)
|
|
|
Balance at beginning of period
|
|
¥
|
259,185
|
|
|
¥
|
|
|
Employee severance costs incurred
|
|
|
3,685
|
|
|
|
393,139
|
|
Employee severance cash payments
|
|
|
(149,975
|
)
|
|
|
(133,954
|
)
|
Contract termination costs incurred
|
|
|
2,770
|
|
|
|
350,923
|
|
Contract termination cash payments
|
|
|
(18,757
|
)
|
|
|
(350,923
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
¥
|
96,908
|
|
|
¥
|
259,185
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2007, 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 or
liabilities, except for employee severance costs accrued of
¥69,105 thousand, of the PartiTV component at June 30,
2007.
The results for the PartiTV business component recognized in the
consolidated statements of operations as net loss from
discontinued operations, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended
|
|
|
Year ended
|
|
|
Year ended
|
|
|
|
June 30, 2007
|
|
|
December 31, 2006
|
|
|
December 31, 2005
|
|
|
|
(Yen in Thousands)
|
|
|
Revenue from discontinued operations
|
|
¥
|
|
|
|
¥
|
|
|
|
¥
|
|
|
Operating loss from discontinued operations
|
|
|
|
|
|
|
(717,659
|
)
|
|
|
(2,386,900
|
)
|
Loss on disposal of discontinued operations
|
|
|
(6,455
|
)
|
|
|
(1,407,147
|
)
|
|
|
|
|
Income tax benefit from discontinued
|
|
|
|
|
|
|
|
|
|
|
|
|
operations
|
|
|
2,627
|
|
|
|
864,190
|
|
|
|
939,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from discontinued operations
|
|
¥
|
(3,828
|
)
|
|
¥
|
(1,260,616
|
)
|
|
¥
|
(1,446,996
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IV-32
SC
MEDIA & COMMERCE INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
4.
|
Program
Rights and Language Versioning
|
Program rights and language versioning were composed of the
following:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2007
|
|
|
December 31, 2006
|
|
|
|
(Yen in Thousands)
|
|
|
Program rights
|
|
¥
|
2,069,542
|
|
|
¥
|
1,795,575
|
|
Language versioning
|
|
|
358,292
|
|
|
|
333,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,427,834
|
|
|
|
2,129,527
|
|
Less accumulated amortization
|
|
|
(1,393,956
|
)
|
|
|
(1,150,046
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
1,033,878
|
|
|
|
979,481
|
|
Less current portion
|
|
|
(952,981
|
)
|
|
|
(695,410
|
)
|
|
|
|
|
|
|
|
|
|
|
|
¥
|
80,897
|
|
|
¥
|
284,071
|
|
|
|
|
|
|
|
|
|
|
Amortization expense related to program rights and language
versioning for the six-month period ended June 30, 2007 and
the years ended December 31, 2006 and 2005, was
¥1,461,862 thousand, ¥2,149,491 thousand, and
¥1,810,630 thousand, respectively, which is included in
cost of programming and distribution in the consolidated
statements of operations in respective years.
Investments, including advances were composed of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2007
|
|
|
December 31, 2006
|
|
|
|
Percentage
|
|
|
Carrying
|
|
|
Percentage
|
|
|
Carrying
|
|
|
|
ownership
|
|
|
amount
|
|
|
ownership
|
|
|
amount
|
|
|
|
(Yen in Thousands)
|
|
|
Investments accounted for under the equity method:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discovery Japan, Inc.
|
|
|
50.0
|
%
|
|
¥
|
1,231,115
|
|
|
|
50.0
|
%
|
|
¥
|
1,107,064
|
|
Animal Planet Japan, Co. Ltd.
|
|
|
33.3
|
%
|
|
|
228,253
|
|
|
|
33.3
|
%
|
|
|
197,449
|
|
InteracTV Co., Ltd.
|
|
|
32.5
|
%
|
|
|
28,064
|
|
|
|
42.5
|
%
|
|
|
36,439
|
|
JSports Broadcasting Corporation
|
|
|
33.4
|
%
|
|
|
4,919,306
|
|
|
|
33.4
|
%
|
|
|
4,834,792
|
|
AXN Japan, Inc.
|
|
|
35.0
|
%
|
|
|
986,361
|
|
|
|
35.0
|
%
|
|
|
940,149
|
|
Jupiter VOD Co., Inc.
|
|
|
50.0
|
%
|
|
|
489,555
|
|
|
|
50.0
|
%
|
|
|
549,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity method investments
|
|
|
|
|
|
|
7,882,654
|
|
|
|
|
|
|
|
7,665,405
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
¥
|
8,613,754
|
|
|
|
|
|
|
¥
|
8,396,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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;
IV-33
SC
MEDIA & COMMERCE INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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.
The following reflects SMCs share of earnings (losses) of
investments accounted for under the equity method:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended
|
|
|
Year ended
|
|
|
Year ended
|
|
|
|
June 30, 2007
|
|
|
December 31, 2006
|
|
|
December 31, 2005
|
|
|
|
(Yen in Thousands)
|
|
|
Discovery Japan, Inc.
|
|
¥
|
124,051
|
|
|
¥
|
212,743
|
|
|
¥
|
313,865
|
|
Animal Planet Japan, Co. Ltd.
|
|
|
30,804
|
|
|
|
(479
|
)
|
|
|
(125,581
|
)
|
InteracTV Co., Ltd.
|
|
|
189
|
|
|
|
(1,960
|
)
|
|
|
(188
|
)
|
JSports Broadcasting Corporation
|
|
|
84,514
|
|
|
|
51,334
|
|
|
|
135,845
|
|
AXN Japan, Inc.
|
|
|
46,212
|
|
|
|
30,669
|
|
|
|
12,351
|
|
Jupiter VOD Co., Inc.
|
|
|
(59,959
|
)
|
|
|
(219,388
|
)
|
|
|
(282,367
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
¥
|
225,811
|
|
|
¥
|
72,919
|
|
|
¥
|
53,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 SMCs equity share of JSB diluting from 42.8% to 34.5%.
The difference between SMCs 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, SMC 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. SMC 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
June 30, 2007 and December 31, 2006 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.
SMC 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
IV-34
SC
MEDIA & COMMERCE INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
ordinary shareholding ratio up to a maximum of ¥1,500,000
thousand. During the six- month period ended June 30, 2007
and the year ended December 31, 2006, the Company invested
no further funds and its aggregate investment was
¥1,395,000 thousand as of June 30, 2007, in Animal
Planet Japan, Co. Ltd.
The aggregate cost of SMCs cost method investments totaled
¥731,100 thousand at June 30, 2007 and
December 31, 2006. SMC 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 June 30, 2007 and December 31, 2006,
SMC 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.
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:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2007
|
|
|
December 31, 2006
|
|
|
|
(Yen in Thousands)
|
|
|
Combined financial position
|
|
|
|
|
|
|
|
|
Current assets
|
|
¥
|
13,542,663
|
|
|
¥
|
11,591,623
|
|
Other assets
|
|
|
8,052,003
|
|
|
|
7,191,268
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
21,594,666
|
|
|
|
18,782,891
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
6,204,384
|
|
|
|
4,658,638
|
|
Other liabilities
|
|
|
4,320,004
|
|
|
|
3,395,045
|
|
Shareholders equity
|
|
|
11,070,278
|
|
|
|
10,729,208
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
¥
|
21,594,666
|
|
|
¥
|
18,782,891
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended
|
|
|
Year ended
|
|
|
Year ended
|
|
|
|
June 30, 2007
|
|
|
December 31, 2006
|
|
|
December 31, 2005
|
|
|
|
(Yen in Thousands)
|
|
|
Combined operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
¥
|
13,965,286
|
|
|
¥
|
28,166,813
|
|
|
¥
|
22,852,521
|
|
Operating expenses
|
|
|
13,178,291
|
|
|
|
27,511,715
|
|
|
|
22,648,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
786,995
|
|
|
|
655,098
|
|
|
|
203,789
|
|
Other expense net, including income taxes
|
|
|
(264,458
|
)
|
|
|
(562,015
|
)
|
|
|
(1,027
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
¥
|
522,537
|
|
|
¥
|
93,083
|
|
|
¥
|
202,762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IV-35
SC
MEDIA & COMMERCE INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
6.
|
Property
and Equipment
|
The details of property and equipment are as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2007
|
|
|
December 31, 2006
|
|
|
|
(Yen in Thousands)
|
|
|
Furniture and fixtures
|
|
¥
|
583,853
|
|
|
¥
|
286,972
|
|
Leasehold and building improvements
|
|
|
2,170,309
|
|
|
|
2,112,082
|
|
Equipment and vehicles
|
|
|
8,003,843
|
|
|
|
6,598,613
|
|
Buildings
|
|
|
1,001,485
|
|
|
|
1,001,485
|
|
Land
|
|
|
437,147
|
|
|
|
437,147
|
|
Construction in progress
|
|
|
4,400
|
|
|
|
932,788
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,201,037
|
|
|
|
11,369,087
|
|
Less accumulated depreciation and amortization
|
|
|
(4,460,916
|
)
|
|
|
(3,791,181
|
)
|
|
|
|
|
|
|
|
|
|
|
|
¥
|
7,740,121
|
|
|
¥
|
7,577,906
|
|
|
|
|
|
|
|
|
|
|
Property and equipment include assets held under capitalized
lease arrangements (Note 12). Depreciation and amortization
expense related to property and equipment for the six-month
period ended June 30, 2007 and the years ended
December 31, 2006 and 2005 was ¥899,766 thousand,
¥1,497,830 thousand, and ¥1,070,502 thousand,
respectively.
At December 31, 2005 SMC 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
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 SMC 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.
At June 30, 2007 SMC had disposed of, or re-deployed within
the group, all of the remaining long-lived assets, including
capitalized leases, developed for the PartiTV business. No
further impairment write-down was realized for the PartiTV
assets for the six-month period ended June 30, 2007.
|
|
7.
|
Software
Development Costs
|
Capitalized software development costs for internal use were as
follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2007
|
|
|
December 31, 2006
|
|
|
|
(Yen in Thousands)
|
|
|
Software development costs
|
|
¥
|
8,841,475
|
|
|
¥
|
8,021,193
|
|
Less accumulated amortization
|
|
|
(4,186,949
|
)
|
|
|
(3,577,876
|
)
|
|
|
|
|
|
|
|
|
|
|
|
¥
|
4,654,526
|
|
|
¥
|
4,443,317
|
|
|
|
|
|
|
|
|
|
|
IV-36
SC
MEDIA & COMMERCE INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Significant software development additions during 2007 and 2006
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 six-month period ended
June 30, 2007 and the years ended December 31, 2006
and 2005 was ¥609,097 thousand, ¥1,017,224 thousand,
and ¥728,573 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:
|
|
|
|
|
Twelve months ending June 30,
|
|
(Yen in Thousands)
|
|
|
2008
|
|
¥
|
1,273,609
|
|
2009
|
|
|
1,252,707
|
|
2010
|
|
|
1,184,259
|
|
2011
|
|
|
729,584
|
|
2012
|
|
|
202,779
|
|
SMC 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 six-month period ended
June 30, 2007 and the years ended December 31, 2006
and 2005 was ¥0, ¥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 six-month period ended
June 30, 2007 and the years ended December 31, 2006
and 2005, were ¥900 thousand, ¥2,407 thousand, and
¥15,029 thousand, respectively. The weighted average
amortization period is six years.
The details of intangible assets other than software and
goodwill were as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2007
|
|
|
December 31, 2006
|
|
|
|
(Yen in Thousands)
|
|
|
Intangible assets subject to amortization, net of accumulated
amortization of ¥152,710 thousand in 2007 and
¥131,232 thousand in 2006:
|
|
|
|
|
|
|
|
|
Channel packaging arrangements
|
|
¥
|
150,000
|
|
|
¥
|
160,000
|
|
Other
|
|
|
24,418
|
|
|
|
27,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
174,418
|
|
|
|
187,070
|
|
Other intangible assets not subject to amortization:
|
|
|
5,073
|
|
|
|
5,073
|
|
|
|
|
|
|
|
|
|
|
Total other intangible assets
|
|
¥
|
179,491
|
|
|
¥
|
192,143
|
|
|
|
|
|
|
|
|
|
|
Channel packaging arrangements which were acquired in connection
with the acquisition of JSBC2 (Note 2) and are
currently being developed by RTVJ represent the 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. An agreement to terminate the RTVJ channel service on
March 31, 2008 was signed on October 31, 2007, and
RTVJ is planned to be liquidated by June 2008 (Note 22).
The carrying value of channel packaging and related goodwill as
of June 30, 2007 is expected to be recovered through the
sale of JSBC2 (Note 22). The aggregate amortization expense
of other intangible assets subject to amortization for the
six-month period ended June 30, 2007 and the years ended
December 31, 2006 and 2005 was
IV-37
SC
MEDIA & COMMERCE INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
¥13,977 thousand, ¥28,888 thousand, and ¥48,258
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:
|
|
|
|
|
Twelve months ending June 30,
|
|
(Yen in Thousands)
|
|
|
2008
|
|
¥
|
25,470
|
|
2009
|
|
|
23,109
|
|
2010
|
|
|
23,076
|
|
2011
|
|
|
22,941
|
|
2012
|
|
|
11,419
|
|
The changes in the carrying amount of goodwill were as follows:
|
|
|
|
|
|
|
|
|
|
|
Six months ended
|
|
|
Year ended
|
|
|
|
June 30, 2007
|
|
|
December 31, 2006
|
|
|
|
(Yen in Thousands)
|
|
|
Balance at beginning of period
|
|
¥
|
286,263
|
|
|
¥
|
294,244
|
|
Adjustment
|
|
|
|
|
|
|
(7,981
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
¥
|
286,263
|
|
|
¥
|
286,263
|
|
|
|
|
|
|
|
|
|
|
The adjustments to the carrying value of goodwill of
¥175,887 thousand recorded in 2005 included ¥154,252
thousand of previously unrecognized tax benefits of JSBC2
acquired in 2004, and ¥21,635 thousand attributable to the
finalization of the purchase price, of JSBC2 (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
|
SMC uses foreign exchange forward and option contracts that
generally extend 10 to 48 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. SMC enters into these contracts to hedge
its U.S. dollar denominated monetary exposure. Such forward
contracts had an aggregated notional amount in U.S. dollars
of 27,900 thousand at June 30, 2007, and in
U.S. dollars of 14,100 thousand and in Euros of 830
thousand at December 31, 2006.
SMC does not enter into derivative financial transactions for
trading or speculative purposes.
SMC 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, SMC 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 gains was not material
for the six-month period ended June 30, 2007 and the years
ended December 31, 2006 and 2005. These amounts are
reclassified into earnings through gain (loss) on forward
exchange contracts when the hedged items impact earnings.
Accumulated gains, net of taxes, of ¥11,174 thousand are
included in accumulated other comprehensive income at
June 30, 2007, and will be reclassified into earnings
within twelve months.
No cash flow hedges were discontinued during the six-month
period ended June 30, 2007 or the years ended
December 31, 2006 and 2005 as a result of forecasted
transactions that are no longer probable to occur.
IV-38
SC
MEDIA & COMMERCE INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
SMC has entered into foreign exchange forward and option
contracts designated but not qualified as hedging instruments
under SFAS No. 133 as a means of hedging certain
foreign currency exposures. SMC 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 June 30, 2007 and December 31, 2006 the fair value
of forward and option contracts recognized in other current
assets in the accompanying consolidated balance sheets was an
asset of ¥87,111 thousand, and ¥84,852 thousand,
respectively.
|
|
11.
|
Fair
Value of Financial Instruments
|
The carrying amounts for financial instruments in SMCs
consolidated financial statements at June 30, 2007 and
December 31, 2006 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 and option
contracts: The carrying amount is reflective of
fair value. The fair value of currency forward and option
contracts is estimated based on quotes obtained from financial
institutions. At June 30, 2007 and December 31, 2006,
fair value of foreign exchange forward contracts of ¥87,111
thousand and ¥84,852 thousand, respectively, 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 SMCs 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. SMC 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 SMCs capital lease
obligations is estimated by discounting the future cash flows of
each instrument at rates currently offered to SMC by leasing
companies.
SMC is obligated under various capital leases for certain
equipment and other assets that expire at various dates,
generally during the next five years. The gross amount of
equipment and the related accumulated amortization recorded
under capital leases were as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2007
|
|
|
December 31, 2006
|
|
|
|
(Yen in Thousands)
|
|
|
Equipment and vehicles
|
|
¥
|
2,430,151
|
|
|
¥
|
2,206,592
|
|
Others
|
|
|
520,883
|
|
|
|
303,799
|
|
Less accumulated amortization
|
|
|
(1,192,407
|
)
|
|
|
(920,631
|
)
|
|
|
|
|
|
|
|
|
|
|
|
¥
|
1,758,627
|
|
|
¥
|
1,589,760
|
|
|
|
|
|
|
|
|
|
|
IV-39
SC
MEDIA & COMMERCE INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 June 30, 2007
were as follows:
|
|
|
|
|
Twelve months ending June 30,
|
|
(Yen in Thousands)
|
|
|
2008
|
|
¥
|
725,214
|
|
2009
|
|
|
582,799
|
|
2010
|
|
|
370,043
|
|
2011
|
|
|
223,086
|
|
2012
|
|
|
111,696
|
|
Thereafter
|
|
|
3,421
|
|
|
|
|
|
|
Total minimum lease payments
|
|
|
2,016,259
|
|
Less amount representing interest (at rates ranging from 1.43%
to 6.33%)
|
|
|
(57,321
|
)
|
|
|
|
|
|
Present value of minimum capital lease payments
|
|
|
1,958,938
|
|
Less current installments
|
|
|
(591,142
|
)
|
|
|
|
|
|
|
|
¥
|
1,367,796
|
|
|
|
|
|
|
The Company leases four principal office and operational
premises. SMC 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.
SMCs 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, result in rent
expense for the six-month period ended June 30, 2007 and
the years ended December 31, 2006 and 2005 of ¥707,814
thousand, ¥1,187,904 thousand, and ¥445,094 thousand,
respectively.
Leases for office 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.
SMC contracts, through subsidiaries and affiliate licensed
broadcasting companies, to utilize capacity on three satellites
from two transponder service providers. SMCs historical
transponder service contracts were generally ten years in
duration, were entered into prior to 2004, and were disclosed by
SMC 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 are now 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-40
SC
MEDIA & COMMERCE INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Future minimum lease payments for the noncancelable portion of
operating leases as of June 30, 2007, were as follows:
|
|
|
|
|
Twelve months ending June 30,
|
|
(Yen in Thousands)
|
|
|
2008
|
|
¥
|
1,200,126
|
|
2009
|
|
|
4,980
|
|
2010
|
|
|
4,980
|
|
2011
|
|
|
4,980
|
|
2012
|
|
|
4,980
|
|
Thereafter
|
|
|
4,980
|
|
|
|
|
|
|
Total minimum lease payments
|
|
¥
|
1,225,026
|
|
|
|
|
|
|
Short-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2007
|
|
|
December 31, 2006
|
|
|
|
(Yen in Thousands)
|
|
|
Loans from minority shareholder
|
|
¥
|
290,000
|
|
|
¥
|
290,000
|
|
Loans from J:COM Finance Co. Ltd.
|
|
|
3,650,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
¥
|
3,940,000
|
|
|
¥
|
290,000
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2007 and December 31, 2006, SMC had
outstanding short-term borrowings of ¥290,000 thousand from
Zonemedia Enterprises Limited (Zonemedia), formerly
Zone Vision Enterprises Limited, a 50% shareholder in RTVJ. The
borrowings comprise a series of loans pursuant to a shareholder
finance agreement entered into between SMC and Zonemedia for the
specified purpose of financing RTVJ, a consolidated joint
venture. Each of the series of loans bears interest at a rate of
3.5% per annum. These borrowings were subsequently transferred
to New Jupiter TV as part of its net assets (Note 1(a)).
As of June 30, 2007, SMC had outstanding short-term
borrowings of ¥3,650,000 thousand from J:COM Finance Co.,
Ltd.. The funds were borrowed under a revolving line of credit
of up to ¥6,000,000 thousand in order to repay term
borrowings from banks and to facilitate the Companys
subsequent reorganization (see Note 1(a)). The borrowings
are repayable in full on December 31, 2007 or earlier upon
five days notice by the Company, and bear interest at a rate of
2.15% per annum. These borrowings were subsequently transferred
to New JTV as part of its net assets (Note 1(a)).
Long-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2007
|
|
|
December 31, 2006
|
|
|
|
(Yen in Thousands)
|
|
|
Term loan borrowings from banks
|
|
¥
|
|
|
|
¥
|
2,400,000
|
|
Less: current portion
|
|
|
|
|
|
|
(1,600,000
|
)
|
|
|
|
|
|
|
|
|
|
Long-term debt, excluding current portion
|
|
¥
|
|
|
|
¥
|
800,000
|
|
|
|
|
|
|
|
|
|
|
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
was 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, which was renewable in June each year. The
Company decided in December 2005 not to draw down the remaining
available term loan amount and in June 2006 decided not to renew
the 364-day
revolving facility. In May 2007, the Company made full early
repayment of outstanding five-year term loan borrowings. There
was no penalty associated with the early repayment of the term
loan.
IV-41
SC
MEDIA & COMMERCE INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Interest on outstanding five-year term loan borrowings was based
on certain financial ratios and could range from Euroyen TIBOR +
0.75% to TIBOR + 2.00%. The interest rates charged at
December 31, 2006 for the five-year term loan was 1.163%.
The components of the provision for income taxes from continuing
operations recognized in the consolidated statements of
operations were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended
|
|
|
Year ended
|
|
|
Year ended
|
|
|
|
June 30, 2007
|
|
|
December 31, 2006
|
|
|
December 31, 2005
|
|
|
|
(Yen in Thousands)
|
|
|
Current taxes
|
|
¥
|
3,423,069
|
|
|
¥
|
8,730,299
|
|
|
¥
|
6,519,191
|
|
Deferred taxes
|
|
|
320,394
|
|
|
|
586,788
|
|
|
|
(121,381
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
¥
|
3,743,463
|
|
|
¥
|
9,317,087
|
|
|
¥
|
6,397,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts provided for income taxes were allocated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended
|
|
|
Year ended
|
|
|
Year ended
|
|
|
|
June 30, 2007
|
|
|
December 31, 2006
|
|
|
December 31, 2005
|
|
|
|
(Yen in Thousands)
|
|
|
Income taxes on income from continuing operations
|
|
¥
|
3,743,463
|
|
|
¥
|
9,317,087
|
|
|
¥
|
6,397,810
|
|
Income tax on loss from discontinued operations
|
|
|
(2,627
|
)
|
|
|
(864,190
|
)
|
|
|
(939,904
|
)
|
Other comprehensive (income) loss
|
|
|
5,838
|
|
|
|
(26,194
|
)
|
|
|
37,653
|
|
Additional paid-in capital by issuance of common stock by
equity-method investee
|
|
|
|
|
|
|
|
|
|
|
282,787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
¥
|
3,746,674
|
|
|
¥
|
8,426,703
|
|
|
¥
|
5,778,346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IV-42
SC
MEDIA & COMMERCE INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 are presented below:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2007
|
|
|
December 31, 2006
|
|
|
|
(Yen in Thousands)
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
¥
|
3,172,116
|
|
|
¥
|
1,039,333
|
|
Retail inventories
|
|
|
1,145,094
|
|
|
|
972,366
|
|
Equity-method investments
|
|
|
571,120
|
|
|
|
617,746
|
|
Return provision
|
|
|
508,445
|
|
|
|
335,701
|
|
Property and equipment
|
|
|
405,638
|
|
|
|
331,936
|
|
Accrued liabilities
|
|
|
336,902
|
|
|
|
603,939
|
|
Enterprise tax payable
|
|
|
274,592
|
|
|
|
414,286
|
|
Net assets from discontinued operations
|
|
|
46,437
|
|
|
|
336,498
|
|
Others
|
|
|
623,493
|
|
|
|
523,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,083,837
|
|
|
|
5,175,723
|
|
|
|
|
|
|
|
|
|
|
Less valuation allowance
|
|
|
(4,210,642
|
)
|
|
|
(2,029,740
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
2,873,195
|
|
|
|
3,145,983
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Equity-method investment
|
|
|
(350,304
|
)
|
|
|
(315,916
|
)
|
Intangibles
|
|
|
(61,035
|
)
|
|
|
(65,104
|
)
|
Unrealized foreign exchange
|
|
|
(40,456
|
)
|
|
|
(35,384
|
)
|
Others
|
|
|
(1,797
|
)
|
|
|
(1,795
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(453,592
|
)
|
|
|
(418,199
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
¥
|
2,419,603
|
|
|
¥
|
2,727,784
|
|
|
|
|
|
|
|
|
|
|
The valuation allowance for deferred tax assets as of
January 1, 2005 was ¥2,165,372 thousand. The net
changes in the total valuation allowance for the six-month
period ended June 30, 2007 and the years ended
December 31, 2006 and 2005, were an increase of
¥2,180,902 thousand, an increase of ¥316,955 thousand,
and a decrease of ¥452,587 thousand, respectively. Such net
changes reflect the effect of net tax expenses of ¥180,446
thousand, ¥383,043 thousand, and ¥123,130 thousand
recorded for the six-month period ended June 30, 2007 and
the years ended December 31, 2006 and 2005, respectively,
in the accompanying consolidated statements of operations.
As a result of the acquisition of EPB on March 29, 2007
(Note 2), the Company acquired net operating loss
carryforwards of ¥4,829,518 thousand (related deferred tax
assets of ¥1,965,131 thousand). However, a full valuation
allowance against the acquired deferred tax assets of EPB was
provided for as of June 30, 2007, as the Company considered
it was not more likely than not that the deferred tax assets
would be realized through future taxable income of EPB.
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 June 30, 2007 amounted to
¥3,959 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 assessment. Based upon the level of historical
taxable income and projections for future taxable income over
the
IV-43
SC
MEDIA & COMMERCE INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 June 30, 2007, SMC and its subsidiaries had total net
operating loss carryforwards attributable to continuing
operations for income tax purposes of approximately
¥7,795,813 thousand, which are available to offset future
taxable income, if any. SMC 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 (six months ended)
|
|
|
|
|
2008
|
|
|
9,729
|
|
2009
|
|
|
700,294
|
|
2010
|
|
|
2,089,431
|
|
2011
|
|
|
1,119,362
|
|
2012
|
|
|
1,931,181
|
|
2013
|
|
|
1,300,513
|
|
2014
|
|
|
620,107
|
|
2015
|
|
|
25,196
|
|
|
|
|
|
|
|
|
¥
|
7,795,813
|
|
|
|
|
|
|
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%. 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 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended
|
|
|
Year ended
|
|
|
Year ended
|
|
|
|
June 30, 2007
|
|
|
December 31, 2006
|
|
|
December 31, 2005
|
|
|
Statutory tax rate
|
|
|
40.7%
|
|
|
|
40.7%
|
|
|
|
40.7%
|
|
Non-deductible expenses
|
|
|
0.7
|
|
|
|
0.6
|
|
|
|
0.6
|
|
Change in valuation allowance
|
|
|
2.1
|
|
|
|
1.7
|
|
|
|
0.8
|
|
Income tax credits
|
|
|
|
|
|
|
(0.5
|
)
|
|
|
(2.9
|
)
|
Others
|
|
|
0.6
|
|
|
|
(0.3
|
)
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate for continuing operations
|
|
|
44.1%
|
|
|
|
42.2%
|
|
|
|
38.8%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15.
|
Asset
Retirement Obligations
|
SMC has asset retirement obligations primarily associated with
restoration activities to be carried out at the time SMC 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
presents the activity for the asset retirement obligations:
|
|
|
|
|
|
|
|
|
|
|
Six months ended
|
|
|
Year ended
|
|
|
|
June 30, 2007
|
|
|
December 31, 2006
|
|
|
|
(Yen in Thousands)
|
|
|
Balance at beginning of period
|
|
¥
|
301,053
|
|
|
¥
|
|
|
Accrued during the period
|
|
|
|
|
|
|
299,691
|
|
Accretion expenses
|
|
|
2,279
|
|
|
|
1,362
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
¥
|
303,332
|
|
|
¥
|
301,053
|
|
|
|
|
|
|
|
|
|
|
IV-44
SC
MEDIA & COMMERCE INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
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 included the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended
|
|
|
Year ended
|
|
|
Year ended
|
|
|
|
June 30, 2007
|
|
|
December 31, 2006
|
|
|
December 31, 2005
|
|
|
|
(Yen in Thousands)
|
|
|
Service cost benefits earned during the period
|
|
¥
|
52,308
|
|
|
¥
|
92,297
|
|
|
¥
|
65,013
|
|
Interest cost on projected benefit obligation
|
|
|
3,807
|
|
|
|
5,916
|
|
|
|
5,696
|
|
Recognized actuarial loss (gain)
|
|
|
(11,551
|
)
|
|
|
40,139
|
|
|
|
44,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic cost
|
|
¥
|
44,564
|
|
|
¥
|
138,352
|
|
|
¥
|
115,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
Six months ended
|
|
|
Year ended
|
|
|
|
June 30, 2007
|
|
|
December 31, 2006
|
|
|
|
(Yen in Thousands)
|
|
|
Change in projected benefit obligations:
|
|
|
|
|
|
|
|
|
Benefit obligations, beginning of period
|
|
¥
|
507,648
|
|
|
¥
|
394,403
|
|
Service cost
|
|
|
52,308
|
|
|
|
92,297
|
|
Interest cost
|
|
|
3,807
|
|
|
|
5,916
|
|
Actuarial loss (gain)
|
|
|
(11,551
|
)
|
|
|
40,139
|
|
Benefits paid
|
|
|
(11,148
|
)
|
|
|
(25,107
|
)
|
|
|
|
|
|
|
|
|
|
Projected benefit obligations, end of period
|
|
¥
|
541,064
|
|
|
¥
|
507,648
|
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligations, end of period
|
|
¥
|
405,179
|
|
|
¥
|
374,752
|
|
|
|
|
|
|
|
|
|
|
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 1.7%, 1.5%, and 2.0% for the
six-month period ended June 30, 2007 and the years ended
December 31, 2006 and 2005, respectively. The
weighted-average discount rate used in determining benefit
obligations as of June 30, 2007 and December 31, 2006
was 1.70% and 1.50%, respectively. Assumed salary increases
ranged from 1.00% to 3.99% depending on employees age for
the six-month period ended June 30, 2007 and the years
ended December 31, 2006 and 2005.
The following benefit payments, which reflect expected future
service, as appropriate, are expected to be paid (excluding the
RAP amounts settled on August 31, 2007, see below):
|
|
|
|
|
Twelve months ending 30 June,
|
|
(Yen in Thousands)
|
|
|
2008
|
|
¥
|
27,165
|
|
2009
|
|
|
40,794
|
|
2010
|
|
|
44,088
|
|
2011
|
|
|
45,992
|
|
2012
|
|
|
49,691
|
|
Years
2013-2017
|
|
|
310,486
|
|
SMC generally uses a measurement date of December 31 for all of
its unfunded RAP.
On August 31, 2007, immediately prior to merger with J:Com,
New Jupiter TV paid all of its staff employed at that date their
RAP entitlement in full on an involuntary termination basis. The
amount paid was ¥166,363 thousand. The projected benefit
obligations accrued at August 31, 2007 for those staff
members was ¥198,154 thousand, resulting in a ¥31,791
thousand gain being realized by New Jupiter TV following the
payment. SMC continues to use the RAP system for its staff.
IV-45
SC
MEDIA & COMMERCE INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
On July 2, 2007 projected pension obligations of
¥198,154 thousand were included in the net asset transfer
to New Jupiter TV pursuant to the reorganization of the Company,
discussed in Note 1(a).
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
¥58,673 thousand, ¥105,747 thousand, and ¥87,408
thousand, for the six-month period ended June 30, 2007 and
the years ended December 31, 2006 and 2005, respectively,
and are included in selling, general and administrative expenses
in the accompanying consolidated statements of operations.
During 2005, SMC 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 SMCs share of shortfalls in the
EPF plan funding, calculated by the EPF and amounting to
¥170,920 thousand, was accrued as an exit liability at
December 31, 2005, and was included in selling, general and
administrative expenses in the accompanying consolidated
statements of operations. At December 31, 2006, SMC had
decided not to proceed with a withdrawal from the EPF plan in
the near future. Therefore the exit liability accrued at
December 31, 2005 was reversed during 2006, with the
resulting credit amounting to ¥170,920 thousand 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 finalized 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. Shop Channel determined that the
appropriate further action to take following such an order was
to offer every customer who purchased the product the
opportunity to return the item for a full refund whether they
are satisfied with the product or not. Shop Channel 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 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.
Subsequent to December 31, 2006, ¥308,087 thousand of
costs were actually incurred in relation to these contingency
matters, with ¥257,713 thousand recorded as a credit to
earnings during the six-month period ended June 30, 2007.
In June 2007, the Companys subsidiary Shop Channel was
notified that a certain product had malfunctioned and might be
susceptible to overheating and catching fire. In September 2007,
the Company engaged an independent third party to investigate
this claim. Through this investigation it was determined that
this product did contain a defect and there was the possibility
the product could overheat and catch fire, however to the best
of the Companys knowledge no product has actually caught
fire or caused any damage. Based on these facts the Company
decided to recall this product and notice was given of the
recall. The Company estimated the associated recall expenses as
approximately ¥673,031 thousand (100% of the units sold
plus external administrative costs) of which ¥631,033
thousand was recorded as reduction of retail sales during the
six-month period ended June 30, 2007. All inventory on hand
was repurchased from the Company by the supplier at cost.
The Commercial Code of Japan was revised as the 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
IV-46
SC
MEDIA & COMMERCE INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
financial statements, dividends can be issued from current year
retained earnings at an extraordinary balance sheet 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.
The Company paid no cash dividends for the six-month period
ended June 30, 2007 and the years ended December 31,
2006 and 2005. The amount immediately available for dividends
under the Japanese Corporate Law is based on the unappropriated
retained earnings recorded in the Companys stand-alone
statutory books of account, which amounted to ¥0 at
June 30, 2007.
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. SMC 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, SMC continued to show an accumulated deficit
immediately after that transfer. Such transfer did not impact
SMCs 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 June 30, 2007 and December 31,
2006 would be ¥1,812,936 thousand less (more) than the
amount included in the accompanying consolidated financial
statements.
On May 22, 2007, the Companys shareholders
meeting resolved to issue one new share of the Companys
common stock to SC on May 23, 2007 for ¥728 thousand,
resulting in SC and LGI owning 50.00014% and 49.99986% of the
Company, respectively.
|
|
19.
|
Related
Party Transactions
|
SMC 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;
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
SMC, costs of programming and distribution payments for
transponder services;
Jupiter Telecommunications Co., Ltd, an affiliated company of
Sumitomo Corporation at December 31, 2004, and an indirect
consolidated subsidiary of LGI: 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.
IV-47
SC
MEDIA & COMMERCE INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Zonemedia Enterprises Limited and group companies, a 50%
shareholder in Reality TV Japan and a 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 June 30, 2007 and December 31, 2006,
SkyPerfecTV, an unrelated party, and 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 six-month period ended June 30, 2007 and the years
ended December 31, 2006 and 2005, subscription revenues of
¥1,970,853 thousand, ¥3,833,171 thousand, and
¥3,501,730 thousand, respectively, received through
SkyPerfecTV, accounted for approximately 42%, 44% and 44%,
respectively, of subscription revenues, and 4%, 3%, and 4%,
respectively, of total revenues. As of June 30, 2007 and
December 31, 2006 SkyPerfecTV accounted for approximately
5% of accounts receivable at each balance sheet date.
For the six-month period ended June 30, 2007 and the years
ended December 31, 2006 and 2005, subscription revenues of
¥1,049,469 thousand, ¥1,751,627 thousand, and
¥1,543,063 thousand, respectively, received through J:Com,
accounted for approximately 22%, 20%, and 20%, respectively, of
subscription revenues, and 2% of total revenues for each period.
As of June 30, 2007 and December 31, 2006 J:Com
accounted for approximately 2% of accounts receivable at each
balance sheet date.
|
|
21.
|
Commitments,
Other Than Leases
|
As of June 30, 2007, SMC has commitments to purchase
various program rights as follows:
|
|
|
|
|
Twelve months ending June 30,
|
|
(Yen in Thousands)
|
|
|
2008
|
|
¥
|
1,144,092
|
|
2009
|
|
|
949,181
|
|
2010
|
|
|
930,225
|
|
2011
|
|
|
440,744
|
|
2012
|
|
|
|
|
|
|
|
|
|
Total program rights purchase commitments
|
|
¥
|
3,464,242
|
|
|
|
|
|
|
SMC 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. SMC 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.
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 are now 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.
IV-48
SC
MEDIA & COMMERCE INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As of June 30, 2007, SMC has commitments for uplink
services and transponder services under historical service
contracts as follows:
|
|
|
|
|
Twelve months ending June 30,
|
|
(Yen in Thousands)
|
|
|
2008
|
|
¥
|
1,186,585
|
|
2009
|
|
|
299,748
|
|
2010
|
|
|
299,748
|
|
2011
|
|
|
299,748
|
|
2012
|
|
|
299,748
|
|
|
|
|
|
|
Total transponder and uplink services commitments
|
|
¥
|
2,385,577
|
|
|
|
|
|
|
On October 31, 2007 J:Com (formerly New Jupiter TV, see
Note 1(a)) and related companies, and Zonemedia and related
companies, signed an agreement to terminate the RTVJ channel
service on March 31, 2008, and liquidate the company by
June 2008.
Immediately following signing of that agreement, notice was
given to RTVJs direct-to-home channel packaging alliance
partners and SkyPerfecTV that RTVJ programming would be
withdrawn from SkyPerfecTV packages on March 31, 2008. The
notice was given by JSBC2 a wholly owned satellite broadcasting
license holding company through which RTVJ delivers its channel
through SkyPerfecTV. This notice complied with the five months
notice period imposed by the packaging alliance.
Also on October 31, 2007, a share sale and purchase
agreement was entered into between J:Com and an unrelated third
party under which J:Com agreed to sell all of the shares of
JSBC2 to the third party for ¥700,000 thousand on
April 1, 2008. JSBC2 announced to direct-to-home channel
packaging alliance partners and SkyPerfecTV that the third
partys channel would take over the positions to be vacated
by RTVJ on April 1, 2008.
The closure of RTVJ and the sale of JSBC2 are contemplated
transactions and are not expected to have a material impact on
the financial position or results of operations of SMC or J:Com.
IV-49
To the Board
of Directors and Shareholders of Telenet Group Holding NV
In our opinion, the accompanying consolidated balance sheets and
the related consolidated income statements, of cash flows and of
changes in shareholders equity present fairly, in all
material respects, the financial position of Telenet Group
Holding NV (the Company) and its subsidiaries at
December 31, 2006 and 2005, and the results of their
operations and their cash flows for each of the two years in the
period ended December 31, 2006, in conformity with
International Financial Reporting Standards as adopted by the
EU. 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 of these statements in accordance with
auditing standards generally accepted in the United States of
America, which 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, 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.
International Financial Reporting Standards as adopted by the EU
vary in certain significant respects from accounting principles
generally accepted in the United States of America. Information
relating to the nature and effect of such differences is
presented in Note 28 to the consolidated financial
statements.
PricewaterhouseCoopers Bedrijfsrevisoren bcvba
Represented by
Antwerp, Belgium
June 12, 2007
IV-50
TELENET
GROUP HOLDING NV
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
|
|
Notes
|
|
2006
|
|
2005
|
|
|
|
|
(In thousands of Euro)
|
|
ASSETS
|
Non-current
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
4
|
|
|
|
973,379
|
|
|
|
943,919
|
|
Goodwill
|
|
|
5
|
|
|
|
1,148,745
|
|
|
|
1,012,544
|
|
Other intangible assets
|
|
|
6
|
|
|
|
278,813
|
|
|
|
278,347
|
|
Other assets
|
|
|
|
|
|
|
2,319
|
|
|
|
860
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current assets
|
|
|
|
|
|
|
2,403,256
|
|
|
|
2,235,670
|
|
Current
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade receivables
|
|
|
7
|
|
|
|
105,589
|
|
|
|
98,677
|
|
Other current assets
|
|
|
8
|
|
|
|
24,399
|
|
|
|
26,668
|
|
Cash and cash equivalents
|
|
|
9
|
|
|
|
58,844
|
|
|
|
210,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
|
|
|
|
188,832
|
|
|
|
335,704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
|
|
|
|
|
2,592,088
|
|
|
|
2,571,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EQUITY AND LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributed capital
|
|
|
10
|
|
|
|
2,543,032
|
|
|
|
2,532,504
|
|
Other reserves
|
|
|
10
|
|
|
|
5,115
|
|
|
|
3,860
|
|
Hedging reserves
|
|
|
12
|
|
|
|
(3,599
|
)
|
|
|
1,078
|
|
Retained loss
|
|
|
|
|
|
|
(1,822,891
|
)
|
|
|
(1,828,344
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
|
|
|
|
721,657
|
|
|
|
709,098
|
|
Non-current
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, less current portion
|
|
|
11
|
|
|
|
1,330,843
|
|
|
|
1,288,785
|
|
Derivative financial instruments
|
|
|
12
|
|
|
|
36,485
|
|
|
|
20,364
|
|
Unearned revenue
|
|
|
17
|
|
|
|
14,825
|
|
|
|
11,537
|
|
Other liabilities
|
|
|
14
|
|
|
|
29,708
|
|
|
|
23,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current liabilities
|
|
|
|
|
|
|
1,411,861
|
|
|
|
1,344,441
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings
|
|
|
11
|
|
|
|
15,659
|
|
|
|
|
|
Current portion of long-term debt
|
|
|
11
|
|
|
|
59,767
|
|
|
|
156,129
|
|
Accounts payable
|
|
|
|
|
|
|
180,473
|
|
|
|
174,701
|
|
Accrued expenses and other current liabilities
|
|
|
16
|
|
|
|
79,492
|
|
|
|
74,129
|
|
Unearned revenue and subscriber advanced payments
|
|
|
17
|
|
|
|
123,179
|
|
|
|
112,876
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
|
|
|
|
458,570
|
|
|
|
517,835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
|
|
|
|
1,870,431
|
|
|
|
1,862,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL EQUITY AND LIABILITIES
|
|
|
|
|
|
|
2,592,088
|
|
|
|
2,571,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to the consolidated financial statements.
IV-51
TELENET
GROUP HOLDING NV
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
|
December 31,
|
|
December 31,
|
|
|
Notes
|
|
2006
|
|
2005
|
|
|
|
|
(In thousands of Euro)
|
|
Continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
17
|
|
|
|
813,452
|
|
|
|
733,517
|
|
Costs of services provided
|
|
|
18
|
|
|
|
(510,696
|
)
|
|
|
(456,717
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
302,756
|
|
|
|
276,800
|
|
Selling, general and administrative
|
|
|
18
|
|
|
|
(159,022
|
)
|
|
|
(145,621
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
|
|
|
|
143,734
|
|
|
|
131,179
|
|
Finance costs, net
|
|
|
19
|
|
|
|
(100,963
|
)
|
|
|
(193,208
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax
|
|
|
|
|
|
|
42,771
|
|
|
|
(62,029
|
)
|
Income tax expense
|
|
|
20
|
|
|
|
(34,283
|
)
|
|
|
(14,938
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
|
|
|
|
|
8,488
|
|
|
|
(76,967
|
)
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations
|
|
|
22
|
|
|
|
(3,035
|
)
|
|
|
300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
5,453
|
|
|
|
(76,667
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings (loss) per share in :
|
|
|
21
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
|
|
|
|
|
0.08
|
|
|
|
(0.86
|
)
|
Loss from discontinued operations
|
|
|
|
|
|
|
(0.03
|
)
|
|
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
0.05
|
|
|
|
(0.86
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to the consolidated financial statements.
IV-52
TELENET
GROUP HOLDING NV
(amounts
in thousands, except shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premium
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
and Other
|
|
Hedging
|
|
|
|
|
|
|
Notes
|
|
Shares
|
|
Share Capital
|
|
Reserves
|
|
Reserves
|
|
Retained Loss
|
|
Total
|
|
January 1, 2005
|
|
|
|
|
|
|
86,527,257
|
|
|
|
1,427,930
|
|
|
|
841,334
|
|
|
|
(26,627
|
)
|
|
|
(1,751,677
|
)
|
|
|
490,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized net gain (loss) on derivative contracts recognized
directly in equity
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,705
|
|
|
|
|
|
|
|
27,705
|
|
Net loss for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(76,667
|
)
|
|
|
(76,667
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized loss for 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,705
|
|
|
|
(76,667
|
)
|
|
|
(48,962
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognition of share-based compensation
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
2,196
|
|
|
|
|
|
|
|
|
|
|
|
2,196
|
|
Ordinary shares issued upon exercise of the Bank Warrants
|
|
|
10
|
|
|
|
329,994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds received upon exercise of the Class B Options
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
524
|
|
|
|
|
|
|
|
|
|
|
|
524
|
|
Issuance of share capital through IPO, net of offering costs
|
|
|
1
|
|
|
|
13,347,602
|
|
|
|
219,435
|
|
|
|
44,945
|
|
|
|
|
|
|
|
|
|
|
|
264,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005
|
|
|
|
|
|
|
100,204,853
|
|
|
|
1,647,365
|
|
|
|
888,999
|
|
|
|
1,078
|
|
|
|
(1,828,344
|
)
|
|
|
709,098
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized net gain (loss) on derivative contracts recognized
directly in equity
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,677
|
)
|
|
|
|
|
|
|
(4,677
|
)
|
Net profit for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,453
|
|
|
|
5,453
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized profit for 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,677
|
)
|
|
|
5,453
|
|
|
|
776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognition of share-based compensation
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
559
|
|
|
|
|
|
|
|
|
|
|
|
559
|
|
Proceeds received upon exercise of the Class A and
Class B Options
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
5,059
|
|
|
|
|
|
|
|
|
|
|
|
5,059
|
|
Issuance of share capital through Employee Stock Purchase Plan
|
|
|
10
|
|
|
|
300,033
|
|
|
|
4,917
|
|
|
|
1,248
|
|
|
|
|
|
|
|
|
|
|
|
6,165
|
|
Issuance of share capital via exchange of Class A and
Class B Profit Certificates
|
|
|
10
|
|
|
|
580,569
|
|
|
|
4,363
|
|
|
|
(4,363
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006
|
|
|
|
|
|
|
101,085,455
|
|
|
|
1,656,645
|
|
|
|
891,502
|
|
|
|
(3,599
|
)
|
|
|
(1,822,891
|
)
|
|
|
721,657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to the consolidated financial statements.
IV-53
TELENET
GROUP HOLDING NV
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands of Euro)
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
5,453
|
|
|
|
(76,667
|
)
|
Adjustments for:
|
|
|
|
|
|
|
|
|
Depreciation, amortization and impairment
|
|
|
222,921
|
|
|
|
206,314
|
|
Income taxes
|
|
|
34,232
|
|
|
|
15,052
|
|
Provision for liabilities and charges
|
|
|
11,778
|
|
|
|
1,698
|
|
Increase in allowance for bad debt
|
|
|
(1,352
|
)
|
|
|
3,550
|
|
Amortization of financing cost
|
|
|
4,930
|
|
|
|
9,165
|
|
Loss on extinguishment of debt
|
|
|
21,355
|
|
|
|
13,678
|
|
Interest income
|
|
|
(4,569
|
)
|
|
|
(3,420
|
)
|
Interest expense
|
|
|
93,958
|
|
|
|
133,511
|
|
(Gain)/loss on derivative instruments, net
|
|
|
8,856
|
|
|
|
(25,802
|
)
|
Unrealized foreign exchange (gain)/loss, net
|
|
|
(23,580
|
)
|
|
|
40,261
|
|
Share based compensation
|
|
|
1,587
|
|
|
|
2,196
|
|
(Gain)/loss on disposal of fixed assets and business
|
|
|
5,977
|
|
|
|
(147
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(6,239
|
)
|
|
|
(17,440
|
)
|
Other assets
|
|
|
3,351
|
|
|
|
(5,513
|
)
|
Unearned revenue
|
|
|
5,135
|
|
|
|
2,613
|
|
Accounts payable
|
|
|
7,833
|
|
|
|
26,770
|
|
Accrued expenses and other current liabilities
|
|
|
(12,235
|
)
|
|
|
10,964
|
|
|
|
|
|
|
|
|
|
|
Cash generated from operations
|
|
|
379,391
|
|
|
|
336,783
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
|
(67,974
|
)
|
|
|
(123,984
|
)
|
Income taxes paid
|
|
|
(69
|
)
|
|
|
(177
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
311,348
|
|
|
|
212,622
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS BY INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(178,857
|
)
|
|
|
(141,088
|
)
|
Proceeds on disposal of property and equipment
|
|
|
156
|
|
|
|
453
|
|
Purchases of intangibles
|
|
|
(29,069
|
)
|
|
|
(41,925
|
)
|
Acquisition of subsidiaries
|
|
|
(183,627
|
)
|
|
|
(1,444
|
)
|
Proceeds from disposal of business
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(391,379
|
)
|
|
|
(184,004
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Repayments of long-term borrowings
|
|
|
(166,249
|
)
|
|
|
(317,660
|
)
|
Net proceeds from short term borrowings
|
|
|
5,875
|
|
|
|
|
|
Proceeds from long-term borrowings
|
|
|
100,000
|
|
|
|
105,000
|
|
Payments of redemption premiums
|
|
|
(11,230
|
)
|
|
|
(13,341
|
)
|
Repayments of finance leases
|
|
|
(1,748
|
)
|
|
|
(853
|
)
|
Proceeds from the issuance of capital, net of offering costs
|
|
|
5,137
|
|
|
|
264,380
|
|
Proceeds received upon exercise of Class A and Class B
options
|
|
|
5,059
|
|
|
|
524
|
|
Payments for debt issuance costs
|
|
|
(8,328
|
)
|
|
|
(1,497
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(71,484
|
)
|
|
|
36,553
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
(151,515
|
)
|
|
|
65,171
|
|
CASH AND CASH EQUIVALENTS:
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
210,359
|
|
|
|
145,188
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
|
58,844
|
|
|
|
210,359
|
|
|
|
|
|
|
|
|
|
|
See notes to the consolidated financial statements.
IV-54
TELENET
GROUP HOLDING NV
For the year ended December 31, 2006
(in thousands of Euro, except per share amounts, unless
otherwise stated)
The accompanying consolidated financial statements present the
operations of Telenet Group Holding NV (Telenet Group
Holding) and its subsidiaries (hereafter collectively
referred to as the Company). Through its broadband
network the Company offers cable television, including premium
television services, broadband internet and telephony services
to residential subscribers in Flanders as well as broadband
internet, data and voice services in the business market
throughout Belgium. Telenet Group Holding and its principal
subsidiaries are limited liability companies organized under
Belgian law. The Company is managed and operates in one
operating segment, broadband communications.
These consolidated financial statements have been authorized for
issue by the Board of Directors on April 27, 2007.
Initial
Public Offering
On October 11, 2005, shares in Telenet Group Holding
commenced trading on the Brussels Euronext stock exchange
pursuant to an initial public offering (IPO) of the
Companys shares by the Company (the Primary
Offering) and certain of its shareholders (the
Secondary Offering). In addition, shares were
offered to qualifying employees (the Employee
Offering) at a discounted price. The initial price of the
shares was 21.00. The Company issued and sold
13,333,333 shares of its common stock pursuant to the
Primary Offering and approximately 14,269 shares pursuant
to the Employee Offering. Net of the underwriting discount and
other expenses of the offering, the Company received
264,380 for the common stock it issued and sold under the
Primary and Employee Offerings. The net proceeds from the
Primary and Employee Offerings were used to partially redeem
Telenet Group Holdings Senior Discount Notes and Telenet
Communications Senior Notes (Note 11). Telenet Group
Holding did not receive any proceeds from the sale of shares by
the selling shareholders.
|
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
In accordance with the EU Regulation 1606/2002 of
July 19, 2002, the consolidated financial statements have
been prepared in accordance with International Financial
Reporting Standards as adopted by the EU (IFRSs as adopted
by the EU). The financial statements have been prepared on
the historical cost basis, except for certain financial
instruments. The principal accounting policies are set out below.
Basis
of Consolidation
The consolidated financial statements include the accounts of
Telenet Group Holding and all of the entities that it directly
or indirectly controls. All intercompany accounts and
transactions among consolidated entities have been eliminated
Managements
Use of Estimates
The preparation of financial statements in accordance with IFRSs
as adopted by the EU requires the use of certain critical
accounting estimates and management judgement in the process of
applying the Companys accounting policies that affects the
reported amounts of assets and liabilities and disclosure of the
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses
during the reporting period. The areas involving a higher degree
of judgement or complexity, or areas where assumptions and
estimates are significant to the consolidated financial
statements are disclosed in Note 3.
IV-55
TELENET
GROUP HOLDING NV
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Property
and Equipment
Property and equipment are stated at cost less accumulated
depreciation and any accumulated impairment losses. Depreciation
is charged so as to write off the cost of assets, other than
land and assets not yet ready for use, on a straight-line basis
over their estimated useful lives. Assets held under finance
leases are depreciated over their expected useful lives on the
same basis as owned assets or, where shorter, the term of the
lease.
The following useful lives are used for the depreciation of
property and equipment:
|
|
|
|
|
Buildings and improvements
|
|
|
10-33 years
|
|
Operating facilities
|
|
|
3-20 years
|
|
Other equipment
|
|
|
3-10 years
|
|
The assets useful lives are reviewed, and adjusted if
appropriate, at each balance sheet date.
The costs associated with the construction of cable transmission
and distribution facilities and also internet and telephony
service installations are capitalized and depreciated over 3 to
20 years. Costs include all direct labor and materials as
well as certain indirect costs.
Government grants related to assets are recorded as a deduction
from the cost in arriving at the carrying amount of the asset.
The grant is recognised as income over the life of a depreciable
asset by way of a reduced depreciation charge. Expenditures for
repairs and maintenance are charged to operating expense as
incurred. Borrowing costs are recognized in profit and loss in
the period in which they are incurred.
Intangible
Assets
Intangible assets are measured at cost and are amortized on a
straight-line basis over their estimated useful lives as follows:
|
|
|
|
|
Network user rights
|
|
|
10 or 20 years
|
|
Trade name
|
|
|
15 years
|
|
Customer lists and supply contracts
|
|
|
5 or 15 years
|
|
Broadcasting rights
|
|
|
Life of the contractual right
|
|
Software development costs
|
|
|
3 years
|
|
Costs associated with maintaining computer software programmes
are recognized as an expense as incurred. Costs that are
directly associated with the production of identifiable and
unique software products controlled by the Company, and that
will probably generate economic benefits exceeding costs beyond
one year, are recognised as intangible assets.
Capitalized internal-use software costs include only external
direct costs of materials and services consumed in developing or
obtaining the software and payroll and payroll-related costs for
employees who are directly associated with and who devote time
to the project. Capitalization of these costs ceases no later
than the point at which the project is substantially complete
and ready for its intended purpose. Internally-generated
intangible assets are amortised on a straight-line basis over
their useful lives. Where no internally-generated intangible
asset can be recognised, development expenditure is recognised
as an expense in the period in which it is incurred.
Broadcasting rights are capitalized as an intangible asset when
the value of the contract is measurable upon signing and are
amortized on a straight-line basis over contractual life.
Impairment
of Tangible and Intangible Assets Excluding
Goodwill
Assets that are subject to amortization are reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. An impairment
loss is recognised for the amount
IV-56
TELENET
GROUP HOLDING NV
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
by which the assets carrying amount exceeds its
recoverable amount. The recoverable amount is the higher of an
assets fair value less costs to sell and value in use. For
the purposes of assessing impairment, assets are grouped at the
lowest levels for which there are separately identifiable cash
flows (cash-generating units).
Goodwill
Goodwill arising on the acquisition of a subsidiary represents
the excess of the cost of acquisition over the Companys
interest in the net fair value of the identifiable assets,
liabilities and contingent liabilities of the subsidiary
recognized at the date of acquisition. Goodwill is initially
recognized as an asset at cost and is subsequently measured at
cost less any accumulated impairment losses.
Goodwill is tested for impairment annually, or more frequently
when there is an indication that it may be impaired. The Company
has identified one cash-generating unit to which all goodwill
was allocated. If the recoverable amount of the cash-generating
unit is less than the carrying amount, the impairment loss is
allocated first to reduce the carrying amount of any goodwill
and then to the other assets pro rata on the basis of the
carrying amount of each asset. An impairment loss recognized for
goodwill is not reversed in a subsequent period.
Foreign
Currency Transactions
The Companys functional and presentation currency is Euros
(), which is also the functional currency of
each of the Companys subsidiaries. Transactions in
currencies other than Euros are recorded at the rates of
exchange prevailing on the dates of the transactions. At each
balance sheet date, monetary assets and liabilities that are
denominated in foreign currencies are translated at the rates
prevailing on the balance sheet date. Non-monetary assets and
liabilities carried at fair value that are denominated in
foreign currencies are translated at the rates prevailing at the
date when the fair value was determined. Gains and losses
arising on translation are included in profit or loss for the
period, except for exchange differences arising on non-monetary
assets and liabilities where the changes in fair value are
recognised directly in equity. In order to hedge its exposure to
certain foreign exchange risks, the Company enters into forward
contracts and options (see below for details of the
Companys accounting policies in respect of such derivative
financial instruments).
Financial
Instruments
Financial assets and financial liabilities are recognized on the
Companys balance sheet when the Company becomes a party to
the contractual provisions of the instrument.
Cash
and Cash Equivalents
Cash equivalents consist principally of commercial paper and
certificates of deposit with maturities of three months or less
when purchased.
Trade
Receivables
Trade receivables do not carry any interest and are stated at
their fair value as reduced by appropriate allowances for
estimated irrecoverable amounts.
Financial
Liabilities and Equity Instruments
Financial liabilities and equity instruments are classified
according to the substance of the contractual arrangements
entered into. An equity instrument is any contract that
evidences a residual interest in the assets of the Company after
deducting all of its liabilities. The accounting policies
adopted for specific financial liabilities and equity
instruments are set out below.
IV-57
TELENET
GROUP HOLDING NV
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Trade
payables
Trade payables are not interest bearing and are stated at their
fair value.
Bank
borrowings
Interest-bearing bank loans are recorded at the proceeds
received, net of direct issue costs. Finance charges, including
premiums payable on settlement or redemption and direct issue
costs, are accounted for on an accrual basis to the profit and
loss account using effective interest method and are recorded as
a component of the related debt to the extent that they are not
settled in the period in which they arise.
Borrowings are classified as current liabilities unless the
Company has an unconditional right to defer settlement of the
liability for at least 12 months after the balance sheet
date.
Equity
instruments
Equity instruments issued by the Company are recorded at the
proceeds received, net of direct issue costs.
Warrants
When issued in connection with detachable warrants to purchase
shares, the fair value of debt securities is determined using a
market interest rate for an equivalent debt instrument. Any
resulting discount or premium on the debt securities is
recognized using the effective interest rate method over the
contractual term of the debt. The remainder of the proceeds is
allocated to the detachable warrants and is recognized and
included in shareholders equity, net of any income tax
effects.
The Company assesses whether freestanding warrants are to be
classified within shareholders equity or as a liability.
Warrants accounted for as permanent equity are recorded at their
initial fair value and subsequent changes in fair value are not
recognized unless a change in the classification of those
warrants occurs. Warrants not qualifying for permanent equity
accounting are recorded at fair value as a liability with
subsequent changes in fair value recognized through the income
statement.
Derivative
financial instruments and hedge accounting
The Companys activities are exposed to changes in foreign
currency exchange rates and interest rates.
The Company seeks to reduce its foreign currency exposure
through the use of certain derivative financial instruments in
order to manage its exposure to exchange rate and interest rate
fluctuations arising from its operations and funding. The
Company has identified certain agreements as cash flow hedges
including foreign exchange forward contracts, interest rate swap
agreements, cap options and combinations of such instruments.
The use of derivatives is governed by the Companys
policies approved by the Board of Directors, which provide
written principles on the use of derivatives consistent with the
Companys risk management strategy described in
Note 12.
Changes in the fair value of derivative financial instruments
that are designated and effective as hedges of future cash flows
are recognised directly in equity and the ineffective portion is
recognised immediately in the income statement. If the cash flow
hedge of a firm commitment or forecast transaction results in
the recognition of a non-financial asset or a liability, then,
at the time the asset or liability is recognised, the associated
gains or losses on the derivative that had previously been
recognised in equity are included in the initial measurement of
the asset or liability. For hedges that do not result in the
recognition of an asset or a liability, amounts deferred in
equity are recognised in the income statement in the same period
in which the hedged item affects net profit or loss.
Changes in the fair value of derivative financial instruments
that do not qualify for hedge accounting are recognised in the
income statement as they arise.
IV-58
TELENET
GROUP HOLDING NV
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Hedge accounting is discontinued when the hedging instrument
expires or is sold, terminated, or exercised, or no longer
qualifies for hedge accounting. At that time, any cumulative
gain or loss on the hedging instrument recognised in equity is
retained in equity until the forecasted transaction occurs. If a
hedged transaction is no longer expected to occur, the net
cumulative gain or loss recognised in equity is transferred to
net profit or loss for the period.
Derivatives embedded in other financial instruments or other
host contracts are treated as separate derivatives when their
risks and characteristics are not closely related to those of
host contracts and the host contracts are not carried at fair
value with unrealised gains or losses reported in the income
statement.
Fair
Values
The Company has estimated the fair value of its financial
instruments in these consolidated financial statements using
available market information or other appropriate valuation
methodologies. Considerable judgment, however, is required in
interpreting market data to develop the estimates of fair value.
Accordingly, the estimates presented herein are not necessarily
indicative of the amounts that the Company would realize in a
current market exchange. The use of different market assumptions
and/or
estimation methodologies may have a material effect on the
estimated fair value amounts. The carrying amount of cash,
accounts and other receivables, and accounts and other payables
approximates fair value because of the short maturity of those
instruments.
Revenue
Recognition
Subscription fees for telephony, internet and premium cable
television are prepaid by subscribers on a monthly basis and
recognized in revenue as the related services are provided i.e.
in the subsequent month. Subscription fees for basic cable
television are prepaid by subscribers predominantly on an annual
basis and recognized in revenue on a straight line basis over
the following twelve months. Revenue from telephone and internet
activity is recognized on usage.
Installation fees are recognized immediately only when
(1) they represent a separately identifiable service that
is delivered (2) for which part the related costs
equivaling the installation revenue or exceeding this revenue
are expensed as incurred and reliably measurable. Accordingly,
telephony, digital television and internet installation fees are
recognized immediately whereas analogue cable television
activation fees are deferred and recognized over the estimated
customer relationship period of 10 years.
Together with subscription fees, basic cable television
subscribers are charged a copyright fee for the content received
from public broadcasters that is broadcasted over the
Companys network. These fees contribute to the cost the
Company bears in respect of copyright fees paid to copyright
collecting agencies for certain content provided by the public
broadcasters and other copyright holders. The Company reports
copyright fees collected from cable subscribers on a gross basis
as a component of revenue as the Company is acting as a
principal as the arrangement with the public broadcaster and
other copyright holders does not represent a passthrough
arrangement. Indeed, the Company bears substantial risk in
setting the level of copyright fees charged to subscribers as
well as in collecting such fees.
Operating
Expenses
Operating expenses consist of interconnection costs, network
operating and maintenance and repair costs and cable programming
costs, including employee costs and related depreciation and
amortization charges. The Company capitalizes most of its
installation cost, including labor cost. Copyright and license
fees paid to the holders of these rights and their agents are
the primary component of the Companys cable programming
costs. Other direct costs include costs that the Company incurs
in connection with providing its residential and business
services, such
IV-59
TELENET
GROUP HOLDING NV
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
as interconnection charges as well as bad debt expense. Network
costs consist of costs associated with operating, maintaining
and repairing the Companys broadband network and customer
care costs necessary to maintain its customer base.
Provisions
Provisions are recognized when the Company has a present
obligation as a result of a past event, it is probable that the
Company will be required to settle that obligation and the
amount can be reliably measured. Provisions are measured at the
Companys best estimate of the expenditure required to
settle its liability and are discounted to present value where
the effect is material.
Leases
Leases are classified as finance leases whenever the terms of
the lease transfer substantially all of the risks and rewards of
ownership to the Company. Property and equipment acquired by way
of finance lease are stated at an amount equal to the lower of
their fair value and the present value of the minimum lease
payments at inception of the lease, less accumulated
depreciation and any impairment losses. Each lease payment is
allocated between the liability and finance charges so as to
achieve a constant rate on the finance balance outstanding. The
corresponding rental obligations, net of finance charges, are
included in long-term debt. The interest element of the finance
cost is charged to the income statement over the lease period so
as to produce a constant periodic rate of interest on the
remaining balance of the liability for each period. All other
leases are classified as operating leases and are charged to
profit or loss on a straight-line basis over the lease term.
Income
Taxes
The tax expense represents the sum of the tax currently payable
and deferred tax. The tax currently payable is based on taxable
profit for the year using tax rates that have been enacted or
substantively enacted by the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on
differences between the carrying amounts of assets and
liabilities in the financial statements and the corresponding
tax bases used in the computation of taxable profit, and is
accounted for using the balance sheet liability method. Deferred
tax liabilities are generally recognised for all taxable
temporary differences and deferred tax assets are recognised to
the extent that it is probable that taxable profits will be
available against which deductible temporary differences can be
utilised. Such assets and liabilities are not recognised if the
temporary difference arises from goodwill or from the initial
recognition (other than in a business combination) of other
assets and liabilities in a transaction that affects neither the
tax profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary
differences arising on investments in subsidiaries except where
the Company is able to control the reversal of the temporary
difference and it is probable that the temporary difference will
not reverse in the foreseeable future.
A deferred tax asset is recognised for the carryforward of
unused tax losses to the extent that it is probable that future
taxable profit will be available against which the unused tax
losses can be utilized. The carrying amount of deferred tax
assets is reviewed at each balance sheet date and reduced to the
extent that it is no longer probable that sufficient taxable
profits will be available to allow all or part of the asset to
be recovered. In view of the Companys history of losses,
no net deferred tax assets have been recognized.
Deferred tax is calculated at the tax rates that are expected to
apply in the period when the liability is settled or the asset
is realised. Deferred tax is charged or credited in the income
statement, except when it relates to items charged or credited
directly to equity, in which case the deferred tax is also dealt
with in equity.
IV-60
TELENET
GROUP HOLDING NV
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Employee
Benefits
Pension
Obligations
The Company provides both defined benefit and defined
contribution plans to its employees, directors and certain
members of management. The defined benefit pension plans pay
benefits to employees at retirement using formulas based upon
years of service and compensation rates near retirement. The
schemes are generally funded by payments from the participants
and the Company to insurance companies as determined by periodic
actuarial calculations.
For defined benefit retirement benefit schemes, the cost of
providing benefits is determined using the Projected Unit Credit
Method, with actuarial valuations being carried out at each
balance sheet date. The corridor approach is applied to
actuarial gains and losses. Such gains and losses are the result
of changes in actuarial assumptions on retirement and similar
commitments. Accordingly, all gains and losses exceeding 10% of
the greater of the present value of the defined benefit
obligation and the fair value of any plan assets are recognized
over the expected average remaining working life of the
employees participating in the plan. Past service cost is
recognised immediately to the extent that the benefits are
already vested, and otherwise is amortised on a straight-line
basis over the average period until the benefits become vested.
The retirement benefit obligation recognized in the balance
sheet represents the present value of the defined benefit
obligation as adjusted for unrecognized past service cost, and
as reduced by the fair value of plan assets. Payments to defined
contribution retirement benefit schemes are charged as an
expense as they fall due. Payments made to state-managed
retirement benefit schemes are dealt with as payments to defined
contribution schemes where the Companys obligations under
the schemes are equivalent to those arising in a defined
contribution retirement benefit scheme.
Other
Employee Benefit Obligations
Some entities provide long term service awards, health care
premiums, early retirement plans and death benefits, among
others, to their employees
and/or
retirees. The entitlement to these benefits is usually
conditional on the employee remaining in service up to
retirement age and the completion of a minimum service period.
The expected costs of these benefits are accrued over the period
of employment using an accounting methodology similar to that
for defined benefit pension plans. Actuarial gains and losses
arising from experience adjustments, and changes in actuarial
assumptions, are charged or credited to income over the expected
average remaining working lives of the related employees.
Share-based
Payments
The Company issues equity-settled share-based payments to
certain employees which are measured at fair value at the date
of grant. The fair value is determined at the grant date using
the Black-Scholes pricing model and is expensed on a
straight-line basis over the vesting period, based on the
Companys estimate of shares that will eventually vest. The
model has been adjusted, based on managements best
estimate, for the effects of non-transferability, exercise
restrictions, and behavioural considerations.
At each balance sheet date, the Company revises its estimates of
the number of options that are expected to become exercisable.
It recognises the cumulative impact of the revision of original
estimates, if any, in the income statement, and a corresponding
adjustment to equity. The proceeds received net of any directly
attributable transaction costs are credited to share capital
(nominal value) and share premium when the options are exercised.
IV-61
TELENET
GROUP HOLDING NV
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
New
standards, interpretations and amendments
Certain new standards, amendments and interpretations to
existing standards have been published that are mandatory for
the Companys accounting periods beginning on or after
January 1, 2006 and are categorized below as either
implemented, not yet effective or not relevant to the
Companys operations.
IAS 19 (Amendment), Employee Benefits introduces the
option of an alternative recognition approach for actuarial
gains and losses. It may impose additional recognition
requirements for multi-employer plans where insufficient
information is available to apply defined benefit accounting. It
also adds new disclosure requirements. As the Company does not
intend to change the accounting policy adopted for recognition
of actuarial gains and losses and does not participate in any
multi-employer plans, adoption of this amendment will only
impact the format and extent of disclosures presented in the
accounts. The Company applies this amendment from annual periods
beginning January 1, 2006.
The following interpretations to existing standards have been
published that are mandatory for the Companys accounting
periods beginning on or after 1 May 2006 or later periods
but that the Company has not early adopted:
|
|
|
|
|
IFRS 7, Financial Instruments: Disclosures, and a
complementary amendment to IAS 1, Presentation of Financial
Statements Capital Disclosures (effective from
January 1, 2007). IFRS 7 introduces new disclosures to
improve the information about financial instruments. It requires
the disclosure of qualitative and quantitative information about
exposure to risks arising from financial instruments, including
specified minimum disclosures about credit risk, liquidity risk
and market risk, including sensitivity analysis to market risk.
The amendment to IAS 1 introduces disclosures about the level of
an entitys capital and how it manages capital. The Company
has not yet completed its assessment of the impact of IFRS 7 and
the amendment to IAS 1 to the level of disclosures currently
provided. The Company will apply IFRS 7 and the amendment to IAS
1 from annual periods beginning January 1, 2007;
|
|
|
|
IFRIC 10, Interim Financial Reporting and Impairment
(effective for annual periods beginning on or after
November 1, 2006). IFRIC 10 prohibits the impairment losses
recognised in an interim period on goodwill, investments in
equity instruments and investments in financial assets carried
at cost to be reversed at a subsequent balance sheet date. The
Company will apply IFRIC 10 from 1 January 2007, but it is
not expected to have any impact on the Companys accounts.
|
The following standards, amendments and interpretations are
mandatory for accounting periods beginning on or after
January 1, 2006 but are not relevant to the Companys
operations:
|
|
|
|
|
IAS 21 (Amendment), Net Investment in a Foreign Operation;
|
|
|
|
IAS 39 (Amendment), Cash Flow Hedge Accounting of Forecast
Intragroup Transactions;
|
|
|
|
IAS 39 (Amendment), The Fair Value Option;
|
|
|
|
IAS 39 and IFRS 4 (Amendment), Financial Guarantee
Contracts;
|
|
|
|
IFRS 1 (Amendment), First-time Adoption of International
Financial Reporting Standards and IFRS 6 (Amendment),
Exploration for and Evaluation of Mineral Resources;
|
|
|
|
IFRS 6, Exploration for and Evaluation of Mineral
Resources;
|
|
|
|
IFRIC 4, Determining whether an Arrangement contains a
Lease;
|
|
|
|
IFRIC 5, Rights to Interests arising from Decommissioning,
Restoration and Environmental Rehabilitation Funds;
|
|
|
|
IFRIC 6, Liabilities arising from Participating in a Specific
Market Waste Electrical and Electronic Equipment;
|
IV-62
TELENET
GROUP HOLDING NV
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
IFRIC 7, Applying the Restatement Approach under IAS 29,
Financial Reporting in Hyperinflationary Economies;
|
|
|
|
IFRIC 8, Scope of IFRS 2; and
|
|
|
|
IFRIC 9, Reassessment of Embedded Derivatives.
|
|
|
3.
|
CRITICAL
ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION
UNCERTAINTY
|
Critical
judgements in applying the Companys accounting
policies
Goodwill
The Company performed its annual review for impairment during
the third quarter of 2006 and 2005. Goodwill was allocated to
one reporting unit. The key assumptions for the value in use
calculations used to determine the recoverable amount are those
regarding the discount rates and expected changes to selling
prices/product offerings and direct costs during the period.
Changes in selling practices and direct costs are based on past
practices and expectations of future changes in the market. The
calculation uses cash flow projections based on financial
budgets approved by management, and a discount rate of
9.0 per cent based on current market assessments of the
time value of money and the risks specific to the Company. Cash
flows beyond the five-year period have been extrapolated using a
steady 2 per cent growth rate. This growth rate does not
exceed the long-term average growth rate for the industry.
Management believes that any reasonably possible changes in the
key assumptions on which the recoverable amount is based would
not cause the carrying amount to exceed its recoverable amount.
Key
sources of estimation uncertainty
Deferred
Income Taxes
As of December 31, 2006, Telenet Group Holding and its
subsidiaries had available combined cumulative tax loss
carry-forwards of 698,877 (2005: 672,617). Under
current Belgian tax laws, these loss carry-forwards have an
indefinite life and may be used to offset the future taxable
income of Telenet Group Holding and its subsidiaries. Two
subsidiaries acquired in a previous business combination made
taxable profits of 85,366 (2005: 37,135) during the
year and utilized tax loss carryforwards which had not been
previously recognized as deferred tax assets resulting in a
deferred tax expense of 34,292 (2005: 14,917).
A deferred tax asset is recognised for the carryforward of
unused tax losses to the extent that it is probable that future
taxable profit will be available against which the unused tax
losses can be utilized. The carrying amount of deferred tax
assets is reviewed at each balance sheet date and reduced to the
extent that it is no longer probable that sufficient taxable
profits will be available to allow all or part of the asset to
be recovered. In view of the Companys history of losses,
no net deferred tax assets have been recognized.
IV-63
TELENET
GROUP HOLDING NV
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
4.
|
PROPERTY
AND EQUIPMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land, Buildings
|
|
|
|
|
|
|
|
|
Furniture,
|
|
|
|
|
|
|
and Leasehold
|
|
|
|
|
|
Construction in
|
|
|
Equipment
|
|
|
|
|
|
|
Improvements
|
|
|
Network
|
|
|
Progress
|
|
|
and Vehicles
|
|
|
Total
|
|
|
Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At January 1, 2005
|
|
|
38,242
|
|
|
|
1,325,072
|
|
|
|
32,238
|
|
|
|
26,117
|
|
|
|
1,421,669
|
|
Additions
|
|
|
5,547
|
|
|
|
|
|
|
|
119,789
|
|
|
|
17,196
|
|
|
|
142,532
|
|
Transfers
|
|
|
2,677
|
|
|
|
126,679
|
|
|
|
(129,356
|
)
|
|
|
|
|
|
|
|
|
Disposals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,145
|
)
|
|
|
(2,145
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2005
|
|
|
46,466
|
|
|
|
1,451,751
|
|
|
|
22,671
|
|
|
|
41,168
|
|
|
|
1,562,056
|
|
Acquisition of subsidiaries
|
|
|
534
|
|
|
|
15,388
|
|
|
|
371
|
|
|
|
129
|
|
|
|
16,422
|
|
Additions
|
|
|
5,805
|
|
|
|
11,323
|
|
|
|
170,071
|
|
|
|
1,327
|
|
|
|
188,526
|
|
Transfers
|
|
|
2,095
|
|
|
|
147,662
|
|
|
|
(147,694
|
)
|
|
|
(2,063
|
)
|
|
|
|
|
Impairment
|
|
|
|
|
|
|
(10,825
|
)
|
|
|
|
|
|
|
|
|
|
|
(10,825
|
)
|
Disposals
|
|
|
|
|
|
|
(5,871
|
)
|
|
|
|
|
|
|
(1,711
|
)
|
|
|
(7,582
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2006
|
|
|
54,900
|
|
|
|
1,609,428
|
|
|
|
45,419
|
|
|
|
38,850
|
|
|
|
1,748,597
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At January 1, 2005
|
|
|
3,835
|
|
|
|
442,701
|
|
|
|
|
|
|
|
14,357
|
|
|
|
460,893
|
|
Depreciation charge for the year
|
|
|
2,020
|
|
|
|
149,986
|
|
|
|
|
|
|
|
7,077
|
|
|
|
159,083
|
|
Eliminated on Disposal
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,839
|
)
|
|
|
(1,839
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2005
|
|
|
5,855
|
|
|
|
592,687
|
|
|
|
|
|
|
|
19,595
|
|
|
|
618,137
|
|
Depreciation charge for the year
|
|
|
1,659
|
|
|
|
155,447
|
|
|
|
|
|
|
|
6,375
|
|
|
|
163,481
|
|
Transfers
|
|
|
|
|
|
|
432
|
|
|
|
|
|
|
|
(432
|
)
|
|
|
|
|
Eliminated on Disposal
|
|
|
|
|
|
|
(4,755
|
)
|
|
|
|
|
|
|
(1,645
|
)
|
|
|
(6,400
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2006
|
|
|
7,514
|
|
|
|
743,811
|
|
|
|
|
|
|
|
23,893
|
|
|
|
775,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2006
|
|
|
47,386
|
|
|
|
865,617
|
|
|
|
45,419
|
|
|
|
14,957
|
|
|
|
973,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2005
|
|
|
40,611
|
|
|
|
859,064
|
|
|
|
22,671
|
|
|
|
21,573
|
|
|
|
943,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Amount of Finance Leases included in Property and
Equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2006
|
|
|
17,562
|
|
|
|
5,384
|
|
|
|
|
|
|
|
361
|
|
|
|
23,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2005
|
|
|
18,256
|
|
|
|
5,790
|
|
|
|
|
|
|
|
468
|
|
|
|
24,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
An impairment of 8,874 was recorded during 2006 for
non-recoverable items of equipment.
IV-64
TELENET
GROUP HOLDING NV
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A reconciliation of the changes in goodwill is depicted below:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
|
|
2006
|
|
2005
|
|
Beginning balance
|
|
|
1,012,544
|
|
|
|
1,027,461
|
|
Use of net operating losses acquired in business combinations
(Note 13)
|
|
|
(34,292
|
)
|
|
|
(14,917
|
)
|
Acquisition of subsidiary (Note 22)
|
|
|
174,975
|
|
|
|
|
|
Derecognized on disposal of a subsidiary (Note 22)
|
|
|
(4,482
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,148,745
|
|
|
|
1,012,544
|
|
|
|
|
|
|
|
|
|
|
|
|
6.
|
OTHER
INTANGIBLE ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Network
|
|
|
|
|
|
Customer
|
|
|
|
|
|
|
User Rights
|
|
Trade Name
|
|
Software
|
|
Lists
|
|
Other
|
|
Total
|
|
Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At January 1, 2005
|
|
|
136,856
|
|
|
|
121,000
|
|
|
|
70,720
|
|
|
|
67,991
|
|
|
|
27,756
|
|
|
|
424,323
|
|
Additions
|
|
|
1,311
|
|
|
|
|
|
|
|
34,632
|
|
|
|
|
|
|
|
8,859
|
|
|
|
44,802
|
|
Disposals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,962
|
)
|
|
|
(23,962
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2005
|
|
|
138,167
|
|
|
|
121,000
|
|
|
|
105,352
|
|
|
|
67,991
|
|
|
|
12,653
|
|
|
|
445,163
|
|
Acquisition of subsidiary
|
|
|
|
|
|
|
|
|
|
|
321
|
|
|
|
16,741
|
|
|
|
|
|
|
|
17,062
|
|
Additions
|
|
|
2,388
|
|
|
|
|
|
|
|
20,590
|
|
|
|
|
|
|
|
11,023
|
|
|
|
34,001
|
|
Disposals
|
|
|
|
|
|
|
|
|
|
|
36
|
|
|
|
|
|
|
|
(6,657
|
)
|
|
|
(6,621
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supply contracts
|
|
|
140,555
|
|
|
|
121,000
|
|
|
|
126,299
|
|
|
|
84,732
|
|
|
|
17,019
|
|
|
|
489,605
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At January 1, 2005
|
|
|
28,685
|
|
|
|
30,250
|
|
|
|
48,589
|
|
|
|
16,498
|
|
|
|
19,525
|
|
|
|
143,547
|
|
Charge for the year
|
|
|
10,343
|
|
|
|
8,067
|
|
|
|
13,720
|
|
|
|
6,532
|
|
|
|
8,569
|
|
|
|
47,231
|
|
Disposals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,962
|
)
|
|
|
(23,962
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2005
|
|
|
39,028
|
|
|
|
38,317
|
|
|
|
62,309
|
|
|
|
23,030
|
|
|
|
4,132
|
|
|
|
166,816
|
|
Charge for the year
|
|
|
10,757
|
|
|
|
8,066
|
|
|
|
17,339
|
|
|
|
6,531
|
|
|
|
5,922
|
|
|
|
48,615
|
|
Disposals
|
|
|
|
|
|
|
|
|
|
|
37
|
|
|
|
|
|
|
|
(4,676
|
)
|
|
|
(4,639
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2006
|
|
|
49,785
|
|
|
|
46,383
|
|
|
|
79,685
|
|
|
|
29,561
|
|
|
|
5,378
|
|
|
|
210,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2006
|
|
|
90,770
|
|
|
|
74,617
|
|
|
|
46,614
|
|
|
|
55,171
|
|
|
|
11,641
|
|
|
|
278,813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2005
|
|
|
99,139
|
|
|
|
82,683
|
|
|
|
43,043
|
|
|
|
44,961
|
|
|
|
8,521
|
|
|
|
278,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys intangible assets other than goodwill each
have a finite life and are comprised primarily of network user
rights, trade name, software development and acquisition costs,
customer lists, broadcasting rights and contracts with
suppliers. These intangible assets are amortized on a
straight-line basis over their estimated useful lives. The
Company evaluates the estimated useful lives of its finite
intangible assets each reporting period to determine whether
events or circumstances warrant revised estimates of useful
lives.
IV-65
TELENET
GROUP HOLDING NV
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
|
|
2006
|
|
2005
|
|
Trade receivables
|
|
|
123,568
|
|
|
|
117,771
|
|
Less: provision for impairment of receivables
|
|
|
(17,979
|
)
|
|
|
(19,094
|
)
|
|
|
|
|
|
|
|
|
|
Trade receivables, net
|
|
|
105,589
|
|
|
|
98,677
|
|
|
|
|
|
|
|
|
|
|
The Company recognised a loss of 4,414 and 4,520 for
the impairment of its trade receivables during the years ended
December 31, 2006 and 2005, respectively. The loss has been
included in cost of services provided in the income statement.
There is no concentration of credit risk with respect to trade
receivables, as the Company has a large number of customers.
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
|
|
2006
|
|
2005
|
|
Prepaid taxes and VAT
|
|
|
693
|
|
|
|
1,190
|
|
Inventory
|
|
|
12,200
|
|
|
|
8,212
|
|
Receivable from Electrabel
|
|
|
|
|
|
|
7,965
|
|
Miscellaneous receivable
|
|
|
3,133
|
|
|
|
3,705
|
|
Prepaid content
|
|
|
3,187
|
|
|
|
2,270
|
|
Prepayments
|
|
|
3,038
|
|
|
|
3,111
|
|
Receivable on disposal of Phone Plus
|
|
|
1,175
|
|
|
|
|
|
Other
|
|
|
973
|
|
|
|
215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,399
|
|
|
|
26,668
|
|
|
|
|
|
|
|
|
|
|
|
|
9.
|
CASH AND
CASH EQUIVALENTS
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
|
|
2006
|
|
2005
|
|
Cash at bank and on hand
|
|
|
37,875
|
|
|
|
11,422
|
|
Commercial paper
|
|
|
9,969
|
|
|
|
159,664
|
|
Certificates of deposits
|
|
|
11,000
|
|
|
|
39,273
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents
|
|
|
58,844
|
|
|
|
210,359
|
|
|
|
|
|
|
|
|
|
|
The Company holds commercial paper with a weighted average
interest rate of 3.59% (2005 : 2.3%) and an average maturity of
31 days (2005 : 32 days). The certificates of deposits
have a weighted average interest rate of 3.58% (2005 : 2.3%) and
an average maturity of 4 days (2005 : 9 days).
Telenet Group Holding currently has the following shares
outstanding, all of which are treated as one class in the
earnings (loss) per share calculation:
|
|
|
|
|
101,085,455 ordinary Shares;
|
|
|
|
2,164,911 dispreference shares that are held by Interkabel and
the Liberty Global Consortium, which have the same rights as the
ordinary Shares except that they are subject to an 8.02
liquidation dispreference, such
|
IV-66
TELENET
GROUP HOLDING NV
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
that in any liquidation of Telenet Group Holding the
dispreference shares would only participate in the portion of
the proceeds of the liquidation that exceeded 8.02 per
Share. Dispreference shares may be converted into ordinary
Shares at a rate of 1.04 to 1; and
|
|
|
|
|
|
30 Golden Shares held by the mixed intercommunales, which have
the same rights as the ordinary Shares and which also give their
holders the right to appoint representatives to the Regulatory
Board, which oversees the public interest guarantees related to
our offering of digital television.
|
The share capital amounts as of December 31, 2006 were
1,656,645,249.91.
According to a transparency declaration filed with the Banking,
Finance and Insurance Commission (BFIC) and the Company on
November 13, 2006, Liberty Global Inc. acquired through its
affiliate Belgian Cable Investors 6,750,000 shares of
Telenet Group Holding through the exercise of its options (the
New Period Options) issued by the Mixed
Intermunicipalities shareholders. The options have been
exercised at a price of 20 per share.
Further to a new transparency declaration of November 20,
2006, Liberty Global, Inc. acquired through another affiliate,
LGI Venturs BV formerly known as Chellomedia Investments B.V.,
all shares held by the Evercore entities which are part of the
Liberty Global Consortium. Consequently, LGI holds as of
December 31, 2006 a total of 28,292,474 shares or
27.99% of the Telenet Group Holding share capital, representing
a majority of the Syndicate Shares. As a result thereof and
following the receipt of certain regulatory approvals in
February 2007, LGI has the right to exclusively nominate
candidates for the majority of the positions in the Board of
Directors of Telenet Group Holding.
Employee
Share Based Compensation
Class A
and Class B Options
In August 2004, the Company granted 1,500,000 Class A
Options to certain members of management to subscribe to
1,500,000 Class A Profit Certificates (Class A
Options). Except for 506,712 Class A Options that
vested immediately upon grant, the vesting period of the
Class A Options extends to a maximum to 40 months and
can be exercised through June 2009. The fair value of the
Class A Options was determined on the date of grant to be
8.46 using the Black-Scholes option-pricing model with the
following assumptions: annual Euro swap interest rate for each
respective expiration date, expected life of 4.9 years, and
a dividend yield of 0.0% and volatility of 24%
In December 2004, the Company offered 1,251,000 of the 1,350,000
authorized Class B Options to certain members of management
to subscribe to 1,251,000 Class B Profit Certificates
(Class B Options). Of the 1,251,000
Class B Options offered by the Company, 1,083,000 were
accepted in February 2005. The remaining 267,000 Class B
Options were cancelled on September 20, 2005. Except for
105,375 Class B Options that vested immediately upon grant,
the Class B Options vest over 4 years and can be
exercised through December 2009. The fair value of the
Class B Options was determined on the date of grant to be
5.12 using the Black-Scholes option-pricing model with the
following assumptions: annual Euro swap interest rate for each
respective expiration date, expected life of 4.9 years, and
a dividend yield of 0.0% and volatility of 20%
The Class A and the Class B Options must be exercised
in multiples of three, giving the right to acquire three
Class A Profit Certificates for 20 or three
Class B Profit Certificates for 25. The Class A
and Class B Profit Certificates are exchangeable into
shares of the Company on a one for one basis, subject to certain
conditions being met. Upon exercise, these profit certificates
give the holders the right to receive dividends equal to
dividends distributed, if any, to the holders of the
Companys shares.
In the case of an initial public offering or a change of
control, the vesting for half of the remaining non-vested
Class A Options would be brought forward to the date of the
offering or change in control. In contemplation of the IPO, the
Board of Directors decided at its September 2, 2005 meeting
to accelerate the vesting of 121,968 Class B Options,
contingent upon the closing of the IPO which occurred on
October 11, 2005. The terms and conditions of the
certificates as originally granted did not provide for such
accelerated vesting but allowed the Board of Directors
IV-67
TELENET
GROUP HOLDING NV
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the possibility of accelerating vesting subsequent to grant. As
a result of this modification, additional compensation expense
of 576 was incurred in October 2005 based on the increase
in the intrinsic value of the Class B Option at the date of
grant. The remaining non vested Class B Options will vest
over the remaining original vesting periods.
Upon change in control that resulted from the increase in
LGIs participation on November 13, 2006, the vesting
on all of the remaining unvested Class A options was
accelerated in accordance with the terms of the original
agreement. This resulted in an additional expense of 153
in November 2006.
The Class A and Class B options in the table below
were exercised versus payments of 5,059 and 524
during the years ended December 31, 2006 and 2005,
respectively. Upon exercise, the Class A and Class B
options were exchanged on a one-for-one basis for Class A
and Class B Profit Certificates and are accounted for as
increases in Other Reserves within Equity. These reserves are
transferred from Other Reserves to Share Capital when the Profit
Certificates are exchanged for shares of the Company and
resulted in a transfer of 4,363 between Other Reserves and
Share Capital within Equity in 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share Price at
|
|
|
Number of Options
|
|
|
|
Exercise Date
|
Class of Option
|
|
Exercised
|
|
Exercise Date
|
|
(in Euros)
|
|
Class B Options
|
|
|
62,877
|
|
|
|
12/12/05
|
|
|
|
16.60
|
|
Class A Options
|
|
|
285,000
|
|
|
|
05/12/06
|
|
|
|
18.20
|
|
Class B Options
|
|
|
232,692
|
|
|
|
05/12/06
|
|
|
|
18.20
|
|
Class B Options
|
|
|
68,533
|
|
|
|
10/02/06
|
|
|
|
19.10
|
|
Class A Options
|
|
|
30,000
|
|
|
|
12/22/06
|
|
|
|
21.69
|
|
Class B Options
|
|
|
53,844
|
|
|
|
12/22/06
|
|
|
|
21.69
|
|
All
Plans
A summary of the activity of the Companys stock options
for the years ended December 31, 2006 and 2005 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
Outstanding Options
|
|
|
Number of
|
|
Weighted Average
|
|
|
Options
|
|
Exercise Price
|
|
Balance, January 1, 2005
|
|
|
1,544,390
|
|
|
|
7.19
|
|
Class B Options granted
|
|
|
1,083,000
|
|
|
|
8.33
|
|
1998 Plan & 1999 Plan options exercised
|
|
|
(44,390
|
)
|
|
|
24.79
|
|
Class B Options exercised
|
|
|
(62,877
|
)
|
|
|
8.33
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2005
|
|
|
2,520,123
|
|
|
|
7.34
|
|
Class A Options exercised
|
|
|
(315,000
|
)
|
|
|
6.67
|
|
Class B Options exercised
|
|
|
(355,089
|
)
|
|
|
8.33
|
|
Class B Options lapsed
|
|
|
(1,140
|
)
|
|
|
8.33
|
|
Class B Options forfeited
|
|
|
(55,380
|
)
|
|
|
8.33
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2006
|
|
|
1,793,514
|
|
|
|
7.23
|
|
|
|
|
|
|
|
|
|
|
IV-68
TELENET
GROUP HOLDING NV
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes information about stock options
outstanding and exercisable as of December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
Average
|
|
|
Number of Options
|
|
Number of Options
|
|
Remaining
|
|
Exercise Price
|
|
|
Outstanding
|
|
Exercisable
|
|
Contractual Life
|
|
(in Euros)
|
|
Class A Options
|
|
|
1,185,000
|
|
|
|
1,185,000
|
|
|
|
30 months
|
|
|
|
6.67
|
|
Class B Options
|
|
|
608,534
|
|
|
|
159,989
|
|
|
|
36 months
|
|
|
|
8.33
|
|
Employee
Stock Purchase Plan
On October 16, 2006, Telenet launched an employee stock
purchase plan (ESPP). Under the terms of the ESPP, employees
were given until December 4, 2006 to purchase new shares of
Telenet Group Holding NV at a discount of 16.67% to the average
share price over the month of November 2006. Based on the
average share price of 20.54 for November 2006, the
discount under the ESPP was 3.43 per share. As the shares
were fully vested at the time of the transaction, the Company
recognized 1,028 as compensation expense in December 2006
for the 300,033 shares that were purchased.
Warrants
Subordinated
Debt Warrants
The Company has 3,426,000 subordinated debt warrants outstanding
(the Subordinated Debt Warrants) which are held by
the Liberty Global Consortium, the GIMV, the Financial
Consortium and the MICs. Each Subordinated Debt Warrant entitles
the holder thereof to three shares of Telenet Group Holding upon
payment of an exercise price of 40. Alternatively, holders
may opt for a cashless exercise of the Subordinated
Debt Warrants. In such a case, they will be entitled to acquire
a reduced number of shares of Telenet Group Holding, using the
value of their warrants (measured by the market value of the
shares of Telenet Group Holding at the time of exercise less the
exercise price of the warrants) to acquire shares of Telenet
Group Holding at their market value. The warrants can be
exercised at any time during the exercise period ending on
August 9, 2009.
Bank
Warrants
In conjunction with the Senior Credit Facility obtained in July
2002, the Company issued a total of 100,000 detachable warrants,
which vested immediately upon issuance. Until the expiration
date in August 2007, these warrants gave the holders the right
to purchase a number of the Companys ordinary shares for
0.01 per warrant. The number of shares would only be known
at the exercise date as it was ultimately based on the number of
outstanding shares at August 9, 2002 adjusted by various
factors, including additions for shares issued upon the exercise
of other warrants.
These warrants are no longer held by the lenders and all but
15,714 were cancelled. The remaining 15,714 warrants were
transferred as part of the settlement of the subordinated
shareholder debts that were repaid on December 22, 2003. On
August 24, 2005, the Companys Chief Executive Officer
exercised the 15,714 Bank Warrants acquired in 2004 at a price
of 0.01 per 21 shares, and, as a result, acquired
329,994 shares.
|
|
11.
|
DEBT AND
OTHER FINANCING
|
The debt balances specified below include accrued interest as of
December 31, 2006 and 2005.
IV-69
TELENET
GROUP HOLDING NV
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Senior Credit Facility:
|
|
|
|
|
|
|
|
|
Tranche A
|
|
|
|
|
|
|
219,013
|
|
Tranche B
|
|
|
|
|
|
|
11,127
|
|
Tranche D
|
|
|
|
|
|
|
333
|
|
Tranche E
|
|
|
|
|
|
|
405,196
|
|
New Senior Credit Facility:
|
|
|
|
|
|
|
|
|
Tranche A
|
|
|
600,154
|
|
|
|
|
|
Tranche B
|
|
|
100,139
|
|
|
|
|
|
Senior Notes
|
|
|
369,691
|
|
|
|
509,504
|
|
Senior Discount Notes(1)
|
|
|
221,239
|
|
|
|
220,954
|
|
Clientele Fee
|
|
|
45,860
|
|
|
|
42,379
|
|
Annuity Fee
|
|
|
51,057
|
|
|
|
53,822
|
|
Finance lease obligations
|
|
|
25,821
|
|
|
|
27,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,413,961
|
|
|
|
1,489,564
|
|
Less: deferred financing fees
|
|
|
(23,351
|
)
|
|
|
(44,650
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
1,390,610
|
|
|
|
1,444,914
|
|
Less: current portion
|
|
|
(59,767
|
)
|
|
|
(156,129
|
)
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
1,330,843
|
|
|
|
1,288,785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Accreted balance of the Senior Discount Notes, converted to
Euros on December 31, 2006 and 2005 at the accounting rate
of $1. 317 to 1.00 and $1.1797 to 1.00, respectively. |
Total debt is denominated in Euros with the exception of the
Senior Discount Note which is denominated in U.S. Dollars.
Fixed interest rates applied to 41.74% of the total financial
debt (2005: 48.5%). The weighted average interest rates at year
end was 9.94% on fixed interest rate loans (2005: 9.77%) and
4.90% on floating interest rate loans (2005: 4.83%).
Senior
Notes
On December 22, 2003, Telenet Communication issued Senior
Notes with a principal amount of 500,000, receiving net
proceeds of 482,310. Interest on the notes is payable
semi-annually at an annual rate of 9%. The notes do not have
required principal repayments prior to maturity on
December 15, 2013.
Telenet Communications initiated an offer for approximately
125,522 of principal and accrued interest of its Senior
Notes on November 30, 2005. Under the terms of the offer,
which closed in January 2006, Telenet Communications redeemed
124,773 of principal of the Senior Notes plus accrued
interest of 749, and paid a 9.0% redemption premium of
11,230, resulting in a total payment to holders of the
Senior Notes of 136,752. The redemption cost associated
with this exercise was recorded as an increase in finance cost
in the fourth quarter of 2005.
Senior
Discount Notes
On December 22, 2003, the Company issued Senior Discount
Notes at 57.298% of par value with a principal amount at
maturity of $558,000 (or 450,654 using the exchange rate
obtained upon the issuance of $1.2382 per 1.00), receiving
net proceeds of 242,527. Interest on the notes started
accreting from December 22, 2003 at an
IV-70
TELENET
GROUP HOLDING NV
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
annual rate of 11.5%, compounded semi-annually. Commencing on
June 15, 2009 until maturity on June 15, 2014,
interest is payable semi-annually at an annual rate of 11.5%.
There are no required principal repayments prior to maturity.
In connection with the issuance of the Senior Discount Notes,
the Company entered into a registration rights agreement
pursuant to which it undertook to either complete a registered
exchange offer (or, if required, cause a shelf registration
statement to become effective) with respect to the Senior
Discount Notes by June 30, 2005, or to pay in cash
liquidated damages at a rate equal to 1% per annum of the
accreted value of the Senior Discount Notes until
December 31, 2005. The accreted value of the Senior
Discount notes as of June 30, 2005 was $379 million.
Because the Company has not completed a registered exchange
offer (or caused a shelf registration statement to become
effective) with respect to the Senior Discount Notes as of
June 30, 2005, it paid liquidated damages of $1,150 (or
973) to holders of the Senior Discount Notes on
December 15, 2005.
On October 17, 2005, Telenet Group Holding initiated an
offer for up to 35% of the accreted value of its Senior Discount
Notes, as calculated under the terms of the indenture governing
such Notes, including an adjustment for amounts redeemed under
the Change of Control Offer for the Senior Discount Notes,
described below, such that not less than 65% of the Senior
Discount Notes remains outstanding. Under the terms of the
offer, which closed on November 23, 2005, Telenet Group
Holding redeemed Senior Discount Notes with an accreted value of
$136,171 (115,233), representing 34.6% of $393,743
(465,286), the total accreted value of the Senior Discount
Notes as of such date, and paid an 11.5% redemption premium of
$15,660 (13,341). In addition, Telenet Group Holding paid
$552 (467) in accrued liquidated damages with respect to
the redeemed Senior Discount Notes. The redemption cost
associated with this exercise was recorded as an increase in
finance cost in the fourth quarter of 2005.
Change
of Control Offers for the Telenet Group Holding Senior Discount
Notes and Telenet Communications Senior Notes
Certain of the Companys shareholders entered into an
agreement on October 14, 2005 which, among other matters,
amended certain governance terms. The Company concluded that
these changes resulted in a Change of Control within the
definitions of the relevant indentures. Therefore, on
October 17, 2005, Telenet Group Holding and Telenet
Communications initiated change of control offers for the full
accreted value and outstanding principal amount of Senior
Discount Notes and Senior Notes, respectively (the Change
of Control Offers). As per the terms of the indentures
governing the Senior Discount Notes and Senior Notes, the Change
of Control Offers were made at 101% of accreted value and
outstanding principal amount, respectively. The Change of
Control Offers expired on November 18, 2005 at which time
$2,523 of face value at redemption of the Senior Discount Notes
and 6,825 of the Senior Notes were tendered for redemption
and settled during November 2005 together with accreted or
accrued interest, as appropriate, the 1% redemption premium and
the accrued liquidated damages in respect of the Senior Discount
Notes. Pursuant to the Change of Control Offers, the total cost
of the Senior Discount Notes purchased was $2,559 and the total
cost of the Senior Notes purchased was 7,165.
New
Senior Credit Facility
On May 10, 2006, Telenet Bidco, Telenet NV and Telenet
Vlaanderen (as Borrowers and Guarantors), entered into a new
senior credit facility (the New Senior Credit
Facility), which provided significantly improved terms
compared to Telenets previous Senior Credit Facility. The
New Senior Credit Facility was closed on May 12, 2006 and
has a final maturity date of March 31, 2011. In connection
with the closing of the New Senior Credit Facility, the Company
prepaid a net 35,000 of outstanding senior debt using
excess cash on its balance sheet.
The major terms and conditions of the various tranches of the
New Senior Credit Facility were as follows:
|
|
|
|
|
Tranche A provides a 600,000 amortising loan facility
which was drawn in full upon closing. It is repayable in
quarterly instalments commencing on March 31, 2007 and
calls for a final repayment of 370,000 on March 31,
2011.
|
IV-71
TELENET
GROUP HOLDING NV
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
Tranche B is a 200,000 revolving credit facility of
which the undrawn availability was 100,000 as of
December 31, 2006.
|
|
|
|
Tranche C is an uncommitted facility of up to 200,000
or, if utilised for the acquisition of certain Belgian cable
assets, up to 350,000.
|
Interest is currently payable on Tranches A and B of the New
Senior Credit Facility at a margin of 0.90% over EURIBOR, and
can vary from 0.70% to 1.25% subject to an interest margin
ratchet mechanism based on the ratio of Net Cash Pay Debt to
Consolidated EBITDA. A commitment fee is payable quarterly in
arrears on undrawn amounts of the Tranche B Loan at the
rate of 40% of the applicable margin of the Tranche B Loan.
The financial covenants, which are tested on a quarterly basis,
measure performance against, among others, standards for
leverage, debt service coverage, and earnings before interest,
taxes, depreciation, and amortization (EBITDA).
Senior
Credit Facility
Until replaced by the New Senior Credit Facility in May 2006
(the Refinancing), the Company had a senior secured
facility that provided up to 835,000 in committed
financing from a syndicate of lenders and in various tranches
and a further 150,000 in uncommitted senior secured
facilities (the Senior Credit Facility). Since the
date that the Senior Credit Facility was originally signed in
July 2002, the Company amended the terms and structure and made
partial prepayments of the Senior Credit Facility in line with
its requirements and its evolving credit profile.
At the time the Refinancing, the major terms and conditions of
the various committed tranches of the Senior Credit Facility
were as follows:
|
|
|
|
|
Tranche A was an amortizing term loan and guarantee
facility expiring in 2009 for an amount of up to 218,880.
Amounts under the facility incurred interest at Euribor plus a
margin of 3%.
|
|
|
|
Tranche B was an amortizing revolving credit facility,
expiring in 2009, of up to 11,121. Amounts under the
facility incurred interest at Euribor plus a margin of up to 3%.
|
|
|
|
Tranche C2 was a nonamortizing term loan with a principal
amount of 150,000 which matured in 2010. Amounts under the
Tranche C2 facility incurred interest at Euribor plus a
margin of up to 3.75%. The outstanding principal under this
facility was fully repaid on March 31, 2005.
|
|
|
|
Tranche D was a revolving credit facility, expiring in
2009, of 200,000. Amounts under the facility incurred
interest at Euribor plus a margin of up to 3.50%.
|
|
|
|
Tranche E was a
non-amortizing
term loan, expiring in 2011, of 405,000. Amounts under the
facility incurred interest at Euribor plus a margin of 2.50%.
|
Clientele
and Annuity Agreements
In 1996, the Company entered into a Clientele Agreement and an
Annuity Agreement with the Pure Intercommunale Companies
(PICs), through Interkabel Vlaanderen CVBA
(Interkabel), which is a related party of the
Company.
The clientele fee payable under the Clientele Agreement is
payable by the Company in return for access to the cable network
customer database owned and controlled by the PICs. The
clientele fee is payable as long as the Company maintains its
usage rights to the cable network, and is adjusted periodically
depending on the level of inflation. Such payments allow the
PICs to recover part of their historical investment to upgrade
the original cable network to allow for two-way communication
(the HFC Upgrade). Considering this, the present
value of the clientele fee payments over the first 20 years
(being the life of the longest lived assets that are part of the
HFC Upgrade) has been accounted for as network user rights under
intangible assets, and is amortized over 10 or 20 years
depending on the useful life of the underlying assets that make
up the HFC Upgrade.
IV-72
TELENET
GROUP HOLDING NV
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In accordance with the terms of the Annuity Agreement, the PICs
charge an annuity fee, which in substance covers the remaining
60% of the cost of the HFC Upgrade incurred by the PICs, to the
Company. Payments under the Annuity Agreement are due over a
period of 10 or 20 years, depending on the useful life of
the underlying assets that make up the HFC Upgrade incurred by
the PICs. The present value of the future payments under the
Annuity Agreement has been capitalized as network user rights
under intangible assets, and is amortized over 10 or
20 years depending on the useful life of the underlying
assets that make up the HFC Upgrade.
Finance
Lease Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present Value of
|
|
|
|
Minimum Lease Payments
|
|
|
Minimum Lease Payments
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
Within one year
|
|
|
2,748
|
|
|
|
2,159
|
|
|
|
1,525
|
|
|
|
1,184
|
|
In the second to fifth years, inclusive
|
|
|
12,989
|
|
|
|
11,509
|
|
|
|
9,300
|
|
|
|
8,223
|
|
Thereafter
|
|
|
19,074
|
|
|
|
22,091
|
|
|
|
14,430
|
|
|
|
17,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
|
34,811
|
|
|
|
35,758
|
|
|
|
25,255
|
|
|
|
26,497
|
|
Less: future finance charges
|
|
|
(9,556
|
)
|
|
|
(9,261
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value of lease obligations
|
|
|
25,255
|
|
|
|
26,497
|
|
|
|
25,255
|
|
|
|
26,497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: amount due for settlement within 12 months
|
|
|
|
|
|
|
|
|
|
|
(1,525
|
)
|
|
|
(1,184
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount due for settlement after 12 months
|
|
|
|
|
|
|
|
|
|
|
23,730
|
|
|
|
25,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company leases certain assets under finance leases including
buildings, head-ends and certain vehicles with average lease
terms of 20, 20 and 5 years, respectively. Leases of
head-ends include the equipment used to receive signals of
various devices, whether directly from the transmitter or from a
microwave relay system. These devices are used, among other
things, to transmit data and telephony and television signals.
For the year ended December 31, 2006, the average effective
borrowing rate was 4.69% (2005: 3.76%). Interest rates are fixed
at the contract date. All leases are on a fixed repayment basis
and no arrangements have been entered into for contingent rental
payments. The Companys obligations under finance leases
are secured by the lessors title to the leased assets.
On July 20, 2006, Telenet NV entered into an arrangement to
finance the construction of a new building for a maximum amount
of 30,000. At the end of the construction period the
company will start paying quarterly lease payments, based on
fixed capital repayments, in order to repay the total amount
financed plus applicable interest charges. The lease period will
last for 15 years starting at the end of the construction
period and the Company has a bargain purchase option at the end
of the lease. On November 17, 2006 the Company entered into
an agreement with the lessors pursuant to which the contractual
interest margin of 1.00% will be payable over a fixed rate of
3.89% for the term of the finance arrangement.
During the construction phase, the Company will pay interest on
amounts drawn under the finance arrangement based on
3-month
Euribor plus a 1.00% margin. As of December 31, 2006 the
total amount capitalized for construction in progress was
15,545 and an equivalent amount plus accrued interest is
presented as short-term borrowings pursuant to the terms of the
above mentioned finance agreement. At the end of the
construction period a sale and lease back will be accounted for
whereby the lease back is a finance lease.
IV-73
TELENET
GROUP HOLDING NV
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Repayment
Schedule
Aggregate future principal payments on the total borrowings
under all of the Companys debt agreements other than
finance leases are shown in the following table. The Senior
Discount Note is included at its fully accreted value.
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
On demand or within one year
|
|
|
52,628
|
|
|
|
12,342
|
|
In the second year
|
|
|
61,441
|
|
|
|
51,725
|
|
In the third year
|
|
|
72,298
|
|
|
|
52,166
|
|
In the fourth year
|
|
|
82,018
|
|
|
|
52,485
|
|
In the fifth year
|
|
|
480,241
|
|
|
|
52,199
|
|
After five years
|
|
|
740,901
|
|
|
|
1,307,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,489,527
|
|
|
|
1,528,409
|
|
Less: Interest to be accreted on the Senior Discount Note
|
|
|
(59,791
|
)
|
|
|
(85,628
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
1,429,736
|
|
|
|
1,442,782
|
|
|
|
|
|
|
|
|
|
|
Guarantees
and Covenants
Obligations under the Senior Notes, Senior Discount Notes and
the New Senior Credit Facility are guaranteed and
cross-guaranteed by certain subsidiaries of Telenet Group
Holding. The obligations are also secured by mortgages and by
pledges of certain equity interests, material contracts, and
other rights and claims held by certain of Telenet Group
Holdings subsidiaries including, on a consolidated basis,
property and equipment of 950,072, intangible assets of
278,813, trade receivables of 105,589 and other
current assets of 24,351.
As of December 31, 2006 and 2005, the Company was in
compliance with all of its financial covenants.
|
|
12.
|
DERIVATIVE
FINANCIAL INSTRUMENTS
|
The Company seeks to reduce its foreign currency exposure
through a policy of matching, to the extent possible, assets and
liabilities denominated in foreign currencies. In addition, the
Company uses certain derivative financial instruments in order
to manage its exposure to exchange rate and interest rate
fluctuations arising from its operations and funding. The
Company has identified certain foreign exchange forward
contracts, interest rate swaps, caps and collars as cash flow
hedges and has determined that it has no significant embedded
derivative instruments that are required to be bifurcated and
measured at fair value. The Company is also exposed to credit
risks.
Foreign
Currency Cash Flow Hedges
The Company continues to apply hedge accounting in relation to
its foreign exchange forwards that were purchased historically
to hedge the U.S. dollar foreign exchange risk related to
the U.S. dollar-denominated Senior Discount Notes.
The hedging instrument in this hedging relationship is the spot
value of the foreign exchange forwards, as defined by the
difference between the spot rate at inception and the closing
spot rate. The hedged risk is the variability in the
Euro-equivalent cash flows related to the fully accreted amount
of the Senior Discount Notes.
IV-74
TELENET
GROUP HOLDING NV
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As of December 31, 2006 and December 31, 2005
outstanding foreign exchange forward contracts that qualified as
cash flow hedges were as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Forward purchase contracts
|
|
|
|
|
|
|
|
|
Notional amount in U.S. dollars
|
|
|
362,700
|
|
|
|
362,700
|
|
Weighted average strike price (U.S. dollars per Euro)
|
|
|
1.1930
|
|
|
|
1.1930
|
|
Maturity
|
|
|
December 15, 2008
|
|
|
|
December 15, 2008
|
|
Foreign
Exchange Risk Related to Operations
The Company uses forward and option contracts in order to limit
its exposure to the U.S. dollar fluctuations against the
Euro for transactions that are part of daily operations. These
derivatives are economic hedges but have not been accounted for
as cash flow hedges.
Derivative financial instruments covering operational foreign
exchange risk exposure as of December 31, 2006 and
December 31, 2005 were as follows:
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
|
|
2006
|
|
2005
|
|
Option contracts
|
|
|
|
|
Notional amount in U.S. dollars
|
|
17,000
|
|
17,500
|
Weighted average strike price (U.S. dollars per Euro)
|
|
1.29
|
|
1.17
|
Maturity
|
|
From January to
June 2007
|
|
From January to
July 2006
|
Interest
Rate Risk
The Company has entered into interest rate swaps, caps and
collars designed to hedge the interest rate exposure associated
with various floating rate debts.
Interest rate swaps qualifying for cash flow hedge accounting
have been designated as hedging instruments in their entirety.
The time value of cap and collar contracts has been excluded
from the designation. Hedge effectiveness is determined using
the hypothetical derivative method. Cumulative changes in the
fair value of the hedging instrument are compared to cumulative
changes in the fair value of the hypothetical derivative.
When the Company determines that a derivative is not highly
effective as a hedging instrument, hedge accounting is
discontinued prospectively. Consequently, amounts accumulated in
other comprehensive income are transferred to earnings in the
same periods during which the hedged forecasted transaction
affects earnings. When hedge accounting is discontinued because
it is no longer expected that a forecasted transaction will
occur, the Company reclassifies amounts accumulated in the
hedging reserve to earnings immediately.
In conjunction with entering into the New Senior Credit
Facility, during the second quarter of 2006, the Company
discontinued cash flow hedge accounting for all outstanding
interest rate derivatives. Consequently, cumulative losses that
were previously recorded through hedging reserves were reversed
into profit or loss for an amount of 2,173.
During the second semester of 2006, the Company has defined
several new cash flow hedge relationships for a portion of its
interest rate derivatives.
IV-75
TELENET
GROUP HOLDING NV
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As of December 31, 2006 and December 31, 2005, the
outstanding contracts were as follows:
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
|
|
2006
|
|
2005
|
|
Interest rate swaps
|
|
|
|
|
Notional amount
|
|
171,163
|
|
180,762
|
Average pay interest rate
|
|
4.79%
|
|
4.78%
|
Average receive interest rate
|
|
2.9%
|
|
2.4%
|
Maturity
|
|
From 2008 to 2011
|
|
From 2008 to 2011
|
Caps
|
|
|
|
|
Notional amount
|
|
49,046
|
|
59,504
|
Average cap interest rate
|
|
4.4%
|
|
4.4%
|
Maturity
|
|
From 2009 to 2017
|
|
From 2009 to 2017
|
Collars
|
|
|
|
|
Notional amount
|
|
450,000
|
|
450,000
|
Average floor interest rate
|
|
2.5%
|
|
2.5%
|
Average cap interest rate
|
|
5.4%
|
|
5.4%
|
Maturity
|
|
From 2009 to 2011
|
|
From 2009 to 2011
|
Summary
The cumulative impact of the all of the derivative instruments
described above has been allocated between hedging reserves and
earnings as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedging
|
|
|
|
|
|
|
Fair Value
|
|
|
Reserves
|
|
|
Earnings
|
|
|
January 1, 2005
|
|
|
(81,134
|
)
|
|
|
(26,627
|
)
|
|
|
(54,507
|
)
|
Change in fair value of foreign exchange forward contracts
|
|
|
51,576
|
|
|
|
62,161
|
|
|
|
(15,540
|
)
|
Change in fair value of foreign exchange forward contracts
reclassified into earnings
|
|
|
|
|
|
|
(43,403
|
)
|
|
|
43,403
|
|
Change in fair value of foreign exchange option contracts
|
|
|
251
|
|
|
|
|
|
|
|
251
|
|
Change in fair value of interest rate derivatives qualifying for
hedge accounting
|
|
|
252
|
|
|
|
(70
|
)
|
|
|
322
|
|
Change in fair value of interest rate derivatives not qualifying
for hedge accounting
|
|
|
6,383
|
|
|
|
|
|
|
|
6,383
|
|
Amortization of the change in fair value of interest rate
derivatives frozen upon discontinuance of hedge accounting
|
|
|
|
|
|
|
9,017
|
|
|
|
(9,017
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005
|
|
|
(22,672
|
)
|
|
|
1,078
|
|
|
|
(28,705
|
)
|
IV-76
TELENET
GROUP HOLDING NV
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedging
|
|
|
|
|
|
|
Fair Value
|
|
|
Reserves
|
|
|
Earnings
|
|
|
December 31, 2005
|
|
|
(22,672
|
)
|
|
|
1,078
|
|
|
|
(28,705
|
)
|
Change in fair value of foreign exchange forward contracts
|
|
|
(20,586
|
)
|
|
|
(32,052
|
)
|
|
|
11,466
|
|
Change in fair value of foreign exchange forward contracts
reclassified into earnings
|
|
|
|
|
|
|
24,517
|
|
|
|
(24,517
|
)
|
Change in fair value of foreign exchange option contracts
|
|
|
(254
|
)
|
|
|
|
|
|
|
(254
|
)
|
Change in fair value of interest rate derivatives qualifying for
hedge accounting
|
|
|
2,429
|
|
|
|
685
|
|
|
|
1,744
|
|
Change in fair value of interest rate derivatives not qualifying
for hedge accounting
|
|
|
4,878
|
|
|
|
|
|
|
|
4,878
|
|
Amortization of the change in fair value of interest rate
derivatives frozen upon discontinuance of hedge accounting
|
|
|
|
|
|
|
98
|
|
|
|
(98
|
)
|
Immediate transfer of amounts accumulated in hedging reserve to
profit or loss due to discontinuance of hedge accounting
|
|
|
|
|
|
|
2,075
|
|
|
|
(2,075
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006
|
|
|
(36,205
|
)
|
|
|
(3,599
|
)
|
|
|
(37,561
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The difference between the cumulative change in fair value of
the derivative instruments and the cumulative amounts booked in
the hedging reserve and earnings amounts to 4,955. This
corresponds to the settlement of foreign exchange forward
contracts in 2005.
Credit
Risk
Credit risk relates to the risk of loss that the Company would
incur as a result of non-performance by counterparties. The
Company maintains credit risk policies with regard to its
counterparties to minimize overall credit risk. These policies
include an evaluation of a potential counterpartys
financial condition, credit rating, and other credit criteria
and risk mitigation tools as deemed appropriate.
The largest share of the gross assets subject to credit risk is
accounts receivable from residential and small commercial
customers located throughout Belgium. The risk of material loss
from nonperformance from these customers is not considered
likely. Reserves for uncollectible accounts receivable are
provided for the potential loss from nonpayment by these
customers based on historical experience.
With regards to credit risk on financial instruments, the
Company maintains a policy of entering into such transactions
only with highly rated European and U.S. financial
institutions.
IV-77
TELENET
GROUP HOLDING NV
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Fair
market value
The carrying amounts and related estimated fair values of the
Companys significant financial instruments were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006
|
|
|
December 31, 2005
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
Amount
|
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
|
Long-term debt (including short-term maturities)
|
|
|
(1,413,961
|
)
|
|
|
(1,477,765
|
)
|
|
|
(1,489,564
|
)
|
|
|
(1,576,295
|
)
|
Foreign exchange forward
|
|
|
(31,490
|
)
|
|
|
(31,490
|
)
|
|
|
(10,904
|
)
|
|
|
(10,904
|
)
|
Foreign exchange options
|
|
|
(227
|
)
|
|
|
(227
|
)
|
|
|
27
|
|
|
|
27
|
|
Interest rate swaps
|
|
|
(2,840
|
)
|
|
|
(2,840
|
)
|
|
|
(7,994
|
)
|
|
|
(7,994
|
)
|
Caps
|
|
|
(352
|
)
|
|
|
(352
|
)
|
|
|
(718
|
)
|
|
|
(718
|
)
|
Collars
|
|
|
(1,296
|
)
|
|
|
(1,296
|
)
|
|
|
(3,083
|
)
|
|
|
(3,083
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative instruments
|
|
|
(36,205
|
)
|
|
|
(36,205
|
)
|
|
|
(22,672
|
)
|
|
|
(22,672
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(1,450,166
|
)
|
|
|
(1,513,970
|
)
|
|
|
(1,512,236
|
)
|
|
|
(1,598,967
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair values of interest rate swaps and foreign exchange
forwards are calculated by the Company based on swap curves
flat, without extra credit spreads. Confirmations of the fair
values received from the contractual counterparties, which are
all commercial banks, are used to validate the internal
calculations. The fair value of derivative instruments
containing option-related features are determined by commercial
banks and validated by management.
The fair values of our long-term debt instruments are derived as
the lesser of either the call price of the relevant instrument
or the market value as determined by quoted market prices at
each measurement date, where available, or, where not available,
at the present value of future cash flows discounted at rates
consistent with comparable maturities with similar credit risk
to the appropriate measurement date.
The carrying amounts for financial assets classified as current
assets and the carrying amounts for financial liabilities
classified as current liabilities approximate fair value due to
the short maturity of such instruments. The fair values of other
financial instruments for which carrying amounts and fair values
have not been presented are not materially different than their
related carrying amounts.
Management has applied its judgment in using market data to
develop estimates of fair value. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts
that the Company would realize in a current market exchange.
IV-78
TELENET
GROUP HOLDING NV
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Telenet Group Holding and its consolidated subsidiaries each
file separate tax returns in accordance with Belgian tax laws.
For financial reporting purposes, Telenet Group Holding and its
subsidiaries calculate their respective tax assets and
liabilities on a separate-return basis. These assets and
liabilities are combined in the accompanying consolidated
financial statements.
The tax effects of significant temporary differences and tax
loss carry-forwards are presented below:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Deferred income tax assets
|
|
|
|
|
|
|
|
|
Financial instruments
|
|
|
5,700
|
|
|
|
12,251
|
|
Bad debt allowance
|
|
|
6,023
|
|
|
|
5,929
|
|
Tax loss carry-forwards
|
|
|
260,899
|
|
|
|
307,349
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
272,622
|
|
|
|
325,529
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax liabilities
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
|
7,327
|
|
|
|
3,399
|
|
Property and equipment
|
|
|
664
|
|
|
|
1,448
|
|
Other
|
|
|
330
|
|
|
|
420
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
8,321
|
|
|
|
5,267
|
|
|
|
|
|
|
|
|
|
|
Net deferred income tax assets
|
|
|
264,301
|
|
|
|
320,262
|
|
|
|
|
|
|
|
|
|
|
Net deferred income tax recognized in the balance sheet
|
|
|
6,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2006, Telenet Group Holding and its
subsidiaries had available combined cumulative tax loss
carry-forwards of 698,877 (2005: 672,617). Under
current Belgian tax laws, these loss carry-forwards have an
indefinite life and may be used to offset the future taxable
income of Telenet Group Holding and its subsidiaries. As Telenet
Group Holding and virtually all of its subsidiaries have never
realized any substantial taxable profits, no deferred taxes have
been recognized.
Two subsidiaries acquired in a previous business combination
made taxable profits of 85,366 (2005: 37,135) during
the year and utilized tax loss carryforwards which had not been
previously recognized as deferred tax assets. One of these two
subsidiaries was liquidated in 2006. The utilization of tax
losses carried forward from previous business combinations is
recorded as a reduction of goodwill using the historic tax rate
of 40.17% applicable at the time of the acquisition while the
deferred tax asset is established using the current tax rate of
33.99%. This results in a deferred tax expense of 34,292
(2005: 14,917). Available tax loss carry-forwards were
reduced by 381,689 during 2005 as a result of taxable
profits being recognized on permanent tax differences and
adjustments related to the mergers and disallowed expenses.
Taxable profit is reduced by a notional interest deduction which
can be carried forward for 7 years.
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Copyright fees
|
|
|
3,453
|
|
|
|
11,131
|
|
Employee benefit obligations
|
|
|
16,859
|
|
|
|
9,868
|
|
Other
|
|
|
9,396
|
|
|
|
2,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,708
|
|
|
|
23,755
|
|
|
|
|
|
|
|
|
|
|
IV-79
TELENET
GROUP HOLDING NV
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In 2004, the Company, together with other Belgian cable
operators, concluded negotiations with certain of the
broadcasters and copyright collection agencies in Belgium that
determined the copyright fees due by cable operators that
represented the significant majority of the claims previously
outstanding. The Company remains in litigation with smaller
copyright collection agencies and broadcasters and has reached
an agreement in principle on some of the outstanding terms. The
Company has accrued 18,260 (2005: 22,884) for
settlement of these estimated fees of which 14,807 (2005:
11,753) is considered to be short term and is recorded
under accrued expenses and other current liabilities.
|
|
15.
|
EMPLOYEE
BENEFIT PLANS
|
The majority of Telenets employees participate in defined
contribution plans funded through a group insurance or pension
fund. By law, those plans provide an average minimum guaranteed
rate of return over the employees career equal to 3.75% on
employee contributions and 3.25% on employer contributions paid
as from January 1, 2004 onwards. During 2006, an amount of
1,871 (2005: 1,430) was paid by the employer with
respect to those plans.
Since the actual rates of return obtained by the pension fund
have been significantly higher than the minimum guaranteed rates
of return, no provisions have been accounted for. The
accumulated plan assets in the pension fund amount to
15,503 at December 31, 2006 (2005: 11,759). The
Company has also recognized a liability of 2,973 at
December 31, 2006 (2005: 1,591) for long term service
awards
The funded defined benefit pension plans are financed through
insurance contracts which provide a guaranteed rate of return.
The plan assets do not include any shares issued by Telenet or
property occupied by Telenet.
The amounts recognized in the balance sheet are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit Plans
|
|
|
Postretirement Plans
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
Present value of funded obligations
|
|
|
7,080
|
|
|
|
4,719
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets
|
|
|
(6,185
|
)
|
|
|
(1,878
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
895
|
|
|
|
2,841
|
|
|
|
|
|
|
|
|
|
Present value of unfunded obligations
|
|
|
|
|
|
|
|
|
|
|
6,351
|
|
|
|
3,471
|
|
Unrecognized net actuarial loss
|
|
|
(1,680
|
)
|
|
|
(1,440
|
)
|
|
|
(1,856
|
)
|
|
|
(490
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (asset) liability in balance sheet
|
|
|
(785
|
)
|
|
|
1,401
|
|
|
|
4,495
|
|
|
|
2,981
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amounts recognized in the income statement are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit Plans
|
|
|
Postretirement Plans
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
Service cost
|
|
|
2,375
|
|
|
|
2,186
|
|
|
|
855
|
|
|
|
984
|
|
Interest cost
|
|
|
270
|
|
|
|
206
|
|
|
|
240
|
|
|
|
142
|
|
Expected return on plan assets
|
|
|
(163
|
)
|
|
|
(74
|
)
|
|
|
|
|
|
|
|
|
Losses/(gains) on curtailments
|
|
|
|
|
|
|
|
|
|
|
461
|
|
|
|
|
|
Actuarial losses recognized in the year
|
|
|
60
|
|
|
|
5
|
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,542
|
|
|
|
2,323
|
|
|
|
1,646
|
|
|
|
1,126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Of the charge for the year, 3,555 (2004: 2,825) is
included in costs of services provided in the income statement,
192 (2005: 350) is included in selling, general and
administrative and 441 (2005: 274) is included in
finance cost.
IV-80
TELENET
GROUP HOLDING NV
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Changes in the present value of the defined benefit obligation
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit Plans
|
|
|
Postretirement Plans
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
Opening defined benefit obligation
|
|
|
4,719
|
|
|
|
2,265
|
|
|
|
3,471
|
|
|
|
1,855
|
|
Service cost
|
|
|
2,375
|
|
|
|
2,186
|
|
|
|
855
|
|
|
|
984
|
|
Interest cost
|
|
|
270
|
|
|
|
206
|
|
|
|
240
|
|
|
|
142
|
|
Plan participants contributions
|
|
|
60
|
|
|
|
57
|
|
|
|
|
|
|
|
|
|
Losses/(gains) on curtailments
|
|
|
|
|
|
|
|
|
|
|
461
|
|
|
|
|
|
Actuarial loss (gain)
|
|
|
(317
|
)
|
|
|
326
|
|
|
|
1,456
|
|
|
|
490
|
|
Benefits paid
|
|
|
(27
|
)
|
|
|
(321
|
)
|
|
|
(132
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing defined benefit obligation
|
|
|
7,080
|
|
|
|
4,719
|
|
|
|
6,351
|
|
|
|
3,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in the fair value of plan assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit Plans
|
|
|
Postretirement Plans
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
Opening fair value of plan assets
|
|
|
1,878
|
|
|
|
1,462
|
|
|
|
|
|
|
|
|
|
Actual return on plan assets
|
|
|
163
|
|
|
|
74
|
|
|
|
|
|
|
|
|
|
Company contributions
|
|
|
4,727
|
|
|
|
1,625
|
|
|
|
132
|
|
|
|
|
|
Plan participants contributions
|
|
|
59
|
|
|
|
56
|
|
|
|
|
|
|
|
|
|
Actuarial (loss) gain
|
|
|
(615
|
)
|
|
|
(1,018
|
)
|
|
|
|
|
|
|
|
|
Benefits paid
|
|
|
(27
|
)
|
|
|
(321
|
)
|
|
|
(132
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing fair value of plan assets
|
|
|
6,185
|
|
|
|
1,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A 1% change in assumed medical cost increase would have the
following effects on:
|
|
|
|
|
|
|
|
|
|
|
1% increase
|
|
|
1% decrease
|
|
|
a) aggregate amount of service cost and interest cost
|
|
|
157
|
|
|
|
(123
|
)
|
b) defined benefit obligation
|
|
|
687
|
|
|
|
(577
|
)
|
The experience adjustments for the current and previous four
annual periods amount to :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
Defined benefit obligation
|
|
|
13,431
|
|
|
|
8,189
|
|
|
|
4,120
|
|
|
|
410
|
|
|
|
287
|
|
Fair value of plan assets
|
|
|
6,185
|
|
|
|
1,878
|
|
|
|
1,462
|
|
|
|
317
|
|
|
|
213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Surplus)/deficit
|
|
|
7,246
|
|
|
|
6,311
|
|
|
|
2,658
|
|
|
|
93
|
|
|
|
74
|
|
Experience adjustments on plan liabilities
|
|
|
1,634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Experience adjustments on plan assets
|
|
|
(615
|
)
|
|
|
(1,018
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
IV-81
TELENET
GROUP HOLDING NV
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The principal assumptions used for the purpose of the actuarial
valuations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit Plans
|
|
|
Postretirement Plans
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
Discount rate at December 31
|
|
|
4.30
|
%
|
|
|
4.00
|
%
|
|
|
4.300
|
%
|
|
|
4.00
|
%
|
Rate of compensation increase
|
|
|
3.09
|
%
|
|
|
3.11
|
%
|
|
|
|
|
|
|
|
|
Expected return on plan assets
|
|
|
4.00
|
%
|
|
|
4.83
|
%
|
|
|
|
|
|
|
|
|
Underlying inflation rate
|
|
|
2.00
|
%
|
|
|
2.00
|
%
|
|
|
2.00
|
%
|
|
|
2.00
|
%
|
Increase of medical benefits
|
|
|
|
|
|
|
|
|
|
|
3.00
|
%
|
|
|
3.00
|
%
|
|
|
16.
|
ACCRUED
EXPENSES AND OTHER CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Customer deposits
|
|
|
25,859
|
|
|
|
25,451
|
|
Compensation and employee benefits
|
|
|
32,828
|
|
|
|
30,574
|
|
Financial instruments
|
|
|
275
|
|
|
|
2,465
|
|
VAT and withholding taxes
|
|
|
4,244
|
|
|
|
1,616
|
|
Copyright fees
|
|
|
14,807
|
|
|
|
11,753
|
|
Other current liabilities
|
|
|
1,479
|
|
|
|
2,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79,492
|
|
|
|
74,129
|
|
|
|
|
|
|
|
|
|
|
The Companys revenue, for both continuing and discontinued
operations, are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Continuing operations
|
|
|
|
|
|
|
|
|
Cable television:
|
|
|
|
|
|
|
|
|
- Basic Subscribers(1)
|
|
|
199,433
|
|
|
|
198,557
|
|
- Premium Subscribers(1)
|
|
|
47,312
|
|
|
|
51,808
|
|
- Distributors/Other
|
|
|
36,788
|
|
|
|
17,211
|
|
Residential:
|
|
|
|
|
|
|
|
|
- Internet
|
|
|
268,588
|
|
|
|
231,097
|
|
- Telephony(2)
|
|
|
183,269
|
|
|
|
160,930
|
|
Business
|
|
|
78,062
|
|
|
|
73,914
|
|
|
|
|
|
|
|
|
|
|
Subtotal continuing operations
|
|
|
813,452
|
|
|
|
733,517
|
|
Discontinued Operations
|
|
|
|
|
|
|
|
|
Residential:
|
|
|
|
|
|
|
|
|
- Telephony(2)
|
|
|
7,509
|
|
|
|
9,364
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
820,961
|
|
|
|
742,881
|
|
|
|
|
|
|
|
|
|
|
Residential telephony revenue also includes interconnection fees
generated by business customers.
IV-82
TELENET
GROUP HOLDING NV
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company also has unearned revenue as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Cable television:
|
|
|
|
|
|
|
|
|
- Basic Subscribers(1)
|
|
|
113,982
|
|
|
|
107,861
|
|
- Premium Subscribers(1)
|
|
|
10,104
|
|
|
|
3,756
|
|
- Distributors/Other
|
|
|
207
|
|
|
|
777
|
|
Residential:
|
|
|
|
|
|
|
|
|
- Internet
|
|
|
10,539
|
|
|
|
8,079
|
|
- Telephony(2)
|
|
|
2,529
|
|
|
|
2,062
|
|
Business
|
|
|
643
|
|
|
|
1,878
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
138,004
|
|
|
|
124,413
|
|
|
|
|
|
|
|
|
|
|
Current portion
|
|
|
123,179
|
|
|
|
112,876
|
|
|
|
|
|
|
|
|
|
|
Long-term portion
|
|
|
14,825
|
|
|
|
11,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Basic and premium cable television substantially comprises
residential customers, but also includes a small proportion of
business customers. |
|
(2) |
|
Residential telephony revenue also includes interconnection fees
generated by business customers. |
Unearned revenue is generally fees prepaid by the customers and,
as discussed in Note 2, is recognized in the Income
Statement on a straight-line basis over the related service
period
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Employee benefits:
|
|
|
|
|
|
|
|
|
- Wages, salaries, commissions and social security costs
|
|
|
91,498
|
|
|
|
89,203
|
|
- Share-based payments granted to directors and employees
|
|
|
1,587
|
|
|
|
2,196
|
|
- Other employee benefit costs
|
|
|
21,246
|
|
|
|
18,854
|
|
|
|
|
|
|
|
|
|
|
Employee benefits
|
|
|
114,331
|
|
|
|
110,253
|
|
Depreciation and impairment
|
|
|
174,306
|
|
|
|
159,084
|
|
Amortization
|
|
|
43,118
|
|
|
|
39,087
|
|
Amortization of broadcasting rights
|
|
|
5,497
|
|
|
|
8,144
|
|
Network operating and service costs
|
|
|
247,130
|
|
|
|
213,137
|
|
Advertising, sales and marketing
|
|
|
57,117
|
|
|
|
49,401
|
|
Other costs
|
|
|
35,880
|
|
|
|
32,202
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
677,379
|
|
|
|
611,308
|
|
|
|
|
|
|
|
|
|
|
Attributable to:
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
669,718
|
|
|
|
602,338
|
|
Discontinued operations
|
|
|
7,661
|
|
|
|
8,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
677,379
|
|
|
|
611,308
|
|
|
|
|
|
|
|
|
|
|
IV-83
TELENET
GROUP HOLDING NV
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The average number of full time equivalents employed by the
Company during the year ended December 31, 2006 was 1,552
(2005: 1,503).
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Interest expense (including amortization of financing cost)
|
|
|
98,888
|
|
|
|
142,676
|
|
Interest income
|
|
|
(4,569
|
)
|
|
|
(3,420
|
)
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
94,319
|
|
|
|
139,256
|
|
Net foreign exchange transaction (gains)/losses on financing
transactions
|
|
|
(23,580
|
)
|
|
|
40,262
|
|
Change in fair value of foreign exchange forward contracts
reclassified into earnings (Note 12)
|
|
|
24,517
|
|
|
|
(43,403
|
)
|
Change in fair value of derivatives (Note 12)
|
|
|
(15,661
|
)
|
|
|
17,601
|
|
|
|
|
|
|
|
|
|
|
Net (Gains)/losses on derivative financial instruments
|
|
|
8,856
|
|
|
|
(25,802
|
)
|
Loss on extinguishment of debt
|
|
|
21,355
|
|
|
|
39,472
|
|
|
|
|
|
|
|
|
|
|
Finance costs, net
|
|
|
100,950
|
|
|
|
193,188
|
|
|
|
|
|
|
|
|
|
|
Attributable to:
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
100,963
|
|
|
|
193,208
|
|
Discontinued operations
|
|
|
(13
|
)
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
100,950
|
|
|
|
193,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Current tax expense
|
|
|
107
|
|
|
|
136
|
|
Deferred tax expense (Note 13)
|
|
|
34,292
|
|
|
|
14,917
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
34,399
|
|
|
|
15,053
|
|
|
|
|
|
|
|
|
|
|
Attributable to:
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
34,283
|
|
|
|
14,938
|
|
Discontinued operations
|
|
|
116
|
|
|
|
115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,399
|
|
|
|
15,053
|
|
|
|
|
|
|
|
|
|
|
IV-84
TELENET
GROUP HOLDING NV
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The tax on the Companys profit (loss) before tax differs
from the theoretical amount that would arise using the Belgian
statutory tax rate applicable to profits (losses) of the
consolidated companies as follows:
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Income (loss) before tax from continuing operations
|
|
|
42,771
|
|
|
|
(62,029
|
)
|
Income (loss) before tax from discontinued operations
|
|
|
(2,919
|
)
|
|
|
415
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before tax
|
|
|
39,852
|
|
|
|
(61,614
|
)
|
|
|
|
|
|
|
|
|
|
Income tax expense/(benefit) at the Belgian statutory rate of
33.99%
|
|
|
13,546
|
|
|
|
(20,943
|
)
|
Expenses not deductible for tax purposes
|
|
|
17,907
|
|
|
|
20,738
|
|
Recognition of previously unrecognized acquired tax losses
through goodwill at the historic Belgian statutory rate of 40.17%
|
|
|
34,292
|
|
|
|
14,917
|
|
Utilization of previously unrecognized tax losses
|
|
|
(34,950
|
)
|
|
|
(14,929
|
)
|
Tax losses for which no deferred income tax asset was recognised
|
|
|
3,604
|
|
|
|
15,270
|
|
|
|
|
|
|
|
|
|
|
Tax expense for the year
|
|
|
34,399
|
|
|
|
15,053
|
|
|
|
|
|
|
|
|
|
|
|
|
21.
|
EARNINGS
(LOSS) PER SHARE
|
Basic
The earnings and weighted average number of shares used in
calculating basic earnings (loss) per share are:
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Net Income (loss)
|
|
|
|
|
|
|
|
|
Net Income (loss) from continuing operations used in the
calculation of basic earnings per share from continuing
operations
|
|
|
8,488
|
|
|
|
(76,967
|
)
|
Net Income (loss) from discontinued operations used in the
calculation of basic earnings per share from discontinued
operations
|
|
|
(3,035
|
)
|
|
|
300
|
|
|
|
|
|
|
|
|
|
|
Net Income (loss) attributable to the equity holders of the
Company
|
|
|
5,453
|
|
|
|
(76,667
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares
|
|
|
|
|
|
|
|
|
Weighted average number of ordinary shares
|
|
|
100,365,003
|
|
|
|
89,503,387
|
|
Weighted average number of Class A Profit Certificates
|
|
|
120,536
|
|
|
|
|
|
Weighted average number of Class B Profit Certificates
|
|
|
140,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares used in the calculation of
basic earnings (loss) per share (all measures)
|
|
|
100,625,546
|
|
|
|
89,503,387
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings (loss) per share in
|
|
|
|
|
|
|
|
|
From continuing operations
|
|
|
0.08
|
|
|
|
(0.86
|
)
|
From discontinued operations
|
|
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total basic and diluted earnings (loss) per share
|
|
|
0.05
|
|
|
|
(0.86
|
)
|
|
|
|
|
|
|
|
|
|
IV-85
TELENET
GROUP HOLDING NV
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Diluted
Diluted earnings (loss) per share is calculated adjusting the
weighted average number of shares in issue to assume conversion
of all dilutive potential ordinary shares. During the year ended
December 31, 2005, the Company had six categories of
dilutive potential ordinary shares: Class A and
Class B Options, stock options under the 1999 and 1998
Plans, the Bank Warrants and the Subordinated Debt Warrants. Of
these, only the Class A and Class B Options and the
Subordinated Debt Warrants are still outstanding during the year
ended December 31, 2006 as the other instruments were
exercised during September 2005. The effects of the dilutive
potential ordinary shares were not included in the computation
of diluted loss per share for the year ended December 31,
2005 because they are anti-dilutive. The earnings used in the
calculation of all diluted earnings per share measures are the
same as those for the equivalent basic earnings per share
measures, as outlined above.
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Weighted average number of shares
|
|
|
|
|
|
|
|
|
Weighted average number of shares used in the calculation of
basic earnings (loss) per share
|
|
|
100,625,546
|
|
|
|
89,503,387
|
|
Adjustment for:
|
|
|
|
|
|
|
|
|
Class A Options
|
|
|
825,132
|
|
|
|
|
|
Class B Options
|
|
|
400,537
|
|
|
|
|
|
Subordinated Debt Warrants
|
|
|
2,602,510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares used in the calculation of
diluted earnings (loss) per share (all measures)
|
|
|
104,453,725
|
|
|
|
89,503,387
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings (loss) per share in
|
|
|
|
|
|
|
|
|
From continuing operations
|
|
|
0.08
|
|
|
|
(0.86
|
)
|
From discontinued operations
|
|
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total basic and diluted earnings (loss) per share
|
|
|
0.05
|
|
|
|
(0.86
|
)
|
|
|
|
|
|
|
|
|
|
|
|
22.
|
ACQUISITIONS
AND DISPOSALS OF SUBSIDIARIES
|
Acquisition
of Hypertrust
On February 2, 2006, the Company announced the acquisition
of the assets and rights of Hypertrust, a Belgian provider of
on-line digital photography services, for 550.
Hypertrusts technology, which was previously marketed
under the Pixagogo and Photoblog brand names, allows Telenet
broadband internet and iDTV customers to easily store, manage
and share digital photographs. The Company has allocated
70 of the total consideration paid to property and
equipment and the remaining 480 to goodwill.
Acquisition
of UPC Belgium
The Company completed the acquisition of 100% of UPC Belgium
from LGI on December 31, 2006 for 183,077, net of
cash acquired of 22,343. The acquisition was paid for in
cash. UPC Belgium is a leading provider
IV-86
TELENET
GROUP HOLDING NV
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
of television and broadband internet in the Brussels and Leuven
regions. The acquisition provides the opportunity to expand the
Companys footprint and offer its interactive digital
television and telephony products to UPC Belgiums
customers. On a provisional basis, the Company has allocated the
consideration paid over the net assets as follows:
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
Current assets, net of cash acquired
|
|
|
1,262
|
|
Fixed assets
|
|
|
16,352
|
|
Intangible assets
|
|
|
17,062
|
|
Non-current assets
|
|
|
65
|
|
Liabilities assumed
|
|
|
(26,159
|
)
|
Goodwill
|
|
|
174,495
|
|
|
|
|
|
|
Total cash consideration paid
|
|
|
183,077
|
|
|
|
|
|
|
Disposal
of Phone Plus
On November 28, 2006, Telenet signed an agreement for the
sale of 100% of its equity ownership in its wholly-owned Phone
Plus subsidiary to Toledo Telecom. Under the terms of the
transaction, Telenet will receive total cash consideration of
2,350 less 1,056 cash and cash equivalents that was
held by Phone Plus when sold. Of the cash consideration,
1,175 will be paid to the company in 2007. Telenet made
the decision to sell Phone Plus as part of an optimisation of
its products and services. In that review, Phone Plus was
considered to be a non-core business. Toledo Communications and
Telenet Solutions are working towards further broadening and
deepening of their business cooperation for voice and data
products. Goodwill held by the group was derecognized on
disposal of Phone Plus for 4,482.
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Loss from discontinued operations
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
7,509
|
|
|
|
9,364
|
|
Expenses
|
|
|
(7,648
|
)
|
|
|
(8,949
|
)
|
|
|
|
|
|
|
|
|
|
Profit (loss) before tax
|
|
|
(139
|
)
|
|
|
415
|
|
Attributable income tax expense
|
|
|
(116
|
)
|
|
|
(115
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(255
|
)
|
|
|
300
|
|
Loss on disposal of business
|
|
|
(2,780
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit (loss) from discontinued operations
|
|
|
(3,035
|
)
|
|
|
300
|
|
|
|
|
|
|
|
|
|
|
Cash flows from discontinued operations
|
|
|
|
|
|
|
|
|
Net cash flows from operating activities
|
|
|
153
|
|
|
|
37
|
|
Net cash flows used in investing activities
|
|
|
(39
|
)
|
|
|
(35
|
)
|
Net cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows
|
|
|
114
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
IV-87
TELENET
GROUP HOLDING NV
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Book value of net assets sold
|
|
|
|
|
|
|
|
|
Non-current assets
|
|
|
125
|
|
|
|
|
|
Current assets
|
|
|
2,864
|
|
|
|
|
|
Non-current liabilities
|
|
|
(11
|
)
|
|
|
|
|
Current liabilities
|
|
|
(2,157
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets disposed of
|
|
|
821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23.
|
NON CASH
INVESTING AND FINANCING TRANSACTIONS
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Acquisition of network user rights in exchange for debt
|
|
|
2,182
|
|
|
|
1,311
|
|
Extinguishment of Senior Credit Facility via the New Senior
Credit Facility
|
|
|
600,000
|
|
|
|
|
|
Acquisition of property and equipment in exchange for short-term
borrowings
|
|
|
9,670
|
|
|
|
|
|
Disposal of business in exchange for note receivable
|
|
|
1,175
|
|
|
|
|
|
|
|
24.
|
COMMITMENTS
AND CONTINGENCIES
|
Interconnection
Litigation
The Company has been involved in legal proceedings with Belgacom
related to the increased interconnection fees that have been
charged since August 2002 to telephone operators to terminate
calls made to end users on the Companys network.
The Company obtained approval from the Belgian Institute for
Postal Services and Telecommunications (BIPT) to increase its
interconnection rates for inbound domestic calls in August 2002.
Belgacom increased the tariffs charged to its telephony
customers calling Telenet numbers to reflect the Companys
increased termination rates.
Belgacom challenged the Companys increased interconnection
termination rates before the Commercial Court of Mechelen
(Rechtbank van Koophandel) alleging abusive pricing. Belgacom
has further challenged the BIPTs approval of the
Companys increased domestic interconnection termination
rates before the Council of State (Raad van State), the highest
administrative court in Belgium. The Council of State may affirm
the BIPTs decision or return the case to the BIPT for
reconsideration. The Council of State rejected an emergency
request from Belgacom to suspend the implementation of the
increased interconnection termination rate.
On January 20, 2004, the President of the Commercial Court
in Mechelen rendered a judgement in the case where Belgacom
contested the validity of the Companys interconnection
tariffs which was heard on September 23, 2003. The
judgement stated that there is no indication that the
Companys interconnection tariffs constitute a breach of
the unfair trade practices law, competition law or pricing
regulations as invoked by Belgacom. As a result, the judge
determined that Belgacoms potential claim is limited to a
contractual matter upon which the judge who heard the case was
not competent to rule, considering the nature of the procedure
initiated by Belgacom. The judge therefore dismissed the claim.
The Company is currently not required to change the
interconnection rates it currently charges to Belgacom and which
were approved in 2002 by the BIPT.
Belgacom appealed this judgement in April 2004. On
March 17, 2005, the Court of Appeals of Antwerp dismissed
Belgacoms claims. In February 2006, Belgacom brought the
case before the Belgian Supreme Court
IV-88
TELENET
GROUP HOLDING NV
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Hof van Cassatie / Cour de Cassation), which
will have the authority to review only whether there has been a
mistake of law or breach of certain formal procedural
requirements in the case. We expect a final decision may take up
to three years to be reached, since the Supreme Court can refer
the case back to the Court of Appeal.
In August 2006, the BIPT issued a new decision on the fixed
termination market, imposing a linear glide path over three year
towards near reciprocity, starting in January 2007. Belgacom
challenged the BIPT August decision before the Court of Appeal,
imposing a three year gliding path for Telenet. We also
challenged BIPTs decision as the gilding path prevents
Telenet of recuperating all of its costs.
Operating
Leases
The Company leases facilities, vehicles and equipment under
cancelable and non-cancelable operating leases. The following
schedule details, at December 31, 2006 and 2005, the future
minimum lease payments under cancelable and non-cancellable
operating leases:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Within one year
|
|
|
12,238
|
|
|
|
7,762
|
|
In the second to fifth years, inclusive
|
|
|
22,181
|
|
|
|
10,849
|
|
Thereafter
|
|
|
3,881
|
|
|
|
1,146
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
|
38,300
|
|
|
|
19,758
|
|
|
|
|
|
|
|
|
|
|
Minimum lease payments recognized as an expense in the year
|
|
|
20,976
|
|
|
|
19,325
|
|
|
|
|
|
|
|
|
|
|
The related parties of the Company mainly comprise its
shareholders that have the ability to exercise significant
influence. This consisted of the Liberty Global Consortium for
both 2006 and 2005, and the MICs, Electrabel and Suez as a
result of their direct and indirect ownership of the Company
until the change in ownership at the time of the IPO in October
2005. As a result of the sale of their investment in the Company
in December 2004 and the termination of the Strategic Services
Agreement on May 11, 2005, Cable Partners Europe L.L.C.
(CPE) (formerly known as Callahan Associates
International L.L.C.) and Callahan InvestCo Belgium 1
S.à.R.L. (CIB) are no longer related parties.
Transactions with other related parties primarily relate to
leasing and derivative contracts held with a financial
institution.
The following tables summarize material related party balances
and transactions for the period:
Balance
Sheet
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Purchases of property and equipment Other related
parties
|
|
|
|
|
|
|
6
|
|
Other receivables Other related parties
|
|
|
|
|
|
|
1,486
|
|
Accounts receivable Liberty Global Consortium
|
|
|
15
|
|
|
|
|
|
Accounts payable Liberty Global Consortium
|
|
|
10
|
|
|
|
23
|
|
Accrued expenses Other related parties
|
|
|
|
|
|
|
974
|
|
Current portion of long-term debt Other related
parties
|
|
|
|
|
|
|
808
|
|
Long-term debt Other related parties
|
|
|
|
|
|
|
19,110
|
|
Derivative financial instruments Other related
parties
|
|
|
|
|
|
|
6,255
|
|
IV-89
TELENET
GROUP HOLDING NV
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Income
Statement
|
|
|
|
|
|
|
|
|
|
|
For The Years Ended December 31
|
|
|
|
2006
|
|
|
2005
|
|
|
Operating
|
|
|
|
|
|
|
|
|
Leases and other operating expenses Electrabel and
Suez
|
|
|
|
|
|
|
(4,691
|
)
|
Leases and other operating expenses Liberty Global
Consortium
|
|
|
(319
|
)
|
|
|
(1,961
|
)
|
Other operating income Liberty Global Consortium
|
|
|
16
|
|
|
|
|
|
Other operating income Electrabel and Suez
|
|
|
|
|
|
|
1,063
|
|
Interconnect net result Other related parties
|
|
|
|
|
|
|
(10,284
|
)
|
Other operating expenses Other related parties
|
|
|
|
|
|
|
(3,501
|
)
|
Finance costs
|
|
|
|
|
|
|
|
|
Finance income (loss) Other related parties
|
|
|
|
|
|
|
3,387
|
|
Key
management compensation
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Salaries and other short-term employee benefits
|
|
|
3,554
|
|
|
|
3,570
|
|
Post-employment benefits
|
|
|
174
|
|
|
|
150
|
|
Share-based payments
|
|
|
346
|
|
|
|
1,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,074
|
|
|
|
5,340
|
|
|
|
|
|
|
|
|
|
|
On August 24, 2005, the Companys Chief Executive
Officer also exercised the Bank Warrants as described in
Note 10.
Details of the Company and its subsidiaries as of
December 31, 2006 are as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
National Number
|
|
|
Address
|
|
% Held
|
|
|
Consolidation Method
|
|
Telenet Group Holding NV
|
|
|
477.702.333
|
|
|
Liersesteenweg 4, 2800, Belgium
|
|
|
|
|
|
Parent company
|
Telenet Communciations NV
|
|
|
473.416.814
|
|
|
Liersesteenweg 4, 2800, Belgium
|
|
|
100
|
%
|
|
Fully consolidated
|
Telenet Bidco NV
|
|
|
473.416.418
|
|
|
Liersesteenweg 4, 2800, Belgium
|
|
|
100
|
%
|
|
Fully consolidated
|
Telenet NV
|
|
|
439.840.857
|
|
|
Liersesteenweg 4, 2800, Belgium
|
|
|
100
|
%
|
|
Fully consolidated
|
Telenet Vlaanderen NV
|
|
|
458.840.088
|
|
|
Liersesteenweg 4, 2800, Belgium
|
|
|
100
|
%
|
|
Fully consolidated
|
UPC Belgium
|
|
|
455.620.381
|
|
|
Chazallaan 140, 1030, Belgium
|
|
|
100
|
%
|
|
Fully consolidated
|
Merrion Communications
|
|
|
6378934T
|
|
|
62, Merrion Square, Dublin 2, Ireland
|
|
|
100
|
%
|
|
Fully consolidated
|
Telenet Solutions Luxembourg SA
|
|
|
1.999.223.4426
|
|
|
Rue de Neudorf 595, 2220 Luxembourg, Luxembourg
|
|
|
100
|
%
|
|
Fully consolidated
|
IV-90
TELENET
GROUP HOLDING NV
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In order to simplify the internal corporate structure of the
Company and to align the corporate structure with the operating
functioning of the Company, the Company completed the mergers of
MixtICS and PayTVCo with Telenet NV during July 2005 with effect
from January 1, 2005 and the merger of Telenet Solutions NV
with Telenet NV on December 31, 2005 with effect from
January 1, 2006. On January 31, 2006, Telenet Holding
NV was liquidated since it no longer fulfilled any function in
the group structure.
Cooperation
with Interkabel
On January 24, 2007, Telenet received a letter from the
Pure Intermunicipality companies (acting together under the
Interkabel umbrella) inviting Telenet to submit a proposal to
offer
video-on-demand
services to Interkabels customers. Telenet and Interkabel
have engaged in another round of discussions on an agreement for
iDTV. Telenet holds a number of rights for point-to-point
services on the Interkabel networks which include Video on
Demand.
Proposals for a broader framework of cooperation have also been
exchanged recently. The outcome of these contacts cannot be
predicted at this point. Telenet remains committed to work
towards a constructive solution that is consistent with its
rights which have been agreed at its foundation and which it
will defend firmly.
European
Commission Approval of LGIs Controlling Ownership in
Telenet
On February 26, 2007, LGI announced that the European
Commission has approved their increased and controlling
ownership position in the Company. With this regulated approval,
the Company will be consolidated by LGI for financial reporting
purposes beginning January 1, 2007. LGI also stated that it
intends to nominate a majority of the Companys Board of
Directors.
|
|
28.
|
RECONCILIATION
OF IFRSs AS ADOPTED BY THE EU TO U.S. GAAP
|
The consolidated financial statements have been prepared in
accordance with IFRSs as adopted by the EU, as described in
Note 2 to the consolidated financial statements. Those
principles differ in certain significant respects from
U.S. general accepted accounting principles
(U.S. GAAP). These differences relate to the
items that are described below and are summarized in the
following tables. Such differences affect both the determination
of net income and shareholders equity, as well as the
classification and format of the consolidated financial
statements
Items Affecting
Net Income and Shareholders Equity
A.
Deferred Taxes
Tax losses carried forward by subsidiaries acquired in previous
business combinations have historically been presented net of a
full valuation allowance. The Company started using these tax
losses carried forward in 2004. Under IFRSs as adopted by the
EU, the Company is required to reduce goodwill using the tax
rate in effect at the time of the acquisition, or 40.17%, while
using the current tax rate of 33.99% to establish the deferred
tax asset. The difference between these two rates is recorded as
an expense. Under U.S. GAAP, both the deferred tax asset
and the reduction of +goodwill are determined using the current
tax rate of 33.99%, resulting in lower deferred tax expense as
these tax loss carryforwards are recognized. This results in an
increase in goodwill of 8,254 and 2,978 and a
decrease in deferred tax expense of 5,276 and 2,294
as of and for the years ended December 31, 2006 and 2005,
respectively.
IV-91
TELENET
GROUP HOLDING NV
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
B.
Share-based Payment
Under IFRSs as adopted by the EU, warrants granted after
November 7, 2002 that had not vested before January 1,
2005 are recorded at the fair value of each option granted as
estimated on the date of grant using the Black-Scholes
option-pricing model. Warrants granted on or before
November 7, 2002 were not modified subsequent to this date
and, as a result, no compensation expense was recognized.
Through December 31, 2005 under U.S. GAAP, the Company
used the intrinsic value method to account for stock option
plans, including those plans that were not expensed under IFRSs
as adopted by the EU as discussed above. The Company adopted
Statement of Financial Accounting Standards (SFAS)
No. 123(R), Share-Based Payment on January 1,
2006 using the modified prospective method. Under the intrinsic
method, the excess of the measurement date fair value of the
Companys ordinary shares over the exercise price of the
stock options is recognized as compensation expense over the
vesting period of the options. Under SFAS 123(R), the
compensation cost is based on the grant-date fair value for the
portion of the awards outstanding at the transition date where
the requisite service has not been rendered. After the adoption
of SFAS 123(R) on January 1, 2006, there is not a
difference in compensation expense recognized under IFRSs as
adopted by the EU or U.S. GAAP. The 2005 adjustments did
not have tax consequences.
C.
Copyright Fees
Under IFRSs as adopted by the EU, the Company records
settlements with certain broadcasters and copyright collection
agencies at the present value of the expenditures expected to be
required to settle the obligation. Under U.S. GAAP, the
Company retained an accrual in other liabilities for the gross
amounts that the Company expects to pay. The interest expense
recognized under IFRSs as adopted by the EU is reversed in
U.S. GAAP resulting in an decrease in interest expense of
392 and 183 during the years ended December 31,
2006 and 2005, respectively. These adjustments did not have tax
consequences.
D.
Pension Liability
Under IFRSs as adopted by the EU, the cost of providing defined
benefit retirement benefit schemes is determined using the
Projected Unit Credit Method. The corridor approach is applied
to actuarial gains and losses. Accordingly, all gains and losses
exceeding 10% of the greater of the present value of the defined
benefit obligation and the fair value of any plan assets are
recognized over the expected average remaining working life of
the employees participating in the plan. Past service cost is
recognised immediately to the extent that the benefits are
already vested, and otherwise is amortised on a straight-line
basis over the average period until the benefits become vested.
The retirement benefit obligation recognized in the balance
sheet represents the present value of the defined benefit
obligation as adjusted for unrecognized past service cost, and
as reduced by the fair value of plan assets.
As of December 31, 2006 for U.S. GAAP, the Company
adopted SFAS No. 158, Employers Accounting
for Defined Benefit Pension and Other Postretirement Plans
(SFAS No. 158). SFAS No. 158
requires the recognition of the funded status of pension and
other postretirement benefit plans on the balance sheet. The
overfunded or underfunded status is recognized as an asset or
liability on the balance sheet with changes occurring during the
current year reflected through the comprehensive income portion
of equity. Further, SFAS No. 158 requires the
unrecognized transition asset or obligation, gains or losses,
and prior service costs to be recognized as a component of other
comprehensive income, net of tax. The adoption of
SFAS No. 158, resulted in an increase in the pension
liability of 3,536 that has been recorded as a direct
adjustment to accumulated other comprehensive income under
U.S. GAAP.
IV-92
TELENET
GROUP HOLDING NV
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Reconciliation
to U.S. GAAP
Reconciliation to U.S. GAAP of net income (loss) and
shareholders equity are presented as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31
|
|
|
|
Note
|
|
|
2006
|
|
|
2005
|
|
|
Net income (loss) in accordance with IFRSs as adopted by the EU
|
|
|
|
|
|
|
5,453
|
|
|
|
(76,667
|
)
|
Items having the effect of (increasing) decreasing reported net
income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred taxes
|
|
|
A
|
|
|
|
5,276
|
|
|
|
2,294
|
|
Stock based compensation
|
|
|
B
|
|
|
|
|
|
|
|
1,365
|
|
Copyright fees
|
|
|
C
|
|
|
|
392
|
|
|
|
183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total of U.S. GAAP adjustments
|
|
|
|
|
|
|
5,668
|
|
|
|
3,842
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) in accordance with U.S. GAAP
|
|
|
|
|
|
|
11,121
|
|
|
|
(72,825
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
Note
|
|
|
2006
|
|
|
2005
|
|
|
Shareholders equity in accordance with IFRSs as adopted by
the EU
|
|
|
|
|
|
|
721,657
|
|
|
|
709,098
|
|
Items having the effect of increasing (decreasing) reported
shareholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred taxes
|
|
|
A
|
|
|
|
8,254
|
|
|
|
2,978
|
|
Copyright fees
|
|
|
C
|
|
|
|
(843
|
)
|
|
|
(1,235
|
)
|
Pension liability
|
|
|
D
|
|
|
|
(3,536
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total of U.S. GAAP adjustments
|
|
|
|
|
|
|
3,875
|
|
|
|
1,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity in accordance with U.S. GAAP
|
|
|
|
|
|
|
725,532
|
|
|
|
710,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flow Statement
The cash flow statement has been prepared in accordance with
International Accounting Standards No. 7, and accordingly,
the cash flow statement has not been reconciled to
U.S. GAAP.
IV-93
EXHIBIT
INDEX
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
|
|
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
|
.5
|
|
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, amending
and restating the senior secured credit agreement originally
dated January 16, 2004, as amended and restated from time to
time, among the Borrowers, Toronto Dominion (Texas) LLC, as
facility agent, and other banks and financial institutions named
therein (the Facility Agreement) (incorporated by reference to
Exhibit 4.1 to the Registrants Quarterly Report on Form
10-Q, filed May 10, 2006).
|
|
4
|
.6
|
|
Additional Facility Accession Agreement, dated April 12, 2007,
among UPC Broadband Holding and UPC Financing, as Borrowers,
Toronto Dominion (Texas) LLC, as Facility Agent, TD Bank Europe
Limited, as Security Agent, and the Additional Facility M
Lenders listed therein under the Facility Agreement
(incorporated by reference to Exhibit 4.1 to the
Registrants Current Report on Form 8-K, filed April 17,
2007 (File No. 000-51360) (the Facility M 8-K)).
|
|
4
|
.7
|
|
Additional Facility Accession Agreement, dated April 13, 2007,
among UPC Broadband Holding and UPC Financing, as Borrowers,
Toronto Dominion (Texas) LLC, as Facility Agent, TD Bank Europe
Limited, as Security Agent, and the Additional Facility M
Lenders listed therein, under the Facility Agreement
(incorporated by reference to Exhibit 4.2 to the Facility M 8-K).
|
|
4
|
.8
|
|
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 Facility Agreement (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
|
.9
|
|
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 Facility Agreement (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
|
.10
|
|
Amendment Letter, dated April 16, 2007, among UPC Broadband
Holding and UPC Financing, as Borrowers, the guarantors listed
therein, and Toronto Dominion (Texas) LLC, as Facility Agent, to
the Facility Agreement (incorporated by reference to Exhibit 4.3
to the
Facility M 8-K).
|
|
4
|
.11
|
|
Additional Facility M Accession Agreement, dated May 4, 2007,
among UPC Broadband Holding, as Borrower, Toronto Dominion
(Texas) LLC, as Facility Agent, TD Bank Europe Limited, as
Security Agent, and the Additional Facility M Lenders listed
therein, under the Facility Agreement (incorporated by reference
to Exhibit 4.4 to the Registrants Quarterly Report on Form
10-Q filed May 10, 2007 (the May 10, 2007 10-Q)).
|
|
4
|
.12
|
|
Additional Facility Accession Agreement, dated May 11, 2007
among UPC Broadband Holding and UPC Financing, as Borrowers,
Toronto Dominion (Texas) LLC as Facility Agent and TD Bank
Europe as Security Agent, and the Additional Facility N Lenders
listed therein under the Facility Agreement (incorporated by
reference to Exhibit 4.1 to the Registrants Current Report
on Form 8-K/A filed May 15, 2007 (File No. 000-51360)).
|
|
4
|
.13
|
|
Additional Facility Accession Agreement, dated May 18, 2007,
among UPC Broadband Holding and UPC Financing, as Borrowers,
Toronto Dominion (Texas) LLC as Facility Agent and TD Bank
Europe Limited as Security Agent, and the Additional Facility M
Lenders listed therein, under the Facility Agreement
(incorporated by reference to Exhibit 4.1 to the
Registrants Current Report on Form 8-K filed May 22, 2007
(File No. 000-51360) (the Facilities M&N 8-K)).
|
|
4
|
.14
|
|
Additional Facility Accession Agreement, dated May 18, 2007,
among UPC Broadband Holding and UPC Financing, as Borrowers,
Toronto Dominion (Texas) LLC as Facility Agent and TD Bank
Europe Limited as Security Agent, and the Additional Facility N
Lenders listed therein under the Facility Agreement
(incorporated by reference to Exhibit 4.2 to the Facilities
M&N 8-K).
|
|
4
|
.15
|
|
2,300,000,000 Credit Agreement, originally dated August 1,
2007, and as amended and restated by a supplemental agreements
dated August 22, 2007, September 11, 2007, October 8, 2007 and
November 19, 2007, among Telenet Bidco NV as Borrower, the
parties listed therein as Original Guarantors, ABN AMRO Bank
N.V., BNP Paribas S.A. and J.P. Morgan PLC as Mandated Lead
Arrangers, BNP Paribas S.A. as Facility Agent, KBC Bank NV as
Security Agent and the financial institutions listed therein as
Initial Original Lenders (incorporated by reference to Exhibit
4.1 to the Registrants Current Report of Form 8-K, filed
October 10, 2007 (File No. 000-51360)).
|
|
4
|
.16
|
|
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 10.5 to the
May 10, 2007 10-Q).
|
|
10
|
.3
|
|
Form of Stock Appreciation Rights Agreement under the Incentive
Plan (incorporated by reference to Exhibit 10.6 to the May 10,
2007 10-Q).
|
|
10
|
.4
|
|
Form of Restricted Shares Agreement under the Incentive Plan
(incorporated by reference to Exhibit 99.3 to the
Registrants Current Report on Form 8-K filed August 19,
2005 (File No. 000-51360).
|
|
10
|
.5
|
|
Form of Restricted Share Units Agreement under the Incentive
Plan (incorporated by reference to Exhibit 10.1 to the May 10,
2007 10-Q).
|
|
|
|
|
|
|
10
|
.6
|
|
Non-Qualified Stock Option Agreement, dated as of June 7, 2004,
between John C. Malone and the Registrant (as assignee of LGI
international, Inc., fka Liberty Media International, Inc., the
predecessor issuer to the Registrant (LGI International)) 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 LGI Internationals
common stock, filed July 14, 2004 (File No. 005-79904)).
|
|
10
|
.7
|
|
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
|
.8
|
|
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
|
.9
|
|
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
|
.10
|
|
Form of Non-Qualified Stock Option Agreement under the Director
Plan (incorporated by reference to Exhibit 10.3 to the Merger
8-K).
|
|
10
|
.11
|
|
Form of Restricted Share Units Agreement under the Director Plan
(incorporated by reference to Exhibit 10.4 to the May 10, 2007
10-Q).
|
|
10
|
.12
|
|
Form of Restricted Share Units Agreement under the Director Plan
for April 20, 2007 grants to directors of the Registrant, John
Dick and Paul Gould. *
|
|
10
|
.13
|
|
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
|
.14
|
|
Liberty Global, Inc. Senior Executive Performance Incentive Plan
(As Amended and Restated Effective May 2, 2007) (the SEP
Incentive Plan) (incorporated by reference to Exhibit 10.2 to
the May 10, 2007 10-Q).
|
|
10
|
.15
|
|
Form of Participation Certificate under the SEP Incentive Plan
(incorporated by reference to Exhibit 10.3 to the May 10, 2007
10-Q).
|
|
10
|
.16
|
|
Liberty Global, Inc. 2007 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 5.02(e) of the Registrants
Current Report on Form 8-K, filed March 2, 2007 (File No.
000-51360)).
|
|
10
|
.17
|
|
Liberty Media International, Inc. Transitional Stock Adjustment
Plan (the Transitional Plan) (incorporated by reference to
Exhibit 4.5 to LGI Internationals Registration Statement
on
Form S-8,
filed June 23, 2004 (File No. 333-116790)).
|
|
10
|
.18
|
|
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
|
.19
|
|
Form of Non-Qualified Stock Option Amendment under the
Transitional Plan (incorporated by reference to Exhibit 99.2 to
the 409A 8-K).
|
|
10
|
.20
|
|
UnitedGlobalCom, Inc. Equity Incentive Plan (amended and
restated effective October 17, 2003) (incorporated by reference
to Exhibit 10.17 to the Registrants Annual Report on
Form 10-K, filed March 1, 2007 (File No. 000-51360) (the
2006 10-K)).
|
|
10
|
.21
|
|
UnitedGlobalCom, Inc. 1993 Stock Option Plan (amended and
restated effective January 22, 2004) (incorporated by reference
to Exhibit 10.6 to the UGC Annual Report on Form 10-K, filed
March 15, 2004 (File No. 000-49658) (the UGC 2003 10-K)).
|
|
10
|
.22
|
|
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
|
.23
|
|
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
|
.24
|
|
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 (incorporated by
reference to Exhibit 10.22 to the 2006 10-K).
|
|
10
|
.25
|
|
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
|
.26
|
|
Form of Indemnification Agreement between the Registrant and its
Executive Officers (incorporated by reference to Exhibit 10.20
of the 2005 10-K).
|
|
10
|
.27
|
|
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)).
|
|
10
|
.28
|
|
Form of Aircraft Time Sharing Agreement. *
|
|
10
|
.29
|
|
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
|
.30
|
|
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
|
.31
|
|
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
|
.32
|
|
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
|
.33
|
|
Employment Agreement, effective November 1, 2007, between
Liberty Global Services II, LLC and Shane ONeill
(incorporated by reference to Exhibit 10.2 to the
Registrants Quarterly Report on Form 10-Q, filed November
8, 2007 (the November 8, 2007 10-Q)).
|
|
10
|
.34
|
|
Executive Service Agreement, effective November 1, 2007, between
Chellomedia Services Ltd. and Shane ONeill (incorporated
by reference to Exhibit 10.3 to the November 8, 2007 10-Q).
|
|
10
|
.35
|
|
Deed of Indemnity, effective November 1, 2007, between the
Registrant and Shane ONeill (incorporated by reference to
Exhibit 10.4 to the November 8, 2007 10-Q).
|
|
10
|
.36
|
|
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
|
.37
|
|
Employment Agreement, effective July 2, 2007, between Liberty
Global Services, LLC and Mauricio Ramos (incorporated by
reference to Exhibit 10.8 to the Registrants Quarterly
Report on Form 10-Q, filed August 9, 2007 (the August 9, 2007
10-Q)).
|
|
10
|
.38
|
|
Employment Contract, effective July 2, 2007, between VTR Global
Com S.A. and Mauricio Ramos (free translation of the Spanish
original) (incorporated by reference to Exhibit 10.9 to the
August 9, 2007 10-Q).
|
|
10
|
.39
|
|
VTR Global Com S.A. 2006 Phantom SAR Plan (the VTR Plan). *
|
|
10
|
.40
|
|
Form of Grant Agreement for U.S. Taxpayers under the VTR
Plan. *
|
|
10
|
.41
|
|
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
|
.42
|
|
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
|
.43
|
|
Split Dollar Life Insurance Agreement, dated February 15, 2001,
between Old UGC, Inc. and Mark L. Schneider, Tina M. Wildes and
Carla Shankle, as trustees under The Gene W. Schneider 2001
Trust, dated February 12, 2001 (the Trust) (incorporated by
reference to Exhibit 10.88 to the UGC Form S-1).
|
|
10
|
.44
|
|
Assignment and Assumption Agreement, dated as of August 15, 2007
between Old UGC, Inc. and UGC, together with the Consent to
Assignment and Release by the Trust.*
|
|
10
|
.45
|
|
Second Amended and Restated Stockholders Agreement, dated
as of August 14, 2007, among the Registrant, Miranda Curtis,
Graham Hollis, Yasushige Nishimura, Liberty Jupiter, Inc., and,
solely for purposes of Section 7 thereof, LGI International,
Inc. and Liberty Media International Holdings, LLC,
(incorporated by reference to Exhibit 10.1 to Registrants
Quarterly Report Form 10-Q, filed November 8, 2005 (File No.
000-51360)).
|
|
10
|
.46
|
|
Form of Tax Sharing Agreement between Liberty Media Corporation
and the Registrant (as successor to LGI International)
(incorporated by reference to Exhibit 10.5 to Amendment No. 1 to
LGI Internationals Registration Statement on Form 10,
filed May 25, 2004
(File No. 000-50671)).
|
|
10
|
.47
|
|
Amended and Restated Operating Agreement, dated November 26,
2004 (the Operating Agreement), among Liberty Japan, Inc.,
Liberty Japan II, Inc., Liberty Global Japan LLC, fka LMI
Holdings Japan LLC, Liberty Kanto, Inc., Liberty Jupiter, Inc.
and Sumitomo Corporation, and solely with respect to certain
provisions thereof, the Registrant (as successor to LGI
International) (incorporated by reference to Exhibit 10.27 of
LGI Internationals Annual Report on Form 10-K, filed March
14, 2005 (File No. 0000-50671)).
|
|
10
|
.48
|
|
First Amendment dated as of May 22, 2007, to the Operating
Agreement, among Liberty Japan, Inc., Liberty Japan II, Inc.,
Liberty Global Japan LLC, fka LMI Holdings Japan, LLC, Liberty
Kanto, Inc., Liberty Jupiter, Inc. and Sumitomo Corporation,
and, solely with respect to certain provisions thereof, the
Registrant (incorporated by reference to Registrants
Current Report on Form 8-K, filed June 26, 2007 (File No.
000-51360)).
|
|
10
|
.49
|
|
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
|
.50
|
|
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)).
|
|
10
|
.51
|
|
Preemptive Rights Agreement dated as of January 4, 2008, among
O3B Networks Limited,
|
|
|
|
|
LGI Ventures BV, Gregory Wyler and John Dick. *
|
|
10
|
.52
|
|
Right of First Offer Agreement dated as of January 4, 2008,
among O3B Networks
|
|
|
|
|
Limited, LGI Ventures BV, Gregory Wyler and John Dick. *
|
|
10
|
.53
|
|
Right of First Offer Agreement dated as of January 4, 2008,
among O3B Networks
|
|
|
|
|
Limited, LGI Ventures BV, Gregory Wyler and Paul Gould. *
|
|
21
|
|
|
List of Subsidiaries *
|
|
23
|
|
|
Consent of Experts and Counsel:
|
|
23
|
.1
|
|
Consent of KPMG LLP *
|
|
23
|
.2
|
|
Consent of PricewaterhouseCoopers Bedrijfsrevisoren bcvba *
|
|
23
|
.3
|
|
Consent of KPMG AZSA & Co. *
|
|
23
|
.4
|
|
Consent of PricewaterhouseCoopers Bedrijfsrevisoren bcvba *
|
|
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 *
|