e10vq
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
March 31, 2008
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OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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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
Indicate by check mark whether the Registrant: (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months and (2) has been subject to such
filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, 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
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o
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(Do not check if a smaller reporting company)
Indicate by check mark whether the Registrant is a shell company
as defined in
Rule 12b-2
of the Exchange
Act. Yes o No þ
The number of outstanding shares of Liberty Global, Inc.s
common stock as of April 30, 2008 was:
Series A common stock 162,229,922 shares;
Series B common stock 7,254,910 shares; and
Series C common stock 159,246,392 shares.
LIBERTY
GLOBAL, INC.
INDEX
1
LIBERTY
GLOBAL, INC.
(unaudited)
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March 31,
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December 31,
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2008
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2007
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in millions
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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1,368.7
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$
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2,035.5
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Trade receivables, net
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918.2
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1,003.7
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Deferred income taxes
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400.0
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319.1
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Derivative instruments (note 6)
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103.9
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230.5
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Other current assets
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357.1
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335.8
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Total current assets
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3,147.9
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3,924.6
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Restricted cash (note 9)
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475.5
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475.5
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Investments (note 5)
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1,439.4
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1,171.5
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Property and equipment, net (note 8)
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11,639.0
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10,608.5
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Goodwill (note 8)
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13,949.9
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12,626.8
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Intangible assets subject to amortization, net (note 8)
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2,652.4
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2,504.9
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Other assets, net
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1,453.8
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1,306.8
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Total assets
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$
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34,757.9
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$
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32,618.6
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The accompanying notes are an integral part of these condensed
consolidated financial statements.
2
LIBERTY
GLOBAL, INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS (Continued)
(unaudited)
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March 31,
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December 31,
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2008
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2007
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in millions
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current liabilities:
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Accounts payable
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$
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711.3
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$
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804.9
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Deferred revenue and advance payments from subscribers and others
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973.8
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933.8
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Current portion of debt and capital lease obligations
(note 9)
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421.0
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383.2
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Derivative instruments (note 6)
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238.0
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116.2
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Accrued interest
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143.2
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341.2
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Accrued capital expenditures
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166.6
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194.1
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Other accrued and current liabilities
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1,235.9
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1,084.1
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Total current liabilities
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3,889.8
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3,857.5
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Long-term debt and capital lease obligations (note 9)
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19,103.3
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17,970.2
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Other long-term liabilities
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3,125.7
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2,508.8
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Total liabilities
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26,118.8
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24,336.5
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Commitments and contingencies (note 13)
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Minority interests in subsidiaries
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2,758.5
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2,446.0
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Stockholders equity (note 10):
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Series A common stock, $.01 par value. Authorized
500,000,000 shares; issued and outstanding 165,814,600 and
174,687,478 shares, respectively
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1.7
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1.7
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Series B common stock, $.01 par value. Authorized
50,000,000 shares; issued and outstanding 7,255,853 and
7,256,353 shares, respectively
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0.1
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0.1
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Series C common stock, $.01 par value. Authorized
500,000,000 shares; issued and outstanding 161,413,426 and
172,129,524 shares, respectively
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1.6
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1.7
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Additional paid-in capital
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5,577.1
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6,293.2
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Accumulated deficit
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(1,241.6
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)
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(1,319.1
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)
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Accumulated other comprehensive earnings, net of taxes
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1,541.7
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858.5
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Total stockholders equity
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5,880.6
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5,836.1
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Total liabilities and stockholders equity
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$
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34,757.9
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$
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32,618.6
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The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
LIBERTY
GLOBAL, INC.
(unaudited)
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Three months ended
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March 31,
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2008
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2007
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in millions, except share and per share amounts
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Revenue (note 12)
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$
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2,611.0
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$
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2,106.0
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Operating costs and expenses:
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Operating (other than depreciation and amortization) (including
stock-based compensation of $2.0 million and
$2.3 million, respectively) (notes 11 and 12)
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1,028.7
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877.4
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Selling, general and administrative (SG&A) (including
stock-based compensation of $38.3 million and
$41.2 million, respectively) (notes 11 and 12)
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521.9
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447.5
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Depreciation and amortization
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704.1
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594.0
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Impairment, restructuring and other operating charges (credits),
net
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(1.5
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)
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5.3
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2,253.2
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1,924.2
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Operating income
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357.8
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181.8
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Non-operating income (expense):
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Interest expense (note 12)
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(279.6
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)
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(233.0
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)
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Interest and dividend income
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34.8
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24.4
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Share of results of affiliates, net
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2.5
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13.6
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Realized and unrealized losses on derivative instruments, net
(notes 6 and 7)
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(335.4
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)
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(10.3
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)
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Foreign currency transaction gains, net
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172.6
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24.3
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Unrealized gains (losses) due to changes in fair values of
certain investments and debt, net (notes 5, 7 and 9)
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22.0
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(71.6
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)
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Other expense, net
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(0.4
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)
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(3.0
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)
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(383.5
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)
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(255.6
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)
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Loss before income taxes and minority interests
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(25.7
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)
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(73.8
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)
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Income tax expense
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|
(100.9
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)
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(6.3
|
)
|
Minority interests in earnings of subsidiaries, net
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(29.0
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)
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(56.0
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)
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Net loss
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$
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(155.6
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)
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$
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(136.1
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)
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Basic and diluted loss per share Series A,
Series B and Series C common stock (note 2)
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$
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(0.45
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)
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$
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(0.35
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)
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Weighted average common shares outstanding basic and
diluted
|
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|
343,774,026
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391,037,554
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The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
LIBERTY
GLOBAL, INC.
(unaudited)
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|
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Three months ended
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March 31,
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2008
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2007
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in millions
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Net loss
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|
$
|
(155.6
|
)
|
|
$
|
(136.1
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)
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|
|
|
|
|
|
|
|
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Other comprehensive earnings (loss), net of taxes:
|
|
|
|
|
|
|
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Foreign currency translation adjustments
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723.1
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|
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|
62.0
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Unrealized gains on
available-for-sale
securities
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|
|
|
|
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|
2.1
|
|
Reclassification adjustment for net losses on
available-for-sale
securities included in net loss
|
|
|
|
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3.4
|
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Unrealized losses on cash flow hedges
|
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(0.4
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)
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|
(1.0
|
)
|
|
|
|
|
|
|
|
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Other comprehensive earnings
|
|
|
722.7
|
|
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66.5
|
|
|
|
|
|
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|
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Comprehensive earnings (loss)
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$
|
567.1
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|
|
$
|
(69.6
|
)
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
LIBERTY
GLOBAL, INC.
(unaudited)
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|
|
|
|
|
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|
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|
|
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|
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|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
other
|
|
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Additional
|
|
|
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|
comprehensive
|
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Total
|
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|
|
Common stock
|
|
|
paid-in
|
|
|
Accumulated
|
|
|
earnings,
|
|
|
stockholders
|
|
|
|
Series A
|
|
|
Series B
|
|
|
Series C
|
|
|
capital
|
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|
deficit
|
|
|
net of taxes
|
|
|
equity
|
|
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|
in millions
|
|
Balance at January 1, 2008, before effect of accounting
changes
|
|
$
|
1.7
|
|
|
$
|
0.1
|
|
|
$
|
1.7
|
|
|
$
|
6,293.2
|
|
|
$
|
(1,319.1
|
)
|
|
$
|
858.5
|
|
|
$
|
5,836.1
|
|
Accounting changes (note 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
233.1
|
|
|
|
(39.5
|
)
|
|
|
193.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Balance at January 1, 2008, as adjusted for accounting
changes
|
|
|
1.7
|
|
|
|
0.1
|
|
|
|
1.7
|
|
|
|
6,293.2
|
|
|
|
(1,086.0
|
)
|
|
|
819.0
|
|
|
|
6,029.7
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(155.6
|
)
|
|
|
|
|
|
|
(155.6
|
)
|
Other comprehensive earnings, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
722.7
|
|
|
|
722.7
|
|
Repurchase and cancellation of common stock (note 10)
|
|
|
|
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
(716.1
|
)
|
|
|
|
|
|
|
|
|
|
|
(716.2
|
)
|
Stock-based compensation, net of taxes (note 11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12.3
|
|
|
|
|
|
|
|
|
|
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|
12.3
|
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Stock issued in connection with equity incentive plans, net of
employee tax withholding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.8
|
|
|
|
|
|
|
|
|
|
|
|
2.8
|
|
Adjustments due to changes in subsidiaries equity and
other, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15.1
|
)
|
|
|
|
|
|
|
|
|
|
|
(15.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2008
|
|
$
|
1.7
|
|
|
$
|
0.1
|
|
|
$
|
1.6
|
|
|
$
|
5,577.1
|
|
|
$
|
(1,241.6
|
)
|
|
$
|
1,541.7
|
|
|
$
|
5,880.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
6
LIBERTY
GLOBAL, INC.
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
in millions
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(155.6
|
)
|
|
$
|
(136.1
|
)
|
Adjustments to reconcile net loss to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
40.3
|
|
|
|
43.5
|
|
Depreciation and amortization
|
|
|
704.1
|
|
|
|
594.0
|
|
Impairment, restructuring and other operating charges (credits)
|
|
|
(1.5
|
)
|
|
|
5.3
|
|
Amortization of deferred financing costs and non-cash interest
|
|
|
10.5
|
|
|
|
30.2
|
|
Share of results of affiliates, net of dividends
|
|
|
(2.5
|
)
|
|
|
(13.2
|
)
|
Realized and unrealized losses on derivative instruments, net
|
|
|
335.4
|
|
|
|
10.3
|
|
Foreign currency transaction gains, net
|
|
|
(172.6
|
)
|
|
|
(24.3
|
)
|
Unrealized losses (gains) due to changes in fair values of
certain investments and debt, net
|
|
|
(22.0
|
)
|
|
|
71.6
|
|
Deferred income tax expense (benefit)
|
|
|
54.0
|
|
|
|
(29.1
|
)
|
Minority interests in earnings of subsidiaries
|
|
|
29.0
|
|
|
|
55.9
|
|
Other non-cash items, net
|
|
|
0.4
|
|
|
|
5.0
|
|
Changes in operating assets and liabilities, net of the effects
of acquisitions and dispositions
|
|
|
(172.0
|
)
|
|
|
(50.4
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
647.5
|
|
|
$
|
562.7
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
7
LIBERTY
GLOBAL, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH
FLOWS (Continued)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
in millions
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Capital expended for property and equipment
|
|
$
|
(519.8
|
)
|
|
$
|
(505.2
|
)
|
Cash paid in connection with acquisitions, net of cash acquired
|
|
|
(53.9
|
)
|
|
|
(39.4
|
)
|
Proceeds received upon dispositions of assets
|
|
|
22.6
|
|
|
|
2.0
|
|
Other investing activities, net
|
|
|
(8.4
|
)
|
|
|
2.6
|
|
|
|
|
|
|
|
|
|
|
Net cash used by investing activities
|
|
|
(559.5
|
)
|
|
|
(540.0
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Repurchase of LGI common stock
|
|
|
(729.7
|
)
|
|
|
(301.6
|
)
|
Repayments of debt and capital lease obligations
|
|
|
(129.2
|
)
|
|
|
(98.2
|
)
|
Proceeds from issuance of stock by subsidiaries
|
|
|
4.1
|
|
|
|
14.2
|
|
Borrowings of debt
|
|
|
2.7
|
|
|
|
6.3
|
|
Change in cash collateral
|
|
|
|
|
|
|
10.2
|
|
Other financing activities, net
|
|
|
2.0
|
|
|
|
12.3
|
|
|
|
|
|
|
|
|
|
|
Net cash used by financing activities
|
|
|
(850.1
|
)
|
|
|
(356.8
|
)
|
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash
|
|
|
95.3
|
|
|
|
23.6
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(666.8
|
)
|
|
|
(310.5
|
)
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
2,035.5
|
|
|
|
1,880.5
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
1,368.7
|
|
|
$
|
1,570.0
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
473.2
|
|
|
$
|
210.4
|
|
|
|
|
|
|
|
|
|
|
Net cash paid for taxes
|
|
$
|
70.9
|
|
|
$
|
38.3
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
8
LIBERTY
GLOBAL, INC.
March 31,
2008
(unaudited)
|
|
(1)
|
Basis
of Presentation
|
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 March 31, 2008 in 15
countries, primarily in Europe, Japan and Chile. In the
following text, the terms we, our,
our company, and us may refer, as the
context requires, to LGI or collectively to LGI and its
subsidiaries.
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. The European
broadband communications operations of UPC Broadband Holding BV
(UPC Broadband Holding), a subsidiary of UPC Holding, are
collectively referred to as the UPC Broadband Division. UPC
Broadband Holdings broadband communications operations in
Chile are provided through its 80%-owned indirect subsidiary,
VTR Global Com S.A. (VTR). Through our indirect majority
ownership interest in Telenet Group Holding NV (Telenet) (51.1%
at March 31, 2008), we provide broadband communications
services in Belgium. Through our indirect controlling ownership
interest in Jupiter Telecommunications Co., Ltd. (J:COM) (37.8%
at March 31, 2008), we provide broadband communications
services in Japan. Through our indirect majority ownership
interest in Austar United Communications Limited (Austar) (53.4%
at March 31, 2008), 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 owns or manages
investments in various businesses in Europe. Certain of
Chellomedias subsidiaries and affiliates provide
programming services to certain of our broadband communications
operations, primarily in Europe.
Our unaudited condensed consolidated financial statements have
been prepared in accordance with accounting principles generally
accepted in the United States (GAAP) and with the instructions
to
Form 10-Q
and Article 10 of
Regulation S-X
for interim financial information. Accordingly, these statements
do not include all of the information required by GAAP or
Securities and Exchange Commission (SEC) rules and regulations
for complete financial statements. In the opinion of management,
these statements reflect all adjustments (consisting of normal
recurring adjustments) necessary for a fair presentation of the
results for the interim periods presented. The results of
operations for any interim period are not necessarily indicative
of results for the full year. These unaudited condensed
consolidated financial statements should be read in conjunction
with our consolidated financial statements and notes thereto
included in our 2007 Annual Report on
Form 10-K.
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Estimates and
assumptions are used in accounting for, among other things, the
valuation of acquisition-related assets and liabilities,
allowances for uncollectible accounts, deferred income taxes and
related valuation allowances, loss contingencies, fair values of
derivative instruments, financial instruments and investments,
fair values of long-lived assets and any related impairments,
capitalization of internal costs associated with construction
and installation activities, useful lives of long-lived assets,
actuarial liabilities associated with certain benefit plans and
stock-based compensation. Actual results could differ from those
estimates.
Unless otherwise indicated, convenience translations into
U.S. dollars are calculated as of March 31, 2008.
Certain prior period amounts have been reclassified to conform
to the current year presentation, including certain cash flows
related to our derivative instruments, which have been
reclassified in our condensed consolidated statement of cash
flows to align with the classification of the applicable
underlying hedged cash flows.
9
LIBERTY
GLOBAL, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
March 31,
2008
(unaudited)
|
|
(2)
|
Earnings
(Loss) per Common Share
|
Basic earnings (loss) per share is computed by dividing net
earnings (loss) by the weighted average number of common shares
(excluding nonvested common shares) outstanding for the period.
Diluted earnings (loss) per 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 net losses during the three months ended
March 31, 2008 and 2007. Therefore, the dilutive effect at
March 31, 2008 and 2007 of (i) the aggregate number of
then outstanding options, stock appreciation rights (SARs), and
nonvested shares of approximately 26.3 million and
31.1 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 45.9 million and
38.5 million, respectively, and (iii) the number of
shares contingently issuable pursuant to LGI performance-based
incentive plans of 11.4 million and 12.1 million,
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
SFAS 157
In September 2006, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards (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 was effective for
financial statements issued for fiscal years and interim periods
beginning after November 15, 2007. However, the effective
date of SFAS 157 has been deferred to fiscal years
beginning after November 15, 2008 and interim periods
within those years as it relates to fair value measurement
requirements for (i) nonfinancial assets and liabilities
that are not remeasured at fair value on a recurring basis (e.g.
asset retirement obligations, restructuring liabilities and
assets and liabilities acquired in business combinations) and
(ii) fair value measurements required for impairments under
SFAS No. 142, Goodwill and Other Intangible Assets
(SFAS 142) and SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets. We adopted SFAS 157 (exclusive of the deferred
provisions discussed above) effective January 1, 2008. Such
adoption did not have a material impact on our condensed
consolidated financial statements. See note 7.
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.
Effective January 1, 2008, we adopted the fair value method
of accounting for certain equity method and
available-for-sale
investments, and such adoption resulted in (i) an increase
to our investments of $280.9 million, (ii) an increase
to our long-term deferred tax liabilities of $82.3 million,
(iii) a decrease to our accumulated other comprehensive
earnings, net of taxes, of $39.5 million and (iv) a
decrease to our accumulated deficit of $238.1 million. Our
adjustment to accumulated other comprehensive earnings, net of
taxes, includes the release of previously-recorded foreign
currency translation gains of $4.4 million and unrealized
gains on
available-for-sale
securities of $35.1 million. See note 5.
10
LIBERTY
GLOBAL, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
March 31,
2008
(unaudited)
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. Effective January 1, 2008, we adopted
EITF 06-10,
which is applicable to two joint survivor life insurance
policies that provide for an aggregate death benefit of
$30 million on the lives of one of our directors and his
spouse. Such adoption resulted in (i) an increase to our
other long-term assets of $21.8 million, (ii) a
decrease to our long-term deferred tax liabilities of
$2.9 million, (iii) an increase to our other long-term
liabilities of $29.7 million and (iv) an increase to
our accumulated deficit of $5.0 million.
Recent
Accounting Pronouncements
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 No. 109,
Accounting for Income Taxes, 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.
11
LIBERTY
GLOBAL, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
March 31,
2008
(unaudited)
SFAS 161
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities an amendment of FASB Statement No 133
(SFAS 161). SFAS 161 changes the disclosure
requirements for derivative instruments and hedging activities.
Entities are required to provide enhanced disclosures about
(i) how and why an entity uses derivative instruments,
(ii) how derivative instruments and related hedged items
are accounted for under Statement 133 and its related
interpretations and (iii) how derivative instruments and
related hedged items affect an entitys financial position,
financial performance, and cash flows. SFAS 161 is
effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008.
SFAS 161 encourages, but does not require, comparative
disclosures for earlier periods at initial adoption. We have not
completed our analysis of the impact of this standard on
disclosures in our consolidated financial statements.
2007
Acquisitions
Telenet During 2007, we increased our
ownership interest in Telenets ordinary shares from 28.8%
as of December 31, 2006 to 51.1% as of December 31,
2007. On February 26, 2007, we obtained regulatory approval
to exercise our voting control over Telenet. For financial
reporting purposes, we began consolidating Telenet effective
January 1, 2007.
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. On July 3, 2007, pursuant to a
share-for-share
exchange agreement with Sumitomo, we exchanged our interest in
SC Media for 45,652,043 shares of Sumitomo common stock. 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.
12
LIBERTY
GLOBAL, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
March 31,
2008
(unaudited)
Pro
Forma Information
The following unaudited pro forma condensed consolidated
operating results for the three months ended March 31, 2007
give effect to (i) the JTV Thematics acquisition and
(ii) the third quarter 2007 acquisitions of additional
Telenet shares as if such acquisitions had been completed as of
January 1, 2007. These pro forma amounts are not
necessarily indicative of the operating results that would have
occurred if these transactions had occurred on such date. The
pro forma adjustments are based upon currently available
information and upon certain assumptions that we believe are
reasonable.
|
|
|
|
|
|
|
Three months ended
|
|
|
|
March 31, 2007
|
|
|
|
in millions, except
|
|
|
|
per share amounts
|
|
|
Revenue
|
|
$
|
2,128.2
|
|
|
|
|
|
|
Net loss
|
|
$
|
(134.1
|
)
|
|
|
|
|
|
Basic and diluted loss per share
|
|
$
|
(0.34
|
)
|
|
|
|
|
|
The details of our investments are set forth below:
|
|
|
|
|
|
|
|
|
|
|
Carrying amount
|
|
|
|
March 31,
|
|
|
December 31,
|
|
Accounting Method
|
|
2008
|
|
|
2007
|
|
|
|
in millions
|
|
|
Fair value (a)
|
|
$
|
1,129.8
|
|
|
$
|
|
|
Equity (b)
|
|
|
284.9
|
|
|
|
388.6
|
|
Cost
|
|
|
24.7
|
|
|
|
22.1
|
|
Available-for-sale
|
|
|
|
|
|
|
760.8
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,439.4
|
|
|
$
|
1,171.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
As further discussed in note 3, we adopted SFAS 159
effective January 1, 2008. Pursuant to SFAS 159, we
elected the fair value option for certain of our investments. At
March 31, 2008, we used the fair value method to account
for our investments in Sumitomo, The News Corporation Limited
(News Corp.), Telewizyjna Korporacja Partycypacyjna S.A. and
certain other less significant investments. The aggregate fair
value of our fair value method investments as of January 1,
2008 was $1,138.8 million. |
|
(b) |
|
At March 31, 2008, investments accounted for using the
equity method include our investments in Mediatti
Communications, Inc. (Mediatti), Discovery Japan, Inc., JSports
Broadcasting Corporation and XYZ Network Pty LTD. |
We have elected the fair value method for most of our
investments as we believe this method generally provides the
most meaningful information to our investors. However, for
investments over which we have significant influence, we have
considered the significance of transactions between our company
and our equity affiliates and other factors in determining
whether the fair value method should be applied. In general, we
have not elected the fair value option for those equity method
investments with which LGI and its consolidated subsidiaries
have significant related-party transactions. For additional
information regarding our fair value method investments, see
note 7.
13
LIBERTY
GLOBAL, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
March 31,
2008
(unaudited)
|
|
(6)
|
Derivative
Instruments
|
Through our subsidiaries, we have entered into various
derivative instruments to manage interest rate and foreign
currency exposure with respect to the U.S. dollar ($), 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 (CHF), the Chilean peso
(CLP), the Japanese yen (¥) and the Australian dollar
(AUD). 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.
Accordingly, changes in the fair values of all other derivative
instruments are recorded in realized and unrealized losses on
derivative instruments in our condensed consolidated statements
of operations. The following table provides details of the fair
value of our derivative instrument assets (liabilities), net:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
in millions
|
|
|
Cross-currency and interest rate derivative contracts
|
|
$
|
(837.8
|
)
|
|
$
|
(280.3
|
)
|
Equity-related derivatives
|
|
|
331.3
|
|
|
|
210.8
|
|
Foreign exchange contracts
|
|
|
(15.6
|
)
|
|
|
(5.9
|
)
|
Other
|
|
|
5.0
|
|
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
Total (a)
|
|
$
|
(517.1
|
)
|
|
$
|
(70.4
|
)
|
|
|
|
|
|
|
|
|
|
Current asset
|
|
$
|
103.9
|
|
|
$
|
230.5
|
|
Long-term asset
|
|
|
508.4
|
|
|
|
421.7
|
|
Current liability
|
|
|
(238.0
|
)
|
|
|
(116.2
|
)
|
Long-term liability
|
|
|
(891.4
|
)
|
|
|
(606.4
|
)
|
|
|
|
|
|
|
|
|
|
Total (a)
|
|
$
|
(517.1
|
)
|
|
$
|
(70.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 condensed consolidated balance sheets. |
The details of our realized and unrealized losses on derivative
instruments, net, are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
in millions
|
|
|
Cross-currency and interest rate derivative contracts
|
|
$
|
(460.0
|
)
|
|
$
|
(37.9
|
)
|
Equity-related derivatives (a)
|
|
|
130.3
|
|
|
|
11.2
|
|
Foreign exchange contracts
|
|
|
(5.2
|
)
|
|
|
13.1
|
|
Other
|
|
|
(0.5
|
)
|
|
|
3.3
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(335.4
|
)
|
|
$
|
(10.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes (i) a $119.0 million gain during the 2008
period associated with our share collar (the Sumitomo Collar)
with respect to the Sumitomo shares held by our company,
(ii) a gain during the 2007 period associated with the call
options we held with respect to Telenet ordinary shares and
(iii) gains during the 2008 and 2007 periods associated
with the forward sale of the News Corp. Class A common
stock. |
14
LIBERTY
GLOBAL, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
March 31,
2008
(unaudited)
The net cash received (paid) related to our derivative
instruments is classified as an operating, investing or
financing activity in our condensed consolidated statements of
cash flows based on the classification of the applicable
underlying hedged cash flows. The classifications of these cash
flows are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
in millions
|
|
|
Net cash received (paid) related to derivative instruments:
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
32.5
|
|
|
$
|
(23.6
|
)
|
Financing activities
|
|
|
1.5
|
|
|
|
6.8
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
34.0
|
|
|
$
|
(16.8
|
)
|
|
|
|
|
|
|
|
|
|
15
LIBERTY
GLOBAL, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
March 31,
2008
(unaudited)
Cross-currency
and Interest Rate Derivative Contracts
Cross-currency
Interest Rate Swaps:
The terms of our outstanding cross-currency interest rate swap
contracts at March 31, 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional amount
|
|
|
Notional amount
|
|
|
Interest rate
|
|
Interest rate
|
|
|
due from
|
|
|
due to
|
|
|
due from
|
|
due to
|
Subsidiary (a)
|
|
counterparty
|
|
|
counterparty
|
|
|
counterparty
|
|
counterparty
|
|
|
in millions
|
|
|
|
|
|
UPC Broadband Holding:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 2013
|
|
$
|
200.0
|
|
|
|
150.9
|
|
|
6 mo. LIBOR + 2.0%
|
|
5.73%
|
December 2014
|
|
|
885.0
|
|
|
|
668.0
|
|
|
6 mo. LIBOR + 1.75%
|
|
5.72%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,085.0
|
|
|
|
818.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 2009 July 2010
|
|
|
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 2009 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 2009 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 2009 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%
|
|
10.25%
|
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%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chellomedia Programming Financing Holdco BV (Chellomedia PFH),
an indirect subsidiary of Chellomedia:
|
|
|
|
|
|
|
|
|
|
|
|
|
July 2013
|
|
|
32.5
|
|
|
HUF
|
8,632.0
|
|
|
5.50%
|
|
9.55%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VTR:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 2014
|
|
$
|
470.3
|
|
|
CLP
|
260,283.4
|
|
|
LIBOR + 3.0%
|
|
11.16%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. For derivative instruments that were in effect as
of March 31, 2008, we present a single date that represents
the applicable final maturity date. For derivative instruments
that become effective subsequent to March 31, 2008, we
present a range of dates that represents the period covered by
the applicable derivative instrument. |
16
LIBERTY
GLOBAL, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
March 31,
2008
(unaudited)
Interest
Rate Swaps:
The terms of our outstanding interest rate swap contracts at
March 31, 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate
|
|
Interest rate
|
|
|
|
|
|
due from
|
|
due to
|
Subsidiary (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
|
|
|
2,640.0
|
|
|
1 mo. EURIBOR + 0.12%
|
|
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%
|
April 2010 December 2014
|
|
|
1,000.0
|
|
|
6 mo. EURIBOR
|
|
4.66%
|
|
|
|
|
|
|
|
|
|
|
|
|
7,212.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 2010
|
|
CHF
|
618.5
|
|
|
6 mo. CHF LIBOR
|
|
2.19%
|
September 2012
|
|
|
711.5
|
|
|
6 mo. CHF LIBOR
|
|
2.33%
|
December 2014
|
|
|
1,050.0
|
|
|
6 mo. CHF LIBOR
|
|
3.47%
|
January 2011 December 2014
|
|
|
618.5
|
|
|
6 mo. CHF LIBOR
|
|
3.56%
|
October 2012 December 2014
|
|
|
711.5
|
|
|
6 mo. CHF LIBOR
|
|
3.65%
|
|
|
|
|
|
|
|
|
|
|
|
CHF
|
3,710.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 2013
|
|
CLP
|
55,350.0
|
|
|
6.68%
|
|
6 mo. TAB
|
July 2008 July 2013
|
|
|
55,350.0
|
|
|
6.88%
|
|
6 mo. TAB
|
|
|
|
|
|
|
|
|
|
|
|
CLP
|
110,700.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 2009
|
|
$
|
1,900.0
|
|
|
1 mo. LIBOR
|
|
6 mo. LIBOR 0.14%
|
|
|
|
|
|
|
|
|
|
Chellomedia PFH:
|
|
|
|
|
|
|
|
|
December 2013
|
|
$
|
89.1
|
|
|
6 mo. LIBOR
|
|
4.98%
|
|
|
|
|
|
|
|
|
|
December 2013
|
|
|
129.0
|
|
|
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
|
|
$
|
168.9
|
|
|
3 mo. LIBOR
|
|
5.14%
|
|
|
|
|
|
|
|
|
|
17
LIBERTY
GLOBAL, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
March 31,
2008
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate
|
|
Interest rate
|
|
|
|
|
|
due from
|
|
due to
|
Subsidiary (a)
|
|
Notional amount
|
|
|
counterparty
|
|
counterparty
|
|
|
in millions
|
|
|
|
|
|
VTR:
|
|
|
|
|
|
|
|
|
July 2013
|
|
CLP
|
55,350.0
|
|
|
6 mo. TAB
|
|
7.75%
|
July 2008 July 2013
|
|
|
55,350.0
|
|
|
6 mo. TAB
|
|
7.80%
|
|
|
|
|
|
|
|
|
|
|
|
CLP
|
110,700.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
31.5
|
|
|
3 mo. EURIBOR
|
|
4.52%
|
September 2012
|
|
|
200.0
|
|
|
3 mo. EURIBOR
|
|
4.35%
|
|
|
|
|
|
|
|
|
|
|
|
|
231.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LGJ Holdings LLC (LGJ Holdings):
|
|
|
|
|
|
|
|
|
November 2012
|
|
¥
|
75,000.0
|
|
|
6 mo. TIBOR
|
|
1.34%
|
|
|
|
|
|
|
|
|
|
J:COM:
|
|
|
|
|
|
|
|
|
June 2009
|
|
¥
|
6,865.2
|
|
|
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
|
|
|
6 mo. TIBOR
|
|
1.37%
|
October 2011
|
|
|
10,000.0
|
|
|
6 mo. ¥ LIBOR
|
|
1.35%
|
April 2013
|
|
|
20,000.0
|
|
|
6 mo. ¥ LIBOR
|
|
1.75%
|
October 2013
|
|
|
19,500.0
|
|
|
6 mo. ¥ LIBOR
|
|
1.63%
|
April 2008 April 2014
|
|
|
5,000.0
|
|
|
3 mo. TIBOR
|
|
1.15%
|
|
|
|
|
|
|
|
|
|
|
|
¥
|
74,365.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. For derivative instruments that were in effect as
of March 31, 2008, we present a single date that represents
the applicable final maturity date. For derivative instruments
that become effective subsequent to March 31, 2008, we
present a range of dates that represents the period covered by
the applicable derivative instrument. |
18
LIBERTY
GLOBAL, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
March 31,
2008
(unaudited)
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
|
|
|
24.5
|
|
|
|
4.0
|
%
|
December 2017
|
|
|
10.0
|
|
|
|
6.0
|
%
|
Telenet Bidco:
|
|
|
|
|
|
|
|
|
September 2013
|
|
|
250.0
|
|
|
|
4.75
|
%
|
September 2014
|
|
|
600.0
|
|
|
|
4.65
|
%
|
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 2011
|
|
|
50.0
|
|
|
|
2.5
|
%
|
|
|
4.5
|
%
|
December 2011
|
|
|
25.0
|
|
|
|
2.5
|
%
|
|
|
5.5
|
%
|
Foreign
Exchange Contracts
Several of our subsidiaries have outstanding foreign currency
forward contracts. Changes in the fair value of these contracts
are recorded in realized and unrealized losses on derivative
instruments in our condensed consolidated statements of
operations. The following table summarizes our outstanding
foreign currency forward contracts at March 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency
|
|
|
Currency
|
|
|
|
|
|
purchased
|
|
|
sold
|
|
|
|
LGI subsidiary
|
|
forward
|
|
|
forward
|
|
|
Maturity dates
|
|
|
in millions
|
|
|
|
UPC Broadband Holding
|
|
|
5.7
|
|
|
CZK
|
144.0
|
|
|
April 2008
|
UPC Broadband Holding
|
|
HUF
|
4,600.0
|
|
|
|
17.7
|
|
|
April 2008
|
UPC Broadband Holding
|
|
PLN
|
38.0
|
|
|
|
10.8
|
|
|
April 2008
|
UPC Broadband Holding
|
|
CHF
|
59.0
|
|
|
|
37.7
|
|
|
April 2008
|
UPC Broadband Holding
|
|
SKK
|
80.0
|
|
|
|
2.5
|
|
|
April 2008
|
UPC Broadband Holding
|
|
$
|
5.6
|
|
|
|
3.8
|
|
|
May 2008 November 2008
|
J:COM
|
|
$
|
31.8
|
|
|
¥
|
3,437.3
|
|
|
April 2008 October 2010
|
VTR
|
|
$
|
38.9
|
|
|
CLP
|
19,539.5
|
|
|
April 2008 February 2009
|
Telenet NV
|
|
$
|
19.5
|
|
|
|
13.1
|
|
|
April 2008 November 2008
|
Austar Entertainment
|
|
$
|
20.7
|
|
|
AUD
|
27.0
|
|
|
May 2008 March 2009
|
Liberty Global Europe Financing BV
|
|
$
|
83.5
|
|
|
CLP
|
37,277.0
|
|
|
June 2008
|
19
LIBERTY
GLOBAL, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
March 31,
2008
(unaudited)
|
|
(7)
|
Fair
Value Measurements
|
As further described in note 3, we adopted SFAS 157
and SFAS 159 effective January 1, 2008. We use the
fair value method to account for (i) certain of our
investments, (ii) our derivative instruments and
(iii) the 500.0 million ($604.6 million at
the transaction date) 1.75% euro-denominated convertible senior
notes (the UGC Convertible Notes) issued by our wholly owned
indirect subsidiary, UnitedGlobalCom, Inc. (UGC). SFAS 157
provides for a fair value hierarchy that prioritizes the inputs
to valuation techniques used to measure fair value into three
broad levels. Level 1 inputs are quoted market prices in
active markets for identical assets or liabilities that the
reporting entity has the ability to access at the measurement
date. Level 2 inputs are inputs other than quoted market
prices included within Level 1 that are observable for the
asset or liability, either directly or indirectly. Level 3
inputs are unobservable inputs for the asset or liability.
For our investments in Sumitomo common stock and News Corp.
Class A common stock, the fair value measurement is based
on the quoted closing price of the respective shares at each
reporting date. Accordingly, the valuation of these investments
falls under Level 1 of the SFAS 157 fair value
hierarchy. Our other investments that we account for at fair
value are privately-held companies, and therefore, quoted market
prices are unavailable. The valuation technique we use for such
investments is a combination of an income approach (discounted
cash flow model based on forecasts) and a market approach
(market multiples of similar businesses). The inputs used for
these investments are almost exclusively based on unobservable
inputs derived from our managements assumptions.
Therefore, the valuation of these investments falls under
Level 3 of the SFAS 157 fair value hierarchy.
The fair value measurements of our equity-related derivative
instruments are based on option pricing models, which require
the input of observable and unobservable variables such as
exchange traded equity prices, risk-free interest rates,
dividend yields and historical volatilities. The valuation of
our equity-related derivative instruments are based on a
combination of Level 1 inputs (exchange traded equity
prices), Level 2 inputs (interest rates and dividend
yields) and Level 3 inputs (historical volatilities of the
underlying equity securities), and therefore such valuation
falls under Level 3 of the SFAS 157 fair value
hierarchy.
The fair value measurements of our interest rate and foreign
currency related derivative instruments are determined using
cash flow valuation models. The inputs to the cash flow models
consist of, or are derived from, observable data for
substantially the full term of our various interest and foreign
currency related derivative instruments. This observable data
includes interest and swap rates, yield curves and credit
ratings, which are retrieved from available market data and are
not altered in performing our valuations. Therefore, the
valuation of our interest rate and foreign currency derivative
instruments falls under Level 2 of the SFAS 157 fair
value hierarchy.
The UGC Convertible Notes are traded, but not in a market that
could be considered active under the provisions of
SFAS 157. Fair value is determined using a cash flow
valuation model, consisting of inputs such as quoted market
prices for LGI Series A and Series C common stock,
risk-free interest rates, yield curves, credit ratings and
expected stock volatility. The stock volatility input is based
on the historical volatility of the LGI Series A and
Series C common stock and volatilities of other similar
companies. The valuation of the UGC Convertible Notes is based
on Level 1 inputs (quoted market prices for LGI
Series A and Series C common stock), Level 2
inputs (interest rates, yield curves and credit ratings) and
Level 3 inputs (volatility), and therefore the valuation
falls under Level 3 of the SFAS 157 fair value
hierarchy.
20
LIBERTY
GLOBAL, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
March 31,
2008
(unaudited)
A summary of the assets and liabilities measured at fair value
that are included in our condensed consolidated balance sheet as
of March 31, 2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurements at March 31, 2008 using
|
|
|
|
|
|
|
Quoted prices
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
in active
|
|
|
other
|
|
|
Significant
|
|
|
|
|
|
|
markets for
|
|
|
observable
|
|
|
unobservable
|
|
|
|
|
|
|
identical assets
|
|
|
inputs
|
|
|
inputs
|
|
Description
|
|
March 31, 2008
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
|
|
|
in millions
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments
|
|
$
|
612.3
|
|
|
$
|
|
|
|
$
|
274.1
|
|
|
$
|
338.2
|
|
Investments
|
|
|
1,129.8
|
|
|
|
703.3
|
|
|
|
|
|
|
|
426.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,742.1
|
|
|
$
|
703.3
|
|
|
$
|
274.1
|
|
|
$
|
764.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UGC Convertible Notes
|
|
$
|
830.0
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
830.0
|
|
Derivative instruments (a)
|
|
|
1,130.9
|
|
|
|
|
|
|
|
1,122.6
|
|
|
|
8.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
1,960.9
|
|
|
$
|
|
|
|
$
|
1,122.6
|
|
|
$
|
838.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes the embedded derivative component of the prepaid
forward sale of News Corp. Class A common stock, which is
included in long-term debt and capital lease obligations in our
condensed consolidated balance sheets. |
A reconciliation of the beginning and ending balances of our
assets and liabilities measured at fair value using significant
unobservable, or Level 3, inputs during the three months
ended March 31, 2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity-related
|
|
|
|
|
|
|
|
|
|
|
|
|
derivative
|
|
|
UGC
|
|
|
|
|
|
|
Investments
|
|
|
instruments, net
|
|
|
Convertible Notes
|
|
|
Total
|
|
|
|
|
|
|
in millions
|
|
|
|
|
|
Balance of asset (liability) at January 1, 2008
|
|
$
|
378.0
|
|
|
$
|
199.6
|
|
|
$
|
(902.3
|
)
|
|
$
|
(324.7
|
)
|
Gains included in net loss (a):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized and unrealized gains on derivative instruments
|
|
|
|
|
|
|
130.3
|
|
|
|
|
|
|
|
130.3
|
|
Unrealized gains due to changes in fair values of certain
investments and debt, net
|
|
|
7.1
|
|
|
|
|
|
|
|
72.3
|
|
|
|
79.4
|
|
Purchases
|
|
|
7.3
|
|
|
|
|
|
|
|
|
|
|
|
7.3
|
|
Foreign currency translation adjustments
|
|
|
34.1
|
|
|
|
|
|
|
|
|
|
|
|
34.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance of asset (liability) at March 31, 2008
|
|
$
|
426.5
|
|
|
$
|
329.9
|
|
|
$
|
(830.0
|
)
|
|
$
|
(73.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
All of the gains recognized during the three months ended
March 31, 2008 related to assets or liabilities that were
still held as of March 31, 2008. |
21
LIBERTY
GLOBAL, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
March 31,
2008
(unaudited)
Dividends received from Sumitomo are recognized when declared as
a component of interest and dividend income in our condensed
consolidated statements of operations.
Our cash equivalents include amounts that are invested in money
market funds. We record these funds at the net asset value
reported by the investment manager.
Property
and Equipment, Net
The details of property and equipment and the related
accumulated depreciation are set forth below:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
in millions
|
|
|
Distribution systems
|
|
$
|
15,818.4
|
|
|
$
|
13,839.4
|
|
Support equipment, buildings and land
|
|
|
2,148.9
|
|
|
|
1,926.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,967.3
|
|
|
|
15,765.8
|
|
Accumulated depreciation
|
|
|
(6,328.3
|
)
|
|
|
(5,157.3
|
)
|
|
|
|
|
|
|
|
|
|
Total property and equipment, net
|
|
$
|
11,639.0
|
|
|
$
|
10,608.5
|
|
|
|
|
|
|
|
|
|
|
22
LIBERTY
GLOBAL, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
March 31,
2008
(unaudited)
Goodwill
Changes in the carrying amount of goodwill for the three months
ended March 31, 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Release of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
pre-acquisition
|
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
|
|
|
valuation allowance
|
|
|
currency
|
|
|
|
|
|
|
|
|
|
Acquisition
|
|
|
and other income
|
|
|
translation
|
|
|
|
|
|
|
January 1,
|
|
|
related
|
|
|
tax related
|
|
|
adjustments
|
|
|
March 31,
|
|
|
|
2008
|
|
|
adjustments
|
|
|
adjustments
|
|
|
and other
|
|
|
2008
|
|
|
|
in millions
|
|
UPC Broadband Division:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$
|
1,367.0
|
|
|
$
|
|
|
|
$
|
(16.6
|
)
|
|
$
|
114.7
|
|
|
$
|
1,465.1
|
|
Switzerland
|
|
|
2,519.8
|
|
|
|
|
|
|
|
|
|
|
|
365.3
|
|
|
|
2,885.1
|
|
Austria
|
|
|
872.4
|
|
|
|
(1.1
|
)
|
|
|
|
|
|
|
73.3
|
|
|
|
944.6
|
|
Ireland
|
|
|
260.6
|
|
|
|
|
|
|
|
|
|
|
|
21.9
|
|
|
|
282.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
5,019.8
|
|
|
|
(1.1
|
)
|
|
|
(16.6
|
)
|
|
|
575.2
|
|
|
|
5,577.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
421.2
|
|
|
|
|
|
|
|
|
|
|
|
23.0
|
|
|
|
444.2
|
|
Other Central and Eastern Europe
|
|
|
1,109.2
|
|
|
|
21.1
|
|
|
|
|
|
|
|
106.4
|
|
|
|
1,236.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
1,530.4
|
|
|
|
21.1
|
|
|
|
|
|
|
|
129.4
|
|
|
|
1,680.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total UPC Broadband Division
|
|
|
6,550.2
|
|
|
|
20.0
|
|
|
|
(16.6
|
)
|
|
|
704.6
|
|
|
|
7,258.2
|
|
Telenet (Belgium)
|
|
|
2,183.0
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
181.5
|
|
|
|
2,364.3
|
|
J:COM (Japan)
|
|
|
2,677.3
|
|
|
|
42.0
|
|
|
|
|
|
|
|
299.1
|
|
|
|
3,018.4
|
|
VTR (Chile)
|
|
|
534.3
|
|
|
|
|
|
|
|
|
|
|
|
74.8
|
|
|
|
609.1
|
|
Corporate and other
|
|
|
682.0
|
|
|
|
0.7
|
|
|
|
|
|
|
|
17.2
|
|
|
|
699.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total LGI
|
|
$
|
12,626.8
|
|
|
$
|
62.5
|
|
|
$
|
(16.6
|
)
|
|
$
|
1,277.2
|
|
|
$
|
13,949.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
LIBERTY
GLOBAL, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
March 31,
2008
(unaudited)
Intangible
Assets Subject to Amortization, Net
The details of our intangible assets subject to amortization are
set forth below:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
in millions
|
|
|
Gross carrying amount:
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
3,063.1
|
|
|
$
|
2,746.3
|
|
Other
|
|
|
518.6
|
|
|
|
507.7
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,581.7
|
|
|
$
|
3,254.0
|
|
|
|
|
|
|
|
|
|
|
Accumulated amortization:
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
(811.2
|
)
|
|
$
|
(655.3
|
)
|
Other
|
|
|
(118.1
|
)
|
|
|
(93.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(929.3
|
)
|
|
$
|
(749.1
|
)
|
|
|
|
|
|
|
|
|
|
Net carrying amount:
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
2,251.9
|
|
|
$
|
2,091.0
|
|
Other
|
|
|
400.5
|
|
|
|
413.9
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,652.4
|
|
|
$
|
2,504.9
|
|
|
|
|
|
|
|
|
|
|
24
LIBERTY
GLOBAL, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
March 31,
2008
(unaudited)
|
|
(9)
|
Debt
and Capital Lease Obligations
|
The U.S. dollar equivalents of the components of our
consolidated debt and capital lease obligations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2008
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Unused borrowing
|
|
|
|
|
|
|
|
|
|
average
|
|
|
capacity (b)
|
|
|
Carrying value (c)
|
|
|
|
interest
|
|
|
Borrowing
|
|
U.S. $
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
rate (a)
|
|
|
currency
|
|
equivalent
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
in millions
|
|
|
Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LGI Credit Facility
|
|
|
|
|
|
$
|
215.0
|
|
$
|
215.0
|
|
|
$
|
|
|
|
$
|
|
|
Subsidiaries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UPC Broadband Holding Bank Facility
|
|
|
5.89
|
%
|
|
|
1,080.0
|
|
|
1,707.2
|
|
|
|
7,654.5
|
|
|
|
7,208.2
|
|
UPC Holding 7.75% Senior Notes due 2014
|
|
|
7.75
|
%
|
|
|
|
|
|
|
|
|
|
790.5
|
|
|
|
729.2
|
|
UPC Holding 8.63% Senior Notes due 2014
|
|
|
8.63
|
%
|
|
|
|
|
|
|
|
|
|
474.3
|
|
|
|
437.5
|
|
UPC Holding 8.0% Senior Notes due 2016
|
|
|
8.00
|
%
|
|
|
|
|
|
|
|
|
|
474.3
|
|
|
|
437.5
|
|
UPC Holding Facility
|
|
|
7.75
|
%
|
|
|
|
|
|
|
|
|
|
395.2
|
|
|
|
364.6
|
|
Telenet Credit Facility
|
|
|
7.29
|
%
|
|
|
400.0
|
|
|
632.3
|
|
|
|
3,003.7
|
|
|
|
2,770.8
|
|
J:COM Credit Facility
|
|
|
1.23
|
%
|
|
¥
|
30,000.0
|
|
|
300.4
|
|
|
|
497.8
|
|
|
|
485.1
|
|
Other J:COM debt
|
|
|
1.41
|
%
|
|
¥
|
18,050.0
|
|
|
180.8
|
|
|
|
1,122.9
|
|
|
|
1,010.2
|
|
UGC Convertible Notes (d)
|
|
|
1.75
|
%
|
|
|
|
|
|
|
|
|
|
830.0
|
|
|
|
902.3
|
|
Sumitomo Collar Loan
|
|
|
1.88
|
%
|
|
|
|
|
|
|
|
|
|
937.9
|
|
|
|
837.8
|
|
Austar Bank Facility
|
|
|
8.35
|
%
|
|
AUD
|
90.0
|
|
|
82.2
|
|
|
|
693.1
|
|
|
|
678.3
|
|
LGJ Holdings Credit Facility
|
|
|
4.16
|
%
|
|
|
|
|
|
|
|
|
|
751.1
|
|
|
|
670.9
|
|
VTR Bank Facility (e)
|
|
|
4.38
|
%
|
|
CLP
|
136,391.6
|
|
|
313.1
|
|
|
|
470.3
|
|
|
|
470.3
|
|
Chellomedia Bank Facility
|
|
|
7.63
|
%
|
|
|
|
|
|
|
|
|
|
332.5
|
|
|
|
313.8
|
|
Liberty Puerto Rico Bank Facility
|
|
|
5.14
|
%
|
|
$
|
10.0
|
|
|
10.0
|
|
|
|
168.9
|
|
|
|
169.3
|
|
Other
|
|
|
8.69
|
%
|
|
|
|
|
|
|
|
|
|
242.7
|
|
|
|
263.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
5.53
|
%
|
|
|
|
|
$
|
3,441.0
|
|
|
|
18,839.7
|
|
|
|
17,749.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J:COM
|
|
|
569.4
|
|
|
|
499.7
|
|
Telenet
|
|
|
81.4
|
|
|
|
75.8
|
|
Other subsidiaries
|
|
|
33.8
|
|
|
|
28.2
|
|
|
|
|
|
|
|
|
|
|
Total capital lease obligations
|
|
|
684.6
|
|
|
|
603.7
|
|
|
|
|
|
|
|
|
|
|
Total debt and capital lease obligations
|
|
|
19,524.3
|
|
|
|
18,353.4
|
|
Current maturities
|
|
|
(421.0
|
)
|
|
|
(383.2
|
)
|
|
|
|
|
|
|
|
|
|
Long-term debt and capital lease obligations
|
|
$
|
19,103.3
|
|
|
$
|
17,970.2
|
|
|
|
|
|
|
|
|
|
|
25
LIBERTY
GLOBAL, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
March 31,
2008
(unaudited)
|
|
|
(a) |
|
Represents the weighted average interest rate in effect at
March 31, 2008 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. For information concerning our derivative
instruments, see note 6. |
|
(b) |
|
Unused borrowing capacity represents the maximum availability
under the applicable facility at March 31, 2008 without
regard to covenant compliance calculations. At March 31,
2008, the full amount of unused borrowing capacity was available
to be borrowed under each of the respective facilities except as
indicated below. At March 31, 2008, the availability of the
unused borrowing capacity of the UPC Broadband Holding Bank
Facility and the Telenet Credit Facility was limited by covenant
compliance calculations. Based on the March 31, 2008
covenant compliance calculations, the aggregate amount that will
be available for borrowing when the March 31, 2008 bank
reporting requirements have been completed is
912.7 million ($1,442.8 million) under the UPC
Broadband Holding Bank Facility and 348.0 million
($550.1 million) under the Telenet Credit Facility. |
|
(c) |
|
Includes unamortized debt discount or premium, if applicable. |
|
(d) |
|
The UGC Convertible Notes are measured at fair value. |
|
(e) |
|
Pursuant to the deposit arrangements with the lender in relation
to the VTR Bank Facility, we are required to fund a cash
collateral account in an amount equal to the outstanding
principal and interest under the VTR Bank Facility. This cash
collateral account had a balance of $470.2 million at
March 31, 2008, of which $4.7 million is presented as
current restricted cash and $465.5 million is presented as
long-term restricted cash in our condensed consolidated balance
sheet. |
|
|
(10)
|
Stockholders
Equity
|
Stock
Repurchases
In January 2008, our board of directors approved a new stock
repurchase program under which we were authorized to acquire
from time to time up to $500 million of our LGI
Series A and Series C common stock through open market
transactions or privately negotiated transactions, which may
include derivative transactions. In February 2008, the
authorized amount under this repurchase program was increased by
an additional $500 million. The timing of the repurchase of
shares pursuant to this program, which may be suspended or
discontinued at any time, will depend on a variety of factors,
including market conditions. During the first three months of
2008, we acquired 8,976,307 shares of our LGI Series A
common stock at a weighted average price of $37.07 per share and
10,830,583 shares of our LGI Series C common stock at
a weighted average price of $35.40 per share, for an aggregate
purchase price of $716.2 million, including direct
acquisition costs. At March 31, 2008, we were authorized to
acquire an additional $344.7 million of our LGI
Series A and Series C common stock. During the month
of April 2008, we purchased an additional $196.8 million of
our LGI Series A and Series C common stock and on
May 1, 2008, the authorized amount of the existing
repurchase program was increased by $500 million.
26
LIBERTY
GLOBAL, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
March 31,
2008
(unaudited)
|
|
(11)
|
Stock
Incentive Awards
|
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 subsidiaries. The
following table summarizes our stock-based compensation expense:
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
in millions
|
|
|
LGI Series A, Series B and Series C common stock:
|
|
|
|
|
|
|
|
|
LGI performance-based incentive plans
|
|
$
|
27.3
|
|
|
$
|
28.9
|
|
Stock options, SARs, restricted stock and restricted stock units
|
|
|
9.7
|
|
|
|
12.5
|
|
|
|
|
|
|
|
|
|
|
Total LGI Series A, Series B and Series C common
stock
|
|
|
37.0
|
|
|
|
41.4
|
|
Other
|
|
|
3.3
|
|
|
|
2.1
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
40.3
|
|
|
$
|
43.5
|
|
|
|
|
|
|
|
|
|
|
|
|
(12)
|
Related
Party Transactions
|
The details of our related party transactions are set forth
below:
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
in millions
|
|
|
Revenue earned from related parties of:
|
|
|
|
|
|
|
|
|
J:COM (a)
|
|
$
|
21.6
|
|
|
$
|
11.8
|
|
LGI and consolidated subsidiaries other than J:COM (b)
|
|
|
2.9
|
|
|
|
1.9
|
|
|
|
|
|
|
|
|
|
|
Total LGI
|
|
$
|
24.5
|
|
|
$
|
13.7
|
|
|
|
|
|
|
|
|
|
|
Operating expenses charged by related parties of:
|
|
|
|
|
|
|
|
|
J:COM (c)
|
|
$
|
10.3
|
|
|
$
|
16.1
|
|
LGI and consolidated subsidiaries other than J:COM (d)
|
|
|
6.2
|
|
|
|
4.6
|
|
|
|
|
|
|
|
|
|
|
Total LGI
|
|
$
|
16.5
|
|
|
$
|
20.7
|
|
|
|
|
|
|
|
|
|
|
SG&A expenses charged by (to) related parties of: Total LGI
|
|
|
|
|
|
|
|
|
J:COM (e)
|
|
$
|
4.2
|
|
|
$
|
2.6
|
|
LGI and consolidated subsidiaries other than J:COM (f)
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total LGI
|
|
$
|
3.9
|
|
|
$
|
2.6
|
|
|
|
|
|
|
|
|
|
|
Interest expense charged by related parties of J:COM (g):
|
|
$
|
3.5
|
|
|
$
|
2.8
|
|
|
|
|
|
|
|
|
|
|
Capital lease additions related parties of
J:COM (h)
|
|
$
|
37.8
|
|
|
$
|
36.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
J:COM provides programming, construction, management,
administrative and distribution services to certain of its and
LGIs affiliates. In addition, J:COM sells construction
materials to certain of such affiliates and receives
distribution fees from SC Media. |
27
LIBERTY
GLOBAL, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
March 31,
2008
(unaudited)
|
|
|
(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 and (ii) incurs rental expense for the
use of certain vehicles and equipment under operating leases
with certain subsidiaries of Sumitomo. |
|
(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 certain subsidiaries of Sumitomo. |
|
(f) |
|
Amount represents the reimbursement of marketing and director
fees from an equity affiliate of Austar. |
|
(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 certain
subsidiaries of Sumitomo. At March 31, 2008 and
December 31, 2007, capital lease obligations of J:COM
aggregating ¥47.1 billion ($471.7 million) and
¥46.0 billion ($460.6 million), respectively,
were owed to these Sumitomo entities. |
|
|
(13)
|
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.
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 de Chile SA
(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 has the option to use cash or shares of LGI common stock to
acquire Cristalerías interest in VTR. We have
reflected the $1.5 million fair value of this put option at
March 31, 2008 in other current liabilities in our
condensed 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 Sport 1 to one of our
subsidiaries each year between January 1 and January 31,
28
LIBERTY
GLOBAL, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
March 31,
2008
(unaudited)
commencing in 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
March 31, 2008, 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 March 31, 2008. 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.
O3B Networks Limited (O3B), a
start-up
company headquartered in Jersey, United Kingdom in which we have
a convertible preferred equity interest, 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 ($16.4 million).
Guarantees
and Other Credit Enhancements
At March 31, 2008, J:COM guaranteed ¥7.1 billion
($71.1 million) of debt of certain of its non-consolidated
investees. The maturities of the guaranteed debt range from 2008
to 2018.
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 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
29
LIBERTY
GLOBAL, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
March 31,
2008
(unaudited)
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
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 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. The plaintiffs appealed the
District Courts decision to the Court of Appeals on
March 12, 2008.
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 the
plaintiffs have filed an appeal of 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, Inc. (LGI
International), our predecessor and one of our subsidiaries, 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 engaged in self-dealing
and unjust enrichment, approved an unfair price, and impeded or
discouraged other offers for UGC or its assets in bad faith and
for improper motives. The complaints seek various remedies,
including damages for the public holders of UGCs stock and
an award of attorneys fees to plaintiffs counsel. On
February 11, 2005, the Delaware Court of Chancery
consolidated all 21 Delaware lawsuits into a single action.
Also, on April 20, 2005, the Denver District Court, State
of Colorado, issued an order granting a joint stipulation for
stay of the action filed in this court pending the final
resolution of the consolidated action in Delaware. On
January 7, 2008, the Delaware Chancery Court was formally
30
LIBERTY
GLOBAL, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
March 31,
2008
(unaudited)
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 the plaintiffs counsel).
A stipulation of settlement dated February 19, 2008, as
amended on February 29, 2008, setting forth the terms of
the settlement and release of claims was filed with the Delaware
Chancery Court on February 29, 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. The
hearing has been scheduled for May 16, 2008. 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
March 31, 2008, Telenet provided services over broadband
networks owned by Telenet and a broadband network (the Telenet
Partner Network) owned by four associations of municipalities in
Belgium, which we refer to as the pure intercommunales or the
PICs, 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.
However, in view of the
agreement-in-principle
that Telenet concluded with the PICs in November 2007 (described
below), the PICs have agreed to temporarily suspend their appeal
proceedings. It is possible that these proceedings could be
reinitiated in the future. 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
($269 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 subsequently
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
agreement-in-principle.
The PICs are challenging this allegation, and Telenet intervened
in this litigation in order to protect its interests. 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 could last for years. On March 11, 2008, the
President of the Court of First Instance of Antwerp ruled in
favor of Belgacom
31
LIBERTY
GLOBAL, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
March 31,
2008
(unaudited)
and, accordingly, ordered the PICs to refrain from any act
implementing the
agreement-in-principle
pending the procedure on the merits. Telenet has appealed the
March 11, 2008 ruling.
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. For now, the Government Commissioner and
the Flemish Home Secretary Minister have not deemed it necessary
to suspend the
agreement-in-principle
in light of the pending legal proceedings. 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 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. A hearing on the appeal has been scheduled
for September 2008.
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 Corporation (Liberty
Media), the former parent company of our predecessor, 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 FNE that Liberty Medias
acquisition of the DirecTV interest
32
LIBERTY
GLOBAL, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
March 31,
2008
(unaudited)
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. On March 10,
2008, following the closing of Liberty Medias investment
in DirecTV, the FNE commenced an action before the Chilean
Antitrust Court against John C. Malone, who is chairman of our
board of directors and of Liberty Medias board of
directors. In this action, the FNE alleges that Mr. Malone
is a controller of VTR and either controls or indirectly
participates in DirecTVs satellite operations in Chile
thus violating the condition. The FNE requests the Antitrust
Court to impose a fine on Mr. Malone and order him to
effect the transfer of the shares, interests or other assets
that are necessary to restore the independence, in ownership and
administration, of VTR and DirecTV. We currently are unable to
predict the outcome of this matter or its impact on VTR.
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.
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, provision 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
definition of operating cash flow may differ from cash flow
measurements provided by other public companies. A
reconciliation of total segment operating cash flow to our
consolidated loss before income taxes and minority interests 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 (loss),
cash flow from operating activities and other GAAP measures of
income.
33
LIBERTY
GLOBAL, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
March 31,
2008
(unaudited)
We have identified the following consolidated operating segments
as our reportable segments:
|
|
|
|
|
UPC Broadband Division:
|
The Netherlands
Switzerland
Austria
Ireland
Hungary
Other Central and Eastern Europe
|
|
|
|
|
Telenet (Belgium)
|
|
|
|
J:COM (Japan)
|
|
|
|
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
business-to-business
communications (B2B) services and J:COM provides certain
programming services. At March 31, 2008, 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 the Czech Republic, Poland,
Romania, Slovakia 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, (ii) 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 (iii) our corporate category.
Intersegment eliminations primarily represent the elimination of
intercompany transactions between our broadband communications
and programming operations, primarily in Europe.
Performance
Measures of Our Reportable Segments
The amounts presented below represent 100% of each
businesss 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 condensed 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
condensed 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-parties 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.
34
LIBERTY
GLOBAL, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
March 31,
2008
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
Operating
|
|
|
|
|
|
Operating
|
|
|
|
Revenue
|
|
|
cash flow
|
|
|
Revenue
|
|
|
cash flow
|
|
|
|
in millions
|
|
|
Performance Measures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UPC Broadband Division:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$
|
301.1
|
|
|
$
|
168.6
|
|
|
$
|
252.0
|
|
|
$
|
128.0
|
|
Switzerland
|
|
|
252.4
|
|
|
|
132.6
|
|
|
|
207.3
|
|
|
|
103.3
|
|
Austria
|
|
|
139.8
|
|
|
|
68.7
|
|
|
|
120.0
|
|
|
|
57.7
|
|
Ireland
|
|
|
88.4
|
|
|
|
33.9
|
|
|
|
73.7
|
|
|
|
22.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
781.7
|
|
|
|
403.8
|
|
|
|
653.0
|
|
|
|
311.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
100.0
|
|
|
|
51.1
|
|
|
|
90.0
|
|
|
|
44.4
|
|
Other Central and Eastern Europe
|
|
|
234.9
|
|
|
|
118.9
|
|
|
|
183.5
|
|
|
|
88.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
334.9
|
|
|
|
170.0
|
|
|
|
273.5
|
|
|
|
133.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central and corporate operations
|
|
|
2.7
|
|
|
|
(59.9
|
)
|
|
|
5.4
|
|
|
|
(55.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total UPC Broadband Division
|
|
|
1,119.3
|
|
|
|
513.9
|
|
|
|
931.9
|
|
|
|
389.4
|
|
Telenet (Belgium)
|
|
|
374.4
|
|
|
|
174.9
|
|
|
|
300.1
|
|
|
|
136.9
|
|
J:COM (Japan)
|
|
|
679.3
|
|
|
|
283.6
|
|
|
|
533.3
|
|
|
|
218.3
|
|
VTR (Chile)
|
|
|
186.5
|
|
|
|
75.6
|
|
|
|
145.4
|
|
|
|
54.5
|
|
Corporate and other
|
|
|
275.2
|
|
|
|
52.7
|
|
|
|
215.8
|
|
|
|
25.5
|
|
Intersegment eliminations
|
|
|
(23.7
|
)
|
|
|
|
|
|
|
(20.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated LGI
|
|
$
|
2,611.0
|
|
|
$
|
1,100.7
|
|
|
$
|
2,106.0
|
|
|
$
|
824.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
LIBERTY
GLOBAL, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
March 31,
2008
(unaudited)
The following table provides a reconciliation of total segment
operating cash flow to loss before income taxes and minority
interests:
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
in millions
|
|
|
Total segment operating cash flow
|
|
$
|
1,100.7
|
|
|
$
|
824.6
|
|
Stock-based compensation expense
|
|
|
(40.3
|
)
|
|
|
(43.5
|
)
|
Depreciation and amortization
|
|
|
(704.1
|
)
|
|
|
(594.0
|
)
|
Impairment, restructuring and other operating credits (charges),
net
|
|
|
1.5
|
|
|
|
(5.3
|
)
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
357.8
|
|
|
|
181.8
|
|
Interest expense
|
|
|
(279.6
|
)
|
|
|
(233.0
|
)
|
Interest and dividend income
|
|
|
34.8
|
|
|
|
24.4
|
|
Share of results of affiliates, net
|
|
|
2.5
|
|
|
|
13.6
|
|
Realized and unrealized losses on derivative instruments, net
|
|
|
(335.4
|
)
|
|
|
(10.3
|
)
|
Foreign currency transaction gains, net
|
|
|
172.6
|
|
|
|
24.3
|
|
Unrealized gains (losses) due to changes in fair values of
certain investments and debt, net
|
|
|
22.0
|
|
|
|
(71.6
|
)
|
Other expense, net
|
|
|
(0.4
|
)
|
|
|
(3.0
|
)
|
|
|
|
|
|
|
|
|
|
Loss before income taxes and minority interests
|
|
$
|
(25.7
|
)
|
|
$
|
(73.8
|
)
|
|
|
|
|
|
|
|
|
|
36
LIBERTY
GLOBAL, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
March 31,
2008
(unaudited)
Geographic
Segments
The revenue of our geographic segments is set forth below:
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
in millions
|
|
|
Europe:
|
|
|
|
|
|
|
|
|
UPC Broadband Division:
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$
|
301.1
|
|
|
$
|
252.0
|
|
Switzerland
|
|
|
252.4
|
|
|
|
207.3
|
|
Austria
|
|
|
139.8
|
|
|
|
120.0
|
|
Ireland
|
|
|
88.4
|
|
|
|
73.7
|
|
Hungary
|
|
|
100.0
|
|
|
|
90.0
|
|
Romania
|
|
|
57.7
|
|
|
|
57.2
|
|
Czech Republic
|
|
|
70.1
|
|
|
|
52.6
|
|
Poland
|
|
|
73.4
|
|
|
|
49.5
|
|
Slovakia
|
|
|
18.0
|
|
|
|
14.4
|
|
Slovenia
|
|
|
15.7
|
|
|
|
9.8
|
|
Central and corporate operations (a)
|
|
|
2.7
|
|
|
|
5.4
|
|
|
|
|
|
|
|
|
|
|
Total UPC Broadband Division
|
|
|
1,119.3
|
|
|
|
931.9
|
|
Belgium
|
|
|
374.4
|
|
|
|
300.1
|
|
Chellomedia (b)
|
|
|
105.8
|
|
|
|
76.1
|
|
|
|
|
|
|
|
|
|
|
Total Europe
|
|
|
1,599.5
|
|
|
|
1,308.1
|
|
|
|
|
|
|
|
|
|
|
Japan
|
|
|
679.3
|
|
|
|
533.3
|
|
|
|
|
|
|
|
|
|
|
The Americas:
|
|
|
|
|
|
|
|
|
Chile
|
|
|
186.5
|
|
|
|
145.4
|
|
Other (c)
|
|
|
32.0
|
|
|
|
34.8
|
|
|
|
|
|
|
|
|
|
|
Total The Americas
|
|
|
218.5
|
|
|
|
180.2
|
|
|
|
|
|
|
|
|
|
|
Australia
|
|
|
137.4
|
|
|
|
104.9
|
|
|
|
|
|
|
|
|
|
|
Intersegment eliminations
|
|
|
(23.7
|
)
|
|
|
(20.5
|
)
|
|
|
|
|
|
|
|
|
|
Total consolidated LGI
|
|
$
|
2,611.0
|
|
|
$
|
2,106.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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) |
|
Includes certain less significant operating segments that
provide broadband communications and video programming services. |
37
|
|
Item 2.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
The following discussion and analysis, which should be read in
conjunction with the discussion and analysis included in our
2007 Annual Report on
Form 10-K,
is intended to assist in providing an understanding of our
financial condition, changes in financial condition and results
of operations and is organized as follows:
|
|
|
|
|
Forward-Looking Statements. This section
provides a description of certain of the factors that could
cause actual results or events to differ materially from
anticipated results or events.
|
|
|
|
Overview. This section provides a general
description of our business and recent events.
|
|
|
|
Material Changes in Results of
Operations. This section provides an analysis of
our results of operations for the three months ended
March 31, 2008 and 2007.
|
|
|
|
Material Changes in Financial Condition. This
section provides an analysis of our corporate and subsidiary
liquidity, condensed consolidated cash flow statements and our
off balance sheet arrangements.
|
|
|
|
Quantitative and Qualitative Disclosures about Market Risk.
This section provides discussion and analysis of the foreign
currency, interest rate and other market risk that our company
faces.
|
The capitalized terms used below have been defined in the notes
to our condensed consolidated financial statements. In the
following text, the terms, we, our,
our company and us may refer, as the
context requires, to LGI and its predecessors and subsidiaries.
Unless otherwise indicated, convenience translations into
U.S. dollars are calculated as of March 31, 2008.
Forward-Looking
Statements
Certain statements in this Quarterly Report on
Form 10-Q
constitute forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. To the extent
that statements in this Quarterly Report are not recitations of
historical fact, such statements constitute forward-looking
statements, which, by definition, involve risks and
uncertainties that could cause actual results to differ
materially from those expressed or implied by such statements.
In particular, statements under Managements Discussion
and Analysis of Financial Condition and Results of Operations
and 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 addition to the risk factors described in our
2007 Annual Report on
Form 10-K,
the following are some but not all of the factors that could
cause actual results or events to differ materially from
anticipated results or events:
|
|
|
|
|
economic and business conditions and industry trends in the
countries in which we, and the entities in which we have
interests, operate;
|
|
|
|
the competitive environment in the broadband communications and
programming industries in the countries in which we, and the
entities in which we have interests, operate;
|
|
|
|
competitor responses to our products and services, and the
products and services of the entities in which we have interests;
|
|
|
|
fluctuations in currency exchange rates and interest rates;
|
|
|
|
consumer disposable income and spending levels, including the
availability and amount of individual consumer debt;
|
|
|
|
changes in consumer television viewing preferences and habits;
|
38
|
|
|
|
|
consumer acceptance of existing service offerings, including our
digital video, voice and broadband internet services;
|
|
|
|
consumer acceptance of new technology, programming alternatives
and broadband services that we may offer;
|
|
|
|
our ability to manage rapid technological changes;
|
|
|
|
our ability to increase the number of subscriptions to our
digital video, voice and broadband internet services and our
average revenue per household;
|
|
|
|
the outcome of any pending or threatened litigation;
|
|
|
|
Telenets ability to favorably resolve negotiations and
litigation with respect to the Telenet Partner Network;
|
|
|
|
continued consolidation of the foreign broadband distribution
industry;
|
|
|
|
changes in, or failure or inability to comply with, government
regulations in the countries in which we, and the entities in
which we have interests, operate and adverse outcomes from
regulatory proceedings;
|
|
|
|
our ability to obtain regulatory approval and satisfy other
conditions necessary to close acquisitions, as well as our
ability to satisfy conditions imposed by competition and other
regulatory authorities in connection with acquisitions;
|
|
|
|
government intervention that opens our broadband distribution
networks to competitors;
|
|
|
|
our ability to successfully negotiate rate increases with local
authorities;
|
|
|
|
changes in laws or treaties relating to taxation, or the
interpretation thereof, in countries in which we, or the
entities in which we have interests, operate;
|
|
|
|
uncertainties inherent in the development and integration of new
business lines and business strategies;
|
|
|
|
capital spending for the acquisition
and/or
development of telecommunications networks and services;
|
|
|
|
our ability to successfully integrate and recognize anticipated
efficiencies from the businesses we acquire;
|
|
|
|
problems we may discover post-closing with the operations,
including the internal controls and financial reporting process,
of businesses we acquire;
|
|
|
|
the impact of our future financial performance, or market
conditions generally, on the availability, terms and deployment
of capital;
|
|
|
|
the ability of suppliers and vendors to timely deliver products,
equipment, software and services;
|
|
|
|
the availability of attractive programming for our digital video
services at reasonable costs;
|
|
|
|
the loss of key employees and the availability of qualified
personnel;
|
|
|
|
changes in the nature of key strategic relationships with
partners and joint ventures; and
|
|
|
|
events that are outside of our control, such as political unrest
in international markets, terrorist attacks, natural disasters,
pandemics and other similar events.
|
The broadband communications services industries are changing
rapidly and, therefore, the forward-looking statements of
expectations, plans and intent in this Quarterly Report are
subject to a significant degree of risk. These forward-looking
statements and such risks, uncertainties and other factors speak
only as of the date of this Quarterly Report, and we expressly
disclaim any obligation or undertaking to disseminate any
updates or revisions to any forward-looking statement contained
herein, to reflect any change in our expectations with regard
thereto, or any other change in events, conditions or
circumstances on which any such statement is based.
39
Overview
We are an international provider of video, voice and broadband
internet services with consolidated broadband communications
and/or DTH
satellite operations at March 31, 2008 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. The European broadband communications operations of UPC
Broadband Holding are collectively referred to as the UPC
Broadband Division. UPC Broadband Holdings broadband
communications operations in Chile are provided through VTR.
Through our indirect majority ownership interest in Telenet
(51.1% at March 31, 2008), we provide broadband
communications services in Belgium. Through our indirect
controlling ownership interest in J:COM (37.8% at March 31,
2008), we provide broadband communications services in Japan.
Through our indirect majority ownership interest in Austar
(53.4% at March 31, 2008), 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 owns or manages investments in
various businesses in Europe. Certain of Chellomedias
subsidiaries and affiliates provide programming services to
certain of our broadband communications operations, primarily in
Europe.
As further described in note 4 to our condensed
consolidated financial statements, we completed (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 and (ii) certain other less
significant acquisitions in Europe and Japan since the beginning
of 2007 that impact the comparability of our 2008 and 2007
results.
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 14 to our condensed consolidated
financial statements). As discussed further under Material
Changes in Financial Condition Capitalization
below, we also seek to maintain our debt at levels that
provide for attractive equity returns without assuming undue
risk.
From an operational perspective, we focus on achieving organic
revenue and customer growth in our broadband communications
operations by developing and marketing bundled entertainment and
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 March 31, 2008, our consolidated
subsidiaries owned and operated networks that passed 30,695,000
homes and served 24,382,600 revenue generating units (RGUs),
consisting of 14,701,500 video subscribers, 5,585,900 broadband
internet subscribers and 4,095,200 telephony subscribers.
Including the effects of acquisitions, we added a total of
347,900 RGUs during the first quarter of 2008. Excluding the
effects of acquisitions (RGUs added on the acquisition date),
but including post-acquisition RGU additions, we added 301,600
RGUs during the first quarter of 2008, as compared to 357,000
RGUs that were added on an organic basis during the first
quarter of 2007. Our organic RGU growth during the first quarter
of 2008 is attributable to the growth of our broadband internet
services, which added 181,900 RGUs, and our digital telephony
services, which added 177,100 RGUs. We experienced a net organic
decline of 57,400 video RGUs during the first quarter of 2008,
as decreases in our analog cable RGUs of 346,300 and our
multi-channel multi-point (microwave) distribution system (MMDS)
video RGUs of 4,000 were not fully offset by increases in our
digital cable RGUs of 271,800 and our DTH video RGUs of 21,100.
40
We are experiencing increasing competition in all of our
broadband communications markets, particularly in the
Netherlands, Austria, Romania, Hungary, the Czech Republic and
other parts of Europe. This increasing competition has
contributed to (i) a decline in the organic growth rate for
our consolidated revenue from 9.3% during the year ended
December 31, 2007 to 6.0% during the first quarter of 2008,
(ii) a decrease in the number of our consolidated net
organic RGU additions during the first quarter of 2008, as
compared to the corresponding prior year period, due in large
part to declines in subscriber retention rates in certain
European markets, (iii) slight organic declines in RGUs in
Austria, the Netherlands and the Czech Republic during the first
quarter of 2008, (iv) slight organic declines in revenue in
Austria, Romania and Hungary during the first quarter of 2008,
as compared to the corresponding prior year period, and
(v) organic declines in the average monthly subscription
revenue earned per average RGU (ARPU) in Austria, Hungary, the
Czech Republic, Romania, Slovenia and Chile during the first
quarter of 2008, as compared to the corresponding prior year
period. During the first quarter of 2008, the negative impact of
the continuing decline of ARPU from internet and telephony
services was mitigated somewhat by improvements in our RGU mix
and the implementation of rate increases for video and, to a
lesser extent, other product offerings in certain of our
broadband communications markets. We believe that we will
continue to be challenged to maintain or improve recent
historical organic revenue and RGU growth rates in future
periods as we expect that competition will continue to grow and
that the markets for certain of our service offerings will
continue to mature. 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 below.
Despite the competitive pressures that we experienced during the
first quarter of 2008, we were able to control 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, as compared to the
operating cash flow margins we achieved during the corresponding
2007 period. No assurance can be given that we will be able to
continue to expand our operating cash flow margins in future
periods. 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.
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.
Effective January 1, 2008, we adopted SFAS 157.
SFAS 157 provides for a fair value hierarchy that
prioritizes the inputs to valuation techniques used to measure
fair value into three broad levels. As of March 31, 2008,
we used unobservable, or Level 3, inputs for approximately
2% of our assets and approximately 3% of our liabilities and we
therefore believe that variations in our unobservable inputs
would not have a material impact on our results of operations,
liquidity or capital resources. For additional information
regarding our fair value measurements, see note 7 to our
condensed consolidated financial statements.
41
Material
Changes in Results of Operations
The comparability of our operating results during the 2008 and
2007 interim periods 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 to foreign
currency risk from a translation perspective is currently to the
euro and the Japanese yen. In this regard, 38.5% and 26.0% of
our U.S. dollar revenue during the first quarter of 2008
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
portions of the changes in the various components of our results
of operations that are attributable to changes in foreign
currency exchange rates are highlighted under Discussion and
Analysis of our Reportable Segments and Discussion and
Analysis of our Consolidated Operating Results below. For
information concerning the applicable foreign currency exchange
rates in effect for the periods covered by this Quarterly
Report, see the table presented under Quantitative and
Qualitative Disclosures about Market Risk Foreign
Currency Risk below.
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 condensed 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
condensed 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-parties 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 and J:COM
provides certain programming services. At March 31, 2008,
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 the Czech
Republic, Poland, Romania, Slovakia 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, (ii) other less significant
operating segments that provide broadband communications
services in Puerto Rico and video programming and other services
in Europe and Argentina and (iii) our corporate category.
Intersegment eliminations primarily represent the elimination of
intercompany transactions between our broadband communications
and programming operations, primarily in Europe.
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 loss before income taxes and minority interests,
see note 14 to our condensed consolidated financial
statements.
The tables presented below in this section provide a separate
analysis of each of the line items that comprise operating cash
flow (revenue, operating expenses and SG&A expenses,
excluding allocable stock-based compensation expense in
accordance with our definition of operating cash flow) as well
as an analysis of operating cash
42
flow by reportable segment for the three months ended
March 31, 2008, as compared to the corresponding prior year
period. In each case, the tables present (i) the amounts
reported by each of our reportable segments for the comparative
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 the three months ended
March 31, 2008 and 2007 at the end of this section.
The revenue of our reportable segments includes amounts received
from subscribers for ongoing services, installation fees,
advertising revenue, mobile telephony revenue, channel carriage
fees, telephony interconnect fees, programming revenue 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 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
|
|
|
|
Three months ended
|
|
|
|
|
|
(decrease)
|
|
|
|
March 31,
|
|
|
Increase (decrease)
|
|
|
excluding FX
|
|
|
|
2008
|
|
|
2007
|
|
|
$
|
|
|
%
|
|
|
%
|
|
|
|
in millions
|
|
|
|
|
|
|
|
UPC Broadband Division:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$
|
301.1
|
|
|
$
|
252.0
|
|
|
$
|
49.1
|
|
|
|
19.5
|
|
|
|
4.4
|
|
Switzerland
|
|
|
252.4
|
|
|
|
207.3
|
|
|
|
45.1
|
|
|
|
21.8
|
|
|
|
5.2
|
|
Austria
|
|
|
139.8
|
|
|
|
120.0
|
|
|
|
19.8
|
|
|
|
16.5
|
|
|
|
1.9
|
|
Ireland
|
|
|
88.4
|
|
|
|
73.7
|
|
|
|
14.7
|
|
|
|
19.9
|
|
|
|
4.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
781.7
|
|
|
|
653.0
|
|
|
|
128.7
|
|
|
|
19.7
|
|
|
|
4.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
100.0
|
|
|
|
90.0
|
|
|
|
10.0
|
|
|
|
11.1
|
|
|
|
(0.2
|
)
|
Other Central and Eastern Europe
|
|
|
234.9
|
|
|
|
183.5
|
|
|
|
51.4
|
|
|
|
28.0
|
|
|
|
8.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
334.9
|
|
|
|
273.5
|
|
|
|
61.4
|
|
|
|
22.4
|
|
|
|
5.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central and corporate operations
|
|
|
2.7
|
|
|
|
5.4
|
|
|
|
(2.7
|
)
|
|
|
(50.0
|
)
|
|
|
(61.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total UPC Broadband Division
|
|
|
1,119.3
|
|
|
|
931.9
|
|
|
|
187.4
|
|
|
|
20.1
|
|
|
|
4.2
|
|
Telenet (Belgium)
|
|
|
374.4
|
|
|
|
300.1
|
|
|
|
74.3
|
|
|
|
24.8
|
|
|
|
9.0
|
|
J:COM (Japan)
|
|
|
679.3
|
|
|
|
533.3
|
|
|
|
146.0
|
|
|
|
27.4
|
|
|
|
12.3
|
|
VTR (Chile)
|
|
|
186.5
|
|
|
|
145.4
|
|
|
|
41.1
|
|
|
|
28.3
|
|
|
|
9.8
|
|
Corporate and other
|
|
|
275.2
|
|
|
|
215.8
|
|
|
|
59.4
|
|
|
|
27.5
|
|
|
|
13.0
|
|
Intersegment eliminations
|
|
|
(23.7
|
)
|
|
|
(20.5
|
)
|
|
|
(3.2
|
)
|
|
|
(15.6
|
)
|
|
|
(1.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated LGI
|
|
$
|
2,611.0
|
|
|
$
|
2,106.0
|
|
|
$
|
505.0
|
|
|
|
24.0
|
|
|
|
8.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands. The Netherlands revenue
increased $49.1 million or 19.5% during the three months
ended March 31, 2008, as compared to the corresponding
prior year period. Excluding the effects of foreign exchange
rate fluctuations, the Netherlands revenue increased
$11.1 million or 4.4%. This increase is attributable to an
increase in subscription revenue, due to (i) higher ARPU
and (ii) a higher number of average RGUs during the 2008
period,
43
as compared to the corresponding prior year period. ARPU was
higher during the 2008 period, as the positive impacts of
(i) an improvement in the Netherlands RGU mix,
attributable to a higher proportion of telephony, broadband
internet and digital cable RGUs, (ii) January 2008 price
increases for certain video, broadband internet and telephony
services and (iii) growth in the Netherlands digital
cable services, including increased revenue from premium digital
services and products, were only partially offset by the
negative impacts of (a) increased competition and
(b) lower telephony call volumes. The increase in average
RGUs, which includes the negative impact of a slight organic
decline in the Netherlands total RGUs during the first
quarter of 2008, is attributable to increases in average
telephony, broadband internet and digital cable RGUs that were
only partially offset by a decline in average analog cable RGUs.
The decline in the Netherlands average analog cable RGUs
is largely due to the effects of increasing competition from the
incumbent telecommunications operator in the Netherlands. We
expect that we will continue to face significant competition
from the incumbent telecommunications operator in future
periods. The increase in the Netherlands subscription
revenue during the 2008 period as compared to the corresponding
period in 2007, was partially offset by a decrease in non-
subscription revenue, primarily attributable to (i) lower
revenue from installation fees as a result of higher discounting
and lower subscriber additions and (ii) a decrease in
revenue from B2B services due in part to increased competition.
Switzerland. Switzerlands revenue
increased $45.1 million or 21.8% during the three months
ended March 31, 2008, as compared to the corresponding
prior year period. Excluding the effects of foreign exchange
rate fluctuations, Switzerlands revenue increased
$10.8 million or 5.2%. Most of this increase is
attributable to an increase in subscription revenue, due to
(i) a higher number of average RGUs and (ii) somewhat
higher ARPU during the 2008 period. The increase in average RGUs
is attributable to increases in average digital cable, broadband
internet and telephony RGUs that were only partially offset by a
decline in average analog cable RGUs. ARPU was somewhat higher
during the 2008 period, as the positive impacts of (i) an
improvement in Switzerlands RGU mix, attributable to a
higher proportion of digital cable, telephony and broadband
internet RGUs, (ii) a January 2008 price increase for
analog cable services and (iii) Switzerlands digital
migration efforts were only partially offset by the negative
impacts of (a) increased competition, (b) a
lower-priced tier of digital cable services and a decrease in
the rental price charged for digital cable set top boxes that
Switzerland began offering during the second quarter of 2007 to
comply with the regulatory framework established by the Swiss
Price Regulator in November 2006, (c) lower telephony call
volumes and (d) customers selecting lower-priced tiers of
broadband internet services.
Austria. Austrias revenue increased
$19.8 million or 16.5% during the three months ended
March 31, 2008, as compared to the corresponding prior year
period. This increase includes a $6.8 million increase that
is attributable to the impact of the October 2007 Tirol
acquisition. Excluding the effects of the Tirol acquisition and
foreign exchange rate fluctuations, Austrias revenue
decreased $4.6 million or 3.8%. This decrease is
attributable to a decrease in subscription revenue, as the
negative impact of lower ARPU was only partially offset by a
slightly higher number of average RGUs. The decline in
subscription revenue, which, as discussed under Overview
above, is largely related to the increasing competition we
are experiencing in Austria, includes declines in revenue from
broadband internet and telephony services that were only
partially offset by an increase in revenue from video services.
The increase in average RGUs, which includes the negative impact
of a slight organic decline in Austrias total RGUs during
the first quarter of 2008, is attributable to increases in
average digital cable, telephony and broadband internet RGUs
that were only partially offset by a decline in average analog
cable RGUs. ARPU decreased during the 2008 period as compared to
the corresponding period in 2007, as the positive impacts of
(i) an improvement in Austrias RGU mix, primarily
attributable to a higher proportion of digital cable and
broadband internet RGUs, and (ii) a January 2008 rate
increase for analog cable services were more than offset by the
negative impacts of (a) increased competition, (b) a
higher proportion of customers selecting lower-priced tiers of
broadband internet service, (c) lower telephony call
volumes, (d) an increase in the proportion of subscribers
selecting VoIP telephony service, which generally is priced
lower than Austrias circuit switched telephony service,
and (e) the introduction of a lower priced digital cable
tier. Non-subscription revenue in Austria was relatively
unchanged during the 2008 and 2007 periods, as a decrease in
installation revenue was offset by individually insignificant
increases in other components of non subscription
revenue.
Ireland. Irelands revenue increased
$14.7 million or 19.9% during the three months ended
March 31, 2008, as compared to the corresponding prior year
period. Excluding the effects of foreign exchange rate
fluctuations,
44
Irelands revenue increased $3.5 million or 4.8%. This
increase is attributable to an increase in subscription revenue
as a result of higher average RGUs and slightly higher ARPU
during the 2008 period, as compared to the corresponding period
in 2007. The increase in average RGUs, which includes the
negative impact of a slight organic decline in Irelands
video RGUs during the first quarter of 2008, primarily is
attributable to increases in the average number of broadband
internet, digital cable and telephony RGUs that were only
partially offset by a decline in average analog cable RGUs. ARPU
increased during the 2008 period as compared to the
corresponding period in 2007, as the positive impacts of
(i) an improvement in Irelands RGU mix, primarily
attributable to a higher proportion of digital cable and
telephony RGUs and (ii) a January 2008 price increase for
certain analog cable and MMDS video services were only partially
offset by the negative effects of (a) increased competition
and (b) a higher proportion of broadband internet customers
selecting lower-priced tiers of service.
Hungary. Hungarys revenue increased
$10.0 million or 11.1% during the three months ended
March 31, 2008, as compared to the corresponding prior year
period. Excluding the effects of foreign exchange rate
fluctuations, Hungarys revenue decreased $0.1 million
or 0.2%. This decrease is attributable to a decrease in
subscription revenue, as the negative impact of lower ARPU was
only partially offset by a higher number of average RGUs. The
decline in subscription revenue, which, as discussed under
Overview above, is largely related to the increasing
competition we are experiencing in Hungary, includes a decline
in revenue from video services that was only partially offset by
increases in revenue from broadband internet and telephony
services. The increase in average RGUs is attributable to
increases in average broadband internet, telephony and, to a
lesser extent, DTH RGUs that were only partially offset by a
decline in average analog cable RGUs. Hungary is continuing to
experience organic declines in analog cable RGUs, primarily due
to the effects of competition from an alternative DTH provider.
ARPU declined during the 2008 period as compared to the
corresponding period in 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 2008 rate increase for analog cable
services were more than offset by the negative impacts of
(a) increased competition, (b) a higher proportion of
customers selecting lower-priced tiers of broadband internet and
DTH video services and (c) lower telephony call volume. An
increase in B2B and other non-subscription revenue offset most
of the decrease in Hungarys subscription revenue during
the 2008 period.
Other Central and Eastern Europe. Other
Central and Eastern Europes revenue increased
$51.4 million or 28.0% during the three months ended
March 31, 2008, as compared to the corresponding prior year
period. This increase includes $4.9 million attributable to
the aggregate impact of acquisitions. Excluding the effects of
acquisitions and foreign exchange rate fluctuations, Other
Central and Eastern Europes revenue increased
$10.2 million or 5.5%. This increase primarily is
attributable to an increase in subscription revenue as a result
of higher average RGUs during the 2008 period, as compared to
the 2007 period. The increase in average RGUs during the first
three months of 2008 is attributable to increases in average
broadband internet RGUs (mostly in Poland, Romania and the Czech
Republic) and telephony RGUs (mostly related to the expansion of
VoIP telephony services in the Czech Republic, Poland and
Romania), that were only partially offset by a decline in
average video RGUs. The decline in average video RGUs is
attributable to decreases in Romania and, to a much lesser
extent, the Czech Republic and Slovakia that were only partially
offset by small increases in Poland and Slovenia. ARPU in our
Other Central and Eastern Europe segment remained relatively
flat during the 2008 period as compared to the corresponding
period in 2007, as the positive effects of (i) an
improvement in RGU mix, primarily attributable to a higher
proportion of digital cable and broadband internet RGUs and
(ii) January 2008 rate increases for video services in
certain countries were offset by the negative effects of
(a) increased competition and (b) a higher proportion
of broadband internet subscribers selecting lower-priced tiers.
Although competition is a factor throughout our Other Central
and Eastern Europe markets, we are experiencing particularly
intense competition in Romania and the Czech Republic. In the
case of the Czech Republic, the competition has contributed to
declines in (i) video and overall RGUs, (ii) ARPU from
all product categories and (iii) revenue from video
services during the first three months of 2008, as compared to
the corresponding prior year period. In Romania, the competition
has contributed to declines in (i) ARPU and (ii) video
and overall revenue during the first quarter of 2008, as
compared to the corresponding prior year period. We expect that
we will continue to experience significant competition in future
periods in Romania, the Czech Republic and our Other Central and
Eastern Europe markets.
45
Telenet. Telenets revenue increased
$74.3 million or 24.8% during the three months ended
March 31, 2008, as compared to the corresponding prior year
period. This increase includes $1.7 million attributable to
the impact of an acquisition. Excluding the effects of foreign
exchange rate fluctuations and an acquisition, Telenets
revenue increased $25.4 million or 8.5%. Most of this
increase is attributable to an increase in subscription revenue
as a result of higher average RGUs, as compared to the
corresponding period in 2007. The increase in average RGUs
primarily is attributable to an increase in the average number
of digital cable, broadband internet and telephony RGUs that was
only partially offset by a decline in the average number of
analog cable RGUs. ARPU remained relatively unchanged during the
2008 period, as the positive effects of (i) an improvement
in Telenets RGU mix, primarily attributable to a higher
proportion of digital cable, broadband internet and telephony
RGUs, (ii) price increases for analog cable, broadband
internet and telephony services and (iii) an increase in
revenue from premium digital cable services, such as
video-on-demand,
were offset by the negative impacts of (a) increased
competition and (b) flat-rate telephony calling plans. We
continue to believe that Telenets full year organic
revenue growth rate for 2008 will fall within a range of 5% to
6%. This growth rate reflects, among other factors, the effect
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.
J:COM (Japan). J:COMs revenue increased
$146.0 million or 27.4% during the three months ended
March 31, 2008, as compared to the corresponding prior year
period. This increase includes a $27.7 million increase
that is attributable to the aggregate impact of the September
2007 acquisition of JTV Thematics and other less significant
acquisitions. Excluding the effects of these acquisitions and
foreign exchange rate fluctuations, J:COMs revenue
increased $37.8 million or 7.1%. Most of this increase is
attributable to an increase in subscription revenue, due
primarily to a higher average number of telephony, broadband
internet and video RGUs during the 2008 period. ARPU remained
relatively unchanged during the 2008 period as compared to the
corresponding period in 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 offset by the
negative effects of bundling discounts and lower telephony ARPU
due to decreases in customer call volumes.
VTR (Chile). VTRs revenue increased
$41.1 million or 28.3% during the three months ended
March 31, 2008, as compared to the corresponding prior year
period. Excluding the effects of foreign exchange rate
fluctuations, VTRs revenue increased $14.2 million or
9.8%. 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 the 2008
period. ARPU decreased somewhat during the 2008 period as
compared to the corresponding period in 2007, as the positive
impacts of (i) an improvement in VTRs RGU mix,
attributable to a higher proportion of digital cable RGUs and
(ii) the migration of certain telephony subscribers to a
fixed-rate plan was more than offset by the negative effects of
(a) increased competition, particularly from the incumbent
telecommunications operator in Chile, (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.
46
Operating
Expenses of our Reportable Segments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
|
|
|
|
Three months ended
|
|
|
Increase
|
|
|
(decrease)
|
|
|
|
March 31,
|
|
|
(decrease)
|
|
|
excluding FX
|
|
|
|
2008
|
|
|
2007
|
|
|
$
|
|
|
%
|
|
|
%
|
|
|
|
in millions
|
|
|
|
|
|
|
|
UPC Broadband Division:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$
|
96.0
|
|
|
$
|
87.7
|
|
|
$
|
8.3
|
|
|
|
9.5
|
|
|
|
(4.3
|
)
|
Switzerland
|
|
|
77.4
|
|
|
|
70.3
|
|
|
|
7.1
|
|
|
|
10.1
|
|
|
|
(5.0
|
)
|
Austria
|
|
|
48.2
|
|
|
|
43.6
|
|
|
|
4.6
|
|
|
|
10.6
|
|
|
|
(3.3
|
)
|
Ireland
|
|
|
42.2
|
|
|
|
39.0
|
|
|
|
3.2
|
|
|
|
8.2
|
|
|
|
(5.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
263.8
|
|
|
|
240.6
|
|
|
|
23.2
|
|
|
|
9.6
|
|
|
|
(4.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
37.3
|
|
|
|
33.5
|
|
|
|
3.8
|
|
|
|
11.3
|
|
|
|
(0.3
|
)
|
Other Central and Eastern Europe
|
|
|
86.1
|
|
|
|
68.2
|
|
|
|
17.9
|
|
|
|
26.2
|
|
|
|
7.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
123.4
|
|
|
|
101.7
|
|
|
|
21.7
|
|
|
|
21.3
|
|
|
|
5.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central and corporate operations
|
|
|
17.7
|
|
|
|
19.2
|
|
|
|
(1.5
|
)
|
|
|
(7.8
|
)
|
|
|
(18.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total UPC Broadband Division
|
|
|
404.9
|
|
|
|
361.5
|
|
|
|
43.4
|
|
|
|
12.0
|
|
|
|
(2.5
|
)
|
Telenet (Belgium)
|
|
|
139.1
|
|
|
|
113.8
|
|
|
|
25.3
|
|
|
|
22.2
|
|
|
|
6.9
|
|
J:COM (Japan)
|
|
|
261.1
|
|
|
|
212.5
|
|
|
|
48.6
|
|
|
|
22.9
|
|
|
|
8.3
|
|
VTR (Chile)
|
|
|
71.8
|
|
|
|
62.0
|
|
|
|
9.8
|
|
|
|
15.8
|
|
|
|
(0.8
|
)
|
Corporate and other
|
|
|
172.1
|
|
|
|
146.2
|
|
|
|
25.9
|
|
|
|
17.7
|
|
|
|
4.3
|
|
Intersegment eliminations
|
|
|
(22.3
|
)
|
|
|
(20.9
|
)
|
|
|
(1.4
|
)
|
|
|
(6.7
|
)
|
|
|
6.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses excluding stock-based compensation
expense
|
|
|
1,026.7
|
|
|
|
875.1
|
|
|
|
151.6
|
|
|
|
17.3
|
|
|
|
2.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
2.0
|
|
|
|
2.3
|
|
|
|
(0.3
|
)
|
|
|
(13.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated LGI
|
|
$
|
1,028.7
|
|
|
$
|
877.4
|
|
|
$
|
151.3
|
|
|
|
17.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General. Operating expenses include
programming, network operations, interconnect, customer
operations, customer care, stock-based compensation expense and
other direct costs. We do not include stock-based compensation
in the following discussion and analysis of the operating
expenses of our reportable segments as stock-based compensation
expense is not included in the performance measures of our
reportable segments. Stock-based compensation expense is
discussed under the Discussion and Analysis of Our
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 $43.4 million or 12.0%
during the three months ended March 31, 2008, as compared
to the corresponding prior year period. This increase includes a
$4.2 million increase attributable to the aggregate impact
of Tirol and other less significant acquisitions. Excluding the
effects of these acquisitions and foreign exchange rate
fluctuations, the UPC Broadband Divisions operating
expenses decreased $13.3 million or 3.7%, primarily due to
the net effect of the following factors:
|
|
|
|
|
A decrease in personnel costs of $6.6 million or 11.4%
during the 2008 period, due largely to decreased staffing
levels, particularly in (i) the Netherlands, in connection
with the integration of certain components of the
Netherlands operations, and (ii) Switzerland, in
connection with the increased usage of third parties to manage
excess call volume; and
|
|
|
|
Other individually insignificant net decreases.
|
47
Telenet (Belgium). Telenets operating
expenses (exclusive of stock-based compensation expense)
increased $25.3 million or 22.2%, during the three months
ended March 31, 2008, as compared to the corresponding
prior year period. This increase includes a $0.8 million
increase that is attributable to an acquisition. Excluding the
effects of the acquisition and foreign exchange rate
fluctuations, Telenets operating expenses increased
$7.1 million or 6.2%. This increase is primarily
attributable to (i) an increase in programming and related
costs of $3.3 million or 26.8% as a result of growth in the
number of video RGUs and demand for premium services and
(ii) other individually insignificant net increases.
J:COM (Japan). J:COMs operating expenses
(exclusive of stock-based compensation expense) increased
$48.6 million or 22.9%, during the three months ended
March 31, 2008, as compared to the corresponding prior year
period. This increase includes a $10.4 million increase
that is attributable to the aggregate impact of the JTV
Thematics and other less significant acquisitions. Excluding the
effects of these acquisitions and foreign exchange rate
fluctuations, J:COMs operating expenses increased
$7.2 million or 3.4%. 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
$3.4 million or 5.6%, 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 personnel costs of $3.0 million or 8.2%,
primarily due to higher staffing levels and annual wage
increases.
|
VTR (Chile). VTRs operating expenses
(exclusive of stock-based compensation expense) increased
$9.8 million or 15.8%, during the three months ended
March 31, 2008, as compared to the corresponding prior year
period. Excluding the effects of foreign exchange rate
fluctuations, VTRs operating expenses remained relatively
unchanged during the 2008 period, as higher interconnect costs
were offset by individually insignificant net decreases in other
operating expense categories.
48
SG&A
Expenses of our Reportable Segments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
|
|
|
|
Three months ended
|
|
|
|
|
|
(decrease)
|
|
|
|
March 31,
|
|
|
Increase (decrease)
|
|
|
excluding FX
|
|
|
|
2008
|
|
|
2007
|
|
|
$
|
|
|
%
|
|
|
%
|
|
|
|
in millions
|
|
|
|
|
|
|
|
UPC Broadband Division:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$
|
36.5
|
|
|
$
|
36.3
|
|
|
$
|
0.2
|
|
|
|
0.6
|
|
|
|
(12.3
|
)
|
Switzerland
|
|
|
42.4
|
|
|
|
33.7
|
|
|
|
8.7
|
|
|
|
25.8
|
|
|
|
8.9
|
|
Austria
|
|
|
22.9
|
|
|
|
18.7
|
|
|
|
4.2
|
|
|
|
22.5
|
|
|
|
7.7
|
|
Ireland
|
|
|
12.3
|
|
|
|
12.1
|
|
|
|
0.2
|
|
|
|
1.7
|
|
|
|
(10.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
114.1
|
|
|
|
100.8
|
|
|
|
13.3
|
|
|
|
13.2
|
|
|
|
(1.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
11.6
|
|
|
|
12.1
|
|
|
|
(0.5
|
)
|
|
|
(4.1
|
)
|
|
|
(13.9
|
)
|
Other Central and Eastern Europe
|
|
|
29.9
|
|
|
|
26.7
|
|
|
|
3.2
|
|
|
|
12.0
|
|
|
|
(4.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
41.5
|
|
|
|
38.8
|
|
|
|
2.7
|
|
|
|
7.0
|
|
|
|
(7.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central and corporate operations
|
|
|
44.9
|
|
|
|
41.4
|
|
|
|
3.5
|
|
|
|
8.5
|
|
|
|
(5.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total UPC Broadband Division
|
|
|
200.5
|
|
|
|
181.0
|
|
|
|
19.5
|
|
|
|
10.8
|
|
|
|
(3.6
|
)
|
Telenet (Belgium)
|
|
|
60.4
|
|
|
|
49.4
|
|
|
|
11.0
|
|
|
|
22.3
|
|
|
|
6.6
|
|
J:COM (Japan)
|
|
|
134.6
|
|
|
|
102.5
|
|
|
|
32.1
|
|
|
|
31.3
|
|
|
|
15.7
|
|
VTR (Chile)
|
|
|
39.1
|
|
|
|
28.9
|
|
|
|
10.2
|
|
|
|
35.3
|
|
|
|
16.0
|
|
Corporate and other
|
|
|
50.4
|
|
|
|
44.1
|
|
|
|
6.3
|
|
|
|
14.3
|
|
|
|
5.3
|
|
Inter-segment eliminations
|
|
|
(1.4
|
)
|
|
|
0.4
|
|
|
|
(1.8
|
)
|
|
|
N.M.
|
|
|
|
N.M.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total SG&A expenses excluding stock-based compensation
expense
|
|
|
483.6
|
|
|
|
406.3
|
|
|
|
77.3
|
|
|
|
19.0
|
|
|
|
4.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
38.3
|
|
|
|
41.2
|
|
|
|
(2.9
|
)
|
|
|
(7.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated LGI
|
|
$
|
521.9
|
|
|
$
|
447.5
|
|
|
$
|
74.4
|
|
|
|
16.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 $19.5 million or 10.8%,
during the three months ended March 31, 2008, as compared
to the corresponding prior year period. This increase includes
$1.3 million attributable to the aggregate impact of the
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 $7.8 million or 4.3%. The decrease in
the UPC Broadband Divisions SG&A expenses primarily
is attributable to the net effect of the following factors:
|
|
|
|
|
A decrease in personnel costs of $3.4 million or 5.8%
during the 2008 period, primarily due to staffing reductions
resulting from the integration of certain components of our
operations within the Netherlands and Ireland; and
|
|
|
|
Other individually insignificant net decreases.
|
49
Telenet (Belgium). Telenets SG&A
expenses (exclusive of stock-based compensation expense)
increased $11.0 million or 22.3% during the three months
ended March 31, 2008, as compared to the corresponding
prior year period. This increase includes $0.6 million
attributable to an acquisition. Excluding the effects of the
acquisition and foreign exchange rate fluctuations,
Telenets SG&A expenses increased $2.7 million or
5.4%. This increase includes an increase in personnel costs of
$2.2 million or 11.4% that is due primarily to annual wage
increases and additional severance costs during the 2008 period.
J:COM (Japan). J:COMs SG&A expenses
(exclusive of stock-based compensation expense) increased
$32.1 million or 31.3% during the three months ended
March 31, 2008, as compared to the corresponding prior year
period. This increase includes $10.8 million attributable
to the aggregate impact of the JTV Thematics and other less
significant acquisitions. Excluding the effects of these
acquisitions and foreign exchange rate fluctuations,
J:COMs SG&A expenses increased $5.3 million or
5.2%. This increase includes an increase in personnel costs of
$3.2 million or 4.3% that is due primarily to higher
staffing levels and annual wage increases.
VTR (Chile). VTRs SG&A expenses
(exclusive of stock-based compensation expense) increased
$10.2 million or 35.3% during the three months ended
March 31, 2008, as compared to the corresponding prior year
period. Excluding the effects of foreign exchange rate
fluctuations, VTRs SG&A expenses increased
$4.6 million or 16.0%. This increase is primarily
attributable to (i) an increase in marketing and
advertising costs of $1.8 million or 34.9% due primarily to
increased marketing activity during the 2008 period and
(ii) other individually insignificant net increases.
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 loss before income taxes
and minority interests, see note 14 to our condensed
consolidated financial statements.
50
Operating
Cash Flow
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Increase
|
|
|
Increase
|
|
|
|
March 31,
|
|
|
(decrease)
|
|
|
excluding FX
|
|
|
|
2008
|
|
|
2007
|
|
|
$
|
|
|
%
|
|
|
%
|
|
|
|
in millions
|
|
|
|
|
|
|
|
UPC Broadband Division:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$
|
168.6
|
|
|
$
|
128.0
|
|
|
$
|
40.6
|
|
|
|
31.7
|
|
|
|
15.2
|
|
Switzerland
|
|
|
132.6
|
|
|
|
103.3
|
|
|
|
29.3
|
|
|
|
28.4
|
|
|
|
10.9
|
|
Austria
|
|
|
68.7
|
|
|
|
57.7
|
|
|
|
11.0
|
|
|
|
19.1
|
|
|
|
3.9
|
|
Ireland
|
|
|
33.9
|
|
|
|
22.6
|
|
|
|
11.3
|
|
|
|
50.0
|
|
|
|
30.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
403.8
|
|
|
|
311.6
|
|
|
|
92.2
|
|
|
|
29.6
|
|
|
|
12.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
51.1
|
|
|
|
44.4
|
|
|
|
6.7
|
|
|
|
15.1
|
|
|
|
3.7
|
|
Other Central and Eastern Europe
|
|
|
118.9
|
|
|
|
88.6
|
|
|
|
30.3
|
|
|
|
34.2
|
|
|
|
12.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
170.0
|
|
|
|
133.0
|
|
|
|
37.0
|
|
|
|
27.8
|
|
|
|
9.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central and corporate operations
|
|
|
(59.9
|
)
|
|
|
(55.2
|
)
|
|
|
(4.7
|
)
|
|
|
(8.5
|
)
|
|
|
4.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total UPC Broadband Division
|
|
|
513.9
|
|
|
|
389.4
|
|
|
|
124.5
|
|
|
|
32.0
|
|
|
|
14.1
|
|
Telenet (Belgium)
|
|
|
174.9
|
|
|
|
136.9
|
|
|
|
38.0
|
|
|
|
27.8
|
|
|
|
11.7
|
|
J:COM (Japan)
|
|
|
283.6
|
|
|
|
218.3
|
|
|
|
65.3
|
|
|
|
29.9
|
|
|
|
14.5
|
|
VTR (Chile)
|
|
|
75.6
|
|
|
|
54.5
|
|
|
|
21.1
|
|
|
|
38.7
|
|
|
|
18.5
|
|
Corporate and other
|
|
|
52.7
|
|
|
|
25.5
|
|
|
|
27.2
|
|
|
|
106.7
|
|
|
|
73.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,100.7
|
|
|
$
|
824.6
|
|
|
$
|
276.1
|
|
|
|
33.5
|
|
|
|
16.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Cash Flow Margin
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
%
|
|
|
UPC Broadband Division:
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
|
56.0
|
|
|
|
50.8
|
|
Switzerland
|
|
|
52.5
|
|
|
|
49.8
|
|
Austria
|
|
|
49.1
|
|
|
|
48.1
|
|
Ireland
|
|
|
38.3
|
|
|
|
30.7
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
51.7
|
|
|
|
47.7
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
51.1
|
|
|
|
49.3
|
|
Other Central and Eastern Europe
|
|
|
50.6
|
|
|
|
48.3
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
50.8
|
|
|
|
48.6
|
|
|
|
|
|
|
|
|
|
|
Total UPC Broadband Division, including central and corporate
costs
|
|
|
45.9
|
|
|
|
41.8
|
|
Telenet (Belgium)
|
|
|
46.7
|
|
|
|
45.6
|
|
J:COM (Japan)
|
|
|
41.7
|
|
|
|
40.9
|
|
VTR (Chile)
|
|
|
40.5
|
|
|
|
37.5
|
|
The improvement in the operating cash flow margins of our
reportable segments during the three months ended March 31,
2008, as compared to the corresponding period in 2007, 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 cost savings resulting from the
continued integration of acquisitions have also positively
impacted the operating cash flow margins of our reportable
segments, particularly in the Netherlands and Ireland. For
additional discussion of the factors contributing to the changes
in the operating cash
51
flow margins of our reportable segments, see the above analyses
of the revenue, operating expenses and SG&A expenses of our
reportable segments. 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.
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.
Revenue
Our total consolidated revenue increased $505.0 million
during the three months ended March 31, 2008, as compared
to the corresponding prior year period. This increase includes a
$46.9 million increase that is attributable to the impact
of acquisitions. Excluding the effects of acquisitions and
foreign exchange rate fluctuations, total consolidated revenue
increased $127.0 million or 6.0% during the 2008 period, as
compared to the corresponding period in 2007. As discussed in
greater detail under Discussion and Analysis of Reportable
Segments Revenue above, this increase is
primarily 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 Revenue above.
Operating
expenses
Our total consolidated operating expenses increased
$151.3 million during the three months ended March 31,
2008, as compared to the corresponding prior year period. This
increase includes an $18.1 million increase that is
attributable to the impact of acquisitions. Our operating
expenses include stock-based compensation expense, which
decreased $0.3 million during the first quarter of 2008.
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 $5.2 million or 0.6% during the 2008 period, as
compared to the corresponding period in 2007. As discussed in
more detail under Discussion and Analysis of Reportable
Segments Operating Expenses above, this increase
generally reflects increases in programming costs that were only
partially offset by (i) decreases in interconnect costs and
(ii) less significant net decreases in other expense
categories.
SG&A
expenses
Our total consolidated SG&A expenses increased
$74.4 million during the three months ended March 31,
2008, as compared to the corresponding prior year period. This
increase includes a $13.0 million increase that is
attributable to the impact of acquisitions. Our SG&A
expenses include stock-based compensation expense, which
decreased $2.9 million during the first quarter of 2008.
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
$5.4 million or 1.3% during the 2008 period, as compared to
the corresponding period in 2007. As discussed in more detail
under Discussion and Analysis of Reportable
Segments SG&A Expenses above, this increase
generally reflects (i) net increases in labor costs,
(ii) increases in marketing and advertising costs and
(iii) less significant net increases in other expense
categories.
52
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 operating and SG&A expenses is set forth
below:
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
in millions
|
|
|
LGI Series A, Series B and Series C common stock:
|
|
|
|
|
|
|
|
|
LGI performance-based incentive plans
|
|
$
|
27.3
|
|
|
$
|
28.9
|
|
Stock options, SARs, restricted stock and restricted stock units
|
|
|
9.7
|
|
|
|
12.5
|
|
Other
|
|
|
3.3
|
|
|
|
2.1
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
40.3
|
|
|
$
|
43.5
|
|
|
|
|
|
|
|
|
|
|
Included in:
|
|
|
|
|
|
|
|
|
Operating expense
|
|
$
|
2.0
|
|
|
$
|
2.3
|
|
SG&A expense
|
|
|
38.3
|
|
|
|
41.2
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
40.3
|
|
|
$
|
43.5
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
Our total consolidated depreciation and amortization expense
increased $110.1 million during the three months ended
March 31, 2008, as compared to the corresponding prior year
period. Excluding the effect of foreign exchange rate
fluctuations, depreciation and amortization expense increased
$21.9 million or 3.7% during the 2008 period, as compared
to the corresponding prior year period. 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, (ii) increases
associated with acquisitions, and (iii) decreases
associated with certain of VTRs network assets becoming
fully depreciated.
Impairment,
restructuring and other operating charges (credits),
net
We recognized net impairment, restructuring and other operating
credits of $1.5 million during the three months ended
March 31, 2008, compared to net impairment, restructuring
and other operating charges of $5.3 million during the
corresponding prior year period. The 2008 amount includes a
$9.2 million gain on the sale of our interests in certain
aircraft.
Interest
expense
Our total consolidated interest expense increased
$46.6 million during the three months ended March 31,
2008, as compared to the corresponding prior year period.
Excluding the effects of foreign exchange rate fluctuations,
interest expense increased $11.7 million or 5.0% during the
2008 period, as compared to the corresponding period in 2007.
This increase reflects the net effect of increased borrowings
and a decrease in our weighted average interest rate. Our
weighted average interest rate decreased during the 2008 period,
as compared to the corresponding prior year period, primarily
due to (i) a decrease in the weighted average interest rate
of our UPC Broadband Holding Bank Facility and (ii) a
decrease associated with the refinancing of the LG Switzerland
PIK Loan Facility in April 2007. Amortization of deferred
financing costs was relatively unchanged during the 2008 and
2007 periods. For additional information, see note 9 to our
condensed consolidated financial statements.
Interest
and dividend income
Our total consolidated interest and dividend income increased
$10.4 million during the three months ended March 31,
2008, as compared to the corresponding prior year period. This
increase is primarily attributable to higher average interest
rates earned on our cash and cash equivalent and restricted cash
balances. Dividend income
53
increased slightly during the 2008 period, as dividend income on
the Sumitomo common stock that we acquired on July 3, 2007
more than 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 the 2007 period includes
$7.6 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 losses on
derivative instruments, net, in our condensed consolidated
statements of operations.
Share of
results of affiliates, net
The following table reflects our share of results of affiliates,
net:
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
in millions
|
|
|
SC Media (a)
|
|
$
|
|
|
|
$
|
10.5
|
|
Other
|
|
|
2.5
|
|
|
|
3.1
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2.5
|
|
|
$
|
13.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. |
Realized
and unrealized losses on derivative instruments, net
The details of our realized and unrealized losses on derivative
instruments, net:
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
in millions
|
|
|
Cross-currency and interest rate derivative contracts (a)
|
|
$
|
(460.0
|
)
|
|
$
|
(37.9
|
)
|
Equity-related derivatives (b)
|
|
|
130.3
|
|
|
|
11.2
|
|
Foreign exchange contracts
|
|
|
(5.2
|
)
|
|
|
13.1
|
|
Other
|
|
|
(0.5
|
)
|
|
|
3.3
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(335.4
|
)
|
|
$
|
(10.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The losses on the cross-currency and interest rate derivative
contracts for the 2008 period are attributable to the net effect
of (i) losses associated with an increase in the value of
the Chilean peso relative to the U.S. dollar, (ii) losses
associated with a decrease in market interest rates in the euro,
U.S. dollar, Australian dollar and Japanese yen markets,
(iii) losses associated with an increase in the value of
the Swiss franc relative to the euro, (iv) losses
associated with a decrease in the value of the U.S. dollar
relative to the euro, (v) gains associated with a decrease
in the value of the Hungarian forint and Romanian lei relative
to the euro, (vi) losses associated with an increase in the
value of the Czech koruna, Polish zloty and Slovakian koruna
relative to the euro and (vii) gains associated with an
increase in the market interest rates in the Swiss franc and
Chilean peso markets. The losses on the cross-currency and
interest rate exchange contracts for the 2007 period 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) gains associated with increases in market
interest rates in euro, Swiss franc and Australian dollar
markets, (iii) losses associated with decreases in market
interest rates in U.S. dollar, Japanese yen and Chilean peso
markets, (iv) losses associated with an increase in the
value of the eastern European currencies relative to the euro, |
54
|
|
|
|
|
(v) gains associated with a decrease in the value of the
Chilean peso relative to the U.S. dollar and (vi) gains
associated with a decrease in the value of the Swiss franc
relative to the euro. |
|
(b) |
|
Includes (i) a $119.0 million gain during the 2008
period associated with the Sumitomo Collar, (ii) a gain
during the 2007 period associated with the call options we held
with respect to Telenet ordinary shares and (iii) gains
during the 2008 and 2007 periods associated with the forward
sale of the News Corp. Class A common stock. The gains
associated with the Sumitomo Collar and the prepaid forward sale
of News Corp. Class A common stock are attributable to
declines in the fair value of the underlying Sumitomo and News
Corp. shares held by our company. |
For additional information concerning our derivative
instruments, see note 6 to our condensed consolidated
financial statements. For information concerning the market
sensitivity of our derivative and financial instruments, see
Quantitative and Qualitative Disclosure about Market Risk
below.
Foreign
currency transaction gains, net
The details of our foreign currency transaction gains, net:
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
in millions
|
|
|
U.S. dollar denominated debt issued by a European subsidiary
|
|
$
|
152.9
|
|
|
$
|
27.7
|
|
Yen denominated debt issued by U.S. subsidiaries
|
|
|
(180.9
|
)
|
|
|
|
|
Intercompany notes denominated in a currency other than the
entities functional currency
|
|
|
191.0
|
|
|
|
(5.3
|
)
|
Cash denominated in a currency other than the entities
functional currency
|
|
|
(65.7
|
)
|
|
|
3.5
|
|
U.S. dollar denominated debt issued by a Latin American
subsidiary
|
|
|
63.5
|
|
|
|
(5.1
|
)
|
Swiss franc debt issued by a European subsidiary
|
|
|
|
|
|
|
6.1
|
|
Other
|
|
|
11.8
|
|
|
|
(2.6
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
172.6
|
|
|
$
|
24.3
|
|
|
|
|
|
|
|
|
|
|
For information regarding how we manage our exposure to foreign
currency risk, see Quantitative and Qualitative Disclosure
about Market Risk below.
Unrealized
gains (losses) due to changes in fair values of certain
investments and debt, net
The details of our unrealized gains (losses) due to changes in
fair values of certain investments and debt, net, are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
in millions
|
|
|
Investments (a):
|
|
|
|
|
|
|
|
|
Sumitomo
|
|
$
|
(47.8
|
)
|
|
$
|
|
|
Other, net
|
|
|
(2.5
|
)
|
|
|
|
|
Debt UGC Convertible Notes (b)
|
|
|
72.3
|
|
|
|
(71.6
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
22.0
|
|
|
$
|
(71.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
For additional information concerning our investments, see
note 5 to our condensed consolidated financial statements. |
|
(b) |
|
Represents the changes in the fair value of the UGC Convertible
Notes, including amounts attributable to the remeasurement of
the UGC Convertible Notes into U.S. dollars. The fair value of
the UGC Convertible Notes |
55
|
|
|
|
|
is impacted by changes in (i) the exchange rate for the
U.S. dollar and the euro, (ii) the market price and
volatility of LGI common stock, (iii) market interest rates
and (iv) the credit rating of UGC. |
Income
tax expense
We recognized income tax expense of $100.9 million and
$6.3 million during the three months ended March 31,
2008 and 2007, respectively.
The income tax expense for the 2008 period differs from the
expected income tax benefit of $9.0 million (based on the
U.S. federal 35% income tax rate) due primarily to the
negative impacts of (i) a net increase in valuation
allowances, as the establishment of allowances against currently
arising deferred tax assets in certain tax jurisdictions more
than offset the release of valuation allowances in other
jurisdictions, and (ii) the impact of differences in the
statutory and local tax rates in certain jurisdictions in which
we operate.
The income tax expense amount for the 2007 period differs from
the expected income tax benefit of $25.8 million (based on
the U.S. federal 35% income tax rate) due primarily to the
negative impacts of (i) a net increase in valuation
allowances, as the establishment of allowances against currently
arising deferred tax assets in certain tax jurisdictions more
than offset the release of valuation allowances in other
jurisdictions, (ii) differences in the statutory and local
tax rates in certain jurisdictions in which we operate and
(iii) certain permanent differences between the financial
and tax accounting treatment of interest and other items
associated with intercompany loans.
Net
loss
During the first three months of 2008 and 2007, we incurred net
losses of $155.6 million and $136.1 million,
respectively, including (i) operating income of
$357.8 million and $181.8 million, respectively,
(ii) interest and other net non-operating expenses of
$383.5 million and $255.6 million, respectively,
(iii) income tax expense of $100.9 million and
$6.3 million, respectively, and (iv) minority
interests in earnings of subsidiaries, net, of
$29.0 million and $56.0 million, respectively. In the
absence of significant gains on any future dispositions of
assets, our ability to achieve net earnings is largely dependent
on our ability to increase the aggregate operating cash flow of
our operating segments to a level that more than offsets the
aggregate amount of our (i) stock-based compensation
expense, (ii) depreciation and amortization,
(iii) provisions for litigation, (iv) impairment,
restructuring and other operating charges, net,
(v) interest and other net non-operating expenses,
(vi) income tax expenses, and (vii) minority interests
in earnings of subsidiaries, net. Due largely to the fact that
we seek to maintain our debt at levels that provide for
attractive equity returns, as discussed under Material
Changes in Financial Condition Capitalization
below, we expect that we will continue to report significant
levels of interest expense for the foreseeable future. For
information concerning our expectations with respect to trends
that may affect certain aspects of our operating results in
future periods, see the discussion under Overview above.
For information concerning the reasons for changes in specific
line items in our consolidated statements of operations, see the
discussion under Discussion and Analysis of our Reportable
Segments and Discussion and Analysis of our Consolidated
Operating Results above.
Material
Changes in Financial Condition
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, Telenet, J:COM, 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
March 31, 2008. 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.
Cash and
cash equivalents
The details of the U.S. dollar equivalent balances of our
consolidated cash and cash equivalents at March 31, 2008
are set forth in the following table. With the exception of LGI,
which is reported on a stand-alone basis, the
56
amounts presented 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
|
|
$
|
374.2
|
|
Non-operating subsidiaries
|
|
|
442.8
|
|
|
|
|
|
|
Total LGI and non-operating subsidiaries
|
|
|
817.0
|
|
|
|
|
|
|
Operating subsidiaries:
|
|
|
|
|
UPC Holding (excluding VTR)
|
|
|
56.6
|
|
J:COM
|
|
|
214.3
|
|
Telenet
|
|
|
156.9
|
|
Chellomedia
|
|
|
53.7
|
|
VTR
|
|
|
40.5
|
|
Austar
|
|
|
23.4
|
|
Liberty Puerto Rico
|
|
|
3.8
|
|
Other operating subsidiaries
|
|
|
2.5
|
|
|
|
|
|
|
Total operating subsidiaries
|
|
|
551.7
|
|
|
|
|
|
|
Total cash and cash equivalents
|
|
$
|
1,368.7
|
|
|
|
|
|
|
Liquidity
of LGI and its Non-operating Subsidiaries
The $374.2 million of cash and cash equivalents held by LGI
and, subject to certain tax considerations, the
$442.8 million of cash and cash equivalents held by
LGIs non-operating subsidiaries represented available
liquidity at the corporate level at March 31, 2008. Our
remaining cash and cash equivalents of $551.7 million at
March 31, 2008 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 and our non-operating
subsidiaries 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 March 31, 2008, 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, we have
received significant cash from our subsidiaries in the form of
loan repayments during the first three months of 2008. Most of
this cash was used to purchase LGI common stock.
The ongoing cash needs of LGI and its non-operating subsidiaries
include corporate general and administrative expenses and
interest payments on the UGC Convertible Notes, 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 current stock repurchase program, we repurchased
during the first three months of 2008 a total of
8,976,307 shares of our LGI Series A common stock at a
weighted average price of $37.07 per share and
57
10,830,583 shares of our LGI Series C common stock at
a weighted average price of $35.40 per share, for an aggregate
purchase price of $716.2 million, including direct
acquisition costs. At March 31, 2008, the remaining amount
authorized under our current repurchase program was
$344.7 million. During the month of April 2008, we
purchased an additional $196.8 million of our LGI
Series A and Series C common stock and on May 1,
2008, the authorized amount of the existing repurchase program
was increased by $500 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 March 31, 2008, see note 9 to our
condensed consolidated financial statements. Our operating
subsidiaries liquidity generally is used to fund capital
expenditures and debt service requirements. From time to time,
our operating subsidiaries may also require funding in
connection with acquisitions, capital distributions 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. For a discussion of our
consolidated capital expenditures and cash provided by operating
activities, see the discussion under Condensed Consolidated
Cash Flow Statements below.
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 maintain our and our operating
subsidiaries 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
March 31, 2008 consolidated debt to our annualized
consolidated operating cash flow for the quarter ended
March 31, 2008 was 4.4 and the ratio of our March 31,
2008 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 March 31, 2008 was 4.0.
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 6 to our condensed consolidated
financial statements, we may also use derivative instruments to
mitigate currency and interest rate risk associated with our
debt instruments. Our ability to service or refinance our debt
is dependent primarily on our ability to maintain or increase
our cash provided by operations and to achieve adequate returns
on our capital expenditures and acquisitions.
At March 31, 2008, our outstanding consolidated debt and
capital lease obligations aggregated $19.5 billion,
including $421.0 million that is classified as current in
our condensed 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 the
next 12 months 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 consolidated debt and capital lease obligations at
March 31, 2008 have been borrowed or incurred by our
subsidiaries. For additional information concerning our debt
balances at March 31, 2008, see note 9 to our
condensed consolidated financial statements.
Condensed
Consolidated Cash Flow Statements
Our cash flows are subject to significant variations based on
foreign currency exchange rates. See related discussion under
Quantitative and Qualitative Disclosures about Market Risk
below. See also our Discussion and Analysis of Reportable
Segments above.
General. During the three months ended
March 31, 2008, we used net cash provided by our operating
activities of $647.5 million and $762.1 million of our
existing cash and cash equivalent balances (excluding a
58
$95.3 million increase due to changes in foreign exchange
rates) to fund net cash used by our investing activities of
$559.5 million and net cash used by our financing
activities of $850.1 million.
Operating Activities. Net cash flows from
operating activities increased $84.8 million, from
$562.7 million during the first three months of 2007 to
$647.5 million during the first three months of 2008. This
increase primarily is attributable to the positive impacts of
changes in foreign currency exchange rates, as an increase in
cash paid for interest was offset by a net increase in other
components of cash flows provided by operating activities.
Investing Activities. Net cash used by
investing activities increased $19.5 million, from
$540 million during the first three months of 2007 to
$559.5 million during the first three months of 2008. This
increase is due primarily to a $14.6 million increase in
capital expenditures, as increases in capital expenditures due
to changes in foreign currency exchange rates were only
partially offset by a net decline in the local currency capital
expenditures of our subsidiaries.
The UPC Broadband Division accounted for $264.6 million and
$268.5 million of our consolidated capital expenditures
during the three months ended March 31, 2008 and 2007,
respectively. The decrease in the capital expenditures of the
UPC Broadband Division is due primarily to (i) decreased
costs for the purchase and installation of customer premise
equipment and (ii) lower expenditures for new build and
upgrade projects, partially offset by the effect of changes in
foreign currency exchange rates and increases in other
expenditures such as information technology upgrades and
expenditures for general support systems.
Our Telenet segment accounted for $98.9 million and
$77.1 million of our consolidated capital expenditures
during the three months ended March 31, 2008 and 2007,
respectively. During 2007, Telenet used capital lease
arrangements to finance a portion of its capital expenditures.
Including $9.4 million of expenditures that were financed
under capital lease arrangements, Telenets capital
expenditures aggregated $86.5 million during the three
months ended March 31, 2007. The increase in Telenets
capital expenditures during the 2008 period primarily relate to
(i) the effect of changes in foreign currency exchange
rates, (ii) increased expenditures for the purchase and
installation of customer premise equipment,
(iii) expenditures for new build and upgrade projects to
expand services and (iv) other factors such as expenditures
for buildings and general support systems.
J:COM accounted for $74.7 million and $89.5 million of
our consolidated capital expenditures during the three months
ended March 31, 2008 and 2007, respectively. J:COM uses
capital lease arrangements to finance a significant portion of
its capital expenditures. From a financial reporting
perspective, capital expenditures that are financed by capital
lease arrangements are treated as non-cash activities and
accordingly are not included in the capital expenditure amounts
presented in our condensed consolidated statements of cash
flows. Including $38.6 million and $38.5 million of
expenditures that were financed under capital lease
arrangements, J:COMs capital expenditures aggregated
$113.3 million and $128.0 million during the three
months ended March 31, 2008 and 2007, respectively. The
decrease in J:COMs capital expenditures (including amounts
financed under capital lease arrangements) is due primarily to
(i) decreased costs for the purchase and installation of
customer premise equipment and (ii) lower expenditures for
new build and upgrade projects to expand services, partially
offset by the effect of changes in foreign currency exchange
rates and increases in other expenditures such as information
technology upgrades and expenditures for general support systems.
VTR accounted for $46.8 million and $40.7 million of
our consolidated capital expenditures during the three months
ended March 31, 2008 and 2007, respectively. The increase
in the capital expenditures of VTR is due primarily to the
effect of (i) changes in foreign currency exchange rates
and (ii) increases in expenditures such as information
technology upgrades and expenditures for general support systems
that more than offset (a) decreased costs for the purchase
and installation of customer premise equipment and
(b) decreased expenditures for new build and upgrade
projects.
Financing Activities. Net cash used by
financing activities increased $493.3 million, from
$356.8 million during the first three months of 2007 to
$850.1 million during the first three months of 2008. This
increase primarily is attributable to (i) a
$428.1 million increase in cash paid to repurchase our LGI
Series A and Series C common stock, (ii) a
$34.6 million increase in net cash repayments of debt and
capital lease obligations and (iii) changes in foreign
currency exchange rates.
59
Off
Balance Sheet Arrangements
For a description of our outstanding guarantees and other off
balance sheet arrangements at March 31, 2008, see
note 13 to our condensed consolidated financial statements.
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Item 3.
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QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
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We are exposed to market risk in the normal course of our
business operations due to our investments in various foreign
countries and ongoing investing and financial activities. Market
risk refers to the risk of loss arising from adverse changes in
foreign currency exchange rates, interest rates and stock
prices. The risk of loss can be assessed from the perspective of
adverse changes in fair values, cash flows and future earnings.
As further described below, 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. From a U.S. dollar
perspective, 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
March 31, 2008, our European subsidiaries held cash
balances of $374.1 million that were denominated in euros
and J:COM held cash balances of $214.3 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 acquisitions and other liquidity
requirements that may be denominated in such currencies.
We are also exposed to market price fluctuations related to our
investments in Sumitomo and News Corp. At March 31, 2008,
the aggregate fair value of these investments was approximately
$703.4 million.
Foreign
Currency Risk
We are exposed to foreign currency exchange rate risk in
situations where our debt is denominated in a currency other
than the functional currency of the operations whose cash flows
support our ability to repay or refinance such debt. Although we
generally seek to match the denomination of our and our
subsidiaries borrowings with the functional currency of
the operations that are supporting the respective borrowings,
market conditions or other factors may cause us to enter into
borrowing arrangements that are not denominated in the
functional currency of the underlying operations (unmatched
debt). In these cases, our policy is to provide for an economic
hedge against foreign currency exchange rate movements by using
cross-currency interest rate swaps to synthetically convert
unmatched debt into the applicable underlying currency. At
March 31, 2008, substantially all of our debt was either
directly or synthetically matched to the applicable functional
currencies of the underlying operations and, with the exception
of certain contracts that involve the Hungarian forint, the
Polish zloty and the Romanian Lei, the maturities of our
cross-currency interest rate swaps matched the applicable
maturities of the underlying debt. For additional information
concerning the terms of our cross-currency interest rate swaps,
see note 6 to our condensed consolidated financial
statements.
In addition to the exposure that results from the mismatch of
our borrowing and underlying functional currencies, we are
exposed to foreign currency risk to the extent that we enter
into transactions denominated in currencies other than our or
our subsidiaries respective functional currencies, such as
investments in debt and equity securities of foreign
subsidiaries, equipment purchases, programming contracts, notes
payable and notes receivable (including intercompany amounts)
that are denominated in a currency other than the applicable
functional currency. Changes in exchange rates with respect to
these items will result in unrealized (based upon period-end
exchange rates) or realized foreign currency transaction gains
and losses upon settlement of the transactions. Generally, we
will consider hedging these currency risks when the foreign
currency risk arises from agreements with third parties that
involve the future payment or receipt of cash or other monetary
items. As further described in note 6 to our condensed
consolidated financial statements, at March 31, 2008 we
were a party to foreign currency exchange contracts covering the
forward purchase of the euro, the Hungarian forint, the Polish
zloty, the Swiss franc, the Slovakian koruna and the
U.S. dollar and the forward sale of the Czech koruna, the
euro, the Japanese yen, the Chilean peso and the Australian
dollar. Other than the commitments covered by these forward
60
contracts and our exposures with respect to debt that are hedged
as described above, we do not believe that we have significant
foreign currency risk related to non-hedged agreements with
third parties that involve the future payment or receipt of cash
or other monetary items.
We also 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 when their respective financial statements are
translated into U.S. dollars for inclusion in our condensed
consolidated financial statements. Cumulative translation
adjustments are recorded in accumulated other comprehensive
earnings (loss) as a separate component of stockholders
equity. 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. As a result of
foreign currency risk, we may experience 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 from a foreign
currency translation perspective is to the euro and the Japanese
yen as 38.5% and 26.0% of our U.S. dollar revenue during
the three months ended March 31, 2008 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. We generally do not hedge
against the risk that we may incur non-cash losses upon the
translation of the financial statements of our subsidiaries and
affiliates into U.S. dollars.
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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March 31,
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December 31,
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2008
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2007
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Spot rates:
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Euro
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0.6326
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0.6857
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Swiss franc
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0.9922
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1.1360
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Japanese yen
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99.86
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111.79
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Chilean peso
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435.67
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498.10
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Hungarian forint
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164.34
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173.30
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Australian dollar
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1.0946
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1.1406
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Three months ended
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March 31,
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2008
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2007
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Average rates:
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Euro
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0.6671
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0.7629
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Swiss franc
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1.0676
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1.2332
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Japanese yen
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105.24
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119.39
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Chilean peso
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462.87
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540.56
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Hungarian forint
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173.02
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192.44
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Australian dollar
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1.1047
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1.2720
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Inflation
and Foreign Investment Risk
Certain of our subsidiaries 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.
61
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 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.
In general, we seek to enter into derivative instruments to
protect against increases in the interest rates on our
variable-rate debt through the maturity date of the applicable
underlying debt. Accordingly, we have entered into various
derivative transactions to reduce exposure to increases in
interest rates. We use interest rate derivative agreements to
exchange, at specified intervals, the difference between fixed
and variable interest rates 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. At March 31, 2008, we effectively
paid a fixed interest rate on 98% of our variable-rate debt
through the use of interest rate derivative instruments that
convert variable rates to fixed rates. The final maturity dates
of our various portfolios of interest rate derivative
instruments generally correspond to the respective maturities of
the underlying variable-rate debt. For additional information
concerning the terms of these interest rate derivative
instruments, see note 6 to our condensed consolidated
financial statements.
Weighted Average Variable Interest Rate. At
March 31, 2008, our variable rate indebtedness (exclusive
of the effects of interest rate derivative agreements)
aggregated $14.5 billion, and the weighted-average interest
rate (including margin) on such variable-rate indebtedness was
approximately 5.9%. 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 $72.7 million. As discussed
above and in note 6 to our condensed 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.
Credit
Risk
We are exposed to the risk that the counterparties to our
financial instruments, undrawn debt facilities and cash
investments will default on their obligations to us. We manage
the credit risks associated with our financial instruments, cash
investments and undrawn debt facilities through the evaluation
and monitoring of the creditworthiness of, and concentration of
risk with, the respective counterparties.
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 6 to our condensed 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 March 31, 2008 would have increased
(decreased) the aggregate fair value of the UPC Broadband
Holding cross-currency and interest rate derivative contracts by
approximately 90.2 million ($142.6 million),
(ii) an instantaneous increase (decrease) of 10% in the
value of the Swiss franc, the Czech koruna, the Slovakian
koruna, the Hungarian forint, the Polish zloty and the Romanian
lei relative to the euro at March 31, 2008 would have
decreased (increased) the aggregate fair value of the UPC
Broadband Holding cross-currency and interest rate derivative
contracts by approximately 326.2 million
($515.6 million), (iii) an
62
instantaneous increase (decrease) of 10% in the value of the
Chilean peso relative to the U.S. dollar at March 31,
2008 would have decreased (increased) the aggregate value of the
UPC Broadband Holding cross-currency and interest rate
derivative contracts by approximately 31.3 million
($49.5 million), (iv) an instantaneous increase in the
relevant base rate of 50 basis points (0.50%) at
March 31, 2008 would have increased the aggregate fair
value of the UPC Broadband Holding cross-currency and interest
rate derivative contracts by approximately
120.0 million ($189.7 million) and (v) an
instantaneous decrease in the relevant base rate of
50 basis points (0.50%) at March 31, 2008 would have
decreased the aggregate fair value of the UPC Broadband Holding
cross-currency and interest rate derivative contracts by
approximately 124.9 million ($197.4 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 March 31, 2008 would
have decreased (increased) the aggregate fair value of the VTR
cross-currency and interest rate derivative contracts by
approximately CLP 33.5 billion ($77.0 million),
(ii) an instantaneous increase in the relevant base rate
(excluding margin) of 50 basis points (0.50%) at
March 31, 2008 would have increased the aggregate fair
value of the VTR cross-currency and interest rate derivative
contracts by approximately CLP 8.5 billion
($19.5 million) and (iii) an instantaneous decrease in
the relevant base rate of 50 basis points (0.50%) at
March 31, 2008 would have decreased the aggregate fair
value of the VTR cross-currency and interest rate derivative
contracts by approximately CLP 8.8 billion
($20.2 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 March 31, 2008 would have increased the
aggregate fair value of the Telenet interest rate cap and
interest rate collar contracts by approximately
17.3 million ($27.3 million) and (ii) an
instantaneous decrease in the relevant base rate of
50 basis points (0.50%) at March 31, 2008 would have
decreased the aggregate fair value of the Telenet interest rate
cap and interest rate collar contracts by approximately
11.1 million ($17.5 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 March 31, 2008 would have decreased the
fair value of the UGC Convertible Notes by approximately
30.0 million ($47.4 million), (ii) an
instantaneous decrease of 10% in the value of the euro relative
to the U.S. dollar at March 31, 2008 would have
increased the fair value of the UGC Convertible Notes by
approximately 40.0 million ($63.2 million),
(iii) an instantaneous increase (decrease) in the risk free
rate of 50 basis points (0.50%) at March 31, 2008
would have decreased (increased) the fair value of the UGC
Convertible Notes by approximately 2.5 million
($4.0 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 March 31,
2008 would have increased (decreased) the fair value of the UGC
Convertible Notes by approximately 37.0 million
($58.5 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 ¥5.37 billion
($53.8 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 ¥5.36 billion
($53.7 million).
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Item 4.
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CONTROLS
AND PROCEDURES.
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(a)
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Evaluation
of disclosure controls and procedures
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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 March 31, 2008. In designing
and evaluating the disclosure controls and procedures, the
Executives recognize that any controls
63
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 March 31, 2008, in timely making known
to them material information relating to us and our consolidated
subsidiaries required to be disclosed in our reports filed or
submitted under the Securities Exchange Act of 1934. We have
investments in certain unconsolidated entities. As we do not
control these entities, our disclosure controls and procedures
with respect to such entities are necessarily substantially more
limited than those we maintain with respect to our consolidated
subsidiaries.
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(c)
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Changes
in internal control over financial reporting
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There have been no changes in our internal controls over
financial reporting identified in connection with the evaluation
described above that occurred during the fiscal quarter covered
by this Quarterly Report on
Form 10-Q
that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
64
PART II
OTHER INFORMATION
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Item 1.
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LEGAL
PROCEEDINGS.
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From time to time, our subsidiaries and affiliates become
involved in litigation relating to claims arising out of their
operations in the normal course of business. The following is a
description of legal proceedings to which certain of our
subsidiaries are parties outside the normal course of business
that were material at the time originally reported.
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 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 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 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. The plaintiffs filed an appeal
to the Court of Appeals against the District Courts
decision on March 12, 2008.
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
65
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 engaged in self-dealing and unjust
enrichment, approved an unfair price, and impeded or discouraged
other offers for UGC or its assets in bad faith and for improper
motives. The complaints seek various remedies, including damages
for the public holders of UGCs stock and an award of
attorneys fees to plaintiffs counsel. On
February 11, 2005, the Delaware Court of Chancery
consolidated all 21 Delaware lawsuits into a single action.
Also, on April 20, 2005, the Denver District Court, State
of Colorado, issued an order granting a joint stipulation for
stay of the action filed in this court pending the final
resolution of the consolidated action in Delaware. On
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 the plaintiffs counsel).
A stipulation of settlement dated February 19, 2008, as
amended on February 29, 2008, setting forth the terms of
the settlement and release of claims was filed with the Delaware
Chancery Court on February 29, 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. The
hearing has been scheduled for May 16, 2008. If the Court
determines not to approve the settlement, the stipulation of
settlement will terminate.
66
Item 2. UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
(c) Issuer Purchases of Equity Securities
The following table sets forth information concerning our
companys purchase of its own equity securities during the
three months ended March 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximate
|
|
|
|
|
|
|
|
|
|
|
|
|
dollar value
|
|
|
|
|
|
|
|
|
|
|
|
|
of shares that
|
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|
|
|
|
|
|
|
|
|
|
|
may yet be
|
|
|
|
|
|
|
|
|
|
Total number of shares
|
|
|
purchased
|
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|
|
|
|
|
|
|
|
purchased as part of
|
|
|
under the
|
|
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Total number of
|
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Average price
|
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|
publicly announced plans
|
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|
plans or
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Period
|
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shares purchased
|
|
|
paid per share (a)
|
|
|
or programs
|
|
|
programs
|
|
|
January 1, 2008 through January 31, 2008
|
|
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Series A:
|
|
|
|
3,090,939
|
|
|
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Series A:
|
|
|
$
|
38.22
|
|
|
|
Series A:
|
|
|
|
3,090,939
|
|
|
|
|
|
|
|
|
Series C:
|
|
|
|
3,093,550
|
|
|
|
Series C:
|
|
|
$
|
35.93
|
|
|
|
Series C:
|
|
|
|
3,093,550
|
|
|
$
|
(b)
|
|
February 1, 2008 through February 28, 2008
|
|
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Series A:
|
|
|
|
1,514,175
|
|
|
|
Series A:
|
|
|
$
|
38.35
|
|
|
|
Series A:
|
|
|
|
1,514,175
|
|
|
|
|
|
|
|
|
Series C:
|
|
|
|
4,501,741
|
|
|
|
Series C:
|
|
|
$
|
35.96
|
|
|
|
Series C:
|
|
|
|
4,501,741
|
|
|
$
|
(b)
|
|
March 1, 2008 through March 31, 2008
|
|
|
Series A:
|
|
|
|
4,371,193
|
|
|
|
Series A:
|
|
|
$
|
35.82
|
|
|
|
Series A:
|
|
|
|
4,371,193
|
|
|
|
|
|
|
|
|
Series C:
|
|
|
|
3,235,292
|
|
|
|
Series C:
|
|
|
$
|
34.13
|
|
|
|
Series C:
|
|
|
|
3,235,292
|
|
|
$
|
(b)
|
|
Total January 1, 2008 through March 31,
2008
|
|
|
Series A:
|
|
|
|
8,976,307
|
|
|
|
Series A:
|
|
|
$
|
37.07
|
|
|
|
Series A:
|
|
|
|
8,976,307
|
|
|
|
|
|
|
|
|
Series C:
|
|
|
|
10,830,583
|
|
|
|
Series C:
|
|
|
$
|
35.40
|
|
|
|
Series C:
|
|
|
|
10,830,583
|
|
|
$
|
(b)
|
|
|
|
|
(a) |
|
Average price paid per share includes direct acquisition costs
where applicable. |
|
(b) |
|
At March 31, 2008, we were authorized under our current
stock repurchase program to acquire an additional
$344.7 million of our LGI Series A and Series C
common stock. |
In addition to the shares listed in the table above,
22,244 shares of LGI Series A common stock and
21,999 shares of LGI Series C common stock were
surrendered during the first quarter of 2008 by certain of our
officers and employees to pay withholding taxes and other
deductions in connection with the release of restrictions on
restricted stock.
67
Listed below are the exhibits filed as part of this Quarterly
Report (according to the number assigned to them in
Item 601 of
Regulation S-K):
|
|
|
|
|
|
3
|
|
|
Articles of Incorporation; Bylaws:
|
|
3
|
.1
|
|
Restated Certificate of Incorporation of the Registrant, dated
June 15, 2005 (incorporated by reference to
Exhibit 3.1 to the Registrants Current Report on
Form 8-K,
dated June 15, 2005 (File
No. 000-51360)
(the Merger
8-K))
|
|
3
|
.2
|
|
Bylaws of the Registrant (incorporated by reference to
Exhibit 3.2 to the Merger
8-K)
|
|
10
|
|
|
Material Contracts:
|
|
10
|
.1
|
|
Form of Restricted Share Units Agreement under the Liberty
Global, Inc. 2005 Incentive Plan (As Amended and Restated
Effective October 31, 2006) (the Incentive Plan).*
|
|
10
|
.2
|
|
Form of Non-Qualified Stock Option Agreement under the Incentive
Plan.*
|
|
10
|
.3
|
|
Form of Stock Appreciation Rights Agreement under the Incentive
Plan.*
|
|
10
|
.4
|
|
Notice to Holders of Liberty Global, Inc. Stock Options Awarded
by Liberty Media International, Inc. of Additional Method of
Payment of Option Price, dated March 6, 2008.*
|
|
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*
|
68
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
LIBERTY GLOBAL, INC.
|
|
|
|
Dated: May 7, 2008
|
|
/s/ Michael
T. Fries
|
|
|
|
|
|
Michael T. Fries
President and Chief Executive Officer
|
|
|
|
Dated: May 7, 2008
|
|
/s/ Charles
H.R. Bracken
|
|
|
|
|
|
Charles H.R. Bracken
Senior Vice President and Co-Chief
Financial Officer (Principal Financial Officer)
|
|
|
|
Dated: May 7, 2008
|
|
/s/ Bernard
G. Dvorak
|
|
|
|
|
|
Bernard G. Dvorak
Senior Vice President and Co-Chief
Financial Officer (Principal Accounting Officer)
|
69
EXHIBIT INDEX
|
|
|
|
|
|
3
|
|
|
Articles of Incorporation; Bylaws:
|
|
3
|
.1
|
|
Restated Certificate of Incorporation of the Registrant, dated June 15, 2005 (incorporated by
reference to Exhibit 3.1 to the Registrants Current Report on Form 8-K, dated June 15, 2005 (File
No. 000-51360) (the Merger 8-K))
|
|
3
|
.2
|
|
Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 to the Merger 8-K)
|
|
10
|
|
|
Material Contracts:
|
|
10
|
.1
|
|
Form of Restricted Share Units Agreement under the Liberty Global, Inc. 2005 Incentive Plan (As
Amended and Restated Effective October 31, 2006 (the Incentive Plan).*
|
|
10
|
.2
|
|
Form of Non-Qualified Stock Option Agreement under the Incentive Plan.*
|
|
10
|
.3
|
|
Form of Stock Appreciation Rights Agreement under the Incentive Plan.*
|
|
10
|
.4
|
|
Notice to Holders of Liberty Global, Inc. Stock Options Awarded by Liberty Media International, Inc.
of Additional Method of Payment of Option Price, dated March 6, 2008.*
|
|
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*
|