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
June 30, 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
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20-2197030
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(State or other jurisdiction
of
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(I.R.S. Employer
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incorporation or
organization)
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Identification No.)
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12300 Liberty Boulevard
Englewood, Colorado
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80112
(Zip Code)
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(Address of principal executive
offices)
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Registrants telephone number, including area code:
(303) 220-6600
Indicate by check mark whether the Registrant: (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months and (2) has been subject to such
filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large
Accelerated
Filer þ
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Accelerated
Filer o
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Non-Accelerated
Filer o
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Smaller
Reporting
Company o
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(Do
not check if a smaller reporting company)
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 July 31, 2008 was:
Series A common stock 149,373,720 shares;
Series B common stock 7,254,910 shares; and
Series C common stock 153,427,765 shares.
LIBERTY
GLOBAL, INC.
INDEX
1
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June 30,
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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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1,210.9
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$
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2,035.5
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Trade receivables, net
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867.7
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1,003.7
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Deferred income taxes
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322.9
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319.1
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Derivative instruments (note 6)
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279.1
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230.5
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Other current assets
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333.4
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335.8
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Total current assets
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3,014.0
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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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1,394.8
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1,171.5
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Property and equipment, net (note 8)
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11,395.5
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10,608.5
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Goodwill (note 8)
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13,657.4
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12,626.8
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Intangible assets subject to amortization, net (note 8)
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2,542.9
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2,504.9
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Other assets, net
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1,411.0
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1,306.8
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Total assets
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$
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33,891.1
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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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June 30,
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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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684.1
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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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870.6
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933.8
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Current portion of debt and capital lease obligations
(note 9)
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310.8
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383.2
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Derivative instruments (note 6)
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303.4
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116.2
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Accrued interest
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165.2
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341.2
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Accrued capital expenditures
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172.3
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194.1
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Other accrued and current liabilities
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1,208.9
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1,084.1
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Total current liabilities
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3,715.3
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3,857.5
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Long-term debt and capital lease obligations (note 9)
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19,475.0
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17,970.2
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Other long-term liabilities
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2,852.3
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2,508.8
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Total liabilities
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26,042.6
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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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2,698.2
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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 149,362,184 and
174,687,478 shares, respectively
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1.5
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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 7,254,910 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, $.01 par value. Authorized
500,000,000 shares; issued and outstanding 153,422,083 and
172,129,524 shares, respectively
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1.5
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1.7
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Additional paid-in capital
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4,734.6
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6,293.2
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Accumulated deficit
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(813.4
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)
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(1,319.1
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)
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Accumulated other comprehensive earnings, net of taxes
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1,226.0
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858.5
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Total stockholders equity
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5,150.3
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5,836.1
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Total liabilities and stockholders equity
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$
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33,891.1
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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 June 30,
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Six months ended June 30,
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2008
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2007
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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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2,729.9
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$
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2,180.6
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$
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5,340.9
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$
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4,286.6
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Operating costs and expenses:
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Operating (other than depreciation and amortization) (including
stock-based compensation) (notes 11 and 12)
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1,063.1
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906.1
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2,091.8
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1,783.5
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Selling, general and administrative (SG&A) (including
stock-based compensation) (notes 11 and 12)
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555.0
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453.5
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1,076.9
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901.0
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Depreciation and amortization
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744.0
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610.2
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1,448.1
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1,204.2
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Impairment, restructuring and other operating charges, net
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3.3
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0.6
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1.8
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5.9
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2,365.4
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1,970.4
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4,618.6
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3,894.6
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Operating income
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364.5
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210.2
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722.3
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392.0
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Non-operating income (expense):
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Interest expense (note 12)
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(290.7
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)
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(226.3
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)
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(570.3
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)
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|
(459.3
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)
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Interest and dividend income
|
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|
17.1
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24.1
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51.9
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48.5
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Share of results of affiliates, net
|
|
|
0.3
|
|
|
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9.5
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2.8
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23.1
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Realized and unrealized gains on derivative instruments, net
(notes 6 and 7)
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|
406.4
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73.9
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|
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71.0
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63.6
|
|
Foreign currency transaction gains, net
|
|
|
210.4
|
|
|
|
49.0
|
|
|
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383.0
|
|
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73.3
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Unrealized gains (losses) due to changes in fair values of
certain investments and debt, net (notes 5, 7, and 9)
|
|
|
22.8
|
|
|
|
(158.6
|
)
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44.8
|
|
|
|
(230.2
|
)
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Losses on extinguishment of debt, net
|
|
|
|
|
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|
(23.3
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)
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|
|
|
|
|
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(23.3
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)
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Other income (expense), net
|
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|
1.3
|
|
|
|
(1.3
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)
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|
0.9
|
|
|
|
(4.3
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
367.6
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|
(253.0
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)
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(15.9
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)
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|
(508.6
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)
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|
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|
|
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|
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|
|
|
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Earnings (loss) before income taxes and minority interests
|
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|
732.1
|
|
|
|
(42.8
|
)
|
|
|
706.4
|
|
|
|
(116.6
|
)
|
Income tax benefit (expense)
|
|
|
(189.9
|
)
|
|
|
60.9
|
|
|
|
(290.8
|
)
|
|
|
54.6
|
|
Minority interests in earnings of subsidiaries, net
|
|
|
(114.0
|
)
|
|
|
(147.8
|
)
|
|
|
(143.0
|
)
|
|
|
(203.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
428.2
|
|
|
$
|
(129.7
|
)
|
|
$
|
272.6
|
|
|
$
|
(265.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share Series A,
Series B and Series C common stock (note 2)
|
|
$
|
1.33
|
|
|
$
|
(0.34
|
)
|
|
$
|
0.82
|
|
|
$
|
(0.69
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Diluted earnings (loss) per share Series A,
Series B and Series C common stock (note 2)
|
|
$
|
1.11
|
|
|
$
|
(0.34
|
)
|
|
$
|
0.55
|
|
|
$
|
(0.69
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding basic
|
|
|
321,874,916
|
|
|
|
384,833,589
|
|
|
|
332,824,462
|
|
|
|
387,907,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Weighted average common shares outstanding diluted
|
|
|
375,865,624
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|
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|
384,833,589
|
|
|
|
372,074,550
|
|
|
|
387,907,014
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
LIBERTY
GLOBAL, INC.
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
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|
Six months ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
in millions
|
|
|
Net earnings (loss)
|
|
$
|
428.2
|
|
|
$
|
(129.7
|
)
|
|
$
|
272.6
|
|
|
$
|
(265.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive earnings (loss), net of taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
(318.9
|
)
|
|
|
(12.8
|
)
|
|
|
404.2
|
|
|
|
49.2
|
|
Unrealized losses on available-for-sale securities
|
|
|
|
|
|
|
(6.8
|
)
|
|
|
|
|
|
|
(4.7
|
)
|
Reclassification adjustment for net losses on available-for-sale
securities included in net earnings
|
|
|
|
|
|
|
0.4
|
|
|
|
|
|
|
|
3.8
|
|
Unrealized gains on cash flow hedges
|
|
|
3.2
|
|
|
|
3.8
|
|
|
|
2.8
|
|
|
|
2.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive earnings (loss)
|
|
|
(315.7
|
)
|
|
|
(15.4
|
)
|
|
|
407.0
|
|
|
|
51.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive earnings (loss)
|
|
$
|
112.5
|
|
|
$
|
(145.1
|
)
|
|
$
|
679.6
|
|
|
$
|
(214.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
LIBERTY
GLOBAL, INC.
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other
|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
comprehensive
|
|
|
Total
|
|
|
|
Common stock
|
|
|
paid-in
|
|
|
Accumulated
|
|
|
earnings,
|
|
|
stockholders
|
|
|
|
Series A
|
|
|
Series B
|
|
|
Series C
|
|
|
capital
|
|
|
deficit
|
|
|
net of taxes
|
|
|
equity
|
|
|
|
in millions
|
|
|
Balance at January 1, 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
272.6
|
|
|
|
|
|
|
|
272.6
|
|
Other comprehensive earnings, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
407.0
|
|
|
|
407.0
|
|
Repurchase and cancellation of common stock (note 10)
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
(0.2
|
)
|
|
|
(1,560.9
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,561.3
|
)
|
Stock-based compensation, net of taxes (note 11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25.8
|
|
|
|
|
|
|
|
|
|
|
|
25.8
|
|
Stock issued in connection with equity incentive plans, net of
employee tax withholding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
|
|
3.0
|
|
Adjustments due to changes in subsidiaries equity and
other, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26.5
|
)
|
|
|
|
|
|
|
|
|
|
|
(26.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2008
|
|
$
|
1.5
|
|
|
$
|
0.1
|
|
|
$
|
1.5
|
|
|
$
|
4,734.6
|
|
|
$
|
(813.4
|
)
|
|
$
|
1,226.0
|
|
|
$
|
5,150.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
6
LIBERTY
GLOBAL, INC.
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
Six months ended
|
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
in millions
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
272.6
|
|
|
$
|
(265.8
|
)
|
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
83.3
|
|
|
|
83.5
|
|
Depreciation and amortization
|
|
|
1,448.1
|
|
|
|
1,204.2
|
|
Impairment, restructuring and other operating charges, net
|
|
|
1.8
|
|
|
|
5.9
|
|
Amortization of deferred financing costs and non-cash interest
|
|
|
22.1
|
|
|
|
48.7
|
|
Share of results of affiliates, net of dividends
|
|
|
(2.8
|
)
|
|
|
(19.2
|
)
|
Realized and unrealized gains on derivative instruments, net
|
|
|
(71.0
|
)
|
|
|
(63.6
|
)
|
Foreign currency transaction gains, net
|
|
|
(383.0
|
)
|
|
|
(73.3
|
)
|
Unrealized losses (gains) due to changes in fair values of
certain investments and debt, net of certain dividends
|
|
|
(43.6
|
)
|
|
|
230.2
|
|
Deferred income tax expense (benefit)
|
|
|
206.8
|
|
|
|
(54.0
|
)
|
Losses on extinguishment of debt, net
|
|
|
|
|
|
|
23.3
|
|
Minority interests in earnings of subsidiaries
|
|
|
143.0
|
|
|
|
203.8
|
|
Changes in operating assets and liabilities, net of the effects
of acquisitions and dispositions
|
|
|
(150.6
|
)
|
|
|
(272.5
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
1,526.7
|
|
|
|
1,051.2
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Capital expended for property and equipment
|
|
|
(1,081.4
|
)
|
|
|
(951.8
|
)
|
Cash paid in connection with acquisitions, net of cash acquired
|
|
|
(136.6
|
)
|
|
|
(111.0
|
)
|
Other investing activities, net
|
|
|
16.8
|
|
|
|
(31.0
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used by investing activities
|
|
|
(1,201.2
|
)
|
|
|
(1,093.8
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Repurchase of LGI common stock
|
|
|
(1,613.7
|
)
|
|
|
(645.5
|
)
|
Repayments of debt and capital lease obligations
|
|
|
(446.3
|
)
|
|
|
(1,008.2
|
)
|
Borrowings of debt
|
|
|
853.7
|
|
|
|
2,209.4
|
|
Other financing activities, net
|
|
|
(11.4
|
)
|
|
|
91.2
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by financing activities
|
|
|
(1,217.7
|
)
|
|
|
646.9
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash
|
|
|
67.6
|
|
|
|
29.8
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(824.6
|
)
|
|
|
634.1
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
2,035.5
|
|
|
|
1,880.5
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
1,210.9
|
|
|
$
|
2,514.6
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
725.5
|
|
|
$
|
591.5
|
|
|
|
|
|
|
|
|
|
|
Net cash paid for taxes
|
|
$
|
73.7
|
|
|
$
|
31.6
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
7
LIBERTY
GLOBAL, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 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 June 30, 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) (50.8% at June 30, 2008), we provide broadband
communications services in Belgium. Through our indirect
controlling ownership interest in Jupiter Telecommunications
Co., Ltd. (J:COM) (37.8% at June 30, 2008), we provide
broadband communications services in Japan. Through our indirect
majority ownership interest in Austar United Communications
Limited (Austar) (54.0% at June 30, 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 June 30, 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 cash flows.
8
LIBERTY
GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
June 30, 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 includes the dilutive effect,
if any, on a per share basis of potential common shares (e.g.,
options, unvested common shares and convertible securities) as
if they had been exercised, vested or converted at the beginning
of the period presented. The details of the calculations of our
basic and diluted EPS are set forth in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
in millions, except share amounts
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) (basic EPS computation)
|
|
$
|
428.2
|
|
|
$
|
(129.7
|
)
|
|
$
|
272.6
|
|
|
$
|
(265.8
|
)
|
Reversal of impact of certain obligations that may be settled in
shares, net of taxes
|
|
|
14.0
|
|
|
|
|
|
|
|
0.7
|
|
|
|
|
|
Reversal of impact of UGC Convertible Notes, net of taxes
|
|
|
(23.6
|
)
|
|
|
|
|
|
|
(67.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) (diluted EPS computation)
|
|
$
|
418.6
|
|
|
$
|
(129.7
|
)
|
|
$
|
206.0
|
|
|
$
|
(265.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares (basic EPS computation)
|
|
|
321,874,916
|
|
|
|
384,833,589
|
|
|
|
332,824,462
|
|
|
|
387,907,014
|
|
Incremental shares attributable to the assumed conversion of the
UGC Convertible Notes
|
|
|
22,497,658
|
|
|
|
|
|
|
|
22,448,834
|
|
|
|
|
|
Incremental shares attributable to obligations that may be
settled in shares
|
|
|
23,389,967
|
|
|
|
|
|
|
|
8,459,915
|
|
|
|
|
|
Incremental shares attributable to the assumed exercise of
outstanding options and stock appreciation rights (SARs) and the
release of restricted shares and share units upon vesting
(treasury stock method)
|
|
|
8,103,083
|
|
|
|
|
|
|
|
8,341,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares (diluted EPS calculation)
|
|
|
375,865,624
|
|
|
|
384,833,589
|
|
|
|
372,074,550
|
|
|
|
387,907,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A total of 5,242,308 and 4,238,391 stock options, SARs, unvested
shares and unvested share units and nil and
13,023,462 shares issuable pursuant to obligations that may
be settled in shares were excluded from the calculation of
diluted earnings per share during the three and six months ended
June 30, 2008, respectively, because their effect would
have been antidilutive.
We reported net losses during the three and six months ended
June 30, 2007. Therefore, the dilutive effect at
June 30, 2007 of (i) the aggregate number of then
outstanding options, SARs, and unvested shares and share units
of approximately 30.7 million, (ii) the aggregate
number of shares then issuable pursuant to the then outstanding
9
LIBERTY
GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
June 30, 2008
(unaudited)
convertible debt securities and other obligations that may be
settled in cash or shares of approximately 35.3 million and
(iii) the number of shares then contingently issuable
pursuant to LGI performance-based incentive plans of
9.2 million 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. For
information regarding the impacts of such adoption on our
condensed consolidated financial statements, see notes 6
and 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.
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.
10
LIBERTY
GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
June 30, 2008
(unaudited)
Such adoption resulted in (i) an increase to our other
long-term assets of $21.8 million, (ii) an increase to
our other accrued and current liabilities of $13.2 million,
(iii) a decrease to our long-term deferred tax liabilities
of $2.9 million, (iv) an increase to our other
long-term liabilities of $16.5 million and (v) 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.
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.
11
LIBERTY
GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
June 30, 2008
(unaudited)
FSP
142-3
In April 2008, the FASB issued FASB Staff Position
No. 142-3,
Determination of the Useful Life of Intangible Assets
(FSP 142-3).
FSP 142-3
amends the factors an entity should consider in developing
renewal or extension assumptions used in determining the useful
life of recognized intangible assets under SFAS 142. This
change is intended to improve the consistency between the useful
life of a recognized intangible asset under SFAS 142 and
the period of expected cash flows used to measure the fair value
of the asset under SFAS 141(R) and other GAAP.
FSP 142-3
also requires expanded disclosure related to the determination
of intangible asset useful lives. This new guidance applies
prospectively to intangible assets that are acquired
individually or with a group of other assets in business
combinations and asset acquisitions.
FSP 142-3
is effective for financial statements issued for fiscal years
and interim periods beginning after December 15, 2008 and
early adoption is prohibited. We have not completed our analysis
of the impact of
FSP 142-3
on our consolidated financial statements.
Pending
Acquisition of Telenet Partner Network
Pursuant to its agreements that were executed in 1996 with four
associations of municipalities in Belgium, which we refer to as
the pure intercommunales or the PICs, Telenet has
the exclusive right to provide point-to-point services and the
non-exclusive right to provide certain other services on the
broadband network owned by the PICs (the Telenet Partner
Network). In return for these usage rights, Telenet issued stock
to the PICs and, in addition, agreed to pay for the capital
upgrade of the Telenet Partner Network so that the Telenet
Partner Network would be technologically capable of providing
two-way communications services.
On June 28, 2008, Telenet executed an agreement with the
PICs (the 2008 PICs Agreement), which provides for the
acquisition of the PICs analog and digital television
activities, including the entire subscriber base, for purchase
consideration of 230 million ($362 million) and
the purchase and the long-term lease of the network assets
comprising the Telenet Partner Network. Among other matters, the
2008 PICs Agreement, which supersedes the
agreement-in-principle
that the parties signed on November 26, 2007, provides that
the PICs would remain the legal owners of the Telenet Partner
Network, and that Telenet would receive full rights to use the
Telenet Partner 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. The closing of this transaction is subject to the
approval of the general assemblies of the PICs and closing can
therefore only occur after such approval has been obtained. The
approval process is expected to be completed by October 2008.
The closing of this transaction will enable Telenet to extend
its interactive digital television services and triple play
offerings to consumers served by the Telenet Partner Network.
For information concerning the negotiations and litigation that
preceded the execution of the 2008 PICs Agreement, see
note 13.
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
12
LIBERTY
GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
June 30, 2008
(unaudited)
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.
Pro
Forma Information
The following unaudited pro forma condensed consolidated
operating results for the three and six months ended
June 30, 2007 give effect to (i) the JTV Thematics
acquisition and (ii) the third quarter 2007 acquisition 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
|
|
|
Six months ended
|
|
|
|
June 30, 2007
|
|
|
June 30, 2007
|
|
|
|
in millions, except per share amounts
|
|
|
Revenue
|
|
$
|
2,202.2
|
|
|
$
|
4,330.4
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(138.2
|
)
|
|
$
|
(273.1
|
)
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share
|
|
$
|
(0.36
|
)
|
|
$
|
(0.70
|
)
|
|
|
|
|
|
|
|
|
|
The details of our investments are set forth below:
|
|
|
|
|
|
|
|
|
|
|
Carrying amount
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
Accounting Method
|
|
in millions
|
|
|
Fair value (a)
|
|
$
|
1,109.3
|
|
|
$
|
|
|
Equity (b)
|
|
|
262.5
|
|
|
|
388.6
|
|
Cost
|
|
|
23.0
|
|
|
|
22.1
|
|
Available-for-sale
|
|
|
|
|
|
|
760.8
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,394.8
|
|
|
$
|
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,
including our investments in Sumitomo, The News Corporation
Limited (News Corp.) and Telewizyjna Korporacja Partycypacyjna
S.A. The aggregate fair value of our fair value method
investments as of January 1, 2008 was $1,138.8 million. |
|
(b) |
|
At June 30, 2008, investments accounted for using the
equity method include our investments in Mediatti
Communications, Inc. (Mediatti), Discovery Japan, Inc., JSports
Broadcasting Corporation and XYZ Network Pty LTD. |
13
LIBERTY
GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
June 30, 2008
(unaudited)
We have elected the fair value method for most of our
investments as we believe this method generally provides the
most meaningful information to our investors. However, for
investments over which we have significant influence, we have
considered the significance of transactions between our company
and our equity affiliates and other factors in determining
whether the fair value method should be applied. In general, we
have not elected the fair value option for those equity method
investments with which LGI or its consolidated subsidiaries have
significant related-party transactions. For additional
information regarding our fair value method investments, see
note 7.
|
|
(6)
|
Derivative
Instruments
|
Through our subsidiaries, we have entered into various
derivative instruments to manage interest rate and foreign
currency exposure with respect to the U.S. dollar ($), 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 gains
(losses) on derivative instruments, net, in our condensed
consolidated statements of operations. The following table
provides details of the fair value of our derivative instrument
assets (liabilities), net:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
in millions
|
|
|
Cross-currency and interest rate derivative contracts (a)
|
|
$
|
(410.8
|
)
|
|
$
|
(280.3
|
)
|
Equity-related derivatives
|
|
|
250.7
|
|
|
|
210.8
|
|
Foreign exchange contracts
|
|
|
(4.7
|
)
|
|
|
(5.9
|
)
|
Other
|
|
|
6.2
|
|
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
Total (b)
|
|
$
|
(158.6
|
)
|
|
$
|
(70.4
|
)
|
|
|
|
|
|
|
|
|
|
Current asset
|
|
$
|
279.1
|
|
|
$
|
230.5
|
|
Long-term asset
|
|
|
612.8
|
|
|
|
421.7
|
|
Current liability
|
|
|
(303.4
|
)
|
|
|
(116.2
|
)
|
Long-term liability
|
|
|
(747.1
|
)
|
|
|
(606.4
|
)
|
|
|
|
|
|
|
|
|
|
Total (b)
|
|
$
|
(158.6
|
)
|
|
$
|
(70.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
As of June 30, 2008, the valuation of our cross-currency
and interest rate derivative contracts include a credit risk
valuation adjustment of $54.0 million. This credit risk
valuation adjustment primarily relates to our own nonperformance
risk on liability-classified derivative contracts and therefore
results in a reduction to our overall derivative liabilities.
The gain resulting from this reduction of our derivative
liabilities is included in realized and unrealized gains on
derivative instruments, net, in our condensed consolidated
statements of operations. For further information concerning our
fair value measurements, see note 7. |
|
(b) |
|
Excludes the prepaid forward sale contract on our News Corp.
Class A common stock, which is included in long-term debt
and capital lease obligations in our condensed consolidated
balance sheets. |
14
LIBERTY
GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
June 30, 2008
(unaudited)
The details of our realized and unrealized gains on derivative
instruments, net, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
in millions
|
|
|
Cross-currency and interest rate derivative contracts
|
|
$
|
480.5
|
|
|
$
|
79.7
|
|
|
$
|
20.5
|
|
|
$
|
41.8
|
|
Equity-related derivatives (a)
|
|
|
(73.8
|
)
|
|
|
9.6
|
|
|
|
56.5
|
|
|
|
20.8
|
|
Foreign exchange contracts
|
|
|
(0.6
|
)
|
|
|
(14.9
|
)
|
|
|
(5.8
|
)
|
|
|
(1.8
|
)
|
Other
|
|
|
0.3
|
|
|
|
(0.5
|
)
|
|
|
(0.2
|
)
|
|
|
2.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
406.4
|
|
|
$
|
73.9
|
|
|
$
|
71.0
|
|
|
$
|
63.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes activity related to (i) our share collar (the
Sumitomo Collar) with respect to the Sumitomo shares held by our
company, (ii) the prepaid forward sale contract on our News
Corp. Class A common stock and (iii) the call options
we held during the 2007 periods with respect to Telenet ordinary
shares. |
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 cash flows. The classifications of these cash flows
are as follows:
|
|
|
|
|
|
|
|
|
|
|
Six months ended
|
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
in millions
|
|
|
Net cash received (paid) related to derivative instruments:
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
121.6
|
|
|
$
|
(13.1
|
)
|
Investing activities
|
|
|
(2.0
|
)
|
|
|
(0.1
|
)
|
Financing activities
|
|
|
(7.2
|
)
|
|
|
59.1
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
112.4
|
|
|
$
|
45.9
|
|
|
|
|
|
|
|
|
|
|
15
LIBERTY
GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
June 30, 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 June 30, 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 (b)
|
|
counterparty (b)
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 2010
|
|
|
105.8
|
|
|
CZK
|
3,018.7
|
|
|
5.50%
|
|
4.88%
|
July 2009 July 2010
|
|
|
60.0
|
|
|
|
1,703.1
|
|
|
5.50%
|
|
5.33%
|
July 2009
|
|
|
60.0
|
|
|
|
1,703.1
|
|
|
5.50%
|
|
5.15%
|
September 2012
|
|
|
200.0
|
|
|
|
5,800.0
|
|
|
5.46%
|
|
5.30%
|
February 2010 December 2014
|
|
|
105.8
|
|
|
|
3,018.7
|
|
|
5.50%
|
|
5.80%
|
July 2010 December 2014
|
|
|
60.0
|
|
|
|
1,703.1
|
|
|
5.50%
|
|
6.05%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
591.6
|
|
|
CZK
|
16,946.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
260.0
|
|
|
HUF
|
75,570.0
|
|
|
5.50%
|
|
8.75%
|
July 2009 July 2010
|
|
|
260.0
|
|
|
|
75,570.0
|
|
|
5.50%
|
|
7.80%
|
July 2008 December 2014
|
|
|
228.0
|
|
|
|
62,867.5
|
|
|
5.50%
|
|
8.98%
|
July 2010 December 2014
|
|
|
260.0
|
|
|
|
75,570.0
|
|
|
5.50%
|
|
9.40%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,008.0
|
|
|
HUF
|
289,577.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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%
|
July 2008 December 2014
|
|
|
98.4
|
|
|
|
335.0
|
|
|
5.50%
|
|
7.12%
|
July 2010 December 2014
|
|
|
245.0
|
|
|
|
1,000.6
|
|
|
5.50%
|
|
7.60%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
833.4
|
|
|
PLN
|
3,336.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 2010
|
|
|
200.0
|
|
|
RON
|
709.1
|
|
|
5.50%
|
|
10.98%
|
July 2008 December 2014
|
|
|
89.1
|
|
|
|
320.1
|
|
|
5.50%
|
|
10.27%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
289.1
|
|
|
RON
|
1,029.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
16
LIBERTY
GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
June 30, 2008
(unaudited)
|
|
|
|
|
derivative instruments that were in effect as of June 30,
2008, we present a single date that represents the applicable
final maturity date. For derivative instruments that become
effective subsequent to June 30, 2008, we present a range
of dates that represents the period covered by the applicable
derivative instrument. |
|
|
(b) |
For certain derivative contracts that provided for the reset of
contractual interest rates on July 1, 2008, we present the
interest rates in effect as of that date in the above table.
|
Interest
Rate Swaps:
The terms of our outstanding interest rate swap contracts at
June 30, 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate
|
|
Interest rate
|
|
|
|
|
|
due from
|
|
due to
|
Subsidiary (a)
|
|
Notional amount
|
|
|
counterparty (b)
|
|
counterparty (b)
|
|
|
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 +2.0%
|
|
6 mo. EURIBOR + 1.89%
|
January 2009
|
|
|
2,640.0
|
|
|
1 mo. EURIBOR + 2.12%
|
|
6 mo. EURIBOR + 2.0%
|
July 2008 January 2010
|
|
|
250.0
|
|
|
1 mo. EURIBOR + 2.0%
|
|
6 mo. EURIBOR + 1.79%
|
January 2009 January 2010
|
|
|
2,250.0
|
|
|
1 mo. EURIBOR + 2.0%
|
|
6 mo. EURIBOR + 1.85%
|
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%
|
|
|
|
|
|
|
|
|
|
|
|
|
9,712.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 + 1.75%
|
|
6 mo. LIBOR + 1.64%
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
168.5
|
|
|
3 mo. LIBOR
|
|
5.14%
|
|
|
|
|
|
|
|
|
|
17
LIBERTY
GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
June 30, 2008
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate
|
|
Interest rate
|
|
|
|
|
|
due from
|
|
due to
|
Subsidiary (a)
|
|
Notional amount
|
|
|
counterparty (b)
|
|
counterparty (b)
|
|
|
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:
|
|
|
|
|
|
|
|
|
December 2008
|
|
|
530.0
|
|
|
1 mo. EURIBOR + 2.25%
|
|
3 mo. EURIBOR + 1.96%
|
September 2009
|
|
|
28.6
|
|
|
3 mo. EURIBOR
|
|
4.52%
|
September 2012
|
|
|
300.0
|
|
|
3 mo. EURIBOR
|
|
4.35%
|
|
|
|
|
|
|
|
|
|
|
|
|
858.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LGJ Holdings LLC (LGJ Holdings):
|
|
|
|
|
|
|
|
|
July 2008 January 2009
|
|
¥
|
75,000.0
|
|
|
3 mo. TIBOR
|
|
6 mo. TIBOR
|
November 2012
|
|
|
75,000.0
|
|
|
6 mo. TIBOR
|
|
1.34%
|
|
|
|
|
|
|
|
|
|
|
|
¥
|
150,000.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J:COM:
|
|
|
|
|
|
|
|
|
June 2009
|
|
¥
|
6,132.2
|
|
|
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 2014
|
|
|
10,000.0
|
|
|
3 mo. TIBOR
|
|
1.15%
|
|
|
|
|
|
|
|
|
|
|
|
¥
|
78,632.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 June 30, 2008, we present a single date that represents
the applicable final maturity date. For derivative instruments
that become effective subsequent to June 30, 2008, we
present a range of dates that represents the period covered by
the applicable derivative instrument. |
|
(b) |
|
For certain derivative contracts that provided for the reset of
contractual interest rates on July 1, 2008, we present the
interest rates in effect as of that date in the above table. |
18
LIBERTY
GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
June 30, 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
|
|
|
21.8
|
|
|
|
4.0
|
%
|
December 2017
|
|
|
9.8
|
|
|
|
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 June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency
|
|
|
Currency
|
|
|
|
|
|
purchased
|
|
|
sold
|
|
|
|
LGI subsidiary
|
|
forward
|
|
|
forward
|
|
|
Maturity dates
|
|
|
in millions
|
|
|
|
|
UPC Broadband Holding
|
|
$
|
3.7
|
|
|
|
2.5
|
|
|
August 2008 November 2008
|
J:COM
|
|
$
|
28.4
|
|
|
¥
|
3,077.1
|
|
|
July 2008 October 2010
|
VTR
|
|
$
|
25.6
|
|
|
CLP
|
12,631.0
|
|
|
July 2008 February 2009
|
Telenet NV
|
|
$
|
16.0
|
|
|
|
10.5
|
|
|
July 2008 December 2008
|
Austar Entertainment
|
|
$
|
16.5
|
|
|
AUD
|
21.5
|
|
|
August 2008 May 2009
|
Liberty Global Europe Financing BV
|
|
$
|
70.4
|
|
|
CLP
|
37,277.0
|
|
|
July 2008
|
|
|
(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 ($786.8 million)
1.75% euro-denominated convertible senior notes (the UGC
Convertible Notes) issued by our indirect wholly owned
subsidiary, UnitedGlobalCom, Inc. (UGC). SFAS 157 provides
for a fair value hierarchy that
19
LIBERTY
GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
June 30, 2008
(unaudited)
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 of the underlying
equity securities. 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), 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 primary 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 rates, swap rates and yield curves, which are
retrieved from available market data and are not altered in
performing our valuations. SFAS 157 requires the
incorporation of a credit risk valuation adjustment in our fair
value measurements to estimate the impact of both our own
nonperformance risk and the nonperformance risk of our
counterparties. Our estimated credit spread is a Level 3
input that is used to derive the credit valuation adjustment on
our liability-classified interest rate and foreign currency
derivative valuations. As we would not expect changes in our
credit spreads to have a significant impact on the overall
valuation of our interest rate and foreign currency derivative
instruments, we believe that the valuations of these instruments
fall 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 (historical volatilities). As we would not
expect changes in volatilities to have a significant impact on
the overall valuation of the UGC Convertible Notes, we believe
that this valuation falls under Level 2 of the
SFAS 157 fair value hierarchy.
20
LIBERTY
GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
June 30, 2008
(unaudited)
A summary of the assets and liabilities measured at fair value
that are included in our condensed consolidated balance sheet as
of June 30, 2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurements at June 30, 2008 using:
|
|
|
|
|
|
|
Quoted prices in
|
|
|
Significant other
|
|
|
Significant
|
|
|
|
|
|
|
active markets for
|
|
|
observable
|
|
|
unobservable
|
|
|
|
June 30,
|
|
|
identical assets
|
|
|
inputs
|
|
|
inputs
|
|
Description
|
|
2008
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
in millions
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments (a)
|
|
$
|
903.7
|
|
|
$
|
|
|
|
$
|
640.1
|
|
|
$
|
263.6
|
|
Investments
|
|
|
1,109.3
|
|
|
|
682.4
|
|
|
|
|
|
|
|
426.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,013.0
|
|
|
$
|
682.4
|
|
|
$
|
640.1
|
|
|
$
|
690.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UGC Convertible Notes
|
|
$
|
789.2
|
|
|
$
|
|
|
|
$
|
789.2
|
|
|
$
|
|
|
Derivative instruments
|
|
|
1,050.5
|
|
|
|
|
|
|
|
1,049.4
|
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
1,839.7
|
|
|
$
|
|
|
|
$
|
1,838.6
|
|
|
$
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes the embedded derivative component of the prepaid
forward sale contract on our News Corp. Class A common
stock, which is included within long-term debt and capital lease
obligations in our condensed consolidated balance sheets. |
A reconciliation of the beginning and ending balances of our
assets measured at fair value using significant unobservable, or
Level 3, inputs is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity-related
|
|
|
|
|
|
|
|
|
|
derivative
|
|
|
|
|
|
|
Investments
|
|
|
instruments, net
|
|
|
Total
|
|
|
|
in millions
|
|
|
Balance at January 1, 2008
|
|
$
|
378.0
|
|
|
$
|
199.6
|
|
|
$
|
577.6
|
|
Gains included in net loss (a):
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized and unrealized gains on derivative instruments, net
|
|
|
|
|
|
|
56.5
|
|
|
|
56.5
|
|
Unrealized gains due to changes in fair values of certain
investments and debt, net
|
|
|
10.1
|
|
|
|
|
|
|
|
10.1
|
|
Purchases, settlements and other
|
|
|
7.7
|
|
|
|
6.1
|
|
|
|
13.8
|
|
Foreign currency translation adjustments
|
|
|
31.1
|
|
|
|
0.3
|
|
|
|
31.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2008
|
|
$
|
426.9
|
|
|
$
|
262.5
|
|
|
$
|
689.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
All of the gains recognized during the six months ended
June 30, 2008 relate to assets that were still held as of
June 30, 2008. |
Dividends from publicly-traded investees are recognized when
declared as dividend income in our condensed consolidated
statements of operations. Dividends from privately-held
investees generally are reflected as reductions of the carrying
values of the applicable investments.
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.
21
LIBERTY
GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
June 30, 2008
(unaudited)
Property
and Equipment, Net
The details of property and equipment and the related
accumulated depreciation are set forth below:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
in millions
|
|
|
Distribution systems
|
|
$
|
15,864.4
|
|
|
$
|
13,839.4
|
|
Support equipment, buildings and land
|
|
|
2,213.0
|
|
|
|
1,926.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,077.4
|
|
|
|
15,765.8
|
|
Accumulated depreciation
|
|
|
(6,681.9
|
)
|
|
|
(5,157.3
|
)
|
|
|
|
|
|
|
|
|
|
Total property and equipment, net
|
|
$
|
11,395.5
|
|
|
$
|
10,608.5
|
|
|
|
|
|
|
|
|
|
|
Goodwill
Changes in the carrying amount of goodwill for the six months
ended June 30, 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Release of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
pre-acquisition
|
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
|
|
|
valuation allowance
|
|
|
currency
|
|
|
|
|
|
|
|
|
|
Acquisition
|
|
|
and other income
|
|
|
translation
|
|
|
|
|
|
|
January 1,
|
|
|
related
|
|
|
tax related
|
|
|
adjustments
|
|
|
June 30,
|
|
|
|
2008
|
|
|
adjustments
|
|
|
adjustments
|
|
|
and other
|
|
|
2008
|
|
|
|
in millions
|
|
|
UPC Broadband Division:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$
|
1,367.0
|
|
|
$
|
|
|
|
$
|
(79.0
|
)
|
|
$
|
116.6
|
|
|
$
|
1,404.6
|
|
Switzerland
|
|
|
2,519.8
|
|
|
|
|
|
|
|
(6.6
|
)
|
|
|
284.2
|
|
|
|
2,797.4
|
|
Austria
|
|
|
872.4
|
|
|
|
(2.4
|
)
|
|
|
|
|
|
|
75.4
|
|
|
|
945.4
|
|
Ireland
|
|
|
260.6
|
|
|
|
|
|
|
|
(0.3
|
)
|
|
|
20.6
|
|
|
|
280.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
5,019.8
|
|
|
|
(2.4
|
)
|
|
|
(85.9
|
)
|
|
|
496.8
|
|
|
|
5,428.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
421.2
|
|
|
|
0.2
|
|
|
|
|
|
|
|
66.5
|
|
|
|
487.9
|
|
Other Central and Eastern Europe
|
|
|
1,109.2
|
|
|
|
31.8
|
|
|
|
|
|
|
|
154.2
|
|
|
|
1,295.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
1,530.4
|
|
|
|
32.0
|
|
|
|
|
|
|
|
220.7
|
|
|
|
1,783.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total UPC Broadband Division
|
|
|
6,550.2
|
|
|
|
29.6
|
|
|
|
(85.9
|
)
|
|
|
717.5
|
|
|
|
7,211.4
|
|
Telenet (Belgium)
|
|
|
2,183.0
|
|
|
|
(1.2
|
)
|
|
|
|
|
|
|
170.4
|
|
|
|
2,352.2
|
|
J:COM (Japan)
|
|
|
2,677.3
|
|
|
|
35.1
|
|
|
|
|
|
|
|
130.8
|
|
|
|
2,843.2
|
|
VTR (Chile)
|
|
|
534.3
|
|
|
|
|
|
|
|
|
|
|
|
(25.0
|
)
|
|
|
509.3
|
|
Corporate and other
|
|
|
682.0
|
|
|
|
51.4
|
|
|
|
|
|
|
|
7.9
|
|
|
|
741.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total LGI
|
|
$
|
12,626.8
|
|
|
$
|
114.9
|
|
|
$
|
(85.9
|
)
|
|
$
|
1,001.6
|
|
|
$
|
13,657.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
LIBERTY
GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
June 30, 2008
(unaudited)
Intangible
Assets Subject to Amortization, Net
The details of our intangible assets subject to amortization are
set forth below:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
in millions
|
|
|
Gross carrying amount:
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
3,068.5
|
|
|
$
|
2,746.3
|
|
Other
|
|
|
515.7
|
|
|
|
507.7
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,584.2
|
|
|
$
|
3,254.0
|
|
|
|
|
|
|
|
|
|
|
Accumulated amortization:
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
(906.3
|
)
|
|
$
|
(655.3
|
)
|
Other
|
|
|
(135.0
|
)
|
|
|
(93.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(1,041.3
|
)
|
|
$
|
(749.1
|
)
|
|
|
|
|
|
|
|
|
|
Net carrying amount:
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
2,162.2
|
|
|
$
|
2,091.0
|
|
Other
|
|
|
380.7
|
|
|
|
413.9
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,542.9
|
|
|
$
|
2,504.9
|
|
|
|
|
|
|
|
|
|
|
23
LIBERTY
GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
June 30, 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2008
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
average
|
|
|
Unused borrowing capacity (b)
|
|
|
Carrying value (c)
|
|
|
|
interest
|
|
|
Borrowing
|
|
U.S. $
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
rate (a)
|
|
|
currency
|
|
equivalent
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
in millions
|
|
|
Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LGI Credit Facility
|
|
|
4.98
|
%
|
|
$
|
|
|
$
|
|
|
|
$
|
215.0
|
|
|
$
|
|
|
Subsidiaries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UPC Broadband Holding Bank Facility (d)
|
|
|
5.94
|
%
|
|
|
855.0
|
|
|
1,345.4
|
|
|
|
8,375.4
|
|
|
|
7,208.2
|
|
UPC Holding 7.75% Senior Notes due 2014
|
|
|
7.75
|
%
|
|
|
|
|
|
|
|
|
|
786.8
|
|
|
|
729.2
|
|
UPC Holding 8.63% Senior Notes due 2014
|
|
|
8.63
|
%
|
|
|
|
|
|
|
|
|
|
472.1
|
|
|
|
437.5
|
|
UPC Holding 8.0% Senior Notes due 2016
|
|
|
8.00
|
%
|
|
|
|
|
|
|
|
|
|
472.1
|
|
|
|
437.5
|
|
UPC Holding Facility (d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
364.6
|
|
Telenet Credit Facility
|
|
|
7.39
|
%
|
|
|
400.0
|
|
|
629.4
|
|
|
|
2,989.8
|
|
|
|
2,770.8
|
|
J:COM Credit Facility
|
|
|
1.20
|
%
|
|
¥
|
30,000.0
|
|
|
282.5
|
|
|
|
211.5
|
|
|
|
485.1
|
|
Other J:COM debt
|
|
|
1.32
|
%
|
|
¥
|
23,200.0
|
|
|
218.5
|
|
|
|
1,283.6
|
|
|
|
1,010.2
|
|
UGC Convertible Notes (e)
|
|
|
1.75
|
%
|
|
|
|
|
|
|
|
|
|
789.2
|
|
|
|
902.3
|
|
Sumitomo Collar Loan
|
|
|
1.88
|
%
|
|
|
|
|
|
|
|
|
|
882.0
|
|
|
|
837.8
|
|
Austar Bank Facility
|
|
|
9.42
|
%
|
|
AUD
|
69.0
|
|
|
66.0
|
|
|
|
746.0
|
|
|
|
678.3
|
|
LGJ Holdings Credit Facility
|
|
|
4.16
|
%
|
|
|
|
|
|
|
|
|
|
706.3
|
|
|
|
670.9
|
|
VTR Bank Facility (f)
|
|
|
4.38
|
%
|
|
CLP
|
136,391.6
|
|
|
260.0
|
|
|
|
470.3
|
|
|
|
470.3
|
|
Chellomedia Bank Facility
|
|
|
6.85
|
%
|
|
|
|
|
|
|
|
|
|
331.4
|
|
|
|
313.8
|
|
Liberty Puerto Rico Bank Facility
|
|
|
4.78
|
%
|
|
$
|
10.0
|
|
|
10.0
|
|
|
|
168.5
|
|
|
|
169.3
|
|
Other
|
|
|
8.78
|
%
|
|
|
|
|
|
|
|
|
|
246.6
|
|
|
|
263.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
5.60
|
%
|
|
|
|
|
$
|
2,811.8
|
|
|
|
19,146.6
|
|
|
|
17,749.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J:COM
|
|
|
525.5
|
|
|
|
499.7
|
|
Telenet
|
|
|
79.9
|
|
|
|
75.8
|
|
Other subsidiaries
|
|
|
33.8
|
|
|
|
28.2
|
|
|
|
|
|
|
|
|
|
|
Total capital lease obligations
|
|
|
639.2
|
|
|
|
603.7
|
|
|
|
|
|
|
|
|
|
|
Total debt and capital lease obligations
|
|
|
19,785.8
|
|
|
|
18,353.4
|
|
Current maturities
|
|
|
(310.8
|
)
|
|
|
(383.2
|
)
|
|
|
|
|
|
|
|
|
|
Long-term debt and capital lease obligations
|
|
$
|
19,475.0
|
|
|
$
|
17,970.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Represents the weighted average interest rate in effect at
June 30, 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 instruments, deferred financing costs
or commitment fees, all of which affect our overall cost of
borrowing. For information concerning our derivative
instruments, see note 6. |
24
LIBERTY
GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
June 30, 2008
(unaudited)
|
|
|
(b) |
|
Unused borrowing capacity represents the maximum availability
under the applicable facility at June 30, 2008 without
regard to covenant compliance calculations. At June 30,
2008, the full amount of unused borrowing capacity was available
to be borrowed under each of the respective facilities except
the UPC Broadband Holding Bank Facility, which was limited by
covenant compliance calculations. Based on the June 30,
2008 covenant compliance calculations, the aggregate amount that
will be available for borrowing under the UPC Broadband Holding
Bank Facility when the June 30, 2008 bank reporting
requirements have been completed is 732.4 million
($1,152.5 million). |
|
(c) |
|
Includes unamortized debt discount or premium, if applicable. |
|
(d) |
|
Effective May 16, 2008, the commitments of the lenders
under the 250.0 million ($393.4 million) UPC
Holding Facility were rolled into Facility M under the UPC
Broadband Holding Bank Facility. The new borrowings under
Facility M bear interest at EURIBOR plus 2.0% and mature on
December 31, 2014. |
|
(e) |
|
The UGC Convertible Notes are measured at fair value. |
|
(f) |
|
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
June 30, 2008, of which $4.7 million is reflected as a
current asset and $465.5 million is presented as a
long-term asset in our condensed consolidated balance sheet. |
Amendment
of Telenet Credit Facility
Effective on May 23, 2008, Telenets senior credit
facility (the Telenet Credit Facility) was amended to
(i) include an increased basket for permitted financial
indebtedness incurred pursuant to finance leases,
(ii) include a new definition of Interkabel
Acquisition, (iii) carve-out indebtedness incurred
under the network lease entered into in connection with the
Interkabel Acquisition up to a maximum aggregate amount of
195.0 million ($306.8 million) from the
definition of Total Debt (as defined in the Telenet Credit
Facility) and (iv) extend the availability period for the
225.0 million ($354.1 million) Term Loan B2
Facility from July 31, 2008 to June 30, 2009.
Furthermore, the margins for the respective facilities were
confirmed as follows: (i) the applicable margin for the
530.0 million ($834.0 million) Term Loan A
Facility is 2.25% per annum over EURIBOR, (ii) the
applicable margin for the 307.5 million
($483.9 million) Term Loan B1 Facility and Term Loan B2
Facility is 2.50% per annum over EURIBOR, (iii) the
applicable margin for the 1,062.5 million
($1,671.9 million) Term Loan C Facility is 2.75% per annum
over EURIBOR and (iv) the applicable margin for the
175.0 million ($275.4 million) Revolving
Facility is 2.125% per annum over EURIBOR.
Non-cash
Refinancing Transactions
During the second quarter of 2007, we completed certain
refinancing transactions that resulted in non-cash borrowings
and repayments of debt aggregating $5,916.8 million.
|
|
(10)
|
Stockholders
Equity
|
Stock
Repurchases
At December 31, 2007, we were authorized to purchase an
additional $60.6 million of our LGI Series A and
Series C common stock, pursuant to our November 2007
repurchase program. In January 2008, we purchased the remaining
amounts authorized under the November 2007 repurchase plan and
our board of directors approved a new stock repurchase program
(the January 2008 Repurchase Plan) 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 and
again in May
25
LIBERTY
GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
June 30, 2008
(unaudited)
2008, the authorized amount under this repurchase program was
increased by $500 million. During the first six months of
2008, we acquired 25,581,287 shares of our LGI
Series A common stock at a weighted average price of $35.55
per share and 18,969,756 shares of our LGI Series C
common stock at a weighted average price of $34.37 per share,
for an aggregate purchase price of $1,561.3 million,
including direct acquisition costs. At June 30, 2008, the
amounts authorized under the January 2008 Repurchase Plan were
fully utilized. On July 30, 2008, our board of directors
authorized a new $500 million stock repurchase program,
with terms similar to that of the January 2008 Repurchase Plan.
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.
Austar
Equity Transactions
On April 1, 2008, Austar issued 54,025,795 ordinary shares
upon the vesting of certain Class B shares that were
originally issued pursuant to an executive compensation plan.
Proceeds of AUD 7.5 million ($7.1 million at the
average rate for the period) were received by Austar in
conjunction with the repayment of the shareholders loans
associated with the Class B shares. Subsequently, on
May 13, 2008, 12,200,000 of these newly issued ordinary
shares were purchased by another LGI subsidiary for aggregate
cash consideration of AUD 15.3 million ($14.4 million
at the transaction date). Also, Austar paid aggregate cash
consideration of AUD 55.0 million ($51.9 million at
the average rate for the period) to repurchase 46,303,184 of its
ordinary shares from public shareholders during the second
quarter of 2008 pursuant to a stock repurchase plan. As a result
of the foregoing transactions, LGIs indirect ownership
interest in Austar increased from 53.4% at March 31, 2008
to 54.0% at June 30, 2008, and we recorded an increase to
goodwill of $50.6 million and a decrease to additional
paid-in capital of $8.7 million.
|
|
(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
|
|
|
Six months ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
in millions
|
|
|
LGI common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LGI performance-based incentive plans
|
|
$
|
22.9
|
|
|
$
|
21.1
|
|
|
$
|
50.2
|
|
|
$
|
50.0
|
|
Stock options, SARs, restricted stock and restricted stock units
|
|
|
13.2
|
|
|
|
12.3
|
|
|
|
22.9
|
|
|
|
24.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total LGI common stock
|
|
|
36.1
|
|
|
|
33.4
|
|
|
|
73.1
|
|
|
|
74.8
|
|
Other
|
|
|
6.9
|
|
|
|
6.6
|
|
|
|
10.2
|
|
|
|
8.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
43.0
|
|
|
$
|
40.0
|
|
|
$
|
83.3
|
|
|
$
|
83.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expense
|
|
$
|
3.5
|
|
|
$
|
2.5
|
|
|
$
|
5.5
|
|
|
$
|
4.8
|
|
SG&A expense
|
|
|
39.5
|
|
|
|
37.5
|
|
|
|
77.8
|
|
|
|
78.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
43.0
|
|
|
$
|
40.0
|
|
|
$
|
83.3
|
|
|
$
|
83.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
LIBERTY
GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
June 30, 2008
(unaudited)
The following table provides certain information related to
stock-based compensation not yet recognized for stock incentive
awards related to LGI common stock as of June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2008
|
|
|
|
Stock options,
|
|
|
|
|
|
|
SARs, restricted
|
|
|
|
|
|
|
stock and
|
|
|
LGI
|
|
|
|
restricted stock
|
|
|
Performance
|
|
|
|
units (a)
|
|
|
Plans (b)
|
|
|
Total compensation expense not yet recognized (in millions)
|
|
$
|
93.9
|
|
|
$
|
211.7
|
|
|
|
|
|
|
|
|
|
|
Weighted average period remaining for expense recognition (in
years)
|
|
|
2.9
|
|
|
|
3.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Amounts relate to (i) the Liberty Global, Inc. 2005
Incentive Plan (the LGI Incentive Plan), (ii) the Liberty
Global, Inc. 2006 Nonemployee Director Incentive Plan (the LGI
Director Incentive Plan), (iii) the LMI Transitional Stock
Adjustment Plan (the Transitional Plan) and (iv) certain
UGC incentive plans. The LGI Incentive Plan had
30,446,569 shares available for grant as of June 30,
2008. These shares may be awarded at or above fair value in any
series of stock, except that no more than 23,372,168 shares
may be awarded in LGI Series B common stock. Any shares
issued in satisfaction of our obligations under the LGI
performance-based incentive plans will reduce the shares
available for grant under the LGI Incentive Plan. The LGI
Director Incentive Plan had 9,417,126 shares available for
grant as of June 30, 2008. These shares may be awarded at
or above fair value in any series of stock, except that no more
than 5,000,000 shares may be awarded in LGI Series B
common stock. No new grants will be made under the Transitional
Plan and the UGC incentive plans. |
|
(b) |
|
Amounts relate to the LGI performance-based incentive plans.
Compensation expense under these incentive plans is reported as
stock-based compensation in our condensed consolidated
statements of operations, notwithstanding the fact that the
compensation committee of our board of directors could elect at
a future date to cash settle all or any portion of the vested
awards under these incentive plans. |
27
LIBERTY
GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
June 30, 2008
(unaudited)
The following table summarizes certain information related to
the incentive awards granted and exercised pursuant to the LGI
and UGC incentive plans described below:
|
|
|
|
|
|
|
Six months ended June 30,
|
|
|
2008
|
|
2007
|
|
|
in millions, except per share amounts
|
|
LGI common stock:
|
|
|
|
|
Assumptions used to estimate fair value of awards granted:
|
|
|
|
|
Risk-free interest rate
|
|
2.63 3.96%
|
|
4.56 5.02%
|
Expected life
|
|
4.5 6.0 years
|
|
4.5 6.0 years
|
Expected volatility
|
|
24.10 26.10%
|
|
22.70 25.20%
|
Expected dividend yield
|
|
none
|
|
none
|
Weighted average grant-date fair value per share of awards
granted:
|
|
|
|
|
Options
|
|
$10.90
|
|
$10.55
|
SARs
|
|
$9.94
|
|
$9.98
|
Restricted stock and restricted stock units
|
|
$35.52
|
|
$35.66
|
Total intrinsic value of awards exercised:
|
|
|
|
|
Options
|
|
$4.4
|
|
$27.7
|
SARs
|
|
$7.1
|
|
$21.8
|
Cash received from exercise of options
|
|
$7.9
|
|
$28.2
|
Income tax benefit related to the stock-based compensation
|
|
$16.9
|
|
$12.4
|
Stock
Award Activity LGI Common Stock
The following tables summarize the activity during the six
months ended June 30, 2008 in LGI stock awards under the
LGI and UGC incentive plans, as described above. The tables also
include activity related to LGI stock awards granted to Liberty
Media employees in connection with the June 2004 spin-off of LGI
International, Inc, the predecessor to LGI, to Liberty Media
shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
average
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
remaining
|
|
|
|
|
|
|
Number of
|
|
|
average
|
|
|
contractual
|
|
|
Aggregate
|
|
Options LGI Series A common stock:
|
|
shares
|
|
|
exercise price
|
|
|
term
|
|
|
intrinsic value
|
|
|
|
|
|
|
|
|
|
in years
|
|
|
in millions
|
|
|
Outstanding at January 1, 2008
|
|
|
5,894,850
|
|
|
$
|
21.90
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
70,000
|
|
|
$
|
34.14
|
|
|
|
|
|
|
|
|
|
Expired or canceled
|
|
|
(28,243
|
)
|
|
$
|
82.65
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(11,439
|
)
|
|
$
|
29.42
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(179,923
|
)
|
|
$
|
23.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2008
|
|
|
5,745,245
|
|
|
$
|
21.70
|
|
|
|
4.53
|
|
|
$
|
69.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2008
|
|
|
4,028,762
|
|
|
$
|
20.13
|
|
|
|
4.15
|
|
|
$
|
56.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
LIBERTY
GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
June 30, 2008
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
average
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
remaining
|
|
|
|
|
|
|
Number of
|
|
|
average
|
|
|
contractual
|
|
|
Aggregate
|
|
Options LGI Series B common stock:
|
|
shares
|
|
|
exercise price
|
|
|
term
|
|
|
intrinsic value
|
|
|
|
|
|
|
|
|
|
in years
|
|
|
in millions
|
|
|
Outstanding at January 1, 2008
|
|
|
3,066,716
|
|
|
$
|
20.01
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Expired or canceled
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2008
|
|
|
3,066,716
|
|
|
$
|
20.01
|
|
|
|
4.34
|
|
|
$
|
34.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2008
|
|
|
3,066,716
|
|
|
$
|
20.01
|
|
|
|
4.34
|
|
|
$
|
34.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
average
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
remaining
|
|
|
|
|
|
|
Number of
|
|
|
average
|
|
|
contractual
|
|
|
Aggregate
|
|
Options LGI Series C common stock:
|
|
shares
|
|
|
exercise price
|
|
|
term
|
|
|
intrinsic value
|
|
|
|
|
|
|
|
|
|
in years
|
|
|
in millions
|
|
|
Outstanding at January 1, 2008
|
|
|
8,797,137
|
|
|
$
|
20.11
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
70,000
|
|
|
$
|
32.32
|
|
|
|
|
|
|
|
|
|
Expired or canceled
|
|
|
(28,243
|
)
|
|
$
|
78.24
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(11,439
|
)
|
|
$
|
27.75
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(170,608
|
)
|
|
$
|
32.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2008
|
|
|
8,656,847
|
|
|
$
|
19.97
|
|
|
|
4.50
|
|
|
$
|
101.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2008
|
|
|
6,940,364
|
|
|
$
|
18.96
|
|
|
|
4.28
|
|
|
$
|
89.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
|
average
|
|
|
average
|
|
|
|
|
|
|
grant-date
|
|
|
remaining
|
|
|
|
Number of
|
|
|
fair value
|
|
|
contractual
|
|
Restricted stock and restricted stock units LGI
Series A common stock:
|
|
shares
|
|
|
per share
|
|
|
term
|
|
|
|
|
|
|
|
|
|
in years
|
|
|
Outstanding at January 1, 2008
|
|
|
634,917
|
|
|
$
|
28.00
|
|
|
|
|
|
Granted
|
|
|
293,373
|
|
|
$
|
36.66
|
|
|
|
|
|
Expired or canceled
|
|
|
|
|
|
$
|
|
|
|
|
|
|
Forfeited
|
|
|
(5,107
|
)
|
|
$
|
29.99
|
|
|
|
|
|
Released from restrictions
|
|
|
(129,872
|
)
|
|
$
|
27.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2008
|
|
|
793,311
|
|
|
$
|
31.29
|
|
|
|
2.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
LIBERTY
GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
June 30, 2008
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
|
average
|
|
|
average
|
|
|
|
|
|
|
grant-date
|
|
|
remaining
|
|
|
|
Number of
|
|
|
fair value
|
|
|
contractual
|
|
Restricted stock and restricted stock units LGI
Series B common stock:
|
|
shares
|
|
|
per share
|
|
|
term
|
|
|
|
|
|
|
|
|
|
in years
|
|
|
Outstanding at January 1, 2008
|
|
|
23,708
|
|
|
$
|
22.23
|
|
|
|
|
|
Granted
|
|
|
|
|
|
$
|
|
|
|
|
|
|
Expired or canceled
|
|
|
|
|
|
$
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
$
|
|
|
|
|
|
|
Released from restrictions
|
|
|
(11,854
|
)
|
|
$
|
22.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2008
|
|
|
11,854
|
|
|
$
|
22.23
|
|
|
|
0.92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
|
average
|
|
|
average
|
|
|
|
|
|
|
grant-date
|
|
|
remaining
|
|
|
|
Number of
|
|
|
fair value
|
|
|
contractual
|
|
Restricted stock and restricted stock units LGI
Series C common stock:
|
|
shares
|
|
|
per share
|
|
|
term
|
|
|
|
|
|
|
|
|
|
in years
|
|
|
Outstanding at January 1, 2008
|
|
|
658,285
|
|
|
$
|
26.34
|
|
|
|
|
|
Granted
|
|
|
293,373
|
|
|
$
|
34.37
|
|
|
|
|
|
Expired or canceled
|
|
|
|
|
|
$
|
|
|
|
|
|
|
Forfeited
|
|
|
(5,107
|
)
|
|
$
|
28.37
|
|
|
|
|
|
Released from restrictions
|
|
|
(141,590
|
)
|
|
$
|
25.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2008
|
|
|
804,961
|
|
|
$
|
29.39
|
|
|
|
2.79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
average
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
remaining
|
|
|
|
|
|
|
Number of
|
|
|
average
|
|
|
contractual
|
|
|
Aggregate
|
|
SARs LGI Series A common stock:
|
|
shares
|
|
|
base price
|
|
|
term
|
|
|
intrinsic value
|
|
|
|
|
|
|
|
|
|
in years
|
|
|
in millions
|
|
|
Outstanding at January 1, 2008
|
|
|
3,828,895
|
|
|
$
|
19.12
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,030,359
|
|
|
$
|
36.66
|
|
|
|
|
|
|
|
|
|
Expired or canceled
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(32,730
|
)
|
|
$
|
18.35
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(268,670
|
)
|
|
$
|
19.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2008
|
|
|
4,557,854
|
|
|
$
|
23.06
|
|
|
|
5.56
|
|
|
$
|
34.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2008
|
|
|
1,073,789
|
|
|
$
|
18.91
|
|
|
|
5.10
|
|
|
$
|
11.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
LIBERTY
GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
June 30, 2008
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
average
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
remaining
|
|
|
|
|
|
|
Number of
|
|
|
average
|
|
|
contractual
|
|
|
Aggregate
|
|
SARs LGI Series C common stock:
|
|
shares
|
|
|
base price
|
|
|
term
|
|
|
intrinsic value
|
|
|
|
|
|
|
|
|
|
in years
|
|
|
in millions
|
|
|
Outstanding at January 1, 2008
|
|
|
3,830,352
|
|
|
$
|
18.09
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,030,359
|
|
|
$
|
34.38
|
|
|
|
|
|
|
|
|
|
Expired or canceled
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(32,730
|
)
|
|
$
|
17.37
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(255,705
|
)
|
|
$
|
18.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2008
|
|
|
4,572,276
|
|
|
$
|
21.73
|
|
|
|
5.56
|
|
|
$
|
33.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2008
|
|
|
1,088,180
|
|
|
$
|
17.90
|
|
|
|
5.10
|
|
|
$
|
11.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2008, total SARs outstanding included 622,335
LGI Series A common stock capped SARs and 624,022 LGI
Series C common stock capped SARs and total SARs
exercisable included 149,427 LGI Series A common stock
capped SARs and 151,114 LGI Series C common stock capped
SARs. The holder of an LGI Series A common stock capped SAR
will receive the difference between $6.84 and the lesser of
$10.90 or the market price of LGI Series A common stock on
the date of exercise. The holder of a LGI Series C common
stock capped SAR will receive the difference between $6.48 and
the lesser of $10.31 or the market price of LGI Series C
common stock on the date of exercise.
|
|
(12)
|
Related
Party Transactions
|
The details of our related party transactions are set forth
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
in millions
|
|
|
Revenue earned from related parties of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J:COM (a)
|
|
$
|
32.3
|
|
|
$
|
15.9
|
|
|
$
|
64.6
|
|
|
$
|
30.7
|
|
LGI and consolidated subsidiaries other than J:COM (b)
|
|
|
2.9
|
|
|
|
2.7
|
|
|
|
5.8
|
|
|
|
4.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total LGI
|
|
$
|
35.2
|
|
|
$
|
18.6
|
|
|
$
|
70.4
|
|
|
$
|
35.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses charged by related parties of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J:COM (c)
|
|
$
|
23.4
|
|
|
$
|
23.3
|
|
|
$
|
46.8
|
|
|
$
|
45.2
|
|
LGI and consolidated subsidiaries other than J:COM (d)
|
|
|
7.5
|
|
|
|
5.9
|
|
|
|
13.7
|
|
|
|
10.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total LGI
|
|
$
|
30.9
|
|
|
$
|
29.2
|
|
|
$
|
60.5
|
|
|
$
|
55.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SG&A expenses charged by (to) related parties of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J:COM (e)
|
|
$
|
2.2
|
|
|
$
|
1.9
|
|
|
$
|
5.1
|
|
|
$
|
4.2
|
|
LGI and consolidated subsidiaries other than J:COM (f)
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total LGI
|
|
$
|
1.8
|
|
|
$
|
1.9
|
|
|
$
|
4.4
|
|
|
$
|
4.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense charged by related parties of J:COM (g)
|
|
$
|
3.5
|
|
|
$
|
2.8
|
|
|
$
|
7.0
|
|
|
$
|
5.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease additions related parties of J:COM (h)
|
|
$
|
27.2
|
|
|
$
|
34.0
|
|
|
$
|
64.1
|
|
|
$
|
70.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
LIBERTY
GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
June 30, 2008
(unaudited)
|
|
|
(a) |
|
J:COM provides programming, construction, management,
administrative, call center 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. |
|
(b) |
|
Amounts consist primarily of management, advisory and
programming license fees 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) |
|
Amounts represent reimbursements received by Austar for
marketing and director fees incurred on behalf of one of its
equity affiliates. |
|
(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 June 30, 2008 and
December 31, 2007, capital lease obligations of J:COM
aggregating ¥46.9 billion ($441.7 million) and
¥46.0 billion ($433.2 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 LLC (Liberty Japan
MC). Another shareholder group, comprised of certain affiliates
of Olympus Capital (collectively, Olympus), owns a 44.7%
interest in Mediatti and has a put right that was 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 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. By amendment to the shareholders agreement dated
July 30, 2008, we agreed to extend the time period during
which Olympus may exercise its put right through
October 31, 2008 and Olympus granted us a call right
exercisable from July 30, 2008 through October 31,
2008.
32
LIBERTY
GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
June 30, 2008
(unaudited)
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. The fair value
of this put option at June 30, 2008 was not significant.
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,
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 fair value of the minority owners interest in
Sport 1. In the event the 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.
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 June 30, 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, had 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). In July
2008, this purchase obligation was eliminated in connection with
our and certain third parties acquisition of additional
O3B shares.
Guarantees
and Other Credit Enhancements
At June 30, 2008, J:COM guaranteed ¥6.7 billion
($63.1 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
and Regulatory 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
33
LIBERTY
GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
June 30, 2008
(unaudited)
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, that 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 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 UGC and
LGI International under LGI (the LGI Combination). The
defendants named in these actions included UGC, former directors
of UGC, and LGI International. The allegations
34
LIBERTY
GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
June 30, 2008
(unaudited)
in each of the complaints, which were substantially similar,
asserted that the defendants breached their fiduciary duties of
loyalty, care, good faith and candor and that various defendants
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
sought 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. On April 20, 2005, the Denver
District Court, State of Colorado, issued an order granting a
joint stipulation for stay of the action filed in that court
pending the final resolution of the consolidated action in
Delaware. On January 7, 2008, the Delaware Court of
Chancery 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 Court of Chancery. Following the
settlement hearing on May 16, 2008, the Delaware Court of
Chancery entered an order and judgment, which became final and
non-appealable on June 16, 2008, approving the terms of the
stipulation of settlement and releasing all claims relating to
the LGI Combination which were or could have been raised by the
UGC public stockholders against the defendants and other
released persons. Pursuant to the settlement stipulation, on
May 19, 2008, LGI International transferred
$25 million to an escrow account for distribution to
certain members of the plaintiff class of the net amount
remaining after the payment of the fee award to plaintiffs
counsel and settlement administration costs. The stayed action
in Denver District Court, State of Colorado, was voluntarily
dismissed with prejudice on July 1, 2008.
Telenet Partner Network Negotiations At
June 30, 2008, Telenet provided services over broadband
networks owned by Telenet and the Telenet Partner Network owned
by the PICs, with the networks owned by Telenet accounting for
approximately 70%, and the Telenet Partner Network accounting
for approximately 30%, of the homes passed by the combined
networks. Telenet had been negotiating with the PICs to increase
the capacity available to Telenet on the Telenet Partner
Network. Telenet was seeking the additional capacity in order to
avoid a possible future degradation of service due to congestion
that may arise in future years. As further described in
note 4, Telenet executed the 2008 PICs Agreement on
June 28, 2008. If consummated, the 2008 PICs Agreement will
allow Telenet to, among other matters, address its capacity
issues. To the extent that Telenet and the PICs are not able to
consummate the 2008 PICs Agreement 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.
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 had been 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. Certain
statements and market indications suggested that the PICs were
considering the launch of certain digital interactive services.
Telenet believes that the provision of such services by the PICs
would be in breach of its exclusive right to provide
point-to-point services on the Telenet Partner Network and
therefore instituted legal action before the courts of Brussels
to protect its rights. The court of Brussels confirmed
Telenets reading of the scope of its exclusive rights in
summary proceedings. The PICs lodged an appeal against this
judgment. This litigation can be expected to come to an end
following the consummation of the 2008 PICs Agreement.
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. On
December 26, 2007, Belgacom NV/SA (Belgacom), the incumbent
telecommunications operator in Belgium, lodged summary
35
LIBERTY
GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
June 30, 2008
(unaudited)
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 initiated a civil procedure on the merits claiming the
annulment of the
agreement-in-principle.
On March 11, 2008, the President of the Court of First
Instance of Antwerp ruled in favor of Belgacom and, accordingly,
ordered the PICs to refrain from any act implementing the
agreement-in-principle
pending the procedure on the merits. The PICs and Telenet
appealed the March 11, 2008 ruling and on June 4, 2008
the Court of Appeal of Antwerp ruled in their favor, reversing
the decision in summary proceedings to suspend the
agreement-in-principle.
Belgacom is considering bringing this appeal judgment before the
Cour de Cassation (Belgian Supreme Court), which could
overrule the appeal judgment, but only on matters of law or
procedure. The civil claim on the merits is still pending and
the final judgment is expected to take at least one to two years.
In parallel, Belgacom filed a complaint with the Government
Commissioner who needs to make a decision whether the Board
approvals of the PICs of the
agreement-in-principle
should be suspended. 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. On June 2,
2008 the Council of State ruled in favor of the PICs and Telenet
by declaring Belgacoms claim for suspension inadmissible
because there is no risk for a serious and irreparable
harm. The final judgment in the annulment case is expected
to take at least one to two years.
It is possible that Belgacom will initiate further legal
proceedings in an attempt to block the closing or the
implementation of the 2008 PICs Agreement. No assurance can be
given as to the outcome of these or other Belgacom proceedings
or whether Telenet will be able to close the transaction
contemplated by the 2008 PICs Agreement on a timely basis, or at
all. In addition, should the outcome of the Belgacom proceedings
be unfavorable, this could potentially lead to the termination
of the 2008 PICs Agreement
and/or to an
obligation for Telenet to pay compensation for damages.
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 Nederland BV (UPC
NL), our Dutch subsidiary, 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.
On July 15th, 2008 OPTA announced that it will issue on
August 5, 2008 a draft decision to impose a resale
obligation on the two largest cable operators in the
Netherlands, one of which is UPC NL, for their analog cable
36
LIBERTY
GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
June 30, 2008
(unaudited)
package. The resale obligation will enable third parties to take
over the customer relationship as far as the analog cable
subscription is concerned (the obligation does not extend to
digital cable services, telephony services or broadband internet
services). OPTA announced that given the fact that the incumbent
telecommunications operator in the Netherlands has its own
infrastructure, it is not expected that the incumbent
telecommunications operator will be allowed to resell the analog
cable package. Further details of this draft decision will be
available on August 6, 2008. OPTAs expectation is
that this decision will come into force at the end of 2008.
Since the proposed resale obligation relates to a market beyond
the scope of the EU recommendation on relevant markets, any
final measure requires notification to and approval from the
European Commission. Such notification is not expected to take
place until after an extended national consultation procedure,
which will run from August 6, 2008 until September 30,
2008. We currently are unable to predict the outcome of this
matter.
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 The DirecTV Group, Inc. (DirecTV). On August 1,
2007, VTR received formal written notice from the FNE that
Liberty Medias acquisition of the DirecTV interest would
violate one of the conditions imposed by the Chilean Antitrust
Court on VTRs combination with Metrópolis prohibiting
VTR and its control group from participating, directly or
indirectly through related persons, in Chilean satellite or
microwave television businesses. 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
37
LIBERTY
GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
June 30, 2008
(unaudited)
evaluate performance and make decisions about allocating
resources to our operating segments based on financial measures
such as revenue and operating cash flow. In addition, we review
non-financial measures such as subscriber growth and
penetration, as appropriate.
Operating cash flow is the primary measure used by our chief
operating decision maker to evaluate segment operating
performance and to decide how to allocate resources to segments.
As we use the term, operating cash flow is defined as revenue
less operating and SG&A expenses (excluding stock-based
compensation, depreciation and amortization, provisions for
litigation, and impairment, restructuring and other operating
charges or credits). We believe operating cash flow is
meaningful because it provides investors a means to evaluate the
operating performance of our segments and our company on an
ongoing basis using criteria that is used by our internal
decision makers. Our internal decision makers believe operating
cash flow is a meaningful measure and is superior to other
available GAAP measures because it represents a transparent view
of our recurring operating performance and allows management to
(i) readily view operating trends, (ii) perform
analytical comparisons and benchmarking between segments and
(iii) identify strategies to improve operating performance
in the different countries in which we operate. For example, our
internal decision makers believe that the inclusion of
impairment and restructuring charges within operating cash flow
would distort the ability to efficiently assess and view the
core operating trends in our segments. In addition, our internal
decision makers believe our measure of operating cash flow is
important because analysts and investors use it to compare our
performance to other companies in our industry. However, our
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 or cash flows.
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 June 30,
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
38
LIBERTY
GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
June 30, 2008
(unaudited)
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
in millions
|
|
|
UPC Broadband Division:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$
|
310.6
|
|
|
$
|
260.6
|
|
|
$
|
611.7
|
|
|
$
|
512.6
|
|
Switzerland
|
|
|
268.5
|
|
|
|
212.3
|
|
|
|
520.9
|
|
|
|
419.6
|
|
Austria
|
|
|
143.9
|
|
|
|
122.2
|
|
|
|
283.7
|
|
|
|
242.2
|
|
Ireland
|
|
|
95.6
|
|
|
|
74.7
|
|
|
|
184.0
|
|
|
|
148.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
818.6
|
|
|
|
669.8
|
|
|
|
1,600.3
|
|
|
|
1,322.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
108.5
|
|
|
|
93.9
|
|
|
|
208.5
|
|
|
|
183.9
|
|
Other Central and Eastern Europe
|
|
|
253.7
|
|
|
|
195.7
|
|
|
|
488.6
|
|
|
|
379.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
362.2
|
|
|
|
289.6
|
|
|
|
697.1
|
|
|
|
563.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central and corporate operations
|
|
|
2.9
|
|
|
|
1.8
|
|
|
|
5.6
|
|
|
|
7.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total UPC Broadband Division
|
|
|
1,183.7
|
|
|
|
961.2
|
|
|
|
2,303.0
|
|
|
|
1,893.1
|
|
Telenet (Belgium)
|
|
|
387.9
|
|
|
|
313.2
|
|
|
|
762.3
|
|
|
|
613.3
|
|
J:COM (Japan)
|
|
|
691.1
|
|
|
|
533.4
|
|
|
|
1,370.4
|
|
|
|
1,066.7
|
|
VTR (Chile)
|
|
|
194.6
|
|
|
|
154.5
|
|
|
|
381.1
|
|
|
|
299.9
|
|
Corporate and other
|
|
|
294.7
|
|
|
|
237.9
|
|
|
|
569.9
|
|
|
|
453.7
|
|
Intersegment eliminations
|
|
|
(22.1
|
)
|
|
|
(19.6
|
)
|
|
|
(45.8
|
)
|
|
|
(40.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated LGI
|
|
$
|
2,729.9
|
|
|
$
|
2,180.6
|
|
|
$
|
5,340.9
|
|
|
$
|
4,286.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
LIBERTY
GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
June 30, 2008
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating cash flow
|
|
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
in millions
|
|
|
UPC Broadband Division:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$
|
171.2
|
|
|
$
|
132.6
|
|
|
$
|
339.8
|
|
|
$
|
260.6
|
|
Switzerland
|
|
|
138.0
|
|
|
|
102.5
|
|
|
|
270.6
|
|
|
|
205.8
|
|
Austria
|
|
|
76.4
|
|
|
|
59.5
|
|
|
|
145.1
|
|
|
|
117.2
|
|
Ireland
|
|
|
35.7
|
|
|
|
24.1
|
|
|
|
69.6
|
|
|
|
46.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
421.3
|
|
|
|
318.7
|
|
|
|
825.1
|
|
|
|
630.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
55.1
|
|
|
|
48.8
|
|
|
|
106.2
|
|
|
|
93.2
|
|
Other Central and Eastern Europe
|
|
|
132.0
|
|
|
|
98.8
|
|
|
|
250.9
|
|
|
|
187.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
187.1
|
|
|
|
147.6
|
|
|
|
357.1
|
|
|
|
280.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central and corporate operations
|
|
|
(61.9
|
)
|
|
|
(59.0
|
)
|
|
|
(121.8
|
)
|
|
|
(114.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total UPC Broadband Division
|
|
|
546.5
|
|
|
|
407.3
|
|
|
|
1,060.4
|
|
|
|
796.7
|
|
Telenet (Belgium)
|
|
|
189.9
|
|
|
|
147.3
|
|
|
|
364.8
|
|
|
|
284.2
|
|
J:COM (Japan)
|
|
|
275.8
|
|
|
|
213.4
|
|
|
|
559.4
|
|
|
|
431.7
|
|
VTR (Chile)
|
|
|
81.9
|
|
|
|
59.5
|
|
|
|
157.5
|
|
|
|
114.0
|
|
Corporate and other
|
|
|
60.7
|
|
|
|
33.5
|
|
|
|
113.4
|
|
|
|
59.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated LGI
|
|
$
|
1,154.8
|
|
|
$
|
861.0
|
|
|
$
|
2,255.5
|
|
|
$
|
1,685.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
LIBERTY
GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
June 30, 2008
(unaudited)
The following table provides a reconciliation of total segment
operating cash flow to earnings (loss) before income taxes and
minority interests:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
in millions
|
|
|
Total segment operating cash flow
|
|
$
|
1,154.8
|
|
|
$
|
861.0
|
|
|
$
|
2,255.5
|
|
|
$
|
1,685.6
|
|
Stock-based compensation expense
|
|
|
(43.0
|
)
|
|
|
(40.0
|
)
|
|
|
(83.3
|
)
|
|
|
(83.5
|
)
|
Depreciation and amortization
|
|
|
(744.0
|
)
|
|
|
(610.2
|
)
|
|
|
(1,448.1
|
)
|
|
|
(1,204.2
|
)
|
Impairment, restructuring and other operating charges, net
|
|
|
(3.3
|
)
|
|
|
(0.6
|
)
|
|
|
(1.8
|
)
|
|
|
(5.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
364.5
|
|
|
|
210.2
|
|
|
|
722.3
|
|
|
|
392.0
|
|
Interest expense
|
|
|
(290.7
|
)
|
|
|
(226.3
|
)
|
|
|
(570.3
|
)
|
|
|
(459.3
|
)
|
Interest and dividend income
|
|
|
17.1
|
|
|
|
24.1
|
|
|
|
51.9
|
|
|
|
48.5
|
|
Share of results of affiliates, net
|
|
|
0.3
|
|
|
|
9.5
|
|
|
|
2.8
|
|
|
|
23.1
|
|
Realized and unrealized gains on derivative instruments, net
|
|
|
406.4
|
|
|
|
73.9
|
|
|
|
71.0
|
|
|
|
63.6
|
|
Foreign currency transaction gains, net
|
|
|
210.4
|
|
|
|
49.0
|
|
|
|
383.0
|
|
|
|
73.3
|
|
Unrealized gains (losses) due to changes in fair values of
certain investments and debt, net
|
|
|
22.8
|
|
|
|
(158.6
|
)
|
|
|
44.8
|
|
|
|
(230.2
|
)
|
Losses on extinguishment of debt, net
|
|
|
|
|
|
|
(23.3
|
)
|
|
|
|
|
|
|
(23.3
|
)
|
Other income (expense), net
|
|
|
1.3
|
|
|
|
(1.3
|
)
|
|
|
0.9
|
|
|
|
(4.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before income taxes and minority interests
|
|
$
|
732.1
|
|
|
$
|
(42.8
|
)
|
|
$
|
706.4
|
|
|
$
|
(116.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41
LIBERTY
GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
June 30, 2008
(unaudited)
Geographic
Segments
The revenue of our geographic segments is set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
in millions
|
|
|
Europe:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UPC Broadband Division:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$
|
310.6
|
|
|
$
|
260.6
|
|
|
$
|
611.7
|
|
|
$
|
512.6
|
|
Switzerland
|
|
|
268.5
|
|
|
|
212.3
|
|
|
|
520.9
|
|
|
|
419.6
|
|
Austria
|
|
|
143.9
|
|
|
|
122.2
|
|
|
|
283.7
|
|
|
|
242.2
|
|
Hungary
|
|
|
108.5
|
|
|
|
93.9
|
|
|
|
208.5
|
|
|
|
183.9
|
|
Ireland
|
|
|
95.6
|
|
|
|
74.7
|
|
|
|
184.0
|
|
|
|
148.4
|
|
Poland
|
|
|
84.2
|
|
|
|
55.1
|
|
|
|
157.6
|
|
|
|
104.6
|
|
Czech Republic
|
|
|
75.5
|
|
|
|
53.6
|
|
|
|
145.6
|
|
|
|
106.2
|
|
Romania
|
|
|
57.7
|
|
|
|
60.0
|
|
|
|
115.4
|
|
|
|
117.2
|
|
Slovakia
|
|
|
20.0
|
|
|
|
15.2
|
|
|
|
38.0
|
|
|
|
29.6
|
|
Slovenia
|
|
|
16.3
|
|
|
|
11.8
|
|
|
|
32.0
|
|
|
|
21.6
|
|
Central and corporate operations (a)
|
|
|
2.9
|
|
|
|
1.8
|
|
|
|
5.6
|
|
|
|
7.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total UPC Broadband Division
|
|
|
1,183.7
|
|
|
|
961.2
|
|
|
|
2,303.0
|
|
|
|
1,893.1
|
|
Belgium
|
|
|
387.9
|
|
|
|
313.2
|
|
|
|
762.3
|
|
|
|
613.3
|
|
Chellomedia (b)
|
|
|
115.5
|
|
|
|
85.4
|
|
|
|
221.3
|
|
|
|
161.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Europe
|
|
|
1,687.1
|
|
|
|
1,359.8
|
|
|
|
3,286.6
|
|
|
|
2,667.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Japan
|
|
|
691.1
|
|
|
|
533.4
|
|
|
|
1,370.4
|
|
|
|
1,066.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Americas:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chile
|
|
|
194.6
|
|
|
|
154.5
|
|
|
|
381.1
|
|
|
|
299.9
|
|
Other (c)
|
|
|
33.7
|
|
|
|
35.6
|
|
|
|
65.7
|
|
|
|
70.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total The Americas
|
|
|
228.3
|
|
|
|
190.1
|
|
|
|
446.8
|
|
|
|
370.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Australia
|
|
|
145.5
|
|
|
|
116.9
|
|
|
|
282.9
|
|
|
|
221.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment eliminations
|
|
|
(22.1
|
)
|
|
|
(19.6
|
)
|
|
|
(45.8
|
)
|
|
|
(40.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated LGI
|
|
$
|
2,729.9
|
|
|
$
|
2,180.6
|
|
|
$
|
5,340.9
|
|
|
$
|
4,286.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. |
42
|
|
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 and six months ended
June 30, 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 June 30, 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;
|
43
|
|
|
|
|
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 consummate the transactions
contemplated by the 2008 PICs Agreement and to favorably resolve
related litigation;
|
|
|
|
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 or 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 or 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.
44
Overview
We are an international provider of video, voice and broadband
internet services with consolidated broadband communications
and/or DTH
satellite operations at June 30, 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, 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 VTR. Through our indirect majority ownership
interest in Telenet (50.8% at June 30, 2008), we provide
broadband communications services in Belgium. Through our
indirect controlling ownership interest in J:COM (37.8% at
June 30, 2008), we provide broadband communications
services in Japan. Through our indirect majority ownership
interest in Austar (54.0% at June 30, 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 and acquisitions. 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 June 30, 2008, our consolidated
subsidiaries owned and operated networks that passed 30,881,500
homes and served 24,671,200 revenue generating units (RGUs),
consisting of 14,661,300 video subscribers, 5,748,300 broadband
internet subscribers and 4,261,600 telephony subscribers.
Including the effects of acquisitions, we added a total of
288,600 and 636,500 RGUs during the three and six months ended
June 30, 2008, respectively. Excluding the effects of
acquisitions (RGUs added on the acquisition date), but including
post-acquisition RGU additions, we added 248,500 and 550,100
RGUs during the three and six months ended June 30, 2008,
respectively, as compared to 265,900 and 622,900 RGUs that were
added on an organic basis during the respective 2007 periods.
Our organic RGU growth during the three and six months ended
June 30, 2008 is attributable to the growth of our
broadband internet services, which added 153,900 and 335,800
RGUs, respectively, and our digital telephony services, which
added 165,600 and 342,700 RGUs, respectively. We experienced a
net organic decline of 71,000 and 128,400 video RGUs during the
three and six months ended June 20, 2008, respectively, as
decreases in our analog cable RGUs of 423,400 and 769,700,
respectively, and our multi-channel multi-point (microwave)
distribution system (MMDS) video RGUs of 6,100 and 10,100,
45
respectively, were not fully offset by increases in our digital
cable RGUs of 336,100 and 607,900, respectively, and our DTH
video RGUs of 22,400 and 43,500 respectively.
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 5.8% during the three months ended June 30, 2008, each
as compared to the corresponding prior year period;
|
|
|
|
|
(ii)
|
a decrease in the number of our consolidated net organic RGU
additions during the three months ended June 30, 2008, as
compared to the corresponding prior year period;
|
|
|
|
|
(iii)
|
slight organic declines in RGUs in Ireland, Romania, Slovakia,
the Netherlands and Slovenia during the three months ended
June 30, 2008;
|
|
|
|
|
(iv)
|
organic declines in revenue in Austria, Romania and Hungary
during the three months ended June 30, 2008, as compared to
the corresponding prior year period;
|
|
|
(v)
|
organic declines in the average monthly subscription revenue
earned per average RGU (ARPU) in Austria, Hungary, the Czech
Republic and Romania during the three months ended June 30,
2008, as compared to the corresponding prior year
period; and
|
|
|
(vi)
|
declines in subscriber retention rates in certain European
markets during the three months ended June 30, 2008, as
compared to the corresponding prior year period.
|
The negative impact of the continuing decline of ARPU from
internet and telephony services during the first six months of
2008 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 six months 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
maintain or 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.
46
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 June 30, 2008, we
considered Level 3 inputs to be significant factors in the
valuation of approximately 2% of our assets and less than 1% of
our liabilities and we therefore do not expect variations in our
unobservable inputs to have a material impact on our results of
operations, liquidity or capital resources. For additional
information regarding our fair value measurements, see
notes 6 and 7 to our condensed consolidated financial
statements.
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 25.3% of
our U.S. dollar revenue during the three months ended
June 30, 2008 and 38.5% and 25.7% of our U.S. dollar
revenue during the six months ended June 30, 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 June 30, 2008,
our operating segments in the UPC Broadband Division provided
services in 10 European countries. Our Other Central and Eastern
Europe
47
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) and other less significant operating
segments that provide broadband communications services in
Puerto Rico and video programming and other services in Europe
and Argentina and (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 earning (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 flow by reportable segment for
the three and six months ended June 30, 2008, as compared
to the corresponding prior year periods. 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 and six months ended June 30, 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, late 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, late 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. For
information concerning regulatory proceedings in the
Netherlands, see note 13.
48
Revenue
of our Reportable Segments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
|
|
|
|
Three months ended
|
|
|
Increase
|
|
|
(decrease)
|
|
|
|
June 30,
|
|
|
(decrease)
|
|
|
excluding FX
|
|
|
|
2008
|
|
|
2007
|
|
|
$
|
|
|
%
|
|
|
%
|
|
|
|
in millions
|
|
|
|
|
|
|
|
|
UPC Broadband Division:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$
|
310.6
|
|
|
$
|
260.6
|
|
|
$
|
50.0
|
|
|
|
19.2
|
|
|
|
2.8
|
|
Switzerland
|
|
|
268.5
|
|
|
|
212.3
|
|
|
|
56.2
|
|
|
|
26.5
|
|
|
|
6.8
|
|
Austria
|
|
|
143.9
|
|
|
|
122.2
|
|
|
|
21.7
|
|
|
|
17.8
|
|
|
|
1.5
|
|
Ireland
|
|
|
95.6
|
|
|
|
74.7
|
|
|
|
20.9
|
|
|
|
28.0
|
|
|
|
10.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
818.6
|
|
|
|
669.8
|
|
|
|
148.8
|
|
|
|
22.2
|
|
|
|
4.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
108.5
|
|
|
|
93.9
|
|
|
|
14.6
|
|
|
|
15.5
|
|
|
|
(0.4
|
)
|
Other Central and Eastern Europe
|
|
|
253.7
|
|
|
|
195.7
|
|
|
|
58.0
|
|
|
|
29.6
|
|
|
|
6.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
362.2
|
|
|
|
289.6
|
|
|
|
72.6
|
|
|
|
25.1
|
|
|
|
4.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central and corporate operations
|
|
|
2.9
|
|
|
|
1.8
|
|
|
|
1.1
|
|
|
|
61.1
|
|
|
|
50.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total UPC Broadband Division
|
|
|
1,183.7
|
|
|
|
961.2
|
|
|
|
222.5
|
|
|
|
23.1
|
|
|
|
4.6
|
|
Telenet (Belgium)
|
|
|
387.9
|
|
|
|
313.2
|
|
|
|
74.7
|
|
|
|
23.9
|
|
|
|
6.8
|
|
J:COM (Japan)
|
|
|
691.1
|
|
|
|
533.4
|
|
|
|
157.7
|
|
|
|
29.6
|
|
|
|
12.2
|
|
VTR (Chile)
|
|
|
194.6
|
|
|
|
154.5
|
|
|
|
40.1
|
|
|
|
26.0
|
|
|
|
12.7
|
|
Corporate and other
|
|
|
294.7
|
|
|
|
237.9
|
|
|
|
56.8
|
|
|
|
23.9
|
|
|
|
9.9
|
|
Intersegment eliminations
|
|
|
(22.1
|
)
|
|
|
(19.6
|
)
|
|
|
(2.5
|
)
|
|
|
(12.8
|
)
|
|
|
2.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated LGI
|
|
$
|
2,729.9
|
|
|
$
|
2,180.6
|
|
|
$
|
549.3
|
|
|
|
25.2
|
|
|
|
8.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
|
|
|
|
Six months ended
|
|
|
Increase
|
|
|
(decrease)
|
|
|
|
June 30,
|
|
|
(decrease)
|
|
|
excluding FX
|
|
|
|
2008
|
|
|
2007
|
|
|
$
|
|
|
%
|
|
|
%
|
|
|
|
in millions
|
|
|
|
|
|
|
|
|
UPC Broadband Division:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$
|
611.7
|
|
|
$
|
512.6
|
|
|
$
|
99.1
|
|
|
|
19.3
|
|
|
|
3.6
|
|
Switzerland
|
|
|
520.9
|
|
|
|
419.6
|
|
|
|
101.3
|
|
|
|
24.1
|
|
|
|
6.0
|
|
Austria
|
|
|
283.7
|
|
|
|
242.2
|
|
|
|
41.5
|
|
|
|
17.1
|
|
|
|
1.7
|
|
Ireland
|
|
|
184.0
|
|
|
|
148.4
|
|
|
|
35.6
|
|
|
|
24.0
|
|
|
|
7.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
1,600.3
|
|
|
|
1,322.8
|
|
|
|
277.5
|
|
|
|
21.0
|
|
|
|
4.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
208.5
|
|
|
|
183.9
|
|
|
|
24.6
|
|
|
|
13.4
|
|
|
|
(0.3
|
)
|
Other Central and Eastern Europe
|
|
|
488.6
|
|
|
|
379.2
|
|
|
|
109.4
|
|
|
|
28.9
|
|
|
|
7.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
697.1
|
|
|
|
563.1
|
|
|
|
134.0
|
|
|
|
23.8
|
|
|
|
4.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central and corporate operations
|
|
|
5.6
|
|
|
|
7.2
|
|
|
|
(1.6
|
)
|
|
|
(22.2
|
)
|
|
|
(32.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total UPC Broadband Division
|
|
|
2,303.0
|
|
|
|
1,893.1
|
|
|
|
409.9
|
|
|
|
21.7
|
|
|
|
4.4
|
|
Telenet (Belgium)
|
|
|
762.3
|
|
|
|
613.3
|
|
|
|
149.0
|
|
|
|
24.3
|
|
|
|
7.9
|
|
J:COM (Japan)
|
|
|
1,370.4
|
|
|
|
1,066.7
|
|
|
|
303.7
|
|
|
|
28.5
|
|
|
|
12.3
|
|
VTR (Chile)
|
|
|
381.1
|
|
|
|
299.9
|
|
|
|
81.2
|
|
|
|
27.1
|
|
|
|
11.3
|
|
Corporate and other
|
|
|
569.9
|
|
|
|
453.7
|
|
|
|
116.2
|
|
|
|
25.6
|
|
|
|
11.4
|
|
Intersegment eliminations
|
|
|
(45.8
|
)
|
|
|
(40.1
|
)
|
|
|
(5.7
|
)
|
|
|
(14.2
|
)
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated LGI
|
|
$
|
5,340.9
|
|
|
$
|
4,286.6
|
|
|
$
|
1,054.3
|
|
|
|
24.6
|
|
|
|
8.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49
The Netherlands. The Netherlands revenue
increased $50.0 million or 19.2% and $99.1 million or
19.3% during the three and six months ended June 30, 2008,
respectively, as compared to the corresponding prior year
periods. Excluding the effects of foreign currency exchange rate
fluctuations, the Netherlands revenue increased
$7.4 million or 2.8% and $18.6 million or 3.6%,
respectively. These increases are attributable to increases in
subscription revenue, due to (i) higher ARPU and
(ii) higher numbers of average RGUs during the 2008
periods, as compared to the corresponding prior year periods.
ARPU was higher during the 2008 periods, 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 ARPU from telephony services due primarily to
changes in subscriber calling patterns and an increase in the
proportion of subscribers selecting fixed-rate calling plans.
The increases in average RGUs, which include the negative impact
of slight organic declines in the Netherlands total RGUs
during the first and second quarters of 2008, are attributable
to increases in average telephony, broadband internet and
digital cable RGUs that were only partially offset by declines
in average analog cable RGUs. The declines in the
Netherlands average analog cable RGUs are 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
increases in the Netherlands subscription revenue during
the 2008 periods, as compared to the corresponding periods in
2007, were partially offset by decreases 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 $56.2 million or 26.5% and $101.3 million or
24.1% during the three and six months ended June 30, 2008,
respectively, as compared to the corresponding prior year
periods. Excluding the effects of foreign currency exchange rate
fluctuations, Switzerlands revenue increased
$14.5 million or 6.8% and $25.3 million or 6.0%,
respectively. Most of these increases are attributable to
increases in subscription revenue, due to (i) higher
numbers of average RGUs and (ii) higher ARPU during the
2008 periods. The increases in average RGUs are attributable to
increases in average digital cable, broadband internet and
telephony RGUs that were only partially offset by declines in
average analog cable RGUs. ARPU was higher during the 2008
periods, 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) lower telephony call
volumes, (c) customers selecting lower-priced tiers of
broadband internet services and (d) with respect to the
six-month period, 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 in April 2007 to
comply with the regulatory framework established by the Swiss
Price Regulator in November 2006. Increases in non-subscription
revenue from B2B services also contributed to the increases in
Switzerlands revenue.
Austria. Austrias revenue increased
$21.7 million or 17.8% and $41.5 million or 17.1%
during the three and six months ended June 30, 2008,
respectively, as compared to the corresponding prior year
periods. These increases include $7.4 million and
$14.2 million, respectively, attributable to the impacts of
the October 2007 Tirol acquisition and another less significant
acquisition. Excluding the effects of acquisitions and foreign
currency exchange rate fluctuations, Austrias revenue
decreased $5.5 million or 4.5% and $10.1 million or
4.2%, respectively. These decreases are attributable to
decreases in subscription revenue, primarily attributable to the
negative impacts of lower ARPU. Although Austria experienced a
slight organic decline in RGUs during the first six months of
2008, the average number of RGUs remained relatively constant
over the 2008 and 2007 periods, as increases in average digital
cable, telephony and broadband internet RGUs were offset by
declines in average analog cable RGUs. The declines in
subscription revenue, which, as discussed under Overview
above, are largely related to the increasing competition we
are experiencing in Austria, include declines in revenue from
broadband internet and telephony services that were only
partially offset by an increase in revenue from video services.
ARPU decreased during the 2008 periods as compared to the
corresponding periods in 2007, as the positive impacts of
(i) an improvement in Austrias RGU mix, primarily
attributable to a higher proportion of digital cable 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
digital cable services, (c) lower telephony call volumes
and (d) an increase in the proportion of subscribers
selecting VoIP telephony service, which generally is priced
lower than
50
Austrias circuit switched telephony service.
Non-subscription revenue in Austria was relatively unchanged
during the 2008 and 2007 periods, as decreases in installation
revenue were offset by individually insignificant increases in
other components of non-subscription revenue.
Ireland. Irelands revenue increased
$20.9 million or 28.0% and $35.6 million or 24.0%
during the three and six months ended June 30, 2008,
respectively, as compared to the corresponding prior year
periods. Excluding the effects of foreign currency exchange rate
fluctuations, Irelands revenue increased $7.8 million
or 10.5% and $11.3 million or 7.6%, respectively. These
increases are attributable to increases in subscription revenue
as a result of (i) higher ARPU and (ii) higher numbers
of average RGUs during the 2008 periods, as compared to the
corresponding periods in 2007. ARPU increased during the 2008
periods, as the positive impacts of (i) an improvement in
Irelands RGU mix, primarily attributable to a higher
proportion of digital cable RGUs, (ii) a January 2008 price
increase for certain analog cable and MMDS video services and
(iii) an increase in the proportion of broadband internet
customers selecting higher-priced tiers of service were only
partially offset by the negative effects of increased
competition. The increases in average RGUs, which include the
negative impact of a slight organic decline in Irelands
RGUs during the second quarter of 2008, primarily are
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 and MMDS
video RGUs.
Hungary. Hungarys revenue increased
$14.6 million or 15.5% and $24.6 million or 13.4%
during the three and six months ended June 30, 2008,
respectively, as compared to the corresponding prior year
periods. Excluding the effects of foreign currency exchange rate
fluctuations, Hungarys revenue decreased $0.4 million
or 0.4% and $0.5 million or 0.3%, respectively. These
decreases are attributable to decreases in subscription revenue,
as the negative impact of lower ARPU was only partially offset
by higher numbers of average RGUs. The declines in subscription
revenue, which, as discussed under Overview above, are
largely related to the increasing competition we are
experiencing in Hungary, includes declines in revenue from video
services that were only partially offset by increases in revenue
from broadband internet and telephony services. The increases in
average RGUs are attributable to increases in average broadband
internet, telephony and, to a lesser extent, digital cable and
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 (i) the
migration of analog cable subscribers to digital cable following
the second quarter 2008 launch of digital cable services and
(ii) the effects of competition from an alternative
provider. ARPU declined during the 2008 periods as compared to
the corresponding periods in 2007, as the positive effects of
(i) improvements in Hungarys RGU mix, primarily
attributable to a higher proportion of broadband internet and
digital cable 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 video services and (c) lower ARPU
from telephony services due primarily to changes in subscriber
calling patterns and an increase in the proportion of
subscribers selecting fixed-rate calling plans. Increases in B2B
and other non-subscription revenue offset the majority of the
decreases in Hungarys subscription revenue during the 2008
periods.
Other Central and Eastern Europe. Other
Central and Eastern Europes revenue increased
$58.0 million or 29.6% and $109.4 million or 28.9%
during the three and six months ended June 30, 2008,
respectively, as compared to the corresponding prior year
periods. These increases include $3.3 million and
$7.8 million, respectively, attributable to the aggregate
impact of acquisitions. Excluding the effects of acquisitions
and foreign currency exchange rate fluctuations, Other Central
and Eastern Europes revenue increased $8.8 million or
4.5% and $19.5 million or 5.1%, respectively. Most of these
increases are attributable to increases in subscription revenue
as a result of higher average RGUs during the 2008 periods, as
compared to the 2007 periods. The increases in average RGUs are
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 declines in average video RGUs. The declines
in average video RGUs are attributable to decreases in Romania
and, to a much lesser extent, the Czech Republic, Slovakia and,
during the three-month period, Slovenia, that were only
partially offset by small increases in Poland. ARPU in our Other
Central and Eastern Europe segment decreased during the 2008
periods, as compared to the corresponding periods in 2007, as
the positive effects of (i) an improvement in RGU mix,
primarily attributable to a higher proportion of digital cable
(due in part to the second quarter 2008 launch of digital cable
services in Poland and Slovakia) and broadband internet RGUs and
(ii) January 2008 rate increases for video services in
certain countries were more than offset by the negative effects
of (a) increased competition, (b) a higher proportion
of broadband internet and video subscribers selecting
lower-priced tiers and (c) lower ARPU from telephony
services due primarily to changes in subscriber calling patterns
and an increase in the proportion of subscribers selecting
fixed-rate calling plans.
51
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
(i) organic declines in video RGUs during the three months
ended June 30, 2008 and (ii) declines in
(a) ARPU from all product categories and (b) revenue
from video services during the three and six months ended
June 30, 2008, as compared to the corresponding prior year
periods. In Romania, the competition has contributed to declines
in ARPU, video revenue and overall revenue during the three and
six months ended June 30 2008, as compared to the corresponding
prior year periods. We expect that we will continue to
experience significant competition in future periods in Romania,
the Czech Republic and other markets within our Other Central
and Eastern Europe segment.
Telenet. Telenets revenue increased
$74.7 million or 23.9% and $149.0 million or 24.3%
during the three and six months ended June 30, 2008,
respectively, as compared to the corresponding prior year
periods. These increases include $1.8 million and
$3.5 million, respectively, attributable to the impact of
an acquisition. Excluding the effects of foreign currency
exchange rate fluctuations and an acquisition, Telenets
revenue increased $19.7 million or 6.3% and
$45.2 million or 7.4%, respectively. Most of these
increases are attributable to an increase in subscription
revenue as a result of higher average RGUs, as compared to the
corresponding periods in 2007. The increases in average RGUs
primarily are attributable to increases in the average number of
digital cable, broadband internet and telephony RGUs that were
only partially offset by declines in the average number of
analog cable RGUs. ARPU increased slightly during the 2008
periods, 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) an August 2007 price increase for analog cable
services and (iii) an increase in revenue from premium
digital cable services, such as
video-on-demand,
were only partially offset by the negative impacts of
(a) increased competition and (b) fixed-rate telephony
calling plans. Increases in non-subscription revenue also
contributed to the increases in revenue during the 2008 periods,
as increases in B2B revenue were only partially offset by lower
revenue from set-top box sales and interconnect fees. 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
$157.7 million or 29.6% and $303.7 million or 28.5%
during the three and six months ended June 30, 2008,
respectively, as compared to the corresponding prior year
periods. These increases include $29.4 million and
$56.7 million, respectively, 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 currency exchange rate
fluctuations, J:COMs revenue increased $35.8 million
or 6.7% and $74.0 million or 6.9%, respectively. Most of
these increases are attributable to increases in subscription
revenue, due primarily to higher average numbers of telephony,
broadband internet and video RGUs during the 2008 periods. ARPU
remained relatively unchanged during the 2008 periods as
compared to the corresponding periods 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
$40.1 million or 26.0% and $81.2 million or 27.1%
during the three and six months ended June 30, 2008,
respectively, as compared to the corresponding prior year
periods. Excluding the effects of foreign currency exchange rate
fluctuations, VTRs revenue increased $19.7 million or
12.7% and $33.8 million or 11.3%, respectively. Most of
these increases are attributable to increases in subscription
revenue, due primarily to higher average numbers of broadband
internet, telephony and video RGUs during the 2008 periods. ARPU
remained relatively unchanged during the 2008 periods as
compared to the corresponding periods in 2007, as the positive
impacts of (i) an improvement in VTRs RGU mix,
attributable to a higher proportion of digital cable RGUs,
(ii) September 2007 and March 2008 inflation adjustments to
rates for certain video, broadband internet and telephony
services and (iii) the migration of certain telephony
subscribers to an unlimited fixed-rate calling plan was offset
by the negative effects of (a) increased competition,
particularly from the incumbent telecommunications operator in
Chile, and (b) an increase in the proportion of subscribers
selecting lower-priced tiers of analog video services.
52
Operating
Expenses of our Reportable Segments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
|
|
|
|
Three months ended
|
|
|
Increase
|
|
|
(decrease)
|
|
|
|
June 30,
|
|
|
(decrease)
|
|
|
excluding FX
|
|
|
|
2008
|
|
|
2007
|
|
|
$
|
|
|
%
|
|
|
%
|
|
|
|
in millions
|
|
|
|
|
|
|
|
|
UPC Broadband Division:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$
|
99.8
|
|
|
$
|
90.9
|
|
|
$
|
8.9
|
|
|
|
9.8
|
|
|
|
(5.2
|
)
|
Switzerland
|
|
|
86.1
|
|
|
|
72.8
|
|
|
|
13.3
|
|
|
|
18.3
|
|
|
|
(0.1
|
)
|
Austria
|
|
|
44.6
|
|
|
|
43.7
|
|
|
|
0.9
|
|
|
|
2.1
|
|
|
|
(12.0
|
)
|
Ireland
|
|
|
48.0
|
|
|
|
39.1
|
|
|
|
8.9
|
|
|
|
22.8
|
|
|
|
6.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
278.5
|
|
|
|
246.5
|
|
|
|
32.0
|
|
|
|
13.0
|
|
|
|
(3.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
41.0
|
|
|
|
33.9
|
|
|
|
7.1
|
|
|
|
20.9
|
|
|
|
4.4
|
|
Other Central and Eastern Europe
|
|
|
90.0
|
|
|
|
72.0
|
|
|
|
18.0
|
|
|
|
25.0
|
|
|
|
4.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
131.0
|
|
|
|
105.9
|
|
|
|
25.1
|
|
|
|
23.7
|
|
|
|
4.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central and corporate operations
|
|
|
16.1
|
|
|
|
19.0
|
|
|
|
(2.9
|
)
|
|
|
(15.3
|
)
|
|
|
(28.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total UPC Broadband Division
|
|
|
425.6
|
|
|
|
371.4
|
|
|
|
54.2
|
|
|
|
14.6
|
|
|
|
(2.3
|
)
|
Telenet (Belgium)
|
|
|
136.5
|
|
|
|
116.6
|
|
|
|
19.9
|
|
|
|
17.1
|
|
|
|
0.9
|
|
J:COM (Japan)
|
|
|
270.6
|
|
|
|
214.6
|
|
|
|
56.0
|
|
|
|
26.1
|
|
|
|
9.3
|
|
VTR (Chile)
|
|
|
71.3
|
|
|
|
60.6
|
|
|
|
10.7
|
|
|
|
17.7
|
|
|
|
5.3
|
|
Corporate and other
|
|
|
175.3
|
|
|
|
160.2
|
|
|
|
15.1
|
|
|
|
9.4
|
|
|
|
(3.3
|
)
|
Intersegment eliminations
|
|
|
(19.7
|
)
|
|
|
(19.8
|
)
|
|
|
0.1
|
|
|
|
0.5
|
|
|
|
14.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses excluding stock-based compensation
expense
|
|
|
1,059.6
|
|
|
|
903.6
|
|
|
|
156.0
|
|
|
|
17.3
|
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
3.5
|
|
|
|
2.5
|
|
|
|
1.0
|
|
|
|
40.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated LGI
|
|
$
|
1,063.1
|
|
|
$
|
906.1
|
|
|
$
|
157.0
|
|
|
|
17.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
|
|
|
|
Six months ended
|
|
|
Increase
|
|
|
(decrease)
|
|
|
|
June 30,
|
|
|
(decrease)
|
|
|
excluding FX
|
|
|
|
2008
|
|
|
2007
|
|
|
$
|
|
|
%
|
|
|
%
|
|
|
|
in millions
|
|
|
|
|
|
|
|
|
UPC Broadband Division:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$
|
195.8
|
|
|
$
|
178.6
|
|
|
$
|
17.2
|
|
|
|
9.6
|
|
|
|
(4.8
|
)
|
Switzerland
|
|
|
163.5
|
|
|
|
143.1
|
|
|
|
20.4
|
|
|
|
14.3
|
|
|
|
(2.5
|
)
|
Austria
|
|
|
92.8
|
|
|
|
87.3
|
|
|
|
5.5
|
|
|
|
6.3
|
|
|
|
(7.6
|
)
|
Ireland
|
|
|
90.2
|
|
|
|
78.1
|
|
|
|
12.1
|
|
|
|
15.5
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
542.3
|
|
|
|
487.1
|
|
|
|
55.2
|
|
|
|
11.3
|
|
|
|
(3.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
78.3
|
|
|
|
67.4
|
|
|
|
10.9
|
|
|
|
16.2
|
|
|
|
2.0
|
|
Other Central and Eastern Europe
|
|
|
176.1
|
|
|
|
140.2
|
|
|
|
35.9
|
|
|
|
25.6
|
|
|
|
5.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
254.4
|
|
|
|
207.6
|
|
|
|
46.8
|
|
|
|
22.5
|
|
|
|
4.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central and corporate operations
|
|
|
33.8
|
|
|
|
38.2
|
|
|
|
(4.4
|
)
|
|
|
(11.5
|
)
|
|
|
(23.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total UPC Broadband Division
|
|
|
830.5
|
|
|
|
732.9
|
|
|
|
97.6
|
|
|
|
13.3
|
|
|
|
(2.4
|
)
|
Telenet (Belgium)
|
|
|
275.6
|
|
|
|
230.4
|
|
|
|
45.2
|
|
|
|
19.6
|
|
|
|
3.9
|
|
J:COM (Japan)
|
|
|
531.7
|
|
|
|
427.1
|
|
|
|
104.6
|
|
|
|
24.5
|
|
|
|
8.8
|
|
VTR (Chile)
|
|
|
143.1
|
|
|
|
122.6
|
|
|
|
20.5
|
|
|
|
16.7
|
|
|
|
2.2
|
|
Corporate and other
|
|
|
347.4
|
|
|
|
306.4
|
|
|
|
41.0
|
|
|
|
13.4
|
|
|
|
0.4
|
|
Intersegment eliminations
|
|
|
(42.0
|
)
|
|
|
(40.7
|
)
|
|
|
(1.3
|
)
|
|
|
(3.2
|
)
|
|
|
10.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses excluding stock-based compensation
expense
|
|
|
2,086.3
|
|
|
|
1,778.7
|
|
|
|
307.6
|
|
|
|
17.3
|
|
|
|
2.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
5.5
|
|
|
|
4.8
|
|
|
|
0.7
|
|
|
|
14.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated LGI
|
|
$
|
2,091.8
|
|
|
$
|
1,783.5
|
|
|
$
|
308.3
|
|
|
|
17.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53
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. In addition, our labor and other costs are subject to
increasing inflationary pressures, particularly in Romania,
Slovenia, Hungary, the Czech Republic, Chile and Belgium. 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 $54.2 million or 14.6% and
$97.6 million or 13.3% during the three and six months
ended June 30, 2008, respectively, as compared to the
corresponding prior year periods. These increases include
$4.1 million and $8.3 million, respectively,
attributable to the aggregate impact of Tirol and other less
significant acquisitions. Excluding the effects of these
acquisitions and foreign currency exchange rate fluctuations,
the UPC Broadband Divisions operating expenses decreased
$12.7 million or 3.4% and $26.0 million or 3.6%,
respectively, primarily due to the net effect of the following
factors:
|
|
|
|
|
Decreases in personnel costs of $5.8 million or 7.6% and
$12.6 million or 8.3%, respectively, due largely to
(i) decreased staffing levels, particularly in (a) the
Netherlands, in connection with the integration of certain
components of the Netherlands operations, and
(b) Switzerland, in connection with the increased usage of
third parties to manage excess call volume, and
(ii) increases in personnel and related costs allocable to
capital activities, such as the installation of customer premise
equipment for digital cable services;
|
|
|
|
Decreases in interconnect costs of $2.2 million or 2.6% and
$5.8 million or 3.6%, respectively, due primarily to
(i) lower interconnect rates related to favorable tariff
decreases in Switzerland and the Netherlands and
(ii) decreased telephony usage in Austria;
|
|
|
|
Increases in outsourced labor and consulting fees of
$3.8 million or 14.3% and $5.3 million or 10.1%,
respectively, associated with the use of third parties to manage
excess call center volume associated with growth in digital
video and broadband Internet services, primarily in Austria,
Switzerland and the Czech Republic. These increases were
partially offset by decreases in Ireland associated with higher
costs during the 2007 periods related to a billing system
conversion and the integration of certain call center operations;
|
|
|
|
Decreases in management fees of $4.0 million or 71.4% and
$4.1 million or 37.3%, respectively, primarily due to the
renegotiation of an agreement with the minority interest owners
of our primary operating subsidiary in Austria; and
|
|
|
|
Individually insignificant net decreases in other operating
expense categories.
|
Telenet (Belgium). Telenets operating
expenses (exclusive of stock-based compensation expense)
increased $19.9 million or 17.1% and $45.2 million or
19.6% during the three and six months ended June 30, 2008,
respectively, as compared to the corresponding prior year
period. These increases include $0.8 million and
$1.5 million, respectively, attributable to an acquisition.
Excluding the effects of the acquisition and foreign currency
exchange rate fluctuations, Telenets operating expenses
increased $0.3 million or 0.3% and $7.5 million or
3.3%, respectively. These increases include the following
factors:
|
|
|
|
|
Increases in programming and related costs of $1.9 million
or 7.8% and $7.3 million or 15.5%, respectively, due
primarily to growth in the number of digital RGUs;
|
|
|
|
Increases in call overflow fees of $2.0 million or 43.6%
and $4.6 million or 48.6%, respectively, primarily due to
the use of third parties to manage excess call center volume
associated with digital video services;
|
|
|
|
Decreases in the cost of set top boxes sold to customers of
$3.4 million or 60.3% and $3.9 million or 28.1%,
respectively, due to Telenets increased emphasis on the
rental, as opposed to the sale, of set top boxes;
|
54
|
|
|
|
|
Increases in consulting and professional fees of
$1.2 million or 15.9% and $3.9 million or 26.3%,
respectively, due primarily to the temporary replacement of
certain full time employees with outside contractors; and
|
|
|
|
Individually insignificant net decreases in other operating
expense categories.
|
J:COM (Japan). J:COMs operating expenses
(exclusive of stock-based compensation expense) increased
$56.0 million or 26.1% and $104.6 million or 24.5%,
during the three and six months ended June 30, 2008,
respectively, as compared to the corresponding prior year
periods. These increases include $11.4 million and
$21.8 million, respectively, attributable to the aggregate
impact of the JTV Thematics and other less significant
acquisitions. Excluding the effects of these acquisitions and
foreign currency exchange rate fluctuations, J:COMs
operating expenses increased $8.5 million or 4.0% and
$15.7 million or 3.7%, respectively. These increases
include the following factors:
|
|
|
|
|
Increases in programming and related costs of $4.3 million
or 7.2% and $7.5 million or 6.2%, respectively, as a result
of growth in the number of video RGUs and a higher proportion of
subscribers selecting digital cable over analog cable services;
|
|
|
|
Increases in interconnect charges of $2.1 million or 15.7%
and $4.1 million or 15.4%, respectively, due to a higher
number of telephony subscribers; and
|
|
|
|
Increases in personnel costs of $1.5 million or 3.8% and
$3.4 million or 4.3%, respectively, primarily due to higher
staffing levels and annual wage increases.
|
VTR (Chile). VTRs operating expenses
(exclusive of stock-based compensation expense) increased
$10.7 million or 17.7% and $20.5 million or 16.7%,
during the three and six months ended June 30, 2008,
respectively, as compared to the corresponding prior year
periods. Excluding the effects of foreign currency exchange rate
fluctuations, VTRs operating expenses increased
$3.2 million or 5.3% and $2.7 million or 2.2%,
respectively. These increases include the following factors:
|
|
|
|
|
Increases in interconnect charges of $1.5 million or 11.2%
and $2.9 million or 10.9%, respectively, due primarily to
the higher volume of traffic associated with the increase in
VTRs telephony RGUs;
|
|
|
|
Increases in programming costs of $3.0 million or 18.0% and
$2.5 million or 7.2%, respectively, as the effect of an
increase in VTRs digital cable RGUs was only partially
offset by foreign currency exchange rate fluctuations with
respect to VTRs programming contracts, most of which are
denominated in U.S. dollars; and
|
|
|
|
Decreases in bad debt expense of $2.0 million and
$1.6 million, respectively, as a decrease associated with
the reversal of a $3.2 million bad debt reserve in
connection with the settlement of an interconnect fee dispute
during the second quarter of 2008 was only partially offset by
increases associated with the growth in VTRs RGUs.
|
55
SG&A
Expenses of our Reportable Segments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
|
|
|
|
Three months ended
|
|
|
Increase
|
|
|
(decrease)
|
|
|
|
June 30,
|
|
|
(decrease)
|
|
|
excluding FX
|
|
|
|
2008
|
|
|
2007
|
|
|
$
|
|
|
%
|
|
|
%
|
|
|
|
in millions
|
|
|
|
|
|
|
|
|
UPC Broadband Division:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$
|
39.6
|
|
|
$
|
37.1
|
|
|
$
|
2.5
|
|
|
|
6.7
|
|
|
|
(8.0
|
)
|
Switzerland
|
|
|
44.4
|
|
|
|
37.0
|
|
|
|
7.4
|
|
|
|
20.0
|
|
|
|
0.9
|
|
Austria
|
|
|
22.9
|
|
|
|
19.0
|
|
|
|
3.9
|
|
|
|
20.5
|
|
|
|
3.5
|
|
Ireland
|
|
|
11.9
|
|
|
|
11.5
|
|
|
|
0.4
|
|
|
|
3.5
|
|
|
|
(11.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
118.8
|
|
|
|
104.6
|
|
|
|
14.2
|
|
|
|
13.6
|
|
|
|
(3.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
12.4
|
|
|
|
11.2
|
|
|
|
1.2
|
|
|
|
10.7
|
|
|
|
(4.8
|
)
|
Other Central and Eastern Europe
|
|
|
31.7
|
|
|
|
24.9
|
|
|
|
6.8
|
|
|
|
27.3
|
|
|
|
5.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
44.1
|
|
|
|
36.1
|
|
|
|
8.0
|
|
|
|
22.2
|
|
|
|
2.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central and corporate operations
|
|
|
48.7
|
|
|
|
41.8
|
|
|
|
6.9
|
|
|
|
16.5
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total UPC Broadband Division
|
|
|
211.6
|
|
|
|
182.5
|
|
|
|
29.1
|
|
|
|
15.9
|
|
|
|
(1.2
|
)
|
Telenet (Belgium)
|
|
|
61.5
|
|
|
|
49.3
|
|
|
|
12.2
|
|
|
|
24.7
|
|
|
|
7.4
|
|
J:COM (Japan)
|
|
|
144.7
|
|
|
|
105.4
|
|
|
|
39.3
|
|
|
|
37.3
|
|
|
|
19.0
|
|
VTR (Chile)
|
|
|
41.4
|
|
|
|
34.4
|
|
|
|
7.0
|
|
|
|
20.3
|
|
|
|
7.6
|
|
Corporate and other
|
|
|
58.7
|
|
|
|
44.2
|
|
|
|
14.5
|
|
|
|
32.8
|
|
|
|
19.6
|
|
Inter-segment eliminations
|
|
|
(2.4
|
)
|
|
|
0.2
|
|
|
|
(2.6
|
)
|
|
|
N.M.
|
|
|
|
N.M.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total SG&A expenses excluding stock-based compensation
expense
|
|
|
515.5
|
|
|
|
416.0
|
|
|
|
99.5
|
|
|
|
23.9
|
|
|
|
7.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
39.5
|
|
|
|
37.5
|
|
|
|
2.0
|
|
|
|
5.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated LGI
|
|
$
|
555.0
|
|
|
$
|
453.5
|
|
|
$
|
101.5
|
|
|
|
22.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
|
|
|
|
Six months ended
|
|
|
Increase
|
|
|
(decrease)
|
|
|
|
June 30,
|
|
|
(decrease)
|
|
|
excluding FX
|
|
|
|
2008
|
|
|
2007
|
|
|
$
|
|
|
%
|
|
|
%
|
|
|
|
in millions
|
|
|
|
|
|
|
|
|
UPC Broadband Division:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$
|
76.1
|
|
|
$
|
73.4
|
|
|
$
|
2.7
|
|
|
|
3.7
|
|
|
|
(10.1
|
)
|
Switzerland
|
|
|
86.8
|
|
|
|
70.7
|
|
|
|
16.1
|
|
|
|
22.8
|
|
|
|
4.7
|
|
Austria
|
|
|
45.8
|
|
|
|
37.7
|
|
|
|
8.1
|
|
|
|
21.5
|
|
|
|
5.7
|
|
Ireland
|
|
|
24.2
|
|
|
|
23.6
|
|
|
|
0.6
|
|
|
|
2.5
|
|
|
|
(11.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
232.9
|
|
|
|
205.4
|
|
|
|
27.5
|
|
|
|
13.4
|
|
|
|
(2.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
24.0
|
|
|
|
23.3
|
|
|
|
0.7
|
|
|
|
3.0
|
|
|
|
(9.6
|
)
|
Other Central and Eastern Europe
|
|
|
61.6
|
|
|
|
51.6
|
|
|
|
10.0
|
|
|
|
19.4
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
85.6
|
|
|
|
74.9
|
|
|
|
10.7
|
|
|
|
14.3
|
|
|
|
(2.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central and corporate operations
|
|
|
93.6
|
|
|
|
83.2
|
|
|
|
10.4
|
|
|
|
12.5
|
|
|
|
(2.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total UPC Broadband Division
|
|
|
412.1
|
|
|
|
363.5
|
|
|
|
48.6
|
|
|
|
13.4
|
|
|
|
(2.4
|
)
|
Telenet (Belgium)
|
|
|
121.9
|
|
|
|
98.7
|
|
|
|
23.2
|
|
|
|
23.5
|
|
|
|
7.0
|
|
J:COM (Japan)
|
|
|
279.3
|
|
|
|
207.9
|
|
|
|
71.4
|
|
|
|
34.3
|
|
|
|
17.4
|
|
VTR (Chile)
|
|
|
80.5
|
|
|
|
63.3
|
|
|
|
17.2
|
|
|
|
27.2
|
|
|
|
11.5
|
|
Corporate and other
|
|
|
109.1
|
|
|
|
88.3
|
|
|
|
20.8
|
|
|
|
23.6
|
|
|
|
12.7
|
|
Inter-segment eliminations
|
|
|
(3.8
|
)
|
|
|
0.6
|
|
|
|
(4.4
|
)
|
|
|
N.M.
|
|
|
|
N.M.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total SG&A expenses excluding stock-based compensation
expense
|
|
|
999.1
|
|
|
|
822.3
|
|
|
|
176.8
|
|
|
|
21.5
|
|
|
|
5.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
77.8
|
|
|
|
78.7
|
|
|
|
(0.9
|
)
|
|
|
(1.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated LGI
|
|
$
|
1,076.9
|
|
|
$
|
901.0
|
|
|
$
|
175.9
|
|
|
|
19.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N.M. Not meaningful.
56
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. As noted under
Operating Expenses above, our labor and other costs are
subject to increasing inflationary pressures.
UPC Broadband Division. The UPC Broadband
Divisions SG&A expenses (exclusive of stock-based
compensation expense) increased $29.1 million or 15.9% and
$48.6 million or 13.4%, during the three and six months
ended June 30, 2008, respectively, as compared to the
corresponding prior year periods. These increases include
$1.3 million and $2.6 million, respectively,
attributable to the aggregate impact of the Tirol and other less
significant acquisitions. Excluding the effects of these
acquisitions and foreign currency exchange rate fluctuations,
the UPC Broadband Divisions SG&A expenses decreased
$3.3 million or 1.9% and $11.3 million or 3.1%,
respectively. The decreases in the UPC Broadband Divisions
SG&A expenses primarily are attributable to the net effect
of the following factors:
|
|
|
|
|
Decreases in outsourced labor and professional fees of
$1.6 million or 9.5% and $5.6 million or 16.8%,
respectively, including decreases in certain central and
corporate costs and certain costs incurred by the
Netherlands; and
|
|
|
|
Decreases in sales and marketing costs of $3.6 million or
6.5% and $4.0 million or 3.6%, respectively, as decreases
due to (i) the Netherlands continued emphasis during
the 2008 periods on more selective marketing strategies and
(ii) decreased costs due to a UPC rebranding campaign
during the 2007 periods, partially offset by increases in the
costs incurred in certain markets, including Switzerland,
Austria, Poland, and the Czech Republic, in response to
competition
and/or to
support the launch or further penetration of digital cable
services.
|
Personnel costs remained relatively constant during the
three-month period and increased slightly during the six-month
period, as the impacts of increases in staffing levels were
largely offset by increases in personnel and related costs
allocable to capital activities, such as the installation of
billing and support systems.
Telenet (Belgium). Telenets SG&A
expenses (exclusive of stock-based compensation expense)
increased $12.2 million or 24.7% and $23.2 million or
23.5% during the three and six months ended June 30, 2008,
respectively, as compared to the corresponding prior year
periods. These increases include $0.6 million and
$1.2 million, respectively, attributable to an acquisition.
Excluding the effects of the acquisition and foreign currency
exchange rate fluctuations, Telenets SG&A expenses
increased $3.0 million or 6.1% and $5.7 million or
5.8%, respectively. These increases include individually
insignificant net increases in various expense categories,
including increases in (i) consulting and outsourcing costs
and (ii) advertising and marketing expenses.
J:COM (Japan). J:COMs SG&A expenses
(exclusive of stock-based compensation expense) increased
$39.3 million or 37.3% and $71.4 million or 34.3%
during the three and six months ended June 30, 2008,
respectively, as compared to the corresponding prior year
periods. These increases include $11.1 million and
$21.8 million, respectively, attributable to the aggregate
impact of the JTV Thematics and other less significant
acquisitions. Excluding the effects of these acquisitions and
foreign currency exchange rate fluctuations, J:COMs
SG&A expenses increased $8.9 million or 8.5% and
$14.3 million or 6.9%, respectively. These increases
include (i) increases in personnel costs of
$4.5 million or 5.9% and $8.8 million or 5.9%,
respectively, that are due primarily to higher staffing levels
and annual wage increases and (ii) individually
insignificant net increases in other SG&A expense
categories.
57
VTR (Chile). VTRs SG&A expenses
(exclusive of stock-based compensation expense) increased
$7.0 million or 20.3% and $17.2 million or 27.2%
during the three and six months ended June 30, 2008,
respectively, as compared to the corresponding prior year
periods. Excluding the effects of foreign currency exchange rate
fluctuations, VTRs SG&A expenses increased
$2.6 million or 7.6% and $7.3 million or 11.5%,
respectively. These increases include (i) increases in
labor and related costs of $1.6 million or 14.7% and
$2.2 million or 10.8%, respectively, due primarily to
annual wage increases, (ii) increases in legal fees of
$1.3 million and $1.1 million respectively, due
primarily to a fee paid during the second quarter of 2008 in
connection with the settlement of an interconnect fee dispute
and (iii) individually insignificant net changes in other
expense categories. The increase during the six-month period
also includes a $1.5 million or 13.7% increase in marketing
and advertising costs, due primarily to increased marketing
activity during the first quarter of 2008.
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 earning (loss) before
income taxes and minority interests, see note 14 to our
condensed consolidated financial statements.
58
Operating
Cash Flow
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
|
|
|
|
Three months ended
|
|
|
Increase
|
|
|
(decrease)
|
|
|
|
June 30,
|
|
|
(decrease)
|
|
|
excluding FX
|
|
|
|
2008
|
|
|
2007
|
|
|
$
|
|
|
%
|
|
|
%
|
|
|
|
in millions
|
|
|
|
|
|
|
|
|
UPC Broadband Division:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$
|
171.2
|
|
|
$
|
132.6
|
|
|
$
|
38.6
|
|
|
|
29.1
|
|
|
|
11.4
|
|
Switzerland
|
|
|
138.0
|
|
|
|
102.5
|
|
|
|
35.5
|
|
|
|
34.6
|
|
|
|
13.9
|
|
Austria
|
|
|
76.4
|
|
|
|
59.5
|
|
|
|
16.9
|
|
|
|
28.4
|
|
|
|
10.9
|
|
Ireland
|
|
|
35.7
|
|
|
|
24.1
|
|
|
|
11.6
|
|
|
|
48.1
|
|
|
|
28.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
421.3
|
|
|
|
318.7
|
|
|
|
102.6
|
|
|
|
32.2
|
|
|
|
13.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
55.1
|
|
|
|
48.8
|
|
|
|
6.3
|
|
|
|
12.9
|
|
|
|
(2.8
|
)
|
Other Central and Eastern Europe
|
|
|
132.0
|
|
|
|
98.8
|
|
|
|
33.2
|
|
|
|
33.6
|
|
|
|
7.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
187.1
|
|
|
|
147.6
|
|
|
|
39.5
|
|
|
|
26.8
|
|
|
|
4.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central and corporate operations
|
|
|
(61.9
|
)
|
|
|
(59.0
|
)
|
|
|
(2.9
|
)
|
|
|
(4.9
|
)
|
|
|
10.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total UPC Broadband Division
|
|
|
546.5
|
|
|
|
407.3
|
|
|
|
139.2
|
|
|
|
34.2
|
|
|
|
13.5
|
|
Telenet (Belgium)
|
|
|
189.9
|
|
|
|
147.3
|
|
|
|
42.6
|
|
|
|
28.9
|
|
|
|
11.4
|
|
J:COM (Japan)
|
|
|
275.8
|
|
|
|
213.4
|
|
|
|
62.4
|
|
|
|
29.2
|
|
|
|
11.9
|
|
VTR (Chile)
|
|
|
81.9
|
|
|
|
59.5
|
|
|
|
22.4
|
|
|
|
37.6
|
|
|
|
23.3
|
|
Corporate and other
|
|
|
60.7
|
|
|
|
33.5
|
|
|
|
27.2
|
|
|
|
81.2
|
|
|
|
60.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,154.8
|
|
|
$
|
861.0
|
|
|
$
|
293.8
|
|
|
|
34.1
|
|
|
|
15.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended
|
|
|
Increase
|
|
|
Increase
|
|
|
|
June 30,
|
|
|
(decrease)
|
|
|
excluding FX
|
|
|
|
2008
|
|
|
2007
|
|
|
$
|
|
|
%
|
|
|
%
|
|
|
|
in millions
|
|
|
|
|
|
|
|
|
UPC Broadband Division:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$
|
339.8
|
|
|
$
|
260.6
|
|
|
$
|
79.2
|
|
|
|
30.4
|
|
|
|
13.3
|
|
Switzerland
|
|
|
270.6
|
|
|
|
205.8
|
|
|
|
64.8
|
|
|
|
31.5
|
|
|
|
12.4
|
|
Austria
|
|
|
145.1
|
|
|
|
117.2
|
|
|
|
27.9
|
|
|
|
23.8
|
|
|
|
7.4
|
|
Ireland
|
|
|
69.6
|
|
|
|
46.7
|
|
|
|
22.9
|
|
|
|
49.0
|
|
|
|
29.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
825.1
|
|
|
|
630.3
|
|
|
|
194.8
|
|
|
|
30.9
|
|
|
|
13.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
106.2
|
|
|
|
93.2
|
|
|
|
13.0
|
|
|
|
13.9
|
|
|
|
0.4
|
|
Other Central and Eastern Europe
|
|
|
250.9
|
|
|
|
187.4
|
|
|
|
63.5
|
|
|
|
33.9
|
|
|
|
10.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
357.1
|
|
|
|
280.6
|
|
|
|
76.5
|
|
|
|
27.3
|
|
|
|
6.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central and corporate operations
|
|
|
(121.8
|
)
|
|
|
(114.2
|
)
|
|
|
(7.6
|
)
|
|
|
(6.7
|
)
|
|
|
7.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total UPC Broadband Division
|
|
|
1,060.4
|
|
|
|
796.7
|
|
|
|
263.7
|
|
|
|
33.1
|
|
|
|
13.8
|
|
Telenet (Belgium)
|
|
|
364.8
|
|
|
|
284.2
|
|
|
|
80.6
|
|
|
|
28.4
|
|
|
|
11.5
|
|
J:COM (Japan)
|
|
|
559.4
|
|
|
|
431.7
|
|
|
|
127.7
|
|
|
|
29.6
|
|
|
|
13.2
|
|
VTR (Chile)
|
|
|
157.5
|
|
|
|
114.0
|
|
|
|
43.5
|
|
|
|
38.2
|
|
|
|
20.9
|
|
Corporate and other
|
|
|
113.4
|
|
|
|
59.0
|
|
|
|
54.4
|
|
|
|
92.2
|
|
|
|
67.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,255.5
|
|
|
$
|
1,685.6
|
|
|
$
|
569.9
|
|
|
|
33.8
|
|
|
|
15.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59
Operating
Cash Flow Margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
UPC Broadband Division:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
|
55.1
|
|
|
|
50.9
|
|
|
|
55.6
|
|
|
|
50.8
|
|
Switzerland
|
|
|
51.4
|
|
|
|
48.3
|
|
|
|
51.9
|
|
|
|
49.0
|
|
Austria
|
|
|
53.1
|
|
|
|
48.7
|
|
|
|
51.1
|
|
|
|
48.4
|
|
Ireland
|
|
|
37.3
|
|
|
|
32.3
|
|
|
|
37.8
|
|
|
|
31.5
|
|
Total Western Europe
|
|
|
51.5
|
|
|
|
47.6
|
|
|
|
51.6
|
|
|
|
47.6
|
|
Hungary
|
|
|
50.8
|
|
|
|
52.0
|
|
|
|
50.9
|
|
|
|
50.7
|
|
Other Central and Eastern Europe
|
|
|
52.0
|
|
|
|
50.5
|
|
|
|
51.4
|
|
|
|
49.4
|
|
Total Central and Eastern Europe
|
|
|
51.7
|
|
|
|
51.0
|
|
|
|
51.2
|
|
|
|
49.8
|
|
Total UPC Broadband Division, including central and corporate
costs
|
|
|
46.2
|
|
|
|
42.4
|
|
|
|
46.0
|
|
|
|
42.1
|
|
Telenet (Belgium)
|
|
|
49.0
|
|
|
|
47.0
|
|
|
|
47.9
|
|
|
|
46.3
|
|
J:COM (Japan)
|
|
|
39.9
|
|
|
|
40.0
|
|
|
|
40.8
|
|
|
|
40.5
|
|
VTR (Chile)
|
|
|
42.1
|
|
|
|
38.5
|
|
|
|
41.3
|
|
|
|
38.0
|
|
The improvement in the operating cash flow margins of our
reportable segments during the 2008 periods, as compared to the
respective 2007 periods, are 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 Western Europe and Chile.
For additional discussion of the factors contributing to the
changes in the operating cash flow margins of our reportable
segments, see the above analyses of the revenue, operating
expenses and SG&A expenses of our reportable segments. 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. In this regard, the decrease in the
operating cash flow margin of Hungary during the three-month
period is primarily attributable to the effects of competition.
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 $549.3 million and
$1,054.3 million during the three and six months ended
June 30, 2008, respectively, compared to the corresponding
prior year periods. These increases include $47.9 million
and $94.1 million, respectively, attributable to the impact
of acquisitions. Excluding the effects of acquisitions and
foreign currency exchange rate fluctuations, total consolidated
revenue increased $126.8 million or 5.8% and
$254.9 million or 5.9%, respectively, during the 2008
periods, as compared to the corresponding period in 2007. As
discussed in greater detail under Discussion and Analysis of
Reportable Segments Revenue above, these
increases are 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.
60
Operating
expenses
Our total consolidated operating expenses increased
$157.0 million and $308.3 million during the three and
six months ended June 30, 2008, respectively, as compared
to the corresponding prior year periods. These increases include
$18.8 million and $36.9 million, respectively,
attributable to the impact of acquisitions. Our operating
expenses include stock-based compensation expense, which
increased $1.0 million and $0.7 million, respectively.
For additional information, see discussion following
SG&A expenses below. Excluding the effects of
acquisitions, foreign currency exchange rate fluctuations and
stock-based compensation expense, total consolidated operating
expenses decreased $5.6 million or 0.6% during the
three-month period and were relatively unchanged during the
six-month period. For additional information, see Discussion
and Analysis of Reportable Segments Operating
Expenses above.
SG&A
expenses
Our total consolidated SG&A expenses increased
$101.5 million and $175.9 million during the three and
six months ended June 30, 2008, as compared to the
corresponding prior year periods. These increases include
$13.1 million and $26.0 million attributable to the
impact of acquisitions. Our SG&A expenses include
stock-based compensation expense, which increased
$2.0 million during the three month period and decreased
$0.9 million during the six month period. For additional
information, see discussion in the following paragraph.
Excluding the effects of acquisitions, foreign currency exchange
rate fluctuations and stock-based compensation expense, total
consolidated SG&A expenses increased $16.4 million or
3.9% and $22.6 million or 2.8%, respectively. As discussed
in more detail under Discussion and Analysis of Reportable
Segments SG&A Expenses above, these
increases generally reflects (i) net increases in labor
costs, and (ii) less significant net increases in other
expense categories.
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
|
|
|
Six months ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
in millions
|
|
|
LGI common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LGI performance-based incentive plans
|
|
$
|
22.9
|
|
|
$
|
21.1
|
|
|
$
|
50.2
|
|
|
$
|
50.0
|
|
Stock options, SARs, restricted stock and restricted stock units
|
|
|
13.2
|
|
|
|
12.3
|
|
|
|
22.9
|
|
|
|
24.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total LGI common stock
|
|
|
36.1
|
|
|
|
33.4
|
|
|
|
73.1
|
|
|
|
74.8
|
|
Other
|
|
|
6.9
|
|
|
|
6.6
|
|
|
|
10.2
|
|
|
|
8.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
43.0
|
|
|
$
|
40.0
|
|
|
$
|
83.3
|
|
|
$
|
83.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expense
|
|
$
|
3.5
|
|
|
$
|
2.5
|
|
|
$
|
5.5
|
|
|
$
|
4.8
|
|
SG&A expense
|
|
|
39.5
|
|
|
|
37.5
|
|
|
|
77.8
|
|
|
|
78.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
43.0
|
|
|
$
|
40.0
|
|
|
$
|
83.3
|
|
|
$
|
83.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization expense
Our total consolidated depreciation and amortization expense
increased $133.8 million and $243.9 million during the
three and six months ended June 30, 2008, respectively, as
compared to the corresponding prior year periods. Excluding the
effect of foreign currency exchange rate fluctuations,
depreciation and amortization expense increased
$33.2 million or 5.4% and $55.3 million or 4.6%,
respectively. These increases are due primarily to the
61
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 and Cablecoms assets becoming fully
depreciated.
Impairment,
restructuring and other operating charges, net
We recognized impairment, restructuring and other operating
charges, net, of $3.3 million and $1.8 million during
the three and six months ended June 30, 2008, respectively,
compared to $0.6 million and $5.9 million during the
corresponding prior year periods. The amount for the 2008
six-month period includes a $9.2 million gain on the sale
of our interests in certain aircraft.
Interest
expense
Our total consolidated interest expense increased
$64.4 million and $111.0 million during the three and
six months ended June 30, 2008, respectively, as compared
to the corresponding prior year periods. Excluding the effects
of foreign currency exchange rate fluctuations, interest expense
increased $26.2 million or 11.6% and $38.0 million or
8.3%, respectively. These increases reflect the net effect of an
increase in our average outstanding indebtedness and a slight
decrease in our weighted average interest rate. The slight
decrease in our weighted average interest rate is due primarily
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 decreased
$7.0 million during the three months ended June 30,
2008 and increased $3.4 million during the six months ended
June 30, 2008, as compared to the corresponding prior year
periods. These changes primarily are attributable to the net
effect on interest income of decreases in our average
consolidated cash and cash equivalent and restricted cash
balances and higher weighted average interest rates. The higher
weighted average interest rates primarily are attributable to
the interest rate earned on our cash collateral account with
respect to the VTR Bank Facility. This cash collateral account,
which was initially funded in May 2007, earns interest at a rate
that is significantly higher than the average rate earned by the
remainder of our cash and cash equivalent and restricted cash
balances. Dividend income decreased during the 2008 periods, as
dividend income on the Sumitomo common stock that we acquired on
July 3, 2007 only partially offset the loss of dividend
income on the ABC Family preferred stock that was redeemed on
August 2, 2007. Our interest and dividend income for the
2007 periods includes $7.8 million and $15.4 million,
respectively, 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.
62
Share of
results of affiliates, net
The following table reflects our share of results of affiliates,
net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
in millions
|
|
|
SC Media (a)
|
|
$
|
|
|
|
$
|
7.4
|
|
|
$
|
|
|
|
$
|
17.9
|
|
Other
|
|
|
0.3
|
|
|
|
2.1
|
|
|
|
2.8
|
|
|
|
5.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
0.3
|
|
|
$
|
9.5
|
|
|
$
|
2.8
|
|
|
$
|
23.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 gains on derivative instruments, net
The details of our realized and unrealized gains on derivative
instruments, net, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
in millions
|
|
|
Cross-currency and interest rate derivative contracts (a)
|
|
$
|
480.5
|
|
|
$
|
79.7
|
|
|
$
|
20.5
|
|
|
$
|
41.8
|
|
Equity-related derivatives (b)
|
|
|
(73.8
|
)
|
|
|
9.6
|
|
|
|
56.5
|
|
|
|
20.8
|
|
Foreign exchange contracts
|
|
|
(0.6
|
)
|
|
|
(14.9
|
)
|
|
|
(5.8
|
)
|
|
|
(1.8
|
)
|
Other
|
|
|
0.3
|
|
|
|
(0.5
|
)
|
|
|
(0.2
|
)
|
|
|
2.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
406.4
|
|
|
$
|
73.9
|
|
|
$
|
71.0
|
|
|
$
|
63.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The gains during the 2008 periods primarily are attributable to
the net effect of (i) gains associated with increases in
market interest rates in all relevant currencies,
(ii) losses associated with increases in the values of the
Czech koruna, Hungarian forint, Polish zloty and certain other
currencies in central and eastern Europe relative to the euro,
(iii) gains associated with a decrease in the value of the
Chilean peso relative to the U.S. dollar and (iv) gains
during the three-month period and losses during the six-month
period associated with changes in the values of the Swiss franc
and the U.S. dollar relative to the euro. In addition, the gains
during the 2008 periods include a $54.0 million credit risk
valuation adjustment, as further described in notes 6 and 7
to our condensed consolidated financial statements. The gains
during the 2007 periods primarily are attributable to the net
effect of (i) gains associated with increases in market
interest rates in all relevant currencies, (ii) losses
associated with increases in the values of the Romanian lei,
Hungarian forint and certain other currencies in central and
eastern Europe relative to the euro and (iii) gains
associated with decreases in the values of the Swiss franc and
the Czech koruna relative to the euro. |
|
(b) |
|
Includes activity related to (i) the Sumitomo Collar,
(ii) the prepaid forward sale contract on our News Corp.
Class A common stock and (iii) the call options we
held during the 2007 periods with respect to Telenet ordinary
shares. |
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.
63
Foreign
currency transaction gains, net
The details of our foreign currency transaction gains, net, are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
in millions
|
|
|
U.S. dollar denominated debt issued by a European subsidiary
|
|
$
|
(8.9
|
)
|
|
$
|
25.0
|
|
|
$
|
144.0
|
|
|
$
|
52.7
|
|
Yen denominated debt issued by U.S. subsidiaries
|
|
|
101.4
|
|
|
|
|
|
|
|
(79.5
|
)
|
|
|
|
|
Intercompany notes denominated in a currency other than the
entitys functional currency (a)
|
|
|
201.9
|
|
|
|
6.2
|
|
|
|
392.9
|
|
|
|
0.9
|
|
Cash denominated in a currency other than the entitys
functional currency
|
|
|
6.0
|
|
|
|
(10.7
|
)
|
|
|
(59.7
|
)
|
|
|
(7.2
|
)
|
U.S. dollar debt issued by a Latin American subsidiary
|
|
|
(88.7
|
)
|
|
|
11.3
|
|
|
|
(25.2
|
)
|
|
|
6.2
|
|
Swiss franc debt issued by a European subsidiary
|
|
|
|
|
|
|
15.4
|
|
|
|
|
|
|
|
21.5
|
|
Other
|
|
|
(1.3
|
)
|
|
|
1.8
|
|
|
|
10.5
|
|
|
|
(0.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
210.4
|
|
|
$
|
49.0
|
|
|
$
|
383.0
|
|
|
$
|
73.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The significant gains during the 2008 periods primarily are
related to (i) loans between our non-operating and
operating subsidiaries in Europe, which generally are
denominated in the currency of the applicable operating
subsidiary and (ii) U.S. dollar and Japanese yen
denominated loans between certain of our non-operating
subsidiaries in the U.S. and Europe. Accordingly, these gains
are a function of movements of (i) the euro against
(a) the U.S. dollar and (b) other local currencies in
Europe and (ii) the U.S. dollar and the euro against the
Japanese yen. |
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
|
|
|
Six months ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
in millions
|
|
|
Investments (a):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sumitomo
|
|
$
|
(0.6
|
)
|
|
$
|
|
|
|
$
|
(48.4
|
)
|
|
$
|
|
|
News Corp.
|
|
|
(20.4
|
)
|
|
|
|
|
|
|
(30.0
|
)
|
|
|
|
|
Other, net
|
|
|
3.0
|
|
|
|
|
|
|
|
10.1
|
|
|
|
|
|
Debt UGC Convertible Notes (b)
|
|
|
40.8
|
|
|
|
(158.6
|
)
|
|
|
113.1
|
|
|
|
(230.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
22.8
|
|
|
$
|
(158.6
|
)
|
|
$
|
44.8
|
|
|
$
|
(230.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 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. |
64
Income
tax benefit (expense)
We recognized income tax expense of $189.9 million and
income tax benefit of $60.9 million during the three months
ended June 30, 2008 and 2007, respectively.
The income tax expense for the three months ended June 30,
2008 differs from the expected income tax expense of
$256.2 million (based on the U.S. federal 35% income
tax rate) due primarily to the positive impacts of (i) a
net decrease in valuation allowances previously established
against deferred tax assets in certain tax jurisdictions and
(ii) the impact of differences in the statutory and local
tax rates in certain jurisdictions in which we operate. The
positive impacts of these items were partially offset by the
negative impacts of certain permanent differences between the
financial and tax accounting treatment of interest, dividends
and other items associated with investments in subsidiaries.
The income tax benefit for the three months ended June 30,
2007 differs from the expected income tax benefit of
$15.0 million (based on the U.S. federal 35% income
tax rate) due primarily to the tax benefits recognized in
connection with the net decrease in valuation allowances
previously established against deferred tax assets in certain
tax jurisdictions, including a tax benefit of $86.3 million
that we recognized during the second quarter of 2007 in
connection with the release of valuation allowances by Telenet.
The full amount of this benefit, which represents the portion of
Telenets tax benefit that we did not allocate to goodwill,
was allocated to the minority interest owners of Telenet. The
positive impacts of these items were partially offset by the
negative impacts of certain permanent differences between the
financial and tax accounting treatment of interest, dividends
and other items associated with intercompany loans and
investments in subsidiaries.
We recognized income tax expense of $290.8 million and
income tax benefit of $54.6 million during the six months
ended June 30, 2008 and 2007, respectively.
The income tax expense for the six months ended June 30,
2008 differs from the expected income tax expense of
$247.2 million (based on the U.S. federal 35% income
tax rate) due primarily to the negative impacts of certain
permanent differences between the financial and tax accounting
treatment of interest, dividends and other items associated with
intercompany loans and investments in subsidiaries. The negative
impacts of these items were partially offset by the positive
impacts of differences in the statutory and local tax rates in
certain jurisdictions in which we operate.
The income tax benefit for the six months ended June 30,
2007 differs from the expected income tax benefit of
$40.8 million (based on the U.S. federal 35% income
tax rate) due primarily to the tax benefits recognized in
connection with a net decrease in valuation allowances
previously established against deferred tax assets in certain
tax jurisdictions, including a tax benefit recognized by Telenet
as described above. The positive impacts of these items were
partially offset by the negative impacts of (i) the
increase of valuation allowances in other jurisdictions and
(ii) certain permanent differences between the financial
and tax accounting treatment of interest, dividends and other
items associated with intercompany loans and investments in
subsidiaries.
Minority
interests in earnings of subsidiaries, net
Our minority interests in earnings of subsidiaries, net,
decreased $33.8 million and $60.8 million during the
three and six months ended June 30, 2008, respectively, as
compared to the corresponding prior year periods. These
decreases are primarily attributable to lower earnings of
Telenet, partially offset by increased earnings of J:COM and VTR.
Net
earnings (loss)
During the three months ended June 30, 2008 and 2007, we
reported net earnings of $428.2 million and a net loss of
$129.7 million, respectively, including (i) operating
income of $364.5 million and $210.2 million,
respectively, (ii) interest expense of $290.7 million
and $226.3 million, respectively, (iii) other net
non-operating income (expense) of $658.3 million and
($26.7 million), respectively, (iv) income tax benefit
(expense) of ($189.9 million) and $60.9 million,
respectively, and (v) minority interests in earnings of
subsidiaries, net, of $114.0 million and
$147.8 million, respectively. During the six months ended
June 30, 2008 and 2007, we reported net earnings of
$272.6 million and a net loss of $265.8 million,
respectively, including (i) operating income of
65
$722.3 million and $392.0 million, respectively,
(ii) interest expense of $570.3 million and
$459.3 million, respectively, (iii) other net
non-operating income (expenses) of $554.4 million and
($49.3 million), respectively, (iv) income tax benefit
(expense) of ($290.8 million) and $54.6 million,
respectively, and (v) minority interests in earnings of
subsidiaries, net, of $143.0 million and
$203.8 million, respectively. The net earnings that we
reported during the 2008 periods are primarily attributable to
the fact that our operating income and our other net
non-operating income more than offset our interest, income tax
expense and minority interests in earnings of subsidiaries, net.
Our other net non-operating income for the 2008 periods includes
significant gains associated with changes in the fair value of
our derivative instruments and movements in foreign currency
exchange rates, both of which are subject to a high degree of
volatility, and as such, do not represent a reliable source of
income. In the absence of significant gains in the future in
connection with (i) any dispositions of assets,
(ii) changes in the fair value of our derivative
instruments, (iii) changes in foreign currency exchange
rate or (iv) other non-operating items, 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 (a) stock-based compensation expense,
(b) depreciation and amortization, (c) provisions for
litigation, (d) impairment, restructuring and other
operating charges, net, (e) interest expense,
(f) other net non-operating expenses, (g) income tax
expenses and (h) 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
condensed 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.
66
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
June 30, 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 June 30, 2008 are
set forth in the following table. With the exception of LGI and
UPC Holding, which are reported on a stand-alone basis, the
amounts 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
|
|
$
|
12.5
|
|
Non-operating subsidiaries
|
|
|
407.4
|
|
|
|
|
|
|
Total LGI and non-operating subsidiaries
|
|
|
419.9
|
|
|
|
|
|
|
Operating subsidiaries:
|
|
|
|
|
UPC Broadband Division:
|
|
|
|
|
UPC Holding
|
|
|
0.1
|
|
UPC Broadband Holding (excluding VTR)
|
|
|
139.3
|
|
J:COM
|
|
|
303.9
|
|
Telenet
|
|
|
231.8
|
|
VTR
|
|
|
91.2
|
|
Chellomedia
|
|
|
10.1
|
|
Austar
|
|
|
7.6
|
|
Liberty Puerto Rico
|
|
|
4.5
|
|
Other operating subsidiaries
|
|
|
2.5
|
|
|
|
|
|
|
Total operating subsidiaries
|
|
|
791.0
|
|
|
|
|
|
|
Total cash and cash equivalents
|
|
$
|
1,210.9
|
|
|
|
|
|
|
Liquidity
of LGI and its Non-operating Subsidiaries
The $12.5 million of cash and cash equivalents held by LGI
and, subject to certain tax considerations, the
$407.4 million of cash and cash equivalents held by
LGIs non-operating subsidiaries represented available
liquidity at the corporate level at June 30, 2008. Our
remaining cash and cash equivalents of $791.0 million at
June 30, 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 and (ii) interest and
dividend income received on our and, subject to certain tax
considerations, our non-operating subsidiaries cash and
cash equivalents and investments. LGI also has access to the LGI
Credit Facility, which provides for maximum borrowings of
$215.0 million. At June 30, 2008, the full amount of
the LGI Credit Facility had been 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 (a) the completion of recapitalizations,
refinancings, asset sales or similar transactions by these
entities or (b) the accumulation of
67
excess cash from operations or other means, (ii) proceeds
upon the disposition of investments and other assets of LGI and
its non-operating subsidiaries, (iii) proceeds received in
connection with borrowings by LGI and its non-operating
subsidiaries and (iv) proceeds received upon the exercise
of stock options. In this regard, we have received significant
cash from our subsidiaries in the form of loan repayments during
the first six 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 (i) corporate general and administrative expenses,
(ii) 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 and
(iii) commitment fees on any available borrowings 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 external funding would be
available on favorable terms, or at all.
As further described in note 10 to our condensed
consolidated financial statements, we repurchased during the
first six months of 2008 a total of 25,581,287 shares of
our LGI Series A common stock at a weighted average price
of $35.55 per share and 18,969,756 shares of our LGI
Series C common stock at a weighted average price of $34.37
per share, for an aggregate purchase price of
$1,561.3 million, including direct acquisition costs. At
June 30, 2008, the amounts authorized under the January
2008 Repurchase Plan were fully utilized. On July 30, 2008,
our board of directors authorized a new $500 million stock
repurchase program, with terms similar to that of the January
2008 Repurchase Plan. 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.
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 June 30, 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, loans to LGI, capital
distributions to LGI and other equity owners, or other
investment opportunities. In light of current market conditions,
no assurance can be given that any external 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 annualized
consolidated operating cash flow. The ratio of our June 30,
2008 consolidated debt to our annualized consolidated operating
cash flow for the quarter ended June 30, 2008 was 4.3 and
the ratio of our June 30, 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 June 30, 2008 was
3.9.
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.
68
At June 30, 2008, our outstanding consolidated debt and
capital lease obligations aggregated $19.8 billion,
including $310.8 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.
At June 30, 2008, all but $215.0 million of our
consolidated debt and capital lease obligations had been
borrowed or incurred by our subsidiaries. For additional
information concerning our debt balances at June 30, 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 our
Consolidated Operating Results above.
General. During the six months ended
June 30, 2008, we used net cash provided by our operating
activities of $1,526.7 million and $892.2 million of
our existing cash and cash equivalent balances (excluding a
$67.6 million increase due to changes in foreign currency
exchange rates) to fund net cash used by our investing
activities of $1,201.2 million and net cash used by our
financing activities of $1,217.7 million.
Operating Activities. Net cash flows from
operating activities increased $475.5 million, from
$1,051.2 million during the six months ended June 30,
2007 to $1,526.7 million during the corresponding 2008
period. This increase primarily is attributable to the net
effect of (i) an increase in the cash generated by our
video, voice and broadband internet services, (ii) an
increase associated with changes in foreign currency exchange
rates, (iii) an increase in cash received related to
certain derivative instruments and (iv) an increase in cash
paid for interest.
Investing Activities. Net cash used by
investing activities increased $107.4 million, from
$1,093.8 million during the six months ended June 30,
2007 to $1,201.2 million during the corresponding 2008
period. This increase is due primarily to a $129.6 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 $579.1 million and
$514.1 million of our consolidated capital expenditures
during the six months ended June 30, 2008 and 2007,
respectively. The increase in the capital expenditures of the
UPC Broadband Division is due primarily to the net effect of
(i) increases due to changes in foreign currency exchange
rates, (ii) decreases in expenditures for the purchase and
installation of customer premise equipment, (iii) increases
in expenditures for support capital such as information
technology upgrades and expenditures for general support systems
and (iv) decreases in expenditures for new build and
upgrade projects.
Our Telenet segment accounted for $176.3 million and
$125.1 million of our consolidated capital expenditures
during the six months ended June 30, 2008 and 2007,
respectively. Telenet uses capital lease arrangements to finance
a 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 $0.6 million and $16.0 million
of expenditures that were financed under capital lease
arrangements, Telenets capital expenditures aggregated
$176.9 million and $141.1 million during the six
months ended June 30, 2008 and 2007, respectively. The
increase in Telenets capital expenditures (including
amounts financed under capital lease arrangements) during the
2008 period primarily relates to the net effect of
(i) increases due to changes in foreign currency exchange
rates, (ii) increases in expenditures for new build and
upgrade projects to expand services, (iii) increases in
expenditures for the purchase and installation of customer
premise equipment and (iv) decreases in expenditures for
buildings and general support systems.
J:COM accounted for $164.4 million and $169.5 million
of our consolidated capital expenditures during the six months
ended June 30, 2008 and 2007, respectively. J:COM uses
capital lease arrangements to finance a significant portion of
its capital expenditures. Including $68.0 million and
$73.5 million of expenditures that were
69
financed under capital lease arrangements, J:COMs capital
expenditures aggregated $232.4 million and
$243.0 million during the six months ended June 30,
2008 and 2007, respectively. The decrease in J:COMs
capital expenditures (including amounts financed under capital
lease arrangements) is due primarily to the net effect of
(i) increases due to changes in foreign currency exchange
rates, (ii) decreases in expenditures for the purchase and
installation of customer premise equipment, (iii) decreases
in expenditures for support capital such as information
technology upgrades and expenditures for general support systems
and (iv) decreases in expenditures for new build and
upgrade projects to expand services.
VTR accounted for $91.9 million and $80.7 million of
our consolidated capital expenditures during the six months
ended June 30, 2008 and 2007, respectively. The increase in
the capital expenditures of VTR is due primarily to the net
effect of (i) increases due to changes in foreign currency
exchange rates, (ii) decreases in expenditures for the
purchase and installation of customer premise equipment,
(iii) increases in expenditures for support capital such as
information technology upgrades and expenditures for general
support systems and (iv) increases in expenditures for new
build and upgrade projects.
We expect that J:COMs full year capital expenditures
(including capital lease additions) will range between 21% and
23% of J:COMs full year 2008 revenue, as compared to the
2007 percentage of 24.7%. However, we continue to expect,
as previously disclosed in our 2007 Annual Report on
Form 10-K,
that the percentage of revenue represented by the full year 2008
capital expenditures (including capital lease additions) of the
UPC Broadband Division, Telenet and VTR will approximate the
comparable 2007 percentage for each entity.
Financing Activities. Net cash used by
financing activities was $1,217.7 million during the six
months ended June 30, 2008, compared to net cash provided
by financing activities of $646.9 million during the
corresponding period in 2007. This change primarily is
attributable to (i) a $968.2 million increase in cash
paid to repurchase our LGI Series A and Series C
common stock, (ii) a $793.8 million decrease in net
borrowings of debt and capital lease obligations and
(iii) changes in foreign currency exchange rates.
Off
Balance Sheet Arrangements
For a description of our outstanding guarantees and other off
balance sheet arrangements at June 30, 2008, see
note 13 to our condensed consolidated financial statements.
|
|
Item 3.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
|
We are exposed to market risk in the normal course of our
business operations due to our investments in various foreign
countries and ongoing investing and financial activities. Market
risk refers to the risk of loss arising from adverse changes in
foreign currency exchange rates, interest rates and stock
prices. The risk of loss can be assessed from the perspective of
adverse changes in fair values, cash flows and future earnings.
As further described below, we have established policies,
procedures and internal processes governing our management of
market risks and the use of derivative instruments to manage our
exposure to such risks.
Cash
and Investments
We invest our cash in highly liquid instruments that meet high
credit quality standards. 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 June 30,
2008, our European subsidiaries held cash balances of
$32.4 million that were denominated in euros and J:COM held
cash balances of $303.9 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 June 30, 2008,
the aggregate fair value of these investments was approximately
$682.4 million. Where appropriate, we manage our exposure
to market price fluctuations with derivative instruments such as
the Sumitomo Collar and the prepaid forward sale contract on our
News Corp. Class A common stock.
70
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
June 30, 2008, substantially all of our debt was either
directly or synthetically matched to the applicable functional
currencies of the underlying operations and 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 June 30, 2008 we were
a party to foreign currency exchange contracts covering the
forward purchase of the U.S. dollar and the forward sale of
the euro, the Japanese yen, the Chilean peso and the Australian
dollar. Other than the commitments covered by these forward
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
our comprehensive earnings and equity with respect to our
holdings solely as a result of foreign currency translation. 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 25.3% of our U.S. dollar revenue during
the three months ended June 30, 2008 and 38.5% and 25.7% of
our U.S. dollar revenue during the six months ended
June 30, 2008 were 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.
71
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:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Spot rates:
|
|
|
|
|
|
|
|
|
Euro
|
|
|
0.6355
|
|
|
|
0.6857
|
|
Swiss franc
|
|
|
1.0208
|
|
|
|
1.1360
|
|
Japanese yen
|
|
|
106.19
|
|
|
|
111.79
|
|
Chilean peso
|
|
|
524.55
|
|
|
|
498.10
|
|
Hungarian forint
|
|
|
149.67
|
|
|
|
173.30
|
|
Australian dollar
|
|
|
1.0450
|
|
|
|
1.1406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Average rates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Euro
|
|
|
0.6400
|
|
|
|
0.7417
|
|
|
|
0.6536
|
|
|
|
0.7523
|
|
Swiss franc
|
|
|
1.0319
|
|
|
|
1.2224
|
|
|
|
1.0498
|
|
|
|
1.2278
|
|
Japanese yen
|
|
|
104.66
|
|
|
|
120.81
|
|
|
|
104.95
|
|
|
|
120.10
|
|
Chilean peso
|
|
|
471.55
|
|
|
|
526.85
|
|
|
|
467.21
|
|
|
|
533.71
|
|
Hungarian forint
|
|
|
158.62
|
|
|
|
184.10
|
|
|
|
165.82
|
|
|
|
188.27
|
|
Australian dollar
|
|
|
1.0596
|
|
|
|
1.2029
|
|
|
|
1.0821
|
|
|
|
1.2375
|
|
Inflation
and Foreign Investment Risk
Our costs are subject to increasing inflationary pressures,
particularly in Romania, Slovenia, Hungary, the Czech Republic,
Chile and Belgium. While we attempt to increase our revenue to
offset increases in costs, there is no assurance that we will be
able to do so. Therefore, costs could rise faster than
associated revenue, thereby resulting in a negative impact on
operating cash flow and net earnings (loss). The economic
environment in the respective countries in which we operate is a
function of government, economic, fiscal and monetary policies
and various other factors.
Interest
Rate Risks
We are exposed to changes in interest rates primarily as a
result of our borrowing and investment activities, which include
fixed-rate and variable-rate investments and borrowings by our
operating subsidiaries that are used to maintain liquidity and
fund their respective business operations. Our primary exposure
to variable-rate debt is through the EURIBOR-indexed and
LIBOR-indexed debt of UPC Broadband Holding, the EURIBOR-indexed
debt of Telenet, the Japanese yen LIBOR-indexed and
TIBOR-indexed debt of J:COM and LGJ Holdings, the LIBOR-indexed
debt of LGI, the LIBOR-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 June 30, 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.
72
Weighted Average Variable Interest Rate. At
June, 2008, our variable rate indebtedness (exclusive of the
effects of interest rate derivative agreements) aggregated
$14.2 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
(0.50%) increase (decrease) in our weighted average variable
interest rate would increase (decrease) our annual consolidated
interest expense and cash outflows by $71.1 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 June 30, 2008 would have increased
(decreased) the aggregate fair value of the UPC Broadband
Holding cross-currency and interest rate derivative contracts by
approximately 87.3 million ($137.4 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 June 30, 2008 would have
decreased (increased) the aggregate fair value of the UPC
Broadband Holding cross-currency and interest rate derivative
contracts by approximately 340.3 million
($535.5 million), (iii) an instantaneous increase
(decrease) of 10% in the value of the Chilean peso relative to
the U.S. dollar at June 30, 2008 would have decreased
(increased) the aggregate value of the UPC Broadband Holding
cross-currency and interest rate derivative contracts by
approximately 24.8 million ($39.0 million),
(iv) an instantaneous increase in the relevant base rate of
50 basis points (0.50%) at June 30, 2008 would have
increased the aggregate fair value of the UPC Broadband Holding
cross-currency and interest rate derivative contracts by
approximately 123.6 million ($194.5 million) and
(v) an instantaneous decrease in the relevant base rate of
50 basis points (0.50%) at June 30, 2008 would have
decreased the aggregate fair value of the UPC Broadband Holding
cross-currency and interest rate derivative contracts by
approximately 110.7 million ($174.2 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 June 30, 2008 would
have decreased (increased) the aggregate fair value of the VTR
cross-currency and interest rate derivative contracts by
approximately CLP 32.1 billion ($61.1 million),
(ii) an instantaneous increase in the relevant base rate
(excluding margin) of 50 basis points (0.50%) at
June 30, 2008 would have increased the aggregate fair value
of the VTR cross-currency and interest rate derivative contracts
by approximately CLP 7.4 billion ($14.1 million) and
(iii) an instantaneous decrease in the relevant base rate
of 50 basis points (0.50%) at June 30, 2008 would have
decreased the aggregate fair value of the VTR cross-currency and
interest rate derivative contracts by approximately CLP
7.6 billion ($14.5 million).
73
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 June 30, 2008 would have increased the aggregate
fair value of the Telenet interest rate cap and interest rate
collar contracts by approximately 21.8 million
($34.3 million) and (ii) an instantaneous decrease in
the relevant base rate of 50 basis points (0.50%) at
June 30, 2008 would have decreased the aggregate fair value
of the Telenet interest rate cap and interest rate collar
contracts by approximately 25.6 million
($40.3 million).
UGC
Convertible Notes
Holding all other factors constant, (i) an instantaneous
increase of 10% in the value of the euro relative to the
U.S. dollar at June 30, 2008 would have decreased the
fair value of the UGC Convertible Notes by approximately
27.0 million ($42.5 million), (ii) an
instantaneous decrease of 10% in the value of the euro relative
to the U.S. dollar at June 30, 2008 would have
increased the fair value of the UGC Convertible Notes by
approximately 36.0 million ($56.6 million),
(iii) an instantaneous increase (decrease) in the risk free
rate of 50 basis points (0.50%) at June 30, 2008 would
have decreased (increased) the fair value of the UGC Convertible
Notes by approximately 2.5 million
($3.9 million) and (iv) an instantaneous increase
(decrease) of 10% in the combined per share market price of LGI
Series A and Series C common stock at June 30,
2008 would have increased (decreased) the fair value of the UGC
Convertible Notes by approximately 35.5 million
($55.9 million).
Sumitomo
Collar
Holding all other factors constant, (i) an instantaneous
increase of 10% in the per share market price of Sumitomos
common stock at June 30, 2008 would have decreased the
aggregate fair value of the Sumitomo Collar by approximately
¥5.2 billion ($49.0 million) and (ii) an
instantaneous decrease of 10% in the per share market price of
Sumitomos common stock at June 30, 2008 would have
increased the aggregate fair value of the Sumitomo Collar by
approximately ¥6.2 billion ($58.4 million).
Holding all other factors constant, an instantaneous increase
(decrease) in the Japanese yen risk-free rate of 50 basis
points (0.50%) at June 30, 2008 would have decreased
(increased) the value of the Sumitomo Collar by
¥3.6 billion ($33.9 million).
|
|
Item 4.
|
CONTROLS
AND PROCEDURES.
|
|
|
(a)
|
Evaluation
of disclosure controls and procedures
|
In accordance with Exchange Act
Rule 13a-15,
we carried out an evaluation, under the supervision and with the
participation of management, including our chief executive
officer, principal accounting officer, and principal financial
officer (the Executives), of the effectiveness of our disclosure
controls and procedures as of June 30, 2008. In designing
and evaluating the disclosure controls and procedures, the
Executives recognize that any controls and procedures, no matter
how well designed and operated, can provide only reasonable
assurance of achieving the desired control objectives, and
management is necessarily required to apply judgment in
evaluating the cost-benefit relationship of possible controls
and objectives. Based on that evaluation, the Executives
concluded that our disclosure controls and procedures are
effective as of June 30, 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.
|
|
(c)
|
Changes
in internal control over financial reporting
|
There have been no changes in our internal controls over
financial reporting identified in connection with the evaluation
described above that occurred during the fiscal quarter covered
by this Quarterly Report on
Form 10-Q
that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
74
PART II
OTHER INFORMATION
|
|
Item 1.
|
LEGAL
PROCEEDINGS.
|
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. The
capitalized terms used below have been defined in the notes to
our condensed consolidated financial statements.
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, our predecessor and one
of our subsidiaries, of the LGI Combination. The defendants
named in these actions included UGC, former directors of UGC,
and LGI International. The allegations in each of the
complaints, which were substantially similar, asserted that the
defendants breached their fiduciary duties of loyalty, care,
good faith and candor and that various defendants 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 sought
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. On April 20, 2005, the Denver
District Court, State of Colorado, issued an order granting a
joint stipulation for stay of the action filed in that court
pending the final resolution of the consolidated action in
Delaware. On January 7, 2008, the Delaware Court of
Chancery 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 Court of Chancery. Following the
settlement hearing on May 16, 2008, the Delaware Court of
Chancery entered an order and judgment, which became final and
non-appealable on June 16, 2008, approving the terms of the
stipulation of settlement and releasing all claims relating to
the LGI Combination which were or could have been raised by the
UGC public stockholders against the defendants and other
released persons. Pursuant to the settlement stipulation, on
May 19, 2008, LGI International transferred
$25 million to an escrow account for distribution to
certain members of the plaintiff class of the net amount
remaining after the payment of the fee award to plaintiffs
counsel and settlement administration costs. The stayed action
in Denver District Court, State of Colorado, was voluntarily
dismissed with prejudice on July 1, 2008. All of the
actions having been terminated, this matter will not be reported
in future quarters.
75
|
|
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 June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total number
|
|
|
|
|
|
|
|
|
of shares
|
|
Approximate
|
|
|
|
|
|
|
purchased as
|
|
dollar value of
|
|
|
|
|
|
|
part of publicly
|
|
shares that may yet
|
|
|
Total number of
|
|
Average price
|
|
announced plans
|
|
be purchased under
|
Period
|
|
shares purchased
|
|
paid per share (a)
|
|
or programs
|
|
the plans or programs
|
|
April 1, 2008 through April 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A
|
|
|
3,610,301
|
|
|
$
|
34.56
|
|
|
|
3,610,301
|
|
|
|
(b)
|
|
Series C
|
|
|
2,188,473
|
|
|
$
|
32.90
|
|
|
|
2,188,473
|
|
|
|
(b)
|
|
May 1, 2008 through May 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A
|
|
|
7,874,679
|
|
|
$
|
35.37
|
|
|
|
7,874,679
|
|
|
|
(b)
|
|
Series C
|
|
|
3,712,000
|
|
|
$
|
33.49
|
|
|
|
3,712,000
|
|
|
|
(b)
|
|
June 1, 2008 through June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A
|
|
|
5,120,000
|
|
|
$
|
33.85
|
|
|
|
5,120,000
|
|
|
|
(b)
|
|
Series C
|
|
|
2,238,700
|
|
|
$
|
32.23
|
|
|
|
2,238,700
|
|
|
|
(b)
|
|
Total April 1, 2008 through June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A
|
|
|
16,604,980
|
|
|
$
|
34.73
|
|
|
|
16,604,980
|
|
|
|
(b)
|
|
Series C
|
|
|
8,139,173
|
|
|
$
|
32.99
|
|
|
|
8,139,173
|
|
|
|
(b)
|
|
|
|
|
(a) |
|
Average price paid per share includes direct acquisition costs
where applicable. |
|
(b) |
|
At June 30, 2008, the amounts authorized under our January
2008 repurchase plan were fully utilized. On July 30, 2008,
our board of directors authorized a new $500 million stock
repurchase program, with terms similar to that of our January
2008 repurchase plan. 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. |
In addition to the shares listed in the table above,
19,851 shares of LGI Series A common stock and
23,692 shares of LGI Series C common stock were
surrendered during the second 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.
76
|
|
Item 4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITIES HOLDERS
|
On June 12, 2008, we held our annual meeting of
stockholders. At the annual meeting, two matters were considered
and acted upon: (i) the elections of four directors to
serve as Class III members of our Board until the 2011
annual meeting of stockholders or until their respective
successors are elected and (ii) the ratification of the
selection of KPMG LLP as our independent auditors for the year
ending December 31, 2008. Each of the proposals was
adopted. The following is a summary of the votes for each
proposal:
Election
of Michael T. Fries as Director
|
|
|
|
|
|
|
|
|
|
|
For
|
|
|
Withheld
|
|
|
Series A
|
|
|
146,542,568
|
|
|
|
2,250,796
|
|
Series B
|
|
|
70,194,690
|
|
|
|
218,630
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
216,737,258
|
|
|
|
2,469,426
|
|
|
|
|
|
|
|
|
|
|
Election
of Paul A. Gould as Director
|
|
|
|
|
|
|
|
|
|
|
For
|
|
|
Withheld
|
|
|
Series A
|
|
|
135,701,977
|
|
|
|
13,091,387
|
|
Series B
|
|
|
70,184,010
|
|
|
|
229,310
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
205,885,987
|
|
|
|
13,320,697
|
|
|
|
|
|
|
|
|
|
|
Election
of John C. Malone as Director
|
|
|
|
|
|
|
|
|
|
|
For
|
|
|
Withheld
|
|
|
Series A
|
|
|
118,211,550
|
|
|
|
30,581,814
|
|
Series B
|
|
|
70,160,550
|
|
|
|
252,770
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
188,372,100
|
|
|
|
30,834,584
|
|
|
|
|
|
|
|
|
|
|
Election
of Larry E. Romrell as Director
|
|
|
|
|
|
|
|
|
|
|
For
|
|
|
Withheld
|
|
|
Series A
|
|
|
138,147,016
|
|
|
|
10,646,348
|
|
Series B
|
|
|
70,183,110
|
|
|
|
230,210
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
208,330,126
|
|
|
|
10,876,558
|
|
|
|
|
|
|
|
|
|
|
Ratification
of KPMG LLP as independent auditors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broker
|
|
|
|
For
|
|
|
Against
|
|
|
Abstentions
|
|
|
Non-Votes
|
|
|
Series A
|
|
|
147,097,027
|
|
|
|
1,267,363
|
|
|
|
428,974
|
|
|
|
|
|
Series B
|
|
|
70,372,620
|
|
|
|
37,720
|
|
|
|
2,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
217,469,647
|
|
|
|
1,305,083
|
|
|
|
431,954
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77
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 Nonemployee Director Incentive Plan (As
Amended and Restated Effective November 1, 2006) (the
Director Plan)*
|
|
10
|
.2
|
|
Form of Non-Qualified Stock Option Agreement under the Director
Plan*
|
|
10
|
.3
|
|
Form of Termination Agreement relating to Aircraft Time Sharing
Agreement*
|
|
10
|
.4
|
|
Form of Verification of Incentive Award Terms under the Liberty
Global, Inc. 2005 Incentive Plan (as Amended and Restated
Effective October 31, 2006)*
|
|
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*
|
78
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: August 5, 2008
|
|
/s/ Michael
T. Fries
|
|
|
|
|
|
Michael T. Fries
President and Chief Executive Officer
|
|
|
|
Dated: August 5, 2008
|
|
/s/ Charles
H.R. Bracken
|
|
|
|
|
|
Charles H.R. Bracken
Senior Vice President and Co-Chief
Financial Officer (Principal Financial Officer)
|
|
|
|
Dated: August 5, 2008
|
|
/s/ Bernard
G. Dvorak
|
|
|
|
|
|
Bernard G. Dvorak
Senior Vice President and Co-Chief
Financial Officer (Principal Accounting Officer)
|
79
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 Nonemployee Director
Incentive Plan (As Amended and Restated Effective November 1, 2006) (the Director Plan)* |
|
|
|
10.2
|
|
Form of Non-Qualified Stock Option Agreement under the Director Plan* |
|
|
|
10.3
|
|
Form of Termination Agreement relating to Aircraft Time Sharing Agreement* |
|
|
|
10.4
|
|
Form of Verification of Incentive Award Terms under the Liberty Global, Inc. 2005 Incentive Plan (as Amended and Restated Effective October 31, 2006)* |
|
|
|
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* |