prem14a
SCHEDULE 14A
INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant: þ
Filed by a Party other than
the
Registrant: o
Check the appropriate box:
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þ |
Preliminary Proxy Statement |
o |
Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
o |
Definitive Proxy Statement |
o |
Definitive Additional Materials |
o |
Soliciting Material Under Rule 14a-12 |
UnitedGlobalCom, Inc.
(Name of Registrant as Specified in its Charter)
N/A
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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þ |
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
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(1) |
Title of each class of securities to which transaction applies:
Liberty Media International, Inc. Series A Common Stock, par value $.01 per share
Liberty Media International, Inc. Series B Common Stock, par value $.01 per share
UnitedGlobalCom, Inc. Class A Common Stock, par value $.01 per share
UnitedGlobalCom, Inc. Class C Common Stock, par value $.01 per share |
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(2) |
Aggregate number of securities to which transaction applies:
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As of December 31, 2004, (1) 167,205,861 outstanding shares of LMI Series A Common Stock, which
include options to acquire 1,690,899 shares of LMI Series A Common Stock, (2) 10,331,016 outstanding shares of LMI Series B Common Stock, which include options to acquire 3,066,716 shares of LMI Series B
Common Stock, (3) 429,845,505 outstanding shares of UGC Class A Common Stock, which include (x) equity
incentive awards to acquire 48,617,610 shares of UGC Class A Common Stock, (y) 1,629,284 shares of UGC
Class A Common Stock placed in escrow in connection with a pending transaction and (z) 15,396,224
shares of UGC Class A Common Stock reserved for issuance in connection with certain outstanding claims,
and (4) 2,141,272 outstanding shares of UGC Class C Common Stock.
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(3) |
Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state
how it was determined):
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Based upon the averages of the high and low prices reported for the LMI Series A Common Stock,
LMI Series B Common Stock and UGC Class A Common Stock, respectively, on the Nasdaq National Market on
February 10, 2005, which were $44.54, $47.18 and $9.64, respectively. The filing fee is being
calculated based upon an aggregate transaction value of
$12,099,118,914.10, which is obtained by: (1)
multiplying (x) the number of outstanding shares of LMI Series A Common Stock listed above by (y)
$44.54, and (2) adding thereto the product of (x) the number of outstanding shares of LMI Series B
Common Stock listed above and (y) $47.18, and (3) adding thereto the product of (x) the number of
outstanding shares of UGC Class A Common Stock listed above and (y) $9.64, and (4) adding thereto the
product of (x) the number of outstanding shares of UGC Class C Common Stock listed above and (y) $9.64
(shares of UGC Class C Common Stock are not publicly traded, but they are convertible at the option of
the holder into shares of UGC Class A Common Stock, on a one-to-one basis).
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(4) |
Proposed maximum aggregate value of transaction:
$12,099,118,914.10 |
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(5) |
Total fee paid: |
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$1,424,066.30, estimated pursuant to Section 14(g) of the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder, on the basis of $117.70 per million of the estimated
maximum aggregate value of the transaction. |
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o |
Fee paid previously with preliminary materials. |
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þ |
Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2)
and identify the filing for which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the form or schedule and the date of its
filing. |
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(1) |
Amount previously paid: $1,424,066.30 |
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(2) |
Form, schedule or registration statement no.:
Schedule 14A |
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(3) |
Filing party: Liberty Media International, Inc. |
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(4) |
Date filed: February 14, 2005
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The information in this joint proxy statement/prospectus is not complete and may be changed. We
may not sell the securities offered by this joint proxy statement/prospectus until the registration
statement filed with the Securities and Exchange Commission is effective. This joint proxy
statement/prospectus does not constitute an offer to sell or a solicitation of an offer to buy any
securities in any jurisdiction where an offer or solicitation is not permitted.
Subject to completion dated February 14, 2005
[ ], 2005
To the stockholders of Liberty Media International, Inc. and UnitedGlobalCom, Inc.:
Liberty Media International, Inc. (LMI) and UnitedGlobalCom, Inc. (UGC) have entered into a
merger agreement providing for the combination of our two companies under a new parent company
named Liberty Global, Inc. The combination of our two companies will create a global broadband
company with significant scale outside of the United States. LMI and UGC will each designate
one-half of the directors of Liberty Global, and the senior management of Liberty Global will
consist of senior executives of LMI and UGC.
LMI currently controls UGC. In the mergers combining LMI and UGC:
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LMI stockholders will receive, for each share of LMI Series A or Series B
common stock they own, one share of the corresponding series of Liberty Global
stock; and |
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UGC stockholders (other than LMI and its wholly owned subsidiaries) will have
the right to elect to receive, for each share of UGC common stock they own, 0.2155
of a share of Liberty Global Series A common stock or $9.58 in cash. The cash
election will be subject to proration, so that the total cash consideration paid
does not exceed 20% of the aggregate value of the merger consideration payable to
the public stockholders of UGC. |
The exchange ratios at which LMI shares and UGC shares will be converted into Liberty Global
shares are fixed, and there will be no adjustment in the exchange ratios for any changes in the
market price of either the LMI or UGC common stock. Depending on the number of UGC stockholders
who make the cash election, we estimate that former UGC stockholders will own between 27% and 31%
of the equity and between 21% and 25% of the aggregate voting power of Liberty Global, with the
remaining percentages of equity and voting power being owned by the former LMI stockholders (based
upon the LMI Series A closing stock price on February 7, 2005 and outstanding share information for
UGC as of December 31, 2004). It is anticipated that Liberty Global Series A and Series B common
stock will be listed on the Nasdaq National Market.
LMI and UGC are each calling special meetings of their stockholders to consider and vote on
the merger agreement and the mergers. Information concerning the date, time and place of the LMI
and UGC special meetings can be found in the accompanying Notice of Special Meeting of Stockholders
of LMI and Notice of Special Meeting of Stockholders of UGC, respectively.
The board of directors of LMI has approved the merger agreement and the merger involving LMI
and recommends that LMI stockholders vote FOR the adoption of the merger agreement, and the board
of directors of UGC has approved the merger agreement and the merger involving UGC and recommends
that UGC stockholders vote FOR the adoption of the merger agreement. In approving the merger
agreement and making its recommendation, the UGC board considered (1) the unanimous determination
of a special committee of members of the UGC board (who are independent under the rules of the
Nasdaq Stock Market and have no relationship with LMI or any of its affiliates that the special
committee viewed as undermining its independence) that the merger agreement and the UGC merger are
fair to, and in the best interests of, UGC stockholders (other than LMI and its affiliates) and (2)
the approval by the special committee of the merger agreement in compliance with the rules of the
Nasdaq Stock Market. The special committee was formed in compliance with the rules of the
Nasdaq Stock Market for purposes of negotiating exclusively on UGCs behalf any transaction with
LMI.
Your vote is very important, regardless of the number of shares you own. Whether or not you
plan to attend either special meeting, please vote as soon as possible to make sure that your
shares are represented. If you do not vote, it will have the same effect as a vote AGAINST the
adoption of the merger agreement.
We are very excited about the prospective business combination of our companies, and we look
forward to obtaining your approval at the special meetings.
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Sincerely,
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Sincerely, |
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John C. Malone
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Gene W. Schneider |
Chairman
of the Board, Chief Executive Officer
and President
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Chairman of the Board
UnitedGlobalCom, Inc. |
Liberty Media International, Inc. |
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Neither the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of the mergers or the securities being offered in the mergers, has passed
upon the merits or fairness of the mergers or passed upon the adequacy or accuracy of the
disclosure in this booklet. Any representation to the contrary is a criminal offense.
The accompanying joint proxy statement/prospectus is dated [___], 2005 and is first
being mailed on or about [___], 2005 to stockholders of record as of [___], 2005.
REFERENCES TO ADDITIONAL INFORMATION
LMI and UGC are each subject to the information and reporting requirements of the Securities
Exchange Act of 1934 and, in accordance with the Exchange Act, LMI and UGC each file periodic
reports and other information with the Securities and Exchange Commission. In addition, this joint
proxy statement/prospectus incorporates important business and financial information about UGC from
other documents that are not included in or delivered with this joint proxy statement/prospectus.
This information is available to you without charge upon your written or oral request. You can
obtain copies of documents filed by LMI and UGC with the Securities and Exchange Commission,
including the UGC documents incorporated by reference in this joint proxy statement/prospectus,
through the Securities and Exchange Commission website at http://www.sec.gov or by contacting LMI
or UGC, as applicable, by writing or telephoning the office of Investor Relations:
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Liberty Media International, Inc.
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UnitedGlobalCom, Inc. |
12300 Liberty Boulevard
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4643 South Ulster Street, Suite 1300 |
Englewood, Colorado 80112
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Denver, Colorado 80237 |
Telephone: (877) 783-7676
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Telephone: (303) 770-4001 |
If you would like to request any documents, please do so by [___], 2005 in order to
receive them before the special meetings. If you request any documents, they will be mailed to
you by first class mail, or another equally prompt means, within one business day after your
request is received.
See
Additional Information Where You Can Find More
Information beginning on page 148.
[LMI LOGO]
LIBERTY MEDIA INTERNATIONAL, INC.
Notice of Special Meeting of Stockholders
to be Held [_________], 2005
Dear Liberty Media International, Inc. Stockholder:
You are cordially invited to attend, and notice is hereby given of, a special meeting of
stockholders of Liberty Media International, Inc. (LMI) to be held at [___], on
[___], 2005 at [___] a.m., local time, for the following purposes:
1. To consider and vote upon a proposal (which we refer to as the merger proposal) to adopt
the Agreement and Plan of Merger, dated as of January 17, 2005, among LMI, UnitedGlobalCom, Inc.
(UGC), Liberty Global, Inc. and two subsidiaries of Liberty Global pursuant to which, among other
things, LMI and UGC would become wholly owned subsidiaries of Liberty Global and each outstanding
share of LMI common stock would be exchanged for one share of the corresponding series of Liberty
Global common stock; and
2. To transact such other business as may properly be presented at the meeting or any
postponements or adjournments of the meeting.
The approval of the merger proposal requires the affirmative vote of the holders of at least a
majority of the aggregate voting power of the outstanding shares of LMI common stock, voting
together as a single class. Holders of record of LMI common stock as of 5:00 p.m., New York City
time, on [___], 2005, the record date for the LMI special meeting, will be entitled to notice of
and to vote at that meeting or any adjournment or postponement thereof. A list of stockholders
entitled to vote at the LMI special meeting will be available at the office of LMI for review by
any LMI stockholder, for any purpose germane to the LMI special meeting, for at least 10 days prior
to the LMI special meeting.
Pursuant to a voting agreement entered into between John C. Malone, the Chairman of the Board,
Chief Executive Officer and President of LMI, and UGC, Mr. Malone has agreed to vote the shares of
LMI Series A common stock and LMI Series B common stock owned by him or which he has the right to
vote (currently representing approximately 26.5% of the outstanding voting power of LMI) FOR the
merger proposal.
We describe the merger proposal in more detail in the accompanying joint proxy
statement/prospectus. We encourage you to read the joint proxy statement/prospectus in its entirety
before voting.
The board of directors of LMI unanimously recommends that you vote FOR the approval of the
merger proposal.
Your vote is very important, regardless of the number of shares you own. To make sure your
shares are represented at the meeting, please vote as soon as possible, whether or not you plan to
attend the meeting. You may vote by proxy in any one of the following ways:
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Use the toll-free telephone number shown on the proxy card; |
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Use the internet website shown on the proxy card; or |
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Complete, sign, date and promptly return the enclosed proxy card in the postage-paid
envelope. It requires no postage if mailed in the United States. |
You may revoke your proxy in the manner described in the accompanying joint proxy
statement/prospectus. If you attend the LMI special meeting, you may vote your shares in person
even if you have previously submitted a proxy.
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By Order of the Board of Directors, |
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Elizabeth M. Markowski
Secretary |
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Englewood, Colorado
[ ], 2005 |
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PLEASE COMPLETE, EXECUTE AND RETURN THE ENCLOSED PROXY CARD PROMPTLY OR VOTE BY TELEPHONE OR
OVER THE INTERNET, WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE LMI SPECIAL MEETING. IF YOU HAVE
ANY QUESTIONS ABOUT THE MERGER PROPOSAL OR ABOUT VOTING YOUR LMI SHARES, PLEASE CALL D.F. KING &
CO. AT [ ].
[UGC LOGO]
UNITEDGLOBALCOM, INC.
Notice of Special Meeting of Stockholders
to be Held [_________], 2005
Dear UnitedGlobalCom, Inc. Stockholder:
You are cordially invited to attend, and notice is hereby given of, a special meeting of
stockholders of UnitedGlobalCom, Inc. (UGC) to be held at [ ], on [ ], 2005 at
[ ] a.m., local time, for the following purposes:
1. To consider and vote upon a proposal (which we refer to as the merger proposal) to adopt
the Agreement and Plan of Merger, dated as of January 17, 2005, among Liberty Media International,
Inc. (LMI), UGC, Liberty Global, Inc. and two subsidiaries of Liberty Global pursuant to which,
among other things, UGC and LMI would become wholly owned subsidiaries of Liberty Global and UGC
stockholders (other than LMI and its wholly owned subsidiaries) would have the right to elect to
receive, for each share of UGC common stock they own, 0.2155 of a share of Liberty Global Series A
common stock or $9.58 in cash (with the cash election subject to proration so that the total cash
consideration paid does not exceed 20% of the aggregate value of the merger consideration payable
to the public stockholders of UGC); and
2. To transact such other business as may properly be presented at the meeting or any
postponements or adjournments of the meeting.
The approval of the merger proposal requires a vote of the holders of UGC common stock, with
all classes voting together as a single class, that satisfies two criteria:
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first, the merger proposal must be approved by the affirmative vote of the
holders of at least a majority of the aggregate voting power of the
outstanding shares of UGC common stock; and |
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second, the merger proposal must be approved by the affirmative vote of the
holders of at least a majority of the aggregate voting power of the
outstanding shares of UGC common stock, exclusive of the shares beneficially owned by LMI,
Liberty Media Corporation (Liberty) or any of their respective subsidiaries or any
of the executive officers or directors of LMI, Liberty or UGC. |
As LMI has agreed in the merger agreement to vote its UGC shares (representing approximately 91% in
aggregate UGC voting power) FOR the merger proposal, the first criteria will be met.
Holders of record of UGC common stock as of 5:00 p.m., New York City time, on [___],
2005, the record date of the UGC special meeting, will be entitled to notice of and to vote at that
meeting or at any adjournment or postponement thereof. A list of stockholders entitled to vote at
the UGC special meeting will be available at UGCs office for review by any UGC stockholder, for
any purpose germane to the UGC special meeting, for at least 10 days prior to the UGC special
meeting.
We describe the merger proposal in more detail in the accompanying joint proxy
statement/prospectus. We encourage you to read the joint proxy statement/prospectus in its entirety
before voting.
The board of directors of UGC, after consideration of the favorable recommendation of, and
approval of the merger agreement in compliance with the rules of the Nasdaq Stock Market by, a
special committee of independent directors of the UGC board, unanimously recommends that you vote
FOR the approval of the merger proposal.
Your vote is very important, regardless of the number of shares you own. To make sure your
shares are represented at the meeting, please vote as soon as possible, whether or not you plan to
attend the meeting. You may vote by proxy in any one of the following ways:
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Use the toll-free telephone number shown on the proxy card; |
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Use the internet website shown on the proxy card; or |
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Complete, sign, date and promptly return the enclosed proxy card in the postage-paid
envelope. It requires no postage if mailed in the United States. |
You may revoke your proxy in the manner described in the accompanying joint proxy
statement/prospectus. If you attend the UGC special meeting, you may vote your shares in person
even if you have previously submitted a proxy.
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By Order of the Board of Directors, |
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Ellen P. Spangler |
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Secretary |
Denver, Colorado
[ ], 2005 |
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PLEASE COMPLETE, EXECUTE AND RETURN THE ENCLOSED PROXY CARD PROMPTLY OR VOTE BY TELEPHONE OR
OVER THE INTERNET, WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE UGC SPECIAL MEETING. IF YOU HAVE
ANY QUESTIONS ABOUT THE MERGER PROPOSAL OR ABOUT VOTING YOUR UGC SHARES, PLEASE CALL D.F. KING &
CO. AT [ ].
TABLE OF
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APPENDIX
A: |
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Information Concerning Liberty Media International, Inc. |
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Part 1:
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Description of Business |
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Part 2:
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Certain Relationships and Related Party Transactions |
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Part 3:
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Managements Discussion and Analysis of Financial Condition
and Results of Operations and Quantitative and Qualitative Disclosures About Market Risk |
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Part 4:
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Historical Financial Statements of LMI and its Significant Affiliates and Acquirees |
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APPENDIX
B: |
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Agreement and Plan of Merger |
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APPENDIX
C: |
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Voting Agreement |
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APPENDIX
D: |
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Opinion of Morgan Stanley & Co. Incorporated |
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APPENDIX
E: |
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Opinion of Banc of America Securities LLC |
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APPENDIX
F: |
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Form of Restated Certificate of Incorporation of Liberty Global, Inc. |
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APPENDIX
G: |
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Form of Bylaws of Liberty Global, Inc. |
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APPENDIX
H: |
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Section 262 of the
Delaware General Corporation Law |
iii
QUESTIONS AND ANSWERS ABOUT THE MERGERS
The questions and answers below highlight only selected information from this joint proxy
statement/prospectus. They do not contain all of the information that may be important to you. You
should read carefully the entire joint proxy statement/prospectus, including the appendices
included herein, and the additional documents incorporated by reference in this joint proxy
statement/prospectus to fully understand the matters being considered at the special meetings.
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Q: |
What is the proposed transaction for which I am being asked to vote? |
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A: |
LMI and UGC have agreed to combine their businesses by each merging with a separate wholly
owned subsidiary of a new parent company named Liberty Global, Inc. The merger involving LMI
requires the approval of the stockholders of LMI, while the merger involving UGC requires the
approval of the stockholders of UGC (including a majority of the minority approval).
Stockholders of LMI and stockholders of UGC (other than LMI and its wholly owned subsidiaries)
would become stockholders of Liberty Global. |
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Q: |
What will holders of LMI common stock receive as a result of the mergers? |
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A: |
Each share of LMI Series A common stock or LMI Series B common stock owned by an LMI
stockholder will be exchanged for one share of the corresponding series of Liberty Global
common stock. Each series of Liberty Global common stock will have the same rights, powers
and preferences as the corresponding series of LMI common stock. |
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Q: |
What will holders of UGC common stock receive as a result of the mergers? |
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A: |
Stockholders of UGC (other than LMI and its wholly owned subsidiaries) may elect to receive,
for each share of UGC common stock owned by them, either: |
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0.2155 of a share of Series A common stock of Liberty Global (plus cash in lieu
of any fractional share interest), which we refer to as the stock election; or |
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$9.58 in cash, without interest, which we refer to as the cash election. |
UGC stockholders who make the cash election will be subject to proration so that, in the
aggregate, the cash consideration paid to UGC stockholders does not exceed 20% of the aggregate
value of the merger consideration payable to UGCs public stockholders. If proration is made, any
share as to which a UGC stockholder elected to receive cash but with respect to which such
election is denied due to proration will be converted into 0.2155 of a share of Series A common
stock of Liberty Global (plus cash in lieu of any fractional share interest). See The
Transaction Agreements Merger Agreement UGC Stockholders Making Stock and Cash Elections;
Proration.
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Q: |
Where will Liberty Global common stock trade? |
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A: |
We expect Liberty Global Series A common stock and Liberty Global Series B common stock to
trade on the Nasdaq Stock Market under the symbols [___] and [___], respectively,
following the mergers. |
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Q: |
How do UGC stockholders make their cash election or stock election? |
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A: |
A form of election is included with the joint proxy statement/prospectus mailed to UGC
stockholders. To make a cash election or a stock election, UGC stockholders must properly
complete, sign and send the form of election, together with the shares of UGC common stock as
to which the election relates, to EquiServe Trust Company N.A., the exchange agent, at the
following address: |
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EquiServe Trust Company N.A. |
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[_________] |
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[_________] |
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Questions regarding the cash or stock elections should be directed to D.F. King & Co. at: |
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[_________] |
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[_________] |
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The exchange agent must receive the form of election and stock certificates (or book-entry shares) by the election deadline. The election deadline will be 5:00 p.m., New York City time,
on [_______], 2005, which we will extend if the mergers are not expected to be completed on or
before the fourth business day after the initial election deadline.
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If you own shares of UGC common stock in street name through a broker, bank or other nominee
and you wish to make an election, you should seek instructions from the broker, bank or other
nominee holding your shares concerning how to make a valid election.
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Q: |
May UGC stockholders make the cash election for some of their UGC shares and the stock
election for other UGC shares they own? |
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A: |
Yes. UGC stockholders who properly complete the form of election may make the cash election
for some of their shares and the stock election for other UGC shares they own. As mentioned
above, a UGC stockholder who makes a cash election will be subject to possible proration. |
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Q: |
May UGC stockholders change their election after they have submitted their form of election? |
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A: |
Yes, as long as the exchange agent receives from the stockholder, before the election
deadline, a written notice of revocation or a new election form. If an election form was
submitted by a broker, bank or other nominee, that person should be contacted as to how to
revoke or change the election submitted by them. |
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Q: |
Where can UGC stockholders obtain additional forms of election? |
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A: |
Additional forms of election can be obtained by calling EquiServe Trust Company N.A. at [________]. |
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Q: |
May UGC stockholders trade their shares of UGC common stock after making an election and
submitting their shares to the exchange agent? |
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A: |
No. UGC stockholders will be unable to sell or otherwise transfer their shares of UGC common
stock once they have been submitted to the exchange agent in connection with their election,
unless and until their election is revoked and their shares are returned to them. The
exchange agent will promptly return shares of UGC common stock following receipt of a written
notice of revocation as to those shares or if the merger agreement is terminated. |
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Q: |
What if a UGC stockholder fails to timely submit an election form? |
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A: |
If the exchange agent does not receive a properly completed form of election from a UGC
stockholder before the election deadline, together with the shares of UGC common stock as to
which the election relates, then that stockholder will be treated as though he or she made the
stock election. UGC stockholders bear the risk of delivery and should send their election
form and stock certificates by courier or by hand to the appropriate addresses shown in the
form of election. UGC stockholders who hold their shares in street name should promptly
contact their broker, bank or other nominee as to their choice of election to ensure that
their election and shares of UGC stock are timely received by the exchange agent. |
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Q: |
May a UGC stockholder who votes against the UGC merger submit a form of election? |
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A: |
Yes. Irrespective of the manner in which a UGC stockholder votes on the merger proposal,
that stockholder should submit a form of election in the event the merger proposal is adopted.
UGC stockholders who do not make an election will not be entitled to any portion of the cash
consideration and will be treated as though they had made the stock election as to all of
their shares of UGC common stock. |
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Q: |
Can LMI stockholders make the cash election? |
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A: |
No. If the mergers are approved, each share of LMI Series A common stock or LMI Series B
common stock owned by an LMI stockholder will be exchanged for one share of the corresponding
series of Liberty Global common stock. Because LMI stockholders do not have an election, they
will not receive an election form with the joint proxy statement/prospectus mailed to them. |
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Q: |
What stockholder approvals are required to approve the merger proposal? |
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A: |
In order for the mergers to occur, the LMI stockholders must approve the merger proposal at
the LMI special meeting and the UGC stockholders must approve the merger proposal at the UGC
special meeting. |
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For LMI, the approval of the merger proposal requires the affirmative vote of the
holders of at least a majority of the aggregate voting power of the shares of LMI common
stock outstanding on the record date for the LMI special meeting, voting together as a
single class. |
Pursuant to a voting agreement entered into between John C. Malone, the Chairman of the
Board, Chief Executive Officer and President of LMI, and UGC, Mr. Malone has agreed to
vote the shares of LMI Series A common stock and LMI Series B common stock owned by him
or which he has the right to vote (currently representing approximately 26.5% of the
aggregate voting power of LMI) in favor of the approval of the merger proposal. See The
Transaction Agreements Voting Agreement.
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For UGC, the approval of the merger proposal requires a vote of the holders of the shares of UGC common stock outstanding on the record date for the UGC special meeting, with all classes voting together as a single class, that satisfies two criteria: |
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first, the merger proposal must be approved by the affirmative vote of the holders of at least a majority of the aggregate voting power of the outstanding shares of UGC common stock, which we refer to as the statutory approval; and |
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second, the merger proposal must be approved by the affirmative vote of the holders of at least a majority of the aggregate voting power of the outstanding shares of UGC common stock, exclusive of shares beneficially owned by LMI, Liberty Media Corporation (Liberty) or any of their respective subsidiaries or any of the executive officers or directors of LMI, Liberty or UGC, which we refer to as the minority approval. |
LMI, which currently beneficially owns shares of UGC common stock representing approximately 91%
of the aggregate voting power of all UGC shares, has agreed in the merger agreement to vote those
shares in favor of the merger proposal. As a result, the statutory approval is assured. However,
because LMIs shares do not count for purposes of the minority approval, approval of the merger
proposal at the UGC special meeting is dependent upon the vote of the public stockholders of UGC.
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Q: |
What do LMI and UGC stockholders need to do to vote? |
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A: |
After carefully reading and considering the information contained in this joint proxy
statement/prospectus, LMI and UGC stockholders should complete, sign and date their proxy card
and mail it in the enclosed return envelope, or vote by the telephone or through the Internet,
in each case as soon as possible so that their shares are represented and voted at the
applicable special meeting. Stockholders who have shares registered in the name of |
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a broker, bank or other nominee should follow the voting instruction card provided by their
broker, bank or other nominee in instructing them how to vote their shares. |
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Q: |
If shares are held in street name by a broker, bank or other nominee, will the broker, bank
or other nominee vote those shares for the beneficial owner? |
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A: |
If you hold your shares in street name and do not provide voting instructions to your broker,
bank or other nominee, your shares will not be voted on the merger proposal. Accordingly,
your broker, bank or other nominee will vote your shares held by it in street name only if
you provide instructions to it on how to vote. You should follow the directions your broker,
bank or other nominee provides to you regarding how you would like them to vote your shares. |
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Q: |
What if an LMI or UGC stockholder does not vote on the merger proposal? |
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A: |
If you fail to respond with a vote on the merger proposal, it will have the same effect as a
vote AGAINST the merger proposal. If you respond but do not indicate how you want to vote,
your proxy will be counted as a vote FOR the merger proposal. If you respond and indicate
that you are abstaining from voting, your proxy will have the same effect as a vote AGAINST
the merger proposal. |
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Q: |
May stockholders change their vote after returning a proxy card or voting by telephone or
over the Internet? |
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A: |
Yes. Before their proxy is voted, LMI or UGC stockholders who want to change their vote may
do so by telephone or over the Internet (if they originally voted by telephone or over the
Internet), by voting in person at the applicable special meeting or by delivering a signed
proxy revocation or a new signed proxy with a later date to the address below: |
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in the case of an LMI stockholder, to: Liberty Media International, Inc., c/o
EquiServe Trust Company, N.A., P.O. Box [___], Edison, New Jersey 08818-[___]; and |
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in the case of a UGC stockholder, to: UnitedGlobalCom, Inc., c/o Mellon Investor
Services LLC, Proxy Processing, P.O. Box [___], South Hackensack, New Jersey
07606-[___]. |
Any signed proxy revocation or new signed proxy must be received before the start of the
applicable special meeting. Your attendance at the applicable special meeting will not, by
itself, revoke your proxy.
If your shares are held in an account by a broker, bank or other nominee who you previously
contacted with voting instructions, you should contact your broker, bank or other nominee to
change your vote.
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Q: |
When do LMI and UGC expect to complete the mergers? |
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A: |
We expect to complete the mergers as quickly as possible once all the conditions to the
mergers, including obtaining the approvals of our stockholders at the special meetings, are
fulfilled. We currently expect to complete the mergers within a few days following the
special meetings. |
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Q: |
Should UGC stockholders send their proxy cards to the same address as they send their form of
election and stock certificates? |
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A: |
No. Separate envelopes are enclosed for UGC stockholders to return (1) their form of
election and stock certificates and (2) their proxy cards. UGC stockholders should check to be
sure they are mailing their materials in the proper envelope and to the proper address. UGC
stockholders are urged to please NOT send their election form and UGC stock certificates with
their proxy card, or vice versa. |
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Q: |
Should LMI stockholders send their stock certificates with their proxy cards? |
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A: |
No. LMI stockholders will receive written instructions from the exchange agent after the
mergers are completed on how to exchange their LMI stock certificates for Liberty Global stock
certificates. LMI stockholders are urged to please NOT send their LMI stock certificates with
their proxy cards. |
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Q: |
Who can help answer questions about the voting and election procedures and the mergers? |
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A: |
LMI and UGC have retained D.F. King & Co. to serve as an information agent and proxy
solicitor in connection with the special meetings and the mergers. |
LMI stockholders who have questions about the LMI special meeting, including the voting
procedures, or the mergers should call D.F. King & Co. at [___] with their questions.
UGC stockholders who have questions about the UGC special meeting, including the voting and
election procedures, or the mergers should call D.F. King & Co. at [___] with their
questions.
In addition, LMI stockholders may call LMIs Investor Relations Department at (877) 783-7676, and
UGC stockholders may call UGCs Investor Relations Department at (303) 770-4001.
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SUMMARY
The following summary includes information contained elsewhere in this joint proxy
statement/prospectus. This summary does not purport to contain a complete statement of all
material information relating to the merger agreement, the mergers and the other matters discussed
herein and is subject to, and is qualified in its entirety by reference to, the more detailed
information and financial statements contained or incorporated in this joint proxy
statement/prospectus, including the appendices included herein. You may obtain the information
about UGC that we incorporate by reference into this joint proxy statement/prospectus without
charge by following the instructions in the section entitled Additional Information Where You
Can Find More Information. You should carefully read this joint proxy statement/prospectus in its
entirety, as well as the merger agreement included with this proxy statement/prospectus as Appendix
B and the other Appendices included herein.
The Companies
(see page 41)
Liberty Media International, Inc.
12300 Liberty Boulevard
Englewood, Colorado 80112
Telephone: (720) 875-5800
LMI is a holding company that, through its ownership of interests in subsidiaries and
affiliates, provides broadband distribution services and video programming services to subscribers
in Europe, Japan, Latin America and Australia. LMIs broadband distribution services consist
primarily of cable television distribution, Internet access and, in selected markets, telephony and
satellite distribution. LMIs broadband distribution services include those of UGC, which is a
controlled subsidiary of LMI. LMIs programming networks create original programming and also
distribute programming obtained from international and home-country content providers. LMIs
principal assets include interests in UGC, Jupiter Telecommunications Co., Ltd. (J-COM), Jupiter
Programming Co., Ltd. (JPC), Liberty Cablevision of Puerto Rico Ltd. and Pramer S.C.A.
UnitedGlobalCom, Inc.
4643 South Ulster Street
Suite 1300
Denver, Colorado 80237
Telephone: (303) 770-4001
UGC is a leading international broadband communications provider of video, voice and Internet
services with operations in 16 countries outside the United States. UGCs networks pass
approximately 16.0 million homes and serve approximately 8.7 million video subscribers, 0.8 million
voice subscribers and 1.4 million Internet access subscribers. UGC Europe, Inc., UGCs largest
consolidated operation, is a leading pan-European broadband communications company. VTR GlobalCom
S.A., UGCs primary Latin American operation, is Chiles largest multi-channel television and
high-speed Internet access provider in terms of homes passed and number of subscribers, and Chiles
second largest provider of residential telephone services in terms of lines in service. UGC also
has an approximate 19% interest in SBS Broadcasting S.A., a European commercial television and
radio broadcasting company, and an approximate 34% interest in Austar United Communications
Limited, a leading pay-TV provider in Australia.
Liberty Global, Inc.
12300 Liberty Boulevard
Englewood, Colorado 80112
Telephone: (720) 875-5800
Liberty Global is a newly-formed corporation and currently a wholly owned subsidiary of LMI.
Liberty Global has not conducted any activities other than those incident to its formation, the
matters contemplated by the
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merger agreement and the preparation of applicable filings under the federal securities laws.
Upon consummation of the mergers, LMI and UGC will become wholly owned subsidiaries of Liberty
Global, and Liberty Global will become a publicly traded company.
Cheetah Acquisition Corp.
12300 Liberty Boulevard
Englewood, Colorado 80112
Telephone: (720) 875-5800
Cheetah Acquisition Corp, which we refer to as LMI merger sub, is a wholly owned transitory
merger subsidiary of Liberty Global, recently formed solely for the purpose of merging with and
into LMI.
Tiger Global Acquisition Corp.
12300 Liberty Boulevard
Englewood, Colorado 80112
Telephone: (720) 875-5800
Tiger Global Acquisition Corp., which we refer to as UGC merger sub, is a wholly owned
transitory merger subsidiary of Liberty Global, recently formed solely for the purpose of merging
with and into UGC.
Structure of The Mergers
(see page 91)
To accomplish the combination of the businesses of LMI and UGC under a new parent company,
Liberty Global was formed with two wholly owned subsidiaries, LMI merger sub and UGC merger sub.
At the effective time of the mergers:
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LMI merger sub will merge with and into LMI, and LMI will be the surviving
corporation in that merger (which we refer to as the LMI merger); and |
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UGC merger sub will merge with and into UGC, and UGC will be the surviving
corporation in that merger (which we refer to as the UGC merger). |
As a result of the mergers described above and the conversion and exchange of securities
described in this joint proxy statement/prospectus, LMI will become a direct, wholly owned
subsidiary of Liberty Global, and UGC will become an indirect, wholly owned subsidiary of Liberty
Global. Following the mergers, Liberty Global will own directly 46.4% of the common stock of UGC
and indirectly through Liberty Globals wholly owned subsidiary LMI 53.6% of the common stock of
UGC (based upon outstanding UGC share information as of December 31, 2004).
What You Will Receive in the Mergers
(see page 91)
LMI Stockholders. In the LMI merger, LMI stockholders will receive, for each share of LMI
Series A common stock or LMI Series B common stock owned by them, one share of the corresponding
series of Liberty Global common stock. Each series of Liberty Global common stock will have the
same rights, powers and preferences as the corresponding series of LMI common stock.
UGC Stockholders. In the UGC merger, UGC stockholders (other than LMI and its wholly owned
subsidiaries) will have the right to elect to receive, for each share of UGC common stock owned by
them, either (i) $9.58 in cash, without interest (subject to proration), or (ii) 0.2155 of a share
of Liberty Global Series A common stock (plus cash in lieu of any fractional share interest).
Those UGC stockholders who make the cash election as to some or all of their UGC shares will be
subject to the proration procedures described later in this joint proxy statement/prospectus.
These proration procedures are designed to ensure that the total cash consideration paid represents
no more than 20% of the aggregate value of the merger consideration payable to UGC stockholders
(other
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than those stockholders who are Permitted Holders under UGCs indenture with respect to its
13/4% convertible senior notes due 2024). If the aggregate number of shares of UGC common stock for
which cash elections are made exceeds this threshold, then a portion of the shares of UGC common
stock for which valid cash elections are made will be exchanged for cash and the remaining portion
of such shares will be converted, on a per share basis, into 0.2155 of a share of Liberty Global
Series A common stock (plus cash in lieu of any fractional share interest).
In order to make a cash election or a stock election, UGC stockholders must submit a properly
completed form of election by the election deadline of 5:00 p.m., New York City time, on
[___], 2005. We will extend the election deadline to 5:00 p.m., New York City time, on the
second business day preceding the completion of the mergers, if we anticipate that the mergers will
not be completed within four business days after the initial election deadline. If the election
deadline is extended, LMI and UGC will publicly announce the extended election deadline by no later
than 9:00 a.m. on the business day immediately following the initial deadline by issuing a release
to the Dow Jones News Service. If you do not properly make a cash election or stock election by
the election deadline, each share of UGC common stock you hold will be converted into the right to
receive 0.2155 of a share of Liberty Global Series A common stock (plus cash in lieu of any
fractional share interest).
If you are a UGC stockholder and you need additional forms of election, you may contact
EquiServe Trust Company N.A. at [___].
The Special Meetings
LMI Special Meeting
Where and When. The LMI special meeting will take place at [___], [___],
[___], [___] [___], on [___], 2005, at [___] a.m., local time.
What You Are Being Asked to Vote on. At the LMI special meeting, LMI stockholders
will vote on the merger proposal. LMI stockholders also may be asked to consider other matters that
properly come before the LMI special meeting. At the present time, LMI knows of no other matters
that will be presented for consideration at the LMI special meeting.
Who May Vote. You may vote at the LMI special meeting if you were the record holder
of LMI Series A common stock or LMI Series B common stock as of 5:00 p.m., New York City time, on
[___], 2005, the record date for the LMI special meeting. On that date, there were [___]
shares of LMI Series A common stock outstanding and entitled to vote and 7,264,300 shares of LMI
Series B common stock outstanding and entitled to vote. The holders of LMI Series A common stock
and the holders of LMI Series B common stock will vote together as a single class. You may cast
one vote for each share of LMI Series A common stock that you owned on that date and ten votes for
each share of LMI Series B common stock that you owned on that date.
What Vote is Needed. The affirmative vote, cast in person or by proxy, of the holders
of at least a majority of the aggregate voting power of the shares of LMI Series A common stock and
LMI Series B common stock outstanding on the record date for the LMI special meeting, voting
together as a single class, is required to approve the merger proposal. Pursuant to a voting
agreement entered into between John C. Malone, the Chairman of the Board, Chief Executive Officer
and President of LMI, and UGC, Mr. Malone has agreed to vote the shares of LMI Series A common
stock and LMI Series B common stock owned by him or which he has the right to vote (currently
representing approximately 26.5% of the aggregate voting power of LMI) FOR the merger proposal.
See The Transaction Agreements -Voting Agreement.
Intentions of Directors and Executive Officers. The directors and executive officers
of LMI (other than Mr. Malone), who together beneficially own shares of LMI common stock
representing approximately 3.3% of LMIs aggregate voting power, have indicated to LMI that they
intend to vote FOR the merger proposal at the LMI special meeting.
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UGC Special Meeting
Where and When. The UGC special meeting will take place at [___], [___],
[___], [___] [___], on [___], 2005, at [___] a.m., local time.
What You Are Being Asked to Vote on. At the UGC special meeting, UGC stockholders
will vote on the merger proposal. UGC stockholders also may be asked to consider other matters
that properly come before the UGC special meeting. At the present time, UGC knows of no other
matters that will be presented for consideration at the UGC special meeting.
Who May Vote. You may vote at the UGC special meeting if you were the record holder
of UGC Class A common stock, UGC Class B common stock or UGC Class C common stock as of 5:00 p.m.,
New York City time, on [___], 2005, the record date for the UGC special meeting. On that date,
there were [___] shares of UGC Class A common stock outstanding and entitled to vote,
10,493,461 shares of UGC Class B common stock outstanding and entitled to vote and 379,603,223
shares of UGC Class C common stock outstanding and entitled to vote. The holders of UGC Class A
common stock, the holders of UGC Class B common stock and the holders of UGC Class C common stock
will vote together as a single class. You may cast one vote for each share of UGC Class A common
stock that you owned on that date and ten votes for each share of UGC Class B common stock and for
each share of UGC Class C common stock that you owned on that date.
What Vote is Needed. Under Delaware law, the affirmative vote, cast in person or by
proxy, of the holders of at least a majority of the aggregate voting power of the shares of UGC
Class A common stock, UGC Class B common stock and UGC Class C common stock outstanding on the
record date for the UGC special meeting, with all classes voting together as a single class, is
required to approve the merger proposal (which we refer to as the statutory approval). LMI, which
currently beneficially owns shares of UGC common stock representing approximately 91% of the
aggregate voting power of UGC, has agreed pursuant to the merger agreement to vote, and to cause
its subsidiaries to vote, such shares FOR the merger proposal. See The Transaction Agreements -
Merger Agreement. Accordingly, the statutory approval of the merger proposal as required by
Delaware law is assured.
The merger agreement requires that the approval of the merger proposal also include the
affirmative vote of the holders of at least a majority of the aggregate voting power of the
outstanding shares of UGC common stock entitled to vote at the UGC special meeting, exclusive of
the shares of UGC common stock held by LMI, Liberty or any of their respective subsidiaries or any
of the executive officers or directors of LMI, Liberty or UGC (which we refer to as the minority
approval). Accordingly, approval of the merger proposal at the UGC special meeting will depend on
the number of votes cast in favor of the merger proposal by UGCs public stockholders at the UGC
special meeting.
Intentions of Certain Persons. The directors and executive officers of UGC, who
together beneficially own shares of UGC common stock representing less than 1% of UGCs aggregate
voting power, have indicated to UGC that they intend to vote FOR the merger proposal at the UGC
special meeting. Also, as noted above, LMI, which beneficially owns shares of UGC common stock
representing approximately 91% of UGCs aggregate voting power, has agreed to vote, and to cause
its subsidiaries to vote, FOR the merger proposal at the UGC special meeting. The directors and
executive officers of LMI (including Mr. Malone), who together beneficially own shares of UGC
common stock representing less than 1% of UGCs aggregate voting power, have indicated to UGC that
they intend to vote FOR the merger proposal at the UGC special meeting. The votes of UGCs
directors and executive officers, the votes of LMI and its wholly owned subsidiaries and the votes
of LMIs directors and executive officers will not be counted toward the minority approval.
Our Recommendations to Stockholders
UGC
Stockholders (see page 54)
A special committee of the board of directors of UGC, which we refer to as the Special
Committee, consisting of three UGC directors (who are independent under the rules of the Nasdaq
Stock Market and have no relationship with LMI or any of its affiliates that the Special Committee
viewed as undermining its independence) evaluated the fairness of the UGC merger and negotiated the
terms of the mergers. The Special Committee recommended that the full UGC board of directors
approve the UGC merger. Based upon this recommendation, UGCs board of directors unanimously
approved the merger agreement and determined that the merger agreement and the UGC merger are
advisable, fair to and in the best interests of UGC and its stockholders. Accordingly, the UGC
board of directors recommends that UGC stockholders vote FOR the merger proposal.
LMI
Stockholders (see page 66)
LMIs board of directors unanimously approved the merger agreement and determined that the
merger agreement and the LMI merger are advisable, fair to and in the best interests of LMI and its
stockholders.
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Accordingly, the LMI board recommends that LMI stockholders vote FOR the merger proposal at
the LMI special meeting.
Our Reasons for the Mergers
UGCs
Reasons for the Merger (see page 54)
UGCs board of directors considered various factors in approving the merger agreement and the
UGC merger, including, among others:
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the recommendation of the Special Committee; |
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the opinion of Morgan Stanley & Co. Incorporated, financial advisor to the
Special Committee, directed to the Special Committee that, as of the date of the
opinion and based upon and subject to the assumptions, qualifications and
limitations set forth in the opinion, the consideration to be received by holders
of shares of UGC Class A common stock (other than LMI and its affiliates) pursuant
to the merger agreement was fair from a financial point of view to such
stockholders; |
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that the UGC merger would be conditioned on the approval of the holders of a
majority of UGCs publicly traded shares (other than shares owned by LMI, Liberty
or any of their respective subsidiaries or any of the executive officers or
directors of LMI, Liberty or UGC); |
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the premium presented to the UGC stockholders (other than LMI and its
affiliates) by the merger consideration in relation to various benchmarks,
including the relative trading prices of UGC common stock and LMI common stock
prior to the commencement of merger discussions; |
|
|
|
the protection provided to the UGC stockholders (other than LMI and its
affiliates) by the cash election in the event the price of LMIs stock declines
prior to closing; |
|
|
|
the opportunity presented to the UGC stockholders (other than LMI and its
affiliates) by the stock election to participate in the benefits expected to be
realized by the combined companies in the future; |
|
|
|
that the implied valuation in the mergers of the Japanese distribution and
content assets of LMI is attractive as a financial matter, and such assets offer
opportunities in diverse markets; |
|
|
|
that Michael T. Fries, the current Chief Executive Officer of UGC, would be the
Chief Executive Officer of the combined company; |
|
|
|
that Liberty Global would have no single stockholder or group of stockholders
exercising voting control over the combined company; |
|
|
|
that the opportunity for growth is greater as a part of the combined company; |
13
|
|
that UGC stockholders would own interests in a company with a more diverse
portfolio of investments, which would be better able to weather economic change,
including fluctuations in foreign exchange rates; |
|
|
|
the absence of the ability to sell UGC to a third party as a result of LMIs
controlling equity position in UGC; |
|
|
|
that the receipt of Liberty Global stock by UGC stockholders (other than LMI and
its affiliates) in the mergers will generally not be taxable to such stockholders;
and |
|
|
|
the other matters referred to under Special Factors -Recommendations of the
Special Committee and the UGC Board; Fairness of the Offer and the UGC Merger. |
LMIs
Reasons for the Merger (see page 66)
LMIs board of directors considered various factors in approving the merger agreement and the
LMI merger, including, among others:
|
|
that the mergers would eliminate the current dual public holding company
structure in which LMIs principal consolidated asset is its interest in another
public company, UGC; |
|
|
|
that the elimination of the holding company structure would eliminate the
holding company discount in LMIs stock price; |
|
|
|
the opinion of Banc of America Securities LLC, financial advisor to LMI,
directed to the LMI board that, as of the date of the opinion, and based upon and
subject to the factors, limitations and assumptions set forth in the opinion, the
consideration to be received by LMI stockholders (other than affiliates of LMI) in
the transactions contemplated by the merger agreement was fair from a financial
point of view to such stockholders; |
|
|
|
that the strengths of the respective management teams of LMI and UGC would
complement each other, and that there was little if any overlap at the operating
level that would impede a smooth integration of the two companies; |
|
|
|
that the consummation of the mergers would eliminate any potential competition
between LMI and UGC, including in the pursuit of acquisition opportunities and
capital raising activities; |
|
|
|
that the receipt of the merger consideration in the LMI merger would be tax-free
to the LMI stockholders; |
|
|
|
that the merger agreement included a limitation on the cash election and that
LMI had sufficient cash to fund the maximum amount of cash anticipated to be
payable if the cash elections were fully exercised; and |
|
|
|
the other matters referred to under Special Factors Recommendation of the LMI
Board; Purposes and Reasons for the Mergers. |
Fairness of the UGC Merger
Position
of UGC (see page 54)
UGC believes that the UGC merger is fair to the unaffiliated stockholders of UGC. For more
information regarding this belief, including the factors considered in arriving at this belief, see
Special Factors Recommendations of the Special Committee and the UGC Board; Fairness of the
Offer and the UGC Merger.
14
Throughout this joint proxy statement/prospectus, when we refer to unaffiliated stockholders
of UGC, we mean holders of UGC Class A common stock other than LMI and its affiliates.
Position
of LMI (see page 68)
The UGC merger is considered a 13E-3 transaction because LMI is an affiliate of UGC and
unaffiliated stockholders of UGC are entitled to receive consideration in the UGC merger other than
Liberty Global common stock. As a result, under the federal securities laws, LMI is required to
state its position as to the fairness of the UGC merger to the unaffiliated stockholders of UGC.
LMI believes that the UGC merger is fair to the unaffiliated stockholders of UGC. For more
information regarding this belief, including the factors considered in arriving at this belief, see
Special Factors Position of LMI Regarding the Fairness of the UGC Merger.
Opinions of the Financial Advisors
Opinion
of the Financial Advisor to the Special Committee (see page 59)
Morgan Stanley, financial advisor to the Special Committee, delivered a written opinion to the
Special Committee to the effect that, as of January 17, 2005 and based upon and subject to the
assumptions, qualifications and limitations set forth in the opinion, the consideration to be
received by the unaffiliated stockholders of UGC pursuant to the merger agreement was fair from a
financial point of view to such stockholders. The full text of Morgan Stanleys opinion, dated
January 17, 2005, which sets forth, among other things, the assumptions made, procedures followed,
matters considered and qualifications and limitations on the scope of review undertaken by Morgan
Stanley in rendering its opinion, is included as Appendix D to this joint proxy
statement/prospectus. UGC stockholders should read this opinion carefully and in its entirety.
The opinion does not constitute a recommendation to any UGC stockholder as to how to vote with
respect to the UGC merger or as to what form of consideration to elect.
Opinion
of LMIs Financial Advisor (see page 70)
Banc of America Securities, LMIs financial advisor, delivered a written opinion to the LMI
board of directors to the effect that, as of January 17, 2005 and based upon and subject to the
factors, limitations and assumptions set forth in the opinion, the consideration to be received by
the stockholders of LMI (other than affiliates of LMI) in the transactions contemplated by the
merger agreement was fair from a financial point of view to such stockholders. The full text of
Banc of America Securities opinion, dated January 17, 2005, which sets forth, among other things,
the assumptions made, procedures followed, matters considered and qualifications and limitations on
the scope of review undertaken by Banc of America Securities in rendering its opinion, is included
as Appendix E to this joint proxy statement/prospectus. LMI stockholders should read this opinion
carefully and in its entirety. The opinion does not constitute a recommendation to any LMI
stockholder as to how any LMI stockholder should vote with respect to the LMI merger.
Management of Liberty Global
Following the mergers, the board of directors of Liberty Global will consist of ten members,
of whom five are current members of LMIs board of directors and five are current members of UGCs
board of directors. The members of the Liberty Global board of directors will be:
|
|
John C. Malone, currently Chairman of the Board, Chief Executive Officer,
President and a director of LMI and a director of UGC; |
|
|
|
Michael T. Fries, currently President, Chief Executive Officer and a director of UGC; |
|
|
|
John P. Cole, Jr., currently a director of UGC and a member of the Special Committee; |
15
|
|
John W. Dick, currently a director of UGC and a member of the Special Committee; |
|
|
|
Paul A. Gould, currently a director of UGC and a member of the Special Committee; |
|
|
|
David E. Rapley, currently a director of LMI; |
|
|
|
Larry E. Romrell, currently a director of LMI; |
|
|
|
Gene W. Schneider, currently the Chairman of the Board of Directors of UGC; |
|
|
|
J.C. Sparkman, currently a director of LMI; and |
|
|
|
J. David Wargo, currently a director of LMI. |
The management of Liberty Global will be comprised of certain executive officers from each of
LMI and UGC, including Mr. Malone who has agreed to serve as the Chairman of the Board of Liberty
Global and Mr. Fries who has agreed to serve as the Chief Executive Officer and President of
Liberty Global. For more information on the proposed directors and executive officers of Liberty
Global, see Management of Liberty Global, Executive Officers, Directors and Principal
Stockholders of LMI and Executive Officers, Directors and Principal Stockholders of UGC.
Interests of Certain Persons in the Mergers
In considering the recommendations of LMIs and UGCs boards of directors to vote to approve
the merger proposal, stockholders of LMI and UGC should be aware that members of LMIs and UGCs
boards of directors and members of LMIs and UGCs executive management teams have relationships,
agreements or arrangements that provide them with interests in the mergers that may be in addition
to or different from those of LMIs or UGCs public stockholders. Both LMIs and UGCs boards of
directors were aware of these interests and considered them when approving the merger agreement and
the mergers.
Material United States Federal Income Tax Consequences of the Mergers
Completion of the mergers is conditioned upon the receipt by LMI of the opinion of Baker Botts
L.L.P., or another nationally recognized law firm, to the effect that the LMI merger will be
treated as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code, and
upon the receipt by UGC of the opinion of a nationally recognized law firm, to the effect that,
when integrated with the LMI merger, the conversion of shares of UGC common stock into shares of
Liberty Global Series A common stock that is effected pursuant to the UGC merger will qualify as an
exchange within the meaning of Section 351 of the Internal Revenue Code. The opinions will be
based upon factual representations and covenants, including those contained in letters provided by
LMI, UGC, Liberty Global and/or others, and certain assumptions set forth in the opinions. No
rulings have been or will be requested from the Internal Revenue Service with respect to any tax
matters relating to the mergers.
Assuming the mergers are treated as described above, the mergers generally will not result in
the recognition of gain or loss by LMI, UGC, Liberty Global, the LMI stockholders or, except to the
extent that they receive cash, the UGC stockholders. The taxation of the receipt of cash by a
holder of UGC common stock is very complicated and subject to uncertainties. Due to the
uncertainties concerning the taxation of the receipt of cash, Liberty Global or the exchange agent,
as applicable, expect to withhold 30% (unless reduced by an applicable treaty) of all cash payments
made to UGC stockholders that are non-U.S. holders as a result of making a valid cash election. UGC
stockholders should consult their tax advisors if they are considering making a cash election with
respect to their UGC common stock.
LMI stockholders and UGC stockholders should be aware that the tax consequences to them of the
applicable merger may depend upon their own situations. In addition, LMI stockholders and UGC
stockholders may
16
be subject to state, local or foreign tax laws that are not discussed in this joint proxy
statement/prospectus. LMI stockholders and UGC stockholders should therefore consult with their
own tax advisors for a full understanding of the tax consequences to them of the mergers.
Merger Agreement
|
|
|
(see page 91 and Appendix B)
|
|
|
The merger agreement is included as Appendix B to this joint proxy statement/prospectus. We
encourage you to read the merger agreement because it is the legal document that governs the
mergers.
Conditions to Completion of the Mergers
LMIs and UGCs respective obligations to complete the mergers are subject to the satisfaction
or waiver of a number of conditions, including, among others:
|
|
the statutory approval and the minority approval, each having been obtained at
the UGC special meeting; |
|
|
|
the approval of the merger proposal by the LMI stockholders at the LMI special
meeting; |
|
|
|
approval for listing on the Nasdaq National Market of the Liberty Global common
stock to be issued in connection with the mergers; |
|
|
|
LMI and Liberty Global having received an opinion that the mergers should not
cause the spin off of LMI by Liberty, which occurred on June 7, 2004, to fail to
qualify as a tax-free distribution to Liberty under Section 355(e) of the Internal
Revenue Code of 1986, as amended (the Code); and |
|
|
|
LMI and UGC each having received an opinion from its respective tax counsel as
to the treatment of the mergers for U.S. federal income tax purposes. |
We expect to complete the merger as promptly as practicable after all of the conditions to the
mergers have been satisfied or, if applicable, waived. Neither the condition relating to the
minority approval at the UGC special meeting nor the conditions relating to the receipt of the tax
opinions may be waived.
Termination of the Merger Agreement
We may jointly agree to terminate the merger agreement at any time without completing the
mergers, even after receiving the requisite stockholder approvals of the merger proposal. In
addition, either UGC (with the approval of the Special Committee) or LMI may terminate the merger
agreement if, among other things:
|
|
the mergers have not been consummated before September 30, 2005; |
|
|
|
any order, decree or ruling that permanently restrains, enjoins or prohibits the
mergers becomes final and non-appealable; or |
|
|
|
any of the stockholder approvals required to approve the merger proposal have
not been obtained. |
In addition, LMI may terminate the merger agreement under the following circumstances:
|
|
if UGC has not filed its Annual Report on Form 10-K with the Securities and
Exchange Commission by May 15, 2005, which date may be extended by LMI to June 15,
2005; or |
|
|
|
if the board of directors of UGC (with the approval of the Special Committee)
has withdrawn or modified, in any manner adverse to LMI, its recommendation to the
UGC stockholders. |
17
No termination fee will be payable by any party to the merger agreement if the merger
agreement is terminated.
Appraisal or Dissenters Rights
Under Delaware law, holders of shares of UGC Class A common stock will not be entitled to
appraisal rights in connection with the UGC merger, but any holders of shares of UGC Class B common
stock (other than LMI and its wholly owned subsidiaries) or UGC Class C common stock (other than
LMI and its wholly owned subsidiaries) will be entitled to appraisal rights in connection with the
UGC merger.
Under Delaware law, LMI stockholders are not entitled to appraisal rights in connection with
the LMI merger.
Regulatory Matters
At the date of this joint proxy/statement prospectus, LMI has obtained all regulatory
approvals required for LMI to complete the mergers.
At the date of this joint proxy/statement prospectus, UGC has obtained all regulatory
approvals required for UGC to complete the mergers.
Voting Agreement
|
|
|
(see page 103 and Appendix C)
|
|
|
On January 17, 2005, at the insistence of the Special Committee and at the request of the LMI
board of directors, John C. Malone, the Chairman of the Board, Chief Executive Officer and
President of LMI, entered into a voting agreement with UGC, pursuant to which Mr. Malone has agreed
to vote the shares of LMI Series A common stock and LMI Series B common stock owned by him or
which he has the right to vote (currently representing approximately 26.5% of the aggregate voting
power of LMI) in favor of the approval of the merger proposal. A copy of the voting agreement is
included as Appendix C to this joint proxy statement/statement.
Risk Factors
The mergers entail several risks, including:
|
|
risks relating to the value of the merger consideration received compared with
the value of the securities exchanged therefor; |
|
|
|
risks relating to the value of the merger consideration received by UGC
stockholders compared to the value of the merger consideration at the time elected
by UGC stockholders; |
|
|
|
risks associated with the ability of the parties to realize the anticipated benefits of the mergers; |
|
|
|
risks associated with class action lawsuits relating to the UGC merger; and |
|
|
|
risks associated with transaction costs. |
In addition, the parties to the mergers face risks and uncertainties relating to:
|
|
overseas operations and regulations; |
|
|
|
technology and competition; |
18
|
|
certain financial matters; and |
|
|
|
governance matters. |
Please carefully read the information included under the heading Risk Factors.
19
Selected Summary Historical Financial Data of LMI
The following tables present selected historical financial information of (1) certain
international cable television and programming subsidiaries and assets of Liberty (LMC
International), for periods prior to the June 7, 2004 spin off transaction, whereby LMIs common
stock was distributed on a pro rata basis to Libertys shareholders as a dividend, and (2) LMI and
its consolidated subsidiaries for periods following such date. Upon consummation of the spin off,
LMI became the owner of the assets that comprise LMC International. The following selected summary
financial data was derived from the audited financial statements of LMC International as of
December 31, 2003 and 2002 and for the each of the three years ended December 31, 2003, and from
the condensed financial statements of LMI for the nine months ended September 30, 2004 and 2003.
Data for other periods has been derived from unaudited information. This information is only a
summary, and you should read it together with the historical financial statements of LMI included
elsewhere herein.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
September 30, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 (1) |
|
|
2003 |
|
|
2002 |
|
|
2001 |
|
|
2000 |
|
|
1999 |
|
|
|
amounts in thousands |
|
Summary Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in affiliates |
|
$ |
1,940,372 |
|
|
|
1,740,552 |
|
|
|
1,145,382 |
|
|
|
423,326 |
|
|
|
1,189,630 |
|
|
|
892,335 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other investments |
|
$ |
1,068,734 |
|
|
|
450,134 |
|
|
|
187,826 |
|
|
|
916,562 |
|
|
|
134,910 |
|
|
|
140,832 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
$ |
3,972,773 |
|
|
|
97,577 |
|
|
|
89,211 |
|
|
|
80,306 |
|
|
|
82,578 |
|
|
|
95,924 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net |
|
$ |
2,817,004 |
|
|
|
689,026 |
|
|
|
689,046 |
|
|
|
701,935 |
|
|
|
803,514 |
|
|
|
825,220 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
12,630,592 |
|
|
|
3,687,037 |
|
|
|
2,800,896 |
|
|
|
2,169,102 |
|
|
|
2,301,800 |
|
|
|
1,989,230 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt, including current portion |
|
$ |
4,348,862 |
|
|
|
54,126 |
|
|
|
35,286 |
|
|
|
338,466 |
|
|
|
101,415 |
|
|
|
59,715 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
$ |
5,183,554 |
|
|
|
3,418,568 |
|
|
|
2,708,893 |
|
|
|
2,039,593 |
|
|
|
1,907,085 |
|
|
|
1,578,109 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ten months |
|
|
|
Nine months |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ended |
|
|
|
ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December |
|
|
|
September 30, |
|
|
Year ended December 31, |
|
|
31, |
|
|
|
2004 (1) |
|
|
2003 |
|
|
2003 |
|
|
2002 |
|
|
2001 |
|
|
2000 |
|
|
1999 (5) |
|
|
|
amounts in thousands, except per share amounts |
|
Summary Statement of
Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
1,865,769 |
|
|
|
80,416 |
|
|
|
108,634 |
|
|
|
103,855 |
|
|
|
139,535 |
|
|
|
125,246 |
|
|
|
92,438 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
$ |
(160,880 |
) |
|
|
2,977 |
|
|
|
(1,211 |
) |
|
|
(35,545 |
) |
|
|
(122,623 |
) |
|
|
3,828 |
|
|
|
(69,621 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share of earnings
(losses) of affiliates
(2) |
|
$ |
54,518 |
|
|
|
10,833 |
|
|
|
13,739 |
|
|
|
(331,225 |
) |
|
|
(589,525 |
) |
|
|
(168,404 |
) |
|
|
(101,510 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) (3) |
|
$ |
(10,626 |
) |
|
|
26,352 |
|
|
|
20,889 |
|
|
|
(568,154 |
) |
|
|
(820,355 |
) |
|
|
(129,694 |
) |
|
|
(133,635 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per
common share basic
and diluted (pro forma
for spin off) (4) |
|
$ |
(0.07 |
) |
|
|
0.17 |
|
|
|
0.14 |
|
|
|
NA |
|
|
|
NA |
|
|
|
NA |
|
|
|
NA |
|
(1) |
|
Prior to January 1, 2004, the substantial majority of LMI operations were conducted
through equity method affiliates, including UGC, J-COM and JPC. As more fully discussed in
the notes to LMIs historical financial statements included elsewhere herein, in January
2004, LMI completed a transaction that |
20
|
|
increased LMIs ownership in UGC and enabled LMI to
fully exercise its voting rights with respect to its historical investment in UGC. As a
result, UGC has been accounted for as a consolidated subsidiary and included in LMIs
financial position and results of operations since January 1, 2004. See Liberty Globals
unaudited condensed pro forma combined financial statements included elsewhere herein for
the pro forma effects of consolidating UGC on Liberty Globals results of operations. See
also Appendix A: Information Concerning Liberty Media
International, Inc. Part 4:
Historical Financial Information of LMI and its Significant Affiliates and Acquirees to
this joint proxy statement/prospectus. |
|
(2) |
|
Effective January 1, 2002, LMI adopted Statement of Financial Accounting Standards No.
142, Goodwill and Other Intangible Assets (Statement 142), which, among other matters,
provides that goodwill, intangible assets with indefinite lives and excess costs that are
considered equity method goodwill are no longer amortized, but are evaluated for impairment
under Statement 142 and, in the case of equity method goodwill, APB Opinion No. 18. Share
of losses of affiliates includes excess basis amortization of
$92,902,000, $41,419,000, and
$31,788,000 for the years ended December 31, 2001 and 2000, and the ten months ended
December 31, 1999, respectively. |
|
(3) |
|
LMIs net loss for the years ended December 31, 2002 and 2001 included LMIs share of
UGCs net losses of $190,216,000 and $439,843,000, respectively. Because LMI had no
commitment to make additional capital contributions to UGC, LMI suspended recording its
share of UGCs losses when LMIs carrying value was reduced to zero in 2002. In addition,
LMIs net loss for the year ended December 31, 2002 included $247,386,000 of
other-than-temporary declines in fair values of investments, and LMIs net loss for the year
ended December 31, 2001 included $534,962,000 of realized and unrealized losses on
derivative instruments. |
|
(4) |
|
Earnings (loss) per common share amounts
were computed assuming that the shares issued in the spin off were
outstanding since January 1, 2003. In addition, the weighted
average share amounts for periods prior to July 26, 2004, the date that certain subscription
rights were distributed to stockholders pursuant to a rights offering by LMI, have been
increased to give effect to the benefit derived by LMIs stockholders as a result of the
distribution of such subscription rights. |
|
(5) |
|
Liberty was a wholly owned subsidiary of Tele-Communications, Inc. (TCI) from August 1994
to March 9, 1999. On March 9, 1999, AT&T Corp. acquired TCI in a merger transaction (the
AT&T Merger). For financial reporting purposes, the AT&T Merger is deemed to have occurred
on March 1, 1999. In connection with the AT&T Merger, Libertys, and accordingly LMC
Internationals, assets and liabilities were adjusted to their respective fair values
pursuant to the purchase method of accounting. Selected summary financial historical data
of LMC International for the two months ended February 28, 1999 has been excluded from the
tables. Liberty was split off from AT&T on August 10, 2001. |
21
Selected Summary Historical Financial Data of UGC
The following summary financial data of UGC was derived from the audited financial statements
of UGC for the years ended December 31, 1999 through December 31, 2003 and the unaudited financial
statements of UGC for the nine months ended September 30, 2004 and 2003. This information is only a
summary, and is not necessarily comparable from period to period as a result of certain
impairments, restructuring charges, gains on extinguishments of debt,
acquisitions and dispositions, gains on
issuance of common equity securities by subsidiaries and cumulative effects of changes in
accounting principles. For this and other reasons, you should read it together with UGCs
historical financial statements and related notes and also with UGCs managements discussion and
analysis of financial condition and results of operations incorporated by reference herein.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
2001 |
|
|
2000 |
|
|
1999 |
|
|
|
amounts in thousands |
|
Summary Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and short
term liquid investments |
|
$ |
1,093,174 |
|
|
|
312,495 |
|
|
|
456,039 |
|
|
|
999,086 |
|
|
|
2,223,912 |
|
|
|
2,555,604 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
$ |
3,787,933 |
|
|
|
3,342,743 |
|
|
|
3,640,211 |
|
|
|
3,692,485 |
|
|
|
3,880,657 |
|
|
|
2,462,832 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill and other intangible
assets, net |
|
$ |
2,479,391 |
|
|
|
2,772,067 |
|
|
|
1,264,109 |
|
|
|
2,843,922 |
|
|
|
5,154,907 |
|
|
|
2,944,802 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
8,123,285 |
|
|
|
7,099,671 |
|
|
|
5,931,594 |
|
|
|
9,038,640 |
|
|
|
13,146,952 |
|
|
|
9,002,853 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, including current
portion, not subject to
compromise |
|
$ |
4,261,844 |
|
|
|
3,926,706 |
|
|
|
3,838,906 |
|
|
|
10,033,387 |
|
|
|
9,893,044 |
|
|
|
6,041,635 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, including current
portion, subject to compromise |
|
$ |
24,627 |
|
|
|
317,372 |
|
|
|
2,812,988 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity (deficit) |
|
$ |
2,234,310 |
|
|
|
1,472,492 |
|
|
|
(4,284,874 |
) |
|
|
(4,555,580 |
) |
|
|
(85,234 |
) |
|
|
1,114,306 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended |
|
|
|
|
|
|
September 30, |
|
|
Year ended December 31, |
|
|
|
2004 |
|
|
2003 |
|
|
2003(1) |
|
|
2002(2) |
|
|
2001(3) |
|
|
2000(4) |
|
|
1999(5) |
|
|
|
amounts in thousands, except per share amounts |
|
Summary Statements of
Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
1,750,877 |
|
|
|
1,375,666 |
|
|
|
1,891,530 |
|
|
|
1,515,021 |
|
|
|
1,561,894 |
|
|
|
1,251,034 |
|
|
|
720,762 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
$ |
(118,024 |
) |
|
|
(190,431 |
) |
|
|
(656,014 |
) |
|
|
(899,282 |
) |
|
|
(2,872,306 |
) |
|
|
(1,140,803 |
) |
|
|
(775,625 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(314,746 |
) |
|
|
2,376,062 |
|
|
|
1,995,368 |
|
|
|
(356,454 |
) |
|
|
(4,494,709 |
) |
|
|
(1,220,890 |
) |
|
|
636,318 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss)
per share |
|
$ |
(0.41 |
) |
|
|
8.31 |
|
|
|
7.41 |
|
|
|
(0.84 |
) |
|
|
(41.29 |
) |
|
|
(12.00 |
) |
|
|
6.83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss)
per share |
|
$ |
(0.41 |
) |
|
|
8.31 |
|
|
|
7.41 |
|
|
|
(0.83 |
) |
|
|
(41.29 |
) |
|
|
(12.00 |
) |
|
|
6.13 |
|
22
(1) |
Includes impairments, gains on extinguishment of debt and gains on sales of investments
in affiliates totaling $402.2 million, $2.2 billion and $279.4 million, respectively. |
|
(2) |
Includes impairments, gains on extinguishment of debt and gains on sales of investments
in affiliates totaling $436.2 million, $2.2 billion and $117.3 million, respectively.
Effective January 1, 2002, UGC adopted Statement 142, which, among other things, provides
that goodwill, intangible assets with indefinite lives and excess costs on equity method
investments are no longer amortized, but are evaluated for impairment under Statement 142.
The cumulative effect of the adoption of Statement 142 was a charge of $1.3 billion. |
|
(3) |
Includes impairments, restructuring charges, gains on sales of investments in affiliates,
other-than-temporary losses on investments and amortization of indefinite-lived intangible
assets totaling $1.3 billion, $204.1 million, $416.8 million, $342.4 million and $447.2
million, respectively. |
|
(4) |
Includes amortization of indefinite-lived intangible assets totaling $287.5 million. |
|
(5) |
Includes gain on issuance of common equity securities by subsidiaries of $1.5 billion. |
Ratio (Deficiency) of Earnings to Fixed Charges of UGC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
September 30, |
|
|
Year Ended December 31, |
|
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
(amounts in thousands, except ratios) |
|
Income (loss) from continuing operations before other items |
|
$ |
(292,360 |
) |
|
|
1,600,075 |
|
|
|
1,403,938 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed charges: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest within rental expense |
|
|
18,000 |
|
|
|
20,970 |
|
|
|
14,550 |
|
Interest, whether expensed or capitalized, including
amortization of discounts |
|
|
204,709 |
|
|
|
327,132 |
|
|
|
680,101 |
|
|
|
|
|
|
|
|
|
|
|
Total fixed charges |
|
|
222,709 |
|
|
|
348,102 |
|
|
|
694,651 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributed income of equity investees |
|
|
15,565 |
|
|
|
4,684 |
|
|
|
7,042 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted earnings (losses) |
|
|
(54,086 |
) |
|
|
1,952,861 |
|
|
|
2,105,631 |
|
Fixed charges |
|
|
222,709 |
|
|
|
348,102 |
|
|
|
694,651 |
|
|
|
|
|
|
|
|
|
|
|
Ratio of earnings to fixed charges |
|
|
|
|
|
|
5.61 |
|
|
|
3.03 |
|
|
|
|
|
|
|
|
|
|
|
|
Dollar amount of coverage deficiency |
|
$ |
(276,795 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
Selected Unaudited Condensed Pro Forma Combined Financial Data of Liberty Global
We have included in this joint proxy statement/prospectus the selected unaudited condensed pro
forma combined financial data of Liberty Global set forth below after giving effect to (1) the
proposed mergers (the Proposed Mergers) and the resulting step acquisition of the UGC interest not
already owned by LMI using the purchase method of accounting; and (2) certain transactions that
were consummated in 2004 (the Consummated Transactions), based upon the assumptions and adjustments
described in the unaudited condensed pro forma combined financial information and notes of Liberty
Global contained elsewhere in this document.
The unaudited condensed pro forma combined balance sheet data as of September 30, 2004 gives
effect to the Proposed Mergers as if they occurred on September 30, 2004. The unaudited condensed
pro forma combined statement of operations data for the nine months ended September 30, 2004 and
the year ended December 31, 2003 is presented as if the Proposed Mergers and the Consummated
Transactions were consummated on January 1, 2003.
The selected unaudited condensed pro forma combined financial information is based upon
estimates and assumptions, which are preliminary. The unaudited pro forma information does not
purport to be indicative of the financial position and results of operations that Liberty Global
will obtain in the future, or that Liberty Global would have obtained if the Proposed Mergers and
Consummated Transactions were effective as of the dates indicated above. The selected unaudited
condensed pro forma combined information of Liberty Global has been derived from and should be read
in conjunction with the historical financial statements and related notes thereto of LMI and UGC.
The LMI historical financial statements are included elsewhere herein and the UGC historical
financial statements are incorporated by reference into this document.
Selected Unaudited Condensed Pro Forma Combined
Financial Data of Liberty Global
(amounts in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
Nine months |
|
|
|
|
|
|
ended |
|
|
Year ended |
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2004 |
|
|
2003 |
|
Summary Statement of Operations Data: |
|
|
|
|
|
|
|
|
Revenue |
|
$ |
2,065,649 |
|
|
|
2,356,945 |
|
Depreciation and amortization |
|
$ |
(772,884 |
) |
|
|
(1,062,320 |
) |
Operating loss |
|
$ |
(184,386 |
) |
|
|
(1,441,825 |
) |
Net income (loss) |
|
$ |
(176,153 |
) |
|
|
48,735 |
|
Net income (loss) per share: |
|
|
|
|
|
|
|
|
Basic and diluted net income (loss) per share |
|
$ |
(0.69 |
) |
|
|
0.19 |
|
Shares used in computing basic and diluted
net loss per share |
|
|
254,348 |
|
|
|
254,348 |
|
|
|
|
|
|
|
|
September 30, |
|
|
|
2004 |
|
Summary Balance Sheet Data: |
|
|
|
|
Investment in affiliates |
|
$ |
3,009,106 |
|
Property and equipment, net |
|
$ |
3,972,773 |
|
Goodwill and other intangible assets, net |
|
$ |
5,271,031 |
|
Total assets |
|
$ |
15,084,619 |
|
Long-term debt, including current portion |
|
$ |
4,348,862 |
|
Stockholders equity |
|
$ |
8,652,191 |
|
24
Comparative Per Share Financial Data
The following table shows (1) the basic and diluted loss per common share and book value per
share data for each of LMI and UGC on a historical basis, (2) the basic and diluted loss per common
share and book value per share for Liberty Global on a pro forma basis and (3) the equivalent pro
forma net income and book value per share attributable to the shares of Liberty Global common stock
issuable at an exchange ratio of 0.2155 per UGC share. Pro forma per share data has been presented
assuming UGC stockholders (other than LMI and its wholly owned subsidiaries) receive (1) all stock
consideration or (2) 80% stock and 20% cash consideration.
The following information should be read in conjunction with (1) the separate historical
financial statements and related notes of LMI included elsewhere herein, (2) the separate
historical financial statements and related notes of UGC incorporated by reference herein and (3)
the unaudited condensed pro forma combined financial statements of Liberty Global included elsewhere herein.
The pro forma information is not necessarily indicative of the results of operations that would
have resulted if the Proposed Mergers and the Consummated Transactions had been completed as of the
assumed dates or of the results that will be achieved in the future.
We calculate historical book value per share by dividing stockholders equity by the number of
shares of common stock outstanding at September 30, 2004. We calculate pro forma book value per
share by dividing pro forma stockholders equity by the pro forma number of shares of Liberty
Global common stock that would have been outstanding had the Proposed Mergers been consummated as
of September 30, 2004.
Liberty Global pro forma combined loss applicable to common stockholders, pro forma
stockholders equity and the pro forma number of shares of Liberty Global common stock outstanding
have been derived from the unaudited condensed pro forma combined financial information for Liberty
Global appearing elsewhere herein.
We calculate the UGC equivalent pro forma per share data by multiplying the pro forma per
share amounts by the exchange ratio of 0.2155 shares of Liberty Global common stock for each share
of UGC common stock.
Neither LMI nor UGC has paid any cash dividends on its common stock during the periods
presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LMI |
|
|
Liberty Global |
|
|
UGC |
|
|
|
|
|
|
|
Pro forma |
|
|
|
|
|
|
Pro forma equivalent |
|
|
|
|
|
|
|
|
|
|
|
80% stock |
|
|
|
|
|
|
|
|
|
|
80% stock |
|
|
|
|
|
|
|
|
|
|
|
and 20% |
|
|
|
|
|
|
|
|
|
|
and 20% |
|
|
|
Historical |
|
|
All stock |
|
|
cash |
|
|
Historical |
|
|
All stock |
|
|
cash |
|
Basic and diluted net income
(loss) per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended
September 30, 2004 |
|
$ |
(0.07 |
) |
|
|
(0.69 |
) |
|
|
(0.74 |
) |
|
|
(0.41 |
) |
|
|
(0.15 |
) |
|
|
(0.16 |
) |
Year ended December 31, 2003 |
|
$ |
0.14 |
|
|
|
0.19 |
|
|
|
0.20 |
|
|
|
7.41 |
|
|
|
0.04 |
|
|
|
0.04 |
|
Book value per share as of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2004 |
|
$ |
29.55 |
|
|
|
34.02 |
|
|
|
36.27 |
|
|
|
2.85 |
|
|
|
7.33 |
|
|
|
7.82 |
|
Cash dividends |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
Comparative Per Share Market Price and Dividend Information
Market Price
The following table sets forth high and low sales prices for a share of LMI Series A common
stock, LMI Series B common stock and UGC Class A common stock for the periods indicated.
LMI Series A common stock and LMI Series B common stock trade on The Nasdaq National Market
under the symbols LBTYA and LBTYB, respectively. In connection with LMIs June 7, 2004 spin
off from Liberty, LMI common stock first began trading on a when-issued basis on June 2, 2004.
UGC Class A common stock trades on The Nasdaq National Market under the symbol UCOMA. There
is no trading market for the UGC Class B common stock or UGC Class C common stock.
|
|
|
|
|
|
|
|
|
|
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LMI |
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UGC |
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Series A |
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Series B |
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Class A |
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High |
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|
Low |
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|
High |
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Low |
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High |
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Low |
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2003 |
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First quarter |
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|
|
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|
|
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$ |
3.22 |
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|
$ |
2.20 |
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Second quarter |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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$ |
5.63 |
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$ |
2.81 |
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Third quarter |
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|
|
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|
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$ |
7.70 |
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$ |
4.92 |
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Fourth quarter |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
9.00 |
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|
$ |
5.95 |
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2004 |
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First quarter |
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$ |
10.90 |
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|
$ |
7.22 |
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Second quarter (1) |
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$ |
39.15 |
|
|
$ |
33.98 |
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|
$ |
41.25 |
|
|
$ |
38.79 |
|
|
$ |
8.34 |
|
|
$ |
6.50 |
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Third quarter |
|
$ |
37.00 |
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|
$ |
28.60 |
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|
$ |
41.25 |
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|
$ |
34.05 |
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|
$ |
7.51 |
|
|
$ |
5.80 |
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Fourth quarter |
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$ |
47.27 |
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|
$ |
33.25 |
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|
$ |
49.31 |
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|
$ |
36.19 |
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|
$ |
9.79 |
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|
$ |
7.18 |
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2005 |
|
|
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|
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First quarter through Feb. 10 |
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$ |
46.44 |
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|
$ |
42.46 |
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|
$ |
48.91 |
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|
$ |
45.77 |
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|
$ |
10.18 |
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|
$ |
8.97 |
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(1) |
|
As to LMI common stock, from the period beginning on June 2 and ending on June 30. |
On January 14, 2005, the last trading day before the public announcement of the mergers, LMI
Series A common stock closed at $43.69 per share, LMI Series B common stock closed at $46.44 per
share and UGC Class A common stock closed at $9.64 per share. Based upon the exchange ratio in the
stock election of 0.2155, the pro forma equivalent per share value of the UGC Class A common stock
on January 14, 2005, was equal to approximately $9.42 per share.
On February 10, 2005, LMI Series A common stock closed at $44.41 per share, LMI Series B
common stock closed at $47.17 per share and UGC Class A common stock closed at $9.59 per share.
Based upon the exchange ratio in the stock election of 0.2155, the pro forma equivalent per share
value of the UGC Class A common stock on February 10, 2005, was equal to approximately $9.57 per
share.
[Liberty Global has applied to list its Series A common stock and Series B common stock on the
Nasdaq National Market under the symbols [___] and [___], respectively.]
Dividends
LMI. In July 2004, LMI distributed, as a dividend to its stockholders, 0.20 of a
transferable subscription right for each share of LMI common stock owned by them as of 5:00 p.m.,
New York City time, on July 26, 2004, the record date for the LMI rights offering. Each whole
right to purchase LMI Series A common stock entitled the holder to purchase one share of LMI Series
A common stock at a subscription price of $25.00 per share. Each whole
26
right to purchase LMI Series B common stock entitled the holder to purchase one share of LMI
Series B common stock at a subscription price of $27.50 per share. In addition, each whole Series A
and Series B right entitled the holder to subscribe, at the same applicable subscription price
pursuant to an oversubscription privilege, for additional shares of the applicable series of LMI
common stock, subject to proration. LMI has paid no other dividends since it became a publicly
traded company.
Pursuant to the merger agreement, LMI may not pay any dividends (other than dividends payable
in LMI common stock) until the mergers are completed or the merger agreement is terminated. Except
for the foregoing, there are currently no restrictions on the ability of LMI to pay dividends in
cash or stock. It is LMIs current dividend policy to not pay cash dividends. All decisions
regarding the payment of future dividends by LMI will be made by its board of directors, from time
to time, in accordance with applicable law.
UGC. In January 2004, UGC distributed, as a dividend to its stockholders, 0.28 of a
transferable subscription right for each share of UGC common stock owned by them at the close of
business on January 21, 2004, the record date for the UGC rights offering. Each whole right to
purchase UGC Class A common stock entitled the holder to purchase one share of UGC Class A common
stock at a subscription price of $6.00 per share. Each whole right to purchase UGC Class B common
stock entitled the holder to purchase one share of UGC Class B common stock at a subscription price
of $6.00 per share. Each whole right to purchase UGC Class C common stock entitled the holder to
purchase one share of UGC Class C common stock at a subscription price of $6.00 per share. In
addition, each whole Class A, Class B and Class C right entitled the holder to subscribe, at the
same subscription price pursuant to an oversubscription privilege, for additional shares of the
applicable class of UGC common stock, subject to proration. UGC has paid no other dividends since
it became a publicly traded company.
Pursuant to the merger agreement, UGC may not pay any dividends until the mergers are
completed or the merger agreement is terminated. Except for the foregoing, there are currently no
restrictions on the ability of UGC to pay dividends in cash or stock. It is UGCs current policy
to not pay cash dividends. All decisions regarding the payment of future dividends by UGC will be
made by its board of directors, from time to time, in accordance with applicable law.
Liberty Global. Following the consummation of the mergers, all decisions regarding
the payment of dividends by Liberty Global will be made by its board of directors, from time to
time, in accordance with applicable law after taking into account various factors, including its
financial condition, operating results, current and anticipated cash needs, plans for expansion and
possible loan covenants which may restrict or prohibit its payment of dividends.
27
RISK FACTORS
In addition to the other information contained in, incorporated by reference in or included as
an appendix to this joint proxy statement/prospectus, you should carefully consider the following
risk factors in deciding whether to vote to approve the merger proposal.
Factors Relating to the Mergers
Fluctuations in market prices may cause the value of the shares of Liberty Global common stock
that you receive in the mergers to be less than the value of your shares of LMI common stock or UGC
common stock prior to the mergers. The ratios at which shares of LMI common stock and shares of
UGC common stock will be converted into shares of Liberty Global common stock in the mergers are
fixed, and there will be no adjustment to these ratios for changes in the market price of LMI
common stock or UGC common stock. Accordingly, the value of the stock consideration to be received
by holders of LMI common stock and holders of UGC common stock upon completion of the mergers is
not ascertainable at this time and will ultimately depend upon the market prices of LMI common
stock and UGC common stock at the effective time of the mergers. Those market prices may be higher
or lower than the market prices of those shares on the date on which the merger agreement was
executed, the date of this joint proxy statement/prospectus or the date on which the LMI
stockholders and UGC stockholders vote on the merger proposal. Neither LMI nor UGC is permitted to
walk away from the mergers or resolicit the vote of its stockholders solely because of changes in
the market price of either partys common stock at any time prior to the effective time of the
mergers. Also, there is no collar or other adjustment mechanism that will ensure stockholders
receive merger consideration with a minimum or maximum value.
At the time UGC stockholders make their stock election or cash election, they may not know if
0.2155 of a share of Liberty Global common stock will be worth more or less than the cash election
amount of $9.58 per share. To make a valid stock election or cash election, UGC stockholders must
submit their form of election and related UGC stock certificates (or book-entry shares) to the
exchange agent by the election deadline. The election deadline is scheduled for 5:00 p.m., New
York time, on [___], 2005. We will extend the election deadline to no later than 5:00
p.m., New York time, on the second business day prior to the completion of the mergers if we
anticipate that the mergers will not occur within four business days after the initial election
deadline. As the initial trading price of the shares of Liberty Global Series A common stock is
expected to approximate the trading price of the LMI Series A common stock immediately prior to the
completion of the mergers, there can be no assurance that the value of the stock consideration will
not fluctuate, with the trading price of the LMI Series A common stock, between the submission of a
form of election and the completion of the mergers. Hence, while UGC stockholders will know the
value of the stock consideration at the time they submit their form of election, there can be no
assurance that the stock consideration will not have a lower value when the mergers are completed
and the Liberty Global Series A common stock is first made available to UGC stockholders.
UGC stockholders who make the cash election may not have all of their UGC shares exchanged for
cash, and the average per share value of the merger consideration they receive could be less than
$9.58. The merger agreement limits the amount of cash payable to UGC stockholders who make the
cash election to no more than 20% of the aggregate value of the merger consideration payable to UGC
stockholders who are not Permitted Holders within the meaning of UGCs indenture with respect to
its 13/4% convertible senior notes due 2024, which we refer to as the cash threshold amount. The
term Permitted Holders is generally defined to include LMI and Liberty and the Chief Executive
Officer and each member of the board of directors of each of UGC, LMI and Liberty as of April 1,
2004 and each of their respective affiliates. If the cash threshold amount is exceeded, those UGC
stockholders making the cash election will have the number of their shares of UGC stock as to which
they made the cash election reduced by a pro rata amount, and will receive the stock consideration
for those shares which are not exchanged for the cash consideration. Depending on the market
price of the Liberty Global Series A common stock immediately after the mergers are completed, UGC
stockholders who made only the cash election but who receive stock consideration for some of their
shares due to proration may obtain aggregate consideration that is worth less than $9.58 per share.
See The Transaction Agreements Merger Agreement UGC Stockholders Making Stock and Cash
Elections; Proration.
Once UGC stockholders deliver their shares of UGC common stock to the exchange agent with
their form of election, they will not be able to sell those shares unless they revoke their
election prior to the election
28
deadline. UGC stockholders may submit a form of election to the exchange agent at any time
after the mailing of the joint proxy statement/prospectus and prior to the election deadline. To
be valid, an election must be accompanied by the UGC shares as to which the election has been made.
Once the exchange agent is in receipt of the UGC shares, they will not be available for settlement
purposes in a trade unless and until the person who submitted the election and the shares revokes
the election prior to the election deadline by written notice to the exchange agent.
Liberty Global may fail to realize the anticipated benefits of the mergers. The success of
the mergers will depend in part on the ability of Liberty Global to realize the anticipated
synergies and growth opportunities from combining the two companies. In addition, the market may
not quickly, if ever, eliminate or reduce the holding company discount that we believe has
suppressed the historical trading price of LMI common stock. Any failure to realize the
anticipated benefits of the mergers may adversely affect the stock price of Liberty Global.
Significant transaction costs will be incurred as a result of the mergers. LMI and UGC expect
to incur significant one-time transaction costs, currently estimated to be approximately $22
million, related to the mergers. These transaction costs include investment banking, legal and
accounting fees and expenses of approximately $13.8 million and SEC filing fees, printing expenses,
mailing expenses and other related charges of approximately $6.5 million. LMI and UGC may also
incur additional unanticipated transaction costs in connection with the mergers. A portion of the
transaction costs related to the mergers, estimated to be approximately $18 million, will be
incurred regardless of whether the mergers are completed. LMI and UGC will each pay its own
transaction costs incurred, except that they will share equally all costs associated with printing
and mailing this joint proxy statement/prospectus.
We are parties to pending class action lawsuits relating to the UGC merger. We are parties to
twenty-one lawsuits filed by third parties seeking monetary damages or injunctive relief, or both,
in connection with the UGC merger. Predicting the outcome of these lawsuits is difficult; and an
adverse judgment for monetary damages could have a material adverse effect on the operations of
Liberty Global after the mergers, a preliminary injunction could delay or jeopardize the completion
of the mergers and an adverse judgment granting injunctive relief could permanently enjoin the
consummation of the mergers.
LMIs potential indemnity liability to Liberty if the spin off is treated as a taxable
transaction as a result of the mergers could materially adversely affect Liberty Globals prospects
and financial condition. LMI entered into a tax sharing agreement with Liberty in connection with
its spin off from Liberty on June 7, 2004. In the tax sharing agreement, LMI agreed to indemnify
Liberty and its subsidiaries, officers and directors for any loss, including any adjustment to
taxes of Liberty, resulting from (1) any action or failure to act by LMI or any of LMIs
subsidiaries following the completion of the spin off that would be inconsistent with or prohibit
the spin off from qualifying as a tax-free transaction to Liberty and to Libertys stockholders
under Section 355 of the Code or (2) any breach of any representation or covenant given by LMI or
one of LMIs subsidiaries in connection with any tax opinion delivered to Liberty relating to the
qualification of the spin off as a tax-free distribution described in Section 355 of the Code.
LMIs indemnification obligations to Liberty and its subsidiaries, officers and directors are not
limited in amount or subject to any cap. If LMI is required to indemnify Liberty and its
subsidiaries, officers and directors under the circumstances set forth in the tax sharing
agreement, LMI may be subject to substantial liabilities. For more information about the tax
sharing agreement, see Appendix A: Information Concerning Liberty Media International, Inc. Part
2: Certain Relationships and Related Party Transactions Agreements Between LMI and Liberty Tax
Sharing Agreement.
It is a non-waivable condition to the mergers that LMI and Liberty Global shall have received
the opinion of Skadden, Arps, Slate, Meagher & Flom LLP or another nationally recognized law firm
reasonably acceptable to UGC (acting with the approval of the Special Committee), dated the closing
date of the mergers, to the effect that, for U.S. federal income tax purposes, provided that the
spin off would otherwise have qualified as a tax-free distribution under Section 355 of the Code to
Liberty and the Liberty stockholders, the mergers should not cause the spin off to fail to qualify
as a tax-free distribution to Liberty under Section 355(e) of the Code. In rendering such opinion,
Skadden, Arps, Slate, Meagher & Flom LLP or such other alternate firm may rely upon factual
representations and covenants, including those contained in certificates of officers of LMI,
Liberty Global and UGC, and customary factual assumptions. Any inaccuracy in the representations,
covenants and assumptions upon which such tax opinion is based could alter the conclusions reached
in such opinion. Neither LMI nor Liberty Global have
29
requested a ruling from the Internal Revenue Service as to the effect, if any, that the
mergers would have on the spin off. Therefore, there can be no assurance that the Internal Revenue
Service will agree with the conclusions in such opinion.
Factors Relating to Overseas Operations and Regulations
The businesses of LMI and UGC are, and the businesses of Liberty Global will be, conducted
almost exclusively outside of the United States, which gives rise to numerous operational risks.
The businesses of LMI and UGC are, and the businesses of Liberty Global will be, operated almost
exclusively in countries other than the United States and are thereby subject to the following
inherent risks:
|
|
longer payment cycles by customers in foreign countries that may increase the
uncertainty associated with recoverable accounts; |
|
|
|
difficulties in staffing and managing international operations; |
|
|
|
economic instability; |
|
|
|
potentially adverse tax consequences; |
|
|
|
export and import restrictions, tariffs and other trade barriers; |
|
|
|
increases in taxes and governmental royalties and fees; |
|
|
|
involuntary renegotiation of contracts with foreign governments; |
|
|
|
changes in foreign and domestic laws and policies that govern operations of
foreign-based companies; and |
|
|
|
disruptions of services or loss of property or equipment that are critical to
overseas businesses due to expropriation, nationalization, war, insurrection,
terrorism or general social or political unrest. |
LMI and UGC are, and Liberty Global is expected to be, exposed to potentially volatile
fluctuations of the U.S. dollar (their functional currency) against the currencies of their
operating subsidiaries and affiliates. Any increase (decrease) in the value of the U.S. dollar
against any foreign currency that is the functional currency of an operating subsidiary or
affiliate of LMI or UGC, and, following the mergers, Liberty Global, will cause the parent company
to experience unrealized foreign currency translation losses (gains) with respect to amounts
already invested in such foreign currencies. In addition, LMI, UGC and their operating
subsidiaries and affiliates are, and Liberty Global and its operating subsidiaries and affiliates
are expected to be, exposed to foreign currency risk to the extent that they enter into
transactions denominated in currencies other than their respective functional currencies, such as
investments in debt and equity securities of foreign subsidiaries, equipment purchases, programming
costs, notes payable and notes receivable (including intercompany amounts) that are denominated in
a currency other than their own functional currency. Changes in exchange rates with respect to
these items will result in unrealized (based upon period-end exchange rates) or realized foreign
currency transaction gains and losses upon settlement of the transactions. In addition, LMI and
UGC are, and Liberty Global is expected to be, exposed to foreign exchange rate fluctuations
related to operating subsidiaries monetary assets and liabilities and the financial results of
foreign subsidiaries and affiliates when their respective financial statements are translated into
U.S. dollars for inclusion in their consolidated financial statements. Cumulative translation
adjustments are recorded in accumulated other comprehensive income (loss) as a separate component
of equity. As a result of foreign currency risk, LMI, UGC and, following the mergers, Liberty
Global may experience economic loss and a negative impact on earnings and equity with respect to
their holdings solely as a result of foreign currency exchange rate fluctuations. The primary
exposure to foreign currency risk for LMI and UGC is, and for Liberty Global is expected to be, to
the euro as over 50% of the U.S. dollar revenue of LMI and UGC is, and of Liberty Global following
the mergers is expected to be, derived from countries where the euro is the functional currency.
In addition, the operating results of LMI and UGC are, and of Liberty Global following the mergers
are expected to be, significantly impacted by changes in the
30
exchange rates for the Japanese yen, Chilean peso and, to a lesser degree, other local
currencies in Europe. In the past, LMI and UGC generally have not, and Liberty Global following
the mergers is not expected to, enter into derivative transactions that are designed to reduce
their long-term exposure to foreign currency exchange risk.
The businesses of LMI and UGC are, and the businesses of Liberty Global will be, subject to
risks of adverse regulation by foreign governments. The businesses of LMI and UGC are, and the
businesses of Liberty Global will be, subject to the unique regulatory regimes of the countries in
which they operate. Cable and telecommunications businesses are subject to licensing eligibility
rules and regulations, which vary by country. The provision of telephony services requires
licensing from, or registration with, the appropriate regulatory authorities and entrance into
interconnection arrangements with the incumbent phone companies. It is possible that countries in
which LMI, UGC and, following the mergers, Liberty Global operate may adopt laws and regulations
regarding electronic commerce which could dampen the growth of the Internet access services being
offered and developed by these businesses. Programming businesses are subject to regulation on a
country by country basis, including programming content requirements, requirements to carry
specified programming, service quality standards, price controls and ownership restrictions.
Consequently, such businesses must adapt their ownership and organizational structure as well as
their services to satisfy the rules and regulations to which they are subject. A failure to comply
with these rules and regulations could result in penalties, restrictions on such business or loss
of required licenses.
Businesses that offer multiple services, such as video distribution as well as Internet access
and telephony, or both video distribution and programming content, are facing increased regulatory
review from competition authorities in several countries in which LMI and UGC operate, and,
following the mergers, Liberty Global will operate, with respect to their businesses and proposed
business combinations. For example, regulatory authorities in several countries in which LMI and
UGC do business, and in which Liberty Global will do business, are considering what access rights,
if any, should be afforded to third parties for use of existing cable television networks. If third
parties were to be granted access to the distribution infrastructure of LMI and UGC, and, following
the mergers, Liberty Global, for the delivery of video, audio, Internet or other services, those
providers could compete with services similar to those which the businesses of LMI and UGC offer,
and, following the mergers, Liberty Global will offer, which could lead to significant price
competition and loss of market share.
LMI, UGC and, following the mergers, Liberty Global may determine to acquire additional
communications companies. These acquisitions may require the approval of governmental authorities,
which can block, impose conditions on or delay an acquisition.
LMI, UGC and, following the mergers, Liberty Global cannot be certain that they will be
successful in acquiring new businesses or integrating acquired businesses with their existing
operations. Historically, the businesses of LMI and UGC have grown, in part, through selective
acquisitions that enabled them to take advantage of existing networks, local service offerings and
region-specific management expertise. LMI, UGC and, following the mergers, Liberty Global may seek
to continue growing their businesses through acquisitions in selected markets. Their ability to
acquire new businesses may be limited by many factors, including debt covenants, availability of
financing, the prevalence of complex ownership structures among potential targets and government
regulation. Even if they were successful in acquiring new businesses, the integration of new
businesses may present significant challenges, including: realizing economies of scale in
interconnection, programming and network operations; eliminating duplicative overheads; and
integrating networks, financial systems and operational systems. We cannot assure you that LMI, UGC
and, following the mergers, Liberty Global will be successful in acquiring new businesses or
realizing the anticipated benefits of any completed acquisition.
In addition, we anticipate that most, if not all, companies acquired by LMI, UGC or, following
the mergers, Liberty Global will be located outside the United States. Foreign companies may not
have disclosure controls and procedures or internal controls over financial reporting that are as
thorough or effective as those required by U.S. securities laws. While LMI, UGC and, following the
mergers, Liberty Global intend to implement appropriate controls and procedures as they integrate
acquired companies, they may not be able to certify as to the effectiveness of these companies
disclosure controls and procedures or internal controls over financial reporting until they have
fully integrated them.
LMI and UGC are, and Liberty Global will be, subject to the risk of revocation or loss of
their telecommunications and media licenses. In certain operating regions, the services provided by
the businesses of
31
LMI, UGC and, following the mergers, Liberty Global require receipt of a license from the
appropriate national, provincial and/or local regulatory authority. In those regions, regulatory
authorities may have significant discretion in granting licenses, including the term of the
licenses, and are often under no obligation to renew them when they expire. The breach of a
license or applicable law, even if inadvertent, can result in the revocation, suspension,
cancellation or reduction in the term of a license or the imposition of fines. In addition,
regulatory authorities may grant new licenses to third parties, resulting in greater competition in
territories where the businesses of LMI, UGC and, following the mergers, Liberty Global may already
be licensed. In order to promote competition, licenses may also require that third parties be
granted access to the bandwidth, frequency capacity, facilities or services of LMI, UGC and,
following the mergers, Liberty Global. There can be no assurance that LMI or UGC or, following the
mergers, Liberty Global will be able to obtain or retain any required license, or that any renewal
of a required license will not be on less favorable terms.
LMI, UGC and, following the mergers, Liberty Global may have to pay U.S. taxes on earnings of
certain of their foreign subsidiaries regardless of whether such earnings are actually distributed
to them, and they may be limited in claiming foreign tax credits; since primarily all of their
revenue is generated through their foreign investments, these tax risks could have a material
adverse impact on their effective income tax rate, financial condition and liquidity. Certain
foreign corporations in which LMI and UGC have, and in which Liberty Global will have, interests
particularly those in which they have or will have controlling interests, are considered to be
controlled foreign corporations under U.S. tax law. In general, their pro rata share of certain
income earned by their subsidiaries that are controlled foreign corporations during a taxable year
when such subsidiaries have current or accumulated earnings and profits will be included in their
income when the income is earned, regardless of whether the income is distributed to them. This
income, typically referred to as Subpart F income, generally includes, but is not limited to,
such items as interest, dividends, royalties, gains from the disposition of certain property,
certain currency exchange gains in excess of currency exchange losses, and certain related party
sales and services income. In addition, a U.S. stockholder of a controlled foreign corporation may
be required to include in income its pro rata share of the controlled foreign corporations
increase for the year in current or accumulated earnings and profits (other than Subpart F income)
invested in U.S. property, regardless of whether the U.S. stockholder received any actual cash
distributions from the controlled foreign corporation. Since LMI and UGC are investors in, and
Liberty Global will be an investor in, foreign corporations, they could have significant amounts of
Subpart F income. Although they intend to take reasonable tax planning measures to limit their tax
exposure, we cannot assure you that they will be able to do so.
In general, a U.S. corporation may claim a foreign tax credit against its U.S. federal income
taxes for foreign income taxes paid or accrued. A U.S. corporation may also claim a credit for
foreign income taxes paid or accrued on the earnings of certain foreign corporations paid to the
U.S. corporation as a dividend. The ability of LMI, UGC and, following the mergers, Liberty Global
to claim a foreign tax credit for dividends received from their foreign subsidiaries is subject to
various limitations. Some of their businesses are located in countries with which the United States
does not have income tax treaties. Because LMI and UGC lack, and Liberty Global will lack, treaty
protection in these countries, they may be subject to high rates of withholding taxes on
distributions and other payments from their businesses and may be subject to double taxation on
their income. Limitations on the ability of LMI, UGC and, following the mergers, Liberty Global to
claim a foreign tax credit, their lack of treaty protection in some countries, and their inability
to offset losses in one foreign jurisdiction against income earned in another foreign jurisdiction
could result in a high effective U.S. federal income tax rate on their earnings. Since a
significant portion of their revenue is generated abroad, including in jurisdictions that do not
have tax treaties with the United States, these risks are proportionately greater for them than for
companies that generate most of their revenue in the United States or in jurisdictions that have
such treaties.
Factors Relating to Technology and Competition
Changes in technology may limit the competitiveness of and demand for services, which may
adversely impact the business and stock value of LMI, UGC, and following the mergers, Liberty
Global. Technology in the video, telecommunications and data services industries is changing
rapidly. This significantly influences the demand for the products and services that are offered by
the businesses of LMI, UGC and, following the mergers, Liberty Global. The ability to anticipate
changes in technology and consumer tastes and to develop and introduce new and enhanced products on
a timely basis will affect the ability of LMI, UGC, and, following the mergers, Liberty Global to
continue to grow, increase their revenue and number of subscribers and remain competitive. New
products, once
32
marketed, may not meet consumer expectations or demand, can be subject to delays in
development and may fail to operate as intended. A lack of market acceptance of new products and
services which LMI, UGC and, following the mergers, Liberty Global may offer, or the development of
significant competitive products or services by others, could have a material adverse impact on the
revenue, growth and stock price of LMI, UGC and, following the mergers, Liberty Global.
Alternatively, if consumer demand for new services in a specific country or region exceeds our
expectations, meeting that demand could overburden our infrastructure, which could result in
service interruptions and a loss of customers.
LMI and UGC operate, and, following the mergers, Liberty Global will operate, in an
increasingly competitive market, and there is a risk that LMI, UGC and, following the mergers,
Liberty Global will not be able to effectively compete with other service providers. The market
for cable television, high-speed Internet access and telecommunications in many of the regions in
which LMI and UGC operate, and Liberty Global will operate, are highly competitive and highly
fragmented. In the provision of video services, LMI and UGC face, and Liberty Global will face,
competition from other cable television service providers, direct-to-home satellite service
providers, digital terrestrial television broadcasters and video over asymmetric digital subscriber
line providers, among others. Their operating businesses in The Netherlands, France and Japan are
facing increasing competition from video services provided by or over the networks of incumbent
telecommunications operators. In the provision of telephone services, LMI and UGC face, and
Liberty Global will face, competition from the incumbent telecommunications operators in each
country in which they operate. These operators have substantially more experience in providing
telephone services and have greater resources to devote to the provision of telephone services. In
addition, in many countries, LMI and UGC face, and Liberty Global will face, competition from
wireless telephone providers, facilities-based and resale telephone operators, voice over Internet
protocol providers and other providers. In the provision of Internet access services and online
content, LMI and UGC face, and Liberty Global will face, competition from incumbent
telecommunications companies and other telecommunications operators, other cable-based Internet
service providers, non-cable based Internet service providers, Internet portals and satellite,
microwave and other wireless providers. The Internet services offered by these competitors include
both traditional dial-up access services and high-speed access services. Digital subscriber line is
a technology that provides high-speed Internet access over traditional telephone lines. Both
incumbent and alternative providers offer digital subscriber line services. We expect digital
subscriber line to be an increasingly strong competitor in the provision of Internet services.
The market for programming services is also highly competitive. Programming businesses compete
with other programmers for distribution on a limited number of channels. Once distribution is
obtained, program offerings must then compete for viewers and advertisers with other programming
services as well as with other entertainment media, such as home video, online activities and
movies.
We expect the level and intensity of competition to increase in the future from both existing
competitors and new market entrants as a result of changes in the regulatory framework of the
industries in which LMI and UGC operate, and in which Liberty Global will operate, the influx of
new market entrants and strategic alliances and cooperative relationships among industry
participants. Increased competition may result in increased customer churn, reduce the rate of
customer acquisition and lead to significant price competition, in each case resulting in decreases
in cash flows, operating margins and profitability. The inability to compete effectively, may
result in the loss of subscribers, and revenues and the stock price of LMI and UGC, and, following
the mergers, Liberty Global, may suffer.
LMI, UGC and, following the mergers, Liberty Global may not be able to obtain attractive
programming for their digital video services, thereby lowering demand for their services. LMI and
UGC rely, and, following the mergers, Liberty Global will rely, on programming suppliers for the
bulk of their programming content. They may not be able to obtain sufficient high-quality
programming for their digital video services on satisfactory terms or at all in order to offer
compelling digital video services. This may reduce demand for their services, thereby lowering
their future revenues. It may also limit their ability to migrate customers from lower tier
programming to higher tier programming, thereby inhibiting their ability to execute their business
plans. Furthermore, LMI, UGC and, following the mergers, Liberty Global may not be able to obtain
attractive country-specific programming for video services. This could further lower revenues and
profitability. In addition, must-carry requirements may consume channel capacity otherwise
available for other services.
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Some of the operating businesses of LMI, UGC and, following the mergers, Liberty Global depend
upon third parties for the distribution of their products and services. In certain operating
regions, the businesses of LMI, UGC and following the mergers, Liberty Global require access to
utility poles, roadside conduits and leased fiber that interconnect their headends and/or connect
their headends to telecommunications facilities of third parties. This infrastructure is, in some
cases, owned by regional utility companies or other third party administrators, and access to the
infrastructure is licensed to the businesses of LMI, UGC and, following the mergers, Liberty
Global. In other operating regions, the transmission of cable programming content to regional
headend facilities is accomplished via communications satellites owned by third parties, who, in
some cases, are competitors. We cannot assure you that the businesses of LMI, UGC and, following
the mergers, Liberty Global will be able to renew any existing access agreements with these third
parties or enter into new agreements for additional access rights, which may be necessary for the
expansion of their businesses in these regions. Any cancellation, delay or interruption in these
access rights would disrupt the delivery of the products and services of LMI, UGC and, following
the mergers, Liberty Global to customers in the affected regions. In addition, the failure to
obtain additional access rights from such third parties could preclude expansionary efforts in
these operating regions. We also cannot assure you that any alternative distribution means will be
available in these regions, on reasonable terms or at all.
Following the mergers, Liberty Global and Liberty may compete for business opportunities.
LMIs former parent company, Liberty, has interests in various U.S. programming companies that have
subsidiaries or controlled affiliates that own or operate foreign programming services that may
compete with the programming services to be offered by Liberty Globals businesses. In addition,
Liberty may seek to expand its foreign programming services to capitalize on the significant growth
potential presented by the international cable market. As a result of these expansionary efforts,
Liberty Globals programming services may find themselves in direct competition with those of
Liberty. Liberty Global has no rights in respect of international programming opportunities
developed by or presented to the subsidiaries or controlled affiliates of Libertys U.S.
programming companies and the pursuit of these opportunities by such subsidiaries or affiliates may
adversely affect the interests of Liberty Global and its stockholders. Since Liberty Global will
have overlapping directors with Liberty, the pursuit of these opportunities could create, or appear
to create, potential conflicts of interest. See Management of Liberty Global.
Factors Relating to Certain Financial Matters
The liquidity and value of the interests of LMI, UGC and, following the mergers, Liberty
Global in their subsidiaries and affiliates may be adversely affected by stockholder agreements and
similar agreements to which they are a party. LMI and UGC own, and Liberty Global will own, equity
interests in a variety of international broadband distribution and video programming businesses.
Certain of these equity interests are, or will be, held pursuant to stockholder agreements,
partnership agreements and other instruments and agreements that contain provisions that affect the
liquidity, and therefore the realizable value, of those interests. Most of these agreements
subject, or will subject, the transfer of such equity interests to consent rights or rights of
first refusal of the other stockholders or partners. In certain cases, a change in control of the
company or the subsidiary holding the equity interest will give rise to rights or remedies
exercisable by other stockholders or partners. Some of the subsidiaries and affiliates of LMI and
UGC and, following the mergers, Liberty Global are parties to loan agreements that restrict changes
in ownership of the borrower without the consent of the lenders. All of these provisions will
restrict the ability to sell those equity interests and may adversely affect the prices at which
those interests may be sold.
LMI and UGC do not, and Liberty Global will not, have the right to manage the businesses or
affairs of any of the companies in which they hold less than a majority voting interest. Rather,
such rights may take the form of representation on the board of directors or a partners or similar
committee that supervises management or possession of veto rights over significant or extraordinary
actions. The scope of veto rights varies from agreement to agreement. Although board representation
and veto rights may enable LMI, UGC and, following the mergers, Liberty Global to exercise
influence over the management or policies of an affiliate, they do not enable LMI, UGC or,
following the mergers, Liberty Global to cause those affiliates to take actions, such as paying
dividends or making distributions to their stockholders or partners.
Following the mergers, Liberty Global may not report operating income or net earnings. Each of
UGC and LMI has a history of reporting operating and net losses. UGCs net earnings (losses)
amounted to $(314.7) million, $1,955.4 million, $(3,561.5) million and $(4,494.7) million for the
nine months ended September 30, 2004,
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and the years ended December 31, 2003, 2002 and 2001, respectively. Although UGC had net
earnings in 2003, the net earnings were primarily attributable to a $2.1 billion gain on debt
extinguishment. During the same periods, LMIs net earnings (losses) amounted to $(10.6) million,
$20.9 million, $(568.2) million and $(820.4) million for the nine months ended September 30, 2004,
and the years ended December 31, 2003, 2002 and 2001, respectively. In light of the historical
financial performance of UGC and LMI, we cannot assure you that Liberty Global will report
operating income or net earnings in the near future or at all.
If LMI, UGC or, following the mergers, Liberty Global fails to meet required capital calls to
a company in which it holds interests, its interests in that company could be diluted or it could
forfeit important rights. LMI and UGC are parties to, and, following the mergers, Liberty Global
may be a party to, stockholder and partnership agreements that provide for possible capital calls
on stockholders and partners. Failure to meet a capital call, or other commitment to provide
capital or loans to a particular company in which LMI, UGC or, following the mergers, Liberty
Global holds interests may have adverse consequences to LMI, UGC or, following the mergers, Liberty
Global. These consequences may include, among others, the dilution of equity interest in that
company, the forfeiture of the right to vote or exercise other rights or, in some instances, a
breach of contract action for damages against LMI, UGC or, following the mergers, Liberty Global.
The ability to meet capital calls or other capital or loan commitments is subject to the ability to
access cash. See LMI, UGC and Liberty Global may not freely access the cash of their operating
companies. below.
LMI, UGC and Liberty Global may not freely access the cash of their operating companies. The
operations of LMI and UGC are, and, following the mergers, Liberty Global will be, conducted
through their respective subsidiaries. The potential sources of cash of LMI and UGC, and,
following the mergers, Liberty Global will include their available cash balances, net cash from the
operating activities of their subsidiaries, dividends and interest from their investments,
availability under credit facilities and proceeds from asset sales. The ability of their operating
subsidiaries to pay dividends or to make other payments or advances to them depends on their
individual operating results and any statutory, regulatory or contractual restrictions to which
they may be or may become subject. Some of LMIs and UGCs operating subsidiaries are, and,
following the mergers, Liberty Globals operating subsidiaries will be, subject to loan agreements
or bank facilities that restrict sales of assets and prohibit or limit the payment of dividends or
the making of distributions, loans or advances to stockholders and partners, including LMI, UGC
and, following the mergers, Liberty Global. In addition, because these subsidiaries are separate
and distinct legal entities they have no obligation to provide LMI, UGC or, following the mergers,
Liberty Global with funds for payment obligations, whether by dividends, distributions, loans or
other payments. With respect to those companies in which LMI, UGC or, following the mergers,
Liberty Global have less than a majority voting interest, LMI and UGC do not have, and, following
the mergers, Liberty Global will not have, sufficient voting control to cause those companies to
pay dividends or make other payments or advances to any of their partners or stockholders,
including LMI, UGC or, following the mergers, Liberty Global.
If, following the mergers, Liberty Global is unable to satisfy completely the regulatory
requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or Liberty Globals internal control
over financial reporting is not effective, the reliability of Liberty Globals financial statements
may be questioned and Liberty Globals stock price may suffer. Section 404 of the Sarbanes-Oxley
Act of 2002 requires companies to do a comprehensive evaluation of their internal control over
financial reporting. To comply with this statute, Liberty Global will be required to document and
test its internal control procedures; Liberty Globals management will be required to assess and
issue a report concerning Liberty Globals internal control over financial reporting; and Liberty
Globals independent auditors will be required to issue an opinion on managements assessment of
those matters. Liberty Globals compliance with Section 404 of the Sarbanes-Oxley Act will first
be tested in connection with the filing of its Annual Report on Form 10-K for the fiscal year
ending December 31, 2005. The rules governing the standards that must be met for management to
assess Liberty Globals internal control over financial reporting are new and complex and require
significant documentation, testing and possible remediation to meet the detailed standards under
the rules. During the course of its testing, Liberty Globals management may identify material
weaknesses or deficiencies which may not be remedied in time to meet the deadline imposed by the
Sarbanes-Oxley Act. If, following the mergers, Liberty Globals management cannot favorably assess
the effectiveness of Liberty Globals internal control over financial reporting or Liberty Globals
auditors identify material weaknesses in those controls, investor confidence in
Liberty Globals financial results may weaken, and Liberty Globals stock price may suffer.
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Certain subsidiaries of LMI and UGC are, and certain subsidiaries of Liberty Global will be,
subject to various debt instruments that contain restrictions on how they finance their operations
and operate their businesses, which could impede their ability to engage in beneficial
transactions. Certain subsidiaries of LMI and UGC are, and certain subsidiaries of Liberty Global
will be, subject to significant financial and operating restrictions contained in outstanding
credit agreements, indentures and similar instruments of indebtedness. These restrictions will
affect, and in some cases significantly limit or prohibit, among other things, the ability of those
subsidiaries to:
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borrow more funds; |
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pay dividends or make other upstream distributions; |
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make investments; |
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engage in transactions with us or other affiliates; or |
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create liens on their assets. |
As a result of restrictions contained in these credit facilities, the companies party thereto,
and their subsidiaries, could be unable to obtain additional capital in the future to:
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fund capital expenditures or acquisitions that could improve their value; |
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meet their loan and capital commitments to their business affiliates; |
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invest in companies in which they would otherwise invest; |
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fund any operating losses or future development of their business affiliates; |
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obtain lower borrowing costs that are available from secured lenders or engage
in advantageous transactions that monetize their assets; or |
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conduct other necessary or prudent corporate activities. |
LMI and UGC are, and Liberty Global will be, typically prohibited from or significantly
restricted in accessing the net cash of their subsidiaries that have outstanding credit facilities.
In addition, some of the credit agreements to which these subsidiaries are parties require
them to maintain financial ratios, including ratios of total debt to operating cash flow and
operating cash flow to interest expense. Their ability to meet these financial ratios and tests may
be affected by events beyond their control, and we cannot assure you that they will be met. In the
event of a default under such subsidiaries credit agreements or indentures, the lenders may
accelerate the maturity of the indebtedness under those agreements or indentures, which could
result in a default under other outstanding credit facilities of these subsidiaries. We cannot
assure you that any of these subsidiaries will have sufficient assets to pay indebtedness
outstanding under their credit agreements and indentures. Any refinancing of this indebtedness is
likely to contain similar restrictive covenants.
Factors Relating to Governance Matters
John C. Malone will have significant influence over corporate matters considered by Liberty
Global and its stockholders. Following the mergers, John C. Malone is expected to beneficially own
shares of Liberty Global common stock representing approximately [___]% of the aggregate voting
power of Liberty Global (based upon his beneficial ownership interests in LMI and UGC,
respectively, as of the record dates for the special meetings, and assuming no cash elections are
made by the UGC stockholders). By virtue of Mr. Malones voting power in Liberty Global as well as
his position as Liberty Globals Chairman of the Board, Mr. Malone will have significant influence
over the outcome of any corporate transaction or other matters submitted to Liberty Global
stockholders
36
for approval, including the election of directors, mergers, consolidations and the sale of all
or substantially all of Liberty Globals assets. Mr. Malones rights to vote or dispose of his
equity interests in Liberty Global will not be subject to any restrictions in favor of Liberty
Global other than as may be required by applicable law and except for customary transfer
restrictions pursuant to incentive award agreements.
It may be difficult for a third party to acquire Liberty Global, even if doing so may be
beneficial to Liberty Global stockholders. Certain provisions of Liberty Globals restated
certificate of incorporation and bylaws may discourage, delay or prevent a change in control of
Liberty Global that a stockholder may consider favorable. These provisions include the following:
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authorizing a capital structure with multiple series of common stock: a Series B
that entitles the holders to ten votes per share; a Series A that entitles the
holders to one vote per share; and a Series C that, except as otherwise required by
applicable law, entitles the holder to no voting rights; |
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authorizing the issuance of blank check preferred stock, which could be issued
by its board of directors to increase the number of outstanding shares and thwart a
takeover attempt; |
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classifying its board of directors with staggered three-year terms, which may
lengthen the time required to gain control of its board of directors; |
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limiting who may call special meetings of stockholders; |
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prohibiting stockholder action by written consent, thereby requiring all
stockholder actions to be taken at a meeting of the stockholders; |
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establishing advance notice requirements for nominations of candidates for
election to its board of directors or for proposing matters that can be acted upon
by stockholders at stockholder meetings; |
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requiring stockholder approval by holders of at least 80% of its voting power or
the approval by at least 75% of its board of directors with respect to certain
extraordinary matters, such as a merger or consolidation of Liberty Global, a sale
of all or substantially all of its assets or an amendment to its restated
certificate of incorporation or bylaws; and |
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the existence of authorized and unissued stock which would allow its board of
directors to issue shares to persons friendly to current management, thereby
protecting the continuity of its management, or which could be used to dilute the
stock ownership of persons seeking to obtain control of them. |
Liberty Globals incentive plan may also discourage, delay or prevent a change in control of
Liberty Global even if such change of control would be in the best interests of Liberty Global
stockholders. For more information regarding the relative rights of the holders of LMI common
stock, UGC common stock and Liberty Global common stock, see Comparison of the Rights of
Stockholders of LMI, UGC and Liberty Global.
Holders of any single series of Liberty Global common stock may not have any remedies if any
action by Liberty Globals directors or officers has an adverse effect on only that series of
Liberty Global common stock. Principles of Delaware law and the provisions of Liberty Globals
restated certificate of incorporation may protect decisions of Liberty Globals board of directors
that have a disparate impact upon holders of any single series of Liberty Global common stock.
Under Delaware law, Liberty Globals board of directors has a duty to act with due care and in the
best interests of all Liberty Global stockholders, including the holders of all series of Liberty
Global common stock. Principles of Delaware law established in cases involving differing treatment
of multiple classes or series of stock provide that a board of directors owes an equal duty to all
common stockholders regardless of class or series and does not have separate or additional duties
to any group of stockholders. As a result, in some circumstances, Liberty Globals directors may be
required to make a decision that is adverse to the holders of one series of their common stock.
Under the principles of Delaware law referred to above, you may not be able to
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challenge these decisions if Liberty Globals board of directors is disinterested and
adequately informed with respect to these decisions and acts in good faith and in the honest belief
that it is acting in the best interests of all of its stockholders.
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INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this joint proxy statement/prospectus constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of 1995. These
statements may be made directly in this joint proxy statement/prospectus or they may be made a part
of this joint proxy statement/prospectus by appearing in other documents filed with the Securities
and Exchange Commission and incorporated by reference in this joint proxy statement/prospectus.
These statements may include statements regarding the period following completion of the mergers.
We intend these forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements in the federal securities laws. In some cases, you can identify these
statements by our use of forward-looking words such as may, will, should, anticipate,
estimate, expect, plan, believe, predict, potential, intend and other terms of
similar substance used in connection with any discussion of the mergers or the future operations or
financial performance of LMI, UGC or Liberty Global. You should be aware that these statements and
any other forward-looking statements in these documents only reflect our expectations and are not
guarantees of performance. These statements involve risks, uncertainties and assumptions. Many of
these risks, uncertainties and assumptions are beyond the control of LMI, UGC and Liberty Global,
and may cause actual results and performance to differ materially from our expectations.
In addition to the risks and uncertainties set forth under the heading Risk Factors on page
[___] of this joint proxy statement/prospectus, important factors that could cause our actual
results to be materially different from our expectations include, among others:
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economic and business conditions and industry trends in the countries in which we operate; |
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currency exchange risks; |
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consumer disposable income and spending levels, including the availability and
amount of individual consumer debt; |
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consumer acceptance of existing service offerings, including our newer digital
video, voice and Internet access services; |
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consumer acceptance of new technology, programming alternatives and broadband
services that we may offer; |
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our ability to manage rapid technological changes, and grow our digital video,
voice and Internet access services; |
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spending on foreign television advertising; |
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the regulatory and competitive environment in the broadband communications and
programming industries in the countries in which we operate; |
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continued consolidation of the foreign broadband distribution industry; |
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uncertainties inherent in the development and integration of new business lines
and business strategies; |
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the expanded deployment of personal video recorders and the impact on television
advertising revenue; |
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capital spending for the acquisition and/or development of telecommunications
networks and services; |
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uncertainties associated with product and service development and market
acceptance, including the development and provision of programming for new
television and telecommunications technologies; |
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future financial performance, including availability, terms and deployment of
capital; |
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the ability of suppliers and vendors to timely deliver products, equipment,
software and services; |
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the outcome of any pending or threatened litigation; |
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availability of qualified personnel; |
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changes in, or failure or inability to comply with, government regulations in
the countries in which we operate and adverse outcomes from regulatory proceedings; |
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government intervention which opens our broadband distribution networks to competitors; |
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our ability to successfully negotiate rate increases with local authorities; |
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changes in the nature of key strategic relationships with partners and joint venturers; |
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uncertainties associated with our ability to comply with the internal control
requirements of the Sarbanes Oxley Act of 2002; |
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competitor responses to our products and services, and the products and services
of the entities in which we have interests; and |
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threatened terrorist attacks and ongoing military action in the Middle East and
other parts of the world. |
You should be aware that the video, voice and Internet access services industries are changing
rapidly, and, therefore, the forward-looking statements and statements of expectations, plans and
intent herein are subject to a greater degree of risk than similar statements regarding certain
other industries.
We caution you not to place undue reliance on the forward-looking statements contained in this
joint proxy statement/prospectus. These forward-looking statements speak only as of the date on
which the statements were made. Except as may be required by law, none of LMI, UGC or Liberty
Global has any obligation to update or alter these forward-looking statements, whether as a result
of new information, future events or otherwise.
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THE COMPANIES
Liberty Media International, Inc.
LMI is a holding company that, through its ownership of interests in subsidiaries and
affiliates, provides broadband distribution services and video programming services to subscribers
in Europe, Japan, Latin America and Australia. LMIs broadband distribution services consist
primarily of cable television distribution, Internet access and, in selected markets, telephony and
satellite distribution. LMIs broadband distribution services include those of UGC, which is a
controlled subsidiary of LMI. LMIs programming networks create original programming and also
distribute programming obtained from international and home-country content providers. LMIs
principal assets include interests in UGC, Jupiter Telecommunications Co., Ltd., Jupiter
Programming Co., Ltd., Liberty Cablevision of Puerto Rico Ltd. and Pramer S.C.A.
LMI is a Delaware corporation, formed on March 16, 2004, in connection with the proposed spin
off of Libertys International Group business segment. LMIs assets and businesses, including its
controlling stake in UGC, consist largely of those which Liberty attributed to its International
Group business segment prior to the spin off. On June 7, 2004, Liberty distributed to its
stockholders, on a pro rata basis, all of the outstanding shares of LMIs common stock, and LMI
became an independent, publicly traded company.
LMIs principal executive offices are located at 12300 Liberty Boulevard, Englewood, Colorado
80112. LMIs main telephone number is (720) 875-5800, and its company website is
www.libertymediainternational.com.
Additional Information
For more information regarding LMI, please see Appendix A: Information Concerning Liberty
Media International, Inc. to this joint proxy statement/prospectus, including, without limitation:
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Part 1: Description of Business; |
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Part 2: Certain Relationships and Related Party Transactions; |
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Part 3: Managements Discussion and Analysis of Financial Condition and
Results of Operations and Quantitative and Qualitative Disclosures About Market
Risk; and |
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Part 4: Historical Financial Statements of LMI and its Significant Affiliates
and Acquirees; |
which is incorporated herein in its entirety by this reference.
UnitedGlobalCom, Inc.
UGC is a leading international broadband communications provider of video, voice and Internet
services with operations in 16 countries outside the United States. UGCs networks pass
approximately 16.0 million homes and serve approximately 8.7 million video subscribers, 0.8 million
voice subscribers and 1.4 million Internet access subscribers. UGC Europe, Inc., UGCs largest
consolidated operation, is a leading pan-European broadband communications company. VTR GlobalCom
S.A., UGCs primary Latin American operation, is Chiles largest multi-channel television and
high-speed Internet access provider in terms of homes passed and number of subscribers, and Chiles
second largest provider of residential telephone services in terms of lines in service. UGC also
has an approximate 19% interest in SBS Broadcasting S.A., a European commercial television and
radio broadcasting company, and an approximate 34% interest in Austar United Communications
Limited, a leading pay-TV provider in Australia.
UGC is a Delaware corporation, formed on February 5, 2001 in connection with a substantial
investment by Liberty.
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UGCs principal executive offices are located at 4643 South Ulster Street, Suite 1300, Denver,
Colorado 80237. UGCs main telephone number is (303) 770-4001, and its company website is
www.unitedglobal.com.
Additional Information
For more information regarding UGC, please see Additional Information Where You Can Find
More Information.
Liberty Global, Inc.
Liberty Global, a wholly owned subsidiary of LMI, is a Delaware corporation, formed on January
13, 2005, for the purpose of effecting the mergers. Upon consummation of the mergers, Liberty
Global will become the parent company of LMI and UGC. The businesses of Liberty Global will
reflect the combination of the businesses currently conducted by each of LMI and UGC.
To date, Liberty Global has not conducted any activities other than those incident to its
formation and the matters contemplated by the merger agreement, including the formation of each of
LMI Merger Sub and UGC Merger Sub as wholly owned subsidiaries and the preparation of applicable
filings under the securities laws.
Additional Information
For more information regarding the business of Liberty Global following the mergers, please
see the description of LMIs business included in Appendix A: Information Concerning Liberty Media
International, Inc. Part 1: Description of Business, which includes a description of UGCs
business. In addition, please carefully read the information provided in this joint proxy
statement/prospectus, including the information provided under the heading Liberty Global
Unaudited Condensed Pro Forma Combined Financial Statements.
Cheetah Acquisition Corp. (LMI Merger Sub)
LMI Merger Sub, a wholly owned subsidiary of Liberty Global, is a Delaware corporation, formed
on January 13, 2005, for the purpose of effecting the merger with LMI. LMI Merger Sub has not
conducted any activities other than those incident to its formation and the matters contemplated by
the merger agreement, including the preparation of applicable filings under the securities laws.
Tiger Global Acquisition Corp. (UGC Merger Sub)
UGC Merger Sub, a wholly owned subsidiary of Liberty Global, is a Delaware corporation, formed
on January 13, 2005, for the purpose of effecting the merger with UGC. UGC Merger Sub has not
conducted any activities other than those incident to its formation and the matters contemplated by
the merger agreement, including the preparation of applicable filings under the securities laws.
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THE SPECIAL MEETINGS AND PROXY SOLICITATIONS
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LMI |
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UGC |
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Time, Place & Date
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[________],
2005
[___] a.m., local time
[_______________]
[_______________]
[________], Colorado
[________]
The LMI special meeting may be
adjourned or postponed to
another date, time or place for
proper purposes, including for
the purpose of soliciting
additional proxies.
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[________],
2005
[___] a.m., local time
[_______________]
[_______________]
[________], Colorado
[________]
The UGC special meeting may be
adjourned or postponed to
another date, time or place for
proper purposes, including for
the purpose of soliciting
additional proxies. |
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Purposes
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To consider and vote on
the merger proposal; and
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To consider and vote on
the merger proposal; and |
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To transact other
business as may properly be
presented at the LMI special
meeting or any postponements or
adjournments thereof.
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To transact other
business as may properly be
presented at the UGC special
meeting or any postponements or
adjournments thereof. |
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At the present time, LMI knows
of no other matters that will
be presented at the LMI special
meeting.
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At the present time, UGC knows
of no other matters that will
be presented at the UGC special
meeting. |
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Quorum |
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In order to carry on the business of the applicable special meeting,
LMI or UGC, as the case may be, must have a quorum present. This
means that at least a majority of the aggregate voting power
represented by the outstanding shares of LMI common stock or UGC
common stock, as the case may be, must be represented at the
applicable special meeting, either in person or by proxy. For
purposes of determining a quorum, your shares will be included as
represented at the meeting even if you indicate on your proxy that
you abstain from voting. In addition, if a broker, who is a record
holder of shares, indicates on a form of proxy that the broker does
not have discretionary authority to vote those shares on the
proposal, or if those shares are voted in circumstances in which
proxy authority is defective or has been withheld with respect to any
proposal, these shares (which we refer to as broker non-votes) will
be treated as present for purposes of determining the presence of a
quorum. See -Shares Held in Street Name Effect of Broker
Non-Votes and Abstentions below. |
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Record Date
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5:00 p.m., New York City time,
on [___], 2005
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5:00 p.m., New York City time,
on [___], 2005 |
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Shares Entitled
to Vote
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Holders of LMI Series A common
stock and LMI Series B common
stock, as recorded in LMIs
stock register on the record
date for the LMI special
meeting, may vote at the LMI
special meeting.
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Holders of UGC Class A common stock, UGC Class B common stock
and UGC Class C common stock,
as recorded in UGCs stock
register on the record date for
the UGC special meeting, may
vote at the UGC special
meeting. |
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Votes You
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At the LMI special meeting,
holders of
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At the UGC special meeting, holders of |
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LMI |
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UGC |
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Have
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LMI Series A common
stock will have one vote for each share of LMI
Series A common stock that
LMIs records show they owned
as of 5:00 p.m., New York City
time, on the record date for
the LMI special meeting.
At the special meeting, holders
of LMI Series B common stock
will have ten votes for each share of LMI Series B
common stock that LMIs records
show they owned as of 5:00
p.m., New York City time, on
the record date for the LMI
special meeting.
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UGC Class A common stock will have one vote for each share of UGC Class A common stock that UGCs
records show they owned as of
5:00 p.m., New York City time,
on the record date for the UGC
special meeting.
At the special meeting, holders
of UGC Class B common stock and
holders of UGC Class C common
stock will have ten votes for each share of UGC
Class B common stock and for
each share of UGC Class C
common stock that UGCs records
show they owned as of 5:00
p.m., New York City time, on
the record date for the UGC
special meeting. |
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Recommendation of
the Board of
Directors
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LMIs board of directors has
unanimously approved the merger
agreement and the LMI merger
and determined that the merger
agreement and the LMI merger
are advisable, fair to and in
the best interests of LMI and
its stockholders. Accordingly,
LMIs board of directors
recommends that LMI
stockholders vote FOR the
merger proposal.
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UGCs board of directors,
based upon the recommendation of the Special Committee, has unanimously approved the merger
agreement and the UGC merger
and determined that the merger
agreement and the UGC merger
are advisable, fair to and in
the best interests of UGC and
its stockholders. Accordingly,
UGCs board of directors
recommends that UGC
stockholders vote FOR the
merger proposal.
. |
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Votes Required
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Approval of the merger proposal
requires the affirmative vote
of the holders of a majority of
the aggregate voting power of
the LMI Series A common stock
and LMI Series B common stock
outstanding as of the record
date for the LMI special
meeting, voting together as a
single class.
Pursuant to a voting agreement
entered into between John C.
Malone, the Chairman of the
Board, Chief Executive Officer
and President of LMI, and UGC,
Mr. Malone has agreed to vote
the shares of LMI Series A
common stock and LMI Series B
common stock owned by him or
which he has the right to vote
(currently representing
approximately 26.5% of the
aggregate voting power of LMI)
FOR the approval of the
merger proposal. See The
Transaction Agreements Voting
Agreement.
The directors and executive
officers of LMI (other than Mr.
Malone), who together
beneficially own shares of LMI
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Approval of the merger proposal
requires a vote of the holders
of UGC common stock, with all
classes voting together as a
single class, that satisfies
two criteria:
statutory approval: the affirmative vote of the holders
of at least a majority of the
aggregate voting power of the shares of UGC Class A common
stock, UGC Class B common stock and UGC Class C common stock
outstanding as of the record date for the UGC special meeting;
and
minority approval: the affirmative vote of the holders
of a majority of the aggregate
voting power of the outstanding
shares of UGC common stock
entitled to vote at the UGC
special meeting, excluding the
shares beneficially owned by
LMI, Liberty or any of their
respective subsidiaries or any of the executive officers or directors
of LMI, Liberty or UGC. |
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LMI |
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UGC |
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common stock representing
approximately 3.3% of LMIs
aggregate voting power, have
indicated to LMI that they
intend to vote FOR the merger
proposal at the LMI special
meeting.
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LMI, which currently
beneficially owns shares of UGC
common stock representing
approximately 91% of the
aggregate voting power of UGC,
has agreed to vote, and to
cause its subsidiaries to vote,
such shares in favor of the
approval of the merger
proposal. See The Transaction
Agreements Merger Agreement.
Accordingly, the statutory
approval is assured.
The directors and executive
officers of UGC, who together
beneficially own shares of UGC
common stock representing less
than 1% of UGCs aggregate
voting power, have indicated to
UGC that they intend to vote
FOR the merger proposal at
the UGC special meeting.
The directors and executive
officers of LMI (including Mr.
Malone), who together
beneficially own shares of UGC
common stock representing less
than 1% of UGCs aggregate
voting power, have indicated to
UGC that they intend to vote
FOR the merger proposal at
the UGC special meeting.
The votes of LMI and its wholly
owned subsidiaries, the votes
of UGCs directors and
executive officers and the
votes of LMIs directors and
executive officers will not be
counted toward the minority
approval.
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Shares
Outstanding
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As of the record date for the
LMI special meeting, there were
[___] shares of LMI
Series A common stock and
7,264,300 shares of LMI Series
B common stock outstanding and
entitled to vote on the merger
proposal at the LMI special
meeting. See Executive
Officers, Directors and
Principal Stockholders of LMI.
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As of the record date for the
UGC special meeting, there were
[___] shares of UGC
Class A common stock,
10,493,461 shares of UGC Class
B common stock and 379,603,223
shares of UGC Class C common
stock outstanding and entitled
to vote on the merger proposal
at the UGC special meeting.
See Executive Officers,
Directors and Principal
Stockholders of UGC. |
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Numbers of
Holders
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As of the record date for the
LMI special meeting, there were
approximately [___] and [___]
record holders of LMI Series A
and Series B common stock,
respectively (which amounts do
not include the number of
stockholders whose shares are
held of record by banks,
brokers or other nominees, but
include each such institution
as one holder).
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As of the record date for the
UGC special meeting, there were
approximately [___], [___] and
[___] record holders of UGC
Class A, Class B and Class C
common stock, respectively
(which amounts do not include
the number of stockholders
whose shares are held of record
by banks, brokers or other
nominees, but include each such
institution as one holder). |
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LMI |
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UGC |
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Voting Procedures |
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Holders of LMI common stock and UGC common stock, as the case may be,
as of the record date for the applicable special meeting may vote in
person thereat. Alternatively, they may give a proxy by completing,
signing, dating and returning the proxy card that has been included
with the mailing of this joint proxy statement/prospectus, or by
voting by telephone or over the Internet. Unless subsequently
revoked, shares of LMI common stock or UGC common stock, as the case
may be, represented by a proxy submitted as described below and
received at or before the applicable special meeting will be voted in
accordance with the instructions on the proxy. |
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YOUR VOTE IS IMPORTANT. It is recommended that you vote by proxy even
if you plan to attend the special meeting. You may change your vote
at the special meeting. To submit a written proxy by mail, you
should complete, sign, date and mail the proxy in accordance with its
instructions. If a proxy is signed and returned without indicating
any voting instructions, the shares of LMI common stock or UGC common
stock represented by the proxy will be voted FOR the approval of
the merger proposal. You may also submit a proxy by telephone or
over the Internet by following the instructions set forth on the
proxy. Failure to submit a proxy or vote in person at the special
meeting will have the same effect as a vote AGAINST the approval of
the merger proposal. |
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If any other matters are properly presented before the special
meeting, the persons you choose as proxies will have discretion to
vote or to act on these matters according to their best judgment,
unless you indicate otherwise on your proxy. |
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Revoking a Proxy
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Before your proxy is voted, you
may change your vote by
telephone or over the Internet
(if you originally voted by
telephone or over the
Internet), by voting in person
at the LMI special meeting or
by delivering a signed proxy
revocation or a new signed
proxy with a later date to
Liberty Media International,
Inc., c/o EquiServe Trust
Company, N.A., P.O. Box [___],
Edison, New Jersey
08818-[___]. Any signed
proxy revocation or new signed
proxy must be received before
the start of the LMI special
meeting.
Your attendance at the LMI
special meeting will not, by
itself, revoke your proxy.
If your shares are held in an
account by a broker, bank or
other nominee, you should
contact your broker, bank or
other nominee to change your
vote.
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Before your proxy is voted, you
may change your vote by
telephone or over the Internet
(if you originally voted by
telephone or over the
Internet), by voting in person
at the UGC special meeting or
by delivering a signed proxy
revocation or a new signed
proxy with a later date to
UnitedGlobalCom, Inc., c/o
Mellon Investor Services LLC,
Proxy Processing, P.O. Box
[___], South Hackensack, New
Jersey 07606-[___]. Any
signed proxy revocation or new
signed proxy must be received
before the start of the UGC
special meeting.
Your attendance at the UGC
special meeting will not, by
itself, revoke your proxy.
If your shares are held in an
account by a broker, bank or
other nominee, you should
contact your broker, bank or
other nominee to change your
vote. |
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Solicitation of
Proxies
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The accompanying proxy for the
LMI special meeting is being
solicited on behalf of LMIs
board of directors. In
addition to this mailing, LMIs
employees may solicit proxies
personally, electronically or
by telephone. LMI pays the
cost of soliciting these
proxies. LMI also reimburses
brokers and other nominees for
their
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The accompanying proxy for the
UGC special meeting is being
solicited on behalf of UGCs
board of directors. In
addition to this mailing, UGCs
employees may solicit proxies
personally, electronically or
by telephone. UGC pays the
cost of soliciting these
proxies. UGC also reimburses
brokers and other nominees for their |
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LMI |
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UGC |
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expenses in sending these
materials to you and getting
your voting instructions.
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expenses in sending these
materials to you and getting
your voting instructions.
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In addition to this mailing,
LMI has hired D.F. King & Co.
to solicit proxies on LMIs
behalf. D.F. King & Co. will
receive $7,000 as compensation
for such services, plus
expenses.
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In addition to this mailing,
UGC has hired D.F. King & Co.
to solicit proxies on UGCs
behalf. D.F. King & Co. will
receive approximately $11,500
as compensation for such
services, plus expenses. |
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Shares Held in Street
Name
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General |
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If you hold your shares in the name of a bank, broker or other
nominee, you should follow the instructions provided by your bank,
broker or nominee when voting your shares or when granting or
revoking a proxy. Absent specific instructions from you, your broker
is not permitted to vote your shares on the merger proposal. |
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Effect of Broker Non-Votes and Abstentions |
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Broker non-votes will be counted as present and represented at the
applicable special meeting but will not be voted on the merger
proposal or any other matter submitted to stockholders. As a result,
a broker non-vote will have the same effect as a vote AGAINST the
merger proposal. Similarly, if you indicate that you are abstaining
from voting, your proxy will have the same effect as a vote AGAINST
the merger proposal. |
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Auditors
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KPMG LLP serves as LMIs
independent auditors.
Representatives of KPMG plan to
attend the LMI special meeting
and will be available to answer
questions. A representative of KPMG is expected to attend the meeting
with the opportunity to make a statement and/or respond to
appropriate questions from shareholders at the meeting.
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KPMG LLP serves as UGCs
independent auditors.
Representatives of KPMG plan to
attend the UGC special meeting
and will be available to answer
questions. A representative of KPMG is expected to attend the meeting
with the opportunity to make a statement and/or respond to
appropriate questions from shareholders at the meeting.
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47
SPECIAL FACTORS
Background of the Mergers
LMI was formerly a wholly owned subsidiary of Liberty. On June 7, 2004, Liberty distributed
to its stockholders, on a pro rata basis, all of the issued and outstanding shares of LMI common
stock, and LMI became an independent, publicly-traded company. From time to time following the
spin off, LMIs board of directors and management reviewed the assets held by LMI to determine the
available alternatives for enhancing the value of the company.
Among the alternatives discussed following the spin off was a potential combination of LMI
with its subsidiary UGC, in which LMI owns capital stock representing 53.6% of the equity and 91%
of the outstanding voting power. On November 12, 2004, John C. Malone, Chairman of the Board,
Chief Executive Officer and President of LMI, stated in response to questions posed during a
conference call with LMI investors that LMI would eventually like to combine with UGC, but not at
the then-current market prices, which he believed undervalued LMI. During the period from June
2004 through early December 2004, LMI did not have any contact with UGC regarding a potential
combination.
At a meeting of the LMI board of directors on December 10, 2004, Mr. Malone sought
authorization from the board to contact and initiate discussions with UGC concerning a possible
combination of LMI and UGC in a stock-for-stock transaction. Mr. Malone discussed with the board
his view that a combination of the two companies should be approached as a merger of equals, with
the board of directors and senior management team of the combined company being drawn from members
of the boards and senior management teams of both companies. After discussion of the exchange ratio
implied by the relative trading prices and sum-of-the parts values of the two companies, the board
concluded that any valuation discussions with UGC should be on a market-to-market or fair
value-to-fair value basis, with no premium to either companys stockholders. The LMI board
authorized Mr. Malone to contact and initiate discussions with UGC on the basis discussed at that
meeting.
On the evening of December 10, 2004, as a prelude to discussions with UGC, LMI delivered a
letter to UGC stating that it wished to initiate discussions concerning a possible transaction
involving the shares of UGC that LMI did not already own, and seeking a mutual confidentiality
agreement in anticipation of such talks. This letter did not include any terms of a proposed
transaction.
At a telephonic meeting of the UGC board of directors held on December 13, 2004, the board
appointed three outside directors, John P. Cole, Jr., John W. Dick and Paul A. Gould, to serve as a
Special Committee; to advise the UGC board with respect to the fairness of any transactions
proposed by LMI; if deemed appropriate by the Special Committee, to negotiate the terms and
conditions of a transaction with representatives of LMI; following such negotiations, to make a
recommendation to the UGC board as to whether such proposal should be accepted or rejected by the
UGC board; and to retain, at UGCs expense, such attorneys, investment bankers, accountants,
actuaries or other advisors as the Special Committee might deem appropriate in order to advise and
assist it. Messrs. Cole, Dick and Gould were selected to serve on the Special Committee because
they were independent under the rules of the Nasdaq Stock Market and have no relationship with LMI
or any of its affiliates that the Special Committee viewed as undermining the independence of the
Special Committee, as further described under Recommendations of the Special Committee and the
UGC Board; Fairness of the Offer and the UGC Merger.
Subsequently, by unanimous written consent effective as of December 22, 2004, the UGC board
approved payment to each member of the Special Committee of a fee of $95,000 for serving on the
Special Committee and provided the Special Committee with certain additional powers in connection
with the performance of its duties, including full access to UGCs records and personnel and the
authority to execute and deliver any documents or agreements it deemed appropriate in connection
with its duties.
After conducting interviews and follow-up conversations with three law firms, on December 14,
2004, the Special Committee retained Debevoise & Plimpton LLP to act as its legal advisor. Among
the reasons for this selection were Debevoises strong reputation, its experience in mergers and acquisitions
transactions, its experience
48
in representing other special committees, the seniority and experience of the attorneys who
would be working on the transaction and the absence of any material prior relationship with LMI,
UGC or any of their affiliates.
On December 15, 2004, the Special Committee, together with representatives of Debevoise,
conducted preliminary interviews with representatives of two internationally recognized investment
banking firms: Morgan Stanley & Co. Incorporated and another firm. Mr. Gould and Debevoise
participated in these meetings in person, and Messrs. Cole and Dick joined by telephone. Each firm
was asked to provide additional information to assist the Special Committee in its decision.
Also on December 15, 2004, the members of the Special Committee, together with their legal
advisors, spoke by telephone with Mr. Malone. Mr. Malone noted that LMI was not making a formal
offer and said that he would be interested in discussing with the Special Committee a
stock-for-stock transaction based upon relative fair values in which LMI and UGC and their
respective boards of directors and management teams would be combined. He indicated that in his
view the recent market prices of LMIs and UGCs stocks reflected a fair relative valuation of the
two companies. Mr. Malone asked the Special Committee whether they would be interested in
discussing a transaction within that framework. In response to questions from the Special
Committee, Mr. Malone expressed his views as to the benefits to be derived from a combination of
LMI and UGC. The Special Committee also asked Mr. Malone whether LMI would be willing to sell its
interest in UGC in a transaction for the entire company. Mr. Malone responded that LMI would not
be willing to consider such a transaction and had no current intention of selling its interest in
UGC to a third party.
On December 20, 2004, the Special Committee, together with representatives of Debevoise,
conducted further interviews with representatives of Morgan Stanley and another investment banking
firm. Mr. Gould and Debevoise participated in these meetings in person, and Messrs. Cole and Dick
joined by telephone. The Special Committee and its legal advisor raised questions designed to
ascertain any prior relationships of each firm with Liberty, LMI and UGC.
On December 21, 2004, the Special Committee had two separate telephone meetings during which
the Special Committee extensively discussed the qualifications and fee expectations of the
investment banking firms being considered for the position of financial advisor to the Special
Committee. At the instruction of the Special Committee, Mr. Gould subsequently requested that each
firm reduce its initial fee proposal.
On December 22, 2004, the Special Committee had a further telephonic meeting to discuss the
selection of a financial advisor. The Special Committee reviewed the revised fee proposals made by
Morgan Stanley and another investment banking firm in response to the committees request. After
discussion, the Special Committee agreed to choose Morgan Stanley provided it was able to meet the
Special Committees fee expectations. Morgan Stanley met those expectations and was retained on
December 22, 2004, to act as the Special Committees financial advisor. Among the reasons for
selecting Morgan Stanley were Morgan Stanleys strong reputation, experience in transactions of
this kind and knowledge of UGC, its business and the industries in which UGC and LMI operate.
On December 23, 2004, the Special Committee held a telephonic meeting with its legal and
financial advisors. Participants discussed the Special Committees December 15, 2004 conversation
with Mr. Malone regarding a possible transaction. Participants also discussed the methodologies
that Morgan Stanley anticipated using in advising the Special Committee, strategic issues and next
steps with respect to Morgan Stanleys commencing its financial analysis, including due diligence
plans. At this meeting, Debevoise also reviewed with the members of the Special Committee the
Delaware law applicable to the potential transaction and their duties thereunder.
On December 28, 2004, the Special Committee held a telephonic meeting with its legal and
financial advisors to discuss the status of Morgan Stanleys financial due diligence. The Special
Committee agreed to arrange a call with Mr. Malone on December 31, 2004.
On December 29, 2004, representatives of Debevoise contacted Elizabeth Markowski, the general
counsel of LMI, and Ellen Spangler, the general counsel of UGC, regarding legal due diligence
matters.
49
On December 30, 2004, the Special Committee held a telephonic meeting with its legal advisors.
The Special Committee discussed legal and strategic issues relating to a potential transaction.
On December 31, 2004, the Special Committee held a telephonic meeting with its legal and
financial advisors. Morgan Stanley described the status of its financial due diligence and
discussed its preliminary views as to the potential values of LMI and UGC and implied exchange
ratios. The Special Committee discussed with Morgan Stanley the approach that Morgan Stanley took
in formulating its preliminary views.
Later on December 31, 2004, the Special Committee and its legal and financial advisors spoke
by telephone with Mr. Malone, Ms. Markowski and two other executives of LMI. On this call Mr.
Malone expressed his views as to the prospects of the LMI and UGC businesses, benefits to be
obtained by combining LMI and UGC, and why such a combination should be on a market-to-market or
fair value-to-fair value basis. Mr. Malone insisted that LMI would not pay a premium for the UGC
minority stake, as LMI already controlled UGC and UGCs stockholders would share in all of the
benefits of the combined company. He said that any discussion should focus on the parties
respective views as to the relative values of the two companies. He further observed that when he
had first approached UGC about discussing a possible combination, the relative market prices of the
stocks of the two companies implied an exchange ratio between 0.1923 and 0.1961 shares of LMI
Series A common stock for each share of UGC Class A common stock. Since that time, he noted,
whether due to speculation regarding LMIs intentions towards its largest investment or currency
exchange rate changes, UGCs stock price had moved and had already built in a premium. Following
the call with Mr. Malone, the Special Committee reconvened by telephone with its legal and
financial advisors to discuss its next steps. The Special Committee then continued the discussion
with its legal advisors only.
On January 3, 2005, the Special Committee held a telephonic meeting with its legal and
financial advisors. Morgan Stanley provided an update as to its preliminary views regarding the
potential values of LMI and UGC, and discussed with the Special Committee potential combination
benefits that might result from the proposed transaction and approaches to sharing those benefits,
the implied exchange ratios and potential premiums with respect to various benchmark dates. The
Special Committee discussed Morgan Stanleys views with them, inquired as to the status of Morgan
Stanleys financial due diligence, and requested that Morgan Stanley obtain additional information.
Debevoise made a presentation regarding potential strategic options for the consummation of a
potential transaction. Subsequently, the Special Committee continued its discussions in executive
session.
On January 4, 2005, the Special Committee held a telephonic meeting with its legal advisors.
The Special Committee reviewed the merits of a public versus a private negotiating process and
instructed Debevoise to discuss the matter with Ms. Markowski. Subsequently, the Special Committee
met in executive session and had a conference call with Michael T. Fries, the Chief Executive
Officer and President of UGC, to review various matters relating to the UGC business and the
discussions with LMI. Morgan Stanley spoke separately with Mr. Fries by telephone to discuss
similar matters.
On January 5, 2005, representatives of Debevoise called Ms. Markowski to discuss the
possibility of pursuing a public process. Ms. Markowski stated that to date LMI had simply asked
if the Special Committee would be interested in pursuing discussions on the basis outlined by Mr.
Malone in earlier conversations, and that to her knowledge the Special Committee had yet to
respond. She also noted that the parties had yet to exchange views on relative values. Ms.
Markowski advised Debevoise that in the absence of an agreement in principle on the essential terms
of a transaction, she did not believe LMI would be willing to make a formal offer and engage in a
public negotiating process.
Later on January 5, 2005, the Special Committee met telephonically with its legal and
financial advisors. Morgan Stanley reported on its recent conversation with Mr. Fries. Debevoise
reported on its conversation with Ms. Markowski. The Special Committee agreed to convene in person
in New York on January 10, 2005. The Special Committee further agreed to dispatch its financial
advisors to meet with Mr. Malone in person on the morning of January 10, 2005 to discuss the
details of a possible transaction with LMI and the preliminary valuations of the two companies by
Morgan Stanley. On the evening of January 5, 2005, Morgan Stanley spoke by telephone with Mr.
Fries at the instruction of the Special Committee to follow up on certain financial due diligence
matters.
50
On January 7, 2005, the Special Committee met telephonically with its legal and financial
advisors. Morgan Stanley provided the Special Committee with an overview of the points that it
anticipated discussing with Mr. Malone and responded to the Special Committees questions and
comments.
On the morning of January 10, 2005, representatives of Morgan Stanley met in person with Mr.
Malone and Ms. Markowski. Morgan Stanley provided preliminary views as to valuations of LMI and
UGC and discussed those values and the implied exchange ratios with Mr. Malone. Morgan Stanley
also explored with Mr. Malone LMIs willingness to consider a cash alternative or the addition of
another component to the stock consideration to provide additional value to the UGC public
stockholders.
On the afternoon of January 10, 2005, the Special Committee met in person in New York with its
legal advisors to discuss the duties of the members of the Special Committee under Delaware law and
legal and strategic issues, including whether the Special Committee should insist upon a
requirement that a majority of the UGC stockholders unaffiliated with LMI approve any transaction,
also known as a majority of the minority condition.
Representatives of Morgan Stanley subsequently joined the meeting and briefed the members of
the Special Committee on the results of their conversations earlier in the day with the LMI
representatives. Morgan Stanley informed the Special Committee that Mr. Malone had repeated his
interest in a stock-for-stock transaction at an exchange ratio reflecting a price at or about
market, which at that time implied an exchange ratio of 0.20 LMI shares for each share of UGC.
Morgan Stanley reported that Mr. Malone had exhibited some very limited flexibility within that
range, including a willingness to consider offering UGC stockholders a cash option for up to 20% of
the aggregate value of the merger consideration, the possibility of providing a small amount of
additional merger consideration in the form of structured securities and an interest in having the
combined company pursue a stock buy-back strategy after the consummation of a transaction. After
discussion, the members of the Special Committee agreed that while Mr. Malones position was not
acceptable, it provided the basis for further discussion.
Later on the evening of January 10, 2005, the Special Committee, Mr. Malone, Ms. Markowski,
the respective legal advisors of LMI and the Special Committee, Morgan Stanley and LMIs financial
advisor, Banc of America Securities, met to discuss further a possible transaction. Mr. Malone
emphasized that he had not made an offer for UGC and that he would not engage in a public
negotiating process. He expressed concern that recent increases in the UGC stock price raised
doubts as to whether the UGC and LMI stock prices continued to reflect the relative fair values of
the two companies, and again stated that LMI was unwilling to pay a premium for the UGC stock at
its then-market price. He also repeated the statements made earlier that day to Morgan Stanley.
Representatives of the Special Committee noted their strong interest in having a majority of the
minority condition as an element of any transaction. Mr. Malone stated that LMI was not interested
in pursuing a transaction with such a condition. At the request of the Special Committee, Mr.
Malone stated his personal willingness as a significant stockholder of LMI to enter into a voting
agreement to support the approval of a potential transaction by the LMI stockholders.
Subsequently, the Special Committee met with its legal and financial advisors to discuss its
response to LMI.
On the morning of January 11, 2005, representatives of Morgan Stanley and Banc of America
Securities met to discuss their respective preliminary views as to the valuations of UGC and LMI,
as well as possible structured securities that might serve as additional merger consideration.
On the afternoon of January 11, 2005, Messrs. Dick and Gould met with the Special Committees
legal and financial advisors. Mr. Cole was not present. Morgan Stanley updated the members of the
Special Committee on its discussions with Banc of America Securities. After discussion with its
advisors, the Special Committee members concluded that the structured securities described by Mr.
Malone and Banc of America Securities did not represent a fully developed proposal and that these
securities were unlikely to provide significant value to UGC stockholders.
Later that afternoon, Messrs. Dick and Gould met with Mr. Malone, Ms. Markowski, and the
respective legal and financial advisors of the Special Committee and LMI. The initial positions of
the two sides were as follows: The Special Committee members and their representatives stated
(based upon the prior evenings Special Committee discussions) that an exchange ratio of 0.23 LMI
shares for each share of UGC would be acceptable. Mr.
51
Malone and his representatives stated that an exchange ratio of 0.20 continued to reflect
LMIs sense of an at-market transaction. The Special Committee noted that a majority of the
minority condition was of key importance and that it would be interested in obtaining a standstill
agreement with Mr. Malone and his affiliates with respect to acquisitions of LMI stock after the
consummation of any transaction. Mr. Malone stated that a majority of the minority condition
remained unacceptable to LMI and refused to sign a standstill agreement. After extensive further
discussion and negotiation, Mr. Malone agreed that LMI would consider a majority of the minority
condition if UGC agreed to include in any merger agreement certain termination rights for LMI to
avoid a prolonged process. Messrs. Dick and Gould continued negotiations with Mr. Malone without
the presence of advisors. At the conclusion of this discussion, each side summarized their last
proposals. Mr. Malone had proposed that, subject to the approval of the LMI board, he would
consider an exchange ratio of 0.213, reflecting an at-market transaction based upon that days
closing stock prices, with a 20% cash election option at $9.50 per share of UGC, representing a
premium over that days UGC closing stock price of $9.26 per share, and the majority of the
minority condition if the merger agreement included certain
termination rights for LMI. In response, Messrs.
Dick and Gould proposed, subject to confirmation by the entire Special Committee, that they
would consider an exchange ratio of 0.22 LMI shares for each share of UGC, a 20% cash election
option at $9.75 per share and that the Special Committee would drop its request that Mr. Malone
sign a standstill agreement.
On the morning of January 12, 2005, the Special Committee met telephonically with its legal
and financial advisors to update Mr. Cole on the prior days negotiations and to discuss the
Special Committees response to LMIs proposed financial terms for a transaction.
Also on the morning of January 12, 2005, the board of directors of LMI met to discuss the
terms of the potential transaction. Mr. Malone discussed with the LMI board the negotiations with
the Special Committee over the prior two days. Noting that the closing prices of the two
companies stocks the prior day implied an exchange ratio of 0.213, Mr. Malone advised the board
that he would be willing to support a transaction at that exchange ratio and compromise with a
marginally higher exchange ratio. Mr. Malone then requested authority from the LMI board to
propose an exchange ratio of 0.215 and a cash election alternative of $9.55 per share. After
discussing the concerns of the board with respect to the time to complete the transaction in light
of the uncertainty created by the majority of the minority condition and the termination rights Mr.
Malone was negotiating for, the LMI board authorized Mr. Malone to propose the foregoing exchange
ratio and cash alternative election.
On the afternoon of January 12, 2005, the Special Committee reconvened by telephone with its
legal and financial advisors and received reports on conversations with representatives of LMI, who
had contacted Debevoise and Morgan Stanley to request a conference call with the Special Committee
to continue negotiations.
Thereafter, the Special Committee and its legal and financial advisors met telephonically with
Mr. Malone and Ms. Markowski. Mr. Malone informed the Special Committee that, after consultation
with the LMI board, LMIs best and final proposal was an exchange ratio of 0.215 LMI shares for
each share of UGC with a 20% cash election option at $9.55 per share. Mr. Malone insisted that the
price negotiations be concluded prior to market close in order to protect LMI against further
movements in the stock price, which he believed continued to reflect speculation about a possible
transaction, and stated that LMI would withdraw from negotiations if there was no agreement in
principle on the exchange ratio before market close.
The Special Committee, after separate discussion with its legal and financial advisors,
informed the LMI representatives that it would be prepared to recommend the transaction at an
exchange ratio of 0.216 LMI shares for each share of UGC with a 20% cash election option at $9.60
per share. Mr. Malone responded that, subject to receiving approval from the LMI board and only if
this proposal was sufficient to obtain agreement, he was prepared to accept an exchange ratio of
0.2155 LMI shares for each share of UGC with a 20% cash election option at $9.58 per share. The
Special Committee and the LMI representatives agreed that they would instruct their respective
legal advisors to proceed to negotiate definitive documentation on that basis, with final agreement
subject to the successful completion of such documentation, board approval and the receipt by each
of LMI and the Special Committee from their respective financial advisors of an opinion as to the
fairness, from a financial point of view, of the proposed merger consideration.
On
the morning of January 13, 2005, Baker Botts L.L.P., counsel to LMI, delivered to Debevoise an
initial draft of a proposed merger agreement. On the morning of January 14, 2005, Debevoise
delivered to Baker Botts an
52
initial draft of a proposed voting agreement and provided initial comments to the draft merger
agreement. Also on January 14, 2005, the Special Committee met telephonically with its legal
advisors to discuss the provisions of the proposed merger agreement.
From January 14 through January 17, 2005, the terms of the merger agreement and the voting
agreement were negotiated, including the scope of the representations and warranties that would be
provided by each of the parties and the scope of the termination right required by LMI in exchange
for agreeing to provide UGC with a majority of the minority voting condition.
On January 17, 2005, the Special Committee met in person in New York with its legal and
financial advisors. At this meeting, Morgan Stanley delivered its financial analysis in connection
with the proposed transaction and its opinion that, as of the date of the opinion and based upon
and subject to the assumptions, qualifications and limitations set forth in the opinion, the merger
consideration to be received by the unaffiliated stockholders of UGC pursuant to the merger
agreement was fair from a financial point of view to such stockholders. See Recommendations of
the Special Committee and the UGC Board; Fairness of the Offer and the UGC Merger. The Special
Committee then unanimously determined that the merger agreement and the UGC merger are fair to and
in the best interests of the holders of UGC capital stock (other than shares held by LMI and its
affiliates), approved the UGC merger and the merger agreement, the voting agreement and the
transactions contemplated thereby and resolved to recommend that the UGC board of directors approve
the UGC merger and the merger agreement, the voting agreement and the transactions contemplated
thereby, and that the stockholders of UGC approve the UGC merger, the merger agreement and the
transactions contemplated thereby.
Following the meeting of the Special Committee, the UGC board of directors met. The Special
Committee reported its recommendation that the UGC board approve and declare advisable the UGC
merger, the merger agreement, the voting agreement and the transactions contemplated thereby, and
its recommendation that the stockholders of UGC approve the UGC merger, the merger agreement and
the transactions contemplated thereby. Morgan Stanley discussed with the UGC board the opinion
that it delivered to the Special Committee, as described under Opinion of the Financial Advisor
to Special Committee. The UGC board then unanimously determined that the UGC merger, the merger
agreement and the other transactions contemplated thereby are advisable, fair to and in the best
interests of, UGC and its stockholders, approved the entry into the merger agreement and the other
documents contemplated thereby, and resolved to recommend that the holders of UGC capital stock
approve the UGC merger and approve and adopt the merger agreement.
On January 17, 2005, the LMI board of directors met to consider the business combination with
UGC. At this meeting, Mr. Malone recounted for the LMI board the history of the negotiations with
the Special Committee. He noted that the relative trading prices of LMIs and UGCs stock implied
a ratio of 0.194 to 1 over a period of two to three weeks prior to his initiation of discussions,
but that the market price of UGCs stock had climbed during the negotiations increasing the implied
exchange ratio. Banc of America Securities then delivered its financial analysis in connection
with the proposed transaction and its oral opinion, which was subsequently confirmed in writing,
that, as of January 17, 2005 and based upon and subject to the factors, limitations and assumptions
set forth in the opinion, the consideration to be received by the holders of LMIs common stock,
other than affiliates of LMI, pursuant to the merger agreement is fair from a financial point of
view to the holders of LMIs common stock, other than any affiliate of LMI. Ms. Markowski reviewed
the terms of the merger agreement and the voting agreement to be signed by Mr. Malone, the
negotiation of each of which had been completed in all material respects. The LMI board then
unanimously determined that the LMI merger, the merger agreement and the other transactions
contemplated thereby are advisable, fair to and in the best interests of, LMI and its stockholders,
approved the entry into the merger agreement, and resolved to recommend that the holders of LMI
common stock approve the LMI merger and approve and adopt the merger agreement.
On the evening of January 17, 2005, the parties finalized the merger agreement, including the
disclosure schedules to the merger agreement, and, early on the morning of January 18, 2005,
executed the merger agreement and the voting agreement. Also on January 18, 2005, LMI and UGC
issued a joint press release announcing the merger agreement and the proposed mergers.
53
Recommendations of the Special Committee and the UGC Board; Fairness of the Offer and the UGC
Merger
The Special Committee
The UGC board of directors created the Special Committee to negotiate exclusively on UGCs
behalf any transaction with LMI, because certain of the other directors of UGC have a conflict of
interest in evaluating LMIs proposal on behalf of the stockholders of UGC (other than LMI and its
affiliates). This conflict of interest exists because these directors also serve as LMIs officers
or directors. In addition, the members of the management of UGC who serve on the UGC board could
be viewed as having a conflict of interest because of LMIs position as the controlling stockholder
of UGC. Therefore, the Special Committee is comprised of three members of the UGC board who are
independent under the rules of the Nasdaq Stock Market and who have no relationship with LMI or any
of its affiliates that the Special Committee viewed as undermining the independence of the Special
Committee. The Special Committee considered that each member of the committee currently serves as
a director of UGC, and that, assuming the consummation of the proposed transaction, each member of
the committee expects to serve as a director of Liberty Global. The Special Committee also recognized the following, as to Paul A. Gould: (1) that Mr. Gould
currently serves as a director of Liberty, that Mr. Gould served as a director of
Libertys predecessor (Old Liberty) prior to its 1994 business combination transaction with
Tele-Communications, Inc. (TCI), each a company in which Mr. Malone was Chairman of the Board and a
significant stockholder, and that Mr. Gould served as a member of the special committee of Old
Libertys board formed to evaluate the transaction with TCI and the consideration to be received by
the public stockholders of Old Liberty in that transaction; (2) that subsequent to the 1994
business combination transaction between TCI and Old Liberty, Mr. Gould served as a member of the
board of directors of TCI and several companies in which TCI or Liberty had a substantial
investment or controlling interest; (3) that, in connection with the 1999 merger between TCI and
AT&T Corp., Mr. Gould and another TCI director each received a fee of $1 million for their services
on a special committee of the TCI board formed to evaluate the merger transaction with AT&T and the
consideration to be received by the public stockholders of TCI in the TCI-AT&T merger; and (4) that
Mr. Gould joined the UGC board in conjunction with Libertys acquisition of control of UGC in
January 2004. The Special Committee determined that these factors would not undermine the
independence of the Special Committee.
The members of the Special Committee are:
John P. Cole, Jr. Mr. Cole has served as a director of UGC and its predecessors since March
1998. Mr. Cole served as a member of the United Pan-Europe Communications N.V., or UPC,
Supervisory Board from February 1999 to September 2003. Mr. Cole is a founder of the Washington,
D.C. law firm of Cole, Raywid and Braveman, which specializes in all aspects of telecommunications
and media law.
John W. Dick. Mr. Dick has served as a director of UGC since March 2003. He served as a
member of the UPC Supervisory Board from May 2001 to September 2003, and a director of UGC Europe,
Inc. from September 2003 to January 2004. He is the non-executive Chairman and a director of
Hooper Industries Group, a privately held U.K. group consisting of: Hooper and Co (Coachbuilders)
Ltd. (building special/bodied Rolls Royce and Bentley motorcars) and Hooper Industries (China)
(providing industrial products and components to Europe and the U.S.). Until 2002, Hooper
Industries Group also held Metrocab UK (manufacturing London taxicabs) and Moscab (a joint venture
with the Moscow city government, producing left-hand drive Metrocabs for Russia). Mr. Dick has
held his positions with Hooper Industries Group since 1984. Mr. Dick is also a director of Austar
United Communications Limited, a public company in which UGC has an approximate 34% interest.
Paul
A. Gould. Mr. Gould has served as a director of UGC since January 2004. Mr. Gould has
served as Managing Director and Executive Vice President of Allen & Company L.L.C., an investment
banking services company, for more than the last five years. Mr. Gould is also a director of
Liberty and Ampco-Pittsburgh Corporation.
54
Recommendation of the Special Committee and the UGC Board
On January 17, 2005, the Special Committee unanimously:
|
|
determined that the merger agreement and the UGC merger, on the terms and
conditions set forth in the merger agreement, are fair to and in the best interests
of the UGC stockholders (other than LMI and its affiliates); and |
|
|
|
determined to approve, and to recommend that the UGC board of directors approve,
the UGC merger, the merger agreement, the voting agreement and the transactions
contemplated thereby, and that the UGC board recommend that the stockholders of UGC
approve the UGC merger, the merger agreement and the transactions contemplated
thereby. |
Following the meeting of the Special Committee and based upon the recommendation of the
Special Committee, the UGC board unanimously:
|
|
determined that the merger agreement, the UGC merger and the other transactions
contemplated by the merger agreement are advisable, fair to and in the best
interests of, UGC and its stockholders; |
|
|
|
authorized UGC to enter into the merger agreement and the voting agreement; |
|
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resolved to recommend that UGC stockholders approve the UGC merger and approve
and adopt the merger agreement; and |
|
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resolved to call a special meeting of the UGC stockholders for the purpose of
submitting the merger agreement and the transactions set forth therein to the UGC
stockholders. |
Reasons for the Recommendation of the Special Committee and the UGC Board
The material factors considered by the Special Committee in making its recommendation and
determining that the merger agreement and the UGC merger are fair to and in the best interests of
the UGC stockholders (other than LMI and its affiliates) are:
Supportive Factors
Negotiation Process and Procedural Fairness. The terms of the UGC merger, the merger
agreement, the voting agreement and the transactions contemplated thereby were the result of
extensive arms-length negotiations conducted by the Special Committee, which is comprised of
independent directors, with the assistance of independent financial and legal advisors. The
Special Committee recognized that it had obtained increases in the exchange ratio and cash amount
offered by LMI, and concluded that an exchange ratio of 0.2155 Liberty Global shares for each share
of UGC or a cash amount of $9.58 per UGC share at the election of the unaffiliated stockholders of
UGC (up to an overall cap of 20% of the aggregate value of the merger consideration payable to such
stockholders being paid in cash) were the most favorable financial terms that could be obtained
from LMI and that further negotiation could have caused LMI to abandon the transaction.
Independent Financial Advisor. The Special Committee considered the presentation by its
independent financial advisor, Morgan Stanley, and Morgan Stanleys opinion that, as of the date of
the opinion and based upon and subject to the assumptions, qualifications and limitations set forth
in Morgan Stanleys opinion, the merger consideration to be received by the unaffiliated
stockholders of UGC pursuant to the merger agreement was fair from a financial point of view to
such stockholders.
The Special Committee noted that Morgan Stanley had been selected as its financial advisor
after a competitive process, based upon the firms strong reputation, experience in transactions of
this kind and knowledge of UGC, its business and the industries in which UGC and LMI operate.
55
In evaluating the presentation and opinion of Morgan Stanley, the Special Committee considered
that Morgan Stanleys compensation arrangements had been structured and negotiated to enhance the
firms ability to provide objective advice to the Special Committee for the benefit of the UGC
stockholders (other than LMI and its affiliates). Morgan Stanley was entitled to receive an
initial fee of $1.0 million at the time the engagement letter was executed. Morgan Stanley became
entitled to receive an additional fee of $4.5 million at the time the Special Committee requested,
and Morgan Stanley delivered, an opinion as to the fairness, from a financial point of view, of the
merger consideration to be received by the unaffiliated stockholders of UGC. Morgan Stanley would
have received the same fee had its opinion been as to the inadequacy of the merger consideration
from a financial point of view. Morgan Stanley will not receive any additional compensation upon
the successful completion of the UGC merger. The Special Committee believed that this fee
arrangement helped advance the interests of the UGC stockholders (other than LMI and its
affiliates) by ensuring that the Special Committee received the unbiased advice of its financial
advisor.
Holders of Majority of Public Shares Determine Whether Transaction is Completed. The
provisions of the merger agreement permit the holders of a majority of UGCs publicly held shares
(excluding shares held by LMI, Liberty or any of their respective subsidiaries or any of the
executive officers or directors of LMI, Liberty or UGC) to determine whether to approve the UGC
merger. The Special Committee believed that this decision, which it expected would be taken in
light of, among other things, the detailed information provided to UGC stockholders in this joint
proxy statement/prospectus regarding the transaction and the factors considered by the Special
Committee and the UGC board of directors in making their respective recommendations would allow the
UGC stockholders to make their own informed judgment as to whether the proposed transactions are in
their best interests.
Premium Analysis. Based upon a presentation made by Morgan Stanley, the Special Committee
noted that the equity and cash merger consideration represented a premium to the UGC stockholders
(other than LMI and its affiliates) in relation to various benchmarks, including an exchange ratio
premium of 11.6% relative to the stock prices of UGC and LMI as of market close on Friday, December
10, 2004, the day on which LMI delivered a letter to UGC indicating that LMI wished to initiate
discussions between the parties. The Special Committee took note of Morgan Stanleys observation
that, in transactions involving stock consideration, premiums paid by the acquirer are generally
smaller than in all-cash transactions in recognition of the target stockholders continuing
opportunity to benefit from the performance of the combined company and to realize the benefits of
the combination. In reviewing the premium that the equity and cash merger consideration
represented to the UGC stockholders (other than LMI and its affiliates) in relation to various
benchmarks, the Special Committee also considered the fact, pointed out by Morgan Stanley to the
Special Committee, that LMIs significant ownership interest in UGC meant that relatively
significant increases in the implied value of UGC would likely be necessary in order to have a
material impact on the relative exchange ratio and corresponding premium paid. After discussion,
the Special Committee concluded that a very large premium in this context was therefore unlikely.
Option to Receive Cash Provides Some Protection Against Stock Price Declines. The Special
Committee noted that the option to elect to receive cash for up to 20% of the aggregate value of
the merger consideration payable to the public stockholders of UGC provides protection to the
public UGC stockholders if the price of LMIs stock declines prior to closing.
Opportunity Benefits of Participation in the Combined Company. Because UGC stockholders
(other than LMI and its affiliates) will have the option to receive up to 100% of the merger
consideration in stock of the combined company, they will have the opportunity to participate in
the benefits expected to be realized by the transaction in the future.
UGC management and Morgan Stanley discussed with the Special Committee potentially significant
synergies, strategic opportunities and other benefits that the UGC stockholders (other than LMI and
its affiliates) would have the opportunity to participate in as stockholders of the combined
company. The benefits discussed included: the creation of a company able to operate around the
world and achieve the benefits of such scale; the creation of a more liquid stock with larger
public float, which should also represent a stronger acquisition currency; the elimination of a
holding company discount in the LMI stock price; enhanced position with vendors, manufacturers and
content providers; enhanced growth potential given stronger position to pursue distribution,
consolidation and content investment opportunities; a strong balance sheet, which should reduce the
combined companys future financing costs; and organizational and corporate synergies.
56
Confidence in Combined Company Management. The Special Committee noted that the Chief
Executive Officer of the combined company would be Michael T. Fries, the current Chief Executive
Officer of UGC. The Special Committee considered that its familiarity with Mr. Fries abilities
and past performance gave increased confidence that the intended benefits of the UGC merger would
be achieved.
Investment in Japanese Distribution and Content Assets at an Attractive Valuation. The
Special Committee considered the valuations implied by Morgan Stanleys analysis of the Japanese
distribution and content assets to be contributed to the combined company by LMI in the mergers and
the other transactions contemplated by the UGC merger and, after discussions with Morgan Stanley
regarding comparable valuation multiples for similar assets in the industry, found them attractive
as a financial matter. In addition, the Special Committee observed that these assets offered
growth opportunities to the UGC stockholders in diverse markets.
Improved Management Attention and Focus. Because LMI and UGC operate similar businesses in
many respects, their current structure creates significant long-term potential for conflicts
between the two companies over the exploitation of commercial opportunities. The Special Committee
observed that uniting the two businesses under a single management team will eliminate any such
conflicts and permit a unified management team to pursue opportunities more efficiently.
Improved Equity Position. The Special Committee noted that, as a result of the UGC merger and
assuming that all UGC stockholders (other than LMI and its affiliates) elect to receive Liberty
Global stock, the UGC stockholders (other than LMI and its affiliates) would hold approximately 25%
of the aggregate voting power of Liberty Global, which would have no single stockholder or group of
stockholders exercising voting control over the combined company. This contrasts to the current
situation of UGC stockholders (other than LMI and its affiliates), who have a minority voting
interest in a company controlled by LMI.
Intention to Commence Share Repurchases. The Special Committee noted that LMI had stated
that, given the substantial liquidity and free cash flow profile of the combined company, LMI
expected that the Liberty Global board of directors would authorize a stock repurchase program
following the combination. The Special Committee noted that this expectation underscores LMIs
belief in the value of the combined business. LMI and UGC subsequently announced that they expect
the Liberty Global board to authorize such a program and that any share repurchases under the
program would occur from time to time in the open market or in privately negotiated transactions,
subject to market conditions.
Growth Opportunities. The Special Committee recognized the opportunity for growth to be
greater as part of the combined company. Important opportunities to acquire assets from third
parties are expected to arise in Europe in the near future, and UGCs ability to avail itself of
these opportunities will be greatly enhanced by a combination with LMI. The Special Committee also
observed that the Japanese business interests owned by LMI provide significant opportunities for
growth, both within Japan and in other important Asian growth markets. The combined company is
expected to have a significantly stronger balance sheet than UGC and the ability to offer stock as
an acquisition currency at more favorable valuations.
Diversification Benefits. The Special Committee noted that by combining UGCs principally
European and Latin American business with LMIs Japanese business, UGC stockholders would own a
company with a more diverse portfolio of investments, which would be better able to weather
economic change including fluctuations in foreign exchange rates.
Absence of Ability to Sell UGC to Third Party. LMI informed the Special Committee early in
the negotiations that it was not interested in pursuing a sale of all of its interest in UGC. In
light of LMIs intentions, the Special Committee concluded that realization of third party sale
value or causing a sale of a substantial portion, in a liquidation, break-up or similar
transaction, of UGCs assets were not alternatives available to UGC. Consequently, the Special
Committee considered a transaction with LMI or continuing UGC as a publicly traded entity, with LMI
remaining as controlling stockholder, as the only practical alternatives available.
Terms of Merger Agreement. The Special Committee considered the draft merger agreement and
the summary of the key terms and provisions thereof provided by its counsel. The Special Committee
concluded that the terms and provisions of the merger agreement were customary for transactions of
this kind and provided
57
appropriate protections to the UGC stockholders (other than LMI and its affiliates). The
merger agreement provides only limited circumstances under which LMI is permitted to not close the
transaction, and any termination of the merger agreement by UGC must be approved by the Special
Committee. The voting agreement entered into by Mr. Malone, pursuant to which he agreed to vote
the LMI shares that he owns or which he has the right to vote (currently representing approximately
26.5% of the aggregate voting power of LMI) in favor of the merger agreement and the LMI merger,
increases the likelihood that the merger agreement and the LMI merger will be approved by the LMI
stockholders.
Financing of Transaction. The Special Committee noted that LMI has available to it sufficient
cash to pay the cash portion of the merger consideration and the combined company will have
sufficient cash to fund the potential stock purchase program described above after the closing.
Stock Consideration Non-Taxable. The Special Committee noted that the receipt of Liberty
Global stock by UGC stockholders (other than LMI and its affiliates) validly electing to receive
stock as merger consideration will generally not be taxable to such stockholders.
Negative Factors
Market Price of Shares. The Special Committee was aware that the relative trading prices of
UGC and LMI at the market close on January 14, 2005 implied that LMI would be acquiring the shares
of UGC held by UGC stockholders (other than LMI and its affiliates) at a very slight discount to
market. The Special Committee determined that the relative underlying values of LMI and UGC
implied by Morgan Stanleys analyses were not accurately reflected in the public market trading
prices of the two companies.
Exposure to Japanese Market. While acknowledging the diversification opportunity that LMIs
investments in the Japanese broadband and programming markets offers UGC stockholders (other than
LMI and its affiliates), the Special Committee also considered that such diversification carried
with it exposure to new and different risk factors for UGC stockholders, including exposure to
downturns in the Japanese economy and new foreign currency exchange risks.
Tax Treatment. The Special Committee was aware that the receipt of the $9.58 per share cash
price available to the stockholders (other than LMI and its wholly owned subsidiaries) of UGC
validly electing to receive cash consideration, subject to proration, will generally be taxable to
such stockholders.
Risks the Mergers May Not be Completed. The Special Committee considered the risk that the
conditions to the merger agreement may not be satisfied and, therefore, that the UGC merger may not
be consummated.
Matters Not Considered
The Special Committee did not consider the third party sale value or liquidation or break-up
of UGCs assets because LMI stated that it was not willing to pursue these alternatives. As the
beneficial owner of a majority of the aggregate voting power of UGCs stock, LMI can prevent the
pursuit of these alternatives.
Other Matters Considered
Conflicts of Interest. The Special Committee was aware of the conflicts of interest of the
members of the UGC board of directors who are also officers or directors of LMI, as well as the
potential conflicts of interest of management representatives on the UGC board. The Special
Committee believes that the process of using a committee of independent directors, together with
the condition that the UGC merger and the merger agreement be approved by a majority of the
stockholders of UGC (other than LMI, Liberty or any of their respective subsidiaries or any of the
executive officers or directors of LMI, Liberty or UGC), effectively mitigates these potential
conflicts.
This discussion summarizes the material factors considered by the Special Committee, including
factors that support as well as weigh against the UGC merger, the voting agreement, the merger
agreement and the transactions contemplated thereby. In view of the variety of factors and the
amount of information considered, the
58
Special Committee did not find it practicable to, and did not, make specific assessments of,
quantify, or otherwise assign relative weights to these factors in reaching its determination. In
addition, individual members of the Special Committee may have given different weights to different
factors. The determination that the UGC merger, the voting agreement and the merger agreement are
fair to and in the best interests of the UGC stockholders (other than LMI and its affiliates) was
made after consideration of all of these factors as a whole. The Special Committee concluded that
the supportive factors outweighed the negative factors.
The recommendation of the UGC board of directors was based upon:
|
|
the recommendation of the Special Committee; |
|
|
|
the Special Committee having received from Morgan Stanley an opinion that, as of
the date of the opinion and based upon and subject to the assumptions,
qualifications and limitations set forth in the opinion, the merger consideration
to be received by the unaffiliated stockholders of UGC pursuant to the merger
agreement was fair from a financial point of view to such stockholders; and |
|
|
|
the understanding of the UGC board that the merger consideration and the terms
and conditions of the merger agreement and the voting agreement were the result of
arms-length negotiations between the Special Committee and LMI. |
The UGC board did not find it practicable to, and therefore did not, quantify or otherwise
assign relative weights to the individual factors considered in reaching its conclusion as to
fairness.
Opinion of the Financial Advisor to the Special Committee
The Special Committee engaged Morgan Stanley to provide financial advisory services in
connection with the UGC merger. Morgan Stanley was selected by the Special Committee based upon
Morgan Stanleys qualifications, expertise and reputation, as well as its knowledge of the business
and affairs of UGC and the industry in which UGC operates. At a meeting of the Special Committee
held on January 17, 2005, Morgan Stanley delivered its oral opinion, subsequently confirmed in
writing, that, as of that date, and based upon and subject to the assumptions, qualifications and
limitations set forth in the opinion, the consideration to be received by the unaffiliated
stockholders of UGC pursuant to the merger agreement was fair from a financial point of view to
such stockholders.
The full text of Morgan Stanleys opinion, dated January 17, 2005, which sets forth, among
other things, the assumptions made, procedures followed, matters considered and qualifications and
limitations on the scope of the review undertaken by Morgan Stanley in rendering its opinion, is
included as Appendix D to this joint proxy statement/prospectus. The summary of Morgan Stanleys
fairness opinion set forth in this joint proxy statement/prospectus is qualified in its entirety by
reference to the full text of the opinion. Stockholders should read this opinion carefully and in
its entirety. Morgan Stanleys opinion is directed to the Special Committee and only addresses the
fairness from a financial point of view of the consideration to be received by the unaffiliated
stockholders of UGC pursuant to the merger agreement. Morgan Stanleys opinion does not address
any other aspect of the mergers and does not constitute a recommendation to any UGC stockholder as
to how to vote at the UGC stockholders meeting or as to what form of consideration UGC
stockholders should elect.
In connection with rendering its opinion, Morgan Stanley, among other things:
|
|
reviewed certain publicly available financial statements and other information
of UGC and LMI; |
|
|
|
reviewed certain internal financial statements and other financial and operating
data concerning UGC and LMI prepared by the managements of UGC and LMI,
respectively; |
|
|
|
reviewed certain financial projections prepared by the respective managements of
UGC and LMI; |
59
|
|
discussed the past and current operations and financial condition and prospects
of UGC and LMI with senior executives of UGC and LMI, respectively; |
|
|
|
considered information relating to certain strategic, financial and operational
benefits anticipated from the UGC merger, discussed with the management of UGC; |
|
|
|
discussed the strategic rationale for the UGC merger with the senior executives
of UGC; |
|
|
|
reviewed the reported prices and trading activity of the UGC Class A common
stock and the LMI Series A common stock; |
|
|
|
compared the financial performance of UGC and LMI, as well as the prices and
trading activity of the UGC Class A common stock and the LMI Series A common stock
with that of certain other comparable publicly-traded companies and their
securities; |
|
|
|
reviewed the financial terms, to the extent publicly available, of selected
minority buy-back transactions; |
|
|
|
participated in discussions and negotiations among representatives of UGC and
LMI and their respective financial and legal advisors; |
|
|
|
reviewed the proposed merger agreement and certain related documents; and |
|
|
|
performed such other analyses and considered such other factors as Morgan
Stanley deemed appropriate. |
In arriving at its opinion, Morgan Stanley assumed and relied upon without independent
verification the accuracy and completeness of the information reviewed by Morgan Stanley for the
purposes of its opinion. With respect to the internal financial statements, other financial and
operating data, and financial forecasts, including information relating to certain strategic,
financial and operational benefits anticipated from the UGC merger, Morgan Stanley assumed that
they had been reasonably prepared on bases reflecting best available estimates and judgments of the
future financial performance of UGC and LMI. Morgan Stanley also relied without independent
investigation on the assessment by the executives of UGC regarding the strategic rationale for the
UGC merger. In addition, Morgan Stanley assumed that the mergers will be consummated in accordance
with the terms set forth in the proposed merger agreement, including, among other things, that the
LMI merger and UGC merger will be treated as a tax-free reorganization and exchange, respectively,
each pursuant to the Code, without material modification, delay or waiver. Morgan Stanley did not
make any independent valuation or appraisal of the assets or liabilities or technologies of UGC or
LMI, nor was Morgan Stanley furnished with any such appraisals. Morgan Stanleys opinion is
necessarily based upon financial, economic, market and other conditions as in effect on, and the
information made available to it as of, January 17, 2005.
In arriving at its opinion, Morgan Stanley was not authorized to solicit, and did not solicit,
interest from any party with respect to an acquisition, business combination or other extraordinary
transaction involving UGC or its assets.
The following is a summary of the material financial analyses performed by Morgan Stanley in
connection with its opinion. Some of these summaries include information presented in tabular
format. In order to understand fully the financial analyses used by Morgan Stanley, the tables
must be read together with the text of each summary. The tables alone do not constitute a complete
description of the analyses used by Morgan Stanley.
Historical Share Price Analysis
Morgan Stanley reviewed the historical price performance and trading volumes of UGC Class A
common stock from January 20, 2004 through January 14, 2005, and of LMI Series A common stock from
June 2, 2004 through January 14, 2005. For the period that Morgan Stanley reviewed UGCs share
price, the high and low
60
closing prices were $10.60 and $6.00, respectively, and for the period that Morgan Stanley
reviewed LMIs share price, the high and low closing prices were $47.27 and $29.15, respectively.
Morgan Stanley also reviewed the respective recent stock price performances of UGC Class A
common stock and LMI Series A common stock in comparison to the stock price performances of
selected comparable companies, as well as with the S&P 500. Morgan Stanley observed the
appreciation or depreciation in closing market prices over certain time periods as shown below:
|
|
|
|
|
|
|
Appreciation/(Depreciation) |
|
Appreciation |
Company |
|
1/20/04 to 1/14/05 |
|
6/2/04(1)
to 1/14/05 |
UGC |
|
(9.1%) |
|
29.4% |
|
|
|
|
|
LMI |
|
NA |
|
13.8% |
|
|
|
|
|
Comcast Corp. |
|
(5.8%) |
|
16.6% |
|
|
|
|
|
NTL Inc. |
|
(0.6%) |
|
10.8% |
|
|
|
|
|
Cablevision Systems Corp. |
|
(9.9%) |
|
13.5% |
|
|
|
|
|
S&P500 |
|
4.0% |
|
5.3% |
(1) |
|
Date on which LMI common stock began trading on a when-issued basis prior to LMIs spin off from Liberty. |
The foregoing historical share price analysis was presented to the Special Committee to
provide it with background information and perspective with respect to the relative historical
share prices and share price performances of UGC and LMI. No company used in the share price
performance analysis is identical to UGC or LMI because of differences in business mix, operations
and other characteristics.
Comparable Company Analysis
Morgan Stanley compared certain publicly available financial information of UGC with
corresponding publicly available information for the following cable companies:
|
|
|
|
|
U.S. Cable Companies |
|
|
|
Comcast Corp. |
|
|
|
|
|
|
|
Cablevision Systems Corp. |
|
|
|
|
|
|
|
Charter Communications, Inc. |
|
|
|
|
|
|
|
Insight Communications Co. |
|
|
|
|
|
|
European Cable Companies |
|
|
|
NTL Inc. |
|
|
|
|
|
|
|
Telewest Global Inc. |
|
For each of the comparable companies, Morgan Stanley calculated the current cable aggregate
value, defined as equity value plus net debt and minority interests and less unconsolidated and
non-cable assets, as a multiple of 2005 estimated earnings before expenses for interest, taxes,
depreciation and amortization, or EBITDA,
61
based upon publicly available information, including reports of equity research analysts. The
multiples calculated in this analysis are referred to in this section as the aggregate value/2005E
EBITDA multiples.
Morgan Stanley calculated implied equity values per share of UGC common stock by applying
aggregate value/2005E EBITDA multiples ranging from 8.0x to 9.0x to UGCs 2005 estimated EBITDA, as
provided by UGC management, and to UGCs 2005 estimated EBITDA as provided by management and
converted at a current spot rate of US$1.31 per Euro. The following table presents the ranges of
equity values per common share implied by this analysis:
|
|
|
|
|
|
|
|
|
|
|
Implied Equity Value Per Share of UGC Common Stock |
|
|
|
Low |
|
|
High |
|
2005E EBITDA, as provided by UGC management |
|
$ |
8.17 |
|
|
$ |
9.53 |
|
|
|
|
|
|
|
|
|
|
2005E EBITDA, as provided by UGC
management and converted at US$1.31 per
Euro spot exchange rate |
|
$ |
8.82 |
|
|
$ |
10.27 |
|
Morgan Stanley noted that the implied value of the stock consideration per share of UGC
common stock in the merger was $9.42 as of January 14, 2005, and that the cash consideration was
$9.58 per share of UGC common stock.
No company used in the comparable company analysis is identical to UGC because of differences
between the business mix, operations and other characteristics of UGC and the comparable companies.
In evaluating the comparable companies, Morgan Stanley made judgments and assumptions with regard
to industry performance, general business, economic, market and financial conditions and other
matters, many of which are beyond the control of UGC, such as the impact of currency exchange
rates, competition on the business of UGC as well as on the industry generally, industry growth and
the absence of any adverse material change in the financial condition and prospects of UGC or the
industry or in the markets generally.
Discounted Cash Flow Analysis
Morgan Stanley performed a discounted cash flow analysis of the projected unlevered free cash
flows of UGC. This analysis was based upon 2005 projections and long-term growth assumptions for
the period beginning January 1, 2005 and ending December 31, 2009 prepared by UGC management.
Morgan Stanley calculated implied equity values per share of UGC common stock by using
discount rates ranging from 8% to 10% and terminal value multiples of estimated 2010 EBITDA ranging
from 7.5x to 8.5x. Morgan Stanley calculated different ranges of equity values per share of UGC
common stock by utilizing the 2005 projections and long-term growth rate guidance provided by UGC
management, as well as sensitivities performed by Morgan Stanley adjusting for various revenue
growth rates and EBITDA margins. The following table presents the ranges of implied equity values
per share of UGC common stock implied by this analysis:
|
|
|
|
|
|
|
|
|
|
|
Implied Equity Value Per Share of UGC Common Stock |
|
|
|
Low |
|
|
High |
|
Analysis Utilizing Sensitivities |
|
$ |
9.58 |
|
|
$ |
12.05 |
|
|
|
|
|
|
|
|
|
|
Analysis Utilizing UGC
Management Projections and
Guidance |
|
$ |
12.83 |
|
|
$ |
15.89 |
|
Morgan Stanley noted that the implied value of the stock consideration per share of UGC
common stock in the merger was $9.42 as of January 14, 2005, and that the cash consideration was
$9.58 per share of UGC common stock.
62
The discount rates used in the discounted cash flow analysis of UGC reflect UGCs weighted
average cost of capital. The weighted average cost of capital represents the cost of capital for
UGC based upon the relative proportion of debt, preferred equity and common equity employed by UGC.
The terminal EBITDA multiple range used in the discounted cash flow analysis was based upon a
review of the trading multiples for, and the business position of, UGC and other comparable
companies, as well as reviewing implied perpetual growth rates.
While discounted cash flow analysis is a widely accepted and practiced valuation methodology,
it relies on a number of assumptions including growth rates, terminal multiples, discount rates and
currency exchange rates. The valuation stated above is not necessarily indicative of UGCs actual,
present or future value or results, which may be more or less favorable than suggested by this type
of analysis.
Sum-of-the-Parts Analysis
Morgan Stanley performed an analysis of LMI as the sum of its constituent businesses and
performed financial analyses on the assets represented by LMIs investments in the following
entities:
|
|
UGC |
|
|
|
Jupiter Telecommunications Co., Ltd. |
|
|
|
Jupiter Programming Co., Ltd. |
|
|
|
Liberty Cablevision of Puerto Rico Ltd. |
|
|
|
Mediatti Communications, Inc. |
|
|
|
Chofu Cable, Inc. |
|
|
|
Pramer S.C.A. |
|
|
|
Metrópolis-Intercom S.A. |
|
|
|
Torneos y Competencias, S.A. |
|
|
|
The News Corporation Limited |
|
|
|
The Wireless Group plc |
|
|
|
ABC Family Worldwide, Inc. |
This analysis was performed to determine an implied valuation range for LMI common stock.
Morgan Stanley reviewed various publicly available financial, operating and stock market
information, as well as financial data and forecasts provided by LMI management, for the individual
LMI businesses. Based upon this data, Morgan Stanley estimated implied value ranges for each
constituent business by applying analyses as appropriate for the individual business segments,
including analyses based upon book value, per subscriber value, multiples to 2004 and 2005
estimated EBITDA, as provided by LMI management and publicly available research reports, and public
market value, taking into account applicable tax rates. The multiples for the various assets used
in the sum-of-the-parts analysis were arrived at after a review of publicly traded companies with a
similar operating profile to the LMI assets. Market position, growth prospects and profitability
were a few of the many factors used in comparing the LMI assets to the publicly traded comparables.
This analysis yielded an implied valuation range of LMI common stock of $48.86 to $51.13 per
share. Morgan Stanley then applied discounts of 10%, 15% and 20% to approximate the holding
company discount for
63
LMIs UGC holdings that is widely acknowledged by the research community. Applying these
discounts to the sum-of-the-parts analysis yielded an implied valuation range of LMI common stock
of $44.26 to $48.83 per share. Morgan Stanley noted that the closing price per share of LMI Series
A common stock was $43.69 as of January 14, 2005.
In connection with its sum-of-the-parts analysis, Morgan Stanley noted in particular the
values of Jupiter Telecommunications Co., Ltd., or J-COM, implied by the 0.2155x exchange ratio
pursuant to the merger agreement, as well as the exchange ratios implied by deriving share prices
for LMI based upon valuations of LMIs 45.45% ownership stake in J-COM. Morgan Stanley applied
various analyses in order to arrive at an implied value range for J-COM, including analyses based
upon multiples to 2005 EBITDA, which were included in the sum-of-the-parts analysis, as well as
discounted cash flow analyses. Morgan Stanley observed that, applying the valuations of LMIs
assets, other than UGC and J-COM, derived in connection with the sum-of-the-parts analysis, as well
as both the exchange ratio of 0.2155x pursuant to the merger and LMIs share price of $43.69 as of
January 14, 2005, the implied forward EBITDA multiple for J-COM was 5.9x. In addition, Morgan
Stanley observed that, based upon valuations of LMIs 45.45% stake in J-COM implied by Morgan
Stanleys analyses and assuming values per share of UGC common stock of $10.00, $11.00 and $12.00,
the implied exchange ratios derived from the resulting implied LMI per share prices ranged from
0.1780x to 0.1954x.
Equity Research Analysts Price Targets
Morgan Stanley reviewed the range of available price targets prepared and published by equity
research analysts for UGC Class A common stock and LMI Series A common stock during the periods
from September 22, 2004 to January 14, 2005 for UGC and from November 15, 2004 to December 8, 2004
for LMI. These price targets reflect each analysts estimate of the future public market trading
price of UGC Class A common stock or LMI Series A common stock, as applicable, at the end of the
relevant period considered for each estimate. Applying a discount rate of 10% to these price
targets, Morgan Stanley arrived at a range of present values for the per share price targets as of
January 2005. The results of this analysis are set forth below:
|
|
|
|
|
|
|
|
|
|
|
Present Value of Research Price Targets for UGC Class A Common Stock |
|
|
|
Low |
|
|
High |
|
UGC |
|
$ |
9.70 |
|
|
$ |
13.88 |
|
|
|
|
|
|
|
|
|
|
LMI |
|
$ |
37.57 |
|
|
$ |
46.73 |
|
Morgan Stanley noted that the analysis summarized above included present values with
respect to two research price targets for UGC Class A common stock that had been increased on
January 14, 2005 from prior research reports. On January 14, 2005, Morgan Stanley issued a new
research report increasing its price target for UGC Class A common stock from $9.00, or $8.31 at
present value, to $11.00, or $10.00 at present value. Also on January 14, 2005, Janco Partners
issued a new research report increasing its price target for UGC Class A common stock from $12.43,
or $11.48 at present value, to $15.27, or $13.88 at present value.
Morgan Stanley also noted that the public market trading price targets published by the
securities research analysts do not reflect current market trading prices and are subject to
uncertainties, including the future financial performances of UGC and LMI, as applicable, and
future financial market conditions.
Precedent Transaction Analysis
Morgan Stanley reviewed publicly available information with respect to selected minority
buy-back transactions. The transactions reviewed included transactions involving cash and/or stock
consideration with aggregate transaction values in excess of $1 billion, referred to in this
section as the cash/stock transactions, and stock only transactions with aggregate transaction
values in excess of $500 million, referred to in this section as the stock-only transactions. For
each transaction, Morgan Stanley analyzed, as of the announcement date, the premium offered by the
acquiror to the targets closing price one day prior to the announcement of the transaction. In
the cash/stock transactions, the range of final premiums was 10.5% to 47.6%, with a median of
23.5%. In the stock-only transactions, the range of final premiums was 2.3% to 47.6%, with a
median of 19.4%. The foregoing
64
precedent transaction analysis was presented to the Special Committee to provide it with
background information and perspective in connection with its review of the UGC merger.
No company or transaction utilized in the analysis of selected precedent transactions is
identical to UGC, LMI or the UGC merger. Mathematical analysis, such as determining the average or
median, is not in itself a meaningful method of using precedent transaction data.
Exchange Ratio and Price Premium Analyses
Morgan Stanley reviewed the ratios determined by dividing the closing prices of UGC Class A
common stock by the closing prices of LMI Series A common stock for certain periods from June 2,
2004 to January 14, 2005. Morgan Stanley then examined the premiums represented by the exchange
ratio of 0.2155 pursuant to the merger agreement as compared to these ratios of closing market
prices of UGC common stock to LMI common stock. The results of this analysis are set forth below:
|
|
|
|
|
|
|
Ratio of UGC Price(s) to LMI |
|
0.2155 Exchange Ratio |
Period/Benchmark |
|
Closing Price(s) |
|
% Premium / (Discount) |
January 14, 2005 |
|
0.2206x |
|
(2.3%) |
|
|
|
|
|
January 11, 2005 |
|
0.2131x |
|
1.1% |
|
|
|
|
|
December 14, 2004 |
|
0.1914x |
|
12.6% |
|
|
|
|
|
December 10, 2004 |
|
0.1931x |
|
11.6% |
|
|
|
|
|
November 11, 2004 |
|
0.2235x |
|
(3.6%) |
|
|
|
|
|
High UGC Class A Common
Share Price since June 2,
2004 |
|
0.2239x |
|
(3.8%) |
|
|
|
|
|
Low UGC Class A Common
Share Price since June 2,
2004 |
|
0.1853x |
|
16.3% |
|
|
|
|
|
Five Trading Day Average
During the Period from
June 2, 2004 to January
14, 2005 |
|
0.2178x |
|
(1.0%) |
|
|
|
|
|
Ten Trading Day Average
During the Period from
June 2, 2004 to January
14, 2005 |
|
0.2133x |
|
1.0% |
|
|
|
|
|
Twenty Trading Day
Average During the Period
from June 2, 2004 to
January 14, 2005 |
|
0.2103x |
|
2.5% |
|
|
|
|
|
Three-Month Average
During the Period from
June 2, 2004 to January
14, 2005 |
|
0.2060x |
|
4.6% |
|
|
|
|
|
Average Since June 2, 2004 |
|
0.2053x |
|
5.0% |
Morgan Stanley also examined the implied percentage premium of the $9.42 implied stock
consideration, as of January 14, 2005, and of the $9.58 cash consideration, each as compared to
UGCs Class A common stock closing prices over various periods. The results of this analysis are
set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
Implied Price Premium/(Discount) |
Time Period/Benchmark |
|
UGC Share Price |
|
$9.42 Implied Stock Consideration (1) |
|
$9.58 Cash Consideration |
January 14, 2005 |
|
$9.64 |
|
(2.3%) |
|
|
(0.6 |
%) |
|
|
|
|
|
|
|
|
|
January 11, 2005 |
|
$9.26 |
|
1.7% |
|
|
3.5 |
% |
|
|
|
|
|
|
|
|
|
December 14, 2004 |
|
$8.67 |
|
8.6% |
|
|
10.5 |
% |
|
|
|
|
|
|
|
|
|
December 10, 2004 |
|
$8.66 |
|
8.7% |
|
|
10.6 |
% |
|
|
|
|
|
|
|
|
|
November 11, 2004 |
|
$8.48 |
|
11.0% |
|
|
13.0 |
% |
|
|
|
|
|
|
|
|
|
High Since June 2, 2004 |
|
$9.78 |
|
(3.7%) |
|
|
(2.0 |
%) |
65
|
|
|
|
|
|
|
|
|
|
|
|
|
Implied Price Premium/(Discount) |
Time Period/Benchmark |
|
UGC Share Price |
|
$9.42 Implied Stock Consideration (1) |
|
$9.58 Cash Consideration |
Low Since June 2, 2004 |
|
$6.00 |
|
56.9% |
|
|
59.7 |
% |
(1) |
|
Based upon 0.2155x exchange ratio and current LMI share price of $43.69 as of January 14, 2005 |
The preparation of a fairness opinion is a complex process and is not necessarily susceptible
to a partial analysis or summary description. In arriving at its opinion, Morgan Stanley
considered the results of all of its analyses as a whole and did not attribute any particular
weight to any particular analysis or factor considered by it. The summary provided and the
analyses described above must be considered as a whole, and selecting any portion of Morgan
Stanleys analyses, without considering all analyses, would create an incomplete view of the
process underlying Morgan Stanleys opinion. In addition, Morgan Stanley may have given various
analyses and factors more or less weight than other analyses and factors and may have deemed
various assumptions more or less probable than other assumptions, so that the ranges of valuations
resulting from any particular analysis described above should not be taken to be Morgan Stanleys
view of the actual value of UGC or LMI.
In performing its analysis, Morgan Stanley made numerous assumptions with respect to industry
performance, general business and economic conditions and other matters, many of which are beyond
the control of UGC and LMI. Any estimates contained in the analyses performed by Morgan Stanley
are not necessarily indicative of actual values, which may be significantly more or less favorable
than suggested by such estimates. The analyses performed were prepared solely as a part of Morgan
Stanleys analysis of the fairness from a financial point of view of the consideration to be
received by the unaffiliated stockholders of UGC pursuant to the merger agreement and were
conducted in connection with the delivery by Morgan Stanley of its opinion, dated January 17, 2005,
to the Special Committee. Morgan Stanleys analyses do not purport to be appraisals or to reflect
the prices at which shares of UGC common stock or LMI common stock might actually trade.
The consideration to be received by the unaffiliated stockholders of UGC pursuant to the
merger agreement was determined through negotiations between the Special Committee and LMI and was
approved by UGCs board of directors. Morgan Stanleys opinion to the Special Committee was one of
many factors taken into consideration by the UGC board of directors in making its determination to
approve the merger.
Morgan Stanley is an internationally recognized investment banking and advisory firm. Morgan
Stanley, as part of its investment banking and financial advisory business, is continuously engaged
in the valuation of businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted
securities, private placements and valuations for corporate and other purposes. In the past,
Morgan Stanley and its affiliates have provided financial advisory and financing services for UGC
and have received fees for the rendering of these services. In the ordinary course of its
business, Morgan Stanley and its affiliates may from time to time trade in the securities or the
indebtedness of UGC and LMI and its affiliates for its own account, the accounts of investment
funds and other clients under the management of Morgan Stanley and for the accounts of its
customers and accordingly, may at any time hold a long or short position in such securities or
indebtedness for any such account.
Pursuant to an engagement letter dated December 22, 2004, UGC agreed to pay Morgan Stanley a
financial advisory fee of $1 million. In addition, UGC agreed to pay Morgan Stanley a transaction
fee of $4.5 million upon delivery of its opinion. UGC also agreed to reimburse Morgan Stanley for
its expenses incurred in performing its services and to indemnify Morgan Stanley and its
affiliates, their respective directors, officers, agents and employees and each person, if any,
controlling Morgan Stanley or any of its affiliates against certain liabilities and expenses,
including certain liabilities under federal securities laws, related to or arising out of Morgan
Stanleys engagement and any related transactions.
Recommendation of the LMI Board; Purposes and Reasons for the Mergers
LMIs purpose for engaging in the mergers is to acquire, through Liberty Global, all of the
outstanding shares of UGC capital stock that LMI does not already own. LMIs board of directors
unanimously approved the merger agreement and determined that the merger agreement and the LMI
merger are advisable, fair to and in the best interests of LMI and its stockholders. Accordingly
the LMI board recommends that the LMI stockholders vote
66
FOR the merger proposal at the LMI special meeting. In determining that the merger
agreement and the LMI merger are in the best interests of LMI and its stockholders, the LMI board
considered that the mergers would eliminate the current dual public holding company structure in
which LMIs principal consolidated asset is its interest in another public company, UGC. The LMI
board determined that the principal benefit to LMI stockholders from the combination of the two
companies under a single public company, Liberty Global, was the elimination of the holding company
discount in LMIs stock price. The LMI board also considered the following matters in reaching its
determination:
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the presentation by its financial advisor, Banc of America Securities, and Banc
of America Securities oral opinion, subsequently confirmed in writing, that as of
the date of such opinion and based upon and subject to the factors, limitations and
assumptions set forth in Banc of America Securities written opinion, the
consideration to be received by LMI stockholders (other than affiliates of LMI) in
the transactions contemplated by the merger agreement was fair from a financial
point of view to such stockholders. In evaluating the presentation and opinion of
Banc of America Securities, the LMI board was aware of the compensation
arrangements with Banc of America Securities, including that a substantial portion
of its fee was contingent upon completion of the mergers; |
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the integration of the management teams of the two companies, with Mr. Malone
serving as Chairman of the Board of Liberty Global and Mr. Fries as Chief Executive
Officer. The LMI board believed that the strengths of the respective management
teams at the corporate level of the two companies would complement each other, and
that there was little if any overlap at the operating level that would impede a
smooth integration of the two companies; |
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that the consummation of the mergers would eliminate any potential competition
between LMI and UGC, including in the pursuit of acquisition opportunities and
capital raising activities; |
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that the receipt of the merger consideration in the LMI merger would be tax-free
to the LMI stockholders; |
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the background of the negotiations between Mr. Malone and the Special Committee
that resulted in the agreed exchange ratio and cash election alternative. Mr.
Malone had advised the LMI board of his conclusion, based upon these negotiations,
that the Special Committee would not approve the transaction at any lower exchange
ratio. The LMI board took note of the premium that the exchange ratio represented
for the shares of UGC stock, based upon the relative trading prices of the two
companies prior to the initiation of discussions with the Special Committee, and
the information provided by Banc of America Securities as to premiums paid in other
transactions. Based upon the foregoing, the increase in the exchange ratio over
the course of the negotiations did not detract from the LMI boards conclusion that
the LMI merger would be in the best interests of LMI and its stockholders; |
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that the merger agreement included a limitation on the cash election, and that
LMI had sufficient cash to fund the maximum amount of cash anticipated to be
payable if the cash elections were fully exercised; and |
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the draft of the merger agreement and the voting agreement and the summary of
the terms of each provided by LMIs counsel. In general, the terms of the merger
agreement are customary for transactions of this nature and the Special Committee
had insisted on the voting agreement as a condition to its approval of the merger
agreement. The LMI board considered that the provision of the merger agreement
requiring approval of the UGC merger by the vote of a majority of the minority
stockholders of UGC was a negative factor from LMIs perspective because of the
resulting uncertainty that the transaction would be consummated. Because the
merger agreement also included provisions allowing LMI to terminate the merger
agreement if UGCs annual report on Form 10-K is not filed by May 15, 2005 or if
the mergers are not consummated by September 30, 2005, the uncertainty resulting
from the inclusion of the minority approval requirement did not |
67
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outweigh the other factors supporting the LMI boards conclusion that the LMI merger
would be in the best interests of LMI and its stockholders. |
The LMI board did not consider other alternatives to achieving the goal of acquiring the
minority interest in UGC. It did, however, consider the alternative of maintaining the status quo
in which LMI was the controlling stockholder of UGC and instituting a stock repurchase program for
LMI stock. On balance, the LMI board determined that the proposed mergers would be preferable to
maintaining the status quo for the reasons stated above. In addition, LMI believes that
maintaining the Nasdaq National Market listing of the UGC Class A common stock and the registration
of that stock under the Exchange Act, as well as separate boards of directors with different
fiduciary duties, imposes direct and indirect compliance costs and administrative burdens on UGC
that divert managements time and resources. These compliance costs and administrative burdens
would be eliminated were the mergers completed.
If the mergers are completed, LMI stockholders will not have dissenters rights of appraisal
under Delaware law or the merger agreement because shares of LMI common stock are, and shares of
Liberty Global common stock will be, listed on the Nasdaq National Market.
Position of LMI Regarding the Fairness of the UGC Merger
The UGC merger is considered a 13e-3 transaction for purposes of Rule 13e-3 under the
Exchange Act because LMI is an affiliate of UGC and public stockholders of UGC are entitled to
receive consideration in the merger other than Liberty Global common stock. Under Rule 13e-3, LMI
is required to consider the fairness of the UGC merger to the unaffiliated stockholders of UGC.
LMI believes that the UGC merger is fair to the unaffiliated stockholders of UGC. The factors
considered by the LMI board in arriving at this belief include the following:
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that the merger was negotiated with the Special Committee, which was advised by
its own counsel and financial advisors; |
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that the merger is structured so that it is a condition to the completion of the
merger that it be approved by at least a majority of the outstanding shares of UGC
common stock not beneficially owned by LMI or Liberty or the directors and
executive officers of LMI, Liberty and UGC; |
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that the 0.2155 to 1.0 exchange ratio represents an 8.6% premium over the
closing sale price for the shares of UGC Class A common stock on December 14, 2004,
the last trading day before Mr. Malones first conversation with the Special
Committee, and a slight premium over the closing sale price of those shares on
January 11, 2005, the last trading day before LMI management and the Special
Committee reached an agreement in principle on the financial terms of the UGC
merger. LMI also considered that from the time of the LMI spin off in June 2004
through the last trading day before the public announcement of the mergers, the
historical ratio in which the shares of UGC Class A common stock has traded
relative to the LMI Series A common stock has predominantly been below the 0.2155
exchange ratio; |
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LMIs belief that since its spin off from Liberty in June 2004, UGCs historical
trading price has included an acquisition premium attributable to market
speculation that LMI would buy out the public minority stockholders of UGC; |
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LMIs belief that its common stock trades with a holding company discount of
between 9% and 19%, implying a larger premium to the unaffiliated UGC stockholders
on a fair value-to-fair value basis; |
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that the UGC unaffiliated stockholders who elect to receive Liberty Global stock
will have the opportunity to participate in LMIs Japanese cable distribution and
programming businesses at a |
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favorable valuation, as well as continue to participate in the potential growth of
the businesses of UGC; |
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that LMI was foregoing its ability to obtain a control premium for its
investment in UGC, while UGC unaffiliated stockholders who become stockholders of
Liberty Global would participate as stockholders of the new company in any control
premium because there will be no single controlling stockholder of the new company; |
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that LMI has sufficient voting power to determine a disposition of UGC, and
informed the Special Committee that it would not be interested in a sale of UGC to
a third party; and |
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the fact that the Special Committee received an opinion from Morgan Stanley to
the effect that, as of the date of such opinion and based upon and subject to the
assumptions, qualifications and limitations set forth in the opinion, the
consideration to be received by the unaffiliated stockholders of UGC pursuant to
the merger agreement was fair from a financial point of view to such stockholders.
LMI management recognized that Morgan Stanleys opinion is directed solely to the
Special Committee, and that LMI is not entitled to rely on that opinion. |
In addition to the foregoing positive factors upon which LMI has formed its belief that the
UGC merger is fair to the unaffiliated stockholders of UGC, LMI also evaluated the following
negative factors, which LMI viewed as insufficient to outweigh the positive factors:
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that on January 14, 2005, the last trading day prior to the LMI board meeting
approving the merger agreement, the UGC Class A common stock was trading above the
0.2155 exchange ratio; and |
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that the holders of UGC Class A common stock are not entitled to appraisal
rights under Delaware law, and that no provision is included in the merger
agreement to provide them that right. |
LMI further considered the prices at which each of LMI and, before its spin off from Liberty
in June 2004, Liberty had purchased shares of UGC over the preceding two year period, including the
range of prices paid in such purchases. With the exception of Libertys acquisition of all of the
UGC Class B common stock of the founders of UGC in January 2004, all UGC stock purchases during
that two-year period were made at prices between $3.62 and $8.59 per share, which is below the
$9.58 cash consideration being offered to the unaffiliated stockholders of UGC in the cash election
and the $9.42 implied value of the exchange ratio being made available in the stock election, as of
January 14, 2005, the last trading day prior to the LMI board meeting approving the merger
agreement. Those purchases had all involved shares of UGC Class A common stock purchased pursuant
to the exercise of contractual preemptive rights or pursuant to subscription rights that had been
made available to all UGC stockholders. In the case of Libertys acquisition of the shares of UGC
Class B common stock from the UGC founders, the average per share price paid for those shares was
$19.93. LMI did not view the amount it paid for the shares of UGC Class B common stock it acquired
from the UGC founders as relevant to its determination of the fairness of the consideration being
paid to UGC stockholders in the mergers. That transaction involved a control premium due to the
removal at that time of substantial constraints on the ability of Liberty to exercise control over
UGC. By contrast, the stock consideration and cash consideration being made available to
unaffiliated stockholders of UGC does not include a control premium as LMI already has a 53.6%
equity interest and an approximate 91% voting interest in UGC.
LMI did not consider UGCs net book value (assets minus liabilities as reflected in UGCs
financial statements for accounting purposes) in its evaluation of fairness to the unaffiliated
stockholders of UGC, as net book value is not a metric that is used for valuing a company such as
UGC, and UGCs net book value was substantially less than the value of the merger consideration.
LMI did not consider the going concern or liquidation values of UGC as part of its fairness
determination, except insofar as those values were encompassed in the discounted cash flow analyses
of UGC and comparable company analyses prepared by Banc of America Securities and described under
-Opinion of LMIs Financial Advisor. Banc of America Securities was not requested to and did not
consider the fairness of the UGC merger to the stockholders of UGC.
69
LMI did not find it practicable to, and therefore did not, quantify or otherwise assign
relative weights to the individual factors considered in reaching its conclusion as to fairness.
Rather, LMIs determination was made after consideration of all of the foregoing factors as a
whole.
Opinion of LMIs Financial Advisor
On January 10, 2005, the board of directors of LMI retained Banc of America Securities LLC to
act as its financial advisor in connection with the possible acquisition of the minority interest
of UGC. Banc of America Securities is a nationally recognized investment banking firm. Banc of
America Securities is regularly engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions and has negotiated underwritings, secondary distributions
of listed and unlisted securities, private placements and valuations for corporate and other
purposes. LMI selected Banc of America Securities to act as its financial advisor on the basis of
Banc of America Securities experience and expertise in transactions similar to the mergers, and
its reputation in the media industry and investment community and its historical investment banking
relationship with LMI and its affiliates.
On January 17, 2005, Banc of America Securities delivered its oral opinion, subsequently
confirmed in writing, to the LMI board of directors that as of the date of the opinion the
consideration to be received by the holders of LMIs common stock, other than any affiliates of
LMI, pursuant to the merger agreement is fair from a financial point of view to the holders of
LMIs common stock, other than any affiliates of LMI. The amount of the consideration was
determined by negotiations between LMI and the Special Committee and was not based upon
recommendations from Banc of America Securities. LMIs board of directors did not limit the
investigations made or procedures followed by Banc of America Securities in rendering its opinion.
We have attached the full text of Banc of America Securities written opinion to the LMI board
of directors as Appendix E. You should read this opinion carefully and in its entirety in
connection with this joint proxy statement/prospectus. The following summary of Banc of America
Securities opinion, is qualified in its entirety by reference to the full text of the opinion.
Banc of America Securities opinion is directed to the LMI board of directors. It does not
constitute a recommendation to any stockholder of LMI or UGC on how to vote with respect to the
mergers. The opinion addresses only the financial fairness of the consideration to be received by
the holders of LMIs common stock, other than any affiliates of LMI, pursuant to the merger
agreement. The opinion does not address the relative merits of the mergers or any alternatives to
the mergers, the underlying decision of the LMI board of directors to proceed with or effect the
mergers or any other aspect of the transactions contemplated by the merger agreement. In
furnishing its opinion, Banc of America Securities did not admit that it is an expert within the
meaning of the term expert as used in the Securities Act, nor did it admit that its opinion
constitutes a report or valuation within the meaning of the Securities Act. Statements to that
effect are included in the Banc of America Securities opinion.
For purposes of rendering its opinion Banc of America Securities has:
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reviewed certain publicly available financial statements and other business and
financial information of LMI and UGC; |
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reviewed certain internal financial statements and other financial and operating
data concerning LMI and UGC; |
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analyzed certain financial forecasts to which Banc of America Securities was
directed by the management of LMI; |
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reviewed and discussed with senior executives of LMI information relating to
certain benefits anticipated from the mergers; |
70
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discussed the past and current operations, financial condition and prospects of
LMI with senior executives of LMI and discussed the past and current operations,
financial condition and prospects of UGC with senior executives of UGC; |
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reviewed the reported prices and trading activity for the LMI common stock and
the UGC common stock; |
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compared the financial performance of UGC and the prices and trading activity of
the UGC common stock with that of certain other publicly traded companies that Banc
of America Securities deemed relevant; |
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compared the financial terms of the mergers to the financial terms, to the
extent publicly available, of certain other business combination transactions that
Banc of America Securities deemed relevant; |
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participated in discussions and negotiations among representatives of LMI and
UGC and their financial and legal advisors; |
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reviewed the January 16, 2005 draft merger agreement and certain related
documents; and |
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performed such other analyses and considered other factors as Banc of America
Securities deemed appropriate. |
Banc of America Securities reviewed the January 16, 2005 draft merger agreement in its
preparation of its opinion. While LMI and UGC had the opportunity to agree to materially add,
delete or alter material terms of the merger agreement before its execution, the final merger
agreement was substantially similar to the January 16, 2005 draft merger agreement.
Banc of America Securities did not assume any responsibility to independently verify the
information listed above. Instead, with the consent of the LMI board of directors, Banc of America
Securities relied on the information as being accurate and complete in all material respects. Banc
of America Securities also made the following assumptions with the consent of the LMI board of
directors:
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with respect to financial forecasts for LMI and UGC, Banc of America Securities
was directed by the management of LMI to rely on certain publicly available
financial forecasts in performing its analyses and has assumed that, in the good
faith belief of the management of LMI, such forecasts reflect the best currently
available estimates of the future financial performance of LMI and UGC; |
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that the LMI merger will qualify as a reorganization within the meaning of
Section 368(a) of the Code and the regulations promulgated thereunder, and that the
conversion of the UGC common stock into shares of Liberty Global Series A common
stock pursuant to the merger agreement, will qualify as an exchange within the
meaning of Section 351(a) of the Code and the regulations promulgated thereunder; |
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that the final executed merger agreement will not differ in any material respect
from the January 16, 2005 draft merger agreement reviewed by Banc of America
Securities, and that the mergers will be consummated as provided in the January 16,
2005 draft merger agreement, with full satisfaction of all covenants and conditions
set forth in it and without any waivers thereof; |
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that all material governmental, regulatory or other consents and approvals
necessary for the consummation of the mergers will be obtained without any adverse
effect on LMI or UGC or the contemplated benefits of the mergers; and |
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that the terms of the merger agreement and the mergers are the most beneficial
terms from LMIs perspective that could under the circumstances be negotiated among
the parties to the merger agreement and the mergers. |
In addition, for purposes of its opinion, Banc of America Securities has:
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relied on advice of counsel to LMI as to all legal matters with respect to LMI,
the mergers and the January 16, 2005 draft merger agreement; and |
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not assumed responsibility for making an independent evaluation, appraisal or
physical inspection of any of the assets or liabilities, contingent or otherwise,
of LMI or UGC, nor did Banc of America Securities receive any appraisals with
respect thereto. |
Banc of America Securities opinion was based upon economic, monetary and market and other
conditions in effect on, and the information made available to it as of, the date of the opinion.
Accordingly, although subsequent developments may affect its opinion, Banc of America Securities
did not assume any obligation to update, revise or reaffirm its opinion.
The following represents a brief summary of the material financial analyses performed by Banc
of America Securities in connection with providing its opinion to the LMI board of directors. Some
of the summaries of financial analyses performed by Banc of America Securities include information
presented in tabular format. In order to fully understand the financial analyses performed by Banc
of America Securities, you should read the tables together with the text of each summary. The
tables alone do not constitute a complete description of the financial analyses. Considering the
data set forth in the tables without considering the full narrative description of the financial
analyses, including the methodologies and assumptions underlying the analyses, could create a
misleading or incomplete view of the financial analyses performed by Banc of America Securities.
LMI and UGC Valuation Analyses
Valuation Approach
Banc of America Securities conducted valuation analyses of both LMI and UGC to evaluate the
respective exchange ratios of shares of LMI and UGC, which were designed to yield a range of
exchange ratios for evaluating the fairness of the exchange ratio in the mergers. The exchange
ratio ranges that resulted from the analyses conducted by Banc of America Securities were presented
to the LMI board of directors in two forms, with one range of ratios reflecting the consideration
to be received by UGC stockholders in Liberty Global shares and/or cash for each UGC share, and
with the other range of ratios reflecting the consideration to be received by LMI stockholders in
Liberty Global shares, expressed as the number of Liberty Global shares to be received for each LMI
share.
These two ranges of exchange ratios are different ways of expressing the economic exchange
involved in the creation of Liberty Global and the consummation of the mergers. For example, an
exchange ratio expressed in terms of the number of shares of Liberty Global stock to be received by
a holder of a share of stock of either UGC or LMI, respectively, can be converted into an exchange
ratio expressed in terms of the number of shares of Liberty Global stock to be received by a holder
of a share of the other by applying an implied exchange ratio and the number of outstanding shares
of the companies immediately prior to the exchange. For the purposes of Banc of America
Securities analysis, the implied exchange ratios used were the exchange ratios derived from
closing stock prices on January 14, 2005 and the outstanding shares used were 807.1 million for UGC
and 173.7 million for LMI, respectively.
Valuation Methodologies
Exchange Ratio Analysis. Banc of America Securities reviewed the historical ratio of
the closing price per share of LMI common stock and that of UGC common stock for several time
periods since June 2, 2004 (the day on which LMI common stock began trading on a when-issued basis
prior to LMIs spin off from Liberty). During this
72
period, the historical exchange ratio calculated on a daily basis ranged from a low of 0.1853
on July 20, 2004 to a high of 0.2239 on September 30, 2004.
The weighted average exchange ratios for selected time periods since June 2, 2004 were:
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Weighted Average |
Period Prior to January 14, 2005 |
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Exchange Ratio |
1 Week |
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0.2168 |
1 Month |
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0.2087 |
2 Months |
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0.2034 |
3 Months |
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0.2060 |
Since LMI common stock began trading on a when-issued
basis prior to LMIs spin off from Liberty (June 2, 2004). |
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0.2054 |
Premiums Paid Analysis. Banc of America Securities reviewed the consideration paid in
19 merger and acquisition transactions announced after March 31, 1995 and involving U.S. companies
in which the aggregate values paid exceeded $500 million and in which the acquirer owned more than
50% of the target prior to the acquisition. Banc of America Securities calculated the premiums
paid relative to the stock prices of the acquired companies in all cash or cash and stock deals and
premiums paid relative to the exchange ratio for all stock deals one day, one week and one month
prior to the announcement of the acquisition offer.
The Premiums Paid Analysis indicated the following median and mean premiums for these
transactions, excluding pending transactions:
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Premium One Day |
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Premium One Week |
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Premium One Month |
|
|
Before Announcement |
|
Before Announcement |
|
Before Announcement |
High (All Deals) |
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46.4% |
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42.7% |
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73.4% |
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Low (All Deals) |
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(12.0%) |
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(21.4%) |
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(17.9%) |
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|
Median (All Deals) |
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19.8% |
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19.8% |
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22.2% |
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Mean (All Deals) |
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19.2% |
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19.5% |
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26.1% |
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High (Stock Only) |
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29.2% |
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37.0% |
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73.4% |
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|
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|
|
Low (Stock Only) |
|
(12.0%) |
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(21.4%) |
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(17.9%) |
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Median (Stock Only) |
|
19.2% |
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13.5% |
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14.6% |
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Mean (Stock Only) |
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15.7% |
|
13.0% |
|
23.1% |
Based upon this analysis, Banc of America Securities established an exchange ratio
premium range of 10% 25% to the one day and one month prior exchange ratios. This exchange ratio
premium range was selected because it encompassed substantively all the means and medians yielded
by the Premiums Paid Analysis.
The table below sets forth the exchange ratios derived from applying the premium range to the
exchange ratios derived from the closing stock prices of LMI and UGC on January 14, 2005.
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Consideration |
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to be Received by |
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Consideration to be Received by |
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UGC Stockholders |
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LMI Stockholders |
10% Premium (1 Day Prior) |
|
0.2427 |
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0.8879 |
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25% Premium (1 Day Prior) |
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0.2758 |
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0.7813 |
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10% Premium (1 Month Prior) |
|
0.2105 |
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1.0236 |
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25% Premium (1 Month Prior) |
|
0.2392 |
|
0.9008 |
Banc of America Securities noted that the per-share value of the stock consideration to be
received by UGC stockholders pursuant to the merger agreement based upon LMIs closing stock price
on January 14, 2005 implied a discount of 2.3% over UGCs closing stock price on January 14, 2005.
The premium implied over UGCs closing stock price one week prior to January 14, 2005 was 2.5% and
the implied premium over the price one month prior to that date was 8.6%.
Holding Company Discount Analysis. Banc of America Securities performed a
sum-of-the-parts valuation of LMI to determine the net asset value of LMI, in part in order to
derive the appropriate range of holding company discounts implicit in LMIs market price. In order
to derive LMIs sum-of-the-parts value, LMIs ownership in UGC was taken at market value and the
values of the other assets of LMI were calculated using publicly available information and
management estimates. Banc of America Securities sum-of-the-parts equity value for LMI ranged
from approximately $8.8 billion to $9.1 billion, implying a current holding company discount of
approximately 13% to 17%. In addition, Banc of America Securities reviewed several Wall Street
analysts reports, published over a three week period beginning in mid-November 2004, each of which
provided (i) an estimated net asset value per share for LMI, and (ii) in all but one case, a target
share price for LMI and the discount represented by the target share price relative to such net
asset value per share. These reports were used by Banc of America Securities to derive a range of
discounts or premiums at which Wall Street analysts estimate LMIs shares trade relative to its net
asset value per share as well as a range of discounts to net asset value per share represented by
those analysts published target prices. The specific reports were selected because they were
deemed to be sufficiently recent to be relevant and because they provided estimates of LMIs net
asset value per share, which could be used to calculate an implied premium or discount to LMIs
stock price (which we refer to as the holding company discount) as of the report date. Other
available research was excluded from this analysis because it did not provide an estimated net
asset value per share and could not, therefore, be used to quantify a holding company discount.
The estimated net asset value per share included in the reports included a high of $56.81 and a low
of $41.89, yielding a median estimated net asset value of $49.22.
The holding company discount analysis yielded the following information regarding LMIs
estimated holding company discount:
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|
|
Premium (Discount) of Target Price |
|
|
to Net Asset Value per Share |
Median |
|
(9%) |
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|
|
Low |
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(10%) |
|
|
|
High |
|
(2%) |
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|
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|
|
Premium (Discount) of Market Price |
|
|
to Net Asset Value per Share |
Median |
|
(14%) |
|
|
|
Low |
|
(24%) |
|
|
|
High |
|
4% |
74
The report that did not assign a target price for LMI stock was not included in the
calculation of premium or discount of target price to net asset value above.
Banc of America Securities used the results of these analyses to determine what discount, if
any, should be applied to the net asset valuations calculated in the relative valuation analysis of
LMI and UGC (described below). Based upon the results of the holding company discount analysis,
Banc of America Securities applied a holding company discount range of 0% to 20% to LMIs
sum-of-the-parts value in the relative valuation analysis.
Relative Valuation Analysis. Banc of America Securities used a sum-of-the-parts
approach to value LMI in relation to UGC. In establishing LMIs sum-of-the-parts valuation, the
value of LMIs assets not including UGC was calculated using publicly available information and
management estimates. In valuing UGCs contribution to LMIs sum-of-the-parts value, Banc of
America Securities used three different valuation methodologies, each of which is described below.
For purposes of the analyses outlined below, Banc of America Securities used a holding company
discount range between 0% and 20%.
A. Public Market Valuation. Based upon the closing market price of UGCs stock on
January 14, 2005 and the fully diluted shares outstanding of UGC, Banc of America Securities
established a valuation for UGC that was then applied to LMIs holdings in UGC for the purposes of
the sum-of-the-parts valuation.
The public market valuation of UGC yielded exchange ratios as follows:
|
|
|
|
|
|
|
Consideration to be Received by |
|
Consideration to be Received by LMI |
|
|
UGC Stockholders |
|
Stockholders |
20% Holding Company Discount |
|
0.2357 |
|
0.9143 |
|
|
|
|
|
0% Holding Company Discount |
|
0.1886 |
|
1.1429 |
Banc of America Securities noted that, assuming a public market valuation for UGC, LMI traded
at a 15% holding company discount as of January 14, 2005.
B. Comparable Company Analysis. Based upon publicly available information, Banc of
America Securities calculated the implied exchange ratio between LMIs stock and UGCs stock
assuming respective valuations based upon application of multiples of aggregate value to
estimated forward cable earnings before interest, taxes, depreciation and amortization (which we
refer to as Cable EBITDA) for 2005 for five companies in the U.S. cable industry that Banc of
America Securities deemed to be comparable to UGC.
Banc of America Securities defined aggregate value to mean:
|
|
equity value, defined as the product of the number of shares of common stock
outstanding for a company multiplied by its stock price as of January 14, 2005;
plus |
|
|
|
outstanding funded debt; less |
|
|
|
cash, cash equivalents and non-cable unconsolidated assets. |
The following table sets forth multiples indicated by this analysis for these five companies:
|
|
|
|
|
Aggregate Value to: |
|
Range of Multiples |
|
Median |
2005E Cable EBITDA |
|
7.9x to 10.0x |
|
8.9x |
75
The comparable company analysis compared UGC to the five U.S. cable companies which were
selected because they were all U.S. publicly traded companies and, given their scale, the scope of
services provided by them and the quality of their respective businesses, Banc of America
Securities considered them to be most relevant to UGC for purposes of its analysis. Banc of
America Securities noted that the two largest publicly traded UK cable companies, NTL and Telewest,
trade at a median multiple of 6.1x 2005 estimated Cable EBITDA. Banc of America Securities,
however, did not view these two companies as being comparable to UGC for purposes of this analysis.
Banc of America Securities did not include every company that could be deemed to be a participant
in the same industry.
Based upon the median of US cable company trading multiples, which Banc of America Securities
deemed to be the most relevant for purposes of the analysis, the comparable companies valuation of
UGC yielded a range of exchange ratios as follows:
|
|
|
|
|
|
|
Consideration |
|
Consideration to be |
|
|
to be Received by |
|
Received by LMI |
|
|
UGC Stockholders |
|
Stockholders |
20% Holding Company Discount |
|
0.2262 |
|
0.9529 |
|
|
|
|
|
0% Holding Company Discount |
|
0.1809 |
|
1.1911 |
Banc of America Securities noted that, assuming a comparable companies valuation for UGC, LMI
traded at an 11% holding company discount as of January 14, 2005.
C. Discounted Cash Flow Analysis. Banc of America Securities used certain publicly
available financial cash flow forecasts for UGC for 5 years (2005 through 2009), to which it was
directed by the management of UGC, to perform discounted cash flow analysis. In conducting this
analysis, Banc of America Securities first calculated the present values of the forecasted cash
flows. Second, Banc of America Securities estimated the terminal value of UGC at the end of 2009
by applying multiples to UGCs estimated 2009 EBITDA, which multiples ranged from 8.0x to 10.0x.
Banc of America Securities then discounted the cash flows and terminal values to present values
using discount rates ranging from 8% to 12%. Banc of America Securities selected the range of
discount rates to reflect a realistic range of the weighted average cost of capital for companies
in UGCs industry and with capitalization profiles not dissimilar from UGCs.
This analysis indicated a range of aggregate value for UGC, expressed as multiples of
estimated 2005E Cable EBITDA, as follows:
|
|
|
|
|
|
|
Multiple of Aggregate Value to 2005E Cable EBITDA |
|
|
Terminal Multiple of 8.0x |
|
Terminal Multiple of 9.0x |
|
Terminal Multiple of 10.0x |
|
|
Projected Calendar Year |
|
Projected Calendar Year |
|
Projected Calendar Year |
Discount Rate |
|
2009 EBITDA |
|
2009 EBITDA |
|
2009 EBITDA |
8.0% |
|
9.8x |
|
10.8x |
|
11.7x |
|
|
|
|
|
|
|
10.0% |
|
9.1x |
|
9.9x |
|
10.7x |
|
|
|
|
|
|
|
12.0% |
|
8.4x |
|
9.1x |
|
9.9x |
Based upon the mid-point using a terminal multiple of 9.0x and a discount rate of 10% the
discounted cash flow valuation of UGC yielded exchange ratios as follows:
76
|
|
|
|
|
|
|
Consideration to be Received by UGC |
|
Consideration to be Received by LMI |
|
|
Stockholders |
|
Stockholders |
20% Holding Company Discount |
|
0.2447 |
|
0.8807 |
|
|
|
|
|
0% Holding Company Discount |
|
0.1957 |
|
1.1009 |
Banc of America Securities noted that, assuming a discounted cash flow valuation of UGC, LMI
traded at a 17% holding company discount as of January 14, 2005.
As noted above, the discussion above is merely a summary of the analyses and examinations that
Banc of America Securities considered to be material to its opinion. It is not a comprehensive
description of all analyses and examinations actually conducted by Banc of America Securities. The
preparation of a fairness opinion is not susceptible to partial analysis or summary description.
Banc of America Securities believes that its analyses and the summary above must be considered as a
whole. Banc of America Securities further believes that selecting portions of its analyses and the
factors considered, without considering all analyses and factors, would create an incomplete view
of the process underlying the analyses set forth in its presentation to the LMI board of directors.
Banc of America Securities did not assign any specific weight to any of the analyses described
above. The fact that any specific analysis has been referred to in the summary above is not meant
to indicate that that analysis was given greater weight than any other analysis. Accordingly, the
ranges of valuations resulting from any particular analysis described above should not be taken to
be Banc of America Securities view of the actual value of LMI.
In performing its analyses, Banc of America Securities made numerous assumptions with respect
to industry performance, general business and economic conditions and other matters, many of which
are beyond the control of LMI and UGC. The analyses performed by Banc of America Securities are
not necessarily indicative of actual values or actual future results, which may be significantly
more or less favorable than those suggested by these analyses. These analyses were prepared solely
as part of Banc of America Securities analysis of the financial fairness of the consideration to
be received by the holders of LMIs common stock, other than any affiliates of LMI, pursuant to the
merger agreement and were provided to the LMI board of directors in connection with the delivery of
Banc of America Securities opinion. The analyses do not purport to be appraisals or to reflect
the prices at which a company might actually be sold or the prices at which any securities have
traded or may trade at any time in the future.
As described above, Banc of America Securities opinion and presentation to the LMI board of
directors were among the many factors taken into consideration by the LMI board of directors in
making its determination to approve, and to recommend that LMIs stockholders approve, the merger
agreement.
Pursuant to the engagement letter between LMI and Banc of America Securities, LMI has paid
Banc of America Securities a fee of $500,000 upon execution of the engagement letter and an
additional $500,000 upon rendering of Banc of America Securities opinion described above and
agreed to an additional fee of $4,000,000, payable upon the
consummation of the mergers. LMI has separately engaged Banc of
America Securities to act as LMIs financial advisor in
connection with a separate assignment, for which it has agreed to pay
Banc of America Securities $
200,000 per quarter until
December 31, 2005, and an additional $500,000 upon delivery of a
formal presentation to LMI. The LMI
board of directors was aware of these fees and took them into account in considering Banc of
America Securities fairness opinion and in approving the merger
agreement and the LMI merger. Each engagement letter calls for LMI to reimburse Banc of America Securities for its reasonable
out-of-pocket expenses, and LMI has agreed to indemnify Banc of America Securities, its affiliates,
and their respective partners, directors, officers, agents, consultants, employees and controlling
persons against particular liabilities, including liabilities under the federal securities laws.
In the ordinary course of their business, Banc of America Securities and its affiliates may
actively trade the debt and equity securities or loans of LMI, UGC and their affiliates for their
own account and for the accounts of customers, and accordingly, Banc of America Securities and its
affiliates may at any time hold a long or short position in such securities or loans. Banc of
America Securities or its affiliates have also performed, and may in the future perform, various
investment banking, lending and other financial services for LMI and UGC and their affiliates for
which Banc of America Securities or its affiliates has received, and would expect to receive,
customary fees.
77
Availability of Opinions and Reports
Morgan Stanleys opinion and its report to the Special Committee (portions of which report
will be omitted pursuant to a confidential treatment request filed with the SEC) will be made
available for inspection and copying at the principal executive offices of UGC during its regular
business hours by any interested stockholder of UGC or any representative of an interested
stockholder of UGC who has been designated as such in writing. Banc of America Securities opinion
and its report to the LMI board of directors (portions of which report will be omitted pursuant to
a confidential treatment request filed with the SEC) will be made available for inspection and
copying at the principal executive offices of LMI during its regular business hours by any
interested stockholder of LMI or any representative of an interested stockholder of LMI who has
been designated as such in writing.
Conduct of the Business of UGC if the Mergers are Not Completed
If the mergers are not completed, UGC intends to continue to operate its business
substantially in the manner it is operated today with its existing capital structure and management
team remaining. From time to time, UGC will evaluate and review its business operations,
properties, dividend policy and capitalization, and make such changes as are deemed appropriate,
and continue to seek to identify strategic alternatives to maximize stockholder value.
Amount and Source of Funds and Financing of the Mergers; Expenses
Prior to the effective time of the mergers, LMI will loan to Liberty Global a sufficient
amount of cash for Liberty Global to fund the cash consideration deliverable to the UGC
stockholders (other than LMI and its wholly owned subsidiaries) in the UGC merger. LMI will fund
this loan with its available cash. The mergers are not conditioned on the receipt of financing by
LMI to pay the cash consideration deliverable to UGC stockholders.
It is expected that LMI and UGC will incur an aggregate of approximately $22 million in
expenses in connection with the mergers. These expenses will be comprised of:
|
|
approximately $10.6 million in financial advisory fees; |
|
|
|
approximately $5 million of printing and mailing expenses associated with this
joint proxy statement/prospectus; |
|
|
|
approximately $3.2 million in legal and accounting fees; |
|
|
|
approximately $1.5 million in SEC filing fees; and |
|
|
|
approximately $1.3 million in solicitation fees and other miscellaneous expenses. |
It is expected that LMIs portion of these expenses will equal approximately $11 million and UGCs
portion of these expenses will equal approximately $11 million.
Interests of Certain Persons in the Mergers
Interests of Directors and Executive Officers
In considering the recommendation of UGCs board of directors to vote to approve the merger
proposal, stockholders of UGC should be aware that members of UGCs board of directors and members
of UGCs executive management have relationships, agreements or arrangements that provide them with
interests in the mergers that may be in addition to or different from those of the public
stockholders of UGC. Similarly, in considering the recommendation of LMIs board of directors to
vote to approve the merger proposal, stockholders of LMI should be aware that members of LMIs
board of directors and members of LMIs executive management have relationships, agreements or
arrangements that provide them with interests in the mergers that may be in addition to or
different
78
from those of the public stockholders of LMI. In addition, the current directors of LMI and
UGC will be entitled to the continuation of certain indemnification arrangements following
completion of the mergers.
Following completion of the mergers, John C. Malone, Chairman of the Board, Chief Executive
Officer and President of LMI, will become Chairman of the Board of Liberty Global, and Michael T.
Fries, Chief Executive Officer and President of UGC, will become President and Chief Executive
Officer of Liberty Global. Five of LMIs current directors, including Mr. Malone, and five of
UGCs current directors, including Mr. Fries and the three members of the Special Committee, have
agreed to together comprise the board of Liberty Global. In addition, Liberty Globals management
will be comprised of members of LMIs and UGCs management teams. The directors and executive
officers of Liberty Global are expected to beneficially own shares of Liberty Global common stock
representing in the aggregate approximately [___]% of the aggregate voting power of Liberty Global,
based upon their beneficial ownership interests in LMI and UGC, respectively, as of the record
dates for the special meetings, and assuming no cash elections are made by the UGC stockholders.
Both LMIs board of directors and UGCs board of directors were aware of these interests and
arrangements and considered them when approving the mergers. For more information regarding these
interests and arrangements, see Executive Officers, Directors and Principal Stockholders of LMI,
Executive Officers, Directors and Principal Stockholders of UGC and Management of Liberty
Global.
Voting Intentions
The directors and executive officers of UGC, who together beneficially own shares of UGC
common stock representing less than 1% of UGCs aggregate voting power, have indicated to UGC that
they intend to vote in favor of the approval of the merger proposal at the UGC special meeting.
Also, LMI, which beneficially owns shares of UGC common stock representing approximately 91% of
UGCs aggregate voting power, has agreed in the merger agreement to vote, and to cause its
subsidiaries to vote, in favor of the approval of the merger proposal at the UGC special meeting.
The directors and executive officers of LMI (including Mr. Malone), who together beneficially own
shares of UGC common stock representing less than 1% of UGCs aggregate voting power, have
indicated to UGC that they intend to vote in favor of the approval of the merger proposal at the
UGC special meeting.
Transactions in UGC Securities
Except as described below, none of (1) LMI or its wholly owned subsidiaries, (2) the directors
and executive officers of UGC, or (3) the directors and executive officers of LMI:
|
|
has effected any transactions in shares of UGC common stock during the 60 days
preceding the date of this joint proxy statement/prospectus; or |
|
|
|
intends to effect any such transactions prior to the special meetings. |
On December 16, 2004, a subsidiary of LMI transferred its 100% ownership interest in Princes Holdings Limited,
which operates under the name Chorus Communication Limited, to a subsidiary of UGC in exchange for 6,413,991
shares of UGC Class A common stock. The consideration in this transaction was based upon an
aggregate purchase price of approximately $55.1 million, and paid in shares of UGC Class A common
stock valued based upon the average of the trading prices of shares of UGC Class A common stock for
the ten trading days ending on the second trading day prior to the consummation of the transaction.
Accounting Treatment
The mergers will be accounted for as a step acquisition by LMI of the remaining minority
interest in UGC. The purchase price in this step acquisition will include the consideration issued
to UGC public stockholders to acquire the UGC interest not already owned by LMI and the direct
acquisition costs incurred by LMI. As UGC was a consolidated subsidiary of LMI prior to the
mergers, the purchase price will first be applied to eliminate the minority interest in UGC from
the consolidated balance sheet of LMI, and the remaining purchase price will be allocated on a pro
rata basis to the identifiable assets and liabilities of UGC based upon their respective fair
values at
79
the effective date of the mergers and the 46.4% interest in UGC to be acquired by Liberty
Global pursuant to the mergers. Any excess purchase price that remains after amounts have been
allocated to the net identifiable assets of UGC will be recorded as goodwill. As the acquiring
company for accounting purposes, LMI will be the predecessor to Liberty Global and the historical
financial statements of LMI will become the historical financial statements of Liberty Global. See
Liberty Global Unaudited Condensed Pro Forma Combined Financial Statements.
Regulatory Matters
At the date of this joint proxy/statement prospectus, LMI has obtained all regulatory
approvals required for LMI to complete the mergers.
At the date of this joint proxy/statement prospectus, UGC has obtained all regulatory
approvals required for UGC to complete the mergers.
Appraisal or Dissenters Rights
Under Section 262 of the Delaware General Corporation Law (DGCL), holders of shares of UGC
Class A common stock will not be entitled to appraisal rights in connection with the UGC merger,
but any holders of shares of UGC Class B common stock (other than LMI and its wholly owned
subsidiaries) or UGC Class C common stock (other than LMI and its wholly owned subsidiaries) will
be entitled to appraisal rights in connection with the UGC merger. Section 262 of the DGCL is
included as Appendix H to this joint proxy statement/prospectus and is incorporated herein in its
entirety by this reference.
Under Section 262 of the DGCL, LMI stockholders are not entitled to appraisal rights in
connection with the LMI merger.
Federal Securities Law Consequences
The issuance of shares of Liberty Global common stock in the mergers will be registered under
the Securities Act, and the shares of Liberty Global common stock so issued will be freely
transferable under the Securities Act, except for shares of Liberty Global common stock issued to
any person who is deemed to be an affiliate of either LMI or UGC at the time of the special
meetings. Persons who may be deemed to be affiliates include individuals or entities that control,
are controlled by, or are under common control with either LMI or UGC and may include directors,
executive officers and significant stockholders of each of LMI and UGC. Affiliates may not sell
their shares of Liberty Global common stock acquired in connection with the mergers, except
pursuant to:
|
|
an effective registration statement under the Securities Act covering the resale of those shares; |
|
|
|
an exemption under paragraph (d) of Rule 145 under the Securities Act; or |
|
|
|
any other applicable exemption under the Securities Act. |
Liberty Globals registration statement on Form S-4, of which this document forms a part, does
not cover the resale of shares of Liberty Global common stock to be received by affiliates in the
mergers. The merger agreement requires that LMI and UGC each use its commercially reasonable
efforts to cause each of their respective affiliates to deliver to Liberty Global a written
agreement to the effect that these persons will not sell, transfer or otherwise dispose of any of
the shares of Liberty Global common stock issued to them in the mergers in violation of the
Securities Act or the related rules and regulations of the Securities and Exchange Commission. See
The Transaction Agreements Merger Agreement Covenants.
Class Action Lawsuits Relating to the UGC Merger
Since January 18, 2005, twenty-one lawsuits have been filed in the Delaware Court of Chancery
purportedly on behalf of the public stockholders of UGC regarding the announcement on January 18,
2005 of the execution by LMI and UGC of the merger agreement. The defendants named in these actions
include Gene
80
Schneider, Michael Fries, David Koff, Robert Bennett, John Malone, John Cole, Bernard G.
Dvorak, John W. Dick, Paul A. Gould and Gary S. Howard (directors of
UGC), UGC and LMI. The allegations
in each of the complaints, which are substantially similar, assert that the defendants have
breached their fiduciary duties of loyalty, care, good faith and candor and that various defendants
have engaged in self-dealing and unjust enrichment, affirmed an unfair price, and impeded or
discouraged other offers for UGC or its assets in bad faith and for improper motives. In addition
to seeking to enjoin the UGC merger, the complaints seek remedies including damages for the public
holders of UGC stock and an award of attorneys fees to plaintiffs counsel. In connection with
these lawsuits, defendants have been served with one request for production of documents. The
defendants believe the lawsuits are without merit.
Provisions for Unaffiliated Stockholders of UGC
Delaware law provides stockholders of a Delaware corporation who have a proper purpose and who
meet certain statutory requirements the right to inspect a list of stockholders and other corporate
books and records. Other than in accordance with Delaware law or any action by a governmental
authority, the unaffiliated stockholders of UGC will not be given any special access to the
corporate files of UGC in connection with or in contemplation of the mergers.
Unless otherwise required by Delaware law or any action by a governmental authority, neither
UGC nor LMI intends to obtain counsel or appraisal services for the unaffiliated stockholders of
UGC in connection with the mergers.
Plans for UGC After the Mergers; Certain Effects of the Mergers
UGC Business
Following the mergers, the business and operations of UGC will be conducted substantially as
they are currently being conducted with the exception that, among other things, UGC will become a
subsidiary of a new parent company named Liberty Global, Inc. The centralized management,
administration, finance, accounting, legal and other parent company tasks performed by UGC prior
to the mergers will be performed by Liberty Global following the mergers.
UGC Directors and Officers
Following the mergers, Liberty Globals management team will be responsible for the businesses
of UGC. Liberty Globals management team will include certain members of UGCs current management
team, including Michael T. Fries, the President and Chief Executive Officer of UGC, who has agreed
to serve as the President and Chief Executive Officer of Liberty Global. Liberty Global will have
a staggered board that will include five of UGCs ten directors, who will be assigned to board
classes with different terms than those to which they are currently assigned on UGCs board. See
Management of Liberty Global.
UGC Capital Structure
UGC will be the surviving corporation in the UGC merger, and its existing capital structure
will remain in place immediately following the mergers. Each share of UGC common stock acquired by
Liberty Global in the UGC merger will be converted into one share of the corresponding class of
common stock of UGC as the surviving corporation and will remain outstanding immediately following
the mergers, and each share of UGC common stock held by LMI or any of its wholly owned
subsidiaries, at the time of the UGC merger, will be converted into one share of the corresponding
class of common stock of UGC as the surviving corporation and will remain outstanding immediately
following the mergers. As a result, Liberty Global will own directly 46.4% of the common stock of
UGC as the surviving corporation in the UGC merger, and indirectly through Liberty Globals wholly
owned subsidiary LMI 53.6% of the common stock of UGC as the surviving corporation in the UGC
merger (based upon outstanding UGC share information as of December 31, 2004).
Liberty Global will have a different capital structure than UGC has. See Description of
Liberty Global Capital Stock and Comparison of Rights of Stockholders of LMI, UGC and Liberty
Global.
81
Outstanding Convertible Notes of UGC
As of December 31, 2004, UGC had outstanding 500,000,000 aggregate principal amount of 13/4%
convertible senior notes due April 15, 2024 (which we refer to as the UGC convertible notes). The
UGC convertible notes were issued under an indenture dated as of April 6, 2004 between UGC and The
Bank of New York, as trustee. The indenture provides that after the consummation of the UGC
merger, the note holders will be entitled, subject to the restrictions on convertibility set forth
in the indenture, to convert their notes into the number of shares of Liberty Global Series A
common stock that they would have received in the UGC merger if they had converted their notes into
UGC Class A common stock immediately prior to the UGC merger and had made the stock election. In
connection with the mergers, UGC, Liberty Global and the trustee will enter into a supplemental
indenture to implement this modification in the conversion right of the UGC convertible notes. In
addition, under the indenture the UGC convertible notes will become convertible in connection with
the UGC merger unless at least 90% of the aggregate value of the merger consideration (excluding
cash payments for fractional share interests) into which the UGC Class A common stock is converted
consists of Liberty Global Series A common stock. Hence, whether the UGC convertible notes become
convertible in connection with the UGC merger will depend on the amount of cash paid to those UGC
stockholders (if any) who make the cash election for their shares of UGC Class A common stock.
Under the conversion provisions of the indenture, UGC convertible notes are convertible into, at
the option of UGC, (1) shares of UGC Class A common stock at the conversion price of 9.7561 euros
per share, (2) an amount in cash determined by multiplying the number of shares of UGC Class A
common stock into which the surrendered note is convertible by a measure of the average trading
price of UGC Class A common stock for the five trading days following the conversion date, or (3) a
combination of such stock and cash. UGC will give the requisite notice under the indenture of any
conversion rights accruing to holders of the UGC convertible notes in connection with the UGC
merger at least 20 days prior to the anticipated effective date of the UGC merger, and the
procedures to be followed to effect conversion. The merger will not constitute a change in
control as defined in the indenture, which would have given the note holders the right to require
UGC to repurchase the UGC convertible notes at par, plus accrued and unpaid interest.
Listing and Registration
Following the mergers, UGC Class A common stock will be delisted from the Nasdaq National
Market and deregistered under the Exchange Act.
Following the mergers, LMI Series A common stock and LMI Series B common stock will be
delisted from the Nasdaq National Market and deregistered under the Exchange Act.
It is anticipated that the shares of Liberty Global common stock issuable in connection with
the mergers will be registered under the Exchange Act, and it is a condition to the mergers that
such shares be authorized for listing on the Nasdaq National Market, subject only to official
notice of issuance. [Liberty Global has applied to list its Series A common stock and Series B
common stock on the Nasdaq National Market under the symbols [___] and [___], respectively.]
Reporting Obligations
Following the mergers, each of UGC and LMI will cease to be a reporting company under the
Exchange Act.
Liberty Global will become a reporting company under the Exchange Act contemporaneously with
the consummation of the mergers.
Effect on Net Book Value and Net Earnings
As the successor entity to LMI, Liberty Global would have experienced, on a pro forma basis
(1) an increase in its net book value at September 30, 2004
of $3,468,637 if the mergers had been
consummated at September 30, 2004 and the UGC stockholders elected to receive all stock
consideration; and (2) a decrease (increase) to its net loss for the nine months ended September
30, 2004 and the year ended December 31, 2003 of
82
($148,292,000) and
$991,345,000, respectively, if the mergers had been consummated at January
1, 2003. For additional information, see Liberty Global Unaudited Condensed Pro Forma Combined
Financial Statements.
Other
If the mergers are completed, and except as described in this joint proxy
statement/prospectus, neither LMI nor Liberty Global has any plans or proposals that relate to or
would result in:
|
|
any extraordinary transaction, such as a merger, reorganization or liquidation,
involving UGC or any of its subsidiaries; |
|
|
|
any purchase, sale or transfer of a material amount of assets of UGC or any of its subsidiaries; |
|
|
|
the acquisition or disposition by any person of additional securities of UGC; or |
|
|
|
any other material change in UGCs corporate structure and business. |
83
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGERS
The following is a summary of the U.S. federal income tax consequences of the LMI merger and
the UGC merger that are expected to be material to U.S. holders and non-U.S. holders (each as
defined below) of LMI common stock and UGC common stock, subject to the limitations below. This
summary is included for general information purposes only, is limited to the U.S. federal income
tax consequences of the mergers and does not purport to be a complete technical analysis or listing
of all potential tax consequences that may be relevant to holders of LMI common stock or UGC common
stock. It is not intended to be, nor should it be construed as being, legal or tax advice. For
this reason, holders of LMI common stock and UGC common stock should consult their own tax advisors
concerning the tax consequences of the mergers. Further, this summary does not address any tax
consequences arising under the income or other tax laws of any state, local or foreign jurisdiction
or any tax treaties.
This summary is based upon the Internal Revenue Code of 1986, as amended (referred to as the
Code), the applicable regulations of the U.S. Treasury Department, and publicly available judicial
and administrative rulings and decisions, all as in effect on the date of this joint proxy
statement/prospectus, any of which may change, possibly retroactively. Any changes could affect
the continuing validity of this summary.
For purposes of this summary, the term U.S. holder means a beneficial owner of shares of LMI
common stock or UGC common stock, as applicable, who is:
|
|
an individual who is a citizen of the United States or who is resident in the
United States for U.S. federal income tax purposes; |
|
|
|
a corporation or other entity taxable as a corporation for U.S. federal income
tax purposes, created or organized under the laws of the United States, any state
thereof or the District of Columbia; |
|
|
|
a trust, if either (i) a court within the United States is able to exercise
primary supervision over the administration of the trust and one or more U.S.
persons have the authority to control all substantial decisions of the trust or
(ii) the trust has a valid election in effect under applicable Treasury
Regulations to be treated as a U.S. person; or |
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an estate that is subject to U.S. federal income tax on its income regardless
of its source. |
For purposes of this summary, the term non-U.S. holder means a beneficial owner of shares of
LMI common stock or UGC common stock, as applicable, that is not treated as a partnership for U.S.
federal income tax purposes, and that is not a U.S. holder. For purposes of this summary, an
entity that is classified as a partnership for U.S. federal income tax purposes is neither a U.S.
holder nor a non-U.S. holder. The U.S. federal income tax treatment of a partnership and its
partners depends upon a variety of factors, including the activities of the partnership and the
partners. Holders of LMI common stock or UGC common stock that are partnerships for U.S. federal
income tax purposes, and partners in any such partnership, should consult their tax advisors
concerning the U.S. federal income tax consequences of the mergers.
This summary assumes that LMI stockholders and UGC stockholders hold their shares of LMI
common stock and UGC common stock, respectively, as capital assets within the meaning of Section
1221 of the Code at the effective time of the mergers. Further, this summary does not address all
aspects of U.S. federal income taxation that may be relevant to LMI stockholders or UGC
stockholders in light of their particular circumstances or that may be applicable to them if they
are subject to special treatment under the U.S. federal income tax laws, including if an LMI
stockholder or UGC stockholder is:
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a financial institution or thrift; |
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a tax-exempt organization; |
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an S corporation or other pass-through entity or an owner thereof; |
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an entity taxable as a partnership for U.S. federal income tax purposes or an
owner thereof; |
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an insurance company; |
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a mutual fund; |
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a dealer in stocks and securities or foreign currencies; |
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a trader or an investor in LMI common stock or UGC common stock who elects the
mark-to-market method of accounting for such stock; |
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a stockholder who received LMI common stock or UGC common stock from the
exercise of employee stock options, from an employee stock purchase plan or
otherwise as compensation; |
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a stockholder who received LMI common stock or UGC common stock from a
tax-qualified retirement plan, individual retirement account or other qualified
savings account; |
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a U.S. holder that has a functional currency other than the U.S. dollar; |
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an expatriate or former long-term resident of the United States; or |
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a stockholder who holds LMI common stock or UGC common stock as part of a hedge
against currency risk, straddle or a constructive sale or conversion transaction
or other risk reduction or integrated investment transaction. |
Further, this summary does not address the U.S. federal income tax consequences to any holder
that actually or constructively owns both LMI common stock and UGC common stock, or to any holder
of options or warrants to purchase LMI, UGC or Liberty Global common stock.
This summary does not address tax consequences that may vary with, or are contingent upon,
individual circumstances, including without limitation alternative minimum tax consequences, and
does not address tax consequences to persons who exercise appraisal rights. Moreover, it does not
address any non-income tax or any foreign, state or local tax consequences of the mergers. Tax
matters are very complicated, and the tax consequences of the mergers to LMI stockholders and UGC
stockholders will depend upon the facts of the individual stockholders particular situation.
Accordingly, LMI stockholders and UGC stockholders are strongly urged to consult with a tax advisor
to determine the particular federal, state, local or foreign income or other tax consequences of
the mergers.
Tax Opinions
It is a non-waivable condition of the LMI merger that LMI receive an opinion from Baker Botts
L.L.P., counsel to LMI, or another nationally recognized law firm, dated the closing date, to the
effect that, for U.S. federal income tax purposes:
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the LMI merger will qualify as a reorganization within the meaning of Section
368(a) of the Code; |
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no gain or loss will be recognized by Liberty Global, LMI, any wholly owned
subsidiary of LMI that owns shares of UGC common stock, or UGC as a result of the
LMI merger or the UGC merger; and |
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no gain or loss will be recognized by the stockholders of LMI
with respect to shares of LMI common stock converted solely into Liberty Global common stock as a
result of the LMI merger. |
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It is a non-waivable condition of the UGC merger that UGC receive an opinion from a nationally
recognized law firm, dated the closing date, to the effect that, for U.S. federal income tax
purposes:
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when viewed as a collective whole with the LMI merger, the conversion of shares
of UGC common stock into shares of Liberty Global Series A common stock that is
effected pursuant to the UGC merger will qualify as an exchange within the meaning
of Section 351 of the Code; |
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no gain or loss will be recognized by Liberty Global or UGC as a result of the
UGC merger; and |
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no gain or loss will be recognized by the stockholders of UGC with respect to
shares of UGC common stock converted solely into Liberty Global Series A common
stock pursuant to the UGC merger. |
These opinions, which will be provided by Baker Botts L.L.P. and Holme Roberts & Owen LLP,
respectively, will not address all of the U.S. federal income tax consequences relating to the
mergers. Specifically, for example, the opinion concerning the recognition of gain or loss by
stockholders of UGC does not address the receipt of cash by UGC stockholders, whether received as a
result of a cash election or for fractional shares.
These opinions will be based upon factual representations and covenants, including those
contained in letters provided by Liberty Global, LMI, UGC and/or others, and upon specified
assumptions, and will assume that the mergers will be completed according to the terms of the
merger agreement and that there will be no material changes in existing facts or in law. Any
inaccuracy or change in the representations, covenants or assumptions upon which the opinions are
based could alter the conclusions reached in the opinions.
The opinions to be delivered by Baker Botts L.L.P. and by Holme Roberts & Owen LLP will
neither bind the Internal Revenue Service nor preclude the Internal Revenue Service from
challenging the conclusions set forth therein, nor preclude a court from adopting a contrary
position. Neither Liberty Global, LMI nor UGC intends to obtain a ruling from the Internal Revenue
Service regarding the tax consequences of the mergers.
U.S. Federal Income Tax Consequences of the LMI Merger
LMI has received the opinion of Baker Botts L.L.P. that the discussion under this heading,
U.S. Federal Income Tax Consequences of the LMI Merger, is accurate in all material respects.
This opinion is subject to the qualifications, assumptions and limitations referenced and
summarized above under the heading Material United States Federal Income Tax Consequences of the
Mergers and those summarized below under this heading, and is conditioned upon the accuracy of the
representations, covenants and assumptions upon which the opinion is based. The opinion is
included as an exhibit to the registration statement on Form S-4 of Liberty Global being filed in
connection with the mergers. The following summary of the U.S. federal income tax consequences of
the LMI merger assumes that the LMI merger will qualify as a reorganization described in Section
368(a) of the Code, as described above under Tax Opinions.
U.S. Federal Income Tax Consequences to U.S. Holders and Non-U.S. Holders of LMI Common Stock
U.S. holders and non-U.S. holders of LMI common stock will not recognize gain or loss as a
result of the receipt of Liberty Global common stock in the LMI merger in exchange for their LMI
common stock. The aggregate tax basis of the Liberty Global common stock received by an LMI
stockholder will be equal to the LMI stockholders aggregate tax basis of the LMI common stock
surrendered, and the holding period of the Liberty Global common stock received by an LMI
stockholder will include the LMI stockholders holding period of the LMI common stock surrendered.
Holders of LMI common stock will be required to file with their U.S. federal income tax return
for the taxable year in which the LMI merger occurs a statement setting forth certain facts
relating to the LMI merger, including their tax basis in the shares of LMI common stock exchanged
in the LMI merger and the number of shares of Liberty Global common stock received in the LMI
merger. Holders of LMI common stock must also keep a
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permanent record of such facts relating to
the exchange of their LMI common stock for Liberty Global common stock pursuant to LMI merger.
U.S. Federal Income Tax Consequences of the UGC Merger
UGC has received the opinion of Holme Roberts & Owen LLP that the discussion under this
heading, U.S. Federal Income Tax Consequences of the UGC Merger, accurately summarizes the U.S.
federal income tax consequences of the UGC merger that are expected to be material to U.S. holders
and non-U.S. holders of UGC common stock. This opinion is subject to the qualifications,
assumptions and limitations referenced and summarized above under the heading Material United
States Federal Income Tax Consequences of the Mergers and those summarized below under this
heading, and is conditioned upon the accuracy of the representations, covenants and assumptions
upon which such opinion is based. The opinion is included as an exhibit to the registration
statement on Form S-4 of Liberty Global being filed in connection with the mergers. The following
summary of the U.S. federal income tax consequences of the UGC merger assumes that the conversion
of shares of UGC common stock into Liberty Global common stock that is effected pursuant to the UGC
merger will qualify as an exchange within the meaning of Section 351 of the Code, as described
above under Tax Opinions.
U.S. Federal Income Tax Consequences to U.S. Holders of UGC Common Stock
U.S. Holders of UGC Common Stock Who Receive Only Liberty Global Common Stock (and Cash
for Fractional Shares) in the UGC Merger. A U.S. holder of UGC common stock who receives
solely Liberty Global common stock in exchange for UGC common stock surrendered in the UGC merger
(and, as applicable, cash for fractional shares) will not recognize gain or loss as a result of the
receipt of Liberty Global common stock, except to the extent that cash is received instead of
fractional shares. The aggregate tax basis of the Liberty Global common stock received by a UGC
stockholder will be equal to the UGC stockholders aggregate tax basis of the UGC common stock
surrendered, excluding the tax basis allocated to fractional shares, and the holding period of the
Liberty Global common stock received by a UGC stockholder will include the UGC stockholders
holding period of the UGC common stock surrendered. If a UGC stockholder receives cash instead of
fractional shares, the UGC stockholder will be treated as recognizing capital gain or loss equal to
the difference between the amount of cash received with respect to the fractional shares and the
ratable portion of the UGC stockholders tax basis in the UGC common stock which is surrendered in
the UGC merger and which is allocated to such fractional shares. Any capital gain or loss will be
long-term capital gain or loss if the UGC stockholders holding period in such UGC common stock is
more than one year as of the closing date of the UGC merger. For non-corporate U.S. holders,
long-term capital gain generally will be taxed at a maximum U.S. federal income tax rate of 15%.
The deductibility of capital losses is subject to limits.
U.S. Holders of UGC Common Stock Who Receive Cash and Liberty Global Common Stock in the
UGC Merger. A U.S. holder of UGC common stock who receives a combination of Liberty Global
common stock and cash in exchange for UGC common stock surrendered in the UGC merger will recognize
capital gain, but not capital loss, realized in the UGC merger (subject to the discussion below
under Possible Dividend Treatment). The amount of capital gain recognized by the U.S.
holder of UGC common stock generally will be calculated separately for each block of UGC common
stock surrendered (i.e., shares of UGC common stock that have the same tax basis and holding
period) and will be equal to the lesser of:
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the amount of gain realized in respect of such block, i.e., the excess (if any)
of (x) the sum of the amount of cash and the fair market value of the Liberty
Global common stock received that is allocable to such block of UGC common stock
surrendered in the UGC merger over (y) the tax basis of such block; and |
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the amount of cash that is allocable to such block. |
For this purpose, the cash and the Liberty Global common stock received by a UGC stockholder
generally will be allocated among the blocks of UGC common stock surrendered in the UGC merger
proportionately based upon the fair market values of such blocks of UGC common stock. Because no
loss will be recognized, a UGC
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stockholder will not be able to offset gain recognized on one block
of UGC common stock by loss attributable to another block. The capital gain, if any, attributable
to a block of UGC common stock will be long-term capital gain if the UGC stockholders holding
period in the block of UGC common stock is more than one year as of the closing date of the UGC
merger. For non-corporate U.S. holders, long-term capital gain generally will be taxed at a
maximum U.S. federal income tax rate of 15%.
The aggregate tax basis of the Liberty Global common stock received by a U.S. holder of UGC
common stock in the UGC merger will be equal to the UGC stockholders aggregate tax basis in the
UGC common stock surrendered, decreased by the amount of cash received by the UGC stockholder and
increased by the amount of gain recognized by the UGC stockholder in connection with the UGC
merger. A UGC stockholders holding period for the Liberty Global common stock received in
exchange for UGC common stock will include the holding period for the UGC common stock surrendered.
U.S. holders of multiple blocks of UGC common stock are urged to consult their tax advisors
concerning the determination of the tax basis and holding period for the Liberty Global common
stock received in the UGC merger.
U.S. Holders of UGC Common Stock Who Receive Only Cash in the UGC Merger. A U.S.
holder of UGC common stock who receives solely cash in exchange for the holders UGC common stock
surrendered in the UGC merger will recognize capital gain or loss equal to the difference between
the amount of cash received by the UGC stockholder and the holders tax basis of the UGC common
stock surrendered (subject to the discussion below under Possible Dividend Treatment). Gain or
loss must be calculated separately for each block of UGC common stock (i.e., shares of UGC common
stock that have the same tax basis and holding period). Such gain or loss will be long-term
capital gain or loss if the UGC stockholders holding period in such UGC common stock is more than
one year as of the closing date of the UGC merger. For non-corporate U.S. holders, long-term
capital gain generally will be taxed at a maximum U.S. federal income tax rate of 15%. The
deductibility of capital losses is subject to limits.
Possible Dividend Treatment. It is possible that cash received in the UGC merger as a
result of a cash election could be subject to taxation under the rules of Section 304 of the Code.
If Section 304 were to apply, holders of UGC common stock would be treated as having exchanged a
portion of their UGC common stock for Liberty Global common stock in a tax-free exchange under
Section 351(a) of the Code (to the extent that they receive Liberty Global common stock in the UGC
merger), and as having exchanged the remaining portion of their shares of UGC common stock for
cash. The cash received would be treated as a distribution that, depending upon the circumstances
of the holder of the UGC common stock and the earnings and profits of Liberty Global and UGC, would
be taxable either as a dividend or as a payment received in exchange for the UGC common stock.
There is some uncertainty about whether Section 304 applies in the circumstances of the UGC merger
because its application depends upon the interpretation of certain provisions of Section 304 and
the facts and circumstances existing at the time of the UGC merger, and we cannot provide any
assurance that the rules of Section 304 will not apply to a UGC stockholder who makes a cash
election. If Section 304 were to apply, and if the cash were taxable as a dividend (generally
taxable at a maximum rate of 15% for U.S. federal income tax purposes), the U.S.
holder of the UGC common stock would not be able to reduce the amount taxable by the amount of
the U.S. holders tax basis allocable to the portion of the shares of UGC common stock exchanged
for cash. Dividend treatment would generally not apply to holders of UGC common stock that receive
solely cash in exchange for their UGC common stock and that do not actually or constructively own
any stock of Liberty Global or UGC (under specified attribution rules) after giving effect to the
UGC merger.
Reporting Requirements. Holders of UGC common stock will be required to file with
their U.S. federal income tax return for the taxable year in which the UGC merger occurs a
statement setting forth certain facts relating to the UGC merger, including their tax basis in the
shares of UGC common stock exchanged in the UGC merger and the number of shares of Liberty Global
common stock and the amount of cash received in the UGC merger. Holders of UGC common stock must
also keep a permanent record of such facts relating to the exchange of their UGC common stock for
Liberty Global common stock and/or cash pursuant to UGC merger.
U.S. Federal Income Tax Consequences to Non-U.S. Holders of UGC Common Stock
Scope of Discussion With Respect to Non-U.S. Holders. As previously stated, this
summary does not address the U.S. federal income tax consequences to stockholders that are subject
to special rules. With respect to a UGC stockholder who is a non-U.S. holder, this summary also
does not apply to (1) a UGC stockholder that holds
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its UGC common stock in connection with a trade
or business conducted in the United States or in connection with an office or fixed place of
business located in the United States; or (2) a UGC stockholder that is affected by the provisions
of an income tax treaty to which the United States is a party. This summary also does not address
currency exchange issues. Any non-U.S. holder that may be subject to any of these tax rules is
urged to consult his or her own tax advisor to determine the tax consequences to him or her of the
UGC merger.
The tax consequences to non-U.S. holders of UGC common stock could be materially different if
UGC or Liberty Global are or have previously been a U.S. real property holding corporation as of
the closing date of the UGC merger, and certain exemptions do not apply. We do not believe that
UGC or Liberty Global will be or will have previously been a U.S. real property holding corporation
as of the closing date of the UGC merger, and therefore, such tax consequences are not discussed
below.
Non-U.S. Holders of UGC Common Stock Who Receive Only Liberty Global Common Stock (and
Cash for Fractional Shares) in the UGC Merger. A non-U.S. holder of UGC common stock that
receives only Liberty Global common stock (and, as applicable, cash for fractional shares) in
exchange for UGC common stock surrendered in the UGC merger will not be subject to U.S. federal
income or withholding tax, except with respect to any cash received instead of fractional shares.
A non-U.S. holder of UGC common stock generally will not be subject to U.S. federal income or
withholding tax with respect to cash received instead of fractional shares unless such UGC
stockholder is an individual that is present in the United States for 183 days or more in the
taxable year of the UGC merger and certain other conditions are met.
Non-U.S. Holders of UGC Common Stock Who Elect to Receive Cash. A non-U.S. holder of
UGC common stock that receives either a combination of Liberty Global common stock and cash in the
UGC merger, or solely cash in the UGC merger will not be subject to U.S. federal income tax with
respect to any shares of Liberty Global common stock or cash received in the UGC merger unless
either (i) such non-U.S. holder is an individual that is present in the United States for 183 days
or more in the taxable year of UGC merger and certain other conditions are met or (ii) the cash
received in the UGC merger is taxable as a dividend as described above under U.S. Federal Income
Tax Consequences to U.S. Holders of UGC Common Stock Possible Dividend Treatment.
If a non-U.S. holder of UGC common stock is an individual that is present in the United States
for 183 days or more in the taxable year of UGC merger, and if certain other conditions are met,
such non-U.S. holder will be subject to U.S. federal income tax at a rate of 30% (unless otherwise
reduced by treaty) on all or part of the gain attributable to the UGC common stock. For a non-U.S.
holder of UGC common stock who receives both Liberty Global common stock and cash in the UGC
merger, the gain subject to tax
will be calculated as described under U.S. Federal Income Tax Consequences to U.S. Holders
of UGC Common Stock U.S. Holders of UGC Common Stock Who Receive Cash and Liberty Global Common
Stock in the UGC Merger. For a non-U.S. holder of UGC common stock who receives only cash in the
UGC merger, the gain subject to tax will be calculated as described under U.S. Federal Income
Tax Consequences to U.S. Holders of UGC Common Stock U.S. Holders of UGC Common Stock Who Receive
Only Cash in the UGC Merger.
If the receipt of cash is taxable as a dividend, a non-U.S. holder of UGC common stock will be
subject to U.S. federal income tax at a rate of 30%, unless the tax rate is reduced by treaty. In
addition, to ensure payment of the income tax, Liberty Global or any exchange agent is required to
withhold tax at a rate of 30% (or a lower rate as may be specified by treaty) on dividend payments
to non-U.S. holders. Amounts withheld are creditable against the U.S. federal income taxes owing
by non-U.S. holders. Taxes that have been withheld are not refundable by Liberty Global or the
exchange agent, although the taxpayer may be able to claim a refund from the Internal Revenue
Service if the amounts withheld exceed the tax due. Due to the uncertainties about whether all or
any portion of the cash payments will be taxable as a dividend, Liberty Global or the exchange
agent expects to withhold tax at the required rate on all payments of cash to non-U.S. holders of
UGC common stock (other than payments for fractional shares).
Backup Withholding and Information Reporting
In general, information reporting requirements will apply with respect to cash received
pursuant to a cash election or in lieu of fractional shares by a U.S. holder in connection with the
UGC merger. This information reporting obligation, however, does not apply with respect to certain
U.S. holders, including corporations, tax-
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exempt organizations, qualified pension and profit
sharing trusts, and individual retirement accounts. In the event that a U.S. holder subject to the
reporting requirements fails to supply its correct taxpayer identification number in the manner
required by applicable law or is notified by the Internal Revenue Service that it has failed to
properly report payments of interest and dividends, a backup withholding tax (at a rate that is
currently 28%) generally will be imposed on the amount of the cash received pursuant to a cash
election or in lieu of fractional shares. A U.S. holder may generally credit any amounts withheld
under the backup withholding provisions against its U.S. federal income tax liability, and, as a
result, may entitle the U.S. holder to a refund, provided the required information is furnished to
the Internal Revenue Service. Such amounts, once withheld, are not refundable by Liberty Global or
the exchange agent.
In general, information and backup withholding will apply with respect to cash received by a
non-U.S. holder in connection with the UGC merger unless the non-U.S. holder certifies as to its
non-U.S. status under penalties of perjury or otherwise establishes an exemption.
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THE TRANSACTION AGREEMENTS
Merger Agreement
The following is a summary of the material terms of the merger agreement. This summary may
not contain all of the information that is important to you. It is qualified in its entirety by
reference to the merger agreement, a copy of which is included as Appendix B and is incorporated
herein by reference. You should read the merger agreement because it, and not this document, is
the legal document that governs the terms of the mergers and will give you a more complete
understanding of the mergers.
Structure of the Mergers
To effect the combination of LMI and UGC, a new company, Liberty Global, Inc. was formed with
two wholly owned subsidiaries, Cheetah Acquisition Corp., which we refer to as LMI merger sub, and
Tiger Global Acquisition Corp., which we refer to as UGC merger sub. At the effective time of the
mergers:
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LMI merger sub will merge with and into LMI, and LMI will be the surviving
corporation in that merger; and |
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UGC merger sub will merge with and into UGC, and UGC will be the surviving
corporation in that merger. |
As a result of the mergers described above and the conversion and exchange of securities
described below, LMI will become a direct wholly owned subsidiary of Liberty Global and UGC will
become an indirect wholly owned subsidiary of Liberty Global. Following the mergers, Liberty
Global will own directly 46.4% of the common stock of UGC and indirectly through Liberty Globals
wholly owned subsidiary LMI 53.6% of the common stock of UGC (based upon outstanding UGC share
information as of December 31, 2004). See Conversion of Outstanding Shares of Common Stock of
LMI and UGC below.
Effective Time of the Mergers and Timing of Closing
LMI and UGC will file certificates of merger with the Delaware Secretary of State on the
second business day after the day on which the last condition to completing the merger is satisfied
or, where permissible, waived or at such other time as LMI and UGC may agree. The LMI merger and
the UGC merger will become effective at the time and on the date on which those documents are
filed, or later if the parties so agree and specify in those documents, provided that the LMI
merger and the UGC merger will become effective at the same time. The time that the LMI merger and
the UGC merger become effective is referred to as the effective time of the mergers.
We cannot assure you when, or if, all the conditions to completion of the mergers will be
satisfied or, where permissible, waived. See Conditions to Completion of the Mergers. The
parties intend to complete the mergers as promptly as practicable, subject to receipt of the
requisite approvals of the LMI stockholders and the UGC stockholders to the merger proposal.
Conversion of Outstanding Shares of Common Stock of LMI and UGC
LMI. At the effective time of the LMI merger:
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each share of LMI Series A common stock issued and outstanding immediately
prior to the effective time of the mergers will be converted into the right to
receive one share of Liberty Global Series A common stock; |
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each share of LMI Series B common stock issued and outstanding immediately
prior to the effective time of the mergers will be converted into the right to
receive one share of Liberty Global Series B common stock; and |
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each share of common stock of LMI merger sub issued and outstanding immediately
prior to the effective time of the mergers will be converted into one share of
common stock of LMI as the surviving corporation in the LMI merger. |
UGC. At the effective time of the UGC merger:
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each share of UGC common stock (other than shares of UGC common stock held by
LMI or any of its wholly owned subsidiaries) will be converted into the right to
receive 0.2155 of a share of Liberty Global Series A common stock plus cash in
lieu of any fractional shares, unless the holder thereof has validly made and not
validly revoked an election to have such share of UGC common stock converted into
$9.58 in cash, subject to certain limitations described in UGC Stockholders
Making Stock and Cash Elections; Proration below; |
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each share of UGC common stock held by LMI or any of its wholly owned
subsidiaries will be converted into the right to receive one share of the same
class of common stock of UGC; and |
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the issued and outstanding shares of common stock of UGC merger sub will be
converted into a number of shares of each class of common stock of UGC, as the
surviving corporation in the UGC merger, that is identical to the number of shares
of the same class of UGC common stock that are converted into the right to receive
Liberty Global Series A common stock and/or cash in the UGC merger. |
For information on how holders of UGC common stock can elect to receive Liberty Global Series A
common stock and/or cash in the UGC merger, see UGC Stockholders Making Stock and Cash
Elections; Proration below.
The rights pertaining to Liberty Global common stock will be the same in all material respects
as the rights pertaining to LMI common stock, because the restated certificate of incorporation and
bylaws of Liberty Global in effect immediately after the completion of the mergers will be
substantially similar to the current restated certificate of incorporation and bylaws of LMI. For
a description of Liberty Globals common stock, see Description of Liberty Global Capital Stock,
and for a description of the comparative rights of holders of LMI common stock, UGC common stock
and Liberty Global common stock, see Comparison of the Rights of Stockholders of LMI, UGC and
Liberty Global.
If, before the effective time of the mergers, the outstanding shares of LMI common stock
and/or UGC common stock are changed into a different number of shares as a result of a stock split,
stock dividend or other reclassification or exchange, an appropriate adjustment will be made to the
consideration to be received in the mergers to provide the holders of LMI and UGC common stock the
same economic effect as contemplated by the merger agreement.
UGC Stockholders Making Stock and Cash Elections; Proration
UGC stockholders are receiving a form of election with this joint proxy statement/prospectus
for making cash and stock elections. Any UGC stockholder who became a UGC stockholder after the
record date for the UGC special meeting, or who did not otherwise receive a form of election,
should contact the exchange agent to obtain a form of election. UGC stockholders who vote against
the merger proposal are still entitled to make elections with respect to their shares. The form
of election allows holders of UGC common stock to make cash or stock elections for some or all of
their shares of UGC common stock. If a holder or the holders affiliates are the registered
holders of shares of UGC common stock represented by
more than one certificate or held in more than one account, the holder may also specify on the
form of election how to allocate cash consideration, if any, among those shares of UGC common
stock. Shares of UGC common stock as to which the holder has not made a valid election prior to
the election deadline, including as a result of revocation, will be treated as though the holder
made an election to receive the stock consideration for all shares with respect to which no valid
election was made prior to the election deadline.
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LMI stockholders do not need to make an election since each outstanding share of LMI common
stock will be converted into one share of the corresponding series of Liberty Global common stock,
with no cash option available.
The U.S. federal income tax consequences of the UGC merger to each UGC stockholder will depend
upon whether the UGC stockholder receives cash or stock of Liberty Global, or a combination of cash
and stock, in exchange for his or her shares of UGC common stock. However, at the time that a UGC
stockholder is required to make a cash or stock election, the UGC stockholder will not know if, and
to what extent, the proration procedures described below will change the mix of consideration that
he or she will receive in the UGC merger. As a result of the proration, among other reasons, at
the time that a UGC stockholder is required to make a cash or stock election, the UGC stockholder
will not know the tax consequences to him or her with certainty. For more information regarding
the tax consequences of the UGC merger to the UGC stockholders, please see Material United States
Federal Income Tax Consequences of the Mergers U.S. Federal Income Tax Consequences of the UGC
Merger.
Exchange Agent. EquiServe Trust Company N.A. will serve as the exchange agent for
purposes of effecting the election and proration procedures.
Election Deadline. The election deadline will be 5:00 p.m., New York City time, on
[___] 2005. If the completion of the mergers is anticipated to occur more than four business
days after [___], 2005, LMI and UGC will publicly announce, by issuing a press release to the
Dow Jones News Service by 9:00 a.m. on the business day immediately following the initial election
deadline, the anticipated effective date of the mergers, which will not be earlier than the fourth
business day after the date of the press release. The new election deadline will be 5:00 p.m., New
York City time, on the second business day preceding the anticipated effective date of the mergers.
Form of Election. The form of election must be properly completed and signed and
accompanied by certificates representing all of the shares of UGC common stock covered by the form
of election, duly endorsed in blank or otherwise in a form acceptable for transfer on UGCs books
(or appropriate evidence as to the loss, theft or destruction, appropriate evidence as to the
ownership of that certificate by the claimant, and appropriate and customary indemnification, as
described in the form of election).
In order to make a cash or stock election, the properly completed and signed form of election,
together with the UGC stock certificates, must be actually received by the exchange agent at or
prior to the election deadline in accordance with the instructions in the form of election.
If shares of UGC common stock are held in street name, to make an election the beneficial
owner should contact his or her broker, bank or other nominee and follow their instructions as to
how to make their election.
Inability to Sell Shares as to which an Election is Made. Stockholders who have made
elections will be unable to sell their shares of UGC common stock after making the election, unless
the election is properly revoked before the election deadline or the merger agreement is
terminated.
Election Revocation and Changes. Generally, an election may be revoked or changed
with respect to all or a portion of the shares of UGC common stock covered by the election by the
holder who submitted the applicable form of election, but only by written notice received by the
exchange agent prior to the election deadline. If an election is validly revoked, or the merger
agreement is terminated, the exchange
agent will promptly return the related stock certificates (or book-entry shares) to the
stockholder who submitted them. UGC stockholders will not be entitled to revoke or change their
elections following the election deadline. As a result, UGC stockholders who have made elections
will be unable to revoke their elections or sell their shares of UGC common stock during the
interval between the election deadline and the date of completion of the mergers.
Shares of UGC common stock as to which the holder has not made a valid election prior to the
election deadline, including as a result of revocation, will be deemed non-electing shares. If it
is determined that any purported cash election or stock election was not properly made, the
purported election will be deemed to be of no force or effect and the holder making the purported
election will be deemed not to have made an election for these purposes, unless a proper election
is subsequently made on a timely basis.
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Non-Electing Holders. UGC stockholders who make no election to receive cash
consideration or stock consideration in the UGC merger, whose elections are not received by the
exchange agent by the election deadline, or whose forms of election are improperly completed or are
not signed or not accompanied by the shares of UGC common stock to which they relate will be deemed
not to have made an election. UGC stockholders not making an election in respect of their shares
of UGC common stock will be deemed to have made an election to receive only Liberty Global common
stock, and not to receive any cash (other than cash in lieu of fractional shares), for the shares
of UGC common stock held by such stockholder.
Proration Procedures. UGC stockholders should be aware that cash elections they make
may be subject to the proration procedures provided in the merger agreement. Regardless of the
cash or stock elections made by UGC stockholders, these procedures are designed to ensure that the
total cash consideration paid (exclusive of cash paid for fractional shares) represents no more
than 20% of the aggregate value of the merger consideration payable to UGC stockholders (other than
those stockholders who are Permitted Holders under UGCs indenture with respect to the UGC
convertible notes). Accordingly, the proration procedures described below will be triggered if the
number of shares of UGC common stock as to which a valid cash election is made and not revoked
exceeds a number we refer to as the UGC share threshold number. Under the merger agreement, the
UGC share threshold number is equal to (rounded down to the nearest whole number):
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Last sales price of a share of LMI Series A
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Outstanding shares of UGC Class A stock (other than |
common stock on the trading day immediately
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X
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0.2155 |
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X
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shares held by Permitted Holders) immediately prior |
prior to the effective time of the mergers
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to the effective time of the mergers |
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38.32
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+
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(
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Last sales price of a share of LMI Series A
common stock on the trading day immediately
prior to the effective time of the mergers
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X
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0.2155 |
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) |
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If the total number of shares of UGC common stock as to which cash elections are validly
made and not validly revoked is greater then the UGC share threshold number, then each UGC
stockholder who validly made and did not validly revoke a cash election will be entitled to receive
$9.58 in cash per share with respect to that number of shares of UGC common stock equal to (rounded
down to the nearest whole number):
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Number of shares of UGC common stock held by
such stockholder as to which a cash election is
validly made and not validly revoked
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X
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UGC share threshold number
Total number of shares of UGC common stock as to which cash
elections are validly made and not validly revoked. |
The remaining number of such UGC stockholders shares as to which such stockholder validly
makes and does not validly revoke a cash election will be converted, on a per share basis, into the
right to receive 0.2155 of a share of Liberty Global Series A common stock.
By way of illustration, assume that the last sales price of a share of LMI Series A common
stock on the day immediately prior to the closing date is $44.11, the number of outstanding shares
of UGC Class A common stock (other than shares held by Permitted Holders) is 363,056,129 (based
upon currently available share information for UGC) and the number of shares of UGC common stock as
to which a valid cash election is made and not revoked is 100,000,000, which exceeds the UGC share
threshold number of 72,160,033.
In this example, if you own 500 shares of UGC common stock and make a valid cash election with
respect to all of those shares, then you would receive $3,448.80 in
cash for 360 of your shares of UGC
common stock and 30 shares of Liberty Global Series A common stock for your remaining shares of UGC
common stock (plus cash in lieu of any fractional share interest).
Each UGC stockholder who properly elected, or was deemed to have elected, to receive the stock
consideration will receive 0.2155 of a share of Liberty Global Series A common stock for each share
of UGC common stock with respect to which such election was made or deemed to have been made, plus
cash in lieu of any fractional share interest.
94
None of Liberty Global, LMI or UGC is making any recommendation as to whether UGC stockholders
should elect to receive cash consideration or stock consideration in the UGC merger. UGC
stockholders must make their own decision with respect to such election.
No guarantee can be made that a UGC stockholder will receive the amount of cash consideration
it elects. As a result of the proration procedures, UGC stockholders may receive cash
consideration in amounts that are different from the amounts they elect to receive. Because the
value of the stock consideration and cash consideration may differ, UGC stockholders may receive
consideration having an aggregate value less than what they elected to receive.
Conversion of Shares; Exchange of Certificates; Dividends; Withholding
Conversion and Exchange of Shares. The conversion of LMI shares and shares of UGC
common stock into the right to receive the applicable merger consideration will occur automatically
at the effective time of the mergers. The exchange agent will, as soon as reasonably practicable
after the effective time of the mergers, exchange certificates (or book-entry shares) representing
shares of LMI and UGC common stock for the applicable merger consideration to be received in the
mergers pursuant to the terms of the merger agreement.
Letter of Transmittal. Promptly after the completion of the mergers, the exchange
agent will send a letter of transmittal to those persons who were record holders of shares of LMI
common stock at the effective time of the LMI merger and record holders of shares of UGC common
stock at the effective time of the UGC merger who have not previously submitted a form of election
(or validly revoked their form of election and did not resubmit a form of election by the election
deadline) or have not properly surrendered shares of UGC common stock to the exchange agent. This
mailing will contain instructions on how to surrender shares of LMI common stock and shares of UGC
common stock in exchange for the applicable merger consideration the holder is entitled to receive
under the merger agreement. When you deliver your LMI stock certificates or UGC stock certificates
to the exchange agent along with a properly executed letter of transmittal and any other required
documents, your stock certificates will be canceled.
Except for UGC stockholders who submit their UGC stock certificates with the form of election
to the exchange agent, do not submit your LMI or UGC shares for exchange until you receive the
transmittal instructions and letter of transmittal from the exchange agent.
If a certificate for LMI common stock or UGC common stock has been lost, stolen or destroyed,
the exchange agent will issue the applicable merger consideration properly payable under the merger
agreement upon compliance by the applicable stockholder with the replacement requirements
established by the exchange agent.
Fractional Shares. You will not receive fractional shares of Liberty Global common
stock in connection with the UGC merger. Instead, each holder of shares of UGC common stock
exchanged in the UGC merger who would otherwise have received a fraction of a share of Liberty
Global common stock will receive cash in an amount determined by multiplying the fractional
interest to which such holder would otherwise be entitled by the closing price for a share of LMI
Series A common stock as reported on the Nasdaq National Market on the last trading day immediately
preceding the effective time of the mergers. Because each share of LMI common stock is being
exchanged for a share of the corresponding series of Liberty Global common stock on a one-for-one
basis, no fractional shares will arise as a result of that exchange.
Dividends and Distributions. Until LMI shares or UGC shares are surrendered for
exchange, any dividends or other distributions declared after the effective time of the mergers
with respect to shares of Liberty Global common stock into which shares of LMI common stock or
shares of UGC common stock may have been converted will accrue but will not be paid. Liberty
Global will pay to former LMI stockholders and UGC stockholders any unpaid dividends or other
distributions, without interest, only after they have duly surrendered their LMI shares or UGC
shares. After the effective time of the mergers, there will be no transfers on the stock transfer
books of LMI or UGC of any shares of LMI common stock or shares of UGC common stock, respectively.
If LMI shares or UGC shares are presented for transfer after the completion of the mergers, they
will be cancelled and exchanged for the applicable merger consideration into which such shares have
been converted pursuant to the merger agreement.
95
Withholding. Liberty Global and the exchange agent will be entitled to deduct and
withhold from the merger consideration payable to any LMI stockholder or UGC stockholder the
amounts it is required to deduct and withhold under the Code or any provision of any state, local
or foreign tax law. If Liberty Global or the exchange agent withholds any amounts, these amounts
will be treated for all purposes as having been paid to the stockholders from whom they were
withheld. See Material United States Federal Income Tax Consequences of the Mergers.
Treatment of Stock Options and Other Awards
LMI Stock Options and Other Awards. Each outstanding option to purchase shares of LMI
common stock will be converted into an option to purchase the same number of shares of the
corresponding series of Liberty Global common stock at an exercise price per share equal to the
exercise price per share of the LMI common stock subject to the option immediately prior to the
effective time of the mergers and will continue to be governed by its applicable terms. Each
outstanding stock appreciation right, if any, with respect to shares of any series of LMI common
stock outstanding immediately prior to the effective time of the mergers will be converted into a
stock appreciation right with respect to the same number of shares of the corresponding series of
Liberty Global common stock as such converted LMI stock appreciation right, at an exercise price or
base price per stock appreciation right equal to the exercise or base price of such converted LMI
stock appreciation right immediately prior to the effective time of the mergers. In addition, each
outstanding restricted share of LMI common stock outstanding immediately prior to the effective
time of the mergers will be converted into one restricted share of the corresponding series of
Liberty Global common stock, and will remain subject to the same restrictions applicable to such
restricted share of LMI common stock as in effect immediately prior to the effective time of the
mergers.
UGC Stock Options and Other Awards. Each outstanding option to purchase shares of UGC
common stock will be converted into an option to purchase the number of shares of Liberty Global
Series A common stock determined by multiplying the number of UGC common shares subject to the
option immediately prior to the effective time of the mergers by 0.2155 and rounding the resulting
number down to the nearest whole number. The exercise price per share of UGC common stock for each
of the converted UGC options will be the exercise price per share of UGC common stock applicable to
that option immediately prior to the effective time of the mergers divided by 0.2155, rounded up to
the nearest whole cent. The UGC converted options will generally have the same terms and
conditions as were applicable under the UGC option plan pursuant to which such option was granted.
Each outstanding stock appreciation right with respect to shares of UGC common stock immediately
prior to the effective time of the mergers will be converted into a stock appreciation right with
respect to that number of shares of
Liberty Global Series A common stock equal to the number of shares of UGC common stock that
were subject to such converted UGC stock appreciation right immediately prior to the effective time
of the mergers multiplied by 0.2155, rounded down to the nearest whole number. The exercise or
base price per stock appreciation right of the related converted UGC stock appreciation right will
be equal to:
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in the case of a UGC stock appreciation right issued in tandem with, and at the
same base or exercise price as, a UGC option, the base or exercise price per share
of the related converted UGC option; and |
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in the case of a free standing UGC stock appreciation right or a UGC stock
appreciation right issued in tandem with, and at a different base or exercise
price as, a UGC option, the amount determined by dividing the base or exercise
price per share of such UGC stock appreciation right immediately prior to the
effective time of the mergers by 0.2155, rounded up to the nearest whole cent. |
In addition, each outstanding restricted share of UGC common stock will be converted into 0.2155 of
a restricted share of Liberty Global Series A common stock, with the total number of shares for
each holder rounded down to the nearest whole number, and will remain subject to the same
restrictions applicable to such restricted share of UGC common stock as in effect immediately prior
to the effective time of the mergers.
96
Conditions to Completion of the Mergers
Conditions to Each Companys Obligation to Effect the Mergers. The obligations of LMI
and UGC to complete the mergers are subject to the satisfaction or, if applicable, waiver of the
following conditions:
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the approval by LMI stockholders and UGC stockholders, respectively, of the
merger agreement and the LMI merger and UGC merger, respectively; |
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the approval of the merger agreement and the UGC merger by the holders of a
majority of the aggregate voting power of the outstanding shares of UGC common
stock entitled to vote at the UGC special meeting, exclusive of any shares of UGC
common stock beneficially owned by LMI, Liberty or any of their respective
subsidiaries or any of the executive officers or directors of LMI, Liberty or UGC,
which condition we refer to as the minority approval and which condition is
non-waivable; |
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the declaration of effectiveness of the registration statement of Liberty
Global of which this document is a part by the Securities and Exchange Commission
and the absence of any stop order or proceedings seeking a stop order or
suspension of effectiveness with respect to the registration statement; |
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the absence of any order, injunction, statute, rule or regulation prohibiting
the consummation of the mergers or making such consummation illegal, or permitting
such consummation subject to any condition that would have a material adverse
effect on UGC or LMI or the ability of either UGC or LMI to consummate the
mergers; |
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the receipt by LMI and Liberty Global of a written opinion of Skadden, Arps,
Slate, Meagher & Flom LLP or another nationally recognized law firm that, for U.S.
federal income tax purposes, provided that the spin off of LMI by Liberty would
otherwise have qualified as a tax-free distribution under Section 355 of the Code,
the mergers should not cause such spin off to fail to qualify as a tax-free
distribution to Liberty under Section 355(e) of the Code, which condition is
non-waivable; |
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the approval for listing on the Nasdaq National Market of the shares of Liberty
Global common stock to be issued in the mergers, subject only to official notice
of issuance; and |
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all authorizations, consents, orders or approvals of, or declarations or
filings with, or expiration of waiting periods imposed by, any governmental entity
necessary for the completion of the mergers having been filed, expired or been
obtained, other than those where the failure to so file, expire or obtain would
not be reasonably likely to have a material adverse effect on LMI or UGC or the
ability of either LMI or UGC to consummate the mergers. |
Additional Conditions to Each Companys Obligations. The obligations of each of LMI
and UGC to complete the mergers are subject to the following additional conditions, unless waived
by the other party:
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the performance by the other party in all material respects of its agreements
and covenants contained in the merger agreement required to be performed at or
before the effective time of the mergers; |
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as a condition to LMIs obligations, UGCs representations and warranties
contained in the merger agreement must: |
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if specifically qualified by reference to a material adverse effect on UGC or
UGCs ability to complete the mergers, be true and correct, and |
97
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if not so qualified, be true and correct except where the failure to be so true
and correct would not have a material adverse effect on UGC or UGCs ability to
complete the mergers, except for UGCs representations and warranties relating to
its capitalization, which must be true and correct in all material respects, |
in each case, on the closing date (except to the extent any such
representations or warranties speak only as of a specified earlier date, in which
case, as of that earlier date);
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as a condition to UGCs obligations, LMIs representations and warranties
contained in the merger agreement must: |
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if specifically qualified by reference to a material adverse effect on LMI or
LMIs ability to complete the mergers, be true and correct, and |
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if not so qualified, be true and correct except where the failure to be so true
and correct would not have a material adverse effect on LMI or LMIs ability to
complete the mergers, except for: |
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LMIs representations and warranties relating to its capitalization, which must
be true and correct in all material respects, and |
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LMIs representation and warranty that, except as disclosed in its Exchange Act
filings prior to January 17, 2005, since September 30, 2004 there has not been a
material adverse change in the business, properties, operations or financial
condition of LMIs Japanese businesses, taken as a whole, other than any such
change arising out of or resulting from (1) general business or economic
conditions in Japan or from general changes in or affecting the industries in
which LMIs Japanese businesses operate (except to the extent any such change has
a disproportionate impact on LMIs Japanese businesses), (2) any changes in
applicable generally accepted accounting principles that affect generally entities
such as the Japanese businesses or (3) the conduct of, or failure to conduct or
successfully complete, any public offering of shares by any of the Japanese
businesses, which must be true and correct in all respects, |
in each case, on the closing date (except to the extent any such
representations or warranties speak only as of a specified earlier date, in which
case, as of that earlier date);
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as a condition to LMIs obligations, there being no action taken, statute,
rule, regulation, order, judgment or decree proposed, enacted, promulgated,
entered, issued, enforced or deemed applicable by any governmental entity that
imposes or is reasonably likely to result in the imposition of material
limitations on the ability of Liberty Global to effectively exercise full rights
of ownership of the shares of LMI and UGC after the effective time of the mergers
or makes the holding by Liberty Global of such shares illegal; and |
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the receipt of a written opinion of Baker Botts L.L.P. or another nationally
recognized law firm, in the case of LMI, to the effect that the LMI merger will be
treated for U.S. federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code, and of a nationally
recognized law firm, in the case of UGC, to the effect that, when integrated with
the LMI merger, the conversion of shares of UGC common stock into shares of
Liberty Global Series A common stock that is effected pursuant to the UGC merger
will qualify as an exchange within the meaning of Section 351 of the Code, which
condition is non-waivable by either party. Holme Roberts & Owen LLP is delivering
this opinion to UGC. |
In the merger agreement, the phrase material adverse effect on LMI or UGC means a material
adverse effect on the business, properties, operations or financial condition of such entity and
its subsidiaries, taken as a whole, other than any effect arising out of or resulting from:
98
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any change in the trading prices of, in the case of LMI, the LMI Series A
common stock and, in the case of UGC, UGC Class A common stock; |
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any changes in generally accepted accounting principles that affect entities
such as LMI and UGC, as applicable; |
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general business or economic conditions or from general changes in or affecting
the industries in areas in which LMI and its subsidiaries or UGC and its
subsidiaries, respectively, operate, except to the extent that any such change has
a disproportionate impact on LMI or UGC, respectively; or |
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the announcement of the merger agreement or the consummation of the mergers. |
In the case of UGC, no material adverse effect can arise or result from any matter approved
after the execution of the merger agreement that is an approved matter. When we refer to an
approved matter, we mean any matter expressly approved by (1) the UGC board, provided that all of
the directors of UGC who are also executive officers of LMI did not cast their votes against the
approval of such matter, or (2) the executive committee of the UGC board, provided that at least
one member of the executive committee of the UGC board is also an executive officer of LMI and all
members of the executive committee who are also executive officers of LMI did not vote against such
matter.
Termination
The merger agreement may be terminated and the mergers may be abandoned at any time prior to
the effective time of the mergers by:
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the mutual consent of UGC (with the approval of the Special Committee) and LMI; |
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LMI, if UGC has not filed its Annual Report on Form 10-K with the Securities
and Exchange Commission by May 15, 2005 by providing notice to UGC within five
business days after UGC fails to file such annual report by May 15, 2005; provided
that LMI may extend this date to June 15, 2005 if LMI does not elect to terminate
the merger agreement during the five business day period after UGC fails to file
such annual report by May 15, 2005; |
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either UGC (with the approval of the Special Committee) or LMI, if the mergers
have not been consummated before September 30, 2005, unless the party seeking to
terminate the agreement failed to fulfill its obligations in the merger agreement
and such failure resulted in the mergers having not occurred by such date; |
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either UGC (with the approval of the Special Committee) or LMI, if the other
party has breached any representation, warranty, covenant or agreement contained
in the merger agreement, such that the conditions to the non-breaching partys
obligation to consummate the mergers cannot be satisfied; |
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either UGC (with the approval of the Special Committee) or LMI, if any order,
decree or ruling that permanently restrains, enjoins or prohibits the mergers has
been issued and becomes final and non-appealable; |
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LMI, if the board of directors of UGC (with the approval of the Special
Committee) has withdrawn or modified in any manner adverse to LMI its
recommendation to the UGC stockholders; or |
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either UGC (with the approval of the Special Committee) or LMI, if any of the
stockholder approvals, which consist of the LMI stockholder approval, the UGC
statutory approval and the UGC minority approval, has not been obtained at the
applicable special meeting. |
99
Neither LMI nor UGC will be entitled to a termination fee upon any termination of the merger
agreement.
Covenants
Conduct of UGC Business Pending the Merger. Under the merger agreement, UGC agreed
that, prior to the completion of the mergers, UGC would, and would cause its subsidiaries (1) to,
conduct its business in the ordinary and usual course of its business and consistent with past
practices, (2) to submit to a vote of its board of directors (or executive committee thereof) or
other governing body any matter of a nature or in an amount that, consistent with past practices or
existing board or other governing body policies, would have been required, or would have been
expected, to be submitted to such a vote prior to the date of the merger agreement, and (3) not to
take specified actions, except that UGC is permitted to take any action:
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that is permitted, required or specifically contemplated by the merger agreement; |
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as to approved matters; |
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as to matters contemplated in the most recent budget approved by the board of
directors of UGC, provided that such budget is itself an approved matter; and |
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that is required by applicable law. |
Subject to these exceptions, UGC agreed, and agreed to cause its subsidiaries, not to take the
following specified actions:
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amend its certificate of incorporation or bylaws or other governing instrument
or document; |
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authorize for issuance, issue, grant, sell, deliver, dispose of, pledge or
otherwise encumber any shares of its capital stock or any securities or rights
convertible into, exchangeable for, or evidencing the right to subscribe for any
shares of its capital stock or other equity or voting interests, or any rights,
options, warrants, calls, commitments or other agreements of any character to
purchase or acquire any shares of its capital stock or other equity or voting
interests, or any securities or rights convertible into, exchangeable for, or
evidencing the right to subscribe for, any shares of its capital stock or other
equity or voting interests, subject to certain specified exceptions; |
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split, combine, subdivide or reclassify the outstanding shares of its capital
stock or other equity or voting interests, or declare, set aside for payment or
pay any dividend, or make any other actual constructive or deemed distribution in
respect of any shares of its capital stock or other equity or voting interests, or
otherwise make any payments to stockholders or owners of equity or voting
interests in their capacity as such (other than dividends or distributions paid by
any wholly owned subsidiary of UGC to UGC or another wholly owned subsidiary); |
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redeem, purchase or otherwise acquire, directly or indirectly, any outstanding
shares of capital stock or other securities or equity or voting interests of UGC
or any subsidiary of UGC; |
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make any other changes in its capital or ownership structure; |
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sell or grant a lien or restriction with respect to any stock, equity or
partnership interest owned by it in any subsidiary of UGC; |
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enter into new employment agreements with, or increase compensation of, (a) any
officer or director of UGC or (b) any member of senior executive management of any
subsidiary of UGC whose annual income exceeds $100,000 per annum, other than in
the case of (b), as required by written agreements in effect on the date of the
merger agreement; |
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establish, amend or modify any of its employee benefit plans, except in the
ordinary course of business, consistent with past practice and to the extent not
material, and except to the extent required by applicable law or the existing
terms of the plans or the provisions of the merger agreement; |
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make any capital expenditures that individually or in the aggregate are in
excess of the amount provided for capital expenditures in the most recent capital
budget for UGC and its subsidiaries approved by the board of directors of UGC,
provided that such budget is itself an approved matter; |
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incur any material amount of indebtedness or guarantee any material amount of
indebtedness other than in the ordinary course of business, provided that UGC may
renew, extend or refinance existing indebtedness if there is no increase in
interest rate or principal amount of indebtedness pursuant to such renewal,
extension or refinancing; |
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acquire or agree to acquire in any manner any business or any corporation or
otherwise acquire any assets that are material to UGC other than in the ordinary
course of business; |
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make any material change in any accounting, financial reporting or tax practice
or policy; |
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take any action that would reasonably be expected to result in any of the
conditions to the mergers not to be satisfied; and |
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authorize or enter into any contract, agreement, commitment or arrangement to
effect any of the foregoing. |
No Solicitation. In addition, UGC has agreed that it will not, and it will not
knowingly permit its officers, directors, representatives and agents to, directly or indirectly,
(1) take any action to solicit, initiate or knowingly encourage the submission of any offer or
proposal concerning a tender offer, exchange offer, merger, share exchange, recapitalization,
consolidation or other similar business combination, or a direct or indirect acquisition in any
manner of a significant equity interest in, or a substantial portion of the assets of, UGC (each,
an acquisition proposal) or (2) engage in discussions or negotiations with any person to facilitate
an acquisition proposal. However, UGC may engage in discussions or negotiations with, and furnish
nonpublic information or access to, any person in response to an unsolicited acquisition proposal,
if (A) it has complied, prior to such response, with the foregoing non-solicitation covenant and
(B) the UGC board determines in good faith after consultation with counsel that it is necessary to
do so in order to discharge its fiduciary duties under applicable law. UGC must notify LMI of, and
keep it informed of any material developments with respect to, any acquisition proposal.
Conduct of LMI Pending the Mergers. In the merger agreement, LMI agreed that, during
the period before completion of the mergers, it would not declare, make or pay any dividend or
distribution in respect of its capital stock (other than in shares of LMI common stock) or take any
other action that would reasonably be expected to result in any of the condition to the mergers not
being fulfilled.
Additional Covenants. Each of LMI and UGC agreed to duly call, give notice of,
convene and hold, as soon as reasonably practicable after the date of the merger agreement, a
meeting of such entitys stockholders for the purpose of considering and voting upon the merger
agreement, and, at such meeting, each of the board of directors of LMI and UGC will, except as
required by the fiduciary duties of such board, recommend to its stockholders the approval of the
merger agreement and the applicable merger.
In the merger agreement, LMI and UGC agreed to use their commercially reasonable efforts to
take all action and to do all things necessary, proper or advisable under applicable laws to
consummate the mergers, including the use of commercially reasonable efforts to, among other
things:
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prepare and file with the Securities and Exchange Commission this joint proxy
statement/prospectus, the registration statement of which it is a part and the
required Schedule |
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13E-3 transaction statement and seek to have such filings
cleared and/or declared effective, as applicable, by the Securities and Exchange
Commission as soon as reasonably practicable after filing;
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cause the shares of Liberty Global common stock issuable in the mergers (and
the shares of Liberty Global common stock reserved for issuance with respect to
LMI and UGC options, stock appreciation rights and restricted stock) to be
eligible for quotation on the Nasdaq National Market prior to the effective time
of the mergers; |
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cause any injunctions or restraining orders to be lifted; and |
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obtain all necessary or appropriate consents, waivers or approvals of third
parties or any governmental entity in connection with the mergers. |
UGC and LMI agreed that, after the effective time of the mergers, each of them will indemnify
its present and former directors and officers, and any person serving at the request of UGC or LMI,
as applicable, as a director or officer of another entity, against all liabilities incurred by any
such person in his or her capacity as a director or officer in connection with any action arising
out of the fact that such person was a director or officer of UGC or LMI, as applicable, and
pertaining to any matter existing at or prior to
the effective time of the mergers, to the same extent as such persons are currently
indemnified by UGC or LMI, as applicable. In addition, the merger agreement provides that all
rights to indemnification or advancement of expenses currently existing in the organizational
documents of UGC or LMI in favor of such officers and directors and persons serving at the request
of UGC or LMI, as applicable, as a director or officer of another entity, will continue in force
for no less than six years following January 17, 2005, the date on which the merger agreement was
signed.
LMI, which currently beneficially owns shares of UGC common stock representing approximately
91% of the aggregate voting power of UGC, agreed to vote, and to cause its subsidiaries to vote,
such shares in favor of the approval of the merger agreement and the UGC merger.
Representations and Warranties
The merger agreement contains customary and substantially reciprocal representations and
warranties by each of LMI and UGC relating to, among other things:
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corporate organization and qualification; |
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authorization and validity of the merger agreement, absence of conflicts and
board approval of the merger agreement; |
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capital structure; |
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documents filed with the Securities and Exchange Commission and financial
statements included in those documents; |
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information supplied in connection with this joint proxy statement/prospectus,
the registration statement of which it is a part and the Schedule 13E-3
transaction statement; |
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absence of material breaches of organizational documents, laws or agreements as
a result of the mergers; |
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absence of certain changes or events since September 30, 2004; |
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legal proceedings; |
102
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compliance with applicable laws; |
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tax and employee matters; |
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brokers and finders; |
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opinions of financial advisors; and |
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the stockholder vote required. |
Amendment, Extension and Waiver
LMI and UGC may amend the merger agreement by action taken or authorized by their respective
boards of directors (in the case of UGC, with the approval of the Special Committee), at any time
before or after the approval of the merger agreement and the applicable merger by the stockholders
of LMI or UGC. After the stockholder approvals, no amendment may be made which by law requires
further approval by those stockholders, unless LMI and/or UGC obtain that further approval. All
amendments to the merger agreement must be in writing signed by all of the parties thereto.
Fees and Expenses
Whether or not the mergers are completed, all costs and expenses incurred in connection with
the merger agreement and the mergers will be paid by the party incurring the expense, except that
all expenses and fees incurred in connection with the printing and mailing of this joint proxy
statement/prospectus, the registration statement of which it is a part and the Schedule 13E-3
transaction statement will be shared equally by LMI and UGC.
Voting Agreement
The following is a summary of the material terms of the voting agreement. This summary may
not contain all of the information that is important to you. It is qualified in its entirety by
reference to the voting agreement, a copy of which is included as Appendix C and is incorporated
herein by reference.
The Special Committee made it a condition to UGCs execution of the merger agreement, and the
board of directors of LMI requested, that John C. Malone enter into a voting agreement pursuant to
which he would agree to vote certain of his shares of LMI common stock in favor of the merger
agreement and the LMI merger. Accordingly, concurrently with the execution of the merger
agreement, Mr. Malone entered into the voting agreement, dated as of January 17, 2005, with UGC,
pursuant to which Mr. Malone agreed to vote the shares of LMI Series A common stock and LMI Series
B common stock over which he possesses sole voting power, and, subject to his fiduciary duties as
trustee, the shares of LMI Series A common stock and LMI Series B common stock held in two separate
trusts of which Mr. Malone serves as the sole trustee, in favor of the adoption by LMI of the
merger agreement and the approval of the LMI merger at any meeting of LMI stockholders at which the
merger agreement and the LMI merger are submitted for a vote of LMI stockholders (or pursuant to
written consent). The voting agreement also covers shares of LMI common stock acquired by Mr.
Malone (including upon exercise of stock options) after January 17, 2005.
The voting agreement restricts Mr. Malones ability to transfer any of the shares owned by him
or any options to purchase shares, unless, among other things, he retains the right to vote such
shares or the applicable transferee enters into an agreement with UGC having the same obligations
and restrictions as the voting agreement. The voting agreement also provides that Mr. Malone will
not grant any proxies or power of attorney or enter into a voting agreement or other arrangement
relating to the matters covered by the voting agreement with respect to any of these shares or
options to acquire such shares or deposit any of these shares or options to acquire such shares
into a voting trust.
The Voting Agreement will terminate upon the first to occur of the closing of the transactions
contemplated by the merger agreement and the termination of the merger agreement in accordance with
its terms.
103
MANAGEMENT OF LIBERTY GLOBAL
Executive Officers and Directors
The following table sets forth certain information concerning the persons who have agreed to
serve as Liberty Globals executive officers and directors immediately following the mergers,
including a five year employment history and any directorships held in public companies:
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Name |
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Positions |
John
C. Malone Born March 7, 1941
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Chairman of the Board and a director of Liberty
Global. Mr. Malone has served as President, Chief
Executive Officer, Chairman of the Board and a
director of LMI since March 2004. Mr. Malone has
served as a director of UGC and its predecessors
since November 1999. Mr. Malone has served as
Chairman of the Board of Liberty since 1990. Mr.
Malone served as Chairman of the Board and a
director of Liberty Satellite & Technology, Inc.
from December 1996 to August 2000. Mr. Malone also
served as Chairman of the Board of
Tele-Communications, Inc., the former parent
company of Liberty (TCI), from November 1996 to
March 1999 and as Chief Executive Officer of TCI
from January 1994 to March 1999. Mr. Malone is
also a director of Liberty and The Bank of New
York. |
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Michael
T. Fries Born February 6, 1963
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Chief Executive Officer, President and a director
of Liberty Global. Mr. Fries has served as Chief
Executive Officer of UGC since January 2004. Mr.
Fries has served as a director of UGC and its
predecessors since November 1999 and as President
of UGC and its predecessors since September 1998.
He also served as Chief Operating Officer of UGC
and its predecessors from September 1998 to
January 2004. In addition, he serves or has served
as an officer and/or director of various direct
and indirect subsidiaries and affiliates of UGC,
including as a member of the UPC Supervisory Board
from September 1998 until September 2003 and as
Chairman thereof from February 1999 until
September 2003, a member of the Priority Telecom
Supervisory Board since November 2000 and as
Chairman thereof since March 2003 and as a
director of Austar United Communications Limited
since June 1999. He served as Chairman of Austar
United from June 1999 to April 2003. Mr. Fries has
been with UGC and its predecessors since 1990. |
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John
P. Cole, Jr. Born January 12, 1930
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A director of Liberty Global. Mr. Cole has served
as a director of UGC and its predecessors since
March 1998. Mr. Cole served as a member of the
UPC Supervisory Board from February 1999 to
September 2003. Mr. Cole is a founder of the
Washington, D.C. law firm of Cole, Raywid and
Braverman, which specializes in all aspects of
telecommunications and media law. |
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John
W. Dick Born January 9, 1938
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A director of Liberty Global. Mr. Dick has served
as a director of UGC since March 2003. Mr. Dick
served as a member of the UPC Supervisory Board
from May 2001 to September 2003 and as a director
of UGC Europe from September 2003 to January 2004.
He is the non-executive Chairman and a director of
Hooper Industries Group, a privately held U.K.
group consisting of: Hooper and Co (Coachbuilders)
Ltd. (building special/bodied Rolls Royce and
Bentley motorcars) and Hooper Industries (China)
(providing industrial products and components to
Europe and the U.S.). Until 2002, Hooper
Industries Group also held Metrocab UK
(manufacturing London taxicabs) and Moscab (a
joint venture with the Moscow city government,
producing left-hand drive Metrocabs for Russia).
Mr. Dick has held his positions with Hooper
Industries Group since 1984. Mr. Dick is also a
director of Austar United. |
104
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Name |
|
Positions |
Paul
A. Gould Born September 27, 1945
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A director of Liberty Global. Mr. Gould has
served as a director of UGC since January 2004.
Mr. Gould has served as Managing Director and
Executive Vice President of Allen & Company
L.L.C., an investment banking services company,
for more than the last five years. Mr. Gould is
also a director of Liberty and Ampco-Pittsburgh
Corporation. |
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|
David
E. Rapley Born June 22, 1941
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A director of Liberty Global. Mr. Rapley has
served as a director of LMI since May 2004. Mr.
Rapley served as Executive Vice President
Engineering of VECO Corp.Alaska from January 1998
to December 2001. Mr. Rapley is also a director of
Liberty. |
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Larry
E. Romrell Born December 30, 1939
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A director of Liberty Global. Mr. Romrell has
served as a director of LMI since May 2004. Mr.
Romrell served as an Executive Vice President of
TCI from January 1994 to March 1999. Mr. Romrell
also served, from December 1997 to March 1999, as
Executive Vice President and Chief Executive
Officer of TCI Business Alliance and Technology
Co.; and from December 1997 to March 1999, as
Senior Vice President of TCI Ventures Group. Mr.
Romrell is also a director of Liberty. |
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Gene
W. Schneider Born September 8, 1926
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A director of Liberty Global. Mr. Schneider has
served as Chairman of the Board of UGC and its
predecessors since 1989. Mr. Schneider also served
as Chief Executive Officer of UGC and its
predecessors from 1995 to January 2004. Mr.
Schneider has served as an officer and/or director
of various direct and indirect subsidiaries of
UGC. In addition, from 1995 until 1999, Mr.
Schneider served as a member of the UPC
Supervisory Board, and an advisor to the
Supervisory Board of UPC from 1999 until September
2003. Mr. Schneider has been with UGC and its
predecessors since 1989. Mr. Schneider is also a
director of Austar United. |
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J.C.
Sparkman
Born September 12, 1932
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A director of Liberty Global. Mr. Sparkman has
served as a director of LMI since November 2004.
Mr. Sparkman served as the Chairman of the Board
of Broadband Services, Inc. from September 1999
through December 2003. Mr. Sparkman is also a
director of Universal Electronics, Inc. and Shaw
Communications Inc. |
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|
J.
David Wargo
Born October 1, 1953
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A director of Liberty Global. Mr. Wargo has
served as a director of LMI since May 2004. Mr.
Wargo has served as the President of Wargo &
Company, Inc., a private investment company
specializing in the communications industry, since
January 1993. Mr. Wargo is also a director of
OpenTV Corp. and Strayer Education, Inc. |
The executive officers named above will serve in such capacities until the first annual
meeting of our board of directors, or until their respective successors have been duly elected and
have been qualified, or until their earlier death, resignation, disqualification or removal from
office. There is no family relationship between any of the directors, by blood, marriage or
adoption.
During the past five years, none of the above persons has had any involvement in such legal
proceedings as would be material to an evaluation of his or her ability or integrity.
Board Composition
The board of directors of Liberty Global will initially consists of ten directors, divided
among three classes. Liberty Globals Class I directors, whose term will expire at the annual
meeting of its stockholders in 2006, are Gene W. Schneider, John P. Cole, Jr. and David E. Rapley.
Liberty Globals Class II directors, whose term will expire at the annual meeting of its
stockholders in 2007, are J. David Wargo, J.C. Sparkman and John W. Dick. Liberty Globals Class
III directors, whose term will expire at the annual meeting of its stockholders in 2008, are John
C. Malone, Paul A. Gould, Michael T. Fries and Larry Romrell. At each annual meeting of Liberty
Global stockholders, the successors of that class of
directors whose term(s) expire at that meeting shall be elected to hold
105
office for a term
expiring at the annual meeting of Liberty Global stockholders held in the third year following the
year of their election. The directors of each class will hold office until their respective death,
resignation or removal and until their respective successors are elected and qualified.
Executive Compensation
Liberty Global has not yet paid any compensation to any of its executive officers or any
person expected to become an executive officer of Liberty Global. The form and amount of the
compensation to be paid to each of Liberty Globals executive officers in any future period will be
determined by the compensation committee of Liberty Globals board of directors.
For information concerning the compensation paid to the Chief Executive Officer of LMI and the
four most highly compensated executive officers of LMI during the year ended December 31, 2004, see
Executive Officers, Directors and Principal Stockholders of LMI Executive Compensation.
For information concerning the compensation paid to, and any employment agreements with, the
Chief Executive Officer of UGC and the four most highly compensated executive officers of UGC for
the year ended December 31, 2003, see UGCs Annual Report on Form 10-K for the fiscal year ended
December 31, 2003, which has been incorporated by reference in this joint proxy
statement/prospectus.
Compensation of Directors
In accordance with existing practice of LMI and UGC, it is expected that directors of Liberty
Global who are also employees of Liberty Global will receive no additional compensation for their
services as directors. Each non-employee director of Liberty Global will receive compensation for
services as a director of Liberty Global and, if applicable, for services as a member of any board
committee, as will be determined by Liberty Globals board of directors.
For information concerning the compensation policy for directors of LMI, see Executive
Officers, Directors and Principal Stockholders of LMI Director Compensation.
For information concerning the compensation policy for directors of UGC, see UGCs Annual
Report on Form 10-K for the fiscal year ended December 31, 2003, which has been incorporated by
reference in this joint proxy statement/prospectus.
106
EXECUTIVE OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS OF LMI
Executive Officers and Directors
The name and present principal occupation of each executive officer and director of LMI is set
forth below. Unless otherwise noted, the business address for each person listed below is c/o
Liberty Media International, Inc., 12300 Liberty Boulevard, Englewood, Colorado 80112. To the
knowledge of LMI, all executive officers and directors listed below are United States citizens,
except for Miranda Curtis, who is a citizen of the United Kingdom.
|
|
|
Name |
|
Positions |
John C. Malone
|
|
President, Chief Executive
Officer, Chairman of the Board
and a director of LMI since
March 2004. Mr. Malone has
served as Chairman of the Board
of Liberty since 1990. Mr.
Malone served as Chairman of
the Board and a director of
Liberty Satellite & Technology,
Inc. from December 1996 to
August 2000. Mr. Malone also
served as Chairman of the Board
of TCI from November 1996 to
March 1999 and as Chief
Executive Officer of TCI from
January 1994 to March 1999. Mr.
Malone is also a director of
Liberty, The Bank of New York
and UGC. |
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Miranda Curtis
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|
Senior Vice President of LMI
and President of its Asia
division since March 2004. Ms.
Curtis has served as a Senior
Vice President of LMIs
subsidiary, Liberty Media
International Holdings, LLC
(Old LMINT), since June 2004,
and she served as President of
Old LMINT and its predecessors
from February 1999 to June
2004. |
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Bernard G. Dvorak
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Senior Vice President and
Controller of LMI since March
2004. Mr. Dvorak served as
Senior Vice President, Chief
Financial Officer and Treasurer
of On Command Corporation, a
subsidiary of Liberty, from
July 2002 until May 17, 2004.
Mr. Dvorak was the Chief
Executive Officer and a member
of the board of directors of
Formus Communications, Inc., a
provider of fixed wireless
services in Europe, from
September 2000 until June 2002,
and, from April 1999 until
September 2000, he served as
Chief Financial Officer of
Formus. On March 28, 2001, an
involuntary petition under
Chapter 7 of the United States
Bankruptcy Code was filed
against Formus in the United
States Bankruptcy Court for the
District of Colorado. Mr.
Dvorak is also a director of
UGC. |
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Graham Hollis
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Senior Vice President and
Treasurer of LMI and Executive
Vice President of its Asia
division since March 2004. Mr.
Hollis has served as a Senior
Vice President of Old LMINT
since June 2004, and he served
as Executive Vice President and
Chief Financial Officer of Old
LMINT and its predecessors from
May 1995 to June 2004. |
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David B. Koff
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Senior Vice President of LMI
and President of its Europe
division since March 2004. Mr.
Koff served as a Senior Vice
President of Liberty from
February 1998 through May 2004.
Mr. Koff is a director of UGC. |
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David J. Leonard
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Senior Vice President of LMI
and President of its Latin
America division since March
2004. Mr. Leonard served as the
President of Libertys Latin
America Group, a subgroup of
Libertys International Group,
from January 2004 through June
2004. From May 2002 through
December 2003, Mr. Leonard was
the founder and managing
director of VLG Acquisition
Corp., which owned interests in
selected telecommunications
companies in Latin America.
From 1998 to 2002, Mr. Leonard
was the founder, president and
Chief Executive Officer of
VeloCom Inc., a competitive
local exchange carrier which
provided wireless
communications services
throughout Brazil and
Argentina. |
107
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Name |
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Positions |
Elizabeth M. Markowski
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Senior Vice President, General
Counsel and Secretary of LMI
since March 2004. Ms. Markowski
served as a Senior Vice
President of Liberty from
November 2000 through December
2004. Prior to joining Liberty,
Ms. Markowski was a partner in
the law firm of Baker Botts
L.L.P. for more than five years.
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Robert R. Bennett
c/o Liberty Media Corporation
12300 Liberty Boulevard
Englewood, Colorado 80112
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A director of LMI and
Vice-Chairman of the Board
since March 2004. Mr. Bennett
has served as President and
Chief Executive Officer of
Liberty since April 1997, and
he held various other executive
positions with Liberty since
its inception in 1990. Mr.
Bennett served as Executive
Vice President of TCI from
April 1997 to March 1999. Mr.
Bennett is also a director of
Liberty, OpenTV Corp. and UGC. |
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Donne F. Fisher
Fisher Capital Partners, Ltd.
5619 DTC Parkway
Suite 1150
Greenwood Village, Colorado 80111
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A director of LMI since May
2004. Mr. Fisher has served as
President of Fisher Capital
Partners, Ltd., a venture
capital partnership, since
December 1991. Mr. Fisher has
served as a consultant to the
subsidiary of Comcast
Corporation that is the
successor entity to TCI since
1996. Mr. Fisher is also a
director of Liberty, General
Communication, Inc. and
Sorrento Networks Corporation. |
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David E. Rapley
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A director of LMI since May
2004. Mr. Rapley served as
Executive Vice President
Engineering of VECO Corp.
Alaska from January 1998 to
December 2001. Mr. Rapley is
also a director of Liberty.
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M. LaVoy Robison
The Anschutz Foundation
1727 Tremont Place
Denver, Colorado 80202
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A director of LMI since June
2004. Mr. Robison has served as
an executive director and board
member of The Anschutz
Foundation (a private
foundation) since January 1998.
Mr. Robison is also a director
of Liberty. |
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Larry E. Romrell
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A director of LMI since May
2004. Mr. Romrell served as an
Executive Vice President of TCI
from January 1994 to March
1999. Mr. Romrell also served,
from December 1997 to March
1999, as Executive Vice
President and Chief Executive
Officer of TCI Business
Alliance and Technology Co.;
and from December 1997 to March
1999, as Senior Vice President
of TCI Ventures Group. Mr.
Romrell is also a director of
Liberty. |
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J.C. Sparkman
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|
A director of LMI since
November 2004. Mr. Sparkman
served as the Chairman of the
Board of Broadband Services,
Inc. from September 1999
through December 2003. Mr.
Sparkman is also a director of
Universal Electronics, Inc. and
Shaw Communications Inc. |
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J. David Wargo
Wargo & Company, Inc.
712 Fifth Avenue
New York, New York 10019
|
|
A director of LMI since May
2004. Mr. Wargo has served as
the President of Wargo &
Company, Inc., a private
investment company specializing
in the communications industry,
since January 1993. Mr. Wargo
is also a director of OpenTV
Corp. and Strayer Education,
Inc. |
During the past five years, none of the above persons was convicted in a criminal proceeding
(excluding traffic violations or similar misdemeanors) or was party to any judicial or
administrative proceeding (except for matters that were dismissed without sanction or settlement)
that resulted in a judgment, decree or final order enjoining the person from future violations of,
or prohibiting activities subject to, federal or state securities laws, or a finding of any
violation of federal or state securities laws.
108
Executive Compensation
The table below sets forth information for the year ended December 31, 2004 relating to
compensation paid to LMIs Chief Executive Officer and LMIs four other most highly compensated
executive officers, who we refer to as the LMI named executive officers, for services rendered to
LMI and its subsidiaries. Prior to June 7, 2004, LMI was a subsidiary of Liberty. Accordingly,
all compensation earned by the LMI named executive officers from January 1, 2004 through the date
of the spin off was paid by Liberty. All compensation earned by the LMI named executive officers
(other than by Elizabeth M. Markowski, see note (2) below) after the date of the spin off was paid
by LMI.
Although certain of the individuals who are LMI named executive officers were performing
services in connection with LMIs businesses prior to January 1, 2004, those individuals were
employed by Liberty during that period, were not dedicated exclusively to LMIs businesses (with
the exception of Miranda Curtis), and devoted substantial time and effort to other Liberty
businesses or to the Liberty organization in general. Accordingly, no information on the
compensation of the LMI named executive officers for periods prior to January 1, 2004 is reported.
Summary Compensation Table
Annual Compensation
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Long-Term Compensation |
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Name and Principal |
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Restricted |
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Securities |
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Position with Our |
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Other Annual |
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Stock |
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Underlying |
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All Other |
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Company |
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Year |
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Salary ($) |
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|
Compensation |
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Awards |
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Options/SARs |
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|
Compensation ($) |
|
|
John C. Malone |
|
2004 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
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1,568,562 |
(4) |
|
$ |
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President and Chief |
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Executive Officer |
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Miranda Curtis |
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2004 |
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$ |
716,330 |
(1) |
|
$ |
|
|
|
$ |
|
|
|
|
63,830 |
(4) |
|
$ |
22,019 |
(5) |
Senior Vice President |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David B. Koff |
|
2004 |
|
$ |
595,808 |
|
|
$ |
742,003 |
(3) |
|
$ |
|
|
|
|
53,192 |
(4) |
|
$ |
20,500 |
(6) |
Senior Vice President |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David J. Leonard |
|
2004 |
|
$ |
403,077 |
|
|
$ |
|
|
|
$ |
|
|
|
|
42,554 |
(4) |
|
$ |
16,000 |
(6) |
Senior Vice President |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Elizabeth M. Markowski |
|
2004 |
|
$ |
676,866 |
(2) |
|
$ |
|
|
|
$ |
|
|
|
|
63,830 |
(4) |
|
$ |
20,500 |
(6) |
Senior Vice |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
President, General |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Counsel and Secretary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Ms. Curtis compensation is paid in U.K. pounds, which, for purposes of the foregoing
presentation, has been converted to U.S. Dollars based upon the average exchange rate in
effect during 2004. |
|
(2) |
|
Ms. Markowski continued to be an officer and employee of Liberty through December 31, 2004,
and during the period from the date of the spin off through December 31, 2004, LMI reimbursed
Liberty for 75% of Ms. Markowskis compensation expenses. This allocation was based upon the
amount of time she spent on the respective businesses of LMI and Liberty. The numbers in the
table represent 100% of Ms. Markowskis compensation for 2004, rather than LMIs allocable
share. |
|
(3) |
|
Represents reimbursement for housing and other costs incurred by Mr. Koff as an expatriate
working in London, England. |
109
(4) |
|
The numbers of shares reflect adjustments for LMIs July 2004 rights offering which concluded
in August 2004. |
|
(5) |
|
Amounts represent contributions made during 2004 to a pension fund maintained for the benefit
of Ms. Curtis under applicable United Kingdom law. With respect to these contributions, Ms.
Curtis is fully vested. |
|
(6) |
|
Amounts represent contributions to the Liberty 401(k) Savings Plan during 2004 prior to the
date of the spin off. The Liberty 401(k) Savings Plan provides employees with an opportunity
to save for retirement. The Liberty 401(k) Savings Plan participants may contribute up to 10%
of their compensation, and Liberty makes a matching contribution of 100% of the participants
contributions. Participant contributions to the Liberty 401(k) Savings Plan are fully vested
upon contribution. |
|
|
|
Generally, participants acquire a vested right in Liberty contributions as follows: |
|
|
|
Years of service |
|
Vesting Percentage |
Less than 1 |
|
0% |
1-2 |
|
33% |
2-3 |
|
66% |
3 or more |
|
100% |
With respect to Liberty contributions made to the Liberty 401(k) Savings Plan in 2004, Mr.
Koff and Ms. Markowski were fully vested and Mr. Leonard was not vested as of December 31,
2004.
|
|
|
Option and SAR Grants in Last Fiscal Year |
The table below sets forth certain information concerning stock options granted to the LMI
named executive officers during the year ended December 31, 2004.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of |
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
total options |
|
|
Exercise |
|
|
|
|
|
|
|
|
securities |
|
|
granted to |
|
|
or base |
|
|
|
|
Grant date |
|
|
|
underlying options |
|
|
employees in |
|
|
price |
|
|
Expiration |
|
present value |
|
Name |
|
granted (1) |
|
|
fiscal year |
|
|
($/sh) (2) |
|
|
Date |
|
(3) |
|
|
John C. Malone |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series B |
|
|
1,568,562 |
(4) |
|
|
100 |
% |
|
$ |
36.75 |
|
|
June 7, 2014 |
|
$ |
27,557,433 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Miranda Curtis |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A |
|
|
63,830 |
|
|
|
14.6 |
% |
|
$ |
33.41 |
|
|
June 22, 2014 |
|
$ |
1,019,580 |
|
Series B |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David B. Koff |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A |
|
|
53,192 |
|
|
|
12.1 |
% |
|
$ |
33.41 |
|
|
June 22, 2014 |
|
$ |
849,650 |
|
Series B |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David J. Leonard |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A |
|
|
42,554 |
|
|
|
9.7 |
% |
|
$ |
33.41 |
|
|
June 22, 2014 |
|
$ |
679,720 |
|
Series B |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Elizabeth M. Markowski |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A |
|
|
63,830 |
|
|
|
14.6 |
% |
|
$ |
33.41 |
|
|
June 22, 2014 |
|
$ |
1,019,580 |
|
Series B |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The numbers of shares reflect adjustments for LMIs July 2004 rights offering which concluded
in August 2004. |
|
(2) |
|
The exercise prices reflect adjustments for LMIs July 2004 rights offering which concluded
in August 2004. |
110
(3) |
|
The value shown is based upon the Black-Scholes model and is stated on a present value
basis. The key assumptions used in the model for purposes of this calculation include the
following: (a) a 4.7% discount rate; (b) a 25.25% volatility factor; (c) the 10-year option
term; (d) the fair value of the LMI Series A or Series B common stock on the grant date, as
applicable; and (e) a per share exercise price of $33.41, in the case of LMI Series A options,
and a per share exercise price of $36.75, in the case of LMI Series B options. The actual
value realized will depend upon the extent to which the stock price exceeds the exercise price
on the date the option is exercised. Accordingly, the realized value, if any, will not
necessarily be the value determined by the model. |
|
(4) |
|
The options granted to Mr. Malone were awarded as the primary form of compensation to be paid
to Mr. Malone by LMI. See Employment Contracts and Termination of Employment and Change in
Control Arrangements. |
|
|
|
Aggregate Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End Option/SAR Values |
The following table sets forth certain information concerning exercises of LMI options by the
named executive officers during the year ended December 31, 2004:
Aggregated Option/SAR Exercises in the Last Fiscal Year and Fiscal Year-End Option/SAR Values
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities |
|
|
Value of Unexercised |
|
|
|
|
|
|
|
|
|
|
|
Underlying Unexercised |
|
|
In-the-Money |
|
|
|
Shares |
|
|
|
|
|
|
Options/SARs at |
|
|
Options/SARs at |
|
|
|
Acquired |
|
|
Value |
|
|
December 31, 2004 (#) |
|
|
December 31, 2004 |
|
|
|
on Exercise |
|
|
Realized |
|
|
Exercisable/ |
|
|
Exercisable/ |
|
Name |
|
(#) |
|
|
($) |
|
|
Unexercisable (1) |
|
|
Unexercisable ($) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John C. Malone |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable |
|
|
|
|
|
$ |
|
|
|
|
221 |
|
|
$ |
2,721 |
|
Unexercisable |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
Series B |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable |
|
|
|
|
|
$ |
|
|
|
|
1,965,665 |
|
|
$ |
23,630,664 |
|
Unexercisable |
|
|
|
|
|
$ |
|
|
|
|
213,824 |
|
|
$ |
2,377,728 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Miranda Curtis |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable |
|
|
|
|
|
$ |
|
|
|
|
81,361 |
|
|
$ |
1,001,558 |
|
Unexercisable |
|
|
|
|
|
$ |
|
|
|
|
76,713 |
|
|
$ |
976,949 |
|
Series B |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
Unexercisable |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David B. Koff |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable |
|
|
100,551 |
|
|
$ |
657,101 |
|
|
|
21,594 |
|
|
$ |
265,822 |
|
Unexercisable |
|
|
|
|
|
$ |
|
|
|
|
127,872 |
|
|
$ |
1,601,232 |
|
Series B |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
Unexercisable |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David J. Leonard |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable |
|
|
|
|
|
$ |
|
|
|
|
1,596 |
|
|
$ |
19,644 |
|
Unexercisable |
|
|
|
|
|
$ |
|
|
|
|
48,937 |
|
|
$ |
624,119 |
|
Series B |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
Unexercisable |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities |
|
|
Value of Unexercised |
|
|
|
|
|
|
|
|
|
|
|
Underlying Unexercised |
|
|
In-the-Money |
|
|
|
Shares |
|
|
|
|
|
|
Options/SARs at |
|
|
Options/SARs at |
|
|
|
Acquired |
|
|
Value |
|
|
December 31, 2004 (#) |
|
|
December 31, 2004 |
|
|
|
on Exercise |
|
|
Realized |
|
|
Exercisable/ |
|
|
Exercisable/ |
|
Name |
|
(#) |
|
|
($) |
|
|
Unexercisable (1) |
|
|
Unexercisable ($) |
|
|
Elizabeth M. Markowski |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable |
|
|
|
|
|
$ |
|
|
|
|
53,804 |
|
|
$ |
662,331 |
|
Unexercisable |
|
|
|
|
|
$ |
|
|
|
|
92,199 |
|
|
$ |
1,167,520 |
|
Series B |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
Unexercisable |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes options to acquire LMI common stock that were issued to the LMI named executive
officers as a result of adjustments made, in connection with the spin off, to their
outstanding Liberty stock incentive awards, all of which were granted to them by Liberty prior
to January 1, 2004. Each option and stock appreciation right with respect to Liberty common
stock outstanding as of the record date for the spin off was adjusted by the incentive plan
committee of Libertys board of directors in connection with the spin off. Liberty options
held, as of the spin off record date, by the LMI named executive officers, among others, were
divided into two options: (1) an option to purchase the number and series of shares of LMI
common stock that would have been issued in the spin off in respect of the shares of Liberty
common stock subject to the applicable Liberty option, as if such Liberty option had been
exercised in full immediately prior to the record date for the spin off, and (2) an adjusted
Liberty option. The aggregate exercise price of each such outstanding Liberty option was
allocated between the LMI option and the adjusted Liberty option. Stock appreciation rights
related to Liberty Series A common stock held, as of the spin off record date, by the LMI
named executive officers, among others, were divided into two awards (in a manner similar to
the adjustment made to outstanding Liberty options): (1) an LMI option and (2) an adjusted
Liberty stock appreciation right. The aggregate base price of each outstanding Liberty stock
appreciation right was allocated between the LMI option and the adjusted Liberty stock
appreciation right. Each LMI option issued as a result of these adjustments had an exercise
price per share equal to the fair market value per share of the applicable series of LMI
common stock, which, in the case of Series A options, was $33.92 (as adjusted for LMIs July
2004 rights offering) and, in the case of Series B options, was $37.88 (as adjusted for LMIs
July 2004 rights offering). |
Employment Contracts and Termination of Employment and Change in Control Arrangements
Except as described below, LMI has no employment contracts, termination of employment
agreements or change of control agreements with any of its named executive officers.
LMI entered into an option agreement with John C. Malone, LMIs Chairman of the Board, Chief
Executive Officer and President, pursuant to which LMI granted to Mr. Malone, under the Liberty
Media International, Inc. 2004 Incentive Plan, options to acquire 1,568,562 shares of LMI Series B
common stock (as adjusted for LMIs July 2004 rights offering) at an exercise price per share of
$36.75 (as adjusted for LMIs July 2004 rights offering). The options represent the primary form of
compensation to be paid to Mr. Malone by LMI. The options are fully exercisable; however, Mr.
Malones rights with respect to the options and any shares issued upon exercise will vest at the
rate of 20% per year on each anniversary of the date on which the spin off was completed (which was
June 7, 2004), provided that Mr. Malone continues to have a qualifying relationship (whether as a
director, officer, employee or consultant) with LMI or any successor to LMI. (Liberty Global will
be the successor to LMI under the option agreement.) If Mr. Malone ceases to have such a qualifying
relationship (subject to certain exceptions for his death or disability or termination without
cause), his unvested options will be terminated and/or LMI will have the right to require Mr.
Malone to sell to LMI, at the exercise price of the options, any shares of LMI Series B common
stock previously acquired by Mr. Malone upon exercise of options which have not vested as of the
date on which Mr. Malone ceases to have a qualifying relationship with LMI.
Director Compensation
Each LMI director who is not an employee of LMI is entitled to a fee of $1,000 for each board
meeting he attends. In addition, the chairman and each other member of the audit committee of LMIs
board of directors is entitled to a fee of $5,000 and $2,000, respectively, for each audit
committee meeting he attends. Each member of the compensation committee is entitled to a fee of
$1,000 for each committee meeting he attends. Fees to LMI directors are payable in cash. LMI also
reimburses members of its board for travel expenses incurred to attend any meetings of its board or
any committee thereof.
112
Each LMI director who is not an employee of LMI (other than J.C. Sparkman) was granted options
to acquire 3,000 shares of LMI Series A common stock on June 22, 2004. All of these options were
granted pursuant to the Liberty Media International, Inc. 2004 Nonemployee Director Incentive Plan,
vest on the first anniversary of the grant date and were granted at a per share exercise price of
$35.55, which was the closing price of LMI Series A common stock on the grant date. These options,
together with all of LMIs then-outstanding stock incentive awards, were adjusted in connection
with LMIs July 2004 rights offering. As a result, these options now represent the right to
acquire 3,192 shares of LMI Series A common stock at a per share exercise price of $33.41. All
other terms of these options remained the same. Mr. Sparkman, who is also not an employee of LMI,
joined the board of directors of LMI on November 9, 2004 and, consistent with LMIs director
compensation policy, Mr. Sparkman was granted options to acquire 3,000 shares of LMI Series A
common stock on that date. The options were granted pursuant to the Liberty Media International,
Inc. 2004 Nonemployee Director Incentive Plan, vest on the first anniversary of the grant date and
were granted at a per share exercise price of $37.42, which was the closing price of LMI Series A
common stock on the grant date.
Following each annual meeting of LMI stockholders, each LMI director who is not an employee of
LMI will be granted options to acquire an additional 3,000 shares of LMI Series A common stock. All
of these options will be granted pursuant to the Liberty Media International, Inc. 2004 Nonemployee
Director Incentive Plan, will vest on the first anniversary of the applicable grant date and will
be granted at an exercise price equal to the fair market value of LMI Series A common stock.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information with respect to the beneficial ownership by each
LMI director and each of the LMI named executive officers and by all of LMIs directors and
executive officers as a group of (1) shares of LMI Series A common stock, (2) shares of LMI Series
B common stock and (3) shares of UGC Class A common stock. Except as set forth in the table, no
person or entity is known by LMI to own more than five percent of the outstanding shares of LMI
common stock.
The security ownership information for LMI common stock is given as of December 31, 2004, and,
in the case of percentage ownership information, is based upon (1) 165,514,962 shares of LMI Series
A common stock, and (2) 7,264,300 shares of LMI Series B common stock, in each case, outstanding on
that date. The security ownership information for UGC Class A common stock is given as of January
1, 2005, and, in the case of percentage ownership information, is based upon 400,031,697 shares of
UGC Class A common stock outstanding on that date.
Shares of LMI common stock issuable upon exercise or conversion of options that were
exercisable or convertible on or within 60 days after December 31, 2004, are deemed to be
outstanding and to be beneficially owned by the person holding the options for the purpose of
computing the percentage ownership of the person, but are not treated as outstanding for the
purpose of computing the percentage ownership of any other person. Shares of UGC common stock
issuable upon exercise or conversion of options that were exercisable or convertible on or within
60 days after January 1, 2005, are deemed to be outstanding and to be beneficially owned by the
person holding the options for the purpose of computing the percentage ownership of the person, but
are not treated as outstanding for the purpose of computing the percentage ownership of any other
person.
For purposes of the following presentation, beneficial ownership of shares of LMI Series B
common stock, though convertible on a one-for-one basis into shares of LMI Series A common stock,
is reported as beneficial ownership of LMI Series B common stock only, and not as beneficial
ownership of LMI Series A common stock. In addition, although outstanding shares of UGC Class B
common stock and UGC Class C common stock are convertible into UGC Class A common stock, share data
set forth in the following presentation with respect to UGC Class A common stock excludes any
dilution associated with the potential conversion of UGC Class B common stock or UGC Class C common
stock into UGC Class A common stock. So far as is known to LMI, the persons indicated below have
sole voting power with respect to the shares indicated as owned by them, except as otherwise stated
in the notes to the table.
113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount and Nature of |
|
|
|
|
|
|
|
|
|
Beneficial Ownership |
|
|
Percent of |
|
|
Name of Beneficial Owner |
|
Title of Class |
|
(in thousands) |
|
|
Class |
|
Voting Power |
John C. Malone |
|
LMI Series A |
|
|
953 |
(1)(2)(4)(5) |
|
* |
|
33.2% |
|
|
LMI Series B |
|
|
8,499 |
(1)(3)(5) |
|
91.0% |
|
|
|
|
UGC Class A |
|
|
89 |
(6) |
|
* |
|
* |
|
|
|
|
|
|
|
|
|
|
|
Miranda Curtis |
|
LMI Series A |
|
|
85 |
(7) |
|
* |
|
* |
|
|
LMI Series B |
|
|
0 |
|
|
|
|
|
|
|
UGC Class A |
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David B. Koff |
|
LMI Series A |
|
|
65 |
(8)(9)(10) |
|
* |
|
* |
|
|
LMI Series B |
|
|
0 |
|
|
|
|
|
|
|
UGC Class A |
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David J. Leonard |
|
LMI Series A |
|
|
2 |
(11)(12) |
|
* |
|
* |
|
|
LMI Series B |
|
|
0 |
|
|
|
|
|
|
|
UGC Class A |
|
|
7 |
(13) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Elizabeth M. Markowski |
|
LMI Series A |
|
|
62 |
(14)(15)(16)(17) |
|
* |
|
* |
|
|
LMI Series B |
|
|
0 |
|
|
|
|
|
|
|
UGC Class A |
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert R. Bennett |
|
LMI Series A |
|
|
240 |
(18)(19)(20) |
|
* |
|
3.1% |
|
|
LMI Series B |
|
|
732 |
(18)(20) |
|
9.2% |
|
|
|
|
UGC Class A |
|
|
205 |
(21) |
|
* |
|
* |
|
|
|
|
|
|
|
|
|
|
|
Donne F. Fisher |
|
LMI Series A |
|
|
15 |
(22) |
|
* |
|
* |
|
|
LMI Series B |
|
|
32 |
|
|
* |
|
|
|
|
UGC Class A |
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David E. Rapley |
|
LMI Series A |
|
|
1 |
(22) |
|
* |
|
* |
|
|
LMI Series B |
|
|
0 |
|
|
|
|
|
|
|
UGC Class A |
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
M. LaVoy Robison |
|
LMI Series A |
|
|
1 |
(22) |
|
* |
|
* |
|
|
LMI Series B |
|
|
0 |
|
|
|
|
|
|
|
UGC Class A |
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Larry E. Romrell |
|
LMI Series A |
|
|
13 |
(22) |
|
* |
|
* |
|
|
LMI Series B |
|
|
0 |
|
|
|
|
|
|
|
UGC Class A |
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J.C. Sparkman |
|
LMI Series A |
|
|
14 |
|
|
* |
|
* |
|
|
LMI Series B |
|
|
0 |
|
|
* |
|
* |
|
|
UGC Class A |
|
|
0 |
|
|
* |
|
* |
|
|
|
|
|
|
|
|
|
|
|
J. David Wargo |
|
LMI Series A |
|
|
7 |
(23) |
|
* |
|
* |
|
|
LMI Series B |
|
|
0 |
|
|
|
|
|
|
|
UGC Class A |
|
|
921 |
(24) |
|
* |
|
* |
|
|
|
|
|
|
|
|
|
|
|
All directors and
executive officers as a group (14 persons) |
|
|
|
|
1,499 |
(2)(3)(18)(23)(25) |
|
|
|
|
|
|
LMI Series A |
|
|
(26 |
)(27)(28) |
|
* |
|
35.3% |
|
|
LMI Series B |
|
|
9,263 |
(3)(18)(25)(28) |
|
92.0% |
|
|
|
|
UGC Class A |
|
|
1,226 |
(24)(29)(30) |
|
* |
|
* |
114
(1) |
|
Includes 90,303 shares of LMI Series A common stock and 204,566 shares of LMI Series B common
stock held by Mr. Malones wife, Leslie Malone, as to which shares Mr. Malone has disclaimed
beneficial ownership. |
|
(2) |
|
Includes 198 shares of LMI Series A common stock held by a trust with respect to which Mr.
Malone is the sole trustee and, with his wife, Leslie Malone, retains a unitrust interest in
the trust. |
|
(3) |
|
Includes 1,036,028 shares of LMI Series B common stock held by a trust with respect to which
Mr. Malone is the sole trustee and holder of a unitrust interest in the trust. |
|
(4) |
|
Includes 46,819 shares of LMI Series A common stock held by the Liberty 401(k) Savings Plan. |
|
(5) |
|
Includes 221 shares of LMI Series A common stock and 2,072,577 shares of LMI Series B common
stock that are subject to options which were exercisable as of, or will be exercisable within
60 days of, December 31, 2004. Mr. Malone has the right to convert options to purchase 504,015
shares of LMI Series B common stock into options to purchase shares of LMI Series A common
stock. |
|
(6) |
|
Includes 89,166 shares of UGC Class A common stock that are subject to options which were
exercisable as of, or will be exercisable within 60 days of, January 1, 2005. |
|
(7) |
|
Includes 85,143 shares of LMI Series A common stock that are subject to options which were
exercisable as of, or will be exercisable within 60 days of, December 31, 2004. |
|
(8) |
|
Includes 674 shares of LMI Series A common stock held by the Liberty 401(k) Savings Plan. |
|
(9) |
|
Includes 1,250 restricted shares of LMI Series A common stock, none of which were vested at
December 31, 2004. |
|
(10) |
|
Includes 53,615 shares of LMI Series A common stock that are subject to options which were
exercisable as of, or will be exercisable within 60 days of, December 31, 2004. |
|
(11) |
|
Includes 7 shares of LMI Series A common stock held by the Liberty 401(k) Savings Plan. |
|
(12) |
|
Includes 1,596 shares of LMI Series A common stock that are subject to options which were
exercisable as of, or will be exercisable within 60 days of, December 31, 2004. |
|
(13) |
|
Includes 1,966 shares of UGC Class A common stock held by the UGC 401(k) Plan. |
|
(14) |
|
Includes 136 shares of LMI Series A common stock held by Mrs. Markowskis husband, Thomas
Markowski, as to which shares Mrs. Markowski disclaims beneficial ownership. |
|
(15) |
|
Includes 301 shares of LMI Series A common stock held by the Liberty 401(k) Savings Plan. |
|
(16) |
|
Includes 44 restricted shares of LMI Series A common stock, none of which were vested at
December 31, 2004. |
|
(17) |
|
Includes 57,214 shares of LMI Series A common stock that are subject to options which were
exercisable as of, or will be exercisable within 60 days of, December 31, 2004. |
|
(18) |
|
Includes 75,084 shares of LMI Series A common stock and 24 shares of LMI Series B common
stock held by Hilltop Investments, Inc. which is jointly owned by Mr. Bennett and his wife,
Deborah Bennett. |
|
(19) |
|
Includes 1,652 shares of LMI Series A common stock held by the Liberty 401(k) Savings Plan. |
|
(20) |
|
Includes 12,002 shares of LMI Series A common stock and 731,962 shares of LMI Series B common
stock that are subject to options which were exercisable as of, or will be exercisable within
60 days of, December 31, 2004. Mr. Bennett has the right to convert the options to purchase
shares of LMI Series B common stock into options to purchase shares of LMI Series A common
stock. |
|
(21) |
|
Includes 77,082 shares of UGC Class A common stock that are subject to options which were
exercisable as of, or will be exercisable within 60 days of,
January 1, 2005. |
|
(22) |
|
Includes 586 shares of LMI Series A common stock that are subject to options which were
exercisable as of, or will be exercisable within 60 days of, December 31, 2004. |
|
(23) |
|
Includes 7,142 shares of LMI Series A common stock held in various accounts managed by Mr.
Wargo, as to which shares Mr. Wargo disclaims beneficial ownership. |
|
(24) |
|
Includes 498,757 shares of UGC Class A common stock held in various accounts managed by Mr.
Wargo, as to which shares Mr. Wargo disclaims beneficial ownership. |
|
(25) |
|
Includes 96,003 shares of LMI Series A common stock and 204,566 shares of LMI Series B common
stock held by relatives of certain directors and executive officers, as to which shares
beneficial ownership by such directors and executive officers is disclaimed. |
|
(26) |
|
Includes 50,226 shares of LMI Series A common stock held by the Liberty 401(k) Savings Plan. |
115
(27) |
|
Includes 1,294 restricted shares of LMI Series A common stock, none of which were vested at
December 31, 2004. |
|
(28) |
|
Includes 247,102 shares of LMI Series A common stock and 2,804,539 shares of LMI Series B
common stock that are subject to options which were exercisable as of, or will be exercisable
within 60 days of, December 31, 2004. The options to purchase 1,235,977 shares of LMI Series B
common stock may be converted into options to purchase shares of LMI Series A common stock. |
|
(29) |
|
Includes 3,643 shares of UGC Class A common stock held by UGCs 401(k) defined contribution
plan. |
|
(30) |
|
Includes 166,248 shares of UGC Class A common stock that are subject to options which were
exercisable as of, or will be exercisable within 60 days of, January 1, 2005. |
One of LMIs directors and two of its executive officers also hold interests in Liberty
Jupiter, Inc., one of LMIs privately held subsidiaries. Mr. Bennett, Ms. Curtis, another executive
officer and another individual hold 180, 320, 200 and 100 shares, respectively, of Class A common
stock of Liberty Jupiter, representing a 20% aggregate common equity interest and less than 1%
aggregate voting interest in Liberty Jupiter, based upon 800 shares of Liberty Jupiter Class A
common stock, 3,198 shares of Liberty Jupiter Class B common stock, 2 shares of Liberty Jupiter
Class C common stock and approximately 93,379 shares of Liberty Jupiter preferred stock
outstanding, as of December 31, 2004. Pursuant to a stockholders agreement among LMI, Liberty
Jupiter and certain of Liberty Jupiters stockholders, LMI has the right to cause all or any part
of the Liberty Jupiter Class A common stock to be converted into shares of LMI Series A common
stock. On or after April 24, 2005, each holder of Liberty Jupiter Class A common stock will have
the right to cause all of the shares of Liberty Jupiter Class A common stock held by such holder to
be converted into shares of LMI Series A common stock. Each share of Liberty Jupiter Class A common
stock that is converted will be converted into that number of shares of LMI Series A common stock
having an aggregate market price that is equal to the fair market value of the Liberty Jupiter
Class A common stock so converted, as of the time of conversion. Liberty Jupiter owns an
approximate 6% interest in LMIs affiliate, J-COM.
116
EXECUTIVE OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS OF UGC
Executive Officers and Directors
The name and present principal occupation of each executive officer and director of UGC is set
forth below. Unless otherwise noted, the business address for each person listed below is c/o
UnitedGlobalCom, Inc., 4643 South Ulster Street, Suite 1300, Denver, Colorado 80237. To the
knowledge of UGC, all executive officers and directors listed below are United States citizens.
|
|
|
|
|
Name |
|
Positions |
|
|
Gene W. Schneider
|
|
Chairman of the Board of UGC
and its predecessors since
1989. Mr. Schneider also served
as Chief Executive Officer of
UGC and its predecessors from
1995 to January 2004. Mr.
Schneider has served as an
officer and/or director of
various direct and indirect
subsidiaries of UGC. In
addition, from 1995 until 1999,
Mr. Schneider served as a
member of the UPC Supervisory
Board, and an advisor to the
Supervisory Board of UPC from
1999 until September 2003. Mr.
Schneider has been with UGC and
its predecessors since 1989.
Mr. Schneider is also a
director of Austar United. |
|
|
|
|
|
|
|
Michael T. Fries
|
|
Chief Executive Officer of UGC
since January 2004. Mr. Fries
has served a director of UGC
and its predecessors since
November 1999 and as President
of UGC and its predecessors
since September 1998. He also
served as Chief Operating
Officer of UGC and its
predecessors from September
1998 to January 2004. In
addition, he serves or has
served as an officer and/or
director of various direct and
indirect subsidiaries and
affiliates of UGC, including as
a member of the UPC Supervisory
Board from September 1998 until
September 2003 and as Chairman
thereof from February 1999
until September 2003, member of
the Priority Telecom
Supervisory Board since
November 2000 and as Chairman
thereof since March 2003 and as
a director of Austar United
since June 1999. He served as
Chairman of Austar United from
June 1999 to April 2003. Mr.
Fries has been with UGC and its
predecessors since 1990. |
|
|
|
|
|
|
|
Frederick G. Westerman, III
|
|
Chief Financial Officer of UGC
and its predecessors since June
1999 and UGCs Co-Chief
Financial Officer since
February 2004. Mr. Westermans
responsibilities include
oversight and planning of UGCs
financial and treasury
operations. He also serves as
an officer and/or director of
various direct and indirect
subsidiaries of UGC. |
|
|
|
|
|
|
|
Charles H.R. Bracken
|
|
Co-Chief Financial Officer of
UGC since February 2004. Mr.
Bracken has served as the Chief
Financial Officer of UGC Europe
and its predecessors since
November 1999. Mr. Bracken
served as a member of the UPC
Board of Management from July
1999 to September 2003. Prior
to November 1999, Mr. Bracken
served as the Managing Director
of Strategy, Acquisitions and
Corporate Development at UPC
from March 1999. Mr. Bracken
also serves as an officer
and/or director of various
European subsidiaries,
including as a member of the
Priority Telecom Supervisory
Board since July 2000. |
|
|
|
|
|
|
|
Gene M. Musselman
|
|
President and Chief Operating
Officer of UPC Broadband
Division of UGC Europe, Inc. ,
a subsidiary of UGC, since
September 2003. Mr. Musselman
has served as UPCs Chief
Operating Officer since April
2000, and he served as a member
of its Board of Management from
June 2000 to September 2003.
He also served as managing
director of UPC from July 2003
until June 2004. |
|
|
117
|
|
|
|
|
Name |
|
Positions |
|
|
|
|
Mr. Musselman
serves as an officer and/or
director of various European
subsidiaries of UGC. Except
when he was at Tevecap S.A.
from 1995 to 1997, Mr.
Musselman has been with UGC and
its affiliates since 1991. |
|
|
|
|
|
|
|
Shane ONeill
|
|
Chief Strategy Officer of UGC
Europe since September 2003.
He has served as UPCs Chief
Strategy Officer since June
2000. Mr. ONeill served as a
member of the UPC Board of
Management from June 2000 to
September 2003. From November
1999 to June 2000, Mr. ONeill
served as the Managing
Director, Strategy,
Acquisitions and Corporate
Development at UPC. Mr. ONeill
was an Executive Director in
the Advisory Group for Goldman
Sachs in London where he worked
on a number of mergers and
acquisitions and corporate
finance transactions for
companies in the communications
industry, including UGC. Mr.
ONeill is a director of SBS
Broadcasting S.A., a public
company in which UGC has a
19.3% interest. |
|
|
|
|
|
|
|
Robert R. Bennett
c/o Liberty Media Corporation
12300 Liberty Boulevard
Englewood, Colorado 80112
|
|
A director of UGC since January
2002. Mr. Bennett has served
as President and Chief
Executive Officer of Liberty
since April 1997, and he held
various other executive
positions with Liberty since
its inception in 1990. Mr.
Bennett served as Executive
Vice President of TCI from
April 1997 to March 1999. Mr.
Bennett is a Vice-Chairman of
the Board and a director of LMI
and is also a director of
Liberty and OpenTV Corp. |
|
|
|
|
|
|
|
John P. Cole, Jr.
|
|
A director of UGC and its
predecessors since March 1998.
Mr. Cole served as a member of
the UPC Supervisory Board from
February 1999 to September
2003. Mr. Cole is a founder of
the Washington, D.C. law firm
of Cole, Raywid and Braverman,
which specializes in all
aspects of telecommunications
and media law. |
|
|
|
|
|
|
|
John W. Dick
|
|
A director of UGC since March
2003. Mr. Dick served as a
member of the UPC Supervisory
Board from May 2001 to
September 2003 and as a
director of UGC Europe from
September 2003 to January 2004.
He is the non-executive
Chairman and a director of
Hooper Industries Group, a
privately held U.K. group
consisting of: Hooper and Co
(Coachbuilders) Ltd. (building
special/bodied Rolls Royce and
Bentley motorcars) and Hooper
Industries (China) (providing
industrial products and
components to Europe and the
U.S.). Until 2002, Hooper
Industries Group also held
Metrocab UK (manufacturing
London taxicabs) and Moscab (a
joint venture with the Moscow
city government, producing
left-hand drive Metrocabs for
Russia). Mr. Dick has held his
positions with Hooper
Industries Group since 1984.
Mr. Dick is also a director of
Austar United.
|
|
|
|
|
|
|
|
Bernard G. Dvorak
c/o Liberty Media International, Inc.
12300 Liberty Boulevard
Englewood, Colorado 80112
|
|
A director of UGC since
November 2004. Mr. Dvorak has
served as a director of various
subsidiaries of UGC since
January 2005. Mr. Dvorak has
served as Senior Vice President
and Controller of LMI since
March 2004. From July 2002
until May 2004, Mr. Dvorak
served as Senior Vice
President, Chief Financial
Officer and Treasurer of On
Command Corporation, a
subsidiary of Liberty. Mr.
Dvorak was the Chief Executive
Officer and member of the board
of directors of Formus, a
provider of fixed wireless
services in Europe, from
September 2000 until June 2002,
and, from April 1999 until
September 2000, he served as
Chief Financial Officer of
Formus. |
|
|
|
|
|
|
|
Paul A. Gould
Allen & Company L.L.C.
711 5th Avenue, 8th Floor
|
|
A director of UGC since January
2004. Mr. Gould has served as
Managing Director and Executive
Vice President of Allen &
Company L.L.C., an investment
banking services company, for
more than the last five years.
Mr. |
|
|
118
|
|
|
|
|
Name |
|
Positions |
|
|
New York, New York 10022
|
|
Gould is also a director of Liberty
and Ampco-Pittsburgh Corporation.
|
|
|
|
|
|
|
|
Gary S. Howard
|
|
A director of UGC since January 2002. Mr. Howard served as Executive Vice President
and Chief Operating Officer of Liberty from July 1998 to February 2004. Mr. Howard
served as Chief Executive Officer of Liberty Satellite & Technology, Inc. from December
1996 to April 2000.
|
|
|
|
|
|
|
|
David B. Koff
c/o Liberty Media International, Inc.
12300 Liberty Boulevard
Englewood, Colorado 80112
|
|
A director of UGC since August
2003. Mr. Koff has served as
Senior Vice President of LMI
since March 2004. Mr. Koff
served as a Senior Vice
President of Liberty from
February 1998 through March
2004. |
|
|
|
|
|
|
|
John C. Malone
c/o Liberty Media International, Inc.
12300 Liberty Boulevard
Englewood, Colorado 80112
|
|
A director of UGC and its
predecessors since November
1999. Mr. Malone has served as
President, Chief Executive
Officer, Chairman of the Board
and a director of LMI since
March 2004. Mr. Malone has
served as Chairman of the Board
of Liberty since 1990. Mr.
Malone served as Chairman of
the Board and a director of
Liberty Satellite & Technology,
Inc. from December 1996 to
August 2000. Mr. Malone also
served as Chairman of the Board
of TCI from November 1996 to
March 1999 and as Chief
Executive Officer of TCI from
January 1994 to March 1999. Mr.
Malone is also a director of
Liberty and The Bank of New
York. |
|
|
During the past five years, none of the above persons was convicted in a criminal proceeding
(excluding traffic violations or similar misdemeanors) or was party to any judicial or
administrative proceeding (except for matters that were dismissed without sanction or settlement)
that resulted in a judgment, decree or final order enjoining the person from future violations of,
or prohibiting activities subject to, federal or state securities laws, or a finding of any
violation of federal or state securities laws.
On March 28, 2001, an involuntary petition under Chapter 7 of the U.S. Bankruptcy Code was
filed against Formus in the United States Bankruptcy Court for the District of Colorado. Mr.
Dvorak was a director and the Chief Executive Officer of Formus from September 2000 until June
2002.
On March 29, 2002, United Australia/Pacific, Inc. (UAP), then a subsidiary of UGC, filed a
voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code in the United
States District Court for the Southern District of New York. UAPs reorganization closed on June
27, 2003, and UAP has since dissolved. Until February 11, 2002, Mr. Fries was a director and the
President of UAP and, until November 14, 2001, Mr. Schneider was a director and Chief Executive
Officer of UAP. Mr. Westerman was a director of UAP from November 2001 and President thereof from
March 2002 until UAPs dissolution in January 2004.
On December 3, 2002, UPC, now a subsidiary of UGC Europe, filed a voluntary petition for
reorganization under Chapter 11 of the United States Bankruptcy Code, together with a
pre-negotiated plan of reorganization, in the United States District Court of the Southern District
of New York. In conjunction with such filing, also on December 3, 2002, UPC commenced a moratorium
of payments in The Netherlands under Dutch bankruptcy law with the filing of a proposed plan of
compulsory composition or the Akkoord with the Amsterdam Court (Rechtbank) under the Dutch
Faillissementswet. These actions were completed on September 3, 2003, when UGC Europe acquired more
than 99% of the stock of, and became a successor issuer to UPC. Messrs. Fries, Cole and Dick were
Supervisory Directors of UPC and Mr. Schneider was an advisor to UPCs Supervisory Board. Also,
Messrs. Bracken, Musselman and ONeill were members of the UPC Board of Management.
In June 2003, UPC Polska executed an agreement with some of its creditors to restructure its
balance sheet. On January 22, 2004, the U.S. Bankruptcy Court confirmed UPC Polskas Chapter 11
plan of reorganization. On February 18, 2004, UPC Polska emerged from the Chapter 11 proceedings.
Mr. Musselman is a director of UPC Polska.
119
On January 12, 2004, UGCs predecessor (Old UGC), filed a voluntary petition for relief under
Chapter 11 of the U.S. Bankruptcy Code with the U.S. Bankruptcy Court for the Southern District of
New York. On November 10, 2004, the U.S. Bankruptcy Court confirmed Old UGCs plan of
reorganization and Old UGC emerged from the Chapter 11 proceedings on November 18, 2004. Until
August 2003, Mr. Fries was the President of Old UGC, and Mr. Schneider was a director and Chief
Executive Officer of Old UGC. Mr. Westerman has served as a director of Old UGC since August 2003
and as President thereof since November 2003.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information with respect to the beneficial ownership (1) by
each UGC director and each of the UGC named executive officers (as defined in UGCs Annual Report
on Form 10-K for the fiscal year ended December 31, 2003) and by all of UGCs directors and
executive officers as a group of shares of all classes of UGC common stock and both series of LMI
common stock, and (2) by each stockholder who is known by UGC to own beneficially more than five
percent of any class of UGC common stock. None of UGCs directors or the UGC named executive
officers beneficially owns any equity securities of any subsidiary of UGC.
At the election of the holder, shares of UGC Class B common stock are convertible immediately
into shares of UGC Class A common stock on a one-for-one basis, and shares of UGC Class C common
stock are convertible on a one-for-one basis into either shares of UGC Class A common stock or
shares of UGC Class B common stock. For purposes of the following presentation, beneficial
ownership of shares of UGC Class B common stock and UGC Class C common stock is reported as
beneficial ownership of UGC Class B common stock and UGC Class C common stock, respectively, only,
and not as beneficial ownership of any other class of UGC common stock. In addition, beneficial
ownership of shares of LMI Series B common stock, though convertible on a one-for-one basis into
shares of LMI Series A common stock, is reported as beneficial ownership of LMI Series B common
stock only, and not as beneficial ownership of LMI Series A common stock.
The security ownership information for UGC common stock is given as of January 1, 2005, and,
in the case of percentage ownership information, is based upon (1) 400,031,691 shares of UGC Class
A common stock, (2) 10,493,461 shares of UGC Class B common stock, and (3) 379,603,223 shares of
UGC Class C common stock, in each case, outstanding on that date. The security ownership
information for LMI common stock is given as of December 31, 2004, and, in the case of percentage
ownership information, is based upon (1) 165,514,962 shares of LMI Series A common stock, and (2)
7,264,300 shares of LMI Series B common stock, in each case, outstanding on that date.
Shares of UGC common stock issuable within 60 days of January 1, 2005 upon exercise of
options, conversion of convertible securities, exchange of exchangeable securities or upon vesting
of restricted stock awards are deemed to be outstanding for the purpose of computing the percentage
ownership and aggregate voting power of persons beneficially owning such securities, but have not
been deemed to be outstanding for the purpose of computing the percentage ownership or aggregate
voting power of any other person. Shares of LMI common stock issuable upon exercise or conversion
of options that were exercisable or convertible on or within 60 days after December 31, 2004, are
deemed to be outstanding and to be beneficially owned by the person holding the options for the
purpose of computing the percentage ownership of the person, but are not treated as outstanding for
the purpose of computing the percentage ownership of any other person.
So far as is known to UGC, the persons indicated below have sole voting power with respect to
the shares indicated as owned by them, except as otherwise stated in the notes to the table. The
number of shares indicated as owned by the executive officers and directors of UGC, includes
interests in shares held by UGCs defined contribution 401(k) plan (UGC 401(k) Plan) as of January
1, 2005. The shares held by the trustee of the UGC 401(k) Plan for the benefit of these persons are
voted as directed by such persons.
120
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount and Nature of |
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial Ownership |
|
|
Percent of |
|
|
Voting |
|
Name of Beneficial Owner |
|
Title of Class |
|
|
(in thousands) |
|
|
Class |
|
|
Power |
|
Charles H.R. Bracken |
|
UGC Class A |
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
LMI Series A |
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
LMI Series B |
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert R. Bennett |
|
UGC Class A |
|
|
205 |
(1) |
|
|
* |
|
|
|
* |
|
|
|
LMI Series A |
|
|
240 |
(2)(3)(4) |
|
|
* |
|
|
|
3.1 |
% |
|
|
LMI Series B |
|
|
732 |
(2)(4) |
|
|
9.2 |
% |
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John P. Cole, Jr. |
|
UGC Class A |
|
|
378 |
(5) |
|
|
* |
|
|
|
* |
|
|
|
LMI Series A |
|
|
1 |
|
|
|
* |
|
|
|
* |
|
|
|
LMI Series B |
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John W. Dick |
|
UGC Class A |
|
|
48 |
(6) |
|
|
* |
|
|
|
* |
|
|
|
LMI Series A |
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
LMI Series B |
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bernard G. Dvorak |
|
UGC Class A |
|
|
3 |
(7) |
|
|
* |
|
|
|
* |
|
|
|
LMI Series A |
|
|
0 |
|
|
|
* |
|
|
|
* |
|
|
|
LMI Series B |
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael T. Fries |
|
UGC Class A |
|
|
2,427 |
(8) |
|
|
* |
|
|
|
* |
|
|
|
LMI Series A |
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
LMI Series B |
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul A. Gould |
|
UGC Class A |
|
|
177 |
(9) |
|
|
* |
|
|
|
* |
|
|
|
LMI Series A |
|
|
101 |
(10) |
|
|
* |
|
|
|
* |
|
|
|
LMI Series B |
|
|
37 |
|
|
|
* |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gary S. Howard |
|
UGC Class A |
|
|
77 |
(11) |
|
|
* |
|
|
|
* |
|
|
|
LMI Series A |
|
|
389 |
(12) |
|
|
* |
|
|
|
* |
|
|
|
LMI Series B |
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David B. Koff |
|
UGC Class A |
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
LMI Series A |
|
|
65 |
(13)(14)(15) |
|
|
* |
|
|
|
* |
|
|
|
LMI Series B |
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John C. Malone |
|
UGC Class A |
|
|
89 |
(16) |
|
|
* |
|
|
|
* |
|
|
|
LMI Series A |
|
|
953 |
(17)(18)(20)(21) |
|
|
* |
|
|
|
33.2 |
% |
|
|
LMI Series B |
|
|
8,499 |
(17)(19)(21) |
|
|
91.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gene M. Musselman |
|
UGC Class A |
|
|
9 |
(22) |
|
|
* |
|
|
|
* |
|
|
|
LMI Series A |
|
|
104 |
|
|
|
* |
|
|
|
* |
|
|
|
LMI Series B |
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shane ONeill |
|
UGC Class A |
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
LMI Series A |
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
LMI Series B |
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gene W. Schneider |
|
UGC Class A |
|
|
2,045 |
(23) |
|
|
* |
|
|
|
* |
|
|
|
UGC Class B |
|
|
2,901 |
(24) |
|
|
21.7 |
% |
|
|
* |
|
|
|
LMI Series A |
|
|
555 |
(25) |
|
|
* |
|
|
|
* |
|
|
|
LMI Series B |
|
|
0 |
|
|
|
|
|
|
|
|
|
121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount and Nature of |
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial Ownership |
|
|
Percent of |
|
|
Voting |
|
Name of Beneficial Owner |
|
Title of Class |
|
|
(in thousands) |
|
|
Class |
|
|
Power |
|
Frederick G. Westerman III |
|
UGC Class A |
|
|
846 |
(26) |
|
|
* |
|
|
|
* |
|
|
|
LMI Series A |
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
LMI Series B |
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All directors and executive |
|
UGC Class A |
|
|
6,304 |
(1)(8)(23)(27) |
|
|
1.6 |
% |
|
|
* |
|
officers as a group |
|
UGC Class B |
|
|
2,901 |
(24) |
|
|
21.7 |
% |
|
|
* |
|
|
|
LMI Series A |
|
|
2,408 |
(2)(4)(12)(14) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17 |
)(18)(21) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25 |
)(28) |
|
|
1.4 |
% |
|
|
35.6 |
% |
|
|
LMI Series B |
|
|
9,268 |
(2)(4)(17)(19) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21 |
) |
|
|
92.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LMI(29) |
|
UGC Class A |
|
|
35,829 |
|
|
|
9.0 |
% |
|
|
|
|
|
|
UGC Class B |
|
|
10,493 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
UGC Class C |
|
|
377,462 |
|
|
|
99.4 |
% |
|
|
91.0 |
%(28) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Research and
Management Company(31) |
|
UGC Class A |
|
|
42,223,890 |
|
|
|
10.6 |
% |
|
|
* |
|
* |
|
Less than one percent. |
|
(1) |
|
Includes 77,082 shares of UGC Class A common stock that are subject to options which were
exercisable as of, or will be exercisable within 60 days of, January 1, 2005, and 128,186
shares of UGC Class A common stock owned by Hilltop Investments, Inc., which is jointly owned
by Mr. Bennett and his spouse. |
|
(2) |
|
Includes 75,084 shares of LMI Series A common stock and 24 shares of LMI Series B common
stock held by Hilltop Investments, Inc. which is jointly owned by Mr. Bennett and his spouse. |
|
(3) |
|
Includes 1,652 shares of LMI Series A common stock held by the Liberty 401(k) Savings Plan. |
|
(4) |
|
Includes 12,002 shares of LMI Series A common stock and 731,962 shares of LMI Series B common
stock that are subject to options which were exercisable as of, or will be exercisable within
60 days of, December 31, 2004. Mr. Bennett has the right to convert the options to purchase
shares of LMI Series B common stock into options to purchase shares of LMI Series A common
stock. |
|
(5) |
|
Includes 199,166 shares of UGC Class A common stock that are subject to options which were
exercisable as of, or will be exercisable within 60 days of, January 1, 2005. |
|
(6) |
|
Includes 47,916 shares of UGC Class A common stock that are subject to options which were
exercisable as of, or will be exercisable within 60 days of, January 1, 2005. |
|
(7) |
|
Includes 1,677 shares of UGC Class A common stock held by the UGC 401(k) Plan. |
|
(8) |
|
Includes 2,400,000 shares of UGC Class A common stock that are subject to options which were
exercisable as of, or will be exercisable within 60 days of, January 1, 2005, and 8,289 shares
of UGC Class A common stock held by the UGC 401(k) Plan. Also includes 210 shares of UGC Class
A common stock held by his spouse. |
|
(9) |
|
Includes 27,083 shares of UGC Class A common stock that are subject to options which were
exercisable as of, or will be exercisable within 60 days of, January 1, 2005. |
|
(10) |
|
Includes 586 shares of LMI Series A common stock that are subject to options which were
exercisable as of, or will be exercisable within 60 days of, December 31, 2004. |
|
(11) |
|
Includes 77,082 shares of UGC Class A common stock that are subject to options which were
exercisable as of, or will be exercisable within 60 days of, January 1, 2005. |
|
(12) |
|
Includes 2,294 shares held by the Liberty 401(k) Savings Plan and 20,940 shares held by a
Grantor Retained Annuity Trust. Also includes 614 shares owned by his
spouse of which Mr.
Howard disclaims beneficial ownership and 11,108 shares held by a
Grantor Retained Annuity Trust established by his spouse of which Mr. Howard disclaims beneficial |
122
|
|
ownership and 302,640 shares that are subject to options which were exercisable as of, or
will be exercisable within 60 days of, December 31, 2004. |
|
(13) |
|
Includes 674 shares of LMI Series A common stock held by the Liberty 401(k) Savings Plan. |
|
(14) |
|
Includes 1,250 restricted shares of LMI Series A common stock, none of which were vested at
December 31, 2004. |
|
(15) |
|
Includes 53,615 shares of LMI Series A common stock that are subject to options which were
exercisable as of, or will be exercisable within 60 days of, December 31, 2004. |
|
(16) |
|
Includes 89,166 shares of UGC Class A common stock that are subject to options which were
exercisable as of, or will be exercisable within 60 days of, January 1, 2005. |
|
(17) |
|
Includes 90,303 shares of LMI Series A common stock and 204,566 shares of LMI Series B common
stock held by Mr. Malones spouse, as to which shares Mr. Malone has disclaimed beneficial
ownership. |
|
(18) |
|
Includes 198 shares of LMI Series A common stock held by a trust with respect to which Mr.
Malone is the sole trustee and, with his wife, Leslie Malone, retains a unitrust interest in
the trust. |
|
(19) |
|
Includes 1,036,028 shares of LMI Series B common stock held by a trust with respect to which
Mr. Malone is the sole trustee and holder of a unitrust interest in the trust. |
|
(20) |
|
Includes 46,819 shares of LMI Series A common stock held by the Liberty 401(k) Savings Plan. |
|
(21) |
|
Includes 221 shares of LMI Series A common stock and 2,072,577 shares of LMI Series B common
stock that are subject to options which were exercisable as of, or will be exercisable within
60 days of, December 31, 2004. Mr. Malone has the right to convert options to purchase 504,015
shares of LMI Series B common stock into options to purchase shares of LMI Series A common
stock. |
|
(22) |
|
Includes 7,977 shares of UGC Class A common stock held by the UGC 401(k) Plan. |
|
(23) |
|
Includes 1,766,341 shares of UGC Class A common stock that are subject to options which were
exercisable as of, or will be exercisable within 60 days of, January 1, 2005, and 9,931 shares
of UGC Class A common stock held by the UGC 401(k) Plan. Also includes 712 shares of UGC Class
A common stock held by a trust of which Mr. Schneider is a beneficiary and a trustee and 66
shares of UGC Class A common stock held by his spouse. |
|
(24) |
|
Includes 2,900,702 shares of UGC Class B common stock that are subject to options which were
exercisable as of, or will be exercisable within 60 days of, January 1, 2005. |
|
(25) |
|
Includes 199,261 shares held by G. Schneider Holdings, LLP of which Mr. Schneider is the
general partner, 1,155 shares held by a trust of which Mr. Schneider is a beneficiary and a
trustee, 1,577 shares held by his spouse, and an aggregate of 1,555 shares held by separate
trusts for the benefit of his children and two of his grandchildren, respectively, of which
Mr. Schneider is the sole trustee. Also includes 9 shares held by the UGC 401(k) Plan. |
|
(26) |
|
Includes 840,000 shares of UGC Class A common stock that are subject to options which were
exercisable as of, or will be exercisable within 60 days of, January 1, 2005, and includes
6,332 shares of UGC Class A common stock held by the UGC 401(k) Plan. |
|
(27) |
|
Includes 1,280,413 shares of UGC Class A common stock that are subject to options which were
exercisable as of, or will be exercisable within 60 days of, January 1, 2005, and 15,986
shares of UGC Class A common stock held by the UGC 401(k) Plan for the benefit of the
directors and executive officers. |
|
(28) |
|
Includes 54,201 shares of LMI Series A common stock that are subject to options which were
exercisable as of, or will be exercisable within 60 days of, December 31, 2004, and 49,145
shares of LMI Series A common stock held by the Liberty 401(k) Savings Plan. |
|
(29) |
|
The number of shares of UGC Class A common stock, UGC Class B common stock and UGC Class C
common stock in the table is based upon Amendment No. 1 to the Schedule 13D dated January 17,
2005, filed by LMI. The address of LMI is 12300 Liberty Boulevard, Englewood, Colorado 80112.
Robert R. Bennett, Bernard G. Dvorak, David B. Koff, and John C. Malone, all directors of UGC,
are also officers and/or directors of LMI. |
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(30) |
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Represents LMIs aggregate voting power. |
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(31) |
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The number of shares of UGC Class A common stock in the table is based upon Amendment No. 7
to the Schedule 13G dated December 31, 2003, filed by Capital Research and Management Company
and The Growth Fund of America, Inc. with respect to the UGC Class A common stock. Capital
Research, an investment advisor, is the beneficial owner of 42,223,890 shares of UGC Class A
common stock, as a result of acting as investment advisor to various investments companies,
but disclaims beneficial ownership pursuant to Rule 13d-4. Growth Fund, an investment company
advised by Capital Research, is the beneficial owner of 18,540,000 shares of UGC Class A
common stock. The Schedule 13G reflects that Capital Research has no voting power over said
shares and sole dispositive power over the shares of UGC Class A |
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common stock and that Growth Fund has sole voting power over its shares but no dispositive
power. The address of Capital Research and Growth Fund is 333 South Hope Street, Los
Angeles, CA 90071. |
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DESCRIPTION OF LIBERTY GLOBAL CAPITAL STOCK
The following information reflects Liberty Globals restated certificate of incorporation and
bylaws as these documents will be in effect at the time of the mergers.
Authorized Capital Stock
Liberty Globals authorized capital stock consists of one billion one hundred million
(1,100,000,000) shares, of which one billion fifty million (1,050,000,000) shares are designated
common stock, par value $0.01 per share, and fifty million (50,000,000) shares are designated
preferred stock, par value $0.01 per share. Liberty Globals common stock is divided into three
series. Liberty Global has authorized five hundred million (500,000,000) shares of Series A common
stock, fifty million (50,000,000) shares of Series B common stock, and five hundred million
(500,000,000) shares of Series C common stock.
Immediately following the effective time of the mergers, Liberty Global expects to have up to
[___] shares of its Series A common stock and [___] shares of its Series B common
stock outstanding, based upon the number of shares of LMI Series A common stock, LMI Series B
common stock, UGC Class A common stock and UGC Class C common stock outstanding on [___],
2005. The actual number of outstanding shares of Liberty Global Series A common stock will also
depend on the number of UGC stockholders who make the cash election. No shares of Liberty Global
Series C common stock or preferred stock will be outstanding immediately following the effective
time of the merger.
Common Stock
The holders of Liberty Global Series A common stock, Series B common stock and Series C common
stock have equal rights, powers and privileges, except as otherwise described below.
Voting Rights
The holders of Liberty Global Series A common stock will be entitled to one vote for each
share held, and the holders of Liberty Global Series B common stock will be entitled to ten votes
for each share held, on all matters voted on by Liberty Global stockholders, including elections of
directors. The holders of Liberty Global Series C common stock will not be entitled to any voting
powers, except as required by Delaware law. When the vote or consent of holders of Liberty Global
Series C common stock is required by Delaware law, the holders of Liberty Global Series C common
stock will be entitled to 1/100th of a vote for each share held. Liberty Globals charter does not
provide for cumulative voting in the election of directors.
Dividends; Liquidation
Subject to any preferential rights of any outstanding series of Liberty Globals preferred
stock created by Liberty Globals board from time to time, the holders of Liberty Globals common
stock will be entitled to such dividends as may be declared from time to time by Liberty Globals
board from funds available therefor. Except as otherwise described under Distributions, whenever
a dividend is paid to the holders of one of Liberty Global Series of common stock, Liberty Global
shall also pay to the holders of the other series of Liberty Globals common stock an equal per
share dividend. For a more complete discussion of Liberty Globals dividend policy, please see
Dividend Policy.
Conversion
Each share of Liberty Global Series B common stock is convertible, at the option of the
holder, into one share of Liberty Global Series A common stock. Liberty Global Series A common
stock and Liberty Global Series C common stock are not convertible.
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Distributions
Distributions made in shares of Liberty Global Series A common stock, Liberty Global Series B
common stock, Liberty Global Series C common stock or any other security with respect to Liberty
Global Series A common stock, Liberty Global Series B common stock or Liberty Global Series C
common stock may be declared and paid only as follows:
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a share distribution (1) consisting of shares of Liberty Global Series A common
stock (or securities convertible therefor) to holders of Liberty Global Series A
common stock, Liberty Global Series B common stock and Liberty Global Series C
common stock, on an equal per share basis; or (2) consisting of shares of Liberty
Global Series B common stock (or securities convertible therefor) to holders of
Liberty Global Series A common stock, Liberty Global Series B common stock and
Liberty Global Series C common stock, on an equal per share basis; or (3)
consisting of shares of Liberty Global Series C common stock (or securities
convertible therefor) to holders of Liberty Global Series A common stock, Liberty
Global Series B common stock and Liberty Global Series C common stock, on an equal
per share basis; or (4) consisting of shares of Liberty Global Series A common
stock (or securities convertible therefor) to holders of Liberty Global Series A
common stock and, on an equal per share basis, shares of Liberty Global Series B
common stock (or securities convertible therefor) to holders of Liberty Global
Series B common stock and, on an equal per share basis, shares of Liberty Global
Series C common stock (or securities convertible therefor) to holders of Liberty
Global Series C common stock; and |
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a share distribution consisting of shares of any class or series of securities
of Liberty Global or any other person, other than Liberty Global Series A common
stock, Liberty Global Series B common stock or Liberty Global Series C common stock
(or securities convertible therefor) on the basis of a distribution of (1)
identical securities, on an equal per share basis, to holders of Liberty Global
Series A common stock, Liberty Global Series B common stock and Liberty Global
Series C common stock; or (2) separate classes or series of securities, on an equal
per share basis, to holders of Liberty Global Series A common stock, Liberty Global
Series B common stock and Liberty Global Series C common stock; or (3) a separate
class or series of securities to the holders of one or more series of Liberty
Globals common stock and, on an equal per share basis, a different class or series
of securities to the holders of all other series of Liberty Globals common stock,
provided that, in the case of (2) or (3) above, the securities so distributed do
not differ in any respect other than their relative voting rights and related
differences in designation, conversion and share distribution provisions, with the
holders of shares of Liberty Global Series B common stock receiving securities of
the class or series having the highest relative voting rights and the holders of
shares of each other series of Liberty Globals common stock receiving securities
of the class or series having lesser relative voting rights, and provided further
that, if different classes or series of securities are being distributed to holders
of Liberty Global Series A common stock and Liberty Global Series C common stock,
then such securities shall be distributed either as determined by Liberty Globals
board of directors or such that the relative voting rights of the securities of the
class or series of securities to be received by the holders of Liberty Global
Series A common stock and Liberty Global Series C common stock corresponds, to the
extent practicable, to the relative voting rights of each such series of Liberty
Globals common stock, and provided further that, in each case, the distribution is
otherwise made on a equal per share basis. |
Liberty Global may not reclassify, subdivide or combine any series of Liberty Globals common
stock without reclassifying, subdividing or combining the other series of Liberty Globals common
stock, on an equal per share basis.
Liquidation and Dissolution
In the event of Liberty Globals liquidation, dissolution and winding up, after payment or
provision for payment of Liberty Globals debts and liabilities and subject to the prior payment in
full of any preferential amounts to which Liberty Globals preferred stock holders may be entitled,
the holders of Liberty Global Series A common stock, Liberty Global Series B common stock and
Liberty Global Series C common stock will share equally, on a
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share for share basis, in Liberty Globals assets remaining for distribution to the holders of
Liberty Globals common stock.
Preferred Stock
Liberty Globals restated certificate of incorporation authorizes Liberty Globals board of
directors to establish one or more series of Liberty Globals preferred stock and to determine,
with respect to any series of Liberty Globals preferred stock, the terms and rights of the series,
including:
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the designation of the series; |
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the number of authorized shares of the series, which number Liberty Globals
board may thereafter increase or decrease but not below the number of such shares
then outstanding; |
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the dividend rate or amounts, if any, payable on the shares and, in the case of
cumulative dividends, the date or dates from which dividends on all shares of the
series shall be cumulative and the relative preferences or rights of priority or
participation with respect to such dividends; |
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the rights of the series in the event of Liberty Globals voluntary or
involuntary liquidation, dissolution or winding up and the relative preferences or
rights of priority of payment; |
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the rights, if any, of holders of the series to convert into or exchange for
other classes or series of stock or indebtedness and the terms and conditions of
any such conversion or exchange, including provision for adjustments within the
discretion of Liberty Globals board; |
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the voting rights, if any, of the holders of the series; |
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the terms and conditions, if any, for us to purchase or redeem the shares; and |
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any other relative rights, preferences and limitations of the series. |
Liberty Global believes that the ability of Liberty Globals board of directors to issue one
or more series of Liberty Globals preferred stock will provide them with flexibility in
structuring possible future financing and acquisitions, and in meeting other corporate needs which
might arise. The authorized shares of Liberty Globals preferred stock, as well as shares of
Liberty Globals common stock, will be available for issuance without further action by Liberty
Global stockholders, unless such action is required by applicable law or the rules of any stock
exchange or automated quotation system on which Liberty Globals securities may be listed or
traded. If the approval of Liberty Global stockholders is not required for the issuance of shares
of Liberty Globals preferred stock or Liberty Globals common stock, Liberty Globals board may
determine not to seek stockholder approval.
Although Liberty Global has no intention at the present time of doing so, it could issue a
series of Liberty Globals preferred stock that could, depending on the terms of such series,
impede the completion of a merger, tender offer or other takeover attempt. Liberty Globals board
of directors will make any determination to issue such shares based upon its judgment as to the
best interests of Liberty Globals stockholders. Liberty Globals board of directors, in so acting,
could issue Liberty Globals preferred stock having terms that could discourage an acquisition
attempt through which an acquirer may be able to change the composition of Liberty Globals board
of directors, including a tender offer or other transaction that some, or a majority, of Liberty
Global stockholders might believe to be in their best interests or in which stockholders might
receive a premium for their stock over the then-current market price of the stock.
Dividend Policy
Liberty Global presently intends to retain future earnings, if any, to finance the expansion
of Liberty Globals business. Therefore, Liberty Global does not expect to pay any cash dividends
in the foreseeable future. All decisions regarding the payment of dividends by Liberty Global will
be made by Liberty Globals board of directors,
127
from time to time, in accordance with applicable law after taking into account various
factors, including Liberty Globals financial condition, operating results, current and anticipated
cash needs, plans for expansion and possible loan covenants which may restrict or prohibit Liberty
Globals payment of dividends.
Anti-Takeover Effects of Provisions of Restated Certificate of Incorporation and Bylaws
Board of Directors
Liberty Globals restated certificate of incorporation and bylaws provide that, subject to any
rights of the holders of any series of Liberty Globals preferred stock to elect additional
directors, the number of Liberty Globals directors shall not be less than three and the exact
number shall be fixed from time to time by a resolution adopted by the affirmative vote of 75% of
the members of Liberty Globals board then in office. The members of Liberty Globals board, other
than those who may be elected by holders of Liberty Globals preferred stock, are divided into
three classes. Each class consists, as nearly as possible, of a number of directors equal to
one-third of the then authorized number of board members. The term of office of Liberty Globals
Class I directors expires at the annual meeting of Liberty Global stockholders in 2006. The term of
office of Liberty Globals Class II directors expires at the annual meeting of Liberty Global
stockholders in 2007. The term of office of Liberty Globals Class III directors expires at the
annual meeting of Liberty Global stockholders in 2008. At each annual meeting of Liberty Global
stockholders, the successors of that class of directors whose term expires at that meeting shall be
elected to hold office for a term expiring at the annual meeting of Liberty Global stockholders
held in the third year following the year of their election. The directors of each class will hold
office until their respective successors are elected and qualified.
Liberty Globals restated certificate of incorporation provides that, subject to the rights of
the holders of any series of Liberty Globals preferred stock, Liberty Globals directors may be
removed from office only for cause upon the affirmative vote of the holders of at least a majority
of the aggregate voting power of Liberty Globals outstanding capital stock entitled to vote at an
election of directors, voting together as a single class.
Liberty Globals restated certificate of incorporation provides that, subject to the rights of
the holders of any series of Liberty Globals preferred stock, vacancies on Liberty Globals board
resulting from death, resignation, removal, disqualification or other cause, and newly created
directorships resulting from any increase in the number of directors on Liberty Globals board,
shall be filled only by the affirmative vote of a majority of the remaining directors then in
office (even though less than a quorum) or by the sole remaining director. Any director so elected
shall hold office for the remainder of the full term of the class of directors in which the vacancy
occurred or to which the new directorship is assigned, and until that directors successor shall
have been elected and qualified or until such directors earlier death, resignation or removal. No
decrease in the number of directors constituting Liberty Globals board shall shorten the term of
any incumbent director, except as may be provided in any certificate of designation with respect to
a series of Liberty Globals preferred stock with respect to any additional director elected by the
holders of that series of Liberty Globals preferred stock.
These provisions would preclude a third party from removing incumbent directors and
simultaneously gaining control of Liberty Globals board by filling the vacancies created by
removal with its own nominees. Under the classified board provisions described above, it would take
at least two elections of directors for any individual or group to gain control of Liberty Globals
board. Accordingly, these provisions could discourage a third party from initiating a proxy
contest, making a tender offer or otherwise attempting to gain control of Liberty Global.
No Shareowner Action by Written Consent; Special Meetings
Liberty Globals restated certificate of incorporation provides that, except as otherwise
provided in the terms of any series of preferred stock, any action required to be taken or which
may be taken at any annual meeting or special meeting of stockholders may not be taken without a
meeting and may not be effected by any consent in writing by such holders. Except as otherwise
required by law and subject to the rights of the holders of any series of Liberty Globals
preferred stock, special meetings of Liberty Global stockholders for any purpose or purposes may be
called only by Liberty Globals Secretary at the request of at least 75% of the members of Liberty
Globals board then in office. No business other than that stated in the notice of special meeting
shall be transacted at any special meeting.
128
Advance Notice Procedures
Liberty Globals bylaws establish an advance notice procedure for stockholders to make
nominations of candidates for election as directors or to bring other business before an annual
meeting of Liberty Global stockholders.
All nominations by stockholders or other business to be properly brought before a meeting of
stockholders shall be made pursuant to timely notice in proper written form to Liberty Globals
Secretary. To be timely, a stockholders notice shall be given to Liberty Globals Secretary at
Liberty Globals offices as follows:
(1) with respect to an annual meeting of Liberty Global stockholders that is called for
a date not more than 30 days before or 70 days after the anniversary date of the immediately
preceding annual meeting of Liberty Global stockholders, such notice shall be given no
earlier than the close of business on the 120th day prior to such anniversary and no later
than the close of business on the 90th day prior to such anniversary;
(2) with respect to an annual meeting of Liberty Global stockholders that is called for
a date which is more than 30 days before or 70 days after the anniversary date of the
immediately preceding annual meeting of Liberty Global stockholders, such notice shall be
given no earlier than the close of business on the 120th day prior to the current annual
meeting and not later than the close of business on the later of (A) the 90th day prior to
the current annual meeting or (b) the 10th day following the day on which Liberty Global
first publicly announces the date of the current annual meeting; and
(3) with respect to an election to be held at a special meeting of Liberty Global
stockholders, not earlier than the close of business on the 120th day prior to such special
meeting and not later than the close of business on the later of the 90th day prior to such
special meeting or the 10th day following the day on which public announcement is first made
of the date of the special meeting.
The public announcement of an adjournment or postponement of a meeting of Liberty Global
stockholders does not commence a new time period (or extend any time period) for the giving of any
such stockholder notice. However, if the number of directors to be elected to Liberty Globals
board at any meeting is increased, and Liberty Global does not make a public announcement naming
all of the nominees for director or specifying the size of the increased board at least 100 days
prior to the anniversary date of the immediately preceding annual meeting, a stockholders notice
shall also be considered timely, but only with respect to nominees for any new positions created by
such increase, if it shall be delivered to Liberty Globals Secretary at Liberty Globals offices
not later than the close of business on the 10th day following the day on which Liberty Global
first made the relevant public announcement. For purposes of the first annual meeting of
stockholders to be held in 2006, the first anniversary date shall be deemed to be [___],
2006.
Amendments
Liberty Globals restated certificate of incorporation provides that, subject to the rights of
the holders of any series of Liberty Globals preferred stock, the affirmative vote of the holders
of at least 80% of the aggregate voting power of Liberty Globals outstanding capital stock
generally entitled to vote upon all matters submitted to Liberty Global stockholders, voting
together as a single class, is required to adopt, amend or repeal any provision of Liberty Globals
restated certificate of incorporation or the addition or insertion of other provisions in the
certificate, provided that the foregoing voting requirement shall not apply to any adoption,
amendment, repeal, addition or insertion (1) as to which Delaware law does not require the consent
of Liberty Global stockholders or (2) which has been approved by at least 75% of the members of
Liberty Globals board then in office. Liberty Globals restated certificate of incorporation
further provides that the affirmative vote of the holders of at least 80% of the aggregate voting
power of Liberty Globals outstanding capital stock generally entitled to vote upon all matters
submitted to Liberty Global stockholders, voting together as a single class, is required to adopt,
amend or repeal any provision of Liberty Globals bylaws, provided that the foregoing voting
requirement shall not apply to any adoption, amendment or repeal approved by the affirmative vote
of not less than 75% of the members of Liberty Globals board then in office.
129
Supermajority Voting Provisions
In addition to the supermajority voting provisions discussed under Amendments above,
Liberty Globals restated certificate of incorporation provides that, subject to the rights of the
holders of any series of Liberty Globals preferred stock, the affirmative vote of the holders of
at least 80% of the aggregate voting power of Liberty Globals outstanding capital stock generally
entitled to vote upon all matters submitted to Liberty Global stockholders, voting together as a
single class, is required for:
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Liberty Globals merger or consolidation with or into any other corporation,
provided, that the foregoing voting provision shall not apply to any such merger or
consolidation (1) as to which the laws of the State of Delaware, as then in effect,
do not require the consent of Liberty Global stockholders, or (2) that at least 75%
of the members of Liberty Globals board of directors then in office have approved; |
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the sale, lease or exchange of all, or substantially all, of Liberty Globals
assets, provided, that the foregoing voting provisions shall not apply to any such
sale, lease or exchange that at least 75% of the members of Liberty Globals board
of directors then in office have approved; or |
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Liberty Globals dissolution, provided, that the foregoing voting provision
shall not apply to such dissolution if at least 75% of the members of Liberty
Globals board of directors then in office have approved such dissolution. |
Section 203 of the Delaware General Corporation Law
Section 203 of the Delaware General Corporation Law prohibits certain transactions between a
Delaware corporation and an interested stockholder. An interested stockholder for this purpose
is a stockholder who is directly or indirectly a beneficial owner of 15% or more of the aggregate
voting power of a Delaware corporation. This provision prohibits certain business combinations
between an interested stockholder and a corporation for a period of three years after the date on
which the stockholder became an interested stockholder, unless: (1) the transaction which resulted
in the stockholder becoming an interested stockholder is approved by the corporations board of
directors before the stockholder became an interested stockholder, (2) the interested stockholder
acquired at least 85% of the aggregate voting power of the corporation in the transaction in which
the stockholder became an interested stockholder, or (3) the business combination is approved by a
majority of the board of directors and the affirmative vote of the holders of two-thirds of the
aggregate voting power not owned by the interested stockholder at or subsequent to the time that
the stockholder became an interested stockholder. These restrictions do not apply if, among other
things, the corporations certificate of incorporation contains a provision expressly electing not
to be governed by Section 203. In Liberty Globals restated certificate of incorporation, Liberty
Global has elected not to be governed by Section 203.
Transfer Agent and Registrar
EquiServe Trust Company N.A. will be the transfer agent and registrar for Liberty Globals
common stock.
130
COMPARISON OF THE RIGHTS OF STOCKHOLDERS OF LMI, UGC AND LIBERTY GLOBAL
Liberty Global, LMI and UGC are each organized under the laws of the State of Delaware. Any
differences, therefore, in the rights of holders of capital stock in Liberty Global, LMI and UGC
arise primarily from differences in their respective charters and bylaws, in the case of LMI and
UGC, as in effect on the date of this joint proxy statement/prospectus, and, in the case of Liberty
Global, as will be in effect at the effective time of the mergers. Upon completion of the mergers,
holders of LMI common stock and holders of UGC common stock will become holders of Liberty Global
common stock and their rights will be governed by Delaware law and Liberty Globals restated
certificate of incorporation and bylaws.
The following discussion summarizes the material differences between the rights of LMI
stockholders, UGC stockholders and Liberty Global stockholders, as described in the applicable
provisions of their respective charters and bylaws. This section does not include a complete
description of all the differences among the rights of these stockholders, nor does it include a
complete description of the specific rights of these stockholders. All LMI stockholders and UGC
stockholders are urged to carefully read the relevant provisions of Delaware law as well as the
form of restated certificate of incorporation and form of bylaws of Liberty Global included with
this joint proxy statement/prospectus as Appendix F and Appendix G, respectively.
Authorized Capital Stock
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LMI |
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UGC |
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Liberty Global |
The authorized capital
stock of LMI consists of
(i) 1,050,000,000 shares
of common stock, par value
$.01 per share, of which
500,000,000 shares are
designated LMI Series A
common stock 50,000,000
shares are designated LMI
Series B common stock and
500,000,000 shares are
designated LMI Series C
common stock and (ii)
50,000,000 shares of LMI
preferred stock, par value
$.01 per share. LMIs
restated certificate of
incorporation authorizes
the board of directors to
authorize the issuance of
one or more series of
preferred stock.
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The authorized capital
stock of UGC consists of
(i) 2,400,000,000 shares
of UGC common stock, par
value $.01 per share, of
which 1,000,000,000 shares
are designated UGC Class A
common stock,
1,000,000,000 shares are
designated UGC Class B
common stock and
400,000,000 shares are
designated UGC Class C
common stock and (ii)
10,000,000 shares of UGC
preferred stock, par value
$.01 per share. UGCs
amended and restated
certificate of
incorporation authorizes
the board of directors to
authorize the issuance of
one or more series of
preferred stock.
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Same as LMI. |
Voting Rights
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LMI |
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UGC |
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Liberty Global |
Under LMIs restated
certificate of
incorporation, holders of
LMI Series A common stock
are entitled to one vote
for each share of such
stock held, and holders of
LMI Series B common stock
are entitled to ten votes
for each share of such
stock held, on all matters
submitted to a vote of LMI
stockholders at any annual
or special meeting.
Holders of LMI Series C
common stock are not
entitled to any voting
powers, except as required
by Delaware law (in which
case holders of LMI Series
C common stock are
entitled to 1/100th of a
vote per share).
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Under UGCs amended and
restated certificate of
incorporation, holders of
UGC Class A common stock
are entitled to one vote
for each share of such
stock held, holders of UGC
Class B common stock are
entitled to ten votes for
each share of such stock
held and holders of Class
C common stock are
entitled to ten votes for
each share of such stock
held.
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Same as LMI. |
131
Cumulative Voting
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LMI |
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UGC |
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Liberty Global |
Under Delaware law, stockholders of a
Delaware corporation do not have the
right to cumulate their votes in the
election of directors, unless that right
is granted in the certificate of
incorporation of the corporation. LMIs
restated certificate of incorporation
does not permit cumulative voting by LMI
stockholders.
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Same as LMI.
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Same as LMI. |
Size of Board of Directors
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LMI |
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UGC |
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Liberty Global |
LMIs board of
directors has eight
members. LMIs
restated certificate
of incorporation
provides that the
minimum number of
directors is three,
and that the actual
number of directors
may be fixed by the
board of directors.
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UGCs board of
directors has ten
members. UGCs
amended and restated
certificate of
incorporation
provides that the
number of directors
shall not be fewer
than nine nor more
than twelve, and that
that the actual
number of directors
may be fixed by the
board of directors.
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Liberty Globals
board of directors
initially will have
ten members. Liberty
Globals restated
certificate of
incorporation and
bylaws will provide
that the minimum
number of directors
is three, and that
the actual number of
directors may be
fixed by the board of
directors. |
Classes of Directors
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LMI |
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UGC |
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Liberty Global |
LMIs restated certificate of
incorporation provides that its board of
directors is divided into three classes
of directors with each class being
elected to a staggered three-year term.
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Same as LMI.
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Same as LMI. |
Removal of Directors
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LMI |
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UGC |
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Liberty Global |
Under LMIs restated
certificate of
incorporation, a director
may be removed from office
only for cause
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Under UGCs amended and
restated certificate of
incorporation, any and all
directors
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Same as LMI. |
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LMI |
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UGC |
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Liberty Global |
upon the
affirmative vote of the
holders of a majority of
the aggregate voting power
of the outstanding shares
of LMI Series A common
stock, LMI Series B common
stock and any series of
preferred stock entitled
to vote upon matters that
may be submitted to an LMI
stockholder vote.
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may be removed
from the board of
directors with or without
cause upon the affirmative
vote of holders of at
least 66-2/3% of the
aggregate combined voting
power of the UGC Class A
common stock, UGC Class B
common stock and UGC Class
C common stock, voting
together as a single
class. |
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Vacancies on the Board of Directors
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LMI |
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UGC |
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Liberty Global |
LMIs restated certificate
of incorporation provides
that vacancies resulting
from death, resignation,
removal, disqualification
or other cause, and newly
created directorships
resulting from any
increase in the number of
directors on the board of
directors, shall be filled
only by the affirmative
vote of a majority of the
remaining directors then
in office.
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UGCs amended and restated
certificate of
incorporation provides
that any newly created
directorship resulting
from an increase in the
number of directors or any
other vacancy, however
caused, shall be filled by
a majority of the
directors then in office.
|
|
Same as LMI. |
Limitation of Personal Liability of Directors
|
|
|
|
|
LMI |
|
UGC |
|
Liberty Global |
Under Delaware law, a corporation may
include in its certificate of
incorporation a provision eliminating or
limiting the personal liability of a
director to the corporation or its
stockholders for monetary damages for
breach of fiduciary duty as a director;
however, the provision may not eliminate
or limit the liability of a director for
a breach of the duty of loyalty, acts or
omissions not in good faith or that
involve intentional misconduct or a
knowing violation of law, unlawful
payments of dividends, certain stock
repurchases or redemptions or any
transaction from which the director
derived an improper personal benefit.
LMIs restated certificate of
incorporation limits the personal
liability of LMI directors for monetary
damages for breach of fiduciary duty as a
director to the fullest extent permitted
by Delaware law.
|
|
Same as LMI.
|
|
Same as LMI. |
133
Indemnification of Directors and Officers
|
|
|
|
|
LMI |
|
UGC |
|
Liberty Global |
Delaware law provides that, subject to
certain limitations in the case of
derivative suits brought by a
corporations stockholders in its name, a
corporation may indemnify any person who
is made a party to any third-party
action, suit or proceeding (other than an
action by or in the right of the
corporation) on account of being a
current or former director, officer,
employee or agent of the corporation (or
is or was serving at the request of the
corporation in such capacity for another
corporation, partnership, joint venture,
trust or other enterprise) against
expenses, including attorneys fees,
judgments, fines and amounts paid in
settlement actually and reasonably
incurred by him or her in connection with
the action, suit or proceeding through,
among other things, a majority of
directors who were not parties to the
suit or proceeding, if the person (i)
acted in good faith and in a manner
reasonably believed to be in the best
interests of the corporation (or in some
circumstances, at least not opposed to
its best interests), and (ii) in a
criminal action or proceeding, had no
reasonable cause to believe his or her
conduct was unlawful. Delaware corporate
law also permits indemnification by a
corporation under similar circumstances
for expenses (including attorneys fees)
actually and reasonably incurred by such
persons in connection with the defense or
settlement of a derivative action or
suit, except that no indemnification may
be made in respect of any claim, issue or
matter as to which the person is adjudged
to be liable to the corporation unless
the Delaware Court of Chancery or the
court in which the action or suit was
brought determines upon application that
the person is fairly and reasonably
entitled to indemnity for the expenses
which the court deems to be proper. To
the extent
|
|
Same as LMI.
|
|
Same as LMI. |
134
|
|
|
|
|
LMI |
|
UGC |
|
Liberty Global |
that a current or former
director, officer, employee or agent is
successful in the defense of such an
action, suit or proceeding, the
corporation is required by Delaware
corporate law to indemnify such person
for reasonable expenses incurred thereby.
Expenses (including attorneys fees)
incurred by such persons in defending any
action, suit or proceeding may be paid in
advance of the final disposition of such
action, suit or proceeding upon receipt
of an undertaking by or on behalf of that
person to repay the amount if it is
ultimately determined that that person is
not entitled to be so indemnified. LMIs
restated certificate of incorporation
provides for (i) the indemnification of
its current or former directors and
officers to the fullest extent permitted
by law, and (ii) the prepayment of
expenses (including attorneys fees) upon
receipt of an undertaking to repay such
amounts if it is ultimately determined
that the director or officer is not
entitled to indemnification. |
|
|
|
|
Action by Written Consent
|
|
|
|
|
LMI |
|
UGC |
|
Liberty Global |
LMIs restated certificate
of incorporation
specifically denies LMI
stockholders the power to
consent in writing,
without a meeting, to the
taking of any action.
|
|
UGCs amended and restated
certificate of
incorporation allows UGC
stockholders to take
action by written consent.
|
|
Same as LMI. |
Amendments to Certificate of Incorporation
|
|
|
|
|
LMI |
|
UGC |
|
Liberty Global |
LMIs restated certificate
of incorporation requires,
for the amendment,
alteration or repeal of
any provision of or the
addition or insertion of
any provision in LMIs
restated certificate of
incorporation, the
affirmative vote of the
holders of at least 80% of
the aggregate voting
|
|
UGCs amended and restated
certificate of
incorporation requires the
affirmative vote of the
holders of 66-2/3% of the
aggregate voting power of
the outstanding UGC common
stock, voting together as
a single class, to amend,
alter, repeal or adopt
|
|
Same as LMI. |
135
|
|
|
|
|
LMI |
|
UGC |
|
Liberty Global |
power of the outstanding shares
of LMI Series A common
stock, LMI Series B common
stock and any series of
preferred stock entitled
to vote upon matters
submitted to a stockholder
vote, unless the amendment
(i) is not required to be
approved by LMI
stockholders under
Delaware Law or (ii) has
been approved by 75% of
the LMI directors then in
office.
|
|
provisions of the amended
and restated certificate
of incorporation relating
to the following
matters: (1) the classification of
directors, (2) the
election of directors, (3)
the term of office of
directors, (4) the filling
of vacant directorships,
(5) the removal of
directors, (6) the
nominations of directors,
(7) the calling of special
meetings of stockholders,
(8) requirements
concerning amendments to
the bylaws and (9)
requirements concerning
amendments to the amended
and restated certificate
of incorporation. The
items listed under (1)
through (6) also require
the affirmative vote of
the holders of a majority
of the voting power of the
outstanding UGC Class C
common stock, voting
separately. |
|
|
Amendments to Bylaws
|
|
|
|
|
LMI |
|
UGC |
|
Liberty Global |
Delaware law provides that
stockholders have the
power to amend the bylaws
of a corporation unless
the certificate of
incorporation grants such
power to the board of
directors, in which case
either the stockholders or
the board of directors may
amend the bylaws. LMIs
restated certificate of
incorporation authorizes
the board of directors, by
the affirmative vote of
not less than 75% of the
directors then in office,
to adopt, amend or repeal
any provision of the
bylaws.
|
|
Delaware law provides that
stockholders shall have
the power to amend the
bylaws of a corporation
unless the certificate of
incorporation grants such
power to the board of
directors, in which case
either the stockholders or
the board of directors may
amend the bylaws. UGCs
amended and restated
certificate of
incorporation provides
that the board of
directors has the power to
adopt, alter, amend or
repeal the bylaws of UGC
by a vote of the majority
of the directors then in
office. The holders of
shares of outstanding
equity securities of UGC
entitled to vote in the
election of directors, to
the extent such power is
conferred on them by
application of law, also
have the power to adopt,
alter, amend or repeal the
bylaws of UGC if approved
by at least 66-2/3% of the
aggregate voting power of
the outstanding UGC common
stock, voting together as
a single class.
|
|
Same as LMI. |
136
Special Meetings of Stockholders
|
|
|
|
|
LMI |
|
UGC |
|
Liberty Global |
LMIs restated certificate
of incorporation and
bylaws provide that the
secretary may call special
meetings of the
stockholders, only at the
request of 75% of the
members of the board of
directors then in office.
|
|
UGCs bylaws provide that
special meetings may be
called only (i) by the
board of directors
pursuant to a resolution
approved by a majority of
the directors then in
office, (ii) by the
chairman of the board of
directors or (iii) at the
request of holders of
common stock representing
a majority of the
aggregate voting power of
the outstanding equity
securities entitled to
vote in the election of
director.
|
|
Same as LMI. |
Vote on Extraordinary Corporate Transactions
|
|
|
|
|
LMI |
|
UGC |
|
Liberty Global |
Under Delaware law, a sale
or other disposition of
all or substantially all
of a corporations assets,
a merger or consolidation
of a corporation with
another corporation or a
dissolution of a
corporation requires the
affirmative vote of the
corporations board of
directors (except in
limited circumstances)
plus, with limited
exceptions, the
affirmative vote of a
majority of the
outstanding stock entitled
to vote on the
transaction. LMIs
restated certificate of
incorporation requires the
affirmative vote of
holders of at least 80% of
the aggregate voting power
of the outstanding shares
of LMI Series A common
stock, LMI Series B common
stock and any series of
preferred stock entitled
to vote upon matters
submitted to an LMI
stockholder vote to
authorize: (i) a merger or
consolidation with and
into any other
corporation, unless (a)
the laws of the state of
Delaware do not require
stockholder consent or (b)
75% of the members of the
board of directors have
approved the merger or
consolidation, (ii) the
sale, lease or exchange of
all, or substantially all,
assets of LMI, unless 75%
of the members of the
board of directors then in
office have approved the
transaction or (iii) the
|
|
Under Delaware law, a sale
or other disposition of
all or substantially all
of a corporations assets,
a merger or consolidation
of a corporation with
another corporation or a
dissolution of a
corporation requires the
affirmative vote of the
corporations board of
directors (except in
limited circumstances)
plus, with limited
exceptions, the
affirmative vote of a
majority of the
outstanding stock entitled
to vote on the
transaction. UGCs amended
and restated certificate
of incorporation and
bylaws include no
additional provisions in
this regard, and the
Delaware law applies
without modification.
|
|
Same as LMI. |
137
|
|
|
|
|
LMI |
|
UGC |
|
Liberty Global |
dissolution of LMI, unless
75% of the members of the
board of directors then in
office have approved the
dissolution. |
|
|
|
|
State Anti-Takeover Statutes
|
|
|
|
|
LMI |
|
UGC |
|
Liberty Global |
Subject to certain exceptions, Section
203 of the Delaware corporate statute
generally prohibits public corporations
from engaging in significant business
transactions, including mergers, with a
holder of 15% or more of the
corporations stock, referred to as an
interested stockholder, for a period of
three years after the interested
stockholder becomes an interested
stockholder, unless the certificate of
incorporation contains a provision
expressly electing not to be governed by
such a section. LMIs restated
certificate of incorporation expressly
elects not to be governed by Section 203.
|
|
Same as LMI.
|
|
Same as LMI. |
Notice of Stockholder Proposals and Director Nominations
|
|
|
|
|
LMI |
|
UGC |
|
Liberty Global |
Under LMIs bylaws, for
director nominations or
other business to be
properly brought before an
LMI annual meeting by a
stockholder, the
stockholder must have
given timely notice
thereof in writing to the
Secretary of LMI and any
such proposed business
other than the nominations
of persons for election to
the board of directors,
must constitute a proper
matter for stockholder
action. To be timely, a
stockholders notice must
be delivered to the
Secretary at the principal
executive offices of LMI
not later than the close
of business on the
ninetieth (90th) day nor
earlier than the close of
business on the one
hundred twentieth (120th)
day prior to the first
anniversary of the
preceding years annual
meeting
|
|
Under UGCs bylaws, for
director nominations or
other business to be
properly brought before a
UGC annual meeting by a
stockholder, the
stockholder must have
given timely notice
thereof in writing to the
Secretary of UGC and any
such proposed business
other than the nominations
of persons for election to
the board of directors,
must constitute a proper
matter for stockholder
action. To be timely, a
stockholders notice must
be delivered to the
Secretary at the principal
executive offices of UGC
not later than the close
of business on the
ninetieth (90th) day nor
earlier than the close of
business on the one
hundred twentieth (120th)
day prior to the first
anniversary of the
preceding
|
|
Same as LMI. |
138
|
|
|
|
|
LMI |
|
UGC |
|
Liberty Global |
(provided, however,
that in the event
that the date of the
annual meeting is more
than thirty (30) days
before or more than
seventy (70) days after
such anniversary date,
notice by the stockholder
must be so delivered not
earlier than the close of
business on the one
hundred twentieth (120th)
day prior to such annual
meeting and not later than
the close of business on
the later of the ninetieth
(90th) day prior to such
annual meeting or the
tenth (10th) day following
the day on which public
announcement of the date
of such meeting is first
made by LMI).
|
|
years annual meeting (provided,
however, that in the event
that the date of the
annual meeting is advanced
more than thirty (30) days
prior to or delayed by
more than thirty (30) days
after the anniversary of
the preceding years
annual meeting, notice by
the stockholder must be so
delivered not earlier than
the close of business on
the one hundred twentieth
(120th) day prior to such
annual meeting and not
later than the close of
business on the later of
the ninetieth (90th) day
prior to such annual
meeting or the tenth
(10th) day following the
day on which public
announcement of the date
of such meeting is first
made by UGC). |
|
|
139
LIBERTY GLOBAL UNAUDITED CONDENSED PRO FORMA COMBINED FINANCIAL STATEMENTS
General
The accompanying unaudited condensed pro forma combined financial statements reflect the pro
forma effects of (1) the proposed mergers (the Proposed Mergers) contemplated by the merger
agreement, whereby Liberty Global will acquire all of the capital stock of UGC that LMI does not
already own and LMI and UGC will become wholly owned subsidiaries of Liberty Global; and (2)
certain transactions that were consummated during 2004, as further described below (the Consummated
Transactions).
The following unaudited condensed pro forma combined balance sheet of Liberty Global, dated as
of September 30, 2004, assumes that the Proposed Mergers were effective as of such date. The
following unaudited condensed pro forma combined statements of operations of Liberty Global for the
nine months ended September 30, 2004 and the year ended December 31, 2003 include the pro forma
effects of the Proposed Mergers and the Consummated Transactions, as if each of such transactions
were effective as of January 1, 2003.
The unaudited pro forma results do not purport to be indicative of the financial position and
results of operations that Liberty Global will obtain in the future, or that Liberty Global would
have obtained if the Proposed Mergers and Consummated Transactions were effective as of the dates
indicated above. These unaudited condensed pro forma combined financial statements of Liberty
Global have been derived from and should be read in conjunction with the historical financial
statements and related notes thereto of LMI and UGC. The LMI historical financial statements are
included in Appendix A: Information Concerning Liberty Media International, Inc. Part 4:
Historical Financial Statements of LMI and its Significant Affiliates and Acquirees and the UGC
historical financial statements are incorporated by reference into this document. See Additional
Information Where You Can Find More Information.
Proposed Mergers
At September 30, 2004, LMI owned 53.6% of the outstanding equity securities of UGC
representing approximately 91.0% of UGCs outstanding voting power. Pursuant to the Proposed
Mergers, each share of LMI Series A common stock or Series B common stock owned by an LMI
stockholder will be exchanged for one share of the corresponding series of Liberty Global common
stock. Stockholders of UGC (other than LMI and its wholly owned subsidiaries) may elect to
receive, for each share of UGC common stock owned by them, either:
|
|
0.2155 of a share of Liberty Global Series A common stock (plus cash in lieu of
any fractional share interest) (the stock election); or |
|
|
|
$9.58 in cash, without interest (the cash election). |
UGC stockholders who make the cash election will be subject to proration so that, in the
aggregate, the cash consideration paid to UGC stockholders does not exceed 20% of the aggregate
value of the merger consideration payable to UGC public stockholders. If proration is made, any
share for which a holder is not entitled to receive cash will be converted into 0.2155 of a share
of Liberty Global Series A common stock (plus cash in lieu of any fractional share interest).
The Proposed Mergers will be accounted for as a step acquisition by LMI of the remaining
minority interest in UGC. The purchase price in this step acquisition will include the
consideration issued to UGC public stockholders to acquire the UGC interest not already owned by
LMI and the direct acquisition costs incurred by LMI. As UGC was a consolidated subsidiary of LMI
prior to the Proposed Mergers, the purchase price will first be applied to eliminate the minority
interest in UGC from the consolidated balance sheet of LMI, and the remaining purchase price will
be allocated on a pro rata basis to the identifiable assets and liabilities of UGC based upon their
respective fair values at the effective date of the Proposed Mergers and the 46.4% interest in UGC
to be acquired by Liberty Global pursuant to the Proposed Mergers. Any excess purchase price that
remains after amounts have been allocated to the net identifiable assets of UGC will be recorded as
goodwill. As the acquiring company for
140
accounting purposes, LMI will be the predecessor to Liberty Global and the historical
financial statements of LMI will become the historical financial statements of Liberty Global. As
discussed further in the accompanying notes, the preliminary calculation of the purchase price
reflected in the accompanying unaudited condensed pro forma combined financial statements is based
upon the assumption that all UGC stockholders (other than LMI and its wholly owned subsidiaries)
will elect to receive shares of Liberty Global in the Proposed Mergers. In addition, the
preliminary purchase price allocation reflected in the accompanying unaudited condensed pro forma
combined financial statements is subject to adjustment based upon the final assessment of the fair
values of UGCs identifiable assets and liabilities.
Consummated Transactions
Consolidation of UGC
On January 5, 2004, LMI completed a transaction pursuant to which UGCs founding stockholders
transferred 8.2 million shares of UGC Class B Common Stock to LMI in exchange for
12.6 million shares of Liberty Series A Common Stock valued, for accounting purposes, at
$152,122,000 and a cash payment of $15,827,000 (including acquisition costs). This transaction was
the last of a number of independent transactions that occurred from 2001 to January 2004, pursuant
to which LMI acquired its controlling interest in UGC. LMIs acquisition of 281.3 million shares
of UGC common stock in January 2002 gave LMI a greater than 50% economic interest in UGC, but due
to certain voting and standstill arrangements, LMI used the equity method to account for its
investment in UGC through December 31, 2003. Upon closing of the January 5, 2004 transaction, the
restrictions on the exercise by LMI of its voting power with respect to UGC terminated, and LMI
gained voting control of UGC. Accordingly, UGC has been accounted for as a consolidated subsidiary
and included in LMIs financial position and results of operations since January 1, 2004.
LMI has accounted for its acquisition of a controlling interest in UGC as a step acquisition,
and has allocated its investment basis to its pro rata share of UGCs assets and liabilities at
each significant acquisition date based upon the estimated fair values of such assets and
liabilities on such dates. During 2002, LMIs investment basis in UGC was reduced to zero as a
result of the prior recognition of LMIs share of UGCs losses.
Noos Acquisition
On July 1, 2004, UPC Broadband France SAS (UPC Broadband France), an indirect wholly owned
subsidiary of UGC and the owner of UGCs French cable television operations, acquired
Suez-Lyonnaise Télécom SA (Noos), from Suez SA (Suez). Noos is a provider of digital and analog
cable television services and high-speed Internet access services in France. The preliminary
purchase price for a 100% interest in Noos was approximately 623,450,000 ($758,547,000 at July
1, 2004), consisting of 529,929,000 ($644,761,000 at July 1, 2004) in cash, a 19.9% equity
interest in UPC Broadband France valued at approximately 85,000,000 ($103,419,000 at July 1,
2004) and 8,521,000 ($10,367,000 at July 1, 2004) in direct acquisition costs. The preliminary
purchase price and the value assigned to the 19.9% interest in UPC Broadband France are subject to
a review of certain historical financial information of Noos and UPC Broadband France. In this
regard, 100,000,000 ($121,669,000) of the cash consideration was held in escrow at September
30, 2004 pending final determination of the purchase price.
UGC has accounted for this transaction as the acquisition of an 80.1% interest in Noos and the
sale of a 19.9% interest in UPC Broadband France. Under the purchase method of accounting, the
preliminary purchase price was allocated to the acquired identifiable tangible and intangible
assets and liabilities based upon their respective fair values, and the excess of the purchase
price over the fair value of such identifiable net assets was allocated to goodwill. The
preliminary fair values assigned to property and equipment and intangible assets, and the excess
purchase price assigned to goodwill have been adjusted to give effect to UGCs 80.1% ownership
interest in Noos. The preliminary accounting for the Noos transaction, as reflected in these
unaudited condensed pro forma combined financial statements, is subject to adjustment based upon
the (i) final determination of the Noos purchase price and the value assigned to the 19.9% equity
interest in UPC Broadband France and (ii) the final assessment of the fair values of Noos
identifiable assets and liabilities. Such potential adjustments are not expected to have a
material impact on the pro forma results of operations of Liberty Global.
141
Liberty Global, Inc.
Unaudited Condensed Pro Forma Combined Balance Sheet
September 30, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma |
|
|
|
Historical |
|
|
(Proposed Mergers) |
|
|
|
|
|
|
|
Adjustments - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
increase |
|
|
|
|
|
|
Liberty Global |
|
|
|
LMI |
|
|
(decrease) |
|
|
|
|
|
|
as adjusted |
|
|
|
(amounts in thousands) |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
1,738,730 |
|
|
|
|
|
|
|
|
|
|
|
1,738,730 |
|
Receivables and other current assets |
|
|
535,705 |
|
|
|
|
|
|
|
|
|
|
|
535,705 |
|
Investments and related receivables |
|
|
3,009,106 |
|
|
|
|
|
|
|
|
|
|
|
3,009,106 |
|
Property and equipment, net |
|
|
3,972,773 |
|
|
|
|
|
|
|
|
|
|
|
3,972,773 |
|
Intangible assets not subject to amortization |
|
|
2,817,004 |
|
|
|
2,454,027 |
|
|
|
(1 |
) |
|
|
5,271,031 |
|
Other assets |
|
|
557,274 |
|
|
|
|
|
|
|
|
|
|
|
557,274 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
12,630,592 |
|
|
|
2,454,027 |
|
|
|
|
|
|
|
15,084,619 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Parents Investment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
1,289,207 |
|
|
|
|
|
|
|
|
|
|
|
1,289,207 |
|
Long-term debt, excluding current portion |
|
|
4,258,810 |
|
|
|
|
|
|
|
|
|
|
|
4,258,810 |
|
Deferred income tax liabilities, excluding current portion |
|
|
453,194 |
|
|
|
|
|
|
|
|
|
|
|
453,194 |
|
Other liabilities |
|
|
328,795 |
|
|
|
|
|
|
|
|
|
|
|
328,795 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
6,330,006 |
|
|
|
|
|
|
|
|
|
|
|
6,330,006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interests in subsidiaries |
|
|
1,117,032 |
|
|
|
(1,014,610 |
) |
|
|
(1 |
) |
|
|
102,422 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
1,755 |
|
|
|
(1,755 |
) |
|
|
(1 |
) |
|
|
3,443 |
|
|
|
|
|
|
|
|
3,443 |
|
|
|
(1 |
) |
|
|
|
|
Additional paid-in capital |
|
|
6,956,349 |
|
|
|
3,467,848 |
|
|
|
(1 |
) |
|
|
10,424,197 |
|
Accumulated deficit |
|
|
(1,641,575 |
) |
|
|
|
|
|
|
|
|
|
|
(1,641,575 |
) |
Accumulated other comprehensive loss, net of taxes |
|
|
(132,975 |
) |
|
|
|
|
|
|
|
|
|
|
(132,975 |
) |
Shares held by subsidiaries |
|
|
|
|
|
|
(899 |
) |
|
|
(1 |
) |
|
|
(899 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
5,183,554 |
|
|
|
3,468,637 |
|
|
|
|
|
|
|
8,652,191 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
12,630,592 |
|
|
$ |
2,454,027 |
|
|
|
|
|
|
$ |
15,084,619 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to unaudited condensed pro forma combined financial statements.
142
Liberty Global, Inc.
Unaudited Condensed Pro Forma Combined Statement of Operations
Nine months ended September 30, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma |
|
|
Pro forma |
|
|
|
Historical |
|
|
(Consummated Transactions) |
|
|
(Proposed Mergers) |
|
|
|
|
|
|
|
Noos |
|
|
Adjustments |
|
|
|
|
|
|
Adjustments |
|
|
Liberty |
|
|
|
|
|
|
|
(6 months ended |
|
|
increase |
|
|
|
|
|
|
increase |
|
|
Global |
|
|
|
LMI |
|
|
June 30, 2004) |
|
|
(decrease) |
|
|
As adjusted |
|
|
(decrease) |
|
|
as adjusted |
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands) |
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
1,865,769 |
|
|
|
199,880 |
|
|
|
|
|
|
|
2,065,649 |
|
|
|
|
|
|
|
2,065,649 |
|
Operating, selling, general and
administrative expenses |
|
|
(1,210,533 |
) |
|
|
(147,126 |
) |
|
|
|
|
|
|
(1,357,659 |
) |
|
|
|
|
|
|
(1,357,659 |
) |
Stock compensation |
|
|
(66,120 |
) |
|
|
|
|
|
|
|
|
|
|
(66,120 |
) |
|
|
|
|
|
|
(66,120 |
) |
Depreciation and amortization |
|
|
(696,624 |
) |
|
|
(73,052 |
) |
|
|
(3,208 |
) (3) |
|
|
(772,884 |
) |
|
|
|
|
|
|
(772,884 |
) |
Other operating expenses |
|
|
(53,372 |
) |
|
|
|
|
|
|
|
|
|
|
(53,372 |
) |
|
|
|
|
|
|
(53,372 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
|
(160,880 |
) |
|
|
(20,298 |
) |
|
|
(3,208 |
) |
|
|
(184,386 |
) |
|
|
|
|
|
|
(184,386 |
) |
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(209,801 |
) |
|
|
(40,394 |
) |
|
|
37,703 |
(4) |
|
|
(212,492 |
) |
|
|
|
|
|
|
(212,492 |
) |
Share of earnings of
affiliates, net |
|
|
54,518 |
|
|
|
|
|
|
|
|
|
|
|
54,518 |
|
|
|
|
|
|
|
54,518 |
|
Gain on exchange of investment
security |
|
|
168,301 |
|
|
|
|
|
|
|
|
|
|
|
168,301 |
|
|
|
|
|
|
|
168,301 |
|
Gain on extinguishment of debt |
|
|
35,787 |
|
|
|
|
|
|
|
|
|
|
|
35,787 |
|
|
|
|
|
|
|
35,787 |
|
Other, net |
|
|
41,675 |
|
|
|
727 |
|
|
|
|
|
|
|
42,402 |
|
|
|
|
|
|
|
42,402 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90,480 |
|
|
|
(39,667 |
) |
|
|
37,703 |
|
|
|
88,516 |
|
|
|
|
|
|
|
88,516 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before
income tax and minority
interest |
|
|
(70,400 |
) |
|
|
(59,965 |
) |
|
|
34,495 |
|
|
|
(95,870 |
) |
|
|
|
|
|
|
(95,870 |
) |
|
Income tax expense |
|
|
(91,027 |
) |
|
|
(101 |
) |
|
|
|
(10) |
|
|
(91,128 |
) |
|
|
|
(10) |
|
|
(91,128 |
) |
Minority interests in subsidiaries |
|
|
150,801 |
|
|
|
|
|
|
|
8,336 |
(5) |
|
|
159,137 |
|
|
|
(148,292 |
) (11) |
|
|
10,845 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(10,626 |
) |
|
|
(60,066 |
) |
|
|
42,831 |
|
|
|
(27,861 |
) |
|
|
(148,292 |
) |
|
|
(176,153 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share |
|
|
(0.07 |
) |
|
|
|
|
|
|
|
|
|
|
(0.18 |
) |
|
|
|
|
|
|
(0.69 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares
outstanding (12) |
|
|
158,363 |
|
|
|
|
|
|
|
|
|
|
|
158,363 |
|
|
|
|
|
|
|
254,348 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to unaudited condensed pro forma combined financial statements.
143
Liberty Global, Inc.
Unaudited Condensed Pro Forma Combined Statement of Operations
Year ended December 31, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical |
|
Pro forma (Consummated Transactions) |
|
Pro forma (Proposed Mergers) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments |
|
|
|
|
|
|
|
|
|
Adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
increase |
|
|
|
|
|
|
|
|
|
increase |
|
|
|
|
|
Liberty Global |
|
|
LMI |
|
UGC |
|
Noos |
|
(decrease) |
|
|
|
|
|
As adjusted |
|
(decrease) |
|
|
|
|
|
as adjusted |
|
|
(amounts in thousands) |
Revenue |
|
$ |
108,634 |
|
|
|
1,891,530 |
|
|
|
356,781 |
|
|
|
|
|
|
|
|
|
|
|
2,356,945 |
|
|
|
|
|
|
|
|
|
|
|
2,356,945 |
Operating, selling,
general and
administrative
expenses |
|
|
(90,643 |
) |
|
|
(1,262,648 |
) |
|
|
(276,641 |
) |
|
|
|
|
|
|
|
|
|
|
(1,629,932 |
) |
|
|
|
|
|
|
|
|
|
|
(1,629,932 |
) |
Stock compensation |
|
|
(4,088 |
) |
|
|
(38,024 |
) |
|
|
|
|
|
|
28,647 |
|
|
|
(2 |
) |
|
|
(13,465 |
) |
|
|
|
|
|
|
|
|
|
|
(13,465 |
) |
Depreciation and
amortization |
|
|
(15,114 |
) |
|
|
(808,663 |
) |
|
|
(196,055 |
) |
|
|
(42,488 |
) |
|
|
(3 |
) |
|
|
(1,062,320 |
) |
|
|
|
|
|
|
|
|
|
|
(1,062,320 |
) |
Impairment of
long-lived assets |
|
|
|
|
|
|
(438,209 |
) |
|
|
(654,844 |
) |
|
|
|
|
|
|
|
|
|
|
(1,093,053 |
) |
|
|
|
|
|
|
|
|
|
|
(1,093,053 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
|
(1,211 |
) |
|
|
(656,014 |
) |
|
|
(770,759 |
) |
|
|
(13,841 |
) |
|
|
|
|
|
|
(1,441,825 |
) |
|
|
|
|
|
|
|
|
|
|
(1,441,825 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
(expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(2,178 |
) |
|
|
(327,132 |
) |
|
|
(71,083 |
) |
|
|
72,898 |
|
|
|
(4 |
) |
|
|
(327,495 |
) |
|
|
|
|
|
|
|
|
|
|
(327,495 |
) |
Share of earnings
of affiliates,
net |
|
|
13,739 |
|
|
|
294,464 |
|
|
|
|
|
|
|
(208,203 |
) |
|
|
(6 |
) |
|
|
100,000 |
|
|
|
|
|
|
|
|
|
|
|
100,000 |
Gain on sales, net |
|
|
3,759 |
|
|
|
279,442 |
|
|
|
|
|
|
|
(195,456 |
) |
|
|
(7 |
) |
|
|
87,745 |
|
|
|
|
|
|
|
|
|
|
|
87,745 |
Gain on
extinguishment of
debt |
|
|
|
|
|
|
2,183,997 |
|
|
|
|
|
|
|
(974,239 |
) |
|
|
(8 |
) |
|
|
1,209,758 |
|
|
|
|
|
|
|
|
|
|
|
1,209,758 |
Other, net |
|
|
34,779 |
|
|
|
87,773 |
|
|
|
775 |
|
|
|
(44,713 |
) |
|
|
(9 |
) |
|
|
78,614 |
|
|
|
|
|
|
|
|
|
|
|
78,614 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,099 |
|
|
|
2,518,544 |
|
|
|
(70,308 |
) |
|
|
(1,349,713 |
) |
|
|
|
|
|
|
1,148,622 |
|
|
|
|
|
|
|
|
|
|
|
1,148,622 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) before
income taxes
and minority
interests |
|
|
48,888 |
|
|
|
1,862,530 |
|
|
|
(841,067 |
) |
|
|
(1,363,554 |
) |
|
|
|
|
|
|
(293,203 |
) |
|
|
|
|
|
|
|
|
|
|
(293,203 |
) |
|
|
Income tax expense |
|
|
(27,975 |
) |
|
|
(50,344 |
) |
|
|
(406 |
) |
|
|
|
|
|
|
(10 |
) |
|
|
(78,725 |
) |
|
|
|
|
|
|
(10 |
) |
|
|
(78,725 |
) |
|
|
Minority interests
in subsidiaries |
|
|
(24 |
) |
|
|
183,182 |
|
|
|
|
|
|
|
(753,840 |
) |
|
|
(5 |
) |
|
|
(570,682 |
) |
|
|
991,345 |
|
|
|
(11 |
) |
|
|
420,663 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
(loss) |
|
$ |
20,889 |
|
|
|
1,995,368 |
|
|
|
(841,473 |
) |
|
|
(2,117,394 |
) |
|
|
|
|
|
|
(942,610 |
) |
|
|
991,345 |
|
|
|
|
|
|
|
48,735 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per
share |
|
$ |
0.14 |
|
(6.17 |
) |
|
|
|
|
|
|
|
|
|
|
0.19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
shares outstanding
(12) |
|
|
152,841 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
152,841 |
|
|
|
|
|
|
|
|
|
|
|
254,348 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to unaudited condensed pro forma combined financial statements.
144
LIBERTY GLOBAL, INC.
Notes to Unaudited Condensed Pro Forma Combined Financial Statements
September 30, 2004 and December 31, 2003
(1) |
Represents the adjustments required to reflect the Proposed Mergers, including adjustments to
(i) record the issuance of 337,027,019 Liberty Global Series A shares (including 89,943,393
shares to be held by subsidiaries of LMI) and 7,264,300 Liberty Global Series B shares in
connection with the Proposed Mergers, (ii) eliminate the minority interests in UGCs equity,
(iii) record the preliminary allocation of the step acquisition
purchase price and (iv) eliminate
LMIs common stock. The number of shares assumed to be issued in connection with the proposed
mergers is based upon (A) the number of issued and outstanding shares of LMI and UGC common
stock as of September 30, 2004, and (B) the assumption that all UGC public stockholders will
make an election to receive shares of Liberty Global Series A common stock. |
|
|
As discussed in the headnote to these unaudited condensed pro forma combined financial
statements, UGC stockholders other than LMI may make a stock or cash election. Stockholders
who make the cash election will be subject to proration so that, in the aggregate, the cash
consideration paid to UGC stockholders does not exceed 20% of the aggregate value of the
merger consideration payable to UGC public stockholders. The accompanying unaudited
condensed pro forma combined balance sheet and statements of operations for Liberty Global
assume that all UGC stockholders (other than LMI and its wholly owned subsidiaries) make the
stock election. A comparison of the preliminary purchase price calculation and allocation
assuming UGC stockholders (other than LMI and its wholly owned
subsidiaries) receive (i) all
stock consideration or (ii) 80% stock and 20% cash consideration is set forth below (dollar
amounts in thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80% stock and |
|
|
|
All stock |
|
|
20% cash |
|
Liberty
Global Series A shares
issued to UGC public stockholders
(a): |
|
|
78,919,860 |
|
|
|
63,135,888 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of shares issued (b) |
|
$ |
3,457,637 |
|
|
|
2,766,110 |
|
Cash consideration |
|
|
|
|
|
|
701,673 |
|
Estimated direct acquisition costs |
|
|
11,000 |
|
|
|
11,000 |
|
|
|
|
|
|
|
|
Total purchase price |
|
|
3,468,637 |
|
|
|
3,478,783 |
|
Eliminate minority interest in UGC |
|
|
(1,014,610 |
) |
|
|
(1,014,610 |
) |
|
|
|
|
|
|
|
Allocate residual to goodwill (c) |
|
$ |
2,454,027 |
|
|
|
2,464,173 |
|
|
|
|
|
|
|
|
|
(a) |
Represents the number of shares that would have been issued to UGC stockholders
(other than LMI and its wholly owned subsidiaries) based upon the number of shares of
UGC common stock that were issued and outstanding on September 30, 2004. The actual
number of shares issued in the Proposed Mergers will depend on the number of shares of
UGC common stock outstanding on the closing date and the portion of the consideration
that is paid in Liberty Global shares. |
|
|
(b) |
The fair value of the shares issued is based upon a fair value of $43.812 per
share, which is the average of the quoted market price of LMI Series A common stock for
the period beginning two trading days before and ending two trading days after the date
that the Proposed Mergers were announced (January 18, 2004). |
|
|
(c) |
For purposes of these unaudited condensed pro forma combined financial
statements, it has been assumed that the historical cost of UGCs existing assets and
liabilities approximate their fair value. Accordingly, the excess purchase price after
the elimination of the UGC minority interest has been allocated to goodwill.
Consistent with the requirements of Statement of Financial Accounting No. 142, Goodwill
and Other Intangible Assets, the unaudited condensed pro forma
combined statements of
operations do not reflect any amortization of this goodwill. The final allocation of
the purchase price will be based upon appraisals and may result in the allocation of |
145
|
|
consideration to identifiable assets and liabilities, including assets with
definitive lives. To the extent that consideration is allocated to assets with
definitive lives, the final allocation of the purchase price could result in
additional depreciation and or amortization expense that in turn would result in
higher operating losses, net losses and net loss per share in subsequent periods.
For example, if $500 million of the excess consideration had been allocated to
property and equipment that had a weighted average life of 10 years, the
accompanying unaudited condensed pro forma combined statements of operations of
Liberty Global for the nine months ended September 30, 2004 and the year ended
December 31, 2003 would have reflected increases in, (i) the pro forma operating
loss of $37,500,000 and $50,000,000, respectively; (ii) the pro forma net loss of
$24,101,000 and $32,135,000 (based upon LMIs weighted average statutory income tax
rates), respectively, and (iii) the pro forma loss per share of $0.09 and $0.13,
respectively. |
(2) |
Represents the reduction of stock compensation that results from the elimination of deferred
stock compensation in connection with the application of purchase accounting in connection
with the 2002 step acquisition of UGC. |
|
(3) |
The pro forma adjustment to depreciation and amortization expense consists of the following: |
|
|
|
|
|
|
|
|
|
|
|
Nine months ended |
|
|
Year ended |
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2004 |
|
|
2003 |
|
|
|
(amounts in thousands) |
|
Depreciation and amortization of the
purchase accounting adjustments to
property and equipment and
amortizable intangible assets that were recorded in
connection with the 2002 step
acquisition of UGC. |
|
$ |
|
|
|
|
(36,082 |
) |
Depreciation and amortization of Noos
purchase price allocations to property
and equipment (estimated weighted
average life of 9.5 years) and
amortizable intangible assets
(estimated lives ranging from 3 to 6
years). |
|
|
(3,208 |
) |
|
|
(6,406 |
) |
|
|
|
|
|
|
|
|
|
$ |
(3,208 |
) |
|
|
(42,488 |
) |
|
|
|
|
|
|
|
(4) |
The pro forma adjustment to interest expense consists of the following: |
|
|
|
|
|
|
|
|
|
|
|
Nine months ended |
|
|
Year ended |
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2004 |
|
|
2003 |
|
|
|
(amounts in thousands) |
|
Elimination of Noos historical
interest expense as UPC Broadband
France did not assume the related
debt |
|
$ |
40,394 |
|
|
|
71,083 |
|
Interest expense on the debt
incurred by UGC to finance a
portion of the Noos acquisition |
|
|
(2,691 |
) |
|
|
(5,383 |
) |
Reduction of UGC interest expense
due to purchase accounting
adjustments to debt and deferred
financing costs that were recorded
in connection with the 2002 step
acquisition of UGC. |
|
|
|
|
|
|
7,198 |
|
|
|
|
|
|
|
|
|
|
$ |
37,703 |
|
|
|
72,898 |
|
|
|
|
|
|
|
|
146
(5) |
The pro forma adjustment to minority interests in subsidiaries consists of the following: |
|
|
|
|
|
|
|
|
|
|
|
Nine months |
|
|
|
|
|
|
ended |
|
|
Year ended |
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2004 |
|
|
2003 |
|
|
|
(amounts in thousands) |
|
Minority interests share (19.9%) of
Noos and UPC Broadband Frances
historical results of operations and
pro forma adjustments |
|
$ |
8,336 |
|
|
|
237,505 |
|
Minority interests share of UGCs
results of operations after
considering the pro forma adjustments
related to the 2002 and 2004 step
acquisitions of UGC |
|
|
|
|
|
|
(991,345 |
) |
|
|
|
|
|
|
|
|
|
$ |
8,336 |
|
|
|
(753,840 |
) |
|
|
|
|
|
|
|
(6) |
Represents the elimination of the pro rata portion of the share of earnings of an equity
method affiliate as a result of the application of purchase accounting in connection with the
2002 step acquisition of UGC. |
|
(7) |
Represents the elimination of pro rata portions of gains that were recognized by UGC during
2003 due to the application of purchase accounting in connection with the 2002 step
acquisition of UGC. |
|
(8) |
Represents the elimination of a portion of the gain on extinguishment of debt of a subsidiary
of UGC due to an increase in the carrying value of such debt as a result of a purchase
accounting adjustment that was recorded in connection with the 2002 step acquisition of UGC. |
|
(9) |
Represents the elimination of other individually insignificant items in UGCs statement of
operations as a result of purchase accounting adjustments that were recorded in connection
with the 2002 step acquisition of UGC. |
|
(10) |
The pro forma adjustments associated with the Consummated Transactions and the Proposed
Mergers had no impact on pro forma income tax expense due primarily to the fact that the pro
forma adjustments relate to jurisdictions where valuation allowances have been provided
against deferred tax assets. |
|
(11) |
Represents the elimination of the minority interests share of UGCs results as a result of
the Proposed Mergers. |
|
(12) |
The historical weighted average shares outstanding assume that the June 7, 2004 distribution
of LMI common stock to the stockholders of Liberty occurred on January 1, 2003 and the pro
forma weighted average shares outstanding assume that the number of Liberty Global common
shares that would have been issued and outstanding had the Proposed Mergers occurred on September 30, 2004
were outstanding since January 1, 2003. |
147
ADDITIONAL INFORMATION
Legal Matters
Legal matters relating to the validity of the securities to be issued in the mergers will be
passed upon by Baker Botts L.L.P.
Stockholder Proposals
We currently expect that Liberty Globals first annual meeting of stockholders will be held
during the [___]. In order to be eligible for inclusion in Liberty Globals proxy
materials for its first annual meeting, any stockholder proposal must be submitted in writing to
Liberty Globals Corporate Secretary and received at Liberty Globals executive offices, by the
close of business on [___] or such later date as Liberty Global may determine and
announce in connection with the actual scheduling of the annual meeting. To be considered for
presentation at Liberty Globals first annual meeting, although not included in its proxy
statement, any stockholder proposal must be received at the executive offices of Liberty Global on
or before the close of business on [___] or such later date as Liberty Global may
determine and announce in connection with the actual scheduling of the annual meeting.
All stockholder proposals for inclusion in Liberty Globals proxy materials will be subject to
the requirements of the proxy rules adopted under the Exchange Act and, as with any stockholder
proposal (regardless of whether it is included in Liberty Globals proxy materials), Liberty
Globals restated certificate of incorporation, Liberty Globals bylaws and Delaware law.
Where You Can Find More Information
Liberty Global has filed with the Securities and Exchange Commission a registration statement
on Form S-4 under the Securities Act with respect to the securities being offered by this joint
proxy statement/prospectus. This joint proxy statement/prospectus, which forms a part of the
registration statement, does not contain all the information included in the registration statement
and the exhibits thereto. You should refer to the registration statement, including its exhibits
and schedules, for further information about Liberty Global and the securities being offered
hereby.
LMI and UGC are each subject to the information and reporting requirements of the Exchange Act
and, in accordance with the Exchange Act, LMI and UGC each file periodic reports and other
information with the Securities and Exchange Commission. You may read and copy any document that
they or Liberty Global file at the Public Reference Room of the Securities and Exchange Commission
at 450 Fifth Street, NW, Washington, D.C. 20549. You may obtain information on the operation of the
Public Reference Room by calling the Securities and Exchange Commission at (800) SEC-0330. You may
also inspect such filings on the Internet website maintained by the SEC at www.sec.gov. Information
contained on any website referenced in this joint proxy statement/prospectus is not incorporated by
reference in this prospectus. In addition, copies of documents filed by LMI and UGC with the
Securities and Exchange Commission are also available by contacting LMI or UGC, as applicable, by
writing or telephoning the office of Investor Relations:
|
|
|
Liberty Media International, Inc.
|
|
UnitedGlobalCom, Inc. |
12300 Liberty Boulevard
|
|
4643 South Ulster Street, Suite 1300 |
Englewood, Colorado 80112
|
|
Denver, Colorado 80237 |
Telephone: (877) 783-7676
|
|
Telephone: (303) 770-4001 |
The Securities and Exchange Commission allows UGC to incorporate by reference information
into this document, which means that we can disclose important information about UGC to you by
referring you to other documents. The information incorporated by reference is an important part of
this joint proxy statement/prospectus,
148
and is deemed to be part of this document except for any information superseded by this
document or any other document incorporated by reference into this document. Any statement,
including financial statements, contained in UGCs Annual Report on Form 10-K for the year ended
December 31, 2003 shall be deemed to be modified or superseded to the extent that a statement,
including financial statements, contained in this joint proxy statement/prospectus or in any other
later incorporated document modifies or supersedes that statement. We incorporate by reference the
documents listed below and any future filings made by UGC with the Securities and Exchange
Commission under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the termination of
the offering described herein:
|
|
UGCs Annual Report on Form 10-K for the fiscal year ended December 31, 2003; |
|
|
|
UGCs Quarterly Reports on Form 10-Q for the quarters ended March 31, 2004, June
30, 2004 and September 30, 2004; and |
|
|
|
UGCs Current Reports on Form 8-K as follows (other than the portions of those
documents not deemed filed): |
|
|
|
Date of Report |
|
Date of Filing |
January 17, 2005
|
|
January 24, 2005 |
January 17, 2005
|
|
January 18, 2005 |
January 10, 2005
|
|
January 12, 2005 |
December 15, 2004
|
|
January 7, 2005 |
December 16, 2004
|
|
December 20, 2004 |
December 7, 2004
|
|
December 13, 2004 |
December 2, 2004
|
|
December 8, 2004 |
November 9, 2004
|
|
November 9, 2004 |
October 14, 2004
|
|
October 18, 2004 |
October 1, 2004
|
|
October 4, 2004 |
September 22, 2004
|
|
September 22, 2004 |
September 16, 2004
|
|
September 16, 2004 |
August 9, 2004
|
|
August 9, 2004 |
July 1, 2004
|
|
September 7, 2004 |
July 1, 2004
|
|
July 9, 2004 |
June 29, 2004
|
|
July 1, 2004 |
June 7, 2004
|
|
June 21, 2004 |
June 10, 2004
|
|
June 10, 2004 |
April 23, 2004
|
|
May 5, 2004 |
April 16, 2004
|
|
April 19, 2004 |
April 6, 2004
|
|
April 7, 2004 |
March 31, 2004
|
|
April 1, 2004 |
February 20, 2004
|
|
February 20, 2004 |
February 18, 2004
|
|
February 19, 2004 |
February 13, 2004
|
|
February 13, 2004 |
January 21, 2004
|
|
January 23, 2004 |
January 20, 2004
|
|
January 21, 2004 |
January 12, 2004
|
|
January 12, 2004 |
January 7, 2004
|
|
January 8, 2004 |
January 5, 2004
|
|
January 6, 2004 |
Neither LMI nor UGC has authorized anyone to give any information or make any representation
about the mergers, Liberty Global, LMI or UGC, that is different from, or in addition to, the
information contained in this joint proxy statement/prospectus or in any of the materials that we
have incorporated into this document by reference. Therefore, if anyone does give you information
of this sort, you should not rely on it. If you are in a jurisdiction where offers to exchange or
sell, or solicitations of offers to exchange or purchase, the securities offered by this joint
149
proxy statement/prospectus or the solicitation of proxies is unlawful, or if you are a person
to whom it is unlawful to direct these types of activities, then the offer presented in this joint
proxy statement/prospectus does not extend to you. The information contained in this joint proxy
statement/prospectus speaks only as of the date of this joint proxy statement/prospectus unless the
information specifically indicates that another date applies.
150
APPENDIX A: INFORMATION CONCERNING LIBERTY MEDIA
INTERNATIONAL, INC.
PART 1: DESCRIPTION OF BUSINESS
General Development of Business
We are a holding company that, through our ownership of
interests in subsidiaries and affiliates, provides broadband
distribution services and video programming services to
subscribers in Europe, Japan, Latin America and Australia. Our
principal assets are our subsidiaries, UnitedGlobalCom, Inc.,
Liberty Cablevision of Puerto Rico Ltd. and Pramer S.C.A., and
our affiliates, Jupiter Telecommunications Co., Ltd. and Jupiter
Programming Co., Ltd.
Liberty Media International, Inc. (together with its
subsidiaries, LMI, we, us,
our or similar terms) was formed in March 2004
as a wholly owned subsidiary of Liberty Media Corporation, which
we refer to as Liberty. Liberty transferred, and caused its
other subsidiaries to transfer to us, substantially all of the
assets comprising Libertys International Group, together
with cash and certain financial assets. On June 7, 2004,
Liberty distributed to its shareholders, on a pro rata basis,
all of our shares of common stock, which we refer to as the Spin
Off, and we became an independent, publicly traded company.
Recent Developments
On January 5, 2004, Liberty completed a transaction
pursuant to which the founding shareholders of UnitedGlobalCom,
Inc., which we refer to as UGC, transferred to Liberty
8.2 million shares of Class B common stock in exchange
for 12.6 million shares of Libertys common stock and
a cash payment. Upon closing of this exchange, the restrictions
contained in the existing standstill agreement between Liberty
and UGC on the amount of UGCs stock that Liberty could
acquire and on the way Liberty could vote its shares of UGC
stock terminated and Liberty gained control of UGC.
Substantially all of Libertys direct and indirect interest
in UGC was transferred to us prior to the Spin Off.
On January 12, 2004, Old UGC, Inc., a wholly owned
subsidiary of UGC that principally owns UGCs interests in
businesses in Latin America and Australia, filed a voluntary
petition for relief under Chapter 11 of the
U.S. Bankruptcy Code. Old UGCs plan of
reorganization, as amended, was confirmed by the Bankruptcy
Court on November 10, 2004, and the restructuring of its
indebtedness and other obligations pursuant to the plan was
completed on November 24, 2004.
On January 23, 2004, we, Liberty and CristalChile
Comunicaciones S.A., our partner in Metrópolis-Intercom
S.A., a cable operator in Chile, entered into an agreement
pursuant to which each agreed to use its respective commercially
reasonable efforts to combine the businesses of Metrópolis
and VTR GlobalCom S.A., a wholly owned subsidiary of UGC that
owns UGCs Chilean operations. The combination is subject
to certain conditions, including the execution of definitive
agreements, Chilean regulatory approval, the approval of the
respective boards of directors of the relevant parties
(including, in the case of UGC, the independent members of
UGCs board of directors) and the receipt of necessary
third party approvals and waivers. The Chilean antitrust
authorities approved the combination in October 2004
subject to certain conditions. However, an action has been filed
with the Chilean Supreme Court seeking to reverse such approval.
We, CristalChile and UGC are currently negotiating the terms of
the definitive agreements for the combination.
In February 2004, UGC issued 83.0 million shares of
its Class A common stock, 2.3 million shares of its
Class B common stock and 84.9 million shares of its
Class C common stock pursuant to a fully subscribed rights
offering, resulting in gross proceeds to UGC of
$1.0 billion.
Also in February 2004, UPC Polska, Inc., an indirect
subsidiary of UGC, emerged from its U.S. bankruptcy
proceedings. Pursuant to UPC Polskas plan of
reorganization, claim holders received aggregate consideration
consisting of cash, new 9% UPC Polska Notes due 2007 and
2.0 million shares of UGCs Class A common stock
in exchange for cancellation of their claims. On July 16,
2004, UPC Polska redeemed the new 9% UPC Polska Notes at par
plus accrued but unpaid interest.
A1-1
On April 6, 2004, UGC sold
500 million
aggregate principal amount of its
13/4% convertible
senior notes due April 15, 2024. The convertible notes are
convertible into shares of UGCs Class A common stock
at an initial conversion price of
9.7561 per
share.
In June 2004, UPC Distribution Holding B.V., an indirect
subsidiary of UGC, amended its senior secured credit facility,
which we refer to as the UPC Distribution Bank Facility, to add
a new Facility E term loan to replace the undrawn
Facility D term loan. Proceeds from Facility E totaled
1.0 billion,
which, in conjunction with
450 million
of cash contributed indirectly by UGC, was used to repay some of
the indebtedness borrowed under the other tranches of the credit
facility, to redeem the 9% UPC Polska Notes referred to above
and to provide funding for the Noos acquisition described below.
In December 2004, the UPC Distribution Bank Facility was
amended to add a new Facility F term loan that increased UPC
Distributions average debt maturity and available
liquidity, and reduced its average interest margin. The
amendment consisted of a $525.0 million tranche and a
140.0 million
tranche, totaling
535.0 million
in gross proceeds. These proceeds were applied to (1) repay
245.0 million
under the Facility A revolver (representing all then outstanding
amounts), (2) prepay
101.2 million
of the term loan Facility B that matured in June 2006,
(3) prepay
177.0 million
of Facility C debt and (4) pay transaction fees of
11.8 million.
On May 20, 2004, we made secured loans to and acquired all
of the issued and outstanding shares of Princes Holdings
Limited, pursuant to a restructuring under Irish insolvency laws
of the debt and other obligations of Princes Holdings and its
wholly owned subsidiary, Chorus Communication Limited. In
December 2004, we sold 100% of the equity of Princes
Holdings to a subsidiary of UGC for 6.4 million shares of
UGCs Class A common stock.
On July 1, 2004, UPC Broadband France SAS, an indirect
wholly owned subsidiary of UGC and the owner of UGCs
French cable television operations, completed its acquisition of
Suez-Lyonnaise Telecom SA, which we refer to as Noos,
Frances largest cable operator, from Suez SA, a French
utility group, for cash and a 19.9% equity interest in UPC
Broadband France.
On July 19, 2004, our investment in Senior Notes and Senior
Discount Notes of Telewest Communications plc was converted into
approximately 7.5% of the outstanding common stock of Telewest
Global, Inc.
In August 2004, we issued 28.2 million shares of our
Series A common stock and 1.2 million shares of our
Series B common stock pursuant to a fully subscribed rights
offering, resulting in gross proceeds to us of
$739.4 million.
Also in August 2004, we, Sumitomo Corporation and Microsoft
Corporation effectively converted a portion of our respective
subordinated loans to Jupiter Telecommunications Co., Ltd.,
which we refer to as J-COM, into equity. Such conversions did
not have a material impact on our, Sumitomos or
Microsofts respective ownership interests in J-COM. In
December 2004, J-COM repaid the balance of these
subordinated shareholder loans in cash.
Subsequent to the Spin Off, our management and Board of
Directors undertook a review of our assets and determined that
it would be advisable to monetize or dispose of our financial
assets and to consider disposing of other non-consolidated
non-cash-flow producing assets if opportunities arose.
Consistent with the foregoing, prior to December 31, 2004,
we sold all of our shares of Telewest Global and
4.5 million shares of Class A common stock of News
Corporation, Inc.
In October 2004, we also sold our 10% interest in Sky
Multicountry and entered into agreements to sell our 10%
interest in each of Sky Brasil and Sky Mexico. Sky Multicountry,
Sky Brasil and Sky Mexico, which we refer to collectively as Sky
Latin America, offer entertainment services via satellite
through owned and affiliated distribution platforms in Latin
America. The closing of the transfer of our interests in Sky
Brasil and Sky Mexico are subject to receipt of regulatory
approvals and other customary conditions.
Then, in November 2004, we entered into a put-call
agreement with respect to our right and obligation to subscribe
for newly issued shares of Cablevisión S.A., a cable
television operator in Argentina, in the event that
Cablevisións pending restructuring under local law of
its debt and other obligations is approved. Consummation of this
transaction, which is expected to occur in the first quarter of
2005, will result in the elimination of our
A1-2
subscription right and obligation in consideration of a cash
payment, 50% of which has been paid as a down payment.
Separately, the counterparty to our total return debt swap with
respect to certain bonds of Cablevisión, with our consent,
entered into a participation agreement with a third party, which
in January 2005 resulted in the termination of our liability
under the total return debt swap and the return of our posted
collateral.
On October 15, 2004, our indirect wholly owned subsidiary,
Belgian Cable Holdings, entered into an agreement to restructure
its investment in the debt of Cable Partners Europe, which we
refer to as CPE, and one of its two indirect majority-owned
subsidiaries, which we refer to as the InvestCos. In
December 2004, two European subsidiaries of UGC acquired
Belgian Cable Holdings from us for cash. Thereafter, Belgian
Cable Holdings effected the debt restructuring by contributing
cash and its investment in the debt of one of the InvestCos to
Belgian Cable Investors, L.L.C., a wholly owned subsidiary of
CPE, in exchange for 78.4% of the common equity and 100% of the
preferred equity of Belgian Cable Investors. CPE owns the
remaining 21.6% of the common equity of Belgian Cable Investors.
Most of the proceeds of Belgian Cable Holdings investment
was then distributed by Belgian Cable Investors to CPE and used
by CPE to purchase its debt held by Belgian Cable Holdings for a
purchase price approximately equal to Belgian Cable
Holdings cost of acquiring the CPE debt plus accrued
interest. As a result of the foregoing transaction, UGC holds
78.4% of an indirect 14.1% interest in Telenet Group Holding
N.V., Belgiums largest cable system operator in terms of
number of subscribers.
On November 16, 2004, chellomedia BV, an indirect wholly
owned subsidiary of UGC, entered into an agreement with two
Dutch investment groups to acquire parts of the Canal+ business
in The Netherlands, including all of its content activities in
that country, for cash and the assumption of certain guaranteed
output payments to film studios. Canal+ currently packages and
distributes premium sports and movie programming under the
Canal+ brand name to customers in The Netherlands. The
transaction is subject to regulatory approval. In a separate
transaction, as part of a settlement of all existing litigation
with Canal+, UPC Nederland, UGCs Dutch subsidiary, has
agreed to enter into a new long-term wholesale distribution
agreement for the Canal+ premium movie and sports channels.
In December 2004, a subsidiary of chellomedia BV entered into an
agreement to sell its 28.7% interest in EWT Holding GmbH to the
other investors in EWT Holding for cash. Chellomedia received
90% of the purchase price on January 31, 2005 and the
remaining 10% is due and payable not later than June 30,
2005.
On December 7, 2004, we purchased 3.0 million shares
of our Series A common stock from Comcast Corporation for
cash.
During 2004 subsequent to the Spin Off, Liberty Japan MC, LLC,
the subsidiary through which we hold our interest in Mediatti
Communications, Inc., a Japanese broadband provider of cable and
Internet access services, acquired additional shares of the
stock of Mediatti, thereby increasing its interest from 23.6% to
37.3%. In December 2004, Sumitomo Corporation acquired a
net 6.9% interest in Liberty Japan MC for a purchase price equal
to the same percentage of our investment in Mediatti. Sumitomo
has the option until February 2006 to increase its interest in
Liberty Japan MC to up to 50%, at a purchase price equal to the
greater of the then fair market value of the additional
interests so acquired and our investment in such interests.
Pursuant to a contribution agreement between Sumitomo and us, on
December 28, 2004, our approximate 45% equity
interest in J-COM and most of Sumitomos approximate 32%
equity interest in J-COM were combined in LMI/Sumisho Super
Media, LLC, which we refer to as Super Media. Prior to the
contribution agreement closing, Super Media was our wholly owned
subsidiary and owned an approximate 11.5% equity interest in
J-COM. At the closing, we contributed our remaining 33.5% equity
interest in J-COM to Super Media and Sumitomo contributed an
approximate 20% equity interest in J-COM to Super Media,
bringing Super Medias total equity interest in J-COM to
approximately 65%. Subject to certain conditions, Sumitomo has
the obligation to contribute to Super Media substantially all of
its remaining 12% equity interest in J-COM during 2005.
On January 17, 2005, chellomedia acquired an 87.5% interest
in Zone Vision Networks Ltd. from its current shareholders. Zone
Vision is a programming company that owns three pay television
channels and represents over 30 international channels. The
consideration for the transaction consisted of cash and
1.6 million shares of UGCs Class A common stock,
which are subject to a five-year vesting period. As part of the
transaction,
A1-3
chellomedia will contribute to Zone Vision the 49% shareholding
it already holds in Reality TV Ltd. and chellomedias Club
channel business.
On January 17, 2005, we entered into an agreement and plan
of merger with UGC pursuant to which we each would merge with a
separate wholly owned subsidiary of a new parent company named
Liberty Global, Inc., which we have formed for purposes of the
mergers. In the mergers, each outstanding share of our
Series A common stock and Series B common stock would
be exchanged for one share of the corresponding series of
Liberty Global common stock. Stockholders of UGC (other than us
and our wholly owned subsidiaries) may elect to receive for each
share of UGC common stock owned either 0.2155 of a share of
Liberty Global Series A common stock (plus cash instead of
any fractional share interest) or $9.58 in cash. Cash elections
will be subject to proration so that the aggregate cash
consideration paid to UGCs stockholders does not exceed
20% of the aggregate value of the merger consideration payable
to UGCs public stockholders. Completion of the
transactions is subject, among other conditions, to approval of
both companies stockholders, including in the case of UGC,
the affirmative vote of a majority of the voting power of the
UGC shares not beneficially owned by us, Liberty, any of our
respective subsidiaries or any of the executive officers or
directors of us, Liberty or UGC.
On February 9, 2005, J-COM entered into separate agreements
with Sumitomo Corporation, Microsoft Corporation and us to
acquire our respective interests in Chofu Cable, Inc., a small
Japanese broadband communications provider, for cash. Closing on
all three transactions is expected to occur at the end of
February 2005 and will result in J-COMs owning an
approximate 92% equity interest in Chofu Cable.
On February 10, 2005, UPC Broadband Holding, an indirect
wholly owned subsidiary of UGC, acquired 100% of the shares in
Telemach d.o.o., a broadband communications provider in Slovenia
for cash.
Narrative Description of Business
We offer a variety of broadband distribution services over our
cable television systems, including analog video, digital video,
Internet access and telephony. Available service offerings
depend on the bandwidth capacity of our cable systems and
whether they have been upgraded for two-way communications. In
select markets, we also offer video services through
direct-to-home satellite television distribution or
DTH. We operate our broadband distribution
businesses in Europe principally through our subsidiary UGC; in
Japan principally through our 45.45%-owned affiliate Jupiter
Telecommunications, Co., Ltd., which we refer to as J-COM; and
in Latin America principally through UGCs subsidiary VTR
GlobalCom S.A., our subsidiary Liberty Cablevision of Puerto
Rico Ltd., which we refer to as Puerto Rico Cable, and our
50%-owned affiliate Metrópolis-Intercom S.A., which we
refer to as Metrópolis.
The following table presents certain operational data, as of
December 31, 2004, with respect to the broadband
distribution systems of our subsidiaries and affiliates in
Europe, Japan and Latin America. For purposes of this
presentation, we refer to Puerto Rico, the islands of the
Caribbean and the countries of Central
A1-4
and South America collectively as Latin America. This table
reflects 100% of the operational data applicable to each
subsidiary or affiliate regardless of our ownership percentage.
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Video | |
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Homes in | |
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Homes | |
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Two-way | |
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Basic Cable | |
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DTH | |
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Digital Cable | |
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Service Area | |
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Passed | |
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Homes Passed | |
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Subscribers | |
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Subscribers | |
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Subscribers | |
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(1) | |
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(2) | |
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(3) | |
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(4) | |
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(5) | |
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(6) | |
Europe:
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UGC*
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Western Europe
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12,214,300 |
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9,528,600 |
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7,463,300 |
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5,223,500 |
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767,300 |
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Central and Eastern Europe
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5,159,300 |
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4,552,200 |
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1,739,800 |
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2,650,300 |
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245,100 |
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Total Europe
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17,373,600 |
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14,080,800 |
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9,203,100 |
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7,873,800 |
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245,100 |
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767,300 |
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Japan:
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J-COM**
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7,106,600 |
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6,861,800 |
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6,850,200 |
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1,592,500 |
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243,500 |
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Other
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1,047,800 |
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868,400 |
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868,400 |
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121,400 |
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6,200 |
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Total Japan
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8,154,400 |
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7,730,200 |
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7,718,600 |
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1,713,900 |
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249,700 |
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Latin America:
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UGC*
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VTR GlobalCom(11)
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2,350,000 |
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1,793,900 |
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1,070,700 |
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518,500 |
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4,500 |
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Other
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950,600 |
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82,200 |
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45,700 |
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21,400 |
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6,300 |
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Puerto Rico Cable
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425,000 |
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324,600 |
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302,800 |
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121,200 |
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43,700 |
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Metrópolis(11)
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2,250,000 |
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1,213,800 |
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224,000 |
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224,800 |
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7,500 |
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Total Latin America(11)
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5,975,600 |
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3,414,500 |
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1,643,200 |
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885,900 |
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4,500 |
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57,500 |
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Total
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31,503,600 |
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25,225,600 |
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18,564,900 |
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10,473,600 |
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249,600 |
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1,074,500 |
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Internet | |
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Telephony | |
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Homes | |
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Homes | |
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Serviceable | |
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Subscribers | |
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Serviceable | |
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Subscribers | |
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(7) | |
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(8) | |
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(9) | |
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(10) | |
Europe:
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UGC*
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Western Europe
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7,453,600 |
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1,042,000 |
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4,044,100 |
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424,600 |
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Central and Eastern Europe
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1,733,100 |
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178,500 |
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415,600 |
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68,900 |
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Total Europe
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9,186,700 |
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1,220,500 |
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4,459,700 |
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493,500 |
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Japan:
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J-COM**
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6,850,200 |
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751,600 |
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6,370,100 |
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773,000 |
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Other
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868,400 |
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60,300 |
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Total Japan
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7,718,600 |
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811,900 |
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6,370,100 |
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773,000 |
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Latin America:
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UGC*
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VTR GlobalCom(11)
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1,070,700 |
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176,300 |
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1,052,700 |
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310,000 |
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Other
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45,700 |
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4,300 |
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Puerto Rico Cable
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302,800 |
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20,500 |
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302,800 |
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9,000 |
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Metrópolis(11)
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224,000 |
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38,200 |
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224,000 |
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10,800 |
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Total Latin America(11)
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1,643,200 |
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239,300 |
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1,579,500 |
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329,800 |
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Total
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18,548,500 |
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2,271,700 |
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12,409,300 |
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1,596,300 |
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A1-5
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* |
Excludes systems owned by affiliates that are not consolidated
with UGC for financial reporting purposes. |
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** |
Includes managed systems owned by entities in which J-COM has an
equity interest but that are not consolidated with J-COM for
financial reporting purposes. Excludes managed systems owned by
Chofu Cable, Inc. in which J-COM had no equity interest at
December 31, 2004. On February 9, 2005, J-COM entered
into agreements to acquire a controlling interest in Chofu
Cable. Data for Chofu Cables systems are included under
Japan-Other in the table. Also excludes households to which
J-COM provides only retransmission services of terrestrial
television signals. |
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(1) |
Homes in Service Area are homes that can potentially be served
by our networks, based on census data and other market
information. |
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(2) |
Homes Passed are homes that can be connected to our networks
without further extending the distribution plant. As a result of
mapping audits, J-COM increased its homes passed by
approximately 800,000 homes during 2004. |
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(3) |
Two-way Homes Passed are homes passed by our networks where
customers can request and receive the installation of a two-way
addressable set-top converter, cable modem, transceiver and/or
voice port which, in most cases, allows for the provision of
video and Internet services and, in some cases, telephony
services. |
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(4) |
Basic Cable Subscriber is comprised of basic cable video
customers that are counted on a per connection basis. UGC has
lifeline customers that are counted on a per
connection basis, representing the least expensive regulated
tier of basic cable service, with only a few channels.
Commercial contracts such as hotels and hospitals are counted on
an equivalent bulk unit (EBU) basis. EBU is calculated by
dividing the bulk price charged to accounts in an area by the
most prevalent price charged to non-bulk residential customers
in that market for the comparable tier of service. In some
cases, non-paying subscribers are counted as subscribers during
their free promotional service period. Some of these subscribers
choose to disconnect after their free service period. |
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(5) |
DTH Subscriber is a home or commercial unit that receives our
video programming broadcast directly to the home via a
geosynchronous satellite. |
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(6) |
Digital Cable Subscriber is a customer with one or more digital
converter boxes that also receives our digital video service. A
Digital Cable Subscriber is counted as one Basic Cable
Subscriber. |
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(7) |
Internet Homes Serviceable are homes that can be connected to
our networks, where customers can request and receive Internet
access services. |
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(8) |
Internet Subscriber is a home or commercial unit with one or
more cable modems connected to our networks, where a customer
has requested and is receiving high-speed Internet access
services. |
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(9) |
Telephony Homes Serviceable are homes that can be connected to
our networks, where customers can request and receive voice
services. |
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(10) |
Telephony Subscriber is a home or commercial unit connected to
our networks, where a customer has requested and is receiving
voice services. |
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(11) |
VTR GlobalCom and Metrópolis-Intercom operate in the same
geographic area. Consequently, many of the same homes are
included in the data presented. |
We own programming networks that provide video programming
channels to multi-channel distribution systems owned by us and
by third parties. We also represent programming networks owned
by others. Our programming networks distribute their services
through a number of distribution technologies, principally cable
television and DTH. Programming services may be delivered to
subscribers as part of a video distributors basic package
of programming services for a fixed monthly fee, or may be
delivered as a premium programming service for an
additional monthly charge or on a pay-per-view basis. Whether a
programming service is on a basic or premium tier, the
programmer generally enters into separate affiliation
agreements, providing for terms of one or more years, with those
distributors that agree to carry the service. Basic programming
services derive their revenues from per-subscriber license fees
received from distributors and the sale of advertising time on
their networks or, in the case of shopping channels, retail
sales. Premium services generally do not sell advertising and
A1-6
primarily generate their revenues from subscriber fees.
Programming providers generally have two sources of content:
(1) rights to productions that are purchased from various
independent producers and distributors, and (2) original
productions filmed for the programming provider by internal
personnel or contractors. We operate our programming businesses
in Europe principally through the chellomedia division of UGC;
in Japan principally through our affiliate Jupiter Programming
Co., Ltd., which we refer to as JPC; and in Latin America
principally through our subsidiary, Pramer S.C.A.
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Europe UnitedGlobalCom, Inc. |
Our European operations are conducted primarily through
UnitedGlobalCom, Inc. We currently own an approximate 53.6%
common equity interest, representing an approximate 91.0% voting
interest, in UGC. UGC is one of the largest broadband
communications providers, in terms of aggregate number of
subscribers and homes passed, outside the United States. UGC
provides video distribution services and/or Internet access and
telephony services in 16 countries worldwide.
UGCs European operations are conducted through its wholly
owned subsidiary, UGC Europe, Inc., which provides services in
13 countries in Europe. UGC Europes operations are
currently organized into two principal divisions: UPC Broadband
and chellomedia. Through its UPC Broadband division, UGC Europe
provides video, high-speed Internet access and telephony
services over its networks and operates the largest cable
network in each of The Netherlands, France, Austria, Poland,
Hungary, Czech Republic, Slovak Republic and Slovenia and the
second largest cable network in Norway, in each case in terms of
number of subscribers. UGC Europes high-speed Internet
access service is provided over the UPC Broadband network
infrastructure generally under the brand name chello. Depending
on the capacity of the particular network, UGC Europe may
provide up to five tiers of high-speed Internet access: chello
starter, chello entry, chello light, chello classic and chello
plus. For information concerning the chellomedia division, see
chellomedia and Other.
Provided below is country-specific information with respect to
the broadband distribution services of the UPC Broadband
division:
UGC Europes networks in The Netherlands, which we refer to
as UGC-Netherlands, passed approximately 2.6 million homes
and had approximately 2.3 million basic cable subscribers,
397,400 Internet subscribers and 182,100 telephony subscribers
as of December 31, 2004. Over 30% of Dutch households
receive at least analog cable service from UGC-Netherlands.
UGC-Netherlands subscribers are located in six regional
clusters, including the major cities of Amsterdam and Rotterdam.
Its networks are approximately 95% upgraded to two-way
capability, with approximately 94% of its basic cable
subscribers served by a system with a bandwidth of at least
860 MHz.
UGC-Netherlands provides analog cable services to approximately
87% of its homes passed. Approximately 82% of
UGC-Netherlands homes passed are capable of receiving
digital cable service. UGC-Netherlands offers its digital cable
subscribers a basic package of 58 channels with an option to
subscribe for up to 15 additional general entertainment, movie,
sports, music and ethnic channels and an electronic program
guide. UGC-Netherlands digital cable service also offers
56 channels of near-video-on-demand, or NVOD,
services and interactive services, including television-based
email, to approximately 57% of its homes passed.
UGC-Netherlands offers five tiers of chello brand high-speed
Internet access service with download speeds ranging from
256 Kbps to 8 Mbps. Approximately 17% of its basic
cable subscribers also receive its Internet access service,
representing approximately 100% of its Internet subscribers.
Multi-feature telephony services are available from
UGC-Netherlands to approximately 62% of its homes passed.
Approximately 8% of its basic cable subscribers also receive its
telephony services, representing approximately 100% of its
telephony subscribers. In September 2004, UGC-Netherlands
began offering telephony services to its two-way homes passed by
applying Voice-over-Internet Protocol or VoIP.
A1-7
In early 2004, UGC-Netherlands launched self-install for all of
its Internet access services, allowing subscribers to install
the technology themselves and save money on the installation
fee. UGC-Netherlands also launched self-install for its digital
cable services in June 2004. Approximately 50% of its new
Internet subscribers have chosen to self-install their new
service, and approximately 30% of its new digital subscribers
have chosen to self-install their new service.
UGC Europes networks in France (including Noos), which we
refer to as UGC-France, passed approximately 4.6 million
homes and had 1.5 million basic cable subscribers, 247,100
Internet subscribers and 66,600 telephony subscribers as of
December 31, 2004. Its major operations are located in
Paris and its suburbs including the Marne la Vallee area east of
Paris, Strasbourg, Orleans, Le Mans, the suburbs of Lyon, the
southeast region, and other operations spread throughout France.
Its network is approximately 72% upgraded to two-way capability,
with approximately 90% of its basic cable subscribers served by
a system with a bandwidth of at least 750 MHz.
In 2004, UGC-France extended the reach of its digital cable
platform, which is now available to approximately 90% of its
homes passed. The digital platform offers a number of options in
terms of packages from 52 channels for the
entry-level tier to more than 100 channels for the premium tier.
Programming includes series, general entertainment, youth,
sports, news, documentary, music, lifestyle and foreign
channels. With all tiers, UGC-France offers a number of movie
premium packages, a pay-per-view service, numerous a la
carte channels and several Canal+ channels. UGC-France
intends to migrate most of its analog cable subscribers to this
new digital platform.
UGC-France offers three tiers of chello and Noos brand
high-speed Internet access service with download speeds ranging
from 512 Kbps to 10 Mbps. Approximately 12% of its
basic cable subscribers also receive Internet service,
representing approximately 75% of its Internet subscribers.
Multi-feature telephony services are available from UGC-France
to approximately 15% of its homes passed.
Suez SA owns a 19.9% equity interest in UGC-France. Subject to
the terms of a call option, the indirect wholly owned subsidiary
of UGC that holds the remaining 80.1% equity interest in
UGC-France, which we refer to as UGC France Holdco, has the
right through June 30, 2005 to purchase from Suez all of
its equity interest in UGC- France for
85,000,000,
subject to adjustment, plus interest. The purchase price may be
paid in cash, shares of UGCs Class A common stock or
shares of our Series A common stock. Subject to the terms
of a put option, Suez may require UGC France Holdco to purchase
Suezs equity interest in UGC-France at specified times
prior to or after July 1, 2007, July 1, 2008 or
July 1, 2009 for the then fair market value of such equity
interest or assist Suez in obtaining an offer to purchase its
equity interest in UGC-France. UGC France Holdco also has the
option to purchase Suezs equity interest in UGC-France
during specified periods shortly after July 1, 2007,
July 1, 2008 and July 1, 2009 at the then fair market
value of such equity interest payable in cash or marketable
securities.
UGC Europes networks in Austria, which we refer to as
UGC-Austria, passed 946,900 homes and had 501,400 basic cable
subscribers, 242,500 Internet subscribers and 152,500 telephony
subscribers as of December 31. 2004. UGC-Austrias
subscribers are located in regional clusters encompassing the
capital city of Vienna, two other regional capitals and two
smaller cities. Each of the cities in which it operates owns,
directly or indirectly, 5% of the local operating company of
UGC-Austria. UGC-Austrias network is almost entirely
upgraded to two-way capability, with approximately 97% of its
basic cable subscribers served by a system with a bandwidth of
at least 750 MHz.
UGC-Austria provides a single offering to its analog cable
subscribers that consists of 34 channels, mostly in the
German language. UGC-Austrias digital platform offers more
than 100 basic and premium TV channels, plus NVOD, interactive
services, television-based e-mail and an electronic program
guide. UGC-Austrias premium content includes first run
movies, as well as specific ethnic offerings, including Serb and
Turkish channels.
A1-8
UGC-Austria offers five tiers of chello brand high-speed
Internet access service with download speeds ranging from
256 Kbps to 2.6 Mbps. UGC-Austrias high-speed
Internet access is available in all of the cities in its
operating area. Approximately 37% of its basic cable subscribers
also receive its Internet access service, representing
approximately 76% of its Internet subscribers.
Multi-feature telephony services are available from UGC-Austria
to approximately 96% of its homes passed. UGC-Austria offers
basic dial tone service as well as value-added services.
UGC-Austria also offers a bundled product of fixed line and
mobile telephony services in cooperation with the third largest
mobile phone operator in Austria under the brand Take
Two. More than 100,000 of its telephony subscribers
subscribe to this product. Approximately 22% of
UGC-Austrias basic cable subscribers also receive its
telephony service, representing approximately 72% of its
telephony subscribers.
UGC Europes networks in Norway, which we refer to as
UGC-Norway, passed 486,600 homes and had 341,000 basic cable
subscribers, 48,500 Internet subscribers and 22,900 telephony
subscribers as of December 31, 2004. Its main network is
located in Oslo and its other systems are located primarily in
the southeast and along Norways southwestern coast.
UGC-Norways networks are approximately 50% upgraded to
two-way capability, with approximately 30% of its basic cable
subscribers served by a system with a bandwidth of at least
860 MHz. Digital cable services are offered to
approximately 39% of UGC-Norways homes passed.
UGC-Norway has a basic analog cable package with 15 channels,
and a plus-package with 23 channels. UGC-Norways highest
analog tier, the total package, includes the plus-package and 12
additional channels. Customers can also subscribe to premium
channels, such as movie, sports and ethnic channels.
Approximately 60% of UGC-Norways basic cable subscribers
consist of multi-dwelling units, or MDUs, with a
discounted pricing structure.
UGC-Norways basic digital cable package consists of 29
channels. Its upper-level digital package includes an additional
21 channels. Subscribers to the basic digital cable package can
subscribe to channels from the upper-level digital package for
an additional fee. Different movie, sports, entertainment and
ethnic channels may be selected from an a la carte menu for a
per-channel fee. To complement its digital offering, UGC-Norway
launched 48 channels of NVOD service in 2004.
UGC-Norway offers five tiers of chello brand high-speed Internet
access service with download speeds ranging from 256 Kbps
to 4 Mbps. Approximately 14% of its basic cable subscribers
also receive its Internet service, representing approximately
100% of its Internet subscribers.
Multi-feature telephony services are available from UGC-Norway
to approximately 31% of its homes passed. Approximately 7% of
its basic cable subscribers also receive telephony service,
representing approximately 100% of its telephony subscribers.
UGC Europes network in Sweden, which we refer to as
UGC-Sweden, passed 421,600 homes and had 292,300 basic cable
subscribers and 76,000 Internet subscribers as of
December 31, 2004. It operates in the greater Stockholm
area on leased fiber from Stokab AB, a city controlled entity
with exclusive rights to lay cable ducts for communications or
broadcast services in the city of Stockholm. These lease terms
vary from 10 to 25 years, and expire beginning in 2012
through 2018. UGC-Sweden does not offer telephony service. Its
network is approximately 67% upgraded to two-way capability,
with all of its basic cable subscribers served by a system with
a bandwidth of at least 550 MHz.
UGC-Sweden provides all of its basic cable subscribers with a
lifeline service consisting of four must-carry
channels. In addition to this lifeline service, UGC-Sweden
offers an analog cable package with 12 channels and a digital
cable package with up to 80 channels. Its program offerings
include domestic, foreign, sport and premium movie channels, as
well as digital event channels such as seasonal sport and real
life entertainment events. Approximately 39% of the homes served
by UGC-Swedens network subscribe to the
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lifeline analog cable service only. Approximately 13% of its
basic cable subscribers are digital cable subscribers. To
complement its digital offering, UGC-Sweden launched 24 channels
of NVOD service in 2004.
UGC-Sweden offers five tiers of chello brand high-speed Internet
access service with download speeds ranging from 128 Kbps
to 8 Mbps. Approximately 26% of its basic cable subscribers
subscribe to its Internet service, representing approximately
100% of its Internet subscribers.
UGC Europes network in Belgium, which we refer to as
UGC-Belgium, passed 155,500 homes and had 134,900 basic cable
subscribers and 29,900 Internet access subscribers as of
December 31, 2004. Its operations are located in certain
areas of Leuven and Brussels, the capital city of Belgium.
UGC-Belgium does not offer telephony service. UGC-Belgiums
network is fully upgraded to two-way capability, with all of its
basic cable subscribers served by a system with a bandwidth of
860 MHz.
UGC-Belgiums analog cable service, consisting of all
Belgium terrestrial channels, regional channels and selected
European channels, offers 41 channels in Brussels and
39 channels in Leuven. In both regions, UGC-Belgium offers
an expanded analog cable package, including a starters
pack of three channels that can be upgraded to
15 channels in Leuven and 17 channels in Brussels.
This programming generally includes a selection of European and
United States thematic satellite channels, including sports,
kids, adult, and nature, movies and entertainment channels.
UGC-Belgium also distributes three premium channels that are
provided by Canal+, two in Brussels and one in Leuven.
UGC-Belgium offers five tiers of chello brand high-speed
Internet access service with download speeds ranging from
256 Kbps to 16 Mbps. Approximately 12% of its basic
cable subscribers also receive Internet access service,
representing approximately 56% of its Internet subscribers.
Through its indirect wholly owned subsidiary, Belgian Cable
Holding, UGC Europe holds 78.4% of the common equity and 100% of
the preferred equity of Belgian Cable Investors, L.L.C. Cable
Partners Europe LLC, which we refer to as CPE, owns the
remaining 21.6% of the common equity of Belgian Cable Investors.
Belgian Cable Investors in turn holds an indirect 14.1% economic
interest in Telenet Group Holding NV, and certain call options,
expiring in 2007 and 2009, to acquire 11.6% and 17.6%
respectively, of the outstanding equity of Telenet from existing
shareholders. Belgian Cable Investors indirect 14.1%
interest in Telenet results from its majority ownership of two
entities, which we refer to as the InvestCos, that hold in the
aggregate 18.99% of the stock of Telenet, and a shareholders
agreement among Belgian Cable Investors and three unaffiliated
investors in the InvestCos that governs the voting and
disposition of 21.36% of the stock of Telenet, including the
stock held by the InvestCos. Telenet is Belgiums largest
cable system operator in terms of number of subscribers.
Pursuant to the agreement with CPE governing Belgian Cable
Investors, CPE has the right to require Belgian Cable Holdings
to purchase all of CPEs interest in Belgian Cable
Investors for the appraised fair market value of such interest
during the first 30 days of every six-month period
beginning in December 2007. Belgian Cable Holdings has the
corresponding right to require CPE to sell all of its interest
in Belgian Cable Investors to Belgian Cable Holdings for
appraised fair market value during the first 30 days of
every six-month period following December 2009.
UGC Europes networks in Poland, which we refer to as
UGC-Poland, passed approximately 1.9 million homes and had
approximately 1 million basic cable subscribers and 53,400
Internet subscribers as of December 31, 2004.
UGC-Polands subscribers are located in regional clusters
encompassing eight of the ten largest cities in Poland,
including Warsaw and Katowice. UGC-Poland does not offer
telephony service. Approximately 30% of its networks are
upgraded to two-way capability, with approximately 96% of its
basic cable subscribers served by a system with a bandwidth of
at least 550 MHz. UGC-Poland continues to upgrade portions
of its network that have bandwidths below 550 MHz to
bandwidths of at least 860 MHz.
UGC-Poland offers analog cable subscribers three packages of
cable television service. Its lowest tier, the broadcast
package, includes 4 to 12 channels and the intermediate package
includes 13 to 22 channels. The
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higher tier, the full package, includes the broadcast package
plus up to 30 additional channels with such themes as sports,
kids, science/educational, news, film and music. For an
additional monthly charge, UGC-Poland offers two premium
television services, the HBO Poland service and Canal+
Multiplex, a Polish-language premium package of three movie,
sport and general entertainment channels.
UGC-Poland offers three different tiers of chello brand
high-speed Internet access service in portions of its network
with download speeds ranging from 512 Kbps to 3 Mbps.
UGC-Poland is currently expanding its Internet ready network in
Warsaw, Krakow, Gdansk and Katowice and began providing Internet
access services in Szczecin and Lublin in the second quarter of
2004. Approximately 5% of its basic cable subscribers also
receive its Internet service, representing approximately 88% of
its Internet subscribers.
UGC Europes networks in Hungary, which we refer to as
UGC-Hungary, passed approximately 1 million homes and had
720,900 basic cable subscribers, 140,400 DTH subscribers, 73,200
Internet subscribers and 68,900 telephony subscribers, as of
December 31, 2004. Approximately 67% of its networks are
upgraded to two-way capability, with 50% of its basic cable
subscribers served by a system with a bandwidth of at least
750 MHz.
UGC-Hungary offers up to four tiers of analog cable programming
services (between 4 and 60 channels) and two premium
channels, depending on the technical capability of the network.
Programming consists of the national Hungarian terrestrial
broadcast channels and selected European satellite and local
programming that consists of proprietary and third party
channels.
UGC-Hungary offers three tiers of chello brand high-speed
Internet access service with download speeds ranging from
512 Kbps to 3 Mbps. UGC-Hungary offers these broadband
Internet services to 69,200 subscribers in fourteen cities,
including Budapest. It also had 4,000 asymmetric digital
subscriber line, or ADSL, subscribers at
December 31, 2004. Approximately 6% of its basic cable
subscribers also receive its Internet service, representing
approximately 55% of its Internet subscribers.
Monor Telefon Tarsasag Rt., one of UGC-Hungarys operating
companies, offers traditional switched telephony services over a
twisted copper pair network in the southeast part of Pest
County. In September 2004, UGC-Hungary began offering VoIP
telephony services over its cable network in Budapest. As of
December 31, 2004, UGC-Hungary had 68,900 telephony
subscribers, including 5,200 VoIP subscribers.
UGC Europes network in the Czech Republic, which we refer
to as UGC-Czech, passed 729,000 homes and had 295,700 basic
cable subscribers, 90,100 DTH subscribers and 42,400 Internet
subscribers as of December 31, 2004. Its operations are
located in more than 80 cities and towns in the Czech
Republic, including Prague and Brno, the two largest cities in
the country. Approximately 44% of its networks are upgraded to
two-way capability, with 40% of its basic cable subscribers
served by a system with a bandwidth of at least 750 MHz.
UGC-Czech offers two tiers of analog cable programming services,
with up to 31 channels, and two premium channels.
UGC-Czech offers four tiers of chello brand high-speed Internet
access service with download speeds ranging from 256 Kbps
to 6 Mbps. Approximately 9% of its basic cable subscribers
also receive its Internet service, representing approximately
64% of its Internet subscribers.
UGC Europes networks in Romania, which we refer to as
UGC-Romania, passed 518,700 homes and had 357,000 basic cable
subscribers, as of December 31, 2004. UGC-Romanias
systems served 34 cities in Romania with 75% of its
subscriber base in six cities: Timisoara, Cluj, Ploiesti,
Focsani, Bacau and Botosani. UGC-Romania is currently test
marketing, on a limited basis, an Internet access product in two
of its main systems. Approximately 1% of its networks are
upgraded to two-way capability, with 75% of its basic cable
subscribers served by a system with a bandwidth of at least
550 MHz. UGC-Romania continues to upgrade its medium size
systems to 550 MHz.
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UGC-Romania offers analog cable service with 24 to 36 channels
in all of its cities, which include Romanian terrestrial
broadcast channels, European satellite programming and regional
local programming. Three extra basic packages of 6 to
18 channels each are offered in Timisoara, Ploiesti, Cluj
and Bacau. Premium Pay TV (HBO Romania) is offered in
13 cities.
UGC Europes network in the Slovak Republic, which we refer
to as UGC-Slovak, passed 413,200 homes and had 282,500 basic
cable subscribers, 14,600 DTH subscribers and 9,200 Internet
subscribers as of December 31, 2004. Approximately 41% of
its networks are upgraded to two-way capability, with 25% of its
basic cable subscribers served by a system with a bandwidth of
at least 750 MHz. In some areas like Bratislava, the
capital city, its network is 98% upgraded to two-way capability.
UGC-Slovak offers two tiers of analog cable service and three
premium services. Its lower-tier, the lifeline package, includes
4 to 9 channels. UGC-Slovaks most popular tier, the
basic package, includes 16 to 42 channels that generally
offer all Slovak terrestrial, cable and local channels, selected
European satellite programming and other third-party
programming. For an additional monthly charge, UGC-Slovak offers
three premium services HBO, Private Gold and the UPC
Komfort package consisting of six thematic third-party channels.
In Bratislava, UGC-Slovak offers five tiers of chello brand
high-speed Internet access service with download speeds ranging
from 256 Kbps to 2 Mbps. Approximately 3% of its basic
cable subscribers also receive Internet access service,
representing approximately 85% of its Internet subscribers.
UGC Europes network in Slovenia, acquired in
February 2005, which we refer to as UGC-Slovenia, is the
largest broadband communications provider in Slovenia in terms
of number of subscribers, with over 100,000 basic cable
subscribers and 10,000 Internet subscribers at December 31,
2004.
UGC Slovenia offers analog cable service and one premium movie
service. UGC Slovenias most popular tier, the basic
package, includes on average 50 video and 20 radio
channels and generally offers all Slovenian terrestrial, cable
and local channels, selected European satellite programming and
other third-party programming. For an additional monthly charge,
UGC Slovenia offers one premium movie service.
UGC Slovenia offers five tiers of high-speed Internet access
service with download speeds ranging from 128 Kbps to
2 Mbps.
Princes Holdings Limited, through its subsidiary, Chorus
Communication Limited, is Irelands largest cable and
multi-point multi-channel distribution system, or
MMDS, company outside of Dublin based on customers
served. Chorus provided video services to approximately 202,700
customers and Internet access services in portions of its
network as of December 31, 2004.
UGC Europes chellomedia division provides interactive
digital products and services, produces and markets thematic
channels, operates UGC Europes digital media center,
operates a competitive local exchange carrier, or
CLEC, business under the brand name Priority Telecom
and owns or manages UGCs investments in various businesses
in Europe. Below is a description of the operations of the
chellomedia division:
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Interactive Services. We expect the development of
interactive television services to play an important role in
increasing subscriptions to UGC Europes digital television
offerings. The chellomedia divisions Interactive Services
Group is responsible for developing its core digital products,
such as an electronic program guide, walled garden,
television-based email, and PC/ TV portals as well as other
television and PC-based applications supporting various areas,
including communications services and enhanced |
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television services. A base set of interactive services has been
launched by UGC-Netherlands and UGC-Austria, as discussed above. |
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Transactional Television. Transactional
television, branded as Arrivo, is another component
of UGC Europes digital service offerings. UGC-Netherlands
currently offers 42 channels of NVOD programming and UGC-Austria
currently offers 56 channels of NVOD programming. Arrivo
provides digital customers with a wide range of Hollywood
blockbusters and other movies. Arrivo is also in the process of
developing video-on-demand, or VOD, services for UGC
Europes UPC Broadband division and third-party cable
operators. The VOD service will provide VOD subscribers with
enhanced playback functionality and will give subscribers access
to a broad array of on-demand programming, including movies,
live events, local drama, music videos, kids programming and
adult programming. |
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Pay Television. UPCtv, a wholly owned subsidiary
of UGC Europe, produces and markets its own pay television
products, currently consisting of three thematic channels. The
channels target the following genres: extreme sports and
lifestyles; womens information and entertainment; and real
life documentaries. All three channels originate from UGC
Europes digital media center located in Amsterdam. The
DMC is a technologically advanced production
facility that services UPCtv and third-party clients with
channel origination, post-production and satellite and fiber
transmission. The DMC delivers high-quality, customized
programming by integrating different video elements, languages
(either in dubbed or sub-titled form) and special effects, then
transmits the final product to various customers in numerous
countries through affiliated and unaffiliated cable systems and
DTH platforms. |
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Priority Telecom. Priority Telecom is a
facilities-based business telecommunications provider that
provides voice services, high-speed Internet access, private
data networks and customized network services to over 7,000
business customers primarily in its core metropolitan markets in
The Netherlands, Austria and Norway. UGC Europe owns an
approximate 72% economic interest in Priority Telecom. |
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Investments. Chellomedia is an investor in branded
equity ventures for the development of country-specific
programming, including Iberian Programming Services, Xtra Music,
MTV Networks Polska, Fox Kids Poland and Sports 1. In
January 2005, chellomedia acquired an 87.5% interest in
Zone Vision Networks Ltd. Zone Vision owns and operates three
thematic programming channels, Reality TV, Europa Europa
and Romantica, which are broadcast in over 125 countries
in 18 languages and represents over 30 international
programming channels. Zone Visions minority shareholders
have the right to put 60% of their 12.5% shareholding to
chellomedia on the third anniversary, and 100% of their
shareholding on the fifth anniversary, of completion of the
transaction. Chellomedia has corresponding call rights. The
price payable upon exercise of the put or call will be the fair
market value of the shareholdings purchased. |
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Chellomedia also owns or manages UGCs minority interests
in other businesses. These include a 25% interest in PrimaCom
AG, which owns and operates a cable television and broadband
network in Germany and The Netherlands, a 50% interest in Melita
Cable PLC, the only cable television and broadband network in
Malta, a 25% interest in Telewizyjna Korporacja Partycypacyjna
S.A., a DTH programming platform in Poland, and the recently
acquired indirect investment in Telenet Group Holding NV through
Belgian Cable Investors. |
Standstill Agreement with UGC. We have entered
into a standstill agreement with UGC pursuant to which we may
not acquire more than 90% of UGCs outstanding common stock
unless we make an offer or otherwise effect a transaction to
acquire all of the outstanding common stock of UGC not already
owned by us. Under certain circumstances, such an offer or
transaction would require an independent appraisal to determine
the price to be paid to shareholders unaffiliated with our
company. In addition, we are entitled to preemptive rights with
respect to certain issuances of UGC common stock.
We also own approximately 27% of the outstanding shares of The
Wireless Group plc, which represents an approximate 22% economic
interest. The Wireless Group is a commercial radio group in the
United Kingdom
A1-13
that operates talkSPORT, a nationwide commercial radio station
dedicated to sports, in addition to local and regional stations
in North West England, South Wales and Scotland.
UGC owns an approximate 19% equity interest in SBS Broadcasting
S.A., a European commercial television and radio broadcasting
company.
Our Japanese operations are conducted primarily through our
affiliate Jupiter Telecommunications Co., Ltd., which we refer
to as J-COM, and our affiliate Jupiter Programming Co., Ltd.,
which we refer to as JPC. As of December 31, 2004, we owned
an approximate 45% indirect ownership interest in J-COM and a
50% ownership interest in JPC. As of December 31, 2004, we
also held approximate 31% and 35% ownership interests,
respectively, in Chofu Cable, Inc. and Mediatti Communications,
Inc., two smaller Japanese broadband communications providers.
Subsequent to December 31, 2004, we entered into an
agreement to sell our interest in Chofu Cable to J-COM.
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Jupiter Telecommunications Co., Ltd. |
J-COM is a leading broadband provider of bundled entertainment,
data and communication services in Japan. J-COM is currently the
largest multiple-system operator, or MSO, in Japan,
as measured by the total number of homes passed and customers.
J-COM operates its broadband networks through 19 managed local
cable companies, which J-COM refers to as its managed
franchises, 16 of which are consolidated subsidiaries. Eighteen
of J-COMs managed franchises are clustered around three
metropolitan areas of Japan, consisting of the Kanto region
(which includes Tokyo), the Kansai region (which includes Osaka
and Kobe) and the Kyushu region (which includes Fukuoka and
Kita-Kyushu). In addition, J-COM owns and manages a local
franchise in the Sapporo area of Japan that is not part of a
cluster.
Each managed franchise consists of headend facilities receiving
television programming from satellites, traditional terrestrial
television broadcasters and other sources, and a distribution
network composed of a combination of fiber-optic and coaxial
cable, which transmits signals between the headend facility and
the customer locations. Almost all of J-COMs networks are
upgraded to two-way capability, with all of its cable
subscribers served by a system with a bandwidth of 750 or
770 MHz. J-COM provides its managed franchises with
experienced personnel, operating and administrative services,
sales and marketing, training, programming and equipment
procurement assistance and other management services. Each of
J-COMs managed franchises uses J-COMs centralized
customer management system to support sales, customer and
technical services, customer call centers and billing and
collection services.
J-COM provides analog and digital cable services in all of its
managed franchises. J-COM offers its analog cable subscribers
approximately 47 channels, consisting of terrestrial broadcasts,
satellite-delivered and local community programs, including
news, sports, kids, movies and entertainment channels.
J-COMs digital cable subscribers receive approximately 59
channels, not including audio and data channels and premium
services. The channel lineup offered through J-COMs
digital cable service is generally similar to channels offered
in its analog package, but digital broadcasts can be offered in
high-definition television format. For an additional fee,
digital cable subscribers can receive up to 9 additional
premium channels, including movies, animation, adult
entertainment and live events. J-COM offers package discounts to
customers who subscribe to bundles of J-COM services. In
addition to the services offered to its cable television
subscribers, J-COM also provides terrestrial broadcast
retransmission services to approximately 3.0 million
additional households as of December 31, 2004.
J-COM offers high-speed Internet access in all of its managed
franchises through its wholly owned subsidiary, @NetHome Co.,
Ltd, and through its affiliate, Kansai Multimedia Services.
J-COM holds a 25.8% interest in Kansai Multimedia, which
provides high-speed Internet access in the Kansai region of
Japan. These Internet access services offer downstream speeds of
either 8 Mbps or 30 Mbps and 2 Mbps upstream.
Approximately 578,600 of J-COMs cable subscribers also
receive Internet service, representing approximately 77% of its
Internet subscribers.
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J-COM currently offers telephony services over its own network
in 16 of its 19 franchise areas. In these franchise areas,
J-COMs headend facilities contain equipment that routes
calls from the local network to J-COMs telephony switches,
which in turn transmit voice signals and other information over
the network. J-COM currently provides a single line to the
majority of its telephony customers, most of whom are
residential customers. J-COM charges its telephony subscribers a
flat fee for basic telephony service (together with charges for
calls made) and offers additional premium services, including
call-waiting, call-forwarding, caller identification and three
way calling, for a fee. Approximately 599,300 of J-COMs
cable subscribers also receive telephony service, representing
approximately 78% of its telephony subscribers. In
February 2005, J-COM started a trial telephony service
using VoIP technology in its Sapporo franchise.
In addition to its 19 managed franchises, J-COM owns
non-controlling equity interests, between 5.5% and 20.4%, in
three cable franchises and an MSO that are operated and managed
by third-party franchise operators.
J-COM sources its programming through multiple suppliers
including its affiliate, JPC. J-COMs relationship with JPC
enables the two companies to work together to identify and bring
key programming genres to the Japanese market and to expedite
the development of quality programming services. J-COM and JPC
each currently owns a 50% interest in Jupiter VOD Co., Ltd., a
joint venture formed in 2004 to obtain video-on-demand, or
VOD, programming content to offer VOD services to
J-COM franchises. J-COM began offering VOD services to its
digital customers on a trial basis in 2004 and anticipates
rolling-out VOD service in all of its franchises in 2005.
Because J-COM is usually a programmers largest cable
customer in Japan, J-COM is generally able to negotiate
favorable terms with its programmers.
Our interest in J-COM is currently held through LMI/ Sumisho
Super Media, LLC, an entity that is owned approximately 70% by
us and 30% by Sumitomo Corporation. Pursuant to a contribution
agreement between Sumitomo and us, on December 28, 2004,
our approximate 45% ownership interest in J-COM and
substantially all of Sumitomos approximate 32% ownership
interest in J-COM was combined in LMI/Sumisho Super Media, LLC,
which we refer to as Super Media. Prior to the contribution
agreement closing, Super Media was our wholly owned subsidiary
and owned an approximate 11.5% ownership interest in J-COM. At
closing of the contribution agreement, our remaining 33.5%
ownership interest in J-COM was contributed to Super Media by
our four other subsidiaries who held J-COM shares and Sumitomo
contributed approximately a 20% ownership interest in J-COM to
Super Media, bringing Super Medias total ownership
interest in J-COM to approximately 65% as of the contribution
closing date. Subject to certain conditions, Sumitomo has the
obligation to contribute substantially all of its remaining 12%
ownership interest in J-COM to Super Media during 2005. Also,
Sumitomo and we are generally required to contribute to Super
Media any additional shares of J-COM that either of us acquires
and to permit the other party to participate in any additional
acquisition of J-COM shares during the term of Super Media.
Our interest in Super Media is held through five separate
corporations, four of which are wholly owned. Several
individuals, including two of our executive officers and one of
our directors, own common stock representing an aggregate of 20%
of the common equity in the fifth corporation, which owns an
approximate 5.4% interest in J-COM through its ownership in
Super Media.
Super Media is managed by a management committee consisting of
two members, one appointed by us and one appointed by Sumitomo.
If J-COM launches an initial public offering of its shares in
Japan, the management
committee member appointed by us will have a casting or deciding
vote with respect to any management committee decision that we
and Sumitomo are unable to agree on (with the exception of the
terms of any initial public offering of J-COM shares), which
casting vote will remain in effect for the term of Super Media.
Certain decisions with respect to Super Media require the
consent of both members rather than the management committee.
These include a decision to engage in any business other than
holding J-COM shares, sell J-COM shares, issue additional units
in Super Media, make in-kind distributions or dissolve Super
Media, in each case other than as contemplated by the Super
Media operating agreement.
If our casting vote becomes effective, we will indirectly
control J-COM through our control of Super Media, which will
have a controlling financial interest in J-COM. Accordingly, we
would then begin consolidating J-COMs results of
operations for accounting purposes. Super Media will be
dissolved five years after our casting
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vote becomes effective unless Sumitomo and we mutually agree to
extend the term. Super Media may also be dissolved earlier under
certain circumstances.
Our other primary partner in J-COM is Microsoft Corporation,
which will continue to separately hold its 19.5% ownership
interest in J-COM. Super Media has succeeded to all of our
rights and substantially all of Sumitomos rights under the
current J-COM stockholders agreement with Microsoft, which
agreement continues in effect until the earlier to occur of an
initial public offering of J-COM shares or February 12,
2008. Pursuant to that agreement, each of Super Media, Sumitomo
and Microsoft have granted to the other a right of first offer
with respect to any transfer of our respective interests in
J-COM to a third party. Microsoft also has tag-along rights with
respect to certain sales of J-COM stock by Super Media, and
Super Media has drag-along rights as to Microsoft with respect
to certain sales of its J-COM stock. Super Media is also
entitled to certain preemptive rights with respect to any new
issuance of J-COM securities.
While Super Media will effectively have the ability to elect
J-COMs entire board, Super Media, Sumitomo and Microsoft
have agreed, pursuant to the J-COM stockholders agreement
described above, to vote their respective shares in favor of the
election to J-COMs board of two non-executive directors
designated by Microsoft. Microsoft also has the right to
challenge certain types of transactions and to require review by
an independent advisor based on specified criteria. Pursuant to
the Super Media Operating Agreement, Super Media is required to
vote its J-COM shares in favor of the election to J-COMs
board of three non-executive directors designated by Sumitomo
and three non-executive directors designated by us.
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Jupiter Programming Co., Ltd. |
JPC is a joint venture between Sumitomo and us that was formed
to develop, manage and distribute to cable television and DTH
providers cable and satellite television channels in Japan. As
of December 31, 2004, JPC owned five channels through
wholly or majority-owned subsidiaries and had investments
ranging from approximately 10% to 50% in eleven additional
channels. JPCs majority owned channels are a movie channel
(Movie Plus), a golf channel (Golf Network), a
shopping channel (Shop Channel, in which JPC has a 70%
interest and Home Shopping Network has a 30% interest), a
womens entertainment channel (LaLa TV), and a video
game information channel (Channel BB). Channels in which
JPC holds investments include three sports channels owned by J
Sports Broadcasting Corporation, a 43% owned joint venture with
News Television B.V., Sony Broadcast Media Co. Ltd, Fuji
Television Network, Inc. and SOFTBANK Broadmedia Corporation;
Animal Planet Japan, a one-third owned joint venture with
Discovery and BBC Worldwide; Discovery Channel Japan, a
50% owned joint venture with Discovery; and AXN Japan, a
35% owned joint venture with Sony. JPC provides affiliate sales
services and in some cases advertising sales and other services
to channels in which it has an investment for a fee.
The market for multi-channel television services in Japan is
highly complex with multiple cable systems and direct-to-home
satellite platforms. Cable systems in Japan served approximately
17.0 million homes at December 31, 2004. A large
percentage of these homes, however, are served by systems
(referred to as compensation systems) whose service principally
consists of retransmitting free TV services to homes whose
reception of such broadcast signals has been blocked. Higher
capacity systems and larger cable systems that offer a full
complement of cable and broadcast channels, of which J-COM is
the largest in terms of subscribers, currently serve
approximately 5.4 million households. The majority of
channels in which JPC holds an interest are marketed as basic
television services to cable system operators, with distribution
at December 31, 2004 ranging from approximately
14.4 million homes for Shop Channel (which is
carried in many compensation systems and on VHF as well as in
multi-channel cable systems) to approximately 1.9 million
homes for more recently launched channels, such as Animal
Planet Japan. Channel BB, which was acquired by JPC in
December 2004, has negligible cable distribution.
Each of the channels in which JPC has an interest is also
currently offered on SkyPerfecTV1, a digital satellite platform
that delivers approximately 140 channels a la carte and in an
array of basic and premium packages, from two satellites
operated by JSAT Corporation, and on SkyPerfecTV2, another
satellite platform in Japan, which delivers a significantly
smaller number of channels. Under Japans complex
regulatory scheme for satellite broadcasting, each television
channel obtains a broadcast license that is perpetual, although
subject to
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revocation by the relevant governmental agency, and leases from
a satellite operator the bandwidth capacity on satellites
necessary to transmit the licensed channel to cable and other
distributors and direct-to-home satellite subscribers. In the
case of distribution of JPCs 33% or greater owned channels
on SkyPerfecTV1, these licenses and satellite capacity leases
are held through its subsidiary, Jupiter Satellite Broadcasting
Corporation, or JSBC, except for AXN Japan,
Channel BB and the J Sports Broadcasting channels which
hold their own licenses. The broadcast licenses and satellite
capacity leases for JPCs 33% or greater owned channels
with respect to SkyPerfecTV2 are held by four other companies
that are majority owned by unaffiliated entities. JSBCs
leases with JSAT for bandwidth capacity on JSATs two
satellites expire between 2006 and 2011. The leases for
bandwidth capacity with respect to the SkyPerfecTV2 platform
expire between 2012 and 2014. JSBC and other licensed
broadcasters then contract with the platform operator, such as
SkyPerfecTV, for customer management and marketing services
(sales and marketing, billing and collection) and for encoding
services (compression, encoding and multiplexing of signals for
transmission) on behalf of the licensed channels. The majority
of channels in which JPC holds an interest are marketed as basic
television services to DTH subscribers with distribution at
December 31, 2004 ranging from 3.2 million homes for
Shop Channel (which is carried as a free service to all
DTH subscribers) to 281,000 homes for more recently launched
channels, such as Animal Planet Japan.
Approximately 83% of JPCs consolidated revenue for 2004
was attributable to retail revenues generated by the Shop
Channel. Cable operators are paid distribution fees to carry
the Shop Channel, which are either fixed rate per
subscriber fees or the greater of fixed rate per subscriber fees
and a percentage of revenue generated through sales to the cable
operators viewers. SkyPerfecTV is paid fixed rate per
subscriber distribution fees to provide the Shop Channel
to its DTH subscribers. After Shop Channel, the J
Sports Broadcasting channels generate the most revenues of the
channels in which JPC has an interest. The majority of these
revenues are derived from cable and satellite subscriptions. J
Sports Broadcasting, in which JPC has an indirect approximate
43% ownership interest as of December 31, 2004, supplies
sports programming to three specialized channels in Japan.
Currently, advertising sales are not a significant component of
JPCs revenues.
Sumitomo and we each own a 50% interest in JPC. Pursuant to a
stockholders agreement we entered into with JPC and Sumitomo,
Sumitomo and we each have preemptive rights to maintain our
respective equity interests in JPC, and Sumitomo and we each
appoint an equal number of directors provided we maintain our
equal ownership interests. No board action may be taken with
respect to certain material matters without the unanimous
approval of the directors appointed by us and Sumitomo, provided
that Sumitomo and we each own 30% of JPCs equity at the
time of any such action. Sumitomo and we each hold a right of
first refusal with respect to the others interests in JPC,
and Sumitomo and we have each agreed to provide JPC with a right
of first opportunity with respect to the acquisition of more
than a 10% equity position in, or the management of or any
similar participation in, any programming business or service in
Japan and any other country to which JPC distributes its
signals, in each case subject to specified limitations.
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Mediatti Communications, Inc. |
Mediatti Communications, Inc. is a smaller provider of cable
television and high speed Internet access services in Japan. Our
interest in Mediatti is held through Liberty Japan MC, LLC, a
company of which we own approximately 93.1% and Sumitomo
Corporation owns approximately 6.9%. Sumitomo has the option
until February 2006 to increase its ownership interest in
Liberty Japan MC to up to 50%.
Liberty Japan MC owns a 36.4% voting interest in Mediatti
Communications and an additional .87% interest that has limited
veto rights. Liberty Japan MC has the option until February 2006
to acquire from Mediatti up to 9,463 additional Mediatti shares
at a price of ¥290,000 per share. If such option is fully
exercised, Liberty Japan MCs interest in Mediatti will be
approximately 46%. The additional interest that Liberty Japan MC
has the right to acquire may initially be in the form of
non-voting Class A shares, but it is expected that any
Class A shares owned by Liberty Japan MC will be converted
to voting common stock.
Liberty Japan MC, Olympus Mediacom L.P. and two minority
shareholders of Mediatti have entered into a shareholders
agreement pursuant to which Liberty Japan MC has the right to
nominate three of Mediattis seven
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directors and which requires that significant actions by
Mediatti be approved by at least one director nominated by
Liberty Japan MC.
The Mediatti shareholders who are party to the shareholders
agreement have granted to each other party whose ownership
interest is greater than 10%, a right of first refusal with
respect to transfers of their respective interests in Mediatti.
Each shareholder also has tag-along rights with respect to such
transfers. Olympus Mediacom has a put right that is first
exercisable during July 2008 to require Liberty Japan MC, LLC to
purchase all of its Mediatti shares at fair market value. If
Olympus exercises such right, the two minority shareholders who
are party to the shareholders agreement may also require Liberty
Japan MC to purchase their Mediatti shares at fair market value.
If Olympus does not exercise such right, Liberty Japan MC has a
call right that is first exercisable during July 2009 to require
Olympus and the minority shareholders to sell their Mediatti
shares to Liberty Japan MC at fair market value. If both the
Olympus put right and the Liberty Japan MC call right expire
without being exercised during the first exercise period, either
may thereafter exercise its put or call right, as applicable,
until October 2010.
We also own minority interests in broadband distributors and
video programmers operating in Australia. UGC owns an indirect
approximate 34% equity interest in Austar United Communications
Ltd. Austar provides pay television services, Internet access
and mobile telephony services to subscribers in regional and
rural Australia and the capital cities of Hobart and Darwin.
Austars 50% owned joint venture, XYZ networks, owns and/or
distributes Nickelodeon, Discovery, Channel V, Club V, The
Country Music Channel, MAX, Arena, The Lifestyle Channel and
The Weather Channel to subscribers in Australia. In
addition, we own an approximate 20% equity interest in Premium
Movie Partnership, which supplies three premium
movie-programming channels to the major subscription television
distributors in Australia. PMPs partners include Showtime,
Twentieth Century Fox, Sony Pictures, Paramount Pictures and
Universal Studios.
Our Latin American operations are conducted primarily through
VTR GlobalCom S.A., which is a wholly owned subsidiary of UGC;
our subsidiary Liberty Cablevision of Puerto Rico Ltd., our
affiliate Metrópolis-Intercom S.A.; and our subsidiary
Pramer S.C.A. Through UGC, we also hold interests in other
broadband providers operating in Brazil and Peru.
Many countries in Latin America have experienced ongoing
recessionary conditions during the past five years. Among these
countries, Argentina, in which certain of LMIs businesses
offer programming services, may have been the most harshly
affected. Argentina has experienced severe economic and
political volatility since 2001. Effective January 2002, the
Argentine government eliminated the historical exchange rate of
one Argentine peso to one U.S. dollar (the peg
rate). The value of the Argentine peso dropped
significantly on the date the peg rate was eliminated and
dropped further through 2002. As a result, our businesses in
Argentina have experienced significant negative effects on their
financial results. In many cases, their customers reduced
spending or extended payments, while their lenders tightened
credit criteria. We cannot predict how much longer these
recessionary conditions will last, nor can we predict the future
impact of these conditions on the financial results of our
businesses that operate in Latin America.
UGCs primary Latin American operation, VTR GlobalCom S.A.,
which we refer to as VTR, is Chiles largest multi-channel
television and high-speed Internet access provider in terms of
homes passed and number of subscribers, and Chiles second
largest provider of residential telephony services, in terms of
lines in service. VTR provides services in Santiago,
Chiles largest city, the large regional cities of Iquique,
Antofagasta, Concepción, Viña del Mar, Valparaiso and
Rancagua, and smaller cities across Chile. Approximately 96% of
its video subscribers are served via wireline cable, with the
remainder via MMDS and DTH technologies. VTRs network is
approximately 59% upgraded to two-way capability, with 65% of
its basic cable subscribers served by
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a system with a bandwidth of at least 750 MHz. VTR has an
approximate 70% market share of cable television services
throughout Chile and an approximate 51% market share within
Santiago.
VTRs channel lineup consists of 52 to 68 channels
segregated into two tiers of analog cable service: a basic
service with 52 to 57 channels and a premium service with 11
channels. VTR offers basic tier programming similar to the basic
tier program lineup in the United States, plus more premium-like
channels such as HBO, Cinemax and Cinecanal on the basic tier.
As a result, subscription to its existing premium service
package is limited because its basic analog package contains
similar channels. In order to better differentiate VTRs
premium service, increase the number of subscribers to premium
service and increase average monthly revenue per subscriber, VTR
anticipates gradually moving some channels out of its basic tier
and into premium tiers or pay-per-view events, offering
additional movies on premium tiers in the future. VTR obtains
programming from the United States, Europe, Argentina and
Mexico. Domestic cable television programming in Chile is only
just beginning to develop around local events such as soccer
matches.
VTR offers several alternatives of always on, unlimited-use
high-speed Internet access to residences and small/home offices
under the brand name Banda Ancha in 22 communities within
Santiago and 12 cities outside Santiago. Subscribers can
purchase one of five services with download speeds ranging from
128 Kbps to 2.4 Mbps. For a moderate to heavy Internet
user, VTRs Internet service is generally less expensive
than a dial-up service with its metered usage. To provide more
flexibility to the user, VTR also offers Banda Ancha Flex, where
a low monthly flat fee includes the first 200 minutes, with
metered usage above 200 minutes. Approximately 32% of VTRs
basic cable subscribers also receive Internet service,
representing approximately 95% of its Internet subscribers.
VTR offers telephony service to customers in 22 communities
within Santiago and seven cities outside Santiago. VTR offers
basic dial tone service as well as several value-added services.
VTR primarily provides service to residential customers who
require one or two telephony lines. It also provides service to
small businesses and home offices. Approximately 39% of
VTRs basic cable subscribers also receive telephony
service, representing approximately 65% of its telephony
subscribers.
We, Liberty and CristalChile Comunicaciones S.A., our partner in
Metrópolis-Intercom S.A., entered into an agreement
pursuant to which each agreed to use its respective commercially
reasonable efforts to combine the businesses of Metrópolis
and VTR, in an effort to facilitate the provision of enhanced
services to cable and telecommunications consumers in the
Chilean marketplace. The combination is subject to certain
conditions, including the execution of definitive agreements,
Chilean regulatory approval, the approval of our board of
directors and the boards of directors of CristalChile, VTR and
UGC (including, in the case of UGC, the independent members of
UGCs board of directors) and the receipt of necessary
third party approvals and waivers. The Chilean antitrust
authorities approved the combination in October 2004. However,
an action has been filed with the Chilean Supreme Court seeking
to reverse such approval. If the proposed combination is
consummated as contemplated, we will own through UGC 80% of the
voting and equity rights in the new entity, and CristalChile
will own the remaining 20%. CristalChile will have the right to
elect 1 of the 5 members of the new entitys board and will
have veto rights over certain material decisions for so long as
CristalChile owns at least a 10% equity interest in the merged
entity. In addition, CristalChile will have a put right which
will allow CristalChile to require UGC to purchase all, but not
less than all, of its interest in the combined entity on or
after the first anniversary of the date on which Chilean
regulatory approval of the combination is received, and ending
on the tenth anniversary of the combination, at the fair market
value of the interest, subject to a minimum price. Liberty has
agreed to perform UGCs obligations under
CristalChiles put if UGC does not do so. We have agreed to
indemnify Liberty against its obligations with respect to
CristalChiles put right.
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Liberty Cablevision of Puerto Rico Ltd. |
Liberty Cablevision of Puerto Rico Ltd., our wholly owned
subsidiary, is one of Puerto Ricos largest cable
television operators based on number of subscribers. Liberty
Cablevision of Puerto Rico operates three head ends, serving the
communities of Luquillo, Arecibo, Florida, Caguas, Humacao,
Cayey and Barranquitas and 30 other municipalities. In portions
of its network, Liberty Cablevision of Puerto Rico also offers
high speed Internet access and cable telephony services. Liberty
Cablevision of Puerto Ricos network is approximately 94%
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upgraded to two-way capability, with all of its basic cable
subscribers served by a system with a bandwidth of at least 550
MHz.
Liberty Cablevision of Puerto Rico provides subscribers with 61
analog channels. Liberty Cablevision of Puerto Rico also offers
48 digital channels, 46 premium channels, 46 pay-per-view
channels and 33 digital music channels. Liberty Cablevision of
Puerto Rico obtains programming primarily from international
sources, including suppliers from the United States.
Liberty Cablevision of Puerto Rico offers four tiers of
high-speed Internet access with download speeds ranging from 64
Kbps to 1.5 Mbps. Approximately 14% of Liberty Cablevision of
Puerto Ricos basic cable subscribers also receive Internet
service, representing approximately 82% of its Internet
subscribers.
Liberty Cablevision of Puerto Rico has begun offering telephony
service using IP-based technology. Currently, only 7% of Liberty
Cablevision of Puerto Ricos basic cable subscribers also
receive telephony service, representing approximately 95% of its
telephony subscribers.
Metrópolis-Intercom S.A. is Chiles second largest
cable operator based on the number of subscribers served.
Metrópolis operates cable systems in nine of the most
densely populated cities within Chile, including Santiago (the
capital of Chile), Viña del Mar, Concepción and
Temuco. Approximately 18% of Metrópolis network has
been upgraded to two-way capability and approximately 79% of
Metrópolis basic cable subscribers are served by a system
with a bandwidth of 750 MHz.
In the upgraded two-way portions of its network in Santiago,
Metrópolis offers digital cable services, including digital
video recording or DVR (using the explorer 8000), an interactive
programming guide, near video on demand and music channels.
Metrópolis also offers high-speed Internet access and VoIP
telephony service through its two-way network in Santiago. In
those areas where Metrópolis network has not been
upgraded to two-way capability, Metrópolis offers ADSL
Internet access services and standard telephony services through
the CTC network, the local phone company controlled by
Telefónica S.A., pursuant to a commercial arrangement with
CTC.
CristalChile Comunicaciones S.A., a large publicly traded
Chilean company with significant media interests, and we each
own a 50% interest in Metrópolis. The board of directors of
Metrópolis consists of eight members. CristalChile and we
each designate one-half of the directors of Metrópolis and
almost all actions by the board require the consent of
representatives of each partner. LMI has given CristalChile the
right to control the day-to-day operations of Metrópolis.
As discussed under VTR GlobalCom S.A.
above, we, Liberty and CristalChile have entered into an
agreement pursuant to which each has agreed to use its
commercially reasonable efforts to combine the businesses of
Metrópolis and VTR. The combination is subject to certain
conditions. If the combination does not occur, we and
CristalChile have each agreed to fund its pro rata share of a
capital call sufficient to retire Metrópolis local
debt facility, and to amend the existing agreement governing the
parties relationship with respect to Metrópolis.
Among other things, our approval rights as an owner of
Metrópolis will be limited to certain material matters,
including material related party transactions, but will not
include the adoption of budgets or business plans or the making
of capital calls. CristalChile will have a call right with
respect to our interest in Metrópolis, subject to a minimum
price, and for so long as CristalChile owns directly or
indirectly 50% or more of the shares of Metrópolis,
CristalChile will have a drag-along right, subject to a minimum
purchase price, with respect to our interest in Metrópolis
in connection with a bona fide sale of all of its and its
affiliates direct interest in Metrópolis. We will
have tag-along rights in connection with sales by CristalChile
or its affiliates of any of their direct interests in
Metrópolis. Neither party will have a put right to the
other party of its interest in Metrópolis.
Pramer S.C.A., a wholly owned subsidiary of LMI, is an Argentine
programming company which supplies programming services to cable
television and DTH satellite distributors in Latin America and
Spain. Pramer
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currently owns 10 channels and produces, markets, distributes or
otherwise represents 13 additional channels, including two of
Argentinas five terrestrial broadcast stations.
Subscription units for 2004 ranged from approximately 24,000 for
the smallest premium service to approximately 9.6 million
for the most popular basic service. Pramers owned channels
include Canal (a), the first Latin-American quality arts
channel, Film & Arts, offering quality films,
concerts, operas and interviews with artists,
elgourmet.com, a channel for the lovers of the good
things in life, and Magic Kids, an entertainment
childrens channel, all of which are offered as basic
television services. Pramers represented channels include
Hallmark, Locomotion and Cosmopolitan Channel (in
which we own a 50% interest).
Pramers affiliation agreements with cable television and
satellite distributors provide for payments based on the number
of subscribers that receive Pramers services.
Cablevisión S.A., an Argentine cable provider, represented
approximately 13% of Pramers consolidated revenue for
2004. Pramers affiliation agreement with Cablevisión
expired in December 2004. The parties are continuing to operate
under the terms of the expired agreement pending negotiation of
a new agreement.
Pramer handles affiliate sales for the 13 channels it represents
and advertising sales for 7 of such channels. Pramer collects
the revenue for the represented channels and pays the channel
owners either a fixed fee or a fee based on amounts collected.
Pramers representation of the Hallmark channel,
including the provision of satellite uplinking and other
services, accounted for approximately 9% of Pramers
consolidated revenue for 2004. The representation agreement for
the Hallmark channel expires on December 31, 2005,
subject to earlier termination under certain circumstances.
Pramer has two sources of content: rights that are purchased
from various distributors and its own productions. Pramers
own productions are usually contracted with independent
producers.
All of Pramers satellite transponder capacity is provided
pursuant to contracts expiring in 2014.
Our majority owned subsidiary, Liberty Programming Argentina,
LLC, owns a 40% equity interest in Torneos y Competencias, an
independent producer of Argentine sports and entertainment
programming that, through various affiliates, operates a sports
programming cable channel; commercializes rights to televise
sporting events via cable, satellite and broadcast television,
and manages two sports magazines and several thematic soccer
bars. We also own a 10.6% equity interest in Fox Pan American
Sports LLC, a joint venture that develops and operates multiple
Spanish language subscription television and radio services
comprised predominantly of sports programming. Fox Pan American
Sports is a principal customer of Torneos.
Regulatory Matters
Video distribution, Internet, telephony and content businesses
are regulated in each of the countries in which we operate. The
scope of regulation varies from country to country, although in
some significant respects regulation in European markets is
harmonized under the regulatory structure of the European Union
or EU. Adverse regulatory developments could subject
our businesses to a number of risks. Regulation could limit
growth, revenues 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 open-network obligations, and
restrictions on content, including content provided by third
parties. Failure to comply with current or future regulation
could expose our businesses to various penalties.
Foreign regulations affecting distribution and programming
businesses fall into several general categories. Our businesses
are required to obtain licenses, permits or other governmental
authorizations from (or to notify or register with) relevant
local or regulatory authorities to own and operate their
respective distribution systems. In many countries, these
licenses are non-exclusive and of limited duration. In some
countries where we provide video programming services, such as
the EU countries, we must comply with restrictions on
programming content. Local or national regulatory authorities in
some countries where we provide video services also impose
pricing restrictions and subject certain price increases to
approval by the relevant local or national authority.
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Our telecommunications businesses generally are required to
register with the appropriate regulatory authority that we offer
telephony services, although, in some instances, we may be
required to obtain a license. Our telephony businesses to date
have not been subject to rate regulation but could become
subject to such regulation in a number of jurisdictions if they
are deemed to hold significant market power. Under the EUs
new regulatory framework discussed below, a company will be
deemed to have significant market power if it has the power to
behave to an appreciable extent independently of competitors,
customers and consumers. In some countries, we must notify the
regulatory authority of our tariff structure and any subsequent
price increases.
Austria, Belgium, Cyprus, The Czech Republic, Denmark, Estonia,
Finland, France, Germany, Greece, Hungary, Ireland, Italy,
Latvia, Lithuania, Luxembourg, Malta, The Netherlands, Poland,
Portugal, Slovakia, Slovenia, Spain, Sweden and the United
Kingdom are Member States of the European Union or EU. As such,
these countries are required to enact national legislation that
implements EU directives. Although not an EU Member State,
Norway is a member of the European Economic Area and generally
has implemented or is implementing the same principles on the
same timetable as EU Member States. In addition, Romania is
seeking to join the EU in 2007 and its laws are strongly
influenced by EU directives since it will need to comply with
these directives in order to join the EU. As a result, most of
the markets in Europe in which our businesses operate have been
significantly affected by the regulatory framework that has been
developed by the EU.
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Communications Services and Competition Directives |
A number of legal measures, which we refer to as the Directives,
have revised the regulatory regime concerning communications
services across the EU. They include the following:
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Directive for a New Regulatory Framework for Electronic
Communications Networks and Services (referred to as the
Framework Directive); |
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Directive on the Authorization of Electronic Communications
Networks and Services (referred to as the Authorization
Directive); |
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Directive on Access to and Interconnection of Electronic
Communications Networks and Services (referred to as the Access
Directive); |
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Directive on Universal Service and Users Rights relating
to Electronic Networks and Services (referred to as the
Universal Service and Users Rights Directive); |
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Directive on Privacy and Electronic Communications (referred to
as the Privacy Directive); and |
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Directive on Competition in the Markets for Electronic
Communications and Services (referred to as the Competition
Directive). |
In addition to the Directives, the European Parliament and
European Council made a decision intended to ensure the
efficient use of radio spectrum within the EU. Existing EU
member countries were required to implement the Framework,
Authorization, Access and the Universal Service and Users
Rights Directives by July 25, 2003. The Privacy Directive
was to have been implemented by October 31, 2003. The
Competition Directive is self-implementing and does not require
any national measures to be adopted. The 10 countries that
joined the EU on May 1, 2004 were to ensure compliance with
the Directives as of the date of accession. Measures seeking to
implement the Directives are in force in most Member States. Of
those countries that we operate in only Belgium and the Czech
Republic are still to bring into force laws seeking
substantially to implement the Directives.
The Directives seek, among other things, to harmonize national
regulations and licensing systems and further increase market
competition. These policies seek to harmonize licensing
procedures, reduce administrative fees, ease access and
interconnection, and reduce the regulatory burden on
telecommunications companies. Another important objective of the
new Directives is to implement one new regime for the
development of communications networks and communications
services, including the delivery of video services, irrespective
of the technology used.
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Many of the obligations included within the Directives apply
only to operators or service providers with Significant
Market Power in a relevant market. For example, the
provisions of the Access Directive allow Member States to
mandate certain access obligations only for those operators and
service providers that are deemed to have Significant Market
Power. For purposes of the Directives, an operator or service
provider will be deemed to have Significant Market Power where,
either individually or jointly with others, it enjoys a position
of significant economic strength affording it the power to
behave to an appreciable extent independently of competitors,
customers and consumers. As part of the implementation of
certain of the Directives the National Regulatory Authority or
NRA is obliged to analyze 18 predefined markets to determine if
any operator or service provider has Significant Market Power.
We may be found to have Significant Market Power in some markets
and in some countries. In particular, in those markets where we
offer telephony services, we may be found to have Significant
Market Power in the termination of calls on our own network. In
addition, in some countries we may be found to have Significant
Market Power in the wholesale distribution of television
channels. Some national regulators may also seek to find that we
have Significant Market Power in the wholesale broadband
Internet market. Although we would vigorously dispute this last
finding, there can be no assurance that such finding will not be
made. In the event that we are found to have Significant Market
Power in any particular market, a NRA could impose certain
conditions on us to prevent abusive behavior by us.
The European Commission has adopted a Recommendation on relevant
markets susceptible to ex-ante regulation under the Directives.
Under the Directives, the European Commission has the power to
veto the assessment by a NRA of Significant Market Power in any
market not set out in this Recommendation as well as any finding
by a NRA of Significant Market Power in any market whether or
not it is set out in the Recommendation.
Certain key elements introduced by the Directives are set forth
below, followed by a discussion of certain other regulatory
matters and a description of regulation for three countries
where we have large operations. This is not intended to be a
comprehensive description of all aspects of regulation in this
area.
Licensing. Individual licenses for electronic
communications services are not required for the operation of an
electronic communications network or the offering of electronic
communications services. A simple registration is required in
these cases. Member States are limited in the obligations that
they may place on someone who has so registered; the only
obligations that may be imposed are specifically set out in the
Authorizations Directive.
Access Issues. The Access Directive sets forth the
general framework for interconnection of, and third party access
to, networks, including cable networks. Public
telecommunications network operators are required to negotiate
interconnection agreements on a non-discriminatory basis with
each other. In addition, some specific obligations are provided
for in this Directive such as an obligation to distribute
wide-screen television broadcasts in that format and certain
requirements to provide access to conditional access systems.
Other access obligations can be imposed on operators identified
as having Significant Market Power in a particular market. These
obligations are based on the outcomes that would occur under
general competition law.
Must Carry Requirements. In most
countries where we provide video and radio services, we are
required to transmit to subscribers certain must
carry channels, which generally include public national
and local channels. In some European countries, we may be
obligated to transmit quite a large number of channels by virtue
of these requirements. Until recently, there was no meaningful
oversight of this issue at the EU level. This changed when the
Directives came into effect. Member States are only permitted to
impose must carry obligations where they are necessary to meet
clearly defined general interest objectives and where they are
proportionate and transparent. Any such obligations must be
subject to periodic review. It is not clear what effect this new
rule will have in practice but we expect it to lead to a
reduction of the size of must-carry packages in some countries.
API Standards. The Directives require Member
States to encourage the use of open Application Programming
Interfaces or APIs. The European Commission is required to
conduct a review to ascertain whether interoperability and
freedom of choice have been adequately achieved in the Member
States with respect to digital interactive video services. If
the European Commission reaches a negative conclusion on this
issue with respect to one or more Member States, it has the
power to mandate use of a particular API.
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Consumer Protection Issues and Pricing
Restrictions. Under the Directives, we may face various
consumer protection restrictions if we are in a dominant
position in a particular market. However, before the
implementation of the Directives, local or national regulatory
authorities in many European countries where we provide video
services already imposed pricing restrictions. This is often a
contractual provision rather than a regulatory requirement.
Often, the relevant local or national authority must approve
basic tier price increases. In certain countries, price
increases will only be approved if the increase is justified by
an increase in costs associated with providing the service or if
the increase is less than or equal to the increase in the
consumer price index. Even in countries where rates are not
regulated, subscriber fees may be challenged if they are deemed
to constitute anti-competitive practices.
Other. Our European operating companies must
comply with both specific and general legislation concerning
data protection, content provider liability and electronic
commerce. These issues are broadly harmonized at the EU level.
This is an area that may become more significant over time.
Broadcasting. Broadcasting is an area outside the
scope of the Directives. Generally, broadcasts originating in
and intended for reception within a country must respect the
laws of that country. However, pursuant to another Directive, EU
Member States are required to allow broadcast signals of
broadcasters in another EU Member State to be freely transmitted
within their territory so long as the broadcaster complies with
the law of the originating EU Member State. An international
convention extends this right beyond the EUs borders into
the majority of territories in which we operate. An EU directive
also establishes quotas for the transmission of
European-produced programming and programs made by European
producers who are independent of broadcasters. The EU legal
framework governing broadcast television currently is under
review.
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Competition Law and Other Matters |
EU directives and national consumer protection and competition
laws in our Western European and certain other markets impose
limitations on the pricing and marketing of bundled packages of
services, such as video, telephony and Internet access services.
Although our businesses may offer their services in bundled
packages in European markets, they are generally not permitted
to make subscription to one service, such as cable television,
conditional upon subscription to another service, such as
telephony. In addition, providers cannot abuse or enhance a
dominant market position through unfair anti-competitive
behavior. For example, cross-subsidization having this effect
would be prohibited.
As our businesses become larger throughout the EU and in
individual countries in terms of service area coverage and
number of subscribers, they may face increased regulatory
scrutiny. Regulators may prevent certain acquisitions or permit
them only subject to certain conditions.
Austria has brought into effect a new communications law that
broadly transposes the Directives. The NRA is in the process of
analyzing the 18 predefined markets to determine if any operator
or service provider has Significant Market Power. We have been
notified that the regulators intention is to define us as
having Significant Market Power in the call termination market
on our own telecommunications network, together with all other
network operators. It is unknown if and which conditions the NRA
will impose on the parties that have been determined to have
Significant Market Power.
France has brought into effect a new communications law that
broadly transposes the Directives. The NRA is in the process of
analyzing the 18 predefined markets to determine if any operator
or service provider has Significant Market Power.
The Netherlands has brought into effect a new communications law
that broadly transposes the Directives. The NRA is currently
analyzing the 18 predefined markets to determine if any operator
or service provider has
A1-24
Significant Market Power, which could lead to obligations being
placed on us, especially with respect to television distribution
(where we faced obligations under the old regime). In the last
quarter of 2004, the incumbent telecommunications operator, KPN,
requested access to our network to distribute television
programming. The NRA has denied the request of KPN, stating that
we have no obligation to lease capacity on our network to KPN.
There have been long-standing debates in The Netherlands
regarding the desirability of requiring cable operators to open
their networks to unaffiliated Internet service providers. To
date these discussions have not led to a requirement for cable
operators to offer such an access service.
The Dutch competition authority, NMA, is still investigating the
price increases that we made with respect to our video services
in 2004 to determine whether we abused our dominant position. If
the NMA were to find that the price increases amount to an abuse
of a dominant position, the NMA could impose fines of up to 10%
of our video revenues in The Netherlands and we would be obliged
to reconsider the price increases. Historically, in many parts
of the Netherlands, we are a party to contracts with local
municipalities that seek to control aspects of our Dutch
business including, in some cases, pricing and package
composition. Most of these contracts have been eliminated by
agreement, although some contracts are still in force and under
negotiation. In some cases there is litigation ongoing where
some municipalities have resisted our attempts to move away from
the contracts.
Regulation of the Cable Television Industry. The
two key laws governing cable television broadcasting services in
Japan are the Cable Television Broadcast Law and the Wire
Telecommunications Law. The Cable Television Broadcast Law was
enacted in 1972 to regulate the installation and operation of
cable television facilities and the provision of cable
television services. The Wire Telecommunications Law is the
basic law in Japan governing wire telecommunications, and it
regulates all wire telecommunications equipment, including cable
television facilities.
Under the Cable Television Broadcast Law, any business seeking
to install cable television facilities with more than 500 drop
terminals must obtain a license from the Ministry of Internal
Affairs and Communications, commonly referred to as the MIC.
Under the Wire Telecommunications Law, if these facilities have
fewer than 500 drop terminals, only prior notification to the
MIC is required. If a license is required, the license
application must provide an installation plan, including details
of the facilities to be constructed and the frequencies to be
used, financial estimates, and other relevant information.
Generally, the license holder must obtain prior permission from
the MIC in order to change any of the items included in the
original license application. The Cable Television Broadcast Law
also provides that any business that wishes to furnish cable
television services must file prior notification with the MIC
before commencing service. This notification must identify the
service areas, facilities and frequencies to be used (unless the
facilities are owned by the provider) and outline the proposed
cable television broadcasting services and other relevant
information, regardless of whether these facilities are leased
or owned. Generally, the cable television provider must notify
the MIC of any changes to these items.
Prior to the commencement of operations, a cable television
provider must notify the MIC of all charges and tariffs for its
cable television services. Those charges and tariffs to be
incurred in connection with the mandatory re-broadcasting of
television content require the approval of the MIC. A cable
television provider must also give prior notification to the MIC
of all amendments to existing tariffs or charges (but MIC
approval of these amendments is not required).
A cable television provider must comply with specific
guidelines, including: (1) editing standards;
(2) making its facilities available for third party use for
cable television broadcasting services, subject to the
availability of broadcast capacity; (3) providing service
within its service area to those who request it absent
reasonable grounds for refusal; (4) obtaining
retransmission consent where retransmission of television
broadcasts occur, unless such retransmission is required under
the Cable Television Broadcast Law for areas having difficulties
receiving television signals; and (5) obtaining permission
to use public roads for the installation and use of cable.
The MIC may revoke a facility license if the license holder
breaches the terms of its license; fails to comply with
technical standards set forth in, or otherwise fails to meet the
requirements of, the Cable Television
A1-25
Broadcast Law; or fails to implement a MIC improvement order
relating to its cable television facilities or its operation of
cable television services.
Regulation of the Telecommunications Industry. As
providers of high-speed Internet access and telephony, our
businesses in Japan also are subject to regulation by the MIC
under the Telecommunications Business Law. The
Telecommunications Business Law previously regulated Type I and
Type II carriers. Type I carriers were allowed to carry data
over telecommunications circuit facilities which they install or
on which they hold long-term leases meeting certain criteria.
Type I carriers included common carriers, as well as wireless
operators. Type II carriers, including telecommunications
circuit resale carriers and Internet service providers, carried
data over facilities installed by others. Under the
Telecommunications Business Law, Type I carriers were allowed to
offer the same kinds and categories of services as Type II
carriers. Because our businesses carry data over
telecommunications circuit facilities they installed in
connection with their telephony and high-speed Internet access
and existing cable lines, our businesses were Type I carriers.
Effective April 1, 2004, amendments to the
Telecommunications Business Law eliminated the distinction
between Type I (facilities-based) and Type II (service-based)
carriers. Type I carriers previously were subject to more
stringent licensing and tariff requirements than Type II
carriers. The amendments will make it easier for entities to
enter the Japanese telecommunications market, particularly those
carriers who wish to own and operate their own facilities on a
limited scale. Larger carriers with facilities exceeding a
certain size will be required to register with the MIC, while
smaller carriers may enter the market just by providing notice
to the MIC. The amendments also allow any carrier to discontinue
business by providing notice to their users and ex post
notification to the MIC.
Under these amendments, carriers who provide Basic
Telecommunications Services, defined as telecommunications that
are indispensable to the lives of the citizenry as specified in
MIC ordinances, will be required to provide such services in an
appropriate, fair and stable manner. Carriers providing Basic
Telecommunications Services must do so pursuant to terms and
conditions and for rates that have been filed in advance with
the MIC. The MIC may order modifications to contract terms and
conditions it deems inappropriate for certain specified reasons.
The terms and conditions as well as charges and tariffs for the
provision of telecommunications services for Type I carriers
were strictly regulated, but under these amendments, carriers
may generally negotiate terms and conditions with their users
(including fees and charges) except those relating to Basic
Telecommunications Services.
Under these amendments, interconnection with telecommunications
carriers was also deregulated. Telecommunications carriers,
other than those exceeding certain standards specified in the
Telecommunications Business Law (such as NTT), may set
interconnection tariffs and terms and conditions through
independent negotiations without MIC approval.
Telecommunication carriers that own their telecommunication
circuit facilities are required to maintain such facilities in
conformity with specified technical standards. The MIC may order
a carrier that fails to meet such standards to improve or repair
its telecommunication facilities.
Cable and telephony applications for permits and concessions are
submitted to the Ministry of Transportation and
Telecommunications, which, through the Subsecretary of
Telecommunications or Subtel, is responsible for regulating,
granting permits and concessions, registering and supervising
all telecommunications providers. The Antitrust Court
(Tribunal de Defensa de la Libre Competencia) also plays
an important role in regulating telecommunications in Chile
through its judgments. Wireline cable television permits are
non-exclusive and granted for indefinite terms. Wireless
television permits have renewable terms of 10 years, while
telecommunication concessions (for example, for fixed or mobile
telephony) have renewable 30-year terms. Wireline and wireless
permits and concessions require operation in accordance with a
technical plan submitted by the licensee together with the
permit or concession application. Our businesses have cable
permits in most major and medium sized markets in Chile. Cross
ownership between cable television, Internet access and
telephony is also permitted.
A1-26
In general, the General Telecommunications Law of Chile allows
telecommunications companies to provide service and develop
telecommunication infrastructure without geographic restrictions
or exclusive rights to serve. Chile currently has a competitive,
multi-carrier system for international and local long distance
telecommunications services. Regulatory authorities currently
determine prices charged to customers for local
telecommunications services provided by incumbent local fixed
telephony operators until the market is determined to be
competitive. Charges for access (prices for terminating calls in
fixed or mobile networks), other interconnection services and
unbundling services are determined for all operators, whether or
not incumbent. To date, the regulatory authorities have
determined prices charged to customers by the dominant local
wireline telephony providers and the interconnection tariffs for
several other operators. In all cases, the authorities determine
a maximum rate structure that shall be in force for a five year
period. Local service providers with concessions are obligated
to provide service to all customers that are within their
service area or are willing to pay for an extension to receive
service. Local providers, whether or not incumbent, must also
give long distance service providers equal access to their
network connections at regulated prices.
U.S. Federal Communications Commission Regulation.
The Communications Act of 1934, as amended, and the regulations
of the Federal Communications Commission
(FCC) significantly affect the cable system operations of
our subsidiary Liberty Cablevision of Puerto Rico, including,
for example, subscriber rates; carriage of broadcast television
stations; leased access and public, educational and government
access; customer service; program packaging to subscribers;
obscene programming; technical operating standards; use of
utility poles and conduit; and ownership transfers. Thus, the
FCC limits the price that cable systems that are not subject to
effective competition may charge for basic services and
equipment. Cable systems also must carry, without compensation,
certain commercial and non-commercial television station
programming within their geographic markets. Alternatively,
local television stations may insist that a cable operator
negotiate for retransmission consent. In addition, the FCC
initiated a further notice of proposed rulemaking to determine
whether a television station may assert rights to carriage on
cable systems of both analog and digital signals during the
transition to digital television and to carriage of all digital
signals transmitted by a station. On February 10, 2005, the
FCC denied mandatory dual carriage of a television
stations analog and digital signals during the digital
television transition and mandatory carriage of all digital
signals, other than its primary signal.
Liberty Cablevision of Puerto Rico also offers high-speed
Internet access over portions of its network. The FCC has
classified high-speed Internet access service as an
interstate information service which the FCC
traditionally has not regulated. However, a federal appellate
court vacated the FCCs classification, and rehearing was
denied. On December 3, 2004, the United States Supreme
Court decided to review the federal appellate courts
decision. Thus, it is uncertain how Internet access services
ultimately will be classified and regulated. The FCC also
adopted a notice of proposed rulemaking to examine whether local
franchising authorities should be allowed to impose regulatory
requirements on high-speed Internet access, among other issues.
Puerto Rico Regulation. The Puerto Rico
Telecommunications Regulatory Board awards franchises for and
regulates cable television systems in Puerto Rico. Such
franchises are non-exclusive and renewable for periods up to
10 years. The regulatory board may revoke a franchise for
various reasons, including, for example, substantial
noncompliance with franchise terms and conditions, violations of
applicable regulations, or continuing failure to satisfy
required customer service standards. Cable systems may be
charged a franchise fee of up to 5% of their gross revenues.
The Comité Federal de Radiodifusión exercises broad
regulatory authority over broadcast television, cable system and
DTH satellite licensees. Our businesses provide programming to
such distributors. Programming must comply with restrictions on
obscene, violent and advertising content, among other matters.
Licensed distributors are responsible for complying with these
restrictions.
A1-27
Competition
Markets for broadband distribution, including cable and
satellite distribution, Internet access and telephony services,
and video programming generally are highly competitive and
rapidly evolving. Consequently, our businesses expect to face
increased competition in these markets in the countries in which
they operate, and specifically as a result of deregulation in
the EU.
Video Distribution. Our businesses compete directly with
a wide range of providers of news, information and entertainment
programming to consumers. Depending upon the country and market,
these may include: (1) over-the-air broadcast television
services; (2) DTH satellite service providers (systems that
transmit satellite signals containing video programming, data
and other information to receiving dishes of varying sizes
located on the subscribers premises); (3) satellite
master antenna television systems, commonly known as SMATVs,
which generally serve condominiums, apartment and office
complexes and residential developments; (4) MMDS operators;
(5) digital television terrestrial broadcasters;
(6) other cable operators in the same communities that we
serve; (7) other fixed-line telecommunications carriers and
broadband providers, including the incumbent telecommunications
operators, offering video products using DSL or ADSL technology
or over fiber-to-the-home-networks; and (8) movie theaters,
video stores and home video products. Our businesses also
compete to varying degrees with more traditional sources of
information and entertainment, such as newspapers, magazines,
books, live entertainment/concerts and sporting events.
In some countries, our businesses face significant competition
from other cable operators, while in other countries the primary
competition is from DTH satellite service providers, digital
television terrestrial broadcasters and/or other distributors of
video programming using broadband networks. In some of our
largest markets, including The Netherlands, France and Japan, we
are facing increasing competition from video services offered by
or over the network of the incumbent telecommunications
operator. In Austria, the primary competition for video services
is from satellite television service providers.
Internet. With respect to Internet access services and
online content, our businesses face competition in a rapidly
evolving marketplace from incumbent and non-incumbent
telecommunications companies, other cable-based Internet service
providers, non-cable-based Internet service providers and
Internet portals, many of which have substantial resources. The
Internet services offered by these competitors include both
traditional dial-up Internet services and high-speed Internet
access services using DSL and ADSL technology, in a range of
product offerings with varying speeds and pricing, as well as
interactive computer-based services, data and other non-video
services to homes and businesses.
Telephony. With respect to telephony services, our
businesses face competition from the incumbent
telecommunications operator in each country. These operators
have substantially more experience in providing telephony
services, greater resources to devote to the provision of
telephony services and longstanding customer relationships. In
many countries, our businesses also face competition from other
cable telephony providers, wireless telephony providers and
indirect access providers. Competition in both the residential
and business telephony markets will increase with certain market
trends and regulatory changes, such as general price
competition, the introduction of carrier pre-selection, number
portability, continued deregulation of telephony markets, the
replacement of fixed-line with mobile telephony, and the growth
of VoIP services.
The business of providing programming for cable and satellite
television distribution is highly competitive. Our programming
businesses directly compete with other programmers for
distribution on a limited number of channels. Once distribution
is obtained, these programming services compete, to varying
degrees, for viewers and advertisers with other cable and over
the air broadcast television programming services as well as
with other entertainment media, including home video (generally
video rentals), online activities, movies and other forms of
news, information and entertainment.
A1-28
Employees
As of December 31, 2004, our consolidated subsidiaries and
we had an aggregate of approximately 11,800 employees. We
believe that our employee relations are good.
Properties
We lease our executive offices in Englewood, Colorado from
Liberty. All of our other real or personal property is owned or
leased by our subsidiaries and affiliates.
UGC leases its executive offices in Denver, Colorado. UGCs
various operating companies lease or own their respective
administrative offices, headend facilities, tower sites and
other property necessary for their operations. UGC generally
owns the towers on which their equipment is located. The
physical components of their broadband networks require
maintenance and periodic upgrades to support the new services
and products they introduce.
Liberty Cablevision of Puerto Rico owns its main office in
Luquillo, Puerto Rico, its headends and certain other equipment
in Cayey, Humacao and Lares, Puerto Rico. Liberty Cablevision of
Puerto Rico also leases additional customer service offices,
warehouses, headends and other equipment throughout Puerto Rico.
Pramer leases its offices in Buenos Aires, Argentina.
Our other subsidiaries and affiliates own or lease the fixed
assets necessary for the operation of their respective
businesses, including office space, transponder space, headends,
cable television and telecommunications distribution equipment,
telecommunications switches and customer equipment (including
converter boxes). Our management believes that our current
facilities are suitable and adequate for our business operations
for the foreseeable future.
Legal Proceedings
From time to time, our subsidiaries and affiliates have become
involved in litigation relating to claims arising out of their
operations in the normal course of business. The following is a
description of certain legal proceedings to which one of our
subsidiaries or another company in which we hold an interest is
a party. In our opinion, the ultimate resolution of these legal
proceedings would not likely have a material adverse effect on
our business, results of operations, financial condition or
liquidity.
On January 12, 2004, Old UGC, Inc., a wholly owned
subsidiary of UGC, filed a voluntary petition for relief under
Chapter 11 of the U.S. Bankruptcy Code with the U.S.
Bankruptcy Court for the Southern District of New York. On
September 21, 2004, UGC and Old UGC filed with the
Bankruptcy Court a plan of reorganization, which was
subsequently amended on October 5, 2004. On
November 10, 2004 the Bankruptcy Court confirmed the
amended plan of reorganization.
On November 24, 2004, Old UGC completed the restructuring
of its indebtedness and other obligations pursuant to the terms
of the approved plan of reorganization. In the restructuring,
Old UGC acquired (i) $638.0 million face amount of Old
UGC senior notes held by UGC in consideration for newly issued
common stock of Old UGC and (ii) $599.2 million face amount
of Old UGC senior notes held by IDT United, Inc. in
consideration for newly issued preferred stock of Old UGC. At
the time, UGC owned a 33% common equity interest and a 94% fully
diluted interest in IDT United. The Old UGC senior notes held by
third parties ($24.6 million face amount) were left
outstanding (after cure, through the repayment of approximately
$5.1 million in unpaid interest, and reinstatement). A
notice of redemption of the notes was sent to the trustee on
January 13, 2005 and the redemption of the notes is
scheduled to occur on February 15, 2005. In addition, Old
UGC paid approximately $3.1 million in settlement of
certain outstanding guarantee obligations.
Following the restructuring, UGC acquired the interests in IDT
United that it did not previously own for a total cash purchase
price of approximately $22.7 million. As a result of Old
UGCs restructuring and UGCs purchase of the IDT
United interests, UGC continues to hold 100% of Old UGCs
outstanding equity securities.
A1-29
On December 3, 2002, Europe Movieco Partners Limited filed
a request for arbitration against United Pan-Europe
Communications, N.V., a subsidiary of UGC that we refer to as
UPC, with the International Court of Arbitration of the
International Chamber of Commerce. The request contains claims
that are based on a cable affiliation agreement entered into
between the parties on December 21, 1999. The arbitral
proceedings were suspended from December 17, 2002 to
March 18, 2003. They have subsequently been reactivated and
the Arbitral Tribunal has given directions. In the proceedings,
Movieco claims (1) unpaid license fees due under the
affiliation agreement, plus interest, (2) an order for
specific performance of the affiliation agreement or, in the
alternative, damages for breach of that agreement, and
(3) legal and arbitration costs plus interest. Of the
unpaid license fees, approximately $11.0 million had been
accrued prior to UPCs commencing insolvency proceedings in
The Netherlands on December 3, 2002 (which we refer to as
the pre-petition claim). Movieco made a claim in the Dutch
insolvency proceedings for the pre-petition claim and following
consummation of the insolvency proceedings, equity of the
appropriate value was delivered to Movieco in December 2003. UPC
filed a counterclaim in the arbitral proceeding, stating that
the affiliation agreement is null and void because it breaches
Article 81 of the EC Treaty. UPC also relies on the Order
of the Southern District of New York dated January 7, 2003,
in which the New York court ordered that the rejection of the
affiliation agreement was approved effective March 1, 2003,
and that UPC shall have no further liability under the
affiliation agreement. On January 13, 2005, the Arbitral
Tribunal rendered an award in which Moviecos claim for the
unpaid license fees as described above was sustained and
determined that UPC has to pay $39,256,425 of unpaid license
fees, plus interest and legal fees of GBP 1.5 million. All
other claims and counterclaims were dismissed.
In 2000, certain of UGCs subsidiaries, including UPC,
pursued a transaction with Excite@Home which if completed, would
have merged UPCs chello broadband subsidiary with
Excite@Homes international broadband operations to form a
European Internet business. The transaction was not completed,
and discussions between the parties ended in late 2000. On
November 3, 2003, UGC received a complaint filed on
September 26, 2003 by Frank Morrow, on behalf of the
General Unsecured Creditors Liquidating Trust of At Home
in the United States Bankruptcy Court for the Northern District
of California, styled as In re At Home Corporation, Frank
Morrow v. UnitedGlobalCom, Inc. et al. (Case
No. 01-32495-TC). In general, the complaint alleged breach
of contract and fiduciary duty by UGC and Old UGC, Inc. The
plaintiff filed a claim in the Old UGC bankruptcy proceedings of
approximately $2.2 billion. On September 16, 2004, the
Bankruptcy Court in the Old UGC bankruptcy proceedings estimated
the claim against Old UGC at zero. On November 10, 2004,
the Bankruptcy Court confirmed Old UGCs plan of
reorganization, which provided that the claim of Excite@Home
would receive no distribution and released both Old UGC and UGC
from any liability in connection with such claim. The
reorganization became effective on November 24, 2004. UGC
will file a motion to dismiss in the California proceeding based
on the Bankruptcy Court ruling.
On April 26, 2002, UPC received a notice that certain
former shareholders of Cignal Global Communications filed a
lawsuit against UPC in the District Court in Amsterdam, The
Netherlands, claiming $200 million on the basis that UPC
failed to honor certain option rights that were granted to those
shareholders in connection with the acquisition of Cignal by
Priority Telecom. UPC believes that it has complied in full with
its obligations to these shareholders through the successful
completion of the initial public offering of Priority Telecom on
September 27, 2001. Accordingly, UPC believes that the
Cignal shareholders claims are without merit and intends
to defend this suit vigorously. In December 2003, certain
members and former members of the Supervisory Board of Priority
Telecom were put on notice that a tort claim may be filed
against them for their cooperation in the initial public
offering. The oral closing submission will be held on
March 8, 2005.
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Class Action Lawsuits Relating to the Merger
Transaction with UGC |
Since January 18, 2005, twenty-one lawsuits have been filed
in the Delaware Court of Chancery purportedly on behalf of the
public stockholders of UGC regarding the announcement on
January 18, 2005 of the execution
A1-30
by UGC and us of the agreement and plan of merger for the
combination of our companies. The defendants named in these
actions include UGC, Gene Schneider, Michael Fries, David Koff,
Robert Bennett, John Malone, John Cole, Bernard G. Dvorak, John
W. Dick, Paul A. Gould and Gary S. Howard (directors of UGC) and
us. The allegations in each of the complaints, which are
substantially similar, assert that the defendants have breached
their fiduciary duties of loyalty, care, good faith and candor
and that various defendants have engaged in self-dealing and
unjust enrichment, affirmed an unfair price, and impeded or
discouraged other offers for UGC or its assets in bad faith and
for improper motives. In addition to seeking to enjoin the
transaction, the complaints seek remedies including damages for
the public holders of UGC stock and an award of attorneys
fees to plaintiffs counsel. In connection with these
lawsuits, defendants have been served with one request for
production of documents. The defendants believe the lawsuits are
without merit.
A1-31
APPENDIX A: INFORMATION CONCERNING LIBERTY MEDIA
INTERNATIONAL, INC.
PART 2: CERTAIN RELATIONSHIPS AND RELATED PARTY
TRANSACTIONS
Agreements with or relating to UGC
In connection with the spin off of LMI from Liberty, Liberty
contributed substantially all of its shares of UGC common stock
and related contract rights and obligations to LMI. Accordingly,
we have described below certain contracts, agreements and
arrangements entered into by Liberty prior to the date of the
spin off and contributed or assigned by Liberty to LMI in
connection with the spin off.
On January 30, 2002, pursuant to an Amended and Restated
Agreement and Plan of Merger, dated December 31, 2001,
among Liberty, UGC, UGCs predecessor (Old UGC) and certain
of their respective subsidiaries, Liberty contributed to UGC all
of the Class B common stock of Old UGC and some of the
Class A common stock of Old UGC that it held in exchange
for newly issued shares of UGC Class C common stock.
Immediately after these contributions and contributions to UGC
by the founding stockholders of Old UGC (the founders), UGC
acquired Old UGC by merger of a subsidiary of UGC with and into
Old UGC. As a result of the merger, UGC became a publicly traded
company. Immediately following the merger, Liberty contributed
to UGC certain assets, including $200 million in cash, in
exchange for additional shares of UGC common stock. After giving
effect to the contributions as well as certain other
transactions, Liberty owned approximately 74% of UGCs
outstanding equity and approximately 94% of UGCs
outstanding voting power, subject to limitations on
Libertys voting rights.
In connection with these transactions, on January 30, 2002,
Liberty, UGC, Old UGC and the founders entered into other
agreements relating to the governance of UGC and Old UGC, which,
among other things, ensured that the founders remained in
control of UGC, as well as agreements relating to UGC
securities. These agreements included a stockholders agreement,
a standstill agreement and a registration rights agreement.
Except for the provisions described below, each of these
agreements was terminated on January 5, 2004, in connection
with Libertys acquisition of all of the outstanding shares
of UGC Class B common stock from the founders.
Also on January 30, 2002, UGC acquired from Liberty
approximately $751.2 principal amount at maturity of the senior
notes of Old UGC held by Liberty, as well as the debt and equity
interests owned by Liberty in an entity that held approximately
$598.8 million principal amount at maturity of the senior
notes of Old UGC, in exchange for approximately
$304.6 million of indebtedness owed by Liberty to Old UGC
and cash in the amount of approximately $143.9 million.
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Registration Rights Agreement |
On January 30, 2002, UGC, Liberty and certain subsidiaries
of Liberty entered into a registration rights agreement. In
connection with the spin off, LMI became entitled to the
benefits of the demand and piggy-back registration rights set
forth in the registration rights agreement. The registration
rights agreement is expected to be terminated in connection with
the consummation of the mergers.
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Old Standstill Agreement; Letter Agreement |
On January 30, 2002, UGC, Liberty and certain subsidiaries
of Liberty entered into a standstill agreement (which we refer
to as the old standstill agreement). Pursuant to the old
standstill agreement, Liberty was entitled to, among other
things, certain preemptive rights with respect to issuances of
shares of UGC Class A common stock. On November 12,
2003, Liberty entered into a letter agreement with UGC pursuant
to which Liberty agreed to a limited waiver of its preemptive
rights in connection with the consummation of the acquisition of
UGC Europe, Inc. by UGC, provided that Libertys preemptive
rights under the old standstill agreement would survive the
termination of the old standstill agreement, subject to
modification. These preemptive rights were
A2-1
contributed to LMI in connection with the spin off. The old
standstill agreement and the letter agreement are expected to be
terminated in connection with the consummation of the mergers.
On January 5, 2004, Liberty acquired approximately
8.2 million shares of UGC Class B common stock from
the founders, including Gene W. Schneider, Chairman of the Board
and former Chief Executive Officer of UGC, and certain trusts
for the benefit of Mr. Schneiders family,
representing all of the outstanding shares of UGC Class B
common stock, in exchange for approximately 12.6 million
shares of Liberty Series A common stock and approximately
$12.9 million in cash. We refer to this transaction as the
founders transaction. Upon the consummation of the founders
transaction, the material terms of the old standstill agreement
terminated, but the preemptive rights set forth therein survived
in accordance with and as modified by the letter agreement, and
Liberty obtained the power to elect all of the members of
UGCs board of directors and, generally, to control UGC.
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Noncompetition and Nonsolicitation Agreements |
On December 19, 2003, in connection with the founders
transaction, Liberty entered into noncompetition and
nonsolicitation agreements with Michael T. Fries, Chief
Executive Officer and a director of UGC, Mark L. Schneider,
former director of UGC and former Chief Executive Officer of the
chellomedia division of UGC Europe, Ellen P. Spangler, Senior
Vice President of Business and Legal Affairs and Secretary of
UGC, and Tina M. Wildes, former director and former Senior Vice
President of Business Administration of UGC, providing for the
issuance of, respectively, 228,750 shares,
228,750 shares, 134,935 shares and 134,934 shares
of Liberty Series A common stock to such persons in
exchange for certain noncompetition and nonsolicitation
covenants from such persons to Liberty. In connection with the
spin off of LMI from Liberty, the benefits of these agreements
were assigned to LMI.
On January 5, 2004, in connection with the founders
transaction, Liberty and UGC entered into a standstill agreement
(which we refer to as the new standstill agreement). The new
standstill agreement, which Liberty assigned to LMI in
connection with the spin off, generally limits LMIs
ownership of UGCs common stock to 90% or less, unless LMI
makes an offer or effects another transaction to acquire all of
UGCs common stock. Except in the case of a short-form
merger in which UGCs stockholders are entitled to
statutory appraisal rights, such offer or transaction must be at
a price at or above a fair value of UGCs shares determined
through an appraisal process if a majority of UGCs
independent directors has voted against approval or acceptance
of such transaction. The mergers comply with LMIs
obligations under the new standstill agreement. The new
standstill agreement is expected to be terminated in connection
with the consummation of the mergers.
On June 7, 2004, LMI and UGC entered into an agreement
pursuant to which they agreed to obtain certain services from
each other. Pursuant to the UGC services agreement, UGC provides
LMI with specified services and benefits, including employee
benefit administration, payroll, tax withholding, workers
compensation administration and enrollment in UGCs benefit
plans, in each case with respect to persons employed by LMI, and
such other services as LMI and UGC may from time to time
mutually determine to be necessary or desirable. Also, pursuant
to the UGC services agreement, LMI provides to UGC certain
services typically performed by accounting and tax department
personnel, which may include services provided to LMI by
Libertys accounting and tax department personnel pursuant
to a facilities and services agreement that LMI entered into
with Liberty. See Agreements with
Liberty Liberty Services Agreement below.
Pursuant to the UGC services agreement, LMI pays UGC an annual
fee of $20,000 for providing the foregoing benefits and services
to LMI and its employees. In addition, LMI reimburses UGC for
direct out-of-pocket costs incurred by UGC for third party
services in providing the foregoing benefits and services to LMI
and LMIs employees. UGC pays LMI the portion of any
accounting or tax department personnel costs (taking into
A2-2
account wages and fringe benefits) that is expected to be
attributable to time spent performing services for UGC under the
UGC services agreement. LMI and UGC evaluate all charges for
reasonableness periodically and make any adjustments as they
mutually agree upon.
The UGC services agreement was renewed automatically on
January 1, 2005. The UGC services agreement is expected to
be terminated in connection with the consummation of the mergers.
Agreements with Liberty
In connection with LMIs spin off from Liberty, LMI and
Liberty entered into a series of agreements, under which LMI has
certain rights and liabilities. The following is a summary of
the terms of the material agreements LMI entered into with
Liberty. This summary is qualified by reference to the full text
of the agreements which have been included as exhibits to the
registration statement on Form S-4 being filed by Liberty
Global in connection with the mergers.
On June 7, 2004, LMI, Liberty and certain subsidiaries of
Liberty entered into a reorganization agreement to provide for,
among other things, the principal corporate transactions
required to effect the spin off of LMI. Pursuant to the
reorganization agreement, Liberty transferred to LMI, or caused
its subsidiaries to transfer to LMI, substantially all of the
assets comprising Libertys International Group not already
held by LMI, cash and certain financial assets. The
reorganization agreement provides for mutual indemnification
obligations, which are designed to make LMI financially
responsible for substantially all of the liabilities relating to
the businesses of Libertys International Group prior to
the spin off, as well as for all liabilities incurred by LMI
after the spin off, and to make Liberty financially responsible
for all of LMIs potential liabilities which are not
related to LMIs businesses, including, for example,
liabilities arising as a result of LMI having been a subsidiary
of Liberty. In addition, the reorganization agreement provides
for each of LMI and Liberty to preserve the confidentiality of
all confidential or proprietary information of the other party
for three years following the spin off, subject to customary
exceptions, including disclosures required by law, court order
or government regulation.
|
|
|
Liberty Services Agreement |
On June 7, 2004, LMI and Liberty entered into a facilities
and services agreement pursuant to which Liberty provides LMI
with specified services and benefits, including:
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|
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|
|
the lease of office space at Libertys executive
headquarters, including furniture and furnishings and the use of
building services; |
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|
|
telephone, utilities, technical assistance (including
information technology, management information systems, network
maintenance and data storage), computers, office supplies,
postage, courier service, cafeteria access and other office and
administrative services; |
|
|
|
insurance administration and risk management services; |
|
|
|
other services typically performed by Libertys accounting,
treasury, engineering, legal, investor relations and tax
department personnel; and |
|
|
|
such other services as LMI and Liberty may from time to time
mutually determine to be necessary or desirable. |
LMI makes payments to Liberty under the Liberty services
agreement based upon an annual per-square foot occupancy charge
and an allocated portion of Libertys personnel costs
(taking into account wages and fringe benefits) of the
departments expected to provide services to LMI. The allocated
portion of these personnel costs will be based upon the
anticipated percentages of time to be spent by Liberty personnel
in each department performing services for LMI under the Liberty
services agreement. LMI also reimburses Liberty for direct
out-of-pocket costs incurred by Liberty for third party services
provided to LMI that are not included in LMIs occupancy
charge. LMI and Liberty evaluate all charges for reasonableness
semi-annually and make any adjustments to these charges as they
mutually agree upon. LMI paid Liberty approximately
$1.325 million in fees
A2-3
under the Liberty services agreement for the period beginning on
the date of the spin off and ending on December 31, 2004.
The Liberty services agreement will continue in effect for two
years, unless earlier terminated (1) by LMI at any time on
at least 30 days prior written notice, (2) by
Liberty at any time on at least 180 days prior
notice, (3) by Liberty upon written notice to LMI,
following certain changes in control of LMI or LMI being the
subject of certain bankruptcy or insolvency-related events, or
(4) by LMI upon written notice to Liberty, following
certain changes in control of Liberty or Liberty being the
subject of certain bankruptcy or insolvency-related events. The
mergers do not result in a change in control of LMI under the
Liberty services agreement.
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Agreements for Aircraft Joint Ownership and
Management |
Prior to the spin off, Liberty transferred to LMI a 25%
ownership interest in two of Libertys aircraft. In
connection with the transfer, LMI and Liberty entered into
certain agreements pursuant to which, among other things, LMI
and Liberty share the costs of Libertys flight department
and the costs of maintaining and operating the jointly owned
aircraft. Costs are allocated based upon either LMIs and
Libertys respective usage or ownership of such aircraft,
depending on the type of cost. LMIs allocable share of
costs under these agreements amounted to approximately $229,000
for the period beginning on the date of the spin off and ending
on December 31, 2004.
Prior the spin off, LMI entered into a tax sharing agreement
with Liberty that governs Libertys and LMIs
respective rights, responsibilities and obligations with respect
to taxes and tax benefits, the filing of tax returns, the
control of audits and other tax matters. References in this
summary description of the tax sharing agreement to the terms
tax or taxes mean taxes as well as any
interest, penalties, additions to tax or additional amounts in
respect of such taxes.
Prior to the spin off, LMI and their eligible subsidiaries
joined with Liberty in the filing of a consolidated return for
U.S. federal income tax purposes and also joined with
Liberty in the filing of certain consolidated, combined, and
unitary returns for state, local, and foreign tax purposes.
However, for periods (or portions thereof) beginning after the
spin off, LMI no longer joins with Liberty in the filing of any
federal, state, local or foreign consolidated, combined or
unitary tax returns.
Under the tax sharing agreement, except as described below,
Liberty is responsible for all U.S. federal, state, local
and foreign income taxes reported on a consolidated, combined or
unitary return that includes LMI or one of LMIs
subsidiaries, on the one hand, and Liberty or one of its
subsidiaries, on the other hand. In addition, except for certain
liabilities relating to dual consolidated losses and gain
recognition agreements that are described below, Liberty will
indemnify LMI and its subsidiaries against any liabilities
arising under its tax sharing agreement with AT&T Corp. LMI
is responsible for all other taxes (including income taxes not
reported on a consolidated, combined, or unitary return by
Liberty or its subsidiaries) that are attributable to LMI or one
of its subsidiaries, whether accruing before, on or after the
spin off. LMI has no obligation to reimburse Liberty for the
use, in any period following the spin off, of a tax benefit
created before the spin off, regardless of whether such benefit
arose with respect to taxes reported on a consolidated, combined
or unitary basis.
Notwithstanding the tax sharing agreement, under
U.S. Treasury Regulations, each member of a consolidated
group is severally liable for the U.S. federal income tax
liability of each other member of the consolidated group.
Accordingly, with respect to periods in which LMI (or LMIs
subsidiaries) have been included in Libertys, AT&T
Corp.s or Tele-Communications, Inc.s consolidated
group, LMI (or LMIs subsidiaries) could be liable to the
U.S. government for any U.S. federal income tax
liability incurred, but not discharged, by any other member of
such consolidated group. However, if any such liability were
imposed, LMI would generally be entitled to be indemnified by
Liberty for tax liabilities allocated to Liberty under the tax
sharing agreement.
LMIs ability to obtain a refund from a carryback of a tax
benefit to a year in which LMI and Liberty (or any of their
respective subsidiaries) joined in the filing of a consolidated,
combined or unitary return will be at the
A2-4
discretion of Liberty. Moreover, any refund that LMI may obtain
will be net of any increase in taxes resulting from the
carryback for which Liberty is otherwise liable under the tax
sharing agreement.
The tax sharing agreement provides that LMI will enter into a
closing agreement with the Internal Revenue Service with respect
to unrecaptured dual consolidated losses attributable to LMI or
any of its subsidiaries under Section 1503(d) of the Code.
Moreover, LMI agrees to be liable for any deemed adjustment to
taxes resulting from the recapture of any dual consolidated loss
so attributed to LMI, if such loss is required to be recaptured
as a result of one or more specified events described in the
U.S. Treasury Regulations occurring after the distribution
date. For purposes of the tax sharing agreement, the deemed
adjustment to taxes generally will be an amount equal to the
recaptured dual consolidated loss multiplied by the highest
applicable statutory rate for the applicable taxing
jurisdiction, plus interest and any penalties. LMI must also
indemnify and hold harmless Liberty and its subsidiaries against
any liability arising under Libertys tax sharing agreement
with AT&T Corp. with respect to such recaptured dual
consolidated loss.
The tax sharing agreement provides that LMI is liable for any
deemed adjustment to taxes resulting from the recognition of
gain pursuant to a gain recognition agreement entered into by
Liberty (or any parent of a consolidated group of which LMI or
any of its subsidiaries were formerly a member) in accordance
with Treasury Regulations Section 1.367(a)-8(b), but only
if the recognition of such gain results in an adjustment to the
basis of any property held by LMI or any of its subsidiaries.
For purposes of the tax sharing agreement, the deemed adjustment
to taxes generally will be an amount equal to the gain
recognized multiplied by the highest applicable statutory rate
for the applicable taxing jurisdiction, plus interest and any
penalties. LMI must also indemnify and hold harmless Liberty and
its subsidiaries against any liability arising under its tax
sharing agreement with AT&T Corp. with respect to such
recognition of gain. However, the amount LMI is required to
indemnify Liberty and its subsidiaries for any deemed adjustment
to taxes or any liability arising under Libertys tax
sharing agreement with AT&T Corp. will be reduced by any
amount that Liberty or any of its subsidiaries receives pursuant
to any indemnification arrangement with any other person arising
from or relating to recognition of gain under such gain
recognition agreement.
To the extent permitted by applicable tax law, LMI and Liberty
will treat any payments made under the tax sharing agreement as
a capital contribution or distribution (as applicable) made
immediately prior to the spin off, and accordingly, as not
includible in the taxable income of the recipient. However, if
any payment causes, directly or indirectly, an increase in the
taxable income of the recipient (or its affiliates), the
payors payment obligation will be grossed up to take into
account the deemed taxes owed by the recipient (or its
affiliates).
LMI is responsible for preparing and filing all tax returns that
include LMI or one of its subsidiaries other than any
consolidated, combined or unitary income tax return that
includes LMI or one of its subsidiaries, on the one hand, and
Liberty or one of its subsidiaries, on the other hand, and LMI
has the authority to respond to and conduct all tax proceedings,
including tax audits, involving any taxes or any deemed
adjustment to taxes reported on such tax returns. Liberty is
responsible for preparing and filing all consolidated, combined
or unitary income tax returns that include LMI or one of its
subsidiaries, on the one hand, and Liberty or one of its
subsidiaries, on the other hand, and Liberty has the authority
to respond to and conduct all tax proceedings, including tax
audits, relating to taxes or any deemed adjustment to taxes
reported on such tax returns. Liberty also has the authority to
respond to and conduct all tax proceedings relating to any
liability arising under its tax sharing agreement with AT&T
Corp. LMI is entitled to participate in any tax proceeding
involving any taxes or deemed adjustment to taxes, or any
liabilities under Libertys tax sharing agreement with
AT&T Corp., for which LMI is liable under the tax sharing
agreement. The tax sharing agreement further provides for
cooperation between Liberty and LMI with respect to tax matters,
the exchange of information and the retention of records that
may affect the tax liabilities of the parties to the agreement.
Finally, the tax sharing agreement requires that neither LMI nor
any of its subsidiaries will take, or fail to take, any action
where such action, or failure to act, would be inconsistent with
or prohibit the spin off from qualifying as a tax-free
transaction to Liberty and to Libertys stockholders as of
the record date for the spin off under Section 355 of the
Code. Moreover, LMI must indemnify Liberty and its subsidiaries,
officers and directors for any loss, including any deemed
adjustment to taxes of Liberty, resulting from (1) such
action or failure to act, if such action or failure to act
precludes the spin off from qualifying as a tax-free transaction
or (2) any breach of
A2-5
any representation or covenant given by LMI or one of its
subsidiaries in connection with the tax opinion delivered to
Liberty by Skadden, Arps, Slate, Meagher & Flom LLP and
any other tax opinion delivered to Liberty, in each case
relating to the qualification of the spin off as a tax-free
distribution described in Section 355 of the Code. For
purposes of the tax sharing agreement, the deemed adjustment to
taxes generally will be an amount equal to the gain recognized
by Liberty multiplied by the highest applicable statutory rate
for the applicable taxing jurisdiction, plus interest and any
penalties.
A2-6
APPENDIX A: INFORMATION CONCERNING LIBERTY MEDIA
INTERNATIONAL, INC.
PART 3 MANAGEMENTS DISCUSSION AND ANALYSIS
OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS AND
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The capitalized terms used below have been defined in the notes
to the accompanying September 30, 2004 condensed
consolidated financial statements. In the following text, the
terms, we, our, our company
and us may refer, as the context requires, to LMC
International (prior to June 7, 2004), LMI and its
consolidated subsidiaries (on and subsequent to June 7,
2004) or both. Unless otherwise indicated, convenience
translations into U.S. dollars are calculated as of
September 30, 2004.
The following discussion and analysis provides information
concerning our results of operations and financial condition.
This discussion should be read in conjunction with our
September 30, 2004 condensed consolidated financial
statements, the December 31, 2003 combined financial
statements and the notes thereto included elsewhere herein.
Overview
We own majority and minority interests in international
broadband distribution and programming companies. On
June 7, 2004, Liberty completed the spin off of LMI to
Libertys shareholders. In connection with the spin off,
holders of Liberty Common Stock on the June 1, 2004 Record
Date received 0.05 of a share of LMI Series A Common Stock
for each share of Liberty Series A Common Stock owned at
5:00 p.m. New York City time on the Record Date and
0.05 of a share of LMI Series B Common Stock for each share
of Liberty Series B Common Stock owned at 5:00 p.m.
New York City time on the Record Date. The spin off was intended
to qualify as a tax-free spin off. For financial reporting
purposes, the spin off is deemed to have occurred on
June 1, 2004.
Following the spin off, we and Liberty operate independently,
and neither has any stock ownership, beneficial or otherwise, in
the other.
Our operating subsidiaries and most significant equity method
investments at September 30, 2004 are as follows:
Operating subsidiaries:
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Puerto Rico Cable |
|
Pramer |
|
PHL |
|
UGC |
Significant equity method investments:
Our most significant subsidiary is UGC, an international
broadband communications provider of video, voice, and Internet
access services with operations in eleven European countries and
three Latin American countries. UGCs largest operating
segments are located in The Netherlands, France, Austria and
Chile. At September 30, 2004, we owned approximately
417 million shares of UGC Common Stock, representing an
approximate 53% economic interest and a 90% voting interest. As
further described in note 5 to the accompanying
September 30, 2004 condensed consolidated financial
statements, we began consolidating UGC on January 1, 2004.
Prior to that date, we used the equity method to account for our
investment in UGC. PHL and Puerto Rico Cable are wholly-owned
subsidiaries that own and operate cable television systems in
Ireland and Puerto Rico, respectively. As further described in
note 5 to the accompanying September 30, 2004
condensed consolidated financial statements, we acquired PHL
during the second quarter of 2004. Pramer is a wholly-owned
Argentine programming company that supplies programming services
to cable television and DTH satellite distributors in Latin
America, Spain and some Spanish speaking markets in the United
States. J-COM is a 45%-
A3-1
owned equity affiliate that owns and operates broadband
distribution businesses in Japan. JPC is a 50%-owned affiliate
that owns and invests in a variety of programming channels in
Japan.
We believe our primary opportunities in our international
markets include continued growth in subscribers; increasing the
average revenue per unit by continuing to rollout broadband
communication services such as telephony, Internet access and
digital video; developing foreign programming businesses; and
maximizing operating efficiencies on a regional basis. Potential
impediments to achieving these goals include increasing price
competition for broadband services; competition from alternative
video distribution technologies; and availability of sufficient
capital to finance the rollout of new services.
Results of Operations
Due to the January 1, 2004 change from the equity method to
the consolidation method of accounting for our investment in
UGC, our historical revenue and expenses for the three and nine
months ended September 30, 2004 are not comparable to the
corresponding prior year periods. Accordingly, in addition to a
discussion of our historical results of operations, we have also
included an analysis of our operating results based on the
approach we use to analyze our reportable operating segments. As
further described below, we believe that our operating segment
discussion provides a more meaningful basis for comparing
UGCs operating results than does our historical discussion.
Changes in foreign currency exchange rates have a significant
impact on our operating results as all of our operating segments
except Puerto Rico Cable have functional currencies other than
the U.S. dollar. Our primary exposure is currently to the
euro as over 50% of our U.S. dollar revenue during the nine
months ended September 30, 2004 was derived from countries
where the euro is the functional currency. In addition, our
operating results are also significantly impacted by changes in
the exchange rates for the Japanese yen, Chilean peso and, to a
lesser degree, other local currencies in Europe.
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Three and Nine Months Ended September 30, 2004 and
2003 |
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Discussion and Analysis of Historical Operating
Results |
As noted above, we began consolidating UGC effective
January 1, 2004. Unless otherwise indicated in the
discussion below, the significant increases in our historical
revenue, expenses and other items during the 2004 periods, as
compared to the corresponding prior year periods, are primarily
attributable to this change in our consolidated reporting
entities.
We incurred stock-based compensation expense of $13,377,000 and
$66,120,000 during the three and nine months ended
September 30, 2004, respectively. Substantially all of such
amounts are attributable to UGCs stock incentive awards.
The nine-month amount includes a $50,409,000 first quarter
charge to reflect a change from fixed-plan accounting to
variable-plan accounting for all of UGCs stock options.
This change in accounting is attributable to adjustments to
certain terms of such UGC options in connection with UGCs
February 2004 rights offering. The $13,377,000 expense during
the three-month period is attributable primarily to an increase
in the market price of the common stock underlying UGCs
variable-plan options and SARs. Compensation expense with
respect to the LMI and Liberty stock incentive awards held by
LMI employees was not significant during the 2004 and 2003
periods. However, similar to the accounting for UGC stock
incentive awards, all of the LMI options and Liberty stock
incentive awards held by LMI employees are accounted for as
variable-plan stock incentive awards. As such, stock
compensation expense with respect to LMI and Liberty options
held by LMI employees and UGC stock incentive awards held by UGC
employees is subject to adjustment based on vesting schedules
and the market value of the underlying common stock, and
ultimately on the final determination of market value when the
incentive awards are exercised.
We recorded charges to reflect the impairment of long-lived
assets of $16,623,000 and $26,000,000 during the second and
third quarters of 2004, respectively. The third quarter charge
of $26,000,000 is the result of our assessment of the
recoverability of enterprise level goodwill that is associated
with one of our consolidated subsidiaries. This assessment was
triggered by our determination that it was more-likely-than-not
that we will sell this subsidiary. The second quarter 2004
charge was recorded by UGC to write-down the long-lived assets of
A3-2
certain telecommunications operations in Norway. For additional
information, see note 9 to the accompanying condensed
consolidated financial statements.
Interest and dividend income increased $12,532,000 and
$25,861,000 during the three and nine months ended
September 30, 2004, respectively, as compared to the
corresponding prior year periods. In addition to the increases
of $5,380,000 and $16,903,000, respectively, that are
attributable to the January 1, 2004 consolidation of UGC,
we also experienced an increase in interest and dividend income
attributable to dividends on the ABC Family preferred stock that
was contributed by Liberty to our company in connection with the
spin off.
Our share of earnings of affiliates increased $7,683,000 and
$43,685,000 during the three and nine months ended
September 30, 2004, respectively, as compared to the
corresponding prior year periods. Such increases primarily are
attributable to increases in our share of the net earnings of
J-COM and, to a lesser extent, JPC. The increase in J-COMs
net earnings is primarily attributable to revenue growth due to
increases in the subscribers to J-COMs telephone, Internet
and cable television services. During the nine months ended
September 30, 2003, we did not recognize our share of
UGCs losses as our investment in UGC previously had been
reduced to zero and we had no commitment to make additional
investments in UGC. For additional discussion of J-COMs
operating results, see Discussion and Analysis of
Reportable Segments below.
The details of our realized and unrealized gains (losses) on
derivative instruments are as follows for the indicated periods:
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|
Three Months Ended | |
|
Nine Months Ended | |
|
|
September 30, | |
|
September 30, | |
|
|
| |
|
| |
|
|
2004 | |
|
2003 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Amounts in thousands) | |
Foreign exchange derivatives
|
|
$ |
1,858 |
|
|
$ |
(10,257 |
) |
|
$ |
8,074 |
|
|
$ |
(6,679 |
) |
Total return debt swaps
|
|
|
510 |
|
|
|
6,180 |
|
|
|
(1,001 |
) |
|
|
23,028 |
|
Variable forward transaction (News Corp. Class A
Common Stock)
|
|
|
13,834 |
|
|
|
|
|
|
|
20,002 |
|
|
|
|
|
UGC interest rate swaps and caps
|
|
|
(16,838 |
) |
|
|
|
|
|
|
(14,512 |
) |
|
|
|
|
Other
|
|
|
1,829 |
|
|
|
(333 |
) |
|
|
3,655 |
|
|
|
(333 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,193 |
|
|
$ |
(4,410 |
) |
|
$ |
16,218 |
|
|
$ |
16,016 |
|
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|
|
|
|
|
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|
The details of our foreign currency transaction gains (losses)
are as follows for the indicated periods.
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|
Three Months | |
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Ended | |
|
Nine Months Ended | |
|
|
September 30, | |
|
September 30, | |
|
|
| |
|
| |
|
|
2004 | |
|
2003 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Amounts in thousands) | |
U.S. dollar debt issued by UGCs European subsidiaries
|
|
$ |
(7,525 |
) |
|
$ |
|
|
|
$ |
(7,525 |
) |
|
$ |
|
|
Intercompany notes denominated in a currency other than the
entities functional currency
|
|
|
27,628 |
|
|
|
|
|
|
|
24,808 |
|
|
|
|
|
U.S. dollar debt issued and cash held by VTR
|
|
|
2,401 |
|
|
|
|
|
|
|
(2,493 |
) |
|
|
|
|
Euro denominated debt issued by the parent company of UGC
|
|
|
(11,982 |
) |
|
|
|
|
|
|
(17,218 |
) |
|
|
|
|
Euro denominated cash held by the parent company of UGC
|
|
|
6,845 |
|
|
|
|
|
|
|
(4,580 |
) |
|
|
|
|
U.S. dollar denominated debt issued by Pramer
|
|
|
126 |
|
|
|
(309 |
) |
|
|
472 |
|
|
|
3,458 |
|
Other
|
|
|
4,395 |
|
|
|
772 |
|
|
|
(479 |
) |
|
|
1,196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
21,888 |
|
|
$ |
463 |
|
|
$ |
(7,015 |
) |
|
$ |
4,654 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We recognized a $168,301,000 pre-tax gain on the exchange of
investment securities during the third quarter of 2004. This
gain, which is attributable to the July 19, 2004 conversion
of our investment in Telewest Communications plc Senior
Notes and Senior Discount Notes into 18,417,883 shares or
approximately 7.5% of
A3-3
the issued and outstanding common stock of Telewest, represents
the excess of the fair value of the Telewest common stock
received over our cost basis in the Senior Notes and Senior
Discount Notes.
We recognized other-than-temporary declines in fair values of
investments of $15,115,000 and $5,612,000 during the nine months
ended September 30, 2004 and 2003, respectively. The 2004
amount includes $12,429,000 representing the excess of the
carrying cost over the fair value of the Telewest shares held by
our company at September 30, 2004. We considered such
excess to be other-than-temporary as we intend to dispose of our
remaining Telewest shares during the fourth quarter of 2004.
We recognized gains (losses) on dispositions of assets of
($12,092,000) and $12,632,000 during the three and nine months
ended September 30, 2004. The $12,029,000 loss during the
three-month period includes a $17,281,000 loss on the
disposition of 10,551,509 Telewest shares and a $6,878,000 gain
associated with the redemption of our investment in certain
bonds. During the nine-month period, the net impact of these
transactions was more than offset by a $25,256,000 gain that we
recognized during the second quarter of 2004 in connection with
the contribution to JPC of certain indirect interests in an
equity method affiliate. For additional information concerning
this transaction, see note 7 to the accompanying condensed
consolidated financial statements.
During the nine months ended September 30, 2004, we
recognized a $35,787,000 gain on extinguishment of debt. Such
gain primarily relates to the $31,916,000 gain recognized by UGC
in connection with the first quarter 2004 consummation of
UPC Polskas plan of reorganization and emergence from
U.S. bankruptcy proceedings. For additional information,
see note 11 to the accompanying condensed consolidated
financial statements.
We recognized income tax expense of $91,027,000 and $25,999,000
during the nine months ended September 30, 2004 and 2003,
respectively. The 2004 amount differs from the amount that would
have resulted from the application of statutory tax rates due
primarily to (i) increases in the valuation allowances
provided against our net operating loss carryforwards and other
deferred tax assets and (ii) the impact of certain
permanent differences between the financial and tax accounting
treatment of interest and other items associated with cross
jurisdictional intercompany loans and investments. The effect of
these items was partially offset by a $22,914,000 deferred tax
benefit that we recorded during the third quarter of 2004 to
reflect a reduction in the estimated blended state tax rate used
to compute our net deferred tax liabilities. Such reduction
represents a change in estimate that resulted from our
re-evaluation of this rate upon our becoming a separate tax
paying entity in connection with the spin off. The difference
between the actual and expected rate during the nine months
ended September 30, 2003 is primarily attributable to
foreign income that is taxed at a higher rate than the federal
statutory rate.
|
|
|
Discussion and Analysis of Reportable
Segments |
For purposes of evaluating the performance of our operating
segments, we compare and analyze 100% of the revenue and
operating cash flow of our reportable operating segments
regardless of whether we use the consolidation or equity method
to account for such reportable segments. Accordingly, in the
following tables, we have presented 100% of the revenue,
operating expenses, SG&A expenses and operating cash flow of
our reportable segments, notwithstanding the fact that we used
the equity method to account for (i) UGC during the 2003
periods and (ii) our 45% investment in J-COM for all
periods presented. The revenue, operating expenses, SG&A
expenses and operating cash flow of UGC for the 2003 periods and
J-COM for all periods presented are then eliminated to arrive at
the reported amounts. It should be noted, however, that this
presentation is not in accordance with GAAP since the results of
operations of equity method investments are required to be
reported on a net basis. Further, we could not, among other
things, cause any noncontrolled affiliate to distribute to us
our proportionate share of the revenue or operating cash flow of
such affiliate. For additional information concerning our
operating segments, including a discussion of our performance
measures and a reconciliation of operating cash flow to pre-tax
earnings (loss), see note 17 to the accompanying condensed
consolidated financial statements.
The financial information presented below for equity method
affiliates was obtained directly from those affiliates. We do
not control the decision-making process or business management
practices of our equity affiliates. Accordingly, we rely on the
management of these affiliates and their independent auditors to
provide us with financial information prepared in accordance
with GAAP that we use in the application of the equity
A3-4
method. We are not aware, however, of any errors in or possible
misstatements of the financial information provided by our
equity affiliates that would have a material effect on 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) as well
as an analysis of operating cash flow by operating segment for
the three and nine months ended September 30, 2004, as
compared to the corresponding prior year periods. In each case,
the tables present (i) the amounts reported by each of our
operating segments for the comparative periods, (ii) the
U.S. dollar change and percentage change from period to
period, and (iii) the U.S. dollar equivalent of the
change and 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 2004 and 2003 periods.
UPC Broadband France acquired Noos on July 1, 2004.
Accordingly, increases in the amounts presented for
UGC Broadband France during the three and nine
months ended September 30, 2004, as compared to the
corresponding prior year periods, are primarily attributable to
the Noos acquisition. For additional information concerning the
Noos acquisition, see note 5 to the accompanying condensed
consolidated financial statements.
|
|
|
Revenue of our Reportable Segments |
An analysis of the revenue of our reportable segments for the
indicated periods is set forth below (dollar amounts in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, | |
|
|
| |
|
|
|
|
|
|
Increase (Decrease) | |
|
|
|
|
Increase (Decrease) | |
|
Excluding FX | |
|
|
|
|
| |
|
| |
|
|
2004 | |
|
2003 | |
|
$ | |
|
% | |
|
$ | |
|
% | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
UGC Broadband The Netherlands
|
|
$ |
178,996 |
|
|
$ |
150,838 |
|
|
|
28,158 |
|
|
|
18.7 |
% |
|
|
14,028 |
|
|
|
9.3 |
% |
UGC Broadband France
|
|
|
120,591 |
|
|
|
29,744 |
|
|
|
90,847 |
|
|
|
305.4 |
% |
|
|
88,329 |
|
|
|
296.0 |
% |
UGC Broadband Austria
|
|
|
72,482 |
|
|
|
65,085 |
|
|
|
7,397 |
|
|
|
11.4 |
% |
|
|
1,692 |
|
|
|
2.6 |
% |
UGC Broadband Other Europe
|
|
|
173,587 |
|
|
|
137,285 |
|
|
|
36,302 |
|
|
|
26.4 |
% |
|
|
21,041 |
|
|
|
15.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UGC Broadband Total Europe
|
|
|
545,656 |
|
|
|
382,952 |
|
|
|
162,704 |
|
|
|
42.5 |
% |
|
|
125,090 |
|
|
|
32.7 |
% |
UGC Broadband Chile (VTR)
|
|
|
75,096 |
|
|
|
58,608 |
|
|
|
16,488 |
|
|
|
28.1 |
% |
|
|
9,436 |
|
|
|
16.1 |
% |
J-COM
|
|
|
367,062 |
|
|
|
312,929 |
|
|
|
54,133 |
|
|
|
17.3 |
% |
|
|
32,667 |
|
|
|
10.4 |
% |
Corporate and all other
|
|
|
123,341 |
|
|
|
94,167 |
|
|
|
29,174 |
|
|
|
31.0 |
% |
|
|
23,872 |
|
|
|
25.4 |
% |
Elimination of intercompany transactions
|
|
|
(35,286 |
) |
|
|
(33,261 |
) |
|
|
(2,025 |
) |
|
|
N.M. |
|
|
|
N.M. |
|
|
|
N.M. |
|
Elimination of equity affiliates
|
|
|
(367,062 |
) |
|
|
(787,444 |
) |
|
|
420,382 |
|
|
|
N.M. |
|
|
|
N.M. |
|
|
|
N.M. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated LMI
|
|
$ |
708,807 |
|
|
$ |
27,951 |
|
|
|
680,856 |
|
|
|
N.M. |
|
|
|
N.M. |
|
|
|
N.M. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A3-5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, | |
|
|
| |
|
|
|
|
|
|
Increase (Decrease) | |
|
|
|
|
Increase (Decrease) | |
|
Excluding FX | |
|
|
|
|
| |
|
| |
|
|
2004 | |
|
2003 | |
|
$ | |
|
% | |
|
$ | |
|
% | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
UGC Broadband The Netherlands
|
|
$ |
519,948 |
|
|
$ |
430,620 |
|
|
|
89,328 |
|
|
|
20.7 |
% |
|
|
41,340 |
|
|
|
9.6 |
% |
UGC Broadband France
|
|
|
182,850 |
|
|
|
84,435 |
|
|
|
98,415 |
|
|
|
116.6 |
% |
|
|
89,699 |
|
|
|
106.2 |
% |
UGC Broadband Austria
|
|
|
221,780 |
|
|
|
189,880 |
|
|
|
31,900 |
|
|
|
16.8 |
% |
|
|
11,393 |
|
|
|
6.0 |
% |
UGC Broadband Other Europe
|
|
|
506,095 |
|
|
|
411,266 |
|
|
|
94,829 |
|
|
|
23.1 |
% |
|
|
61,069 |
|
|
|
14.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UGC Broadband Total Europe
|
|
|
1,430,673 |
|
|
|
1,116,201 |
|
|
|
314,472 |
|
|
|
28.2 |
% |
|
|
203,501 |
|
|
|
18.2 |
% |
UGC Broadband Chile (VTR)
|
|
|
216,537 |
|
|
|
161,667 |
|
|
|
54,870 |
|
|
|
33.9 |
% |
|
|
25,382 |
|
|
|
15.7 |
% |
J-COM
|
|
|
1,090,476 |
|
|
|
885,517 |
|
|
|
204,959 |
|
|
|
23.1 |
% |
|
|
116,108 |
|
|
|
13.1 |
% |
Corporate and all other
|
|
|
320,725 |
|
|
|
271,841 |
|
|
|
48,884 |
|
|
|
18.0 |
% |
|
|
30,173 |
|
|
|
11.1 |
% |
Elimination of intercompany transactions
|
|
|
(102,166 |
) |
|
|
(93,627 |
) |
|
|
(8,539 |
) |
|
|
N.M. |
|
|
|
N.M. |
|
|
|
N.M. |
|
Elimination of equity affiliates
|
|
|
(1,090,476 |
) |
|
|
(2,261,183 |
) |
|
|
1,170,707 |
|
|
|
N.M. |
|
|
|
N.M. |
|
|
|
N.M. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated LMI
|
|
$ |
1,865,769 |
|
|
$ |
80,416 |
|
|
|
1,785,353 |
|
|
|
N.M. |
|
|
|
N.M. |
|
|
|
N.M. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N.M. Not Meaningful
UGC Broadband The Netherlands. UGC
Broadband The Netherlands revenue increased
18.7% and 20.7% for the three and nine months ended
September 30, 2004, respectively, as compared to the
corresponding prior year periods. Excluding the effects of
foreign exchange fluctuations, such increases were 9.3% and
9.6%, respectively. The majority of the increases in local
currency revenue are attributable to increases in the average
revenue per RGU (ARPU). ARPU increased 6.9% and 8.7% for the
three and nine months ended September 30, 2004,
respectively, as compared to the corresponding prior year
periods, primarily due to rate increases in cable television
services and the impact of the increased penetration of
broadband Internet services, offset by reduced tariffs for
telephone services as lower outbound interconnect rates were
passed through to the consumer to maintain the product at a
competitive level in the market. Growth in overall average RGUs
of 2.2% and 0.8% for the three and nine months ended
September 30, 2004, respectively, as compared to the
corresponding prior year periods, provided the remainder of the
increase in revenue. The growth in average RGUs resulted
primarily from the continued successful sale of broadband
Internet services, as broadband Internet subscribers increased
20.5% from September 30, 2003 to September 30, 2004.
UGC previously announced that it would increase rates for analog
video customers in The Netherlands towards a standard rate,
effective January 1, 2004. As previously reported, UGC has
been enjoined from, or has voluntarily waived, implementing
these rate increases in certain cities within The Netherlands.
Thus far, UGC has reached agreement with a majority of these
municipalities, including the municipality of Amsterdam,
allowing UGC to increase its cable tariffs to a standard rate
through the course of the year. UGC is currently negotiating
with other municipalities and expects a satisfactory resolution.
UGC Broadband Austria. UGC
Broadband Austria revenue increased 11.4% and 16.8%
for the three and nine months ended September 30, 2004,
respectively, as compared to the corresponding prior year
periods. Excluding the effects of foreign exchange fluctuations,
such increases were 2.6% and 6.0%, respectively. These local
currency increases are primarily attributable to an overall
average RGU increase of 3.6% and 3.8% for the three and nine
months ended September 30, 2004, respectively, as compared
to the corresponding prior year periods. Internet subscriber
growth of 16.3% from September 30, 2003 to
September 30, 2004 was the major contributor to these RGU
increases. ARPU decreased 1.0% for the three months ended
September 30, 2004, and increased 2.1% for the nine months
ended September 30, 2004, as compared to the corresponding
prior year periods. The 1.0% decline in ARPU during the
three-month period resulted primarily from reduced outbound
telephone traffic as more customers migrate from dial-up
Internet services to broadband Internet access and from
fixed-line telephone usage to cellular phone usage. The movement
of some broadband Internet subscribers to lower-tier services
also contributed to the decrease in ARPU during the three-month
period. The 2.1% increase in ARPU during the nine-month period
is due to increased penetration of broadband Internet services.
A3-6
UGC Broadband France. UGC
Broadband France revenue increased 305.4% and 116.6%
during the three and nine months ended September 30, 2004,
respectively, as compared to the corresponding prior year
periods. Such increases primarily reflect the July 1, 2004
acquisition of Noos. Excluding the effects of the Noos
acquisition and foreign exchange fluctuations, UGC
Broadband France revenue decreased 1.2% for the
three months ended September 30, 2004 and increased 1.2%
for the nine months ended September 30, 2004, as compared
to the corresponding prior year periods. Such fluctuations are
due to decreases in ARPU that were largely offset by increases
in RGUs. ARPU decreased 11.5% and 6.3% for the three and nine
months ended September 30, 2004, respectively, as compared
to the corresponding prior year period, primarily due to the
effects of (i) an eight-fold increase in digital television
subscribers from September 30, 2003 to September 30,
2004 (as the incremental revenue increase from a digital
customer does not offset the impact of an additional RGU in the
ARPU calculation), (ii) lower tariffs from telephone
services, as lower outbound interconnect rates were passed
through to the customer to maintain the service at a competitive
level in the market, and (iii) reduced outbound telephone
traffic as more customers migrate from dial-up Internet access
to broadband Internet access and from fixed-line telephone usage
to cellular phone usage. These ARPU decreases were offset by an
increase in average RGUs of 11.7% and 8.0% for the three and
nine months ended September 30, 2004, respectively,
compared to the same periods in the prior year. Such RGU
increases primarily are attributable to growth in digital
television and broadband Internet services.
UGC Broadband Other Europe. UGC
Broadband Other Europe includes broadband operations
in Norway, Sweden, Belgium, Hungary, Poland, Czech Republic,
Slovak Republic, and Romania. UGC Broadband Other
Europe revenue increased 26.4% and 23.1% during the three and
nine months ended September 30, 2004, respectively, as
compared to the corresponding prior year periods. Excluding the
effects of foreign exchange fluctuations, such increases were
15.3% and 14.8%, respectively. The local currency revenue
increases during the three-month and nine-month periods are
attributable to increases in ARPU of 10.7% and 10.1%,
respectively, and increases in average RGUs of 4.1% and 4.2%,
respectively. Such RGU and ARPU increases are primarily
attributable to increased penetration of broadband Internet
access services.
UGC Broadband Chile (VTR). UGC
Broadband Chile revenue increased 28.1% and 33.9%
during the three and nine months ended September 30, 2004,
respectively, as compared to the corresponding prior year
periods. Excluding the effects of foreign exchange fluctuations,
such increases were 16.1% and 15.7%, respectively. The revenue
increases in the local currency are due primarily to growth in
average RGUs of 14.0% and 15.0% during the three and nine months
ended September 30, 2004, as compared to the corresponding
prior year periods. The increases in average RGUs are due
primarily to the continued successful sale of analog cable
television services, broadband Internet services and telephone
services through improved direct sales and mass marketing
initiatives. Reduced subscriber churn also contributed to the
RGU increases. ARPU remained relatively flat from period to
period due primarily to significant competition in UGC
Broadband Chiles markets.
J-COM. J-COMs revenue increased 17.3% and 23.1%
during the three and nine months ended September 30, 2004,
respectively, as compared to the corresponding prior year
periods. Excluding the effects of foreign exchange fluctuations,
such increases were 10.4% and 13.1%, respectively. The local
currency increases are primarily attributable to a 17.1%
increase in subscribers from September 30, 2003 to
September 30, 2004. Most of this subscriber increase is
attributable to growth within J-COMs telephony and
Internet access services. An increase in average revenue per
household per month of 4% during the nine months ended
September 30, 2004, as compared to the corresponding prior
year period, also contributed to the increase in local currency
revenue. The increases in average revenue per household per
month is primarily attributable to the full-year effect of cable
television service price increases implemented during 2003 and
increased penetration of J-COMs higher-priced broadband
Internet service. These factors were somewhat offset by a
reduction in the price for J-COMs lower-priced broadband
Internet service and a decrease in customer call volumes for
J-COMs telephone service.
A3-7
|
|
|
Operating Expenses of our Reportable Segments |
An analysis of the operating expenses of our reportable segments
for the indicated periods is set forth below (dollar amounts in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, | |
|
|
| |
|
|
|
|
Increase | |
|
|
|
|
|
|
(Decrease) | |
|
|
|
|
Increase (Decrease) | |
|
Excluding FX | |
|
|
|
|
| |
|
| |
|
|
2004 | |
|
2003 | |
|
$ | |
|
% | |
|
$ | |
|
% | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
UGC Broadband The Netherlands
|
|
$ |
60,241 |
|
|
$ |
48,100 |
|
|
|
12,141 |
|
|
|
25.2 |
% |
|
|
7,407 |
|
|
|
15.4 |
% |
UGC Broadband France
|
|
|
69,571 |
|
|
|
16,368 |
|
|
|
53,203 |
|
|
|
325.0 |
% |
|
|
51,722 |
|
|
|
315.8 |
% |
UGC Broadband Austria
|
|
|
30,353 |
|
|
|
28,844 |
|
|
|
1,509 |
|
|
|
5.2 |
% |
|
|
(894 |
) |
|
|
(3.1 |
)% |
UGC Broadband Other Europe
|
|
|
76,156 |
|
|
|
64,308 |
|
|
|
11,848 |
|
|
|
18.4 |
% |
|
|
6,191 |
|
|
|
9.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UGC Broadband Total Europe
|
|
|
236,321 |
|
|
|
157,620 |
|
|
|
78,701 |
|
|
|
49.9 |
% |
|
|
64,426 |
|
|
|
40.9 |
% |
UGC Broadband Chile (VTR)
|
|
|
24,107 |
|
|
|
20,342 |
|
|
|
3,765 |
|
|
|
18.5 |
% |
|
|
1,505 |
|
|
|
7.4 |
% |
J-COM
|
|
|
122,151 |
|
|
|
109,488 |
|
|
|
12,663 |
|
|
|
11.6 |
% |
|
|
5,519 |
|
|
|
5.0 |
% |
Corporate and all other
|
|
|
53,222 |
|
|
|
52,281 |
|
|
|
941 |
|
|
|
1.8 |
% |
|
|
(1,817 |
) |
|
|
(3.5 |
)% |
Elimination of Intercompany transactions
|
|
|
(32,752 |
) |
|
|
(30,697 |
) |
|
|
(2,055 |
) |
|
|
N.M. |
|
|
|
N.M. |
|
|
|
N.M. |
|
Elimination of Equity Affiliates
|
|
|
(122,151 |
) |
|
|
(295,894 |
) |
|
|
173,743 |
|
|
|
N.M. |
|
|
|
N.M. |
|
|
|
N.M. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated LMI
|
|
$ |
280,898 |
|
|
$ |
13,140 |
|
|
|
267,758 |
|
|
|
N.M. |
|
|
|
N.M. |
|
|
|
N.M. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, | |
|
|
| |
|
|
|
|
|
|
Increase (Decrease) | |
|
|
|
|
Increase (Decrease) | |
|
Excluding FX | |
|
|
|
|
| |
|
| |
|
|
2004 | |
|
2003 | |
|
$ | |
|
% | |
|
$ | |
|
% | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
UGC Broadband The Netherlands
|
|
$ |
175,810 |
|
|
$ |
170,123 |
|
|
|
5,687 |
|
|
|
3.3 |
% |
|
|
(10,548 |
) |
|
|
(6.2 |
)% |
UGC Broadband France
|
|
|
106,078 |
|
|
|
51,224 |
|
|
|
54,854 |
|
|
|
107.1 |
% |
|
|
49,727 |
|
|
|
98.8 |
% |
UGC Broadband Austria
|
|
|
98,226 |
|
|
|
85,758 |
|
|
|
12,468 |
|
|
|
14.5 |
% |
|
|
3,345 |
|
|
|
3.9 |
% |
UGC Broadband Other Europe
|
|
|
224,831 |
|
|
|
191,994 |
|
|
|
32,837 |
|
|
|
17.1 |
% |
|
|
19,035 |
|
|
|
9.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UGC Broadband Total Europe
|
|
|
604,945 |
|
|
|
499,099 |
|
|
|
105,846 |
|
|
|
21.2 |
% |
|
|
61,559 |
|
|
|
12.3 |
% |
UGC Broadband Chile (VTR)
|
|
|
69,142 |
|
|
|
58,872 |
|
|
|
10,270 |
|
|
|
17.4 |
% |
|
|
765 |
|
|
|
1.3 |
% |
J-COM
|
|
|
361,884 |
|
|
|
310,539 |
|
|
|
51,345 |
|
|
|
16.5 |
% |
|
|
21,859 |
|
|
|
7.0 |
% |
Corporate and all other
|
|
|
148,629 |
|
|
|
139,449 |
|
|
|
9,180 |
|
|
|
6.6 |
% |
|
|
(169 |
) |
|
|
N.M. |
|
Elimination of Intercompany transactions
|
|
|
(94,293 |
) |
|
|
(86,301 |
) |
|
|
(7,992 |
) |
|
|
N.M. |
|
|
|
N.M. |
|
|
|
N.M. |
|
Elimination of equity affiliates
|
|
|
(361,884 |
) |
|
|
(884,933 |
) |
|
|
523,049 |
|
|
|
N.M. |
|
|
|
N.M. |
|
|
|
N.M. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated LMI
|
|
$ |
728,423 |
|
|
$ |
36,725 |
|
|
|
691,698 |
|
|
|
N.M. |
|
|
|
N.M. |
|
|
|
N.M. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N.M. Not Meaningful
General. Operating expenses include programming,
broadcasting, content, network operations, customer operations,
customer care, and other direct costs. Programming costs are
expected to rise in future periods as a result of the expansion
of service offerings and the potential for price increases. Any
cost increases that we are not able to pass on to our
subscribers through service rate increases would result in
increased pressure on our operating margins.
UGC Broadband Total Europe. Operating
expenses for UGC Broadband Total Europe increased
49.9% and 21.2% for the three and nine months ended
September 30, 2004, respectively, as compared to the
corresponding prior year periods. Excluding the effects of
foreign exchange fluctuations and the Noos acquisition,
operating expenses increased 8.6% and 2.1%, respectively,
primarily due to (i) increases in direct programming costs
related to subscriber growth and, in certain markets, an
increase in channels on the analog and
A3-8
digital platforms, (ii) increased customer operation
expense as a result of higher numbers of new and reconnecting
subscribers, (iii) increased network operations costs for
broadband Internet access services as a result of subscriber
growth, (iv) normal annual wage and cost increases,
(v) increases in customer care expense, reflecting
increased call volumes due to RGU growth and new systems in
certain locations, (vi) increases in the amounts
effectively paid to suppliers in Poland due to the elimination
of value added tax during 2004 (which tax was recoverable prior
to its elimination) without corresponding decreases to the
prices paid to suppliers and (vii) an increase during the
three-month period due to a one-time credit that was included in
The Netherlands operating expenses during the third
quarter of 2003. These increases were partially offset by
decreases in operating expenses resulting from (i) improved
cost controls across all aspects of the business, including more
effective procurement of support services, lower billing and
collections charges and the increasing operational leverage of
the business, and (ii) cost savings in The Netherlands
through a restructuring plan implemented in the second quarter
of 2004 whereby the management structure was changed from a
three-region model to a centralized management organization.
UGC Broadband Chile (VTR). UGC
Broadband Chile operating expenses increased 18.5%
and 17.4% for the three and nine months ended September 30,
2004, respectively, as compared to the corresponding prior year
periods. Excluding the effects of foreign exchange fluctuations,
such increases were 7.4% and 1.3%, respectively. The local
currency increases primarily are due to (i) an increase in
programming costs driven by RGU growth, (ii) an increase in
access charges and international bandwidth costs, and
(iii) an increase in the cost of technical services.
J-COM. J-COM operating expenses increased 11.6% and 16.5%
for the three and nine months ended September 30, 2004,
respectively, as compared to the corresponding prior year
periods. Excluding the effects of foreign exchange fluctuations,
such increases were 5.0% and 7.0%, respectively. These local
currency increases primarily are due to an increase in
programming costs as a result of subscriber growth and improved
service offerings. Increases in network maintenance and
technical support costs associated with the expansion of
J-COMs network also contributed to the increases.
|
|
|
SG&A Expenses of our Reportable Segments |
An analysis of the SG&A expenses of our reportable segments
for the indicated periods is set forth below (dollar amounts in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, | |
|
|
| |
|
|
|
|
|
|
Increase (Decrease) | |
|
|
|
|
Increase (Decrease) | |
|
Excluding FX | |
|
|
|
|
| |
|
| |
|
|
2004 | |
|
2003 | |
|
$ | |
|
% | |
|
$ | |
|
% | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
UGC Broadband The Netherlands
|
|
$ |
25,159 |
|
|
$ |
24,130 |
|
|
|
1,029 |
|
|
|
4.3 |
% |
|
|
(925 |
) |
|
|
(3.8 |
)% |
UGC Broadband France
|
|
|
28,298 |
|
|
|
7,725 |
|
|
|
20,573 |
|
|
|
266.3 |
% |
|
|
19,960 |
|
|
|
258.4 |
% |
UGC Broadband Austria
|
|
|
13,908 |
|
|
|
10,411 |
|
|
|
3,497 |
|
|
|
33.6 |
% |
|
|
2,354 |
|
|
|
22.6 |
% |
UGC Broadband Other Europe
|
|
|
27,269 |
|
|
|
23,219 |
|
|
|
4,050 |
|
|
|
17.4 |
% |
|
|
2,418 |
|
|
|
10.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UGC Broadband Total Europe
|
|
|
94,634 |
|
|
|
65,485 |
|
|
|
29,149 |
|
|
|
44.5 |
% |
|
|
23,807 |
|
|
|
36.4 |
% |
UGC Broadband Chile (VTR)
|
|
|
25,064 |
|
|
|
19,337 |
|
|
|
5,727 |
|
|
|
29.6 |
% |
|
|
3,331 |
|
|
|
17.2 |
% |
J-COM
|
|
|
98,472 |
|
|
|
93,177 |
|
|
|
5,295 |
|
|
|
5.7 |
% |
|
|
(374 |
) |
|
|
N.M. |
|
Corporate and all other
|
|
|
58,990 |
|
|
|
44,936 |
|
|
|
14,054 |
|
|
|
31.3 |
% |
|
|
11,349 |
|
|
|
25.3 |
% |
Elimination of Intercompany transactions
|
|
|
(2,534 |
) |
|
|
(2,564 |
) |
|
|
30 |
|
|
|
N.M. |
|
|
|
N.M. |
|
|
|
N.M. |
|
Elimination of equity affiliates
|
|
|
(98,472 |
) |
|
|
(209,920 |
) |
|
|
111,448 |
|
|
|
N.M. |
|
|
|
N.M. |
|
|
|
N.M. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated LMI
|
|
$ |
176,154 |
|
|
$ |
10,451 |
|
|
|
165,703 |
|
|
|
N.M. |
|
|
|
N.M. |
|
|
|
N.M. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A3-9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, | |
|
|
| |
|
|
|
|
Increase | |
|
|
|
|
|
|
(Decrease) | |
|
|
|
|
Increase (Decrease) | |
|
Excluding FX | |
|
|
|
|
| |
|
| |
|
|
2004 | |
|
2003 | |
|
$ | |
|
% | |
|
$ | |
|
% | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
UGC Broadband The Netherlands
|
|
$ |
77,041 |
|
|
$ |
71,969 |
|
|
|
5,072 |
|
|
|
7.0 |
% |
|
|
(2,408 |
) |
|
|
(3.3 |
)% |
UGC Broadband France
|
|
|
48,487 |
|
|
|
24,502 |
|
|
|
23,985 |
|
|
|
97.9 |
% |
|
|
21,350 |
|
|
|
87.1 |
% |
UGC Broadband Austria
|
|
|
37,065 |
|
|
|
30,834 |
|
|
|
6,231 |
|
|
|
20.2 |
% |
|
|
2,698 |
|
|
|
8.8 |
% |
UGC Broadband Other Europe
|
|
|
78,777 |
|
|
|
70,685 |
|
|
|
8,092 |
|
|
|
11.4 |
% |
|
|
1,909 |
|
|
|
3.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UGC Broadband Total Europe
|
|
|
241,370 |
|
|
|
197,990 |
|
|
|
43,380 |
|
|
|
21.9 |
% |
|
|
23,549 |
|
|
|
11.9 |
% |
UGC Broadband Chile (VTR)
|
|
|
72,453 |
|
|
|
54,911 |
|
|
|
17,542 |
|
|
|
31.9 |
% |
|
|
7,618 |
|
|
|
13.9 |
% |
J-COM
|
|
|
295,480 |
|
|
|
274,214 |
|
|
|
21,266 |
|
|
|
7.8 |
% |
|
|
(2,809 |
) |
|
|
(1.0 |
)% |
Corporate and all other
|
|
|
176,160 |
|
|
|
142,727 |
|
|
|
33,433 |
|
|
|
23.4 |
% |
|
|
23,323 |
|
|
|
16.4 |
% |
Elimination of Intercompany transactions
|
|
|
(7,873 |
) |
|
|
(7,326 |
) |
|
|
(547 |
) |
|
|
N.M. |
|
|
|
N.M. |
|
|
|
N.M. |
|
Elimination of equity affiliates
|
|
|
(295,480 |
) |
|
|
(632,618 |
) |
|
|
337,138 |
|
|
|
N.M. |
|
|
|
N.M. |
|
|
|
N.M. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated LMI
|
|
$ |
482,110 |
|
|
$ |
29,898 |
|
|
|
452,212 |
|
|
|
N.M. |
|
|
|
N.M. |
|
|
|
N.M. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N.M. Not Meaningful
General. SG&A expenses include human resources,
information technology, general services, management, finance,
legal and marketing costs and other general expenses.
UGC Broadband Total Europe. UGC
Broadband Total Europe SG&A expenses increased
44.5% and 21.9% for the three and nine months ended
September 30, 2004, respectively, as compared to the
corresponding prior year periods. Excluding the effects of
foreign exchange fluctuations and the Noos acquisition, SG&A
increased 5.7% and 1.8%, respectively. These local currency
increases primarily are due to (i) increased marketing
expenditures to support subscriber growth and new digital
programming services, (ii) normal annual wage and cost
increases, (iii) increased consulting and other information
technology support costs associated with the implementation of
new customer care systems in several countries and UGCs
subscriber management system in Austria, and (iv) higher
legal, accounting and other professional advisory fees due, in
part, to requirements of the Sarbanes-Oxley Act of 2002. These
increases were largely offset by improved cost controls across
all aspects of the business and cost savings resulting from The
Netherlands restructuring that was implemented during the
second quarter of 2004, as mentioned above.
UGC Broadband Chile (VTR) UGC
Broadband Chile SG&A expenses increased 29.6%
and 31.9% for the three and nine months ended September 30,
2004, respectively, as compared to the corresponding prior year
periods. Excluding the effects of foreign exchange fluctuations,
such increases were 17.2% and 13.9%, respectively. These local
currency increases primarily are due to (i) normal annual
wage and cost increases, (ii) an increase in commissions
and marketing expense as a result of increased competition, and
(ii) higher legal, accounting and other professional
advisory fees due in part to requirements of the Sarbanes-Oxley
Act of 2002.
J-COM. J-COM SG&A expenses increased 5.7% and 7.8%
for the three and nine months ended September 30, 2004,
respectively, as compared to the corresponding prior year
periods. Excluding the effects of foreign exchange fluctuations,
J-COM SG&A expenses remained relatively constant over the
2004 and 2003 periods, as the effect of reduced marketing
personnel and advertising and promotion costs was offset by
increased labor and other overhead costs associated primarily
with increases in J-COMs customers.
A3-10
|
|
|
Operating Cash Flow of our Reportable Segments |
An analysis of the operating cash flow of our reportable
segments for the indicated periods is set forth below (dollar
amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, | |
|
|
| |
|
|
|
|
|
|
Increase (Decrease) | |
|
|
|
|
Increased (Decrease) | |
|
Excluding FX | |
|
|
|
|
| |
|
| |
|
|
2004 | |
|
2003 | |
|
$ | |
|
% | |
|
$ | |
|
% | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
UGC Broadband The Netherlands
|
|
$ |
93,596 |
|
|
$ |
78,608 |
|
|
|
14,988 |
|
|
|
19.1 |
% |
|
|
7,546 |
|
|
|
9.6 |
% |
UGC Broadband France
|
|
|
22,722 |
|
|
|
5,651 |
|
|
|
17,071 |
|
|
|
302.1 |
% |
|
|
16,647 |
|
|
|
294.6 |
% |
UGC Broadband Austria
|
|
|
28,221 |
|
|
|
25,830 |
|
|
|
2,391 |
|
|
|
9.3 |
% |
|
|
232 |
|
|
|
0.9 |
% |
UGC Broadband Other Europe
|
|
|
70,162 |
|
|
|
49,758 |
|
|
|
20,404 |
|
|
|
41.0 |
% |
|
|
12,432 |
|
|
|
25.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UGC Broadband Total Europe
|
|
|
214,701 |
|
|
|
159,847 |
|
|
|
54,854 |
|
|
|
34.3 |
% |
|
|
36,857 |
|
|
|
23.1 |
% |
UGC Broadband Chile (VTR)
|
|
|
25,925 |
|
|
|
18,929 |
|
|
|
6,996 |
|
|
|
37.0 |
% |
|
|
4,600 |
|
|
|
24.3 |
% |
J-COM
|
|
|
146,439 |
|
|
|
110,264 |
|
|
|
36,175 |
|
|
|
32.8 |
% |
|
|
27,522 |
|
|
|
25.0 |
% |
Corporate and all other
|
|
|
11,129 |
|
|
|
(3,050 |
) |
|
|
14,179 |
|
|
|
N.M. |
|
|
|
14,340 |
|
|
|
N.M. |
|
Elimination of equity affiliates
|
|
|
(146,439 |
) |
|
|
(281,630 |
) |
|
|
135,191 |
|
|
|
N.M. |
|
|
|
N.M. |
|
|
|
N.M. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated LMI
|
|
$ |
251,755 |
|
|
$ |
4,360 |
|
|
|
247,395 |
|
|
|
N.M. |
|
|
|
N.M. |
|
|
|
N.M. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, | |
|
|
| |
|
|
|
|
|
|
Increase (Decrease) | |
|
|
|
|
Increased (Decrease) | |
|
Excluding FX | |
|
|
|
|
| |
|
| |
|
|
2004 | |
|
2003 | |
|
$ | |
|
% | |
|
$ | |
|
% | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
UGC Broadband The Netherlands
|
|
$ |
267,097 |
|
|
$ |
188,528 |
|
|
|
78,569 |
|
|
|
41.7 |
% |
|
|
54,296 |
|
|
|
28.8 |
% |
UGC Broadband France
|
|
|
28,285 |
|
|
|
8,709 |
|
|
|
19,576 |
|
|
|
224.8 |
% |
|
|
18,622 |
|
|
|
213.0 |
% |
UGC Broadband Austria
|
|
|
86,489 |
|
|
|
73,288 |
|
|
|
13,201 |
|
|
|
18.0 |
% |
|
|
5,350 |
|
|
|
7.3 |
% |
UGC Broadband Other Europe
|
|
|
202,487 |
|
|
|
148,587 |
|
|
|
53,900 |
|
|
|
36.3 |
% |
|
|
40,125 |
|
|
|
27.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UGC Broadband Total Europe
|
|
|
584,358 |
|
|
|
419,112 |
|
|
|
165,248 |
|
|
|
39.4 |
% |
|
|
118,393 |
|
|
|
28.2 |
% |
UGC Broadband Chile (VTR)
|
|
|
74,942 |
|
|
|
47,884 |
|
|
|
27,058 |
|
|
|
56.5 |
% |
|
|
16,999 |
|
|
|
35.5 |
% |
J-COM
|
|
|
433,112 |
|
|
|
300,764 |
|
|
|
132,348 |
|
|
|
44.0 |
% |
|
|
97,058 |
|
|
|
32.3 |
% |
Corporate and all other
|
|
|
(4,064 |
) |
|
|
(10,335 |
) |
|
|
6,271 |
|
|
|
60.7 |
% |
|
|
7,019 |
|
|
|
68.9 |
% |
Elimination of equity affiliates
|
|
|
(433,112 |
) |
|
|
(743,632 |
) |
|
|
310,520 |
|
|
|
N.M. |
|
|
|
N.M. |
|
|
|
N.M. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated LMI
|
|
$ |
655,236 |
|
|
$ |
13,793 |
|
|
|
641,443 |
|
|
|
N.M. |
|
|
|
N.M. |
|
|
|
N.M. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N.M. Not Meaningful
For explanations of the factors contributing to the changes in
operating cash flow, see the above analyses of the revenue,
operating expenses and SG&A expenses of our reportable
segments.
Years Ended
December 31, 2003, 2002 and 2001
To assist you in understanding and analyzing our business in the
same manner we do, we have provided the table below, which
presents 100% of each businesss revenue, operating cash
flow and operating income even though we own less than 100% of
many of these businesses. These amounts are combined on an
unconsolidated basis and are then adjusted to remove the effects
of the equity method investments to arrive at the reported
amounts. This presentation is designed to reflect the manner in
which management reviews the operating performance of individual
businesses regardless of whether the investment is accounted for
as a consolidated subsidiary or an equity investment. It should
be noted, however, that this presentation is not in accordance
with
A3-11
GAAP since the results of operations of equity method
investments are required to be reported on a net basis. Further,
we could not, among other things, cause any noncontrolled
affiliate to distribute to us our proportionate share of the
revenue or operating cash flow of such affiliate.
The financial information presented below for equity method
affiliates was obtained directly from those affiliates. We do
not control the decision-making process or business management
practices of our equity affiliates. Accordingly, we rely on the
management of these affiliates and their independent auditors to
provide us with financial information prepared in accordance
with GAAP that we use in the application of the equity method.
We are not aware, however, of any errors in or possible
misstatements of the financial information provided by our
equity affiliates that would have a material effect on our
combined financial statements.
Our chief operating decision maker and management team use
operating cash flow in conjunction with other measures to
evaluate our businesses and make decisions about allocating
resources among our businesses. We define operating cash flow as
revenue less operating expenses and SG&A expenses. We
believe this is an important indicator of the operational
strength and performance of our businesses, including their
ability to service debt and fund capital expenditures. In
addition, this measure allows management to view operating
results and perform analytical comparisons and benchmarking
between businesses and identify strategies to improve
performance. This measure of performance excludes depreciation
and amortization, stock compensation and restructuring and
impairment charges that are included in the measurement of
operating income pursuant to GAAP. Accordingly, operating cash
flow should be considered in addition to, but not as a
substitute for, operating income, net income, cash flows
provided by operating activities and other measures of financial
performance prepared in accordance with GAAP.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, | |
|
|
| |
|
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
|
(Amounts in thousands) | |
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Liberty Cablevision of Puerto Rico
|
|
$ |
71,765 |
|
|
$ |
64,270 |
|
|
$ |
55,360 |
|
Pramer
|
|
|
35,102 |
|
|
|
35,985 |
|
|
|
82,855 |
|
Corporate and other
|
|
|
1,767 |
|
|
|
3,600 |
|
|
|
1,320 |
|
UGC(1)
|
|
|
1,891,530 |
|
|
|
1,515,021 |
|
|
|
1,561,894 |
|
J-COM(1)
|
|
|
1,233,492 |
|
|
|
930,736 |
|
|
|
628,892 |
|
JPC(1)
|
|
|
412,013 |
|
|
|
273,696 |
|
|
|
207,004 |
|
Other equity method affiliates(1)
|
|
|
268,126 |
|
|
|
241,540 |
|
|
|
231,674 |
|
|
|
|
|
|
|
|
|
|
|
|
Combined revenue
|
|
|
3,913,795 |
|
|
|
3,064,848 |
|
|
|
2,768,999 |
|
Eliminate revenue of equity method affiliates
|
|
|
(3,805,161 |
) |
|
|
(2,960,993 |
) |
|
|
(2,629,464 |
) |
|
|
|
|
|
|
|
|
|
|
|
Revenue from consolidated subsidiaries
|
|
$ |
108,634 |
|
|
$ |
103,855 |
|
|
$ |
139,535 |
|
|
|
|
|
|
|
|
|
|
|
Operating Cash Flow
|
|
|
|
|
|
|
|
|
|
|
|
|
Liberty Cablevision of Puerto Rico
|
|
$ |
22,499 |
|
|
$ |
21,692 |
|
|
$ |
20,451 |
|
Pramer
|
|
|
4,961 |
|
|
|
3,990 |
|
|
|
22,056 |
|
Corporate and other
|
|
|
(9,469 |
) |
|
|
(8,027 |
) |
|
|
(9,746 |
) |
UGC(1)
|
|
|
628,882 |
|
|
|
296,374 |
|
|
|
(191,243 |
) |
J-COM(1)
|
|
|
428,513 |
|
|
|
211,146 |
|
|
|
56,652 |
|
JPC(1)
|
|
|
54,504 |
|
|
|
32,008 |
|
|
|
19,461 |
|
Other equity method affiliates(1)
|
|
|
(7,688 |
) |
|
|
(32,598 |
) |
|
|
3,763 |
|
|
|
|
|
|
|
|
|
|
|
|
Combined operating cash flow
|
|
|
1,122,202 |
|
|
|
524,585 |
|
|
|
(78,606 |
) |
Eliminate operating cash flow of equity method affiliates
|
|
|
(1,104,211 |
) |
|
|
(506,930 |
) |
|
|
111,367 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating cash flow from consolidated subsidiaries
|
|
$ |
17,991 |
|
|
$ |
17,655 |
|
|
$ |
32,761 |
|
|
|
|
|
|
|
|
|
|
|
A3-12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, | |
|
|
| |
|
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
|
(Amounts in thousands) | |
Operating Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Liberty Cablevision of Puerto Rico
|
|
$ |
9,124 |
|
|
$ |
9,783 |
|
|
$ |
1,149 |
|
Pramer
|
|
|
3,272 |
|
|
|
967 |
|
|
|
(36,695 |
) |
Corporate and other
|
|
|
(13,607 |
) |
|
|
(46,295 |
) |
|
|
(87,077 |
) |
UGC(1)
|
|
|
(656,014 |
) |
|
|
(899,282 |
) |
|
|
(2,872,306 |
) |
J-COM(1)
|
|
|
113,753 |
|
|
|
(29,390 |
) |
|
|
(195,074 |
) |
JPC(1)
|
|
|
44,077 |
|
|
|
23,174 |
|
|
|
11,886 |
|
Other equity method affiliates(1)
|
|
|
(28,977 |
) |
|
|
(90,102 |
) |
|
|
(28,373 |
) |
|
|
|
|
|
|
|
|
|
|
|
Combined operating loss
|
|
|
(528,372 |
) |
|
|
(1,031,145 |
) |
|
|
(3,206,490 |
) |
Eliminate operating loss of equity method affiliates
|
|
|
527,161 |
|
|
|
995,600 |
|
|
|
3,083,867 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss from consolidated subsidiaries
|
|
$ |
(1,211 |
) |
|
$ |
(35,545 |
) |
|
$ |
(122,623 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Represents an equity method affiliate. Equity ownership
percentages for significant equity affiliates at
December 31, 2003 are as follows: |
|
|
|
|
|
UGC
|
|
|
50 |
% |
J-COM
|
|
|
45 |
% |
JPC
|
|
|
50 |
% |
Liberty Cablevision of Puerto Rico. Liberty Cablevision
of Puerto Ricos revenue increased 11.7% and 16.1% for the
years ended December 31, 2003 and 2002, respectively, as
compared to the corresponding prior year. The majority of the
increase in 2003 is due to a $3,685,000 increase in basic cable
revenue, a $1,772,000 increase in high speed data revenue and a
$1,255,000 increase in equipment rental income. The increase in
basic cable revenue is due to increases in rates that took
effect in March 2002 and March 2003, as well as an increase in
digital cable subscribers that converted from Liberty
Cablevision of Puerto Ricos analog service. The rate
increases and relatively poor economic conditions in Puerto Rico
resulted in a 1% decrease in total basic cable subscribers in
2003. As of December 31, 2003, Liberty Cablevision of
Puerto Rico had 122,000 video subscribers, 40,500 of which were
digital cable subscribers. Liberty Cablevision of Puerto Rico
launched high speed data in June 2002 and as of
December 31, 2003 had 8,400 high speed data customers. The
increase in equipment rental revenue is due to the increase in
digital cable subscribers.
The majority of the 2002 increase in revenue is due to a March
2002 rate increase. When we were split off from AT&T in
August 2001, Liberty Cablevision of Puerto Rico lost the benefit
of AT&Ts programming rates, which were based on
AT&Ts total subscriber base. In response to a
resulting 55% increase in programming costs in late 2001 and
early 2002, Liberty Cablevision of Puerto Rico raised its
subscriber rates. The effect of the rate increase on revenue was
partially offset by a 3.9% decrease in subscribers from
December 31, 2001 to December 31, 2002.
Liberty Cablevision of Puerto Ricos operating expenses
increased 18.7% and 45.8% for the years ended December 31,
2003 and 2002, respectively, as compared to the corresponding
prior year. These increases are due almost entirely to increases
in programming costs. As noted above, Liberty Cablevision of
Puerto Rico lost the benefit of AT&Ts programming
rates in 2001. As a result, Liberty Cablevision of Puerto Rico
now is required to separately negotiate its own programming
rates, which are based on the number of subscribers served by
Liberty Cablevision of Puerto Rico.
Liberty Cablevision of Puerto Ricos SG&A expenses
increased 12.5% and 4.0% for the years ended December 31,
2003 and 2002, respectively, as compared to the corresponding
prior year. The 2003 increase is due to increases in salaries
and related personnel costs, costs that vary with revenue such
as franchise and copyright fees, and bad debt expense. The
increase in personnel costs is due to an increase in headcount
to support Liberty Cablevision of Puerto Ricos launch of
high speed data service. The increase in bad debt expense
A3-13
relates to the effects of rate increases and the relatively poor
economy in Puerto Rico. The 2002 increase is due primarily to
increases in franchise and copyright fees.
Pramer. Pramers revenue decreased 2.4% and 56.6%
for the years ended December 31, 2003 and 2002,
respectively, as compared to the corresponding prior year.
Argentina has been in a recession for the past several years.
Prior to 2002, the Argentine government maintained an exchange
rate of one Argentine peso to one U.S. dollar (the
peg rate). Due to worsening economic and political
conditions in late 2001, the Argentine government eliminated the
peg rate effective January 11, 2002. The value of the
Argentine peso dropped significantly on the day the peg rate was
eliminated and continued to drop throughout 2002 ending 2002 at
a rate of 3.36 pesos to one U.S. dollar. The peso
stabilized somewhat in 2003 and ended 2003 at a rate of
2.93 pesos to one U.S. dollar. The change in
Pramers revenue in 2003 is primarily the net effect of a
$3,179,000 decrease in affiliate revenue partially offset by a
$2,213,000 increase in advertising revenue. The decrease in
affiliate revenue is due to the renegotiation of certain
contracts in 2002 in response to the economic crisis in
Argentina. Advertising revenue increased in 2003 in response to
the improving economic conditions.
The 2002 decrease in revenue is due to the devaluation of the
peso. In functional currency, Pramers revenue was
relatively comparable over the 2002 and 2001 periods.
Pramers operating expenses increased $2,742,000 or 12.9%
and decreased $26,019,000 or 55.1% for the years ended
December 31, 2003 and 2002, respectively. The increase in
2003 is due to individually insignificant increases in certain
expense accounts. The decrease in 2002 is due to the devaluation
of the peso.
UGC. UGCs revenue increased 24.9% and decreased
3.0% for the years ended December 31, 2003 and 2002,
respectively. The increase in 2003 is due primarily to an
increase in subscribers, revenue per subscriber and the
strengthening of the euro against the U.S. dollar
(approximately 16.1%). The decrease in 2002 is due to the sale
of UGCs Australian and German operations partially offset
by increases in Europe and Chile. UGCs operating expenses
decreased $4 million or less than 1% in 2003 and
$290 million or 27.3% in 2002. These decreases are due
primarily to cost control initiatives, including restructurings.
The 2002 expenses were also impacted by the sale of UGCs
Australian and German operations. UGCs SG&A expenses
increased $48 million or 10.7% in 2003 and decreased
$244 million or 35.4% in 2002. The 2003 increase is due
primarily to the strengthening of the euro against the
U.S. dollar. The 2002 decrease is the result of cost
control initiatives and the sale of UGCs Australian and
German operations.
Also included in UGCs operating losses are
(i) impairments of long-lived assets of $1,321 million
in 2001, compared to $436 million in 2002 and
$402 million in 2003, and (ii) restructuring charges
of $204 million in 2001, compared to $1 million in
2002 and $36 million in 2003.
J-COM. J-COMs revenue increased 32.5% and 48.0% for
the years ended December 31, 2003 and 2002, respectively,
as compared to the corresponding prior year. The increase in
revenue in 2003 was due to a 10.3% increase in the number of
homes receiving at least one service, an 8.4% increase in the
average number of services per home and a 9.6% increase in ARPH.
Revenue increased in 2002 due to a 23.2% increase in homes
receiving at least one service, an 11.7% increase in average
number of services per home and a 9.2% increase in ARPH. In
addition, changes in the exchange rate also positively impacted
revenue in 2003. On a local currency basis, J-COMs revenue
increased 22.7% and 52.3% in 2003 and 2002, respectively.
J-COMs operating expenses increased 17.0% and 22.2% in
2003 and 2002, respectively. These increases are due to the
increase in subscribers and growth of J-COMs business. As
a percent of revenue, operating expenses decreased from 40.3% in
2002 to 35.5% in 2003 due to the realization of economies of
scale from the growth of the business. SG&A expenses
increased 6.5% and 30.1% in 2003 and 2002, respectively. The
increase in SG&A expenses are due to the growth of the
business in 2002 and exchange rate fluctuations in 2003.
JPC. JPCs revenue increased 50.5% and 32.2% for the
years ended December 31, 2003 and 2002, respectively, as
compared to the corresponding prior years. The increase in 2003
was largely due to increases in revenue for Shop Channel,
which experienced a 17.5% increase in FTEs and a 14%
increase in sales per FTE. In 2002, Shop Channel had a
30.4% increase in FTEs and an 8.2% increase in sales per
FTE. Affiliate revenue and advertising revenue at JPCs
other networks also contributed to the overall revenue increase
in both years due to continued subscriber growth at those
networks. Shop Channel revenue accounted for 81%, 80% and
78% of
A3-14
JPCs revenue in 2003, 2002 and 2001, respectively. In
addition, changes in the exchange rate also positively impacted
revenue in 2003. On a local currency basis, JPCs revenue
increased 39.4% and 36.1% in 2003 and 2002, respectively.
JPCs operating expenses increased 52.5% and 33.0% in 2003
and 2002, respectively. These increases are primarily due to
higher cost of goods sold at Shop Channel resulting from
revenue increases of 41.3% and 38.9% during 2003 and 2002,
respectively. JPCs SG&A expenses increased 34.2% and
17.9% in 2003 and 2002, respectively. The increases in SG&A
were due to growth in the business resulting from additional
sales volume at Shop Channel and additional channel
offerings.
Corporate and Other. General and administrative expenses
have been allocated from LMC to us based on the cost of services
provided. We believe such allocations are reasonable and
materially approximate the amount that we would have incurred on
a stand-alone basis. Allocated expenses aggregated $10,873,000,
$10,794,000 and $10,148,000 in 2003, 2002 and 2001, respectively.
Included in operating loss for corporate and other are
impairments of long-lived assets of $45,928,000 and $91,087,000
in 2002 and 2001, respectively. No such impairments were
recognized in 2003. These impairments are more fully described
in the following paragraphs.
In connection with our 2002 annual evaluation of the carrying
value of our enterprise-level goodwill, we estimated the fair
value of our equity method investments and compared such
estimated fair value to the carrying value of our equity method
investments including any allocated enterprise-level goodwill.
As a result of increased competition, losses in subscribers and
a decrease in operating income in 2002, we determined that our
carrying value exceeded the estimated fair value for
Metrópolis-Intercom, which fair value was based on a
per-subscriber valuation. Accordingly, we recorded a
nontemporary decline in value of $66,555,000 related to our
investment balance, which is included in share of losses of
affiliates for the year ended December 31, 2002 and an
impairment of long-lived assets of $39,000,000 related to the
allocated enterprise-level goodwill for Metrópolis-Intercom.
In 2002, we also determined that our carrying value for Torneos,
including allocated enterprise-level goodwill, exceeded its
estimated fair value due to the devaluation of the Argentine
peso. Accordingly, we recorded an impairment of long-lived
assets of $5,000,000 related to the allocated enterprise-level
goodwill for Torneos.
In December 2001, we determined that our carrying value for
Pramer exceeded its estimated fair value as a result of the
economic crisis in Argentina and the devaluation of the
Argentine peso. Accordingly, we recorded a $52,775,000
impairment of goodwill. Also, in 2001 we determined that a loan
in the amount of $21,312,000 was not collectible. Accordingly,
we wrote the note receivable off and recorded a charge that is
included in impairment of long-lived assets. In connection with
our acquisition of Pramer in 1998, we acquired intangible assets
for Cablevisión S.A., an Argentine cable company.
Cablevisión had the right to purchase the intangible assets
from us for $25,000,000, $8,000,000 of which Cablevisión
funded at the time of the Pramer acquisition. We accounted for
the intangible assets as assets held for sale and recorded no
amortization for them. In 2001, due to the economic crisis in
Argentina, we determined that Cablevisión would be unable
to fund the remaining $17,000,000 and recorded an impairment of
long-lived assets.
Other Income and Expense
Interest expense. Interest expense was $2,178,000,
$3,943,000 and $21,917,000 for the years ended December 31,
2003, 2002 and 2001, respectively. The decrease in 2002 is due
to the repayment of our note payable to UGC in January 2002.
Interest income. Our interest income was relatively
comparable over the 2003 and 2002 periods and was earned on our
investments in debt securities of UGC Europe. Interest income in
2001 also included $46,376,000 earned on a note receivable (the
Belmarken Loan) from Belmarken Holding B.V., an
indirect subsidiary of Old UGC, Inc. (formerly known as UGC
Holdings, Inc.), which was contributed to UGC in January 2002.
A3-15
Share of earnings of affiliates. A summary of our share
of earnings (losses) of affiliates, including excess cost
amortization in 2001 and nontemporary declines in value, is
included below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage | |
|
|
|
|
Ownership at | |
|
Years Ended December 31, | |
|
|
December 31, | |
|
| |
|
|
2003 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
(Amounts in thousands) | |
J-COM
|
|
|
45% |
|
|
$ |
20,341 |
|
|
$ |
(21,595 |
) |
|
$ |
(89,538 |
) |
UGC
|
|
|
50% |
|
|
|
|
|
|
|
(190,216 |
) |
|
|
(439,843 |
) |
JPC
|
|
|
50% |
|
|
|
11,775 |
|
|
|
5,801 |
|
|
|
(9,337 |
) |
Metropólis-Intercom
|
|
|
50% |
|
|
|
(8,291 |
) |
|
|
(80,394 |
) |
|
|
(16,609 |
) |
Torneos
|
|
|
40% |
|
|
|
(7,566 |
) |
|
|
(25,482 |
) |
|
|
(29,300 |
) |
Other
|
|
|
Various |
|
|
|
(2,520 |
) |
|
|
(19,339 |
) |
|
|
(4,898 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
13,739 |
|
|
$ |
(331,225 |
) |
|
$ |
(589,525 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2003, the aggregate carrying amount of our
investments in affiliates exceeded our proportionate share of
our affiliates net assets by $3,745 million. Prior to
the adoption of Statement 142, this excess basis was being
amortized over estimated useful lives of up to 20 years
based on the useful lives of the intangible assets represented
by such excess costs. Such amortization was $92,902,000 for the
year ended December 31, 2001, and is included in our share
of losses of affiliates. Upon adoption of Statement 142, we
discontinued amortizing equity method excess costs in existence
at the adoption date due to their characterization as equity
method goodwill. Also included in share of losses for the years
ended December 31, 2003 and 2002 are adjustments for
nontemporary declines in value aggregating $12,616,000 and
$72,030,000, respectively. See the discussion of UGC, J-COM and
JPC above for more information on these equity affiliates.
Realized and unrealized gains (losses) on derivative
instruments. Realized and unrealized gains (losses) on
derivative instruments during the years ended December 31,
2003, 2002 and 2001 are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, | |
|
|
| |
|
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
|
(Amounts in thousands) | |
Foreign exchange derivatives
|
|
$ |
(22,626 |
) |
|
$ |
(11,239 |
) |
|
$ |
|
|
Total return bond swaps
|
|
|
37,804 |
|
|
|
(1,088 |
) |
|
|
(124,698 |
) |
Belmarken Loan
|
|
|
|
|
|
|
(4,378 |
) |
|
|
(410,264 |
) |
Other
|
|
|
(2,416 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
12,762 |
|
|
$ |
(16,705 |
) |
|
$ |
(534,962 |
) |
|
|
|
|
|
|
|
|
|
|
Nontemporary declines in fair value of investments.
During 2003, 2002 and 2001, we determined that certain of our
cost investments experienced other-than-temporary declines in
value. As a result, the cost bases of such investments were
adjusted to their respective fair values based primarily on
quoted market prices at the balance sheet date. These
adjustments are reflected as nontemporary declines in fair value
of investments in the consolidated statements of operations. The
following table identifies such adjustments attributable to each
of the individual investments as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, | |
|
|
| |
Investments |
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
|
(Amounts in thousands) | |
Sky Latin America
|
|
$ |
6,884 |
|
|
$ |
105,250 |
|
|
$ |
2,002 |
|
Telewest bonds
|
|
|
|
|
|
|
141,271 |
|
|
|
|
|
Other
|
|
|
|
|
|
|
865 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
6,884 |
|
|
$ |
247,386 |
|
|
$ |
2,002 |
|
|
|
|
|
|
|
|
|
|
|
A3-16
Gain on disposition of assets. On January 30, 2002,
UGC and we completed a transaction (the UGC
Transaction) pursuant to which UGC was formed to own UGC
Holdings. Upon consummation of the UGC Transaction, all shares
of UGC Holdings common stock were exchanged for shares of common
stock of UGC. In addition, we contributed to UGC (i) cash
consideration of $200,000,000, (ii) the Belmarken Loan,
with an accreted value of $891,671,000 and a carrying value of
$495,603,000 and (iii) Senior Notes and Senior Discount
Notes of UPC, with an aggregate carrying amount of $270,398,000,
in exchange for 281.3 million shares of UGC Class C
common stock with a fair value of $1,406,441,000. We accounted
for the UGC Transaction as the acquisition of an additional
noncontrolling interest in UGC in exchange for monetary
financial instruments. Accordingly, we calculated a $440,440,000
gain on the transaction based on the difference between the
estimated fair value of the financial instruments and their
carrying value. Due to our continuing indirect ownership in the
assets contributed to UGC, we limited the amount of gain we
recognized to the minority shareholders attributable share
(approximately 28%) of such assets or $122,618,000 (before
deferred tax expense of $47,821,000).
Income taxes. Our effective tax rate was 58%, 33% and 32%
for the years ended December 31, 2003, 2002 and 2001,
respectively. The 2003 effective tax rate differed from the
U.S. Federal income tax rate of 35% primarily due to
foreign taxes and state and local taxes. The effective tax rates
in 2002 and 2001 differed from the U.S. Federal income tax
rate of 35% primarily due to state and local taxes and
amortization for book purposes that is not deductible for income
tax purposes.
Cumulative effect of accounting change. We and our
subsidiaries adopted Statement 142 effective
January 1, 2002. Upon adoption, we determined that the
carrying value of certain of our reporting units (including
allocated goodwill) was not recoverable. Accordingly, in the
first quarter of 2002, we recorded an impairment loss of
$238,267,000, net of taxes of $103,105,000, as the cumulative
effect of a change in accounting principle. This transitional
impairment loss includes an adjustment of $264,372,000 for our
proportionate share of transition adjustments that UGC recorded.
Liquidity and Capital Resources
Prior to the spin off, cash transfers from Liberty represented
our primary source of funds. Due to the spin off, cash transfers
from Liberty no longer represent a source of liquidity for us.
Although our consolidated operating subsidiaries have generated
cash from operating activities and have borrowed funds under
their respective bank facilities, we generally are not entitled
to the resources of our operating subsidiaries or business
affiliates. In this regard, we and each of our subsidiaries
perform separate assessments of our respective liquidity needs.
Accordingly, the current and future liquidity of our corporate
and subsidiary operations is discussed separately below.
Following the discussion of our sources and uses of liquidity,
we present a discussion of our historical cash flows.
At September 30, 2004, we held cash and cash equivalents of
$739,344,000 at the corporate level. Our remaining cash and cash
equivalents at September 30, 2004 of $999,386,000 were held
by UGC and our other subsidiaries. As noted above, we do not
anticipate that any of the cash held by our subsidiaries will be
made available to us to satisfy our corporate liquidity
requirements. As described in greater detail below, our current
sources of liquidity include (i) our cash and cash
equivalents, (ii) our ability to monetize certain
investments and derivative instruments, and (iii) interest
and dividend income received on our cash and cash equivalents
and investments. From time to time, we may also receive
distributions or loan repayments from our subsidiaries or
affiliates and proceeds upon the disposition of investments and
other assets.
During the 2004 period prior to the spin off, a subsidiary of
our company borrowed $116,666,000 from Liberty pursuant to
certain notes payable. In connection with the spin off, Liberty
also entered into a Short-Term Credit Facility with us. Pursuant
to the Short-Term Credit Facility, Liberty had agreed to make
loans to us from time to time up to an aggregate principal
amount of $383,334,000. During the third quarter of 2004, all
amounts
A3-17
due to Liberty under the notes payable were repaid with proceeds
from the LMI Rights Offering and the Short-Term Credit Facility
was cancelled.
In connection with the spin off, Liberty contributed to our
company cash and cash equivalents of $50,000,000 and
available-for-sale securities with a fair value of $561,130,000
on the contribution date. For additional information, see
note 2 to the accompanying September 30, 2004
condensed consolidated financial statements.
On July 19, 2004, our investment in Telewest Communications
plc Senior Notes and Senior Discount Notes was converted into
18,417,883 shares or approximately 7.5% of the issued and
outstanding common stock of Telewest. During the third quarter
of 2004, we sold 10,551,509 of the acquired Telewest shares for
aggregate cash proceeds of $121,459,000. At September 30,
2004, we held 7,866,374 shares of Telewest common stock. We
intend to dispose of our remaining Telewest shares during the
fourth quarter of 2004.
On July 26, 2004, we commenced the LMI Rights Offering
whereby holders of record of LMI Common Stock at 5:00 p.m.,
New York City time, on that date received 0.20 transferable
subscription rights for each share of LMI Common Stock held. The
LMI Rights Offering expired in accordance with its terms on
August 23, 2004. Pursuant to the terms of the LMI Rights
Offering, we issued 28,245,000 shares of LMI Series A
Common Stock and 1,211,157 shares of LMI Series B
Common Stock in exchange for aggregate cash proceeds of
$739,432,000, before deducting related offering costs of
$3,771,000. For additional information concerning the LMI Rights
Offering, see note 3 to the accompanying September 30,
2004 condensed consolidated financial statements.
In October 2004, we sold our interest in the Sky Multicountry
DTH platform in exchange for reimbursement by the purchaser of
$1,500,000 of funding provided by us in the previous few months
and the release from certain guarantees described below. We were
deemed to owe the purchaser $6,000,000 in respect of such
platform, which amount was offset against a separate payment we
received from the purchaser as explained below. We also agreed
to sell our interest in the Sky Brasil DTH platform and granted
the purchaser an option to purchase our interest in the Sky
Mexico DTH platform. On October 28, 2004, we received
$54,000,000 in cash from the purchaser, which consisted of
$60,000,000 consideration payable for our Sky Brasil interest
less the $6,000,000 we were deemed to owe the purchaser in
respect of the Sky Multicountry DTH platform. The $60,000,000 is
refundable by us if the Sky Brasil transaction is terminated. It
may be terminated by us or the purchaser if it has not closed by
October 8, 2007 or by the purchaser if certain conditions
are incapable of being satisfied. We will receive $88,000,000 in
cash upon the transfer of our Sky Mexico interest to the
purchaser. The Sky Mexico interest will not be transferred until
certain Mexican regulatory conditions are satisfied. If the
purchaser does not exercise its option to purchase our Sky
Mexico interest on or before October 8, 2006 (or in some
cases an earlier date), then we have the right to require the
purchaser to purchase our interest if certain conditions,
including the absence of Mexican regulatory prohibition of the
transaction, have been satisfied or waived. In light of the
contingencies involved, we will not treat either of the Sky
Mexico or Sky Brasil transactions as a sale for accounting
purposes until such time as the necessary regulatory approvals
are obtained and, in the case of Sky Mexico, the cash is
received. In connection with these transactions our guarantees
of the obligations of the Sky Multicountry, Sky Brasil and Sky
Mexico platforms under certain transponder leases were
terminated and our guarantees of obligations under certain
equipment leases will be terminated no later than
December 31, 2004. The buyer has agreed to indemnify us for
any amounts we are required to pay under such equipment leases
subsequent to the transaction date through the date that our
guarantees are terminated.
At September 30, 2004, our investment in J-COM included
¥41,260,795,000 ($375,064,000) of shareholder loans to
J-COM. Such loans are denominated in Japanese yen and bear
interest at the 3-month Tokyo Interbank Offered Rate plus the
applicable margin per annum (1.83% to 2.08% at
September 30, 2004). Such shareholder loans, which are
subordinated to J-COMs third party indebtedness, are due
and payable on February 6, 2011. J-COM is currently
negotiating the refinancing of certain of its indebtedness. In
the event that J-COM successfully completes this refinancing, we
expect that J-COM will repay all amounts due to us pursuant to
the shareholder loans. Although we expect that J-COM will
complete its refinancing during the fourth quarter of 2004, no
assurance can be given that J-COM will successfully complete
this refinancing and, in turn, repay all amounts due to us under
the shareholder loans prior to their maturities. If the
shareholder loans had been repaid as of September 30, 2004,
we would have recognized a $36,523,000 pre-tax gain in
connection with the
A3-18
reclassification of foreign currency translation gains related
to the shareholder loans from our other accumulated
comprehensive loss account. The amount of any foreign currency
transaction gain ultimately realized will be dependent on the
exchange rate in effect on the transaction date.
In addition to the above sources and potential sources of
liquidity, we may elect to monetize our investments in News
Corp., ABC Family preferred stock and/or certain other
investments and derivative instruments that we hold. In this
regard, we are a party to a variable forward sale transaction
with respect to our shares of News Corp. Class A Common
Stock that provided us with available liquidity of $157,200,000
at September 30, 2004. For additional information
concerning our investments and derivative contracts, see
notes 7, 8 and 10 to the accompanying September 30,
2004 condensed consolidated financial statements.
We believe that our current sources of liquidity are sufficient
to meet our known liquidity requirements through 2005. However,
in the event a major investment or acquisition opportunity were
to arise, it is likely that we would be required to seek
additional capital in order to consummate any such transaction.
Our primary uses of cash have historically been investments in
affiliates and acquisitions of consolidated businesses. We
intend to continue expanding our collection of international
broadband and programming assets. Accordingly, our future cash
needs include making additional investments in and loans to
existing affiliates, funding new investment opportunities, and
funding our corporate general and administrative expenses.
We and CristalChile each own 50% interests in Cordillera.
Cordillera owns substantially all of the equity of Metropolis.
We and CristalChile have entered into an agreement pursuant to
which we each have agreed to use commercially reasonable efforts
to merge Metropolis and VTR. The merger is subject to certain
conditions, including the execution of definitive agreements,
Chilean regulatory approvals and the approval of the boards of
directors of our company, CristalChile, VTR and UGC (including,
in the case of UGC, the independent members of UGCs board
of directors) and the receipt of necessary third party approvals
and waivers. If the proposed merger is consummated as originally
contemplated, we would own a direct and indirect interest
aggregating 80% of the voting and equity rights in the new
entity, and CristalChile would own the remaining 20%. We would
also receive a $100 million promissory note from the
combined entity, which would bear interest at LIBOR plus
3% per annum and would be unsecured and subordinated to
third party debt. In addition, CristalChile would have a put
right which would allow CristalChile to require Liberty to
purchase all, but not less than all, of its interest in the new
entity for not less than $140 million on or after the first
anniversary of the date on which Chilean regulatory approval of
the merger is deemed to be received. We have agreed to assume
and indemnify Liberty against this put obligation in connection
with the spin off. If the merger does not occur, we and
CristalChile have agreed to fund our pro rata share of a capital
call sufficient to retire Metropolis local debt facility,
which had an outstanding principal amount of Chilean pesos
34 billion ($55,838,000) at September 30, 2004. On
October 25, 2004, the Chilean anti-trust tribunal, which we
refer to as the Tribunal, approved a potential combination of
VTR with Metropolis, subject to certain conditions. The decision
of the Tribunal has been appealed to Chiles Supreme Court
by parties opposing the possible combination of VTR and
Metropolis (the Appeal). UGC, CristalChile and we are
(i) reviewing in detail the conditions imposed by the
Tribunal, (ii) monitoring the Appeal, and
(iii) engaging in discussions regarding the terms of the
potential combination of VTR and Metropolis. The terms of any
such combination are subject to review and approval by a
committee of UGCs independent directors.
On May 20, 2004, we acquired all of the issued and
outstanding ordinary shares of PHL for
2,000,000
($2,386,000 at May 20, 2004). PHL, through its subsidiary
Chorus Communications Limited, owns and operates broadband
communications systems in Ireland. In connection with this
acquisition, we loaned an aggregate of
75,000,000
($89,475,000 as of May 20, 2004) to PHL. The proceeds from
such loan were used by PHL to discharge liabilities pursuant to
a debt restructuring plan and to provide funds for capital
expenditures and working capital. We have committed to loan up
to an additional
14,500,000
($18,032,000) to PHL, of which
4,500,000
($5,596,000) had been loaned as of September 30, 2004.
At September 30, 2004, we owned certain debt of CPE and one
of its two indirect majority-owned entities that collectively
own a non-controlling ownership interest in Telenet. Subsequent
to September 30, 2004, we entered into an agreement to
restructure our indirect investment in Telenet that will, if
consummated, result in a net increase in our cash investment in
Telenet of approximately $22 million. For additional
information, see note 18 to the accompanying
September 30, 2004 condensed consolidated financial
statements.
A3-19
As a result of the termination by Argentina of its decade-old
currency peg in late 2001, Cablevision (consistent with other
Argentine issuers) stopped servicing its U.S. dollar
denominated debt in 2002, which it is currently seeking to
restructure pursuant to an out of court reorganization
agreement. That agreement has been submitted to
Cablevisions creditors for their consent, and a petition
for its approval has been filed by Cablevision with a commercial
court in Buenos Aires under Argentinas bankruptcy laws. If
the restructuring is approved in its current form, we would
contribute to Cablevision $27,500,000, for which we would
receive, after giving effect to a capital reduction pertaining
to the current shareholders of Cablevision (including the entity
in which Liberty has a 78.2% economic interest), approximately
40.0% of the equity of the restructured Cablevision. The
proceeds of our cash contribution would be distributed as part
of the consideration being offered to Cablevisions
creditors. No assurance can be given as to whether
Cablevisions restructuring plan will be accepted by the
court. Subsequent to September 30, 2004, we entered into an
agreement, which, if consummated, would eliminate our rights and
obligations under the restructuring agreement in exchange for
cash consideration of approximately $40.5 million.
UGC. At September 30, 2004, UGC held cash and cash
equivalents of $981,638,000 and short-term liquid investments of
$111,536,000. In addition to its cash and cash equivalents and
its short-term liquid investments, UGCs sources of
liquidity include borrowing availability under its existing
credit facilities and its operating cash flow.
UGC completed a rights offering in February 2004 and received
net cash proceeds of $1.02 billion. As a holder of UGC
Class A, Class B and Class C Common Stock, we
participated in the rights offering and exercised our rights to
purchase 90.7 million shares for a total cash purchase
price of $544,250,000.
On April 6, 2004, UGC completed the offering and sale of
500 million
($622 million) UGC Convertible Notes. Interest is payable
semi-annually on April 15 and October 15 of each year,
beginning October 15, 2004. The UGC Convertible Notes are
senior unsecured obligations that rank equally in right of
payment with all of UGCs existing and future senior
unsubordinated and unsecured indebtedness and ranks senior in
right of payment to all of UGCs existing and future
subordinated indebtedness. The UGC Convertible Notes are
effectively subordinated to all existing and future indebtedness
and other obligations or UGCs subsidiaries. The UGC
Convertible Notes will be convertible into shares of UGC
Class A Common Stock at an initial conversion price of
9.7561 per
share, which was equivalent to a conversion price of
$12.00 per share on the date of issue, representing a
conversion rate of 102.5 shares per
1,000 principal
amount of the UGC Convertible Notes. On or after April 20,
2011, UGC has the right to redeem the UGC Convertible Notes, in
whole or in part, at a redemption price in euros equal to 100%
of the principal amount, together with accrued and unpaid
interest. On April 15, 2011, April 15, 2014, and
April 15, 2019, holders have a right to tender all or part
of their UGC Convertible Notes to UGC for purchase in euros at
100% of the principal amount, plus accrued and unpaid interest.
Holders may also similarly tender their UGC Convertible Notes to
UGC in the event of a change in control, as defined in the
related indenture. Holders may surrender their UGC Convertible
Notes for conversion prior to maturity only if certain
conditions are met.
At September 30, 2004, UGCs debt includes
$3,495 million borrowed by a subsidiary of UPC pursuant to
the UPC Distribution Bank Facility, the
500 million
($622 million) UGC Convertible Notes and certain other
borrowings. The UPC Distribution Bank Facility, as refinanced in
June 2004, provides for euro denominated borrowings by a UPC
subsidiary under four different facilities aggregating
3,044 million
($3,786 million) and U.S. dollar denominated
borrowings under a fifth facility aggregating $345,763,000. At
September 30, 2004, the aggregate availability under the
UPC Distribution Facility was
511,750,000
(636,426,000). The UPC Distribution Bank Facility
(i) provides for a commitment fee of 0.5% of unused
borrowing availability, (ii) is secured by the assets of
most of UPCs majority-owned European cable operating
companies and is senior to other long-term obligations of UPC
and (iii) contains certain financial covenants and
restrictions on UPCs subsidiaries regarding payment of
dividends, ability to incur additional indebtedness, disposition
of assets, mergers and affiliated transactions. The weighted
average interest rate on borrowings under the UPC Distribution
Bank Facility was 6.2% for the nine months ended
September 30, 2004. For additional information concerning
the UPC Distribution Bank Facility, see note 11 to the
accompanying September 30, 2004 condensed consolidated
financial statements.
A3-20
On July 1, 2004, UPC Broadband France, an indirect
wholly-owned subsidiary of UGC and the owner of UGCs
French cable television operations, acquired Noos, from Suez.
The preliminary purchase price for a 100% interest in Noos was
approximately
623,450,000
($758,547,000 at July 1, 2004), consisting of
529,929,000
($644,761,000 at July 1, 2004) in cash, a 19.9% equity
interest in UPC Broadband France valued at approximately
85,000,000
($103,419,000 at July 1, 2004) and
8,521,000
($10,367,000 at July 1, 2004) in direct acquisition costs.
The preliminary purchase price and the value assigned to the
19.9% interest in UPC Broadband France are subject to a review
of certain historical financial information of Noos and UPC
Broadband France. In this regard,
100,000,000
($121,669,000) of the cash consideration is being held in escrow
pending final determination of the purchase price. For
additional information, see note 5 to the accompanying
September 30, 2004 condensed consolidated financial
statements.
Suez 19.9% equity interest in UPC Broadband France
consists of 85.0 million shares of Class B common
stock of UPC Broadband France (the UPC Broadband France
Class B Shares). Subject to the terms of a call option
agreement, UPC France, the parent company of UPC Broadband
France, has the right through June 30, 2005 to purchase
from Suez all of the UPC Broadband France Class B Shares
for 85,000,000
($105,706,000), subject to adjustment, plus interest. The
purchase price for the UPC Broadband France Class B Shares
may be paid in cash, UGC Class A Common Stock or LMI
Series A Common Stock. Subject to the terms of a put
option, Suez may require UPC France to purchase the UPC
Broadband France Class B Shares at specific times prior to
or after the third, fourth or fifth anniversaries of the
purchase date. UPC France will be required to pay the then fair
market value, payable in cash or marketable securities, for the
UPC Broadband France Class B Shares or assist Suez in
obtaining an offer to purchase the UPC Broadband France
Class B Shares. UPC France also has the option to purchase
the UPC Broadband France Class B Shares from Suez shortly
after the third, fourth or fifth anniversaries of the purchase
date at the then fair market value in cash or marketable
securities.
During the third quarter of 2004, UGCs Board of Directors
authorized a $100 million share repurchase program. As of
September 30, 2004, UGC had repurchased 787,391 shares
of UGC Class A common stock. UGC may use its cash to make
further purchases from time to time in the open market or in
private transactions, subject to market conditions.
Management of UGC believes that they will be able to meet their
current and long-term liquidity, acquisition and capital needs
through their existing cash, operating cash flow and available
borrowings under their existing credit facilities. However, to
the extent that UGC management plans to grow their business
through acquisitions, UGC management believes that they will
need additional sources of financing, most likely to come from
the capital markets in the form of debt or equity financing or a
combination of both.
Other Subsidiaries. Puerto Rico Cable and Pramer
generally fund their own investing and financing activities with
cash from operations and bank borrowings, as necessary. Due to
covenants in their respective loan agreements, we generally are
not entitled to the cash resources or cash generated by
operating activities of these two consolidated subsidiaries.
Another subsidiary of our company posts cash collateral equal to
the outstanding borrowings under the Puerto Rico Cable bank
facility ($50,000,000 at September 30, 2004). At
September 30, 2004, Pramers U.S. dollar
denominated bank borrowings aggregated $12,391,000. During 2002,
following the devaluation of the Argentine peso, Pramer failed
to make certain required payments due under its bank credit
facility. Since that time, Pramer has been in technical default
under its bank credit facility. However, the bank lenders have
not provided notice of default or requested acceleration of the
payments due under the facility. Pramer and the banks are
negotiating the refinancing of this credit facility and all
amounts due under this facility are classified as current in the
accompanying September 30, 2004 condensed consolidated
balance sheets.
Due to the fact that we began consolidating UGC on
January 1, 2004, our cash flows for the nine months ended
September 30, 2004 are not comparable to the cash flows for
the nine months ended September 30, 2003. Accordingly, the
following discussion focuses on the cash flows for the nine
months ended September 30, 2004. During the nine months
ended September 30, 2004, the cash provided by our
operating activities was $511,855,000. This amount is lower than
our operating cash flow for the period of $655,236,000 due to
cash paid for interest (net of interest and dividends received)
and changes in working capital items. During the nine months
A3-21
ended September 30, 2004, the cash used by our investing
activities was $874,998,000. Such amount includes net cash paid
for acquisitions of $428,156,000 and capital expenditures of
$325,262,000. During the nine months ended September 30,
2004, the cash provided by our financing activities was
$2,100,638,000. Such amount includes net proceeds of
$735,661,000 from the LMI Rights Offering, contributions from
Liberty of $704,250,000, net proceeds received on a consolidated
basis from the issuance of stock by subsidiaries of
$486,457,000, and net borrowings of debt of $235,758,000.
We define free cash flow as cash provided by operating
activities less capital expenditures. We believe our
presentation of free cash flow provides useful information to
investors because it can be used to measure our ability to
service debt and fund new investment opportunities. Free cash
flow is not a GAAP measurement of liquidity and investors should
view free cash flow as a supplement to, and not a substitute
for, GAAP cash flows from operating, investing, and financing
activities. Our free cash flow for the nine months ended
September 30, 2004 was $186,593,000.
During the nine months ended September 30, 2003, cash
contributions from Liberty funded most of the $413,322,000 that
was invested in and loaned to our affiliates, principally J-COM.
Our cash flows are subject to variations based on foreign
currency exchange rates. See related discussion under
Quantitative and Qualitative Disclosures about
Market Risk below.
Off Balance Sheet Arrangements and Aggregate Contractual
Obligations
|
|
|
Off Balance Sheet Arrangements |
At September 30, 2004, Liberty guaranteed
¥13,620,821,000 ($123,814,000) of the bank debt of J-COM,
an equity affiliate that provides broadband services in Japan.
Libertys guarantees expire as the underlying debt matures
and is repaid. The debt maturity dates range from 2004 to 2019.
In connection with the spin off, we have agreed to indemnify
Liberty for any amounts it is required to fund under these
arrangements.
At September 30, 2004, we had severally guaranteed certain
transponder and equipment lease obligations of Sky Latin America
aggregating $92,950,000 and $3,407,000, respectively. Such
amounts were not reflected in our condensed consolidated balance
sheet at September 30, 2004. In connection with the
execution of certain transactions and agreements subsequent to
September 30, 2004, our guarantees of the obligations under
these transponder leases were terminated and our guarantees of
the obligations under these equipment leases will be terminated
no later than December 31, 2004. See related discussion
above.
We have contingent liabilities related to legal and tax
proceedings and 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. In the opinion of management, it
is expected that amounts, if any, which may be required to
satisfy such contingencies will not be material in relation to
the accompanying September 30, 2004 condensed consolidated
financial statements.
Information concerning the amount and timing of our consolidated
contractual commitments as of September 30, 2004 are as
follows (amounts in thousands):
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due During Periods Ended September 30, | |
|
|
| |
|
|
2005 | |
|
2006-2007 | |
|
2008-2009 | |
|
Thereafter | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Debt
|
|
$ |
90,052 |
|
|
$ |
1,018,076 |
|
|
$ |
2,587,764 |
|
|
$ |
652,970 |
|
|
$ |
4,348,862 |
|
Operating lease obligations
|
|
|
91,435 |
|
|
|
106,455 |
|
|
|
76,486 |
|
|
|
126,114 |
|
|
|
400,490 |
|
Programming commitments
|
|
|
76,567 |
|
|
|
62,407 |
|
|
|
31,932 |
|
|
|
18,301 |
|
|
|
189,207 |
|
Other commitments
|
|
|
112,542 |
|
|
|
22,725 |
|
|
|
11,434 |
|
|
|
15,812 |
|
|
|
162,513 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual payments
|
|
$ |
370,596 |
|
|
$ |
1,209,663 |
|
|
$ |
2,707,616 |
|
|
$ |
813,197 |
|
|
$ |
5,101,072 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A3-22
Critical Accounting Policies, Judgments and Estimates
The discussion and analysis of our financial condition and
results of operations are based upon our September 30, 2004
condensed consolidated financial statements and our
December 31, 2003 combined financial statements, which have
been prepared in accordance with GAAP. The preparation of these
financial statements required us to make estimates and
assumptions that affected the reported amounts of assets and
liabilities, revenue and expenses, and related disclosure of
contingent assets and liabilities at the date of our financial
statements. Actual results may differ from these estimates under
different assumptions or conditions. Critical accounting
policies are defined as those policies that are reflective of
significant judgments and uncertainties, which would potentially
result in materially different results under different
assumptions and conditions. We believe our judgments and related
estimates associated with the carrying value of our investments,
the carrying value of our long-lived assets, the valuation of
our acquisition related assets and liabilities, and the
valuation of our deferred tax assets to be critical in the
preparation of our consolidated financial statements. These
accounting estimates or assumptions are critical because of the
levels of judgment necessary to account for matters that are
inherently uncertain or highly susceptible to change.
Additionally, with respect to the three and nine months ended
September 30, 2004, we believe our judgment and related
estimates associated with the consolidation of Old UGC while in
Chapter 11 bankruptcy proceedings to be critical in the
preparation of the accompanying September 30, 2004
condensed consolidated financial statements.
Carrying Value of Investments. Our cost and equity method
investments comprised 13% and 49%, respectively, of our total
assets at December 31, 2003 and 7% and 41%, respectively,
at December 31, 2002. We account for these investments
pursuant to Statement of Financial Accounting Standards
No. 115, Statement of Financial Accounting Standards
No. 142 and Accounting Principles Board Opinion
No. 18. These accounting principles require us to
periodically evaluate our investments to determine if decreases
in fair value below our cost bases are other than temporary or
nontemporary. If a decline in fair value is
determined to be nontemporary, we are required to reflect such
decline in our statement of operations. Nontemporary declines in
fair value of cost investments are recognized on a separate line
in our combined statement of operations, and nontemporary
declines in fair value of equity method investments are included
in share of losses of affiliates in our combined statement of
operations.
The primary factors we consider in our determination of whether
declines in fair value are nontemporary are the length of time
that the fair value of the investment is below our carrying
value; and the financial condition, operating performance and
near term prospects of the investee. In addition, we consider
the reason for the decline in fair value, be it general market
conditions, industry specific or investee specific;
analysts ratings and estimates of 12 month share
price targets for the investee; changes in stock price or
valuation subsequent to the balance sheet date; and our intent
and ability to hold the investment for a period of time
sufficient to allow for recovery in fair value. Fair value of
our publicly traded investments is based on the market price of
the security at the balance sheet date. We estimate the fair
value of our other cost investments using a variety of
methodologies, including cash flow multiples, per subscriber
values, or values of comparable public or private businesses. As
our assessment of the fair value of our investments and any
resulting impairment losses requires a high degree of judgment
and includes significant estimates and assumptions, actual
results could differ materially from our estimates and
assumptions.
Our evaluation of the fair value of our investments and any
resulting impairment charges are determined as of the most
recent balance sheet date. Changes in fair value subsequent to
the balance sheet date due to the factors described above are
possible. Subsequent decreases in fair value will be recognized
in our combined statement of operations in the period in which
they occur to the extent such decreases are deemed to be
nontemporary. Subsequent increases in fair value will be
recognized in our combined statement of operations only upon our
ultimate disposition of the investment.
Carrying Value of Long-lived Assets. Our property and
equipment, intangible assets and goodwill (collectively,
long-lived assets) also comprise a significant
portion of our total assets at December 31, 2003 and 2002.
We account for our long-lived assets pursuant to Statement of
Financial Accounting Standards No. 142 and Statement of
Financial Accounting Standards No. 144. These accounting
standards require that we periodically, and upon the occurrence
of certain triggering events, assess the recoverability of our
long-lived
A3-23
assets. If the carrying value of our long-lived assets exceeds
their estimated fair value, we are required to write the
carrying value down to fair value. Any such writedown is
included in impairment of long-lived assets in our combined
statement of operations. A high degree of judgment is required
to estimate the fair value of our long-lived assets. We may use
quoted market prices, prices for similar assets, present value
techniques and other valuation techniques to prepare these
estimates. We may need to make estimates of future cash flows
and discount rates as well as other assumptions in order to
implement these valuation techniques. Accordingly, any value
ultimately derived from our long-lived assets may differ from
our estimate of fair value.
In connection with our 2002 annual evaluation of the carrying
value of our enterprise-level goodwill, we estimated the fair
value of our equity method investments and compared such
estimated fair value to the carrying value of our equity method
investments including any allocated enterprise-level goodwill.
As a result of increased competition, losses in subscribers and
a decrease in operating income in 2002, we determined that our
carrying value exceeded the estimated fair value for
Metrópolis-Intercom, which fair value was based on a
per-subscriber valuation. Accordingly, we recorded a
nontemporary decline in value of $66,555,000 related to our
investment balance, which is included in share of losses of
affiliates for the year ended December 31, 2002 and an
impairment of long-lived assets of $39,000,000 related to the
allocated enterprise-level goodwill for Metrópolis-Intercom.
In 2002, we also determined that our carrying value for Torneos,
including allocated enterprise-level goodwill, exceeded its
estimated fair value due to the economic crisis in Argentina and
the devaluation of the Argentine peso. Accordingly, we recorded
an impairment of long-lived assets of $5,000,000 related to the
allocated enterprise-level goodwill for Torneos.
In December 2001, we determined that our carrying value for
Pramer exceeded its estimated fair value as a result of the
devaluation of the Argentine peso. Accordingly, we recorded a
$52,775,000 impairment of goodwill. Also, in 2001 we determined
that a loan in the amount of $21,312,000 was not collectible.
Accordingly, we wrote the note receivable off and recorded a
charge that is included in impairment of long-lived assets. In
connection with our acquisition of Pramer in 1998, we acquired
intangible assets for Cablevisión, an Argentine cable
company. Cablevisión had the right to purchase the
intangible assets from us for $25,000,000, $8,000,000 of which
Cablevisión funded at the time of the Pramer acquisition.
We accounted for the intangible assets as assets held for sale
and recorded no amortization for them. In 2001, due to the
economic crisis in Argentina, we determined that
Cablevisión would be unable to fund the remaining
$17,000,000 and recorded an impairment of long-lived assets.
Fair Value of Acquisition Related Assets and Liabilities.
We allocate the purchase price of acquired companies or
acquisitions of non-controlling equity (minority) interests
of a subsidiary to the tangible and intangible assets acquired
and liabilities assumed based on their estimated fair values. In
determining fair value, management is required to make estimates
and assumptions that affect the recorded amounts. To assist in
this process, third party valuation specialists are engaged to
value certain of these assets and liabilities. Estimates used in
valuing acquired assets and liabilities include, but are not
limited to, expected future cash flows, market comparables and
appropriate discount rates. Managements estimates of fair
value are based upon assumptions believed to be reasonable, but
which are inherently uncertain.
Income Taxes. We are required to estimate the amount of
tax payable or refundable for the current year and the deferred
income tax liabilities and assets for the future tax
consequences of events that have been reflected in our financial
statements or tax returns for each taxing jurisdiction in which
we operate. This process requires our management to make
assessments regarding the timing and probability of the ultimate
tax impact. We record valuation allowances on deferred tax
assets to reflect the expected realizable future tax benefits.
Actual income taxes could vary from these estimates due to
future changes in income tax law, significant changes in the
jurisdictions in which we operate, our inability to generate
sufficient future taxable income or unpredicted results from the
final determination of each years liability by taxing
authorities. These changes could have a significant impact on
our financial position. Establishing a tax valuation allowance
requires us to make assessments about the timing of future
events, including the probability of expected future taxable
income and available tax planning opportunities. Actual
performance versus these estimates could have a material effect
on the realization of tax
A3-24
benefits as reported in our results of operations. Our
assumptions require significant judgment because actual
performance has fluctuated in the past and may continue to do so.
Consolidation of Old UGC. Old UGC is a wholly-owned
subsidiary of UGC that owns VTR and an interest in Austar
United. Old UGC filed a voluntary petition for relief under
Chapter 11 of the U.S. Bankruptcy Code with the
U.S. Bankruptcy Court for the Southern District of New York
on January 12, 2004. We continue to consolidate the
financial position and results of operations of Old UGC while in
bankruptcy, for the following primary reasons:
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|
|
UGC is the sole shareholder and majority creditor of Old UGC
(direct and indirect holder of 98% of the Old UGC Senior Notes); |
|
|
|
UGC negotiated a restructuring agreement that provides for it to
continue to be Old UGCs controlling equity holder upon Old
UGCs emergence from bankruptcy; and |
|
|
|
The bankruptcy proceedings are expected to be completed in less
than one year. |
For additional information, see note 12 to the
September 30, 2004 condensed consolidated financial
statements included elsewhere herein.
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|
|
Quantitative and Qualitative Disclosures About Market
Risk |
We are exposed to market risk in the normal course of our
business operations due to our investments in various foreign
countries and ongoing investing and financial activities. Market
risk refers to the risk of loss arising from adverse changes in
foreign currency exchange rates, interest rates and stock
prices. The risk of loss can be assessed from the perspective of
adverse changes in fair values, cash flows and future earnings.
We have established policies, procedures and internal processes
governing our management of market risks and the use of
financial instruments to manage our exposure to such risks.
We invest our cash in liquid instruments that meet high credit
quality standards and generally have maturities at the date of
purchase of less than three months. UGC is exposed to exchange
rate risk with respect to $556,036,000 of cash it has invested
in currencies other than the U.S. dollar. Of this amount,
$537,225,000 is denominated in euros, the majority of which is
expected to be used for acquisitions and other euro-denominated
commitments.
We are also exposed to equity price fluctuations related to our
investments in equity securities. At September 30, 2004,
the aggregate carrying value of our equity method and
available-for-sale investments that was subject to price risk
was $1,278,345,000. For additional information concerning our
available-for-sale investments, see note 8 to the
accompanying September 30, 2004 condensed consolidated
financial statements.
We are exposed to unfavorable and potentially volatile
fluctuations of the U.S. dollar (our functional currency)
against the currencies of our operating subsidiaries and
affiliates. Because our functional currency is the
U.S. dollar, any increase (decrease) in the value of the
U.S. dollar against any foreign currency in which we have
funding commitments effectively reduces (increases) the
U.S. dollar equivalent of such funding commitments. At the
same time, any increase (decrease) in the value of the
U.S. dollar against any foreign currency that is the
functional currency of one of our operating subsidiaries or
affiliates will cause us to experience unrealized foreign
currency translation losses (gains) with respect to amounts
already invested in such foreign currencies. We and our
operating subsidiaries and affiliates are also exposed to
foreign currency risk to the extent that we enter into
transactions denominated in currencies other than our respective
functional currencies.
We generally do not hedge our foreign currency exchange risk
because of the long-term nature of our interests in foreign
affiliates. However, in order to reduce our foreign currency
exchange risk related to our investment in J-COM, we have
entered into collar agreements with respect to
¥30 billion ($272,702,000). These collar agreements
have a weighted average remaining term of approximately
4 months, an average call price of
A3-25
¥106/ U.S. dollar and an average put price of
¥112/ U.S. dollar. We had also entered into forward
sales contracts with respect to the Japanese yen. During the
second quarter of 2004, we paid $10,593,000 to settle our yen
forward sales contracts. As a result, we had no yen forward
sales contracts outstanding at September 30, 2004.
We are also exposed to foreign exchange rate fluctuations
related to our operating subsidiaries monetary assets and
liabilities and the financial results of foreign subsidiaries
when their respective financial statements are translated into
U.S. dollars during consolidation. Assets and liabilities
of foreign subsidiaries for which the functional currency is the
local currency are translated at period-end exchange rates and
the statements of operations are translated at actual exchange
rates when known, or at the average exchange rate for the
period. Exchange rate fluctuations on translating foreign
currency financial statements into U.S. dollars that result
in unrealized gains or losses are referred to as translation
adjustments. Cumulative translation adjustments are recorded in
accumulated other comprehensive income (loss) as a separate
component of equity. Transactions denominated in currencies
other than the functional currency are recorded based on
exchange rates at the time such transactions arise. Subsequent
changes in exchange rates result in transaction gains and
losses, which are reflected in income as unrealized (based on
period-end translations) or realized upon settlement of the
transactions. Cash flows from operations in foreign countries
are translated at actual exchange rates when known, or at the
average rate for the period. Certain items, such as investments
in debt and equity securities of foreign subsidiaries, equipment
purchases, programming costs, notes payable and notes receivable
(including intercompany amounts) and certain other charges are
denominated in a currency other than the respective
companys functional currency, which results in foreign
exchange gains and losses recorded in the September 30,
2004 condensed consolidated statements of operations.
Accordingly, we may experience economic loss and a negative
impact on earnings and equity with respect to our holdings
solely as a result of foreign currency exchange rate
fluctuations. Our primary exposure is currently to the euro as
over 50% of our U.S. dollar revenue was derived from
countries where the euro is the functional currency. In
addition, our operating results are also significantly impacted
by changes in the exchange rates for the Japanese yen, Chilean
peso and, to a lesser degree, other local currencies in Europe.
The relationship between the euro, Japanese yen and Chilean peso
and the U.S. dollar, which is our reporting currency, is
shown below, per one U.S. dollar:
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|
Spot rate | |
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| |
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|
Japanese | |
|
Chilean | |
|
|
Euro | |
|
Yen | |
|
Peso | |
|
|
| |
|
| |
|
| |
September 30, 2004
|
|
|
.8041 |
|
|
|
110.01 |
|
|
|
608.90 |
|
December 31, 2003
|
|
|
.7933 |
|
|
|
107.37 |
|
|
|
593.80 |
|
September 30, 2003
|
|
|
.8564 |
|
|
|
111.47 |
|
|
|
660.97 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average rate | |
|
|
| |
|
|
|
|
Japanese | |
|
Chilean | |
|
|
Euro | |
|
Yen | |
|
Peso | |
|
|
| |
|
| |
|
| |
Nine months ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2004
|
|
|
.8154 |
|
|
|
108.56 |
|
|
|
614.70 |
|
|
September 30, 2003
|
|
|
.8969 |
|
|
|
118.19 |
|
|
|
709.77 |
|
|
|
|
Inflation and Foreign Investment Risk |
Certain of our operating companies operate in countries where
the rate of inflation is higher than that in the United States.
While our affiliated companies attempt to increase their
subscription rates to offset increases in operating costs, there
is no assurance that they will be able to do so. Therefore,
operating costs may rise faster than associated revenue,
resulting in a material negative impact on reported earnings. We
are also impacted by inflationary increases in salaries, wages,
benefits and other administrative costs, the effects of which to
date have not been material. Our foreign operating companies are
all directly affected by their respective countries
government, economic, fiscal and monetary policies and other
political factors.
A3-26
We are exposed to changes in interest rates primarily as a
result of our borrowing and investment activities, which include
fixed and floating rate investments and borrowings by our
operating subsidiaries used to maintain liquidity and fund their
respective business operations. The nature and amount of our
long-term and short-term debt are expected to vary as a result
of future requirements, market conditions and other factors. Our
primary exposure to variable rate debt is through the
EURIBOR-indexed and LIBOR-indexed debt of UGC. UGC maintains a
mix of fixed and variable rate debt and enters into various
derivative transactions pursuant to UGCs policies to
manage exposure to movements in interest rates. UGC monitors its
interest rate risk exposures using techniques including market
value and sensitivity analyses. UGC manages the credit risks
associated with its derivative financial instruments through the
evaluation and monitoring of the creditworthiness of the
counterparties. Although the counterparties may expose UGC to
losses in the event of nonperformance, UGC does not expect such
losses, if any, to be significant. UGC uses interest rate
exchange agreements to exchange, at specified intervals, the
difference between fixed and variable interest amounts
calculated by reference to an agreed-upon notional principal
amount. UGC uses interest rate cap agreements to lock in a
maximum interest rate should variable rates rise, but enable it
to otherwise pay lower market rates.
During the first and second quarters of 2004, UGC purchased
interest rate caps for approximately $21,442,000 that capped the
variable interest rate on notional amounts totaling
2.25 billion
to
2.6 billion
($2.8 billion to $3.2 billion) at 3% and 4% for 2005
and 2006, respectively. During the first quarter of 2003, UGC
purchased an interest rate cap that capped the variable interest
rate at 3% on a notional amount of
2.7 billion
($3.4 billion) for 2003 and 2004. UGC has also entered into
a cross currency and interest rate swap pursuant to which a
notional amount of $347,500,000 was swapped at an average rate
of 1.13 per
U.S. dollar until July 2005, with the interest rate capped
at 2.35%. At September 30, 2004, the fair value of the
interest rate swap derivative contracts was a
31,053,000
($38,618,000) liability and the fair value of the interest rate
cap derivative contracts was a
4,344,000
($5,402,000) asset.
For the nine months ended September 30, 2004, the
weighted-average interest rate on our variable rate indebtedness
was 6.2%. If market interest rates had been higher by
50 basis points during this period, our consolidated
interest expense would have increased by approximately
$14 million for the nine months ended September 30,
2004.
We have entered into total return debt swaps in connection with
(i) bank debt of a subsidiary of UPC, and (ii) public
debt of Cablevision. Under the total return debt swaps, a
counterparty purchases a specified amount of the underlying debt
security for the benefit of our company. We have posted
collateral with the counterparties equal to 30% of the
counterpartys purchase price for the purchased
indebtedness of the UPC subsidiary and 90% of the
counterpartys purchase price for the purchased
indebtedness of Cablevision. We record a derivative asset equal
to the posted collateral and such asset is included in other
assets in the accompanying September 30, 2004 condensed
consolidated balance sheets. We earn interest income based upon
the face amount and stated interest rate of the underlying debt
securities, and pay interest expense at market rates on the
amount funded by the counterparty. In the event the fair value
of the underlying purchased indebtedness of the UPC subsidiary
declines by 10% or more, we are required to post cash collateral
for the decline, and we record an unrealized loss on derivative
instruments. The cash collateral related to the UPC subsidiary
indebtedness is further adjusted up or down for subsequent
changes in the fair value of the underlying indebtedness or for
foreign currency exchange rate movements involving the euro and
U.S. dollar. At September 30, 2004, the aggregate
purchase price of debt securities underlying our total return
debt swap arrangements involving the indebtedness of the UPC
subsidiary and Cablevision was $121,738,000. As of such date, we
had posted cash collateral equal to $49,661,000. In the event
the fair value of the purchased debt securities were to fall to
zero, we would be required to post additional cash collateral of
$72,077,000. In addition, the aggregate principal amount of the
UPC subsidiary indebtedness that is the subject of our total
return debt swaps was approximately $108,904,000 at
September 30, 2004. Accordingly, if at September 30,
2004, we had acquired the UPC subsidiary indebtedness pursuant
to the total return swaps, our consolidated indebtedness at
September 30, 2004 would have been reduced by $108,904,000.
Subsequent to September 30, 2004, the counterparty to the
Cablevision total return debt swap, with our consent,
A3-27
entered into a participation agreement with a third party,
which, if consummated, would result in the termination of our
liability under this debt swap and the return of our collateral.
Prior to the spin off, Liberty contributed to our company
10,000,000 shares of News Corp. Class A Common Stock,
together with a related variable forward transaction. The
forward, which expires on September 17, 2009, provides
(i) us with the right to effectively require the
counterparty to buy 10,000,000 News Corp. Class A Common
Stock at a price of $15.72 per share, or an aggregate price
of $157,200,000, which we refer to as the Floor Price, and
(ii) the counterparty with the effective right to require
us to sell 10,000,000 shares of News Corp. Class A
Common Stock at a price of $26.19 per share. The fair value
of the forward was a $12,255,000 asset at September 30,
2004. At any time during the term of the forward, we can require
the counterparty to advance the full Floor Price. Provided we do
not draw an aggregate amount in excess of the present value of
the Floor Price, as determined in accordance with the forward,
we may elect to draw such amounts on a discounted or
undiscounted basis. As long as the aggregate advances are not in
excess of the present value of the Floor Price, undiscounted
advances will bear interest at prevailing three-month LIBOR and
discounted advances will not bear interest. Amounts advanced up
to the present value of the Floor Price are secured by the
underlying shares of News Corp. Class A Common Stock. If we
elect to draw amounts in excess of the present value of the
Floor Price, those amounts will be unsecured and will bear
interest at a negotiated interest rate. During the third quarter
of 2004, we received undiscounted advances aggregating
$126,000,000 under the forward. Such advances were subsequently
repaid during the quarter.
In addition to the risks described above, we are also exposed to
the risk that our counterparties will default on their
obligations to us under the above-described derivative
instruments. Based on our assessment of the credit worthiness of
the counterparties, we do not anticipate any such default.
A3-28
APPENDIX A: INFORMATION CONCERNING LIBERTY MEDIA
INTERNATIONAL, INC.
PART 4 HISTORICAL FINANCIAL STATEMENTS OF
LMI AND ITS
SIGNIFICANT AFFILIATES AND ACQUIREES
|
|
|
|
|
|
|
Page | |
|
|
| |
Liberty Media International, Inc.
|
|
|
|
|
|
|
|
|
A4-4 |
|
|
|
|
A4-6 |
|
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|
|
A4-7 |
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|
|
A4-8 |
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|
|
A4-9 |
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|
A4-11 |
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|
|
A4-39 |
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|
A4-40 |
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|
A4-41 |
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|
|
A4-42 |
|
|
|
|
A4-43 |
|
|
|
|
A4-44 |
|
|
UnitedGlobalCom, Inc.
|
|
|
|
|
|
|
|
A4-69 |
|
|
|
|
A4-70 |
|
|
|
|
A4-71 |
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|
|
A4-72 |
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|
|
A4-73 |
|
|
|
|
A4-76 |
|
|
|
|
A4-77 |
|
|
Jupiter Telecommunications Co., Ltd.
|
|
|
|
|
|
|
|
A4-130 |
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|
|
A4-131 |
|
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|
A4-132 |
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|
A4-133 |
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A4-134 |
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|
A4-135 |
|
A4-1
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Page | |
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|
| |
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Jupiter Programming Co. Ltd.
|
|
|
|
|
|
|
|
A4-158 |
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|
A4-159 |
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A4-160 |
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|
A4-161 |
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A4-162 |
|
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|
A4-163 |
|
|
Suez Lyonnaise Telecom SA
|
|
|
|
|
|
|
|
A4-184 |
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|
|
|
A4-185 |
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A4-186 |
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A4-187 |
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A4-188 |
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A4-2
(This page intentionally left blank)
A4-3
LIBERTY MEDIA INTERNATIONAL, INC
(See Note 1)
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, | |
|
December 31, | |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
(Amounts in thousands) | |
ASSETS |
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
1,738,730 |
|
|
$ |
12,753 |
|
|
Restricted cash
|
|
|
23,367 |
|
|
|
|
|
|
Short-term liquid investments
|
|
|
111,536 |
|
|
|
|
|
|
Trade and other receivables, net
|
|
|
232,223 |
|
|
|
15,130 |
|
|
Other current assets
|
|
|
168,579 |
|
|
|
16,453 |
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
2,274,435 |
|
|
|
44,336 |
|
|
|
|
|
|
|
|
Investments in affiliates, accounted for using the equity
method, and related receivables (note 7)
|
|
|
1,940,372 |
|
|
|
1,740,552 |
|
|
Other investments (note 8)
|
|
|
1,068,734 |
|
|
|
450,134 |
|
|
Property and equipment, at cost
|
|
|
4,658,036 |
|
|
|
128,013 |
|
Accumulated depreciation
|
|
|
(685,263 |
) |
|
|
(30,436 |
) |
|
|
|
|
|
|
|
|
|
|
3,972,773 |
|
|
|
97,577 |
|
|
|
|
|
|
|
|
Intangible assets not subject to amortization:
|
|
|
|
|
|
|
|
|
|
Goodwill (note 9)
|
|
|
2,592,138 |
|
|
|
525,576 |
|
|
Franchise rights and other
|
|
|
224,866 |
|
|
|
163,450 |
|
|
|
|
|
|
|
|
|
|
|
2,817,004 |
|
|
|
689,026 |
|
|
|
|
|
|
|
|
|
Intangible assets subject to amortization, net (note 9)
|
|
|
367,422 |
|
|
|
4,504 |
|
|
Deferred income tax assets
|
|
|
12,511 |
|
|
|
583,945 |
|
|
Other assets, net
|
|
|
177,341 |
|
|
|
76,963 |
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
12,630,592 |
|
|
$ |
3,687,037 |
|
|
|
|
|
|
|
|
A4-4
LIBERTY MEDIA INTERNATIONAL, INC
(See Note 1)
CONDENSED CONSOLIDATED BALANCE
SHEETS (Continued)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, | |
|
December 31, | |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
(Amounts in thousands) | |
|
LIABILITIES AND STOCKHOLDERS EQUITY |
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$ |
258,912 |
|
|
$ |
20,629 |
|
|
Accrued liabilities
|
|
|
465,502 |
|
|
|
13,532 |
|
|
Subscriber advance payments and deposits
|
|
|
305,978 |
|
|
|
283 |
|
|
Current portion of accrued stock-based compensation
|
|
|
19,078 |
|
|
|
15,052 |
|
|
Derivative instruments (note 10)
|
|
|
39,102 |
|
|
|
21,010 |
|
|
Current portion of debt payable (note 11)
|
|
|
90,052 |
|
|
|
12,426 |
|
|
Current portion of deferred tax liability
|
|
|
110,583 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,289,207 |
|
|
|
82,932 |
|
|
Long-term debt (note 11)
|
|
|
4,258,810 |
|
|
|
41,700 |
|
Deferred income tax liabilities
|
|
|
453,194 |
|
|
|
135,811 |
|
Other long-term liabilities
|
|
|
328,795 |
|
|
|
7,948 |
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
6,330,006 |
|
|
|
268,391 |
|
|
|
|
|
|
|
|
Commitments and contingencies (note 15)
|
|
|
|
|
|
|
|
|
|
Minority interests in subsidiaries
|
|
|
1,117,032 |
|
|
|
78 |
|
|
Stockholders Equity:
|
|
|
|
|
|
|
|
|
|
Series A common stock, $.01 par value. Authorized
500,000,000 shares; issued and outstanding
168,163,767 shares at September 30, 2004
|
|
|
1,682 |
|
|
|
|
|
|
Series B common stock, $.01 par value. Authorized
50,000,000 shares; issued and outstanding
7,264,300 shares at September 30, 2004
|
|
|
73 |
|
|
|
|
|
|
Series C common stock, $.01 par value. Authorized
500,000,000 shares; no shares issued at September 30,
2004
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
6,956,349 |
|
|
|
|
|
|
Accumulated deficit
|
|
|
(1,641,575 |
) |
|
|
(1,630,949 |
) |
|
Accumulated other comprehensive loss, net of taxes
|
|
|
(132,975 |
) |
|
|
(46,566 |
) |
|
Parents investment
|
|
|
|
|
|
|
5,096,083 |
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
5,183,554 |
|
|
|
3,418,568 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$ |
12,630,592 |
|
|
$ |
3,687,037 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
A4-5
LIBERTY MEDIA INTERNATIONAL, INC.
(See Note 1)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
Nine Months Ended | |
|
|
September 30, | |
|
September 30, | |
|
|
| |
|
| |
|
|
2004 | |
|
2003 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Amounts in thousands, except per share amounts) | |
Revenue
|
|
$ |
708,807 |
|
|
$ |
27,951 |
|
|
$ |
1,865,769 |
|
|
$ |
80,416 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (other than depreciation)
|
|
|
280,898 |
|
|
|
13,140 |
|
|
|
728,423 |
|
|
|
36,725 |
|
|
Selling, general and administrative (SG&A) (note 13)
|
|
|
176,154 |
|
|
|
10,451 |
|
|
|
482,110 |
|
|
|
29,898 |
|
|
Stock-based compensation charges (credits) primarily
SG&A (note 6)
|
|
|
13,377 |
|
|
|
(993 |
) |
|
|
66,120 |
|
|
|
(323 |
) |
|
Depreciation and amortization
|
|
|
253,615 |
|
|
|
3,808 |
|
|
|
696,624 |
|
|
|
11,139 |
|
|
Impairment of long-lived assets (note 9)
|
|
|
26,000 |
|
|
|
|
|
|
|
42,623 |
|
|
|
|
|
|
Restructuring charges (note 16)
|
|
|
1,824 |
|
|
|
|
|
|
|
10,749 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
751,868 |
|
|
|
26,406 |
|
|
|
2,026,649 |
|
|
|
77,439 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(43,061 |
) |
|
|
1,545 |
|
|
|
(160,880 |
) |
|
|
2,977 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(61,443 |
) |
|
|
(10 |
) |
|
|
(209,801 |
) |
|
|
(1,374 |
) |
|
Interest and dividend income
|
|
|
18,849 |
|
|
|
6,317 |
|
|
|
44,043 |
|
|
|
18,182 |
|
|
Share of earnings of affiliates, net (note 7)
|
|
|
15,673 |
|
|
|
7,990 |
|
|
|
54,518 |
|
|
|
10,833 |
|
|
Realized and unrealized gains (losses) on derivative
instruments, net (note 10)
|
|
|
1,193 |
|
|
|
(4,410 |
) |
|
|
16,218 |
|
|
|
16,016 |
|
|
Foreign currency transaction gains (losses), net
|
|
|
21,888 |
|
|
|
463 |
|
|
|
(7,015 |
) |
|
|
4,654 |
|
|
Gain on exchange of investment securities (note 8)
|
|
|
168,301 |
|
|
|
|
|
|
|
168,301 |
|
|
|
|
|
|
Other-than-temporary declines in fair values of investments
(note 8)
|
|
|
(12,429 |
) |
|
|
(1,200 |
) |
|
|
(15,115 |
) |
|
|
(5,612 |
) |
|
Gain on extinguishment of debt (note 11)
|
|
|
|
|
|
|
|
|
|
|
35,787 |
|
|
|
|
|
|
Gains (losses) on disposition of assets, net (notes 7
and 8)
|
|
|
(12,092 |
) |
|
|
(111 |
) |
|
|
12,632 |
|
|
|
3,847 |
|
|
Other income (expense), net
|
|
|
(2,285 |
) |
|
|
(207 |
) |
|
|
(9,088 |
) |
|
|
2,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
137,655 |
|
|
|
8,832 |
|
|
|
90,480 |
|
|
|
49,346 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before income taxes and minority interests
|
|
|
94,594 |
|
|
|
10,377 |
|
|
|
(70,400 |
) |
|
|
52,323 |
|
Income tax expense
|
|
|
(56,634 |
) |
|
|
(1,362 |
) |
|
|
(91,027 |
) |
|
|
(25,999 |
) |
Minority interests in losses of subsidiaries
|
|
|
36,405 |
|
|
|
36 |
|
|
|
150,801 |
|
|
|
28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$ |
74,365 |
|
|
$ |
9,051 |
|
|
$ |
(10,626 |
) |
|
$ |
26,352 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical and pro forma earnings (loss) per common share
(note 4):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$ |
0.44 |
|
|
$ |
0.06 |
|
|
$ |
(0.07 |
) |
|
$ |
0.17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
A4-6
LIBERTY MEDIA INTERNATIONAL, INC.
(See Note 1)
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(LOSS)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
Nine Months Ended | |
|
|
September 30, | |
|
September 30, | |
|
|
| |
|
| |
|
|
2004 | |
|
2003 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Amounts in thousands) | |
Net earnings (loss)
|
|
$ |
74,365 |
|
|
$ |
9,051 |
|
|
$ |
(10,626 |
) |
|
$ |
26,352 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive earnings (loss), net of taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
22,971 |
|
|
|
63,682 |
|
|
|
(18,331 |
) |
|
|
62,707 |
|
|
Reclassification adjustment for foreign currency translation
gains included in net earnings (loss) (note 7)
|
|
|
|
|
|
|
|
|
|
|
(143 |
) |
|
|
(28 |
) |
|
Unrealized gains (losses) on available-for-sale securities
|
|
|
(15,458 |
) |
|
|
47,246 |
|
|
|
(29,636 |
) |
|
|
73,580 |
|
|
Reclassification adjustment for net gains on available-for-sale
securities included in net earnings (loss) (note 8)
|
|
|
(89,281 |
) |
|
|
|
|
|
|
(89,281 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive earnings (loss)
|
|
|
(81,768 |
) |
|
|
110,928 |
|
|
|
(137,391 |
) |
|
|
136,259 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive earnings (loss)
|
|
$ |
(7,403 |
) |
|
$ |
119,979 |
|
|
$ |
(148,017 |
) |
|
$ |
162,611 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
A4-7
LIBERTY MEDIA INTERNATIONAL, INC
(See Note 1)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS
EQUITY
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2004 | |
|
|
| |
|
|
|
|
Accumulated | |
|
|
|
|
|
|
|
|
Other | |
|
|
|
|
Common Stock |
|
Additional | |
|
|
|
Comprehensive | |
|
|
|
Total | |
|
|
|
|
Paid-in | |
|
Accumulated | |
|
Earnings (Loss), | |
|
Parents | |
|
Stockholders | |
|
|
Series A | |
|
Series B | |
|
Series C |
|
Capital | |
|
Deficit | |
|
Net of Taxes | |
|
Investment | |
|
Equity | |
|
|
| |
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Amounts in thousands) | |
Balance at January 1, 2004
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(1,630,949 |
) |
|
$ |
(46,566 |
) |
|
$ |
5,096,083 |
|
|
$ |
3,418,568 |
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,626 |
) |
|
|
|
|
|
|
|
|
|
|
(10,626 |
) |
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(137,391 |
) |
|
|
|
|
|
|
(137,391 |
) |
|
Intercompany tax allocation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,133 |
|
|
|
6,133 |
|
|
Allocation of corporate overhead (note 13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,357 |
|
|
|
9,357 |
|
|
Issuance of Liberty Media Corporation common stock in
acquisition (note 5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
152,122 |
|
|
|
152,122 |
|
|
Contribution of cash, investments and other net liabilities in
connection with spin off (note 2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,982 |
|
|
|
304,578 |
|
|
|
355,560 |
|
|
Assumption by Liberty Media Corporation of obligation for stock
appreciation rights in connection with spin off (note 2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,763 |
|
|
|
5,763 |
|
|
Adjustment due to issuance of stock by subsidiaries and
affiliates, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,241 |
) |
|
|
|
|
|
|
|
|
|
|
1,025 |
|
|
|
(5,216 |
) |
|
Net cash transfers from parent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
654,250 |
|
|
|
654,250 |
|
|
Change in capitalization in connection with spin off
(note 2)
|
|
|
1,399 |
|
|
|
61 |
|
|
|
|
|
|
|
6,227,851 |
|
|
|
|
|
|
|
|
|
|
|
(6,229,311 |
) |
|
|
|
|
|
Common stock issued in rights offering (note 3)
|
|
|
283 |
|
|
|
12 |
|
|
|
|
|
|
|
735,366 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
735,661 |
|
|
Stock-based compensation, net of taxes (note 6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(627 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(627 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2004
|
|
$ |
1,682 |
|
|
$ |
73 |
|
|
$ |
|
|
|
$ |
6,956,349 |
|
|
$ |
(1,641,575 |
) |
|
$ |
(132,975 |
) |
|
$ |
|
|
|
$ |
5,183,554 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
A4-8
LIBERTY MEDIA INTERNATIONAL, INC
(See Note 1)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended | |
|
|
September 30, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
(Amounts in thousands) | |
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$ |
(10,626 |
) |
|
$ |
26,352 |
|
|
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation charges (credits)
|
|
|
66,120 |
|
|
|
(323 |
) |
|
|
Depreciation and amortization
|
|
|
696,624 |
|
|
|
11,139 |
|
|
|
Impairment of long-lived assets
|
|
|
42,623 |
|
|
|
|
|
|
|
Restructuring charges
|
|
|
10,749 |
|
|
|
|
|
|
|
Amortization of deferred financing costs
|
|
|
13,637 |
|
|
|
88 |
|
|
|
Share of earnings of affiliates, net
|
|
|
(54,518 |
) |
|
|
(10,833 |
) |
|
|
Realized and unrealized gains on derivative instruments, net
|
|
|
(16,218 |
) |
|
|
(16,016 |
) |
|
|
Foreign currency transaction losses (gains), net
|
|
|
7,015 |
|
|
|
(4,654 |
) |
|
|
Gain on exchange of investment securities
|
|
|
(168,301 |
) |
|
|
|
|
|
|
Other-than-temporary declines in fair values of investments
|
|
|
15,115 |
|
|
|
5,612 |
|
|
|
Gain on extinguishment of debt
|
|
|
(35,787 |
) |
|
|
|
|
|
|
Gains on disposition of assets, net
|
|
|
(12,632 |
) |
|
|
(3,847 |
) |
|
|
Deferred income tax expense
|
|
|
59,007 |
|
|
|
25,898 |
|
|
|
Minority interests in losses of subsidiaries
|
|
|
(150,801 |
) |
|
|
(28 |
) |
|
|
Non-cash charges from Liberty Media Corporation
|
|
|
15,490 |
|
|
|
5,290 |
|
|
|
Other noncash items
|
|
|
(1,317 |
) |
|
|
|
|
|
|
Changes in operating assets and liabilities, net of the effects
of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
Receivables, prepaids and other
|
|
|
(58,284 |
) |
|
|
(3,895 |
) |
|
|
|
Payables and accruals
|
|
|
93,959 |
|
|
|
(6,810 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
511,855 |
|
|
|
27,973 |
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Cash paid for acquisitions, net of cash acquired
|
|
|
(428,156 |
) |
|
|
|
|
|
Investments in and loans to affiliates and others
|
|
|
(241,183 |
) |
|
|
(413,322 |
) |
|
Repayment of amounts loaned to affiliate
|
|
|
129,237 |
|
|
|
|
|
|
Cash proceeds received upon redemption of shares by affiliate
|
|
|
27,677 |
|
|
|
|
|
|
Purchases of short-term liquid investments
|
|
|
(244,859 |
) |
|
|
|
|
|
Proceeds received from sale of short-term liquid investments
|
|
|
135,371 |
|
|
|
|
|
|
Capital expended for property and equipment
|
|
|
(325,262 |
) |
|
|
(17,251 |
) |
|
Net cash received (paid) to purchase or settle derivative
instruments
|
|
|
(69,672 |
) |
|
|
17,998 |
|
|
Proceeds from dispositions of assets
|
|
|
136,273 |
|
|
|
8,222 |
|
|
Other investing activities, net
|
|
|
5,576 |
|
|
|
2,370 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by investing activities
|
|
$ |
(874,998 |
) |
|
$ |
(401,983 |
) |
|
|
|
|
|
|
|
A4-9
LIBERTY MEDIA INTERNATIONAL, INC
(See Note 1)
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS (Continued)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended | |
|
|
September 30, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
(Amounts in thousands) | |
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Borrowings of debt
|
|
$ |
1,214,534 |
|
|
$ |
|
|
|
Repayments of debt
|
|
|
(978,776 |
) |
|
|
(7,159 |
) |
|
Net proceeds received from rights offering
|
|
|
735,661 |
|
|
|
|
|
|
Proceeds from issuance of stock by subsidiaries
|
|
|
486,457 |
|
|
|
|
|
|
Contributions from Liberty Media Corporation
|
|
|
704,250 |
|
|
|
385,529 |
|
|
Deferred financing costs
|
|
|
(58,186 |
) |
|
|
|
|
|
Other financing activities, net
|
|
|
(3,302 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
2,100,638 |
|
|
|
378,370 |
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash
|
|
|
(11,518 |
) |
|
|
536 |
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
1,725,977 |
|
|
|
4,896 |
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
12,753 |
|
|
|
5,592 |
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$ |
1,738,730 |
|
|
$ |
10,488 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$ |
231,139 |
|
|
$ |
620 |
|
|
|
|
|
|
|
|
|
|
|
Net cash paid for taxes
|
|
$ |
2,504 |
|
|
$ |
1,269 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
A4-10
LIBERTY MEDIA INTERNATIONAL, INC
(See Note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2004
(unaudited)
|
|
(1) |
Basis of Presentation |
The accompanying condensed consolidated financial statements of
Liberty Media International, Inc. (LMI) include the
historical financial information of (i) certain
international cable television and programming subsidiaries and
assets of Liberty Media Corporation (Liberty), which we
collectively refer to as LMC International, for periods prior to
the June 7, 2004 consummation of the spin off transaction
described in note 2 and (ii) LMI and its consolidated
subsidiaries for the period following such date. Upon
consummation of the spin off, LMI became the owner of the assets
that comprise LMC International. In the following text,
we, our, our company and
us may refer, as the context requires, to LMC
International (prior to June 7, 2004), LMI and its
consolidated subsidiaries (on and subsequent to June 7,
2004) or both.
Our operating subsidiaries and our most significant equity
method investments as of September 30, 2004 are set forth
below.
Operating
subsidiaries:
Liberty Cablevision of Puerto Rico
Ltd. (Puerto Rico Cable)
Pramer S.C.A. (Pramer)
Princes Holdings Limited (PHL)
UnitedGlobalCom, Inc. (UGC)
Our most significant subsidiary is UGC, an international
broadband communications provider of video, voice, and Internet
access services with operations in 11 European countries
and three Latin American countries. UGCs largest operating
segments are located in The Netherlands, France, Austria and
Chile. At September 30, 2004, we owned approximately
417 million shares of UGC common stock, representing an
approximate 53% economic interest and a 90% voting interest. As
further described in note 5, we began consolidating UGC on
January 1, 2004. Prior to that date, we used the equity
method to account for our investment in UGC. PHL and Puerto Rico
Cable are wholly-owned subsidiaries that own and operate cable
television systems in Ireland and Puerto Rico, respectively. As
further described in note 5, we acquired PHL during the
second quarter of 2004. Pramer is a wholly-owned Argentine
programming company that supplies programming services to cable
television and direct-to-home (DTH) satellite distributors
in Latin America, Spain and some Spanish speaking markets in the
United States (U.S.).
Significant
equity method investments:
Jupiter Programming Co., Ltd. (JPC)
Jupiter Telecommunications Co.,
Ltd. (J-COM)
We do not control the decision making process or business
management practices of our equity affiliates. Accordingly, we
rely on management of these affiliates and their independent
auditors to provide us with accurate financial information
prepared in accordance with accounting principles generally
accepted in the U.S. (GAAP) that we use in the
application of the equity method. We are not aware, however, of
any errors in or possible misstatements of the financial
information provided by our equity affiliates that would have a
material effect on our financial statements. For information
concerning our equity method investments, see note 7.
The accompanying interim condensed consolidated financial
statements are unaudited but, in the opinion of management,
reflect all adjustments (consisting of normal recurring
accruals) necessary for a fair presentation of the results for
such periods. The results of operations for any interim period
are not necessarily indicative of results for the full year.
These condensed consolidated financial statements should be read
in conjunction with
A4-11
LIBERTY MEDIA INTERNATIONAL, INC
(See Note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
September 30, 2004
(unaudited)
our December 31, 2003 combined financial statements and
notes thereto included in our Registration Statement on
Form S-1, as amended (File No. 333-116157).
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,
allowances for uncollectible accounts, deferred income tax
valuation allowances, loss contingencies, fair values of
financial instruments, asset impairments, useful lives of
property and equipment, restructuring accruals and other special
items. Actual results could differ from those estimates.
Unless otherwise indicated, convenience translations into
U.S. dollars are calculated as of September 30, 2004.
On June 7, 2004 (the Spin Off Date), our common stock was
distributed to Libertys shareholders in the spin off
transaction. In connection with the spin off, holders of Liberty
common stock on June 1, 2004 (the Record Date) received in
the aggregate 139,921,145 shares of LMI Series A
Common Stock for their shares of Liberty Series A Common
Stock owned at 5:00 p.m. New York City time on the Record
Date and 6,053,173 shares of LMI Series B Common Stock
for their shares of Liberty Series B Common Stock owned at
5:00 p.m. New York City time on the Record Date. The number
of shares of LMI Common Stock distributed in the spin off was
based on a ratio of .05 of a share of LMI Common Stock for each
share of Liberty Common Stock. The spin off was intended to
qualify as a tax-free spin off.
In addition to the contributed subsidiaries and net assets that
comprise LMC International, Liberty also contributed certain
other assets and liabilities to our company in connection with
the spin off, as set forth in the following table (amounts in
thousands):
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
50,000 |
|
Available-for-sale securities
|
|
|
561,130 |
|
Net deferred tax liability
|
|
|
(253,163 |
) |
Other net liabilities
|
|
|
(2,407 |
) |
|
|
|
|
|
|
$ |
355,560 |
|
|
|
|
|
The contributed available-for-sale securities included 5,000,000
American Depositary Shares (ADSs) for preferred limited voting
ordinary shares of The News Corporation Limited (News Corp.) and
a 99.9% economic interest in 345,000 shares of ABC Family
Worldwide, Inc. (ABC Family) Series A preferred stock.
Liberty also contributed a variable forward transaction with
respect to the News Corp. ADSs. The 5,000,000 News Corp. ADSs
are to be converted into 10,000,000 shares of News
Corp.s Class A non-voting common stock (News Corp.
Class A Common Stock) pursuant to News Corp.s
reincorporation from Australia to the United States. All of the
following references to News Corp. shares herein assume such
conversion has occurred. For financial reporting purposes, the
contribution of such assets is deemed to have occurred on
June 1, 2004.
All of the net assets contributed to our company by Liberty in
connection with the spin off have been recorded at
Libertys historical cost.
As a result of the spin off, we operate independently from
Liberty, and neither we nor Liberty have any stock ownership,
beneficial or otherwise, in the other. In connection with the
spin off, we and Liberty entered into certain agreements in
order to govern certain of the ongoing relationships between
Liberty and our company after
A4-12
LIBERTY MEDIA INTERNATIONAL, INC
(See Note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
September 30, 2004
(unaudited)
the spin off and to provide for an orderly transition. These
agreements include a Reorganization Agreement, a Facilities and
Services Agreement and a Tax Sharing Agreement. In addition,
Liberty and we entered into a Short-Term Credit Facility that
has since been cancelled.
The Reorganization Agreement provides for, among other things,
the principal corporate transactions required to effect the spin
off, the issuance of LMI stock options upon adjustment of
certain Liberty stock incentive awards and the allocation of
responsibility for LMI and Liberty stock incentive awards, cross
indemnities and other matters. Such cross indemnities are
designed to make (i) our company responsible for all
liabilities related to the businesses of LMC International prior
to the spin off, as well as for all liabilities incurred by our
company following the spin off, and (ii) Liberty
responsible for all of our potential liabilities that are not
related to our businesses, including, for example, liabilities
arising as a result of our company having been a subsidiary of
Liberty.
The Facilities and Services Agreement, the Tax Sharing Agreement
and the Short-Term Credit Facility are described in note 13.
Prior to the spin off, we were included in Libertys
consolidated tax return. As a result of the spin off, we became
a separate tax paying entity. In connection with this change, we
re-evaluated the estimated blended state tax rate used to
compute certain of our deferred tax balances, and concluded that
our estimate of this blended state tax rate should be reduced.
As a result, we recorded a $22,914,000 deferred tax benefit
during the third quarter of 2004 to reflect the impact of the
reduced rate on our net deferred tax liabilities.
On July 26, 2004, we commenced a rights offering (the LMI
Rights Offering) whereby holders of record of LMI Common Stock
at 5:00 p.m., New York City time, on that date received
0.20 transferable subscription rights for each share of LMI
Common Stock held. Each whole right to purchase LMI
Series A Common Stock entitled the holder to purchase one
share of LMI Series A Common Stock at a subscription price
of $25.00 per share. Each whole right to purchase LMI
Series B Common Stock entitled the holder to purchase one
share of LMI Series B Common Stock at a subscription price
of $27.50 per share. Each whole Series A and
Series B right entitled the holder to subscribe, at the
same applicable subscription price pursuant to an
oversubscription privilege, for additional shares of the
applicable series of LMI Common Stock, subject to proration. The
LMI Rights Offering expired in accordance with its terms on
August 23, 2004. Pursuant to the terms of the LMI Rights
Offering, we issued 28,245,000 shares of LMI Series A
Common Stock and 1,211,157 shares of LMI Series B
Common Stock in exchange for aggregate cash proceeds of
$739,432,000, before deducting related offering costs of
$3,771,000.
As a result of the LMI Rights Offering, certain terms of the
then outstanding LMI stock options were modified. All references
herein to the number of outstanding LMI stock options reflect
these modified terms.
|
|
(4) |
Earnings (Loss) per Common Share |
Basic earnings (loss) per common share is computed by dividing
net earnings (loss) by the weighted average number of common
shares outstanding for the period. Diluted earnings (loss) per
common share presents the dilutive effect on a per share basis
of potential common shares (e.g. options and convertible
securities) as if they had been converted at the beginning of
the periods presented.
As described in note 2, we issued shares of LMI
Series A Common Stock and LMI Series B Common Stock in
connection with the spin off. The pro forma net earnings (loss)
per share amounts set forth in the accompanying condensed
consolidated statements of operations were computed using
historical net earnings
A4-13
LIBERTY MEDIA INTERNATIONAL, INC
(See Note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
September 30, 2004
(unaudited)
(loss) and a pro forma weighted average share amount that
includes 145,974,318 shares of LMI Common Stock for periods
prior to the Spin Off Date and actual weighted average shares
outstanding for periods subsequent to that date. In addition,
the weighted average share amounts for periods prior to
July 26, 2004, the date that certain subscription rights
were distributed to stockholders pursuant to the LMI Rights
Offering, have been increased to give effect to the benefit
derived by our stockholders as a result of the distribution of
such subscription rights. The details of the calculations of our
weighted average common shares outstanding are set forth in the
following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
Nine Months Ended | |
|
|
September 30, | |
|
September 30, | |
|
|
| |
|
| |
|
|
2004 | |
|
2003* | |
|
2004* | |
|
2003* | |
|
|
| |
|
| |
|
| |
|
| |
Basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding before adjustment
|
|
|
167,423,193 |
|
|
|
145,974,318 |
|
|
|
153,175,881 |
|
|
|
145,974,318 |
|
Adjustment for July 2004 LMI Rights Offering
|
|
|
1,865,896 |
|
|
|
6,866,731 |
|
|
|
5,187,572 |
|
|
|
6,866,731 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares, as adjusted
|
|
|
169,289,089 |
|
|
|
152,841,049 |
|
|
|
158,363,453 |
|
|
|
152,841,049 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
The weighted average share amounts for these periods assume that
the shares of LMI Common Stock issued in the spin off were
issued and outstanding on the first day of the respective
periods. |
At September 30, 2004, 5,279,169 potential common shares
(as adjusted) were outstanding. All of such potential common
shares represent shares issuable upon the exercise of stock
options that were issued in June 2004 and adjusted in connection
with the LMI Rights Offering. Prior to the consummation of the
spin off, no potential common shares were outstanding, and
accordingly, there is no difference between basic and diluted
earnings per share for the three and nine months ended
September 30, 2003. Potential common shares have been
excluded from the pro forma calculation of diluted earnings per
share for the three and nine months ended September 30,
2004 because their inclusion would be anti-dilutive.
|
|
|
Acquisition of Controlling Interest in UGC |
On January 5, 2004, we completed a transaction pursuant to
which UGCs founding shareholders (the Founders)
transferred 8.2 million shares of UGC Class B Common
Stock to our company in exchange for 12.6 million shares of
Liberty Series A Common Stock valued, for accounting
purposes, at $152,122,000 and a cash payment of $15,827,000
(including acquisition costs). This transaction was the last of
a number of independent transactions pursuant to which we
acquired our controlling interest in UGC from 2001 through
January 2004. Our acquisition of 281.3 million shares of
UGC Common Stock in January 2002 gave us a greater than 50%
economic interest in UGC, but due to certain voting and
standstill arrangements, we used the equity method to account
for our investment in UGC through December 31, 2003. Upon
closing of the January 5, 2004 transaction, the
restrictions on the exercise by us of our voting power with
respect to UGC terminated, and we gained voting control of UGC.
Accordingly, UGC has been accounted for as a consolidated
subsidiary and included in our financial position and results of
operations since January 1, 2004.
We have accounted for our acquisition of UGC as a step
acquisition, and have allocated our investment basis to our pro
rata share of UGCs assets and liabilities at each
significant acquisition date based on the estimated fair
A4-14
LIBERTY MEDIA INTERNATIONAL, INC
(See Note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
September 30, 2004
(unaudited)
values of such assets and liabilities on such dates. Prior to
the acquisition of the Founders shares, our investment
basis in UGC had been reduced to zero as a result of the prior
recognition of our share of UGCs losses. The following
table reflects the amounts allocated to our assets and
liabilities upon completion of the January 2004 acquisition of
the Founders shares (amounts in thousands):
|
|
|
|
|
|
Current assets, including cash of $310,361
|
|
$ |
622,321 |
|
Property and equipment
|
|
|
3,386,252 |
|
Goodwill
|
|
|
2,022,761 |
|
Intangible assets other than goodwill
|
|
|
446,065 |
|
Investments and other assets
|
|
|
370,137 |
|
Current liabilities
|
|
|
(1,407,275 |
) |
Long-term debt
|
|
|
(3,615,902 |
) |
Deferred income taxes
|
|
|
(780,086 |
) |
Other liabilities
|
|
|
(268,632 |
) |
Minority interest
|
|
|
(607,692 |
) |
|
|
|
|
|
Aggregate purchase price
|
|
$ |
167,949 |
|
|
|
|
|
We have entered into a new Standstill Agreement with UGC that
limits our ownership of UGC common stock to 90% of the
outstanding common stock unless we make an offer or effect
another transaction to acquire all outstanding UGC common stock.
Under certain circumstances, such an offer or transaction would
require an independent appraisal to establish the price to be
paid to stockholders unaffiliated with us.
During the nine months ended September 30, 2004, we also
purchased an additional 20.0 million shares of UGC
Class A Common Stock pursuant to certain pre-emptive rights
granted to our company pursuant to the aforementioned Standstill
Agreement with UGC. The $152,284,000 purchase price for such
shares was comprised of (i) the cancellation of
indebtedness due from subsidiaries of UGC to certain of our
subsidiaries in the amount of $104,462,000 (including accrued
interest) and (ii) $47,822,000 in cash. As UGC was one of
our consolidated subsidiaries at the time of these purchases,
the effect of these purchases was eliminated in consolidation.
Also, in January 2004, UGC initiated a rights offering pursuant
to which holders of each of UGCs Class A,
Class B and Class C Common Stock received .28
transferable subscription rights to purchase a like class of
common stock for each share of UGC Common Stock owned by them on
January 21, 2004. The rights offering expired on
February 12, 2004. UGC received cash proceeds of
approximately $1.02 billion from the rights offering. As a
holder of UGC Class A, Class B and Class C Common
Stock, we participated in the rights offering and exercised our
rights to purchase 90.7 million shares for a total
cash purchase price of $544,250,000.
PHL
On May 20, 2004, we acquired all of the issued and
outstanding ordinary shares of PHL for
2,000,000
($2,386,000 at May 20, 2004). PHL, through its subsidiary
Chorus Communications Limited, owns and operates broadband
communications systems in Ireland. In connection with this
acquisition, we loaned an aggregate of
75,000,000
($89,475,000 as of May 20, 2004) to PHL. The proceeds from
this loan were used by PHL to discharge liabilities pursuant to
a debt restructuring plan and to provide funds for capital
expenditures and working capital. We have committed to loan up
to an additional
14,500,000
($18,032,000) to PHL, of which
4,500,000
($5,596,000) had been loaned as of September 30, 2004. We
have accounted for this acquisition using
A4-15
LIBERTY MEDIA INTERNATIONAL, INC
(See Note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
September 30, 2004
(unaudited)
the purchase method of accounting. For financial reporting
purposes, the PHL acquisition is deemed to have occurred on
June 1, 2004. The purchase price allocation for this
acquisition is as follows (amounts in thousands):
|
|
|
|
|
Cash and cash equivalents at acquisition date
|
|
$ |
14,474 |
|
Other current assets
|
|
|
7,425 |
|
Property and equipment
|
|
|
72,625 |
|
Customer relationships
|
|
|
10,459 |
|
Goodwill
|
|
|
26,840 |
|
Current liabilities
|
|
|
(26,570 |
) |
Subscriber advance payments and deposits
|
|
|
(12,850 |
) |
|
|
|
|
Aggregate cash consideration (including acquisition costs)
|
|
$ |
92,403 |
|
|
|
|
|
Noos
On July 1, 2004, UPC Broadband France SAS (UPC Broadband
France), an indirect wholly-owned subsidiary of UGC and the
owner of UGCs French cable television operations, acquired
Suez-Lyonnaise Télécom SA (Noos), from
Suez SA (Suez). Noos is a provider of digital and
analog cable television services and high-speed Internet access
services in France. UPC Broadband France purchased Noos to
achieve certain financial, operational and strategic benefits
through the integration of Noos with its French operations and
the creation of a platform for further growth and innovation in
Paris and its remaining French systems. The preliminary purchase
price for a 100% interest in Noos was approximately
623,450,000
($758,547,000 at July 1, 2004), consisting of
529,929,000
($644,761,000 at July 1, 2004) in cash, a 19.9% equity
interest in UPC Broadband France valued at approximately
85,000,000
($103,419,000 at July 1, 2004) and
8,521,000
($10,367,000 at July 1, 2004) in direct acquisition costs.
The preliminary purchase price and the value assigned to the
19.9% interest in UPC Broadband France are subject to a review
of certain historical financial information of Noos and UPC
Broadband France. In this regard,
100,000,000
($121,669,000) of the cash consideration is being held in escrow
pending final determination of the purchase price.
UGC has accounted for this transaction as the acquisition of an
80.1% interest in Noos and the sale of a 19.9% interest in UPC
Broadband France. Under the purchase method of accounting, the
preliminary purchase price was allocated to the acquired
identifiable tangible and intangible assets and liabilities
based upon their respective fair values, and the excess of the
purchase price over the fair value of such identifiable net
assets was allocated to goodwill. The preliminary fair values
assigned to property and equipment and intangible assets, and
the excess purchase price assigned to goodwill have been
adjusted to give effect to UGCs 80.1% ownership interest
in Noos. The preliminary accounting for the Noos transaction, as
reflected in these condensed consolidated financial statements,
is subject to adjustment based upon the (i) final
determination of the Noos purchase price and the value assigned
to the 19.9% equity interest in UPC Broadband France and
(ii) the final assessment of the fair values of Noos
identifiable assets and liabilities. Such potential adjustments
could result in significant changes to the preliminary
accounting for the Noos transaction and to the impact of this
transaction on our consolidated operating results.
UGC has recorded a preliminary loss of $12,196,000 associated
with the dilution of its ownership interest in UPC Broadband
France as a result of the Noos transaction. Our
$6,497,000 share of this loss is reflected as a reduction
of additional paid-in capital in our condensed consolidated
statement of stockholders equity.
A4-16
LIBERTY MEDIA INTERNATIONAL, INC
(See Note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
September 30, 2004
(unaudited)
Suez 19.9% equity interest in UPC Broadband France
consists of 85.0 million shares of Class B common
stock of UPC Broadband France (the UPC Broadband France
Class B Shares). Subject to the terms of a call option
agreement, UPC France Holding BV (UPC France), the parent
company of UPC Broadband France, has the right through
June 30, 2005 to purchase from Suez all of the UPC
Broadband France Class B Shares for
85,000,000
($105,706,000), subject to adjustment, plus interest. The
purchase price for the UPC Broadband France Class B Shares
may be paid in cash, UGC Class A Common Stock or LMI
Series A Common Stock. Subject to the terms of a put
option, Suez may require UPC France to purchase the UPC
Broadband France Class B Shares at specific times prior to
or after the third, fourth or fifth anniversaries of the
purchase date. UPC France will be required to pay the then fair
market value, payable in cash or marketable securities, for the
UPC Broadband France Class B Shares or assist Suez in
obtaining an offer to purchase the UPC Broadband France
Class B Shares. UPC France also has the option to purchase
the UPC Broadband France Class B Shares from Suez shortly
after the third, fourth or fifth anniversaries of the purchase
date at the then fair market value in cash or marketable
securities.
Pro Forma Information
The following unaudited pro forma information for the nine
months ended September 30, 2004 and 2003 was prepared
assuming we had acquired UGC, PHL and Noos on January 1,
2003. These pro forma amounts are not necessarily indicative of
operating results that would have occurred if the UGC, PHL and
Noos acquisitions had occurred on January 1, 2003 (amounts
in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended | |
|
|
September 30, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
Revenue
|
|
$ |
2,098,644 |
|
|
$ |
1,771,957 |
|
Net loss
|
|
$ |
(44,843 |
) |
|
$ |
(10,591 |
) |
Loss per share
|
|
$ |
(0.28 |
) |
|
$ |
(0.07 |
) |
|
|
(6) |
Stock-Based Compensation |
As a result of the spin off and related adjustments to
Libertys stock incentive awards, options to acquire an
aggregate of 1,759,247 shares (as adjusted) of LMI
Series A Common Stock and 1,498,154 shares (as
adjusted) of LMI Series B Common Stock were issued to our
and Libertys employees. Consistent with Libertys
accounting for the adjusted Liberty stock options and stock
appreciation rights, we use variable-plan accounting to account
for all LMI stock options issued as adjustments of
Libertys stock incentive awards in connection with the
spin off.
In addition, options to acquire an aggregate of
453,206 shares (as adjusted) of LMI Series A Common
Stock and 1,568,562 shares (as adjusted) of LMI
Series B Common Stock were issued to LMI employees and
directors. Prior to the LMI Rights Offering, we used fixed-plan
accounting to account for these LMI stock options. As a result
of the modification of certain terms of the LMI stock options
that were outstanding at the time of the LMI Rights Offering, we
began accounting for these LMI options as variable-plan options.
Accordingly, all outstanding LMI stock options at
September 30, 2004 are accounted for as variable-plan
options.
As a result of the spin off and the related issuance of options
to acquire LMI Common Stock, certain persons who remained
employees of Liberty immediately following the spin off hold
options to purchase LMI Common Stock and certain persons who are
our employees hold options, stock appreciation rights (SARs) and
options with tandem SARs to purchase Liberty Common Stock.
Pursuant to the Reorganization Agreement, we are responsible
A4-17
LIBERTY MEDIA INTERNATIONAL, INC
(See Note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
September 30, 2004
(unaudited)
for all stock incentive awards related to LMI Common Stock and
Liberty is responsible for all stock incentive awards related to
Liberty Common Stock regardless of whether such stock incentive
awards are held by our or Libertys employees.
Notwithstanding the foregoing, our stock-based compensation
expense is based on the stock incentive awards held by our
employees regardless of whether such awards relate to LMI or
Liberty Common Stock. Accordingly, any stock-based compensation
that we record with respect to Liberty stock incentive awards is
treated as a capital transaction with the offset to stock-based
compensation expense reflected as an adjustment of additional
paid-in capital.
We apply the intrinsic value method of Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued
to Employees, to account for fixed and variable plan
stock options. Generally, under the intrinsic value method,
(i) compensation expense for fixed-plan stock options is
recognized only if the current market price of the underlying
stock exceeds the exercise price on the date of grant, in which
case, compensation is recognized based on the percentage of
options that are vested, and (ii) compensation for
variable-plan options, including options granted in tandem with
SARs, is recognized based upon the percentage of the options
that are vested and the difference between the market price of
the underlying common stock and the exercise price of the
options at the balance sheet date.
As a result of the modification of certain terms of UGCs
stock options in connection with its February 2004 rights
offering, UGC began accounting for such options as variable-plan
options. In addition, UGC also uses variable-plan accounting to
account for its SARs. Substantially all of the stock-based
compensation included in our condensed consolidated statements
of operations for the nine months ended September 30, 2004
is attributable to UGCs stock incentive awards.
The following table illustrates the effect on net earnings
(loss) and earnings (loss) per share as if we had applied the
fair value recognition provisions of Statement of Financial
Accounting Standards No. 123, Accounting for
Stock-Based Compensation, (Statement 123) to our
outstanding options. As Statement 123 did not change the
accounting for SARs, the pro forma adjustments included in the
following table do not include amounts related to our
calculation of compensation expense related to SARs or to
options with tandem SARs (amounts in thousands, except per share
amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
Nine Months Ended | |
|
|
September 30, | |
|
September 30, | |
|
|
| |
|
| |
|
|
2004 | |
|
2003 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
Net earnings (loss)
|
|
$ |
74,365 |
|
|
$ |
9,051 |
|
|
$ |
(10,626 |
) |
|
$ |
26,352 |
|
|
Add stock-based compensation charges as determined under the
intrinsic value method, net of taxes
|
|
|
2,541 |
|
|
|
|
|
|
|
39,973 |
|
|
|
|
|
|
Deduct stock-based compensation as determined under the fair
value method, net of taxes
|
|
|
(4,172 |
) |
|
|
(208 |
) |
|
|
(45,421 |
) |
|
|
(624 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net earnings (loss)
|
|
$ |
72,734 |
|
|
$ |
8,843 |
|
|
$ |
(16,074 |
) |
|
$ |
25,728 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings (loss) from continuing operations per
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$ |
0.44 |
|
|
$ |
0.06 |
|
|
$ |
(0.07 |
) |
|
$ |
0.17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma
|
|
$ |
0.43 |
|
|
$ |
0.06 |
|
|
$ |
(0.10 |
) |
|
$ |
0.17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A4-18
LIBERTY MEDIA INTERNATIONAL, INC
(See Note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
September 30, 2004
(unaudited)
|
|
(7) |
Investments in Affiliates Accounted for Using the Equity
Method |
Our affiliates generally are engaged in the cable and/or
programming businesses in various foreign countries. The
following table includes our carrying value and percentage
ownership of certain of our investments in affiliates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
September 30, 2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
Percentage | |
|
Carrying | |
|
Carrying | |
|
|
Ownership | |
|
Amount | |
|
Amount | |
|
|
| |
|
| |
|
| |
|
|
(Dollar amounts in thousands) | |
J-COM
|
|
|
45% |
|
|
$ |
1,372,096 |
|
|
$ |
1,330,602 |
|
JPC
|
|
|
50% |
|
|
|
266,917 |
|
|
|
259,571 |
|
Cordillera Comunicaciones Holding Limitada (Cordillera)
|
|
|
50% |
|
|
|
47,054 |
|
|
|
52,223 |
|
Other
|
|
|
Various |
|
|
|
254,305 |
|
|
|
98,156 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,940,372 |
|
|
$ |
1,740,552 |
|
|
|
|
|
|
|
|
|
|
|
The following table reflects our share of earnings (losses) of
affiliates including any other-than-temporary declines in value:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended | |
|
|
September 30, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
(Amounts in thousands) | |
J-COM
|
|
$ |
47,376 |
|
|
$ |
10,430 |
|
JPC
|
|
|
11,021 |
|
|
|
7,627 |
|
Cordillera
|
|
|
(7,842 |
) |
|
|
(5,749 |
) |
Other
|
|
|
3,963 |
|
|
|
(1,475 |
) |
|
|
|
|
|
|
|
|
|
$ |
54,518 |
|
|
$ |
10,833 |
|
|
|
|
|
|
|
|
J-COM was incorporated in 1995 to own and operate broadband
businesses in Japan. At September 30, 2004, our company,
Sumitomo Corporation (Sumitomo) and Microsoft Corporation
(Microsoft) owned approximately 45%, 32% and 19% of J-COM,
respectively. The functional currency of J-COM is the Japanese
yen.
On August 6, 2004, our company, Sumitomo, Microsoft and
J-COM executed transactions that effectively resulted in the
conversion of shareholder loans with an aggregate principal
amount of ¥30,000,034,000 ($275,660,000 at August 6,
2004) to equity. Such amount includes ¥14,064,830,000
($129,237,000 at August 6, 2004) of shareholder loans held
by us that were converted to equity. Such conversions did not
materially impact the J-COM ownership interests of our company,
Sumitomo or Microsoft.
At September 30, 2004, our investment in J-COM included
¥41,260,795,000 ($375,064,000) of shareholder loans to
J-COM. Such loans are denominated in Japanese yen and bear
interest at the 3-month Tokyo Interbank Offered Rate plus the
applicable margin per annum (1.83% to 2.08% at
September 30, 2004). Such shareholder loans, which are
subordinated to J-COMs third party indebtedness, are due
and payable on February 6, 2011. During the nine months
ended September 30, 2004 and 2003, we recognized interest
income on the J-COM shareholder loans of $7,461,000 and
$6,972,000, respectively. At September 30, 2004, our other
accumulated
A4-19
LIBERTY MEDIA INTERNATIONAL, INC
(See Note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
September 30, 2004
(unaudited)
comprehensive loss account included foreign currency translation
gains related to our loans to J-COM of $23,473,000, after
deducting related deferred taxes of $13,050,000.
In 2003, we purchased an 8% equity interest in J-COM from
Sumitomo for $141,000,000 in cash, and we and Sumitomo each
converted certain shareholder loans to equity interests in J-COM.
Summarized financial information for J-COM is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
September 30, | |
|
December 31, | |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
(Amounts in thousands) | |
Financial Position
|
|
|
|
|
|
|
|
|
Investments
|
|
$ |
55,563 |
|
|
$ |
52,962 |
|
Property and equipment, net
|
|
|
2,267,179 |
|
|
|
2,274,632 |
|
Intangible and other assets, net
|
|
|
1,622,479 |
|
|
|
1,601,596 |
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
3,945,221 |
|
|
$ |
3,929,190 |
|
|
|
|
|
|
|
|
Third party debt
|
|
$ |
902,098 |
|
|
$ |
984,089 |
|
Due to LMI
|
|
|
375,064 |
|
|
|
492,639 |
|
Other shareholder loans
|
|
|
757,571 |
|
|
|
901,971 |
|
Other liabilities
|
|
|
637,281 |
|
|
|
637,434 |
|
Minority interest
|
|
|
8,713 |
|
|
|
11,794 |
|
Owners equity
|
|
|
1,264,494 |
|
|
|
901,263 |
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$ |
3,945,221 |
|
|
$ |
3,929,190 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended | |
|
|
September 30, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
(Amounts in thousands) | |
Results of Operations
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
1,090,476 |
|
|
$ |
885,517 |
|
Operating, selling, general and administrative expenses
|
|
|
(657,364 |
) |
|
|
(584,753 |
) |
Stock-based compensation
|
|
|
(636 |
) |
|
|
(825 |
) |
Depreciation and amortization
|
|
|
(263,844 |
) |
|
|
(222,272 |
) |
|
|
|
|
|
|
|
|
Operating income
|
|
|
168,632 |
|
|
|
77,667 |
|
Interest expense, net of interest income
|
|
|
(52,123 |
) |
|
|
(49,581 |
) |
Other, net
|
|
|
(12,028 |
) |
|
|
(3,925 |
) |
|
|
|
|
|
|
|
|
Net earnings
|
|
$ |
104,481 |
|
|
$ |
24,161 |
|
|
|
|
|
|
|
|
JPC, a joint venture formed in 1996 by our company and Sumitomo,
is a programming company in Japan, which owns and invests in a
variety of channels including Shop Channel. Our company
and Sumitomo each own 50% of JPC. The functional currency of JPC
is the Japanese yen.
A4-20
LIBERTY MEDIA INTERNATIONAL, INC
(See Note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
September 30, 2004
(unaudited)
At September 30, 2004, our investment in JPC included
¥500,000,000 ($4,545,000) of shareholder loans to JPC. Such
loans are denominated in Japanese yen and bear interest at
variable rates (1.7% at September 30, 2004). Such
shareholder loans are due and payable on July 25, 2008.
During the nine months ended September 30, 2004 and 2003,
we recognized interest income on the JPC shareholder loans of
$74,000 and $45,000, respectively.
On April 22, 2004, JPC issued 24,000 shares of JPC
ordinary shares to Sumitomo for ¥6 billion
($54,260,000 as of April 22, 2004). On April 26, 2004,
JPC paid ¥3 billion ($27,677,000 as of April 26,
2004) to each of our company and Sumitomo to redeem
12,000 shares of JPC ordinary shares from each shareholder.
On April 27, 2004, we transferred our 100% indirect
ownership interest in Liberty J-Sports, Inc. (Liberty
J-Sports), the owner of an indirect minority interest in
J-SPORTS Broadcasting Corporation, to JPC in exchange for 24,000
ordinary shares of JPC valued at ¥6 billion
($54,805,000 as of April 27, 2004). We recognized a
$25,256,000 gain on this transaction, representing the excess of
the cash received from the earlier share redemption over 50% of
our historical cost basis in Liberty J-Sports.
We and CrístalChile Comunicaciones S.A. (CristalChile) each
own 50% interests in Cordillera. Cordillera owns substantially
all of the equity of Metrópolis-Intercom S.A. (Metropolis),
a cable operator in Chile. We and CristalChile have entered into
an agreement pursuant to which we each have agreed to use
commercially reasonable efforts to merge Metropolis and VTR
GlobalCom S.A. (VTR), a wholly-owned subsidiary of UGC that owns
UGCs Chilean operations. The merger is subject to certain
conditions, including the execution of definitive agreements,
Chilean regulatory approvals and the approval of the boards of
directors of our company, CristalChile, VTR and UGC (including,
in the case of UGC, the independent members of UGCs board
of directors) and the receipt of necessary third party approvals
and waivers. If the proposed merger is consummated as originally
contemplated, we would own a direct and indirect interest
aggregating 80% of the voting and equity rights in the new
entity, and CristalChile would own the remaining 20%. We would
also receive a $100 million promissory note from the
combined entity, which would bear interest at the London
Interbank Offered Rate (LIBOR) plus 3% per annum and
would be unsecured and subordinated to third party debt. In
addition, CristalChile would have a put right which would allow
CristalChile to require Liberty to purchase all, but not less
than all, of its interest in the new entity for not less than
$140 million on or after the first anniversary of the date
on which Chilean regulatory approval of the merger is deemed to
be received. We have agreed to assume and indemnify Liberty
against this put obligation in connection with the spin off. If
the merger does not occur, we and CristalChile have agreed to
fund our pro rata share of a capital call sufficient to retire
Metropolis local debt facility, which had an outstanding
principal amount of Chilean pesos 34 billion ($55,652,000)
at September 30, 2004. Subsequent to September 30,
2004, the Chilean regulatory authority approved the merger of
VTR and Metropolis, subject to certain conditions. For
additional information, see note 18.
A4-21
LIBERTY MEDIA INTERNATIONAL, INC
(See Note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
September 30, 2004
(unaudited)
The following table sets forth the carrying amount of our other
investments:
|
|
|
|
|
|
|
|
|
|
|
|
September 30, | |
|
December 31, | |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
(Amounts in thousands) | |
ABC Family
|
|
$ |
406,688 |
|
|
$ |
|
|
Telewest Global, Inc., the successor to Telewest Communications
plc (Telewest)
|
|
|
91,407 |
|
|
|
281,392 |
|
SBS Broadcasting S.A. (SBS)
|
|
|
201,960 |
|
|
|
|
|
News Corp.
|
|
|
157,096 |
|
|
|
|
|
Cable Partners Europe (CPE)
|
|
|
110,018 |
|
|
|
|
|
Sky Latin America
|
|
|
91,046 |
|
|
|
94,347 |
|
Other
|
|
|
10,519 |
|
|
|
74,395 |
|
|
|
|
|
|
|
|
|
Total other investments
|
|
$ |
1,068,734 |
|
|
$ |
450,134 |
|
|
|
|
|
|
|
|
Our investments in ABC Family, Telewest, SBS, News Corp.
and CPE are all accounted for as available-for-sale securities.
At September 30, 2004, we owned a 99.9% beneficial interest
in 345,000 shares of the 9% Series A Preferred Stock
of ABC Family with an aggregate liquidation value of
$345 million. Liberty contributed this interest to our
company in connection with the spin off. We recognized dividend
income on the ABC Family preferred stock of $10,290,000
during the period from the Spin Off Date through
September 30, 2004.
On July 19, 2004, our investment in Telewest
Communications plc Senior Notes and Senior Discount Notes
was converted into 18,417,883 shares or approximately 7.5%
of the issued and outstanding common stock of Telewest. In
connection with this transaction, we recognized a pre-tax gain
of $168,301,000, representing the excess of the fair value of
the Telewest common stock received over our cost basis in the
Senior Notes and Senior Discount Notes. During the third quarter
of 2004, we sold 10,551,509 of the acquired Telewest shares for
aggregate cash proceeds of $121,459,000, resulting in a pre-tax
loss of $17,821,000. In connection with the disposition of
certain of these shares, we entered into a call agreement with
respect to the 7,866,374 shares of Telewest common stock
that we held at September 30, 2004. For additional
information concerning this call agreement, see note 10. As
we intend to dispose of our remaining Telewest shares during the
fourth quarter of 2004, the $12,429,000 excess of the carrying
value over the fair value of such shares as of
September 30, 2004 is included in other-than-temporary
declines in fair values of investments in our condensed
consolidated statement of operations. Consistent with our
classification of the Senior Notes and Senior Discount Notes and
the Telewest common stock as available-for-sale securities, the
above-described gains and losses were reflected as components of
our accumulated other comprehensive loss account prior to their
reclassification into our condensed consolidated statements of
operations.
A4-22
LIBERTY MEDIA INTERNATIONAL, INC
(See Note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
September 30, 2004
(unaudited)
At September 30, 2004, UGC owned 6,000,000 shares or
approximately 19% of the outstanding shares of SBS, a European
commercial television and radio broadcasting company.
At September 30, 2004, we owned 10,000,000 shares of
News Corp. Class A Common Stock. Liberty contributed
these shares to us in connection with the spin off.
At September 30, 2004, we owned certain debt of CPE and one
of its two indirect majority-owned entities that collectively
own a non-controlling ownership interest in Telenet Group
Holdings NV (Telenet), a broadband cable operator in
Belgium. Subsequent to September 30, 2004, we entered into
an agreement to restructure our indirect investment in Telenet.
For additional information, see note 18.
We own a 10% equity interest in each of the entities that
comprise Sky Latin America. Sky Latin America offers
entertainment services via satellite to households through its
owned and affiliated distribution platforms in Latin America.
Subsequent to September 30, 2004, we executed certain
transactions and agreements related to the sale of our interests
in Sky Latin America. For additional information, see
note 18.
In the second quarter of 2004, UGC recorded a $16,623,000
impairment of certain tangible fixed assets associated with its
telecommunications operations in Norway. The impairment
assessment was triggered by competitive factors in 2004 that led
to greater than expected price erosion and the inability to
reach forecasted market share. Fair value of the tangible assets
was estimated using discounted cash flow analysis, along with
other available market data.
A4-23
LIBERTY MEDIA INTERNATIONAL, INC
(See Note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
September 30, 2004
(unaudited)
Changes in the carrying amount of goodwill for the nine months
ended September 30, 2004 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign | |
|
|
|
|
|
|
|
|
|
|
Currency | |
|
|
|
|
January 1, | |
|
|
|
|
|
Translation | |
|
September 30, | |
|
|
2004 | |
|
Acquisitions | |
|
Impairments | |
|
Adjustments | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Amounts in thousands) | |
UGC Broadband The Netherlands
|
|
$ |
670,576 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(8,739 |
) |
|
$ |
661,837 |
|
UGC Broadband France
|
|
|
|
|
|
|
51,270 |
|
|
|
|
|
|
|
1,135 |
|
|
|
52,405 |
|
UGC Broadband Austria
|
|
|
452,012 |
|
|
|
|
|
|
|
|
|
|
|
(6,100 |
) |
|
|
445,912 |
|
UGC Broadband Other Europe
|
|
|
467,615 |
|
|
|
|
|
|
|
|
|
|
|
11,581 |
|
|
|
479,196 |
|
UGC Broadband Chile (VTR)
|
|
|
191,786 |
|
|
|
|
|
|
|
|
|
|
|
(4,755 |
) |
|
|
187,031 |
|
J-COM
|
|
|
203,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
203,000 |
|
All other
|
|
|
563,348 |
|
|
|
26,840 |
|
|
|
(26,000 |
) |
|
|
(1,431 |
) |
|
|
562,757 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total LMI
|
|
$ |
2,548,337 |
|
|
$ |
78,110 |
|
|
$ |
(26,000 |
) |
|
$ |
(8,309 |
) |
|
$ |
2,592,138 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the third quarter of 2004, we recorded a $26,000,000
impairment of certain enterprise level goodwill associated with
one of our consolidated subsidiaries. The impairment assessment
was triggered by our determination that it was
more-likely-than-not that we will sell this subsidiary.
Accordingly, the fair value used to assess the recoverability of
the enterprise level goodwill associated with this subsidiary
was based on the value that we would expect to receive upon the
sale of this subsidiary.
|
|
|
Intangible Assets Subject to Amortization, Net |
The details of our amortizable intangible assets are set forth
below:
|
|
|
|
|
|
|
|
|
|
|
September 30, | |
|
December 31, | |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
(Amounts in thousands) | |
Gross carrying amount
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$ |
404,106 |
|
|
$ |
|
|
Other
|
|
|
15,357 |
|
|
$ |
6,083 |
|
|
|
|
|
|
|
|
|
|
$ |
419,463 |
|
|
$ |
6,083 |
|
|
|
|
|
|
|
|
Accumulated amortization
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$ |
(48,826 |
) |
|
$ |
|
|
Other
|
|
|
(3,215 |
) |
|
$ |
(1,579 |
) |
|
|
|
|
|
|
|
|
|
$ |
(52,041 |
) |
|
$ |
(1,579 |
) |
|
|
|
|
|
|
|
Net carrying amount
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$ |
355,280 |
|
|
$ |
|
|
Other
|
|
|
12,142 |
|
|
$ |
4,504 |
|
|
|
|
|
|
|
|
|
|
$ |
367,422 |
|
|
$ |
4,504 |
|
|
|
|
|
|
|
|
A4-24
LIBERTY MEDIA INTERNATIONAL, INC
(See Note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
September 30, 2004
(unaudited)
Customer relationships are amortized over useful lives ranging
from 4 to 10 years. Amortization of intangible assets with
finite useful lives was $49,108,000 and $353,000 for the nine
months ended September 30, 2004 and 2003, respectively.
Based on our current amortizable intangible assets, we expect
that amortization expense will be as follows for the remainder
of 2004, the next four years and thereafter (amounts in
thousands):
|
|
|
|
|
|
Remainder of 2004
|
|
$ |
15,857 |
|
2005
|
|
|
72,162 |
|
2006
|
|
|
66,389 |
|
2007
|
|
|
64,523 |
|
2008
|
|
|
61,179 |
|
Thereafter
|
|
|
87,312 |
|
|
|
|
|
|
Total
|
|
$ |
367,422 |
|
|
|
|
|
|
|
(10) |
Derivative Instruments |
|
|
|
Foreign Exchange Contracts |
We generally do not hedge our foreign currency exchange risk
because of the long-term nature of our interests in foreign
affiliates. However, in order to reduce our foreign currency
exchange risk related to our investment in J-COM, we have
entered into collar agreements with respect to
¥30 billion ($272,702,000). These collar agreements
have a weighted average remaining term of approximately
4 months, an average call price of
¥106/U.S. dollar and an average put price of
¥112/U.S. dollar. We had also entered into forward
sales contracts with respect to the Japanese yen. During the
second quarter of 2004, we paid $10,593,000 to settle our yen
forward sales contracts. As a result, we had no yen forward
sales contracts outstanding at September 30, 2004. The net
fair value of these collar agreements was a $541,000 asset at
September 30, 2004.
We have entered into total return debt swaps in connection with
(i) bank debt of a subsidiary of United Pan-Europe
Communications N.V., a subsidiary of UGC (UPC), and
(ii) public debt of Cablevisión S.A. (Cablevision),
the largest cable television company in Argentina, in terms of
basic cable subscribers. Liberty currently owns an indirect
78.2% economic and non-voting interest in a limited liability
company that owns 50% of the outstanding capital stock of
Cablevision. Under the total return debt swaps, a counterparty
purchases a specified amount of the underlying debt security for
the benefit of our company. We have posted collateral with the
counterparties equal to 30% of the counterpartys purchase
price for the purchased indebtedness of the UPC subsidiary and
90% of the counterpartys purchase price for the purchased
indebtedness of Cablevision. We record a derivative asset equal
to the posted collateral and such asset is included in other
assets in the accompanying condensed consolidated balance
sheets. We earn interest income based upon the face amount and
stated interest rate of the underlying debt securities, and pay
interest expense at market rates on the amount funded by the
counterparty. In the event the fair value of the underlying
purchased indebtedness of the UPC subsidiary declines by 10% or
more, we are required to post cash collateral for the decline,
and we record an unrealized loss on derivative instruments. The
cash collateral related to the UPC subsidiary indebtedness is
further adjusted up or down for subsequent changes in the fair
value of the underlying indebtedness or for foreign currency
exchange rate movements involving the euro and U.S. dollar.
At September 30, 2004, the aggregate purchase price of debt
securities underlying our total return debt swap arrangements
involving the indebtedness of the UPC subsidiary and Cablevision
was $121,738,000. As of such date, we had posted cash collateral
equal to
A4-25
LIBERTY MEDIA INTERNATIONAL, INC
(See Note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
September 30, 2004
(unaudited)
$49,661,000. In the event the fair value of the purchased debt
securities were to fall to zero, we would be required to post
additional cash collateral of $72,077,000. The aggregate
principal amount of the UPC subsidiary indebtedness that is the
subject of our total return debt swaps was approximately
$108,904,000 at September 30, 2004. Accordingly, if at
September 30, 2004, we had acquired the UPC subsidiary
indebtedness pursuant to the total return swaps, our
consolidated indebtedness at September 30, 2004 would have
been reduced by $108,904,000. For additional information
concerning the status of the Cablevision total return debt swap,
see note 18.
|
|
|
UGC Interest Rate Swaps and Caps |
During the first and second quarters of 2004, UGC purchased
interest rate caps for approximately $21,442,000 that capped the
variable interest rate on notional amounts
totaling 2.25 billion
to 2.6 billion
($2.8 billion to $3.2 billion) at 3.0% and 4.0% for
2005 and 2006, respectively. During the first quarter of 2003,
UGC purchased an interest rate cap that capped the variable
interest rate at 3.0% on a notional amount
of 2.7 billion
($3.4 billion) for 2003 and 2004. UGC has also entered into
a cross currency and interest rate swap pursuant to which a
notional amount of $347,500,000 was swapped at an average rate
of 1.13 per
U.S. dollar until July 2005, with the interest rate capped
at 2.35%. At September 30, 2004, the fair value of the
interest rate swap derivative contracts was a
31,053,000
($38,618,000) liability and the fair value of the interest rate
cap derivative contracts was
a 4,344,000
($5,402,000) asset.
|
|
|
Variable Forward Transaction |
Prior to the spin off, Liberty contributed to our company
10,000,000 shares of News Corp. Class A Common Stock,
together with a related variable forward transaction. The
forward, which expires on September 17, 2009, provides
(i) us with the right to effectively require the
counterparty to buy 10,000,000 News Corp. Class A Common
Stock at a price of $15.72 per share, or an aggregate price
of $157,200,000 (the Floor Price), and (ii) the
counterparty with the effective right to require us to sell
10,000,000 shares of News Corp. Class A Common Stock
at a price of $26.19 per share. The fair value of the
forward was a $12,255,000 asset at September 30, 2004. At
any time during the term of the forward, we can require the
counterparty to advance the full Floor Price. Provided we do not
draw an aggregate amount in excess of the present value of the
Floor Price, as determined in accordance with the forward, we
may elect to draw such amounts on a discounted or undiscounted
basis. As long as the aggregate advances are not in excess of
the present value of the Floor Price, undiscounted advances will
bear interest at prevailing three-month LIBOR and discounted
advances will not bear interest. Amounts advanced up to the
present value of the Floor Price are secured by the underlying
shares of News Corp. Class A Common Stock. If we elect to
draw amounts in excess of the present value of the Floor Price,
those amounts will be unsecured and will bear interest at a
negotiated interest rate. During the third quarter of 2004, we
received undiscounted advances aggregating $126,000,000 under
the forward. Such advances were subsequently repaid during the
quarter.
We have entered into a call agreement with respect to all of our
remaining shares of Telewest. Pursuant to this call agreement, a
counterparty has the right to
purchase 7,866,374 shares of Telewest common stock at
a price of $11.80 per share. The number of options subject
to the call agreement will be reduced by 182,939 options on each
of the 43 business days ending December 14, 2004. We
reflect our obligation under the call agreement in our
consolidated balance sheet at fair value ($188,000 liability at
September 30, 2004).
A4-26
LIBERTY MEDIA INTERNATIONAL, INC
(See Note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
September 30, 2004
(unaudited)
|
|
|
Realized and Unrealized Gains (Losses) on Derivative
Instruments |
Realized and unrealized gains (losses) on derivative instruments
are comprised of the following amounts for the indicated periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
Nine Months Ended | |
|
|
September 30, | |
|
September 30, | |
|
|
| |
|
| |
|
|
2004 | |
|
2003 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Amounts in thousands) | |
Foreign exchange derivatives
|
|
$ |
1,858 |
|
|
$ |
(10,257 |
) |
|
$ |
8,074 |
|
|
$ |
(6,679 |
) |
Total return debt swaps
|
|
|
510 |
|
|
|
6,180 |
|
|
|
(1,001 |
) |
|
|
23,028 |
|
Variable forward transaction (News Corp. Class A Common
Stock)
|
|
|
13,834 |
|
|
|
|
|
|
|
20,002 |
|
|
|
|
|
UGC interest rate swaps and caps
|
|
|
(16,838 |
) |
|
|
|
|
|
|
(14,512 |
) |
|
|
|
|
Other
|
|
|
1,829 |
|
|
|
(333 |
) |
|
|
3,655 |
|
|
|
(333 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
1,193 |
|
|
$ |
(4,410 |
) |
|
$ |
16,218 |
|
|
$ |
16,016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of debt are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, | |
|
December 31, | |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
(Amounts in thousands) | |
UPC Distribution Bank Facility
|
|
$ |
3,495,406 |
|
|
$ |
|
|
UGC Convertible Notes
|
|
|
621,813 |
|
|
|
|
|
Other UGC debt
|
|
|
169,252 |
|
|
|
|
|
Other subsidiary debt
|
|
|
62,391 |
|
|
|
54,126 |
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
4,348,862 |
|
|
|
54,126 |
|
|
Less current maturities
|
|
|
(90,052 |
) |
|
|
(12,426 |
) |
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$ |
4,258,810 |
|
|
$ |
41,700 |
|
|
|
|
|
|
|
|
|
|
|
UPC Distribution Bank Facility |
The UPC Distribution Bank Facility, as refinanced in June 2004,
provides for euro denominated borrowings by a UPC subsidiary
under four different facilities
aggregating 3,044 million
($3,786 million) and U.S. dollar
A4-27
LIBERTY MEDIA INTERNATIONAL, INC
(See Note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
September 30, 2004
(unaudited)
denominated borrowings under a fifth facility aggregating
$345,763,000. The following table presents certain terms of the
UPC Distribution Bank Facility as of September 30, 2004
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Dollar Equivalent | |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
Amount | |
|
|
|
Repayment |
|
|
Facility (Description) |
|
Availability | |
|
Outstanding | |
|
Interest Rate |
|
Dates |
|
|
|
|
| |
|
| |
|
|
|
|
A
|
|
(Revolving credit facility) |
|
$ |
829,188 |
|
|
|
192,762 |
|
|
EURIBOR + 2.25% 4% |
|
June-06 through June-08 |
B
|
|
(Term loan) |
|
|
1,568,524 |
|
|
|
1,568,524 |
|
|
EURIBOR + 2.25% 4% |
|
June-04 through June-08 |
C1
|
|
(Term loan) |
|
|
117,554 |
|
|
|
117,554 |
|
|
EURIBOR + 5.5% |
|
June-04 through March-09 |
C2
|
|
(Term loan) |
|
|
345,763 |
|
|
|
345,763 |
|
|
LIBOR + 5.5% |
|
June-04 through March-09 |
E
|
|
(Term loan) |
|
|
1,270,803 |
|
|
|
1,270,803 |
|
|
EURIBOR + 3% |
|
July-09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
4,131,832 |
|
|
|
3,495,406 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2004, the aggregate availability under the
UPC Distribution Facility
was 511,750,000
($636,426,000). The UPC Distribution Bank Facility
(i) provides for a commitment fee of 0.5% of unused
borrowing availability, (ii) is secured by the assets of
most of UPCs majority-owned European cable operating
companies and is senior to other long-term obligations of UPC
and (iii) contains certain financial covenants and
restrictions on UPCs subsidiaries regarding payment of
dividends, ability to incur additional indebtedness, disposition
of assets, mergers and affiliated transactions. The weighted
average interest rate on borrowings under the UPC Distribution
Bank Facility was 6.2% for the nine months ended
September 30, 2004. In June 2004, the UPC subsidiary
borrowed
approximately 1.0 billion
($1.2 billion) under Facility E, which was used to
repay some of the indebtedness borrowed under the other
facilities.
On April 6, 2004, UGC completed the offering and sale
of 500 million
($622 million)
13/4%
euro-denominated Convertible Senior Notes due April 15,
2024 (UGC Convertible Notes). Interest is payable semi-annually
on April 15 and October 15 of each year, beginning
October 15, 2004. The UGC Convertible Notes are senior
unsecured obligations that rank equally in right of payment with
all of UGCs existing and future senior unsubordinated and
unsecured indebtedness and rank senior in right of payment to
all of UGCs existing and future subordinated indebtedness.
The UGC Convertible Notes are effectively subordinated to all
existing and future indebtedness and other obligations of
UGCs subsidiaries. The UGC Convertible Notes will be
convertible into shares of UGC Class A Common Stock at an
initial conversion price
of 9.7561 per
share, which was equivalent to a conversion price of
$12.00 per share on the date of issue, representing a
conversion rate of 102.5 shares
per 1,000
principal amount of the UGC Convertible Notes. On or after
April 20, 2011, UGC has the right to redeem the UGC
Convertible Notes, in whole or in part, at a redemption price in
euros equal to 100% of the principal amount, together with
accrued and unpaid interest. On April 15, 2011,
April 15, 2014, and April 15, 2019, holders have the
right to tender all or part of their UGC Convertible Notes to
UGC for purchase in
A4-28
LIBERTY MEDIA INTERNATIONAL, INC
(See Note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
September 30, 2004
(unaudited)
euros at 100% of the principal amount, plus accrued and unpaid
interest. Holders may also similarly tender their UGC
Convertible Notes to UGC in the event of a change in control, as
defined in the related indenture. Holders may surrender their
UGC Convertible Notes for conversion prior to maturity only if
certain conditions are met.
UPC Polska, Inc. (UPC Polska) is an indirect subsidiary of
UGC. On February 18, 2004, in connection with the
consummation of UPC Polskas plan of reorganization and
emergence from its U.S. bankruptcy proceeding, third-party
holders of UPC Polska Notes and other claimholders received a
total of $87,361,000 in cash, $101,701,000 in new 9% UPC Polska
Notes due 2007 and 2,011,813 shares of UGC Class A
Common Stock in exchange for the cancellation of their claims.
UGC recognized a gain of $31,916,000 from the extinguishment of
the UPC Polska Notes and other liabilities subject to
compromise, equal to the excess of their respective carrying
amounts over the fair value of consideration given. During 2004,
UPC Polska incurred costs associated with its reorganization
aggregating $5,951,000. Such costs are included in other income
(expense), net in the accompanying condensed consolidated
statement of operations. On July 16, 2004, UGC redeemed the
new 9% UPC Polska Notes due 2007 for a cash payment of
$101,701,000.
Other subsidiary debt includes bank borrowings of Puerto Rico
Cable and Pramer. One of our subsidiaries posts cash collateral
equal to the outstanding borrowings under the Puerto Rico Cable
facility ($50,000,000 at September 30, 2004). Such cash
collateral is included in other assets, net in the accompanying
condensed consolidated financial statements.
At September 30, 2004, Pramers U.S. dollar
denominated bank borrowings aggregated $12,391,000. During 2002,
following the devaluation of the Argentine peso, Pramer failed
to make certain required payments due under its bank credit
facility. Since that time, Pramer has been in technical default
under its bank credit facility. However, the bank lenders have
not provided notice of default or requested acceleration of the
payments due under the facility. Pramer and the banks are
negotiating the refinancing of this credit facility and all
amounts due under this facility are classified as current in the
accompanying condensed consolidated balance sheets.
We believe that the fair value and the carrying value of our
debt were approximately equal at September 30, 2004.
|
|
(12) |
Old UGC Reorganization |
Old UGC, Inc. (Old UGC) is a wholly-owned subsidiary of UGC that
owns VTR and an approximate 34% interest in Austar United
Communications Ltd. Certain information concerning the
consolidated operating performance and total assets of VTR are
set forth in note 17. On January 12, 2004, Old UGC
filed a voluntary petition for relief under Chapter 11 of
the U.S. Bankruptcy Code. On September 21, 2004, UGC
and Old UGC filed with the Bankruptcy Court a plan of
reorganization, which was subsequently amended on
October 5, 2004. The plan of reorganization provides for
the acquisition by Old UGC of $638,008,000 face amount of
certain senior notes of Old UGC (Old UGC Senior Notes) held by
UGC (following cancellation of certain offsetting obligations)
for common stock of Old UGC and $599,173,000 face amount of Old
UGC Senior Notes held by another consolidated subsidiary of UGC
for preferred stock of Old UGC. Old UGC Senior Notes held by
third parties ($24,627,000 face amount) would be left
outstanding (after cure, through the repayment of approximately
$5,125,000 in unpaid interest, and reinstatement). In addition,
Old UGC will make a payment of approximately $3,131,000 in
settlement of certain outstanding guarantee obligations. On
November 10, 2004, the Bankruptcy Court entered an order
confirming Old UGCs plan of reorganization. With the
exception of the $24,627,000 face
A4-29
LIBERTY MEDIA INTERNATIONAL, INC
(See Note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
September 30, 2004
(unaudited)
amount of the Old UGC Senior Notes held by third parties, all of
the remaining principal and interest due under the Old UGC
Senior Notes is eliminated in consolidation.
We and UGC continue to consolidate the financial position and
results of operations of Old UGC while in bankruptcy, for the
following primary reasons:
|
|
|
|
|
UGC is the sole shareholder and majority creditor of Old UGC
(direct and indirect holder of 98% of the Old UGC Senior Notes); |
|
|
|
UGC negotiated a restructuring agreement that provides for UGC
to continue to be Old UGCs controlling equity holder upon
Old UGCs emergence from bankruptcy; and |
|
|
|
The bankruptcy proceedings are expected to be completed in less
than one year. |
Liabilities subject to compromise related to Old UGC of
$24,627,000 (representing the Old UGC Senior Notes) and
$4,691,000 (representing interest on the Old UGC Senior Notes
and other guarantees) are reflected in current portion of debt
and accrued liabilities, respectively, in the accompanying
condensed consolidated balance sheet at September 30, 2004.
|
|
(13) |
Related Party Transactions |
During the 2004 period prior to the spin off, a subsidiary of
our company borrowed $116,666,000 from Liberty pursuant to
certain notes payable. Interest expense accrued on the amounts
borrowed pursuant to such notes payable was $1,534,000 during
the nine months ended September 30, 2004. In connection
with the spin off, Liberty also entered into a Short-Term Credit
Facility with us. Pursuant to the Short-Term Credit Facility,
Liberty had agreed to make loans to us from time to time up to
an aggregate principal amount of $383,334,000. Amounts borrowed
under the Short-Term Credit Facility and the notes payable
accrued interest at 6% per annum, compounded semi-annually,
and were due and payable no later than March 31, 2005.
During the third quarter of 2004, all amounts due to Liberty
under the notes payable were repaid with proceeds from the LMI
Rights Offering and the Short-Term Credit Facility was cancelled.
For periods prior to the spin off, corporate expenses were
allocated from Liberty to us based upon the cost of general and
administrative services provided. We believe such allocations
were reasonable and materially approximate the amount that we
would have incurred on a stand-alone basis. Amounts allocated to
us prior to the spin off pursuant to these arrangements
aggregated $10,833,000 and $8,155,000 during the nine months
ended September 30, 2004 and 2003, respectively. The 2004
amount includes costs associated with the spin off aggregating
$2,952,000. Pursuant to the Reorganization Agreement, we and
Liberty each agreed to pay 50% of such spin off costs. Excluding
our share of such spin off costs, the intercompany amounts owed
to Liberty as a result of these allocations were contributed to
our equity in connection with the spin off. The amounts
allocated by Liberty are included in SG&A expenses in the
accompanying condensed consolidated statements of operations.
In connection with the spin off, we and Liberty entered into a
Facilities and Services Agreement that sets forth the terms that
will apply to services and other benefits to be provided by
Liberty to us following the spin off. Pursuant to the Facilities
and Services Agreement, Liberty provides us with office space
and certain general and administrative services including legal,
tax, accounting, treasury, engineering and investor relations
support. We reimburse Liberty for direct, out-of-pocket expenses
incurred by Liberty in providing these services and for our
allocable portion of facilities costs and costs associated with
any shared services or personnel. Amounts charged to us pursuant
to this agreement aggregated $757,000 for the period from the
Spin Off Date through
A4-30
LIBERTY MEDIA INTERNATIONAL, INC
(See Note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
September 30, 2004
(unaudited)
September 30, 2004 and are included in SG&A expenses in
the accompanying condensed consolidated statements of operations.
Under the Tax Sharing Agreement, Liberty will generally be
responsible for U.S. federal, state, local and foreign
income taxes reported on a consolidated, combined or unitary
return that includes our company or one of its subsidiaries, on
the one hand, and Liberty or one of its subsidiaries on the
other hand, subject to certain limited exceptions. We will be
responsible for all other taxes that are attributable to our
company or one of its subsidiaries, whether accruing before, on
or after the spin off. The Tax Sharing Agreement requires that
we will not take, or fail to take, any action where such action,
or failure to act, would be inconsistent with or prohibit the
spin off from qualifying as a tax-free transaction. Moreover, we
will indemnify Liberty for any loss resulting from such action
or failure to act, if such action or failure to act precludes
the spin off from qualifying as a tax-free transaction.
Prior to the Spin Off Date, LMI and its 80%-or-more-owned
subsidiaries (the LMI Tax Group) were included in Libertys
consolidated federal and state income tax returns. Accordingly,
our income taxes during the periods prior to the Spin Off Date,
included those items in Libertys consolidated tax returns
applicable to the LMI Tax Group and any income taxes related to
our consolidated foreign and domestic subsidiaries that were
excluded from the consolidated federal and state income tax
returns of Liberty.
Prior to the spin off, Liberty transferred to our company a 25%
ownership interest in two of Libertys aircraft. In
connection with the transfer, we and Liberty entered into
certain agreements pursuant to which, among other things, we and
Liberty share the costs of Libertys flight department and
the costs of maintaining and operating the jointly owned
aircraft. Costs are allocated based upon either our actual usage
or our ownership interest, depending on the type of costs.
Amounts charged to us pursuant to these agreements aggregated
$131,000 for the period from the Spin Off Date through
September 30, 2004 and are included in SG&A expenses in
the accompanying condensed consolidated statements of operations.
See note 2 for a description of the Reorganization
Agreement between Liberty and our company.
John C. Malone beneficially owns shares of Liberty Common Stock
representing approximately 29.3% of Libertys voting power
and beneficially owns shares of LMI Common Stock which may
represent up to approximately 32.6% of the voting power in our
company, assuming the exercise in full of certain compensatory
options to acquire shares of LMI Series B Common Stock
granted to Mr. Malone at the time of the spin off. In
addition, six of our seven directors are also directors of
Liberty. By virtue of Mr. Malones voting power in
Liberty and our company, as well as his position as Chairman of
the Board of Liberty and positions as Chairman of the Board,
President and Chief Executive Officer of our company, and the
aforementioned common directors, Liberty may be deemed an
affiliate of our company.
In the normal course of business, Pramer provides programming
and uplink services to equity method affiliates of LMI. Total
revenue for such services from the LMI affiliates aggregated
$157,000 and $545,000, for the nine months ended
September 30, 2004 and 2003, respectively.
In the normal course of business, Puerto Rico Cable purchases
programming services from subsidiaries of Liberty. During the
nine months ended September 30, 2004 and 2003, the charges
for such services aggregated $397,000 and $532,000, respectively.
A4-31
LIBERTY MEDIA INTERNATIONAL, INC
(See Note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
September 30, 2004
(unaudited)
|
|
(14) |
Transactions with Officers and Directors |
Liberty owns a 78.2% economic and non-voting interest in VLG
Argentina LLC, an entity that owns a 50% interest in
Cablevision. VLG Acquisition Corp., an entity in which neither
Liberty nor our company has any ownership interests, owns the
remaining 21.8% economic interest and all of the voting power in
VLG Argentina LLC. An executive officer and an officer of our
company were shareholders of VLG Acquisition Corp. Prior to
joining our company, they sold their equity interests in VLG
Acquisition Corp. to the remaining shareholder, but each
retained a contractual right to 33% of any proceeds in excess of
$100,000 from the sale of VLG Acquisition Corp.s interest
in VLG Argentina LLC, or from distributions to VLG Acquisition
Corp. by VLG Argentina LLC in connection with a sale of VLG
Argentina LLCs interest in Cablevision. Although we have
no direct or indirect equity interest in Cablevision, we have
the right and obligation to contribute $27,500,000 to
Cablevision in exchange for newly issued Cablevision shares
representing approximately 40.0% of Cablevisions fully
diluted equity in the event that Cablevisions
restructuring is approved in its current form. For additional
information concerning our proposed participation in the
Cablevision restructuring, see notes 15 and 18.
|
|
|
J-COM Ownership Interests |
Our interest in J-COM is held through five separate
corporations, four of which are wholly owned. Several
individuals, including two of our executive officers and one of
our directors, own common stock representing an aggregate of 20%
of the common equity in the fifth corporation, which owns an
approximate 5.4% interest in J-COM. Compensation expense with
respect to the interests held by the aforementioned executive
officers and directors was $656,000 and $1,260,000 during the
nine months ended September 30, 2004 and 2003, respectively.
|
|
(15) |
Commitments and Contingencies |
Various partnerships and other affiliates of our company
accounted for using the equity method finance a substantial
portion of their acquisitions and capital expenditures through
borrowings under their own credit facilities and net cash
provided by their operating activities. Notwithstanding the
foregoing, certain of our affiliates may require additional
capital to finance their operating or investing activities. In
addition, we are a party to stockholder and partnership
agreements that provide for possible capital calls on
stockholders and partners. In the event our affiliates require
additional financing and we fail to meet a capital call, or
other commitment to provide capital or loans to a particular
company, such failure may have adverse consequences to our
company. These consequences may include, among others, the
dilution of our equity interest in that company, the forfeiture
of our right to vote or exercise other rights, the right of the
other stockholders or partners to force us to sell our interest
at less than fair value, the forced dissolution of the company
to which we have made the commitment or, in some instances, a
breach of contract action for damages against us. Our ability to
meet capital calls or other capital or loan commitments is
subject to our ability to access cash.
In addition to the foregoing, the agreement governing one of our
affiliate investments contains a put-call arrangement whereby we
could be required to purchase another investors ownership
interest at fair value.
For a description of certain put obligations that we assumed in
connection with the Noos acquisition, see note 5. For a
description of certain put obligations that we will assume in
the event that the proposed restructuring of our indirect
investment in Telenet closes, see note 18.
In the normal course of business, we have entered into
agreements that commit our company to make cash payments in
future periods with respect to non-cancelable leases,
programming contracts, purchases of customer
A4-32
LIBERTY MEDIA INTERNATIONAL, INC
(See Note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
September 30, 2004
(unaudited)
premise equipment, construction activities, network maintenance,
and upgrade and other commitments arising from our agreements
with local franchise authorities.
At September 30, 2004, Liberty guaranteed
¥13,620,821,000 ($123,814,000) of the bank debt of J-COM.
Libertys guarantees expire as the underlying debt matures
and is repaid. The debt maturity dates range from 2004 to 2019.
In connection with the spin off, we have agreed to indemnify
Liberty for any amounts Liberty is required to fund under these
arrangements. During the nine months ended September 30,
2004 and 2003, we recognized income from J-COM guarantee fees
aggregating $422,000 and $238,000, respectively.
At September 30, 2004, we had severally guaranteed certain
transponder and equipment lease obligations of Sky Latin America
aggregating $92,950,000 and $3,407,000, respectively. Such
amounts were not reflected in our condensed consolidated balance
sheet at September 30, 2004. In connection with the
execution of certain transactions and agreements subsequent to
September 30, 2004, our guarantees of the obligations under
these transponder leases were terminated and our guarantees of
the obligations under these equipment leases will be terminated
no later than December 31, 2004. For additional
information, see note 18.
As a result of the termination by Argentina of its decade-old
currency peg in late 2001, Cablevision (consistent with other
Argentine issuers) stopped servicing its U.S. dollar
denominated debt in 2002, which it is currently seeking to
restructure pursuant to an out of court reorganization
agreement. That agreement has been submitted to
Cablevisions creditors for their consent, and a petition
for its approval has been filed by Cablevision with a commercial
court in Buenos Aires under Argentinas bankruptcy laws. If
the restructuring is approved in its current form, we would
contribute to Cablevision $27,500,000, for which we would
receive, after giving effect to a capital reduction pertaining
to the current shareholders of Cablevision (including the entity
in which Liberty has a 78.2% economic interest), approximately
40.0% of the equity of the restructured Cablevision. The
proceeds of our cash contribution would be distributed as part
of the consideration being offered to Cablevisions
creditors. No assurance can be given as to whether
Cablevisions restructuring plan will be accepted by the
court. For information concerning the status of our rights and
obligations under the restructuring agreement, see note 18.
In 2000, certain of UGCs subsidiaries pursued a
transaction with Excite@Home, which if completed, would have
merged UGCs chello broadband subsidiary with
Excite@Homes international broadband operations to form a
European Internet business. The transaction was not completed,
and discussions between the parties ended in late 2000. On
November 3, 2003, UGC received a complaint filed on
September 26, 2003 by Frank Morrow, on behalf of the
General Unsecured Creditors Liquidating Trust of At Home
Corporation in the United States Bankruptcy Court for the
Northern District of California, styled as In re At Home
Corporation, Frank Morrow v. UnitedGlobalCom, Inc.
et al. (Case No. 01-32495-TC). In general, the
complaint alleges breach of contract and fiduciary duty by UGC
and Old UGC. The action has been stayed by the Bankruptcy Court
in the Old UGC bankruptcy proceedings. The plaintiff had filed a
claim in the bankruptcy proceedings of approximately
$2.2 billion. On September 16, 2004, the Bankruptcy
Court held that the claim against Old UGC was estimated at zero.
Although no assurance can be given, UGC believes that the
ultimate outcome of this matter will not have a material adverse
effect on its financial position or results of operations.
We have contingent liabilities related to legal proceedings and
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. In our opinion, it is expected that
amounts, if any, which may be required to satisfy such
contingencies will not be material in relation to the
accompanying condensed consolidated financial statements.
A4-33
LIBERTY MEDIA INTERNATIONAL, INC
(See Note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
September 30, 2004
(unaudited)
|
|
(16) |
Restructuring Charges |
A summary of UGCs restructuring charge activity is set
forth in the table below (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee | |
|
|
|
Programming | |
|
|
|
|
|
|
Severance | |
|
|
|
and Lease | |
|
|
|
|
|
|
and | |
|
Office | |
|
Contract | |
|
|
|
|
|
|
Termination | |
|
Closures | |
|
Termination | |
|
Other | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Restructuring liability as of January 1, 2004
|
|
$ |
8,405 |
|
|
|
16,821 |
|
|
|
34,399 |
|
|
|
2,442 |
|
|
|
62,067 |
|
Restructuring charges
|
|
|
9,618 |
|
|
|
892 |
|
|
|
|
|
|
|
239 |
|
|
|
10,749 |
|
Cash paid
|
|
|
(5,236 |
) |
|
|
(4,182 |
) |
|
|
(3,372 |
) |
|
|
(685 |
) |
|
|
(13,475 |
) |
Foreign currency translation adjustments
|
|
|
16 |
|
|
|
(218 |
) |
|
|
913 |
|
|
|
(75 |
) |
|
|
636 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring liability as of September 30, 2004
|
|
$ |
12,803 |
|
|
|
13,313 |
|
|
|
31,940 |
|
|
|
1,921 |
|
|
|
59,977 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term portion
|
|
$ |
5,554 |
|
|
|
4,707 |
|
|
|
3,907 |
|
|
|
217 |
|
|
|
14,385 |
|
Long-term portion
|
|
|
7,249 |
|
|
|
8,606 |
|
|
|
28,033 |
|
|
|
1,704 |
|
|
|
45,592 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
12,803 |
|
|
|
13,313 |
|
|
|
31,940 |
|
|
|
1,921 |
|
|
|
59,977 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17) |
Information About Operating Segments |
We own a variety of international subsidiaries and investments
that provide broadband distribution services and 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 earnings or loss represents 10% of
more of our total assets or pre-tax earnings (loss),
respectively. We evaluate performance and make decisions about
allocating resources to our operating segments based on
financial measures such as revenue, operating cash flow and
revenue or sales per customer. In addition, we review
non-financial measures such as subscriber growth and
penetration, as appropriate.
We define operating cash flow as revenue less operating and
SG&A expenses (excluding stock-based compensation,
depreciation and amortization, impairment of long-lived assets,
and restructuring charges). We believe this is an important
indicator of the operational strength and performance of our
businesses, including the ability to service debt and fund
capital expenditures. In addition, this measure allows
management to view operating results and perform analytical
comparisons and benchmarking between businesses and identify
strategies to improve performance. In this regard, we believe
that operating cash flow is meaningful because it provides
investors a means to evaluate the operating performance of our
company and our reportable segments on an ongoing basis using
criteria that is used by our internal decision makers. This
measure of performance excludes stock-based compensation,
depreciation and amortization, and impairment and restructuring
charges that are included in the measurement of operating income
pursuant to GAAP. Accordingly, operating cash flow should be
considered in addition to, but not as a substitute for,
operating income, net income, cash flow provided by operating
activities and other measures of financial performance prepared
in accordance with GAAP. We generally account for intersegment
sales and transfers as if the sales or transfers were to third
parties, that is, at current prices.
A4-34
LIBERTY MEDIA INTERNATIONAL, INC
(See Note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
September 30, 2004
(unaudited)
For the nine months ended September 30, 2004, we have
identified the following consolidated subsidiaries and equity
method affiliates as our reportable segments:
|
|
|
|
|
UGC Broadband The Netherlands |
|
|
UGC Broadband France |
|
|
UGC Broadband Austria |
|
|
UGC Broadband Other Europe |
|
|
UGC Broadband Chile (VTR) |
|
|
J-COM |
UGC, a 53%-owned subsidiary of our company, is an international
broadband communications provider of video, voice, and Internet
services with operations in 14 countries. UGCs
operations are located primarily in Europe and Latin America.
UGC Broadband The Netherlands, UGC
Broadband France and UGC Broadband
Austria represent UGCs three largest operating segments in
Europe in terms of revenue. UGC Broadband Other
Europe includes broadband operations in Norway, Sweden, Belgium,
Hungary, Poland, Czech Republic, Slovak Republic, and Romania.
None of the components of UGC Broadband Other Europe
constitute a reportable segment. UGC Broadband Chile
(VTR) represents UGCs operating segment in Latin
America. J-COM is a 45%-owned equity method affiliate that
provides broadband communication services in Japan.
The amounts presented below represent 100% of each
business revenue and operating cash flow. These amounts
are combined on an unconsolidated basis and are then adjusted to
remove the amounts related to UGC during the 2003 period and
J-COM during the 2004 and 2003 periods to arrive at the reported
consolidated amounts. This presentation is designed to reflect
the manner in which management reviews the operating performance
of individual businesses regardless of whether the investment is
accounted for as a consolidated subsidiary or an equity
investment. It should be noted, however, that this presentation
is not in accordance with GAAP since the results of equity
method investments are required to be reported on a net basis.
Further, we could not, among other things, cause any
noncontrolled affiliate to distribute to us our proportionate
share of the revenue or operating cash flow of such affiliate.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
|
|
Operating | |
|
|
|
Operating | |
|
|
Revenue | |
|
Cash Flow | |
|
Revenue | |
|
Cash Flow | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Amounts in thousands) | |
UGC Broadband The Netherlands
|
|
$ |
519,948 |
|
|
$ |
267,097 |
|
|
$ |
430,620 |
|
|
$ |
188,528 |
|
UGC Broadband France
|
|
|
182,850 |
|
|
|
28,285 |
|
|
|
84,435 |
|
|
|
8,709 |
|
UGC Broadband Austria
|
|
|
221,780 |
|
|
|
86,489 |
|
|
|
189,880 |
|
|
|
73,288 |
|
UGC Broadband Other Europe
|
|
|
506,095 |
|
|
|
202,487 |
|
|
|
411,266 |
|
|
|
148,587 |
|
UGC Broadband Chile (VTR)
|
|
|
216,537 |
|
|
|
74,942 |
|
|
|
161,667 |
|
|
|
47,884 |
|
J-COM
|
|
|
1,090,476 |
|
|
|
433,112 |
|
|
|
885,517 |
|
|
|
300,764 |
|
Corporate and all other
|
|
|
320,725 |
|
|
|
(4,064 |
) |
|
|
271,841 |
|
|
|
(10,335 |
) |
Elimination of intercompany transactions
|
|
|
(102,166 |
) |
|
|
|
|
|
|
(93,627 |
) |
|
|
|
|
Elimination of equity affiliates
|
|
|
(1,090,476 |
) |
|
|
(433,112 |
) |
|
|
(2,261,183 |
) |
|
|
(743,632 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated LMI
|
|
$ |
1,865,769 |
|
|
$ |
655,236 |
|
|
$ |
80,416 |
|
|
$ |
13,793 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A4-35
LIBERTY MEDIA INTERNATIONAL, INC
(See Note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
September 30, 2004
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
September 30, | |
|
December 31, | |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
(Amounts in thousands) | |
UGC Broadband The Netherlands
|
|
$ |
1,884,074 |
|
|
$ |
2,493,134 |
|
UGC Broadband France
|
|
|
1,125,815 |
|
|
|
274,180 |
|
UGC Broadband Austria
|
|
|
753,982 |
|
|
|
700,209 |
|
UGC Broadband Other Europe
|
|
|
1,507,968 |
|
|
|
1,845,202 |
|
UGC Broadband Chile (VTR)
|
|
|
672,283 |
|
|
|
602,762 |
|
J-COM
|
|
|
3,945,221 |
|
|
|
3,929,190 |
|
Corporate and all other
|
|
|
6,686,470 |
|
|
|
4,871,221 |
|
Elimination of equity affiliates
|
|
|
(3,945,221 |
) |
|
|
(11,028,861 |
) |
|
|
|
|
|
|
|
|
Total consolidated LMI
|
|
$ |
12,630,592 |
|
|
$ |
3,687,037 |
|
|
|
|
|
|
|
|
The following table provides a reconciliation of total segment
operating cash flow to earnings (loss) before income taxes and
minority interests:
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended | |
|
|
September 30, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
(Amounts in thousands) | |
Total segment operating cash flow
|
|
$ |
655,236 |
|
|
$ |
13,793 |
|
Stock-based compensation credits (charges)
|
|
|
(66,120 |
) |
|
|
323 |
|
Depreciation and amortization
|
|
|
(696,624 |
) |
|
|
(11,139 |
) |
Impairment of long-lived assets
|
|
|
(42,623 |
) |
|
|
|
|
Restructuring charges
|
|
|
(10,749 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(160,880 |
) |
|
|
2,977 |
|
|
Interest expense
|
|
|
(209,801 |
) |
|
|
(1,374 |
) |
Interest and dividend income
|
|
|
44,043 |
|
|
|
18,182 |
|
Share of earnings of affiliates, net
|
|
|
54,518 |
|
|
|
10,833 |
|
Realized and unrealized gains on derivative instruments, net
|
|
|
16,218 |
|
|
|
16,016 |
|
Foreign currency transaction gains (losses), net
|
|
|
(7,015 |
) |
|
|
4,654 |
|
Gain on exchange of investment securities
|
|
|
168,301 |
|
|
|
|
|
Other-than-temporary declines in fair values of investments
|
|
|
(15,115 |
) |
|
|
(5,612 |
) |
Gain on extinguishment of debt
|
|
|
35,787 |
|
|
|
|
|
Gains on dispositions of assets, net
|
|
|
12,632 |
|
|
|
3,847 |
|
Other income (expense), net
|
|
|
(9,088 |
) |
|
|
2,800 |
|
|
|
|
|
|
|
|
|
Earnings (loss) before income taxes and minority interests
|
|
$ |
(70,400 |
) |
|
$ |
52,323 |
|
|
|
|
|
|
|
|
A4-36
LIBERTY MEDIA INTERNATIONAL, INC
(See Note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
September 30, 2004
(unaudited)
|
|
|
Sky Latin America Transaction |
In October 2004, we sold our interest in the Sky Multicountry
DTH platform in exchange for reimbursement by the purchaser of
$1,500,000 of funding provided by us in the previous few months
and the release from certain guarantees described below. We were
deemed to owe the purchaser $6,000,000 in respect of such
platform, which amount was offset against a separate payment we
received from the purchaser as explained below. We also agreed
to sell our interest in the Sky Brasil DTH platform and granted
the purchaser an option to purchase our interest in the Sky
Mexico DTH platform.
On October 28, 2004, we received $54,000,000 in cash from
the purchaser, which consisted of $60,000,000 consideration
payable for our Sky Brasil interest less the $6,000,000 we were
deemed to owe the purchaser in respect of the Sky Multicountry
DTH platform. The $60,000,000 is refundable by us if the Sky
Brasil transaction is terminated. It may be terminated by us or
the purchaser if it has not closed by October 8, 2007 or by
the purchaser if certain conditions are incapable of being
satisfied.
We will receive $88,000,000 in cash upon the transfer of our Sky
Mexico interest to the purchaser. The Sky Mexico interest will
not be transferred until certain Mexican regulatory conditions
are satisfied. If the purchaser does not exercise its option to
purchase our Sky Mexico interest on or before October 8,
2006 (or in some cases an earlier date), then we have the right
to require the purchaser to purchase our interest if certain
conditions, including the absence of Mexican regulatory
prohibition of the transaction, have been satisfied or waived.
In light of the contingencies involved, we will not treat either
of the Sky Mexico or Sky Brasil transactions as a sale for
accounting purposes until such time as the necessary regulatory
approvals are obtained and, in the case of Sky Mexico, the cash
is received.
In connection with these transactions our guarantees of the
obligations of the Sky Multicountry, Sky Brasil and Sky Mexico
platforms under certain transponder leases were terminated and
our guarantees of obligations under certain equipment leases
will be terminated no later than December 31, 2004. The
buyer has agreed to indemnify us for any amounts we are required
to pay under such equipment leases subsequent to the transaction
date through the date that our guarantees are terminated.
At September 30, 2004, LMI owned debt of CPE and one of its
two indirect majority-owned entities (the InvestCos) that
collectively own an 18.99% equity interest in Telenet. CPE owns
its interests in the InvestCos through its 100% owned
subsidiary, Callahan Associates Holdings Belgium (CAHB). In
addition, CAHB holds call options expiring in August 2007 and
August 2009 to purchase approximately 11.6% and 17.6%,
respectively, of the outstanding equity of Telenet from existing
third-party shareholders. On October 15, 2004, we entered
into an agreement to restructure our indirect investment in
Telenet. Pursuant to this agreement, we will transfer cash of
approximately $137 million (including accrued interest
through an assumed closing date of November 30, 2004) and
our investment in the debt of one of the InvestCos to CAHB in
exchange for 78.4% of the common interests and 100% of the
Preferred A and Preferred B interests of CAHB. The Preferred A
interest will have an initial liquidation value of
$132 million and dividends will accrue at a rate of
16% per annum from May 1, 2004, payable in additional
shares of Preferred A interests. The Preferred B interest will
have a liquidation value of $15 million and no dividends
will accrue on the Preferred B interest. CPE will own the
remaining 21.6% common interest in CAHB. Most of the proceeds to
be received by CAHB will, in turn, be distributed to CPE to be
used to purchase the debt of CPE owned by our company at a
purchase price approximately equal to our cost plus accrued
interest. Upon the completion of the foregoing transactions, our
net indirect investment in Telenet
A4-37
LIBERTY MEDIA INTERNATIONAL, INC
(See Note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
September 30, 2004
(unaudited)
will increase by approximately $22 million. CAHB is a party
to a shareholders agreement that controls the voting and
disposition of 21.36% of the stock of Telenet, including the
aggregate 18.99% interest owned by the InvestCos. The foregoing
ownership structure will result in CAHBs indirect
ownership of an approximate 14% economic interest in Telenet.
Due to certain veto rights we will hold with respect to Telenet,
we expect to use the equity method to account for our indirect
investment in Telenet.
The agreement also provides that CPE will have the right to
require our company to purchase its CAHB interest at fair value
at any time after the third anniversary of closing.
Subject to the satisfaction of certain conditions, including the
receipt of required consents, the transactions contemplated by
these arrangements are anticipated to be consummated during the
fourth quarter of 2004.
|
|
|
Chilean Regulatory Approval of Merger of VTR and
Metropolis |
As discussed in note 7, we and CristalChile have entered
into an agreement pursuant to which we each have agreed to use
commercially reasonable efforts to merge Metropolis and VTR. On
October 25, 2004, the Chilean anti-trust tribunal (the
Tribunal) approved a potential combination of VTR with
Metropolis, subject to certain conditions. The decision of the
Tribunal has been appealed to Chiles Supreme Court by
parties opposing the possible combination of VTR and Metropolis
(the Appeal). UGC, CristalChile and we are (i) reviewing in
detail the conditions imposed by the Tribunal and
(ii) monitoring the Appeal, and (iii) engaging in
discussions regarding the terms of the potential combination of
VTR and Metropolis. The terms of any such combination are
subject to review and approval by a committee of UGCs
independent directors.
|
|
|
Cablevision Total Return Debt Swap |
Subsequent to September 30, 2004, the counterparty to the
Cablevision total return debt swap, with our consent, entered
into a participation agreement with a third party, which, if
consummated, would result in the termination of our liability
under this debt swap and the return of our collateral. For
additional information concerning the Cablevision debt swap, see
note 10.
|
|
|
Cablevision Restructuring |
As discussed in note 15, we have the right and obligation
to contribute $27,500,000 to Cablevision in exchange for newly
issued Cablevision shares representing approximately 40.0% of
Cablevisions fully diluted equity in the event that
Cablevisions restructuring is approved in its current
form. Subsequent to September 30, 2004, we entered into an
agreement, which, if consummated, would eliminate this right and
obligation in exchange for cash consideration of approximately
$40.5 million.
A4-38
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Liberty Media Corporation:
We have audited the accompanying combined balance sheets of LMC
International (a combination of certain assets and businesses
owned by Liberty Media Corporation, as defined in note 1)
(LMC International) as of December 31, 2003 and
2002, and the related combined statements of operations and
comprehensive earnings (loss), parents investment, and
cash flows for each of the years in the three-year period ended
December 31, 2003. These combined financial statements are
the responsibility of the Companys management. Our
responsibility is to express an opinion on these combined
financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the
report of the other auditors provide a reasonable basis for our
opinion.
In our opinion, the combined financial statements referred to
above present fairly, in all material respects, the financial
position of LMC International as of December 31, 2003 and
2002, and the results of their operations and their cash flows
for each of the years in the three-year period ended
December 31, 2003, in conformity with accounting principles
generally accepted in the United States of America.
As discussed in note 4 to the combined financial
statements, the Company changed its method of accounting for
intangible assets in 2002.
Denver, Colorado
March 26, 2004
A4-39
LMC INTERNATIONAL
(A combination of certain assets and businesses owned by
Liberty Media Corporation, as defined in Note 1)
COMBINED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
|
(Amounts in thousands) | |
ASSETS |
Current Assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
12,753 |
|
|
$ |
5,592 |
|
|
Trade and other receivables, net
|
|
|
15,130 |
|
|
|
13,723 |
|
|
Prepaid expenses
|
|
|
1,830 |
|
|
|
1,376 |
|
|
Other current assets
|
|
|
1,030 |
|
|
|
405 |
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
30,743 |
|
|
|
21,096 |
|
|
|
|
|
|
|
|
Investments in affiliates, accounted for using the equity
method, and related receivables (note 5)
|
|
|
1,740,552 |
|
|
|
1,145,382 |
|
Other investments (note 6)
|
|
|
450,134 |
|
|
|
187,826 |
|
Property and equipment, at cost:
|
|
|
|
|
|
|
|
|
|
Distribution systems
|
|
|
116,962 |
|
|
|
100,780 |
|
|
Support equipment and buildings
|
|
|
11,051 |
|
|
|
13,548 |
|
|
|
|
|
|
|
|
|
|
|
128,013 |
|
|
|
114,328 |
|
|
Accumulated depreciation
|
|
|
(30,436 |
) |
|
|
(25,117 |
) |
|
|
|
|
|
|
|
|
|
|
97,577 |
|
|
|
89,211 |
|
|
|
|
|
|
|
|
Intangible assets not subject to amortization:
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
525,576 |
|
|
|
525,576 |
|
|
Franchise costs
|
|
|
163,450 |
|
|
|
163,470 |
|
|
|
|
|
|
|
|
|
|
|
689,026 |
|
|
|
689,046 |
|
|
|
|
|
|
|
|
Deferred income tax assets (note 9)
|
|
|
457,831 |
|
|
|
638,909 |
|
Restricted cash (note 8)
|
|
|
41,700 |
|
|
|
|
|
Other assets
|
|
|
43,663 |
|
|
|
29,426 |
|
|
|
|
|
|
|
|
|
|
$ |
3,551,226 |
|
|
|
2,800,896 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND PARENTS INVESTMENT |
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
20,629 |
|
|
|
22,224 |
|
|
Accrued liabilities
|
|
|
13,815 |
|
|
|
13,287 |
|
|
Accrued stock compensation
|
|
|
15,052 |
|
|
|
11,445 |
|
|
Derivative instruments (note 7)
|
|
|
21,010 |
|
|
|
2,626 |
|
|
Current portion of debt (note 8)
|
|
|
12,426 |
|
|
|
21,786 |
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
82,932 |
|
|
|
71,368 |
|
|
|
|
|
|
|
|
Long-term debt (note 8)
|
|
|
41,700 |
|
|
|
13,500 |
|
Other Liabilities
|
|
|
7,948 |
|
|
|
7,089 |
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
132,580 |
|
|
|
91,957 |
|
|
|
|
|
|
|
|
Minority interest
|
|
|
78 |
|
|
|
46 |
|
Parents investment:
|
|
|
|
|
|
|
|
|
|
Parents investment
|
|
|
5,096,083 |
|
|
|
4,621,185 |
|
|
Accumulated deficit
|
|
|
(1,630,949 |
) |
|
|
(1,651,838 |
) |
|
Accumulated other comprehensive loss, net of taxes (note 11)
|
|
|
(46,566 |
) |
|
|
(260,454 |
) |
|
|
|
|
|
|
|
|
|
|
3,418,568 |
|
|
|
2,708,893 |
|
|
|
|
|
|
|
|
Commitments and contingencies (note 12)
|
|
$ |
3,551,226 |
|
|
$ |
2,800,896 |
|
|
|
|
|
|
|
|
See accompanying notes to combined financial statements.
A4-40
LMC INTERNATIONAL
(A combination of certain assets and businesses owned by
Liberty Media Corporation, as defined in Note 1)
COMBINED STATEMENTS OF OPERATIONS AND COMPREHENSIVE EARNINGS
(LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, | |
|
|
| |
|
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
|
(Amounts in thousands) | |
Revenue
|
|
$ |
108,634 |
|
|
$ |
103,855 |
|
|
$ |
139,535 |
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
50,306 |
|
|
|
43,931 |
|
|
|
63,155 |
|
|
Selling, general and administrative (SG&A)
(note 10)
|
|
|
40,337 |
|
|
|
42,269 |
|
|
|
43,619 |
|
|
Stock compensation SG&A
|
|
|
4,088 |
|
|
|
(5,815 |
) |
|
|
6,275 |
|
|
Depreciation
|
|
|
14,642 |
|
|
|
13,037 |
|
|
|
13,772 |
|
|
Amortization
|
|
|
472 |
|
|
|
50 |
|
|
|
44,250 |
|
|
Impairment of long-lived assets
|
|
|
|
|
|
|
45,928 |
|
|
|
91,087 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
109,845 |
|
|
|
139,400 |
|
|
|
262,158 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(1,211 |
) |
|
|
(35,545 |
) |
|
|
(122,623 |
) |
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(2,178 |
) |
|
|
(3,943 |
) |
|
|
(21,917 |
) |
|
Interest income
|
|
|
24,874 |
|
|
|
25,883 |
|
|
|
67,189 |
|
|
Share of earnings (losses) of affiliates (note 5)
|
|
|
13,739 |
|
|
|
(331,225 |
) |
|
|
(589,525 |
) |
|
Realized and unrealized gains (losses) on derivative instruments
(note 7)
|
|
|
12,762 |
|
|
|
(16,705 |
) |
|
|
(534,962 |
) |
|
Nontemporary declines in fair value of investments (note 6)
|
|
|
(6,884 |
) |
|
|
(247,386 |
) |
|
|
(2,002 |
) |
|
Gain on disposition of assets, net (note 5)
|
|
|
3,759 |
|
|
|
122,331 |
|
|
|
|
|
|
Other, net
|
|
|
4,027 |
|
|
|
(9,391 |
) |
|
|
(11,182 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
50,099 |
|
|
|
(460,436 |
) |
|
|
(1,092,399 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before income taxes and minority interest
|
|
|
48,888 |
|
|
|
(495,981 |
) |
|
|
(1,215,022 |
) |
Income tax benefit (expense) (note 9)
|
|
|
(27,975 |
) |
|
|
166,121 |
|
|
|
394,696 |
|
Minority interests in earnings of subsidiaries
|
|
|
(24 |
) |
|
|
(27 |
) |
|
|
(29 |
) |
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before cumulative effect of accounting change
|
|
|
20,889 |
|
|
|
(329,887 |
) |
|
|
(820,355 |
) |
Cumulative effect of accounting change, net of taxes
(note 4)
|
|
|
|
|
|
|
(238,267 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
|
20,889 |
|
|
|
(568,154 |
) |
|
|
(820,355 |
) |
|
|
|
|
|
|
|
|
|
|
Other comprehensive earnings (loss), net of taxes (note 11):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
103,145 |
|
|
|
(173,715 |
) |
|
|
(111,787 |
) |
|
Unrealized gains (losses) on available-for-sale securities
|
|
|
111,594 |
|
|
|
46,649 |
|
|
|
(30,400 |
) |
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive earnings (loss)
|
|
|
214,739 |
|
|
|
(127,066 |
) |
|
|
(142,187 |
) |
|
|
|
|
|
|
|
|
|
|
Comprehensive earnings (loss)
|
|
$ |
235,628 |
|
|
$ |
(695,220 |
) |
|
$ |
(962,542 |
) |
|
|
|
|
|
|
|
|
|
|
See accompanying notes to combined financial statements.
A4-41
LMC INTERNATIONAL
(A combination of certain assets and businesses owned by
Liberty Media Corporation, as defined in Note 1)
COMBINED STATEMENTS OF PARENTS INVESTMENT
Years Ended December 31, 2003, 2002 and 2001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated | |
|
|
|
|
|
|
|
|
Other | |
|
|
|
|
|
|
|
|
Comprehensive | |
|
|
|
|
|
|
|
|
Earnings | |
|
Total | |
|
|
Parents | |
|
Accumulated | |
|
(loss), Net of | |
|
Parents | |
|
|
Investment | |
|
Deficit | |
|
Taxes | |
|
Investment | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Amounts in thousands) | |
Balance at January 1, 2001
|
|
$ |
2,161,615 |
|
|
$ |
(263,329 |
) |
|
$ |
8,799 |
|
|
$ |
1,907,085 |
|
|
Net loss
|
|
|
|
|
|
|
(820,355 |
) |
|
|
|
|
|
|
(820,355 |
) |
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
(142,187 |
) |
|
|
(142,187 |
) |
|
Losses in connection with issuances of stock of affiliates, net
of taxes
|
|
|
(929 |
) |
|
|
|
|
|
|
|
|
|
|
(929 |
) |
|
Intercompany tax allocation
|
|
|
2,073 |
|
|
|
|
|
|
|
|
|
|
|
2,073 |
|
|
Allocation of corporate overhead (note 10)
|
|
|
10,148 |
|
|
|
|
|
|
|
|
|
|
|
10,148 |
|
|
Net cash transfers from parent
|
|
|
1,083,758 |
|
|
|
|
|
|
|
|
|
|
|
1,083,758 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2001
|
|
|
3,256,665 |
|
|
|
(1,083,684 |
) |
|
|
(133,388 |
) |
|
|
2,039,593 |
|
|
Net loss
|
|
|
|
|
|
|
(568,154 |
) |
|
|
|
|
|
|
(568,154 |
) |
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
(127,066 |
) |
|
|
(127,066 |
) |
|
Reallocation of enterprise-level goodwill from parent
|
|
|
118,000 |
|
|
|
|
|
|
|
|
|
|
|
118,000 |
|
|
Intercompany tax allocation
|
|
|
3,988 |
|
|
|
|
|
|
|
|
|
|
|
3,988 |
|
|
Allocation of corporate overhead (note 10)
|
|
|
10,794 |
|
|
|
|
|
|
|
|
|
|
|
10,794 |
|
|
Net cash transfers from parent
|
|
|
1,231,738 |
|
|
|
|
|
|
|
|
|
|
|
1,231,738 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2002
|
|
|
4,621,185 |
|
|
|
(1,651,838 |
) |
|
|
(260,454 |
) |
|
|
2,708,893 |
|
|
Net earnings
|
|
|
|
|
|
|
20,889 |
|
|
|
|
|
|
|
20,889 |
|
|
Other comprehensive earnings
|
|
|
|
|
|
|
|
|
|
|
214,739 |
|
|
|
214,739 |
|
|
Intercompany tax allocation
|
|
|
(14,774 |
) |
|
|
|
|
|
|
|
|
|
|
(14,774 |
) |
|
Allocation of corporate overhead (note 10)
|
|
|
10,873 |
|
|
|
|
|
|
|
|
|
|
|
10,873 |
|
|
Net cash transfers from parent
|
|
|
478,799 |
|
|
|
|
|
|
|
|
|
|
|
478,799 |
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
(851 |
) |
|
|
(851 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2003
|
|
$ |
5,096,083 |
|
|
$ |
(1,630,949 |
) |
|
$ |
(46,566 |
) |
|
$ |
3,418,568 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to combined financial statements.
A4-42
LMC INTERNATIONAL
(A combination of certain assets and businesses owned by
Liberty Media Corporation, as defined in Note 1)
COMBINED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, | |
|
|
| |
|
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
|
(Amounts in thousands) | |
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$ |
20,889 |
|
|
$ |
(568,154 |
) |
|
$ |
(820,355 |
) |
|
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of accounting change, net of taxes
|
|
|
|
|
|
|
238,267 |
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
15,114 |
|
|
|
13,087 |
|
|
|
58,022 |
|
|
|
Stock compensation
|
|
|
4,088 |
|
|
|
(5,815 |
) |
|
|
6,275 |
|
|
|
Payments for stock compensation
|
|
|
(481 |
) |
|
|
|
|
|
|
(5,874 |
) |
|
|
Impairment of long-lived assets
|
|
|
|
|
|
|
45,928 |
|
|
|
91,087 |
|
|
|
Share of losses (earnings) of affiliates
|
|
|
(13,739 |
) |
|
|
331,225 |
|
|
|
589,525 |
|
|
|
Unrealized losses (gains) on derivative instruments
|
|
|
(12,762 |
) |
|
|
16,705 |
|
|
|
534,962 |
|
|
|
Nontemporary declines in fair value of investments
|
|
|
6,884 |
|
|
|
247,386 |
|
|
|
2,002 |
|
|
|
Gain on disposition of assets, net
|
|
|
(3,759 |
) |
|
|
(122,331 |
) |
|
|
|
|
|
|
Deferred income tax expense (benefit)
|
|
|
42,278 |
|
|
|
(169,606 |
) |
|
|
(402,027 |
) |
|
|
Noncash interest income and other
|
|
|
(1,609 |
) |
|
|
(6,908 |
) |
|
|
(45,960 |
) |
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables and prepaid expenses
|
|
|
6,925 |
|
|
|
13,442 |
|
|
|
(18 |
) |
|
|
|
Payables and accruals
|
|
|
(3,317 |
) |
|
|
(23,514 |
) |
|
|
11,195 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
60,511 |
|
|
|
9,712 |
|
|
|
18,834 |
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in and loans to affiliates and others
|
|
|
(494,193 |
) |
|
|
(1,219,588 |
) |
|
|
(1,341,129 |
) |
|
Capital expended for property and equipment
|
|
|
(22,869 |
) |
|
|
(24,910 |
) |
|
|
(14,782 |
) |
|
Cash paid to settle foreign exchange contracts
|
|
|
(10,499 |
) |
|
|
|
|
|
|
|
|
|
Cash received due to increase in fair value of bond swaps
|
|
|
30,079 |
|
|
|
|
|
|
|
|
|
|
Proceeds from dispositions of assets
|
|
|
8,230 |
|
|
|
|
|
|
|
|
|
|
Other investing activities, net
|
|
|
(16,042 |
) |
|
|
1,940 |
|
|
|
2,474 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(505,294 |
) |
|
|
(1,242,558 |
) |
|
|
(1,353,437 |
) |
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings of debt
|
|
|
41,700 |
|
|
|
|
|
|
|
283,281 |
|
|
Repayments of debt
|
|
|
(22,954 |
) |
|
|
(12,784 |
) |
|
|
(46,211 |
) |
|
Change in restricted cash
|
|
|
(41,700 |
) |
|
|
|
|
|
|
|
|
|
Contributions from parent
|
|
|
474,898 |
|
|
|
1,246,520 |
|
|
|
1,095,492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
451,944 |
|
|
|
1,233,736 |
|
|
|
1,332,562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
7,161 |
|
|
|
890 |
|
|
|
(2,041 |
) |
|
|
|
|
Cash and Cash Equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
|
5,592 |
|
|
|
4,702 |
|
|
|
6,743 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of year
|
|
$ |
12,753 |
|
|
$ |
5,592 |
|
|
$ |
4,702 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$ |
932 |
|
|
$ |
18,603 |
|
|
$ |
6,263 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for taxes
|
|
$ |
4,651 |
|
|
$ |
2,895 |
|
|
$ |
1,725 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to combined financial statements.
A4-43
LMC INTERNATIONAL
(A combination of certain assets and businesses owned by
Liberty Media Corporation, as defined in Note 1)
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 2003, 2002 and 2001
|
|
(1) |
Basis of Presentation |
The accompanying combined financial statements of LMC
International or the Company represent a
combination of the historical financial information of certain
international cable television and programming subsidiaries and
assets of Liberty Media Corporation (Liberty). Upon
consummation of the spinoff transaction described in
note 2, Liberty Media International, Inc. will own the
assets that comprise LMC International.
The more significant subsidiaries and investments of Liberty
initially comprising LMC International are as follows:
Subsidiaries
|
|
|
Liberty Cablevision of Puerto Rico Ltd. (Puerto Rico
Cable) |
|
Pramer S.C.A. (Pramer) |
Investments
|
|
|
Chofu Cable, Inc. |
|
Fox Pan American Sports LLC |
|
Jupiter Programming Co., Ltd. (JPC) |
|
Jupiter Telecommunications Co., Ltd. (J-COM) |
|
Metrópolis-Intercom S.A. (Metropolis) |
|
Sky Latin America |
|
Telewest Communications plc (Telewest) bonds |
|
Torneos y Competencias, S.A. (Torneos) |
|
UnitedGlobalCom, Inc. (UGC) |
|
The Wireless Group plc |
On March 15, 2004, Liberty announced its intention to spin
off all the capital stock of Liberty Media International, Inc.
to the holders of Liberty Series A and Series B common
stock (the Spin Off). The Spin Off will be effected
as a distribution by Liberty to holders of its Series A and
Series B common stock of shares of Series A and
Series B common stock of the Company. The Spin Off will not
involve the payment of any consideration by the holders of
Liberty common stock and is intended to qualify as a tax-free
spin off. The Spin Off is expected to occur in the second or
third quarter of 2004, on a date to be determined by
Libertys board of directors, and will be made as a
dividend to holders of record of Liberty common stock as of the
close of business on the date of record for the Spin Off. The
Spin Off is expected to be accounted for at historical cost due
to the pro rata nature of the distribution.
Following the Spin Off, the Company and Liberty will operate
independently, and neither will have any stock ownership,
beneficial or otherwise, in the other. In connection with the
Spin Off, LMC International and Liberty will enter into certain
agreements in order to govern certain of the ongoing
relationships between Liberty and LMC International after the
Spin Off and to provide for an orderly transition. These
agreements include a Reorganization Agreement, a Facilities and
Services Agreement, a Tax Sharing Agreement and a Short-Term
Credit Facility.
The Reorganization Agreement provides for, among other things,
the principal corporate transactions required to effect the Spin
Off and cross indemnities. Pursuant to the Facilities and
Services Agreement, Liberty will provide LMC International with
office space and certain general and administrative services
including legal, tax, accounting, treasury, engineering and
investor relations support. LMC International will reimburse
Liberty
A4-44
LMC INTERNATIONAL
(A combination of certain assets and businesses owned by
Liberty Media Corporation, as defined in Note 1)
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
for direct, out-of-pocket expenses incurred by Liberty in
providing these services and for LMC Internationals
allocable portion of facilities costs and costs associated with
any shared services or personnel.
Under the Tax Sharing Agreement, Liberty will generally be
responsible for U.S. federal, state, local and foreign
income taxes reported on a consolidated, combined or unitary
return that includes LMC International or one of its
subsidiaries, on the one hand, and Liberty or one of its
subsidiaries on the other hand, subject to certain limited
exceptions. LMC International will be responsible for all other
taxes that are attributable to LMC International or one of its
subsidiaries, whether accruing before, on or after the Spin Off.
The Tax Sharing Agreement requires that the Company will not
take, or fail to take, any action where such action, or failure
to act, would be inconsistent with or prohibit the Spin Off from
qualifying as a tax-free transaction. Moreover, the Company will
indemnify Liberty for any loss resulting from such action or
failure to act, if such action or failure to act precludes the
Spin Off from qualifying as a tax-free transaction.
|
|
(3) |
AT&T Ownership of Liberty |
On March 9, 1999, AT&T Corp. (AT&T)
acquired Tele-Communications, Inc. (TCI), the former
parent of Liberty, in a merger transaction (the AT&T
Merger).
From March 9, 1999 through August 9, 2001, AT&T
owned 100% of the outstanding common stock of Liberty. Effective
August 10, 2001, AT&T effected the split off of Liberty
pursuant to which all of the common stock of Liberty was
distributed in a tax-free manner to holders of AT&T Liberty
Media Group common stock (the Split Off
Transaction). Subsequent to the Split Off Transaction,
Liberty is no longer a subsidiary of AT&T. The Split Off
Transaction has been recorded at historical cost.
|
|
(4) |
Summary of Significant Accounting Policies |
Cash and Cash
Equivalents
Cash equivalents consist of all investments which are readily
convertible into cash and have maturities of three months or
less at the time of acquisition.
Receivables
Receivables are reflected net of an allowance for doubtful
accounts. Such allowance aggregated $13,947,000 and $13,103,000
at December 31, 2003 and 2002, respectively.
Investments
All marketable equity and debt securities held by the Company
are classified as available-for-sale and are carried at fair
value. Unrealized holding gains and losses on securities that
are classified as available-for-sale are carried net of taxes as
a component of accumulated other comprehensive earnings (loss)
in parents investment. Realized gains and losses are
determined on an average cost basis. Other investments in which
the Companys ownership interest is less than 20% and are
not considered marketable securities are carried at cost.
For those investments in affiliates in which the Company has the
ability to exercise significant influence, the equity method of
accounting is used. Under this method, the investment,
originally recorded at cost, is adjusted to recognize the
Companys share of net earnings or losses of the affiliates
as they occur rather then as dividends or other distributions
are received, limited to the extent of the Companys
investment in, and advances and commitments to, the investee. If
the Companys investment in the common stock of an
affiliate is reduced to zero as a result of recording its share
of the affiliates net losses, and the Company holds
investments in other more
A4-45
LMC INTERNATIONAL
(A combination of certain assets and businesses owned by
Liberty Media Corporation, as defined in Note 1)
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
senior securities of the affiliate, the Company would continue
to record losses from the affiliate to the extent of these
additional investments. The amount of additional losses recorded
would be determined based on changes in the hypothetical amount
of proceeds that would be received by the Company if the
affiliate were to experience a liquidation of its assets at
their current book values. Prior to the Companys
January 1, 2002 adoption of Statement of Financial
Accounting Standards No. 142, Goodwill and Other
Intangible Assets (Statement 142), the
Companys share of net earnings or losses of affiliates
included the amortization of the difference between the
Companys investment and its share of the net assets of the
investee. Upon adoption of Statement 142, the portion of
excess costs on equity method investments that represents
goodwill (equity method goodwill) is no longer
amortized, but continues to be considered for impairment under
Accounting Principles Board Opinion No. 18. The
Companys share of net earnings or losses of affiliates
also includes any other-than-temporary declines in fair value
recognized during the period.
Changes in the Companys proportionate share of the
underlying equity of a subsidiary or equity method investee,
which result from the issuance of additional equity securities
by such subsidiary or equity investee, are recognized as
increases or decreases in the Companys statements of
parents investment.
The Company continually reviews its investments to determine
whether a decline in fair value below the cost basis is other
than temporary (nontemporary). The primary factors
the Company considers in its determination are the length of
time that the fair value of the investment is below the
Companys carrying value and the financial condition,
operating performance and near term prospects of the investee.
In addition, the Company considers the reason for the decline in
fair value, be it general market conditions, industry specific
or investee specific; analysts ratings and estimates of
12 month share price targets for the investee; changes in
stock price or valuation subsequent to the balance sheet date;
and the Companys intent and ability to hold the investment
for a period of time sufficient to allow for a recovery in fair
value. If the decline in fair value is deemed to be
nontemporary, the cost basis of the security is written down to
fair value. In situations where the fair value of an investment
is not evident due to a lack of a public market price or other
factors, the Company uses its best estimates and assumptions to
arrive at the estimated fair value of such investment. The
Companys assessment of the foregoing factors involves a
high degree of judgment and accordingly, actual results may
differ materially from the Companys estimates and
judgments. Writedowns for cost investments and
available-for-sale securities are included in the combined
statements of operations as nontemporary declines in fair values
of investments. Writedowns for equity method investments are
included in share of earnings (losses) of affiliates.
Derivative
Instruments
The Company has entered into several derivative instrument
contracts including total return bond swaps and foreign currency
hedges. The Company accounts for its derivative instruments
pursuant to Statement of Financial Accounting Standards
No. 133, Accounting for Derivative Instruments and
Hedging Activities (Statement 133),
which establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. All
derivatives, whether designated in hedging relationships or not,
are required to be recorded on the balance sheet at fair value.
If the derivative is designated as a fair value hedge, the
changes in the fair value of the derivative and of the hedged
item attributable to the hedged risk are recognized in earnings.
If the derivative is designated as a cash flow hedge, the
effective portions of changes in the fair value of the
derivative are recorded in other comprehensive earnings.
Ineffective portions of changes in the fair value of cash flow
hedges are recognized in earnings. If the derivative is not
designated as a hedge, changes in the fair value of the
derivative are recognized in earnings.
A4-46
LMC INTERNATIONAL
(A combination of certain assets and businesses owned by
Liberty Media Corporation, as defined in Note 1)
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
Property and
Equipment
Property and equipment is stated at cost, including acquisition
costs allocated to tangible assets acquired. Construction and
initial subscriber installation costs, including interest during
construction, material, labor and applicable overhead, are
capitalized. Interest capitalized during 2003, 2002 and 2001 was
not material.
Depreciation is computed using the straight-line method over
estimated useful lives of 3 to 15 years for cable
distribution systems and 3 to 40 years for support
equipment and buildings.
Repairs and maintenance are charged to operations, and additions
are capitalized.
Intangible Assets
The Companys primary intangible assets are goodwill and
franchise costs. Goodwill represents the excess purchase price
over the fair value of assets acquired, for acquisitions other
than cable television systems. Franchise costs represent the
difference between the cost of acquiring cable television
systems and amounts allocated to their tangible assets.
Effective January 1, 2002, the Company adopted
Statement 142. Statement 142 requires that goodwill
and other intangible assets with indefinite useful lives
(collectively, indefinite lived intangible assets)
no longer be amortized, but instead be tested for impairment at
least annually in accordance with the provisions of
Statement 142. Equity method goodwill is also no longer
amortized, but continues to be considered for impairment under
Accounting Principles Board Opinion No. 18.
Statement 142 also requires that intangible assets with
estimable useful lives be amortized over their respective
estimated useful lives to their estimated residual values, and
reviewed for impairment in accordance with Statement of
Financial Accounting Standards No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets
(Statement 144).
Statement 142 required the Company to perform an assessment
of whether there was an indication that goodwill was impaired as
of the date of adoption. To accomplish this, the Company
identified its reporting units and determined the carrying value
of each reporting unit by assigning the assets and liabilities,
including the existing goodwill and intangible assets, to those
reporting units as of the date of adoption. Statement 142
requires the Company to consider equity method affiliates as
separate reporting units. As a result, a portion of the
Companys enterprise-level goodwill balance was allocated
to various reporting units which included a single equity method
investment as its only asset. For example, goodwill was
allocated to a separate reporting unit which included only the
Companys investment in J-COM. This allocation is performed
for goodwill impairment testing purposes only and does not
change the reported carrying value of the investment. However,
to the extent that all or a portion of an equity method
investment which is part of a reporting unit containing
allocated goodwill is disposed of in the future, the allocated
portion of goodwill will be relieved and included in the
calculation of the gain or loss on disposal.
The Company determined the fair value of its reporting units
using independent appraisals, public trading prices and other
means. The Company then compared the fair value of each
reporting unit to the reporting units carrying amount. To
the extent a reporting units carrying amount exceeded its
fair value, the Company performed the second step of the
transitional impairment test. In the second step, the Company
compared the implied fair value of the reporting units
goodwill, determined by allocating the reporting units
fair value to all of its assets (recognized and unrecognized)
and liabilities in a manner similar to a purchase price
allocation, to its carrying amount, both of which were measured
as of the date of adoption.
In situations where the implied fair value of a reporting
units goodwill was less than its carrying value, LMC
International recorded a transition impairment charge. In total,
the Company recognized a $238,267,000
A4-47
LMC INTERNATIONAL
(A combination of certain assets and businesses owned by
Liberty Media Corporation, as defined in Note 1)
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
transitional impairment loss, net of taxes of $103,105,000, as
the cumulative effect of a change in accounting principle in
2002. The foregoing transitional impairment loss includes an
adjustment of $264,372,000 for the Companys proportionate
share of transition adjustments that UGC recorded.
As noted above, indefinite lived intangible assets are no longer
amortized. Adjusted net loss, exclusive of amortization expense
related to goodwill, franchise costs and equity method goodwill,
for periods prior to the adoption of Statement 142 is as
follows (amounts in thousands):
|
|
|
|
|
|
|
|
Year Ended | |
|
|
December 31, | |
|
|
2001 | |
|
|
| |
Net loss, as reported
|
|
$ |
(820,355 |
) |
Adjustments:
|
|
|
|
|
|
Goodwill amortization
|
|
|
34,600 |
|
|
Franchise costs amortization
|
|
|
9,521 |
|
|
Equity method excess costs amortization included in share of
losses of affiliates
|
|
|
92,902 |
|
|
Income tax effect
|
|
|
(39,945 |
) |
|
|
|
|
Net loss, as adjusted
|
|
$ |
(723,277 |
) |
|
|
|
|
As noted above, the Companys enterprise-level goodwill is
allocable to reporting units, whether they are consolidated
subsidiaries or equity method investments. The following table
summarizes these allocations at December 31, 2003 (amounts
in thousands).
|
|
|
|
|
|
|
|
Allocable | |
Entity |
|
Goodwill | |
|
|
| |
J-COM
|
|
$ |
203,000 |
|
JPC
|
|
|
127,000 |
|
Puerto Rico Cable
|
|
|
121,000 |
|
Other
|
|
|
74,576 |
|
|
|
|
|
|
Total enterprise-level goodwill
|
|
$ |
525,576 |
|
|
|
|
|
As more fully described in note 5, LMC International
recorded a $66,555,000 nontemporary decline in value for
Metropolis in 2002. In connection therewith, the Company also
recorded a $39,000,000 impairment of enterprise-level goodwill
that had been allocated to Metropolis. In 2002, the Company also
recorded a $5,000,000 impairment of enterprise-level goodwill
related to Torneos as a result of the devaluation of the
Argentine peso.
Due to deteriorating economic and political conditions in
Argentina in 2001, Pramer, a consolidated subsidiary of LMC
International, assessed the recoverability of its long-lived
assets and determined that an impairment adjustment was
necessary. Such adjustment aggregated $52,775,000 and is
included in the accompanying 2001 combined statement of
operations.
Impairment of Long-Lived
Assets
Statement 144 requires that the Company periodically review
the carrying amounts of its property and equipment and its
intangible assets (other than goodwill) to determine whether
current events or circumstances indicate that such carrying
amounts may not be recoverable. If the carrying amount of the
asset is greater than the expected undiscounted cash flows to be
generated by such asset, an impairment adjustment is to be
recognized.
A4-48
LMC INTERNATIONAL
(A combination of certain assets and businesses owned by
Liberty Media Corporation, as defined in Note 1)
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
Such adjustment is measured by the amount that the carrying
value of such assets exceeds their fair value. The Company
generally measures fair value by considering sale prices for
similar assets or by discounting estimated future cash flows
using an appropriate discount rate. Considerable management
judgment is necessary to estimate the fair value of assets,
accordingly, actual results could vary significantly from such
estimates. Assets to be disposed of are carried at the lower of
their financial statement carrying amount or fair value less
costs to sell.
Foreign Currency
Translation
The functional currency of LMC International is the
U.S. dollar. The functional currency of LMC
Internationals foreign operations generally is the
applicable local currency for each foreign subsidiary and equity
method investee. Assets and liabilities of foreign subsidiaries
and equity investees are translated at the spot rate in effect
at the applicable reporting date, and the combined statements of
operations and LMC Internationals share of the results of
operations of its equity affiliates are translated at the
average exchange rates in effect during the applicable period.
The resulting unrealized cumulative translation adjustment, net
of applicable income taxes, is recorded as a component of
accumulated other comprehensive earnings in the combined
statement of parents investment.
Transactions denominated in currencies other than the functional
currency are recorded based on exchange rates at the time such
transactions arise. Subsequent changes in exchange rates result
in transaction gains and losses which are reflected in the
statements of operations as unrealized (based on the applicable
period end translation) or realized upon settlement of the
transactions. Cash flows from LMC Internationals
consolidated foreign subsidiaries are calculated in their
functional currencies.
Unless otherwise indicated, convenience translations of foreign
currencies into U.S. dollars are calculated using the
applicable spot rate at December 31, 2003, as published in
The Wall Street Journal.
Revenue Recognition
Cable and programming revenue are recognized in the period that
services are delivered. Cable installation revenue is recognized
in the period the related services are provided to the extent of
direct selling costs. Any remaining amount is deferred and
recognized over the estimated average period that subscribers
are expected to remain connected to the cable television system.
A4-49
LMC INTERNATIONAL
(A combination of certain assets and businesses owned by
Liberty Media Corporation, as defined in Note 1)
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
Stock Based
Compensation
Certain company employees hold options, stock appreciation
rights (SARs) and options with tandem SARs to
purchase shares of Liberty Series A common stock. The
Company accounts for these grants pursuant to the recognition
and measurement provisions of Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to
Employees. (APB Opinion No. 25) Under
these provisions, options are accounted for as fixed plan awards
and no compensation expense is recognized because the exercise
price is equal to the market price of the underlying common
stock on the date of grant; whereas options with tandem SARs are
accounted for as variable plan awards, and compensation is
recognized based upon the percentage of the options that are
vested and the difference between the market price of the
underlying common stock and the exercise price of the options at
the balance sheet date. The following table illustrates the
effect on net income and earnings per share if the Company had
applied the fair value recognition provisions of Statement of
Financial Accounting Standards No. 123, Accounting
for Stock-Based Compensation,
(Statement 123) to its options.
Compensation expense for options with tandem SARs is the same
under APB Opinion No. 25 and Statement 123.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, | |
|
|
| |
|
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
|
(Amounts in thousands) | |
Net earnings (loss)
|
|
$ |
20,889 |
|
|
$ |
(568,154 |
) |
|
$ |
(820,355 |
) |
|
Deduct stock compensation as determined under the fair value
method, net of taxes
|
|
|
(1,038 |
) |
|
|
(1,498 |
) |
|
|
(2,355 |
) |
|
|
|
|
|
|
|
|
|
|
Pro forma net earnings (loss)
|
|
$ |
19,851 |
|
|
$ |
(569,652 |
) |
|
$ |
(822,710 |
) |
|
|
|
|
|
|
|
|
|
|
Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
(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. Actual results could differ from those estimates.
LMC International holds a significant number of investments that
are accounted for using the equity method. LMC International
does not control the decision making process or business
management practices of these affiliates. Accordingly, LMC
International relies on management of these affiliates and their
independent auditors to provide it with accurate financial
information prepared in accordance with GAAP that LMC
International uses in the application of the equity method. LMC
International is not aware, however, of any errors in or
possible misstatements of the financial information provided by
its equity affiliates that would have a material effect on LMC
Internationals combined financial statements.
|
|
(5) |
Investments in Affiliates Accounted for Using the Equity
Method |
LMC Internationals affiliates generally are engaged in the
cable and/or programming businesses in various foreign
countries. Most of LMC Internationals affiliates have
incurred net losses since their respective inception dates. As
such, substantially all of the affiliates are dependent upon
external sources of financing and capital contributions in order
to meet their respective liquidity requirements.
A4-50
LMC INTERNATIONAL
(A combination of certain assets and businesses owned by
Liberty Media Corporation, as defined in Note 1)
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
The following table includes LMC Internationals carrying
value and percentage ownership of its more significant
investments in affiliates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2003 | |
|
December 31, 2002 | |
|
|
| |
|
| |
|
|
Percentage | |
|
Carrying | |
|
Carrying | |
|
|
Ownership | |
|
Amount | |
|
Amount | |
|
|
| |
|
| |
|
| |
|
|
(Dollar amounts in thousands) | |
J-COM
|
|
|
45 |
% |
|
$ |
1,330,602 |
|
|
$ |
782,039 |
|
UGC
|
|
|
50 |
% |
|
|
|
|
|
|
|
|
JPC
|
|
|
50 |
% |
|
|
259,571 |
|
|
|
223,033 |
|
Metropolis
|
|
|
50 |
% |
|
|
52,223 |
|
|
|
47,025 |
|
Torneos
|
|
|
40 |
% |
|
|
32,500 |
|
|
|
34,937 |
|
Other
|
|
|
Various |
|
|
|
65,656 |
|
|
|
58,348 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,740,552 |
|
|
$ |
1,145,382 |
|
|
|
|
|
|
|
|
|
|
|
The following table reflects LMC Internationals share of
earnings (losses) of affiliates including nontemporary declines
in value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, | |
|
|
| |
|
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
|
(Amounts in thousands) | |
J-COM
|
|
$ |
20,341 |
|
|
$ |
(21,595 |
) |
|
$ |
(89,538 |
) |
UGC
|
|
|
|
|
|
|
(190,216 |
) |
|
|
(439,843 |
) |
JPC
|
|
|
11,775 |
|
|
|
5,801 |
|
|
|
(9,337 |
) |
Metropolis
|
|
|
(8,291 |
) |
|
|
(80,394 |
) |
|
|
(16,609 |
) |
Torneos
|
|
|
(7,566 |
) |
|
|
(25,482 |
) |
|
|
(29,300 |
) |
Other
|
|
|
(2,520 |
) |
|
|
(19,339 |
) |
|
|
(4,898 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
13,739 |
|
|
$ |
(331,225 |
) |
|
$ |
(589,525 |
) |
|
|
|
|
|
|
|
|
|
|
At December 31, 2003, LMC Internationals aggregate
carrying amount in its affiliates exceeded LMC
Internationals proportionate share of its affiliates
net assets by $3.745 billion. Prior to the adoption of
Statement 142, such excess cost were being amortized over
estimated useful lives of up to 20 years based upon the
useful lives of the intangible assets represented by such excess
costs. Such amortization was $92,902,000 for the year ended
December 31, 2001, and is included in share of earnings
(losses) of affiliates. Upon adoption of Statement 142, the
Company discontinued amortizing its equity method excess costs
in existence at the adoption date due to their characterization
as equity method goodwill. Any calculated excess costs on
investments made after January 1, 2002 are allocated on an
estimated fair value basis to the underlying assets and
liabilities of the investee. Amounts allocated to assets other
than indefinite lived intangible assets are amortized over their
estimated useful lives.
UGC
UGC is an international broadband communications provider of
video, voice and data services with operations in 15 countries
outside the U.S. On January 30, 2002, the Company and
UGC completed a transaction (the UGC Transaction)
pursuant to which UGC was formed to own Old UGC, Inc. (formerly
known as UGC Holdings, Inc.) (UGC Holdings). Upon
consummation of the UGC Transaction, all shares of UGC Holdings
A4-51
LMC INTERNATIONAL
(A combination of certain assets and businesses owned by
Liberty Media Corporation, as defined in Note 1)
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
common stock were exchanged for shares of common stock of UGC.
In addition, the Company contributed (i) cash consideration
of $200,000,000, (ii) a note receivable from Belmarken
Holding B.V., an indirect subsidiary of UGC Holdings, with an
accreted value of $891,671,000 and a carrying value of
$495,603,000 (the Belmarken Loan) and
(iii) Senior Notes and Senior Discount Notes of United-Pan
Europe Communications N.V. (UPC), a subsidiary of
UGC Holdings, with an aggregate carrying amount of $270,398,000
to UGC in exchange for 281.3 million shares of UGC
Class C common stock with a fair value of $1,406,441,000.
The Company has accounted for the UGC Transaction as the
acquisition of an additional noncontrolling interest in UGC in
exchange for monetary financial instruments. Accordingly, the
Company calculated a $440,440,000 gain on the transaction based
on the difference between the estimated fair value of the
financial instruments and their carrying value. Due to its
continuing indirect ownership in the assets contributed to UGC,
the Company limited the amount of gain it recognized to the
minority shareholders attributable share (approximately
28%) of such assets or $122,618,000 (before deferred tax expense
of $47,821,000).
Also on January 30, 2002, UGC acquired from LMC
International its debt and equity interests in IDT United, Inc.
and $751 million principal amount at maturity of UGCs
$1,375 million
103/4% senior
secured discount notes due 2008, which had been distributed to
LMC International in redemption of a portion of its interest in
IDT United and repayment of a portion of IDT Uniteds debt
to LMC International. IDT United was formed as an indirect
subsidiary of IDT Corporation for purposes of effecting a tender
offer for all outstanding 2008 Notes at a purchase price of
$400 per $1,000 principal amount at maturity, which tender
offer expired on February 1, 2002. The aggregate purchase
price for LMC Internationals interest in IDT United of
$448 million equaled the aggregate amount LMC International
had invested in IDT United, plus interest. Approximately
$305 million of the purchase price was paid by the
assumption by UGC of debt owed by LMC International to a
subsidiary of UGC Holdings, and the remainder was credited
against LMC Internationals $200 million cash
contribution to UGC described above. In connection with the UGC
Transaction, a subsidiary of LMC International made loans to a
subsidiary of UGC aggregating $103 million. Such loans
accrued interest at 8% per annum.
At December 31, 2003, the Company owned approximately
296 million shares of UGC common stock, or an approximate
50% economic interest and an 87% voting interest in UGC. The
closing price of UGCs Class A common stock was $8.48
on December 31, 2003. Pursuant to certain voting and
standstill arrangements, the Company was unable to exercise
control of UGC, and accordingly, the Company used the equity
method of accounting for its investment.
Because the Company had no commitment to make additional capital
contributions to UGC, the Company suspended recording its share
of UGCs losses when its carrying value was reduced to zero
in 2002.
On September 3, 2003, UPC completed a restructuring of its
debt instruments and emerged from bankruptcy. Under the terms of
the restructuring, approximately $5.4 billion of UPCs
debt was exchanged for equity of UGC Europe, Inc., a new holding
company of UPC (UGC Europe). Upon consummation, UGC
received approximately 65.5% of UGC Europes equity in
exchange for UPC debt securities that it owned; third-party
noteholders received approximately 32.5% of UGC Europes
equity; and existing preferred and ordinary shareholders,
including UGC, received 2% of UGC Europes equity.
On December 18, 2003, UGC completed its offer to exchange
its Class A common stock for the outstanding shares of UGC
Europe common stock that it did not already own. Upon completion
of the exchange offer, UGC owned 92.7% of the outstanding shares
of UGC Europe common stock. On December 19, 2003, UGC
effected a short-form merger with UGC Europe. In the
short-form merger, each share of UGC Europe common stock not
tendered in the exchange offer was converted into the right to
receive the same consideration offered in the exchange offer,
and UGC acquired the remaining 7.3% of UGC Europe. In connection
with UGCs acquisition of
A4-52
LMC INTERNATIONAL
(A combination of certain assets and businesses owned by
Liberty Media Corporation, as defined in Note 1)
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
the minority interest in UGC Europe, the Company calculated a
$680,488,000 gain due to the dilutive effect on its investment
in UGC and the implied per share value of the exchange offer.
However, as the Company had suspended recording losses of UGC in
2002 and these suspended losses exceeded the aforementioned
gain, the Company did not recognize the gain in its combined
financial statements.
On January 5, 2004, the Company completed a transaction
pursuant to which UGCs founding shareholders (the
Founders) transferred 8.2 million shares of UGC
Class B common stock to the Company in exchange for
12.6 million shares of Liberty Series A common stock
and a cash payment of $12,857,000. Upon closing of the
transaction with the Founders, the restrictions on the exercise
by the Company of its voting power with respect to UGC
terminated, and the Company gained voting control of UGC.
Accordingly, UGC will be included in the Companys combined
financial position and results of operations beginning January
2004. The Company has entered into a new Standstill Agreement
with UGC that limits the Companys ownership of UGC common
stock to 90 percent of the outstanding common stock unless
it makes an offer or effects another transaction to acquire all
outstanding UGC common stock. Under certain circumstances, such
an offer or transaction would require an independent appraisal
to establish the price to be paid to stockholders unaffiliated
with the Company.
In January 2004, the Company also purchased an additional
17.6 million shares of UGC Class A common stock
pursuant to certain pre-emptive rights granted to it pursuant to
our Standstill Agreement with UGC. The $135,626,000 purchase
price for such shares was comprised of (1) the cancellation
of indebtedness due from subsidiaries of UGC to certain
subsidiaries of the Company in the amount of $104,462,000
(including accrued interest) and (2) $31,164,000 in cash.
Also in January 2004, UGC initiated a rights offering pursuant
to which holders of each of UGCs Class A,
Class B and Class C common stock received .28
transferable subscription rights to purchase a like class of
common stock for each share of common stock owned by them on
January 21, 2004. The rights offering expired on
February 12, 2004. UGC received cash proceeds of
approximately $1.02 billion from the rights offering and
expects to use such cash proceeds for working capital and
general corporate purposes, including future acquisitions and
repayment of outstanding indebtedness. As a holder of UGC
Class A, Class B and Class C common stock, the
Company participated in the rights offering and exercised its
rights to purchase 90.7 million shares for a total
cash purchase price of $544,251,000. Subsequent to the foregoing
transactions, LMC International owns approximately 53% of
UGCs common stock representing approximately 90% of the
voting power of UGCs shares.
A4-53
LMC INTERNATIONAL
(A combination of certain assets and businesses owned by
Liberty Media Corporation, as defined in Note 1)
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
Summarized financial information for UGC is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
|
(Amounts in thousands) | |
Financial Position
|
|
|
|
|
|
|
|
|
Current assets
|
|
$ |
828,646 |
|
|
$ |
865,551 |
|
Property and equipment, net
|
|
|
3,342,743 |
|
|
|
3,640,211 |
|
Intangible and other assets, net
|
|
|
2,928,282 |
|
|
|
1,425,832 |
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
7,099,671 |
|
|
$ |
5,931,594 |
|
|
|
|
|
|
|
|
Debt
|
|
$ |
4,351,905 |
|
|
$ |
6,959,767 |
|
Other liabilities
|
|
|
1,252,513 |
|
|
|
1,854,555 |
|
Minority interest
|
|
|
22,761 |
|
|
|
1,402,146 |
|
Shareholders equity (deficit)
|
|
|
1,472,492 |
|
|
|
(4,284,874 |
) |
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$ |
7,099,671 |
|
|
$ |
5,931,594 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
|
(Amounts in thousands) | |
Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
1,891,530 |
|
|
$ |
1,515,021 |
|
|
$ |
1,561,894 |
|
Operating, selling, general and administrative expenses
|
|
|
(1,300,672 |
) |
|
|
(1,246,875 |
) |
|
|
(1,761,955 |
) |
Depreciation and amortization
|
|
|
(808,663 |
) |
|
|
(730,001 |
) |
|
|
(1,147,176 |
) |
Impairment of long-lived assets and restructuring charges
|
|
|
(438,209 |
) |
|
|
(437,427 |
) |
|
|
(1,525,069 |
) |
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(656,014 |
) |
|
|
(899,282 |
) |
|
|
(2,872,306 |
) |
Interest expense, net
|
|
|
(327,132 |
) |
|
|
(680,101 |
) |
|
|
(1,070,830 |
) |
Gain on extinguishment of debt
|
|
|
2,183,997 |
|
|
|
2,208,782 |
|
|
|
3,447 |
|
Share of earnings (losses) of affiliates
|
|
|
294,464 |
|
|
|
(72,142 |
) |
|
|
(386,441 |
) |
Foreign currency translation gains (losses)
|
|
|
121,612 |
|
|
|
739,794 |
|
|
|
(148,192 |
) |
Minority interest
|
|
|
183,182 |
|
|
|
(67,103 |
) |
|
|
496,515 |
|
Other, net
|
|
|
195,259 |
|
|
|
(241,680 |
) |
|
|
(536,958 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
$ |
1,995,368 |
|
|
$ |
988,268 |
|
|
$ |
(4,514,765 |
) |
|
|
|
|
|
|
|
|
|
|
J-COM
J-COM was incorporated in 1995 to own and operate broadband
businesses in Japan and other parts of Asia. Upon formation, LMC
International and Sumitomo Corporation (Sumitomo)
owned 40% and 60% of J-COM, respectively. In the second quarter
of 2000, LMC International purchased an additional 10% equity
interest from Sumitomo for $92 million in cash. In
September 2000, J-COM acquired Titus Communications Corporation
in a stock-for-stock exchange, and LMCs ownership interest
was reduced to 35%.
In 2003, LMC International purchased an additional 8% equity
interest from Sumitomo for $141 million in cash, and LMC
International and Sumitomo each converted certain of their
shareholder loans to equity interests
A4-54
LMC INTERNATIONAL
(A combination of certain assets and businesses owned by
Liberty Media Corporation, as defined in Note 1)
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
in J-COM. At December 31, 2003, LMC International and
Sumitomo owned 45.2% and 31.8% of J-COM, respectively.
Summarized financial information for J-COM is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
|
(Amounts in thousands) | |
Financial Position
|
|
|
|
|
|
|
|
|
Investments
|
|
$ |
52,962 |
|
|
$ |
42,874 |
|
Property and equipment, net
|
|
|
2,274,632 |
|
|
|
2,025,396 |
|
Intangible and other assets, net
|
|
|
1,601,596 |
|
|
|
1,424,161 |
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
3,929,190 |
|
|
$ |
3,492,431 |
|
|
|
|
|
|
|
|
Debt
|
|
$ |
2,378,698 |
|
|
$ |
2,447,593 |
|
Other liabilities
|
|
|
649,229 |
|
|
|
541,857 |
|
Owners equity
|
|
|
901,263 |
|
|
|
502,981 |
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$ |
3,929,190 |
|
|
$ |
3,492,431 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
|
(Amounts in thousands) | |
Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
1,233,492 |
|
|
$ |
930,736 |
|
|
$ |
628,892 |
|
Operating, selling, general and administrative expenses
|
|
|
(806,014 |
) |
|
|
(720,084 |
) |
|
|
(572,239 |
) |
Depreciation and amortization
|
|
|
(313,725 |
) |
|
|
(240,042 |
) |
|
|
(251,727 |
) |
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
113,753 |
|
|
|
(29,390 |
) |
|
|
(195,074 |
) |
Interest expense, net
|
|
|
(68,980 |
) |
|
|
(33,381 |
) |
|
|
(27,283 |
) |
Other, net
|
|
|
1,335 |
|
|
|
2,579 |
|
|
|
870 |
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$ |
46,108 |
|
|
$ |
(60,192 |
) |
|
$ |
(221,487 |
) |
|
|
|
|
|
|
|
|
|
|
JPC
JPC, a joint venture formed in 1996 by LMC International and
Sumitomo, is a programming company in Japan, which owns and
invests in a variety of channels including the Shop
Channel. LMC International and Sumitomo each own 50% of JPC.
A4-55
LMC INTERNATIONAL
(A combination of certain assets and businesses owned by
Liberty Media Corporation, as defined in Note 1)
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
Summarized financial information for JPC is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
|
(Amounts in thousands) | |
Financial Position
|
|
|
|
|
|
|
|
|
Investments
|
|
$ |
31,290 |
|
|
$ |
18,447 |
|
Property and equipment, net
|
|
|
18,742 |
|
|
|
16,171 |
|
Intangible and other assets, net
|
|
|
142,100 |
|
|
|
97,877 |
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
192,132 |
|
|
$ |
132,495 |
|
|
|
|
|
|
|
|
Debt
|
|
$ |
61,160 |
|
|
$ |
57,244 |
|
Other liabilities
|
|
|
88,099 |
|
|
|
58,932 |
|
Owners equity
|
|
|
42,873 |
|
|
|
16,319 |
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$ |
192,132 |
|
|
$ |
132,495 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
|
(Amounts in thousands) | |
Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
412,013 |
|
|
$ |
273,696 |
|
|
$ |
207,004 |
|
Operating, selling, general and administrative expenses
|
|
|
(357,509 |
) |
|
|
(241,688 |
) |
|
|
(187,543 |
) |
Depreciation and amortization
|
|
|
(10,427 |
) |
|
|
(8,834 |
) |
|
|
(7,575 |
) |
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
44,077 |
|
|
|
23,174 |
|
|
|
11,886 |
|
Other, net
|
|
|
(21,112 |
) |
|
|
(15,052 |
) |
|
|
(4,075 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$ |
22,965 |
|
|
$ |
8,122 |
|
|
$ |
7,811 |
|
|
|
|
|
|
|
|
|
|
|
Metropolis
Metropolis provides broadband services in Chile. Due to
increased competition, losses in subscribers and a decrease in
operating income in 2002, LMC International determined that its
carrying value, including allocated enterprise-level goodwill,
exceeded the estimated fair value for Metropolis, which fair
value was based on a per-subscriber valuation. Accordingly, LMC
International recorded a nontemporary decline in value of
$66,555,000, which is included in share of losses of affiliates
for the year ended December 31, 2002 and an impairment of
long-lived assets of $39,000,000 related to the allocated
enterprise-level goodwill for Metropolis.
A4-56
LMC INTERNATIONAL
(A combination of certain assets and businesses owned by
Liberty Media Corporation, as defined in Note 1)
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
Summarized financial information for Metropolis is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
|
(Amounts in thousands) | |
Financial Position
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$ |
182,948 |
|
|
$ |
154,376 |
|
Intangible and other assets, net
|
|
|
176,126 |
|
|
|
156,855 |
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
359,074 |
|
|
$ |
311,231 |
|
|
|
|
|
|
|
|
Debt
|
|
$ |
74,053 |
|
|
$ |
74,462 |
|
Other liabilities
|
|
|
50,471 |
|
|
|
24,872 |
|
Owners equity
|
|
|
234,550 |
|
|
|
211,897 |
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$ |
359,074 |
|
|
$ |
311,231 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
|
(Amounts in thousands) | |
Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
65,266 |
|
|
$ |
67,718 |
|
|
$ |
75,353 |
|
Operating, selling, general and administrative expenses
|
|
|
(61,680 |
) |
|
|
(71,783 |
) |
|
|
(78,076 |
) |
Depreciation and amortization
|
|
|
(15,969 |
) |
|
|
(14,074 |
) |
|
|
(20,711 |
) |
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(12,383 |
) |
|
|
(18,139 |
) |
|
|
(23,434 |
) |
Other, net
|
|
|
(4,198 |
) |
|
|
(4,099 |
) |
|
|
(4,600 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(16,581 |
) |
|
$ |
(22,238 |
) |
|
$ |
(28,034 |
) |
|
|
|
|
|
|
|
|
|
|
Torneos
Torneos provides sports and entertainment programming in Latin
American. As of December 31, 2002, LMC International,
through several intermediary companies indirectly owned 54% of
Torneos. As LMC International was unable to exercise control
over Torneos, it accounted for such investment using the equity
method. In the second quarter of 2003, LMC International sold a
14% ownership interest in Torneos to an unrelated third party
for $1.7 million in cash, which was $30,195,000 less than
LMC Internationals carrying amount for such interest. In
connection with this sale, LMC International retained a call
right to repurchase the 14% interest in Torneos on the first,
second and third anniversaries of the sale for the
$1.7 million sale price plus a financing fee. Due to LMC
Internationals unilateral ability to repurchase this
interest and the favorable call price relative to the fair value
of the interest, LMC International did not meet the criteria for
treating this transaction as a sale, and accordingly, has
recorded the cash received as a liability in the accompanying
combined balance sheet.
During 2003, LMC International reviewed its carrying value for
Torneos and determined that such carrying value exceeded the
estimated fair value, which fair value was based on a discounted
cash flow model. Accordingly, LMC International recorded a
nontemporary decline in value of $11,279,000, which is included
in share of earnings of affiliates for the year ended
December 31, 2003.
A4-57
LMC INTERNATIONAL
(A combination of certain assets and businesses owned by
Liberty Media Corporation, as defined in Note 1)
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
In 2000, LMC International loaned Avila Inversora S.A.
(AISA) $18 million (the AISA Note)
and guaranteed bank debt of AISA in the amount of
$27 million (the AISA Bank Loan). The AISA Note was
secured by AISAs 20% interest in Torneos. In 2001, LMC
International determined that the AISA Note was not collectible
and reserved all principal and accrued interest in the amount of
$21,312,000. This reserve is included in impairment of
long-lived assets in the accompanying combined statement of
operations. In 2002, LMC International forgave principal and
accrued interest related to the AISA Note in the amount of
$15,857,000 and repaid $28,496,000 of principal and accrued
interest related to the AISA Bank Loan. In exchange, LMC
International received an additional 14% indirect interest in
Torneos, bringing LMC Internationals total indirect
interest in Torneos to 54%. The remaining balance of the AISA
Note is fully reserved.
The components of other investments are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
|
(Amounts in thousands) | |
Telewest bonds
|
|
$ |
281,393 |
|
|
$ |
100,884 |
|
Sky Latin America
|
|
|
94,347 |
|
|
|
86,772 |
|
Other
|
|
|
74,394 |
|
|
|
170 |
|
|
|
|
|
|
|
|
|
|
$ |
450,134 |
|
|
$ |
187,826 |
|
|
|
|
|
|
|
|
Telewest bonds
During 2002, LMC International purchased $370,177,000 and
67,222,000 of
Telewest bonds for cash proceeds of $204,087,000. At December
2002, LMC International determined that the Telewest bonds had
experienced an other-than-temporary decline in value. As a
result, the carrying values of the Telewest bonds were adjusted
to their respective estimated fair values based on quoted market
prices at the balance sheet date, and LMC recognized a
nontemporary decline in value of $141,271,000.
Sky Latin America
LMC International holds a 10% ownership interest in each of
three direct-to-home satellite providers that operate in Brazil
(Sky Brazil), Mexico (Sky Mexico) and
Chile and Colombia (Sky Multi-Country)
(collectively, Sky Latin America), which are
accounted for as cost investments. LMC International also holds
an investment in public debt securities issued by Sky Brazil and
accounts for this investment as an available-for-sale security.
In 2002, LMC International determined that due to, among other
factors, economic conditions in the countries in which Sky Latin
America operates, its investment in Sky Latin America
experienced an other than temporary decline in value. As a
result, the investment in each of the Sky Latin America entities
was adjusted to its respective fair value based on a discounted
cash flow model and per subscriber values. In the case of Sky
Multi-Country, LMC International determined that low subscriber
counts, lack of economies of scale and the future projected cash
needs of Sky Multi-Country, that the entire investment should be
written off at December 31, 2002. In addition, all amounts
funded to Sky Multi-Country in 2003 were expensed when paid. The
total amount of impairment for Sky Latin America in 2003 and
2002 was $6,884,000 and $105,250,000, respectively.
A4-58
LMC INTERNATIONAL
(A combination of certain assets and businesses owned by
Liberty Media Corporation, as defined in Note 1)
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
Belmarken Loan
In May 2001, the Company entered into a loan agreement with UPC
and Belmarken Holding B.V. (Belmarken), a subsidiary
of UPC, pursuant to which the Company loaned Belmarken
$857 million, which represented a 30% discount to the face
amount of the loan of $1,225 million (the Belmarken
Loan). UPC is a consolidated subsidiary of UGC. The loan
accrued interest at 6% per annum, and all principal and
interest was due in May 2007. After May 29, 2002, the loan
was exchangeable, at the option of the Company, into shares of
ordinary common stock of UPC at a rate of $6.85 per share.
At inception, LMC International recorded the conversion feature
of the loan at its estimated fair value of $420 million,
and the $437 million remaining balance as a loan
receivable. LMC International accounted for the convertible
feature of the Belmarken Loan as a derivative security under
Statement 133, and recorded the convertible feature at fair
value with periodic market adjustments recorded in the statement
of operations as unrealized gains or losses on derivative
instruments. The discounted loan receivable was being accreted
up to the $1,225 million face amount over its term. Such
accretion, which includes the stated interest of 6%, was
recognized in interest income over the term of the loan. Upon
consummation of the UGC Transaction, the Company contributed the
Belmarken Loan to UGC in exchange for Class C shares of UGC.
Unrealized holding gains and losses related to investments in
available-for-sale securities that are included in accumulated
other comprehensive loss are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2003 | |
|
December 31, 2002 | |
|
|
| |
|
| |
|
|
Equity | |
|
Debt | |
|
Equity |
|
Debt | |
|
|
Securities | |
|
Securities | |
|
Securities |
|
Securities | |
|
|
| |
|
| |
|
|
|
| |
|
|
(Amounts in thousands) | |
Gross unrealized holding gains
|
|
$ |
156 |
|
|
$ |
210,925 |
|
|
$ |
|
|
|
$ |
28,146 |
|
Gross unrealized holding losses
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
(7) |
Derivative Instruments |
|
|
|
Forward Foreign Exchange Contracts |
The Company generally does not hedge its foreign currency
exchange risk because of the long term nature of its interests
in foreign affiliates. However, in order to reduce its foreign
currency exchange risk related to its recent investment in
J-COM, the Company entered into forward sale contracts with
respect to ¥20,802 million ($193,741,000 at
December 31, 2003) during the year ended December 31,
2003. In addition to the forward sale contracts, the Company
entered into collar agreements with respect to
¥28,785 million ($268,092,000 at December 31,
2003). These collar agreements have a remaining term of
approximately one year, an average call price of 108 yen/
U.S. dollar and an average put price of 125 yen/
U.S. dollar. During the year ended December 31, 2003,
the Company reported unrealized losses of $22,626,000 related to
its yen contracts.
Total Return Debt
Swaps
The Company has entered into total return debt swaps in
connection with its purchase of bank debt of UGC Europe. Under
these arrangements, LMC International directs a counterparty to
purchase a specified amount of the underlying debt security for
the benefit of the Company. The Company initially posts
collateral with the counterparty equal to 10% of the value of
the purchased securities. The Company earns interest income
based upon the face amount and stated interest rate of the
underlying debt securities, and pays interest expense at market
rates on the amount funded by the counterparty. In the event the
fair value of the underlying debentures declines 10%, the
Company is required to post cash collateral for the decline, and
the Company records an unrealized loss on derivative
instruments. The cash collateral is further adjusted up or down
for subsequent
A4-59
LMC INTERNATIONAL
(A combination of certain assets and businesses owned by
Liberty Media Corporation, as defined in Note 1)
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
changes in the fair value of the underlying debt security. At
December 31, 2003, the aggregate purchase price of debt
securities underlying LMC Internationals total return debt
swap arrangements was $113,361,000. As of such date, the Company
had posted cash collateral equal to $14,552,000. In the event
the fair value of the purchased debt securities were to fall to
zero, the Company would be required to post additional cash
collateral of $98,809,000.
Realized and Unrealized
Gains (Losses) on Derivative Instruments
Realized and unrealized gains (losses) on derivative instruments
are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
|
(Amounts in thousands) | |
Foreign exchange derivatives
|
|
$ |
(22,626 |
) |
|
$ |
(11,239 |
) |
|
$ |
|
|
Total return debt swaps
|
|
|
37,804 |
|
|
|
(1,088 |
) |
|
|
(124,698 |
) |
Belmarken loan
|
|
|
|
|
|
|
(4,378 |
) |
|
|
(410,264 |
) |
Other
|
|
|
(2,416 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
12,762 |
|
|
$ |
(16,705 |
) |
|
$ |
(534,962 |
) |
|
|
|
|
|
|
|
|
|
|
The components of debt are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
|
(Amounts in thousands) | |
Puerto Rico Cable Bank Credit Facility
|
|
$ |
41,700 |
|
|
$ |
22,500 |
|
Pramer
|
|
|
12,426 |
|
|
|
12,786 |
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
54,126 |
|
|
|
35,286 |
|
Less current maturities
|
|
|
(12,426 |
) |
|
|
(21,786 |
) |
|
|
|
|
|
|
|
|
Total long term debt
|
|
$ |
41,700 |
|
|
$ |
13,500 |
|
|
|
|
|
|
|
|
Puerto Rico Cable Bank
Credit Facility
In October 2003, LMC International and Puerto Rico Cable
refinanced Puerto Rico Cables bank credit facility. The
new facility provides for maximum borrowings of up to
$50,000,000, which accrue interest at 8%, and matures in October
2013. The availability of such commitments is subject to Puerto
Rico Cables compliance with applicable financial covenants
and other customary conditions, including among other things,
the maintenance of certain financial ratios and limitations on
indebtedness, investments, guarantees, acquisitions,
dispositions, dividends, liens and encumbrances, and
transactions with affiliates. LMC International is required to
post cash collateral equal to the outstanding borrowings under
the facility. LMC International earns interest at 7.75% on the
cash collateral. At December 31, 2003, the outstanding
balance under this facility was $41,700,000. Puerto Rico Cable
used borrowings under the new facility to repay and terminate
its previous bank credit facility and to repay intercompany debt
to LMC International.
A4-60
LMC INTERNATIONAL
(A combination of certain assets and businesses owned by
Liberty Media Corporation, as defined in Note 1)
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
Pramer
Pramer has made short-term borrowings which are denominated in
Argentine pesos to finance certain acquisitions and for working
capital needs. Interest accrues at a weighted average interest
rate of 5.11% at December 31, 2003. Pramer anticipates that
these borrowings will be renewed in 90-day terms and will be
repaid as cash flow permits.
The U.S. dollar equivalent of the annual maturities of LMC
Internationals debt over the next five years is:
|
|
|
|
|
2004
|
|
$ |
12,426 |
|
2005
|
|
$ |
|
|
2006
|
|
$ |
|
|
2007
|
|
$ |
|
|
2008
|
|
$ |
|
|
LMC International believes that the fair value and the carrying
value of its debt were approximately equal at December 31,
2003.
LMC International and its 80%-or-more-owned domestic
subsidiaries (the LMC International Tax Group) are
included in the consolidated federal and state income tax
returns of Liberty. LMC Internationals income taxes
include those items in the consolidated income tax calculation
applicable to the LMC International Tax Group
(intercompany tax allocation) and any income taxes
of LMC Internationals consolidated foreign or domestic
subsidiaries that are excluded from the consolidated federal and
state income tax returns of Liberty.
Income tax benefit (expense) consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current | |
|
Deferred | |
|
Total | |
|
|
| |
|
| |
|
| |
|
|
(Amounts in thousands) | |
Year ended December 31, 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$ |
14,774 |
|
|
$ |
(28,630 |
) |
|
$ |
(13,856 |
) |
|
State and local
|
|
|
|
|
|
|
(5,589 |
) |
|
|
(5,589 |
) |
|
Foreign
|
|
|
(471 |
) |
|
|
(8,059 |
) |
|
|
(8,530 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
14,303 |
|
|
$ |
(42,278 |
) |
|
$ |
(27,975 |
) |
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2002:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$ |
(3,988 |
) |
|
$ |
140,533 |
|
|
$ |
136,545 |
|
|
State and local
|
|
|
|
|
|
|
26,527 |
|
|
|
26,527 |
|
|
Foreign
|
|
|
503 |
|
|
|
2,546 |
|
|
|
3,049 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(3,485 |
) |
|
$ |
169,606 |
|
|
$ |
166,121 |
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2001:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$ |
(2,411 |
) |
|
$ |
434,507 |
|
|
$ |
432,096 |
|
|
State and local
|
|
|
338 |
|
|
|
(35,540 |
) |
|
|
(35,202 |
) |
|
Foreign
|
|
|
(5,258 |
) |
|
|
3,060 |
|
|
|
(2,198 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(7,331 |
) |
|
$ |
402,027 |
|
|
$ |
394,696 |
|
|
|
|
|
|
|
|
|
|
|
A4-61
LMC INTERNATIONAL
(A combination of certain assets and businesses owned by
Liberty Media Corporation, as defined in Note 1)
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
Income tax benefit (expense) attributable to LMC
Internationals pre-tax loss or earnings differs from the
amounts computed by applying the U.S. federal income tax
rate of 35%, as a result of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
|
(Amounts in thousands) | |
Computed expected tax benefit (expense)
|
|
$ |
(17,111 |
) |
|
$ |
173,593 |
|
|
$ |
425,258 |
|
State and local income taxes, net of federal income taxes
|
|
|
(4,315 |
) |
|
|
15,472 |
|
|
|
(23,288 |
) |
Foreign taxes
|
|
|
(7,922 |
) |
|
|
3,049 |
|
|
|
(1,885 |
) |
Effect of change in estimated state tax rate
|
|
|
|
|
|
|
|
|
|
|
12,759 |
|
Impairment charges and amortization not deductible for tax
purposes
|
|
|
|
|
|
|
(16,153 |
) |
|
|
(10,345 |
) |
Other, net
|
|
|
1,373 |
|
|
|
(9,840 |
) |
|
|
(7,803 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(27,975 |
) |
|
$ |
166,121 |
|
|
$ |
394,696 |
|
|
|
|
|
|
|
|
|
|
|
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities at December 31, 2003 and 2002 are presented
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
|
(Amounts in thousands) | |
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
Investments
|
|
$ |
499,214 |
|
|
$ |
663,641 |
|
|
Net operating loss carryforwards
|
|
|
7,263 |
|
|
|
6,062 |
|
|
Other future deductible amounts
|
|
|
15,823 |
|
|
|
19,199 |
|
|
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
|
522,300 |
|
|
|
688,902 |
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
(14,749 |
) |
|
|
(12,701 |
) |
|
Intangible assets
|
|
|
(19,038 |
) |
|
|
(10,099 |
) |
|
Other future taxable amounts
|
|
|
(30,682 |
) |
|
|
(27,193 |
) |
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
(64,469 |
) |
|
|
(49,993 |
) |
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$ |
457,831 |
|
|
$ |
638,909 |
|
|
|
|
|
|
|
|
Based on the difference between the estimated fair value and the
Companys tax bases in the Companys assets,
management considers it more likely than not that the Company
will have sufficient taxable income to realize the full amount
of its net deferred tax assets at December 31, 2003.
At December 31, 2003, LMC International had net operating
loss carryforwards for income tax purposes aggregating
approximately $20,751,000 which, if not utilized to reduce
taxable income in future periods, will expire as follows:
$6,300,000 in 2021; $11,021,000 in 2022; and $3,430,000 in 2023.
|
|
(10) |
Related Party Transactions |
Corporate expenses have been allocated from Liberty to LMC
International based upon the cost of general and administrative
services provided. LMC International believes such allocations
are reasonable and materially
A4-62
LMC INTERNATIONAL
(A combination of certain assets and businesses owned by
Liberty Media Corporation, as defined in Note 1)
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
approximate the amount that LMC International would have
incurred on a stand-alone basis. Amounts allocated aggregated
$10,873,000, $10,794,000 and $10,148,000 in 2003, 2002 and 2001,
respectively, and are included in selling, general and
administrative expenses in the accompanying combined statements
of operations.
Certain key employees of LMC International hold stock options
and options with tandem SARs with respect to certain common
stock of Liberty. Estimates of the compensation expense relating
to SARs have been included in the accompanying combined
statements of operations, but are subject to future adjustment
based upon the vesting and market value of the underlying
Liberty common stock and ultimately on the final determination
of market value when the rights are exercised.
In 2003 and 2002, Puerto Rico Cable purchased programming
services from affiliates of Liberty. Costs for such services
aggregated $1,867,000 and $632,000 in 2003 and 2002,
respectively. In 2001, Puerto Rico Cable purchased programming
services from a subsidiary of AT&T, and costs for such
services aggregated $5,956,000 during the seven months ended
July 31, 2001, and are included in operating expenses in
the accompanying combined statements of operations.
Pramer provides programming and uplink services to certain
affiliates. Total revenue for such services aggregated
$5,643,000, $6,019,000 and $16,742,000 for the years ended
December 31, 2003, 2002 and 2001, respectively. The
decrease in revenue from 2001 to 2002 is due to the economic
crisis in Argentina and the devaluation of the Argentine peso.
|
|
(11) |
Other Comprehensive Earnings (Loss) |
Accumulated other comprehensive earnings (loss) included in LMC
Internationals combined balance sheets and statements of
parents investment reflect the aggregate of foreign
currency translation adjustments and unrealized holding gains
and losses on securities classified as available-for-sale. The
change in the components of accumulated other comprehensive
earnings (loss), net of taxes, is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign | |
|
Unrealized | |
|
Other | |
|
|
Currency | |
|
Gains | |
|
Comprehensive | |
|
|
Translation | |
|
(Losses) on | |
|
Earnings (Loss), | |
|
|
Adjustment | |
|
Securities | |
|
Net of Taxes | |
|
|
| |
|
| |
|
| |
|
|
(Amounts in thousands) | |
Balance at January 1, 2001
|
|
$ |
8,799 |
|
|
$ |
|
|
|
$ |
8,799 |
|
Other comprehensive loss
|
|
|
(111,787 |
) |
|
|
(30,400 |
) |
|
|
(142,187 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2001
|
|
|
(102,988 |
) |
|
|
(30,400 |
) |
|
|
(133,388 |
) |
Other comprehensive earnings (loss)
|
|
|
(173,715 |
) |
|
|
46,649 |
|
|
|
(127,066 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2002
|
|
|
(276,703 |
) |
|
|
16,249 |
|
|
|
(260,454 |
) |
Other comprehensive earnings
|
|
|
103,145 |
|
|
|
111,594 |
|
|
|
214,739 |
|
Other
|
|
|
(851 |
) |
|
|
|
|
|
|
(851 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2003
|
|
$ |
(174,409 |
) |
|
$ |
127,843 |
|
|
$ |
(46,566 |
) |
|
|
|
|
|
|
|
|
|
|
A4-63
LMC INTERNATIONAL
(A combination of certain assets and businesses owned by
Liberty Media Corporation, as defined in Note 1)
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
The components of other comprehensive earnings (loss) are
reflected in LMC Internationals combined statements of
operations and comprehensive earnings (loss), net of taxes. The
following table summarizes the tax effects related to each
component of other comprehensive earnings (loss).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax | |
|
|
|
|
Before-Tax | |
|
(Expense) | |
|
Net-of-Tax | |
|
|
Amount | |
|
Benefit | |
|
Amount | |
|
|
| |
|
| |
|
| |
|
|
(Amounts in thousands) | |
Year ended December 31, 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
$ |
169,090 |
|
|
$ |
(65,945 |
) |
|
$ |
103,145 |
|
Unrealized holding gains arising during period
|
|
|
182,941 |
|
|
|
(71,347 |
) |
|
|
111,594 |
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive earnings
|
|
$ |
352,031 |
|
|
$ |
(137,292 |
) |
|
$ |
214,739 |
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2002:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
$ |
(284,779 |
) |
|
$ |
111,064 |
|
|
$ |
(173,715 |
) |
Unrealized holding gains arising during period
|
|
|
76,474 |
|
|
|
(29,825 |
) |
|
|
46,649 |
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss
|
|
$ |
(208,305 |
) |
|
$ |
81,239 |
|
|
$ |
(127,066 |
) |
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2001:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
$ |
(183,257 |
) |
|
$ |
71,470 |
|
|
$ |
(111,787 |
) |
Unrealized holding losses arising during period
|
|
|
(49,836 |
) |
|
|
19,436 |
|
|
|
(30,400 |
) |
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss
|
|
$ |
(233,093 |
) |
|
$ |
90,906 |
|
|
$ |
(142,187 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
(12) |
Commitments and Contingencies |
Various partnerships and other affiliates of LMC International
accounted for using the equity method finance a substantial
portion of their acquisitions and capital expenditures through
borrowings under their own credit facilities and net cash
provided by their operating activities. Notwithstanding the
foregoing, certain of LMC Internationals affiliates may
require additional capital to finance their operating or
investing activities. In addition, LMC International is party to
stockholder and partnership agreements that provide for possible
capital calls on stockholders and partners. In the event LMC
Internationals affiliates require additional financing and
LMC International fails to meet a capital call, or other
commitment to provide capital or loans to a particular company,
such failure may have adverse consequences to LMC International.
These consequences may include, among others, the dilution of
LMC Internationals equity interest in that company, the
forfeiture of LMC Internationals right to vote or exercise
other rights, the right of the other stockholders or partners to
force LMC International to sell its interest at less than fair
value, the forced dissolution of the company to which LMC
International has made the commitment or, in some instances, a
breach of contract action for damages against LMC International.
LMC Internationals ability to meet capital calls or other
capital or loan commitments is subject to its ability to access
cash.
In addition to the foregoing, agreements governing LMC
Internationals investment in certain of its affiliates
contain buy-sell and other exit arrangements whereby LMC
International could be required to purchase another
investors ownership interest.
At December 31, 2003, Liberty guaranteed
¥14.4 billion ($134,246,000) of the bank debt of
J-COM, an equity affiliate that provides broadband services in
Japan. Libertys guarantees expire as the underlying debt
matures and is repaid. The debt maturity dates range from 2004
to 2018. In addition, Liberty has agreed to fund
A4-64
LMC INTERNATIONAL
(A combination of certain assets and businesses owned by
Liberty Media Corporation, as defined in Note 1)
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
up to ¥10 billion ($93,136,000 at December 31,
2003) to J-COM in the event J-COMs cash flow (as defined
in its bank loan agreement) does not meet certain targets. In
the event J-COM meets certain performance criteria, this
commitment expires on September 30, 2004. If the Spin Off
is completed, LMC International has agreed to indemnify Liberty
for any amounts it is required to fund under these arrangements.
LMC International has guaranteed transponder and equipment lease
obligations through 2018 of Sky Latin America. At
December 31, 2003, the Companys guarantee of the
remaining obligations due under such agreements aggregated
$105,611,000 and is not reflected in LMC Internationals
balance sheet at December 31, 2003. During the fourth
quarter of 2002, Globo Communicacoes e Participacoes
(GloboPar), another investor in Sky Latin America,
announced that it was reevaluating its capital structure. As a
result, LMC International believes that it is probable that
GloboPar will not meet some, if not all, of its future funding
obligations with respect to Sky Latin America. To the extent
that GloboPar does not meet its funding obligations, LMC
International and other investors could mutually agree to assume
GloboPars obligations. To the extent that LMC
International or such other investors do not fully assume
GloboPars funding obligations, any funding shortfall could
lead to defaults under applicable lease agreements. LMC
International believes that the maximum amount of its aggregate
exposure under the default provisions is not in excess of the
gross remaining obligations guaranteed by LMC International, as
set forth above. Although no assurance can be given, such
amounts could be accelerated under certain circumstances. LMC
International cannot currently predict whether it will be
required to perform under any of such guarantees.
LMC International has also guaranteed various loans, notes
payable, letters of credit and other obligations (the
Guaranteed Obligations) of certain other affiliates.
At December 31, 2003, the Guaranteed Obligations aggregated
approximately $92,331,000. Currently, LMC International is not
certain of the likelihood of being required to perform under
such guarantees.
LMC International leases business offices, has entered into pole
rental and transponder lease agreements, and uses certain
equipment under lease arrangements. Rental costs under such
arrangements amounted to $2,934,000, $1,701,000 and $4,767,000
for the years ended December 31, 2003, 2002 and 2001,
respectively.
A summary of future minimum lease payments under noncancellable
operating leases as of December 31, 2003 follows (amounts
in thousands):
|
|
|
|
|
|
Years ending December 31:
|
|
|
|
|
|
2004
|
|
$ |
780 |
|
|
2005
|
|
$ |
699 |
|
|
2006
|
|
$ |
567 |
|
|
2007
|
|
$ |
225 |
|
|
2008
|
|
$ |
156 |
|
|
Thereafter
|
|
$ |
15 |
|
It is expected that in the normal course of business, leases
that expire generally will be renewed or replaced by similar
leases.
LMC International has contingent liabilities related to legal
proceedings and other matters arising in the ordinary course of
business. Although it is reasonably possible LMC International
may incur losses upon conclusion of such matters, an estimate of
any loss or range of loss cannot be made. In the opinion of
management, it is expected that amounts, if any, which may be
required to satisfy such contingencies will not be material in
relation to the accompanying combined financial statements.
A4-65
LMC INTERNATIONAL
(A combination of certain assets and businesses owned by
Liberty Media Corporation, as defined in Note 1)
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
|
|
(13) |
Information About Operating Segments |
LMC International is a holding company with a variety of
international subsidiaries and investments that provide
broadband distribution services and video programming services.
The Company identifies its reportable segments as those
consolidated subsidiaries that represent 10% or more of its
combined revenue, earnings before taxes or total assets; and
those equity method affiliates whose share of earnings or loss
represents 10% of more of the Companys pre-tax earnings.
The Company evaluates performance and makes decisions about
allocating resources to its operating segments based on
financial measures such as revenue, operating cash flow and
revenue or sales per customer. In addition, the Company reviews
non-financial measures such as subscriber growth and
penetration, as appropriate.
The Company defines operating cash flow as revenue less
operating expenses and selling, general and administrative
expenses (excluding stock compensation). The Company believes
this is an important indicator of the operational strength and
performance of its businesses, including the ability to service
debt and fund capital expenditures. In addition, this measure
allows management to view operating results and perform
analytical comparisons and benchmarking between businesses and
identify strategies to improve performance. This measure of
performance excludes depreciation and amortization, stock
compensation and restructuring and impairment charges that are
included in the measurement of operating income pursuant to
GAAP. Accordingly, operating cash flow should be considered in
addition to, but not as a substitute for, operating income, net
income, cash flow provided by operating activities and other
measures of financial performance prepared in accordance with
GAAP. The Company generally accounts for intersegment sales and
transfers as if the sales or transfers were to third parties,
that is, at current prices.
For the year ended December 31, 2003, The Company has
identified the following consolidated subsidiaries and equity
method affiliates as its reportable segments:
|
|
|
|
|
Puerto Rico Cable consolidated subsidiary that
provides broadband services in Puerto Rico. |
|
|
|
Pramer consolidated subsidiary that provides
programming throughout Latin America. |
|
|
|
UGC 50% owned equity method affiliate that
provides broadband communications services, including video,
voice and data, with operations in over 15 countries. |
|
|
|
J-COM 45% owned equity method affiliate that
provides broadband communications services in Japan. |
|
|
|
JPC 50% owned equity method affiliate that
provides cable and satellite television programming in Japan. |
|
|
|
Metropolis 50% owned equity method affiliate
that provides broadband services in Chile. |
|
|
|
Torneos 40% owned equity method affiliate that
provides sports and entertainment programming in Latin America. |
The Companys reportable segments are strategic business
units that offer different products and services. They are
managed separately because each segment requires different
technologies, distribution channels and marketing strategies.
The accounting policies of the segments that are also
consolidated subsidiaries are the same as those described in the
summary of significant policies.
The amounts presented below represent 100% of each
business revenue and operating cash flow. These amounts
are combined on an unconsolidated basis and are then adjusted to
remove the effects of the equity method investments to arrive at
the reported amounts. This presentation is designed to reflect
the manner in which management reviews the operating performance
of individual businesses regardless of whether the investment is
A4-66
LMC INTERNATIONAL
(A combination of certain assets and businesses owned by
Liberty Media Corporation, as defined in Note 1)
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
accounted for as a consolidated subsidiary or an equity
investment. It should be noted, however, that this presentation
is not in accordance with GAAP since the results of equity
method investments are required to be reported on a net basis.
Further, we could not, among other things, cause any
noncontrolled affiliate to distribute to us our proportionate
share of the revenue or operating cash flow of such affiliate.
Performance Measures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, | |
|
|
| |
|
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
|
|
|
Operating | |
|
|
|
Operating | |
|
|
|
Operating | |
|
|
Revenue | |
|
Cash Flow | |
|
Revenue | |
|
Cash Flow | |
|
Revenue | |
|
Cash Flow | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Amounts in thousands) | |
Puerto Rico Cable
|
|
$ |
71,765 |
|
|
$ |
22,499 |
|
|
$ |
64,270 |
|
|
$ |
21,692 |
|
|
$ |
55,360 |
|
|
$ |
20,451 |
|
Pramer
|
|
|
35,102 |
|
|
|
4,961 |
|
|
|
35,985 |
|
|
|
3,990 |
|
|
|
82,855 |
|
|
|
22,056 |
|
UGC
|
|
|
1,891,530 |
|
|
|
628,882 |
|
|
|
1,515,021 |
|
|
|
296,374 |
|
|
|
1,561,894 |
|
|
|
(191,243 |
) |
J-COM
|
|
|
1,233,492 |
|
|
|
428,513 |
|
|
|
930,736 |
|
|
|
211,146 |
|
|
|
628,892 |
|
|
|
56,652 |
|
JPC
|
|
|
412,013 |
|
|
|
54,504 |
|
|
|
273,696 |
|
|
|
32,008 |
|
|
|
207,004 |
|
|
|
19,461 |
|
Metropolis
|
|
|
65,266 |
|
|
|
3,586 |
|
|
|
67,717 |
|
|
|
(4,065 |
) |
|
|
75,353 |
|
|
|
(2,723 |
) |
Torneos
|
|
|
27,877 |
|
|
|
4,156 |
|
|
|
26,781 |
|
|
|
11,517 |
|
|
|
77,899 |
|
|
|
4,751 |
|
Corporate and other
|
|
|
1,767 |
|
|
|
(9,469 |
) |
|
|
3,600 |
|
|
|
(8,027 |
) |
|
|
1,320 |
|
|
|
(9,746 |
) |
Eliminate equity affiliates
|
|
|
(3,630,178 |
) |
|
|
(1,119,641 |
) |
|
|
(2,813,951 |
) |
|
|
(546,980 |
) |
|
|
(2,551,042 |
) |
|
|
113,102 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined LMC International
|
|
$ |
108,634 |
|
|
$ |
17,991 |
|
|
$ |
103,855 |
|
|
$ |
17,655 |
|
|
$ |
139,535 |
|
|
$ |
32,761 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet
Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
|
|
|
Investments | |
|
|
|
Investments | |
|
|
Total Assets | |
|
in Affiliates | |
|
Total Assets | |
|
in Affiliates | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Amounts in thousands) | |
Puerto Rico Cable
|
|
$ |
270,828 |
|
|
$ |
|
|
|
$ |
261,807 |
|
|
$ |
|
|
Pramer
|
|
|
134,520 |
|
|
|
|
|
|
|
126,645 |
|
|
|
|
|
UGC
|
|
|
7,099,671 |
|
|
|
95,238 |
|
|
|
5,931,594 |
|
|
|
153,853 |
|
J-COM
|
|
|
3,929,190 |
|
|
|
26,027 |
|
|
|
3,492,431 |
|
|
|
18,610 |
|
JPC
|
|
|
192,132 |
|
|
|
24,201 |
|
|
|
132,495 |
|
|
|
12,038 |
|
Metropolis
|
|
|
359,074 |
|
|
|
1,741 |
|
|
|
311,231 |
|
|
|
1,488 |
|
Torneos
|
|
|
28,510 |
|
|
|
11,251 |
|
|
|
25,789 |
|
|
|
6,714 |
|
Corporate and other
|
|
|
3,145,878 |
|
|
|
1,740,552 |
|
|
|
2,412,444 |
|
|
|
1,145,382 |
|
Eliminate equity affiliates
|
|
|
(11,608,577 |
) |
|
|
(158,458 |
) |
|
|
(9,893,540 |
) |
|
|
(192,703 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined LMC International
|
|
$ |
3,551,226 |
|
|
$ |
1,740,552 |
|
|
$ |
2,800,896 |
|
|
$ |
1,145,382 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A4-67
LMC INTERNATIONAL
(A combination of certain assets and businesses owned by
Liberty Media Corporation, as defined in Note 1)
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
The following table provides a reconciliation of combined
segment operating cash flow to earnings (loss) before income
taxes and minority interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, | |
|
|
| |
|
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
|
(Amounts in thousands) | |
Combined segment operating cash flow
|
|
$ |
17,991 |
|
|
$ |
17,655 |
|
|
$ |
32,761 |
|
Stock compensation
|
|
|
(4,088 |
) |
|
|
5,815 |
|
|
|
(6,275 |
) |
Depreciation and amortization
|
|
|
(15,114 |
) |
|
|
(13,087 |
) |
|
|
(58,022 |
) |
Impairment of long-lived assets
|
|
|
|
|
|
|
(45,928 |
) |
|
|
(91,087 |
) |
Share of earnings (losses) of affiliates
|
|
|
13,739 |
|
|
|
(331,225 |
) |
|
|
(589,525 |
) |
Nontemporary declines in fair value of investments
|
|
|
(6,884 |
) |
|
|
(247,386 |
) |
|
|
(2,002 |
) |
Realized and unrealized gains (losses) on derivative
instruments, net
|
|
|
12,762 |
|
|
|
(16,705 |
) |
|
|
(534,962 |
) |
Gains (losses) on dispositions, net
|
|
|
3,759 |
|
|
|
122,331 |
|
|
|
|
|
Other, net
|
|
|
26,723 |
|
|
|
12,549 |
|
|
|
34,090 |
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before income taxes and minority interest
|
|
$ |
48,888 |
|
|
$ |
(495,981 |
) |
|
$ |
(1,215,022 |
) |
|
|
|
|
|
|
|
|
|
|
A4-68
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors
UnitedGlobalCom, Inc.:
We have audited the accompanying consolidated balance sheets of
UnitedGlobalCom, Inc. (a Delaware corporation) and subsidiaries
as of December 31, 2003 and 2002 and the related
consolidated statements of operations and comprehensive income
(loss), stockholders equity (deficit) and cash flows
for the years then ended. These consolidated financial
statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. The 2001
consolidated financial statements of UnitedGlobalCom, Inc. and
subsidiaries were audited by other auditors who have ceased
operations. Those auditors expressed an unqualified opinion on
those consolidated financial statements, before the revision
described in Note 7 to the 2003 consolidated financial
statements, in their report dated April 12, 2002 (except
with respect to the matter discussed in Note 23 to those
consolidated financial statements, as to which the date was
May 14, 2002). Such report included an explanatory
paragraph indicating substantial doubt about the Companys
ability to continue as a going concern.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the 2003 and 2002 consolidated financial
statements referred to above present fairly, in all material
respects, the financial position of UnitedGlobalCom, Inc. and
subsidiaries as of December 31, 2003 and 2002, and the
results of their operations and their cash flows for the years
then ended, in conformity with accounting principles generally
accepted in the United States of America.
As discussed in Note 2 to the consolidated financial
statements, in 2002, the Company changed its method of
accounting for goodwill and other intangible assets and in 2003,
changed its method of accounting for gains and losses on the
early extinguishments of debt.
As discussed above, the 2001 consolidated financial statements
of UnitedGlobalCom, Inc. and subsidiaries were audited by other
auditors who have ceased operations. As described in
Note 6, these consolidated financial statements have been
revised to include the transitional disclosures required by
Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets, which was adopted by the
Company as of January 1, 2002. In our opinion, the
disclosures for 2001 in Note 6 are appropriate. However, we
were not engaged to audit, review, or apply any procedures to
the 2001 consolidated financial statements of UnitedGlobalCom,
Inc. and subsidiaries other than with respect to such
disclosures, and, accordingly, we do not express an opinion or
any other form of assurance on the 2001 consolidated financial
statements taken as a whole.
Denver, Colorado
March 8, 2004
A4-69
The following is a copy of the Report of Independent Public
Accountants previously issued by Arthur Andersen LLP in
connection with the Companys Annual Report on
Form 10-K for the year ended December 31, 2001, as
amended in connection with Amendment No. 1 to the
Companys Form S-1 Registration Statement filed on
June 6, 2002. The report of Andersen is included in this
Annual Report on Form 10-K pursuant to Rule 2-02(e) of
Regulation S-X. This Audit Report has not been reissued by
Arthur Andersen LLP. The information previously contained in
Note 23 to those consolidated financial statements is
provided in Note 4 to our 2003 consolidated financial
statements. The information previously contained in Note 2
to those consolidated financial statements is not included in
our 2003 consolidated financial statements.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To UnitedGlobalCom, Inc.:
We have audited the accompanying consolidated balance sheets of
UnitedGlobalCom, Inc. (a Delaware corporation f/k/a New
UnitedGlobalCom, Inc. see Note 23) and
subsidiaries as of December 31, 2001 and 2000, and the
related consolidated statements of operations and comprehensive
(loss) income, stockholders (deficit) equity and cash
flows for each of the three years in the period ended
December 31, 2001. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require
that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of UnitedGlobalCom, Inc. and subsidiaries as
of December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in
the period ended December 31, 2001, in conformity with
accounting principles generally accepted in the United States.
As explained in Note 3 to the consolidated financial
statements, the Company changed its method of accounting for
derivative instruments and hedging activities effective
January 1, 2001.
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. As
discussed in Note 2 to the financial statements, the
Company has suffered recurring losses from operations, is
currently in default under certain of its significant bank
credit facilities, senior notes and senior discount note
agreements, which has resulted in a significant net working
capital deficiency that raises substantial doubt about its
ability to continue as a going concern. Managements plans
in regard to these matters are also described in Note 2.
The financial statements do not include any adjustments relating
to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that
might result should the Company be unable to continue as a going
concern.
Denver, Colorado
April 12, 2002 (except with respect
to the matter discussed in Note 23,
as to which the date is May 14, 2002)
A4-70
UNITEDGLOBALCOM, INC.
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
|
(In thousands, except par | |
|
|
value and number | |
|
|
of shares) | |
ASSETS |
Current Assets
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
310,361 |
|
|
$ |
410,185 |
|
|
Restricted cash
|
|
|
25,052 |
|
|
|
48,219 |
|
|
Marketable equity securities and other investments
|
|
|
208,459 |
|
|
|
45,854 |
|
|
Subscriber receivables, net of allowance for doubtful accounts
of $51,109 and $71,485, respectively
|
|
|
140,075 |
|
|
|
136,796 |
|
|
Related party receivables
|
|
|
1,730 |
|
|
|
15,402 |
|
|
Other receivables
|
|
|
63,427 |
|
|
|
50,759 |
|
|
Deferred financing costs, net
|
|
|
2,730 |
|
|
|
62,996 |
|
|
Other current assets, net
|
|
|
76,812 |
|
|
|
95,340 |
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
828,646 |
|
|
|
865,551 |
|
Long-Term Assets
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
3,342,743 |
|
|
|
3,640,211 |
|
|
Goodwill
|
|
|
2,519,831 |
|
|
|
1,250,333 |
|
|
Intangible assets, net
|
|
|
252,236 |
|
|
|
13,776 |
|
|
Other assets, net
|
|
|
156,215 |
|
|
|
161,723 |
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$ |
7,099,671 |
|
|
$ |
5,931,594 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT) |
Current Liabilities
|
|
|
|
|
|
|
|
|
|
Not subject to compromise:
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$ |
224,092 |
|
|
$ |
190,710 |
|
|
|
Accounts payable, related party
|
|
|
1,448 |
|
|
|
1,704 |
|
|
|
Accrued liabilities
|
|
|
405,546 |
|
|
|
328,927 |
|
|
|
Subscriber prepayments and deposits
|
|
|
141,108 |
|
|
|
127,553 |
|
|
|
Short-term debt
|
|
|
|
|
|
|
205,145 |
|
|
|
Notes payable, related party
|
|
|
102,728 |
|
|
|
102,728 |
|
|
|
Current portion of long-term debt
|
|
|
310,804 |
|
|
|
3,366,235 |
|
|
|
Other current liabilities
|
|
|
82,149 |
|
|
|
16,448 |
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities not Subject to Compromise
|
|
|
1,267,875 |
|
|
|
4,339,450 |
|
|
|
|
|
|
|
|
|
Subject to compromise:
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
14,445 |
|
|
|
271,250 |
|
|
|
Short-term debt
|
|
|
5,099 |
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
|
317,372 |
|
|
|
2,812,988 |
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities Subject to Compromise
|
|
|
336,916 |
|
|
|
3,084,238 |
|
|
|
|
|
|
|
|
Long-Term Liabilities
|
|
|
|
|
|
|
|
|
|
Not subject to compromise:
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
3,615,902 |
|
|
|
472,671 |
|
|
|
Net negative investment in deconsolidated subsidiaries
|
|
|
|
|
|
|
644,471 |
|
|
|
Deferred taxes
|
|
|
124,232 |
|
|
|
107,596 |
|
|
|
Other long-term liabilities
|
|
|
259,493 |
|
|
|
165,896 |
|
|
|
|
|
|
|
|
|
|
|
Total Long-Term Liabilities not Subject to Compromise
|
|
|
3,999,627 |
|
|
|
1,390,634 |
|
|
|
|
|
|
|
|
Guarantees, commitments and contingencies (Note 13)
|
|
|
|
|
|
|
|
|
Minority interests in subsidiaries
|
|
|
22,761 |
|
|
|
1,402,146 |
|
|
|
|
|
|
|
|
Stockholders Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value, 10,000,000 shares
authorized, nil shares issued and outstanding
|
|
|
|
|
|
|
|
|
|
Class A common stock, $0.01 par value,
1,000,000,000 shares authorized, 287,350,970 and
110,392,692 shares issued, respectively
|
|
|
2,873 |
|
|
|
1,104 |
|
|
Class B common stock, $0.01 par value,
1,000,000,000 shares authorized, 8,870,332 shares
issued
|
|
|
89 |
|
|
|
89 |
|
|
Class C common stock, $0.01 par value,
400,000,000 shares authorized, 303,123,542 shares
issued and outstanding
|
|
|
3,031 |
|
|
|
3,031 |
|
|
Additional paid-in capital
|
|
|
5,852,896 |
|
|
|
3,683,644 |
|
|
Deferred compensation
|
|
|
|
|
|
|
(28,473 |
) |
|
Treasury stock, at cost
|
|
|
(70,495 |
) |
|
|
(34,162 |
) |
|
Accumulated deficit
|
|
|
(3,372,737 |
) |
|
|
(6,797,762 |
) |
|
Accumulated other comprehensive income (loss)
|
|
|
(943,165 |
) |
|
|
(1,112,345 |
) |
|
|
|
|
|
|
|
|
|
|
Total Stockholders Equity (Deficit)
|
|
|
1,472,492 |
|
|
|
(4,284,874 |
) |
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity (Deficit)
|
|
$ |
7,099,671 |
|
|
$ |
5,931,594 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
A4-71
UNITEDGLOBALCOM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands, except per share data) | |
Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
1,891,530 |
|
|
$ |
1,515,021 |
|
|
$ |
1,561,894 |
|
|
Operating expense
|
|
|
(768,838 |
) |
|
|
(772,398 |
) |
|
|
(1,062,394 |
) |
|
Selling, general and administrative expense
|
|
|
(493,810 |
) |
|
|
(446,249 |
) |
|
|
(690,743 |
) |
|
Depreciation and amortization Operating expense
|
|
|
(808,663 |
) |
|
|
(730,001 |
) |
|
|
(1,147,176 |
) |
|
Impairment of long-lived assets Operating expense
|
|
|
(402,239 |
) |
|
|
(436,153 |
) |
|
|
(1,320,942 |
) |
|
Restructuring charges and other Operating expense
|
|
|
(35,970 |
) |
|
|
(1,274 |
) |
|
|
(204,127 |
) |
|
Stock-based compensation Selling, general and
administrative expense
|
|
|
(38,024 |
) |
|
|
(28,228 |
) |
|
|
(8,818 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(656,014 |
) |
|
|
(899,282 |
) |
|
|
(2,872,306 |
) |
|
Interest income, including related party income of $985, $2,722
and $35,336,
respectively
|
|
|
13,054 |
|
|
|
38,315 |
|
|
|
104,696 |
|
|
Interest expense, including related party expense of $8,218,
$24,805 and $58,834, respectively
|
|
|
(327,132 |
) |
|
|
(680,101 |
) |
|
|
(1,070,830 |
) |
|
Foreign currency exchange gain (loss), net
|
|
|
121,612 |
|
|
|
739,794 |
|
|
|
(148,192 |
) |
|
Gain on extinguishment of debt
|
|
|
2,183,997 |
|
|
|
2,208,782 |
|
|
|
3,447 |
|
|
Gain (loss) on sale of investments in affiliates, net
|
|
|
279,442 |
|
|
|
117,262 |
|
|
|
(416,803 |
) |
|
Provision for loss on investments
|
|
|
|
|
|
|
(27,083 |
) |
|
|
(342,419 |
) |
|
Other (expense) income, net
|
|
|
(14,884 |
) |
|
|
(93,749 |
) |
|
|
76,907 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and other items
|
|
|
1,600,075 |
|
|
|
1,403,938 |
|
|
|
(4,665,500 |
) |
|
Reorganization expense, net
|
|
|
(32,009 |
) |
|
|
(75,243 |
) |
|
|
|
|
|
Income tax (expense) benefit, net
|
|
|
(50,344 |
) |
|
|
(201,182 |
) |
|
|
40,661 |
|
|
Minority interests in subsidiaries, net
|
|
|
183,182 |
|
|
|
(67,103 |
) |
|
|
496,515 |
|
|
Share in results of affiliates, net
|
|
|
294,464 |
|
|
|
(72,142 |
) |
|
|
(386,441 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before cumulative effect of change in accounting
principle
|
|
|
1,995,368 |
|
|
|
988,268 |
|
|
|
(4,514,765 |
) |
|
Cumulative effect of change in accounting principle
|
|
|
|
|
|
|
(1,344,722 |
) |
|
|
20,056 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
1,995,368 |
|
|
$ |
(356,454 |
) |
|
$ |
(4,494,709 |
) |
|
|
|
|
|
|
|
|
|
|
|
Earnings per share (Note 20):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share before cumulative effect of
change in accounting principle
|
|
$ |
7.41 |
|
|
$ |
2.29 |
|
|
$ |
(41.47 |
) |
|
|
Cumulative effect of change in accounting principle
|
|
|
|
|
|
|
(3.13 |
) |
|
|
0.18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share
|
|
$ |
7.41 |
|
|
$ |
(0.84 |
) |
|
$ |
(41.29 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share before cumulative effect of
change in accounting principle
|
|
$ |
7.41 |
|
|
$ |
2.29 |
|
|
$ |
(41.47 |
) |
|
|
Cumulative effect of change in accounting principle
|
|
|
|
|
|
|
(3.12 |
) |
|
|
0.18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share
|
|
$ |
7.41 |
|
|
$ |
(0.83 |
) |
|
$ |
(41.29 |
) |
|
|
|
|
|
|
|
|
|
|
Statements of Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
1,995,368 |
|
|
$ |
(356,454 |
) |
|
$ |
(4,494,709 |
) |
|
Other comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
61,440 |
|
|
|
(864,104 |
) |
|
|
11,157 |
|
|
|
Change in fair value of derivative assets
|
|
|
10,616 |
|
|
|
13,443 |
|
|
|
(24,059 |
) |
|
|
Change in unrealized gain on available-for-sale securities
|
|
|
97,318 |
|
|
|
4,029 |
|
|
|
37,526 |
|
|
|
Other
|
|
|
(194 |
) |
|
|
(77 |
) |
|
|
271 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$ |
2,164,548 |
|
|
$ |
(1,203,163 |
) |
|
$ |
(4,469,814 |
) |
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
A4-72
UNITEDGLOBALCOM, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A | |
|
Class B | |
|
Class C | |
|
|
|
|
|
Class A | |
|
|
Common Stock | |
|
Common Stock | |
|
Common Stock | |
|
Additional | |
|
|
|
Treasury Stock | |
|
|
| |
|
| |
|
| |
|
Paid-In | |
|
Deferred | |
|
| |
|
|
Shares | |
|
Amount | |
|
Shares | |
|
Amount | |
|
Shares | |
|
Amount | |
|
Capital | |
|
Compensation | |
|
Shares | |
|
Amount | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands, except number of shares) | |
December 31, 2002
|
|
|
110,392,692 |
|
|
$ |
1,104 |
|
|
|
8,870,332 |
|
|
$ |
89 |
|
|
|
303,123,542 |
|
|
$ |
3,031 |
|
|
$ |
3,683,644 |
|
|
$ |
(28,473 |
) |
|
|
7,404,240 |
|
|
$ |
(34,162 |
) |
Issuance of Class A common stock for subsidiary preference
shares
|
|
|
2,155,905 |
|
|
|
21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,082 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Class A common stock in connection with stock
option plans
|
|
|
311,454 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,351 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Class A common stock in connection with 401(k)
plan
|
|
|
58,272 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
258 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock by UGC Europe for debt and other
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
966,362 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity transactions of subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(129,904 |
) |
|
|
1,896 |
|
|
|
|
|
|
|
|
|
Amortization of deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,577 |
|
|
|
|
|
|
|
|
|
Receipt of common stock in satisfaction of executive loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
188,792 |
|
|
|
|
|
Issuance of Class A common stock in connection with the UGC
Europe exchange offer
|
|
|
174,432,647 |
|
|
|
1,744 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,325,103 |
|
|
|
|
|
|
|
4,780,611 |
|
|
|
(36,333 |
) |
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of derivative
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on available-for-sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of cumulative effect of change in accounting
principle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2003
|
|
|
287,350,970 |
|
|
$ |
2,873 |
|
|
|
8,870,332 |
|
|
$ |
89 |
|
|
|
303,123,542 |
|
|
$ |
3,031 |
|
|
$ |
5,852,896 |
|
|
$ |
|
|
|
|
12,373,643 |
|
|
$ |
(70,495 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
[Additional columns below]
[Continued from above table, first column(s) repeated]
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class B |
|
|
|
Accumulated | |
|
|
|
|
Treasury Stock |
|
|
|
Other | |
|
|
|
|
|
|
Accumulated | |
|
Comprehensive | |
|
|
|
|
Shares | |
|
Amount |
|
Deficit | |
|
Income (Loss) | |
|
Total | |
|
|
| |
|
|
|
| |
|
| |
|
| |
|
|
(In thousands, except number of shares) | |
December 31, 2002
|
|
|
|
|
|
$ |
|
|
|
$ |
(6,797,762 |
) |
|
$ |
(1,112,345 |
) |
|
$ |
(4,284,874 |
) |
Issuance of Class A common stock for subsidiary preference
shares
|
|
|
|
|
|
|
|
|
|
|
1,423,102 |
|
|
|
|
|
|
|
1,429,205 |
|
Issuance of Class A common stock in connection with stock
option plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,354 |
|
Issuance of Class A common stock in connection with 401(k)
plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
259 |
|
Issuance of common stock by UGC Europe for debt and other
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
966,362 |
|
Equity transactions of subsidiaries
|
|
|
|
|
|
|
|
|
|
|
6,555 |
|
|
|
|
|
|
|
(121,453 |
) |
Amortization of deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,577 |
|
Receipt of common stock in satisfaction of executive loans
|
|
|
672,316 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Class A common stock in connection with the UGC
Europe exchange offer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,290,514 |
|
Net income
|
|
|
|
|
|
|
|
|
|
|
1,995,368 |
|
|
|
|
|
|
|
1,995,368 |
|
Foreign currency translation
adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61,440 |
|
|
|
61,440 |
|
Change in fair value of derivative
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,616 |
|
|
|
10,616 |
|
Unrealized gain (loss) on available-for-sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97,318 |
|
|
|
97,318 |
|
Amortization of cumulative effect of change in accounting
principle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(194 |
) |
|
|
(194 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2003
|
|
|
672,316 |
|
|
$ |
|
|
|
$ |
(3,372,737 |
) |
|
$ |
(943,165 |
) |
|
$ |
1,472,492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other
Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
|
(In thousands) | |
Foreign currency translation adjustments
|
|
$ |
(1,057,074 |
) |
|
$ |
(1,118,514 |
) |
Fair value of derivative assets
|
|
|
|
|
|
|
(10,616 |
) |
Other
|
|
|
113,909 |
|
|
|
16,785 |
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
(943,165 |
) |
|
$ |
(1,112,345 |
) |
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
A4-73
UNITEDGLOBALCOM, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(DEFICIT) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series C | |
|
Series D | |
|
Class A | |
|
Class B | |
|
Class C | |
|
|
|
|
Preferred Stock | |
|
Preferred Stock | |
|
Common Stock | |
|
Common Stock | |
|
Common Stock | |
|
Additional | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
Paid-In | |
|
|
Shares | |
|
Amount | |
|
Shares | |
|
Amount | |
|
Shares | |
|
Amount | |
|
Shares | |
|
Amount | |
|
Shares | |
|
Amount | |
|
Capital | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands, except number of shares) | |
Balances, December 31, 2001
|
|
|
425,000 |
|
|
$ |
425,000 |
|
|
|
287,500 |
|
|
$ |
287,500 |
|
|
|
98,042,205 |
|
|
$ |
981 |
|
|
|
19,027,134 |
|
|
$ |
190 |
|
|
|
|
|
|
$ |
|
|
|
$ |
1,537,944 |
|
Accrual of dividends on Series B, C and D convertible
preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(156 |
) |
Merger/reorganization transaction
|
|
|
(425,000 |
) |
|
|
(425,000 |
) |
|
|
(287,500 |
) |
|
|
(287,500 |
) |
|
|
11,628,674 |
|
|
|
116 |
|
|
|
(10,156,802 |
) |
|
|
(101 |
) |
|
|
21,835,384 |
|
|
|
218 |
|
|
|
770,448 |
|
Issuance of Class C common stock for financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
281,288,158 |
|
|
|
2,813 |
|
|
|
1,396,469 |
|
Issuance of Class A common stock in exchange for remaining
interest in Old UGC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
600,000 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6 |
) |
Issuance of Class A common stock in connection with 401(k)
plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
121,813 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
340 |
|
Equity transactions of subsidiaries and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,395 |
) |
Amortization of deferred
compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of treasury shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of derivative
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gain on available-for-sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of cumulative effect of change in accounting
principle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2002
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
110,392,692 |
|
|
$ |
1,104 |
|
|
|
8,870,332 |
|
|
$ |
89 |
|
|
|
303,123,542 |
|
|
$ |
3,031 |
|
|
$ |
3,683,644 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
[Additional columns below]
[Continued from above table, first column(s) repeated]
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury Stock | |
|
|
|
Other | |
|
|
|
|
Deferred | |
|
| |
|
Accumulated | |
|
Comprehensive | |
|
|
|
|
Compensation | |
|
Shares | |
|
Amount | |
|
Deficit | |
|
Income (Loss) | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands, except number of shares) | |
Balances, December 31, 2001
|
|
$ |
(74,185 |
) |
|
|
5,604,948 |
|
|
$ |
(29,984 |
) |
|
$ |
(6,437,290 |
) |
|
$ |
(265,636 |
) |
|
$ |
(4,555,480 |
) |
Accrual of dividends on Series B, C and D convertible
preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,018 |
) |
|
|
|
|
|
|
(4,174 |
) |
Merger/reorganizatio transaction
|
|
|
|
|
|
|
(35,708 |
) |
|
|
923 |
|
|
|
|
|
|
|
|
|
|
|
59,104 |
|
Issuance of Class C common stock for financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,399,282 |
|
Issuance of Class A common stock in exchange for remaining
interest in Old UGC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Class A common stock in connection with 401(k)
plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
341 |
|
Equity transactions of subsidiaries and other
|
|
|
12,794 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,601 |
) |
Amortization of deferred
compensation
|
|
|
32,918 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,918 |
|
Purchase of treasury shares
|
|
|
|
|
|
|
1,835,000 |
|
|
|
(5,101 |
) |
|
|
|
|
|
|
|
|
|
|
(5,101 |
) |
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(356,454 |
) |
|
|
|
|
|
|
(356,454 |
) |
Foreign currency translation
adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(864,104 |
) |
|
|
(864,104 |
) |
Change in fair value of derivative
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,443 |
|
|
|
13,443 |
|
Change in unrealized gain on available-for-sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,029 |
|
|
|
4,029 |
|
Amortization of cumulative effect of change in accounting
principle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(77 |
) |
|
|
(77 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2002
|
|
$ |
(28,473 |
) |
|
|
7,404,240 |
|
|
$ |
(34,162 |
) |
|
$ |
(6,797,762 |
) |
|
$ |
(1,112,345 |
) |
|
$ |
(4,284,874 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
A4-74
UNITEDGLOBALCOM, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(DEFICIT) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series C | |
|
Series D | |
|
Class A | |
|
Class B | |
|
|
|
|
Preferred Stock | |
|
Preferred Stock | |
|
Common Stock | |
|
Common Stock | |
|
Additional | |
|
|
| |
|
| |
|
| |
|
| |
|
Paid-In | |
|
|
Shares | |
|
Amount | |
|
Shares | |
|
Amount | |
|
Shares | |
|
Amount | |
|
Shares | |
|
Amount | |
|
Capital | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands, except number of shares) | |
Balances, December 31, 2000
|
|
|
425,000 |
|
|
$ |
425,000 |
|
|
|
287,500 |
|
|
$ |
287,500 |
|
|
|
83,820,633 |
|
|
$ |
838 |
|
|
|
19,221,940 |
|
|
$ |
192 |
|
|
$ |
1,531,593 |
|
Exchange of Class B common stock for Class A common
stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
194,806 |
|
|
|
2 |
|
|
|
(194,806 |
) |
|
|
(2 |
) |
|
|
|
|
Issuance of Class A common stock in connection with stock
option plans and
401(k) plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76,504 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
386 |
|
Issuance of Class A common stock for cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,991,018 |
|
|
|
120 |
|
|
|
|
|
|
|
|
|
|
|
19,905 |
|
Accrual of dividends on Series B, C and D convertible
preferred stock
|
|
|
|
|
|
|
14,875 |
|
|
|
|
|
|
|
10,063 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,873 |
) |
Issuance of Class A common stock in lieu of cash dividends
on Series C and D convertible preferred stock
|
|
|
|
|
|
|
(14,875 |
) |
|
|
|
|
|
|
(10,063 |
) |
|
|
1,959,244 |
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
24,918 |
|
Equity transactions of subsidiaries and others
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(29,122 |
) |
Amortization of deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,292 |
) |
Loans to related parties, collateralized with common shares and
options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,571 |
) |
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of derivative assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on available-for-sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of change in accounting principle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of cumulative effect of change in accounting
principle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2001
|
|
|
425,000 |
|
|
$ |
425,000 |
|
|
|
287,500 |
|
|
$ |
287,500 |
|
|
|
98,042,205 |
|
|
$ |
981 |
|
|
|
19,027,134 |
|
|
$ |
190 |
|
|
$ |
1,537,944 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
[Additional columns below]
[Continued from above table, first column(s) repeated]
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury Stock | |
|
|
|
Other | |
|
|
|
|
Deferred | |
|
| |
|
Accumulated | |
|
Comprehensive | |
|
|
|
|
Compensation | |
|
Shares | |
|
Amount | |
|
Deficit | |
|
Income (Loss) | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands, except number of shares) | |
Balances, December 31, 2000
|
|
$ |
(117,136 |
) |
|
|
5,604,948 |
|
|
$ |
(29,984 |
) |
|
$ |
(1,892,706 |
) |
|
$ |
(290,531 |
) |
|
$ |
(85,234 |
) |
Exchange of Class B common stock for Class A common
stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Class A common stock in connection with stock
option plans and
401(k) plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
387 |
|
Issuance of Class A common stock for cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,025 |
|
Accrual of dividends on Series B, C and D convertible
preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(49,875 |
) |
|
|
|
|
|
|
(26,810 |
) |
Issuance of Class A common stock in lieu of cash dividends
on Series C and D convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity transactions of subsidiaries and others
|
|
|
22,159 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,963 |
) |
Amortization of deferred compensation
|
|
|
20,792 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,500 |
|
Loans to related parties, collateralized with common shares and
options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,571 |
) |
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,494,709 |
) |
|
|
|
|
|
|
(4,494,709 |
) |
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,157 |
|
|
|
11,157 |
|
Change in fair value of derivative assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24,059 |
) |
|
|
(24,059 |
) |
Unrealized gain (loss) on available-for-sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,526 |
|
|
|
37,526 |
|
Cumulative effect of change in accounting principle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
523 |
|
|
|
523 |
|
Amortization of cumulative effect of change in accounting
principle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(252 |
) |
|
|
(252 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2001
|
|
$ |
(74,185 |
) |
|
|
5,604,948 |
|
|
$ |
(29,984 |
) |
|
$ |
(6,437,290 |
) |
|
$ |
(265,636 |
) |
|
$ |
(4,555,480 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
A4-75
UNITEDGLOBALCOM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Cash Flows from Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
1,995,368 |
|
|
$ |
(356,454 |
) |
|
$ |
(4,494,709 |
) |
Adjustments to reconcile net income (loss) to net cash flows
from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
38,024 |
|
|
|
28,228 |
|
|
|
8,818 |
|
|
Depreciation and amortization
|
|
|
808,663 |
|
|
|
730,001 |
|
|
|
1,147,176 |
|
|
Impairment of long-lived assets
|
|
|
402,239 |
|
|
|
437,427 |
|
|
|
1,525,069 |
|
|
Accretion of interest on senior notes and amortization of
deferred financing costs
|
|
|
50,733 |
|
|
|
234,247 |
|
|
|
492,387 |
|
|
Unrealized foreign exchange (gains) losses, net
|
|
|
(84,258 |
) |
|
|
(745,169 |
) |
|
|
125,722 |
|
|
Loss on derivative securities
|
|
|
12,508 |
|
|
|
115,458 |
|
|
|
|
|
|
Gain on extinguishment of debt
|
|
|
(2,183,997 |
) |
|
|
(2,208,782 |
) |
|
|
3,447 |
|
|
(Gain) loss on sale of investments in affiliates and other
assets, net
|
|
|
(279,442 |
) |
|
|
(117,262 |
) |
|
|
416,803 |
|
|
Provision for loss on investments
|
|
|
|
|
|
|
27,083 |
|
|
|
342,419 |
|
|
Reorganization expenses, net
|
|
|
32,009 |
|
|
|
75,243 |
|
|
|
|
|
|
Deferred tax provision
|
|
|
(18,161 |
) |
|
|
104,068 |
|
|
|
(43,167 |
) |
|
Minority interests in subsidiaries, net
|
|
|
(183,182 |
) |
|
|
67,103 |
|
|
|
(496,515 |
) |
|
Share in results of affiliates, net
|
|
|
(294,464 |
) |
|
|
72,142 |
|
|
|
386,441 |
|
|
Cumulative effect of change in accounting principle
|
|
|
|
|
|
|
1,344,722 |
|
|
|
(20,056 |
) |
Change in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in receivables, net
|
|
|
49,238 |
|
|
|
42,175 |
|
|
|
68,137 |
|
|
Change in other assets
|
|
|
(8,368 |
) |
|
|
4,628 |
|
|
|
2,489 |
|
|
Change in accounts payable, accrued liabilities and other
|
|
|
55,182 |
|
|
|
(148,466 |
) |
|
|
(135,604 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from operating activities
|
|
|
392,092 |
|
|
|
(293,608 |
) |
|
|
(671,143 |
) |
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of short-term liquid investments
|
|
|
(1,000 |
) |
|
|
(117,221 |
) |
|
|
(1,691,751 |
) |
Proceeds from sale of short-term liquid investments
|
|
|
45,561 |
|
|
|
152,405 |
|
|
|
1,907,171 |
|
Restricted cash released (deposited), net
|
|
|
24,825 |
|
|
|
40,357 |
|
|
|
(74,996 |
) |
Investments in affiliates and other investments
|
|
|
(20,931 |
) |
|
|
(2,590 |
) |
|
|
(60,654 |
) |
Proceeds from sale of investments in affiliated companies
|
|
|
45,447 |
|
|
|
|
|
|
|
120,416 |
|
New acquisitions, net of cash acquired
|
|
|
(2,150 |
) |
|
|
(22,617 |
) |
|
|
(39,950 |
) |
Capital expenditures
|
|
|
(333,124 |
) |
|
|
(335,192 |
) |
|
|
(996,411 |
) |
Purchase of interest rate caps
|
|
|
(9,750 |
) |
|
|
|
|
|
|
|
|
Settlement of interest rate caps
|
|
|
(58,038 |
) |
|
|
|
|
|
|
|
|
Other
|
|
|
7,806 |
|
|
|
27,595 |
|
|
|
(45,192 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from investing activities
|
|
|
(301,354 |
) |
|
|
(257,263 |
) |
|
|
(881,367 |
) |
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock
|
|
|
1,354 |
|
|
|
200,006 |
|
|
|
24,054 |
|
Proceeds from notes payable to shareholder
|
|
|
|
|
|
|
102,728 |
|
|
|
|
|
Proceeds from short-term and long-term borrowings
|
|
|
23,161 |
|
|
|
42,742 |
|
|
|
1,673,981 |
|
Retirement of existing senior notes
|
|
|
|
|
|
|
(231,630 |
) |
|
|
(261,309 |
) |
Financing costs
|
|
|
(2,233 |
) |
|
|
(18,293 |
) |
|
|
(17,771 |
) |
Repayments of short-term and long-term borrowings
|
|
|
(233,506 |
) |
|
|
(90,331 |
) |
|
|
(766,950 |
) |
Other
|
|
|
|
|
|
|
|
|
|
|
(6,571 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from financing activities
|
|
|
(211,224 |
) |
|
|
5,222 |
|
|
|
645,434 |
|
|
|
|
|
|
|
|
|
|
|
Effects of Exchange Rates on Cash
|
|
|
20,662 |
|
|
|
35,694 |
|
|
|
(49,612 |
) |
|
|
|
|
|
|
|
|
|
|
Decrease in Cash and Cash Equivalents
|
|
|
(99,824 |
) |
|
|
(509,955 |
) |
|
|
(956,688 |
) |
Cash and Cash Equivalents, Beginning of Year
|
|
|
410,185 |
|
|
|
920,140 |
|
|
|
1,876,828 |
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents, End of Year
|
|
$ |
310,361 |
|
|
$ |
410,185 |
|
|
$ |
920,140 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Disclosure
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for reorganization expenses
|
|
$ |
27,084 |
|
|
$ |
33,488 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$ |
185,591 |
|
|
$ |
304,274 |
|
|
$ |
519,221 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$ |
1,947 |
|
|
$ |
14,260 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
Non-Cash Investing and Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of subsidiary common stock for financial assets
|
|
$ |
966,362 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for acquisitions
|
|
$ |
1,326,847 |
|
|
$ |
1,206,441 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
A4-76
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
1. |
Organization and Nature of Operations |
UnitedGlobalCom, Inc. (together with its subsidiaries the
Company, UGC, we,
us, our or similar terms) was formed in
February 2001 as part of a series of planned transactions with
Old UGC, Inc. (Old UGC, formerly known as UGC
Holdings, Inc., now our wholly owned subsidiary) and Liberty
Media Corporation (together with its subsidiaries and affiliates
Liberty), which restructured and recapitalized our
business. We are an international broadband communications
provider of video, voice and Internet services with operations
in 15 countries outside the United States. UGC Europe, Inc.
(together with its subsidiaries UGC Europe), our
largest consolidated operation, is a pan-European broadband
communications company. Through its broadband networks, UGC
Europe provides video, high-speed Internet access, telephone and
programming services. UGC Europes operations are currently
organized into two principal divisions UPC Broadband
and chellomedia. UPC Broadband delivers video, high-speed
Internet access and telephone services to residential customers.
chellomedia provides broadband Internet and interactive digital
products and services, produces and markets thematic channels,
operates our digital media center and operates a competitive
local exchange carrier business providing telephone and data
network solutions to the business market under the brand name
Priority Telecom. Our primary Latin American operation, VTR
GlobalCom S.A. (VTR), provides multi-channel
television, high-speed Internet access and residential telephone
services in Chile. We also have an approximate 19% interest in
SBS Broadcasting S.A. (SBS), a European commercial
television and radio broadcasting company, and an approximate
34% interest in Austar United Communications Ltd. (Austar
United), a pay-TV provider in Australia.
|
|
2. |
Summary of Significant Accounting Policies |
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
(GAAP) requires us to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Estimates are used in
accounting for, among other things, allowances for uncollectible
accounts, deferred tax valuation allowances, loss contingencies,
fair values of financial instruments, asset impairments, useful
lives of property, plant and equipment, restructuring accruals
and other special items. Actual results could differ from those
estimates.
Principles of
Consolidation
The accompanying consolidated financial statements include our
accounts and all voting interest entities where we exercise a
controlling financial interest through the ownership of a direct
or indirect majority voting interest and variable interest
entities for which we are the primary beneficiary. All
significant intercompany accounts and transactions have been
eliminated in consolidation.
Cash and Cash Equivalents,
Restricted Cash, Marketable Equity Securities and Other
Investments
Cash and cash equivalents include cash and highly liquid
investments with original maturities of less than three months.
Restricted cash includes cash held as collateral for letters of
credit and other loans, and is classified based on the expected
expiration of such facilities. Cash held in escrow and
restricted to a specific use is classified based on the expected
timing of such disbursement. Marketable equity securities and
other investments include marketable equity securities,
certificates of deposit, commercial paper, corporate bonds and
government securities that have original maturities greater than
three months but less than twelve months.
Marketable equity securities and other investments are
classified as available-for-sale and reported at fair value.
Unrealized gains and losses on these marketable equity
securities and other investments are reported as a separate
component of stockholders equity. Declines in the fair
value of marketable equity securities and other
A4-77
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
investments that are other than temporary are recognized in the
statement of operations, thus establishing a new cost basis for
such investment. These marketable equity securities and other
investments are evaluated on a quarterly basis to determine
whether declines in the fair value of these securities are other
than temporary. This quarterly evaluation consists of reviewing,
among other things, the historical volatility of the price of
each security and any market and company specific factors
related to each security. Declines in the fair value of
investments below cost basis for a period of less than six
months are considered to be temporary. Declines in the fair
value of investments for a period of six to nine months are
evaluated on a case-by-case basis to determine whether any
company or market-specific factors exist that would indicate
that such declines are other than temporary. Declines in the
fair value of investments below cost basis for greater than nine
months are considered other than temporary and are recorded as
charges to the statement of operations, absent specific factors
to the contrary.
We estimate fair value amounts using available market
information and appropriate methodologies. However, considerable
judgment is required in interpreting market data to develop the
estimates of fair value. The estimates presented in these
consolidated financial statements are not necessarily indicative
of the amounts we could realize in a current market exchange.
The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair
value amounts.
Allowance for Doubtful
Accounts
The allowance for doubtful accounts is based upon our assessment
of probable loss related to uncollectible accounts receivable.
Generally, upon disconnection of a subscriber, the account is
fully reserved. The allowance is maintained until either receipt
of payment or collection of the account is no longer pursued. We
use a number of factors in determining the allowance, including,
among other things, collection trends, prevailing and
anticipated economic conditions and specific customer credit
risk.
Property, Plant and
Equipment
Property, plant and equipment are recorded at cost. Additions,
replacements and improvements that extend asset lives are
capitalized and costs for normal repair and maintenance are
charged to expense as incurred. Costs associated with the
construction of cable networks, transmission and distribution
facilities are capitalized (including capital leases).
Depreciation is calculated using the straight-line method over
the economic useful life of the asset. Costs associated with new
cable, telephone and Internet access subscriber installations
are capitalized and depreciated over the average expected
subscriber life. Subscriber installation costs include direct
labor, materials (such as cabling, wiring, wall plates and
fittings) and related overhead (such as indirect labor,
logistics and inventory handling).
The economic lives of property, plant and equipment at
acquisition are as follows:
|
|
|
Customer premise equipment
|
|
4-10 years |
Commercial
|
|
3-20 years |
Scaleable infrastructure
|
|
3-20 years |
Line extensions
|
|
5-20 years |
Upgrade/rebuild
|
|
3-20 years |
Support capital
|
|
1-33 years |
Long-lived assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount may
not be recoverable. For assets we intend to use, if the total of
the expected future undiscounted cash flows is less than the
carrying amount of the asset, we recognize a loss for the
difference between the fair value and carrying value of the
asset. For assets we intend to dispose of, we recognize a loss
for the amount that the estimated fair value, less costs to
sell, is less than the carrying value of the assets.
A4-78
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
Goodwill and Other
Intangible Assets
Goodwill is the excess of the acquisition cost of an acquired
entity over the fair value of the identifiable net assets
acquired. Other intangible assets consist principally of
customer relationships, trademarks and computer software. Other
intangible assets with finite lives are amortized on a
straight-line basis over their estimated useful lives. We
adopted Statement of Financial Accounting Standards
(SFAS) No. 142, Goodwill and Other
Intangible Assets (SFAS 142), effective
January 1, 2002. Under SFAS 142, goodwill and
intangible assets with indefinite lives are no longer amortized,
but are tested for impairment on an annual basis and whenever
indicators of impairment arise. The goodwill impairment test,
which is based on fair value, is performed on a reporting unit
level on an annual basis. Goodwill and other indefinite-lived
intangible assets are tested for impairment between annual tests
if an event occurs or circumstances change that would more
likely than not reduce the fair value of an entity below its
carrying value. These events or circumstances may include a
significant change in the business climate, legal factors,
operating performance indicators, competition, sale or
disposition of a significant portion of the business or other
factors.
Investments in Affiliates,
Accounted for under the Equity Method
For those investments in unconsolidated subsidiaries and
companies in which our voting interest is 20% to 50%, our
investments are held through a combination of voting common
stock, preferred stock, debentures or convertible debt and we
exert significant influence through Board representation and
management authority, the equity method of accounting is used.
The cost method of accounting is used for our investments in
affiliates in which our ownership interest is less than 20% and
where we do not exert significant influence. Under the equity
method, the investment, originally recorded at cost, is adjusted
to recognize our proportionate share of net earnings or losses
of the affiliate, limited to the extent of our investment in and
advances to the affiliate, including any debt guarantees or
other contractual funding commitments. We evaluate our
investments in publicly traded securities accounted for under
the equity method periodically for impairment. A current fair
value of an investment that is less than its carrying amount may
indicate a loss in value of the investment. A decline in value
of an investment which is other than temporary is recognized as
a realized loss, establishing a new carrying amount for the
investment. Factors considered in making this evaluation include
the length of time and the extent to which the fair value has
been less than cost, the financial condition and near-term
prospects of the issuer, including cash flows of the investee
and any specific events which may influence the operations of
the issuer, and our intent and ability to retain our investments
for a period of time sufficient to allow for any anticipated
recovery in market value.
Derivative Financial
Instruments
We use derivative financial instruments from time to time to
manage exposure to movements in foreign currency exchange rates
and interest rates. We account for derivative financial
instruments in accordance with SFAS No. 133
Accounting for Derivative Instruments and Hedging
Activities, as amended, (SFAS 133), which
establishes accounting and reporting standards requiring that
every derivative instrument (including certain derivative
instruments embedded in other contracts) be recorded in the
balance sheets as either an asset or liability measured at its
fair value. These rules require that changes in the derivative
instruments fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative
instruments gains and losses to offset related results on
the hedged item in the statement of operations, to the extent
effective, and requires that a company must formally document,
designate, and assess the effectiveness of transactions that
receive hedge accounting. For derivative financial instruments
designated and that qualify as cash flow hedges, changes in the
fair value of the effective portion of the derivative financial
instruments are recorded as a component of other comprehensive
income or loss in stockholders equity until the hedged
item is recognized in earnings. The ineffective portion of the
change in fair value of the derivative financial instruments is
immediately recognized in earnings. The change in fair value of
the hedged item is recorded as an adjustment to its carrying
value on the balance sheet. For derivative financial instruments
that are
A4-79
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
not designated or that do not qualify as accounting hedges, the
changes in the fair value of the derivative financial
instruments are recognized in earnings.
Subscriber Prepayments and
Deposits
Payments received in advance for distribution services are
deferred and recognized as revenue when the associated services
are provided. Deposits are recorded as a liability upon receipt
and refunded to the subscriber upon disconnection.
Cable Network Revenue and
Related Costs
We recognize revenue from the provision of video, telephone and
Internet access services over our cable network to customers in
the period the related services are provided. Installation
revenue (including reconnect fees) related to these services
over our cable network is recognized as revenue in the period in
which the installation occurs, to the extent these fees are
equal to or less than direct selling costs, which are expensed.
To the extent installation revenue exceeds direct selling costs,
the excess fees are deferred and amortized over the average
expected subscriber life. Costs related to reconnections and
disconnections are recognized in the statement of operations as
incurred.
Other Revenue and Related
Costs
We recognize revenue from the provision of direct-to-home
satellite services, or DTH, telephone and data
services to business customers outside of our cable network in
the period the related services are provided. Installation
revenue (including reconnect fees) related to these services
outside of our cable network is deferred and amortized over the
average expected subscriber life. Costs related to reconnections
and disconnections are recognized in the statement of operations
as incurred.
Concentration of Credit
Risk
Financial instruments which potentially subject us to
concentrations of credit risk consist principally of subscriber
receivables. Concentration of credit risk with respect to
subscriber receivables is limited due to the large number of
customers and their dispersion across many different countries
worldwide. We also manage this risk by disconnecting services to
customers who are delinquent.
Stock-Based
Compensation
We account for our stock-based compensation plans and the
stock-based compensation plans of our subsidiaries using the
intrinsic value method prescribed by Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees
(APB 25). We have provided pro forma
disclosures of net income (loss) under the fair value method of
accounting for these plans, as prescribed by
SFAS No. 123, Accounting for
A4-80
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
Stock-Based Compensation (SFAS 123), as
amended by SFAS No. 148, Accounting for Stock-Based
Compensation Transition and Disclosure and Amendment
of SFAS No. 123 (SFAS 148), as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands, except per share amounts) | |
Net income (loss), as reported
|
|
$ |
1,995,368 |
|
|
$ |
(356,454 |
) |
|
$ |
(4,494,709 |
) |
|
Add: Stock-based employee compensation expense included in
reported net income, net of related tax effects(1)
|
|
|
29,242 |
|
|
|
28,228 |
|
|
|
8,818 |
|
|
Deduct: Total stock-based employee compensation expense
determined under the fair value based method for all awards, net
of related tax effects
|
|
|
(57,101 |
) |
|
|
(102,837 |
) |
|
|
(98,638 |
) |
|
|
|
|
|
|
|
|
|
|
Pro forma net income (loss)
|
|
$ |
1,967,509 |
|
|
$ |
(431,063 |
) |
|
$ |
(4,584,529 |
) |
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$ |
7.41 |
|
|
$ |
(0.84 |
) |
|
$ |
(41.29 |
) |
|
|
|
|
|
|
|
|
|
|
|
Pro forma
|
|
$ |
7.35 |
|
|
$ |
(1.01 |
) |
|
$ |
(42.10 |
) |
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$ |
7.41 |
|
|
$ |
(0.83 |
) |
|
$ |
(41.29 |
) |
|
|
|
|
|
|
|
|
|
|
|
Pro forma
|
|
$ |
7.35 |
|
|
$ |
(1.01 |
) |
|
$ |
(42.10 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Not including SARs. Compensation expense for SARs is the same
under APB 25 and SFAS 123. |
Stock-based compensation is recorded as a result of applying
variable-plan accounting to stock appreciation rights
(SARs) granted to employees and vesting of certain
of our fixed stock-based compensation plans. Under variable-plan
accounting, compensation expense (credit) is recognized at each
financial statement date for vested SARs based on the difference
between the grant price and the estimated fair value of our
Class A common stock, until the SARs are exercised or
expire, or until the fair value is less than the original grant
price. Under fixed-plan accounting, deferred compensation is
recorded for the excess of fair value over the exercise price of
such options at the date of grant. This deferred compensation is
then recognized in the statement of operations ratably over the
vesting period of the options.
Income Taxes
Income taxes are accounted for under the asset and liability
method. We recognize deferred tax assets and liabilities for the
future tax consequences attributable to differences between the
financial statement carrying amounts and income tax basis of
assets and liabilities and the expected benefits of utilizing
net operating loss and tax credit carryforwards, using enacted
tax rates in effect for the year in which those temporary
differences are expected to be recovered or settled. Net
deferred tax assets are then reduced by a valuation allowance if
we believe it more likely than not such net deferred tax assets
will not be realized. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date. Deferred tax
liabilities related to investments in foreign subsidiaries and
foreign corporate joint ventures that are essentially permanent
in duration are not recognized until it becomes apparent that
such amounts will reverse in the foreseeable future.
Basic and Diluted Net Income
(Loss) Per Share
Basic net income (loss) per share is determined by dividing net
income (loss) attributable to common stockholders by the
weighted-average number of common shares outstanding during each
period. Net income
A4-81
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
(loss) attributable to common stockholders includes the accrual
of dividends on convertible preferred stock which is charged
directly to additional paid-in capital and/or accumulated
deficit. Diluted net income (loss) per share includes the
effects of potentially issuable common stock, but only if
dilutive.
Foreign Operations and
Foreign Currency Exchange Rate Risk
Our consolidated financial statements are prepared in
U.S. dollars. Almost all of our operations are conducted in
a currency other than the U.S. dollar. Assets and
liabilities of foreign subsidiaries for which the functional
currency is the local currency are translated at period-end
exchange rates and the statements of operations are translated
at actual exchange rates when known, or at the average exchange
rate for the period. Exchange rate fluctuations on translating
foreign currency financial statements into U.S. dollars
that result in unrealized gains or losses are referred to as
translation adjustments. Cumulative translation adjustments are
recorded in other comprehensive income (loss) as a separate
component of stockholders equity (deficit). Transactions
denominated in currencies other than the functional currency are
recorded based on exchange rates at the time such transactions
arise. Subsequent changes in exchange rates result in
transaction gains and losses, which are reflected in income as
unrealized (based on period-end translations) or realized upon
settlement of the transactions. Cash flows from our operations
in foreign countries are translated at actual exchange rates
when known, or at the average rate for the period. As a result,
amounts related to assets and liabilities reported in the
consolidated statements of cash flows will not agree to changes
in the corresponding balances in the consolidated balance
sheets. The effects of exchange rate changes on cash balances
held in foreign currencies are reported as a separate line below
cash flows from financing activities. Certain items such as
investments in debt and equity securities of foreign
subsidiaries, equipment purchases, programming costs, notes
payable and notes receivable (including intercompany amounts)
and certain other charges are denominated in a currency other
than the respective companys functional currency, which
results in foreign exchange gains and losses recorded in the
consolidated statement of operations. Accordingly, we may
experience economic loss and a negative impact on earnings and
equity with respect to our holdings solely as a result of
foreign currency exchange rate fluctuations.
Reclassifications
Certain prior year amounts have been reclassified to conform to
the current year presentation. We adopted SFAS 145,
Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical
Corrections. Among other things, SFAS 145 required us
to reclassify gains and losses associated with the
extinguishment of debt (including the related tax effects) from
extraordinary classification to other income in the accompanying
consolidated statements of operations.
3. Acquisitions, Dispositions
and Other
|
|
|
Acquisition of UPC Preference Shares |
On February 12, 2003, we issued 368,287 shares of our
Class A common stock in a private transaction pursuant to a
securities purchase agreement dated February 6, 2003, among
us and Alliance Balanced Shares, Alliance Growth Fund, Alliance
Global Strategic Income Trust and EQ Alliance Common Stock
Portfolio. In consideration for issuing the 368,287 shares
of our Class A common stock, we acquired 1,833 preference
shares A of UPC, nominal value
1.00 per
share, and warrants to purchase 890,030 ordinary
shares A of UPC, nominal value
1.00 per
share, at an exercise price of
42.546 per
ordinary share. On February 13, 2003, we issued
482,217 shares of our Class A common stock in a
private transaction pursuant to a securities purchase agreement
dated February 11, 2003, among us and Capital Research and
Management Company, on behalf of The Income Fund of America,
Inc., Capital World Growth and Income Fund, Inc. and Fundamental
Investors, Inc. In consideration for the 482,217 shares of
our Class A common stock, we acquired 2,400 preference
shares A of UPC, nominal value
1.00 per
share, and warrants to purchase 1,165,352 ordinary
shares A of UPC, nominal
A4-82
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
value
1.00 per
share, at an exercise price of
42.546 per
ordinary share. A gain of $610.9 million was recognized
from the purchase of these preference shares for the difference
between fair value of the consideration given and book value
(including accrued dividends) of these preference shares at the
transaction date. This gain is reflected in the consolidated
statement of stockholders equity (deficit).
On April 4, 2003, we issued 879,041 shares of our
Class A common stock in a private transaction pursuant to a
transaction agreement dated March 31, 2003, among us, a
subsidiary of ours, Motorola Inc. and Motorola UPC Holdings,
Inc. In consideration for the 879,041 shares of our
Class A common stock, we acquired 3,500 preference
shares A of UPC, nominal value
1.00 per
share and warrants to purchase 1,669,457 ordinary
shares A of UPC, nominal value
1.00 per
share, at an exercise price of
42.546 per
ordinary share. On April 14, 2003, we issued
426,360 shares of our Class A common stock in a
private transaction pursuant to a securities purchase agreement
dated April 8, 2003, between us and Liberty International
B-L LLC. In consideration for the 426,360 shares of our
Class A common stock, we acquired 2,122 preference
shares A of UPC, nominal value
.00 per
share and warrants to purchase 971,118 ordinary
shares A of UPC, nominal value
1.00 per
share, at an exercise price of
42.546 per
ordinary share. A gain of $812.2 million was recognized
during the second quarter of 2003 from the purchase of these
preference shares for the difference between fair value of the
consideration given and book value (including accrued dividends)
of the preference shares at the transaction date. This gain is
reflected in the consolidated statement of stockholders
equity (deficit).
|
|
|
United Pan-Europe Communications N.V. Reorganization |
In September 2003, as a result of the consummation of UPCs
plan of reorganization under Chapter 11 of the
U.S. Bankruptcy Code and insolvency proceedings under Dutch
law, UGC Europe acquired all of the stock of, and became the
successor issuer to, UPC. Prior to UPCs reorganization, we
were the majority stockholder and largest single creditor of
UPC. We became the holder of approximately 66.6% of UGC
Europes common stock in exchange for the equity and debt
of UPC that we owned prior to UPCs reorganization.
UPCs other bondholders and third-party holders of
UPCs ordinary shares and preference shares exchanged their
securities for the remaining 33.4% of UGC Europes common
stock.
We accounted for this restructuring as a reorganization of
entities under common control at historical cost, similar to a
pooling of interests. Under reorganization accounting, we have
consolidated the financial position and results of operations of
UGC Europe as if the reorganization had been consummated at
inception. We previously recognized a gain on the effective
retirement of UPCs senior notes, senior discount notes and
UPCs exchangeable loan held by us when those securities
were acquired directly and indirectly by us in connection with
our merger transaction with Liberty in January 2002. The
issuance of common stock by UGC Europe to third-party holders of
the remaining UPC senior notes and senior discount notes was
recorded at fair value. This fair value was significantly less
than the accreted value of such debt securities as reflected in
our historical consolidated financial statements. Accordingly,
for consolidated financial reporting purposes, we recognized a
gain of $2.1 billion from the extinguishment of such debt
outstanding at that time equal to the excess of the then
accreted value of such debt ($3.076 billion) over the fair
value of UGC Europe common stock issued ($966.4 million).
|
|
|
UGC Europe Exchange Offer and Merger |
On December 18, 2003, we completed an exchange offer
pursuant to which we offered to exchange 10.3 shares
of our Class A common stock for each outstanding share of
UGC Europe common stock not owned by us. On December 19,
2003, we effected a short-form merger between UGC Europe and one
of our subsidiaries on the same terms offered in the exchange
offer. We issued 172,248,306 shares of our Class A
common stock to third parties in connection with the exchange
offer and merger (including 2,596,270 shares subject to
appraisal rights that were withdrawn subsequent to
December 31, 2003), as well as 4,780,611 shares to
A4-83
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
Old UGC to acquire its UGC Europe common stock. We now own all
of the outstanding equity securities of UGC Europe.
We valued the exchange offer and merger for accounting purposes
at $1.315 billion, based on the issuance of our
Class A common stock at the average closing price of such
stock for the five days surrounding November 12, 2003, the
date we announced the revised and final terms of the exchange
offer, and our estimated transaction costs, consisting primarily
of dealer-manager, legal and accounting fees, printing costs,
other external costs and other purchase consideration directly
related to the exchange offer and merger. This total value
includes $19.7 million related to the value of shares
subject to appraisal rights that were withdrawn in January 2004.
This amount is included in other current liabilities in the
accompanying consolidated balance sheet.
We accounted for the exchange offer and merger using the
purchase method of accounting, in accordance with
SFAS No. 141, Business Combinations
(SFAS 141). Under the purchase method of
accounting, the total estimated purchase price was allocated to
the minority shareholders proportionate interest in UGC
Europes identifiable tangible and intangible assets and
liabilities acquired by us based upon their estimated fair
values upon completion of the transaction. Purchase price in
excess of the book value of these identifiable tangible and
intangible assets and liabilities acquired was allocated as
follows (in thousands):
|
|
|
|
|
|
Property, plant and equipment
|
|
$ |
717 |
|
Goodwill
|
|
|
1,005,148 |
|
Customer relationships and tradename
|
|
|
243,212 |
|
Other assets
|
|
|
10,556 |
|
Other liabilities
|
|
|
55,271 |
|
|
|
|
|
|
Total consideration
|
|
$ |
1,314,904 |
|
|
|
|
|
The excess purchase price over the net identifiable tangible and
intangible assets and liabilities acquired was recorded as
goodwill, which is not deductible for tax purposes. This
goodwill was attributable to the following:
|
|
|
|
|
Our ability to create a simpler, unified capital structure in
which equity investors would participate in our equity at a
single level, which would lead to greater liquidity for
investors, due to the larger combined public float; |
|
|
|
Our ability to facilitate the investment and transfer of funds
between us and UGC Europe and its subsidiaries, thereby creating
more efficient uses of our consolidated financial
resources; and |
|
|
|
Our assessment that the elimination of public stockholders at
the UGC Europe level would create opportunities for cost
reductions and organizational efficiencies through, among other
things, the combination of UGC Europes and our separate
corporate functions into a better integrated, unitary corporate
organization. |
A4-84
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
The following unaudited pro forma condensed consolidated
operating results give effect to this transaction as if it had
been completed as of January 1, 2003 (for 2003 results) and
as of January 1, 2002 (for 2002 results). This unaudited
pro forma condensed consolidated financial information does not
purport to represent what our results of operations would
actually have been if this transaction had in fact occurred on
such dates. The pro forma adjustments are based upon currently
available information and upon certain assumptions that we
believe are reasonable:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
|
(In thousands, except share | |
|
|
and per share amounts) | |
Revenue
|
|
$ |
1,891,530 |
|
|
$ |
1,515,021 |
|
|
|
|
|
|
|
|
Income before cumulative effect of change in accounting principle
|
|
$ |
1,805,225 |
|
|
$ |
1,014,908 |
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
1,805,225 |
|
|
$ |
(329,814 |
) |
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share before cumulative effect of
change in accounting principle
|
|
$ |
4.99 |
|
|
$ |
1.63 |
|
|
Cumulative effect of change in accounting principle
|
|
|
|
|
|
|
(2.17 |
) |
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share
|
|
$ |
4.99 |
|
|
$ |
(0.54 |
) |
|
|
|
|
|
|
|
Diluted net income (loss) per share before cumulative effect of
change in accounting principle
|
|
$ |
4.98 |
|
|
$ |
1.63 |
|
Cumulative effect of change in accounting principle
|
|
|
|
|
|
|
(2.17 |
) |
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share
|
|
$ |
4.98 |
|
|
$ |
(0.54 |
) |
|
|
|
|
|
|
|
On January 30, 2002, we completed a transaction with
Liberty and Old UGC, pursuant to which the following occurred.
Immediately prior to the merger transaction on January 30,
2002:
|
|
|
|
|
Liberty contributed approximately 9.9 million shares of Old
UGC Class B common stock and approximately
12.0 million shares of Old UGC Class A common stock to
us and in exchange for these contributions, we issued Liberty
approximately 21.8 million shares of our Class C
common stock; |
|
|
|
Certain long-term stockholders of Old UGC (the
Founders) transferred their shares of Old UGC
Class B common stock to limited liability companies, which
limited liability companies then merged into us. As a result of
such mergers, the Founders received approximately
8.9 million shares of our Class B common stock, which
number of shares equals the number of shares of Old UGC
Class B common stock transferred by them to the limited
liability companies; and |
|
|
|
Four of the Founders (the Principal Founders)
contributed $3.0 million to Old UGC in exchange for
securities that, at the effective time of the merger, converted
into securities representing a 0.5% interest in Old UGC and
entitled them to elect one-half of Old UGCs directors. |
A4-85
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
As a result of the merger transaction:
|
|
|
|
|
Old UGC became our 99.5%-owned subsidiary, and the Principal
Founders held the remaining 0.5% interest in Old UGC; |
|
|
|
Each share of Old UGCs Class A and Class B
common stock outstanding immediately prior to the merger was
converted into one share of our Class A common stock; |
|
|
|
The shares of Old UGCs Series B, C and D preferred
stock outstanding immediately prior to the merger were converted
into an aggregate of approximately 23.3 million shares of
our Class A common stock, which amount is equal to the
number of shares of Old UGC Class A common stock the
holders of Old UGCs preferred stock would have received
had they converted their preferred stock immediately prior to
the merger; |
|
|
|
Liberty had the right to elect four of our 12 directors; |
|
|
|
The Founders had the effective voting power to elect eight of
our 12 directors; and |
|
|
|
We had the right to elect half of Old UGCs directors and
the Principal Founders had the right to elect the other half of
Old UGCs directors (see discussion below regarding a
transaction that occurred on May 14, 2002, pursuant to
which Old UGC became our wholly-owned subsidiary and we became
entitled to elect the entire board of directors of Old UGC). |
Immediately following the merger transaction:
|
|
|
|
|
Liberty contributed to us the UPC Exchangeable Loan which had an
accreted value of $891.7 million as of January 30,
2002 and, as a result, UPC owed the amount payable under such
loan to us rather than to Liberty; |
|
|
|
Liberty contributed $200.0 million in cash to us; |
|
|
|
Liberty contributed to us certain UPC bonds (the United
UPC Bonds) and, as a result, UPC owed the amounts
represented by the United UPC Bonds to us rather than to
Liberty; and |
|
|
|
In exchange for the contribution of these assets to us, an
aggregate of approximately 281.3 million shares of our
Class C common stock was issued to Liberty. |
In December 2001, IDT United, Inc. (IDT United)
commenced a cash tender offer for, and related consent
solicitation with respect to, the entire $1.375 billion
face amount of senior discount notes of Old UGC (the Old
UGC Senior Notes). As of the expiration of the tender
offer on February 1, 2002, holders of the notes had validly
tendered and not withdrawn notes representing approximately
$1.350 billion aggregate principal amount at maturity. At
the time of the tender offer, Liberty had an equity and debt
interest in IDT United. IDT Uniteds sole purpose was to
tender for the Old UGC Senior Notes.
Prior to the merger on January 30, 2002, we acquired from
Liberty $751.2 million aggregate principal amount at
maturity of the Old UGC Senior Notes (which had previously been
distributed to Liberty by IDT United in redemption of a portion
of Libertys equity interest and in prepayment of a portion
of IDT Uniteds debt to Liberty), as well as all of
Libertys remaining interest in IDT United. The purchase
price for the Old UGC Senior Notes and Libertys interest
in IDT United was:
|
|
|
|
|
Our assumption of approximately $304.6 million of
indebtedness owed by Liberty to Old UGC; and |
|
|
|
Cash in the amount of approximately $143.9 million. |
On January 30, 2002, Liberty loaned us approximately
$17.3 million, of which approximately $2.3 million was
used to purchase shares of redeemable preferred stock and
convertible promissory notes issued by IDT United. Following
January 30, 2002, Liberty loaned us an additional
approximately $85.4 million. We used the
A4-86
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
proceeds of these loans to purchase additional shares of
redeemable preferred stock and convertible promissory notes
issued by IDT United. These notes to Liberty accrued interest at
8.0% annually, compounded and payable quarterly, and were
cancelled in January 2004 (see Note 22). Subsequent to
these transactions, IDT United held Old UGC Senior Notes with a
principal amount at maturity of $599.2 million. Although we
only retain a 33.3% common equity interest in IDT United, we
consolidate IDT United as a variable interest
entity, as we are the primary beneficiary of an entity
that has insufficient equity at risk.
On May 14, 2002, the Principal Founders transferred all of
the shares of Old UGC common stock held by them to us in
exchange for an aggregate of 600,000 shares of our
Class A common stock pursuant to an exchange agreement
dated May 14, 2002, among such individuals and us. This
exchange agreement superseded the exchange agreement entered
into at the time of the merger transaction. As a result of this
exchange, Old UGC became our wholly-owned subsidiary, and we
were entitled to elect the entire board of directors of Old UGC.
This transaction was the final step in the recapitalization of
Old UGC.
We accounted for the merger transaction on January 30, 2002
as a reorganization of entities under common control at
historical cost, similar to a pooling of interests. Under
reorganization accounting, we consolidated the financial
position and results of operations of Old UGC as if the merger
transaction had been consummated at the inception of Old UGC.
The purchase of the Old UGC Senior Notes directly from Liberty
and the purchase of Libertys interest in IDT United were
recorded at fair value. The issuance of our new shares of
Class C common stock to Liberty for cash, the United UPC
Bonds and the UPC Exchangeable Loan was recorded at the fair
value of our common stock at closing. The estimated fair value
of these financial assets (with the exception of the UPC
Exchangeable Loan) was significantly less than the accreted
value of such debt securities as reflected in Old UGCs
historical financial statements. Accordingly, for consolidated
financial reporting purposes, we recognized a gain of
approximately $1.757 billion from the extinguishment of
such debt outstanding at that time equal to the excess of the
then accreted value of such debt over our cost, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value | |
|
|
|
|
|
|
at Acquisition | |
|
Book Value | |
|
Gain/(Loss) | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Old UGC Senior Notes
|
|
$ |
540,149 |
|
|
$ |
1,210,974 |
|
|
$ |
670,825 |
|
United UPC Bonds
|
|
|
312,831 |
|
|
|
1,451,519 |
|
|
|
1,138,688 |
|
UPC Exchangeable Loan
|
|
|
891,671 |
|
|
|
891,671 |
|
|
|
|
|
Write-off of deferred financing costs
|
|
|
|
|
|
|
(52,224 |
) |
|
|
(52,224 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total gain on extinguishment of debt
|
|
$ |
1,744,651 |
|
|
$ |
3,501,940 |
|
|
$ |
1,757,289 |
|
|
|
|
|
|
|
|
|
|
|
We also recorded a deferred income tax provision of
$110.6 million related to a portion of the gain on
extinguishment of the Old UGC Senior Notes.
|
|
|
Transfer of German Shares |
Until July 30, 2002, UPC had a 51% ownership interest in
EWT/ TSS Group through its 51% owned subsidiary, UPC Germany.
Pursuant to the agreement by which UPC acquired EWT/ TSS Group,
UPC was required to fulfill a contribution obligation no later
than March 2003, by contributing certain assets amounting to
approximately
358.8 million.
If UPC failed to make the contribution by such date or in
certain circumstances such as a material default by UPC under
its financing agreements, the minority shareholders of UPC
Germany could call for 22.3% of the ownership interest in UPC
Germany in exchange for the euro equivalent of 1 Deutsche Mark.
On March 5, 2002, UPC received the holders notice of
exercise. On July 30, 2002, UPC completed the transfer of
22.3% of UPC Germany to the minority shareholders in return for
the cancellation of the contribution obligation. UPC now owns
28.7% of UPC Germany, with the former minority shareholders
owning the remaining 71.3%. UPC Germany is governed by a new
shareholders agreement. For accounting purposes, this
transaction resulted in the deconsolidation of UPC Germany
effective August 1, 2002, and recognition of a gain from the
A4-87
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
reversal of the net negative investment in UPC Germany. Details
of the assets and liabilities of UPC Germany as of
August 1, 2002 were as follows (in thousands):
|
|
|
|
|
|
Working capital
|
|
$ |
(74,809 |
) |
Property, plant and equipment
|
|
|
74,169 |
|
Goodwill and other intangible assets
|
|
|
69,912 |
|
Long-term liabilities
|
|
|
(84,288 |
) |
Minority interest
|
|
|
(142,158 |
) |
Gain on reversal of net negative investment
|
|
|
147,925 |
|
|
|
|
|
|
Net cash deconsolidated
|
|
$ |
(9,249 |
) |
|
|
|
|
In January 2002, we recognized a gain of $109.2 million
from the restructuring and cancellation of capital lease
obligations associated with excess capacity of certain Priority
Telecom vendor contracts.
In June 2002, we recognized a gain of $342.3 million from
the delivery by certain banks of $399.2 million in
aggregate principal amount of UPCs senior notes and senior
discount notes as settlement of certain interest rate and cross
currency derivative contracts between the banks and UPC.
In December 2001, UPC and Canal+ Group, the television and film
division of Vivendi Universal (Canal+) merged their
respective Polish DTH satellite television platforms, as well as
the Canal+ Polska premium channel, to form a common Polish DTH
platform. UPC Polska contributed its Polish and United Kingdom
DTH assets to Telewizyjna Korporacja Partycypacyjna S.A., a
subsidiary of Canal+ (TKP), and placed
30.0 million
($26.8 million) cash into an escrow account, which was used
to fund TKP with a loan of
30.0 million
in January 2002 (the JV Loan). In return, UPC Polska
received a 25% ownership interest in TKP and
150.0
($134.1) million in cash. UPC Polskas investment in
TKP was recorded at fair value as of the date of the
transaction, resulting in a loss of $416.9 million upon
consummation of the merger.
|
|
4. |
Marketable Equity Securities and Other Investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2003 | |
|
December 31, 2002 | |
|
|
| |
|
| |
|
|
Fair | |
|
Unrealized | |
|
Fair | |
|
Unrealized | |
|
|
Value | |
|
Gain | |
|
Value | |
|
Gain | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
|
(In thousands) | |
SBS common stock
|
|
$ |
195,600 |
|
|
$ |
105,790 |
|
|
$ |
|
|
|
$ |
|
|
Other equity securities
|
|
|
10,725 |
|
|
|
6,098 |
|
|
|
|
|
|
|
|
|
Corporate bonds and other
|
|
|
2,134 |
|
|
|
856 |
|
|
|
45,854 |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
208,459 |
|
|
$ |
112,744 |
|
|
$ |
45,854 |
|
|
$ |
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We recorded an aggregate charge to earnings for other than
temporary declines in the fair value of certain of our
investments of approximately nil, $2.0 million and nil for
the years ended December 31, 2003, 2002 and 2001,
respectively.
We own 6.0 million shares of SBS. Historically, our common
share ownership interest in SBS was accounted for under the
equity method of accounting, as we were able to exert
significant influence. On December 19, 2003, SBS redeemed
certain of its outstanding debt and as a result issued new
common shares to the note holders which reduced our ownership
interest. As we no longer have the ability to exercise
significant
A4-88
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
influence over SBS, we changed our accounting method from the
equity method to the cost method, and marked these shares to
fair value as available-for-sale securities.
|
|
5. |
Property, Plant and Equipment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign | |
|
|
|
|
|
|
|
|
|
|
|
|
UGC Europe | |
|
Currency | |
|
|
|
|
December 31, | |
|
|
|
|
|
|
|
Exchange | |
|
Translation | |
|
December 31, | |
|
|
2002 | |
|
Additions | |
|
Disposals | |
|
Impairments(1) | |
|
Offer(2) | |
|
Adjustments | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Customer premises equipment
|
|
$ |
1,003,950 |
|
|
$ |
95,834 |
|
|
$ |
(2,459 |
) |
|
$ |
(89,971 |
) |
|
$ |
20,936 |
|
|
$ |
201,941 |
|
|
$ |
1,230,231 |
|
Commercial
|
|
|
5,670 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
235 |
|
|
|
5,905 |
|
Scaleable infrastructure
|
|
|
637,171 |
|
|
|
44,177 |
|
|
|
|
|
|
|
(23,806 |
) |
|
|
(8,973 |
) |
|
|
138,000 |
|
|
|
786,569 |
|
Line extensions
|
|
|
2,055,614 |
|
|
|
66,216 |
|
|
|
|
|
|
|
(302,280 |
) |
|
|
(3,806 |
) |
|
|
373,306 |
|
|
|
2,189,050 |
|
Upgrade/rebuild
|
|
|
846,406 |
|
|
|
30,287 |
|
|
|
|
|
|
|
(4,854 |
) |
|
|
(5,653 |
) |
|
|
151,127 |
|
|
|
1,017,313 |
|
Support capital
|
|
|
696,362 |
|
|
|
70,972 |
|
|
|
(473 |
) |
|
|
(30,874 |
) |
|
|
4,824 |
|
|
|
127,250 |
|
|
|
868,061 |
|
Priority Telecom(3)
|
|
|
306,233 |
|
|
|
17,074 |
|
|
|
|
|
|
|
(415 |
) |
|
|
(5,357 |
) |
|
|
43,521 |
|
|
|
361,056 |
|
UPC Media
|
|
|
83,598 |
|
|
|
5,833 |
|
|
|
|
|
|
|
(6,438 |
) |
|
|
(1,254 |
) |
|
|
16,447 |
|
|
|
98,186 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
5,635,004 |
|
|
|
330,393 |
|
|
|
(2,932 |
) |
|
|
(458,638 |
) |
|
|
717 |
|
|
|
1,051,827 |
|
|
|
6,556,371 |
|
Accumulated depreciation
|
|
|
(1,994,793 |
) |
|
|
(804,937 |
) |
|
|
2,123 |
|
|
|
64,788 |
|
|
|
|
|
|
|
(480,809 |
) |
|
|
(3,213,628 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property, plant and equipment
|
|
$ |
3,640,211 |
|
|
$ |
(474,544 |
) |
|
$ |
(809 |
) |
|
$ |
(393,850 |
) |
|
$ |
717 |
|
|
$ |
571,018 |
|
|
$ |
3,342,743 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
See Note 17. |
|
(2) |
See Note 3. |
|
(3) |
Consists primarily of network infrastructure and equipment. |
A4-89
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
The change in the carrying amount of goodwill by operating
segment for the year ended December 31, 2003 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign | |
|
|
|
|
|
|
|
|
UGC Europe | |
|
Currency | |
|
|
|
|
December 31, | |
|
|
|
Exchange | |
|
Translation | |
|
December 31, | |
|
|
2002 | |
|
Acquisitions | |
|
Offer(1) | |
|
Adjustments | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Europe:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Austria
|
|
$ |
140,349 |
|
|
$ |
383 |
|
|
$ |
167,209 |
|
|
$ |
31,640 |
|
|
$ |
339,581 |
|
|
Belgium
|
|
|
14,284 |
|
|
|
|
|
|
|
24,467 |
|
|
|
1,747 |
|
|
|
40,498 |
|
|
Czech Republic
|
|
|
|
|
|
|
|
|
|
|
67,138 |
|
|
|
1,240 |
|
|
|
68,378 |
|
|
Hungary
|
|
|
73,878 |
|
|
|
229 |
|
|
|
142,809 |
|
|
|
11,723 |
|
|
|
228,639 |
|
|
The Netherlands
|
|
|
705,833 |
|
|
|
|
|
|
|
256,415 |
|
|
|
149,310 |
|
|
|
1,111,558 |
|
|
Norway
|
|
|
9,017 |
|
|
|
|
|
|
|
28,553 |
|
|
|
930 |
|
|
|
38,500 |
|
|
Poland
|
|
|
|
|
|
|
|
|
|
|
36,368 |
|
|
|
672 |
|
|
|
37,040 |
|
|
Romania
|
|
|
20,138 |
|
|
|
|
|
|
|
2,698 |
|
|
|
324 |
|
|
|
23,160 |
|
|
Slovak Republic
|
|
|
3,353 |
|
|
|
|
|
|
|
22,644 |
|
|
|
1,133 |
|
|
|
27,130 |
|
|
Sweden
|
|
|
142,771 |
|
|
|
|
|
|
|
30,823 |
|
|
|
31,270 |
|
|
|
204,864 |
|
|
chellomedia
|
|
|
|
|
|
|
|
|
|
|
122,304 |
|
|
|
2,258 |
|
|
|
124,562 |
|
|
UGC Europe, Inc.
|
|
|
|
|
|
|
|
|
|
|
103,720 |
|
|
|
1,915 |
|
|
|
105,635 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,109,623 |
|
|
|
612 |
|
|
|
1,005,148 |
|
|
|
234,162 |
|
|
|
2,349,545 |
|
Latin America:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chile
|
|
|
140,710 |
|
|
|
|
|
|
|
|
|
|
|
29,576 |
|
|
|
170,286 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
1,250,333 |
|
|
$ |
612 |
|
|
$ |
1,005,148 |
|
|
$ |
263,738 |
|
|
$ |
2,519,831 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We adopted SFAS 142 effective January 1, 2002.
SFAS 142 required a transitional impairment assessment of
goodwill as of January 1, 2002, in two steps. Under step
one, the fair value of each of our reporting units was compared
with their respective carrying amounts, including goodwill. If
the fair value of a reporting unit exceeded its carrying amount,
goodwill of the reporting unit was considered not impaired. If
the carrying amount of a reporting unit exceeded its fair value,
the second step of the goodwill impairment test was performed to
measure the amount of impairment loss. We completed step one in
June 2002, and concluded the carrying value of certain reporting
units as of January 1, 2002 exceeded fair value. The
completion of step two resulted in an impairment adjustment of
$1.34 billion. This amount has been reflected as a
cumulative effect of a change in accounting principle in the
consolidated statement of operations, effective January 1,
2002, in accordance with SFAS 142. We also recorded
impairment charges totaling $362.8 million based on our
annual impairment test effective December 31, 2002.
A4-90
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
Pro Forma Information
Prior to January 1, 2002, goodwill and excess basis on
equity method investments was generally amortized over
15 years. The following presents the pro forma effect on
net loss for the year ended December 31, 2001, from the
reduction of amortization expense on goodwill and the reduction
of amortization of excess basis on equity method investments, as
a result of the adoption of SFAS 142 (in thousands, except
per share amounts):
|
|
|
|
|
|
|
|
|
Year Ended | |
|
|
December 31, | |
|
|
2001 | |
|
|
| |
Net loss as reported
|
|
$ |
(4,494,709 |
) |
|
Goodwill amortization
|
|
|
|
|
|
|
UPC and subsidiaries
|
|
|
379,449 |
|
|
|
VTR
|
|
|
11,310 |
|
|
|
Austar United and subsidiaries
|
|
|
12,765 |
|
|
|
Other
|
|
|
2,881 |
|
|
Amortization of excess basis on equity investments
|
|
|
|
|
|
|
UPC affiliates
|
|
|
35,940 |
|
|
|
Austar United affiliates
|
|
|
2,823 |
|
|
|
Other
|
|
|
2,027 |
|
|
|
|
|
Adjusted net loss
|
|
$ |
(4,047,514 |
) |
|
|
|
|
Basic and diluted net loss per common share as reported
|
|
$ |
(41.29 |
) |
|
Goodwill amortization
|
|
|
|
|
|
|
UPC and subsidiaries
|
|
|
3.45 |
|
|
|
VTR
|
|
|
0.10 |
|
|
|
Austar United and subsidiaries
|
|
|
0.12 |
|
|
|
Other
|
|
|
0.03 |
|
|
Amortization of excess basis on equity investments
|
|
|
|
|
|
|
UPC affiliates
|
|
|
0.33 |
|
|
|
Austar United affiliates
|
|
|
0.03 |
|
|
|
Other
|
|
|
0.02 |
|
|
|
|
|
Adjusted basic and diluted net loss per common share
|
|
$ |
(37.21 |
) |
|
|
|
|
A4-91
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
Other intangible assets consist primarily of customer
relationships, tradename, licenses and capitalized software.
Customer relationships are amortized over the expected lives of
our customers. The weighted-average amortization period of the
customer relationship intangible is approximately
7.5 years. Tradename is an indefinite-lived intangible
asset that is not subject to amortization. The following tables
present certain information for other intangible assets. Actual
amounts of amortization expense may differ from estimated
amounts due to additional acquisitions, changes in foreign
currency exchange rates, impairment of intangible assets,
accelerated amortization of intangible assets, and other events.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign | |
|
|
|
|
|
|
|
|
|
|
|
|
UGC Europe | |
|
Currency | |
|
|
|
|
December 31, | |
|
|
|
|
|
|
|
Exchange | |
|
Translation | |
|
December 31, | |
|
|
2002 | |
|
Additions | |
|
Impairments(1) | |
|
Disposals | |
|
Offer | |
|
Adjustments | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Intangible assets with definite lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer
relationships
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
220,290 |
|
|
$ |
4,068 |
|
|
$ |
224,358 |
|
|
License fees
|
|
|
25,075 |
|
|
|
1,489 |
|
|
|
(13,871 |
) |
|
|
(3,815 |
) |
|
|
|
|
|
|
2,870 |
|
|
|
11,748 |
|
|
Other
|
|
|
10,493 |
|
|
|
233 |
|
|
|
|
|
|
|
(4,132 |
) |
|
|
|
|
|
|
1,925 |
|
|
|
8,519 |
|
Intangible assets with indefinite lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tradename
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,922 |
|
|
|
424 |
|
|
|
23,346 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
35,568 |
|
|
|
1,722 |
|
|
|
(13,871 |
) |
|
|
(7,947 |
) |
|
|
243,212 |
|
|
|
9,287 |
|
|
|
267,971 |
|
|
Accumulated amortization
|
|
|
(21,792 |
) |
|
|
(3,726 |
) |
|
|
5,482 |
|
|
|
7,537 |
|
|
|
|
|
|
|
(3,236 |
) |
|
|
(15,735 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net intangible
assets
|
|
$ |
13,776 |
|
|
$ |
(2,004 |
) |
|
$ |
(8,389 |
) |
|
$ |
(410 |
) |
|
$ |
243,212 |
|
|
$ |
6,051 |
|
|
$ |
252,236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Amortization expense
|
|
$ |
3,726 |
|
|
$ |
16,632 |
|
|
$ |
19,136 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2004 | |
|
2005 | |
|
2006 | |
|
2007 | |
|
2008 | |
|
Thereafter | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Estimated amortization expense
|
|
$ |
33,043 |
|
|
$ |
31,816 |
|
|
$ |
30,515 |
|
|
$ |
30,515 |
|
|
$ |
30,515 |
|
|
$ |
72,486 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A4-92
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
|
(In thousands) | |
UPC Distribution Bank Facility
|
|
$ |
3,698,586 |
|
|
$ |
3,289,826 |
|
UPC Polska notes
|
|
|
317,372 |
|
|
|
377,110 |
|
VTR Bank Facility
|
|
|
123,000 |
|
|
|
|
|
Old UGC Senior Notes
|
|
|
24,627 |
|
|
|
24,313 |
|
Other
|
|
|
80,493 |
|
|
|
133,148 |
|
PCI notes
|
|
|
|
|
|
|
14,509 |
|
UPC July 1999 senior notes(1)
|
|
|
|
|
|
|
1,079,062 |
|
UPC January 2000 senior notes(1)
|
|
|
|
|
|
|
1,075,468 |
|
UPC October 1999 senior notes(1)
|
|
|
|
|
|
|
658,458 |
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,244,078 |
|
|
|
6,651,894 |
|
|
Current portion
|
|
|
(628,176 |
) |
|
|
(6,179,223 |
) |
|
|
|
|
|
|
|
|
Long-term portion
|
|
$ |
3,615,902 |
|
|
$ |
472,671 |
|
|
|
|
|
|
|
|
|
|
(1) |
These senior notes and senior discount notes were converted into
common stock of UGC Europe in connection with UPCs
reorganization. |
UPC Distribution Bank
Facility
The UPC Distribution Bank Facility is guaranteed by UPCs
majority owned cable operating companies, excluding Poland, and
is senior to other long-term debt obligations of UPC. The UPC
Distribution Bank Facility credit agreement contains certain
financial covenants and restrictions on UPCs subsidiaries
regarding payment of dividends, ability to incur indebtedness,
dispose of assets, and merge and enter into affiliate
transactions.
A4-93
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
The following table provides detail of the UPC Distribution Bank
Facility:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency/Tranche | |
|
Amount Outstanding | |
|
|
|
|
|
|
|
|
|
|
Amount | |
|
December 31, 2003 | |
|
|
|
|
|
|
|
|
|
|
| |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
US | |
|
|
|
US | |
|
|
|
|
|
Payment | |
|
Final | |
Tranche |
|
Euros | |
|
Dollars | |
|
Euros | |
|
Dollars | |
|
Interest Rate(4) | |
|
Description | |
|
Begins | |
|
Maturity | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
|
|
|
|
|
|
|
|
Facility A(1)(2)(3)
|
|
|
666,750 |
|
|
$ |
840,529 |
|
|
|
230,000 |
|
|
$ |
289,946 |
|
|
|
EURIBOR +2.25%4.0% |
|
|
Revolving credit |
|
|
June-06 |
|
|
|
June-08 |
|
Facility B(1)(2)
|
|
|
2,333,250 |
|
|
|
2,941,380 |
|
|
|
2,333,250 |
|
|
|
2,941,380 |
|
|
|
EURIBOR +2.25%4.0% |
|
|
|
Term loan |
|
|
|
June-04 |
|
|
|
June-08 |
|
Facility C1(1)
|
|
|
95,000 |
|
|
|
119,760 |
|
|
|
95,000 |
|
|
|
119,760 |
|
|
|
EURIBOR +5.5% |
|
|
|
Term loan |
|
|
|
June-04 |
|
|
|
March-09 |
|
Facility C2(1)
|
|
|
405,000 |
|
|
|
347,500 |
|
|
|
275,654 |
|
|
|
347,500 |
|
|
|
LIBOR +5.5% |
|
|
|
Term loan |
|
|
|
June-04 |
|
|
|
March-09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
2,933,904 |
|
|
$ |
3,698,586 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
An annual commitment fee of 0.5% over the unused portions of
each facility is applicable. |
|
(2) |
Pursuant to the terms of the October 2000 agreement, this
interest rate is variable depending on certain leverage ratios. |
|
(3) |
The availability under Facility A of
436.8
($550.6) million can be used to finance additional
permitted acquisitions and/or to refinance indebtedness, subject
to covenant compliance. |
|
(4) |
As of December 31, 2003, six month EURIBOR and LIBOR rates
were 2.2% and 1.2%, respectively. |
In January 2004, the UPC Distribution Bank Facility was amended
to:
|
|
|
|
|
Permit indebtedness under a new facility
(Facility D). The new facility has
substantially the same terms as the existing facility and
consists of five different tranches totaling
1.072 billion.
The proceeds of Facility D are limited in use to fund the
scheduled payments of Facility B under the existing facility
between December 2004 and December 2006; |
|
|
|
Increase and extend the maximum permitted ratios of senior debt
to annualized EBITDA (as defined in the bank facility) and lower
and extend the minimum required ratios of EBITDA to senior
interest and EBITDA to senior debt service; |
|
|
|
Include a total debt to annualized EBITDA ratio and EBITDA to
total cash interest ratio; |
|
|
|
Include a mandatory prepayment from proceeds of debt issuance
and net equity proceeds received by UGC Europe; and |
|
|
|
Permit acquisitions depending on certain leverage ratios and
other restrictions. |
UPC Polska Notes
On July 7, 2003, UPC Polska filed a voluntary petition for
relief under Chapter 11 of the U.S. Bankruptcy Code
with the U.S. Bankruptcy Court for the Southern District of
New York. On January 22, 2004, the U.S. Bankruptcy
Court confirmed UPC Polskas Chapter 11 plan of
reorganization, which was consummated and became effective on
February 18, 2004, when UPC Polska emerged from the
Chapter 11 proceedings. In accordance with UPC
Polskas plan of reorganization, third-party note holders
received a total of $80.0 million in cash,
$100.0 million in new 9.0% UPC Polska notes due 2007, and
approximately 2.0 million shares of our Class A common
stock in exchange for the cancellation of their claims. Two
subsidiaries of UGC Europe, UPC Telecom B.V. and Belmarken
Holding B.V., received $15.0 million in cash and 100% of
the newly issued membership interests denominated as stock of
the reorganized company in exchange for the cancellation of
their claims.
A4-94
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
VTR Bank Facility
In May 2003, VTR and VTRs senior lenders amended and
restated VTRs existing senior secured credit facility.
Principal payments are payable during the term of the facility
on a quarterly basis beginning March 31, 2004, with final
maturity on December 31, 2006. The VTR Bank Facility bears
interest at LIBOR plus 5.50% (subject to adjustment under
certain conditions) and is collateralized by tangible and
intangible assets pledged by VTR and certain of its operating
subsidiaries, as set forth in the credit agreement. The VTR Bank
Facility is senior to other long-term debt obligations of VTR.
The VTR Bank Facility credit agreement establishes certain
covenants with respect to financial statements, existence of
lawsuits, insurance, prohibition of material changes, limits to
taxes, indebtedness, restriction of payments, capital
expenditures, compliance ratios, governmental approvals,
coverage agreements, lines of business, transactions with
related parties, certain obligations with subsidiaries and
collateral issues.
Old UGC Senior Notes
The Old UGC Senior Notes accreted to an aggregate principal
amount of $1.375 billion on February 15, 2003, at
which time cash interest began to accrue. Commencing
August 15, 2003, cash interest on the Old UGC Senior Notes
is payable on February 15 and August 15 of each year
until maturity at a rate of 10.75% per annum. The Old UGC
Senior Notes mature on February 15, 2008. As of
December 31, 2003, the following entities held the Old UGC
Senior Notes:
|
|
|
|
|
|
|
|
Principal | |
|
|
Amount at | |
|
|
Maturity | |
|
|
| |
|
|
(In thousands) | |
UGC
|
|
$ |
638,008 |
(1) |
IDT United
|
|
|
599,173 |
(1) |
Third parties
|
|
|
24,627 |
|
|
|
|
|
|
Total
|
|
$ |
1,261,808 |
|
|
|
|
|
|
|
(1) |
Eliminated in consolidation. |
The Old UGC Senior Notes began to accrue interest on a cash-pay
basis on February 15, 2003, with the first payment due
August 15, 2003. Old UGC did not make this interest
payment. Because this failure to pay continued for a period of
more than 30 days, an event of default exists under the
terms of the Old UGC Senior Notes indenture. On
November 24, 2003, Old UGC, which principally owns our
interests in Latin America and Australia, reached an agreement
with us, IDT United (in which we have a 94% fully diluted
interest and a 33% common equity interest) and the unaffiliated
stockholders of IDT United on terms for the restructuring of the
Old UGC Senior Notes. Consistent with the restructuring
agreement, on January 12, 2004, Old UGC filed a voluntary
petition for relief under Chapter 11 of the
U.S. Bankruptcy Code with the U.S. Bankruptcy Court
for the Southern District of New York. The agreement and related
transactions, if implemented, would result in the acquisition by
Old UGC of the Old UGC Notes held by us (following cancellation
of offsetting obligations) and IDT United for common stock of
Old UGC. Old UGC Senior Notes held by third parties would either
be left outstanding (after cure and reinstatement) or acquired
for our Class A Common Stock (or, at our election, for
cash). Subject to consummation of the transactions contemplated
by the agreement, we expect to acquire the interests of the
unaffiliated stockholders in IDT United for our Class A
Common Stock and/or cash, at our election, in which case Old UGC
would continue to be wholly owned by us. The value of any
Class A Common Stock to be issued by us in these
transactions is not expected to exceed $45 million. A claim
was filed in the Chapter 11 proceeding by Excite@Home. See
Note 13.
A4-95
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
Long-Term Debt
Maturities
The maturities of our long-term debt are as follows (in
thousands):
|
|
|
|
|
|
Year Ended December 31, 2004
|
|
$ |
628,176 |
|
Year Ended December 31, 2005
|
|
|
718,903 |
|
Year Ended December 31, 2006
|
|
|
1,002,106 |
|
Year Ended December 31, 2007
|
|
|
671,704 |
|
Year Ended December 31, 2008
|
|
|
813,423 |
|
Thereafter
|
|
|
409,766 |
|
|
|
|
|
|
Total
|
|
$ |
4,244,078 |
|
|
|
|
|
|
|
9. |
Fair Value of Financial Instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2003 | |
|
December 31, 2002 | |
|
|
| |
|
| |
|
|
Carrying | |
|
Fair | |
|
Carrying | |
|
Fair | |
|
|
Value | |
|
Value | |
|
Value | |
|
Value | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
UPC Distribution Bank Facility
|
|
$ |
3,698,586 |
|
|
$ |
3,698,586 |
(1) |
|
$ |
3,289,826 |
|
|
$ |
3,289,826 |
(2) |
UPC Polska Notes
|
|
|
317,372 |
|
|
|
194,500 |
(3) |
|
|
377,110 |
|
|
|
99,133 |
(4) |
VTR Bank Facility
|
|
|
123,000 |
|
|
|
123,000 |
(5) |
|
|
144,000 |
|
|
|
144,000 |
(5) |
Note payable to Liberty
|
|
|
102,728 |
|
|
|
102,728 |
(6) |
|
|
102,728 |
|
|
|
102,728 |
(6) |
Old UGC Senior Notes
|
|
|
24,627 |
|
|
|
20,687 |
(7) |
|
|
24,313 |
|
|
|
8,619 |
(4) |
UPC July 1999 Senior Notes
|
|
|
|
|
|
|
|
|
|
|
1,079,062 |
|
|
|
64,687 |
(4) |
UPC October 1999 Senior Notes
|
|
|
|
|
|
|
|
|
|
|
658,458 |
|
|
|
41,146 |
(4) |
UPC January 2000 Senior Notes
|
|
|
|
|
|
|
|
|
|
|
1,075,468 |
|
|
|
68,152 |
(4) |
UPC FiBI Loan
|
|
|
|
|
|
|
|
|
|
|
57,033 |
|
|
|
|
(8) |
Other
|
|
|
85,592 |
|
|
|
85,592 |
(9) |
|
|
151,769 |
|
|
|
151,769 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
4,351,905 |
|
|
$ |
4,225,093 |
|
|
$ |
6,959,767 |
|
|
$ |
3,970,060 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
In the absence of quoted market prices, we determined the fair
value to be equivalent to carrying value because:
a) interest on this facility is tied to variable market
rates; b) Moodys Investor Service rated the facility
at B+; and c) the credit agreement was amended in January
2004 to add a new
1.072 billion
tranche on similar credit terms as the previous facility. |
|
(2) |
In the absence of quoted market prices, we determined the fair
value to be equivalent to carrying value because: a) the
restructuring plan of UPC assumed this facility was valued at
par (100% of carrying amount); b) the reorganization plan
of UPC assumed, in liquidation, that the lenders of the facility
would be paid back 100%, based on seniority in liquidation
(i.e., the assets of UPC Distribution were sufficient to repay
the facility in a liquidation scenario); c) certain lenders
under the facility confirmed to us they did not mark down the
facility on their books; and d) when the facility was
amended in connection with the restructuring agreement on
September 30, 2002, the revised terms included increased
fees and margin (credit spread), resetting the terms of this
variable-rate facility to market. |
|
(3) |
Fair value represents the consideration UPC Polska note holders
received from the consummation of UPC Polskas second
amended Chapter 11 plan of reorganization. |
|
(4) |
Fair value is based on quoted market prices. |
A4-96
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|
|
(5) |
In the absence of quoted market prices, we determined the fair
value to be equivalent to carrying value because:
a) interest on this facility is tied to variable market
rates; b) VTR is not highly leveraged; c) VTRs
results of operations exceeded budget in 2002 and 2003;
d) the Chilean peso strengthened considerably in 2003; and
e) in May 2003 the credit agreement was amended and
restated on similar credit terms to the previous facility. |
|
(6) |
We extinguished this obligation at its carrying amount in
January 2004 through the issuance of our Class A common
stock at fair value. |
|
(7) |
Fair value is based on an independent valuation analysis. |
|
(8) |
Fair value of our Israeli investment was determined to be nil by
an independent valuation firm in 2002. The FiBI Loan was secured
by this investment. On October 30, 2002, the First
International Bank of Israel (FiBI) and we agreed to
sell our Israeli investment to a wholly-owned subsidiary of FiBI
in exchange for the extinguishment of the FiBI Loan. This
transaction closed on February 24, 2003. |
|
(9) |
Fair value approximates carrying value. |
The carrying value of cash and cash equivalents, subscriber
receivables, other receivables, other current assets, accounts
payable, accrued liabilities and subscriber prepayments and
deposits approximates fair value, due to their short maturity.
The fair values of equity securities are based upon quoted
market prices at the reporting date.
|
|
10. |
Derivative Instruments |
We had a cross currency swap related to the UPC Distribution
Bank Facility where a $347.5 million notional amount was
swapped at an average rate of 0.852 euros per U.S. dollar
until November 29, 2002. On November 29, 2002, the
swap was settled for
64.6 million.
We also had an interest rate swap related to the UPC
Distribution Bank Facility where a notional amount of
1.725 billion
was fixed at 4.55% for the EURIBOR portion of the interest
calculation through April 15, 2003. This swap qualified as
an accounting cash flow hedge, accordingly, the changes in fair
value of this instrument were recorded through other
comprehensive income (loss) in the consolidated statement of
stockholders equity (deficit). This swap expired
April 15, 2003. During the first quarter of 2003, we
purchased an interest rate cap on the euro denominated UPC
Distribution Bank Facility for 2003 and 2004. As a result, the
net rate (without the applicable margin) is capped at 3.0% on a
notional amount of
2.7 billion.
The changes in fair value of these interest caps are recorded
through other income in the consolidated statement of
operations. In June 2003, we entered into a cross currency and
interest rate swap pursuant to which a $347.5 million
obligation under the UPC Distribution Bank Facility was swapped
at an average rate of 1.113 euros per U.S. dollar until
July 2005. The changes in fair value of these interest swaps are
recorded through other income in the consolidated statement of
operations. For the years ended December 31, 2003, 2002 and
2001, we recorded losses of $56.3 million,
$130.1 million and $105.8 million, respectively, in
connection with the change in fair value of these derivative
instruments. The fair value of these derivative contracts as of
December 31, 2003 was $45.6 million (liability).
Certain of our operating companies programming contracts
are denominated in currencies that are not the functional
currency or local currency of that operating company, nor that
of the counter party. As a result, these contracts contain
embedded foreign exchange derivatives that require separate
accounting. We report these derivatives at fair value, with
changes in fair value recognized in earnings.
|
|
11. |
Bankruptcy Proceedings |
In September 2002, we and other creditors of UPC reached a
binding agreement on a recapitalization and reorganization plan
for UPC. In order to effect the restructuring, on
December 3, 2002, UPC filed a voluntary petition for relief
under Chapter 11 of the U.S. Bankruptcy Code with the
U.S. Bankruptcy Court for the Southern District of New
York, including a pre-negotiated plan of reorganization dated
December 3, 2002. On that date,
A4-97
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
UPC also commenced a moratorium of payments in The Netherlands
under Dutch bankruptcy law and filed a proposed plan of
compulsory composition with the Amsterdam Court under the Dutch
bankruptcy code. The U.S. Bankruptcy Court confirmed the
reorganization plan on February 20, 2003. The Dutch
Bankruptcy Court ratified the plan of compulsory composition on
March 13, 2003. Following appeals in the Dutch proceedings,
the reorganization was completed as provided for in the
pre-negotiated plan of reorganization in September 2003.
On June 19, 2003, UPC Polska executed a binding agreement
with some of its creditors to restructure its balance sheet. In
order to effect the restructuring, on July 7, 2003, UPC
Polska filed a voluntary petition for relief under
Chapter 11 of the U.S. Bankruptcy Code with the
U.S. Bankruptcy Court for the Southern District of New
York, including a pre-negotiated plan of reorganization dated
July 8, 2003. On October 27, 2003, UPC Polska filed a
first amended plan of reorganization with the
U.S. Bankruptcy Court. On December 17, 2003, UPC
Polska entered into a Stipulation and Order with Respect
to Consensual Plan of Reorganization which terminated the
restructuring agreement. Pursuant to the Stipulation, UPC filed
a second amended plan of reorganization with the
U.S. Bankruptcy Court, which was consummated and became
effective on February 18, 2004.
In connection with their bankruptcy proceedings, UPC and UPC
Polska are required to prepare their consolidated financial
statements in accordance with Statement of Position 90-7,
Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code (SOP 90-7), issued by the
American Institute of Certified Public Accountants. In
accordance with SOP 90-7, all of UPCs and UPC
Polskas pre-petition liabilities that were subject to
compromise under their plans of reorganization are segregated in
their consolidated balance sheet as liabilities and convertible
preferred stock subject to compromise. These liabilities were
recorded at the amounts expected to be allowed as claims in the
bankruptcy proceedings rather than at the estimated amounts for
which those allowed claims might be settled as a result of the
approval of the plans of reorganization. Since we consolidate
UPC and UPC Polska, financial information with respect to UPC
and UPC Polska included in our
A4-98
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
accompanying consolidated financial statements has been prepared
in accordance with SOP 90-7. The following presents
condensed financial information for UPC Polska and UPC in
accordance with SOP 90-7:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UPC Polska | |
|
UPC | |
|
|
| |
|
| |
|
|
December 31, | |
|
|
| |
|
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
|
(In thousands) | |
Balance Sheet
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
$ |
240,131 |
|
|
$ |
54,650 |
|
|
Long-term assets
|
|
|
|
|
|
|
328,422 |
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
240,131 |
|
|
$ |
383,072 |
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
Not subject to compromise:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable, accrued liabilities, debt and other
|
|
$ |
10,794 |
|
|
$ |
631 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities not subject to compromise
|
|
|
10,794 |
|
|
|
631 |
|
|
|
|
|
|
|
|
|
|
Subject to compromise:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
14,445 |
|
|
|
38,647 |
|
|
|
|
|
Short-term debt
|
|
|
6,000 |
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
|
|
|
|
|
|
232,603 |
|
|
|
|
|
Intercompany payable(1)
|
|
|
4,668 |
|
|
|
135,652 |
|
|
|
|
|
Current portion of long-term debt(1)
|
|
|
456,992 |
|
|
|
2,812,954 |
|
|
|
|
|
Debt(1)
|
|
|
481,737 |
|
|
|
1,533,707 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities subject to compromise
|
|
|
963,842 |
|
|
|
4,753,563 |
|
|
|
|
|
|
|
|
Long-term liabilities not subject to compromise
|
|
|
|
|
|
|
725,008 |
|
|
|
|
|
|
|
|
Convertible preferred stock subject to compromise(2)
|
|
|
|
|
|
|
1,744,043 |
|
|
|
|
|
|
|
|
Stockholders equity (deficit)
|
|
|
(734,505 |
) |
|
|
(6,840,173 |
) |
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity (deficit)
|
|
$ |
240,131 |
|
|
$ |
383,072 |
|
|
|
|
|
|
|
|
|
|
(1) |
Certain amounts are eliminated in consolidation. |
|
(2) |
99.6% is eliminated in consolidation. |
A4-99
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
UPC Polska | |
|
UPC | |
|
|
| |
|
| |
|
|
December 31, | |
|
|
| |
|
|
2003(1) | |
|
2002(2) | |
|
|
| |
|
| |
|
|
(In thousands) | |
Statement of Operations
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
|
|
|
$ |
19,037 |
|
|
Expense
|
|
|
|
|
|
|
(42,696 |
) |
|
Depreciation and amortization
|
|
|
|
|
|
|
(16,562 |
) |
|
Impairment and restructuring charges
|
|
|
(6,000 |
) |
|
|
(1,218 |
) |
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(6,000 |
) |
|
|
(41,439 |
) |
|
Share in results of affiliates and other expense, net
|
|
|
(6,669 |
) |
|
|
(1,870,430 |
) |
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
(12,669 |
) |
|
$ |
(1,911,869 |
) |
|
|
|
|
|
|
|
|
|
(1) |
For the period from July 7, 2003 (the petition date) to
December 31, 2003. |
|
(2) |
For the year ended December 31, 2002. |
The following presents certain other disclosures required by
SOP 90-7 for UPC Polska and UPC:
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
|
(In thousands) | |
Interest expense on liabilities subject to compromise(1)
|
|
$ |
55,270 |
|
|
$ |
|
|
|
|
|
|
|
|
|
Contractual interest expense on liabilities subject to compromise
|
|
$ |
106,858 |
|
|
$ |
709,571 |
|
|
|
|
|
|
|
|
Reorganization expense:
|
|
|
|
|
|
|
|
|
|
Professional fees
|
|
$ |
43,248 |
|
|
$ |
37,898 |
|
|
Adjustment of debt to expected allowed amounts
|
|
|
(19,239 |
) |
|
|
|
|
|
Write-off of deferred finance costs
|
|
|
|
|
|
|
36,203 |
|
|
Other
|
|
|
8,000 |
|
|
|
1,142 |
|
|
|
|
|
|
|
|
|
|
Total reorganization expense
|
|
$ |
32,009 |
|
|
$ |
75,243 |
|
|
|
|
|
|
|
|
|
|
(1) |
In accordance with SOP 90-7, interest expense on
liabilities subject to compromise is reported in the
accompanying consolidated statement of operations only to the
extent that it will be paid during the bankruptcy proceedings or
to the extent it is considered an allowed claim. |
|
|
12. |
Net Negative Investment in Deconsolidated Subsidiaries |
On November 15, 2001, we transferred an approximate 50%
interest in United Australia/ Pacific, Inc. (UAP) to
an independent third party for nominal consideration. As a
result, we deconsolidated UAP effective November 15, 2001.
On March 29, 2002, UAP filed a voluntary petition for
reorganization under Chapter 11 of the U.S. Bankruptcy
Code in the U.S. Bankruptcy Court. On March 18, 2003,
the U.S. Bankruptcy Court entered an order confirming
UAPs plan of reorganization (the UAP Plan).
The UAP Plan became effective in April 2003, and the UAP
bankruptcy proceeding was completed in June 2003.
In April 2003, pursuant to the UAP Plan, affiliates of Castle
Harlan Australian Mezzanine Partners Pty Ltd.
(CHAMP) acquired UAPs indirect approximate
63.2% interest in United Austar, Inc. (UAI), which
owned approximately 80.7% of Austar United. The purchase price
for UAPs indirect interest in UAI was $34.5 million
in cash, which was distributed to the holders of UAPs
senior notes due 2006 in complete satisfaction of their claims.
Upon consummation of the UAP Plan, we recognized our
proportionate share of UAPs gain from the sale
A4-100
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
of its 63.2% interest in UAI ($26.3 million) and our
proportionate share of UAPs gain from the extinguishment
of its outstanding senior notes ($258.4 million). Such
amounts are reflected in share in results of affiliates in the
accompanying consolidated statement of operations. In addition,
we recognized a gain of $284.7 million associated with the
sale of our indirect approximate 49.99% interest in UAP that
occurred on November 15, 2001.
13. Guarantees, Commitments and
Contingencies
Guarantees
In connection with agreements for the sale of certain assets, we
typically retain liabilities that relate to events occurring
prior to its sale, such as tax, environmental, litigation and
employment matters. We generally indemnify the purchaser in the
event that a third party asserts a claim against the purchaser
that relates to a liability retained by us. These types of
indemnification guarantees typically extend for a number of
years. We are unable to estimate the maximum potential liability
for these types of indemnification guarantees as the sale
agreements typically do not specify a maximum amount and the
amounts are dependent upon the outcome of future contingent
events, the nature and the likelihood of which cannot be
determined at this time. Historically, we have not made any
significant indemnification payments under such agreements and
no amount has been accrued in the accompanying consolidated
financial statements with respect to these indemnification
guarantees.
In connection with the acquisition of UPCs ordinary shares
held by Philips Electronics N.V. (Philips) on
December 1, 1997, UPC agreed to indemnify Philips for any
damages incurred by Philips in relation to a guarantee provided
by them to the City of Vienna, Austria (Vienna
Obligations), but was not able to give such
indemnification due to certain debt covenants. Following the
successful tender for our bonds in January 2002, we were able to
enter into an indemnity agreement with Philips with respect to
the Vienna Obligations. On August 27, 2003, UPC
acknowledged to us that UPC would be primarily liable for the
payment of any amounts owing pursuant to the Vienna Obligations
and that UPC would indemnify and hold us harmless for the
payment of any amounts owing under such indemnity agreement.
Historically, UPC has not made any significant indemnification
payments to either Philips or us under such agreements and no
material amounts have been accrued in the accompanying
consolidated financial statements with respect to these
indemnification guarantees, as UPC does not believe such amounts
are probable of occurrence.
Under the UPC Distribution Bank Facility and VTR Bank Facility,
we have agreed to indemnify our lenders under such facilities
against costs or losses resulting from changes in laws and
regulation which would increase the lenders costs, and for
legal action brought against the lenders. These indemnifications
generally extend for the term of the credit facilities and do
not provide for any limit on the maximum potential liability.
Historically, we have not made any significant indemnification
payments under such agreements and no material amounts have been
accrued in the accompanying financial statements with respect to
these indemnification guarantees.
We sub-lease transponder capacity to a third party and all
guaranteed performance criteria is matched with the guaranteed
performance criteria we receive from the lease transponder
provider. We have third party contracts for the distribution of
channels from our digital media center in Amsterdam that require
us to perform according to industry standard practice, with
penalties attached should performance drop below the agreed-upon
criteria. Additionally, our interactive services group in Europe
has third party contracts for the delivery of interactive
content with certain performance criteria guarantees.
Commitments
We have entered into various lease agreements for conduit and
satellite transponder capacity, programming, broadcast and
exhibition rights, office space, office furniture and equipment,
and vehicles. Rental expense under these lease agreements
totaled $69.9 million, $48.5 million and
$63.3 million for the years ended December 31,
A4-101
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
2003, 2002 and 2001, respectively. We have capital and operating
lease obligations and other non-cancelable commitments as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Capital | |
|
Operating | |
|
|
Leases | |
|
Leases | |
|
|
| |
|
| |
Year ended December 31, 2004
|
|
$ |
7,791 |
|
|
$ |
60,501 |
|
Year ended December 31, 2005
|
|
|
8,790 |
|
|
|
39,376 |
|
Year ended December 31, 2006
|
|
|
7,887 |
|
|
|
32,020 |
|
Year ended December 31, 2007
|
|
|
7,899 |
|
|
|
26,109 |
|
Year ended December 31, 2008
|
|
|
7,917 |
|
|
|
21,511 |
|
Thereafter
|
|
|
61,826 |
|
|
|
42,092 |
|
|
|
|
|
|
|
|
|
Total minimum payments
|
|
$ |
102,110 |
|
|
$ |
221,609 |
|
|
|
|
|
|
|
|
Less amount representing interest and executory costs
|
|
|
(37,268 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net lease payments
|
|
|
64,842 |
|
|
|
|
|
Lease obligations due within one year
|
|
|
(3,073 |
) |
|
|
|
|
|
|
|
|
|
|
|
Long-term lease obligations
|
|
$ |
61,769 |
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2003, we have a commitment to
purchase 265,000 set-top computers over the next two years.
We expect to finance these purchases from existing unrestricted
cash balances and future operating cash flow.
We have certain franchise obligations under which we must meet
performance requirements to construct networks under certain
circumstances. Non-performance of these obligations could result
in penalties being levied against us. We continue to meet our
obligations so as not to incur such penalties. In the ordinary
course of business, we provide customers with certain
performance guarantees. For example, should a service outage
occur in excess of a certain period of time, we would compensate
those customers for the outage. Historically, we have not made
any significant payments under any of these indemnifications or
guarantees. In certain cases, due to the nature of the
agreement, we have not been able to estimate our maximum
potential loss or the maximum potential loss has not been
specified.
Contingencies
The following is a description of certain legal proceedings to
which we or one of our subsidiaries is a party. From time to
time we may become involved in litigation relating to claims
arising out of our operations in the normal course of business.
In our opinion, the ultimate resolution of these legal
proceedings would not likely have a material adverse effect on
our business, results of operations, financial condition or
liquidity.
Cignal
On April 26, 2002, UPC received a notice that certain
former shareholders of Cignal Global Communications
(Cignal) filed a lawsuit against UPC in the District
Court in Amsterdam, The Netherlands, claiming
$200.0 million alleging that UPC failed to honor certain
option rights that were granted to those shareholders in
connection with the acquisition of Cignal by Priority Telecom.
UPC believes that it has complied in full with its obligations
to these shareholders through the successful consummation of the
initial public offering of Priority Telecom on
September 27, 2001. Accordingly, UPC believes that the
Cignal shareholders claims are without merit and intends
to defend this suit vigorously. In December 2003, certain
members and former members of the Supervisory Board of Priority
Telecom were put on notice that a tort claim may be filed
against them for their cooperation in the initial public
offering.
A4-102
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
Excite@Home
In 2000, certain of our subsidiaries, including UPC, pursued a
transaction with Excite@Home, which if completed, would have
merged UPCs chello broadband subsidiary with
Excite@Homes international broadband operations to form a
European Internet business. The transaction was not completed,
and discussions between the parties ended in late 2000. On
November 3, 2003, we received a complaint filed on
September 26, 2003 by Frank Morrow, on behalf of the
General Unsecured Creditors Liquidating Trust of At Home
in the United States Bankruptcy Court for the Northern District
of California, styled as In re At Home Corporation, Frank
Morrow v. UnitedGlobalCom, Inc. et al. (Case No.
01-32495-TC). In general, the complaint alleges breach of
contract and fiduciary duty by UGC and Old UGC. The action has
been stayed as to Old UGC by the Bankruptcy Court in the Old UGC
bankruptcy proceeding. The plaintiff has filed a claim in the
bankruptcy proceedings of approximately $2.2 billion. We
deny the material allegations and intend to defend the
litigation vigorously.
HBO
UPC Polska was involved in a dispute with HBO Communications
(UK) Ltd., Polska Programming B.V. and HBO Poland Partners
(collectively HBO) concerning its cable carriage
agreement and its D-DTH carriage agreement for the HBO premium
movie channel. In February 2004, the matter was settled and UPC
Polska paid $6.0 million to HBO.
ICH
On July 4, 2001, ICH, InterComm France CVOHA
(ICF I), InterComm France II CVOHA
(ICF II), and Reflex Participations
(Reflex, collectively with ICF I and
ICF II, the ICF Party) served a demand for
arbitration on UPC, Old UGC, and its subsidiaries, Belmarken
Holding B.V. (Belmarken) and UPC France Holding B.V.
The claimants allege breaches of obligations allegedly owed by
UPC in connection with the ICF Partys position as a
minority shareholder in Médiaréseaux S.A. In February
2004, the parties entered into a settlement agreement pursuant
to which UPC purchased the shares owned by the ICF Party in
Médiaréseaux S.A. for consideration of
1,800,000 shares of our Class A common stock.
Movieco
On December 3, 2002, Europe Movieco Partners Limited
(Movieco) filed a request for arbitration (the
Request) against UPC with the International Court of
Arbitration of the International Chamber of Commerce. The
Request contains claims that are based on a cable affiliation
agreement entered into between the parties on December 21,
1999 (the CAA). The arbitral proceedings were
suspended from December 17, 2002 to March 18, 2003.
They have subsequently been reactivated and directions have been
given by the Arbitral Tribunal. In the proceedings, Movieco
claims (i) unpaid license fees due under the CAA, plus
interest, (ii) an order for specific performance of the CAA
or, in the alternative, damages for breach of that agreement,
and (iii) legal and arbitration costs plus interest. Of the
unpaid license fees, approximately $11.0 million had been
accrued prior to UPC commencing insolvency proceedings in the
Netherlands on December 3, 2002 (the Pre-Petition
Claim). Movieco made a claim in the Dutch insolvency
proceedings for the Pre-Petition Claim and shares of the
appropriate value were delivered to Movieco in December 2003.
UPC filed a counterclaim in the arbitral proceeding, stating
that the CAA is null and void because it breaches
Article 81 of the EC Treaty. UPC also relies on the Order
of the Southern District of New York dated January 7, 2003
in which the New York Court ordered that the rejection of the
CAA was approved effective March 1, 2003, and that UPC
shall have no further liability under the CAA.
A4-103
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
Philips
On October 22, 2002, Philips Digital Networks B.V.
(Philips) commenced legal proceedings against UPC,
UPC Nederland B.V. and UPC Distribution (together the UPC
Defendants) alleging failure to perform by the UPC
Defendants under a Set Top Computer Supply Agreement between the
parties dated November 19, 2001, as amended (the STC
Agreement). The action was commenced by Philips following
a termination of the STC Agreement by the UPC Defendants as a
consequence of Philips failure to deliver STCs conforming
to the material technical specifications required by the terms
of the STC Agreement. The parties have entered into a settlement
agreement conditioned upon UPC Defendants entering into a
purchase agreement for STCs by June 30, 2004.
UGC Europe Exchange
Offer
On October 8, 2003, an action was filed in the Court of
Chancery of the State of Delaware in New Castle County, in which
the plaintiff named as defendants UGC Europe, UGC and certain of
our directors. The complaint purports to assert claims on behalf
of all public shareholders of UGC Europe. On October 21,
2003, the plaintiff filed an amended complaint in the Delaware
Court of Chancery. The complaint alleges that UGC Europe and the
defendant directors have breached their fiduciary duties to the
public shareholders of UGC Europe in connection with an offer by
UGC to exchange shares of its common stock for outstanding
common stock of UGC Europe. Among the remedies demanded, the
complaint seeks to enjoin the exchange offer and obtain
declaratory relief, unspecified damages and rescission. On
November 12, 2003, we and the plaintiff, through respective
counsel, entered into a memorandum of understanding agreeing to
settle the litigation and to pay up to $975,000 in attorney
fees, subject to court approval of the settlement.
|
|
14. |
Minority Interests in Subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
|
(In thousands) | |
UPC convertible preference shares held by third parties(1)
|
|
$ |
|
|
|
$ |
1,094,668 |
|
UPC convertible preference shares held by Liberty(2)
|
|
|
|
|
|
|
297,753 |
|
IDT United
|
|
|
20,858 |
|
|
|
7,986 |
|
Other
|
|
|
1,903 |
|
|
|
1,739 |
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
22,761 |
|
|
$ |
1,402,146 |
|
|
|
|
|
|
|
|
|
|
(1) |
We acquired 99.4% of these convertible preference shares in
February and April 2003. The remainder was exchanged for UGC
Europe common stock in connection with UPCs restructuring. |
|
(2) |
Acquired by us in April 2003. |
A4-104
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
The minority interests share of results of operations is
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Minority interest share of UGC Europe net loss
|
|
$ |
181,046 |
|
|
$ |
|
|
|
$ |
|
|
Accrual of dividends on UPCs convertible preference shares
held by third parties
|
|
|
|
|
|
|
(78,355 |
) |
|
|
(70,089 |
) |
Accrual of dividends on UPCs convertible preference shares
held by Liberty
|
|
|
|
|
|
|
(18,728 |
) |
|
|
(19,113 |
) |
Minority interest share of UPC net loss
|
|
|
|
|
|
|
|
|
|
|
54,050 |
|
Subsidiaries of UGC Europe
|
|
|
(91 |
) |
|
|
28,080 |
|
|
|
484,780 |
|
Other
|
|
|
2,227 |
|
|
|
1,900 |
|
|
|
46,887 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
183,182 |
|
|
$ |
(67,103 |
) |
|
$ |
496,515 |
|
|
|
|
|
|
|
|
|
|
|
|
|
15. |
Stockholders Equity (Deficit) |
Description of Capital
Stock
Our authorized capital stock currently consists of:
|
|
|
|
|
1,000,000,000 shares of Class A common stock; |
|
|
|
1,000,000,000 shares of Class B common stock; |
|
|
|
400,000,000 shares of Class C common stock; and |
|
|
|
10,000,000 shares of preferred stock, all $0.01 par
value per share. |
Common Stock
Our Class A common stock, Class B common stock and
Class C common stock have identical economic rights. They
do, however, differ in the following respects:
|
|
|
|
|
Each share of Class A common stock, Class B common
stock and Class C common stock entitles the holders thereof
to one, ten and ten votes, respectively, on each matter to be
voted on by our stockholders, excluding, until our next annual
meeting of stockholders, the election of directors, at which
time the holders of Class A common stock, Class B
common stock and Class C common stock will vote together as
a single class on each matter to be voted on by our
stockholders, including the election of directors; and |
|
|
|
Each share of Class B common stock is convertible, at the
option of the holder, into one share of Class A common
stock at any time. Each share of Class C common stock is
convertible, at the option of the holder, into one share of
Class A common stock or Class B common stock at any
time. |
Holders of our Class A, Class B and Class C
common stock are entitled to receive any dividends that are
declared by our board of directors out of funds legally
available for that purpose. In the event of our liquidation,
dissolution or winding up, holders of our Class A,
Class B and Class C common stock will be entitled to
share in all assets available for distribution to holders of
common stock. Holders of our Class A, Class B and
Class C common stock have no preemptive right under our
certificate of incorporation. Our certificate of incorporation
provides that if there is any dividend, subdivision, combination
or reclassification of any class of common stock, a
proportionate dividend, subdivision, combination or
reclassification of one other class of common stock will be made
at the same time.
A4-105
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
Preferred Stock
We are authorized to issue 10 million shares of preferred
stock. Our board of directors is authorized, without any further
action by the stockholders, to determine the following for any
unissued series of preferred stock:
|
|
|
|
|
voting rights; |
|
|
|
dividend rights; |
|
|
|
dividend rates; |
|
|
|
liquidation preferences; |
|
|
|
redemption provisions; |
|
|
|
sinking fund terms; |
|
|
|
conversion or exchange rights; |
|
|
|
the number of shares in the series; and |
|
|
|
other rights, preferences, privileges and restrictions. |
In addition, the preferred stock could have other rights,
including economic rights senior to common stock, so that the
issuance of the preferred stock could adversely affect the
market value of common stock. The issuance of preferred stock
may also have the effect of delaying, deferring or preventing a
change in control of us without any action by the stockholders.
UGC Equity Incentive
Plan
On August 19, 2003, our Board of Directors adopted an
Equity Incentive Plan (the Incentive Plan) effective
September 1, 2003. Our stockholders approved the Incentive
Plan on September 30, 2003. After such stockholder approval
of the Incentive Plan, the Board of Directors recommended
certain changes to the Incentive Plan that give us the ability
to issue stock appreciation rights with a grant price at, above,
or less than the fair market value of our common stock on the
date the stock appreciation right is granted. Those changes,
along with certain other technical changes, were incorporated
into an amended UGC Equity Incentive Plan (the Amended
Incentive Plan), which was approved by our stockholders on
December 17, 2003. The Board of Directors have reserved
39,000,000 shares of common stock, plus an additional
number of shares on January 1 of each year equal to 1% of the
aggregate shares of Class A and Class B common stock
outstanding, for the Amended Incentive Plan. No more than
5,000,000 shares of Class A or Class B common
stock in the aggregate may be granted to a single participant
during any calendar year, and no more than 3,000,000 shares
may be issued under the Amended Incentive Plan as Class B
common stock. The Amended Incentive Plan permits the grant of
the following awards (the Awards): stock options
(Options), restricted stock awards (Restricted
Stock), SARs, stock bonuses (Stock Bonuses),
stock units (Stock Units) and other grants of stock.
Our employees, consultants and non-employee directors and
affiliated entities designated by the Board of Directors are
entitled to receive any Awards under the Amended Incentive Plan,
provided, however, that only non-qualified Options may be
granted to non-employee directors. In accordance with the
provisions of the Plan, our compensation committee (the
Committee) has the discretion to: select
participants from among eligible employees and eligible
consultants; determine the Awards to be made; determine the
number of Stock Units, SARs or shares of stock to be issued and
the time at which such Awards are to be made; fix the option
price, period and manner in which an Option becomes exercisable;
establish the duration and nature of Restricted Stock Award
restrictions; establish the terms and conditions applicable to
Stock Bonuses and Stock Units; and establish such other terms
and requirements of the various compensation incentives under
the Amended Incentive Plan as the Committee may deem necessary
or desirable and consistent with the terms of the Amended
Incentive Plan. The Committee may, under certain circumstances,
delegate to our officers the authority to grant Awards to
specified groups of
A4-106
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
employees and consultants. The Board has the sole authority to
grant Options under the Amended Incentive Plan to non-employee
directors. The maximum term of Options granted under the Amended
Incentive Plan is ten years. The Committee shall determine, at
the time of the award of SARs, the time period during which the
SARs may be exercised and other terms that shall apply to the
SARs. The Amended Incentive Plan terminates August 31, 2013.
A summary of activity for the Amended Incentive Plan is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- | |
|
|
Number of | |
|
Average | |
|
|
SARs | |
|
Base Price | |
|
|
| |
|
| |
Outstanding at beginning of year
|
|
|
|
|
|
$ |
|
|
Granted during the year
|
|
|
32,165,550 |
|
|
$ |
4.69 |
|
Cancelled during the year
|
|
|
(78,280 |
) |
|
$ |
4.59 |
|
Exercised during the year
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
32,087,270 |
|
|
$ |
4.69 |
|
|
|
|
|
|
|
|
Exercisable at end of year
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
The weighted-average fair values and weighted average base
prices of SARs granted under the Amended Incentive Plan are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair | |
|
Base | |
Base Price |
|
Number | |
|
Value | |
|
Price | |
|
|
| |
|
| |
|
| |
Less than market price(1)
|
|
|
15,081,775 |
|
|
$ |
5.44 |
|
|
$ |
3.74 |
|
Equal to market price(2)
|
|
|
15,081,775 |
|
|
$ |
6.88 |
|
|
$ |
5.44 |
|
Equal to market price
|
|
|
2,002,000 |
|
|
$ |
4.91 |
|
|
$ |
6.13 |
|
Greater than market price
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total(3)
|
|
|
32,165,550 |
|
|
$ |
4.33 |
|
|
$ |
4.69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
We originally granted these SARs below fair market value on date
of grant; however, upon exercise the holder will receive only
the difference between the base price and the lesser of $5.44 or
the fair market value of our Class A common stock on the
date of exercise. |
|
(2) |
We originally granted these SARs at fair market value on date of
grant. As a result of the UGC Europe Exchange Offer and merger
transaction in December 2003, we substituted UGC SARs for UGC
Europe SARs. |
|
(3) |
All the SARs granted during Fiscal 2003 vest in five equal
annual increments. Vesting of the SARs granted would be
accelerated upon a change of control of UGC as defined in the
Amended Incentive Plan. The table does not reflect the
adjustment to the base prices on all outstanding SARs in January
2004. As a result of the dilution caused by our subscription
rights offering that closed in February 2004, all base prices
have since been reduced by $0.87. |
A4-107
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
The following summarizes information about SARs outstanding and
exercisable at December 31, 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding | |
|
Exercisable |
|
|
| |
|
|
|
|
|
|
Weighted- | |
|
|
|
|
|
|
|
|
Average | |
|
Weighted- | |
|
|
|
Weighted- |
|
|
|
|
Remaining | |
|
Average | |
|
|
|
Average |
|
|
|
|
Contractual | |
|
Base | |
|
|
|
Base |
Base Price Range |
|
Number | |
|
Life (Years) | |
|
Price | |
|
Number | |
|
Price |
|
|
| |
|
| |
|
| |
|
| |
|
|
$3.74
|
|
|
15,042,635 |
|
|
|
9.97 |
|
|
$ |
3.74 |
|
|
|
|
|
|
$ |
|
|
$5.44
|
|
|
15,042,635 |
|
|
|
9.97 |
|
|
$ |
5.44 |
|
|
|
|
|
|
$ |
|
|
$6.13
|
|
|
1,997,000 |
|
|
|
9.75 |
|
|
$ |
6.13 |
|
|
|
|
|
|
$ |
|
|
$7.20
|
|
|
5,000 |
|
|
|
9.90 |
|
|
$ |
7.20 |
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
32,087,270 |
|
|
|
9.95 |
|
|
$ |
4.69 |
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Amended Incentive Plan is accounted for as a variable plan
and accordingly, compensation expense is recognized at each
financial statement date based on the difference between the
grant price and the estimated fair value of our Class A
common stock. Compensation expense of $8.8 million was
recognized in the statement of operations for the year ended
December 31, 2003.
UGC Stock Option
Plans
During 1993, Old UGC adopted a stock option plan for certain of
its employees, which was assumed by us on January 30, 2002
(the Employee Plan). The Employee Plan was
construed, interpreted and administered by the Committee,
consisting of all members of the Board of Directors who were not
our employees. The Employee Plan provided for the grant of
options to purchase up to 39,200,000 shares of Class A
common stock, of which options for up to 3,000,000 shares
of Class B common stock were available to be granted in
lieu of options for shares of Class A common stock. The
Committee had the discretion to determine the employees and
consultants to whom options were granted, the number of shares
subject to the options, the exercise price of the options, the
period over which the options became exercisable, the term of
the options (including the period after termination of
employment during which an option was to be exercised) and
certain other provisions relating to the options. The maximum
number of shares subject to options that were allowed to be
granted to any one participant under the Employee Plan during
any calendar year was 5,000,000 shares. The maximum term of
options granted under the Employee Plan was ten years. Options
granted were either incentive stock options under the Internal
Revenue Code of 1986, as amended, or non-qualified stock
options. In general, for grants prior to December 1, 2000,
options vested in equal monthly increments over 48 months,
and for grants subsequent to December 1, 2000, options
vested 12.5% six months from the date of grant and then in equal
monthly increments over the next 42 months. Vesting would
be accelerated upon a change of control of us as defined in the
Employee Plan. At December 31, 2003, employees had options
to purchase an aggregate of 10,745,692 shares of
Class A common stock outstanding under The Employee Plan
and options to purchase an aggregate of 3,000,000 shares of
Class B common stock. The Employee Plan expired
June 1, 2003. Options outstanding prior to the expiration
date continue to be recognized, but no new grants of options
will be made.
Old UGC adopted a stock option plan for non-employee directors
effective June 1, 1993, which was assumed by us on
January 30, 2002 (the 1993 Director Plan).
The 1993 Director Plan provided for the grant of an option
to acquire 20,000 shares of our Class A common stock
to each member of the Board of Directors who was not also an
employee of ours (a non-employee director) on
June 1, 1993, and to each person who was newly elected to
the Board of Directors as a non-employee director after
June 1, 1993, on the date of their election. To allow for
additional option grants to non-employee directors, Old UGC
adopted a second stock option plan for non-employee directors
effective March 20, 1998, which was assumed by us on
January 30, 2002 (the 1998 Director Plan,
and together with the 1993 Director Plan, the
Director Plans). Options under the
1998 Director Plan were granted at the discretion of our
Board of Directors. The maximum term of options
A4-108
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
granted under the Director Plans was ten years. Under the
1993 Director Plan, options vested 25.0% on the first
anniversary of the date of grant and then evenly over the next
36-month period. Under the 1998 Director Plan, options
vested in equal monthly increments over the four-year period
following the date of grant. Vesting under the Director Plans
would be accelerated upon a change in control of us as defined
in the respective Director Plans. Effective March 14, 2003,
the Board of Directors terminated the 1993 Director Plan.
At the time of termination, we had granted options for an
aggregate of 860,000 shares of Class A common stock,
of which 271,667 shares have been cancelled. Options
outstanding prior to the date of termination continue to be
recognized, but no new grants of options will be made.
Pro forma information regarding net income (loss) and net income
(loss) per share is required to be determined as if we had
accounted for our Employee Plans and Director Plans
options granted on or after March 1, 1995 under the fair
value method prescribed by SFAS 123. The fair value of
options granted for the years ended December 31, 2003, 2002
and 2001 reported below has been estimated at the date of grant
using the Black-Scholes single-option pricing model and the
following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
Risk-free interest rate
|
|
|
3.40% |
|
|
|
4.62% |
|
|
|
4.78% |
|
Expected lives
|
|
|
6 years |
|
|
|
6 years |
|
|
|
6 years |
|
Expected volatility
|
|
|
100% |
|
|
|
100% |
|
|
|
95.13% |
|
Expected dividend yield
|
|
|
0% |
|
|
|
0% |
|
|
|
0% |
|
Based on the above assumptions, the total fair value of options
granted was nil, $47.6 million and $5.3 million for
the years ended December 31, 2003, 2002 and 2001,
respectively.
A summary of stock option activity for the Employee Plan is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
|
|
|
Weighted- | |
|
|
|
Weighted- | |
|
|
|
Weighted- | |
|
|
|
|
Average | |
|
|
|
Average | |
|
|
|
Average | |
|
|
|
|
Exercise | |
|
|
|
Exercise | |
|
|
|
Exercise | |
|
|
Number | |
|
Price | |
|
Number | |
|
Price | |
|
Number | |
|
Price | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Outstanding at beginning of year
|
|
|
16,964,230 |
|
|
$ |
7.88 |
|
|
|
5,141,807 |
|
|
$ |
16.16 |
|
|
|
4,770,216 |
|
|
$ |
16.95 |
|
Granted during the year
|
|
|
|
|
|
$ |
|
|
|
|
11,970,000 |
|
|
$ |
4.43 |
|
|
|
543,107 |
|
|
$ |
10.08 |
|
Cancelled during the year
|
|
|
(3,067,084 |
) |
|
$ |
5.90 |
|
|
|
(147,577 |
) |
|
$ |
16.66 |
|
|
|
(157,741 |
) |
|
$ |
20.12 |
|
Exercised during the year
|
|
|
(151,454 |
) |
|
$ |
3.92 |
|
|
|
|
|
|
$ |
|
|
|
|
(13,775 |
) |
|
$ |
5.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
13,745,692 |
|
|
$ |
8.36 |
|
|
|
16,964,230 |
|
|
$ |
7.88 |
|
|
|
5,141,807 |
|
|
$ |
16.16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of year
|
|
|
8,977,124 |
|
|
$ |
9.91 |
|
|
|
7,371,369 |
|
|
$ |
10.28 |
|
|
|
3,125,596 |
|
|
$ |
13.70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A4-109
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
A summary of stock option activity for the Director Plans is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
|
|
|
Weighted- | |
|
|
|
Weighted- | |
|
|
|
Weighted- | |
|
|
|
|
Average | |
|
|
|
Average | |
|
|
|
Average | |
|
|
|
|
Exercise | |
|
|
|
Exercise | |
|
|
|
Exercise | |
|
|
Number | |
|
Price | |
|
Number | |
|
Price | |
|
Number | |
|
Price | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Outstanding at beginning of year
|
|
|
1,080,000 |
|
|
$ |
10.52 |
|
|
|
1,110,416 |
|
|
$ |
11.24 |
|
|
|
630,000 |
|
|
$ |
18.13 |
|
Granted during the year
|
|
|
|
|
|
$ |
|
|
|
|
200,000 |
|
|
$ |
5.00 |
|
|
|
500,000 |
|
|
$ |
5.00 |
|
Cancelled during the year
|
|
|
|
|
|
$ |
|
|
|
|
(230,416 |
) |
|
$ |
9.20 |
|
|
|
(19,584 |
) |
|
$ |
73.45 |
|
Exercised during the year
|
|
|
(160,000 |
) |
|
$ |
4.75 |
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
920,000 |
|
|
$ |
11.53 |
|
|
|
1,080,000 |
|
|
$ |
10.52 |
|
|
|
1,110,416 |
|
|
$ |
11.24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of year
|
|
|
702,290 |
|
|
$ |
13.48 |
|
|
|
569,999 |
|
|
$ |
12.81 |
|
|
|
487,290 |
|
|
$ |
12.99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The combined weighted-average fair values and weighted-average
exercise prices of options granted under the Employee Plan and
the Director Plans are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
|
|
|
Fair | |
|
Exercise | |
|
|
|
Fair | |
|
Exercise | |
Exercise Price |
|
Number | |
|
Value | |
|
Price | |
|
Number | |
|
Value | |
|
Price | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Less than market price
|
|
|
2,900,000 |
|
|
$ |
4.53 |
|
|
$ |
2.64 |
|
|
|
3,149 |
|
|
$ |
9.65 |
|
|
$ |
5.96 |
|
Equal to market price
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
100,000 |
|
|
$ |
13.71 |
|
|
$ |
17.38 |
|
Greater than market price
|
|
|
9,270,000 |
|
|
$ |
3.71 |
|
|
$ |
5.00 |
|
|
|
939,958 |
|
|
$ |
4.10 |
|
|
$ |
6.62 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
12,170,000 |
|
|
$ |
3.91 |
|
|
$ |
4.44 |
|
|
|
1,043,107 |
|
|
$ |
5.03 |
|
|
$ |
7.64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes information about employee and
director stock options outstanding and exercisable at
December 31, 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding | |
|
Options Exercisable | |
|
|
| |
|
| |
|
|
|
|
Weighted-Average | |
|
Weighted- | |
|
|
|
Weighted- | |
|
|
|
|
Remaining | |
|
Average | |
|
|
|
Average | |
|
|
|
|
Contractual Life | |
|
Exercise | |
|
|
|
Exercise | |
Exercise Price Range |
|
Number | |
|
(Years) | |
|
Price | |
|
Number | |
|
Price | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
$4.16$4.75
|
|
|
407,000 |
|
|
|
3.75 |
|
|
$ |
4.29 |
|
|
|
407,000 |
|
|
$ |
4.29 |
|
$5.00$5.00
|
|
|
10,977,808 |
|
|
|
8.09 |
|
|
$ |
5.00 |
|
|
|
6,203,710 |
|
|
$ |
5.00 |
|
$5.11$7.13
|
|
|
996,182 |
|
|
|
3.89 |
|
|
$ |
5.75 |
|
|
|
974,677 |
|
|
$ |
5.77 |
|
$7.75$86.50
|
|
|
2,284,702 |
|
|
|
5.84 |
|
|
$ |
27.66 |
|
|
|
2,094,027 |
|
|
$ |
28.68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
14,665,692 |
|
|
|
7.33 |
|
|
$ |
8.56 |
|
|
|
9,679,414 |
|
|
$ |
10.17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UPC Stock Option
Plans
UPC adopted a stock option plan on June 13, 1996, as
amended (the UPC Plan), for certain of its employees
and those of its subsidiaries. Options under the UPC Plan were
granted at fair market value at the time of the grant, unless
determined otherwise by UPCs Supervisory Board. The
maximum term that the options were exerciseable was five years
from the date of the grant. In order to introduce the element of
vesting of the options, the UPC Plan provided that
even though the options were exercisable upon grant, the options
were subject to repurchase rights reduced by equal monthly
amounts over a vesting period of 36 months for options
granted in 1996 and 48 months for all other options. Upon
termination of an employee (except in the case of
A4-110
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
death, disability or the like), all unvested options previously
exercised were resold to UPC at the exercise price and all
vested options were exercised within 30 days of the
termination date. UPCs Supervisory Board was allowed to
alter these vesting schedules at its discretion. The UPC Plan
also contained anti-dilution protection and provided that, in
the case of a change of control, the acquiring company had the
right to require UPC to acquire all of the options outstanding
at the per share value determined in the transaction giving rise
to the change of control. As a result of UPCs
reorganization under Chapter 11 of the U.S. Bankruptcy
Code, all of UPCs existing stock-based compensation plans
were cancelled.
Pro forma information regarding net income (loss) and net income
(loss) per share is presented below as if UPC had accounted for
the UPC Plan under the fair value method of SFAS 123. The
fair value of options granted for the years ended
December 31, 2002 and 2001 reported below has been
estimated at the date of grant using the Black-Scholes
single-option pricing model and the following weighted-average
assumptions:
|
|
|
|
|
|
|
|
|
|
|
Year Ended | |
|
|
December 31, | |
|
|
| |
|
|
2002 | |
|
2001 | |
|
|
| |
|
| |
Risk-free interest rate
|
|
|
3.16 |
% |
|
|
4.15 |
% |
Expected lives
|
|
|
5 years |
|
|
|
5 years |
|
Expected volatility
|
|
|
118.33 |
% |
|
|
112.19 |
% |
Expected dividend yield
|
|
|
0 |
% |
|
|
0 |
% |
Based on the above assumptions, the total fair value of options
granted was approximately $0.1 million and
$140.5 million for the years ended December 31, 2002
and 2001, respectively.
The UPC Plan was accounted for as a variable plan prior to
UPCs initial public offering in February 1999.
Accordingly, compensation expense was recognized at each
financial statement date based on the difference between the
grant price and the estimated fair value of UPCs common
stock. Thereafter, the UPC Plan was accounted for as a fixed
plan. Compensation expense of $29.2 million,
$31.9 million and $30.6 million was recognized in the
statement of operations for the years ended December 31,
2003, 2002 and 2001, respectively.
In March 1998, UPC adopted a phantom stock option plan (the
UPC Phantom Plan) which permitted the grant of
phantom stock rights in up to 7,200,000 shares of
UPCs common stock. The UPC Phantom Plan gave the employee
the right to receive payment equal to the difference between the
fair value of a share of UPC common stock and the option base
price for the portion of the rights vested. The rights were
granted at fair value at the time of grant, and generally vested
in equal monthly increments over the four-year period following
the effective date of grant and were exerciseable for ten years
following the effective date of grant. UPC had the option of
payment in (i) cash, (ii) freely tradable shares of
our Class A common stock or (iii) freely tradable
shares of UPCs common stock. The UPC Phantom Plan
contained anti-dilution protection and provided that, in certain
cases of a change of control, all phantom options outstanding
become fully exercisable. As a result of UPCs
reorganization under Chapter 11 of the U.S. Bankruptcy
Code, all of UPCs existing stock-based compensation plans
were cancelled. The UPC Phantom Plan was accounted for as a
variable plan in accordance with its terms, resulting in
compensation expense for the difference between the grant price
and the fair market value at each financial statement date.
Compensation expense (credit) of nil and $(22.8) million
was recognized in the statement of operations for the years
ended December 31, 2002 and 2001, respectively.
Our European operations are currently organized into two
principal divisions-UPC Broadband and chellomedia. UPC Broadband
provides video services, telephone services and high-speed
Internet access services to residential customers, and manages
its business by country. chellomedia provides broadband Internet
and interactive digital products and services, operates a
competitive local exchange carrier business providing telephone
and data network solutions to the business market (Priority
Telecom) and holds certain investments. In
A4-111
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
Latin America we also have a Broadband division that provides
video services, telephone services and high-speed Internet
access services to residential and business customers, and
manages its business by country. We evaluate performance and
allocate resources based on the results of these segments. The
key operating performance criteria used in this evaluation
include revenue and Adjusted EBITDA. Adjusted EBITDA
is the primary measure used by our chief operating decision
makers to evaluate segment-operating performance and to decide
how to allocate resources to segments. EBITDA is an
acronym for earnings before interest, taxes, depreciation and
amortization. As we use the term, Adjusted EBITDA further
removes the effects of cumulative effects of accounting changes,
share in results of affiliates, minority interests in
subsidiaries, reorganization expense, other income and expense,
provision for loss on investments, gain (loss) on sale of
investments in affiliates, gain on extinguishment of debt,
foreign currency exchange gain (loss), impairment and
restructuring charges, certain litigation expenses and
stock-based compensation. We believe Adjusted EBITDA 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 Adjusted
EBITDA is a meaningful measure and is superior to other
available GAAP measures because it represents a transparent view
of our recurring operating performance and allows management to
readily view operating trends, perform analytical comparisons
and benchmarking between segments in the different countries in
which we operate and identify strategies to improve operating
performance. For example, our internal decision makers believe
that the inclusion of impairment and restructuring charges
within Adjusted EBITDA distorts their ability to efficiently
assess and view the core operating trends in our segments. In
addition, our internal decision makers believe our measure of
Adjusted EBITDA is important because analysts and other
investors use it to compare our performance to other companies
in our industry. We reconcile the total of the reportable
segments Adjusted EBITDA to our consolidated net income as
presented in the accompanying consolidated statements of
operations, because we believe consolidated net income is the
most directly comparable financial measure to total segment
operating performance. Investors should view Adjusted EBITDA as
a supplement to, and not a substitute for, other GAAP measures
of income as a measure of operating performance. As discussed
above, Adjusted EBITDA excludes, among other items, frequently
occurring impairment, restructuring and other charges that would
be included in GAAP measures of operating performance.
A4-112
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Europe:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UPC Broadband
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$ |
592,223 |
|
|
$ |
459,044 |
|
|
$ |
365,988 |
|
|
|
Austria
|
|
|
260,162 |
|
|
|
198,189 |
|
|
|
163,073 |
|
|
|
Belgium
|
|
|
31,586 |
|
|
|
24,646 |
|
|
|
22,318 |
|
|
|
Czech Republic
|
|
|
63,348 |
|
|
|
44,337 |
|
|
|
38,588 |
|
|
|
Norway
|
|
|
95,284 |
|
|
|
76,430 |
|
|
|
59,707 |
|
|
|
Hungary
|
|
|
165,450 |
|
|
|
124,046 |
|
|
|
93,206 |
|
|
|
France
|
|
|
113,946 |
|
|
|
92,441 |
|
|
|
83,811 |
|
|
|
Poland
|
|
|
85,356 |
|
|
|
76,090 |
|
|
|
132,669 |
|
|
|
Sweden
|
|
|
75,057 |
|
|
|
52,560 |
|
|
|
40,493 |
|
|
|
Slovak Republic
|
|
|
25,467 |
|
|
|
18,852 |
|
|
|
17,607 |
|
|
|
Romania
|
|
|
20,189 |
|
|
|
16,119 |
|
|
|
12,710 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,528,068 |
|
|
|
1,182,754 |
|
|
|
1,030,170 |
|
|
|
Germany
|
|
|
|
|
|
|
28,069 |
|
|
|
45,848 |
|
|
|
Corporate and other(1)
|
|
|
32,563 |
|
|
|
35,139 |
|
|
|
51,762 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,560,631 |
|
|
|
1,245,962 |
|
|
|
1,127,780 |
|
|
|
|
|
|
|
|
|
|
|
|
chellomedia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Priority Telecom(1)
|
|
|
121,330 |
|
|
|
112,637 |
|
|
|
206,149 |
|
|
|
Media(1)
|
|
|
98,463 |
|
|
|
69,372 |
|
|
|
75,676 |
|
|
|
Investments
|
|
|
528 |
|
|
|
465 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
220,321 |
|
|
|
182,474 |
|
|
|
281,825 |
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany Eliminations
|
|
|
(127,055 |
) |
|
|
(108,695 |
) |
|
|
(176,417 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,653,897 |
|
|
|
1,319,741 |
|
|
|
1,233,188 |
|
|
|
|
|
|
|
|
|
|
|
Latin America:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broadband
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chile
|
|
|
229,835 |
|
|
|
186,426 |
|
|
|
166,590 |
|
|
|
Brazil, Peru, Uruguay
|
|
|
7,798 |
|
|
|
7,054 |
|
|
|
6,044 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
237,633 |
|
|
|
193,480 |
|
|
|
172,634 |
|
|
|
|
|
|
|
|
|
|
|
Australia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broadband
|
|
|
|
|
|
|
|
|
|
|
145,423 |
|
|
Content
|
|
|
|
|
|
|
|
|
|
|
9,973 |
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
235 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
155,631 |
|
|
|
|
|
|
|
|
|
|
|
Corporate and other (United States)
|
|
|
|
|
|
|
1,800 |
|
|
|
441 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
1,891,530 |
|
|
$ |
1,515,021 |
|
|
$ |
1,561,894 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Primarily The Netherlands. |
A4-113
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
Adjusted EBITDA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Europe:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UPC Broadband
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$ |
267,075 |
|
|
$ |
119,329 |
|
|
$ |
40,913 |
|
|
|
Austria
|
|
|
98,278 |
|
|
|
64,662 |
|
|
|
40,583 |
|
|
|
Belgium
|
|
|
12,306 |
|
|
|
8,340 |
|
|
|
4,367 |
|
|
|
Czech Republic
|
|
|
24,657 |
|
|
|
9,241 |
|
|
|
9,048 |
|
|
|
Norway
|
|
|
27,913 |
|
|
|
17,035 |
|
|
|
5,337 |
|
|
|
Hungary
|
|
|
63,357 |
|
|
|
41,487 |
|
|
|
26,555 |
|
|
|
France
|
|
|
13,920 |
|
|
|
(10,446 |
) |
|
|
(25,678 |
) |
|
|
Poland
|
|
|
24,886 |
|
|
|
15,794 |
|
|
|
(8,633 |
) |
|
|
Sweden
|
|
|
31,827 |
|
|
|
15,904 |
|
|
|
6,993 |
|
|
|
Slovak Republic
|
|
|
10,618 |
|
|
|
4,940 |
|
|
|
2,802 |
|
|
|
Romania
|
|
|
7,545 |
|
|
|
6,044 |
|
|
|
3,165 |
|
|
|
Other
|
|
|
386 |
|
|
|
535 |
|
|
|
1,434 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
582,768 |
|
|
|
292,865 |
|
|
|
106,886 |
|
|
|
Germany
|
|
|
|
|
|
|
12,562 |
|
|
|
22,197 |
|
|
|
Corporate and other(1)
|
|
|
(46,091 |
) |
|
|
(25,727 |
) |
|
|
(93,781 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
536,677 |
|
|
|
279,700 |
|
|
|
35,302 |
|
|
chellomedia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Priority Telecom(1)
|
|
|
14,530 |
|
|
|
(3,809 |
) |
|
|
(79,758 |
) |
|
|
Media(1)
|
|
|
22,874 |
|
|
|
(4,851 |
) |
|
|
(100,599 |
) |
|
|
Investments
|
|
|
(1,033 |
) |
|
|
(374 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
36,371 |
|
|
|
(9,034 |
) |
|
|
(180,357 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
573,048 |
|
|
|
270,666 |
|
|
|
(145,055 |
) |
|
|
|
|
|
|
|
|
|
|
Latin America:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broadband
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chile
|
|
|
69,951 |
|
|
|
41,959 |
|
|
|
26,860 |
|
|
|
Brazil, Peru, Uruguay
|
|
|
8 |
|
|
|
(3,475 |
) |
|
|
(4,016 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
69,959 |
|
|
|
38,484 |
|
|
|
22,844 |
|
|
|
|
|
|
|
|
|
|
|
Australia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broadband
|
|
|
|
|
|
|
|
|
|
|
(32,338 |
) |
|
Content
|
|
|
|
|
|
|
|
|
|
|
(6,849 |
) |
|
Other
|
|
|
|
|
|
|
(282 |
) |
|
|
(832 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
(282 |
) |
|
|
(40,019 |
) |
|
|
|
|
|
|
|
|
|
|
Corporate and other (United States)
|
|
|
(14,125 |
) |
|
|
(12,494 |
) |
|
|
(29,013 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
628,882 |
|
|
$ |
296,374 |
|
|
$ |
(191,243 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Primarily The Netherlands. |
A4-114
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
Total segment Adjusted EBITDA reconciles to consolidated net
income (loss) as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Total segment Adjusted EBITDA
|
|
$ |
628,882 |
|
|
$ |
296,374 |
|
|
$ |
(191,243 |
) |
Depreciation and amortization
|
|
|
(808,663 |
) |
|
|
(730,001 |
) |
|
|
(1,147,176 |
) |
Impairment of long-lived assets
|
|
|
(402,239 |
) |
|
|
(436,153 |
) |
|
|
(1,320,942 |
) |
Restructuring charges and other
|
|
|
(35,970 |
) |
|
|
(1,274 |
) |
|
|
(204,127 |
) |
Stock-based compensation
|
|
|
(38,024 |
) |
|
|
(28,228 |
) |
|
|
(8,818 |
) |
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(656,014 |
) |
|
|
(899,282 |
) |
|
|
(2,872,306 |
) |
Interest expense, net
|
|
|
(314,078 |
) |
|
|
(641,786 |
) |
|
|
(966,134 |
) |
Foreign currency exchange gain (loss), net
|
|
|
121,612 |
|
|
|
739,794 |
|
|
|
(148,192 |
) |
Gain on extinguishment of debt
|
|
|
2,183,997 |
|
|
|
2,208,782 |
|
|
|
3,447 |
|
Gain (loss) on sale of investments in affiliates, net
|
|
|
279,442 |
|
|
|
117,262 |
|
|
|
(416,803 |
) |
Other expense, net
|
|
|
(14,884 |
) |
|
|
(120,832 |
) |
|
|
(265,512 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and other items
|
|
|
1,600,075 |
|
|
|
1,403,938 |
|
|
|
(4,665,500 |
) |
Other, net
|
|
|
395,293 |
|
|
|
(415,670 |
) |
|
|
150,735 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before cumulative effect of change in accounting
principle
|
|
|
1,995,368 |
|
|
|
988,268 |
|
|
|
(4,514,765 |
) |
Cumulative effect of change in accounting principle
|
|
|
|
|
|
|
(1,344,722 |
) |
|
|
20,056 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
1,995,368 |
|
|
$ |
(356,454 |
) |
|
$ |
(4,494,709 |
) |
|
|
|
|
|
|
|
|
|
|
A4-115
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in Affiliates | |
|
Long-Lived Assets | |
|
Total Assets | |
|
|
| |
|
| |
|
| |
|
|
December 31, | |
|
December 31, | |
|
December 31, | |
|
|
| |
|
| |
|
| |
|
|
2003 | |
|
2002 | |
|
2003 | |
|
2002 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Europe:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UPC Broadband
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$ |
222 |
|
|
$ |
215 |
|
|
$ |
1,334,294 |
|
|
$ |
1,310,783 |
|
|
$ |
2,493,134 |
|
|
$ |
1,884,044 |
|
|
|
Austria
|
|
|
|
|
|
|
|
|
|
|
307,758 |
|
|
|
282,628 |
|
|
|
700,209 |
|
|
|
450,526 |
|
|
|
Belgium
|
|
|
|
|
|
|
|
|
|
|
22,596 |
|
|
|
22,395 |
|
|
|
88,725 |
|
|
|
44,444 |
|
|
|
Czech Republic
|
|
|
|
|
|
|
|
|
|
|
117,527 |
|
|
|
120,863 |
|
|
|
201,103 |
|
|
|
127,691 |
|
|
|
Norway
|
|
|
|
|
|
|
|
|
|
|
219,651 |
|
|
|
226,981 |
|
|
|
280,528 |
|
|
|
249,761 |
|
|
|
Hungary
|
|
|
1,708 |
|
|
|
|
|
|
|
249,515 |
|
|
|
251,120 |
|
|
|
541,139 |
|
|
|
343,287 |
|
|
|
France
|
|
|
|
|
|
|
|
|
|
|
246,307 |
|
|
|
573,167 |
|
|
|
274,180 |
|
|
|
608,650 |
|
|
|
Poland
|
|
|
15,049 |
|
|
|
3,277 |
|
|
|
118,586 |
|
|
|
124,088 |
|
|
|
302,216 |
|
|
|
245,122 |
|
|
|
Sweden
|
|
|
|
|
|
|
|
|
|
|
94,414 |
|
|
|
87,339 |
|
|
|
321,961 |
|
|
|
237,619 |
|
|
|
Slovak Republic
|
|
|
|
|
|
|
|
|
|
|
35,697 |
|
|
|
26,896 |
|
|
|
67,027 |
|
|
|
33,428 |
|
|
|
Romania
|
|
|
|
|
|
|
|
|
|
|
15,235 |
|
|
|
9,403 |
|
|
|
42,503 |
|
|
|
31,078 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
16,979 |
|
|
|
3,492 |
|
|
|
2,761,580 |
|
|
|
3,035,663 |
|
|
|
5,312,725 |
|
|
|
4,255,650 |
|
|
|
Corporate and other(1)
|
|
|
65,279 |
|
|
|
112,507 |
|
|
|
14,154 |
|
|
|
39,455 |
|
|
|
374,876 |
|
|
|
576,568 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
82,258 |
|
|
|
115,999 |
|
|
|
2,775,734 |
|
|
|
3,075,118 |
|
|
|
5,687,601 |
|
|
|
4,832,218 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
chellomedia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Priority Telecom(1)
|
|
|
3,232 |
|
|
|
|
|
|
|
182,491 |
|
|
|
202,986 |
|
|
|
241,909 |
|
|
|
261,301 |
|
|
|
Media(1)
|
|
|
2,257 |
|
|
|
4,037 |
|
|
|
43,578 |
|
|
|
48,625 |
|
|
|
232,527 |
|
|
|
72,554 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
5,489 |
|
|
|
4,037 |
|
|
|
226,069 |
|
|
|
251,611 |
|
|
|
474,436 |
|
|
|
333,855 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
87,747 |
|
|
|
120,036 |
|
|
|
3,001,803 |
|
|
|
3,326,729 |
|
|
|
6,162,037 |
|
|
|
5,166,073 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Latin America:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broadband
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chile
|
|
|
|
|
|
|
|
|
|
|
322,606 |
|
|
|
293,941 |
|
|
|
602,762 |
|
|
|
509,376 |
|
|
|
Brazil, Peru, Uruguay
|
|
|
3,522 |
|
|
|
33,817 |
|
|
|
9,584 |
|
|
|
9,448 |
|
|
|
18,388 |
|
|
|
55,381 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,522 |
|
|
|
33,817 |
|
|
|
332,190 |
|
|
|
303,389 |
|
|
|
621,150 |
|
|
|
564,757 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and other (United States)
|
|
|
3,969 |
|
|
|
|
|
|
|
8,750 |
|
|
|
10,093 |
|
|
|
316,484 |
|
|
|
200,764 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
95,238 |
|
|
$ |
153,853 |
|
|
$ |
3,342,743 |
|
|
$ |
3,640,211 |
|
|
$ |
7,099,671 |
|
|
$ |
5,931,594 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Primarily The Netherlands. |
A4-116
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization | |
|
Capital Expenditures | |
|
|
| |
|
| |
|
|
Year Ended December 31, | |
|
Year Ended December 31, | |
|
|
| |
|
| |
|
|
2003 | |
|
2002 | |
|
2001 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Europe:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UPC Broadband
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$ |
(225,638 |
) |
|
$ |
(230,852 |
) |
|
$ |
(252,356 |
) |
|
$ |
(63,451 |
) |
|
$ |
(97,841 |
) |
|
$ |
(213,846 |
) |
|
|
Austria
|
|
|
(85,589 |
) |
|
|
(71,924 |
) |
|
|
(68,513 |
) |
|
|
(43,751 |
) |
|
|
(38,388 |
) |
|
|
(92,679 |
) |
|
|
Belgium
|
|
|
(6,877 |
) |
|
|
(5,952 |
) |
|
|
(7,531 |
) |
|
|
(3,473 |
) |
|
|
(2,884 |
) |
|
|
(8,367 |
) |
|
|
Czech Republic
|
|
|
(18,665 |
) |
|
|
(16,317 |
) |
|
|
(24,577 |
) |
|
|
(12,294 |
) |
|
|
(4,706 |
) |
|
|
(26,287 |
) |
|
|
Norway
|
|
|
(36,765 |
) |
|
|
(37,288 |
) |
|
|
(35,918 |
) |
|
|
(9,714 |
) |
|
|
(7,050 |
) |
|
|
(60,562 |
) |
|
|
Hungary
|
|
|
(39,102 |
) |
|
|
(34,889 |
) |
|
|
(35,202 |
) |
|
|
(23,004 |
) |
|
|
(16,659 |
) |
|
|
(31,599 |
) |
|
|
France
|
|
|
(99,913 |
) |
|
|
(85,940 |
) |
|
|
(78,732 |
) |
|
|
(48,810 |
) |
|
|
(19,688 |
) |
|
|
(114,596 |
) |
|
|
Poland
|
|
|
(28,487 |
) |
|
|
(28,517 |
) |
|
|
(126,855 |
) |
|
|
(8,476 |
) |
|
|
(4,464 |
) |
|
|
(35,628 |
) |
|
|
Sweden
|
|
|
(19,668 |
) |
|
|
(13,519 |
) |
|
|
(37,098 |
) |
|
|
(9,778 |
) |
|
|
(8,974 |
) |
|
|
(28,767 |
) |
|
|
Slovak Republic
|
|
|
(8,939 |
) |
|
|
(7,478 |
) |
|
|
(13,124 |
) |
|
|
(3,848 |
) |
|
|
(501 |
) |
|
|
(5,005 |
) |
|
|
Romania
|
|
|
(2,984 |
) |
|
|
(2,494 |
) |
|
|
(1,578 |
) |
|
|
(5,286 |
) |
|
|
(4,547 |
) |
|
|
(3,433 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(572,627 |
) |
|
|
(535,170 |
) |
|
|
(681,484 |
) |
|
|
(231,885 |
) |
|
|
(205,702 |
) |
|
|
(620,769 |
) |
|
|
Germany
|
|
|
|
|
|
|
(9,240 |
) |
|
|
(107,799 |
) |
|
|
|
|
|
|
(3,357 |
) |
|
|
(12,788 |
) |
|
|
Corporate and
other(1)
|
|
|
(86,939 |
) |
|
|
(61,543 |
) |
|
|
(74,420 |
) |
|
|
(35,666 |
) |
|
|
(6,491 |
) |
|
|
(47,773 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(659,566 |
) |
|
|
(605,953 |
) |
|
|
(863,703 |
) |
|
|
(267,551 |
) |
|
|
(215,550 |
) |
|
|
(681,330 |
) |
|
chellomedia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Priority Telecom(1)
|
|
|
(60,952 |
) |
|
|
(45,239 |
) |
|
|
(80,887 |
) |
|
|
(16,727 |
) |
|
|
(30,658 |
) |
|
|
(69,710 |
) |
|
|
UPC Media(1)
|
|
|
(17,706 |
) |
|
|
(20,565 |
) |
|
|
(37,305 |
) |
|
|
(5,779 |
) |
|
|
(6,241 |
) |
|
|
(50,051 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(78,658 |
) |
|
|
(65,804 |
) |
|
|
(118,192 |
) |
|
|
(22,506 |
) |
|
|
(36,899 |
) |
|
|
(119,761 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(738,224 |
) |
|
|
(671,757 |
) |
|
|
(981,895 |
) |
|
|
(290,057 |
) |
|
|
(252,449 |
) |
|
|
(801,091 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Latin America:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broadband
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chile
|
|
|
(66,928 |
) |
|
|
(54,458 |
) |
|
|
(54,027 |
) |
|
|
(41,391 |
) |
|
|
(80,006 |
) |
|
|
(135,821 |
) |
|
|
Brazil, Peru, Uruguay
|
|
|
(2,206 |
) |
|
|
(2,371 |
) |
|
|
(7,824 |
) |
|
|
(1,582 |
) |
|
|
(2,679 |
) |
|
|
(10,418 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(69,134 |
) |
|
|
(56,829 |
) |
|
|
(61,851 |
) |
|
|
(42,973 |
) |
|
|
(82,685 |
) |
|
|
(146,239 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Australia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broadband
|
|
|
|
|
|
|
|
|
|
|
(100,489 |
) |
|
|
|
|
|
|
|
|
|
|
(48,291 |
) |
|
Other
|
|
|
|
|
|
|
|
|
|
|
(1,282 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
(101,771 |
) |
|
|
|
|
|
|
|
|
|
|
(48,291 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and other (United States)
|
|
|
(1,305 |
) |
|
|
(1,415 |
) |
|
|
(1,659 |
) |
|
|
(94 |
) |
|
|
(58 |
) |
|
|
(790 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
(808,663 |
) |
|
$ |
(730,001 |
) |
|
$ |
(1,147,176 |
) |
|
$ |
(333,124 |
) |
|
$ |
(335,192 |
) |
|
$ |
(996,411 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Primarily The Netherlands. |
A4-117
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|
|
17. |
Impairment of Long-Lived Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
UPC Broadband
|
|
$ |
(402,239 |
) |
|
$ |
(75,305 |
) |
|
$ |
(682,633 |
) |
Priority Telecom
|
|
|
|
|
|
|
(359,237 |
) |
|
|
(418,413 |
) |
Swiss wireless license
|
|
|
|
|
|
|
|
|
|
|
(91,260 |
) |
Microsoft contract acquisition rights
|
|
|
|
|
|
|
|
|
|
|
(59,831 |
) |
Other
|
|
|
|
|
|
|
(1,611 |
) |
|
|
(68,805 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
(402,239 |
) |
|
$ |
(436,153 |
) |
|
$ |
(1,320,942 |
) |
|
|
|
|
|
|
|
|
|
|
2003
During the fourth quarter of 2003, various events took place
that indicated the long-lived assets in our French asset group
were potentially impaired: 1) We entered into preliminary
discussions regarding the merger of our French assets into a new
company, which indicated a potential decline in the fair value
of these assets; 2) We made downward revisions to the
revenue and Adjusted EBITDA projections for France in our
long-range plan, due to actual results continuing to fall short
of expectations; and 3) We performed a fair value analysis
of all the assets of UGC Europe in connection with the UGC
Europe Exchange Offer that confirmed a decrease in fair value of
our French assets. As a result, we determined a triggering event
had occurred in the fourth quarter of 2003. We performed a cash
flow analysis, which indicated the carrying amount of our
long-lived assets in France exceeded the sum of the undiscounted
cash flows expected to result from the use of these assets.
Accordingly, we performed a discounted cash flow analysis
(supported by the independent valuation from the UGC Europe
Exchange Offer), and recorded an impairment of
$384.9 million and $8.4 million for the difference
between the fair value and the carrying amount of property,
plant and equipment and other long-lived assets, respectively.
We also recorded a total of $8.9 million for other
impairments in 2003.
2002
Based on our annual impairment test as of December 31, 2002
in accordance with SFAS 142, we recorded an impairment
charge of $344.8 million and $18.0 million on goodwill
related to Priority Telecom and UPC Romania, respectively. In
addition, we wrote off other tangible assets in The Netherlands,
Norway, France, Poland, Slovak Republic, Czech Republic and
Priority Telecom amounting to $73.4 million for the year
ended December 31, 2002.
2001
Due to the lack of financial resources to fully develop the
triple play in Germany, and due to our inability to find a
partner to help implement this strategy, the long range plans of
UPC Germany were revised in 2001 to provide for a care and
maintenance program, meaning that the business plan would
be primarily focused on current customers and product offerings
instead of a planned roll out of new service offerings. As a
result of this revised business plan, we determined that a
triggering event had occurred with respect to this investment in
the fourth quarter of 2001, as defined in SFAS No. 121
Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of
(SFAS 121). After analyzing the projected
undiscounted free cash flows (without interest), an impairment
charge was deemed necessary. The amount of the charge was
determined by evaluating the estimated fair value of our
investment in UPC Germany using a discounted cash flow approach,
resulting in an impairment charge of $682.6 million for the
year ended December 31, 2001.
A4-118
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
During the second quarter of 2001, we identified indicators of
possible impairment of long-lived assets, principally
indefeasible rights of use and related goodwill within our
subsidiary Priority Telecom. Such indicators included
significant declines in the market value of publicly traded
telecommunications providers and a change, subsequent to the
acquisition of Cignal, in the way that certain assets from the
Cignal acquisition were being used within Priority Telecom. We
revised our strategic plans for using these assets because of
reduced levels of private equity funding activity for these
businesses and our decision to complete a public listing of
Priority Telecom in the second half of 2001. The changes in
strategic plans included a decision to phase out the legacy
international wholesale voice operations of Cignal. When we and
Priority Telecom reached agreement to acquire Cignal in the
second quarter of 2000, the companies originally intended to
continue the international wholesale voice operations of Cignal
for the foreseeable future. This original plan for the
international wholesale voice operations was considered in the
determination of the consideration paid for Cignal. In 2001,
using the strategic plan prepared in connection with the public
listing of Priority Telecom, an impairment assessment test and
measurement in accordance with SFAS 121 was completed,
resulting in a write down of tangible assets, related goodwill
and other impairment charges of $418.4 million for the year
ended December 31, 2001.
In 2000 we acquired a license to operate a wireless
telecommunications system in Switzerland. During the fourth
quarter of 2001, in connection with our overall strategic
review, we determined that we were not in a position to develop
this asset as a result of both funding constraints and a change
in strategic focus away from the wireless business, resulting in
a write down of the value of this asset to nil and a charge of
$91.3 million for the year ended December 31, 2001.
As a result of issuing warrants to acquire common stock of UPC
during 1999 and 2000, we
recorded 150.2 million
in contract acquisition rights. These rights were being
amortized over the three-year term of an interim technology
agreement. During the fourth quarter of 2001, this interim
technology agreement was terminated, and the remaining
unamortized contract acquisition rights totaling
$59.8 million were written off.
A4-119
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|
|
18. |
Restructuring Charges and Other |
In 2001, UPC implemented a restructuring plan to both lower
operating expenses and strengthen its competitive and financial
position. This included eliminating certain employee positions,
reducing office space and related overhead expenses,
rationalization of certain corporate assets, recognizing losses
related to excess capacity under certain contracts and canceling
certain programming contracts. The total workforce reduction was
effected through attrition, involuntary terminations and
reorganization of UPCs operations to permanently eliminate
open positions resulting from normal employee attrition. The
following table summarizes these costs by type as of
December 31, 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Programming | |
|
Asset | |
|
|
|
|
Employee | |
|
|
|
and Lease | |
|
Disposal | |
|
|
|
|
Severence and | |
|
Office | |
|
Contract | |
|
Losses and | |
|
|
|
|
Termination(2) | |
|
Closures | |
|
Termination | |
|
Other | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
|
Restructuring charges
|
|
$ |
46,935 |
|
|
$ |
16,304 |
|
|
$ |
93,553 |
|
|
$ |
47,335 |
|
|
$ |
204,127 |
|
|
Cash paid and other releases
|
|
|
(13,497 |
) |
|
|
(6,386 |
) |
|
|
(14,814 |
) |
|
|
(3,294 |
) |
|
|
(37,991 |
) |
|
Foreign currency translation
adjustments
|
|
|
127 |
|
|
|
38 |
|
|
|
12,468 |
|
|
|
(29,537 |
) |
|
|
(16,904 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring liability as of December 31, 2001
|
|
|
33,565 |
|
|
|
9,956 |
|
|
|
91,207 |
|
|
|
14,504 |
|
|
|
149,232 |
|
|
Restructuring charges (credits)
|
|
|
13,675 |
|
|
|
7,884 |
|
|
|
(32,035 |
) |
|
|
11,750 |
|
|
|
1,274 |
|
|
Cash paid and other releases
|
|
|
(30,944 |
) |
|
|
(4,622 |
) |
|
|
(32,231 |
) |
|
|
(24,449 |
) |
|
|
(92,246 |
) |
|
Foreign currency translation
adjustments
|
|
|
3,133 |
|
|
|
978 |
|
|
|
9,920 |
|
|
|
2,590 |
|
|
|
16,621 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring liability as of December 31, 2002
|
|
|
19,429 |
|
|
|
14,196 |
|
|
|
36,861 |
|
|
|
4,395 |
|
|
|
74,881 |
|
|
Restructuring charges (credits)(1)
|
|
|
177 |
|
|
|
7,506 |
|
|
|
|
|
|
|
(605 |
) |
|
|
7,078 |
|
|
Cash paid and other releases
|
|
|
(13,628 |
) |
|
|
(5,934 |
) |
|
|
(5,981 |
) |
|
|
(1,991 |
) |
|
|
(27,534 |
) |
|
Foreign currency translation
adjustments
|
|
|
2,427 |
|
|
|
1,053 |
|
|
|
3,519 |
|
|
|
643 |
|
|
|
7,642 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring liability as of December 31, 2003
|
|
$ |
8,405 |
|
|
$ |
16,821 |
|
|
$ |
34,399 |
|
|
$ |
2,442 |
|
|
$ |
62,067 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term portion
|
|
$ |
3,682 |
|
|
$ |
6,002 |
|
|
$ |
3,795 |
|
|
$ |
794 |
|
|
$ |
14,273 |
|
Long-term portion
|
|
|
4,723 |
|
|
|
10,819 |
|
|
|
30,604 |
|
|
|
1,648 |
|
|
|
47,794 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
8,405 |
|
|
$ |
16,821 |
|
|
$ |
34,399 |
|
|
$ |
2,442 |
|
|
$ |
62,067 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Restructuring charges and other in 2003 also includes other
litigation settlements totaling $22.2 million and costs
incurred by UGC Europe related to the UGC Europe Exchange Offer
and merger of $6.7 million. |
|
(2) |
Included nil and 45 employees scheduled for termination as of
December 31, 2003 and 2002, respectively. |
A4-120
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
The significant components of our consolidated deferred tax
assets and liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
|
(In thousands) | |
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
Tax net operating loss carryforward of consolidated foreign
subsidiaries
|
|
$ |
1,017,895 |
|
|
$ |
1,431,785 |
|
|
U.S. tax net operating loss carryforward
|
|
|
9,258 |
|
|
|
|
|
|
Accrued interest expense
|
|
|
20,985 |
|
|
|
91,036 |
|
|
Investment valuation allowance and other
|
|
|
33,619 |
|
|
|
22,442 |
|
|
Property, plant and equipment, net
|
|
|
310,657 |
|
|
|
40,063 |
|
|
Intangible assets, net
|
|
|
20,701 |
|
|
|
|
|
|
Other
|
|
|
48,743 |
|
|
|
38,213 |
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
1,461,858 |
|
|
|
1,623,539 |
|
|
Valuation allowance
|
|
|
(1,331,778 |
) |
|
|
(1,607,089 |
) |
|
|
|
|
|
|
|
|
|
Deferred tax assets, net of valuation allowance
|
|
|
130,080 |
|
|
|
16,450 |
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
Cancellation of debt and other
|
|
|
(110,583 |
) |
|
|
(110,583 |
) |
|
Intangible assets
|
|
|
(82,679 |
) |
|
|
(12,056 |
) |
|
Other
|
|
|
(25,937 |
) |
|
|
(41 |
) |
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(219,199 |
) |
|
|
(122,680 |
) |
|
|
|
|
|
|
|
|
|
Deferred tax liabilities, net
|
|
$ |
(89,119 |
) |
|
$ |
(106,230 |
) |
|
|
|
|
|
|
|
A4-121
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
The difference between income tax expense (benefit) provided in
the accompanying consolidated financial statements and the
expected income tax expense (benefit) at statutory rates is
reconciled as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Expected income tax expense (benefit) at the U.S. statutory
rate of 35%
|
|
$ |
560,026 |
|
|
$ |
491,379 |
|
|
$ |
(1,632,925 |
) |
Tax effect of permanent and other differences:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in valuation allowance
|
|
|
(516,810 |
) |
|
|
173,604 |
|
|
|
814,612 |
|
|
Gain on sale of investment in affiliate
|
|
|
(133,211 |
) |
|
|
(51,774 |
) |
|
|
|
|
|
Tax ruling regarding UPC reorganization
|
|
|
107,922 |
|
|
|
|
|
|
|
|
|
|
Enacted tax law changes, case law and rate changes
|
|
|
(92,584 |
) |
|
|
|
|
|
|
|
|
|
Revenue for book not for tax
|
|
|
75,308 |
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
26,122 |
|
|
|
(11,415 |
) |
|
|
(5,063 |
) |
|
Financial instruments
|
|
|
15,280 |
|
|
|
95,178 |
|
|
|
|
|
|
Non-deductible interest accretion
|
|
|
8,680 |
|
|
|
110,974 |
|
|
|
81,149 |
|
|
State tax, net of federal benefit
|
|
|
7,193 |
|
|
|
42,118 |
|
|
|
(139,965 |
) |
|
International rate differences
|
|
|
(5,857 |
) |
|
|
58,407 |
|
|
|
187,027 |
|
|
Non-deductible foreign currency exchange results
|
|
|
(3,595 |
) |
|
|
(104,598 |
) |
|
|
|
|
|
Non-deductible expenses
|
|
|
1,870 |
|
|
|
12,024 |
|
|
|
14,740 |
|
|
Gain on extinguishment of debt
|
|
|
|
|
|
|
(728,754 |
) |
|
|
(1,310 |
) |
|
Goodwill impairment
|
|
|
|
|
|
|
114,039 |
|
|
|
559,028 |
|
|
Amortization of goodwill
|
|
|
|
|
|
|
|
|
|
|
84,020 |
|
|
Gain on issuance of common equity securities by subsidiaries
|
|
|
|
|
|
|
|
|
|
|
(1,974 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense (benefit)
|
|
$ |
50,344 |
|
|
$ |
201,182 |
|
|
$ |
(40,661 |
) |
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit) consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal
|
|
$ |
1,008 |
|
|
$ |
23,801 |
|
|
$ |
|
|
|
State and local
|
|
|
1,674 |
|
|
|
4,966 |
|
|
|
|
|
|
Foreign jurisdiction
|
|
|
2,916 |
|
|
|
5,592 |
|
|
|
2,506 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,598 |
|
|
|
34,359 |
|
|
|
2,506 |
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal
|
|
$ |
61,768 |
|
|
$ |
138,746 |
|
|
$ |
|
|
|
State and local
|
|
|
8,519 |
|
|
|
19,136 |
|
|
|
|
|
|
Foreign jurisdiction
|
|
|
(25,541 |
) |
|
|
8,941 |
|
|
|
(43,167 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
44,746 |
|
|
|
166,823 |
|
|
|
(43,167 |
) |
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
$ |
50,344 |
|
|
$ |
201,182 |
|
|
$ |
(40,661 |
) |
|
|
|
|
|
|
|
|
|
|
A4-122
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
The significant components of our foreign tax loss carryforwards
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax Loss | |
|
|
|
Expiration | |
Country |
|
Carryforward | |
|
Tax Asset | |
|
Date | |
|
|
| |
|
| |
|
| |
The Netherlands
|
|
$ |
1,293,157 |
|
|
$ |
446,139 |
|
|
|
Indefinite |
|
France
|
|
|
786,516 |
|
|
|
278,662 |
|
|
|
Indefinite |
|
Norway
|
|
|
302,860 |
|
|
|
84,801 |
|
|
|
20072012 |
|
Chile
|
|
|
273,619 |
|
|
|
45,147 |
|
|
|
Indefinite |
|
Austria
|
|
|
226,173 |
|
|
|
76,899 |
|
|
|
Indefinite |
|
Hungary
|
|
|
142,158 |
|
|
|
22,746 |
|
|
|
20042009 |
|
Poland
|
|
|
88,286 |
|
|
|
16,774 |
|
|
|
20042008 |
|
Other
|
|
|
163,602 |
|
|
|
46,727 |
|
|
|
Various |
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
3,276,371 |
|
|
$ |
1,017,895 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Tax Issues
Because we do business in foreign countries and have a
controlling interest in most of our subsidiaries, such
subsidiaries are considered to be controlled foreign
corporations (CFC) under U.S. tax law
(the Code). In general, a U.S. corporation that
is a shareholder in a CFC may be required to include in its
income the average adjusted tax basis of any investment in
U.S. property held by a wholly or majority owned CFC to the
extent that the CFC has positive current or accumulated earnings
and profits. This is the case even though the
U.S. corporation may not have received any actual cash
distributions from the CFC. In addition, certain income earned
by most of our foreign subsidiaries during a taxable year when
our subsidiaries have positive earnings and profits will be
included in our income to the extent of the earnings and profits
when the income is earned, regardless of whether the income is
distributed to us. The income, often referred to as
Subpart F income, generally includes, but is not
limited to, such items as interest, dividends, royalties, gains
from the disposition of certain property, certain exchange gains
in excess of exchange losses, and certain related party sales
and services income. Since we and a majority of our subsidiaries
are investors in, or are involved in, foreign businesses, we
could have significant amounts of Subpart F income.
Although we intend to take reasonable tax planning measures to
limit our tax exposure, there can be no assurance we will be
able to do so.
In general, a U.S. corporation may claim a foreign tax
credit against its U.S. federal income tax expense for
foreign income taxes paid or accrued. A U.S. corporation
may also claim a credit for foreign income taxes paid or accrued
on the earnings of a foreign corporation paid to the
U.S. corporation as a dividend. Because we must calculate
our foreign tax credit separately for dividends received from
certain of our foreign subsidiaries from those of other foreign
subsidiaries and because of certain other limitations, our
ability to claim a foreign tax credit may be limited. Some of
our operating companies are located in countries with which the
U.S. does not have income tax treaties. Because we lack
treaty protection in these countries, we may be subject to high
rates of withholding taxes on distributions and other payments
from these operating companies and may be subject to double
taxation on our income. Limitations on the ability to claim a
foreign tax credit, lack of treaty protection in some countries,
and the inability to offset losses in one foreign jurisdiction
against income earned in another foreign jurisdiction could
result in a high effective U.S. federal tax rate on our
earnings. Since substantially all of our revenue is generated
abroad, including in jurisdictions that do not have tax treaties
with the U.S., these risks are proportionately greater for us
than for companies that generate most of their revenue in the
U.S. or in jurisdictions that have these treaties.
We through our subsidiaries maintain a presence in 15 countries.
Many of these countries maintain tax regimes that differ
significantly from the system of income taxation used in the
U.S., such as a value added tax system. We have accounted for
the effect of foreign taxes based on what we believe is
reasonably expected to
A4-123
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
apply to us and our subsidiaries based on tax laws currently in
effect and/or reasonable interpretations of these laws. Because
some foreign jurisdictions do not have systems of taxation that
are as well established as the system of income taxation used in
the U.S. or tax regimes used in other major industrialized
countries, it may be difficult to anticipate how foreign
jurisdictions will tax our and our subsidiaries current
and future operations.
UPC discharged a substantial amount of debt in connection with
its reorganization. Under Dutch tax law, the discharge of
UPCs indebtedness in connection with its reorganization
would generally constitute taxable income to UPC in the period
of discharge. UPC has reached an agreement with the Dutch tax
authorities whereby UPC is able to utilize net operating loss
carry forwards to offset any Dutch income taxes arising from the
discharge of debt in 2003. UPC, together with its fiscal
unity companies, expects that for the year ended
December 31, 2003 it will have sufficient current year and
carry forward losses to fully offset any income to be recognized
on the discharge of the debt.
A4-124
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Numerator (Basic):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before cumulative effect of change in accounting
principle
|
|
$ |
1,995,368 |
|
|
$ |
988,268 |
|
|
$ |
(4,514,765 |
) |
|
Gain on issuance of Class A common stock for UGC Europe
preference shares
|
|
|
1,423,102 |
|
|
|
|
|
|
|
|
|
|
Equity transactions of subsidiaries
|
|
|
6,555 |
|
|
|
|
|
|
|
|
|
|
Accrual of dividends on Series B convertible preferred stock
|
|
|
|
|
|
|
(156 |
) |
|
|
(1,873 |
) |
|
Accrual of dividends on Series C convertible preferred stock
|
|
|
|
|
|
|
(2,397 |
) |
|
|
(29,750 |
) |
|
Accrual of dividends on Series D convertible preferred stock
|
|
|
|
|
|
|
(1,621 |
) |
|
|
(20,125 |
) |
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) attributable to common stockholders before
cumulative effect of change in accounting principle
|
|
|
3,425,025 |
|
|
|
984,094 |
|
|
|
(4,566,513 |
) |
|
Cumulative effect of change in accounting principle
|
|
|
|
|
|
|
(1,344,722 |
) |
|
|
20,056 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) attributable to common stockholders
|
|
$ |
3,425,025 |
|
|
$ |
(360,628 |
) |
|
$ |
(4,546,457 |
) |
|
|
|
|
|
|
|
|
|
|
Denominator (Basic):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted-average number of common shares outstanding,
before adjustment
|
|
|
418,874,941 |
|
|
|
390,087,623 |
|
|
|
99,834,387 |
|
|
Adjustment for rights offering in February 2004
|
|
|
43,149,291 |
|
|
|
40,183,842 |
|
|
|
10,284,175 |
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted-average number of common shares outstanding
|
|
|
462,024,232 |
|
|
|
430,271,465 |
|
|
|
110,118,562 |
|
|
|
|
|
|
|
|
|
|
|
Numerator (Diluted):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before cumulative effect of change in accounting
principle
|
|
$ |
1,995,368 |
|
|
$ |
988,268 |
|
|
$ |
(4,514,765 |
) |
|
Gain on issuance of Class A common stock for UGC Europe
preference shares
|
|
|
1,423,102 |
|
|
|
|
|
|
|
|
|
|
Equity transactions of subsidiaries
|
|
|
6,555 |
|
|
|
|
|
|
|
|
|
|
Accrual of dividends on Series B convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
(1,873 |
) |
|
Accrual of dividends on Series C convertible preferred stock
|
|
|
|
|
|
|
(2,397 |
) |
|
|
(29,750 |
) |
|
Accrual of dividends on Series D convertible preferred stock
|
|
|
|
|
|
|
(1,621 |
) |
|
|
(20,125 |
) |
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) attributable to common stockholders before
cumulative effect of change in accounting principle
|
|
|
3,425,025 |
|
|
|
984,250 |
|
|
|
(4,566,513 |
) |
|
Cumulative effect of change in accounting principle
|
|
|
|
|
|
|
(1,344,722 |
) |
|
|
20,056 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) attributable to common stockholders
|
|
$ |
3,425,025 |
|
|
$ |
(360,472 |
) |
|
$ |
(4,546,457 |
) |
|
|
|
|
|
|
|
|
|
|
A4-125
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Denominator (Diluted):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted-average number of common shares outstanding, as
adjusted
|
|
|
462,024,232 |
|
|
|
430,271,465 |
|
|
|
110,118,562 |
|
|
Incremental shares attributable to the assumed exercise of
outstanding stock appreciation rights
|
|
|
109,544 |
|
|
|
|
|
|
|
|
|
|
Incremental shares attributable to the assumed exercise of
contingently issuable shares
|
|
|
92,470 |
|
|
|
|
|
|
|
|
|
|
Incremental shares attributable to the assumed exercise of
outstanding options (treasury stock method)
|
|
|
220,115 |
|
|
|
9,701 |
|
|
|
|
|
|
Incremental shares attributable to the assumed conversion of
Series B convertible preferred stock
|
|
|
|
|
|
|
224,256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted-average number of common shares
outstanding
|
|
|
462,446,361 |
|
|
|
430,505,422 |
|
|
|
110,118,562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
21. |
Related Party Transactions |
Loans to Officers and
Directors
In 2000 and 2001, Old UGC made loans through a subsidiary to
Michael T. Fries, Mark L. Schneider and John F. Riordan, each of
whom at the time was a director or an executive officer of Old
UGC. The loans, totaling approximately $16.6 million,
accrued interest at 90-day LIBOR plus 2.5% or 3.5%, as
determined in accordance with the terms of each note. The
purpose of the loans was to enable these individuals to repay
margin debt secured by common stock of Old UGC or its
subsidiaries without having to liquidate their stock ownership
positions in Old UGC or its subsidiaries. Each loan was secured
by certain outstanding stock options and phantom stock options
issued by Old UGC and its subsidiaries to the borrower, and
certain of the loans were also secured by common stock of Old
UGC and its subsidiaries held by the borrower. Initially the
loans were recourse to the borrower, however, in April 2001, the
Old UGC board of directors revised the loans to be non-recourse
to the borrower, except to the extent of any pledged collateral.
Accordingly, such amounts have been reflected as a reduction of
stockholders equity. The written documentation for these
loans provided that they were payable on demand, or, if not paid
sooner, on November 22, 2002. On January 22, 2003, we
notified Mr. Fries and Mr. Schneider of foreclosure on
all of the collateral securing the loans, which loans had an
outstanding balance on such date, including interest, of
approximately $8.8 million. Our board of directors
authorized payment to Mr. Fries and Mr. Schneider a
bonus in the aggregate amount of approximately $1.7 million
to pay the taxes resulting from the foreclosure and the bonus.
On January 6, 2004, we notified Mr. Riordan of
foreclosure on all of the collateral securing his loans, which
loans had an outstanding balance on such date, including
interest, of approximately $10.1 million.
Merger Transaction
Loans
When Old UGC issued shares of its Series E preferred stock
in connection with the merger transaction with Liberty in
January 2002, the Principal Founders delivered full-recourse
promissory notes to Old UGC in the aggregate amount of
$3.0 million in partial payment of their subscriptions for
the Series E preferred stock. The loans evidenced by these
promissory notes bear interest at 6.5% per annum and are
due and payable on demand on or after January 30, 2003, or
on January 30, 2007 if no demand has been made by then.
Such amounts have been reflected as a reduction of
stockholders equity, as such transactions are accounted
for as variable option awards because the loans do not meet the
criteria of recourse loans for accounting purposes.
A4-126
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
Mark L. Schneider
Transactions
In 1999, chello broadband loaned Mr. Schneider
2,268,901 so
that he could acquire certificates evidencing the economic value
of stock options granted to Mr. Schneider in 1999 for
chello broadband ordinary shares B. This recourse loan, which is
due and payable upon the sale of the certificates or the
expiration of the stock options, bears no interest. Interest,
however, is imputed and the tax payable on the imputed interest
is added to the principal amount of the loan. In 2000,
Mr. Schneider exercised chello broadband options through
the sale of the certificates acquired with the loans proceeds.
Of the funds received,
823,824 was
withheld for payment of the portion of the loan associated with
the options exercised. In addition, chello broadband cancelled
the unvested options and related loan amount in May 2003. The
outstanding loan balance was
380,197 at
December 31, 2003.
Gene W. Schneider
Employment Agreement
On January 5, 2004, we entered into a five-year employment
agreement with Mr. Gene W. Schneider. Pursuant to the
employment agreement, Mr. Schneider shall continue to serve
as the non-executive chairman of our Board for so long as
requested by our Board, and is subject to a five year
non-competition obligation (regardless of when his employment
under the employment agreement is terminated). In exchange,
Mr. Schneider shall receive an annual base salary of not
less than his current base salary, is eligible to participate in
all welfare benefit plans or programs covering UGCs senior
executives generally, and is entitled to receive certain
additional fringe benefits. The employment agreement terminates
upon Mr. Schneiders death. We may terminate him for
certain disabilities and for cause. Mr. Schneider may
terminate the employment agreement for any reason on thirty days
notice to UGC. If the employment agreement is terminated for
death or disability, we shall make certain payments to
Mr. Schneider or his personal representatives, as
appropriate, for his annual base salary accrued through the
termination date, the amount of any annual base salary that
would have accrued from the termination date through the end of
the employment period had Mr. Schneiders employment
continued through the end of the five year term, and
compensation previously deferred by Mr. Schneider, if any,
but not paid to him. Certain stock options and other
equity-based incentives granted to Mr. Schneider shall
remain exercisable until the third anniversary of the
termination date (but not beyond the term of the award). Upon
Mr. Schneiders election to terminate the employment
agreement early, he is entitled to certain payments from us. If
the employment agreement is terminated for cause by us, we have
no further obligations to Mr. Schneider under the
agreement, except with respect to certain compensation accrued
through the date of termination and compensation previously
deferred, if any, by Mr. Schneider.
Spinhalf Contract
In 2002, a subsidiary of UPC entered into a contract with
Spinhalf Ltd for the provision of network services. This company
is owned by a family member of John F. Riordan, a former
director and former Chief Executive Officer of UPC. Amounts
incurred with respect to such contracted services to date are
approximately
7.8 million.
We terminated the network support contract with Spinhalf during
2003.
Gene W. Schneider Life
Insurance
In 2001, Old UGCs board of directors approved a
split-dollar policy on the lives of Gene W.
Schneider and his spouse for $30 million. Old UGC agreed to
pay an annual premium of approximately $1.8 million for
this policy, which has a roll-out period of approximately
15 years. Old UGCs board of directors believed that
this policy was a reasonable addition to
Mr. Schneiders compensation package in view of his
many years of service to Old UGC. Following the enactment of the
Sarbanes-Oxley Act of 2002, no additional premiums have been
paid by Old UGC. The policy is being continued by payments made
out of the cash surrender value of the policy. In the event the
law is subsequently clarified to permit Old UGC to again make
the premium payments on the policy, Old UGC will pay the
premiums annually until the first to occur of the death of both
insureds, the lapse of the roll-out period, or at such time as
The Gene W. Schneider Trust (the 2001 Trust)
fails to make its
A4-127
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
contribution to Old UGC for the premiums due on the policy. The
2001 Trust is the sole owner and beneficiary of the policy, but
has assigned to Old UGC policy benefits in the amount of
premiums paid by Old UGC. The Trust will contribute to Old UGC
an amount equal to the annual economic benefit provided by the
policy. The trustees of the Trust are the children of
Mr. Schneider. Upon termination of the policy, Old UGC will
recoup the premiums that it has paid.
Programming
Agreements
In the ordinary course of business, we acquire programming from
various vendors, including Discovery Communications, Inc.
(Discovery), Pramer S.C.A. (Pramer) and
Torneos y Competencias, S.A. (TyC). Liberty has a
50% equity interest in Discovery and a 40% equity interest in
TyC. Pramer is an indirect wholly-owned subsidiary of Liberty.
VTR has programming agreements with Discovery, TyC and Pramer.
The cost of these agreements with VTR is approximately
$4.2 million per year. UGC Europe has programming
agreements with Discovery and the cost of these agreements is
approximately $9.8 million per year. All of the agreements
have a fixed term with maturities ranging from August 2004 to
year-end 2006, however, most of the agreements will
automatically renew for an additional year unless terminated
upon prior notice.
|
|
|
Liberty Acquisition of Controlling Interest |
On January 5, 2004, Liberty acquired approximately
8.2 million shares of Class B common stock from our
founding stockholders in exchange for securities of Liberty and
cash (the Founders Transaction). Upon the completion
of this exchange and subsequent acquisitions of our stock,
Liberty owns approximately 55% of our common stock, representing
approximately 92% of the voting power. Beginning with the next
annual meeting of our stockholders, the holders of our
Class A, Class B and Class C common stock will
vote together as a single class in the election of our
directors. Liberty now has the ability to elect our entire board
of directors and otherwise to generally control us. The closing
of the Founders Transaction resulted in a change of control of
us.
Upon closing of the Founders Transaction, our existing
standstill agreement with Liberty terminated, except for
provisions of that agreement granting Liberty preemptive rights
to acquire shares of our Class A common stock. These
preemptive rights will survive indefinitely, as modified by an
agreement dated November 12, 2003, between Liberty and us.
The former standstill agreement restricted the amount of our
stock that Liberty could acquire and restricted the way Liberty
could vote our stock. On January 5, 2004, Liberty entered
into a new standstill agreement with us that generally limits
Libertys ownership of our common stock to 90% or less,
unless Liberty makes an offer or effects another transaction to
acquire all of our common stock. Except in the case of a
short-form merger in which our stockholders are entitled to
statutory appraisal rights, such offer or transaction must be at
a price at or above a fair value of our shares determined
through an appraisal process if a majority of our independent
directors has voted against approval or acceptance of such
transaction.
Prior to January 5, 2004, we understand that Liberty
accounted for its investment in us under the equity method of
accounting, as certain voting and standstill agreements entered
into between them and the Founders precluded Libertys
ability to control us. Libertys acquisition of the
Founders shares on January 5, 2004 caused those
voting restrictions to terminate and allows Liberty to fully
exercise their voting rights and control us. As a result,
Liberty began consolidating us from the date of that
transaction. Liberty has elected to push down its investment
basis in us (and the related purchase accounting adjustments) as
part of its consolidation process. The effects of this pushdown
accounting will likely reduce our total assets and
stockholders equity by a material amount and could have a
material effect on our statement of operations.
A4-128
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
Liberty Exercise of
Preemptive Right
Pursuant to the terms of a standstill agreement, if we propose
to issue any of our Class A common stock or rights to
acquire our Class A common stock, Liberty has the right,
but not the obligation, to purchase a portion of such issuance
sufficient to maintain its then existing equity percentage in us
on terms at least as favorable as those given to any third party
purchasers. This preemptive right does not apply to (i) the
issuance of our Class A common stock or rights to acquire
our Class A common stock in connection with the acquisition
of a business from a third party not affiliated with us or any
founder that is directly related to the existing business of us
and our subsidiaries, (ii) the issuance of options to
acquire our Class A common stock to employees pursuant to
employee benefit plans approved by our board (such options and
all shares issued pursuant thereto not to exceed 10% of our
outstanding common stock), (iii) equity securities issued
as a dividend on all equity securities or upon a subdivision or
combination of all outstanding equity securities, or
(iv) equity securities issued upon the exercise of rights
outstanding as of the closing of the merger or as to the
issuance of which Liberty had the right to exercise preemptive
rights. Based on the foregoing provisions, in January 2004,
Liberty exercised its preemptive right, based on shares of
Class A common stock issued by us in the UGC Europe
Exchange Offer. As a result, Liberty acquired approximately
18.3 million shares of our Class A common stock at
$7.6929 per share. Liberty paid for the shares through the
cancellation of $102.7 million of notes we owed Liberty,
the cancellation of $1.7 million of accrued but unpaid
interest on those notes and $36.3 million in cash.
Rights Offering
We distributed to our stockholders of record on January 21,
2004, transferable subscription rights to purchase shares of our
Class A, Class B and Class C common stock at a
per share subscription price of $6.00. The rights offering,
which expired on February 12, 2004, was fully subscribed,
resulting in gross proceeds to us of approximately
$1.0 billion. We issued approximately 83.0 million
shares of our Class A common stock, 2.3 million shares
of Class B common stock and 84.9 million shares of our
Class C common stock in the rights offering.
A4-129
INDEPENDENT AUDITORS REPORT
To the Shareholders and the Board of Directors of
Jupiter Telecommunications Co., Ltd. and Subsidiaries:
We have audited the accompanying consolidated balance sheet of
Jupiter Telecommunications Co., Ltd. (a Japanese corporation)
and subsidiaries as of December 31, 2003, and the related
consolidated statements of operations, shareholders equity
and cash flows for the year then ended. These consolidated
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audit.
We conducted our audit in accordance with auditing standards
generally accepted in the United States of America. Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Jupiter Telecommunications Co., Ltd. and
subsidiaries as of December 31, 2003, and the results of
their operations and their cash flows for the year ended
December 31, 2003 in conformity with accounting principles
generally accepted in the United States of America.
Tokyo, Japan
February 16, 2004, except for Note 15 as to
which the date is March 25, 2004
A4-130
JUPITER TELECOMMUNICATIONS CO., LTD.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2002 | |
|
2003 | |
|
|
| |
|
| |
|
|
(Unaudite | |
|
|
|
|
(Yen in tho | |
|
usands) | |
Current Assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
¥ |
7,546,758 |
|
|
¥ |
7,785,978 |
|
|
Restricted cash (Note 6)
|
|
|
|
|
|
|
1,773,060 |
|
|
Accounts receivable, less allowance for doubtful accounts of
¥228,977 thousand in 2002 and ¥229,793 thousand in 2003
|
|
|
9,620,228 |
|
|
|
7,907,324 |
|
|
Prepaid expenses
|
|
|
1,945,297 |
|
|
|
1,596,150 |
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
19,112,283 |
|
|
|
19,062,512 |
|
Investments:
|
|
|
|
|
|
|
|
|
|
Investments in affiliates (Notes 3 and 5)
|
|
|
2,210,132 |
|
|
|
2,794,533 |
|
|
Investments in other securities, at cost
|
|
|
2,881,560 |
|
|
|
2,891,973 |
|
|
|
|
|
|
|
|
|
|
|
5,091,692 |
|
|
|
5,686,506 |
|
Property and equipment, at cost (Notes 5 and 7):
|
|
|
|
|
|
|
|
|
|
Land
|
|
|
1,826,787 |
|
|
|
1,826,787 |
|
|
Distribution system and equipment
|
|
|
282,571,883 |
|
|
|
312,330,187 |
|
|
Support equipment and buildings
|
|
|
10,556,468 |
|
|
|
11,593,849 |
|
|
|
|
|
|
|
|
|
|
|
294,955,138 |
|
|
|
325,750,823 |
|
|
Less accumulated depreciation
|
|
|
(54,419,102 |
) |
|
|
(81,523,580 |
) |
|
|
|
|
|
|
|
|
|
|
240,536,036 |
|
|
|
244,227,243 |
|
Other Assets:
|
|
|
|
|
|
|
|
|
|
Goodwill, net (Notes 1, 2 and 4)
|
|
|
139,827,277 |
|
|
|
139,853,596 |
|
|
Other (Note 4)
|
|
|
10,193,763 |
|
|
|
13,047,229 |
|
|
|
|
|
|
|
|
|
|
|
150,021,040 |
|
|
|
152,900,825 |
|
|
|
|
|
|
|
|
|
|
¥ |
414,761,051 |
|
|
¥ |
421,877,086 |
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
Long-term debt current portion (Notes 6
and 12)
|
|
¥ |
2,273,140 |
|
|
¥ |
2,438,480 |
|
|
Capital lease obligations current portion
(Notes 5, 7 and 12):
|
|
|
|
|
|
|
|
|
|
|
Related party
|
|
|
7,137,203 |
|
|
|
7,673,978 |
|
|
|
Other
|
|
|
2,080,614 |
|
|
|
1,800,456 |
|
|
Accounts payable
|
|
|
17,122,227 |
|
|
|
17,293,932 |
|
|
Accrued expenses and other liabilities
|
|
|
3,372,494 |
|
|
|
3,576,708 |
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
31,985,678 |
|
|
|
32,783,554 |
|
Long-term debt, less current portion (Notes 6 and 12)
|
|
|
|
|
|
|
|
|
|
|
Related party
|
|
|
80,985,000 |
|
|
|
149,739,250 |
|
|
|
Other
|
|
|
172,064,785 |
|
|
|
72,092,465 |
|
Capital lease obligations, less current portion (Notes 5, 7
and 12):
|
|
|
|
|
|
|
|
|
|
|
Related party
|
|
|
20,143,299 |
|
|
|
17,704,295 |
|
|
|
Other
|
|
|
5,992,046 |
|
|
|
3,951,900 |
|
Deferred revenue
|
|
|
41,177,111 |
|
|
|
41,635,426 |
|
Severance and retirement allowance (Note 9)
|
|
|
1,606,371 |
|
|
|
2,023,706 |
|
Redeemable preferred stock of consolidated subsidiary
(Note 10)
|
|
|
|
|
|
|
500,000 |
|
Other liabilities
|
|
|
255,871 |
|
|
|
3,411,564 |
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
354,210,161 |
|
|
|
323,842,160 |
|
|
|
|
|
|
|
|
Minority interest
|
|
|
816,865 |
|
|
|
1,266,287 |
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 14)
|
|
|
|
|
|
|
|
|
Shareholders Equity (Note 11):
|
|
|
|
|
|
|
|
|
|
Ordinary shares no par value
|
|
|
47,002,623 |
|
|
|
63,132,998 |
|
|
|
Authorized 15,000,000 shares; issued and outstanding
3,934,285.74 shares at December 31, 2002 and
4,684,535.74 shares at December 31, 2003
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
106,589,539 |
|
|
|
122,837,273 |
|
|
Accumulated deficit
|
|
|
(93,858,137 |
) |
|
|
(88,506,887 |
) |
|
Accumulated other comprehensive loss
|
|
|
|
|
|
|
(694,745 |
) |
|
|
|
|
|
|
|
|
|
|
Total Shareholders Equity
|
|
|
59,734,025 |
|
|
|
96,768,639 |
|
|
|
|
|
|
|
|
|
|
¥ |
414,761,051 |
|
|
¥ |
421,877,086 |
|
|
|
|
|
|
|
|
The accompanying notes to consolidated financial statements are
an integral part of these balance sheets.
A4-131
JUPITER TELECOMMUNICATIONS CO., LTD.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2001 | |
|
2002 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(Unaudited) | |
|
(U ed) | |
|
|
|
|
(Yen in thou | |
|
sands, except s | |
|
hare and | |
|
|
per | |
|
share amounts) | |
|
|
Revenue (Note 5):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription fees
|
|
¥ |
58,747,280 |
|
|
¥ |
97,144,356 |
|
|
¥ |
123,214,958 |
|
|
Construction-related sales principally to related parties
|
|
|
2,775,477 |
|
|
|
3,484,288 |
|
|
|
2,888,046 |
|
|
Programming fees principally from related parties
|
|
|
2,232,317 |
|
|
|
1,429,511 |
|
|
|
2,032,162 |
|
|
Other
|
|
|
12,806,267 |
|
|
|
14,572,371 |
|
|
|
15,023,866 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76,561,341 |
|
|
|
116,630,526 |
|
|
|
143,159,032 |
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction-related costs
|
|
|
2,477,323 |
|
|
|
3,308,512 |
|
|
|
2,651,713 |
|
|
Programming costs (Note 5)
|
|
|
11,016,894 |
|
|
|
14,006,564 |
|
|
|
16,728,930 |
|
|
Other operating costs (Note 5)
|
|
|
23,841,434 |
|
|
|
29,642,689 |
|
|
|
31,484,073 |
|
|
Selling, general and administrative (inclusive of stock
compensation expense of ¥56,510 thousand in 2001,
¥61,902 thousand in 2002 and ¥120,214 thousand in
2003) (Notes 5 and 11)
|
|
|
32,328,794 |
|
|
|
43,275,899 |
|
|
|
42,681,303 |
|
|
Depreciation and amortization
|
|
|
30,645,211 |
|
|
|
30,079,753 |
|
|
|
36,410,894 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,309,656 |
|
|
|
120,313,417 |
|
|
|
129,956,913 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(23,748,315 |
) |
|
|
(3,682,891 |
) |
|
|
13,202,119 |
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related parties (Note 5)
|
|
|
(2,432,295 |
) |
|
|
(2,847,551 |
) |
|
|
(4,562,594 |
) |
|
|
Other
|
|
|
(889,133 |
) |
|
|
(1,335,400 |
) |
|
|
(3,360,674 |
) |
|
Other income, net
|
|
|
94,912 |
|
|
|
147,639 |
|
|
|
316,116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and other items
|
|
|
(26,974,831 |
) |
|
|
(7,718,203 |
) |
|
|
5,594,967 |
|
Equity in earnings (losses) of affiliates (inclusive of stock
compensation expense of ¥44,883 thousand in 2001,
¥2,156 thousand in 2002 and ¥(2,855) thousand in 2003)
(Note 11)
|
|
|
(886,808 |
) |
|
|
235,792 |
|
|
|
414,756 |
|
Minority interest in net (income) losses of consolidated
subsidiaries
|
|
|
897,842 |
|
|
|
196,498 |
|
|
|
(448,668 |
) |
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(26,963,797 |
) |
|
|
(7,285,913 |
) |
|
|
5,561,055 |
|
Income taxes (Note 8)
|
|
|
|
|
|
|
(256,763 |
) |
|
|
(209,805 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
¥ |
(26,963,797 |
) |
|
¥ |
(7,542,676 |
) |
|
¥ |
5,351,250 |
|
|
|
|
|
|
|
|
|
|
|
Per share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share basic and diluted
|
|
¥ |
(6,854 |
) |
|
¥ |
(1,917 |
) |
|
¥ |
1,214 |
|
Weighted average number of ordinary shares
outstanding basic and diluted
|
|
|
3,934,286 |
|
|
|
3,934,286 |
|
|
|
4,407,046 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes to consolidated financial statements are
an integral part of these statements.
A4-132
JUPITER TELECOMMUNICATIONS CO., LTD.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated | |
|
|
|
|
|
|
Additional | |
|
|
|
|
|
Other | |
|
Total | |
|
|
Ordinary | |
|
Paid-in | |
|
Comprehensive | |
|
Accumulated | |
|
Comprehensive | |
|
Shareholders | |
|
|
Shares | |
|
Capital | |
|
Income (Loss) | |
|
Deficit | |
|
Loss | |
|
Equity | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Yen in thousands, except per share amounts) | |
Balance at January 1, 2001 (Unaudited)
|
|
¥ |
47,002,623 |
|
|
¥ |
106,424,088 |
|
|
|
|
|
|
¥ |
(59,351,664 |
) |
|
¥ |
|
|
|
¥ |
94,075,047 |
|
Net loss
|
|
|
|
|
|
|
|
|
|
¥ |
(26,963,797 |
) |
|
|
(26,963,797 |
) |
|
|
|
|
|
|
(26,963,797 |
) |
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
¥ |
(26,963,797 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation (Notes 1 and 11)
|
|
|
|
|
|
|
101,393 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101,393 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2001 (Unaudited)
|
|
¥ |
47,002,623 |
|
|
¥ |
106,525,481 |
|
|
|
|
|
|
¥ |
(86,315,461 |
) |
|
¥ |
|
|
|
¥ |
67,212,643 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
¥ |
(7,542,676 |
) |
|
|
(7,542,676 |
) |
|
|
|
|
|
|
(7,542,676 |
) |
Other comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
¥ |
(7,542,676 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation (Notes 1 and 11)
|
|
|
|
|
|
|
64,058 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64,058 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2002 (Unaudited)
|
|
¥ |
47,002,623 |
|
|
¥ |
106,589,539 |
|
|
|
|
|
|
¥ |
(93,858,137 |
) |
|
¥ |
|
|
|
¥ |
59,734,025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
¥ |
5,351,250 |
|
|
|
5,351,250 |
|
|
|
|
|
|
|
5,351,250 |
|
Other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on cash flow hedge
|
|
|
|
|
|
|
|
|
|
|
(694,745 |
) |
|
|
|
|
|
|
(694,745 |
) |
|
|
(694,745 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
¥ |
4,656,505 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation (Notes 1 and 11)
|
|
|
|
|
|
|
117,359 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
117,359 |
|
Ordinary shares issued upon conversion of long-term debt;
750,250 shares at ¥43,000 per share (Notes 1
and 6)
|
|
|
16,130,375 |
|
|
|
16,130,375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,260,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2003
|
|
¥ |
63,132,998 |
|
|
¥ |
122,837,273 |
|
|
|
|
|
|
¥ |
(88,506,887 |
) |
|
¥ |
(694,745 |
) |
|
¥ |
96,768,639 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes to consolidated financial statements are
an integral part of these statements.
A4-133
JUPITER TELECOMMUNICATIONS CO., LTD.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2001 | |
|
2002 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(Unaudited) | |
|
(U ed) | |
|
|
|
|
(Ye | |
|
n in thousands) | |
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
¥ |
(26,963,797 |
) |
|
¥ |
(7,542,676 |
) |
|
¥ |
5,351,250 |
|
|
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on forgiveness of subsidiary debt
|
|
|
|
|
|
|
|
|
|
|
(400,000 |
) |
|
|
Depreciation and amortization
|
|
|
30,645,211 |
|
|
|
30,079,753 |
|
|
|
36,410,894 |
|
|
|
Equity in (earnings) losses of affiliates
|
|
|
886,808 |
|
|
|
(235,792 |
) |
|
|
(414,756 |
) |
|
|
Minority interest in net income (losses) of consolidated
subsidiaries
|
|
|
(897,842 |
) |
|
|
(196,498 |
) |
|
|
448,668 |
|
|
|
Stock compensation expense
|
|
|
56,510 |
|
|
|
61,902 |
|
|
|
120,214 |
|
|
|
Provision for retirement allowance
|
|
|
105,150 |
|
|
|
412,692 |
|
|
|
417,335 |
|
|
|
Changes in operating assets and liabilities, excluding effects
of business combinations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase)/decrease in accounts receivable, net
|
|
|
(1,148,301 |
) |
|
|
1,368,081 |
|
|
|
1,712,904 |
|
|
|
|
(Increase)/decrease in prepaid expenses
|
|
|
(297,963 |
) |
|
|
553,192 |
|
|
|
349,147 |
|
|
|
|
Increase in other assets
|
|
|
(614,492 |
) |
|
|
(1,651,599 |
) |
|
|
(325,769 |
) |
|
|
|
Increase/(decrease) in accounts payable
|
|
|
(1,461,832 |
) |
|
|
(3,124,486 |
) |
|
|
171,705 |
|
|
|
|
Increase/(decrease) in accrued expenses and other liabilities
|
|
|
(210,574 |
) |
|
|
188,537 |
|
|
|
2,665,162 |
|
|
|
|
Increase in deferred revenue
|
|
|
3,219,019 |
|
|
|
2,768,512 |
|
|
|
458,315 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
3,317,897 |
|
|
|
22,681,618 |
|
|
|
46,965,069 |
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(48,385,735 |
) |
|
|
(48,108,176 |
) |
|
|
(32,478,389 |
) |
|
Acquisition of new subsidiaries, net of cash acquired
|
|
|
(6,503,363 |
) |
|
|
1,856,230 |
|
|
|
|
|
|
Investments in and advances to affiliates
|
|
|
(13,431,847 |
) |
|
|
(665,575 |
) |
|
|
(172,500 |
) |
|
Increase in restricted cash
|
|
|
|
|
|
|
|
|
|
|
(1,773,060 |
) |
|
Other investing activities
|
|
|
(2,540,561 |
) |
|
|
(815,319 |
) |
|
|
(102,456 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(70,861,506 |
) |
|
|
(47,732,840 |
) |
|
|
(34,526,405 |
) |
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in short-term loans from related party
and others
|
|
|
76,919,649 |
|
|
|
36,984,965 |
|
|
|
(228,785,000 |
) |
|
Proceeds from long-term debt
|
|
|
4,155,000 |
|
|
|
2,620,000 |
|
|
|
239,078,000 |
|
|
Principal payments of long-term debt
|
|
|
(4,561,725 |
) |
|
|
(2,082,335 |
) |
|
|
(8,184,980 |
) |
|
Principal payments under capital lease obligations
|
|
|
(6,183,109 |
) |
|
|
(9,293,487 |
) |
|
|
(10,843,024 |
) |
|
Other financing activities
|
|
|
(687,994 |
) |
|
|
(738,854 |
) |
|
|
(3,464,440 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
69,641,821 |
|
|
|
27,490,289 |
|
|
|
(12,199,444 |
) |
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
2,098,212 |
|
|
|
2,439,067 |
|
|
|
239,220 |
|
Cash and cash equivalents at beginning of year
|
|
|
3,009,479 |
|
|
|
5,107,691 |
|
|
|
7,546,758 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
¥ |
5,107,691 |
|
|
¥ |
7,546,758 |
|
|
¥ |
7,785,978 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes to consolidated financial statements are
an integral part of these statements.
A4-134
JUPITER TELECOMMUNICATIONS CO., LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
1. |
Description of Business, Basis of Financial Statements and
Summary of Significant Accounting Policies |
Business and
Organization
Jupiter Telecommunications Co., Ltd. (the Company)
and its subsidiaries own and operate cable telecommunication
systems throughout Japan and provide cable television services,
telephony and high-speed Internet access services (collectively,
broadband services). The telecommunications industry in Japan is
highly regulated by the Ministry of Public Management, Home
Affairs, Posts and Telecommunications (MPHPT). In
general, franchise rights granted by the MPHPT to the
Companys subsidiaries for operation of cable
telecommunications systems in their respective localities are
not exclusive. Currently, cable television services account for
a majority of the Company and its subsidiaries business as
telephony and Internet services are still in their early stages.
Telephony operations accounted for approximately 8%, 10% and 13%
of total revenue for the years ended December 31, 2001,
2002 and 2003, respectively. Internet operations accounted for
approximately 18%, 23% and 24% of total revenue for the years
ended December 31, 2001, 2002 and 2003, respectively.
The Companys beneficial ownership at December 31,
2003 was as follows:
|
|
|
|
|
Liberty Media Corporation (LMC)
|
|
|
45.2 |
% |
Sumitomo Corporation (SC)
|
|
|
31.8 |
% |
Microsoft Corporation (Microsoft)
|
|
|
19.4 |
% |
Mitsui & Co., Ltd.
|
|
|
1.7 |
% |
Matsushita Electric Industrial Co., Ltd.
|
|
|
1.7 |
% |
Other
|
|
|
0.2 |
% |
In March 2003, LMC acquired from SC and another shareholder, by
means of a tender offer, an additional 8% equity interest in the
Company for approximately ¥17 billion. Thereafter,
LMCs beneficial ownership increased to approximately 44%
and SCs ownership decreased to approximately 28%. In May
2003, LMC and SC increased their ownership in the Company by
converting ¥32,260,750 thousand of their subordinated debt
for 750,250 shares of the Company (see Note 6). LMC
and SC each received 375,125 shares, increasing their
ownership to approximately 45% and 32%, respectively.
The Company and its subsidiaries have historically relied on
financing from its principal shareholders for their liquidity
requirements. The Company anticipates that it may continue to
rely on its principal shareholders for credit enhancement to
meet future liquidity requirements (see Note 6).
Basis of Financial
Statements
The accompanying consolidated financial statements for the years
ended December 31, 2001 and 2002 and the related notes
herein are unaudited and, in the opinion of management, include
all necessary adjustments for the fair presentation of the
Companys financial position, results of operations and
cash flows in accordance with accounting principles generally
accepted in the United States of America
(U.S. GAAP) and are consistent in all material
respects with those applied in the Companys consolidated
financial statements for the year ended December 31, 2003.
The preparation of financial statements in conformity with
U.S. GAAP requires the Company to make estimates and
assumptions that may affect the amounts reported in the
accompanying financial statements. Despite the Companys
best efforts to make these good faith estimates and assumptions,
actual results may differ. Certain prior period amounts have
been reclassified to conform to the current presentation.
The Company and its subsidiaries maintain their books of account
in conformity with financial accounting standards of Japan. The
consolidated financial statements presented herein have been
prepared in a manner and reflect certain adjustments which are
necessary to conform them with U.S. GAAP. The major
adjustments
A4-135
JUPITER TELECOMMUNICATIONS CO., LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
include those related to scope of consolidation, accounting for
business combinations, accounting for leases, accounting for
stock-based compensation, recognition of certain revenues,
post-retirement benefits, depreciation and amortization and
accruals for certain expenses.
Summary of Significant Accounting Policies
The accompanying consolidated financial statements include the
accounts of the Company and all of its majority-owned
subsidiaries, which are primarily each a cable system operator
(SO). All significant intercompany balances and
transactions have been eliminated in consolidation. For the
consolidated subsidiaries with negative equity position, the
Company has recognized the entire amount of cumulative losses of
such subsidiaries regardless of its ownership percentage.
|
|
(b) |
Cash and Cash Equivalents |
Cash and cash equivalents include all highly liquid debt
instruments with an initial maturity of three months or less.
|
|
(c) |
Allowance for Doubtful Accounts |
Allowance for doubtful accounts is computed based on historical
bad debt experience and includes estimated uncollectible amounts
based on analysis of certain individual accounts, including
claims in bankruptcy.
For those investments in affiliates in which the Companys
voting interest is 20% to 50% and the Company has the ability to
exercise significant influence over the affiliates
operation and financial policies, the equity method of
accounting is used. Under this method, the investment originally
recorded at cost is adjusted to recognize the Companys
share of the net earnings or losses of its affiliates, including
amortization of the excess of the Companys cost over its
percentage interest in the net assets of each affiliate (see
Note 1(f)). All significant intercompany profits from these
affiliates have been eliminated.
Investments in other securities carried at cost represent
non-marketable equity securities in which the Companys
ownership is less than 20% and the Company does not have the
ability to exercise significant influence over the
entities operation and financial policies.
The Company evaluates its investments in affiliates and
non-marketable equity securities for impairment due to declines
in value considered to be other than temporary. In performing
its evaluations, the Company utilizes various information, as
available, including cash flow projections, independent
valuations and, as applicable, stock price analysis. In the
event of a determination that a decline in value is other than
temporary, a charge to earnings is recorded for the loss, and a
new cost basis in the investment is established.
|
|
(e) |
Property and Equipment |
Property and equipment, including construction materials, are
carried at cost, which includes all direct costs and certain
indirect costs associated with the construction of cable
television transmission and distribution systems, and the costs
of new subscriber installations. Depreciation is computed on a
straight-line method using estimated useful lives ranging from
10 to 15 years for distribution systems and equipment
and from 10 to 29 years for support equipment and
buildings. Equipment under capital leases is stated at the
present value of minimum lease payments. Equipment under capital
leases is amortized on a straight-line basis over the shorter of
the lease term or estimated useful life of the asset, which
ranges from 3 to 9 years.
A4-136
JUPITER TELECOMMUNICATIONS CO., LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
Ordinary maintenance and repairs are charged to income as
incurred. Major replacements and improvements are capitalized.
When property and equipment are retired or otherwise disposed
of, the cost and related accumulated depreciation accounts are
relieved of the applicable amounts and any differences are
included in depreciation expense. The impact of such retirements
and disposals resulted in additional depreciation expense of
¥1,560,939 thousand, ¥1,315,484 thousand and
¥2,041,347 thousand for the years ended December 31,
2001, 2002 and 2003, respectively.
During the first quarter of 2000, the Company and its
subsidiaries approved a plan to upgrade substantially all of its
450 MHz distribution systems to 750 MHz during the
years ending December 31, 2000 and 2001. The Company
identified certain electronic components of their distribution
systems that were replaced in connection with the upgrade and,
accordingly, adjusted the remaining useful lives of such
electronics in accordance with the upgrade schedule. The effect
of such changes in the remaining useful lives resulted in
additional depreciation expense of approximately
¥2,168 million and ¥484 million for the
years ended December 31, 2001 and 2002, respectively.
Additionally, after giving effect to the accelerated
depreciation, the net loss per share increased by approximately
¥(551) per share, and ¥(123) per share for the years
ended December 31, 2001 and 2002, respectively. Such
upgrades had been substantially completed by December 31,
2002.
Goodwill, which represents the difference between the cost of
acquired cable television companies and amounts allocated to the
estimated fair value of their net assets, was amortized on a
straight-line basis over 20 years.
In July 2001, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounts
Standard (SFAS) No. 141, Business
Combinations, which supercedes Accounting Principles Board
Opinion No. 16. SFAS No. 141 requires all
business combinations initiated after June 30, 2001 be
accounted for under the purchase method of accounting. In
addition, SFAS No. 141 establishes criteria for the
recognition of intangible assets separately from goodwill. These
requirements are effective for fiscal years beginning after
December 15, 2001. The Company and its subsidiaries adopted
SFAS No. 141 on July 1, 2001 and the adoption did
not have a material effect on the consolidated results of
operations, financial position or cash flows.
Also in July 2001, the FASB issued SFAS No. 142,
Goodwill and Other Intangible Assets. Under
SFAS No. 142, unamortized goodwill and certain other
intangible assets are no longer subject to amortization over
their useful lives, but are subject to annual assessments for
impairment. Effective January 1, 2002, the Company adopted
SFAS No. 142. As a result, amortization on the
Companys goodwill and equity method goodwill has ceased
and such amounts are measured annually for impairment. The
Company had no impairment charges of unamortized goodwill on any
of its reporting units as of the January 1, 2002
measurement date or for the years ended December 31, 2002
and 2003. The following is a reconciliation of the
Companys net loss and
A4-137
JUPITER TELECOMMUNICATIONS CO., LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
net loss per share for the year ended December 31, 2001 had
the provisions of SFAS No. 142 been applied effective
January 1, 2001, (Yen in thousands, except per share
amounts):
|
|
|
|
|
|
|
|
2001 | |
|
|
| |
|
|
(Unaudited) | |
Net loss
|
|
¥ |
(26,963,797 |
) |
|
Add back: Goodwill amortization
|
|
|
7,154,560 |
|
|
Add back: Equity method goodwill amortization
|
|
|
203,116 |
|
|
|
|
|
Adjusted net loss
|
|
¥ |
(19,606,121 |
) |
|
|
|
|
Basic and diluted per share:
|
|
|
|
|
Net loss per share
|
|
¥ |
(6,854 |
) |
|
Add back: Goodwill amortization
|
|
|
1,819 |
|
|
Add back: Equity method goodwill amortization
|
|
|
52 |
|
|
|
|
|
Adjusted net loss per share
|
|
¥ |
(4,983 |
) |
|
|
|
|
The Company and its subsidiaries long-lived assets,
excluding goodwill, are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of assets to be
held and used is measured by a comparison of the carrying amount
of an asset to future net cash flows (undiscounted and without
interest charges) expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying
amount of the assets exceed the estimated fair value of the
assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.
In June 2001, the FASB issued SFAS No. 143,
Accounting for Asset Retirement Obligations. The standard
requires that obligations associated with the retirement of
tangible long-lived assets be recorded as liabilities when those
obligations are incurred, with the amount of the liability
initially measured at fair value. The associated asset
retirement cost are capitalized as part of the carrying amount
of the long-lived asset. SFAS No. 143 is effective for
financial statements issued for fiscal years beginning after
June 15, 2002. The Company and its subsidiaries adopted on
January 1, 2003 and the adoption did not have a material
effect on its results of operations, financial position or cash
flows.
Other assets include certain development costs associated with
internal-use software capitalized, including external costs of
material and services, and payroll costs for employees devoting
time to the software projects. These costs are amortized over a
period not to exceed five years beginning when the asset is
substantially ready for use. Costs incurred during the
preliminary project stage, as well as maintenance and training
costs, are expensed as incurred.
Other assets also include deferred financing costs, primarily
legal fees and bank facility fees, incurred to negotiate and
secure the facility (see Note 6). These costs are amortized
to interest expense using the effective interest method over the
term of the facility.
|
|
(i) |
Derivative Financial Instruments |
The Company uses certain derivative financial instruments to
manage its foreign currency and interest rate exposure. The
Company may enter into forward contracts to reduce its exposure
to short-term (generally no more
A4-138
JUPITER TELECOMMUNICATIONS CO., LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
than one year) movements in exchange rates applicable to firm
funding commitments that are denominated in currencies other
than the Japanese yen. The Company uses interest rate risk
management derivative instruments, such as interest rate swap
agreements, to manage interest costs to achieve an overall
desired mix of fixed and variable rate debt. As a matter of
policy, the Company does not enter into derivative contracts for
trading or speculative purposes.
The Company accounts for its derivative instruments in
accordance with SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities and
SFAS No. 138, Accounting for Certain Derivative
Instruments and Certain Hedging Activities, an amendment of
SFAS No. 133. SFAS No. 133, as amended,
requires that all derivative instruments be reported on the
balance sheet as either assets or liabilities measured at fair
value. For derivative instruments designated and effective as
fair value hedges, changes in the fair value of the derivative
instrument and of the hedged item attributable to the hedged
risk are recognized in earnings. For derivative instruments
designated as cash flow hedges, the effective portion of any
hedge is reported in other comprehensive income until it is
recognized in earnings in the same period in which the hedged
item affects earnings. The ineffective portion of all hedges
will be recognized in current earnings each period. Changes in
fair value of derivative instruments that are not designated as
a hedge will be recorded each period in current earnings.
The Company had several outstanding forward contracts with a
commercial bank to hedge foreign currency exposures related to
US dollar denominated equipment purchases and other firm
commitments. As of December 31, 2001, 2002 and 2003, such
forward contracts had an aggregate notional amount of
¥620,322 thousand, ¥1,553,053 thousand and
¥3,134,242 thousand, respectively, and are expiring on
various dates through January 2005. The forward contracts have
not been designated as hedges as they do not meet the
effectiveness criteria specified by SFAS No. 133.
However, management believes such forward contracts are closely
related with the firm commitments designated in US dollar, thus
managing associated currency risk. Forward contracts not
designated as hedges are marked to market each period. Included
in other income (expenses), net, in the accompanying
consolidated statements of operations are gains (losses) for
forward contracts not designated as hedges of ¥51,228
thousand, (¥11,589 thousand) and (¥65,195 thousand)
for the years ended December 31, 2001, 2002 and 2003,
respectively.
In May 2003, the Company entered into several interest rate swap
agreements and an interest rate cap agreement to manage variable
rate debt as required under the terms of its Facility Agreement
(see Note 6). These interest rate exchange agreements
effectively convert ¥60 billion of variable rate debt
based on TIBOR into fixed rate debt and mature on June 30,
2009. These interest rate exchange agreements are considered
cash flow hedging instruments as they are expected to
effectively convert variable interest payments on certain debt
instruments into fixed payments. Changes in fair value of these
interest rate agreements designated as cash flow hedges are
reported in accumulated other comprehensive loss. The amounts
will be subsequently reclassified into interest expense as a
yield adjustment in the same period in which the related
interest on the variable rate debt affects earnings. The
counterparties to the interest rate exchange agreements are
banks participating in the Facility Agreement, therefore the
Company does not anticipate nonperformance by any of them on the
interest rate exchange agreements.
|
|
(j) |
Severance and Retirement Plans |
The Company and its subsidiaries have unfunded noncontributory
defined benefit severance and retirement plans which are
accounted for in accordance with SFAS No. 87,
Employers Accounting for Pensions.
The Company and its subsidiaries account for income taxes under
the provisions of SFAS No. 109, Accounting for
Income Taxes. Under this method, deferred income taxes are
recognized by the asset and liability method for estimated
future tax consequences attributable to temporary differences
between the financial
A4-139
JUPITER TELECOMMUNICATIONS CO., LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
statement carrying amounts of existing assets and liabilities
and their respective tax bases using enacted tax rates in effect
for the year in which the difference are expected to reverse.
Under SFAS No. 109, the effect on deferred tax assets
and liabilities of a change in tax rate is recognized in
earnings in the period that includes the enactment date.
|
|
(l) |
Cable Television System Costs, Expenses and
Revenues |
The Company and its subsidiaries account for costs, expenses and
revenues applicable to the construction and operation of cable
television systems in accordance with SFAS No. 51,
Financial Reporting by Cable Television Companies.
Currently, there is no significant system that falls in a
prematurity period as defined by SFAS No. 51. Other
operating costs in the Companys consolidated statements of
operations include, among other things, cable service related
expenses, billing costs, technical and maintenance personnel and
utility expenses related to the cable television network.
The Company and its subsidiaries recognize cable television,
high-speed Internet access, telephony and programming revenues
when such services are provided to subscribers. Revenues derived
from other sources are recognized when services are provided,
events occur or products are delivered. Initial subscriber
installation revenues are recognized in the period in which the
related services are provided to the extent of direct selling
costs. Any remaining amount is deferred and recognized over the
estimated average period that the subscribers are expected to
remain connected to the cable television system. Historically,
installation revenues have been less than related direct selling
costs, therefore such revenues have been recognized as
installations are completed.
The Company and its subsidiaries provide poor reception
rebroadcasting services to noncable television viewers suffering
from poor reception of television waves caused by artificial
obstacles. The Company and its subsidiaries enter into
agreements with parties that have built obstacles causing poor
reception for construction and maintenance of cable facilities
to provide such services to the affected viewers at no cost to
them during the agreement period. Under these agreements, the
Company and its subsidiaries receive up-front, lump-sum
compensation payments for construction and maintenance. Revenues
from these agreements have been deferred and are being
recognized in income on a straight-line basis over the agreement
periods which are generally 20 years. Such revenues are
included in Revenue Other in the accompanying
consolidated statements of operations.
See Note 5 for a description of Revenue
Construction-related sales and Revenue Programming
fees in the accompanying consolidated statements of operations,
which are primarily from affiliates.
Advertising expense is charged to income as incurred.
Advertising expense amounted to ¥2,256,997 thousand,
¥4,425,004 thousand and ¥3,921,229 thousand for the
years ended December 31, 2001, 2002 and 2003, respectively,
and are included in selling, general and administrative expenses
in the accompanying consolidated statements of operations.
|
|
(o) |
Stock-Based Compensation |
The Company and its subsidiaries account for stock-based
compensation plans to employees using the intrinsic value based
method prescribed by Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees
(APB No. 25) and FASB Interpretation
No. 44, Accounting for Certain Transactions Involving
Stock Compensation an Interpretation of APB
No. 25. (FIN No. 44). As such,
compensation expense is measured on the date of grant only if
the current fair value of the underlying stock exceeds the
exercise
A4-140
JUPITER TELECOMMUNICATIONS CO., LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
price. The Company accounts for its stock-based compensation
plans to nonemployees and employees of unconsolidated affiliated
companies using the fair market value based method prescribed by
SFAS No. 123, Accounting for Stock-Based
Compensation, and Emerging Issues Task Force
Issue 00-12, Accounting by an Investor for Stock-Based
Compensation Granted to Employees of an Equity Method Investee
(EITF 00-12). Under SFAS No. 123,
the fair value of the stock based award is determined using the
Black-Scholes option pricing method, which is remeasured each
period end until a commitment date is reached, which is
generally the vesting date. The fair value of the subscription
rights and stock purchase warrants granted each year was
calculated using the Black-Scholes option-pricing model with the
following assumptions: no dividends, volatility of 40%,
risk-free rate of 3.0% and an expected life of three years.
Expense associated with stock-based compensation for certain
management employees is amortized on an accelerated basis over
the vesting period of the individual award consistent with the
method described in FASB Interpretation No. 28,
Accounting for Stock Appreciation Rights and Other Variable
Stock Option or Award Plans. Otherwise, compensation expense
is generally amortized evenly over the vesting period.
Compensation expense is recorded in operating costs and expenses
for the Companys employees and nonemployees and in equity
in income (losses) of affiliates for employees of affiliated
companies in the accompanying consolidated statements of
operations.
SFAS No. 123 allows companies to continue to apply the
provisions of APB No. 25, where applicable, and provide pro
forma disclosure for employee stock option grants as if the fair
value based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the
provisions of APB No. 25 for stock-based compensation plans
to its employees and provide the pro forma disclosure required
by SFAS No. 123. The following table illustrates the
effect on net income (loss) and net income (loss) per share for
the years ended December 31, 2001, 2002 and 2003, if the
Company had applied the fair value recognition provisions of
SFAS No. 123 (Yen in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2001 | |
|
2002 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(Unaudited) | |
|
(Unaudited) | |
|
|
Net income (loss), as reported
|
|
¥ |
(26,963,797 |
) |
|
¥ |
(7,542,676 |
) |
|
¥ |
5,351,250 |
|
|
Add stock-based compensation expense included in reported net
income (loss)
|
|
|
101,393 |
|
|
|
64,058 |
|
|
|
117,359 |
|
|
Deduct stock-based compensation expense determined under fair
value based method for all awards
|
|
|
(1,158,360 |
) |
|
|
(574,304 |
) |
|
|
(571,531 |
) |
|
|
|
|
|
|
|
|
|
|
Pro forma net income (loss)
|
|
¥ |
(28,020,764 |
) |
|
¥ |
(8,052,922 |
) |
|
¥ |
4,897,078 |
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted per share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share, as reported
|
|
|
(6,854 |
) |
|
|
(1,917 |
) |
|
|
1,214 |
|
Net income (loss) per share, pro forma
|
|
|
(7,122 |
) |
|
|
(2,047 |
) |
|
|
1,111 |
|
Earnings per share (EPS) is presented in accordance
with the provisions of SFAS No. 128, Earnings Per
Share. Under SFAS No. 128, basic EPS excludes
dilution for potential ordinary shares and is computed by
dividing net income (loss) by the weighted average number of
ordinary shares outstanding for the period. Diluted EPS reflects
the potential dilution that could occur if securities or other
contracts to issue ordinary shares were exercised or converted
into ordinary shares. Basic and diluted EPS are the same in
2001, 2002 and 2003, as all potential ordinary share
equivalents, consisting of stock options, are anti-dilutive.
A4-141
JUPITER TELECOMMUNICATIONS CO., LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
The Company reports operating segment information in accordance
with SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information. SFAS No. 131
defined operating segments as components of an enterprise about
which separate financial information is available that is
regularly evaluated by the chief operating decision maker in
deciding how to allocate resources to an individual segment and
in assessing performance of the segment.
The Company has determined that each individual consolidated
subsidiary and unconsolidated mangaged equity affiliate SO is an
operating segment because each SO represents a legal entity and
serves a separate geographic area. The Company has evaluated the
criteria for aggregation of the operating segments under
paragraph 17 of SFAS No. 131 and believes it
meets each of its respective criteria. Accordingly, management
has determined that the Company has one reportable segment,
broadband services.
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities
and the disclosure of contingent assets and liabilities at the
date of the consolidated financial statements and the reported
amounts of revenues and expenses during the reporting period to
prepare these consolidated financial statements in conformity
with accounting principles generally accepted in the United
States of America. Significant judgments and estimates include
capitalization of labor and overhead costs, derivative financial
instruments, depreciation and amortization costs, impairments of
property, plant and equipment and goodwill, income taxes and
other contingencies. Actual results could differ from those
estimates.
|
|
(s) |
Recent Accounting Pronouncements |
In January 2003, the FASB issued Interpretation No. 46,
Consolidation of Variable Interest Entities, an
interpretation of ARB No. 51. In December 2003, the
FASB issued a revision to FIN 46, or Revised
Interpretation, to clarify some of the provisions of
FIN 46. FIN 46 provides guidance on how to identify a
variable interest entity, or VIE, and determine when the assets,
liabilities, non-controlling interests, and results of
operations of a VIE must be included in a companys
consolidated financial statements. A company that holds variable
interests in an entity is required to consolidate the entity if
the companys interest in the VIE is such that the company
will absorb a majority of the VIEs expected losses and/or
receive a majority of the entitys expected residual
returns, if any. VIEs created after January 31, 2003, but
prior to January 1, 2004, may be accounted for either based
on the original interpretation or the Revised Interpretations.
However, the Revised Interpretations must be applied no later
than the first quarter of fiscal year 2004. VIEs created after
January 1, 2004 must be accounted for under the Revised
Interpretations. There has been no material effect to the
Companys consolidated financial statements from potential
VIEs entered into after January 31, 2003 and there is not
expected to be a material impact from the adoption of the
deferred provisions in the first quarter of fiscal year 2004.
In May 2003, the FASB issued SFAS No. 150,
Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity.
SFAS No. 150 establishes standards for how an issuer
classifies and measures in its statement of financial position
certain financial instruments with characteristics of both
liabilities and equity. It requires that an issuer classify a
financial instrument that is within its scope as a liability (or
an asset in some circumstances) because that financial
instrument embodies an obligation of the issuer. This statement
is effective for financial instruments entered into or modified
after May 31, 2003 and otherwise is effective at the
beginning of the first interim period beginning after
June 15, 2003, except for mandatorily redeemable financial
instruments of nonpublic entities. The adoption of this standard
did not have a material effect on the Companys
consolidated financial statements (see Note 10).
A4-142
JUPITER TELECOMMUNICATIONS CO., LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
The Company has acquired varying interests in cable television
companies during the periods presented. The Company has used the
purchase method of accounting for all such acquisitions and,
accordingly, has allocated the purchase price based on the
estimated fair value of the assets and liabilities of the
acquired companies. The assets, liabilities and operations of
such companies have been included in the accompanying
consolidated financial statements since the dates of their
respective acquisitions.
On January 1, 2001, the Company merged its 49.6% managed
affiliate, J-COM Sakai, into its 99.8% consolidated SO, J-COM
Broadband Kansai. The Companys new ownership in the
combined SO is 89.8%. The Company accounted for the acquisition
of J-COM Sakai equity interest as a step-acquisition, with the
consideration given equal to the fair value of the decrease in
equity interest in J-COM Kansai. The merged entity operates
under the name J-COM Broadband Kansai.
In February 2001, the Company entered into an agreement to
purchase a controlling interest in Yachiyo from certain of its
shareholders. The total purchase price of such Yachiyo shares
was ¥934,500 thousand and gave the Company a 58.4%
interest. The purchase was completed in March 2001 and operates
under the name J-Com Broadband Yachiyo.
The Company and certain minority shareholders entered into an
agreement to merge the Companys 69.5% consolidated SO,
J-COM Broadband Shonan, with the Companys 47.0% managed
affiliate, J-COM Broadband CATY, and the Companys 20.0%
non-managed investment, Fujisawa CATV. During March 2001, prior
to the merger, the Company purchased additional shares from
existing shareholders in each of J-COM Broadband Shonan, J-COM
Broadband CATY and Fujisawa CATV for an aggregate
¥4,580,536 thousand. The acquisitions of J-COM CATY and
Fujisawa CATV were treated as step-acquisitions. The Company
merged these three franchises on April 1, 2001 and has an
approximate 79% interest in the newly combined entity, which
operates under the name J-COM Broadband Shonan.
In July 2001, the Company acquired a 67.31% interest in Izumi
CATV Co., Ltd. for ¥455,000 thousand. The new entity
operates under the name of J-COM Broadband Izumi.
In August 2001, the Company acquired a 59.1% equity interest in
Super Network U for ¥2,006,250 thousand. The new entity
operates under the name of J-COM Broadband Urayasu.
On September 30, 2001, the Company acquired additional
equity interest in its 42.3% managed affiliate, J-COM Broadband
Kobe-Ashiya. The Company purchased from selling shareholders of
Cable Net Kobe Ashiya for ¥480,000 thousand to increase its
equity ownership in J-COM Broadband Kobe-Ashiya to 52.6%.
In January 2002, the Company purchased additional shares of its
affiliate J-COM Broadband Media Saitama during a capital call
for ¥500,000 thousand and purchased shares from existing
shareholders of its affiliate J-COM Broadband Urawa-Yono for
¥10,080 thousand. After the purchases, the Companys
equity ownership increased to a 50.2% controlling interest in
J-COM Broadband Media Saitama and a 50.10% controlling interest
in J-COM Broadband Urawa-Yono. These transactions have been
treated as step acquisitions. The results of operations for both
J-COM Broadband Media Saitama and J-COM Broadband Urawa-Yono
have been included as a consolidated entity from January 1,
2002.
In March 2002, the Company purchased additional shares in its
affiliate, @Home Japan, from SC at a price per share of
¥55,000 or ¥527,670 thousand and all of the shares
held by At Home Asia-Pacific for ¥1.4 billion. After
the purchases, the Company has an 87.4% equity interest in @Home
Japan. The purchases have been accounted for as a
step-acquisition. The operations for @Home Japan have been
included as a consolidated entity from April 1, 2002.
A4-143
JUPITER TELECOMMUNICATIONS CO., LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
The aggregate purchase price of the business combinations during
the year ended December 31, 2002 was allocated based upon
fair values as follows (Yen in thousands):
|
|
|
|
|
|
|
2002 | |
|
|
| |
|
|
(Unaudited) | |
Cash, receivables and other assets
|
|
¥ |
7,039,726 |
|
Property and equipment
|
|
|
16,565,501 |
|
Goodwill
|
|
|
3,690,538 |
|
Debt and capital lease obligations
|
|
|
(15,881,589 |
) |
Other liabilities
|
|
|
(6,110,058 |
) |
|
|
|
|
|
|
¥ |
5,304,118 |
|
|
|
|
|
The impact to revenue, net loss and net loss per share for the
years ended December 31, 2001 and 2002, considering pro
forma adjustments, as if the 2002 transactions were completed as
of the beginning of those fiscal years, is not significant.
|
|
3. |
Investments in Affiliates |
The Companys affiliates are engaged primarily in the
broadband services business in Japan. At December 31, 2003,
the Company held investments in J-COM Broadband Shimonoseki
(50.0%), J-COM Broadband Fukuoka (45.0%), Kansai Multimedia
(25.8%), CATV Kobe (20.4%) and Green City Cable TV (20.0%).
The carrying value of investments in affiliates as of
December 31, 2002 and 2003 includes ¥730,910 thousand
of unamortized excess cost of investments over the
Companys equity in the net assets of the affiliates. All
significant intercompany profits from these affiliates have been
eliminated according to the equity method of accounting.
The carrying value of investments in affiliates as of
December 31, 2002 and 2003, includes ¥1,795,000
thousand and ¥2,019,000 thousand respectively, of
short-term loans the Company made to certain managed affiliates.
The interest rate on these loans was 1.32% and 3.23% as of
December 31, 2002 and 2003, respectively.
Condensed financial information of the Companys
unconsolidated affiliates at December 31, 2002 and 2003 and
for each of the three years ended December 31, 2003 are as
follows (Yen in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
2002 | |
|
2003 | |
|
|
| |
|
| |
|
|
(Unaudited) | |
|
|
Combined Financial Position:
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
¥ |
28,929,850 |
|
|
¥ |
29,696,602 |
|
|
Other assets, net
|
|
|
6,873,681 |
|
|
|
6,201,251 |
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
¥ |
35,803,531 |
|
|
¥ |
35,897,853 |
|
|
|
|
|
|
|
|
|
Debt
|
|
¥ |
17,728,565 |
|
|
¥ |
17,998,825 |
|
|
Other liabilities
|
|
|
17,178,202 |
|
|
|
16,030,950 |
|
|
Shareholders equity
|
|
|
896,764 |
|
|
|
1,868,078 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
¥ |
35,803,531 |
|
|
¥ |
35,897,853 |
|
|
|
|
|
|
|
|
A4-144
JUPITER TELECOMMUNICATIONS CO., LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2001 | |
|
2002 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(Unaudited) | |
|
(Unaudited) | |
|
|
Combined Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
¥ |
28,331,978 |
|
|
¥ |
18,218,205 |
|
|
¥ |
19,776,603 |
|
|
Operating, selling, general and administrative expenses
|
|
|
(23,464,975 |
) |
|
|
(13,001,409 |
) |
|
|
(13,430,881 |
) |
|
Depreciation and amortization
|
|
|
(5,167,140 |
) |
|
|
(3,180,977 |
) |
|
|
(3,682,641 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(300,137 |
) |
|
|
2,035,819 |
|
|
|
2,663,081 |
|
|
Interest expense, net
|
|
|
(563,768 |
) |
|
|
(410,278 |
) |
|
|
(478,609 |
) |
|
Other expense, net
|
|
|
(393,238 |
) |
|
|
(558,636 |
) |
|
|
(1,013,158 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
¥ |
(1,257,143 |
) |
|
¥ |
1,066,905 |
|
|
¥ |
1,171,314 |
|
|
|
|
|
|
|
|
|
|
|
|
|
4. |
Goodwill and Other Assets |
The changes in the carrying amount of goodwill, net, for the
years ended December 31, 2002 and 2003, consisted of the
following (Yen in thousands):
|
|
|
|
|
|
|
|
|
|
|
2002 | |
|
2003 | |
|
|
| |
|
| |
|
|
(Unaudited) | |
|
|
Goodwill, net, beginning of year
|
|
¥ |
135,972,584 |
|
|
¥ |
139,827,277 |
|
Goodwill acquired during the year
|
|
|
3,854,693 |
|
|
|
26,319 |
|
|
|
|
|
|
|
|
Goodwill, net, end of year
|
|
¥ |
139,827,277 |
|
|
¥ |
139,853,596 |
|
|
|
|
|
|
|
|
Other assets, excluding goodwill, at December 31, 2002 and
2003, consisted of the following (Yen in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
2002 | |
|
2003 | |
|
|
| |
|
| |
|
|
(Unaudited) | |
|
|
Lease and other deposits
|
|
¥ |
3,933,469 |
|
|
¥ |
4,295,947 |
|
Deferred financing costs
|
|
|
1,426,847 |
|
|
|
3,763,785 |
|
Capitalized computer software, net
|
|
|
2,632,155 |
|
|
|
3,022,557 |
|
Long-term loans receivable, net
|
|
|
520,173 |
|
|
|
300,380 |
|
Other
|
|
|
1,681,119 |
|
|
|
1,664,560 |
|
|
|
|
|
|
|
|
|
Total other assets
|
|
¥ |
10,193,763 |
|
|
¥ |
13,047,229 |
|
|
|
|
|
|
|
|
|
|
5. |
Related Party Transactions |
The Company purchases cable system materials and supplies from
third-party suppliers and resells them to its subsidiaries and
affiliates. Construction-related sales in the accompanying
consolidated statements of operations represent revenues from
unconsolidated affiliates for such sales.
The Company provides programming services to its subsidiaries
and affiliates. Programming fees in the accompanying
consolidated statements of operations represent revenues from
unconsolidated affiliates for such services provided and the
related products sold.
The Company provides management services to its subsidiaries and
managed affiliates. Fees for such services related to managed
affiliates amounted to ¥670,185 thousand, ¥390,434
thousand and ¥468,219 thousand for the years ended
December 31, 2001, 2002 and 2003, respectively, and are
included in revenue other in the accompanying
consolidated statements of operations.
A4-145
JUPITER TELECOMMUNICATIONS CO., LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
In July 2002, the Company began providing management services to
Chofu Cable, Inc. (Chofu), an affiliated company
that is 92% jointly owned by LMC, Microsoft and SC. Fees for
such services amounted to ¥29,590 thousand and
¥107,607 thousand for the years ended December 31,
2002 and 2003, respectively, and are included in
revenue other in the accompanying consolidated
statements of operations.
The Company purchases certain cable television programs from
Jupiter Programming Co., Ltd. (JPC), an affiliated
company jointly owned by SC and a wholly owned subsidiary of
LMC. Such purchases, including purchased from JPCs
affiliates, amounted to ¥2,220,856 thousand,
¥2,879,616 thousand and ¥3,155,139 thousand for the
years ended December 31, 2001, 2002 and 2003, respectively,
and are included in programming costs in the accompanying
consolidated statements of operations. Additionally, the Company
receives a distribution fee to carry the Shop Channel, a
majority owned subsidiary of JPC, for the greater of a fixed
rate per subscriber or a percentage of revenue generated through
sales in the Companys territory. Such fees amounted to
¥343,667 thousand, ¥614,224 thousand and ¥939,438
thousand for the years ended December 31, 2001, 2002 and
2003, respectively, and are included as revenue in programming
fees in the accompanying consolidated statements of operations.
The Company purchased stock of affiliated companies from SC in
the amounts of ¥555,000 thousand and ¥1,112,750
thousand in the years ended December 31, 2001 and 2002,
respectively.
AJCC K.K. (AJCC) is a subsidiary of SC and its
primary business is the sale of home terminals and related goods
to cable television companies. Sumisho Lease Co., Ltd. and
Sumisho Auto Leasing Co., Ltd. (collectively Sumisho
leasing) are also subsidiaries of SC and provide to the
Company various office equipment and vehicles. The Company and
its subsidiaries purchases of such goods, primarily as
capital leases, from both AJCC and Sumisho leasing, amounted to
¥10,421,213 thousand, ¥10,074,639 thousand and
¥6,087,645 thousand for the years ended December 31,
2001, 2002 and 2003, respectively.
The Company pays a monthly fee to its affiliates, @Home Japan
and Kansai Multimedia Services (Kansai Multimedia),
based on an agreed upon percentage of subscription revenue
collected by the Company from its customers for the @Home Japan
and Kansai Multimedia services. Payments made to @Home Japan
under these arrangements, prior to it becoming a consolidated
subsidiary, amounted to ¥3,839,973 thousand and
¥1,585,691 thousand for the years ended December 31,
2001 and 2002, respectively. Payments made to Kansai Multimedia
under these arrangements amounted to ¥1,938,716 thousand,
¥2,882,494 thousand and ¥3,226,764 thousand for the
years ended December 31, 2001, 2002 and 2003, respectively.
Such payments are included in other operating costs in the
accompanying consolidated statements of operations. In March
2002, @Home Japan became a consolidated subsidiary of the
Company (see Note 2). Therefore, since April 1, 2002,
through @Home Japan, the Company receives the monthly fee from
its unconsolidated affiliates. Such service fees amounted to
¥480,356 thousand and ¥1,071,891 thousand for the
years ended December 31, 2002 and 2003, respectively, and
are included in revenue-subscription fees in the accompanying
consolidated statements of operations.
The Company has management service agreements with SC and LMC
under which officers and management level employees are seconded
from SC and LMC to the Company, whose services are charged as
service fees to the Company based on their payroll costs. The
service fees paid to SC amounted to ¥473,474 thousand,
¥571,319 thousand and ¥706,303 thousand for the years
ended December 31, 2001, 2002 and 2003, respectively. The
service fees paid to LMC amounted to ¥620,285 thousand,
¥761,009 thousand and ¥714,986 thousand for the years
ended December 31, 2001, 2002 and 2003, respectively. These
amounts are included in selling, general and administrative
expenses in the accompanying consolidated statements of
operations.
Sumitomo Shoji Financial Management Co., Ltd. (SFM)
is a wholly owned subsidiary of SC and its primary business is
to provide financing and accounting services to subsidiaries and
affiliated companies of SC. The Company had short-term
borrowings from SFM in the amounts of ¥34,722,000 thousand
at December 31, 2002. Additionally, the Company had
short-term borrowings from LMC and Microsoft of ¥39,650,000
thousand
A4-146
JUPITER TELECOMMUNICATIONS CO., LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
and ¥6,613,000 thousand, respectively, at December 31,
2002. Such loans were refinanced under the
¥140 billion bank syndicated facility. As a result,
SC, LMC and Microsoft have long-term subordinated loans of
¥52,894,625 thousand, ¥52,894,625 thousand and
¥43,950,000 thousand, respectively, at December 31,
2003. See Note 6.
The Company pays a fee on debt guaranteed by SC, LMC and
Microsoft. The guarantee fees incurred were ¥413,102
thousand to SC, ¥361,627 thousand to LMC and ¥285,042
thousand to Microsoft for the year ended December 31, 2002.
The guarantee fees incurred were ¥84,224 thousand to SC,
¥73,470 thousand to LMC and ¥51,890 thousand to
Microsoft for the year ended December 31, 2003. Such fees
are included in interest expense, net-related parties in the
accompanying consolidated statements of operations.
A summary of long-term debt as of December 31, 2002 and
2003 is as follows (Yen in thousands):
|
|
|
|
|
|
|
|
|
|
|
2002 | |
|
2003 | |
|
|
| |
|
| |
|
|
(Unaudited) | |
|
|
Facility Agreement term loans, due fiscal 2005-2009
|
|
¥ |
|
|
|
¥ |
53,000,000 |
|
8yr Shareholder Subordinated loans, due fiscal 2011
|
|
|
|
|
|
|
117,739,250 |
|
8yr Shareholder Tranche B Subordinated loans, due fiscal
2011
|
|
|
|
|
|
|
32,000,000 |
|
0% unsecured loans from Development Bank of Japan, due fiscal
2004 2018
|
|
|
15,435,100 |
|
|
|
12,223,720 |
|
Unsecured loans from Development Bank of Japan, due fiscal
2004 2018, interest from 0.65% to 6.8%
|
|
|
3,614,000 |
|
|
|
3,895,400 |
|
0% secured loans from Development Bank of Japan, due fiscal
2004 2016
|
|
|
3,572,615 |
|
|
|
5,354,735 |
|
Unsecured loans from commercial banks, due fiscal
2003 2016, interest at 1.0%
|
|
|
3,744,200 |
|
|
|
|
|
Secured loans from Development Bank of Japan, due fiscal
2003 2004, interest at 5.3%
|
|
|
108,000 |
|
|
|
|
|
0% unsecured loans from others, due fiscal 2012
|
|
|
64,010 |
|
|
|
57,090 |
|
|
|
|
|
|
|
|
Total
|
|
|
26,537,925 |
|
|
|
224,270,195 |
|
Less: current portion
|
|
|
(2,273,140 |
) |
|
|
(2,438,480 |
) |
|
|
|
|
|
|
|
Long-term debt, less current portion
|
|
¥ |
24,264,785 |
|
|
¥ |
221,831,715 |
|
|
|
|
|
|
|
|
Short-Term Loans
Prior to 2003 refinancing, the Company had short-term bridge
loan facilities and existing shareholder short-term loans that
were subsequently repaid and replaced with the facility and new
shareholder loans described under 2003 Refinancing below. As
permitted by SFAS No. 6, Classification of
Short-Term Obligations Expected to be Refinanced, the
short-term borrowings as of December 31, 2002 have been
reclassified as long-term debt on the face of the consolidated
balance sheets. A summary of short-term loans at
December 31, 2002 is as follows (Yen in thousands):
|
|
|
|
|
|
|
2002 | |
|
|
| |
|
|
(Unaudited) | |
Short-term loans from related party
|
|
¥ |
80,985,000 |
|
Short-term loans from Banks
|
|
|
147,800,000 |
|
|
|
|
|
|
|
¥ |
228,785,000 |
|
|
|
|
|
A4-147
JUPITER TELECOMMUNICATIONS CO., LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
Short-term loans from related party include borrowings from SFM,
LMC and Microsoft as described in Note 5. The SFM
borrowings represent the Companys borrowings on the lines
of credit provided by SFM to the Company. The interest rates on
the Companys short-term borrowings from related party were
ranging from 0.63% to 1.23% at December 31, 2002.
Short-term loans from Banks represent the Company and its
subsidiaries borrowings from commercial banks. The
interest rates on the borrowings from Banks were ranging from
0.62% to 1.32% at December 31, 2002.
2003 Refinancing
On January 31, 2003, the Company entered into a
¥140 billion bank syndicated facility for certain of
its managed subsidiaries and affiliates (Facility
Agreement). In connection with the Facility Agreement, on
February 6, 2003, the Company entered into 8 year
subordinated loans with each of SC, LMC and Microsoft
(Principal Shareholders), which initially aggregated
¥69,025 million from SC, ¥69,025 million
from LMC and ¥43,950 million from Microsoft
(Shareholder Subordinated Loans). See Note 5
for Shareholder Subordinated Loans outstanding by Principal
Shareholders as of December 31, 2003. On February 12,
2003, ¥53 billion was drawn down on the Facility
Agreement and remains outstanding at December 31, 2003.
With the financing in February 2003, all of the Companys
previous short-term borrowings were repaid and replaced.
The Facility Agreement was initially for the financing of
Jupiter, fifteen of its consolidated managed affiliates and one
managed affiliate, which is accounted for under the equity
method of accounting (Jupiter Combined Group). The
financing will be used for permitted general corporate purposes,
capital expenditures, financing costs and limited purchase of
minority shares and capital calls of the affiliates in the
Jupiter Combined Group. As further described below, one
additional consolidated subsidiary became party to the Facility
Agreement in 2003. Currently, one other consolidated subsidiary
and one managed equity method affiliate are not party to the
Facility Agreement and will continue to rely on capital
contributions and financing from shareholders for their
liquidity requirements.
The Facility Agreement provides for term loans of up to
¥120 billion and a revolving loan facility up to
¥20 billion. ¥32 billion of the total term
loan portion of the Facility Agreement was considered provided
by the shareholders under the Tranche B Subordinated Loans
discussed below. Therefore, the remaining ¥88 billion
of term loan is available for drawn down until September 2004 at
which time no additional term loans will be available to the
Jupiter Combined Group. As noted in the table above,
¥53 billion of term loans have been borrowed as of
December 31, 2003 resulting in additional term loan
borrowing availability of ¥35 billion at
December 31, 2003. The revolving loan facility available
for draw down is ¥20 billion until June 30, 2007;
¥17.5 billon from July 1, 2007 to June 30, 2008;
and reducing to ¥15 billion from July 1, 2008
through June 30, 2009. Upon request for draw down, the
Company designates an interest period of one, two or three
months for that revolving loan. Repayments of outstanding
revolving loans are due at the end of its respective interest
period. The Company has the ability to rollover outstanding
revolving loans. All revolving loans outstanding on the final
maturity date shall be repaid in full on that date. As of
December 31, 2003, there were no outstanding borrowings
under the revolving loan facility. Therefore, at
December 31, 2003, a total of ¥55 billion was
available for draw down under the Facility Agreement.
Final maturity of the Facility Agreement is June 30, 2009.
Loan repayment starts on September 30, 2005 based on a
defined rate reduction each year thereafter. As a percentage of
the term loans outstanding at September 30, 2004, 8.34% to
be repaid in the year ended December 31, 2005; 16.68% in
2006; 25.00% in 2007; 33.32% in 2008; and the final 16.66% by
June 30, 2009. Additionally, the Facility Agreement has
requirements to make mandatory prepayments under specific
circumstances and formulas regarding third party contributions;
group free cash flow, as defined in the Facility Agreement;
asset sales; insurance proceeds; and hedging agreement
termination payments. Such mandatory prepayments will be funded
from excess cash flow as defined
A4-148
JUPITER TELECOMMUNICATIONS CO., LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
in the Facility Agreement, which requires a portion of excess
cash flow to be deposited into an account for future mandatory
prepayments. Such deposits are designated as restricted cash on
the face of the consolidated balance sheet.
Interest is based on TIBOR, as defined in the Facility
Agreement, plus a reducing margin based upon a leverage ratio of
Total Debt to EBITDA as such terms are defined in the Facility
Agreement. When such leverage ratio is more than 7.00:1.00, the
margin is 2.75%; more than 5.00:1.00 but less than or equal to
7.00:1.00, the margin is 2.25%; more than 3.00:1.00 but less
than or equal to 5.00:1.00, the margin is 1.75%; and less than
or equal to 3.00:1.00, the margin is 1.50%. As of
December 31, 2003 the interest rate was 2.83%. The Facility
Agreement requires the Jupiter Combined Group to comply with
various financial and other covenants, including the maintenance
of certain operating and financial ratios. These include EBITDA
and subscriber targets during the term loan availability period.
Ongoing financial covenants consist of leverage ratios Total
Debt to EBITDA and Senior Debt to EBITDA, as such terms are
defined in the Facility Agreement, maximum capital expenditures
in a period, minimum interest coverage ratios and minimum debt
service coverage ratios. In addition, the Facility Agreement
contains substantial limitations on, or prohibitions of,
distributions, additional indebtedness, liens, asset sales and
certain other items for the Jupiter Combined Group. A quarterly
commitment fee of 0.75% per annum is payable on the unused
available term loans and revolving facility during their
respective availability periods. In the case of the revolving
facility, such commitment fee will be reduced to 0.50% per
annum after the end of the term loans availability period if at
least two-thirds of the revolving facility is utilized.
Additionally, the Facility Agreement requires the Company to
maintain interest rate hedge agreements, on at least 50% of the
outstanding amounts under the term loans (see Note 1).
The Shareholder Subordinated Loans, which are subordinated to
the Facility Agreement, consist of 8 year subordinated
loans initially aggregating ¥150 billion
(Subordinated Loans) and 8 year tranche B
subordinated loans aggregating ¥32 billion
(Tranche B Subordinated Loans). These
Shareholder Subordinated Loans contain a bullet repayment of
principal and accrued interest at maturity, which is
February 6, 2011; conversion at fair value under Japanese
Commercial Code into the Companys common shares up to the
amounts of loans; and allows for the Principal Shareholders to
sell, assign or transfer the Shareholder Subordinated Loans as
permitted under the Facility Agreement. The Subordinated Loans
effectively bear interest at 2.00% plus TIBOR, as defined in the
Facility Agreement, per annum, restricted to a maximum of
5.00% per annum. As of December 31, 2003 the interest
rate was 2.08%. In addition, restrictions are contained in the
Subordinated Loans on when cash interest can be paid. Cash
interest on the Subordinate Loans can only be paid from Company
proceeds derived by i) Principal Shareholder contributions,
as defined in the Facility Agreement; or ii) up to 85% of
aggregated third party contributions; or iii) excess cash
flow as defined in the Facility Agreement, if certain leverage
ratios are maintained. The Tranche B Subordinated Loans
bear interest at the same rate as the Facility Agreement debt as
described in the preceding paragraph. The Tranche B
Subordinated Loans do not have the restriction on the payment of
interest as with the Subordinated Loans. There are no covenants
or performance requirements for the Company on these Shareholder
Subordinated Loans.
Upon occurrence of specified events, the Principal Shareholders
have agreed to pledge their respective share ownership in the
Company. The specified events include events of default;
acceleration of loan repayments; change of control; and the
failure to maintain financial ratios as defined in the Facility
Agreement. These conditions requiring the pledge of common stock
are in place until the earlier of i) a public offering
where at least 15% of the issued and outstanding common stock of
the Company is sold, or the net proceeds are at least
¥40 billion, or ii) the specified leverage ratio as
defined in the Facility Agreement is 3.00:1.00 or lower.
However, the Facility Agreement allows for the disposition of
shares by Principal Shareholders provided it will not result in
a change of control. Additionally, the Principal Shareholders
have an agreement to provide up to an additional
¥40 billion maximum of contingent support to the
Company. The contingent support is triggered by a shortfall to
an approved business plan EBITDA, as defined in the Facility
Agreement, and only if the revolving loan facility is fully
drawn or is not otherwise available for drawing. The required
support is the amount of the shortfall to the
A4-149
JUPITER TELECOMMUNICATIONS CO., LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
approved business plan EBITDA, unless there is an acceleration
of the Facility Agreement, which would require the maximum
amount to be funded. The required funding may take the form of
additional subordinated loans or additional equity in the
Company. If certain criteria are met, the maximum
¥40 billion is reduced to ¥20 billion by
either December 31, 2003 or January 31, 2004 and to
zero by September 30, 2004.
In May 2003, LMC and SC increased their ownership in the Company
by converting ¥32,260,750 thousand of the Subordinated
Loans for 750,250 shares of the Company. LMC and SC each
converted ¥16,130,375 thousand of their respective
Subordinated Loans to the Company and each received
375,125 shares of the Company, increasing their ownership
to approximately 45% and 32%, respectively.
In December 2003, a consolidated subsidiary of the Company
became party to the Facility Agreement and, therefore, a
consolidated managed affiliate of the Jupiter Combined Group.
Immediately prior to this transaction, the consolidated
subsidiary had outstanding ¥3,686,090 thousand to
third-party creditors. In connection with this transaction, a
third-party debt holder forgave ¥400,000 thousand of debt
owed to it. As a result, the Company recorded a gain of
¥400,000 thousand in other non-operating income in the
accompanying consolidated statement of operations for the year
ended December 31, 2003. Additionally, the third-party debt
holder was issued ¥500,000 thousand of preferred stock of
the consolidated subsidiary in exchange for ¥500,000
thousand of debt owed to it (see Note 10). The remaining
¥2,686,090 thousand of third-party debt was repaid from
proceeds of the Facility Agreement.
Development Bank of Japan
Loans
The loans represent institutional loans from the Development
Bank of Japan, which have been made available to
telecommunication companies operating in specific local areas
designated as Teletopia by the MPHPT to facilitate
development of local telecommunication network. Requirements to
qualify for such financing include use of optical fiber cables,
equity participation by local/ municipal government and
guarantee by third parties, among other things. These loans are
obtained by the Companys subsidiaries and are primarily
guaranteed, directly or indirectly, by SC, LMC and Microsoft.
Property and equipment with a book value of ¥9,564,553
thousand at December 31, 2003 were pledged to secure
certain loans from the Development Bank of Japan.
The aggregate annual maturities of long-term debt outstanding at
December 31, 2003 are as follows (Yen in thousands):
|
|
|
|
|
Year Ending December 31, |
|
|
|
|
|
2004
|
|
¥ |
2,438,480 |
|
2005
|
|
|
7,076,780 |
|
2006
|
|
|
11,449,920 |
|
2007
|
|
|
15,662,820 |
|
2008
|
|
|
19,835,370 |
|
Thereafter
|
|
|
167,806,825 |
|
|
|
|
|
|
|
¥ |
224,270,195 |
|
|
|
|
|
The Company and its subsidiaries are obligated under various
capital leases, primarily for home terminals, and other
noncancelable operating leases, which expire at various dates
during the next seven years. See Note 5 for further
discussion of capital leases from subsidiaries of SC.
A4-150
JUPITER TELECOMMUNICATIONS CO., LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
At December 31, 2002 and 2003, the amount of equipment and
related accumulated depreciation recorded under capital leases
were as follows (Yen in thousands):
|
|
|
|
|
|
|
|
|
|
|
2002 | |
|
2003 | |
|
|
| |
|
| |
|
|
(Unaudited) | |
|
|
Distribution system and equipment
|
|
¥ |
44,176,577 |
|
|
¥ |
45,170,512 |
|
Support equipment and buildings
|
|
|
6,366,743 |
|
|
|
6,656,913 |
|
Less: accumulated depreciation
|
|
|
(16,596,352 |
) |
|
|
(22,111,664 |
) |
Other assets, at cost, net of depreciation
|
|
|
310,296 |
|
|
|
292,511 |
|
|
|
|
|
|
|
|
|
|
¥ |
34,257,264 |
|
|
¥ |
30,008,272 |
|
|
|
|
|
|
|
|
Depreciation of assets under capital leases is included in
depreciation and amortization in the accompanying consolidated
statements of operations.
Future minimum lease payments under capital leases and
noncancelable operating leases as of December 31, 2003 are
as follows (Yen in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Capital | |
|
Operating | |
Year Ending December 31, |
|
Leases | |
|
Leases | |
|
|
| |
|
| |
|
2004
|
|
¥ |
10,504,908 |
|
|
¥ |
816,123 |
|
|
2005
|
|
|
8,610,836 |
|
|
|
732,994 |
|
|
2006
|
|
|
6,345,070 |
|
|
|
611,031 |
|
|
2007
|
|
|
3,912,775 |
|
|
|
478,744 |
|
|
2008
|
|
|
2,040,360 |
|
|
|
379,443 |
|
|
More than five years
|
|
|
2,332,502 |
|
|
|
982,694 |
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
|
33,746,451 |
|
|
¥ |
4,001,029 |
|
|
|
|
|
|
|
|
Less: amount representing interest (rates ranging from 1.10% to
6.84%)
|
|
|
(2,615,822 |
) |
|
|
|
|
|
|
|
|
|
|
|
Present value of net minimum payments
|
|
|
31,130,629 |
|
|
|
|
|
Less: current portion
|
|
|
(9,474,434 |
) |
|
|
|
|
|
|
|
|
|
|
|
Noncurrent portion
|
|
¥ |
21,656,195 |
|
|
|
|
|
|
|
|
|
|
|
|
The Company and its subsidiaries occupy certain offices under
cancelable lease arrangements. Rental expenses for such leases
for the years ended December 31, 2001, 2002 and 2003,
totaled ¥3,185,780 thousand, ¥4,115,628 thousand and
¥4,134,249 thousand, respectively, and were included in
selling, general and administrative expenses in the accompanying
consolidated statements of operations. Also, the Company and its
subsidiaries occupy certain transmission facilities and use
poles and other equipment under cancelable lease arrangements.
Rental expenses for such leases for the years ended
December 31, 2001, 2002 and 2003, totaled ¥5,314,676
thousand, ¥7,323,538 thousand and ¥8,542,845 thousand,
respectively, and are included in operating costs and expenses
in the accompanying consolidated statements of operations.
The Company and its subsidiaries are subject to Japanese
National Corporate tax of 30%, an Inhabitant tax of 6% and a
deductible Enterprise tax of 10%, which in aggregate result in a
statutory tax rate of 42%. On March 24, 2003, the Japanese
Diet approved the Amendments to Local Tax Law, reducing the
Enterprise tax from 10.08% to 7.2%. The amendments to the tax
rates will be effective for fiscal years beginning on or after
A4-151
JUPITER TELECOMMUNICATIONS CO., LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
April 1, 2004. Consequently, the statutory income tax rate
will be lowered to approximately 40% for deferred tax assets and
liabilities expected to be settled or realized on or after
January 1, 2005.
All pretax income/loss and related tax expense/benefit are
derived solely from Japanese operations.
The effective rates of income tax (benefit) expense relating to
losses (income) incurred differs from the rate that would result
from applying the normal statutory tax rates for the years ended
December 31, 2001, 2002 and 2003 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2001 | |
|
2002 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(Unaudited) | |
|
(Unaudited) | |
|
|
Normal effective statutory tax rate
|
|
|
(42.0 |
)% |
|
|
(42.0 |
)% |
|
|
42.0 |
% |
|
Adjustment to deferred tax assets and liabilities for enacted
changes in tax laws and rates
|
|
|
|
|
|
|
|
|
|
|
0.0 |
|
|
Tax benefit from utilization of previously unrecognized
operating loss carryforwards
|
|
|
|
|
|
|
|
|
|
|
(44.6 |
) |
|
Increase in valuation allowance
|
|
|
42.0 |
|
|
|
42.0 |
|
|
|
3.4 |
|
|
Other
|
|
|
0.0 |
|
|
|
3.5 |
|
|
|
3.0 |
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
0.0 |
% |
|
|
3.5 |
% |
|
|
3.8 |
% |
|
|
|
|
|
|
|
|
|
|
The effects of temporary differences and carryforwards that give
rise to deferred tax assets and liabilities at December 31,
2002 and 2003 are as follows (Yen in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
2002 | |
|
2003 | |
|
|
| |
|
| |
|
|
(Unaudited) | |
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
Operating loss carryforwards
|
|
¥ |
35,924,308 |
|
|
¥ |
29,921,448 |
|
|
Deferred revenue
|
|
|
14,544,426 |
|
|
|
14,165,581 |
|
|
Lease obligation
|
|
|
14,848,328 |
|
|
|
12,452,252 |
|
|
Retirement and other allowances
|
|
|
3,007,010 |
|
|
|
1,390,741 |
|
|
Investment in affiliates
|
|
|
986,010 |
|
|
|
794,896 |
|
|
Accrued expenses and other
|
|
|
2,570,387 |
|
|
|
2,485,228 |
|
|
|
|
|
|
|
|
|
Total gross deferred tax assets
|
|
|
71,880,469 |
|
|
|
61,210,146 |
|
|
Less: valuation allowance
|
|
|
(52,389,248 |
) |
|
|
(45,846,086 |
) |
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
|
19,491,221 |
|
|
|
15,364,060 |
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
15,129,743 |
|
|
|
12,680,631 |
|
|
Tax deductible goodwill
|
|
|
3,353,874 |
|
|
|
633,155 |
|
|
Other
|
|
|
1,007,604 |
|
|
|
2,050,274 |
|
|
|
|
|
|
|
|
|
Total gross deferred tax liabilities
|
|
|
19,491,221 |
|
|
|
15,364,060 |
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
¥ |
|
|
|
¥ |
|
|
|
|
|
|
|
|
|
The net changes in the total valuation allowance for the years
ended December 31, 2001, 2002 and 2003 were an increase of
¥18,569,046 thousand, and decreases of ¥8,985,905
thousand and ¥6,543,162 thousand, respectively.
A4-152
JUPITER TELECOMMUNICATIONS CO., LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
In assessing the realizability of deferred tax assets, the
Company considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized.
The ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income during the periods
in which those temporary differences become deductible. The
Company considers the scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax planning
strategies in making this assessment. Based upon the level of
historical taxable income and projections for future taxable
income over the periods in which the deferred tax assets are
deductible, the net deferred tax assets at December 31,
2002 and 2003 are fully offset by a valuation allowance.
The amount of valuation allowance at December 31, 2003 that
was recorded during a business combination and will be released
to goodwill if it is reversed or if the deferred tax asset is
realized is approximately ¥12,000 million.
At December 31, 2003, the Company and its subsidiaries had
net operating loss carryforwards for income tax purposes of
¥74,026,967 thousand which were available to offset future
taxable income. Net operating loss carryforwards, if not
utilized, will expire in each of the next five years as follows
(Yen in thousands):
|
|
|
|
|
Year Ending December 31, |
|
|
|
|
|
2004
|
|
¥ |
15,532,960 |
|
2005
|
|
|
20,584,382 |
|
2006
|
|
|
21,464,696 |
|
2007
|
|
|
10,923,194 |
|
2008
|
|
|
5,521,735 |
|
|
|
|
|
|
|
¥ |
74,026,967 |
|
|
|
|
|
|
|
9. |
Severance and Retirement Plans |
Under unfunded severance and retirement plans, substantially all
full-time employees terminating their employment after the three
year vesting period are entitled, under most circumstances, to
lump-sum severance payments determined by reference to their
rate of pay at the time of termination, years of service and
certain other factors. No assumptions are made for future
compensation levels as the plans have flat-benefit formulas. As
a result, the accumulated benefit obligation and projected
benefit obligation are the same.
Net periodic cost of the Company and its subsidiaries
plans accounted for in accordance with SFAS No. 87 for
the years ended December 31, 2001, 2002 and 2003, included
the following components (Yen in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2001 | |
|
2002 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(Unaudited) | |
|
(Unaudited) | |
|
|
Service cost benefits earned during the year
|
|
¥ |
266,526 |
|
|
¥ |
205,094 |
|
|
¥ |
257,230 |
|
Interest cost on projected benefit obligation
|
|
|
38,346 |
|
|
|
35,074 |
|
|
|
40,159 |
|
Recognized actuarial loss
|
|
|
45,074 |
|
|
|
232,507 |
|
|
|
158,371 |
|
|
|
|
|
|
|
|
|
|
|
Net periodic cost
|
|
¥ |
349,946 |
|
|
¥ |
472,675 |
|
|
¥ |
455,760 |
|
|
|
|
|
|
|
|
|
|
|
A4-153
JUPITER TELECOMMUNICATIONS CO., LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
The reconciliation of beginning and ending balances of the
benefit obligations of the Company and its subsidiaries
plans accounted for in accordance with SFAS No. 87 are
as follows (Yen in thousands):
|
|
|
|
|
|
|
|
|
|
|
2002 | |
|
2003 | |
|
|
| |
|
| |
|
|
(Unaudited) | |
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
Benefit obligation, beginning of year
|
|
¥ |
1,169,139 |
|
|
¥ |
1,606,371 |
|
Service cost
|
|
|
205,094 |
|
|
|
257,230 |
|
Interest cost
|
|
|
35,074 |
|
|
|
40,159 |
|
Acquisitions (Note 2)
|
|
|
24,540 |
|
|
|
|
|
Actuarial loss
|
|
|
207,967 |
|
|
|
158,371 |
|
Benefits paid
|
|
|
(35,443 |
) |
|
|
(56,120 |
) |
|
|
|
|
|
|
|
Benefit obligation, end of year
|
|
¥ |
1,606,371 |
|
|
¥ |
2,006,011 |
|
|
|
|
|
|
|
|
The weighted-average discount rate used in determining costs of
the Company and its subsidiaries plans was 3.00%, 2.50%
and 2.00% for the years ended December 31, 2001, 2002 and
2003, respectively.
In addition, employees of the Company and certain of its
subsidiaries participate in a multiemployer defined benefit
plan. The Company contributions to this plan amounted to
¥246,146 thousand, ¥324,521 thousand, and
¥342,521 thousand for the years ended December 31,
2001, 2002 and 2003, respectively, and are included in provision
for retirement allowance in selling, general and administrative
expenses in the accompanying consolidated statements of
operations.
|
|
10. |
Redeemable Preferred Stock |
On December 29, 2003, in connection with being included as
a party to the Facility Agreement (see Note 6), a
consolidated subsidiary of the Company issued ¥500,000
thousand of preferred stock in exchange for debt owed to a third
party holder. All or a part of the preferred stock can be
redeemed after 2010, up to a half of the preceding years
net income, at the holders demand. The holders of the
preferred stock have a priority to receive dividends, however,
the amount of such dividends will be decided by the
subsidiarys board of directors and such dividend will not
exceed ¥1,000 per preferred stock for any fiscal year
and will not accumulate.
Under the Japanese Commercial Code (the Code), the
amount available for dividends is based on retained earnings as
recorded on the books of the Company maintained in conformity
with financial accounting standards of Japan. Certain
adjustments not recorded on the Companys books are
reflected in the consolidated financial statements for reasons
described in Note 1. At December 31, 2003, the
accumulated deficit recorded on the Companys books of
account was ¥14,454,577 thousand. Therefore, no dividends
may be paid at the present time.
The Code provides that an amount equivalent to at least 10% of
cash dividends paid and other cash outlays resulting from
appropriation of retained earnings be appropriated to a legal
reserve until such reserve and the additional paid-in capital
equal 25% of the issued capital. The Code also provides that
neither additional paid-in capital nor the legal reserve are to
be used for cash dividends, but may be either (i) used to
reduce a capital deficit, by resolution of the shareholders;
(ii) capitalized, by resolution of the Board of Directors;
or (iii) used for purposes other than those provided in
(i) and (ii), such as refund made to shareholders or
acquisition of treasury stocks, but only up to an amount equal
to the additional paid-in capital and the legal reserve less 25%
of the
A4-154
JUPITER TELECOMMUNICATIONS CO., LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
issued capital, by resolution of the shareholders. The Code
provides that at least one-half of the issue price of new shares
be included in capital.
Stock-Based Compensation
Plans
The Company maintains subscription-rights option plans and stock
purchase warrant plans for certain directors, corporate auditors
and employees of the Companys consolidated managed
franchises and to directors, corporate auditors and employees of
the Companys unconsolidated managed franchises and other
nonemployees (collectively the Jupiter Option
Plans). The Companys board of directors and
shareholders approve the grant of the Companys ordinary
shares at an initial exercise price of ¥92,000 per
share. The exercise price is subject to adjustment upon an
effective initial public offering (IPO) to the lower
of ¥92,000 per share or the IPO offering price.
Under Jupiter Option Plans, the number of ordinary shares
issuable will be adjusted for stock splits, reverse stock splits
and certain other recapitalizations and the subscription rights
will not be exercisable until the Companys ordinary shares
are registered with the Japan Securities Dealers Association or
listed on a stock exchange. Nonmanagement employees will, unless
the grant agreement provides otherwise, vest in two years from
date of grant. Management employees will, unless the grant
agreement provides otherwise, vest in four equal installments
from date of grant. Jupiter Options generally expire
10 years from date of grant, currently ranging from
August 23, 2010 to August 23, 2012.
The Company has accounted for awards granted to the Company and
its consolidated managed franchises directors, corporate
auditors and employees under APB No. 25 and FIN
No. 44. Based on using the Companys estimated fair
value per ordinary share, there was no intrinsic value at the
date of grant under the Jupiter Option Plans. As the exercise
price at the date of grant is uncertain, the Jupiter Option
Plans are considered variable awards. Under APB No. 25 and
FIN 44, variable awards will have stock compensation
recognized each period to the extent the market value of the
ordinary shares granted exceeds the exercise price. The Company
will be subject to variable accounting for grants to employees
under the Jupiter Option Plans until all options granted are
exercised, forfeited, or expired. At December 31, 2001,
2002 and 2003, the market value of the Companys ordinary
shares did not exceed the exercise price and no compensation
expense was recognized on such options during the years ended
December 31, 2001, 2002 and 2003, respectively.
The Company has accounted for awards granted to directors,
corporate auditors and employees of the Companys
unconsolidated managed franchises and to other nonemployees, in
accordance with SFAS No. 123 and EITF 00-12. As a
result of cancellations, options outstanding to directors,
corporate auditors and employees of the Companys
unconsolidated managed franchises and to other nonemployees were
14,320 ordinary shares, 23,338 ordinary shares and 21,916
ordinary shares at December 31, 2001, 2002 and 2003,
respectively. The Company recorded compensation expense related
to the directors, corporate auditors and employees of the
Companys unconsolidated managed franchises and other
nonemployees of ¥101,393 thousand, ¥64,058 thousand
and ¥117,359 thousand for the years ended December 31,
2001, 2002 and 2003, respectively, which has been included in
selling, general and administrative expense for the
Companys nonemployees and in equity in earnings (losses)
of affiliates for employees of affiliated companies in the
accompanying consolidated statements of operations.
A4-155
JUPITER TELECOMMUNICATIONS CO., LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
The following table summarizes the activity of the Jupiter
Option Plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2001 | |
|
2002 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(Unaudited) | |
|
(Unaudited) | |
|
|
Outstanding at beginning of the year
|
|
|
129,972 |
|
|
|
132,712 |
|
|
|
158,128 |
|
Granted
|
|
|
5,398 |
|
|
|
29,424 |
|
|
|
40,722 |
|
Canceled
|
|
|
(2,658 |
) |
|
|
(4,008 |
) |
|
|
(9,210 |
) |
|
|
|
|
|
|
|
|
|
|
Outstanding at end of the year
|
|
|
132,712 |
|
|
|
158,128 |
|
|
|
189,640 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average exercise price
|
|
¥ |
92,000 |
|
|
¥ |
92,000 |
|
|
¥ |
92,000 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average remaining contractual life
|
|
|
8.7 years |
|
|
|
8.0 years |
|
|
|
7.4 years |
|
|
|
|
|
|
|
|
|
|
|
Options exercisable, end of period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average fair value of options granted
|
|
¥ |
17,562 |
|
|
¥ |
14,604 |
|
|
¥ |
18,340 |
|
|
|
|
|
|
|
|
|
|
|
|
|
12. |
Fair Value of Financial Instruments |
For financial instruments other than long-term loans, lease
obligations and interest rate swap agreements, the carrying
amount approximates fair value because of the short maturity of
these instruments. Based on the borrowing rates currently
available to the Company for bank loans with similar terms and
average maturities, the fair value of long-term debt and capital
lease obligations at December 31, 2002 and 2003 are as
follows (Yen in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002 | |
|
2003 | |
|
|
| |
|
| |
|
|
Carrying | |
|
Fair | |
|
Carrying | |
|
Fair | |
|
|
Amount | |
|
Value | |
|
Amount | |
|
Value | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Unaudited) | |
|
|
|
|
Long-term debt
|
|
|
¥26,537,925 |
|
|
|
¥25,896,918 |
|
|
|
¥224,270,195 |
|
|
|
¥220,114,532 |
|
Lease obligation
|
|
|
35,353,162 |
|
|
|
36,941,731 |
|
|
|
31,130,629 |
|
|
|
32,328,048 |
|
Interest rate swap agreements
|
|
|
|
|
|
|
|
|
|
|
694,745 |
|
|
|
694,745 |
|
|
|
13. |
Supplemental Disclosures to Consolidated Statements of Cash
Flows |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2001 | |
|
2002 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(Unaudited) | |
|
(Unaudited) | |
|
|
|
|
(Yen in thousands) | |
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
¥ |
2,948,421 |
|
|
¥ |
4,696,332 |
|
|
¥ |
4,408,426 |
|
|
|
|
|
|
|
|
|
|
|
|
Income tax
|
|
¥ |
|
|
|
¥ |
|
|
|
¥ |
378,116 |
|
|
|
|
|
|
|
|
|
|
|
Cash acquisitions of new subsidiaries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of assets acquired
|
|
¥ |
42,101,359 |
|
|
¥ |
20,135,417 |
|
|
¥ |
|
|
|
Liabilities assumed
|
|
|
35,597,996 |
|
|
|
21,991,647 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid, net of cash acquired
|
|
¥ |
6,503,363 |
|
|
¥ |
(1,856,230 |
) |
|
¥ |
|
|
|
|
|
|
|
|
|
|
|
|
Property acquired under capital leases during the year
|
|
¥ |
14,139,744 |
|
|
¥ |
10,990,909 |
|
|
¥ |
6,057,250 |
|
|
|
|
|
|
|
|
|
|
|
A4-156
JUPITER TELECOMMUNICATIONS CO., LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
In connection with the September 1, 2000 acquisition of
Titus Communications Corporation (Titus), Microsoft
and the Company entered into a gain recognition agreement with
respect to the Titus shares and assets acquired. The Company
agreed not to sell during any 18-month period, without Microsoft
consent, any shares of Titus, or sell any of Titus assets,
valued at $35 million or more, in a transaction that would
result in taxable income to Microsoft. Microsoft will retain
this consent right until the earlier of June 30, 2006 or
the date Microsoft owns less than 5% of the Companys
ordinary shares and Microsoft has sold, in taxable transactions,
80% of the Companys ordinary shares issued to it in
connection with the Titus acquisition.
The Company also entered into an agreement to purchase certain
of Microsofts equity interests in Chofu and all of
Microsofts interests in TU-KA Cellular Tokyo Inc. and
TU-KA Cellular Tokai Inc. for approximately $24 million.
Additionally, per the shareholder agreement between SC, LMC and
Microsoft, the remaining equity interests of Chofu owned by
Microsoft, LMC, and SC will be purchased by the Company at the
then-current fair market value. The closing of such purchases is
intended to take place after a successful IPO of more than 10%
of the Companys shares and the listing of such shares on a
recognized securities exchange.
The Company has guaranteed payment of certain bank loans of its
equity method affiliate investee, CATV Kobe and a cost method
investee, Kansai Cable Net, both based on an agreed upon
proportionate share of the bank loans among certain of the
entities shareholders, considering each of their
respective equity interest. The CATV Kobe guarantee amounts were
¥101,818 thousand, ¥145,455 thousand and ¥143,127
thousand for the years ended December 31, 2001, 2002 and
2003, respectively. The Kansai Cable Net guarantee amounts were
¥715,961 thousand, ¥650,778 thousand and ¥579,404
thousand for the years ended December 31, 2001, 2002 and
2003, respectively. Management believes that the likelihood the
Company would be required to perform or otherwise incur any
significant losses associated with any of these guarantees is
remote.
The Company has committed to purchase approximately
¥3,380,000 thousand of equipment in connection with its
expansion of digital services.
On March 16, 2004, the Companys Board of Directors
unanimously approved the following transactions:
|
|
|
|
1) |
Additional borrowings from LMC and SC in the amount of
¥2,431 million each under the same terms and
conditions as the existing Shareholder Subordinated Loans (see
note 6); |
|
|
2) |
Acquisition of the remaining outstanding shares of common stock
in @Home Japan currently owned by SC in exchange for
¥4,860,180 thousand in cash consideration; |
On March 25, 2004, the acquisition of the remaining
outstanding shares of common stock of @Home Japan was
consummated. Upon consummation the Company has a 100% equity
ownership interest in @Home Japan.
A4-157
INDEPENDENT AUDITORS REPORT
The Board of Directors and Shareholders
Jupiter Programming Co. Ltd.:
We have audited the accompanying consolidated balance sheet of
Jupiter Programming Co. Ltd. and subsidiaries as of
December 31, 2003, and the related consolidated statements
of operations, shareholders equity and comprehensive
income and cash flows for the year then ended. These
consolidated financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audit.
We conducted our audit in accordance with auditing standards
generally accepted in the United States of America. Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Jupiter Programming Co. Ltd. and subsidiaries as of
December 31, 2003, and the results of their operations and
their cash flows for the year ended December 31, 2003, in
conformity with accounting principles generally accepted in the
United States of America.
The accompanying consolidated financial statements as of and for
the year ended December 31, 2003 have been translated into
United States dollars solely for the convenience of the reader.
We have recomputed the translation and, in our opinion, the
consolidated financial statements expressed in yen have been
translated into United States dollars on the basis set forth in
note 2 to the consolidated financial statements.
Tokyo, Japan
March 23, 2004
A4-158
JUPITER PROGRAMMING CO. LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2002 and 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002 | |
|
2003 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(Unaudited) | |
|
|
|
U.S. Dollars | |
|
|
Yen | |
|
Yen | |
|
(Note 2) | |
|
|
(Thousands) | |
|
(Thousands) | |
|
|
ASSETS |
Current Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related party
|
|
¥ |
550,000 |
|
|
¥ |
2,350,000 |
|
|
$ |
21,962,617 |
|
|
|
Other
|
|
|
2,050,983 |
|
|
|
2,554,768 |
|
|
|
23,876,336 |
|
|
Accounts receivable (less allowance for doubtful accounts of
¥16,651 thousand in 2002 and ¥10,618 thousand
($99,234)
in 2003):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related party
|
|
|
281,491 |
|
|
|
307,160 |
|
|
|
2,870,654 |
|
|
|
Other
|
|
|
2,315,176 |
|
|
|
3,036,190 |
|
|
|
28,375,608 |
|
|
Retail inventories (Note 3)
|
|
|
2,488,821 |
|
|
|
2,235,952 |
|
|
|
20,896,748 |
|
|
Program rights and language versioning, current portion
(Note 4)
|
|
|
593,195 |
|
|
|
646,758 |
|
|
|
6,044,467 |
|
|
Deferred tax assets (Note 12)
|
|
|
720,087 |
|
|
|
1,165,550 |
|
|
|
10,892,991 |
|
|
Prepaid and other current assets
|
|
|
327,574 |
|
|
|
378,606 |
|
|
|
3,538,373 |
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
9,327,327 |
|
|
|
12,674,984 |
|
|
|
118,457,794 |
|
Investments (Note 5)
|
|
|
2,190,724 |
|
|
|
3,359,563 |
|
|
|
31,397,785 |
|
Property and equipment, net (Note 6)
|
|
|
1,920,498 |
|
|
|
2,012,286 |
|
|
|
18,806,411 |
|
Software development costs, net (Note 7)
|
|
|
1,355,792 |
|
|
|
1,450,388 |
|
|
|
13,555,028 |
|
Program rights and language versioning, excluding current
portion (Note 4)
|
|
|
156,213 |
|
|
|
140,372 |
|
|
|
1,311,888 |
|
Goodwill (Note 8)
|
|
|
191,482 |
|
|
|
188,945 |
|
|
|
1,765,841 |
|
Other intangible assets
|
|
|
14,068 |
|
|
|
59,393 |
|
|
|
555,075 |
|
Deferred tax assets, excluding current portion (Note 12)
|
|
|
129,399 |
|
|
|
236,975 |
|
|
|
2,214,720 |
|
Other assets, net
|
|
|
449,598 |
|
|
|
506,321 |
|
|
|
4,731,972 |
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
¥ |
15,735,101 |
|
|
¥ |
20,629,227 |
|
|
$ |
192,796,514 |
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt (Note 11)
|
|
¥ |
|
|
|
¥ |
46,000 |
|
|
$ |
429,907 |
|
|
Long-term debt, current portion (Note 11)
|
|
|
600,000 |
|
|
|
|
|
|
|
|
|
|
Obligations under capital leases, current portion (related
party) (Note 10)
|
|
|
431,133 |
|
|
|
329,764 |
|
|
|
3,081,907 |
|
|
Accounts payable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related party
|
|
|
660,085 |
|
|
|
717,588 |
|
|
|
6,706,430 |
|
|
|
Other
|
|
|
2,770,278 |
|
|
|
3,490,284 |
|
|
|
32,619,476 |
|
|
Accrued liabilities
|
|
|
834,031 |
|
|
|
1,259,705 |
|
|
|
11,772,944 |
|
|
Income taxes payable
|
|
|
1,146,614 |
|
|
|
1,516,200 |
|
|
|
14,170,093 |
|
|
Other current liabilities
|
|
|
410,372 |
|
|
|
718,940 |
|
|
|
6,719,068 |
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
6,852,513 |
|
|
|
8,078,481 |
|
|
|
75,499,825 |
|
Long-term debt, excluding current portion (note 11):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related party
|
|
|
1,976,000 |
|
|
|
2,016,000 |
|
|
|
18,841,121 |
|
|
|
Other
|
|
|
3,400,000 |
|
|
|
4,000,000 |
|
|
|
37,383,178 |
|
Obligations under capital leases, excluding current installments
(related party) (Note 10)
|
|
|
391,195 |
|
|
|
174,946 |
|
|
|
1,635,006 |
|
Accrued pension and severance cost (Note 13)
|
|
|
158,031 |
|
|
|
216,611 |
|
|
|
2,024,402 |
|
Other liabilities
|
|
|
92,702 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
12,870,441 |
|
|
|
14,486,038 |
|
|
|
135,383,532 |
|
|
|
|
|
|
|
|
|
|
|
Minority interests
|
|
|
926,661 |
|
|
|
1,539,900 |
|
|
|
14,391,589 |
|
|
|
|
|
|
|
|
|
|
|
Shareholders Equity (Note 14):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary shares, no par value; authorized 450,000 shares;
issued and outstanding 336,680 shares in 2002 and 2003
|
|
|
16,834,000 |
|
|
|
16,834,000 |
|
|
|
157,327,103 |
|
|
Accumulated deficit
|
|
|
(14,896,001 |
) |
|
|
(12,230,711 |
) |
|
|
(114,305,710 |
) |
|
|
|
|
|
|
|
|
|
|
Total Shareholders Equity
|
|
|
1,937,999 |
|
|
|
4,603,289 |
|
|
|
43,021,393 |
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders Equity
|
|
¥ |
15,735,101 |
|
|
¥ |
20,629,227 |
|
|
$ |
192,796,514 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
A4-159
JUPITER PROGRAMMING CO. LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 2001, 2002 and 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2001 | |
|
2002 | |
|
2003 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Unaudited) | |
|
(Unaudited) | |
|
|
|
U.S. Dollars | |
|
|
Yen | |
|
Yen | |
|
Yen | |
|
(Note 2) | |
|
|
(Thousands) | |
|
(Thousands) | |
|
(Thousands) | |
|
|
Revenues (Note 1(n)):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail sales, net
|
|
¥ |
19,725,415 |
|
|
¥ |
27,432,871 |
|
|
¥ |
38,699,329 |
|
|
$ |
361,675,972 |
|
|
Television programming revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related party
|
|
|
1,036,437 |
|
|
|
1,457,731 |
|
|
|
1,655,215 |
|
|
|
15,469,299 |
|
|
|
Other
|
|
|
3,428,998 |
|
|
|
4,247,036 |
|
|
|
5,802,030 |
|
|
|
54,224,579 |
|
|
Services and other revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related party
|
|
|
492,418 |
|
|
|
524,849 |
|
|
|
755,244 |
|
|
|
7,058,355 |
|
|
|
Other
|
|
|
517,339 |
|
|
|
634,336 |
|
|
|
906,453 |
|
|
|
8,471,524 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
25,200,607 |
|
|
|
34,296,823 |
|
|
|
47,818,271 |
|
|
|
446,899,729 |
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of retail sales
|
|
|
11,824,917 |
|
|
|
16,392,589 |
|
|
|
23,256,782 |
|
|
|
217,353,103 |
|
|
Cost of programming and distribution:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related party
|
|
|
371,731 |
|
|
|
851,475 |
|
|
|
2,487,545 |
|
|
|
23,248,084 |
|
|
|
Other
|
|
|
4,353,103 |
|
|
|
5,417,193 |
|
|
|
6,271,783 |
|
|
|
58,614,794 |
|
|
Selling, general and administrative expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related party
|
|
|
1,738,095 |
|
|
|
2,131,499 |
|
|
|
2,473,349 |
|
|
|
23,115,411 |
|
|
|
Other
|
|
|
4,543,677 |
|
|
|
5,493,090 |
|
|
|
7,003,042 |
|
|
|
65,448,991 |
|
|
Depreciation and amortization
|
|
|
922,200 |
|
|
|
1,107,040 |
|
|
|
1,210,163 |
|
|
|
11,309,935 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
23,753,723 |
|
|
|
31,392,886 |
|
|
|
42,702,664 |
|
|
|
399,090,318 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
1,446,884 |
|
|
|
2,903,937 |
|
|
|
5,115,607 |
|
|
|
47,809,411 |
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related party
|
|
|
(131,181 |
) |
|
|
(77,899 |
) |
|
|
(60,073 |
) |
|
|
(561,430 |
) |
|
|
Other
|
|
|
(34,609 |
) |
|
|
(74,482 |
) |
|
|
(66,204 |
) |
|
|
(618,729 |
) |
|
Gain (loss) on forward exchange contracts
|
|
|
327,343 |
|
|
|
(309,017 |
) |
|
|
(141,368 |
) |
|
|
(1,321,196 |
) |
|
Equity in losses of equity method affiliates (Note 5)
|
|
|
(335,566 |
) |
|
|
(163,758 |
) |
|
|
(64,472 |
) |
|
|
(602,542 |
) |
|
Other income (expense), net
|
|
|
(32,407 |
) |
|
|
(214,087 |
) |
|
|
9,763 |
|
|
|
91,243 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(206,420 |
) |
|
|
(839,243 |
) |
|
|
(322,354 |
) |
|
|
(3,012,654 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes and minority interests
|
|
|
1,240,464 |
|
|
|
2,064,694 |
|
|
|
4,793,253 |
|
|
|
44,796,757 |
|
Income tax benefit (expense) (Note 12)
|
|
|
55,613 |
|
|
|
(703,947 |
) |
|
|
(1,519,225 |
) |
|
|
(14,198,365 |
) |
Minority interests
|
|
|
(345,152 |
) |
|
|
(343,027 |
) |
|
|
(608,738 |
) |
|
|
(5,689,140 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
¥ |
950,925 |
|
|
¥ |
1,017,720 |
|
|
¥ |
2,665,290 |
|
|
$ |
24,909,252 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
A4-160
JUPITER PROGRAMMING CO. LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY AND
COMPREHENSIVE INCOME
Years Ended December 31, 2001, 2002 and 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2001 | |
|
2002 | |
|
2003 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Unaudited) | |
|
(Unaudited) | |
|
|
|
U.S. Dollars | |
|
|
Yen | |
|
Yen | |
|
Yen | |
|
(Note 2) | |
|
|
(Thousands) | |
|
(Thousands) | |
|
(Thousands) | |
|
|
Common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning and end of year
|
|
¥ |
16,834,000 |
|
|
¥ |
16,834,000 |
|
|
¥ |
16,834,000 |
|
|
$ |
157,327,103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated deficit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
(16,864,646 |
) |
|
|
(15,913,721 |
) |
|
|
(14,896,001 |
) |
|
|
(139,214,962 |
) |
|
Net income
|
|
|
950,925 |
|
|
|
1,017,720 |
|
|
|
2,665,290 |
|
|
|
24,909,252 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
|
(15,913,721 |
) |
|
|
(14,896,001 |
) |
|
|
(12,230,711 |
) |
|
|
(114,305,710 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
¥ |
920,279 |
|
|
¥ |
1,937,999 |
|
|
¥ |
4,603,289 |
|
|
$ |
43,021,393 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
¥ |
950,925 |
|
|
¥ |
1,017,720 |
|
|
¥ |
2,665,290 |
|
|
$ |
24,909,252 |
|
|
Cumulative effect adjustment on adoption of
SFAS No. 133, net of tax effect
|
|
|
230,015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification adjustment for gains reclassified into
operations
|
|
|
(230,015 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
¥ |
950,925 |
|
|
¥ |
1,017,720 |
|
|
¥ |
2,665,290 |
|
|
$ |
24,909,252 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
A4-161
JUPITER PROGRAMMING CO. LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2001, 2002 and 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2001 | |
|
2002 | |
|
2003 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Unaudited) | |
|
(Unaudited) | |
|
|
|
U.S. Dollars | |
|
|
Yen | |
|
Yen | |
|
Yen | |
|
(Note 2) | |
|
|
(Thousands) | |
|
(Thousands) | |
|
(Thousands) | |
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
¥ |
950,925 |
|
|
¥ |
1,017,720 |
|
|
¥ |
2,665,290 |
|
|
$ |
24,909,252 |
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
922,200 |
|
|
|
1,107,040 |
|
|
|
1,210,163 |
|
|
|
11,309,935 |
|
|
|
Provision for doubtful accounts
|
|
|
(433 |
) |
|
|
1,501 |
|
|
|
1,975 |
|
|
|
18,458 |
|
|
|
Equity in losses of equity method affiliates
|
|
|
335,566 |
|
|
|
163,758 |
|
|
|
64,472 |
|
|
|
602,542 |
|
|
|
Write-down of cost method investment
|
|
|
|
|
|
|
215,650 |
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
(304,951 |
) |
|
|
(536,017 |
) |
|
|
(553,039 |
) |
|
|
(5,168,590 |
) |
|
|
Minority interest in earnings
|
|
|
345,152 |
|
|
|
343,027 |
|
|
|
608,738 |
|
|
|
5,689,140 |
|
|
|
Changes in assets and liabilities, net of effects of
acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase)/decrease in accounts
receivable
|
|
|
35,277 |
|
|
|
(515,809 |
) |
|
|
(740,650 |
) |
|
|
(6,921,962 |
) |
|
|
|
(Increase)/decrease in retail inventories, net
|
|
|
(343,869 |
) |
|
|
(777,383 |
) |
|
|
252,870 |
|
|
|
2,363,271 |
|
|
|
|
Increase in program rights and language versioning
|
|
|
(158,892 |
) |
|
|
(135,165 |
) |
|
|
(37,722 |
) |
|
|
(352,542 |
) |
|
|
|
Increase in accounts payable
|
|
|
17,348 |
|
|
|
1,242,235 |
|
|
|
777,510 |
|
|
|
7,266,449 |
|
|
|
|
Increase in accrued liabilities
|
|
|
68,948 |
|
|
|
169,642 |
|
|
|
425,674 |
|
|
|
3,978,262 |
|
|
|
|
Increase in income taxes payable
|
|
|
206,649 |
|
|
|
939,964 |
|
|
|
369,587 |
|
|
|
3,454,084 |
|
|
|
|
Increase/(decrease) in other, net
|
|
|
(80,939 |
) |
|
|
457,341 |
|
|
|
210,947 |
|
|
|
1,971,467 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
1,992,981 |
|
|
|
3,693,504 |
|
|
|
5,255,815 |
|
|
|
49,119,766 |
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(1,243,574 |
) |
|
|
(1,378,218 |
) |
|
|
(1,299,228 |
) |
|
|
(12,142,318 |
) |
|
Acquisition of subsidiary, net of cash
acquired
|
|
|
(5,641 |
) |
|
|
(188,844 |
) |
|
|
|
|
|
|
|
|
|
Investments in affiliates
|
|
|
(152,500 |
) |
|
|
(626,050 |
) |
|
|
(1,259,945 |
) |
|
|
(11,775,187 |
) |
|
Other, net
|
|
|
|
|
|
|
(113,998 |
) |
|
|
4,500 |
|
|
|
42,056 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(1,401,715 |
) |
|
|
(2,307,110 |
) |
|
|
(2,554,673 |
) |
|
|
(23,875,449 |
) |
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of short-term debt
|
|
|
|
|
|
|
|
|
|
|
46,000 |
|
|
|
429,907 |
|
|
Proceeds from issuance of long-term debt
|
|
|
5,070,000 |
|
|
|
60,000 |
|
|
|
4,040,000 |
|
|
|
37,757,009 |
|
|
Principal payments on short-term debt
|
|
|
(60,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments on long-term debt
|
|
|
(3,840,000 |
) |
|
|
|
|
|
|
(4,000,000 |
) |
|
|
(37,383,178 |
) |
|
Principal payments on obligations under capital leases
|
|
|
(572,006 |
) |
|
|
(527,935 |
) |
|
|
(460,262 |
) |
|
|
(4,301,514 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
597,994 |
|
|
|
(467,935 |
) |
|
|
(374,262 |
) |
|
|
(3,497,776 |
) |
Net effect of exchange rate changes on cash and cash equivalents
|
|
|
41,480 |
|
|
|
(25,895 |
) |
|
|
(23,095 |
) |
|
|
(215,840 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
1,230,740 |
|
|
|
892,564 |
|
|
|
2,303,785 |
|
|
|
21,530,701 |
|
Cash and cash equivalents at beginning of year
|
|
|
477,679 |
|
|
|
1,708,419 |
|
|
|
2,600,983 |
|
|
|
24,308,252 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
¥ |
1,708,419 |
|
|
¥ |
2,600,983 |
|
|
¥ |
4,904,768 |
|
|
$ |
45,838,953 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
¥ |
42,686 |
|
|
¥ |
299,999 |
|
|
¥ |
1,702,678 |
|
|
$ |
15,912,879 |
|
|
|
Interest
|
|
|
165,790 |
|
|
|
152,381 |
|
|
|
126,277 |
|
|
|
1,180,159 |
|
|
Non-cash activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets acquired under capital leases
|
|
|
560,166 |
|
|
|
5,457 |
|
|
|
142,644 |
|
|
|
1,333,123 |
|
See accompanying notes to consolidated financial statements.
A4-162
JUPITER PROGRAMMING CO. LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
(1) |
Description of Business and Summary of Significant Accounting
Policies and Practices |
|
|
(a) |
Description of Business |
Jupiter Programming Co. Ltd. (the Company) and its
subsidiaries (hereafter collectively referred to as
JPC) invest in, develop, manage and distribute
television programming to cable and satellite systems in Japan.
Jupiter Shop Channel Co., Ltd (Shop Channel),
through which JPC markets and sells a wide variety of consumer
products and accessories, is JPCs largest channel in terms
of revenue, comprising approximately 78%, 80%, and 81%, of total
revenues for the years ended December 31, 2001, 2002 and
2003, respectively. JPCs business activities are conducted
in Japan and serve the Japanese market.
The Company is owned 50% by Liberty Programming Japan, Inc., an
indirect wholly owned subsidiary of Liberty Media Corporation,
and 50% by Sumitomo Corporation. The Company was incorporated in
1996 in Japan under the name Kabushiki Kaisha Jupiter
Programming, Jupiter Programming Co. Ltd. in English.
|
|
(b) |
Basis of Consolidated Financial Statements |
The consolidated balance sheet as of December 31, 2002 and
the related consolidated statements of operations, cash flows
and shareholders equity and comprehensive income for each
of the years in the two year period ended December 31,
2002, as well as the related footnote disclosures for those
periods, are unaudited. The consolidated financial statements
for 2001 and 2002 have been prepared on a consistent basis with
the 2003 consolidated financial statements and reflect all
adjustments that in the opinion of management are necessary to
present the results of operations, financial position and cash
flows for the 2001 and 2002 periods in accordance with the
accounting principles generally accepted in the United States of
America.
The Company and its subsidiaries maintain their books of account
in accordance with accounting principles generally accepted in
Japan. The consolidated financial statements presented herein
have been prepared in a manner and reflect certain adjustments
that are necessary to conform them to accounting principles
generally accepted in the United States of America. The major
areas requiring such adjustment are accounting for derivative
instruments and hedging activities, accounting for assets held
under finance lease arrangements, accounting for goodwill and
other intangible assets, employers accounting for
pensions, accounting for vacation pay liabilities, and
accounting for cooperative marketing arrangements and certain
customer discounts.
|
|
(c) |
Principles of Consolidation |
The consolidated financial statements include the financial
statements of the Company and its majority owned subsidiaries.
All significant intercompany balances and transactions have been
eliminated in consolidation.
Cash equivalents consist of highly liquid debt instruments with
an initial maturity of three month or less from the date of
purchase.
|
|
(d) |
Allowance for Doubtful Accounts |
Allowance for doubtful accounts is computed based on historical
bad debt experience and includes estimated uncollectable amounts
based on an analysis of certain individual accounts, including
claims in bankruptcy.
Retail Inventories, consisting primarily of products held for
sale on Shop Channel, are stated at the lower of cost or market
value. Cost is determined using the first-in, first-out method.
A4-163
JUPITER PROGRAMMING CO. LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(f) |
Program Rights and Language Versioning |
Rights to programming acquired for broadcast on the programming
channels and language versioning are stated at cost. Program
right licenses generally state a fixed time period within which
a program can be aired, and generally limit the number of times
a program can be aired. The licensor retains ownership of the
program upon expiration of the license. Programming rights and
language versioning costs are amortized over the license period
for the program rights based on the nature of the contract or
program. Where airing runs are limited, amortization is
generally based on runs usage, where usage is unlimited, a
straight line basis is generally used as an estimate of actual
usage for amortization purposes. Certain sports programs are
amortized fully upon first airing. Such amortization is included
in programming and distribution expense in the accompanying
consolidated statements of operations.
The portion of unamortized program rights and language
versioning costs expected to be amortized within one year is
classified as a current asset in the accompanying consolidated
balance sheets.
For those investments in affiliates in which JPCs voting
interest is 20% to 50% and JPC has the ability to exercise
significant influence over the affiliates operation and
financial policies, the equity method of accounting is used.
Under this method, the investment originally recorded at cost is
adjusted to recognize JPCs share of the net earnings or
losses of its affiliates. JPC recognizes its share of losses of
an equity method affiliate until its investment and net
advances, if any, is reduced to zero and only provides for
additional losses in the event that it has guaranteed
obligations of the equity method affiliate or is otherwise
committed to provide further financial support. All significant
intercompany profits from affiliates have been eliminated. (see
Note 5).
The difference between the carrying value of JPCs
investment in the affiliate and the underlying equity in the net
assets of the affiliate is recorded as equity method goodwill.
Prior to the adoption of SFAS No. 142 on
January 1, 2002, equity method goodwill was required to be
amortized over its estimated useful life. There was no such
equity method goodwill as of January 1, 2002. Under
SFAS No. 142, equity method goodwill is not amortized
but continues to be reviewed for impairment in accordance with
APB No. 18, which requires that an other than temporary
decline in value of an investment be recognized as an impairment
loss.
Investments in other securities carried at cost represent
non-marketable equity securities in which JPCs ownership
is less than 20% and JPC does not have the ability to exercise
significant influence over the entities operation and
financial policies.
JPC evaluates its investments in affiliates and non-marketable
equity securities for impairment due to declines in value
considered to be other than temporary. In performing its
evaluations, JPC utilizes various information, as available,
including cash flow projections, independent valuations and, as
applicable, stock price analysis. In the event of a
determination that a decline in value is other than temporary, a
charge to earnings is recorded for the loss, and a new cost
basis in the investment is established.
|
|
(h) |
Derivative Financial Instruments |
The Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards
(SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities, in June 1998, and
SFAS No. 138, Accounting for Certain Derivative
Instruments and Certain Hedging Activities, an amendment of FASB
Statement No. 133 in June 2000.
SFAS No. 133, as amended, standardizes the accounting
for derivative instruments, including certain derivative
instruments embedded in other contracts. Under
SFAS No. 133, as amended, entities are required to
carry all derivative instruments in the consolidated balance
sheets at fair value. The accounting for changes in the fair
value (that is, gains or losses) of a derivative instrument
depends on whether it has been designated and qualifies as part
of a hedging relationship and, if so, on the reason for holding
the instrument. If certain conditions are met, entities may
elect to designate a derivative
A4-164
JUPITER PROGRAMMING CO. LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
instrument as a hedge of exposures to changes in fair values,
cash flows, or foreign currencies. If the hedged exposure is a
fair value exposure, the gain or loss on the derivative
instrument is recognized in earnings in the period of change
together with the offsetting loss or gain on the hedged item
attributable to the risk being hedged. If the hedged exposure is
a cash flow exposure, the effective portion of the gain or loss
on the derivative instrument is reported initially as a
component of other comprehensive income (loss) and subsequently
reclassified into earnings when the forecasted transaction
affects earnings. Any amounts excluded from the assessment of
hedge effectiveness as well as the ineffective portion of the
gain or loss are reported in earnings immediately. If the
derivative instrument is not designated as a hedge, the gain or
loss is recognized in earnings in the period of change.
JPC adopted SFAS No. 133, as amended, on
January 1, 2001. The cumulative effect adjustment upon
adoption, net of the related income tax effect, resulted in an
increase to other comprehensive income of ¥230,015
thousand. All of that amount was reclassified into earnings
during the year ended December 31, 2001.
JPC uses foreign exchange forward contracts to manage currency
exposure, resulting from changes in foreign currency exchange
rates, on purchase commitments for contracted programming rights
and other contract costs and for forecasted inventory purchases
in U.S. Dollars. JPC enters into these contracts to hedge
its U.S. Dollar denominated net monetary exposures. Hedges
relating to purchase commitments for contracted programming
rights and other contract costs may qualify for hedge accounting
under the hedging criteria specified by SFAS No. 133.
However, JPC has elected not to designate the transactions as
hedges. Accordingly, changes in the fair value of derivatives
are recorded in the consolidated statement of operations in the
period of the change.
JPC does not, as a matter of policy, enter into derivative
transactions for the purpose of speculation.
|
|
(i) |
Property and Equipment |
Property and equipment are stated at cost.
Depreciation and amortization is generally computed using the
straight line method over the estimated useful lives of the
respective assets as follows:
|
|
|
|
|
Leasehold improvements
|
|
|
3-16 years |
|
Equipment and vehicles
|
|
|
2-6 years |
|
Furniture and fixtures
|
|
|
2-6 years |
|
Equipment under capital leases is stated at the present value of
minimum lease payments. Equipment under capital leases is
amortized using the straight line method over the shorter of the
lease term and the estimated useful lives of the respective
assets, which generally ranges from three to six years.
|
|
(j) |
Software Development Costs |
JPC capitalizes certain costs incurred to purchase or develop
software for internal-use. Costs incurred to develop software
for internal-use are expensed as incurred during the preliminary
project stage which includes, costs for making strategic
decisions about the project, determining performance and system
requirements and vendor demonstration cost. Costs incurred
subsequent to the preliminary project stage through
implementation are capitalized. JPC also expenses costs incurred
for internal-use software projects in the post implementation
stage such as costs for training and maintenance. The
capitalized cost of software is amortized straight-line over the
estimated useful life, which is generally three to five years.
A4-165
JUPITER PROGRAMMING CO. LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(k) |
Goodwill and Other Intangible Assets |
Goodwill represents the excess of costs over fair value of net
assets of businesses acquired. In June 2001, the FASB issued
SFAS No. 141, Business Combinations, and
SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS No. 141 requires the use of the
purchase method of accounting for business combinations and
establishes certain criteria for the recognition of intangible
assets separately from goodwill. Under SFAS No. 142
goodwill is no longer amortized, but instead is tested for
impairment at least annually. Intangible assets with definite
useful lives are amortized over their respective estimated
useful lives and reviewed for impairment in accordance with
SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. Any recognized intangible
assets determined to have an indefinite useful life are not
amortized, but instead are tested for impairment until their
life is determined to be no longer indefinite.
Upon adoption of SFAS No. 142, JPC reassessed the
useful lives and residual values of all intangible assets and
made any necessary amortization period adjustments with no
significant effects. In connection with the transitional
impairment evaluation, SFAS No. 142 required JPC to
perform an assessment of whether there was an indication that
goodwill was impaired as of January 1, 2002. JPC had no
goodwill recorded as of January 1, 2002 and, therefore, was
not required to perform a transitional impairment evaluation.
JPC performs its annual impairment test at the end of each year.
JPC completed its annual impairment test at December 31,
2003, with no indication of impairment identified.
|
|
(l) |
Long-Lived Assets and Long-Lived Assets to Be Disposed
Of |
JPC accounts for long-lived assets in accordance with the
provisions of SFAS No. 144. SFAS No. 144
requires that long-lived assets and certain identifiable
intangibles with definite useful lives be reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash
flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the
assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or
fair value less costs to sell.
In June 2001, the FASB issued SFAS No. 143,
Accounting for Asset Retirement Obligations. The standard
requires that obligations associated with the retirement of
tangible long-lived assets be recorded as liabilities when those
obligations are incurred, with the amount of the liability
initially measured at fair value. The associated asset
retirement cost are capitalized as part of the carrying amount
of the long-lived asset. SFAS No. 143 is effective for
financial statements issued for fiscal years beginning after
June 15, 2002. JPC adopted SFAS No. 143 on
January 1, 2003 and the adoption did not have a material
effect on its results of operations, financial position or cash
flows.
|
|
(m) |
Accrued Pension and Severance Costs |
The Company and certain of its subsidiaries provide a Retirement
Allowance Plan (RAP) for eligible employees. The RAP
is an unfunded retirement allowance program in which benefits
are based on years of service which in turn determine a multiple
of final monthly compensation. JPC accounts for the RAP in
accordance with the provisions of SFAS No., 87,
Employers Accounting for Pensions.
In addition, JPC employees participate in an Employees
Pension Fund (EPF) Plan. The EPF Plan is a
multi-employer plan consisting of approximately 120
participating companies, mainly affiliates of Sumitomo
Corporation. The plan is composed of substitutional portions
based on the pay-related part of the old age pension benefits
prescribed by the Welfare Pension Insurance Law in Japan, and
corporate portions based on contributory defined benefit pension
arrangements established at the discretion of the Company and
its subsidiaries. Benefits
A4-166
JUPITER PROGRAMMING CO. LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
under the EPF Plan are based on years of service and the
employees compensation during the five years before
retirement.
The assets of the EPF Plan are co-mingled and no assets are
separately identifiable for any one participating company. JPC
accounts for the EPF Plan in accordance with the provisions of
SFAS No., 87, Employers Accounting for
Pensions governing multi-employer plans. Under these
provisions, JPC recognizes net pension expense for the required
contribution for each period and recognizes a liability for any
contributions due but unpaid at the end of each period. Any
shortfalls in plan funding are charged to participating
companies on a share-of-contribution basis through
special contributions spread over a period of years
determined by the EPF Plan as being appropriate.
Revenue from sales of products by Shop Channel is recognized
when the products are delivered to customers, which is when
title and risk of loss transfers. JPCs retail sales policy
allows merchandise to be returned at the customers
discretion, generally up to 30 days after the date of sale.
Retail sales revenue is reported net of discounts, and of
estimated returns, which are based upon historical experience.
|
|
|
Television Programming Revenue |
Television programming revenue includes subscription and
advertising revenue.
Subscription revenue is recognized in the periods in which
programming services are provided to cable and satellite
subscribers. JPCs channels distribute programming to
individual satellite platform subscribers through an agreement
with the platform operator which provides subscriber management
services to channels in return for a fee based on subscription
revenues. Individual subscribers pay a monthly fee for
programming channels under the terms of rolling one-month
subscription contracts. Cable service providers generally pay a
per-subscriber fee for the right to distribute JPCs
programming on their systems under the terms of generally annual
distribution contracts. Subscription revenue is recognized net
of satellite platform commissions and certain cooperative
marketing and advertising funds paid to cable system operators.
Satellite platform commissions for the years ended
December 31, 2001, 2002 and 2003 were ¥733,040
thousand, ¥843,335 thousand and ¥1,580,945 thousand
($14,775,187), respectively. Cooperative marketing and
advertising funds paid to cable system operators for the years
ended December 31, 2001, 2002 and 2003 were ¥98,967
thousand, ¥80,289 thousand and ¥174,432 thousand
($1,630,206), respectively.
The Company generates advertising revenue on all of its
programming channels except Shop Channel. Advertising revenue is
recognized, net of agency commissions, when advertisements are
broadcast on JPCs programming channels.
|
|
|
Services and Other Revenue |
Services and other revenue mainly comprises cable and
advertising sales fees and commissions, and technical broadcast
facility and production services provided by the Company and
certain subsidiaries, and is recognized in the periods in which
such services are provided to customers.
Cost of retail sales consists of the cost of products marketed
to customers by Shop Channel, including write-downs for
inventory obsolescence, shipping and handling costs and
warehouse costs. Product costs are recognized as cost of retail
sales in the accompanying consolidated statements of operations
when the products are delivered to customers and the
corresponding revenue is recognized.
A4-167
JUPITER PROGRAMMING CO. LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(p) |
Cost of Programming and Distribution |
Cost of programming and distribution consists of costs incurred
to acquire or produce programs airing on the channels
distributed to cable and satellite subscribers. Distribution
costs include the costs of delivering the programming channels
via satellite, including the costs incurred for uplink services
and use of satellite transponders, and payments made to cable
and satellite platforms for carriage of Shop Channel.
Advertising expense is recognized as incurred and is included in
selling, general and administrative expenses or, if appropriate,
as a reduction of subscription revenue. Cooperative marketing
costs are recognized as an expense to the extent that an
identifiable benefit is received and fair value of the benefit
can be reasonably measured, otherwise as a reduction of
subscription revenue. Advertising expense included in selling,
general and administrative expenses for the years ended
December 31, 2001, 2002 and 2003 was ¥805,527
thousand, ¥1,062,757 thousand and ¥1,003,836 thousand
($9,381,645), respectively.
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss
and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the
enactment date.
|
|
(s) |
Foreign Currency Transactions |
Assets and liabilities denominated in foreign currencies are
translated at the applicable current rates on the balance sheet
date. All revenue and expenses denominated in foreign currencies
are converted at the rates of exchange prevailing when such
transactions occur. The resulting exchange gains or losses are
reflected in other income (expense) in the accompanying
consolidated statements of income.
Management of JPC has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of
the consolidated financial statements, and the reported amounts
of revenues and expenses during the reporting period, to prepare
these consolidated financial statements in conformity with
accounting principles generally accepted in the United States of
America. Significant items subject to such estimates and
assumptions include valuation allowances for accounts
receivable, inventory, deferred tax assets and retail sales
returns, and obligations related to employees retirement
plans. Actual results could differ from estimates.
|
|
(u) |
New Accounting Standards |
In January 2003, the FASB issued Interpretation No. 46,
Consolidation of Variable Interest Entities, an
Interpretation of ARB No. 51. In December 2003, the
FASB issued a revision to FIN 46, or Revised
Interpretation, to clarify some of the provisions of
FIN 46. FIN 46 provides guidance on how to identify a
variable interest entity, or VIE, and determine when the assets,
liabilities, non-controlling interests, and results of
operations of a VIE must be included in a companys
consolidated financial statements. A company that holds variable
interests in an entity is required to consolidate the entity if
the companys interest in the VIE is such that the company
will absorb a majority of the VIEs expected losses and/or
receive a majority of the entitys expected
A4-168
JUPITER PROGRAMMING CO. LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
residual returns, if any. VIEs created after January 31,
2003, but prior to January 1, 2004, may be accounted for
either based on the original interpretation or the Revised
Interpretations. However, the Revised Interpretations must be
applied no later than the first quarter of fiscal year 2004.
VIEs created after January 1, 2004 must be accounted for
under the Revised Interpretations. There has been no material
effect to JPCs consolidated financial statements from
potential VIEs entered into after January 31, 2003 and
there is no expected impact from the adoption of the deferred
provisions in the first quarter of fiscal year 2004.
U.S. dollar amounts presented in the consolidated financial
statements and related notes are included solely for the
convenience of the reader. These translations should not be
construed as representations as to what the yen amounts actually
represent in, or have been or could be converted into,
U.S. Dollars. For this purpose, the rate of
¥107 per U.S.$1, the approximate exchange rate at
December 31, 2003, was used for translation of the
accompanying consolidated financial statements of JPC as of and
for the year ended December 31, 2003.
Retail inventories comprise finished goods available for sale by
Shop Channel.
|
|
(4) |
Program Rights and Language Versioning |
Program rights and language versioning as of December 31,
2002 and 2003 are composed of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002 | |
|
2003 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(Unaudited) | |
|
Yen | |
|
U.S. Dollars | |
|
|
Yen | |
|
(Thousands) | |
|
(Note 2) | |
|
|
(Thousands) | |
|
|
|
|
Program rights
|
|
¥ |
1,346,151 |
|
|
¥ |
1,616,603 |
|
|
$ |
15,108,439 |
|
Language versioning
|
|
|
219,802 |
|
|
|
206,884 |
|
|
|
1,933,495 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,565,953 |
|
|
|
1,823,487 |
|
|
|
17,041,934 |
|
Less accumulated amortization
|
|
|
(816,545 |
) |
|
|
(1,036,357 |
) |
|
|
(9,685,579 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
¥ |
749,408 |
|
|
¥ |
787,130 |
|
|
$ |
7,356,355 |
|
|
|
|
|
|
|
|
|
|
|
Amortization expense related to program rights and language
versioning for the years ended December 31, 2001, 2002 and
2003 was ¥1,102,808 thousand, ¥1,298,054 thousand and
¥1,570,670 thousand ($14,679,159), respectively, included
in cost of programming and distribution in the consolidated
statements of operations.
A4-169
JUPITER PROGRAMMING CO. LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Investments, including advances, as of December 31, 2002
and 2003 are composed of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002 | |
|
2003 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
Percentage | |
|
Carrying | |
|
Percentage | |
|
Carrying | |
|
Carrying | |
|
|
Ownership | |
|
Amount | |
|
Ownership | |
|
Amount | |
|
Amount | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
(Unaudited) | |
|
|
|
Yen | |
|
U.S. Dollars | |
|
|
|
|
Yen | |
|
|
|
(Thousands) | |
|
(Note 2) | |
|
|
|
|
(Thousands) | |
|
|
|
|
|
|
Investments accounted for under the equity method:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discovery Japan, Inc.
|
|
|
50.0% |
|
|
¥ |
138,247 |
|
|
|
50.0% |
|
|
¥ |
281,692 |
|
|
$ |
2,632,636 |
|
|
Animal Planet Japan, Co. Ltd.
|
|
|
33.3% |
|
|
|
284,095 |
|
|
|
33.3% |
|
|
|
342,423 |
|
|
|
3,200,215 |
|
|
InteracTV Co., Ltd.
|
|
|
42.5% |
|
|
|
40,077 |
|
|
|
42.5% |
|
|
|
38,805 |
|
|
|
362,664 |
|
|
JSports Broadcasting Corporation
|
|
|
28.5% |
|
|
|
967,205 |
|
|
|
28.5% |
|
|
|
1,110,431 |
|
|
|
10,377,860 |
|
|
AXN Japan, Inc.
|
|
|
|
|
|
|
|
|
|
|
35.0% |
|
|
|
825,112 |
|
|
|
7,711,327 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity method investments
|
|
|
|
|
|
|
1,429,624 |
|
|
|
|
|
|
|
2,598,463 |
|
|
|
24,284,702 |
|
Investments accounted for at cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NikkeiCNBC Japan, Inc.
|
|
|
9.8% |
|
|
|
100,000 |
|
|
|
9.8% |
|
|
|
100,000 |
|
|
|
934,579 |
|
|
Kids Station, Inc.
|
|
|
15.0% |
|
|
|
304,500 |
|
|
|
15.0% |
|
|
|
304,500 |
|
|
|
2,845,794 |
|
|
AT-X, Inc.
|
|
|
12.3% |
|
|
|
266,000 |
|
|
|
12.3% |
|
|
|
266,000 |
|
|
|
2,485,981 |
|
|
Nihon Eiga Satellite Broadcasting Corporation
|
|
|
10.0% |
|
|
|
66,600 |
|
|
|
10.0% |
|
|
|
66,600 |
|
|
|
622,430 |
|
|
Satellite Service Co. Ltd.
|
|
|
12.0% |
|
|
|
24,000 |
|
|
|
12.0% |
|
|
|
24,000 |
|
|
|
224,299 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost method investments
|
|
|
|
|
|
|
761,100 |
|
|
|
|
|
|
|
761,100 |
|
|
|
7,113,083 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
¥ |
2,190,724 |
|
|
|
|
|
|
¥ |
3,359,563 |
|
|
$ |
31,397,785 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following investments represent participation in programming
channel businesses:
|
|
|
Discovery Japan, Inc., a general documentary channel; |
|
Animal Planet Japan, Co. Ltd., an animal-specific documentary
channel; |
|
JSports Broadcasting Corporation, a sports channel business
currently operating three channels; |
|
AXN Japan, Inc., an action and adventure channel; |
|
NikkeiCNBC Japan, Inc., a news service channel; |
|
Kids Station, Inc., a childrens entertainment channel; |
|
AT-X, Inc., an animation genre channel; and |
|
Nihon Eiga Satellite Broadcasting Corporation, a Japanese period
drama and |
|
movie channels business currently operating two channels. |
The following investments represent participation in broadcast
license-holding companies through which channels are consigned
to subscribers to the CS110 degree East
Direct-to-home satellite service:
|
|
|
InteracTV Co., Ltd., holds licenses for CSN, Lala, Golf Network
and Shop channels, among others; |
|
Satellite Service Co. Ltd., holds licenses for Discovery and
Animal Planet channels, among others. |
A4-170
JUPITER PROGRAMMING CO. LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following reflects JPCs share of earnings (losses) of
investments accounted for under the equity method for the years
ended December 31, 2001, 2002 and 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2001 | |
|
2002 | |
|
2003 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Unaudited) | |
|
(Unaudited) | |
|
Yen | |
|
U.S. Dollars | |
|
|
Yen | |
|
Yen | |
|
(Thousands) | |
|
(Note 2) | |
|
|
(Thousands) | |
|
(Thousands) | |
|
|
|
|
Discovery Japan, Inc.
|
|
¥ |
190,831 |
|
|
¥ |
(92,949 |
) |
|
¥ |
143,445 |
|
|
$ |
1,340,607 |
|
Animal Planet Japan, Co. Ltd.
|
|
|
(187,568 |
) |
|
|
(260,929 |
) |
|
|
(311,673 |
) |
|
|
(2,912,832 |
) |
InteracTV Co., Ltd.
|
|
|
(1,281 |
) |
|
|
(1,142 |
) |
|
|
(1,272 |
) |
|
|
(11,888 |
) |
JSports Broadcasting Corporation
|
|
|
(337,548 |
) |
|
|
191,262 |
|
|
|
143,227 |
|
|
|
1,338,571 |
|
AXN Japan, Inc.
|
|
|
|
|
|
|
|
|
|
|
(38,199 |
) |
|
|
(357,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
¥ |
(335,566 |
) |
|
¥ |
(163,758 |
) |
|
¥ |
(64,472 |
) |
|
$ |
(602,542 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
In August 2003, the Company invested ¥863,311 thousand
($8,068,327) to acquire a 35% interest in AXN Japan, Inc. AXN is
an action and adventure entertainment channel that complements
JPCs channel businesses.
The carrying amount of investments in affiliates as of
December 31, 2002 and 2003, includes ¥nil and
¥751,940 thousand ($7,027,477), respectively, of excess
cost of the investments over the companys equity in the
net assets of the affiliates, the amount of that excess
representing equity method goodwill.
JPC holds 33% of the ordinary shares of Animal Planet Japan, Co.
Ltd, and records its share of the earnings and losses in
accordance with that ordinary shareholding ratio. The Company
has funding obligations in accordance its ordinary shareholding
ratio up to a maximum of ¥1,295,250 thousand ($12,105,140).
During the years ended December 31, 2002 and 2003, the
Company invested ¥620,000 thousand and ¥370,000
thousand ($3,457,944), respectively, and has made a total
investment of ¥1,130,000 thousand ($10,560,748) at
December 31, 2003, in Animal Planet Japan, Co. Ltd.
Financial information for the companies in which the Company has
an investment accounted for under the equity method is presented
as combined as the companies are similar in nature and operate
in the same business area. Condensed combined financial
information is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002 | |
|
2003 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(Unaudited) | |
|
Yen | |
|
U.S. Dollars | |
|
|
Yen | |
|
(Thousands) | |
|
(Note 2) | |
|
|
(Thousands) | |
|
|
|
|
Combined financial position at December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined current assets
|
|
¥ |
5,877,390 |
|
|
¥ |
6,747,882 |
|
|
$ |
63,064,318 |
|
|
Combined other assets
|
|
|
741,068 |
|
|
|
1,780,915 |
|
|
|
16,644,065 |
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
¥ |
6,618,458 |
|
|
¥ |
8,528,797 |
|
|
$ |
79,708,383 |
|
|
|
|
|
|
|
|
|
|
|
|
Combined current liabilities
|
|
|
2,973,964 |
|
|
|
2,983,359 |
|
|
|
27,881,860 |
|
|
Combined other liabilities
|
|
|
1,286,696 |
|
|
|
2,543,293 |
|
|
|
23,769,093 |
|
|
Combined shareholders equity
|
|
|
2,357,798 |
|
|
|
3,002,145 |
|
|
|
28,057,430 |
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
¥ |
6,618,458 |
|
|
¥ |
8,528,797 |
|
|
$ |
79,708,383 |
|
|
|
|
|
|
|
|
|
|
|
A4-171
JUPITER PROGRAMMING CO. LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2001 | |
|
2002 | |
|
2003 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Unaudited) | |
|
(Unaudited) | |
|
Yen | |
|
U.S. Dollars | |
|
|
Yen | |
|
Yen | |
|
(Thousands) | |
|
(Note 2) | |
|
|
(Thousands) | |
|
(Thousands) | |
|
|
|
|
Combined operations for the year ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined revenues
|
|
¥ |
9,572,502 |
|
|
¥ |
16,034,608 |
|
|
¥ |
15,256,112 |
|
|
$ |
142,580,482 |
|
|
Combined operating expenses
|
|
|
12,283,705 |
|
|
|
15,720,997 |
|
|
|
15,270,229 |
|
|
|
142,712,420 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined operating income (loss)
|
|
|
(2,711,203 |
) |
|
|
313,611 |
|
|
|
(14,117 |
) |
|
|
(131,938 |
) |
|
Other income, net, including income taxes
|
|
|
1,092,225 |
|
|
|
364,935 |
|
|
|
319,099 |
|
|
|
2,982,237 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
¥ |
(1,618,978 |
) |
|
¥ |
678,546 |
|
|
¥ |
304,982 |
|
|
$ |
2,850,299 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6) |
Property and Equipment |
Property and equipment as of December 31, 2002 and 2003 are
comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002 | |
|
2003 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(Unaudited) | |
|
Yen | |
|
U.S. Dollars | |
|
|
Yen | |
|
(Thousands) | |
|
(Note 2) | |
|
|
(Thousands) | |
|
|
|
|
Furniture and fixtures
|
|
¥ |
107,728 |
|
|
¥ |
143,364 |
|
|
$ |
1,339,848 |
|
Leasehold improvements
|
|
|
478,353 |
|
|
|
671,028 |
|
|
|
6,271,286 |
|
Equipment and vehicles
|
|
|
2,798,118 |
|
|
|
2,698,152 |
|
|
|
25,216,378 |
|
Land
|
|
|
437,147 |
|
|
|
437,147 |
|
|
|
4,085,482 |
|
Construction in progress
|
|
|
50,550 |
|
|
|
253,678 |
|
|
|
2,370,827 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,871,896 |
|
|
|
4,203,369 |
|
|
|
39,283,821 |
|
Less accumulated depreciation and amortization
|
|
|
(1,951,398 |
) |
|
|
(2,191,083 |
) |
|
|
(20,477,410 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
¥ |
1,920,498 |
|
|
¥ |
2,012,286 |
|
|
$ |
18,806,411 |
|
|
|
|
|
|
|
|
|
|
|
Property and equipment assets include assets held under
capitalized lease arrangements (Note 10). Depreciation and
amortization expense related to property and equipment for the
years ended December 31, 2001, 2002 and 2003 was
¥671,354 thousand, ¥699,332 thousand and ¥734,930
thousand ($6,868,505), respectively.
|
|
(7) |
Software Development Costs |
Software development costs as of December 31, 2002 and 2003
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002 | |
|
2003 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(Unaudited) | |
|
Yen | |
|
U.S. Dollars | |
|
|
Yen | |
|
(Thousands) | |
|
(Note 2) | |
|
|
(Thousands) | |
|
|
|
|
Software development costs
|
|
|
¥1,731,658 |
|
|
|
¥1,938,261 |
|
|
$ |
18,114,590 |
|
Less accumulated amortization
|
|
|
(375,866 |
) |
|
|
(487,873 |
) |
|
|
(4,559,562 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
¥1,355,792 |
|
|
|
¥1,450,388 |
|
|
$ |
13,555,028 |
|
|
|
|
|
|
|
|
|
|
|
Significant software development additions during 2002 and 2003
included development of Shop Channel e-commerce infrastructure,
and development of an affiliate sales receivables management
system.
Aggregate amortization expense for the years ended
December 31, 2001, 2002 and 2003 was ¥189,705
thousand, ¥355,727 thousand and ¥451,327 thousand
($4,218,009), respectively.
A4-172
JUPITER PROGRAMMING CO. LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The changes in the carrying amount of goodwill for the years
ended December 31, 2001, 2002 and 2003 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2001 | |
|
2002 | |
|
2003 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Unaudited) | |
|
(Unaudited) | |
|
Yen | |
|
U.S. Dollars | |
|
|
Yen | |
|
Yen | |
|
(Thousands) | |
|
(Note 2) | |
|
|
(Thousands) | |
|
(Thousands) | |
|
|
|
|
Balance at beginning of year
|
|
¥ |
|
|
|
¥ |
|
|
|
¥ |
191,482 |
|
|
$ |
1,789,551 |
|
Acquisitions
|
|
|
|
|
|
|
191,482 |
|
|
|
|
|
|
|
|
|
Adjustment
|
|
|
|
|
|
|
|
|
|
|
(2,537 |
) |
|
|
(23,710 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
¥ |
|
|
|
¥ |
191,482 |
|
|
¥ |
188,945 |
|
|
$ |
1,765,841 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A breakdown of the goodwill recorded during 2002 is provided in
note 18.
As the Company did not have any goodwill in 2001, comparability
of the consolidated financial statements was not impacted by the
adoption of SFAS No. 142 on January 1, 2002.
The Company does not have any other indefinite lived intangible
assets.
|
|
(9) |
Fair Value of Financial Instruments |
The carrying amounts for financial instruments in JPCs
consolidated financial statements at December 31, 2002 and
2003 approximate their estimated fair values. Fair value
estimates are made at a specific point in time based on relevant
market information and information about the financial
instrument. These estimates are subjective in nature and involve
uncertainties and matters of significant judgement and,
therefore, cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
The following methods and assumptions were used to estimate the
fair value of each class of financial instruments:
Cash and cash equivalents, trade accounts receivable, trade
accounts payable, income taxes payable, accrued expense, and
other current liabilities (non-derivatives): The carrying
amounts approximate fair value because of the short duration of
these instruments.
Foreign exchange forward contracts: The carrying amount
is reflective of fair value. The fair value of currency forward
contracts is estimated based on the intrinsic value of each
contract. As at December 31, 2002, fair value of foreign
exchange forward contracts of ¥18,081 thousand was included
in the consolidated balance sheet under the other current assets
caption, and ¥92,702 thousand was included under the other
current liabilities caption. As at December 31, 2003, fair
value of foreign exchange forward contracts of ¥241,507
thousand ($2,257,072) was included in the consolidated balance
sheet under the other current liabilities caption.
Long-term debt, including current portion: The fair value
of JPCs long-term debt is estimated by discounting the
future cash flows of each instrument by a proxy for rates
expected to be incurred on similar borrowings at current rates.
Borrowings bear interest based on certain financial ratios that
determine a margin over Euroyen TIBOR, and are therefore
variable. JPC believes the carrying amount approximates fair
value based on the variable rates and currently available terms
and conditions for similar debt.
Capital lease obligations, including current
installments: The carrying amount is reflective of fair
value. The fair value of JPCs capital lease obligations is
estimated by discounting the future cash flows of each
instrument at rates currently offered to JPC by leasing
companies.
A4-173
JUPITER PROGRAMMING CO. LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
JPC is obligated under various capital leases for certain
equipment and other assets that expire at various dates,
generally during the next five years. At December 31, 2002
and 2003, the gross amount of equipment and the related
accumulated depreciation recorded under capital leases were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002 | |
|
2003 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(Unaudited) | |
|
Yen | |
|
U.S. Dollars | |
|
|
Yen | |
|
(Thousands) | |
|
(Note 2) | |
|
|
(Thousands) | |
|
|
|
|
Equipment
|
|
¥ |
2,130,030 |
|
|
¥ |
1,794,097 |
|
|
$ |
16,767,260 |
|
Others
|
|
|
150,872 |
|
|
|
99,667 |
|
|
|
931,464 |
|
Less accumulated depreciation
|
|
|
(1,504,804 |
) |
|
|
(1,417,805 |
) |
|
|
(13,250,512 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
¥ |
776,098 |
|
|
¥ |
475,959 |
|
|
$ |
4,448,212 |
|
|
|
|
|
|
|
|
|
|
|
Depreciation of assets held under capital leases is included
with depreciation and amortization expense. Leased equipment is
included in property and equipment (note 6).
Future minimum capital lease payments as of December 31,
2003 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Dollars | |
|
|
Yen | |
|
(Note 2) | |
|
|
| |
|
| |
|
|
(Thousands) | |
|
|
Year ending December 31,
|
|
|
|
|
|
|
|
|
|
2004
|
|
¥ |
344,399 |
|
|
$ |
3,218,682 |
|
|
2005
|
|
|
120,548 |
|
|
|
1,126,621 |
|
|
2006
|
|
|
38,335 |
|
|
|
358,270 |
|
|
2007
|
|
|
24,396 |
|
|
|
228,000 |
|
|
2008
|
|
|
7,702 |
|
|
|
71,977 |
|
|
Thereafter
|
|
|
9 |
|
|
|
80 |
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
|
535,389 |
|
|
|
5,003,630 |
|
Less amount representing interest (at rates ranging from 1.25%
to 2.6%)
|
|
|
(30,679 |
) |
|
|
(286,717 |
) |
|
|
|
|
|
|
|
Present value of minimum capital lease payments
|
|
|
504,710 |
|
|
|
4,716,913 |
|
Less current installments
|
|
|
(329,764 |
) |
|
|
(3,081,907 |
) |
|
|
|
|
|
|
|
|
|
¥ |
174,946 |
|
|
$ |
1,635,006 |
|
|
|
|
|
|
|
|
JPC also has several operating leases, primarily for office
space, that expire over the next 10 years, and a lease for
land that expires in 30 years. Rent expense for the years
ended December 31, 2001, 2002 and 2003 was ¥228,121
thousand, ¥238,621 thousand and ¥275,264 thousand
($2,572,561), respectively.
The Company leases two principal office premises. JPC
headquarters has a rolling two-year lease agreement that
provides for annual rental costs of ¥184,109 thousand
($1,720,643). Shop Channel has a 10-year agreement expiring in
October 2013 with an annual rental cost of ¥186,711
thousand ($1,744,961). These and other leases for office space
are mainly cancelable upon six months notice. Accordingly, the
schedule below detailing future minimum lease payments under
noncancelable operating leases includes the lease costs for the
Companys premises for only a six-month period.
A4-174
JUPITER PROGRAMMING CO. LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Future minimum lease payments for the noncancelable portion of
operating leases as of December 31, 2003 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Dollars | |
|
|
Yen | |
|
(Note 2) | |
|
|
| |
|
| |
|
|
(Thousands) | |
|
|
Year ending December 31,
|
|
|
|
|
|
|
|
|
|
2004
|
|
¥ |
291,118 |
|
|
$ |
2,720,733 |
|
|
2005
|
|
|
4,980 |
|
|
|
46,542 |
|
|
2006
|
|
|
4,980 |
|
|
|
46,542 |
|
|
2007
|
|
|
4,980 |
|
|
|
46,542 |
|
|
2008
|
|
|
4,980 |
|
|
|
46,542 |
|
|
Thereafter
|
|
|
116,615 |
|
|
|
1,089,860 |
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
¥ |
427,653 |
|
|
$ |
3,996,761 |
|
|
|
|
|
|
|
|
Short-term debt at December 31, 2002 and 2003 consists of
the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002 | |
|
2003 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(Unaudited) | |
|
Yen | |
|
U.S. Dollars | |
|
|
Yen | |
|
(Thousands) | |
|
(Note 2) | |
|
|
(Thousands) | |
|
|
|
|
Promissory note
|
|
¥ |
|
|
|
¥ |
46,000 |
|
|
$ |
429,907 |
|
|
|
|
|
|
|
|
|
|
|
Short-term debt represents a Promissory note in the amount of
¥46,000 thousand ($429,907) due to Sony Pictures
Entertainment (Japan) Inc. The borrowing bears interest at Japan
Short Term Prime rate (1.375% at December 31, 2003) and is
due on March 31, 2004.
Long-term debt at December 31, 2002 and 2003 consists of
the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002 | |
|
2003 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(Unaudited) | |
|
Yen | |
|
U.S. Dollars | |
|
|
Yen | |
|
(Thousands) | |
|
(Note 2) | |
|
|
(Thousands) | |
|
|
|
|
Borrowings from banks
|
|
¥ |
4,000,000 |
|
|
¥ |
4,000,000 |
|
|
$ |
37,383,178 |
|
Loans from shareholders
|
|
|
1,000,000 |
|
|
|
1,000,000 |
|
|
|
9,345,794 |
|
Loans from subsidiary minority shareholders
|
|
|
976,000 |
|
|
|
1,016,000 |
|
|
|
9,495,327 |
|
|
|
|
|
|
|
|
|
|
|
Total long term debt
|
|
|
5,976,000 |
|
|
|
6,016,000 |
|
|
|
56,224,299 |
|
Less: current portion
|
|
|
(600,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, excluding current portion
|
|
¥ |
5,376,000 |
|
|
¥ |
6,016,000 |
|
|
$ |
56,224,299 |
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2003, the Company had a ¥10,000,000
thousand ($93,457,944) credit facility (the
Facility) with a group of banks. The Facility, which is
guaranteed by certain of the Companys subsidiaries,
comprises an ¥8,000,000 thousand ($74,766,355) five-year
term loan and a ¥2,000,000 thousand ($18,691,589) 364-day
revolving facility. Outstanding borrowings under the five-year
term loan at December 31, 2003 were ¥4,000,000
thousand ($37,383,178). There were no borrowings outstanding
under the 364-day revolving facility as of December 31,
2003. The Company pays a commitment fee of 0.20% on undrawn
borrowings of the Facility. Interest on outstanding borrowings
is based on certain financial ratios and can range from Euroyen
TIBOR + 0.75% to TIBOR + 2.00% for the
five-year term loan and from TIBOR + 0.70% to
TIBOR + 1.00% for
A4-175
JUPITER PROGRAMMING CO. LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the 364-day revolving facility. The interest rates charged at
December 31, 2003 for the five-year term loan and for the
364-day revolving facility were 0.83% and 0.78%, respectively.
The term loan portion of the Facility is available to be drawn
upon until December 25, 2005. Repayment by installments
begins on March 31, 2006, on a quarterly basis, equal to
10% of the outstanding balance at the end of the availability
period, until fully repaid on June 25, 2008. The 364-day
revolving facility is available until June 22, 2004, and
repayment in full is due on that date.
The Facility contains certain financial and other restrictive
covenants. The financial covenants consist of: (i) EBITDA,
as defined by the Facility agreement and reported on a Japan
Commercial Code basis, shall be equal to or exceed, for fiscal
year 2003, ¥2,500,000 thousand; for fiscal year 2004,
¥3,000,000 thousand; for fiscal year 2005, ¥3,500,000
thousand; for fiscal year 2006, ¥4,000,000 thousand; for
fiscal year 2007, ¥5,000,000 thousand; and
(ii) Actual Amount of Investment, as defined by
the Facility agreement, shall not exceed Maximum Amount of
Investment as defined, provided that, in respect of a
fiscal year, an amount equal to the excess of Maximum over
Actual amount of investment shall be added to the Maximum Amount
of Investment of the next following fiscal year. Maximum amounts
of investment are defined relative to prior year EBITDA and
other specified amounts.
Restrictive covenants contained in the Facility agreement
include certain restrictions on: (i) creation of
contractual security interests over the Companys assets;
(ii) sale of assets that would result in material adverse
effect, or would comprise over 10% of total assets;
(iii) corporate reorganization that would result in
material adverse effect; (iv) sale of shares in principal
subsidiaries; (v) distribution of dividends, repurchase of
own shares, and repayment of subordinated loans;
(vi) amendment of subordinated loan agreements;
(vii) transactions with related parties other than in
normal course of business, (viii) changes in fundamental
nature of business; (ix) incursion of interest-bearing debt
not contemplated in the Facility agreement; (x) transfer,
creation of security interests on, or otherwise disposal of the
Companys shares; (xi) changes in control of the
Company management by parent companies; (xii) purchase of
shares in companies in unrelated business areas; and
(xiii) changes in scope of the business of a particular
subsidiary.
The Facility was renegotiated in June 2003 and replaced a
similar facility that was in place as at December 31, 2002.
The previous facility comprised a ¥4,000,000 thousand
five-year term loan and a ¥1,000,000 thousand 364-day
revolving facility. Outstanding borrowings under the five-year
term loan at December 31, 2002 were ¥4,000,000
thousand. There were no borrowings outstanding under the 364-day
revolving facility as of December 31, 2002. The interest
rates charged at December 31, 2002 for the five-year term
loan and for the 364-day revolving facility were 0.82% and
0.77%, respectively. The previous credit facility contained
similar financial and other restrictive covenants.
JPC is in the process of complying with the covenant restricting
incursion of interest-bearing debt not contemplated in the
Facility agreement, such that if JPC advances new loans to
companies other than the guarantors of the Facility after the
date of the Facility agreement, those loans must be assigned to
the lenders under a loan receivable assignment agreement. JPC
has formally informed the lenders that they expect to complete a
loan receivable assignment by 30 April 2004 with regards to
a promissory note in the amount of ¥46,000 thousand
($429,907) issued to AXN Japan Inc, a JPC affiliate company.
Although there is no timeframe for assignment specified in the
Facility agreement, the lenders have advised JPC that this is an
acceptable timeframe and confirmed that JPC is not in default of
the Facility agreement in respect of this matter.
The Company has outstanding term borrowings of ¥500,000
thousand ($4,672,897) from each of Liberty Media Corporation and
Sumitomo Corporation. The borrowings are subordinated to the
Facility described above. The borrowings bear interest at the
higher of the rate applicable to the term loan portion of the
Facility, and Japan Long Term Prime rate (1.70% and 1.85% at
December 31, 2002 and 2003, respectively), and are due in
full on July 26, 2008.
A4-176
JUPITER PROGRAMMING CO. LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
JPC has the following debt of certain subsidiaries due to
minority shareholders in those subsidiaries:
|
|
|
Outstanding borrowings of ¥796,000 thousand and
¥836,000 thousand ($7,813,084) as of December 31, 2002
and 2003, respectively, by Jupiter Sports Inc. due to Liberty J
Sports, Inc., an indirect wholly owned subsidiary of Liberty
Media Corporation. The borrowings are subordinated to the
Facility described above. The borrowings bear interest at the
higher of the rate applicable to the term loan portion of the
Facility, and Japan Long Term Prime rate (1.70% and 1.85% at
December 31, 2002 and 2003, respectively), and are due in
full on December 31, 2007. |
|
|
Outstanding borrowings as of December 31, 2002 and 2003, of
¥180,000 thousand ($1,682,243) by Jupiter Shop Channel Co.,
Ltd. due to Home Shopping Network Inc. The borrowings are
subordinated to the Facility described above. The borrowings
bear interest at Japan Short Term Prime rate (1.375% at
December 31, 2002 and 2003), and are due in full on
December 31, 2005. |
The aggregate maturities of long-term debt for each of the five
years subsequent to December 31, 2003 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
2003 | |
|
2003 | |
|
|
| |
|
| |
|
|
Yen | |
|
U.S. Dollars | |
|
|
(Thousands) | |
|
(Note 2) | |
Year ending December 31,
|
|
|
|
|
|
|
|
|
|
2004
|
|
¥ |
|
|
|
$ |
|
|
|
2005
|
|
|
180,000 |
|
|
|
1,682,243 |
|
|
2006
|
|
|
1,600,000 |
|
|
|
14,953,271 |
|
|
2007
|
|
|
2,436,000 |
|
|
|
22,766,355 |
|
|
2008
|
|
|
1,800,000 |
|
|
|
16,822,430 |
|
|
|
|
|
|
|
|
Total debt
|
|
¥ |
6,016,000 |
|
|
$ |
56,224,299 |
|
|
|
|
|
|
|
|
The components of the provision for income taxes for the years
ended December 31, 2001, 2002 and 2003 recognized in the
consolidated statements of operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2001 | |
|
2002 | |
|
2003 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Unaudited) | |
|
(Unaudited) | |
|
|
|
U.S. Dollars | |
|
|
Yen | |
|
Yen | |
|
Yen | |
|
(Note 2) | |
|
|
(Thousands) | |
|
(Thousands) | |
|
(Thousands) | |
|
|
Current taxes
|
|
¥ |
249,338 |
|
|
¥ |
1,239,964 |
|
|
¥ |
2,072,264 |
|
|
$ |
19,366,955 |
|
Deferred taxes
|
|
|
(304,951 |
) |
|
|
(536,017 |
) |
|
|
(553,039 |
) |
|
|
(5,168,590 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
¥ |
(55,613 |
) |
|
¥ |
703,947 |
|
|
¥ |
1,519,225 |
|
|
$ |
14,198,365 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A4-177
JUPITER PROGRAMMING CO. LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
All pre-tax income and income tax expense (benefit) is related
to operations in Japan. The tax effects of temporary differences
that give rise to significant portions of the deferred tax
assets and deferred tax liabilities at December 31, 2002
and 2003 are presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002 | |
|
2003 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(Unaudited) | |
|
|
|
U.S. Dollars | |
|
|
Yen | |
|
Yen | |
|
(Note 2) | |
|
|
(Thousands) | |
|
(Thousands) | |
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail inventories
|
|
¥ |
485,223 |
|
|
¥ |
617,970 |
|
|
$ |
5,775,416 |
|
|
Property and equipment
|
|
|
111,547 |
|
|
|
195,223 |
|
|
|
1,824,514 |
|
|
Accrued liabilities
|
|
|
213,238 |
|
|
|
372,529 |
|
|
|
3,481,578 |
|
|
Enterprise tax payable
|
|
|
112,454 |
|
|
|
142,709 |
|
|
|
1,333,729 |
|
|
Foreign exchange gain/loss
|
|
|
32,239 |
|
|
|
101,371 |
|
|
|
947,390 |
|
|
Equity method investments
|
|
|
776,675 |
|
|
|
711,645 |
|
|
|
6,650,891 |
|
|
Operating loss carryforwards
|
|
|
3,775,943 |
|
|
|
1,892,339 |
|
|
|
17,685,411 |
|
|
Others
|
|
|
214,489 |
|
|
|
270,394 |
|
|
|
2,527,053 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,721,808 |
|
|
|
4,304,180 |
|
|
|
40,225,982 |
|
|
Less valuation allowance
|
|
|
(4,872,322 |
) |
|
|
(2,901,655 |
) |
|
|
(27,118,271 |
) |
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
849,486 |
|
|
|
1,402,525 |
|
|
|
13,107,711 |
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
¥ |
849,486 |
|
|
¥ |
1,402,525 |
|
|
$ |
13,107,711 |
|
|
|
|
|
|
|
|
|
|
|
The net changes in the total valuation allowance for the years
ended December 31, 2001, 2002 and 2003 were decreases of
¥576,250 thousand, ¥1,003,452 thousand, and
¥1,970,667 thousand ($18,417,454), respectively.
In assessing the realizability of deferred tax assets, the
Company considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized.
The ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income during the periods
in which those temporary differences become deductible. The
Company considers the scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax planning
strategies in making this assessment. Based upon the level of
historical taxable income and projections for future taxable
income over the periods in which the deferred tax assets are
deductible, management believes it is more likely than not that
the Company will realize the benefit of these deductible
differences, net of the existing valuation allowance. The amount
of the deferred tax asset considered realizable, however, could
be reduced in the near term if estimates of the future taxable
income during the carryforward period are reduced.
At December 31, 2003, JPC and its subsidiaries had total
net operating loss carried forward for income tax purposes of
approximately ¥4,650,623 thousand ($43,463,766), which are
available to offset future taxable income, if any. JPC
subsidiaries are subject to taxation on a stand-alone basis and
net operating loss carried
A4-178
JUPITER PROGRAMMING CO. LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
forwards may not be utilized against other group company
profits. Aggregated net operating losses carried forward expire
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Dollars | |
|
|
Yen | |
|
(Note 2) | |
|
|
| |
|
| |
|
|
(Thousands) | |
|
|
Year ending December 31,
|
|
|
|
|
|
|
|
|
|
2004
|
|
¥ |
3,043,370 |
|
|
$ |
28,442,710 |
|
|
2005
|
|
|
895,871 |
|
|
|
8,372,626 |
|
|
2006
|
|
|
143,308 |
|
|
|
1,339,327 |
|
|
2007
|
|
|
339,630 |
|
|
|
3,174,112 |
|
|
2008
|
|
|
228,444 |
|
|
|
2,134,991 |
|
|
|
|
|
|
|
|
|
|
¥ |
4,650,623 |
|
|
$ |
43,463,766 |
|
|
|
|
|
|
|
|
The Company and its subsidiaries are subject to Japanese
National Corporate tax of 30%, an Inhabitant tax of 6% and a
deductible Enterprise tax of 10%, which in aggregate result in a
statutory tax rate of 42.1%. On March 24, 2003, the
Japanese Diet approved the Amendments to Local Tax Law, reducing
the standard enterprise tax rate from 10.08% to 7.2%. The
amendments to the tax rates will be effective for fiscal years
beginning on or after April 1, 2004. Consequently, the
statutory income tax rate will be lowered to approximately 40%
for deferred tax assets and liabilities expected to be settled
or realized on or after January 1, 2005. A reconciliation
of the Japanese statutory income tax rate and the effective
income tax rate as a percentage of income before income taxes
for the years ended December 31, 2001, 2002 and 2003 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2001 | |
|
2002 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(Unaudited) | |
|
(Unaudited) | |
|
|
Statutory tax rate
|
|
|
42.1 |
% |
|
|
42.1 |
% |
|
|
42.1 |
% |
Non-deductible expenses
|
|
|
1.9 |
|
|
|
2.8 |
|
|
|
1.9 |
|
Change in the beginning of the year balance of valuation
allowance
|
|
|
(17.6 |
) |
|
|
|
|
|
|
|
|
Change in valuation allowance
|
|
|
(31.7 |
) |
|
|
(27.1 |
) |
|
|
(9.9 |
) |
Reduction of tax net operating loss due to intercompany transfer
of assets
|
|
|
|
|
|
|
19.6 |
|
|
|
|
|
Additional tax deduction due to intercompany transfer of assets
|
|
|
|
|
|
|
(3.9 |
) |
|
|
(1.7 |
) |
Others
|
|
|
0.8 |
|
|
|
0.6 |
|
|
|
(0.7 |
) |
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
(4.5 |
)% |
|
|
34.1 |
% |
|
|
31.7 |
% |
|
|
|
|
|
|
|
|
|
|
A4-179
JUPITER PROGRAMMING CO. LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(13) |
Accrued Pension and Severance Cost |
Net periodic cost of the Company and its subsidiaries
unfunded Retirement Allowance Plans (RAP) accounted
for in accordance with SFAS No. 87 for the years ended
December 31, 2001, 2002 and 2003, included the following
components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2001 | |
|
2002 | |
|
2003 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Unaudited) | |
|
(Unaudited) | |
|
Yen | |
|
U.S. Dollars | |
|
|
Yen | |
|
Yen | |
|
(Thousands) | |
|
(Note 2) | |
|
|
(Thousands) | |
|
(Thousands) | |
|
|
|
|
Service cost benefits earned during
the year
|
|
¥ |
42,381 |
|
|
¥ |
43,652 |
|
|
¥ |
44,743 |
|
|
$ |
418,163 |
|
Interest cost on projected benefit obligation
|
|
|
2,037 |
|
|
|
2,625 |
|
|
|
3,951 |
|
|
|
36,923 |
|
Recognized actuarial loss
|
|
|
|
|
|
|
10,341 |
|
|
|
15,972 |
|
|
|
149,273 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic cost
|
|
¥ |
44,418 |
|
|
¥ |
56,618 |
|
|
¥ |
64,666 |
|
|
$ |
604,359 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The reconciliation of beginning and ending balances of the
benefit obligations of the Company and its subsidiaries
plans accounted for in accordance with SFAS No. 87 are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002 | |
|
2003 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(Unaudited) | |
|
Yen | |
|
U.S. Dollars | |
|
|
Yen | |
|
(Thousands) | |
|
(Note 2) | |
|
|
(Thousands) | |
|
|
|
|
Change in projected benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation, beginning of year
|
|
¥ |
105,012 |
|
|
¥ |
158,031 |
|
|
$ |
1,476,924 |
|
|
Service cost
|
|
|
43,652 |
|
|
|
44,743 |
|
|
|
418,163 |
|
|
Interest cost
|
|
|
2,625 |
|
|
|
3,951 |
|
|
|
36,923 |
|
|
Actuarial loss
|
|
|
10,342 |
|
|
|
15,973 |
|
|
|
149,279 |
|
|
Benefits paid
|
|
|
(3,600 |
) |
|
|
(6,087 |
) |
|
|
(56,887 |
) |
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation, end of year
|
|
¥ |
158,031 |
|
|
¥ |
216,611 |
|
|
$ |
2,024,402 |
|
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligation, end of year
|
|
¥ |
118,932 |
|
|
¥ |
164,662 |
|
|
$ |
1,538,894 |
|
|
|
|
|
|
|
|
|
|
|
Actuarial gains and losses are recognized fully in the year in
which they occur. The weighted-average discount rate used in
determining costs of the Company and its subsidiaries
plans was 3.00%, 2.50% and 2.00% for the years ended
December 31, 2001, 2002 and 2003, respectively. Assumed
salary increases ranged from 1% to 4.11% depending on
employees age for the years ended December 31, 2001,
2002 and 2003.
In addition, employees of the Company and certain of its
subsidiaries participate in a multi-employer defined benefit
Employees Pension Fund (EPF) plan. The Company
contributions to this plan amounted to ¥44,607 thousand,
¥56,976 thousand, and ¥60,322 thousand ($563,757) for
the years ended December 31, 2001, 2002 and 2003,
respectively, and are included in selling, general and
administrative expenses in the accompanying consolidated
statements of operations.
|
|
(14) |
Shareholders Equity |
The Commercial Code of Japan, provides that an amount equal to
at least 10% of cash dividends and other cash appropriations
paid be appropriated as a legal reserve until the aggregated
amount of additional paid-in capital and the legal reserve
equals 25% of the issued capital.
The Company paid no cash dividends for the years ended
December 31, 2001, 2002 and 2003. The amount available for
dividends under the Commercial Code of Japan is based on the
unappropriated retained earnings recorded in the Companys
books of account and amounted to nil at December 31, 2003.
A4-180
JUPITER PROGRAMMING CO. LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(15) |
Related Party Transactions |
JPC engages in a variety of transactions in the normal course of
business, several of which are with related parties. Significant
related party balances, income and expenditures have been
separately identified in the consolidated balance sheets and
statements of operations. In addition to those transactions,
cost of retail sales transactions with related parties for the
years ended December 31, 2001, 2002 and 2003 were
¥nil, ¥15,893 thousand and ¥67,970 thousand
($635,237), respectively.
A list of related parties and a description of main types of
transactions with each party follows:
Sumitomo Corporation, shareholder, and its subsidiaries:
television programming advertising revenues, cost of retail
sales, costs of programming and distribution, selling, general
and administrative expenses for staff secondment fees, cash
deposits, property and equipment capital leases, subordinated
loans and interest thereon;
Liberty Media Corporation, shareholder, and its subsidiaries:
selling, general and administrative expenses for staff
secondment fees, subordinated loans and interest thereon;
Discovery Japan, Inc., and Animal Planet Japan, Co. Ltd,
affiliate companies: services and other revenues from cable and
advertising sales activities and broadcasting, marketing and
office support services; costs of programming and distribution
relating to direct-to-home subscription revenue;
JSports Broadcasting Corporation, affiliate company: services
and other revenues from cable and advertising sales activities
and recovery of staff costs for seconded staff;
InteracTV Co., Ltd, affiliate company: pass through of
direct-to-home television programming subscription revenues to
JPC, costs of programming and distribution payments for
transponder services;
Minority interests in Jupiter Golf Network, Co. Ltd, four
companies holding total of 10.6%: television programming
advertising revenues;
Home Shopping Network Inc.: minority shareholder loans and
interest thereon;
Jupiter Telecommunications Inc, an affiliated company jointly
controlled by Sumitomo Corporation and a wholly owned subsidiary
of Liberty Media Corporation: television programming cable
subscription revenues, costs of programming and distribution for
carriage of Shop Channel by cable systems.
|
|
(16) |
Concentration of Credit Risk |
As of December 31, 2002 and 2003, SkyPerfect TV and Jupiter
Telecommunications Co., Ltd (JCom), a related party,
agent for sales of programming delivered via satellite and most
significant cable system operator, respectively, represented
concentrations of credit risk for the Company. For the years
ended December 31, 2001, 2002 and 2003, subscription
revenues of ¥1,218,284 thousand, ¥1,688,119 thousand
and ¥2,888,163 thousand ($26,992,178), respectively,
received through SkyPerfect TV, accounted for approximately 33%,
35% and 45%, respectively, of subscription revenues, and 5%, 5%
and 6%, respectively, of total revenues. As of December 31,
2001, 2002 and 2003, SkyPerfect TV accounted for approximately
6%, 7% and 5%, respectively, of accounts receivable. For the
years ended December 31, 2001, 2002 and 2003, subscription
revenues of ¥869,053 thousand, ¥1,207,749 thousand and
¥1,361,897 thousand ($12,728,009), respectively, received
through JCom, accounted for approximately 23%, 25% and 21%,
respectively, of subscription revenues, and 3%, 4% and 3%,
respectively, of total revenues. As of December 31, 2001,
2002 and 2003, JCom accounted for approximately 8%, 7% and 6%,
respectively, of accounts receivable.
A4-181
JUPITER PROGRAMMING CO. LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(17) Commitments, Other Than
Leases
At December 31, 2003, JPC has commitments to purchase
various programs as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Dollars | |
|
|
Yen | |
|
(Note 2) | |
|
|
| |
|
| |
|
|
(Thousands) | |
|
|
Year ending December 31,
|
|
|
|
|
|
|
|
|
|
2004
|
|
¥ |
514,940 |
|
|
$ |
4,812,523 |
|
|
2005
|
|
|
418,688 |
|
|
|
3,912,972 |
|
|
2006
|
|
|
474,190 |
|
|
|
4,431,682 |
|
|
|
|
|
|
|
|
Total program purchase commitments
|
|
¥ |
1,407,818 |
|
|
$ |
13,157,177 |
|
|
|
|
|
|
|
|
At December 31, 2003, JPC has commitments for transponder
and uplink services as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Dollars | |
|
|
Yen | |
|
(Note 2) | |
|
|
| |
|
| |
|
|
(Thousands) | |
|
|
Year ending December 31,
|
|
|
|
|
|
|
|
|
|
2004
|
|
¥ |
1,621,933 |
|
|
$ |
15,158,249 |
|
|
2005
|
|
|
1,689,983 |
|
|
|
15,794,235 |
|
|
2006
|
|
|
1,708,063 |
|
|
|
15,963,202 |
|
|
2007
|
|
|
1,110,007 |
|
|
|
10,373,899 |
|
|
2008
|
|
|
1,115,895 |
|
|
|
10,428,922 |
|
|
Thereafter
|
|
|
4,436,468 |
|
|
|
41,462,325 |
|
|
|
|
|
|
|
|
Total transponder and uplink services commitments
|
|
¥ |
11,682,349 |
|
|
$ |
109,180,832 |
|
|
|
|
|
|
|
|
JPC contracts, through subsidiaries and affiliate licensed
broadcasting companies, to lease capacity on three satellites
from two transponder service providers. JPC channels contract
for a portion of the capacity available on a transponder
according to the bandwidth needs of individual channels.
Transponder service contracts are generally ten years in
duration. Service fees are based on fixed rates or a fixed
portion plus a variable portion based on platform subscriber
numbers. Termination is possible on a channel-by-channel basis.
One transponder service provider charges termination penalty
fees, the other does not charge a fee until the last channel
from one licensed broadcaster terminates. Due to the unclear
nature of the responsibility for termination fees, commitments
are disclosed for the full minimum commitment amounts under the
service contracts.
JPC has capital equipment purchase commitments amounting to
¥2,953,930 thousand ($27,606,822) at December 31, 2003
that must be expended by December 31, 2005.
On May 1, 2002, the Company acquired 100% of the
outstanding common shares of Misawa Satellite Broadcasting Co.,
Ltd. (MSB), a television programming company. The aggregate
purchase price was ¥188,844 thousand ($1,764,897) and was
paid in cash. The acquisition was accounted for as a purchase.
On January 1, 2003, the Company merged the business
operations of MSB with its wholly-owned subsidiary, Jupiter
Satellite Broadcasting Co., Ltd. MSB operated Home Channel and
as a result of the acquisition, the Company is expected to
increase direct-to-home revenue from the packages in which Home
Channel was carried. The results of operations of MSB are
included in the accompanying consolidated statements of
operations from May 1, 2002 onward.
A4-182
JUPITER PROGRAMMING CO. LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Had the operating results of MSB been included as if the
transaction had been consummated on January 1, 2001, the
Companys operating results for the years ended
December 31, 2001 and 2002 would not have been materially
different. Goodwill from the acquisition of MSB is not
deductible for tax purposes.
The following table summarizes the estimated fair value of the
assets acquired and liabilities assumed at the date of
acquisition.
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Dollars | |
|
|
Yen | |
|
(Note 2) | |
|
|
| |
|
| |
|
|
(Thousands) | |
|
|
Current assets
|
|
|
¥139,787 |
|
|
$ |
1,306,420 |
|
Goodwill
|
|
|
183,655 |
|
|
|
1,716,402 |
|
|
|
|
|
|
|
|
Total assets acquired
|
|
|
323,442 |
|
|
|
3,022,822 |
|
Current liabilities assumed
|
|
|
134,598 |
|
|
|
1,257,925 |
|
|
|
|
|
|
|
|
Net assets acquired
|
|
|
¥188,844 |
|
|
$ |
1,764,897 |
|
|
|
|
|
|
|
|
In addition to the goodwill recognized from the MSB transaction,
¥7,827 thousand of other goodwill was recorded in 2002.
On January 30, 2004, the total number of the Companys
ordinary shares authorized to be issued was increased from
450,000 to 460,000 shares.
On March 7, 2004, the Company transferred ¥8,400,000
thousand ($78,504,673) of ordinary capital to accumulated
deficit to eliminate the Companys accumulated deficit and
generate positive retained earnings. On a consolidated basis,
JPC will continue to show an accumulated deficit immediately
after such transfer. This transfer was made in accordance with
the Commercial Code of Japan, which requires a company to make
any purchase of its own shares, as contemplated in the further
transaction noted below, out of retained earnings. As a result
of the transfer, the Companys ordinary share capital was
reduced to ¥8,434,000 thousand ($78,822,430), with a
corresponding increase of retained earnings. Such transfer did
not impact the Companys total equity, cash position or
liquidity.
On March 16, 2004, the Companys Board of Directors
unanimously approved the following transactions, details of
which are subject to agreement between the Companys
shareholders, Sumitomo Corporation and Liberty Programming
Japan, Inc., based on a third party valuation of the Company:
|
|
1) |
Issuance of new ordinary shares to Sumitomo Corporation; |
|
2) |
Acquisition of a proportion of the Companys ordinary
shares from each of Sumitomo Corporation and Liberty Programming
Japan Inc. to be held as treasury shares; |
|
3) |
Subject to completion of the aforementioned transactions,
acquisition of all the issued and outstanding shares of a
subsidiary of one of the Companys shareholders engaged in
a related business area of the Company, in exchange for the
Companys ordinary shares held as treasury shares. |
The above transactions are expected to be completed in April
2004 and will have no impact on the Companys liquidity or
the relative shareholdings of the Companys two ultimate
shareholders.
A4-183
INDEPENDENT AUDITORS REPORT
To the Board of Directors and Shareholders of Suez Lyonnaise
Telecom S.A
We have audited the accompanying consolidated balance sheets of
Suez Lyonnaise Telecom S.A and subsidiaries (the
Group), as of December 31, 2003, 2002 and 2001 and
the related consolidated statements of income,
shareholders equity, and cash flows for the years then
ended. These financial statements are the responsibility of the
Groups management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of the Group at December 31, 2003, 2002
and 2001 and the consolidated results of its operations and its
cash flows for the years then ended, in conformity with
accounting principles generally accepted in France.
Accounting practices generally accepted in France vary in
certain significant respects from accounting principles
generally accepted in the United States of America. Information
relating to the nature and effect of such differences is
presented in Note 8 to the consolidated financial
statements.
|
|
|
Barbier
Frinault & Autres
|
|
Ernst & Young
|
|
|
/s/ Bruno Bizet
|
|
|
|
Bruno Bizet |
Neuilly-sur-Seine,
July 16, 2004
A4-184
SUEZ LYONNAISE TELECOM
(CONSOLIDATED FINANCIAL STATEMENTS)
CONSOLIDATED BALANCE SHEET
(In thousands of euros)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
December 31, | |
|
December 31, | |
|
|
2001 | |
|
2002 | |
|
2003 | |
|
|
| |
|
| |
|
| |
ASSETS |
Non-current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
48,452 |
|
|
|
45,522 |
|
|
|
42,597 |
|
|
|
Concessions, patents and brands
|
|
|
19,844 |
|
|
|
20,585 |
|
|
|
10,375 |
|
|
|
Other intangible assets and in progress
|
|
|
694,471 |
|
|
|
654,403 |
|
|
|
163,187 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
762,767 |
|
|
|
720,510 |
|
|
|
216,159 |
|
|
Tangible assets, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
|
253 |
|
|
|
147 |
|
|
|
147 |
|
|
|
Constructions, net
|
|
|
474,998 |
|
|
|
484,613 |
|
|
|
456,998 |
|
|
|
Technical fixtures, net
|
|
|
84,925 |
|
|
|
64,659 |
|
|
|
60,360 |
|
|
|
Other tangible assets, net
|
|
|
25,116 |
|
|
|
22,151 |
|
|
|
17,336 |
|
|
|
Fixed assets under construction
|
|
|
65,500 |
|
|
|
51,010 |
|
|
|
17,775 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
650,792 |
|
|
|
622,580 |
|
|
|
552,616 |
|
|
|
|
Investments
|
|
|
4,405 |
|
|
|
880 |
|
|
|
782 |
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current assets
|
|
|
1,417,964 |
|
|
|
1,343,970 |
|
|
|
769,557 |
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories, net
|
|
|
5,693 |
|
|
|
5,550 |
|
|
|
1,774 |
|
|
|
Advances and payment on account
|
|
|
12,713 |
|
|
|
9,651 |
|
|
|
14,297 |
|
|
|
Trade receivables
|
|
|
26,643 |
|
|
|
20,699 |
|
|
|
17,456 |
|
|
|
Other receivables
|
|
|
50,243 |
|
|
|
40,489 |
|
|
|
53,950 |
|
|
|
Marketable securities
|
|
|
23 |
|
|
|
|
|
|
|
1,215 |
|
|
|
Cash and cash equivalents
|
|
|
8,040 |
|
|
|
3,757 |
|
|
|
6,657 |
|
|
|
Prepaid expenses
|
|
|
9,611 |
|
|
|
9,045 |
|
|
|
2,695 |
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
112,966 |
|
|
|
89,191 |
|
|
|
98,044 |
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
|
1,530,930 |
|
|
|
1,433,161 |
|
|
|
867,601 |
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
Shareholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital stock
|
|
|
470,371 |
|
|
|
470,371 |
|
|
|
470,371 |
|
|
Additional paid-in capital
|
|
|
378,287 |
|
|
|
378,287 |
|
|
|
378,287 |
|
|
Accumulated deficit
|
|
|
(17,254 |
) |
|
|
(152,589 |
) |
|
|
(463,668 |
) |
|
Net loss for the year
|
|
|
(135,335 |
) |
|
|
(311,079 |
) |
|
|
(622,713 |
) |
|
|
|
|
|
|
|
|
|
|
Total Shareholders equity
|
|
|
696,069 |
|
|
|
384,990 |
|
|
|
(237,723 |
) |
|
|
|
|
|
|
|
|
|
|
Contingencies and loss provisions
|
|
|
23,643 |
|
|
|
26,024 |
|
|
|
17,936 |
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank debt
|
|
|
232,034 |
|
|
|
214,489 |
|
|
|
210,558 |
|
|
Other debt
|
|
|
332,020 |
|
|
|
589,235 |
|
|
|
663,055 |
|
|
Customers deposits
|
|
|
34,734 |
|
|
|
40,520 |
|
|
|
43,548 |
|
|
Advanced payment received
|
|
|
1,407 |
|
|
|
173 |
|
|
|
1,146 |
|
|
Trade payables
|
|
|
115,542 |
|
|
|
109,035 |
|
|
|
114,814 |
|
|
Tax and social liabilities
|
|
|
11,619 |
|
|
|
24,721 |
|
|
|
22,859 |
|
|
Amounts due to suppliers of fixed assets
|
|
|
76,934 |
|
|
|
39,289 |
|
|
|
20,953 |
|
|
Other liabilities
|
|
|
4,706 |
|
|
|
2,775 |
|
|
|
7,046 |
|
|
Deferred income
|
|
|
2,222 |
|
|
|
1,910 |
|
|
|
3,409 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
811,218 |
|
|
|
1,022,147 |
|
|
|
1,087,388 |
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
|
|
|
1,530,930 |
|
|
|
1,433,161 |
|
|
|
867,601 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
A4-185
SUEZ LYONNAISE TELECOM
(CONSOLIDATED FINANCIAL STATEMENTS)
CONSOLIDATED STATEMENTS OF INCOME
(In thousands of euros except amounts per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended | |
|
Year Ended | |
|
Year Ended | |
|
|
December 31, | |
|
December 31, | |
|
December 31, | |
|
|
2001 | |
|
2002 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Net sales
|
|
|
140,864 |
|
|
|
276,333 |
|
|
|
299,039 |
|
Other operating revenues
|
|
|
3,126 |
|
|
|
14,493 |
|
|
|
15,444 |
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
143,990 |
|
|
|
290,826 |
|
|
|
314,483 |
|
Purchases of materials
|
|
|
2,456 |
|
|
|
7,160 |
|
|
|
10,388 |
|
Other external operating expenses
|
|
|
138,926 |
|
|
|
218,781 |
|
|
|
169,563 |
|
Taxes
|
|
|
2,647 |
|
|
|
7,301 |
|
|
|
7,866 |
|
Payroll expenses
|
|
|
32,558 |
|
|
|
67,014 |
|
|
|
46,641 |
|
Depreciation, amortization (excluding goodwill amortization)
|
|
|
80,786 |
|
|
|
162,663 |
|
|
|
166,112 |
|
Other operating expenses
|
|
|
4,284 |
|
|
|
8,841 |
|
|
|
9,386 |
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
261,657 |
|
|
|
471,760 |
|
|
|
409,956 |
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(117,667 |
) |
|
|
(180,934 |
) |
|
|
(95,473 |
) |
|
|
|
|
|
|
|
|
|
|
Financial income (expense), net
|
|
|
(15,405 |
) |
|
|
(48,132 |
) |
|
|
(62,656 |
) |
|
|
|
|
|
|
|
|
|
|
Loss before income tax and exceptional items
|
|
|
(133,072 |
) |
|
|
(229,066 |
) |
|
|
(158,129 |
) |
|
|
|
|
|
|
|
|
|
|
Exceptional items, net
|
|
|
(166 |
) |
|
|
(79,752 |
) |
|
|
(462,009 |
) |
Income taxes
|
|
|
(121 |
) |
|
|
(44 |
) |
|
|
(358 |
) |
|
|
|
|
|
|
|
|
|
|
Net loss before goodwill amortization
|
|
|
(133,359 |
) |
|
|
(308,862 |
) |
|
|
(620,496 |
) |
|
|
|
|
|
|
|
|
|
|
Goodwill amortization
|
|
|
(1,976 |
) |
|
|
(2,217 |
) |
|
|
(2,217 |
) |
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(135,335 |
) |
|
|
(311,079 |
) |
|
|
(622,713 |
) |
|
|
|
|
|
|
|
|
|
|
Basic loss per share (in euro)
|
|
|
(4.4 |
) |
|
|
(10.1 |
) |
|
|
(20.2 |
) |
|
|
|
|
|
|
|
|
|
|
Diluted loss per share (in euro)
|
|
|
(4.4 |
) |
|
|
(10.1 |
) |
|
|
(20.2 |
) |
|
|
|
|
|
|
|
|
|
|
A4-186
SUEZ LYONNAISE TELECOM
(CONSOLIDATED FINANCIAL STATEMENTS)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of euros)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended | |
|
Year Ended | |
|
Year Ended | |
|
|
December 31, | |
|
December 31, | |
|
December 31, | |
|
|
2001 | |
|
2002 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(135,335 |
) |
|
|
(311,079 |
) |
|
|
(622,713 |
) |
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization, depreciation and allowances
|
|
|
79,547 |
|
|
|
207,908 |
|
|
|
593,703 |
|
|
Gains and losses from disposals, net of tax
|
|
|
(780 |
) |
|
|
81 |
|
|
|
9,362 |
|
|
Other
|
|
|
1,885 |
|
|
|
10,689 |
|
|
|
3,859 |
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities before changes in
working capital
|
|
|
(54,683 |
) |
|
|
(92,401 |
) |
|
|
(15,789 |
) |
Net changes in working capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
|
(5,593 |
) |
|
|
143 |
|
|
|
3,776 |
|
|
Receivables/ Payables
|
|
|
(60,481 |
) |
|
|
22,971 |
|
|
|
(6,170 |
) |
|
|
|
|
|
|
|
|
|
|
Cash flow from operating activities
|
|
|
(120,757 |
) |
|
|
(69,287 |
) |
|
|
(18,183 |
) |
|
|
|
|
|
|
|
|
|
|
Additions to intangible assets
|
|
|
(3,394 |
) |
|
|
(7,722 |
) |
|
|
(1,846 |
) |
Additions to property, plant and equipment
|
|
|
(102,121 |
) |
|
|
(166,685 |
) |
|
|
(45,235 |
) |
Additions to investments
|
|
|
1,535 |
|
|
|
1,023 |
|
|
|
317 |
|
Proceeds from disposals of fixed assets
|
|
|
5,147 |
|
|
|
|
|
|
|
|
|
Proceeds from investments
|
|
|
141 |
|
|
|
881 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(98,692 |
) |
|
|
(172,503 |
) |
|
|
(46,764 |
) |
|
|
|
|
|
|
|
|
|
|
Net change in customers deposits
|
|
|
4,957 |
|
|
|
5,786 |
|
|
|
2,313 |
|
Variance in loans and other financial liabilities
|
|
|
211,253 |
|
|
|
244,226 |
|
|
|
60,163 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
216,210 |
|
|
|
250,012 |
|
|
|
62,476 |
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
(3,239 |
) |
|
|
8,222 |
|
|
|
(2,471 |
) |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the beginning of the period
|
|
|
(5,405 |
) |
|
|
(8,644 |
) |
|
|
(422 |
) |
Cash and cash equivalents at the end of the period
|
|
|
(8,644 |
) |
|
|
(422 |
) |
|
|
(2,893 |
) |
|
|
|
|
|
|
|
|
|
|
A4-187
SUEZ LYONNAISE TELECOM
(CONSOLIDATED FINANCIAL STATEMENTS)
|
|
1. |
HIGHLIGHTS OF 2001, 2002 AND 2003. |
The Group owns and operates cable telecommunication systems in
France (digital and analogical) and provides cable television
services and high-speed Internet access services. The Group is
the first cable operator in France operating mainly in Paris.
1.1 Creation of Suez Lyonnaise
Telecom (The Group)
On May 18, 2001, Suez, France Telecom, NTL Inc and Morgan
Stanley Dean Witters (MSDW) entered into an
agreement, the main terms of which were as follows:
|
|
|
|
|
A contribution of Suezs investments in Lyonnaise
Communications and Auxipar to the Group. |
|
|
|
A contribution of France Telecoms investments in Lyonnaise
Communications, Paris Cable and Rapp 16 to the Group. Rapp 16
owns a right of use of civil engineering through cable network
(owned by France Telecom) for a period of 20 years. |
|
|
|
A
154 million
capital increase. |
|
|
|
A shareholders loan. |
Following these transactions, MSDW and NTL inc then acquired
France Telecoms investment in the Group.
As a result of the aforementioned transactions, the ownership
structure of the Group was the following:
|
|
|
|
|
Suez
|
|
|
50.1% |
|
NTL Inc.
|
|
|
22.9% |
|
MSDW
|
|
|
27.0% |
|
1.2 Highlights of the Year
2001
1.2.1 Investment in NTL
France
On November 23, 2001, the Group acquired 100% of NTL France
Holding SAS and NTL France SAS. NTL France SASs business
is to manage 5 cable networks in the Paris area and in
Toulon.
1.2.2 Launch of Subscriptions
Under the SIPPEREC Agreement
On November 16, 1999, the SIPPEREC (Syndicat Intercommunal
de la Périphérie de Paris pour lElectricité
et les Réseaux de Communication) and the Group entered into
a concession agreement for establishing a cable video
communication network. The SIPPEREC project is composed of 3
zones: North, South and Plaque trois. The year 2000
was dedicated to companies bidding, construction of the network
head-ends, the civil engineering and the optical network for
municipalities included in the concession plan. Home-passed
built in 2000 were proposed to customer in 2001 and the first
subscriptions occurred in April 2001 mainly by collective
customers (life line subscription undertaken at
building level).
1.3 Highlights of the Year
2002
1.3.1 SIPPEREC Status
In 2002, Lyonnaise Communications invested
63 million
in the North and South zones of the SIPPEREC project. At
December 31, 2002, its cumulated capital expenditure
amounted to
171 million.
The Group recognized a write down of
32.3 million
due to costs incurred above initial plans in constructing the
networks. At this time, the Group and SIPPEREC entered into
discussion and negotiations to determine what should be the
planning for future construction and which amount of investment
should be made. Discussions continued during the first half of
2003 and the 2 parties finally reached an agreement for a waiver
at the end of June 2003.
A4-188
SUEZ LYONNAISE TELECOM
(CONSOLIDATED FINANCIAL STATEMENTS)
(Continued)
1.3.2 Voluntary Departure
Plan
The Group launched a downsizing procedure involving a voluntary
departure plan. Discussions with employee representatives began
in November 2002.
1.3.3 NTL Networks
In 2002, the six legal entities acquired in November 2001
accounted for an additional
15 million
revenue and decided to change their firms name in order to
clear all reference to NTL.
1.4 Highlights of the Year
2003
1.4.1 Voluntary Departure
Plan
The Group carried on with its voluntary departure plan initiated
in 2002. Consultations with employee representatives began on
January 30, 2003 and ended on March 20, 2003. The
first departures took place on April 15, 2003 and most of
the remaining occurred by June 30, 2003. A total of 534
employees left the Group in 2003. At December 31, 2003 the
Group had 625 employees.
1.4.2 SIPPEREC
On June 30, 2003 SIPPEREC and Lyonnaise Communications,
signed three compromise settlement agreements. These agreements
were then officially put in force on September 3, 2003 for
the North and South zones and on September 19, 2003 for the
third zone.
Under these agreements, Lyonnaise Communications undertakes to:
|
|
|
|
|
Build 16,400 home-passed, for a total cost of
3.8 million,
for the North zone within 24 months following the official
announcement date. |
|
|
|
Build 26,700 home-passed, for a total cost of
6 million,
for the South zone within 24 months following the official
announcement date. |
|
|
|
Create a company called Plaque Trois, with a capital
stock of
1.0 million. This wholly owned subsidiary of Lyonnaise
Communications will be required to conduct engineering and
financial studies for a total cost of
0.5 million
(of which
0.2 million
had already been incurred by SIPPEREC at December 31,
2003). In addition, Lyonnaise Communications undertakes to
contribute to the new company all of its rights on fixed assets
(such as network head-ends and other equipments) and intangible
assets (studies) for a total amount of
3.3 million
at December 31, 2003. Therefore, the Lyonnaise
Communications total investment amounts to
4.8 million.
Lyonnaise Communications undertakes to sell at a symbolic price
its entire stake in this company to any buyer vetted by
SIPPEREC. This agreement, signed for a period of 18 months,
shall allow the parties to continue their contractual relations. |
|
|
|
Negotiate, within a reasonable time frame, a formula for
continuing capital expenditure that respects the economic
balance of the concession. |
In return, SIPPEREC undertakes to:
|
|
|
|
|
Waive its right to claim penalties relating to the period
ranging from the implementation of the concession agreement to
the expiration of the compromise settlement agreements, |
|
|
|
Waive any other form of contractual claim. |
Penalties notified, invoiced or transferred to debt collection
services at June 30, 2003 amounted to
13.3 million.
This amount is disclosed in full as an off-balance sheet
commitment at December 31, 2003.
A4-189
SUEZ LYONNAISE TELECOM
(CONSOLIDATED FINANCIAL STATEMENTS)
(Continued)
In accordance with the agreement signed with SIPPEREC, the Group
created in October 2003 a company called SAS SDP3
(formally named Plaque 3) with a share capital of
1.0 million.
1.4.3 Changes in the
Groups Shareholding
On January 10, 2003, NTL Inc sold its 27% investment in the
Group to France Telecom.
1.4.4 Long-lived Assets
Impairment
As of December 31, 2003, the Group proceeded with an
analysis of the recoverability of the carrying value of its
long-lived assets. The fair value of the assets was determined
based on expected future discounted cash flows, as per
managements five year plan (2004-2008) updated in February
2004.
Based on the result of this analysis, the Group recorded an
impairment charge of
450 million.
Assuming the assets and the evolution of the business of the
group, this write-down was fully allocated to the rights of use
of civil engineering, which had an historical amount of
703 million
and was the most significant Groups intangible assets.
1.5 Subsequent Events
On March 15, 2004, Suez and UnitedGlobalCom Inc.
(UGC) announced that they had entered into an
agreement in regards to the purchase of the Groups shares.
This purchase had been carried out through the holding company
of the UGC group in France (Mediareseaux).
In April 2004, bank borrowings as of December 31, 2003 were
fully reimbursed by shareholders loans. (See
§ 5.7 for further details).
The purchase was subject to suspensive conditions (including the
clearance of the European Union Commission and the
recapitalization of the Group), which were cleared.
On May 2004, an agreement was reached between NTL Inc, Suez and
the Group, in order to finalize the price and the payment of the
NTL network acquired in 2001. Obligations and earn out clauses
originally included in the 2001 acquisition agreement have been
withdrawn.
On May 25th, 2004, Suez fully subscribed to the
Groups holding
549 million
share capital increase, which was performed on June 16th,
by debt compensation and shareholders loan granted by Suez.
On July 2, 2004, Mediareseaux acquired the Group in
accordance with the March 2004 agreement between Suez and UGC.
As a consequence of the sale agreement, Mediareseaux has
undertaken the shareholders loan and a new financing
convention is currently being drafted between the Group and
Mediareseaux.
The consolidated financial statements of the Group and its
subsidiaries have been prepared in accordance with French
generally accepted accounting principles, and specifically
standard 99-02 issued by the Comité de Réglementation
Comptable (CRC 99-02) for the 3 years noted
above.
|
|
|
Year 2001 Consolidated Financial Statement |
As detailed in § 1.1, the Group was created on
May 18, 2001. The 2001 fiscal year represents seven months
of activity from June 1st 2001 to December 31,
2001.
A4-190
SUEZ LYONNAISE TELECOM
(CONSOLIDATED FINANCIAL STATEMENTS)
(Continued)
|
|
|
Change in the Presentation of the Consolidated Statement of
Income |
In 2003, Bank commissions and fees which are not
VAT-liable were reclassified from Other purchases and
external charges to interest expense. The amount
reclassified at December 31, 2003 was
6.5 million.
This change in presentation had no impact on the Groups
net income.
|
|
3. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
3.1 Basis of Consolidation
The accounts of all significant subsidiaries over which the
Group directly or indirectly exercises exclusive legal or de
facto control are fully consolidated. De facto
control may result from contractual agreements or from the
ability to exercise the majority of the voting rights at the
subsidiarys shareholders meetings. Exclusive control may
be deemed to exist where the direct or indirect shareholding
exceeds 40% of voting rights.
Suez Lyonnaise Telecom exercises neither joint control nor
significant influence on any entities other than entities listed
in the scope of consolidation table (See note 4)
3.2 Goodwill
Goodwill represents the excess of the purchase price over the
fair value of all assets and liabilities acquired in business
combinations at the date of the acquisition. If the purchase
price is more than the fair value of all assets and liabilities
acquired, the positive goodwill is amortized using the
straight-line method over 20 years.
If the purchase price is lower than the fair value of all assets
and liabilities acquired, the negative goodwill is reversed into
income according to the plan set up at the time of the
acquisition, based on initial objectives and estimates for the
related acquired business, or recorded against identified assets
and liabilities.
However, business combination may be accounted under a
pooling of interest method (méthode
dérogatoire) when the four criteria of the
section 215 of the standard CRC 99-02 are met. Under this
method, assets acquired and liabilities assumed are recognized
at their carrying amount of the business acquired and the excess
of the purchase price over the net book value of the assets
acquired and liabilities assumed is charged directly against
equity upon acquisition.
The creation of the SLT Group on May 18, 2001 was accounted
for using the pooling of interest method as
described above.
3.3 Impairment of Assets
Tangible, intangible fixed assets and goodwill are subject to an
impairment review when events or a change in circumstances,
other than temporary, indicate that the carrying value is lower
than the value in use.
The value in use is determined based on expected future
discounted cash flows to be derived from the assets by
considering managements expectations of future economic
and operating conditions of the respective assets. For some of
them, the value in use could be determined based on replacement
cost for used equipment, cost of alternative technologies and
recent transactions for similar businesses.
When an impairment exists, the difference between the carrying
value of the asset and its book value is recognized through the
income statement.
A4-191
SUEZ LYONNAISE TELECOM
(CONSOLIDATED FINANCIAL STATEMENTS)
(Continued)
3.4 Other Intangible Assets
Other intangible assets are recorded at their acquisition cost
(excluding financial expenses) and are amortized on a
straight-line basis over their estimated useful lives.
Intangible assets are depreciated over the following period:
|
|
|
|
|
Preliminary expenses
|
|
|
3 years |
|
Acquired software
|
|
|
3 years |
|
Internally developed software
|
|
|
4 years |
|
Civil engineering rights of use (Rapp 16)(*)
|
|
|
20 years |
|
Civil engineering rights of use (Other)(*)
|
|
|
30 years |
|
Digital documentation
|
|
|
8 years |
|
(*) Contract term
3.5 Tangible Assets
Tangible assets are recorded at acquisition cost and are
depreciated on a straight-line basis over their estimate useful
lives, which can be detailed as follows:
|
|
|
|
|
Buildings
|
|
|
30 years |
|
Engineering design work
|
|
|
30 years |
|
Civil engineering work
|
|
|
30 years |
|
Active electronics
|
|
|
8 years |
|
Cables and connectors
|
|
|
15 years |
|
Fixtures and fittings
|
|
|
8 years |
|
Wiring
|
|
|
15 years |
|
Boxes and Modems(*)
|
|
|
5 years |
|
Technical fixtures and tooling
|
|
|
5 years |
|
Office equipment and computers
|
|
|
3 to 5 years |
|
Furniture
|
|
|
8 years |
|
|
|
(*) |
Boxes and Modems correspond to rent items. At the end of each
contract, assets are reviewed for impairment or brought back
into service after inspection if possible. |
The Group has no tangible assets under finance lease. Tangible
assets in progress at the balance sheet date are recorded based
on capital expenditure realized and are written down if needed.
3.6 Investments
Investments in and advances to non-consolidated companies and
other investments are recorded at acquisition costs (excluding
incidental expenses). A provision for impairment is recorded
when the value in use to the Group as of the balance sheet date
is less than acquisition cost.
3.7 Inventories
Inventories are valued according to the weighted average cost
method (excluding incidental expenses). Inventories mainly
include modems and installation equipments. Modems remain in
stock until their sale or their transfer to assets when they are
rented. These modems can be written down following a physical
count that takes into account their condition and obsolescence.
A4-192
SUEZ LYONNAISE TELECOM
(CONSOLIDATED FINANCIAL STATEMENTS)
(Continued)
3.8 Receivables
Receivables are stated at nominal value, which is assumed to
approximate their fair value because of their short maturity. At
year-end, receivables are reviewed and an allowance for bad debt
is recorded based on the aging of the accounts receivables and/
or the liquidity of the related customer for professional and
the level reached in the collection process, for residential.
Other receivables consist primarily of tax receivables.
3.9 Retirement Obligation
The obligations of the Group relate principally to lump sum
indemnities payable to employees upon retirement. The amounts of
these obligations are valued based on actuarial assessments.
These calculations incorporate assumptions relating to
mortality, turnover of personnel and salary projections and
consider the economic conditions specific to each subsidiary of
the Group. The discount rate is calculated in accordance with
the yield, as of the date of valuation, of the bonds issued by
highly rated companies in Europe.
3.10 Income Tax
Current taxes are based on the results of the Group companies.
The Group recognizes deferred tax assets and liabilities for
temporary differences arising between the tax basis of assets
and liabilities and their carrying values for consolidated
financial statements purposes. In addition, deferred tax assets
relating to carry forward of unused tax losses are recognized if
there is a reasonable assurance of recovering them in the next
few years.
Gains and losses resulting from changes in the French tax rate
are recognized through the income in accordance with the
liability method on temporary difference and are subject to
standard rate or a lower rate according to the estimated expiry
date.
Deferred tax liabilities and deferred tax assets are compensated
and the net deferred income tax obtained is recognized through
the Balance Sheet if there is a reasonable assurance of
recovering them in the next few years.
3.11 Revenue Recognition
TV and Internet subscriptions as well as rental of boxes and
modems are recognized in the period in which services are
delivered.
The impact of free subscriptions is recognized as a deduction of
sales while other marketing investments (i.e. distributor
commissions and promotional offers) are charged to income
statement in the year in which they are incurred.
3.12 Foreign Currency
Transactions
Sales are made in France and denominated in Euros.
3.13 Exceptional Items
Exceptional items include non-recurring items, which do not
occur as a result of the general day-to-day operations of the
business, either because their amount or their impact is unusual
or because they rarely occur and therefore shall not be deemed
to pertain to the operational income of the Group.
3.14 Earnings Per Share
Basic earnings per share is computed by dividing the
Groups net income by the weighted average number of shares
outstanding during the period.
A4-193
SUEZ LYONNAISE TELECOM
(CONSOLIDATED FINANCIAL STATEMENTS)
(Continued)
Diluted earnings per share include the dilutive effects of
options and other dilutive instruments as if they had been
exercised (unless they are anti-dilutive).
There are no differences between basic and dilutive net loss per
share for the Company for the years ended December 31,
2001, 2002 and 2003.
3.15 Marketable Securities
Marketable securities are stated at acquisition cost and a
provision is recorded when the market value of the securities
or, if not applicable, their estimated net realizable value, is
lower than their acquisition cost.
3.16 Cash Flow Statement
The consolidated cash flow statement has been prepared using the
indirect method showing the reconciliation of the
net income to the cash and cash equivalent. In addition, in the
cash flow statement, cash and cash equivalents are
cash in bank including bank overdrafts and marketable securities.
3.17 Others
Treasury Share:
None
Derivative Instrument:
None
A4-194
SUEZ LYONNAISE TELECOM
(CONSOLIDATED FINANCIAL STATEMENTS)
(Continued)
SUEZ LYONNAISE TELECOM
(Consolidated financial statements)
|
|
4. |
SCOPE OF CONSOLIDATION |
The financial statements of companies controlled by the Group
are fully consolidated. Intercompany balances and transactions
have been eliminated in the accompanying consolidated financial
statements. All companies have a December 31 year-end.
The scope of consolidation that includes all controlled
companies, was as follows:
|
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|
% of | |
|
|
|
|
Parent Company: Suez Lyonnaise Telecom |
|
|
|
Voting | |
|
Financial | |
|
Consolidation | |
Siren: 402.986.707, 20 place des vins de France 75012 Paris |
|
Legal Structure | |
|
Rights | |
|
Interests | |
|
Method | |
|
|
| |
|
| |
|
| |
|
| |
From the constitution of the Group:
|
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|
|
|
|
|
|
|
|
|
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|
|
ALPINE DE VIDEOCOMMUNICATION
|
|
|
SA |
|
|
|
100 |
|
|
|
100 |
|
|
|
IG |
|
Siren: 348 804 923, 20 place des Vins de France 75012 PARIS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AUXIPAR
|
|
|
SA |
|
|
|
100 |
|
|
|
100 |
|
|
|
IG |
|
Siren: 390 263 069, 20 place des Vins de France 75012 PARIS
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMTOISE DE VIDEOCOMMUNICATION
|
|
|
SA |
|
|
|
100 |
|
|
|
100 |
|
|
|
IG |
|
Siren: 348 313 412, 20 place des Vins de France 75012 PARIS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CLERMONTOISE DE VIDEOCOMMUNICATION
|
|
|
SA |
|
|
|
100 |
|
|
|
100 |
|
|
|
IG |
|
Siren: 345 193 791, 20 place des Vins de France 75012 PARIS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LYONNAISE COMMUNICATIONS
|
|
|
SA |
|
|
|
100 |
|
|
|
100 |
|
|
|
IG |
|
Siren: 335 354 379, 20 place des Vins de France 75012 PARIS
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CABLE ET VIDEOCOMMUNICATION DE LOUEST
|
|
|
SA |
|
|
|
100 |
|
|
|
100 |
|
|
|
IG |
|
Siren: 348 487 042,20 place des Vins de France 75012 PARIS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ARTESIENNE DE VIDEOCOMMUNICATION
|
|
|
SA |
|
|
|
100 |
|
|
|
100 |
|
|
|
IG |
|
Siren: 348 075 227, 20 place des Vins de France 75012 PARIS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SNERC (MENTON)
|
|
|
SNC |
|
|
|
100 |
|
|
|
100 |
|
|
|
IG |
|
Siren: 378 442 255, 20 place des Vins de France 75012 PARIS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ORLEANAISE DE VIDEOCOMMUNICATION
|
|
|
SA |
|
|
|
100 |
|
|
|
100 |
|
|
|
IG |
|
Siren: 347 859 274, 20 place des Vins de France 75012 PARIS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PARIS CABLE
|
|
|
SA |
|
|
|
100 |
|
|
|
100 |
|
|
|
IG |
|
Siren: 329 108 278, 20 place des Vins de France 75012 PARIS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RAPP 16
|
|
|
SA |
|
|
|
100 |
|
|
|
100 |
|
|
|
IG |
|
Siren: 428 748 081, 20 place des Vins de France 75012 PARIS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SARCELLES TV CABLE
|
|
|
SA |
|
|
|
100 |
|
|
|
100 |
|
|
|
IG |
|
Siren: 350 145 348, 20 place des Vins de France 75012 PARIS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STRASBOURG TV CABLE
|
|
|
SNC |
|
|
|
100 |
|
|
|
100 |
|
|
|
IG |
|
Siren: 351 309 695, 20 place des Vins de France 75012 PARIS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VIDEOCOMMUNICATION DE SUD OUEST
|
|
|
SA |
|
|
|
100 |
|
|
|
100 |
|
|
|
IG |
|
Siren: 351 541 537, 20 place des Vins de France 75012 PARIS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A4-195
SUEZ LYONNAISE TELECOM
(CONSOLIDATED FINANCIAL STATEMENTS)
(Continued)
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of | |
|
|
|
|
Parent Company: Suez Lyonnaise Telecom |
|
|
|
Voting | |
|
Financial | |
|
Consolidation | |
Siren: 402.986.707, 20 place des vins de France 75012 Paris |
|
Legal Structure | |
|
Rights | |
|
Interests | |
|
Method | |
|
|
| |
|
| |
|
| |
|
| |
From Nov 2001:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REGION PARISIENNE COMMUNICATIONS
|
|
|
SNC |
|
|
|
100 |
|
|
|
100 |
|
|
|
IG |
|
Siren: 387 879 737, 7-9 rue de la Croix-Martre 91120 Palaiseau
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMUNICATIONS 91
|
|
|
SNC |
|
|
|
100 |
|
|
|
100 |
|
|
|
IG |
|
Siren: 351 746 664, 7-9 rue de la Croix-Martre 91120 Palaiseau
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PACA COMMUNICATIONS
|
|
|
SNC |
|
|
|
100 |
|
|
|
100 |
|
|
|
IG |
|
Siren: 341 724 474, Centre Mayol, Place Pompidou 83000 Toulon
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IDF COMMUNICATIONS Holding SAS
|
|
|
SAS |
|
|
|
100 |
|
|
|
100 |
|
|
|
IG |
|
Siren: 423 375 542, 7-9 rue de la Croix-Martre 91120 Palaiseau
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IDF COMMUNICATIONS SAS
|
|
|
SAS |
|
|
|
100 |
|
|
|
100 |
|
|
|
IG |
|
Siren: 423 557 925, 7-9 rue de la Croix-Martre 91120 Palaiseau
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ESSONNE COMMUNICATIONS
|
|
|
SNC |
|
|
|
100 |
|
|
|
100 |
|
|
|
IG |
|
Siren: 342 159 613, 7-9 rue de la Croix-Martre 91120 Palaiseau
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From its incorporation in October 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SDP3 (Société de Développement de la Plaque 3)
|
|
|
SAS |
|
|
|
100 |
|
|
|
100 |
|
|
|
IG |
|
Siren: 450 406 418, 20 place des Vins de France 75012 PARIS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IG integration globale: Fully consolidated
The balance sheets of NTL France were consolidated as of
December 31, 2001.
Under the agreement signed with the SIPPEREC, Lyonnaise
Communications created in October 2003 the company called
SAS SDP3 (formally named Plaque 3) with
a capital stock of
1.0 million.
In addition, the Group owns or owned minority sharing. These
non-consolidated companies were not significant as regards of
the following criteria: total balance sheet, revenue,
shareholders equity, net income and debt and had no impact
on the true and fair view provided by the groups
consolidated financial statements.
|
|
5 |
DETAILED NOTES TO THE FINANCIAL STATEMENTS |
5.1 Assets
5.1.1 Goodwill and Intangible
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
December 31, | |
|
December 31, | |
|
|
2001 | |
|
2002 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(In million of euros) | |
Goodwill (Gross)
|
|
|
58.5 |
|
|
|
58.5 |
|
|
|
58.5 |
|
|
|
|
|
|
|
|
|
|
|
Concessions, patents and brands
|
|
|
40.2 |
|
|
|
50.0 |
|
|
|
55.3 |
|
Fonds commerciaux
|
|
|
0.8 |
|
|
|
0.9 |
|
|
|
0.9 |
|
Other intangible assets and in-progress*
|
|
|
728.0 |
|
|
|
724.0 |
|
|
|
715.4 |
|
|
|
|
|
|
|
|
|
|
|
Other Intangible assets and in progress (Gross)
|
|
|
769.0 |
|
|
|
774.9 |
|
|
|
771.6 |
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
4.2 |
|
|
|
5.9 |
|
|
|
1.3 |
|
Disposals
|
|
|
|
|
|
|
|
|
|
|
(4.6 |
) |
|
|
* |
Mainly include civil engineering and networks rights of use. |
A4-196
SUEZ LYONNAISE TELECOM
(CONSOLIDATED FINANCIAL STATEMENTS)
(Continued)
5.1.2 Tangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
December 31, | |
|
December 31, | |
|
|
2001 | |
|
2002 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(In million of euros) | |
Land
|
|
|
0.2 |
|
|
|
0.1 |
|
|
|
0.1 |
|
Constructions
|
|
|
707.0 |
|
|
|
804.7 |
|
|
|
828.9 |
|
Technical fixtures
|
|
|
171.0 |
|
|
|
211.2 |
|
|
|
226.1 |
|
Other tangible assets
|
|
|
46.3 |
|
|
|
52.2 |
|
|
|
52.2 |
|
Fixed assets under construction
|
|
|
73.2 |
|
|
|
55.0 |
|
|
|
35.3 |
|
|
|
|
|
|
|
|
|
|
|
Tangible assets (Gross)
|
|
|
997.7 |
|
|
|
1,123.2 |
|
|
|
1,142.6 |
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
126.6 |
|
|
|
128.2 |
|
|
|
30.2 |
|
Disposals
|
|
|
(0.9 |
) |
|
|
(2.7 |
) |
|
|
(10.8 |
) |
5.1.3 Depreciation and
Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
December 31, | |
|
December 31, | |
|
|
2001 | |
|
2002 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(In million of euros) | |
Goodwill
|
|
|
10.1 |
|
|
|
13.0 |
|
|
|
15.9 |
|
|
|
|
|
|
|
|
|
|
|
Depreciation in the period
|
|
|
1.7 |
|
|
|
2.9 |
|
|
|
2.9 |
|
Disposal and reversal
|
|
|
|
|
|
|
|
|
|
|
|
|
Concessions, patents and brands
|
|
|
20.8 |
|
|
|
29.8 |
|
|
|
45.1 |
|
Fonds commerciaux
|
|
|
0.3 |
|
|
|
0.5 |
|
|
|
0.7 |
|
Other intangible assets and in-progress
|
|
|
33.5 |
|
|
|
69.6 |
|
|
|
552.3 |
|
|
|
|
|
|
|
|
|
|
|
Total other Intangible assets
|
|
|
54.6 |
|
|
|
99.9 |
|
|
|
598.1 |
|
|
|
|
|
|
|
|
|
|
|
Depreciation in the period
|
|
|
51.0 |
|
|
|
45.4 |
|
|
|
498.2 |
|
Disposal and reversal
|
|
|
|
|
|
|
(0.1 |
) |
|
|
|
|
Constructions
|
|
|
232.0 |
|
|
|
320.1 |
|
|
|
371.9 |
|
Technical fixtures
|
|
|
86.1 |
|
|
|
146.5 |
|
|
|
165.7 |
|
Other tangible assets
|
|
|
21.1 |
|
|
|
30.1 |
|
|
|
34.9 |
|
Fixed assets under construction
|
|
|
7.7 |
|
|
|
4.0 |
|
|
|
17.5 |
|
|
|
|
|
|
|
|
|
|
|
Total Tangible assets
|
|
|
346.9 |
|
|
|
500.7 |
|
|
|
590.0 |
|
|
|
|
|
|
|
|
|
|
|
Depreciation in the period
|
|
|
26.5 |
|
|
|
157.3 |
|
|
|
100.0 |
|
Disposal and reversal
|
|
|
|
|
|
|
(3.5 |
) |
|
|
(10.7 |
) |
5.1.4 Explanatory Note
1) The creation of the SLT Group on May 18, 2001
generated goodwill of
1,449 million, which was recognized in the consolidated
financial statements as a reduction of the share premium using
the pooling of interest method (méthode
dérogatoire) in accordance with section 215 of the
appendix to CRC 99-02.D. (See § 3.2)
2) The
58.5 million
goodwill recorded in the balance sheet arose from Lyonnaise
Communications acquisition of Paris Cable shares in 1997.
This goodwill is being amortized over twenty years. Annual
amortization expense amounts to
2.9 million
and its net book value was
42.6 million
at December 31, 2003.
A4-197
SUEZ LYONNAISE TELECOM
(CONSOLIDATED FINANCIAL STATEMENTS)
(Continued)
3) The acquisition of IDF Communications Holding SAS
(previously NTL France Holding SAS) and IDF Communications SAS
(previously NTL France SAS) on November 23, 2001 generated
negative goodwill of
9.3 million,
which was allocated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation | |
|
|
|
|
|
At | |
|
|
December 31, | |
|
Impact Net | |
|
Impact Net | |
|
December 31, | |
|
|
2001 | |
|
Income 2002 | |
|
Income 2003 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(In millions of euros) | |
Network Operating Center (NOC)
|
|
|
(1.5 |
) |
|
|
0.1 |
|
|
|
0.1 |
|
|
|
(1.3 |
) |
Networks
|
|
|
(5.6 |
) |
|
|
0.6 |
|
|
|
0.6 |
|
|
|
(4.4 |
) |
Voluntary Departure Plan (Exceptional items)
|
|
|
(1.0 |
) |
|
|
1.0 |
|
|
|
|
|
|
|
|
|
Rental and relocation costs (Other operating expenses)
|
|
|
(0.7 |
) |
|
|
0.7 |
|
|
|
|
|
|
|
|
|
Rental (reversal included in operating income)
|
|
|
(0.5 |
) |
|
|
|
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
(9.3 |
) |
|
|
2.4 |
|
|
|
1.2 |
|
|
|
(5.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
A plan has been set up to recover through the income statement
(goodwill amortization caption) the negative
goodwill allocated to NOC and networks
(1.5 million
+
5.6 million)
over a period of ten years. Amounts reversed for the years 2002
and 2003 were
0.7 million.
As of December 31, 2003, the net negative goodwill
allocated to NOC and networks amounted to
5.7 million.
Total amounts reversed over the years 2002 and 2003 were
respectively
2.4 million
and
1.2 million.
4) Intangible assets mainly include civil engineering and
networks rights of use granted by France Telecom for a total
amount of
703 million,
amortized over the term of the contracts. An impairment charge
of
450 million
was recorded on these assets in 2003. (See above §1.4.4)
5.2 Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
December 31, | |
|
December 31, | |
|
|
2001 | |
|
2002 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(In millions of euros) | |
Investments in non-consolidated companies(1)
|
|
|
0.3 |
|
|
|
0.1 |
|
|
|
0.1 |
|
Loans to non-consolidated companies
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
Loans(2)
|
|
|
2.7 |
|
|
|
|
|
|
|
|
|
Other investments(3)
|
|
|
0.9 |
|
|
|
0.8 |
|
|
|
0.7 |
|
|
|
|
|
|
|
|
|
|
|
|
Investments (net)
|
|
|
4.4 |
|
|
|
0.9 |
|
|
|
0.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
In 2002, Lyonnaise Communications sold its 8.8% investment in
the company Chaîne Histoire, which the Group
continues to broadcast. |
|
(2) |
Refers to salary loans reimbursed during the year 2002. |
|
(3) |
Other investments are mainly rent deposits. |
The investments in non-consolidated companies which total cost
amounts to
71,163 are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Held as of | |
|
|
Companies |
|
Activity |
|
December 2003 | |
|
Cost | |
|
|
|
|
| |
|
| |
SAEM Mantes TV Cable
|
|
Local TV channel |
|
|
36.72% |
|
|
|
13,995 |
|
SAEM Vidéocâble 91
|
|
Local TV Channel |
|
|
18.30% |
|
|
|
53,357 |
|
|
|
|
|
|
35% until 2002 |
|
|
|
|
|
SEM Le Palace Epinal
|
|
Movie complex |
|
|
2.78% |
|
|
|
3,811 |
|
A4-198
SUEZ LYONNAISE TELECOM
(CONSOLIDATED FINANCIAL STATEMENTS)
(Continued)
5.3 Inventories
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
December 31, | |
|
December 31, | |
|
|
2001 | |
|
2002 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(In millions of euros) | |
Inventories (Gross)
|
|
|
7.7 |
|
|
|
7.6 |
|
|
|
4.0 |
|
Allowance
|
|
|
(2.0 |
) |
|
|
(2.0 |
) |
|
|
(2.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
Inventories (net)
|
|
|
5.7 |
|
|
|
5.6 |
|
|
|
1.8 |
|
|
|
|
|
|
|
|
|
|
|
The decrease in inventories gross value is partly explained by
the improvement in the delivery lead-time of modems. Allowances
mainly relate to the obsolescence of installation equipments
(fully depreciated as of December 31, 2003).
5.4 Receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
December 31, | |
|
December 31, | |
|
|
2001 | |
|
2002 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(In millions of euros) | |
Advances and payment on account
|
|
|
12.7 |
|
|
|
9.7 |
|
|
|
14.3 |
|
|
|
|
|
|
|
|
|
|
|
Trade receivables (Gross)
|
|
|
36.5 |
|
|
|
37.5 |
|
|
|
40.2 |
|
Allowance for bad debt
|
|
|
(9.9 |
) |
|
|
(16.8 |
) |
|
|
(22.8 |
) |
|
|
|
|
|
|
|
|
|
|
Trade receivables (Net)
|
|
|
26.6 |
|
|
|
20.7 |
|
|
|
17.4 |
|
|
|
|
|
|
|
|
|
|
|
Other receivables
|
|
|
50.2 |
|
|
|
40.5 |
|
|
|
54.0 |
|
|
|
|
|
|
|
|
|
|
|
Other receivables mainly relate to VAT. All receivables are due
within a year.
5.5 Shareholders Equity
Changes in shareholders equity are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss | |
|
|
|
|
Capital | |
|
Share | |
|
Accumulated | |
|
For the | |
|
|
|
|
Stock | |
|
Premium | |
|
Deficit | |
|
Year | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In millions of euros) | |
Opening balance
|
|
|
1.6 |
|
|
|
10.7 |
|
|
|
(17.3 |
) |
|
|
|
|
|
|
(5.0 |
) |
Issuance of shares
|
|
|
31.6 |
|
|
|
122.3 |
|
|
|
|
|
|
|
|
|
|
|
153.9 |
|
Contribution May 18, 2001
|
|
|
437.2 |
|
|
|
1,694.8 |
|
|
|
|
|
|
|
|
|
|
|
2,132.0 |
|
Goodwill allocation
|
|
|
|
|
|
|
(1,449.5 |
) |
|
|
|
|
|
|
|
|
|
|
(1,449.5 |
) |
Net loss for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(135.3 |
) |
|
|
(135.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2001
|
|
|
470.4 |
|
|
|
378.3 |
|
|
|
(17.3 |
) |
|
|
(135.3 |
) |
|
|
696.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in capital Net income for the prior year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(135.3 |
) |
|
|
135.3 |
|
Net loss for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(311.1 |
) |
|
|
(311.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2002
|
|
|
470.4 |
|
|
|
378.3 |
|
|
|
(152.6 |
) |
|
|
(311.1 |
) |
|
|
385.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in capital Net income for the prior year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(311.1 |
) |
|
|
311.1 |
|
Net loss for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(622.7 |
) |
|
|
(622.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2003
|
|
|
470.4 |
|
|
|
378.3 |
|
|
|
(463.7 |
) |
|
|
(622.7 |
) |
|
|
(237.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A4-199
SUEZ LYONNAISE TELECOM
(CONSOLIDATED FINANCIAL STATEMENTS)
(Continued)
At December 31, 2003, Suez Lyonnaise Telecom capital stock
is divided into 30,844,000 shares having a par value of
15.25.
Convertible bonds (616 880 BSA) granted during the fiscal year
2002 were not subscribed at maturity in 2003 and will therefore
have no effect on the Group shareholders equity. The Group
owns 100% of all the companies listed in the scope of
consolidation table. There is therefore no minority interest.
5.6 Contingencies and Loss
Provisions
Reserves for contingencies and losses as of December 31,
2001 and as of December 31, 2002 include:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At | |
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
2001 | |
|
Allowances | |
|
Uses | |
|
Others | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In millions of euros) | |
Employee litigation
|
|
|
1.1 |
|
|
|
0.3 |
|
|
|
(0.2 |
) |
|
|
|
|
|
|
1.2 |
|
Restructuring
|
|
|
0 |
|
|
|
10.1 |
|
|
|
|
|
|
|
|
|
|
|
10.1 |
|
Boxes not returned
|
|
|
2.5 |
|
|
|
0.4 |
|
|
|
|
|
|
|
(2.5 |
) |
|
|
0.4 |
|
VAT Gap on boxes
|
|
|
1.4 |
|
|
|
0.7 |
|
|
|
|
|
|
|
|
|
|
|
2.1 |
|
Contracts break-up fees
|
|
|
2.4 |
|
|
|
0.2 |
|
|
|
(0.2 |
) |
|
|
(0.9 |
) |
|
|
1.5 |
|
Tax risk provision
|
|
|
0.5 |
|
|
|
|
|
|
|
(0.1 |
) |
|
|
|
|
|
|
0.4 |
|
Project telephone abandon
|
|
|
5.1 |
|
|
|
0.6 |
|
|
|
|
|
|
|
|
|
|
|
5.7 |
|
Provision for retirement
|
|
|
1.4 |
|
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
|
1.8 |
|
NTL badwill impact
|
|
|
2.2 |
|
|
|
|
|
|
|
(1.7 |
) |
|
|
|
|
|
|
0.5 |
|
Miscellaneous
|
|
|
7.0 |
|
|
|
0.7 |
|
|
|
(4.8 |
) |
|
|
(0.6 |
) |
|
|
2.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingencies and loss provisions
|
|
|
23.6 |
|
|
|
13.4 |
|
|
|
(7.0 |
) |
|
|
(4.0 |
) |
|
|
26.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves for contingencies and losses as of December 31,
2003 include:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At | |
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
2002 | |
|
Allowances | |
|
Uses | |
|
Others | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In millions of euros) | |
Employee litigation
|
|
|
1.2 |
|
|
|
0.8 |
|
|
|
(1.1 |
) |
|
|
|
|
|
|
0.9 |
|
Restructuring
|
|
|
10.1 |
|
|
|
3.3 |
|
|
|
(13.0 |
) |
|
|
|
|
|
|
0.4 |
|
Boxes not returned
|
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
|
(0.4 |
) |
|
|
0.0 |
|
VAT Gap on boxes
|
|
|
2.1 |
|
|
|
0.5 |
|
|
|
(0.5 |
) |
|
|
|
|
|
|
2.1 |
|
Contracts break-up fees
|
|
|
1.5 |
|
|
|
7.0 |
|
|
|
|
|
|
|
(1.1 |
) |
|
|
7.4 |
|
Tax risk provision
|
|
|
0.4 |
|
|
|
1.2 |
|
|
|
(0.4 |
) |
|
|
|
|
|
|
1.2 |
|
Project telephone abandon
|
|
|
5.7 |
|
|
|
|
|
|
|
(2.5 |
) |
|
|
|
|
|
|
3.2 |
|
Provision for retirement
|
|
|
1.8 |
|
|
|
0.1 |
|
|
|
(1.4 |
) |
|
|
|
|
|
|
0.5 |
|
NTL negative goodwill impact
|
|
|
0.5 |
|
|
|
|
|
|
|
(0.5 |
) |
|
|
|
|
|
|
0.0 |
|
Miscellaneous
|
|
|
2.3 |
|
|
|
1.0 |
|
|
|
(0.5 |
) |
|
|
(0.5 |
) |
|
|
2.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingencies and loss provisions
|
|
|
26.0 |
|
|
|
13.9 |
|
|
|
(19.9 |
) |
|
|
(2.0 |
) |
|
|
18.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A4-200
SUEZ LYONNAISE TELECOM
(CONSOLIDATED FINANCIAL STATEMENTS)
(Continued)
The measurement of the Groups obligations relating to lump
sum indemnities payable to employees upon retirement are based
on the following assumptions as of December 31, 2003:
|
|
|
|
|
Assumptions |
|
|
|
|
|
Discount rate
|
|
|
5 |
% |
Rate of inflation
|
|
|
1.7 |
% |
Future salary increases
|
|
|
3.2 |
% |
Social security threshold upgrade
|
|
|
Inflation +0.5 |
% |
Mortality rate
|
|
|
INSEE tables |
|
5.7 Financial Debt
The Group has been financed since its creation in 2001 by bank
borrowings and a shareholders loan. SLT received a loan
from the seller on the behalf of NTL Inc. as a result of the
purchase of NTL France. All this debt is at variable rates.
Over the 3 years, debt and maturities have evolved as
follows:
|
|
|
|
|
|
|
As of | |
|
|
December 31, | |
|
|
2001 | |
|
|
| |
|
|
(In millions | |
|
|
of euros) | |
Bank borrowings
|
|
|
215.3 |
|
Bank overdrafts
|
|
|
16.7 |
|
|
|
|
|
Total bank debt
|
|
|
232.0 |
|
|
|
|
|
Shareholders loan
|
|
|
291.5 |
|
Deferred price on NTL shares(1)
|
|
|
37.8 |
|
Other
|
|
|
2.7 |
|
|
|
|
|
Total other debt
|
|
|
332.0 |
|
|
|
|
|
|
|
(1) |
Portion of the NTL purchase price due in 2006 with interests due
in fine calculated each month at a Euribor +4% rate. As of
December 31, 2001, this debt includes a principal amount of
37.5 million
and interests for
0.3 million. |
|
|
|
|
|
|
|
As of | |
|
|
December 31, | |
|
|
2002 | |
|
|
| |
|
|
(In millions | |
|
|
of euros) | |
Bank borrowings
|
|
|
210.3 |
|
Bank overdrafts
|
|
|
4.2 |
|
|
|
|
|
Total bank debt
|
|
|
214.5 |
|
|
|
|
|
Shareholders loan
|
|
|
548.6 |
|
Deferred price on NTL shares(1)
|
|
|
40.6 |
|
|
|
|
|
Total other debt
|
|
|
589.2 |
|
|
|
|
|
|
|
(1) |
Portion of the NTL purchase price due in 2006 with interests due
in fine calculated each month at a Euribor +4% rate. As of
December 31, 2002, this debt includes a principal amount of
37.5 million
and interests for
3.1 million. |
A4-201
SUEZ LYONNAISE TELECOM
(CONSOLIDATED FINANCIAL STATEMENTS)
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At | |
|
Maturity | |
|
|
December 31, | |
|
| |
|
|
2003 | |
|
<1 Year | |
|
1-5 Years | |
|
|
| |
|
| |
|
| |
|
|
(In millions of euros) | |
Bank borrowings(1)
|
|
|
199.8 |
|
|
|
122.6 |
|
|
|
77.2 |
|
Bank overdrafts
|
|
|
10.8 |
|
|
|
10.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total bank debt
|
|
|
210.6 |
|
|
|
133.4 |
|
|
|
77.2 |
|
|
|
|
|
|
|
|
|
|
|
Shareholders loan(3)
|
|
|
619.9 |
|
|
|
619.9 |
|
|
|
|
|
Deferred price on NTL shares(2)
|
|
|
43.2 |
|
|
|
|
|
|
|
43.2 |
|
|
|
|
|
|
|
|
|
|
|
Total other debt
|
|
|
663.1 |
|
|
|
619.9 |
|
|
|
43.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
These borrowings, guaranteed by Suez, were immediately repayable
in the event of a change in the ownership structure of Suez
Lyonnaise Telecom. Moreover, the Group renegotiated in December
2003 this debt to postpone the maturity date by six months. Over
the years 2001-2003, interest rates were based on Euribor +
margin and these bank borrowings as of December 31, 2003
were fully reimbursed in April 2004. |
|
(2) |
Portion of the NTL purchase price due in 2006 with interests due
in fine calculated each month at a Euribor +4% rate. As of
December 31, 2003, this debt includes a principal amount of
37.5 million
and interests for
5.7 million. |
|
(3) |
Shareholders loan: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2001 | |
|
2002 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(In millions of euros) | |
Principal
|
|
|
287.5 |
|
|
|
536.8 |
|
|
|
607.0 |
|
Interests
|
|
|
4.0 |
|
|
|
11.8 |
|
|
|
12.9 |
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
291.5 |
|
|
|
548.6 |
|
|
|
619.9 |
|
|
|
|
|
|
|
|
|
|
|
The interest rate used over the years 2001-2003 were based on
Eonia plus margin.
5.8 Deferred Tax
As a result of experienced losses, and based on the business
plans, it was determined that deferred tax assets were less than
likely to be recovered, therefore, no deferred tax assets have
been recognized. Deferred tax assets not recognized are as
follows:
|
|
|
|
|
|
|
December 31, | |
|
|
2003 | |
|
|
| |
|
|
(In millions | |
|
|
of euros) | |
Ordinary losses
|
|
|
251.0 |
|
Ever green losses
|
|
|
101.4 |
|
Non deductible provision
|
|
|
160.3 |
|
|
|
|
|
TOTAL
|
|
|
512.7 |
|
|
|
|
|
Tax proof
|
|
|
|
|
Net income before tax
|
|
|
(620.1 |
) |
Theoretical tax
|
|
|
|
|
Effective tax
|
|
|
(0.4 |
) |
|
|
|
|
A4-202
SUEZ LYONNAISE TELECOM
(CONSOLIDATED FINANCIAL STATEMENTS)
(Continued)
Current income taxes consist of a minimum tax lump sum paid
under French tax law (Impôt Forfaitaire Annuel).
5.9 Revenue
The main sources of revenue for the Group are the sales of TV
and Internet subscriptions to residential and professional
customers, as well as proceeds from the rental of boxes and
modems. Sales are made in France in euros.
The Groups management has determined that its operation is
currently organized into one segment (broadband services) and
operates in only one geographical area, France.
5.10 Other External Operating
Expenses
These expenses mainly include broadcasting rights, customer
acquisition costs, customer management costs, network costs and
central costs.
5.11 Payroll Expenses and Number
of Employees
Personnel costs for period ended December 31, 2001, 2002
and 2003 could be detailed as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
December 31, | |
|
December 31, | |
|
|
2001 | |
|
2002 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(In millions of euros) | |
Wages and salaries
|
|
|
21.7 |
|
|
|
44.4 |
|
|
|
32.3 |
|
Payroll taxes and benefits
|
|
|
10.9 |
|
|
|
22.6 |
|
|
|
14.4 |
|
|
|
|
|
|
|
|
|
|
|
|
Payroll and expenses
|
|
|
32.6 |
|
|
|
67.0 |
|
|
|
46.7 |
|
|
|
|
|
|
|
|
|
|
|
Headcount as of December 31, 2002 and 2003 were 966 and
625, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2001 | |
|
2002 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Managers
|
|
|
361 |
|
|
|
392 |
|
|
|
332 |
|
Employees
|
|
|
304 |
|
|
|
314 |
|
|
|
256 |
|
Workers
|
|
|
390 |
|
|
|
358 |
|
|
|
213 |
|
|
|
|
|
|
|
|
|
|
|
Average number of employees
|
|
|
1055 |
|
|
|
1064 |
|
|
|
801 |
|
|
|
|
|
|
|
|
|
|
|
A4-203
SUEZ LYONNAISE TELECOM
(CONSOLIDATED FINANCIAL STATEMENTS)
(Continued)
5.12 Depreciation, Amortization
and Allowances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
December 31, | |
|
December 31, | |
|
|
2001 | |
|
2002 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(In millions of euros) | |
INTANGIBLE ASSETS Depreciation
|
|
|
51.0 |
|
|
|
45.4 |
|
|
|
48.3 |
|
Impairment losses
|
|
|
|
|
|
|
|
|
|
|
449.9 |
|
TANGIBLE ASSETS Depreciation
|
|
|
26.5 |
|
|
|
108.4 |
|
|
|
100.0 |
|
Impairment losses
|
|
|
|
|
|
|
48.9 |
|
|
|
|
|
INVESTMENTS: Valuation allowances
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowances on current assets
|
|
|
3.3 |
|
|
|
8.9 |
|
|
|
11.4 |
|
Prepaid expenses
|
|
|
|
|
|
|
|
|
|
|
6.4 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
80.8 |
|
|
|
211.6 |
|
|
|
616.0 |
|
|
|
|
|
|
|
|
|
|
|
Including in operating expenses
|
|
|
80.8 |
|
|
|
162.7 |
|
|
|
166.1 |
|
Including in exceptional items
|
|
|
|
|
|
|
48.9 |
|
|
|
449.9 |
|
|
|
|
|
|
|
|
|
|
|
5.13 Financial Income (Loss)
Net
Net interest expense primarily includes interest on the
shareholders loan and on bank borrowings. Bank
commissions and fees which are not VAT-liable were
reclassified from Other purchases and external
charges to interest expense. The amount reclassified at
December 31, 2003 was
6.5 million.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
December 31, | |
|
December 31, | |
|
|
2001 | |
|
2002 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(In millions of euros) | |
Shareholders
|
|
|
(8.7 |
) |
|
|
(36.9 |
) |
|
|
(47.4 |
) |
Interests on banks loans
|
|
|
(5.7 |
) |
|
|
(8.4 |
) |
|
|
(6.2 |
) |
Interests on deferred price on NTL shares
|
|
|
(0.3 |
) |
|
|
(2.8 |
) |
|
|
(2.6 |
) |
Others
|
|
|
(1.0 |
) |
|
|
|
|
|
|
|
|
Financial income
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank commissions and borrowing fees
|
|
|
|
|
|
|
|
|
|
|
(6.5 |
) |
Financial expense (net)
|
|
|
(15.4 |
) |
|
|
(48.1 |
) |
|
|
(62.7 |
) |
|
|
|
|
|
|
|
|
|
|
5.14 Exceptional Items, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
December 31, | |
|
December 31, | |
|
|
2001 | |
|
2002 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(In millions of euros) | |
Impairment of long-lived assets(1)
|
|
|
|
|
|
|
(32.3 |
) |
|
|
(449.9 |
) |
Costs related to project abandonment, net of allowances
variances(2)
|
|
|
(2.9 |
) |
|
|
(16.6 |
) |
|
|
(0.7 |
) |
SIPPEREC penalties(3)
|
|
|
|
|
|
|
(6.0 |
) |
|
|
6.0 |
|
Supply contract break-up fees(4)
|
|
|
|
|
|
|
(11.4 |
) |
|
|
(5.9 |
) |
Restructuring-net of reversals(5)
|
|
|
0.2 |
|
|
|
(10.1 |
) |
|
|
(10.1 |
) |
Provision for retirement-net of reversals(6)
|
|
|
(0.5 |
) |
|
|
(0.3 |
) |
|
|
1.2 |
|
Other
|
|
|
3.0 |
|
|
|
(3.1 |
) |
|
|
(2.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
Exceptional items (net)
|
|
|
(0.2 |
) |
|
|
(79.8 |
) |
|
|
(462.0 |
) |
|
|
|
|
|
|
|
|
|
|
A4-204
SUEZ LYONNAISE TELECOM
(CONSOLIDATED FINANCIAL STATEMENTS)
(Continued)
|
|
(1) |
Impairment of tangible assets (SIPPEREC) for the year 2002
and of Civil engineering rights of use in 2003. |
|
(2) |
The projects abandoned are mainly related to telephony and
network development. |
|
(3) |
Penalties due to SIPPEREC recognized in 2002 were reversed in
2003 in accordance with the agreement reached in 2003. (See
§1.4.2) (4) The Group broke-up several contracts with
contractors and suppliers, in particular, in relation with the
evolution in networks development plans. |
|
(5) |
Expenses related to the restructuring plan initiated in 2000 and
to the voluntary departure plan initiated in 2002. |
|
(6) |
The decrease in number of employees in 2003 induced a reduction
in pension obligations. |
|
|
6. |
OFF BALANCE SHEET COMMITMENTS AT DECEMBER 31, 2003 |
6.1 Commitments Provided in the
Usual Course of Business
The Groups off-balance sheet commitments are as follows:
|
|
|
|
|
|
|
|
|
Beneficiaries |
|
Object |
|
Amounts | |
|
Comments |
|
|
|
|
| |
|
|
|
|
|
|
(In millions of euros) | |
|
|
SIPPERREC
|
|
Penalties |
|
|
13.3 |
|
|
See §1.3 |
SIPPERREC
|
|
Commitment to perform construction works and produce engineering
studies |
|
|
10.2 |
|
|
|
SIPPERREC
|
|
Payment warranty |
|
|
3.0 |
|
|
|
SSIMI & Ville de PARIS
|
|
Rent payment warranty |
|
|
1.2 |
|
|
|
NTL Inc.
|
|
Earn-out clause provision for NTL shares |
|
|
100.0 |
|
|
See below(1) |
SAGEM
|
|
Commitment to buy terminals |
|
|
1.2 |
|
|
|
France TELECOM
|
|
Commitment to purchase the Cannes and Epinal networks from
France Telecom: |
|
|
12.3 |
|
|
See below(2) |
Villes Franciliennes
|
|
Restructuring of the 5 NTL networks |
|
|
26.7 |
|
|
See below(3) |
BNP-Paribas
|
|
Joint guarantee |
|
|
10.2 |
|
|
See below(4) |
|
|
|
|
|
|
|
|
TOTAL |
|
|
178.1 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
The earn-out clause provision is subject to certain conditions
up to a maximum of
100 million.
This earn-out provision represented as of December 31, 2003
the main off balance sheet liability but has expired in 2004 due
to the final agreement signed with NTL on May 2004. |
|
(2) |
Commitment amounting to
12.3 million,
related to the purchase of the Cannes and Epinal networks from
France Telecom, related to the operation of May 18, 2001.
The commitment was called in by its beneficiary in October 2003
even though conditions were not fully met. As a consequence,
this commitment was kept in off balance sheet liability as of
December 31, 2003 until the payment, funded by a
shareholder loan increase, which occurred in June 2004. |
|
(3) |
Restructuring of the 5 NTL networks: The company had undertaken
to renovate a certain number of home-passed per year and per
network. To date, part of the work has been performed and 31% of
the home-passed have been renovated. The initial commitment of
38.1 million
was scaled back to
26.7 million |
|
(4) |
Joint guarantee of
10.2 million,
given by Lyonnaise Communications to BNP-Paribas in relation
with the credit facility granted to Paris Cable. This guarantee
has expired in 2004 as a consequence of the repayment. |
In addition to the commitments described above, the Group has
undertaken to sell for one
its
investment in SDP 3 to any potential buyer agreed by the
SIPPEREC. (See § 1.3 and § 1.4)
A4-205
SUEZ LYONNAISE TELECOM
(CONSOLIDATED FINANCIAL STATEMENTS)
(Continued)
6.2 Commitments Received
|
|
|
|
|
|
|
|
|
|
|
Commitment | |
|
|
|
|
|
|
Provided by | |
|
Object |
|
Amounts | |
|
Comments |
| |
|
|
|
| |
|
|
|
|
|
|
(In millions of euros) |
|
SUEZ |
|
|
Comfort letter (on the behalf of LCO) to the CCF |
|
|
76.2 |
|
|
See below(1) |
|
SUEZ |
|
|
Comfort letter (on the behalf of LCO) to Natexis |
|
|
61.0 |
|
|
See below(1) |
|
SUEZ |
|
|
Comfort letter (on the behalf of Paris Cable) to BNP-Paribas |
|
|
10.2 |
|
|
See below(1) |
|
SUEZ |
|
|
Comfort letter (on the behalf of Auxipar) to Natexis |
|
|
45.7 |
|
|
See below(1) |
|
SUEZ |
|
|
Undrawn portion of the credit facility |
|
|
98.0 |
|
|
|
|
SUEZ |
|
|
Commitment provided under the SIPPEREC agreement |
|
|
11.2 |
|
|
See § 1.4.2 |
|
SSIMI |
|
|
Compensation commitment for rent variation |
|
|
8.9 |
|
|
See below(2) |
|
|
|
|
|
|
|
|
|
TOTAL |
|
|
311.2 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
As a consequence of the early repayment of bank borrowings in
2004 and of the purchase of the Group by Mediareseaux, all
commitments received from Suez have come to an end. |
|
(2) |
The commitment received from SSIMI is amortized over the
remaining period of the lease. |
In addition to these commitments received, a protocol of
agreement dated June 2003 was reached with SIPPEREC. It states
that during this protocol all penalties are suspended.
To the best of the Suez Lyonnaise Telecom Groups
knowledge, this presentation of off-balance sheet commitments
does not omit any material off-balance sheet commitment based on
applicable accounting standards.
|
|
7.1 |
Related Party Transactions in Accordance with the Standard
CRC 99.02 |
Several suppliers of the Group are related parties of its
previous parent company Suez. The related amounts are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
December 31, | |
|
December 31, | |
Companies |
|
Object |
|
2001 | |
|
2002 | |
|
2003 | |
|
|
|
|
| |
|
| |
|
| |
|
|
|
|
(In millions of euros) | |
M6 Thématiques
|
|
Broadcasting rights |
|
|
4.1 |
|
|
|
2.6 |
|
|
|
2.4 |
|
Paris Première
|
|
Broadcasting rights |
|
|
4.1 |
|
|
|
3.0 |
|
|
|
2.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total
|
|
Broadcasting rights |
|
|
8.2 |
|
|
|
5.6 |
|
|
|
5.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
SSIMI
|
|
Rental |
|
|
3.2 |
|
|
|
4.1 |
|
|
|
(1.8 |
) |
ZEUS
|
|
Rental |
|
|
1.8 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL |
|
|
13.2 |
|
|
|
9.7 |
|
|
|
3.5 |
|
|
|
|
|
|
|
|
|
|
|
M6 Thématiques includes M6 Music, Teva, Série Club,
Fun TV and TF6.
By the end of 2002, SSIMI sold its building rented to the Group
to a third party, and the company SSIMI compensated the increase
in the rental cost due to this operation for the Group.
In addition, the amounts disclosed in the financial expense note
should be considered.
A4-206
SUEZ LYONNAISE TELECOM
(CONSOLIDATED FINANCIAL STATEMENTS)
(Continued)
The trade payables balances of the related parties indicated
below are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
December 31, | |
|
December 31, | |
Related Party |
|
2001 | |
|
2002 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(In millions of euros) | |
Groupe M6
|
|
|
|
|
|
|
|
|
|
|
0.2 |
|
Paris Première
|
|
|
|
|
|
|
|
|
|
|
|
|
SSIMI
|
|
|
1.1 |
|
|
|
0.2 |
|
|
|
0.1 |
|
ZEUS
|
|
|
0.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
1.8 |
|
|
|
0.2 |
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
In addition to the companies listed above, the Group bought
services from France Telecom, on the basis of its public tariffs.
|
|
7.2 |
Management Compensation |
The total compensation paid by the Group and received to the
members of the SLTs Board of directors were
282,000,
743,000
and
862,000,
for the years ended on December 31, 2001, 2002, 2003,
respectively.
The Group doesnt allow specific pension plan and
post-retirement benefits for its members of the board of
directors and the management.
Tax reviews were in progress at December 31, 2003 (SLT,
Lyonnaise communications, Paris Cable and IDF Communication
SAS). The Tax Authorities have issued tax deficiency notices
concerning the year 2000. The total amount involved is
1.1 million,
for which a reserve has been booked.
For these companies the tax reviews on 2001 and 2002 will be
conducted in 2004. Tax reviews are also in progress at
Rapp 16, SNC 91, SNC Essonne, Clermontoise de
Vidéocommunication, and Strasbourg TV Câble for 2000
to 2003.
The business of the Group does not cause any environmental risks.
|
|
8. |
SUMMARY OF DIFFERENCES BETWEEN ACCOUNTING POLICIES GENERALLY
ACCEPTED IN THE UNITED STATES OF AMERICA AND FRANCE. |
The consolidated financial statements of the Group have been
prepared and presented in accordance with accounting principles
generally accepted in France (French GAAP). French
GAAP, as applied by the Group differ in certain significant
respects from accounting principles generally accepted in the
United States of America (U.S. GAAP). The
application of U.S. GAAP would have affected the
Companys consolidated net
A4-207
SUEZ LYONNAISE TELECOM
(CONSOLIDATED FINANCIAL STATEMENTS)
(Continued)
income (loss) for the fiscal year ended December 31, 2003
and 2002 and its consolidated shareholders equity as of
December 31, 2003 and 2002 as follows:
a) Reconciliation of Consolidated Net (Loss)/ Income from
French GAAP to U.S. GAAP
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended | |
|
Year Ended | |
|
|
December 31, | |
|
December 31, | |
|
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
|
(In millions of euros) | |
Consolidated net income (loss) as determined in accordance
with French GAAP
|
|
|
(622.7 |
) |
|
|
(311.1 |
) |
U.S. GAAP reconciling adjustments:
|
|
|
|
|
|
|
|
|
|
Business combinations:
|
|
|
|
|
|
|
|
|
|
|
Goodwill impairment and cancellation of amortization
|
|
|
2.9 |
|
|
|
(254.5 |
) |
|
|
Amortization of other intangible assets
|
|
|
(10.0 |
) |
|
|
(10.0 |
) |
|
|
Auxipar acquisition
|
|
|
4.2 |
|
|
|
4.2 |
|
|
Long term assets impairment
|
|
|
(105.1 |
) |
|
|
32.3 |
|
|
Restructuring provision (Voluntary
|
|
|
(10.1 |
) |
|
|
10.1 |
|
|
Redundancy Plan) Logistical costs
|
|
|
3.7 |
|
|
|
(1.1 |
) |
|
Equipment depreciation
|
|
|
(4.6 |
) |
|
|
(6.4 |
) |
|
Deferred tax effects of above adjustments
|
|
|
|
|
|
|
|
|
Total U.S. GAAP adjustments, net
|
|
|
(119.0 |
) |
|
|
(225.4 |
) |
|
|
|
|
|
|
|
Consolidated net income (loss) as determined in accordance
with U.S. GAAP
|
|
|
(741.7 |
) |
|
|
(536.5 |
) |
|
|
|
|
|
|
|
b) Reconciliation of Consolidated Shareholders
Equity (Deficit) from French GAAP to U.S. GAAP
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
December 31, | |
|
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
|
(In million of euros) | |
Consolidated shareholders equity (deficit) as
determined in accordance with French GAAP
|
|
|
(237.7 |
) |
|
|
384.9 |
|
U.S. GAAP reconciling adjustments:
|
|
|
|
|
|
|
|
|
|
Business combinations:
|
|
|
|
|
|
|
|
|
|
|
Goodwill impairment and cancellation of amortization
|
|
|
(251.6 |
) |
|
|
(254.5 |
) |
|
|
Auxipar acquisition
|
|
|
(50.2 |
) |
|
|
(54.4 |
) |
|
|
Paris Cable acquisition
|
|
|
332.3 |
|
|
|
342.3 |
|
|
|
Other acquisitions
|
|
|
37.7 |
|
|
|
37.7 |
|
|
Long term assets impairment
|
|
|
(72.8 |
) |
|
|
32.3 |
|
|
Restructuring provision (Voluntary
|
|
|
|
|
|
|
10.1 |
|
|
Redundancy Plan) Logistical costs
|
|
|
|
|
|
|
(3.7 |
) |
|
Equipment depreciation
|
|
|
2.5 |
|
|
|
7.1 |
|
|
Deferred tax effects of above adjustments
|
|
|
|
|
|
|
|
|
Total U.S. GAAP adjustments, net
|
|
|
(2.1 |
) |
|
|
116.9 |
|
|
|
|
|
|
|
|
Consolidated shareholders equity (deficit) as
determined in accordance with U.S. GAAP
|
|
|
(239.8 |
) |
|
|
501.8 |
|
|
|
|
|
|
|
|
A4-208
SUEZ LYONNAISE TELECOM
(CONSOLIDATED FINANCIAL STATEMENTS)
(Continued)
c) Description of the Differences Between French GAAP, as
Applied By the Group and U.S. GAAP
Business Combinations and
Accounting for Intangible Assets, Including Goodwill
Under French and US GAAP, business combinations are generally
accounted for as purchases. The cost of an acquired company is
assigned to the tangible and intangible assets acquired and
liabilities assumed on the basis of their estimated fair values
at the date of acquisition. Any excess of purchase price over
the fair value of the tangible and intangible assets acquired is
allocated to goodwill. However, in certain circumstances, there
may be differences with respect to when and how the purchase
method of accounting is applied between French and US GAAP that
affect the allocation of purchase price, including the amounts
assigned to identifiable intangible assets, deferred income
taxes and goodwill. Information with respect to the specific
differences between French and US GAAP for the Groups
significant business combination is provided below.
On May 18, 2001, the Group acquired 100% of the outstanding
shares of Auxipar in exchange for common shares of the Group.
Prior to the transaction, all of the shares of Auxipar were
owned by the Groups parent company.
Under French GAAP, the acquisition of Auxipar was accounted for
in a manner similar to a pooling of interests. The assets
acquired and liabilities assumed were recognized at their
historical carrying amounts in the financial statements of
Auxipar prepared in accordance with French GAAP.
Under US GAAP, the transfer of shares of Auxipar from the
Groups parent company was considered as a reorganization
of entities under common control. Accordingly, the assets
acquired and liabilities assumed were recognized at their
historical carrying amounts in the financial statements of the
Groups parent company, which resulted in a lower value
assigned to the long-lived assets of Auxipar and consequently,
in a lower depreciation expense.
|
|
|
|
|
Paris Cable acquisition |
On May 18, 2001, the Group acquired 100% of the outstanding
shares of Paris Cable in exchange for common shares of the
Group. Prior to the transaction, approximately 76% of the shares
of Paris Cable were owned by the Groups parent company.
The remaining 24% of the outstanding shares of Paris Cable were
owned by France Telecom.
Under French GAAP, the acquisition of Paris Cable was accounted
for in a manner similar to a pooling of interests. The assets
acquired and liabilities assumed were recognized at their
carrying amounts. The excess of the purchase price over the net
book value of the assets acquired and liabilities assumed, which
amounted to
367.4 million
was charged directly against equity upon acquisition.
Under US GAAP, the transfer of 76% of Paris Cable from
Groups parent company was considered as a reorganization
of entities under common control. The acquisition from France
Telecom of the remaining 24% interest was accounted for under
the purchase method of accounting. Accordingly, 76% of the
assets acquired and liabilities assumed were recognized at their
historical carrying amounts in the financial statements of the
Groups parent company and 24% of the assets acquired and
liabilities assumed were recognized at their fair values at the
date of the acquisition. The application of the purchase method
to the acquisition of the minority interest (24%) resulted in
the recognition of customer relationships for
49.9 million
and goodwill for
317.5 million.
|
|
|
|
|
Amortization of other intangible assets |
Under U.S. GAAP, identifiable intangible assets, including
customer relationships, are recognized and amortized over their
estimated useful lives. The amortization adjustment for other
intangible assets reflects the U.S. GAAP amortization of
customer relationships over their estimated useful lives of
5 years.
A4-209
SUEZ LYONNAISE TELECOM
(CONSOLIDATED FINANCIAL STATEMENTS)
(Continued)
|
|
|
|
|
Goodwill impairment and cancellation of amortization |
Under French GAAP, the Group amortizes goodwill on a
straight-line basis over its estimated useful life of twenty
years.
Under US GAAP, in accordance with SFAS 142, the Group
ceased amortizing goodwill beginning January 1, 2002.
Goodwill is required to be tested for impairment at least
annually (or more frequently if impairment indicators arise). A
two-step impairment test is used. The first step is a screen for
potential impairment, while the second step measures the amount
of the impairment, if any. For the year ended December 31,
2002, under US GAAP, an impairment loss of
257.4 million
was recorded related to goodwill.
Long-Term Assets Impairment
As required by both French and US GAAP, the Group reviews the
carrying value of long lived assets, including goodwill and
other intangible assets, for impairment at least annually, or
whenever facts, events or changes in circumstances, either
internally and externally, indicate that the carrying amount may
not be recoverable.
Under French GAAP, impairment losses are measured by comparing
the net book value with the current value of the related asset
where the current value depends on the underlying nature of its
market value or value in use. The Group recorded an impairment
charge of
32.3 and
449.9 million
for each of the years ended December 31, 2002 and 2003,
respectively, related to long-lived assets.
Under US GAAP, a two-step process is used to test long-lived
assets for impairment and, if applicable, to measure the amount
of the impairment loss to be recognized. An impairment loss is
recognized only if the carrying amount of a long-lived asset (or
asset group) is higher than the sum of the undiscounted cash
flows expected to be generated from the operation and eventual
disposition of the asset (asset group). If the carrying amount
is higher, an impairment loss is recognized for the difference
between the carrying amount and fair value of the asset (asset
group). Any impairment is allocated on a pro rata basis to the
individual assets (other than goodwill) comprising the asset
group. Under US GAAP, an impairment loss was recognized for a
total amount of
555 million
in the year ended December 31, 2003.
Restructuring Provision
(Voluntary Redundancy Plan)
Under French GAAP, restructuring charges are recorded when
management expects that the related costs will be incurred. The
Group recorded restructuring liabilities, which were incurred
principally in connection with a voluntary plan, during the
period when a decision for the restructuring had been approved
by management of the Group.
Under US GAAP, certain criteria must be met in order to allow
recognition of contingent loss. Criteria related to recognition
of voluntary plan restructuring provisions are provided by
SFAS No 88, Employers Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans
and for Termination Benefits (SFAS No
88). SFAS No 88 requires that certain specific
conditions be satisfied prior to accruing for
termination-related costs. Specifically, SFAS No 88
requires that an employer that offers special termination
benefits to employees shall recognize a liability and a loss
when the employees accept the offer and the amount can be
reasonably estimated.
Logistical Costs
Under French GAAP, through December 31, 2002, logistical
costs were capitalized and amortized over five years.
Under US GAAP, these costs are expensed as incurred.
A4-210
SUEZ LYONNAISE TELECOM
(CONSOLIDATED FINANCIAL STATEMENTS)
(Continued)
Equipment Depreciation
Under French GAAP, equipment such as digital terminals, cards
and modems acquired prior to 2001 are subject to accelerated
depreciation over a period of five years. Equipment bought after
2001, is depreciated over five years on a straight-line basis.
Under US GAAP, equipment is depreciated using the straight-line
method.
Exceptional Items
Certain amounts presented as exceptional income and expense
(non-operating) in the consolidated statement of income under
French GAAP do not qualify as non-operating items under
U.S. GAAP.
Comprehensive Income
Comprehensive income includes all changes in equity during a
period except those resulting from investments by owners and
distributions to owners. In consolidated financial statements
under French GAAP, the concept of comprehensive income does not
exist because French accounting principles do not allow any
change in equity corresponding to this definition other than net
income, changes in the cumulative translation adjustments
related to consolidated foreign subsidiaries and changes in
accounting principles.
In consolidated financial statements under US GAAP,
comprehensive income and its components must be displayed in a
statement of comprehensive income. For each of the years ended
December 31, 2003 and 2002, the Groups only component
of comprehensive income is net income.
Statement of Cash Flows
Bank
Overdrafts
Under French GAAP, bank overdrafts are netted against cash and
cash equivalents for purposes of the statement of cash flows.
Under US GAAP, bank overdrafts, which amount to
11 million
and 4 million at December 31, 2003 and 2002,
respectively, would be presented as a financing activity. Under
US GAAP, cash and cash equivalent are
3.7 million
and
7.8 million
as of December 31, 2002 and 2003, respectively.
Gross
Versus Net Presentation
Under French GAAP, some items are presented on a net basis in
the statement of cash flows. Under US GAAP these items are
required to be presented on a gross basis (e.g. borrowings and
repayment of debt).
New Accounting
Pronouncements
In January 2003, the FASB issued Interpretation No. 46,
Consolidation of Variable Interest Entities. In
December 2003, the FASB issued a revision to Interpretation
No. 46 (Collectively, FIN 46, as revised, is referred
to as FIN 46). FIN 46, as revised,
requires unconsolidated variable interest entities to be
consolidated by their primary beneficiaries, as defined by
FIN 46. As a non-public Group, the Group should apply the
provisions of FIN 46, as revised, to variable interest
entities created after December 31, 2003 upon initial
involvement with the entity. The Group is required to apply the
provisions of FIN 46, as revised, to variable interest
entities created prior to December 31, 2003 as of
December 31, 2004. The adoption is not expected to have a
material effect on the Groups results of operations or
financial condition when adopted.
In November 2002, the EITF reached a consensus on issue
No. 00-21 Accounting for Revenue Arrangements with
Multiple Deliverables (EITF 00-21) on a
model to be used to determine when a revenue arrangement
involving the delivery or performance of multiple products,
services and/or rights to use assets should be divided into
separate units of accounting. Additionally, EITF 00-21
addresses if separation is
A4-211
SUEZ LYONNAISE TELECOM
(CONSOLIDATED FINANCIAL STATEMENTS)
(Continued)
appropriate, how the arrangements consideration should be
allocated to the identified accounting units. EITF 00-21
will be applicable beginning in 2004. The Group will adopt
EITF 00-21 as of January 1, 2004 and is currently
assessing its impact on its consolidated financial statements.
A4-212
Appendix B
EXECUTION VERSION
AGREEMENT AND PLAN OF MERGER
By and Among
NEW CHEETAH, INC.
LIBERTY MEDIA INTERNATIONAL, INC.
UNITEDGLOBALCOM, INC.
CHEETAH ACQUISITION CORP.
TIGER GLOBAL ACQUISITION CORP.
Dated as of January 17, 2005
Table Of Contents
B-i
B-ii
B-iii
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this
Agreement) is made as of this 17th day
of January, 2005, by and among New Cheetah, Inc., a Delaware
corporation (HoldCo), Liberty Media
International, Inc., a Delaware corporation
(LMI), UnitedGlobalCom, Inc., a Delaware
corporation (UGC), Cheetah Acquisition Corp.,
a Delaware corporation (LMI Merger Sub), and
Tiger Global Acquisition Corp., a Delaware corporation
(UGC Merger Sub).
RECITALS
WHEREAS, on the date hereof LMI beneficially owns approximately
7.6% of the shares of Class A common stock, par value
$.01 per share, of UGC (the UGC Class A
Stock) issued and outstanding on December 31,
2004, 100% of the shares of Class B common stock, par value
$.01 per share, of UGC (the UGC Class B
Stock) issued and outstanding on December 31,
2004 and approximately 97.8% of the shares of Class C
common stock, par value $.01 per share, of UGC (the
UGC Class C Stock and, together with the
UGC Class A Stock and the UGC Class B Stock, the
UGC Common Stock) issued and outstanding on
December 31, 2004; and
WHEREAS, the Boards of Directors of each of LMI and UGC deem it
advisable and in the best interests of each corporation and its
stockholders that LMI and UGC engage in a business combination
on the terms and subject to the conditions hereof by means of
the Mergers (as defined below). A special committee of the Board
of Directors of UGC (the Special Committee)
has determined that the UGC Merger (as defined below) is fair
to, and is in the best interests of, UGC and the holders of UGC
Common Stock, other than LMI and its Affiliates, and has
recommended to the Board of Directors of UGC that it approve the
terms and conditions of this Agreement, including the UGC Merger;
WHEREAS, UGC and Stockholder are parties to the Voting
Agreement, of even date herewith, pursuant to which Stockholder
has agreed, among other things, to vote the Subject Shares (as
defined therein) in favor of the adoption of this Agreement and
the transactions contemplated hereby at any meeting of
stockholders of LMI or any adjournment thereof called to vote
upon this Agreement or any of the transactions contemplated
hereby; and
WHEREAS, for U.S. federal income tax purposes, it is
intended that the LMI Merger (as defined below) shall qualify as
a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended (the
Code), and the regulations promulgated
thereunder, and that the conversion of the UGC Common Stock into
shares of HoldCo Series A Stock (as defined below) which is
effected pursuant to the UGC Merger shall qualify as an exchange
within the meaning of Section 351(a) of the Code and the
regulations promulgated thereunder;
NOW, THEREFORE, in consideration of the foregoing premises and
of the mutual covenants, representations, warranties and
agreements contained herein, the parties hereto hereby agree as
follows:
ARTICLE I
DEFINITIONS AND CONSTRUCTION
1.1 Certain Definitions.
As used in this Agreement, the following terms will have the
following meanings unless the context otherwise requires:
Acquisition Proposal means any offer or
proposal by any Person or group of Persons concerning
(a) any tender or exchange offer for shares of any class or
series of UGC Stock, (b) any merger, share exchange,
recapitalization, consolidation or other business combination
involving UGC or (c) an acquisition in any manner, directly
or indirectly, of a significant equity interest in, or a
substantial portion of the assets of, UGC, other than pursuant
to the transactions contemplated by this Agreement.
Affiliate of any Person has the meaning
ascribed to such term in Rule 12b-2 under the Exchange Act.
For purposes of this Agreement (other than Section 4.3),
unless otherwise specified, (a) neither UGC nor any of its
Subsidiaries will be deemed to be Affiliates of LMI or any of
LMIs Subsidiaries; (b) neither LMI nor any of its
B-1
Subsidiaries will be deemed to be Affiliates of UGC or any of
UGCs Subsidiaries; (c) none of the Affiliates of UGC
or any of its Subsidiaries (the UGC
Affiliates) will be deemed to be an Affiliate of LMI
or any of LMIs Subsidiaries, unless such UGC Affiliate
would be such an Affiliate if neither LMI nor any of its
Subsidiaries (1) owned any capital stock of UGC,
(2) designated or nominated, or possessed any contractual
right to designate or nominate, any directors of UGC or any of
its Subsidiaries or (3) otherwise possessed, directly or
indirectly, the power to direct or cause the direction of the
management or policies of UGC or any of its Subsidiaries; and
(d) none of the Affiliates of LMI or any of LMIs
Subsidiaries (LMI Affiliates) will be deemed
to be an Affiliate of UGC or any of UGCs Subsidiaries,
unless such LMI Affiliate would be such an Affiliate if neither
LMI nor any of its Subsidiaries (1) owned any capital stock
of UGC, (2) designated or nominated, or possessed any
contractual right to designate or nominate, any directors of UGC
or any of its Subsidiaries or (3) otherwise possessed,
directly or indirectly, the power to direct or cause the
direction of the management or policies of UGC or any of its
Subsidiaries.
Agreement has the meaning specified in the
preamble.
Approved Matter means any matter expressly
approved by (i) the UGC Board, provided that all of the
directors of UGC who are also executive officers of LMI did not
cast their votes against the approval of such matter, or
(ii) the Executive Committee of the UGC Board, provided
that at least one member of the Executive Committee of the UGC
Board is also an executive officer of LMI and all members of
such committee who are also executive officers of LMI did not
vote against such matter.
Book-Entry Shares has the meaning specified
in Section 3.4(a).
Cash Consideration means, for each share of
UGC Common Stock in respect of which a Cash Election is validly
made and subject to the provisions of Section 3.4(f),
$9.58, without interest.
Cash Election has the meaning set forth in
Section 3.3(b).
Certificates has the meaning specified in
Section 3.4(a).
Certificates of Merger means the LMI
Certificate of Merger and the UGC Certificate of Merger.
Claim has the meaning specified in
Section 7.5(c).
Closing has the meaning specified in
Section 3.2.
Closing Date means the date on which the
Closing occurs pursuant to Section 3.2.
Code has the meaning specified in the
recitals.
Contract has the meaning specified in
Section 5.5(iv).
Contract Consent has the meaning specified in
Section 5.5(iii).
Contract Notice has the meaning specified in
Section 5.5(iii).
Control means, with respect to any Person,
the possession, direct or indirect, of the power to direct or
cause the direction of the management and policies of such
Person, whether through the ownership of voting securities, by
contract or otherwise.
Controlled Affiliates means, with respect to
any Person, any Affiliates of such Person that such Person
Controls.
Converted LMI Option has the meaning
specified in Section 3.6(a).
Converted LMI SAR has the meaning specified
in Section 3.6(b).
Converted UGC Option has the meaning
specified in Section 3.7(a).
Converted UGC SAR has the meaning specified
in Section 3.7(b).
Convertible Securities has the meaning
specified in Section 5.3(e).
DGCL means the General Corporation Law of the
State of Delaware.
B-2
Deemed Stock Election has the meaning
specified in Section 3.3(b).
Deemed Stock Election Holder has the meaning
specified in Section 3.5(b).
Distribution means the distribution effected
on June 7, 2004 by LMC to its Series A common
stockholders of all of its LMI Series A common stock and to
its Series B common stockholders of all of its LMI
Series B common stock.
Drop Dead Date has the meaning specified in
Section 9.1(c).
Effective Time means the time when the
Mergers become effective under applicable law as provided in
Section 3.1(a).
Election Time has the meaning specified in
Section 3.4(d).
ERISA means the Employee Retirement Income
Security Act of 1974, as amended, and all regulations
promulgated thereunder, as in effect from time to time.
Exchange Act means the Securities Exchange
Act of 1934, as amended, and the rules and regulations
thereunder.
Exchange Agent has the meaning specified in
Section 3.4(a).
Exchange Fund has the meaning specified in
Section 3.5(a)(i).
Exchange Ratio means a fraction equal to
0.2155.
Excluded Shares means shares of UGC Common
Stock which are to be exchanged pursuant to
Section 3.3(b)(iv) or which are to be cancelled pursuant to
Section 3.3(b)(v).
Executive means Michael T. Fries.
Filing Termination Date has the meaning
specified in Section 9.1(b).
Form of Election has the meaning specified in
Section 3.4(c).
Former LMI Holders has the meaning specified
in Section 3.5(b).
Former LMI Shares has the meaning specified
in Section 3.5(b).
GAAP means generally accepted accounting
principles as accepted by the accounting profession in the
United States as in effect from time to time.
Government Consent has the meaning specified
in Section 5.5(ii).
Governmental Entity means any court,
arbitrator, administrative or other governmental department,
agency, commission, authority or instrumentality, domestic or
foreign.
Governmental Filing has the meaning specified
in Section 5.5(ii).
HoldCo has the meaning specified in the
preamble.
HoldCo Board has the meaning specified in
Section 2.2(a).
HoldCo Bylaws has the meaning specified in
Section 2.1.
HoldCo Charter has the meaning specified in
Section 2.1.
HoldCo Common Stock has the meaning specified
in Section 2.1.
HoldCo Original Series A Stock has the
meaning specified in Section 2.1.
HoldCo Original Stock has the meaning
specified in Section 2.1.
HoldCo Preferred Stock has the meaning
specified in Section 2.1.
HoldCo Series A Stock has the meaning
specified in Section 2.1.
B-3
HoldCo Series B Stock has the meaning
specified in Section 2.1.
HoldCo Series C Stock has the meaning
specified in Section 2.1.
HoldCo Stock has the meaning specified in
Section 2.1.
Indebtedness means, with respect to any
Person, without duplication (whether or not the recourse of the
lender is to the whole of the assets of such Person or only to a
portion thereof), (i) every liability of such Person
(excluding intercompany accounts between UGC and any
wholly-owned Subsidiary of UGC or between wholly-owned
Subsidiaries of UGC) (A) for borrowed money,
(B) evidenced by notes, bonds, debentures or other similar
instruments (whether or not negotiable), (C) for
reimbursement of amounts drawn under letters of credit,
bankers acceptances or similar facilities issued for the
account of such Person, (D) issued or assumed as the
deferred purchase price of property or services (excluding
accounts payable) or (E) relating to a capitalized lease
obligation and all debt attributable to sale/leaseback
transactions of such Person; and (ii) every liability of
others of the kind described in the preceding clause (i)
that such Person has guaranteed or that is otherwise its legal
liability.
Initial HoldCo Board has the meaning
specified in Section 2.2(c).
Injunction has the meaning specified in
Section 4.4.
Insiders has the meaning specified in
Section 7.9.
Japanese Businesses means those Subsidiaries
of LMI and those Persons in which LMI (directly or indirectly
through one or more Subsidiaries) owns an investment accounted
for by the equity method within the meaning of GAAP whose
businesses are primarily conducted in Japan (including Jupiter
Telecommunications Co., Ltd. and Jupiter Programming Co., Ltd.)
Joint Proxy Statement/ Prospectus has the
meaning specified in Section 4.2(a).
License means any license, franchise,
ordinance, authorization, permit, certificate, variance,
exemption, concession, lease, right of way, easement,
instrument, order and approval, domestic or foreign.
Lien means any security interest, mortgage,
pledge, hypothecation, charge, claim, option, right to acquire,
adverse interest, assignment, deposit arrangement, encumbrance,
restriction, lien (statutory or other), or preference, priority
or other security agreement or preferential arrangement of any
kind or nature whatsoever (including any conditional sale or
other title retention agreement, any financing lease involving
substantially the same economic effect as any of the foregoing,
and the filing of any financing statement under the Uniform
Commercial Code or comparable law of any jurisdiction).
LMC means Liberty Media Corporation, a
Delaware corporation.
LMI has the meaning set forth in the preamble.
LMI Board means the Board of Directors of LMI.
LMI Book-Entry Shares has the meaning
specified in Section 3.4(a).
LMI Certificate of Merger means the
certificate of merger with respect to the LMI Merger, containing
the provisions required by, and executed in accordance with,
Section 251 of the DGCL.
LMI Certificates has the meaning specified in
Section 3.4(a).
LMI Charter means the Restated Certificate of
Incorporation of LMI, as amended and as in effect on the date
hereof.
LMI Common Stock means the LMI Series A
Stock, the LMI Series B Stock and the LMI
Series C Stock.
LMI Consideration has the meaning specified
in Section 3.3(a).
LMI ERISA Affiliate has the meaning specified
in the definition of the term LMI Plan.
B-4
LMI Fairness Opinion has the meaning
specified in Section 6.13.
LMI Indemnified Liabilities has the meaning
specified in Section 7.5(b).
LMI Indemnified Parties has the meaning
specified in Section 7.5(b).
LMI Indemnified Party has the meaning
specified in Section 7.5(b).
LMI Material Adverse Effect means a Material
Adverse Effect with respect to LMI or a material adverse effect
on the ability of LMI to consummate the Mergers and the other
transactions contemplated by this Agreement.
LMI Merger means the merger of LMI Merger Sub
with and into LMI as set forth in Section 3.1(a).
LMI Merger Sub has the meaning specified in
the preamble.
LMI Merger Sub Board has the meaning
specified in Section 2.4(a).
LMI Option has the meaning specified in
Section 3.6(a).
LMI Plan means each bonus, deferred
compensation, incentive compensation, stock purchase, stock
option, severance or termination pay, hospitalization, medical,
life or other insurance, supplemental unemployment benefits,
profit-sharing, pension or retirement plan, program, agreement
or arrangement, and each other employee benefit plan, program,
agreement or arrangement, sponsored, maintained or contributed
to or required to be contributed to at any time since
June 1, 2004 by LMI or by any trade or business, whether or
not incorporated (LMI ERISA Affiliate), that
together with LMI would be deemed a controlled group
within the meaning of Section 4001(a)(14) of ERISA, for the
benefit of any employee, director or former employee or director
of LMI or any LMI ERISA Affiliate including any such type of
plan established, maintained or contributed to under the laws of
any foreign country; provided, however, that LMI Plan will not
include any such plan or arrangement maintained by UGC.
LMI Preferred Stock means the preferred
stock, $.01 par value per share, of LMI.
LMI Preferred Stock Consideration has the
meaning specified in Section 3.3(a).
LMI Restricted Stock has the meaning
specified in Section 3.6(c).
LMI SAR has the meaning specified in
Section 3.6(b).
LMI SEC Filings has the meaning specified in
Section 6.4.
LMI Series A Consideration has the
meaning specified in Section 3.3(a).
LMI Series B Consideration has the
meaning specified in Section 3.3(a).
LMI Series C Consideration has the
meaning specified in Section 3.3(a).
LMI Series A Stock means the
Series A common stock, $.01 par value per share, of
LMI.
LMI Series B Stock means the
Series B common stock, $.01 par value per share, of
LMI.
LMI Series C Stock means the
Series C common stock, $.01 par value per share, of
LMI.
LMI Special Meeting has the meaning specified
in Section 4.1.
LMI Stock means the LMI Common Stock and the
LMI Preferred Stock.
LMI Stockholder Approval has the meaning
specified in Section 6.14.
Material Adverse Effect means (A) with
respect to LMI, a material adverse effect on the business,
properties, operations or financial condition of LMI and its
Subsidiaries (for these purposes including UGC and its
Subsidiaries) taken as a whole, other than any such effect
arising out of or resulting from (i) any change in the
trading prices of LMI Series A Stock between the date
hereof and the Effective Time, (ii) any changes in GAAP
that affect generally entities such as LMI, (iii) general
business or economic conditions or from general changes in or
affecting the industries in which LMI operates in areas where
LMI does business directly or through its
B-5
Subsidiaries (for these purposes including UGC and its
Subsidiaries), or (iv) the announcement of this Agreement
or the consummation of the transactions contemplated hereby,
except, in the case of clause (iii), to the extent that any
such change has a disproportionate impact on LMI and its
Subsidiaries (for these purposes including UGC and its
Subsidiaries), taken as a whole, and (B) with respect to
UGC, a material adverse effect on the business, properties,
operations or financial condition of UGC and its Subsidiaries
taken as a whole, other than any such effect arising out of or
resulting from (i) any change in the trading prices of UGC
Class A Stock between the date hereof and the Effective
Time, (ii) any changes in GAAP that affect generally
entities such as UGC, (iii) general business or economic
conditions or general changes in or affecting the industries in
which UGC operates in areas where UGC does business directly or
through its Subsidiaries or (iv) the announcement of this
Agreement or the consummation of the transactions contemplated
hereby or any Approved Matter approved following the date
hereof, except, in the case of clause (iii), to the extent
that any such change has a disproportionate impact on UGC and
its Subsidiaries. Neither a LMI Material Adverse Effect nor a
UGC Material Adverse Effect shall be deemed to occur as the
result of the consummation or failure to consummate the
combination of Metrópolis Intercom S.A. and VTR
GlobalCom S.A.
Merger Consideration has the meaning
specified in Section 3.3(b).
Mergers means the LMI Merger and the UGC
Merger.
Minority Approval has the meaning specified
in Section 5.14.
NASD means the National Association of
Securities Dealers, Inc.
Nasdaq means The Nasdaq National Market.
Person means an individual, partnership,
corporation, limited liability company, trust, unincorporated
organization, association, joint venture or other entity or a
government, agency, political subdivision, or instrumentality
thereof.
Registration Statement has the meaning
specified in Section 4.2(a).
Restriction, with respect to any capital
stock or other security, means any voting or other trust or
agreement, option, warrant, escrow arrangement, proxy, buy-sell
agreement, power of attorney or other Contract, or any law,
rule, regulation, order, judgment or decree which, conditionally
or unconditionally: (i) grants to any Person the right to
purchase or otherwise acquire, or obligates any Person to
purchase or sell or otherwise acquire, dispose of or issue, or
otherwise results in or, whether upon the occurrence of any
event or with notice or lapse of time or both or otherwise, may
result in, any Person acquiring, (A) any of such capital
stock or other security; (B) any of the proceeds of, or any
distributions paid or which are or may become payable with
respect to, any of such capital stock or other security; or
(C) any interest in such capital stock or other security or
any such proceeds or distributions; (ii) restricts or,
whether upon the occurrence of any event or with notice or lapse
of time or both or otherwise, may restrict the transfer or
voting of, or the exercise of any rights or the enjoyment of any
benefits arising by reason of ownership of, any such capital
stock or other security or any such proceeds or distributions;
or (iii) creates or, whether upon the occurrence of any
event or with notice or lapse of time or both or otherwise, may
create a Lien or purported Lien affecting such capital stock or
other security, proceeds or distributions.
Schedule 13E-3 has the meaning specified
in Section 4.2(a).
SEC means the Securities and Exchange
Commission.
Section 16 Information has the meaning
specified in Section 7.9.
Securities Act means the Securities Act of
1933, as amended, and the rules and regulations thereunder.
Significant LMI Subsidiary has the meaning
specified in Section 6.1.
Significant UGC Subsidiary has the meaning
specified in Section 5.1.
Special Committee has the meaning set forth
in the recitals.
Special Meetings has the meaning specified in
Section 4.1.
B-6
Stock Consideration has the meaning specified
in Section 3.3(b).
Stock Election has the meaning set forth in
Section 3.3(b).
Stockholder means John C. Malone.
Subsidiary when used with respect to any
Person, means any other Person (1) of which (x) in the
case of a corporation, at least (A) a majority of the
equity and (B) a majority of the voting interests are owned
or Controlled, directly or indirectly, by such first Person, by
any one or more of its Subsidiaries, or by such first Person and
one or more of its Subsidiaries or (y) in the case of any
Person other than a corporation, such first Person, one or more
of its Subsidiaries, or such first Person and one or more of its
Subsidiaries (A) owns a majority of the equity interests
thereof and (B) has the power to elect or direct the
election of a majority of the members of the governing body
thereof or otherwise has Control over such organization or
entity; or (2) that is required to be consolidated with
such first Person for financial reporting purposes under GAAP;
provided that, for purposes of the agreements set forth
in Article III and Article VI, references to
Subsidiaries will not include any Person as to which such first
Persons voting interests are subject to a voting
agreement, proxy, management contract or other arrangement as a
result of which such first Person does not Control such other
Person. For purposes of this Agreement, unless otherwise
specified, neither UGC nor any of its Subsidiaries will be
deemed to be Subsidiaries of LMI or any of LMIs
Subsidiaries, whether or not they otherwise would be
Subsidiaries of LMI or any of LMIs Subsidiaries under the
foregoing definition.
Surviving LMI Corporation means LMI as the
surviving corporation after the LMI Merger as provided in
Section 3.1(a).
Surviving UGC Corporation means UGC as the
surviving corporation after the UGC Merger as provided in
Section 3.1(a).
Tax or Taxes means
(i) any and all federal, state, local and foreign taxes and
other assessments, governmental charges, duties, fees, levies,
impositions and liabilities in the nature of a tax, including
taxes based upon or measured by gross receipts, income, profits,
sales, use and occupation, and value added, ad valorem,
transfer, franchise, withholding, payroll, recapture,
employment, excise and property taxes and (ii) all
interest, penalties and additions imposed with respect to such
amounts in clause (i).
Tax Return means a report, return or other
information required to be supplied to or filed with a
Governmental Entity with respect to any Tax including an
information return, claim for refund, amended Tax return or
declaration of estimated Tax.
Treasury Regulations means the regulations
promulgated under the Code in effect on the date hereof and the
corresponding sections of any regulations subsequently issued
that amend or supersede such regulations.
Total Cash Election Number has the meaning
specified in Section 3.4(f).
UGC has the meaning specified in the preamble.
UGC Board means the Board of Directors of UGC.
UGC Book-Entry Shares has the meaning
specified in Section 3.4(a).
UGC Certificates has the meaning specified in
Section 3.4(a).
UGC Certificate of Merger means the
certificate of merger with respect to the UGC Merger, containing
the provisions required by, and executed in accordance with,
Section 251 of the DGCL.
UGC Charter means the Restated Certificate of
Incorporation of UGC as amended to the date hereof.
UGC Class A Stock has the meaning set
forth in the recitals.
UGC Class B Stock has the meaning set
forth in the recitals.
UGC Class C Stock has the meaning set
forth in the recitals.
UGC Common Stock has the meaning set forth in
the recitals.
B-7
UGC Convertible Notes means
the 500,000,000
principal amount of
13/4% Convertible
Senior Notes due April 15, 2024 issued by UGC.
UGC Disclosure Letter means the disclosure
letter, dated as of the date hereof, delivered by UGC to LMI.
UGC ERISA Affiliate has the meaning specified
in the term UGC Plan.
UGC Fairness Opinion has the meaning
specified in Section 5.13.
UGC Indemnified Liabilities has the meaning
specified in Section 7.5(a).
UGC Indemnified Parties has the meaning
specified in Section 7.5(a).
UGC Indemnified Party has the meaning
specified in Section 7.5(a).
UGC Indenture means the Indenture, dated as
of April 6, 2004, by and between UGC and The Bank of New
York, as Trustee, relating to the UGC Convertible Notes.
UGC Material Adverse Effect means a Material
Adverse Effect with respect to UGC or a material adverse effect
on the ability of UGC to consummate the Mergers and the other
transactions contemplated by this Agreement.
UGC Merger means the merger of UGC Merger Sub
with and into UGC as set forth in Section 3.1(a).
UGC Merger Sub has the meaning specified in
the preamble.
UGC Merger Sub Board has the meaning
specified in Section 2.4(b).
UGC Option has the meaning specified in
Section 3.7(a).
UGC Plan means each bonus, deferred
compensation, incentive compensation, stock purchase, stock
option, severance or termination pay, hospitalization, medical,
life or other insurance, supplemental unemployment benefits,
profit-sharing, pension or retirement plan, program, agreement
or arrangement, and each other employee benefit plan, program,
agreement or arrangement, sponsored, maintained or contributed
to or required to be contributed to at any time since
December 31, 1999 by UGC or by any trade or business,
whether or not incorporated (UGC ERISA
Affiliate), that together with UGC would be deemed a
controlled group within the meaning of
Section 4001(a)(14) of ERISA, for the benefit of any
employee, director or former employee or director of the UGC or
any UGC ERISA Affiliate including any such type of plan
established, maintained or contributed to under the laws of any
foreign country; provided, however, that UGC Plan will
not include any such plan or arrangement maintained by LMI or
any Subsidiary of LMI.
UGC Preferred Stock means the preferred
stock, par value $.01 per share, of UGC.
UGC Restricted Stock has the meaning
specified in Section 3.7(c).
UGC SAR has the meaning specified in
Section 3.7(b).
UGC SEC Filings has the meaning specified in
Section 5.4.
UGC Share Threshold Number means the quotient
(rounded down to the nearest whole number) equal to (i) the
product of (x) the last sales price of a share of LMI
Series A Stock on the Nasdaq on the last trading day
immediately preceding the Effective Time (the LMI
Closing Day Market Price), (y) the Exchange Ratio
and (z) the number of shares of UGC Class A Stock
(other than shares of UGC Class A Stock beneficially owned
by Permitted Holders (as defined in the UGC Indenture) issued
and outstanding immediately prior to the Effective Time, divided
by (ii) the sum of (x) 38.32 and (y) the product
of the LMI Closing Day Market Price and the Exchange Ratio.
UGC Special Meeting has the meaning specified
in Section 4.1(a).
UGC Stock means the UGC Common Stock and the
UGC Preferred Stock.
UGC Stockholder Approval has the meaning
specified in Section 5.14.
B-8
UGC 10-K means an Annual Report of UGC on
Form 10-K for the fiscal year ended December 31, 2004
which includes (i) audited financial statements of UGC and
its consolidated subsidiaries meeting the requirements of
Regulation S-X, (ii) an unqualified audit report of
UGCs auditors on such financial statements and
(iii) the statements, reports, attestations and other
disclosures required by, and that comply with, Item 308 of
Regulation S-K concerning UGCs internal control over
financial reporting.
Violation has the meaning specified in
Section 5.5(iv).
Voting Debt has the meaning specified in
Section 5.3(d).
Wholly-Owned Subsidiary means, as to any
Person, a Subsidiary of such Person, 100% of the equity and
voting interest in which is owned beneficially or of record,
directly and/or indirectly, by such Person.
1.2 Terms Generally.
The definitions in Section 1.1 will apply equally to both
the singular and plural forms of the terms defined. Whenever the
context may require, any pronoun will include the corresponding
masculine, feminine and neuter forms. The words
include, includes and
including will be deemed to be followed by the
phrase without limitation. The words
herein, hereof and hereunder
and words of similar import refer to this Agreement (including
the Exhibits and Schedules) in its entirety and not to any part
hereof unless the context otherwise requires. As used herein,
the term to the knowledge of UGC or any similar term
relating to UGCs knowledge means the actual knowledge,
after due inquiry, of any of the executive officers of UGC, and
the term to the knowledge of LMI or any similar term
relating to LMIs knowledge means the actual knowledge,
after due inquiry, of any of the executive officers of LMI. All
references herein to Articles, Sections, Exhibits and Schedules
will be deemed references to Articles and Sections of, and
Exhibits and Schedules to, this Agreement unless the context
otherwise requires. Unless the context otherwise requires, any
references to any agreement, other instrument, statute or
regulation are to such agreement, instrument, statute or
regulation as amended and supplemented from time to time (and,
in the case of a statute or regulation, to any successor
provisions). Any reference in this Agreement to a
day or number of days (without the
explicit qualification of business) will be
interpreted as a reference to a calendar day or number of
calendar days, as the case may be. If any action or notice is to
be taken or given on or by a particular calendar day, and such
calendar day is not a business day, then such action or notice
will be deferred until, or may be taken or given on, the next
business day. As used herein, the phrase made
available means that the information referred to has been
made available if requested by the party to whom such
information is to be made available.
ARTICLE II
HOLDING COMPANY AND MERGER SUBSIDIARIES
2.1 Organization of
HoldCo. LMI has caused HoldCo to be organized under the
laws of the State of Delaware. The authorized capital stock of
HoldCo on the date hereof consists of 100 shares of common
stock, par value $0.01 per share (the HoldCo
Original Stock), of which one share has been issued to
LMI and no other shares are issued and outstanding. LMI shall
take, and shall cause HoldCo to take, all requisite action to
cause the certificate of incorporation of HoldCo to be in the
form of Exhibit A hereto (the HoldCo
Charter) and the bylaws of HoldCo to be in the form of
Exhibit B hereto (the HoldCo
Bylaws), in each case, at the Effective Time. Pursuant
to the HoldCo Charter, the authorized capital stock of HoldCo at
the Effective Time will consist solely of
500,000,000 shares of Series A common stock, par value
$.01 per share (the HoldCo Series A
Stock), 50,000,000 shares of Series B common
stock, par value $.01 per share (the HoldCo
Series B Stock), 500,000,000 shares of
Series C common stock, par value $.01 per share (the
HoldCo Series C Stock and, collectively
with the HoldCo Series A Stock and the HoldCo Series B
Stock, the HoldCo Common Stock), and
50,000,000 shares of preferred stock, par value
$.01 per share (the HoldCo Preferred
Stock and, together with the HoldCo Common Stock, the
HoldCo Stock). Effective upon the filing of
the HoldCo Charter, the HoldCo Original Stock shall be
reclassified as one share of HoldCo Series A Stock (the
HoldCo Original Series A Stock). At
the Effective Time, each issued and outstanding share of HoldCo
Original Series A Stock shall be cancelled without
conversion into any other security or other consideration
therefor.
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2.2 Directors and Officers of
HoldCo.
(a) Immediately prior to the Effective Time, the directors
of HoldCo shall be solely those persons identified on
Schedule 2.2(a) (the HoldCo Board).
HoldCo shall have a staggered board of directors, and each
person identified on Schedule 2.2(a) shall serve in the
class and for the term set forth opposite his or her name on
Schedule 2.2(a). Each director shall remain in office until
the expiration of the term of the class in which such person
serves or until his or her successor is duly elected or
appointed and qualified in accordance with the HoldCo Charter,
the HoldCo Bylaws and the DGCL or until such persons
earlier death, resignation or removal.
(b) Immediately prior to the Effective Time, the officers
of HoldCo shall be solely those persons identified on
Schedule 2.2(b), and such additional persons as may be
approved by the HoldCo Board. Each such officer shall remain in
office until his or her successor is duly elected or appointed
and qualified in accordance with the HoldCo Charter, the HoldCo
Bylaws and the DGCL or until such persons earlier death,
resignation or removal.
(c) The members of the board of directors of HoldCo as of
the date of this agreement are John C. Malone and Robert R.
Bennett (the Initial HoldCo Board);
additional directors may be elected or appointed to such board
in accordance with the certificate of incorporation and bylaws
of HoldCo and the DGCL. Each member of the Initial HoldCo Board
shall serve until his or her successor is elected to the HoldCo
Board as contemplated by Section 2.2(a), or until his or
her earlier death, resignation or removal. The initial officers
of HoldCo shall be those persons approved by the Initial HoldCo
Board, each of whom shall serve until his or her respective
successor is elected as contemplated by Section 2.2(b) or
until his or her earlier death, resignation or removal.
2.3 Organization of Merger
Subsidiaries. HoldCo has caused LMI Merger Sub and UGC
Merger Sub to be organized for the sole purpose of effecting the
Mergers contemplated herein. The authorized capital stock of LMI
Merger Sub consists of 100 shares of common stock, par
value $0.01 per share, of which one share has been issued
to HoldCo at a price of $0.01 per share and no other shares
are issued or outstanding. The authorized capital stock of UGC
Merger Sub consists of 100 shares of common stock, par
value $0.01 per share, of which one share has been issued
to HoldCo at a price of $0.01 per share and no other shares
are issued or outstanding.
2.4 Directors and Officers of
LMI Merger Sub and UGC Merger Sub.
(a) Immediately prior to the Effective Time, the directors
of LMI Merger Sub shall be Stockholder and Executive (the
LMI Merger Sub Board), and the officers of
LMI Merger Sub shall be those persons duly elected by the LMI
Merger Sub Board. Each such director and officer shall remain in
office until his or her successor is duly elected or appointed
and qualified in accordance with the Certificate of
Incorporation and Bylaws of LMI Merger Sub and the DGCL or until
such persons earlier death, resignation or removal.
(b) Immediately prior to the Effective Time, the directors
of UGC Merger Sub shall be Stockholder and Executive (the
UGC Merger Sub Board), and the officers of
UGC Merger Sub shall be those persons duly elected by the UGC
Merger Sub Board. Each such director and officer shall remain in
office until his or her successor is duly elected or appointed
and qualified in accordance with the Certificate of
Incorporation and Bylaws of UGC Merger Sub and the DGCL or until
such persons earlier death, resignation or removal.
2.5 Certain Actions of
LMI. LMI, in its capacity as the sole stockholder of
HoldCo, has adopted and approved this Agreement by all action
required by the DGCL, the HoldCo Charter and the HoldCo Bylaws
to be taken and shall cause HoldCo, as the sole stockholder of
each of LMI Merger Sub and UGC Merger Sub, to take all action
required by the DGCL and the respective charters and bylaws of
LMI Merger Sub and UGC Merger Sub to adopt and approve this
Agreement. Subject to the terms and conditions of this
Agreement, LMI shall cause HoldCo to perform, and shall cause
HoldCo to cause each of LMI Merger Sub and UGC Merger Sub to
perform, their respective obligations under this Agreement.
B-10
ARTICLE III
THE MERGERS AND RELATED
MATTERS
3.1 The Mergers.
(a) Mergers; Effective Time. At the Effective
Time and subject to and upon the terms and conditions of this
Agreement, (i) LMI Merger Sub will merge with and into LMI
in accordance with the provisions of the DGCL, the separate
corporate existence of LMI Merger Sub will cease and LMI will
continue as the Surviving LMI Corporation and (ii) UGC
Merger Sub will merge with and into UGC in accordance with the
provisions of the DGCL, the separate corporate existence of UGC
Merger Sub will cease and UGC will continue as the Surviving UGC
Corporation. The Effective Time shall be on the date and at the
time that both of the Certificates of Merger have been accepted
for filing by the Delaware Secretary of State, and all other
documents required by the DGCL to effectuate the Mergers shall
have been properly executed and filed (or such later date and
time as may be agreed to by LMI and UGC and specified in the
Certificates of Merger, provided that both Mergers shall become
effective at the same time). The parties will cause the
Certificates of Merger to be filed with the Delaware Secretary
of State as soon as practicable after the Closing.
(b) Effects of the Mergers. From and after
the Effective Time, the Mergers will each have the effects set
forth in the DGCL (including Sections 259, 260 and 261
thereof). Without limiting the generality of the foregoing, and
subject thereto, at the Effective Time, (i) all the
properties, rights, privileges, powers and franchises of LMI and
LMI Merger Sub will vest in the Surviving LMI Corporation, and
all debts, liabilities and duties of LMI and LMI Merger Sub
will, by operation of law, become the debts, liabilities and
duties of the Surviving LMI Corporation and (ii) all the
properties, rights, privileges, powers and franchises of UGC and
UGC Merger Sub will vest in the Surviving UGC Corporation, and
all debts, liabilities and duties of UGC and UGC Merger Sub
will, by operation of law, become the debts, liabilities and
duties of the Surviving UGC Corporation.
(c) Certificate of Incorporation of the Surviving
Corporations. At the Effective Time, (i) the LMI
Charter will be amended and restated pursuant to the LMI
Certificate of Merger to be identical to the certificate of
incorporation of LMI Merger Sub in effect immediately prior to
the Effective Time, except that Article FIRST thereof shall
read as follows: The name of the Corporation (which is
hereinafter called the Corporation) is Liberty Media
International, Inc. and (ii) the UGC Charter in
effect immediately prior to the Effective Time shall be the
certificate of incorporation of the Surviving UGC Corporation.
The LMI Charter, as so amended, and the UGC Charter shall remain
as the certificate of incorporation of the Surviving LMI
Corporation or the Surviving UGC Corporation, as applicable,
until thereafter amended in accordance with the terms thereof
and the DGCL.
(d) Bylaws of the Surviving Corporations. The
Bylaws of LMI Merger Sub will be the Bylaws of the Surviving LMI
Corporation until thereafter amended in accordance with the
terms thereof, the certificate of incorporation of the Surviving
LMI Corporation and the DGCL. The Bylaws of UGC Merger Sub will
be the Bylaws of the Surviving UGC Corporation until thereafter
amended in accordance with the terms thereof, the certificate of
incorporation of the Surviving UGC Corporation and the DGCL.
(e) Directors and Officers of the Surviving
Corporations. HoldCo, LMI and the Surviving LMI
Corporation will take such action as is necessary to ensure that
the directors and officers of LMI Merger Sub at the Effective
Time will, from and after the Effective Time, be the directors
and officers of the Surviving LMI Corporation until their
respective successors are duly elected or appointed and
qualified in accordance with the certificate of incorporation
and Bylaws of the Surviving LMI Corporation, and the DGCL, or
until such persons earlier death, resignation or removal.
HoldCo, UGC and the Surviving UGC Corporation will take such
action as is necessary to ensure that the directors and officers
of UGC Merger Sub at the Effective Time will, from and after the
Effective Time, be the directors and officers of the Surviving
UGC Corporation until their respective successors are duly
elected or appointed and qualified in accordance with the
certificate of incorporation and Bylaws of the Surviving UGC
Corporation, and the DGCL, or until such persons earlier
death, resignation or removal.
3.2 Closing. Unless
this Agreement has been terminated pursuant to Section 9.1
and subject to the satisfaction or, when permissible, waiver of
the conditions set forth in Article VIII, the closing of
the Mergers
B-11
(the Closing) will take place (i) at
10:00 a.m. (New York City time) at the offices of Baker
Botts L.L.P., 30 Rockefeller Plaza, New York, New York 10112, on
the second business day after the date on which the last of the
conditions set forth in Article VIII (other than the filing
of the Certificates of Merger and other than any such conditions
that by their terms are not capable of being satisfied until the
Closing Date or thereafter) is satisfied or, when permissible,
waived, or (ii) on such other date and/or at such other
time and/or place as the parties may mutually agree.
3.3 Conversion of
Securities.
(a) Conversion of LMI Securities. At the
Effective Time, by virtue of the LMI Merger and without any
action on the part of any party hereto or any holder of shares
of LMI Stock:
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(i) each share of LMI Series A Stock issued and
outstanding immediately prior to the Effective Time (other than
any shares cancelled pursuant to Section 3.3(a)(v)) will be
converted into and represent the right to receive, and will be
exchangeable for, one validly issued, fully paid and
nonassessable share of HoldCo Series A Stock (the
LMI Series A Consideration); |
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(ii) each share of LMI Series B Stock issued and
outstanding immediately prior to the Effective Time (other than
any shares cancelled pursuant to Section 3.3(a)(v)) will be
converted into and represent the right to receive, and will be
exchangeable for, one validly issued, fully paid and
nonassessable share of HoldCo Series B Stock (the
LMI Series B Consideration); |
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(iii) each share of LMI Series C Stock, if any, issued
and outstanding immediately prior to the Effective Time (other
than any shares cancelled pursuant to Section 3.3(a)(v))
will be converted into and represent the right to receive, and
will be exchangeable for, one validly issued, fully paid and
nonassessable share of HoldCo Series C Stock (the
LMI Series C Consideration); |
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(iv) each share of LMI Preferred Stock, if any, issued and
outstanding immediately prior to the Effective Time (other than
any shares cancelled pursuant to Section 3.3(a)(v)) will be
converted into and represent the right to receive, and will be
exchangeable for, one validly issued, fully paid and
nonassessable share of a corresponding series of HoldCo
Preferred Stock having a substantially equivalent designation of
rights and preferences as such series of LMI Preferred Stock
(the LMI Preferred Stock Consideration and,
together with the LMI Series A Consideration, the LMI
Series B Consideration and the LMI Series C
Consideration, the LMI
Consideration); and |
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(v) each share of LMI Stock held in treasury of LMI
immediately prior to the Effective Time shall automatically be
cancelled, retired and cease to exist without payment of any
consideration therefor and without any conversion thereof. |
LMI will cause HoldCo to make any filings or other designations
required to comply with the provisions of
Section 3.3(a)(iv). At the Effective Time, all shares of
LMI Stock issued and outstanding immediately prior to the
Effective Time will no longer be outstanding and will
automatically be canceled and retired and will cease to exist,
and each holder of a certificate representing any such shares
will cease to have any rights with respect thereto, except the
right to receive the shares of HoldCo Stock with respect thereto
upon the surrender of such certificate in accordance with
Section 3.5.
(b) Conversion of UGC Securities. At the
Effective Time, by virtue of the UGC Merger and without any
action on the part of any party hereto or the holders of shares
of UGC Stock:
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(i) subject to the provisions of Section 3.4(f), each
share of UGC Common Stock with respect to which an election to
receive the Cash Consideration has been validly made and not
validly revoked pursuant to Section 3.4 (a Cash
Election) shall be converted into and represent the
right to receive, and be exchangeable for, the Cash
Consideration; |
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(ii) each share of UGC Common Stock with respect to which
an election to receive the Stock Consideration has been validly
made and not validly revoked pursuant to Section 3.4 (a
Stock Election) shall be converted into and
represent the right to receive, and will be exchangeable for, a
fraction of a validly issued, fully paid and nonassessable share
of HoldCo Series A Stock equal to the Exchange Ratio
(together |
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with cash in lieu of the issuance of any fractional share of
HoldCo Series A Stock to any holder thereof to be paid in
accordance with Section 3.5(d)) (the Stock
Consideration and, together with the Cash
Consideration and the LMI Consideration, the Merger
Consideration); |
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(iii) each share of UGC Common Stock other than shares of
UGC Common Stock with respect to which a Cash Election or a
Stock Election is validly made and not validly revoked pursuant
to Section 3.4 (and other than Excluded Shares) (each a
Deemed Stock Election) shall be converted
into and represent the right to receive, and will be
exchangeable for, the Stock Consideration; |
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(iv) each share of UGC Common Stock held immediately prior
to the Effective Time by LMI or any of its Wholly Owned
Subsidiaries shall be converted into and represent the right to
receive, and will be exchangeable for, one validly issued, fully
paid and nonassessable share of the corresponding class of
common stock of the Surviving UGC Corporation; and |
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(v) each share of UGC Common Stock held in treasury of UGC
immediately prior to the Effective Time shall automatically be
cancelled, retired and cease to exist without payment of any
consideration thereof and without any conversion thereof. |
(c) Conversion of LMI Merger Sub Stock. At
the Effective Time, by virtue of the LMI Merger and without any
action on the part of any party hereto or any holder of shares
of stock of LMI Merger Sub, each share of common stock of LMI
Merger Sub outstanding immediately prior to the Effective Time
will be converted into and become one validly issued, fully paid
and nonassessable share of common stock of the Surviving LMI
Corporation. Such shares will constitute the only outstanding
shares of capital stock of the Surviving LMI Corporation.
(d) Conversion of UGC Merger Sub Stock. At
the Effective Time, by virtue of the UGC Merger and without any
action on the part of any party hereto or the holders of
share(s) of stock of UGC Merger Sub, the outstanding share(s) of
common stock of UGC Merger Sub immediately prior to the
Effective Time will be converted into and become a number of
validly issued, fully paid and nonassessable shares of each
class of common stock of the Surviving UGC Corporation that is
identical to the number of shares of the corresponding class of
UGC Common Stock (other than the Excluded Shares) outstanding
immediately prior to the Effective Time. Such shares (together
with the shares issued pursuant to Section 3.3(b)(iv)) will
constitute the only outstanding shares of capital stock of the
Surviving UGC Corporation.
(e) Certain Changes. If, between the date of
this Agreement and the Effective Time, the outstanding shares of
LMI Common Stock or the outstanding shares of UGC Common Stock
shall have been increased, decreased, changed into or exchanged
for a different number of shares or different class of shares,
in each case, by reason of any reclassification,
recapitalization, stock split, split-up, combination or exchange
of shares or a stock dividend or dividend payable in any other
securities shall be declared with a record date within such
period, or any similar event shall have occurred, the applicable
Merger Consideration shall be appropriately adjusted to provide
to the holders of LMI Common Stock and UGC Common Stock the same
economic effect as contemplated by this Agreement prior to such
event.
3.4 UGC Election Procedures;
Proration.
(a) Not less than three business days prior to the mailing
of the Joint Proxy Statement/ Prospectus, LMI shall designate a
bank or trust company to act as exchange agent hereunder (the
Exchange Agent) for the purpose of exchanging
(x) certificates that immediately prior to the Effective
Time represented shares of UGC Common Stock (the UGC
Certificates) and shares of UGC Common Stock
represented by book-entry (UGC Book-Entry
Shares) and (y) certificates that immediately
prior to the Effective Time represented shares of LMI Common
Stock (the LMI Certificates and, together
with the UGC Certificates, the Certificates)
and shares of LMI Common Stock represented by book-entry
(LMI Book-Entry Shares and, together with UGC
Book-Entry Shares, the Book-Entry Shares).
(b) Each Person who, on or prior to the Election Time (as
defined below), is a record holder of shares of UGC Common Stock
(other than a holder of Excluded Shares and other than a
Wholly-Owned Subsidiary of UGC) shall be entitled to specify the
number of such holders shares of UGC Common Stock (and, if
such shares
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to which the election relates are represented by UGC
Certificates, such particular shares) with respect to which such
holder makes a Cash Election or Stock Election.
(c) HoldCo shall prepare and file as an exhibit to the
Registration Statement a form of election (the
Form of Election). The Form of Election shall
specify that delivery shall be effected, and risk of loss and
title to any UGC Certificates shall pass, only upon proper
delivery of the Form of Election and any UGC Certificates to the
Exchange Agent. UGC shall mail the Form of Election with the
Joint Proxy Statement/ Prospectus to all Persons who are record
holders of shares of UGC Common Stock (other than holders of
Excluded Shares) as of the record date for the UGC Special
Meeting. The Form of Election shall be used by each record
holder of shares of UGC Common Stock (other than holders of
Excluded Shares), or, in the case of nominee record holders, the
beneficial owner through proper instructions and documentation,
who wishes to make a Cash Election or a Stock Election or a
combination of both for any and all shares of UGC Common Stock
held by such holder. UGC shall use its commercially reasonable
efforts to make the Form of Election available to all Persons
who become holders of shares of UGC Common Stock during the
period between the record date for the UGC Special Meeting and
the date of the UGC Special Meeting.
(d) Any holders election shall have been properly
made only if the Exchange Agent shall have received at its
designated office, by 5:00 p.m., New York City time, on
(i) the date of the later of the two Special Meetings or
(ii) if the Closing Date is more than four business days
following the later of the two Special Meetings, the second
business day preceding the Closing Date (the Election
Time), a Form of Election properly completed and
signed and accompanied by (i) certificates representing the
shares of UGC Common Stock to which such Form of Election
relates, duly endorsed in blank or otherwise in form acceptable
for transfer on the books of UGC or (ii) in the case of UGC
Book-Entry Shares, any additional documents required by the
procedures set forth in the Form of Election. After a Cash
Election or a Stock Election is validly made with respect to any
shares of UGC Common Stock, no further registration of transfers
of such shares shall be made on the stock transfer books of UGC
unless and until such Cash Election or Stock Election is
properly revoked. If the Closing Date is anticipated to be more
than four business days following the later of the two Special
Meetings, then as soon as reasonably practicable, but in no
event later than 9:00 a.m., New York City time, on the
business day immediately following the date of the later of the
two Special Meetings, LMI and UGC shall so notify the holders of
UGC Common Stock by issuing a release to the Dow Jones News
Service specifying the anticipated Closing Date, which shall not
be earlier than the fourth business day after the date of the
release. Any Cash Election or Stock Election may be revoked with
respect to all or a portion of the shares of UGC Common Stock
subject thereto by the holder who submitted the applicable Form
of Election by written notice received by the Exchange Agent
prior to the Election Time. In addition, all Cash Elections and
Stock Elections shall automatically be revoked if this Agreement
is terminated in accordance with Article IX. If a Cash
Election or Stock Election is properly revoked (x) the UGC
Certificates representing such shares shall be returned to the
record owner thereof or such other Person as such record owner
shall have set forth in such owners Form of Election, and
(y) all UGC Book-Entry Shares representing such shares
shall be credited to such book-entry account as shall have been
set forth in the Form of Election relating thereto.
(e) The determination of the Exchange Agent (or the joint
determination of LMI and UGC, in the event that the Exchange
Agent declines to make any such determination) shall be
conclusive and binding as to whether or not Cash Elections,
Stock Elections or revocations shall have been properly made or
revoked pursuant to this Section 3.4 and as to when Cash
Elections, Stock Elections and revocations were received by the
Exchange Agent. The Exchange Agent (or LMI and UGC jointly, in
the event that the Exchange Agent declines to make the following
computation) shall also make all computations as to the
proration contemplated by Section 3.4(f), and absent
manifest error this computation shall be conclusive and binding.
The Exchange Agent may, with the written agreement of each of
LMI and UGC, make any rules as are consistent with this
Section 3.4 for the implementation of the Cash Elections
and Stock Elections provided for in this Agreement as shall be
necessary or desirable to effect the Cash Elections and Stock
Elections in accordance with the terms of this Agreement.
(f) Notwithstanding anything in this Agreement to the
contrary, the number of shares of UGC Common Stock converted
into the Cash Consideration may not exceed the UGC Share
Threshold Number. If the aggregate number of shares of UGC
Common Stock with respect to which the Cash Election is validly
made and not validly revoked (the Total Cash Election
Number) exceeds the UGC Share Threshold Number, then
(i) all shares of
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UGC Common Stock as to which a Stock Election or Deemed Stock
Election is made shall be converted into and represent the right
to receive, and will be exchangeable for, the Stock
Consideration and (ii) the number of shares of UGC Common
Stock as to which a Cash Election is validly made and not
validly revoked by a UGC stockholder pursuant to
Section 3.4 that shall be converted into and represent the
right to receive, and will be exchangeable for, the Cash
Consideration, shall be equal to the product (rounded down to
the nearest whole number) obtained by multiplying (A) the
number of shares of UGC Common Stock held by such stockholder as
to which such stockholder has validly made and not validly
revoked a Cash Election by (B) a fraction, the numerator of
which is the UGC Share Threshold Number and the denominator of
which is the Total Cash Election Number, with the remaining
number of such stockholders shares of UGC Common Stock as
to which such stockholder has validly made and not validly
revoked a Cash Election being converted into and representing
the right to receive, and being exchangeable for, the Stock
Consideration.
3.5 Exchange of
Certificates.
(a) Deposit of Merger Consideration.
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(i) Promptly after the Effective Time, HoldCo shall deposit
with the Exchange Agent, for the benefit of the stockholders of
LMI and UGC, (A) certificates or, at HoldCos option,
evidence of shares in book entry form, representing shares of
HoldCo Stock in such denominations as the Exchange Agent may
reasonably specify and (B) cash, in each case as are
issuable or payable, respectively, pursuant to this
Article III in respect of shares of UGC Common Stock or
shares of LMI Stock, as applicable, for which Certificates or
Book-Entry Shares have been properly delivered to the Exchange
Agent and cash to be paid in lieu of fractional shares. Such
certificates (or evidence of book-entry form, as the case may
be) for shares of HoldCo Stock and such cash so deposited,
together with any dividends or distributions with respect
thereto, are hereinafter referred to as the Exchange
Fund. |
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(ii) The Exchange Agent shall invest any cash deposited
with the Exchange Agent by HoldCo as directed by HoldCo,
provided that no such investment or losses thereon shall affect
the Cash Consideration payable to holders of shares of UGC
Common Stock entitled to receive such consideration or cash in
lieu of fractional interests, and HoldCo and LMI shall promptly
provide additional funds to the Exchange Agent for the benefit
of holders of shares of UGC Common Stock entitled to receive
such consideration in the net amount of any such losses. Any
interest or income produced by such investments shall not be
deemed part of the Exchange Fund and shall be payable to HoldCo
or LMI, as HoldCo directs. |
(b) Exchange Procedures.
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(i) As soon as reasonably practicable after the Effective
Time, HoldCo shall cause to be mailed to (x) each record
holder, as of the Effective Time, of shares of UGC Common Stock
as to which a Deemed Stock Election is made (each holder a
Deemed Stock Election Holder) and
(y) each record holder, as of the Effective Time, of shares
of LMI Stock (such holders, Former LMI
Holders and such shares, Former LMI
Shares)): (A) a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss
and title to the Certificates held by such holder representing
such shares of UGC Common Stock to which a Deemed Stock Election
is made or Former LMI Shares, as the case may be, shall pass,
only upon proper delivery of the Certificates to the Exchange
Agent or, in the case of Book-Entry Shares, upon adherence to
the procedures set forth in the letter of transmittal) and
(B) instructions for use in effecting the surrender of the
Certificates or, in the case of Book-Entry Shares, the surrender
of such shares, for payment of the Merger Consideration
therefor. Such letter of transmittal shall be in such form and
have such other reasonable provisions as HoldCo may specify. |
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(ii) (x) Each former stockholder of UGC who properly
made a Cash Election or Stock Election shall be entitled to
receive in exchange for such stockholders shares subject
to the Cash Election or Stock Election: (A) the number of
whole shares of HoldCo Series A Stock, if any, into which
such holders shares of UGC Common Stock represented by
such holders properly surrendered Certificates or
Book-Entry Shares, as applicable, were converted in accordance
with this Article III, and such Certificates or Book-Entry
Shares so surrendered shall be forthwith cancelled, and
(B) a check in an amount of U.S. dollars (after giving
effect to any required withholdings pursuant to
Section 3.5(g)) equal to (I) the aggregate amount of
cash (including |
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the Cash Consideration plus cash in lieu of fractional interests
in shares of HoldCo Series A Stock to be paid pursuant to
Section 3.5(d)), if any, into which such holders
shares of UGC Common Stock represented by such holders
properly surrendered Certificates or Book-Entry Shares, as
applicable, were converted in accordance with this
Article III, plus (II) any cash dividends or other
distributions that such holder has the right to receive pursuant
to Section 3.5(c); and (y) upon surrender by a Deemed
Stock Election Holder to the Exchange Agent of a Certificate or
Book-Entry Shares, as applicable, together with a letter of
transmittal, duly completed and validly executed in accordance
with the instructions thereto, and such other documents as may
be required pursuant to such instructions, each Deemed Stock
Election Holder shall be entitled to receive in exchange
therefor: (A) the number of whole shares of HoldCo
Series A Stock, if any, into which such holders
shares of UGC Common Stock represented by such holders
properly surrendered Certificates or Book-Entry Shares, as
applicable, were converted in accordance with this
Article III, and such Certificates or Book-Entry Shares so
surrendered shall be forthwith cancelled, and (B) a check
in an amount of U.S. dollars (after giving effect to any
required withholdings pursuant to Section 3.5(g)) equal to
(I) the amount of cash in lieu of fractional interests in
shares of HoldCo Series A Stock to be paid pursuant to
Section 3.5(d), if any, into which such holders
shares of UGC Common Stock represented by such holders
properly surrendered Certificates or Book-Entry Shares, as
applicable, were converted in accordance with this
Article III, plus (II) any cash dividends or other
distributions that such holder has the right to receive pursuant
to Section 3.5(c). |
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(iii) Upon surrender by a Former LMI Holder to the Exchange
Agent of a Certificate or Book-Entry Shares, as applicable,
together with a letter of transmittal, duly completed and
validly executed in accordance with the instructions thereto,
and such other documents as may be required pursuant to such
instructions, each Former LMI Holder shall be entitled to
receive in exchange therefor: (A) the number of whole
shares of HoldCo Stock into which such holders shares of
LMI Stock represented by such holders properly surrendered
Certificates or Book-Entry Shares, as applicable, were converted
in accordance with this Article III, and such Certificates
or Book-Entry Shares so surrendered shall be forthwith
cancelled, and (B) a check in an amount of
U.S. dollars (after giving effect to any required
withholdings pursuant to Section 3.5(g)) equal to any cash
dividends or other distributions that such holder has the right
to receive pursuant to Section 3.5(c). |
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(iv) If payment or issuance of the Merger Consideration is
to be made to a Person other than the Person in whose name the
surrendered Certificate is registered, it shall be a condition
of payment or issuance that the Certificate so surrendered shall
be properly endorsed or shall be otherwise in proper form for
transfer and that the Person requesting such payment or issuance
shall have paid to the Exchange Agent any transfer and other
taxes required by reason of the payment or issuance of the
Merger Consideration to a Person other than the registered
holder of the Certificate surrendered or shall have established
to the satisfaction of the Exchange Agent that such tax either
has been paid or is not applicable. In the event that any
Certificate shall have been lost, stolen or destroyed, upon the
holders compliance with the replacement requirements
established by the Exchange Agent, including, if necessary, the
posting by the holder of a bond in customary amount as indemnity
against any claim that may be made against it with respect to
the Certificate, the Exchange Agent shall deliver in exchange
for the lost, stolen or destroyed Certificate the applicable
Merger Consideration payable in respect of the shares of UGC
Common Stock or LMI Stock, as the case may be, represented by
the Certificate pursuant to this Article III. |
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(v) No interest shall be paid or accrued for the benefit of
holders of the Certificates or Book-Entry Shares on the Merger
Consideration payable in respect of the Certificates or
Book-Entry Shares. Until surrendered as contemplated hereby,
each Certificate or Book-Entry Share shall, after the Effective
Time, represent for all purposes only the right to receive upon
such surrender the applicable Merger Consideration as
contemplated by this Article III, the issuance or payment
of which (including any cash in lieu of fractional shares) shall
be deemed to be the satisfaction in full of all rights
pertaining to shares of UGC Common Stock converted in the UGC
Merger and shares of LMI Stock converted in the LMI Merger. |
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(vi) At the Effective Time, the stock transfer books of UGC
and LMI shall be closed, and thereafter there shall be no
further registration of transfers of shares of UGC Common Stock
or LMI Stock, respectively, that were outstanding prior to the
Effective Time. After the Effective Time, Certificates or |
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Book-Entry Shares presented to UGC or LMI for transfer shall be
canceled and exchanged for the consideration provided for, and
in accordance with the procedures set forth, in this
Article III. |
(c) Distributions With Respect to Unexchanged
Shares. No dividends or other distributions with respect
to shares of HoldCo Stock issuable with respect to the shares of
UGC Common Stock or LMI Stock shall be paid to the holder of any
unsurrendered Certificates or Book-Entry Shares until those
Certificates or Book-Entry Shares are surrendered as provided in
this Article III. Upon surrender, there shall be issued
and/or paid to the holder of the shares of HoldCo Stock issued
in exchange therefor, without interest, (i) at the time of
surrender, the dividends or other distributions payable with
respect to those shares of HoldCo Stock with a record date on or
after the date of the Effective Time and a payment date on or
prior to the date of this surrender and not previously paid and
(ii) at the appropriate payment date, the dividends or
other distributions payable with respect to those shares of
HoldCo Stock with a record date on or after the date of the
Effective Time but with a payment date subsequent to surrender.
(d) No Fractional Shares. No certificates or
scrip representing fractional shares of HoldCo Series A
Stock shall be issued upon the surrender for exchange of
Certificates or Book-Entry Shares evidencing UGC Common Stock,
and such fractional share interests will not entitle the owner
thereof to vote or to any rights of a stockholder of HoldCo. In
lieu thereof, upon surrender of the applicable Certificates or
Book-Entry Shares, HoldCo shall pay each holder of UGC Common
Stock an amount in cash equal to the product obtained by
multiplying (i) the fractional share interest to which such
holder (after taking into account all shares of UGC Common Stock
held at the Effective Time by such holder that have been
converted into the Stock Consideration) would otherwise be
entitled, by (ii) the closing price on the Nasdaq for a
share of LMI Series A Stock on the last trading day
immediately preceding the Effective Time.
(e) Termination of Exchange Fund. Any portion
of the Exchange Fund that remains undistributed to the
stockholders of UGC and LMI on the first anniversary of the
Effective Time shall be delivered to HoldCo, upon demand by
HoldCo, and any stockholders of UGC or LMI who have not
theretofore complied with this Article III shall thereafter
look only to HoldCo for payment of their claim for any part of
the Merger Consideration, any cash in lieu of fractional shares
of HoldCo Series A Stock and any dividends or distributions
with respect to HoldCo Stock.
(f) No Liability. None of LMI, UGC or HoldCo
shall be liable to any holder of shares of UGC Common Stock or
LMI Stock for cash or shares of HoldCo Stock (or dividends or
distributions with respect thereto) from the Exchange Fund
delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
(g) Withholding. HoldCo and the Exchange
Agent shall be entitled to deduct and withhold from the
consideration otherwise payable pursuant to this Agreement to
any holder of shares of UGC Common Stock or shares of LMI Stock
such amounts as it is required to deduct and withhold with
respect to the making of such payment under the Code and the
rules and regulations promulgated thereunder, or any provision
of state, local or foreign tax law. To the extent that amounts
are so withheld by HoldCo or the Exchange Agent, such withheld
amounts shall be treated for all purposes of this Agreement as
having been paid to the holder of the shares of UGC Common Stock
or shares of LMI Stock in respect of which such deduction and
withholding was made by HoldCo or the Exchange Agent.
3.6 LMI Stock Options, Stock
Appreciation Rights and Restricted Stock.
(a) LMI Stock Options. Each of the then
outstanding stock options, if any, to purchase shares of any
series of LMI Common Stock (each, a LMI
Option) issued by LMI pursuant to any LMI Plan, and
any non-plan options to acquire shares of any series of LMI
Common Stock issued by LMI pursuant to an option agreement or
otherwise issued by LMI, will, by virtue of the LMI Merger, and
without any further action on the part of any holder thereof, be
converted into an option (a Converted LMI
Option) to purchase a number of shares of the same
series of HoldCo Common Stock equal to the number of shares of
such series of LMI Common Stock subject to such LMI Option at
the Effective Time, at an exercise price per share of the
applicable series of HoldCo Common Stock equal to the exercise
price per share of such LMI Option immediately prior to the
Effective Time. The terms and conditions of each Converted LMI
Option will otherwise remain as set forth in the
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LMI Option converted into such Converted LMI Option.
Notwithstanding anything herein to the contrary, the adjustment
provided for in this Section 3.6(a) with respect to all
options will be and is intended to be effected in a manner that
is consistent with Section 424(a) of the Code and, to the
extent applicable, Q&A-18(d) of Notice 2005-1.
(b) LMI Stock Appreciation Rights. Each of
the then outstanding stock appreciation rights, if any, with
respect to shares of any series of LMI Common Stock (each, a
LMI SAR) issued by LMI pursuant to any LMI
Plan, and any non-plan stock appreciation rights with respect to
shares of any series of LMI Common Stock issued by LMI, will, by
virtue of the LMI Merger, and without any further action on the
part of any holder thereof, be converted into a stock
appreciation right (a Converted LMI SAR) with
respect to that number of shares of the same series of HoldCo
Common Stock equal to the number of shares of the same series of
LMI Common Stock that were subject to such LMI SAR at the
Effective Time, at an exercise or base price per stock
appreciation right equal to the exercise or base price of such
Converted LMI SAR immediately prior to the Effective Time. The
terms and conditions of each Converted LMI SAR will otherwise
remain as set forth in the LMI SAR converted into such Converted
LMI SAR. Notwithstanding anything herein to the contrary, the
adjustment provided for in this Section 3.6(b) with respect
to all stock appreciation rights will be and is intended to be
effected in a manner that is consistent with Section 424(a)
of the Code and, to the extent applicable, Q&A-18(d) of
Notice 2005-1.
(c) LMI Restricted Stock. Each restricted
share of LMI Common Stock (LMI Restricted
Stock) granted pursuant to any LMI Plan and each
restricted share of LMI Common Stock issued pursuant to
individual awards not granted pursuant to any LMI Plan will, by
virtue of the LMI Merger, and without any further action on the
part of any holder thereof, be converted into one restricted
share of the same series of HoldCo Common Stock, and will remain
subject to the same restrictions applicable to such restricted
share of LMI Common Stock immediately prior to the Effective
Time.
3.7 UGC Stock Options, Stock
Appreciation Rights and Restricted Stock.
(a) UGC Stock Options. Each of the then
outstanding stock options, if any, to purchase shares of UGC
Common Stock (each, a UGC Option) issued by
UGC pursuant to any UGC Plan, and any non-plan options to
acquire shares of UGC Common Stock set forth in Section 3.7
of the UGC Disclosure Letter issued by UGC pursuant to an option
agreement or otherwise issued by UGC, will, by virtue of the UGC
Merger, and without any further action on the part of any holder
thereof, be converted into an option (a Converted UGC
Option) to purchase that number of shares of HoldCo
Series A Stock determined by multiplying the number of
shares of UGC Common Stock subject to such UGC Option at the
Effective Time by the Exchange Ratio, at an exercise price per
share of HoldCo Series A Stock equal to the exercise price
per share of such UGC Option immediately prior to the Effective
Time divided by the Exchange Ratio, rounded up to the nearest
whole cent. If the foregoing calculation results in a Converted
UGC Option being exercisable for a fraction of a share of HoldCo
Series A Stock, then the number of shares of HoldCo
Series A Stock subject to such option will be rounded down
to the nearest whole number of shares, with no cash being
payable for such fractional share. The terms and conditions of
each Converted UGC Option will otherwise remain as set forth in
the UGC Option converted into such Converted UGC Option.
Notwithstanding anything herein to the contrary, the adjustment
provided for in this Section 3.7(a) with respect to all
options will be and is intended to be effected in a manner that
is consistent with Section 424(a) of the Code and, to the
extent applicable, Q&A-18(d) of Notice 2005-1.
(b) UGC Stock Appreciation Rights. Each of
the then outstanding stock appreciation rights, if any, with
respect to shares of UGC Common Stock (each, a UGC
SAR) issued by UGC pursuant to any UGC Plan, and any
non-plan stock appreciation rights with respect to shares of UGC
Common Stock set forth in Section 3.7 of the UGC Disclosure
Letter or otherwise issued by UGC, will, by virtue of the UGC
Merger, and without any further action on the part of any holder
thereof, be converted into a stock appreciation right (a
Converted UGC SAR) with respect to that
number of shares of HoldCo Series A Stock equal to the
number of shares of UGC Common Stock that were subject to such
UGC SAR at the Effective Time multiplied by the Exchange Ratio,
at an exercise or base price per stock appreciation right equal
to (i) in the case of a UGC SAR issued in tandem with, and
at the same base or exercise price as, UGC Options, the exercise
price per share of the related Converted UGC Option as
determined above and (ii) in the case of a free standing
UGC SAR or a UGC SAR
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issued in tandem with, and at a different base or exercise price
as, UGC Options, the amount determined by dividing the base or
exercise price per share of such UGC SAR immediately prior to
the Effective Time by the Exchange Ratio, rounded up to the
nearest whole cent. If the foregoing calculation results in a
Converted UGC SAR being exercisable with respect to a fraction
of a share of HoldCo Series A Stock, then the number of
shares of HoldCo Series A Stock in respect of such stock
appreciation right will be rounded down to the nearest whole
number of shares, with no cash being payable for such fractional
share. The terms and conditions of each Converted UGC SAR will
otherwise remain as set forth in the UGC SAR converted into such
Converted UGC SAR. Notwithstanding anything herein to the
contrary, the adjustment provided for in this
Section 3.7(b) with respect to all stock appreciation
rights will be and is intended to be effected in a manner that
is consistent with Section 424(a) of the Code and, to the
extent applicable, Q&A-18(d) of Notice 2005-1.
(c) UGC Restricted Stock. Each restricted
share of UGC Common Stock (UGC Restricted
Stock) granted pursuant to any UGC Plan and each
restricted share of UGC Common Stock issued pursuant to
individual awards not granted pursuant to any UGC Plan will, by
virtue of the UGC Merger, and without any further action on the
part of any holder thereof, be converted into a number of
restricted shares of HoldCo Series A Stock at the Exchange
Ratio, and will remain subject to the same restrictions
applicable to such restricted share of UGC Common Stock
immediately prior to the Effective Time. If the foregoing
calculation results in a restricted share of UGC Common Stock
being convertible for a fraction of a share of HoldCo
Series A Stock, then the number of shares of HoldCo
Series A Stock to be issued will be rounded down to the
nearest whole number of shares, with no cash being payable for
such fractional share.
ARTICLE IV
CERTAIN ACTIONS
4.1 Stockholder
Meetings.
(a) UGC, acting through the UGC Board, will, in accordance
with applicable law, the UGC Charter and UGCs Bylaws, duly
call, give notice of, convene and hold, as soon as reasonably
practicable after the date hereof, a meeting of UGCs
stockholders for the purpose of considering and voting upon this
Agreement (the UGC Special Meeting). Except
as otherwise required by the fiduciary duties of the UGC Board,
at the UGC Special Meeting the UGC Board (with the approval of
the Special Committee) will recommend to its stockholders the
adoption of this Agreement; provided, that the inability
or any refusal of the UGC Board to make such recommendation
shall not relieve UGC of its obligation pursuant to the first
sentence of this Section 4.1(a)
(b) LMI, acting through the LMI Board, will, in accordance
with applicable law, the LMI Charter and LMIs Bylaws, duly
call, give notice of, convene and hold, as soon as reasonably
practicable after the date hereof, a meeting of LMIs
stockholders (the LMI Special Meeting and
together with the UGC Special Meeting, the Special
Meetings) for the purpose of considering and voting
upon this Agreement. Except as otherwise required by the
fiduciary duties of the LMI Board, at the LMI Special Meeting
the LMI Board will recommend to its stockholders the adoption of
this Agreement; provided, that the inability or refusal
of the LMI Board to make such recommendation shall not relieve
LMI of its obligation pursuant to the first sentence of this
Section 4.1(b). LMI may take the actions contemplated by
this Section 4.1(b) at either an annual or special meeting.
4.2 Registration Statement
and Other SEC Filings.
(a) Joint Proxy Statement/ Prospectus and
Registration Statement. As soon as reasonably
practicable after the execution of this Agreement, (i) UGC
and LMI will prepare and file with the SEC a preliminary joint
proxy statement relating to the Special Meetings, (ii) UGC
and LMI will prepare and file a joint Rule 13e-3
Transaction Statement on Schedule 13E-3 (the
Schedule 13E-3), and (iii) HoldCo
will prepare and file with the SEC a Registration Statement on
Form S-4 (the Registration Statement) in
connection with the registration under the Securities Act of the
HoldCo Common Stock issuable in the Mergers and of the HoldCo
Common Stock issuable upon exercise of the Converted LMI Options
and the Converted UGC Options. The joint proxy statement
furnished to UGCs stockholders in connection with the UGC
Special Meeting and the joint proxy statement furnished to
LMIs stockholders in connection with the LMI Special
Meeting will be included as part of the
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prospectus (the Joint Proxy Statement/
Prospectus) forming part of the Registration
Statement. Each party hereto agrees to use commercially
reasonable efforts to cooperate with each other party in
connection with the preparation and filing of the preliminary
joint proxy statement, the Joint Proxy Statement/ Prospectus,
the Schedule 13E-3 and the Registration Statement,
including providing information to the other parties with
respect to itself as may be reasonably required in connection
therewith. Each party hereto will use commercially reasonable
efforts to respond to any comments of the SEC, to cause the
Registration Statement to be declared effective under the
Securities Act as soon as reasonably practicable after such
filing and to continue to be effective as of the Effective Time
and to cause the Joint Proxy Statement/ Prospectus approved by
the SEC to be mailed to UGCs and LMIs stockholders
at the earliest practicable time.
(b) SEC Comments; Amendments and Supplements.
Each party will notify the other parties promptly of the receipt
of any comments of the SEC or its staff and of any request by
the SEC or its staff or any other governmental officials for
amendments or supplements to the preliminary joint proxy
statement, the Joint Proxy Statement/ Prospectus, the
Schedule 13E-3, the Registration Statement or any other
related filing or for additional information related thereto,
and will supply the others with copies of all correspondence
between it and any of its representatives, on the one hand, and
the SEC or its staff or any other governmental officials, on the
other hand, with respect to the preliminary joint proxy
statement, the Joint Proxy Statement/ Prospectus, the
Schedule 13E-3, the Registration Statement, the Mergers or
any other filing relating thereto. The Joint Proxy Statement/
Prospectus, the Schedule 13E-3, the Registration Statement
and such other filings will comply in all material respects with
all applicable requirements of law. If at any time prior to the
Effective Time, any event occurs relating to a party or its
Subsidiaries or any of their respective officers, directors,
partners or Affiliates that should be described in an amendment
or supplement to the Joint Proxy Statement/ Prospectus, the
Schedule 13E-3, the Registration Statement or any other
related filing, the applicable party will inform the other
parties promptly after becoming aware of such event and
cooperate in filing with the SEC or its staff or any other
government officials, and/or mailing to stockholders of UGC or
LMI, as applicable, such amendment or supplement. The parties
shall cooperate and provide each other and the Special Committee
with a reasonable opportunity to review and comment on any
amendment or supplement to the preliminary joint proxy
statement, the Joint Proxy Statement/ Prospectus, the
Schedule 13E-3, the Registration Statement and any related
filings.
(c) Each of the preliminary joint proxy statement, the
Joint Proxy Statement/ Prospectus, the Registration Statement,
the Schedule 13E-3 and any amendments thereto shall be
reasonably acceptable to the Special Committee.
(d) Nasdaq Quotation. LMI and UGC shall use
their respective commercially reasonable efforts to cause the
shares of HoldCo Common Stock issuable to the UGC and LMI
stockholders as Merger Consideration (including the shares of
HoldCo Common Stock reserved for issuance with respect to
Converted LMI Options, Converted LMI SARs, each share of LMI
Restricted Stock converted pursuant to Section 3.6(c),
Converted UGC Options, Converted UGC SARs and each share of UGC
Restricted Stock converted pursuant to Section 3.7(c)) to
be eligible for quotation on Nasdaq prior to the Effective Time.
4.3 Identification of
Affiliates. Promptly after the Special Meetings and
before the Closing Date, each of UGC and LMI will deliver to
HoldCo a letter identifying all Persons who, to such
deliverers knowledge, at the time of the Special Meetings
or at the Effective Time, may be deemed to be
affiliates of UGC or LMI, as the case may be, for
purposes of Rule 145 under the Securities Act. Each of UGC
and LMI will use commercially reasonable efforts to cause each
Person who is identified as an affiliate in the
letter referred to above to deliver to HoldCo, on or prior to
the Closing Date, a written agreement, in substantially the form
annexed hereto as Exhibit 4.3, that such Person will not
offer to sell or otherwise dispose of any shares of HoldCo
Common Stock issued to such Person pursuant to the UGC Merger or
LMI Merger, as the case may be, in violation of the Securities
Act and the rules and regulations thereunder.
4.4 Commercially Reasonable
Efforts. Subject to the terms and conditions of this
Agreement and applicable law, each of the parties hereto will
use commercially reasonable efforts to take, or cause to be
taken, all actions, and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and
regulations or otherwise to consummate and make effective the
Mergers and the other transactions contemplated by this
Agreement as soon as reasonably practicable, including such
actions or things as any other party hereto
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may reasonably request in order to cause any of the conditions
to such other partys obligation to consummate such
transactions specified in Article VIII to be fully
satisfied. Without limiting the generality of the foregoing, the
parties will, and will cause their respective directors,
officers and Subsidiaries, and use commercially reasonable
efforts to cause their respective Affiliates, employees, agents,
attorneys, accountants and representatives, to consult and fully
cooperate with and provide assistance to each other in
(i) obtaining all necessary consents, approvals, waivers,
licenses, permits, authorizations, registrations,
qualifications, or other permission or action by, and giving all
necessary notices to and making all necessary filings with and
applications and submissions to, any Governmental Entity or
other Person; (ii) lifting any permanent or preliminary
injunction or restraining order or other similar order issued or
entered by any court or Governmental Entity (an
Injunction) of any type referred to in
Section 8.1(d); (iii) taking such actions as may
reasonably be required under applicable federal securities laws
in connection with the issuance of the HoldCo Common Stock to be
covered by the Registration Statement; and (iv) in general,
consummating and making effective the transactions contemplated
hereby; provided, however, that in order to obtain any
consent, approval, waiver, license, permit, authorization,
registration, qualification, or other permission or action or
the lifting of any Injunction referred to in clause (i) or
(ii) of this sentence, no party will be required to pay any
consideration (other than filing fees for any Governmental
Filings), to divest itself of any of, or otherwise rearrange the
composition of, its assets or to agree to any of the foregoing
or to any conditions or requirements that are materially adverse
to its interests or materially burdensome. Prior to making any
application to or filing with any Governmental Entity or other
Person in connection with this Agreement, each party will
provide the other party with drafts thereof and afford the other
party a reasonable opportunity to comment on such drafts.
4.5 No Solicitations; Other
Offers.
(a) UGC shall not, nor shall it knowingly permit any of its
officers, directors, representatives or agents to, directly or
indirectly, (i) take any action to solicit, initiate or
knowingly encourage the submission of any Acquisition Proposal
or (ii) engage in discussions or negotiations with any
other Person to facilitate an Acquisition Proposal. From and
after the date hereof, UGC and all of its officers, directors,
employees, agents and advisors shall cease doing any of the
foregoing. Nothing contained in this Agreement shall prevent the
UGC Board from complying with Rule 14d-9 or Rule 14e-2
under the Exchange Act with respect to any Acquisition Proposal.
(b) Notwithstanding the foregoing, UGC may, subject to a
confidentiality agreement containing customary terms, engage in
discussions or negotiations with, and furnish nonpublic
information or access to, any Person in response to an
unsolicited Acquisition Proposal or a request for information or
access made incident to an unsolicited Acquisition Proposal if
(i) UGC has prior to such response complied with the terms
of Section 4.5(a) hereof and (ii) the UGC Board
determines in good faith, after consultation with outside legal
counsel, that the taking of such action is necessary to
discharge its fiduciary duties under applicable law.
(c) UGC will promptly (but in no event later than
24 hours) notify LMI if any Acquisition Proposal is made,
indicating the identity of the offeror and the terms and
conditions of such Acquisition Proposal. UGC shall keep LMI
fully informed of all material developments regarding such
Acquisition Proposal.
ARTICLE V
REPRESENTATIONS AND
WARRANTIES OF UGC
UGC hereby represents and warrants to HoldCo and to LMI as
follows:
5.1 Organization and
Qualification. UGC and each Significant UGC Subsidiary
(as defined below) is a corporation, partnership, limited
liability company or other business association duly organized,
validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization. UGC and each
Significant UGC Subsidiary has all requisite corporate,
partnership, limited liability company or other business
association power and authority to own, lease and operate its
properties and to carry on its business as it is now being
conducted, except where the failure to have such power and
authority, individually or in the aggregate, has not had and
would not reasonably be expected to have a UGC Material Adverse
Effect. UGC and each Significant UGC Subsidiary is duly
qualified or licensed and in good standing to do business in
each jurisdiction in which the
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property owned, leased or operated by it or the nature of the
business conducted by it makes such qualification or license
necessary, except in such jurisdictions where the failure to be
so duly qualified or licensed or in good standing has not had
and would not reasonably be expected to have, individually or in
the aggregate, a UGC Material Adverse Effect. A
Significant UGC Subsidiary means any
Subsidiary of UGC that constitutes a significant subsidiary
within the meaning of Rule 1-02 of Regulation S-X of
the SEC.
5.2 Authorization and
Validity of Agreement.
(a) UGC has all requisite corporate power and authority to
enter into this Agreement and, subject to obtaining the UGC
Stockholder Approval, to perform its obligations hereunder and
consummate the transactions contemplated hereby. The execution,
delivery and performance by UGC of this Agreement and the
consummation of the transactions contemplated hereby have been
duly authorized by the UGC Board (with the approval of the
Special Committee) and by all other necessary corporate action
on the part of UGC, subject, in the case of the consummation by
it of the UGC Merger, to obtaining the UGC Stockholder Approval.
This Agreement has been duly executed and delivered by UGC and
(assuming the due execution and delivery of this Agreement by
the other parties hereto) constitutes a valid and binding
agreement of UGC, enforceable against UGC in accordance with its
terms (except insofar as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors rights generally, or by
principles governing the availability of equitable remedies).
(b) The Special Committee and the UGC Board, based on the
recommendation of the Special Committee, has (i) approved
this Agreement and the UGC Merger and, (ii) determined that
the UGC Merger is fair to and in the best interests of
UGCs stockholders (other than LMI and its Affiliates), and
the UGC Board, based on the recommendation of the Special
Committee, recommended that the stockholders of UGC adopt this
Agreement and approve the UGC Merger.
5.3 Capitalization; Stock
Option Vesting Acceleration. Except as set forth in
Section 5.3 of the UGC Disclosure Letter:
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(a) The authorized capital stock of UGC consists of
(i) 1,000,000,000 shares of UGC Class A Stock,
(ii) 1,000,000,000 shares of UGC Class B Stock,
(iii) 400,000,000 shares of UGC Class C Stock and
(iv) 10,000,000 shares of UGC Preferred Stock,
issuable in series. |
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(b) As of the close of business on December 31, 2004,
(i) 413,206,357 shares of UGC Class A Stock were
issued and outstanding, (ii) 10,493,461 shares of UGC
Class B Stock were issued and outstanding,
(iii) 379,603,223 shares of UGC Class C Stock
were issued and outstanding, (iv) no shares of UGC
Preferred Stock were issued and outstanding and no action had
been taken by the UGC Board with respect to the designation of
the rights and preferences of any series of UGC Preferred Stock
and (v) 13,174,660 shares of UGC Class A Stock
were held in treasury or by Wholly Owned Subsidiaries of UGC and
no other shares of UGC Common Stock or UGC Preferred Stock were
held in the treasury of UGC or held by Subsidiaries of UGC.
Except as set forth in the preceding sentence or in
clause (e) below, at the close of business on
December 31, 2004, no shares of capital stock or other
securities or other equity interests of UGC and no phantom
shares, phantom equity interests, or stock or equity
appreciation rights relating to UGC were issued, reserved for
issuance or outstanding. Except as set forth in the UGC SEC
Filings filed with the SEC and publicly available prior to the
date of this Agreement or in clause (e) below, at the close
of business on December 31, 2004, no shares of capital
stock or other securities or other equity interests of any
Significant UGC Subsidiary and no phantom shares, phantom equity
interests, or stock or equity appreciation rights relating to
any Significant UGC Subsidiary were issued, reserved for
issuance or outstanding. Since the close of business on
December 31, 2004, no shares of capital stock or other
securities or other equity interests of UGC and no phantom
shares, phantom equity interests, or stock or equity
appreciation rights relating to UGC or any Significant UGC
Subsidiary have been issued other than shares of UGC Common
Stock issued (A) upon exercise of the options or rights
referred to in clause (e)(ii) below in accordance with
their terms or (B) upon conversion of UGC Convertible Notes
outstanding at the close of business on December 31, 2004
in accordance with their terms. |
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(c) All outstanding shares of UGC Common Stock are duly
authorized, validly issued, fully paid and nonassessable, and no
class of capital stock of UGC is entitled to preemptive rights
with respect to the issuance thereof, except that LMI and its
Affiliates are entitled to certain contractual preemptive rights
with respect to the issuance of shares of UGC Class A Stock
and certain rights to acquire shares of UGC Class A Stock. |
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(d) There are no issued or outstanding bonds, debentures,
notes or other Indebtedness of UGC or any of its Subsidiaries
that have the right to vote (or that are convertible into other
securities having the right to vote, other than the UGC
Convertible Notes) on any matters on which stockholders of UGC
may vote (the Voting Debt). |
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(e) There are no, and immediately after the Effective Time
there will be no, outstanding or authorized subscriptions,
options, warrants, securities, calls, rights, commitments or any
other Contracts of any character to or by which UGC or any
Significant UGC Subsidiary is a party or is bound that, directly
or indirectly, obligate, or after the Effective Time will
obligate, UGC or any Significant UGC Subsidiary or HoldCo
(contingently or otherwise) to issue, deliver or sell or cause
to be issued, delivered or sold any shares of UGC Common Stock
or any UGC Preferred Stock or other capital stock, securities,
equity interests or Voting Debt of UGC or any Significant UGC
Subsidiary or HoldCo, any securities convertible into, or
exercisable or exchangeable for, or evidencing the right
(contingent or otherwise) to subscribe for any such shares,
securities, interests or Voting Debt, or any phantom shares,
phantom equity interests or stock or equity appreciation rights,
or obligating UGC or any Significant UGC Subsidiary or HoldCo to
grant, extend or enter into any such subscription, option,
warrant, security, call, right or Contract (collectively,
Convertible Securities), other than
(i) the UGC Convertible Notes, (ii) options or other
rights representing in the aggregate the right to purchase or
otherwise acquire on the date of this Agreement up to
45,594,482 shares of UGC Class A Stock and
3,000,000 shares of UGC Class B Stock and
(iii) Convertible Securities relating to Significant UGC
Subsidiaries that were outstanding on January 1, 2002.
Neither UGC nor any Significant UGC Subsidiary is subject to any
obligation (contingent or otherwise) to repurchase or otherwise
acquire or retire any shares of its capital stock. |
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(f) Except as disclosed in the UGC SEC Filings filed with
the SEC and publicly available prior to the date of this
Agreement, neither UGC nor any of the Significant UGC
Subsidiaries has adopted, authorized or assumed any plans,
arrangements or practices for the benefit of its officers,
employees or directors that require or permit the issuance,
sale, purchase or grant of any capital stock, securities or
other equity interests or Voting Debt of UGC or any Significant
UGC Subsidiary, or any phantom shares, phantom equity interests
or stock or equity appreciation rights or any Convertible
Securities of UGC or any Significant UGC Subsidiary. |
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(g) The UGC Board has adopted a resolution stating that the
transactions contemplated by this Agreement do not constitute a
change of control or any comparable event which would permit or
result in an acceleration of vesting or exercisability of any
outstanding awards (including UGC Options, UGC SARs and UGC
Restricted Stock) under any UGC Plan. |
5.4 Reports and Financial
Statements. Except as set forth in Section 5.4 of
the UGC Disclosure Letter, UGC has filed on a timely basis all
forms, reports and documents with the SEC required to be filed
by it under the Securities Act or the Exchange Act since
January 1, 2002 (collectively, other than preliminary
material, the UGC SEC Filings). As of their
respective dates, each of the UGC SEC Filings complied in all
material respects with the applicable requirements of the
Securities Act or the Exchange Act and the rules and regulations
thereunder, and none of the UGC SEC Filings contained as of such
date any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under
which they were made, not misleading. When filed with the SEC,
the financial statements (including the related notes) included
in the UGC SEC Filings complied as to form in all material
respects with the applicable requirements of the Securities Act
or the Exchange Act and the applicable rules and regulations
thereunder and were prepared in accordance with GAAP applied on
a consistent basis (except as may be indicated therein or in the
schedules thereto), and such financial statements fairly
present, in all material respects, the consolidated financial
position of UGC and its consolidated Subsidiaries as of the
respective dates
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thereof and the consolidated results of their operations and
their consolidated cash flows for the respective periods then
ended, subject, in the case of the unaudited interim financial
statements, to normal, recurring year-end audit adjustments.
Except as disclosed in the UGC SEC Filings filed and publicly
available prior to the date hereof, UGC and its Subsidiaries
have not incurred any liabilities that are of a nature that
would be required to be disclosed on a balance sheet of UGC and
its Subsidiaries or the footnotes thereto prepared in conformity
with GAAP, other than (a) liabilities incurred in the
ordinary course of business, (b) liabilities incurred in
accordance with Section 7.3, (c) liabilities for Taxes
or (d) liabilities that, individually or in the aggregate,
would not reasonably be expected to have a UGC Material Adverse
Effect. For purposes of this section, the term
timely shall have the meaning set forth in General
Instruction I.A.3(b) to Form S-3.
5.5 No Approvals or Notices
Required; No Conflict with Instruments. Except as set
forth in Section 5.5 of the UGC Disclosure Letter, the
execution and delivery by UGC of this Agreement do not, and the
performance by UGC of its obligations hereunder and the
consummation of the transactions contemplated hereby
will not:
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(i) assuming the UGC Stockholder Approval is obtained,
conflict with or violate the UGC Charter or UGCs Bylaws,
or the charter or bylaws of any Significant UGC Subsidiary, or
any other instrument or document governing any Significant UGC
Subsidiary that is not a corporation; |
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(ii) require any consent, approval, order or authorization
of or other action by any Governmental Entity (a
Government Consent) or any registration,
qualification, declaration or filing with or notice to any
Governmental Entity (a Governmental Filing),
in each case on the part of or with respect to UGC or any
Subsidiary of UGC, except for (A) the filing with the SEC
of the Registration Statement, the Schedule 13E-3 and the
Joint Proxy Statement/ Prospectus and such reports under
Sections 13(a) and 16(a) of the Exchange Act as may be
required in connection with this Agreement and the transactions
contemplated hereby, (B) the filing of the UGC Certificate
of Merger with the Delaware Secretary of State and appropriate
documents with the relevant authorities of other states in which
UGC is qualified to do business, (C) such Government
Consents and Governmental Filings as will have been obtained or
made prior to the Effective Time and (D) such Government
Consents and Governmental Filings the absence or omission of
which will not, either individually or in the aggregate, have a
UGC Material Adverse Effect; |
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(iii) assuming the UGC Stockholder Approval is obtained,
require, on the part of UGC or any Subsidiary of UGC, any
consent by or approval or authorization of (a Contract
Consent) or notice to (a Contract
Notice) any other Person (other than a Governmental
Entity), whether under any License or other Contract or
otherwise, except where the failure to obtain such Contract
Consent or to give such Contract Notice will not, either
individually or in the aggregate, have a UGC Material Adverse
Effect; |
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(iv) conflict with or result in any violation or breach of
or default (with or without notice or lapse of time, or both)
under, or give rise to a put or call
right or a right of termination, cancellation, suspension,
modification or acceleration of any obligation or any increase
in any payment required by or the impairment, loss or forfeiture
of any material benefit, rights or privileges under or the
creation of a Lien, Restriction or other encumbrance on any
assets pursuant to (any such conflict, violation, breach,
default, right of termination, cancellation, suspension,
modification or acceleration, loss or creation, a
Violation) any contract (including any note,
bond, indenture, mortgage, deed of trust, lease, franchise,
permit, authorization, license, contract, instrument, employee
benefit plan or practice, or other agreement, obligation,
commitment or concession of any nature (each, a
Contract)) to which UGC or any Subsidiary of
UGC is a party, by which UGC or any Subsidiary of UGC or any of
their respective assets or properties is bound or affected or
pursuant to which UGC or any Subsidiary of UGC is entitled to
any rights or benefits (including any Licenses), except for such
Violations (other than Violations in respect of the UGC
Indenture) which would not, individually or in the aggregate,
have a UGC Material Adverse Effect; or |
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(v) assuming the UGC Stockholder Approval is obtained and
assuming that the Government Consents and Governmental Filings
specified in clause (ii) of this Section 5.5 are
obtained, made and given, result in a Violation of, under or
pursuant to any law, rule, regulation, order, judgment or decree
applicable to UGC, any Subsidiary of UGC or by which any of
their respective properties or assets are bound or affected,
except for such Violations which would not, individually or in
the aggregate, have a UGC Material Adverse Effect. |
B-24
5.6 Absence of Certain
Changes or Events. Except as set forth in
Section 5.6 of the UGC Disclosure Letter and as otherwise
disclosed in the UGC SEC Filings filed with the SEC and publicly
available prior to the date hereof, since September 30,
2004, (a) there has not been any material adverse change in
the business, properties, operations or financial condition of
UGC and its Subsidiaries taken as a whole, and no event has
occurred and no condition exists that, individually or together
with other events or conditions, has had or is reasonably likely
to have a UGC Material Adverse Effect and (b) no action has
been taken by UGC or any Subsidiary of UGC that, if
Section 7.3 of this Agreement had then been in effect,
would have been prohibited by such Section without the consent
or approval of LMI, and no Contract to take any such action was
entered into during such period.
5.7 Registration Statement;
Schedule 13E-3; Joint Proxy Statement/ Prospectus.
None of the information supplied or to be supplied by UGC in
writing specifically for inclusion or incorporation by reference
in, and which is included or incorporated by reference in,
(i) the Registration Statement or the Schedule 13E-3
or any amendment or supplement thereto will, at the respective
times such documents are filed, and, in the case of the
Registration Statement or any amendment or supplement thereto,
when the same becomes effective, at the time of the Special
Meetings or at the Effective Time, contain any untrue statement
of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein
not misleading, or (ii) the Joint Proxy Statement/
Prospectus or any other documents filed or to be filed with the
SEC or any other Governmental Entity in connection with the
transactions contemplated hereby, will, at the respective times
such documents are filed and, in the case of the Joint Proxy
Statement/ Prospectus or any amendment or supplement thereto, at
the time of mailing to stockholders of UGC and LMI and at the
times of the Special Meetings, be false or misleading with
respect to any material fact, or omit to state any material fact
necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading or
necessary to correct any statement in any earlier communication.
For this purpose, any such information included or incorporated
by reference in any such document relating to UGC will be deemed
to have been so supplied in writing specifically for inclusion
or incorporation therein if such document was available for
review by UGC or its counsel a reasonable time before such
document was filed (but the foregoing will not be the exclusive
manner in which it may be established that such information was
so supplied). The Registration Statement, the
Schedule 13E-3 and the Joint Proxy Statement/ Prospectus
will comply as to form in all material respects with the
applicable requirements of the Securities Act, the Exchange Act
and the rules and regulations promulgated thereunder.
5.8 Legal
Proceedings. Except as otherwise disclosed in the UGC
SEC Filings filed with the SEC and publicly available prior to
the date hereof, there are no claims, actions, suits,
investigations or proceedings pending, or, to the knowledge of
UGC, threatened against UGC or any of its Subsidiaries before
any court, arbitrator or administrative, governmental or
regulatory authority or body, domestic or foreign, that,
individually or in the aggregate, would, or would reasonably be
anticipated to, have a UGC Material Adverse Effect.
5.9 Compliance with
Laws. Except as otherwise disclosed in the UGC SEC
Filings filed with the SEC and publicly available prior to the
date hereof, neither UGC nor any of its Subsidiaries is in
violation of, and UGC and its Subsidiaries have not received any
notices of violations with respect to, any Licenses, laws,
ordinances or regulations of any Governmental Entity, except for
violations which, in the aggregate, would not reasonably be
expected to have a UGC Material Adverse Effect.
5.10 Tax Matters.
(a) To the knowledge of UGC, neither UGC nor any of its
Subsidiaries has taken or agreed to take any action that would
prevent the UGC Merger from constituting an exchange qualifying
under Section 351 of the Code. UGC is not aware of any
agreement, plan or other circumstance that would prevent the UGC
Merger from qualifying under Section 351 of the Code.
(b) UGC and each of its Subsidiaries have timely filed all
Tax Returns that they were required to file, other than any Tax
Returns the failure to file would not, individually or in the
aggregate, have a UGC Material Adverse Effect. UGC and each of
its Subsidiaries have paid all Taxes due, other than Taxes
adequate reserves for which have been made in UGCs
financial statements and Taxes the failure to pay would not,
individually or in the aggregate, have a UGC Material Adverse
Effect.
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(c) There are no claims or assessments pending against UGC
or any of its Subsidiaries for any alleged deficiency in any
Tax, and UGC has not been notified in writing of any proposed
Tax claims or assessments against UGC or any of its Subsidiaries
(other than, in each case, claims or assessments for which
adequate reserves in the UGC financial statements have been
established and claims or assessments which would not,
individually or in the aggregate, have a UGC Material Adverse
Effect).
(d) There are no Liens or Restrictions on any of the assets
or properties of UGC or any of its Subsidiaries that arose in
connection with any failure (or alleged failure) to pay any Tax,
except for statutory liens for current Taxes not yet due and
payable (and except for Liens or Restrictions which would not,
individually or in the aggregate, have a UGC Material Adverse
Effect).
(e) Neither UGC nor any of its Subsidiaries (x) except
as set forth in Section 5.10(e) of the UGC Disclosure
Letter, is bound by any Tax allocation or Tax sharing agreement
which applies to U.S. federal or state income Taxes, or
(y) has any liabilities under any Tax allocation or Tax
sharing agreement (except for any liabilities which would not,
individually or in the aggregate, have a UGC Material Adverse
Effect).
(f) Neither UGC nor any of its Subsidiaries has
participated in a listed transaction within the meaning of
Treasury Regulations Section 1.6011-4(b)(2).
5.11 Employee Matters.
(a) To the knowledge of UGC, each UGC Plan intended to be
qualified under Section 401(a) of the Code continues to
satisfy the requirements for such qualification.
(b) Each UGC Plan has been maintained and administered in
compliance with its terms and with ERISA and the Code to the
extent applicable thereto, except for such non-compliance which
individually or in the aggregate would not have a UGC Material
Adverse Effect.
(c) There has been no event or circumstance that has
resulted in any material liability being asserted by any UGC
Plan, the Pension Benefit Guaranty Corporation or any other
Person or entity under Title IV of ERISA or
Section 412 of the Code against UGC or any UGC ERISA
Affiliate and there has not been any event or circumstance that
could reasonably be expected to result in any liability which
individually or in the aggregate would have a UGC Material
Adverse Effect.
(d) There is no contract, agreement, plan or arrangement to
which UGC or any of its Subsidiaries is a party covering any
employee, former employee, officer, director, shareholder or
contract worker of UGC or any of its Subsidiaries, which,
individually or collectively, could give rise to the payment of
any amount that would not be deductible pursuant to
Section 280G of the Code solely as a result of the
transactions contemplated hereby.
5.12 Brokers or
Finders. No investment banker, broker, finder,
consultant or intermediary is entitled to any brokerage,
finders or other fee or commission in connection with this
Agreement, the Mergers and the other transactions contemplated
hereby based upon arrangements made by or on behalf of UGC other
than Morgan Stanley & Co. Incorporated (Morgan
Stanley).
5.13 Fairness
Opinion. The Special Committee has received the opinion,
dated January 17, 2005, of Morgan Stanley to the effect
that the consideration to be received by the holders of shares
of UGC Class A Stock (other than LMI or its Affiliates) as
contemplated by Section 3.3(b) for the conversion of UGC
Common Stock into HoldCo Series A Stock and/or cash
pursuant to the UGC Merger is fair as of the date of the
opinion, from a financial point of view, to such holders (other
than LMI or its Affiliates) (the UGC Fairness
Opinion). A true and complete copy of the UGC Fairness
Opinion (which includes a consent to the inclusion in its
entirety of a copy of the UGC Fairness Opinion in any documents
required to be filed by UGC with the SEC with respect to the
Mergers, which consent has not been withdrawn) has been
delivered to LMI.
5.14 Vote Required.
The only vote of stockholders of UGC required under the DGCL,
the UGC Charter, UGCs Bylaws and the rules and regulations
of the NASD in order for UGC to validly perform its obligations
under this Agreement is the affirmative vote of a majority of
the aggregate voting power of the issued and outstanding shares
of UGC Common Stock voting together as a single class (the
UGC Stockholder Approval). This Agreement
also requires, as a condition to the Closing, that the holders
of more than fifty percent (50%) of
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the voting power of the outstanding shares of UGC Common Stock
entitled to be voted at the UGC Special Meeting, other than any
shares of UGC Common Stock beneficially owned by LMI, LMC or any
of their respective Subsidiaries or any of the executive
officers or directors of LMI, LMC or UGC, shall have voted in
favor of the UGC Merger (the Minority
Approval).
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF LMI
LMI hereby represents and warrants to UGC as follows:
6.1 Organization and
Qualification. Each of LMI, each Significant LMI
Subsidiary (as defined below), HoldCo, LMI Merger Sub and UGC
Merger Sub is a corporation, partnership, limited liability
company or other business association duly organized, validly
existing and in good standing under the laws of the jurisdiction
of its incorporation or organization. LMI and each Significant
LMI Subsidiary has all requisite corporate, partnership, limited
liability company or other business association power and
authority to own, lease and operate its properties and to carry
on its business as it is now being conducted, except where such
failure, individually or in the aggregate, has not had and would
not reasonably be expected to have a LMI Material Adverse
Effect. LMI and each Significant LMI Subsidiary is duly
qualified or licensed and in good standing to do business in
each jurisdiction in which the property owned, leased or
operated by it or the nature of the business conducted by it
makes such qualification or license necessary, except in such
jurisdictions where the failure to be so duly qualified or
licensed or in good standing has not had and would not
reasonably be expected to have, individually or in the
aggregate, a LMI Material Adverse Effect. A Significant
LMI Subsidiary means any Subsidiary of LMI that
constitutes a significant subsidiary within the meaning of
Rule 1-02 of Regulation S-X of the SEC.
6.2 Authorization and
Validity of Agreement.
(a) Each of LMI, HoldCo, LMI Merger Sub and UGC Merger Sub
has all requisite corporate power and authority to enter into
this Agreement and, in the case of LMI subject to obtaining the
LMI Stockholder Approval, to perform its obligations hereunder
and to consummate the transactions contemplated hereby. The
execution, delivery and performance by each of LMI, HoldCo, LMI
Merger Sub and UGC Merger Sub of this Agreement and the
consummation by each of LMI, HoldCo, LMI Merger Sub and UGC
Merger Sub of the transactions contemplated hereby have been
duly authorized by each of their respective board of directors,
and by all other necessary corporate action on the part of LMI,
HoldCo, LMI Merger Sub and UGC Merger Sub subject, in the case
of the consummation by LMI of the LMI Merger, to the LMI
Stockholder Approval. This Agreement has been duly executed and
delivered by each of LMI, HoldCo, LMI Merger Sub and UGC Merger
Sub and (assuming the due execution and delivery of this
Agreement by the other parties hereto) constitutes a valid and
binding agreement of each of LMI, HoldCo, LMI Merger Sub and UGC
Merger Sub, enforceable against each such party in accordance
with its terms (except insofar as enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting creditors rights generally, or
by principles governing the availability of equitable remedies).
(b) The LMI Board has (i) approved this Agreement and
the LMI Merger, (ii) determined that the LMI Merger is fair
to and in the best interests of LMIs stockholders and
(iii) recommended that the stockholders of LMI adopt this
Agreement and approve the LMI Merger.
6.3 Capitalization of LMI;
Stock Option Vesting Acceleration.
(a) The authorized capital stock of LMI consists of
(i) 1,050,000,000 shares of common stock,
$.01 par value, of which 500,000,000 shares are
designated LMI Series A Stock, 50,000,000 shares are
designated LMI Series B Stock and 500,000,000 shares
are designated as LMI Series C Stock and
(ii) 50,000,000 shares of LMI Preferred Stock.
(b) As of the close of business on December 31, 2004,
(i) 165,514,962 shares of LMI Series A Stock,
7,264,300 shares of LMI Series B Stock and no shares
of LMI Series C Stock (in each case net of shares held in
treasury and shares held by Subsidiaries of LMI all of the
common stock of which is beneficially owned by LMI) were issued
and outstanding, and (ii) no shares of LMI Preferred Stock
were issued and outstanding.
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(c) All outstanding shares of LMI Series A Stock and
LMI Series B Stock are duly authorized, validly issued,
fully paid and nonassessable, and no class of capital stock of
LMI is entitled to preemptive rights.
(d) As of the close of business on December 31, 2004,
there were no options, warrants or other rights to acquire LMI
Series A Stock (or securities convertible into or
exercisable or exchangeable for LMI Series A Stock) from
LMI, other than (i) the right of the holders of LMI
Series B Stock to convert shares of LMI Series B Stock
into LMI Series A Stock, pursuant to the LMI Charter, and
(ii) options or other rights representing in the aggregate
the right to purchase or otherwise acquire up to
1,761,123 shares of LMI Series A Stock (which excludes
1,498,154 options to acquire LMI Series B Stock that can be
exercised for LMI Series A Stock, on a one-for-one basis,
at the option of the holder) and 3,066,716 shares of LMI
Series B Stock (which includes 1,498,154 options to
acquire LMI Series B Stock that can be exercised for LMI
Series A Stock, on a one-for-one basis, at the option of
the holder), pursuant to a LMI employee benefit plan or
otherwise. All other material information about the
capitalization of LMI has been disclosed in the LMI SEC Filings.
(e) The LMI Board has adopted a resolution stating that the
transactions contemplated by this Agreement do not constitute a
change of control or any comparable event which would permit or
result in an acceleration of vesting or exercisability of any
outstanding awards (including LMI Options, LMI SARs and LMI
Restricted Stock) under any LMI Plan.
6.4 LMI Reports and Financial
Statements. LMI has filed on a timely basis all forms,
reports and documents with the SEC required to be filed by it
under the Securities Act or the Exchange Act since June 1,
2004 (collectively, together with the Form 10, dated
May 28, 2004, filed by LMI and other than preliminary
material, the LMI SEC Filings). As of their
respective dates, each of the LMI SEC Filings complied in all
material respects with the applicable requirements of the
Securities Act or the Exchange Act and the rules and regulations
thereunder, and none of the LMI SEC Filings contained as of such
date any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under
which they were made, not misleading (except that no
representation or warranty is made with respect to any
information regarding UGC included in the LMI SEC Filings which
was furnished by UGC expressly for use therein). When filed with
the SEC, the financial statements (including the related notes)
included in the LMI SEC Filings complied as to form in all
material respects with the applicable requirements of the
Securities Act or the Exchange Act and the applicable rules and
regulations thereunder and were prepared in accordance with GAAP
applied on a consistent basis (except as may be indicated
therein or in the schedules thereto), and such financial
statements fairly present, in all material respects, the
consolidated financial position of LMI and its consolidated
Subsidiaries as of the respective dates thereof and the
consolidated results of their operations and their consolidated
cash flows for the respective periods then ended, subject, in
the case of the unaudited interim financial statements, to
normal, recurring year-end audit adjustments. Except as
disclosed in the LMI SEC Filings filed with the SEC and publicly
available prior to the date hereof, from September 30, 2004
to the date of this Agreement, LMI and its Subsidiaries have not
incurred any liabilities that are of a nature that would be
required to be disclosed on a balance sheet of LMI and its
Subsidiaries or the footnotes thereto prepared in conformity
with GAAP, other than (a) liabilities incurred in the
ordinary course of business, (b) liabilities for Taxes or
(c) liabilities that, individually or in the aggregate,
would not reasonably be expected to have a LMI Material Adverse
Effect. For purposes of this section, the term
timely shall have the meaning set forth in General
Instruction I.A.3(b) to Form S-3. A form, report or
document filed or that should have been filed by LMI shall not
in any event be considered untimely if the delay in such filing
arose as a result of actions by UGC or any of its Subsidiaries.
6.5 No Approvals or Notices
Required; No Conflict with Instruments. The execution
and delivery by LMI of this Agreement do not, and the
performance by LMI of its obligations hereunder and the
consummation of the transactions contemplated hereby will not:
(i) assuming the LMI Stockholder Approval is obtained,
conflict with or violate the LMI Charter or LMIs Bylaws,
or the charter or bylaws of any Significant LMI Subsidiary, or
any other instrument or document governing any Significant LMI
Subsidiary that is not a corporation;
(ii) require any Government Consent or Governmental Filing
on the part of or with respect to LMI or any Subsidiary of LMI,
except for (A) the filing with the SEC of the Registration
Statement, the Schedule 13E-3 and
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the Joint Proxy Statement/ Prospectus and such reports under
Sections 12(g), 13(a), 13(d) and 16(a) of the Exchange Act
as may be required in connection with this Agreement and the
transactions contemplated hereby, (B) the filing of the LMI
Certificate of Merger with the Delaware Secretary of State and
appropriate documents with the relevant authorities or other
states in which LMI is qualified to do business,
(C) appropriate filings with and consents or approvals of
the Federal Communications Commission and the Puerto Rico
Telecommunications Regulatory Board, or (D) such Government
Consents and Governmental Filings the absence or omission of
which will not, either individually or in the aggregate, have a
LMI Material Adverse Effect;
(iii) require on the part of LMI or any Subsidiary of LMI
any Contract Consent or Contract Notice to any other Person
(other than a Governmental Entity), whether under any License or
other Contract or otherwise, except where the failure to obtain
such Contract Consent or to give such Contract Notice will not,
either individually or in the aggregate, have a LMI Material
Adverse Effect or prevent or materially delay the consummation
of the Mergers;
(iv) result in a Violation of any Contract to which LMI or
any Subsidiary of LMI is a party, by which LMI or any Subsidiary
of LMI or any of their respective assets or properties is bound
or affected or pursuant to which LMI or any Subsidiary of LMI is
entitled to any rights or benefits (including any Licenses),
except for such Violations which would not, individually or in
the aggregate, have a LMI Material Adverse Effect; or
(v) assuming adoption of this Agreement at the LMI Special
Meeting by the requisite vote of LMIs stockholders, and
assuming that the Government Consents and Governmental Filings
specified in clause (ii) of this Section 6.5 are
obtained, made and given, result in a Violation of, under or
pursuant to any law, rule, regulation, order, judgment or decree
applicable to LMI, any Subsidiary of LMI or by which any of
their respective properties or assets are bound or affected,
except for such Violations which would not, individually or in
the aggregate, have a LMI Material Adverse Effect.
6.6 Absence of Certain
Changes or Events.
(a) Except as otherwise disclosed in the LMI SEC Filings
filed with the SEC and publicly available prior to the date
hereof and subject to the accuracy of the representation and
warranty made by UGC in Section 5.6, since
September 30, 2004 (a) there has not been any material
adverse change in the business, properties, operations or
financial condition of LMI and its Subsidiaries (for this
purpose including UGC and its Subsidiaries) taken as a whole,
and no event has occurred and no condition exists that,
individually or together with other events or conditions, has
had or is reasonably likely to have, a LMI Material Adverse
Effect and (b) no action has been taken by LMI that, if
Section 7.12 of this Agreement had then been in effect,
would have been prohibited by such Section without the consent
or approval of UGC, and no Contract to take any such action was
entered into during such period.
(b) Except as otherwise disclosed in the LMI SEC Filings
filed with the SEC prior to the date hereof, since
September 30, 2004 there has not been a material adverse
change in the business, properties, operations or financial
condition of the Japanese Businesses, taken as a whole, other
than any such change arising out of or resulting from
(i) general business or economic conditions in Japan or
from general changes in or affecting the industries in which the
Japanese Businesses operate (except to the extent any such
change has a disproportionate impact on the Japanese
Businesses), (ii) any changes in applicable generally
accepted accounting principals that affect generally entities
such as the Japanese Businesses or (iii) the conduct of, or
failure to conduct or successfully complete, any public offering
of shares by any of the Japanese Businesses
6.7 Registration Statement;
Schedule 13E-3; Joint Proxy Statement/ Prospectus.
None of the information supplied or to be supplied by LMI in
writing specifically for inclusion or incorporation by reference
in, and which is included or incorporated by reference in,
(i) the Registration Statement or the Schedule 13E-3
or any amendment or supplement thereto will, at the respective
times such documents are filed, and, in the case of the
Registration Statement or any amendment or supplement thereto,
when the same becomes effective, at the time of the Special
Meetings or at the Effective Time, contain any untrue statement
of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein
not misleading, or (ii) the Joint Proxy Statement/
Prospectus or any other documents filed or to be filed with the
SEC or any other Governmental Entity in connection with the
transactions contemplated hereby, will, at the respective times
such
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documents are filed and, in the case of the Joint Proxy
Statement/ Prospectus or any amendment or supplement thereto, at
the time of mailing to stockholders of UGC and LMI and at the
times of the Special Meetings, be false or misleading with
respect to any material fact, or omit to state any material fact
necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading or
necessary to correct any statement in any earlier communication.
For this purpose, any such information included or incorporated
by reference in any such document relating to LMI will be deemed
to have been so supplied in writing specifically for inclusion
or incorporation therein if such document was available for
review by LMI or its counsel a reasonable time before such
document was filed (but the foregoing will not be the exclusive
manner in which it may be established that such information was
so supplied). The Registration Statement, the
Schedule 13E-3 and the Joint Proxy Statement/ Prospectus
and the furnishing thereof by LMI will comply as to form in all
material respects with the applicable requirements of the
Securities Act, the Exchange Act and the rules and regulations
promulgated thereunder.
6.8 Legal
Proceedings. Except as otherwise disclosed in the LMI
SEC Filings filed with the SEC and publicly available prior to
the date hereof, there are no claims, actions, suits,
investigations or proceedings pending, or, to the knowledge of
LMI, threatened against LMI or any of its Subsidiaries before
any court, arbitrator or administrative, governmental or
regulatory authority or body, domestic or foreign, that,
individually or in the aggregate, would, or would reasonably be
anticipated to, have a LMI Material Adverse Effect.
6.9 Compliance with
Laws. Except as otherwise disclosed in the LMI SEC
Filings filed with the SEC and publicly available prior to the
date hereof, neither LMI nor any of its Subsidiaries is in
violation of, and LMI and its Subsidiaries have not received any
notices of violations with respect to, any Licenses, laws,
ordinances or regulations of any Governmental Entity, except for
violations which, in the aggregate, would not reasonably be
expected to have a LMI Material Adverse Effect.
6.10 Tax Matters.
(a) To the knowledge of LMI, neither LMI nor any of its
Subsidiaries has taken or agreed to take any action that would
prevent the LMI Merger from constituting a reorganization
qualifying under Section 368(a) of the Code. LMI is not
aware of any agreement, plan or other circumstance that would
prevent the LMI Merger from qualifying under Section 368(a)
of the Code.
(b) LMI and its Subsidiaries have not taken or failed to
take any action, and LMI and its Subsidiaries have no plan or
intention to take any action or fail to take any action, in each
case, which would reasonably be expected to give rise to an
indemnity claim against LMI pursuant to Section 2.5 or
Section 9.2 of the Tax Sharing Agreement, dated
June 1, 2004, between LMI and LMC (other than, in each
case, indemnity claims which would not, individually or in the
aggregate, have a LMI Material Adverse Effect).
(c) LMI and each of its Subsidiaries have timely filed all
Tax Returns that they were required to file, other than any Tax
Returns the failure to file would not, individually or in the
aggregate, have a LMI Material Adverse Effect. LMI and each of
its Subsidiaries have paid all Taxes due, other than Taxes
adequate reserves for which have been made in LMIs
financial statements and Taxes the failure to pay would not,
individually or in the aggregate, have a LMI Material Adverse
Effect.
(d) There are no claims or assessments pending against LMI
or any of its Subsidiaries for any alleged deficiency in any
Tax, and LMI has not been notified in writing of any proposed
Tax claims or assessments against LMI or any of its Subsidiaries
(other than, in each case, claims or assessments for which
adequate reserves in the LMI financial statements have been
established and claims or assessments which would not,
individually or in the aggregate, have a LMI Material Adverse
Effect.)
(e) There are no Liens or Restrictions on any of the assets
or properties of LMI or any of its Subsidiaries that arose in
connection with any failure (or alleged failure) to pay any Tax,
except for statutory liens for current Taxes not yet due and
payable (and except for Liens or Restrictions which would not,
individually or in the aggregate, have a LMI Material Adverse
Effect).
(f) Neither LMI nor any of its Subsidiaries has
participated in a listed transaction within the meaning of
Treasury Regulations Section 1.6011-4(b)(2).
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6.11 Employee Matters.
(a) To the knowledge of LMI, each LMI Plan intended to be
qualified under Section 401(a) of the Code continues to
satisfy the requirements for such qualification.
(b) Each LMI Plan has been maintained and administered in
compliance with its terms and with ERISA and the Code to the
extent applicable thereto, except for such non-compliance which
individually or in the aggregate would not have a LMI Material
Adverse Effect.
(c) There has been no event or circumstance that has
resulted in any material liability being asserted by any LMI
Plan, the Pension Benefit Guaranty Corporation or any other
Person or entity under Title IV of ERISA or
Section 412 of the Code against LMI or any LMI ERISA
Affiliate and there has not been any event or circumstance that
could reasonably be expected to result in any liability which
individually or in the aggregate would have a LMI Material
Adverse Effect.
(d) There is no contract, agreement, plan or arrangement to
which LMI or any of its Subsidiaries is a party covering any
employee, former employee, officer, director, shareholder or
contract worker of LMI or any of its Subsidiaries, which,
individually or collectively, could give rise to the payment of
any amount that would not be deductible pursuant to
Section 280G of the Code solely as a result of the
transactions contemplated hereby.
6.12 Brokers or
Finders. No investment banker, broker, finder,
consultant or intermediary is entitled to any brokerage,
finders or other fee or commission in connection with this
Agreement, the LMI Merger and the other transactions
contemplated hereby based upon arrangements made by or on behalf
of LMI or LMI Merger Sub other than Banc of America Securities
LLC.
6.13 Fairness
Opinion. The CMI Board has received the opinion, dated
January 17, 2005, of Banc of America Securities LLC to the
effect that the consideration to be received by the holders of
LMI Common Stock, other than any affiliates of LMI, pursuant to
the transactions contemplated by the Mergers is fair as of the
date of the opinion, from a financial point of view, to the
holders of LMI Common Stock, other than any affiliates of LMI
(the LMI Fairness Opinion). A true and
complete copy of the LMI Fairness Opinion (which includes a
consent to the inclusion in its entirety of a copy of the LMI
Fairness Opinion in any documents required to be filed by LMI
with the SEC with respect to the Mergers, which consent has not
been withdrawn) has been delivered to UGC.
6.14 Vote Required.
The only vote of stockholders of LMI required under the DGCL,
the LMI Charter, LMIs Bylaws and the rules and regulations
of the NASD in order for LMI to validly perform its obligations
under this Agreement is the affirmative vote of a majority of
the aggregate voting power of the issued and outstanding shares
of LMI Common Stock voting together as a single class, and no
other vote or approval of or other action by the holders of any
capital stock or other securities of LMI is required thereby
(the LMI Stockholder Approval).
6.15 Merger
Subsidiaries. Each of HoldCo, UGC Merger Sub and LMI
Merger Sub was formed solely for the purpose of engaging in the
transactions contemplated hereby and has not engaged in any
business activities, conducted operations other than in
connection with the transactions contemplated hereby, incurred
any liabilities other than in connection with the transactions
contemplated hereby or owned any assets or property (other than,
in the case of HoldCo, owning all of the outstanding capital
stock of UGC Merger Sub and LMI Merger Sub).
ARTICLE VII
TRANSACTIONS PRIOR TO CLOSING
7.1 Information and
Access.
(a) From the date hereof to the Effective Time, upon
reasonable notice, each of UGC and LMI will (and will cause its
Subsidiaries, and use commercially reasonable efforts to cause
its accountants and Affiliates, to) afford to the officers,
employees, counsel, bankers, accountants and other authorized
representatives of the other reasonable access during normal
business hours and upon reasonable prior notice to all its
properties, personnel,
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books and records and furnish promptly to such Persons such
information concerning its business, properties, personnel and
affairs as such Persons will from time to time reasonably
request consistent with its rights and obligations under this
Agreement. No investigation pursuant to this Section 7.1
shall affect or otherwise obviate or diminish any
representations or warranties of any party or conditions to the
obligations of any party.
(b) Each of UGC and LMI will hold all information furnished
by or behalf of the other party or its representatives pursuant
to Section 7.1(a) in confidence in accordance with the
provisions of the nondisclosure agreement, dated
January 12, 2005, between UGC and LMI.
7.2 Public
Announcements. No party will or will permit any of its
Subsidiaries to (and each party will use commercially reasonable
efforts to cause its Affiliates, directors, officers, employees,
agents and representatives not to) issue any press release, make
any public announcement or furnish any written statement to its
employees or stockholders generally concerning the transactions
contemplated by this Agreement without the consent of the other
parties (which consent will not be unreasonably withheld or
delayed), except to the extent required by applicable law or the
applicable requirements of the NASD (and in either such case
such party will, to the extent consistent with timely compliance
with such requirement, consult with the other party prior to
making the required release, announcement or statement).
7.3 Conduct of UGCs
Business Pending the Effective Time. UGC will, and will
cause each of its Subsidiaries to, except (x) as to
Approved Matters, (y) any matters contemplated in the most
recent budget adopted by the UGC Board (provided such budget
itself is an Approved Matter) and (z) as permitted,
required or specifically contemplated by this Agreement or
Section 7.3 of the UGC Disclosure Letter, required by any
change in applicable law or consented to or approved in writing
by LMI (which consent or approval will not be unreasonably
withheld or delayed) during the period commencing on the date
hereof and ending at the Effective Time:
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(a) conduct its business only in, and not take any action
except in, the ordinary and usual course of its business and
consistent with past practices; |
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(b) submit to a vote of its board of directors (or
executive committee thereof) or other governing body any matter
of a nature or in any amount that, consistent with past
practices or existing board or other governing body resolutions
or policies, would have been required, or would have been
expected, to be submitted to such a vote prior to the date
hereof; |
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(c) not (i) make any change or amendments in its
charter, bylaws or partnership agreement or other governing
instrument or document (as the case may be); (ii) authorize
for issuance, issue, grant, sell, deliver, dispose of, pledge or
otherwise encumber any shares of its capital stock or any
securities or rights convertible into, exchangeable for, or
evidencing the right to subscribe for any shares of its capital
stock or other equity or voting interests, or any rights,
options, warrants, calls, commitments or other agreements of any
character to purchase or acquire any shares of its capital stock
or other equity or voting interests, or any securities or rights
convertible into, exchangeable for, or evidencing the right to
subscribe for, any shares of its capital stock or other equity
or voting interests, other than shares of UGC Common Stock
issued upon exercise of UGC Options, conversion of UGC
Convertible Notes or upon the exercise of other rights
outstanding as of the date hereof under UGC Plans or otherwise
disclosed pursuant to this Agreement, in accordance with the
terms thereof; (iii) split, combine, subdivide or
reclassify the outstanding shares of its capital stock or other
equity or voting interests, or declare, set aside for payment or
pay any dividend, or make any other actual, constructive or
deemed distribution in respect of any shares of its capital
stock or other equity or voting interests, or otherwise make any
payments to stockholders or owners of equity or voting interests
in their capacity as such (other than dividends or distributions
paid by any Wholly-Owned Subsidiary of UGC to UGC or another
Wholly-Owned Subsidiary of UGC); (iv) redeem, purchase or
otherwise acquire, directly or indirectly, any outstanding
shares of capital stock or other securities or equity or voting
interests of UGC or any Subsidiary of UGC; (v) make any
other changes in its capital or ownership structure;
(vi) sell or grant a Lien or Restriction with respect to
any stock, equity or partnership interest owned by it in any
Subsidiary of UGC; or (vii) enter into or assume any
contract, agreement, obligation, commitment or arrangement with
respect to any of the foregoing; |
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(d) not (i) enter into any new employment agreements
with or increase the compensation of (x) any officer or
director of UGC or (y) any member of senior executive
management of any Subsidiary whose annual income exceeds
$100,000 per annum, other than as required by written
agreements in effect on the date hereof, (ii) establish,
amend or modify any UGC Plan or any other employee benefit plan,
except in the ordinary course of business, consistent with past
practice and to the extent not material and except to the extent
required by any applicable law or the existing terms of such UGC
Plan or by the provisions of this Agreement; (iii) make any
capital expenditures which individually or in the aggregate are
in excess of the amount provided for capital expenditures in the
most recent capital budget for UGC and its Subsidiaries approved
by the UGC Board (provided such budget itself is an Approved
Matter) or (iv) enter into or assume any contract,
agreement, obligation, commitment or arrangement with respect to
any of the foregoing; |
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(e) not incur (which will not be deemed to include entering
into credit agreements, lines of credit or similar arrangements
until borrowings are made under such arrangements) any material
amount of Indebtedness for borrowed money or guarantee any such
Indebtedness other than in the ordinary course of business;
provided, however, that the foregoing will not prohibit any
renewal, extension, amendment or refinancing of existing
Indebtedness (provided there is no increase in the interest rate
or the principal amount of such Indebtedness); |
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(f) not acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial equity
interest in or a substantial portion of the assets of, or by any
other manner, any business or any corporation, partnership,
association or other business organization or division thereof
or otherwise acquire or agree to otherwise acquire any assets
that are material, individually or in the aggregate, to UGC and
its Subsidiaries taken as a whole, other than in the ordinary
course of business; |
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(g) not make any material change in any accounting,
financial reporting or Tax practice or policy; |
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(h) not take any action that would reasonably be expected
to result in any of the conditions to the Mergers set forth in
Article VIII not being fulfilled; and |
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(i) not authorize or enter into any contract, agreement,
commitment or arrangement to do any of the foregoing. |
7.4 Expenses. Whether
or not the Merger is consummated, all costs and expenses
incurred or to be incurred in connection with this Agreement and
the transactions contemplated hereby will be paid by the party
incurring such cost or expense, except that the costs and
expenses incurred in connection with the printing and mailing of
each of the Joint Proxy Statement/ Prospectus, the Registration
Statement (and any amendment or supplement thereto) and the
prospectus included in the Registration Statement (and any
amendment or supplement thereto) will be borne equally by LMI
and UGC.
7.5 Indemnification.
(a) Indemnification of UGC Directors and
Officers. From and after the Effective Time, the UGC
Surviving Corporation will indemnify, defend and hold harmless
the present and former directors and officers of UGC (when
acting in such capacity) and any of its Subsidiaries, and any
Person who is or was serving at the request of UGC as a director
or officer of another Person (when acting in such capacity)
(individually a UGC Indemnified Party and,
collectively, the UGC Indemnified Parties)
against all losses, claims, damages, costs, expenses (including
fees and expenses of counsel properly retained by a UGC
Indemnified Party under this Section 7.5), liabilities or
judgments or amounts that are paid in settlement with the
approval of the UGC Surviving Corporation (which approval will
not be unreasonably withheld or delayed) of or in connection
with any claim, action, suit, proceeding or investigation based
in whole or in part on or arising in whole or in part out of the
fact that such Person was at any time prior to the Effective
Time a director or officer of UGC, pertaining to any matter
existing or occurring at or prior to the Effective Time and
whether asserted or claimed prior to, at or after the Effective
Time (UGC Indemnified Liabilities), to the
same extent such persons are indemnified or have the right to
advancement of expenses as of the date hereof by UGC pursuant to
the UGC Charter, the UGC Bylaws and indemnification agreements,
if any, in existence on the date hereof with any directors,
officers and employees of UGC and its Subsidiaries.
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(b) Indemnification of LMI Directors and
Officers. From and after the Effective Time, the LMI
Surviving Corporation will indemnify, defend and hold harmless
the present and former directors and officers of LMI (when
acting in such capacity) and any of its Subsidiaries, and any
Person who is or was serving at the request of LMI as a director
or officer of another Person (when acting in such capacity)
(individually a LMI Indemnified Party and,
collectively, the LMI Indemnified Parties)
against all losses, claims, damages, costs, expenses (including
fees and expenses of counsel properly retained by a LMI
Indemnified Party under this Section 7.5), liabilities or
judgments or amounts that are paid in settlement with the
approval of the LMI Surviving Corporation (which approval will
not be unreasonably withheld or delayed) of or in connection
with any claim, action, suit, proceeding or investigation based
in whole or in part on or arising in whole or in part out of the
fact that such Person was at any time prior to the Effective
Time a director or officer of LMI, pertaining to any matter
existing or occurring at or prior to the Effective Time and
whether asserted or claimed prior to, at or after the Effective
Time (LMI Indemnified Liabilities), to the
same extent such persons are indemnified or have the right to
advancement of expenses as of the date hereof by LMI pursuant to
the LMI Charter and LMIs Bylaws and indemnification
agreements, if any, in existence on the date hereof with any
directors, officers and employees of LMI and its Subsidiaries.
(c) Survival of Existing Indemnification Rights.
The parties agree that all rights to indemnification,
including provisions relating to advances of expenses incurred
in defense of any action, suit or proceeding, whether civil,
criminal, administrative or investigative (each, a
Claim), existing in favor of the Indemnified
Parties as provided in the UGC Charter or UGCs Bylaws or
LMI Charter or LMIs Bylaws or pursuant to other
agreements, or certificates of incorporation or bylaws or
similar documents of any of UGCs or LMIs
Subsidiaries, as in effect as of the date hereof, will survive
the Mergers and will continue in full force and effect for a
period of not less than six years from the Effective Time;
provided, however, that all rights to
indemnification in respect of any Claim asserted, made or
commenced within such period will continue until the final
disposition of such Claim.
(d) Survival. This Section 7.5 will
survive the consummation of the Mergers. The provisions of this
Section 7.5 are intended to be for the benefit of and will
be enforceable by each of the UGC Indemnified Parties and the
LMI Indemnified Parties, and their respective heirs and legal
representatives, and will be binding on UGC Surviving
Corporation and LMI Surviving Corporation, as applicable, and
each of their respective successors and assigns.
7.6 Notification of Certain
Matters. Between the date hereof and the Effective Time,
each party will give prompt notice in writing to the other party
of: (i) any information that indicates that any of its
representations or warranties contained herein was not true and
correct in any material respect as of the date hereof or will be
untrue and incorrect in any material respect at and as of the
Effective Time (except for changes permitted or contemplated by
this Agreement), (ii) the occurrence or non-occurrence of
any event which will result, or is reasonably likely to result,
in the failure of any condition set forth in Article VIII,
any covenant or agreement contained in this Agreement to be
complied with or satisfied, (iii) any failure of UGC or
LMI, as the case may be, to satisfy any condition or comply
with, in any material respect, any covenant or agreement to be
satisfied or complied with by it hereunder, (iv) any notice
or other communication from any third party alleging that the
consent of such third party is or may be required in connection
with the transactions contemplated by this Agreement or that
such transactions otherwise may violate the rights of or confer
remedies upon such third party and (v) any notice of, or
other communication relating to, any litigation referred to in
Section 7.7 or any order or judgment entered or rendered
therein; provided, however, that the delivery of
any notice pursuant to this Section 7.6 will not limit or
otherwise affect the remedies available hereunder to the party
receiving such notice.
7.7 Defense of
Litigation. Each of the parties agrees to vigorously
defend against all actions, suits or proceedings in which such
party is named as a defendant which seek to enjoin, restrain or
prohibit the transactions contemplated hereby or seek damages
with respect to such transactions. No party will settle any such
action, suit or proceeding or fail to perfect on a timely basis
any right to appeal any judgment rendered or order entered
against such party therein without the written consent of the
other parties (which consent will not be unreasonably withheld
or delayed). Each of the parties further agrees to use
commercially reasonable efforts to cause each of its Affiliates,
directors and officers to vigorously defend any action, suit or
proceeding in which
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such Affiliate, director or officer is named as a defendant and
which seeks any such relief to comply with this Section to the
same extent as if such Person were a party hereto.
7.8 Actions by LMI.
Subject to the terms and conditions of this Agreement, LMI
shall cause shares of UGC Common Stock beneficially owned by it
to be voted in favor of the adoption of this Agreement at the
UGC Special Meeting.
7.9 Section 16
Matters. Assuming that UGC and LMI deliver to HoldCo the
Section 16 Information (as defined below) reasonably in
advance of the Effective Time, the Board of Directors of HoldCo,
or a committee of Non-Employee Directors thereof (as such term
is defined for purposes of Rule 16b-3(d) under the Exchange
Act), shall reasonably promptly thereafter and in any event
prior to the Effective Time adopt a resolution providing that
the receipt by the Insiders (as defined below) of UGC and LMI of
HoldCo Common Stock in exchange for shares of UGC Common Stock
or shares of LMI Common Stock, as the case may be, or shares of
HoldCo Common Stock upon exercise of stock option or stock
appreciation rights or vesting of restricted stock, as the case
may be, in each case pursuant to the transactions contemplated
hereby and to the extent such securities are listed in the
Section 16 Information provided by UGC and LMI to HoldCo
prior to the Effective Times, are intended to be exempt from
liability pursuant to Section 16(b) under the Exchange Act
such that any such receipt shall be so exempt.
Section 16 Information shall mean
information accurate in all material respects regarding the
Insiders of a Person, the number of shares of the capital stock
held by each such Insider, and the number and description of
options, stock appreciate rights, restricted shares and other
stock-based awards held by each such Insider.
Insiders, with respect to a Person, shall
mean those officers and directors of such Person who are subject
to the reporting requirements of Section 16(a) of the
Exchange Act and who are listed in the Section 16
Information.
7.10 Tax Treatment of
Transactions. Each of the parties (a) shall use
their commercially reasonable efforts to cause the LMI Merger to
qualify as a reorganization within the meaning of
Section 368(a) of the Code and, when viewed as a collective
whole with the LMI Merger, the conversion of shares of UGC
Common Stock into shares of HoldCo Series A Stock that is
effected pursuant to the UGC Merger to qualify as an exchange
within the meaning of Section 351 of the Code,
(b) will not take any action, and will not permit any of
its Controlled Affiliates to take any action, that would cause
the LMI Merger not to qualify as a reorganization within the
meaning of Section 368(a) of the Code or the conversion of
shares of UGC Common Stock into shares of HoldCo Series A
Stock that is effected pursuant to the UGC Merger not to qualify
as an exchange within the meaning of Section 351 of the
Code, and (c) will cooperate with the law firms that are to
render the opinions referred to in Sections 8.1(e), 8.2(e)
and 8.3(d) by providing appropriate certifications as to factual
matters.
7.11 State Takeover Laws.
If any fair price, business
combination or control share acquisition
statute or other similar statute or regulation is or may become
applicable to the Mergers, LMI and UGC shall each take such
actions as are necessary so that the transactions contemplated
by this Agreement may be consummated as promptly as practicable
on the terms contemplated hereby and otherwise act to eliminate
or minimize the effects of any such statute or regulation on the
Mergers.
7.12 Conduct of LMI.
LMI will not declare, make or pay any dividend or distribution
on or in respect of its capital stock (other than in shares of
LMI Common Stock) or take any action that would reasonably be
expected to result in any of the conditions to the Mergers set
forth in Article VIII not being fulfilled.
ARTICLE VIII
CONDITIONS PRECEDENT
8.1 Conditions Precedent to
the Obligations of Each Party. The respective
obligations of the parties to consummate the transactions
contemplated by this Agreement are subject to the satisfaction
at or prior to the Effective Time of each of the following
conditions, any or all of which (other than the conditions set
forth in Sections 8.1(b) and 8.1(e), which shall be
non-waivable), to the extent permitted by applicable law, may be
waived by LMI, for itself, HoldCo, LMI Merger Sub and UGC Merger
Sub (but not for UGC), or by UGC for
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itself (with the approval of the Special Committee) (but not for
LMI, HoldCo, LMI Merger Sub or UGC Merger Sub):
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(a) Stockholder Approvals. The LMI
Stockholder Approval and the UGC Stockholder Approval shall have
been obtained. |
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(b) Minority Approval. The Minority Approval
shall have been obtained. |
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(c) Registration. The Registration Statement
(as amended or supplemented) will have been declared effective
and will be effective under the Securities Act at the Effective
Time, and no stop order suspending effectiveness will have been
issued, and no action, suit, proceeding or investigation seeking
a stop order or to suspend the effectiveness of the Registration
Statement will be pending before or threatened by the SEC. |
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(d) Absence of Injunctions. No permanent or
preliminary Injunction or restraining order or other order by
any court or other Governmental Entity of competent
jurisdiction, or other legal restraint or prohibition,
preventing consummation of the transactions contemplated hereby
as provided herein, or permitting such consummation only subject
to any condition or restriction that has or would have a UGC
Material Adverse Effect or a LMI Material Adverse Effect, will
be in effect; and there shall not be any action taken, or any
statute, rule, regulation or order (whether temporary,
preliminary or permanent) enacted, entered or enforced which
makes the consummation of the Mergers illegal or prevents or
prohibits the Mergers. |
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(e) Tax Opinion Relating to the Effect of the LMI
Merger and the UGC Merger on the Distribution. LMI and
HoldCo shall have received the opinion of Skadden, Arps, Slate,
Meagher & Flom LLP or another nationally recognized law
firm reasonably acceptable to UGC (acting with the approval of
the Special Committee), dated the Closing Date, to the effect
that, for U.S. federal income tax purposes, provided that
the Distribution would otherwise have qualified as a tax-free
distribution under Section 355 of the Code to LMC and the
LMC shareholders, the transactions contemplated by this
Agreement should not cause the Distribution to fail to qualify
as a tax-free distribution to LMC under Section 355(e) of
the Code. In rendering such opinion, Skadden, Arps, Slate,
Meagher & Flom LLP or such other alternate firm may
require and rely upon (and may incorporate by reference)
representations and covenants made in certificates provided by
the parties hereto and upon such other documents and data as
Skadden, Arps, Slate, Meagher & Flom LLP or such other
alternate firm deems appropriate as a basis for such opinion. |
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(f) Governmental Entity Approvals. All
authorizations, consents, orders or approvals of, or
declarations or filings with, or expiration of waiting periods
imposed by, any Governmental Entity, if any, necessary for the
consummation of the Mergers shall have been filed, expired or
been obtained, other than those that, individually or in the
aggregate, the failure of which to be filed, expired or obtained
would not be reasonably likely to have a UGC Material Adverse
Effect or a LMI Material Adverse Effect. |
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(g) Nasdaq Listing. The shares of HoldCo
Common Stock to be issued pursuant to this Agreement will have
been approved for listing on the Nasdaq, subject only to
official notice of issuance. |
8.2 Conditions Precedent to
the Obligations of LMI. The obligations of LMI to
consummate the transactions contemplated by this Agreement are
also subject to the satisfaction at or prior to the Closing Date
of each of the following conditions, unless waived by LMI (other
than the condition set forth in Section 8.2(e), which shall
be non-waivable):
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(a) Accuracy of Representations and
Warranties. All representations and warranties of UGC
contained in this Agreement will, if specifically qualified by
reference to a UGC Material Adverse Effect, be true and correct
and, if not so qualified, be true and correct except where the
failure to be so true and correct would not have a UGC Material
Adverse Effect, except for the representations and warranties
set forth in Section 5.3, which will be true and correct in
all material respects, in each case as of the date of this
Agreement and (except to the extent such representations and
warranties speak as of a specified earlier date) on and as of
the Closing Date as though made on and as of the Closing Date,
except for changes permitted or contemplated by this Agreement. |
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(b) Performance of Agreements. UGC will have
performed in all material respects all obligations and
agreements, and complied in all material respects with all
covenants and conditions, contained in this Agreement to be
performed or complied with by it prior to or on the Closing Date. |
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(c) Officers Certificates. LMI will
have received such certificates of UGC, dated the Closing Date,
in each case signed by an executive officer of UGC (but without
personal liability thereto), to evidence satisfaction of the
conditions set forth in Sections 8.1(a), 8.1(b), 8.2(a) and
8.2(b) (insofar as each relates to UGC), as may be reasonably
requested by LMI. |
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(d) No Adverse Enactments. There will not
have been any action taken, or any statute, rule, regulation,
order, judgment or decree proposed, enacted, promulgated,
entered, issued, enforced or deemed applicable by any foreign or
United States federal, state or local Governmental Entity that
imposes or is reasonably likely to result in imposition of
material limitations on the ability of HoldCo effectively to
exercise full rights of ownership of shares of capital stock of
the Surviving LMI Corporation or the Surviving UGC Corporation
(including the right to vote such shares on all matters properly
presented to the stockholders of the relevant entity) or makes
the holding by HoldCo of any such shares illegal. |
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(e) Tax Opinion. LMI shall have received the
opinion of Baker Botts L.L.P. or another nationally recognized
law firm, dated the Closing Date, to the effect that, for United
States federal income tax purposes, (i) the LMI Merger will
qualify as a reorganization within the meaning of
Section 368(a) of the Code, (ii) no gain or loss will
be recognized by HoldCo, LMI, any Wholly-Owned Subsidiary of LMI
that owns shares of UGC Common Stock, or UGC as a result of the
LMI Merger or the UGC Merger, and (iii) no gain or loss
will be recognized by the shareholders of LMI with respect to
shares of LMI Stock converted solely into HoldCo Stock as a
result of the LMI Merger. In rendering such opinion, Baker Botts
L.L.P. or such alternate firm may require and rely upon (and may
incorporate by reference) representations and covenants made in
certificates provided by the parties hereto and upon such other
documents and data as such counsel deems appropriate as a basis
for such opinion. |
8.3 Conditions Precedent to
the Obligations of UGC. The obligation of UGC to
consummate the transactions contemplated by this Agreement is
also subject to the satisfaction at or prior to the Closing Date
of each of the following conditions, unless waived by UGC (with
the approval of the Special Committee) (other than the condition
set forth in Section 8.3(d), which shall be non-waivable):
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(a) Accuracy of Representations and
Warranties. All representations and warranties of LMI
contained in this Agreement will, if specifically qualified by
reference to a LMI Material Adverse Effect, be true and correct,
and, if not so qualified, be true and correct except where the
failure to be so true and correct would not have a LMI Material
Adverse Effect, except for (i) the representations and
warranties set forth in Section 6.3, which shall be true
and correct in all material respects, and (ii) the
representations and warranties set forth in Section 6.6(b),
which shall be true and correct, in each case as of the date of
this Agreement and (except to the extent such representations
and warranties speak of a specified earlier date) on and as of
the Closing Date as though made on and as of the Closing Date,
except for changes permitted or contemplated by this Agreement. |
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(b) Performance of Agreements. Each of HoldCo
and LMI will have performed in all material respects all
obligations and agreements, and complied in all material
respects with all covenants and conditions, contained in this
Agreement to be performed or complied with by it prior to or on
the Closing Date. |
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(c) Officers Certificates. UGC will
have received such certificates of HoldCo and LMI, dated the
Closing Date, in each case signed by an executive officer of
HoldCo or LMI (but without personal liability thereto) to
evidence satisfaction of the conditions set forth in
Sections 8.1(a), 8.3(a) and 8.3(b) (insofar as each relates
to HoldCo or LMI), as may be reasonably requested by UGC. |
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(d) Tax Opinion. UGC shall have received the
opinion of Debevoise & Plimpton LLP or another
nationally recognized law firm, dated the Closing Date, to the
effect that, for United States federal income tax purposes,
(i) when viewed as a collective whole with the LMI Merger,
the conversion of shares of UGC Common Stock into shares of
HoldCo Series A Stock that is effected pursuant to the UGC
Merger will |
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qualify as an exchange within the meaning of Section 351 of
the Code, (ii) no gain or loss will be recognized by HoldCo
or UGC as a result of the UGC Merger, and (iii) no gain or
loss will be recognized by the shareholders of UGC with respect
to shares of UGC Common Stock converted solely into HoldCo
Series A Stock pursuant to the UGC Merger. In rendering
such opinion, Debevoise & Plimpton LLP or such
alternate firm may require and rely upon (and may incorporate by
reference) representations and covenants made in certificates
provided by the parties hereto and upon such other documents and
data as Debevoise & Plimpton LLP or such alternate firm
deems appropriate as a basis for such opinion. |
ARTICLE IX
TERMINATION
9.1 Termination and
Abandonment. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time
prior to the Effective Time, whether before or after adoption of
this Agreement by the stockholders of LMI and/or UGC:
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(a) by mutual consent of LMI and UGC authorized by their
respective Boards of Directors (with the approval of the Special
Committee in the case of UGC); |
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(b) by LMI if UGC has not filed the UGC 10-K with the SEC
by May 15, 2005 (the Filing Termination
Date). LMI may terminate this Agreement within five
business days after the Filing Termination Date;
provided, that LMI may extend the Filing Termination Date
to June 15, 2005, if it determines not to terminate this
Agreement during the five business day period following the
initial Filing Termination Date; |
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(c) by either UGC (with the approval of the Special
Committee) or LMI if either of the Mergers has not been
consummated before September 30, 2005 (the Drop
Dead Date); provided, that the right to
terminate this Agreement pursuant to this Section 9.1(c)
shall not be available to any party whose action or failure to
act has been the cause of or resulted in the failure of either
of the Mergers to occur on or before the Drop Dead Date and such
action or failure to act constitutes a breach of this Agreement. |
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(d) by either UGC (with the approval of the Special
Committee), on the one hand, or LMI, on the other hand:
(A) if there has been a breach of any representation,
warranty, covenant or agreement on the part of the other party
contained in this Agreement such that the conditions set forth
in Sections 8.2(a) or (b) or Section 8.3(a) or
(b), as the case may be, shall have become incapable of
fulfillment, or (B) if any court of competent jurisdiction
or other competent governmental authority will have issued an
order, decree or ruling or taken any other action permanently
restraining, enjoining or otherwise prohibiting the Mergers and
such order, decree, ruling or other action will have become
final and nonappealable; |
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(e) by LMI if the UGC Board (with the approval of the
Special Committee) has withdrawn or modified in any manner
adverse to LMI its recommendation to the UGC stockholders
referred to in Section 5.2(b); or |
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(f) By either LMI or UGC (with the approval of the Special
Committee) if (x) the UGC Stockholder Approval and the
Minority Approval or (y) the LMI Stockholder Approval has
not been obtained at the UGC Special Meeting or the LMI Special
Meeting as contemplated by Section 8.1. |
9.2 Effect of
Termination. In the event of any termination of this
Agreement by UGC or LMI pursuant to Section 9.1, this
Agreement (other than as set forth in Sections 7.1, 7.4,
9.2 and Article 10, each of which will survive the
termination of this Agreement) immediately will become void and
there will be no liability or obligation on the part of any
party or their respective Affiliates, stockholders, directors,
officers, agents or representatives; provided, that no
such termination will relieve any party of any liability or
damages resulting from any willful or intentional breach of any
of its representations, warranties, covenants or agreements
contained in this Agreement.
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ARTICLE X
MISCELLANEOUS
10.1 Effectiveness of
Representations, Warranties and Agreements. Except as
set forth in the next sentence, the respective representations,
warranties and agreements of the parties contained herein or in
any certificate or other instrument delivered pursuant hereto
prior to or at the Closing will remain operative and in full
force and effect, regardless of any investigation made by or on
behalf of the other parties hereto, after the execution of this
Agreement. The representations, warranties, covenants or
agreements contained in this Agreement or in any certificate or
other instrument delivered pursuant to this Agreement will
terminate at the Effective Time, except for (i) the
agreements contained in Article III, Sections 7.4 and
7.5, and in this Article X, (ii) the agreements of the
affiliates of UGC and LMI delivered pursuant to
Section 4.3 and (iii) any certificates delivered in
connection with the opinions described in Sections 8.1(e),
8.2(e) and 8.3(d).
10.2 Notices. All
notices, requests, demands, waivers and other communications
required or permitted to be given under this Agreement will be
in writing and will be deemed to have been duly given if
delivered personally or mailed, certified or registered mail
with postage prepaid, or sent by telegram, overnight courier or
confirmed telex or telecopier, as follows:
(a) if to HoldCo, LMI, LMI Merger Sub or UGC Merger Sub, to:
Liberty
Media International, Inc.
12300
Liberty Boulevard
Englewood,
Colorado 80112
Attn:
Elizabeth M. Markowski, Esq.
Telecopier:
(720) 875-5858
and with a
copy to:
Baker
Botts L.L.P.
30
Rockefeller Plaza
New York,
New York 10112
Attn:
Robert W. Murray Jr., Esq.
Telecopier:
(212) 259-2540
(b) if to UGC, to:
UnitedGlobalCom,
Inc.
4643
South Ulster Street
Denver,
Colorado 80237
Attn:
Ellen Spangler, Esq.
Telecopier:
(303) 770-4207
and with
a copy to:
Debevoise &
Plimpton LLP
919 Third
Avenue
New York,
NY 10022
Attn: Franci
J. Blassberg
Paul
S. Bird
Telecopier:
(212) 909-6836
and
Holme
Roberts & Owen LLP
1700
Lincoln Street, Suite 4100
Denver,
Colorado 80203-4541
Telecopier:
(303) 866-0200
Attention:
W. Dean Salter, Esq.
or to such other Person or address as any party will specify by
notice in writing to the other party. All such notices,
requests, demands, waivers and communications will be deemed to
have been received on the date of
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delivery or on the third business day after the mailing thereof,
except that any notice of a change of address will be effective
only upon actual receipt thereof.
10.3 Entire
Agreement. This Agreement (including the Schedules,
Exhibits and other documents delivered in connection herewith)
constitutes the entire agreement of the parties and supersedes
all prior agreements and understandings, oral and written,
between the parties with respect to the subject matter hereof.
10.4 Assignment; Binding
Effect; Benefit. Neither this Agreement nor any of the
rights, benefits or obligations hereunder may be assigned by any
party (whether by operation of law or otherwise) without the
prior written consent of the other parties. Subject to the
preceding sentence, this Agreement will be binding upon, inure
to the benefit of and be enforceable by the parties and their
respective successors and permitted assigns. Nothing in this
Agreement, expressed or implied, is intended to confer on, or to
make enforceable by, any Person other than the parties or their
respective successors and permitted assigns, any rights,
remedies, obligations or liabilities under or by reason of this
Agreement, other than rights conferred upon persons indemnified
under Section 7.5 and upon stockholders, directors,
officers, Affiliates, agents and representatives of the parties
under Section 10.14. Notwithstanding anything to the
contrary contained in this Agreement, the provisions of
Section 7.5 of this Agreement may not be amended or altered
in any manner with respect to any person indemnified thereunder
without the written consent of such person. No assignment of
this Agreement will relieve HoldCo, or the Surviving UGC
Corporation or the Surviving LMI Corporation from its
obligations to any person indemnified under Section 7.5 of
this Agreement.
10.5 Amendment.
Before or after the UGC Stockholder Approval or the LMI
Stockholder Approval, this Agreement may be amended by the
parties hereto, by action taken or authorized by their
respective Boards of Directors and, in the case of UGC, with the
approval of the Special Committee, at any time prior to the
Effective Time; provided, however, that after the UGC
Stockholder Approval or the LMI Stockholder Approval, no
amendment may be made without the further requisite approval of
such stockholders as contemplated in Section 8.1(a) and
Section 8.1(b) if such amendment by law requires the
further approval of such stockholders. This Agreement may not be
amended except by an instrument in writing signed by the parties
hereto.
10.6 Extension;
Waiver. At any time prior to the Effective Time, UGC
(with the approval of the Special Committee) or LMI (on behalf
of HoldCo, LMI, LMI Merger Sub and UGC Merger Sub), by action
taken or authorized by such partys Board of Directors,
may, to the extent legally allowed, (i) extend the time
specified herein for the performance of any of the obligations
of the other party, (ii) waive any inaccuracies in the
representations and warranties of the other party contained
herein or in any document delivered pursuant hereto,
(iii) waive compliance by the other party with any of the
agreements or covenants of such other party contained herein or
(iv) waive any condition to such waiving partys
obligation to consummate the transactions contemplated hereby or
to any of such waiving partys other obligations hereunder
(other than in the case of the conditions set forth in
Sections 8.1(b), 8.1(e), 8.2(e) and 8.3(d), each of which
shall be non-waivable). Any such extension or waiver will be
valid only if set forth in a written instrument signed by the
party or parties to be bound thereby. Any such extension or
waiver by any party will be binding on such party but not on the
other party entitled to the benefits of the provision of this
Agreement affected unless such other party also has agreed to
such extension or waiver. No such waiver will constitute a
waiver of, or estoppel with respect to, any subsequent or other
breach or failure to strictly comply with the provisions of this
Agreement. The failure of any party to exercise any of its
rights, powers or remedies hereunder or with respect hereto or
to insist on strict compliance with this Agreement will not
constitute a waiver by such party of its right to exercise any
such or other rights, powers or remedies or to demand such
compliance. Whenever this Agreement requires or permits consent
or approval by any party, such consent or approval will be
effective if given in writing in a manner consistent with the
requirements for a waiver of compliance as set forth in this
Section 10.6.
10.7 Headings. The
headings contained in this Agreement are for reference purposes
only and will not affect in any way the meaning or
interpretation of this Agreement.
10.8 Counterparts.
This Agreement may be executed in any number of counterparts,
each of which will be deemed to be an original, and all of which
together will be deemed to be one and the same instrument.
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10.9 Applicable Law.
This Agreement and the legal relations between the parties will
be governed by and construed in accordance with the laws of the
State of Delaware, without regard to the conflict of laws rules
thereof.
10.10 Jurisdiction.
Any suit, action or proceeding seeking to enforce any provision
of, or based on any matter arising out of or in connection with,
this Agreement, the Mergers or the transactions contemplated
hereby will be brought exclusively in the Delaware Chancery
Courts, or, if the Delaware Chancery Courts do not have subject
matter jurisdiction, in the state courts of the State of
Delaware located in Wilmington, Delaware or in the federal
courts located in the State of Delaware. Each of the parties
hereby consents to personal jurisdiction in any such action,
suit or proceeding brought in any such court (and of the
appropriate appellate courts therefrom) and irrevocably waives,
to the fullest extent permitted by applicable law, any objection
that it may now or hereafter have to the laying of the venue of
any such suit, action or proceeding in any such court or that
any such suit, action or proceeding brought in any such court
has been brought in an inconvenient form. Process in any such
suit, action or proceeding may be served on any party anywhere
in the world, whether within or without the jurisdiction of any
such court. Without limiting the foregoing, each party agrees
that service of process on such party as provided in
Section 10.2 shall be deemed effective service of process
on such party.
10.11 Waiver of Jury
Trial. EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY
CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO
INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH
SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY
RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO
THIS AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT
(i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY
WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVER, (ii) EACH PARTY UNDERSTANDS AND HAS
CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH
PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH PARTY
HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS
SECTION 10.11.
10.12 Joint Participation in
Drafting this Agreement. The parties acknowledge and
confirm that each of their respective attorneys have
participated jointly in the drafting, review and revision of
this Agreement and that it has not been written solely by
counsel for one party and that each party has had the benefit of
its independent legal counsels advice with respect to the
terms and provisions hereof and its rights and obligations
hereunder. Each party hereto, therefore, stipulates and agrees
that the rule of construction to the effect that any ambiguities
are to be or may be resolved against the drafting party shall
not be employed in the interpretation of this Agreement to favor
any party against another and that no party shall have the
benefit of any legal presumption or the detriment of any burden
of proof by reason of any ambiguity or uncertain meaning
contained in this Agreement.
10.13 Enforcement of this
Agreement. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of
this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly
agreed that the parties will be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof, this being in
addition to any other remedy to which they are entitled at law
or in equity.
10.14 Limited
Liability. Notwithstanding any other provision of this
Agreement, no stockholder, director, officer, Affiliate, agent
or representative of any party (other than LMI as the sole
stockholder of HoldCo) will have any liability in respect of or
relating to the covenants, obligations, representations or
warranties of such party hereunder or in respect of any
certificate delivered with respect thereto and, to the fullest
extent legally permissible, each party, for itself and its
stockholders, directors, officers and Affiliates, waives and
agrees not to seek to assert or enforce any such liability which
any such Person otherwise might have pursuant to applicable law.
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10.15 Severability.
If any term or other provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law or
public policy, all other conditions and provisions of this
Agreement will nevertheless remain in full force and effect so
long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or
other provision is invalid, illegal or incapable of being
enforced, the parties hereto will negotiate in good faith to
modify this Agreement so as to effect the original intent of the
parties as closely as possible to the fullest extent permitted
by applicable law in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent
possible.
[Signature Pages Follow]
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement and Plan of Merger as of the date first above written.
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By: |
/s/ Elizabeth M. Markowski |
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Name: Elizabeth M. Markowski |
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LIBERTY MEDIA INTERNATIONAL, INC. |
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By: |
/s/ Elizabeth M. Markowski |
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Name: Elizabeth M. Markowski |
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Title: |
Senior Vice President |
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CHEETAH ACQUISITION CORP. |
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By: |
/s/ Elizabeth M. Markowski |
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Name: Elizabeth M. Markowski |
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TIGER GLOBAL ACQUISITION CORP. |
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By: |
/s/ Elizabeth M. Markowski |
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Name: Elizabeth M. Markowski |
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Appendix C
VOTING AGREEMENT
This VOTING AGREEMENT (this Agreement), dated
as of January 17, 2005, between John C. Malone
(Stockholder) and UnitedGlobalCom, Inc., a
Delaware corporation (UGC),
WITNESSETH:
WHEREAS, as of December 31, 2004, Stockholder owned
815,474 shares of Series A common stock, par value
$0.01 per share, of Liberty Media International, Inc.
(LMI) and 5,186,254 shares of
Series B common stock, par value $0.01 per share, of
LMI (together with any other shares of capital stock of LMI
acquired by Stockholder in his individual capacity (and not in
any Representative Capacity (as defined below)) after the date
hereof and during the term of this Agreement, the
Subject Shares);
WHEREAS, in addition to the Subject Shares, Stockholder is the
sole trustee of two irrevocable trusts holding, as of
December 31, 2004, in the aggregate, 198 shares of LMI
Series A Stock and 1,036,028 shares of LMI
Series B Stock (together with any other shares of capital
stock of LMI acquired by Stockholder in any Representative
Capacity after the date hereof and during the term of this
Agreement (including any Subject Shares transferred pursuant to
Section 3.2 which are then owned or held by Stockholder in
any Representative Capacity), the Trust
Shares) and, in such Representative Capacity, has the
power, subject to his fiduciary duties in such Representative
Capacity, directly or indirectly, to vote or direct the voting
of such Trust Shares;
WHEREAS, as of December 31, 2004, the Subject Shares and
the Trust Shares represented approximately 22.1% and 4.4%,
respectively, of the voting power of LMIs issued and
outstanding capital stock;
WHEREAS, concurrently with the execution and delivery of this
Agreement, UGC, LMI, New Cheetah, Inc., a Delaware corporation
(HoldCo), Cheetah Acquisition Corp., a
Delaware corporation (Cheetah Merger Sub),
and Tiger Global Acquisition Corp., a Delaware corporation
(Tiger Merger Sub), are entering into an
agreement (as the same may from time to time be modified,
supplemented or restated, the Merger
Agreement) pursuant to which, on the terms and subject
to the conditions set forth therein, LMI will merge with Cheetah
Merger Sub and UGC will merge with Tiger Merger Sub, whereupon
each of UGC and LMI will become a wholly-owned subsidiary of
HoldCo (the Mergers). Capitalized terms used
but not defined herein shall have the meanings set forth in the
Merger Agreement; and
WHEREAS, the Special Committee has made it a condition to the
Special Committees approval of the Merger Agreement and
UGCs willingness to enter into the Merger Agreement, that
Stockholder enter into this Agreement, pursuant to which
Stockholder, among other things, is agreeing to vote the Subject
Shares in favor of the adoption by LMI of the Merger Agreement
and the approval of the merger of LMI and Cheetah Merger Sub
(the LMI Merger), and the Stockholder, at the
request of the LMI Board, is willing to enter into this
Agreement;
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties, covenants and agreements set forth
in this Agreement, and intending to be legally bound hereby, the
parties agree as follows:
ARTICLE I
REPRESENTATIONS AND WARRANTIES
OF STOCKHOLDER AND UGC
Section 1.1. Representations
and Warranties of Stockholder. Stockholder represents
and warrants to UGC as of the date hereof as follows:
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(a) Authority. Stockholder has all requisite
power and authority to enter into this Agreement. This Agreement
has been duly executed and delivered by Stockholder and
constitutes a valid and binding obligation of Stockholder
enforceable in accordance with its terms. |
C-1
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(b) No Conflicts; Required Filings and
Consents. |
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(i) Neither the execution and delivery of this Agreement by
Stockholder, nor compliance by Stockholder with the terms hereof
will violate any law, rule or regulation applicable to
Stockholder or conflict with or result in a breach, or
constitute a default (with or without due notice, lapse of time
or both) under any provision of, any trust agreement, loan or
credit agreement, note, bond, mortgage, indenture or other
agreement, to which Stockholder is a party or by which
Stockholder is bound, other than such violations, conflicts,
breaches or defaults which would not, individually or in the
aggregate, prevent or materially delay the performance by
Stockholder of his obligations under this Agreement. |
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(ii) The execution and delivery of this Agreement by
Stockholder does not, and the performance by Stockholder of his
obligations under this Agreement will not, require any
Government Consent or Governmental Filing, except
(x) Governmental Filings to be made pursuant to the federal
securities laws and (y) where the failure to obtain such
Government Consent or make such Governmental Filing would not,
individually or in the aggregate, prevent or materially delay
the performance by Stockholder of his obligations under this
Agreement. |
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(c) The Subject Shares. Stockholder is the
record and beneficial owner of, and has good and valid title to,
the Subject Shares, free and clear of any Restriction, other
than as set forth on Schedule 1.1(c) and other than this
Agreement. Other than (i) the Trust Shares,
(ii) Stockholders interest in LMI Series A Stock
held in LMIs 401(k) Plan and (iii) shares with
respect to which Stockholder does not possess sole voting or
dispositive power, Stockholder does not own of record or
beneficially, any shares of capital stock of LMI other than the
Subject Shares. Stockholder has the sole right to vote the
Subject Shares. |
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(d) The Trust Shares. Stockholder is the
sole trustee of each of the trusts owning the Trust Shares
and, subject to any fiduciary and similar duties owed to the
beneficiaries of such trusts, has the sole right to vote the
Trust Shares. |
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(e) Reliance by UGC. Stockholder understands
and acknowledges that UGC is entering into the Merger Agreement
in reliance upon his execution and delivery of this Agreement. |
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(f) Litigation. There is no action or
proceeding pending or, to the actual knowledge of Stockholder,
threatened, against Stockholder that questions the validity of
this Agreement or any action taken or to be taken by Stockholder
in connection with this Agreement. |
Section 1.2. Representations
and Warranties of UGC. UGC represents and warrants to
Stockholder as of the date hereof as follows: Each of this
Agreement and the Merger Agreement has been approved by the UGC
Board and by the Special Committee; such approval represents all
necessary corporate action on the part of UGC, except for the
approval of UGCs stockholders contemplated by the Merger
Agreement. Each of this Agreement and the Merger Agreement has
been duly executed and delivered by a duly authorized officer of
UGC. Each of this Agreement and the Merger Agreement constitutes
a valid and binding agreement of UGC enforceable against UGC in
accordance with their respective terms.
ARTICLE II
VOTING OF SUBJECT SHARES AND TRUST SHARES
Section 2.1. Agreement
to Vote. Stockholder agrees that at any meeting of
stockholders of LMI called to vote upon the LMI Merger and the
Merger Agreement or at any adjournment thereof or in connection
with any consent solicitation engaged in by LMI, at or in
connection with which a vote, consent or other approval
(including by written consent) with respect to the LMI Merger
and the Merger Agreement is sought, in each case held or
occurring prior to the termination of this Agreement,
Stockholder will vote (or cause to be voted or execute a written
consent in respect of) the Subject Shares, and, to the extent
consistent with Stockholders fiduciary and other duties in
his Representative Capacity, the Trust Shares, in favor of the
adoption by LMI of the Merger Agreement and the approval of the
LMI Merger and any actions reasonably required in furtherance
thereof. The term Representative Capacity
means as a proxy, an executor or administrator of any estate, a
trustee of any trust or in any other fiduciary or representative
capacity.
C-2
Section 2.2. Not
Applicable to Stockholder in Other Capacities. Nothing
herein contained shall (a) restrict, limit or prohibit
Stockholder from exercising (in his capacity as a director or
officer) his fiduciary duties to the stockholders of LMI under
applicable law, or (ii) require Stockholder, in his
capacity as an officer of LMI, to take any action in
contravention of, or omit to take any action pursuant to, or
otherwise take or refrain from taking any actions which are
inconsistent with, instructions or directions of the LMI Board
undertaken in the exercise of its fiduciary duties,
provided that nothing in this Section 2.2 shall
relieve or be deemed to relieve Stockholder from his obligations
under Section 2.1 of this Agreement.
ARTICLE III
ADDITIONAL AGREEMENTS
Section 3.1. Conditions
of Transfers. Except (x) as permitted pursuant to
Section 3.2 hereof and (y) for pledges to banks and
other financial institutions to secure indebtedness (which
pledges and loans will be on customary terms and conditions and
will not (prior to any default or foreclosure thereunder)
interfere with the ability of Stockholder to vote or otherwise
comply with his obligations hereunder in any material respect),
Stockholder agrees not to:
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(a) Sell, assign, transfer, grant a participation interest
in, option, pledge, hypothecate or otherwise dispose of or
encumber (each a Transfer) any Subject Shares
or options to acquire additional shares of LMI capital stock
(Options), or any interest therein, unless
(i) Stockholder provides prior notice to the Special
Committee of such Transfer; (ii) the transferee executes a
voting agreement in the form of this Agreement, and
(iii) Stockholder remains liable for any breach of such
voting agreement by such transferee; |
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(b) grant any proxies or power of attorney or enter into a
voting agreement or other arrangement relating to the matters
covered by Section 2.1 with respect to any Subject Shares
or Options; or |
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(c) deposit any Subject Shares or Options into a voting
trust. |
Section 3.2. Exempt
Transfers. Notwithstanding the restrictions set forth in
Section 3.1, Stockholder will be entitled to Transfer
Subject Shares or Options to (a) his wife, children,
grandchildren and other members of his family, (b) trusts,
foundations, limited and general partnerships, limited liability
companies and other entities in connection with good faith
estate planning and similar wealth management programs and
arrangements and (c) foundations charitable organizations
and similar entities in connection with Stockholders
charitable giving, in each case so long as Stockholder has the
right (including where such right is subject to
Stockholders fiduciary and similar obligations in a
Representative Capacity) to vote such shares (including shares
issued upon exercise of Options) in accordance with this
Agreement.
Section 3.3. Disclosure.
Stockholder agrees to the publication and disclosure in the
Joint Proxy Statement/ Prospectus with respect to the Mergers
and all documents and schedules filed with the Securities and
Exchange Commission, of Stockholders identity and
ownership of the Subject Shares and the Trust Shares and
the nature of Stockholders material commitments,
arrangements and understandings under this Agreement.
Section 3.4. Cooperation.
Stockholder will cooperate in all reasonable respects with the
law firms that are to render the opinions referred to in each of
Sections 8.1, 8.2 and 8.3 of the Merger Agreement by
providing reasonable assurances as to factual matters, including
as to the absence of any plan or intention of Stockholder to
dispose (or to cause the trusts to dispose) of any of the HoldCo
stock received by Stockholder or the trusts in respect of the
Subject Shares or the Trust Shares, as the case may be,
pursuant to the transactions contemplated by the Merger
Agreement.
ARTICLE IV
TERMINATION
Section 4.1. Termination.
This Agreement shall terminate upon the earliest of (x) the
closing of the Mergers and (y) the termination of the
Merger Agreement in accordance with its terms. No party hereto
shall be relieved from any liability for breach of this
Agreement by reason of any such termination.
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ARTICLE V
MISCELLANEOUS
Section 5.1. Additional
Shares. In the event Stockholder becomes the legal or
beneficial owner of any additional shares of capital stock or
other securities of LMI (other than where such beneficial
ownership is disclaimed), including pursuant to the exercise of
Options, any securities into which such shares or securities may
be converted or exchanged and any securities issued in
replacement of, or as a dividend or distribution on, or
otherwise in respect of, such shares or securities, then the
terms of this Agreement shall apply to such additional
securities; provided, however, that to the extent
Stockholder becomes such legal or beneficial owner in a
Representative Capacity or such shares or securities of LMI are
acquired as a dividend or distribution on, or otherwise in
respect of, Trust Shares, then such additional shares or
other securities will be deemed to be Trust Shares for
purposes of this Agreement.
Section 5.2. Governing
Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware, without
giving effect to its principles or rules of conflicts of laws to
the extent that such principles or rules would require or permit
the application of the law of another jurisdiction.
Section 5.3. Jurisdiction.
Each of the parties hereto irrevocably and unconditionally
agrees that any suit, action or proceeding seeking to enforce
any provision of, or based on any matter arising out of or in
connection with, this Agreement will be brought exclusively in
the Delaware Chancery Courts, or, if the Delaware Chancery
Courts do not have subject matter jurisdiction, in the state
courts of the State of Delaware located in Wilmington, Delaware
or, in the federal courts located in the State of Delaware. Each
of the parties hereto consents to personal jurisdiction in any
such action, suit or proceeding brought in any such court (and
of the appropriate appellate courts therefrom) and irrevocably
waives, to the fullest extent permitted by applicable law, any
objection that it may now or hereafter have to the laying of the
venue of any such suit, action or proceeding in any such court
or that any such suit, action or proceeding brought in any such
court has been brought in an inconvenient forum. Process in any
such suit, action or proceeding may be served on any party
anywhere in the world, whether within or without the
jurisdiction of any such court. Without limiting the foregoing,
each party agrees that service of process on such party as
provided in Section 5.9 shall be deemed effective service
of process on such party.
Section 5.4. WAIVER
OF JURY TRIAL. EACH OF THE PARTIES AGREES AND
ACKNOWLEDGES THAT ANY CONTROVERSY THAT MAY ARISE UNDER THIS
AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES,
AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL
BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY
ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE BREACH,
TERMINATION OR VALIDITY OF THIS AGREEMENT.
Section 5.5. Specific
Performance. Stockholder acknowledges and agrees that
(i) the obligations and agreements of Stockholder contained
in this Agreement relate to special, unique and extraordinary
matters, (ii) UGC and the Special Committee is and will be
relying on such covenants in connection with entering into, and,
the performance of its obligations under, the Merger Agreement,
and (iii) a violation of any of the obligations or
agreements of Stockholder in this Agreement will cause UGC
irreparable injury for which adequate remedies are not available
at law. Therefore, Stockholder agrees that UGC shall be entitled
to an injunction, restraining order or such other equitable
relief (without the requirement to post bond) as a Delaware
Court of competent jurisdiction may deem necessary or
appropriate to restrain Stockholder from committing any
violation of its covenants, obligations or agreements set forth
herein. These injunctive remedies are cumulative and in addition
to any other rights and remedies UGC may have.
Section 5.6. Amendment,
Waivers, etc. Neither this Agreement nor any term hereof
may be amended or otherwise modified other than by an instrument
in writing signed by UGC (and approved by the Special Committee)
and signed by Stockholder. No provision of this Agreement may be
waived, discharged or terminated other than by an instrument in
writing signed by the party against whom the enforcement of such
waiver, discharge or termination is sought, and, in the case of
UGC, approved by the Special Committee.
C-4
Section 5.7. Assignment;
No Third Party Beneficiaries. This Agreement shall not
be assignable or otherwise transferable by a party without the
prior consent of the other party, and any attempt to so assign
or otherwise transfer this Agreement without such consent shall
be void and of no effect. This Agreement shall be binding upon
the parties and their respective successors and permitted
assigns, including in the case of Stockholder, any trustee,
executor, heir, legatee or personal representative succeeding to
the ownership of the Subject Shares (including upon the death,
disability or incapacity of Stockholder). Nothing in this
Agreement shall be construed as giving any person, other than
the parties hereto and their respective heirs, successors, legal
representatives and permitted assigns, any right, remedy or
claim under or in respect of this Agreement or any provision
hereof. Notwithstanding the foregoing, to the extent Stockholder
ceases to act in a Representative Capacity with respect to any
Trust Shares or such Representative Capacity is terminated
with respect to any such Trust Shares, no person succeeding
to Stockholders duties in such Representative Capacity or
otherwise acquiring legal or beneficial ownership of such
Trust Shares will be considered a successor or assign of
Stockholder for purposes of this Agreement.
Section 5.8. Expenses.
Except as otherwise provided herein, all costs and expenses
incurred in connection with the transactions contemplated by
this Agreement shall be paid by the party incurring such costs
and expenses.
Section 5.9. Notices.
All notices, consents, requests, instructions, approvals and
other communications provided for in this Agreement shall be in
writing and shall be deemed validly given upon personal delivery
or one day after being sent by overnight courier service or by
telecopy (so long as for notices or other communications sent by
telecopy, the transmitting telecopy machine records electronic
confirmation of the due transmission of the notice), at the
following address or telecopy number, or at such other address
or telecopy number as a party may designate to the other parties:
(a) if to UGC to:
UnitedGlobalCom,
Inc.
4643
South Ulster Street
Denver,
Colorado 80237
Attn:
Ellen Spangler, Esq.
Fax:
(303) 770-4207
with
copies to:
Debevoise &
Plimpton LLP
919 Third
Avenue
New York,
New York 10022
Attn.: Franci
J. Blassberg, Esq.
Paul
S. Bird, Esq.
Fax:
(212) 909-6836
and
Holme
Roberts & Owen LLP
1700
Lincoln, Suite 4100
Denver,
Colorado 80203
Attn.: W.
Dean Salter, Esq.
Fax:
(303) 866-0200
C-5
(b) if to Stockholder to:
John C.
Malone
12300
Liberty Boulevard
Englewood,
CO 80112
Fax:
(720) 875-5394
with
copies to:
Elizabeth
M. Markowski
Senior
Vice President and
General
Counsel
Liberty
Media International, Inc.
12300
Liberty Boulevard
Englewood,
CO 80112
Fax:
(720) 875-5858
and
Robert W.
Murray Jr.
Baker
Botts L.L.P.
30
Rockefeller Plaza
New York,
New York 10112
Fax:
(212) 259-2540
Section 5.10. Remedies.
No failure or delay by any party in exercising any right, power
or privilege under this Agreement shall operate as a waiver
thereof nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. The rights and remedies
provided herein shall be cumulative and not exclusive of any
rights or remedies provided by law.
Section 5.11. Severability.
If any term or provision of this Agreement is held to be
invalid, illegal, incapable of being enforced by any rule of
law, or public policy, or unenforceable for any reason, it shall
be adjusted rather than voided, if possible, in order to achieve
the intent of the parties hereto to the maximum extent possible.
In any event, the invalidity or unenforceability of any
provision of this Agreement in any jurisdiction shall not affect
the validity or enforceability of the remainder of this
Agreement in that jurisdiction or the validity or enforceability
of this Agreement, including that provision, in any other
jurisdiction. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced,
the parties hereto shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as
closely as possible in a mutually acceptable manner in order
that the terms of this Agreement remain as originally
contemplated to the fullest extent possible.
Section 5.12. Integration.
This Agreement constitutes the full and entire understanding and
agreement of the parties with respect to the subject matter
hereof and supersedes any and all prior understandings or
agreements relating to the subject matter hereof.
Section 5.13. Section Headings.
The article and section headings of this Agreement are for
convenience of reference only and are not to be considered in
construing this Agreement.
Section 5.14. Further
Assurances. From time to time at the request of UGC, and
without further consideration, Stockholder shall execute and
deliver or cause to be executed and delivered such additional
documents and instruments and shall take all such further action
as may be reasonably necessary or desirable to effect the
matters contemplated by this Agreement.
Section 5.15. Stop
Transfer. Stockholder agrees that he shall not request
that LMI register the Transfer (book-entry or otherwise) of any
certificate or uncertificated interest representing any Subject
Shares, unless such Transfer is made in compliance with this
Agreement.
C-6
Section 5.16. Counterparts;
Effectiveness. This Agreement may be executed in two or
more counterparts, all of which shall be considered the same
agreement. Signature pages from separate identical counterparts
may be combined with the same effect as if the parties signing
such signature page had signed the same counterpart. This
Agreement shall become effective when each party hereto shall
have received counterparts hereof signed by all of the other
parties hereto.
[Remainder of page intentionally left blank.]
C-7
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and date first above written.
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Title: |
President and Chief Executive Officer |
C-8
Schedule 1.1(c)
1. Restrictions created by or arising under the federal
securities laws.
2. Restrictions that do not (in the case of a bona fide
pledge, prior to any default or foreclosure) interfere with the
ability of Stockholder to vote the Subject Shares in accordance
with his obligations under this Agreement.
Appendix D
[Letterhead of Morgan & Stanley Co. Incorporated]
January 17, 2005
Mr. John P. Cole, Jr.
Mr. John W. Dick
Mr. Paul A. Gould
Directors
Special Committee of the
Board of Directors
UnitedGlobalCom, Inc.
Members of the Special Committee:
We understand that UnitedGlobalCom, Inc. (UGC or the
Company), Liberty Media International, Inc.
(LMI), New Cheetah, Inc., a wholly owned subsidiary
of LMI (HoldCo), and Cheetah Acquisition Corp.
(LMI Merger Sub) and Tiger Global Acquisition Corp.
(Tiger Merger Sub), each of which are wholly owned
subsidiaries of HoldCo, propose to enter into an Agreement and
Plan of Merger, dated as of January 17, 2005 (the
Merger Agreement), which provides, among other
things, for the simultaneous mergers of LMI Merger Sub with and
into LMI (the LMI Merger) and Tiger Merger Sub with
and into UGC (the UGC Merger, and together with the
LMI Merger, the Mergers). As a result of the
Mergers, each of LMI and UGC will survive as a wholly owned
subsidiary of HoldCo. Pursuant to the UGC Merger, each
outstanding share of Class A Common Stock of UGC, par value
$0.01 per share (the UGC Class A Common
Stock), Class B Common Stock of UGC, par value
$0.01 per share (the UGC Class B Common
Stock), and Class C Common Stock of UGC, par value
$0.01 per share (the UGC Class C Common
Stock and together with the UGC Class A Common Stock
and the UGC Class B Common Stock, the Company Common
Stock), other than shares held in treasury or held by LMI
or any of its wholly owned subsidiaries, will be converted into
the right to receive 0.2155 shares (the Exchange
Ratio) of Series A Common Stock of HoldCo, par value
$0.01 per share (the HoldCo Series A Common
Stock) (the Stock Consideration), or, at the
holders election, $9.58 per share in cash (the
Cash Consideration, and together with the Stock
Consideration, the Merger Consideration), provided
that the amount of cash to be received by a holder making a cash
election is subject to proration, based on formulas set forth in
the Merger Agreement, such that the total Cash Consideration
will not exceed 20% of the Merger Consideration. In addition, we
note that pursuant to the LMI Merger, holders of LMI equity will
receive securities of HoldCo with comparable rights to their LMI
securities. We understand that LMI presently owns approximately
9% of UGC Class A Common Stock, 100% of UGC Class B
Common Stock, and approximately 99% of UGC Class C Common
Stock and that an affiliate of LMI holds the remaining
approximate 1% of UGC Class C Common Stock, with the result
that LMI owns approximately 53% of the economic interests in UGC
and approximately 91% of the voting power of UGC. The terms and
conditions of the Merger are more fully set forth in the Merger
Agreement.
You have asked for our opinion as to whether the Merger
Consideration pursuant to the Merger Agreement is fair from a
financial point of view to the holders of shares of UGC
Class A Common Stock (other than LMI and its affiliates).
For purposes of the opinion set forth herein, we have:
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a) reviewed certain publicly available financial statements
and other information of UGC and LMI; |
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b) reviewed certain internal financial statements and other
financial and operating data concerning UGC and LMI prepared by
the managements of UGC and LMI, respectively; |
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c) reviewed certain financial projections prepared by the
respective managements of UGC and LMI; |
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d) discussed the past and current operations and financial
condition and prospects of UGC and LMI with senior executives of
UGC and LMI, respectively; |
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e) considered information relating to certain strategic,
financial and operational benefits anticipated from the Merger,
discussed with the management of UGC; |
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f) discussed the strategic rationale for the UGC Merger
with the senior executives of UGC; |
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g) reviewed the reported prices and trading activity for
the UGC Class A Common Stock and the Series A common
stock of LMI, $.01 par value per share (the LMI
Series A Stock); |
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h) compared the financial performance of UGC and LMI, as
well as the prices and trading activity of the UGC Class A
Common Stock and the LMI Series A Stock with that of
certain other comparable publicly-traded companies and their
securities; |
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i) reviewed the financial terms, to the extent publicly
available, of selected minority buy-back transactions; |
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j) participated in discussions and negotiations among
representatives of UGC and LMI and their respective financial
and legal advisors; |
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k) reviewed the proposed Merger Agreement and certain
related documents; and |
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l) performed such other analyses and considered such other
factors as we have deemed appropriate. |
We have assumed and relied upon without independent verification
the accuracy and completeness of the information reviewed by us
for the purposes of this opinion. With respect to the internal
financial statements, other financial and operating data, and
financial forecasts, including information relating to certain
strategic, financial and operational benefits anticipated from
the UGC Merger, we have assumed that they have been reasonably
prepared on bases reflecting best available estimates and
judgments of the future financial performance of the Company and
LMI.
We have also relied without independent investigation on the
assessment by the executives of UGC regarding the strategic
rationale for the UGC Merger. In addition, we have assumed that
the Mergers will be consummated in accordance with the terms set
forth in the proposed Merger Agreement, including among other
things, that the LMI Merger and UGC Merger will be treated as a
tax-free reorganization and exchange, respectively, each
pursuant to the Internal Revenue Code of 1986, as amended,
without material modification, delay or waiver. We have not made
any independent valuation or appraisal of the assets or
liabilities or technologies of the Company or LMI, nor have we
been furnished with any such appraisals. Our opinion is
necessarily based on financial, economic, market and other
conditions as in effect on, and the information made available
to us as of, the date hereof.
In arriving at our opinion, we were not authorized to solicit,
and did not solicit, interest from any party with respect to an
acquisition, business combination or other extraordinary
transaction involving the Company or its assets.
We have acted as financial advisor to the Special Committee of
the Board of Directors of the Company (the Special
Committee) in connection with the UGC Merger and will
receive a fee for our services. In the past, Morgan
Stanley & Co. Incorporated (Morgan Stanley)
and its affiliates have provided financial advisory and
financing services for UGC and have received fees for the
rendering of these services.
In addition, Morgan Stanley is a full service securities firm
engaged in securities trading, investment management and
brokerage services. In the ordinary course of its trading,
brokerage, investment management and financing activities,
Morgan Stanley or its affiliates may actively trade the debt and
equity of the securities of UGC and LMI for its own accounts or
for the accounts or its customers and, accordingly, may at any
time hold long or short positions in such securities.
It is understood that this letter is for the information of the
Special Committee in connection with the UGC Merger and may not
be used for any other purpose without our prior written consent,
except that this opinion may be included in its entirety in any
filing made by the Company with the Securities and Exchange
Commission with
D-2
respect to the Mergers. This opinion expresses no opinion or
recommendation as to how holders of Company Common Stock should
vote at the shareholders meeting held in connection with
the UGC Merger or what form of consideration holders of Company
Common Stock should elect. In addition, this opinion does not in
any manner address the prices at which the HoldCo Series A
Common Stock, the LMI Series A Stock or the Company Common
Stock will actually trade at any time.
Based upon and subject to the foregoing, we are of the opinion
on the date hereof that the Merger Consideration pursuant to the
Merger Agreement is fair from a financial point of view to the
holders of shares of UGC Class A Common Stock (other than
LMI and its affiliates).
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Very truly yours, |
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MORGAN STANLEY & CO. INCORPORATED |
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Richard S. Brail |
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Managing Director |
D-3
Appendix E
[Letterhead of Banc of America Securities LLC]
January 17, 2005
Board of Directors
Liberty Media International, Inc.
123000 Liberty Boulevard
Englewood, Colorado 80112
Members of the Board of Directors:
You have requested our opinion as to the fairness from a
financial point of view to the holders of common stock of
Liberty Media International, Inc. (the Merger
Partner), other than any affiliates of the Merger Partner,
of the consideration proposed to be received by such
stockholders provided for in connection with the proposed
transaction with UnitedGlobalCom, Inc. (the Company)
as more fully described below (the Transaction).
Pursuant to the terms of the Agreement and Plan of Merger to be
dated as of January 17, 2005 (the Agreement) to
be entered into among the Company, the Merger Partner, New
Cheetah, Inc. (the HoldCo), Cheetah Acquisition
Corp. and Tiger Global Acquisition Corp., Cheetah Acquisition
Corp., a wholly owned subsidiary of Holdco, will merge with and
into the Merger Partner (the LMI Merger), and Tiger
Global Acquisition Corp., a wholly owned subsidiary of Holdco,
will merge with and into the Company (the UGC
Merger), whereupon each of the Company and the Merger
Partner will become a wholly owned subsidiary of HoldCo. Upon
the completion of the LMI Merger, each outstanding share of the
Merger Partners Series A Common Stock, Series B
Common Stock, Series C Common Stock and Preferred Stock
(other than any such share held in treasury of the Merger
Partner) will be converted into one validly issued, fully paid
and nonassessable share of HoldCos Series A Common
Stock, Series B Common Stock, Series C Common Stock,
and Preferred Stock, respectively. Upon the completion of the
UGC Merger, each outstanding share of the Companys Common
Stock (other than any such share held in treasury of the Company
or by the Merger Partner or any of its wholly owned
subsidiaries) will be converted into 0.2155 shares of
HoldCos Series A Common Stock or, at the election of
the holder thereof, $9.58 in cash; provided that the election of
holders will be adjusted as provided in Section 3.4(f) of
the Agreement so as to limit the number of shares with respect
to which the cash consideration is payable to the UGC Share
Threshold Number (as defined in the Agreement). The terms and
conditions of the Transaction are more fully set out in the
Agreement.
For purposes of the opinion set forth herein, we have:
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(i) reviewed certain publicly available financial
statements and other business and financial information of the
Company and the Merger Partner, respectively; |
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(ii) reviewed certain internal financial statements and
other financial and operating data concerning the Company and
the Merger Partner, respectively; |
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(iii) analyzed certain financial forecasts to which we were
directed by the management of the Merger Partner; |
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(iv) reviewed and discussed with senior executives of the
Merger Partner information relating to certain benefits
anticipated from the Transaction; |
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(v) discussed the past and current operations, financial
condition and prospects of the Company with senior executives of
the Company and discussed the past and current operations,
financial condition and prospects of the Merger Partner with
senior executives of the Merger Partner; |
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(vi) reviewed the reported prices and trading activity for
the Company common stock and the Merger Partner common stock; |
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(vii) compared the financial performance of the Company and
the prices and trading activity of the Company common stock with
that of certain other publicly traded companies we deemed
relevant; |
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(viii) compared certain financial terms of the Transaction
to financial terms, to the extent publicly available, of certain
other business combination transactions we deemed relevant; |
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(ix) participated in discussions and negotiations among
representatives of the Company and the Merger Partner and their
financial and legal advisors; |
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(x) reviewed the January 16, 2005 draft of the
Agreement (the Draft Agreement) and certain related
documents; and |
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(xi) performed such other analyses and considered such
other factors as we have deemed appropriate. |
We have assumed and relied upon, without independent
verification, the accuracy and completeness of the financial and
other information reviewed by us for the purposes of this
opinion. With respect to the financial forecasts, we have been
directed by the management of the Merger Partner to rely on
certain publicly available financial forecasts in performing our
analyses and we have assumed that, in the good faith belief of
the management of the Merger Partner, such forecasts reflect the
best currently available estimates of the future financial
performance of the Company and the Merger Partner. We have not
assumed any responsibility for the independent verification of
any such information, and we have further relied upon the
assurances of the senior management of the Merger Partner that
it is unaware of any facts that would make the information and
estimates provided to us, or to which we were directed,
incomplete or misleading. We have not made any independent
valuation or appraisal of the assets or liabilities of the
Company or the Merger Partner nor have we been furnished with
any such appraisals.
In arriving at our opinion, we have assumed that the LMI Merger
will qualify as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as
amended (the Code) and the regulations promulgated
thereunder, and that the conversion of the UGC common stock into
shares of HoldCo Class A Common Stock pursuant to the UGC
Merger, will qualify as an exchange within the meaning of
Section 351(a) of the Code and the regulations promulgated
thereunder. We have relied as to all legal matters relevant to
rendering our opinion upon the advice of counsel. We have also
assumed that the final executed Agreement will not differ in any
material respect from the Draft Agreement reviewed by us, and
that the Transaction will be consummated as provided in the
Draft Agreement, with full satisfaction of all covenants and
conditions set forth in the Draft Agreement and without any
waivers thereof and that all material governmental, regulatory
or other consents and approvals necessary for the consummation
of the Transaction will be obtained without any adverse effect
on the Merger Partner or the Company or the contemplated
benefits of the Transaction.
We have assumed that the terms of the Agreement and the
transactions are the most beneficial terms from the Merger
Partners perspective that could under the circumstances be
negotiated among the parties to the Agreement and the
transactions contemplated thereby.
We have acted as a sole financial advisor to the Board of
Directors of the Merger Partner in connection with the
Transaction and have received a fee for our services, and will
receive additional fees for our services, which are contingent
upon the rendering of this opinion and the consummation of the
Transaction. We or our affiliates have provided and may in the
future provide financial advisory and financing services to the
Merger Partner, the Company and certain of their affiliates and
have received or may in the future receive fees for the
rendering of these services. Bank of America, N.A., an affiliate
of ours, serves as an agent and a lender under certain senior
credit facilities of the Merger Partners affiliates and
has received fees for the rendering of such services. In the
ordinary course of our businesses, we and our affiliates may
actively trade the debt and equity securities or loans of the
Company, the Merger Partner and their affiliates for our own
account or for the accounts of customers, and accordingly, we or
our affiliates may at any time hold long or short positions in
such securities or loans.
It is understood that this letter is for the benefit and use of
the Board of Directors of the Merger Partner in connection with
and for the purposes of its evaluation of the Transaction. This
opinion may not be disclosed, referred to, or communicated (in
whole or in part) to any third party for any purpose whatsoever
except with our prior written consent in each instance. However,
this opinion may be included in its entirety in any filing made
by
E-2
the Merger Partner in respect of the Transaction with the
Securities and Exchange Commission, so long as this opinion is
reproduced in such filing in full and any description of or
reference to us or summary of this opinion and the related
analysis in such filing is in a form acceptable to us and our
counsel. In furnishing this opinion, we do not admit that we are
experts within the meaning of the term experts as
used in the Securities Act of 1933, as amended (the
Securities Act) and the rules and regulations
promulgated thereunder, nor do we admit that this opinion
constitutes a report or valuation within the meaning of
Section 11 of the Securities Act. Our opinion is
necessarily based on economic, market and other conditions as in
effect on, and the information made available to us as of, the
date hereof. It should be understood that subsequent
developments may affect this opinion and we do not have any
obligation to update, revise or reaffirm this opinion. We have
not been requested to opine as to, and our opinion does not in
any manner address (i) the Merger Partners underlying
business decision to proceed with or effect the Transaction or
(ii) whether any alternative transaction might be more
favorable to the common stockholders of the Merger Partner. This
opinion does not in any manner address the prices at which any
of the HoldCos securities will trade following
consummation of the Transaction. In addition, we express no
opinion or recommendation as to how the stockholders of the
Merger Partner and the Company should vote at the
stockholders meetings held in connection with the
Transaction.
Based upon and subject to the foregoing, including the various
assumptions and limitations set forth herein, we are of the
opinion on the date hereof that the consideration to be received
by the holders of the Merger Partners common stock, other
than any affiliates of the Merger Partner, in the proposed
Transaction is fair from a financial point of view to the
holders of the Merger Partners common stock, other than
any affiliates of the Merger Partner.
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Very truly yours, |
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/s/ Banc of America Securities LLC |
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BANC OF AMERICA SECURITIES LLC |
E-3
Appendix F
FORM OF
RESTATED CERTIFICATE OF INCORPORATION
OF
LIBERTY GLOBAL, INC.
LIBERTY GLOBAL, INC., a corporation organized and existing
under the laws of the State of Delaware, hereby certifies as
follows:
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(1) The name of the Corporation is Liberty Global, Inc.
The original Certificate of Incorporation of the Corporation was
filed on January 13, 2005. The name under which the
Corporation was originally incorporated is Liberty Global, Inc.
A Certificate of Amendment to Certificate of Incorporation was
filed on January 18, 2005, changing the name of the
Corporation to Liberty Global, Inc. |
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(2) This Restated Certificate of Incorporation restates
and amends the Certificate of Incorporation of the Corporation,
as amended prior to the date hereof. |
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(3) This Restated Certificate of Incorporation has been
duly adopted in accordance with Sections 242 and 245 of the
General Corporation Law of the State of Delaware. |
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(4) This Restated Certificate of Incorporation shall
become effective upon its filing with the Secretary of State of
the State of Delaware. |
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(5) Pursuant to Sections 242 and 245 of the General
Corporation Law of the State of Delaware, the text of the
Certificate of Incorporation is hereby restated to read in its
entirety as follows: |
ARTICLE I
NAME
The name of the corporation is Liberty Global, Inc. (the
Corporation).
ARTICLE II
REGISTERED OFFICE
The address of the registered office of the Corporation in the
State of Delaware is 2711 Centerville Road, Suite 400,
in the City of Wilmington, County of New Castle, 19808. The
name of its registered agent at such address is The
Prentice-Hall Corporation System, Inc.
ARTICLE III
PURPOSE
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the
General Corporation Law of Delaware (as the same may be amended
from time to time, DGCL).
ARTICLE IV
AUTHORIZED STOCK
The total number of shares of capital stock which the
Corporation shall have authority to issue is one billion one
hundred million (1,100,000,000) shares, which shall be divided
into the following classes:
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(a) One billion fifty million (1,050,000,000) shares shall
be of a class designated Common Stock, par value
$0.01 per share (Common Stock), such
class to be divided into series as provided in Section A of
this Article IV; and |
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(b) Fifty million (50,000,000) shares shall be of a class
designated Preferred Stock, par value $0.01 per share
(Preferred Stock), such class to be issuable
in series as provided in Section B of this Article IV. |
The description of the Common Stock and the Preferred Stock of
the Corporation, and the relative rights, preferences and
limitations thereof, or the method of fixing and establishing
the same, are as hereinafter in this Article IV set forth:
SECTION A
SERIES A COMMON STOCK, SERIES B COMMON STOCK
AND SERIES C COMMON STOCK
Five hundred million (500,000,000) shares of Common Stock shall
be of a series designated as Series A Common Stock (the
Series A Common Stock), fifty million
(50,000,000) shares of Common Stock shall be of a series
designated as Series B Common Stock (the
Series B Common Stock) and five hundred
million (500,000,000) shares of Common Stock shall be of a
series designated as Series C Common Stock (the
Series C Common Stock).
Each share of common stock, par value $0.01 per share
(Old Common Stock), of the Corporation issued
and outstanding immediately prior to the effectiveness of this
Restated Certificate of Incorporation (the Effective
Time) shall be reclassified as and converted into one
fully paid and non-assessable share of Series A Common
Stock such that at the Effective Time each holder of record of
one share of Old Common Stock shall, without further action, be
and become the holder of record of one share of Series A
Common Stock. Any certificate that previously represented a
share of Old Common Stock shall represent, from and following
the Effective Time, a share of Series A Common Stock
without the necessity for any exchange of certificates.
Each share of Series A Common Stock, each share of
Series B Common Stock and each share of Series C
Common Stock shall, except as otherwise provided in this
Section A, be identical in all respects and shall have
equal rights, powers and privileges.
1. Voting Rights.
Holders of Series A Common Stock shall be entitled to one
vote for each share of such stock held, and holders of
Series B Common Stock shall be entitled to ten votes for
each share of such stock held, on all matters that may be
submitted to a vote of stockholders at any annual or special
meeting thereof (regardless of whether such holders are voting
together with the holders of all series of Common Stock that are
Voting Securities (as defined in Article V,
Section C), or as a separate class with the holders of one
or more series of Common Stock or as a separate series of Common
Stock). Holders of Series C Common Stock shall not be
entitled to any voting powers, except as otherwise required by
the laws of the State of Delaware. When the vote or consent of
the holders of Series C Common Stock is required by the
laws of the State of Delaware, the holders of Series C
Common Stock shall be entitled to
1/100th
of a vote per share. Except as may otherwise be required by the
laws of the State of Delaware or, with respect to any series of
Preferred Stock, in any resolution or resolutions providing for
the establishment of such series pursuant to authority vested in
the Board of Directors by Article IV, Section B, of
this Restated Certificate of Incorporation (as it may from time
to time hereafter be amended or restated, the
Certificate), the holders of outstanding
shares of Series A Common Stock, the holders of outstanding
shares of Series B Common Stock and the holders of
outstanding shares of each series of Preferred Stock entitled to
vote thereon, if any, shall vote as one class with respect to
the election of directors and with respect to all other matters
to be voted on by stockholders of the Corporation (including,
without limitation, any proposed amendment to this Certificate
that would increase the number of authorized shares of Common
Stock or any series thereof, the number of authorized shares of
Preferred Stock or any series thereof or the number of
authorized shares of any other class or series of capital stock
or decrease the number of authorized shares of Common Stock or
any series thereof, the number of authorized shares of Preferred
Stock or any series thereof or the number of authorized shares
of any other class or series of capital stock (but not below the
number of shares of Common Stock or any series thereof,
Preferred Stock or any series thereof or any other class or
series of capital stock then outstanding)), and except as
required by law no separate vote or consent of the holders of
shares of any series of Common Stock or any series of Preferred
Stock shall be required for the approval of any such matter.
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2. Conversion Rights.
Each share of Series B Common Stock shall be convertible,
at the option of the holder thereof, into one fully paid and
non-assessable share of Series A Common Stock. Any such
conversion may be effected by any holder of Series B Common
Stock by surrendering such holders certificate or
certificates for the Series B Common Stock to be converted,
duly endorsed, at the office of the Corporation or any transfer
agent for the Series B Common Stock, together with a
written notice to the Corporation at such office that such
holder elects to convert all or a specified number of shares of
Series B Common Stock represented by such certificate and
stating the name or names in which such holder desires the
certificate or certificates representing shares of Series A
Common Stock to be issued and, if less than all of the shares of
Series B Common Stock represented by one certificate are to
be converted, the name or names in which such holder desires the
certificate representing shares of Series B Common Stock to
be issued. If so required by the Corporation, any certificate
representing shares surrendered for conversion in accordance
with this paragraph shall be accompanied by instruments of
transfer, in form satisfactory to the Corporation, duly executed
by the holder of such shares or the duly authorized
representative of such holder, and shall, if required by this
Section A.2., be accompanied by payment, or evidence of
payment, of applicable issue or transfer taxes. Promptly
thereafter, the Corporation shall issue and deliver to such
holder or such holders nominee or nominees, a certificate
or certificates representing the number of shares of
Series A Common Stock to which such holder shall be
entitled as herein provided. If less than all of the shares of
Series B Common Stock represented by any one certificate
are to be converted, the Corporation shall issue and deliver to
such holder or such holders nominee or nominees a new
certificate representing the shares of Series B Common
Stock not converted. Such conversion shall be deemed to have
been made at the close of business on the date of receipt by the
Corporation or any such transfer agent of the certificate or
certificates, notice and, if required, instruments of transfer
and payment or evidence of payment of taxes referred to above,
and the person or persons entitled to receive the Series A
Common Stock issuable on such conversion shall be treated for
all purposes as the record holder or holders of such
Series A Common Stock on that date. A number of shares of
Series A Common Stock equal to the number of shares of
Series B Common Stock outstanding from time to time shall
be set aside and reserved for issuance upon conversion of shares
of Series B Common Stock. Shares of Series B Common
Stock that have been converted hereunder shall become treasury
shares that may be issued or retired by resolution of the Board
of Directors. Shares of Series A Common Stock and shares of
Series C Common Stock shall not be convertible into shares
of any other series of Common Stock.
The Corporation shall pay any and all documentary, stamp or
similar issue or transfer taxes that may be payable in respect
of the issue or delivery of certificates representing shares of
Common Stock on conversion of shares of Series B Common
Stock pursuant to this Section A.2. The Corporation shall
not, however, be required to pay any tax that may be payable in
respect of any issue or delivery of certificates representing
any shares of Common Stock in a name other than that in which
the shares of Series B Common Stock so converted were
registered and no such issue or delivery shall be made unless
and until the person requesting the same has paid to the
Corporation the amount of any such tax or has established to the
satisfaction of the Corporation that such tax has been paid.
3. Dividends Generally.
Whenever a dividend, other than a dividend that consists of a
Share Distribution, is paid to the holders of one or more series
of Common Stock, the Corporation also shall pay to the holders
of each other series of Common Stock a dividend per share equal
to the dividend per share paid to the holders of such first one
or more series of Common Stock, such that the dividend paid on
each share of Common Stock, regardless of series, is the same.
Dividends shall be payable only as and when declared by the
Board of Directors of the Corporation out of assets of the
Corporation legally available therefor. Whenever a dividend that
consists of a Share Distribution is paid to the holders of one
or more series of Common Stock, the Corporation shall also pay a
dividend that consists of a Share Distribution to the holders of
each other series of Common Stock as provided in
Section A.4. below. For purposes of this Section A.3.
and Section A.4. below, a Share
Distribution shall mean a dividend payable in shares
of any class or series of capital stock, Convertible Securities
(as defined in Section A.4.) or other equity securities of
the Corporation or any other corporation, partnership, limited
liability company, joint venture, trust, unincorporated
association or other legal entity (all of the foregoing and any
natural person, a Person).
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4. Share Distributions.
If at any time a Share Distribution is to be made with respect
to the Series A Common Stock, Series B Common Stock or
Series C Common Stock, such Share Distribution may be
declared and paid only as follows:
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(a) a Share Distribution (i) consisting of shares of
Series A Common Stock (or Convertible Securities that are
convertible into, exchangeable for or evidence the right to
purchase shares of Series A Common Stock) may be declared
and paid to holders of Series A Common Stock, Series B
Common Stock and Series C Common Stock, on an equal per
share basis; or (ii) consisting of shares of Series B
Common Stock (or Convertible Securities that are convertible
into, exchangeable for or evidence the right to purchase shares
of Series B Common Stock) may be declared and paid to
holders of Series A Common Stock, Series B Common
Stock and Series C Common Stock, on an equal per share
basis; or (iii) consisting of shares of Series C
Common Stock (or Convertible Securities that are convertible
into, exchangeable for or evidence the right to purchase shares
of Series C Common Stock) may be declared and paid to
holders of Series A Common Stock, Series B Common
Stock and Series C Common Stock, on an equal per share
basis; or (iv) consisting of shares of Series A Common
Stock (or Convertible Securities that are convertible into,
exchangeable for or evidence the right to purchase shares of
Series A Common Stock) may be declared and paid to holders
of Series A Common Stock, shares of Series B Common
Stock (or Convertible Securities that are convertible into,
exchangeable for or evidence the right to purchase shares of
Series B Common Stock) may be declared and paid to holders
of Series B Common Stock and shares of Series C Common
Stock (or Convertible Securities that are convertible into,
exchangeable for or evidence the right to purchase shares of
Series C Common Stock) may be declared and paid to holders
of Series C Common Stock, in each case on an equal per
share basis; and |
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(b) a Share Distribution consisting of shares of any class
or series of securities of the Corporation or any other Person
other than Series A Common Stock, Series B Common
Stock or Series C Common Stock (or Convertible Securities
that are convertible into, exchangeable for or evidence the
right to purchase shares of Series A Common Stock,
Series B Common Stock or Series C Common Stock), may
be declared and paid either on the basis of a distribution of
(i) identical securities, on an equal per share basis, to
holders of Series A Common Stock, Series B Common
Stock and Series C Common Stock, (ii) separate classes
or series of securities, on an equal per share basis to the
holders of each series of Common Stock or (iii) a separate
class or series of securities to the holders of one or more
series of Common Stock and, on an equal per share basis, a
different class or series of securities to the holders of all
other series of Common Stock; provided, that, in
the case of clauses (ii) and (iii), (x) such separate
classes or series of securities (and, if the distribution
consists of Convertible Securities, the securities into which
such Convertible Securities are convertible or for which they
are exchangeable or which they evidence the right to purchase)
do not differ in any respect other than their relative voting
rights (and related differences in designation, conversion and
Share Distribution provisions), with holders of shares of
Series B Common Stock receiving securities of the class or
series having (or convertible into, exchangeable for or
evidencing the right to purchase securities having) the highest
relative voting rights and the holders of shares of each other
series of Common Stock receiving securities of a class or series
having (or convertible into, exchangeable for or evidencing the
right to purchase securities having) lesser relative voting
rights, in each case without regard to whether such rights
differ to a greater or lesser extent than the corresponding
differences in voting rights (and related differences in
designation, conversion and Share Distribution provisions) among
the Series A Common Stock, the Series B Common Stock
and the Series C Common Stock, and (y) in the event
the securities to be received by the holders of shares of Common
Stock other than the Series B Common Stock consist of
different classes or series of securities, with each such class
or series of securities (or the securities into which such class
or series is convertible or for which such class or series is
exchangeable or which such class or series evidences the right
to purchase) differing only with respect to the relative voting
rights of such class or series (and the related differences in
designation, conversion, redemption and Share Distribution
provisions), then such classes or series of securities shall be
distributed to the holders of each series of Common Stock (other
than the Series B Common Stock) (A) as the Board of
Directors determines or (B) such that the relative voting
rights (and related differences in designation, conversion,
redemption and Share Distribution provisions) of the class or
series of securities (or the securities into which such class or
series is convertible |
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or for which such class or series is exchangeable or which such
class or series evidences the right to purchase) to be received
by the holders of each series of Common Stock (other than the
Series B Common Stock) corresponds to the extent
practicable to the relative voting rights (and related
differences in designation, conversion, redemption and Share
Distribution provisions) of such series of Common Stock, as
compared to the other series of Common Stock (other than the
Series B Common Stock). |
As used herein, the term Convertible
Securities means (x) any securities of the
Corporation (other than any series of Common Stock) that are
convertible into, exchangeable for or evidence the right to
purchase any shares of any series of Common Stock, whether upon
conversion, exercise, exchange, pursuant to anti-dilution
provisions of such securities or otherwise, and (y) any
securities of any other Person that are convertible into,
exchangeable for or evidence the right to purchase, securities
of such Person or any other Person, whether upon conversion
exercise, exchange, pursuant to antidilution provisions of such
securities or otherwise.
5. Reclassification.
The Corporation shall not reclassify, subdivide or combine one
series of Common Stock without reclassifying, subdividing or
combining each other series of Common Stock on an equal per
share basis.
6. Liquidation and
Dissolution.
In the event of a liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, after payment or
provision for payment of the debts and liabilities of the
Corporation and subject to the prior payment in full of the
preferential amounts to which any series of Preferred Stock is
entitled, the holders of shares of Series A Common Stock,
the holders of shares of Series B Common Stock and the
holders of shares of Series C Common Stock shall share
equally, on a share for share basis, in the assets of the
Corporation remaining for distribution to its common
stockholders. Neither the consolidation or merger of the
Corporation with or into any other Person or Persons nor the
sale, transfer or lease of all or substantially all of the
assets of the Corporation shall itself be deemed to be a
liquidation, dissolution or winding up of the Corporation within
the meaning of this paragraph 6.
SECTION B
PREFERRED STOCK
The Preferred Stock may be divided and issued in one or more
series from time to time, with such powers, designations,
preferences and relative, participating, optional or other
rights, and qualifications, limitations or restrictions thereof,
as shall be stated and expressed in a resolution or resolutions
providing for the issue of each such series adopted by the Board
of Directors (a Preferred Stock Designation).
The Board of Directors, in the Preferred Stock Designation with
respect to a series of Preferred Stock (a copy of which shall be
filed as required by law), shall, without limitation of the
foregoing, fix the following with respect to such series of
Preferred Stock:
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(i) the distinctive serial designations and the number of
authorized shares of such series, which may be increased or
decreased, but not below the number of shares thereof then
outstanding, by a certificate made, signed and filed as required
by law (except where otherwise provided in a Preferred Stock
Designation); |
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(ii) the dividend rate or amounts, if any, for such series,
the date or dates from which dividends on all shares of such
series shall be cumulative, if dividends on stock of such series
shall be cumulative, and the relative preferences or rights of
priority, if any, or participation, if any, with respect to
payment of dividends on shares of such series; |
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(iii) the rights of the shares of such series in the event
of any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, if any, and the relative
preferences or rights of priority, if any, of payment of shares
of such series; |
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(iv) the right, if any, of the holders of such series to
convert or exchange such stock into or for other classes or
series of a class of stock or indebtedness of the Corporation or
of another Person, and the terms and conditions of such
conversion or exchange, including provision for the adjustment
of the conversion or exchange rate in such events as the Board
of Directors may determine; |
F-5
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(v) the voting powers, if any, of the holders of such
series; |
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(vi) the terms and conditions, if any, for the Corporation
to purchase or redeem shares of such series; and |
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(vii) any other relative rights, powers, preferences and
limitations, if any, of such series. |
The Board of Directors is hereby expressly authorized to
exercise its authority with respect to fixing and designating
various series of the Preferred Stock and determining the
relative rights, powers and preferences, if any, thereof to the
full extent permitted by applicable law, subject to any
stockholder vote that may be required by this Certificate. All
shares of any one series of the Preferred Stock shall be alike
in every particular. Except to the extent otherwise expressly
provided in the Preferred Stock Designation for a series of
Preferred Stock, the holders of shares of such series shall have
no voting rights except as may be required by the laws of the
State of Delaware. Further, unless otherwise expressly provided
in the Preferred Stock Designation for a series of Preferred
Stock, no consent or vote of the holders of shares of Preferred
Stock or any series thereof shall be required for any amendment
to this Certificate that would increase the number of authorized
shares of Preferred Stock or the number of authorized shares of
any series thereof or decrease the number of authorized shares
of Preferred Stock or the number of authorized shares of any
series thereof (but not below the number of authorized shares of
Preferred Stock or such series, as the case may be, then
outstanding).
Except as may be provided by the Board of Directors in a
Preferred Stock Designation or by law, shares of any series of
Preferred Stock that have been redeemed (whether through the
operation of a sinking fund or otherwise) or purchased by the
Corporation, or which, if convertible or exchangeable, have been
converted into or exchanged for shares of stock of any other
class or classes shall have the status of authorized and
unissued shares of Preferred Stock and may be reissued as a part
of the series of which they were originally a part or may be
reissued as part of a new series of Preferred Stock to be
created by a Preferred Stock Designation or as part of any other
series of Preferred Stock.
ARTICLE V
DIRECTORS
SECTION A
NUMBER OF DIRECTORS
The governing body of the Corporation shall be a Board of
Directors. Subject to any rights of the holders of any series of
Preferred Stock to elect additional directors, the number of
directors shall not be less than three (3) and the exact
number of directors shall be fixed by the Board of Directors by
resolution adopted by the vote of 75% of the members then in
office. Election of directors need not be by written ballot.
SECTION B
CLASSIFICATION OF THE BOARD
Except as otherwise fixed by or pursuant to the provisions of
Article IV hereof relating to the rights of the holders of
any series of Preferred Stock to separately elect additional
directors, which additional directors are not required to be
classified pursuant to the terms of such series of Preferred
Stock, the Board of Directors of the Corporation shall be
divided into three classes: Class I, Class II and
Class III. Each class shall consist, as nearly as possible,
of a number of directors equal to one-third (1/3) of the number
of members of the Board of Directors authorized as provided in
Section A of this Article V. The term of office of the
initial Class I directors shall expire at the annual
meeting of stockholders in 2006; the term of office of the
initial Class II directors shall expire at the annual
meeting of stockholders in 2007; and the term of office of the
initial Class III directors shall expire at the annual
meeting of stockholders in 2008. At each annual meeting of
stockholders of the Corporation the successors of that class of
directors whose term expires at that meeting shall be elected to
hold office for a term expiring at the annual meeting of
stockholders held in the third year following the year of their
election. The directors of each class will hold office until
their respective successors are elected and qualified or until
such directors earlier death, resignation or removal.
F-6
SECTION C
REMOVAL OF DIRECTORS
Subject to the rights of the holders of any series of Preferred
Stock, directors may be removed from office only for cause upon
the affirmative vote of the holders of at least a majority of
the total voting power of the then outstanding shares of
Series A Common Stock, Series B Common Stock and any
series of Preferred Stock entitled to vote with the holders of
the Series A Common Stock and the Series B Common
Stock generally upon all matters that may be submitted to a vote
of stockholders at any annual or special meeting thereof
(collectively, Voting Securities).
SECTION D
NEWLY CREATED DIRECTORSHIPS AND VACANCIES
Subject to the rights of holders of any series of Preferred
Stock, vacancies on the Board of Directors resulting from death,
resignation, removal, disqualification or other cause, and newly
created directorships resulting from any increase in the number
of directors on the Board of Directors, shall be filled only by
the affirmative vote of a majority of the remaining directors
then in office (even though less than a quorum) or by the sole
remaining director. Any director elected in accordance with the
preceding sentence shall hold office for the remainder of the
full term of the class of directors in which the vacancy
occurred or to which the new directorship is apportioned, and
until such directors successor shall have been elected and
qualified or until such directors earlier death,
resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of
any incumbent director, except as may be provided in a Preferred
Stock Designation with respect to any additional director
elected by the holders of the applicable series of Preferred
Stock.
SECTION E
LIMITATION ON LIABILITY AND INDEMNIFICATION
1. Limitation On Liability.
To the fullest extent permitted by the DGCL as the same exists
or may hereafter be amended, a director of the Corporation shall
not be liable to the Corporation or any of its stockholders for
monetary damages for breach of fiduciary duty as a director. Any
repeal or modification of this paragraph 1 shall be
prospective only and shall not adversely affect any limitation,
right or protection of a director of the Corporation existing at
the time of such repeal or modification.
2. Indemnification.
(a) Right to Indemnification. The Corporation shall
indemnify and hold harmless, to the fullest extent permitted by
applicable law as it presently exists or may hereafter be
amended, any person who was or is made or is threatened to be
made a party or is otherwise involved in any action, suit or
proceeding, whether civil, criminal, administrative or
investigative (a proceeding) by reason of the fact
that he, or a person for whom he is the legal representative, is
or was a director or officer of the Corporation or while a
director or officer of the Corporation is or was serving at the
request of the Corporation as a director, officer, employee or
agent of another corporation or of a partnership, joint venture,
limited liability company, trust, enterprise or nonprofit
entity, including service with respect to employee benefit
plans, against all liability and loss suffered and expenses
(including attorneys fees) incurred by such person. Such
right of indemnification shall inure whether or not the claim
asserted is based on matters which antedate the adoption of this
Section E. The Corporation shall be required to indemnify
or make advances to a person in connection with a proceeding (or
part thereof) initiated by such person only if the proceeding
(or part thereof) was authorized by the Board of Directors of
the Corporation.
(b) Prepayment of Expenses. The Corporation shall
pay the expenses (including attorneys fees) incurred by a
director or officer in defending any proceeding in advance of
its final disposition, provided, however, that the
payment of expenses incurred by a director or officer in advance
of the final disposition of the proceeding shall be made only
upon receipt of an undertaking by the director or officer to
repay all amounts advanced if it should be
F-7
ultimately determined that the director or officer is not
entitled to be indemnified under this paragraph or otherwise.
(c) Claims. If a claim for indemnification or
payment of expenses under this paragraph is not paid in full
within 30 days after a written claim therefor has been
received by the Corporation, the claimant may file suit to
recover the unpaid amount of such claim and, if successful in
whole or in part, shall be entitled to be paid the expense of
prosecuting such claim. In any such action the Corporation shall
have the burden of proving that the claimant was not entitled to
the requested indemnification or payment of expenses under
applicable law.
(d) Non-Exclusivity of Rights. The rights conferred
on any person by this paragraph shall not be exclusive of any
other rights which such person may have or hereafter acquire
under any statute, provision of this Certificate, the Bylaws,
agreement, vote of stockholders or resolution of disinterested
directors or otherwise.
(e) Insurance. The Board of Directors may, to the
full extent permitted by applicable law as it presently exists,
or may hereafter be amended from time to time, authorize an
appropriate officer or officers to purchase and maintain at the
Corporations expense insurance: (i) to indemnify the
Corporation for any obligation which it incurs as a result of
the indemnification of directors and officers under the
provisions of this Section E; and (ii) to indemnify or
insure directors and officers against liability in instances in
which they may not otherwise be indemnified by the Corporation
under the provisions of this Section E.
(f) Other Indemnification. The Corporations
obligation, if any, to indemnify any person who was or is
serving at its request as a director, officer, employee or agent
of another corporation, partnership, joint venture, limited
liability company, trust, enterprise or nonprofit entity shall
be reduced by any amount such person may collect as
indemnification from such other corporation, partnership, joint
venture, limited liability company, trust, enterprise or
nonprofit entity.
3. Amendment or Repeal.
Any amendment, modification or repeal of the foregoing
provisions of this Section E shall not adversely affect any
right or protection hereunder of any person in respect of any
act or omission occurring prior to the time of such amendment,
modification or repeal.
SECTION F
AMENDMENT OF BYLAWS
In furtherance and not in limitation of the powers conferred by
the DGCL, the Board of Directors, by action taken by the
affirmative vote of not less than 75% of the members of the
Board of Directors then in office, is hereby expressly
authorized and empowered to adopt, amend or repeal any provision
of the Bylaws of this Corporation.
ARTICLE VI
MEETINGS OF STOCKHOLDERS
SECTION A
ANNUAL AND SPECIAL MEETINGS
Subject to the rights of the holders of any series of Preferred
Stock, stockholder action may be taken only at an annual or
special meeting. Except as otherwise provided in a Preferred
Stock Designation with respect to any series of Preferred Stock
or unless otherwise prescribed by law or by another provision of
this Certificate, special meetings of the stockholders of the
Corporation, for any purpose or purposes, shall be called by the
Secretary of the Corporation at the request of at least 75% of
the members of the Board of Directors then in office.
F-8
SECTION B
ACTION WITHOUT A MEETING
Except as otherwise provided in a Preferred Stock Designation
with respect to any series of Preferred Stock, no action
required to be taken or which may be taken at any annual meeting
or special meeting of stockholders may be taken without a
meeting, and the power of stockholders to consent in writing,
without a meeting, to the taking of any action is specifically
denied.
ARTICLE VII
ACTIONS REQUIRING SUPERMAJORITY STOCKHOLDER VOTE
Subject to the rights of the holders of any series of Preferred
Stock, the affirmative vote of the holders of at least 80% of
the total voting power of the then outstanding Voting
Securities, voting together as a single class at a meeting
specifically called for such purpose, shall be required in order
for the Corporation to take any action to authorize:
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(a) the amendment, alteration or repeal of any provision of
this Certificate or the addition or insertion of other
provisions herein; provided, however, that this
clause (a) shall not apply to any such amendment,
alteration, repeal, addition or insertion (i) as to which
the laws of the State of Delaware, as then in effect, do not
require the consent of this Corporations stockholders, or
(ii) that at least 75% of the members of the Board of
Directors then in office have approved; |
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(b) the adoption, amendment or repeal of any provision of
the Bylaws of the Corporation; provided, however,
that this clause (b) shall not apply to, and no vote of the
stockholders of the Corporation shall be required to authorize,
the adoption, amendment or repeal of any provision of the Bylaws
of the Corporation by the Board of Directors in accordance with
the power conferred upon it pursuant to Section F of
Article V of this Certificate; |
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(c) the merger or consolidation of this Corporation with or
into any other corporation; provided, however,
that this clause (c) shall not apply to any such merger or
consolidation (i) as to which the laws of the State of
Delaware, as then in effect, do not require the consent of this
Corporations stockholders, or (ii) that at least 75%
of the members of the Board of Directors then in office have
approved; |
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(d) the sale, lease or exchange of all, or substantially
all, of the assets of the Corporation; provided,
however, that this clause (d) shall not apply to any
such sale, lease or exchange that at least 75% of the members of
the Board of Directors then in office have approved; or |
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(e) the dissolution of the Corporation; provided,
however, that this clause (e) shall not apply to
such dissolution if at least 75% of the members of the Board of
Directors then in office have approved such dissolution. |
Subject to the foregoing provisions of this Article VII,
the Corporation reserves the right at any time, and from time to
time, to amend, alter, change or repeal any provision contained
in this Certificate, and other provisions authorized by the laws
of the State of Delaware at the time in force may be added or
inserted, in the manner now or hereafter prescribed by law; and
all rights, preferences and privileges of whatsoever nature
conferred upon stockholders, directors or any other Persons
whomsoever by and pursuant to this Certificate in its present
form or as hereafter amended are granted subject to the rights
reserved in this Article VII.
F-9
ARTICLE VIII
SECTION 203 OF THE DGCL
The Corporation expressly elects not to be governed by
Section 203 of the DGCL.
IN WITNESS WHEREOF, the undersigned has signed this
Restated Certificate of Incorporation
this day
of ,
2005.
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Appendix G
FORM OF
LIBERTY GLOBAL, INC.
A Delaware Corporation
BYLAWS
ARTICLE I
STOCKHOLDERS
Section 1.1 Annual
Meeting.
An annual meeting of stockholders for the purpose of electing
directors and of transacting any other business properly brought
before the meeting pursuant to these Bylaws shall be held each
year at such date, time and place, either within or without the
State of Delaware or, if so determined by the Board of Directors
in its sole discretion, at no place (but rather by means of
remote communication), as may be specified by the Board of
Directors in the notice of meeting.
Section 1.2 Special
Meetings.
Except as otherwise provided in the terms of any series of
preferred stock or unless otherwise provided by law or by the
Corporations Restated Certificate of Incorporation,
special meetings of stockholders of the Corporation, for the
transaction of such business as may properly come before the
meeting, may be called by the Secretary of the Corporation only
at the request of not less than 75% of the members of the Board
of Directors then in office. Only such business may be
transacted as is specified in the notice of the special meeting.
The Board of Directors shall have the sole power to determine
the time, date and place, either within or without the State of
Delaware, for any special meeting of stockholders. Following
such determination, it shall be the duty of the Secretary to
cause notice to be given to the stockholders entitled to vote at
such meeting that a meeting will be held at the time, date and
place and in accordance with the record date determined by the
Board of Directors.
Section 1.3 Record
Date.
In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, or entitled to receive payment of
any dividend or other distribution or allotment of any rights,
or entitled to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other
lawful action, the Board of Directors may fix a record date,
which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of
Directors, and which record date: (i) in the case of
determination of stockholders entitled to vote at any meeting of
stockholders or adjournment thereof, shall, unless otherwise
required by the laws of the State of Delaware, not be more than
sixty (60) nor less than ten (10) days before the date
of such meeting, and (ii) in the case of any other lawful
action, shall not be more than sixty (60) days prior to
such other action. If no record date is fixed by the Board of
Directors: (i) the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders
shall be at the close of business on the day next preceding the
day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the
meeting is held, and (ii) the record date for determining
stockholders for any other purpose shall be at the close of
business on the day on which the Board of Directors adopts the
resolution relating thereto. A determination of stockholders of
record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
Section 1.4 Notice
of Meetings.
Notice of all stockholders meetings, stating the place, if any,
date and hour thereof; the means of remote communication, if
any, by which stockholders and proxy holders may be deemed to be
present in person and vote at such meeting; the place within the
city, other municipality or community or electronic network at
which the list of stockholders may be examined; and, in the case
of a special meeting, the purpose or purposes for which the
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meeting is called, shall be delivered in accordance with
applicable law and applicable stock exchange rules and
regulations by the Chairman of the Board, the President, any
Vice President, the Secretary or an Assistant Secretary, to each
stockholder entitled to vote thereat at least ten (10) days
but not more than sixty (60) days before the date of the
meeting, unless a different period is prescribed by law, or the
lapse of the prescribed period of time shall have been waived.
If mailed, such notice shall be deemed to be given when
deposited in the United States mail, postage prepaid, directed
to such stockholders address as it appears on the records
of the Corporation.
Section 1.5 Notice
of Stockholder Business and Nominations.
(a) Annual Meetings of Stockholders.
(1) Nominations of persons for election to the Board of
Directors of the Corporation and the proposal of business to be
considered by the stockholders may be made at an annual meeting
of stockholders only (i) pursuant to the Corporations
notice of meeting (or any supplement thereto), (ii) by or
at the direction of the Board of Directors or (iii) by any
stockholder of the Corporation who was a stockholder of record
of the Corporation at the time the notice provided for in this
Section 1.5 is delivered to the Secretary of the
Corporation, who is entitled to vote at the meeting and who
complies with the notice procedures set forth in this
Section 1.5.
(2) For nominations or other business to be properly
brought before an annual meeting by a stockholder pursuant to
clause (iii) of paragraph (a)(1) of this
Section 1.5, the stockholder must have given timely notice
thereof in writing to the Secretary of the Corporation and any
such proposed business other than the nominations of persons for
election to the Board of Directors must constitute a proper
matter for stockholder action. To be timely, a
stockholders notice shall be delivered to the Secretary at
the principal executive offices of the Corporation not later
than the close of business on the ninetieth (90th) day nor
earlier than the close of business on the one hundred twentieth
(120th) day prior to the first anniversary of the preceding
years annual meeting (provided, however, that in the event
that the date of the annual meeting is more than thirty
(30) days before or more than seventy (70) days after
such anniversary date, notice by the stockholder must be so
delivered not earlier than the close of business on the one
hundred twentieth (120th) day prior to such annual meeting and
not later than the close of business on the later of the
ninetieth (90th) day prior to such annual meeting or the tenth
(10th) day following the day on which public announcement of the
date of such meeting is first made by the Corporation). In no
event shall the public announcement of an adjournment or
postponement of an annual meeting commence a new time period (or
extend any time period) for the giving of a stockholders
notice as described above. For purposes of the first annual
meeting of stockholders to be held in 2006, the first
anniversary date shall be deemed to be
[ ],
2006. Such stockholders notice shall set forth:
(i) as to each person whom the stockholder proposes to
nominate for election as a director (x) all information
relating to such person that is required to be disclosed in
solicitations of proxies for election of directors in an
election contest, or is otherwise required, in each case
pursuant to and in accordance with Regulation 14A under the
Securities Exchange Act of 1934, as amended (the Exchange
Act) and (y) such persons written consent to
being named in the proxy statement as a nominee and to serving
as a director if elected; (ii) as to any other business
that the stockholder proposes to bring before the meeting, a
brief description of the business desired to be brought before
the meeting, the text of the proposal or business (including the
text of any resolutions proposed for consideration and in the
event that such business includes a proposal to amend the Bylaws
of the Corporation, the language of the proposed amendment), the
reasons for conducting such business at the meeting and any
material interest in such business of such stockholder and the
beneficial owner, if any, on whose behalf the proposal is made;
and (iii) as to the stockholder giving the notice and the
beneficial owner, if any, on whose behalf the nomination or
proposal is made (w) the name and address of such
stockholder, as they appear on the Corporations books, and
of such beneficial owner, (x) the class and number of
shares of capital stock of the Corporation which are owned
beneficially and of record by such stockholder and such
beneficial owner, (y) a representation that the stockholder
is a holder of record of stock of the Corporation entitled to
vote at such meeting and intends to appear in person or by proxy
at the meeting to propose such business or nomination, and
(z) a representation whether the stockholder or the
beneficial owner, if any, intends or is part of a group which
intends (A) to deliver a proxy statement and/or form of
proxy to holders of at least the percentage of the
Corporations outstanding capital stock required to approve
or adopt the proposal or elect the nominee and/or
(B) otherwise to solicit proxies from stockholders in
support of such proposal or nomination. The foregoing notice
requirements of clauses (a)(2)(ii)
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and (iii) of this Section 1.5 shall be deemed
satisfied by a stockholder if the stockholder has notified the
Corporation of his or her intention to present a proposal at an
annual meeting in compliance with Rule 14a-8 (or any
successor thereof) promulgated under the Exchange Act and such
stockholders proposal has been included in a proxy
statement that has been prepared by the Corporation to solicit
proxies for such annual meeting. The Corporation may require any
proposed nominee to furnish such other information as it may
reasonably require to determine the eligibility of such proposed
nominee to serve as a director of the Corporation.
(3) Notwithstanding anything in the second sentence of
paragraph (a)(2) of this Section 1.5 to the contrary,
in the event that the number of directors to be elected to the
Board of Directors of the Corporation at an annual meeting is
increased and there is no public announcement by the Corporation
naming the nominees for the additional directorships at least
one hundred (100) days prior to the first anniversary of
the preceding years annual meeting, a stockholders
notice required by this Section 1.5 shall also be
considered timely, but only with respect to nominees for the
additional directorships, if it shall be delivered to the
Secretary at the principal executive offices of the Corporation
not later than the close of business on the tenth (10th) day
following the day on which such public announcement is first
made by the Corporation.
(b) Special Meetings of Stockholders. Only such
business shall be conducted at a special meeting of stockholders
as shall have been brought before the meeting pursuant to the
Corporations notice of meeting. Nominations of persons for
election to the Board of Directors may be made at a special
meeting of stockholders at which directors are to be elected
pursuant to the Corporations notice of meeting (1) by
or at the direction of the Board of Directors or
(2) provided that the Board of Directors has determined
that directors shall be elected at such meeting, by any
stockholder of the Corporation who is a stockholder of record at
the time the notice provided for in this Section 1.5 is
delivered to the Secretary of the Corporation, who is entitled
to vote at the meeting and upon such election and who complies
with the notice procedures set forth in this Section 1.5.
In the event the Corporation calls a special meeting of
stockholders for the purpose of electing one or more directors
to the Board of Directors, any such stockholder entitled to vote
in such election of directors may nominate a person or persons
(as the case may be) for election to such position(s) as
specified in the Corporations notice of meeting, if the
stockholders notice required by paragraph (a)(2) of
this Section 1.5 shall be delivered to the Secretary at the
principal executive offices of the Corporation not earlier than
the close of business on the one hundred twentieth (120th) day
prior to such special meeting and not later than the close of
business on the later of the ninetieth (90th) day prior to such
special meeting or the tenth (10th) day following the day on
which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board of
Directors to be elected at such meeting. In no event shall the
public announcement of an adjournment or postponement of a
special meeting commence a new time period (or extend any time
period) for the giving of a stockholders notice as
described above.
(c) General. (1) Only such persons who are
nominated in accordance with the procedures set forth in this
Section 1.5 shall be eligible to be elected at an annual or
special meeting of stockholders of the Corporation to serve as
directors and only such business shall be conducted at a meeting
of stockholders as shall have been brought before the meeting in
accordance with the procedures set forth in this
Section 1.5. Except as otherwise provided by law, the
chairman of the meeting shall have the power and duty
(i) to determine whether a nomination or any business
proposed to be brought before the meeting was made or proposed,
as the case may be, in accordance with the procedures set forth
in this Section 1.5 (including whether the stockholder or
beneficial owner, if any, on whose behalf the nomination or
proposal is made solicited (or is part of a group which
solicited) or did not so solicit, as the case may be, proxies in
support of such stockholders nominee or proposal in
compliance with such stockholders representation as
required by clause (a)(2)(iii)(z) of this Section 1.5)
and (ii) if any proposed nomination or business was not
made or proposed in compliance with this Section 1.5, to
declare that such nomination shall be disregarded or that such
proposed business shall not be transacted. Notwithstanding the
foregoing provisions of this Section 1.5, if the
stockholder (or a qualified representative of the stockholder)
does not appear at the annual or special meeting of stockholders
of the Corporation to present a nomination or proposed business,
such nomination shall be disregarded and such proposed business
shall not be transacted, notwithstanding that proxies in respect
of such vote may have been received by the Corporation. For
purposes of this Section 1.5, to be considered a qualified
representative of the stockholder, a person must be authorized
by a writing executed by such stockholder or an electronic
transmission delivered by such stockholder
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to act for such stockholder as proxy at the meeting of
stockholders and such person must produce such writing or
electronic transmission, or a reliable reproduction of the
writing or electronic transmission, at the meeting of
stockholders.
(2) For purposes of this Section 1.5, public
announcement shall include disclosure in a press release
reported by the Dow Jones News Service, Associated Press or
comparable national news service or in a document publicly filed
by the Corporation with the Securities and Exchange Commission
pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this
Section 1.5, a stockholder shall also comply with all
applicable requirements of the Exchange Act and the rules and
regulations thereunder with respect to the matters set forth in
this Section 1.5. Nothing in this Section 1.5 shall be
deemed to affect any rights (i) of stockholders to request
inclusion of proposals in the Corporations proxy statement
pursuant to Rule 14a-8 under the Exchange Act or
(ii) of the holders of any series of preferred stock to
elect directors pursuant to any applicable provisions of the
Corporations Restated Certificate of Incorporation.
Section 1.6 Quorum.
Subject to the rights of the holders of any series of preferred
stock and except as otherwise provided by law or in the
Corporations Restated Certificate of Incorporation or
these Bylaws, at any meeting of stockholders, the holders of a
majority in total voting power of the outstanding shares of
stock entitled to vote at the meeting shall be present or
represented by proxy in order to constitute a quorum for the
transaction of any business. The chairman of the meeting shall
have the power and duty to determine whether a quorum is present
at any meeting of the stockholders. Shares of its own stock
belonging to the Corporation or to another corporation, if a
majority of the shares entitled to vote in the election of
directors of such other corporation is held, directly or
indirectly, by the Corporation, shall neither be entitled to
vote nor be counted for quorum purposes; provided,
however, that the foregoing shall not limit the right of
the Corporation or any subsidiary of the Corporation to vote
stock, including, but not limited to, its own stock, held by it
in a fiduciary capacity. In the absence of a quorum, the
chairman of the meeting may adjourn the meeting from time to
time in the manner provided in Section 1.7 hereof until a
quorum shall be present.
Section 1.7 Adjournment.
Any meeting of stockholders, annual or special, may adjourn from
time to time solely by the chairman of the meeting because of
the absence of a quorum or for any other reason and to reconvene
at the same or some other time, date and place, if any. Notice
need not be given of any such adjourned meeting if the time,
date and place thereof are announced at the meeting at which the
adjournment is taken. The chairman of the meeting shall have
full power and authority to adjourn a stockholder meeting in his
sole discretion even over stockholder opposition to such
adjournment. The stockholders present at a meeting shall not
have the authority to adjourn the meeting. If the time, date and
place, if any, thereof, and the means of remote communication,
if any, by which the stockholders and the proxy holders may be
deemed to be present and in person and vote at such adjourned
meeting are announced at the meeting at which the adjournment is
taken and the adjournment is for less than thirty
(30) days, no notice need be given of any such adjourned
meeting. If the adjournment is for more than thirty
(30) days and the time, date and place, if any, and the
means of remote communication, if any, by which the stockholders
and the proxy holders may be deemed to be present and in person
are not announced at the meeting at which the adjournment is
taken, or if after the adjournment a new record date is fixed
for the adjourned meeting, then notice shall be given by the
Secretary as required for the original meeting. At the adjourned
meeting, the Corporation may transact any business that might
have been transacted at the original meeting.
Section 1.8 Organization.
The Chairman of the Board, or in his absence the Vice-Chairman
of the Board, or in their absence the President, or in their
absence any Vice President, shall call to order meetings of
stockholders and preside over and act as chairman of such
meetings. The Board of Directors or, if the Board fails to act,
the stockholders, may appoint any stockholder, director or
officer of the Corporation to act as chairman of any meeting in
the absence of the Chairman of the Board, the Vice-Chairman of
the Board, the President and all Vice Presidents. The date and
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time of the opening and closing of the polls for each matter
upon which the stockholders will vote at a meeting shall be
determined by the chairman of the meeting and announced at the
meeting. The Board of Directors may adopt by resolution such
rules and regulations for the conduct of the meeting of
stockholders as it shall deem appropriate. Unless otherwise
determined by the Board of Directors, the chairman of the
meeting shall have the exclusive right to determine the order of
business and to prescribe other such rules, regulations and
procedures and shall have the authority in his discretion to
regulate the conduct of any such meeting. Such rules,
regulations or procedures, whether adopted by the Board of
Directors or prescribed by the chairman of the meeting, may
include, without limitation, the following: (i) rules and
procedures for maintaining order at the meeting and the safety
of those present; (ii) limitations on attendance at or
participation in the meeting to stockholders of record of the
Corporation, their duly authorized and constituted proxies or
such other persons as the chairman of the meeting shall
determine; (iii) restrictions on entry to the meeting after
the time fixed for the commencement thereof; and
(iv) limitations on the time allotted to questions or
comments by participants. Unless and to the extent determined by
the Board of Directors or the chairman of the meeting, meetings
of stockholders shall not be required to be held in accordance
with the rules of parliamentary procedure.
The Secretary shall act as secretary of all meetings of
stockholders, but, in the absence of the Secretary, the chairman
of the meeting may appoint any other person to act as secretary
of the meeting.
Section 1.9 Postponement
or Cancellation of Meeting.
Any previously scheduled annual or special meeting of the
stockholders may be postponed or canceled by resolution of the
Board of Directors upon public notice given prior to the time
previously scheduled for such meeting of stockholders.
Section 1.10 Voting.
Subject to the rights of the holders of any series of preferred
stock and except as otherwise provided by law, the
Corporations Restated Certificate of Incorporation or
these Bylaws and except for the election of directors, at any
meeting duly called and held at which a quorum is present, the
affirmative vote of a majority of the combined voting power of
the outstanding shares present in person or represented by proxy
at the meeting and entitled to vote on the subject matter shall
be the act of the stockholders. Subject to the rights of the
holders of any series of preferred stock, at any meeting duly
called and held for the election of directors at which a quorum
is present, directors shall be elected by a plurality of the
combined voting power of the outstanding shares present in
person or represented by proxy at the meeting and entitled to
vote on the election of directors.
ARTICLE II
BOARD OF DIRECTORS
Section 2.1 Number
and Term of Office.
(a) The governing body of this Corporation shall be a Board
of Directors. Subject to any rights of the holders of any series
of preferred stock to elect additional directors, the Board of
Directors shall be comprised of not less than three
(3) members, or such other number as may be fixed from time
to time by the Board of Directors by resolution adopted by the
affirmative vote of 75% of the members of the Board of Directors
then in office. Directors need not be stockholders of the
Corporation. The Corporation shall nominate the person(s)
holding the offices of Chairman of the Board and President for
election as directors at any meeting at which such person(s) are
subject to election as directors. The Board of Directors shall
appoint from its own members at its first meeting after each
annual meeting of stockholders a Vice-Chairman of the Board who,
in the absence of the Chairman of the Board, will preside at all
meetings of the stockholders and the Board of Directors.
(b) Except as otherwise fixed by the Corporations
Restated Certificate of Incorporation relating to the rights of
the holders of any series of preferred stock to separately elect
additional directors, which additional directors are not
required to be classified pursuant to the terms of such series
of preferred stock, the Board of Directors shall be divided into
three classes: Class I, Class II and Class III.
Each class shall consist, as nearly as possible, of a number of
directors equal to one-third
(331/3%)
of the then authorized number of members of the Board of
Directors. The term of office of the initial Class I
directors shall expire at the annual meeting of
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stockholders in 2006; the term of office of the initial
Class II directors shall expire at the annual meeting of
stockholders in 2007; and the term of office of the initial
Class III directors shall expire at the annual meeting of
stockholders in 2008. At each annual meeting of stockholders of
the Corporation the successors of that class of directors whose
term expires at that meeting shall be elected to hold office for
a term expiring at the annual meeting of stockholders held in
the third year following the year of their election. The
directors of each class will serve until the earliest to occur
of their death, resignation, removal or disqualification or the
election and qualification of their respective successors.
Section 2.2 Resignations.
Any director of the Corporation, or any member of any committee,
may resign at any time by giving written notice to the Board of
Directors, the Chairman of the Board, Vice-Chairman of the
Board, or the President or Secretary of the Corporation. Any
such resignation shall take effect at the time specified therein
or, if the time be not specified therein, then upon receipt
thereof. The acceptance of such resignation shall not be
necessary to make it effective unless otherwise stated therein.
Section 2.3 Removal
of Directors.
Subject to the rights of the holders of any series of preferred
stock, directors may be removed from office only for cause upon
the affirmative vote of the holders of not less than a majority
of the total voting power of the then outstanding shares
entitled to vote at an election of directors voting together as
a single class.
Section 2.4 Newly
Created Directorships and Vacancies.
Subject to the rights of the holders of any series of preferred
stock, vacancies on the Board of Directors resulting from death,
resignation, removal, disqualification or other cause, and newly
created directorships resulting from any increase in the number
of directors on the Board of Directors, shall be filled by the
affirmative vote of a majority of the remaining directors then
in office (even though less than a quorum) or by the sole
remaining director at any regular or special meeting of the
Board of Directors. Any director elected in accordance with the
preceding sentence shall hold office for the remainder of the
full term of the class of directors in which the vacancy
occurred or to which the new directorship is apportioned, and
until such directors successor shall have been elected and
qualified. No decrease in the number of directors constituting
the Board of Directors shall shorten the term of any incumbent
director, except as may be provided in the terms of any series
of preferred stock with respect to any additional director
elected by the holders of such series of preferred stock.
Notwithstanding Article I of these Bylaws, in case the
entire Board of Directors shall die or resign, the President or
Secretary of the Corporation, or any ten (10) stockholders
may call and cause notice to be given for a special meeting of
stockholders in the same manner that the Chairman of the Board
or Vice-Chairman of the Board may call such a meeting, and
directors for the unexpired terms may be elected at such special
meeting.
Section 2.5 Meetings.
The annual meeting of each newly elected Board of Directors may
be held on such date and at such time and place as the Board of
Directors determines. The annual meeting may be held immediately
following the annual meeting of stockholders, and if so held, no
notice of such meeting shall be necessary to the newly elected
directors in order to hold the meeting legally, provided that a
quorum shall be present thereat.
Notice of each regular meeting shall be furnished in writing to
each member of the Board of Directors not less than five
(5) days in advance of said meeting, unless such notice
requirement is waived in writing by each member. No notice need
be given of the meeting immediately following an annual meeting
of stockholders.
Special meetings of the Board of Directors shall be held at such
time and place as shall be designated in the notice of the
meeting. Special meetings of the Board of Directors may be
called by the Chairman of the Board or the Vice-Chairman of the
Board, and shall be called by the President or Secretary of the
Corporation upon the written request of not less than 75% of the
members of the Board of Directors then in office.
Section 2.6 Notice
of Special Meetings.
The Secretary, or in his absence any other officer of the
Corporation, shall give each director notice of the time and
place of holding of special meetings of the Board of Directors
by mail at least ten (10) days before the
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meeting, or by facsimile transmission, electronic mail or
personal service at least twenty-four (24) hours before the
meeting unless such notice requirement is waived in writing by
each member. Unless otherwise stated in the notice thereof, any
and all business may be transacted at any meeting without
specification of such business in the notice.
Section 2.7 Conference
Telephone Meeting.
Members of the Board of Directors, or any committee thereof, may
participate in a meeting of the Board of Directors or such
committee by means of telephone conference or other similar
communications equipment by means of which all persons
participating in the meeting can hear each other and communicate
with each other, and such participation in a meeting shall
constitute presence in person at such meeting.
Section 2.8 Quorum
and Organization of Meetings.
A majority of the total number of members of the Board of
Directors as constituted from time to time shall constitute a
quorum for the transaction of business, but, if at any meeting
of the Board of Directors (whether or not adjourned from a
previous meeting) there shall be less than a quorum present, a
majority of those present may adjourn the meeting to another
time, date and place, and the meeting may be held as adjourned
without further notice or waiver. Except as otherwise provided
by law, the Corporations Restated Certificate of
Incorporation or these Bylaws, a majority of the directors
present at any meeting at which a quorum is present may decide
any question brought before such meeting. Meetings shall be
presided over by the Chairman of the Board or in his absence by
the Vice-Chairman of the Board, or in their absence by such
other person as the directors may select. The Board of Directors
shall keep written minutes of its meetings. The Secretary of the
Corporation shall act as secretary of the meeting, but in his or
her absence the chairman of the meeting may appoint any person
to act as secretary of the meeting.
The Board may designate one or more committees, each committee
to consist of one or more of the directors of the Corporation.
The Board may designate one or more Directors as alternate
members of any committee to replace absent or disqualified
members at any meeting of such committee. If a member of a
committee shall be absent from any meeting, or disqualified from
voting thereat, the remaining member or members present and not
disqualified from voting, whether or not such member or members
constitute a quorum, may, by a unanimous vote, appoint another
member of the Board of Directors to act at the meeting in place
of any such absent or disqualified member. Any such committee,
to the extent provided in a resolution of the Board of Directors
passed as aforesaid, shall have and may exercise all the powers
and authority of the Board of Directors in the management of the
business and affairs of the Corporation, and may authorize
the seal of the Corporation to be impressed on all papers that
may require it, but no such committee shall have the power or
authority of the Board of Directors in reference to
(i) approving or adopting, or recommending to the
stockholders, any action or matter expressly required by the
laws of the State of Delaware to be submitted to the
stockholders for approval or (ii) adopting, amending or
repealing any Bylaw of the Corporation. Such committee or
committees shall have such name or names as may be determined
from time to time by resolution adopted by the Board of
Directors. Unless otherwise specified in the resolution of the
Board of Directors designating a committee, at all meetings of
such committee a majority of the total number of members of the
committee shall constitute a quorum for the transaction of
business, and the vote of a majority of the members of the
committee present at any meeting at which there is a quorum
shall be the act of the committee. Each committee shall keep
regular minutes of its meetings. Unless the Board of Directors
otherwise provides, each committee designated by the Board of
Directors may make, alter and repeal rules for the conduct of
its business. In the absence of such rules each committee shall
conduct its business in the same manner as the Board of
Directors conducts its business pursuant to Article II of
these Bylaws.
Section 2.9 Indemnification.
To the fullest extent permitted by applicable law as it
presently exists or may hereafter be amended, the Corporation
shall indemnify and hold harmless any person who is or was made,
or threatened to be made, a party to or is otherwise involved in
any threatened, pending or completed action, suit or proceeding
(a Proceeding), whether civil, criminal,
administrative or investigative, including, without limitation,
an action by or in the right of the Corporation to procure a
judgment in its favor, by reason of the fact that such person,
or a person of whom
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such person is the legal representative, is or was a director or
officer of the Corporation, or while a director or officer of
the Corporation is or was serving at the request of the
Corporation as a director, officer, employee or agent of another
corporation, partnership, limited liability company, joint
venture, trust, employee benefit plan or other enterprises
including non-profit enterprises (an Other Entity),
against all liabilities and losses, judgments, fines, penalties,
excise taxes, amounts paid in settlement and costs, charges and
expenses (including attorneys fees and disbursements).
Persons who are not directors or officers of the Corporation may
be similarly indemnified in respect of service to the
Corporation or to an Other Entity at the request of the
Corporation to the extent the Board of Directors at any time
specifies that such persons are entitled to the benefits of this
Section 2.9. Except as otherwise provided in
Section 2.11 hereof, the Corporation shall be required to
indemnify a person in connection with a proceeding (or part
thereof) commenced by such person only if the commencement of
such proceeding (or part thereof) by the person was authorized
in the specific case by the Board of Directors.
Section 2.10 Advancement
of Expenses.
The Corporation shall, from time to time, reimburse or advance
to any director or officer or other person entitled to
indemnification hereunder the funds necessary for payment of
expenses, including attorneys fees and disbursements,
incurred in connection with any Proceeding in advance of the
final disposition of such Proceeding; provided,
however, that, if required by the laws of the State of
Delaware, such expenses incurred by or on behalf of any director
or officer or other person may be paid in advance of the final
disposition of a Proceeding only upon receipt by the Corporation
of an undertaking, by or on behalf of such director or officer
(or other person indemnified hereunder), to repay any such
amount so advanced if it shall ultimately be determined by final
judicial decision from which there is no further right of appeal
that such director, officer or other person is not entitled to
be indemnified for such expenses. Except as otherwise provided
in Section 2.11 hereof, the Corporation shall be required
to reimburse or advance expenses incurred by a person in
connection with a proceeding (or part thereof) commenced by such
person only if the commencement of such proceeding (or part
thereof) by the person was authorized by the Board of Directors.
Section 2.11 Claims.
If a claim for indemnification or advancement of expenses under
this Article II is not paid in full within thirty
(30) days after a written claim therefor by the person
seeking indemnification or reimbursement or advancement of
expenses has been received by the Corporation, the person may
file suit to recover the unpaid amount of such claim and, if
successful, in whole or in part, shall be entitled to be paid
the expense of prosecuting such claim. In any such action the
Corporation shall have the burden of proving that the person
seeking indemnification or reimbursement or advancement of
expenses is not entitled to the requested indemnification,
reimbursement or advancement of expenses under applicable law.
Section 2.12 Amendment,
Modification or Repeal.
Any amendment, modification or repeal of the foregoing
provisions of this Article II shall not adversely affect
any right or protection hereunder of any person entitled to
indemnification under Section 2.9 hereof in respect of any
act or omission occurring prior to the time of such repeal or
modification.
Section 2.13 Nonexclusivity
of Rights.
The rights conferred on any person by this Article II shall
not be exclusive of any other rights which such person may have
or hereafter acquire under any statute, provision of the
Corporations Restated Certificate of Incorporation, these
Bylaws, agreement, vote of stockholders or disinterested
directors or otherwise.
Section 2.14 Other
Sources.
The Corporations obligation, if any, to indemnify or to
advance expenses to any person who was or is serving at its
request as a director, officer, employee or agent of an Other
Entity shall be reduced by any amount such person may collect as
indemnification or advancement of expenses from such Other
Entity.
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Section 2.15 Other
Indemnification and Prepayment of Expenses.
This Article II shall not limit the right of the
Corporation, to the extent and in the manner permitted by law,
to indemnify and to advance expenses to additional persons when
and as authorized by appropriate corporate action.
Section 2.16 Executive
Committee of the Board of Directors.
The Board of Directors, by the affirmative vote of not less than
75% of the members of the Board of Directors then in office, may
designate an executive committee, all of whose members shall be
directors, to manage and operate the affairs of the Corporation
or particular properties or enterprises of the Corporation.
Subject to the limitations of the law of the State of Delaware
and the Corporations Restated Certificate of
Incorporation, such executive committee shall exercise all
powers and authority of the Board of Directors in the management
of the business and affairs of the Corporation including, but
not limited to, the power and authority to authorize the
issuance of shares of common or preferred stock. The executive
committee shall keep minutes of its meetings and report to the
Board of Directors not less often than quarterly on its
activities and shall be responsible to the Board of Directors
for the conduct of the enterprises and affairs entrusted to it.
Regular meetings of the executive committee, of which no notice
shall be necessary, shall be held at such time, dates and places
as shall be fixed by resolution adopted by the executive
committee. Special meetings of the executive committee shall be
called at the request of the President or of any member of the
executive committee, and shall be held upon such notice as is
required by these Bylaws for special meetings of the Board of
Directors, provided that oral notice by telephone or otherwise
shall be sufficient if received not later than the day
immediately preceding the day of the meeting.
Section 2.17 Other
Committees of the Board of Directors.
The Board of Directors may by resolution establish committees
other than an executive committee and shall specify with
particularity the powers and duties of any such committee.
Subject to the limitations of the laws of the State of Delaware
and the Corporations Restated Certificate of
Incorporation, any such committee shall exercise all powers and
authority specifically granted to it by the Board of Directors,
which powers may include the authority to authorize the issuance
of shares of common or preferred stock. Such committees shall
serve at the pleasure of the Board of Directors, keep minutes of
their meetings and have such names as the Board of Directors by
resolution may determine and shall be responsible to the Board
of Directors for the conduct of the enterprises and affairs
entrusted to them.
Section 2.18 Directors
Compensation.
Directors shall receive such compensation for attendance at any
meetings of the Board and any expenses incidental to the
performance of their duties as the Board of Directors shall
determine by resolution. Such compensation may be in addition to
any compensation received by the members of the Board of
Directors in any other capacity.
Section 2.19 Action
Without Meeting.
Nothing contained in these Bylaws shall be deemed to restrict
the power of members of the Board of Directors or any committee
designated by the Board of Directors to take any action required
or permitted to be taken by them without a meeting.
ARTICLE III
OFFICERS
Section 3.1 Executive
Officers.
The Board of Directors shall elect from its own members, at its
first meeting after each annual meeting of stockholders, a
Chairman of the Board, a Vice-Chairman of the Board and a
President. The Board of Directors may also elect such Vice
Presidents as in the opinion of the Board of Directors the
business of the Corporation requires, a Treasurer and a
Secretary, any of whom may or may not be directors. The Board of
Directors may also
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elect, from time to time, such other or additional officers as
in its opinion are desirable for the conduct of business of the
Corporation. Each officer shall hold office until the first
meeting of the Board of Directors following the next annual
meeting of stockholders following their respective election. Any
person may hold at one time two or more offices;
provided, however, that the President shall not
hold any other office except that of Chairman of the Board or
Vice-Chairman of the Board.
Section 3.2 Powers
and Duties of Officers.
The Chairman of the Board shall have overall responsibility for
the management and direction of the business and affairs of the
Corporation and shall exercise such duties as customarily
pertain to the office of Chairman of the Board and such other
duties as may be prescribed from time to time by the Board of
Directors. He shall be the senior officer of the Corporation and
in case of the inability or failure of the President to perform
his duties, he shall perform the duties of the President. He may
appoint and terminate the appointment or election of officers,
agents or employees other than those appointed or elected by the
Board of Directors. He may sign, execute and deliver, in the
name of the Corporation, powers of attorney, contracts, bonds
and other obligations. The Chairman shall preside at all
meetings of stockholders and of the Board of Directors at which
he is present, and shall perform such other duties as may be
prescribed from time to time by the Board of Directors or these
Bylaws.
The Vice-Chairman of the Board shall perform the duties and
exercise the powers of the office of Chairman of the Board in
the absence or disability of the Chairman of the Board.
The President of the Corporation shall have such powers and
perform such duties as customarily pertain to a chief executive
officer and the office of a president, including, without
limitation, being responsible for the active direction of the
daily business of the Corporation, and shall exercise such other
duties as may be prescribed from time to time by the Board of
Directors. The President may sign, execute and deliver, in the
name of the Corporation, powers of attorney, contracts, bonds
and other obligations. In the absence or disability of the
Chairman of the Board and the Vice-Chairman of the Board, the
President shall perform the duties and exercise the powers of
the office of Chairman of the Board.
Vice Presidents shall have such powers and perform such duties
as may be assigned to them by the Chairman of the Board, the
President, the executive committee, if any, or the Board of
Directors. A Vice President may sign and execute contracts and
other obligations pertaining to the regular course of his duties
which implement policies established by the Board of Directors.
The Treasurer shall be the chief financial officer of the
Corporation. Unless the Board of Directors otherwise declares by
resolution, the Treasurer shall have general custody of all the
funds and securities of the Corporation and general supervision
of the collection and disbursement of funds of the Corporation.
He shall endorse for collection on behalf of the Corporation
checks, notes and other obligations, and shall deposit the same
to the credit of the Corporation in such bank or banks or
depository as the Board of Directors may designate. He may sign,
with the Chairman of the Board, President or such other person
or persons as may be designated for the purpose by the Board of
Directors, all bills of exchange or promissory notes of the
Corporation. He shall enter or cause to be entered regularly in
the books of the Corporation a full and accurate account of all
moneys received and paid by him on account of the Corporation,
shall at all reasonable times exhibit his books and accounts to
any director of the Corporation upon application at the office
of the Corporation during business hours and, whenever required
by the Board of Directors or the President, shall render a
statement of his accounts. He shall perform such other duties as
may be prescribed from time to time by the Board of Directors or
by these Bylaws. He may be required to give bond for the
faithful performance of his duties in such sum and with such
surety as shall be approved by the Board of Directors. Any
Assistant Treasurer shall, in the absence or disability of the
Treasurer, perform the duties and exercise the powers of the
Treasurer and shall perform such other duties and have such
other powers as the Board of Directors may from time to time
prescribe.
The Secretary shall keep the minutes of all meetings of the
stockholders and of the Board of Directors. The Secretary shall
cause notice to be given of meetings of stockholders, of the
Board of Directors, and of any committee appointed by the Board
of Directors. He or she shall have custody of the corporate
seal, minutes and records relating to the conduct and acts of
the stockholders and Board of Directors, which shall, at all
reasonable
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times, be open to the examination of any director. The Secretary
or any Assistant Secretary may certify the record of proceedings
of the meetings of the stockholders or of the Board of Directors
or resolutions adopted at such meetings, may sign or attest
certificates, statements or reports required to be filed with
governmental bodies or officials, may sign acknowledgments of
instruments, may give notices of meetings and shall perform such
other duties and have such other powers as the Board of
Directors may from time to time prescribe.
Section 3.3 Bank
Accounts.
In addition to such bank accounts as may be authorized in the
usual manner by resolution of the Board of Directors, the
Treasurer, with approval of the Chairman of the Board or the
President, may authorize such bank accounts to be opened or
maintained in the name and on behalf of the Corporation as he
may deem necessary or appropriate, provided payments from such
bank accounts are to be made upon and according to the check of
the Corporation, which may be signed jointly or singularly by
either the manual or facsimile signature or signatures of such
officers or bonded employees of the Corporation as shall be
specified in the written instructions of the Treasurer or
Assistant Treasurer of the Corporation with the approval of the
Chairman of the Board or the President of the Corporation.
Section 3.4 Proxies;
Stock Transfers.
Unless otherwise provided in the Corporations Restated
Certificate of Incorporation or directed by the Board of
Directors, the Chairman of the Board or the President or any
Vice President or their designees shall have full power and
authority on behalf of the Corporation to attend and to vote
upon all matters and resolutions at any meeting of stockholders
of any corporation in which this Corporation may hold stock, and
may exercise on behalf of this Corporation any and all of the
rights and powers incident to the ownership of such stock at any
such meeting, whether regular or special, and at all
adjournments thereof, and shall have power and authority to
execute and deliver proxies and consents on behalf of this
Corporation in connection with the exercise by this Corporation
of the rights and powers incident to the ownership of such
stock, with full power of substitution or revocation. Unless
otherwise provided in the Corporations Restated
Certificate of Incorporation or directed by the Board of
Directors, the Chairman of the Board or the President or any
Vice President or their designees shall have full power and
authority on behalf of the Corporation to transfer, sell or
dispose of stock of any corporation in which this Corporation
may hold stock.
ARTICLE IV
CAPITAL STOCK
Section 4.1 Shares.
The shares of the corporation shall be represented by a
certificate or shall be uncertificated. Certificates shall be
signed by the Chairman of the Board of Directors or the
President and by the Secretary or the Treasurer, and sealed with
the seal of the Corporation. Such seal may be a facsimile,
engraved or printed. Within a reasonable time after the issuance
or transfer of uncertificated shares, the Corporation shall send
to the registered owner thereof a written notice containing the
information required to be set forth or stated on certificates
pursuant to Sections 151, 156, 202(a) or 218(a) of the
Delaware General Corporation Law or a statement that the
Corporation will furnish without charge to each stockholder who
so requests the powers, designations, preferences and relative
participating, optional or other special rights of each class of
stock or series thereof and the qualification, limitations or
restrictions of such preferences and/or rights.
Any of or all the signatures on a certificate may be facsimile.
In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon a certificate
shall have ceased to be such an officer, transfer agent or
registrar before such certificate is issued, it may be issued by
the Corporation with the same effect as if such officer,
transfer agent or registrar had not ceased to hold such position
at the time of its issuance.
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Section 4.2 Transfer
of Shares.
(a) Upon surrender to the Corporation or the transfer agent
of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the Corporation to issue a new
certificate to the person entitled thereto, cancel the old
certificate and record the transaction upon its books. Upon
receipt of proper transfer instructions from the registered
owner of uncertificated shares such uncertificated shares shall
be cancelled, and the issuance of new equivalent uncertificated
shares or certificated shares shall be made to the person
entitled thereto and the transaction shall be recorded upon the
books of the Corporation.
(b) The person in whose name shares of stock stand on the
books of the Corporation shall be deemed by the Corporation to
be the owner thereof for all purposes, and the Corporation shall
not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other
person, whether or not it shall have express or other notice
thereof, except as otherwise provided by the laws of the State
of Delaware.
Section 4.3 Lost
Certificates.
The Board of Directors or any transfer agent of the Corporation
may direct a new certificate or certificates or uncertificated
shares representing stock of the Corporation to be issued in
place of any certificate or certificates theretofore issued by
the Corporation, alleged to have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the person
claiming the certificate to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates or
uncertificated shares, the Board of Directors (or any transfer
agent of the Corporation authorized to do so by a resolution of
the Board of Directors) may, in its discretion and as a
condition precedent to the issuance thereof, require the owner
of such lost, stolen or destroyed certificate or certificates,
or his legal representative, to give the Corporation a bond in
such sum as the Board of Directors (or any transfer agent so
authorized) shall direct to indemnify the Corporation and the
transfer agent against any claim that may be made against the
Corporation with respect to the certificate alleged to have been
lost, stolen or destroyed or the issuance of such new
certificates or uncertificated shares, and such requirement may
be general or confined to specific instances.
Section 4.4 Transfer
Agent and Registrar.
The Board of Directors may appoint one or more transfer agents
and one or more registrars, and may require all certificates for
shares to bear the manual or facsimile signature or signatures
of any of them.
Section 4.5 Regulations.
The Board of Directors shall have power and authority to make
all such rules and regulations as it may deem expedient
concerning the issue, transfer, registration, cancellation and
replacement of certificates representing stock of the
Corporation or uncertificated shares, which rules and
regulations shall comply in all respects with the rules and
regulations of the transfer agent.
ARTICLE V
GENERAL PROVISIONS
Section 5.1 Offices.
The Corporation shall maintain a registered office in the State
of Delaware as required by the laws of the State of Delaware.
The Corporation may also have offices in such other places,
either within or without the State of Delaware, as the Board of
Directors may from time to time designate or as the business of
the Corporation may require.
Section 5.2 Corporate
Seal.
The corporate seal shall have inscribed thereon the name of the
Corporation, the year of its organization, and the words
Corporate Seal and Delaware.
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Section 5.3 Fiscal
Year.
The fiscal year of the Corporation shall be determined by
resolution of the Board of Directors.
Section 5.4 Notices
and Waivers Thereof.
Whenever any notice is required by the laws of the State of
Delaware, the Corporations Restated Certificate of
Incorporation or these Bylaws to be given to any stockholder,
director or officer, such notice, except as otherwise provided
by law, may be given personally, or by mail, or, in the case of
directors or officers, by electronic mail or facsimile
transmission, addressed to such address as appears on the books
of the Corporation. Any notice given by electronic mail or
facsimile transmission shall be deemed to have been given when
it shall have been transmitted and any notice given by mail
shall be deemed to have been given three (3) business days
after it shall have been deposited in the United States mail
with postage thereon prepaid.
Whenever any notice is required to be given by law, the
Corporations Restated Certificate of Incorporation, or
these Bylaws, a written waiver thereof, signed by the person
entitled to such notice, whether before or after the meeting or
the time stated therein, shall be deemed equivalent in all
respects to such notice to the full extent permitted by law.
Section 5.5 Saving
Clause.
These Bylaws are subject to the provisions of the
Corporations Restated Certificate of Incorporation and
applicable law. In the event any provision of these Bylaws is
inconsistent with the Corporations Restated Certificate of
Incorporation or the corporate laws of the State of Delaware,
such provision shall be invalid to the extent only of such
conflict, and such conflict shall not affect the validity of any
other provision of these Bylaws.
Section 5.6 Amendments.
In furtherance and not in limitation of the powers conferred by
the laws of the State of Delaware, the Board of Directors, by
action taken by the affirmative vote of not less than 75% of the
members of the Board of Directors then in office, is hereby
expressly authorized and empowered to adopt, amend or repeal any
provision of the Bylaws of this Corporation.
Subject to the rights of the holders of any series of preferred
stock, these Bylaws may be adopted, amended or repealed by the
affirmative vote of the holders of not less than 80% of the
total voting power of the then outstanding capital stock of the
Corporation entitled to vote thereon; provided,
however, that this paragraph shall not apply to, and no
vote of the stockholders of the Corporation shall be required to
authorize, the adoption, amendment or repeal of any provision of
the Bylaws by the Board of Directors in accordance with the
preceding paragraph.
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Appendix H
Section 262 of the Delaware General Corporation Law
§ 262. Appraisal
rights.
(a) Any stockholder of a corporation of this State
who holds shares of stock on the date of the making of a demand
pursuant to subsection (d) of this section with
respect to such shares, who continuously holds such shares
through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this
section and who has neither voted in favor of the merger or
consolidation nor consented thereto in writing pursuant to
§ 228 of this title shall be entitled to an appraisal
by the Court of Chancery of the fair value of the
stockholders shares of stock under the circumstances
described in subsections (b) and (c) of this section.
As used in this section, the word stockholder means
a holder of record of stock in a stock corporation and also a
member of record of a nonstock corporation; the words
stock and share mean and include what is
ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation; and
the words depository receipt mean a receipt or other
instrument issued by a depository representing an interest in
one or more shares, or fractions thereof, solely of stock of a
corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the
shares of any class or series of stock of a constituent
corporation in a merger or consolidation to be effected pursuant
to § 251 (other than a merger effected pursuant to
§ 251(g) of this title), § 252,
§ 254, § 257, § 258,
§ 263 or § 264 of this title:
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(1) Provided, however, that no appraisal rights under this
section shall be available for the shares of any class or series
of stock, which stock, or depository receipts in respect
thereof, at the record date fixed to determine the stockholders
entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national
securities exchange or designated as a national market system
security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or (ii) held of
record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of
the constituent corporation surviving a merger if the merger did
not require for its approval the vote of the stockholders of the
surviving corporation as provided in subsection (f) of
§ 251 of this title. |
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(2) Notwithstanding paragraph (1) of this
subsection, appraisal rights under this section shall be
available for the shares of any class or series of stock of a
constituent corporation if the holders thereof are required by
the terms of an agreement of merger or consolidation pursuant to
§§ 251, 252, 254, 257, 258, 263 and 264 of this
title to accept for such stock anything except: |
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a. Shares of stock of the corporation surviving or
resulting from such merger or consolidation, or depository
receipts in respect thereof; |
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b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock (or
depository receipts in respect thereof) or depository receipts
at the effective date of the merger or consolidation will be
either listed on a national securities exchange or designated as
a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc.
or held of record by more than 2,000 holders; |
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c. Cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs a.
and b. of this paragraph; or |
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d. Any combination of the shares of stock, depository
receipts and cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs a.,
b. and c. of this paragraph. |
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(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under § 253 of
this title is not owned by the parent corporation immediately
prior to the merger, appraisal rights shall be available for the
shares of the subsidiary Delaware corporation. |
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(c) Any corporation may provide in its certificate
of incorporation that appraisal rights under this section shall
be available for the shares of any class or series of its stock
as a result of an amendment to its certificate of incorporation,
any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all
of the assets of the corporation. If the certificate of
incorporation contains such a provision, the procedures of this
section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
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(1) If a proposed merger or consolidation for which
appraisal rights are provided under this section is to be
submitted for approval at a meeting of stockholders, the
corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record
date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or
(c) hereof that appraisal rights are available for any or
all of the shares of the constituent corporations, and shall
include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of such stockholders
shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for
appraisal of such stockholders shares. Such demand will be
sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends
thereby to demand the appraisal of such stockholders
shares. A proxy or vote against the merger or consolidation
shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as
herein provided. Within 10 days after the effective date of
such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not
voted in favor of or consented to the merger or consolidation of
the date that the merger or consolidation has become
effective; or |
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(2) If the merger or consolidation was approved pursuant to
§ 228 or § 253 of this title, then either a
constituent corporation before the effective date of the merger
or consolidation or the surviving or resulting corporation
within 10 days thereafter shall notify each of the holders
of any class or series of stock of such constituent corporation
who are entitled to appraisal rights of the approval of the
merger or consolidation and that appraisal rights are available
for any or all shares of such class or series of stock of such
constituent corporation, and shall include in such notice a copy
of this section. Such notice may, and, if given on or after the
effective date of the merger or consolidation, shall, also
notify such stockholders of the effective date of the merger or
consolidation. Any stockholder entitled to appraisal rights may,
within 20 days after the date of mailing of such notice,
demand in writing from the surviving or resulting corporation
the appraisal of such holders shares. Such demand will be
sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends
thereby to demand the appraisal of such holders shares. If
such notice did not notify stockholders of the effective date of
the merger or consolidation, either (i) each such
constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of
the holders of any class or series of stock of such constituent
corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the
surviving or resulting corporation shall send such a second
notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is
sent more than 20 days following the sending of the first
notice, such second notice need only be sent to each stockholder
who is entitled to appraisal rights and who has demanded
appraisal of such holders shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary
or of the transfer agent of the corporation that is required to
give either notice that such notice has been given shall, in the
absence of fraud, be prima facie evidence of the facts stated
therein. For purposes of determining the stockholders entitled
to receive either notice, each constituent corporation may fix,
in advance, a record date that shall be not more than
10 days prior to the date the notice is given, provided,
that if the notice is given on or after the effective date of
the merger or consolidation, the record date shall be such
effective date. If no record date is fixed and the notice is
given prior to the effective date, the record date shall be the
close of business on the day next preceding the day on which the
notice is given. |
(e) Within 120 days after the effective date of
the merger or consolidation, the surviving or resulting
corporation or any stockholder who has complied with subsections
(a) and (d) hereof and who is otherwise
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entitled to appraisal rights, may file a petition in the Court
of Chancery demanding a determination of the value of the stock
of all such stockholders. Notwithstanding the foregoing, at any
time within 60 days after the effective date of the merger
or consolidation, any stockholder shall have the right to
withdraw such stockholders demand for appraisal and to
accept the terms offered upon the merger or consolidation.
Within 120 days after the effective date of the merger or
consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon
written request, shall be entitled to receive from the
corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of
shares not voted in favor of the merger or consolidation and
with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Such written
statement shall be mailed to the stockholder within 10 days
after such stockholders written request for such a
statement is received by the surviving or resulting corporation
or within 10 days after expiration of the period for
delivery of demands for appraisal under
subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a
stockholder, service of a copy thereof shall be made upon the
surviving or resulting corporation, which shall within
20 days after such service file in the office of the
Register in Chancery in which the petition was filed a duly
verified list containing the names and addresses of all
stockholders who have demanded payment for their shares and with
whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the
petition shall be filed by the surviving or resulting
corporation, the petition shall be accompanied by such a duly
verified list. The Register in Chancery, if so ordered by the
Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the
surviving or resulting corporation and to the stockholders shown
on the list at the addresses therein stated. Such notice shall
also be given by 1 or more publications at least 1 week
before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or
such publication as the Court deems advisable. The forms of the
notices by mail and by publication shall be approved by the
Court, and the costs thereof shall be borne by the surviving or
resulting corporation.
(g) At the hearing on such petition, the Court shall
determine the stockholders who have complied with this section
and who have become entitled to appraisal rights. The Court may
require the stockholders who have demanded an appraisal for
their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery
for notation thereon of the pendency of the appraisal
proceedings; and if any stockholder fails to comply with such
direction, the Court may dismiss the proceedings as to such
stockholder.
(h) After determining the stockholders entitled to
an appraisal, the Court shall appraise the shares, determining
their fair value exclusive of any element of value arising from
the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to
be paid upon the amount determined to be the fair value. In
determining such fair value, the Court shall take into account
all relevant factors. In determining the fair rate of interest,
the Court may consider all relevant factors, including the rate
of interest that the surviving or resulting corporation would
have had to pay to borrow money during the pendency of the
proceeding. Upon application by the surviving or resulting
corporation or by any stockholder entitled to participate in the
appraisal proceeding, the Court may, in its discretion, permit
discovery or other pretrial proceedings and may proceed to trial
upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name
appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section
and who has submitted such stockholders certificates of
stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal
rights under this section.
(i) The Court shall direct the payment of the fair
value of the shares, together with interest, if any, by the
surviving or resulting corporation to the stockholders entitled
thereto. Interest may be simple or compound, as the Court may
direct. Payment shall be so made to each such stockholder, in
the case of holders of uncertificated stock forthwith, and the
case of holders of shares represented by certificates upon the
surrender to the corporation of the certificates representing
such stock. The Courts decree may be enforced as other
decrees in the Court of Chancery may be enforced, whether such
surviving or resulting corporation be a corporation of this
State or of any state.
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(j) The costs of the proceeding may be determined by
the Court and taxed upon the parties as the Court deems
equitable in the circumstances. Upon application of a
stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the
appraisal proceeding, including, without limitation, reasonable
attorneys fees and the fees and expenses of experts, to be
charged pro rata against the value of all the shares entitled to
an appraisal.
(k) From and after the effective date of the merger
or consolidation, no stockholder who has demanded appraisal
rights as provided in subsection (d) of this section
shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock
(except dividends or other distributions payable to stockholders
of record at a date which is prior to the effective date of the
merger or consolidation); provided, however, that if no petition
for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a
written withdrawal of such stockholders demand for an
appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the
merger or consolidation as provided in
subsection (e) of this section or thereafter with the
written approval of the corporation, then the right of such
stockholder to an appraisal shall cease. Notwithstanding the
foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of
the Court, and such approval may be conditioned upon such terms
as the Court deems just.
(l) The shares of the surviving or resulting
corporation to which the shares of such objecting stockholders
would have been converted had they assented to the merger or
consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
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