UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2005

OR

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                          to

Commission file number 000-496-58

UnitedGlobalCom, Inc.

State of Delaware (State or other jurisdiction of incorporation or organization)		84-1602895 (I.R.S. Employer Identification No.)
4643 S. Ulster Street, Suite 1300 Denver, Colorado (Address of principal executive offices)		80237 (Zip Code)

Registrant’s telephone number, including area code:
(303) 220-6600

     Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days.
Yes þ No o

     Indicate by check mark whether the Registrant is an accelerated filer as defined in Rule 12b-2 of the Exchange Act. Yes o No þ *

     The number of outstanding shares of UnitedGlobalCom, Inc.’s common stock as of July 25, 2005 was:

Class A common stock 412,191,820 shares;
Class B common stock 11,165,777 shares; and
Class C common stock 379,603,223.

*

The Registrant is no longer filing on an accelerated basis as a result of the merger pursuant to which it became a wholly-owned subsidiary of Liberty Global, Inc.

 

 

UNITEDGLOBALCOM, INC.
Index
						PAGE
						NUMBER
PART I — FINANCIAL INFORMATION
ITEM 1.				FINANCIAL STATEMENTS
				Condensed Consolidated Balance Sheets as of June 30, 2005 and December 31, 2004 (Unaudited)			1
				Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2005 and 2004 (Unaudited)			3
				Condensed Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended June 30, 2005 and 2004 (Unaudited)			4
				Condensed Consolidated Statement of Stockholders’ Equity for the Six Months Ended June 30, 2005 (Unaudited)			5
				Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2005 and 2004 (Unaudited)			6
				Notes to Condensed Consolidated Financial Statements (Unaudited)			7
ITEM 2.				MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			38
ITEM 3.				QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			63
ITEM 4.				CONTROLS AND PROCEDURES			67
PART II — OTHER INFORMATION
ITEM 1.				LEGAL PROCEEDINGS			68
ITEM 2.				UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			68
ITEM 4.				SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS			69
ITEM 5.				OTHER INFORMATION			69
ITEM 6.				EXHIBITS			70
Certification of President and CEO
Certification of Senior VP and Co-CFO (Principal Financial Officer)
Certification of Senior VP and Co-CFO (Principal Accounting Officer)
Section 1350 Certification

UNITEDGLOBALCOM, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)

		UGC					UGC
		Post-LGI					Pre-LGI
		Combination					Combination
		June 30,					December 31,
		2005					2004
		amounts in thousands
							(As restated-
ASSETS		(Note 1)					Note 4)
Current assets:
Cash and cash equivalents		$	454,936				$	1,028,993
Trade receivables, net			168,658					184,222
Other receivables, net			67,461					134,110
Other current assets			195,200					191,130
Total current assets			886,255					1,538,455
Investments in affiliates, accounted for using the equity method			476,421					403,134
Other investments			294,351					262,091
Property and equipment, net			4,545,822					4,193,095
Goodwill			4,226,913					2,170,705
Intangible assets not subject to amortization			68,435					67,224
Intangible assets subject to amortization, net			649,216					377,948
Deferred tax assets			20,299					64,643
Other assets, net			230,416					131,757
Total assets		$	11,398,128				$	9,209,052

The accompanying notes are an integral part of these condensed consolidated financial statements.

UNITEDGLOBALCOM, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS — Continued
(unaudited)

		UGC					UGC
		Post-LGI					Pre-LGI
		Combination					Combination
		June 30,					December 31,
		2005					2004
		amounts in thousands
							(As restated-
LIABILITIES AND STOCKHOLDERS’ EQUITY		(Note 1)					Note 4)
Current liabilities:
Accounts payable		$	304,266				$	345,535
Accrued liabilities and other			420,883					462,927
Subscriber advance payments and deposits			316,861					332,765
Accrued interest			58,092					88,608
Notes payable, related party			96,154					108,414
Current portion of debt and capital lease obligations			39,944					34,325
Other current liabilities			45,965					49,675
Total current liabilities			1,282,165					1,422,249
Long-term debt and capital lease obligations			4,661,638					4,818,583
Notes payable, related party			120,372					—
Deferred tax liabilities			158,039					33,743
Other long-term liabilities			402,107					341,360
Total liabilities			6,624,321					6,615,935
Commitments and contingencies (note 10)
Minority interests in subsidiaries			203,421					96,378
Stockholders’ Equity:
Preferred stock, $0.01 par value, 10,000,000 shares authorized, nil shares issued and outstanding			—					—
Class A common stock, $.01 par value. Authorized 1,000,000,000 shares; issued and outstanding 412,191,820 and 413,206,357 shares at June 30, 2005 and December 31, 2004, respectively			4,122					4,132
Class B common stock, $.01 par value. Authorized 1,000,000,000 shares; issued and outstanding 11,165,777 shares			112					112
Class C common stock, $.01 par value. Authorized 400,000,000 shares; issued and outstanding 379,603,223 shares			3,796					3,796
Additional paid-in capital			4,718,116					2,726,767
Accumulated deficit			(96,453	)				(364,669	)
Accumulated other comprehensive earnings (loss), net of taxes			8,868					204,296
Deferred compensation			(11,283	)				(1,851	)
Investment in parent stock			(56,892	)				—
Treasury stock, at cost			—					(75,844	)
Total stockholders’ equity			4,570,386					2,496,739
Total liabilities and stockholders’ equity		$	11,398,128				$	9,209,052

The accompanying notes are an integral part of these condensed consolidated financial statements.

UNITEDGLOBALCOM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)

		Three months ended								Six months ended
		June 30,								June 30,
		2005				2004				2005				2004
		amounts in thousands, except per share amounts
						(As restated-								(As restated-
						Note 4)								Note 4)
Revenue		$	829,625			$	551,671			$	1,627,911			$	1,099,013
Operating costs and expenses:
Operating (other than depreciation)			(351,198	)			(216,910	)			(678,438	)			(430,938	)
Selling, general and administrative (SG&A)			(202,244	)			(138,462	)			(393,958	)			(267,492	)
Stock-based compensation (charges) credits — primarily SG&A			(22,826	)			10,136				(31,564	)			(51,716	)
Depreciation and amortization			(242,930	)			(217,577	)			(469,829	)			(435,271	)
Impairment of long-lived assets			(167	)			(16,623	)			(167	)			(16,623	)
Restructuring and other (charges) credits			6,734				(4,573	)			2,465				(8,908	)
			(812,631	)			(584,009	)			(1,571,491	)			(1,210,948	)
Operating income (loss)			16,994				(32,338	)			56,420				(111,935	)
Other income (expense):
Interest expense			(74,555	)			(79,819	)			(146,734	)			(151,552	)
Interest and dividend income			5,410				8,195				12,481				11,523
Share of earnings (losses) of affiliates, net			(1,029	)			1,539				(10,191	)			(3,955	)
Realized and unrealized gains on derivative instruments, net			66,838				66,711				142,177				62,686
Foreign currency transaction losses, net			(109,579	)			(5,207	)			(157,711	)			(27,059	)
Gain (loss) on extinguishment of debt			(651	)			3,871				(12,631	)			35,787
Gains (losses) on disposition of assets, net.			—				(463	)			28,300				(417	)
Other income (expense), net			(273	)			1,390				(932	)			(5,908	)
			(113,839	)			(3,783	)			(145,241	)			(78,895	)
Earnings (loss) before income taxes and minority interests			(96,845	)			(36,121	)			(88,821	)			(190,830	)
Income tax benefit (expense)			(6,731	)			(5,827	)			(28,634	)			(4,534	)
Minority interests in losses (earnings) of subsidiaries, net			1,259				30				5,497				500
Net earnings (loss)		$	(102,317	)		$	(41,918	)		$	(111,958	)		$	(194,864	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

UNITEDGLOBALCOM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(unaudited)

		Three months ended June 30,								Six months ended June 30,
		2005				2004				2005				2004
		amounts in thousands, except per share amounts
						(As restated-								(As restated-
						Note 4)								Note 4)
Net earnings (loss)		$	(102,317	)		$	(41,918	)		$	(111,958	)		$	(194,864	)
Other comprehensive earnings, net of taxes:
Foreign currency translation adjustments			(136,862	)			(13,034	)			(230,185	)			(62,391	)
Unrealized gains (losses) on available-for-sale securities			10,854				(29,997	)			27,326				(10,559	)
Other comprehensive loss			(126,008	)			(43,031	)			(202,859	)			(72,950	)
Comprehensive loss		$	(228,325	)		$	(84,949	)		$	(314,817	)		$	(267,814	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

UNITEDGLOBALCOM, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(unaudited)

		Six months ended June 30, 2005
																						Accumulated
																						other
														Additional								comprehensive								Investment				Treasury				Total
		Common stock												paid-in				Accumulated				earnings (loss),				Deferred				in				stock,				stockholders’
		Class A				Class B				Class C				capital				Deficit				net of taxes				compensation				parent stock				at cost				equity
		amounts in thousands
Balance at December 31, 2004
(As restated — Note 4)		$	4,132			$	112			$	3,796			$	2,726,767			$	(364,669	)		$	204,296			$	(1,851	)		$	—			$	(75,844	)		$	2,496,739
Net loss			—				—				—				—				(111,958	)			—				—				—				—				(111,958	)
Other comprehensive loss, net of taxes			—				—				—				—				—				(202,859	)			—				—				—				(202,859	)
Issuance of Class A common stock for acquisition of programming business			—				—				—				482				—				—				(8,983	)			—				8,501				—
Acquisition of treasury shares			—				—				—				—				—				—				—				—				(1,833	)			(1,833	)
Issuance of subsidiary stock for acquisition of distribution business			—				—				—				(115,152	)			—				—				—				—				—				(115,152	)
Deferred compensation			—				—				—				—				—				—				1,083				—				—				1,083
Stock issued in connection with equity incentive and 401(K) plans			18				—				—				8,371				—				—				—				—				—				8,389
Stock-based compensation, net of taxes			—				—				—				7,161				—				—				—				—				—				7,161
Adjustments due to other changes in subsidiary equity, net of taxes			—				—				—				(206	)			—				—				(1,532	)			—				—				(1,738	)
Balance at June 30, 2005
(Pre-LGI combination)		$	4,150			$	112			$	3,796			$	2,627,423			$	(476,627	)		$	1,437			$	(11,283	)		$	—			$	(69,176	)		$	2,079,832
Balance at June 30, 2005
(Post-LGI combination)
(Note 1)		$	4,122			$	112			$	3,796			$	4,718,116			$	(96,453	)		$	8,868			$	(11,283	)		$	(56,892	)		$	—			$	4,570,386

The accompanying notes are an integral part of these condensed consolidated financial statements.

UNITEDGLOBALCOM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

		Six months ended
		June 30,
		2005				2004
		amounts in thousands
Cash flows from operating activities:
Net loss		$	(111,958	)		$	(194,864	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Stock-based compensation expense			10,194				51,716
Depreciation and amortization			469,829				435,271
Impairment of long-lived assets			167				16,623
Restructuring charges (credits)			(2,465	)			8,908
Amortization of deferred financing costs and noncash interest			21,349				16,014
Share of losses (earnings) of affiliates, net			10,191				3,955
Realized and unrealized gains on derivative instruments, net			(142,177	)			(62,686	)
Foreign currency transaction losses, net			157,711				27,059
Loss (gain) on extinguishment of debt			12,631				(35,787	)
Gains on disposition of assets, net			(28,300	)			—
Deferred income tax expense (benefit)			6,245				(4,602	)
Minority interests in earnings (losses) of subsidiaries			(5,497	)			(500	)
Changes in operating assets and liabilities, net of the effects of acquisitions:
Receivables and other			(49,386	)			(48,367	)
Payables and accruals			(28,281	)			85,543
Net cash provided by operating activities			320,253				298,283
Cash flows from investing activities:
Capital expended for property and equipment			(378,959	)			(175,861	)
Proceeds received upon disposition of assets			39,067				737
Cash received (paid) for acquisitions, net of cash acquired			(701,913	)			—
Return of cash previously paid into escrow in connection with 2004 acquisition			56,883				—
Net cash received (paid) to purchase or settle derivative instruments			1,031				(21,442	)
Purchases of short-term liquid investments, net			(35,520	)			(213,154	)
Proceeds from sale of short-term liquid investments			55,163				7,984
Change in restricted cash			24,652				3,869
Investments in and loans to affiliates and others			(1,964	)			—
Dividends received from affiliates			11,004				4,801
Other investing activities, net			4,798				(125	)
Net cash used by investing activities			(925,758	)			(393,191	)
Cash flows from financing activities:
Issuance of common stock			8,044				1,076,279
Borrowings of debt			3,388,353				623,709
Repayments of debt and capital lease obligations			(3,246,077	)			(487,340	)
Deferred financing costs			(47,455	)			(49,792	)
Other financing activities, net			(1,845	)			—
Net cash provided by financing activities			101,020				1,162,856
Effect of exchange rates on cash			(69,572	)			(9,632	)
Net increase (decrease) in cash and cash equivalents			(574,057	)			1,058,316
Cash and cash equivalents:
Beginning of period			1,028,993				310,361
End of period		$	454,936			$	1,368,677
Supplemental Cash Flow Disclosures
Cash paid for interest		$	140,464			$	132,944
Net cash paid for taxes		$	5,609			$	3,476

The accompanying notes are an integral part of these condensed consolidated financial statements.

UNITEDGLOBALCOM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005
(unaudited)

(1) Basis of Presentation

     UnitedGlobalCom, Inc. (UGC) is an international broadband communications provider of video, voice and Internet access services, with consolidated operations in 16 countries outside of the continental United States, primarily in Europe and Chile. Through our indirect wholly owned subsidiary United Pan-Europe Communications, N.V. (UPC) and its broadband communications division (UPC Broadband), we provide video, voice and Internet access services in 13 European countries. Through our indirect 80%-owned subsidiary VTR GlobalCom, S.A. (VTR), we provide video, voice and Internet access services in Chile. We also have: (i) consolidated broadband communications operations in Brazil and Peru; (ii) minority interests in broadband communications companies in Europe and Australia; (iii) consolidated interests in certain programming businesses in Europe, primarily held through chellomedia BV (chellomedia), which also provides interactive digital services and owns or manages investments in various businesses in Europe; and (iv) minority interests in certain programming businesses in Europe and the Americas.

     On January 5, 2004, Liberty Media Corporation (LMC) acquired 8,198,016 shares of Class B common stock from our founding stockholders in exchange for securities of LMC and cash (Founders Transaction). Upon completion of this transaction, the restriction on LMC’s right to exercise its voting power over us was terminated. LMC then had the ability to elect our entire board of directors and control us. On May 21, 2004, LMC contributed substantially all of its shares of our common stock and related contract rights to Liberty Media International (LMI), which at the time was a wholly-owned subsidiary of LMC. On June 7, 2004, LMC distributed all of the capital stock of LMI to LMC’s stockholders in a spin-off. As a result, LMI became an independent publicly-traded company that owned approximately 53.4% of our common stock prior to the merger transaction described below.

     Liberty Global, Inc. (LGI) was formed on January 13, 2005, for the purpose of effecting the combination of LMI and UGC. On June 15, 2005, certain mergers were consummated whereby LGI acquired all of the capital stock of UGC that LMI did not already own and LMI and UGC each became wholly owned subsidiaries of LGI (the LGI Combination). In the LGI Combination, (i) each outstanding share of LMI Series A common stock and LMI Series B common stock was exchanged for one share of the corresponding series of LGI common stock, and (ii) each outstanding share of UGC Class A common stock, UGC Class B common stock and UGC Class C common stock, (other than those shares owned by LMI and its wholly owned subsidiaries) were converted into the right to receive for each share of common stock owned either 0.2155 of a share of LGI Series A common stock (plus cash for any fractional share interest) or $9.58 in cash. Cash elections were subject to proration so that the aggregate cash consideration paid to UGC’s stockholders would not exceed 20% of the aggregate value of the merger consideration payable to UGC’s public stockholders. All then outstanding options to purchase UGC common stock, restricted stock and stock appreciation rights (SARs) under UGC’s various incentive plans were converted at a ratio of 0.2155 of a share of LGI Series A common stock for each share of UGC common stock, with a corresponding conversion adjustment to the exercise or base price. Unless the context otherwise indicates, we present pre-LGI Combination references to shares of UGC common stock in terms of the number of shares of LGI common stock issued in exchange for such UGC shares in the LGI Combination.

     LGI accounted for the LGI Combination as a step acquisition of the remaining minority interest in UGC. LGI’s historical investment basis in UGC was pushed down previously in January 2004 in connection with the Founders Transaction. After eliminating the minority interest in UGC from its condensed consolidated balance sheet, LGI pushed down its remaining investment basis of $2.491 billion to UGC. This basis was allocated to the identifiable assets and

UNITEDGLOBALCOM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005
(unaudited)

liabilities of UGC based on preliminary assessments of their respective fair values (as adjusted to give effect to the 46.6% UGC ownership interest that LGI acquired in the LGI Combination), and the excess of the purchase price over the adjusted fair values of such identifiable net assets was allocated to goodwill. The purchase accounting for this step acquisition, as reflected in these condensed consolidated financial statements, is preliminary and subject to adjustment based upon the final assessment of the fair values of the identifiable tangible and intangible assets and liabilities of UGC. As the open items in the valuation process generally relate to property and equipment and intangible assets, we would expect that the primary effects of any potential adjustments to the preliminary purchase price allocation would be changes to the values assigned to these asset categories and to the related depreciation and amortization expense. While the effects of any such adjustments are not expected to be material in relationship to our total assets, such effects could be significant in relationship to our operating results in future periods.

     As a result of the push down of LGI’s remaining investment basis in UGC to the financial statements of UGC, a new basis of accounting was created effective June 15, 2005. As the impact of the push down was not material to the results of operations for the period from June 15, 2005 to June 30, 2005, for financial reporting purposes we have reflected this new basis of accounting effective June 30, 2005. For periods prior to June 30, 2005, the assets and liabilities of UGC and the related consolidated financial statements are sometimes referred to herein as UGC Pre-LGI Combination, and for periods as of and subsequent to June 30, 2005 the assets and liabilities of UnitedGlobalCom, Inc. and the related consolidated financial statements are sometimes referred to herein as UGC Post-LGI Combination. The Company, UGC, we, us, our or similar terms refer to both UGC Post-LGI Combination and UGC Pre-LGI Combination. The effects of the LGI Combination have been included in our condensed consolidated financial statements beginning with the June 15, 2005 acquisition date.

     The following table presents the unaudited condensed consolidated balance sheet of UGC Pre-LGI Combination as of June 30, 2005 (prior to the push down of LGI’s basis), and the opening unaudited condensed consolidated balance sheet of UGC Post-LGI Combination as of June 30, 2005 (subsequent to the push down of LGI’s basis) (in thousands):

		UGC					UGC
		Post-LGI					Pre-LGI
		Combination					Combination
		June 30,					June 30,
		2005					2005
Current assets		$	886,255				$	886,398
Property and equipment, net			4,545,822					4,035,508
Goodwill			4,226,913					2,541,262
Other Intangible assets, net			717,651					417,593
Other assets, net			1,021,487					908,521
Total assets		$	11,398,128				$	8,789,282
Current liabilities		$	1,282,165				$	1,282,165
Long-term debt and capital lease obligations			4,661,638					4,649,941
Other long-term liabilities			680,518					573,923
Total liabilities			6,624,321					6,506,029
Minority interests in subsidiaries			203,421					203,421
Stockholders’ equity			4,570,386					2,079,832
Total liabilities and stockholders’ equity		$	11,398,128				$	8,789,282

UNITEDGLOBALCOM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005
(unaudited)

     The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) and with the instructions to Form 10-Q and Article 10 of Regulation S-X for interim financial information. Accordingly, these statements do not include all of the information required by GAAP or Securities and Exchange Commission regulations for complete financial statements. In the opinion of management, these statements reflect all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the results for such periods. The results of operations for any interim period are not necessarily indicative of results for the full year. These unaudited condensed consolidated financial statements should be read in conjunction with our consolidated financial statements and notes thereto included in our December 31, 2004 Annual Report on Form 10-K/A. Certain reclassifications have been made to prior year amounts to conform to the current year presentation.

     The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Estimates and assumptions are used in accounting for, among other things, the valuation of acquisition-related assets and liabilities, allowances for uncollectible accounts, deferred income taxes and related valuation allowances, loss contingencies, fair values of financial and derivative instruments, fair values of long-lived assets and any related impairments, capitalization of construction and installation costs, useful lives of property and equipment, and restructuring accruals. Actual results could differ from those estimates.

     We do not control the decision making process or business management practices of our equity affiliates or the entities that we consolidate solely pursuant to the requirements of Financial Accounting Standards Board (FASB) Interpretation No. 46(R), Consolidation of Variable interest Entities (FIN 46(R)). Accordingly, we rely on management of these entities and their independent auditors to provide us with accurate 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 these entities that would have a material effect on our condensed consolidated financial statements. For information concerning these entities, see notes 4 and 5.

     Unless otherwise indicated, convenience translations into U.S. dollars are calculated as of June 30, 2005.

UNITEDGLOBALCOM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005
(unaudited)

(2) Stock-Based Compensation

Intrinsic Value Method

     We account for our stock-based compensation awards to our employees using the intrinsic value method. Generally, under the intrinsic value method, (i) compensation expense for fixed-plan stock options is recognized only if the estimated fair value 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 until the options are exercised, expire or are cancelled, and (ii) compensation for variable-plan options is recognized based upon the percentage of the options that are vested and the difference between the quoted market price or estimated fair value of the underlying common stock and the exercise price of the options at the balance sheet date, until the options are exercised, expire or are cancelled. We record stock-based compensation expense for our variable-plan options and stock appreciation rights (SARs) using the accelerated expense attribution method. We record compensation expense for restricted stock awards based on the quoted market price of our stock at the date of grant and the vesting period.

     As a result of the modification of certain terms of our stock options in connection with our February 2004 rights offering, we began accounting for stock options granted prior to February 2004 as variable-plan options. Stock options granted subsequent to February 2004 were accounted for as fixed-plan options through the date of the LGI Combination.

     As further described in note 4, we are recording stock-based compensation expense in connection with restricted shares of LGI Series A common stock issued to, and certain Zone Vision Networks Ltd. (Zone Vision) common stock held by, certain selling shareholders of Zone Vision. The restricted shares of LGI Series A common stock were issued in exchange for UGC Class A common stock in connection with the LGI Combination. The issuance of these and other restricted shares of LGI Series A common stock in exchange for restricted shares of UGC Class A common stock in connection with the LGI Combination resulted in the establishment of a new measurement date as of June 15, 2005.

     The following table illustrates the pro forma effect on net earnings (loss) and earnings (loss) per share as if we had applied the fair value method to our outstanding stock-based awards that we have accounted for under the intrinsic value method. As the accounting for restricted stock and SARs is the same under the intrinsic value method and the fair value method, the pro forma adjustments included in the following table do not include amounts related to our calculation of compensation expense related to restricted stock and SARs:

		Three months ended								Six months ended
		June 30,								June 30,
		2005				2004				2005				2004
		amounts in thousands
						(As restated-								(As restated-
						Note 4)								Note 4)
Net earnings (loss)		$	(102,317	)		$	(41,918	)		$	(111,958	)		$	(194,864	)
Add stock-based compensation expense as determined under the intrinsic value method, net of taxes			5,993				(8,020	)			4,425				23,133
Deduct stock-based compensation expense as determined under the fair value method, net of taxes			(541	)			—				(903	)			(25,246	)
Pro forma net earnings (loss)		$	(96,865	)		$	(49,938	)		$	(108,436	)		$	(196,977	)

(3) Recent Accounting Pronouncements

     In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (Statement No. 123(R)). Statement No. 123(R) requires all

UNITEDGLOBALCOM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005
(unaudited)

share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values, beginning with the first interim or annual period after December 15, 2005, with early adoption encouraged. In addition, Statement No. 123(R) will cause unrecognized expense (based on the amounts in our pro forma note disclosure) related to options vesting after the date of initial adoption to be recognized as a charge to operations over the remaining vesting period.

     We are required to adopt Statement No. 123(R) beginning January 1, 2006. Under Statement No. 123(R), we must determine the appropriate fair value model to be used for valuing share-based payments, the amortization method for compensation cost and the transition method to be used at the date of adoption. The transition alternatives include prospective and retroactive adoption methods. Under the retroactive methods, prior periods may be restated either as of the beginning of the year of adoption or for all periods presented. The prospective method requires that compensation expense be recorded for all unvested stock options and share awards at the beginning of the first quarter of adoption of Statement No. 123(R), while the retroactive methods would record compensation expense for all unvested stock options and share awards beginning with the first period restated. We are evaluating the requirements of Statement No. 123(R) and we expect that the adoption of Statement No. 123(R) will have a material impact on our results of operations. We have not yet determined the method of adoption for Statement No. 123(R).

     In June 2005, the FASB issued Statement of Financial Accounting Standards No. 154, Accounting Changes and Error Corrections (Statement No. 154). This Statement replaces Accounting Principles Board Opinion No. 20, Accounting Changes (APB No. 20), and Statement of Financial Accounting Standards No. 3, Reporting Accounting Changes in Interim Financial Statements. Statement No. 154 applies to all voluntary changes in accounting principle, and changes the requirements for accounting for and reporting of a change in accounting principle.

     Statement No. 154 requires retrospective application to prior periods’ financial statements of a voluntary change in accounting principle unless it is impracticable to do so. In contrast, APB No. 20 previously required that most voluntary changes in accounting principle be recognized by including in net income of the period of the change the cumulative effect of changing to the new accounting principle. The provisions of this Statement are effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Statement does not change the transition provisions of any existing accounting pronouncements, including those that are in a transition phase as of the effective date of this Statement. Adoption of this Statement will not have any immediate effect on our consolidated financial statements, and we will apply this guidance prospectively.

UNITEDGLOBALCOM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005
(unaudited)

(4) Acquisitions and Dispositions

  NTL Ireland

     On May 9, 2005, we announced that our indirect subsidiary, UPC Ireland B.V. (UPC Ireland), had signed a sale and purchase agreement to acquire MS Irish Cable Holdings B.V. (MS Irish Cable), subject to regulatory approval. MS Irish Cable, an affiliate of Morgan Stanley, owns NTL Communications (Ireland) Limited, NTL Irish Networks Limited and certain related assets (together NTL Ireland), which MS Irish Cable acquired from the NTL Group on May 9, 2005. NTL Ireland, Ireland’s largest cable television operator, provides cable television and broadband Internet services to residential customers and managed network services to corporate customers. Certain obligations of UPC Ireland are guaranteed by our subsidiary and UPC Ireland’s immediate parent, UPC.

     MS Irish Cable acquired NTL Ireland on May 9, 2005. On that date, pursuant to a loan agreement (the Loan Agreement), UPC Ireland loaned MS Irish Cable approximately €338,559,000 ($434,830,000 at May 9, 2005) to fund the purchase price for NTL Ireland, to pay certain taxes related to the acquisition and to provide for MS Irish Cable’s working capital needs. Interest accrues annually on the loan in an amount equal to 100% of MS Irish Cable’s profits for the interest period and becomes payable on the date of repayment or prepayment of the loan. The final maturity of the loan is May 9, 2065, but the indebtedness incurred under the Loan Agreement may be prepaid at any time without penalty.

     UPC Ireland’s acquisition of MS Irish Cable from MS Irish Cable’s parent company, Morgan Stanley Dean Witter Equity Funding, Inc. (MSDW Equity), is subject to receipt of applicable Irish regulatory approval. Upon closing, UPC Ireland will pay MSDW Equity, as consideration for all of the outstanding share capital of MS Irish Cable and any MS Irish Cable indebtedness owed to MSDW Equity and its affiliates, an amount (the Purchase Price) equal to MSDW Equity’s net investment in MS Irish Cable plus interest on the amount of the net investment at a rate per annum equal to EURIBOR (Euro Interbank Offered Rate) + 1.2%, compounded daily, for the period of its investment through the date of the disposition, together with any value added tax thereon plus an amount equal to certain costs and expenses incurred by MSDW Equity in connection with the transaction.

     If regulatory approval for UPC Ireland’s acquisition of MS Irish Cable (including its subsidiary NTL Ireland) is not received by February 3, 2006 or, if prior to that date, the appropriate authority has expressly and conclusively refused to grant the necessary approval, MSDW Equity may sell its direct or indirect interest in NTL Ireland to any third party for such consideration and on such terms and conditions as MSDW Equity determines in its sole discretion. UPC Ireland has agreed to make MSDW Equity whole with respect to any economic effect on MSDW Equity regarding the acquisition, ownership and subsequent transfer of the NTL Ireland interest. In connection with such a sale of the NTL Ireland interest to a third party, UPC Ireland has granted MSDW Equity an option to require UPC Ireland to sell to MSDW Equity or its nominee (the Call Option) all of UPC Ireland’s interest in the indebtedness owed by MS Irish Cable under the Loan Agreement at a price equal to the total consideration (including the amount of debt directly or indirectly assumed) that MSDW Equity and its affiliates will receive for sale or liquidation of the direct or indirect NTL Ireland interest, less the Purchase Price and the amount of certain expenses and costs, without duplication, incurred by MSDW Equity and its affiliates in connection with the sale, ownership and earlier acquisition of NTL Ireland and a customary advisory fee to be agreed upon. UPC Ireland’s obligations under the Call Option are secured by a security assignment of UPC Ireland’s right to the receivable under the Loan Agreement and a Dutch pledge over such receivable.

     In connection with the transaction, UPC Ireland paid MSDW Equity an arrangement fee of €4.0 million ($5,137,000 at May 9, 2005) and agreed to pay €150,000 ($193,000 at May 9, 2005) for each month that MS Irish Cable holds its interest in NTL Ireland as well as to reimburse it for its reasonable costs and expenses associated with the transaction. UPC Ireland has agreed to indemnify MSDW Equity and its affiliates with respect to any losses, liabilities and taxes incurred in connection with the transaction.

UNITEDGLOBALCOM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005
(unaudited)

     The make whole arrangement with MSDW Equity is considered to be a variable interest in MS Irish Cable, which is a variable interest entity under the provisions of FIN 46(R). As we are responsible for all losses to be incurred by MSDW Equity in connection with its acquisition, ownership and ultimate disposition of MS Irish Cable, we are the primary beneficiary (as defined by FIN 46(R)) and are therefore required to consolidate MS Irish Cable and its subsidiaries, including NTL Ireland, as of the closing date of MS Irish Cable’s acquisition of NTL Ireland. As MSDW Equity has no equity at risk in MS Irish Cable, the full amount of MS Irish Cable’s net earnings (loss) will be allocated to UPC Ireland. For financial reporting purposes, we began consolidating the results of operations of MS Irish Cable on May 1, 2005.

     MS Irish Cable’s acquisition of NTL Ireland has been accounted for using the purchase method of accounting. The total purchase consideration of €347,441,000 ($446,238,000 at May 9, 2005), including direct acquisition costs of €14,029,000 ($18,018,000 at May 9, 2005), has been allocated to the acquired identifiable tangible and intangible assets and liabilities of NTL Ireland based on their respective fair values, with excess purchase consideration over the fair value of such net identifiable assets allocated to goodwill. The purchase accounting for this acquisition, as reflected in these condensed consolidated financial statements, is preliminary and subject to adjustment based upon the final assessment of the fair values of the identifiable tangible and intangible assets and liabilities of NTL Ireland. As the open items in the valuation process generally relate to property and equipment and intangible assets, we would expect that the primary effects of any potential adjustments to the preliminary purchase price allocation would be changes to the values assigned to these asset categories and to the related depreciation and amortization expense. While the effects of any such adjustments are not expected to be material in relationship to our total assets, such effects could be significant in relationship to our operating results in future periods.

  VTR Acquisition of Metrópolis

     On April 13, 2005, VTR completed its previously announced merger with Metrópolis Intercom S.A. (Metrópolis), a Chilean broadband distribution company in Chile. Prior to the merger, LMI owned a 50% interest in Metrópolis, with the remaining 50% interest owned by Cristalerías de Chile S.A. (CCC). As consideration for CCC’s interest in Metrópolis, (i) VTR issued 11,438,360 shares of its common stock to CCC, representing 20% of the outstanding economic and voting shares of VTR subsequent to the transaction, (ii) VTR purchased certain indebtedness owed by Metrópolis to CristalChile Inversiones S.A. (CCI) in the amount of ChP6,067,204,167 ($10,533,000), and (iii) UGC granted CCC the right to put its 20% interest in VTR to UGC at fair value, subject to a minimum purchase price of $140 million, which put is exercisable beginning on April 13, 2006 and expires on April 13, 2015. As consideration for LMI’s interest in Metrópolis, (i) VTR issued indebtedness, which the parties valued at approximately $100 million based on a 5% per annum interest rate, that is due and payable on April 13, 2009, and (ii) VTR purchased certain indebtedness owed by Metrópolis to LMI in the amount of ChP6,067,204,167 ($10,533,000). VTR merged with Metrópolis to achieve certain financial, operational and strategic benefits through the integration of Metrópolis with its existing operations.

     We accounted for the acquisition of LMI’s interest in Metrópolis as a reorganization of entities under common control at historical cost, similar to a pooling of interests. Under reorganization accounting, LMI contributed its historical investment basis in Metrópolis to VTR, and VTR recorded its proportionate share of the results of operations and equity transactions of Metrópolis based on the historical results of LMI, as if this transaction had been consummated by VTR as of January 5, 2004, the date of the original acquisition of a controlling interest in us by LMI.

UNITEDGLOBALCOM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005
(unaudited)

     We restated our previously issued unaudited condensed consolidated financial statements to reflect this reorganization as follows (in thousands):

		Three Months Ended
		March 31,				June 30,				March 31,
Statements of Operations		2004				2004				2005
Net income (loss):
As previously reported		$	(149,665	)		$	(39,974	)		$	(2,859	)
Adjustment for Metropolis share in results			(3,281	)			(1,944	)			(6,782	)
As restated		$	(152,946	)		$	(41,918	)		$	(9,641	)

		December 31,
Balance Sheet		2004
Investments in affiliates, accounted for using the equity method:
As previously reported		$	345,790
Adjustment			57,344
As restated		$	403,134
Deferred tax assets:
As previously reported		$	47,232
Adjustment			17,411
As restated		$	64,643
Additional paid-in capital:
As previously reported		$	2,624,159
Adjustment			102,608
As restated		$	2,726,767
Accumulated deficit:
As previously reported		$	(356,314	)
Adjustment			(8,355	)
As restated		$	(364,669	)
Accumulated other comprehensive earnings (loss), net of taxes:
As previously reported		$	223,794
Adjustment			(19,498	)
As restated		$	204,296

     We accounted for the acquisition of CCC’s interest in Metrópolis as (i) a step acquisition of an additional 30% interest in Metrópolis, and (ii) the sale of a 20% interest in VTR. In the absence of quoted market prices for VTR common stock, for accounting purposes we estimated the fair value of the 20% interest in VTR that was exchanged for CCC’s interest in Metrópolis to be $180 million, based on a discounted cash flow analysis and other available market data. Including the approximate $11,755,000 fair value at April 13, 2005 of the put right that UGC granted to CCC and $3,391,000 in direct acquisition costs, the preliminary purchase price for CCC’s interest in Metrópolis totaled approximately $195,146,000. 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 (as adjusted to give effect to the 30% Metrópolis interest acquired), and the excess of the purchase price over the fair value of such identifiable net assets was allocated to goodwill. We recorded a preliminary loss of approximately $4,573,000 associated with the dilution of its indirect ownership interest in VTR from 100% to 80% as a result of the transaction. For financial reporting purposes, we began consolidating the results of operations of Metrópolis on April 1, 2005.

UNITEDGLOBALCOM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005
(unaudited)

     The purchase accounting for this acquisition, as reflected in these condensed consolidated financial statements, is preliminary and subject to adjustment based upon the final assessment of the fair values of the identifiable tangible and intangible assets and liabilities of Metrópolis. As the open items in the valuation process generally relate to property and equipment and intangible assets, we would expect that the primary effects of any potential adjustments to the preliminary purchase price allocation would be changes to the values assigned to these asset categories and to the related depreciation and amortization expense. While the effects of any such adjustments are not expected to be material in relationship to our total assets, such effects could be significant in relationship to our operating results in future periods.

  Acquisitions of Noos and the Remaining 19.9% Minority Interest in UPC Broadband France

     On July 1, 2004, UPC Broadband France SAS (UPC Broadband France), an indirect wholly owned subsidiary and owner of our French broadband video and Internet access 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 was subject to a review of certain historical financial information of Noos and UPC Broadband France. In January 2005, we completed our purchase price review with Suez, which resulted in the return of €43,732,000 ($56,883,000 as of January 19, 2005) to our company from an escrow account. The final purchase price for Noos was approximately €567,102,000 ($689,989,000), consisting of €487,085,000 ($592,633,000) in cash, a 19.9% equity interest in UPC Broadband France, valued at approximately €71,339,000 ($86,798,000) and €8,678,000 ($10,558,000) of direct acquisition costs.

     In April 2005, a subsidiary of UPC exercised its call right and purchased the remaining 19.9% minority interest in UPC Broadband France that it did not already own for €90,105,000 ($115,950,000 at the transaction date) in cash. This acquisition was accounted for as a step acquisition of the remaining minority interest. As UPC Broadband France was a consolidated subsidiary at the time of this transaction, the purchase price was first applied to eliminate the minority interest in UPC Broadband France from our condensed consolidated balance sheet, and the remaining purchase price has been allocated on a pro rata basis to the identifiable assets and liabilities of UPC Broadband France taking into account their respective fair values at April 6, 2005 and the 19.9% interest acquired. The excess purchase price that remained after amounts had been allocated to the net identifiable assets of UPC Broadband France was recorded as goodwill.

UNITEDGLOBALCOM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005
(unaudited)

  Pro Forma Data

     The following unaudited pro forma condensed consolidated operating results for the six months ended June 30, 2005 give effect to the June 15, 2005 LGI Combination, the May 9, 2005 consolidation of MS Irish Cable and VTR’s April 13, 2005 acquisition of Metrópolis as if such transactions had been completed as of January 1, 2005. The following unaudited pro forma condensed consolidated operating results for the six months ended June 30, 2004, give effect to the June 15, 2005 LGI Combination, the May 9, 2005 consolidation of MS Irish Cable, VTR’s April 13, 2005 acquisition of Metrópolis and the July 1, 2004 acquisition of Noos (exclusive of the effects of the April 6, 2005 acquisition of the 19.9% minority interest in UPC Broadband France), as if such transactions had been completed as of January 1, 2004. These pro forma amounts are not necessarily indicative of the operating results that would have occurred if these transactions had occurred on such dates. The pro forma adjustments are based upon currently available information and upon certain assumptions that we believe are reasonable.

		Six months ended
		June 30,
		2005				2004
		amounts in thousands
Revenue		$	1,693,163			$	1,398,038
Net loss		$	(148,127	)		$	(250,371	)

  Other 2005 Acquisitions

     Zone Vision — In January 2005, chellomedia acquired the Class A shares of Zone Vision. The consideration for the transaction consisted of $50,000,000 in cash and 351,111 shares of LGI Series A common stock valued at $14,973,000. We incurred $2,154,000 of direct acquisition costs related to this transaction. As part of the transaction, chellomedia contributed to Zone Vision its 49% interest in Reality TV Ltd. and chellomedia’s Club channel business. Zone Vision is a programming company focused on the ownership, management and distribution of pay television channels.

     The Zone Vision Class A shares purchased by chellomedia represent an 87.5% interest in Zone Vision on a fully diluted basis. A group of the selling shareholders have been retained as employees of Zone Vision after the acquisition. These employees hold Class B1 shares of Zone Vision (representing the remaining 12.5% interest in Zone Vision) and, subject to the terms of an escrow agreement, are entitled to the LGI Series A common stock that we issued as purchase consideration. The Class B1 shares and the LGI Series A common stock vest through the continuing employment of one or more of such employees over five years at a rate of 5% per quarter. However, the vesting of 40% of the LGI Series A common stock also is subject to the achievement of performance targets by the end of 2006. As the vesting of the Class B1 shares and the shares of LGI Series A common stock are linked to continuing employment, we accounted for these shares as stock-based compensation. At the closing date, we did not record a minority interest in Zone Vision as the Class B1 shares were not then vested.

     Zone Vision’s Class B1 shareholders have the right, subject to vesting, to put 60% of their Class B1 shares to chellomedia on the third anniversary of the closing, and 100% of their interest on the fifth anniversary of the closing. chellomedia has corresponding call rights. The price payable upon exercise of the put or call will be the then fair value. The fair value to settle the put is capped at an amount equal to ten times EBITDA, as defined in the Zone Vision shareholders agreement, calculated on a run rate basis for the full financial quarter immediately preceding the date of any exercise of a put.

     Telemach — On February 10, 2005, we acquired 100% of the shares in Telemach d.o.o., a broadband communications provider in Slovenia, for €70,985,000 ($91,370,000) in cash. We purchased Telemach to increase our market presence in Central and Eastern Europe.

     Accounting Treatment of Zone Vision and Telemach Acquisitions — We accounted for the Zone Vision and Telemach transactions using the purchase method of accounting. Under the

UNITEDGLOBALCOM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005
(unaudited)

purchase method of accounting, the purchase price was allocated to the acquired identifiable tangible and intangible assets and liabilities based upon their respective fair values, and the excess of the purchase price over the fair value of such net identifiable assets was allocated to goodwill. The purchase accounting for the Zone Vision and Telemach acquisitions, as reflected in these condensed consolidated financial statements, is preliminary and subject to adjustment based upon the final assessment of the fair values of the identifiable tangible and intangible assets and liabilities of Zone Vision and Telemach. As the open items in the valuation process generally relate to property and equipment and intangible assets, we would expect that the primary effects of any potential adjustments to the preliminary purchase price allocation would be changes to the values assigned to these asset categories and to the related depreciation and amortization expense. We do not expect these adjustments to be material in relationship to our total assets or operating results. Our results of operations would not have been materially affected if the Zone Vision and Telemach acquisitions had occurred at the beginning of either of the respective six month periods ended June 30, 2005 or 2004.

  Other 2004 Acquisitions

     PHL

     On May 20, 2004, LMI acquired all of the issued and outstanding ordinary shares of Princes Holdings Limited (PHL) for €2,447,000 ($2,918,000), including acquisition costs of €447,000 ($533,000). PHL, through its subsidiary Chorus Communications Limited (Chorus), owns and operates broadband communications systems in Ireland. In connection with this acquisition, LMI loaned an aggregate of €75,000,000 ($89,483,000 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. In June 2004, LMI loaned PHL an additional €4,500,000, for a total of €79,500,000 ($96,154,000). These loans bear interest at 1.75% per annum.

     LMI accounted for this acquisition using the purchase method of accounting, effective for financial reporting purposes as of June 1, 2004. On December 16, 2004, we acquired LMI’s interest in PHL in exchange for 6,413,991 shares of our Class A common stock, valued at $58,303,000 on that date. We accounted for this transaction 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 PHL using LMI’s historical cost, as if this transaction had been consummated by us as of May 20, 2004 (June 1, 2004 for financial reporting purposes), the date of the original acquisition of PHL by LMI. Our results of operations would not have been materially affected if the PHL acquisition had occurred at the beginning of either of the respective six-month periods ended June 30, 2005 or 2004.

  Dispositions

     EWT Holding GmbH — In January 2005, we sold our indirect 28.7% interest in EWT Holding GmbH (EWT), which indirectly owned a broadband communications provider in Germany, for €30,000,000 ($39,067,000) in cash. We received €27,000,000 of the sale price in January 2005, and we received the remainder in June 2005. We recorded a gain of $28,186,000 in connection with this transaction.

UNITEDGLOBALCOM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005
(unaudited)

(5) 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:

		UGC							UGC
		Post-LGI							Pre-LGI
		Combination							Combination
									December 31,
		June 30, 2005							2004
		Percentage		Carrying					Carrying
		ownership		amount					amount
				dollar amounts in thousands
									(As restated
									Note 4)
Telenet Group Holdings N.V. (Telenet)		*		$	186,315				$	232,649
Austar United Communications Ltd. (Austar United)		34%			155,845					19,204
Iberian Program Services C.V. (IPS)		50%			46,862					43,537
Melita Cable PLC (Melita)		50%			32,034					25,130
Metropolis		50%			—					57,344
Other		Various			55,365					25,270
				$	476,421				$	403,134

  Telenet

     On December 16, 2004, chellomedia Belgium I BV and chellomedia Belgium II BV, our indirect wholly owned subsidiaries (collectively, chellomedia Belgium), acquired LMI’s wholly owned subsidiary Belgian Cable Holdings (BCH) for $121,068,000 in cash. BCH’s only assets were debt securities of Callahan Partners Europe (CPE) and one of two entities majority owned by CPE (the InvestCos) and related contract rights. The purchase price was equal to LMI’s carrying value for the debt securities, which included an unrealized gain of $10,517,000. On December 17, 2004, UGC entered into a restructuring transaction with CPE and certain other parties. In this restructuring, BCH purchased equity of Belgian Cable Investors, LLC (Belgian Cable Investors), consisting of a 78.4% common equity interest and a 100% preferred equity interest for cash proceeds of $137,950,000 and the InvestCo debt security. Belgian Cable Investors then distributed $115,592,000 of these proceeds to CPE, which used the proceeds to repurchase the CPE debt securities held by BCH. CPE owns the remaining 21.6% of the common equity of Belgian Cable Investors. Belgian Cable Investors holds an indirect 14.1% interest in Telenet, and certain call options expiring in 2007 and 2009 to acquire 3.36 million shares (11.6%) and 5.11 million shares (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 the InvestCos, which hold in the aggregate 18.99% of the common 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. As further described in note 10, CPE has the right to require BCH to purchase all of CPE’s interest in Belgian Cable Investors for the then appraised fair value of such interest during the first 30 days of every six-month period beginning in December 2007.

  Austar United

     We own an approximate 34% interest in Austar United, a pay-TV provider in Australia. The increase in the carrying value of our investment from December 31, 2004 to June 30, 2005 is due to the application of purchase accounting in connection with the LGI Combination.

UNITEDGLOBALCOM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005
(unaudited)

(6) Derivative Instruments

     The following table provides detail of the fair value of our derivative instrument assets (liabilities), net:

		UGC					UGC
		Post-LGI					Pre-LGI
		Combination					Combination
		June 30,					December 31,
		2005					2004
		amounts in thousands
UPC Broadband Holding cross-currency and interest rate swaps and caps		$	68,895				$	(23,264	)
CCC put right			(12,992	)				—
Embedded derivatives			(617	)				(48	)
Total			55.286					(23,312	)
Current asset			513					558
Current liability			(3,134	)				(6,074	)
Long-term asset			113,049					2,568
Long-term liability			(55,142	)				(20,364	)
Total		$	55,286				$	(23,312	)

     Realized and unrealized gains on derivative instruments are comprised of the following amounts:

		Three Months								Six Months
		ended								ended
		June 30,								June 30,
		2005				2004				2005				2004
		amounts in thousands
UPC Broadband Holding cross-currency and interest rate swaps and caps		$	75,627			$	6,351			$	95,807			$	2,326
Embedded derivatives			(7,552	)			60,360				47,607				60,360
CCC put right			(1,237	)			—				(1,237	)			—
		$	66,838			$	66,711			$	142,177			$	62,686

     None of our derivative instruments have been designated as hedges.

UNITEDGLOBALCOM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005
(unaudited)

  UPC Broadband Holding Cross-currency Swaps

     In June 2003, UPC Broadband Holding entered into a cross currency and interest rate swap pursuant to which a notional amount of $347.5 million was swapped at an average rate of 1.133 euros per U.S. dollar until July 2005, with the variable LIBOR (London Inter Bank Offer Rate) interest rate (including margin) swapped into a fixed interest rate of 7.85%. Following the prepayment of part of Facility C of the UPC Broadband Holding Bank Facility (see note 8) in December 2004, UPC Broadband Holding paid down this swap with a cash payment of $59,100,000 and unwound a notional amount of $171,480,000. The remaining notional amount of $176,020,000 was reset at a euro to U.S. dollar exchange rate of 1.3158 to 1 until the refinancing of the UPC Broadband Holding Bank Facility in March 2005, when this swap was terminated.

     In connection with the refinancing of the UPC Broadband Bank Facility in December 2004, UPC Broadband Holding entered into a seven year cross-currency and interest rate swap pursuant to which a notional amount of $525 million was swapped to euros at a rate of 1.3342 euros per U.S. dollar until December 2011, with the variable interest rate of U.S. dollar LIBOR + 300 basis points swapped into a variable rate of EURIBOR + 310 basis points for the same time period.

     In connection with the refinancing of the UPC Broadband Holding Bank Facility in March 2005, UPC Broadband Holding entered into a seven and a half year cross-currency and interest rate swap pursuant to which a notional amount of $1.250 billion was swapped to euros at a rate of 1.325 euros per U.S. dollar until October 2012, with the variable interest rate of LIBOR + 250 basis points swapped into a fixed rate including margin of 6.06%.

  UPC Broadband Holding Interest Rate Swaps

     In March 2005, UPC Broadband Holding: (i) entered into a five-year interest rate swap pursuant to which a notional amount of €1.0 billion was swapped into a fixed interest rate (excluding margin) of 3.28% from July 2005 until April 2010; (ii) entered into an interest rate swap pursuant to which a notional amount of €525 million was swapped into a fixed interest rate (excluding margin) of 2.26% from April through December 2005; and (iii) entered into an interest rate swap pursuant to which a notional amount of €550 million was swapped into a fixed interest rate (excluding margin) of 2.33% from July through December 2005. In June 2005 UPC Broadband Holding entered into an interest rate swap pursuant to which a notional amount of €500 million was swapped into a fixed rate (excluding margin) of 2.96% from January 2006 through October 2012.

  UPC Broadband Holding Interest Rate Caps

     During the first and second quarter of 2004, UPC Broadband Holding purchased interest rate caps for a total cost of $21,442,000, capping the variable interest rate (excluding margin) at 3.0% and 4.0% for 2005 and 2006, respectively, on notional amounts totaling €2.4 billion to €2.6 billion for 2005 and €1 billion to €1.5 billion for 2006. In March 2005 UPC Broadband Holding purchased interest rate caps that capped the variable EURIBOR interest rate (excluding margin) at 3.5% on a notional amount of €750.0 million for 2007.

  CCC Put Right

     In connection with VTR’s April 2005 acquisition of Metrópolis, UGC granted a put right to CCC. For additional information, see note 4.

  Embedded Derivatives

     The most significant embedded derivative is the equity derivative that is embedded in the UGC Convertible Notes, which is presented in long-term debt and capital lease obligations in the accompanying condensed consolidated balance sheet. For additional information, see note 8.

UNITEDGLOBALCOM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005
(unaudited)

(7) Long-Lived Assets

  Property and equipment, net

     The details of property and equipment and the related accumulated depreciation are set forth below:

		UGC					UGC
		Post-LGI					Pre-LGI
		Combination					Combination
		June 30,					December 31,
		2005					2004
		amounts in thousands
Cable distribution systems		$	3,685,670				$	4,256,268
Support capital and other			902,728					886,467
			4,588,398					5,142,735
Accumulated depreciation			(42,576	)				(949,640	)
Property and equipment, net		$	4,545,822				$	4,193,095

     Depreciation expense related to our property and equipment was $221,237,000 and $202,077,000 for the three months ended June 30, 2005 and 2004, respectively, and $430,028,000 and $403,863,000 for the six months ended June 30, 2005 and 2004, respectively.

     At June 30, 2005 and December 31, 2004, the amount of property and equipment, net, and other assets, net, recorded under capital leases was $31,276,000 and $35,429,000, respectively. Amortization of assets under capital leases is included in depreciation and amortization in the accompanying condensed consolidated statements of operations. Equipment under capital leases is amortized on a straight-line basis over the shorter of the lease term or estimated useful life of the asset.

     During the six months ended June 30, 2005, we recorded $940,000 of non-cash increases to our property and equipment as a result of assets acquired under capital lease arrangements.

UNITEDGLOBALCOM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005
(unaudited)

  Goodwill

     Changes in the carrying amount of goodwill for the six months ended June 30, 2005 are as follows:

										Release of													UGC
										pre-acquisition								UGC					Post-LGI
										valuation				Foreign currency				Pre-LGI					Combination
		December 31,				Other				allowance				translation				Combination					June 30,
		2004				acquisitions				and other				adjustments				June 30, 2005					2005
		amounts in thousands
Europe (UPC Broadband)
The Netherlands		$	823,496			$	—			$	(1,634	)		$	(93,015	)		$	728,847				$	1,338,911
France			6,494				26,795				(114	)			(2,300	)			30,875					207,580
Austria			545,214				—				(2,109	)			(61,524	)			481,581					647,727
Other Western Europe			282,048				280,533				(1,267	)			(54,958	)			506,356					693,614
Total Western Europe			1,657,252				307,328				(5,124	)			(211,797	)			1,747,659					2,887,832
Hungary			192,984				—				(380	)			(22,000	)			170,604					346,461
Other Central and Eastern Europe			121,383				69,543				(4,140	)			(5,834	)			180,952					275,071
Total Central and Eastern Europe			314,367				69,543				(4,520	)			(27,834	)			351,556					621,532
Total Europe (UPC Broadband)			1,971,619				376,871				(9,644	)			(239,631	)			2,099,215					3,509,364
Chile (VTR)			199,086				226,941				(1,470	)			(3,842	)			420,715					569,036
Corporate and Other			—				26,695				(3,449	)			(1,914	)			21,332					148,513
Total UGC		$	2,170,705			$	630,507			$	(14,563	)		$	(245,387	)		$	2,541,262				$	4,226,913

Intangible assets subject to amortization

     The details of our intangible assets that are subject to amortization are set forth below:

		UGC					UGC
		Post-LGI					Pre-LGI
		Combination					Combination
		June 30,					December 31,
		2005					2004
		amounts in thousands
Gross carrying amount
Customer relationships		$	618,232				$	426,213
Other			33,206					24,676
		$	651,438				$	450,889
Accumulated amortization
Customer relationships		$	(1,184	)			$	(69,038	)
Other			(1,038	)				(3,903	)
		$	(2,222	)			$	(72,941	)
Net carrying amount
Customer relationships		$	617,048				$	357,175
Other			32,168					20,773
		$	649,216				$	377,948

UNITEDGLOBALCOM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005
(unaudited)

Amortization of intangible assets with finite useful lives was $21,693,000 and $15,500,000 for the three months ended June 30, 2005 and 2004, respectively. Amortization of intangible assets with finite useful lives was $39,801,000 and $31,408,000 for the six months ended June 30, 2005 and 2004, respectively. Based on our current amortizable intangible assets, we expect that amortization expense will be as follows for the next five years and thereafter (amounts in thousands):

Six months ended December 31, 2005		$	61,824
Year ended December 31, 2006			115,425
Year ended December 31, 2007			112,347
Year ended December 31, 2008			108,535
Year ended December 31, 2009			90,354
Thereafter			160,731
Total		$	649,216

(8) Debt and Capital Lease Obligations

     The U.S. dollar equivalents of the components of our consolidated debt and capital lease obligations are as follows:

		UGC					UGC
		Post-LGI					Pre-LGI
		Combination					Combination
		June 30,					December 31,
		2005					2004
		amounts in thousands
Debt:
UPC Broadband Holding Bank Facility		$	3,819,026				$	3,927,830
UGC Convertible Notes			580,933					655,809
VTR Bank Facility			155,746					97,941
Telenet Securities			66,824					87,821
Other debt			36,901					35,153
Total debt			4,659,430					4,804,554
Capital lease obligations			42,152					48,354
Total debt and capital lease obligations			4,701,582					4,852,908
Current maturities			(39,944	)				(34,325	)
Total long-term debt and capital lease obligations		$	4,661,638				$	4,818,583

  UPC Broadband Holding Bank Facility

     The UPC Broadband Holding Bank Facility is the senior secured credit facility of UPC Broadband Holding. The UPC Broadband Holding Bank Facility, originally executed in October 2000 and amended from time to time, is secured by a pledge over the shares of UPC Broadband Holding and the shares of UPC Broadband Holding’s majority-owned operating companies. The UPC Broadband Holding Bank Facility is also guaranteed by UPC Holding B.V., the immediate parent of UPC Broadband Holding, and is senior to other long-term debt obligations of UPC Broadband Holding and UPC Holding B.V. The agreement governing the UPC Broadband Holding Bank Facility contains covenants that limit among other things, UPC Broadband Holding’s ability to merge with or into another company, acquire other companies, incur additional debt, dispose of any assets unless in the ordinary course of business, enter into or guarantee a loan and enter into a hedging arrangement.

     The agreement also restricts UPC Broadband Holding from transferring funds to its parent company (and indirectly to LGI) through loans, advances or dividends. If a change of control occurs, as defined in the UPC Broadband Holding Bank Facility, the facility agent may cancel each Facility and demand full payment. The UPC Broadband Holding Bank Facility requires compliance with various financial covenants such as: (i) senior debt to annualized EBITDA (as defined in the UPC Broadband Holding Bank Facility), (ii) EBITDA to total cash interest, (iii) EBITDA to senior debt service, (iv) EBITDA to senior interest and (v) total debt to annualized EBITDA.

UNITEDGLOBALCOM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005
(unaudited)

     On March 8, 2005, the UPC Broadband Holding Bank Facility was amended to permit indebtedness under: (i) a new €1.0 billion term loan facility (Facility G) maturing in full on April 1, 2010; (ii) a new term loan facility (Facility H) maturing in full on September 30, 2012, of which €550 million is denominated in euros and $1.25 billion is denominated in U.S. dollars (although the U.S. dollar portion of Facility H has been swapped into euros through a 7.5 year cross-currency swap); and (iii) a €500 million redrawable term loan (Facility I) maturing in full on April 1, 2010. In connection with this amendment, €166,750,000 of the existing revolving credit facility (Facility A) was cancelled, reducing Facility A to a maximum amount of €500 million. The proceeds from Facilities G and H were used primarily to prepay all amounts outstanding under existing term loan facilities B, C and E, fund certain acquisitions and pay transaction fees. The aggregate borrowing capacity of €1.0 billion under Facilities A and I can be used to fund acquisitions and for general corporate purposes, subject to compliance with applicable covenants, as further described in Note 2 to the following table.