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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K/A
(Amendment No. 1)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal year ended December 31, 2005 |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period
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Commission File Number 000-51360
Liberty Global, Inc.
(Exact name of Registrant as specified in its charter)
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State of Delaware |
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20-2197030 |
(State or other jurisdiction of
incorporation or organization) |
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(I.R.S. Employer
Identification No.) |
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12300 Liberty Boulevard
Englewood, Colorado
(Address of principal executive offices) |
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80112
(Zip Code) |
Registrants telephone number, including area code:
(303) 220-6600
Securities registered pursuant to Section 12(b) of the Act:
none
Securities registered pursuant to Section 12(g) of the Act:
Series A Common Stock, par value $0.01 per share
Series B Common Stock, par value $0.01 per share
Series C Common Stock, par value $0.01 per share
Indicate by check mark if the Registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the Registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months and (2) has been subject to such filing
requirements for the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K is
not contained herein, and will not be contained, to the best of
registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any
amendment to this
Form 10-K.
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Indicate by check mark whether the Registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in
Rule 12b-2 of the
Exchange Act. Check one:
Large Accelerated
Filer þ Accelerated
Filer o Non-Accelerated
Filer o
Indicate by check mark whether the registrant is a shell company
as defined in
Rule 12b-1 of the
Exchange
Act. Yes o No þ
State the aggregate market value of the voting and non-voting
common equity held by non-affiliates, computed by reference to
the price at which the common equity was last sold, or the
average bid and ask price of such common equity, as of the last
business day of the registrants most recently completed
second fiscal quarter: $10.893 billion.
The number of outstanding shares of Liberty Global, Inc.s
common stock as of February 22, 2006 was:
226,041,245 shares of Series A common stock;
7,323,570 shares of Series B common stock; and
234,863,543 shares of Series C common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the
Registrants 2006 Annual Meeting of Stockholders are
incorporated by reference in Part III of this
Form 10-K.
EXPLANATORY NOTE
The Registrant is filing this Amendment No. 1 on
Form 10-K/ A to its Annual Report on Form 10-K for the
year ended December 31, 2005 for the following reasons:
(i) to file under Item 8 and Item 15 the
consolidated financial statements of its equity investees
Telenet Group Holding NV and PrimaCom AG, each as required by
Rule 3-09 of Regulation S-X, (ii) in the business
discussion of its networks in France and Switzerland in
Item I, to correct certain historical operating data,
(iii) in the discussion of financial commitments and
contingencies in Item 7, to correct the projected cash
interest payments on debt and capital lease obligations for
fiscal 2006, 2007, 2008, 2009 and after 2010, (iv) in the
discussion of market risks related to the Registrants cash
and investments in Item 7A, to correct the aggregate fair
value of the Registrants equity method and
available-for-sale investments that were subject to price risk
at December 31, 2005, and (iv) to correct
typographical errors and to make certain tabular and clarifying
changes in Items 1 and 7 and in the Registrants
consolidated financial statements and notes thereto filed under
Item 8. Accordingly, the Registrant hereby amends and
replaces in their entirety Items 1, 7, 7A, 8 and 15 of its
Annual Report on Form 10-K for the year ended
December 31, 2005.
Except as described above, this amendment does not update or
modify in any way the disclosures in the Registrants
Annual Report on Form 10-K for the fiscal year ended
December 31, 2005, and does not purport to reflect any
information or events subsequent to the filing thereof.
LIBERTY GLOBAL, INC.
2005 ANNUAL REPORT ON
FORM 10-K/A
(Amendment No. 1)
TABLE OF CONTENTS
PART I
General Development of Business
Liberty Global, Inc. (LGI) is an international broadband
communications provider of video, voice and Internet access
services, with consolidated broadband operations in 19 countries
(excluding Norway) outside of the continental United States at
December 31, 2005, primarily in Europe, Japan and Chile.
Through our indirect wholly owned subsidiary UGC Europe, Inc.
(UGC Europe) and its wholly owned subsidiaries UPC Holding B.V.
(UPC Holding) and Liberty Global Switzerland, Inc. (LG
Switzerland) (collectively, Europe Broadband), we provide video,
voice and Internet access services in 13 European countries at
December 31, 2005 (excluding Norway). Through our indirect
controlling ownership interest in Jupiter Telecommunications
Co., Ltd. (J:COM), we provide video, voice and Internet access
services in Japan. 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
direct-to-home
satellite operations in Australia, (ii) consolidated
broadband communications operations in Puerto Rico, Brazil and
Peru, (iii) non-controlling interests in broadband
communications companies in Europe and Japan,
(iv) consolidated interests in certain programming
businesses in Europe and Argentina, and (v) non-controlling
interests in certain programming businesses in Europe, Japan,
Australia and the Americas. Our consolidated programming
interests in Europe are primarily held through our indirect
wholly owned subsidiary chellomedia B.V. (chellomedia), which
also provides telecommunications and interactive digital
services and owns or manages investments in various businesses
in Europe. Certain of chellomedias subsidiaries and
affiliates provide programming and other services to Europe
Broadband.
LGI was formed on January 13, 2005, for the purpose of
effecting the combination of Liberty Media International, Inc.
(LMI) and UnitedGlobalCom, Inc. (UGC). LMI is the
predecessor to LGI and was formed on March 16, 2004, in
contemplation of the spin off of certain international cable
television and programming subsidiaries and assets of Liberty
Media Corporation (Liberty Media), including a majority interest
in UGC, an international broadband communications provider. We
refer to these assets and subsidiaries of Liberty Media prior to
June 2004, collectively as LMC International. On June 7,
2004, Liberty Media 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.
As used in this document, the terms we,
our, our company, and us may
refer, as the context requires, to LGI and its predecessors and
subsidiaries.
On June 15, 2005, we completed certain mergers whereby LGI
acquired all of the capital stock of UGC that 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, LMI Series B common stock and
LMI Series C common stock was exchanged for one share of
the corresponding series of LGI common stock, and (ii) each
outstanding share of UGC Class A common stock, UGC
Class B common stock and UGC Class C common stock
(other than those shares owned by LMI and its wholly owned
subsidiaries) was converted into the right to receive for each
share of common stock owned either (i) 0.2155 of a share of
LGI Series A common stock and 0.2155 of a share of LGI
Series C common stock (plus cash for any fractional share
interest) or (ii) $9.58 in cash. Cash elections were
subject to proration. The aggregate cash consideration paid to
UGCs stockholders in the LGI Combination was just under
$0.7 billion.
On September 6, 2005, LGI effected a stock split in the
form of a stock dividend (the Stock Dividend) of LGI
Series C common stock to holders of record of LGI
Series A and Series B common stock as of
5:00 p.m., New York City time, on August 26, 2005,
which was the record date for the Stock Dividend (the Record
Date). In the Stock Dividend, holders received one share of LGI
Series C common stock for each share of LGI Series A
common stock, and one share of LGI Series C common stock
for each share of LGI Series B common stock, held of record
as of the Record Date. Unless otherwise indicated, all LGI and
LMI share and per share amounts presented herein have been
retroactively adjusted to give effect to the Stock Dividend,
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notwithstanding the fact that no shares of LGI Series C
common stock were issued and outstanding prior to
September 6, 2005.
Unless indicated otherwise, convenience translations into U.S.
dollars are calculated as of December 31, 2005.
Recent Developments
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Contributions and Acquisitions |
Pursuant to a contribution agreement between Sumitomo
Corporation (Sumitomo) and us, on December 28, 2004, our
45.45% equity interest in J:COM and a 19.78% equity interest in
J:COM owned by Sumitomo were combined in a holding company named
LGI/ Sumisho Super Media, LLC, formerly known as LMI/ Sumisho
Super Media, LLC (Super Media). As a result of these
transactions, we held a 69.68% non-controlling interest in Super
Media, and Super Media held a 65.23% controlling interest in
J:COM at December 31, 2004.
On February 18, 2005, J:COM announced an initial public
offering of its common shares in Japan. Under the terms of the
operating agreement of Super Media, our casting or tie-breaking
vote with respect to decisions of the management committee of
Super Media became effective upon this announcement. As a
result, we began accounting for Super Media and J:COM as
consolidated subsidiaries effective as of January 1, 2005.
On March 23, 2005, J:COM completed its initial public
offering and Sumitomo contributed to Super Media a portion of
the 12.25% equity interest in J:COM that Sumitomo had retained
following the December 2004 contribution. In April 2005, the
underwriters in J:COMs initial public offering exercised
their over-allotment option and in September 2005, Sumitomo
contributed the balance of its equity interest in J:COM to Super
Media. After giving effect to the foregoing, as of
December 31, 2005, we held a 58.66% controlling interest in
Super Media and Super Media held a 62.65% controlling interest
in J:COM.
On January 7, 2005, chellomedia acquired an 87.5% interest
in Zone Vision Networks Ltd. (Zone Vision) from its
shareholders. The consideration for the transaction consisted of
$50 million in cash and 351,110 shares of LGI
Series A common stock and 351,110 shares of LGI
Series C common stock, which are subject to certain vesting
conditions. As part of the transaction, chellomedia contributed
to Zone Vision the 49% shareholding it already held in Reality
TV Ltd. and chellomedias Club channel business. Zone
Vision is a company focused on the ownership, management and
distribution of pay television channels of third parties and its
own channels.
On February 10, 2005, UPC Broadband Holding BV, an indirect
wholly owned subsidiary of UGC Europe (UPC Broadband Holding),
acquired 100% of the shares in Telemach d.o.o., a broadband
communications provider in Slovenia, for cash consideration of
71 million
($91.4 million at the transaction date).
On April 1, 2005, a subsidiary of UPC Holding exercised its
call right and purchased the remaining 19.9% minority interest
in UPC Broadband France SAS (UPC Broadband France) that it did
not already own for
90.1 million
($116 million at the transaction date) in cash, taking our
ownership in UPC Broadband France to 100%. UPC Broadband France
is the owner of our French broadband video and Internet access
operation, which includes Suez-Lyonnaise Télécom SA
(Noos), a provider of digital and analog cable television
services and high-speed Internet access services in France,
which we acquired in July 2004.
On April 13, 2005, VTR, which at the time was a
wholly-owned subsidiary of UGC, completed its combination with
Metrópolis Intercom S.A. (Metrópolis), a Chilean
broadband distribution company. Prior to the combination, LMI
owned a 50% interest in Metrópolis, with the remaining 50%
interest owned by Cristalerías de Chile S.A. (CCC). As
consideration for CCCs interest in Metrópolis,
(i) VTR issued 11.4 million shares of its common stock
to CCC, representing 20% of the outstanding economic and voting
shares of VTR subsequent to the transaction, (ii) VTR
assumed certain indebtedness owed by Metrópolis to
CristalChile Inversiones S.A., an affiliate of CCC, in the
amount of CLP6.1 billion ($10.5 million at the
transaction date), 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. Final regulatory approval for the
combination, which was obtained in March 2005, imposed certain
conditions on the combined entity. The most significant of these
conditions require that the combined entity (i) re-sell
broadband capacity to third party Internet service providers on
a wholesale basis;
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(ii) activate two-way capacity to two million homes passed
within five years from the consummation date of the combination;
and (iii) for three years after the consummation date of
the combination, limit basic tier price increases to the rate of
inflation, plus a programming cost escalator.
On May 9, 2005, our indirect wholly owned subsidiary, UPC
Ireland B.V. (UPC Ireland), entered into an agreement to acquire
MS Irish Cable Holding B.V. (MS Irish Cable), subject to
regulatory approval. MS Irish Cable acquired NTL
Communications (Ireland) Limited, NTL Irish Networks Limited and
certain related assets (together NTL Ireland) with funds
provided by a loan from UPC Ireland. UPC Ireland closed the
acquisition of MS Irish Cable on December 12, 2005,
following receipt of regulatory approval. The total cash
purchase price for the acquisition was
333.4 million
($428.2 million at May 9, 2005) (excluding direct
acquisition costs). NTL Ireland, Irelands largest cable
television operator, provides cable television and broadband
Internet services to residential customers and managed network
services to corporate customers in Ireland.
On September 30, 2005, J:COM purchased all of the
outstanding shares of Odakyu Telecommunication Services Co.,
Ltd., now known as J:COM Setamachi Co. Ltd. (J:COM Setamachi)
for cash of ¥9,200 million ($81 million at the
transaction date). J:COM Setamachi provides cable television and
high speed Internet access services in Japan, including
Tokyos Setagaya ward and the cities of Machida, Kawasaki
and Yokohama.
On October 14, 2005, we acquired, through an indirect
wholly owned subsidiary, 7.7 million shares of Telenet
Group Holding NV (Telenet) for cash of
160.2 million
($193.7 million at the transaction date) in connection with
Telenets initial public offering. After giving effect to
this acquisition and Telenets initial public offering, we
and Belgian Cable Investors LLC (Belgian Cable Investors), a
partnership that is majority owned and controlled by us,
increased our combined economic ownership in Telenet from 14.1%
to 19.89% but will continue to exercise voting control over a
total of 21.5% of the Telenet shares. Belgian Cable Investors
additionally holds call options to acquire 25.4 million
shares in Telenet.
On October 14, 2005, UPC Romania S.A., our indirect wholly
owned subsidiary, completed its acquisition of Astral Telecom
S.A. (Astral) from a group of Romanian entrepreneurs and foreign
investors for a cash purchase price of $407.1 million.
Astral is one of Romanias largest broadband
telecommunications operators.
On October 24, 2005, LG Switzerland completed the purchase
of all the issued share capital of Cablecom Holdings AG
(Cablecom), which is the indirect parent company of Swiss cable
operator Cablecom GmbH, for a cash purchase price of
CHF2.8 billion ($2.2 billion at the transaction date).
The acquisition was funded through a combination of (i) a
550 million
($667 million at the borrowing date) split-coupon floating
rate payment-in-kind
loan (PIK Loan) borrowed by LG Switzerland, (ii) a new
offering of
300 million
($363 million at the borrowing date) 8.625% Senior
Notes due 2014 by UPC Holding, and (iii) available cash.
On November 23, 2005, a subsidiary of chellomedia acquired
the 50% interest it did not already own in certain businesses
that provide thematic television channels in the Iberian market
(Spain and Portugal) (IPS). We acquired the 50% interest for
$62.8 million.
On December 14, 2005, we increased our indirect ownership
of Austar United Communications Ltd. (Austar) from a
non-controlling interest to a controlling interest, which was
54% (51% on a fully diluted basis) as of December 31, 2005,
for net cash consideration of A$204.9 million
($154.9 million at the transaction date). Austar provides
satellite pay television services, Internet access and mobile
telephony services to subscribers in regional and rural
Australia and the cities of Hobart and Darwin.
On March 2, 2006, our subsidiary, UPC Austria GmbH,
acquired all the outstanding shares of Inode
Telekommunidationsdienstleistungs GmbH (Inode) for cash
consideration of
93 million
($111 million at the transaction date). Inode is one of
Austrias leading DSL companies.
Other smaller transactions during 2005 and early 2006 include:
J:COMs 2005 increase of its interest in Cable Television
Kobe, Inc. from 20.4% to 65.13%; J:COMs 2005 acquisition
of an approximate 92% equity interest in Chofu Cable, Inc.; UPC
Romania S.A.s 2005 acquisition of Conex Sat SRL;
chellomedias 2005
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acquisition of the content business of Canal+ Netherlands;
J:COMs 2006 acquisition of an 81% equity interest in Rokko
Island Cable Vision Co. Ltd.; and J:COMs 2006 increase of
its interest in Kansai Multimedia Service from 25.75% to 64.0%.
On December 19, 2005, we agreed to sell our Norwegian cable
business, UPC Norge AS (UPC Norway). Following receipt of
Norwegian regulatory approval, on January 19, 2006, we
completed the sale of UPC Norway for
448 million
($542 million at the transaction date).
On November 8, 2005, we received cash consideration of
276.4 million
($325.6 million at the transaction date) in connection with
the disposition of our 19% ownership interest in SBS
Broadcasting S.A. SBS Broadcasting S.A. was a commercial
television and radio broadcasting company in Europe.
During 2005, we also sold our interest in Fox Pan America
Sports, LLC (FPAS), Torneos y Competenias S.A. (TyC), EWT
Holding GmbH (EWT), The Wireless Group plc and a subscription
right with respect to Cablevision S.A. FPAS develops and
operates multiple Spanish language subscription television and
radio services. TyC is an independent producer of Argentine
sports and entertainment programming. EWT owns a broadband
communications provider in Germany. The Wireless Group is a
commercial radio group in the United Kingdom and Cablevision
S.A. is a broadband communications provider in Argentina. In
addition, on February 16, 2006, we received
$88 million as cash consideration for our 10% interest in
Sky Mexico, a
direct-to-home
satellite provider.
On March 8, 2005, the senior secured credit facility of UPC
Broadband Holding (the UPC Broadband Bank Facility) was amended
to permit indebtedness under: (i) Facility G, a new
1.0 billion
term loan facility maturing in full on April 1, 2010;
(ii) Facility H, a new
1.5 billion
term loan facility maturing in full on September 30, 2012,
of which $1.25 billion was denominated in U.S. dollars
and then swapped into euros through a 7.5 year
cross-currency swap; and (iii) Facility I, a new
500 million
revolving credit facility maturing in full on April 1,
2010. In connection with this amendment,
167 million
of Facility A, the previously existing revolving credit
facility, 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, to fund certain acquisitions
and pay transaction fees. Borrowings under Facilities A and I
can be used to fund acquisitions and for general corporate
purposes. As a result of this amendment, the weighted average
maturity of the UPC Broadband Bank Facility was extended from
4 years to 6 years, with no amortization payments
required until 2010, and the weighted average interest margin on
the UPC Broadband Bank Facility was reduced by 0.25% per
annum. The amendment also provides for additional flexibility on
certain covenants and the funding of acquisitions.
On July 29, 2005, UPC Holding, the owner of our 100%
interest in UPC Broadband Holding, issued
500 million
($607 million at the borrowing date) aggregate principal
amount of its 7.75% Senior Notes. The net proceeds were
used for general corporate purposes. In addition, on
October 10, 2005, UPC Holding issued
300 million
($363 million at the borrowing date) principal amount of
8.625% Senior Notes. The net proceeds of this offering were
ultimately used to finance the acquisition of Cablecom. Both of
these issues of Senior Notes mature on January 15, 2014,
and are secured by a first ranking pledge of all shares of UPC
Holding.
On October 7, 2005, pursuant to a PIK Loan Facility
Agreement dated September 30, 2005, as amended and restated
on October 10, 2005, LG Switzerland borrowed a
550 million
($667 million at the borrowing date) PIK Loan with a
split-coupon floating rate, maturing in 9.5 years. The net
proceeds from the PIK Loan, less
50 million
($60.9 million at the borrowing date) placed in escrow to
secure cash interest payments, were used to finance the
acquisition of Cablecom. The PIK Loan is an unsecured senior
debt of LG Switzerland that is structurally subordinated to all
indebtedness of Cablecom and its subsidiaries.
At the time of our acquisition of Cablecom, its subsidiary
Cablecom Luxembourg SCA (Cablecom Luxembourg) had outstanding
senior fixed rate notes and senior secured floating rate notes
(Cablecom
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Luxembourg Senior Notes). Pursuant to the indentures governing
the Cablecom Luxembourg Senior Notes, Cablecom Luxembourg was
required to make an offer to purchase the Cablecom Luxembourg
Senior Notes at 101% of their principal amount as a result of
our obtaining control of Cablecom. On December 8, 2005,
Cablecom Luxembourg purchased the tendered Cablecom Luxembourg
Senior Notes. On January 20, 2006, Cablecom Luxembourg
redeemed the balance of the floating rate Cablecom Luxembourg
Senior Notes not tendered in the change of control
offer for 102% of their principal amount. The purchase of
Cablecom Luxembourg Senior Notes pursuant to the change of
control offer and the optional redemption was funded by
borrowings of term loans under a facilities agreement entered
into by Cablecom Luxembourg and its subsidiary, Cablecom GmbH,
dated December 5, 2005 (the Cablecom Luxembourg Bank
Facility). The Cablecom Luxembourg Bank Facility provides for
two term loan facilities to Cablecom Luxembourg with maximum
aggregate borrowings of CHF1.33 billion
($1.011 billion). In addition, Cablecom GmbH has a
CHF150 million ($114 million) revolving credit
facility.
On December 15, 2005, J:COM executed a
¥155 billion ($1.314 billion) credit facility
agreement with a syndicate of banks led by The Bank of
Tokyo-Mitsubishi, Ltd., Mizuho Corporate Bank, Ltd. and Sumitomo
Mitsui Banking Corporation (the J:COM Credit Facility).
Borrowings may be made under the J:COM Credit Facility on a
senior, unsecured basis pursuant to three facilities: a
¥30 billion five-year revolving credit loan; a
¥85 billion five-year amortizing term loan; and a
¥40 billion seven-year amortizing term loan. On
December 21, 2005, the proceeds of the term loans were
used, together with available cash, to repay in full outstanding
loans totaling ¥128 billion ($1.1 billion at the
transaction date) under J:COMs then existing credit
facilities. Borrowings under the revolving loan may be used by
J:COM for general corporate purposes.
In addition to the above financings, during 2005, certain of our
subsidiaries entered into other smaller financings. VTR modified
its Chilean peso-denominated senior secured credit facility,
originally consummated in December 2004 (VTR Bank Facility),
increasing the VTR Bank Facility to CLP$175.5 billion
($341.4 million). Borrowings under this facility during
2005 were used to repay debt to third parties assumed in the
Metrópolis acquisition, partially repay debt to our
subsidiaries and pay in full debt to an affiliate of VTRs
other stockholder, CCC. In connection with our acquisition of
IPS, an indirect wholly owned subsidiary entered into a secured
credit facility for
65 million
($76.9 million). Borrowings from this facility were used to
purchase the remaining 50% of IPS.
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Certain statements in this Annual Report on
Form 10-K
constitute forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. To the extent
that statements in this Annual Report are not recitations of
historical fact, such statements constitute forward-looking
statements, which, by definition, involve risks and
uncertainties. In particular, statements under Item 1.
Business, Item 2. Properties, Item 3. Legal
Proceedings, Item 7. Managements Discussion and
Analysis of Financial Condition and Results of Operations and
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk contain forward-looking statements. Where, in any
forward-looking statement, we express an expectation or belief
as to future results or events, such expectation or belief is
expressed in good faith and believed to have a reasonable basis,
but there can be no assurance that the expectation or belief
will result or be achieved or accomplished. The following
include some but not all of the factors that could cause actual
results or events to differ materially from anticipated results
or events:
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economic and business conditions and industry trends in the
countries in which we 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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changes in television viewing preferences and habits by our
subscribers and potential subscribers; |
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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 such as our digital
migration project in The Netherlands; |
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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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the regulatory and competitive environment in the broadband
communications and programming industries in the countries in
which we, and the entities in which we have interests, operate; |
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competitor responses to our products and services, and the
products and services of the entities in which we have interests; |
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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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spending on foreign television advertising; |
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capital spending for the acquisition and/or development of
telecommunications networks and services; |
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our ability to successfully integrate and recognize anticipated
efficiencies from the businesses we acquire; |
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problems we may discover post-closing with the operations,
internal controls and financial statements of businesses we
acquire; |
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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, including regulatory
initiatives in The Netherlands; |
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government intervention that opens our broadband distribution
networks to competitors; |
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our ability to successfully negotiate rate increases with local
authorities; |
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changes in the nature of key strategic relationships with
partners and joint venturers; |
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uncertainties associated with our ability to satisfy conditions
imposed by competition and other regulatory authorities in
connection with acquisitions; and |
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events that are outside of our control, such as political unrest
in international markets, terrorist attacks, natural disasters,
pandemics and other similar events. |
You should be aware that the video, voice and Internet access
services industries are changing rapidly, and, therefore, the
forward-looking statements of expectations, plans and intent in
this Annual Report are subject to a greater degree of risk than
similar statements regarding many other industries.
These forward-looking statements and such risks, uncertainties
and other factors speak only as of the date of this Annual
Report, and we expressly disclaim any obligation or undertaking
to disseminate any updates or revisions to any forward-looking
statement contained herein, to reflect any change in our
expectations with regard thereto, or any other change in events,
conditions or circumstances on which any such statement is based.
I-6
|
|
|
Financial Information About Operating Segments |
Financial information about our reportable segments appears in
note 21 to our consolidated financial statements included
in Part II of this report.
|
|
|
Narrative Description of Business |
Overview
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, or DTH, or through multi-point microwave
distribution systems, or MMDS. In select markets, we
also offer mobile telephony services using third party networks.
We operate our broadband distribution businesses in Europe
principally through UGC Europe; in Japan principally through
J:COM, a subsidiary of Super Media; in The Americas principally
through VTR and Liberty Cablevision of Puerto Rico Ltd. (LCPR);
and in Australia principally through Austar. Each of UGC Europe,
Super Media, VTR, LCPR and Austar is a consolidated subsidiary.
I-7
The following table presents certain operating data, as of
December 31, 2005, with respect to the broadband
distribution systems of our subsidiaries in Europe, Japan, The
Americas and Australia. For purposes of this presentation, we
refer to Puerto Rico, the islands of the Caribbean and the
countries of Central and South America collectively as The
Americas. This table reflects 100% of the operational data
applicable to each subsidiary regardless of our ownership
percentage.
Consolidated Operating Data*
December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Video | |
|
Internet | |
|
Telephone | |
|
|
|
|
Two-way | |
|
|
|
|
|
| |
|
| |
|
| |
|
|
Homes | |
|
Homes | |
|
Customer | |
|
Total | |
|
Analog Cable | |
|
Digital Cable | |
|
DTH | |
|
MMDS | |
|
Homes | |
|
|
|
Homes | |
|
|
|
|
Passed(1) | |
|
Passed(2) | |
|
Relationships(3) | |
|
RGUs(4) | |
|
Subscribers(5) | |
|
Subscribers(6) | |
|
Subscribers(7) | |
|
Subscribers(8) | |
|
Serviceable(9) | |
|
Subscribers(10) | |
|
Serviceable(11) | |
|
Subscribers(12) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Europe**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
|
2,645,800 |
|
|
|
2,521,600 |
|
|
|
2,239,500 |
|
|
|
3,009,700 |
|
|
|
2,150,300 |
|
|
|
85,300 |
|
|
|
|
|
|
|
|
|
|
|
2,521,600 |
|
|
|
478,100 |
|
|
|
2,396,300 |
|
|
|
296,000 |
|
|
Switzerland(13)
|
|
|
1,802,200 |
|
|
|
1,710,100 |
|
|
|
1,571,300 |
|
|
|
2,043,900 |
|
|
|
1,410,900 |
|
|
|
106,300 |
|
|
|
|
|
|
|
|
|
|
|
1,467,400 |
|
|
|
340,500 |
|
|
|
1,417,600 |
|
|
|
186,200 |
|
|
France
|
|
|
4,611,700 |
|
|
|
3,361,600 |
|
|
|
1,618,800 |
|
|
|
1,921,800 |
|
|
|
928,600 |
|
|
|
563,800 |
|
|
|
|
|
|
|
|
|
|
|
3,361,600 |
|
|
|
295,000 |
|
|
|
2,370,500 |
|
|
|
134,400 |
|
|
Austria
|
|
|
957,500 |
|
|
|
954,200 |
|
|
|
584,100 |
|
|
|
926,100 |
|
|
|
455,900 |
|
|
|
44,000 |
|
|
|
|
|
|
|
|
|
|
|
954,200 |
|
|
|
275,900 |
|
|
|
920,500 |
|
|
|
150,300 |
|
|
Ireland
|
|
|
887,200 |
|
|
|
225,800 |
|
|
|
576,900 |
|
|
|
601,800 |
|
|
|
321,500 |
|
|
|
141,000 |
|
|
|
|
|
|
|
113,900 |
|
|
|
225,800 |
|
|
|
25,000 |
|
|
|
24,200 |
|
|
|
400 |
|
|
Sweden
|
|
|
421,600 |
|
|
|
287,500 |
|
|
|
298,500 |
|
|
|
389,100 |
|
|
|
240,000 |
|
|
|
58,600 |
|
|
|
|
|
|
|
|
|
|
|
287,500 |
|
|
|
90,500 |
|
|
|
|
|
|
|
|
|
|
Belgium
|
|
|
156,600 |
|
|
|
156,600 |
|
|
|
146,500 |
|
|
|
167,800 |
|
|
|
127,000 |
|
|
|
5,500 |
|
|
|
|
|
|
|
|
|
|
|
156,600 |
|
|
|
35,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
11,482,600 |
|
|
|
9,217,400 |
|
|
|
7,035,600 |
|
|
|
9,060,200 |
|
|
|
5,634,200 |
|
|
|
1,004,500 |
|
|
|
|
|
|
|
113,900 |
|
|
|
8,974,700 |
|
|
|
1,540,300 |
|
|
|
7,129,100 |
|
|
|
767,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Poland
|
|
|
1,914,800 |
|
|
|
932,200 |
|
|
|
1,023,300 |
|
|
|
1,124,600 |
|
|
|
1,000,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
932,200 |
|
|
|
122,500 |
|
|
|
825,200 |
|
|
|
1,200 |
|
|
Hungary
|
|
|
1,035,700 |
|
|
|
885,700 |
|
|
|
996,300 |
|
|
|
1,145,900 |
|
|
|
731,400 |
|
|
|
|
|
|
|
171,100 |
|
|
|
|
|
|
|
885,700 |
|
|
|
135,200 |
|
|
|
888,200 |
|
|
|
108,200 |
|
|
Czech Republic
|
|
|
743,000 |
|
|
|
402,100 |
|
|
|
431,400 |
|
|
|
486,400 |
|
|
|
298,300 |
|
|
|
|
|
|
|
112,500 |
|
|
|
|
|
|
|
402,100 |
|
|
|
75,600 |
|
|
|
|
|
|
|
|
|
|
Romania
|
|
|
1,913,800 |
|
|
|
944,100 |
|
|
|
1,338,100 |
|
|
|
1,411,600 |
|
|
|
1,333,900 |
|
|
|
4,000 |
|
|
|
|
|
|
|
|
|
|
|
818,800 |
|
|
|
55,200 |
|
|
|
661,100 |
|
|
|
18,500 |
|
|
Slovak Republic
|
|
|
429,200 |
|
|
|
238,000 |
|
|
|
305,000 |
|
|
|
323,300 |
|
|
|
256,900 |
|
|
|
|
|
|
|
17,300 |
|
|
|
28,300 |
|
|
|
223,200 |
|
|
|
20,800 |
|
|
|
|
|
|
|
|
|
|
Slovenia
|
|
|
125,300 |
|
|
|
79,300 |
|
|
|
108,300 |
|
|
|
126,400 |
|
|
|
108,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79,300 |
|
|
|
18,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
6,161,800 |
|
|
|
3,481,400 |
|
|
|
4,202,400 |
|
|
|
4,618,200 |
|
|
|
3,729,700 |
|
|
|
4,000 |
|
|
|
300,900 |
|
|
|
28,300 |
|
|
|
3,341,300 |
|
|
|
427,400 |
|
|
|
2,374,500 |
|
|
|
127,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Europe
|
|
|
17,644,400 |
|
|
|
12,698,800 |
|
|
|
11,238,000 |
|
|
|
13,678,400 |
|
|
|
9,363,900 |
|
|
|
1,008,500 |
|
|
|
300,900 |
|
|
|
142,200 |
|
|
|
12,316,000 |
|
|
|
1,967,700 |
|
|
|
9,503,600 |
|
|
|
895,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Japan**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J:COM
|
|
|
7,296,600 |
|
|
|
7,288,000 |
|
|
|
2,002,800 |
|
|
|
3,460,400 |
|
|
|
1,064,100 |
|
|
|
620,800 |
|
|
|
|
|
|
|
|
|
|
|
7,288,000 |
|
|
|
864,200 |
|
|
|
6,624,200 |
|
|
|
911,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Americas**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chile
|
|
|
2,171,900 |
|
|
|
1,285,100 |
|
|
|
900,400 |
|
|
|
1,425,700 |
|
|
|
751,200 |
|
|
|
6,800 |
|
|
|
|
|
|
|
|
|
|
|
1,285,100 |
|
|
|
303,000 |
|
|
|
1,281,700 |
|
|
|
364,700 |
|
|
Puerto Rico
|
|
|
331,000 |
|
|
|
331,000 |
|
|
|
114,400 |
|
|
|
160,700 |
|
|
|
56,700 |
|
|
|
55,600 |
|
|
|
|
|
|
|
|
|
|
|
331,000 |
|
|
|
32,000 |
|
|
|
331,000 |
|
|
|
16,400 |
|
|
Brazil
|
|
|
15,100 |
|
|
|
15,100 |
|
|
|
15,100 |
|
|
|
16,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,100 |
|
|
|
15,100 |
|
|
|
1,500 |
|
|
|
|
|
|
|
|
|
|
Peru
|
|
|
66,800 |
|
|
|
30,300 |
|
|
|
12,300 |
|
|
|
14,100 |
|
|
|
10,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,300 |
|
|
|
3,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total The Americas
|
|
|
2,584,800 |
|
|
|
1,661,500 |
|
|
|
1,042,200 |
|
|
|
1,617,100 |
|
|
|
818,700 |
|
|
|
62,400 |
|
|
|
|
|
|
|
15,100 |
|
|
|
1,661,500 |
|
|
|
339,800 |
|
|
|
1,612,700 |
|
|
|
381,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Australia**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Austar
|
|
|
2,417,500 |
|
|
|
|
|
|
|
471,900 |
|
|
|
474,800 |
|
|
|
|
|
|
|
8,000 |
|
|
|
466,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Continuing Operations
|
|
|
29,943,300 |
|
|
|
21,648,300 |
|
|
|
14,754,900 |
|
|
|
19,230,700 |
|
|
|
11,246,700 |
|
|
|
1,699,700 |
|
|
|
767,700 |
|
|
|
157,300 |
|
|
|
21,265,500 |
|
|
|
3,171,700 |
|
|
|
17,740,500 |
|
|
|
2,187,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Disc Operations Norway
|
|
|
523,000 |
|
|
|
270,800 |
|
|
|
375,700 |
|
|
|
464,300 |
|
|
|
334,300 |
|
|
|
31,000 |
|
|
|
|
|
|
|
|
|
|
|
270,800 |
|
|
|
69,500 |
|
|
|
178,200 |
|
|
|
29,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grand Total
|
|
|
30,466,300 |
|
|
|
21,919,100 |
|
|
|
15,130,600 |
|
|
|
19,695,000 |
|
|
|
11,581,000 |
|
|
|
1,730,700 |
|
|
|
767,700 |
|
|
|
157,300 |
|
|
|
21,536,300 |
|
|
|
3,241,200 |
|
|
|
17,918,700 |
|
|
|
2,217,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
I-8
|
|
|
|
* |
Excludes systems owned by affiliates that were not consolidated
for financial reporting purposes as of December 31, 2005,
or that were acquired after December 31, 2005. Also
excludes 3.1 million households to which J:COM provides
only retransmission services of terrestrial television signals.
Subscriber information for recently acquired entities is
preliminary and subject to adjustment until we have completed
our review of such information and determined that it is
presented in accordance with our policies. |
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With respect to Chile, Japan and Puerto Rico, residential
multiple dwelling units with a discounted pricing structure for
video, Internet or telephony services are counted on an
equivalent bulk unit (EBU) basis. Commercial contracts such
as hotels and hospitals are counted by all our subsidiaries on
an 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. |
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(1) |
Homes Passed are homes that can be connected to our networks
without further extending the distribution plant, except for DTH
and MMDS homes. Our Homes Passed counts are based on census data
that can change based on either revisions to the data or from
new census results. With the exception of Austar, we do not
count homes passed for DTH. With respect to Austar, we count all
homes in the areas that Austar is authorized to serve. With
respect to MMDS, one home passed is equal to one MMDS subscriber. |
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(2) |
Two-way Homes Passed are homes passed by our networks where
customers can request and receive the installation of a two-way
addressable set-top converter, cable modem, transceiver and/or
voice port which, in most cases, allows for the provision of
video and Internet services and, in some cases, telephone
services. |
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(3) |
Customer Relationships are the number of customers who receive
at least one level of service without regard to which service(s)
they subscribe. We exclude mobile customers from customer
relationships. |
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(4) |
Revenue Generating Unit is separately an Analog Cable
Subscriber, Digital Cable Subscriber, DTH Subscriber, MMDS
Subscriber, Internet Subscriber or Telephone Subscriber. A home
may contain one or more RGUs. For example, if a residential
customer in our Austrian system subscribed to our digital cable
service, telephone service and high-speed broadband Internet
access service, the customer would constitute three RGUs. Total
RGUs is the sum of Analog Cable, Digital Cable, DTH, MMDS,
Internet and Telephone Subscribers. In some cases, non-paying
subscribers are counted as subscribers during their free
promotional service period. Some of these subscribers choose to
disconnect after their free service period. |
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(5) |
Analog Cable Subscriber is comprised of video cable customers
that are counted on a per connection basis. In Europe, we have
1.37 million 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. An analog cable subscriber is not counted as a digital
cable subscriber. |
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(6) |
Digital Cable Subscriber is a customer with one or more digital
converter boxes that receives our digital video service. We
count a subscriber with one or more digital converter boxes that
receives our digital video service as just one subscriber. A
digital subscriber is not counted as an analog subscriber. In
The Netherlands where our mass digital migration project is
underway, a subscriber is moved from the analog cable subscriber
count to the digital cable subscriber count when such subscriber
accepts delivery of our digital converter box and agrees to
accept digital video service regardless of when the subscriber
begins to receive our digital video service. The digital video
service and the digital converter box are provided at the analog
rate for six months after which the subscriber has the option to
discontinue the digital service or pay an additional amount to
continue to receive the digital service. |
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(7) |
DTH Subscriber is a home or commercial unit that receives our
video programming broadcast directly to the home via a
geosynchronous satellite. |
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(8) |
MMDS Subscriber is a home or commercial unit that receives our
video programming via a multipoint microwave
(wireless) distribution system. |
I-9
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(9) |
Internet Homes Serviceable are homes that can be connected to
our broadband networks, where customers can request and receive
Internet access services. |
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(10) |
Internet Subscriber is a home or commercial unit or EBU with one
or more cable modems connected to our broadband networks, where
a customer has requested and is receiving high-speed Internet
access services. Such numbers do not include customers that
receive services via resale arrangements. |
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(11) |
Telephone Homes Serviceable are homes that can be connected to
our networks, where customers can request and receive voice
services. |
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(12) |
Telephone Subscriber is a home or commercial unit or EBU
connected to our networks, where a customer has requested and is
receiving voice services. Telephone subscribers as of
December 31, 2005, exclude an aggregate of 92,800 mobile
telephone subscribers in The Netherlands, Switzerland and
Australia. Mobile telephone services generate a significantly
lower average revenue per unit than broadband or
Voice-over-Internet Protocol or VOIP telephone
services. Also, such numbers do not include customers that
receive services via resale arrangements. |
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(13) |
Included in the subscribers for Switzerland are 25,000 digital
cable, 35,800 Internet access and 19,300 telephony subscribers
serviced over partner networks, but for which we have the direct
customer billing relationship. |
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
video-on-demand, or
VOD, or pay-per-view basis. Whether a programming
service is on a basic or premium tier, the programmer generally
enters into separate affiliation agreements, providing for terms
of one or more years, with those distributors that agree to
carry the service. Basic programming services derive their
revenue from per-subscriber license fees received from
distributors and the sale of advertising time on their networks
or, in the case of shopping channels, retail sales. Premium
services generally do not sell advertising and primarily
generate their revenue from 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 our subsidiary chellomedia; in Japan
principally through our affiliate Jupiter TV Co., Ltd., formerly
known as Jupiter Programming Co., Ltd. (Jupiter TV); in the
Americas principally through our subsidiary Pramer S.C.A. and a
joint venture interest in MGM Networks Latin America, LLC; and
in Australia principally through our joint venture interest in
XYZ Networks Pty. Ltd.
Operations
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Europe UGC Europe, Inc. |
Our European operations are conducted through our wholly owned
subsidiary, UGC Europe, which provides services in 13 countries
in Europe, excluding Norway in which our operations were sold in
January 2006. UGC Europes operations are currently
organized into two principal divisions: Europe Broadband and
chellomedia. Through its Europe Broadband division, UGC Europe
provides video, high-speed Internet access, telephony and mobile
services over its networks and operates the largest cable
network in each of The Netherlands, Austria, Poland, Hungary,
Czech Republic, Slovak Republic, Slovenia and Switzerland and
the second largest cable network in France, in each case in
terms of number of video subscribers. UGC Europes
high-speed Internet access service is provided over the Europe
Broadband network infrastructure generally under the brand name
chello. Depending on the capacity of the particular network, UGC
Europe may provide up to seven tiers of high-speed Internet
access. For information concerning the chellomedia division, see
chellomedia and Other.
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Provided below is country-specific information with respect to
the broadband distribution services of the Europe Broadband
division:
The Europe Broadband divisions networks in The
Netherlands, which we refer to as Broadband-Netherlands, passed
2.6 million homes and had 2.2 million analog cable
subscribers, 85,300 digital cable subscribers, 478,100 Internet
subscribers, 296,000 telephony subscribers and 61,300 mobile
telephony subscribers as of December 31, 2005. Forty
percent of The Netherlands households receive at least analog
cable service from Broadband-Netherlands.
Broadband-Netherlands subscribers are located in six broad
regional clusters, including the major cities of Amsterdam and
Rotterdam. Its networks are 95% upgraded to two-way capability,
with 95% of its video cable subscribers served by a network with
a bandwidth of at least 860 MHz.
Broadband-Netherlands provides video cable services to almost
100% of its homes passed. Eighty-two percent of
Broadband-Netherlands homes passed are capable of
receiving digital cable service. Broadband-Netherlands offers
its digital cable subscribers a digital entry package of 42
channels and a digital basic tier with 72 channels with an
option to subscribe for up to 15 additional general
entertainment, movie, sports, music and ethnic channels and an
electronic program guide. Broadband-Netherlands digital
cable service also offers 56 channels of
near-video-on-demand,
or NVOD, services and interactive services,
including television-based email.
Broadband-Netherlands offers five tiers of chello brand
high-speed Internet access service with download speeds ranging
from 384 Kbps to 20 Mbps. Twenty-one percent of its
video cable subscribers also receive its Internet access
service, representing 99% of its Internet subscribers.
Multi-feature telephony services are also available from
Broadband-Netherlands to 91% of its homes passed. Thirteen
percent of its video cable subscribers also receive its
telephony services, representing almost 100% of its telephony
subscribers. At December 31, 2005, 2.4 million two-way
homes in Broadband-Netherlands service area were VoIP
ready for service.
Through arrangements with an incumbent telecommunications
operator, Broadband-Netherlands began testing in 2005 an offer
of its high speed Internet access service products and its VoIP
telephony products to 660,000 households outside its existing
footprint using asymmetric digital subscriber line, or
ADSL, technology. These services are provided as a
bundled offer on the unbundled local loop of the
telecommunications operators network and currently there
are 3,000 customers.
Broadband-Netherlands offers a self-install option for all of
its Internet access services, allowing subscribers to install
the technology themselves and save money on the installation
fee. Broadband-Netherlands also offers a self-install option for
its digital cable services. Ninety percent of its new Internet
subscribers have chosen to self-install their new service, and
almost all of its new digital subscribers have chosen to
self-install their new service.
In August 2005, Broadband-Netherlands launched a mobile offer
into the market available to all consumers in The Netherlands.
The product is a pre-paid mobile offering. Broadband-Netherlands
is operating as a mobile virtual network operator reselling
leased network capacity. Broadband-Netherlands had 61,300 mobile
customers at December 31, 2005.
On October 1, 2005 Broadband-Netherlands started a new
digital migration project, which we refer to as
digital-for-all (D4A). D4A is a long-term project
with the objective to give almost all (2 million of the
2.2 million) of the Broadband-Netherlands video cable
customers a digital interactive television box within the next
two years. D4A is a combination of a push strategy and a pull
strategy. Broadband-Netherlands will proactively and
systematically offer the new box to different groups of
customers (push) and actively market the new digital
interactive product (pull). The box and the digital service are
provided at no extra cost for the first six months after the box
is accepted at the door. Thereafter, the consumer will have the
option to discontinue the digital service or to pay an
additional amount, on top of the standard analog rate, to
continue the digital service.
I-11
The Europe Broadband divisions networks in France
(including Noos), which we refer to as Broadband-France, passed
4.6 million homes and had 928,600 analog cable subscribers,
563,800 digital cable subscribers, 295,000 Internet subscribers
and 134,400 telephony subscribers as of December 31, 2005.
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 73%
upgraded to two-way capability, with 96% of its video cable
subscribers served by a network with a bandwidth of at least
750 MHz.
Broadband-Frances digital cable platform is available to
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, Broadband-France offers a number of
movie premium packages, a pay-per-view service, numerous a
la carte channels and several Canal+ channels.
Broadband-France intends to migrate most of its analog cable
subscribers to this new digital platform through attractive
bundling offers. Broadband-France also provides lifeline service
typically consisting of five to ten channels depending on the
area.
Broadband-France offers three tiers of chello and Noos brand
high-speed Internet access service with download speeds ranging
from 512 Kbps to 10 Mbps. Fourteen percent of its
video cable subscribers also receive Internet service,
representing 73% of its Internet subscribers. Eight percent of
its Internet subscribers subscribe to its telephony services,
but not to its video cable services.
During 2005, Broadband-France has been extending the telephony
service footprint of its network through the deployment of VoIP
telephony service and as a consequence multi-feature telephony
services were available from Broadband-France to 51% of its
homes passed as of December 31, 2005. Seven percent of its
video cable subscribers also receive telephony service,
representing 72% of its telephony subscribers. Eighteen percent
of its telephony subscribers subscribe to its Internet services,
but not to its video cable services.
The Europe Broadband divisions networks in Switzerland,
which we refer to as Broadband-Switzerland, passed
1.8 million homes and provided video cable services to
1.4 million analog subscribers and 106,300 digital
subscribers, broadband Internet services to 340,500 subscribers
and telephony services to 186,200 subscribers as of
December 31, 2005. Included in these subscriber numbers are
25,000 digital cable, 35,800 Internet and 19,300 telephony
subscribers serviced over partner networks. Over 55% of Swiss
television households receive analog cable service from
Broadband-Switzerland. Its nationwide network with a bandwidth
of 606 MHz is 70% upgraded to two-way capability.
Broadband-Switzerland markets analog cable services to 100% of
its homes passed. For 70% of its 1.4 million analog
subscribers, Broadband-Switzerland maintains billing
relationships with landlords or housing associations, which
typically provide analog cable service for an entire building
and do not terminate service each time there is a change of
tenant in the landlords or housing associations
premises. Seventy percent of Broadband-Switzerlands homes
passed are capable of receiving digital cable service.
Broadband-Switzerland offers its digital cable subscribers a
digital entry package consisting of 88 channels and a range of
additional pay television programming in a variety of foreign
language program packages. The third television product is NVOD
services, which makes movies and other programs available on
demand to all of the digital customers. In January 2006,
Broadband-Switzerland announced the introduction of a digital
television recorder (DVR), enabling users to create a
personalized television experience. Its digital cable service is
sold directly to the end user as an add-on to its analog cable
services.
Broadband-Switzerland offers six tiers of broadband Internet
access service with download speeds ranging from 150 Kbps
to 6 Mbps. Seventy percent of Broadband-Switzerlands
homes passed are capable of receiving broadband Internet. Twenty
percent of its video cable subscribers also receive its Internet
access service. In addition, Broadband-Switzerland continues to
offer dial-up Internet
services on a limited basis.
I-12
Telephony services are available from Broadband-Switzerland to
70% of its homes passed. Eleven percent of its video cable
subscribers also receive its telephony services. In June 2005,
Broadband-Switzerland launched Unlimited 24, the
first flat rate telephone plan in Switzerland. In addition,
Broadband-Switzerland has begun offering digital telephony
services through VoIP.
Broadband-Switzerland offers managed wireless area networks and
voice services as well as value-added services such as security,
messaging and hosting to the business market in Switzerland. The
acquisition of Unified Business Solutions in May 2005 provided
Broadband-Switzerland with a suite of converged voice and data
products and an established customer base. As of
December 31, 2005, Broadband-Switzerland had 1,927 business
customers.
Broadband-Switzerland provides full or partial analog television
signal delivery, network maintenance services and engineering
and construction services to other cable operators in
Switzerland, which we refer to as partner networks.
Broadband-Switzerland also offers digital television, broadband
Internet and telephony service to the analog cable subscribers
of those partner networks that enter into service operating
contracts with Broadband-Switzerland. Broadband-Switzerland has
the direct customer billing relations with the subscribers who
take these services on the partner networks. These service
operating contracts permit Broadband-Switzerland to offer some
or all of its digital television, broadband Internet and
fixed-line telephony products directly to those partner network
subscribers and, as a result, have expanded the addressable
markets for its digital products. In exchange for the right to
provide digital products directly to the partner network
subscribers, Broadband-Switzerland pays to each partner network
a share of the revenue it generates from those subscribers.
With the launch of a mobile pre-paid offer in December 2005,
Broadband-Switzerland is the first telecommunications provider
in Switzerland to offer television, Internet, fixed line
telephony and mobile telephony also known as
quadruple play from a single provider.
The Europe Broadband divisions networks in Austria
(excluding the Austrian portion of Broadband-Switzerlands
network), which we refer to as Broadband-Austria, passed 957,500
homes and had 455,900 analog cable subscribers, 44,000 digital
cable subscribers, 275,900 Internet subscribers and 150,300
telephony subscribers as of December 31, 2005.
Broadband-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 Broadband-Austria. Broadband-Austrias
network is almost entirely upgraded to two-way capability, with
98% of its video cable subscribers served by a network with a
bandwidth of at least 750 MHz.
Broadband-Austria provides a single offering to its analog cable
subscribers that consists of 34 channels, mostly in the German
language. Broadband-Austrias digital platform offers more
than 100 basic and premium television channels, plus NVOD,
interactive services, television-based
e-mail and an
electronic program guide. Broadband-Austrias premium
content includes first run movies and specific ethnic offerings,
including Serb and Turkish channels.
Broadband-Austria offers four tiers of chello brand high-speed
Internet access service with download speeds ranging from
256 Kbps to 2.6 Mbps and a student package.
Broadband-Austrias high-speed Internet access is available
in all of the cities in its operating area. Forty-two percent of
its video cable subscribers also receive its Internet access
service, representing 76% of its Internet subscribers. Ten
percent of its Internet subscribers subscribe to telephony
services, but not to its video cable services.
Multi-feature telephony services are available from
Broadband-Austria to 96% of its homes passed. Broadband-Austria
offers basic dial tone service as well as value-added services.
Broadband-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 65% of its telephony subscribers
subscribe to this product. Twenty-one percent of
Broadband-Austrias video cable subscribers also receive
its telephony service, representing 71% of its telephony
subscribers. Eighteen percent of its telephony subscribers
subscribe
I-13
to Internet service, but not to its video cable services. In
March 2006, Broadband-Austria will begin offering telephony
services through VoIP.
The Europe Broadband divisions network in Sweden, which we
refer to as Broadband-Sweden, passed 421,600 homes and had
240,000 analog cable subscribers, 58,600 digital cable
subscribers and 90,500 Internet subscribers as of
December 31, 2005. 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 the majority expire beginning
in 2012 through 2018. Its network is 68% upgraded to two- way
capability, with all of its video cable subscribers served by a
network with a bandwidth of at least 550 MHz.
Broadband-Sweden provides all of its video cable subscribers
with a lifeline service consisting of four
must-carry channels. In addition to this lifeline
service, Broadband-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. Twenty-three
percent of the homes served by Broadband-Swedens network
subscribe to the lifeline analog cable service only. To
complement its digital offering, Broadband-Sweden also offers
its subscribers 32 channels of NVOD service.
Broadband-Sweden offers four tiers of chello brand high-speed
Internet access service with download speeds ranging from
128 Kbps to 24 Mbps, including symmetrical options up
to 8 Mbps. Thirty percent of its video cable subscribers
subscribe to its Internet service, representing almost 100% of
its Internet subscribers.
The Europe Broadband divisions network in Ireland, which
we refer to as Broadband-Ireland, which comprises the networks
of NTL Ireland and Chorus Communications Ltd., passed 887,200
homes and had 321,500 analog cable subscribers, 141,000 digital
subscribers, 113,900 MMDS subscribers, 25,000 Internet
subscribers and 400 telephony subscribers as of
December 31, 2005. Broadband-Ireland is Irelands
largest video cable service provider, based on customers served.
Its cable network is 25% upgraded to two-way capability, with
all of its video cable subscribers served by a network with a
bandwidth of at least 860 MHz.
Broadband-Ireland offers an analog cable package with up to 22
channels and a digital cable package with up to 89 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.
Broadband-Ireland also distributes up to seven Irish channels
and produces a local sports channel. To complement its digital
offering, Broadband-Ireland also offers its subscribers 22
channels of premium service.
Broadband-Ireland offers three tiers of chello brand high-speed
Internet access service with download speeds ranging from
1 Kbps to 3 Mbps. Eight percent of its video cable
subscribers subscribe to its Internet service, representing
almost 100% of its Internet subscribers.
The Europe Broadband divisions network in Belgium, which
we refer to as Broadband-Belgium, passed 156,600 homes and had
127,000 analog cable subscribers, 5,500 digital cable
subscribers and 35,300 Internet subscribers as of
December 31, 2005. Its operations are located in certain
areas of Leuven and Brussels, the capital city of Belgium.
Broadband-Belgiums network is fully upgraded to two-way
capability, with all of its video cable subscribers served by a
network with a bandwidth of 860 MHz.
Broadband-Belgiums analog cable service, consisting of all
Belgium terrestrial channels, regional channels and selected
European channels, offers a basic package of 41 channels in
Brussels and 40 channels in Leuven. In Leuven, Broadband-Belgium
also offers an expanded analog cable package, including a
starters pack of three channels that can be upgraded
to 15 channels. This programming generally includes a selection
of European and United States thematic satellite channels,
including sports, kids, nature, movies and general
I-14
entertainment channels. Broadband-Belgium also distributes three
premium channels that are provided by Telenet (Prime) in Leuven.
In the Brussels area, Broadband-Belgium also offers, in
cooperation with BeTV S.A., a digital pay television package
consisting of 6 premium channels and 58 thematic channels.
Broadband-Belgium offers five tiers of chello brand high-speed
Internet access service with download speeds ranging from
256 Kbps to 16 Mbps as well as a student package.
Sixteen percent of its video cable subscribers also receive
Internet access service, representing 61% of its Internet
subscribers.
The Europe Broadband divisions networks in Poland, which
we refer to as Broadband-Poland, passed 1.9 million homes
and had one million analog cable subscribers, 122,500
Internet subscribers and 1,200 telephony subscribers as of
December 31, 2005. Broadband-Polands subscribers are
located in regional clusters encompassing eight of the ten
largest cities in Poland, including Warsaw and Katowice.
Forty-nine percent of its networks are upgraded to two-way
capability, with 98% of its video cable subscribers served by a
network with a bandwidth of at least 550 MHz.
Broadband-Poland continues to upgrade portions of its network
that have bandwidths below 550 MHz to bandwidths of at
least 860 MHz and anticipates to upgrade a further 20% of
all homes passed in 2006.
Broadband-Poland offers analog cable subscribers three packages
of cable television service. Its lowest tier, the broadcast
package, includes four to 12 channels and the intermediate
package includes 13 to 22 channels. Eighteen percent of the
homes served by Broadband-Polands network subscribe to
lifeline analog cable service only. The 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, Broadband-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.
Broadband-Poland offers five different tiers of chello brand
high-speed Internet access service in portions of its network
with download speeds ranging from 256 Kbps to 12 Mbps.
Throughout 2005, Broadband-Poland has been aggressively
expanding its Internet ready network in Warsaw, Krakow, Gdansk
and Katowice to extend its offering of Internet access services
to more of its existing cable footprint. Ten percent of its
video cable subscribers also receive its Internet service,
representing 82% of its Internet subscribers.
During the fourth quarter of 2005, Broadband-Poland rolled out
VoIP multi-feature telephony services to 43% of its homes
passed. Broadband-Poland offers basic dial tone service as well
as value-added services. Approximately 0.1% of
Broadband-Polands video cable subscribers also receive its
telephony service, representing 98% of its telephony subscribers.
The Europe Broadband divisions networks in Hungary, which
we refer to as Broadband-Hungary, passed one million homes and
had 731,400 analog cable subscribers, 171,100 DTH subscribers,
135,200 Internet subscribers and 108,200 telephony subscribers,
as of December 31, 2005. Eighty-six percent of its networks
are upgraded to two-way capability, with 64% of its video cable
subscribers served by a network with a bandwidth of at least
750 MHz.
Broadband-Hungary offers up to four tiers of analog cable
programming services (between four and 60 channels) and two
premium channels, depending on the technical capability of the
network. Five percent of the homes served by
Broadband-Hungarys network subscribe to the lifeline
analog cable service only. Programming consists of the national
Hungarian terrestrial broadcast channels and selected European
satellite and local programming that consists of proprietary and
third party channels.
Broadband-Hungary offers three tiers of chello brand high-speed
Internet access service with download speeds ranging from
512 Kbps to 3 Mbps. Broadband-Hungary provides these
broadband Internet services to 126,200 subscribers in
18 cities, including Budapest. It also had 9,000 ADSL
subscribers at December 31, 2005, on its twisted copper
pair network located in the southeast part of Pest County. Ten
percent of its video cable
I-15
subscribers also receive its Internet service, representing 56%
of its Internet subscribers. Five percent of its Internet
subscribers subscribe to telephony services, but not to its
video cable services.
Broadband-Hungary offers traditional switched telephony services
over a twisted copper pair network in the southeast part of Pest
County. Broadband-Hungary offers VoIP telephony services over
its cable network in Budapest. As of December 31, 2005,
Broadband-Hungarys telephony subscribers included 46,300
VoIP customers. Nine percent of Broadband Hungarys video
cable subscribers also receive its telephony service
representing 61% of its telephony subscribers. Six percent of
its telephony subscribers subscribe to its Internet services,
but not to its video cable services.
The Europe Broadband divisions network in the Czech
Republic, which we refer to as Broadband-Czech, passed 743,000
homes and had 298,300 analog cable subscribers, 112,500 DTH
subscribers and 75,600 Internet subscribers as of
December 31, 2005. 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. Fifty-four
percent of its networks are upgraded to two-way capability, with
51% of its video cable subscribers served by a network with a
bandwidth of at least 860 MHz. Broadband-Czech offers two
tiers of analog cable programming services, with up to 31
channels, and two premium channels. Twenty-two percent of the
homes served by Broadband-Czechs network subscribe to the
lifeline analog service only.
Broadband-Czech offers four tiers of chello brand high-speed
Internet access service with download speeds ranging from
256 Kbps to 6 Mbps. Ten percent of its video cable
subscribers also receive its Internet service, representing 73%
of its Internet subscribers.
The Europe Broadband divisions networks in Romania, which
we refer to as Broadband-Romania, passed 1.9 million homes
and had 1.3 million analog cable subscribers 4,000 digital
cable subscribers, 55,200 Internet subscribers and 18,500
telephony subscribers, as of December 31, 2005.
Broadband-Romanias systems served nine of the top
12 cities in Romania with 54% of its subscriber base in
nine cities. Forty-nine percent of its networks are upgraded to
two-way capability, with 65% of its video cable subscribers
served by a network with a bandwidth of at least 600 MHz.
Broadband-Romania continues to upgrade its medium size systems
to 600 MHz.
Broadband-Romania offers analog cable service with 24 to 40
channels in all of its cities, which include Romanian
terrestrial broadcast channels, European satellite programming
and regional local programming. Three extra basic packages of
six to 18 channels each and Premium Pay TV (HBO Romania,
Telesport and Adult) are offered in the main cities.
Broadband-Romania offers three tiers of high-speed Internet
access service branded UPC and Astral Online with download
speeds ranging from 256 Kbps to 1.5 Mbps. Four percent
of its video cable subscribers also receive its Internet
service, representing 97% of its Internet subscribers.
During the fourth quarter of 2005, Broadband-Romania extended
the VoIP telephony deployment of its acquired subsidiary Astral
to its own networks and has rolled out VoIP multi-feature
telephony services to 34% of its homes passed in the aggregate.
Broadband-Romania offers basic dial tone service as well as
value-added services. One percent of Broadband-Romanias
video cable subscribers also receive its telephony service
representing 100% of its telephony subscribers.
Broadband-Romania, through Astral, also offers a wide range of
voice, leased line and high speed broadband data products to
4,000 large business customers and over 9,000 small office at
home or SOHO customers.
The Europe Broadband divisions network in the Slovak
Republic, which we refer to as Broadband-Slovak, passed 429,200
homes and had 256,900 analog cable subscribers, 17,300 DTH
subscribers, 28,300 MMDS
I-16
subscribers and 20,800 Internet subscribers as of
December 31, 2005. Fifty-five percent of its networks are
upgraded to two-way capability, with 52% of its video cable
subscribers served by a network with a bandwidth of at least
750 MHz. In some areas like Bratislava, the capital city,
its network is 99% upgraded to two-way capability.
Broadband-Slovak offers two tiers of analog cable service and
three premium services. Its lower-tier, the lifeline package,
includes four to nine channels. Fifteen percent of the homes
served by Broadband-Slovaks network subscribe to the
lifeline analog service only. Broadband-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,
Broadband-Slovak offers three premium services HBO,
Private Gold and the UPC Komfort package consisting of six
thematic third-party channels.
In Bratislava, Broadband-Slovak offers five tiers of chello
brand high-speed Internet access service with download speeds
ranging from 256 Kbps to 4 Mbps. Seven percent of its
video cable subscribers also receive Internet access service,
representing 80% of its Internet subscribers.
The Europe Broadband divisions network in Slovenia, which
we refer to as Broadband-Slovenia, passed 125,300 homes and had
108,300 analog cable subscribers and 18,100 Internet subscribers
at December 31, 2005. Sixty-three percent of its networks
are upgraded to two-way capability, with 100% of its analog
cable subscribers served by a network with a bandwidth of at
least 860 MHz. Broadband-Slovenia systems mainly serve
Ljubljana, the capital city.
Broadband-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,
Broadband-Slovenia offers one premium movie service.
Broadband-Slovenia offers five tiers of high-speed Internet
access service with download speeds ranging from 256 Kbps
to 5 Mbps. Seventeen percent of its video cable subscribers
also receive Internet access service, representing 98% of its
Internet subscribers.
UGC Europes chellomedia division provides interactive
digital products and services, produces and markets thematic
channels, operates a digital media center, operates a
competitive local exchange carrier business under the brand name
Priority Telecom and owns or manages our investments in various
businesses in Europe. Below is a description of the operations
of the chellomedia division:
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Interactive Services. Interactive television services and
entertainment accessed over the Internet are both expected to
play a significant role in the Europe Broadband divisions
businesses. chellomedias Interactive Services division
develops and delivers applications and services for television
and personal computers. For television, these include electronic
program guides, interactive portals and enhanced services such
as multiscreen mosaics. For the web, the divisions
services include entertainment portals across the Europe
Broadband footprint, video on demand to personal computers and
television streaming to personal computers. This group
aggregates content for the interactive television and web
portals, publishes these portals and handles the groups
business relationships with partners in advertising and
sponsorship and sells television and web services to third
parties. Interactive services have been launched by
Broadband-Netherlands and Broadband-Austria, as discussed above. |
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Programming. chellomedias programming operations
include the following: |
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Transactional Television. Transactional television is
another component of the Europe Broadband divisions
digital service offerings and currently offers 56 channels of
NVOD programming through Broadband- Netherlands and
Broadband-Austria, 32 channels of NVOD programming through Broad- |
I-17
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band-Sweden, and 16 channels of NVOD programming through
Broadband-Switzerland. Transactional television provides digital
customers with a wide range of Hollywood blockbusters and other
movies. Transactional television is also in the process of
developing VOD services for the Europe 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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Global Thematics. chellomedia produces and markets a
number of widely distributed multiterritory thematic channels.
These channels target the following genres: extreme sports and
lifestyles (Extreme), Horror films (Horror), real life stories
(RealityTV), womens information and entertainment (Club
and Romantica) and art house basic movies (Europa Europa). In
addition, chellomedia has a channel representation business,
which represents both wholly owned and third party channels
across Europe. In January 2005, chellomedia acquired an 87.5%
interest in Zone Vision, which owns and operates three of our
thematic programming channels. |
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chellomedia Benelux. With the acquisition of the content
business of Canal+ Netherlands in October 2005, chellomedia now
delivers a premium sports channel (Sport 1) and a premium
movie channel (Film 1) in The Netherlands. |
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The channels originate from chellomedias digital media
center, or DMC, located in Amsterdam. The DMC is a
technologically advanced production facility that services
Europe Broadband 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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chellomedia Iberia. In November 2005, chellomedia
acquired the remaining 50% interest in IPS that it did not
already own, which owns and manages a suite of seven thematic
channels carried on most major pay television platforms in Spain
and Portugal. IPS has five wholly owned thematic channels (Canal
Hollywood, Odisea, Sol Musica, Panda and Canal Cocina) and two
joint venture channels with A&E (Canal de Historia and The
Biography). |
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Priority Telecom. Priority Telecom NV (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 7,800
business customers primarily in its core metropolitan markets in
The Netherlands, Austria and Norway. The current direct and
indirect shareholding of chellomedia in Priority Telecom is 62%
of the outstanding ordinary shares and, as a result of
chellomedias holding, directly or indirectly, of 100% of
Priority Telecoms A shares and convertible preference
shares, 98% of the total issued share capital. In February 2006,
chellomedia announced that it intends to make a cash offer for
the outstanding ordinary shares of Priority Telecom that it does
not already own. This offer is subject to certain conditions,
including receipt of a fairness opinion. |
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Investments. chellomedia is an investor in branded equity
ventures for the development of country-specific programming,
including Xtra Music, MTV Networks Polska, Fox Kids Poland and
Sports 1. chellomedia also owns or manages UGC Europes
minority interests in other European businesses. These include a
25% interest in PrimaCom AG, which owns and operates a cable
television and broadband network in Germany; 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 indirect investment in Telenet, which is the largest
provider of broadband cable services in Belgium and which
investment is described below. |
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chellomedia Investments purchased 7.7 million shares of
Telenet in its initial public offering that closed in October
2005. As a result of the purchase, chellomedia Investments and
Belgian Cable Investors, a partnership majority owned and
controlled by our indirect wholly owned subsidiary Belgian Cable
Holdings, increased their combined economic ownership in the
ordinary shares of Telenet from |
I-18
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14.1% to 19.89%. In addition, Belgian Cable Investors holds
certain call options, expiring in 2007 and 2009 (subject to
earlier expiration in certain circumstances), to acquire an
additional 10.1% and 15.3%, respectively, of the outstanding
equity of Telenet from existing shareholders. The call options
are priced at
20 per
share as to 6.8 million shares and
25 per
share as to 18.7 million shares. |
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Belgian Cable Investors holds its indirect 12.18% interest in
Telenet common stock through two entities, which we refer to as
the Investcos. The Investcos hold in the aggregate 12.86% of the
Telenet common stock. Through a shareholders agreement among
Belgian Cable Investors and the other unaffiliated investors in
the Investcos, Belgian Cable Investors controls the voting and
disposition of the Telenet common stock owned by the Investcos,
plus an additional 0.93% of the Telenet common stock directly
owned by certain of the other investors in the Investcos for a
total of 13.79% of the Telenet common stock. Through these
arrangements and chellomedia Investments ownership of
7.71% of the Telenet common stock purchased in the Telenet
initial public offering, we control, subject to the shareholders
agreement in effect between the Investcos, Belgian Cable
Investors and certain other large shareholders of Telenet, the
voting and disposition of 21.5% of the currently outstanding
common stock in Telenet. |
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We hold 78.4% of the common equity interests and 100% of the
preferred equity interests in Belgian Cable Investors. Pursuant
to an agreement with the unaffiliated investor that holds the
remaining 21.6% of the common interests in Belgian Cable
Investors, such investor has the right to require Belgian Cable
Holdings to purchase all of such 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. Belgian Cable Holdings has the
corresponding right to require the investor to sell all of its
interest in Belgian Cable Investors to Belgian Cable Holdings
for the appraised fair value during the first 30 days of
every six-month period following December 2009. In addition, the
Investco shareholders agreement and the Telenet shareholders
agreement both contain rights of first offer and rights of first
refusal that run for the benefit of Belgian Cable Investors and
the Investcos, respectively, and in some circumstances burden
their interests. |
Our Japanese operations are conducted primarily through Super
Media and its subsidiary J:COM, and through Jupiter TV. As of
December 31, 2005, we owned a 58.66% controlling ownership
interest in Super Media and Super Media owned a 62.65%
controlling ownership interest in J:COM. As described above
under Recent Developments, we began accounting for
Super Media and J:COM as consolidated subsidiaries, effective as
of January 1, 2005. As of December 31, 2005, we owned
a 50% ownership interest in our affiliate Jupiter TV.
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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 passed 7.3 million homes and had one million analog
cable subscribers, 620,800 digital subscribers, 864,200 Internet
subscribers and 911,300 telephony subscribers at
December 31, 2005. J:COM operates its broadband networks
through 19 managed local cable companies, which J:COM refers to
as its managed franchises, 17 of which were consolidated
subsidiaries as of December 31, 2005. J:COM owns a 45%
equity interest and a 50% equity interest in its two
unconsolidated managed franchises. J:COMs two
unconsolidated managed franchises served 111,400 video cable
subscribers (analog and digital), 47,600 Internet subscribers
and 59,100 telephony subscribers as of December 31, 2005.
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.
I-19
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 offers analog and digital cable services in all of its
managed franchises. J:COMs basic analog service consists
of approximately 47 channels of cable programming and analog
terrestrial broadcasting and broadcast satellite channels, not
including premium services. A typical channel
line-up includes
popular channels in the Japanese market such as Movie Plus,
a top Japanese movie channel, the Shop Channel, a
home-shopping network, J Sports 1, 2, 3 and Sports-i,
four popular sports channels, the Discovery Channel, the
Golf Network, the Disney Channel and Animal
Planet, in addition to retransmission of analog terrestrial
and satellite television broadcasts. J:COMs basic digital
service currently includes approximately 66 channels of cable
programming, digital terrestrial broadcasting, and broadcast
satellite channels, not including audio and data channels and
premium services. The channel
line-up for the basic
digital service includes 15 high-definition channels. For an
additional fee, digital cable subscribers may also receive VOD
and up to nine pay-per-view channels not available to
J:COMs analog cable subscribers. J:COM also offers both
its basic analog and digital subscribers optional subscriptions
for an additional fee to premium channels, including movies,
sports, horseracing and other special entertainment programming,
either individually or in packages. J:COM offers package
discounts to customers who subscribe to bundles of J:COM
services. In addition to the services offered to its cable
television subscribers, J:COM also provides terrestrial
broadcast retransmission services to 3.1 million additional
households in its consolidated managed franchises as of
December 31, 2005.
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
(KMS). These Internet access services offer downstream speeds of
either 8 Mbps or 30 Mbps. At December 31, 2005,
J:COM held a 25.8% interest in KMS, which provides high-speed
Internet access in the Kansai region of Japan. On
January 6, 2006, KMS became a consolidated subsidiary when
J:COM acquired an additional 38.2% of KMS. Since August 2005,
J:COM offers the J:COM NET Hikari service for multiple dwelling
units connected to J:COMs network by optical fiber cables.
J:COM NET Hikari offers speeds up to 100 Mbps. At
December 31, 2005, 77% of the Internet subscribers in
J:COMs consolidated managed franchises also received its
video cable services.
J:COM currently offers telephony services over its own network
in 14 of its consolidated 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 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. At December 31, 2005, 79%
of the telephony subscribers in J:COMs consolidated
managed franchises also received video cable services. In April
2005, J:COM launched a telephony service using VoIP technology
in its Sapporo franchise. In October 2005 and in December 2005,
J:COM began offering VoIP telephony service in a system in its
Kansai franchise and in its Chofu franchise, respectively.
In addition to its 19 managed franchises, J:COM owns
non-controlling equity interests, between 5.5% and 20.0%, in two
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, Jupiter TV. J:COMs relationship
with Jupiter TV 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
I-20
services. J:COM and Jupiter TV each currently owns a 50%
interest in Jupiter VOD Co., Ltd., a joint venture formed in
2004 to obtain VOD programming content to offer VOD services to
J:COM franchises. J:COM began offering VOD services to its
digital customers 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 Super Media, an
entity that is owned 58.66% by us and 41.34% by Sumitomo
Corporation. Pursuant to the operating agreement of Super Media
between Sumitomo and us, our and Sumitomos entire interest
in J:COM is now held through Super Media. 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. Four individuals,
including one of our executive officers, an officer of one of
our subsidiaries and one of LMIs former directors, own
common stock representing an aggregate of 18.75% of the common
equity in the fifth corporation, which owns a 4.3% indirect
interest in J:COM.
Super Media is managed by a management committee consisting of
two members, one appointed by us and one appointed by Sumitomo.
The management committee member appointed by us has a casting or
tie-breaking vote with respect to any management committee
decision that we and Sumitomo are unable to agree on, which
casting vote will remain in effect for the term of Super Media.
Certain decisions with respect to Super Media require the
consent of both members rather than the management committee.
These include a decision to engage in any business other than
holding J:COM shares, sell J:COM shares, issue additional units
in Super Media, make in-kind distributions or dissolve Super
Media, in each case other than as contemplated by the Super
Media operating agreement. While Super Media effectively has the
ability to elect J:COMs entire board, pursuant to the
Super Media operating agreement, Super Media is required to vote
its J:COM shares in favor of the election to J:COMs board
of three non-executive directors designated by Sumitomo and
three non-executive directors designated by us.
Because of our casting vote, we indirectly control J:COM through
our control of Super Media, which owns a controlling interest in
J:COM, and therefore consolidate J:COMs results of
operations for accounting purposes. Super Media will be
dissolved five years after our casting vote became effective on
February 18, 2005, unless Sumitomo and we mutually agree to
extend the term. Super Media may also be dissolved earlier under
certain circumstances.
Jupiter TV is a joint venture between Sumitomo and us that
primarily develops, manages and distributes pay television
services in Japan on a platform-neutral basis through various
distribution infrastructures, principally cable and DTH service
providers, and more recently, alternative broadband service
providers using
fiber-to-the-home or
FTTH, and ADSL platforms. As of December 31,
2005, Jupiter TV owned four channels through wholly or
majority-owned subsidiaries and had investments ranging from 10%
to 50% in 14 additional channels. Jupiter TVs majority
owned channels are a movie channel (Movie Plus), a golf
channel (Golf Network), a shopping channel (Shop
Channel, in which Jupiter TV has a 70% interest and Home
Shopping Network has a 30% interest), and a womens
entertainment channel (LaLa TV). Channels in which
Jupiter TV holds investments include four sports channels owned
by J Sports Broadcasting Corporation (J Sports Broadcasting),
which is a 34% owned joint venture with Sony Broadcast Media Co.
Ltd. (Sony), Fuji Television Network, Inc., SOFTBANK Broadmedia
Corporation, Skyperfect Communications Inc. and Itochu
Corporation; Animal Planet Japan, a one-third owned joint
venture with Discovery Networks and BBC Worldwide; Discovery
Channel Japan and Discovery HD through a 50% owned
joint venture with Discovery Networks; AXN Japan, a 35%
owned joint venture with Sony; and Reality TV Japan, a
50% owned joint venture with Zone Vision Enterprises. Jupiter TV
provides affiliate sales services and in some cases advertising
sales and other services to channels in which it has an
investment for a fee.
I-21
The market for multi-channel television services in Japan is
highly complex with multiple cable systems, DTH satellite
platforms, and more recently, alternative broadband service
providers. Cable systems in Japan served 18.2 million homes
at December 31, 2005. A large percentage of these homes,
however, are served by systems (referred to as compensation
systems) whose service principally consists of retransmitting
free television services to homes whose reception of such
broadcast signals has been blocked. Higher capacity systems and
larger cable systems that offer a full complement of cable and
broadcast channels, of which J:COM is the largest in terms of
subscribers, currently serve 5.8 million households. The
majority of channels in which Jupiter TV holds an interest are
marketed as basic television services to cable system operators,
with distribution at December 31, 2005, ranging from
15.4 million homes for Shop Channel (which is
carried in many compensation systems as well as in multi-channel
cable systems) to 0.6 million homes for more recently
launched channels, such as Reality TV Japan.
Each of the channels in which Jupiter TV has an interest, except
for Discovery HD, is also currently offered on
SkyPerfecTV1, a digital satellite platform that delivers
approximately 180 channels a la carte and in an array of basic
and premium packages, from two satellites operated by JSAT
Corporation (JSAT). Each of the channels, except for Reality
TV Japan and Discovery HD, is also offered on
SkyPerfecTV2, another satellite platform in Japan, which
delivers a significantly smaller number of channels. Under
Japans complex regulatory scheme for satellite
broadcasting, a person engaged in the business of broadcasting
programming must obtain a broadcast license that is perpetual,
although subject to revocation by the relevant governmental
agency, and then lease from a satellite operator the bandwidth
capacity on satellites necessary to transmit the programming to
cable and other distributors and
direct-to-home
satellite subscribers. In the case of distribution of Jupiter
TVs 33% or greater owned channels on SkyPerfecTV1, these
licenses and satellite capacity leases are held through its
subsidiaries, Jupiter Satellite Broadcasting Corporation
(JSBC) and Jupiter Satellite Broadcasting Corporation 2
(JSBC2), except for AXN Japan and the J Sports
Broadcasting channels which hold their own licenses. The
broadcast licenses and satellite capacity leases for those of
Jupiter TVs 33% or greater owned channels that are
delivered by 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, JSBC2 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
Jupiter TV holds an interest are marketed as basic television
services to DTH subscribers with distribution at
December 31, 2005, ranging from 3.5 million homes for
Shop Channel (which is carried as a free service to all
DTH subscribers) to 0.5 million homes for more recently
launched channels, such as Reality TV Japan.
Distribution of multichannel television services in Japan,
through alternative broadband platforms, such as FTTH and ADSL,
is not yet widespread. The majority of channels in which Jupiter
TV holds an interest are marketed as basic television services
to alternative broadband subscribers with distribution at
December 31, 2005, ranging from 0.1 million homes for
Shop Channel (which is carried as a free service to
broadband television subscribers) to 0.01 million homes for
lesser distributed channels, such as Movie Plus.
Jupiter TV operates Jupiter VOD, a 50% owned joint venture with
J:COM, which has access to 0.6 million VOD-enabled digital
cable subscribers at December 31, 2005. Jupiter TV also
operates Online TV, a 55% owned joint venture with SECOM Co.
Ltd., Tohokushinsha Film Corporation and Nikkei Shinbun. Online
TV is a content aggregation platform for broadband television
services supplying channels, including the majority of channels
in which Jupiter TV holds an interest, to several Internet
service providers.
Eighty-six percent of Jupiter TVs consolidated revenue for
2005 was attributable to retail revenue 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 a fixed rate per
subscriber distribution fee to provide the Shop Channel
to its DTH subscribers. Alternative broadband platforms are
also paid a fixed rate fee per subscriber that is able to view
Shop Channel through their platform. After Shop
Channel, J Sports Broadcastings four sports channels
generate the most revenue of the channels in which
I-22
Jupiter TV has an interest. The majority of this revenue is
derived from cable and satellite subscriptions. Currently,
advertising sales are not a significant component of Jupiter
TVs revenue.
Sumitomo and we each own a 50% interest in Jupiter TV. Pursuant
to a stockholders agreement we entered into with Jupiter TV and
Sumitomo, Sumitomo and we each have preemptive rights to
maintain our respective equity interests in Jupiter TV, 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
Jupiter TVs 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 Jupiter TV, and Sumitomo and we
have each agreed to provide Jupiter TV 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 Jupiter TV distributes its
signals, in each case subject to specified limitations.
We also own an interest in Mediatti Communications, Inc.
(Mediatti), a provider of cable television and high speed
Internet access services in Japan that served 102,500 video
cable subscribers (analog and digital) and 58,500 Internet
subscribers at December 31, 2005. Our interest in Mediatti
is held through Liberty Japan MC, LLC (Liberty Japan MC), a
company of which, as of December 31, 2005, we owned 94.6%
and Sumitomo owned 5.4%.
At December 31, 2005, Liberty Japan MC owned a 36.4% voting
interest in Mediatti and an additional 6.64% interest that had
limited veto rights. In January 2006, Liberty Japan MC converted
its limited voting shares into ordinary common shares. In
February 2006, Liberty Japan MC acquired additional shares of
Mediatti increasing its voting interest to 46.09%, all of which
now consists of ordinary common shares. As of February 2006, we
owned 95.2% of Liberty Japan MC and Sumitomo owned 4.8%. Until
February 2006, Sumitomo had the option to increase its ownership
interest in Liberty Japan MC to up to 50% but did not exercise
that option.
Liberty Japan MC, Olympus Mediacom L.P. (Olympus) and two
minority shareholders of Mediatti have entered into a
shareholders agreement pursuant to which Liberty Japan MC has
the right to nominate three of Mediattis seven directors
and which requires that significant actions by Mediatti be
approved by at least one director nominated by Liberty Japan MC.
The Mediatti shareholders who are party to the shareholders
agreement have granted to each other party whose ownership
interest is greater than 10% a right of first refusal with
respect to transfers of their respective interests in Mediatti.
Each shareholder also has tag-along rights with respect to such
transfers. Olympus has a put right that is first exercisable
during July 2008 to require Liberty Japan MC to purchase all of
its Mediatti shares at fair market value. If Olympus exercises
such right, the two minority shareholders who are party to the
shareholders agreement may also require Liberty Japan MC to
purchase their Mediatti shares at fair market value. If Olympus
does not exercise such right, Liberty Japan MC has a call right
that is first exercisable during July 2009 to require Olympus
and the minority shareholders to sell their Mediatti shares to
Liberty Japan MC at the then fair market value. If 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.
Our operations in the Americas are conducted primarily through
our 80% owned subsidiary VTR in Chile and our wholly owned
subsidiary Liberty Cablevision of Puerto Rico. We also have
subsidiaries that are broadband providers operating in Brazil
and Peru and a joint venture interest in MGM Networks Latin
America and a subsidiary in Argentina, both of which offer
programming content to the Latin America market. Our partner in
VTR, CCC, has a put right which will allow CCC to require us to
purchase all, but not less than all, of its 20% interest in VTR
at fair value, subject to a minimum price, such put right being
exercisable beginning on April 13, 2006 and ending on
April 13, 2015.
I-23
Our primary Latin American operation, VTR, is Chiles
largest multi-channel television provider in terms of homes
passed and number of subscribers, and is a leading high-speed
Internet access provider, 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. VTRs network passed
2.2 million homes and had 751,200 analog cable subscribers,
6,800 digital cable subscribers, 303,000 Internet subscribers
and 364,700 telephony subscribers at December 31, 2005.
All of VTRs video subscribers are served via wireline
cable, with the vast majority via aerial plant. VTRs
network is 59.2% upgraded to two-way capability with a bandwidth
of 750 MHz. VTR has an approximate 89% market share of
cable television services throughout Chile and an approximate
98% market share within Santiago. VTRs channel lineup
consists of 32 to 81 channels segregated into two tiers of
analog cable service: a basic service with 32 to 68 channels and
a premium service with 11 channels. VTR offers basic tier
programming similar to the basic tier program lineup in the
United States, including more premium 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. 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 also offers a digital platform with
programming options similar to its analog premium service.
During 2006, VTR plans to move its premium analog customers to
its digital platform.
VTR offers several alternatives of always on, unlimited-use
high-speed Internet access to residences and SOHO offices under
the brand name Banda Ancha in 30 communities within Santiago and
19 cities outside Santiago. Subscribers can purchase one of
17 services with download speeds ranging from 128 Kbps to
10 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. Thirty-three percent of VTRs video cable
subscribers also receive Internet service, representing 83% of
its Internet subscribers.
VTR offers telephony service to customers in 25 communities
within Santiago and 18 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
SOHO customers. VTR also offers telephony services to its
two-way homes passed by applying VoIP. Fourteen percent of
VTRs telephony subscribers are served using VoIP
technology. Thirty-three percent of VTRs video cable
subscribers also receive telephony service, representing 68% of
its telephony subscribers.
VTR is subject to certain regulatory conditions as a result of
the combination with Metropolis in April 2005. The most
significant conditions require that the combined entity
(i) re-sell broadband capacity to third party Internet
service providers on a wholesale basis; (ii) activate
two-way to two million homes passed within five years from the
consummation date of the combination; and (iii) for three
years after the consummation date of the combination, limit
basic tier price increases to the rate of inflation, plus a
programming cost escalator. In December 2005, the Subsecretaria
de Telecomunicaciones of Chile awarded VTR regional concessions
for wireless local telephone service in the frequency band of
3400-3600 MHz. Using this spectrum, VTR plans to offer
broadband telephony and data services through Worldwide
Interoperability for Microwave Access (WiMax) technology. WiMax
is a wireless alternative to cable and DSL for the last mile of
broadband access. WiMax will allow VTR to expand its service
area by 1.3 million homes and increase the number of
two-way homes passed by 540,000 on a more cost-effective basis
than cable. The issuance of the WiMax license has, however, been
challenged by a third party. VTR believes the challenge is
without merit but it may delay its construction plans for WiMax.
I-24
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, revenue and the number and types of services offered. In
addition, regulation may restrict our operations and subject
them to further competitive pressure, including pricing
restrictions, interconnect and other access obligations, and
restrictions or controls on content, including content provided
by third parties. Failure to comply with current or future
regulation could expose our businesses to various penalties.
Foreign regulations affecting distribution and programming
businesses fall into several general categories. Our businesses
are generally required to obtain licenses, permits or other
governmental authorizations from, or to notify or register with,
relevant local or regulatory authorities to own and operate
their respective distribution systems and to offer services
across them. In some countries, these licenses and registrations
are non-exclusive and of limited duration. In most countries
where we provide video programming services, 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 prior approval or subsequent control by the
relevant local or national authority.
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 EU. As such, these countries
are required to enact national legislation that implements EU
directives. Although not an EU Member State, 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. The exception to this is Switzerland, which is not an EU
Member State and is currently not seeking any such membership.
Regulation in Switzerland is discussed separately below.
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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
I-25
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 EU
countries in which we operate, only Belgium still needs 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.
Many of the obligations included within the Directives apply
only to operators or service providers with Significant
Market Power (SMP) in a relevant market. For example,
the provisions of the Access Directive allow Member States to
mandate certain access obligations only for those operators and
service providers that are deemed to have SMP. For purposes of
the Directives, an operator or service provider will be deemed
to have SMP where, either individually or jointly with others,
it enjoys a position of significant economic strength affording
it the power to behave to an appreciable extent independently of
competitors, customers and consumers.
As part of the implementation of certain of the Directives, the
National Regulatory Authority or NRA is obliged to
analyze 18 markets predefined by the Commission of European
Communities (EC Commission) to determine if any operator or
service provider has SMP. Such markets are referred to as the 18
predefined markets. We have been found to have SMP in some
markets in some countries and further such findings are
possible. In particular, in those markets where we offer
telephony services, we will often be found to have SMP in the
termination of calls on our own network. In addition, in some
countries we may be found to have SMP in the wholesale
distribution of television channels. Some national regulators
may also seek to find that we have SMP 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. NRAs might also seek to define us as having
SMP in another of the 18 predefined markets or define and
analyze additional markets, such as the retail market for the
reception of radio and television packages. In the event that we
are found to have SMP in any particular market, a NRA could
impose certain conditions on us to prevent abusive behavior by
us.
Under the Directives, the EC Commission has the power to veto
the assessment by a NRA of SMP in any market not set out in
their predefined list as well as any finding by a NRA of SMP in
any market whether or not it is set out in the list.
Certain key elements introduced by the Directives are set forth
below, followed by a discussion of certain other regulatory
matters and a description of regulation for five countries where
we have large operations. This description in not intended to be
a comprehensive description of all regulation in this area.
Licensing. Individual licenses for electronic
communications services are not required for the operation of an
electronic communications network or the offering of electronic
communications services. A simple registration is required in
these cases. Member States are limited in the obligations that
they may place on someone who has so registered; the only
obligations that may be imposed are specifically set out in the
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 SMP in a particular market. These obligations are
based on the outcomes that would occur under general competition
law.
I-26
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 is having in
practice but we expect it to lead to a reduction of the size of
must-carry packages in some countries.
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, or
CPI. Even in countries where rates are not
regulated, subscriber fees may be challenged if they are deemed
to constitute anti-competitive practices.
Other. Our European operating companies must comply with
both specific and general legislation concerning data
protection, data retention, content provider liability and
electronic commerce. These issues are broadly harmonized or
being considered for harmonization at the EU level. For example,
the EU recently agreed a new Directive on data retention, which
will likely increase the amount of data we must store for law
enforcement purposes and the length of time we must store it.
In late 2005, the EC Commission announced a call for input on a
review of the regulatory framework described above. In early
2006, they made comments on their future views of the 18
predefined markets. Their review will progress through 2006 and,
at some point, may lead to fresh EU level legislation and/or a
review of the list of the 18 predefined markets. Any such
processes could lead to material changes in the regime described
above.
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. This 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 and the EC Commission issued a proposal for a new
Directive at the end of 2005. The draft will be subject to
amendment and adoption by the European Council and the European
Parliament. Any new Directive adopted by these institutions
would then be transposed into the laws of the various Member
States over a defined timescale. Such a process could lead to
substantial changes in the regulation of broadcasting.
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Competition Law and Other Matters |
EU directives and national consumer protection and competition
laws in many of our European markets impose limitations on the
pricing and marketing of bundled packages of services, such as
video, telephony and Internet access services. Although our
businesses may offer their services in bundled packages in
European markets, they are sometimes not permitted to make
subscription to one service, such as cable television,
conditional upon subscription to another service, such as
telephony. In addition, providers cannot abuse or enhance a
dominant market position through unfair anti-competitive
behavior. For example, cross-subsidization having this effect
would be prohibited.
I-27
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 a 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 SMP. We have been found to have SMP in the call
termination market on our own telecommunications network,
together with all other network operators. This has led to a
system of call termination price control via benchmarking with
prices charged by the incumbent operator.
France has a 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 SMP. We have been found to have SMP in the call
termination market on our own telecommunications network,
together with all other network operators. This has led to a
variety of requirements, including the obligation to provide
interconnection and access to, and use of, specific network
facilities, non-discrimination, transparency and a prohibition
against charging excessive prices.
Hungary has a communications law that broadly transposes the
Directives. The NRA has virtually finished the process of
analyzing the 18 predefined markets to determine if any operator
or service provider has SMP with the only exception of relevance
to our business being the ongoing analysis of the wholesale
broadcast transmission market. The operations of our telephony
subsidiary, Monor Telefon Tarsasag RT (Monor) have been found to
have SMP in the call termination and origination market on our
own telecommunications network, as well as in the markets for
wholesale unbundled access and for wholesale broadband access,
together with all other similar network operators. This has led
to a variety of requirements, including the need to provide
interconnection and access to, and use of, specific network
facilities, non-discrimination, transparency, accounting
separation and price control. We are also required to produce a
wholesale ADSL offer on the Monor telecommunication network
based on a discount from our retail prices.
Monor has further been found to have SMP in a variety of retail
markets relating to the provision of network access to business
and to residential customers where our price increases have been
capped at the rise in the CPI and in the markets for long
distance and international calls for residential and business
customers where we have been required to offer carrier
pre-selection services.
Historically, in many parts of The Netherlands, Europe Broadband
has been a party to contracts with local municipalities that
control aspects of our Netherlands 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 with certain municipalities resisting our
attempts to move away from the contracts.
The Netherlands has a communications law that broadly transposes
the Directives. Onafhankelijke Post en Telecommunicatie
Autoriteit (OPTA), The Netherlands NRA, has, with one exception,
finished its analysis of the 18 predefined markets in order to
determine which, if any, operator or service provider has SMP.
OPTA has concluded that we do not have SMP in The Netherlands
broadband market and so no obligations have been placed on us
there.
At the end of December 2005, we were declared by OPTA to have
SMP in the market related to call termination on our own
network. Obligations imposed are to provide access to
interconnecting operators on a
I-28
transparent and reasonable basis along with tariff regulation,
which will be derived from the regulated interconnect charges of
Royal KPN N.V. (KPN).
As to the wholesale broadcast market, we have been held to have
SMP in the distribution of both free to air and pay television
programming. As a result, OPTA may require us to provide access
to content providers and packagers who are seeking to distribute
content over our network using their own conditional access
platform, which content is not already part of our own basic
tier television offering. This access must be offered at cost
oriented prices regulated by OPTA. Further we would be obliged
to grant program providers access to our basic tier offering in
certain circumstances in line with current laws and regulations.
OPTA has indicated that requests for access must be reasonable
and that a request by a third party that has an alternative
infrastructure or that would result in disproportionate use of
available network capacity would not likely be considered
reasonable. We have not yet, however, seen a final decision from
OPTA as to the exact scope of these obligations. This decision
is expected in the first quarter of 2006.
In addition, since late 2005, OPTA has been discussing with the
EC Commission a market outside the 18 predefined markets
relating to the retail delivery of radio and television packages
in The Netherlands and the obligations it proposes to impose.
The proposed obligation included retail price regulation on a
cost oriented basis of the analog package, a requirement to
indicate to customers which part of the subscription fees relate
to network costs and which relate to programming costs, and a
requirement to unbundle analog video services from other
services. In December 2005, the EC Commission approved
OPTAs revised proposal for regulation in this retail
market on the basis that it was limited to one year and that
OPTA would not intervene in cable operators retail prices
as long as these do not increase by more than the CPI increase.
OPTA may, while monitoring the market, seek further powers to
regulate cable end-user pricing in the future. We have not yet
seen a final decision from OPTA as to the exact scope of
proposed obligations. This is expected in the first quarter of
2006.
As Switzerland is not a member of the European Union, it is not
obliged to follow European Union legislation. However, the
liberalization of the Swiss telecommunications market to a
certain extent has moved in parallel, although delayed, with
liberalization in the EU. The current regulatory framework
governing telecommunications services in Switzerland was
established on January 1, 1998, with the enactment of the
Telecommunications Act and a concurrent restatement of the Radio
and Television Act (RTVA). This new regulatory regime opened
both the telecommunications and cable television markets to
increased competition.
The RTVA regulates the operation, distribution and
redistribution, and receipt of radio and television programs. A
distributor who creates a program and aims to broadcast such
program requires a programming license. The redistribution of
programs requires a redistribution license. As in the EU,
must-carry rules require us to redistribute certain national and
regional television and radio programs, such as programs of the
Swiss Broadcasting Corporation. The RTVA is currently undergoing
a comprehensive restatement in order to keep current with
technological and market developments such as digitalization and
convergence and a new version is expected to enter into force in
2007. This could lead to material changes in the Swiss
regulatory regime.
The transmission of voice and data information through
telecommunications devices is regulated by the
Telecommunications Act. Such Act requires any operator that
provides telecommunications services and independently operates
a significant portion of a network to obtain a license. Dominant
telecommunications service providers must provide
interconnection to other providers on a non-discriminatory basis
and in accordance with a transparent and cost-based pricing
policy, stating the conditions and prices separately for each
interconnection service. We have not been found to have a
dominant market position under the Telecommunications Act, but
cannot exclude the possibility that we might be in the future.
The Telecommunications Act is currently under review aiming to
strengthen competition in the telecommunication markets and to
increase transparency for customers. If implemented as currently
discussed in the Swiss Parliament, such new legislation would
replace the licensing system by a system of notification and
introduce unbundling of the local loop for telephony and data
services. Any form of unbundling, however, would be restricted
to the network of Swisscom AG (Swisscom), the incumbent
telecommunications operator. The new
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Telecommunications Act is expected to enter into force at the
earliest in 2006. This could lead to material changes in the
Swiss regulatory regime.
Under the Act on the Surveillance of Prices, the Swiss Price
Regulator has the power to prohibit price increases or to order
price reductions in the event a company with market power
implements prices that are deemed to be abusively high, unless
the Swiss Price Regulator and the company can come to a mutual
agreement. For purposes of the Swiss Price Regulation Act,
a price is considered to be abusively high if it is not the
result of effective competition. We are subject to price
regulation regarding our analog television offering and have
entered into a contract with the price regulator that determines
the retail prices for analog television services until the end
of 2006.
Under the Swiss Act on Cartels and other Restraints of
Competition, or Cartels Act, in preliminary proceedings we have
been obliged to provide access to our network to a content
provider in Switzerland that has exclusive rights to a
significant portion of the premium and sports content
distributed in Switzerland. Although the injunction has been
lifted by the Federal Court, the main proceedings are pending
and we may be forced to continue allowing this third party
content provider to provide its service over our network through
its own conditional access platform.
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.
I-30
The MIC may revoke a facility license if the license holder
breaches the terms of its license; fails to comply with
technical standards set forth in, or otherwise fails to meet the
requirements of, the Cable Television Broadcast Law; or fails to
implement a MIC improvement order relating to its cable
television 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, which 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 Nippon
Telephone & Telegraph (NTT)), may set interconnection
tariffs and terms and conditions through independent
negotiations without MIC approval.
Telecommunication carriers that own their telecommunication
circuit facilities are required to maintain such facilities in
conformity with specified technical standards. The MIC may order
a carrier that fails to meet such standards to improve or repair
its telecommunication facilities.
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. 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
I-31
application. VTR has cable permits in most major and medium
sized markets in Chile. Cross ownership between cable
television, Internet access and telephony is also permitted.
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 and
unbundling tariffs for several other operators (including our
local telephony company). 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.
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. The percentage information for Europe Broadband on
market share is based on information published by Screen Digest
and Dataxis for the third quarter of 2005. For Japan, all
percentage information on market share is based on information
obtained from the website of the Japanese Ministry of Internal
Affairs and Communications. For Chile, the percentage
information is based on internal market studies, information
obtained from public filings by competitors and market
information published by the International Data Corporation.
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 terrestrial
television, or DTT, 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 optic lines of FTTH 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 Poland and Romania, our businesses face significant
competition from other cable operators where our systems are
over built, while in other countries the primary competition is
from DTH satellite service providers, DTT 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. We seek to compete
by offering attractive content as well as expanding our new
services, such as digital television, VOD, high-definition
television, and personal video recorders.
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Europe. The competitive situation in Europe tends to vary
from country to country, which is partly reflective of the
respective countrys history. For example in some
countries, such as Belgium, Switzerland and The Netherlands,
there has long been high cable penetration and in Austria and
France there are long-established satellite platforms.
Nevertheless, broad competitive trends can be seen in many of
the European countries in which we operate. |
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For video services the key competition has traditionally come
either from over the air broadcasts or from satellite
distribution. In other countries competition from SMATV or MMDS
can be a factor. DTT is increasingly a competitive reality in
Europe via a range of different business models from full-blown
encrypted pay television offers on DTT to
free-to-air. DTT is a
growing service in most countries and further launches are
expected. |
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Also, television over DSL networks is either provided directly
by the owner of that network or by a third party and is fast
becoming a significant part of the competitive environment. The
ability of incumbent operators to now offer the so-called
Triple Play of video, Internet and telephony
services is expected to exert growing competitive pressure on
cable-delivered video services. FTTH networks are, so far, rare
in Europe although they are present or planned in a number of
countries. In addition, there is increasing willingness from
government and quasi-government entities in Europe to consider
investing their money in such networks which would create a new
source of competition. |
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Austria. In Austria we are the largest cable company
based on number of video cable subscribers. Our primary
competition for video services is from
free-to-air television
received via satellite and from digital DTH platforms.
Approximately 50% of Austrian households receive free television
compared to approximately 37% of Austrian households served by
cable services. Within the footprint covered by
Broadband-Austria, 52% of the homes passed subscribe to our
cable services (analog and digital). Broadband-Austria may face
increased competition in the future from developing
technologies. An incumbent telecommunications operator, Telekom
Austria AG (Telekom Austria), has recently launched television
via a broadband internet connection, or IPTV, and
the public broadcaster, ORF, has announced it will launch DTT
services in early 2006. |
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France. France is one of the most competitive markets in
which we operate, with multiple video distribution platforms,
including cable, satellite, ADSL, DTT and, more recently, mobile
telephony. The penetration of pay television services is
significantly lower in France than other European countries.
Within the footprint of Broadband-France, 33% of the homes
passed subscribe to our cable services (digital and analog).
This represents slightly less than 6% of the total market,
compared to a slightly higher percentage for NC Numericable SA
(the largest cable operator). Broadband-France also competes
with DTH satellite service and IPTV operators. Satellite
television penetration is approximately 17% of the total market
and the two largest operators, CanalSat S.A. and TPS (television
par satellite), have announced an agreement to merge. According
to New Television Insider (February 21, 2006), the
combined subscriber base of the two platforms would be
approximately 3.7 million. Subscriptions for IPTV services
offered by five providers, including the incumbent
telecommunications operator, are expected to grow as these
operators can offer bundled services. To maintain and improve
its market share, Broadband-France offers attractive digital
programming packages. |
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Hungary. In Hungary, we are the largest cable service
provider based on number of video cable subscribers. Of the
Hungarian households receiving cable television,
36% subscribe to our service. In addition,
Broadband-Hungary provides satellite service to 4% of the
Hungarian households. Broadband-Hungary faces competition from
Antenna Hungaria Rt., a digital MMDS provider (recently
purchased by Swisscom), and from the incumbent telecommunication
company Magyar Telekom Rt. (in which Deutshe Telekom purchased a
majority stake), which has announced plans to offer a DSL-IPTV
service later this year and is currently offering a VOD service
to Internet subscribers of its ISP subsidiary. |
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Netherlands. The Netherlands has one of the highest cable
penetration rates in Europe with 94% of all households having a
cable service. Broadband-Netherlands services 37% of the total
video households. |
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Satellite television penetration is 8% of the total video
households. In addition to satellite television, we face
competition from the DTT service, Digitenne, and from IPTV
products. |
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KPN, the incumbent telecommunications operator, provides a
wireless digital television product and has announced the launch
of its IPTV service in the second quarter of 2006, which would
include VOD, an electronic program guide and a personal video
recorder. With its nationwide telecommunications network and
ability to offer bundled triple play services, KPN is expected
to be a significant competitor. |
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Switzerland. Currently, we are the largest cable
television provider in Switzerland based on number of video
cable subscribers and are the sole provider in substantially all
of our network area. There is limited terrestrial television in
Switzerland and DTT is at present only available in parts of
Switzerland. DTH satellite services are also limited due to
various legal restrictions such as construction and zoning
regulations or rental agreements that prohibit or impede
installation of satellite dishes. Given technical improvements,
such as the availability of smaller satellite antennae, as well
as the continuous improvements of DTH offerings, we expect
increased competition from satellite television operators.
Swisscom, the incumbent telecommunications operator, has
announced plans to launch IPTV in 2006. In 2005, Swisscom
acquired a controlling interest in Cinetrade Group which, among
other things, packages and distributes premium pay television
content through its subsidiary, Teleclub AG, including sports
and movies for which it holds exclusive rights. Swisscom has
also launched a wholesale digital television service for cable
network operators, including set top boxes and exclusive
content, and we expect Swisscom to seek to establish
relationships with other cable network operators in Switzerland,
including our partner networks, by offering this service. |
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Japan. Our principal competition in our Japanese cable
television business comes from alternative distributors of
television signals, including DTH satellite television providers
and DTT, as well as from other distributors of video programming
using broadband networks. Our current competitors in the
satellite television industry include Japan Broadcasting
Corporation and WOWOW Inc., which offer broadcast satellite
analog and broadcast satellite digital television, and
SkyPerfecTV for communications satellite digital television. An
amendment to the Law Concerning Broadcast on Telecommunications
Service, which became effective in January 2002, has given
broadcast companies, which do not have their own facilities, the
ability to provide broadcasting services over lines owned by
other telecommunications companies. As a result, our Japanese
operations face increasing competition from video services
offered by broadband providers, established fixed-line
telecommunications providers, including NTT and KDDI Corporation
(KDDI), and other FTTH-based video service providers, including
Opticast, Inc. and K-Opticom Corporation. Other cable television
companies are not considered significant competitors in Japan
due to the fact that their franchise areas rarely overlap with
ours, and the investments required to install new cable would
not be justified considering the competition in overlapping
franchise areas. As of December 31, 2005, J:COMs
share of the multi-channel video market in Japan was 7%. |
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The Americas. In Chile, VTR competes primarily with DTH
satellite service providers in Chile. As of December 31,
2005, VTRs share of the video market in Chile was 87%,
compared to 7% for DTH satellite service providers and 6% for
all others. VTR may face competition in the future from video
services offered by or over the networks of fixed-line
telecommunications operators using DSL or ADSL technology or
FTTH networks or new DTH carriers which might enter into the
market. For example, CTC has announced plans to launch IPTV in
2006. To effectively compete, VTR plans to test its digital
platform in additional neighborhoods in 2006. |
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 (ISPs),
non-cable-based ISPs and Internet portals, many of which have
substantial resources. The Internet services offered by these
competitors include both traditional
dial-up Internet
services
I-34
and high-speed Internet access services using DSL, ADSL or FTTH,
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. As the technology
develops, competition from wireless services using WiMax and
other technologies may become significant in the future. We seek
to compete on speed and price, including by increasing the
maximum speed of our connections and offering varying tiers of
service and varying prices, as well as a bundled product
offering.
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Europe. Across Europe, our key competition in this
product market is from the offering of Internet access products
using various DSL based technologies both by the incumbent phone
companies and third parties. In some countries, third party ISPs
now offer services with speeds up to 20 Mbps (enabled by
local loop unbundling and improved ADSL technologies (ADSL2+)).
These services are priced very competitively and have allowed
these ISPs to gain market share. It is expected that the same
will occur in other markets as local loop unbundling fees are
lowered. The relative lack of FTTH networks at present means
that these have, so far, posed a competitive threat in only
limited areas. Equally, broadband wireless services are not yet
well established. However, increased competitive pressure from
both these directions is likely. |
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Broadband-Austrias largest competitor with respect to
Internet access services is an incumbent telecommunications
company, Telkom Austria. Telkom Austria provides services via
DSL. In addition, Broadband-Austria faces competition from
unbundled local loop access by operators who can offer Internet
services for lower costs. To compete, Broadband-Austria is
offering its triple play option at a discount for subscribers
who switch from another provider. |
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In France, our largest competitors are the DSL operators, with
the incumbent telecommunications companies serving 65% of the
market, followed by DSL operators with access to the unbundled
local loop. As a result, cable operators, including
Broadband-France, have only a 6% market share of the total
broadband Internet subscribers. Broadband-France has 51% of
cable broadband subscriptions. |
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In Hungary, the Internet market is growing rapidly. Our primary
competitor is the incumbent telecommunications company Magyar
Telekom. Currently, Broadband-Hungary provides Internet services
to 21% of the total broadband Internet market. |
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In The Netherlands, we face competition from KPN, the largest
provider, and unbundled local loop providers. Currently,
Broadband-Netherlands provides Internet services to 12% of the
total broadband Internet market. |
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In Switzerland, Swisscom is the largest provider of Internet
access services, with an estimated market share of two-thirds of
all broadband Internet customers. Broadband-Switzerland serves
20% of all residential broadband Internet customers and 55% of
such customers in its network coverage area. As fully unbundled,
shared or bitstream access to Swisscoms network has not
yet been implemented in Switzerland, alternative DSL services
providers are currently reliant on Swisscoms wholesale
offering or are required to construct their own access network
to provide Internet access services. |
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Japan. In Japan, we compete directly with ADSL providers,
such as Softbank Corporation, that offer broadband access to
subscribers. ADSL providers often offer their Internet access
services at a cost lower than ours. We also compete with FTTH
providers that offer broadband Internet access through
fiber-optic lines. FTTH-based players, including NTT, Usen
Corporation, Tokyo Electric Power Company Incorporated, KDDI and
K-Opticom Corporation, currently offer Internet access services
through FTTH. Internet access using FTTH technology has become
more widely available, and pricing for these services has
declined. If continued technological advances or investments by
our competitors further improve the services offered through
ADSL or FTTH, or make them more affordable or more widely
available, cable modem Internet access may become less
attractive to our existing or potential subscribers. As of
December 31, 2005, J:COMs share of the high-speed
(128 kbps and greater) Internet access market in Japan was 4%. |
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The Americas. In Chile, VTR faces competition primarily
from non-cable-based Internet service providers such as
Telefónica S.A and Entel S.A. VTR expects increased pricing
pressure as these |
I-35
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companies bundle their Internet access service with other
services. As of December 31, 2005, VTRs share of the
high-speed (128 kbps and greater) Internet access market in
Chile was 43%, compared to 38% for Telefónica and 19% for
all others. |
With respect to telephony services, our businesses face
competition from the incumbent telecommunications operator in
each country. These operators have substantially more experience
in providing telephony services, greater resources to devote to
the provision of telephony services and longstanding customer
relationships. In many countries, our businesses also face
competition from other cable telephony providers, wireless
telephony providers, FTTH-based providers or other indirect
access providers. Competition in both the residential and
business telephony markets will increase with certain market
trends and regulatory changes, such as general price
competition, the introduction of carrier pre-selection, number
portability, continued deregulation of telephony markets, the
replacement of fixed-line with mobile telephony, and the growth
of VoIP services. As a result, we seek to compete on pricing as
well as product innovation, such as personal call manager and
unified messaging, and increasing the services we offer.
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Europe. Across Europe our telephony businesses are
generally rather small compared to the existing business of the
incumbent phone company. The incumbent telephone companies
remain our key competitor but mobile operators and new entrant
VoIP operators offering service across broadband lines are also
important in these markets. Generally, we expect telephony
markets to remain extremely competitive. |
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In Austria and in Hungary, the incumbent telephone companies
dominate the telephony market. Most of the competition to the
incumbent telephone operators in these countries is from
entities that provide carrier pre- select services. Carrier
pre-select allows the end user to choose the voice services of
operators other than the incumbent while using the
incumbents network. We also compete with ISPs that offer
VoIP services. In Austria, we serve our subscribers via our time
division multiplex telephony platform and in Hungary via our
copper wire telephony network and via VoIP over our cable plant.
In France, in addition to the incumbent telephone company France
Telecom S.A.s dominance of the telephony market, the
national unbundling of the local loop has allowed ISPs to
provide VoIP services at competitive prices. To effectively
compete in France, Broadband-France has been offering telephony
services via VoIP since mid 2005. |
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In The Netherlands, KPN is the dominant telephony provider, but
all of the large MSOs, including Broadband-Netherlands, as well
as ISPs, are now offering VoIP services and gaining market
share. In Switzerland, we are the largest VoIP service provider,
but Swisscom is the dominant fixed telephony service provider
followed by two carriers that offer pre-select services. In the
future we may face increased competition as the unbundling of
the local loop is implemented. |
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In addition to our fixed line telephony service, we offer mobile
telephony in Austria, The Netherlands and Switzerland. In
Austria, we offer a bundle of fixed line and mobile telephony in
a co-branding arrangement with the telephony operator One GmbH.
In August 2005, we began offering a prepaid mobile service in
The Netherlands via the Orange network owned by France Telecom
SA. Recently we began offering mobile telephony services in
Switzerland under the Cablecom brand for business and
residential customers. |
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Japan. In Japan, our principal competition in our
telephony business comes from NTT and KDDI. We also face
increasing competition from new common carriers in the telephony
market, as well as ISPs, such as Softbank Corporation, and
FTTH-based providers, including K-Opticom Corporation. Further,
in December 2004, Japan Telecom Co. Ltd., and in February 2005,
KDDI, introduced low-cost fixed-line telephony services. Many of
these carriers offer VoIP, and call volume over fixed line
services has generally declined as VoIP and mobile phone usage
have increased. If competition in the fixed-line telephony
market continues to intensify, we may lose existing or potential
subscribers to our competitors. As of December 31, 2005,
J:COMs share of the fixed-line telephone market in Japan
was |
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2%. J:COM also intends to offer a mobile telephony service in a
co-branding arrangement in 2006 with WILLCOM, Inc. |
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The Americas. In Chile, VTR faces competition from the
incumbent telecommunications operator, CTC, and other
telecommunications operators such as Telsur, GTD Chile S.A. and
Entel S.A. CTC and Telsur operators have substantial experience
in providing telephony services, resources to devote to the
provision of telephony services and longstanding customer
relationships. VTR is also facing stiff competition from
wireless telephony providers such as Telefónica
Móviles S.A., Smartcom PCS and Entel PCS Telecomunicaciones
S.A. and indirect access providers. Competition in both the
residential and business telephony markets is expected to
increase over time with certain market trends and regulatory
changes, such as general price competition, number portability,
the replacement of fixed-line with mobile telephony, and the
growth of VoIP services. VTR offers its telephony over its cable
network or via VoIP. As of December 31, 2005, VTRs
share of the fixed-line telephony market in Chile was 12%,
compared to 73% for CTC and 15% for all others. |
The business of providing programming for cable and satellite
television distribution is highly competitive. Our programming
businesses directly compete with other programmers for
distribution on a limited number of channels. Once distribution
is obtained, these programming services compete, to varying
degrees, for viewers and advertisers with other cable and over
the air broadcast television programming services as well as
with other entertainment media, including home video (generally
video rentals), online activities, movies and other forms of
news, information and entertainment.
Employees
As of December 31, 2005, our consolidated subsidiaries and
we had an aggregate of approximately 21,600 employees, certain
of which belong to organized unions and works councils. We
believe that our employee relations are good.
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Financial Information About Geographic Areas |
Financial information related to the geographic areas in which
we do business appears in note 21 to our consolidated
financial statements included in Part II of this report.
All our filings with the Securities and Exchange Commission as
well as amendments to such filings are available on our Internet
website free of charge generally within 24 hours after we
file such material with the SEC. Our website address is
www.lgi.com. The information on our website is not
incorporated by reference herein.
I-37
PART II
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Item 7. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS |
The following discussion and analysis is intended to assist in
providing an understanding of our financial condition, changes
in financial condition and results of operations and should be
read in conjunction with our consolidated financial statements.
This discussion is organized as follows:
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Overview. This section provides a general description of
our business and recent events. |
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Results of Operations. This section provides an analysis
of our results of operations for the years ended
December 31, 2005, 2004 and 2003. |
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Liquidity and Capital Resources. This section provides an
analysis of our corporate and subsidiary liquidity, consolidated
cash flow statements, and our off balance sheet arrangements and
contractual commitments. |
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Critical Accounting Policies, Judgments and Estimates.
This section discusses those accounting policies that contain
uncertainties and require significant judgment in their
application. |
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Quantitative and Qualitative Disclosures about Market
Risk. This section provides discussion and analysis of the
foreign currency, interest rate and other market risks that our
company faces. |
Unless otherwise indicated, convenience translations into
U.S. dollars are calculated as of December 31, 2005.
Overview
We are an international broadband communications provider of
video, voice and Internet access services with consolidated
broadband operations in 19 countries (excluding Norway) outside
of the continental United States at December 31, 2005,
primarily in Europe, Japan and Chile. Through our indirect
wholly owned subsidiaries, UPC Holding and LG Switzerland
(collectively, Europe Broadband), we provide video, voice and
Internet access services in 13 European countries. LG
Switzerland holds our 100% ownership in Cablecom, a broadband
communications operator in Switzerland. Through our indirect
controlling ownership interest in J:COM, we provide video, voice
and Internet access services in Japan. Through our indirect
80%-owned subsidiary VTR, we provide video, voice and Internet
access services in Chile. We also have (i) consolidated
direct-to-home
satellite operations in Australia, (ii) consolidated
broadband communications operations in Puerto Rico, Brazil and
Peru, (iii) non-controlling interests in broadband
communications companies in Europe and Japan,
(iv) consolidated interests in certain programming
businesses in Europe and Argentina, and (v) non-controlling
interests in certain programming businesses in Europe, Japan,
Australia and the Americas. Our consolidated programming
interests in Europe are primarily held through chellomedia,
which also provides telecommunication and interactive digital
services and owns or manages investments in various businesses
in Europe. Certain of chellomedias subsidiaries and
affiliates provide programming and other services to Europe
Broadband.
As a result of the June 15, 2005 consummation of the LGI
Combination, our ownership interest in UGC, the ultimate parent
of UPC Holding and VTR prior to the LGI Combination, increased
from 53.4% to 100%. However, in connection with VTRs
April 13, 2005 acquisition of a controlling interest in
Metrópolis, a broadband communications provider in Chile,
UGCs ownership interest in VTR decreased from 100% to 80%.
At December 31, 2005, we owned an indirect 36.75% interest
in J:COM through our 58.66% controlling interest in Super Media
and Super Medias 62.65% controlling interest in J:COM. We
began consolidating Super Media and J:COM on January 1,
2005. Prior to that date we used the equity method to account
for our investment in Super Media/ J:COM.
In addition to the LGI Combination and the consolidation of
Super Media/ J:COM, we have completed a number of acquisitions
during the past 18 months that have expanded our footprint
and the scope of our business. In Europe, we acquired
(i) Noos, a broadband communications provider in France, on
July 1, 2004, (ii) PHL, the immediate parent of
Chorus, a broadband communications provider in Ireland, on
May 20,
II-7
2004, (iii) Telemach, a broadband communications provider
in Slovenia, on February 10, 2005, (iv) a controlling
interest in Zone Vision, a video programming company in Europe,
on January 7, 2005, (v) Astral, a broadband
communications provider in Romania, on October 14, 2005,
and (vi) Cablecom, a broadband communications provider in
Switzerland on October 24, 2005. In another transaction in
Europe, UPC Ireland, through its contractual relationship with
MS Irish Cable and MSDW Equity, began consolidating NTL Ireland,
a broadband communications provider in Ireland, effective
May 9, 2005, and on December 12, 2005, UPC Ireland
acquired a 100% interest in NTL Ireland through its acquisition
of MS Irish Cable from MSDW Equity. In the following discussion
and analysis of our results of operations, we collectively refer
to the May 9, 2005 consolidation, and the December 12,
2005 acquisition of NTL Ireland as the acquisition
of NTL Ireland, with such acquisition considered to be effective
as of May 1, 2005 for purposes of comparing our 2005 and
2004 operating results. In Japan, J:COM acquired an approximate
92% ownership interest in Chofu Cable on February 25, 2005
and a 100% interest in J:COM Setamachi on September 30,
2005. Chofu Cable and J:COM Setamachi are broadband
communications providers in Japan. As noted above, VTR acquired
a controlling interest in Metrópolis on April 13,
2005. In addition, on December 14, 2005 we completed a
transaction that increased our indirect ownership of Austar from
a 36.7% non-controlling ownership interest to a 55.2%
controlling interest. Prior to this transaction, we accounted
for our investment in Austar using the equity method of
accounting. We have also completed a number of less significant
acquisitions in Europe and Japan.
For additional information concerning our closed acquisitions,
see note 5 to our consolidated financial statements.
As further discussed in note 5 to our consolidated
financial statements, our consolidated financial statements have
been reclassified to present our broadband operations in Norway
as discontinued operations. Accordingly, in the following
discussion and analysis, the operating statistics, results of
operations and financial condition that we present and discuss
are those of our continuing operations.
In general, we are seeking to build a portfolio of broadband and
video programming businesses that have strong prospects for
future revenue and operating cash flow (as defined below and in
note 21 to our consolidated financial statements) growth.
Therefore, we seek to acquire entities that have strong growth
potential at prudent prices and sell businesses that we believe
do not meet this profile. In this regard, we began an auction
process in the fourth quarter of 2005 with respect to our
Scandinavian assets which led to the sale of UPC Norway in
January 2006 and we continue to evaluate a possible sale of our
broadband operating segment in Sweden. We also seek to maintain
our debt at levels that provide for attractive equity returns
without assuming undue risk.
Through our subsidiaries and affiliates, we are the largest
broadband communications operator outside the United States in
terms of subscribers. At December 31, 2005, our
consolidated subsidiaries owned and operated networks that
passed approximately 29.9 million homes and served
approximately 19.2 million revenue generating units (RGUs),
consisting of approximately 13.8 million video subscribers,
3.2 million broadband Internet subscribers and
2.2 million telephony subscribers.
In general, we are focused on growing our subscriber base and
average total monthly revenue from all sources (including
non-subscription revenue such as installation fees or
advertising revenue) per average RGU (ARPU) by launching
bundled entertainment, information and communications services,
upgrading the quality of our networks where appropriate,
leveraging the reach of our broadband distribution systems to
create new content opportunities and entering into strategic
alliances and acquisitions in order to increase our distribution
presence and maximize operating efficiencies.
Including the effects of acquisitions, we added a total of
5.7 million RGUs during 2005. Excluding the effects of
acquisitions, we added total RGUs of 1.3 million during
2005, including RGUs added by entities that we acquired or began
consolidating during 2005 after their respective acquisition or
consolidation dates. Most of our internal RGU growth is
attributable to the growth of our Internet access and digital
telephony services, as significant increases in digital video
RGUs were largely offset by declines in analog video RGUs. In
addition to RGU growth, we also focus on increasing the average
revenue we receive from each household by increasing the
penetration of new services through product bundling or other
means. We plan to continue increasing
II-8
revenue and operating cash flow in 2006 by making acquisitions,
selectively extending and upgrading our existing networks to
reach new customers, and migrating more customers to our digital
video offerings, which include premium programming and enhanced
pay-per-view services.
Our analog video service offerings include basic programming and
expanded basic programming in some markets. We tailor both our
basic channel line-up
and our additional channel offerings to each system according to
culture, demographics, programming preferences and local
regulation. Our digital video service offerings include basic
programming, premium services and pay-per-view programming,
including near
video-on-demand
(NVOD) and video on demand (VOD) in some markets. We
offer broadband Internet access services in all of our broadband
markets. Our residential subscribers can access the Internet via
cable modems connected to their personal computers at faster
speeds than that of conventional
dial-up modems. We
determine pricing for each different tier of Internet access
service through analysis of speed, data limits, market
conditions and other factors.
We offer telephony services in eight countries in Europe, and in
Japan, Chile and Puerto Rico, primarily over our broadband
networks. We also have begun offering digital telephony services
in The Netherlands, Switzerland, France, Austria, Hungary,
Poland, Romania, Japan, Chile and Puerto Rico through Voice over
Internet Protocol (VoIP), and in 2006, we plan to launch VoIP
telephony services in most of our remaining broadband markets in
Europe.
From an operational perspective, we expect that our ability to
maintain or improve our organic growth rates (i.e., growth rates
excluding the effects of foreign currency exchange rate
fluctuations and acquisitions) for revenue and operating cash
flow will be impacted primarily by our ability to continue to
achieve organic RGU growth during 2006. In general, we expect
that RGU growth in our digital video, telephony and broadband
Internet services will more than offset declines in subscribers
to our analog video services. In Europe, the positive impact of
organic RGU growth during 2006 is expected to be somewhat offset
by relatively flat, and in some cases, lower prices charged for
Europe Broadbands existing services as a result of
competitive and, to a lesser extent, regulatory factors. Our
ability to maintain our organic growth rates for revenue in
Europe will also be impacted by Europe Broadbands ability
to migrate customers from analog to digital video services in
The Netherlands and successfully grow VoIP telephony services by
increasing penetration in markets already launched or launching
this product in new markets. Europe Broadbands operating
and SG&A costs are expected to increase on an organic basis
in 2006 as a result of higher network operations, customer care
and customer acquisitions costs associated primarily with
organic RGU growth and the migration of analog video subscribers
to digital video services in The Netherlands. In both Japan and
Chile, we expect to rely primarily on continued RGU growth to
maintain or improve our organic growth rates for revenue and
operating cash flow in 2006 as we expect prices charged for all
broadband services offered by J:COM and VTR to remain relatively
flat. No assurance can be given that our expectations with
respect to the factors that will influence our 2006 organic
growth rates will not vary from actual results.
The video, telephony and Internet access businesses in which we
operate are capital intensive. Significant capital expenditures
are required to add customers to our networks, including
expenditures for equipment and labor costs. As video, telephony
and Internet access technology changes and competition
increases, we may need to increase our capital expenditures to
further upgrade our systems to remain competitive in markets
that might be impacted by the introduction of new technology. No
assurance can be given that any such future upgrades could be
expected to generate a positive return or that we would have
adequate capital available to finance such future upgrades. If
we are unable to, or elect not to, pay for costs associated with
adding new customers, expanding or upgrading our networks or
making our other planned or unplanned capital expenditures, our
growth could be limited and our competitive position could be
harmed.
Results of Operations
Due in large part to the January 1, 2005 change from the
equity method to the consolidation method of accounting for our
investment in Super Media/ J:COM, our historical revenue and
expenses for 2005 are not comparable to the corresponding 2004
amounts. Additionally, 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
II-9
and expenses for 2004 are not comparable to the corresponding
2003 amounts. Accordingly, in addition to the Discussion and
Analysis of our Historical Operating Results, we have also
included an analysis of our operating results based on the
approach we use to analyze our reportable segments. As further
described below, we believe that the Discussion and Analysis
of our Reportable Segments that appears below provides a
more meaningful basis for comparing our revenue, operating
expenses and SG&A expenses than does our historical
discussion. The Discussion and Analysis of our Historical
Operating Results immediately follows the Discussion and
Analysis of our Reportable Segments.
The comparability of our operating results during 2005, 2004 and
2003 are also affected by acquisitions, including our
acquisitions of Noos and Chorus during 2004, our acquisitions of
Cablecom, NTL Ireland, Astral, Telemach, Zone Vision, and
Metrópolis, and J:COMs acquisitions of Chofu Cable
and J:COM Setamachi, during 2005. As we have consolidated UGC
since January 1, 2004, the primary effect of the LGI
Combination for periods following the June 15, 2005
transaction date has been an increase in depreciation and
amortization expense as a result of the application of purchase
accounting. In the following discussion, we quantify the impact
of acquisitions on our results of operations. The acquisition
impact is calculated as the difference between current and prior
year amounts that is attributable to the timing of an
acquisition.
Changes in foreign currency exchange rates have a significant
impact on our operating results as all of our operating
segments, except for Puerto Rico, have functional currencies
other than the U.S. dollar. Our primary exposure is
currently to the euro and Japanese yen. In this regard, 40% and
32% of our U.S. dollar revenue during 2005 was derived from
subsidiaries whose functional currency is the euro and Japanese
yen, respectively. In addition, our operating results are
impacted by changes in the exchange rates for the Swiss franc,
Chilean peso, Hungarian forint and other local currencies in
Europe.
At December 31, 2005, we owned an 80% interest in VTR and,
through our interest in Super Media, an indirect 36.75% interest
in J:COM. However, as we control both VTR and Super Media/
J:COM, GAAP requires that we consolidate 100% of the revenue and
expenses of these entities in our consolidated statements of
operations. The minority owners interests in the operating
results of VTR, J:COM and other less significant majority owned
subsidiaries are reflected in minority interests in losses
(earnings) of subsidiaries, net in our consolidated
statements of operations. For additional information, see
note 5 to our consolidated financial statements. It should
be noted that our ability to consolidate J:COM is dependent on
our ability to continue to control Super Media, which will be
dissolved in February 2010 unless we and Sumitomo mutually agree
to extend the term. If Super Media is dissolved and we do not
otherwise control J:COM at the time of any such dissolution, we
will no longer be in a position to consolidate J:COM. When
reviewing and analyzing our operating results, it is important
to keep in mind that other third party entities own significant
interests in J:COM and VTR and that Sumitomo effectively has the
ability to prevent our company from consolidating J:COM after
February 2010.
Discussion
and Analysis of our Reportable Segments
For purposes of evaluating the performance of our reportable
segments, we compare and analyze 100% of the revenue and
operating cash flow of our reportable 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 our investment in (i) UGC during 2003
and (ii) J:COM during 2004 and 2003. The revenue, operating
expenses, SG&A expenses and operating cash flow of UGC for
2003 and J:COM for 2004 and 2003 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
equity method investments are required to be reported on a net
basis. Further, we could not, among other things, cause any
non-controlled affiliate to distribute to us our proportionate
share of the revenue or operating cash flow of such affiliate.
Additionally, our reportable segments have been reclassified for
all periods to present our broadband operations in Norway as
discontinued operations.
All of the reportable segments set forth below provide broadband
communications services, including video, voice and Internet
services. The Europe Broadband operating segments provided
services in 13 European
II-10
countries at December 31, 2005. Other Western Europe
includes our operating segments in Ireland, Sweden and Belgium.
Other Central and Eastern Europe includes our operating segments
in Poland, Czech Republic, Slovak Republic, Romania and
Slovenia. VTR provides video, voice and Internet access services
in Chile. J:COM provides video, voice and Internet access
services in Japan. Our corporate and other category includes
(i) certain less significant operating segments that
provide DTH satellite services in Australia, and video
programming and other services in Europe and Argentina,
broadband communication services in Puerto Rico, Brazil and
Peru, and (ii) our corporate segment. Intersegment
eliminations primarily represents the elimination of
intercompany transactions between Europe Broadband and
chellomedia.
For additional information concerning our reportable segments,
including a discussion of our performance measures and a
reconciliation of total segment operating cash flow to our
consolidated earnings (loss) before income taxes, minority
interests and discontinued operations, see note 21 to our
consolidated financial statements.
The tables presented below in this section provide a separate
analysis of each of the line items that comprise operating cash
flow (revenue, operating expenses and SG&A expenses) as well
as an analysis of operating cash flow by reportable segment for
2005, as compared to 2004, and 2004, as compared to 2003. In
each case, the tables present (i) the amounts reported by
each of our reportable segments for the comparative periods,
(ii) the U.S. dollar change and percentage change from
period to period, (iii) the percentage change from period
to period, after removing foreign currency effects (FX), and
(iv) the percentage change from period to period, after
removing FX and the effects of acquisitions. The comparisons
that exclude FX assume that exchange rates remained constant
during the periods that are included in each table. As discussed
under Quantitative and Qualitative Disclosures about Market
Risk below, we have significant exposure to movements in
foreign currency rates.
As discussed above, acquisitions have significantly affected the
comparability of the results of operations of our reportable
segments. For additional information, see the discussion under
Overview above and note 5 to our consolidated
financial statements.
II-11
|
|
|
Revenue of our Reportable Segments |
|
|
|
Revenue Years ended December 31, 2005 and
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) | |
|
|
|
|
|
|
|
|
|
|
excluding | |
|
|
|
|
|
|
| |
|
|
Year Ended December 31, | |
|
Increase (decrease) | |
|
|
|
FX and | |
|
|
| |
|
| |
|
|
|
acquisitions | |
|
|
2005 | |
|
2004 | |
|
$ | |
|
% | |
|
FX % | |
|
% | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
amounts in thousands, except % amounts | |
Europe (Europe Broadband)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$ |
780,934 |
|
|
$ |
730,483 |
|
|
$ |
50,451 |
|
|
|
6.9 |
|
|
|
6.9 |
|
|
|
6.9 |
|
|
Switzerland
|
|
|
122,078 |
|
|
|
|
|
|
|
122,078 |
|
|
|
N.M. |
|
|
|
N.M. |
|
|
|
|
|
|
France
|
|
|
513,762 |
|
|
|
312,948 |
|
|
|
200,814 |
|
|
|
64.2 |
|
|
|
64.2 |
|
|
|
6.5 |
|
|
Austria
|
|
|
322,196 |
|
|
|
306,479 |
|
|
|
15,717 |
|
|
|
5.1 |
|
|
|
5.0 |
|
|
|
5.0 |
|
|
Other Western Europe
|
|
|
321,377 |
|
|
|
174,389 |
|
|
|
146,988 |
|
|
|
84.3 |
|
|
|
85.1 |
|
|
|
7.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
2,060,347 |
|
|
|
1,524,299 |
|
|
|
536,048 |
|
|
|
35.2 |
|
|
|
35.2 |
|
|
|
6.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
281,707 |
|
|
|
217,429 |
|
|
|
64,278 |
|
|
|
29.6 |
|
|
|
27.7 |
|
|
|
27.7 |
|
|
Other Central and Eastern Europe
|
|
|
370,560 |
|
|
|
252,064 |
|
|
|
118,496 |
|
|
|
47.0 |
|
|
|
35.6 |
|
|
|
13.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
652,267 |
|
|
|
469,493 |
|
|
|
182,774 |
|
|
|
38.9 |
|
|
|
31.9 |
|
|
|
20.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Europe (Europe Broadband)
|
|
|
2,712,614 |
|
|
|
1,993,792 |
|
|
|
718,822 |
|
|
|
36.1 |
|
|
|
34.5 |
|
|
|
9.7 |
|
Japan (J:COM)
|
|
|
1,662,105 |
|
|
|
1,504,709 |
|
|
|
157,396 |
|
|
|
10.5 |
|
|
|
13.5 |
|
|
|
11.0 |
|
Chile (VTR)
|
|
|
444,161 |
|
|
|
299,951 |
|
|
|
144,210 |
|
|
|
48.1 |
|
|
|
35.6 |
|
|
|
17.6 |
|
Corporate and other
|
|
|
407,564 |
|
|
|
285,507 |
|
|
|
122,057 |
|
|
|
42.8 |
|
|
|
43.2 |
|
|
|
20.7 |
|
Intersegment eliminations
|
|
|
(75,112 |
) |
|
|
(47,361 |
) |
|
|
(27,751 |
) |
|
|
(58.6 |
) |
|
|
(58.9 |
) |
|
|
(58.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total LGI before elimination of equity affiliates
|
|
|
5,151,332 |
|
|
|
4,036,598 |
|
|
|
1,114,734 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Elimination of equity affiliate (J:COM)
|
|
|
|
|
|
|
(1,504,709 |
) |
|
|
1,504,709 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated LGI
|
|
$ |
5,151,332 |
|
|
$ |
2,531,889 |
|
|
$ |
2,619,443 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N.M. Not Meaningful
The Netherlands. The Netherlands revenue increased
6.9% during 2005, as compared to 2004, on both a
U.S. dollar and local currency basis. The majority of the
local currency increase during 2005 is attributable to higher
average RGUs, as increases in broadband Internet and telephony
RGUs were only partially offset by declines in video RGUs.
Higher ARPU also contributed to the local currency increase
during 2005. The increase in ARPU reflects the net effect of the
positive impact of rate increases in January 2005 for video
services and the negative impact of decreases in ARPU from
broadband Internet services due to competitive factors and an
increase in the proportion of broadband Internet customers
selecting lower priced tiers. The decrease in broadband Internet
ARPU, which was only partially offset by an increase in
broadband Internet RGUs, resulted in a 2.6% decrease in The
Netherlands revenue from broadband Internet services
during 2005, as compared to 2004. We believe that the
competitive factors that gave rise to the decline in The
Netherlands broadband Internet revenue during 2005 will
continue to impact our ability to increase broadband Internet
revenue in The Netherlands during 2006.
In October 2005, we initiated a program to migrate substantially
all of our analog video subscribers to digital video services in
The Netherlands by providing digital set-top boxes to analog
video subscribers at no charge and discounting the digital video
services for a limited period of time following subscriber
acceptance of the digital set-top box. To the extent that
digital video subscribers are retained after the promotional
pricing period has elapsed, we will experience an increase in
ARPU derived from video services in The Netherlands. No
assurance can be given as to the percentage of new digital video
subscribers that will be retained after the
II-12
promotional period has elapsed, and accordingly, as to the
impact of this program on our future operating results.
Certain rate increases implemented by UPC NL in The Netherlands
had been under investigation by NMA, the Dutch competition
authority. On September 28, 2005, the NMA informed UPC NL
that it had closed its investigation with respect to the price
increases for our analog video services in 2003-2005. The NMA
concluded that our price increases were not excessive and
therefore UPC NL did not abuse what NMA views as our dominant
position in the analog video services market. The incumbent
telecommunications operator in The Netherlands has filed an
appeal of the NMA decision. UPC NL believes the appeal is
inadmissible. The NMA is expected to make a decision during the
first quarter of 2006. In another matter, OPTA, the Dutch
national regulatory agency, had proposed imposing retail price
regulation on a cost oriented basis for UPC NLs analog
cable television offerings and requiring the unbundling of
analog video services from other services. Following
consultation with the European Commission, OPTAs proposal
was approved on the basis that it would be limited to a period
of one year and that OPTA will only intervene if price increases
exceed the CPI increase. After 2006, OPTA may again seek
approval from the European Commission to maintain or expand its
regulatory powers in this retail market. Adverse outcomes from
future regulatory initiatives by OPTA could have a significant
negative impact on UPC NLs ability to maintain or increase
its revenue in The Netherlands. For additional information, see
note 20 to our consolidated financial statements.
France. Frances revenue increased $200,814,000
during 2005, as compared to 2004. The effect of the July 1,
2004 Noos acquisition accounted for $180,734,000 of the 2005
increase. Excluding the increase associated with the Noos
acquisition and foreign exchange rate fluctuations,
Frances revenue increased $20,198,000 or 6.5% during 2005,
as compared to 2004. The majority of the local currency increase
is attributable to increases in the average number of broadband
Internet, telephony and digital video RGUs during 2005. Higher
ARPU resulting primarily from growth in Frances digital
video and broadband Internet services also contributed to the
increase.
Austria. Austrias revenue increased 5.1% during
2005, as compared to 2004. Excluding the effects of foreign
exchange rate fluctuations, Austrias revenue increased
$15,324,000 or 5.0%. This increase is primarily attributable to
increases in the average number of broadband Internet RGUs
during 2005. A slight increase in ARPU also contributed to the
increase during 2005. The increase in ARPU reflects the net
effect of (i) higher ARPU associated with rate increases in
January 2005 for analog video services, (ii) lower ARPU
from broadband Internet services reflecting competitive factors
and an increase in the proportion of subscribers selecting lower
tiered products and (iii) a decrease in ARPU from digital
video services, due primarily to increased competition.
Other Western Europe. Other Western Europes revenue
increased $146,988,000 during 2005, as compared to 2004. The
effects of the Chorus and NTL Ireland acquisitions accounted for
$136,317,000 of such increase. Excluding the increases
associated with these transactions and foreign exchange rate
fluctuations, Other Western Europes revenue increased
$12,127,000 or 7.0% during 2005, as compared to 2004. The
increase during 2005 is due primarily to an increase in ARPU
and, to a somewhat lesser extent, increases in the average
number of broadband Internet and digital video RGUs. The
increase in ARPU is primarily due to increases in the proportion
of video subscribers selecting the digital product.
Hungary. Hungarys revenue increased 29.6% during
2005, as compared to 2004. Excluding the effects of foreign
exchange rate fluctuations, such increase was $60,228,000 or
27.7%. The majority of this increase is attributable to higher
ARPU, due primarily to rate increases in January 2005 for video
services. Increases in the average number of broadband Internet,
telephony and DTH RGUs and, to a lesser extent, analog RGUs,
also contributed significantly to the increase during 2005. The
increase in telephony RGUs was primarily driven by VoIP
telephony sales. Approximately one fifth of the overall local
currency increase during 2005 relates to growth in the
comparatively low margin telephony transit service business. Due
to the expiration of the contract for telephony transit service
this revenue may not recur in 2006.
Other Central and Eastern Europe. Other Central and
Eastern Europes revenue increased $118,496,000 during
2005, as compared to 2004. The effects of the Telemach and
Astral acquisitions and another less significant acquisition
accounted for $54,658,000 of such increase. Excluding the
increases associated with
II-13
these acquisitions and foreign exchange rate fluctuations, Other
Central and Eastern Europes revenue increased $35,036,000
or 13.9% during 2005, as compared to 2004. The majority of the
increase is attributable to growth in average RGUs. Higher ARPU
also contributed significantly to the increase in 2005. The
growth in RGUs during 2005 is primarily attributable to
increases in the average number of broadband Internet and video
RGUs, with most of the broadband Internet growth in Poland and
the Czech Republic, and most of the video growth in Romania.
Japan (J:COM). J:COMs revenue increased
$157,396,000 during 2005, as compared to 2004. The effect of the
Chofu Cable and J:COM Setamachi acquisitions and another less
significant acquisition accounted for approximately $37,696,000
of such increase. Excluding the increases associated with these
acquisitions and the effects of foreign exchange rate
fluctuations, J:COMs revenue increased $165,518,000 or
11.0% during 2005, as compared to 2004. This increase is
primarily attributable to increases in the average number of
telephony, broadband Internet and video RGUs during 2005, as
compared to 2004. The effect of J:COMs RGU growth was
partially offset during 2005 by lower ARPU. The lower ARPU is
attributable to the negative effects of a decrease in customer
call volumes, an increase in the amount of bundling discounts as
a result of a higher number of services per household and lower
installation revenue. The negative effects of these factors on
ARPU were partially offset by the positive effects of increases
in the proportion of subscribers selecting digital video
services over analog video services and the higher-speed
broadband Internet services over the lower-speed alternatives.
The lower installation revenue is primarily attributable to an
increase in promotional discounts offered to new customers,
partially offset by an increase in the number of installations
performed.
Chile (VTR). VTRs revenue increased $144,210,000
during 2005, as compared to 2004. The estimated effects of the
Metrópolis acquisition accounted for approximately
$53,972,000 of such increase. Excluding the increase associated
with the Metrópolis acquisition and foreign exchange rate
fluctuations, VTRs revenue increased $52,791,000 or 17.6%
during 2005, as compared to 2004. This increase is due primarily
to growth in the average number of VTRs broadband
Internet, telephony and video RGUs. Higher ARPU also contributed
to the increase.
II-14
|
|
|
Revenue Years ended December 31, 2004 and
2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) | |
|
|
|
|
|
|
|
|
|
|
excluding | |
|
|
|
|
|
|
| |
|
|
Year Ended December 31, | |
|
Increase (decrease) | |
|
|
|
FX and | |
|
|
| |
|
| |
|
|
|
acquisitions | |
|
|
2004 | |
|
2003 | |
|
$ | |
|
% | |
|
FX % | |
|
% | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
amounts in thousands, except % amounts | |
Europe (Europe Broadband)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$ |
730,483 |
|
|
$ |
617,488 |
|
|
$ |
112,995 |
|
|
|
18.3 |
|
|
|
7.7 |
|
|
|
7.7 |
|
|
France
|
|
|
312,948 |
|
|
|
113,842 |
|
|
|
199,106 |
|
|
|
174.9 |
|
|
|
150.2 |
|
|
|
3.1 |
|
|
Austria
|
|
|
306,479 |
|
|
|
266,387 |
|
|
|
40,092 |
|
|
|
15.1 |
|
|
|
4.7 |
|
|
|
4.7 |
|
|
Other Western Europe
|
|
|
174,389 |
|
|
|
106,962 |
|
|
|
67,427 |
|
|
|
63.0 |
|
|
|
52.4 |
|
|
|
6.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
1,524,299 |
|
|
|
1,104,679 |
|
|
|
419,620 |
|
|
|
38.0 |
|
|
|
26.0 |
|
|
|
6.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
217,429 |
|
|
|
165,310 |
|
|
|
52,119 |
|
|
|
31.5 |
|
|
|
18.8 |
|
|
|
18.8 |
|
|
Other Central and Eastern Europe
|
|
|
252,064 |
|
|
|
197,108 |
|
|
|
54,956 |
|
|
|
27.9 |
|
|
|
18.6 |
|
|
|
18.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
469,493 |
|
|
|
362,418 |
|
|
|
107,075 |
|
|
|
29.5 |
|
|
|
18.7 |
|
|
|
18.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Europe (Europe Broadband)
|
|
|
1,993,792 |
|
|
|
1,467,097 |
|
|
|
526,695 |
|
|
|
35.9 |
|
|
|
24.2 |
|
|
|
9.4 |
|
Japan (J:COM)
|
|
|
1,504,709 |
|
|
|
1,233,492 |
|
|
|
271,217 |
|
|
|
22.0 |
|
|
|
12.7 |
|
|
|
12.7 |
|
Chile (VTR)
|
|
|
299,951 |
|
|
|
229,835 |
|
|
|
70,116 |
|
|
|
30.5 |
|
|
|
15.8 |
|
|
|
15.8 |
|
Corporate and other
|
|
|
285,507 |
|
|
|
263,020 |
|
|
|
22,487 |
|
|
|
8.5 |
|
|
|
3.2 |
|
|
|
3.2 |
|
Intersegment eliminations
|
|
|
(47,361 |
) |
|
|
(55,169 |
) |
|
|
7,808 |
|
|
|
14.2 |
|
|
|
21.9 |
|
|
|
21.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total LGI before elimination of equity affiliates
|
|
|
4,036,598 |
|
|
|
3,138,275 |
|
|
|
898,323 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Elimination of equity affiliates
|
|
|
(1,504,709 |
) |
|
|
(3,029,885 |
) |
|
|
1,525,176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated LGI
|
|
$ |
2,531,889 |
|
|
$ |
108,390 |
|
|
$ |
2,423,499 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands. The Netherlands revenue increased
18.3% in 2004, as compared to 2003. Excluding the effects of
foreign exchange rate fluctuations, such increase was 7.7%. This
increase is primarily attributable to an increase in ARPU, due
primarily to higher average rates for video services and the
increased penetration of broadband Internet services. These
factors were somewhat offset by reduced tariffs for telephony
services as lower outbound interconnect rates were passed
through to the customer to maintain the product at a competitive
level in the market. The average number of RGUs in 2004 was
slightly higher than the comparable number in 2003 as increases
in broadband Internet and telephony RGUs were largely offset by
a decline in video RGUs.
France. Frances revenue increased 174.9% in 2004,
as compared to 2003. The effect of the Noos acquisition on
July 1, 2004 accounted for $167,524,000 of the increase.
Excluding the increase associated with the Noos acquisition and
foreign exchange rate fluctuations, Frances revenue
increased $3,529,000 or 3.1% during 2004, as compared to 2003.
This increase is primarily attributable to an increase in the
average RGUs in 2004, as compared to 2003. Video, broadband
Internet and telephony services all contributed to this
increase. A decrease in the ARPU from telephony services
partially offset the positive impact of the RGU increases. The
lower telephony revenue is attributable to lower tariffs from
telephony services, as lower outbound interconnect rates were
passed through to the customer to maintain the service at a
competitive level in the market, as well as reduced outbound
telephony traffic as more customers migrate from
dial-up Internet access
to broadband Internet access and migrate from fixed-line
telephone usage to cellular phone usage.
Austria. Austrias revenue increased 15.1% during
2004, as compared to 2003. Excluding the effects of foreign
exchange rate fluctuations, such increase was 4.7%. This
increase is primarily attributable to growth in
II-15
the average number of RGUs during 2004, as compared to 2003.
This subscriber growth is primarily attributable to an increase
in broadband Internet service RGUs.
Other Western Europe. Other Western Europes revenue
increased $67,427,000 during 2004, as compared to 2003. The
effects of Chorus accounted for $48,693,000 of such increase.
Excluding the increase associated with the Chorus acquisition
and foreign exchange rate fluctuations, Other Western
Europes revenue increased $7,325,000 or 6.8% during 2004,
as compared to 2003. This increase is due to increases in both
average RGUs and ARPU. Both video and broadband Internet RGUs
increased in 2004, as compared to 2003.
Hungary. Hungarys revenue increased 31.5% during
2004, as compared to 2003. Excluding the effects of foreign
exchange rate fluctuations, such increase was 18.8%. This
increase is due to increases in both the ARPU and the average
number of RGUs in 2004, as compared to 2003, which resulted
primarily from growth in
direct-to-home
satellite distribution (DTH) and analog television services
and, to a lesser extent, broadband Internet services.
Other Central and Eastern Europe. Other Central and
Eastern Europes revenue increased 27.9% during 2004, as
compared to 2003. Excluding the effects of foreign exchange rate
fluctuations, such increase was 18.6%. This increase is due
primarily to an increase in the ARPU and the average number of
RGUs, which resulted primarily from the continued successful
sale of broadband Internet services. An overall increase in the
average number of broadband Internet, analog cable and DTH RGUs
in 2004, as compared to 2003, also contributed to the increase.
Japan (J:COM). J:COMs revenue increased
$271,217,000 during 2004, as compared to 2003. Excluding the
effects of foreign exchange rate fluctuations, such increase was
12.7%. The local currency increase is primarily attributable to
a significant increase in the average number of RGUs in 2004, as
compared to 2003. Most of this RGU increase is attributable to
growth within J:COMs telephony and broadband Internet
services. An increase in ARPU also contributed to the increase
in local currency revenue. The increase in ARPU 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 one of J:COMs lower-priced broadband
Internet services and a decrease in customer call volumes for
J:COMs telephony service.
Chile (VTR). Chiles revenue increased $70,116,000
during 2004, as compared to 2003. Excluding the effects of
foreign exchange rate fluctuations, such increase was 15.8%.
This increase is due primarily to growth in the average number
of subscribers to video, broadband Internet and telephony
services during 2004, as compared to 2003. This RGU growth is
due primarily to improved direct sales, mass marketing
initiatives and lower subscriber churn. Chiles ARPU
remained relatively flat from period to period.
II-16
|
|
|
Operating Expenses of our Reportable Segments |
|
|
|
Operating expenses Years ended December 31,
2005 and 2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) | |
|
|
|
|
|
|
|
|
|
|
excluding | |
|
|
|
|
|
|
| |
|
|
Year Ended December 31, | |
|
Increase (decrease) | |
|
|
|
FX and | |
|
|
| |
|
| |
|
|
|
acquisitions | |
|
|
2005 | |
|
2004 | |
|
$ | |
|
% | |
|
FX % | |
|
% | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
amounts in thousands, except % amounts | |
Europe (Europe Broadband)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$ |
251,828 |
|
|
$ |
205,802 |
|
|
$ |
46,026 |
|
|
|
22.4 |
|
|
|
22.7 |
|
|
|
22.7 |
|
|
Switzerland
|
|
|
51,631 |
|
|
|
|
|
|
|
51,631 |
|
|
|
N.M. |
|
|
|
N.M. |
|
|
|
|
|
|
France
|
|
|
257,569 |
|
|
|
165,489 |
|
|
|
92,080 |
|
|
|
55.6 |
|
|
|
55.5 |
|
|
|
0.4 |
|
|
Austria
|
|
|
119,098 |
|
|
|
115,373 |
|
|
|
3,725 |
|
|
|
3.2 |
|
|
|
3.2 |
|
|
|
3.2 |
|
|
Other Western Europe
|
|
|
144,134 |
|
|
|
71,568 |
|
|
|
72,566 |
|
|
|
101.4 |
|
|
|
102.4 |
|
|
|
2.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
824,260 |
|
|
|
558,232 |
|
|
|
266,028 |
|
|
|
47.7 |
|
|
|
47.9 |
|
|
|
9.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
122,073 |
|
|
|
93,247 |
|
|
|
28,826 |
|
|
|
30.9 |
|
|
|
29.0 |
|
|
|
29.0 |
|
|
Other Central and Eastern Europe
|
|
|
145,340 |
|
|
|
103,255 |
|
|
|
42,085 |
|
|
|
40.8 |
|
|
|
29.9 |
|
|
|
7.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
267,413 |
|
|
|
196,502 |
|
|
|
70,911 |
|
|
|
36.1 |
|
|
|
29.5 |
|
|
|
17.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Europe (Europe Broadband)
|
|
|
1,091,673 |
|
|
|
754,734 |
|
|
|
336,939 |
|
|
|
44.6 |
|
|
|
43.1 |
|
|
|
11.6 |
|
Japan (J:COM)
|
|
|
690,127 |
|
|
|
621,035 |
|
|
|
69,092 |
|
|
|
11.1 |
|
|
|
14.4 |
|
|
|
11.6 |
|
Chile (VTR)
|
|
|
177,543 |
|
|
|
116,131 |
|
|
|
61,412 |
|
|
|
52.9 |
|
|
|
39.8 |
|
|
|
14.1 |
|
Corporate and other
|
|
|
291,162 |
|
|
|
216,386 |
|
|
|
74,776 |
|
|
|
34.6 |
|
|
|
35.0 |
|
|
|
13.9 |
|
Intersegment eliminations
|
|
|
(64,990 |
) |
|
|
(36,758 |
) |
|
|
(28,232 |
) |
|
|
(76.8 |
) |
|
|
(77.4 |
) |
|
|
(77.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total LGI before elimination of equity affiliates
|
|
|
2,185,515 |
|
|
|
1,671,528 |
|
|
|
513,987 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Elimination of equity affiliate (J:COM)
|
|
|
|
|
|
|
(621,035 |
) |
|
|
621,035 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated LGI
|
|
$ |
2,185,515 |
|
|
$ |
1,050,493 |
|
|
$ |
1,135,022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N.M. Not Meaningful
General. Operating expenses include programming, network
operations, customer operations, customer care and other direct
costs. Programming costs, which represent a significant portion
of our operating costs, are expected to rise in future periods
as a result of the expansion of service offerings and the
potential for price increases. Any cost increases that we are
not able to pass on to our subscribers through service rate
increases would result in increased pressure on our operating
margins.
Europe Broadband. Europe Broadbands operating
expenses increased $336,939,000 during 2005, as compared to
2004. The aggregate effects of the Noos, Cablecom, NTL Ireland,
Chorus, Astral and Telemach acquisitions and another less
significant acquisition, accounted for $237,744,000 of such
increase. Excluding the increases associated with these
acquisitions and foreign exchange rate fluctuations, Europe
Broadbands operating expenses increased $87,407,000 or
11.6% during 2005, as compared to 2004, primarily due to the
following factors:
|
|
|
|
|
Increases in direct programming and copyright costs of
$34,995,000 during 2005 primarily due to subscriber growth on
the digital and DTH platforms, and to a lesser extent, increased
content, higher intercompany charges from chellomedia for
programming and consumer price index rate increases, offset, in
part, by the termination of an unfavorable programming contract
in May 2005. |
|
|
|
Increases in interconnect costs of $10,913,000 during 2005,
primarily due to growth in telephony transit service activity in
Hungary and growth in VoIP telephony subscribers in The
Netherlands, France, |
II-17
|
|
|
|
|
Hungary, Poland and Romania. A portion of the Hungary increase
may not recur in 2006 due to the expiration of Hungarys
telephony transit service contract. |
|
|
|
Increases in salaries and other staff related costs of
$24,100,000 during 2005, primarily reflecting increased staffing
levels including increased use of temporary personnel,
particularly in the customer care and customer operations areas,
to sustain the higher levels of activity resulting from: |
|
|
|
|
|
higher subscriber numbers; |
|
|
|
the greater volume of calls per subscriber in The Netherlands
and elsewhere that the increased proportion of digital video,
broadband Internet and telephony subscribers give rise to
compared to an analog video subscriber; |
|
|
|
The Netherlands program to migrate subscribers from analog
video to digital video services, which was launched in October
2005 and is expected to continue throughout 2006; |
|
|
|
increased customer service standard levels; and |
|
|
|
annual wage increases. |
|
|
|
|
|
Increases in network related expenses of $8,515,000 during 2005,
primarily driven by higher costs in The Netherlands and Hungary. |
|
|
|
Increases in bad debt and collection expenses of $4,896,000 due
largely to the significant increase in revenue. |
|
|
|
Increases in outsourced labor and consultancy fees of $4,000,000
during 2005, driven by projects to increase service levels,
network improvements and development of new products in certain
of our operations, primarily the launch of mass-market digital
service in The Netherlands. |
Japan (J:COM). J:COMs operating expenses increased
$69,092,000 during 2005, as compared to 2004. The effects of the
Chofu Cable and J:COM Setamachi acquisitions and another less
significant acquisition accounted for approximately $16,890,000
of such increase. Excluding the increases associated with these
acquisitions and the effects of foreign exchange rate
fluctuations, J:COMs operating expenses increased
$72,040,000 or 11.6% during 2005, as compared to 2004. This
increase primarily is due to increases of (i) $23,708,000
in salaries and other staff related costs as a result of
increased staffing levels; (ii) $22,814,000 in programming
and related costs as a result of growth in the number of digital
video customers; and (iii) $10,988,000 in telephony
interconnect costs due primarily to growth in telephony
customers. Increases in network operating expenses, maintenance
and technical support costs associated with RGU growth and the
expansion of J:COMs network and the effects of other
individually insignificant items accounted for the remaining
increase.
Chile (VTR). VTRs operating expenses increased
$61,412,000 during 2005, as compared to 2004. The estimated
effects of the Metrópolis acquisition accounted for
approximately $29,834,000 of such increase. Excluding the
increase associated with the Metrópolis acquisition and
foreign exchange rate fluctuations, VTRs operating
expenses increased $16,374,000 or 14.1% during 2005, as compared
to 2004. This increase, which is primarily attributable to
growth in VTRs subscriber base, includes
(i) increases in labor and other staff related costs;
(ii) increases in local and cellular access charges, due
primarily to an increase in customer traffic, and in the case of
local access charges, an increase in rates and
(iii) increases in technical service and maintenance costs.
II-18
|
|
|
Operating expenses Years ended December 31,
2004 and 2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) | |
|
|
|
|
|
|
|
|
|
|
excluding | |
|
|
|
|
|
|
| |
|
|
Year Ended December 31, | |
|
Increase (decrease) | |
|
|
|
FX and | |
|
|
| |
|
| |
|
|
|
acquisitions | |
|
|
2004 | |
|
2003 | |
|
$ | |
|
% | |
|
FX % | |
|
% | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
amounts in thousands, except % amounts | |
Europe (Europe Broadband)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$ |
205,802 |
|
|
$ |
204,186 |
|
|
$ |
1,616 |
|
|
|
0.8 |
|
|
|
(8.5 |
) |
|
|
(8.5 |
) |
|
France
|
|
|
165,489 |
|
|
|
64,676 |
|
|
|
100,813 |
|
|
|
155.9 |
|
|
|
132.4 |
|
|
|
3.7 |
|
|
Austria
|
|
|
115,373 |
|
|
|
100,720 |
|
|
|
14,653 |
|
|
|
14.5 |
|
|
|
4.0 |
|
|
|
4.0 |
|
|
Other Western Europe
|
|
|
71,568 |
|
|
|
36,505 |
|
|
|
35,063 |
|
|
|
96.0 |
|
|
|
84.8 |
|
|
|
9.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
558,232 |
|
|
|
406,087 |
|
|
|
152,145 |
|
|
|
37.5 |
|
|
|
25.4 |
|
|
|
(1.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
93,247 |
|
|
|
73,800 |
|
|
|
19,447 |
|
|
|
26.4 |
|
|
|
13.8 |
|
|
|
13.8 |
|
|
Other Central and Eastern Europe
|
|
|
103,255 |
|
|
|
83,529 |
|
|
|
19,726 |
|
|
|
23.6 |
|
|
|
14.4 |
|
|
|
14.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
196,502 |
|
|
|
157,329 |
|
|
|
39,173 |
|
|
|
24.9 |
|
|
|
14.1 |
|
|
|
14.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Europe (Europe Broadband)
|
|
|
754,734 |
|
|
|
563,416 |
|
|
|
191,318 |
|
|
|
34.0 |
|
|
|
22.3 |
|
|
|
2.6 |
|
Japan (J:COM)
|
|
|
621,035 |
|
|
|
542,242 |
|
|
|
78,793 |
|
|
|
14.5 |
|
|
|
5.7 |
|
|
|
5.7 |
|
Chile (VTR)
|
|
|
116,131 |
|
|
|
96,965 |
|
|
|
19,166 |
|
|
|
19.8 |
|
|
|
5.9 |
|
|
|
5.9 |
|
Corporate and other
|
|
|
216,386 |
|
|
|
189,681 |
|
|
|
26,705 |
|
|
|
14.1 |
|
|
|
7.2 |
|
|
|
7.2 |
|
Intersegment eliminations
|
|
|
(36,758 |
) |
|
|
(45,505 |
) |
|
|
8,747 |
|
|
|
19.2 |
|
|
|
26.6 |
|
|
|
26.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total LGI before elimination of equity affiliates
|
|
|
1,671,528 |
|
|
|
1,346,799 |
|
|
|
324,729 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Elimination of equity affiliates
|
|
|
(621,035 |
) |
|
|
(1,284,023 |
) |
|
|
662,988 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated LGI
|
|
$ |
1,050,493 |
|
|
$ |
62,776 |
|
|
$ |
987,717 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe Broadband. Europe Broadbands operating
expenses increased $191,318,000 during 2004, as compared to
2003. The aggregate effects of the Noos and Chorus acquisitions
accounted for $110,661,000 of such increase. Excluding the
increases associated with these acquisitions and foreign
exchange rate fluctuations, Europe Broadbands operating
expenses increased $14,830,000 or 2.6% during 2004, as compared
to 2003, primarily due to the following factors:
|
|
|
|
|
an increase in customer operation expenses as a result of higher
numbers of new and reconnecting subscribers during 2004, as
compared to 2003. This higher activity level required Europe
Broadband to hire additional staff and use outsourced
contractors; |
|
|
|
an increase in direct programming costs related to subscriber
growth and, in certain markets, an increase in channels on the
analog and digital platforms; |
|
|
|
a decrease due to net cost reductions across network operations,
customer care and billing and collection activities. These
reductions were due to improved cost controls across all aspects
of the business, including more effective procurement of support
services, lower billing and collections charges, with bad debt
charges in particular reduced in The Netherlands, and the
increased operational leverage of the business; |
|
|
|
an increase in intercompany costs for broadband Internet
services under the revenue sharing agreement between Europe
Broadband and chellomedia; |
|
|
|
a decrease related to reduced telephony direct costs in 2004, as
compared to 2003, primarily due to decreases in outbound
interconnect rates; |
II-19
|
|
|
|
|
an increase due to annual wage increases; and |
|
|
|
a decrease due to cost savings in The Netherlands resulting from
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. |
Japan (J:COM). J:COMs operating expenses increased
$78,793,000 during 2004, as compared to 2003. Excluding the
effects of foreign exchange fluctuations, such increase was
$30,908,000 or 5.7%. 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.
Chile (VTR). VTRs operating expenses increased
$19,166,000 during 2004, as compared to 2003. Excluding the
effects of foreign exchange fluctuations, such increase was
$5,721,000 or 5.9%. The local currency increase primarily is due
to increases in (i) domestic and international access
charges, (ii) programming costs, and (iii) the cost of
maintenance and technical services. Such increased costs were
largely driven by RGU growth.
|
|
|
SG&A Expenses of our Reportable Segments |
|
|
|
SG&A expenses Years ended December 31,
2005 and 2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) | |
|
|
|
|
|
|
|
|
|
|
excluding | |
|
|
|
|
|
|
| |
|
|
Year Ended December 31, | |
|
Increase (decrease) | |
|
|
|
FX and | |
|
|
| |
|
| |
|
|
|
acquisitions | |
|
|
2005 | |
|
2004 | |
|
$ | |
|
% | |
|
FX % | |
|
% | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
amounts in thousands, except % amounts | |
Europe (Europe Broadband)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$ |
168,182 |
|
|
$ |
148,943 |
|
|
$ |
19,239 |
|
|
|
12.9 |
|
|
|
12.9 |
|
|
|
12.9 |
|
|
Switzerland
|
|
|
26,922 |
|
|
|
|
|
|
|
26,922 |
|
|
|
N.M. |
|
|
|
N.M. |
|
|
|
|
|
|
France
|
|
|
158,946 |
|
|
|
101,685 |
|
|
|
57,261 |
|
|
|
56.3 |
|
|
|
56.8 |
|
|
|
6.1 |
|
|
Austria
|
|
|
65,851 |
|
|
|
68,799 |
|
|
|
(2,948 |
) |
|
|
(4.3 |
) |
|
|
(4.1 |
) |
|
|
(4.1 |
) |
|
Other Western Europe
|
|
|
66,075 |
|
|
|
39,141 |
|
|
|
26,934 |
|
|
|
68.8 |
|
|
|
70.0 |
|
|
|
9.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
485,976 |
|
|
|
358,568 |
|
|
|
127,408 |
|
|
|
35.5 |
|
|
|
35.8 |
|
|
|
7.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
51,256 |
|
|
|
41,727 |
|
|
|
9,529 |
|
|
|
22.8 |
|
|
|
21.7 |
|
|
|
21.7 |
|
|
Other Central and Eastern Europe
|
|
|
77,950 |
|
|
|
54,331 |
|
|
|
23,619 |
|
|
|
43.5 |
|
|
|
32.6 |
|
|
|
15.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
129,206 |
|
|
|
96,058 |
|
|
|
33,148 |
|
|
|
34.5 |
|
|
|
27.8 |
|
|
|
18.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Europe (Europe Broadband)
|
|
|
615,182 |
|
|
|
454,626 |
|
|
|
160,556 |
|
|
|
35.3 |
|
|
|
34.1 |
|
|
|
9.6 |
|
Japan (J:COM)
|
|
|
335,681 |
|
|
|
294,077 |
|
|
|
41,604 |
|
|
|
14.1 |
|
|
|
17.3 |
|
|
|
13.0 |
|
Chile (VTR)
|
|
|
115,168 |
|
|
|
75,068 |
|
|
|
40,100 |
|
|
|
53.4 |
|
|
|
40.3 |
|
|
|
18.9 |
|
Corporate and other
|
|
|
139,063 |
|
|
|
120,518 |
|
|
|
18,545 |
|
|
|
15.4 |
|
|
|
16.6 |
|
|
|
13.4 |
|
Inter-segment eliminations
|
|
|
(10,122 |
) |
|
|
(10,603 |
) |
|
|
481 |
|
|
|
4.5 |
|
|
|
4.8 |
|
|
|
4.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total LGI before elimination of equity affiliates
|
|
|
1,194,972 |
|
|
|
933,686 |
|
|
|
261,286 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Elimination of equity affiliate (J:COM)
|
|
|
|
|
|
|
(294,077 |
) |
|
|
294,077 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated LGI
|
|
$ |
1,194,972 |
|
|
$ |
639,609 |
|
|
$ |
555,363 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
II-20
Europe Broadband. Europe Broadbands SG&A
expenses increased $160,556,000 during 2005, as compared to
2004. The aggregate effects of the Noos, Cablecom, NTL Ireland,
Chorus, Astral, and Telemach acquisitions, and another less
significant acquisition, accounted for $111,405,000 of such
increase. Excluding the increases associated with these
acquisitions and foreign exchange rate fluctuations, Europe
Broadbands SG&A expenses increased $43,816,000 or 9.6%
during 2005, as compared to 2004, primarily due to:
|
|
|
|
|
Increases in sales and marketing expenses and commissions of
$28,320,000 during 2005, reflecting the cost of marketing
campaigns designed to promote RGU growth, and support the growth
of VoIP telephony services, and the launch of mass-market
digital video services in The Netherlands. An increase in the
number of gross subscriber additions for broadband Internet and
telephony services, particularly in The Netherlands, also
contributed to the increase. |
|
|
|
Increases in salaries and other staff related costs of
$8,243,000 during 2005, reflecting increased staffing levels,
particularly in The Netherlands, in sales and marketing and
information technology functions, as well as annual wage
increases. |
|
|
|
Increase in outsourced labor and consultancy cost of $7,083,000
during 2005, reflecting the development of new products in
certain of our operations, primarily the launch of mass-market
digital service in The Netherlands. |
The increase in Europe Broadbands SG&A expenses were
partially offset by decreases in certain SG&A expenses,
primarily the decrease of audit and legal expenses of $9,604,000
reflecting the conclusion of certain litigation and lower fees
attributable to our internal controls attestation process.
Japan (J:COM). J:COMs SG&A expenses increased
$41,604,000 during 2005, as compared to 2004. The effects of the
Chofu Cable and J:COM Setamachi acquisitions and another less
significant acquisition accounted for approximately $12,660,000
of such increase. Excluding the increase associated with these
acquisitions and the effects of foreign exchange rate
fluctuations, J:COMs SG&A expenses increased
$38,230,000 or 13.0% during 2005, as compared to 2004. This
increase primarily is attributable to increases in labor and
related overhead costs associated with an increase in the scope
of J:COMs business. The increase also reflects higher
marketing, advertising and promotional costs, including costs
incurred in connection with J:COMs rebranding initiative
during the first half of 2005.
Chile (VTR). VTRs SG&A expenses increased
$40,100,000 during 2005, as compared to 2004. The estimated
effects of the Metrópolis acquisition accounted for
approximately $16,057,000 of such increase. Excluding the
increase associated with the Metrópolis acquisition and
foreign exchange rate fluctuations, VTRs SG&A expenses
increased $14,188,000 or 18.9% during 2005, as compared to 2004.
This increase, which is largely attributable to growth in
VTRs subscriber base, reflects increases in labor and
related costs and in sales commissions.
II-21
|
|
|
SG&A expenses Years ended December 31,
2004 and 2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) | |
|
|
|
|
|
|
|
|
|
|
excluding | |
|
|
|
|
|
|
| |
|
|
Year Ended December 31, | |
|
Increase (decrease) | |
|
|
|
FX and | |
|
|
| |
|
| |
|
|
|
acquisitions | |
|
|
2004 | |
|
2003 | |
|
$ | |
|
% | |
|
FX % | |
|
% | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
amounts in thousands, except % amounts | |
Europe (Europe Broadband)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$ |
148,943 |
|
|
$ |
126,357 |
|
|
$ |
22,586 |
|
|
|
17.9 |
|
|
|
7.0 |
|
|
|
7.0 |
|
|
France
|
|
|
101,685 |
|
|
|
37,231 |
|
|
|
64,454 |
|
|
|
173.1 |
|
|
|
147.9 |
|
|
|
9.5 |
|
|
Austria
|
|
|
68,799 |
|
|
|
57,714 |
|
|
|
11,085 |
|
|
|
19.2 |
|
|
|
8.2 |
|
|
|
8.2 |
|
|
Other Western Europe
|
|
|
39,141 |
|
|
|
24,254 |
|
|
|
14,887 |
|
|
|
61.4 |
|
|
|
50.0 |
|
|
|
10.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
358,568 |
|
|
|
245,556 |
|
|
|
113,012 |
|
|
|
46.0 |
|
|
|
32.9 |
|
|
|
8.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
41,727 |
|
|
|
31,029 |
|
|
|
10,698 |
|
|
|
34.5 |
|
|
|
21.0 |
|
|
|
21.0 |
|
|
Other Central and Eastern Europe
|
|
|
54,331 |
|
|
|
46,917 |
|
|
|
7,414 |
|
|
|
15.8 |
|
|
|
7.0 |
|
|
|
7.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
96,058 |
|
|
|
77,946 |
|
|
|
18,112 |
|
|
|
23.2 |
|
|
|
12.6 |
|
|
|
12.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Europe (Europe Broadband)
|
|
|
454,626 |
|
|
|
323,502 |
|
|
|
131,124 |
|
|
|
40.5 |
|
|
|
28.0 |
|
|
|
9.1 |
|
Japan (J:COM)
|
|
|
294,077 |
|
|
|
262,932 |
|
|
|
31,145 |
|
|
|
11.8 |
|
|
|
3.5 |
|
|
|
3.5 |
|
Chile (VTR)
|
|
|
75,068 |
|
|
|
62,919 |
|
|
|
12,149 |
|
|
|
19.3 |
|
|
|
6.3 |
|
|
|
6.3 |
|
Corporate and other
|
|
|
120,518 |
|
|
|
111,693 |
|
|
|
8,825 |
|
|
|
7.9 |
|
|
|
1.6 |
|
|
|
1.6 |
|
Intersegment eliminations
|
|
|
(10,603 |
) |
|
|
(9,664 |
) |
|
|
(939 |
) |
|
|
(9.7 |
) |
|
|
(0.8 |
) |
|
|
(0.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total LGI before elimination of equity affiliates
|
|
|
933,686 |
|
|
|
751,382 |
|
|
|
182,304 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Elimination of equity affiliates
|
|
|
(294,077 |
) |
|
|
(723,515 |
) |
|
|
429,438 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated LGI
|
|
$ |
639,609 |
|
|
$ |
27,867 |
|
|
$ |
611,742 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe Broadband. Europe Broadbands SG&A
expenses increased $131,124,000 during 2004, as compared to
2003. The aggregate effects of the Noos and Chorus acquisitions
accounted for $61,061,000 of such increase. Excluding the
increases associated with these acquisitions and foreign
exchange rate fluctuations, Europe Broadbands SG&A
expenses increased $29,521,000, or 9.1% during 2004, as compared
to 2003, primarily due to:
|
|
|
|
|
an increase in marketing expenditures to support subscriber
growth and new digital programming services, particularly in The
Netherlands; |
|
|
|
annual wage increases; and |
|
|
|
increased consulting and other information technology support
costs associated with the implementation of new customer care
systems in several countries and a subscriber management system
in Austria. |
These increases were partially offset by continuing cost control
across all aspects of the business and cost savings resulting
from The Netherlands restructuring that was implemented
during the second quarter of 2004.
Japan (J:COM). J:COMs SG&A expenses increased
$31,145,000 during 2004, as compared to 2003. Excluding the
effects of foreign exchange rate fluctuations, such increase was
$9,203,000 or 3.5% during 2004, as compared to 2003. This local
currency increase primarily is attributable to the net effect of
(i) increased labor and other overhead costs associated
primarily with increases in J:COMs RGUs, and
(ii) reduced marketing personnel and advertising and
promotion expenses.
Chile (VTR). VTRs SG&A expenses increased
$12,149,000 during 2004, as compared to 2003. Excluding the
effects of foreign exchange rate fluctuations, such increase was
$3,964,000 or 6.3%. The local currency
II-22
increase primarily is due to (i) an increase in commissions
as a result of subscriber growth, (ii) an increase in
marketing costs in response to increased competition,
(iii) annual wage increases, and (iv) higher legal,
accounting and other professional advisory fees due in part to
the initiation of our internal controls attestation process. The
impact of the foregoing items was partially offset by a one-time
credit of $4,695,000 in December 2004 for the reversal of
accrued withholding tax as a result of the forgiveness of
management fees payable to UGC.
|
|
|
Operating Cash Flow of our Reportable Segments |
Operating cash flow is the primary measure used by our chief
operating decision maker to evaluate segment operating
performance and to decide how to allocate resources to segments.
As we use the term, operating cash flow is defined as revenue
less operating and SG&A expenses (excluding depreciation and
amortization, stock-based compensation and impairment,
restructuring and other operating charges or credits). We
believe operating cash flow is meaningful because it provides
investors a means to evaluate the operating performance of our
segments and our company on an ongoing basis using criteria that
is used by our internal decision makers. Our internal decision
makers believe operating cash flow is a meaningful measure and
is superior to other available GAAP measures because it
represents a transparent view of our recurring operating
performance and allows management to 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 operating cash
flow would distort the ability to efficiently assess and view
the core operating trends in our segments. In addition, our
internal decision makers believe our measure of operating cash
flow is important because analysts and investors use it to
compare our performance to other companies in our industry. For
a reconciliation of total segment operating cash flow to our
consolidated earnings (loss) before income taxes, minority
interests and discontinued operations, see note 21 to our
consolidated financial statements. Investors should view
operating cash flow as a measure of operating performance that
is a supplement to, and not a substitute for, operating income,
net earnings, cash flow from operating activities and other GAAP
measures of income.
II-23
|
|
|
Operating Cash Flow Years ended December 31,
2005 and 2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) | |
|
|
|
|
|
|
|
|
|
|
excluding | |
|
|
|
|
|
|
| |
|
|
Year Ended December 31, | |
|
Increase (decrease) | |
|
|
|
FX and | |
|
|
| |
|
| |
|
|
|
acquisitions | |
|
|
2005 | |
|
2004 | |
|
$ | |
|
% | |
|
FX % | |
|
% | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
amounts in thousands, except % amounts | |
Europe (Europe Broadband)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$ |
360,924 |
|
|
$ |
375,738 |
|
|
$ |
(14,814 |
) |
|
|
(3.9 |
) |
|
|
(4.2 |
) |
|
|
(4.2 |
) |
|
Switzerland
|
|
|
43,525 |
|
|
|
|
|
|
|
43,525 |
|
|
|
N.M. |
|
|
|
N.M. |
|
|
|
|
|
|
France
|
|
|
97,247 |
|
|
|
45,774 |
|
|
|
51,473 |
|
|
|
112.5 |
|
|
|
111.4 |
|
|
|
28.8 |
|
|
Austria
|
|
|
137,247 |
|
|
|
122,307 |
|
|
|
14,940 |
|
|
|
12.2 |
|
|
|
11.9 |
|
|
|
11.9 |
|
|
Other Western Europe
|
|
|
111,168 |
|
|
|
63,680 |
|
|
|
47,488 |
|
|
|
74.6 |
|
|
|
74.9 |
|
|
|
10.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
750,111 |
|
|
|
607,499 |
|
|
|
142,612 |
|
|
|
23.5 |
|
|
|
23.2 |
|
|
|
3.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
108,378 |
|
|
|
82,455 |
|
|
|
25,923 |
|
|
|
31.4 |
|
|
|
29.1 |
|
|
|
29.1 |
|
|
Other Central and Eastern Europe
|
|
|
147,270 |
|
|
|
94,478 |
|
|
|
52,792 |
|
|
|
55.9 |
|
|
|
43.5 |
|
|
|
20.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
255,648 |
|
|
|
176,933 |
|
|
|
78,715 |
|
|
|
44.5 |
|
|
|
36.8 |
|
|
|
24.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Europe (Europe Broadband)
|
|
|
1,005,759 |
|
|
|
784,432 |
|
|
|
221,327 |
|
|
|
28.2 |
|
|
|
26.3 |
|
|
|
7.9 |
|
Japan (J:COM)
|
|
|
636,297 |
|
|
|
589,597 |
|
|
|
46,700 |
|
|
|
7.9 |
|
|
|
10.7 |
|
|
|
9.3 |
|
Chile (VTR)
|
|
|
151,450 |
|
|
|
108,752 |
|
|
|
42,698 |
|
|
|
39.3 |
|
|
|
27.7 |
|
|
|
20.3 |
|
Corporate and other
|
|
|
(22,661 |
) |
|
|
(51,397 |
) |
|
|
28,736 |
|
|
|
55.9 |
|
|
|
55.3 |
|
|
|
26.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total LGI before elimination of equity affiliates
|
|
|
1,770,845 |
|
|
|
1,431,384 |
|
|
|
339,461 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Elimination of equity affiliate (J:COM)
|
|
|
|
|
|
|
(589,597 |
) |
|
|
589,597 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
1,770,845 |
|
|
$ |
841,787 |
|
|
$ |
929,058 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N.M. Not Meaningful
On a local currency basis, Europe Broadband and VTR, and to a
lesser extent, J:COM experienced declines in their respective
2005 operating cash flow margins (operating cash flow divided by
revenue). We expect that Europe Broadbands overall
operating cash flow margins will improve slightly in 2006 as the
positive effects of (i) cost reductions and efficiencies
resulting from the integration of our 2005 acquisitions and
(ii) higher utilization of customer fulfillment and billing
platforms are expected to more than offset the negative effects
of (i) increased direct costs associated with new voice and
digital video customers, (ii) higher customer acquisition
costs associated with RGU growth and (iii) the continuing
effects of increased competition. In The Netherlands, our
program to migrate subscribers from analog to digital video
services, our ongoing launch of VoIP, and competitive factors
are expected to adversely impact operating cash flow margins
during 2006. J:COM management expects that J:COMs
operating cash flow margin will be somewhat negatively impacted
by (i) increased programming costs related to increased
high definition television content and anticipated increases in
digital video subscribers, (ii) the negative initial impact
on margins of recent acquisitions, and (iii) costs
associated with new initiatives. In Chile, we expect that
operating cash flow margins will improve somewhat in 2006 if we
are able to continue to achieve efficiencies and cost reductions
from the integration of the operations of VTR and
Metrópolis. No assurance can be given that our expectations
with respect to operating cash flow margins will not vary from
actual results. For additional discussion of the factors
contributing to the changes in operating cash flow of our
reportable segments, see the above analyses of revenue,
operating expenses and SG&A expenses.
II-24
|
|
|
Operating Cash Flow Years ended December 31,
2004 and 2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) | |
|
|
|
|
|
|
|
|
|
|
excluding | |
|
|
|
|
|
|
| |
|
|
Year Ended December 31, | |
|
Increase (decrease) | |
|
|
|
FX and | |
|
|
| |
|
| |
|
|
|
acquisitions | |
|
|
2004 | |
|
2003 | |
|
$ | |
|
% | |
|
FX % | |
|
% | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
amounts in thousands, except % amounts | |
Europe (Europe Broadband)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$ |
375,738 |
|
|
$ |
286,945 |
|
|
$ |
88,793 |
|
|
|
30.9 |
|
|
|
19.5 |
|
|
|
19.5 |
|
|
France
|
|
|
45,774 |
|
|
|
11,935 |
|
|
|
33,839 |
|
|
|
283.5 |
|
|
|
255.5 |
|
|
|
(21.0 |
) |
|
Austria
|
|
|
122,307 |
|
|
|
107,953 |
|
|
|
14,354 |
|
|
|
13.3 |
|
|
|
3.5 |
|
|
|
3.5 |
|
|
Other Western Europe
|
|
|
63,680 |
|
|
|
46,203 |
|
|
|
17,477 |
|
|
|
37.8 |
|
|
|
28.0 |
|
|
|
2.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
607,499 |
|
|
|
453,036 |
|
|
|
154,463 |
|
|
|
34.1 |
|
|
|
22.8 |
|
|
|
12.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
82,455 |
|
|
|
60,481 |
|
|
|
21,974 |
|
|
|
36.3 |
|
|
|
23.8 |
|
|
|
23.8 |
|
|
Other Central and Eastern Europe
|
|
|
94,478 |
|
|
|
66,662 |
|
|
|
27,816 |
|
|
|
41.7 |
|
|
|
31.8 |
|
|
|
31.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
176,933 |
|
|
|
127,143 |
|
|
|
49,790 |
|
|
|
39.2 |
|
|
|
28.0 |
|
|
|
28.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Europe (Europe Broadband)
|
|
|
784,432 |
|
|
|
580,179 |
|
|
|
204,253 |
|
|
|
35.2 |
|
|
|
23.9 |
|
|
|
16.2 |
|
Japan (J:COM)
|
|
|
589,597 |
|
|
|
428,318 |
|
|
|
161,279 |
|
|
|
37.7 |
|
|
|
27.2 |
|
|
|
27.2 |
|
Chile (VTR)
|
|
|
108,752 |
|
|
|
69,951 |
|
|
|
38,801 |
|
|
|
55.5 |
|
|
|
38.0 |
|
|
|
38.0 |
|
Corporate and other
|
|
|
(51,397 |
) |
|
|
(38,354 |
) |
|
|
(13,043 |
) |
|
|
(34.0 |
) |
|
|
(17.7 |
) |
|
|
(17.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total LGI before elimination of equity affiliates
|
|
|
1,431,384 |
|
|
|
1,040,094 |
|
|
|
391,290 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Elimination of equity affiliates
|
|
|
(589,597 |
) |
|
|
(1,022,347 |
) |
|
|
432,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
841,787 |
|
|
$ |
17,747 |
|
|
$ |
824,040 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discussion
and Analysis of our Historical Operating Results
|
|
|
Years ended December 31, 2005 and 2004 |
As noted above, the effects of our January 1, 2005
consolidation of Super Media/ J:COM, and acquisitions have
affected the comparability of our results of operations during
2005 and 2004. Unless otherwise indicated in the discussion
below, the significant increases in our historical revenue,
expenses and other items during 2005, as compared to 2004, are
primarily attributable to the effects of these transactions. For
more detailed explanations of the changes in our revenue,
operating expenses and SG&A expenses, see the Discussion
and Analysis of Reportable Segments that appears above.
Our total consolidated revenue increased $2,619,443,000 during
2005, as compared to 2004. The effects of acquisitions and the
consolidation of Super Media/ J:COM accounted for $2,274,023,000
of such increase. Excluding the effects of these transactions
and foreign exchange rate fluctuations, total consolidated
revenue increased $277,312,000 or 11.0% during 2005, as compared
to 2004. As discussed in greater detail under Discussion and
Analysis of Reportable Segments above, most of these
increases are attributable to RGU growth.
Our total consolidated operating expense increased
$1,135,022,000 during 2005, as compared to 2004. The effects of
acquisitions and the consolidation of Super Media/ J:COM
accounted for $1,003,367,000 of such
II-25
increase. Excluding the effects of these transactions and
foreign exchange rate fluctuations, total consolidated operating
expense increased $105,315,000 or 10.0% during 2005, as compared
to 2004. As discussed in more detail under Discussion and
Analysis of Reportable Segments above, these increases
generally reflect increases in (i) programming costs,
(ii) labor costs, (iii) interconnect costs, and
(iv) less significant increases in other expense
categories. Most of these increases are a function of increased
volumes or levels of activity associated with the increase in
our customer base.
Our total consolidated SG&A expense increased $555,363,000
during 2005, as compared to 2004. The effects of acquisitions
and the consolidation of Super Media/ J:COM accounted for
$466,971,000 of such increase. Excluding the effects of these
transactions and foreign exchange rate fluctuations, total
consolidated SG&A expense increased $74,631,000 or 11.7%
during 2005, as compared to 2004. As discussed in more detail
under Discussion and Analysis of Reportable Segments
above, these increases generally reflect increases in
(i) marketing, advertising and commissions and
(ii) labor costs. The increases in our marketing,
advertising and commissions expenses primarily are attributable
to our efforts to increase our RGUs and launch new product
initiatives. The increases in our labor costs primarily are a
function of the increased levels of activity associated with the
increase in our customer base.
|
|
|
Stock-based compensation expense |
A summary of our stock-based compensation expense is set forth
below:
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
amounts in thousands | |
LGI common stock
|
|
$ |
29,011 |
|
|
$ |
135,455 |
|
J:COM common stock
|
|
|
23,147 |
|
|
|
7,221 |
|
Other
|
|
|
7,073 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
59,231 |
|
|
$ |
142,676 |
|
|
|
|
|
|
|
|
We record stock-based compensation that is associated with LGI
common stock, J:COM common stock, and certain other subsidiary
common stock. The stock-based compensation expense associated
with J:COM common stock consists of the amounts recorded by
J:COM pursuant to its stock compensation plans, and amounts
recorded by LGI with respect to LGIs subsidiary stock plan
pursuant to which certain LGI officers have an indirect interest
in J:COM. As a result of adjustments to certain terms of the
former UGC and LMI stock incentive awards in connection with
(i) their respective rights offerings in February 2004 and
July 2004 and (ii) the LGI Combination in June 2005, most
of the LGI stock incentive awards outstanding at
December 31, 2005 are accounted for as variable-plan
awards. The stock-based compensation expense for 2004 includes a
$50,409,000 charge to reflect a change from fixed-plan
accounting to variable-plan accounting as a result of
modifications to the terms of UGC stock options in connection
with UGCs February 2004 rights offering. Other
fluctuations in our stock-based compensation expense during 2005
are largely a function of changes in the market price of the
underlying common stock. The increase in J:COM stock-based
compensation expense is primarily attributable to an increase in
J:COMs stock price since its IPO in March 2005. Due to the
use of variable-plan accounting for most of the outstanding LGI
and J:COM stock incentive awards, stock-based compensation
expense with respect to such stock incentive awards is subject
to adjustment in future periods based on the market value of the
underlying common stock and vesting schedules, and ultimately on
the final determination of market value when the incentive
awards are exercised. For additional information concerning
stock-based compensation, see notes 3 and 14 to our
consolidated financial statements.
II-26
|
|
|
Depreciation and amortization |
Our total consolidated depreciation and amortization expense
increased $539,115,000 during 2005, as compared to 2004. The
effects of the consolidation of Super Media/ J:COM, acquisitions
and the LGI Combination accounted for $636,031,000 of such
increase. Excluding the effect of these transactions and foreign
exchange rate fluctuations, depreciation and amortization
expense decreased $102,240,000 or 11.2% during 2005, as compared
to 2004. This decrease is due primarily to (i) the impact
of certain of Europe Broadbands information technology and
other assets becoming fully depreciated during the last half of
2004 and (ii) the impact during the 2004 periods of Europe
Broadbands acceleration of the depreciation of certain
customer premise equipment that was targeted for replacement.
|
|
|
Impairment of long-lived assets |
We incurred impairment charges of $8,320,000 and $69,353,000
during 2005 and 2004, respectively. The 2005 amount includes a
$7,550,000 impairment charge to reduce the carrying value of the
intangible asset associated with our franchise rights in Puerto
Rico to its estimated fair value of $155,900,000. The 2004
amount includes (i) a $26,000,000 impairment charge as a
result of our assessment of the recoverability of enterprise
level goodwill that was associated with one of our consolidated
subsidiaries, (ii) a $16,623,000 impairment charge recorded
by UGC to write-down the long-lived assets of certain
telecommunications operations in Europe, (iii) $10,955,000
related to the write-down of certain of Europe Broadbands
tangible fixed assets in The Netherlands, and (iv) other
less significant charges.
|
|
|
Restructuring and other operating charges (credits), net |
We incurred restructuring and other operating charges
(credits) of $(2,753,000) and $28,901,000 during 2005 and
2004, respectively. The 2004 amount includes $21,660,000 related
to the restructuring of Europe Broadbands operations in
The Netherlands. The 2005 amount includes (i) a $7,709,000
reversal of the reserve recorded by The Netherlands during 2004
due to our 2005 decision to reoccupy a building and
(ii) other individually insignificant amounts. For
additional information, see note 17 to our consolidated
financial statements.
Our total consolidated interest expense increased $147,146,000
during 2005, as compared to 2004. Excluding the effects of
foreign currency exchange rate fluctuations, interest expense
increased $149,502,000 during 2005, as compared to 2004. This
increase is primarily attributable to a $5,122,226,000 increase
in our outstanding indebtedness during 2005, most of which is
attributable to debt incurred or assumed in connection with the
Cablecom Acquisition, the consolidation of Super Media/ J:COM
and other acquisitions. The increase also includes the net
effect of (i) a $35,170,000 increase associated with
non-cash interest expense representing the net increase during
2005 in the estimated fair value of certain mandatorily
redeemable securities issued by the Investcos, (ii) a
$7,790,000 increase in the interest expense incurred during 2005
on the UGC Convertible Notes, which were issued in April 2004,
and (iii) a $7,484,000 decrease in interest expense
resulting from lower amortization of deferred financing costs,
due primarily to debt extinguishments and the application of
purchase accounting. Most of the net increase in the estimated
fair value of the mandatorily redeemable securities of the
Investcos is associated with the increased liquidity of the
underlying Telenet shares following the Telenet IPO. For
additional information concerning Telenet, see note 6 to
our consolidated financial statements. An increase in our
weighted average interest rate during 2005 also contributed to
the overall increase in interest expense.
|
|
|
Interest and dividend income |
Our total consolidated interest and dividend income increased
$12,155,000 during 2005, as compared to 2004 due primarily to
dividends received on shares of ABC Family Worldwide, Inc.
Series A preferred stock. We acquired a 99.9% interest in
this preferred stock from Liberty Media in connection with the
June 2004 spin off. The impact of this increase was partially
offset by a decrease in guarantee fees received from J:COM, due
II-27
primarily to the elimination of most of such guarantees in
connection with J:COMs December 2004 bank refinancing. An
increase in the interest earned on our weighted average cash and
cash equivalent balances also contributed to the increase.
|
|
|
Share of earnings (losses) of affiliates, net |
The following table reflects our share of earnings (losses), net
of affiliates including any other-than-temporary declines in
value:
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
amounts in thousands | |
Jupiter TV
|
|
$ |
27,759 |
|
|
$ |
14,644 |
|
Telenet
|
|
|
(33,494 |
) |
|
|
|
|
Austar
|
|
|
13,100 |
|
|
|
976 |
|
Mediatti
|
|
|
(6,909 |
) |
|
|
(2,331 |
) |
Metrópolis
|
|
|
(6,782 |
) |
|
|
(8,355 |
) |
Super Media/ J:COM
|
|
|
|
|
|
|
45,092 |
|
Other
|
|
|
(16,623 |
) |
|
|
(11,316 |
) |
|
|
|
|
|
|
|
|
Total
|
|
$ |
(22,949 |
) |
|
$ |
38,710 |
|
|
|
|
|
|
|
|
Our share of earnings (losses) of affiliates includes losses
related to other-than-temporary declines in the value of our
equity method investments of $29,187,000 and $25,973,000 during
2005 and 2004, respectively. For additional information, see
note 6 to our consolidated financial statements.
|
|
|
Realized and unrealized gains (losses) on derivative
instruments, net |
The details of our realized and unrealized gains (losses) on
derivative instruments, net are as follows for the indicated
periods:
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
amounts in thousands | |
Cross-currency and interest rate exchange contracts
|
|
$ |
216,022 |
|
|
$ |
(64,097 |
) |
Embedded derivatives
|
|
|
69,999 |
|
|
|
23,032 |
|
Foreign exchange contracts
|
|
|
11,682 |
|
|
|
196 |
|
Call and put contracts
|
|
|
8,780 |
|
|
|
1,713 |
|
Total return debt swaps
|
|
|
|
|
|
|
2,384 |
|
Other
|
|
|
3,490 |
|
|
|
997 |
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
309,973 |
|
|
$ |
(35,775 |
) |
|
|
|
|
|
|
|
The increase in the unrealized gains on the UPC Broadband
Holding cross currency and interest rate swaps and caps is
attributable to the net effect of (i) larger notional
amounts in 2005, as compared to 2004, (ii) market movements
with respect to the appreciation of the U.S. dollar
exchange rate compared to the euro that caused the value of
these contracts to increase, and (iii) market movements
with respect to lower interest rates which decreased the market
value of the contracts.
The unrealized gains (losses) reported for the embedded
derivatives primarily relate to the embedded derivative
component of the UGC Convertible Notes and the prepaid forward
sale of News Corp. Class A common stock. For additional
information, see note 10 to our consolidated financial
statements.
II-28
|
|
|
Foreign currency transaction gains (losses), net |
The details of our foreign currency transaction gains (losses)
are as follows for the indicated periods:
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
amounts in thousands | |
U.S. dollar debt issued by our European subsidiaries
|
|
$ |
(219,794 |
) |
|
$ |
35,684 |
|
Euro denominated debt issued by UGC
|
|
|
64,173 |
|
|
|
(51,903 |
) |
Cash denominated in a currency other than the entities
functional currency
|
|
|
(32,965 |
) |
|
|
33,600 |
|
Intercompany notes denominated in a currency other than the
entities functional currency
|
|
|
(17,042 |
) |
|
|
46,206 |
|
Repayment of yen denominated shareholder loans(1)
|
|
|
|
|
|
|
56,061 |
|
Other
|
|
|
(3,772 |
) |
|
|
(2,134 |
) |
|
|
|
|
|
|
|
|
Total
|
|
$ |
(209,400 |
) |
|
$ |
117,514 |
|
|
|
|
|
|
|
|
|
|
(1) |
On December 21, 2004, we received cash proceeds of
¥43,809 million ($420,188,000 on December 21,
2004) in connection with the repayment by J:COM and another
affiliate of all principal and interest due to our company
pursuant to then outstanding shareholder loans. In connection
with this transaction, we recognized in our statement of
operations the foreign currency translation gains that
previously had been reflected in accumulated other comprehensive
earnings (loss). |
|
|
|
Gain on exchange of investment securities |
We recognized a pre-tax gain aggregating $178,818,000 during
2004 on exchanges of investment securities including a
$168,301,000 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 the issued and
outstanding common stock of Telewest. This gain 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.
|
|
|
Other-than-temporary-declines in fair value of investments |
We recognized other-than-temporary declines in fair values of
investments of $3,403,000 and $18,542,000 during 2005 and 2004,
respectively. The 2005 amount represents the excess of the
carrying cost over the fair value of ABC Family preferred stock
held by us at December 31, 2005. The 2004 amount includes
$12,429,000 representing the excess of the carrying cost over
the fair value of the Telewest shares held by us at
December 31, 2004.
|
|
|
Gains (losses) on extinguishment of debt |
We recognized a gain (loss) on extinguishment of debt of
($33,700,000) and $27,977,000 during 2005 and 2004,
respectively. The 2005 loss includes (i) a $21,066,000
write-off of unamortized deferred financing costs in connection
with the December 2005 refinancing of the J:COM Credit Facility,
and (ii) a $11,980,000 write-off of deferred financing
costs in connection with the March 2005 refinancing of the UPC
Broadband Holding Bank Facility. The 2004 gain includes a
$31,916,000 gain recognized in connection with the first quarter
2004 consummation of the plan of reorganization of UPC Polska,
Inc., an indirect subsidiary of UGC.
|
|
|
Gains on disposition of non-operating assets, net |
We recognized gains on disposition of non-operating assets, net,
of $115,169,000 and $43,714,000 during 2005 and 2004,
respectively. The 2005 amount includes (i) a $89,069,000
gain in connection with the November
II-29
2005 disposition of our 19% ownership interest in SBS,
(ii) a $62,678,000 loss resulting primarily from the
realization of cumulative foreign currency losses in connection
with the April 2005 disposition of our investment in TyC,
(iii) a $40,527,000 gain recognized in connection with the
February 2005 sale of our Subscription Right to purchase
newly-issued Cablevisión shares in connection with its debt
restructuring, (iv) a $28,186,000 gain on the January 2005
sale of UGCs investment in EWT, and (v) a $17,261,000
gain on the June 2005 sale of our investment in The Wireless
Group plc. The 2004 amount includes (i) a $37,174,000 gain
on the sale of News Corp. Class A common stock, (ii) a
$25,256,000 gain in connection with our April 2004 contribution
of certain equity interests to Jupiter TV, (iii) a
$16,407,000 net loss on the disposition of 18,417,883
Telewest shares, (iv) a $10,000,000 loss on the sale of Sky
Multi-Country, and (v) a $6,878,000 gain associated with
the redemption of our investment in certain bonds.
|
|
|
Income tax benefit (expense) |
We recognized income tax benefit (expense) of ($29,849,000) and
$13,800,000 during 2005 and 2004, respectively. The tax expense
for 2005 differs from the expected tax expense of $17,778,000
(based on the U.S. federal 35% income tax rate) due
primarily to (i) the impact of certain permanent
differences between the financial and tax accounting treatment
of interest and other items associated with intercompany loans,
investments in subsidiaries, and other items that resulted in
nondeductible expenses or tax-exempt income in the tax
jurisdiction, (ii) the reduction of deferred tax assets in
The Netherlands due to an enacted tax law change, (iii) an
increase due to the impact of differences in the statutory and
local tax rate in certain jurisdictions in which we operate, and
(iv) the tax effect of state and foreign taxes for our
operations, including a net increase in deferred tax expense
recorded for the increase in the estimated blended state tax
rate used to compute our net U.S. deferred tax liabilities
due to inclusion of UGC in the U.S. consolidated tax
return. The items mentioned above are offset by (i) the
realization of taxable foreign currency gains and losses in
certain jurisdictions not recognized for financial reporting
purposes, (ii) losses recognized on dispositions of
consolidated investments for which no deferred taxes were
historically provided, and (iii) a net decrease in our
valuation allowance established against deferred tax assets,
including a tax benefit of ¥7,539 million ($68,655,000
at the average rate for the period) recognized in 2005
associated with the release of valuation allowances by J:COM,
that is largely offset by the establishment of valuation
allowances in other jurisdictions against currently arising
deferred tax assets. The tax expense for 2004 differs from the
expected tax benefit of $66,932,000 (based on the
U.S. federal 35% income tax rate) primarily due to the
reduction of UGCs deferred tax assets as a result of tax
rate reductions in The Netherlands, France, the Czech Republic,
and Austria. For additional information, see note 12 to our
consolidated financial statements.
|
|
|
Years ended December 31, 2004 and 2003 |
As noted above, the comparability of our 2004 and 2003 operating
results were significantly affected by the January 1, 2004
consolidation of UGC. For more detailed explanations of the
changes in our revenue, operating expenses and SG&A
expenses, see the Discussion and Analysis of Reportable
Segments that appears above. Unless otherwise indicated
below, the significant increases in our revenue and expenses
during 2004, as compared to 2003, are attributable to the
consolidation of UGC.
|
|
|
Stock-based compensation charges |
We incurred stock-based compensation expense of $142,676,000 and
$4,088,000 during 2004 and 2003, respectively. The 2004 amount,
which includes $116,661,000 of compensation expense related to
stock incentive awards issued by UGC, was primarily a function
of higher UGC and LMI stock prices, changes from fixed-plan to
variable-plan accounting and additional vesting of stock
incentive awards. As a result of adjustments to certain terms of
the former UGC and LMI stock incentive awards that were
outstanding at the time of their respective rights offerings in
February 2004 and July 2004, most of the UGC and LMI stock
incentive awards outstanding at December 31, 2004 were
accounted for as variable-plan awards. A $50,409,000 first
quarter 2004 charge was recorded by UGC to reflect a change from
fixed-plan accounting to variable-plan accounting in connection
with UGCs February 2004 rights offering.
II-30
|
|
|
Interest and dividend income |
Interest and dividend income increased $40,620,000 during 2004,
as compared to 2003. The increase includes $23,823,000 that is
attributable to the January 1, 2004 consolidation of UGC.
The remaining increase is primarily attributable to dividend
income on the ABC Family preferred stock, a 99.9% interest in
which was contributed by Liberty Media to our company in
connection with the spin off.
|
|
|
Share of earnings of affiliates, net |
Our share of earnings of affiliates increased $24,971,000 during
2004, as compared to 2003. Such increase primarily is
attributable to increases in our share of the net earnings of
J:COM and, to a lesser extent, Jupiter TV. Such increases were
partially offset by write-downs of our investments in Torneos y
Competencias S.A. and another entity that distributes
programming in Latin America to reflect other-than-temporary
declines in the fair values of these investments. The increase
in J:COMs net earnings is primarily attributable to
revenue growth due to increases in the subscribers to
J:COMs telephony, Internet and video services. For
additional discussion of J:COMs operating results, see
Discussion and Analysis of Reportable Segments above.
During 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 information, see note 6 to our consolidated
financial statements.
|
|
|
Realized and unrealized gains (losses) on derivative
instruments, net |
The details of our realized and unrealized gains (losses) on
derivative instruments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
amounts in thousands | |
Cross-currency and interest rate exchange contracts
|
|
$ |
(64,097 |
) |
|
$ |
|
|
Embedded derivatives
|
|
|
23,032 |
|
|
|
|
|
Total return debt swaps
|
|
|
2,384 |
|
|
|
37,804 |
|
Call and put contracts
|
|
|
1,713 |
|
|
|
|
|
Foreign exchange contracts
|
|
|
196 |
|
|
|
(22,626 |
) |
Other
|
|
|
997 |
|
|
|
(2,416 |
) |
|
|
|
|
|
|
|
|
Total
|
|
$ |
(35,775 |
) |
|
$ |
12,762 |
|
|
|
|
|
|
|
|
For additional information concerning our derivative
instruments, see note 8 to our consolidated financial
statements.
II-31
|
|
|
Foreign currency transaction gains (losses), net |
The details of our foreign currency transaction gains (losses)
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
amounts in thousands | |
Repayment of yen denominated shareholder loans
|
|
$ |
56,061 |
|
|
$ |
|
|
Euro denominated debt issued by UGC
|
|
|
(51,903 |
) |
|
|
|
|
Intercompany notes denominated in a currency other than the
entities functional currency
|
|
|
46,206 |
|
|
|
|
|
U.S. dollar debt issued by our European subsidiaries
|
|
|
35,684 |
|
|
|
|
|
Euro denominated cash held by UGC
|
|
|
26,192 |
|
|
|
|
|
Yen denominated cash held by LGI subsidiary
|
|
|
7,408 |
|
|
|
|
|
Other
|
|
|
(2,134 |
) |
|
|
5,412 |
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
117,514 |
|
|
$ |
5,412 |
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit (expense) |
We recognized income tax benefit (expense) of $13,800,000 and
($27,975,000) during 2004 and 2003, respectively. The 2004 tax
benefit differs from the expected tax benefit of $66,932,000
(based on the U.S. federal 35% income tax rate) due
primarily to (i) the realization of taxable foreign
currency gains in certain jurisdictions not recognized for
financial reporting purposes, (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; (iii) a
net increase in UGCs valuation allowance associated with
reserves established against currently arising tax loss
carryforwards that were only partially offset by the release of
valuation allowances in other jurisdictions, and (iv) the
reduction of UGCs deferred tax assets as a result of tax
rate reductions in The Netherlands, France, the Czech Republic,
and Austria. Certain of the released valuation allowances were
related to deferred tax assets that were recorded in purchase
accounting and accordingly, such valuation allowances were
reversed against goodwill. The items mentioned above were
partially offset by (i) the recognition of tax losses or
deferred tax assets for the sale of investments or subsidiaries,
as well as certain permanent differences between financial and
tax accounting treatment of other items associated with
investments in subsidiaries, (ii) a 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, and
(iii) the reversal of a deferred tax liability originally
recorded for a gain on extinguishment of debt in a 2002 merger
transaction as a result of the emergence of Old UGC from
bankruptcy in November 2004. The difference between the actual
tax expense and the expected tax expense of $17,111,000 (based
on the U.S. Federal 35% income tax rate) during 2003 is
primarily attributable to foreign, state and local taxes. For
additional details, see note 12 to our consolidated
financial statements.
Liquidity and Capital Resources
Although our consolidated operating subsidiaries have generated
cash from operating activities and have borrowed funds under
their respective bank facilities, we generally do not expect to
access the resources of our operating subsidiaries or business
affiliates. Moreover, the terms of the instruments governing the
indebtedness of certain of our subsidiaries, including UPC
Broadband Holding and Cablecom Luxembourg, restrict our ability
to access the assets of these subsidiaries. In light of these
factors, we and each of our operating subsidiaries perform
separate assessments of our respective liquidity needs.
Accordingly, we discuss separately below our corporate level and
our subsidiary level current and future liquidity.
II-32
The details of the U.S. dollar equivalent balances of our
consolidated cash and cash equivalents at December 31, 2005
are set forth in the following table (amounts in thousands):
|
|
|
|
|
|
|
Cash and cash equivalents held by:
|
|
|
|
|
LGI and its non-operating subsidiaries
|
|
$ |
660,763 |
|
Europe Broadband:
|
|
|
|
|
|
|
UPC Holding
|
|
|
14,556 |
|
|
|
UPC Broadband Holding and its unrestricted subsidiaries
|
|
|
48,154 |
|
|
|
Cablecom Luxembourg and its unrestricted subsidiaries
|
|
|
85,479 |
|
J:COM
|
|
|
299,140 |
|
VTR
|
|
|
41,263 |
|
Other operating subsidiaries
|
|
|
52,845 |
|
|
|
|
|
|
Total cash and cash equivalents
|
|
$ |
1,202,200 |
|
|
|
|
|
The cash and cash equivalent balances of $660,763,000 held by
LGI and its non-operating subsidiaries represented available
liquidity at the corporate level at December 31, 2005. Our
remaining unrestricted cash and cash equivalents of $541,437,000
at December 31, 2005 were held by our operating
subsidiaries as set forth in the table above. As noted above, we
generally do not anticipate that any of the cash held by our
operating subsidiaries will be made available to us to satisfy
our corporate liquidity requirements. As described in greater
detail below, our current sources of corporate liquidity include
(i) our cash and cash equivalents, (ii) our ability to
monetize certain investments, 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 or upon the exercise of stock options.
The primary uses of cash held by LGI and its non-operating
subsidiaries have historically been investments in affiliates
and acquisitions of consolidated businesses. We intend to
continue expanding our portfolio of international broadband and
programming assets. Accordingly, our future cash needs are
expected to include funding for acquisitions of consolidated
business, additional investments in and loans to existing
affiliates, funding new investment opportunities, and funding
our corporate general and administrative expenses and interest
payments on the UGC Convertible Notes.
UGC has issued
500.0 million
($591.6 million) principal amount of
13/4
% euro-denominated UGC Convertible Notes due
April 15, 2024. Interest is payable semi-annually on April
15 and October 15 of each year. For additional information, see
note 10 to our consolidated financial statements.
On June 20, 2005, we announced the authorization of a stock
repurchase program. Under the program, we may acquire from time
to time up to $200 million in LGI Series A common
stock and LGI Series C common stock. Through
December 31, 2005, we have repurchased 2,048,231 and
1,455,859 shares of LGI Series A common stock and LGI
Series C common stock, respectively, for aggregate cash
consideration of $78,893,000. Subsequent to December 31,
2005, we repurchased 2,698,558 and 1,504,311 additional shares
of LGI Series A common stock and Series C common
stock, respectively, for aggregate cash consideration of
$89,357,000. In addition, on March 8, 2006, our Board of
Directors approved a new stock repurchase program under which we
may acquire an additional $250 million in LGI Series A
common stock and LGI Series C common stock. These stock
repurchase programs may be effected through open market
transactions and/or privately negotiated transactions, which may
include derivative transactions. The timing of the repurchase of
shares pursuant to the program will depend on a variety of
factors, including market conditions. These programs may be
suspended or discontinued at any time. For information
concerning certain call agreements that we have entered into in
connection with our stock repurchase activities, see
Quantitative and Qualitative Disclosures about Market Risk
below.
II-33
In connection with the closing of the LGI Combination, we issued
65,694,765 shares of each of LGI Series A common stock
and LGI Series C common stock (including 2,067,786 of each
series of stock that were issued to subsidiaries of UGC) and
paid cash consideration of $703,535,000 (including direct
acquisition costs of $9,018,000) to acquire the shares of UGC
common stock that we did not already own. For additional
information concerning the LGI Combination, see note 5 to
our consolidated financial statements.
In August 2005, we entered into a prepaid forward sale
transaction with respect to 5,500,000 shares of News Corp.
Class A common stock. In consideration for entering into
the forward contract, we received approximately
$75 million. For additional information, see note 10
to our consolidated financial statements.
We believe that our current sources of liquidity are sufficient
to meet our known liquidity and capital needs through 2006.
However, in the event that a major investment or acquisition
opportunity were to arise, we expect that we would be required
to seek additional capital in order to consummate any such
transaction.
As noted above, we began consolidating Super Media/ J:COM
effective January 1, 2005. The consolidation of Super
Media/ J:COM did not have a material impact on our liquidity or
capital resources as both our company and J:COM have continued
to separately assess and finance our respective liquidity needs.
See separate discussion of the liquidity and capital resources
of J:COM below.
Europe Broadband (UPC Holding and LG Switzerland). As
detailed in the table above, UPC Holding, LG Switzerland and
their consolidated subsidiaries held aggregate cash balances of
$148,189,000 at December 31, 2005. In addition to its cash
and cash equivalents, Europe Broadbands sources of
liquidity include borrowing availability under its existing
credit facilities and its operating cash flow.
At December 31, 2005, Europe Broadbands debt included
debt of UPC Broadband Holding, UPC Holding, LG Switzerland and
Cablecom Luxembourg. The debt of UPC Broadband Holding includes
outstanding euro denominated borrowings under four Facilities of
the UPC Broadband Holding Bank Facility aggregating
$2,277,837,000 in equivalent U.S. dollars and
U.S. dollar denominated borrowings under two Facilities
aggregating $1,775,000,000. Two additional euro denominated
Facilities (Facility A and Facility I) under the UPC Broadband
Holding Bank Facility can be used to finance additional
permitted acquisitions and for general corporate purposes,
subject to covenant compliance. Based on the December 31,
2005 covenant compliance calculations, the aggregate amount that
was available for borrowing under these Facilities was
approximately
229 million
($271 million), subject to the completion of UPC
Holdings fourth quarter bank reporting requirements. On
January 24, 2006, a portion of the proceeds from the sale
of UPC Norway of approximately
175 million
($214 million at the transaction date) were applied toward
the prepayment of Facility I. The amount repaid may be
reborrowed subject to covenant compliance.
On July 29, 2005, UPC Holding issued
500 million
($607 million at the borrowing date) principal amount of
7.75% Senior Notes.
On October 24, 2005, LG Switzerland completed the purchase
of all of the issued share capital of Cablecom, the parent
company of a Swiss cable operator, for a cash purchase price
before direct acquisition costs of CHF2.826 billion
($2.212 billion at the transaction date). The Cablecom
Acquisition was funded through a combination of (i) a
550 million
($667 million at the borrowing date), 9.5 year
split-coupon floating rate PIK Loan entered into by LG
Switzerland, (ii) a new offering of
300 million
($363 million at the borrowing date) principal amount of
8.625% Senior Notes due 2014 by UPC Holding, a sister
corporation of LG Switzerland and (iii) available cash on
hand. At the acquisition date, Cablecom reported outstanding
debt of CHF1.7 billion ($1.4 billion at the
transaction date), including CHF1.278 billion
($998 million at the transaction date) principal amount of
the Cablecom Luxembourg Senior Notes.
On December 5, 2005, Cablecom Luxembourg and Cablecom GmbH
entered into the Cablecom Luxembourg Bank Facility with certain
banks and financial institution lenders. The Cablecom Luxembourg
Bank Facility provides the terms and conditions upon which
(i) the lenders have made available to Cablecom Luxembourg
two term loans (Facility A and Facility B) in an aggregate
principle amount not to exceed CHF1.330 billion
($1.011 billion) and (ii) the revolving lenders under
Cablecom GmbHs Existing Revolving
II-34
Credit Facility have agreed to make available to Cablecom GmbH
and certain of its subsidiaries a revolving credit facility in
an aggregate principal amount not to exceed CHF150 million
($114 million) in replacement of the Existing Revolving
Facility. Borrowing availability under the revolving credit
facility is subject to covenant compliance. As discussed below,
Facility A was partly drawn in December 2005 and both Facility A
and Facility B were fully drawn subsequent to December 31,
2005.
In connection with the Cablecom Acquisition, under the terms of
the Indentures for the Cablecom Luxembourg Senior Notes,
Cablecom Luxembourg was required to effect the Change of Control
Offer for the Cablecom Luxembourg Senior Notes at 101% of their
respective principal amounts. Pursuant to the Change of Control
Offer, Cablecom Luxembourg on December 8, 2005 used
CHF268,711,000 of proceeds from the Facility A term loan under
the Cablecom Luxembourg Bank Facility to (i) purchase
CHF132,983,000 ($101,719,000 at the transaction date) of the
Cablecom Luxembourg Series A CHF Notes, (ii) purchase
42,817,000
($50,456,000 at the transaction date) of the Cablecom Luxembourg
Series A Euro Notes, (iii) purchase
39,984,000
($47,118,000 at the transaction date) of the Cablecom Luxembourg
Series B Euro Notes, and (iv) fund the costs and
expenses of the Change of Control Offer. All of the purchase
amounts set forth above include principal, call premium and
accrued interest.
On January 20, 2006, Cablecom Luxembourg used the remaining
availability under the Facility A and Facility B term loans to
fund the Redemption of all the Cablecom Luxembourg Floating Rate
Notes that were not tendered in the Change of Control Offer.
For additional information concerning the debt of Europe
Broadband, see note 10 to our consolidated financial
statements.
On October 14, 2005, we completed the acquisition of
Astral, a broadband telecommunications operator in Romania for a
cash purchase price of $407,074,000, before direct acquisition
costs.
On May 9, 2005, we announced that our indirect subsidiary
UPC Ireland had signed a sale and purchase agreement to acquire
MS Irish Cable subject to regulatory approval. MS Irish Cable
acquired NTL Ireland from the NTL Group on May 9, 2005 with
funds provided by a loan from UPC Ireland. As we were
responsible for all losses to be incurred by MSDW Equity in
connection with its acquisition, ownership and ultimate
disposition of MS Irish Cable, we were required to consolidate
MS Irish Cable and its subsidiaries, including NTL Ireland, upon
the closing of MS Irish Cables acquisition of NTL Ireland.
On December 12, 2005, following the receipt of regulatory
approval, UPC Ireland completed its acquisition of MS Irish
Cable. The total purchase consideration for this acquisition was
349,437,000
($448,796,000 at May 9, 2005), including direct acquisition
costs of
16,025,000
($20,582,000 at the transaction date). For additional
information, see note 5 to our consolidated financial
statements.
In April 2005, a subsidiary of UPC Broadband Holding exercised
the call right acquired in connection with the July 2004 Noos
acquisition 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.
On February 10, 2005, we acquired 100% of the shares in
Telemach, a broadband communications provider in Slovenia, for
70,985,000
($91,370,000 at the transaction date) in cash.
On January 19, 2006, we completed the sale of 100% of UPC
Norway, to an unrelated third party for cash proceeds of
approximately
448 million
($542 million on January 19, 2006). For additional
information, see note 5 to our consolidated financial
statements.
For information concerning Europe Broadbands capital
expenditure requirements, see the discussion under
Consolidated Cash Flow Statements below.
We believe that Europe Broadbands current sources of
liquidity are sufficient to meet its known liquidity and capital
needs through 2006. However, to the extent that we plan to grow
Europe Broadbands business through acquisitions, we expect
that Europe Broadband will need additional sources of financing,
most likely to come in the form of debt financing and/or
corporate cash.
II-35
J:COM. At December 31, 2005, J:COM held cash and
cash equivalents of $299,140,000 that were denominated in
Japanese yen. In addition to its cash and cash equivalents,
J:COMs sources of liquidity include borrowing availability
under its existing credit facilities and its operating cash flow.
On December 15, 2005, J:COM executed a
¥155 billion ($1.314 billion) credit facility
agreement with a syndicate of banks led by The Bank of
Tokyo-Mitsubishi, Ltd., Mizuho Corporate Bank, Ltd. and Sumitomo
Mitsui Banking Corporation (the J:COM Credit Facility).
Borrowings may be made under the J:COM Credit Facility on a
senior, unsecured basis pursuant to three facilities: a
¥30 billion ($254 million) five-year revolving
credit loan (the Revolving Loan); a ¥85 billion
($721 million) five-year amortizing term loan (the
Tranche A Term Loan); and a ¥40 billion
($339 million) seven-year amortizing term loan (the
Tranche B Term Loan). On December 21, 2005, the
proceeds of the term loans were used, together with available
cash, to repay in full outstanding loans totaling
¥128 billion ($1.1 billion at the transaction
date) under J:COMs then existing credit facilities.
Borrowings under the revolving loan may be used by J:COM for
general corporate purposes.
At December 31, 2005, J:COMs debt includes Japanese
yen denominated borrowings pursuant to the J:COM Credit Facility
aggregating approximately ¥125 billion
($1,059,771,000), capital lease obligations aggregating
¥38.5 billion ($326,603,000), and other borrowings
aggregating approximately ¥21.603 billion
($183,158,000). At December 31, 2005, J:COM had
¥30 billion ($254,345,000) of borrowing availability
pursuant to the J:COM Credit Facility. For additional
information concerning J:COMs debt, see note 10 to
our consolidated financial statements.
On September 30, 2005, J:COM paid cash of
¥9,200 million ($81,022,000 at the transaction date)
and assumed debt and capital lease obligations of
¥5,480 million ($48,261,000 at the transaction date)
to purchase 100% of the outstanding shares of J:COM
Setamachi. J:COM immediately repaid ¥3,490 million
($30,735,000 at the transaction date) of the assumed debt. J:COM
Setamachi is a broadband communications provider in Japan.
On March 23, 2005, J:COM received net proceeds of
¥82,043 million ($774,283,000 at March 23, 2005)
in connection with an IPO of its common shares, and on
April 20, 2005, J:COM received additional net proceeds of
¥8,445 million ($79,117,000 at April 20, 2005) in
connection with the sale of additional common shares upon the
April 15, 2005 exercise of the underwriters
over-allotment option. J:COM used a portion of the net proceeds
received in March 2005 to repay ¥50 billion
($472 million at March 23, 2005) of certain
outstanding bank borrowings.
On February 25, 2005, J:COM completed a transaction with
Sumitomo, Microsoft and our company whereby J:COM paid aggregate
cash consideration of ¥4,420 million ($41,932,000 at
the transaction date) to acquire each entities respective
interests in Chofu Cable, a Japanese broadband communications
provider, and to acquire from Microsoft equity interests in
certain telecommunications companies. Our share of the
consideration was ¥972 million ($9,221,000 at the
transaction date). As a result of this transaction, J:COM
acquired an approximate 92% equity interest in Chofu Cable.
For information concerning J:COMs capital expenditure
requirements, see the discussion under Consolidated Cash Flow
Statements below.
Management of J:COM believes that J:COMs current sources
of liquidity are sufficient to meet its known liquidity and
capital needs through 2006. However, to the extent that J:COM
management plans to grow J:COMs business through
acquisitions, J:COM management believes that J:COM may need
additional sources of financing, most likely to come in the form
of debt or equity financing or a combination of both.
VTR. At December 31, 2005, VTR held cash and cash
equivalents of $41,263,000 in equivalent U.S. dollars. In
addition to its cash and cash equivalents, VTRs primary
source of liquidity is its operating cash flow.
VTR has a Chilean peso-denominated seven-year amortizing term
senior secured credit facility (as amended) totaling
CLP175.502 billion ($341,437,000). In July 2005, VTR
borrowed CLP14.724 billion ($25,456,000 as of the
transaction date) under the VTR Bank Facility to fund the
repayment of an existing obligation to CTC. On September 9,
2005, the VTR Bank Facility was amended to improve the maturity
and other terms of the
II-36
existing facility. On September 20, 2005, VTR completed the
syndication of the amended VTR Bank Facility, raising proceeds
of CLP70.674 billion ($132,262,000 as of September 20,
2005). These proceeds were used to repay a total of $119,578,000
in shareholder loans and accrued interest owed to our
subsidiaries and $10,415,000 to repay a loan and accrued
interest owed to CCI. For additional information, see
note 10 to our consolidated financial statements.
On April 13, 2005, VTR completed its previously announced
combination with Metrópolis, a Chilean broadband
communications company. Prior to the combination, LMI owned a
50% interest in Metrópolis, with the remaining 50% interest
owned by CCC. As consideration for CCCs 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 assumed certain indebtedness owed by
Metrópolis to CCI in the amount of CLP6.067 billion
($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. The acquisition of CCCs interest in
Metrópolis included the assumption of $25,773,000 in debt
payable to CTC and CLP30.335 billion ($51,773,000 at
April 13, 2005) of bank debt. The bank debt was repaid in
April 2005 and the debt to CTC was repaid in July 2005 using
proceeds from the VTR Bank Facility. The final regulatory
approval for the combination, which was obtained in March 2005,
imposed certain conditions on the combined entity. The most
significant of these conditions require that the combined entity
(i) re-sell broadband capacity to third party Internet
service providers on a wholesale basis; (ii) activate
two-way capacity on 2.0 million homes passed within five
years from the consummation date of the combination; and
(iii) for three years after the consummation date of the
combination, limit basic tier price increases to the rate of
inflation plus a programming cost escalator.
For information concerning VTRs capital expenditure
requirements, see the discussion under Consolidated Cash Flow
Statements below.
We believe that VTRs existing sources of liquidity are
sufficient to meet its known liquidity and capital needs through
2006. However, if VTR were to make a significant acquisition, we
believe that VTR may need additional sources of financing, most
likely in the form of debt or equity financing or a combination
of both.
Certain of our consolidated businesses other than Europe
Broadband, J:COM and VTR completed transactions that affected
our liquidity during 2005.
On December 14, 2005 we paid net cash consideration of
A$204,909,000 ($154,952,000 at the transaction date) to increase
our indirect ownership of Austar from a 36.7% non-controlling
ownership interest to a 55.2% controlling interest. As a result
of this transaction, we began consolidating Austar. Prior to
obtaining a controlling interest in Austar, UGC used the equity
method to account for its indirect investment in Austar. For
additional information, see note 5 to our consolidated
financial statements.
On November 23, 2005, Plator Holdings, an indirect
subsidiary of chellomedia, paid cash consideration of
$62,812,000 to acquire the 50% interest that it did not already
own in certain businesses that provide thematic television
channels in Spain and Portugal, which we refer to as IPS. Plator
Holdings financed the purchase price with new bank borrowings.
Following the transaction, Plator Holdings indirectly holds its
interests in IPS through its 100% ownership interests in Nidlo
B.V., Iberian Programming Services C.V. and Multicanal Iberia
SL. Prior to this transaction, we used the equity method to
account for our investment in IPS.
On November 8, 2005, we received cash consideration of
276,432,000
($325,554,000 at the transaction date) in connection with the
disposition of our 19% ownership interest in SBS. In addition,
we completed a number of less significant dispositions during
2005. For additional information, see note 5 to our
consolidated financial statements.
In connection with the October 14, 2005 Telenet IPO,
(i) one of our indirect subsidiaries, chellomedia
Investments, purchased 7,722,918 of Telenets ordinary
shares on October 14, 2005 for an aggregate cash purchase
price of
160,221,000
($193,667,000 at the transaction date) and
(ii) 72,962,000
($88,181,000 at
II-37
the transaction date) of the mandatorily redeemable securities
previously issued by the Investcos to third parties were
redeemed. For additional information, see note 6 to our
consolidated financial statements.
In January 2005, chellomedia acquired the Class A shares of
Zone Vision. The consideration for the transaction consisted of
(i) $50,000,000 in cash, before considering direct
acquisition costs of $2,154,000, and
(ii) 351,110 shares of LGI Series A common stock
and 351,110 shares of LGI Series C common stock valued
at $14,973,000. As part of the transaction, chellomedia
contributed to Zone Vision its 49% interest in Reality TV Ltd.
and chellomedias Club channel business. Zone Vision is a
programming company focused on the ownership, management and
distribution of pay television channels. The Zone Vision shares
purchased by chellomedia represent an 87.5% interest in Zone
Vision on a fully diluted basis.
|
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Consolidated Cash Flow Statements |
Our cash flows are subject to significant variations based on
foreign currency exchange rates. See related discussion under
Quantitative and Qualitative Disclosures about Market Risk
below. See also our Discussion and Analysis of Reportable
Segments above.
Due to the fact that we began consolidating Super Media/ J:COM
on January 1, 2005 and UGC on January 1, 2004, our
cash flows for 2005 and 2004 are not comparable to the
respective prior year cash flows. Accordingly, the following
discussion focuses separately on our cash flows for 2005 and
2004.
2005 Consolidated Cash Flow Statement. During 2005, we
used net cash provided by our operating activities of
$1,576,102,000, net cash provided by financing activities of
$2,191,842,000 and $1,326,915,000 of our existing cash and cash
equivalent balances (excluding a $160,152,000 decrease due to
changes in foreign exchange rates) to fund net cash used in our
investing activities of $4,934,707,000.
The net cash used by our investing activities during 2005
includes cash paid in connection with the LGI Combination of
$703,535,000, cash paid for acquisitions of $3,584,442,000,
capital expenditures of $1,194,993,000, net proceeds received
upon dispositions of $464,501,000, and the net effect of other
less significant sources and uses of cash. For additional
information concerning our 2005 acquisitions, see note 5 to
our consolidated financial statements.
Europe Broadband and VTR accounted for $585,514,000 and
$98,576,000, respectively of our consolidated capital
expenditures during 2005, and $330,028,000 and $41,685,000,
respectively, during 2004. Excluding FX, we expect the 2006
capital expenditures of Europe Broadband and VTR to
significantly exceed the comparable 2005 amounts due primarily
to: (i) the effects of acquisitions, (ii) initiatives
such as our plan to invest more aggressively in digital
television in The Netherlands and our efforts to continue the
growth of our VoIP telephony services in Europe and Chile;
(iii) increased costs for customer premise equipment as we
expect our operating segments in Europe and Chile to add more
customers in 2006 than in 2005; (iv) increased expenditures
for new build and upgrade projects to expand services and
improve our competitive position, and to meet increased traffic
and certain franchise commitments; and (iv) other factors
such as information technology upgrades and expenditures for
general support systems. The expected increase in capital
expenditures from 2005 to 2006 is largely in line with the
expected increase in revenue as a result of acquisitions and RGU
growth. In this regard, we expect that the 2006 capital
expenditures of Europe Broadband and VTR, as a percentage of
local currency revenue, will fall within a range of 25% to 27%
and 28% to 30%, respectively. In future periods, we expect
Europe Broadband and VTR to continue to focus on increasing the
penetration of services in their existing upgraded footprint and
efficiently deploying capital aimed at services that result in
positive net cash flows.
J:COM accounted for $354,705,000 of our consolidated capital
expenditures during 2005. J:COM uses capital lease arrangements
to finance a significant portion of its capital expenditures.
From a financial reporting perspective, capital expenditures
that are financed by capital lease arrangements are treated as
non-cash activities and accordingly are not included in the
capital expenditure amounts presented in our consolidated
statements of cash flows. Including $145,115,000 of expenditures
that were financed under capital lease arrangements,
J:COMs capital expenditures aggregated $499,820,000 during
2005. The majority of J:COMs capital expenditures during
2005 was associated with RGU growth and the related purchase and
installation of
II-38
customer premise equipment. J:COM management expects this trend
to continue in 2006 as RGU growth is again expected to account
for the majority of J:COMs capital expenditure
requirements in 2006. The impact of recent acquisitions is also
expected to result in higher capital expenditures for J:COM in
2006, as compared to 2005. Due to these factors, J:COM
management currently expects that, excluding FX, J:COMs
aggregate 2006 capital expenditures (whether financed with cash
or capital lease arrangements) will exceed the 2005 amount and
fall within a range of 30% to 32% of J:COMs 2006 revenue.
The actual amount of the 2006 capital expenditures of Europe
Broadband, VTR and J:COM may vary from the expected amounts
disclosed above for a variety of reasons, including changes in
(i) the competitive or regulatory environment,
(ii) business plans, (iii) current or expected future
operating results and (iv) the availability of capital.
Accordingly, no assurance can be given that actual capital
expenditures will not vary from the expected amounts disclosed
above.
During 2005, the cash provided by our financing activities was
$2,191,842,000. Such amount includes net proceeds received on a
consolidated basis from the issuance of stock by subsidiaries of
$873,554,000 (including $853,400,000 of proceeds received by
J:COM in connection with its IPO) and net borrowings of debt and
capital lease obligations of $1,555,251,000.
2004 Consolidated Cash Flow Statement. During 2004, we
used net cash provided by our financing activities of
$2,232,578,000 and net cash provided by operating activities of
$743,308,000 to fund an increase in our cash and cash equivalent
balances of $2,516,362,000 (excluding a $66,756,000 increase due
to changes in foreign exchange rates) and net cash used in our
investing activities of $526,280,000.
During 2004, the net cash used by our investing activities was
$526,280,000. Such amount includes net cash paid for
acquisitions of $509,696,000, capital expenditures of
$487,617,000, investments in and loans to affiliates and others
of $256,959,000 and other less significant uses of cash. For
additional information concerning our acquisitions during 2004,
see note 5 to our consolidated financial statements. UGC
accounted for $480,133,000 of our consolidated capital
expenditures during 2004.
The above-described uses of our cash for investing activities
were partially offset by proceeds received upon repayment of
principal amounts loaned to affiliates of $535,074,000 and
proceeds received upon dispositions of investments of
$315,792,000 and other less significant sources of cash. The
proceeds received upon repayment of affiliate loans primarily
represent the third and fourth quarter repayment of
yen-denominated loans to J:COM and another affiliate. The
proceeds received upon dispositions of investments relate
primarily to the sale of our Telewest and News Corp. securities.
During 2004, the cash provided by our financing activities was
$2,232,578,000. Such amount includes net proceeds of
$735,661,000 from the LMI Rights Offering, contributions from
Liberty Media of $704,250,000, net proceeds received on a
consolidated basis from the issuance of stock by subsidiaries of
$488,437,000, and net borrowings of debt of $444,027,000.
Off Balance Sheet
Arrangements and Aggregate Contractual Obligations
Off Balance Sheet
Arrangements
At December 31, 2005, J:COM guaranteed
¥11,074 million ($93,887,000) of the debt of certain
of its affiliates. The debt maturities range from 2007 to 2017.
In the ordinary course of business, we have provided
indemnifications to (i) purchasers of certain of our
assets, (ii) our lenders, (iii) our vendors, and
(iv) other parties. In addition, we have provided
performance and/or financial guarantees to local municipalities,
our customers and vendors. Historically, these arrangements have
not resulted in our company making any material payments and we
do not believe that they will result in material payments in the
future.
Our equity method investment in Mediatti is owned by our
consolidated subsidiary, Liberty Japan MC. Olympus, another
shareholder of Mediatti, has a put right that is first
exercisable during July 2008 to require Liberty Japan MC to
purchase all of its Mediatti shares at the then fair value. If
Olympus exercises such right, the two minority shareholders who
are party to the shareholders agreement may also require Liberty
Japan
II-39
MC to purchase their Mediatti shares at the then fair value. If
Olympus does not exercise such right, Liberty Japan MC has a
call right that is first exercisable during July 2009 to require
Olympus and the minority shareholders to sell their Mediatti
shares to Liberty Japan MC at the then fair value. If both the
Olympus put right and the Liberty Japan MC call right expire
without being exercised during the first exercise period, either
may thereafter exercise its put or call right, as applicable,
until October 2010.
Pursuant to the agreement with CPE governing Belgian Cable
Investors, CPE has the right to require BCH to purchase all of
CPEs 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. BCH has the corresponding right to require CPE to sell all
of its interest in Belgian Cable Investors to BCH for appraised
fair value during the first 30 days of every six-month
period following December 2009. For additional information, see
note 6 to our consolidated financial statements.
As further described in note 5 to our consolidated
financial statements, Zone Visions
Class B1 shareholders have the right, subject to
vesting, to put 60% and 100% of their Class B1 shares
to chellomedia on January 7, 2008 and January 7, 2010,
respectively. chellomedia has a corresponding call right.
In connection with the April 13, 2005 combination of VTR
and Metrópolis, CCC acquired an option to require UGC to
purchase CCCs equity interest in VTR at fair value,
subject to a $140 million floor price. This option is
exercisable by CCC beginning on April 13, 2006 and expires
on April 13, 2015. We have reflected the $7,997,000 fair
value of this put obligation at December 31, 2005 in other
current liabilities in our consolidated balance sheet. For
additional information, see note 6 to our consolidated
financial statements.
Commitments and
Contingencies
For a description of our contingent liabilities related to
certain legal proceedings, see note 20 to our consolidated
financial statements.
We operate in numerous countries around the world and
accordingly we are subject to, and pay annual income taxes
under, the various income tax regimes in the countries in which
we operate. The tax rules and regulations in many countries are
highly complex and subject to interpretation. In the normal
course of business, we may be subject to a review of our income
tax filings by various taxing authorities. In connection with
such reviews, disputes could arise with the taxing authorities
over the interpretation or application of certain income tax
rules related to our business in that tax jurisdiction. Such
disputes may result in future tax and interest assessments by
these taxing authorities. We have recorded an estimated
liability in our consolidated tax provision for any such amount
that we do not have a probable position of sustaining upon
review of the taxing authorities. We adjust our estimates
periodically because of ongoing examinations by and settlements
with the various taxing authorities, as well as changes in tax
laws, regulations, interpretations, and precedent. We believe
that adequate accruals have been made for contingencies related
to income taxes, and have classified these in long-term
liabilities based upon our estimate of when the ultimate
resolution of the contingent liability will occur. The ultimate
resolution of the contingent liability will take place upon the
earlier of (i) the settlement date with the applicable
taxing authorities or (ii) the date when the tax
authorities are statutorily prohibited from adjusting the
companys tax computations. Any difference between the
amount accrued and the ultimate settlement amount, if any, will
be released to income or recorded as a reduction of goodwill
depending upon whether the liability was initially recorded in
purchase accounting.
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.
Adverse regulatory developments could subject our businesses to
a number of risks. Regulation could limit growth, revenue and
the number and types of services offered. In addition,
regulation may restrict our operations and subject them to
further competitive pressure, including pricing restrictions,
interconnect and other access obligations, and restrictions or
controls on content, including content provided by third
parties. Failure to comply with current or future regulation
could expose our businesses to various penalties.
II-40
In addition to the foregoing items, 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 our consolidated financial statements.
As of December 31, 2005, the U.S. dollar equivalent
(based on December 31, 2005 exchange rates) of our
consolidated contractual commitments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due during year ended December 31, | |
|
|
| |
|
|
2006 | |
|
2007 | |
|
2008 | |
|
2009 | |
|
2010 | |
|
Thereafter | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
amounts in thousands | |
Debt (excluding interest)
|
|
$ |
175,804 |
|
|
$ |
320,190 |
|
|
$ |
313,063 |
|
|
$ |
350,149 |
|
|
$ |
2,545,153 |
|
|
$ |
6,006,210 |
|
|
$ |
9,710,569 |
|
Capital leases (excluding interest)
|
|
|
94,143 |
|
|
|
76,585 |
|
|
|
64,238 |
|
|
|
54,313 |
|
|
|
45,015 |
|
|
|
54,485 |
|
|
|
388,779 |
|
Operating leases
|
|
|
122,419 |
|
|
|
107,990 |
|
|
|
80,456 |
|
|
|
60,935 |
|
|
|
49,876 |
|
|
|
163,538 |
|
|
|
585,214 |
|
Programming, satellite and other purchase obligations
|
|
|
252,575 |
|
|
|
78,553 |
|
|
|
39,438 |
|
|
|
18,740 |
|
|
|
9,441 |
|
|
|
60,008 |
|
|
|
458,755 |
|
Other commitments
|
|
|
143,111 |
|
|
|
16,164 |
|
|
|
6,485 |
|
|
|
4,563 |
|
|
|
4,447 |
|
|
|
10,129 |
|
|
|
184,899 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
788,052 |
|
|
$ |
599,482 |
|
|
$ |
503,680 |
|
|
$ |
488,700 |
|
|
$ |
2,653,932 |
|
|
$ |
6,294,370 |
|
|
$ |
11,328,216 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected cash interest payments on debt and capital lease
obligations*
|
|
$ |
664,789 |
|
|
$ |
603,739 |
|
|
$ |
562,480 |
|
|
$ |
550,827 |
|
|
$ |
432,788 |
|
|
$ |
963,492 |
|
|
$ |
3,778,115 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
Based on interest rates and contractual maturities in effect as
of December 31, 2005. |
Programming commitments consist of obligations associated with
certain of our programming contracts that are enforceable and
legally binding on us in that we have agreed to pay minimum
fees, regardless of the actual number of subscribers to the
programming services or whether we terminate cable service to a
portion of our subscribers or dispose of a portion of our cable
systems. Satellite commitments consist of obligations associated
with satellite services provided to our company. Other purchase
obligations include commitments to purchase customer premise
equipment that are enforceable and legally binding on us.
Other commitments consist of commitments to rebuild or upgrade
cable systems and to extend the cable network to new
developments, and perform network maintenance, and other fixed
minimum contractual commitments associated with our agreements
with franchise or municipal authorities. The amount and timing
of the payments included in the table with respect to our
rebuild, upgrade and network extension commitments are estimated
based on the remaining capital required to bring the cable
distribution system into compliance with the requirements of the
applicable franchise agreement specifications.
In addition to the commitments set forth in the table above, we
have commitments under agreements with programming vendors,
franchise authorities and municipalities, and other third
parties pursuant to which we expect to make payments in future
periods. Such amounts are not included in the above table
because they are not fixed or determinable due to various
factors.
Critical Accounting Policies, Judgments and Estimates
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
those estimates under different assumptions or conditions.
Critical accounting policies are defined as those policies that
are reflective
II-41
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
long-lived assets, the valuation of our acquisition related
assets and liabilities, the carrying value of our investments,
capitalization of our construction and installation costs, our
income tax accounting and our accounting for derivative
instruments 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 susceptible to change.
|
|
|
Carrying Value of Long-lived Assets |
The aggregate carrying value of our property and equipment,
intangible assets and goodwill (collectively, long-lived assets)
that were held for use comprised 81% and 55% of our total assets
at December 31, 2005 and 2004, respectively. Pursuant to
SFAS 142 and SFAS 144, we are required to assess the
recoverability of our long-lived assets.
SFAS 144 requires that we periodically review the carrying
amounts of our property and equipment and our intangible assets
(other than goodwill and indefinite-lived intangible assets) 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 recognized. Such adjustment is measured by the
amount that the carrying value of such assets exceeds their fair
value. We generally measure fair value by considering sale
prices for similar assets or by discounting estimated future
cash flows using an appropriate discount rate. For purposes of
impairment testing, long-lived assets are grouped at the lowest
level for which cash flows are largely independent of other
assets and liabilities. Assets to be disposed of are carried at
the lower of their financial statement carrying amount or fair
value less costs to sell.
Pursuant to SFAS 142, we evaluate the goodwill, franchise
rights and other indefinite-lived intangible assets for
impairment at least annually on October 1 and whenever
other facts and circumstances indicate that the carrying amounts
of goodwill and indefinite-lived intangible assets may not be
recoverable. For purposes of the goodwill evaluation, we compare
the fair value of each of our reporting units to their
respective carrying amounts. If the carrying value of a
reporting unit were to exceed its fair value, we would then
compare the implied fair value of the reporting units
goodwill to its carrying amount, and any excess of the carrying
amount over the fair value would be charged to operations as an
impairment loss. Any excess of the carrying value over the fair
value for franchise rights is charged to operations as an
impairment loss.
Considerable management judgment is necessary to estimate the
fair value of assets; accordingly, actual results could vary
significantly from such estimates.
In 2005, 2004 and 2003, we recorded impairments of our
long-lived assets aggregating $8,320,000, $69,353,000 and nil,
respectively. For additional information, see note 9 to our
consolidated financial statements.
|
|
|
Fair Value of Acquisition Related Assets and Liabilities |
We allocate the purchase price of acquired companies or
acquisitions of minority interests of a subsidiary to the
identifiable assets acquired and liabilities assumed based on
their estimated fair values. In determining fair value, we are
required to make estimates and assumptions that affect the
recorded amounts. Third party valuation specialists generally
are engaged to assist in the valuation of certain of these
assets and liabilities. Estimates used in valuing acquired
assets and liabilities include, but are not limited to, expected
future cash flows, market comparables and appropriate discount
rates, remaining useful lives of long-lived assets, replacement
costs of property and equipment, fair values of debt, and the
amounts to be recovered in future periods from acquired net
operating losses and other deferred tax assets. Our estimates in
this area impact the amount of depreciation and amortization,
impairment charges, interest expense and income tax expense or
II-42
benefit that we report in the periods following the acquisition
date. Managements estimates of fair value are based upon
assumptions believed to be reasonable, but which are inherently
uncertain.
|
|
|
Carrying Value of Investments |
The aggregate carrying value of our available-for-sale, cost and
equity method investments comprised 6% and 20% of our total
assets at December 31, 2005 and 2004, respectively. We
account for these investments pursuant to SFAS 115,
SFAS 142 and APB 18. These accounting principles
require us to periodically evaluate our investments to determine
if a decline in fair value below the cost basis is
other-than-temporary. If a decline in fair value is deemed to be
other-than-temporary, the cost basis of the security is written
down to fair value. Writedowns for cost investments and
available-for-sale securities are included in the consolidated
statements of operations as other-than-temporary declines in
fair values of investments. Writedowns for equity method
investments are included in share of earnings (losses) of
affiliates.
The primary factors we consider in our determination are the
length of time that the fair value of the investment is below
our companys carrying value and the financial condition,
operating performance and near term prospects of the investee.
In addition, we consider the reason for the decline in fair
value, be it general market conditions, industry specific or
investee specific; 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 a recovery in fair value. If the decline in fair value is
deemed to be other-than-temporary, the cost basis of the
security is written down to fair value. In situations where the
fair value of an investment is not evident due to a lack of a
public market price or other factors, we use our best estimates
and assumptions to arrive at the estimated fair value of such
investment. Our assessment of the foregoing factors involves a
high degree of judgment and accordingly, actual results may
differ materially from our estimates and judgments.
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 consolidated statement of operations in the period in
which they occur to the extent such decreases are deemed to be
other-than-temporary. Subsequent increases in fair value will be
recognized in our consolidated statement of operations only upon
our ultimate disposition of the investment.
In 2005, 2004 and 2003, we recorded other-than-temporary
declines in the fair values of our (i) cost and
available-for-sale investments aggregating $3,403,000,
$18,542,000 and $6,884,000, respectively, and (ii) equity
method investments aggregating $29,187,000, $25,973,000 and
$12,616,000, respectively. For additional information, see
note 6 to our consolidated financial statements.
|
|
|
Capitalization of Construction and Installation Costs |
In accordance with SFAS 51, Financial Reporting by Cable
Television Companies, we capitalize costs associated with
the construction of new cable transmission and distribution
facilities and the installation of new cable services.
Capitalized construction and installation costs include
materials, labor and applicable overhead costs. Installation
activities that are capitalized include (i) the initial
connection (or drop) from our cable system to a customer
location, (ii) the replacement of a drop, and
(iii) the installation of equipment for additional
services, such as digital cable, telephone or broadband Internet
service. The costs of other customer-facing activities such as
reconnecting customer locations where a drop already exists,
disconnecting customer locations and repairing or maintaining
drops, are expensed as incurred. Significant judgment is
involved in the determination of the nature and amount of
internal costs to be capitalized with respect to construction
and installation activities.
We are required to estimate the amount of tax payable or
refundable for the current year and the deferred tax assets and
liabilities for the future tax consequences attributable to
differences between the financial statement
II-43
carrying amounts and income tax basis of assets and liabilities
and the expected benefits of utilizing net operating loss and
tax credit carryforwards, using enacted tax rates in effect for
each taxing jurisdiction in which we operate for the year in
which those temporary differences are expected to be recovered
or settled. This process requires our management to make
assessments regarding the timing and probability of the ultimate
tax impact of such items. Net deferred tax assets are reduced by
a valuation allowance if we believe it more-likely-than-not such
net deferred tax assets will not be realized. Establishing a tax
valuation allowance requires us to make assessments about the
timing of future events, including the probability of expected
future taxable income and available tax planning opportunities.
At December 31, 2005, the aggregate valuation allowance
provided against deferred tax assets was $2,766,270,000. Actual
income taxes could vary from these estimates due to future
changes in income tax law or interpretations thereof in the
jurisdictions in which we operate, our inability to generate
sufficient future taxable income, differences between estimated
and actual results, or unpredicted results from the final
determination of each years liability by taxing
authorities. Any of such factors could have a material effect on
our current and deferred tax position as reported in our
consolidated financial statements. A high degree of judgment is
required to assess the impact of possible future outcomes on our
current and deferred tax positions. For additional information,
see note 12 to our consolidated financial statements.
As further described in note 8 to our consolidated
financial statements, we have entered into various derivative
instruments, including interest rate and foreign currency
derivative instruments. In addition, we have entered into other
contracts, such as the UGC Convertible Notes, that contain
embedded derivative financial instruments. All derivatives 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. With the exception of J:COMs interest rate swaps
in 2005, none of the derivative instruments that were in effect
during the three years ended December 31, 2005 were
designated as hedges.
We use a binomial model to estimate the fair value of the
derivative instrument embedded in the UGC Convertible Notes and
certain call options that we hold with respect to Telenet
ordinary shares. We also use the Black-Scholes option-pricing
model to estimate the fair value of certain other derivative
instruments that we hold. These models incorporate a number of
variables in determining such fair values, including expected
volatility of the underlying security, an appropriate discount
rate and the U.S. dollar to euro exchange rate. Volatility
rates are based on the expected volatility of the underlying
security over the term of the derivative instrument, and are
adjusted quarterly. U.S. dollar to euro exchange rates are
based on published indices, and are adjusted quarterly.
Considerable management judgment is required in estimating these
variables. Actual results upon settlement of our derivative
instruments may differ materially from these estimates.
|
|
Item 7A. |
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.
II-44
We invest our cash in liquid instruments that meet high credit
quality standards and generally have maturities at the date of
purchase of less than three months. We are exposed to exchange
rate risk with respect to certain of our cash balances that are
denominated in Japanese yen, euros, and, to a lesser degree,
other currencies. At December 31, 2005, we and J:COM held
cash balances of $11,015,000 and $299,140,000, respectively,
that were denominated in Japanese yen and we held cash balances
of $362,790,000 that were denominated in euros. These Japanese
yen and euro cash balances are available to be used for future
acquisitions and other liquidity requirements that may be
denominated in such currencies.
We are also exposed to market price fluctuations related to our
investments in equity securities. At December 31, 2005, the
aggregate fair value of our equity method and available-for-sale
investments that was subject to price risk was approximately
$497 million.
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. 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 the parent company to experience
unrealized foreign currency translation losses (gains) with
respect to amounts already invested in such foreign currencies.
In addition, we and our operating subsidiaries and affiliates
are exposed to foreign currency risk to the extent that we enter
into transactions denominated in currencies other than our
respective functional currencies, such as investments in debt
and equity securities of foreign subsidiaries, equipment
purchases, programming 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, we are exposed to foreign
exchange rate fluctuations related to our operating
subsidiaries monetary assets and liabilities and the
financial results of foreign subsidiaries and affiliates when
their respective financial statements are translated into
U.S. dollars for inclusion in our consolidated financial
statements. Cumulative translation adjustments are recorded in
accumulated other comprehensive earnings (loss) as a separate
component of equity. As a result of foreign currency risk, we
may experience economic loss and a negative impact on earnings
and equity with respect to our holdings solely as a result of
foreign currency exchange rate fluctuations. The primary
exposure to foreign currency risk for our company is to the euro
and Japanese yen as 40% and 32% of our U.S. dollar revenue
during 2005 was derived from subsidiaries whose functional
currency is the euro and Japanese yen, respectively. In
addition, we have significant exposure to changes in the
exchange rates for the Swiss franc, Chilean peso, the Hungarian
forint and other local currencies in Europe.
Several of our subsidiaries have outstanding foreign currency
forward contracts. A currency forward is an agreement to
exchange cash flows denominated in different currencies at a
specified future date (the maturity date) and at a specified
exchange rate (the forward exchange rate) agreed on the trade
date. Changes in the fair value of these contracts are recorded
in realized and unrealized gains (losses) on derivative
instruments in
II-45
our consolidated statements of operations. The following table
summarizes our outstanding foreign currency forward contracts at
December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts converted | |
|
|
|
|
| |
|
|
|
|
Local currency | |
|
Foreign currency | |
|
Maturity dates | |
|
|
| |
|
| |
|
| |
|
|
amounts in thousands | |
|
|
UPC Broadband Holding
|
|
|
NOK 876,280 |
|
|
|
109,320 |
|
|
|
January 2006 |
|
J:COM
|
|
|
¥ 1,033,000 |
|
|
$ |
8,882 |
|
|
|
February May 2006 |
|
VTR
|
|
|
CLP 16,408,905 |
|
|
$ |
30,000 |
|
|
|
January December 2006 |
|
LG Switzerland
|
|
|
CHF 925,133 |
|
|
|
606,446 |
|
|
|
April 2007 |
|
Austar
|
|
|
AUD 62,987 |
|
|
$ |
46,150 |
|
|
|
January 2006 December 2007 |
|
The relationship between the euro, Japanese yen, Chilean peso,
Swiss franc and the Hungarian forint and the U.S. dollar,
which is our reporting currency, is shown below, per one
U.S. dollar:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
December 31, |
|
December 31, |
Spot rates: |
|
2005 |
|
2004 |
|
2003 |
|
|
|
|
|
|
|
Euro
|
|
|
0.8451 |
|
|
|
0.7333 |
|
|
|
0.7933 |
|
Swiss Franc
|
|
|
1.3153 |
|
|
|
1.1319 |
|
|
|
1.238 |
|
Japanese yen
|
|
|
117.95 |
|
|
|
102.41 |
|
|
|
107.37 |
|
Chilean peso
|
|
|
514.01 |
|
|
|
559.19 |
|
|
|
593.80 |
|
Hungarian forint
|
|
|
213.52 |
|
|
|
180.59 |
|
|
|
209.38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
Average rates: |
|
2005 |
|
2004 |
|
2003 |
|
|
|
|
|
|
|
Euro
|
|
|
0.8043 |
|
|
|
0.8059 |
|
|
|
0.8806 |
|
Swiss Franc
|
|
|
1.2924 |
|
|
|
1.240 |
|
|
|
1.3452 |
|
Japanese yen
|
|
|
109.81 |
|
|
|
107.44 |
|
|
|
116.06 |
|
Chilean peso
|
|
|
558.42 |
|
|
|
609.22 |
|
|
|
686.04 |
|
Hungarian forint
|
|
|
199.49 |
|
|
|
202.84 |
|
|
|
228.73 |
|
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.
Interest Rate Risks
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 that are 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 UPC Broadband
Holding, Cablecom Luxembourg and LG Switzerland, the
TIBOR-indexed debt of J:COM and the TAB-indexed debt of VTR. UPC
Broadband Holding, Cablecom Luxembourg, LG Switzerland, J:COM,
VTR and certain other of our subsidiaries have entered into
various derivative transactions pursuant
II-46
to their policies to manage exposure to movements in interest
rates. We use 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. We also use interest rate cap
agreements that lock in a maximum interest rate should variable
rates rise, but which enable it to otherwise pay lower market
rates. We manage the credit risks associated with our derivative
financial instruments through the evaluation and monitoring of
the creditworthiness of the counterparties. Although the
counterparties may expose our company to losses in the event of
nonperformance, we do not expect such losses, if any, to be
significant.
Weighted Average Variable Interest Rate At
December 31, 2005, our variable rate indebtedness
(exclusive of the effects of interest rate exchange agreements)
aggregated approximately $7.6 billion, and the
weighted-average interest rate (including margin) on such
variable rate indebtedness was approximately 4.9%
(5.7% exclusive of J:COM). Assuming no change in the amount
outstanding, and without giving effect to any interest rate
exchange agreements, a hypothetical 50 basis point increase
(decrease) in our weighted average variable interest rate would
increase (decrease) our annual consolidated interest expense and
cash outflows by approximately $38 million.
Derivative
Instruments
Cross-currency and Interest
Rate Contracts
Through our subsidiaries, we have entered into various
derivative instruments to manage interest rate and foreign
currency exposure. With the exception of J:COMs interest
rate swaps, which as discussed below, are accounted for as cash
flow hedges, we do not apply hedge accounting to our derivative
instruments. Accordingly, changes in the fair values of all
other derivative instruments are recorded in realized and
unrealized gains (losses) on derivative instruments in our
consolidated statements of operations. The terms of significant
outstanding contracts at December 31, 2005, were as follows:
|
|
|
Cross-currency and Interest Rate Swaps: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal | |
|
|
|
Interest rate | |
|
Interest rate | |
|
|
amount due | |
|
Notional | |
|
(on principal | |
|
(on notional | |
|
|
from | |
|
amount due to | |
|
amount) due from | |
|
amount) due to | |
Maturity date |
|
counterparty | |
|
counterparty | |
|
counterparty | |
|
counterparty | |
|
|
| |
|
| |
|
| |
|
| |
|
|
amounts in thousands | |
|
|
|
|
UPC Broadband Holding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 2011(1)
|
|
$ |
525,000 |
|
|
|
393,500 |
|
|
|
LIBOR + 3.0% |
|
|
|
EURIBOR + 3.10% |
|
|
October 2012(2)
|
|
|
1,250,000 |
|
|
|
944,000 |
|
|
|
LIBOR + 2.5% |
|
|
|
6.06% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,775,000 |
|
|
|
1,337,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cablecom GmbH(3):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 2007
|
|
|
193,333 |
|
|
|
CHF 299,792 |
|
|
|
9.74% |
|
|
|
8.33% |
|
|
April 2007
|
|
|
96,667 |
|
|
|
149,896 |
|
|
|
9.74% |
|
|
|
8.41% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
290,000 |
|
|
|
CHF 449,688 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Swap contract effectively converts the indicated principal
amount of UPC Broadband Holdings
U.S. dollar-denominated LIBOR-indexed floating rate debt to
Euro-denominated EURIBOR-indexed floating rate debt. |
|
(2) |
Swap contract effectively converts the indicated principal
amount of UPC Broadband Holdings
U.S. dollar-denominated LIBOR-indexed floating rate debt to
Euro-denominated fixed rate debt. |
|
(3) |
Swap contract effectively converts the indicated principal
amount of Cablecom Luxembourgs Euro-denominated fixed-rate
debt to CHF-denominated fixed-rate debt. |
II-47
Holding all other factors constant, (i) an instantaneous
increase of 10% in the value of the U.S. dollar relative to the
euro at December 31, 2005 would have increased the
aggregate value of the UPC Broadband Holding cross-currency and
interest rate exchange contracts by approximately
172 million
($204 million), (ii) an instantaneous decrease of 10%
in the value of the U.S. dollar relative to the euro at
December 31, 2005 would have decreased the aggregate value
of the UPC Broadband Holding cross-currency and interest rate
exchange contracts by approximately
146 million
($173 million), and (iii) an instantaneous increase
(decrease) in the relevant base floating rate of 50 basis
points (0.50%) at December 31, 2005 would have increased
(decreased) the aggregate value of the UPC Broadband
Holding cross-currency and interest rate swaps and caps by
approximately
67 million
($79 million).
Holding all other factors constant, (i) an instantaneous
increase (decrease) of 10% in the value of the euro relative to
the Swiss franc at December 31, 2005 would have increased
(decreased) the aggregate value of the Cablecom GmbH and
Cablecom Luxembourg cross-currency and interest rate exchange
contracts by approximately $37 million and (ii) an
instantaneous increase (decrease) in the relevant base floating
rate (excluding margin) of 50 basis points (0.50%) at
December 31, 2005 would have increased (decreased) the
aggregate value of the Cablecom GmbH cross-currency and interest
rate swaps by approximately $27 million.
II-48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable |
|
|
|
|
|
|
interest rate |
|
Fixed interest | |
|
|
|
|
due from |
|
rate due to | |
Maturity date |
|
Notional amount | |
|
counterparty |
|
counterparty | |
|
|
| |
|
|
|
| |
|
|
amounts in | |
|
|
|
|
|
|
thousands | |
|
|
|
|
UPC Broadband Holding(1):
|
|
|
|
|
|
|
|
|
|
|
|
January 2006
|
|
|
525,000 |
|
|
EURIBOR |
|
|
2.26% |
|
|
January 2006
|
|
|
550,000 |
|
|
EURIBOR |
|
|
2.33% |
|
|
April 2010
|
|
|
1,000,000 |
|
|
EURIBOR |
|
|
3.28% |
|
|
September 2012
|
|
|
500,000 |
|
|
EURIBOR |
|
|
2.96% |
|
|
|
|
|
|
|
|
|
|
|
|
|
2,575,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LG Switzerland(2)
|
|
|
|
|
|
|
|
|
|
|
|
April 2007
|
|
|
560,072 |
|
|
EURIBOR |
|
|
2.82% |
|
|
|
|
|
|
|
|
|
|
Cablecom Luxembourg(3):
|
|
|
|
|
|
|
|
|
|
|
|
December 2010
|
|
|
CHF618,480 |
|
|
CHF LIBOR |
|
|
2.19% |
|
|
December 2012
|
|
|
711,520 |
|
|
CHF LIBOR |
|
|
2.34% |
|
|
|
|
|
|
|
|
|
|
|
|
|
CHF1,330,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Austar(4):
|
|
|
|
|
|
|
|
|
|
|
|
December 2006
|
|
|
AUD165,000 |
|
|
AUD LIBOR |
|
|
5.67% |
|
|
January 2009
|
|
|
115,800 |
|
|
AUD LIBOR |
|
|
5.72% |
|
|
|
|
|
|
|
|
|
|
|
|
|
AUD280,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Puerto Rico subsidiary(5):
|
|
|
|
|
|
|
|
|
|
|
|
May 2007
|
|
$ |
31,875 |
|
|
LIBOR |
|
|
3.75% |
|
|
May 2009
|
|
|
31,875 |
|
|
LIBOR |
|
|
3.98% |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
63,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VTR(6):
|
|
|
|
|
|
|
|
|
|
|
|
June 2012
|
|
|
CLP140,401,800 |
|
|
TAB |
|
|
7.01% |
|
|
|
|
|
|
|
|
|
|
J:COM(7):
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
¥33,798,240 |
|
|
TIBOR |
|
|
0.52% |
|
|
December 30, 2009
|
|
|
5,500,000 |
|
|
TIBOR |
|
|
0.55% |
|
|
December 30, 2009
|
|
|
1,500,000 |
|
|
TIBOR |
|
|
0.69% |
|
|
December 30, 2009
|
|
|
3,000,000 |
|
|
TIBOR |
|
|
0.70% |
|
|
|
|
|
|
|
|
|
|
|
|
|
¥43,798,240 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Each contract effectively fixes the EURIBOR on the indicated
principal amount of UPC Broadband Holdings
Euro-denominated debt. |
|
(2) |
At December 31, 2005, this contact effectively fixed the
EURIBOR rate on the indicated principal amount of LG
Switzerlands Euro-denominated debt. The notional amount of
this contract increases ratably through January 2007 to a
maximum amount of
597,798,000
($707,370,000) and remains at that level through the maturity
date of the contract. |
|
(3) |
Each contract effectively fixes the CHF LIBOR on the indicated
principal amount of Cablecom Luxembourgs CHF-denominated
debt. |
II-49
|
|
(4) |
Each contract effectively fixes the AUD LIBOR on the indicated
principal amount of Austars AUD-denominated debt. |
|
(5) |
Each contract effectively fixes the LIBOR on the indicated
principal amount of the U.S. dollar-denominated debt of our
Puerto Rico subsidiary. |
|
(6) |
Contract effectively fixes the
90-day Chilean
peso-denominated TAB on the indicated principal amount of
VTRs CLP-denominated debt. |
|
(7) |
These swap agreements effectively fix the TIBOR component of the
variable interest rates on borrowings pursuant to J:COMs
Credit Facility. For additional information, see note 10 in
our consolidated financial statements. J:COM accounts for these
derivative instruments as cash flow hedging instruments.
Accordingly, the effective component of the change in the fair
value of these instruments is reflected in other comprehensive
earnings (loss), net. |
Each contract caps the EURIBOR rate on the indicated principal
amount of UPC Broadband Holdings Euro-denominated debt, as
detailed below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Start date |
|
Maturity date |
|
Principal amount |
|
Cap level |
|
|
|
|
|
|
|
|
|
|
|
amounts in |
|
|
|
|
|
|
thousands |
|
|
UPC Broadband Holding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 2005
|
|
|
January 2006 |
|
|
|
1,500,000 |
|
|
|
3.0% |
|
|
July 2005
|
|
|
January 2006 |
|
|
|
1,100,000 |
|
|
|
3.0% |
|
|
January 2006
|
|
|
July 2006 |
|
|
|
900,000 |
|
|
|
4.0% |
|
|
January 2006
|
|
|
January 2007 |
|
|
|
600,000 |
|
|
|
4.0% |
|
|
July 2006
|
|
|
January 2007 |
|
|
|
400,000 |
|
|
|
4.0% |
|
|
January 2007
|
|
|
January 2008 |
|
|
|
750,000 |
|
|
|
3.5% |
|
The UGC Convertible Notes are compound financial instruments
that contain a foreign currency debt component and an equity
component that is indexed to LGI Series A common stock, LGI
Series C common stock and to currency exchange rates (euro
to U.S. dollar). We account for the embedded equity
derivative separately at fair value, with changes in fair value
reported in our consolidated statement of operations. During
2005, we recognized an unrealized gain on the embedded equity
derivative of $65,613,000. The fair value of the embedded equity
derivative and the accreted value of the debt host contract are
presented together in the caption long-term debt and capital
lease obligations in our consolidated balance sheet, as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
amounts in thousands | |
Debt host contract
|
|
$ |
437,439 |
|
|
$ |
462,164 |
|
Embedded equity derivative
|
|
|
128,032 |
|
|
|
193,645 |
|
|
|
|
|
|
|
|
|
|
$ |
565,471 |
|
|
$ |
655,809 |
|
|
|
|
|
|
|
|
Holding all other factors constant, (i) an instantaneous
increase of 10% in the fair value of the Euro relative to the
U.S. dollar at December 31, 2005 would have decreased
the fair value of the embedded equity derivative by
approximately
35 million
($41 million), (ii) an instantaneous decrease of 10%
in the fair value of the euro to the U.S. dollar at
December 31, 2005 would have increased the fair value of
the embedded equity derivative by approximately
32 million
($38 million), (iii) an instantaneous increase
(decrease) in the risk free rate of 50 basis points (0.50%)
at December 31, 2005 would have increased
(decreased) the value of the embedded equity derivative by
approximately
4 million
($5 million), and (iv) an instantaneous increase
(decrease) of 10% in the combined per share market price of LGI
Series A common stock and LGI Series C common stock
II-50
at December 31, 2005 would have increased
(decreased) the fair value of the embedded equity
derivative by approximately
38 million
($45 million).
|
|
|
Prepaid Forward Sale Transaction News Corp.
Class A common stock |
On August 2, 2005, we entered into a prepaid forward sale
transaction with respect to 5,500,000 shares of News Corp.
Class A common stock, which we account for as an
available-for-sale investment. In consideration for entering
into the forward contract, we received cash consideration of
$75,045,000. The forward contract includes a debt host
instrument and an embedded derivative. The embedded derivative
has the combined economics of a put exercisable by LGI and a
call exercisable by the counterparty. As the net fair value of
the embedded derivative at the inception date was zero, the full
$75,045,000 received at the inception date is associated with
the debt host contract and such amount represents the present
value of the amount to be paid upon the maturity of the forward
contract. The forward contract is scheduled to mature on
July 7, 2009, at which time we are required to deliver a
variable number of shares of News Corp. Class A common
stock to the counterparty not to exceed 5,500,000 shares
(or the cash value thereof). If the per share price of News
Corp. Class A common stock at the maturity of the forward
contract is less than or equal to approximately $16.24, then we
are required to deliver 5,500,000 shares to the
counterparty or the cash value thereof. If the per share price
at the maturity is greater than approximately $16.24, we are
required to deliver less than 5,500,000 shares to the
counterparty or the cash value of such lesser amount, with the
number of such shares to be delivered or cash to be paid in this
case depending on the extent that the share price exceeds
approximately $16.24 on the maturity date. The delivery
mechanics of the forward contract effectively permit us to
participate in the price appreciation of the underlying shares
up to an agreed upon price. We have pledged
5,500,000 shares of News Corp. Class A common stock to
secure our obligations under the forward contract. We account
for the embedded derivative separately at fair value with
changes in fair value reported in our consolidated statements of
operations. The fair value of the embedded derivative and the
accreted value of the debt host instrument are presented
together in the caption long-term debt and capital lease
obligations in our consolidated balance sheet at
December 31, 2005, as set forth below (amounts in
thousands):
|
|
|
|
|
Debt host contract
|
|
$ |
76,435 |
|
Embedded equity derivative
|
|
|
(3,498 |
) |
|
|
|
|
|
|
$ |
72,937 |
|
|
|
|
|
|
|
|
Other derivative instruments |
In connection with the April 13, 2005 combination of VTR
and Metrópolis, CCC acquired an option to require UGC to
purchase CCCs equity interest in VTR at fair value,
subject to a $140 million floor price. This option is
exercisable by CCC beginning on April 13, 2006 and expires
on April 13, 2015. For additional information, see
note 5 to our consolidated financial statements.
In October 2005, we paid $11,807,000 to enter into a call option
contract pursuant to which we contemporaneously (i) sold
call options on 500,000 shares of LGI Series A common
stock at an exercise price of $24.25 and (ii) purchased
call options on an equivalent number of shares of LGI
Series A common stock with an exercise price of zero. In
connection with the November 2005 expiration of this agreement,
we received a cash payment of $12,125,000.
II-51
In November 2005, we paid $11,969,000 to enter into a call
option contract pursuant to which we contemporaneously
(i) sold call options on 500,000 shares of LGI
Series A common stock at an exercise price of $24.35 and
(ii) purchased call options on an equivalent number of
shares of LGI Series A common stock with an exercise price
of zero. At the expiration of this contract in December 2005, we
exercised our call options and acquired 500,000 shares of
LGI Series A common stock.
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.
|
|
Item 8. |
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
The consolidated financial statements of Liberty Global, Inc.
are filed under this Item, beginning on
page II-53.
Financial statement schedules and separate financial statements
of subsidiaries not consolidated and 50 percent or less
owned persons are filed under Item 15 of this Annual Report
on Form 10-K.
II-52
Managements Annual Report on Internal Control over
Financial Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term
is defined in
Rule 13a-15(f) of
the Securities Exchange Act of 1934. Our internal control over
financial reporting is designed to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with accounting principles generally accepted in the
United States of America. Because of its inherent limitations,
internal control over financial reporting may not prevent or
detect misstatements. Projections of any evaluation of
effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures
may deteriorate.
Our management assessed the effectiveness of internal control
over financial reporting as of December 31, 2005, using the
criteria in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Our evaluation of internal control over
financial reporting did not include the internal control of the
following subsidiaries we acquired in 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue included |
|
|
Total assets included in |
|
in our consolidated |
|
|
our consolidated financial |
|
financial statements for |
|
|
statements as of |
|
the year ended |
|
|
December 31, 2005 |
|
December 31, 2005 |
|
|
|
|
|
|
|
amounts in thousands |
LGI/ Sumisho Super Media, LLC and Jupiter Telecommunications
Co., Ltd.
|
|
$ |
4,378,606 |
|
|
$ |
1,662,105 |
|
Cablecom Holdings AG
|
|
$ |
4,125,278 |
|
|
$ |
122,078 |
|
MS Irish Cable B.V.
|
|
$ |
485,092 |
|
|
$ |
98,982 |
|
Astral Telecom SA
|
|
$ |
460,413 |
|
|
$ |
30,528 |
|
Austar United Communications Limited
|
|
$ |
558,834 |
|
|
$ |
|
|
Telemach d.o.o
|
|
$ |
102,117 |
|
|
$ |
24,546 |
|
Zone Vision Networks Ltd.
|
|
$ |
88,353 |
|
|
$ |
58,904 |
|
Other
|
|
$ |
101,256 |
|
|
$ |
12,784 |
|
The aggregate amount of consolidated assets and revenues of
these subsidiaries included in our consolidated financial
statements as of and for the year ended December 31, 2005
was $10.3 billion and $2.0 billion, respectively.
Based on this evaluation, our management believes that our
internal control over financial reporting was effective as of
December 31, 2005. Our managements assessment of the
effectiveness of our internal control over financial reporting
has been audited by KPMG LLP, an independent registered public
accounting firm, as stated in their report included herein.
II-53
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Liberty Global, Inc.:
We have audited managements assessment, included in the
accompanying Managements Report, that Liberty
Global, Inc. maintained effective internal control over
financial reporting as of December 31, 2005, based on
criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO). Liberty Global Inc.s
management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our
responsibility is to express an opinion on managements
assessment and an opinion on the effectiveness of the
Companys internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, evaluating
managements assessment, testing and evaluating the design
and operating effectiveness of internal control, and performing
such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, managements assessment that Liberty
Global, Inc. maintained effective internal control over
financial reporting as of December 31, 2005, is fairly
stated, in all material respects, based on criteria established
in Internal Control Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Also, in our opinion, Liberty Global, Inc.
maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2005, based on
criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO).
II-54
Managements evaluation of the effectiveness of Liberty
Global Inc.s internal control over financial reporting as
of December 31, 2005 excluded the following business
acquired in 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue included |
|
|
Total assets included in |
|
in our consolidated |
|
|
our consolidated financial |
|
financial statements |
|
|
statements as of |
|
for the year ended |
|
|
December 31, 2005 |
|
December 31, 2005 |
|
|
|
|
|
|
|
amounts in thousands |
LGI/ Sumisho Super Media, LLC and Jupiter Telecommunications
Co., Ltd.
|
|
$ |
4,378,606 |
|
|
$ |
1,662,105 |
|
Cablecom Holdings AG
|
|
$ |
4,125,278 |
|
|
$ |
122,078 |
|
MS Irish Cable B.V.
|
|
$ |
485,092 |
|
|
$ |
98,982 |
|
Astral Telecom SA
|
|
$ |
460,413 |
|
|
$ |
30,528 |
|
Austar United Communications Limited
|
|
$ |
558,834 |
|
|
$ |
|
|
Telemach d.o.o.
|
|
$ |
102,117 |
|
|
$ |
24,546 |
|
Zone Vision Networks Ltd.
|
|
$ |
88,353 |
|
|
$ |
58,904 |
|
Other
|
|
$ |
101,256 |
|
|
$ |
12,784 |
|
The aggregate amount of total assets and revenues of these
subsidiaries included in the consolidated financial statements
of Liberty Global, Inc. as of and for the year ended
December 31, 2005 was $10.3 billion and
$2.0 billion, respectively. Our audit of internal control
over financial reporting of Liberty Global, Inc. also excluded
an evaluation of the internal control over financial reporting
of these subsidiaries.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Liberty Global, Inc. and
subsidiaries as of December 31, 2005 and 2004, the related
consolidated statements of operations, comprehensive earnings
(loss), stockholders equity, and cash flows for each of
the years in the three-year period ended December 31, 2005,
and the financial statement schedules I and II, and our report
dated March 13, 2006 expressed an unqualified opinion on
those consolidated financial statements and schedules.
Denver, Colorado
March 13, 2006
II-55
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Liberty Global, Inc:
We have audited the accompanying consolidated balance sheets of
Liberty Global, Inc. and subsidiaries as of December 31,
2005 and 2004, and the related consolidated statements of
operations, comprehensive earnings (loss), stockholders
equity, and cash flows for each of the years in the three-year
period ended December 31, 2005. In connection with our
audits of the consolidated financial statements, we also have
audited financial statement schedules I and II. These
consolidated financial statements and financial statement
schedules are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Liberty Global, Inc. and subsidiaries as of
December 31, 2005 and 2004, and the results of their
operations and their cash flows for each of the years in the
three-year period ended December 31, 2005, in conformity
with U.S. generally accepted accounting principles. Also in
our opinion, the related financial statement schedules, when
considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material
respects, the information set forth therein.
As discussed in note 22, the consolidated financial
statements as of and for the year ended December 31, 2004
have been adjusted for the change in method of accounting for
income taxes associated with convertible debt in 2005.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of Liberty Global, Inc.s internal control
over financial reporting as of December 31, 2005, based on
criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO), and our report dated
March 13, 2006 expressed an unqualified opinion on
managements assessment of, and the effective operation of,
internal control over financial reporting.
Denver, Colorado
March 13, 2006
II-56
LIBERTY GLOBAL, INC.
(See note 1)
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
|
|
as adjusted | |
|
|
|
|
(note 22) | |
|
|
amounts in thousands | |
ASSETS |
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
1,202,200 |
|
|
$ |
2,529,115 |
|
|
Trade receivables, net
|
|
|
534,243 |
|
|
|
203,890 |
|
|
Other receivables, net
|
|
|
112,537 |
|
|
|
165,631 |
|
|
Current assets of discontinued operations (note 5)
|
|
|
14,686 |
|
|
|
|
|
|
Other current assets
|
|
|
398,719 |
|
|
|
293,947 |
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
2,262,385 |
|
|
|
3,192,583 |
|
|
|
|
|
|
|
|
Investments in affiliates, accounted for using the equity
method, and related receivables (note 6)
|
|
|
789,066 |
|
|
|
1,865,642 |
|
Other investments (note 7)
|
|
|
569,059 |
|
|
|
838,608 |
|
Property and equipment, net (note 9)
|
|
|
7,991,292 |
|
|
|
4,303,099 |
|
Goodwill (note 9)
|
|
|
9,020,071 |
|
|
|
2,667,279 |
|
Franchise rights and other intangible assets not subject to
amortization
(note 9)
|
|
|
218,002 |
|
|
|
230,674 |
|
Intangible assets subject to amortization, net (note 9)
|
|
|
1,601,806 |
|
|
|
382,599 |
|
Long-term assets of discontinued operations (note 5)
|
|
|
329,871 |
|
|
|
|
|
Other assets, net
|
|
|
596,977 |
|
|
|
221,879 |
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
23,378,529 |
|
|
$ |
13,702,363 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements
II-57
LIBERTY GLOBAL, INC.
(See note 1)
CONSOLIDATED BALANCE SHEETS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
|
|
as adjusted | |
|
|
|
|
(note 22) | |
|
|
amounts in thousands | |
LIABILITIES AND STOCKHOLDERS EQUITY |
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$ |
715,599 |
|
|
$ |
363,549 |
|
|
Accrued liabilities and other
|
|
|
669,060 |
|
|
|
556,015 |
|
|
Deferred revenue and advance payments from subscribers and
others (note 11)
|
|
|
595,982 |
|
|
|
353,069 |
|
|
Accrued interest
|
|
|
145,457 |
|
|
|
89,612 |
|
|
Current liabilities of discontinued operations (note 5)
|
|
|
35,266 |
|
|
|
|
|
|
Current portion of debt and capital lease obligations
(note 10)
|
|
|
269,947 |
|
|
|
36,827 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
2,431,311 |
|
|
|
1,399,072 |
|
Long-term debt and capital lease obligations (note 10)
|
|
|
9,845,025 |
|
|
|
4,955,919 |
|
Deferred tax liabilities (note 12)
|
|
|
546,049 |
|
|
|
464,661 |
|
Long-term liabilities of discontinued operations (note 5)
|
|
|
9,599 |
|
|
|
|
|
Other long-term liabilities (note 11)
|
|
|
933,591 |
|
|
|
432,018 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
13,765,575 |
|
|
|
7,251,670 |
|
|
|
|
|
|
|
|
Commitments and contingencies (note 20)
|
|
|
|
|
|
|
|
|
Minority interests in subsidiaries
|
|
|
1,796,508 |
|
|
|
1,213,610 |
|
|
|
|
|
|
|
|
Stockholders Equity:
|
|
|
|
|
|
|
|
|
|
Series A common stock, $.01 par value. Authorized
500,000,000 shares; issued 232,334,708 and
168,514,962 shares at December 31, 2005 and 2004,
respectively
|
|
|
2,323 |
|
|
|
1,685 |
|
|
Series B common stock, $.01 par value. Authorized
50,000,000 shares; issued and outstanding 7,323,570 and
7,264,300 shares at December 31, 2005 and 2004,
respectively
|
|
|
73 |
|
|
|
73 |
|
|
Series C common stock, $.01 par value. Authorized
500,000,000 shares; 239,820,997 and 175,779,262 shares
issued at December 31, 2005 and 2004, respectively
(note 1)
|
|
|
2,398 |
|
|
|
1,758 |
|
|
Additional paid-in capital
|
|
|
9,992,236 |
|
|
|
6,999,877 |
|
|
Accumulated deficit
|
|
|
(1,732,527 |
) |
|
|
(1,652,430 |
) |
|
Accumulated other comprehensive earnings (loss), net of taxes
(note 19)
|
|
|
(262,889 |
) |
|
|
14,010 |
|
|
Deferred compensation
|
|
|
(15,592 |
) |
|
|
|
|
|
Treasury stock, at cost (notes 5 and 13)
|
|
|
(169,576 |
) |
|
|
(127,890 |
) |
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
7,816,446 |
|
|
|
5,237,083 |
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$ |
23,378,529 |
|
|
$ |
13,702,363 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements
II-58
LIBERTY GLOBAL, INC.
(See note 1)
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
|
|
as adjusted | |
|
|
|
|
|
|
(note 22) | |
|
|
|
|
amounts in thousands, except per share amounts | |
Revenue (note 21)
|
|
$ |
5,151,332 |
|
|
$ |
2,531,889 |
|
|
$ |
108,390 |
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (other than depreciation) (note 15)
|
|
|
2,185,515 |
|
|
|
1,050,493 |
|
|
|
62,776 |
|
|
Selling, general and administrative (SG&A) (note 15)
|
|
|
1,194,972 |
|
|
|
639,609 |
|
|
|
27,867 |
|
|
Stock-based compensation charges primarily SG&A
(note 3)
|
|
|
59,231 |
|
|
|
142,676 |
|
|
|
4,088 |
|
|
Depreciation and amortization (note 9)
|
|
|
1,454,863 |
|
|
|
915,748 |
|
|
|
15,114 |
|
|
Impairment of long-lived assets (note 9)
|
|
|
8,320 |
|
|
|
69,353 |
|
|
|
|
|
|
Restructuring and other operating charges (credits)
(note 17)
|
|
|
(2,753 |
) |
|
|
28,901 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,900,148 |
|
|
|
2,846,780 |
|
|
|
109,845 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
251,184 |
|
|
|
(314,891 |
) |
|
|
(1,455 |
) |
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense (note 15)
|
|
|
(433,467 |
) |
|
|
(286,321 |
) |
|
|
(2,178 |
) |
|
Interest and dividend income (note 15)
|
|
|
77,649 |
|
|
|
65,494 |
|
|
|
24,874 |
|
|
Share of earnings (losses) of affiliates, net (note 6)
|
|
|
(22,949 |
) |
|
|
38,710 |
|
|
|
13,739 |
|
|
Realized and unrealized gains (losses) on derivative
instruments, net (note 8)
|
|
|
309,973 |
|
|
|
(35,775 |
) |
|
|
12,762 |
|
|
Foreign currency transaction gains (losses), net
|
|
|
(209,400 |
) |
|
|
117,514 |
|
|
|
5,412 |
|
|
Gain on exchange of investment securities (note 5)
|
|
|
|
|
|
|
178,818 |
|
|
|
|
|
|
Other-than-temporary declines in fair values of investments
(note 7)
|
|
|
(3,403 |
) |
|
|
(18,542 |
) |
|
|
(6,884 |
) |
|
Gains (losses) on extinguishment of debt (note 10)
|
|
|
(33,700 |
) |
|
|
27,977 |
|
|
|
|
|
|
Gains (losses) on disposition of non-operating assets, net
(note 6 and note 7)
|
|
|
115,169 |
|
|
|
43,714 |
|
|
|
(4,033 |
) |
|
Other income (expense), net
|
|
|
(263 |
) |
|
|
(7,931 |
) |
|
|
6,651 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(200,391 |
) |
|
|
123,658 |
|
|
|
50,343 |
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before income taxes, minority interests and
discontinued operations
|
|
|
50,793 |
|
|
|
(191,233 |
) |
|
|
48,888 |
|
Income tax benefit (expense)
|
|
|
(29,849 |
) |
|
|
13,800 |
|
|
|
(27,975 |
) |
Minority interests in losses (earnings) of subsidiaries
|
|
|
(104,535 |
) |
|
|
163,724 |
|
|
|
(24 |
) |
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations
|
|
|
(83,591 |
) |
|
|
(13,709 |
) |
|
|
20,889 |
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from operations, net of tax expense of $565,000
and $2,874,000 in 2005 and 2004, respectively (note 5)
|
|
|
3,494 |
|
|
|
(7,772 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$ |
(80,097 |
) |
|
$ |
(21,481 |
) |
|
$ |
20,889 |
|
|
|
|
|
|
|
|
|
|
|
Historical and pro forma earnings (loss) per common share, basic
and diluted (note 3):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$ |
(0.20 |
) |
|
$ |
(0.04 |
) |
|
$ |
0.07 |
|
|
Discontinued operations
|
|
|
0.01 |
|
|
|
(0.03 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(0.19 |
) |
|
$ |
(0.07 |
) |
|
$ |
0.07 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements
II-59
LIBERTY GLOBAL, INC.
(See note 1)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
|
|
as adjusted | |
|
|
|
|
|
|
(note 22) | |
|
|
|
|
amounts in thousands | |
Net earnings (loss)
|
|
$ |
(80,097 |
) |
|
$ |
(21,481 |
) |
|
$ |
20,889 |
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive earnings (loss), net of taxes (note 19):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
(298,879 |
) |
|
|
165,315 |
|
|
|
102,321 |
|
|
Reclassification adjustment for foreign currency translation
losses (gains) included in net earnings (loss)
|
|
|
54,834 |
|
|
|
(36,174 |
) |
|
|
(27 |
) |
|
Unrealized gains (losses) on available-for-sale securities
|
|
|
19,556 |
|
|
|
(1,450 |
) |
|
|
111,594 |
|
|
Reclassification adjustment for net gains on available-for-sale
securities included in net earnings (loss)
|
|
|
(56,488 |
) |
|
|
(120,842 |
) |
|
|
|
|
|
Unrealized gain on cash flow hedges
|
|
|
4,040 |
|
|
|
|
|
|
|
|
|
|
Reclassification adjustment for loss on cash flow hedge included
in net earnings (loss)
|
|
|
835 |
|
|
|
|
|
|
|
|
|
|
Effect of change in estimated blended state income tax rate
(note 12)
|
|
|
(797 |
) |
|
|
2,745 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive earnings (loss)
|
|
|
(276,899 |
) |
|
|
9,594 |
|
|
|
213,888 |
|
|
|
|
|
|
|
|
|
|
|
Comprehensive earnings (loss)
|
|
$ |
(356,996 |
) |
|
$ |
(11,887 |
) |
|
$ |
234,777 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements
II-60
LIBERTY GLOBAL, INC.
(See note 1)
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other | |
|
|
|
|
|
|
|
|
Common stock | |
|
Additional | |
|
|
|
comprehensive | |
|
Treasury | |
|
|
|
Total | |
|
|
| |
|
Paid-In | |
|
Accumulated | |
|
earnings (loss), | |
|
stock, at | |
|
Parents | |
|
stockholders | |
|
|
Series A | |
|
Series B | |
|
Series C | |
|
Capital | |
|
deficit | |
|
net of taxes | |
|
cost | |
|
investment | |
|
equity | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
|
|
|
|
as adjusted | |
|
|
|
|
|
|
|
as adjusted | |
|
|
|
|
|
|
|
|
|
|
(note 22) | |
|
|
|
|
|
|
|
(note 22) | |
|
|
amounts in thousands | |
Balance at January 1, 2003
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(1,651,838 |
) |
|
$ |
(260,454 |
) |
|
$ |
|
|
|
$ |
4,621,185 |
|
|
$ |
2,708,893 |
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,889 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,889 |
|
|
Other comprehensive earnings, net of tax (note 19)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
213,888 |
|
|
|
|
|
|
|
|
|
|
|
213,888 |
|
|
Intercompany tax allocation (note 12)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,774 |
) |
|
|
(14,774 |
) |
|
Allocation of corporate overhead (note 15)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,873 |
|
|
|
10,873 |
|
|
Net cash transfers from parent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
478,799 |
|
|
|
478,799 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,630,949 |
) |
|
|
(46,566 |
) |
|
|
|
|
|
|
5,096,083 |
|
|
|
3,418,568 |
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,481 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,481 |
) |
|
Other comprehensive earnings, net of tax (note 19)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,594 |
|
|
|
|
|
|
|
|
|
|
|
9,594 |
|
|
Intercompany tax allocation (note 12)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,133 |
|
|
|
6,133 |
|
|
Allocation of corporate overhead (note 15)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 and other changes in subsidiary equity, net of taxes
(note 13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,049 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,025 |
|
|
|
7,074 |
|
|
Net cash transfers from parent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
654,250 |
|
|
|
654,250 |
|
|
Change in capitalization in connection with spin off
(note 2)
|
|
|
1,399 |
|
|
|
61 |
|
|
|
1,460 |
|
|
|
6,226,391 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,229,311 |
) |
|
|
|
|
|
Common stock issued in rights offering (note 2)
|
|
|
283 |
|
|
|
12 |
|
|
|
295 |
|
|
|
735,071 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
735,661 |
|
|
Stock issued for stock option exercises (note 14)
|
|
|
3 |
|
|
|
|
|
|
|
3 |
|
|
|
11,984 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,990 |
|
|
Repurchase of common stock (note 13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(127,890 |
) |
|
|
|
|
|
|
(127,890 |
) |
|
Stock-based compensation (note 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,382 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,382 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004
|
|
$ |
1,685 |
|
|
$ |
73 |
|
|
$ |
1,758 |
|
|
$ |
6,999,877 |
|
|
$ |
(1,652,430 |
) |
|
$ |
14,010 |
|
|
$ |
(127,890 |
) |
|
$ |
|
|
|
$ |
5,237,083 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements
II-61
LIBERTY GLOBAL, INC.
(See note 1)
CONSOLIDATED STATEMENT OF STOCKHOLDERS
EQUITY (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock | |
|
Additional | |
|
|
|
Accumulated other | |
|
|
|
Treasury | |
|
Total | |
|
|
| |
|
Paid-In | |
|
Accumulated | |
|
comprehensive | |
|
Deferred | |
|
stock, at | |
|
stockholders | |
|
|
Series A | |
|
Series B | |
|
Series C | |
|
Capital | |
|
deficit | |
|
earnings (loss), | |
|
compensation | |
|
cost | |
|
equity | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
|
|
|
|
as adjusted | |
|
|
|
|
|
|
|
as adjusted | |
|
|
|
|
|
|
|
|
|
|
(note 22) | |
|
|
|
|
|
|
|
(note 22) | |
|
|
amounts in thousands | |
Balance at January 1, 2005
|
|
$ |
1,685 |
|
|
$ |
73 |
|
|
$ |
1,758 |
|
|
$ |
6,999,877 |
|
|
$ |
(1,652,430 |
) |
|
$ |
14,010 |
|
|
$ |
|
|
|
$ |
(127,890 |
) |
|
$ |
5,237,083 |
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(80,097 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(80,097 |
) |
|
Other comprehensive loss, net of tax (note 19)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(276,899 |
) |
|
|
|
|
|
|
|
|
|
|
(276,899 |
) |
|
Adjustment due to issuance of stock by J:COM (note 5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
120,672 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
120,672 |
|
|
Adjustment due to issuance of stock by Telenet (note 6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,371 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,371 |
|
|
Cancellation of treasury stock
|
|
|
(30 |
) |
|
|
|
|
|
|
(30 |
) |
|
|
(127,830 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
127,890 |
|
|
|
|
|
|
Issuance of restricted stock
|
|
|
4 |
|
|
|
|
|
|
|
4 |
|
|
|
16,702 |
|
|
|
|
|
|
|
|
|
|
|
(16,710 |
) |
|
|
|
|
|
|
|
|
|
Shares issued in LGI Combination, net of issuance costs
(note 5)
|
|
|
657 |
|
|
|
|
|
|
|
657 |
|
|
|
2,875,971 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(90,594 |
) |
|
|
2,786,691 |
|
|
Minority interest in deficit of Austar at acquisition date
(note 5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(52,424 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(52,424 |
) |
|
Stock issued (acquired) in connection with equity incentive and
401(K) plans
|
|
|
7 |
|
|
|
|
|
|
|
9 |
|
|
|
28,356 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(89 |
) |
|
|
28,283 |
|
|
Repurchase of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(78,893 |
) |
|
|
(78,893 |
) |
|
Stock-based compensation, net of taxes (note 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,798 |
|
|
|
|
|
|
|
|
|
|
|
1,118 |
|
|
|
|
|
|
|
6,916 |
|
|
Reclassification of SARs obligation (note 13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,264 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,264 |
|
|
Net cash received in connection with structured stock repurchase
instruments (note 13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
613 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
613 |
|
|
Tax benefits allocated from Liberty Media Corporation pursuant
to Tax Sharing Agreement (note 12)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,671 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,671 |
|
|
Adjustments due to other changes in subsidiary equity, net of
taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,195 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,195 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005
|
|
$ |
2,323 |
|
|
$ |
73 |
|
|
$ |
2,398 |
|
|
$ |
9,992,236 |
|
|
$ |
(1,732,527 |
) |
|
$ |
(262,889 |
) |
|
$ |
(15,592 |
) |
|
$ |
(169,576 |
) |
|
$ |
7,816,446 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements
II-62
LIBERTY GLOBAL, INC.
(See note 1)
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
|
|
as adjusted | |
|
|
|
|
|
|
(note 22) | |
|
|
|
|
amounts in thousands | |
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$ |
(80,097 |
) |
|
$ |
(21,481 |
) |
|
$ |
20,889 |
|
|
Net loss (earnings) from discontinued operations
|
|
|
(3,494 |
) |
|
|
7,772 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) from continuing operations
|
|
|
(83,591 |
) |
|
|
(13,709 |
) |
|
|
20,889 |
|
|
Adjustments to reconcile earnings (loss) from continuing
operations to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
59,231 |
|
|
|
142,676 |
|
|
|
4,088 |
|
|
|
Depreciation and amortization
|
|
|
1,454,863 |
|
|
|
915,748 |
|
|
|
15,114 |
|
|
|
Impairment of long-lived assets
|
|
|
8,320 |
|
|
|
69,353 |
|
|
|
|
|
|
|
Restructuring and other charges (credits)
|
|
|
(2,753 |
) |
|
|
28,901 |
|
|
|
|
|
|
|
Amortization of deferred financing costs and non-cash interest
|
|
|
103,800 |
|
|
|
40,218 |
|
|
|
117 |
|
|
|
Share of losses (earnings) of affiliates, net
|
|
|
22,949 |
|
|
|
(38,710 |
) |
|
|
(13,739 |
) |
|
|
Realized and unrealized losses (gains) on derivative
instruments, net
|
|
|
(309,973 |
) |
|
|
35,775 |
|
|
|
(12,762 |
) |
|
|
Foreign currency transaction losses (gains), net
|
|
|
209,400 |
|
|
|
(117,514 |
) |
|
|
(5,412 |
) |
|
|
Gain on exchange of investment securities
|
|
|
|
|
|
|
(178,818 |
) |
|
|
|
|
|
|
Other-than-temporary declines in fair values of investments
|
|
|
3,403 |
|
|
|
18,542 |
|
|
|
6,884 |
|
|
|
Losses (gains) on extinguishment of debt
|
|
|
33,700 |
|
|
|
(27,977 |
) |
|
|
|
|
|
|
Gains on disposition of investments, net
|
|
|
(115,169 |
) |
|
|
(43,714 |
) |
|
|
(3,759 |
) |
|
|
Deferred income tax expense (benefit)
|
|
|
(74,740 |
) |
|
|
(80,500 |
) |
|
|
42,278 |
|
|
|
Minority interests in earnings (losses) of subsidiaries
|
|
|
104,535 |
|
|
|
(163,724 |
) |
|
|
24 |
|
|
|
Non-cash recognition of deferred revenue
|
|
|
(30,298 |
) |
|
|
|
|
|
|
|
|
|
|
Non-cash charges (credits) from Liberty Media Corporation
|
|
|
|
|
|
|
15,490 |
|
|
|
(3,901 |
) |
|
|
Other non-cash items
|
|
|
4,152 |
|
|
|
|
|
|
|
(1,750 |
) |
|
|
Changes in operating assets and liabilities, net of the effects
of acquisitions and dispositions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables and other operating assets
|
|
|
60,409 |
|
|
|
(61,426 |
) |
|
|
9,653 |
|
|
|
|
Payables and accruals
|
|
|
77,886 |
|
|
|
167,840 |
|
|
|
(1,728 |
) |
|
Net cash provided by operating activities of discontinued
operations
|
|
|
49,978 |
|
|
|
34,857 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$ |
1,576,102 |
|
|
$ |
743,308 |
|
|
$ |
55,996 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements
II-63
LIBERTY GLOBAL, INC.
(See note 1)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
|
|
as adjusted | |
|
|
|
|
|
|
(note 22) | |
|
|
|
|
amounts in thousands | |
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid in connection with LGI Combination
|
|
$ |
(703,535 |
) |
|
$ |
|
|
|
$ |
|
|
|
Cash paid in connection with acquisitions, net of cash acquired
|
|
|
(3,584,442 |
) |
|
|
(509,696 |
) |
|
|
|
|
|
Cash paid for acquisition to be refunded by seller
|
|
|
|
|
|
|
(52,128 |
) |
|
|
|
|
|
Return of cash previously paid into escrow in connection with
2004 acquisition
|
|
|
56,883 |
|
|
|
|
|
|
|
|
|
|
Investments in and loans to affiliates and others
|
|
|
(133,749 |
) |
|
|
(256,959 |
) |
|
|
(494,193 |
) |
|
Proceeds received upon repayment of principal amounts loaned to
affiliates
|
|
|
|
|
|
|
535,074 |
|
|
|
|
|
|
Proceeds received upon repayment of debt securities
|
|
|
|
|
|
|
115,592 |
|
|
|
|
|
|
Purchases of short-term liquid investments
|
|
|
(55,103 |
) |
|
|
(293,734 |
) |
|
|
|
|
|
Proceeds received from sale of short-term liquid investments
|
|
|
101,489 |
|
|
|
246,981 |
|
|
|
|
|
|
Capital expended for property and equipment
|
|
|
(1,194,993 |
) |
|
|
(487,617 |
) |
|
|
(22,869 |
) |
|
Net cash received (paid) to purchase or settle derivative
instruments
|
|
|
82,414 |
|
|
|
(158,949 |
) |
|
|
19,580 |
|
|
Proceeds received upon dispositions of assets
|
|
|
464,501 |
|
|
|
315,792 |
|
|
|
8,230 |
|
|
Deposits received in connection with pending asset sales
|
|
|
|
|
|
|
80,264 |
|
|
|
|
|
|
Change in restricted cash
|
|
|
24,734 |
|
|
|
(27,335 |
) |
|
|
|
|
|
Other investing activities, net
|
|
|
29,343 |
|
|
|
(13,732 |
) |
|
|
(16,042 |
) |
|
Net cash used by investing activities of discontinued operations
|
|
|
(22,249 |
) |
|
|
(19,833 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by investing activities
|
|
|
(4,934,707 |
) |
|
|
(526,280 |
) |
|
|
(505,294 |
) |
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings of debt
|
|
|
6,968,835 |
|
|
|
2,301,211 |
|
|
|
41,700 |
|
|
Repayments of debt and capital lease obligations
|
|
|
(5,413,584 |
) |
|
|
(1,857,184 |
) |
|
|
(22,954 |
) |
|
Net proceeds received from rights offering
|
|
|
|
|
|
|
735,661 |
|
|
|
|
|
|
Proceeds from issuance of stock by subsidiaries
|
|
|
873,554 |
|
|
|
488,437 |
|
|
|
|
|
|
Change in cash collateral
|
|
|
(57,209 |
) |
|
|
41,700 |
|
|
|
(41,700 |
) |
|
Contributions from Liberty Media Corporation
|
|
|
|
|
|
|
704,250 |
|
|
|
478,799 |
|
|
Treasury stock purchase
|
|
|
(78,893 |
) |
|
|
(127,890 |
) |
|
|
|
|
|
Payment of deferred financing costs
|
|
|
(101,293 |
) |
|
|
(65,951 |
) |
|
|
|
|
|
Other financing activities, net
|
|
|
7,876 |
|
|
|
12,351 |
|
|
|
|
|
|
Net cash used by financing activities of discontinued operations
|
|
|
(7,444 |
) |
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
2,191,842 |
|
|
|
2,232,578 |
|
|
|
455,845 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash
|
|
|
(160,152 |
) |
|
|
66,756 |
|
|
|
614 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
(1,347,200 |
) |
|
|
2,501,345 |
|
|
|
7,161 |
|
|
|
|
Discontinued operations
|
|
|
20,285 |
|
|
|
15,017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(1,326,915 |
) |
|
|
2,516,362 |
|
|
|
7,161 |
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
2,529,115 |
|
|
|
12,753 |
|
|
|
5,592 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$ |
1,202,200 |
|
|
$ |
2,529,115 |
|
|
$ |
12,753 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$ |
286,656 |
|
|
$ |
280,815 |
|
|
$ |
932 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash paid for taxes
|
|
$ |
35,565 |
|
|
$ |
4,264 |
|
|
$ |
4,651 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements
II-64
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and 2003
|
|
(1) |
Basis of Presentation |
Liberty Global, Inc. (LGI) was formed on January 13,
2005, for the purpose of effecting the combination of Liberty
Media International, Inc. (LMI) and UnitedGlobalCom, Inc.
(UGC). LMI is the predecessor to LGI and was formed on
March 16, 2004, in contemplation of the spin off of certain
international cable television and programming subsidiaries and
assets of Liberty Media Corporation (Liberty Media), including a
majority interest in UGC, an international broadband
communications provider. We refer to these assets and
subsidiaries of Liberty Media prior to June 2004 collectively as
LMC International. On June 7, 2004, Liberty Media
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. In the following text, the
terms we, our, our company,
and us may refer, as the context requires, to LGI
and its predecessors and subsidiaries.
On June 15, 2005, we completed certain mergers whereby LGI
acquired all of the capital stock of UGC that LMI did not
already own and LMI and UGC each became wholly owned
subsidiaries of LGI (the LGI Combination). As LMI is the
predecessor to LGI, the historical financial statements of LMI
and its predecessor became the historical financial statements
of LGI upon consummation of the LGI Combination. Unless the
context otherwise indicates, we present pre-LGI Combination
references to shares of LMI common stock or UGC common
stock in terms of the number of shares of LGI common stock
issued in exchange for such LMI or UGC shares in the LGI
Combination.
On September 6, 2005, LGI effected a stock split in the
form of a stock dividend (the Stock Dividend) of LGI
Series C common stock to holders of record of LGI
Series A and LGI Series B common stock as of
5:00 p.m., New York City time, on August 26, 2005,
which was the record date for the Stock Dividend (the Record
Date). In the Stock Dividend, holders received one share of LGI
Series C common stock for each share of LGI Series A
common stock, and one share of LGI Series C common stock
for each share of LGI Series B common stock, held of
record as of the Record Date. Unless otherwise indicated, all
LGI share and per share amounts presented herein have been
retroactively adjusted to give effect to the Stock Dividend,
notwithstanding the fact that no shares of LGI Series C
common stock were issued and outstanding prior to
September 6, 2005.
LGI is an international broadband communications provider of
video, voice and Internet access services, with consolidated
broadband operations in 19 countries (excluding Norway) outside
of the continental United States at December 31, 2005,
primarily in Europe, Japan and Chile. Through our indirect
wholly owned subsidiaries UPC Holding B.V. (UPC Holding) and
Liberty Global Switzerland, Inc., formerly United ACM Holdings,
Inc. (LG Switzerland), (collectively, Europe Broadband), we
provide video, voice and Internet access services in 13 European
countries. LG Switzerland holds our 100% ownership interest in
Cablecom Holdings AG (Cablecom), a broadband communications
operator in Switzerland. Through our indirect controlling
ownership interest in Jupiter Telecommunications Co., Ltd.
(J:COM), we provide video, voice and Internet access services in
Japan. 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
direct-to-home
(DTH) satellite operations in Australia,
(ii) consolidated broadband communications operations in
Puerto Rico, Brazil and Peru, (iii) non-controlling
interests in broadband communications companies in Europe and
Japan, (iv) consolidated interests in certain programming
businesses in Europe and Argentina, and (v) non-controlling
interests in certain programming businesses in Europe, Japan,
Australia and the Americas. Our consolidated programming
interests in Europe are primarily held through chellomedia B.V.
(chellomedia), which also provides telecommunications and
interactive digital services and owns or manages investments in
various businesses in Europe. Certain of chellomedias
subsidiaries and affiliates provide programming and other
services to Europe Broadband.
II-65
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
On December 19, 2005 we reached an agreement to sell 100%
of our Norwegian cable business, UPC Norge AS (UPC Norway). On
January 19, 2006 we sold UPC Norway for cash proceeds of
approximately
448 million
($542 million at the transaction date). We have presented
UPC Norway as a discontinued operation in our consolidated
financial statements. See note 5.
As further discussed in note 22, we have retrospectively
adjusted our consolidated financial statements to apply the
concepts set forth in Emerging Issues Task Force
(EITF) Issue No. 05-08, Income Tax Consequences of
Issuing Convertible Debt with a Beneficial Conversion Feature
(EITF 05-08)
to our income tax accounting for the UGC Convertible Notes (see
note 10) that were issued in April 2004.
Unless otherwise indicated, convenience translations into
U.S. dollars are calculated as of December 31,
2005.
|
|
(2) |
Spin Off Transaction and Rights Offering |
On June 7, 2004 (the Spin Off Date), our common stock was
distributed on a pro rata basis to Liberty Medias
shareholders as a dividend in connection with a spin off
transaction. In connection with the spin off, holders of Liberty
Media common stock on June 1, 2004 (the Record Date)
received in the aggregate 139,921,145 shares of LMI
Series A common stock and 139,921,145 shares of LMI
Series C common stock for their shares of Liberty Media
Series A common stock owned on the Record Date and
6,053,173 shares of LMI Series B common stock and
6,053,173 shares of LMI Series C common stock for
their shares of Liberty Media Series B common stock owned
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 Media 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
comprised our company at the time of the spin off, Liberty Media
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 Media also contributed a variable forward transaction
with respect to the News Corp. ADSs. During the fourth quarter
of 2004, the 5,000,000 News Corp. ADSs were 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 give effect to such conversion. For financial
reporting purposes, the contribution of the cash,
available-for-sale securities, related deferred tax liability
and other net liabilities is deemed to have occurred on
June 1, 2004.
All of the net assets contributed to our company by Liberty
Media in connection with the spin off have been recorded at
Liberty Medias historical cost.
II-66
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
As a result of the spin off, we operate independently from
Liberty Media, and neither we nor Liberty Media have any stock
ownership, beneficial or otherwise, in the other. In connection
with the spin off, we and Liberty Media entered into
certain agreements in order to govern certain of the ongoing
relationships between Liberty Media and our company after 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 Media and our company entered into a Short-Term Credit
Facility that has since been terminated.
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 Media stock incentive awards and the allocation
of responsibility for LMI and Liberty Media stock incentive
awards, cross indemnities and other matters. Such cross
indemnities are designed to make (i) our company
responsible for all liabilities related to the businesses of our
company prior to the spin off, as well as for all liabilities
incurred by our company following the spin off, and
(ii) Liberty Media responsible for all of our potential
liabilities that are not related to our businesses, including,
for example, liabilities arising as a result of our company
having been a subsidiary of Liberty Media.
The Facilities and Services Agreement and the Short-Term Credit
Facility, are described in note 15, and the Tax Sharing
Agreement is described in note 12.
On July 26, 2004, we commenced a rights offering (the LMI
Rights Offering) whereby holders of record of LMI common stock
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 and one
share of LMI Series C common stock at a combined
subscription price of $25.00. Each whole right to purchase LMI
Series B common stock entitled the holder to purchase one
share of LMI Series B common stock and one share of LMI
Series C common stock at a combined subscription price of
$27.50. Each whole 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, 1,211,157 shares of LMI Series B common
stock and 29,456,157 shares of LMI Series C common
stock in exchange for aggregate cash proceeds of $739,432,000,
before deducting related offering costs of $3,771,000.
|
|
(3) |
Summary of Significant Accounting Policies |
The preparation of financial statements in conformity with
accounting principles generally accepted in the
U.S. (GAAP) requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting
period. Estimates and assumptions are used in accounting for,
among other things, the valuation of acquisition-related assets
and liabilities, allowances for uncollectible accounts, deferred
income taxes and related valuation allowances, loss
contingencies, fair values of financial and derivative
instruments, fair values of long-lived assets and any related
impairments, capitalization of internal costs associated with
construction and installation activities, useful lives of
long-lived assets, actuarial liabilities associated with certain
benefit plans and stock compensation. Actual results could
differ from those estimates.
II-67
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
Certain prior year amounts have been reclassified to conform to
the current year presentation.
|
|
|
Principles of Consolidation |
The accompanying consolidated financial statements include our
accounts and the accounts of all voting interest entities where
we exercise a controlling financial interest through the
ownership of a direct or indirect majority voting interest and
variable interest entities for which our company is the primary
beneficiary. All significant intercompany accounts and
transactions have been eliminated in consolidation.
|
|
|
Cash and Cash Equivalents and Restricted Cash |
Cash equivalents consist of all investments that are readily
convertible into cash and have maturities of three months or
less at the time of acquisition.
Restricted cash includes cash held in escrow and cash held as
collateral for lines of credit and other compensating balances.
Cash restricted to a specific use is classified based on the
expected timing of such disbursement. At December 31, 2005
and 2004, our restricted cash balances aggregated $86,287,000
and $43,640,000, respectively. The current portion of our
restricted cash of $56,847,000 and $43,640,000, respectively is
included in other current assets in our consolidated balance
sheets.
Our significant non-cash investing and financing activities are
disclosed in our statements of stockholders equity and in
notes 5, 6, 9 and 13.
Receivables are reflected net of an allowance for doubtful
accounts. Such allowance aggregated $73,641,000 and $61,390,000
at December 31, 2005 and 2004, respectively. The allowance
for doubtful accounts is based upon our assessment of probable
loss related to uncollectible accounts receivable. We use a
number of factors in determining the allowance, including, among
other things, collection trends, prevailing and anticipated
economic conditions and specific customer credit risk. The
allowance is maintained until either receipt of payment or
collection of the account is no longer being pursued.
Concentration of credit risk with respect to trade receivables
is limited due to the large number of customers and their
dispersion across many different countries worldwide. We also
manage this risk by disconnecting services to customers who are
delinquent.
All debt and marketable equity securities held by our company
that do not provide our company with the ability to exercise
significant influence over the investee are classified as
available-for-sale and are carried at fair value. Unrealized
holding gains and losses on securities that are classified as
available-for-sale are carried net of taxes as a component of
accumulated other comprehensive earnings (loss) in
stockholders equity. Realized gains and losses are
determined on an average cost basis. Other investments in which
our ownership interest is less than 20% and that are not
considered marketable securities are carried at cost, subject to
other-than-temporary impairment. Securities transactions are
recorded on the trade date.
For those investments in affiliates in which we have the ability
to exercise significant influence, the equity method of
accounting is used. Generally, we exercise significant influence
through a voting interest between 20% and 50% and/or board
representation and management authority. Under the equity
method, the investment, originally recorded at cost, is adjusted
to recognize our share of net earnings or losses of the
II-68
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
affiliates as they occur rather than as dividends or other
distributions are received, limited to the extent of our
investment in, and advances and commitments to, the investee. In
situations where our investment in the common stock of an
affiliate is reduced to zero as a result of the prior
recognition of the affiliates net losses, and we hold
investments in other more senior securities of the affiliate, we
continue to record losses from the affiliate to the extent of
these additional investments. The amount of additional losses
recorded would be determined based on changes in the
hypothetical amount of proceeds that would be received by us if
the affiliate were to experience a liquidation of its assets at
their current book values. In accordance with Statement of
Financial Accounting Standards (SFAS) No. 142,
Goodwill and Other Intangible Assets (SFAS 142), the
portion of the difference between our investment and our share
of the net assets of the investee that represents goodwill
(equity method goodwill) is not amortized, but continues to be
considered for impairment under Accounting Principles Board
Opinion No. 18 (APB 18). Our share of net earnings or
losses of affiliates also includes any other-than-temporary
declines in fair value recognized during the period.
Changes in our proportionate share of the underlying equity of a
subsidiary or equity method investee, including those which
result from the issuance of additional equity securities by such
subsidiary or equity investee, are recognized as increases or
decreases to additional paid-in capital.
We continually review our investments to determine whether a
decline in fair value below the cost basis is
other-than-temporary. The primary factors we consider in our
determination are the length of time that the fair value of the
investment is below our companys carrying value and the
financial condition, operating performance and near term
prospects of the investee. In addition, we consider the reason
for the decline in fair value, be it general market conditions,
industry specific or investee specific 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 a recovery in fair value. If the decline
in fair value is deemed to be other-than-temporary, the cost
basis of the security is written down to fair value. In
situations where the fair value of an investment is not evident
due to a lack of a public market price or other factors, we use
our best estimates and assumptions to arrive at the estimated
fair value of such investment. Writedowns for cost investments
and available-for-sale securities are included in the
consolidated statements of operations as other-than-temporary
declines in fair values of investments. Writedowns for equity
method investments are included in share of earnings (losses) of
affiliates.
We do not control the decision making process or business
management practices of our equity affiliates. Accordingly, we
rely on management of these entities to provide us with accurate
financial information prepared in accordance with GAAP. 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 consolidated financial
statements. For information concerning these entities, see
note 6.
The carrying value of cash and cash equivalents, restricted
cash, short-term liquid investments, receivables, trade and
other receivables, other current assets, accounts payable,
accrued liabilities, subscriber advance payments and deposits
and other current liabilities approximate fair value, due to
their short maturity. The fair values of equity securities are
based upon quoted market prices, to the extent available, at the
reporting date. See note 10 for information concerning the
fair value of our debt instruments.
As further described in note 8, we have entered into
various derivative instrument contracts, including interest rate
and foreign currency derivative instruments. In accordance with
SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities (SFAS 133), all derivatives,
whether designated in hedging
II-69
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
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 (loss). Ineffective portions of changes in the fair
value of cash flow hedges are recognized in earnings. If the
derivative is not designated as a hedge, changes in the fair
value of the derivative are recognized in earnings. With the
exception of J:COMs interest rate swaps in 2005, none of
the derivative instruments that were in effect during the three
years ended December 31, 2005 were designated as hedges.
Property and equipment is stated at cost less accumulated
depreciation. In accordance with SFAS No. 51,
Financial Reporting by Cable Television Companies, we
capitalize costs associated with the construction of new cable
transmission and distribution facilities and the installation of
new cable services. Capitalized construction and installation
costs include materials, labor and applicable overhead costs.
Installation activities that are capitalized include
(i) the initial connection (or drop) from our cable
system to a customer location, (ii) the replacement of a
drop, and (iii) the installation of equipment for
additional services, such as digital cable, telephone or
broadband Internet service. The costs of other customer-facing
activities such as reconnecting customer locations where a drop
already exists, disconnecting customer locations and repairing
or maintaining drops, are expensed as incurred. Interest
capitalized with respect to construction activities was not
material during 2005, 2004 and 2003.
Depreciation is computed using the straight-line method over
estimated useful lives of 2 to 25 years for cable
distribution systems, 20 to 40 years for buildings and 3 to
15 years for support equipment. The useful lives used to
depreciate cable distribution systems are assessed periodically
and are adjusted when warranted. The useful lives of systems
that are undergoing a rebuild are adjusted such that property
and equipment to be retired will be fully depreciated by the
time the rebuild is completed.
Additions, replacements and improvements that extend the asset
life are capitalized. Repairs and maintenance are charged to
operations.
Pursuant to SFAS No. 143, Accounting for Asset
Retirement Obligations, as interpreted by FASB
Interpretation No. 47, we recognize a liability for asset
retirement obligations in the period in which it is incurred if
sufficient information is available to make a reasonable
estimate of fair values. In addition, we recognize asset
retirement obligations that arise from the European Union
Directive on Waste Electrical and Electronic Equipment (WEEE
Directive) pursuant to FASB Staff Position
No. 143-1. The
WEEE Directive creates certain legal obligations to dispose of
electrical and electronic equipment, which incorporates
equipment used in our European operations. The majority of our
obligation under the WEEE Directive is related to customer
premise equipment.
Asset retirement obligations arise from rights of way that we
obtain from local municipalities or other relevant authorities.
Under certain circumstances, the authority can cause us to have
to remove our network, such as if we discontinue using the
equipment or the authority does not renew our access rights. We
expect to maintain our rights of way for the foreseeable future
as these rights are necessary to remain a going concern. In
addition, the authorities have the incentive to indefinitely
renew our rights of way and in our past experience, renewals
have always been granted. We also have obligations in lease
agreements to restore the property to its original condition or
remove our property at the end of the lease term. Sufficient
information is not available to estimate the fair value of our
asset retirement obligations in certain of our lease
arrangements. This is the case in long-term lease arrangements
in which the underlying leased property is integral to our
operations, there is not an acceptable alternative to the leased
property and we have a clear ability to indefinitely renew the
lease.
II-70
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
Accordingly, for both rights of way and certain lease
agreements, the possibility is remote that we will incur
significant removal costs in the foreseeable future, and as such
we do not have sufficient information to make a reasonable
estimate of fair value for these asset retirement obligations.
As of December 31, 2005, the fair value of our asset
retirement obligations was $34,630,000.
Our primary intangible assets are goodwill, customer
relationships, cable television franchise rights, and trade
names. Goodwill represents the excess purchase price over the
fair value of the identifiable net assets acquired in a business
combination. Cable television franchise rights, customer
relationships, and trade names were originally recorded at their
fair values in connection with business combinations.
Pursuant to SFAS 142, goodwill and intangible assets with
indefinite useful lives are not amortized, but instead are
tested for impairment at least annually in accordance with the
provisions of SFAS 142. SFAS 142 also provides that
equity method goodwill is not amortized, but continues to be
considered for impairment under APB 18. Pursuant to
SFAS 142, intangible assets with estimable useful lives are
amortized over their respective estimated useful lives to their
estimated residual values, and reviewed for impairment in
accordance with SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets (SFAS 144).
We do not amortize our franchise rights and certain trade name
intangible assets as we have concluded that these assets are
indefinite-lived assets. Our customer relationship intangible
assets are amortized on a straight line basis over estimated
useful lives ranging from 4 to 10 years.
|
|
|
Impairment of Long-Lived Assets |
SFAS 144 requires that we periodically review the carrying
amounts of our property and equipment and our intangible assets
(other than goodwill and indefinite-lived intangible assets) 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 recognized. Such adjustment is measured by the
amount that the carrying value of such assets exceeds their fair
value. We generally measure fair value by considering sale
prices for similar assets or by discounting estimated future
cash flows using an appropriate discount rate. For purposes of
impairment testing, long-lived assets are grouped at the lowest
level for which cash flows are largely independent of other
assets and liabilities. Assets to be disposed of are carried at
the lower of their financial statement carrying amount or fair
value less costs to sell.
Pursuant to SFAS 142, we evaluate the goodwill, franchise
rights and other indefinite-lived intangible assets for
impairment at least annually on October 1 and whenever
other facts and circumstances indicate that the carrying amounts
of goodwill and indefinite-lived intangible assets may not be
recoverable. For purposes of the goodwill evaluation, we compare
the fair value of each of our reporting units to their
respective carrying amounts. If the carrying value of a
reporting unit were to exceed its fair value, we would then
compare the implied fair value of the reporting units
goodwill to its carrying amount, and any excess of the carrying
amount over the fair value would be charged to operations as an
impairment loss. Any excess of the carrying value over the fair
value of indefinite-lived intangible assets is charged to
operations as an impairment loss.
Income taxes 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
II-71
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
and tax credit carryforwards, using enacted tax rates in effect
for each taxing jurisdiction in which we operate for the year in
which those temporary differences are expected to be recovered
or settled. 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. Most of our
valuation allowances at December 31, 2005 are related to
deferred tax assets acquired in purchase method business
combinations. Any future release of the valuation allowance
against these deferred tax assets will result in a corresponding
reduction of goodwill. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date. Deferred tax
liabilities related to investments in foreign subsidiaries and
foreign corporate joint ventures that are essentially permanent
in duration are not recognized until it becomes apparent that
such amounts will reverse in the foreseeable future.
Our indirect subsidiary, Cablecom, maintains various pension
plans for its employees. Cablecoms plans represent a
benefit for its employees and a cost to Cablecom. The plans are
treated as defined benefit pension plans. In accordance with
SFAS No. 87, Employers Accounting for
Pensions, certain assumptions and estimates must be made in
order to determine the costs and future benefit that will be
associated with these plans. These assumptions include the
estimated long-term rate of return to be earned by plan assets,
the estimated discount rate used to value the projected benefit
obligations and estimated wage increases. We use a model
portfolio of high quality bonds whose expected rate of return is
estimated to match the plans expected cash flows as a
basis to determine the most appropriate discount rate. For the
long-term rate of return, we use a model portfolio based on
Cablecoms targeted asset allocation.
|
|
|
Foreign Currency Translation and Transactions |
The functional currency of our company is the U.S. dollar.
The functional currency of our foreign operations generally is
the applicable local currency for each foreign subsidiary and
equity method investee. Assets and liabilities of foreign
subsidiaries (including intercompany balances for which
settlement is not anticipated in the foreseeable future) and
equity investees are translated at the spot rate in effect at
the applicable reporting date, and the consolidated statements
of operations and our companys share of the results of
operations of our equity affiliates generally are translated at
the average exchange rates in effect during the applicable
period. The resulting unrealized cumulative translation
adjustment, net of applicable income taxes, is recorded as a
component of accumulated other comprehensive earnings (loss) in
the consolidated statement of stockholders equity. Cash
flows from our operations in foreign countries are translated at
actual exchange rates when known, or at the average rate for the
period. The effect of exchange rates on cash balances held in
foreign currencies are reported as a separate line item below
cash flows from financing activities.
Transactions denominated in currencies other than our or our
subsidiaries functional currencies are recorded based on
exchange rates at the time such transactions arise. Subsequent
changes in exchange rates result in transaction gains and losses
which are reflected in the statements of operations as
unrealized (based on the applicable period end translation) or
realized upon settlement of the transactions.
Cable Network Revenue. 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 costs are expensed as incurred. To the
extent installation revenue exceeds direct selling costs, the
excess
II-72
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
revenue is deferred and amortized over the average expected
subscriber life. Costs related to reconnections and
disconnections are recognized in the consolidated statement of
operations as incurred.
Other Revenue. We recognize revenue from the provision of
direct-to-home
satellite services, or DTH, telephone and data services to
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.
Promotional Discounts. For subscriber promotions, such as
discounted or free services during an introductory period,
revenue is recorded at the discounted monthly rate, if any,
charged to the subscriber.
Subscriber Advance Payments and Deposits. Payments
received in advance for distribution services are deferred and
recognized as revenue when the associated services are provided.
Deposits are recorded as a liability upon receipt and refunded
to the subscriber upon disconnection.
|
|
|
Adjustments to Stock Awards |
As a result of the LMI Rights Offering, the exercise price for
LMI stock options outstanding at the time of the LMI Rights
Offering was reduced by multiplying the exercise price by 94%,
and the number of options outstanding was increased by dividing
the number of the then outstanding LMI stock options by 94%.
In connection with the LGI Combination, (i) all then
outstanding options to purchase LMI common stock and restricted
stock under LGIs various incentive plans were converted,
at a 1:1 ratio, into options to purchase LGI common stock and
restricted LGI stock of the corresponding series, and
(ii) all then outstanding options to purchase UGC common
stock, restricted stock and stock appreciation rights (SARs)
under UGCs various incentive plans were converted at a
ratio of 0.2155 of a share of LGI Series A common stock and
0.2155 of a share of LGI Series C common stock for each
share of UGC common stock, with a corresponding conversion
adjustment to the exercise or base price.
In connection with the Stock Dividend, (i) each then
outstanding stock option, share of restricted stock and SARs
under LGIs various incentive plans (collectively referred
to as stock awards) with respect to LGI Series A common
stock was converted into one corresponding stock award with
respect to LGI Series A common stock and one corresponding
stock award with respect to LGI Series C common stock,
(ii) each then outstanding stock award with respect to LGI
Series B common stock was converted into one corresponding
stock award with respect to LGI Series B common stock and
one corresponding stock award with respect to LGI Series C
common stock, and (iii) the exercise and base prices for
the converted stock options and SARs were adjusted
proportionately based on market price information for the LGI
Series A common stock, LGI Series B common stock and
LGI Series C common stock on September 7, 2005, the
first day of regular way trading for the LGI Series C
common stock. As a result of these adjustments, 51.37% and
48.63% of the exercise prices for the former options to purchase
LGI Series A common stock were allocated to the exercise
prices for the converted options to purchase LGI Series A
common stock and LGI Series C common stock, respectively,
and (ii) 52.401% and 47.599% of the exercise prices for the
former options to purchase LGI Series B common stock
were allocated to the exercise prices for the converted options
to purchase LGI Series B common stock and LGI
Series C common stock, respectively.
All references herein to the number and terms of outstanding LGI
stock options, SARs and restricted stock reflect the
modifications that were made in connection with the LMI Rights
Offering, the LGI Combination and the Stock Dividend.
II-73
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
We account for stock-based compensation awards to non-employees
and employees of non-consolidated affiliated companies using the
fair value method. Under this method, the fair value of the
stock based award is determined using the Black-Scholes
option-pricing model and is remeasured each period until a
commitment date is reached, which is generally the vesting date.
Only J:COM had such non-employee awards outstanding during any
of the periods presented. J:COM has calculated the fair value of
its non-employee stock-based awards using the Black-Scholes
option-pricing model with the following assumptions: no
dividends, volatility of 40%, a risk-free rate of 1.5% and an
expected life of five years.
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 measurement date, 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 expense 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 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.
In connection with the spin off and related adjustments to
Liberty Medias stock incentive awards, options to acquire
LGI common stock were issued to our and Liberty Medias
employees. Consistent with Liberty Medias accounting for
the adjusted Liberty Media options and SARs prior to the spin
off, we use variable-plan accounting to account for all of such
LGI stock options. We also use variable-plan accounting to
account for certain LGI stock options granted to then LMI
employees and directors prior to the LMI Rights Offering. We
began to use variable plan accounting for these LGI options as a
result of the modification of certain terms of these options in
connection with the LMI Rights Offering.
As a result of the modification of certain terms of UGC stock
options in connection with UGCs February 2004 rights
offering, we began accounting for stock options granted by UGC
prior to February 2004 as variable-plan options. UGC stock
options granted subsequent to February 2004 were accounted for
as fixed-plan options through the date of the LGI Combination.
Due to the modification of certain terms of the then outstanding
UGC stock options in connection with the LGI Combination as
described above, we began accounting for the then remaining UGC
fixed-plan options as variable-plan options. As a result of
these adjustments, most of the outstanding LGI stock options at
December 31, 2005 are accounted for as variable-plan awards.
The exercise price of employee stock options granted prior to
the initial public offering (IPO) by J:COM on
March 23, 2005 was subject to adjustment depending on the
IPO price. As such, J:COM uses variable-plan accounting for such
stock options. Prior to March 23, 2005, no compensation was
recorded with respect to these options.
As a result of the spin off and the related issuance of options
to acquire LGI common stock, certain persons who remained
employees of Liberty Media immediately following the spin off
hold options to purchase LGI common stock and certain persons
who are our employees hold options, SARs and options with tandem
SARs with respect to Liberty Media common stock. Pursuant to the
Reorganization Agreement between our
II-74
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
company and Liberty Media, we are responsible for all stock
incentive awards related to LGI common stock and Liberty Media
is responsible for all stock incentive awards related to Liberty
Media common stock regardless of whether such stock incentive
awards are held by our or Liberty Medias employees.
Notwithstanding the foregoing, our stock-based compensation
expense is based on the stock incentive awards held by our
employees regardless of whether such awards relate to LGI or
Liberty Media common stock. Accordingly, any stock-based
compensation that we include in our consolidated statements of
operations with respect to Liberty Media stock incentive awards
is treated as a capital transaction that is reflected as an
adjustment of additional paid-in capital.
We also record stock-based compensation expense with respect to
an LGI subsidiary stock plan pursuant to which certain LGI
officers have an indirect ownership interest in J:COM. The
compensation recorded for this plan is based on the fair value
of the underlying J:COM stock.
As further described in note 5, we are recording
stock-based compensation expense in connection with restricted
shares of LGI Series A common stock and LGI Series C
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 and LGI Series C 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 and LGI Series C
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.
See note 14 for additional information concerning our stock
awards.
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, SARs or to options granted
in tandem with SARs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
|
|
as adjusted | |
|
|
|
|
|
|
(note 22) | |
|
|
|
|
amounts in thousands, | |
|
|
except per share amounts | |
Earnings (loss) from continuing operations
|
|
$ |
(83,591 |
) |
|
$ |
(13,709 |
) |
|
$ |
20,889 |
|
|
Add stock-based compensation charges as determined under the
intrinsic value method, net of taxes
|
|
|
7,145 |
|
|
|
51,524 |
|
|
|
|
|
|
Deduct stock compensation charges as determined under the fair
value method, net of taxes
|
|
|
(35,051 |
) |
|
|
(33,007 |
) |
|
|
(4,252 |
) |
|
|
|
|
|
|
|
|
|
|
Pro forma earnings (loss) from continuing operations
|
|
$ |
(111,497 |
) |
|
$ |
4,808 |
|
|
$ |
16,637 |
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings (loss) from continuing operations per
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$ |
(0.20 |
) |
|
$ |
(0.04 |
) |
|
$ |
0.07 |
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma
|
|
$ |
(0.27 |
) |
|
$ |
0.01 |
|
|
$ |
0.05 |
|
|
|
|
|
|
|
|
|
|
|
The fair value of options granted under the LGI Incentive Plan,
the LGI Directors Incentive Plan, the Transitional Plan, the UGC
Director Plan, the UGC Equity Incentive Plan and the J:COM Plan
has been
II-75
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
estimated at the date of grant using the Black-Scholes
single-option pricing model and the following weighted-average
assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LGI Series A, LGI Series B and |
|
J:COM |
|
|
LGI Series C common stock |
|
ordinary shares |
|
|
|
|
|
|
|
LGI/LMI Plans(a) |
|
UGC Plans(b) |
|
J:COM Plan |
|
|
|
|
|
|
|
2004 grants:
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free interest rate
|
|
4.09% |
|
|
3.61% |
|
|
|
1.48% |
|
|
Expected life
|
|
6 years |
|
|
6 years |
|
|
|
5 years |
|
|
Expected volatility
|
|
25% |
|
|
100% |
|
|
|
40% |
|
|
Expected dividend yield
|
|
0% |
|
|
0% |
|
|
|
0% |
|
2005 grants:
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free interest rate
|
|
3.7% 4.55% |
|
|
n/a |
|
|
|
n/a |
|
|
Expected life
|
|
4.5 years 6 years |
|
|
n/a |
|
|
|
n/a |
|
|
Expected volatility
|
|
25% 31% |
|
|
n/a |
|
|
|
n/a |
|
|
Expected dividend yield
|
|
0% |
|
|
n/a |
|
|
|
n/a |
|
|
|
|
(a) |
|
Includes the LGI Incentive Plan, the LGI Directors Incentive
Plan and the Transitional Plan. |
|
(b) |
|
Includes the UGC Director Plan and the UGC Equity Incentive Plan. |
|
|
|
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, if any, on a per
share basis of potential common shares (e.g. options and
convertible securities) as if they had been exercised or
converted at the beginning of the periods presented.
In connection with the spin off, holders of Liberty Media common
stock on June 1, 2004 received in the aggregate
139,921,145 shares of LGI Series A common stock and
6,053,143 shares of LGI Series B common stock, and
145,974,288 shares of LGI Series C common stock.
The pro forma net earnings (loss) per share for the years ended
December 31, 2004 and 2003 set forth in our consolidated
statements of operations was computed assuming that the shares
issued in the spin off were issued and 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 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
|
|
2005 |
|
2004 |
|
2003 |
|
|
|
|
|
|
|
Basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding before adjustment
|
|
|
416,026,877 |
|
|
|
317,194,444 |
|
|
|
291,948,636 |
|
Adjustment for July 2004 LMI Rights Offering
|
|
|
|
|
|
|
7,767,008 |
|
|
|
13,732,968 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares, as adjusted
|
|
|
416,026,877 |
|
|
|
324,961,452 |
|
|
|
305,681,604 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
The weighted average share amounts for all periods assume that
the shares of LMI common stock issued in connection with the
spin off were issued and outstanding since January 1, 2003. |
II-76
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
At December 31, 2005, the number of our potential common
shares that could dilute basic EPS in the future was 53,662,053.
For additional information, see note 13.
|
|
(4) |
Recent Accounting Pronouncements |
On February 16, 2006, the FASB issued
SFAS No. 155, Accounting for Certain Hybrid
Financial Instruments, an Amendment of FASB Statements
No. 133 and 140 (SFAS 155). SFAS 155 allows
financial instruments that have embedded derivatives that
otherwise would require bifurcation from the host to be
accounted for as a whole, if the holder irrevocably elects to
account for the whole instrument on a fair value basis.
Subsequent changes in the fair value of the instrument would be
recognized in earnings. The standard also (i) clarifies
which interest-only strips and principal-only strips are not
subject to the requirements of SFAS No. 133;
(ii) establishes a requirement to evaluate interests in
securitized financial assets to determine whether interests are
freestanding derivatives or are hybrid financial instruments
that contain an embedded derivative requiring bifurcation;
(iii) clarifies that concentrations of credit risk in the
form of subordination are not embedded derivatives; and
(iv) eliminates the prohibition on a qualifying
special-purpose entity from holding a derivative financial
instrument that pertains to a beneficial interest (that is
itself a derivative financial instrument). SFAS 155 is
effective for all financial instruments acquired or issued after
the beginning of an entitys first fiscal year that begins
after September 15, 2006. Earlier adoption is permitted as
of the beginning of an entitys fiscal year, provided the
entity has not yet issued financial statements, including
financial statements for any interim period for that fiscal
year. We are evaluating whether we will elect the fair value
accounting allowed by SFAS 155 for the UGC Convertible
Notes (see note 10). If we had applied the fair value
accounting prescribed by SFAS 155 to the UGC Convertible
Notes as of January 1, 2005, our pre-tax loss for the year
ended December 31, 2005 would have decreased by
approximately $30 million.
In December 2004, the FASB issued SFAS No. 123(R)
(revised 2004), Share-Based Payment (SFAS 123(R)).
SFAS 123(R) requires all share-based payments to employees,
including grants of employee stock options, to be recognized in
the financial statements based on their fair values, beginning
with the first interim or annual period after December 15,
2005, with early adoption encouraged. SFAS 123(R) will
require then outstanding 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 SFAS 123(R) beginning
January 1, 2006. Under SFAS 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 modified
prospective and modified retroactive adoption methods. Under the
modified retroactive method, prior periods may be restated
either as of the beginning of the year of adoption or for all
periods presented. The modified 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 SFAS 123(R), while the modified retroactive
methods would record compensation expense for all unvested stock
options and share awards beginning with the first period
restated. Although we are continuing to evaluate the
requirements of SFAS 123(R), we have determined that we
will use the modified prospective method to adopt
SFAS 123(R). We have not completed our assessment of the
impact of SFAS 123(R); however, we believe that the
adoption of SFAS 123(R) could have a material impact on our
results of operations.
II-77
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
|
|
(5) |
Acquisitions and Dispositions |
During 2005 we completed the following significant acquisitions,
each of which is described in detail below: (i) the LGI
Combination effective June 15, 2005, (ii) the
acquisition of Cablecom effective October 24, 2005,
(iii) the acquisition of Astral effective October 14,
2005, (iv) the acquisition of NTL Ireland effective
May 9, 2005, (v) the acquisition of Austar effective
December 14, 2005 and (vi) VTRs acquisition of a
controlling interest in Metrópolis effective April 13,
2005. These acquisitions are collectively referred to herein as
the Significant 2005 Acquisitions. As further described below,
we also began consolidating Super Media and J:COM on
January 1, 2005.
A summary of the purchase prices, opening balance sheets and the
effective acquisition dates for financial reporting purposes of
the Significant 2005 Acquisitions and the Super Media/ J:COM
consolidation is presented following the descriptions of these
transactions below.
On June 15, 2005, we completed the LGI Combination 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. Among other matters, the LGI Combination
was completed in order to eliminate the dual public holding
company structure in which LMIs principal consolidated
asset was its majority interest in UGC, another public company.
In the LGI Combination, (i) each outstanding share of LMI
Series A common stock, LMI Series B common stock and
LMI Series C common stock was exchanged for one share of
the corresponding series of LGI common stock, and (ii) each
outstanding share of UGC Class A common stock, UGC
Class B common stock and UGC Class C common stock
(other than those shares owned by LMI and its wholly owned
subsidiaries) was converted into the right to receive for each
share of common stock owned either (i) 0.2155 of a share of
LGI Series A common stock and 0.2155 of a share of LGI
Series C common stock (plus cash for any fractional share
interest) or (ii) $9.58 in cash. Cash elections were
subject to proration so that the aggregate cash consideration
paid to UGCs stockholders would not exceed 20% of the
aggregate value of the merger consideration payable to
UGCs public stockholders. The effects of the LGI
Combination have been included in our historical consolidated
financial statements beginning with the June 15, 2005
acquisition date.
II-78
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
The LGI Combination has been accounted for as a step acquisition
by our company of the remaining minority interest in UGC. The
purchase price in this step acquisition includes the
consideration issued to UGC public stockholders to acquire the
UGC interest not already owned by our company and the direct
acquisition costs incurred by our company. The details of the
purchase price are presented in the following table (dollar
amounts in thousands):
|
|
|
|
|
Shares of LGI Series A common stock issued to UGC
stockholders other than LMI and its wholly owned subsidiaries
(including 2,067,786 shares issued to UGC subsidiaries)
|
|
|
65,694,765 |
|
Shares of LGI Series C common stock issued to UGC
stockholders other than LMI and its wholly owned subsidiaries
(including 2,067,786 shares issued to UGC subsidiaries)
|
|
|
65,694,765 |
|
|
|
|
|
|
|
|
131,389,530 |
|
|
|
|
|
Fair value of LGI Series A and LGI Series C common
stock issued to UGC stockholders other than LMI and its wholly
owned subsidiaries
|
|
$ |
2,878,219 |
|
Fair value of LGI Series A and LGI Series C common
stock issued to UGC subsidiaries
|
|
|
(90,594 |
) |
|
|
|
|
Fair value of outstanding LGI Series A and LGI
Series C common stock issued to UGC stockholders
|
|
|
2,787,625 |
|
Cash consideration
|
|
|
694,517 |
|
Direct acquisitions costs
|
|
|
9,018 |
|
|
|
|
|
Total purchase price
|
|
|
3,491,160 |
|
Elimination of minority interest in UGC
|
|
|
(994,817 |
) |
|
|
|
|
Purchase price allocated to the net assets of UGC
|
|
$ |
2,496,343 |
|
|
|
|
|
The fair value of the shares issued to UGC stockholders other
than LMI in the LGI Combination was derived from a fair value of
$43.812 per share of LMI Series A common stock, which
was the average of the quoted market price per share of LMI
Series A common stock (before giving effect to the Stock
Dividend) for the period beginning two trading days before and
ending two trading days after the date that the LGI Combination
was agreed to and announced (January 18, 2005). After
eliminating the minority interest in UGC from our consolidated
balance sheet, we allocated the remaining purchase price to the
identifiable assets and liabilities of UGC based on preliminary
assessments of their respective fair values (taking into account
the 46.6% UGC ownership interest that LGI acquired in the LGI
Combination), and the excess of the purchase price over the
adjusted preliminary fair values of such identifiable net assets
was allocated to goodwill.
|
|
|
Consolidation of Super Media/ J:COM |
On December 28, 2004, our 45.45% ownership interest in
J:COM, and a 19.78% interest in J:COM owned by Sumitomo
Corporation (Sumitomo) were combined in LGI/ Sumisho Super Media
LLC (Super Media). Super Medias investment in J:COM was
recorded at the respective historical cost bases of our company
and Sumitomo on the date that our respective J:COM interests
were combined in Super Media. As a result of these transactions,
we held a 69.68% noncontrolling interest in Super Media, and
Super Media held a 65.23% controlling interest in J:COM at
December 31, 2004.
Due to certain veto rights held by Sumitomo that precluded us
from controlling Super Media, we accounted for our 69.68%
ownership interest in Super Media using the equity method of
accounting at December 31, 2004. On February 18, 2005,
J:COM announced an IPO of its common shares in Japan. Under the
terms of the operating agreement of Super Media, our casting or
tie-breaking vote with respect to decisions of the
II-79
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
management committee of Super Media became effective upon this
announcement. Super Media is managed by a management committee
consisting of two members, one appointed by our company and one
appointed by Sumitomo. From and after February 18, 2005,
the management committee member appointed by our company has a
casting or deciding vote with respect to any management
committee decision on which our company and Sumitomo are unable
to agree. Certain decisions with respect to Super Media will
continue to require the consent of both members rather than the
management committee. These include any decision to
(i) engage in any business other than holding J:COM shares,
(ii) sell J:COM shares, (iii) issue additional units
in Super Media, (iv) make in-kind distributions or
(v) dissolve Super Media, in each case subject to certain
exceptions contemplated by the Super Media operating agreement.
Super Media will be dissolved in February 2010 unless we and
Sumitomo mutually agree to extend the term. Super Media may also
be earlier dissolved under specified circumstances.
As a result of the above-described change in the governance of
Super Media, we began accounting for Super Media and J:COM as
consolidated subsidiaries effective January 1, 2005. As we
paid no monetary consideration to Sumitomo to acquire the
above-described casting vote, we have recorded the consolidation
of Super Media/ J:COM at historical cost.
On March 23, 2005, J:COM received net proceeds of
¥82,043 million ($774,283,000 at March 23, 2005)
in connection with an IPO of its common shares, and on
April 20, 2005, J:COM received additional net proceeds of
¥8,445 million ($79,117,000 at April 20, 2005) in
connection with the sale of additional common shares upon the
April 15, 2005 exercise of the underwriters
over-allotment option. Also on March 23, 2005, Sumitomo
contributed additional J:COM shares to Super Media, increasing
Sumitomos interest in Super Media to 32.40%, and
decreasing our companys interest in Super Media to 67.60%.
Sumitomo and our company are generally required to contribute to
Super Media any additional shares of J:COM that either party
acquires and to permit the other party to participate in any
additional acquisition of J:COM shares during the term of Super
Media. After giving effect to Sumitomos additional
contribution of J:COM shares to Super Media and the consummation
of J:COMs IPO, including the subsequent exercise of the
underwriters over-allotment option, Super Medias
ownership interest in J:COM was approximately 54.46%.
In connection with the dilution of our ownership interest that
resulted from (i) J:COMs issuance of common shares in
March and April 2005 pursuant to its IPO and (ii) the
exercise of stock options, we recorded a $120,672,000 gain,
which is reflected as an increase to additional paid-in capital
in our consolidated statement of stockholders equity. We
provided no income taxes on this gain as we ceased providing
income taxes on our outside basis in Super Media/ J:COM when we
began consolidating these entities on January 1, 2005.
Sumitomo also held an approximate 8.3% direct interest in J:COM
until September 26, 2005, when such interest was
contributed to Super Media.
The March 2005 and September 2005 contributions of
Sumitomos J:COM interests to Super Media were recorded at
historical cost and resulted in an aggregate non-cash increase
to goodwill of $31,450,000.
At December 31, 2005, Super Media owned
3,987,238 shares of J:COM, or 62.65% of the issued and
outstanding shares of J:COM, and LGIs ownership interest
in Super Media was 58.66%.
See notes 6 and 21 for additional information concerning
J:COM.
On October 24, 2005, LG Switzerland purchased from Glacier
Holdings, S.C.A. all of the issued share capital of Cablecom,
the parent company of a Swiss broadband communications company,
for a cash purchase price before direct acquisition costs of
2.826 billion Swiss Francs (CHF) ($2.212 billion at
the transaction date)
II-80
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
(the Cablecom Acquisition). We acquired Cablecom in order to
expand the markets in which we operate in Europe.
The Cablecom Acquisition was funded through a combination of
(i) a
550 million
($667 million at the borrowing date) 9.5 year
split-coupon floating rate
payment-in-kind loan
(the PIK Loan) entered into by LG Switzerland, (ii) a new
offering of
300 million
($363 million at the borrowing date) principal amount of
8.625% Senior Notes due 2014 by UPC Holding, a sister
corporation of LG Switzerland and (iii) available cash. At
the acquisition date, Cablecom reported outstanding debt of
CHF1.7 billion ($1.4 billion at the transaction date).
For additional information concerning the LG Switzerland, UPC
Holding and Cablecom debt, see note 10.
The Cablecom Acquisition has been accounted for using the
purchase method of accounting. The total purchase price has been
allocated to the acquired identifiable net assets of Cablecom
based on preliminary assessments of their respective fair
values, and the excess of the purchase price over the
preliminary fair values of such identifiable net assets was
allocated to goodwill.
On October 14, 2005, we completed the acquisition of Astral
Telecom SA (Astral), a broadband communications operator in
Romania, for a cash purchase price of $407,074,000, before
direct acquisition costs. We acquired Astral in order to achieve
certain financial, operational and strategic benefits through
the integration of Astral with our existing operations in
Romania. The Astral acquisition has been accounted for using the
purchase method of accounting. The total purchase price has been
allocated to the acquired identifiable net assets of Astral
based on preliminary assessments of their respective fair
values, and the excess of the purchase price over the
preliminary fair values of such identifiable net assets was
allocated to goodwill.
|
|
|
Acquisition of NTL Ireland |
On May 9, 2005, we announced that our indirect subsidiary,
UPC Ireland 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 Dean Witter Equity Funding, Inc.
(MSDW Equity), acquired NTL Communications (Ireland) Limited,
NTL Irish Networks Limited and certain related assets (together
NTL Ireland) on May 9, 2005 with funds provided by a loan
from UPC Ireland. NTL Ireland, a cable television operator in
Ireland, provides cable television and broadband Internet
services to residential customers and managed network services
to corporate customers. We acquired NTL Ireland in order to
achieve certain financial, operational and strategic benefits
through the integration of NTL Ireland with our existing
operations in Ireland.
UPC Ireland had agreed to make MSDW Equity whole with respect to
any economic effect on MSDW Equity regarding the acquisition,
ownership and subsequent transfer of the NTL Ireland interest.
The make whole arrangement with MSDW Equity was considered to be
a variable interest in MS Irish Cable, which is a variable
interest entity under the provisions of Financial Accounting
Standards Board Interpretation No. 46(R), Consolidation
of Variable Interest Entities (FIN 46(R)). As we were
responsible for all losses to be incurred by MSDW Equity in
connection with its acquisition, ownership and ultimate
disposition of MS Irish Cable, we were the primary beneficiary,
as defined by FIN 46(R), and were therefore required to
consolidate MS Irish Cable and its subsidiaries, including NTL
Ireland, upon the May 9, 2005 closing of MS Irish
Cables acquisition of NTL Ireland. As MSDW Equity had no
equity at risk in MS Irish Cable, the full amount of MS Irish
Cables net earnings (loss) were allocated to UPC Ireland.
II-81
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
UPC Irelands acquisition of MS Irish Cable from MSDW
Equity was subject to receipt of applicable Irish regulatory
approval. On December 12, 2005, following the receipt of
regulatory approval, UPC Ireland completed its acquisition of MS
Irish Cable.
Upon closing, UPC Ireland paid MSDW Equity, as consideration for
all of the outstanding share capital of MS Irish Cable and any
MS Irish Cable indebtedness owed to MSDW Equity and its
affiliates, an amount equal to MSDW Equitys net investment
in MS Irish Cable plus interest on the amount of the net
investment 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.
The acquisition of NTL Ireland through MS Irish Cable has been
accounted for using the purchase method of accounting. The total
purchase consideration of
349,437,000
($448,796,000 at May 9, 2005), including direct acquisition
costs of
16,025,000
($20,582,000 at the transaction date), has been allocated to the
acquired identifiable net assets of NTL Ireland based on
preliminary assessments of their respective fair values, and the
excess of the purchase price over the preliminary fair values of
such identifiable net assets was allocated to goodwill.
On December 14, 2005 we completed a transaction that
increased our indirect ownership of Austar United Communications
Limited (Austar), a DTH company in Australia, from a 36.7%
non-controlling ownership interest to a 55.2% controlling
interest. We acquired a controlling interest in Austar in order
to increase our investment in the Australian DTH industry. As a
result of this transaction, we began using the consolidation
method to account for our investment in Austar. Prior to
obtaining a controlling interest in Austar, UGC used the equity
method to account for its indirect investment in Austar.
Prior to December 14, 2005, Austars share capital was
owned 20.3% by the public and 79.7% (968 million shares) by
United Austar Partners (UAP). UAP was 46% (446 million
shares) owned by United Asia Pacific Communications (UAPC), an
indirect wholly-owned subsidiary of UGC, and 54%
(522 million shares) owned by an independent third party,
Castle Harlan Australia Mezzanine Partners Pty. Limited and
Castle Harlan, Inc. (collectively, CHAMP).
On December 14, 2005, CHAMP sold to United AUN, Inc., a
wholly owned subsidiary of UAPC (together with UAPC, the United
Partners), units in UAP representing 224 million shares in
Austar for net cash consideration of A$204,909,000 ($154,952,000
at the transaction date) before direct acquisition costs, and
UAP transferred 298 million Austar shares to CHAMP in
cancellation of their remaining units in Austar. Upon completion
of this transaction, the United Partners owned 100% of the UAP
partnership interest, CHAMP ceased to be a partner in UAP, and
UAP owned a 55.2% economic and voting interest in Austar.
The December 14, 2005 transaction has been accounted for as
a step acquisition by our company of an 18.5% interest in
Austar. The total cash consideration together with direct
acquisition costs and our carryover basis in our equity method
investment in Austar has been allocated to the identifiable
assets and liabilities of Austar based on preliminary
assessments of their respective fair values (taking into account
the 18.5% Austar ownership interest that we acquired in the
December 14, 2005 step acquisition), and the excess of the
purchase price over the adjusted preliminary fair values of such
identifiable net assets was allocated to goodwill.
At December 31, 2005, we owned 670,018,242 or 54% of the
issued and outstanding shares of Austar.
II-82
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
|
|
|
VTR Acquisition of Metrópolis |
On April 13, 2005, VTR completed its previously announced
combination with Metrópolis Intercom S.A.
(Metrópolis), a Chilean broadband communications company.
Prior to the combination, LMI owned a 50% interest in
Metrópolis, with the remaining 50% interest owned by
Cristalerías de Chile S.A. (CCC). As consideration for
CCCs 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 assumed certain
indebtedness owed by Metrópolis to CristalChile Inversiones
S.A. (CCI), an affiliate of CCC, in the amount of
CLP6.067 billion ($10,533,000 at the transaction date), 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. The
acquisition of CCCs interest in Metrópolis included
the assumption of $25,773,000 in debt payable to a Chilean
telecommunications company (CTC) and CLP30.335 billion
($51,773,000 at the transaction date) of bank debt. The bank
debt was repaid in April 2005 and the debt to CTC was repaid in
July 2005 using proceeds from the VTR Bank Facility. See
note 10. The final regulatory approval for the combination,
which was obtained in March 2005, imposed certain conditions on
the combined entity. The most significant of these conditions
require that the combined entity (i) re-sell broadband
capacity to third party Internet service providers on a
wholesale basis; (ii) activate two-way capacity on
2.0 million homes passed within five years from the
consummation date of the combination; and (iii) for three
years after the consummation date of the combination, limit
basic tier price increases to the rate of inflation plus a
programming cost escalator. VTR merged with Metrópolis to
achieve certain financial, operational and strategic benefits
through the integration of Metrópolis with its existing
operations.
In the absence of quoted market prices for VTR common stock, we
estimated the fair value of the 20% interest in VTR that was
exchanged for CCCs interest in Metrópolis to be
$180 million. The estimate was based on a discounted cash
flow analysis and other available market data. Including the
approximate $11,755,000 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 CCCs
interest in Metrópolis totaled approximately $195,146,000.
We accounted for this merger as (i) a step acquisition by
our company of an additional 30% interest in Metrópolis,
and (ii) the sale of a 20% interest in VTR. Under the
purchase method of accounting, the preliminary purchase price
was allocated to the acquired identifiable tangible and
intangible assets and liabilities based upon their respective
fair values (taking into account the 30% Metrópolis
interest acquired), and the excess of the purchase price over
the fair value of such identifiable net assets was allocated to
goodwill. Our proportionate share of Metrópolis net
assets represented by our historical 50% interest in
Metrópolis was recorded at historical cost. UGC recorded a
$4,573,000 reduction of additional paid-in capital associated
with the dilution of its indirect ownership interest in VTR from
100% to 80% as a result of the transaction. Our share of this
loss was reflected as a reduction of additional paid-in capital
in our consolidated statement of stockholders equity.
II-83
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
|
|
|
Opening Balance Sheet Information of Significant 2005
Acquisitions |
A summary of the purchase prices, opening balance sheets and the
effective acquisition or consolidation dates for financial
reporting purposes of the Significant 2005 Acquisitions and the
Super Media/ J:COM consolidation is presented in the following
table:
|
|
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Super | |
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|
LGI | |
|
Media/ | |
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|
NTL | |
|
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|
|
|
Combination(d) | |
|
J:COM | |
|
Cablecom | |
|
Astral | |
|
Ireland | |
|
Austar | |
|
Metrópolis | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
amounts in thousands | |
Effective acquisition or consolidation date for financial
reporting purposes
|
|
|
June 15, 2005 |
|
|
|
January 1, 2005 |
|
|
|
October 31 2005 |
|
|
|
October 1, 2005 |
|
|
|
May 1, 2005 |
|
|
December 31, 2005 |
|
|
April 1, 2005 |
|
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|
|
|
|
|
|
|
|
|
|
Opening balance sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$ |
|
|
|
$ |
101,749 |
|
|
$ |
27,763 |
|
|
$ |
12,206 |
|
|
$ |
9,324 |
|
|
$ |
9,549 |
|
|
$ |
7,376 |
|
|
Other current assets
|
|
|
126 |
|
|
|
165,534 |
|
|
|
200,001 |
|
|
|
10,860 |
|
|
|
16,297 |
|
|
|
27,376 |
|
|
|
6,002 |
|
|
Investments in affiliates(a)
|
|
|
178,245 |
|
|
|
(987,290 |
) |
|
|
5,736 |
|
|
|
782 |
|
|
|
|
|
|
|
(123,084 |
) |
|
|
(67,909 |
) |
|
Property and equipment, net
|
|
|
223,571 |
|
|
|
2,441,196 |
|
|
|
1,116,381 |
|
|
|
128,087 |
|
|
|
282,555 |
|
|
|
92,381 |
|
|
|
143,173 |
|
|
Goodwill
|
|
|
1,617,324 |
|
|
|
1,875,285 |
|
|
|
2,196,749 |
|
|
|
260,484 |
|
|
|
208,053 |
|
|
|
316,085 |
|
|
|
226,941 |
|
|
Intangible assets subject to amortization(b)
|
|
|
622,500 |
|
|
|
|
|
|
|
512,985 |
|
|
|
67,404 |
|
|
|
|
|
|
|
72,756 |
|
|
|
|
|
|
Other assets, net
|
|
|
(77,397 |
) |
|
|
142,393 |
|
|
|
27,476 |
|
|
|
|
|
|
|
9,950 |
|
|
|
4,263 |
|
|
|
9,797 |
|
|
Current liabilities
|
|
|
|
|
|
|
(398,549 |
) |
|
|
(359,207 |
) |
|
|
(35,543 |
) |
|
|
(70,502 |
) |
|
|
(61,530 |
) |
|
|
(79,611 |
) |
|
Long-term debt and capital lease obligations
|
|
|
(11,697 |
) |
|
|
(2,112,722 |
) |
|
|
(1,415,272 |
) |
|
|
(14,865 |
) |
|
|
|
|
|
|
(217,927 |
) |
|
|
(38,394 |
) |
|
Other long-term liabilities
|
|
|
(56,329 |
) |
|
|
(415,099 |
) |
|
|
(75,043 |
) |
|
|
(19,184 |
) |
|
|
(6,881 |
) |
|
|
(16,809 |
) |
|
|
(12,229 |
) |
|
Minority interests in subsidiaries
|
|
|
994,817 |
|
|
|
(812,497 |
) |
|
|
(11,666 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(198,241 |
) |
|
Additional paid-in capital(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52,424 |
|
|
|
198,241 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total purchase price
|
|
$ |
3,491,160 |
|
|
$ |
|
|
|
$ |
2,225,903 |
|
|
$ |
410,231 |
|
|
$ |
448,796 |
|
|
$ |
155,484 |
|
|
$ |
195,146 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash consideration
|
|
$ |
694,517 |
|
|
$ |
|
|
|
$ |
2,212,258 |
|
|
$ |
407,074 |
|
|
$ |
428,214 |
|
|
$ |
154,952 |
|
|
$ |
|
|
|
Direct acquisition costs
|
|
|
9,018 |
|
|
|
|
|
|
|
13,645 |
|
|
|
3,157 |
|
|
|
20,582 |
|
|
|
532 |
|
|
|
3,391 |
|
|
Issuance of derivative instrument
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,755 |
|
|
Issuance of LGI stock
|
|
|
2,787,625 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of subsidiary stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
180,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total purchase price
|
|
$ |
3,491,160 |
|
|
$ |
|
|
|
$ |
2,225,903 |
|
|
$ |
410,231 |
|
|
$ |
448,796 |
|
|
$ |
155,484 |
|
|
$ |
195,146 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The investment in affiliate amounts for Super Media/ J:COM,
Austar and Metrópolis include reductions of $1,052,468,000,
$161,835,000, and $67,909,000, respectively, related to the
elimination of the carrying amount of our equity method
investment in such entities upon our acquisition of a
controlling interest. |
|
(b) |
|
The amounts reflected as intangible assets subject to
amortization primarily relate to our preliminary assessment of
the fair value of customer relationships. Such acquired
intangible assets had a preliminary weighted average life of
9.2 years at the respective acquisition dates. |
|
(c) |
|
The minority interests share in the deficit of Austar at
the transaction date has been recorded as a reduction of
additional paid-in capital in accordance with the guidance set
forth in EITF D-84, |
II-84
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
|
|
|
|
|
Accounting for Subsequent Investments in an Investee After
Suspension of Equity Method Loss Recognition When an Investor
Increases Its Ownership Interest from Significant Interest
to Control through a Market Purchase of Voting Securities. |
|
(d) |
|
The amounts reflected in the LGI Combination column reflect the
adjustments to the consolidated assets and liabilities of UGC at
June 15, 2005 that resulted from the application of step
acquisition accounting in connection with the LGI Combination. |
The purchase accounting for each of the Significant 2005
Acquisitions, as reflected in these consolidated financial
statements, is preliminary and subject to adjustment based upon
our final assessment of the fair values of the identifiable
tangible and intangible assets and liabilities of each acquired
entity. As the open items in the valuation processes 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. In addition, our final
assessment of the purchase price allocation could lead to
adjustments to the amount of acquired deferred tax assets or
assumed deferred tax liabilities.
|
|
|
Pro Forma Information for 2005 Acquisitions |
The following unaudited pro forma condensed consolidated
operating results give effect to (i) the Significant 2005
Acquisitions, (ii) the consolidation of Super Media/ J:COM.
and (iii) the July 1, 2004 acquisition of Noos and the
subsequent April 2005 acquisition of the remaining 19.9%
minority interest in UPC Broadband France as described below, as
if such transactions had been completed as of January 1,
2005 (for 2005 results) and as of January 1, 2004 (for 2004
results).
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.
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
|
|
as adjusted | |
|
|
|
|
(note 22) | |
|
|
amounts in thousands, | |
|
|
except per share amounts | |
Revenue
|
|
$ |
6,195,253 |
|
|
$ |
5,385,410 |
|
|
|
|
|
|
|
|
Net loss from continuing operations
|
|
$ |
(338,863 |
) |
|
$ |
(524,388 |
) |
|
|
|
|
|
|
|
Loss per share from continuing operations
|
|
$ |
(0.72 |
) |
|
$ |
(1.16 |
) |
|
|
|
|
|
|
|
Acquisition of the Remaining 19.9% Minority Interest in UPC
Broadband France In April 2005, a subsidiary of
UPC Holding exercised the call right acquired in connection with
the July 2004 Noos acquisition (see below) and purchased the
remaining 19.9% minority interest in UPC Broadband France SAS
(UPC Broadband France) that it did not already own for
90,105,000
($115,950,000 at the transaction date) in cash. UPC Broadband
France is an indirect wholly owned subsidiary and owner of our
French broadband video and Internet access operations. This
acquisition was accounted for as a step acquisition of the
remaining minority interest. As UPC Broadband France was a
consolidated subsidiary at the time of this transaction, the
purchase price was first applied to eliminate the minority
interest in UPC Broadband France from our consolidated balance
sheet, and the remaining purchase price has been allocated on a
pro rata basis to the identifiable assets
II-85
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
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.
Zone Vision In January 2005, chellomedia
acquired the Class A shares of Zone Vision. The
consideration for the transaction consisted of
(i) $50,000,000 in cash, before considering direct
acquisition costs of $2,154,000, and
(ii) 351,110 shares of LGI Series A common stock
and 351,110 shares of LGI Series C common stock valued
at $14,973,000. As part of the transaction, chellomedia
contributed to Zone Vision its 49% interest in Reality TV Ltd.
and chellomedias 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
represented an 87.5% interest in Zone Vision on a fully diluted
basis. Subject to certain vesting conditions,
Class B1 shares that initially represented 12.5% of
Zone Visions outstanding equity were issued to a group of
selling shareholders of Zone Vision, who were retained as
employees. In addition, the retained employees were entitled to
receive the LGI Series A common stock and LGI Series C
common stock that we issued as purchase consideration, subject
to an escrow agreement. In light of the vesting conditions
associated with the Zone Vision Class B1 and LGI
Series A and LGI Series C shares, we are recording
stock compensation with respect to these arrangements.
Zone Visions Class B1 shareholders have the
right, subject to vesting, to put 60% of their
Class B1 shares to chellomedia on January 7,
2008, and 100% of their interest on January 7, 2010.
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 limited to 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.
As of December 31, 2005, the Zone Vision
Class B1 shareholders hold vested and unvested shares
representing a 10% interest in Zone Vision on a fully diluted
basis that are subject to the put rights.
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 at the transaction date) in cash. We purchased
Telemach to increase our market presence in Central and Eastern
Europe.
Chofu On February 25, 2005, J:COM
completed a transaction with Sumitomo, Microsoft Corporation
(Microsoft) and our company whereby J:COM paid aggregate cash
consideration of ¥4,420 million ($41,932,000 at the
transaction date) to acquire each entities respective
interests in Chofu Cable, Inc. (Chofu Cable), a Japanese
broadband communications provider, and to acquire from Microsoft
equity interests in certain telecommunications companies. Our
share of the consideration was ¥972 million
($9,221,000 at the transaction date). As a result of this
transaction, J:COM acquired an approximate 92% equity interest
in Chofu Cable.
J:COM Setamachi On September 30, 2005,
J:COM paid cash of ¥9,200 million ($81,022,000 at the
transaction date) and assumed debt and capital lease obligations
of ¥5,480 million ($48,261,000 at the transaction
date) to purchase 100% of the outstanding shares of Odakyu
Telecommunications Services Co., Ltd., now known as J:COM
Setamachi Co. Ltd. (J:COM Setamachi). J:COM immediately repaid
¥3,490 million ($30,735,000 at the transaction date)
of the assumed debt. J:COM Setamachi is a broadband
communications provider in Japan.
IPS On November 23, 2005, Plator
Holdings B.V. (Plator Holdings), an indirect subsidiary of
chellomedia, paid cash consideration of $62,812,000 to acquire
the 50% interests that it did not already own in certain
businesses that provide thematic television channels in Spain
and Portugal (IPS). Plator Holdings financed the purchase price
with new bank borrowings. Following the transaction, Plator
Holdings indirectly holds its interests in IPS through its 100%
ownership interests in Nidlo B.V., Iberian Programming Services
C.V. and
II-86
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
Multicanal Iberia SL. Prior to this transaction, we used the
equity method to account for our investment in IPS. We have
accounted for this transaction as a step acquisition of a 50%
interest in IPS.
Accounting Treatment of UPC Broadband France, Zone Vision,
Telemach, Chofu, J:COM Setamachi and IPS
Acquisitions We have used the purchase method to
account for the interests acquired in UPC Broadband France, Zone
Vision, Telemach, IPS, Chofu and J:COM Setamachi. Under the
purchase method of accounting, the purchase price was allocated
to the acquired identifiable tangible and intangible assets and
liabilities based upon their respective fair values, and the
excess of the purchase price over the fair value of such net
identifiable assets was allocated to goodwill. The purchase
accounting for the IPS acquisition, as reflected in these
consolidated financial statements, is preliminary and subject to
adjustment based upon the final assessment of the fair values of
the IPS identifiable tangible and intangible assets and
liabilities. 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. When considered individually, none of the UPC Broadband
France, Zone Vision, Telemach, IPS, Chofu or J:COM Setamachi
acquisitions would have had a material impact on our results of
operations if such acquisitions had occurred on January 1,
2004.
|
|
|
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 Media Series A common stock valued, for accounting
purposes, at $152,122,000 and a cash payment of $12,857,000. We
also incurred $2,970,000 of acquisition costs in connection with
this transaction (the UGC Founders Transaction). The UGC
Founders Transaction was the last of a number of independent
transactions that occurred from 2001 through January 2004
pursuant to which we acquired our controlling interest in UGC.
For information concerning our transactions with UGC during
2003, see note 6.
II-87
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
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 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):
|
|
|
|
|
|
Cash
|
|
$ |
310,361 |
|
Other current assets
|
|
|
298,826 |
|
Property and equipment
|
|
|
3,386,252 |
|
Goodwill
|
|
|
2,023,374 |
|
Customer relationships(1)
|
|
|
379,093 |
|
Trade names
|
|
|
62,441 |
|
Other intangible assets
|
|
|
4,532 |
|
Investments and other assets
|
|
|
347,542 |
|
Current liabilities
|
|
|
(1,407,275 |
) |
Long-term debt
|
|
|
(3,615,902 |
) |
Deferred income taxes
|
|
|
(754,111 |
) |
Other liabilities
|
|
|
(259,492 |
) |
Minority interest
|
|
|
(607,692 |
) |
|
|
|
|
|
Aggregate purchase price
|
|
|
167,949 |
|
Issuance of Liberty Media common stock
|
|
|
(152,122 |
) |
|
|
|
|
|
Aggregate cash consideration (including direct acquisition costs)
|
|
$ |
15,827 |
|
|
|
|
|
|
|
(1) |
The estimated weighted-average amortization period on
January 1, 2004 for the intangible asset associated with
customer relationships was 4.9 years. |
During 2004, we also purchased an additional 20 million
shares of UGC Class A common stock pursuant to certain
pre-emptive rights granted to our company by 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 0.28
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
II-88
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
offering and exercised our rights to
purchase 90.7 million shares for a total cash purchase
price of $544,250,000.
On May 20, 2004, we acquired all of the issued and
outstanding ordinary shares of Princes Holdings Limited
(PHL) for
2,447,000,
including
447,000 of
acquisition costs ($2,918,000 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
($89,483,000 at the transaction date) to PHL. The proceeds from
this loan were used to provide funds to discharge liabilities
pursuant to a debt restructuring plan and to provide funds for
capital expenditures and working capital. We accounted for this
acquisition using the purchase method of accounting. For
financial reporting purposes, the PHL acquisition is deemed to
have occurred on June 1, 2004. Our results of operations
would not have been materially affected if the PHL acquisition
had occurred on January 1, 2003.
On July 1, 2004, UPC Broadband France 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 at the transaction dates), consisting of
487,085,000
($592,633,000 at the transaction date) in cash, a 19.9% equity
interest in UPC Broadband France, valued at approximately
71,339,000
($86,798,000 at the transaction date) and
8,678,000
($10,558,000 at the transaction date) of direct acquisition
costs.
We 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. UGC recorded a loss of
approximately
9,679,000
($11,776,000) associated with the dilution of its ownership
interest in UPC Broadband France as a result of the Noos
transaction. Our $6,102,000 share of this loss is reflected
as a reduction of additional paid-in capital in our consolidated
statement of stockholders equity.
II-89
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
The following table presents the purchase price allocation for
UGCs acquisition of an 80.1% interest in Noos, together
with the effects of the sale of a 19.9% interest in UGCs
historical French operations. Minority interest was computed
based on 19.9% of the fair value of our historical French
operations and 19.9% of the historical carrying amount of Noos.
|
|
|
|
|
|
|
amounts in | |
|
|
thousands | |
|
|
| |
Working capital
|
|
$ |
(106,744 |
) |
Property, plant and equipment
|
|
|
769,852 |
|
Intangible assets(1)
|
|
|
11,815 |
|
Other long-term assets
|
|
|
4,066 |
|
Other long-term liabilities
|
|
|
(7,099 |
) |
Minority interest
|
|
|
(85,359 |
) |
Equity in UPC Broadband France
|
|
|
6,102 |
|
|
|
|
|
Cash consideration for Noos
|
|
|
592,633 |
|
Less cash acquired
|
|
|
(18,791 |
) |
|
|
|
|
Net cash consideration for Noos
|
|
$ |
573,842 |
|
|
|
|
|
|
|
(1) |
The estimated weighted-average amortization period for the
intangible assets (favorable programming contract and tradename)
at acquisition was 3.8 years. |
As discussed above under 2005 Acquisitions, in April 2005
a subsidiary of UPC Holding 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.
|
|
|
Pro Forma Information reflecting 2004 Acquisitions |
The following unaudited pro forma condensed consolidated
operating results give effect to (i) the UGC transaction
and (ii) the July 1, 2004 acquisition of Noos, as if
they had been completed as of January 1, 2004 (for 2004
results) and as of January 1, 2003 (for 2003 results).
These pro forma amounts are not necessarily indicative of
operating results that would have occurred if the UGC and Noos
acquisitions had occurred on such dates. The pro forma
adjustments are based upon currently available information and
upon certain assumptions that we believe are reasonable:
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
as adjusted | |
|
|
|
|
(note 22) | |
|
|
|
|
amounts in thousands, except | |
|
|
per share amounts | |
Revenue
|
|
$ |
2,731,769 |
|
|
$ |
2,261,564 |
|
|
|
|
|
|
|
|
Net loss from continuing operations
|
|
$ |
(27,292 |
) |
|
$ |
(669,058 |
) |
|
|
|
|
|
|
|
Loss per share from continuing operations
|
|
$ |
(0.08 |
) |
|
$ |
(2.19 |
) |
|
|
|
|
|
|
|
II-90
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
|
|
|
Discontinued Operations and Other Dispositions |
UPC Norway On December 19, 2005 we
reached an agreement to sell 100% of UPC Norway to an unrelated
third party. On January 19, 2006 we sold UPC Norway for
cash proceeds of approximately
448 million
($542 million at the transaction date). On January 24,
2006, proceeds from the sale of UPC Norway of approximately
175 million
($214 million at the transaction date) were applied toward
the prepayment of borrowings under the UPC Broadband Holding
Bank Facility (see note 10).
In accordance with SFAS 144, we have presented UPC Norway
as a discontinued operation in our consolidated financial
statements. UPC Norway was a subsidiary of UGC and was included
in our Other Western Europe operating segment. As noted above,
we began consolidating UGC effective January 1, 2004.
The operating results of UPC Norway that are included in
discontinued operations are presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
amounts in thousands | |
Revenue
|
|
$ |
133,335 |
|
|
$ |
112,395 |
|
|
|
|
|
|
|
|
Operating income
|
|
$ |
15,650 |
|
|
$ |
1,018 |
|
|
|
|
|
|
|
|
Earnings (loss) before income taxes and minority interests
|
|
$ |
4,060 |
|
|
$ |
(11,610 |
) |
|
|
|
|
|
|
|
Net earnings (loss) from discontinued operations
|
|
$ |
3,494 |
|
|
$ |
(7,772 |
) |
|
|
|
|
|
|
|
As noted above, we were required to repay approximately
175 million
($214 million at the transaction date) of the debt
outstanding under the UPC Broadband Holding Bank Facility from
the proceeds of the sale transaction. The allocated interest
expense incurred on this debt of $12,186,000 and $12,839,000 for
the years ended December 31, 2005 and 2004, respectively,
is included in discontinued operations.
The major assets and liabilities of discontinued operations in
our consolidated balance sheet as of December 31, 2005 are
as follows (amounts in thousands):
|
|
|
|
|
|
Current assets
|
|
$ |
14,686 |
|
Property and equipment, net
|
|
|
162,915 |
|
Intangible and other assets, net
|
|
|
166,956 |
|
|
|
|
|
|
Total assets
|
|
$ |
344,557 |
|
|
|
|
|
Current liabilities
|
|
$ |
35,266 |
|
Other long-term liabilities
|
|
|
9,599 |
|
|
|
|
|
|
Total liabilities
|
|
$ |
44,865 |
|
|
|
|
|
SBS Investment On November 8, 2005, we
sold our available-for-sale investment in SBS Broadcasting S.A.
(SBS), a European commercial television and radio broadcasting
company. For additional information, see note 7.
The Wireless Group Investment In June 2005,
we sold our equity method investment in The Wireless Group plc
for cash proceeds of £20,304,000 ($37,126,000 at the
transaction date). We recorded a gain of $17,261,000 in
connection with this transaction.
II-91
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
TyC and FPAS Equity Method Investments On
April 29, 2005, we sold our entire equity interest in Fox
Pan American Sports, LLC (FPAS), and a $4 million
convertible subordinated note issued by FPAS, to another
unaffiliated member of FPAS for a cash purchase price of $5
million. In addition, our majority owned subsidiary, Liberty
Programming Argentina, LLC (LPA LLC), sold its entire equity
interest in Torneos y Competencias S.A. (TyC) to an unrelated
entity for total consideration of $20,940,000, consisting of
$13,000,000 in cash and a $7,940,000 secured promissory note
issued by FPAS and assigned to our company by the purchaser. The
owner of the minority interest in LPA LLC received approximately
$3,625,000 of the total consideration received in connection
with the sale of TyC upon the redemption of such interest. At
March 31, 2005, we considered our investments in TyC and
FPAS to be held for sale. As a result, we included cumulative
foreign currency translation losses of $85,984,000 in the
carrying value of our investment in TyC for purposes of our
March 31, 2005 impairment assessment. As a result of this
analysis, we recorded a $25,389,000 impairment charge during the
three months ended March 31, 2005 to write-off the full
amount of our investment in the equity of TyC at March 31,
2005. This impairment charge is included in share of earnings
(losses) of affiliates, net in our consolidated statement of
operations. In the second quarter of 2005, we recognized an
additional pre-tax loss of $62,678,000 in connection with the
April 29, 2005 sale of TyC and the related realization of
cumulative foreign currency translation losses. Pursuant to
GAAP, the recognition of cumulative foreign currency translation
gains or losses is permitted only when realized upon sale or
upon complete or substantially complete liquidation of the
investment in the foreign entity.
Cablevisión Subscription Rights In March
2005, we completed the sale of a subscription right with respect
to Cablevisión S.A. (Cablevisión) to an unaffiliated
third party for aggregate cash consideration of $40,527,000. For
additional information, see note 16.
EWT Holding GmbH Investment In January 2005,
we sold our 28.7% interest in EWT Holding GmbH (EWT), which
indirectly owned a broadband communications provider in Germany,
for 30,000,000
($39,067,000 at the transaction dates) in cash. We received
27,000,000
($35,439,000 at the transaction date) 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.
Telewest Investment 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 Global Inc. (Telewest), the successor to Telewest
Communications plc. 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 and fourth quarters of 2004, we sold all
of the acquired Telewest shares for aggregate cash proceeds of
$215,708,000, resulting in a pre-tax loss of $16,407,000. Based
on our third quarter 2004 determination that we would dispose of
all remaining Telewest shares during the fourth quarter of 2004,
the $12,429,000 excess of the carrying value over the fair value
of the Telewest shares that we held as of September 30,
2004 was included in other-than-temporary declines in fair
values of investments in our 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 earnings (loss) account prior to their
reclassification into our consolidated statements of operations.
II-92
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
|
|
(6) |
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, | |
|
|
December 31, 2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
Percentage | |
|
Carrying | |
|
Carrying | |
|
|
ownership | |
|
amount | |
|
amount | |
|
|
| |
|
| |
|
| |
|
|
dollar amounts in thousands | |
Jupiter TV Co., Ltd. (Jupiter TV)
|
|
|
50 |
% |
|
$ |
266,422 |
|
|
$ |
290,224 |
|
Telenet Group Holdings N.V. (Telenet)
|
|
|
(a |
) |
|
|
293,551 |
|
|
|
232,649 |
|
Mediatti Communications, Inc. (Mediatti)
|
|
|
(b |
) |
|
|
59,072 |
|
|
|
58,586 |
|
Super Media/ J:COM
|
|
|
(c |
) |
|
|
|
|
|
|
1,052,468 |
|
Metrópolis-Intercom S.A. (Metrópolis)
|
|
|
(d |
) |
|
|
|
|
|
|
57,344 |
|
Austar
|
|
|
(e |
) |
|
|
|
|
|
|
19,204 |
|
Other
|
|
|
Various |
|
|
|
170,021 |
|
|
|
155,167 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
789,066 |
|
|
$ |
1,865,642 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
For a description of our indirect ownership interest in Telenet,
see the discussion under Telenet below. |
|
(b) |
|
At December 31, 2005, we held our ownership interest in
Mediatti through a 94.6% owned subsidiary, which in turn owned a
36.4% voting interest and an additional 6.64% interest that has
limited veto rights. |
|
(c) |
|
For information concerning our ownership interest in Super Media
and Super Medias ownership interest in J:COM, see
note 5. |
|
(d) |
|
For financial reporting purposes, we began consolidating the
results of operations of Metrópolis effective April 1,
2005. See note 5. |
|
(e) |
|
For financial reporting purposes, we began consolidating the
results of Austar effective December 31, 2005. See
note 5. |
The following table sets forth our share of earnings (losses) of
affiliates including any charges for other-than-temporary
declines in fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
amounts in thousands | |
Jupiter TV
|
|
$ |
27,759 |
|
|
$ |
14,644 |
|
|
$ |
11,775 |
|
Telenet
|
|
|
(33,494 |
) |
|
|
|
|
|
|
|
|
Austar
|
|
|
13,100 |
|
|
|
976 |
|
|
|
|
|
Mediatti
|
|
|
(6,909 |
) |
|
|
(2,331 |
) |
|
|
|
|
Metrópolis
|
|
|
(6,782 |
) |
|
|
(8,355 |
) |
|
|
(8,291 |
) |
Super Media/ J:COM
|
|
|
|
|
|
|
45,092 |
|
|
|
20,341 |
|
Other
|
|
|
(16,623 |
) |
|
|
(11,316 |
) |
|
|
(10,086 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(22,949 |
) |
|
$ |
38,710 |
|
|
$ |
13,739 |
|
|
|
|
|
|
|
|
|
|
|
II-93
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
Our share of earnings (losses) of affiliates includes losses
related to other-than-temporary declines in the value of our
equity method investments of $29,187,000, $25,973,000 and
$12,616,000 during 2005, 2004 and 2003, respectively. Such
other-than-temporary losses are primarily related to TyC,
Metrópolis and FPAS, which are included in other in the
above tables. See note 5.
At December 31, 2005 and 2004, the aggregate carrying
amount of our investments in affiliates exceeded our
proportionate share of our affiliates net assets by
$566,787,000 and $757,235,000, respectively. Any calculated
excess costs on investments are allocated on an estimated fair
value basis to the underlying assets and liabilities of the
investee. Amounts associated with assets other than goodwill and
indefinite lived intangible assets are amortized over their
estimated useful lives. At December 31, 2005, such
estimated useful lives ranged from 5 to 10 years.
Jupiter TV, formerly Jupiter Programming Co., Ltd., a 50% 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. The
functional currency of Jupiter TV is the Japanese yen.
On April 22, 2004, Jupiter TV issued 24,000 shares of
Jupiter TV ordinary shares to Sumitomo for ¥6 billion
($54,260,000 as of April 22, 2004). On April 26, 2004,
Jupiter TV paid ¥3 billion ($27,677,000 as of
April 26, 2004) to each of our company and Sumitomo to
redeem 12,000 shares of Jupiter TV 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 Jupiter TV in exchange
for 24,000 ordinary shares of Jupiter TV 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.
Summarized financial information of Jupiter TV is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
amounts in thousands | |
Financial Position
|
|
|
|
|
|
|
|
|
Current assets
|
|
$ |
237,384 |
|
|
$ |
150,059 |
|
Investments
|
|
|
70,569 |
|
|
|
67,669 |
|
Property and equipment, net
|
|
|
47,123 |
|
|
|
52,017 |
|
Intangible and other assets, net
|
|
|
59,207 |
|
|
|
36,604 |
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
414,283 |
|
|
$ |
306,349 |
|
|
|
|
|
|
|
|
Current liabilities
|
|
$ |
179,120 |
|
|
$ |
108,684 |
|
Debt and capital leases
|
|
|
31,129 |
|
|
|
56,861 |
|
Other liabilities
|
|
|
6,289 |
|
|
|
3,576 |
|
Minority interest
|
|
|
48,667 |
|
|
|
29,840 |
|
Owners equity
|
|
|
149,078 |
|
|
|
107,388 |
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$ |
414,283 |
|
|
$ |
306,349 |
|
|
|
|
|
|
|
|
II-94
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
amounts in thousands | |
Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
793,233 |
|
|
$ |
567,493 |
|
|
$ |
412,013 |
|
Operating, selling, general and administrative expenses
|
|
|
(646,246 |
) |
|
|
(486,715 |
) |
|
|
(357,509 |
) |
Depreciation, amortization and impaiment
|
|
|
(23,039 |
) |
|
|
(12,977 |
) |
|
|
(10,427 |
) |
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
123,948 |
|
|
|
67,801 |
|
|
|
44,077 |
|
|
Other, net
|
|
|
(68,422 |
) |
|
|
(37,704 |
) |
|
|
(21,112 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$ |
55,526 |
|
|
$ |
30,097 |
|
|
$ |
22,965 |
|
|
|
|
|
|
|
|
|
|
|
On December 16, 2004, chellomedia Belgium I BV and
chellomedia Belgium II BV, UGCs indirect wholly owned
subsidiaries (collectively, chellomedia Belgium), acquired
LMIs wholly owned subsidiary Belgian Cable Holdings
(BCH) for $121,068,000 in cash. BCHs 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
LMIs 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. At December 31, 2005, the
accreted value of our preferred interest in Belgian Cable
Investors was $182,591,000. 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
Belgium Cable Investors. CPE owns the remaining 21.6% of the
common equity of Belgian Cable Investors.
On October 14, 2005, Telenet completed an IPO at a price of
21 ($25.26 at
the transaction date) per share of 30,553,293 ordinary shares
held by existing shareholders, and 13,333,333 newly issued
Telenet ordinary shares. In addition, we have been informed by
Telenet that a total of 14,269 new Telenet shares were sold to
employees of Telenet at a discounted price of
17.50 ($21.05 at
the transaction date) in an offering open only to Telenet
employees that closed on October 21, 2005. The foregoing
share and per share amounts and all Telenet share amounts
referenced elsewhere herein reflect a 3 for 1 stock split that
was effected in connection with the Telenet IPO. In connection
with the dilution of the Investcos ownership interest in
Telenet from 18.92% to 16.40% as a result of the Telenet IPO, we
recorded a gain of
31,456,000
($38,371,000 at the transaction date), which is reflected as an
increase to additional paid-in capital in our consolidated
statement of stockholders equity. No deferred income taxes
were required to be provided on this gain.
In connection with the Telenet IPO, one of our indirect
subsidiaries, chellomedia Investments B.V. (chellomedia
Investments), purchased 7,722,918 of Telenets ordinary
shares on October 14, 2005 for an aggregate cash purchase
price of
160,221,000
($193,667,000 at the transaction date). Of the
7,722,918 shares, 3,056,645 were purchased from existing
shareholders as a substitute for exercising preemptive rights
with respect to the primary shares sold in the offering. The
remaining 4,666,273 shares were acquired from our
co-investors in Telenet. As a result of the purchases,
(i) chellomedia Investments and Belgian Cable Investors
increased their combined economic ownership in the outstanding
ordinary shares of Telenet from 14.1% to 19.89%, representing
the 7,722,918 shares purchased by chellomedia Investments
and Belgian Cable Investors attributed ownership of
12,208,356 or 94.72% of the 12,888,418 shares held directly
II-95
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
by the Investcos. Following the completion of the Telenet IPO
and related transactions (including the chellomedia Investments
purchases), chellomedia Investments and Belgian Cable Investors
together exercise voting control over a total of 21.50% of the
Telenet shares outstanding following the Telenet IPO.
Belgian Cable Investors additionally holds call options to
acquire an additional 25,418,826 shares in Telenet, or
25.37% of the total shares outstanding following the Telenet
IPO. The call options are priced at
20 ($23.67) per
share as to 6,750,000 shares (all of which expire in August
2009, or earlier under certain circumstances) and
25 ($29.58) per
share as to 18,668,826 shares (of which 10,093,041 expire
in August 2007 and 8,575,785 expire in August 2009, or earlier
under certain circumstances). The Investcos also hold certain
warrants that are convertible into 120,000 Telenet ordinary
shares at a price of
13.33 ($15.77)
per share and together with one of the third party investors in
the Investcos, the Investcos hold certain call options expiring
on December 1, 2006 to purchase Telenet ordinary shares
from another investor at a price of
25 ($29.58) per
share. Belgian Cable Investors has a 66.04% interest in the
warrants and call options held by the Investcos.
Following the Telenet IPO, we began accounting for the
aforementioned call options and warrants as derivative
instruments that are carried at fair value, with changes in fair
value reported in our statements of operations. Prior to the
consummation of the Telenet IPO, these instruments were included
with our equity method investment in Telenet and carried at
cost, subject to other-than-temporary impairment, due to the
fact that the instruments did not then meet the definition of a
derivative instrument.
Certain securities issued by the Investcos to third parties are
mandatorily redeemable on March 30, 2050, and are
redeemable at the option of the holder upon and at any time
following an IPO of Telenet or the occurrence of certain other
events. In connection with the consummation of the Telenet IPO
on October 14, 2005, the Investcos securities held by
third parties became immediately redeemable at the option of the
holder, and the Investcos redeemed
72,962,000
($88,181,000 at the transaction date) of these securities
subsequent to the Telenet IPO in October 2005. During 2005, we
recorded increases to the estimated fair value of these
securities aggregating
28,287,000
($35,170,000 at the average rate during the period), including a
33,312,000
($41,565,000 at the average rate during the period) third
quarter 2005 increase that was largely associated with the
increased liquidity of the underlying Telenet shares following
the Telenet IPO. These fair value increases are included in
interest expense in our consolidated statement of operations. We
have included the remaining fair value of these mandatorily
redeemable securities of
10,745,000
($12,715,000) at December 31, 2005 in the current portion
of debt and capital lease obligations in our consolidated
balance sheet.
As further described in note 20, CPE has the right to
require BCH to purchase all of CPEs 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.
At December 31, 2005, the aggregate market value of the
Telenet ordinary shares indirectly owned by our company was
314,914,000
($372,635,000).
II-96
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
Summarized financial information of Telenet for the period in
which we used the equity method to account for Telenet is as
follows:
|
|
|
|
|
|
|
|
December 31, 2005 | |
|
|
| |
|
|
amounts in | |
|
|
thousands | |
Financial Position
|
|
|
|
|
Current assets
|
|
$ |
399,936 |
|
Property and equipment, net
|
|
|
1,116,932 |
|
Goodwill
|
|
|
1,201,659 |
|
Other assets, net
|
|
|
374,506 |
|
|
|
|
|
|
Total assets
|
|
$ |
3,093,033 |
|
|
|
|
|
Current liabilities
|
|
$ |
616,613 |
|
Debt
|
|
|
1,577,843 |
|
Other liabilities
|
|
|
57,444 |
|
Owners equity
|
|
|
841,133 |
|
|
|
|
|
|
Total liabilities and equity
|
|
$ |
3,093,033 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2005 | |
|
|
| |
|
|
amounts in thousands | |
Results of Operations
|
|
|
|
|
Revenue
|
|
$ |
916,253 |
|
Operating, selling, general and administrative expenses
|
|
|
(505,234 |
) |
Depreciation and amortization
|
|
|
(246,203 |
) |
|
|
|
|
Operating income
|
|
|
164,816 |
|
Interest expense, net
|
|
|
(239,441 |
) |
Other, net
|
|
|
(15,852 |
) |
|
|
|
|
|
Net loss
|
|
$ |
(90,477 |
) |
|
|
|
|
Mediatti is a provider of cable television and high speed
Internet access services in Japan. During 2004, we completed
three transactions that resulted in our acquisition of 21,572
Mediatti shares for an aggregate cash purchase price of
¥6,257 million ($59,129,000). In 2005 we acquired an
additional 5,863 Mediatti shares for an aggregate cash purchase
price of ¥1,701 million ($15,434,000). Our interest in
Mediatti is held through Liberty Japan MC, LLC, (Liberty Japan
MC), a company of which we own approximately 94.6% and Sumitomo
owns approximately 5.4%.
At December 31, 2005, Liberty Japan MC owned a 36.4% voting
interest in Mediatti and an additional 6.64% interest that has
limited veto rights in the form of Class A shares. On
January 6, 2006, such Class A shares were converted
into voting common stock. In February 2006, Liberty Japan MC
acquired an additional 3.05% voting interest in Mediatti for
cash consideration of ¥1,044 million ($8,777,000 at
the transaction date). Following the February 2006 transaction,
Liberty Japan MC owned a 46.09% voting interest in Mediatti.
II-97
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
Liberty Japan MC, Olympus Mediacom L.P. (Olympus Mediacom) and
two minority shareholders of Mediatti have entered into a
shareholders agreement pursuant to which Liberty Japan MC has
the right to nominate three of Mediattis seven directors
and which requires that significant actions by Mediatti be
approved by at least one director nominated by Liberty Japan MC.
The Mediatti shareholders who are party to the shareholders
agreement have granted to each other party whose ownership
interest is greater than 10%, a right of first refusal with
respect to transfers of their respective interests in Mediatti.
Each shareholder also has tag-along rights with respect to such
transfers. Olympus Mediacom has a put right that is first
exercisable during July 2008 to require Liberty Japan MC to
purchase all of its Mediatti shares at the then fair value. If
Olympus exercises such right, the two minority shareholders who
are party to the shareholders agreement may also require Liberty
Japan MC to purchase their Mediatti shares at the then fair
value. If Olympus Mediacom does not exercise such right, Liberty
Japan MC has a call right that is first exercisable during July
2009 to require Olympus Mediacom and the minority shareholders
to sell their Mediatti shares to Liberty Japan MC at the then
fair value. If both the Olympus Mediacom 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.
Due to certain veto rights held by Sumitomo, we accounted for
our 69.68% ownership interest in Super Media using the equity
method of accounting through December 31, 2004. As a result
of a February 2005 change in the governance of Super Media, we
began accounting for Super Media and J:COM as consolidated
subsidiaries effective January 1, 2005. For additional
information, see note 5.
On August 6, 2004, J:COM used cash proceeds received
pursuant to capital contributions from our company, Sumitomo and
Microsoft to repay shareholder loans with an aggregate principal
amount of ¥30,000 million ($275,660,000 at
August 6, 2004). Such amount includes
¥14,065 million ($129,237,000 at August 6, 2004)
of shareholder loans held by us that were effectively converted
to equity in these transactions. Such transactions did not
materially impact the J:COM ownership interests of our company,
Sumitomo or Microsoft.
On December 21, 2004, we received cash proceeds of
¥42,755 million ($410,080,000 at December 21,
2004) in repayment of all principal and interest due to our
company from J:COM pursuant to then outstanding shareholder
loans. In connection with this transaction, we recognized a
pre-tax gain of $55,350,000 in our statement of operations
related to foreign currency translation gains that previously
had been reflected in accumulated other comprehensive earnings
(loss).
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.
II-98
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
Summarized financial information of J:COM for the periods in
which we used the equity method to account for J:COM is as
follows:
|
|
|
|
|
|
|
December 31, 2004 | |
|
|
| |
|
|
amounts in | |
|
|
thousands | |
Financial Position
|
|
|
|
|
Investments
|
|
$ |
65,178 |
|
Property and equipment, net
|
|
|
2,441,196 |
|
Intangible and other assets, net
|
|
|
1,783,162 |
|
|
|
|
|
Total assets
|
|
$ |
4,289,536 |
|
|
|
|
|
Debt
|
|
$ |
2,260,805 |
|
Other liabilities
|
|
|
677,595 |
|
Owners equity
|
|
|
1,351,136 |
|
|
|
|
|
Total liabilities and equity
|
|
$ |
4,289,536 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
amounts in thousands | |
Results of Operations
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
1,504,709 |
|
|
$ |
1,233,492 |
|
Operating, selling, general and administrative expenses
|
|
|
(915,112 |
) |
|
|
(805,174 |
) |
Stock-based compensation
|
|
|
(783 |
) |
|
|
(840 |
) |
Depreciation and amortization
|
|
|
(378,868 |
) |
|
|
(313,725 |
) |
|
|
|
|
|
|
|
Operating income
|
|
|
209,946 |
|
|
|
113,753 |
|
Interest expense, net
|
|
|
(94,958 |
) |
|
|
(68,980 |
) |
Other, net
|
|
|
(15,532 |
) |
|
|
1,335 |
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$ |
99,456 |
|
|
$ |
46,108 |
|
|
|
|
|
|
|
|
Because we had no commitment to make additional capital
contributions to UGC, we suspended recording our share of
UGCs losses when the carrying value of our investment in
UGC was reduced to zero in 2002.
At December 31, 2003, we owned an approximate 50% economic
interest and an 87% voting interest in UGC. Pursuant to certain
voting and standstill arrangements, we were unable to exercise
control of UGC, and accordingly, we used the equity method of
accounting for our investment through December 31, 2003.
As discussed in detail in note 5, on January 5, 2004,
we completed a transaction pursuant to which 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.
II-99
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
Summarized financial information for UGC for 2003 is as follows:
|
|
|
|
|
|
|
|
|
Year ended | |
|
|
December 31, 2003 | |
|
|
| |
|
|
amounts in thousands | |
Results of Operations
|
|
|
|
|
Revenue
|
|
$ |
1,891,530 |
|
Operating, selling, general and administrative expenses
|
|
|
(1,262,648 |
) |
Depreciation and amortization
|
|
|
(808,663 |
) |
Impairment of long-lived assets, restructuring charges and
stock-based compensation
|
|
|
(476,233 |
) |
|
|
|
|
|
Operating loss
|
|
|
(656,014 |
) |
Interest expense
|
|
|
(327,132 |
) |
Gain on extinguishment of debt
|
|
|
2,183,997 |
|
Share of earnings of affiliates
|
|
|
294,464 |
|
Foreign currency transaction gains, net
|
|
|
121,612 |
|
Minority interest in losses of subsidiaries
|
|
|
183,182 |
|
Other, net
|
|
|
195,259 |
|
|
|
|
|
|
|
Net income from continuing operations
|
|
$ |
1,995,368 |
|
|
|
|
|
The following table sets forth the carrying amount of our other
investments:
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
amounts in thousands | |
ABC Family
|
|
$ |
365,082 |
|
|
$ |
387,380 |
|
News Corp.
|
|
|
85,525 |
|
|
|
102,630 |
|
SBS
|
|
|
|
|
|
|
241,500 |
|
Other
|
|
|
118,452 |
|
|
|
107,098 |
|
|
|
|
|
|
|
|
|
Total other investments
|
|
$ |
569,059 |
|
|
$ |
838,608 |
|
|
|
|
|
|
|
|
Our investments in ABC Family and News Corp. are accounted for
as available-for-sale securities. We accounted for our
investments in SBS and Telewest (see discussion below) as
available-for-sale securities during the periods in which we
held those investments.
At December 31, 2005, 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. The issuer is required to redeem the ABC
Family preferred stock at its liquidation value on
August 1, 2027, and has the option to redeem the ABC Family
preferred stock at its liquidation value at any time after
August 1, 2007. We have the right to require the issuer to
redeem the ABC Family preferred stock at its liquidation value
during the 30 day periods commencing upon August 2 of the
years 2017 and 2022. Liberty Media contributed this interest to
our company in connection with the spin off. We recognized
dividend income on the ABC Family preferred stock
II-100
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
of $31,050,000 during the year ended December 31, 2005 and
$18,217,000 during the period from the Spin Off Date through
December 31, 2004. During the fourth quarter of 2005, we
recognized a $3,403,000 loss to reflect an other-than-temporary
decline in the fair value of the ABC Family preferred stock held
by us at December 31, 2005.
At December 31, 2004, UGC owned 6,000,000 shares or
approximately 19% of the outstanding shares of SBS. On
November 8, 2005, we received cash consideration of
276,432,000
($325,554,000 at the transaction date) in connection with the
disposition of our 19% ownership interest in SBS. We recorded a
pre-tax gain of $89,069,000 in connection with this transaction.
Consistent with our classification of our SBS shares as
available-for-sale securities, the above-described gain was
reflected as a component of our accumulated other comprehensive
earnings (loss) account prior to its reclassification into our
consolidated statement of operations.
Liberty Media contributed 10,000,000 shares of News Corp.
Class A common stock to our company in connection with the
spin off. During the fourth quarter of 2004, we sold
4,500,000 shares of News Corp. Class A common stock
for aggregate cash proceeds of $83,669,000 ($29,770,000 of which
was received in 2005), resulting in a pre-tax gain of
$37,174,000. Accordingly, we owned 5,500,000 shares of News
Corp. Class A common stock at December 31, 2005 and
2004. In August 2005, we entered into a prepaid forward sale
transaction with respect to our investment in News Corp.
Class A common stock. See note 10.
Prior to October 2004, we held a 10% ownership interest in each
of three direct-to-home
satellite providers that operate in Brazil (Sky Brasil), Mexico
(Sky Mexico) and Chile and Colombia (Sky Multi-Country)
(collectively, Sky Latin America), which were accounted for as
cost investments.
In October 2004, we sold our interest in the Sky Multi-Country
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 the Sky
Multi-Country 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 million in cash
from the purchaser, which consisted of $60 million
consideration payable for our Sky Brasil interest less the
$6 million we were deemed to owe the purchaser in respect
of the Sky Multi-Country DTH platform. The $60 million 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. In light of the contingencies
involved, we will not treat the Sky Brasil transactions as a
sale for accounting purposes until such time as the necessary
regulatory approvals are obtained.
Following receipt of regulatory approval, we received
$88 million in cash in February 2006 upon the sale of our
Sky Mexico interest to the purchaser.
II-101
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
|
|
|
Unrealized holding gains and losses |
Unrealized holding gains and losses related to investments in
available-for-sale securities that are included in accumulated
other comprehensive earnings (loss), net of tax, are summarized
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 |
|
2004 | |
|
|
|
|
| |
|
|
Equity | |
|
Debt |
|
Equity | |
|
Debt | |
|
|
securities | |
|
securities |
|
securities | |
|
securities | |
|
|
| |
|
|
|
| |
|
| |
|
|
|
|
amounts in thousands | |
|
|
Gross unrealized holding gains
|
|
$ |
30,957 |
|
|
$ |
|
|
|
$ |
92,195 |
|
|
$ |
18,516 |
|
Gross unrealized holding losses
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
(8) |
Derivative Instruments |
The following table provides detail of the fair value of our
derivative instrument assets (liabilities), net:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
amounts in thousands | |
Cross-currency and interest rate exchange contracts
|
|
$ |
174,572 |
|
|
$ |
(23,264 |
) |
Embedded derivatives(1)
|
|
|
1,013 |
|
|
|
(48 |
) |
Foreign exchange contracts
|
|
|
6,335 |
|
|
|
(5,257 |
) |
Call and put contracts
|
|
|
12,859 |
|
|
|
49,218 |
|
Total return debt swaps
|
|
|
|
|
|
|
23,731 |
|
Other
|
|
|
830 |
|
|
|
(3,305 |
) |
|
|
|
|
|
|
|
|
|
Total(1)
|
|
$ |
195,609 |
|
|
$ |
41,075 |
|
|
|
|
|
|
|
|
Current asset
|
|
$ |
7,328 |
|
|
$ |
73,507 |
|
Long-term asset
|
|
|
227,939 |
|
|
|
2,568 |
|
Current liability
|
|
|
(22,453 |
) |
|
|
(14,636 |
) |
Long-term liability
|
|
|
(17,205 |
) |
|
|
(20,364 |
) |
|
|
|
|
|
|
|
|
Total(1)
|
|
$ |
195,609 |
|
|
$ |
41,075 |
|
|
|
|
|
|
|
|
|
|
(1) |
Excludes embedded derivative components of the UGC Convertible
Notes and the prepaid forward sale of News Corp. Class A
common stock, as these amounts are presented together with the
host debt instrument in long-term debt and capital lease
obligations in our consolidated balance sheet. See note 10. |
II-102
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
Realized and unrealized gains (losses) on derivative instruments
are comprised of the following amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
amounts in thousands | |
Cross-currency and interest rate exchange contracts
|
|
$ |
216,022 |
|
|
$ |
(64,097 |
) |
|
$ |
|
|
Embedded derivatives(1)
|
|
|
69,999 |
|
|
|
23,032 |
|
|
|
|
|
Foreign exchange contracts
|
|
|
11,682 |
|
|
|
196 |
|
|
|
(22,626 |
) |
Call and put contracts
|
|
|
8,780 |
|
|
|
1,713 |
|
|
|
|
|
Total return debt swaps
|
|
|
|
|
|
|
2,384 |
|
|
|
37,804 |
|
Other
|
|
|
3,490 |
|
|
|
997 |
|
|
|
(2,416 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
309,973 |
|
|
$ |
(35,775 |
) |
|
$ |
12,762 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Includes gains and losses associated with the embedded
derivative component of the UGC Convertible Notes and the August
2005 prepaid forward sale of the News Corp. Class A common
stock. See note 10. |
|
|
|
Cross-currency and Interest Rate Contracts |
Through our subsidiaries, we have entered into various
derivative instruments to manage interest rate and foreign
currency exposure. With the exception of J:COMs interest
rate swaps, which as discussed below, are accounted for as cash
flow hedges, we do not apply hedge accounting to our derivative
instruments. Accordingly, changes in the fair values of all
other derivative instruments are recorded in realized and
unrealized gains (losses) on derivative instruments in our
consolidated statements of operations. The terms of significant
outstanding contracts at December 31, 2005, were as follows:
|
|
|
Cross-currency and Interest Rate Swaps: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate (on | |
|
|
|
|
Principal amount | |
|
|
|
principal amount) | |
|
Interest rate (on | |
|
|
due from | |
|
Notional amount due | |
|
due from | |
|
notional amount) due | |
Maturity date |
|
counterparty | |
|
to counterparty | |
|
counterparty | |
|
to counterparty | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
amounts in thousands | |
|
|
UPC Broadband Holding B.V. (UPC Broadband Holding), a subsidiary
of UPC Holding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 2011(1)
|
|
$ |
525,000 |
|
|
|
393,500 |
|
|
|
LIBOR + 3.0 |
% |
|
|
EURIBOR + 3.10 |
% |
|
October 2012(2)
|
|
|
1,250,000 |
|
|
|
944,000 |
|
|
|
LIBOR + 2.5 |
% |
|
|
6.06 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,775,000 |
|
|
|
1,337,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cablecom GmbH Cablecom GmbH), a subsidiary of Cablecom(3):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 2007
|
|
|
193,333 |
|
|
|
CHF 299,792 |
|
|
|
9.74 |
% |
|
|
8.33 |
% |
|
April 2007
|
|
|
96,667 |
|
|
|
149,896 |
|
|
|
9.74 |
% |
|
|
8.41 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
290,000 |
|
|
|
CHF 449,688 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
II-103
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
|
|
(1) |
Swap contract effectively converts the indicated principal
amount of UPC Broadband Holdings
U.S. dollar-denominated LIBOR-indexed floating rate debt to
Euro-denominated EURIBOR-indexed floating rate debt. |
|
(2) |
Swap contract effectively converts the indicated principal
amount of UPC Broadband Holdings
U.S. dollar-denominated LIBOR-indexed floating rate debt to
Euro-denominated fixed rate debt. |
|
(3) |
Swap contract effectively converts the indicated principal
amount of Cablecom Luxembourgs Euro-denominated fixed-rate
debt to CHF-denominated fixed-rate debt. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable interest | |
|
Fixed interest rate | |
|
|
|
|
rate due from | |
|
due to | |
Maturity date |
|
Notional amount | |
|
counterparty | |
|
counterparty | |
|
|
| |
|
| |
|
| |
|
|
amounts in thousands | |
|
|
|
|
UPC Broadband Holding(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 2006
|
|
|
525,000 |
|
|
|
EURIBOR |
|
|
|
2.26 |
% |
|
January 2006
|
|
|
550,000 |
|
|
|
EURIBOR |
|
|
|
2.33 |
% |
|
April 2010
|
|
|
1,000,000 |
|
|
|
EURIBOR |
|
|
|
3.28 |
% |
|
September 2012
|
|
|
500,000 |
|
|
|
EURIBOR |
|
|
|
2.96 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
2,575,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LG Switzerland(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 2007
|
|
|
560,072 |
|
|
|
EURIBOR |
|
|
|
2.82 |
% |
|
|
|
|
|
|
|
|
|
|
Cablecom Luxembourg S.C.A. (Cablecom Luxembourg), a subsidiary
of Cablecom and the parent of Cablecom GmbH(3):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 2010
|
|
|
CHF618,480 |
|
|
|
CHF LIBOR |
|
|
|
2.19 |
% |
|
December 2012
|
|
|
711,520 |
|
|
|
CHF LIBOR |
|
|
|
2.34 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
CHF1,330,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Austar(4):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 2006
|
|
|
AUD165,000 |
|
|
|
AUD LIBOR |
|
|
|
5.67 |
% |
|
January 2009
|
|
|
115,800 |
|
|
|
AUD LIBOR |
|
|
|
5.72 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
AUD280,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Puerto Rico subsidiary(5):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 2007
|
|
$ |
31,875 |
|
|
|
LIBOR |
|
|
|
3.75 |
% |
|
|
May 2009
|
|
|
31,875 |
|
|
|
LIBOR |
|
|
|
3.98 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
63,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VTR(6):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 2012
|
|
|
CLP140,401,800 |
|
|
|
TAB |
|
|
|
7.01 |
% |
|
|
|
|
|
|
|
|
|
|
II-104
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable interest | |
|
Fixed interest rate | |
|
|
|
|
rate due from | |
|
due to | |
Maturity date |
|
Notional amount | |
|
counterparty | |
|
counterparty | |
|
|
| |
|
| |
|
| |
|
|
amounts in thousands | |
|
|
|
|
J:COM(7):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
¥33,798,240 |
|
|
|
TIBOR |
|
|
|
0.52 |
% |
|
December 30, 2009
|
|
|
5,500,000 |
|
|
|
TIBOR |
|
|
|
0.55 |
% |
|
December 30, 2009
|
|
|
1,500,000 |
|
|
|
TIBOR |
|
|
|
0.69 |
% |
|
December 30, 2009
|
|
|
3,000,000 |
|
|
|
TIBOR |
|
|
|
0.70 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
¥43,798,240 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Each contract effectively fixes the EURIBOR on the indicated
principal amount of UPC Broadband Holdings
Euro-denominated debt. |
|
(2) |
At December 31, 2005, this contact effectively fixed the
EURIBOR rate on the indicated principal amount of LG
Switzerlands Euro-denominated debt. The notional amount of
this contract increases rateably through January 2007 to a
maximum amount of
597,798,000
($707,370,000) and remains at that level through the maturity
date of the contract. |
|
(3) |
Each contract effectively fixes the CHF LIBOR on the indicated
principal amount of Cablecom Luxembourgs CHF-denominated
debt. |
|
(4) |
Each contract effectively fixes the Australian dollar (AUD)
LIBOR on the indicated principal amount of Austars
AUD-denominated debt. |
|
(5) |
Each contract effectively fixes the LIBOR on the indicated
principal amount of the U.S. dollar-denominated debt of our
Puerto Rico subsidiary. |
|
(6) |
Contract effectively fixes the
90-day Chilean
peso-denominated TAB (Tasa Activa Bancaria) on the indicated
principal amount of VTRs CLP-denominated debt. |
|
(7) |
These swap agreements effectively fix the TIBOR (Tokyo Interbank
Offered Rate) component of the variable interest rates on
borrowings pursuant to J:COMs Credit Facility (see
note 10). J:COM accounts for these derivative instruments
as cash flow hedging instruments. Accordingly, the effective
component of the change in the fair value of these instruments
is reflected in other comprehensive earnings (loss), net. |
Each contract caps the EURIBOR rate on the indicated principal
amount of UPC Broadband Holdings Euro-denominated debt, as
detailed below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cap |
Start date |
|
Maturity date |
|
Principal amount |
|
level |
|
|
|
|
|
|
|
|
|
|
|
amounts in thousands |
|
|
UPC Broadband Holding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 2005
|
|
|
January 2006 |
|
|
|
1,500,000 |
|
|
|
3.0% |
|
|
July 2005
|
|
|
January 2006 |
|
|
|
1,100,000 |
|
|
|
3.0% |
|
|
January 2006
|
|
|
July 2006 |
|
|
|
900,000 |
|
|
|
4.0% |
|
|
January 2006
|
|
|
January 2007 |
|
|
|
600,000 |
|
|
|
4.0% |
|
|
July 2006
|
|
|
January 2007 |
|
|
|
400,000 |
|
|
|
4.0% |
|
|
January 2007
|
|
|
January 2008 |
|
|
|
750,000 |
|
|
|
3.5% |
|
II-105
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
Our embedded derivatives include the equity derivative that is
embedded in the UGC Convertible Notes, the equity derivative
that is embedded in the prepaid forward sale of News Corp.
Class A common stock and other less significant embedded
derivatives. For additional information concerning the UGC
Convertible Notes and the prepaid forward transaction, see
note 10.
|
|
|
Foreign Exchange Contracts |
Several of our subsidiaries have outstanding foreign currency
forward contracts. A currency forward is an agreement to
exchange cash flows denominated in different currencies at a
specified future date (the maturity date) and at a specified
exchange rate (the forward exchange rate) agreed on the trade
date. Changes in the fair value of these contracts are recorded
in realized and unrealized gains (losses) on derivative
instruments in our consolidated statements of operations. The
following table summarizes our outstanding foreign currency
forward contracts at December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts converted |
|
|
|
|
|
|
|
|
|
Local currency |
|
Foreign currency |
|
Maturity dates |
|
|
|
|
|
|
|
|
|
amounts in thousands |
|
|
UPC Broadband Holding
|
|
|
NOK 876,280 |
|
|
|
109,320 |
|
|
|
January 2006 |
|
J:COM
|
|
|
¥ 1,033,000 |
|
|
$ |
8,882 |
|
|
|
February May 2006 |
|
VTR
|
|
|
CLP 16,408,905 |
|
|
$ |
30,000 |
|
|
|
January December 2006 |
|
LG Switzerland
|
|
|
CHF 925,133 |
|
|
|
606,446 |
|
|
|
April 2007 |
|
Austar
|
|
|
AUD 62,987 |
|
|
$ |
46,150 |
|
|
|
January 2006 December 2007 |
|
In connection with VTRs April 2005 acquisition of
Metrópolis, UGC granted a put right to CCC with respect to
the 20% interest in VTR owned by CCC. We account for the CCC Put
Right at fair value, with changes in fair value reported in
realized and unrealized gains (losses) on derivative
instruments, net. For additional information, see note 5.
|
|
|
Telenet Call Options and Warrants |
As described in greater detail in note 6, Belgian Cable
Investors and the Investcos own certain call options and
warrants. Following the Telenet IPO (see note 6), we began
accounting for the Telenet call options and warrants as
derivative instruments that are carried at fair value, with
changes in fair value reported in our statements of operations.
|
|
|
Call Agreements on LGI Series A common stock |
During the fourth quarter of 2004, we paid aggregate cash
consideration of $47,505,000 to enter into call option contracts
pursuant to which we contemporaneously (i) sold call
options on 1,210,000 shares of LGI Series A common
stock and 1,210,000 shares of LGI Series C common
stock at combined exercise prices ranging from $39.5236 to
$41.7536, and (ii) purchased call options on an equivalent
number of shares of LGI Series A common stock and LGI
Series C common stock with an exercise price of zero. We
received cash proceeds of $49,387,000 in connection with the
expiration of these contracts during the first quarter of 2005.
We accounted for these call agreements as derivative assets due
to the fact that the agreements did not meet all of the
requirements of
EITF 00-19,
Accounting for Derivative Financial Instruments Indexed to,
and Potentially Settled in, a Companys Own Stock
(EITF 00-19), for
classification as equity instruments.
II-106
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
At December 31, 2004, we were a party to total return debt
swaps in connection with (i) bank debt of UPC Broadband
Holding, and (ii) public debt of Cablevisión. Under
the total return debt swaps, a counterparty purchased a
specified amount of the underlying debt security for the benefit
of our company. We posted collateral with the counterparties
equal to 30% of the counterpartys purchase price for the
purchased indebtedness of UPC Broadband Holding and 90% of the
counterpartys purchase price for the purchased
indebtedness of Cablevisión. We recorded a derivative asset
equal to the posted collateral and such asset is included in
other assets in our consolidated balance sheets. We earned
interest income based upon the face amount and stated interest
rate of the underlying debt securities, and paid interest
expense at market rates on the amount funded by the
counterparty. If the fair value of the underlying purchased
indebtedness of UPC Broadband Holding declined by 10% or more,
we were required to post cash collateral for the decline, and we
recorded an unrealized loss on derivative instruments. The cash
collateral related to UPC Broadband Holding indebtedness was
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.
During the fourth quarter of 2004, we received cash proceeds of
$35,800,000 in connection with the termination of a portion of
the UPC Broadband Holding total return swap. During the first
quarter of 2005, we received cash proceeds of $22,642,000 upon
termination of the Cablevisión and UPC Broadband Holding
total return swaps.
The details of property and equipment and the related
accumulated depreciation are set forth below:
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
amounts in thousands | |
Cable distribution systems
|
|
$ |
8,442,910 |
|
|
$ |
4,393,841 |
|
Support equipment, buildings and land
|
|
|
1,278,566 |
|
|
|
910,067 |
|
|
|
|
|
|
|
|
|
|
|
9,721,476 |
|
|
|
5,303,908 |
|
Accumulated depreciation
|
|
|
(1,730,184 |
) |
|
|
(1,000,809 |
) |
|
|
|
|
|
|
|
Net property and equipment
|
|
$ |
7,991,292 |
|
|
$ |
4,303,099 |
|
|
|
|
|
|
|
|
During the second quarter of 2004, UGC recorded an impairment of
$16,111,000 on certain tangible fixed assets of its wholly owned
subsidiary, Priority Telecom. 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 a discounted cash flow analysis, along with
other available market data. In the fourth quarter of 2004, UGC
recorded an impairment of $10,955,000 related to certain
tangible fixed assets in The Netherlands.
Depreciation expense related to our property and equipment was
$1,333,023,000, $851,070,000 and $14,642,000 for the years ended
December 31, 2005, 2004 and 2003, respectively.
At December 31, 2005 and 2004, the amount of property and
equipment, net, recorded under capital leases was $342,717,000
and $35,429,000, respectively. Amortization of assets under
capital leases is included in depreciation and amortization in
our 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.
II-107
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
During the year ended December 31, 2005, we recorded
$153,247,000 of non-cash increases to our property and equipment
as a result of assets acquired under capital lease arrangements.
Most of these lease arrangements were entered into by J:COM.
Changes in the carrying amount of goodwill for the year ended
December 31, 2005 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign | |
|
|
|
|
|
|
|
|
|
|
Reclassified | |
|
Release of | |
|
currency | |
|
|
|
|
|
|
|
|
|
|
to | |
|
pre-acquisition | |
|
translation | |
|
|
|
|
January 1, | |
|
LGI | |
|
Other | |
|
discontinued | |
|
valuation | |
|
adjustments | |
|
December 31, | |
|
|
2005 | |
|
Combination | |
|
acquisitions | |
|
operations | |
|
allowances | |
|
and other | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
|
|
amounts in thousands | |
|
|
|
|
Europe (Europe Broadband)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$ |
823,496 |
|
|
$ |
573,801 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(5,570 |
) |
|
$ |
(120,840 |
) |
|
$ |
1,270,887 |
|
|
Switzerland
|
|
|
|
|
|
|
|
|
|
|
2,196,749 |
|
|
|
|
|
|
|
|
|
|
|
(31,337 |
) |
|
|
2,165,412 |
|
|
France
|
|
|
6,494 |
|
|
|
66,611 |
|
|
|
26,795 |
|
|
|
|
|
|
|
(386 |
) |
|
|
(5,073 |
) |
|
|
94,441 |
|
|
|
Austria
|
|
|
545,214 |
|
|
|
183,880 |
|
|
|
|
|
|
|
|
|
|
|
(7,356 |
) |
|
|
(75,667 |
) |
|
|
646,071 |
|
|
Other Western Europe
|
|
|
282,048 |
|
|
|
200,026 |
|
|
|
208,053 |
|
|
|
(122,876 |
) |
|
|
(2,008 |
) |
|
|
(73,241 |
) |
|
|
492,002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
1,657,252 |
|
|
|
1,024,318 |
|
|
|
2,431,597 |
|
|
|
(122,876 |
) |
|
|
(15,320 |
) |
|
|
(306,158 |
) |
|
|
4,668,813 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
192,984 |
|
|
|
198,548 |
|
|
|
|
|
|
|
|
|
|
|
(887 |
) |
|
|
(38,312 |
) |
|
|
352,333 |
|
|
|
Other Central and Eastern Europe
|
|
|
121,383 |
|
|
|
218,291 |
|
|
|
289,998 |
|
|
|
|
|
|
|
(3,065 |
) |
|
|
(13,254 |
) |
|
|
613,353 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
314,367 |
|
|
|
416,839 |
|
|
|
289,998 |
|
|
|
|
|
|
|
(3,952 |
) |
|
|
(51,566 |
) |
|
|
965,686 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Europe (Europe Broadband)
|
|
|
1,971,619 |
|
|
|
1,441,157 |
|
|
|
2,721,595 |
|
|
|
(122,876 |
) |
|
|
(19,272 |
) |
|
|
(357,724 |
) |
|
|
5,634,499 |
|
Japan (J:COM)(1)
|
|
|
2,077,861 |
|
|
|
|
|
|
|
123,765 |
|
|
|
|
|
|
|
(40,261 |
) |
|
|
(155,110 |
) |
|
|
2,006,255 |
|
Chile (VTR)
|
|
|
199,086 |
|
|
|
101,482 |
|
|
|
226,941 |
|
|
|
|
|
|
|
(26,362 |
) |
|
|
68,746 |
|
|
|
569,893 |
|
Corporate and Other
|
|
|
293,998 |
|
|
|
74,685 |
|
|
|
443,863 |
|
|
|
|
|
|
|
|
|
|
|
(3,122 |
) |
|
|
809,424 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total LGI(1)
|
|
$ |
4,542,564 |
|
|
$ |
1,617,324 |
|
|
$ |
3,516,164 |
|
|
$ |
(122,876 |
) |
|
$ |
(85,895 |
) |
|
$ |
(447,210 |
) |
|
$ |
9,020,071 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
The January 1, 2005 balance for J:COM includes
$1,875,285,000 that is associated with the January 1, 2005
consolidation of Super Media/ J:COM. See note 5. |
Changes in the carrying amount of goodwill for the year ended
December 31, 2004 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Release of | |
|
|
|
Foreign | |
|
|
|
|
|
|
|
|
pre-acquisition | |
|
|
|
currency | |
|
|
|
|
January 1, | |
|
|
|
valuation | |
|
|
|
translation | |
|
December 31, | |
|
|
2004 | |
|
Acquisitions | |
|
allowance | |
|
Impairments | |
|
adjustments | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
amounts in thousands | |
|
|
|
|
Europe (Europe Broadband)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$ |
|
|
|
$ |
771,672 |
|
|
$ |
(6,748 |
) |
|
$ |
|
|
|
$ |
58,572 |
|
|
$ |
823,496 |
|
|
France
|
|
|
|
|
|
|
6,344 |
|
|
|
|
|
|
|
|
|
|
|
150 |
|
|
|
6,494 |
|
|
Austria
|
|
|
|
|
|
|
509,505 |
|
|
|
(3,292 |
) |
|
|
|
|
|
|
39,001 |
|
|
|
545,214 |
|
|
Other Western Europe
|
|
|
|
|
|
|
263,491 |
|
|
|
(5,095 |
) |
|
|
|
|
|
|
23,652 |
|
|
|
282,048 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
|
|
|
|
1,551,012 |
|
|
|
(15,135 |
) |
|
|
|
|
|
|
121,375 |
|
|
|
1,657,252 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
|
|
|
|
173,838 |
|
|
|
(8,137 |
) |
|
|
|
|
|
|
27,283 |
|
|
|
192,984 |
|
|
Other Central and Eastern Europe
|
|
|
|
|
|
|
134,753 |
|
|
|
(30,233 |
) |
|
|
|
|
|
|
16,863 |
|
|
|
121,383 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
|
|
|
|
308,591 |
|
|
|
(38,370 |
) |
|
|
|
|
|
|
44,146 |
|
|
|
314,367 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Europe (Europe Broadband)
|
|
|
|
|
|
|
1,859,603 |
|
|
|
(53,505 |
) |
|
|
|
|
|
|
165,521 |
|
|
|
1,971,619 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Japan (J:COM)
|
|
|
202,576 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
202,576 |
|
Chile (VTR)
|
|
|
|
|
|
|
191,785 |
|
|
|
(4,575 |
) |
|
|
|
|
|
|
11,876 |
|
|
|
199,086 |
|
Corporate and Other
|
|
|
323,000 |
|
|
|
|
|
|
|
|
|
|
|
(29,000 |
) |
|
|
(2 |
) |
|
|
293,998 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total LGI
|
|
$ |
525,576 |
|
|
$ |
2,051,388 |
|
|
$ |
(58,080 |
) |
|
$ |
(29,000 |
) |
|
$ |
177,395 |
|
|
$ |
2,667,279 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
II-108
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
During the years ended December 31, 2005 and 2004, certain
of our subsidiaries reversed valuation allowances for deferred
tax assets in various tax jurisdictions due to the realization
or expected realization of tax benefits from these assets. The
valuation allowances were originally recorded as part of the
purchase accounting adjustments related to previous purchase
method business combinations.
During 2004, we recorded a $26,000,000 impairment of goodwill
associated with a subsidiary that operates in Latin America, and
a $3,000,000 impairment of goodwill associated with one or our
equity affiliates. The impairment assessment for the Latin
America subsidiary was triggered by our determination that it
was more-likely-than-not that we will sell the Latin America
subsidiary. Accordingly, the fair value used to assess the
recoverability of the enterprise level goodwill associated with
the Latin America subsidiary was based on the value that we
would expect to receive upon any sale of the Latin America
subsidiary.
|
|
|
Indefinite-lived Intangible Assets |
During 2005, we recognized a $7,550,000 impairment charge to
reduce the carrying value of the intangible asset associated
with our franchise rights in Puerto Rico to its estimated fair
value of $155,900,000. The estimated fair value was based on a
discounted cash flow analysis.
|
|
|
Intangible Assets Subject to Amortization, Net |
The details of our amortizable intangible assets are set forth
below:
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
amounts in thousands | |
Gross carrying amount
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$ |
1,600,279 |
|
|
$ |
426,213 |
|
Other
|
|
|
75,204 |
|
|
|
31,420 |
|
|
|
|
|
|
|
|
|
|
$ |
1,675,483 |
|
|
$ |
457,633 |
|
|
|
|
|
|
|
|
Accumulated amortization
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$ |
(65,140 |
) |
|
$ |
(69,038 |
) |
Other
|
|
|
(8,537 |
) |
|
|
(5,996 |
) |
|
|
|
|
|
|
|
|
|
$ |
(73,677 |
) |
|
$ |
(75,034 |
) |
|
|
|
|
|
|
|
Net carrying amount
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$ |
1,535,139 |
|
|
$ |
357,175 |
|
Other
|
|
|
66,667 |
|
|
|
25,424 |
|
|
|
|
|
|
|
|
|
|
$ |
1,601,806 |
|
|
$ |
382,599 |
|
|
|
|
|
|
|
|
II-109
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
Amortization of intangible assets with finite useful lives was
$121,840,000, $64,678,000 and $472,000 in 2005, 2004 and 2003,
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):
|
|
|
|
|
|
2006
|
|
$ |
214,667 |
|
2007
|
|
|
212,827 |
|
2008
|
|
|
209,285 |
|
2009
|
|
|
186,204 |
|
2010
|
|
|
183,921 |
|
Thereafter
|
|
|
594,902 |
|
|
|
|
|
|
Total
|
|
$ |
1,601,806 |
|
|
|
|
|
The U.S. dollar equivalents of the components of our
companys consolidated debt and capital lease obligations
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
amounts in thousands | |
Debt:
|
|
|
|
|
|
|
|
|
|
UPC Broadband Holding Bank Facility
|
|
$ |
4,052,837 |
|
|
$ |
3,927,830 |
|
|
J:COM Credit Facility
|
|
|
1,059,771 |
|
|
|
|
|
|
UPC Holding Senior Notes
|
|
|
946,634 |
|
|
|
|
|
|
UGC Convertible Notes
|
|
|
565,471 |
|
|
|
655,809 |
|
|
Cablecom Luxembourg Floating Rate Notes
|
|
|
789,327 |
|
|
|
|
|
|
Cablecom Luxembourg Fixed Rate Notes
|
|
|
384,655 |
|
|
|
|
|
|
Cablecom Luxembourg Bank Facility
|
|
|
204,297 |
|
|
|
|
|
|
LG Switzerland PIK Loan
|
|
|
650,811 |
|
|
|
|
|
|
VTR Bank Facility
|
|
|
341,437 |
|
|
|
97,941 |
|
|
Other
|
|
|
730,953 |
|
|
|
262,812 |
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
9,726,193 |
|
|
|
4,944,392 |
|
|
|
|
|
|
|
|
Capital lease obligations:
|
|
|
|
|
|
|
|
|
|
J:COM
|
|
|
326,603 |
|
|
|
|
|
|
Other subsidiaries
|
|
|
62,176 |
|
|
|
48,354 |
|
|
|
|
|
|
|
|
|
|
Total capital lease obligations
|
|
|
388,779 |
|
|
|
48,354 |
|
|
|
|
|
|
|
|
Total debt and capital lease obligations
|
|
|
10,114,972 |
|
|
|
4,992,746 |
|
|
Current maturities
|
|
|
(269,947 |
) |
|
|
(36,827 |
) |
|
|
|
|
|
|
|
|
Total long-term debt and capital lease obligations
|
|
$ |
9,845,025 |
|
|
$ |
4,955,919 |
|
|
|
|
|
|
|
|
II-110
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
|
|
|
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, as amended, is secured by a pledge over
the shares of UPC Broadband Holding and the shares of UPC
Broadband Holdings majority-owned operating companies. The
UPC Broadband Holding Bank Facility is also guaranteed by UPC
Holding, the immediate parent of UPC Broadband Holding, and is
senior to other long-term debt obligations of UPC Broadband
Holding and UPC Holding. The agreement governing the UPC
Broadband Holding Bank Facility contains covenants that limit
among other things, UPC Broadband Holdings ability to
merge with or into another company, acquire other companies,
incur additional debt, dispose of 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.
The U.S. dollar equivalents of the components of the UPC
Broadband Holding Bank Facility are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
|
|
December 31, 2005 | |
|
2004 | |
|
|
|
|
| |
|
| |
|
|
|
|
|
|
Unused | |
|
Outstanding | |
|
Outstanding | |
|
|
Denomination | |
|
|
|
borrowing | |
|
principal | |
|
principal | |
Facility |
|
Currency | |
|
Maturity | |
|
Interest rate (3) | |
|
capacity (2) | |
|
amount | |
|
amount | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
|
|
amounts in thousands | |
A(1)(2)
|
|
|
Euro |
|
|
|
June 30, 2008 |
|
|
|
EURIBOR + 2.75 |
% |
|
$ |
591,646 |
|
|
$ |
|
|
|
$ |
|
|
B
|
|
|
Euro |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,581,927 |
|
C1
|
|
|
Euro |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60,464 |
|
C2
|
|
|
USD |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
176,020 |
|
E
|
|
|
Euro |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,393,501 |
|
F1(1)
|
|
|
Euro |
|
|
|
December 31, 2011 |
|
|
|
EURIBOR + 4.0 |
% |
|
|
|
|
|
|
165,661 |
|
|
|
190,918 |
|
F2(1)
|
|
|
USD |
|
|
|
December 31, 2011 |
|
|
|
LIBOR + 3.5 |
% |
|
|
|
|
|
|
525,000 |
|
|
|
525,000 |
|
G(1)
|
|
|
Euro |
|
|
|
April 1, 2010 |
|
|
|
EURIBOR + 2.50 |
% |
|
|
|
|
|
|
1,183,292 |
|
|
|
|
|
H1(1)
|
|
|
Euro |
|
|
|
September 30, 2012 |
|
|
|
EURIBOR + 2.75 |
% |
|
|
|
|
|
|
650,811 |
|
|
|
|
|
H2(1)
|
|
|
USD |
|
|
|
September 30, 2012 |
|
|
|
LIBOR + 2.75 |
% |
|
|
|
|
|
|
1,250,000 |
|
|
|
|
|
I(1)(2)
|
|
|
Euro |
|
|
|
April 1, 2010 |
|
|
|
EURIBOR + 2.50 |
% |
|
|
313,573 |
|
|
|
278,073 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
905,219 |
|
|
$ |
4,052,837 |
|
|
$ |
3,927,830 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
The interest rate margin is variable based on certain leverage
ratios. |
|
(2) |
Facility A is a revolving credit facility and Facility I is a
redrawable term loan facility. The borrowing capacity under each
facility can be used to finance additional permitted
acquisitions and for general corporate purposes, subject to
covenant compliance. Based on the December 31, 2005
covenant compliance calculations, the aggregate amount that was
available for borrowing under these Facilities was approximately
229 million
($271 million), subject to the completion of UPC
Holdings fourth quarter |
II-111
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
|
|
|
bank reporting requirements. Facility A and Facility I provide
for an annual commitment fee of 0.75% of the unused portion of
each Facility. |
|
(3) |
Interest rate information shown in the table does not reflect
the impact of interest rate exchange agreements. As of
December 31, 2005, the EURIBOR rates ranged from 2.10% to
2.46% and the LIBOR rates ranged from 3.69% to 4.05%. Excluding
the effects of interest rate exchange agreements, the
weighted-average interest rate on all Facilities at
December 31, 2005 was approximately 5.75%. |
On December 15, 2005 UPC Broadband Holding entered into
amendments that waive the application of certain restrictive
covenants contained in the UPC Broadband Holding Bank Facility
to the disposition of entities comprising UPC Broadband
Holdings Scandinavian cable business. Pursuant to the
terms of the amendments, a portion of the proceeds generated by
such disposition, in an amount equal to four times the
annualized EBITDA (as defined in the UPC Broadband Holding Bank
Facility) of the disposed entities for the last two financial
quarters for which financial information has been provided to
the lenders, must be applied towards prepayment of borrowings
under the UPC Broadband Holding Bank Facility. On
January 24, 2006, a portion of the proceeds from the sale
of UPC Norway of approximately
175 million
($214 million at the transaction date) were applied toward
the prepayment of Facility I under the UPC Broadband Holding
Bank Facility. The amount repaid may be reborrowed subject to
covenant compliance.
On December 15, 2005, J:COM executed a
¥155 billion ($1.314 billion) credit facility
agreement with a syndicate of banks led by The Bank of
Tokyo-Mitsubishi, Ltd., Mizuho Corporate Bank, Ltd. and Sumitomo
Mitsui Banking Corporation (the J:COM Credit Facility).
Borrowings may be made under the J:COM Credit Facility on a
senior, unsecured basis pursuant to three facilities: a
¥30 billion ($254 million) five-year revolving
credit loan (the Revolving Loan); an ¥85 billion
($721 million) five-year amortizing term loan (the
Tranche A Term Loan); and a ¥40 billion
($339 million) seven-year amortizing term loan (the
Tranche B Term Loan). On December 21, 2005 the
proceeds of the term loans were used, together with available
cash, to repay in full outstanding loans totaling
¥128 billion ($1.1 billion at the transaction
date), under J:COMs then existing credit facilities. In
connection with the repayment of these loans, J:COM recorded a
loss on extinguishment of debt of ¥2,469 million
($21,066,000 at the average exchange rate for the period)
representing the write-off of the related unamortized deferred
financing costs.
All three loans bear interest equal to TIBOR plus a variable
margin to be adjusted based on the leverage ratio of J:COM. The
weighted-average interest rate, including applicable margins, on
the outstanding Term Loans at December 31, 2005 was
approximately 0.533%. Borrowings under the revolving loan may be
used by J:COM for general corporate purposes. Amounts drawn
under the Tranche A Term Loan have a final maturity date of
December 31, 2010, and amortize in quarterly installments
commencing March 31, 2006. Amounts drawn under the
Tranche B Term Loan have a final maturity date of
December 31, 2012, and amortize in quarterly installments
commencing March 31, 2011. The final maturity date of all
revolving loans is December 31, 2010. The J:COM Credit
Facility Agreement contains customary conditions to drawdowns,
financial and other covenants and events of default. At
December 31, 2005 ¥30 billion ($254,345,000) was
available for borrowing under the J:COM Credit Facility. The
J:COM Credit Facility provides for an annual commitment fee of
0.20% on the unused portion.
On July 29, 2005 UPC Holding issued
500 million
($607 million at the borrowing date) principal amount of
7.75% Senior Notes. On October 10, 2005, UPC Holding
issued
300 million
($363 million at the borrowing
II-112
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
date) principal amount of 8.625% Senior Notes. Both issues
of the UPC Holding Senior Notes mature on January 15, 2014.
Both issues of the UPC Holding Senior Notes are senior
obligations that rank equally with all of the existing and
future senior debt and senior to all existing and future
subordinated debt of UPC Holding. The UPC Holding Senior Notes
are secured by a first-ranking pledge of all shares of UPC
Holding.
At any time prior to July 15, 2008, UPC Holding may redeem
some or all of the UPC Holding Senior Notes by paying a
make-whole premium, which is the present value of
all scheduled interest payments until July 15, 2008 using
the discount rate equal to the yield of the comparable German
government bond (BUND) issue as of the redemption date plus
50 basis points.
At any time on or after July 15, 2008, UPC Holding may
redeem some or all of the UPC Holding Senior Notes at the
following redemption prices (expressed as a percentage of the
principal amount) plus accrued and unpaid interest and
additional amounts, if any, to the applicable redemption date,
if redeemed during the twelve-month period commencing on July 15
of the years set out below:
|
|
|
|
|
|
|
|
|
|
|
Redemption price |
|
|
|
|
|
7.75% Senior |
|
8.625% Senior |
Year |
|
Notes |
|
Notes |
|
|
|
|
|
|
|
Percentage of principal amount |
2008
|
|
|
107.750 |
% |
|
|
108.625 |
% |
2009
|
|
|
103.875 |
% |
|
|
104.313 |
% |
2010
|
|
|
101.938 |
% |
|
|
102.156 |
% |
2011 and thereafter
|
|
|
100.000 |
% |
|
|
100.000 |
% |
In addition, at any time prior to July 15, 2008, UPC
Holding may redeem up to 35% of the UPC Holding Senior Notes (at
redemption price of 107.75% and 108.625% of the respective
principal amounts) with the net proceeds from one or more
specified equity offerings.
UPC Holding may redeem all of the UPC Holding Senior Notes at a
price equal to their principal amount plus accrued and unpaid
interest upon the occurrence of certain changes in tax law. If
UPC Holding or certain of its subsidiaries sell certain assets
or experience specific changes in control, UPC Holding must
offer to repurchase the UPC Holding Senior Notes at a redemption
price of 101%.
On April 6, 2004, UGC completed the offering and sale of
500.0 million
($604.6 million based on the April 6, 2004 exchange
rate)
13/4
% euro-denominated convertible senior notes (UGC
Convertible Notes) due April 15, 2024. Interest is payable
semi-annually on April 15 and October 15 of each year. The UGC
Convertible Notes are senior unsecured obligations that rank
equally in right of payment with all of UGCs existing and
future senior and unsecured indebtedness and ranks senior in
right of payment to all of UGCs existing and future
subordinated indebtedness. The UGC Convertible Notes are
effectively subordinated to all existing and future indebtedness
and other obligations of UGCs subsidiaries. The indenture
governing the UGC Convertible Notes (the Indenture) does not
contain any financial or operating covenants. The UGC
Convertible Notes may be redeemed at UGCs option, in whole
or in part, on or after April 20, 2011 at a redemption
price in euros equal to 100% of the principal amount, together
with accrued and unpaid interest. Holders of the UGC Convertible
Notes have the right to tender all or part of their notes for
purchase by UGC on April 15, 2011, April 15, 2014 and
April 15, 2019, for a purchase price equal to 100% of the
principal amount, plus accrued and unpaid interest. If a change
in control (as defined in the Indenture) has occurred, each
holder of the UGC Convertible Notes may require UGC to purchase
their notes, in whole or in part, at a
II-113
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
price equal to 100% of the principal amount, plus accrued and
unpaid interest. The UGC Convertible Notes are convertible into
11,044,375 shares of LGI Series A common stock and
11,044,375 shares of LGI Series C common stock at an
aggregate conversion price of
45.2719 for one
share of LGI Series A common stock and one share of LGI
Series C common stock, which was equivalent to a conversion
price of $55.68 for one share of LGI Series A common stock
and one share of LGI Series C common stock and a conversion
rate of 22.09 shares of LGI Series A common stock and
22.09 shares of LGI Series C common stock per
1,000 principal
amount of the UGC Convertible Notes on the date of issue.
Holders of the UGC Convertible Notes may surrender their notes
for conversion prior to maturity in the following circumstances:
(1) the price of LGI Series A common stock reaches a
specified threshold, (2) the combined price of LGI
Series A common stock and LGI Series C common stock
reaches a specified threshold, (3) UGC has called the UGC
Convertible Notes for redemption, (4) the trading price for
the UGC Convertible Notes falls below either of two specified
thresholds or (5) we make certain distributions to holders
of LGI Series A common stock or specified corporate
transactions occur.
The UGC Convertible Notes are compound financial instruments
that contain a foreign currency debt component and an equity
component that is indexed to LGI Series A common stock, LGI
Series C common stock and to currency exchange rates (euro
to U.S. dollar). We account for the embedded equity
derivative separately at fair value, with changes in fair value
reported in our consolidated statements of operations. The fair
value of the embedded equity derivative and the accreted value
of the debt host contract are presented together in the caption
long-term debt and capital lease obligations in our consolidated
balance sheet, as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
amounts in thousands | |
Debt host contract
|
|
$ |
437,439 |
|
|
$ |
462,164 |
|
Embedded equity derivative
|
|
|
128,032 |
|
|
|
193,645 |
|
|
|
|
|
|
|
|
|
|
$ |
565,471 |
|
|
$ |
655,809 |
|
|
|
|
|
|
|
|
|
|
|
Cablecom Luxembourg Senior Notes |
At December 31, 2005, the Cablecom Luxembourg Senior Notes
were comprised of CHF259,000,000 ($196,913,000) principal amount
of Cablecom Luxembourg Series A Floating Rate Senior
Secured Notes due 2010 (the Cablecom Luxembourg Series A
CHF Notes),
157,900,000
($186,842,000) principal amount of Cablecom Luxembourg Floating
Rate Senior Secured Notes due 2010 (the Cablecom Luxembourg
Series A Euro Notes) and
335,700,000
($397,231,000) principal amount of Cablecom Luxembourg
Series B Floating Rate Senior Secured Notes due 2012 (the
Cablecom Luxembourg Series B Euro Notes, and together with
the Cablecom Luxembourg Series A CHF Notes and Cablecom
Luxembourg Series A Euro Notes, the Cablecom Luxembourg
Floating Rate Notes) and
289,900,000
($343,036,000) principal amount of 9.375% Senior Notes due
2014 (the Cablecom Luxembourg Fixed Rate Notes). The principal
amounts disclosed in this paragraph do not include the premiums
recorded as a result of the application of purchase accounting
in connection with the Cablecom Acquisition.
In connection with the Cablecom Acquisition, under the terms of
the Indentures for the Cablecom Luxembourg Senior Notes,
Cablecom Luxembourg was required to effect a change of control
offer (the Change of Control Offer) for the Cablecom Luxembourg
Senior Notes at 101% of their respective principal amounts.
Pursuant to the Change of Control Offer, Cablecom Luxembourg on
December 8, 2005 used CHF268,711,000 of proceeds from the
Facility A term loan under the Cablecom Luxembourg Bank Facility
II-114
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
(see below) to (i) purchase CHF132,983,000 ($101,719,000 at
the transaction date) of the Cablecom Luxembourg Series A
CHF Notes, (ii) purchase
42,817,000
($50,456,000 at the transaction date) of the Cablecom Luxembourg
Series A Euro Notes, (iii) purchase
39,984,000
($47,118,000 at the transaction date) principal amount of the
Cablecom Luxembourg Series B Euro Notes and (iv) fund
the costs and expenses of the Change of Control Offer. All of
the purchased amounts set forth above include principal, call
premium and accrued interest.
On January 20, 2006, Cablecom Luxembourg used the remaining
available proceeds from the Facility A and Facility B term loans
under the Cablecom Luxembourg Bank Facility to fund the
redemption of all of the Cablecom Luxembourg Floating Rate Notes
that were not tendered in the Change of Control Offer (the
Redemption). The Redemption price paid was 102% of their
respective principal amounts plus accrued and unpaid interest
through the Redemption date.
The Cablecom Luxembourg Fixed Rate Notes mature on April 15,
2014. The indenture for the Cablecom Luxembourg Fixed Rate Notes
includes customary restrictive covenants and events of default.
At any time prior to April 15, 2007, Cablecom Luxembourg may
from time to time, redeem up to an aggregate of 40% of the
original principal amount of the Cablecom Luxembourg Fixed Rate
Notes with the net cash proceeds of one or more equity offerings
at a redemption price of 109.375% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the
redemption date.
At any time on or after April 15, 2007, Cablecom Luxembourg
may redeem some or all of the Cablecom Luxembourg Fixed Rate
Notes at the following redemption prices (expressed as a
percentage of the principal amount) plus accrued and unpaid
interest to the applicable redemption date, if redeemed during
the twelve-month period commencing on April 15 of the years set
out below:
|
|
|
|
|
Year |
|
Percentage |
|
|
|
2007
|
|
|
109.375 |
% |
2008
|
|
|
107.031 |
% |
2009
|
|
|
104.688 |
% |
2010
|
|
|
103.125 |
% |
2011
|
|
|
101.563 |
% |
2012 and thereafter
|
|
|
100.000 |
% |
In addition, Cablecom Luxembourg may redeem all, but not less
than all, of the Cablecom Luxembourg Fixed Rate Notes in the
event of specified developments affecting taxation at a
redemption price equal to 100% of the principal amount thereof
with accrued and unpaid interest.
The Cablecom Luxembourg Fixed Rate Notes are contractually
subordinated to the Cablecom Luxembourg Bank Facility and are
structurally subordinated to the obligations of Cablecom GmbH.
|
|
|
Cablecom Luxembourg Bank Facility |
On December 5, 2005, Cablecom Luxembourg and Cablecom GmbH
entered into a facilities agreement (the Cablecom Luxembourg
Bank Facility) with certain banks and financial institutions as
lenders. The Cablecom Luxembourg Bank Facility provides the
terms and conditions upon which (i) the lenders have made
available to Cablecom Luxembourg two term loans (Facility A and
Facility B) in an aggregate principal amount not to exceed
CHF1.330 billion ($1.011 billion) and (ii) the
revolving lenders under Cablecom GmbHs existing
CHF150 million ($114 million) revolving credit
facility (the Existing Revolving Facility) have agreed to make
available to Cablecom GmbH and certain of its subsidiaries a
revolving credit facility in
II-115
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
an aggregate principal amount not to exceed CHF150 million
($114 million) in replacement of the Existing Revolving
Facility. The lenders under the Existing Revolving Facility
waived their prepayment right resulting from the change of
control triggered by the Cablecom Acquisition. The term loans
are secured by a pledge of the shares of Cablecom GmbH, as well
as the assignment of certain inter-company notes. Amounts owing
under the revolving credit facility will be guaranteed by
Cablecom Luxembourg.
The Facility A term loan, which matures December 31, 2010,
was available to be drawn in Swiss Francs up to an aggregate
principal amount of CHF618 million ($470 million),
with CHF268,711,000 ($204,297,000) outstanding at
December 31, 2005. The interest rate applicable to the
Facility A term loan, which was 3.45% at December 31, 2005,
is equal to CHF LIBOR plus a margin of 2.50% through
June 5, 2007 (and thereafter the margin adjusts based on a
leverage ratio) plus any mandatory costs. The remaining
availability under the Facility A term loan was drawn in January
2006 to fund the Redemption.
The Facility B term loan, which is due September 30, 2012,
was available to be drawn in Swiss Francs, U.S. Dollars or
Euros up to an aggregate principal amount equivalent to
CHF712 million ($541 million), with no principal
outstanding at December 31, 2005. The interest rate
applicable to principal denominated in Swiss Francs under the
Facility B term loan is equal to CHF LIBOR plus a margin of
2.75% for the first nine months following draw-down and
thereafter 2.50% plus, in each case, any mandatory costs. The
interest rate applicable to principal denominated in Euros under
the Facility B term loan is equal to EURIBOR plus a margin of
2.50% plus any mandatory costs. In January 2006, we borrowed the
full availability under the Facility B term loan in the form of
CHF355,760,000 ($277,279,000 at the redemption date) and
229,523,000
($277,570,000 at the redemption date) to fund the Redemption.
The revolving credit facility, which matures December 31,
2010, had no outstanding principal amount at December 31,
2005. The interest rate applicable to the revolving credit
facility is LIBOR plus a margin of 2.25%. The unused borrowing
capacity (CHF150 million ($114 million) at
December 31, 2005) incurs an annual commitment fee of
0.75%. Borrowing availability under the revolving credit
facility is subject to covenant compliance.
The term loans and the revolving credit facility are subject to
scheduled repayment dates. In addition, the term loans and the
revolving credit facility must be prepaid on the occurrence of
certain events, including a change of control of UGC
Europe, Inc., Cablecom, Cablecom Luxembourg or Cablecom GmbH.
The term loans and the revolving credit facility may also be
voluntarily prepaid in whole or in part, without premium or
penalty but subject to break funding costs.
The Cablecom Luxembourg Bank Facility includes an accession
mechanism under which the term loan lenders have agreed to roll
their participations in the term loans into the UPC Broadband
Holding Bank Facility at the election of Cablecom Luxembourg at
any time, subject to there being no actual event of default (as
defined therein) under the Cablecom Luxembourg Bank Facility or
actual or potential event of default (as defined therein) under
the UPC Broadband Holding Bank Facility and provided that any
amendments or waivers granted by the lenders under the UPC
Broadband Holding Bank Facility have been approved by the
applicable term loan lenders.
In addition to customary restrictive covenants and events of
default, the Cablecom Luxembourg Bank Facility requires Cablecom
Luxembourg to maintain certain ratios of total debt to EBITDA
(as defined therein), senior debt to EBITDA, EBITDA to total
cash interest and EBITDA to debt service.
The new
550 million
($667 million at the borrowing date), 9.5 year
split-coupon floating rate PIK Loan was executed on
October 7, 2005 pursuant to a PIK Loan Facility
Agreement, dated September 30, 2005 as
II-116
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
amended and restated on October 10, 2005 (the PIK
Loan Facility). The PIK Loan Facility bears interest
at a rate per annum equal to
(i) 3-month
EURIBOR (payable quarterly in cash), which was 2.22% at
December 31, 2005, plus (ii) a margin of 1.75%
(payable quarterly in cash), plus (iii) a PIK margin of
6.50% (to be capitalized and added to principal at the end of
each interest period or, at the election of LG Switzerland, paid
in cash) plus (iv) with respect to any period, or part
thereof, after April 15, 2008, an additional PIK margin of
2.50% (to be capitalized and added to principal at the end of
each interest period or, at the election of LG Switzerland, paid
in cash). The net proceeds received from the PIK Loan of
531.7 million
($647.8 million at the borrowing date), less
50 million
($60.9 million at the borrowing date) placed in escrow to
secure cash interest payments, were used to finance the Cablecom
Acquisition.
The PIK Loan is unsecured senior debt of LG Switzerland and pari
passu or senior in right of payment to all other indebtedness of
LG Switzerland. The PIK Loan is structurally subordinated to all
indebtedness of LG Switzerlands subsidiaries, including
the Cablecom Luxembourg Bank Facility and the Cablecom
Luxembourg Senior Notes and any other future debt incurred by LG
Switzerlands subsidiaries. The PIK Loan is not guaranteed
by Cablecom or any of its subsidiaries.
The PIK Loan may not be optionally prepaid prior to
April 16, 2007. From and following April 16, 2007, the
PIK Loan may be prepaid by LG Switzerland in designated minimum
amounts. Optional prepayments during the
12-month period
beginning on April 16, 2007 will be made at par. Optional
prepayments from and following April 16, 2008 will be made
at 102% of par. The PIK Loan matures on April 15, 2015.
The PIK Loan Facility contains covenants and events of
default similar to the covenants governing the Cablecom
Luxembourg Fixed Rate Notes described above. In addition, the
PIK Loan Facility requires LG Switzerland to make a
prepayment offer at 101% of par following a change of
control.
VTR has a Chilean peso-denominated seven-year amortizing term
senior secured credit facility (as amended, the VTR Bank
Facility) totaling CLP175.502 billion ($341,437,000). In
July 2005, VTR borrowed CLP14.724 billion ($25,456,000 as
of the transaction date) under the VTR Bank Facility to fund the
repayment of an existing obligation to CTC (see note 5). On
September 9, 2005, the VTR Bank Facility was amended to
improve the maturity and other terms of the existing facility.
On September 20, 2005, VTR completed the syndication of the
amended VTR Bank Facility, raising proceeds of
CLP70.674 billion ($132,262,000 as of September 20,
2005). These proceeds were used to repay a total of $119,578,000
in shareholder loans and accrued interest owed to our
subsidiaries and $10,415,000 to repay a loan and accrued
interest owed to CCI. Principal payments are due quarterly
commencing December 17, 2006 with final maturity on
June 17, 2012. The VTR Bank Facility bears interest at a
variable interest rate (the 90 day peso-denominated TAB),
plus a margin of 1.15%, subject to change depending solely on
VTRs debt to EBITDA (as defined in the VTR Bank Facility)
ratio. The interest rate on the VTR Bank Facility was 7.75% as
of December 31, 2005. The VTR Bank Facility did not provide
for any additional borrowing availability at December 31,
2005.
The VTR Bank Facility is secured by VTRs assets and the
assets and capital stock of its subsidiaries, is senior to the
subordinated debt owed to one of our subsidiaries and to future
unsecured or subordinated indebtedness of VTR. The VTR Bank
Facility credit agreement contains affirmative, negative and
financial covenants, including, but not limited to:
(i) limitations on liens; (ii) limitations on the sale
or transfer of essential fixed assets; (iii) limitations on
additional indebtedness; (iv) maintenance of a ratio of
EBITDA (as defined in the VTR Bank Facility) to interest
expenditures; (v) maintenance of a total debt to EBITDA
ratio; (vi) an EBITDA threshold for four consecutive
quarters; and (vii) maintenance of a total liabilities to
total shareholders equity ratio. The credit agreement
allows for the distribution by VTR of certain restricted
II-117
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
payments to its shareholders, as long as no default exists under
the facility before or after giving effect to the distribution
and VTR maintains certain minimum levels of cash, post
distribution.
Other debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
amounts in thousands | |
J:COM
|
|
$ |
183,158 |
|
|
$ |
|
|
Austar bank facility
|
|
|
139,384 |
|
|
|
|
|
Puerto Rico subsidiary bank facility
|
|
|
127,500 |
|
|
|
127,500 |
|
Austar Subordinated Transferable Adjustable Redeemable
Securities (STARS)
|
|
|
85,235 |
|
|
|
|
|
Plator bank facility
|
|
|
76,914 |
|
|
|
|
|
News Corp. prepaid forward sale
|
|
|
72,937 |
|
|
|
|
|
Other
|
|
|
45,825 |
|
|
|
135,312 |
|
|
|
|
|
|
|
|
|
Total debt
|
|
$ |
730,953 |
|
|
$ |
262,812 |
|
|
|
|
|
|
|
|
The yen denominated debt of certain J:COM subsidiaries consists
primarily of loans from the Development Bank of Japan. These
loans, which are secured by substantially all of the equipment
held by these J:COM subsidiaries, have been made available to
telecommunication companies operating in specific local areas.
Certain of these borrowings are non-interest bearing while
others bear interest at rates up to 6.8%. The maturity dates of
these borrowings range from 2006 to 2019.
The Austar Senior Debt Facility is comprised of
(a) Tranche A, a revolving facility in the amount of
AUD 80 million ($59 million) that expires in 2009,
none of which was outstanding at December 31, 2005; and
(b) Tranche B, a fully drawn term amortizing facility
in the amount of AUD 190 million ($139 million) that
matures in 2006 through 2009. The Senior Debt Facility bears
interest at the bank bill swap rate plus a margin ranging from
1.25% to 2.25% (7.20%, including margin, at December 31,
2005).
At December 31, 2005, our Puerto Rico subsidiarys
borrowings were outstanding pursuant to a $140 million
secured bank facility. Interest accrued on such borrowings at
variable rates (6.06% at December 31, 2005). On
March 1, 2006, our Puerto Rico subsidiary refinanced this
bank facility with proceeds from a $150 million term loan
under an amended and restated senior secured bank credit
facility. The new bank credit facility also provides for a
$10 million revolving loan. Borrowings under the new
facility mature in 2012 and bear interest at a margin of 2.25%
over LIBOR. In connection with this refinancing, our Puerto Rico
subsidiary entered into interest rate swaps that effectively
convert the full principal amount of the $150 million term
loan into a fixed rate loan.
Austar STARS bear interest at the 90 day bank bill swap
rate plus a margin of 3.75% (9.40%, including margin, at
December 31, 2005) and mature on July 31, 2014.
Holders of the STARS have the right to request conversion of
some or all of their STARS to ordinary shares of Austar on a
Reset date, the first of which is October 31, 2007. Austar
can elect to convert the STARS to ordinary shares of Austar or
pay a cash amount equal to specified redemption amounts. Austar
can redeem the STARS on a Reset date and at other times in
accordance with specified terms. In addition, in the event of a
trigger event or a change in control event, holders may request
conversion of all (but not some) of their STARS and Austar may
redeem the STARS.
II-118
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
The outstanding borrowings pursuant to the Plator secured bank
facility bear interest at EURIBOR + 2.25% and mature in 2006
through 2010. See note 5.
On August 2, 2005, we entered into a prepaid forward sale
transaction with respect to 5,500,000 shares of News Corp.
Class A common stock, which we account for as an
available-for-sale investment. In consideration for entering
into the forward contract, we received cash consideration of
$75,045,000. The forward contract includes a debt host
instrument and an embedded derivative.
The embedded derivative has the combined economics of a put
exercisable by LGI and a call exercisable by the counterparty.
As the net fair value of the embedded derivative at the
inception date was zero, the full $75,045,000 received at the
inception date is associated with the debt host contract and
such amount represents the present value of the amount to be
paid upon the maturity of the forward contract. The forward
contract is scheduled to mature on July 7, 2009, at which
time we are required to deliver a variable number of shares of
News Corp. Class A common stock to the counterparty not to
exceed 5,500,000 shares (or the cash value thereof). If the
per share price of News Corp. Class A common stock at the
maturity of the forward contract is less than or equal to
approximately $16.24, then we are required to deliver
5,500,000 shares to the counterparty or the cash value
thereof. If the per share price at the maturity is greater than
approximately $16.24, we are required to deliver less than
5,500,000 shares to the counterparty or the cash value of
such lesser amount, with the number of such shares to be
delivered or cash to be paid in this case depending on the
extent that the share price exceeds approximately $16.24 on the
maturity date. The delivery mechanics of the forward contract
effectively permit us to participate in the price appreciation
of the underlying shares up to an agreed upon price. We have
pledged 5,500,000 shares of News Corp. Class A common
stock to secure our obligations under the forward contract. We
account for the embedded derivative separately at fair value
with changes in fair value reported in our consolidated
statements of operations. The fair value of the embedded
derivative and the accreted value of the debt host instrument
are presented together in the caption long-term debt and capital
lease obligations in our consolidated balance sheet at
December 31, 2005, as set forth below (amounts in
thousands):
|
|
|
|
|
Debt host contract
|
|
$ |
76,435 |
|
Embedded equity derivative
|
|
|
(3,498 |
) |
|
|
|
|
|
|
$ |
72,937 |
|
|
|
|
|
II-119
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
|
|
|
Maturities of Debt and Capital Lease Obligations |
Debt maturities for the next five years and thereafter are as
follows (amounts in thousands):
|
|
|
|
|
|
|
Year ended December 31:
|
|
|
|
|
|
|
2006
|
|
$ |
175,804 |
|
|
|
2007
|
|
|
320,190 |
|
|
|
2008
|
|
|
313,063 |
|
|
|
2009
|
|
|
350,149 |
|
|
|
2010
|
|
|
2,545,153 |
|
|
|
Thereafter
|
|
|
6,006,210 |
|
|
|
|
|
Total debt maturities
|
|
|
9,710,569 |
|
Unamortized premiums and discounts and embedded equity
derivatives, net
|
|
|
15,624 |
|
|
|
|
|
|
Total debt
|
|
$ |
9,726,193 |
|
|
|
|
|
|
|
Current portion
|
|
$ |
175,804 |
|
|
|
|
|
|
|
Noncurrent portion
|
|
$ |
9,550,389 |
|
|
|
|
|
Maturities of capital lease obligations for the next five years
and thereafter are as follows (amounts in thousands):
|
|
|
|
|
|
|
Year ended December 31:
|
|
|
|
|
|
|
2006
|
|
$ |
107,139 |
|
|
|
2007
|
|
|
87,305 |
|
|
|
2008
|
|
|
72,355 |
|
|
|
2009
|
|
|
60,316 |
|
|
|
2010
|
|
|
49,122 |
|
|
|
Thereafter
|
|
|
65,000 |
|
|
|
|
|
|
|
|
441,237 |
|
Less: amount representing interest
|
|
|
(52,458 |
) |
|
|
|
|
|
Present value of net minimum lease payments
|
|
$ |
388,779 |
|
|
|
|
|
|
|
Current portion
|
|
$ |
94,143 |
|
|
|
|
|
|
|
Noncurrent portion
|
|
$ |
294,636 |
|
|
|
|
|
With the exception of the UPC Holding Senior Notes, which had an
aggregate fair value of $896 million at December 31,
2005, we believe that the fair value and carrying value of our
debt were approximately equal at December 31, 2005. With
the exception of the UGC Convertible Notes, which had an
aggregate fair value of $689 million at December 31,
2004, we believe that the fair value and carrying value of our
debt were approximately equal at December 31, 2004. We used
the average of applicable bid and offer prices to value most of
our debt instruments.
II-120
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
J:COM and its subsidiaries provide rebroadcasting services to
noncable television viewers suffering from poor reception of
broadcast television signals caused by artificial obstacles.
J:COM 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, J:COM and its
subsidiaries receive up-front, lump-sum compensation payments
for construction and maintenance. Revenue from these agreements
has been deferred and is being recognized on a straight-line
basis over the agreement periods, which are generally
20 years. At December 31, 2005, the deferred revenue
under these arrangements was ¥47,515 million
($402,840,000). We have included $26,867,000 and $375,973,000 of
this deferred revenue in deferred revenue and advance payments
from subscribers and others, and other long-term liabilities,
respectively, in our consolidated balance sheet. During the year
ended December 31, 2005, J:COM recognized revenue under
these arrangements totaling ¥3,327 million
($30,298,000 at the average exchange rate for the period).
Prior to the Spin Off Date, LMC International and its
80%-or-more-owned domestic subsidiaries (the LMC International
Tax Group) were included in the consolidated federal and state
income tax returns of Liberty Media. LMC Internationals
income taxes included those items in the consolidated income tax
calculation applicable to the LMC International Tax Group
(intercompany tax allocation) and any taxes on income of LMC
Internationals consolidated foreign or domestic
subsidiaries that were excluded from the consolidated federal
and state income tax returns of Liberty Media. The intercompany
tax amounts owed to Liberty Media as a result of these
allocations were contributed to our equity in connection with
the spin off.
In connection with the spin off, LMI (together with its
80%-or-more-owned domestic subsidiaries, the LMI Tax Group),
(i) became a separate tax paying entity, and
(ii) entered into a Tax Sharing Agreement with Liberty
Media. Under the Tax Sharing Agreement, Liberty Media is
responsible for U.S. federal, state, local and foreign
income taxes reported on a consolidated, combined or unitary
return that includes the LMI Tax Group, on the one hand, and
Liberty Media or one of its subsidiaries on the other hand,
subject to certain limited exceptions. We are responsible for
all other taxes that are attributable to the LMI Tax Group,
whether accruing before, on or after the spin off. The Tax
Sharing Agreement requires that we will not take, or fail to
take, any action where such action, or failure to act, would be
inconsistent with or prohibit the spin off from qualifying as a
tax-free transaction. Moreover, we will indemnify Liberty Media
for any loss resulting from such action or failure to act, if
such action or failure to act precludes the spin off from
qualifying as a tax-free transaction. Pursuant to the Tax
Sharing Agreement, Liberty Media allocated certain tax benefits
aggregating $26,671,000 to our company during 2005. The
allocation of these tax benefits was treated as a capital
transaction and reflected as an increase to additional paid-in
capital in our consolidated statement of stockholders
equity.
As a result of the LGI Combination, LGI succeeded LMI as the
entity responsible for filing consolidated domestic tax returns
and UGC became a part of the LGI consolidated tax group. The
income taxes of domestic and foreign subsidiaries not included
within the consolidated U.S. tax group are presented in our
financial statements based on a separate return basis for each
tax-paying entity or group.
During 2005 and 2004, we reevaluated the estimated blended state
tax rate used to compute certain of our deferred tax balances.
As a result of the LMI Tax Group becoming a separate tax paying
entity in connection with the June 2004 spin off, we concluded
that the blended state tax rate should be decreased. In
connection with the June 2005 LGI Combination, we concluded that
the estimated blended state tax rate should be
II-121
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
increased. As a result of these changes in estimates, we
recorded a $4,605,000 deferred expense during 2005 and a
$22,938,000 deferred tax benefit during 2004.
Income tax benefit (expense) consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current | |
|
Deferred | |
|
Total | |
|
|
| |
|
| |
|
| |
|
|
amounts in thousands | |
Year ended December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$ |
(56,398 |
) |
|
$ |
17,595 |
|
|
$ |
(38,803 |
) |
|
|
State and local
|
|
|
(4,001 |
) |
|
|
(1,726 |
) |
|
|
(5,727 |
) |
|
|
Foreign
|
|
|
(44,190 |
) |
|
|
58,871 |
|
|
|
14,681 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(104,589 |
) |
|
$ |
74,740 |
|
|
$ |
(29,849 |
) |
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2004 (as adjusted see
note 22):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$ |
(51,851 |
) |
|
$ |
69,451 |
|
|
$ |
17,600 |
|
|
State and local
|
|
|
(4,554 |
) |
|
|
13,694 |
|
|
|
9,140 |
|
|
Foreign
|
|
|
(10,295 |
) |
|
|
(2,645 |
) |
|
|
(12,940 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(66,700 |
) |
|
|
80,500 |
|
|
|
13,800 |
|
|
|
|
|
|
|
|
|
|
|
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 |
) |
|
|
|
|
|
|
|
|
|
|
II-122
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
Income tax benefit (expense) attributable to our companys
earnings (loss) before taxes, minority interest and discontinued
operations differs from the amounts computed by applying the
U.S. federal income tax rate of 35%, as a result of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
|
|
as restated | |
|
|
|
|
|
|
(note 23) | |
|
|
|
|
amounts in thousands | |
Computed expected tax benefit (expense)
|
|
$ |
(17,778 |
) |
|
$ |
66,932 |
|
|
$ |
(17,111 |
) |
Non-deductible or taxable foreign currency exchange results
|
|
|
60,598 |
|
|
|
(27,702 |
) |
|
|
|
|
Non-deductible interest and other expenses
|
|
|
(54,196 |
) |
|
|
(74,966 |
) |
|
|
|
|
Losses on sale of investments, affiliates and other assets
|
|
|
49,288 |
|
|
|
78,693 |
|
|
|
|
|
Non-taxable investment income (loss)
|
|
|
(33,995 |
) |
|
|
23,735 |
|
|
|
|
|
Change in valuation allowance
|
|
|
27,356 |
|
|
|
(23,217 |
) |
|
|
|
|
Income recognized for tax purposes, but not for financial
reporting purposes
|
|
|
(23,742 |
) |
|
|
(25,820 |
) |
|
|
|
|
Enacted tax law changes, case law and rate changes
|
|
|
(12,682 |
) |
|
|
(149,294 |
) |
|
|
|
|
International rate differences
|
|
|
(7,453 |
) |
|
|
6,511 |
|
|
|
|
|
State and local income taxes, net of federal income taxes
|
|
|
(5,467 |
) |
|
|
1,643 |
|
|
|
(4,315 |
) |
Change in estimated blended state tax rate
|
|
|
(4,605 |
) |
|
|
22,938 |
|
|
|
|
|
Foreign taxes
|
|
|
(3,427 |
) |
|
|
344 |
|
|
|
(7,922 |
) |
Gain on extinguishment of debt
|
|
|
|
|
|
|
107,863 |
|
|
|
|
|
Other, net
|
|
|
(3,746 |
) |
|
|
6,140 |
|
|
|
1,373 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(29,849 |
) |
|
$ |
13,800 |
|
|
$ |
(27,975 |
) |
|
|
|
|
|
|
|
|
|
|
The current and non-current components of our deferred tax
assets (liabilities) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
|
|
as adjusted | |
|
|
|
|
(note 22) | |
|
|
amounts in thousands | |
Current deferred tax assets
|
|
$ |
155,725 |
|
|
$ |
38,355 |
|
Non-current deferred tax assets
|
|
|
75,722 |
|
|
|
77,313 |
|
Current deferred tax liabilities
|
|
|
(2,458 |
) |
|
|
|
|
Non-current deferred tax liabilities
|
|
|
(546,049 |
) |
|
|
(464,661 |
) |
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$ |
(317,060 |
) |
|
$ |
(348,993 |
) |
|
|
|
|
|
|
|
Our deferred income tax valuation allowance increased
$554,175,000 in 2005. Such increase reflects the net effect of
(i) net tax benefits recorded in the statement of
operations of $27,356,000, (ii) acquisitions and similar
transactions, (iii) foreign currency translation adjustment
and (iv) valuation allowances released to goodwill.
Approximately $2.3 billion of the valuation allowance
recorded as of December 31, 2005 was attributable to
deferred tax assets for which any subsequently recognized tax
benefits will be allocated to reduce goodwill related to various
business combinations. It is more likely than not that our
company will generate future income within the applicable tax
jurisdictions to realize deferred tax assets.
II-123
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
|
|
as adjusted | |
|
|
|
|
(note 22) | |
|
|
amounts in thousands | |
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
Investments
|
|
$ |
15,884 |
|
|
$ |
66,862 |
|
|
Net operating loss carryforwards
|
|
|
2,731,719 |
|
|
|
1,751,088 |
|
|
Property and equipment, net
|
|
|
304,647 |
|
|
|
509,826 |
|
|
Intangible assets, net
|
|
|
216,069 |
|
|
|
44,303 |
|
|
Deferred compensation and severance
|
|
|
34,578 |
|
|
|
41,686 |
|
|
Deferred revenue
|
|
|
284,844 |
|
|
|
|
|
|
Other future deductible amounts
|
|
|
115,249 |
|
|
|
98,057 |
|
|
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
|
3,702,990 |
|
|
|
2,511,822 |
|
|
|
Valuation allowance
|
|
|
(2,766,270 |
) |
|
|
(2,212,095 |
) |
|
|
|
|
|
|
|
|
|
|
Deferred tax assets, net of valuation allowance
|
|
|
936,720 |
|
|
|
299,727 |
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
Investments
|
|
|
(377,576 |
) |
|
|
(344,871 |
) |
|
Property and equipment
|
|
|
(276,193 |
) |
|
|
(53,124 |
) |
|
Intangible assets
|
|
|
(419,485 |
) |
|
|
(127,712 |
) |
|
Unrealized gains on investments
|
|
|
(4,077 |
) |
|
|
(25,287 |
) |
|
Other future taxable amounts
|
|
|
(176,449 |
) |
|
|
(97,726 |
) |
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
(1,253,780 |
) |
|
|
(648,720 |
) |
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$ |
(317,060 |
) |
|
$ |
(348,993 |
) |
|
|
|
|
|
|
|
II-124
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
The significant components of our tax loss carryforwards and
related tax assets at December 31, 2005 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax loss | |
|
Related tax | |
|
Expiration | |
Country |
|
carryforward | |
|
asset | |
|
date | |
|
|
| |
|
| |
|
| |
|
|
amounts in thousands | |
|
|
Switzerland
|
|
$ |
3,340,599 |
|
|
$ |
736,309 |
|
|
|
2006-2012 |
|
France
|
|
|
2,360,291 |
|
|
|
812,648 |
|
|
|
Indefinite |
|
The Netherlands
|
|
|
1,889,469 |
|
|
|
549,836 |
|
|
|
Indefinite |
|
Australia
|
|
|
596,879 |
|
|
|
179,064 |
|
|
|
Indefinite |
|
Ireland
|
|
|
367,729 |
|
|
|
45,966 |
|
|
|
Indefinite |
|
Luxembourg
|
|
|
328,876 |
|
|
|
99,912 |
|
|
|
Indefinite |
|
Japan
|
|
|
325,337 |
|
|
|
130,135 |
|
|
|
2006-2012 |
|
Chile
|
|
|
325,265 |
|
|
|
55,295 |
|
|
|
Indefinite |
|
Austria
|
|
|
200,379 |
|
|
|
50,095 |
|
|
|
Indefinite |
|
Poland
|
|
|
73,321 |
|
|
|
13,931 |
|
|
|
2006-2010 |
|
Sweden
|
|
|
47,940 |
|
|
|
13,423 |
|
|
|
Indefinite |
|
United States
|
|
|
44,579 |
|
|
|
16,124 |
|
|
|
2021-2025 |
|
Other
|
|
|
111,633 |
|
|
|
28,981 |
|
|
|
Various |
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
10,012,297 |
|
|
$ |
2,731,719 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our tax loss carry forwards within each jurisdiction combine all
companies tax losses in that jurisdiction, however,
certain tax jurisdictions limit the ability to offset taxable
income of a separate company or different tax group with the tax
losses associated with another separate company or group. Some
losses are limited in use due to a change in control or same
business tests. We intend to indefinitely reinvest earnings from
certain foreign operations except to the extent the earnings are
subject to current U.S. income taxes. At December 31,
2005, U.S. and
non-U.S. income
and withholding taxes for which a deferred tax might otherwise
be required have not been provided on an estimated
$2.3 billion of cumulative temporary differences
(including, for this purpose, any difference between the tax
basis in stock of a consolidated subsidiary and the amount of
the subsidiarys net equity determined for financial
reporting purposes) related to investments in foreign
subsidiaries. The determination of the additional U.S. and
non-U.S. income
and withholding tax that would arise upon a reversal of the
temporary differences is subject to offset by available foreign
tax credits, subject to certain limitations, and it is
impractical to estimate the amount of income and withholding tax
that might be payable.
Because we 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. In
general, our pro rata share of certain income earned by these
subsidiaries that are CFCs during a taxable year when such
subsidiaries have positive current or accumulated earnings and
profits will be included in our income to the extent of the
earnings and profits when the income is earned, regardless of
whether the income is distributed to us. The income, often
referred to as Subpart F income, generally includes,
but is not limited to, such items as interest, dividends,
royalties, gains from the disposition of certain property,
certain exchange gains in excess of exchange losses, and certain
related party sales and services income.
In addition, a U.S. corporation that is a shareholder in a
CFC may be required to include in its income its pro rata share
of the CFCs increase in the average adjusted tax basis of
any investment in U.S. property held by a wholly or
majority owned CFC to the extent that the CFC has positive
current or accumulated earnings and profits. This is the case
even though the U.S. corporation may not have received any
actual cash distributions
II-125
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
from the CFC. Although we intend to take reasonable tax planning
measures to limit our tax exposure, there can be no assurance we
will be able to do so.
In general, a U.S. corporation may claim a foreign tax
credit against its U.S. federal income tax expense for
foreign income taxes paid or accrued. A U.S. corporation
may also claim a credit for foreign income taxes paid or accrued
on the earnings of a foreign corporation paid to the
U.S. corporation as a dividend.
Our ability to claim a foreign tax credit for dividends received
from our foreign subsidiaries or foreign taxes paid or accrued
is subject to various significant limitations under
U.S. tax laws including a limited carry back and carry
forward period. Some of our operating companies are located in
countries with which the United States does not have income tax
treaties. Because we lack treaty protection in these countries,
we may be subject to high rates of withholding taxes on
distributions and other payments from these operating companies
and may be subject to double taxation on our income. Limitations
on the ability to claim a foreign tax credit, lack of treaty
protection in some countries, and the inability to offset losses
in one foreign jurisdiction against income earned in another
foreign jurisdiction could result in a high effective
U.S. federal tax rate on our earnings. Since substantially
all of our revenue is generated abroad, including in
jurisdictions that do not have tax treaties with the U.S., these
risks are proportionately greater for us than for companies that
generate most of their revenue in the U.S. or in
jurisdictions that have these treaties.
We, through our subsidiaries, maintain a presence in many
foreign countries. Many of these countries maintain tax regimes
that differ significantly from the system of income taxation
used in the United States. We have accounted for the effect of
foreign taxes based on what we believe is reasonably expected to
apply to us and our subsidiaries based on tax laws currently in
effect 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 United States or tax regimes used in other major
industrialized countries, it may be difficult to anticipate how
foreign jurisdictions will tax our and our subsidiaries
current and future operations.
|
|
(13) |
Stockholders Equity |
On September 6, 2005, LGI effected the Stock Dividend of
LGI Series C common stock to holders of
LGI Series A common stock and LGI Series B common
stock as of the Record Date. For additional information, see
note 1.
Our authorized capital stock consists of
(i) 1,050,000,000 shares of common stock, par value
$.01 per share, of which 500,000,000 shares are
designated LGI Series A common stock,
50,000,000 shares are designated LGI Series B
common stock and 500,000,000 shares are designated LGI
Series C common stock and (ii) 50,000,000 shares
of LGI preferred stock, par value $.01 per share.
LGIs restated certificate of incorporation authorizes the
board of directors to authorize the issuance of one or more
series of preferred stock.
Under LGIs restated certificate of incorporation, holders
of LGI Series A common stock are entitled to one vote for
each share of such stock held, and holders of LGI Series B
common stock are entitled to ten votes for each share of such
stock held, on all matters submitted to a vote of LGI
stockholders at any annual or special meeting. Holders of LGI
Series C common stock are not entitled to any voting
powers, except as required by Delaware law (in which case
holders of LGI Series C common stock are entitled to
1/100th of a vote per share).
II-126
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
Each share of LGI Series B common stock is convertible into
one share of LGI Series A common stock. One share of LGI
Series A common stock is reserved for issuance for each
share of LGI Series B common stock that is either issued or
subject to future issuance pursuant to outstanding stock
options. At December 31, 2005, there were 6,532,038,
3,066,716 and 9,449,833 shares of LGI Series A common
stock, LGI Series B common stock and LGI Series C
common stock, respectively, reserved for issuance pursuant to
outstanding stock options, 6,267,624 and 6,257,092 shares
of LGI Series A common stock and LGI Series C common
stock, respectively, reserved for issuance pursuant to
outstanding stock appreciation rights and 11,044,375 common
shares of each of LGI Series A common stock and LGI
Series C common stock reserved for issuance upon conversion
of the UGC Convertible Notes. In addition to these amounts, one
share of LGI Series A common stock is reserved for issuance
for each share of LGI Series B common stock that is either
issued (7,323,570 shares) or subject to future issuance
pursuant to outstanding stock options (3,066,716 shares).
Subject to any preferential rights of any outstanding series of
our preferred stock, the holder of LGI Series A, LGI
Series B and LGI Series C common stock will be
entitled to such dividends as may be declared from time to time
by our board from funds available therefor. Except with respect
to certain share distributions, whenever a dividend is paid to
the holder of one of our series of common stock, we shall also
pay to the holders of the other series of our common stock an
equal per share dividend. There are currently no restrictions on
our ability to pay dividends in cash or stock.
In the event of our liquidation, dissolution and winding up,
after payment or provision for payment of our debts and
liabilities and subject to the prior payment in full of any
preferential amounts to which our preferred stockholders may be
entitled, the holders of LGI Series A, LGI Series B
and LGI Series C common stock will share equally, on a
share for share basis, in our assets remaining for distribution
to the holders of LGI common stock.
|
|
|
Structured Stock Repurchase Instruments |
We accounted for the following call agreements as equity
instruments due to the fact that the related agreements met the
requirements of
EITF 00-19 for
classification as equity instruments.
During the third quarter of 2005, we paid $11,240,000 to enter
into a call option agreement pursuant to which we
contemporaneously (i) sold call options on
250,000 shares of LGI Series A common stock and
250,000 shares of LGI Series C common stock at a
combined exercise price of $46.14 and (ii) purchased call
options on an equivalent number of shares of LGI Series A
common stock and LGI Series C common stock with an exercise
price of zero. In connection with the August 2005 expiration of
this agreement, we received a cash payment of $11,535,000.
In October 2005, we paid $11,807,000 to enter into a call option
contract pursuant to which we contemporaneously (i) sold
call options on 500,000 shares of LGI Series A common
stock at an exercise price of $24.25 and (ii) purchased
call options on an equivalent number of shares of LGI
Series A common stock with an exercise price of zero. In
connection with the November 2005 expiration of this agreement,
we received a cash payment of $12,125,000.
In November 2005, we paid $11,969,000 to enter into a call
option contract pursuant to which we contemporaneously
(i) sold call options on 500,000 shares of LGI
Series A common stock at an exercise price of $24.35 and
(ii) purchased call options on an equivalent number of
shares of LGI Series A common stock with an exercise price
of zero. At the expiration of this contract in December 2005, we
exercised our call options and acquired 500,000 shares of
LGI Series A common stock.
II-127
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
During 2004, we purchased 3,000,000 shares of LMI
Series A common stock from Comcast Corporation in a private
transaction for a cash purchase price of $127,890,000. These
shares were cancelled during the second quarter of 2005.
On June 20, 2005, we announced the authorization of a stock
repurchase program. Under the program, we may acquire from time
to time up to $200 million in LGI Series A common
stock and LGI Series C common stock. During 2005, we
repurchased under this program 2,048,231 and
1,455,859 shares of LGI Series A common stock and LGI
Series C common stock, respectively, for aggregate cash
consideration of $78,893,000. Subsequent to December 31,
2005, we repurchased 2,698,558 and 1,504,311 additional shares
of LGI Series A and LGI Series C common stock,
respectively, for aggregate cash consideration of $89,357,000.
In addition, on March 8, 2006, our Board of Directors
approved a new stock repurchase program under which we may
acquire an additional $250 million in LGI Series A
common stock and LGI Series C common stock. These stock
repurchase programs may be effected through open market
transactions and/or privately negotiated transactions, which may
include derivative transactions. The timing of the repurchase of
shares pursuant to the program will depend on a variety of
factors, including market conditions. These programs may be
suspended or discontinued at any time.
In connection with the LGI Combination, we issued
2,067,786 shares of each of LGI Series A and LGI
Series C common stock to subsidiaries of UGC.
|
|
|
Issuance of Shares by Subsidiaries and Affiliates |
During 2005 and 2004, we recorded aggregate increases to
additional paid-in capital of $2,422,000 and $11,126,000,
respectively, as a result of the dilution of our ownership
interest in UGC.
In addition, during 2005, we recorded adjustments to additional
paid-in capital associated with the dilution of our ownership
interests in J:COM, Telenet and other subsidiaries and
affiliates. See notes 5 and note 6.
During the fourth quarter of 2005, we concluded that we had both
the ability and intent to satisfy most of our obligations under
LGI SARs with shares of LGI common stock. As a result, we have
reclassified $50,264,000 of our obligations under LGI SARs from
liability accounts to additional paid-in capital.
At December 31, 2005, approximately $5.3 billion of
our net assets represented net assets of certain of our
subsidiaries that were not available to be transferred to our
company in the form of dividends, loans or advances due to
restrictions contained in the credit facilities of these
subsidiaries.
|
|
(14) |
Stock Incentive Awards |
All references herein to the number of outstanding LGI stock
options and the related exercise prices reflect terms modified
as a result of the LGI Combination (see note 5), the LMI
Rights Offering (see note 2) and the Stock Dividend (see
note 1).
II-128
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
The Liberty Global, Inc. Incentive Plan, as amended and restated
(the LGI Incentive Plan) is administered by the compensation
committee of our board of directors. The compensation committee
of our board has full power and authority to grant eligible
persons the awards described below and to determine the terms
and conditions under which any awards are made. The incentive
plan is designed to provide additional remuneration to certain
employees and independent contractors for exceptional service
and to encourage their investment in our company. The
compensation committee may grant non-qualified stock options,
stock appreciation rights (SARs), restricted shares, stock
units, cash awards, performance awards or any combination of the
foregoing under the incentive plan (collectively, awards).
The maximum number of shares of LGI common stock with respect to
which awards may be issued under the incentive plan is
50 million, subject to anti-dilution and other adjustment
provisions of the LGI Incentive Plan, of which no more than
25 million shares may consist of LGI Series B common
stock. With limited exceptions, no person may be granted in any
calendar year awards covering more than 4 million shares of
our common stock, of which no more than 2 million shares
may consist of LGI Series B common stock. In addition, no
person may receive payment for cash awards during any calendar
year in excess of $10 million. Shares of our common stock
issuable pursuant to awards made under the incentive plan are
made available from either authorized but unissued shares or
shares that have been issued but reacquired by our company.
Options under the LGI Incentive Plan issued prior to the LGI
Combination generally vest at the rate of 20% per year on
each anniversary of the grant date and expire 10 years
after the grant date. Options under the LGI Incentive Plan
issued after the LGI Combination generally (i) vest 12.5%
on the six month anniversary of the grant date and then vest at
a rate of 6.25% each quarter thereafter, and (ii) expire
7 years after the grant date. The LGI Incentive Plan had
39,282,805 shares available for grant as of
December 31, 2005. These shares may be awarded in any
series of stock, except that no more than 23,372,168 shares
may be awarded in LGI Series B common stock.
In 2004, our company entered into an option agreement with John
C. Malone, our Chairman of the Board, pursuant to which our
company granted to Mr. Malone, under the LGI Incentive
Plan, options to acquire 1,568,562 shares of LGI
Series B common stock at an exercise price per share of
$19.26 and 1,568,562 shares of LGI Series C common
stock at an exercise price per share of $17.49. These options
were fully exercisable immediately; however,
Mr. Malones rights with respect to the options and
any shares issued upon exercise vest at the rate of 20% per
year on each anniversary of the Spin Off Date, provided that
Mr. Malone continues to have a qualifying relationship
(whether as a director, officer, employee or consultant) with
LGI. 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 LGI will have the right to require
Mr. Malone to sell to our company, at the exercise price of
the options, any shares of LGI 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 our company.
As a protective measure in order to avoid the potential
application of additional taxes under Section 409A of the
Internal Revenue Code of 1986 (Section 409A), we entered
into a modification agreement with Mr. Malone effective
December 22, 2005 (the Section 409A Modification
Effective Date), to increase the exercise prices of such
options, which were not vested as of December 31, 2004. The
exercise price per share of Mr. Malones options to
acquire 1,568,562 shares of LGI Series B common stock
was increased from $19.26 to $20.10, and the exercise price per
share of Mr. Malones options to acquire
1,568,562 shares of LGI Series C common stock was
increased from $17.49 to $18.26.
On December 22, 2005, we paid Mr. Malone $2,500,000 of
consideration equal to the aggregate amount of the increase in
the exercise price of Series B Stock and Series C
Stock underlying these options. The consideration
II-129
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
was paid through a grant under the LGI Incentive Plan of 59,270
restricted shares of LGI Series B common stock and 58,403
restricted shares of LGI Series C common stock using fair
market values as of the Section 409A Modification Effective
Date. The restriction period with respect to these restricted
shares will expire with respect to 40% of the original number of
restricted shares on June 7, 2006 and with respect to an
additional 20% of the original number of these restricted shares
on each June 7 thereafter through 2009.
|
|
|
The LGI Directors Incentive Plan |
The Liberty Global, Inc. Non-employee Director Incentive Plan,
as amended and restated (the LGI Directors Incentive Plan) is
designed to provide a method whereby non-employee directors may
be awarded additional remuneration for the services they render
on our board and committees of our board, and to encourage their
investment in capital stock of our company. The LGI Directors
Incentive Plan is administered by our full board of directors.
Our board has the full power and authority to grant eligible
non-employee directors the awards described below and to
determine the terms and conditions under which any awards are
made, and may delegate certain administrative duties to our
employees.
Our board may grant non-qualified stock options, stock
appreciation rights, restricted shares, stock units or any
combination of the foregoing under the director plan
(collectively, awards). Only non-employee members of our board
of directors are eligible to receive awards under the LGI
Directors Incentive Plan. The maximum number of shares of our
common stock with respect to which awards may be issued under
the director plan is 10 million, subject to anti-dilution
and other adjustment provisions of the LGI Directors Incentive
Plan, of which no more than 5 million shares may consist of
LGI Series B common stock. Shares of our common stock
issuable pursuant to awards made under the LGI Directors
Incentive Plan will be made available from either authorized but
unissued shares or shares that have been issued but reacquired
by our company. Options issued prior to the LGI Combination
under the LGI Directors Incentive Plan vest on the first
anniversary of the grant date and expire 10 years after the
grant date. Options issued after the LGI Combination under the
LGI Directors Incentive Plan will vest as to one-third of the
options shares on the date of the first annual meeting of
stockholders following the grant date and as to an additional
one-third of the options shares on the date of each annual
meeting of stockholders thereafter. The LGI Non-Employee
Director Plan had 9,815,696 shares available for grant as
of December 31, 2005. These shares may be awarded in any
series of stock, except that no more than 5 million shares
may be awarded in LGI Series B common stock.
As a result of the spin off and related adjustments to Liberty
Medias stock incentive awards, options to acquire shares
of LGI Series A, B and C common stock were issued to
LMIs directors and employees and Liberty Medias
employees pursuant to the LMI Transitional Stock Adjustment Plan
(the Transitional Plan). Such options have remaining terms and
vesting provisions equivalent to those of the respective Liberty
Media stock incentive awards that were adjusted. At the Spin Off
Date, such options to purchase shares of LGI Series A
common stock, LGI Series B common stock and LGI
Series C common stock had remaining weighted average terms
of 7.03 years, 6.73 years and 6.84 years,
respectively and remaining weighted average vesting periods of
1.76 years, 1.73 years and 1.74 years,
respectively. No additional awards shall be made under the
Transitional Plan.
As a protective measure in order to avoid the potential
application of additional taxes under Section 409A of the
Internal Revenue Code of 1986 (Section 409A), we entered
into modification agreements with certain persons (the Affected
Persons) who hold options to purchase shares of our common stock
to increase the exercise prices of such options. The stock
options affected by these modification agreements were not
vested and exercisable as of December 31, 2004. The
Affected Persons include a number of our executive officers and
II-130
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
directors. The consideration paid to the Affected Persons in
connection with the Transitional Plan modifications was not
significant.
On December 22, 2005, we paid approximately $220,000 to the
Affected Persons, of which $49,000 was paid to Mr. Malone
through a grant under the LGI Incentive Plan of 1,173 restricted
shares of LGI Series A common stock and 1,137 restricted
shares of LGI Series C common stock using fair market
values as of the Section 409A Modification Effective Date.
The restriction period with respect to these restricted shares
expires on February 28, 2006.
|
|
|
UGC Equity Incentive Plan, UGC Director Plans and UGC
Employee Plan |
Options, restricted stock and SARs were granted to employees of
UGC prior to the LGI Combination under these plans. No new
grants will be made under these plans. The weighted average
remaining terms and vesting periods of the options, restricted
stock and SARs issued under these plans are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
Weighted | |
|
Weighted | |
|
|
average | |
|
average | |
|
|
remaining | |
|
remaining | |
|
|
term | |
|
vesting period | |
|
|
| |
|
| |
|
|
amounts in years | |
UGC Equity Incentive Plan:
|
|
|
|
|
|
|
|
|
|
Options LGI Series A and C common stock
|
|
|
8.9 |
|
|
|
4.0 |
|
|
Restricted stock LGI Series A and C common stock
|
|
|
3.9 |
|
|
|
3.9 |
|
|
SARs LGI Series A and C common stock
|
|
|
8.0 |
|
|
|
3.7 |
|
UGC Director Plans:
|
|
|
|
|
|
|
|
|
|
Options LGI Series A and C common stock
|
|
|
6.0 |
|
|
|
1.8 |
|
UGC Employee Plan:
|
|
|
|
|
|
|
|
|
|
Options LGI Series A and C common stock
|
|
|
5.5 |
|
|
|
|
|
II-131
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
A summary of stock option, SARs and restricted stock activity in
2004 and 2005 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options | |
|
|
| |
|
|
|
|
LGI Directors | |
|
|
|
UGC Director | |
|
|
LGI Incentive Plan | |
|
Incentive Plan | |
|
Transitional Plan | |
|
Plans | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
Weighted | |
|
|
|
Weighted | |
|
|
|
Weighted | |
|
|
|
Weighted | |
|
|
|
|
average | |
|
|
|
average | |
|
|
|
average | |
|
|
|
average | |
LGI Series A |
|
|
|
exercise | |
|
|
|
exercise | |
|
|
|
exercise | |
|
|
|
exercise | |
common stock |
|
Number | |
|
price | |
|
Number | |
|
price | |
|
Number | |
|
price | |
|
Number | |
|
price | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Outstanding at January 1, 2004
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
198,260 |
|
|
$ |
25.41 |
|
|
Issued in connection with the spin off and related adjustments
to Liberty Medias stock incentive awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,595,709 |
|
|
|
17.42 |
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
438,054 |
|
|
|
17.18 |
|
|
|
22,152 |
|
|
|
17.44 |
|
|
|
|
|
|
|
|
|
|
|
43,100 |
|
|
|
14.16 |
|
|
Canceled
|
|
|
(10,639 |
) |
|
|
17.18 |
|
|
|
|
|
|
|
|
|
|
|
(2,025 |
) |
|
|
17.42 |
|
|
|
(28,015 |
) |
|
|
113.82 |
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(353,485 |
) |
|
|
17.42 |
|
|
|
(56,030 |
) |
|
|
9.39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2004
|
|
|
427,415 |
|
|
|
17.18 |
|
|
|
22,152 |
|
|
|
17.44 |
|
|
|
1,240,199 |
|
|
|
17.42 |
|
|
|
157,315 |
|
|
|
12.18 |
|
|
Granted
|
|
|
1,839,502 |
|
|
|
24.07 |
|
|
|
70,000 |
|
|
|
23.21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canceled
|
|
|
(59,173 |
) |
|
|
17.51 |
|
|
|
|
|
|
|
|
|
|
|
(41,697 |
) |
|
|
17.42 |
|
|
|
|
|
|
|
|
|
|
Released from restrictions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(26,383 |
) |
|
|
17.16 |
|
|
|
|
|
|
|
|
|
|
|
(218,428 |
) |
|
|
17.42 |
|
|
|
(43,100 |
) |
|
|
9.85 |
|
Section 409A modifications
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.12 |
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2005
|
|
|
2,181,361 |
|
|
$ |
22.98 |
|
|
|
92,152 |
|
|
$ |
21.82 |
|
|
|
980,074 |
|
|
$ |
17.47 |
|
|
|
114,215 |
|
|
$ |
13.06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2005
|
|
|
63,147 |
|
|
$ |
17.66 |
|
|
|
22,152 |
|
|
$ |
17.44 |
|
|
|
720,612 |
|
|
$ |
17.45 |
|
|
|
96,256 |
|
|
$ |
12.66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
[Additional columns below]
[Continued from above table, first column(s) repeated]
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options | |
|
SARs | |
|
Restricted stock | |
|
|
| |
|
| |
|
| |
|
|
|
|
UGC Equity | |
|
UGC Equity Incentive Plan/ | |
|
|
UGC Employee Plan | |
|
Incentive Plan | |
|
LGI Incentive Plan (2) | |
|
|
| |
|
| |
|
| |
|
|
|
|
Weighted | |
|
|
|
Weighted | |
|
|
|
Weighted | |
|
|
|
Weighted | |
|
|
|
|
average | |
|
|
|
average | |
|
|
|
average | |
|
|
|
average | |
LGI Series A |
|
|
|
exercise | |
|
|
|
exercise | |
|
|
|
base | |
|
|
|
stock | |
common stock |
|
Number | |
|
price | |
|
Number | |
|
price | |
|
Number | |
|
price | |
|
Number | |
|
price | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Outstanding at January 1, 2004
|
|
|
2,962,197 |
|
|
$ |
17.85 |
|
|
|
|
|
|
$ |
|
|
|
|
6,914,807 |
|
|
$ |
9.11 |
|
|
|
|
|
|
$ |
|
|
|
Issued in connection with the spin off and related adjustments
to Liberty Medias stock incentive awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
1,030,090 |
|
|
|
18.40 |
|
|
|
1,090,891 |
|
|
|
17.43 |
|
|
|
48,398 |
|
|
|
22.80 |
|
|
Canceled
|
|
|
(53,355 |
) |
|
|
34.87 |
|
|
|
(17,240 |
) |
|
|
17.83 |
|
|
|
(387,800 |
) |
|
|
10.46 |
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(132,980 |
) |
|
|
11.78 |
|
|
|
|
|
|
|
|
|
|
|
(1,123,942 |
) |
|
|
8.72 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2004
|
|
|
2,775,862 |
|
|
|
17.93 |
|
|
|
1,012,850 |
|
|
|
18.40 |
|
|
|
6,493,956 |
|
|
|
10.56 |
|
|
|
48,398 |
|
|
|
22.80 |
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,461,300 |
|
|
|
24.12 |
|
|
|
62,173 |
|
|
|
23.98 |
|
|
Canceled
|
|
|
(19,703 |
) |
|
|
55.56 |
|
|
|
(140,153 |
) |
|
|
17.83 |
|
|
|
(286,788 |
) |
|
|
9.07 |
|
|
|
|
|
|
|
|
|
|
Released from restrictions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,678 |
) |
|
|
22.80 |
|
|
Exercised
|
|
|
(412,605 |
) |
|
|
10.52 |
|
|
|
(52,015 |
) |
|
|
17.83 |
|
|
|
(1,400,844 |
) |
|
|
9.64 |
|
|
|
|
|
|
|
|
|
Section 409A modifications
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2005
|
|
|
2,343,554 |
|
|
$ |
18.91 |
|
|
|
820,682 |
|
|
$ |
18.54 |
|
|
|
6,267,624 |
|
|
$ |
14.00 |
|
|
|
100,893 |
|
|
$ |
23.53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2005
|
|
|
2,343,554 |
|
|
$ |
18.91 |
|
|
|
141,368 |
|
|
$ |
18.65 |
|
|
|
614,015 |
|
|
$ |
11.76 |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
The exercise price on 431,495 shares was increased from
$17.42 to $17.54. |
|
(2) |
With the exception of the 2005 grants, which were granted under
the LGI Incentive Plan, all activity relates to SARs and
restricted shares granted under the UGC Equity Incentive Plan. |
II-132
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options | |
|
Restricted Stock | |
|
|
| |
|
| |
|
|
LGI Incentive Plan | |
|
Transitional Plan | |
|
LGI Incentive Plan | |
|
|
| |
|
| |
|
| |
|
|
|
|
Weighted | |
|
|
|
Weighted | |
|
|
|
Weighted | |
|
|
|
|
average | |
|
|
|
average | |
|
|
|
average | |
|
|
|
|
exercise | |
|
|
|
exercise | |
|
|
|
stock | |
LGI Series B common stock: |
|
Number | |
|
price | |
|
Number | |
|
price | |
|
Number | |
|
price | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Outstanding at January 1, 2004
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
Issued in connection with the spin off and related adjustments to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liberty Medias stock incentive awards
|
|
|
|
|
|
|
|
|
|
|
1,498,154 |
|
|
|
19.85 |
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,568,562 |
|
|
|
19.26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canceled
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2004
|
|
|
1,568,562 |
|
|
|
19.26 |
|
|
|
1,498,154 |
|
|
|
19.85 |
|
|
|
|
|
|
|
|
|
|
Issued in connection with the LGI Combination
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59,270 |
|
|
|
22.23 |
|
|
Canceled
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Section 409A modifications(2)
|
|
|
|
|
|
|
0.84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2005
|
|
|
1,568,562 |
|
|
$ |
20.10 |
|
|
|
1,498,154 |
|
|
$ |
19.85 |
|
|
|
59,270 |
|
|
$ |
22.23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2005
|
|
|
1,568,562 |
(1) |
|
$ |
20.10 |
|
|
|
1,391,241 |
|
|
$ |
19.85 |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
These options, which were granted to Mr. Malone in 2004,
vest at the rate of 20% per year on each anniversary of
June 7, 2004, provided that Mr. Malone meets certain
conditions regarding his relationship with our company. As of
December 31, 2005, 313,712 of such options were vested;
however, all options were exercisable immediately at the date of
grant. |
|
(2) |
The exercise price per share of Mr. Malones options
granted under the LGI Incentive Plan to acquire
1,568,562 shares of LGI Series B common stock was
increased from $19.26 to $20.10. |
II-133
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options | |
|
|
| |
|
|
|
|
LGI Directors | |
|
|
|
UGC Director | |
|
|
LGI Incentive Plan | |
|
Incentive Plan | |
|
Transitional Plan | |
|
Plans | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
Weighted | |
|
|
|
Weighted | |
|
|
|
Weighted | |
|
|
|
Weighted | |
|
|
|
|
average | |
|
|
|
average | |
|
|
|
average | |
|
|
|
average | |
LGI Series C |
|
|
|
exercise | |
|
|
|
exercise | |
|
|
|
exercise | |
|
|
|
exercise | |
common stock: |
|
Number | |
|
price | |
|
Number | |
|
price | |
|
Number | |
|
price | |
|
Number | |
|
price | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Outstanding at January 1, 2004
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
198,260 |
|
|
$ |
24.06 |
|
|
Issued in connection with the spin off and related adjustments
to Liberty Medias stock incentive awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,093,863 |
|
|
|
17.24 |
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
2,006,616 |
|
|
|
17.23 |
|
|
|
22,152 |
|
|
|
16.51 |
|
|
|
|
|
|
|
|
|
|
|
43,100 |
|
|
|
13.40 |
|
|
Canceled
|
|
|
(10,639 |
) |
|
|
17.23 |
|
|
|
|
|
|
|
|
|
|
|
(2,025 |
) |
|
|
16.50 |
|
|
|
(28,015 |
) |
|
|
107.75 |
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(353,485 |
) |
|
|
16.50 |
|
|
|
(56,030 |
) |
|
|
8.89 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2004
|
|
|
1,995,977 |
|
|
|
17.23 |
|
|
|
22,152 |
|
|
|
16.51 |
|
|
|
2,738,353 |
|
|
|
17.33 |
|
|
|
157,315 |
|
|
|
11.53 |
|
|
Granted
|
|
|
1,839,502 |
|
|
|
22.78 |
|
|
|
70,000 |
|
|
|
21.98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canceled
|
|
|
(59,173 |
) |
|
|
16.58 |
|
|
|
|
|
|
|
|
|
|
|
(41,697 |
) |
|
|
16.50 |
|
|
|
|
|
|
|
|
|
|
Released from restrictions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(26,383 |
) |
|
|
16.25 |
|
|
|
|
|
|
|
|
|
|
|
(218,428 |
) |
|
|
16.50 |
|
|
|
(43,100 |
) |
|
|
9.32 |
|
Section 409A modifications
|
|
|
|
|
|
|
0.77 |
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.11 |
(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2005
|
|
|
3,749,923 |
|
|
$ |
20.29 |
|
|
|
92,152 |
|
|
$ |
20.67 |
|
|
|
2,478,228 |
|
|
$ |
17.44 |
|
|
|
114,215 |
|
|
$ |
12.37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2005
|
|
|
1,631,709 |
(1) |
|
$ |
18.20 |
|
|
|
22,152 |
|
|
$ |
16.51 |
|
|
|
2,111,853 |
|
|
$ |
17.52 |
|
|
|
96,256 |
|
|
$ |
11.98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
[Additional columns below]
[Continued from above table, first column(s) repeated]
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options | |
|
SARs | |
|
Restricted Stock | |
|
|
| |
|
| |
|
| |
|
|
UGC Employee | |
|
UGC Equity | |
|
UGC Equity Incentive Plan/ | |
|
|
Plan | |
|
Incentive Plan | |
|
LGI Incentive Plan (4) | |
|
|
| |
|
| |
|
| |
|
|
|
|
Weighted | |
|
|
|
Weighted | |
|
|
|
Weighted | |
|
|
|
Weighted | |
|
|
|
|
average | |
|
|
|
average | |
|
|
|
average | |
|
|
|
average | |
LGI Series C |
|
|
|
exercise | |
|
|
|
exercise | |
|
|
|
base | |
|
|
|
stock | |
common stock: |
|
Number | |
|
price | |
|
Number | |
|
price | |
|
Number | |
|
price | |
|
Number | |
|
price | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Outstanding at January 1, 2004
|
|
|
2,962,197 |
|
|
$ |
16.90 |
|
|
|
|
|
|
$ |
|
|
|
|
6,914,807 |
|
|
$ |
8.62 |
|
|
|
|
|
|
$ |
|
|
|
Issued in connection with the spin off and related adjustments
to Liberty Medias stock incentive awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
1,030,090 |
|
|
|
17.42 |
|
|
|
1,090,891 |
|
|
|
16.50 |
|
|
|
48,398 |
|
|
|
21.58 |
|
|
Canceled
|
|
|
(53,355 |
) |
|
|
33.01 |
|
|
|
(17,240 |
) |
|
|
16.88 |
|
|
|
(387,800 |
) |
|
|
9.91 |
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(132,980 |
) |
|
|
11.15 |
|
|
|
|
|
|
|
|
|
|
|
(1,123,942 |
) |
|
|
8.26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2004
|
|
|
2,775,862 |
|
|
|
16.97 |
|
|
|
1,012,850 |
|
|
|
17.42 |
|
|
|
6,493,956 |
|
|
|
10.00 |
|
|
|
48,398 |
|
|
|
21.58 |
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,461,300 |
|
|
|
22.84 |
|
|
|
120,540 |
|
|
|
21.72 |
|
|
Canceled
|
|
|
(19,703 |
) |
|
|
52.60 |
|
|
|
(140,153 |
) |
|
|
16.88 |
|
|
|
(286,788 |
) |
|
|
8.59 |
|
|
|
|
|
|
|
|
|
|
Released from restrictions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,678 |
) |
|
|
21.58 |
|
|
Exercised
|
|
|
(561,526 |
) |
|
|
9.79 |
|
|
|
(52,015 |
) |
|
|
16.88 |
|
|
|
(1,411,376 |
) |
|
|
9.15 |
|
|
|
|
|
|
|
|
|
Section 409A modifications
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2005
|
|
|
2,194,633 |
|
|
$ |
18.48 |
|
|
|
820,682 |
|
|
$ |
17.55 |
|
|
|
6,257,092 |
|
|
$ |
13.25 |
|
|
|
159,260 |
|
|
$ |
21.68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2005
|
|
|
2,194,633 |
|
|
$ |
18.48 |
|
|
|
141,368 |
|
|
$ |
17.66 |
|
|
|
603,483 |
|
|
$ |
11.12 |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
This amount includes 1,568,562 of options granted to
Mr. Malone in 2004. The options, which had an exercise
price of $18.26 per share at December 31, 2005, vest
at the rate of 20% per year on each anniversary of
June 7, 2004, provided that Mr. Malone meets certain
conditions regarding his relationship with our company. As of
December 31, 2005, 313,712 of such options were vested;
however, all options were exercisable immediately at the date of
grant. |
|
(2) |
The exercise price per share of Mr. Malones options
granted under the LGI Incentive Plan to acquire
1,568,562 shares of LGI Series C common stock was
increased from $17.49 to $18.26. |
|
(3) |
The exercise price on 431,495 shares was increased from
$16.50 to $16.61. |
|
(4) |
With the exception of the 2005 grants, which were granted under
the LGI Incentive Plan, all activity relates to SARs and
restricted shares granted under the UGC Equity Incentive Plan. |
II-134
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UGC Equity Incentive Plan | |
|
|
|
|
Options(1) | |
|
SARs(2) | |
|
Restricted Stock(2) | |
|
|
| |
|
| |
|
| |
|
|
|
|
Weighted | |
|
Weighted | |
|
|
|
Weighted | |
|
|
|
Weighted | |
|
|
|
|
average | |
|
average | |
|
|
|
Weighted | |
|
average | |
|
|
|
Weighted | |
|
average | |
|
|
|
|
exercise | |
|
grant-date | |
|
|
|
average | |
|
grant-date | |
|
|
|
average | |
|
grant-date | |
|
|
Number | |
|
price | |
|
fair value | |
|
Number | |
|
base price | |
|
fair value | |
|
Number | |
|
stock price | |
|
fair value | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
LGI Series A common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 grants:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than market price
|
|
|
43,100 |
|
|
$ |
14.16 |
|
|
$ |
17.21 |
|
|
|
33,295 |
|
|
$ |
6.84 |
|
|
$ |
10.89 |
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
Equal to market price
|
|
|
1,490,296 |
|
|
|
18.03 |
|
|
|
12.01 |
|
|
|
1,057,596 |
|
|
|
17.77 |
|
|
|
14.52 |
|
|
|
48,398 |
|
|
|
22.80 |
|
|
|
22.80 |
|
|
More than market price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total 2004 grants
|
|
|
1,533,396 |
|
|
$ |
17.92 |
|
|
$ |
12.15 |
|
|
|
1,090,891 |
|
|
$ |
17.43 |
|
|
$ |
14.71 |
|
|
|
48,398 |
|
|
$ |
22.80 |
|
|
$ |
22.80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 grants:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than market price
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
Equal to market price
|
|
|
1,909,502 |
|
|
|
24.04 |
|
|
|
7.84 |
|
|
|
1,461,300 |
|
|
|
24.12 |
|
|
|
7.84 |
|
|
|
62,173 |
|
|
|
23.98 |
|
|
|
23.98 |
|
|
More than market price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total 2005 grants
|
|
|
1,909,502 |
|
|
$ |
24.04 |
|
|
$ |
7.84 |
|
|
|
1,461,300 |
|
|
$ |
24.12 |
|
|
$ |
7.84 |
|
|
|
62,173 |
|
|
$ |
23.98 |
|
|
$ |
23.98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LGI Series B common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 grants:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than market price
|
|
|
1,568,562 |
|
|
$ |
19.26 |
|
|
$ |
6.56 |
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
Equal to market price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
More than market price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total 2004 grants
|
|
|
1,568,562 |
|
|
$ |
19.26 |
|
|
$ |
6.56 |
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 grants:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than market price
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
Equal to market price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59,270 |
|
|
|
22.23 |
|
|
|
22.23 |
|
|
More than market price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total 2005 grants
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
59,270 |
|
|
$ |
22.23 |
|
|
$ |
22.23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LGI Series C common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 grants:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than market price
|
|
|
1,611,662 |
|
|
$ |
17.38 |
|
|
$ |
6.14 |
|
|
|
33,295 |
|
|
$ |
6.48 |
|
|
$ |
10.31 |
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
Equal to market price
|
|
|
1,490,296 |
|
|
|
17.07 |
|
|
|
11.46 |
|
|
|
1,057,596 |
|
|
|
16.83 |
|
|
|
13.75 |
|
|
|
48,398 |
|
|
|
21.58 |
|
|
|
21.58 |
|
|
More than market price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total 2004 grants
|
|
|
3,101,958 |
|
|
$ |
17.23 |
|
|
$ |
8.70 |
|
|
|
1,090,891 |
|
|
$ |
16.50 |
|
|
$ |
13.92 |
|
|
|
48,398 |
|
|
$ |
21.58 |
|
|
|
21.58 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 grants:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than market price
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
Equal to market price
|
|
|
1,909,502 |
|
|
|
22.75 |
|
|
|
7.43 |
|
|
|
1,461,300 |
|
|
|
22.84 |
|
|
|
7.42 |
|
|
|
120,540 |
|
|
|
21.72 |
|
|
|
21.72 |
|
|
More than market price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total 2005 grants
|
|
|
1,909,502 |
|
|
$ |
22.75 |
|
|
$ |
7.43 |
|
|
|
1,461,300 |
|
|
$ |
22.84 |
|
|
$ |
7.42 |
|
|
|
120,540 |
|
|
$ |
21.72 |
|
|
$ |
21.72 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Includes options granted under the LGI Incentive Plan, the LGI
Directors Incentive Plan, the Transitional Plan, the UGC
Director Plans, the UGC Employee Plan and the UGC Equity
Incentive Plan. |
|
(2) |
Includes grants made under the UGC Equity Incentive Plan and the
LGI Incentive Plan. |
II-135
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
The following tables summarize information about our stock
options, SARs and restricted stock at December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding | |
|
Options exercisable | |
|
|
| |
|
| |
|
|
|
|
Weighted average | |
|
Weighted | |
|
|
|
|
|
|
remaining | |
|
Average | |
|
|
|
Weighted | |
|
|
|
|
contractual life | |
|
Exercise | |
|
|
|
Average | |
Exercise Price Range |
|
Number | |
|
(years) | |
|
Price | |
|
Number | |
|
Exercise Price | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
LGI Series A common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ 7.83 $ 10.89
|
|
|
2,020,672 |
|
|
|
5.84 |
|
|
$ |
9.85 |
|
|
|
2,013,937 |
|
|
$ |
9.85 |
|
|
$ 13.13 $ 19.64
|
|
|
2,247,004 |
|
|
|
7.22 |
|
|
$ |
17.74 |
|
|
|
1,011,251 |
|
|
$ |
17.43 |
|
|
$ 23.21 $ 33.24
|
|
|
2,020,048 |
|
|
|
6.58 |
|
|
$ |
24.55 |
|
|
|
117,587 |
|
|
$ |
32.83 |
|
|
$ 39.34 $ 46.35
|
|
|
101,104 |
|
|
|
4.04 |
|
|
$ |
43.53 |
|
|
|
101,104 |
|
|
$ |
43.53 |
|
|
$ 71.83 $100.73
|
|
|
49,993 |
|
|
|
3.61 |
|
|
$ |
76.70 |
|
|
|
49,993 |
|
|
$ |
76.70 |
|
|
$132.91 $160.92
|
|
|
90,632 |
|
|
|
3.97 |
|
|
$ |
134.24 |
|
|
|
90,632 |
|
|
$ |
134.24 |
|
|
|
$204.12
|
|
|
2,585 |
|
|
|
4.23 |
|
|
$ |
204.12 |
|
|
|
2,585 |
|
|
$ |
204.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,532,038 |
|
|
|
6.47 |
|
|
$ |
19.95 |
|
|
|
3,387,089 |
|
|
$ |
18.38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LGI Series B common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ 19.85 $ 20.10
|
|
|
3,066,716 |
|
|
|
6.90 |
|
|
$ |
19.98 |
|
|
|
2,959,803 |
(1) |
|
$ |
19.98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LGI Series C common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ 7.42 $ 10.31
|
|
|
1,871,751 |
|
|
|
5.82 |
|
|
$ |
9.32 |
|
|
|
1,865,016 |
|
|
$ |
9.32 |
|
|
$ 12.42 $ 18.60
|
|
|
5,313,720 |
|
|
|
7.01 |
|
|
$ |
17.58 |
|
|
|
3,971,054 |
(2) |
|
$ |
17.73 |
|
|
$ 21.98 $ 31.46
|
|
|
2,020,048 |
|
|
|
6.58 |
|
|
$ |
23.24 |
|
|
|
117,587 |
|
|
$ |
31.07 |
|
|
$ 37.25 $ 43.88
|
|
|
101,104 |
|
|
|
4.04 |
|
|
$ |
41.21 |
|
|
|
101,104 |
|
|
$ |
41.21 |
|
|
$ 67.99 $ 95.35
|
|
|
49,993 |
|
|
|
3.61 |
|
|
$ |
72.60 |
|
|
|
49,993 |
|
|
$ |
72.60 |
|
|
$125.82 $152.33
|
|
|
90,632 |
|
|
|
3.97 |
|
|
$ |
127.08 |
|
|
|
90,632 |
|
|
$ |
127.08 |
|
|
|
$193.24
|
|
|
2,585 |
|
|
|
4.23 |
|
|
$ |
193.24 |
|
|
|
2,585 |
|
|
$ |
193.24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,449,833 |
|
|
|
6.60 |
|
|
$ |
18.80 |
|
|
|
6,197,971 |
|
|
$ |
17.95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
This amount includes 1,254,850 of Mr. Malones
unvested but exercisable Series B options at an exercise
price of $20.10 per share. |
|
(2) |
This amount includes 1,254,850 of Mr. Malones
unvested but exercisable Series C options at an exercise
price of $18.26 per share. |
II-136
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SARs outstanding | |
|
SARs exercisable | |
|
|
| |
|
| |
|
|
|
|
Weighted average | |
|
|
|
|
|
|
remaining | |
|
Weighted | |
|
|
|
Weighted | |
|
|
|
|
contractual life | |
|
average | |
|
|
|
average | |
Base Price Range |
|
Number | |
|
(years) | |
|
base price | |
|
Number | |
|
base price | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
LGI Series A common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ 6.84
|
|
|
1,731,102 |
|
|
|
7.77 |
|
|
$ |
6.84 |
|
|
|
139,345 |
|
|
$ |
6.84 |
|
|
$10.90 $15.09
|
|
|
2,195,858 |
|
|
|
7.79 |
|
|
|
11.22 |
|
|
|
347,864 |
|
|
|
11.44 |
|
|
$16.93 $19.64
|
|
|
879,364 |
|
|
|
8.83 |
|
|
|
18.19 |
|
|
|
126,806 |
|
|
|
18.07 |
|
|
$23.04 $27.10
|
|
|
1,461,300 |
|
|
|
6.55 |
|
|
|
24.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,267,624 |
|
|
|
7.64 |
|
|
$ |
14.00 |
|
|
|
614,015 |
|
|
$ |
11.76 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LGI Series C common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ 6.48
|
|
|
1,728,306 |
|
|
|
7.77 |
|
|
$ |
6.48 |
|
|
|
136,549 |
|
|
$ |
6.48 |
|
|
$10.31 $14.29
|
|
|
2,192,862 |
|
|
|
7.79 |
|
|
|
10.62 |
|
|
|
344,868 |
|
|
|
10.83 |
|
|
$16.02 $18.60
|
|
|
874,624 |
|
|
|
8.83 |
|
|
|
17.23 |
|
|
|
122,066 |
|
|
|
17.11 |
|
|
$21.59 $26.04
|
|
|
1,461,300 |
|
|
|
6.55 |
|
|
|
22.84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,257,092 |
|
|
|
7.64 |
|
|
$ |
13.25 |
|
|
|
603,483 |
|
|
$ |
11.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A total of 1,731,102 LGI Series A common stock capped SARs
and 1,728,306 LGI Series C common stock capped SARs are
included in the total SARs outstanding as of December 31,
2005. The holders of LGI Series A common stock capped SAR
will receive the difference between $6.84 and the lesser of
$10.90 or the market price of LGI Series A common stock on
the date of exercise. The holders of LGI Series C common
stock capped SARs will receive the difference between $6.48 and
the lesser of $10.31 or the market price of LGI Series C
common stock on the date of exercise.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock outstanding |
|
|
|
|
|
|
|
Weighted average |
|
|
|
|
|
|
remaining |
|
|
|
|
|
|
contractual life |
|
Weighted average |
Stock Price Range |
|
Number |
|
(years) |
|
stock price |
|
|
|
|
|
|
|
LGI Series A common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$21.87 $24.02
|
|
|
100,893 |
|
|
|
3.04 |
|
|
$ |
23.53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LGI Series B common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$22.23
|
|
|
59,270 |
|
|
|
4.00 |
|
|
$ |
22.23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LGI Series C common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$20.68 $22.73
|
|
|
159,260 |
|
|
|
3.39 |
|
|
$ |
21.68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liberty Jupiter, Inc. Stock Plan |
Four individuals, including one of our executive officers, an
officer of one of our subsidiaries and one of LMIs former
directors (who ceased being a director effective with the LGI
Combination), own an 18.75% common stock interest in Liberty
Jupiter, Inc., which owned an approximate 4.3% indirect interest
in J:COM at December 31, 2005. Under the amended and
restated shareholders agreement, the individuals can require us,
or we have the right at any time, to purchase all or part of
their common stock interest in exchange for LGI common stock at
its then-fair market value. Compensation charges with respect to
the interests held by the
II-137
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
aforementioned officers and former director were $1,930,000,
$6,318,000, and $1,164,000 in 2005, 2004 and 2003, respectively.
J:COM maintains subscription-rights option and stock purchase
warrant plans for certain directors and employees of
J:COMs consolidated managed franchises and for directors
and employees of J:COMs nonconsolidated managed franchises
and other non-employees. Pursuant to these plans, J:COMs
board of directors and shareholders approved the grant of
options to purchase J:COMs ordinary shares at an initial
exercise price of ¥92,000 ($810) per share. The exercise
price was subject to adjustment upon an effective IPO to the
lower of ¥92,000 per share or the IPO price. The
exercise price was adjusted during the first quarter of 2005 to
¥80,000 ($705) per share in connection with the
consummation of J:COMs IPO. For additional information
concerning J:COMs IPO, see note 5.
Non-management employees vest two years from the date of grant,
unless their individual grant agreements provide otherwise.
Management employees vest in four equal installments from date
of grant, unless their individual grant agreements provide
otherwise. At December 31, 2005, the remaining weighted
average vesting period for J:COMs outstanding options was
0.77 years. These options generally expire 10 years
from date of grant, currently ranging from August 23, 2010
to August 23, 2012. As of December 31, 2005, J:COM has
granted the maximum number of options under existing authorized
plans.
J:COM has accounted for awards granted to its consolidated
managed franchises directors, employees and others under
APB No. 25 and FIN No. 44. Based on J:COMs
estimated fair value per ordinary share, there was no intrinsic
value at the date of grant under the plans. As the exercise
price at the date of grant was uncertain, the plans were
considered variable awards.
A summary of the J:COM subscription-rights options and stock
purchase warrants activity in 2005 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average | |
|
|
Number | |
|
Exercise Price | |
|
|
| |
|
| |
Outstanding at January 1, 2005
|
|
|
213,076 |
|
|
|
¥92,000 |
|
Granted
|
|
|
|
|
|
|
NA |
|
Canceled
|
|
|
(23,914 |
) |
|
|
82,034 |
|
Exercised
|
|
|
(11,658 |
) |
|
|
80,000 |
|
|
|
|
|
|
|
|
Outstanding at December 31, 2005
|
|
|
177,504 |
|
|
|
¥80,141 |
|
|
|
|
|
|
|
|
Exercisable at December 31, 2005
|
|
|
142,701 |
|
|
|
¥80,176 |
|
|
|
|
|
|
|
|
The following table summarizes certain information concerning
the shares underlying J:COMs outstanding employee and
non-employee stock options and warrants at December 31,
2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding | |
|
Options exercisable | |
|
|
| |
|
| |
|
|
|
|
Weighted | |
|
|
|
|
|
|
|
|
average | |
|
Weighted | |
|
|
|
Weighted | |
|
|
|
|
remaining | |
|
average | |
|
|
|
average | |
|
|
|
|
contractual life | |
|
exercise | |
|
|
|
exercise | |
Exercise Price Range |
|
Number | |
|
(years) | |
|
price | |
|
Number | |
|
price | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
J:COM plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
¥80,000 ¥92,000
|
|
|
177,504 |
|
|
|
5.88 |
|
|
|
¥80,141 |
|
|
|
142,701 |
|
|
|
¥80,176 |
|
II-138
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
|
|
|
Austar Stock Option Plans |
At December 31, 2005, Austar had 50,000 options outstanding
to purchase ordinary shares at an exercise price of $4.70.
Options granted under Austars stock option plan generally
vest over four years and expire ten years from the date of
grant. All options outstanding at December 31, 2005 were
fully vested and exercisable and expire in 2009. No additional
options are expected to be issued pursuant to this plan.
Prior to our acquisition of a controlling interest in Austar on
December 14, 2005, Austar had implemented compensatory
plans that provided for the purchase of Austar Class A and
Class B shares by senior management at various prices and
the conversion of the purchased shares into Austar ordinary
shares, subject to vesting schedules. At December 31, 2005,
Austar senior management had purchased Class A and
Class B shares that had not been converted into ordinary
shares aggregating 20,840,817 and 54,025,795, respectively. All
of the Class A shares and none of the Class B shares
are vested.
|
|
(15) |
Related Party Transactions |
|
|
|
Related Party Transactions of LGI and UGC |
The related party transactions discussed in this section exclude
amounts related to J:COM related party transactions, which are
discussed separately below.
Related party revenue of LGI and its consolidated subsidiaries
other than J:COM (including UGC for 2005 and 2004) was
$12,145,000, $8,177,000 and $862,000 during the years ended
December 31, 2005, 2004 and 2003, respectively, which
consisted primarily of management, advisory and programming
license fees, call center charges and fees for uplink services
charged to our equity method affiliates. Related party operating
expenses of LGI and its consolidated subsidiaries other than
J:COM (including UGC for 2005 and 2004) were $26,223,000 and
$19,645,000 during the years ended December 31, 2005 and
2004, respectively, which consisted primarily of programming
costs and interconnect fees charged by equity method affiliates.
Prior to the LGI Combination, Liberty Media may have been deemed
to be an affiliate of LMI by virtue of John C. Malones
voting power in Liberty Media and LMI, as well as his positions
as Chairman of the Board of Liberty Media and Chairman of the
Board, Chief Executive Officer and President of LMI, and the
fact that six of LMIs eight directors were also directors
of Liberty Media. As a result of (i) the dilution of
Mr. Malones voting power, (ii) his ceasing to be
our Chief Executive Officer and President and (iii) a
reduction in the number of common directors between LGI and
Liberty Media that has occurred in connection with the LGI
Combination, we believe that Liberty Media is not currently an
affiliate of our company. Accordingly, transactions with Liberty
Media or its subsidiaries that occurred after the LGI
Combination are not disclosed below.
During the 2004 period prior to the spin off, a subsidiary of
our company borrowed $116,666,000 from Liberty Media pursuant to
certain notes payable. Interest expense accrued on the amounts
borrowed pursuant to such notes payable was $1,534,000 in 2004.
In connection with the spin off, Liberty Media also entered into
a Short-Term Credit Facility with our company. Pursuant to the
Short-Term Credit Facility, Liberty Media 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 2004, all
amounts due to Liberty Media under the notes payable were repaid
with proceeds from the LMI Rights Offering and the Short-Term
Credit Facility was terminated.
For periods prior to the spin off, corporate expenses were
allocated from Liberty Media to us based upon the cost of
general and administrative services provided. We believe such
allocations were reasonable and
II-139
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
materially approximated 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 $10,873,000 in 2004 and 2003, respectively. The 2004 amount
includes costs associated with the spin off aggregating
$2,952,000. Pursuant to the Reorganization Agreement (see
note 2), we and Liberty Media each agreed to pay 50% of
such spin off costs. Excluding our share of such spin off costs,
the intercompany amounts owed to Liberty Media as a result of
these allocations were contributed to our equity in connection
with the spin off. The amounts allocated by Liberty Media are
included in SG&A expenses in our consolidated statements of
operations.
In connection with the spin off, we and Liberty Media entered
into a Facilities and Services Agreement that sets forth the
terms that apply to services and other benefits provided by
Liberty Media to us following the spin off. Pursuant to the
Facilities and Services Agreement, Liberty Media provided us
with office space and certain general and administrative
services including legal, tax, accounting, treasury, engineering
and investor relations support. We reimbursed Liberty Media for
direct, out-of-pocket
expenses incurred by Liberty Media 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 $1,254,000
for the 2005 period ended on June 15, 2005 (the date of the
LGI Combination) and $1,324,000 for the period from the Spin Off
Date through December 31, 2004 and are included in SG&A
expenses in our consolidated statements of operations. Although
we continue to lease office space from Liberty Media, we no
longer receive any other significant services from Liberty Media.
Prior to the spin off, Liberty Media transferred to our company
a 25% ownership interest in two of Liberty Medias
aircraft. In connection with the transfer, we and Liberty Media
entered into certain agreements pursuant to which, among other
things, we and Liberty Media share the costs of Liberty
Medias 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 $231,000 and $230,000 for the
2005 period ended on June 15, 2005 (the date of the LGI
Combination) and the period from the Spin Off Date through
December 31, 2004, respectively, and are included in
SG&A expenses in our consolidated statements of operations.
Other agreements between our company and Liberty Media that were
entered into in connection with the spin off include the
Reorganization Agreement (see note 2) and the Tax Sharing
Agreement (see note 12).
During 2005, 2004 and 2003, we recognized interest income from
equity method affiliates (including J:COM in 2004 and both J:COM
and UGC in 2003) and other related parties aggregating $57,000,
$11,166,000 and $18,180,000, respectively. See note 6. In
2004 and 2003, we recognized income from guarantee fees charged
to J:COM aggregating $641,000 and $244,000, respectively.
Related Party
Transactions of J:COM
J:COM provides programming, construction, management and
distribution services to its managed affiliates. In addition,
J:COM sells construction materials to such affiliates, provides
distribution services to other LGI affiliates and receives
distribution fees from Jupiter TV. The revenue from affiliates
for such services provided, the related materials sold and
distribution fees received amounted to ¥6,233 million
($56,762,000 at the average exchange rate for the period) during
the year ended December 31, 2005.
J:COM purchases certain cable television programming from
Jupiter TV and other affiliates. Such purchases amounted to
¥4,690 million ($42,711,000 at the average exchange
rate) during the year ended December 31, 2005.
II-140
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
J:COM pays monthly fees to a certain equity method affiliate for
Internet provisioning services based on an agreed-upon
percentage of subscription revenue collected by J:COM from its
customers. Payments made to the affiliate under these
arrangements amounted to ¥3,235 million ($29,460,000
at the average exchange rate for the period) during the year
ended December 31, 2005. This amount is included in
operating costs in our consolidated statements of operations.
J:COM has management service agreements with Sumitomo under
which officers and management level employees are seconded from
Sumitomo to J:COM, whose services are charged as service fees to
J:COM based on their payroll costs. The service fees paid to
Sumitomo amounted to ¥895 million ($8,151,000 at the
average exchange rate for the period) during the year ended
December 31, 2005. This amount is included in SG&A
expenses in our consolidated statements of operations.
J:COM leases, primarily in the form of capital leases, customer
premise equipment, various office equipment and vehicles from
two Sumitomo subsidiaries and an affiliate of Sumitomo. The
aggregate amount of new lease obligations entered into during
the year ended December 31, 2005 amounted to
¥15,850 million ($144,342,000 at the average exchange
rate for the period). Interest expense related to assets leased
from these Sumitomo entities was ¥1,041 million
($9,480,000) during the year ended December 31, 2005.
As discussed in more detail in note 5, on February 25,
2005, J:COM completed a transaction with Sumitomo, Microsoft and
our company whereby J:COM paid aggregate cash consideration of
¥4,420 million ($41,932,000 at February 25, 2005)
to acquire each entities respective interests in Chofu
Cable, and to acquire from Microsoft equity interests in certain
telecommunications companies.
|
|
(16) |
Transactions with Officers |
Prior to March 2, 2005, Liberty Media owned an indirect
78.2% economic and non-voting interest in VLG Argentina LLC (VLG
Argentina), an entity that owned a 50% interest in
Cablevisión, the largest cable television company in
Argentina. VLG Acquisition Corp. (VLG Acquisition), an entity in
which neither Liberty Media nor our company has any ownership
interests, owned the remaining 21.8% economic interest and all
of the voting power in VLG Argentina. A former executive officer
and an officer of our company, each of whom was then an officer
of LMI, were shareholders of VLG Acquisition. Prior to joining
our company, they sold their equity interests in VLG Acquisition
to the remaining shareholder, but each retained a contractual
right to 33% of any proceeds in excess of $100,000 from the sale
of VLG Acquisitions interest in VLG Argentina, or from
distributions to VLG Acquisition by VLG Argentina in connection
with a sale of VLG Argentinas interest in
Cablevisión. Although we have no direct or indirect equity
interest in Cablevisión, we had the right and obligation
pursuant to Cablevisións debt restructuring agreement
to contribute $27,500,000 to Cablevisión in exchange for
newly issued Cablevisión shares representing approximately
40.0% of Cablevisións fully diluted equity (the
Subscription Right).
On November 2, 2004, a subsidiary of our company, Liberty
Media, VLG Acquisition and the then sole shareholder of VLG
Acquisition entered into an agreement with a third party to
transfer all of the equity in VLG Argentina and all of our
rights and obligations with respect to the Subscription Right to
the third party for aggregate consideration of $65 million.
This agreement provided that $40,527,000 of such proceeds would
be allocated to our company for the Subscription Right. We
received 50% of such proceeds as a down payment in November 2004
and we received the remainder in March 2005. We recognized a
gain of $40,527,000 during the three months ended March 31,
2005 in connection with the closing of this transaction.
As a result of the foregoing transactions, the former executive
officer and the officer of our company who retained the
above-described contractual rights with respect to VLG
Acquisition received aggregate cash
II-141
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
distributions of $7.3 million in respect of such rights
during the fourth quarter of 2004 and the first quarter of 2005.
(17) Restructuring Charges
A summary of our restructuring charge activity in 2005 is set
forth in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Programming and | |
|
|
|
|
|
|
Employee severance | |
|
Office | |
|
lease contract | |
|
|
|
|
|
|
and termination | |
|
closures | |
|
termination | |
|
Other | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
amounts in thousands | |
Restructuring liability as of January 1, 2005
|
|
$ |
10,623 |
|
|
$ |
29,925 |
|
|
$ |
30,528 |
|
|
$ |
1,522 |
|
|
$ |
72,598 |
|
|
Restructuring charges (credits)
|
|
|
4,180 |
|
|
|
(8,590 |
) |
|
|
4,335 |
|
|
|
(1,026 |
) |
|
|
(1,101 |
) |
|
Cash paid
|
|
|
(14,838 |
) |
|
|
(4,084 |
) |
|
|
(4,759 |
) |
|
|
(1,314 |
) |
|
|
(24,995 |
) |
|
Acquisitions and other
|
|
|
15,033 |
|
|
|
(656 |
) |
|
|
359 |
|
|
|
9,362 |
|
|
|
24,098 |
|
|
Foreign currency translation adjustments
|
|
|
(892 |
) |
|
|
(3,186 |
) |
|
|
(167 |
) |
|
|
842 |
|
|
|
(3,403 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring liability as of December 31, 2005
|
|
$ |
14,106 |
|
|
$ |
13,409 |
|
|
$ |
30,296 |
|
|
$ |
9,386 |
|
|
$ |
67,197 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term portion
|
|
$ |
10,596 |
|
|
$ |
2,345 |
|
|
$ |
4,652 |
|
|
$ |
9,386 |
|
|
$ |
26,979 |
|
Long-term portion
|
|
|
3,510 |
|
|
|
11,064 |
|
|
|
25,644 |
|
|
|
|
|
|
|
40,218 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
14,106 |
|
|
$ |
13,409 |
|
|
$ |
30,296 |
|
|
$ |
9,386 |
|
|
$ |
67,197 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In June 2005, the Europe Broadband corporate offices made the
decision to occupy certain office space that had been previously
exited by its operations in The Netherlands. As a result of this
decision, the restructuring liability has been reduced by
approximately
6,200,000
($7,703,000 at the average rate during the period). In
connection with our acquisition of Cablecom in October 2005 and
VTRs acquisition of a controlling interest in
Metrópolis in April 2005, restructuring liabilities of
$9,456,000 and $10,217,000, respectively, were recorded to
provide for the cost of terminating certain executive management
and other redundant employees of the target companies, and in
the case of Metrópolis, to also provide for the cost to
remove Metrópolis redundant broadband distribution
systems. In addition, certain of our other acquisitions during
2005 resulted in additions to our restructuring liability.
II-142
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
A summary of UGCs restructuring charge activity in 2004 is
set forth in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Programming and | |
|
|
|
|
|
|
Employee severance | |
|
Office | |
|
lease contract | |
|
|
|
|
|
|
and termination | |
|
closures | |
|
termination | |
|
Other | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
amounts in thousands | |
Restructuring liability as of January 1, 2004
|
|
$ |
8,405 |
|
|
$ |
16,821 |
|
|
$ |
34,399 |
|
|
$ |
2,442 |
|
|
$ |
62,067 |
|
|
Restructuring charges
|
|
|
8,176 |
|
|
|
16,862 |
|
|
|
|
|
|
|
794 |
|
|
|
25,832 |
|
|
Cash paid
|
|
|
(6,938 |
) |
|
|
(5,741 |
) |
|
|
(7,566 |
) |
|
|
(1,057 |
) |
|
|
(21,302 |
) |
|
Foreign currency translation adjustments
|
|
|
980 |
|
|
|
1,983 |
|
|
|
3,695 |
|
|
|
(657 |
) |
|
|
6,001 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring liability as of December 31, 2004
|
|
$ |
10,623 |
|
|
$ |
29,925 |
|
|
$ |
30,528 |
|
|
$ |
1,522 |
|
|
$ |
72,598 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term portion
|
|
$ |
4,973 |
|
|
$ |
5,271 |
|
|
$ |
3,817 |
|
|
$ |
345 |
|
|
$ |
14,406 |
|
Long-term portion
|
|
|
5,650 |
|
|
|
24,654 |
|
|
|
26,711 |
|
|
|
1,177 |
|
|
|
58,192 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
10,623 |
|
|
$ |
29,925 |
|
|
$ |
30,528 |
|
|
$ |
1,522 |
|
|
$ |
72,598 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In May and September 2004, we recorded an aggregate charge of
$5,690,000 for severance benefits as a result of a restructuring
plan to change the management structure of our operations in The
Netherlands from a three-region model to a centralized
management organization, eliminating certain redundancies and
vacating space under an office lease. In December 2004, we
changed our estimate regarding the timing and amount of
sub-lease income related to a restructuring plan that was
finalized in 2001. While the office space under lease remains
vacated, we have been unable to sub-lease this space and cannot
predict that it will be able to for the foreseeable future.
Accordingly, the restructuring liability has been adjusted by
approximately $15,970,000 to reflect our best estimate regarding
future sub-lease income for the vacated property. The remaining
$4,172,000 of restructuring charges in 2004 related to various
redundancy eliminations and other streamlining efforts in Europe.
|
|
(18) |
Defined Benefit Plans |
Our indirect subsidiary, Cablecom, maintains various pension
plans for its employees. The plans are treated as defined
benefit pension plans under U.S. GAAP. Annual service cost
for the employee benefit plans is determined using the projected
unit credit actuarial method, and prior service cost is
amortized on a straight-line basis over the average remaining
service period of the employees. As a result of the application
of the purchase method of accounting effective October 31,
2005, all unrecognized prior service costs and actuarial gains
and losses were eliminated.
Cablecom has established and maintains an investment policy for
assets. The investment strategies are long-term in nature and
designed to meet the following objectives:
|
|
|
Ensure that funds are available to pay benefits as they become
due; |
|
|
Maximize the trusts total returns subject to prudent risk
taking; and |
|
|
Preserve and/or improve the funded status of the trusts over
time. |
Allocations to real estate will occur over multiple time
periods. Assets targeted to real estate, but not yet allocated,
will be invested in fixed income securities with corresponding
adjustments to fixed income rebalancing guidelines.
II-143
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
Cablecom reviews the asset mix of the funds on a regular basis.
Generally, each funds asset mix will be rebalanced to the
target mix as individual portfolios approach their minimum or
maximum levels.
The following is a summary of the funded status of the pension
plans for the period October 31, 2005 through
December 31, 2005 (amounts in thousands):
|
|
|
|
|
|
Projected benefit obligation at beginning of period
|
|
$ |
135,573 |
|
|
Service cost
|
|
|
1,301 |
|
|
Interest cost
|
|
|
1,412 |
|
|
Actuarial loss
|
|
|
104 |
|
|
Plan participants contributions
|
|
|
1,233 |
|
|
Benefits paid
|
|
|
(844 |
) |
|
Effect of change in exchange rate
|
|
|
(2,571 |
) |
|
|
|
|
Projected benefit obligation at end of period
|
|
$ |
136,208 |
|
|
|
|
|
Accumulated benefit obligation at end of period
|
|
$ |
127,142 |
|
|
|
|
|
Fair value of plan assets at beginning of period
|
|
$ |
102,761 |
|
|
Actual return on plan assets
|
|
|
1,257 |
|
|
Group contributions
|
|
|
1,667 |
|
|
Plan participants contributions
|
|
|
1,233 |
|
|
Benefits paid
|
|
|
(844 |
) |
|
Effect of change in exchange rate
|
|
|
(1,953 |
) |
|
|
|
|
Fair value of plan assets at end of period
|
|
$ |
104,121 |
|
|
|
|
|
Funded status of the plan
|
|
|
|
|
|
Funded status of the plan
|
|
$ |
(32,087 |
) |
|
Unrecognized net actuarial losses
|
|
|
58 |
|
|
|
|
|
|
Net liability in the balance sheet
|
|
$ |
(32,029 |
) |
|
|
|
|
Cablecom cancelled its contract with its multi-employer pension
fund effective December 31, 2005 and introduced its own
pension fund on January 1, 2006. The effect of the change
was reflected in the application of the purchase method of
accounting effective October 31, 2005, as the pension plan
change was contemplated prior to our companys acquisition
of Cablecom.
The measurement date used to determine pension plan assumptions
was October 31, 2005. The actuarial assumptions used to
compute the net periodic pension cost are based upon information
available as of the beginning of the period, specifically market
interest rates, past experience and managements best
estimate of future economic conditions. Changes in these
assumptions may impact future benefit costs and obligations. In
computing future costs and obligations, Cablecom must make
assumptions about such items as employee mortality and turnover,
expected salary and wage increases, discount rate, expected
long-term rate of return on plan assets, and expected future
cost increases.
II-144
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
Annually, Cablecom sets its discount rate based upon the yields
on high-quality fixed-income investments available at the
measurement date and expected to be available during the period
to maturity of the pension benefits.
The expected rate of return on plan assets is the long-term rate
of return Cablecom expects to earn on trust assets. The rate of
return is determined by the investment composition of the plan
assets and the long term risk and return forecast for each asset
category. The forecasts for each asset class are generated using
historical information as well as an analysis of current and
expected market conditions. The expected risk and return
characteristics for each asset class are reviewed annually and
revised, as necessary, to reflect changes in the financial
markets. To compute the expected return on plan assets, Cablecom
applies an expected rate of return to the fair value of the plan
assets.
The weighted average assumptions used in determining benefit
obligations were as follows:
|
|
|
|
|
Expected rate of salary increase
|
|
|
2.00 |
% |
Discount rate
|
|
|
3.25 |
% |
Return on plan assets
|
|
|
4.50 |
% |
The net periodic benefit cost recorded in the consolidated
statement of operations consisted of the following components
for the period October 31, 2005 through December 31,
2005 (amounts in thousands):
|
|
|
|
|
|
Service cost
|
|
$ |
1,301 |
|
Interest cost
|
|
|
1,412 |
|
Expected return on plan assets
|
|
|
(1,215 |
) |
Other expense
|
|
|
(42 |
) |
|
|
|
|
|
Net periodic pension cost
|
|
$ |
1,456 |
|
|
|
|
|
Plan assets were comprised of the following instruments at
December 31, 2005:
|
|
|
|
|
Debt securities
|
|
|
52 |
% |
Equity securities
|
|
|
27 |
% |
Real estate
|
|
|
18 |
% |
Other
|
|
|
3 |
% |
|
|
|
|
|
|
|
100 |
% |
|
|
|
|
The target asset mix established for the plan is as follows:
|
|
|
|
|
Equity CHF
|
|
|
13 |
% |
Equity foreign
|
|
|
18 |
% |
Debt bonds CHF
|
|
|
33 |
% |
Debt, bonds foreign
|
|
|
17 |
% |
Real estate
|
|
|
10 |
% |
Hedge funds
|
|
|
4 |
% |
Commodities
|
|
|
3 |
% |
Cash
|
|
|
2 |
% |
|
|
|
|
|
|
|
100 |
% |
|
|
|
|
II-145
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
The expected benefits to be paid by Cablecom in respect of
pensions at December 31, 2005 were as follows (amounts in
thousands):
|
|
|
|
|
2006
|
|
$ |
2,569 |
|
2007
|
|
$ |
2,687 |
|
2008
|
|
$ |
2,804 |
|
2009
|
|
$ |
3,170 |
|
2010
|
|
$ |
3,635 |
|
2011 2015
|
|
$ |
25,481 |
|
|
|
(19) |
Other Comprehensive Earnings (Loss) |
Accumulated other comprehensive earnings (loss) included in our
companys consolidated balance sheets and statements of
stockholders equity reflect the aggregate of foreign
currency translation adjustments, unrealized holding gains and
losses on securities classified as available-for-sale and
unrealized gains on cash flow hedges. The change in the
components of accumulated other comprehensive earnings (loss),
net of taxes, is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign | |
|
|
|
|
|
|
|
|
currency | |
|
Unrealized gains | |
|
Unrealized gains | |
|
Other | |
|
|
translation | |
|
(losses) on | |
|
on cash flow | |
|
comprehensive | |
|
|
adjustment | |
|
securities | |
|
hedges | |
|
earnings (loss) | |
|
|
| |
|
| |
|
| |
|
| |
|
|
amounts in thousands | |
Balance at December 31, 2002
|
|
$ |
(276,703 |
) |
|
$ |
16,249 |
|
|
$ |
|
|
|
$ |
(260,454 |
) |
|
Other comprehensive earnings
|
|
|
102,294 |
|
|
|
111,594 |
|
|
|
|
|
|
|
213,888 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2003
|
|
|
(174,409 |
) |
|
|
127,843 |
|
|
|
|
|
|
|
(46,566 |
) |
|
Other comprehensive earnings (loss)
|
|
|
129,141 |
|
|
|
(122,292 |
) |
|
|
|
|
|
|
6,849 |
|
|
Effect of change in estimated blended state income tax rate
(note 12)
|
|
|
2,222 |
|
|
|
523 |
|
|
|
|
|
|
|
2,745 |
|
|
Spin off transaction (note 2)
|
|
|
|
|
|
|
50,982 |
|
|
|
|
|
|
|
50,982 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004
|
|
|
(43,046 |
) |
|
|
57,056 |
|
|
|
|
|
|
|
14,010 |
|
|
Other comprehensive earnings (loss)
|
|
|
(244,045 |
) |
|
|
(36,932 |
) |
|
|
4,875 |
|
|
|
(276,102 |
) |
|
Effect of change in estimated blended state income tax rate
(note 12)
|
|
|
(608 |
) |
|
|
(189 |
) |
|
|
|
|
|
|
(797 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005
|
|
$ |
(287,699 |
) |
|
$ |
19,935 |
|
|
$ |
4,875 |
|
|
$ |
(262,889 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of other comprehensive earnings (loss) are
reflected in our companys consolidated statements of
comprehensive earnings (loss), net of taxes. The following table
summarizes the tax effects
II-146
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
related to each component of other comprehensive earnings
(loss), net of amounts reclassified to our statements of
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before-tax | |
|
Tax benefit | |
|
Net-of-tax | |
|
|
amount | |
|
(expense) | |
|
amount | |
|
|
| |
|
| |
|
| |
|
|
amounts in thousands | |
Year ended December 31, 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
$ |
168,239 |
|
|
$ |
(65,945 |
) |
|
$ |
102,294 |
|
|
Unrealized holding gains
|
|
|
182,941 |
|
|
|
(71,347 |
) |
|
|
111,594 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive earnings
|
|
$ |
351,180 |
|
|
$ |
(137,292 |
) |
|
$ |
213,888 |
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
$ |
133,729 |
|
|
$ |
(4,588 |
) |
|
$ |
129,141 |
|
|
Unrealized holding losses
|
|
|
(209,961 |
) |
|
|
87,669 |
|
|
|
(122,292 |
) |
|
Effect of change in estimated blended state income tax rate
(note 12)
|
|
|
|
|
|
|
2,745 |
|
|
|
2,745 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive earnings (loss)
|
|
$ |
(76,232 |
) |
|
$ |
85,826 |
|
|
$ |
9,594 |
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
$ |
(236,837 |
) |
|
$ |
(7,208 |
) |
|
$ |
(244,045 |
) |
|
Unrealized holding losses
|
|
|
(58,645 |
) |
|
|
21,713 |
|
|
|
(36,932 |
) |
|
Unrealized gains on cash flow hedges
|
|
|
4,875 |
|
|
|
|
|
|
|
4,875 |
|
|
Effect of change in estimated blended state income tax rate
(note 12)
|
|
|
|
|
|
|
(797 |
) |
|
|
(797 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss
|
|
$ |
(290,607 |
) |
|
$ |
13,708 |
|
|
$ |
(276,899 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
(20) |
Commitments and Contingencies |
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, satellite carriage commitments, purchases
of customer premise equipment, construction activities, network
maintenance, and upgrade and other commitments arising from our
agreements with local franchise authorities. We expect that in
the normal course of business, operating leases that expire
generally will be renewed or replaced by similar leases. As of
December 31, 2005, the U.S. dollar equivalents (based
on December 31, 2005 exchange rates) of such commitments
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due during | |
|
|
|
|
|
|
| |
|
|
|
|
|
|
2006 | |
|
2007 | |
|
2008 | |
|
2009 | |
|
2010 | |
|
Thereafter | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
amounts in thousands | |
Operating leases
|
|
$ |
122,419 |
|
|
$ |
107,990 |
|
|
$ |
80,456 |
|
|
$ |
60,935 |
|
|
$ |
49,876 |
|
|
$ |
163,538 |
|
|
$ |
585,214 |
|
Programming, satellite and other purchase obligations
|
|
|
252,575 |
|
|
|
78,553 |
|
|
|
39,438 |
|
|
|
18,740 |
|
|
|
9,441 |
|
|
|
60,008 |
|
|
|
458,755 |
|
Other commitments
|
|
|
143,111 |
|
|
|
16,164 |
|
|
|
6,485 |
|
|
|
4,563 |
|
|
|
4,447 |
|
|
|
10,129 |
|
|
|
184,899 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
518,105 |
|
|
$ |
202,707 |
|
|
$ |
126,379 |
|
|
$ |
84,238 |
|
|
$ |
63,764 |
|
|
$ |
233,675 |
|
|
$ |
1,228,868 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
II-147
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
Programming commitments consist of obligations associated with
certain of our programming contracts that are enforceable and
legally binding on us in that we have agreed to pay minimum
fees, regardless of the actual number of subscribers to the
programming services or whether we terminate cable service to a
portion of our subscribers or dispose of a portion of our cable
systems. Satellite commitments consist of obligations associated
with satellite services provided to our company. Other purchase
obligations include commitments to purchase customer premise
equipment that are enforceable and legally binding on us.
Other commitments consist of commitments to rebuild or upgrade
cable systems and to extend the cable network to new
developments, and perform network maintenance, and other fixed
minimum contractual commitments associated with our agreements
with franchise or municipal authorities. The amount and timing
of the payments included in the table with respect to our
rebuild, upgrade and network extension commitments are estimated
based on the remaining capital required to bring the cable
distribution system into compliance with the requirements of the
applicable franchise agreement specifications.
In addition to the commitments set forth in the table above, we
have commitments under agreements with programming vendors,
franchise authorities and municipalities, and other third
parties pursuant to which we expect to make payments in future
periods. Such amounts are not included in the above table
because they are not fixed or determinable due to various
factors.
Rental expense under non-cancelable operating lease arrangements
amounted to $148,667,000, $88,588,000, and $2,934,000 in 2005,
2004 and 2003, respectively. It is expected that in the normal
course of business, operating leases that expire generally will
be renewed or replaced by similar leases.
We have established various defined contribution benefit plans
for our employees. The aggregate expense for matching
contributions under our various defined contribution employee
benefit plans was $20,721,000, $15,536,000 and $261,000 in 2005,
2004 and 2003, respectively.
Our equity method investment in Mediatti is owned by our
consolidated subsidiary, Liberty Japan MC, LLC (Liberty Japan
MC). Another shareholder of Mediatti, Olympus Capital Holdings
Asia I, L.P. and its affiliates who own Mediatti shares
(Olympus), has a put right that is first exercisable during July
2008 to require Liberty Japan MC to purchase all of its Mediatti
shares at fair value. If Olympus exercises such right, the two
minority shareholders who are party to the shareholders
agreement may also require Liberty Japan MC to purchase their
Mediatti shares at fair value. If Olympus does not exercise such
right, Liberty Japan MC has a call right that is first
exercisable during July 2009 to require Olympus and the minority
shareholders to sell their Mediatti shares to Liberty Japan MC
at the then fair value. If both the Olympus put right and the
Liberty Japan MC call right expire without being exercised
during the first exercise period, either may thereafter exercise
its put or call right, as applicable, until October 2010.
Pursuant to the agreement with CPE governing Belgian Cable
Investors, CPE has the right to require BCH to purchase all of
CPEs 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. BCH has the corresponding right to require CPE to sell all
of its interest in Belgian Cable Investors to BCH for appraised
fair value during the first 30 days of every six-month
period following December 2009. For additional information, see
note 6.
As further described in note 5, Zone Visions
Class B1 shareholders have the right, subject to
vesting, to put 60% and 100% of their Class B1 shares
to chellomedia on January 7, 2008 and January 7, 2010,
respectively. chellomedia has a corresponding call right.
II-148
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
In connection with the April 13, 2005 combination of VTR
and Metrópolis, CCC acquired an option to require UGC to
purchase CCCs equity interest in VTR at fair value,
subject to a $140 million floor price. This option is
exercisable by CCC beginning on April 13, 2006 and expires
on April 13, 2015. We have reflected the $7,997,000 fair
value of this put obligation at December 31, 2005 in other
current liabilities in our consolidated balance sheet. For
additional information, see note 8.
|
|
|
Guarantees and Other Credit Enhancements |
At December 31, 2005, J:COM guaranteed
¥11,074 million ($93,887,000) of the debt of certain
of its affiliates. The debt maturities range from 2007 to 2017.
In the ordinary course of business, we have provided
indemnifications to (i) purchasers of certain of our
assets, (ii) our lenders, (iii) our vendors and
(iv) other parties. In addition, we have provided
performance and/or financial guarantees to local municipalities,
our customers and vendors. Historically, these arrangements have
not resulted in our company making any material payments and we
do not believe that they will result in material payments in the
future.
|
|
|
Legal Proceedings and Other Contingencies |
Cignal On April 26, 2002, United Pan
Europe Communications, N.V. (UPC), the parent of UPC Holding,
received a notice that certain former shareholders of Cignal
Global Communications (Cignal) filed a lawsuit against UPC in
the District Court of 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
IPO 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 IPO. On May 4, 2005, the court rendered its decision,
dismissing all claims of the former Cignal shareholders. On
August 2, 2005, an appeal against the district court
decision was filed. Subsequently when the grounds of appeal were
filed in November 2005, only damages suffered by nine individual
plaintiffs, rather than all former Cignal shareholders,
continued to be claimed. Based on the share ownership
information provided by the plaintiffs, the damage claims
remaining subject to the litigation are approximately
$28 million in the aggregate before statutory interest. The
remaining former Cignal shareholders may initiate separate
proceedings prior to the expiration of the statute of
limitations.
Class Action Lawsuits Relating to the LGI
Combination Since January 18, 2005,
twenty-one lawsuits have been filed in the Delaware Court of
Chancery and one lawsuit in the Denver District Court, State of
Colorado, all purportedly on behalf of UGCs public
stockholders, regarding the announcement on January 18,
2005 of the execution by UGC and LMI of the agreement and plan
of merger for the combination of the two companies under LGI.
The defendants named in these actions include UGC, former
directors of UGC, and 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, approved an
unfair price, and impeded or discouraged other offers for UGC or
its assets in bad faith and for improper motives. The complaints
seek various remedies, including damages for the public holders
of UGCs stock and an award of attorneys fees to
plaintiffs counsel. On February 11, 2005, the
Delaware Court of Chancery consolidated all twenty-one Delaware
lawsuits into a single action. Also, on April 20, 2005, the
Denver District Court, State of Colorado, issued an order
granting a joint stipulation for stay of the action filed in
this court pending the final resolution of the consolidated
action
II-149
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
in Delaware. On May 5, 2005, the plaintiffs in the Delaware
action filed a consolidated amended complaint containing
allegations substantially similar to those found in and naming
the same defendants named in the original complaints. The
defendants filed their answers to the consolidated amended
complaint on September 30, 2005. The parties are proceeding
with pre-trial discovery activity. The defendants believe that a
fair process was followed and a fair price was paid to the
public stockholders of UGC in connection with the LGI
Combination and intend to vigorously defend this action.
The Netherlands Rate Increases On
September 28, 2005, the Dutch competition authority, NMA,
informed UPC Nederland B.V. (UPC NL), our Dutch subsidiary, that
it had closed its investigation with respect to the price
increases for our analog video services in 2003-2005. The NMA
concluded that the price increases were not excessive and
therefore we did not abuse our dominant position in the analog
video services market. This decision was, for six weeks, open
for appeal by parties who could show they had an interest in the
matter. The incumbent telecommunications operator submitted an
appeal. UPC NL is objecting to the admissibility of this appeal.
The NMA is expected to make a decision during the first quarter
of 2006.
Historically, in many parts of The Netherlands, UPC NL is a
party to contracts with local municipalities that seek to
control aspects of its 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 with certain municipalities resisting UPC
NLs attempts to move away from the contracts.
The Netherlands Regulatory Developments As
part of the process of implementing certain directives
promulgated by the European Union in 2003, the Dutch national
regulatory authority (OPTA) has been analyzing eighteen
markets predefined in the directives and an additional
nineteenth market relating to the retail delivery of radio and
television packages to determine if any operator or service
provider has significant market power within the
meaning of the EU directives. In November 2005, the Commission
of European Communities (EC Commission) announced its approval
of OPTAs draft decision notified in September 2005 with
respect to the wholesale broadcast market finding that UPC NL
has significant market power in the distribution of both
free-to-air and pay
television programming. As a result, OPTA may require us to
provide access to content providers and packagers that seek to
distribute content over our network using their own conditional
access platforms, which content is not already part of our own
basic tier television offering. This access must be offered on a
non-discriminatory and transparent basis at cost oriented prices
regulated by OPTA. Further we would be obliged to grant program
providers access to our basic tier offering in certain
circumstances in line with current laws and regulations. OPTA
has stated that requests for access must be reasonable and that
a request by a third party that has an alternative
infrastructure or that would result in disproportionate use of
available network capacity would not likely be considered
reasonable.
In September 2005, OPTA also notified the EC Commission of its
draft decision that UPC NL has significant market power in the
market relating to the retail delivery of radio and television
packages. The obligations OPTA proposed to impose include retail
price regulation on a cost oriented basis of the analog package,
a requirement to indicate to consumers which part of the
subscription fees relates to network costs and which part
relates to programming costs, and a requirement to unbundle
analog video services from other services. In December 2005, the
EC Commission approved OPTAs revised submission with
respect to regulation of this retail market on the basis that it
was limited to one year and that OPTA would not intervene in
cable operators retail prices as long as these do not
increase by more than the CPI increase. OPTA may, while
monitoring the market, seek further powers to regulate cable
end-user pricing in the future.
OPTA has not yet published final decisions setting forth the
exact scope of the obligations to be imposed with respect to
these markets. The decisions are expected in the first quarter
of 2006. UPC NL is reviewing its options to challenge these
decisions through the competent courts in The Netherlands.
II-150
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
Teleclub litigation Cablecom is involved in a
number of proceedings with Teleclub AG (Teleclub), which has
exclusive rights to a significant portion of the premium and
sports content distributed in Switzerland. Swisscom AG
(Swisscom), the incumbent telecommunications operator, holds an
indirect controlling interest in Teleclub. In proceedings before
the Competition Commission initiated by Teleclub, based on a
preliminary fact finding and legal assessment process, Cablecom
was determined to be dominant in the market for distribution of
television signals via cable television networks in the areas in
which it operates. Interim measures were granted in September
2002 ordering Cablecom, among other things, to transmit the
digital television signals of Teleclub and allow the
installation of Teleclubs proprietary set-top boxes on the
Cablecom network. In September 2003, the Swiss Federal Court,
while assuming that Cablecom holds a dominant position, reversed
the Competition Commissions decision on the interim
measures related to installing set-top boxes of Teleclubs
choosing on the basis that Cablecoms objection to doing so
may be justified by legitimate business reasons. The Competition
Commission is continuing its investigation of whether
Cablecoms application of its digital standards or digital
platform to the distribution of Teleclubs digital
television signals may constitute an abuse of a dominant
position. Given the finding of dominance, which the Competition
Commission confirmed in October 2004 in a legal opinion prepared
for the Swiss Price Regulator, if Cablecom is found to have
abused its dominant position, Teleclub may be granted the relief
requested, Cablecom may be found to have violated the Federal
Act on Cartels and other restrictions of Competition (the
Cartels Act), and Cablecom may be subject to administrative
fines and additional civil litigation.
In October 2002, the Competition Commission also investigated
whether the encryption of the digital channels offered by
Cablecom as part of its basic digital package constitutes an
abuse of a dominant position as such encryption would prevent
reception of these channels through any alternative set-top box.
Until a final determination has been made in the pending
proceedings between Teleclub and Cablecom, the Competition
Commission has suspended its investigation. Should this
proceeding be resumed and have an adverse outcome, Cablecom may
be subject to fines and sanctions under the Cartels Act and may
be required to make its digital service available through
alternate set-top boxes. For the same reason described above,
the Competition Commission has not acted on the request of the
Swiss Price Regulator to intervene against Cablecom to cease
encrypting the digital signal and allow use of third-party
set-top boxes on Cablecoms network and to prohibit
bundling of set-top box rental and content subscription.
An unfavorable outcome from the Teleclub legal proceedings could
result in an adverse effect on Cablecoms business. We
expect that these proceedings may continue for several years
until a non-appealable decision has been made. We cannot
currently predict the outcome of these proceedings.
Income Taxes We operate in numerous countries
around the world and accordingly we are subject to, and pay
annual income taxes under, the various income tax regimes in the
countries in which we operate. The tax rules and regulations in
many countries are highly complex and subject to interpretation.
In the normal course of business, we may be subject to a review
of our income tax filings by various taxing authorities. In
connection with such reviews, disputes could arise with the
taxing authorities over the interpretation or application of
certain income tax rules related to our business in that tax
jurisdiction. Such disputes may result in future tax and
interest assessments by these taxing authorities. We have
recorded an estimated liability in our consolidated tax
provision for any such amount that we do not have a probable
position of sustaining upon review of the taxing authorities. We
adjust our estimates periodically because of ongoing
examinations by and settlements with the various taxing
authorities, as well as changes in tax laws, regulations,
interpretations, and precedent. We believe that adequate
accruals have been made for contingencies related to income
taxes, and have classified these in long-term liabilities based
upon our estimate of when the ultimate resolution of the
contingent liability will occur. The ultimate resolution of the
contingent liability will take place upon the earlier of
(i) the settlement date with the applicable taxing
authorities or (ii) the date when the tax authorities
II-151
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
are statutorily prohibited from adjusting the companys tax
computations. Any difference between the amount accrued and the
ultimate settlement amount, if any, will be released to income
or recorded as a reduction of goodwill depending upon whether
the liability was initially recorded in purchase accounting.
Regulatory Issues 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. Adverse regulatory
developments could subject our businesses to a number of risks.
Regulation could limit growth, revenue and the number and types
of services offered. In addition, regulation may restrict our
operations and subject them to further competitive pressure,
including pricing restrictions, interconnect and other access
obligations, and restrictions or controls on content, including
content provided by third parties. Failure to comply with
current or future regulation could expose our businesses to
various penalties.
In addition to the foregoing items, we have contingent
liabilities related to (i) legal proceedings,
(ii) wage, property and sales tax issues and
(iii) 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 our
consolidated financial statements.
|
|
(21) |
Information about Operating Segments |
We own a variety of international subsidiaries and investments
that provide broadband communications services, and to a lesser
extent, video programming services. We identify our reportable
segments as (i) those consolidated subsidiaries that
represent 10% or more of our revenue, operating cash flow (as
defined below), or total assets, and (ii) those equity
method affiliates where our investment or share of operating
cash flow represents 10% or more of our total assets or
operating cash flow, respectively. In certain cases, we may
elect to include an operating segment in our segment disclosure
that does not meet the above-described criteria for a reportable
segment. We evaluate performance and make decisions about
allocating resources to our operating segments based on
financial measures such as revenue and operating cash flow. In
addition, we review non-financial measures such as subscriber
growth and penetration, as appropriate.
Operating cash flow is the primary measure used by our chief
operating decision maker to evaluate segment operating
performance and to decide how to allocate resources to segments.
As we use the term, operating cash flow is defined as revenue
less operating and SG&A expenses (excluding depreciation and
amortization, stock-based compensation, and impairment,
restructuring and other operating charges or credits). We
believe operating cash flow is meaningful because it provides
investors a means to evaluate the operating performance of our
segments and our company on an ongoing basis using criteria that
is used by our internal decision makers. Our internal decision
makers believe operating cash flow is a meaningful measure and
is superior to other available GAAP measures because it
represents a transparent view of our recurring operating
performance and allows management to 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 operating cash
flow would distort the ability to efficiently assess and view
the core operating trends in our segments. In addition, our
internal decision makers believe our measure of operating cash
flow is important because analysts and investors use it to
compare our performance to other companies in our industry. A
reconciliation of total segment operating cash flow to our
consolidated earnings (loss) before income taxes, minority
interests and discontinued operations is presented below.
Investors should view operating cash flow as a measure of
operating performance that is a supplement to, and
II-152
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
not a substitute for, operating income, net earnings, cash flow
from operating activities and other GAAP measures of income.
We have identified the following consolidated operating segments
as our reportable segments:
|
|
|
|
|
Europe (Europe Broadband) |
|
|
|
|
|
The Netherlands |
|
|
|
Switzerland |
|
|
|
France |
|
|
|
Austria |
|
|
|
Other Western Europe |
|
|
|
Hungary |
|
|
|
Other Central and Eastern Europe |
|
|
|
|
|
Japan (J:COM) |
|
|
|
Chile (VTR) |
All of the reportable segments set forth above provide broadband
communications services, including video, voice and Internet
services. The Europe Broadband operating segments provided
services in 13 European countries at December 31, 2005.
Other Western Europe includes our operating segments in Ireland,
Sweden and Belgium. Other Central and Eastern Europe includes
our operating segments in Poland, Czech Republic, Slovak
Republic, Romania and Slovenia. Our corporate and other category
includes (i) certain less significant consolidated
operating segments that provide DTH satellite services in
Australia, broadband communications services in Puerto Rico,
Brazil and Peru and video programming and other services in
Europe and Argentina, and (ii) our corporate segment.
Intersegment eliminations primarily represents the elimination
of intercompany transactions between Europe Broadband and
chellomedia.
J:COM provides video, voice and Internet access services in
Japan. Prior to 2005, we accounted for our interest in Super
Media/ J:COM using the equity method. As a result of a change in
the corporate governance of Super Media that occurred on
February 18, 2005, we began accounting for Super Media and
J:COM as consolidated subsidiaries effective January 1,
2005. For additional information concerning Super Media and
J:COM, see note 5 and note 6.
VTR is an 80%-owned subsidiary that provides video, voice and
Internet access services in Chile.
Prior to January 2005, the Internet division of chellomedia,
which we refer to as chello broadband, provided Internet access,
on-line content, product development and other support activity
for Europe Broadbands broadband Internet access business.
In connection with the transfer of the assets and liabilities of
chello broadband from chellomedia to Europe Broadband, together
with the day-to-day
management of the broadband Internet access business, we began
reporting chello broadband as a component of Europe Broadband
effective January 1, 2005. In addition, in connection with
the LGI Combination, we decided that we would provide additional
reportable segments within Europe Broadband and that Europe
Broadband would allocate certain costs, which previously had
been reflected in the corporate and other category, to its
operating segments. The segment information for the years ended
December 31, 2004 and 2003 has been restated to reflect the
above-described changes. Additionally, our reportable segments
have been reclassified for all periods to present our broadband
operations in Norway as discontinued operations. Accordingly, we
present the reportable segments of our continuing operations.
The costs previously allocated to UPC Norway by
II-153
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
Europe Broadband have been reclassified to the corporate and
other category for all periods presented. See note 5.
|
|
|
Performance Measures of Our Reportable Segments |
The amounts presented below represent 100% of each
business revenue and operating cash flow. These amounts
are combined and are then adjusted to remove the amounts related
to J:COM for 2004 and UGC and J:COM for 2003 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.
As we control both VTR and Super Media/ J:COM, GAAP requires
that we consolidate 100% of the revenue and expenses of these
entities in our consolidated statements of operations. The
minority owners interests in the operating results of VTR,
J:COM and other less significant majority owned subsidiaries are
reflected in minority interests in losses (earnings) of
subsidiaries, net in our consolidated statements of operations.
It should be noted that our ability to consolidate J:COM is
dependent on our ability to continue to control Super Media,
which will be dissolved in February 2010 unless we and Sumitomo
mutually agree to extend the term. If Super Media is dissolved
and we do not otherwise control J:COM at the time of any such
dissolution, we will no longer be in a position to consolidate
J:COM. When reviewing and analyzing our operating results, it is
II-154
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
important to keep in mind that other third party entities own
significant interests in J:COM and VTR and that Sumitomo
effectively has the ability to prevent our company from
consolidating J:COM after February 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
|
|
Operating | |
|
|
|
Operating | |
|
|
|
Operating | |
|
|
Revenue | |
|
cash flow | |
|
Revenue | |
|
cash flow | |
|
Revenue | |
|
cash flow | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
amounts in thousands | |
Performance Measures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe Broadband
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$ |
780,934 |
|
|
$ |
360,924 |
|
|
$ |
730,483 |
|
|
$ |
375,738 |
|
|
$ |
617,488 |
|
|
$ |
286,945 |
|
|
Switzerland
|
|
|
122,078 |
|
|
|
43,525 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
France
|
|
|
513,762 |
|
|
|
97,247 |
|
|
|
312,948 |
|
|
|
45,774 |
|
|
|
113,842 |
|
|
|
11,935 |
|
|
Austria
|
|
|
322,196 |
|
|
|
137,247 |
|
|
|
306,479 |
|
|
|
122,307 |
|
|
|
266,387 |
|
|
|
107,953 |
|
|
Other Western Europe
|
|
|
321,377 |
|
|
|
111,168 |
|
|
|
174,389 |
|
|
|
63,680 |
|
|
|
106,962 |
|
|
|
46,203 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
2,060,347 |
|
|
|
750,111 |
|
|
|
1,524,299 |
|
|
|
607,499 |
|
|
|
1,104,679 |
|
|
|
453,036 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
281,707 |
|
|
|
108,378 |
|
|
|
217,429 |
|
|
|
82,455 |
|
|
|
165,310 |
|
|
|
60,481 |
|
|
Other Central and Eastern Europe
|
|
|
370,560 |
|
|
|
147,270 |
|
|
|
252,064 |
|
|
|
94,478 |
|
|
|
197,108 |
|
|
|
66,662 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
652,267 |
|
|
|
255,648 |
|
|
|
469,493 |
|
|
|
176,933 |
|
|
|
362,418 |
|
|
|
127,143 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Europe Broadband
|
|
|
2,712,614 |
|
|
|
1,005,759 |
|
|
|
1,993,792 |
|
|
|
784,432 |
|
|
|
1,467,097 |
|
|
|
580,179 |
|
Japan (J:COM)
|
|
|
1,662,105 |
|
|
|
636,297 |
|
|
|
1,504,709 |
|
|
|
589,597 |
|
|
|
1,233,492 |
|
|
|
428,318 |
|
Chile (VTR)
|
|
|
444,161 |
|
|
|
151,450 |
|
|
|
299,951 |
|
|
|
108,752 |
|
|
|
229,835 |
|
|
|
69,951 |
|
Corporate and other
|
|
|
407,564 |
|
|
|
(22,661 |
) |
|
|
285,507 |
|
|
|
(51,397 |
) |
|
|
263,020 |
|
|
|
(38,354 |
) |
Intersegment eliminations
|
|
|
(75,112 |
) |
|
|
|
|
|
|
(47,361 |
) |
|
|
|
|
|
|
(55,169 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total LGI before elimination of equity affiliates
|
|
|
5,151,332 |
|
|
|
1,770,845 |
|
|
|
4,036,598 |
|
|
|
1,431,384 |
|
|
|
3,138,275 |
|
|
|
1,040,094 |
|
Elimination of equity affiliates
|
|
|
|
|
|
|
|
|
|
|
(1,504,709 |
) |
|
|
(589,597 |
) |
|
|
(3,029,885 |
) |
|
|
(1,022,347 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated LGI
|
|
$ |
5,151,332 |
|
|
$ |
1,770,845 |
|
|
$ |
2,531,889 |
|
|
$ |
841,787 |
|
|
$ |
108,390 |
|
|
$ |
17,747 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
II-155
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in affiliates | |
|
Long-lived assets | |
|
Total assets | |
|
|
| |
|
| |
|
| |
|
|
December 31, | |
|
December 31, | |
|
December 31, | |
|
|
| |
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
amounts in thousands | |
Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe Broadband
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$ |
|
|
|
$ |
|
|
|
$ |
2,692,385 |
|
|
$ |
2,027,965 |
|
|
$ |
2,754,895 |
|
|
$ |
2,115,688 |
|
|
Switzerland
|
|
|
5,638 |
|
|
|
|
|
|
|
3,754,010 |
|
|
|
|
|
|
|
4,125,279 |
|
|
|
|
|
|
France
|
|
|
|
|
|
|
|
|
|
|
1,037,746 |
|
|
|
1,076,866 |
|
|
|
1,151,341 |
|
|
|
1,204,716 |
|
|
Austria
|
|
|
|
|
|
|
|
|
|
|
1,004,817 |
|
|
|
826,680 |
|
|
|
1,037,758 |
|
|
|
876,201 |
|
|
Other Western Europe
|
|
|
|
|
|
|
|
|
|
|
994,695 |
|
|
|
476,272 |
|
|
|
1,050,560 |
|
|
|
531,454 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
5,638 |
|
|
|
|
|
|
|
9,483,653 |
|
|
|
4,407,783 |
|
|
|
10,119,833 |
|
|
|
4,728,059 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
|
|
|
|
|
|
|
|
698,949 |
|
|
|
516,898 |
|
|
|
739,508 |
|
|
|
547,487 |
|
|
Other Central and Eastern Europe
|
|
|
64 |
|
|
|
11,797 |
|
|
|
1,365,443 |
|
|
|
452,612 |
|
|
|
1,481,006 |
|
|
|
541,554 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
64 |
|
|
|
11,797 |
|
|
|
2,064,392 |
|
|
|
969,510 |
|
|
|
2,220,514 |
|
|
|
1,089,041 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Europe Broadband
|
|
|
5,702 |
|
|
|
11,797 |
|
|
|
11,548,045 |
|
|
|
5,377,293 |
|
|
|
12,340,347 |
|
|
|
5,817,100 |
|
Japan (J:COM)
|
|
|
43,701 |
|
|
|
36,846 |
|
|
|
4,247,725 |
|
|
|
3,814,682 |
|
|
|
4,911,855 |
|
|
|
4,289,536 |
|
Chile (VTR)
|
|
|
497 |
|
|
|
|
|
|
|
1,158,309 |
|
|
|
572,450 |
|
|
|
1,362,780 |
|
|
|
682,270 |
|
Corporate and other
|
|
|
739,166 |
|
|
|
1,853,845 |
|
|
|
1,877,092 |
|
|
|
1,376,366 |
|
|
|
4,418,990 |
|
|
|
6,925,497 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total LGI before elimination of equity affiliates
|
|
|
789,066 |
|
|
|
1,902,488 |
|
|
|
18,831,171 |
|
|
|
11,140,791 |
|
|
|
23,033,972 |
|
|
|
17,714,403 |
|
Elimination of equity affiliates
|
|
|
|
|
|
|
(36,846 |
) |
|
|
|
|
|
|
(3,814,682 |
) |
|
|
|
|
|
|
(4,289,536 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated LGI continuing operations
|
|
|
789,066 |
|
|
|
1,865,642 |
|
|
|
18,831,171 |
|
|
|
7,326,109 |
|
|
|
23,033,972 |
|
|
|
13,424,867 |
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
325,729 |
|
|
|
257,542 |
|
|
|
344,557 |
|
|
|
277,496 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated LGI
|
|
$ |
789,066 |
|
|
$ |
1,865,642 |
|
|
$ |
19,156,900 |
|
|
$ |
7,583,651 |
|
|
$ |
23,378,529 |
|
|
$ |
13,702,363 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
II-156
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
The following table provides a reconciliation of total segment
operating cash flow to earnings (loss) before income taxes,
minority interests and discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
amounts in thousands | |
Total segment operating cash flow
|
|
$ |
1,770,845 |
|
|
$ |
841,787 |
|
|
$ |
17,747 |
|
Stock-based compensation expense
|
|
|
(59,231 |
) |
|
|
(142,676 |
) |
|
|
(4,088 |
) |
Depreciation and amortization
|
|
|
(1,454,863 |
) |
|
|
(915,748 |
) |
|
|
(15,114 |
) |
Impairment of long-lived assets
|
|
|
(8,320 |
) |
|
|
(69,353 |
) |
|
|
|
|
Restructuring and other operating credits (charges)
|
|
|
2,753 |
|
|
|
(28,901 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
251,184 |
|
|
|
(314,891 |
) |
|
|
(1,455 |
) |
|
Interest expense
|
|
|
(433,467 |
) |
|
|
(286,321 |
) |
|
|
(2,178 |
) |
|
Interest and dividend income
|
|
|
77,649 |
|
|
|
65,494 |
|
|
|
24,874 |
|
|
Share of earnings (losses) of affiliates, net
|
|
|
(22,949 |
) |
|
|
38,710 |
|
|
|
13,739 |
|
|
Realized and unrealized gains (losses) on derivative
instruments, net
|
|
|
309,973 |
|
|
|
(35,775 |
) |
|
|
12,762 |
|
|
Foreign currency transaction gains (losses), net
|
|
|
(209,400 |
) |
|
|
117,514 |
|
|
|
5,412 |
|
|
Gain on exchange of investment securities
|
|
|
|
|
|
|
178,818 |
|
|
|
|
|
|
Other-than-temporary declines in fair values of investments
|
|
|
(3,403 |
) |
|
|
(18,542 |
) |
|
|
(6,884 |
) |
|
Gains (losses) on extinguishment of debt
|
|
|
(33,700 |
) |
|
|
27,977 |
|
|
|
|
|
|
Gains (losses) on disposition of non-operating assets, net
|
|
|
115,169 |
|
|
|
43,714 |
|
|
|
(4,033 |
) |
|
Other income (expense), net
|
|
|
(263 |
) |
|
|
(7,931 |
) |
|
|
6,651 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before income taxes, minority interests and
discontinued operations
|
|
$ |
50,793 |
|
|
$ |
(191,233 |
) |
|
$ |
48,888 |
|
|
|
|
|
|
|
|
|
|
|
II-157
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
amounts in thousands | |
Capital Expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe Broadband
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$ |
152,575 |
|
|
$ |
84,698 |
|
|
$ |
63,451 |
|
|
Switzerland
|
|
|
27,001 |
|
|
|
|
|
|
|
|
|
|
France
|
|
|
128,655 |
|
|
|
65,435 |
|
|
|
48,810 |
|
|
Austria
|
|
|
48,325 |
|
|
|
53,660 |
|
|
|
43,751 |
|
|
Other Western Europe
|
|
|
73,544 |
|
|
|
46,626 |
|
|
|
22,965 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
430,100 |
|
|
|
250,419 |
|
|
|
178,977 |
|
|
Hungary
|
|
|
70,941 |
|
|
|
39,833 |
|
|
|
23,004 |
|
|
Other Central and Eastern Europe
|
|
|
84,473 |
|
|
|
39,776 |
|
|
|
29,904 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
155,414 |
|
|
|
79,609 |
|
|
|
52,908 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Europe Broadband
|
|
|
585,514 |
|
|
|
330,028 |
|
|
|
231,885 |
|
Japan (J:COM)
|
|
|
354,705 |
|
|
|
295,914 |
|
|
|
279,841 |
|
Chile (VTR)
|
|
|
98,576 |
|
|
|
41,685 |
|
|
|
41,391 |
|
Corporate and other
|
|
|
156,198 |
|
|
|
115,904 |
|
|
|
82,717 |
|
|
|
|
|
|
|
|
|
|
|
Total LGI before elimination of equity affiliates
|
|
|
1,194,993 |
|
|
|
783,531 |
|
|
|
635,834 |
|
Elimination of equity affiliates
|
|
|
|
|
|
|
(295,914 |
) |
|
|
(612,965 |
) |
|
|
|
|
|
|
|
|
|
|
Total consolidated LGI
|
|
$ |
1,194,993 |
|
|
$ |
487,617 |
|
|
$ |
22,869 |
|
|
|
|
|
|
|
|
|
|
|
II-158
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
The revenue of our geographic segments is set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
amounts in thousands | |
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe Broadband
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$ |
780,934 |
|
|
$ |
730,483 |
|
|
$ |
617,488 |
|
|
|
Switzerland
|
|
|
122,078 |
|
|
|
|
|
|
|
|
|
|
|
France
|
|
|
513,762 |
|
|
|
312,948 |
|
|
|
113,842 |
|
|
|
Austria
|
|
|
322,196 |
|
|
|
306,479 |
|
|
|
266,387 |
|
|
|
Sweden
|
|
|
93,007 |
|
|
|
88,233 |
|
|
|
75,152 |
|
|
|
Belgium
|
|
|
40,140 |
|
|
|
37,463 |
|
|
|
31,810 |
|
|
|
Ireland
|
|
|
188,230 |
|
|
|
48,693 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
2,060,347 |
|
|
|
1,524,299 |
|
|
|
1,104,679 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
281,707 |
|
|
|
217,429 |
|
|
|
165,310 |
|
|
|
Poland
|
|
|
137,791 |
|
|
|
110,288 |
|
|
|
86,156 |
|
|
|
Czech Republic
|
|
|
101,482 |
|
|
|
82,163 |
|
|
|
65,370 |
|
|
|
Slovak Republic
|
|
|
39,527 |
|
|
|
32,684 |
|
|
|
25,426 |
|
|
|
Romania
|
|
|
67,214 |
|
|
|
26,929 |
|
|
|
20,156 |
|
|
|
Slovenia
|
|
|
24,546 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
652,267 |
|
|
|
469,493 |
|
|
|
362,418 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Europe Broadband
|
|
|
2,712,614 |
|
|
|
1,993,792 |
|
|
|
1,467,097 |
|
|
chellomedia(2)
|
|
|
270,766 |
|
|
|
155,015 |
|
|
|
145,528 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Europe
|
|
|
2,983,380 |
|
|
|
2,148,807 |
|
|
|
1,612,625 |
|
|
|
|
|
|
|
|
|
|
|
Japan (J:COM)
|
|
|
1,662,105 |
|
|
|
1,504,709 |
|
|
|
1,233,492 |
|
|
|
|
|
|
|
|
|
|
|
The Americas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chile (VTR)
|
|
|
444,161 |
|
|
|
299,951 |
|
|
|
229,835 |
|
|
Other(1)
|
|
|
136,798 |
|
|
|
130,492 |
|
|
|
117,492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total The Americas
|
|
|
580,959 |
|
|
|
430,443 |
|
|
|
347,327 |
|
|
|
|
|
|
|
|
|
|
|
Intersegment eliminations
|
|
|
(75,112 |
) |
|
|
(47,361 |
) |
|
|
(55,169 |
) |
|
|
|
|
|
|
|
|
|
|
Total LGI before elimination of equity affiliates
|
|
|
5,151,332 |
|
|
|
4,036,598 |
|
|
|
3,138,275 |
|
Elimination of equity affiliates
|
|
|
|
|
|
|
(1,504,709 |
) |
|
|
(3,029,885 |
) |
|
|
|
|
|
|
|
|
|
|
Total consolidated LGI
|
|
$ |
5,151,332 |
|
|
$ |
2,531,889 |
|
|
$ |
108,390 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Includes certain less significant operating segments that
provide broadband services in Puerto Rico, Brazil and Peru and
video programming services in Argentina. |
|
(2) |
chellomedias geographic segments are located primarily in
the United Kingdom, The Netherlands and other European countries. |
II-159
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
The long-lived assets of our geographic segments are set forth
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
amounts in thousands | |
Long-lived assets
|
|
|
|
|
|
|
|
|
Europe
|
|
|
|
|
|
|
|
|
|
Europe Broadband
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$ |
2,692,385 |
|
|
$ |
2,027,965 |
|
|
|
Switzerland
|
|
|
3,754,010 |
|
|
|
|
|
|
|
France
|
|
|
1,037,746 |
|
|
|
1,076,866 |
|
|
|
Austria
|
|
|
1,004,817 |
|
|
|
826,680 |
|
|
|
Sweden
|
|
|
306,756 |
|
|
|
255,842 |
|
|
|
Belgium
|
|
|
122,459 |
|
|
|
92,410 |
|
|
|
Ireland
|
|
|
565,480 |
|
|
|
128,020 |
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
9,483,653 |
|
|
|
4,407,783 |
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
698,949 |
|
|
|
516,898 |
|
|
|
Poland
|
|
|
339,038 |
|
|
|
174,157 |
|
|
|
Czech Republic
|
|
|
327,507 |
|
|
|
180,280 |
|
|
|
Slovak Republic
|
|
|
105,292 |
|
|
|
61,182 |
|
|
|
Romania
|
|
|
501,471 |
|
|
|
36,993 |
|
|
|
Slovenia
|
|
|
92,135 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
2,064,392 |
|
|
|
969,510 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Europe Broadband
|
|
|
11,548,045 |
|
|
|
5,377,293 |
|
|
chellomedia(1)
|
|
|
377,282 |
|
|
|
438,844 |
|
|
|
|
|
|
|
|
|
|
Total Europe
|
|
|
11,925,327 |
|
|
|
5,816,137 |
|
|
|
|
|
|
|
|
Japan (J:COM)
|
|
|
4,247,725 |
|
|
|
3,814,682 |
|
|
|
|
|
|
|
|
The Americas
|
|
|
|
|
|
|
|
|
|
U.S.(2)
|
|
|
790,427 |
|
|
|
658,167 |
|
|
Chile (VTR)
|
|
|
1,158,309 |
|
|
|
572,450 |
|
|
Other(3)
|
|
|
264,657 |
|
|
|
279,355 |
|
|
|
|
|
|
|
|
|
|
Total The Americas
|
|
|
2,213,393 |
|
|
|
1,509,972 |
|
|
|
|
|
|
|
|
Australia
|
|
|
444,726 |
|
|
|
|
|
|
|
|
|
|
|
|
Total LGI before elimination of equity affiliates
|
|
|
18,831,171 |
|
|
|
11,140,791 |
|
Elimination of equity affiliates
|
|
|
|
|
|
|
(3,814,682 |
) |
|
|
|
|
|
|
|
Total consolidated LGI continuing operations
|
|
|
18,831,171 |
|
|
|
7,326,109 |
|
Discontinued operations
|
|
|
325,729 |
|
|
|
257,542 |
|
|
|
|
|
|
|
|
Total consolidated LGI
|
|
$ |
19,156,900 |
|
|
$ |
7,583,651 |
|
|
|
|
|
|
|
|
|
|
(1) |
chellomedias geographic segments are located primarily in
the United Kingdom, The Netherlands and other European countries. |
|
(2) |
Primarily represents the assets of our corporate segment. |
|
(3) |
Includes certain less significant operating segments that
provide broadband services in Puerto Rico, Brazil and Peru and
video programming services in Argentina. |
II-160
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
In September 2005, the EITF reached a consensus on EITF
No. 05-08. Based on the consensus, a temporary difference
arises as the result of an entity issuing convertible debt with
a beneficial conversion feature. Additionally, the EITF agreed
that the deferred tax liability for the related temporary
difference should be recorded as an adjustment to additional
paid-in capital.
Retrospective transition is required for all instruments with a
beneficial conversion feature accounted for in accordance with
Issues 98-5, Accounting for Convertible Securities with
Beneficial Conversion Features or Contingently Adjustable
Conversion Ratios and 00-27, Application of Issue
No. 98-5 to Certain Convertible Instruments.
As further described in note 10, UGC issued the UGC
Convertible Notes in April 2004. The UGC Convertible Notes are
compound financial instruments that contain a foreign currency
debt component and an equity component that is indexed to LGI
Series A common stock, LGI Series C common stock and
currency exchange rates (euro to U.S. dollar). We account
for the embedded equity derivative separately at fair value,
with changes in fair value reported in our consolidated
statements of operations. Although the UGC Convertible Notes do
not contain a beneficial conversion feature, we believe that the
tax accounting considerations set forth in
EITF 05-08 are
similar to those associated with the UGC Convertible Notes.
Accordingly, we have concluded that our tax accounting for the
UGC Convertible Notes should not be different than that
prescribed by
EITF 05-08, except
that the deferred taxes associated with the UGC Convertible
Notes should be charged or credited to our statement of
operations to match the statement of operations treatment
required for changes in the carrying values of the components of
the UGC Convertible Notes. As a result, we have retrospectively
adopted the provisions of
EITF 05-08 in our
consolidated financial statements as of December 31, 2005
and 2004, and for the year ended December 31, 2005 and the
period during 2004 in which the UGC Convertible Notes were
outstanding.
The following financial statement line items for fiscal year
2004 were affected by the change in accounting principle:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As adjusted for | |
|
Effect of | |
|
|
As previously | |
|
accounting | |
|
accounting | |
|
|
reported | |
|
change | |
|
change | |
|
|
| |
|
| |
|
| |
|
|
amounts in thousands | |
Balance Sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent deferred tax liability
|
|
$ |
458,138 |
|
|
$ |
464,661 |
|
|
$ |
6,523 |
|
|
|
|
|
|
|
|
|
|
|
Minority interest in subsidiaries
|
|
$ |
1,216,710 |
|
|
$ |
1,213,610 |
|
|
$ |
(3,100 |
) |
|
|
|
|
|
|
|
|
|
|
Accumulated deficit
|
|
$ |
(1,649,007 |
) |
|
$ |
(1,652,430 |
) |
|
$ |
(3,423 |
) |
|
|
|
|
|
|
|
|
|
|
II-161
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reclassified for | |
|
As adjusted | |
|
|
|
|
|
|
discontinued | |
|
for | |
|
Effect of | |
|
|
As previously | |
|
operations | |
|
accounting | |
|
accounting | |
|
|
reported | |
|
(note 5) | |
|
change | |
|
change | |
|
|
| |
|
| |
|
| |
|
| |
|
|
amounts in thousands | |
Statement of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit
|
|
$ |
17,449 |
|
|
$ |
20,323 |
|
|
$ |
13,800 |
|
|
$ |
(6,523 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interests in losses of subsidiaries
|
|
$ |
167,336 |
|
|
$ |
160,624 |
|
|
$ |
163,724 |
|
|
$ |
3,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
$ |
(18,058 |
) |
|
$ |
(10,286 |
) |
|
$ |
(13,709 |
) |
|
$ |
(3,423 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(18,058 |
) |
|
$ |
(18,058 |
) |
|
$ |
(21,481 |
) |
|
$ |
(3,423 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma loss per common share basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$ |
(0.06 |
) |
|
$ |
(0.03 |
) |
|
$ |
(0.04 |
) |
|
$ |
(0.01 |
) |
|
Discontinued operations
|
|
|
|
|
|
|
(0.03 |
) |
|
|
(0.03 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(0.06 |
) |
|
$ |
(0.06 |
) |
|
$ |
(0.07 |
) |
|
$ |
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
II-162
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
|
|
(23) |
Quarterly Financial Information (Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
|
| |
|
|
1st | |
|
2nd | |
|
3rd | |
|
4th | |
|
|
quarter | |
|
quarter | |
|
quarter | |
|
Quarter | |
|
|
| |
|
| |
|
| |
|
| |
|
|
as adjusted | |
|
as adjusted | |
|
as adjusted | |
|
|
|
|
(note 22) | |
|
(note 22) | |
|
(note 22) | |
|
|
|
|
amounts in thousands, except per share amounts | |
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As previously reported
|
|
$ |
1,235,250 |
|
|
$ |
1,276,272 |
|
|
$ |
1,295,795 |
|
|
$ |
1,443,105 |
|
|
Effect of discontinued operations (note 5)
|
|
|
(32,021 |
) |
|
|
(33,679 |
) |
|
|
(33,390 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As adjusted
|
|
$ |
1,203,229 |
|
|
$ |
1,242,593 |
|
|
$ |
1,262,405 |
|
|
$ |
1,443,105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As previously reported
|
|
$ |
97,766 |
|
|
$ |
41,845 |
|
|
$ |
36,423 |
|
|
$ |
84,683 |
|
|
Effect of discontinued operations (note 5)
|
|
|
(2,925 |
) |
|
|
(4,910 |
) |
|
|
(1,698 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As adjusted
|
|
$ |
94,841 |
|
|
$ |
36,935 |
|
|
$ |
34,725 |
|
|
$ |
84,683 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As previously reported
|
|
$ |
26,334 |
|
|
$ |
(123,348 |
) |
|
$ |
(152,808 |
) |
|
$ |
145,294 |
|
|
Effect of change in accounting (note 22)
|
|
|
(9,801 |
) |
|
|
9,327 |
|
|
|
24,905 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As adjusted
|
|
$ |
16,533 |
|
|
$ |
(114,021 |
) |
|
$ |
(127,903 |
) |
|
$ |
145,294 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical earnings (loss) per common share
(note 3) basic and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As previously reported
|
|
$ |
0.08 |
|
|
$ |
(0.34 |
) |
|
$ |
(0.32 |
) |
|
$ |
0.30 |
|
|
Effect of change in accounting (note 22)
|
|
|
(0.03 |
) |
|
|
0.03 |
|
|
|
0.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As adjusted
|
|
$ |
0.05 |
|
|
$ |
(0.31 |
) |
|
$ |
(0.27 |
) |
|
$ |
0.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
II-163
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and
2003 (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
|
| |
|
|
1st | |
|
2nd | |
|
3rd | |
|
4th | |
|
|
quarter | |
|
quarter | |
|
quarter | |
|
quarter | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
as adjusted | |
|
as adjusted | |
|
as adjusted | |
|
|
|
|
(note 22) | |
|
(note 22) | |
|
(note 22) | |
|
|
amounts in thousands, except per share amounts | |
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As previously reported
|
|
$ |
576,200 |
|
|
$ |
580,409 |
|
|
$ |
708,807 |
|
|
$ |
778,868 |
|
|
Effect of discontinued operations (note 5)
|
|
|
(25,563 |
) |
|
|
(28,304 |
) |
|
|
(27,103 |
) |
|
|
(31,425 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As adjusted
|
|
$ |
550,637 |
|
|
$ |
552,105 |
|
|
$ |
681,704 |
|
|
$ |
747,443 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As previously reported
|
|
$ |
(83,651 |
) |
|
$ |
(35,297 |
) |
|
$ |
(43,485 |
) |
|
$ |
(151,440 |
) |
|
Effect of discontinued operations (note 5)
|
|
|
231 |
|
|
|
1,080 |
|
|
|
(532 |
) |
|
|
(1,797 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As adjusted
|
|
$ |
(83,420 |
) |
|
$ |
(34,217 |
) |
|
$ |
(44,017 |
) |
|
$ |
(153,237 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As previously reported
|
|
$ |
(83,951 |
) |
|
$ |
29,026 |
|
|
$ |
78,549 |
|
|
$ |
(41,682 |
) |
|
Effect of change in accounting (note 22)
|
|
|
|
|
|
|
(10,406 |
) |
|
|
1,044 |
|
|
|
5,939 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As adjusted
|
|
$ |
(83,951 |
) |
|
$ |
18,620 |
|
|
$ |
79,593 |
|
|
$ |
(35,743 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical and pro forma loss per common share
(note 3) basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As previously reported
|
|
$ |
(0.27 |
) |
|
$ |
0.09 |
|
|
$ |
0.23 |
|
|
$ |
(0.12 |
) |
|
Effect of change in accounting (note 22)
|
|
|
|
|
|
|
(0.03 |
) |
|
|
0.01 |
|
|
|
0.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As adjusted
|
|
$ |
(0.27 |
) |
|
$ |
0.06 |
|
|
$ |
0.24 |
|
|
$ |
(0.10 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
On March 2, 2006, we completed the acquisition of INODE
Telekommunikationsdienstleistungs GmbH, an unbundled
DSL-provider in Austria, for cash consideration before direct
acquisition costs of
approximately 93 million
($111 million at the transaction date).
II-164
PART IV
|
|
Item 15. |
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. |
(a) (1) FINANCIAL STATEMENTS
The financial statements required under this Item begin on
page II-55 of this Annual Report.
(a) (2) FINANCIAL STATEMENT SCHEDULES
The financial statement schedules required under this Item are
as follows:
|
|
|
|
|
Schedule I Condensed Financial Information of
Registrant (Parent Company Information)
|
|
|
|
LGI Condensed Balance Sheet as of December 31, 2005 (Parent
Company Only)
|
|
IV-9 |
|
LGI Condensed Statement of Operations for the six months ended
December 31, 2005 (Parent Company Only)
|
|
IV-10 |
|
LGI Condensed Statement of Stockholders Equity for the six
months ended December 31, 2005 (Parent Company Only)
|
|
IV-11 |
|
LGI Condensed Statement of Cash Flows for the six months ended
December 31, 2005 (Parent Company Only)
|
|
IV-12 |
|
LMI Condensed Balance Sheet as of December 31, 2004 (Parent
Company Only)
|
|
IV-13 |
|
LMI Condensed Statements of Operations for the six months ended
June 30, 2005 and the seven months ended December 31,
2004 (Parent Company Only)
|
|
IV-14 |
|
LMI Condensed Statements of Stockholders Equity for the
six months ended June 30, 2005 and the seven months ended
December 31, 2004 (Parent Company Only)
|
|
IV-15 |
|
LMI Condensed Statements of Cash Flows for the six months ended
June 30, 2005 and the seven months ended December 31,
2004 (Parent Company Only)
|
|
IV-16 |
Schedule II Valuation and Qualifying Accounts
|
|
IV-17 |
Separate Financial Statements of Subsidiaries Not Consolidated
and 50 Percent or Less Owned Persons:
|
|
|
|
Jupiter TV Co., Ltd. and Subsidiaries
|
|
|
|
|
Report of Independent Registered Public Accounting Firm
|
|
IV-18 |
|
|
Consolidated Balance Sheets as of December 31, 2005 and 2004
|
|
IV-19 |
|
|
Consolidated Statements of Operations for the years ended
December 31, 2005, 2004 and 2003
|
|
IV-21 |
|
|
Consolidated Statements of Shareholders Equity and
Comprehensive Income for the years ended December 31, 2005,
2004 and 2003
|
|
IV-22 |
|
|
Consolidated Statements of Cash Flows for the years ended
December 31, 2005, 2004 and 2003
|
|
IV-23 |
|
|
Notes to Consolidated Financial Statements
|
|
IV-25 |
|
Jupiter Telecommunications Co., Ltd. and Subsidiaries
|
|
|
|
|
Report of Independent Registered Public Accounting Firm
|
|
IV-52 |
|
|
Consolidated Balance Sheets as of December 31, 2003 and 2004
|
|
IV-53 |
|
|
Consolidated Statements of Operations for the years ended
December 31, 2003 and 2004
|
|
IV-55 |
|
|
Consolidated Statements of Shareholders Equity for the
years ended December 31, 2003 and 2004
|
|
IV-56 |
|
|
Consolidated Statements of Cash Flows for the years ended
December 31, 2003 and 2004
|
|
IV-57 |
|
|
Notes to Consolidated Financial Statements
|
|
IV-58 |
IV-1
|
|
|
|
Torneos y Competencias S.A.
|
|
|
|
Independent Auditors Report
|
|
IV-80 |
|
Consolidated Balance Sheets as of December 31, 2004 and 2003
|
|
IV-81 |
|
Consolidated Statements of Operations and Comprehensive Income
(Loss) for the years ended December 31, 2004, 2003 and 2002
|
|
IV-82 |
|
Consolidated Statements of Changes in Stockholders Equity
for the years ended December 31, 2004, 2003 and 2002
|
|
IV-83 |
|
Consolidated Statements of Cash Flows for the years ended
December 31, 2004, 2003 and 2002
|
|
IV-84 |
|
Notes to Consolidated Financial Statements
|
|
IV-85 |
UnitedGlobalCom, Inc.
|
|
|
|
Report of Independent Registered Public Accounting Firm
|
|
IV-103 |
|
Report of Independent Public Accountants
|
|
IV-104 |
|
Consolidated Balance Sheets as of December 31, 2003 and 2002
|
|
IV-105 |
|
Consolidated Statements of Operations and Comprehensive Income
(Loss) for the years ended December 31, 2003, 2002 and 2001
|
|
IV-106 |
|
Consolidated Statements of Stockholders Equity (Deficit)
for the years ended December 31, 2003, 2002 and 2001
|
|
IV-107 |
|
Consolidated Statements of Cash Flows for the years ended
December 31, 2003, 2002 and 2001
|
|
IV-110 |
|
Notes to Consolidated Financial Statements
|
|
IV-111 |
Cordillera Comunicaciones Holding Limitada and Subsidiaries
|
|
|
|
Report of Independent Registered Public Accounting Firm
|
|
IV-164 |
|
Consolidated Balance Sheets as of December 31, 2003 and 2004
|
|
IV-165 |
|
Consolidated Income Statements for the years ended
December 31, 2002, 2003 and 2004
|
|
IV-166 |
|
Consolidated Statements of Cash Flows for the years ended
December 31, 2002, 2003 and 2004
|
|
IV-167 |
|
Notes to the Consolidated Financial Statements
|
|
IV-169 |
Fox Pan American Sports, LLC and Subsidiary
|
|
|
|
Report of Independent Registered Public Accounting Firm
|
|
IV-205 |
|
Consolidated Balance Sheets at December 31, 2004 and 2003
|
|
IV-206 |
|
Consolidated Statements of Operations for the years ended
December 31, 2004, 2003 and period from February 5,
2002 through December 31, 2002
|
|
IV-207 |
|
Consolidated Statements of Changes in Members (Deficit)
Equity for the years ended December 31, 2004, 2003 and
period from February 5, 2002 through December 31, 2002
|
|
IV-208 |
|
Consolidated Statements of Cash Flows for the years ended
December 31, 2004, 2003 and period from February 5,
2002 through December 31, 2002
|
|
IV-209 |
|
Notes to Consolidated Financial Statements
|
|
IV-210 |
Telenet Group Holding NV
|
|
|
|
Report of Independent Auditors
|
|
IV-218 |
|
Consolidated Balance Sheets at December 31, 2005 and 2004
|
|
IV-219 |
|
Consolidated Income Statements for the years ended
December 31, 2005 and 2004
|
|
IV-220 |
|
Consolidated Statement of Shareholders Equity for the
years ended December 31, 2005 and 2004
|
|
IV-221 |
|
Consolidated Statements of Cash Flows for the years ended
December 31, 2005 and 2004
|
|
IV-222 |
|
Notes to the Consolidated Financial Statements
|
|
IV-223 |
IV-2
|
|
|
|
PrimaCom AG
|
|
|
|
Report of Independent Auditors
|
|
IV-271 |
|
Consolidated Income Statements for the years ended
December 31, 2005 and 2004
|
|
IV-272 |
|
Consolidated Balance Sheets at December 31, 2005 and 2004
|
|
IV-273 |
|
Consolidated Statement of Changes in Equity for the years ended
December 31, 2005 and 2004
|
|
IV-274 |
|
Consolidated Cash Flow Statements for the years ended
December 31, 2005 and 2004
|
|
IV-275 |
|
Notes to the Consolidated Financial Statements
|
|
IV-276 |
(a) (3) EXHIBITS
Listed below are the exhibits filed as part of this Annual
Report (according to the number assigned to them in Item 601 of
Regulation S-K):
|
|
|
|
|
2 Plan of Acquisition Reorganization, Arrangement,
Liquidation or Succession: |
|
2.1 |
|
|
Agreement and Plan of Merger, dated as of January 17, 2005,
among the Registrant (fka New Cheetah, Inc.), Liberty Media
International, Inc. (LMI), UnitedGlobalCom, Inc. (UGC), Cheetah
Acquisition Corp. and Tiger Global Acquisition Corp.
(incorporated by reference to Exhibit 2.1 to LMIs
Current Report on Form 8-K, dated January 17, 2005
(File No. 000-50671)) |
3 Articles of Incorporation and Bylaws: |
|
3.1 |
|
|
Restated Certificate of Incorporation of the Registrant, dated
June 15, 2005 (incorporated by reference to
Exhibit 3.1 to the Registrants Current Report on Form
8-K, dated June 15, 2005 (File No. 000-51360) (the
Merger 8-K)) |
|
3.2 |
|
|
Bylaws of the Registrant (incorporated by reference to
Exhibit 3.2 to the Merger 8-K) |
4 Instruments Defining the Rights of Securities
Holders, including Indentures: |
|
4.1 |
|
|
Specimen certificate for shares of the Registrants
Series A common stock, par value $.01 per share
(incorporated by reference to Exhibit 4.1 to the Merger 8-K) |
|
4.2 |
|
|
Specimen certificate for shares of the Registrants
Series B common stock, par value $.01 per share
(incorporated by reference to Exhibit 4.2 to the Merger 8-K) |
|
4.3 |
|
|
Specimen certificate for shares of the Registrants
Series C Common Stock, par value $.01 per share
(incorporated by reference to Exhibit 3 to the
Registrants Registration Statement on Form 8-A, dated
August 24, 2005 (File No. 000-51360)) |
|
4.4 |
|
|
Amendment and Restatement Agreement, dated March 7, 2005,
among UPC Broadband Holding B.V. (UPC Broadband) and UPC
Financing Partnership (UPC Financing), as Borrowers, the
guarantors listed therein, and TD Bank Europe Limited, as
Facility Agent and Security Agent, including as Schedule 3
thereto the Restated
1,072,000,000
Senior Secured Credit Facility, originally dated
January 16, 2004, among UPC Broadband, as Borrower, the
guarantors listed therein, the banks and financial institutions
listed therein as Initial Facility D Lenders, TD Bank Europe
Limited, as Facility Agent and Security Agent, and the facility
agents under the Existing Facility (as defined therein) (the
2004 Credit Agreement) (incorporated by reference to
Exhibit 10.32 to UGCs Annual Report on
Form 10-K, dated March 14, 2005 (File
No. 000-49658) (the UGC 2004 10-K)) |
|
4.5 |
|
|
Additional Facility Accession Agreement, dated June 24,
2004, among UPC Broadband, as Borrower, TD Bank Europe Limited,
as Facility Agent and Security Agent, and the banks and
financial institutions listed therein as Additional Facility E
Lenders, under the 2004 Credit Agreement (incorporated by
reference to Exhibit 10.2 to UGCs Current Report on
Form 8-K, dated June 29, 2004 (File
No. 000-49658)) |
|
4.6 |
|
|
Additional Facility Accession Agreement, dated December 2,
2004, among UPC Broadband, as Borrower, TD Bank Europe Limited,
as Facility Agent and Security Agent, and the banks and
financial institutions listed therein as Additional Facility F
Lenders, under the 2004 Credit Agreement (incorporated by
reference to Exhibit 10.1 to UGCs Current Report on
Form 8-K, dated December 2, 2004 (File
No. 000-49658)) |
IV-3
|
|
|
|
|
|
4.7 |
|
|
Additional Facility Accession Agreement, dated March 9,
2005, among UPC Broadband, as Borrower, TD Bank Europe Limited,
as Facility Agent and Security Agent, and the banks and
financial institutions listed therein as Additional Facility G
Lenders, under the 2004 Credit Agreement (incorporated by
reference to Exhibit 10.39 to the UGC 2004 10-K) |
|
4.8 |
|
|
Additional Facility Accession Agreement, dated March 7,
2005, among UPC Broadband, as Borrower, TD Bank Europe Limited,
as Facility Agent and Security Agent, and the banks and
financial institutions listed therein as Additional Facility H
Lenders, under the 2004 Credit Agreement (incorporated by
reference to Exhibit 10.40 to the UGC 2004 10-K) |
|
4.9 |
|
|
Additional Facility Accession Agreement, dated March 9,
2005, among UPC Broadband, as Borrower, TD Bank Europe Limited,
as Facility Agent and Security Agent, and the banks and
financial institutions listed therein as Additional Facility I
Lenders, under the 2004 Credit Agreement (incorporated by
reference to Exhibit 10.41 to the UGC 2004 10-K) |
|
4.10 |
|
|
Amendment and Restatement Agreement, dated March 7, 2005,
among UPC Broadband and UPC Financing, as Borrowers, the
guarantors listed therein, TD Bank Europe Limited and Toronto
Dominion (Texas), Inc., as Facility Agents, and TD Bank Europe
Limited, as Security Agent, including as Schedule 3 thereto
the Restated Credit Agreement,
3,500,000,000
and US$347,500,000 and
95,000,000
Senior Secured Credit Facility, originally dated
October 26, 2000 (the October 2000 Senior Secured Credit
Facility), among UPC Broadband and UPC Financing, as Borrowers,
the guarantors listed therein, the Lead Arrangers listed
therein, the banks and financial institutions listed therein as
Original Lenders, TD Bank Europe Limited and Toronto-Dominion
(Texas) Inc., as Facility Agents, and TD Bank Europe Limited, as
Security Agent (incorporated by reference to Exhibit 10.33
to the UGC 2004 10-K) |
|
4.11 |
|
|
Amendment, dated December 15, 2005, among UPC Broadband and
UPC Financing, as Borrowers, the guarantors listed therein, and
Toronto-Dominion (Texas) LLC, as Facility Agent, to the October
2000 Senior Secured Credit Facility (incorporated by reference
to Exhibit 4.2 to the Registrants Current Report on
Form 8-K, dated December 15, 2005 (File
No. 000-51360) (the Credit Facility 8-K)) |
|
4.12 |
|
|
Amendment, dated December 15, 2005, among UPC Broadband and
UPC Financing, as Borrowers, the guarantors listed therein, and
Toronto-Dominion (Texas) LLC, as Facility Agent, to the 2004
Credit Agreement (incorporated by reference to Exhibit 4.3 to
the Credit Facility 8-K) |
|
4.13 |
|
|
The Registrant undertakes to furnish to the Securities and
Exchange Commission, upon request, a copy of all instruments
with respect to long-term debt not filed herewith. |
10 Material Contracts: |
|
10.1 |
|
|
Liberty Global, Inc. 2005 Incentive Plan (As Amended and
Restated Effective March 8, 2006) (the Incentive Plan)* |
|
10.2 |
|
|
Form of the Non-Qualified Stock Option Agreement under the
Incentive Plan (incorporated by reference to Exhibit 99.1
to the Registrants Current Report on Form 8-K, dated
August 15, 2005 (File No. 000-51360) (the Incentive
Plan 8-K)) |
|
10.3 |
|
|
Form of Stock Appreciation Rights Agreement under the Incentive
Plan (incorporated by reference to Exhibit 99.2 to the
Incentive Plan 8-K) |
|
10.4 |
|
|
Form of Restricted Shares Agreement under the Incentive Plan
(incorporated by reference to Exhibit 99.3 to the Incentive
Plan 8-K) |
|
10.5 |
|
|
Non-Qualified Stock Option Agreement, dated as of June 7,
2004, between John C. Malone and the Registrant (as assignee of
LMI) under the Incentive Plan (the Malone Award Agreement)
(incorporated by reference to Exhibit 7(A) to
Mr. Malones Schedule 13D/ A (Amendment
No. 1) with respect to the LMIs common stock, dated
July 14, 2004 (File No. 005-79904)) |
|
10.6 |
|
|
Form of Amendment to the Malone Award Agreement (incorporated by
reference to Exhibit 99.3 to the Registrants Current
Report on Form 8-K, dated December 22, 2005 (File
No. 000-51360) (the 409A 8-K)) |
|
10.7 |
|
|
Liberty Global, Inc. 2005 Nonemployee Director Incentive Plan
(As Amended and Restated Effective March 8, 2006) (the
Director Plan)* |
IV-4
|
|
|
|
|
|
10.8 |
|
|
Form of Non-Qualified Stock Option Agreement under the Director
Plan (incorporated by reference to Exhibit 10.3 to the
Merger 8-K) |
|
10.9 |
|
|
Liberty Global, Inc. Compensation Policy for Nonemployee
Directors (As Amended and Restated Effective March 8, 2006)* |
|
10.10 |
|
|
Liberty Media International, Inc. Transitional Stock Adjustment
Plan (the Transitional Plan) (incorporated by reference to
Exhibit 4.5 to LMIs Registration Statement on
Form S-8, dated June 23, 2004 (File No. 333-116790)) |
|
10.11 |
|
|
Form of Non-Qualified Stock Option Exercise Price Amendment
under the Transitional Plan (incorporated by reference to
Exhibit 99.1 to the 409A 8-K) |
|
10.12 |
|
|
Form of Non-Qualified Stock Option Amendment under the
Transitional Plan (incorporated by reference to
Exhibit 99.2 to the 409A 8-K) |
|
10.13 |
|
|
UnitedGlobalCom, Inc. Equity Incentive Plan (amended and
restated effective October 17, 2003) (incorporated by
reference to Exhibit 10.9 to UGCs Annual Report on
Form 10-K, dated March 15, 2004 (File
No. 000-49658) (the UGC 2003 10-K)) |
|
10.14 |
|
|
UnitedGlobalCom, Inc. 1993 Stock Option Plan (amended and
restated effective January 22, 2004) (incorporated by
reference to Exhibit 10.6 to the UGC 2003 10-K) |
|
10.15 |
|
|
Form of Amendment to Stock Appreciation Rights Agreement under
the UnitedGlobalCom, Inc. 2003 Equity Incentive Plan (Amended
and Restated October 17, 2003) (incorporated by reference
to Exhibit 99.1 to the Registrants Current Report on
Form 8-K, dated November 30, 2005 (File
No. 000-51360)) |
|
10.16 |
|
|
Stock Option Plan for Non-Employee Directors of UGC, effective
June 1, 1993, amended and restated as of January 22,
2004 (incorporated by reference to Exhibit 10.7 to the UGC
2003 10-K) |
|
10.17 |
|
|
Stock Option Plan for Non-Employee Directors of UGC, effective
March 20, 1998, amended and restated as of January 22,
2004 (incorporated by reference to Exhibit 10.8 to the UGC
2003 10-K) |
|
10.18 |
|
|
UIH Latin America, Inc. Stock Option Plan, effective
June 6, 1999 (as amended December 6, 2000)
(incorporated by reference to Exhibit 10.89 to UGCs
Amendment No. 10 to its Registration Statement on Form S-1
dated December 11, 2003 (File No. 333-82776) (the UGC
Form S-1)) |
|
10.19 |
|
|
Form of Indemnification Agreement between the Registrant and its
Directors* |
|
10.20 |
|
|
Form of Indemnification Agreement between the Registrant and its
Executive Officers* |
|
10.21 |
|
|
Personal Usage of Aircraft Policy (incorporated by reference to
Exhibit 99.1 to the Registrants Current Report on
Form 8-K, dated November 15, 2005 (File
No. 000-51360) (the Aircraft 8-K)) |
|
10.22 |
|
|
Form of Aircraft Time Sharing Agreement (incorporated by
reference to Exhibit 99.2 to the Aircraft 8-K) |
|
10.23 |
|
|
Executive Service Agreement, dated December 15, 2004,
between UPC Services Limited and Charles Bracken (incorporated
by reference to Exhibit 10.15 to the UGC 2004 10-K) |
|
10.24 |
|
|
Employment Agreement, effective April 19, 2000, among UGC,
UPC and Gene Musselman (incorporated by reference to
Exhibit 10.27 to the UGC 2003 10-K) |
|
10.25 |
|
|
Addendum to Employment Agreement, dated as of September 3,
2003, among UGC, UPC and Gene Musselman (incorporated by
reference to Exhibit 10.28 to the UGC 2003 10-K) |
|
10.26 |
|
|
Contract Extension Letter dated November 2, 2005, among
UGC, UPC and Gene Musselman* |
|
10.27 |
|
|
Executive Service Agreement dated January 10, 2005, between
UPC Services Limited and Shane ONeill (incorporated by
reference to Exhibit 10.16 to the UGC 2004 10-K) |
|
10.28 |
|
|
Employment Agreement dated January 5, 2004, between the
Registrant (as assignee of UGC) and Gene W. Schneider
(incorporated by reference to Exhibit 10.5 to UGCs
Current Report on Form 8-K dated January 5, 2004 (File
No. 000-49658)) |
IV-5
|
|
|
|
|
|
10.29 |
|
|
Letter from UGC to Gene W. Schneider, dated April 17, 2003
regarding the Split Dollar Life Insurance Agreement referenced
in Exhibit 10.29 below (incorporated by reference to
Exhibit 10.87 to the UGC Form S-1) |
|
10.30 |
|
|
Split Dollar Life Insurance Agreement dated February 15,
2001, between UGC and Mark L. Schneider, Tina M. Wildes and
Carla Shankle, as trustees under The Gene W. Schneider 2001
Trust, dated February 12, 2001 (incorporated by reference
to Exhibit 10.88 to the UGC Form S-1) |
|
10.31 |
|
|
Amended and Restated Stockholders Agreement, dated as of
May 21, 2004, among the Registrant, Liberty Media
International Holdings, LLC, Robert R. Bennett, Miranda Curtis,
Graham Hollis, Yasushige Nishimura, Liberty Jupiter, Inc., and,
solely for purposes of Section 9 thereof, Liberty Media
Corporation (Liberty Media) (incorporated by reference to
Exhibit 10.23 to Amendment No. 1 to LMIs
Registration Statement on Form 10, dated May 25, 2004
(File No. 000-50671) (the Form 10 Amendment)) |
|
10.32 |
|
|
Reorganization Agreement, dated as of May 20, 2004, among
Liberty Media, the Registrant and the other parties named
therein (incorporated by reference to Exhibit 2.1 to the
Form 10 Amendment) |
|
10.33 |
|
|
Form of Facilities and Services Agreement between Liberty Media
and the Registrant (incorporated by reference to
Exhibit 10.3 to the Form 10 Amendment) |
|
10.34 |
|
|
Agreement for Aircraft Joint Ownership and Management, dated as
of May 21, 2004, between Liberty Media and the Registrant
(incorporated by reference to Exhibit 10.4 to the
Form 10 Amendment) |
|
10.35 |
|
|
Form of Tax Sharing Agreement between Liberty Media and the
Registrant (incorporated by reference to Exhibit 10.5 to
the Form 10 Amendment) |
|
10.36 |
|
|
Form of Credit Facility between Liberty Media and the Registrant
(terminated in accordance with its terms) (incorporated by
reference to Exhibit 10.6 to the Form 10 Amendment) |
|
10.37 |
|
|
Stock and Loan Purchase Agreement, dated as of March 15,
2004, among Suez SA, MédiaRéseaux SA, UPC France
Holding BV and UGC (incorporated by reference to Exhibit 10.1 to
UGCs Current Report on Form 8-K, dated July 1,
2004 (File No. 000-49658) (the UGC July 2004 8-K)) |
|
10.38 |
|
|
Amendment to the Purchase Agreement, dated as of July 1,
2004, among Suez SA, MédiaRéseaux SA, UPC France
Holding BV and UGC (incorporated by reference to Exhibit 10.2 to
the UGC July 2004 8-K) |
|
10.39 |
|
|
Shareholders Agreement, dated as of July 1, 2004, among
UGC, UPC France Holding BV and Suez SA (incorporated by
reference to Exhibit 10.3 to the UGC July 2004 8-K) |
|
10.40 |
|
|
Amended and Restated Operating Agreement dated November 26,
2004, among Liberty Japan, Inc., Liberty Japan II, Inc., LMI
Holdings Japan, LLC, Liberty Kanto, Inc., Liberty Jupiter, Inc.
and Sumitomo Corporation, and, solely with respect to
Sections 3.1(c), 3.1(d) and 16.22 thereof, the Registrant
(incorporated by reference to Exhibit 10.27 of LMIs
Annual Report on Form 10-K, dated March 14, 2005 (File
No. 000-50671)) |
|
10.41 |
|
|
Share Purchase Agreement, dated September 30, 2005, between
Glacier Holdings S.C.A. and United ACM Holdings, Inc. (the
Cablecom Agreement) (incorporated by reference to
Exhibit 2.1 to the Registrants Current Report on
Form 8-K, dated September 30, 2005 (File
No. 000-51360) (the Cablecom 8-K)) |
|
10.43 |
|
|
Excerpts from Schedule 4.6 to the Cablecom Agreement
(incorporated by reference to Exhibit 2.2 to the Cablecom
8-K) |
|
10.44 |
|
|
Deed, dated September 30, 2005, between LMI and Glacier
Holdings S.C.A. (incorporated by reference to Exhibit 99.1
to the Cablecom 8-K) |
21 Subsidiaries of the Registrant* |
IV-6
|
|
|
|
|
23 Consent of Experts and Counsel: |
|
23.1 |
|
|
Consent of KPMG LLP** |
|
23.2 |
|
|
Consent of KPMG AZSA & Co.** |
|
23.3 |
|
|
Consent of KPMG AZSA & Co.** |
|
23.4 |
|
|
Consent of Finsterbusch Pickenhayn Sibille** |
|
23.5 |
|
|
Consent of KPMG LLP** |
|
23.6 |
|
|
Information re: Absence of Consent of Arthur Andersen LLP** |
|
23.7 |
|
|
Consent of Ernst & Young LTDA.** |
|
23.8 |
|
|
Consent of KPMG LLP** |
|
23.9 |
|
|
PricewaterhouseCoopers Bedrijfsrevisoren bcvba** |
|
23.10 |
|
|
Ernst & Young AG Wirtschaftsprüfungsgesellschaft** |
31 Rule 13a-14(a)/15d-14(a) Certification: |
|
31.1 |
|
|
Certification of President and Chief Executive Officer** |
|
31.2 |
|
|
Certification of Senior Vice President and Co-Chief Financial
Officer (Principal Financial Officer)** |
|
31.3 |
|
|
Certification of Senior Vice President and Co-Chief Financial
Officer (Principal Accounting Officer)** |
32 Section 1350 Certification** |
|
|
* |
Filed with the Registrants Form 10-K dated
March 14, 2005 |
IV-7
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
|
|
|
|
Liberty Global, Inc.
|
|
Dated: June 30, 2006
|
|
By /s/ Elizabeth M.
Markowski
|
|
|
|
|
|
Elizabeth M. Markowski
Senior Vice President, Secretary and General Counsel |
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
date indicated.
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
|
/s/ John C. Malone
John C. Malone |
|
Chairman of the Board |
|
June 30, 2006 |
|
/s/ Michael T. Fries
Michael T. Fries |
|
Chief Executive Officer, President and Director |
|
June 30, 2006 |
|
/s/ John P. Cole
John P. Cole |
|
Director |
|
June 30, 2006 |
|
/s/ John W. Dick
John W. Dick |
|
Director |
|
June 30, 2006 |
|
/s/ Paul A. Gould
Paul A. Gould |
|
Director |
|
June 30, 2006 |
|
/s/ David E. Rapley
David E. Rapley |
|
Director |
|
June 30, 2006 |
|
/s/ Larry E. Romrell
Larry E. Romrell |
|
Director |
|
June 30, 2006 |
|
/s/ Gene W. Schneider
Gene W. Schneider |
|
Director |
|
June 30, 2006 |
|
/s/ J. C. Sparkman
J. C. Sparkman |
|
Director |
|
June 30, 2006 |
|
/s/ J. David Wargo
J. David Wargo |
|
Director |
|
June 30, 2006 |
|
/s/ Charles H.R.
Bracken
Charles H.R. Bracken |
|
Senior Vice President
and Co-Chief Financial Officer
(Principal Financial Officer) |
|
June 30, 2006 |
|
/s/ Bernard G. Dvorak
Bernard G. Dvorak |
|
Senior Vice President
and Co-Chief Financial Officer
(Principal Accounting Officer) |
|
June 30, 2006 |
IV-8
LIBERTY GLOBAL, INC.
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(Parent Company Information See Notes to
Consolidated Financial Statements)
CONDENSED BALANCE SHEET
(Parent Company Only)
(amounts in thousands)
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
2005 | |
|
|
| |
ASSETS |
Current assets:
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
3,867 |
|
|
Other current assets
|
|
|
1,021 |
|
|
|
|
|
|
|
Total current assets
|
|
|
4,888 |
|
|
|
|
|
Investments in consolidated subsidiaries, including intercompany
balances
|
|
|
7,824,782 |
|
Property and equipment, at cost
|
|
|
251 |
|
Accumulated depreciation
|
|
|
(23 |
) |
|
|
|
|
Property and equipment, net
|
|
|
228 |
|
Deferred tax asset
|
|
|
17,351 |
|
Other non-current assets
|
|
|
23 |
|
|
|
|
|
|
|
Total assets
|
|
$ |
7,847,272 |
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
Current liabilities:
|
|
|
|
|
|
Accounts payable
|
|
$ |
25,986 |
|
|
Accrued liabilities
|
|
|
4,840 |
|
|
|
|
|
|
|
Total current liabilities
|
|
|
30,826 |
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
Stockholders Equity:
|
|
|
|
|
|
Series A common stock, $.01 par value. Authorized
500,000,000 shares; 232,334,708 shares issued at
December 31, 2005
|
|
|
2,323 |
|
|
Series B common stock, $.01 par value. Authorized
50,000,000 shares; 7,323,570 shares issued and
outstanding at December 31, 2005
|
|
|
73 |
|
|
Series C common stock, $.01 par value. Authorized
500,000,000 shares; 239,820,997 shares issued at
December 31, 2005
|
|
|
2,398 |
|
|
Additional paid-in capital
|
|
|
9,992,236 |
|
|
Accumulated deficit
|
|
|
(1,732,527 |
) |
|
Accumulated other comprehensive loss, net of taxes
|
|
|
(262,889 |
) |
|
Deferred compensation
|
|
|
(15,592 |
) |
|
Treasury stock, at cost
|
|
|
(169,576 |
) |
|
|
|
|
|
|
Total stockholders equity
|
|
|
7,816,446 |
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$ |
7,847,272 |
|
|
|
|
|
IV-9
LIBERTY GLOBAL, INC.
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(Parent Company Information See Notes to
Consolidated Financial Statements)
CONDENSED STATEMENT OF OPERATIONS
(Parent Company Only)
(amounts in thousands)
|
|
|
|
|
|
|
|
|
Six months | |
|
|
ended | |
|
|
December 31, | |
|
|
2005 | |
|
|
| |
Operating costs and expenses:
|
|
|
|
|
|
Selling, general and administrative
|
|
$ |
15,927 |
|
|
Stock-based compensation
|
|
|
(11,927 |
) |
|
Depreciation and amortization
|
|
|
23 |
|
|
|
|
|
|
|
Operating loss
|
|
|
(4,023 |
) |
Other income (expense):
|
|
|
|
|
|
Interest and dividend income
|
|
|
1,135 |
|
|
Related party interest expense, net
|
|
|
(10,856 |
) |
|
Foreign currency transaction losses, net
|
|
|
(8,483 |
) |
|
Other, net
|
|
|
85 |
|
|
|
|
|
|
|
|
(18,119 |
) |
|
|
|
|
|
|
Loss before income taxes and equity in income of consolidated
subsidiaries, net
|
|
|
(22,142 |
) |
Equity in income of consolidated subsidiaries, net
|
|
|
31,439 |
|
Income tax benefit
|
|
|
8,094 |
|
|
|
|
|
|
|
Net income
|
|
$ |
17,391 |
|
|
|
|
|
IV-10
LIBERTY GLOBAL, INC.
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(Parent Company Information See Notes to
Consolidated Financial Statements)
CONDENSED STATEMENT OF STOCKHOLDERS EQUITY
(Parent Company Only)
(amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other | |
|
|
|
|
|
|
|
|
Common stock | |
|
Additional | |
|
|
|
comprehensive | |
|
|
|
|
|
Total | |
|
|
| |
|
paid-in | |
|
Accumulated | |
|
loss, net of | |
|
Deferred | |
|
Treasury | |
|
stockholders | |
|
|
Series A | |
|
Series B | |
|
Series C | |
|
capital | |
|
deficit | |
|
taxes | |
|
compensation | |
|
stock, at cost | |
|
equity | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Balance at July 1, 2005 (Post-LGI Combination)(as adjusted)
|
|
$ |
2,317 |
|
|
$ |
73 |
|
|
$ |
2,390 |
|
|
$ |
9,896,825 |
|
|
$ |
(1,749,918 |
) |
|
$ |
(130,862 |
) |
|
$ |
(11,283 |
) |
|
$ |
(90,594 |
) |
|
$ |
7,918,948 |
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,391 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,391 |
|
|
Other comprehensive loss, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(132,027 |
) |
|
|
|
|
|
|
|
|
|
|
(132,027 |
) |
|
Adjustment due to issuance of stock by subsidiaries and
affiliates and other changes in subsidiary equity, net
of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,320 |
|
|
Issuance of restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,427 |
|
|
|
|
|
|
|
|
|
|
|
(5,427 |
) |
|
|
|
|
|
|
|
|
|
Reclassification of SARS obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,264 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,264 |
|
|
Stock issued (acquired) in connection with equity incentive and
401(K) plans
|
|
|
6 |
|
|
|
|
|
|
|
8 |
|
|
|
23,161 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(89 |
) |
|
|
23,086 |
|
|
Repurchase of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(78,893 |
) |
|
|
(78,893 |
) |
|
Stock-based compensation, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,045 |
) |
|
|
|
|
|
|
|
|
|
|
1,118 |
|
|
|
|
|
|
|
(11,927 |
) |
|
Net cash received in connection with structured stock repurchase
instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
613 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
613 |
|
|
Tax benefits allocated from Liberty Media Corporation pursuant
to Tax Sharing Agreement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,671 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,671 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005
|
|
$ |
2,323 |
|
|
$ |
73 |
|
|
$ |
2,398 |
|
|
$ |
9,992,236 |
|
|
$ |
(1,732,527 |
) |
|
$ |
(262,889 |
) |
|
$ |
(15,592 |
) |
|
$ |
(169,576 |
) |
|
$ |
7,816,446 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IV-11
LIBERTY GLOBAL, INC.
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(Parent Company Information See Notes to
Consolidated Financial Statements)
CONDENSED STATEMENT OF CASH FLOWS
(Parent Company Only)
(amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Six months | |
|
|
ended | |
|
|
December 31, | |
|
|
2005 | |
|
|
| |
Cash flows from operating activities:
|
|
|
|
|
|
Net income
|
|
$ |
17,391 |
|
|
Adjustments to reconcile net income to net cash used by
operating activities:
|
|
|
|
|
|
|
Equity in income of consolidated subsidiaries, net
|
|
|
(31,439 |
) |
|
|
Stock-based compensation
|
|
|
(11,927 |
) |
|
|
Depreciation and amortization
|
|
|
23 |
|
|
|
Deferred income tax benefit
|
|
|
(8,094 |
) |
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
Receivables, pre-paids and other
|
|
|
3,221 |
|
|
|
|
Payables and accruals
|
|
|
34,880 |
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
4,055 |
|
|
|
|
|
Cash flows provided by investing activities:
|
|
|
|
|
|
Net distributions and advances received from subsidiaries and
affiliates
|
|
|
76,996 |
|
|
Capital expended for property and equipment
|
|
|
(231 |
) |
|
|
|
|
|
|
|
|
Net cash provided by investing activities
|
|
|
76,765 |
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
Treasury stock purchase
|
|
|
(78,893 |
) |
|
Proceeds from exercises of stock options
|
|
|
5,717 |
|
|
Other financing activities, net
|
|
|
613 |
|
|
|
|
|
|
|
|
|
Net cash used by financing activities
|
|
|
(72,563 |
) |
|
|
|
|
|
|
|
|
Effect of exchange rates on cash
|
|
|
(8,483 |
) |
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(226 |
) |
|
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
4,093 |
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$ |
3,867 |
|
|
|
|
|
IV-12
LIBERTY MEDIA INTERNATIONAL, INC.
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(Parent Company Information See Notes to
Consolidated Financial Statements)
CONDENSED BALANCE SHEET
(Parent Company Only)
(amounts in thousands)
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
2004 | |
|
|
| |
|
|
as adjusted | |
ASSETS |
Current assets:
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
1,069,996 |
|
|
Derivative instruments
|
|
|
56,011 |
|
|
Other current assets
|
|
|
329 |
|
|
|
|
|
|
|
Total current assets
|
|
|
1,126,336 |
|
|
|
|
|
Investments in consolidated subsidiaries, including intercompany
balances
|
|
|
4,143,562 |
|
Property and equipment, at cost
|
|
|
7,597 |
|
Accumulated depreciation
|
|
|
(387 |
) |
|
|
|
|
Property and equipment, net
|
|
|
7,210 |
|
Deferred tax asset
|
|
|
217 |
|
Other non-current assets
|
|
|
75 |
|
|
|
|
|
|
|
Total assets
|
|
$ |
5,277,400 |
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
Current liabilities:
|
|
|
|
|
|
Accrued liabilities
|
|
$ |
3,927 |
|
|
Derivative instruments
|
|
|
5,257 |
|
|
|
|
|
|
|
Total current liabilities
|
|
|
9,184 |
|
Other long-term liabilities
|
|
|
31,133 |
|
|
|
|
|
|
|
Total liabilities
|
|
|
40,317 |
|
Commitments and contingencies
|
|
|
|
|
Stockholders Equity:
|
|
|
|
|
|
Series A common stock, $.01 par value. Authorized
500,000,000 shares; 168,514,962 shares issued at June 30,
2005
|
|
|
1,685 |
|
|
Series B common stock, $.01 par value. Authorized
50,000,000 shares; 7,264,300 shares issued and outstanding at
June 30, 2005
|
|
|
73 |
|
|
Series C common stock, $.01 par value. Authorized
500,000,000 shares; 175,779,262 shares issued at June 30,
2005
|
|
|
1,758 |
|
|
Additional paid-in capital (as adjusted)
|
|
|
6,999,877 |
|
|
Accumulated deficit
|
|
|
(1,652,430 |
) |
|
Accumulated other comprehensive income (loss), net of taxes
|
|
|
14,010 |
|
|
Treasury stock, at cost
|
|
|
(127,890 |
) |
|
|
|
|
|
|
Total stockholders equity
|
|
|
5,237,083 |
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$ |
5,277,400 |
|
|
|
|
|
IV-13
LIBERTY MEDIA INTERNATIONAL, INC.
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(Parent Company Information See Notes to
Consolidated Financial Statements)
CONDENSED STATEMENTS OF OPERATIONS
(Parent Company Only)
(amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months | |
|
Seven months | |
|
|
ended | |
|
ended | |
|
|
June 30, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
Pre-LGI | |
|
as adjusted | |
|
|
Combination | |
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
$ |
7,184 |
|
|
$ |
8,535 |
|
|
Stock-based compensation charges
|
|
|
5,210 |
|
|
|
20,382 |
|
|
Depreciation and amortization
|
|
|
388 |
|
|
|
387 |
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(12,782 |
) |
|
|
(29,304 |
) |
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
Interest and dividend income
|
|
|
14,852 |
|
|
|
8,673 |
|
|
Realized and unrealized gains (losses) on derivative
instruments, net
|
|
|
8,038 |
|
|
|
(4,146 |
) |
|
Other, net
|
|
|
(642 |
) |
|
|
1,465 |
|
|
|
|
|
|
|
|
|
|
|
22,248 |
|
|
|
5,992 |
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and equity in income of
consolidated subsidiaries, net
|
|
|
9,466 |
|
|
|
(23,312 |
) |
Equity in income (loss) of consolidated subsidiaries, net
|
|
|
(109,762 |
) |
|
|
97,426 |
|
Income tax benefit
|
|
|
2,808 |
|
|
|
5,763 |
|
|
|
|
|
|
|
|
|
|
Net income (loss) (as adjusted)
|
|
$ |
(97,488 |
) |
|
$ |
79,877 |
|
|
|
|
|
|
|
|
IV-14
LIBERTY MEDIA INTERNATIONAL, INC.
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(Parent Company Information See Notes to
Consolidated Financial Statements)
CONDENSED STATEMENTS OF STOCKHOLDERS EQUITY
(Parent Company Only)
(amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated | |
|
|
|
|
|
|
|
|
|
|
|
|
other | |
|
|
|
|
|
|
Common stock | |
|
Additional | |
|
|
|
comprehensive | |
|
Treasury | |
|
Total | |
|
|
| |
|
paid-in | |
|
Accumulated | |
|
income (loss), | |
|
stock at | |
|
stockholders | |
|
|
Series A | |
|
Series B | |
|
Series C | |
|
capital | |
|
deficit | |
|
net of taxes | |
|
cost | |
|
equity | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Balance at June 1, 2004 (as adjusted)
|
|
$ |
1,399 |
|
|
$ |
61 |
|
|
$ |
1,460 |
|
|
$ |
6,226,391 |
|
|
$ |
(1,732,307 |
) |
|
$ |
(56,388 |
) |
|
$ |
|
|
|
$ |
4,440,616 |
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79,877 |
|
|
|
|
|
|
|
|
|
|
|
79,877 |
|
|
Other comprehensive earnings, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70,398 |
|
|
|
|
|
|
|
70,398 |
|
|
Adjustment due to issuance of stock by subsidiaries and
affiliates and other changes in subsidiary equity, net
of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,049 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,049 |
|
|
Common stock issued in rights offering (as adjusted)
|
|
|
283 |
|
|
|
12 |
|
|
|
295 |
|
|
|
735,071 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
735,661 |
|
|
Stock issued for stock option exercises (as adjusted)
|
|
|
3 |
|
|
|
|
|
|
|
3 |
|
|
|
11,984 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,990 |
|
|
Repurchase of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(127,890 |
) |
|
|
(127,890 |
) |
|
Stock-based compensation, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,382 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,382 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004 (as adjusted)
|
|
|
1,685 |
|
|
|
73 |
|
|
|
1,758 |
|
|
|
6,999,877 |
|
|
|
(1,652,430 |
) |
|
|
14,010 |
|
|
|
(127,890 |
) |
|
|
5,237,083 |
|
|
Net loss (as adjusted)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(97,488 |
) |
|
|
|
|
|
|
|
|
|
|
(97,488 |
) |
|
Other comprehensive loss, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(152,303 |
) |
|
|
|
|
|
|
(152,303 |
) |
|
Adjustment due to issuance of stock by subsidiaries and
affiliates and other changes in subsidiary equity, net
of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
127,127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
127,127 |
|
|
Stock issued in connection with equity incentive and
401(K) plans
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
5,196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,197 |
|
|
Stock-based compensation, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,210 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,210 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2005 (Pre-LGI Combination) (as adjusted)
|
|
$ |
1,686 |
|
|
$ |
73 |
|
|
$ |
1,758 |
|
|
$ |
7,137,410 |
|
|
$ |
(1,749,918 |
) |
|
$ |
(138,293 |
) |
|
$ |
(127,890 |
) |
|
$ |
5,124,826 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IV-15
LIBERTY MEDIA INTERNATIONAL, INC.
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(Parent Company Information See Notes to
Consolidated Financial Statements)
CONDENSED STATEMENTS OF CASH FLOWS
(Parent Company Only)
(amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months | |
|
Seven months | |
|
|
ended | |
|
ended | |
|
|
June 30, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
Pre-LGI | |
|
as adjusted | |
|
|
Combination | |
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net income (loss) (as adjusted)
|
|
$ |
(97,488 |
) |
|
$ |
79,877 |
|
|
Adjustments to reconcile net income (loss) to net cash provided
(used) by operating activities:
|
|
|
|
|
|
|
|
|
|
|
Equity in income of consolidated subsidiaries, net
|
|
|
109,762 |
|
|
|
(97,426 |
) |
|
|
Stock-based compensation charges
|
|
|
5,210 |
|
|
|
20,382 |
|
|
|
Realized and unrealized gains (losses) on derivative
instruments, net
|
|
|
(8,038 |
) |
|
|
4,146 |
|
|
|
Depreciation and amortization
|
|
|
388 |
|
|
|
387 |
|
|
|
Deferred income tax expense
|
|
|
(2,808 |
) |
|
|
(4,417 |
) |
|
|
Other non-cash items, net
|
|
|
(10,364 |
) |
|
|
30,195 |
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Receivables, pre-paids and other
|
|
|
46 |
|
|
|
(329 |
) |
|
|
|
Payables and accruals
|
|
|
(1,302 |
) |
|
|
2,242 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used) provided by operating activities
|
|
|
(4,594 |
) |
|
|
35,057 |
|
|
|
|
|
|
|
|
Cash flows (used) provided by investing activities:
|
|
|
|
|
|
|
|
|
|
Investments in and loans to consolidated subsidiaries,
affiliates and others
|
|
|
(554,345 |
) |
|
|
|
|
|
Net distributions and advances received from subsidiaries and
affiliates
|
|
|
|
|
|
|
400,281 |
|
|
Net cash recorded (paid) to purchase or settle derivative
instruments
|
|
|
57,099 |
|
|
|
(35,653 |
) |
|
Other investing activities, net
|
|
|
(17 |
) |
|
|
(36 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash (used) provided by investing activities
|
|
|
(497,263 |
) |
|
|
364,592 |
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Net proceeds received from rights offering
|
|
|
|
|
|
|
735,661 |
|
|
Treasury stock purchase
|
|
|
|
|
|
|
(127,890 |
) |
|
Proceeds from exercise of stock options
|
|
|
5,197 |
|
|
|
11,990 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
5,197 |
|
|
|
619,761 |
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(496,660 |
) |
|
|
1,019,410 |
|
|
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
1,069,996 |
|
|
|
50,586 |
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$ |
573,336 |
|
|
$ |
1,069,996 |
|
|
|
|
|
|
|
|
IV-16
LIBERTY GLOBAL, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Doubtful Accounts |
|
|
|
|
|
|
|
Additions |
|
|
|
Foreign |
|
|
|
|
Balance at |
|
to costs |
|
|
|
currency |
|
Balance at |
|
|
beginning |
|
and |
|
|
|
Deductions |
|
translation |
|
end of |
|
|
of period |
|
expenses |
|
Acquisition |
|
or write-offs |
|
adjustments |
|
period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
amounts in thousands |
Year ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
$ |
13,104 |
|
|
|
1,450 |
|
|
|
|
|
|
|
(2,076 |
) |
|
|
1,469 |
|
|
|
13,947 |
|
|
2004
|
|
$ |
13,947 |
|
|
|
22,663 |
|
|
|
51,400 |
|
|
|
(30,264 |
) |
|
|
3,644 |
|
|
|
61,390 |
|
|
2005
|
|
$ |
61,390 |
|
|
|
39,944 |
|
|
|
31,903 |
|
|
|
(54,596 |
) |
|
|
(5,000 |
) |
|
|
73,641 |
|
IV-17
Report of Independent Registered Public Accounting Firm
The Board of Directors
Jupiter TV Co., Ltd.
We have audited the accompanying consolidated balance sheets of
Jupiter TV Co., Ltd. (formerly, Jupiter Programming Co., Ltd.)
and subsidiaries as of December 31, 2005 and 2004, and the
related consolidated statements of operations,
shareholders equity and comprehensive income, and cash
flows for each of the years in the three-year period ended
December 31, 2005. These consolidated financial statements
are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Jupiter TV Co., Ltd. and subsidiaries as of
December 31, 2005 and 2004, and the results of their
operations and their cash flows for each of the years in the
three-year period ended December 31, 2005, in conformity
with U.S. generally accepted accounting principles.
/s/ KPMG AZSA & Co.
Tokyo, Japan
March 1, 2006
IV-18
JUPITER TV CO., LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2005 and 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
Yen | |
|
Yen | |
|
|
(thousands) | |
|
(thousands) | |
ASSETS |
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
Related party
|
|
¥ |
7,210,000 |
|
|
¥ |
3,100,000 |
|
|
|
Other
|
|
|
7,807,758 |
|
|
|
2,252,611 |
|
|
Accounts receivable (less allowance for doubtful accounts of
¥6,885 thousand in 2005 and ¥7,723 thousand in 2004):
|
|
|
|
|
|
|
|
|
|
|
Related party
|
|
|
247,412 |
|
|
|
341,364 |
|
|
|
Other
|
|
|
5,820,921 |
|
|
|
4,338,273 |
|
|
Retail inventories
|
|
|
3,271,723 |
|
|
|
2,999,404 |
|
|
Program rights and language versioning, net (Note 3)
|
|
|
776,225 |
|
|
|
599,480 |
|
|
Deferred income taxes (Note 13)
|
|
|
1,920,446 |
|
|
|
1,334,560 |
|
|
Prepaid and other current assets
|
|
|
944,943 |
|
|
|
401,840 |
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
27,999,428 |
|
|
|
15,367,532 |
|
|
Investments (Note 4)
|
|
|
8,323,586 |
|
|
|
6,929,961 |
|
|
Property and equipment, net (Note 5)
|
|
|
5,558,196 |
|
|
|
5,327,068 |
|
|
Software development costs, net (Note 6)
|
|
|
4,125,115 |
|
|
|
1,902,244 |
|
|
Program rights and language versioning, excluding current
portion, net (Note 3)
|
|
|
346,059 |
|
|
|
86,289 |
|
|
Goodwill (Note 8)
|
|
|
294,244 |
|
|
|
470,131 |
|
|
Other intangible assets, net (Note 7)
|
|
|
218,624 |
|
|
|
251,959 |
|
|
Deferred income taxes (Note 13)
|
|
|
811,465 |
|
|
|
357,606 |
|
|
Other assets, net
|
|
|
1,187,959 |
|
|
|
680,365 |
|
|
|
|
|
|
|
|
Total assets
|
|
¥ |
48,864,676 |
|
|
¥ |
31,373,155 |
|
|
|
|
|
|
|
|
IV-19
JUPITER TV CO., LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
December 31, 2005 and 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
Yen | |
|
Yen | |
|
|
(thousands) | |
|
(thousands) | |
LIABILITIES AND SHAREHOLDERS EQUITY |
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Short-term debt (related party) (Note 12):
|
|
¥ |
275,000 |
|
|
¥ |
|
|
|
Current portion of long-term debt (Note 12):
|
|
|
1,600,000 |
|
|
|
|
|
|
Obligations under capital leases, current installments (related
party) (Note 11)
|
|
|
418,757 |
|
|
|
290,031 |
|
|
Accounts payable:
|
|
|
|
|
|
|
|
|
|
|
Related party
|
|
|
199,768 |
|
|
|
556,748 |
|
|
|
Other
|
|
|
8,175,159 |
|
|
|
4,849,410 |
|
|
Accrued liabilities:
|
|
|
|
|
|
|
|
|
|
|
Related party
|
|
|
1,199,511 |
|
|
|
276,938 |
|
|
|
Other
|
|
|
1,601,439 |
|
|
|
1,515,453 |
|
|
Income taxes payable
|
|
|
5,035,948 |
|
|
|
2,191,203 |
|
|
Advances from affiliate
|
|
|
1,700,000 |
|
|
|
938,000 |
|
|
Deferred income taxes (Note 13)
|
|
|
7,195 |
|
|
|
|
|
|
Other current liabilities
|
|
|
914,454 |
|
|
|
512,501 |
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
21,127,231 |
|
|
|
11,130,284 |
|
Long-term debt, excluding current portion (Note 12):
|
|
|
|
|
|
|
|
|
|
|
Related party
|
|
|
|
|
|
|
1,000,000 |
|
|
|
Other
|
|
|
2,400,000 |
|
|
|
4,000,000 |
|
Obligations under capital leases, excluding current installments
(related party) (Note 11)
|
|
|
1,271,550 |
|
|
|
823,170 |
|
Accrued pension and severance cost (Note 14)
|
|
|
394,404 |
|
|
|
284,796 |
|
Deferred income taxes (Note 13)
|
|
|
347,427 |
|
|
|
81,380 |
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
25,540,612 |
|
|
|
17,319,630 |
|
|
|
|
|
|
|
|
Minority interests
|
|
|
5,740,286 |
|
|
|
3,055,893 |
|
|
|
|
|
|
|
|
Shareholders equity (Note 15):
|
|
|
|
|
|
|
|
|
|
Common stock, no par value;
|
|
|
11,434,000 |
|
|
|
11,434,000 |
|
|
Authorized 460,000 shares; issued and outstanding
360,680 shares
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
7,266,129 |
|
|
|
6,788,054 |
|
|
Accumulated deficit
|
|
|
(1,154,532 |
) |
|
|
(7,207,717 |
) |
|
Accumulated other comprehensive income (loss)
|
|
|
38,181 |
|
|
|
(16,705 |
) |
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
17,583,778 |
|
|
|
10,997,632 |
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
¥ |
48,864,676 |
|
|
¥ |
31,373,155 |
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
IV-20
JUPITER TV CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 2005, 2004 and 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
Yen | |
|
Yen | |
|
Yen | |
|
|
(thousands) | |
|
(thousands) | |
|
(thousands) | |
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail sales, net
|
|
¥ |
75,676,822 |
|
|
¥ |
50,010,854 |
|
|
¥ |
38,699,329 |
|
|
Television programming revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related party
|
|
|
1,894,734 |
|
|
|
1,662,786 |
|
|
|
1,555,219 |
|
|
|
Other
|
|
|
7,550,155 |
|
|
|
6,764,580 |
|
|
|
5,902,026 |
|
|
Services and other revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related party
|
|
|
957,801 |
|
|
|
866,157 |
|
|
|
755,244 |
|
|
|
Other
|
|
|
1,564,374 |
|
|
|
1,176,418 |
|
|
|
906,453 |
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
87,643,886 |
|
|
|
60,480,795 |
|
|
|
47,818,271 |
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of retail sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related party
|
|
|
2,870,514 |
|
|
|
2,212,430 |
|
|
|
1,597,880 |
|
|
|
Other
|
|
|
41,234,988 |
|
|
|
28,038,763 |
|
|
|
21,658,902 |
|
|
Cost of programming and distribution:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related party
|
|
|
2,770,766 |
|
|
|
2,742,401 |
|
|
|
2,487,545 |
|
|
|
Other
|
|
|
9,313,547 |
|
|
|
7,482,238 |
|
|
|
6,271,783 |
|
|
Selling, general and administrative expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related party
|
|
|
1,376,379 |
|
|
|
1,318,449 |
|
|
|
943,439 |
|
|
|
Other
|
|
|
13,904,523 |
|
|
|
10,084,322 |
|
|
|
8,532,952 |
|
|
Depreciation and amortization
|
|
|
1,848,694 |
|
|
|
1,380,432 |
|
|
|
1,210,163 |
|
|
Impairment loss on long-lived assets (Note 5)
|
|
|
735,349 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
74,054,760 |
|
|
|
53,259,035 |
|
|
|
42,702,664 |
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
13,589,126 |
|
|
|
7,221,760 |
|
|
|
5,115,607 |
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related party
|
|
|
(46,576 |
) |
|
|
(45,258 |
) |
|
|
(60,073 |
) |
|
|
Other
|
|
|
(72,215 |
) |
|
|
(77,245 |
) |
|
|
(66,204 |
) |
|
Foreign exchange gain (loss)
|
|
|
488,924 |
|
|
|
126,572 |
|
|
|
(141,368 |
) |
|
Equity in income (losses) of equity-method affiliates
(Note 4)
|
|
|
53,925 |
|
|
|
22,888 |
|
|
|
(64,472 |
) |
|
Gain on sale of investment in affiliate (Note 4)
|
|
|
116,441 |
|
|
|
|
|
|
|
|
|
|
Impairment loss on investment (Note 4)
|
|
|
(30,000 |
) |
|
|
|
|
|
|
|
|
|
Other income (expense), net
|
|
|
5,859 |
|
|
|
(9,241 |
) |
|
|
9,763 |
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
516,358 |
|
|
|
17,716 |
|
|
|
(322,354 |
) |
|
|
|
|
|
|
|
|
|
|
Income before income taxes and minority interests
|
|
|
14,105,484 |
|
|
|
7,239,476 |
|
|
|
4,793,253 |
|
Income tax expense (Note 13)
|
|
|
(5,457,906 |
) |
|
|
(2,951,446 |
) |
|
|
(1,519,225 |
) |
Minority interests in earnings, net of tax
|
|
|
(2,594,393 |
) |
|
|
(1,077,972 |
) |
|
|
(608,738 |
) |
|
|
|
|
|
|
|
|
|
|
Net income
|
|
¥ |
6,053,185 |
|
|
¥ |
3,210,058 |
|
|
¥ |
2,665,290 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
IV-21
JUPITER TV CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY AND
COMPREHENSIVE INCOME
Years ended December 31, 2005, 2004 and 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
Yen | |
|
Yen | |
|
Yen | |
|
|
(thousands) | |
|
(thousands) | |
|
(thousands) | |
Common stock (Note 15):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
¥ |
11,434,000 |
|
|
¥ |
16,834,000 |
|
|
¥ |
16,834,000 |
|
|
Transfer from common stock
|
|
|
|
|
|
|
(8,400,000 |
) |
|
|
|
|
|
Issuance of common stock
|
|
|
|
|
|
|
3,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
|
11,434,000 |
|
|
|
11,434,000 |
|
|
|
16,834,000 |
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital (Note 15):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
6,788,054 |
|
|
|
|
|
|
|
|
|
|
Gain on issuance of common stock by equity-method investee, net
of income tax of ¥282,787 thousand (Note 4)
|
|
|
478,075 |
|
|
|
|
|
|
|
|
|
|
Transfer from common stock
|
|
|
|
|
|
|
6,587,064 |
|
|
|
|
|
|
Issuance of common stock
|
|
|
|
|
|
|
3,000,000 |
|
|
|
|
|
|
Carryover basis adjustment related to LJS acquisition
(Note 2)
|
|
|
|
|
|
|
(2,799,010 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
|
7,266,129 |
|
|
|
6,788,054 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated deficit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
(7,207,717 |
) |
|
|
(12,230,711 |
) |
|
|
(14,896,001 |
) |
|
Transfer from common stock (Note 15)
|
|
|
|
|
|
|
1,812,936 |
|
|
|
|
|
|
Net income
|
|
|
6,053,185 |
|
|
|
3,210,058 |
|
|
|
2,665,290 |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
|
(1,154,532 |
) |
|
|
(7,207,717 |
) |
|
|
(12,230,711 |
) |
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
(16,705 |
) |
|
|
|
|
|
|
|
|
|
Unrecognized gains (losses) on derivative instruments, net of
income tax expense of ¥37,653 thousand in 2005 and income
tax benefit of ¥11,460 thousand in 2004 (Note 9):
|
|
|
54,886 |
|
|
|
(16,705 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
|
38,181 |
|
|
|
(16,705 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury stock at cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redemption of common stock, held as treasury stock (Note 15)
|
|
|
|
|
|
|
(6,000,000 |
) |
|
|
|
|
|
Issuance of treasury stock related to LJS acquisition
(Note 2)
|
|
|
|
|
|
|
6,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
¥ |
17,583,778 |
|
|
¥ |
10,997,632 |
|
|
¥ |
4,603,289 |
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for the year
|
|
¥ |
6,053,185 |
|
|
¥ |
3,210,058 |
|
|
¥ |
2,665,290 |
|
|
Unrealized gain (loss) on derivative instruments, net of income
tax expense of ¥30,252 thousand in 2005 and income tax
benefit of ¥11,460 thousand in 2004
|
|
|
44,096 |
|
|
|
(16,705 |
) |
|
|
|
|
|
Reclassification adjustment for loss included in net income, net
of income tax of ¥7,401 thousand
|
|
|
10,790 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
¥ |
6,108,071 |
|
|
¥ |
3,193,353 |
|
|
¥ |
2,665,290 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
IV-22
JUPITER TV CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2005, 2004 and 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
Yen | |
|
Yen | |
|
Yen | |
|
|
(thousands) | |
|
(thousands) | |
|
(thousands) | |
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
¥ |
6,053,185 |
|
|
¥ |
3,210,058 |
|
|
¥ |
2,665,290 |
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
1,848,694 |
|
|
|
1,380,432 |
|
|
|
1,210,163 |
|
|
|
Amortization of program rights and language versioning
|
|
|
1,810,630 |
|
|
|
1,732,435 |
|
|
|
1,570,670 |
|
|
|
Provision for doubtful accounts
|
|
|
(838 |
) |
|
|
(3,519 |
) |
|
|
1,975 |
|
|
|
Equity in (income) losses of equity-method affiliates
|
|
|
(53,925 |
) |
|
|
(22,888 |
) |
|
|
64,472 |
|
|
|
Deferred income taxes
|
|
|
(1,061,284 |
) |
|
|
(278,181 |
) |
|
|
(553,039 |
) |
|
|
Minority interest in earnings
|
|
|
2,594,393 |
|
|
|
1,077,972 |
|
|
|
608,738 |
|
|
|
Gain on sale of investment in affiliate
|
|
|
(116,441 |
) |
|
|
|
|
|
|
|
|
|
|
|
Impairment loss on long-lived assets
|
|
|
735,349 |
|
|
|
|
|
|
|
|
|
|
|
|
Impairment loss on investment
|
|
|
30,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Changes in assets and liabilities, net of effects of
acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of program rights and language versioning
|
|
|
(2,247,145 |
) |
|
|
(1,631,074 |
) |
|
|
(1,608,392 |
) |
|
|
|
Increase in accounts receivable
|
|
|
(1,387,858 |
) |
|
|
(1,307,561 |
) |
|
|
(740,650 |
) |
|
|
|
(Increase) decrease in retail inventories
|
|
|
(272,319 |
) |
|
|
(763,453 |
) |
|
|
252,870 |
|
|
|
|
Increase in accounts payable
|
|
|
2,777,437 |
|
|
|
883,283 |
|
|
|
777,510 |
|
|
|
|
Increase in accrued liabilities
|
|
|
977,414 |
|
|
|
263,015 |
|
|
|
425,674 |
|
|
|
|
Increase in income taxes payable
|
|
|
2,844,746 |
|
|
|
674,288 |
|
|
|
369,587 |
|
|
|
|
Other, net
|
|
|
(446,543 |
) |
|
|
(22,218 |
) |
|
|
210,947 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
14,085,495 |
|
|
|
5,192,589 |
|
|
|
5,255,815 |
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(3,784,687 |
) |
|
|
(3,886,668 |
) |
|
|
(1,299,228 |
) |
|
Acquisition of subsidiary, net of cash acquired
|
|
|
(46,365 |
) |
|
|
(391,887 |
) |
|
|
|
|
|
Proceeds from sale of investment in affiliate
|
|
|
275,102 |
|
|
|
|
|
|
|
|
|
|
Investments in affiliates
|
|
|
(767,500 |
) |
|
|
(748,500 |
) |
|
|
(1,259,945 |
) |
|
Other, net
|
|
|
|
|
|
|
|
|
|
|
4,500 |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(4,323,450 |
) |
|
|
(5,027,055 |
) |
|
|
(2,554,673 |
) |
IV-23
JUPITER TV CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH
FLOWS (Continued)
Years ended December 31, 2005, 2004 and 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
Yen | |
|
Yen | |
|
Yen | |
|
|
(thousands) | |
|
(thousands) | |
|
(thousands) | |
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds (repayments) on short-term debt
|
|
|
|
|
|
|
(46,000 |
) |
|
|
46,000 |
|
|
Proceeds from advances from affiliate
|
|
|
762,000 |
|
|
|
938,000 |
|
|
|
|
|
|
Proceeds from issuance of short-term debt (related party)
|
|
|
275,000 |
|
|
|
|
|
|
|
4,040,000 |
|
|
Principal payments on shareholders loan
|
|
|
(1,000,000 |
) |
|
|
(176,000 |
) |
|
|
(4,000,000 |
) |
|
Principal payments on obligations under capital leases
|
|
|
(354,515 |
) |
|
|
(429,014 |
) |
|
|
(460,262 |
) |
|
Proceeds from issuance of common stock
|
|
|
|
|
|
|
6,000,000 |
|
|
|
|
|
|
Proceeds from issuance of common stock by consolidated investee
|
|
|
90,000 |
|
|
|
|
|
|
|
|
|
|
Payments to acquire treasury stock
|
|
|
|
|
|
|
(6,000,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(227,515 |
) |
|
|
286,986 |
|
|
|
(374,262 |
) |
Net effect of exchange rate changes on cash and cash equivalents
|
|
|
130,617 |
|
|
|
(4,677 |
) |
|
|
(23,095 |
) |
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
9,665,147 |
|
|
|
447,843 |
|
|
|
2,303,785 |
|
Cash and cash equivalents at beginning of year
|
|
|
5,352,611 |
|
|
|
4,904,768 |
|
|
|
2,600,983 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
¥ |
15,017,758 |
|
|
¥ |
5,352,611 |
|
|
¥ |
4,904,768 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
¥ |
3,674,446 |
|
|
¥ |
2,551,301 |
|
|
¥ |
1,702,678 |
|
|
|
Interest
|
|
|
91,860 |
|
|
|
90,711 |
|
|
|
126,277 |
|
Acquisition of BBF (Note 2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of assets acquired (including cash acquired of
¥158,113 thousand)
|
|
|
|
|
|
|
705,657 |
|
|
|
|
|
|
Fair value of liabilities assumed
|
|
|
|
|
|
|
(87,657 |
) |
|
|
|
|
|
Accrued estimated additional purchase consideration
|
|
|
|
|
|
|
(68,000 |
) |
|
|
|
|
Non-cash activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets acquired under capital leases
|
|
|
931,620 |
|
|
|
1,037,505 |
|
|
|
142,644 |
|
|
Accrual for purchase of property and equipment
|
|
|
290,402 |
|
|
|
241,622 |
|
|
|
|
|
|
Acquisition of LJS through issuance of treasury stock
(Note 2)
|
|
|
|
|
|
|
3,200,990 |
|
|
|
|
|
|
Elimination of long-term loan from LJS
|
|
|
|
|
|
|
840,000 |
|
|
|
|
|
See accompanying notes to consolidated financial statements.
IV-24
JUPITER TV 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 TV Co., Ltd. (the Company), formerly Jupiter
Programming Co., Ltd., and its subsidiaries (hereafter
collectively referred to as JTV) invest in, develop,
manage and distribute television programming through cable,
satellite and broadband platforms systems in Japan. Jupiter Shop
Channel Co., Ltd (Shop Channel), through which JTV
markets and sells a wide variety of consumer products and
accessories, is JTVs largest channel in terms of revenue,
comprising approximately 86%, 83%, and 81%, of total revenues
for the years ended December 31, 2005, 2004 and 2003,
respectively. JTVs business activities are conducted in
Japan and serve the Japanese market
The Company is owned 50% by Liberty Global, Inc
(LGI), formerly Liberty Media International, Inc.,
through its wholly owned subsidiaries Liberty Programming Japan,
Inc. (43%) and Liberty Programming Japan II LLC (7%), 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, and
changed its name to Kabushiki Kaisha Jupiter TV Co., Ltd.,
Jupiter TV Co., Ltd. in English, effective from January 1,
2006.
|
|
(b) |
Basis of Consolidated Financial Statements |
The Company and its subsidiaries maintain their books of account
in accordance with accounting principles generally accepted in
Japan. The consolidated financial statements presented herein
have been prepared in a manner and reflect certain adjustments
that are necessary to conform them to U.S. generally
accepted accounting principles. The major areas requiring such
adjustment are accounting for derivative instruments and hedging
activities, assets held under finance lease arrangements,
goodwill and other intangible assets, employers accounting
for pensions, compensated absence, deferred taxes, cooperative
marketing arrangements and certain customer discounts, merger
transactions by equity affiliates, and non-cash contribution of
Liberty J Sports, Inc., from Liberty Media International,
Inc. in 2004.
|
|
(c) |
Principles of Consolidation |
The consolidated financial statements include the financial
statements of the Company and all of its majority owned
subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
JTV accounts for investments in variable interest entities in
accordance with the provisions of the Revised Interpretation of
the FASB Interpretation (FIN) No. 46
Consolidation of Variable Interest Entities, issued
in December 2003. The Revised Interpretation of
FIN No. 46 provides guidance on how to identify a
variable interest entity (VIE), and determines when
the assets, liabilities, non-controlling interests, and results
of operations of a VIE must be included in a companys
consolidated financial statements. A company that holds variable
interests in an entity is required to consolidate the entity if
the companys interest in the VIE is such that the company
will absorb a majority of the VIEs expected losses and/or
receive a majority of the entitys expected residual
returns, if any. VIEs created after December 31, 2003 must
be accounted for under the Revised Interpretation of
FIN No. 46. JTV consolidates Reality TV Japan, which
was incorporated in January 2005, and in which JTV owns a 50%
interest, in accordance with the provisions of the Revised
Interpretation of FIN No. 46. Reality TV Japan is a
television channel specializing in the reality genre,
distributed through cable, satellite and broadband platforms,
which complements JTVs other channel businesses.
IV-25
JUPITER TV CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Cash equivalents consist of highly liquid debt instruments with
an initial maturity of three months or less from the date of
purchase.
|
|
(e) |
Allowance for Doubtful Accounts |
Allowance for doubtful accounts is computed based on historical
bad debt experience and includes estimated uncollectible amounts
based on an analysis of certain individual accounts, including
claims in bankruptcy.
Retail Inventories, consisting primarily of products held for
sale on Shop Channel, are stated at the lower of cost or market
value. Cost is determined using the
first-in, first-out
method.
|
|
(g) |
Program Rights and Language Versioning |
Rights to programming acquired for broadcast on the programming
channels and language versioning are stated at the lower of cost
and net realizable value. Program right licenses generally state
a fixed time period within which a program can be aired, and
generally limit the number of times a program can be aired. The
licensor retains ownership of the program upon expiration of the
license. Programming rights and language versioning costs are
amortized over the license period for the program rights based
on the nature of the contract or program. Where airing runs are
limited, amortization is generally based on runs usage, where
usage is unlimited, a straight line basis is used as an estimate
of actual usage for amortization purposes. Certain sports
programs are amortized fully upon first airing. Such
amortization is included in programming and distribution expense
in the accompanying consolidated statements of operations.
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 JTVs voting
interest is 20% to 50% and JTV has the ability to exercise
significant influence over the affiliates operations and
financial policies, the equity method of accounting is used.
Under this method, the investment is originally recorded at cost
and is adjusted to recognize JTVs share of the net
earnings or losses of its affiliates. JTV recognizes its share
of losses of an equity method affiliate until its investment and
net advances, if any, are reduced to zero and only provides for
additional losses in the event that it has guaranteed
obligations of the equity method affiliate or is otherwise
committed to provide further financial support.
The difference between the carrying value of JTVs
investment in the affiliate and the underlying equity in the net
assets of the affiliate is recorded as equity method intangible
assets where appropriate and amortized over a relevant period of
time, or as residual goodwill. Equity method goodwill is not
amortized but is reviewed for impairment in accordance with
Accounting Principles Board Opinion (APB)
No. 18, The Equity-Method Accounting for Investments
in Common Stock which requires that an
other-than-temporary decline in value of an investment be
recognized as an impairment loss.
Investments in other securities carried at cost represent
non-marketable equity securities in which JTVs ownership
is less than 20% and JTV does not have the ability to exercise
significant influence over the entities operation and
financial policies.
JTV 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, JTV utilizes various sources of information, as
available, including cash flow projections, independent
valuations and, as applicable, stock
IV-26
JUPITER TV CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
price analysis. In the event of a determination that a decline
in value is other-than-temporary, a charge to income is recorded
for the loss, and a new cost basis in the investment is
established.
|
|
(i) |
Derivative Financial Instruments |
Under Statement of Financial Accounting Standards
(SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended, entities
are required to carry all derivative instruments in the
consolidated balance sheets at fair value. The accounting for
changes in the fair value (that is, gains or losses) of a
derivative instrument depends on whether it has been designated
and qualifies as part of a hedging relationship and, if so, on
the reason for holding the instrument. If certain conditions are
met, entities may elect to designate a derivative instrument as
a hedge of exposures to changes in fair values, cash flows, or
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
income in the period of change.
JTV 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. JTV 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 have qualified for hedge
accounting under the hedging criteria specified by
SFAS No. 133. However prior to January 1, 2004,
JTV elected not to designate any qualifying transactions as
hedges. For certain qualifying transactions entered into since
January 1, 2004, JTV has designated the transactions as
cash flow hedges and the effective portion of the gain or loss
on the derivative instrument is reported as a component of other
comprehensive income (loss). For JTVs foreign exchange
forward contracts that do not qualify for hedge accounting under
the hedging criteria specified by SFAS No. 133,
changes in the fair value of derivatives are recorded in the
consolidated statement of operations in the period of the change.
JTV does not, as a matter of policy, enter into derivative
transactions for the purpose of speculation.
|
|
(j) |
Property and Equipment |
Property and equipment are stated at cost.
Depreciation and amortization is generally computed using the
straight line method over the estimated useful lives of the
respective assets as follows:
|
|
|
|
|
Furniture and fixtures
|
|
|
2-20 years |
|
Leasehold and building improvements
|
|
|
3-18 years |
|
Equipment and vehicles
|
|
|
2-10 years |
|
Buildings
|
|
|
37-50 years |
|
Equipment under capital leases is initially stated at the
present value of minimum lease payments. Equipment under capital
leases is amortized using the straight line method over the
shorter of the lease term and the estimated useful lives of the
respective assets, which generally range from three to nine
years.
IV-27
JUPITER TV CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(k) |
Software Development Costs |
JTV capitalizes certain costs incurred to purchase or develop
software for internal-use. Costs incurred to develop software
for internal use are expensed as incurred during the preliminary
project stage, including costs associated with making strategic
decisions and determining performance and system requirements
regarding the project, and vendor demonstration costs. Labor
costs incurred subsequent to the preliminary project stage
through implementation are capitalized. JTV also expenses costs
incurred for internal-use software projects in the post
implementation stage such as costs for training and maintenance.
The capitalized cost of software is amortized on a straight-line
basis over the estimated useful life, which is generally two to
five years.
|
|
(l) |
Goodwill and Other Intangible Assets |
Goodwill represents the excess of costs over fair value of net
assets of businesses acquired, and is accounted for under the
provisions of SFAS No. 141, Business
Combinations, and SFAS No. 142, Goodwill
and Other Intangible Assets. SFAS No. 141
requires the use of the purchase method of accounting for
business combinations and establishes certain criteria for the
recognition of intangible assets separately from goodwill. Under
SFAS No. 142 goodwill is no longer amortized, but
instead is tested for impairment at least annually. Intangible
assets with definite useful lives are amortized over their
respective estimated useful lives and reviewed for impairment in
accordance with SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. Any
recognized intangible assets determined to have an indefinite
useful life are not amortized, but instead are tested for
impairment until their life is determined to be no longer
indefinite.
JTV performs its annual impairment test for goodwill and
indefinite-life intangible assets at the end of each year. JTV
completed its annual impairment tests at December 31, 2005,
2004 and 2003, respectively, with no indication of impairment
identified.
|
|
(m) |
Long-Lived Assets and Long-Lived Assets to Be Disposed
Of |
JTV accounts for long-lived assets in accordance with the
provisions of SFAS No. 144. SFAS No. 144
requires that long-lived assets and certain identifiable
intangibles with definite useful lives be reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net
undiscounted cash flows expected to be generated by the asset.
If such assets are considered to be impaired, the impairment to
be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets.
Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell. Fair value is
determined by independent third party appraisals, projected
discounted cash flows, or other valuation techniques as
appropriate.
JTV accounts for its obligations associated with the retirement
of tangible long-lived assets in accordance with
SFAS No. 143, Accounting for Asset Retirement
Obligations. Pursuant to SFAS No. 143,
obligations associated with the retirement of tangible
long-lived assets are recorded as liabilities when those
obligations are incurred, with the amount of the liability
initially measured at fair value. The associated asset
retirement costs are capitalized as part of the carrying amount
of the long-lived asset.
|
|
(n) |
Accrued Pension and Severance Costs |
The Company and certain of its subsidiaries provide a Retirement
Allowance Plan (RAP) for eligible employees. The RAP
is an unfunded retirement allowance program in which benefits
are based on years of service which in turn determine a multiple
of final monthly compensation. JTV accounts for the RAP in
accordance with the provisions of SFAS No. 87,
Employers Accounting for Pensions.
In addition, JTV 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
IV-28
JUPITER TV CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Corporation. The plan is composed of substitutional portions
based on the pay-related part of the old age pension benefits
prescribed by the Welfare Pension Insurance Law in Japan, and
corporate portions based on contributory defined benefit pension
arrangements established at the discretion of the Company and
its subsidiaries. Benefits under the EPF Plan are based on years
of service and the employees compensation during the five
years before retirement.
The assets of the EPF Plan are co-mingled and no assets are
separately identifiable for any one participating company. JTV
accounts for the EPF Plan in accordance with the provisions of
SFAS No. 87, governing multi-employer plans. Under
these provisions, JTV recognizes a net pension expense for the
required contribution for each period and recognizes a liability
for any contributions due but unpaid at the end of each period.
Any shortfalls in plan funding are charged to participating
companies on a
share-of-contribution
basis through special contributions spread over a
period of years determined by the EPF Plan as being appropriate.
Revenue from sales of products by Shop Channel is recognized
when the products are delivered to customers, which is when
title and risk of loss transfers. Shop Channels retail
sales policy allows merchandise to be returned at the
customers discretion, generally up to 30 days after
the date of sale. Retail sales revenue is reported net of
discounts, and of estimated returns, which are based upon
historical experience.
|
|
|
Television Programming Revenue |
Television programming revenue includes subscription and
advertising revenue.
Subscription revenue is recognized in the periods in which
programming services are provided to cable, satellite and
broadband subscribers. JTVs 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 and broadband service
providers generally pay a per-subscriber fee for the right to
distribute JTVs 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, 2005, 2004 and 2003 were
¥1,833,329 thousand, ¥1,639,055 thousand and
¥1,580,945 thousand, respectively. Cooperative marketing
and advertising funds paid to cable system operators for the
years ended December 31, 2005, 2004 and 2003 were
¥264,794 thousand, ¥225,572 thousand and ¥174,432
thousand, respectively.
The Company generates advertising revenue on all of its
programming channels except Shop Channel. Advertising revenue is
recognized, net of agency commissions, when advertisements are
broadcast on JTVs 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
IV-29
JUPITER TV CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
recognized as cost of retail sales in the accompanying
consolidated statements of operations when the products are
delivered to customers and the corresponding revenue is
recognized.
|
|
(q) |
Cost of Programming and Distribution |
Cost of programming and distribution consists of costs incurred
to acquire or produce programs airing on the channels
distributed to cable, satellite and broadband subscribers.
Distribution costs include the costs of delivering the
programming channels via satellite, including the costs incurred
for uplink services and use of satellite transponders, 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 the fair value of the
benefit can be reasonably measured, otherwise as a reduction of
subscription revenue. Advertising expense included in selling,
general and administrative expenses for the years ended
December 31, 2005, 2004 and 2003 was ¥1,676,707
thousand, ¥1,333,596 thousand and ¥1,003,836 thousand,
respectively.
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss
and tax credit carry-forwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the
enactment date.
|
|
(t) |
Issuance of Stock by Subsidiaries and Investee
Affiliates |
The change in the Companys proportionate share in the
underlying net equity of a consolidated subsidiary and investee
accounted for by the equity method from the issuance of common
stock by the subsidiary and equity-method investee is accounted
for as a capital transaction in the consolidated financial
statements.
|
|
(u) |
Foreign Currency Transactions |
Assets and liabilities denominated in foreign currencies are
translated at the applicable current rates on the balance sheet
dates. All revenue and expenses denominated in foreign
currencies are converted at the rates of exchange prevailing
when such transactions occur. The resulting exchange gains or
losses are reflected in other income (expense) in the
accompanying consolidated statements of operations.
Management of JTV has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of
the consolidated financial statements, and the reported amounts
of revenues and expenses during the reporting period, to prepare
these consolidated financial statements in conformity with
U.S. generally accepted accounting principles. Significant
items subject to such estimates and assumptions include
valuation allowances for accounts receivable, retail
inventories, long-lived assets, investments, deferred tax
assets, retail sales returns, and obligations related to
employees retirement plans. Actual results could differ
from estimates.
IV-30
JUPITER TV CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(w) |
New Accounting Standards |
In November 2004, the FASB issued SFAS No. 151,
Inventory Costs-an amendment of ARB No. 43.
This Statement amends the guidance in ARB No. 43,
Chapter 4, Inventory Pricing, to clarify the
accounting for abnormal amounts of idle facility expense,
freight, handling costs, and wasted material (spoilage).
Paragraph 5 of ARB 43, Chapter 4, previously stated
that ... under some circumstances, items such as idle
facility expense, excessive spoilage, double freight, and
rehandling costs may be so abnormal as to require treatment as
current period charges... . This Statement requires that
those items be recognized as current-period charges regardless
of whether they meet the criterion of so abnormal.
In addition, this Statement requires that allocation of fixed
production overheads to the costs of conversion be based on the
normal capacity of the production facilities. This statement is
effective for inventory costs incurred during annual periods
beginning after June 15, 2005. JTV does not expect the
adoption of this statement will have a material effect on its
consolidated financial statements.
In December 2004, the FASB issued SFAS No. 153,
Exchanges of Productive Assets: an Amendment of APB
Opinion No. 29, which addresses the measurement of
exchanges of certain nonmonetary assets (except for certain
exchanges of products or property held for sale in the ordinary
course of business). It amends APB Opinion No. 29,
Accounting for Nonmonetary Exchanges, and requires
that nonmonetary exchanges be accounted for at the fair value of
the assets exchanged, with gains or losses being recognized, if
the fair value is determinable with reasonable limits and the
transaction has commercial substance. The Statement is effective
for fiscal periods beginning after June 15, 2005. JTV does
not expect the adoption of this Statement will have a material
effect on its consolidated financial statements.
In June 2005, the Emerging Issues Task Force (EITF)
reached a consensus on Issue No. 05-6, Determining
the Amortization Period for Leasehold Improvements Purchased
after Lease Inception or Acquired in a Business
Combination. This consensus provides guidance on the
amortization for leasehold improvements acquired in a business
acquisition and leasehold improvements purchased subsequent to
the inception of the lease. The consensus is effective for
periods beginning after June 29, 2005 with early
application permitted. At the September 15, 2005 meeting,
the Task Force clarified that this consensus does not apply to
preexisting leasehold improvements. JTV does not expect the
adoption of this consensus will have a material effect on its
consolidated financial statements.
In September 2005, the EITF reached a consensus on Issue
No. 04-13, Accounting for Purchases and Sales of
Inventory with the Same Counterparty. The consensus
addresses the circumstances under which two or more transactions
involving inventory with the same counterparty should be viewed
as a single nonmonetary transaction within the scope of APB
Opinion No. 29, Accounting for Nonmonetary
Transactions, and whether there are circumstances under
which nonmonetary exchange of inventory within the same line of
business should be recognized at fair value. This consensus is
effective for new arrangements entered into in reporting periods
beginning after March 15, 2006 with early application
permitted. JTV does not expect the adoption of this consensus
will have a material effect on its consolidated financial
statements.
In November 2005, the FASB Staff Position (FSP)
FAS 115-1 and FAS 124-1, The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain
Investments was approved in November 2005. This FSP
nullified the guidance in EITF Issue
No. 03-1,
The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments, and addresses
determining when an investment is considered impaired and
whether that impairment is other-than-temporary, including
measurement of an impairment loss. The FSP carried forward many
of the provisions of EITF Issue
No. 03-1,
including its disclosure requirements and related examples, its
requirements for cost-method investments, and its three-step
model in recognizing an impairment loss. The FSP also
incorporated by reference other accounting literature on
other-than-temporary impairments, including the
U.S. Securities and Exchange Commissions Staff
Accounting Bulletin (SAB) No. 59 Other
Than Temporary Impairment of Certain Investments in Debt and
Equity Securities, paragraph 16 of
SFAS No. 15, Accounting for Certain Investments
in Debt and
IV-31
JUPITER TV CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Equity Securities, and paragraph 6 of APB
Opinion 18, The Equity Method Accounting for
Investments in Common Stock, and requires investors who
identify impairment to determine whether the impairments are
temporary or other-than-temporary using these previously issues
guidance. The FSP is effective for reporting periods beginning
after December 15, 2005. JTV does not expect the adoption
of this Staff Position will have a material effect on its
consolidated financial statements.
Certain prior year amounts have been reclassified for
comparability with the current year presentation.
In April 2004, JTV acquired all of the issued and outstanding
common stock of Liberty J Sports, Inc. (LJS)
from LGI, in exchange for 24,000 shares of JTVs
common stock held in treasury having a fair value, as determined
by independent appraisal, of ¥250,000 per share. The
aggregate purchase price amounted to ¥6,000,000 thousand.
Immediately prior to the acquisition, LJS held 33.3% of the
issued and outstanding shares of voting common stock of Jupiter
Sports, Inc., with JTV holding the remaining 66.7%. Jupiter
Sports Inc. is a holding company with its only principal
asset being an investment representing, at that time,
approximately 42.8% of the issued and outstanding voting common
stock in JSports Broadcasting Corporation (JSB). As
a result of the acquisition of LJS, JTV increased its indirect
ownership in JSB from 28.5% to 42.8%. JSB is a sports channel
broadcasting company that operated three channels of various
sports related contents. Jupiter Sports Inc. accounts for its
investment in JSB using the equity method of accounting as it is
able to exercise significant influence over the operations of
JSB. Upon consummation of the acquisition, LJS was converted to
a limited liability company with the Certificate of Conversion
filed with the Secretary of State of Delaware, and renamed
J Sports LLC.
The acquisition was consummated in concert with a series of
capital transactions as described in Note 15 to the
consolidated financial statements.
The Company accounted for the acquisition to the extent of the
¥3,000,000 thousand cash paid to LGI in an earlier
redemption of shares of common stock (see Note 15) in a
manner similar to a partial step acquisition, reflecting the
culmination of an earnings process on the part of LGI.
Accordingly, the excess of ¥3,000,000 thousand over 50% of
the fair value of the assets acquired and liabilities assumed
with respect to the underlying investment in JSB was recorded as
a component of JTVs investment in JSB and accordingly was
classified as equity method goodwill. Management determined that
the fair value of the assets acquired and liabilities assumed
approximated their respective carrying values at the date of
acquisition, and that there were no material intangible assets
applicable to the underlying investment in JSB. The balance of
the underlying investment acquired in JSB has been accounted for
at historical cost using carryover basis with the difference of
¥3,000,000 thousand over such historical cost amount being
reflected as a deduction from additional paid in capital.
Goodwill from the acquisition is not deductible for tax purposes.
IV-32
JUPITER TV CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes the allocation of the acquisition
consideration:
|
|
|
|
|
|
|
|
Yen |
|
|
(thousands) |
Purchase accounting:
|
|
|
|
|
|
50% of acquisition consideration
|
|
¥ |
3,000,000 |
|
|
Fair value of 50% of underlying net assets acquired
|
|
|
200,990 |
|
|
Equity method goodwill
|
|
|
2,799,010 |
|
Carryover basis:
|
|
|
|
|
|
50% of acquisition consideration
|
|
|
3,000,000 |
|
|
Historical cost of 50% of underlying net assets acquired
|
|
|
200,990 |
|
|
Carryover basis adjustment to additional paid in capital
|
|
|
2,799,010 |
|
On December 28, 2004, JTV acquired 100% of the outstanding
shares of BB Factory Corporation Ltd. (BBF), a
television programming company. The acquisition was accounted
for as a purchase. The aggregate purchase price was
¥596,365 thousand, of which ¥550,000 thousand was paid
in cash on December 28, 2004. The balance of ¥46,365
thousand was paid in cash on April 28, 2005. At
December 31, 2004, the estimated additional purchase
consideration at that time of ¥68,000, which was determined
with reference to the net asset value of BBF at January 31,
2005, pending final approval by both parties to the transaction,
was accrued. The difference between the estimated purchase price
and the final purchase price amounted to ¥21,635 thousand
and reduced goodwill in 2005 (Note 8). JTV has recognized
intangible assets in the amount of ¥200,000 thousand
representing estimated financial benefits from taking over
Channel BBs position in
direct-to-home channel
packaging alliances, which is being amortized over a ten year
period commencing in 2005. The results of operations of BBF were
included in JTVs consolidated statements of operations
from January 1, 2005. Goodwill from the acquisition of BBF
is not deductible for tax purposes.
During 2005, previously unrecognized tax benefits in the form of
net operating loss carryforwards acquired in connection with the
acquisition of BBF amounting to ¥154,252 thousand were
realized during the year. Accordingly, the Company has reduced
the carrying value of goodwill by a similar amount (Note 8).
The following table summarizes the estimated fair value of the
assets acquired and liabilities assumed, as recorded at the date
of acquisition of BBF:
|
|
|
|
|
|
|
Yen | |
|
|
(thousands) | |
Current assets
|
|
¥ |
224,471 |
|
Intangible assets
|
|
|
200,000 |
|
Goodwill
|
|
|
281,186 |
|
|
|
|
|
Total assets acquired
|
|
|
705,657 |
|
Current liabilities assumed
|
|
|
(6,277 |
) |
Deferred tax liabilities
|
|
|
(81,380 |
) |
|
|
|
|
Net assets acquired
|
|
¥ |
618,000 |
|
|
|
|
|
IV-33
JUPITER TV CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(3) |
Program Rights and Language Versioning |
Program rights and language versioning as of December 31,
2005 and 2004 were composed of the following:
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
Yen | |
|
Yen | |
|
|
(thousands) | |
|
(thousands) | |
Program rights
|
|
¥ |
1,326,661 |
|
|
¥ |
1,308,623 |
|
Language versioning
|
|
|
130,389 |
|
|
|
116,910 |
|
|
|
|
|
|
|
|
|
|
|
1,457,050 |
|
|
|
1,425,533 |
|
Less accumulated amortization
|
|
|
(334,766 |
) |
|
|
(739,764 |
) |
|
|
|
|
|
|
|
|
|
|
1,122,284 |
|
|
|
685,769 |
|
Less current portion
|
|
|
(776,225 |
) |
|
|
(599,480 |
) |
|
|
|
|
|
|
|
|
|
¥ |
346,059 |
|
|
¥ |
86,289 |
|
|
|
|
|
|
|
|
Amortization expense related to program rights and language
versioning for the years ended December 31, 2005, 2004 and
2003, was ¥1,810,630 thousand, ¥1,732,435 thousand and
¥1,570,670 thousand, respectively, which is included in
cost of programming and distribution in the consolidated
statements of operations in respective years.
Investments, including advances, as of December 31, 2005
and 2004, were composed of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
percentage | |
|
carrying | |
|
percentage | |
|
carrying | |
|
|
ownership | |
|
amount | |
|
ownership | |
|
amount | |
|
|
| |
|
| |
|
| |
|
| |
|
|
Yen | |
|
Yen | |
|
|
(thousands) | |
|
(thousands) | |
Investments accounted for under the equity method:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discovery Japan, Inc.
|
|
|
50.0 |
% |
|
¥ |
894,321 |
|
|
|
50.0 |
% |
|
¥ |
580,455 |
|
|
Animal Planet Japan, Co. Ltd.
|
|
|
33.3 |
% |
|
|
197,928 |
|
|
|
33.3 |
% |
|
|
223,510 |
|
|
InteracTV Co., Ltd.
|
|
|
42.5 |
% |
|
|
38,399 |
|
|
|
42.5 |
% |
|
|
38,586 |
|
|
JSports Broadcasting Corporation
|
|
|
33.4 |
% |
|
|
4,783,458 |
|
|
|
42.8 |
% |
|
|
4,045,414 |
|
|
AXN Japan, Inc.
|
|
|
35.0 |
% |
|
|
909,480 |
|
|
|
35.0 |
% |
|
|
879,630 |
|
|
Jupiter VOD Co., Inc.
|
|
|
50.0 |
% |
|
|
768,900 |
|
|
|
50.0 |
% |
|
|
401,266 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity method investments
|
|
|
|
|
|
|
7,592,486 |
|
|
|
|
|
|
|
6,168,861 |
|
Investments accounted for at cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NikkeiCNBC Japan, Inc.
|
|
|
9.8 |
% |
|
|
100,000 |
|
|
|
9.8 |
% |
|
|
100,000 |
|
|
Kids Station, Inc.
|
|
|
15.0 |
% |
|
|
304,500 |
|
|
|
15.0 |
% |
|
|
304,500 |
|
|
AT-X, Inc.
|
|
|
12.3 |
% |
|
|
236,000 |
|
|
|
12.3 |
% |
|
|
266,000 |
|
|
Nihon Eiga Satellite Broadcasting Corporation
|
|
|
10.0 |
% |
|
|
66,600 |
|
|
|
10.0 |
% |
|
|
66,600 |
|
|
Satellite Service Co. Ltd.
|
|
|
12.0 |
% |
|
|
24,000 |
|
|
|
12.0 |
% |
|
|
24,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost method investments
|
|
|
|
|
|
|
731,100 |
|
|
|
|
|
|
|
761,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
¥ |
8,323,586 |
|
|
|
|
|
|
¥ |
6,929,961 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IV-34
JUPITER TV CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following investments represent participation in programming
businesses:
|
|
|
Discovery Japan, Inc., a general documentary channel business
currently operating two channels; |
|
Animal Planet Japan, Co. Ltd., an animal-specific documentary
channel; |
|
|
|
JSports Broadcasting Corporation, a sports channel business
currently operating four channels; |
|
|
|
AXN Japan, Inc., a general entertainment channel; |
|
NikkeiCNBC Japan, Inc., a news service channel; |
|
Kids Station, Inc., a childrens entertainment channel; |
|
AT-X, Inc., an animation genre channel; |
|
|
|
Nihon Eiga Satellite Broadcasting Corporation, a Japanese period
drama and movie channels business currently operating two
channels; and |
|
Jupiter VOD Co., Inc. a multi-genre video on demand programming
service |
The following investments represent participation in broadcast
license-holding companies through which channels are consigned
to subscribers to the CS110 degree East
Direct-to-home
satellite service:
|
|
|
InteracTV Co., Ltd., holds licenses for Movie Plus, Lala, Golf
Network and Shop channels, among others; |
|
Satellite Service Co. Ltd., holds licenses for Discovery and
Animal Planet channels, among others. |
The following reflects JTVs share of earnings (losses) of
investments accounted for under the equity method for the years
ended December 31, 2005, 2004 and 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
Yen | |
|
Yen | |
|
Yen | |
|
|
(thousands) | |
|
(thousands) | |
|
(thousands) | |
Discovery Japan, Inc.
|
|
¥ |
313,865 |
|
|
¥ |
298,763 |
|
|
¥ |
143,445 |
|
Animal Planet Japan, Co. Ltd.
|
|
|
(125,581 |
) |
|
|
(283,913 |
) |
|
|
(311,673 |
) |
InteracTV Co., Ltd.
|
|
|
(188 |
) |
|
|
(219 |
) |
|
|
(1,272 |
) |
JSports Broadcasting Corporation
|
|
|
135,845 |
|
|
|
135,973 |
|
|
|
143,227 |
|
AXN Japan, Inc.
|
|
|
12,351 |
|
|
|
(43,982 |
) |
|
|
(38,199 |
) |
Jupiter VOD Co., Inc.
|
|
|
(282,367 |
) |
|
|
(83,734 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
¥ |
53,925 |
|
|
¥ |
22,888 |
|
|
¥ |
(64,472 |
) |
|
|
|
|
|
|
|
|
|
|
On November, 1, 2005, JSports Broadcasting Corporation
(JSB) acquired Sports-iESPN, another sports channel
business. The acquisition was accounted for as a purchase by
JSB. Common stock representing approximately 19.5% of the
combined business was issued to the shareholders of Sports-iESPN
in consideration for the purchase. The stock issuance resulted
in JTVs equity share of JSB diluting from 42.8% to 34.5%.
The difference between JTVs share of the underlying net
equity of JSB immediately prior to the acquisition of
Sports-iESPN and subsequent thereto has been accounted for by
the Company as an increase in the carrying value of its
investment with a corresponding increase in additional paid-in
capital in the amount of ¥478,075 (net of income tax of
¥282,787) in a manner analogous to SAB No. 51,
Accounting for Sales of Stock by a Subsidiary.
Immediately following the acquisition of Sports-iESPN by JSB,
JTV sold 770 shares of its common stock investment in JSB
to other unrelated shareholders pursuant to a shareholding
adjustment arrangement in exchange for cash proceeds, further
diluting its investment in JSB from a 34.5% owned equity-method
investment to a 33.4% owned equity-method investment. JTV
recognized a ¥116,441 thousand gain on sale of those shares
in earnings.
In December 2004, the Company invested ¥485,000 thousand
and acquired a 50% voting interest in Jupiter VOD Co., Ltd.
(JVOD). In December 2005, a further equity
investment was made in the amount of ¥650,000 thousand,
maintaining a 50% voting interest in JVOD. JVOD is a video on
demand programming
IV-35
JUPITER TV CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
service providing on-demand video services primarily to
digitized cable systems capable of receiving its service.
In August 2003, the Company invested ¥863,311 thousand to
acquire a 35% interest in AXN Japan, Inc. (AXN). JTV
provided cash loans to AXN in the amount of ¥116,000
thousand during 2005 and ¥98,500 thousand during 2004. AXN
is a general entertainment channel that complements JTVs
channel businesses.
The carrying amount of investments in affiliates as of
December 31, 2005, included ¥751,940 thousand and
¥2,180,084 thousand of excess cost of the investments over
the Companys equity in the net assets of AXN and JSB,
respectively. The amount of that excess cost represents
equity method goodwill. The carrying amount of
investments in affiliates as of December 31, 2004, included
¥751,940 thousand and ¥2,799,010 thousand of excess
cost of the investments over the Companys equity in the
net assets of AXN and JSB, respectively.
JTV holds 33.3% of the ordinary shares of Animal Planet Japan,
Co. Ltd, and records its share of the earnings and losses in
accordance with that ordinary shareholding ratio. The Company
entered into an Amendment To Funding Agreement with effect from
March 31, 2005, under which it has funding obligations in
accordance with its ordinary shareholding ratio up to a maximum
of ¥1,500,000 thousand. During the years ended
December 31, 2005 and 2004, the Company invested
¥100,000 thousand and ¥165,000 thousand, respectively,
and had made an aggregate investment of ¥1,395,000 thousand
as of December 31, 2005, in Animal Planet Japan, Co. Ltd.
The aggregate cost of JTVs cost method investments totaled
¥731,100 thousand and ¥761,000 thousand at
December 31, 2005, and December 31, 2004,
respectively. JTV performs an impairment test for cost method
investments whenever events or changes in circumstances indicate
that the carrying amount of an investment may not be
recoverable. At December 31, 2005, JTV estimated that, with
the exception of the investment in AT-X, Inc., the fair value of
each of the investments exceeded the cost of the investment, and
therefore concluded that no impairment had occurred. The fair
value of the investment in AT-X, Inc, based on a discounted cash
flow analysis of available business plans, indicated that an
other-than-temporary decline in value had occurred. The amount
of the associated impairment writedown for the year ended
December 31, 2005 was ¥30,000 thousand and is included
in other income (expense) in the accompanying statements of
operations.
Financial information for the companies in which the Company has
an investment accounted for under the equity method is presented
as combined as the companies are similar in nature and operate
in the same business area. Condensed combined financial
information is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
Yen | |
|
Yen | |
|
|
(thousands) | |
|
(thousands) | |
Combined financial position at December 31,
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
¥ |
10,546,734 |
|
|
¥ |
8,533,233 |
|
|
Other assets
|
|
|
5,464,831 |
|
|
|
634,175 |
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
16,011,565 |
|
|
|
9,167,408 |
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
3,620,947 |
|
|
|
3,056,756 |
|
|
Other liabilities
|
|
|
1,676,786 |
|
|
|
1,413,948 |
|
|
Shareholders equity
|
|
|
10,713,832 |
|
|
|
4,696,704 |
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
¥ |
16,011,565 |
|
|
¥ |
9,167,408 |
|
|
|
|
|
|
|
|
IV-36
JUPITER TV CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
Yen | |
|
Yen | |
|
Yen | |
|
|
(thousands) | |
|
(thousands) | |
|
(thousands) | |
Combined operations for the year ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
¥ |
22,852,521 |
|
|
¥ |
21,682,192 |
|
|
¥ |
15,256,112 |
|
Operating expenses
|
|
|
22,648,732 |
|
|
|
21,998,685 |
|
|
|
15,270,229 |
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
203,789 |
|
|
|
(316,493 |
) |
|
|
(14,117 |
) |
Other income, net, including income taxes
|
|
|
(1,027 |
) |
|
|
783,921 |
|
|
|
319,099 |
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
¥ |
202,762 |
|
|
¥ |
467,428 |
|
|
¥ |
304,982 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(5) |
Property and Equipment |
Property and equipment as of December 31, 2005 and 2004,
were comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
Yen | |
|
Yen | |
|
|
(thousands) | |
|
(thousands) | |
Furniture and fixtures
|
|
¥ |
267,031 |
|
|
¥ |
187,233 |
|
Leasehold and building improvements
|
|
|
1,463,370 |
|
|
|
1,362,537 |
|
Equipment and vehicles
|
|
|
4,924,584 |
|
|
|
4,295,113 |
|
Buildings
|
|
|
851,485 |
|
|
|
851,485 |
|
Land
|
|
|
437,147 |
|
|
|
437,147 |
|
Construction in progress
|
|
|
14,188 |
|
|
|
183,254 |
|
|
|
|
|
|
|
|
|
|
|
7,957,805 |
|
|
|
7,316,769 |
|
Less accumulated depreciation and amortization
|
|
|
(2,399,609 |
) |
|
|
(1,989,701 |
) |
|
|
|
|
|
|
|
|
|
¥ |
5,558,196 |
|
|
¥ |
5,327,068 |
|
|
|
|
|
|
|
|
Property and equipment include assets held under capitalized
lease arrangements (Note 11). Depreciation and amortization
expense related to property and equipment for the years ended
December 31, 2005, 2004 and 2003 was ¥1,070,502
thousand, ¥772,907 thousand and ¥734,930 thousand,
respectively.
JTV reviewed its long-lived assets developed for the PartiTV
business, including capitalized leases for impairment at
December 31, 2005, due to a decision that the channel,
which had been under development, would not be launched
(Note 19). The PartiTV division long-lived assets have been
written down to their estimated fair market value in accordance
with the provisions of SFAS No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets. The
fair value was determined by estimating the market value in a
current transaction between willing parties, that is, other than
in a forced or liquidation sale, in reference to prices for
assets or asset groups with similar functionality, having
similar remaining useful lives. The amount of the associated
impairment write-down for the year ended December 31, 2005
was ¥735,349 thousand.
IV-37
JUPITER TV CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(6) |
Software Development Costs |
Capitalized software development costs for internal-use as of
December 31, 2005 and 2004, were as follows:
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
Yen | |
|
Yen | |
|
|
(thousands) | |
|
(thousands) | |
Software development costs
|
|
¥ |
6,686,711 |
|
|
¥ |
3,773,137 |
|
Less accumulated amortization
|
|
|
(2,561,596 |
) |
|
|
(1,870,893 |
) |
|
|
|
|
|
|
|
|
|
¥ |
4,125,115 |
|
|
¥ |
1,902,244 |
|
|
|
|
|
|
|
|
Significant software development additions during 2005 and 2004
included development of Shop Channel core system and
e-commerce
infrastructure, and further development of a sales receivables
management system, all of which are for internal use.
Aggregate amortization expense for the years ended
December 31, 2005, 2004 and 2003 was ¥728,573
thousand, ¥584,340 thousand and ¥451,327 thousand,
respectively.
Intangible assets acquired during the year ended
December 31, 2005 totaled ¥15,029 thousand, and the
weighted average amortization period is six years. (Note 2)
The details of intangible assets other than software and
goodwill at December 31, 2005 and 2004, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
Yen | |
|
Yen | |
|
|
(thousands) | |
|
(thousands) | |
Intangible assets subject to amortization, net of accumulated
amortization of ¥54,264 thousand in 2005 and ¥28,417
thousand in 2004:
|
|
|
|
|
|
|
|
|
|
Channel packaging arrangements
|
|
¥ |
180,000 |
|
|
¥ |
200,000 |
|
|
Other
|
|
|
33,551 |
|
|
|
46,886 |
|
|
|
|
|
|
|
|
|
|
|
213,551 |
|
|
|
246,886 |
|
Other intangible assets not subject to amortization:
|
|
|
5,073 |
|
|
|
5,073 |
|
|
|
|
|
|
|
|
Total other intangible assets
|
|
¥ |
218,624 |
|
|
¥ |
251,959 |
|
|
|
|
|
|
|
|
Channel packaging arrangements represent estimated value to be
derived from existing channel position in packaging alliances on
the direct-to-home
satellite distribution platform, and are being amortized over
their estimated useful life of ten years. The aggregate
amortization expense of other intangible assets subject to
amortization for the years ended December 31, 2005, 2004
and 2003 was ¥48,258 thousand, ¥22,257 thousand
IV-38
JUPITER TV CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
and ¥1,802 thousand, respectively. The future
estimated amortization expenses for each of five years relating
to amounts currently recorded in the consolidated balance sheet
are as follows:
|
|
|
|
|
|
|
|
Yen |
|
|
(thousands) |
Year ending December 31,
|
|
|
|
|
|
2006
|
|
¥ |
55,822 |
|
|
2007
|
|
|
48,751 |
|
|
2008
|
|
|
22,868 |
|
|
2009
|
|
|
22,868 |
|
|
2010
|
|
|
22,803 |
|
The changes in the carrying amount of goodwill for the years
ended December 31, 2005, 2004 and 2003, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
Yen | |
|
Yen | |
|
Yen | |
|
|
(thousands) | |
|
(thousands) | |
|
(thousands) | |
Balance at beginning of year
|
|
¥ |
470,131 |
|
|
¥ |
188,945 |
|
|
¥ |
191,482 |
|
Acquisitions
|
|
|
|
|
|
|
281,186 |
|
|
|
|
|
Adjustment
|
|
|
(175,887 |
) |
|
|
|
|
|
|
(2,537 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
¥ |
294,244 |
|
|
¥ |
470,131 |
|
|
¥ |
188,945 |
|
|
|
|
|
|
|
|
|
|
|
Goodwill of ¥281,186 thousand recorded during 2004 was
related to the purchase of BB Factory Corporation Ltd.
(Note 2). The adjustments to the carrying value of goodwill
of ¥175,887 thousand recorded in 2005 includes
¥154,252 thousand of previously unrecognized tax benefits,
and ¥21,635 thousand attributable to the finalization of
the purchase price (Note 2).
|
|
(9) |
Derivative Instruments and Hedging Activities |
JTV uses foreign exchange forward contracts that extend 7 to
52 months to manage currency exposure, resulting from
changes in foreign currency exchange rates, on purchase
commitments for contracted programming rights and other contract
costs and for forecasted inventory purchases in
U.S. dollars. JTV enters into these contracts to hedge its
U.S. dollar denominated monetary exposures.
JTV does not enter into derivative financial transactions for
trading or speculative purposes.
JTV is exposed to credit-related losses in the event of
non-performance by the counterparties to derivative financial
instruments, but they do not expect the counterparties to fail
to meet their obligations because of the high credit rating of
the counterparties.
For certain qualifying transactions entered into from
January 1, 2004, JTV designates the transactions as cash
flow hedges and the effective portion of the gain or loss on the
derivative instrument is reported as a component of other
accumulated comprehensive income (loss). The amount of hedge
ineffectiveness recognized currently in foreign exchange gain
was not material for the years ended December 31, 2005 and
2004. These amounts are reclassified into earnings through loss
(gain) on forward exchange contracts when the hedged items
impact earnings. Accumulated gains, net of taxes, of
¥38,181 thousand are included in accumulated other
comprehensive income at December 31, 2005, and will be
reclassified into earnings within twelve months. Accumulated
losses, net of taxes, of ¥16,705 thousand, were
included in accumulated other
IV-39
JUPITER TV CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
comprehensive income at December 31, 2004. No cash flow
hedges were discontinued during the years ended
December 31, 2005 and 2004 as a result of forecasted
transactions that are no longer probable to occur.
JTV has entered into foreign exchange forward contracts
designated but not qualified as hedging instruments under
SFAS No. 133 as a means of hedging certain foreign
currency exposures. JTV records these contracts on the balance
sheet at fair value. The changes in fair value of such
instruments are recognized currently in earnings and are
included in foreign exchange gain (loss).
At December 31, 2005, the fair value of forward exchange
contracts recognized in the balance sheet was an asset of
¥249,725 thousand. At December 31, 2004, the fair
value of forward exchange contracts recognized in the balance
sheet was represented by a liability of
¥174,959 thousand and an asset of
¥18,813 thousand.
|
|
(10) |
Fair Value of Financial Instruments |
The carrying amounts for financial instruments in JTVs
consolidated financial statements at December 31, 2005 and
2004 approximate to their estimated fair values. Fair value
estimates are made at a specific point in time based on relevant
market information and information about the financial
instrument. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and,
therefore, cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
The following methods and assumptions were used to estimate the
fair value of each class of financial instruments:
Cash and cash equivalents, accounts receivable, accounts
payable, income taxes payable, accrued liabilities, 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 quotes obtained from financial
institutions. At December 31, 2005, fair value of foreign
exchange forward contracts of ¥249,725 thousand was
included in other current assets in the accompanying
consolidated balance sheet. At December 31, 2004, fair
value of foreign exchange forward contracts of ¥18,813
thousand was included in other current assets, and ¥174,959
thousand was included under other current liabilities, in the
accompanying consolidated balance sheet.
Long-term debt, including current maturities and short-term
debt: The fair value of JTVs 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. JTV 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 JTVs capital lease obligations is
estimated by discounting the future cash flows of each
instrument at rates currently offered to JTV by leasing
companies.
IV-40
JUPITER TV CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
JTV 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, 2005
and 2004, the gross amount of equipment and the related
accumulated amortization recorded under capital leases were as
follows:
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
Yen | |
|
Yen | |
|
|
(thousands) | |
|
(thousands) | |
Equipment and vehicles
|
|
|
¥2,115,924 |
|
|
|
¥1,839,215 |
|
Others
|
|
|
155,775 |
|
|
|
126,368 |
|
Less accumulated amortization
|
|
|
(960,409 |
) |
|
|
(865,908 |
) |
|
|
|
|
|
|
|
|
|
|
¥1,311,290 |
|
|
|
¥1,099,675 |
|
|
|
|
|
|
|
|
Amortization of assets held under capital leases is included
with depreciation and amortization expense. Leased equipment is
included in property and equipment (Note 5).
Future minimum capital lease payments as of December 31,
2005, were as follows:
|
|
|
|
|
|
|
|
Yen | |
|
|
(thousands) | |
Year ending December 31,
|
|
|
|
|
|
2006
|
|
¥ |
446,634 |
|
|
2007
|
|
|
441,610 |
|
|
2008
|
|
|
394,358 |
|
|
2009
|
|
|
342,275 |
|
|
2010
|
|
|
120,893 |
|
|
Thereafter
|
|
|
38,302 |
|
|
|
|
|
Total minimum lease payments
|
|
|
1,784,072 |
|
Less amount representing interest (at rates ranging from 1.25%
to 2.60%)
|
|
|
(93,765 |
) |
|
|
|
|
Present value of minimum capital lease payments
|
|
|
1,690,307 |
|
Less current installments
|
|
|
(418,757 |
) |
|
|
|
|
|
|
¥ |
1,271,550 |
|
|
|
|
|
JTV also has several operating leases, primarily for office
space, that expire over the next 10 years, and a
30-year lease for land
that expires in 28 years. Rent expense for the years ended
December 31, 2005, 2004 and 2003 was ¥445,094
thousand, ¥332,530 thousand and ¥275,264 thousand,
respectively.
The Company leases four principal office and studio premises.
JTV headquarters has a three-year lease agreement from August
2004, with a rolling two-year right of renewal, that provides
for annual rental costs of ¥289,669 thousand. Shop Channel
has a 15-year agreement
expiring in October 2013 with an annual rental cost of
¥180,924 thousand. Jupiter Entertainments PartiTV
division has a two-year office lease agreement from March 2005,
with a rolling two-year right of renewal, that provides for
annual rental costs of ¥69,237 thousand, and a two-year
studio lease agreement from June 2005, with a rolling one-year
right of renewal, that provides for annual rental costs of
¥147,292 thousand. These and other leases for office and
studio space are mainly cancelable upon six months notice.
Accordingly, the schedule below detailing future minimum lease
payments under non-cancelable operating leases includes the
lease costs for the Companys premises for only a six-month
period.
IV-41
JUPITER TV 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, 2005, were as follows:
|
|
|
|
|
|
|
|
Yen | |
|
|
(thousands) | |
Year ending December 31,
|
|
|
|
|
|
2006
|
|
|
552,534 |
|
|
2007
|
|
|
4,980 |
|
|
2008
|
|
|
4,980 |
|
|
2009
|
|
|
4,980 |
|
|
2010
|
|
|
4,980 |
|
|
Thereafter
|
|
|
106,655 |
|
|
|
|
|
Total minimum lease payments
|
|
¥ |
679,109 |
|
|
|
|
|
Short-term debt at December 31, 2005 and 2004, consisted of
the following:
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
Yen | |
|
Yen | |
|
|
(thousands) | |
|
(thousands) | |
Loans from minority shareholder
|
|
|
¥275,000 |
|
|
|
¥ |
|
|
|
|
|
|
|
|
As of December 31, 2005, JTV had outstanding short-term
borrowings of ¥275,000 thousand from Zone Vision
Enterprises Limited (ZVE), a 50% shareholder in
Reality TV Japan. The borrowings comprise a series of loans
pursuant to a shareholder finance agreement entered into between
JTV and ZVE for the specified purpose of financing Reality TV
Japan, a consolidated joint venture (Note 1(c)). Each of
the series of loans bears interest at a rate of 3.5% per
annum.
Long-term debt at December 31, 2005 and 2004, consisted of
the following:
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
Yen | |
|
Yen | |
|
|
(thousands) | |
|
(thousands) | |
Borrowings from banks
|
|
¥ |
4,000,000 |
|
|
¥ |
4,000,000 |
|
Loans from shareholders
|
|
|
|
|
|
|
1,000,000 |
|
|
|
|
|
|
|
|
Total long term debt
|
|
|
4,000,000 |
|
|
|
5,000,000 |
|
Less: current portion
|
|
|
1,600,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
¥ |
2,400,000 |
|
|
¥ |
5,000,000 |
|
|
|
|
|
|
|
|
As of December 31, 2004, the Company had a ¥10,000,000
thousand credit facility (the Facility) available
for immediate and full borrowing with a group of banks, to be
drawn upon until December 25, 2005. That Facility, which is
guaranteed by certain of the Companys subsidiaries,
comprised an ¥8,000,000 thousand five-year term loan and a
¥2,000,000 thousand
364-day revolving
facility. The Company decided in December 2005 not to draw down
the remaining ¥4,000,000 thousand available term loan
amount. Outstanding borrowings under the five-year term loan at
December 31, 2005 and 2004 were ¥4,000,000 thousand.
Repayment of the term loan principal begins on March 31,
2006, by quarterly installments of ¥400,000 thousand, until
fully repaid on June 25, 2008.
IV-42
JUPITER TV CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The 364-day revolving
facility was renewed on June 13, 2005 and is available for
immediate and full borrowing until June 12, 2006, and
repayment in full is due on that date. There were no borrowings
outstanding under the
364-day revolving
facility as of December 31, 2005 and 2004.
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 the
364-day revolving
facility. The interest rates charged at December 31, 2005
and 2004 for the five-year term loan and for the
364-day revolving
facility were 0.840% and 0.835%, and 0.790% and 0.785%,
respectively.
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
Commercial Code of Japan basis, shall be equal to or exceed, for
year 2005, ¥3,500,000 thousand; for year 2006,
¥4,000,000 thousand; for 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 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 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. JTV was in compliance with these covenants at
December 31, 2005.
As of December 31, 2004 JTV had outstanding term borrowings
of ¥500,000 thousand from each of LGI and Sumitomo
Corporation. The borrowings were subordinated to the Facility
described above and bore interest at the higher of the rate
applicable to the term loan portion of the Facility, and Japan
Long Term Prime rate (1.55% at December 31, 2004). The
borrowings were due in full on July 26, 2008 and were
repaid early in full in December 2005. No gain or loss was
recognized on this repayment transaction.
The aggregate maturities of long-term debt for each of the five
years subsequent to December 31, 2005, were as follows:
|
|
|
|
|
|
|
|
2005 | |
|
|
| |
|
|
Yen | |
|
|
(thousands) | |
Year ending December 31,
|
|
|
|
|
|
2006
|
|
¥ |
1,600,000 |
|
|
2007
|
|
|
1,600,000 |
|
|
2008
|
|
|
800,000 |
|
|
2009
|
|
|
|
|
|
2010
|
|
|
|
|
|
|
|
|
Total debt
|
|
¥ |
4,000,000 |
|
|
|
|
|
IV-43
JUPITER TV CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The components of the provision for income taxes for the years
ended December 31, 2005, 2004 and 2003, recognized in the
consolidated statements of operations were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
Yen | |
|
Yen | |
|
Yen | |
|
|
(thousands) | |
|
(thousands) | |
|
(thousands) | |
Current taxes
|
|
¥ |
6,519,191 |
|
|
¥ |
3,229,627 |
|
|
¥ |
2,072,264 |
|
Deferred taxes
|
|
|
(1,061,285 |
) |
|
|
(278,181 |
) |
|
|
(553,039 |
) |
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
¥ |
5,457,906 |
|
|
¥ |
2,951,446 |
|
|
¥ |
1,519,225 |
|
|
|
|
|
|
|
|
|
|
|
All pre-tax income and income tax expense is related to
operations in Japan. The tax effects of temporary differences
that give rise to significant portions of the deferred tax
assets and deferred tax liabilities at December 31, 2005
and 2004, are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
Yen | |
|
Yen | |
|
|
(thousands) | |
|
(thousands) | |
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
Retail inventories
|
|
¥ |
981,641 |
|
|
¥ |
811,289 |
|
|
Property and equipment
|
|
|
747,585 |
|
|
|
297,238 |
|
|
Accrued liabilities
|
|
|
747,507 |
|
|
|
330,995 |
|
|
Enterprise tax payable
|
|
|
414,534 |
|
|
|
195,588 |
|
|
Unrealized foreign exchange
|
|
|
|
|
|
|
62,581 |
|
|
Equity-method investments
|
|
|
631,242 |
|
|
|
944,389 |
|
|
Operating loss carryforwards
|
|
|
584,009 |
|
|
|
895,097 |
|
|
Others
|
|
|
446,840 |
|
|
|
320,361 |
|
|
|
|
|
|
|
|
|
|
|
4,553,358 |
|
|
|
3,857,538 |
|
|
Less valuation allowance
|
|
|
(1,712,785 |
) |
|
|
(2,165,372 |
) |
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
2,840,573 |
|
|
|
1,692,166 |
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
Equity-method investment
|
|
|
(282,787 |
) |
|
|
|
|
|
Intangibles
|
|
|
(73,242 |
) |
|
|
(81,380 |
) |
|
Unrealized foreign exchange
|
|
|
(97,060 |
) |
|
|
|
|
|
Others
|
|
|
(10,195 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(463,284 |
) |
|
|
(81,380 |
) |
|
|
|
|
|
|
|
Net deferred tax assets
|
|
¥ |
2,377,289 |
|
|
¥ |
1,610,786 |
|
|
|
|
|
|
|
|
The valuation allowance for deferred tax assets as of
January 1, 2003 was ¥4,872,322 thousand. The net
changes in the total valuation allowance for the years ended
December 31, 2005, 2004 and 2003, were decreases of
¥452,587 thousand, ¥736,283 thousand, and
¥1,970,667 thousand, respectively.
The valuation allowance for deferred tax assets that will be
treated as a reduction of goodwill upon subsequent recognition
of related tax benefits amounted to ¥15,218 thousand as of
December 31, 2005.
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
IV-44
JUPITER TV CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
assets is dependent upon the generation of future taxable income
during the periods in which those temporary differences become
deductible or in which the operating losses are available for
use. The Company considers the scheduled reversal of deferred
tax liabilities, projected future taxable income, and tax
planning strategies in making this assessment. Based upon the
level of historical taxable income and projections for future
taxable income over the 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, 2005, JTV and its subsidiaries had total
net operating loss carryforwards for income tax purposes of
approximately ¥1,435,264 thousand, which are available to
offset future taxable income, if any. JTV and its subsidiaries
have elected to be subject to taxation on a stand-alone basis
and net operating loss carryforwards may not be utilized against
other group company profits. Aggregated net operating loss
carryforwards, if not utilized, expire as follows:
|
|
|
|
|
|
|
Yen | |
|
|
(thousands) | |
Year ending December 31,
|
|
|
|
|
2006
|
|
|
142,802 |
|
2007
|
|
|
|
|
2008
|
|
|
11,910 |
|
2009
|
|
|
162,841 |
|
2010
|
|
|
228,347 |
|
2011
|
|
|
212,878 |
|
2012
|
|
|
676,486 |
|
|
|
|
|
|
|
¥ |
1,435,264 |
|
|
|
|
|
The Company and its subsidiaries were subject to Japanese
National Corporate tax of 30%, an Inhabitant tax of 6% and a
deductible Enterprise tax of 7.2%, which in aggregate result in
a statutory tax rate of 40.7%. 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 became effective for fiscal years
beginning on or after April 1, 2004. Consequently, the
statutory income tax rate was lowered from 42.1% to 40.7% for
deferred tax assets and liabilities expected to be settled or
realized on or after January 1, 2005. As a result of the
decrease in the statutory tax rate, when compared with the
amounts based on the tax rate applied before this revision, the
net deferred tax assets decreased by approximately ¥47,119
thousand at December 31, 2004. A reconciliation of the
Japanese statutory income tax rate and the effective income tax
rate as a
IV-45
JUPITER TV CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
percentage of income before income taxes for the years ended
December 31, 2005, 2004 and 2003 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
2004 |
|
2003 |
|
|
|
|
|
|
|
Statutory tax rate
|
|
|
40.7 |
% |
|
|
42.1 |
% |
|
|
42.1 |
% |
Non-deductible expenses
|
|
|
0.9 |
|
|
|
1.4 |
|
|
|
1.9 |
|
Change in valuation allowance
|
|
|
0.9 |
|
|
|
(1.2 |
) |
|
|
(9.9 |
) |
Income tax credits
|
|
|
(3.4 |
) |
|
|
(0.8 |
) |
|
|
|
|
Additional tax deduction due to intercompany transfer of assets
|
|
|
(0.5 |
) |
|
|
(1.1 |
) |
|
|
(1.7 |
) |
Effect of tax rate change
|
|
|
|
|
|
|
0.7 |
|
|
|
|
|
Others
|
|
|
0.1 |
|
|
|
(0.3 |
) |
|
|
(0.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
38.7 |
% |
|
|
40.8 |
% |
|
|
31.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14) |
Accrued Pension and Severance Cost |
Net periodic cost of the Company and its subsidiaries
unfunded RAP accounted for in accordance with
SFAS No. 87 for the years ended December 31,
2005, 2004 and 2003, included the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
Yen | |
|
Yen | |
|
Yen | |
|
|
(thousands) | |
|
(thousands) | |
|
(thousands) | |
Service cost benefits earned during the year
|
|
¥ |
65,013 |
|
|
¥ |
49,768 |
|
|
¥ |
44,743 |
|
Interest cost on projected benefit obligation
|
|
|
5,696 |
|
|
|
4,332 |
|
|
|
3,951 |
|
Recognized actuarial loss
|
|
|
44,420 |
|
|
|
24,317 |
|
|
|
15,972 |
|
|
|
|
|
|
|
|
|
|
|
Net periodic cost
|
|
¥ |
115,129 |
|
|
¥ |
78,417 |
|
|
¥ |
64,666 |
|
|
|
|
|
|
|
|
|
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
Yen | |
|
Yen | |
|
|
(thousands) | |
|
(thousands) | |
Change in projected benefit obligations:
|
|
|
|
|
|
|
|
|
|
Benefit obligations, beginning of year
|
|
¥ |
284,796 |
|
|
¥ |
216,611 |
|
|
Service cost
|
|
|
65,013 |
|
|
|
49,768 |
|
|
Interest cost
|
|
|
5,696 |
|
|
|
4,332 |
|
|
Actuarial loss
|
|
|
44,420 |
|
|
|
24,317 |
|
|
Benefits paid
|
|
|
(5,521 |
) |
|
|
(10,232 |
) |
|
|
|
|
|
|
|
Projected benefit obligations, end of year
|
|
¥ |
394,404 |
|
|
¥ |
284,796 |
|
|
|
|
|
|
|
|
Accumulated benefit obligations, end of year
|
|
¥ |
290,871 |
|
|
¥ |
210,159 |
|
|
|
|
|
|
|
|
Actuarial gains and losses are recognized fully in the year in
which they occur. The weighted-average discount rate used in
determining net periodic cost of the Company and its
subsidiaries plans was 2.00%, 2.00% and 2.00% for the
years ended December 31, 2005, 2004 and 2003, respectively.
The weighted-average discount rate used in determining benefit
obligations as of December 31, 2005 and 2004 was 1.50% and
2.00%, respectively. Assumed salary increases ranged from 1.00%
to 3.99% depending on employees age for the years ended
December 31, 2005, 2004 and 2003.
IV-46
JUPITER TV CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following benefit payments, which reflect expected future
service, as appropriate, are expected to be paid:
|
|
|
|
|
|
|
|
Yen |
|
|
(thousands) |
Year ending December 31,
|
|
|
|
|
|
2006
|
|
|
27,647 |
|
|
2007
|
|
|
27,498 |
|
|
2008
|
|
|
33,765 |
|
|
2009
|
|
|
41,881 |
|
|
2010
|
|
|
32,855 |
|
|
Years 2011-2015
|
|
|
233,040 |
|
JTV uses a measurement date of December 31 for all of its
unfunded Retirement Allowance Plans.
In addition, employees of the Company and certain of its
subsidiaries participate in a multi-employer defined benefit EPF
plan. The Company contributions to this plan amounted to
¥87,408 thousand, ¥44,510 thousand, and
¥60,322 thousand for the years ended December 31,
2005, 2004 and 2003, respectively, and are included in selling,
general and administrative expenses in the accompanying
consolidated statements of operations. During 2005, JTV approved
a plan to withdraw from the EPF plan. Withdrawal from the EPF
plan will result in an obligation to fund JTVs share of
shortfalls in plan funding. The planned withdrawal is considered
probable and the estimated withdrawal amount was calculated by
the EPF plan and provided to JTV. Therefore JTV has accrued an
exit liability at December 31, 2005, in accordance with
SFAS No. 5, Accounting for Contingencies,
amounting to ¥170,920 thousand, which is also included
in selling, general and administrative expenses in the
accompanying consolidated statements of operations.
|
|
(15) |
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, 2005, 2004 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, 2005.
On January 30, 2004, the total number of JTVs
ordinary shares authorized to be issued was increased from
450,000 to 460,000 shares.
On March 5, 2004, JTV transferred
¥8,400,000 thousand of common stock to additional paid
in capital (¥6,587,064 thousand) and accumulated
deficit (¥1,812,936 thousand). The transfer was
approved by the Companys stockholders in accordance with
the Commercial Code of Japan, which allows a company to make a
purchase of its own shares, as contemplated in the further
transaction noted below, only from specified additional paid in
capital or retained earnings reserves. JTV purchased its own
shares using the resulting additional paid in capital, and
elected at the same time to eliminate its accumulated deficit
and generate positive retained earnings on a single entity
basis. On a consolidated basis, JTV continued to show an
accumulated deficit immediately after that transfer. Such
transfer did not impact JTVs total equity, cash position
or liquidity. Had the Company been subject to corporate law
generally applicable to United States companies for similar
transactions, the accumulated deficit at December 31, 2005
and 2004 would be ¥1,812,936 thousand more than the
amount included in the accompanying consolidated financial
statements.
IV-47
JUPITER TV CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
During March and April 2004 the following capital transactions
occurred and were based on an independent third party valuation
of the common stock of JTV:
|
|
|
1) Issuance of 24,000 newly issued shares of common stock
to Sumitomo Corporation at a rate of ¥250,000 per
common share (¥6,000,000 thousand),
¥3,000,000 thousand of which was allocated to common
stock with the remaining ¥3,000,000 thousand allocated
to additional paid-in capital; |
|
|
2) Redemption of 12,000 shares of common stock from
Sumitomo Corporation at a rate of ¥250,000 per common
share (¥3,000,000 thousand) to be held as treasury
stock; |
|
|
3) Redemption of 12,000 shares of common stock from
Liberty Programming Japan at a rate of ¥250,000 per
common share (¥3,000,000 thousand) to be held as
treasury stock; |
|
|
4) Issuance of 24,000 shares of common stock held in
treasury shares to Liberty Programming Japan II Inc. in
return for 1,000 shares of common stock in Liberty
J Sports Inc. Liberty J Sports Inc. was then converted
to a limited liability company with Certificate of Conversion
filed with the Delaware Secretary of State, and was subsequently
renamed J Sports LLC. J Sports LLC is a wholly owned
subsidiary of JTV. |
|
|
(16) |
Related Party Transactions |
JTV engages in a variety of transactions in the normal course of
business. Significant related party balances, income and
expenditures have been separately identified in the consolidated
balance sheets and statements of operations. A list of related
parties and a description of main types of transactions with
each party follows:
Sumitomo Corporation, shareholder, and its subsidiaries and
affiliates: television programming advertising revenues, cost of
retail sales, costs of programming and distribution, selling,
general and administrative expenses for equipment operating
leases and staff secondment fees, cash deposits, property and
equipment capital leases, subordinated loans and interest
thereon;
Liberty Global Inc., shareholder, and its subsidiaries: selling,
general and administrative expenses for staff secondment fees
and recharge of project development costs, 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, distribution
relating to
direct-to-home
subscription revenue and receipt of cash advances;
JSports Broadcasting Corporation, affiliate company: services
and other revenues from cable and advertising sales activities
and recovery of staff costs for seconded staff;
InteracTV Co., Ltd, affiliate company: pass through of
direct-to-home
television programming subscription revenues to JTV, costs of
programming and distribution payments for transponder services;
Jupiter Telecommunications Co., Ltd, an affiliated company of
LGI and Sumitomo Corporation at December 31, 2004, and an
indirect consolidated subsidiary of LGI effective
January 1, 2005: television programming cable subscription
revenues, costs of programming and distribution for carriage of
Shop Channel by cable systems;
Jupiter VOD Co., Inc., affiliate company: services and other
revenues from office support services;
Zone Vision Enterprises Limited, 50% shareholder in Reality TV
Japan and subsidiary of LGI: costs of programming, distribution
relating to management and royalty fees, purchases of
programming, and shareholder loans.
IV-48
JUPITER TV CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(17) |
Concentration of Credit Risk |
As of December 31, 2005 and 2004, SkyPerfecTV, an unrelated
party, and Jupiter Telecommunications Co., Ltd
(J:Com), a related party, agent for sales of
programming delivered via satellite and most significant cable
system operator, respectively, represented concentrations of
credit risk for the Company. For the years ended
December 31, 2005, 2004 and 2003, subscription revenues of
¥3,501,730 thousand, ¥3,095,526 thousand and
¥2,888,163 thousand, respectively, received through
SkyPerfecTV, accounted for approximately, 44%, 44% and 45%,
respectively, of subscription revenues, and, 4%, 5% and 6%,
respectively, of total revenues. As of December 31, 2005,
2004 and 2003, SkyPerfecTV accounted for approximately, 5%, 6%
and 5%, respectively, of accounts receivable.
For the years ended December 31, 2005, 2004 and 2003,
subscription revenues of thousand, ¥1,543,063
¥1,464,167 thousand and ¥1,361,897 thousand,
respectively, received through J:Com, accounted for
approximately, 20% 21% and 21%, respectively, of subscription
revenues, and, 2% 2% and 3%, respectively, of total revenues. As
of December 31, 2005, 2004 and 2003, J:Com accounted for
approximately, 2% 3% and 6%, respectively, of accounts
receivable.
|
|
(18) |
Commitments, other than leases |
At December 31, 2005, JTV has commitments to purchase
various program rights as follows:
|
|
|
|
|
|
|
|
Yen | |
|
|
(thousands) | |
Year ending December 31, 2006
|
|
¥ |
1,530,865 |
|
|
2007
|
|
|
407,942 |
|
|
2008
|
|
|
171,238 |
|
|
2009
|
|
|
163,033 |
|
|
2010
|
|
|
157,033 |
|
|
|
|
|
Total program rights purchase commitments
|
|
¥ |
2,430,111 |
|
|
|
|
|
JTV contracts, through subsidiaries and affiliate licensed
broadcasting companies, to utilize capacity on three satellites
from two transponder service providers. JTV 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.
IV-49
JUPITER TV CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
At December 31, 2005, JTV has commitments for transponder
and uplink services as follows:
|
|
|
|
|
|
|
|
Yen | |
|
|
(thousands) | |
Year ending December 31,
|
|
|
|
|
|
2006
|
|
¥ |
994,395 |
|
|
2007
|
|
|
492,196 |
|
|
2008
|
|
|
311,321 |
|
|
2009
|
|
|
263,317 |
|
|
2010
|
|
|
280,055 |
|
|
Thereafter
|
|
|
417,938 |
|
|
|
|
|
Total transponder and uplink services commitments
|
|
¥ |
2,759,222 |
|
|
|
|
|
JTV has contracts for software license fees and maintenance
support fees related to the PartiTV business infrastructure
(Note 19). The software license fee contract term is for a
period of five years and in the event of early termination for
the convenience of JTV, the license fee remains payable in full.
The license fee relating to 2006 was prepaid in advance in
December 2005. The maintenance and support fee contract is
cancelable upon 180 days notice. The license fee relating
to the first quarter of 2006 was prepaid in advance in December
2005. Accordingly, the schedule below detailing future
commitments includes the maintenance and support fees for only a
three-month period for 2006.
At December 31, 2005, JTV has commitments for software
license fees as follows:
|
|
|
|
|
|
|
|
Yen | |
|
|
(thousands) | |
Year ending December 31,
|
|
|
|
|
|
2006
|
|
¥ |
9,068 |
|
|
2007
|
|
|
126,949 |
|
|
2008
|
|
|
126,949 |
|
|
2009
|
|
|
126,949 |
|
|
2010
|
|
|
126,949 |
|
|
Thereafter
|
|
|
|
|
|
|
|
|
Total software license fee commitments
|
|
¥ |
516,864 |
|
|
|
|
|
|
|
(19) |
Business Realignment Costs |
In October 2004, pursuant to a business plan, JTV commenced the
development of a new television channel business, named PartiTV,
with the expectation of launch during the fourth quarter of
2005. In December 2005, a decision was made to place the launch
of PartiTV on hold while JTV reconsidered the feasibility and
social appropriateness of the content and business model based
on new information obtained during the developmental period.
Subsequently, JTV made a formal announcement that the PartiTV
project would be closed.
In connection with the decision to suspend the launch of PartiTV
and ultimately close the project, JTV advised 19 employees in
December 2005 and 75 employees in January 2006 that they would
retire from JTV, and that their contracts and/or employment
status within the PartiTV division would expire or would be
terminated on the basis of certain compensation packages. The
total cost for one-time retirement, expiration and/or
termination benefits for those employees was estimated to be
¥193,421 thousand, of which ¥25,097 thousand has been
accrued, and is included in selling, general and administrative
expenses in the accompany-
IV-50
JUPITER TV CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
ing consolidated statements of operations for the year ended
December 31, 2005, while the balance of ¥168,324
thousand will be recognized in 2006, in accordance with the
provisions of SFAS No. 146.
In addition, long-lived assets acquired for the PartiTV
business, including capitalized leases, were evaluated for
impairment due to uncertainty regarding future cash flows from
their use in other JTV business, and have been written down to
their estimated fair value (Note 5).
JTV is presently evaluating the feasibility of re-deploying and
utilizing other PartiTV infrastructure assets and commitments
under operating leases, principally for studio and office space
and application software, in other aspects of its business,
including in connection with the potential launch of an auction
channel, that is currently being studied. Although, based on
managements preliminary assessment, it expects that such
assets and commitments will be fully realized through deployment
in its other operations or otherwise, the amounts JTV will
ultimately realize in the near term due to closure of the
PartiTV project could differ materially from the amounts
recorded in the accompanying consolidated financial statements
for the year ended December 31, 2005, as changes in
business plans or realizations as to the adoptability of such
assets could result in the recognition of further impairment
charges or contract termination costs. Operating lease
commitments for studio and office space and other commitments
related to the PartiTV business amounted to ¥763,093
thousand at December 31, 2005, and are included in
Notes 11 and 18, respectively.
IV-51
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of
Jupiter Telecommunications Co., Ltd. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of
Jupiter Telecommunications Co., Ltd. (a Japanese corporation)
and subsidiaries as of December 31, 2003 and 2004, and the
related consolidated statements of operations,
shareholders equity and cash flows for each of the years
in the two-year period ended December 31, 2004. These
consolidated financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Jupiter Telecommunications Co., Ltd. and
subsidiaries as of December 31, 2003 and 2004, and the
results of their operations and their cash flows for each of the
years in the two-year period ended December 31, 2004, in
conformity with U.S. generally accepted accounting principles.
KPMG AZSA & Co.
Tokyo, Japan
February 14, 2005
IV-52
CONSOLIDATED BALANCE SHEETS
JUPITER TELECOMMUNICATIONS CO., LTD. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
|
(Yen in thousands) | |
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
¥ |
7,785,978 |
|
|
¥ |
10,420,109 |
|
|
Restricted cash
|
|
|
1,773,060 |
|
|
|
|
|
|
Accounts receivable, less allowance for doubtful accounts of
¥229,793 thousand in 2003 and ¥245,504 thousand in 2004
|
|
|
7,907,324 |
|
|
|
8,823,311 |
|
|
Loans to related party (Note 5)
|
|
|
|
|
|
|
4,030,000 |
|
|
Prepaid expenses and other current assets (Note 8)
|
|
|
1,596,150 |
|
|
|
4,099,032 |
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
19,062,512 |
|
|
|
27,372,452 |
|
Investments:
|
|
|
|
|
|
|
|
|
|
Investments in affiliates (Notes 3 and 5)
|
|
|
2,794,533 |
|
|
|
3,773,360 |
|
|
Investments in other securities, at cost
|
|
|
2,891,973 |
|
|
|
2,901,566 |
|
|
|
|
|
|
|
|
|
|
|
5,686,506 |
|
|
|
6,674,926 |
|
Property and equipment, at cost (Notes 5 and 7):
|
|
|
|
|
|
|
|
|
|
Land
|
|
|
1,826,787 |
|
|
|
1,796,217 |
|
|
Distribution system and equipment
|
|
|
312,330,187 |
|
|
|
344,207,670 |
|
|
Support equipment and buildings
|
|
|
11,593,849 |
|
|
|
12,612,896 |
|
|
|
|
|
|
|
|
|
|
|
325,750,823 |
|
|
|
358,616,783 |
|
|
Less accumulated depreciation
|
|
|
(81,523,580 |
) |
|
|
(108,613,916 |
) |
|
|
|
|
|
|
|
|
|
|
244,227,243 |
|
|
|
250,002,867 |
|
Other assets:
|
|
|
|
|
|
|
|
|
|
Goodwill, net (Notes 2 and 4)
|
|
|
139,853,596 |
|
|
|
140,658,718 |
|
|
Other (Note 4 and 8)
|
|
|
13,047,229 |
|
|
|
14,582,383 |
|
|
|
|
|
|
|
|
|
|
|
152,900,825 |
|
|
|
155,241,101 |
|
|
|
|
|
|
|
|
|
|
¥ |
421,877,086 |
|
|
¥ |
439,291,346 |
|
|
|
|
|
|
|
|
The accompanying notes to consolidated financial statements are
an integral part of these balance sheets.
IV-53
CONSOLIDATED BALANCE SHEETS
JUPITER TELECOMMUNICATIONS CO., LTD. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
|
(Yen in thousands) | |
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Short-term loans
|
|
¥ |
|
|
|
¥ |
250,000 |
|
|
Long-term debt current portion (Notes 6
and 12)
|
|
|
2,438,480 |
|
|
|
5,385,980 |
|
|
Capital lease obligations current portion
(Notes 5, 7 and 12):
|
|
|
|
|
|
|
|
|
|
|
Related parties
|
|
|
7,673,978 |
|
|
|
8,237,323 |
|
|
|
Other
|
|
|
1,800,456 |
|
|
|
1,291,918 |
|
|
Accounts payable
|
|
|
17,293,932 |
|
|
|
17,164,463 |
|
|
Accrued expenses and other liabilities
|
|
|
3,576,708 |
|
|
|
6,155,380 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
32,783,554 |
|
|
|
38,485,064 |
|
Long-term debt, less current portion (Notes 6 and 12):
|
|
|
|
|
|
|
|
|
|
Related parties
|
|
|
149,739,250 |
|
|
|
|
|
|
Other
|
|
|
72,092,465 |
|
|
|
194,088,485 |
|
Capital lease obligations, less current portion (Notes 5, 7
and 12):
|
|
|
|
|
|
|
|
|
|
Related parties
|
|
|
17,704,295 |
|
|
|
19,714,799 |
|
|
Other
|
|
|
3,951,900 |
|
|
|
2,560,511 |
|
Deferred revenue
|
|
|
41,635,426 |
|
|
|
41,699,497 |
|
Severance and retirement allowance (Note 9)
|
|
|
2,023,706 |
|
|
|
2,718,792 |
|
Redeemable preferred stock of consolidated subsidiary
(Note 10)
|
|
|
500,000 |
|
|
|
500,000 |
|
Other liabilities
|
|
|
3,411,564 |
|
|
|
180,098 |
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
323,842,160 |
|
|
|
299,947,246 |
|
|
|
|
|
|
|
|
Minority interest
|
|
|
1,266,287 |
|
|
|
974,227 |
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 14)
|
|
|
|
|
|
|
|
|
Shareholders equity (Note 11):
|
|
|
|
|
|
|
|
|
|
Ordinary shares no par value
|
|
|
63,132,998 |
|
|
|
78,133,015 |
|
|
|
Authorized 15,000,000 shares; issued and outstanding
4,684,535.74 shares at December 31, 2003
and 5,146,074.74 shares at December 31, 2004
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
122,837,273 |
|
|
|
137,930,774 |
|
|
Accumulated deficit
|
|
|
(88,506,887 |
) |
|
|
(77,685,712 |
) |
|
Accumulated other comprehensive loss
|
|
|
(694,745 |
) |
|
|
(8,204 |
) |
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
96,768,639 |
|
|
|
138,369,873 |
|
|
|
|
|
|
|
|
|
|
¥ |
421,877,086 |
|
|
¥ |
439,291,346 |
|
|
|
|
|
|
|
|
The accompanying notes to consolidated financial statements are
an integral part of these balance sheets.
IV-54
CONSOLIDATED STATEMENTS OF OPERATIONS
JUPITER TELECOMMUNICATIONS CO., LTD. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
|
| |
|
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
|
(Yen in thousands, except | |
|
|
share and per share | |
|
|
amounts) | |
Revenue (Note 5):
|
|
|
|
|
|
|
|
|
|
Subscription fees
|
|
¥ |
123,214,958 |
|
|
¥ |
140,826,446 |
|
|
Other
|
|
|
19,944,074 |
|
|
|
20,519,825 |
|
|
|
|
|
|
|
|
|
|
|
143,159,032 |
|
|
|
161,346,271 |
|
|
|
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
Operating and programming costs (Note 5)
|
|
|
62,961,783 |
|
|
|
66,569,614 |
|
|
Selling, general and administrative (inclusive of stock
compensation expense of ¥120,214 thousand in 2003 and
¥84,267 thousand in 2004) (Notes 5 and 11)
|
|
|
30,584,236 |
|
|
|
31,611,717 |
|
|
Depreciation and amortization
|
|
|
36,410,894 |
|
|
|
40,573,166 |
|
|
|
|
|
|
|
|
|
|
|
129,956,913 |
|
|
|
138,754,497 |
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
13,202,119 |
|
|
|
22,591,774 |
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
Interest expense, net:
|
|
|
|
|
|
|
|
|
|
|
Related parties (Note 5)
|
|
|
(4,562,594 |
) |
|
|
(4,055,343 |
) |
|
|
Other
|
|
|
(3,360,674 |
) |
|
|
(6,045,939 |
) |
|
Other income, net
|
|
|
316,116 |
|
|
|
37,574 |
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and other items
|
|
|
5,594,967 |
|
|
|
12,528,066 |
|
Equity in earnings of affiliates (inclusive of stock
compensation expense of ¥(2,855) thousand in 2003 and
¥9,217 thousand in 2004) (Note 11)
|
|
|
414,756 |
|
|
|
610,110 |
|
Minority interest in net (income) losses of consolidated
subsidiaries
|
|
|
(448,668 |
) |
|
|
(458,624 |
) |
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
5,561,055 |
|
|
|
12,679,552 |
|
Income taxes (Note 8)
|
|
|
(209,805 |
) |
|
|
(1,858,377 |
) |
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
¥ |
5,351,250 |
|
|
¥ |
10,821,175 |
|
|
|
|
|
|
|
|
Per share data:
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share basic and diluted
|
|
¥ |
1,214 |
|
|
¥ |
2,221 |
|
Weighted average number of ordinary shares
outstanding basic and diluted
|
|
|
4,407,046 |
|
|
|
4,871,169 |
|
|
|
|
|
|
|
|
The accompanying notes to consolidated financial statements are
an integral part of these statements.
IV-55
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
JUPITER TELECOMMUNICATIONS CO., LTD. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated | |
|
|
|
|
|
|
Additional | |
|
Comprehensive | |
|
|
|
Other | |
|
Total | |
|
|
Ordinary | |
|
Paid-in | |
|
Income | |
|
Accumulated | |
|
Comprehensive | |
|
Shareholders | |
|
|
Shares | |
|
Capital | |
|
(Loss) | |
|
Deficit | |
|
Loss | |
|
Equity | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Yen in thousands, except per share amounts) | |
Balance at January 1, 2003
|
|
¥ |
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 (Note 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
¥ |
10,821,175 |
|
|
|
10,821,175 |
|
|
|
|
|
|
|
10,821,175 |
|
Other comprehensive gain:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on cash flow hedge
|
|
|
|
|
|
|
|
|
|
|
686,541 |
|
|
|
|
|
|
|
686,541 |
|
|
|
686,541 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
¥ |
11,507,716 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation (Notes 1 and 11)
|
|
|
|
|
|
|
93,484 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93,484 |
|
Ordinary shares issued; 461,539 shares at ¥65,000 per share
(Note 1)
|
|
|
15,000,017 |
|
|
|
15,000,017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,000,034 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004
|
|
¥ |
78,133,015 |
|
|
¥ |
137,930,774 |
|
|
|
|
|
|
¥ |
(77,685,712 |
) |
|
¥ |
(8,204 |
) |
|
¥ |
138,369,873 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes to consolidated financial statements are
an integral part of these statements.
IV-56
CONSOLIDATED STATEMENTS OF CASH FLOWS
JUPITER TELECOMMUNICATIONS CO., LTD. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
|
| |
|
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
|
(Yen in thousands) | |
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net income
|
|
¥ |
5,351,250 |
|
|
¥ |
10,821,175 |
|
|
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
Gain on forgiveness of subsidiary debt
|
|
|
(400,000 |
) |
|
|
|
|
|
|
Depreciation and amortization
|
|
|
36,410,894 |
|
|
|
40,573,166 |
|
|
|
Equity in earnings of affiliates
|
|
|
(414,756 |
) |
|
|
(610,110 |
) |
|
|
Minority interest in net income of consolidated subsidiaries
|
|
|
448,668 |
|
|
|
458,624 |
|
|
|
Stock compensation expense
|
|
|
120,214 |
|
|
|
84,267 |
|
|
|
Deferred income taxes
|
|
|
|
|
|
|
45,591 |
|
|
|
Provision for retirement allowance
|
|
|
417,335 |
|
|
|
647,592 |
|
|
|
Changes in operating assets and liabilities, excluding effects
of business combinations:
|
|
|
|
|
|
|
|
|
|
|
|
Decrease/(increase) in accounts receivable, net
|
|
|
1,712,904 |
|
|
|
(431,162 |
) |
|
|
|
Decrease in prepaid expenses and other current assets
|
|
|
349,147 |
|
|
|
4,866 |
|
|
|
|
(Increase)/decrease in other assets
|
|
|
(325,769 |
) |
|
|
2,443,960 |
|
|
|
|
(Decrease)/increase in accounts payable
|
|
|
171,705 |
|
|
|
(1,184,539 |
) |
|
|
|
Increase in accrued expenses and other liabilities
|
|
|
2,665,162 |
|
|
|
39,279 |
|
|
|
|
Increase/(decrease) in deferred revenue
|
|
|
458,315 |
|
|
|
(380,578 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
46,965,069 |
|
|
|
52,512,131 |
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(32,478,389 |
) |
|
|
(31,792,956 |
) |
|
Acquisition of new subsidiaries, net of cash acquired
|
|
|
|
|
|
|
(442,910 |
) |
|
Investments in and advances to affiliates
|
|
|
(172,500 |
) |
|
|
(359,500 |
) |
|
(Increase)/decrease in restricted cash
|
|
|
(1,773,060 |
) |
|
|
1,773,060 |
|
|
Loans to related party
|
|
|
|
|
|
|
(4,030,000 |
) |
|
Acquisition of minority interest in consolidated subsidiaries
|
|
|
(25,565 |
) |
|
|
(4,960,484 |
) |
|
Other investing activities
|
|
|
(76,891 |
) |
|
|
(69,427 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(34,526,405 |
) |
|
|
(39,882,217 |
) |
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
|
|
|
|
30,000,034 |
|
|
Net increase/(decrease) in short-term loans
|
|
|
(228,785,000 |
) |
|
|
250,000 |
|
|
Proceeds from long-term debt
|
|
|
239,078,000 |
|
|
|
185,302,000 |
|
|
Principal payments of long-term debt
|
|
|
(8,184,980 |
) |
|
|
(210,097,730 |
) |
|
Principal payments under capital lease obligations
|
|
|
(10,843,024 |
) |
|
|
(11,887,363 |
) |
|
Other financing activities
|
|
|
(3,464,440 |
) |
|
|
(3,562,724 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(12,199,444 |
) |
|
|
(9,995,783 |
) |
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
239,220 |
|
|
|
2,634,131 |
|
Cash and cash equivalents at beginning of year
|
|
|
7,546,758 |
|
|
|
7,785,978 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
¥ |
7,785,978 |
|
|
¥ |
10,420,109 |
|
|
|
|
|
|
|
|
The accompanying notes to consolidated financial statements are
an integral part of these statements.
IV-57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUPITER TELECOMMUNICATIONS CO., LTD. AND SUBSIDIARIES
|
|
1. |
Description of Business, Basis of Financial Statements and
Summary of Significant Accounting Policies |
Business and
Organization
Jupiter Telecommunications Co., Ltd. (Jupiter) and
its subsidiaries (the Company) 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 Internal Affairs and Communications
(MIC). In general, franchise rights granted by the
MIC 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 Companys revenue. Telephony operations
accounted for approximately 13% and 15% of total revenue for the
years ended December 31, 2003 and 2004, respectively.
Internet operations accounted for approximately 24% and 25% of
total revenue for the years ended December 31, 2003 and
2004, respectively.
The Companys beneficial ownership at December 31,
2004 was as follows:
|
|
|
|
|
LMI/ Sumisho Super Media, LLC (SM)
|
|
|
65.23% |
|
Microsoft Corporation (Microsoft)
|
|
|
19.46% |
|
Sumitomo Corporation (SC)
|
|
|
12.25% |
|
Mitsui & Co., Ltd.
|
|
|
1.53% |
|
Matsushita Electric Industrial Co., Ltd.
|
|
|
1.53% |
|
In August 2004, Liberty Media International, Inc.
(LMI), SC and Microsoft made capital contributions
to the Company in the following amounts: LMI:
¥14,065 million for 216,382 shares:
SC: ¥9,913 million for 152,505 shares; and
Microsoft ¥6,022 million for 92,652 shares. The shares
of common stock issued in exchange for the capital contributions
were based on fair value at the date of the transaction. As a
result of the transaction, their beneficial ownership in the
Company increased to 45.45%, 32.03% and 19.46%, respectively.
The proceeds from the capital contributions were used to repay
subordinated debt owed to each of LMI, SC and Microsoft in the
same amounts as contributed by each shareholder respectively
(see Note 6).
On December 28, 2004, LMI contributed all of its then
45.45% beneficial ownership interest and SC contributed 19.78%
of its then ownership interest in the Company to SM, a company
owned 69.7% by LMI and 30.3% by SC. As a result, SM became a
65.23% shareholder of the Company while SCs direct
ownership interest was reduced to 12.25%. SC is obligated to
contribute its remaining 12.25% direct ownership interest in the
Company to SM within six months of an initial public offering
(IPO) in Japan by the Company.
The Company has historically relied on financing from its
principle shareholders to meet liquidity requirements. However,
in December 2004, the Company entered into a new syndicated
facility and repaid all outstanding debt with its principal
shareholders. For additional information concerning the 2004
refinancing, see Note 6.
|
|
|
Basis of Financial Statements |
The Company maintains its 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 to accounting principles generally accepted in the
United States of America (U.S. GAAP). These
adjustments include those related to the scope of consolidation,
accounting for business combinations, accounting for income
taxes, accounting for leases, accounting for stock-based
compensation, revenue recognition of certain revenues,
post-retirement benefits, depreciation and amortization and
accruals for certain expenses.
IV-58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUPITER TELECOMMUNICATIONS CO., LTD. AND
SUBSIDIARIES (Continued)
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 cable system operators
(SOs). All significant intercompany balances and
transactions have been eliminated. For the consolidated
subsidiaries with a 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 is
originally recorded at cost and adjusted to recognize the
Companys share of the net earnings or losses of its
affiliates. Prior to the adoption on January 1, 2002 of
Statement of Financial Accounting Standard (SFAS)
No. 142, Goodwill and Other Intangible Assets, the excess
of the Companys cost over its percentage interest in the
net assets of each affiliate was amortized, primarily over a
period of 20 years. Subsequent to the adoption of
SFAS No. 142, such excess is no longer amortized. 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, industry multiples 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, from
15 to 60 years for buildings and structures and from 8 to
15 years for support equipment. 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 2 to 21 years.
Ordinary maintenance and repairs are charged to income as
incurred. Major replacements and improvements are capitalized.
When property and equipment is retired or otherwise disposed of,
the cost and related
IV-59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUPITER TELECOMMUNICATIONS CO., LTD. AND
SUBSIDIARIES (Continued)
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 ¥2,041,347 thousand
and ¥2,558,513 thousand for the years ended
December 31, 2003 and 2004, respectively.
Goodwill represents the difference between the cost of the
acquired cable television companies and amounts allocated to the
estimated fair value of their net assets. The Company performs
an assessment of goodwill for impairment at least annually, and
more frequently if an indicator of impairment has occurred,
using a two-step process. The first step requires identification
of reporting units and determination of the fair value for each
individual reporting unit. The fair value of each reporting unit
is then compared to the reporting units carrying amount
including assigned goodwill. To the extent a reporting
units carrying amount exceeds its fair value, the second
step of the impairment test is performed by comparing the
implied fair value of the reporting units goodwill to its
carrying amount. If the implied fair value of a reporting
units goodwill is less than its carrying amount, an
impairment loss is recorded. The Company performs its annual
impairment test on the first day of October in each year. The
Company has determined its reporting units to be the same as its
reportable segments. The Company had no impairment charges of
goodwill for the years ended December 31, 2003 and 2004.
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 comparing the carrying amount of an
asset to future net cash flows (undiscounted and without
interest) 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 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 costs 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
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.
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. These costs
are amortized to interest expense using the effective interest
method over the term of the facility. For additional information
concerning the Companys debt facilities, see Note 6.
IV-60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUPITER TELECOMMUNICATIONS CO., LTD. AND
SUBSIDIARIES (Continued)
|
|
|
(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 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 and interest cap
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 formally documents all relationships between hedging
instruments and hedged items, as well as its risk-management
objective and strategy for undertaking hedge transactions. This
process includes linking all derivatives that are designated as
fair value or cash flow hedges to specific assets and
liabilities on the balance sheet or to specific firm commitments
or forecasted transactions. The Company discontinues hedge
accounting prospectively when (1) it is determined that the
derivative is no longer effective in offsetting changes in the
fair value of cash flows of a hedged item; (2) the
derivative expires or is sold, terminated, or exercised;
(3) it is determined that the forecasted hedged transaction
will no longer occur; (4) a hedged firm commitment no
longer meets the definition of a firm commitment, or
(5) management determines that the designation of the
derivative as a hedge instrument is no longer appropriate.
Ongoing assessments of effectiveness are being made every three
months.
The Company had several outstanding forward contracts with a
commercial bank to hedge foreign currency exposures related to
U.S. dollar-denominated equipment purchases and other firm
commitments. As of December 31, 2003 and 2004, such forward
contracts had an aggregate notional amount of ¥3,134,242
thousand and ¥5,658,147 thousand, respectively, and expire
on various dates through December 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
U.S. dollars, thus managing associated currency risk.
Forward contracts not designated as hedges are marked to market
each period. Included in other income, net, in the accompanying
consolidated statements of operations are losses on forward
contracts not designated as hedges of ¥65,195 thousand and
¥72,223 thousand for the years ended December 31, 2003
and 2004, 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
IV-61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUPITER TELECOMMUNICATIONS CO., LTD. AND
SUBSIDIARIES (Continued)
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. In December 2004, the Company entered into a new
debt facility, which replaced its former facility (see
Note 6). Under the terms of the new facility, the Company
was required to cancel certain interest rate swap agreements and
an interest rate cap agreement with an aggregate notional amount
of ¥24 billion, as the counterparties elected not to
participate in the new facility. Such agreements were canceled
in January 2005. As a result, these agreements are no longer
considered cash flow hedging instruments and their respective
fair value changes were reclassified into interest expense, net
in the accompanying consolidated statements of operations for
the year ended December 31, 2004. The remaining aggregate
notional amount of ¥36 billion of interest rate swap
agreements have been permitted to be carried over to the new
facility as the counterparties are participants in the new
facility. The Company has re-designated such interest swap
agreements as cash flow hedging instruments.
|
|
|
(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.
(k) Income Taxes
The Company and its subsidiaries account for income taxes 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.
(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.
Operating and programming 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.
(m) Revenue
Recognition
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
IV-62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUPITER TELECOMMUNICATIONS CO., LTD. AND
SUBSIDIARIES (Continued)
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 from affiliates
related to construction-related sales and programming fees which
are recorded in revenue other in the accompanying
consolidated statements of operations.
(n) Advertising
Expense
Advertising expense is charged to income as incurred.
Advertising expense amounted to ¥3,921,229 thousand and
¥2,915,403 thousand and for the years ended
December 31, 2003 and 2004, respectively, and is 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 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 earnings of affiliates for
employees of affiliated companies in the accompanying
consolidated statements of operations.
IV-63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUPITER TELECOMMUNICATIONS CO., LTD. AND
SUBSIDIARIES (Continued)
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 and net income per share for the years ended
December 31, 2003 and 2004, if the Company had applied the
fair value recognition provisions of SFAS No. 123 (Yen in
thousands, except share and per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
2003 | |
|
2004 | |
|
|
| |
|
| |
Net income (loss), as reported
|
|
¥ |
5,351,250 |
|
|
|
¥10,821,175 |
|
|
Add stock-based compensation expense included in reported net
income (loss)
|
|
|
|
|
|
|
|
|
|
Deduct stock-based compensation expense determined under fair
value based method for all awards, net of applicable taxes
|
|
|
(454,172 |
) |
|
|
(607,655 |
) |
|
|
|
|
|
|
|
Pro forma net income (loss)
|
|
¥ |
4,897,078 |
|
|
|
¥10,213,520 |
|
|
|
|
|
|
|
|
Basic and diluted per share data:
|
|
|
|
|
|
|
|
|
Net income (loss) per share, as reported (Yen)
|
|
|
1,214 |
|
|
|
2,221 |
|
Net income (loss) per share, pro forma (Yen)
|
|
|
1,111 |
|
|
|
2,097 |
|
(p) Earnings Per
Share
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 2003 and 2004, as
all potential ordinary share equivalents, consisting of stock
options, are anti-dilutive.
(q) Segments
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 managed 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.
(r) Use of
Estimates
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 U.S. GAAP. Significant judgments and estimates include
derivative financial instruments, depreciation and amortization
costs, impairments of property and equipment and goodwill,
income taxes and other contingencies. Actual results could
differ from those estimates.
IV-64
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUPITER TELECOMMUNICATIONS CO., LTD. AND
SUBSIDIARIES (Continued)
(s) Recent Accounting
Pronouncements
The FASB issued SFAS No. 123 (Revised 2004) (SFAS
No. 123R) in December 2004. SFAS No. 123R is a
revision of SFAS No. 123. SFAS No. 123R supersedes APB
No. 25 and its related implementation guidance. SFAS
No. 123R focuses primarily on accounting for transactions
in which an entity obtains employee services in share-based
payment transactions. SFAS No. 123R requires a public
entity to measure the cost of employee services received in
exchange for an award of equity instruments based on the
grant-date fair value of the award (with limited exceptions).
That cost will be recognized over the period during which an
employee is required to provide service in exchange for the
award. This statement is effective as of the beginning of the
first interim or annual reporting period that begins after
June 15, 2005. We have not yet determined the impact SFAS
No. 123R will have on our results of operations.
2. Acquisitions
The Company acquired varying interests in cable television
companies during the periods presented. The Company utilized 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.
In March 2004, the Company purchased a controlling interest in
Izumi Otsu from certain of its shareholders. The total purchase
price of such Izumi Otsu shares was ¥160,000 thousand and
gave the Company a 66.7% interest. The results of Izumi Otsu
have been included as a consolidated subsidiary from
April 1, 2004. In August 2004, the Company and certain
shareholders entered into an agreement and merged Izumi Otsu
into the Companys 84.2% consolidated subsidiary,
J-COM Kansai. After the
merger, the Company has an 84.0% equity interest in
J-COM Kansai.
In July 2004, the Company purchased a 100% controlling interest
in Cable System Engineering Corporation (CSE), whose
business is cable network construction and installation. The
total purchase price of CSE was ¥577,210 thousand. No
goodwill was recognized in connection with this acquisition. The
result of operations for CSE have been included from
August 1, 2004.
The impact to revenue, net income (loss) and net income (loss)
per share for the years ended December 31, 2003 and 2004,
as if the transactions were completed as of the beginning of
those years, is not significant.
The aggregate purchase price of the business combinations during
the year ended December 31, 2004 was allocated based upon
fair values as follows (Yen in thousands):
|
|
|
|
|
|
|
2004 | |
|
|
| |
Cash, receivables and other assets
|
|
¥ |
2,073,191 |
|
Property and equipment
|
|
|
791,856 |
|
Goodwill
|
|
|
4,228,117 |
|
Debt and capital lease obligations
|
|
|
|
|
Other liabilities
|
|
|
(1,395,471 |
) |
|
|
|
|
|
|
¥ |
5,697,693 |
|
|
|
|
|
3. Investments in Affiliates
The Companys affiliates are engaged primarily in the
Broadband services business in Japan. At December 31, 2004,
the Company held investments in
J-COM Shimonoseki
(50.0%), J-COM Fukuoka
(45.0%), Jupiter VOD Co. Ltd. (50.0%), Kansai Multimedia Service
Co., Ltd. (Kansai Multimedia) (25.8%), CATV Kobe
(20.4%) and Green City Cable TV Corporation (20.0%).
IV-65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUPITER TELECOMMUNICATIONS CO., LTD. AND
SUBSIDIARIES (Continued)
The carrying value of investments in affiliates as of
December 31, 2003 and 2004 includes ¥730,910 thousand
and ¥761,053 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, 2003 and 2004 includes ¥2,019,000
thousand and ¥1,945,000 thousand of short-term loans the
Company made to certain managed affiliates. The interest rate on
these loans was 3.23% and 2.48% as of December 31, 2003 and
2004.
Condensed financial information of the Companys
unconsolidated affiliates at December 31, 2003, and 2004
and for each of the two years ended December 31, 2003 and
2004 are as follows (Yen in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 | |
|
2004 | |
|
|
| |
|
| |
Combined Financial Position:
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
¥ |
29,696,602 |
|
|
¥ |
29,578,096 |
|
|
Other assets, net
|
|
|
6,201,251 |
|
|
|
7,545,469 |
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
¥ |
35,897,853 |
|
|
¥ |
37,123,565 |
|
|
|
|
|
|
|
|
|
Debt
|
|
¥ |
17,998,825 |
|
|
¥ |
15,577,345 |
|
|
Other liabilities
|
|
|
16,030,950 |
|
|
|
17,224,152 |
|
|
Shareholders equity
|
|
|
1,868,078 |
|
|
|
4,322,068 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
¥ |
35,897,853 |
|
|
¥ |
37,123,565 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 | |
|
2004 | |
|
|
| |
|
| |
Combined Operations:
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
¥ |
19,776,603 |
|
|
¥ |
21,784,795 |
|
|
Operating, selling, general and administrative expenses
|
|
|
(13,430,881 |
) |
|
|
(15,080,471 |
) |
|
Depreciation and amortization
|
|
|
(3,682,641 |
) |
|
|
(4,164,827 |
) |
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
2,663,081 |
|
|
|
2,539,497 |
|
|
Interest expense, net
|
|
|
(478,609 |
) |
|
|
(427,400 |
) |
|
Other expense, net
|
|
|
(1,013,158 |
) |
|
|
(428,107 |
) |
|
|
|
|
|
|
|
|
|
Net income
|
|
¥ |
1,171,314 |
|
|
¥ |
1,683,990 |
|
|
|
|
|
|
|
|
4. Goodwill and Other Assets
The changes in the carrying amount of goodwill, net, for the
years ended December 31, 2003 and 2004 consisted of the
following (Yen in thousands):
|
|
|
|
|
|
|
|
|
|
|
2003 | |
|
2004 | |
|
|
| |
|
| |
Goodwill, net, beginning of year
|
|
¥ |
139,827,277 |
|
|
¥ |
139,853,596 |
|
Goodwill acquired during the year
|
|
|
26,319 |
|
|
|
4,228,117 |
|
Initial recognition of acquired tax benefits allocated to reduce
goodwill of acquired entities (Note 8)
|
|
|
|
|
|
|
(3,422,995 |
) |
|
|
|
|
|
|
|
Goodwill, net, end of year
|
|
¥ |
139,853,596 |
|
|
¥ |
140,658,718 |
|
|
|
|
|
|
|
|
IV-66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUPITER TELECOMMUNICATIONS CO., LTD. AND
SUBSIDIARIES (Continued)
Other assets, excluding goodwill, at December 31, 2003 and
2004, consisted of the following (Yen in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
2003 | |
|
2004 | |
|
|
| |
|
| |
Lease and other deposits
|
|
¥ |
4,295,947 |
|
|
¥ |
4,313,742 |
|
Deferred financing costs
|
|
|
3,763,785 |
|
|
|
3,540,302 |
|
Capitalized computer software, net
|
|
|
3,022,557 |
|
|
|
3,351,115 |
|
Long-term loans receivable, net
|
|
|
300,380 |
|
|
|
270,885 |
|
Deferred tax assets
|
|
|
|
|
|
|
1,308,582 |
|
Other
|
|
|
1,664,560 |
|
|
|
1,797,757 |
|
|
|
|
|
|
|
|
|
Total other assets
|
|
¥ |
13,047,229 |
|
|
¥ |
14,582,383 |
|
|
|
|
|
|
|
|
5. Related Party Transactions
The Company purchases cable system materials and supplies from
third-party suppliers and resells them to its subsidiaries and
affiliates. The sales to unconsolidated affiliates amounted to
¥2,888,046 thousand and ¥2,385,495 thousand for
the years ended December 31, 2003 and 2004, respectively,
and are included in revenue other in the
accompanying consolidated statements of operations.
The Company provides programming services to its subsidiaries
and affiliates. The revenue from unconsolidated affiliates for
such services provided and the related products sold amounted to
¥1,092,724 thousand and ¥1,379,744 thousand
for the years ended December 31, 2003 and 2004,
respectively, and are included in revenue other in
the accompanying consolidated statements of operations.
The Company provides management services to its subsidiaries and
managed affiliates. Fees for such services related to managed
affiliates amounted to ¥468,219 thousand and
¥521,670 thousand for the years ended
December 31, 2003 and 2004, respectively, and are included
in revenue other in the accompanying consolidated
statements of operations.
In July 2002, the Company began providing management services to
Chofu Cable Inc.
(J-COM
Chofu), an affiliated company that is 92% jointly owned by
LMI, Microsoft and SC. Fees for such services amounted to
¥60,882 thousand and ¥87,446 thousand for
the years ended December 31, 2003 and 2004 respectively,
and are included in revenue other in the
accompanying consolidated statements of operations. As part of
the 2004 refinancing,
J-COM Chofu became
party to the Companys new debt facility (see Note 6).
At December 31, 2004, the Company had advanced
¥4,030 million of short term loans to
J-COM Chofu and the
interest rate on these loans were 2.48%.
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
LMI. Such purchases, including purchases from JPCs
affiliates, amounted to ¥3,155,139 thousand and
¥3,915,345 thousand for the years ended
December 31, 2003 and 2004, respectively, and are included
in operating and 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
¥939,438 thousand and ¥1,063,678 thousand
for the years ended December 31, 2003 and 2004,
respectively, and are included as revenue other in
the accompanying consolidated statements of operations.
The Company purchased stock of affiliated companies from SC in
the amounts of ¥0 thousand, and
¥5,091,864 thousand in the years ended
December 31, 2003 and 2004, 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.
IV-67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUPITER TELECOMMUNICATIONS CO., LTD. AND
SUBSIDIARIES (Continued)
(collectively Sumisho leasing) are a subsidiary and
affiliate, respectively, 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
¥6,087,645 thousand and ¥12,621,284 thousand
for the years ended December 31, 2003 and 2004,
respectively.
The Company pays monthly fees to its affiliates, @NetHome and
Kansai Multimedia, based on an agreed-upon percentage of
subscription revenue collected by the Company from its customers
for the @NetHome and Kansai Multimedia services. Payments made
to Kansai Multimedia under these arrangements amounted to
¥3,226,764 thousand and ¥3,380,148 thousand
for the years ended December 31, 2003 and 2004,
respectively. Such payments are included in operating and
programming costs in the accompanying consolidated statements of
operations. In March 2002, @Net Home became a consolidated
subsidiary of the Company (see Note 2). Therefore, since
April 1, 2002, through @NetHome, the Company receives the
monthly fee from its unconsolidated affiliates. Such service
fees amounted to ¥1,071,891 thousand and
¥1,242,550 thousand for the years ended
December 31, 2003 and 2004, respectively, and are included
in revenue-subscription fees in the accompanying consolidated
statements of operations.
The Company has management service agreements with SC and LMI
under which officers and management level employees are seconded
from SC and LMI 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 ¥706,303 thousand
and ¥784,122 thousand for the years ended
December 31, 2003 and 2004, respectively. The service fees
paid to LMI amounted to ¥714,986 thousand and
¥665,354 thousand for the years ended
December 31, 2003 and 2004, respectively. These amounts are
included in selling, general and administrative expenses in the
accompanying consolidated statements of operations.
SC, LMI and Microsoft had long-term subordinated loans to the
Company of ¥52,894,625 thousand,
¥52,894,625 thousand and
¥43,950,000 thousand, respectively, at
December 31, 2003. In December 2004, the Company refinanced
and replaced these subordinated shareholder loans under a new
facility. See Note 6.
The Company pays fees on debt guaranteed by SC, LMI and
Microsoft. The guarantee fees incurred were
¥84,224 thousand to SC, ¥73,470 thousand to LMI
and ¥51,890 thousand to Microsoft for the year ended
December 31, 2003. The guarantee fees incurred were
¥41,071 thousand to SC, ¥41,071 thousand to
LMI and ¥16,332 thousand to Microsoft for the year
ended December 31, 2004. Such fees are included in interest
expense, net-related parties in the accompanying consolidated
statements of operations. In December 2004 these guarantees were
replaced by a guarantee facility with a syndicate of lenders.
See Note 6.
IV-68
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUPITER TELECOMMUNICATIONS CO., LTD. AND
SUBSIDIARIES (Continued)
6. Long-term Debt
A summary of long-term debt as of December 31, 2003 and
2004 is as follows (Yen in thousands):
|
|
|
|
|
|
|
|
|
|
|
2003 | |
|
2004 | |
|
|
| |
|
| |
¥140 billion Facility term loans, due fiscal
2005 2009
|
|
¥ |
53,000,000 |
|
|
¥ |
|
|
¥175 billion Facility term loans, due fiscal
2005 2011
|
|
|
|
|
|
|
130,000,000 |
|
Mezzanine Facility Subordinated loan due fiscal 2012
|
|
|
|
|
|
|
50,000,000 |
|
8 yr Shareholder Subordinated loans, due fiscal 2011
|
|
|
117,739,250 |
|
|
|
|
|
8 yr Shareholder Tranche B Subordinated loans, due
fiscal 2011
|
|
|
32,000,000 |
|
|
|
|
|
0% unsecured loans from Development Bank of Japan, due fiscal
2005 2019
|
|
|
12,223,720 |
|
|
|
|
|
Unsecured loans from Development Bank of Japan, due fiscal
2005 2019, interest from 0.65% to 6.8%
|
|
|
3,895,400 |
|
|
|
|
|
0% secured loans from Development Bank of Japan, due fiscal
2005 2019
|
|
|
5,354,735 |
|
|
|
15,810,095 |
|
Secured loans from Development Bank of Japan, due fiscal
2005 2019, interest at 0.95% to 6.8%
|
|
|
|
|
|
|
3,614,200 |
|
0% unsecured loans from others, due fiscal 2012
|
|
|
57,090 |
|
|
|
50,170 |
|
|
|
|
|
|
|
|
Total
|
|
|
224,270,195 |
|
|
|
199,474,465 |
|
Less: current portion
|
|
|
(2,438,480 |
) |
|
|
(5,385,980 |
) |
|
|
|
|
|
|
|
Long-term debt, less current portion
|
|
¥ |
221,831,715 |
|
|
¥ |
194,088,485 |
|
|
|
|
|
|
|
|
2003 Financing
On January 31, 2003, the Company entered into a
¥140 billion bank syndicated facility for certain of
its managed subsidiaries and affiliates
(¥140 billion Facility). In connection
with the ¥140 billion Facility, on February 6,
2003, the Company entered into eight-year subordinated loans
with each of SC, LMI and Microsoft (Principal
Shareholders), which initially aggregated
¥182 billion (Shareholder Subordinated
Loans).
The ¥140 billion Facility was for the financing of
Jupiter, sixteen of its consolidated managed affiliates and one
managed affiliate accounted for under the equity method of
accounting. The financing was used for permitted general
corporate purposes, capital expenditures, financing costs and
limited purchase of minority shares and capital calls of the
affiliates participating in the ¥140 billion Facility.
The ¥140 billion Facility provided for term loans of
up to ¥120 billion and a revolving loan facility up to
¥20 billion with the final maturity of June 30,
2009. ¥32 billion of the total term loan portion of
the ¥140 billion Facility was considered provided by
the shareholders under the Tranche B Subordinated Loans.
Interest was based on TIBOR, as defined in the
¥140 billion Facility, plus margin which changed based
upon a leverage ratio of Total Debt to EBITDA as set forth in
the ¥140 billion Facility agreement. At
December 31, 2003, the interest rate was 2.83%. The
Shareholder Subordinated Loans, which were subordinated to the
¥140 billion Facility, consisted of eight-year
subordinated loans and eight-year Tranche B Subordinated
Loans. The ¥140 billion Facility had requirements to
make mandatory prepayments under specific circumstances as
defined in the agreements. Such prepayments are designated as
restricted cash on the consolidated balance sheets.
In May 2003, LMI and SC converted ¥32 billion of
Shareholder Subordinated Loans for 750,250 shares of common
stock of the company. At December 31, 2003, the interest
rate was 2.08%.
In December 2003, a consolidated subsidiary of the Company
became party to the ¥140 billion Facility. 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
IV-69
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUPITER TELECOMMUNICATIONS CO., LTD. AND
SUBSIDIARIES (Continued)
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
¥140 billion Facility.
In March 2004, the Company entered into additional shareholder
subordinated loans of ¥2,431,000 thousand each with SC
and LMI. The aggregate ¥4,862,000 thousand of loan
proceeds were used for the purchase of the remaining shares of
@NetHome (see Note 2). These additional shareholder
subordinated loans had identical terms to the Shareholder
Subordinated Loans discussed above.
In August 2004, LMI, SC and Microsoft made a capital
contribution to the Company in the aggregate amount of
¥30,000 million. The proceeds of this contribution
were used to repay an aggregate of ¥30,000 million of
Shareholder Subordinated Loans owed respectively in the same
amounts as contributed by LMI, SC and Microsoft (see
Note 1).
2004 Refinancing
On December 15, 2004, for the purpose of the refinancing
the ¥140 billion Facility, the Company entered into a
¥175 billion senior syndicated facility
(¥175 billion Facility) which consists of
a ¥130 billion term loan facility (Term Loan
Facility), a ¥20 billion revolving facility
(Revolving Facility) and a ¥25 billion
guarantee facility (Guarantee Facility).
Concurrently the Company entered into a ¥50 billion
subordinated syndicated loan facility (Mezzanine
Facility). Consistent with the ¥140 billion
Facility, the ¥175 billion Facility will be utilized
for the financing of Jupiter, sixteen of its consolidated
managed affiliates, one managed affiliate under the equity
method accounting and one managed affiliate, which the Company
has no equity investment (Jupiter Combined Group).
On December 21, 2004, the Company made full drawdowns from
each of the ¥130 billion Term Loan Facility and the
¥50 billion Mezzanine Facility. The proceeds from the
December 2004 drawdown were used to repay all outstanding loans
under the ¥140 billion Facility and all outstanding
Shareholder Subordinated Loans.
The ¥130 billion Term Loan Facility consists of a five
year ¥90 billion Tranche A Term Loan Facility
(Tranche A Facility) and a seven year
¥40 billion Tranche B Term Loan Facility
(Tranche B Facility). Final maturity dates of
the Tranche A Facility and Tranche B Facility are
December 31, 2009 and December 31, 2011, respectively.
Loan repayment of the Tranche A Facility and the
Tranche B Facility commence on September 30, 2005 and
March 31, 2009, respectively, each based on a defined rate
reduction each quarter thereafter until maturity.
The ¥20 billion Revolving Facility will be available
for drawdown until one month prior to its final maturity of
December 31, 2009. A commitment fee of 0.50% per annum is
payable on the unused available Revolving Facility during its
availability period.
The ¥25 billion Guarantee Facility provides for seven
years of bank guarantees on loans from the Development Bank of
Japan owed by affiliates of the Jupiter Combined Group. The
Guarantee Facility commitment reduces gradually according to the
amount and schedule as defined in the ¥175 billion
Facility agreement until final maturity at December 31,
2011. As of December 31, 2004 the guarantee commitment is
¥25 billion. Such guarantee commitment will be reduced
to ¥23.1 billion by December 2005;
¥21.6 billion by December 2006;
¥20.0 billion by December 2007;
¥18.6 billion by December 2008;
¥17.2 billion by December 2009;
¥15.8 billion by December 2010; and to
¥13.2 billion by December 2011. A commitment fee of
0.50% per annum is payable on the unused available Guarantee
Facility during its availability period.
Interest on the Tranche A Facility, Tranche B Facility
and the Revolving Facility is based on TIBOR, as defined in the
agreement, plus the applicable margin. Each facilitys
applicable margin is reducing based upon a leverage ratio of
Senior Debt to EBITDA as such terms are defined in the
¥175 billion Facility agreement. When the leverage
ratio is greater than or equal to 4.0:1, the margin on the
Tranche A Facility and the
IV-70
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUPITER TELECOMMUNICATIONS CO., LTD. AND
SUBSIDIARIES (Continued)
Revolving Facility is 1.50% per annum and the margin of the
Tranche B Facility ranges from 1.80% to 2.00% per annum;
when less than 4.0:1 but greater than or equal to 2.5:1 the
margin on the Tranche A Facility and the Revolving Facility
is 1.38% per annum and the margin of the Tranche B Facility
ranges from 1.69% to 1.88% per annum; when less than 2.5:1 but
greater than or equal to 1.5:1 the margin on the Tranche A
Facility and the Revolving Facility is 1.25% per annum and the
margin of the Tranche B Facility ranges from 1.58% to 1.75%
per annum; and when less than 1.5:1 the margin on the
Tranche A Facility and the Revolving Facility is 1.00% per
annum and the margin of the Tranche B Facility ranges from
1.35% to 1.50% per annum. In regards to the fees due on the
Guarantee Facility, when the leverage ratio is greater than
4.00:1, the interest rate is 3.00% per annum; when less than
4.00:1 but greater than or equal to 3.75:1 the interest rate is
2.00%; when less than 3.75:1 but greater than or equal to 3.50:1
the interest rate is 1.50%; when less than 3.50:1 but greater
than or equal to 3.00:1 the interest rate is 1.00%; when less
than 3.00:1 but greater than or equal to 2.00:1 the interest
rate is 0.75%; and when less than 2.00:1, the interest rate is
0.50% per annum. As of December 31, 2004 the interest rates
for the outstanding Tranche A Facility, Tranche B
Facility, and Guarantee Facility, were 1.6%, 1.9%, and 1.0%
respectively.
The ¥175 billion Facility has requirements to make
mandatory prepayments in the amount equal to (1) 50% of the
Group Free Cash Flow, as defined in the agreement, until the
later of (a) March 31, 2007 and (b) the first
quarter for which the ratio of Senior Debt to EBITDA, as defined
in the agreement, is less than 2.50:1.00; (2) 50% of third
party contributions received when the ratio of Senior Debt to
EBITDA is greater than 4.00:1.00; (3) proceeds from the
sale of assets exceeding ¥500 million that are not
reinvested within six months; (4) insurance proceeds
exceeding ¥500 million that are not used to repair or
replace the damaged assets within twelve months; and
(5) proceeds of any take-out securities as defined in the
¥175 billion Facility agreement. The
¥175 billion Facility requires the Jupiter Combined
Group to comply with various financial covenants, such as
Maximum Senior Debt to EBITDA Ratio, Maximum Senior Debt to
Combined Total Capital Ratio, Minimum Debt Service Coverage
Ratio and Minimum Interest Coverage Ratio as such terms are
defined in the ¥175 billion Facility agreement. In
addition, the ¥175 billion Facility contains certain
limitations or prohibitions on additional indebtedness.
Additionally, the ¥175 billion Facility requires the
Company to maintain interest hedging agreements on at least 50%
of the outstanding amounts under the Tranche A Facility.
Due to the ¥175 billion Facility closing on
December 15, 2004, the Company was not required to
calculate financial covenants for the fiscal year 2004.
The Mezzanine Facility contains a bullet repayment upon final
maturity at June 30, 2012. However, in the event of an IPO
by the Company, there is a mandatory prepayment of the Mezzanine
Facility of 100% from the proceeds of such IPO. Interest on the
Mezzanine Facility is based on TIBOR, as defined in the
agreement, plus an increasing margin. The initial margin is
3.25% per annum and increases 0.25% each successive three month
period from closing up to a maximum margin of 9.00% per annum.
The Mezzanine Facility has identical financial covenants as the
¥175 billion Facility.
As of December 31, 2004 the Company had
¥20 billion revolving loans available for immediate
borrowing under the ¥175 billion Facility.
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 MIC 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 were primarily
guaranteed, directly or indirectly, by SC, LMI and Microsoft. In
connection with the 2004 refinancing described above, the
guarantees by SC, LMI and Microsoft have been cancelled and
replaced with guarantees pursuant to the Guarantee Facility.
IV-71
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUPITER TELECOMMUNICATIONS CO., LTD. AND
SUBSIDIARIES (Continued)
Securities on Long-term Debt
At December 31, 2004, subsidiaries shares owned by
the Company, trademark and franchise rights held by the Company
and substantially all equipment held by the Companys
subsidiaries were pledged to secure the loans from the
Development Bank of Japan and the Companys bank
facilities. The aggregate annual maturities of long-term debt
outstanding at December 31, 2004 are as follows (Yen in
thousands):
|
|
|
|
|
Year ending December 31, |
|
|
|
|
|
2005
|
|
¥ |
5,385,980 |
|
2006
|
|
|
11,648,720 |
|
2007
|
|
|
20,461,660 |
|
2008
|
|
|
31,474,610 |
|
2009
|
|
|
42,981,060 |
|
Thereafter
|
|
|
87,522,435 |
|
|
|
|
|
|
|
¥ |
199,474,465 |
|
|
|
|
|
7. Leases
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 and affiliates of
SC.
At December 31, 2003 and 2004, the amount of equipment and
related accumulated depreciation recorded under capital leases
were as follows (Yen in thousands):
|
|
|
|
|
|
|
|
|
|
|
2003 | |
|
2004 | |
|
|
| |
|
| |
Distribution system and equipment
|
|
¥ |
45,170,512 |
|
|
¥ |
48,061,224 |
|
Support equipment and buildings
|
|
|
6,656,913 |
|
|
|
6,594,499 |
|
Less: accumulated depreciation
|
|
|
(22,111,664 |
) |
|
|
(24,129,460 |
) |
Other assets, at cost, net of depreciation
|
|
|
292,511 |
|
|
|
209,669 |
|
|
|
|
|
|
|
|
|
|
¥ |
30,008,272 |
|
|
¥ |
30,735,932 |
|
|
|
|
|
|
|
|
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, 2004 are
as follows (Yen in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Capital | |
|
Operating | |
Year ending December 31, |
|
Leases | |
|
Leases | |
|
|
| |
|
| |
|
2005
|
|
¥ |
10,479,258 |
|
|
¥ |
901,131 |
|
|
2006
|
|
|
8,298,826 |
|
|
|
750,754 |
|
|
2007
|
|
|
5,997,212 |
|
|
|
626,332 |
|
|
2008
|
|
|
4,102,122 |
|
|
|
399,496 |
|
|
2009
|
|
|
2,810,622 |
|
|
|
383,100 |
|
|
More than five years
|
|
|
2,686,635 |
|
|
|
703,288 |
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
|
34,374,675 |
|
|
¥ |
3,764,101 |
|
|
|
|
|
|
|
|
Less: amount representing interest (rates ranging from 1.10% to
5.99%)
|
|
|
(2,570,124 |
) |
|
|
|
|
|
|
|
|
|
|
|
Present value of net minimum payments
|
|
|
31,804,551 |
|
|
|
|
|
Less: current portion
|
|
|
(9,529,241 |
) |
|
|
|
|
|
|
|
|
|
|
|
Noncurrent portion
|
|
¥ |
22,275,310 |
|
|
|
|
|
|
|
|
|
|
|
|
IV-72
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUPITER TELECOMMUNICATIONS CO., LTD. AND
SUBSIDIARIES (Continued)
The Company and its subsidiaries occupy certain offices under
cancelable lease arrangements. Rental expenses for such leases
for the years ended December 31, 2003 and 2004, totaled
¥4,134,249 thousand and ¥3,970,228 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, 2003 and
2004, totaled ¥8,542,845 thousand and ¥8,943,602
thousand, respectively, and are included in operating costs and
programming costs in the accompanying consolidated statements of
operations.
8. Income Taxes
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
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 for the Company.
All pretax income/loss and related tax expense/benefit are
derived solely from Japanese operations. Income tax expense for
the years ended December 31, 2003 and 2004 is as follows
(Yen in thousand):
|
|
|
|
|
|
|
|
|
|
|
|
2003 | |
|
2004 | |
|
|
| |
|
| |
Current
|
|
¥ |
209,805 |
|
|
¥ |
1,812,786 |
|
Deferred
|
|
|
|
|
|
|
45,591 |
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
¥ |
209,805 |
|
|
¥ |
1,858,377 |
|
|
|
|
|
|
|
|
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, 2003 and 2004 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
2003 | |
|
2004 | |
|
|
| |
|
| |
Normal effective statutory tax rate
|
|
|
42.0% |
|
|
|
42.0% |
|
|
Adjustment to deferred tax assets and liabilities for enacted
changes in tax laws and rates
|
|
|
|
|
|
|
0.1 |
|
|
Increase/(decrease) in valuation allowance
|
|
|
(41.2 |
) |
|
|
(27.4 |
) |
|
Other
|
|
|
3.0 |
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
3.8% |
|
|
|
14.7% |
|
|
|
|
|
|
|
|
IV-73
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUPITER TELECOMMUNICATIONS CO., LTD. AND
SUBSIDIARIES (Continued)
The effects of temporary differences and carryforwards that give
rise to deferred tax assets and liabilities at December 31,
2003 and 2004 are as follows (Yen in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
2003 | |
|
2004 | |
|
|
| |
|
| |
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
Operating loss carryforwards
|
|
¥ |
29,921,448 |
|
|
¥ |
21,649,833 |
|
|
Deferred revenue
|
|
|
14,165,581 |
|
|
|
14,455,010 |
|
|
Lease obligation
|
|
|
12,452,252 |
|
|
|
12,721,820 |
|
|
Retirement and other allowances
|
|
|
1,390,741 |
|
|
|
1,459,068 |
|
|
Investment in affiliates
|
|
|
794,896 |
|
|
|
567,766 |
|
|
Accrued expenses and other
|
|
|
2,485,228 |
|
|
|
3,978,505 |
|
|
|
|
|
|
|
|
|
Total gross deferred tax assets
|
|
|
61,210,146 |
|
|
|
54,832,002 |
|
|
Less: valuation allowance
|
|
|
(45,846,086 |
) |
|
|
(35,240,909 |
) |
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
|
15,364,060 |
|
|
|
19,591,093 |
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
12,680,631 |
|
|
|
13,796,923 |
|
|
Tax deductible goodwill
|
|
|
633,155 |
|
|
|
|
|
|
Other
|
|
|
2,050,274 |
|
|
|
2,416,766 |
|
|
|
|
|
|
|
|
|
Total gross deferred tax liabilities
|
|
|
15,364,060 |
|
|
|
16,213,689 |
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
¥ |
|
|
|
¥ |
3,377,404 |
|
|
|
|
|
|
|
|
The net changes in the total valuation allowance for the years
ended December 31, 2003 and 2004 were decreases of
¥6,543,162 thousand and ¥10,605,177 thousand,
respectively.
Current deferred tax assets in the amount of ¥2,068,822
thousand are included in prepaid expenses and non-current
deferred tax assets in the amount of ¥1,308,582 thousand
are included in other in non-current assets in the accompanied
consolidated balance sheet at December 31, 2004.
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 expects to realize its deferred tax
assets net of existing valuation allowance. The Company had
¥343,918 thousand of tax deductible goodwill as of
December 31, 2004.
The amount of unrecognized tax benefits at December 31,
2003 and 2004 acquired in connection with business combinations
were ¥12,000 million and ¥7,267 million (net
of ¥3,423 million recognized during 2004),
respectively. If the deferred tax assets are realized or the
valuation allowance is reversed, the tax benefit realized is
first applied to i) reduce to zero any goodwill related to
acquisition, ii) second to reduce to zero other non-current
intangible assets related to the acquisition and iii) third
to reduce income tax expense. See Note 4.
IV-74
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUPITER TELECOMMUNICATIONS CO., LTD. AND
SUBSIDIARIES (Continued)
At December 31, 2004, the Company and its subsidiaries had
net operating loss carryforwards for income tax purposes of
¥54,124,581 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, |
|
|
|
|
|
2005
|
|
¥ |
17,501,242 |
|
2006
|
|
|
20,094,037 |
|
2007
|
|
|
|
|
2008
|
|
|
55,494 |
|
2009
|
|
|
10,751,591 |
|
2010-2011
|
|
|
5,722,217 |
|
|
|
|
|
|
|
¥ |
54,124,581 |
|
|
|
|
|
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. December 31, 2004 was used
as the measurement date.
Net periodic cost of the Company and its subsidiaries
plans accounted for in accordance with SFAS No. 87 for
the years ended December 31, 2003 and 2004, included the
following components (Yen in thousands):
|
|
|
|
|
|
|
|
|
|
|
2003 | |
|
2004 | |
|
|
| |
|
| |
Service cost benefits earned during the year
|
|
¥ |
257,230 |
|
|
¥ |
265,608 |
|
Interest cost on projected benefit obligation
|
|
|
40,159 |
|
|
|
40,120 |
|
Recognized actuarial loss
|
|
|
158,371 |
|
|
|
463,216 |
|
|
|
|
|
|
|
|
Net periodic cost
|
|
¥ |
455,760 |
|
|
¥ |
768,944 |
|
|
|
|
|
|
|
|
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):
|
|
|
|
|
|
|
|
|
|
|
2003 | |
|
2004 | |
|
|
| |
|
| |
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
Benefit obligation, beginning of year
|
|
¥ |
1,606,371 |
|
|
¥ |
2,006,011 |
|
Service cost
|
|
|
257,230 |
|
|
|
265,608 |
|
Interest cost
|
|
|
40,159 |
|
|
|
40,120 |
|
Acquisitions (Note 2)
|
|
|
|
|
|
|
30,630 |
|
Actuarial loss
|
|
|
158,371 |
|
|
|
432,586 |
|
Benefits paid
|
|
|
(56,120 |
) |
|
|
(93,288 |
) |
|
|
|
|
|
|
|
Benefit obligation, end of year
|
|
¥ |
2,006,011 |
|
|
¥ |
2,681,667 |
|
|
|
|
|
|
|
|
IV-75
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUPITER TELECOMMUNICATIONS CO., LTD. AND
SUBSIDIARIES (Continued)
The weighted-average discount rate used in the determination of
projected benefit obligation and net pension cost of the Company
and its subsidiaries plans as of and for the year ended
December 31, 2003, and 2004 is as follows:
|
|
|
|
|
|
|
|
|
|
|
2003 | |
|
2004 | |
Projected benefit obligation |
|
| |
|
| |
Discount rate
|
|
|
2.0% |
|
|
|
2.0% |
|
|
Net pension cost
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
2.0% |
|
|
|
2.0% |
|
The estimated future benefit payments are (Yen in thousands):
|
|
|
|
|
Estimated Future Benefit Payments |
|
|
|
|
|
2005
|
|
¥ |
105,753 |
|
2006
|
|
|
116,145 |
|
2007
|
|
|
172,494 |
|
2008
|
|
|
138,000 |
|
2009
|
|
|
167,641 |
|
2010 to 2014
|
|
|
996,298 |
|
|
|
|
|
|
|
¥ |
1,696,331 |
|
|
|
|
|
In addition, employees of the Company and certain of its
subsidiaries participate in a multi-employer defined benefit
plan. The Company contributions to this plan amounted to
¥342,521 thousand and ¥292,546 thousand for the years
ended December 31, 2003 and 2004, 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 ¥140 billion Facility, a consolidated
subsidiary of the Company issued ¥500,000 thousand of
preferred stock to a third-party in exchange for debt owed to
that third party. 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 holder of the
preferred stock has 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.
11. Shareholders Equity
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, 2004, the
accumulated deficit recorded on the Companys books of
account was ¥16,024,828 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
IV-76
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUPITER TELECOMMUNICATIONS CO., LTD. AND
SUBSIDIARIES (Continued)
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 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
non-employees (collectively the Jupiter Option
Plans). The Companys board of directors and
shareholders approved 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
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. Non-management 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. Options under the Jupiter Option Plans
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
Companys and its consolidated managed franchises
directors, corporate auditors and employees under APB
No. 25 and FIN No. 44. Based on 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, 2003 and 2004, the market value of
the Companys ordinary shares did not exceed the exercise
price and no compensation expense was recognized.
The Company has accounted for awards granted to directors,
corporate auditors and employees of the Companys
unconsolidated managed franchises and to other non-employees, 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 non-employees
were 21,916 ordinary shares and 11,476 ordinary shares at
December 31, 2003 and 2004, respectively. The Company
recorded compensation expense related to the directors,
corporate auditors and employees of the Companys
unconsolidated managed franchises and other non-employees of
¥117,359 thousand and ¥93,484 thousand for the years
ended December 31, 2003 and 2004, respectively, which has
been included in selling, general and administrative expense for
the Companys non-employees and in equity in earnings of
affiliates for employees of affiliated companies in the
accompanying consolidated statements of operations.
IV-77
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUPITER TELECOMMUNICATIONS CO., LTD. AND
SUBSIDIARIES (Continued)
The following table summarizes activity under the Jupiter Option
Plans:
|
|
|
|
|
|
|
|
|
|
|
2003 | |
|
2004 | |
|
|
| |
|
| |
Outstanding at beginning of the year
|
|
|
159,004 |
|
|
|
191,764 |
|
Granted
|
|
|
41,958 |
|
|
|
29,730 |
|
Canceled
|
|
|
(9,198 |
) |
|
|
(8,418 |
) |
|
|
|
|
|
|
|
Outstanding at end of the year
|
|
|
191,764 |
|
|
|
213,076 |
|
|
|
|
|
|
|
|
Weighted average exercise price
|
|
¥ |
92,000 |
|
|
¥ |
92,000 |
|
|
|
|
|
|
|
|
Weighted average remaining contractual life
|
|
|
7.4 years |
|
|
|
6.6 years |
|
|
|
|
|
|
|
|
Options exercisable, end of period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average fair value of options granted
|
|
¥ |
18,340 |
|
|
¥ |
24,545 |
|
|
|
|
|
|
|
|
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, 2003 and 2004 are as
follows (Yen in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
|
Carrying | |
|
|
|
Carrying | |
|
|
|
|
Amount | |
|
Fair Value | |
|
Amount | |
|
Fair Value | |
|
|
| |
|
| |
|
| |
|
| |
Long-term debt
|
|
¥ |
224,270,195 |
|
|
¥ |
220,114,532 |
|
|
|
¥199,474,465 |
|
|
|
¥199,127,222 |
|
Lease obligation
|
|
|
31,130,629 |
|
|
|
32,328,048 |
|
|
|
31,804,551 |
|
|
|
30,125,734 |
|
Interest rate swap agreements
|
|
|
694,745 |
|
|
|
694,745 |
|
|
|
8,204 |
|
|
|
8,204 |
|
13. Supplemental Disclosures to Consolidated Statements
of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
|
(Yen in thousands) | |
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
Interest
|
|
¥ |
4,408,426 |
|
|
¥ |
8,588,285 |
|
|
|
|
|
|
|
|
|
Income tax
|
|
¥ |
378,116 |
|
|
¥ |
323,144 |
|
|
|
|
|
|
|
|
Cash acquisitions of new subsidiaries:
|
|
|
|
|
|
|
|
|
|
Fair value of assets acquired
|
|
¥ |
|
|
|
¥ |
1,688,442 |
|
|
Liabilities assumed
|
|
|
|
|
|
|
1,245,532 |
|
|
|
|
|
|
|
|
|
|
Cash paid, net of cash acquired
|
|
¥ |
|
|
|
¥ |
442,910 |
|
|
|
|
|
|
|
|
Property acquired under capital leases during the year
|
|
¥ |
6,057,250 |
|
|
¥ |
12,561,285 |
|
|
|
|
|
|
|
|
Conversion of long-term debt into equity
|
|
¥ |
32,260,750 |
|
|
¥ |
|
|
|
|
|
|
|
|
|
14. Commitments
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
IV-78
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUPITER TELECOMMUNICATIONS CO., LTD. AND
SUBSIDIARIES (Continued)
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 has guaranteed payment of certain bank loans for its
equity method affiliate investee, CATV Kobe, and its cost method
investee Bay Communications Inc. The guarantees are 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 term of the guarantee ranges
from 5 to 12 years and the aggregate guaranteed amounts
were ¥722,531 thousand and ¥179,072 thousand
as of December 31, 2003 and 2004, 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.
15. Subsequent Events
On February 9, 2005, the Company entered into a share
purchase agreement to purchase from Microsoft, LMI, and SC all
of their interest in
J-COM Chofu, as well as
all of the equity interest owned by Microsoft in Tu-Ka Cellular
Tokyo, Inc. and Tu-Ka Cellular Tokai, Inc. (Tu-Ka)
on or about February 25, 2005. The Company will pay
approximately $24 million (approximately
¥2,500 million) to Microsoft, approximately
¥972 million to LMI and approximately
¥940 million to SC for their respective Chofu or
Tu-Ka shares.
Consideration for J-COM
Chofu shares will be in cash at closing, and the Tu-Ka shares
will be transferred in exchange for a non-interest-bearing
promissory note to Microsoft that is payable 5 business
days after a successful IPO in Japan by the Company.
IV-79
INDEPENDENT AUDITORS REPORT
The Board of Directors and Stockholders
Torneos y Competencias S.A.:
We have audited the accompanying consolidated balance sheets of
Torneos y Competencias S.A. and its subsidiaries as of
December 31, 2004 and 2003 and the related consolidated
statements of operations and comprehensive income (loss), of
changes in stockholders equity and of cash flows for each
of the years in the three-year period ended December 31,
2004. These consolidated financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with 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 consideration
of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Companys internal control over
financial reporting. Accordingly, we express no such opinion. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of Torneos y Competencias S.A.
and its subsidiaries as of December 31, 2004 and 2003, and
the consolidated results of their operations and their cash
flows for each of the years in the three-year period ended
December 31, 2004, in conformity with accounting principles
generally accepted in the United States of America.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. As disclosed in Note 1 to the consolidated
financial statements, the Company is in default with respect to
two bank loans and certain loans are past due. In addition, at
December 31, 2004, the Company has a net working capital
deficiency. These matters raise substantial doubt about the
Companys ability to continue as a going concern.
Managements plans with regards to these matters are also
described in Note 1. The consolidated financial statements do
not include any adjustments that might result from the outcome
of this uncertainty.
Finsterbusch Pickenhayn Sibille(*)
Buenos Aires, Argentina
March 11, 2005
(*) Finsterbusch Pickenhayn Sibille is the Argentine member
firm of KPMG International, a Swiss cooperative.
IV-80
TORNEOS Y COMPETENCIAS S.A.
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
(In thousands of | |
|
|
Argentine pesos) | |
ASSETS |
Current Assets
|
|
|
|
|
|
|
|
|
Cash
|
|
A$ |
2,641 |
|
|
A$ |
2,224 |
|
Accounts receivable, net
|
|
|
19,007 |
|
|
|
15,116 |
|
Related party receivables (Note 6)
|
|
|
15,426 |
|
|
|
9,087 |
|
Programming rights, net
|
|
|
3,210 |
|
|
|
7,268 |
|
Advances to soccer clubs
|
|
|
1,180 |
|
|
|
2,216 |
|
Tax receivables
|
|
|
2,805 |
|
|
|
5,877 |
|
Building held for sale (Notes 6.d and 11.a)
|
|
|
2,940 |
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
3,466 |
|
|
|
2,375 |
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
50,675 |
|
|
|
44,163 |
|
|
|
|
|
|
|
|
Related party receivables (Note 6)
|
|
|
2,885 |
|
|
|
774 |
|
Programming rights, net
|
|
|
19,050 |
|
|
|
9,291 |
|
Advances to soccer clubs
|
|
|
2,421 |
|
|
|
4,660 |
|
Deferred income taxes (Note 9)
|
|
|
1,360 |
|
|
|
2,054 |
|
Investments in affiliates accounted for under the equity method
(Note 4)
|
|
|
21,132 |
|
|
|
19,185 |
|
Property and equipment, net (Note 5)
|
|
|
15,690 |
|
|
|
15,914 |
|
Other assets
|
|
|
1,214 |
|
|
|
1,165 |
|
Assets associated with discontinued operations (Note 6.d)
|
|
|
|
|
|
|
5,909 |
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
A$ |
114,427 |
|
|
A$ |
103,115 |
|
|
|
|
|
|
|
|
|
LIABILITIES |
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
A$ |
28,532 |
|
|
A$ |
11,743 |
|
Related party liabilities (Note 6)
|
|
|
6,216 |
|
|
|
15,880 |
|
Debt (Note 7)
|
|
|
|
|
|
|
|
|
|
Related party debt
|
|
|
8,419 |
|
|
|
8,306 |
|
|
Third party debt
|
|
|
8,333 |
|
|
|
9,024 |
|
Taxes payable
|
|
|
6,588 |
|
|
|
5,331 |
|
Deferred income
|
|
|
6,906 |
|
|
|
16,133 |
|
Other liabilities
|
|
|
4,816 |
|
|
|
4,203 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
69,810 |
|
|
|
70,620 |
|
|
|
|
|
|
|
|
Investments in affiliates accounted for under the equity method
(Note 4)
|
|
|
|
|
|
|
3,715 |
|
Other liabilities
|
|
|
2,076 |
|
|
|
3,476 |
|
Liabilities associated with discontinued operations
(Note 6.d)
|
|
|
3,700 |
|
|
|
3,208 |
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
A$ |
75,586 |
|
|
A$ |
81,019 |
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 10)
|
|
|
|
|
|
|
|
|
|
Minority interest in subsidiaries
|
|
|
(31 |
) |
|
|
8 |
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
Common stock, A$1 par value. 50,160,000 shares authorized,
issued and outstanding
|
|
|
50,160 |
|
|
|
50,160 |
|
|
Additional paid-in capital
|
|
|
|
|
|
|
107,812 |
|
|
Accumulated other comprehensive losses, net of taxes
|
|
|
(6,768 |
) |
|
|
(6,717 |
) |
|
Legal reserve
|
|
|
|
|
|
|
1,597 |
|
|
Accumulated deficit
|
|
|
(4,520 |
) |
|
|
(130,764 |
) |
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
A$ |
38,872 |
|
|
A$ |
22,088 |
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
|
|
A$ |
114,427 |
|
|
A$ |
103,115 |
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
IV-81
TORNEOS Y COMPETENCIAS S.A.
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands of Argentine pesos, except number of | |
|
|
shares and per share amounts) | |
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related party (Note 6)
|
|
A$ |
74,941 |
|
|
A$ |
76,977 |
|
|
A$ |
69,974 |
|
|
|
Third party
|
|
|
28,126 |
|
|
|
18,553 |
|
|
|
10,729 |
|
Operating costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (other than depreciation)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related party (Note 6)
|
|
|
(814 |
) |
|
|
(1,676 |
) |
|
|
(1,253 |
) |
|
|
Third party
|
|
|
(58,948 |
) |
|
|
(44,970 |
) |
|
|
(36,490 |
) |
|
Selling, general and administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related party (Note 6)
|
|
|
(70 |
) |
|
|
(143 |
) |
|
|
(400 |
) |
|
|
Third party
|
|
|
(25,565 |
) |
|
|
(23,360 |
) |
|
|
(20,003 |
) |
Provision for doubtful accounts and other receivables
|
|
|
(3,798 |
) |
|
|
(709 |
) |
|
|
(7,293 |
) |
Depreciation
|
|
|
(1,404 |
) |
|
|
(1,424 |
) |
|
|
(1,719 |
) |
Impairment of goodwill (Note 2)
|
|
|
|
|
|
|
|
|
|
|
(95,663 |
) |
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
12,468 |
|
|
|
23,248 |
|
|
|
(82,118 |
) |
Share of earnings (losses) from equity affiliates
(Note 4)
|
|
|
12,901 |
|
|
|
9,427 |
|
|
|
(10,589 |
) |
Interest expense
|
|
|
(7,215 |
) |
|
|
(10,042 |
) |
|
|
(18,321 |
) |
Foreign currency transaction gains (losses)
|
|
|
4,167 |
|
|
|
5,365 |
|
|
|
(9,236 |
) |
Other income (expenses), net
|
|
|
(709 |
) |
|
|
459 |
|
|
|
(2,082 |
) |
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income
tax and minority interest
|
|
|
21,612 |
|
|
|
28,457 |
|
|
|
(122,346 |
) |
Income tax expense (Note 9)
|
|
|
(5,027 |
) |
|
|
(7,886 |
) |
|
|
(1,698 |
) |
Minority interest in losses (earnings) of subsidiaries
|
|
|
11 |
|
|
|
(16 |
) |
|
|
116 |
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
16,596 |
|
|
|
20,555 |
|
|
|
(123,928 |
) |
Discontinued operations, net of tax (including gain on disposal
of A$239 during 2004 and impairment of goodwill of A$6,074
during 2002) (Note 6.d)
|
|
|
239 |
|
|
|
(604 |
) |
|
|
(9,658 |
) |
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
A$ |
16,835 |
|
|
A$ |
19,951 |
|
|
A$ |
(133,586 |
) |
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
(51 |
) |
|
|
1,136 |
|
|
|
(6,222 |
) |
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
A$ |
16,784 |
|
|
A$ |
21,087 |
|
|
A$ |
(139,808 |
) |
|
|
|
|
|
|
|
|
|
|
Income (loss) per share from continuing operations
|
|
|
0.33 |
|
|
|
0.41 |
|
|
|
(2.47 |
) |
Income (loss) per share from discontinued operations
|
|
|
0.01 |
|
|
|
(0.01 |
) |
|
|
(0.19 |
) |
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share
|
|
|
0.34 |
|
|
|
0.40 |
|
|
|
(2.66 |
) |
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
50,160,000 |
|
|
|
50,160,000 |
|
|
|
50,160,000 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
IV-82
TORNEOS Y COMPETENCIAS S.A.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated | |
|
|
|
|
|
|
|
|
|
|
|
|
other | |
|
|
|
|
|
|
|
|
|
|
Additional | |
|
comprehensive | |
|
|
|
|
|
Total | |
|
|
Common | |
|
paid-in | |
|
losses, | |
|
Legal | |
|
Accumulated | |
|
stockholders | |
|
|
stock | |
|
capital | |
|
net of taxes | |
|
reserve | |
|
deficit | |
|
equity | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands of Argentine pesos) | |
Balance as of January 1, 2002
|
|
A$ |
50,160 |
|
|
A$ |
107,812 |
|
|
A$ |
(1,631 |
) |
|
A$ |
1,597 |
|
|
A$ |
(17,129 |
) |
|
A$ |
140,809 |
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
(6,222 |
) |
|
|
|
|
|
|
|
|
|
|
(6,222 |
) |
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(133,586 |
) |
|
|
(133,586 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2002
|
|
|
50,160 |
|
|
|
107,812 |
|
|
|
(7,853 |
) |
|
|
1,597 |
|
|
|
(150,715 |
) |
|
|
1,001 |
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
1,136 |
|
|
|
|
|
|
|
|
|
|
|
1,136 |
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,951 |
|
|
|
19,951 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2003
|
|
|
50,160 |
|
|
|
107,812 |
|
|
|
(6,717 |
) |
|
|
1,597 |
|
|
|
(130,764 |
) |
|
|
22,088 |
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
(51 |
) |
|
|
|
|
|
|
|
|
|
|
(51 |
) |
Absorption of accumulated deficit as required under Argentine
law (Note 8)
|
|
|
|
|
|
|
(107,812 |
) |
|
|
|
|
|
|
(1,597 |
) |
|
|
109,409 |
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,835 |
|
|
|
16,835 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2004
|
|
A$ |
50,160 |
|
|
A$ |
|
|
|
A$ |
(6,768 |
) |
|
A$ |
|
|
|
A$ |
(4,520 |
) |
|
A$ |
38,872 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
IV-83
TORNEOS Y COMPETENCIAS S.A.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands of Argentine pesos) | |
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
A$ |
16,596 |
|
|
A$ |
20,555 |
|
|
A$ |
(123,928 |
) |
Adjustments to reconcile income (loss) from continuing
operations to net cash provided by (used in) operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for doubtful accounts and other receivables
|
|
|
3,798 |
|
|
|
709 |
|
|
|
7,293 |
|
|
Depreciation
|
|
|
1,404 |
|
|
|
1,424 |
|
|
|
1,719 |
|
|
Share of (earnings) losses from equity affiliates
|
|
|
(12,901 |
) |
|
|
(9,427 |
) |
|
|
10,589 |
|
|
Impairment of goodwill
|
|
|
|
|
|
|
|
|
|
|
95,663 |
|
|
Minority interest in losses (earnings) of subsidiaries
|
|
|
(11 |
) |
|
|
16 |
|
|
|
(116 |
) |
|
Deferred tax expense
|
|
|
694 |
|
|
|
4,170 |
|
|
|
1,698 |
|
|
Changes in operating assets and liabilities, net of the effect
of dispositions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables, programming rights and others
|
|
|
(17,098 |
) |
|
|
13,847 |
|
|
|
3,775 |
|
|
|
Payable and other current liabilities
|
|
|
2,194 |
|
|
|
(24,639 |
) |
|
|
30,019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
(5,324 |
) |
|
|
6,655 |
|
|
|
26,712 |
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(1,430 |
) |
|
|
(1,162 |
) |
|
|
|
|
|
Cash distribution from equity affiliates
|
|
|
7,500 |
|
|
|
|
|
|
|
2,718 |
|
|
Proceeds from the sale of property and equipment
|
|
|
250 |
|
|
|
|
|
|
|
732 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
6,320 |
|
|
|
(1,162 |
) |
|
|
3,450 |
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt proceeds
|
|
|
4,338 |
|
|
|
1,213 |
|
|
|
10,537 |
|
|
Repayment of debt
|
|
|
(4,917 |
) |
|
|
(5,063 |
) |
|
|
(43,649 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(579 |
) |
|
|
(3,850 |
) |
|
|
(33,112 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) discontinued operations
|
|
|
|
|
|
|
(26 |
) |
|
|
172 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
417 |
|
|
|
1,617 |
|
|
|
(2,778 |
) |
|
|
|
Cash at beginning of year
|
|
|
2,224 |
|
|
|
607 |
|
|
|
3,385 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at end of year
|
|
A$ |
2,641 |
|
|
A$ |
2,224 |
|
|
A$ |
607 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
IV-84
TORNEOS Y COMPETENCIAS S.A.
December 31, 2004, 2003 and 2002
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of Argentine pesos, except as otherwise
mentioned)
|
|
1. |
Description of business, liquidity and basis of
presentation |
Description of
business
Torneos y Competencias S.A. (TyC or the
Company) is 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. TyCs emphasis
is on soccer, and it has an exclusive agreement (except for
certain cable broadcast rights held by an affiliate) with the
Asociación de Fútbol Argentino, or
AFA, to produce and distribute programs related to
matches between clubs in the Argentine professional soccer
leagues. This agreement expires in 2010 unless extended to 2014
at TyCs request. TyC produces or co-produces, with its
three television studios and the production facilities of its
production partners, a number of soccer-based programs, such as
Fútbol de Primera, El clásico del Domingo and
Fútbol de Verano.
TyC has interests in two magazines: El Grafico, which covers
Argentine and international sports, with special emphasis on
soccer; and Golf Digest, the Argentine and Chilean editions of
the American golf magazine.
TyC also has the rights to broadcast friendly summer season
tournaments in different Argentine cities through 2007.
The Companys principal shareholders are:
|
|
|
|
|
|
|
Ownership |
Shareholders |
|
percentage |
|
|
|
ACH Acquisitions Co.
|
|
|
20% |
|
Telefónica de Contenidos S.A. Unipersonal
|
|
|
20% |
|
A y N Argentina LLC
|
|
|
20% |
|
Liberty Argentina, Inc, a subsidiary of Liberty Media
International, Inc (LMI)
|
|
|
40% |
|
TyCs 50% owned affiliate, Televisión
Satelital Codificada S.A., or TSC holds the
commercial rights in Argentina, with certain exceptions, to
televise selected official soccer matches of AFAs Premier
Ligue. TSC sells the rights to televise specific matches to
cable operators, to an over-the-air broadcast television channel
in and around Buenos Aires and, in certain cases, exclusively to
the TyC Sports Channel.
Another 50% owned affiliate of TyC, TELE-RED
Imagen S.A., or TRISA owns the TyC Sports
Channel, the first dedicated sports cable channel in Argentina,
which packages soccer programming co produced by Torneos and
other sporting events to which TRISA holds commercial rights.
TRISA also holds commercial rights to produce and distribute
certain motor car racing, basketball and boxing events.
T&T Sports Marketing Inc. (T&T), a
50% owned affiliate of the Company, has entered into
agreements with the Confederación Sudamericana de
Fútbol (Conmebol) for the acquisition of
the Copa Libertadores and Copa
Sudamericana broadcasting rights up to 2010. See Notes
4 and 6.
Liquidity
The Company is in default with respect to two bank loans. In
addition, the Companys loans from LMI are past due.
Principal and interest under these bank and LMI loans of
A$13,346 and A$4,088, respectively, have been classified as
current liabilities at December 31, 2004. See Note 7. In
addition, at December 31, 2004, current liabilities exceed
current assets by A$19,135. The Company plans to renegotiate
these loans to extend the repayment terms. Although the Company
expects that it will be able to successfully renegotiate the
bank loans that are in default and the past due loans from LMI,
no assurance can be given that the Company will be
IV-85
TORNEOS Y COMPETENCIAS S.A.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
successful. In the event that the Companys efforts in this
regard are not successful, the Companys ability to
continue as a going concern could be adversely affected in that
the Company may not have sufficient funds available to meet its
current liabilities as they become due and payable, particularly
if payment is demanded under the aforementioned bank or LMI
loans.
Basis of presentation
The accompanying consolidated financial statements include the
accounts of TyC and all voting interest entities where TyC
exercises a controlling interest through the ownership of a
direct or indirect majority voting interest and variable
interest entities for which TyC is the primary beneficiary. All
significant intercompany accounts and transactions have been
eliminated in consolidation. TyC management concluded that the
Company holds no interest in entities that meet the definition
of variable interest entities pursuant to Financial Accounting
Standards Board Interpretation No. 46(R).
TyCs operating subsidiaries and TyCs most
significant equity affiliates as of December 31, 2004 are
set forth below:
|
|
|
Operating subsidiaries as of December 31, 2004 |
|
Avilacab S.A. (Avilacab) |
|
South American Sports S.A. (SAS) |
|
TyC Minor S.A. (TyC Minor) |
|
|
Significant equity affiliates as of December 31, 2004 |
|
TSC |
|
TRISA |
|
T&T |
For additional information concerning TyCs equity
affiliates, see Note 4.
In the following notes, references to the Company refer to TyC
and its consolidated subsidiaries.
|
|
2. |
Summary of significant accounting policies |
The Company maintains its books of account in conformity with
financial accounting standards of the City of Buenos Aires,
Argentina. The accompanying consolidated statements have been
prepared in a manner and reflect certain adjustments which are
necessary to conform to accounting principles generally accepted
in the United States of America (US GAAP).
Use of estimates
The preparation of these consolidated financial statements in
conformity with US GAAP requires the Company 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 taxes and related valuation allowances, loss
contingencies, fair values and useful lives of long-lived assets
and any related impairment. Actual results could differ from
those estimates.
The Company does not control the decision making process or
business management practices of TyCs equity affiliates.
Accordingly, the Company relies on management of these
affiliates and their independent auditors to provide us with
accurate financial information prepared in accordance with US
GAAP that we use in the application of the equity method. The
Company is not aware, however, of any errors in or possible
misstatements of the financial information provided by
TyCs equity affiliates that would have a material effect
on Companys financial statements. For information
concerning TyCs equity method investments, see Note 4.
IV-86
TORNEOS Y COMPETENCIAS S.A.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
Inflation adjustment
Argentine generally accepted accounting principles require the
restatement of assets and liabilities into constant Argentine
pesos.
Under US GAAP, account balances and transactions are stated in
the units of currency of the period when the transactions
originated. This accounting model is commonly known as the
historical cost basis of accounting. The Company has excluded
the effect of the general price level restatement for the
preparation of these financial statements in accordance with US
GAAP.
Accounts receivable,
net
Accounts receivable are reflected net of an allowance for
doubtful accounts. Such allowance amounted to A$6,810 and
A$4,521 at December 31, 2004 and 2003, respectively. The
allowance for doubtful accounts is based upon the Companys
assessment of probable loss related to uncollectible accounts
receivable. A number of factors are used in determining the
allowance, including, among other things, collection trends,
prevailing and anticipated economic conditions and specific
customer credit risk. The allowance is maintained until either
receipt of payment or collection of the account is no longer
being pursued.
The Company has five clients whose balances aggregate
approximately 40% and 79% of the total balances of accounts
receivable, net, as of December 31, 2004 and 2003,
respectively, and approximately 75%, 80% and 87% of the revenue
for the years ended December 31, 2004, 2003 and 2002,
respectively.
Programming rights,
net
The Company and certain equity investees have multi-year
contracts for telecast rights of sporting events and rights to
the image and sound archives related to all of the
countrys national soccer teams. Pursuant to these
contracts, an asset is recorded for the rights acquired and a
liability is recorded for the obligation incurred when the
programs or sporting events are available for telecast. Program
rights for sporting events which are for a specified number of
games are amortized on an event-by-event basis, and those which
are for a specified season or period are amortized over the term
of such period on a straight-line basis.
Non-current programming rights represent telecast and production
rights of sporting events available for telecast beyond one year
from the balance sheet date.
Investments in affiliates
accounted for under the equity method
Investments in affiliates in which TyC has the ability to
exercise significant influence are accounted for using the
equity method. Under this method, the investment, originally
recorded at cost, is adjusted to recognize TyCs share of
net earnings or losses of the affiliates as they occur rather
than as dividends or other distributions are received, limited
to the extent of TyCs investment in, and advances and
commitments to, the investee. If the investment in the common
stock of an affiliate is reduced to zero as a result of the
prior recognition of the affiliates net losses, TyC would
continue to record losses from the affiliate to the extent of
its commitments to the affiliate and would include the negative
investment in other liabilities.
Impairment of
investments
The Company continually reviews its investments in affiliates to
determine whether a decline in fair value below the cost basis
is other than non-temporary. The primary factors that the
Company considers in its determination are the length of time
that the fair value of the investment is below Companys
carrying value and the financial condition, operating
performance and near term prospects of the investee, industry
specific or investee specific changes in stock price or
valuation subsequent to the balance sheet date, and
Companys intent and ability to hold the investment for a
period of time sufficient to allow for recovery in fair value. In
IV-87
TORNEOS Y COMPETENCIAS S.A.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
situations where the fair value of an investment is not evident
due to a lack of public market price or other factors, the
Company uses its best estimates and assumptions to arrive at the
estimated fair value of such investment. Writedowns for equity
method investments are included in Share of earning
(losses) from equity affiliates, and a new cost basis in
the investment is established.
Property and equipment,
net
Property and equipment is recorded at cost, net of the
respective accumulated depreciation.
Depreciation has been calculated on the straight-line method
over the assets estimated useful lives as follows:
|
|
|
|
|
Estimated useful |
|
|
life (years) |
|
|
|
Buildings
|
|
50 |
Furniture and fixtures
|
|
10 |
Technical equipment, vehicles and TV studio
|
|
5 |
Computer hardware
|
|
2 to 3 |
Additions, replacements and improvements that extend the asset
life are capitalized. Repairs and maintenance are charged to
operation expenses.
Statement of Financial Accounting Standards No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets (Statement 144) requires the Company
to periodically review the carrying amount of property and
equipment, to determine whether current events or circumstances
indicate that such carrying amounts may not be recoverable. If
the carrying amount of the assets is greater than the expected
undiscounted cash flow to be generated by such assets, an
impairment adjustment is to be recognized. 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 sales prices for similar assets or
discounting estimated future cash flows using an appropriate
discount rate. For purposes of impairment testing, long-lived
assets are grouped at the lowest level for which cash flows are
largely independent of other assets and liabilities. Assets to
be disposed of are carried at the lower of the carrying amount
or fair value less costs to sell.
Building held for
sale
Represents a building received in connection with the
transaction related to the sale of Red Celeste y Blanca S.A.
(La Red), which is available for sale. It is
recorded at its fair value at the date of the disposition of La
Red, which does not exceed its fair value as of
December 31, 2004. See Note 6.d.
Goodwill
Goodwill represents the excess of purchase price over the fair
value of identifiable assets acquired, in acquisitions of equity
interests in subsidiaries and affiliates.
Impairment of
Goodwill
Effective January 1, 2002, the Company adopted Statement of
Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets (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 and reviewed for impairment in accordance
with Statement 144.
IV-88
TORNEOS Y COMPETENCIAS S.A.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
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.
The Company determined the fair value of its reporting units
using discounted cash flows. 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. This allocation is
performed for goodwill impairment testing purposes only and does
not change the reported carrying value of the investment. If the
carrying amount of the reporting units goodwill exceeds
the implied fair value of that goodwill, an impairment loss is
recognized in an amount equal to that excess. Based on this
analysis, the Company recorded an impairment loss of A$101,737
for the year ended December 31, 2002 to write-off all of
its then existing goodwill, including A$6,074 related to
La Red that has been included in Discontinued operations,
net of tax in the accompanying consolidated financial
statements. Since this analysis used projections made during the
time of unfavorable economic events in Argentina in early 2002,
the adjustment was recognized as a component of operating costs
and expenses and not as a transition adjustment.
As noted above, the Companys enterprise-level goodwill is
allocable to reporting units, whether they are consolidated
subsidiaries or equity method investments. The following table
summarizes the allocation of the impairment loss recorded for
the year ended December 31, 2002, corresponding to
continuing operations.
|
|
|
|
|
|
Entity |
|
Impairment loss | |
|
|
| |
SAS
|
|
A$ |
7,132 |
|
Sobre Golf S.A.
|
|
|
420 |
|
TSC
|
|
|
50,317 |
|
TRISA and Tele Net Image Corp.
|
|
|
37,794 |
|
|
|
|
|
|
Total enterprise-level goodwill
|
|
A$ |
95,663 |
|
|
|
|
|
The Company accounts for income taxes in accordance with the
liability method whereby deferred tax asset and liability
account balances are determined based on differences between
financial reporting and tax based assets and liabilities and are
measured using the enacted tax rates.
Net deferred tax assets are reduced by a valuation allowance
calculated based on the estimation of future results prepared by
the Companys management. Deferred tax liabilities related
to investments in equity investees that are essentially
permanent in duration are not recognized until it becomes
apparent that such amounts will reverse in the foreseeable
future. See Note 9.
Recognition of the minority interests share of losses of
subsidiaries is generally limited to the amount of such minority
interests allocable portion of the common equity of those
subsidiaries.
IV-89
TORNEOS Y COMPETENCIAS S.A.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|
|
|
Foreign currency translation |
The functional currency of the Company is the Argentine Peso.
The functional currency of the Companys foreign equity
affiliate T&T is the United States dollar. The
Companys share of the assets and liabilities of T&T is
translated at the spot rate in effect at the applicable
reporting date and the Companys share of the results of
operations of T&T is determined based on results translated
at the average exchange rates in effect during the applicable
period. The resulting unrealized cumulative translation
adjustment is recorded as a component of Accumulated other
comprehensive losses, net of taxes, in the Companys
statements of stockholders equity.
Transactions denominated in currencies other than the
Companys functional currency are recorded at the exchange
rates prevailing 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.
The Companys principal sources of revenue are:
Broadcasting Program rights: Broadcast program rights
revenue are recognized when the matches are broadcasted.
Sport TV programs production: Revenue from sports TV
programs production services are recognized when the services
are rendered.
Others: Other revenue includes, among others, advertising
and sports event organization. Advertising revenue, including
the stadium based advertising, are recognized in the period
during which underlying advertisements are broadcast. Sports
events organization revenue are recognized when services are
rendered.
Deferred income: corresponds to revenue collected by TyC
in advance, whose recognition is deferred until matches or
related advertising are available for telecast.
The Company computes net income (loss) per share by dividing net
income (loss) for the year by the weighted average number of
common shares outstanding. There were no potential common shares
outstanding during any of the periods presented.
|
|
3. |
Supplemental consolidated statements of cash flows
disclosures |
|
|
|
a) Income tax, minimum presumed income tax and
interests |
During the years ended December 31, 2004, 2003 and 2002,
the Company paid A$4,352, A$3,716 and A$0 for income tax and
minimum presumed income tax, respectively. Additionally, during
the years ended December 31, 2004, 2003 and 2002 the
Company paid A$732, A$498 and A$13,891, respectively, in
interest related to operating activities.
IV-90
TORNEOS Y COMPETENCIAS S.A.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|
|
|
b) Noncash investing and financing activities |
The Company sold all of its interest in La Red to Avila
Inversora S.A. (AISA) and Carlos Avila Enterprise
S.A. (CAE) (related companies, see Note 6) for
consideration of A$6,640. In conjunction with the sale,
receivables were originated and a building was received as
follows:
|
|
|
|
|
Related party receivable
|
|
A$ |
3,700 |
(1) |
Building
|
|
|
2,940 |
(2) |
|
|
|
|
|
|
A$ |
6,640 |
|
|
|
|
|
|
|
(1) |
The accounts receivable will be settled by AISA by effectively
assuming the obligation to repay up to A$3,700 of principal and
interest of a financial debt payable by TyC, currently in
default. See Notes 6.d and 7. If as a result of the
renegotiation of the loan in default, TyC pays an amount lower
than A$3.7 million, the difference will be settled by AISA
through the provision of advertising by América T.V. S.A.
(América TV), a related company of the
purchasers. |
|
(2) |
Fair value was determined based on an option held by TyC to
return the building to CAE for an amount of US$1 million as
per the related sales agreement signed between the parties. See
note 6.d. |
|
|
4. |
Investments in affiliates accounted for under the equity
method |
The following table includes TyCs carrying value and
percentage ownership of its investments in affiliates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2004 | |
|
December 31, 2003 | |
|
|
| |
|
| |
|
|
Percentage | |
|
Carrying | |
|
Carrying | |
|
|
ownership | |
|
amount | |
|
amount | |
|
|
| |
|
| |
|
| |
TSC
|
|
|
50% |
|
|
A$ |
10,062 |
|
|
A$ |
7,196 |
|
TRISA
|
|
|
50% |
|
|
|
9,162 |
|
|
|
11,983 |
|
T&T
|
|
|
50% |
|
|
|
1,902 |
|
|
|
(3,715 |
)(1) |
Others
|
|
|
|
|
|
|
6 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
A$ |
21,132 |
|
|
A$ |
15,470 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
As the Companys investment in T&T was negative as of
December 31, 2003, it has been classified in Non-current
liabilities-Investments in affiliates accounted for under the
equity method because the Company is ready to provide financial
support, as may be necessary, to allow T&T to continue
operating as going concern. |
The following table reflects TyCs share of earnings
(losses) from equity affiliates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
TSC
|
|
A$ |
2,868 |
|
|
A$ |
3,502 |
|
|
A$ |
(193 |
) |
TRISA
|
|
|
4,678 |
|
|
|
8,539 |
|
|
|
(10,084 |
) |
T&T
|
|
|
5,668 |
|
|
|
4,055 |
|
|
|
2,492 |
|
Sale of Pro Entertainment S.A.(1)
|
|
|
|
|
|
|
(5,706 |
) |
|
|
|
|
Others
|
|
|
(313 |
) |
|
|
(963 |
) |
|
|
(2,804 |
) |
|
|
|
|
|
|
|
|
|
|
Total
|
|
A$ |
12,901 |
|
|
A$ |
9,427 |
|
|
A$ |
(10,589 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Relates to TyC forgiveness in 2003 of an accounts receivable
maintained with Pro Entertainment S.A., as a result of the sale
of such company by T&T in fiscal year 2002. |
IV-91
TORNEOS Y COMPETENCIAS S.A.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
For the years ended December, 31, 2004, 2003 and 2002, the
Companys share of earnings (losses) from equity affiliates
includes losses related to other-than-temporary declines in the
fair value of equity method investments of A$0, A$0 and A$2,493,
respectively.
During the years ended December 31, 2004, 2003 and 2002,
TRISA distributed cash dividends, of which the Company collected
A$7,500, A$0 and A$2,718, respectively.
Summarized financial information for TSC follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
Financial Position
|
|
|
|
|
|
|
|
|
Current assets(1)
|
|
A$ |
50,111 |
|
|
A$ |
45,716 |
|
Non-current assets
|
|
|
10,487 |
|
|
|
8,661 |
|
|
|
|
|
|
|
|
Total assets
|
|
A$ |
60,598 |
|
|
A$ |
54,377 |
|
|
|
|
|
|
|
|
Current portion of long term debt
|
|
A$ |
11,500 |
|
|
A$ |
5,728 |
|
Other current liabilities(2)
|
|
|
24,863 |
|
|
|
30,905 |
|
Non current liabilities
|
|
|
4,111 |
|
|
|
3,352 |
|
Stockholders equity
|
|
|
20,124 |
|
|
|
14,392 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
A$ |
60,598 |
|
|
A$ |
54,377 |
|
|
|
|
|
|
|
|
|
|
(1) |
Includes outstanding amounts receivable from Cablevisión
S.A. (Cablevisión), a related party, of A$2,497
and A$2,497 at December 31, 2004 and 2003, respectively.
See Note 6. |
|
(2) |
Includes outstanding amounts payable to TyC of A$3,893 and
A$5,466 at December 31, 2004 and 2003, respectively. See
Note 6. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue(1)
|
|
A$ |
127,023 |
|
|
A$ |
128,762 |
|
|
A$ |
117,833 |
|
Operating, selling, general and administrative expense(2)
|
|
|
(118,149 |
) |
|
|
(113,599 |
) |
|
|
(104,423 |
) |
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
8,874 |
|
|
|
15,163 |
|
|
|
13,410 |
|
Interest expense
|
|
|
(2,459 |
) |
|
|
(4,638 |
) |
|
|
(14,773 |
) |
Interest income
|
|
|
56 |
|
|
|
984 |
|
|
|
680 |
|
Foreign exchange gain (loss)
|
|
|
35 |
|
|
|
(671 |
) |
|
|
2,370 |
|
Other, net
|
|
|
(123 |
) |
|
|
91 |
|
|
|
(1,701 |
) |
Income tax expense
|
|
|
(647 |
) |
|
|
(3,925 |
) |
|
|
(372 |
) |
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
A$ |
5,736 |
|
|
A$ |
7,004 |
|
|
A$ |
(386 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Includes revenue from Cablevisión, a related party, for an
amount of A$39,172, A$39,899 and A$29,052 for the years ended
December 31, 2004, 2003 and 2002, respectively. See
Note 6. |
|
(2) |
Includes services provided by TyC for an amount of A$10,468,
A$10,205 and A$8,456 for the years ended December 31, 2004,
2003 and 2002, respectively. See Note 6. |
IV-92
TORNEOS Y COMPETENCIAS S.A.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
Summarized financial information for TRISA follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
Financial Position
|
|
|
|
|
|
|
|
|
Current assets(1)
|
|
A$ |
68,196 |
|
|
A$ |
80,357 |
|
Property and equipment, net
|
|
|
11,813 |
|
|
|
9,812 |
|
Investments
|
|
|
853 |
|
|
|
794 |
|
Other non-current assets
|
|
|
28,621 |
|
|
|
17,827 |
|
|
|
|
|
|
|
|
Total assets
|
|
A$ |
109,483 |
|
|
A$ |
108,790 |
|
|
|
|
|
|
|
|
Current portion of long term debt
|
|
A$ |
4,348 |
|
|
A$ |
4,272 |
|
Other current liabilities(2)
|
|
|
43,721 |
|
|
|
43,384 |
|
Non-current debt
|
|
|
25,986 |
|
|
|
29,808 |
|
Other non-current liabilities
|
|
|
17,105 |
|
|
|
7,359 |
|
Stockholders equity
|
|
|
18,323 |
|
|
|
23,967 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
A$ |
109,483 |
|
|
A$ |
108,790 |
|
|
|
|
|
|
|
|
|
|
(1) |
Includes outstanding amounts receivable from Cablevisión, a
related party, of A$3,136 and A$3,036 at December 31, 2004
and 2003, respectively. See Note 6. |
|
(2) |
Includes outstanding amounts payable to TyC of A$3,202 and
A$2,173 at December 31, 2004 and 2003, respectively. See
Note 6. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue(1)
|
|
A$ |
125,011 |
|
|
A$ |
109,598 |
|
|
A$ |
98,041 |
|
Operating, selling, general and administrative expenses(2)
|
|
|
(115,732 |
) |
|
|
(97,707 |
) |
|
|
(81,911 |
) |
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
9,279 |
|
|
|
11,891 |
|
|
|
16,130 |
|
Interest expense
|
|
|
(5,490 |
) |
|
|
(3,451 |
) |
|
|
(2,291 |
) |
Interest income
|
|
|
2,367 |
|
|
|
4,487 |
|
|
|
4,379 |
|
Foreign exchange gain (loss)
|
|
|
(636 |
) |
|
|
5,379 |
|
|
|
(31,575 |
) |
Share of earnings (losses) from equity affiliates
|
|
|
61 |
|
|
|
(356 |
) |
|
|
(1,462 |
) |
Other, net
|
|
|
926 |
|
|
|
509 |
|
|
|
4,234 |
|
Income tax benefit (expense)
|
|
|
2,849 |
|
|
|
(1,381 |
) |
|
|
(9,583 |
) |
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
A$ |
9,356 |
|
|
A$ |
17,078 |
|
|
A$ |
(20,168 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Includes revenues from Cablevisión, a related party, for an
amount of A$32,938, A$34,126 and A$25,902 and from TyC for an
amount of A$532, A$184 and A$149 for the years ended
December 31, 2004, 2003 and 2002, respectively. See
Note 6. |
|
(2) |
Includes services provided by TyC for an amount of A$14,272,
A$10,119 and A$5,713 for the years ended December 31, 2004,
2003 and 2002, respectively. See Note 6. |
IV-93
TORNEOS Y COMPETENCIAS S.A.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
In December 2004, the Company sold its ownership interest (50%)
in T&T to an unrelated third party for cash proceeds of
US$270 thousand. In connection with this sale, the Company
retained a call right to repurchase the 50% interest in T&T
for a price of US$285 thousand during the one-year period ended
December 29, 2005. Due to the Companys unilateral
ability to repurchase this interest and the favorable call price
relative to the fair value of the interest, the Company did not
meet the criteria for treating this transaction as a sale, and
accordingly, has recorded the cash received as a current
liability in the accompanying balance sheet as of
December 31, 2004.
Summarized financial information for T&T follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
Financial Position
|
|
|
|
|
|
|
|
|
Current assets(1)
|
|
A$ |
10,441 |
|
|
A$ |
11,987 |
|
Non-current assets
|
|
|
60 |
|
|
|
1,411 |
|
|
|
|
|
|
|
|
Total assets
|
|
A$ |
10,501 |
|
|
A$ |
13,398 |
|
|
|
|
|
|
|
|
Current portion of long term debt
|
|
A$ |
|
|
|
|
288 |
|
Other current liabilities(2)
|
|
|
6,697 |
|
|
|
19,806 |
|
Non-current liabilities
|
|
|
|
|
|
|
735 |
|
Stockholders equity
|
|
|
3,804 |
|
|
|
(7,431 |
) |
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
A$ |
10,501 |
|
|
A$ |
13,398 |
|
|
|
|
|
|
|
|
|
|
(1) |
Includes outstanding amounts receivable from Fox Sports Latin
America S.A. (Fox Sports), a related party, of A$0
and A$374 at December 31, 2004 and 2003, respectively. See
Note 6. |
|
(2) |
Includes outstanding amounts payable to Fox Sports, a related
party, of A$3,675 and A$5,438 at December 31, 2004 and
2003, respectively. See Note 6. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue(1)
|
|
A$ |
117,713 |
|
|
A$ |
110,962 |
|
|
A$ |
127,827 |
|
Operating, selling, general and administrative expenses(2)
|
|
|
(106,351 |
) |
|
|
(103,556 |
) |
|
|
(126,113 |
) |
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
A$ |
11,362 |
|
|
A$ |
7,406 |
|
|
A$ |
1,714 |
|
Share of earnings from equity affiliates
|
|
|
|
|
|
|
|
|
|
|
3,312 |
|
Other, net
|
|
|
(26 |
) |
|
|
705 |
|
|
|
(42 |
) |
|
|
|
|
|
|
|
|
|
|
Net income
|
|
A$ |
11,336 |
|
|
A$ |
8,111 |
|
|
A$ |
4,984 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Includes revenues from Fox Sports, a related party, for an
amount of A$93,933, A$85,689 and A$115,254 for the years ended
December 31, 2004, 2003 and 2002, respectively. See
Note 6. |
|
(2) |
Includes services provided by TyC for an amount of A$9,239,
A$2,938 and A$3,227, for the years ended December 31, 2004,
2003 and 2002, respectively. See Note 6. |
IV-94
TORNEOS Y COMPETENCIAS S.A.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
5. Property and Equipment
The details of property and equipment and the related
accumulated depreciation are set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
Buildings
|
|
A$ |
14,544 |
|
|
A$ |
14,794 |
|
Furniture and fixtures
|
|
|
7,267 |
|
|
|
5,311 |
|
Technical equipment, vehicles and TV studio
|
|
|
7,339 |
|
|
|
6,109 |
|
Computer hardware
|
|
|
1,367 |
|
|
|
1,429 |
|
|
|
|
|
|
|
|
|
Total property and equipment
|
|
|
30,517 |
|
|
|
27,643 |
|
Less: Accumulated depreciation
|
|
|
(14,827 |
) |
|
|
(11,729 |
) |
|
|
|
|
|
|
|
|
Net property and equipment
|
|
A$ |
15,690 |
|
|
A$ |
15,914 |
|
|
|
|
|
|
|
|
Loans amounting to A$2,856 are secured by certain of the
Companys premises. See Note 7.
6. Related Party Transactions
|
|
|
(a) Companys affiliated entities: |
Detailed information about Companys affiliated entities is
provided in Note 4.
|
|
|
(b) Balances and transactions with related
parties |
Entities in which TyC has significant influence: TSC, TRISA,
T&T and Theme Bar Management S.A.
Companies with common shareholders or directors:
Cablevisión, Pramer S.C.A. and the following companies
pertaining to the Fox Group: Fox Pan American Sports LLC, Fox
Sports, International Sports Programming LLC and Fox Sports
International Distribution Ltd. (hereinafter referred to
individually or together as FPAS).
Companies with equity interests in TyC, either direct or
indirect: LMI.
Companies where TyCs chairman has an equity interest,
either direct or indirect: CAE, AISA and América TV.
IV-95
TORNEOS Y COMPETENCIAS S.A.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
The Company entered into transactions in the normal course of
business with related parties. The following is a summary of the
balances and transactions with related parties:
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
Receivables Current:
|
|
|
|
|
|
|
|
|
América TV
|
|
A$ |
1,458 |
|
|
A$ |
1,091 |
|
TRISA
|
|
|
3,202 |
|
|
|
2,173 |
|
TSC
|
|
|
3,893 |
|
|
|
5,466 |
|
FPAS
|
|
|
5,047 |
|
|
|
|
|
AISA
|
|
|
1,550 |
(1) |
|
|
357 |
|
Others
|
|
|
276 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A$ |
15,426 |
|
|
A$ |
9,087 |
|
|
|
|
|
|
|
|
Receivables Non Current:
|
|
|
|
|
|
|
|
|
América TV
|
|
A$ |
735 |
|
|
A$ |
774 |
|
AISA
|
|
|
2,150 |
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
A$ |
2,885 |
|
|
A$ |
774 |
|
|
|
|
|
|
|
|
Payables Current:
|
|
|
|
|
|
|
|
|
América TV
|
|
A$ |
1,297 |
|
|
A$ |
312 |
|
FPAS
|
|
|
4,207 |
|
|
|
14,921 |
|
Others
|
|
|
712 |
|
|
|
647 |
|
|
|
|
|
|
|
|
|
|
A$ |
6,216 |
|
|
A$ |
15,880 |
|
|
|
|
|
|
|
|
|
|
(1) |
Accounts receivable related to the sale of La Red
See item (d) below in this note. |
See Note 7 regarding Related Party Loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
|
|
|
| |
Revenue |
|
Transaction description |
|
2004 | |
|
2003 | |
|
2002 | |
|
|
|
|
| |
|
| |
|
| |
TRISA
|
|
Advertising, Production,
Rights and Others |
|
A$ |
14,272 |
|
|
|
10,119 |
|
|
|
5,713 |
|
TSC
|
|
Production and Rights |
|
|
10,468 |
|
|
|
10,205 |
|
|
|
8,456 |
|
T&T
|
|
Production and Rights |
|
|
9,239 |
|
|
|
2,938 |
|
|
|
3,227 |
|
América TV
|
|
Production |
|
|
1 |
|
|
|
855 |
|
|
|
343 |
|
FPAS
|
|
Advertising, Production,
Rights and Others |
|
|
40,918 |
|
|
|
52,679 |
|
|
|
51,783 |
|
Others
|
|
|
|
|
43 |
|
|
|
181 |
|
|
|
452 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A$ |
74,941 |
|
|
A$ |
76,977 |
|
|
A$ |
69,974 |
|
|
|
|
|
|
|
|
|
|
|
|
|
IV-96
TORNEOS Y COMPETENCIAS S.A.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
|
|
|
| |
Services received |
|
Transaction Description |
|
2004 | |
|
2003 | |
|
2002 | |
|
|
|
|
| |
|
| |
|
| |
Operating (other than depreciation) expenses |
|
|
|
|
|
|
|
|
|
|
|
|
América TV
|
|
|
|
A$ |
(282) |
|
|
|
(1,477) |
|
|
|
(849) |
|
TRISA
|
|
Production and rights |
|
|
(532) |
|
|
|
(184) |
|
|
|
(149) |
|
Pramer S.C.A.
|
|
Production |
|
|
|
|
|
|
(15) |
|
|
|
(255) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating (other
than depreciation)
expenses |
|
A$ |
(814) |
|
|
|
(1,676) |
|
|
|
(1,253) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
CAE
|
|
Other |
|
A$ |
(39) |
|
|
|
(100) |
|
|
|
(296) |
|
Others
|
|
Rights and others |
|
|
(31) |
|
|
|
(43) |
|
|
|
(104) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total selling, general and
administrative expenses |
|
A$ |
(70) |
|
|
A$ |
(143) |
|
|
A$ |
(400) |
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company believes that the transactions discussed above were
made on terms no less favorable to the Company than would have
been obtained from unaffiliated third parties.
In April 2003, TyC agreed with FPAS to forgive four monthly
payments that were due from April to July 2004 pursuant to a
contract that expired in July 2004. TyC has recognized the
forgiven payments as a reduction of revenue from the date of the
agreement through July 2004 on a straight-line basis.
|
|
(d) |
Discontinued operations Sale of La Red |
On January 7, 2004, TyC sold its interest in La Red to CAE
and AISA.
As stated in the sales agreement, the sales price was
A$8.7 million, comprised of: a) A$5.0 million through
the transfer of a building (see Building held for
sale Note 2), and b) A$3.7 million, which will
be paid by AISA through the assumption of a financial debt held
by TyC, currently in default (see Note 7). As provided in such
agreement, if as a result of the renegotiation of the loan in
default, TyC pays an amount lower than A$3.7 million, the
difference will be settled by AISA through the provision of
advertising by América T.V., a related company of the
purchasers, as determined based on fair market value. As
collateral for payment, all transferred shares were pledged in
favor of the seller.
Additionally, as per the agreement, TyC had the option to return
the building to CAE for consideration of US$1 million,
equivalent to A$2,940 as of the date of the transaction, in the
event that during the one-year period ending January 7, 2005,
TyC was not able to sell such building. TyC considered this
amount to be the fair value of the building as of the date of
the transaction.
The difference between the book value of the Companys
equity interest in La Red as of the date of disposition and the
fair value of the total consideration received amounts to
A$3,939. The Company considered the earnings process was not
substantially complete with respect to the uncollected
A$3.7 million related party receivable. Consequently, the
Company recognized a gain of A$239, which is included in
Discontinued operations, net of tax; and deferred a gain of
A$3,700, which is included in Liabilities associated with
discontinued operations, in the accompanying consolidated
balance sheet as of December 31, 2004.
As mentioned in Note 11, in January 2005, the building was sold
for cash consideration of A$6.0 million.
IV-97
TORNEOS Y COMPETENCIAS S.A.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
As a result of this transaction, the Company has disposed of its
entire radio broadcasting business. Accordingly, the assets and
liabilities, revenue, costs and expenses, and cash flows of La
Red have been excluded from the respective captions in the
accompanying consolidated balance sheets, statements of
operation and statements of cash flows and have been reported
separately in such consolidated financial statements. In
addition, unless specifically noted, amounts disclosed in the
notes to the accompanying consolidated financial statements are
for continuing operations.
The following table summarizes certain information related to
discontinued operations:
|
|
|
|
|
|
|
December 31, 2003 | |
|
|
| |
Current assets
|
|
A$ |
4,357 |
|
Non-current assets
|
|
|
1,552 |
|
|
|
|
|
Total assets
|
|
A$ |
5,909 |
|
|
|
|
|
Current liabilities
|
|
A$ |
2,790 |
|
Non-current liabilities
|
|
|
418 |
|
|
|
|
|
Total liabilities
|
|
A$ |
3,208 |
|
|
|
|
|
Stockholders equity
|
|
A$ |
2,701 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended | |
|
|
December 31, | |
|
|
| |
|
|
2003 | |
|
2002 | |
|
|
| |
|
| |
Revenue
|
|
A$ |
5,672 |
|
|
A$ |
3,820 |
|
Pre-tax loss (including impairment of goodwill of A$6,074 in
2002)
|
|
A$ |
(253 |
) |
|
A$ |
(9,658 |
) |
Loss from discontinued operations, net of tax
|
|
A$ |
(604 |
) |
|
A$ |
(9,658 |
) |
|
|
|
|
|
|
|
The Companys debt as of December 31, 2004 and 2003 is
summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
Bank loans
|
|
A$ |
8,333 |
|
|
A$ |
9,024 |
|
Related Party
|
|
|
8,419 |
|
|
|
8,306 |
|
|
|
|
|
|
|
|
|
Total
|
|
A$ |
16,752 |
|
|
A$ |
17,330 |
|
|
|
|
|
|
|
|
Bank Loans:
The bank debt is denominated in Argentine pesos with interest
rates ranging from 9% to 11% and maturities as follows:
|
|
|
|
|
|
Past due
|
|
A$ |
4,927 |
|
2005
|
|
A$ |
3,406 |
|
|
|
|
|
|
Total debt
|
|
A$ |
8,333 |
(1) |
|
|
|
|
|
|
(1) |
Includes A$2,635 for which one of the purchasers of La Red has
effectively assumed the obligation to repay up to A$3,700 of
principal and interest. See Note 6. |
IV-98
TORNEOS Y COMPETENCIAS S.A.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
The total amount of loans denominated in Argentine pesos at
December 31, 2004 includes A$4,927 corresponding to loans
that are in default and are being renegotiated. Such loans are
classified as current liabilities.
Loans amounting to A$2,856 are secured by certain of the
Companys premises.
Related Party Loans:
Represents loans primarily from LMI. The loans from LMI, which
bear interest at 9% and are denominated in US dollars, are past
due. Such loans are classified as current liabilities.
TyC believes that the carrying amount of debt approximates fair
value at December 31, 2004, with the exception of related
party loans and bank loans in default, for which TyC considers
that it is not practical to estimate fair value.
The Company is subject to certain restrictions on the
distribution of profits. Under the Argentine Commercial Law, a
minimum of 5% of net income for the year calculated in
accordance with Argentine GAAP must be appropriated by
resolution of the shareholders to a legal reserve until such
reserve reaches 20% of the outstanding capital (common stock
plus inflation adjustment of common stock accounts, and
additional Paid-in Capital). This legal reserve may be used only
to absorb accumulated deficits.
Additionally, under Argentine Commercial Law, in the event that
accumulated deficit is higher than 50% of common stock, plus
100% of additional paid-in-capital and legal reserve, the
Company is required to absorb the related accumulated deficit
against such equity accounts. Consequently on July 8, 2004, TyC
stockholders approved the absorption of accumulated deficit in
the amount of A$109,409, by offsetting such balance against
additional paid-in-capital and legal reserve outstanding as of
that date.
Income tax expense for the years ended December 31, 2004,
2003 and 2002 consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
Current tax expense
|
|
A$ |
(4,231 |
) |
|
A$ |
(3,611 |
) |
|
A$ |
|
|
Deferred tax expense
|
|
|
(694 |
) |
|
|
(4,170 |
) |
|
|
(1,698 |
) |
|
|
|
|
|
|
|
|
|
|
|
Sub-total
|
|
|
(4,925 |
) |
|
|
(7,781 |
) |
|
|
(1,698 |
) |
Minimum presumed income tax
|
|
|
(102 |
) |
|
|
(105 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
A$ |
(5,027 |
) |
|
A$ |
(7,886 |
) |
|
A$ |
(1,698 |
) |
|
|
|
|
|
|
|
|
|
|
IV-99
TORNEOS Y COMPETENCIAS S.A.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
The tax effects of temporary differences and tax loss
carryforwards that give rise to significant portions of the
Companys deferred tax assets and liabilities are presented
below:
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
Allowance for doubtful accounts
|
|
A$ |
2,506 |
|
|
A$ |
1,467 |
|
Directors fees
|
|
|
|
|
|
|
660 |
|
Accumulated tax losses
|
|
|
499 |
|
|
|
567 |
|
Accumulated tax losses from the sale of controlled subsidiaries
|
|
|
5,754 |
|
|
|
|
|
Items accrued not yet deducted
|
|
|
597 |
|
|
|
884 |
|
Deferred income
|
|
|
|
|
|
|
1,202 |
|
Programming rights
|
|
|
(2,133 |
) |
|
|
(1,623 |
) |
Unpaid interest on foreign loans from related parties
|
|
|
1,290 |
|
|
|
|
|
Others
|
|
|
48 |
|
|
|
91 |
|
|
|
|
|
|
|
|
|
Sub-total
|
|
|
8,561 |
|
|
|
3,248 |
|
Less: Valuation allowance on deferred tax asset
|
|
|
(7,201 |
) |
|
|
(1,194 |
) |
|
|
|
|
|
|
|
Net deferred tax asset at tax rate (35%)
|
|
A$ |
1,360 |
|
|
A$ |
2,054 |
|
|
|
|
|
|
|
|
Income tax expense (benefit) for the years ended
December 31, 2004, 2003 and 2002 differ from the amounts
computed by applying the Companys statutory income tax
rate to pre-tax income (loss) as a result of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
Income (loss) before taxes and discontinued operations
|
|
A$ |
21,623 |
|
|
A$ |
28,441 |
|
|
A$ |
(122,230 |
) |
Prevailing tax rate
|
|
|
35 |
% |
|
|
35 |
% |
|
|
35 |
% |
|
|
|
|
|
|
|
|
|
|
Expected tax benefit (expense) from continuing operations
|
|
|
(7,568 |
) |
|
|
(9,954 |
) |
|
|
42,781 |
|
|
Impairment of intangible assets
|
|
|
|
|
|
|
|
|
|
|
(33,482 |
) |
|
Increase in accumulated tax losses from the sale of controlled
subsidiaries
|
|
|
5,754 |
|
|
|
|
|
|
|
|
|
|
Imputed interest
|
|
|
|
|
|
|
(246 |
) |
|
|
(1,075 |
) |
|
Directors fees
|
|
|
|
|
|
|
|
|
|
|
(1,268 |
) |
|
Share of earnings (losses) from equity affiliates
|
|
|
4,515 |
|
|
|
3,299 |
|
|
|
(3,706 |
) |
|
Non-recoverable receivables
|
|
|
(236 |
) |
|
|
(363 |
) |
|
|
(1,824 |
) |
|
Non-deductible expenses
|
|
|
(1,485 |
) |
|
|
(467 |
) |
|
|
(2,747 |
) |
|
Change in valuation allowance on deferred tax assets
|
|
|
(6,007 |
) |
|
|
(155 |
) |
|
|
(377 |
) |
|
|
|
|
|
|
|
|
|
|
|
Income tax expense from continuing operations
|
|
A$ |
(5,027 |
) |
|
A$ |
(7,886 |
) |
|
A$ |
(1,698 |
) |
|
|
|
|
|
|
|
|
|
|
As of December 31, 2004, the Company has accumulated tax
loss carryforwards of A$17.9 million (equivalent to
A$6.3 million at prevailing tax rate), which expire through
year 2009.
The Company is subject to a minimum presumed income tax. This
tax is supplementary to income tax. The tax is calculated by
applying the effective tax rate of 1% on certain production
assets valued according to the tax regulations in effect as of
the end of each year. The Companys tax liabilities will be
the higher of income tax or minimum presumed income tax.
However, if the minimum presumed income tax exceeds income tax
during any fiscal year, such excess may be computed as a
prepayment of any income tax excess over the
IV-100
TORNEOS Y COMPETENCIAS S.A.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
minimum presumed income tax that may arise in the next ten
fiscal years. Each of TyC and its controlled companies file
separate tax returns. The minimum presumed income tax charge for
the years ended December 31, 2004 and 2003 correspond to
controlled companies that generate tax losses.
|
|
10. |
Commitments and contingencies |
|
|
|
(a) Long-term Rights Contracts |
The Company has long-term rights contracts which require
payments through 2010. Future minimum payments, including
unrecorded amounts, by year are as follows at December 31,
2004:
Year ending
December 31:
|
|
|
|
|
2005
|
|
A$ |
8,625 |
|
2006
|
|
A$ |
16,755 |
|
2007
|
|
A$ |
5,589 |
|
2008
|
|
A$ |
1,589 |
|
2009
|
|
A$ |
1,589 |
|
Thereafter
|
|
A$ |
723 |
|
Additionally, TyC has long-term rights contracts which require,
for the period from 2007 to 2014, payments of 50% of the revenue
derived form the related rights.
The Company has contingent liabilities related to legal and
other matters arising in the ordinary course of business. A
liability of A$2,664 has been included in the Companys
consolidated balance sheet as of December 31, 2004 to
provide for probable and estimable potential losses under these
claims.
In addition, the Company is subject to other claims and legal
actions that have arisen in the ordinary course of business.
Although there can be no assurance as to the ultimate
disposition of these matters, it is the opinion of the
Companys management based upon the information available
at this time and consultation with external legal counsel, that
the expected outcome of these other claims and legal actions,
individually or in the aggregate, will not have a material
effect on the Companys financial position or results of
operations. Accordingly, no additional liabilities have been
established for the outcome of these matters.
|
|
|
(a) Sale of building held for sale |
On January 6, 2005 the Company sold to a third party the
building held for sale included in current assets in the
accompanying consolidated financial statements, for cash
consideration of A$6 million.
The Companys contracts with FPAS for the provision of
production of content, advertising sales and operating and
administrative service to the signal Fox Sports expired on
December 31, 2004. On January 1,
IV-101
TORNEOS Y COMPETENCIAS S.A.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
2005, the Company signed new service agreements with FPAS that
expire in December 2010. The annual payments due to the Company
under these contracts are as follows:
Amounts in thousands of
US$
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2005 | |
|
|
| |
|
| |
Administrative services
|
|
|
658 |
|
|
|
658 |
|
Production of content
|
|
|
4,344 |
|
|
|
5,544 |
|
Advertising commission (range)
|
|
|
From 17.5% to 20% |
|
|
|
From 17.5% to 20% |
|
Regarding production of content, the amount of the payments
increases to US$5,844 thousand and US$6,244 thousand for years
2006 and 2007, respectively, and to US$6,744 thousand for years
2008 to 2010.
The value of administrative services will not change throughout
the period from 2005 to 2010.
In the case of certain changes in the direct or indirect TyC
ownership, FPAS has the right to terminate any or all service
agreements by delivering written notice 60 days prior to
such termination.
On January 1, 2005 the Company also extended from 2007 to
2010 the revenue agreements related to Clásico del
Domingo and Futbol de Primera rights for América
(except Argentina) and the Summer Soccer rights for América
in the same terms and conditions prevailing in the former
agreements.
IV-102
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
IV-103
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)
IV-104
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.
IV-105
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.
IV-106
UNITEDGLOBALCOM, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A | |
|
Class B | |
|
Class C | |
|
|
|
|
|
Class A | |
|
Class B |
|
|
|
Accumulated | |
|
|
|
|
Common Stock | |
|
Common Stock | |
|
Common Stock | |
|
Additional | |
|
|
|
Treasury Stock | |
|
Treasury Stock |
|
|
|
Other | |
|
|
|
|
| |
|
| |
|
| |
|
Paid-In | |
|
Deferred | |
|
| |
|
|
|
Accumulated | |
|
Comprehensive | |
|
|
|
|
Shares | |
|
Amount | |
|
Shares | |
|
Amount | |
|
Shares | |
|
Amount | |
|
Capital | |
|
Compensation | |
|
Shares | |
|
Amount | |
|
Shares | |
|
Amount |
|
Deficit | |
|
Income (Loss) | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
| |
|
| |
|
| |
|
|
(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 |
) |
|
|
|
|
|
$ |
|
|
|
$ |
(6,797,762 |
) |
|
$ |
(1,112,345 |
) |
|
$ |
(4,284,874 |
) |
Issuance of Class A common stock for subsidiary preference
shares
|
|
|
2,155,905 |
|
|
|
21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,082 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,423,102 |
|
|
|
|
|
|
|
1,429,205 |
|
Issuance of Class A common stock in connection with stock
option plans
|
|
|
311,454 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,351 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,354 |
|
Issuance of Class A common stock in connection with 401(k)
plan
|
|
|
58,272 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
258 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
259 |
|
Issuance of common stock by UGC Europe for debt and other
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
966,362 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
966,362 |
|
Equity transactions of subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(129,904 |
) |
|
|
1,896 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,555 |
|
|
|
|
|
|
|
(121,453 |
) |
Amortization of deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,577 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,577 |
|
Receipt of common stock in satisfaction of executive loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
188,792 |
|
|
|
|
|
|
|
672,316 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
287,350,970 |
|
|
$ |
2,873 |
|
|
|
8,870,332 |
|
|
|
$89 |
|
|
|
303,123,542 |
|
|
$ |
3,031 |
|
|
$ |
5,852,896 |
|
|
$ |
|
|
|
|
12,373,643 |
|
|
$ |
(70,495 |
) |
|
|
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.
IV-107
UNITEDGLOBALCOM, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(DEFICIT) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series C | |
|
Series D | |
|
Class A | |
|
Class B | |
|
Class C | |
|
|
|
|
|
|
|
|
|
Other | |
|
|
|
|
Preferred Stock | |
|
Preferred Stock | |
|
Common Stock | |
|
Common Stock | |
|
Common Stock | |
|
Additional | |
|
|
|
Treasury Stock | |
|
|
|
Comprehensive | |
|
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
Paid-In | |
|
Deferred | |
|
| |
|
Accumulated | |
|
Income | |
|
|
|
|
Shares | |
|
Amount | |
|
Shares | |
|
Amount | |
|
Shares | |
|
Amount | |
|
Shares | |
|
Amount | |
|
Shares | |
|
Amount | |
|
Capital | |
|
Compensation | |
|
Shares | |
|
Amount | |
|
Deficit | |
|
(Loss) | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(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 |
|
|
$ |
(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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(156 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,018 |
) |
|
|
|
|
|
|
(4,174 |
) |
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 |
|
|
|
|
|
|
|
(35,708 |
) |
|
|
923 |
|
|
|
|
|
|
|
|
|
|
|
59,104 |
|
Issuance of Class C common stock for financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
281,288,158 |
|
|
|
2,813 |
|
|
|
1,396,469 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,399,282 |
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
341 |
|
Equity transactions of subsidiaries and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,395 |
) |
|
|
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
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
110,392,692 |
|
|
$ |
1,104 |
|
|
|
8,870,332 |
|
|
$ |
89 |
|
|
|
303,123,542 |
|
|
$ |
3,031 |
|
|
$ |
3,683,644 |
|
|
$ |
(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.
IV-108
UNITEDGLOBALCOM, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(DEFICIT) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series C | |
|
Series D | |
|
Class A | |
|
Class B | |
|
|
|
|
|
|
|
|
|
Other | |
|
|
|
|
Preferred Stock | |
|
Preferred Stock | |
|
Common Stock | |
|
Common Stock | |
|
Additional | |
|
|
|
Treasury Stock | |
|
|
|
Comprehensive | |
|
|
|
|
| |
|
| |
|
| |
|
| |
|
Paid-In | |
|
Deferred | |
|
| |
|
Accumulated | |
|
Income | |
|
|
|
|
Shares | |
|
Amount | |
|
Shares | |
|
Amount | |
|
Shares | |
|
Amount | |
|
Shares | |
|
Amount | |
|
Capital | |
|
Compensation | |
|
Shares | |
|
Amount | |
|
Deficit | |
|
(Loss) | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(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 |
|
|
$ |
(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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
387 |
|
Issuance of Class A common stock for cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,991,018 |
|
|
|
120 |
|
|
|
|
|
|
|
|
|
|
|
19,905 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,025 |
|
Accrual of dividends on Series B, C and D convertible
preferred stock
|
|
|
|
|
|
|
14,875 |
|
|
|
|
|
|
|
10,063 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,873 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(49,875 |
) |
|
|
|
|
|
|
(26,810 |
) |
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 |
) |
|
|
22,159 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,963 |
) |
Amortization of deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,292 |
) |
|
|
20,792 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,500 |
|
Loans to related parties, collateralized with common shares and
options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,571 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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
|
|
|
425,000 |
|
|
$ |
425,000 |
|
|
|
287,500 |
|
|
$ |
287,500 |
|
|
|
98,042,205 |
|
|
$ |
981 |
|
|
|
19,027,134 |
|
|
$ |
190 |
|
|
$ |
1,537,944 |
|
|
$ |
(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.
IV-109
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.
IV-110
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
IV-111
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
other 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.
IV-112
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
IV-113
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
derivative financial instruments that are 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 Stock-Based
Compensation (SFAS 123), as amended by
SFAS No. 148, Accounting for
IV-114
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
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
IV-115
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
IV-116
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
preference shares A of UPC, nominal value
1.00 per
share, and warrants to purchase 1,165,352 ordinary
shares A of UPC, nominal 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
IV-117
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
rights that were withdrawn subsequent to December 31,
2003), as well as 4,780,611 shares to 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. |
IV-118
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. |
IV-119
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
IV-120
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
IV-121
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
accounting purposes, this transaction resulted in the
deconsolidation of UPC Germany effective August 1, 2002,
and recognition of a gain from the 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
IV-122
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
holders which reduced our ownership interest. As we no longer
have the ability to exercise significant 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. |
IV-123
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.
IV-124
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 |
) |
|
|
|
|
IV-125
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IV-126
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.
IV-127
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.
IV-128
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.
IV-129
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. |
IV-130
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
IV-131
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
Southern District of New York, including a pre-negotiated plan
of reorganization dated December 3, 2002. On that date, 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 accompanying consolidated financial statements
has been prepared in
IV-132
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
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. |
IV-133
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
IV-134
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
UAPs gain from the sale 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
IV-135
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
under these lease agreements totaled $69.9 million,
$48.5 million and $63.3 million for the years ended
December 31, 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.
IV-136
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.
IV-137
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. |
IV-138
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.
IV-139
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,
IV-140
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
under certain circumstances, delegate to our officers the
authority to grant Awards to specified groups of 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. |
IV-141
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 | |
|
|
|
|
|
|
|
|
Remaining | |
|
Weighted- | |
|
|
|
Weighted- |
|
|
|
|
Contractual | |
|
Average | |
|
|
|
Average |
|
|
|
|
Life | |
|
Base | |
|
|
|
Base |
Base Price Range |
|
Number | |
|
(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,
IV-142
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
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 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IV-143
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
IV-144
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
(except in the case of 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
IV-145
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
telephone and data network solutions to the business market
(Priority Telecom) and holds certain investments. In 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.
IV-146
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. |
IV-147
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. |
IV-148
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 |
) |
|
|
|
|
|
|
|
|
|
|
IV-149
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. |
IV-150
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. |
IV-151
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.
IV-152
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.
IV-153
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. |
IV-154
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 |
) |
|
|
|
|
|
|
|
IV-155
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 |
) |
|
|
|
|
|
|
|
|
|
|
IV-156
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
IV-157
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
system. We have accounted for the effect of foreign taxes based
on what we believe is reasonably expected to apply to us and our
subsidiaries based on tax laws currently in effect 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.
IV-158
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 |
) |
|
|
|
|
|
|
|
|
|
|
IV-159
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.
IV-160
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
IV-161
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
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
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.
IV-162
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.
IV-163
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of
Cordillera Comunicaciones Holding Limitada:
We have audited the accompanying consolidated balance sheets of
Cordillera Comunicaciones Holding Limitada and subsidiaries (the
Company) as of December 31, 2003 and 2004, and
the related consolidated statements of income and cash flows for
each of the three years in the period ended December 31,
2004. 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 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. We were not engaged to perform an
audit of the Companys internal control over financial
reporting. Our audits included consideration of internal control
over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of
the Companys internal control over financial reporting.
Accordingly we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of Cordillera Comunicaciones
Holding Limitada and Subsidiaries at December 31, 2003 and
2004, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended
December 31, 2004 in conformity with accounting principles
generally accepted in Chile, which differ in certain respects
from accounting principles generally accepted in the United
States of America (see Note 27 to the consolidated
financial statements).
ERNST & YOUNG LTDA.
Santiago, February 25, 2005
IV-164
Cordillera Comunicaciones Holding Limitada and
Subsidiaries
Consolidated Balance Sheets
for the years ended December 31
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, | |
|
|
| |
|
|
2003 | |
|
2004 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
|
ThCh$ | |
|
ThCh$ | |
|
ThUS$ | |
|
|
|
|
|
|
Note 2(e) | |
ASSETS |
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
210,523 |
|
|
|
211,672 |
|
|
|
380 |
|
Time deposits (Note 3)
|
|
|
6,936,432 |
|
|
|
4,033,512 |
|
|
|
7,236 |
|
Trade receivables, net (Note 4)
|
|
|
2,580,504 |
|
|
|
2,022,823 |
|
|
|
3,629 |
|
Notes receivable (Note 4)
|
|
|
92,652 |
|
|
|
114,250 |
|
|
|
205 |
|
Miscellaneous receivables (Note 4)
|
|
|
2,673,926 |
|
|
|
1,426,134 |
|
|
|
2,559 |
|
Notes and accounts receivable from related companies
(Note 5)
|
|
|
232,509 |
|
|
|
228,921 |
|
|
|
411 |
|
Recoverable income taxes, net (Note 6)
|
|
|
76,634 |
|
|
|
79,553 |
|
|
|
143 |
|
Prepaid expenses (Note 7)
|
|
|
988,849 |
|
|
|
631,278 |
|
|
|
1,133 |
|
Deferred income taxes net (Note 6)
|
|
|
1,375,702 |
|
|
|
1,505,421 |
|
|
|
2,701 |
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
15,167,731 |
|
|
|
10,253,564 |
|
|
|
18,397 |
|
|
|
|
|
|
|
|
|
|
|
PROPERTY, PLANT AND EQUIPMENT (Note 8)
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
|
500,019 |
|
|
|
500,019 |
|
|
|
897 |
|
Buildings and other infrastructure
|
|
|
118,466,606 |
|
|
|
120,942,228 |
|
|
|
216,976 |
|
Machinery and equipment
|
|
|
12,044,082 |
|
|
|
13,453,463 |
|
|
|
24,136 |
|
Furniture and fixtures
|
|
|
4,126,938 |
|
|
|
4,380,580 |
|
|
|
7,859 |
|
Other property, plant and equipment
|
|
|
15,092,271 |
|
|
|
14,424,263 |
|
|
|
25,878 |
|
Less: Accumulated depreciation
|
|
|
(34,686,655 |
) |
|
|
(44,929,770 |
) |
|
|
(80,602 |
) |
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
115,543,261 |
|
|
|
108,770,783 |
|
|
|
195,144 |
|
|
|
|
|
|
|
|
|
|
|
OTHER ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in other companies, net (Note 9)
|
|
|
233,512 |
|
|
|
225,341 |
|
|
|
403 |
|
Goodwill, net (Note 10)
|
|
|
62,349,750 |
|
|
|
58,057,299 |
|
|
|
104,156 |
|
Intangibles, net
|
|
|
1,711,696 |
|
|
|
1,539,410 |
|
|
|
2,761 |
|
Deferred income taxes, net (Note 6)
|
|
|
8,349,411 |
|
|
|
9,536,666 |
|
|
|
17,109 |
|
Other assets (Note 11)
|
|
|
11,585,426 |
|
|
|
10,682,574 |
|
|
|
19,164 |
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
|
84,229,795 |
|
|
|
80,041,290 |
|
|
|
143,593 |
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
|
214,940,787 |
|
|
|
199,065,637 |
|
|
|
357,134 |
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Banks and financial institutions, short-term (Note 12)
|
|
|
|
|
|
|
59,325 |
|
|
|
106 |
|
Banks and financial institutions, current portion (Note 12)
|
|
|
7,631,787 |
|
|
|
7,587,230 |
|
|
|
13,612 |
|
Accounts payable (Note 13)
|
|
|
9,258,399 |
|
|
|
7,289,371 |
|
|
|
13,077 |
|
Notes payable (Note 14)
|
|
|
12,133 |
|
|
|
12,193 |
|
|
|
22 |
|
Miscellaneous payables (Note 15)
|
|
|
1,041,968 |
|
|
|
14,508,434 |
|
|
|
26,029 |
|
Notes and accounts payable to related companies (Note 5)
|
|
|
753,025 |
|
|
|
11,893,748 |
|
|
|
21,338 |
|
Provisions and withholdings (Note 16)
|
|
|
1,297,142 |
|
|
|
1,432,338 |
|
|
|
2,570 |
|
Unearned revenues (Note 17)
|
|
|
736,997 |
|
|
|
680,687 |
|
|
|
1,221 |
|
Deferred taxes (Note 6)
|
|
|
161,459 |
|
|
|
|
|
|
|
|
|
Other current liabilities (Note 18)
|
|
|
4,292,744 |
|
|
|
842,019 |
|
|
|
1,511 |
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
25,185,654 |
|
|
|
44,305,345 |
|
|
|
79,486 |
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Banks and financial institutions, non-current portion
(Note 12)
|
|
|
30,246,442 |
|
|
|
22,650,889 |
|
|
|
40,637 |
|
Long-term notes payables (Note 15)
|
|
|
14,761,670 |
|
|
|
|
|
|
|
|
|
Notes and accounts payable to related companies (Note 5)
|
|
|
|
|
|
|
872,688 |
|
|
|
1,566 |
|
Deferred taxes (Note 6)
|
|
|
3,204,918 |
|
|
|
3,015,508 |
|
|
|
5,410 |
|
Other long-term liabilities
|
|
|
375,491 |
|
|
|
314,247 |
|
|
|
564 |
|
Deferred gains (Note 19)
|
|
|
1,474,427 |
|
|
|
1,400,705 |
|
|
|
2,513 |
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities
|
|
|
50,062,948 |
|
|
|
28,254,037 |
|
|
|
50,690 |
|
|
|
|
|
|
|
|
|
|
|
Minority interest
|
|
|
4,131,190 |
|
|
|
3,670,536 |
|
|
|
6,585 |
|
Commitments and contingencies (Note 24)
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS EQUITY (Note 20)
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid-in capital
|
|
|
205,865,408 |
|
|
|
205,865,408 |
|
|
|
369,332 |
|
Price-level restatement
|
|
|
1,852,790 |
|
|
|
1,852,790 |
|
|
|
3,324 |
|
Accumulated deficit
|
|
|
(58,374,521 |
) |
|
|
(72,157,203 |
) |
|
|
(129,451 |
) |
Net loss for the year
|
|
|
(13,782,682 |
) |
|
|
(12,725,276 |
) |
|
|
(22,832 |
) |
|
|
|
|
|
|
|
|
|
|
Total Shareholders equity
|
|
|
135,560,995 |
|
|
|
122,835,719 |
|
|
|
220,373 |
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders equity
|
|
|
214,940,787 |
|
|
|
199,065,637 |
|
|
|
357,134 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
IV-165
Cordillera Comunicaciones Holding Limitada and
Subsidiaries
Consolidated Income Statements
for the years ended December 31
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, | |
|
|
| |
|
|
2002 | |
|
2003 | |
|
2004 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
ThCh$ | |
|
ThCh$ | |
|
ThCh$ | |
|
ThUS$ | |
|
|
|
|
|
|
|
|
Note 2(e) | |
OPERATING INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue
|
|
|
47,911,196 |
|
|
|
46,100,072 |
|
|
|
45,547,636 |
|
|
|
81,714 |
|
Operating costs
|
|
|
(43,594,223 |
) |
|
|
(39,034,899 |
) |
|
|
(39,864,637 |
) |
|
|
(71,519 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin
|
|
|
4,316,973 |
|
|
|
7,065,173 |
|
|
|
5,682,999 |
|
|
|
10,195 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Administrative and selling expenses
|
|
|
(15,958,113 |
) |
|
|
(14,279,993 |
) |
|
|
(14,328,858 |
) |
|
|
(25,707 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(11,641,140 |
) |
|
|
(7,214,820 |
) |
|
|
(8,645,859 |
) |
|
|
(15,512 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-OPERATING INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial revenue
|
|
|
372,907 |
|
|
|
218,122 |
|
|
|
59,530 |
|
|
|
107 |
|
Other non-operating income
|
|
|
58,583 |
|
|
|
306,224 |
|
|
|
416,010 |
|
|
|
746 |
|
Financial expenses
|
|
|
(2,431,445 |
) |
|
|
(2,708,735 |
) |
|
|
(2,335,803 |
) |
|
|
(4,191 |
) |
Other non-operating expenses (Note 21)
|
|
|
(1,567,912 |
) |
|
|
(1,129,243 |
) |
|
|
(410,524 |
) |
|
|
(736 |
) |
Goodwill amortization (Note 10)
|
|
|
(4,207,744 |
) |
|
|
(4,289,132 |
) |
|
|
(4,225,945 |
) |
|
|
(7,582 |
) |
Price-level restatement, net (Note 22)
|
|
|
294,056 |
|
|
|
75,810 |
|
|
|
349,259 |
|
|
|
627 |
|
Foreign currency translation (Note 22)
|
|
|
(974,908 |
) |
|
|
(1,296,437 |
) |
|
|
(213,322 |
) |
|
|
(383 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating loss
|
|
|
(8,456,463 |
) |
|
|
(8,823,391 |
) |
|
|
(6,360,795 |
) |
|
|
(11,412 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before taxes and minority interest
|
|
|
(20,097,603 |
) |
|
|
(16,038,211 |
) |
|
|
(15,006,654 |
) |
|
|
(26,924 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefit (Note 6)
|
|
|
2,449,618 |
|
|
|
2,088,982 |
|
|
|
1,820,722 |
|
|
|
3,267 |
|
Minority interest
|
|
|
88,679 |
|
|
|
166,547 |
|
|
|
460,656 |
|
|
|
825 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the year
|
|
|
(17,559,306 |
) |
|
|
(13,782,682 |
) |
|
|
(12,725,276 |
) |
|
|
(22,832 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
IV-166
Cordillera Comunicaciones Holding Limitada and
Subsidiaries
Consolidated Statements of Cash Flows
for the years ended December 31
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, | |
|
|
| |
|
|
2002 | |
|
2003 | |
|
2004 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
ThCh$ | |
|
ThCh$ | |
|
ThCh$ | |
|
ThUS$ | |
|
|
|
|
|
|
|
|
Note 2(e) | |
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(17,559,306 |
) |
|
|
(13,782,682 |
) |
|
|
(12,725,276 |
) |
|
|
(22,832 |
) |
Charges (credits) to income that do not represent cash
flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
8,764,859 |
|
|
|
9,748,814 |
|
|
|
10,296,535 |
|
|
|
18,471 |
|
Software and other amortization
|
|
|
321,353 |
|
|
|
448,062 |
|
|
|
686,750 |
|
|
|
1,232 |
|
Amortization of residential cable TV installations
|
|
|
2,833,638 |
|
|
|
3,621,253 |
|
|
|
4,252,345 |
|
|
|
7,629 |
|
Other current amortization
|
|
|
|
|
|
|
(14,227 |
) |
|
|
(71,300 |
) |
|
|
(128 |
) |
Loss on sale of fixed assets
|
|
|
|
|
|
|
32,309 |
|
|
|
25,036 |
|
|
|
46 |
|
Deferred taxes
|
|
|
(2,622,653 |
) |
|
|
(2,056,674 |
) |
|
|
(1,810,281 |
) |
|
|
(3,247 |
) |
Write-offs
|
|
|
675,653 |
|
|
|
290,492 |
|
|
|
276,638 |
|
|
|
496 |
|
Allowance for doubtful accounts
|
|
|
3,113,675 |
|
|
|
1,263,257 |
|
|
|
1,005,935 |
|
|
|
1,805 |
|
Vacation accrual
|
|
|
169,081 |
|
|
|
157,742 |
|
|
|
139,771 |
|
|
|
251 |
|
Valuation and obsolescence provision
|
|
|
130,627 |
|
|
|
144,568 |
|
|
|
|
|
|
|
|
|
Goodwill amortization
|
|
|
4,207,744 |
|
|
|
4,289,132 |
|
|
|
4,225,945 |
|
|
|
7,582 |
|
Price-level restatement
|
|
|
(294,056 |
) |
|
|
(75,810 |
) |
|
|
(349,259 |
) |
|
|
(627 |
) |
Foreign Currency Translation
|
|
|
974,908 |
|
|
|
1,296,437 |
|
|
|
213,322 |
|
|
|
383 |
|
Accrued interest
|
|
|
915,808 |
|
|
|
856,174 |
|
|
|
|
|
|
|
|
|
Investment price level restatement
|
|
|
320,720 |
|
|
|
(198,421 |
) |
|
|
39,646 |
|
|
|
71 |
|
Unrealised gain (loss) on forward operations
|
|
|
859,354 |
|
|
|
300,314 |
|
|
|
(3,587,789 |
) |
|
|
(6,437 |
) |
Other
|
|
|
(106,523 |
) |
|
|
(101,597 |
) |
|
|
(74,159 |
) |
|
|
(133 |
) |
Decrease (increase) in Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade receivables, net
|
|
|
(3,725,551 |
) |
|
|
(10,629 |
) |
|
|
(448,254 |
) |
|
|
(804 |
) |
Miscellaneous receivables
|
|
|
(707,723 |
) |
|
|
(943,853 |
) |
|
|
1,222,435 |
|
|
|
2,193 |
|
Notes and accounts receivable from related parties
|
|
|
116,186 |
|
|
|
113,671 |
|
|
|
(1,058 |
) |
|
|
|
|
Income taxes recoverable, net
|
|
|
842,846 |
|
|
|
10,498 |
|
|
|
(2,919 |
) |
|
|
(5 |
) |
Prepaid expenses
|
|
|
1,522,124 |
|
|
|
(109,591 |
) |
|
|
66,394 |
|
|
|
119 |
|
Other current assets, net
|
|
|
409,755 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts and notes payable
|
|
|
(3,925,898 |
) |
|
|
(3,871,445 |
) |
|
|
(2,083,614 |
) |
|
|
(3,738 |
) |
Miscellaneous payables
|
|
|
(9,918 |
) |
|
|
725,923 |
|
|
|
(1,092,492 |
) |
|
|
(1,960 |
) |
Accrued liabilities and withholdings
|
|
|
270,724 |
|
|
|
(55,487 |
) |
|
|
150,899 |
|
|
|
271 |
|
Notes and accounts payable to related parties
|
|
|
816,683 |
|
|
|
(647,855 |
) |
|
|
124,655 |
|
|
|
224 |
|
Unearned revenues
|
|
|
475,007 |
|
|
|
(112,226 |
) |
|
|
(56,310 |
) |
|
|
(101 |
) |
Other current liabilities
|
|
|
|
|
|
|
313,475 |
|
|
|
137,064 |
|
|
|
246 |
|
Short-term bank obligations
|
|
|
|
|
|
|
|
|
|
|
59,325 |
|
|
|
106 |
|
Minority interest
|
|
|
(88,678 |
) |
|
|
(166,547 |
) |
|
|
(396,710 |
) |
|
|
(712 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
IV-167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, | |
|
|
| |
|
|
2002 | |
|
2003 | |
|
2004 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
ThCh$ | |
|
ThCh$ | |
|
ThCh$ | |
|
ThUS$ | |
|
|
|
|
|
|
|
|
Note 2(e) | |
Total cash flows provided from (used in) operating
activities
|
|
|
(1,299,561 |
) |
|
|
1,465,077 |
|
|
|
223,274 |
|
|
|
401 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of subsidiary shares
|
|
|
|
|
|
|
5,047,718 |
|
|
|
|
|
|
|
|
|
|
Loan proceeds
|
|
|
18,365,974 |
|
|
|
|
|
|
|
11,900,000 |
|
|
|
21,349 |
|
|
Related company proceeds
|
|
|
|
|
|
|
2,612 |
|
|
|
|
|
|
|
|
|
|
Other payments to related companies
|
|
|
|
|
|
|
(7,289 |
) |
|
|
|
|
|
|
|
|
|
Payments for bank obligations
|
|
|
|
|
|
|
(63,068 |
) |
|
|
(7,421,738 |
) |
|
|
(13,315 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash flows from financing activities
|
|
|
18,365,974 |
|
|
|
4,979,973 |
|
|
|
4,478,262 |
|
|
|
8,034 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of property, plant and equipment
|
|
|
|
|
|
|
206,299 |
|
|
|
33,663 |
|
|
|
60 |
|
|
Purchase of property, plant and equipment
|
|
|
(3,687,334 |
) |
|
|
(8,420,557 |
) |
|
|
(4,039,429 |
) |
|
|
(7,247 |
) |
|
Purchase of software and licenses
|
|
|
(381,386 |
) |
|
|
(453,475 |
) |
|
|
(508,737 |
) |
|
|
(913 |
) |
|
Additions to residential Cable TV installations
|
|
|
(4,533,873 |
) |
|
|
(3,505,310 |
) |
|
|
(2,915,939 |
) |
|
|
(5,231 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash flows used in investing activities
|
|
|
(8,602,593 |
) |
|
|
(12,173,043 |
) |
|
|
(7,430,442 |
) |
|
|
(13,331 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net cash flow for the year
|
|
|
8,463,820 |
|
|
|
(5,727,993 |
) |
|
|
(2,728,906 |
) |
|
|
(4,896 |
) |
Effect of inflation on cash and cash equivalents
|
|
|
(445,612 |
) |
|
|
(129,719 |
) |
|
|
(172,865 |
) |
|
|
(310 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) of cash and cash equivalents during the
year
|
|
|
8,018,208 |
|
|
|
(5,857,712 |
) |
|
|
(2,901,771 |
) |
|
|
(5,206 |
) |
Cash and cash equivalents at the beginning of the year
|
|
|
4,986,459 |
|
|
|
13,004,667 |
|
|
|
7,146,955 |
|
|
|
12,822 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of the year
|
|
|
13,004,667 |
|
|
|
7,146,955 |
|
|
|
4,245,184 |
|
|
|
7,616 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
IV-168
Cordillera Comunicaciones Holding Limitada and
Subsidiaries
Notes to the Consolidated Financial Statements
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
Cordillera Comunicaciones Holding Limitada (the
Company) was incorporated on December 31, 1994.
On that date, the founders of the Company contributed 100% of
the shares of cable television systems serving the communities
of Santiago, Temuco, Viña del Mar, Valdivia, Puerto Montt,
Puerto Varas and Los Angeles, Chile. This contribution resulted
in dissolution of the underlying companies, with the Company
assuming all of the assets and liabilities of the predecessor
companies. Included in the assets of the predecessor companies
are cash, property, plant and equipment and certain
organizational costs contributed by the founders to the various
companies prior to their dissolution.
|
|
Note 2. |
Significant Accounting Policies: |
The consolidated financial statements of the Company have been
prepared in accordance with generally accepted accounting
principles in Chile and the regulations established by the SVS
(collectively Chilean GAAP). Certain accounting
practices applied by the Company that conform with generally
accepted accounting principles in Chile do not conform with
generally accepted accounting principles in the United States
(U.S. GAAP). A reconciliation of Chilean GAAP
to U.S. GAAP is provided in Note 27. Certain amounts
in the prior years financial statements have been
reclassified to conform to the current years presentation.
The preparation of financial statements in conformity with
Chilean GAAP, along with the reconciliation to U.S. GAAP
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities,
disclosures of contingent assets and liabilities as of the date
of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. Actual
results could differ from those estimates.
In certain cases generally accepted accounting principles
require that assets or liabilities be recorded or disclosed at
their fair values. The fair value is the amount at which an
asset could be bought or sold or the amount at which a liability
could be incurred or settled in a current transaction between
willing parties, other than in a forced or liquidation sale.
Where available, quoted market prices in active markets have
been used as the basis for the measurement; however, where
quoted market prices in active markets are not available, the
Company has estimated such values based on the best information
available, including using modeling and other valuation
techniques.
The accompanying financial statements reflect the consolidated
operations of Cordillera Comunicaciones Holding Limitada and
subsidiaries. All significant intercompany transactions have
been eliminated in consolidation. The Company consolidates the
financial statements of companies in which it controls over 50%
of the voting shares.
The Company consolidates the following subsidiaries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002 | |
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
|
% | |
|
% | |
|
% | |
Pacific Televisión Limitada
|
|
|
99.5 |
|
|
|
99.5 |
|
|
|
99.5 |
|
Metrópolis Intercom S.A.
|
|
|
99.5 |
|
|
|
95.1 |
|
|
|
95.1 |
|
Cordillera Comunicaciones Limitada
|
|
|
99.5 |
|
|
|
99.5 |
|
|
|
99.5 |
|
IV-169
Cordillera Comunicaciones Holding Limitada and
Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
These financial statements reflect the Companys financial
position of its balance sheet as of December 31, 2003 and
2004 and its operating results and its cash flows for the years
ended December 31, 2002, 2003 and 2004.
|
|
(c) |
Price-level restatement: |
The Companys financial statements have been restated to
reflect the effects of variations in the purchasing power of
Chilean pesos during the year. For this purpose non-monetary
assets and liabilities, equity and income statement accounts
have been restated in terms of year-end constant pesos based on
the change in the Chilean consumer price index during the years
ended December 31, 2002, 2003 and 2004 at 3.0%, 1.0% and
2.5%, respectively.
|
|
(d) |
Assets and liabilities denominated in foreign
currency: |
Balances in foreign currencies have been translated into Chilean
Pesos at the Observed Exchange Rate as reported by the Central
Bank of Chile as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31 | |
|
|
| |
|
|
2002 | |
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
|
Ch$ | |
|
Ch$ | |
|
Ch$ | |
U.S. Dollar
|
|
|
718.61 |
|
|
|
593.8 |
|
|
|
557.4 |
|
Unidad de Fomento
|
|
|
16,744.12 |
|
|
|
16,920.00 |
|
|
|
17,317.05 |
|
Transactions in foreign currencies are recorded at the exchange
rate prevailing when the transactions occur. Foreign currency
balances are translated at the exchange rate prevailing at the
month end.
|
|
(e) |
Convenience translation to U.S. Dollars: |
The Company maintains its accounting records and prepares its
financial statements in Chilean pesos. The United States dollar
amounts disclosed in the accompanying financial statements are
presented solely for the convenience of the reader and have been
translated at the closing exchange rate of Ch$557.40 per
US$1 as of December 31, 2004. This translation should not
be construed as representing that the Chilean peso amounts
actually represent or have been, or could be, converted into
United States dollars at that exchange rate or at any other rate
of exchange.
This account corresponds to fixed term deposits in Chilean
pesos, which are recorded at cost, plus inflation-indexation and
accrued interest at year end.
|
|
(g) |
Marketable securities: |
This account corresponds to investments in mutual funds, which
are presented at their redemption value at the end of each
accounting period.
Trade receivables include sales of advertising and rendering of
monthly cable television service. This balance is stated net of
an allowance for uncollectible receivables. The allowance was
determined by considering 100% of
IV-170
Cordillera Comunicaciones Holding Limitada and
Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
the receivables from subscribers who are connected to the
Companys network and are over three months past due, and
specifically identified debtors who have been disconnected from
the Companys network or are in the process of being
disconnected.
Program costs, movies, series and documentaries, are capitalized
and charged to expense when broadcasted or are amortized over
the term of the contract, whichever is greater.
|
|
(j) |
Property, plant and equipment: |
Property, plant and equipment are stated at their acquisition
value and are price-level restated. Depreciation is computed
using the straight-line method over the estimated remaining
useful lives of the assets, which are as follows:
|
|
|
|
|
|
|
Years | |
|
|
| |
Buildings and other infrastructure
|
|
|
20 - 38 |
|
Machinery and equipment
|
|
|
7 - 10 |
|
Furniture and equipment
|
|
|
5 - 10 |
|
Other
|
|
|
5 - 7 |
|
The Company depreciates its fiber optic external network using a
progressive method based on the projected number of subscribers
per product line.
The Company has entered into financing lease agreements for
property, plant and equipment, which include options to purchase
at the end of the term of the agreement. These assets are not
legally owned by the Company and cannot be freely disposed of
until the purchase option is exercised. These assets are shown
at the present value of the contract, determined by discounting
the value of the installments and the purchase option at the
interest rate established in the respective agreement.
The cost of the computer applications purchased from external
vendors needed for managing the Companys business is
amortized using the straight-line method over an estimated
useful life of four years. For the years ended December 31,
2002, 2003 and 2004 amortization charged to income amounted to
ThCh$321,353, ThCh$448,062 and ThCh$686,750, respectively.
|
|
(m) |
Investment in other companies: |
Investments in other companies are recorded at the lower of cost
adjusted by pricelevel restatement or market value.
Goodwill is calculated as the excess of the purchase price of
cable television operations acquired over their net book value
and is amortized on a straight-line basis over 20 years.
IV-171
Cordillera Comunicaciones Holding Limitada and
Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
Other assets primarily consist of deferred costs of Cable TV
residence installations or drops, which are amortized over their
remaining estimated useful life which is estimated as
5 years. For the years ended December 31, 2002, 2003
and 2004 the amount amortized was ThCh$2,833,638, ThCh$3,621,253
and ThCh$4,252,345 respectively.
|
|
(p) |
Accrued vacation expense: |
In accordance with Technical Bulletin No. 47 issued by
the Chilean Association of Accountants, employee vacation
expenses are recorded on the accrual basis.
|
|
(q) |
Revenue recognition and unearned revenues: |
Revenues from cable subscriptions are recognized during the
month that the services are to be performed and revenues from
advertising are recognized when the advertising is broadcast.
Unearned revenues relate to advance billing on advertising
contracts, which have not yet been broadcast. As of
December 31, 2003 and 2004, deferred revenues were
ThCh$736,997 and ThCh$680,687, respectively.
|
|
(r) |
Current and deferred income taxes: |
Deferred income taxes are recorded based on timing differences
between accounting and taxable income. As a transitional
provision, a contra asset or liability has been recorded
offsetting the effects of the deferred tax assets and
liabilities not recorded prior to January 1, 2000. Such
contra asset or liability amounts must be amortized to income
over the estimated average reversal periods corresponding to the
underlying temporary differences to which the deferred tax asset
or liability relates calculated using the tax rates to be in
effect at the time of reversal.
|
|
(s) |
Financial derivatives: |
As of December 31, 2003, the Company maintained investments
in forward contracts in order to hedge future payments related
to liabilities denominated in U.S. dollars. Gains and
losses on forward contracts were recorded at the closing spot
exchange rate. Furthermore, gains or losses related to
anticipated transactions were deferred and recorded net in other
current assets or liabilities, until the sale date of the
contracts.
The contracts held by the Company as of December 31, 2004
are investment contracts which are recorded at their fair values
using the year-end spot exchange rate while the results are
recognized in the Income Statement.
IV-172
Cordillera Comunicaciones Holding Limitada and
Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
|
|
(t) |
Cash and cash equivalents: |
Cash and cash equivalents are comprised of cash, time deposits,
repurchase agreements and marketable securities with a remaining
maturity of 90 days or less as of each year-end. The detail
of cash and cash equivalents as of December 31, 2003 and
2004 is as follows:
|
|
|
|
|
|
|
|
|
|
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
|
ThCh$ | |
|
ThCh$ | |
Cash
|
|
|
210,523 |
|
|
|
211,672 |
|
Time deposits
|
|
|
6,936,432 |
|
|
|
4,033,512 |
|
|
|
|
|
|
|
|
Total
|
|
|
7,146,955 |
|
|
|
4,245,184 |
|
|
|
|
|
|
|
|
The detail of Time Deposits as of December 31, 2003 and
2004 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Financial |
|
|
|
Interest | |
|
Capital |
|
Final |
Institution |
|
Currency |
|
Rate | |
|
balance |
|
Balance |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
ThCh$ |
|
ThCh$ |
Banco BCI
|
|
Chilean Pesos |
|
|
0.20% |
|
|
1,064,668 |
|
1,064,738 |
Banco Santander-Santiago
|
|
Chilean Pesos |
|
|
0.27% |
|
|
928,240 |
|
931,165 |
Banco Santander-Santiago
|
|
Chilean Pesos |
|
|
0.25% |
|
|
2,050,000 |
|
2,054,783 |
Banco Santander-Santiago
|
|
Chilean Pesos |
|
|
0.25% |
|
|
1,121,760 |
|
1,124,378 |
Banco Santander-Santiago
|
|
Chilean Pesos |
|
|
0.22% |
|
|
824,100 |
|
825,308 |
Banco Corpbanca-Santiago
|
|
Chilean Pesos |
|
|
0.23% |
|
|
935,415 |
|
936,060 |
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
6,924,183 |
|
6,936,432 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial |
|
|
|
Interest | |
|
Capital |
|
Final |
Institution |
|
Currency |
|
Rate | |
|
balance |
|
Balance |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
ThCh$ |
|
ThCh$ |
Banco BCI
|
|
Chilean Pesos |
|
|
0.20% |
|
|
1,450,000 |
|
1,450,097 |
Banco Santander-Santiago
|
|
Chilean Pesos |
|
|
0.18% |
|
|
704,500 |
|
705,092 |
Banco Santander-Santiago
|
|
Chilean Pesos |
|
|
0.27% |
|
|
817,093 |
|
817,460 |
Banco Santander-Santiago
|
|
Chilean Pesos |
|
|
0.18% |
|
|
1,060,800 |
|
1,060,863 |
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
4,032,393 |
|
4,033,512 |
|
|
|
|
|
|
|
|
|
|
IV-173
Cordillera Comunicaciones Holding Limitada and
Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
|
|
Note 4. |
Trade, Notes, and Miscellaneous Receivables: |
The detail of Trade receivables as of December 31, 2003 and
2004 is as follows:
|
|
|
|
|
|
|
|
|
|
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
|
ThCh$ | |
|
ThCh$ | |
Cable Services
|
|
|
7,111,253 |
|
|
|
7,637,629 |
|
Invoiced advertising receivable
|
|
|
1,767,767 |
|
|
|
1,525,687 |
|
|
|
|
|
|
|
|
Sub-total
|
|
|
8,879,020 |
|
|
|
9,163,316 |
|
|
|
|
|
|
|
|
Allowance for doubtful accounts-cable services monthly services
|
|
|
(6,165,459 |
) |
|
|
(7,019,201 |
) |
Allowance for doubtful accounts on advertisement
|
|
|
(133,057 |
) |
|
|
(121,292 |
) |
|
|
|
|
|
|
|
Total allowance for doubtful accounts
|
|
|
(6,298,516 |
) |
|
|
(7,140,493 |
) |
|
|
|
|
|
|
|
Total
|
|
|
2,580,504 |
|
|
|
2,022,823 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term | |
|
|
Short-term Receivables | |
|
Receivables | |
|
|
| |
|
| |
|
|
|
|
More than 90 days and | |
|
|
|
Total Short-term | |
|
Total Long-term | |
|
|
Up to 90 days | |
|
up to 1 Year | |
|
Subtotal | |
|
Receivables (net) | |
|
Receivables | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
2003 | |
|
2004 | |
|
2003 | |
|
2004 | |
|
2003 | |
|
2004 | |
|
2003 | |
|
2004 | |
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
ThCh$ | |
|
ThCh$ | |
|
ThCh$ | |
|
ThCh$ | |
|
ThCh$ | |
|
ThCh$ | |
|
ThCh$ | |
|
ThCh$ | |
|
ThCh$ | |
|
ThCh$ | |
Trade receivable
|
|
|
2,580,504 |
|
|
|
2,022,823 |
|
|
|
6,298,516 |
|
|
|
7,140,493 |
|
|
|
8,879,020 |
|
|
|
9,163,316 |
|
|
|
2,580,504 |
|
|
|
2,022,823 |
|
|
|
|
|
|
|
|
|
Allowances for doubtful accounts
|
|
|
|
|
|
|
|
|
|
|
(6,298,516 |
) |
|
|
(7,140,493 |
) |
|
|
(6,298,516 |
) |
|
|
(7,140,493 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes receivable
|
|
|
92,652 |
|
|
|
114,250 |
|
|
|
190,395 |
|
|
|
197,923 |
|
|
|
283,047 |
|
|
|
312,173 |
|
|
|
92,652 |
|
|
|
114,250 |
|
|
|
|
|
|
|
|
|
Allowances for doubtful accounts
|
|
|
|
|
|
|
|
|
|
|
(190,395 |
) |
|
|
(197,923 |
) |
|
|
(190,395 |
) |
|
|
(197,923 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Miscellaneous Receivables
|
|
|
2,673,926 |
|
|
|
1,426,134 |
|
|
|
90,842 |
|
|
|
102,346 |
|
|
|
2,764,768 |
|
|
|
1,528,480 |
|
|
|
2,673,926 |
|
|
|
1,426,134 |
|
|
|
|
|
|
|
|
|
Allowances for doubtful accounts
|
|
|
|
|
|
|
|
|
|
|
(90,842 |
) |
|
|
(102,346 |
) |
|
|
(90,842 |
) |
|
|
(102,346 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
5,347,082 |
|
|
|
3,563,207 |
|
|
|
|
|
|
|
|
|
|
|
5,347,082 |
|
|
|
3,563,207 |
|
|
|
5,347,082 |
|
|
|
3,563,207 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in allowances for doubtful accounts for the years ended
December 31, 2002, 2003 and 2004 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002 | |
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
|
ThCh$ | |
|
ThCh$ | |
|
ThCh$ | |
Beginning balance
|
|
|
2,149,165 |
|
|
|
5,262,840 |
|
|
|
6,579,753 |
|
Charged to expense
|
|
|
3,007,655 |
|
|
|
1,232,446 |
|
|
|
1,005,935 |
|
Other
|
|
|
106,020 |
|
|
|
84,467 |
|
|
|
(144,926 |
) |
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
|
5,262,840 |
|
|
|
6,579,753 |
|
|
|
7,440,762 |
|
|
|
|
|
|
|
|
|
|
|
IV-174
Cordillera Comunicaciones Holding Limitada and
Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
Miscellaneous receivables as of December 31, 2003 and 2004
are as follows:
|
|
|
|
|
|
|
|
|
|
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
|
ThCh$ | |
|
ThCh$ | |
Raw materials
|
|
|
294,580 |
|
|
|
94,147 |
|
Advances to suppliers
|
|
|
412,515 |
|
|
|
120,254 |
|
Advances to employees
|
|
|
4,782 |
|
|
|
23,494 |
|
Receivables from cable services
|
|
|
1,070,971 |
|
|
|
733,776 |
|
Receivables from advertising rights
|
|
|
206,661 |
|
|
|
|
|
Network receivables
|
|
|
512,093 |
|
|
|
199,331 |
|
Receivables from Intercom communications
|
|
|
34,672 |
|
|
|
|
|
Other receivables
|
|
|
137,652 |
|
|
|
255,132 |
|
|
|
|
|
|
|
|
Total
|
|
|
2,673,926 |
|
|
|
1,426,134 |
|
|
|
|
|
|
|
|
|
|
Note 5. |
Balances and Transactions with Related Companies: |
(a) Short-term notes and accounts receivable from related
companies as of December 31, 2003 and 2004 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term | |
Identification |
|
|
|
| |
Number |
|
Company |
|
2003 | |
|
2004 | |
|
|
|
|
| |
|
| |
|
|
|
|
ThCh$ | |
|
ThCh$ | |
86.547.900-K
|
|
S.A. Viña Santa Rita |
|
|
14,797 |
|
|
|
1,568 |
|
79.952.350-7
|
|
Red Televisiva Megavisión S.A. |
|
|
1,245 |
|
|
|
185 |
|
96.539.380-3
|
|
Ediciones Financieras S.A. |
|
|
|
|
|
|
225 |
|
Foreign Entity
|
|
Crown Media |
|
|
25,983 |
|
|
|
41,105 |
|
Foreign Entity
|
|
Bresnan Communications de Chile S.A. |
|
|
190,484 |
|
|
|
185,838 |
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
232,509 |
|
|
|
228,921 |
|
|
|
|
|
|
|
|
|
|
IV-175
Cordillera Comunicaciones Holding Limitada and
Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
(b) Notes and accounts payable to related companies as of
December 31, 2003 and 2004 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term |
|
Long-term |
Identification |
|
|
|
|
|
|
Number |
|
Company |
|
2003 |
|
2004 |
|
2003 | |
|
2004 |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
ThCh$ |
|
ThCh$ |
|
ThCh$ | |
|
ThCh$ |
83.032.100-4
|
|
S.y C. Hendaya S.A. |
|
|
|
2 |
|
|
|
|
|
|
Foreign Entity
|
|
Bresnan Communications Company Ltd partnership |
|
173,051 |
|
158,481 |
|
|
|
|
|
|
86.547.900-K
|
|
S.A. Viña Santa Rita |
|
24,654 |
|
1,140 |
|
|
|
|
|
|
79.952.350-7
|
|
Red Televisiva Megavisión S.A. |
|
64,769 |
|
182,566 |
|
|
|
|
|
|
Foreign Entity
|
|
Pramer |
|
30,432 |
|
66,311 |
|
|
|
|
|
|
Foreign Entity
|
|
Crown Media |
|
69,994 |
|
2,669 |
|
|
|
|
|
|
Foreign Entity
|
|
Discovery |
|
356,059 |
|
300,790 |
|
|
|
|
|
|
Foreign Entity
|
|
DMX |
|
8,746 |
|
10,101 |
|
|
|
|
|
|
Foreign Entity
|
|
USA Network |
|
25,320 |
|
6,750 |
|
|
|
|
|
|
Foreign Entity
|
|
Liberty Media International, Inc. |
|
|
|
6,018,813 |
|
|
|
|
|
|
90.331.006-6
|
|
Cristal Chile S.A. |
|
|
|
5,146,125 |
|
|
|
|
|
872,688 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
753,025 |
|
11,893,748 |
|
|
|
|
|
872,688 |
|
|
|
|
|
|
|
|
|
|
|
|
(c) Transaction with related companies during the years
ended December 31, 2002, 2003 and 2004 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Effect in Income Statement | |
|
|
|
|
|
|
|
|
Transactions | |
|
Gain (Loss) | |
|
|
|
|
|
|
|
|
| |
|
| |
Company |
|
RUT | |
|
Relationship | |
|
|
|
2002 | |
|
2003 | |
|
2004 | |
|
2002 | |
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
|
|
ThCh$ | |
|
ThCh$ | |
|
ThCh$ | |
|
ThCh$ | |
|
ThCh$ | |
|
ThCh$ | |
S.A. Viña Santa Rita
|
|
|
86.547.900-K |
|
|
|
Indirect |
|
|
Advertising Contract |
|
|
15,848 |
|
|
|
19,739 |
|
|
|
9,447 |
|
|
|
15,461 |
|
|
|
19,739 |
|
|
|
9,447 |
|
|
|
|
|
|
|
|
|
|
|
Sale of Products |
|
|
|
|
|
|
28,088 |
|
|
|
958 |
|
|
|
|
|
|
|
(7,809 |
) |
|
|
(958 |
) |
Red Televisiva Megavisión S.A.
|
|
|
79.952.350-7 |
|
|
|
Indirect |
|
|
Advertising Contract |
|
|
|
|
|
|
1,543 |
|
|
|
25,500 |
|
|
|
|
|
|
|
1,543 |
|
|
|
25,500 |
|
Red Televisiva Megavisión S.A.
|
|
|
79.952.350-7 |
|
|
|
Indirect |
|
|
Advertising Contract |
|
|
330,831 |
|
|
|
208,126 |
|
|
|
508,456 |
|
|
|
322,762 |
|
|
|
(208,126 |
) |
|
|
(508,456 |
) |
|
|
|
79.952.350-8 |
|
|
|
Indirect |
|
|
Loans receivable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,009 |
|
|
|
|
|
|
|
|
|
Ediciones Financieras
|
|
|
96.539.380-3 |
|
|
|
Indirect |
|
|
Advertising Contract |
|
|
|
|
|
|
83,279 |
|
|
|
26,035 |
|
|
|
|
|
|
|
(83,279 |
) |
|
|
(26,035 |
) |
|
|
|
|
|
|
|
|
|
|
Advertising Contract |
|
|
|
|
|
|
64,877 |
|
|
|
|
|
|
|
|
|
|
|
64,877 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising Contract |
|
|
|
|
|
|
|
|
|
|
128 |
|
|
|
|
|
|
|
|
|
|
|
128 |
|
Pramer
|
|
|
Foreign entity |
|
|
|
Indirect |
|
|
Programming Signals |
|
|
|
|
|
|
84,488 |
|
|
|
230,673 |
|
|
|
|
|
|
|
(84,488 |
) |
|
|
(230,673 |
) |
Discovery
|
|
|
Foreign entity |
|
|
|
Indirect |
|
|
Programming Signals |
|
|
1,705,076 |
|
|
|
1,490,038 |
|
|
|
1,374,604 |
|
|
|
1,705,076 |
|
|
|
(1,490,383 |
) |
|
|
(1,374,604 |
) |
DMX
|
|
|
Foreign entity |
|
|
|
Indirect |
|
|
Programming Signals |
|
|
11,151 |
|
|
|
44,385 |
|
|
|
1,532 |
|
|
|
11,151 |
|
|
|
(44,385 |
) |
|
|
(1,532 |
) |
CROWN MEDIA
|
|
|
Foreign entity |
|
|
|
Indirect |
|
|
Programming Signals |
|
|
215,016 |
|
|
|
211,219 |
|
|
|
40,713 |
|
|
|
(318,541 |
) |
|
|
(211,219 |
) |
|
|
(40,713 |
) |
Liberty Media International, Inc.
|
|
|
Foreign entity |
|
|
|
Stockholder |
|
|
Short-term loans |
|
|
|
|
|
|
|
|
|
|
6,018,813 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cristal Chile S.A.
|
|
|
|
|
|
|
Stockholder |
|
|
Short-term loans |
|
|
|
|
|
|
|
|
|
|
6,018,813 |
|
|
|
|
|
|
|
|
|
|
|
|
|
IV-176
Cordillera Comunicaciones Holding Limitada and
Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
|
|
Note 6. |
Income Taxes and Deferred Taxes: |
|
|
|
a) Income taxes recoverable |
As of December 31, 2003 and 2004, the Company had the
following income taxes recoverable:
|
|
|
|
|
|
|
|
|
|
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
|
ThCh$ | |
|
ThCh$ | |
Current income taxes and Article 21
|
|
|
(4,777 |
) |
|
|
(2,213 |
) |
Monthly income tax installments
|
|
|
11,565 |
|
|
|
11,283 |
|
Credit for training expenses
|
|
|
67,821 |
|
|
|
68,459 |
|
Credit value-added tax
|
|
|
2,025 |
|
|
|
2,024 |
|
|
|
|
|
|
|
|
Total
|
|
|
76,634 |
|
|
|
79,553 |
|
|
|
|
|
|
|
|
Income tax benefits for the years ended December 31, 2002,
2003, and 2004 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002 | |
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
|
ThCh$ | |
|
ThCh$ | |
|
ThCh$ | |
Credit for absorbed earnings
|
|
|
(167,509 |
) |
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
2,622,653 |
|
|
|
2,093,759 |
|
|
|
1,822,935 |
|
First category tax provision
|
|
|
(5,526 |
) |
|
|
(4,777 |
) |
|
|
(2,213 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,449,618 |
|
|
|
2,088,982 |
|
|
|
1,820,722 |
|
|
|
|
|
|
|
|
|
|
|
IV-177
Cordillera Comunicaciones Holding Limitada and
Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
|
|
|
c) Deferred Income Taxes: |
In accordance with Technical Bulletin No. 60 issued by
the Chilean Association of Accountants on deferred income taxes,
the Company has recorded deferred taxes for temporary
differences as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2003 | |
|
As of December 31, 2004 | |
|
|
| |
|
| |
|
|
Assets | |
|
Liabilities | |
|
Assets | |
|
Liabilities | |
|
|
| |
|
| |
|
| |
|
| |
|
|
Short-term | |
|
Long-term | |
|
Short-term | |
|
Long-term | |
|
Short-term | |
|
Long-term | |
|
Short-term | |
|
Long-term | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Allowance for doubtful accounts
|
|
|
1,105,571 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,247,088 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Goods and services provision
|
|
|
16,665 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,240 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets provision
|
|
|
|
|
|
|
308,839 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
348,334 |
|
|
|
|
|
|
|
|
|
Unearned revenues
|
|
|
182,172 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
146,889 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Vacation provision
|
|
|
71,294 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76,204 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation
|
|
|
|
|
|
|
3,630 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,174 |
|
|
|
|
|
|
|
|
|
Forward contracts
|
|
|
|
|
|
|
|
|
|
|
(161,459 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax loss carry forwards(1)
|
|
|
|
|
|
|
14,755,016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,898,544 |
|
|
|
|
|
|
|
|
|
Trademarks
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leasing
|
|
|
|
|
|
|
58,022 |
|
|
|
|
|
|
|
(65,889 |
) |
|
|
|
|
|
|
61,298 |
|
|
|
|
|
|
|
(71,751 |
) |
Goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,052,475 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,780,206 |
) |
Trademark rights
|
|
|
|
|
|
|
2,424 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,836 |
|
|
|
|
|
|
|
|
|
Software
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(289,160 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(260,283 |
) |
Leased installations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(128,829 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(124,575 |
) |
Difference of accelerated depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,294,439 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,141,979 |
) |
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Complementary account
|
|
|
|
|
|
|
(6,778,520 |
) |
|
|
|
|
|
|
2,625,874 |
|
|
|
|
|
|
|
(6,778,520 |
) |
|
|
|
|
|
|
2,363,286 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,375,702 |
|
|
|
8,349,411 |
|
|
|
(161,459 |
) |
|
|
(3,204,918 |
) |
|
|
1,505,421 |
|
|
|
9,536,666 |
|
|
|
|
|
|
|
(3,015,508 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In accordance with Law No. 19,753, the corporate income tax
rate increased to 16.5% for the year 2003 and increased to 17%
for the year 2004 and thereafter.
|
|
(1) |
In accordance with the current enacted tax law in Chile,
accumulated tax losses can be carried-forward indefinitely. |
IV-178
Cordillera Comunicaciones Holding Limitada and
Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
Note 7. Prepaid
Expenses:
Prepaid expenses as of December 31, 2003 and 2004 are
follows:
|
|
|
|
|
|
|
|
|
|
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
|
ThCh$ | |
|
ThCh$ | |
Programming rights
|
|
|
24,874 |
|
|
|
20,926 |
|
Advertising rights
|
|
|
180,839 |
|
|
|
173,657 |
|
Prepaid transmission post usage rights
|
|
|
378,272 |
|
|
|
13,544 |
|
Prepaid rent
|
|
|
15,922 |
|
|
|
9,789 |
|
System maintenance services
|
|
|
|
|
|
|
60,509 |
|
Rental space for fiber optics
|
|
|
196,800 |
|
|
|
192,000 |
|
Other
|
|
|
192,142 |
|
|
|
160,853 |
|
|
|
|
|
|
|
|
Total
|
|
|
988,849 |
|
|
|
631,278 |
|
|
|
|
|
|
|
|
IV-179
Cordillera Comunicaciones Holding Limitada and
Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
|
|
Note 8. |
Property, Plant and Equipment: |
Property, Plant and Equipment as of December 31, 2003 and
2004 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2003 | |
|
December 31, 2004 | |
|
|
| |
|
| |
|
|
|
|
Accumulated | |
|
|
|
|
|
Accumulated | |
|
|
|
|
Gross Value | |
|
Depreciation | |
|
Depreciation | |
|
Gross Value | |
|
Depreciation | |
|
Depreciation | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
ThCh$ | |
|
ThCh$ | |
|
ThCh$ | |
|
ThCh$ | |
|
ThCh$ | |
|
ThCh$ | |
Land
|
|
|
500,019 |
|
|
|
|
|
|
|
|
|
|
|
500,019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Land
|
|
|
500,019 |
|
|
|
|
|
|
|
|
|
|
|
500,019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buildings and construction:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buildings
|
|
|
129,330 |
|
|
|
(25,150 |
) |
|
|
(3,317 |
) |
|
|
129,331 |
|
|
|
(43,311 |
) |
|
|
(4,490 |
) |
External Networks
|
|
|
115,016,029 |
|
|
|
(18,826,777 |
) |
|
|
(6,092,788 |
) |
|
|
117,426,344 |
|
|
|
(25,122,856 |
) |
|
|
(6,296,079 |
) |
Head Installations
|
|
|
1,611,503 |
|
|
|
(784,885 |
) |
|
|
(102,687 |
) |
|
|
1,629,638 |
|
|
|
(897,113 |
) |
|
|
(112,229 |
) |
Equipment Hub
|
|
|
1,709,744 |
|
|
|
(98,553 |
) |
|
|
(44,585 |
) |
|
|
1,756,915 |
|
|
|
(184,391 |
) |
|
|
(85,837 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total buildings and construction
|
|
|
118,466,606 |
|
|
|
(19,735,365 |
) |
|
|
(6,243,377 |
) |
|
|
120,942,228 |
|
|
|
(26,247,671 |
) |
|
|
(6,498,635 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Machinery and Equipment
|
|
|
12,044,082 |
|
|
|
(7,284,298 |
) |
|
|
(1,488,070 |
) |
|
|
13,453,463 |
|
|
|
(9,011,896 |
) |
|
|
(1,727,597 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total machinery and equipment
|
|
|
12,044,082 |
|
|
|
(7,284,298 |
) |
|
|
(1,488,070 |
) |
|
|
13,453,463 |
|
|
|
(9,011,896 |
) |
|
|
(1,727,597 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office furniture and fixtures
|
|
|
4,126,938 |
|
|
|
(2,825,005 |
) |
|
|
(502,389 |
) |
|
|
4,380,580 |
|
|
|
(3,281,016 |
) |
|
|
(469,760 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total office furniture and fixtures
|
|
|
4,126,938 |
|
|
|
(2,825,005 |
) |
|
|
(502,389 |
) |
|
|
4,380,580 |
|
|
|
(3,281,016 |
) |
|
|
(469,760 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other property, plant and equipment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vehicles
|
|
|
650,300 |
|
|
|
(451,829 |
) |
|
|
(118,173 |
) |
|
|
601,342 |
|
|
|
(492,286 |
) |
|
|
(93,794 |
) |
Tools and instruments
|
|
|
156,390 |
|
|
|
(64,252 |
) |
|
|
(27,247 |
) |
|
|
170,301 |
|
|
|
(95,478 |
) |
|
|
(31,226 |
) |
Fixed assets in transit
|
|
|
59,838 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rented office installations
|
|
|
1,225,051 |
|
|
|
(467,233 |
) |
|
|
(72,610 |
) |
|
|
1,288,550 |
|
|
|
(555,756 |
) |
|
|
(88,523 |
) |
Cable TV materials
|
|
|
4,255,507 |
|
|
|
|
|
|
|
|
|
|
|
1,764,499 |
|
|
|
|
|
|
|
|
|
Work in progress
|
|
|
1,464,705 |
|
|
|
|
|
|
|
|
|
|
|
588,888 |
|
|
|
|
|
|
|
|
|
Decoding equipment
|
|
|
6,938,997 |
|
|
|
(3,844,929 |
) |
|
|
(1,292,481 |
) |
|
|
9,523,417 |
|
|
|
(5,180,464 |
) |
|
|
(1,335,543 |
) |
Leased assets
|
|
|
341,483 |
|
|
|
(13,744 |
) |
|
|
(4,467 |
) |
|
|
487,266 |
|
|
|
(65,203 |
) |
|
|
(51,457 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other property, plant and equipment
|
|
|
15,092,271 |
|
|
|
(4,841,987 |
) |
|
|
(1,514,978 |
) |
|
|
14,424,263 |
|
|
|
(6,389,187 |
) |
|
|
(1,600,543 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property, plant and equipment
|
|
|
150,229,916 |
|
|
|
(34,686,655 |
) |
|
|
(9,748,814 |
) |
|
|
153,700,553 |
|
|
|
(44,929,770 |
) |
|
|
(10,296,535 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 9. |
Investment in Other Companies: |
The Company has investments in other companies valued at their
cost of acquisition plus price level restatement.
IV-180
Cordillera Comunicaciones Holding Limitada and
Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
Investments in other companies as of December 31, 2003 and
2004 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
|
ThCh$ | |
|
ThCh$ | |
Bazuca.Com Chile S.A.
|
|
|
157,041 |
|
|
|
143,819 |
|
Internet Holding S.A.
|
|
|
283,560 |
|
|
|
283,560 |
|
Provision
|
|
|
(207,089 |
) |
|
|
(202,038 |
) |
|
|
|
|
|
|
|
Total
|
|
|
233,512 |
|
|
|
225,341 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2003 | |
|
|
| |
|
|
|
|
Accumulated | |
|
|
|
|
Gross Value | |
|
Amortization | |
|
Net Value | |
|
|
| |
|
| |
|
| |
|
|
ThCh$ | |
|
ThCh$ | |
|
ThCh$ | |
Metropolis
|
|
|
50,137,914 |
|
|
|
(30,773,552 |
) |
|
|
19,364,362 |
|
Goodwill generated from the purchase of CTC stocks
|
|
|
53,086,511 |
|
|
|
(6,635,814 |
) |
|
|
46,450,697 |
|
Price-level restatement
|
|
|
1,032,245 |
|
|
|
(377,274 |
) |
|
|
654,971 |
|
Amortization
|
|
|
|
|
|
|
(4,279,614 |
) |
|
|
(4,279,614 |
) |
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
104,256,670 |
|
|
|
(42,066,254 |
) |
|
|
62,190,416 |
|
|
|
|
|
|
|
|
|
|
|
Goodwill generated from the purchase of CTC Plataforma
Técnica Red Multimedia S.A.
|
|
|
193,133 |
|
|
|
(24,281 |
) |
|
|
168,852 |
|
Amortization of CTC
|
|
|
|
|
|
|
(9,518 |
) |
|
|
(9,518 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
193,133 |
|
|
|
(33,799 |
) |
|
|
159,334 |
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2003
|
|
|
104,449,803 |
|
|
|
(42,100,053 |
) |
|
|
62,349,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2004 | |
|
|
| |
|
|
|
|
Accumulated | |
|
|
|
|
Gross Value | |
|
Amortization | |
|
Net Value | |
|
|
| |
|
| |
|
| |
|
|
ThCh$ | |
|
ThCh$ | |
|
ThCh$ | |
Metropolis
|
|
|
49,404,189 |
|
|
|
(41,040,248 |
) |
|
|
8,363,941 |
|
Goodwill generated from the purchase of CTC stocks
|
|
|
52,309,635 |
|
|
|
|
|
|
|
52,309,635 |
|
Price-level restatement
|
|
|
2,542,846 |
|
|
|
(1,092,511 |
) |
|
|
1,450,335 |
|
Amortization
|
|
|
|
|
|
|
(4,216,289 |
) |
|
|
(4,216,289 |
) |
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
104,256,670 |
|
|
|
(46,349,048 |
) |
|
|
57,907,622 |
|
|
|
|
|
|
|
|
|
|
|
Goodwill generated from the purchase of CTC Plataforma
Técnica Red Multimedia S.A.
|
|
|
193,133 |
|
|
|
(33,799 |
) |
|
|
159,334 |
|
Amortization of CTC
|
|
|
|
|
|
|
(9,657 |
) |
|
|
(9,657 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
193,133 |
|
|
|
(43,456 |
) |
|
|
149,677 |
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2004
|
|
|
104,449,803 |
|
|
|
(46,392,504 |
) |
|
|
58,057,299 |
|
|
|
|
|
|
|
|
|
|
|
IV-181
Cordillera Comunicaciones Holding Limitada and
Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
Goodwill amortization charge to income for the years ended
December 31, 2002, 2003 and 2004 amounted to
ThCh$4,207,744, ThCh$4,289,132 and ThCh$4,225,945, respectively.
Other assets as of December 31, 2003 and 2004 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
|
ThCh$ | |
|
ThCh$ | |
Other investments
|
|
|
2,104 |
|
|
|
2,084 |
|
Rental guarantees
|
|
|
118,168 |
|
|
|
114,453 |
|
Residential cable TV installations
|
|
|
20,390,501 |
|
|
|
23,352,776 |
|
Accumulated amortization of Residential Cable TV installations
|
|
|
(9,830,394 |
) |
|
|
(14,082,739 |
) |
Rental hubs, external net
|
|
|
422,779 |
|
|
|
931,205 |
|
Administrative projects-in-progress
|
|
|
34,837 |
|
|
|
41,520 |
|
Other assets
|
|
|
447,431 |
|
|
|
322,275 |
|
|
|
|
|
|
|
|
|
Total
|
|
|
11,585,426 |
|
|
|
10,682,574 |
|
|
|
|
|
|
|
|
The amortization charge to income for residential cable TV
installations for the years ended December 31, 2002, 2003
and 2004 amounted to ThCh$2,833,638, ThCh$3,621,253, and
ThCh$4,252,345, respectively.
|
|
Note 12. |
Banks and Financial Institutions: |
(a) Short term obligations with banks and financial
institutions as of December 31, 2003 and 2004 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Types of currency and readjustment | |
|
|
| |
|
|
U.S. Dollars | |
|
UF | |
|
TOTAL | |
|
|
| |
|
| |
|
| |
Bank or Institution |
|
2003 | |
|
2004 | |
|
2003 | |
|
2004 | |
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
ThCh$ | |
|
ThCh$ | |
|
ThCh$ | |
|
ThCh$ | |
|
ThCh$ | |
|
ThCh$ | |
Short-term
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Banco BCI
|
|
|
|
|
|
|
59,325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59,325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
59,325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59,325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital owed
|
|
|
|
|
|
|
59,296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59,296 |
|
Annual Average Interest Rate
|
|
|
|
|
|
|
3.46 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.46 |
% |
Current portion of long-term
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Banco Santander-Santiago
|
|
|
|
|
|
|
|
|
|
|
3,077,651 |
|
|
|
3,061,244 |
|
|
|
3,077,651 |
|
|
|
3,061,244 |
|
Banco BCI
|
|
|
|
|
|
|
|
|
|
|
1,470,568 |
|
|
|
1,461,600 |
|
|
|
1,470,568 |
|
|
|
1,461,600 |
|
Banco Estado
|
|
|
|
|
|
|
|
|
|
|
1,541,565 |
|
|
|
1,532,298 |
|
|
|
1,541,565 |
|
|
|
1,532,298 |
|
Banco Corpbanca
|
|
|
|
|
|
|
|
|
|
|
1,542,003 |
|
|
|
1,532,088 |
|
|
|
1,542,003 |
|
|
|
1,532,088 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
7,631,787 |
|
|
|
7,587,230 |
|
|
|
7,631,787 |
|
|
|
7,587,230 |
|
Total Capital owed
|
|
|
|
|
|
|
|
|
|
|
7,561,611 |
|
|
|
7,550,296 |
|
|
|
|
|
|
|
|
|
Annual Average Interest Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.14 |
% |
|
|
|
|
|
|
|
|
IV-182
Cordillera Comunicaciones Holding Limitada and
Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2003 | |
|
2004 | |
|
|
| |
|
| |
Total short-term liabilities denominated in foreign currency
|
|
|
0.0 |
% |
|
|
0.8 |
% |
Total short-term liabilities denominated in local currency
|
|
|
100.0 |
% |
|
|
99.2 |
% |
(b) Long-term obligations with banks and financial
institutions:
On July 8, 2001, the Company entered into a syndicated loan
agreement led by Banco Santander-Santiago of up to UF2,823,800
with interest rates fixed at the date of issuance based on the
current 180 day Chilean Active Banking Rate (TAB) plus
1.4% due semi-annually, maturing in December 15, 2008.
Scheduled maturities of long-term bank obligations as of
December 31, 2003 and 2004 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
|
|
|
|
|
|
2003 | |
|
December 31, 2004 | |
|
|
|
|
|
|
| |
|
| |
|
|
|
|
Interest | |
|
Total Long- | |
|
|
|
Total | |
|
|
|
|
rate | |
|
term | |
|
Due in | |
|
Due in | |
|
Due in | |
|
More than | |
|
|
|
Long-term | |
Financial institution |
|
Currency | |
|
% | |
|
Obligations | |
|
1-2 Years | |
|
2-3 Years | |
|
3-5 Years | |
|
5 Years | |
|
Maturity | |
|
Obligations | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
ThCh$ | |
|
ThCh$ | |
|
ThCh$ | |
|
ThCh$ | |
|
ThCh$ | |
|
|
|
ThCh$ | |
Banco Santander-Santiago
|
|
|
U.F. |
|
|
|
3.00% |
|
|
|
12,206,882 |
|
|
|
3,047,154 |
|
|
|
3,047,154 |
|
|
|
3,047,155 |
|
|
|
|
|
|
|
Dec-2008 |
|
|
|
9,141,463 |
|
Banco BCI
|
|
|
U.F. |
|
|
|
3.13% |
|
|
|
5,825,926 |
|
|
|
1,454,302 |
|
|
|
1,454,302 |
|
|
|
1,454,302 |
|
|
|
|
|
|
|
Dec-2008 |
|
|
|
4,362,906 |
|
Banco Corpbanca
|
|
|
U.F. |
|
|
|
3.13% |
|
|
|
6,106,824 |
|
|
|
1,524,422 |
|
|
|
1,524,422 |
|
|
|
1,524,422 |
|
|
|
|
|
|
|
Dec-2008 |
|
|
|
4,573,266 |
|
Banco Estado
|
|
|
U.F. |
|
|
|
3.00% |
|
|
|
6,106,810 |
|
|
|
1,524,418 |
|
|
|
1,524,418 |
|
|
|
1,524,418 |
|
|
|
|
|
|
|
Dec-2008 |
|
|
|
4,573,254 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
30,246,442 |
|
|
|
7,550,296 |
|
|
|
7,550,296 |
|
|
|
7,550,297 |
|
|
|
|
|
|
|
|
|
|
|
22,650,889 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2003 | |
|
2004 | |
|
|
| |
|
| |
Total liabilities denominated in foreign currency
|
|
|
0.0% |
|
|
|
0.0% |
|
Total liabilities denominated in local currency
|
|
|
100.0% |
|
|
|
100.0% |
|
|
|
Note 13. |
Accounts Payable: |
The detail of Accounts payable as of December 31, 2003 and
2004 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
|
ThCh$ | |
|
ThCh$ | |
Suppliers
|
|
|
5,501,600 |
|
|
|
4,778,425 |
|
Programming
|
|
|
2,804,636 |
|
|
|
1,959,010 |
|
Fees
|
|
|
5,416 |
|
|
|
5,920 |
|
Other accounts payable
|
|
|
946,747 |
|
|
|
546,016 |
|
|
|
|
|
|
|
|
Total
|
|
|
9,258,399 |
|
|
|
7,289,371 |
|
|
|
|
|
|
|
|
IV-183
Cordillera Comunicaciones Holding Limitada and
Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
Notes payable as of December 31, 2003 and 2004 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
|
ThCh$ | |
|
ThCh$ | |
Uncollected stale dated checks
|
|
|
12,133 |
|
|
|
12,193 |
|
|
|
|
|
|
|
|
Total
|
|
|
12,133 |
|
|
|
12,193 |
|
|
|
|
|
|
|
|
|
|
Note 15. |
Miscellaneous Payables: |
Balance of short-term miscellaneous payable as of
December 31, 2003 and 2004 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
|
ThCh$ | |
|
ThCh$ | |
Telefónica CTC Chile S.A.(1)
|
|
|
219,227 |
|
|
|
14,496,161 |
|
Comunicaciones Intercom S.A.
|
|
|
85,531 |
|
|
|
|
|
San Felipe-Los Andes network
|
|
|
724,217 |
|
|
|
|
|
Others
|
|
|
12,993 |
|
|
|
12,273 |
|
|
|
|
|
|
|
|
Total
|
|
|
1,041,968 |
|
|
|
14,508,434 |
|
|
|
|
|
|
|
|
|
|
(1) |
On July 30, 2001, in connection with the purchase
transaction involving Companía de Telecomunicaciones de
Chile S.A. (CTC), the Company entered into a loan agreement with
CTC for a total of ThUS$20,000 payable over 5 years with an
annual interest rate of 6%. The accounts payable balance
resulting from this transaction as of December 31, 2003 was
classified as long-term debt and amounted to ThCh$14,761,670. In
2004, the long-term debt was reclassified to short-term and as
of December 31, 2004 amounted to ThCh$14,496,161. |
The balance of long-term notes payable as of December 31,
2003 and 2004 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term | |
|
|
|
|
| |
Principal | |
|
Principal | |
|
2003 | |
|
2004 | |
| |
|
| |
|
| |
|
| |
ThUS$ | |
|
ThUS$ | |
|
ThUS$ | |
|
ThUS$ | |
|
20,000 |
|
|
|
11,146,000 |
|
|
|
14,761,670 |
|
|
|
|
|
|
|
Note 16. |
Provisions and withholdings: |
The balance of provisions and withholdings as of
December 31, 2003 and 2004 is as follows:
|
|
|
|
|
|
|
|
|
|
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
|
ThUS$ | |
|
ThUS$ | |
Vacations
|
|
|
487,092 |
|
|
|
520,943 |
|
Audit fees
|
|
|
3,467 |
|
|
|
3,463 |
|
Withholdings
|
|
|
686,627 |
|
|
|
799,376 |
|
Suppliers
|
|
|
89,644 |
|
|
|
73,945 |
|
Others
|
|
|
30,312 |
|
|
|
34,611 |
|
|
|
|
|
|
|
|
Total
|
|
|
1,297,142 |
|
|
|
1,432,338 |
|
|
|
|
|
|
|
|
IV-184
Cordillera Comunicaciones Holding Limitada and
Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
|
|
Note 17. |
Unearned Revenues: |
Unearned revenues correspond to advertising contracts which have
not yet been realized. As of December 31, 2003 and 2004
unearned revenue amounted to ThCh$736,997 and ThCh$680,687,
respectively.
|
|
Note 18. |
Other Current Liabilities: |
Other current liabilities as of December 31, 2003 and 2004
are as follows:
|
|
|
|
|
|
|
|
|
|
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
|
ThCh$ | |
|
ThCh$ | |
Forward contract rights
|
|
|
(24,573,611 |
) |
|
|
(7,246,200 |
) |
Forward contract obligations
|
|
|
29,927,432 |
|
|
|
8,108,271 |
|
Deferred loss from forward contract
|
|
|
(949,758 |
) |
|
|
|
|
Deferred interest from forward contract
|
|
|
(484,948 |
) |
|
|
(47,803 |
) |
Deferred interest amortization from forward contract
|
|
|
373,629 |
|
|
|
27,751 |
|
|
|
|
|
|
|
|
Total
|
|
|
4,292,744 |
|
|
|
842,019 |
|
|
|
|
|
|
|
|
The forward contracts held by the Company as of
December 31, 2004 are investments contracts and the results
have been recognized in the Income Statement.
As of December 31, 2003, the Company maintained investments
in hedge contracts in order to minimize US$ currency exchange
differences (cash-flow and fair value hedges).
In accordance with Technical Bulletin No. 57
(BT No. 57) issued by Colegio de
Contadores de Chile A.G. any income (loss) generated on these
forward contracts to cover exchange rate fluctuations in US
dollar obligations must be recognized simultaneously with the
payment terms of the US dollar obligation.
In addition in according with BT No. 57 forward contracts
undertaken and timed to cover future cash payments of foreign
programming suppliers are deferred and recognized in income at
the date contract of maturity.
Forward contracts as of December 31, 2003 are detailed as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial |
|
|
|
|
|
|
|
Deferred | |
|
|
Institution |
|
Amount in US$ | |
|
Maturity |
|
Rate |
|
Income (loss) | |
|
Net income |
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
Th$ | |
|
Th$ |
BCI
|
|
|
250,000 |
|
|
01-06-04 |
|
2.13% |
|
|
|
|
|
(33,683) |
SECURITY
|
|
|
1,000,000 |
|
|
01-02-04 |
|
1.61% |
|
|
|
|
|
(139,949) |
SECURITY
|
|
|
500,000 |
|
|
01-02-04 |
|
1.26% |
|
|
|
|
|
(68,700) |
SECURITY
|
|
|
500,000 |
|
|
01-02-04 |
|
1.17% |
|
|
|
|
|
(68,344) |
SECURITY
|
|
|
1,000,000 |
|
|
01-05-04 |
|
0.97% |
|
|
|
|
|
(132,126) |
SECURITY
|
|
|
250,000 |
|
|
01-05-04 |
|
1.41% |
|
|
|
|
|
(33,840) |
SECURITY
|
|
|
250,000 |
|
|
01-06-04 |
|
2.27% |
|
|
|
|
|
(33,935) |
SECURITY
|
|
|
250,000 |
|
|
01-06-04 |
|
2.04% |
|
|
|
|
|
(33,251) |
CORPBANCA
|
|
|
500,000 |
|
|
01-06-04 |
|
1.07% |
|
|
|
|
|
(66,406) |
CORPBANCA
|
|
|
250,000 |
|
|
01-06-04 |
|
1.45% |
|
|
|
|
|
(33,909) |
CORPBANCA
|
|
|
250,000 |
|
|
01-06-04 |
|
2.10% |
|
|
|
|
|
(33,620) |
BCI
|
|
|
500,000 |
|
|
01-30-04 |
|
1.50% |
|
|
|
|
|
(78,147) |
SECURITY
|
|
|
500,000 |
|
|
01-31-04 |
|
0.00% |
|
|
|
|
|
(83,896) |
SECURITY
|
|
|
500,000 |
|
|
02-01-04 |
|
3.10% |
|
|
|
|
|
(82,045) |
IV-185
Cordillera Comunicaciones Holding Limitada and
Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial |
|
|
|
|
|
|
|
Deferred | |
|
|
Institution |
|
Amount in US$ | |
|
Maturity |
|
Rate |
|
Income (loss) | |
|
Net income |
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
Th$ | |
|
Th$ |
SECURITY
|
|
|
500,000 |
|
|
02-02-04 |
|
1.76% |
|
|
|
|
|
(83,447) |
SECURITY
|
|
|
500,000 |
|
|
02-03-04 |
|
1.75% |
|
|
|
|
|
(83,401) |
SECURITY
|
|
|
500,000 |
|
|
02-04-04 |
|
1.71% |
|
|
|
|
|
(83,262) |
SECURITY
|
|
|
500,000 |
|
|
02-05-04 |
|
1.78% |
|
|
|
|
|
(83,494) |
SECURITY
|
|
|
500,000 |
|
|
02-06-04 |
|
1.68% |
|
|
|
|
|
(83,170) |
SECURITY
|
|
|
1,000,000 |
|
|
02-07-04 |
|
2.33% |
|
|
|
|
|
(168,878) |
SECURITY
|
|
|
500,000 |
|
|
02-08-04 |
|
1.48% |
|
|
|
|
|
(86,718) |
CORPBANCA
|
|
|
500,000 |
|
|
02-09-04 |
|
2.48% |
|
|
|
|
|
(82,931) |
CORPBANCA
|
|
|
500,000 |
|
|
02-10-04 |
|
2.30% |
|
|
|
|
|
(82,282) |
CORPBANCA
|
|
|
500,000 |
|
|
02-11-04 |
|
2.81% |
|
|
|
|
|
(84,066) |
BCI
|
|
|
500,000 |
|
|
02-12-04 |
|
2.52% |
|
|
|
|
|
(87,201) |
BCI
|
|
|
500,000 |
|
|
02-13-04 |
|
2.67% |
|
|
|
|
|
(87,669) |
BCI
|
|
|
500,000 |
|
|
02-14-04 |
|
2.55% |
|
|
|
|
|
(87,286) |
BCI
|
|
|
250,000 |
|
|
02-15-04 |
|
2.64% |
|
|
|
|
|
(43,792) |
SECURITY
|
|
|
500,000 |
|
|
02-16-04 |
|
2.32% |
|
|
|
|
|
(86,720) |
SECURITY
|
|
|
500,000 |
|
|
02-17-04 |
|
0.87% |
|
|
(81,781 |
) |
|
|
SECURITY
|
|
|
500,000 |
|
|
02-18-04 |
|
0.75% |
|
|
|
|
|
(78,310) |
SECURITY
|
|
|
500,000 |
|
|
02-19-04 |
|
1.08% |
|
|
(74,423 |
) |
|
|
BCI
|
|
|
550,000 |
|
|
02-20-04 |
|
1.53% |
|
|
|
|
|
(76,646) |
BCI
|
|
|
500,000 |
|
|
02-21-04 |
|
1.49% |
|
|
|
|
|
(69,565) |
BCI
|
|
|
500,000 |
|
|
02-22-04 |
|
1.47% |
|
|
|
|
|
(69,527) |
BCI
|
|
|
250,000 |
|
|
02-23-04 |
|
2.43% |
|
|
|
|
|
(35,358) |
BCI
|
|
|
250,000 |
|
|
02-24-04 |
|
2.23% |
|
|
|
|
|
(35,084) |
BCI
|
|
|
500,000 |
|
|
02-25-04 |
|
2.43% |
|
|
|
|
|
(70,716) |
BCI
|
|
|
1,000,000 |
|
|
02-26-04 |
|
2.23% |
|
|
|
|
|
(140,316) |
BCI
|
|
|
1,000,000 |
|
|
02-27-04 |
|
2.09% |
|
|
|
|
|
(139,550) |
BCI
|
|
|
500,000 |
|
|
02-28-04 |
|
2.05% |
|
|
|
|
|
(69,660) |
BCI
|
|
|
500,000 |
|
|
02-29-04 |
|
2.20% |
|
|
|
|
|
(70,082) |
SECURITY
|
|
|
600,000 |
|
|
03-01-04 |
|
0.72% |
|
|
|
|
|
(86,075) |
SECURITY
|
|
|
2,500,000 |
|
|
03-02-04 |
|
1.74% |
|
|
|
|
|
(351,342) |
SECURITY
|
|
|
750,000 |
|
|
03-03-04 |
|
1.53% |
|
|
(102,090 |
) |
|
|
SECURITY
|
|
|
750,000 |
|
|
03-04-04 |
|
1.12% |
|
|
(98,624 |
) |
|
|
CORPBANCA
|
|
|
450,000 |
|
|
03-05-04 |
|
1.52% |
|
|
|
|
|
(62,693) |
SECURITY
|
|
|
3,000,000 |
|
|
03-06-04 |
|
1.76% |
|
|
|
|
|
(354,082) |
SECURITY
|
|
|
1,000,000 |
|
|
03-07-04 |
|
2.48% |
|
|
|
|
|
(120,464) |
SECURITY
|
|
|
500,000 |
|
|
03-08-04 |
|
2.48% |
|
|
|
|
|
(60,232) |
SECURITY
|
|
|
500,000 |
|
|
03-09-04 |
|
2.43% |
|
|
|
|
|
(60,122) |
SECURITY
|
|
|
1,000,000 |
|
|
03-10-04 |
|
1.69% |
|
|
|
|
|
(118,089) |
CORPBANCA
|
|
|
750,000 |
|
|
03-11-04 |
|
2.13% |
|
|
(94,050 |
) |
|
|
ESTADO
|
|
|
750,000 |
|
|
03-12-04 |
|
2.00% |
|
|
(90,699 |
) |
|
|
ESTADO
|
|
|
750,000 |
|
|
03-13-04 |
|
1.98% |
|
|
(90,632 |
) |
|
|
ESTADO
|
|
|
300,000 |
|
|
03-14-04 |
|
1.76% |
|
|
(38,305 |
) |
|
|
ESTADO
|
|
|
200,000 |
|
|
03-15-04 |
|
1.69% |
|
|
(25,500 |
) |
|
|
ESTADO
|
|
|
250,000 |
|
|
03-16-04 |
|
1.53% |
|
|
(31,748 |
) |
|
|
ESTADO
|
|
|
500,000 |
|
|
03-17-04 |
|
1.38% |
|
|
(62,029 |
) |
|
|
ESTADO
|
|
|
500,000 |
|
|
03-18-04 |
|
1.23% |
|
|
(61,805 |
) |
|
|
ESTADO
|
|
|
500,000 |
|
|
03-19-04 |
|
0.75% |
|
|
(51,336 |
) |
|
|
IV-186
Cordillera Comunicaciones Holding Limitada and
Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial |
|
|
|
|
|
|
|
Deferred | |
|
|
Institution |
|
Amount in US$ | |
|
Maturity |
|
Rate |
|
Income (loss) | |
|
Net income |
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
Th$ | |
|
Th$ |
ESTADO
|
|
|
500,000 |
|
|
03-20-04 |
|
0.69% |
|
|
(46,736 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
37,350,000 |
|
|
|
|
|
|
|
(949,758 |
) |
|
(4,304,081) |
ESTADO
|
|
|
500,000 |
|
|
01-30-04 |
|
2.49% |
|
|
|
|
|
1,491 |
ESTADO
|
|
|
1,500,000 |
|
|
02-27-04 |
|
1.58% |
|
|
|
|
|
4,124 |
ESTADO
|
|
|
1,000,000 |
|
|
01-30-04 |
|
0.94% |
|
|
|
|
|
5,722 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
3,000,000 |
|
|
|
|
|
|
|
|
|
|
11,337 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
40,350,000 |
|
|
|
|
|
|
|
(949,758 |
) |
|
(4,292,744) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward contracts as of December 31, 2004 are detailed as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial |
|
|
|
|
|
|
|
Deferred | |
|
|
Institution |
|
Amount in US$ | |
|
Maturity | |
|
Rate | |
|
Income (loss) | |
|
Net income | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
|
|
ThCh$ | |
|
ThCh$ | |
ESTADO
|
|
|
1,125,000 |
|
|
|
07-01-05 |
|
|
|
0.70 |
% |
|
|
|
|
|
|
(38,369 |
) |
ESTADO
|
|
|
2,250,000 |
|
|
|
07-01-05 |
|
|
|
1.11 |
% |
|
|
|
|
|
|
(148,894 |
) |
SECURITY
|
|
|
250,000 |
|
|
|
07-01-05 |
|
|
|
0.08 |
% |
|
|
|
|
|
|
(13,086 |
) |
SECURITY
|
|
|
250,000 |
|
|
|
07-01-05 |
|
|
|
(0.11 |
)% |
|
|
|
|
|
|
(12,862 |
) |
SECURITY
|
|
|
250,000 |
|
|
|
07-01-05 |
|
|
|
0.04 |
% |
|
|
|
|
|
|
(12,120 |
) |
SECURITY
|
|
|
375,000 |
|
|
|
07-01-05 |
|
|
|
0.43 |
% |
|
|
|
|
|
|
(25,970 |
) |
ESTADO
|
|
|
300,000 |
|
|
|
07-01-05 |
|
|
|
(0.40 |
)% |
|
|
|
|
|
|
(17,142 |
) |
ESTADO
|
|
|
500,000 |
|
|
|
07-01-05 |
|
|
|
(0.14 |
)% |
|
|
|
|
|
|
(25,657 |
) |
ESTADO
|
|
|
1,000,000 |
|
|
|
07-01-05 |
|
|
|
0.13 |
% |
|
|
|
|
|
|
(48,896 |
) |
ESTADO
|
|
|
375,000 |
|
|
|
07-01-05 |
|
|
|
0.20 |
% |
|
|
|
|
|
|
(25,604 |
) |
ESTADO
|
|
|
1,125,000 |
|
|
|
07-01-05 |
|
|
|
0.24 |
% |
|
|
|
|
|
|
(77,164 |
) |
SECURITY
|
|
|
1,125,000 |
|
|
|
07-01-05 |
|
|
|
0.27 |
% |
|
|
|
|
|
|
(77,325 |
) |
ESTADO
|
|
|
500,000 |
|
|
|
07-01-05 |
|
|
|
1.10 |
% |
|
|
|
|
|
|
(39,535 |
) |
ESTADO
|
|
|
1,000,000 |
|
|
|
07-01-05 |
|
|
|
1.45 |
% |
|
|
|
|
|
|
(80,367 |
) |
ESTADO
|
|
|
750,000 |
|
|
|
07-01-05 |
|
|
|
0.11 |
% |
|
|
|
|
|
|
(59,660 |
) |
ESTADO
|
|
|
825,000 |
|
|
|
07-01-05 |
|
|
|
1.00 |
% |
|
|
|
|
|
|
(69,043 |
) |
SECURITY
|
|
|
1,000,000 |
|
|
|
07-01-05 |
|
|
|
(0.57 |
)% |
|
|
|
|
|
|
(70,325 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
13,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(842,019 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 19. Deferred Gains:
During the year ended December 31, 2003, the Companys
subsidiary Metropolis Intercom S.A. issued an additional
3,923,834 shares raising ThCh$4,924,603 in cash. The
Company did not subscribe to any of the shares. As the cash
received was greater than the related increase in minority
interest, the Company recorded a deferred gain of ThCh$1,493,092
which will be amortized to income over future periods and as of
December 31, 2003 and 2004 was ThCh$1,474,427 and
ThCh$1,400,705, respectively. The amortization recognized as of
December 31, 2003 and 2004 was ThCh$18,665 and ThCh$73,721,
respectively.
IV-187
Cordillera Comunicaciones Holding Limitada and
Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
Note 20. Shareholders
Equity:
The changes in shareholders equity in the years ended
December 31, 2002, 2003 and 2004 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid-in | |
|
Price-level | |
|
Accumulated | |
|
Net loss | |
|
|
|
|
Capital | |
|
restatement | |
|
Deficit | |
|
for the year | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
ThCh$ | |
|
ThCh$ | |
|
ThCh$ | |
|
ThCh$ | |
|
ThCh$ | |
Balance as of January 1, 2002
|
|
|
193,063,828 |
|
|
|
1,737,575 |
|
|
|
(24,279,630 |
) |
|
|
(13,997,522 |
) |
|
|
156,524,251 |
|
Reclassification of prior year net loss
|
|
|
|
|
|
|
|
|
|
|
(13,997,522 |
) |
|
|
13,997,522 |
|
|
|
|
|
Price-level restatement
|
|
|
5,791,915 |
|
|
|
52,126 |
|
|
|
(1,148,315 |
) |
|
|
|
|
|
|
4,695,726 |
|
Net loss for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,961,416 |
) |
|
|
(16,961,416 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2002
|
|
|
198,855,743 |
|
|
|
1,789,701 |
|
|
|
(39,425,467 |
) |
|
|
(16,961,416 |
) |
|
|
144,258,561 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price-level restatement for comparison purposes
|
|
|
200,844,300 |
|
|
|
1,807,600 |
|
|
|
(39,819,722 |
) |
|
|
(17,131,030 |
) |
|
|
145,701,148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1, 2003
|
|
|
198,855,743 |
|
|
|
1,789,701 |
|
|
|
(39,425,467 |
) |
|
|
(16,961,416 |
) |
|
|
144,258,561 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification of prior year net loss
|
|
|
|
|
|
|
|
|
|
|
(16,961,416 |
) |
|
|
16,961,416 |
|
|
|
|
|
Price-level restatement
|
|
|
1,988,557 |
|
|
|
17,899 |
|
|
|
(563,869 |
) |
|
|
|
|
|
|
1,442,587 |
|
Net loss for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,446,519 |
) |
|
|
(13,446,519 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2003
|
|
|
200,844,300 |
|
|
|
1,807,600 |
|
|
|
(56,950,752 |
) |
|
|
(13,446,519 |
) |
|
|
132,254,629 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price-level restatement for comparison purposes
|
|
|
205,865,408 |
|
|
|
1,852,790 |
|
|
|
(58,374,521 |
) |
|
|
(13,782,682 |
) |
|
|
135,560,995 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1, 2004
|
|
|
200,844,300 |
|
|
|
1,807,600 |
|
|
|
(56,950,752 |
) |
|
|
(13,446,519 |
) |
|
|
132,254,629 |
|
Reclassification of prior year net loss
|
|
|
|
|
|
|
|
|
|
|
(13,446,519 |
) |
|
|
13,446,519 |
|
|
|
|
|
Price-level restatement
|
|
|
5,021,108 |
|
|
|
45,190 |
|
|
|
(1,759,932 |
) |
|
|
|
|
|
|
3,306,366 |
|
Net loss for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,725,276 |
) |
|
|
(12,725,276 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2004
|
|
|
205,865,408 |
|
|
|
1,852,790 |
|
|
|
(72,157,203 |
) |
|
|
(12,725,276 |
) |
|
|
122,835,719 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 21. |
Other non-operating expenses: |
The composition of other non-operating expenses for the years
ended December 31, 2002, 2003 and 2004 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002 | |
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
|
ThCh$ | |
|
ThCh$ | |
|
ThCh$ | |
Disposal of equipment
|
|
|
(811,091 |
) |
|
|
(290,492 |
) |
|
|
(280,536 |
) |
Write-off of investments
|
|
|
(209,155 |
) |
|
|
|
|
|
|
|
|
Provision for obsolescence
|
|
|
(121,037 |
) |
|
|
(144,568 |
) |
|
|
|
|
Other
|
|
|
(426,629 |
) |
|
|
(694,183 |
) |
|
|
(129,988 |
) |
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(1,567,912 |
) |
|
|
(1,129,243 |
) |
|
|
(410,524 |
) |
|
|
|
|
|
|
|
|
|
|
IV-188
Cordillera Comunicaciones Holding Limitada and
Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
|
|
Note 22. |
Price-Level Restatement and Foreign Currency
Translation: |
|
|
(a) |
Price Level Restatement |
The detail of price-level restatement credited (charged) to
income for the year ended December 31 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002 | |
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
|
ThCh$ | |
|
ThCh$ | |
|
ThCh$ | |
Shareholders equity
|
|
|
(4,885,680 |
) |
|
|
(1,486,080 |
) |
|
|
(3,322,980 |
) |
Non-monetary assets
|
|
|
6,190,388 |
|
|
|
1,982,111 |
|
|
|
4,574,684 |
|
Liabilities denominated in foreign currencies
|
|
|
(1,045,644 |
) |
|
|
(405,590 |
) |
|
|
(832,510 |
) |
Revenue accounts
|
|
|
34,992 |
|
|
|
(14,631 |
) |
|
|
(69,935 |
) |
|
|
|
|
|
|
|
|
|
|
Price-level restatement, net
|
|
|
294,056 |
|
|
|
75,810 |
|
|
|
349,259 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(b) |
Foreign Currency Translation |
The detail of foreign currency translation charged to income for
the year ended December 31 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002 | |
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
|
ThCh$ | |
|
ThCh$ | |
|
ThCh$ | |
Non-monetary assets
|
|
|
1,594,773 |
|
|
|
(5,566,768 |
) |
|
|
(1,336,350 |
) |
Non-monetary liabilities
|
|
|
(2,569,681 |
) |
|
|
4,270,331 |
|
|
|
1,123,028 |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for foreign currency translation
|
|
|
(974,908 |
) |
|
|
(1,296,437 |
) |
|
|
(213,322 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Note 23. |
Board of Directors Compensation: |
During the years ended December 31, 2002, 2003 and 2004 the
Board of Directors did not receive compensation for their
services.
|
|
Note 24. |
Contingencies and Commitments: |
On June 8, 2001, the Company obtained a syndicated loan
with Banco Santiago, Banco del Estado de Chile, Banco
Crédito Inversiones and CorpBanca, for UF 2,823,800. To
guarantee the loans, Metrópolis Intercom S.A. pledged the
following assets in favor of the aforementioned banks: Hybrid
Fiber optic Coaxial Network (HFC), its equipment and
other real estate.
The Companys syndicated loan has certain restrictive
covenants, the most significant of which are summarized below:
a) The Company must have a financial expense coverage ratio
equal to or greater than 4 times.
b) Debt to asset ratio must be less than or equal to 0.85.
The Company has received bank waivers which releases them from
the obligation to meet the financial coverage ratio and permits
the Company not to consider liabilities to shareholders in the
calculation of the debt to asset ratio. In accordance with the
above, the Company as of December 31, 2004, is in
compliance with these covenants or has received the appropriate
bank waivers.
IV-189
Cordillera Comunicaciones Holding Limitada and
Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
1) The Company is party to various lawsuits arising in the
ordinary course of its business. Management considers it
unlikely that any losses associated with the pending lawsuits
will significantly affect the Company or its subsidiaries
results of operations, financial position and cash flows,
although no assurance can be given to such effect. Accordingly,
the Company has not established a provision for these lawsuits.
2) Complaint filed by TVN y Corporación de
Televisión UCTV against the Company, before the 26th Civil
Court of Santiago. Claim against alleged infractions of
intellectual property rights, in which the complainant solicits
retroactive termination of the use of the intellectual property,
starting from the notification date of the lawsuit. The amounts
involved in the case have not been disclosed.
3) Counter claim filed by Metrópolis Intercom S.A.
against channels 7 and 13 for fees to which Metrópolis
Intercom S.A. claims it has rights because it incurs significant
increases in advertising investments related to carrying signals
for these channels. The Company is suing for 20% of the total
amount related to advertising investments received by channels 7
and 13 since 1996.
4) On December 9, 2004, the Chilean Subsecretary of
Telecomunications (Subtel) notified the Company that
the regulatory agency considered Metropoliss Intercom
Voice Over Internet Protocol (MIs VOIP)
services were in violation of Article No. 8 of the
General Telecomunications Law. Subtel alleged that the Company
was exploiting a public utility (telephone service) without the
express consent of the appropriate regulatory agency and ordered
that the Company cease commercial operations related to that
service until the issue was resolved.
As the matter is not yet resolved by the relevant authority, the
Minister of Telecommunications, the Company has requested that
the order be suspended. This suspension was subsequently granted
for a period of 60 days.
Furthermore, on December 19, 2004, the Company filed its
defense to the allegations made by Subtel, and is currently
awaiting the next step of this legal matter.
Currently, the Company is awaiting Subtels decision with
respect to the Companys observations. Most likely, Subtel
will decide to accept evidence from the Company that supports
its position.
The eventual decision of the Minister of Transportation and
Telecommunications can be appealed before the Court of Appeals.
If the resolution if confirmed by the Court, determining that
the service does not meet current regulations, the Company will
be obligated to suspend or modify its services, as determined by
Subtel.
|
|
Note 25. |
Relevant Events: |
On January 9, 2004, Cristal Chile Comunicaciones S.A., 50%
owner of the Company, reached an agreement of understanding with
Liberty Media International, indirect owner of the remaining 50%
of the Company and majority shareholder of VTR S.A. in order to
merge Metropolis and VTR. The agreement is subject to numerous
conditions, among them, drafting of a final agreement, approval
by the board of directors of related parties of Liberty Media
including UnitedGlobalCom, Inc., approval by the Chilean
Anti-Monopoly Commission, and approval by the board of directors
of CristalChile Comunicaciones S.A.
Note 26. Subsequent Events
(Unaudited):
On March 11, 2005 the Supreme Court gave its permission for
the merger of Metropolis-Intercom S.A. and VTR S.A. to proceed,
thereby overcoming the last legal obstacle for the merger to be
approved. As a result Cordillera Comunicaciones Holding Limitada
was liquidated as of March 29, 2005 and its investment in
IV-190
Cordillera Comunicaciones Holding Limitada and
Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
Metropolis was transferred to VTR S.A. Metropolis will continue
its operation as a separate legal entity. Other assets and
liabilities were assumed by the shareholders of Cordillera
Comunicaciones Holding Limitada.
Note 27. Differences
between Chilean and United States Generally Accepted Accounting
Principles:
Accounting principles generally accepted in Chile vary in
certain important aspects from those generally accepted in the
United States of America. Such differences involve certain
methods for measuring the amounts included in the financial
statements as well as additional disclosures required by
U.S. GAAP.
The principal differences between Chilean GAAP and
U.S. GAAP are described below together with explanations,
where appropriate, of the method used in the determination of
the adjustments that affect net income and total
shareholders equity. References made below to the United
States Statements of Financial Accounting Standards are
abbreviated as SFAS.
The preparation of financial statements in conformity with
Chilean GAAP, along with the reconciliation to U.S. GAAP,
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities,
disclosures of contingent assets and liabilities as of the date
of the financial statements and the reported amounts of revenues
and expenses during the reported period. Actual results could
differ from those estimates.
|
|
I. |
Differences in measurement methods |
The principal methods applied in the preparation of the
accompanying financial statements, which have resulted in
amounts that differ from those that would have otherwise been
determined under U.S. GAAP, are as follows:
|
|
|
(a) Inflation accounting: |
The cumulative inflation rate in Chile as measured by the
Consumer Price Index for the three years ended December 31,
2004 was 6.6%.
Chilean GAAP requires that the financial statements be restated
to reflect the full effects of the loss in the purchasing power
of the Chilean peso on the financial position and results of
operations of reporting entities.
The method, described in Note 2(c), is based on a model
which enables calculation of net inflation gains or losses
caused by monetary assets and liabilities exposed to changes in
the purchasing power of local currency, by restating all
non-monetary accounts in the financial statements. The model
prescribes that the historical cost of such accounts be restated
for general price-level changes between the date of origin of
each item and the year-end, but requires that latest cost values
be used for the restatement of inventories. Under
U.S. GAAP, financial statement amounts must be reported in
historical currency.
The inclusion of price-level adjustments in the accompanying
financial statements is considered appropriate under the
prolonged inflationary conditions affecting the Chilean economy
even though the cumulative inflation rate for the last three
years does not exceed 100%. The reconciliation included herein
of consolidated net income and Shareholders equity, as
determined with U.S. GAAP, does not include adjustments to
eliminate the effect of inflation accounting under Chilean GAAP.
|
|
|
(b) Deferred income taxes: |
Starting January 1, 2000, the Company recorded income taxes
in accordance with Technical Bulletin No. 60
(BT No. 60) of the Chilean Association of Accountants,
recognizing, using the liability method, the deferred
IV-191
Cordillera Comunicaciones Holding Limitada and
Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
tax effects of temporary differences between the financial and
tax values of assets and liabilities. As a transitional
provision, a contra asset or liability (complementary
account) has been recorded offsetting the effects of the
deferred tax assets and liabilities not recorded prior to
January 1, 2000. Such contra asset or liability must be
amortized to income over the estimated average reversal periods
corresponding to the underlying temporary differences to which
the deferred tax asset or liability relates.
Under U.S. GAAP, companies must account for deferred taxes
in accordance with Statement of Financial Accounting Standards
(SFAS) No. 109 Accounting for Income
Taxes, which requires an asset and liability approach for
financial accounting and reporting of income taxes, under the
following basic principles:
|
|
(i) |
A deferred tax liability or asset is recognized for the
estimated future tax effects attributable to temporary
differences and tax loss carry-forwards. |
|
(ii) |
The measurement of deferred tax liabilities and assets is based
on the provisions of the enacted tax law. The effects of future
changes in tax laws or rates are not anticipated. |
|
(iii) |
The measurement of deferred tax assets are reduced by a
valuation allowance, if based on the weight of available
evidence, it is more likely than not that some portion of the
deferred tax assets will not be realized. |
Temporary differences are defined as any difference between the
financial reporting basis and the tax basis of an asset and
liability that at some future date will reverse, thereby
resulting in taxable income or expense. Temporary differences
ordinarily become taxable or deductible when the related asset
is recovered or the related liability is settled. A deferred tax
liability or asset represents the amount of taxes payable or
refundable in future years as a result of temporary differences
at the end of the current year.
As of December 31, 2003 and 2004, a valuation allowance was
recorded under U.S. GAAP to reduce the deferred tax asset
resulting from tax loss carry-forwards to the amount that is
more likely than not to be realized.
The effect of the differences mentioned above and the effects of
deferred taxes over the adjustments to U.S. GAAP on the net
loss and shareholders equity of the Company are included
in paragraph (j) below.
Under Chilean GAAP at the time of related acquisitions, assets
acquired and liabilities assumed were recorded based on their
carrying value in the records of the acquired company, and the
excess of the purchase price over the carrying value was
recorded as goodwill. Such amounts are currently being amortized
over a maximum period of 20 years.
Under U.S. GAAP, assets acquired and liabilities assumed
are recorded at their estimated fair values, and the excess of
the purchase price over the estimated fair value of the net
identifiable assets and liabilities acquired is recorded as
goodwill, unless the transaction is between entities under
common control, in which case the related party transaction
would be recorded using book values and no goodwill would be
recorded. Prior to July 1, 2002 under U.S. GAAP, the
Company amortized goodwill on a straight-line basis over the
estimated useful lives of the assets, ranging from 20 to
40 years.
Under Chilean GAAP, the Company has evaluated the carrying
amount of goodwill for impairment. The evaluation of impairment
was based on the fair value of the investment which the Company
determined using a discounted cash flow approach, stock
valuations and recent comparable transactions in the market. In
order
IV-192
Cordillera Comunicaciones Holding Limitada and
Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
to estimate fair value, the Company made assumptions about
future events that are highly uncertain at the time of
estimation. The results of this analysis showed that the
Companys goodwill was not impaired.
In accordance with U.S. GAAP, the Company adopted
SFAS No. 142 Goodwill and Other Intangible
Assets, (SFAS 142) as of January 1,
2002. SFAS 142 applies to all goodwill and identified
intangible assets acquired in a business combination. Under the
new standard, all goodwill, including that acquired before
initial application of the standard, and indefinite-lived
intangible assets are not amortized, but must be tested for
impairment at least annually.
Previously, the Company evaluated the carrying amount of
goodwill, in relation to the operating performance and future
undiscounted cash flows of the underlying business and the
transitional impairment test required by the standard, which was
performed during the first half of 2003, which resulted in no
impairment of the Companys recorded goodwill.
The following effects are included in the net loss and
shareholders equity reconciliation to U.S. GAAP under
paragraph (j) below:
(a) Adjustment to record differences in goodwill
amortization between Chile GAAP and U.S. GAAP as of
December 31, 2001, and
(b) The reversal of goodwill amortization recorded under
Chilean GAAP for the years ended December 31, 2002, 2003
and 2004.
Impairment is recorded based on an estimate of future discounted
cash flows, as compared to current carrying amounts. For the
years ended December 31, 2002, 2003, and 2004 no additional
amounts were recorded for impairment under U.S. GAAP.
Goodwill under U.S. GAAP as of December 31 2002, 2003
and 2004 is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, | |
|
|
| |
|
|
2002 | |
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
|
ThCh$ | |
|
ThCh$ | |
|
ThCh$ | |
Goodwill
|
|
|
104,449,801 |
|
|
|
104,449,801 |
|
|
|
104,449,801 |
|
Accumulated amortization
|
|
|
(25,926,695 |
) |
|
|
(25,926,695 |
) |
|
|
(25,926,695 |
) |
|
|
|
|
|
|
|
|
|
|
Goodwill, net
|
|
|
78,523,106 |
|
|
|
78,523,106 |
|
|
|
78,523,106 |
|
|
|
|
|
|
|
|
|
|
|
The effect of these differences on the net loss and
shareholders equity of the Company is included in
paragraph (j) below.
|
|
|
(d) Derivative instruments: |
For the years ended December 31, 2002, 2003 and 2004, the
Company continued to have foreign currency forward exchange
contracts for the purpose of transferring risk from exposure in
U.S. dollars to an exposure in Chilean peso. Under Chilean
GAAP, the Company deferred forward contract gains and losses
when the contracts are hedges for future program payments and
other cash out flows to be made in U.S. dollars. The
hedging criteria and documentation requirements under Chilean
GAAP are less onerous than U.S. GAAP. The Company recorded
a net liability of ThCh$4,292,744 as of December 31, 2003
and a net liability of ThCh$842,019 as of December 31,
2004. Fair values under Chilean GAAP have been estimated using
the closing spot exchange rate at year end, under US GAAP the
fair value is calculated using a forward rate as of
year-end.
IV-193
Cordillera Comunicaciones Holding Limitada and
Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
Beginning January 1, 2002, under U.S. GAAP, the
accounting for derivative instruments is described in
SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities and other complementary
rules and amendments. SFAS No. 133, as amended,
establishes accounting and reporting standards requiring that
every derivative instrument, including certain derivative
instruments embedded in other contracts, be recorded in the
balance sheet as either an asset or liability measured at its
fair value. SFAS No. 133 requires 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 or losses to offset against related
results on the hedged item in the income statement, to the
extent effective, and requires that a company must formally
document, designate, and assess the effectiveness of
transactions that receive hedge accounting.
SFAS No. 133, in part, allows special hedge accounting
for fair value and cash flow hedges.
SFAS No. 133 provides that the gain or loss on a
derivative instrument designated and qualifying as a fair
value hedging instrument as well as the offsetting loss or
gain on the hedged item attributable to the hedged risk be
recognized currently in earnings in the same accounting period.
While the Company enters into derivatives for the purpose of
mitigating its global financial and commodity risks, these
operations do not meet the documentation requirements to qualify
for hedge accounting under U.S. GAAP. Therefore changes in
the respective fair values of all derivatives are reported in
earnings when they occur.
The effect of the adjustment between the current market values
and the fair value for the years ended December 31, 2002,
2003 and 2004 is included in paragraph (j) below
Under Chilean GAAP, the Company depreciates the external network
using a progressive method based on the projected number of
subscribers per product line. Under U.S. GAAP, the method
of depreciation used has continued to be the
straight-line method.
The effect of accounting for this difference in accordance with
U.S. GAAP is included in the reconciliation of net loss and
shareholders equity in paragraph (j) below.
The Company recognizes 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 cost. 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.
|
|
|
(g) Investments in marketable securities: |
Under Chilean GAAP, investments in debt and equity securities
are accounted for at the lower of cost or market value. Under
U.S. GAAP investments in debt and equity securities are
accounted for according to the purpose for which these
investments are held. U.S. GAAP defines three distinct
purposes for holding investments:
|
|
|
|
|
Investments held for trading purposes |
|
|
|
Investments available-for-sale |
IV-194
Cordillera Comunicaciones Holding Limitada and
Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
|
|
|
|
|
Investments held to maturity |
The Company considers that all of its investments are
available-for-sale.
The effect of recording the marketable securities at fair value
is not material and is not included in the effects on
shareholders equity under paragraph (j) below.
|
|
|
(h) Issuance of shares in subsidiary: |
During the year ended December 31, 2003 Metropolis Intercom
S.A. issued an additional 3,923,834 shares representing
4.4% of Metropolis Intercom S.A. to related parties. The Company
did not subscribe to any of these shares.
Under Chilean GAAP, as the cash received was greater than the
related increase in minority interest the Company recorded a
deferred gain of ThCh$1,455,918 (historic value), which will be
amortized into income in future periods.
Under U.S. GAAP, the transfer would be recorded at the
lower of carrying value or fair value, since the cash received
was less than the carrying value of Metropolis Intercom S.A.
under U.S. GAAP. Consequently under U.S. GAAP, the
difference between the cash proceeds and the carrying value has
been recorded as a distribution to shareholders. The effect of
eliminating the income statement impact of this transaction from
net loss as determined under Chilean GAAP and recording this
transaction under U.S. GAAP is included in
paragraph (j) below.
|
|
|
(i) Effect of minority interests on U.S. GAAP
adjustments: |
The effects of recording minority interests on U.S. GAAP
adjustments are included in the reconciliation to U.S. GAAP
in paragraph (j) below.
|
|
|
(j) Effect of conforming net loss and shareholders
equity to U.S. GAAP: |
The adjustments required to conform reported net loss to
U.S. GAAP are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, | |
|
|
| |
|
|
2002 | |
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
|
ThCh$ | |
|
ThCh$ | |
|
ThCh$ | |
Net loss in accordance with Chilean GAAP
|
|
|
(17,559,306 |
) |
|
|
(13,782,682 |
) |
|
|
(12,725,276 |
) |
Deferred taxes (paragraph b)
|
|
|
(2,023,771 |
) |
|
|
(1,042,069 |
) |
|
|
(1,124,442 |
) |
Amortization of goodwill (paragraph c)
|
|
|
4,269,791 |
|
|
|
4,289,132 |
|
|
|
4,225,945 |
|
Derivative instruments (paragraph d)
|
|
|
153,218 |
|
|
|
(1,155,215 |
) |
|
|
1,039,953 |
|
Depreciation (paragraph e)
|
|
|
(1,254,758 |
) |
|
|
(1,531,846 |
) |
|
|
(742,030 |
) |
Issuance of subsidiaries shares (paragraph h)
|
|
|
|
|
|
|
(18,665 |
) |
|
|
(73,721 |
) |
Effect of minority interests on U.S. GAAP adjustments
(paragraph i)
|
|
|
|
|
|
|
309,040 |
|
|
|
82,970 |
|
|
|
|
|
|
|
|
|
|
|
Net loss and comprehensive loss in accordance with
U.S. GAAP
|
|
|
(16,414,826 |
) |
|
|
(12,932,305 |
) |
|
|
(9,316,601 |
) |
|
|
|
|
|
|
|
|
|
|
IV-195
Cordillera Comunicaciones Holding Limitada and
Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
The adjustments required to conform reported shareholders
equity to U.S. GAAP are as follows:
|
|
|
|
|
|
|
|
|
|
|
As of December 31, | |
|
|
| |
|
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
|
ThCh$ | |
|
ThCh$ | |
Shareholders equity, in accordance with Chilean GAAP
|
|
|
135,560,995 |
|
|
|
122,835,719 |
|
Deferred income taxes (paragraph b)
|
|
|
(3,225,187 |
) |
|
|
(4,349,629 |
) |
Effect in amortization of goodwill (paragraph c)
|
|
|
16,239,862 |
|
|
|
20,465,806 |
|
Derivative instruments (paragraph d)
|
|
|
(998,224 |
) |
|
|
41,729 |
|
Depreciation (paragraph e)
|
|
|
(4,320,097 |
) |
|
|
(5,062,127 |
) |
Issuance of subsidiary shares (paragraph h)
|
|
|
(972,327 |
) |
|
|
(1,046,048 |
) |
Effect of minority interests on U.S. GAAP adjustments
(paragraph i)
|
|
|
309,039 |
|
|
|
392,010 |
|
|
|
|
|
|
|
|
Shareholders equity, in accordance with
U.S. GAAP
|
|
|
142,594,061 |
|
|
|
133,277,460 |
|
|
|
|
|
|
|
|
The following summarizes the changes in shareholders
equity under U.S. GAAP during the years ended
December 31, 2002, 2003 and 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, | |
|
|
| |
|
|
2002 | |
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
|
ThCh$ | |
|
ThCh$ | |
|
ThCh$ | |
Balance as of January 1
|
|
|
172,894,854 |
|
|
|
156,480,028 |
|
|
|
142,594,061 |
|
Issuance of subsidiary shares (paragraph h)
|
|
|
|
|
|
|
(953,662 |
) |
|
|
|
|
Net loss and comprehensive loss in accordance with U.S. GAAP
|
|
|
(16,414,826 |
) |
|
|
(12,932,305 |
) |
|
|
(9,316,601 |
) |
|
|
|
|
|
|
|
|
|
|
Balance as of December 31
|
|
|
156,480,028 |
|
|
|
142,594,061 |
|
|
|
133,277,460 |
|
|
|
|
|
|
|
|
|
|
|
IV-196
Cordillera Comunicaciones Holding Limitada and
Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
|
|
|
II. Additional disclosure
requirements |
The following additional disclosures are required under
U.S. GAAP:
Deferred tax assets (liabilities) are summarized as follows
as of December 31 under U.S. GAAP:
|
|
|
|
|
|
|
|
|
|
|
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
|
ThCh$ | |
|
ThCh$ | |
Deferred Tax Assets
|
|
|
|
|
|
|
|
|
Allowance for doubtful debts
|
|
|
1,105,571 |
|
|
|
1,247,088 |
|
Goods and services provision
|
|
|
16,665 |
|
|
|
35,240 |
|
Assets provision
|
|
|
|
|
|
|
|
|
Unearned revenues
|
|
|
182,172 |
|
|
|
146,889 |
|
Vacation provision
|
|
|
71,294 |
|
|
|
76,204 |
|
Forward contract
|
|
|
169,698 |
|
|
|
(7,094 |
) |
Tax loss carry-forwards
|
|
|
14,755,016 |
|
|
|
15,898,544 |
|
Trademarks
|
|
|
|
|
|
|
|
|
Assets provision
|
|
|
308,839 |
|
|
|
348,334 |
|
Leasing
|
|
|
58,022 |
|
|
|
61,298 |
|
Trademark rights
|
|
|
2,424 |
|
|
|
2,836 |
|
Accumulated depreciation
|
|
|
738,046 |
|
|
|
864,735 |
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
17,407,747 |
|
|
|
18,674,074 |
|
|
|
|
|
|
|
|
Deferred Tax Liabilities
|
|
|
|
|
|
|
|
|
Forward contracts
|
|
|
(161,459 |
) |
|
|
|
|
Leasing operations
|
|
|
(65,889 |
) |
|
|
(71,751 |
) |
Accumulated depreciation
|
|
|
(2,294,439 |
) |
|
|
(2,141,979 |
) |
Goodwill
|
|
|
(4,972,368 |
) |
|
|
(4,933,213 |
) |
Software
|
|
|
(289,160 |
) |
|
|
(260,283 |
) |
Rented installations
|
|
|
(128,829 |
) |
|
|
(124,575 |
) |
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(7,912,144 |
) |
|
|
(7,531,801 |
) |
Net deferred tax asset (liability) before valuation
allowance
|
|
|
9,495,603 |
|
|
|
11,142,273 |
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
(6,362,054 |
) |
|
|
(7,465,323 |
) |
|
|
|
|
|
|
|
Net deferred tax asset (liability)
|
|
|
3,133,549 |
|
|
|
3,676,950 |
|
|
|
|
|
|
|
|
IV-197
Cordillera Comunicaciones Holding Limitada and
Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
The classification of the net deferred tax asset before
valuation allowance detailed above is as follows:
|
|
|
|
|
|
|
|
|
|
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
|
ThCh$ | |
|
ThCh$ | |
Short-term
|
|
|
1,383,942 |
|
|
|
1,498,327 |
|
Long-term
|
|
|
8,111,661 |
|
|
|
9,643,946 |
|
|
|
|
|
|
|
|
Net deferred tax liabilities
|
|
|
9,495,603 |
|
|
|
11,142,273 |
|
|
|
|
|
|
|
|
The deferred income tax benefit in accordance with
U.S. GAAP is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002 | |
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
|
ThCh$ | |
|
ThCh$ | |
|
ThCh$ | |
Deferred income tax benefit, Chile GAAP Note 6
|
|
|
2,449,618 |
|
|
|
2,088,982 |
|
|
|
1,820,722 |
|
Additional deferred tax adjustment, U.S. GAAP, net
|
|
|
(2,023,771 |
) |
|
|
(1,042,069 |
) |
|
|
(1,124,442 |
) |
|
|
|
|
|
|
|
|
|
|
Deferred income tax benefit under U.S. GAAP
|
|
|
425,847 |
|
|
|
1,046,913 |
|
|
|
696,280 |
|
|
|
|
|
|
|
|
|
|
|
Amortization of goodwill is the only permanent income tax
difference.
|
|
|
(b) Foreign currency forward contract capacity: |
The Companys Board of Directors approves policies on
risk-management of forward currency risk through the use of U.F.
to U.S. dollar forward contracts. The Company petitions
several Chilean and foreign banks to approve forward contract
limits on a yearly basis, which in the aggregate, total
US$73 million, US$50 million and US$50 million as
of December 31, 2002, 2003 and 2004, respectively. There
was US$24.8 million, US$9.7 million and
US$39.9 million available as of December 31, 2002,
2003 and 2004, respectively.
The Company leases computer equipment and office space by way of
capital lease payable in installments through 2016, with a
bargain purchase option at the end of the lease.
Minimum lease payments under capital leases are as follows:
|
|
|
|
|
|
|
|
Capital | |
|
|
| |
|
|
ThCh$ | |
2005
|
|
|
51,070 |
|
2006
|
|
|
32,518 |
|
2007
|
|
|
29,808 |
|
2008
|
|
|
32,518 |
|
Thereafter
|
|
|
230,354 |
|
|
|
|
|
|
Total future minimum lease payments
|
|
|
376,268 |
|
Interest
|
|
|
(99,603 |
) |
|
|
|
|
|
Present value of net minimum lease payments
|
|
|
276,665 |
|
|
|
|
|
IV-198
Cordillera Comunicaciones Holding Limitada and
Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
Lease obligations for the years ended December 31, 2003 and
2004 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2003 | |
|
2004 | |
|
|
| |
|
| |
Short-term
|
|
|
38,625 |
|
|
|
94,313 |
|
Long-term
|
|
|
278,357 |
|
|
|
275,519 |
|
Advertising costs are expensed as incurred and amounted to
ThCh$2,096,739, ThCh$2,473,895 and ThCh$2,138,229 for the years
ended December 31, 2002, 2003 and 2004, respectively.
|
|
|
(e) Reclassification differences between Chilean GAAP
and U.S. GAAP: |
The following reclassifications are required to conform the
presentation of Chilean GAAP income statement information to
that required under U.S. GAAP for the years ended
December 31, 2002, 2003 and 2004. The reclassification
amounts are determined in accordance with Chilean GAAP.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2002 | |
|
|
| |
|
|
Chilean | |
|
|
|
U.S. GAAP | |
|
|
GAAP | |
|
Reclassification | |
|
Presentation | |
|
|
| |
|
| |
|
| |
|
|
ThCh$ | |
|
ThCh$ | |
|
ThCh$ | |
Operating loss
|
|
|
(11,641,140 |
) |
|
|
(5,286,981 |
) |
|
|
(16,928,121 |
) |
Non-operating expenses
|
|
|
(8,456,463 |
) |
|
|
5,286,981 |
|
|
|
(3,169,482 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2003 | |
|
|
| |
|
|
Chilean | |
|
|
|
U.S. GAAP | |
|
|
GAAP | |
|
Reclassification | |
|
Presentation | |
|
|
| |
|
| |
|
| |
|
|
ThCh$ | |
|
ThCh$ | |
|
ThCh$ | |
Operating loss
|
|
|
(7,214,820 |
) |
|
|
(4,894,029 |
) |
|
|
(12,108,849 |
) |
Non-operating expenses
|
|
|
(8,823,391 |
) |
|
|
4,894,029 |
|
|
|
(3,929,362 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2004 | |
|
|
| |
|
|
Chilean | |
|
|
|
U.S. GAAP | |
|
|
GAAP | |
|
Reclassification | |
|
Presentation | |
|
|
| |
|
| |
|
| |
|
|
ThCh$ | |
|
ThCh$ | |
|
ThCh$ | |
Operating loss
|
|
|
(8,645,859 |
) |
|
|
(4,220,459 |
) |
|
|
(12,866,318 |
) |
Non-operating expenses
|
|
|
(6,360,795 |
) |
|
|
4,220,459 |
|
|
|
(2,140,336 |
) |
The following reclassifications are required to conform the
presentation of Chilean GAAP balance sheet information to that
required under U.S. GAAP for the years ended
December 31, 2003 and 2004. The reclassification amounts
are determined in accordance with Chilean GAAP.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2003 | |
|
|
| |
|
|
Chilean | |
|
|
|
U.S. GAAP | |
|
|
GAAP | |
|
Reclassification | |
|
Presentation | |
|
|
| |
|
| |
|
| |
|
|
ThCh$ | |
|
ThCh$ | |
|
ThCh$ | |
Total current assets
|
|
|
15,167,731 |
|
|
|
949,757 |
|
|
|
16,117,488 |
|
Total current liabilities
|
|
|
25,185,654 |
|
|
|
949,757 |
|
|
|
24,235,897 |
|
IV-199
Cordillera Comunicaciones Holding Limitada and
Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2004 | |
|
|
| |
|
|
Chilean | |
|
|
|
U.S. GAAP | |
|
|
GAAP | |
|
Reclassification | |
|
Presentation | |
|
|
| |
|
| |
|
| |
|
|
ThCh$ | |
|
ThCh$ | |
|
ThCh$ | |
Total current liabilities
|
|
|
44,305,345 |
|
|
|
22,650,889 |
|
|
|
66,956,234 |
|
Total long-term liabilities
|
|
|
28,254,037 |
|
|
|
(22,650,889 |
) |
|
|
5,603,148 |
|
For US GAAP purposes, as of December 31, 2004 long-term
obligation has been reclassified to short-term in accordance
with EITF 86-30, Classification of obligation when a
violation is waived by the creditor.
IV-200
Cordillera Comunicaciones Holding Limitada and
Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
|
|
|
(f) Condensed balance sheet and income statement in
accordance to US GAAP: |
The condensed consolidated balance sheet for the years ended
December 31 under US GAAP and classified in accordance with
US GAAP is presented as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
|
ThCh$ | |
|
ThCh$ | |
ASSETS |
Current Assets
|
|
|
|
|
|
|
|
|
Cash and equivalents
|
|
|
7,146,955 |
|
|
|
4,245,184 |
|
Receivables
|
|
|
5,579,591 |
|
|
|
3,792,128 |
|
Other current assets
|
|
|
3,390,942 |
|
|
|
2,216,252 |
|
|
|
|
|
|
|
|
Total current assets
|
|
|
16,117,488 |
|
|
|
10,253,564 |
|
PROPERTY, PLANT AND EQUIPMENT
|
|
|
|
|
|
|
|
|
PP&E
|
|
|
150,229,916 |
|
|
|
153,700,553 |
|
Accumulated depreciation
|
|
|
(39,006,752 |
) |
|
|
(49,991,897 |
) |
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
111,223,164 |
|
|
|
103,708,656 |
|
OTHER ASSETS
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
78,523,106 |
|
|
|
78,523,106 |
|
Other long-term assets
|
|
|
18,551,666 |
|
|
|
17,641,457 |
|
|
|
|
|
|
|
|
Total other assets
|
|
|
97,074,772 |
|
|
|
96,164,563 |
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
224,415,424 |
|
|
|
210,126,783 |
|
|
|
|
|
|
|
|
|
LIABILITIES |
CURRENT-TERM LIABILITIES
|
|
|
|
|
|
|
|
|
Banks and financial inst.
|
|
|
7,631,787 |
|
|
|
30,297,444 |
|
Payables
|
|
|
11,065,525 |
|
|
|
33,703,746 |
|
Other
|
|
|
8,266,625 |
|
|
|
2,920,409 |
|
|
|
|
|
|
|
|
Total current-term liabilities
|
|
|
26,963,937 |
|
|
|
66,921,599 |
|
LONG-TERM LIABILITIES
|
|
|
|
|
|
|
|
|
Banks and financial inst
|
|
|
30,246,442 |
|
|
|
|
|
Other
|
|
|
18,342,079 |
|
|
|
4,202,444 |
|
|
|
|
|
|
|
|
Total long-term liabilities
|
|
|
48,588,521 |
|
|
|
4,202,444 |
|
Minority interest
|
|
|
6,268,905 |
|
|
|
5,725,280 |
|
SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
155,526,366 |
|
|
|
142,594,061 |
|
Net loss
|
|
|
(12,932,305 |
) |
|
|
(9,316,601 |
) |
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
142,594,061 |
|
|
|
133,277,460 |
|
|
|
|
|
|
|
|
|
Total Liabilities and shareholders equity
|
|
|
224,415,424 |
|
|
|
210,126,783 |
|
|
|
|
|
|
|
|
IV-201
Cordillera Comunicaciones Holding Limitada and
Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
The condensed consolidated statements of income for the years
ended December 31 under US GAAP and classified in
accordance with US GAAP are presented as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002 | |
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
|
ThCh$ | |
|
ThCh$ | |
|
ThCh$ | |
OPERATING INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
47,911,196 |
|
|
|
46,100,072 |
|
|
|
45,547,636 |
|
Operating costs
|
|
|
(46,358,310 |
) |
|
|
(41,389,764 |
) |
|
|
(40,601,181 |
) |
|
|
|
|
|
|
|
|
|
|
Operating margin
|
|
|
1,552,886 |
|
|
|
4,710,308 |
|
|
|
4,946,455 |
|
Administrative and selling expenses
|
|
|
(15,958,113 |
) |
|
|
(14,279,993 |
) |
|
|
(14,328,858 |
) |
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(14,405,227 |
) |
|
|
(9,569,685 |
) |
|
|
(9,382,403 |
) |
NON-OPERATING INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial income (expenses)
|
|
|
(2,058,538 |
) |
|
|
(2,490,613 |
) |
|
|
(2,276,273 |
) |
Other non-operating income
|
|
|
153,218 |
|
|
|
|
|
|
|
1,039,953 |
|
Other non-operating expense
|
|
|
|
|
|
|
(1,173,880 |
) |
|
|
(73,721 |
) |
Goodwill amortization
|
|
|
62,047 |
|
|
|
|
|
|
|
|
|
Price-level restatement and Foreign currency translation
|
|
|
(680,852 |
) |
|
|
(1,220,627 |
) |
|
|
135,937 |
|
|
|
|
|
|
|
|
|
|
|
Non-operating loss
|
|
|
(2,524,125 |
) |
|
|
(4,885,120 |
) |
|
|
(1,174,104 |
) |
|
|
|
|
|
|
|
|
|
|
Loss before taxes and minority interest
|
|
|
(16,929,352 |
) |
|
|
(14,454,805 |
) |
|
|
(10,556,507 |
) |
|
|
|
|
|
|
|
|
|
|
Tax benefit
|
|
|
425,847 |
|
|
|
1,046,913 |
|
|
|
696,280 |
|
Minority interest
|
|
|
88,679 |
|
|
|
475,587 |
|
|
|
543,626 |
|
|
|
|
|
|
|
|
|
|
|
Net loss for the year
|
|
|
(16,414,826 |
) |
|
|
(12,932,305 |
) |
|
|
(9,316,601 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(g) Estimated fair value of financial instruments and
derivative financial instruments: |
The accompanying tables provide disclosure of the estimated fair
value of financial instruments owned by the Company. Various
limitations are inherent in the presentation, including the
following:
|
|
|
|
|
The data excludes non-financial assets and liabilities, such as
property, plant and equipment, and goodwill. |
|
|
|
While the data represents managements best estimates, the
data is subjective and involves significant estimates regarding
current economic and market conditions and risk characteristics. |
The methodologies and assumptions used depend on the terms and
risk characteristics of the various instruments and include the
following:
|
|
|
|
|
Cash and cash equivalents approximate fair value because of the
short-term maturity of these instruments. |
|
|
|
For current liabilities that are contracted at variable interest
rates, the book value is considered to be equivalent to their
fair value. |
|
|
|
For interest-bearing liabilities with an original contractual
maturity of greater than one year, the fair values are
calculated by discounting contractual cash flows at current
market origination rates with similar terms. |
IV-202
Cordillera Comunicaciones Holding Limitada and
Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
The following is a detail of the Companys financial
instruments Chilean GAAP carrying amount and estimated
fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
|
Chilean | |
|
|
|
Chilean | |
|
|
|
|
GAAP | |
|
|
|
GAAP | |
|
|
|
|
Carrying | |
|
Estimated | |
|
Carrying | |
|
Estimated | |
|
|
Amount | |
|
Fair Value | |
|
Amount | |
|
Fair Value | |
|
|
| |
|
| |
|
| |
|
| |
|
|
ThCh$ | |
|
ThCh$ | |
Assets |
Cash and cash equivalents
|
|
|
7,146,726 |
|
|
|
7,146,726 |
|
|
|
4,245,184 |
|
|
|
4,245,184 |
|
Short-term accounts receivable
|
|
|
2,580,504 |
|
|
|
2,580,504 |
|
|
|
2,022,823 |
|
|
|
2,022,823 |
|
Notes receivable
|
|
|
92,652 |
|
|
|
92,652 |
|
|
|
114,250 |
|
|
|
114,250 |
|
Miscellaneous receivables
|
|
|
2,673,926 |
|
|
|
2,673,926 |
|
|
|
1,426,134 |
|
|
|
1,426,134 |
|
Notes and accounts receivable from related companies
|
|
|
232,509 |
|
|
|
232,509 |
|
|
|
228,921 |
|
|
|
228,921 |
|
|
Liabilities |
Short-term bank debt
|
|
|
|
|
|
|
|
|
|
|
(59,325 |
) |
|
|
(59,325 |
) |
Current portion of long-term bank debt
|
|
|
(7,631,787 |
) |
|
|
(7,631,787 |
) |
|
|
(7,587,230 |
) |
|
|
(7,587,230 |
) |
Accounts payable
|
|
|
9,258,399 |
|
|
|
9,258,399 |
|
|
|
7,289,371 |
|
|
|
7,289,371 |
|
Current notes and accounts payable to related companies
|
|
|
753,025 |
|
|
|
753,025 |
|
|
|
11,893,748 |
|
|
|
11,893,748 |
|
Forward contracts
|
|
|
(4,292,744 |
) |
|
|
(5,290,969 |
) |
|
|
(842,019 |
) |
|
|
(800,290 |
) |
Notes payable
|
|
|
(12,133 |
) |
|
|
(12,133 |
) |
|
|
(12,193 |
) |
|
|
(12,193 |
) |
Miscellaneous payables
|
|
|
1,041,968 |
|
|
|
1,041,968 |
|
|
|
14,508,434 |
|
|
|
14,508,434 |
|
Long-term bank debt
|
|
|
(30,246,442 |
) |
|
|
(30,246,442 |
) |
|
|
(22,650,889 |
) |
|
|
(22,650,889 |
) |
Long-term notes payable
|
|
|
(14,761,670 |
) |
|
|
(14,761,670 |
) |
|
|
|
|
|
|
|
|
Long-term notes and accounts payable to related companies
|
|
|
|
|
|
|
|
|
|
|
872,688 |
|
|
|
872,688 |
|
|
|
|
(h) Cash and cash equivalents: |
Under Chilean GAAP cash and cash equivalents are considered to
be all highly liquid investments with a remaining maturity of
less than 90 days as of the closing date of the financial
statements, whereas, U.S. GAAP considers cash and cash
equivalents to be all highly liquid investments with an original
maturity date of less than 90 days. The difference between
the balance under U.S. GAAP and Chilean GAAP of cash and
cash equivalents is not material for the periods presented.
|
|
|
Supplementary Cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002 | |
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
|
ThCh$ | |
|
ThCh$ | |
|
ThCh$ | |
Assets acquired under capital leases
|
|
|
|
|
|
|
|
|
|
|
85,440 |
|
Interest paid during the year
|
|
|
(1,500,630 |
) |
|
|
(1,852,560 |
) |
|
|
(1,268,197 |
) |
IV-203
Cordillera Comunicaciones Holding Limitada and
Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
(Translation of financial statements originally issued in
Spanish see Note 2)
(Restated for general price-level changes and expressed in
thousands of constant
Chilean pesos as of December 31, 2004 except as stated)
Revenues and expenses recognized from barter transactions for
the years ended December 31 2002, 2003 and 2004 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002 | |
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
|
ThCh$ | |
|
ThCh$ | |
|
ThCh$ | |
Revenues recognized from barter transactions
|
|
|
774,333 |
|
|
|
725,574 |
|
|
|
518,338 |
|
Expenses recognized from barter transactions
|
|
|
31,593 |
|
|
|
62,601 |
|
|
|
24,957 |
|
On June 8, 2001, the Company obtained a syndicated loan
with Banco Santiago, Banco del Estado de Chile, Banco
Crédito Inversiones and CorpBanca, for UF 2,823,800. To
guarantee the loans, Metrópolis Intercom S.A. pledged the
following assets in favor of the aforementioned banks: Hybrid
Fiber optic Coaxial Network (HFC), its equipment and
other real estate.
The Companys syndicated loan has certain restrictive
covenants.
The Company has received bank waivers which releases them from
the obligation to meet the financial coverage ratio and permits
the Company not to consider liabilities to shareholders in the
calculation of the debt to asset ratio.
The amount of the obligation as of December 31, 2004 is
ThCh$20,650,889, and the period of the waiver is 180 days.
For US GAAP purposes, the long-term obligation has been
reclassified to the short-term in accordance to EITF 86-30,
Classification of obligation when a violation is waived by
the creditor.
|
|
|
(j) Recently issued accounting pronouncement: |
|
|
|
Amendment of Statement 133 on Derivative Instruments
and Hedging Activities |
In May 2004 the FASB issued Statement No. 149
Amendment of Statement 133 on Derivative Instruments
and Hedging Activities. This Statement amends and
clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded
in other contracts (collectively referred to as derivatives) and
for hedging activities under FASB Statement No. 133
Accounting for Derivative Instruments and Hedging
Activities. This Statement is effective for contracts
entered into or modified after June 30, 2003, except for
hedging relationships designated after June 30, 2003. In
addition, all provisions of this Statement should be applied
prospectively with exceptions. The provisions of this Statement
that relate to Statement 133 Implementation Issues that
have been effective for fiscal quarters that began prior to
June 15, 2003, should continue to be applied in accordance
with their respective effective dates. In addition,
paragraphs 7(a) and 23(a) of that Statement, which relate
to forward purchases or sales of when-issued securities or other
securities that do not yet exist, should be applied to both
existing contracts and new contracts entered into after
June 30, 2003. The implementation of SFAS No. 149
had no material impact on the results of operations or financial
position of the Company.
IV-204
Report of Independent Registered Public Accounting Firm
The Board of Directors
Fox Pan American Sports, LLC and its Subsidiary:
We have audited the accompanying consolidated balance sheet as
of December 31, 2004 and the related consolidated
statements of operations, changes in members
(deficit) equity and cash flows for the year then ended of
Fox Pan American Sports, LLC and its subsidiary (the Company).
These financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes consideration
of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Companys internal control over
financial reporting. Accordingly, we express no such opinion. 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 Fox Pan American Sports, LLC, and its subsidiary as
of December 31, 2004, and the results of their operations
and their cash flows for the year then ended, in conformity with
accounting principles generally accepted in the United States of
America.
Miami, Florida
April 16, 2005
IV-205
FOX PAN AMERICAN SPORTS, LLC AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, 2004 and 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
|
|
Unaudited | |
ASSETS |
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
6,947,650 |
|
|
$ |
12,370,241 |
|
|
Accounts receivable, net of allowance of doubtful accounts of
$2,622,128 and $4,574,337, respectively
|
|
|
25,418,844 |
|
|
|
22,680,843 |
|
|
Due from affiliates
|
|
|
747,187 |
|
|
|
906,469 |
|
|
Broadcast rights, net
|
|
|
3,405,589 |
|
|
|
9,837,575 |
|
|
Prepaid expenses and other current assets
|
|
|
1,796,695 |
|
|
|
626,730 |
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
38,315,965 |
|
|
|
46,421,858 |
|
Property and equipment, net
|
|
|
631,762 |
|
|
|
393,835 |
|
Other assets
|
|
|
2,180,686 |
|
|
|
748,268 |
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
41,128,413 |
|
|
$ |
47,563,961 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND MEMBERS (DEFICIT) EQUITY |
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$ |
5,581,428 |
|
|
$ |
8,306,630 |
|
|
Accrued expenses
|
|
|
5,220,339 |
|
|
|
5,291,422 |
|
|
Broadcast rights payable
|
|
|
3,383,745 |
|
|
|
8,180,097 |
|
|
Current portion notes payable to members
|
|
|
7,500,000 |
|
|
|
|
|
|
Due to affiliates
|
|
|
2,280,231 |
|
|
|
3,183,068 |
|
|
Income taxes payable
|
|
|
600,000 |
|
|
|
|
|
|
Deferred revenue
|
|
|
2,990,444 |
|
|
|
966,669 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
27,556,187 |
|
|
|
25,927,886 |
|
Notes payable to members
|
|
|
19,700,000 |
|
|
|
22,745,424 |
|
Accrued interest to members
|
|
|
4,768,169 |
|
|
|
1,684,109 |
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
52,024,356 |
|
|
|
50,357,419 |
|
Commitments
|
|
|
|
|
|
|
|
|
Members deficit
|
|
|
(10,895,943 |
) |
|
|
(2,793,458 |
) |
|
|
|
|
|
|
|
|
|
$ |
41,128,413 |
|
|
$ |
47,563,961 |
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
IV-206
FOX PAN AMERICAN SPORTS, LLC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 2004 and 2003, and
period from February 5, 2002 (date of merger) through
December 31, 2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
|
|
Unaudited | |
|
Unaudited | |
Net advertising and subscriber revenue
|
|
$ |
90,804,007 |
|
|
$ |
80,507,973 |
|
|
$ |
57,034,958 |
|
Sale of broadcast rights
|
|
|
6,772,714 |
|
|
|
6,001,730 |
|
|
|
9,427,462 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
97,576,721 |
|
|
|
86,509,703 |
|
|
|
66,462,420 |
|
Cost of revenue
|
|
|
77,724,516 |
|
|
|
85,118,256 |
|
|
|
93,859,489 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin (loss)
|
|
|
19,852,205 |
|
|
|
1,391,447 |
|
|
|
(27,397,069 |
) |
Selling, general, and administrative expenses
|
|
|
19,306,028 |
|
|
|
19,610,630 |
|
|
|
20,358,515 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
546,177 |
|
|
|
(18,219,183 |
) |
|
|
(47,755,584 |
) |
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(3,084,060 |
) |
|
|
(1,684,109 |
) |
|
|
|
|
|
Other income (expense), net
|
|
|
(411,340 |
) |
|
|
1,207,027 |
|
|
|
(487,654 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss before income taxes
|
|
|
(2,949,223 |
) |
|
|
(18,696,265 |
) |
|
|
(48,243,238 |
) |
Income tax expense
|
|
|
(5,121,238 |
) |
|
|
(4,173,940 |
) |
|
|
(2,870,825 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(8,070,461 |
) |
|
$ |
(22,870,205 |
) |
|
$ |
(51,114,063 |
) |
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
IV-207
FOX PAN AMERICAN SPORTS, LLC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS (DEFICIT)
EQUITY
Years ended December 31, 2004 and 2003, and
period from February 5, 2002 (date of merger) through
December 31, 2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated | |
|
|
|
|
|
|
Members | |
|
other | |
|
|
|
|
|
|
capital | |
|
comprehensive | |
|
Accumulated | |
|
Total members | |
|
|
contributions | |
|
income | |
|
deficit | |
|
(deficit) equity | |
|
|
| |
|
| |
|
| |
|
| |
Balance at February 5, 2002 (date of merger) (unaudited)
|
|
$ |
31,776,237 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
31,776,237 |
|
|
Capital contributions (unaudited)
|
|
|
33,541,416 |
|
|
|
|
|
|
|
|
|
|
|
33,541,416 |
|
|
Net loss (unaudited)
|
|
|
|
|
|
|
|
|
|
|
(51,114,063 |
) |
|
|
(51,114,063 |
) |
|
Foreign currency translation adjustment (unaudited)
|
|
|
|
|
|
|
3,908,958 |
|
|
|
|
|
|
|
3,908,958 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(47,205,105 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2002 (unaudited)
|
|
|
65,317,653 |
|
|
|
3,908,958 |
|
|
|
(51,114,063 |
) |
|
|
18,112,548 |
|
|
Capital contributions (unaudited)
|
|
|
4,791,461 |
|
|
|
|
|
|
|
|
|
|
|
4,791,461 |
|
|
Net loss (unaudited)
|
|
|
|
|
|
|
|
|
|
|
(22,870,205 |
) |
|
|
(22,870,205 |
) |
|
Foreign currency translation adjustment (unaudited)
|
|
|
|
|
|
|
(2,827,262 |
) |
|
|
|
|
|
|
(2,827,262 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25,697,467 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2003 (unaudited)
|
|
|
70,109,114 |
|
|
|
1,081,696 |
|
|
|
(73,984,268 |
) |
|
|
(2,793,458 |
) |
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
(8,070,461 |
) |
|
|
(8,070,461 |
) |
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
(32,024 |
) |
|
|
|
|
|
|
(32,024 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,102,485 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004
|
|
$ |
70,109,114 |
|
|
$ |
1,049,672 |
|
|
$ |
(82,054,729 |
) |
|
$ |
(10,895,943 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
IV-208
FOX PAN AMERICAN SPORTS, LLC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2004 and 2003, and
period from February 5, 2002 (date of merger) through
December 31, 2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
|
|
Unaudited | |
|
Unaudited | |
Net loss
|
|
$ |
(8,070,461 |
) |
|
$ |
(22,870,205 |
) |
|
$ |
(51,114,063 |
) |
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bad-debt expense
|
|
|
1,868,463 |
|
|
|
1,687,504 |
|
|
|
4,790,420 |
|
|
Equity in earnings of investment, net of amortization
|
|
|
(1,056,361 |
) |
|
|
(533,710 |
) |
|
|
105,967 |
|
|
Depreciation and amortization
|
|
|
106,280 |
|
|
|
19,779 |
|
|
|
18,483 |
|
|
Deferred income taxes
|
|
|
|
|
|
|
200,940 |
|
|
|
(200,940 |
) |
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(5,208,686 |
) |
|
|
(2,648,885 |
) |
|
|
(16,435,972 |
) |
|
|
Prepaid expense and other assets
|
|
|
(1,352,179 |
) |
|
|
(1,057,510 |
) |
|
|
4,326,198 |
|
|
|
Accounts payable
|
|
|
1,374,325 |
|
|
|
3,233,976 |
|
|
|
1,783,825 |
|
|
|
Accrued expenses
|
|
|
(1,889,614 |
) |
|
|
3,957,291 |
|
|
|
123,008 |
|
|
|
Due from/to affiliates
|
|
|
287,270 |
|
|
|
(243,651 |
) |
|
|
12,120,987 |
|
|
|
Accrued interest
|
|
|
3,084,060 |
|
|
|
1,684,109 |
|
|
|
|
|
|
|
Deferred revenue
|
|
|
2,023,775 |
|
|
|
959,624 |
|
|
|
(245,037 |
) |
|
|
Broadcast rights
|
|
|
1,632,589 |
|
|
|
(943,080 |
) |
|
|
1,289,674 |
|
|
|
Income taxes payable
|
|
|
414,123 |
|
|
|
71,233 |
|
|
|
28,987 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(6,786,416 |
) |
|
|
(16,482,585 |
) |
|
|
(43,372,463 |
) |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(581,562 |
) |
|
|
(127,330 |
) |
|
|
(308,970 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(581,562 |
) |
|
|
(127,330 |
) |
|
|
(308,970 |
) |
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Members capital contributions
|
|
|
|
|
|
|
4,791,461 |
|
|
|
36,957,840 |
|
|
Proceeds from notes payable from affiliates and members
|
|
|
1,954,576 |
|
|
|
15,245,424 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
1,954,576 |
|
|
|
20,036,885 |
|
|
|
36,957,840 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease (increase) in cash and cash equivalents
|
|
|
(5,413,402 |
) |
|
|
3,426,970 |
|
|
|
(6,723,593 |
) |
Cash and cash equivalents, beginning of period
|
|
|
12,370,241 |
|
|
|
9,283,174 |
|
|
|
15,495,751 |
|
Effect of foreign currency on cash flow
|
|
|
(9,189 |
) |
|
|
(339,903 |
) |
|
|
511,016 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$ |
6,947,650 |
|
|
$ |
12,370,241 |
|
|
$ |
9,283,174 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for taxes
|
|
$ |
4,644,046 |
|
|
$ |
4,512,817 |
|
|
$ |
2,862,867 |
|
|
Non-cash transactions
|
|
$ |
2,500,000 |
|
|
$ |
7,500,000 |
|
|
$ |
|
|
See accompanying notes to consolidated financial statements.
IV-209
FOX PAN AMERICAN SPORTS, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2004 and 2003, and
period from February 5, 2002 (date of merger) through
December 31, 2002
|
|
(1) |
Organization and Nature of Business |
|
|
(a) |
Description of Business |
Fox Pan American Sports, LLC (FPAS) was formed on
January 29, 2002 as a limited liability company in the
State of Delaware. FPAS was formed to provide spanish language
television sports programming service to key markets and sale of
broadcast rights within North, Central and South America and the
Caribbean through pay television sports networks owned by its
subsidiary FSLA Holdings, Inc. (FSLAH) and FSLAHs
subsidiaries, Fox Sports Latin America, Ltd. (FSLA), Fox Sports
World Espanol, LLC (FSE), Fox Sports Mexico Distribution, LLC
(FSMD), Fox Sports Chile Ltda. (FS Chile), Fox Sports Latin
America S.A. (FS Argentina) and Fox Pan American Sports Brazil,
Ltd.
On February 5, 2002, FPAS entered into an agreement with
Fox Sports International SPV, Inc. (FSI SPV), a wholly owned
subsidiary of International Sports Programming, LLC, doing
business as Fox Sports International (FSI), a division of News
Corporation, Pan American Sports Enterprises
(PASE) Company, a wholly owned subsidiary of PSE Holdings,
LLC, a partnership controlled by Hicks, Muse, Tate, and Furst,
Inc. and Liberty Finance, LLC (LFC) a wholly owned
subsidiary of Liberty Media Corporation (collectively known as
the Contributing Members) whereby FSI SPV contributed 100% of
FSLA Holdings, Inc., which included 100% of Fox Sports Latin
America, Ltd., 100% of Fox Sports World Espanol, LLC and 100% of
Fox Sports Mexico Distribution, LLC, the sports business of its
operations in Argentina and Chile, and cash of $7,500,000; PASE
contributed a 50% interest in T&T Sports Marketing Limited
(T&T) and cash of $5,833,328; and LFC contributed cash of
$5,833,438 for certain equity interests in FPAS (the
Contribution Agreement).
The above transaction has been deemed to be a roll up
transaction with PASE being the acquiring entity and as such
accounted for pursuant to the provisions of Statement of
Financial Accounting Standard (SFAS) No. 141 Business
Combinations. Accordingly all contributions by PASE have
been recorded on the historical basis and all contributions by
FSI and LFC have been recorded at their fair values as of
February 5, 2002. See Note 1(f).
|
|
(b) |
Basis of Financial Statement Presentation |
The accompanying consolidated financial statements include FPAS,
its subsidiary FSLAH and its subsidiaries (Company) and have
been prepared in conformity with accounting principles generally
accepted in the United States of America. In preparing the
accompanying consolidated financial statements, management is
required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the
balance sheets and revenue and expenses for the periods
presented. Actual results could differ significantly from those
estimates.
|
|
(2) |
Liquidity and Capital Requirements |
As of December 31, 2004, the Company had cash and cash
equivalents of $6.9 million. The Company has had recurring
losses since inception and has relied on capital contributions
and other funding from its members. Although the Company
believes its cash flow from operations and working capital will
fund its ongoing operations, it is possible that the Company may
need to seek additional funding in the future.
IV-210
FOX PAN AMERICAN SPORTS, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
(3) |
Summary of Significant Accounting Policies |
|
|
(a) |
Cash and Cash Equivalents |
Cash and cash equivalents consist of cash on hand and money
market accounts with original maturity terms of less than
90 days.
Revenues are derived from commercial advertisements, subscriber
fees, and the resale of programming rights. Revenues from
commercial advertisements are recognized as the commercials are
aired, net of agency commissions. Subscriber fees received from
cable systems and operators are recognized in the period that
services are provided. Amounts received in advance of the
advertisement period are reflected as deferred revenue on the
consolidated opening balance sheets. Revenues generated from all
other services are recognized as the services are provided. The
Company sells the rights to broadcast certain sporting events.
Revenue is recognized when the events occur.
Revenues from customers are generated in the United States and
Latin America (Central and South America). The following table
presents revenues from customers by geographic area for the
years ended December 31, 2004 and 2003 and the period
February 5, 2002 (date of merger) to December 31, 2002:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
|
|
Unaudited | |
|
Unaudited | |
United States
|
|
$ |
28,351,516 |
|
|
$ |
24,608,432 |
|
|
$ |
19,734,131 |
|
Latin America
|
|
|
69,225,205 |
|
|
|
61,901,271 |
|
|
|
46,728,289 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
$ |
97,576,721 |
|
|
$ |
86,509,703 |
|
|
$ |
66,462,420 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(c) |
Allowance for Doubtful Accounts Receivable |
The Companys allowance for doubtful accounts receivable is
maintained for estimated losses resulting from the inability or
unwillingness of its customers to make required payments. The
Company looks at historical write-offs and composition of
accounts receivable when determining the allowance for doubtful
accounts.
|
|
(d) |
Property and Equipment |
Property and equipment reflects contributions made by FSI and as
such are stated at their fair value pursuant to the provisions
of SFAS 141 (see note 1) as of February 5, 2002
(date of merger). Major additions and improvements are
capitalized while maintenance and repairs which do not extend
the lives of the assets are expensed as incurred. Gain or loss
on the disposition of property, plant and equipment is
recognized in operations when realized. The Company depreciates
the cost of its property and equipment using the straight-line
method over the respective estimated useful lives which range
from 3 to 5 years. Amortization of leasehold improvements
is provided over the shorter of their useful lives or the
remaining term of the lease using the straight line method.
|
|
(e) |
Impairment of Long-Lived Assets and Long-Lived Assets to
Be Disposed Of |
The Company accounts for long-lived assets in accordance with
the provisions of SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. This Statement
requires that long-lived assets 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 the carrying
amount of an asset exceeds its estimated future cash flows, an
impairment charge is recognized by the amount
IV-211
FOX PAN AMERICAN SPORTS, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
by which the carrying amount of the asset exceeds the fair value
of the asset. SFAS No. 144 requires companies to
separately report discontinued operations and extends that
reporting to a component of an entity that either has been
disposed of (by sale, abandonment, or in a distribution to
owners) or is classified as held for sale. Assets to be disposed
of are reported at the lower of the carrying amount or fair
value less costs to sell. As of December 31, 2004
management believes that their assets are not impaired.
|
|
(f) |
Investments in T&T Sports Marketing Ltd |
Investment in T&T is comprised of a 50% investment in
T&T Sports Marketing Ltd (T&T). T&T is responsible
for and owns several broadcasting rights for sports programming
matches in South America and sells these rights to open cable
television channels. Although the Company owns a 50% interest in
T&T, it does not have financial or operational control of
the entity and accordingly accounts for its investment in
T&T under the equity method. The Company initially recorded
its investment based on the historical cost basis of the excess
of liabilities over assets of T&T ($3.3 million) and
also recorded an intangible asset related to the broadcast
rights of T&T of an equal amount, which is being amortized
over a five year period. As of December 31, 2004, the
Companys investment and the unamortized intangible asset
was $1.5 million and is included in other assets and has
purchase commitments of $183.6 million through 2010 but no
other funding commitments.
Condensed financial information for T&T consists of the
following as of and for the years ended December 31, 2004
and 2003 and for the period from February 5, 2002 (date of
merger) through December 31, 2002:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
Unaudited | |
|
Unaudited | |
|
Unaudited | |
Current assets
|
|
$ |
3,503,653 |
|
|
$ |
4,077,109 |
|
|
$ |
6,633,826 |
|
Noncurrent assets
|
|
|
20,000 |
|
|
|
480,000 |
|
|
|
20,000 |
|
Current liabilities
|
|
|
2,247,157 |
|
|
|
6,834,637 |
|
|
|
8,270,904 |
|
Noncurrent liabilities
|
|
|
|
|
|
|
250,000 |
|
|
|
3,669,174 |
|
Stockholders equity
|
|
|
1,276,496 |
|
|
|
(2,527,528 |
) |
|
|
(5,286,252 |
) |
Revenue
|
|
|
39,500,871 |
|
|
|
37,742,137 |
|
|
|
37,930,912 |
|
Net income
|
|
|
3,804,024 |
|
|
|
2,758,724 |
|
|
|
1,478,955 |
|
Income taxes are accounted for under the asset and liability
method. Deferred tax asset 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.
No provision for Federal income taxes is made by FPAS since the
members are treated as partners for Federal income tax purposes.
All Federal income tax consequences are required by such
members. Provision for state taxes is made for states in which
limited liability companies are liable for such taxes. The
Company has certain foreign subsidiaries that are liable for
income taxes in their local jurisdiction. Provision for income
taxes has been made for jurisdictions in which the
Companys subsidiaries are liable for such taxes.
IV-212
FOX PAN AMERICAN SPORTS, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The Company incurs various marketing and promotional costs to
add and maintain viewership. These costs are charged to expense
in the period incurred. Marketing costs for the years ended
December 31, 2004 and 2003 and the period ended
December 31, 2002, were $3.9 million,
$2.9 million, and $2.3 million, respectively.
|
|
(i) |
Foreign Currency Translation |
The functional currency of the Companys operations in
Argentina is the applicable local currency. The functional
currency for all other international operations is the
U.S. dollar. The translation of the applicable foreign
currency into U.S. dollars is performed for balance sheet
accounts using current exchange rates in effect at the balance
sheet date and for revenue and expense accounts using the
weighted average rates of exchange prevailing during the
respective period. The unrealized gains and losses resulting
from such translation are included as a separate component of
members equity in accumulated other comprehensive income.
The Company acquires broadcast rights of sports programming to
broadcast on its television network. The costs incurred in
acquiring sports programming is capitalized and amortized
primarily on a straight-line basis, based on the license period
or projected useful life of the programming. Broadcast rights
and the related liabilities are recorded at the gross amount of
the liabilities when the license period has begun, the cost of
the program is determinable, and the program is accepted and
available for airing. The Company has single and multi-year
commitments to purchase broadcast rights of sports programming.
(See note 8.) The Company evaluates the recoverability of
broadcast rights costs associated therein against the revenues
directly associated with the program material and related
expenses. Where an evaluation indicates that a programming
contract will result in an ultimate loss, additional
amortization is provided to recognize that loss.
Comprehensive income consists of foreign currency translation
adjustments.
|
|
(l) |
Concentration of Credit and Other Risks |
The Company has no significant concentration of credit risk with
respect to accounts receivable because of the large number of
customers. The Company has operations in Argentina which has
experienced significant political and economic changes including
severe recessionary conditions and political uncertainty. The
Companys operations may be negatively impacted as the
conditions in Argentina remain unstable.
|
|
(m) |
Fair Value of Financial Instruments |
The Companys financial instruments consist primarily of
cash and cash equivalents, trade accounts and notes receivables,
payables, and long-term debt. The carrying values for the
Companys financial instruments approximate fair value with
the exception at times of long-term debt. As of
December 31, 2004, and 2003, the fair value of debt
obligations approximated the recorded value.
|
|
(n) |
Recent Accounting Pronouncements |
In December 2003, the FASB issued a revised Interpretation
No. 46, Consolidation of Variable Interest Entities, an
Interpretation of Accounting Research Bulletin No. 51
(FIN 46R). FIN 46R requires the consolidation of
variable interest entities in which an enterprise absorbs a
majority of the entitys expected losses, receives a
majority of the entitys expected residual returns, or
both, as a result of ownership, contractual or other financial
interests in the entity. Currently entities are generally
consolidated by an
IV-213
FOX PAN AMERICAN SPORTS, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
enterprise when it has a controlling financial interest through
ownership of a majority voting interest in the entity. The
provisions of FIN 46R state that nonpublic entities must
apply FIN 46R immediately to all entities created after
December 31, 2003, and to all other entities, regardless of
the date of creation, no later than the beginning of the first
annual reporting period beginning after December 31, 2004.
As the Company is not a public company, thus it is not required
to adopt FIN 46R until the fiscal year ended
December 31, 2005. The Company owns a 50% interest in
T&T, a company that owns and sells sports programming
rights. T&T derived $30.1 million or 77% of its revenue from
the Company during the year ended December 31, 2004.
|
|
(4) |
Property and Equipment |
Property and equipment consist of the following at:
|
|
|
|
|
|
|
|
|
|
|
|
December 31 | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
|
|
Unaudited | |
Furniture and fixtures
|
|
$ |
737,372 |
|
|
$ |
456,727 |
|
|
Less accumulated depreciation
|
|
|
(105,610 |
) |
|
|
(62,892 |
) |
|
|
|
|
|
|
|
|
|
$ |
631,762 |
|
|
$ |
393,835 |
|
|
|
|
|
|
|
|
|
|
(5) |
Related-Party Transactions |
During 2004, 2003 and 2002, the Company has had several service
agreements with FSI to provide programming, advertising,
affiliate sales, production, technical, corporate and personnel
services. The Company recorded expenses related to these
services of $21.3 million, $34.8 million, and
$37.3 million for 2004, 2003, and 2002, respectively. The
ongoing commitments under these agreements are included in
note (8).
|
|
|
Torneos y Competencias S.A. |
During 2004, 2003, and 2002, the Company has had several
services agreements with Torneos y Competencias, S. A. (TyC) an
Argentine company and an affiliate of one of the Companys
members to provide advertising and affiliate sales, production
and technical services and corporate services. The Company
recorded expenses of $2.3 million, $1.7 million and
$1.5 million for 2004, 2003, and 2002, respectively. The
ongoing commitments under these agreements are included in
note (8).
|
|
|
T&T Sports Marketing Company Ltd |
The Company has agreements with T&T for the purchase of
broadcast rights in relation to sporting events from
February 5, 2002 (date of merger) to 60 days
subsequent to the last event of the 2010 season. T&T holds
the rights for these sporting events in the United States of
America, Canada, South America and the Caribbean. The annual
license fees incurred to T&T for the sporting events are
$30.6 million, $29.0 million and $36.0 million for
December 31, 2004, 2003, and 2002, respectively.
In addition, the Company has entered into a
month-to-month
agreement for the use of T&Ts banner rights and pays
for those rights directly to the third party vendor.
IV-214
FOX PAN AMERICAN SPORTS, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The components of income tax expense (benefit) for the years
ended December 31, 2004 and 2003 and the period from
February 5, 2002 through December 31, 2002 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
|
|
Unaudited | |
|
Unaudited | |
Current foreign
|
|
$ |
5,121,238 |
|
|
$ |
3,973,000 |
|
|
$ |
3,071,765 |
|
Deferred foreign
|
|
|
|
|
|
|
200,940 |
|
|
|
(200,940 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense
|
|
$ |
5,121,238 |
|
|
$ |
4,173,940 |
|
|
$ |
2,870,825 |
|
|
|
|
|
|
|
|
|
|
|
The tax effects based on jurisdictions in which the Company does
business of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities as of
December 31, 2004, and 2003 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
|
|
Unaudited | |
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
Accounts receivable, principally due to allowance for doubtful
accounts
|
|
$ |
2,359,784 |
|
|
$ |
2,157,768 |
|
|
Accrued liabilities
|
|
|
1,332,167 |
|
|
|
1,872,673 |
|
|
Other items
|
|
|
3,859 |
|
|
|
3,858 |
|
|
Deferred revenues
|
|
|
1,153,928 |
|
|
|
373,069 |
|
|
Net operating loss and tax credit carryforwards
|
|
|
17,062,146 |
|
|
|
17,908,661 |
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
21,911,884 |
|
|
|
22,316,029 |
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset before valuation allowance
|
|
|
21,911,884 |
|
|
|
22,316,029 |
|
|
Less valuation allowance
|
|
|
(21,911,884 |
) |
|
|
(22,316,029 |
) |
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
Income tax expense on income from continuing operations differs
from the amount computed by applying the U.S. Federal
income tax rate of 35% for 2004, 2003, and 2002 to income from
continuing operations before income tax because of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
|
|
Unaudited | |
|
Unaudited | |
Expected income tax benefit
|
|
$ |
(1,032,228 |
) |
|
$ |
(6,543,693 |
) |
|
$ |
(16,885,533 |
) |
State income taxes
|
|
|
(21,731 |
) |
|
|
(305,443 |
) |
|
|
(1,345,215 |
) |
Meals & entertainment
|
|
|
159,270 |
|
|
|
61,011 |
|
|
|
58,450 |
|
Devaluation reserve
|
|
|
412,300 |
|
|
|
(225,400 |
) |
|
|
1,400,000 |
|
Impact of LLC status
|
|
|
1,217,946 |
|
|
|
1,184,152 |
|
|
|
856,488 |
|
Changes in valuation allowance
|
|
|
(404,074 |
) |
|
|
6,359,093 |
|
|
|
15,956,935 |
|
Foreign income taxes
|
|
|
4,521,000 |
|
|
|
3,973,000 |
|
|
|
2,726,000 |
|
Differential in tax rates
|
|
|
350,730 |
|
|
|
348,120 |
|
|
|
(109,800 |
) |
Flow through of income/loss from deemed foreign income
|
|
|
(681,975 |
) |
|
|
(676,900 |
) |
|
|
213,500 |
|
Miscellaneous other
|
|
|
600,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,121,238 |
|
|
$ |
4,173,940 |
|
|
$ |
2,870,825 |
|
|
|
|
|
|
|
|
|
|
|
IV-215
FOX PAN AMERICAN SPORTS, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
In assessing the realizability of deferred tax assets,
management 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 the deferred tax assets is
dependent on the generation of future taxable income during the
periods in which temporary differences are deductible.
Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax planning
strategies in making this assessment. Based upon these factors,
management has recorded a valuation allowance of $21,911,884 and
$22,316,029 for December 31, 2004 and 2003, respectively,
to bring the deferred tax assets to a realizable amount.
At December 31, 2004, and 2003, the Company has net
operating loss and tax credit carryforwards for federal and
foreign income tax purposes, which are available to offset
future taxable income, if any, through 2024 and 2023,
respectively.
|
|
(6) |
Notes Payable to Members |
Notes payable to members consists of the following at
December 31, 2004:
|
|
|
|
|
|
Senior promissory notes with due dates beginning on
April 28, 2005, bearing interest at an annual rate of 8%
|
|
$ |
10,000,000 |
|
Subordinated Convertible Credit Agreement due March 1,
2009, bearing interest at an annual rate of 12%
|
|
|
17,200,000 |
|
|
|
|
|
|
|
$ |
27,200,000 |
|
|
Current portion of notes payable to members
|
|
|
7,500,000 |
|
|
|
|
|
|
|
$ |
19,700,000 |
|
|
|
|
|
On April 28, 2003, the members entered into a Subordinated
Convertible Credit Agreement with the Company whereby the
members agreed to lend the Company an aggregate amount of
$17.2 million in the form of notes payable of which
$15.2 million was funded on April 28, 2003 and
$2 million on March 1, 2004. These notes bear interest
at a rate of 12% per annum and all mature on March 1,
2009 and are convertible in whole or in part at the option of
each member at a conversion price of $0.3179 per LLC unit.
No lender may convert its loans unless all members agree to
convert their respective loans. The loans will automatically
convert upon a change in control. The Company has accrued
interest of approximately $3.8 million and
$1.4 million as of December 31, 2004 and 2003,
respectively.
On April 28, 2003, one of the members entered into a Senior
Promissory Note agreement whereby the member agreed to lend the
Company an aggregate amount of $10.0 million in certain
increments. Each loan will mature two (2) years from
advance date and will bear interest at the rate of 8% per
annum. The Company has accrued interest of approximately
$1.0 million and $0.3 million as for December 31,
2004 and 2003, respectively.
The following is a schedule of the future debt payments as of
December 31, 2004:
|
|
|
|
|
2005
|
|
$ |
7,500,000 |
|
2006
|
|
|
2,500,000 |
|
2007
|
|
|
|
|
2008
|
|
|
|
|
2009
|
|
|
17,200,000 |
|
|
|
|
|
|
|
$ |
27,200,000 |
|
|
|
|
|
IV-216
FOX PAN AMERICAN SPORTS, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The Company has one class of Members Equity. Profits and
losses are shared by all members based on their respective
percentage of ownership interest. No member shall be liable for
any debts of the Company or be required to contribute any
additional capital related to deficits incurred. The
members ownership percentages are as follows:
|
|
|
|
|
|
|
Percentage | |
Member |
|
ownership | |
|
|
| |
Pan American Sports Enterprises, Co.
|
|
|
52 |
% |
FSI SPV, Inc.
|
|
|
38 |
|
Liberty Finance, LLC
|
|
|
10 |
|
|
|
|
|
|
|
|
100 |
% |
|
|
|
|
The ownership percentages above are not reflective of the
members equity balances as stated on the accompanying
consolidated balance sheets.
The Company has commitments under several agreements for varying
lengths of time until 2010 to pay for certain sports related
broadcasting and programming rights and service agreements. The
following is a schedule of future minimum commitments for
broadcast rights and programming and service agreements as of
December 31, 2004:
|
|
|
|
|
2005
|
|
$ |
55,078,437 |
|
2006
|
|
|
53,232,500 |
|
2007
|
|
|
40,369,324 |
|
2008
|
|
|
39,002,000 |
|
2009
|
|
|
39,002,000 |
|
Thereafter
|
|
|
39,002,000 |
|
|
|
|
|
|
|
$ |
265,686,261 |
|
|
|
|
|
|
|
(9) |
Event Subsequent to Date of Report of Independent Registered
Public Accounting Firm (Unaudited) |
On April 28, 2005, the Company purchased an additional 25%
of the common stock of T&T for cash of $2,060,000 and a
promissory note having an original principal balance of
$7,940,000. The note bears interest at an annual rate of three
percent above the one-year London Interbank Offered Rate and
matures on December 31, 2006.
IV-217
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
Telenet Group Holding NV
In our opinion, the accompanying consolidated balance sheets and
the related consolidated income statements, of cash flows and of
changes in shareholders equity present fairly, in all
material respects, the financial position of Telenet Group
Holding NV (the Company) and its subsidiaries at
December 31, 2005 and 2004, and the results of their
operations and their cash flows for each of the two years in the
period ended December 31, 2005, in conformity with
International Financial Reporting Standards as adopted by the
EU. These financial statements are the responsibility of the
Companys management; our responsibility is to express an
opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
International Financial Reporting Standards as adopted by the EU
vary in certain significant respects from accounting principles
generally accepted in the United States of America. Information
relating to the nature and effect of such differences is
presented in Note 27 to the consolidated financial
statements.
|
|
|
PricewaterhouseCoopers Bedrijfsrevisoren bcvba |
|
|
Represented by |
|
|
/s/ B. Gabriëls |
Antwerp, Belgium
June 2, 2006
IV-218
TELENET GROUP HOLDING NV
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
December 31, | |
|
|
Notes | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
|
|
|
(In thousands of euro) | |
ASSETS |
Non-current Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
4 |
|
|
|
943,919 |
|
|
|
960,776 |
|
|
Goodwill
|
|
|
5 |
|
|
|
1,012,544 |
|
|
|
1,027,461 |
|
|
Other intangible assets, net
|
|
|
6 |
|
|
|
278,347 |
|
|
|
280,776 |
|
|
Other assets
|
|
|
|
|
|
|
860 |
|
|
|
1,009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current assets
|
|
|
|
|
|
|
2,235,670 |
|
|
|
2,270,022 |
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade receivables, net
|
|
|
7 |
|
|
|
98,677 |
|
|
|
84,787 |
|
|
Other current assets
|
|
|
8 |
|
|
|
26,668 |
|
|
|
20,850 |
|
|
Cash and cash equivalents
|
|
|
9 |
|
|
|
210,359 |
|
|
|
145,188 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
|
|
|
|
335,704 |
|
|
|
250,825 |
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
|
|
|
|
|
2,571,374 |
|
|
|
2,520,847 |
|
|
|
|
|
|
|
|
|
|
|
|
EQUITY AND LIABILITIES |
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributed Capital
|
|
|
10 |
|
|
|
2,532,504 |
|
|
|
2,268,124 |
|
|
Other reserves
|
|
|
|
|
|
|
3,860 |
|
|
|
1,140 |
|
|
Hedging reserves
|
|
|
12 |
|
|
|
1,078 |
|
|
|
(26,627 |
) |
|
Retained loss
|
|
|
|
|
|
|
(1,828,344 |
) |
|
|
(1,751,677 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
|
|
|
|
709,098 |
|
|
|
490,960 |
|
Non-current Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, less current portion
|
|
|
11 |
|
|
|
1,288,785 |
|
|
|
1,560,755 |
|
|
Derivative financial instruments
|
|
|
12 |
|
|
|
20,364 |
|
|
|
72,800 |
|
|
Unearned revenue
|
|
|
17 |
|
|
|
11,537 |
|
|
|
7,965 |
|
|
Other liabilities
|
|
|
14 |
|
|
|
23,755 |
|
|
|
31,428 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current liabilities
|
|
|
|
|
|
|
1,344,441 |
|
|
|
1,672,948 |
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
|
11 |
|
|
|
156,129 |
|
|
|
20,009 |
|
|
Accounts payable
|
|
|
|
|
|
|
174,701 |
|
|
|
149,477 |
|
|
Accrued expenses and other current liabilities
|
|
|
16 |
|
|
|
74,129 |
|
|
|
73,618 |
|
|
Unearned revenue
|
|
|
17 |
|
|
|
112,876 |
|
|
|
113,835 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
|
|
|
|
517,835 |
|
|
|
356,939 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
|
|
|
|
1,862,276 |
|
|
|
2,029,887 |
|
|
|
|
|
|
|
|
|
|
|
TOTAL EQUITY AND LIABILITIES
|
|
|
|
|
|
|
2,571,374 |
|
|
|
2,520,847 |
|
|
|
|
|
|
|
|
|
|
|
See notes to the consolidated financial statements.
IV-219
TELENET GROUP HOLDING NV
CONSOLIDATED INCOME STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended | |
|
|
|
|
| |
|
|
|
|
December 31, | |
|
December 31, | |
|
|
Notes | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
|
|
|
(In thousands of euro, except | |
|
|
|
|
share and per share amounts) | |
Revenues
|
|
|
17 |
|
|
|
737,492 |
|
|
|
681,125 |
|
Costs of services provided
|
|
|
18 |
|
|
|
(458,981 |
) |
|
|
(430,652 |
) |
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
278,511 |
|
|
|
250,473 |
|
Selling, general and administrative
|
|
|
18 |
|
|
|
(146,937 |
) |
|
|
(145,820 |
) |
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
|
|
|
|
131,574 |
|
|
|
104,653 |
|
Finance costs, net
|
|
|
19 |
|
|
|
(193,188 |
) |
|
|
(161,839 |
) |
|
|
|
|
|
|
|
|
|
|
Net loss before income tax
|
|
|
|
|
|
|
(61,614 |
) |
|
|
(57,186 |
) |
Income tax expense
|
|
|
20 |
|
|
|
(15,053 |
) |
|
|
(4,521 |
) |
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
|
|
|
|
(76,667 |
) |
|
|
(61,707 |
) |
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share:
|
|
|
21 |
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding
|
|
|
|
|
|
|
89,503,387 |
|
|
|
86,527,257 |
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
|
|
|
|
|
|
(0.86 |
) |
|
|
(0.71 |
) |
|
|
|
|
|
|
|
|
|
|
See notes to the consolidated financial statements.
IV-220
TELENET GROUP HOLDING NV
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of | |
|
Contributed | |
|
Other | |
|
Hedging | |
|
Retained | |
|
Total | |
|
|
Notes | |
|
Shares | |
|
Capital | |
|
Reserves | |
|
Reserves | |
|
Loss | |
|
Equity | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
(In thousands of euro, except share amounts) | |
January 1, 2004
|
|
|
|
|
|
|
86,527,257 |
|
|
|
2,268,124 |
|
|
|
|
|
|
|
(1,765 |
) |
|
|
(1,689,970 |
) |
|
|
576,389 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized net loss on derivative contracts recognized directly
in equity
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24,862 |
) |
|
|
|
|
|
|
(24,862 |
) |
Net loss for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(61,707 |
) |
|
|
(61,707 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized loss for 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24,862 |
) |
|
|
(61,707 |
) |
|
|
(86,569 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognition of share-based compensation
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
1,140 |
|
|
|
|
|
|
|
|
|
|
|
1,140 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2004
|
|
|
|
|
|
|
86,527,257 |
|
|
|
2,268,124 |
|
|
|
1,140 |
|
|
|
(26,627 |
) |
|
|
(1,751,677 |
) |
|
|
490,960 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized net gain on derivative contracts recognized directly
in equity
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,705 |
|
|
|
|
|
|
|
27,705 |
|
Net loss for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(76,667 |
) |
|
|
(76,667 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized income (loss) for 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,705 |
|
|
|
(76,667 |
) |
|
|
(48,962 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognition of share-based compensation
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
2,196 |
|
|
|
|
|
|
|
|
|
|
|
2,196 |
|
Ordinary shares issued upon exercise of the Bank Warrants
|
|
|
10 |
|
|
|
329,994 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds received upon exercise of the Class B options
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
524 |
|
|
|
|
|
|
|
|
|
|
|
524 |
|
Issuance of share capital through IPO, net of offering costs
|
|
|
1 |
|
|
|
13,347,602 |
|
|
|
264,380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
264,380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005
|
|
|
|
|
|
|
100,204,853 |
|
|
|
2,532,504 |
|
|
|
3,860 |
|
|
|
1,078 |
|
|
|
(1,828,344 |
) |
|
|
709,098 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to the consolidated financial statements.
IV-221
TELENET GROUP HOLDING NV
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended | |
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In thousands of euro) | |
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(76,667 |
) |
|
|
(61,707 |
) |
|
Adjustments to reconcile net loss to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation, amortization and impairment
|
|
|
206,314 |
|
|
|
204,329 |
|
|
|
Income tax expense
|
|
|
15,053 |
|
|
|
4,521 |
|
|
|
Provision for liabilities and charges
|
|
|
1,698 |
|
|
|
617 |
|
|
|
Increase in provision for impairment of receivables
|
|
|
3,550 |
|
|
|
5,365 |
|
|
|
Amortization of financing cost
|
|
|
9,165 |
|
|
|
11,269 |
|
|
|
Write-off of financing cost on extinguishment of debt
|
|
|
11,527 |
|
|
|
|
|
|
|
Interest income
|
|
|
(3,420 |
) |
|
|
(4,552 |
) |
|
|
Interest expense
|
|
|
142,676 |
|
|
|
168,397 |
|
|
|
(Gain) loss on derivative instruments, net
|
|
|
(30,757 |
) |
|
|
25,494 |
|
|
|
Unrealized foreign exchange (gain) loss, net
|
|
|
38,202 |
|
|
|
(27,500 |
) |
|
|
Share based compensation
|
|
|
2,196 |
|
|
|
1,140 |
|
|
|
(Gain) loss on disposal of fixed assets
|
|
|
(147 |
) |
|
|
685 |
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(17,440 |
) |
|
|
(5,369 |
) |
|
|
Other assets
|
|
|
(5,513 |
) |
|
|
5,753 |
|
|
|
Unearned revenue
|
|
|
2,613 |
|
|
|
17,654 |
|
|
|
Accounts payable
|
|
|
26,770 |
|
|
|
15,126 |
|
|
|
Accrued expenses and other current liabilities
|
|
|
10,963 |
|
|
|
(11,498 |
) |
|
|
|
|
|
|
|
|
|
|
Cash generated from operations
|
|
|
336,783 |
|
|
|
349,724 |
|
|
|
Interest paid
|
|
|
(123,984 |
) |
|
|
(115,420 |
) |
|
|
Taxes paid
|
|
|
(177 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash generated from operating activities
|
|
|
212,622 |
|
|
|
234,304 |
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(141,088 |
) |
|
|
(128,836 |
) |
|
Proceeds on disposal of property and equipment
|
|
|
453 |
|
|
|
|
|
|
Purchases of intangibles
|
|
|
(41,925 |
) |
|
|
(23,828 |
) |
|
Acquisition of Telenet Holding shares
|
|
|
(1,444 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(184,004 |
) |
|
|
(152,664 |
) |
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Repayments of long-term borrowings
|
|
|
(317,660 |
) |
|
|
(106,512 |
) |
|
Proceeds from long-term borrowings
|
|
|
105,000 |
|
|
|
|
|
|
Payments of redemption premiums
|
|
|
(13,341 |
) |
|
|
|
|
|
Repayments of finance leases
|
|
|
(853 |
) |
|
|
(966 |
) |
|
Proceeds from the issuance of capital, net of offering costs
|
|
|
264,380 |
|
|
|
|
|
|
Proceeds received upon exercise of the Class B options
|
|
|
524 |
|
|
|
|
|
|
Payments for debt issuance costs
|
|
|
(1,497 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
36,553 |
|
|
|
(107,478 |
) |
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
65,171 |
|
|
|
(25,838 |
) |
CASH AND CASH EQUIVALENTS:
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
145,188 |
|
|
|
171,026 |
|
|
|
|
|
|
|
|
|
End of period
|
|
|
210,359 |
|
|
|
145,188 |
|
|
|
|
|
|
|
|
NON CASH INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Acquisition of network user rights in exchange for debt
|
|
|
1,311 |
|
|
|
16,515 |
|
|
|
|
|
|
|
|
See notes to the consolidated financial statements.
IV-222
TELENET GROUP HOLDING NV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 2005
(in thousands of Euro, except per share amounts, unless
otherwise stated)
The accompanying consolidated financial statements present the
operations of Telenet Group Holding NV (Telenet Group
Holding) and its subsidiaries (hereafter collectively
referred to as the Company). Through its broadband
network the Company offers cable television, including premium
television services, broadband internet and telephony services
to residential subscribers in Flanders as well as broadband
internet, data and voice services in the business market
throughout Belgium. Telenet Group Holding and its principal
subsidiaries are limited liability companies organized under
Belgian law. The Company is managed and operates in one
operating segment, broadband communications.
These consolidated financial statements have been authorized for
issue by the Board of Directors on April 25, 2006.
On October 11, 2005, shares in Telenet Group Holding
commenced trading on the Brussels Euronext stock exchange
pursuant to an initial public offering (IPO) of the
Companys shares by the Company (the Primary
Offering) and certain of its shareholders (the
Secondary Offering). In addition, shares were
offered to qualifying employees (the Employee
Offering) at a discounted price. The initial price of the
shares was
21.00. The
Company issued and sold 13,333,333 shares of its common
stock pursuant to the Primary Offering and 14,269 shares
pursuant to the Employee Offering. Net of the underwriting
discount and other expenses of the offering, the Company
received 264,380
for the common stock it issued and sold under the Primary and
Employee Offerings. The net proceeds from the Primary and
Employee Offerings were used to partially redeem Telenet Group
Holdings Senior Discount Notes and Telenet
Communications Senior Notes (Note 11). Telenet Group
Holding did not receive any proceeds from the sale of shares by
the selling shareholders under the Secondary Offering.
On September 20, 2005, the Companys shareholders
approved a share split pursuant to which three new shares were
issued in respect of each share outstanding on that date. The
stock split became effective on the closing date of the IPO and,
as of such date, the total number of Telenet Group Holding
shares was 86,857,251 immediately prior to the IPO. In addition,
certain amendments were made to the outstanding employee plans,
option agreements and warrants to give effect to such share
split in the same three-for-one proportion. All share and
per-share information included in these consolidated financial
statements have been adjusted to reflect the stock split for all
periods presented.
|
|
2. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
In accordance with the EU Regulation 1606/2002 of
July 19, 2002, the consolidated financial statements have
been prepared in accordance with International Financial
Reporting Standards as adopted by the EU (IFRSs as adopted
by the EU). The financial statements have been prepared on
the historical cost basis, except for certain financial
instruments. The principal accounting policies are set out below.
|
|
|
First-time Adoption of IFRSs as adopted by the EU |
Publication of the December 31, 2005 consolidated financial
statements under IFRSs as adopted by the EU requires that the
comparative information for the year ended December 31,
2004 as well as the opening balance sheet as of January 1,
2004 be prepared in accordance with IFRSs as adopted by the EU.
The disclosures required by IFRS 1 First-time
Adoption of International Financial Reporting Standards,
IV-223
TELENET GROUP HOLDING NV
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
concerning the transition from Accounting Principles Generally
Accepted in the United States of America
(U.S. GAAP) to IFRSs as adopted by the EU are
given in Note 26.
|
|
|
Use of the Exemptions from Full Retrospective Application
of IFRS as adopted by the EU |
As a first-time adopter in 2005, the Company has prepared its
opening balance sheet under IFRSs as adopted by the EU as of
January 1, 2004 (date of transition to IFRS as adopted by
the EU) and has elected to use the following exemptions provided
by IFRS 1 for the implementation of IFRSs as adopted by the EU
at the date of transition.
Business combinations that occurred before the date of
transition to IFRSs as adopted by the EU have not been restated
retrospectively in accordance with IFRS 3
Business Combinations. Assets acquired and liabilities
incurred have thus been maintained, at the date of acquisition,
at the value determined under U.S. GAAP. Goodwill arising
on acquisitions before the date of transition to IFRSs as
adopted by the EU has been retained at the previous
U.S. GAAP amount and was tested for impairment at that date.
The Company utilized the share-based payment exemption and,
therefore, applied IFRS 2 Share-based Payment
only to warrants granted after November 7, 2002 that
had not yet vested at January 1, 2005. Warrants granted on
or before November 7, 2002 were not modified subsequent to
this date and, as a result, these warrants have not been
recognized in the financial statements.
The consolidated financial statements incorporate the financial
statements of Telenet Group Holding and all of the entities that
it directly or indirectly controls. Control is achieved where
Telenet Group Holding has the power to govern the financial and
operating policies of an entity so as to obtain benefits from
its activities. All intercompany accounts and transactions among
consolidated entities have been eliminated.
|
|
|
Managements Use of Estimates |
The preparation of financial statements in accordance with IFRSs
as adopted by the EU requires the use of certain critical
accounting estimates and managements judgement in the
process of applying the Companys accounting policies.
These estimates and judgements affect the reported amounts of
assets and liabilities, the disclosure of the contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. The areas involving a higher degree of judgement or
complexity, or areas where assumptions and estimates are
significant to the consolidated financial statements are
disclosed in Note 3.
Property and equipment are stated at cost less accumulated
depreciation and any accumulated impairment losses. Depreciation
is charged so as to write off the cost of assets, other than
land and assets not yet ready for use, on a straight-line basis
over their estimated useful lives. Assets held under finance
leases are depreciated over their expected useful lives on the
same basis as owned assets or, where shorter, the term of the
lease.
IV-224
TELENET GROUP HOLDING NV
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following useful lives are used for the depreciation of
property and equipment:
|
|
|
|
|
Buildings and improvements
|
|
|
10-33 years |
|
Operating facilities
|
|
|
3-20 years |
|
Other equipment
|
|
|
3-10 years |
|
The assets useful lives are reviewed, and adjusted if
appropriate, at each balance sheet date.
Depreciation charges in 2005 included the impact of one-time
write-off costs and accelerated depreciation rates associated
with certain network components which we acquired in connection
with the ExpressNet upstream upgrade (ExpressNet equipment is
depreciated over 8 years and M-Tec amplifiers are
depreciated over 5 years).
The costs associated with the construction of cable transmission
and distribution facilities and also internet and telephony
service installations are capitalized and depreciated over 3 to
20 years. Costs include all direct labor and materials as
well as certain indirect costs.
Government grants received related to the construction of assets
are recorded as a reduction to the carrying amount of the
associated tangible asset. The grant is recognised over the life
of a depreciable asset by way of a reduced depreciation charge.
Expenditures for repairs and maintenance are charged to
operating expense as incurred.
Intangible assets are measured at cost and are amortized on a
straight-line basis over their estimated useful lives as follows:
|
|
|
|
|
Network user rights
|
|
|
10 or 20 years |
|
Trade name
|
|
|
15 years |
|
Customer lists and supply contracts
|
|
|
5 or 15 years |
|
Broadcasting rights
|
|
|
Life of the contractual right |
|
Software development costs
|
|
|
3 years |
|
Costs associated with maintaining computer software programmes
are expensed as incurred. Internal-use software development
costs are capitalized and recognized as an intangible asset if
the software is expected to generate economic benefits beyond
one year.
Capitalized internal-use software costs include only external
direct costs of materials and services consumed in developing or
obtaining the software and payroll and payroll-related costs for
employees who are directly associated with and who devote time
to the project. Capitalization of these costs ceases no later
than the point at which the project is substantially complete
and ready for its intended purpose. Internally-generated
intangible assets are amortised on a straight-line basis over
their useful lives.
Broadcasting rights are capitalized as an intangible asset when
the value of the contract is measurable upon signing and are
amortized on a straight-line basis over contractual life.
|
|
|
Impairment of Tangible and Intangible Assets Excluding
Goodwill |
Assets that are subject to amortization are reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. An impairment
loss is recognised for the amount by which the assets
carrying amount exceeds its recoverable amount. The recoverable
amount is the higher of an assets fair value less costs to
sell and its value in use. For the purposes of assessing
impairment, assets are grouped at the lowest levels for which
there are separately identifiable cash flows (cash-generating
units).
IV-225
TELENET GROUP HOLDING NV
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Goodwill arising on the acquisition of a subsidiary represents
the excess of the cost of acquisition over the Companys
interest in the net fair value of the identifiable assets,
liabilities and contingent liabilities of the subsidiary
recognized at the date of acquisition. Goodwill is initially
recognized as an asset at cost and is subsequently measured at
cost less any accumulated impairment losses.
Goodwill is tested for impairment annually, or more frequently
when there is an indication that it may be impaired. The Company
has identified one cash-generating unit to which all goodwill
was allocated. If the recoverable amount of the cash-generating
unit is less than the carrying amount, the impairment loss is
allocated first to reduce the carrying amount of any goodwill
and then to the other assets pro-rata on the basis of the
carrying amount of each asset. An impairment loss recognized for
goodwill is not reversed in a subsequent period.
|
|
|
Foreign Currency Transactions |
The Companys functional and presentation currency is Euros
(
), which is also the functional currency of each of
the Companys subsidiaries. Transactions in currencies
other than Euros are recorded at the rates of exchange
prevailing on the dates of the transactions. At each balance
sheet date, monetary assets and liabilities that are denominated
in foreign currencies are translated at the rates prevailing on
the balance sheet date. Non-monetary assets and liabilities
carried at fair value that are denominated in foreign currencies
are translated at the rates prevailing at the date when the fair
value was determined. Gains and losses arising on translation
are included in profit or loss for the period, except for
exchange differences arising on non-monetary assets and
liabilities where the changes in fair value are recognised
directly in equity. In order to hedge its exposure to certain
foreign exchange risks, the Company enters into forward
contracts and options (see below for details of the
Companys accounting policies in respect of such derivative
financial instruments).
Financial assets and financial liabilities are recognized on the
Companys balance sheet when the Company becomes a party to
the contractual provisions of the instrument.
|
|
|
Cash and Cash Equivalents |
Cash equivalents consist principally of commercial paper and
certificates of deposit with maturities of three months or less
when purchased.
Trade receivables do not carry any interest and are stated at
their fair value as reduced by appropriate allowances for
estimated irrecoverable amounts.
|
|
|
Financial Liabilities and Equity Instruments |
Financial liabilities and equity instruments are classified
according to the substance of the contractual arrangements
entered into. An equity instrument is any contract that
evidences a residual interest in the assets of the Company after
deducting all of its liabilities. The accounting policies
adopted for specific financial liabilities and equity
instruments are set out below.
IV-226
TELENET GROUP HOLDING NV
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Trade payables are not interest bearing and are stated at their
fair value.
Interest-bearing bank loans are recorded at the proceeds
received, net of direct issue costs. Finance charges, including
premiums payable on settlement or redemption and direct issue
costs, are accounted for on an accrual basis to the profit and
loss account using effective interest method and are recorded as
a component of the related debt to the extent that they are not
settled in the period in which they arise.
Borrowings are classified as current liabilities unless the
Company has an unconditional right to defer settlement of the
liability for at least 12 months after the balance sheet
date.
Equity instruments issued by the Company are recorded at the
proceeds received, net of direct issue costs.
When issued in connection with detachable warrants to purchase
shares, the fair value of debt securities is determined using a
market interest rate for an equivalent debt instrument. Any
resulting discount or premium on the debt securities is
recognized using the effective interest rate method over the
contractual term of the debt. The remainder of the proceeds is
allocated to the detachable warrants and is recognized and
included in shareholders equity, net of any income tax
effects.
The Company assesses whether freestanding warrants are to be
classified within shareholders equity or as a liability.
Warrants accounted for as permanent equity are recorded at their
initial fair value and subsequent changes in fair value are not
recognized unless a change in the classification of those
warrants occurs. Warrants not qualifying for permanent equity
accounting are recorded at fair value as a liability with
subsequent changes in fair value recognized through the income
statement.
|
|
|
Derivative financial instruments and hedge
accounting |
The Companys activities are exposed to changes in foreign
currency exchange rates and interest rates.
The Company seeks to reduce its foreign currency exposure
through the use of certain derivative financial instruments in
order to manage its exposure to exchange rate and interest rate
fluctuations arising from its operations and funding. The
Company has identified certain agreements as cash flow hedges
including foreign exchange forward contracts, interest rate swap
agreements, cap options and combinations of such instruments.
The use of derivatives is governed by the Companys
policies approved by the board of directors, which provide
written principles on the use of derivatives consistent with the
Companys risk management strategy described in
Note 12.
Changes in the fair value of derivative financial instruments
that are designated and effective as hedges of future cash flows
are recognised directly in equity and the ineffective portion is
recognised immediately in the income statement. If the cash flow
hedge of a firm commitment or forecast transaction results in
the recognition of a non-financial asset or a liability, then,
at the time the asset or liability is recognised, the associated
gains or losses on the derivative that had previously been
recognised in equity are included in the initial measurement of
the asset or liability. For hedges that do not result in the
recognition of an asset or a liability, amounts deferred in
equity are recognised in the income statement in the same period
in which the hedged item affects net profit or loss.
IV-227
TELENET GROUP HOLDING NV
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Changes in the fair value of derivative financial instruments
that do not qualify for hedge accounting are recognised in the
income statement as they arise.
Hedge accounting is discontinued when the hedging instrument
expires or is sold, terminated, or exercised, or no longer
qualifies for hedge accounting. At that time, any cumulative
gain or loss on the hedging instrument recognised in equity is
retained in equity until the forecasted transaction occurs. If a
hedged transaction is no longer expected to occur, the net
cumulative gain or loss recognised in equity is transferred to
net profit or loss for the period.
Derivatives embedded in other financial instruments or other
host contracts are treated as separate derivatives when their
risks and characteristics are not closely related to those of
host contracts and the host contracts are not carried at fair
value with unrealised gains or losses reported in the income
statement.
The Company has estimated the fair value of its financial
instruments in these consolidated financial statements using
available market information or other appropriate valuation
methodologies. Considerable judgement, however, is required in
interpreting market data to develop the estimates of fair value.
Accordingly, the estimates presented herein are not necessarily
indicative of the amounts that the Company would realize in a
current market exchange. The use of different market assumptions
and/or estimation methodologies may have a material effect on
the estimated fair value amounts. The carrying amount of cash,
accounts and other receivables, and accounts and other payables
approximates fair value because of the short maturity of those
instruments.
Subscription fees for telephony, internet and premium cable
television are prepaid by subscribers on a monthly basis and
recognized in revenue as the related services are provided.
Subscription fees for basic cable television are prepaid by
subscribers predominantly on an annual basis and recognized in
revenue on a straight line basis over the following twelve
months. Revenue from telephone and internet activity is
recognized based on usage. Revenue is recorded net of value
added taxes, returns and discounts.
Installation fees are recognized upon installation when they
represent a separately identifiable service that has been
delivered and for which the related costs can be reliably
measured. Telephony and internet installation fees are
recognized immediately whereas cable television activation fees
are deferred and recognized over the estimated customer
relationship period of 10 years.
Copyright fees are paid by the Company to copyright collecting
agencies for certain content provided by the public broadcasters
and other copyright holders. Together with subscription fees,
basic cable television subscribers are charged a copyright fee
for the content received from public broadcasters that is
broadcasted over the Companys network. The Company reports
copyright fees collected from cable subscribers on a gross basis
as a component of revenue as the Company is acting as a
principal in the arrangement. The Company sets the level of
copyright fees charged to subscribers and bears the risk of
collecting such fees.
Operating expenses consist of interconnection costs, network
operating, maintenance and repair costs, cable programming
costs, employee costs and related depreciation and amortization
charges. The Company capitalizes most of its installation cost,
including labor cost. Copyright and program license fees are the
primary component of the Companys cable programming costs.
Other direct costs include costs that the Company incurs in
connection with providing its residential and business services,
such as interconnection charges and bad debt expense. Network
operating costs consist of costs associated with operating,
maintaining
IV-228
TELENET GROUP HOLDING NV
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
and repairing the Companys broadband network and customer
care costs necessary to maintain its customer base.
Provisions are recognized when the Company has a present
obligation as a result of a past event, it is probable that the
Company will be required to settle that obligation and the
amount can be reliably measured. Provisions are measured based
on managements best estimate of the expenditure required
to settle its liability and are discounted to present value
where the effect is material. However, actual expenses may vary
from such estimate.
Leases are classified as finance leases whenever the terms of
the lease transfer substantially all of the risks and rewards of
ownership to the Company. Property and equipment acquired by way
of finance lease are stated at an amount equal to the lower of
their fair value and the present value of the minimum lease
payments at inception of the lease, less accumulated
depreciation and any impairment losses. Each lease payment is
allocated between the liability and finance charges so as to
achieve a constant rate on the finance balance outstanding. The
corresponding rental obligations, net of finance charges, are
included in long-term debt. The interest element of the finance
cost is charged to the income statement over the lease period so
as to produce a constant periodic rate of interest on the
remaining balance of the liability for each period. All other
leases are classified as operating leases and are charged to
profit or loss on a straight-line basis over the lease term.
The tax expense represents the sum of the tax currently payable
and deferred tax. The tax currently payable is based on taxable
profit for the year using tax rates that have been enacted or
substantively enacted by the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on
differences between the carrying amounts of assets and
liabilities in the financial statements and the corresponding
tax bases and is accounted for using the balance sheet liability
method. Deferred tax liabilities are generally recognised for
all taxable temporary differences and deferred tax assets are
recognised to the extent that it is probable that future taxable
profits will be available against which deductible temporary
differences can be utilized. Such assets and liabilities are not
recognised if the temporary difference arises from goodwill or
from the initial recognition (other than in a business
combination) of other assets and liabilities in a transaction
that affects neither the tax profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary
differences arising on investments in subsidiaries except where
the Company is able to control the reversal of the temporary
difference and it is probable that the temporary difference will
not reverse in the foreseeable future.
A deferred tax asset is recognised for the carryforward of
unused tax losses to the extent that it is probable that future
taxable profit will be available against which the unused tax
losses can be utilized. The carrying amount of deferred tax
assets is reviewed at each balance sheet date and reduced to the
extent that it is no longer probable that sufficient taxable
profits will be available to allow all or part of the asset to
be recovered. In view of the Companys history of losses,
no net deferred tax assets have been recognized.
Deferred tax is calculated at the tax rates that are expected to
apply in the period when the liability is settled or the asset
is realised. Deferred tax is charged or credited in the income
statement, except when it relates to items charged or credited
directly to equity, in which case the deferred tax effect is
also recorded in equity.
IV-229
TELENET GROUP HOLDING NV
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company provides both defined benefit and defined
contribution plans to its employees, directors and certain
members of management. The defined benefit pension plans pay
benefits to employees at retirement using formulas based upon
years of service and compensation rates near retirement. The
schemes are generally funded by payments from the participants
and the Company to insurance companies as determined by periodic
actuarial calculations and include the plans assumed from
Electrabel SA (Electrabel) during 2004 (see
Note 15).
For defined benefit retirement benefit schemes, the cost of
providing benefits is determined using the Projected Unit Credit
Method, with actuarial valuations being carried out at each
balance sheet date. The corridor approach is applied to
actuarial gains and losses. Such gains and losses are the result
of changes in actuarial assumptions on retirement and similar
commitments. Accordingly, all gains and losses exceeding 10% of
the greater of the present value of the defined benefit
obligation and the fair value of any plan assets are recognized
over the expected average remaining working life of the
employees participating in the plan. Past service cost is
recognised immediately to the extent that the benefits are
already vested, and otherwise is amortised on a straight-line
basis over the average period until the benefits become vested.
The retirement benefit obligation recognized in the balance
sheet represents the present value of the defined benefit
obligation as adjusted for unrecognized past service cost, and
as reduced by the fair value of plan assets. Payments to defined
contribution retirement benefit schemes are charged as an
expense as they fall due. Payments made to state-managed
retirement benefit schemes are dealt with as payments to defined
contribution schemes where the Companys obligations under
the schemes are equivalent to those arising in a defined
contribution retirement benefit scheme.
|
|
|
Other Employee Benefit Obligations |
Telenet provides long term service awards, health care premiums,
early retirement plans and death benefits, among others, to
their employees and/or retirees. The entitlement to these
benefits is usually conditional on the employee remaining in
service up to retirement age and the completion of a minimum
service period. The expected costs of these benefits are accrued
over the period of employment using an accounting methodology
similar to that for defined benefit pension plans. Actuarial
gains and losses arising from experience adjustments, and
changes in actuarial assumptions, are charged or credited to
income over the expected average remaining working lives of the
related employees.
The Company issues equity-settled share-based payments to
certain employees which are measured at fair value at the date
of grant. The fair value is determined at the grant date using
the Black-Scholes pricing model and is expensed on a
straight-line basis over the vesting period, based on the
Companys estimate of shares that will eventually vest. The
model has been adjusted, based on managements best
estimate, for the effects of non-transferability, exercise
restrictions, and behavioural considerations.
At each balance sheet date, the Company revises its estimate of
the number of options that are expected to become exercisable
and recognises the cumulative impact of the revision of original
estimates, if any, in the income statement, and a corresponding
adjustment to equity. The proceeds received net of any directly
attributable transaction costs are credited to share capital
(nominal value) and share premium when the options are exercised.
IV-230
TELENET GROUP HOLDING NV
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
Standards, interpretations and amendments to published
standards that are not yet effective |
Certain new standards, amendments and interpretations to
existing standards have been published and are mandatory for the
Companys accounting periods beginning on or after
January 1, 2006. The Company has not early adopted any of
the following:
|
|
|
IAS 19 (Amendment), Employee Benefits (effective from
January 1, 2006). This amendment introduces the option of
an alternative recognition approach for actuarial gains and
losses. It may impose additional recognition requirements for
multi-employer plans where insufficient information is available
to apply defined benefit accounting. It also adds new disclosure
requirements. As the Company does not intend to change the
accounting policy adopted for recognition of actuarial gains and
losses and does not participate in any multi-employer plans,
adoption of this amendment will only impact the format and
extent of disclosures presented in the accounts. The Company
will apply this amendment from annual periods beginning
January 1, 2006. |
|
|
IAS 39 (Amendment), Cash Flow Hedge Accounting of Forecast
Intragroup Transactions (effective from January 1,
2006). The amendment allows the foreign currency risk of a
highly probable forecast intragroup transaction to qualify as a
hedged item in the consolidated financial statements, provided
that: (a) the transaction is denominated in a currency
other than the functional currency of the entity entering into
that transaction; and (b) the foreign currency risk will
affect consolidated profit or loss. This amendment is not
relevant to the Companys operations, as the Company does
not have any intragroup transactions that would qualify as a
hedged item in the consolidated financial statements as of
December 31, 2005 and 2004. |
|
|
IAS 39 (Amendment), The Fair Value Option (effective from
January 1, 2006). This amendment changes the definition of
financial instruments classified at fair value through profit or
loss and restricts the ability to designate financial
instruments as part of this category. The Company believes that
this amendment should not have a significant impact on the
classification of financial instruments, as the Company should
be able to comply with the amended criteria for the designation
of financial instruments at fair value through profit and loss.
The Company will apply this amendment from annual periods
beginning January 1, 2006. |
|
|
IAS 39 and IFRS 4 (Amendment), Financial Guarantee
Contracts (effective from January 1, 2006). This
amendment requires certain issued financial guarantees to be
initially recognized at their fair value and subsequently
measured at the higher of: (a) the unamortized balance of
the related fees received and deferred, and (b) the
expenditure required to settle the commitment at the balance
sheet date. Management considered this amendment to IAS 39 and
concluded that it is not relevant to the Company. |
|
|
IFRS 1 (Amendment), First-time Adoption of International
Financial Reporting Standards and IFRS 6 (Amendment),
Exploration for and Evaluation of Mineral Resources
(effective from January 1, 2006). These amendments are
not relevant to the Companys operations. |
|
|
IFRS 6, Exploration for and Evaluation of Mineral
Resources (effective from January 1, 2006). IFRS 6 is
not relevant to the Companys operations. |
|
|
IFRS 7, Financial Instruments: Disclosures, and a
complementary amendment to IAS 1, Presentation of Financial
Statements Capital Disclosures (effective from
January 1, 2007). IFRS 7 introduces new disclosures to
improve the information about financial instruments. It requires
the disclosure of qualitative and quantitative information about
exposure to risks arising from financial instruments, including
specified minimum disclosures about credit risk, liquidity risk
and market risk, including sensitivity analysis to market risk.
The amendment to IAS 1 introduces disclosures about the level of
an entitys capital and how it manages capital. The Company
has not yet completed its assessment of the impact of IFRS 7 and
the amendment to IAS 1 to the level of disclosures currently
provided. The Company will apply IFRS 7 and the amendment to IAS
1 from annual periods beginning January 1, 2007. |
IV-231
TELENET GROUP HOLDING NV
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
IFRIC 4, Determining whether an Arrangement contains a
Lease (effective from January 1, 2006). IFRIC 4
requires the determination of whether an arrangement is or
contains a lease to be based on the substance of the
arrangement. It requires an assessment of whether:
(a) fulfillment of the arrangement is dependent on the use
of a specific asset or assets (the asset); and (b) the
arrangement conveys a right to use the asset. Management is
currently assessing the impact of IFRIC 4 on the Companys
operations but does not believe that it will have a material
effect on the Companys financial statements. |
|
|
IFRIC 5, Rights to Interests arising from
Decommissioning, Restoration and Environmental Rehabilitation
Funds (effective from January 1, 2006). IFRIC 5 is not
relevant to the Companys operations. |
|
|
IFRIC 6, Liabilities arising from Participating in a
Specific Market Waste Electrical and Electronic
Equipment (effective from January 1, 2006). Management
is currently assessing the impact of IFRIC 6 on the
Companys operations but does not believe that it will have
a material effect on the Companys financial statements. |
|
|
IFRIC 7 Applying the Restatement Approach under IAS 29
Financial Reporting in Hyperinflationary Economies
(effective from January 1, 2007). IFRIC 7 is not
relevant to the Companys operations. |
|
|
IFRIC 8, Scope of IFRS 2 (effective from
January 1, 2007). IFRIC 8 clarifies that IFRS 2 applies to
share-based payment transactions in which the entity cannot
specifically identify some or all of the goods or services
received. Management is currently assessing the impact of IFRIC
8 on the Companys operations but does not believe that it
will have a material effect on the Companys financial
statements. |
|
|
IFRIC 9 Reassessment of Embedded Derivatives (effective
from January 1, 2007). The Interpretation clarifies whether
an entity should reassess whether an embedded derivative needs
to be separated from the host contract. IFRIC 9 concludes that
reassessment is prohibited unless there is a change in the terms
of the contract that significantly modifies the cash flows that
otherwise would be required under the contract. Management is
currently assessing the impact of IFRIC 9 on the Companys
operations but does not believe that it will have a material
effect on the Companys financial statements. |
|
|
3. |
CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION
UNCERTAINTY |
|
|
|
Critical judgements in applying the Companys
accounting policies |
The Company performed its annual review for impairment during
the third quarter of 2005 and 2004. Goodwill was allocated to
one reporting unit. The key assumptions used to determine the
recoverable amount are those regarding the discount rates and
expected changes to selling prices/product offerings and direct
costs during the period. Changes in selling practices and direct
costs are based on past practices and expectations of future
changes in the market. The calculation uses cash flow
projections based on financial budgets approved by management,
and a discount rate of 12.6% based on current market assessments
of the time value of money and the risks specific to the
Company. Cash flows beyond the five-year period have been
extrapolated using a steady 2% growth rate. This growth rate
does not exceed the long-term average growth rate for the
industry. Management believes that reasonably possible changes
in the key assumptions would not cause the carrying amount of
the reporting unit to exceed its recoverable amount.
|
|
|
Key sources of estimation uncertainty |
As of December 31, 2005, Telenet Group Holding and its
subsidiaries had available combined cumulative tax loss
carry-forwards of
672,617 (2004:
1,056,185).
Under current Belgian tax laws, these loss carry-forwards
IV-232
TELENET GROUP HOLDING NV
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
have an indefinite life and may be used to offset the future
taxable income of Telenet Group Holding and its subsidiaries.
Two subsidiaries acquired in a previous business combination
made taxable profits of
37,135 (2004:
11,060) during
the year and utilized tax loss carryforwards which had not been
previously recognized as deferred tax assets resulting in a
deferred tax expense of
14,917 (2004:
4,443).
A deferred tax asset is recognised for the carryforward of
unused tax losses to the extent that it is probable that future
taxable profit will be available against which the unused tax
losses can be utilized. The carrying amount of deferred tax
assets is reviewed at each balance sheet date and reduced to the
extent that it is no longer probable that sufficient taxable
profits will be available to allow all or part of the asset to
be recovered. In view of the Companys history of losses,
no net deferred tax assets have been recognized.
|
|
4. |
PROPERTY AND EQUIPMENT |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land, | |
|
|
|
|
|
|
|
|
|
|
Buildings and | |
|
|
|
|
|
Furniture, | |
|
|
|
|
Leasehold | |
|
|
|
Construction | |
|
Equipment | |
|
|
|
|
Improvements | |
|
Network | |
|
in Progress | |
|
and Vehicles | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At January 1, 2004
|
|
|
35,499 |
|
|
|
1,228,242 |
|
|
|
9,732 |
|
|
|
21,099 |
|
|
|
1,294,572 |
|
Additions
|
|
|
1,365 |
|
|
|
17,195 |
|
|
|
105,168 |
|
|
|
5,108 |
|
|
|
128,836 |
|
Transfers
|
|
|
1,378 |
|
|
|
81,284 |
|
|
|
(82,662 |
) |
|
|
|
|
|
|
|
|
Disposals
|
|
|
|
|
|
|
(1,649 |
) |
|
|
|
|
|
|
(90 |
) |
|
|
(1,739 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2004
|
|
|
38,242 |
|
|
|
1,325,072 |
|
|
|
32,238 |
|
|
|
26,117 |
|
|
|
1,421,669 |
|
Additions
|
|
|
5,547 |
|
|
|
|
|
|
|
119,789 |
|
|
|
17,196 |
|
|
|
142,532 |
|
Transfers
|
|
|
2,677 |
|
|
|
126,679 |
|
|
|
(129,356 |
) |
|
|
|
|
|
|
|
|
Disposals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,145 |
) |
|
|
(2,145 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2005
|
|
|
46,466 |
|
|
|
1,451,751 |
|
|
|
22,671 |
|
|
|
41,168 |
|
|
|
1,562,056 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At January 1, 2004
|
|
|
2,783 |
|
|
|
293,926 |
|
|
|
|
|
|
|
6,425 |
|
|
|
303,134 |
|
Depreciation charge for the year
|
|
|
1,052 |
|
|
|
150,247 |
|
|
|
|
|
|
|
8,022 |
|
|
|
159,321 |
|
Eliminated on Disposal
|
|
|
|
|
|
|
(1,472 |
) |
|
|
|
|
|
|
(90 |
) |
|
|
(1,562 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2004
|
|
|
3,835 |
|
|
|
442,701 |
|
|
|
|
|
|
|
14,357 |
|
|
|
460,893 |
|
Depreciation charge for the year
|
|
|
2,020 |
|
|
|
149,986 |
|
|
|
|
|
|
|
7,077 |
|
|
|
159,083 |
|
Eliminated on Disposal
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,839 |
) |
|
|
(1,839 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2005
|
|
|
5,855 |
|
|
|
592,687 |
|
|
|
|
|
|
|
19,595 |
|
|
|
618,137 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2005
|
|
|
40,611 |
|
|
|
859,064 |
|
|
|
22,671 |
|
|
|
21,573 |
|
|
|
943,919 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2004
|
|
|
34,407 |
|
|
|
882,371 |
|
|
|
32,238 |
|
|
|
11,760 |
|
|
|
960,776 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Amount of Finance Leases included in Property and
Equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2005
|
|
|
18,256 |
|
|
|
5,790 |
|
|
|
|
|
|
|
468 |
|
|
|
24,514 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2004
|
|
|
18,950 |
|
|
|
6,254 |
|
|
|
|
|
|
|
573 |
|
|
|
25,777 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IV-233
TELENET GROUP HOLDING NV
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A reconciliation of the changes in goodwill is depicted below:
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Beginning balance
|
|
|
1,027,461 |
|
|
|
1,031,904 |
|
Use of net operating losses acquired in business combinations
(Note 13)
|
|
|
(14,917 |
) |
|
|
(4,443 |
) |
|
|
|
|
|
|
|
|
|
|
1,012,544 |
|
|
|
1,027,461 |
|
|
|
|
|
|
|
|
|
|
6. |
OTHER INTANGIBLE ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Network | |
|
Trade | |
|
|
|
Customer | |
|
|
|
|
|
|
User Rights | |
|
Name | |
|
Software | |
|
Lists | |
|
Other | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At January 1, 2004
|
|
|
120,334 |
|
|
|
121,000 |
|
|
|
58,657 |
|
|
|
67,473 |
|
|
|
29,258 |
|
|
|
396,722 |
|
Additions
|
|
|
16,522 |
|
|
|
|
|
|
|
12,063 |
|
|
|
518 |
|
|
|
4,074 |
|
|
|
33,177 |
|
Disposals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,576 |
) |
|
|
(5,576 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2004
|
|
|
136,856 |
|
|
|
121,000 |
|
|
|
70,720 |
|
|
|
67,991 |
|
|
|
27,756 |
|
|
|
424,323 |
|
Additions
|
|
|
1,311 |
|
|
|
|
|
|
|
34,632 |
|
|
|
|
|
|
|
8,859 |
|
|
|
44,802 |
|
Disposals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,962 |
) |
|
|
(23,962 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2005
|
|
|
138,167 |
|
|
|
121,000 |
|
|
|
105,352 |
|
|
|
67,991 |
|
|
|
12,653 |
|
|
|
445,163 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At January 1, 2004
|
|
|
19,000 |
|
|
|
22,183 |
|
|
|
37,661 |
|
|
|
9,958 |
|
|
|
14,806 |
|
|
|
103,608 |
|
Charge for the year
|
|
|
9,685 |
|
|
|
8,067 |
|
|
|
10,928 |
|
|
|
6,540 |
|
|
|
9,788 |
|
|
|
45,008 |
|
Disposals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,069 |
) |
|
|
(5,069 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2004
|
|
|
28,685 |
|
|
|
30,250 |
|
|
|
48,589 |
|
|
|
16,498 |
|
|
|
19,525 |
|
|
|
143,547 |
|
Charge for the year
|
|
|
10,343 |
|
|
|
8,067 |
|
|
|
13,720 |
|
|
|
6,532 |
|
|
|
8,570 |
|
|
|
47,232 |
|
Disposals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,963 |
) |
|
|
(23,963 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2005
|
|
|
39,028 |
|
|
|
38,317 |
|
|
|
62,309 |
|
|
|
23,030 |
|
|
|
4,132 |
|
|
|
166,816 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2005
|
|
|
99,139 |
|
|
|
82,683 |
|
|
|
43,043 |
|
|
|
44,961 |
|
|
|
8,521 |
|
|
|
278,347 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2004
|
|
|
108,171 |
|
|
|
90,750 |
|
|
|
22,131 |
|
|
|
51,493 |
|
|
|
8,231 |
|
|
|
280,776 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys intangible assets other than goodwill each
have a finite life and are comprised primarily of network user
rights, trade name, software development and acquisition costs,
customer lists, broadcasting rights and contracts with
suppliers. These intangible assets are amortized on a
straight-line basis over their estimated useful lives. The
Company evaluates the estimated useful lives of its finite
intangible assets each reporting period to determine whether
events or circumstances warrant revised estimates of useful
lives.
Primarily in connection with the acquisitions of Telenet Holding
NV (Telenet Holding) in March 2001 and the Canal+
acquisition in December 2003, certain identifiable intangible
assets, including customer lists, broadcasting rights, supply
contracts and the Telenet trade name, were recorded
separate from goodwill. Customer lists reflect
53,000 relating
to the estimated value of the customers with access to the
Combined Network at the time of the acquisition of Telenet
Holding and
14,991 relating
to the estimated value of the
IV-234
TELENET GROUP HOLDING NV
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
subscriber base of Canal+ at the time of its acquisition. Supply
contracts were assigned a value of
2,125 based on
the estimated value of the agreements Canal+ had with major
content providers at the time of the acquisition. Broadcasting
rights were valued at
12,435 at the
time of the Canal+ acquisition and additions are recorded when
the value of the contract is reasonably determinable upon
signing. The trade name recognized in intangible assets relates
to the Telenet trade name acquired in the 2001
acquisition of Telenet Holding. Fair market valuations of
acquired intangible assets were performed for these and other
acquisitions made by the Company. The identified intangible
assets are amortized on a straight line basis over 3 to
20 years.
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Trade receivables
|
|
|
117,771 |
|
|
|
100,331 |
|
Less: provision for impairment of receivables
|
|
|
(19,094 |
) |
|
|
(15,544 |
) |
|
|
|
|
|
|
|
Trade receivables, net
|
|
|
98,677 |
|
|
|
84,787 |
|
|
|
|
|
|
|
|
The Company recognised a loss of
4,520 and
7,941 for the
impairment of its trade receivables during the years ended
December 31, 2005 and 2004, respectively. The loss has been
included in cost of services provided in the income statement.
There is no concentration of credit risk with respect to trade
receivables, as the Company has a large number of customers.
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Prepaid taxes and VAT
|
|
|
1,190 |
|
|
|
4,168 |
|
Inventory
|
|
|
8,212 |
|
|
|
|
|
Receivable from Electrabel
|
|
|
7,965 |
|
|
|
8,039 |
|
Miscellaneous receivables
|
|
|
3,705 |
|
|
|
3,582 |
|
Prepaid content
|
|
|
2,270 |
|
|
|
2,125 |
|
Prepayments
|
|
|
3,111 |
|
|
|
2,889 |
|
Other
|
|
|
215 |
|
|
|
47 |
|
|
|
|
|
|
|
|
|
|
|
26,668 |
|
|
|
20,850 |
|
|
|
|
|
|
|
|
|
|
9. |
CASH AND CASH EQUIVALENTS |
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Cash at bank and on hand
|
|
|
11,422 |
|
|
|
13,082 |
|
Commercial paper
|
|
|
159,664 |
|
|
|
|
|
Certificates of deposit
|
|
|
39,273 |
|
|
|
132,106 |
|
|
|
|
|
|
|
|
|
|
|
210,359 |
|
|
|
145,188 |
|
|
|
|
|
|
|
|
The Company holds commercial paper with a weighted average
interest rate of 2.31% (2004: 2.1%) and an average maturity of
32 days (2004: 61 days). The certificates of deposit
have a weighted average interest rate of 2.3% (2004: 2.1%) and
an average maturity of 9 days (2004: 13 days).
IV-235
TELENET GROUP HOLDING NV
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Following the end of the Employee Offering on October 21,
2005 and the expiration of the Over Allotment Period relating to
the Secondary Offering on November 9, 2005, the
shareholders are as follows:
|
|
|
|
|
|
|
|
|
|
|
Number of | |
|
Percentage of | |
Name of Shareholder |
|
Shares | |
|
Shares | |
|
|
| |
|
| |
Liberty Global Consortium(1)
|
|
|
21,542,474 |
|
|
|
21.5 |
% |
Mixed Intercommunales(2)
|
|
|
16,187,545 |
|
|
|
16.1 |
% |
GIMV NV(3)
|
|
|
4,003,794 |
|
|
|
4.0 |
% |
Financial Consortium(4)
|
|
|
9,711,089 |
|
|
|
9.7 |
% |
Pure Intercommunales/ Interkabel Vlaanderen CVBA(5)
|
|
|
4,163,190 |
|
|
|
4.2 |
% |
Electrabel
|
|
|
91,909 |
|
|
|
0.1 |
% |
Suez Connect(6)
|
|
|
360,000 |
|
|
|
0.4 |
% |
Other(7)
|
|
|
258,226 |
|
|
|
0.2 |
% |
Free Float (arising from Primary and Secondary Offerings)
|
|
|
43,886,626 |
|
|
|
43.8 |
% |
|
|
|
|
|
|
|
Total
|
|
|
100,204,853 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
(1) |
The Liberty Global Consortium (formerly known as the Cable
Partners Consortium) includes two entities controlled by
Belgian Cable Investors (BCI), InvestCo Belgian
Cable 1 S.à R.L. and InvestCo Belgian Cable 2 S.à R.L
and Chellomedia Investments BV. BCI is ultimately controlled by
Liberty Global, Inc., Evercore Capital Partners Cayman L.P.,
Evercore Capital Partners (NQ) Cayman L.P., Evercore
Capital Offshore Partners Cayman L.P. and Evercore Co-Investment
Partnership Cayman L.P. are also members of the consortium
(collectively, Evercore). Additional members of the
consortium are CDP Capital Communications Belgique Inc., a
private investment subsidiary of the Caisse de dépôt
et placement du Quebec (CDPQ) and MLPE. |
|
(2) |
The ten Mixed Intercommunales (MICs) are
Intercommunale Maatschappij voor Gas en Electriciteit van het
Westen, Intercommunale Maatschappij voor Energievoorziening
Antwerpen, Intercommunale Vereniging voor Energieleveringen in
Midden-Vlaanderen, Intercommunale Maatschappij voor
Televisiedistributie, Intercommunale Vereniging voor de
Energiedistributie in de Kempen en het Antwerpse, IVERLEK,
Intercommunale Maatschappij voor Televisiedistributie in het
Gebied van Kempen en Polder, Intercommunale Maatschappij voor
Televisiedistributie op de Linker Schelde-Oever, Intercommunale
Maatschappij voor Televisiedistributie in Oost-Vlaanderen and
Intercommunale Maatschappij voor Televisiedistributie in
West-Vlaanderen. |
|
(3) |
GIMV NV owns these shares together with its affiliates
Adviesbeheer GIMV Information & Communication
Technology NV, V.I.M NV and Gimfin NV. |
|
(4) |
The Financial Consortium is composed of the
following regional financial institutions: Finstrad NV, Gevaert
NV, Ibel NV, KBC Private Equity NV and Sofinim NV. In its role
as an arranger under the Senior Credit Facility, KBC Bank NV
directly holds 47,154 shares. |
|
(5) |
The four PICs are Provinciale Intercommunale
Electriciteitsmaatschappij van Limburg, Intercommunale voor
Teledistributie van het Gewest Antwerpen, West-Vlaamse Energie-
en Teledistributiemaatschappij and Provinciale Brabantse
Energiemaatschappij. The PICs hold their shares through
Interkabel Vlaanderen CVBA (Interkabel), which is an
entity controlled by the PICs. |
|
(6) |
On December 9, 2003, pursuant to the acquisition of Telenet
Solutions and its subsidiaries, 360,000 shares of Telenet
Group Holding were issued to Suez Connect SA. |
|
(7) |
Includes the 14,269 shares that were issued under the
Employee Offering. |
IV-236
TELENET GROUP HOLDING NV
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Telenet Group Holding currently has the following shares
outstanding, all of which are treated as one class in the loss
per share calculation:
|
|
|
98,039,912 ordinary shares; |
|
|
2,164,911 dispreference shares that are held by Interkabel and
the Liberty Global Consortium, which have the same rights as the
ordinary shares except that they are subject to an
8.02 liquidation
dispreference, such that in any liquidation of Telenet Group
Holding the dispreference shares would only participate in the
portion of the proceeds of the liquidation that exceeded
8.02 per
share. Dispreference shares may be converted into ordinary
shares at a rate of 1.04 to 1; and |
|
|
30 Golden shares held by the mixed intercommunales, which have
the same rights as the ordinary shares and which also give their
holders the right to appoint representatives to the Regulatory
Board, which oversees the public interest guarantees related to
our offering of digital television. |
In December 2004, Cable Partners Europe sold a majority
controlling interest in its subsidiary CAHB to an entity
controlled by Liberty Media International. Prior to this
transaction, CAHB was the controlling shareholder of the Cable
Partners Consortium, which represented 21.4% of the shares.
Following the transaction, CAHB was renamed Belgian Cable
Investors LLC and the CAHB subsidiaries Callahan Associates
Belgium 1 S.à R.L. and Callahan Associates Belgium 2
S.à R.L. were renamed InvestCo Belgian Cable 1 S.à
R.L. and InvestCo Belgian Cable 2 S.à R.L. respectively.
Together with the other shareholders in InvestCo Belgian Cable 1
S.à R.L. and InvestCo Belgian Cable 2 S.à R.L., and
with the interest in Telenet Group Holding owned directly by
Chellomedia Investments BV and several affiliates of Evercore
Partners, Inc. (together, InvestCo Belgian Cable),
Belgian Cable Investors LLC controls 21.5% of the shares as
majority shareholder of the Liberty Global Consortium.
|
|
|
Employee Stock Based Compensation |
On November 23, 1999 (the 1999 Plan) and
November 25, 1998 (the 1998 Plan), Telenet
Holding granted options to certain employees to
purchase 77,500 and 42,250 of its shares, respectively, at
an exercise price of
24.79 per
share for these purposes. Options were fully vested in January
2003 for the 1999 Plan and March 2002 for the 1998 Plan, and can
be exercised annually through 2009 and 2008, respectively, in
the months March, June, September and December, with the
exception of the last exercise period that runs from
November 1 to November 30.
In October 2001, the holders of options were granted the
contractual right pursuant to which they were entitled to sell
55% of the Telenet Holding shares, which they obtained upon the
exercise of the options, to CAI Belgium at the fair value of
such shares at the time of exercise of the put option. Also in
October 2001, following the restructuring of the Company,
Telenet Holding, on behalf of Telenet Group Holding, granted to
the option holders an additional contractual right to convert
shares, which they obtain upon the exercise of options to
purchase Telenet Holding shares, to Telenet Group Holding
shares. The exchange ratio will reflect the fair market
valuation of Telenet Holding and Telenet Group Holding at the
time of the exchange. These contractual rights can be exercised
within a period of one month after the exercise of the options
and will expire upon the maturity of the 1998 and 1999 plans.
On September 29, 2005, in anticipation of the Offering, the
Company requested the holders of the remaining 44,390 options
under the 1999 and 1998 Plans to exercise their outstanding
options and offered to either sell the Telenet Holding shares
they received from the exercise of the options to Telenet Bidco
for cash or to convert them into shares of Telenet Group
Holding. All the option holders exercised their remaining
Telenet Holding options and sold their Telenet Holding Shares to
Telenet Bidco for
50 per
share plus an additional amount contingent upon the closing
share price for the Company on the first day of trading on
Euronext. The
IV-237
TELENET GROUP HOLDING NV
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Company paid the option holders
1,120 in
September 2005 and an additional amount of
324 in October
2005 for the contingent consideration.
|
|
|
Class A and Class B Options |
In August 2004, the Company granted 1,500,000 Class A
Options to certain members of management to subscribe to
1,500,000 Class A Profit Certificates (Class A
Options). Except for 506,712 Class A Options that
vested immediately upon grant, the vesting period of the
Class A Options extends to a maximum to 40 months and
can be exercised through June 2009. The fair value of the
Class A Options was determined on the date of grant to be
8.46 using the
Black-Scholes option-pricing model with the following
assumptions: annual Euro swap interest rate for each respective
expiration date, expected life of 4.9 years, a dividend
yield of 0.0% and volatility of 24%.
In December 2004, the Company offered 1,251,000 of the 1,350,000
authorized Class B Options to certain members of management
to subscribe to 1,251,000 Class B Profit Certificates
(Class B Options). Of the 1,251,000
Class B Options offered by the Company, 1,083,000 were
accepted in February 2005. The remaining 267,000 Class B
Options were cancelled on September 20, 2005. Except for
105,375 Class B Options that vested immediately upon grant,
the Class B Options vest over 4 years and can be
exercised through December 2009. The fair value of the
Class B Options was determined on the date of grant to be
5.12 using the
Black-Scholes option-pricing model with the following
assumptions: annual Euro swap interest rate for each respective
expiration date, expected life of 4.9 years, a dividend
yield of 0.0% and volatility of 20%.
The Class A and the Class B Options must be exercised
in multiples of three, giving the right to acquire three
Class A Profit Certificates for payment of
20 or three
Class B Profit Certificates for payment of
25. The
Class A and Class B Profit Certificates are
exchangeable into shares of the Company on a one for one basis,
subject to certain conditions being met. Upon exercise, these
profit certificates give the holders the right to receive
dividends equal to dividends distributed, if any, to the holders
of the Companys shares.
In the case of an initial public offering or a change of
control, the vesting for half of the remaining non-vested
Class A Options would be brought forward to the date of the
offering or change in control. In contemplation of the IPO, the
Board of Directors decided at its September 2, 2005 meeting
to accelerate the vesting of 121,968 Class B Options,
contingent upon the closing of the IPO which occurred on
October 11, 2005. The terms and conditions of the
certificates as originally granted did not provide for such
accelerated vesting but allowed the Board of Directors the
possibility of accelerating vesting subsequent to the date of
the grant. As a result of this modification, additional
compensation expense of
576 was incurred
in October 2005 based on the increase in the intrinsic value of
the Class A Option from the date of grant. The remaining
non-vested Class A and Class B Options will vest over
the remaining original vesting periods.
IV-238
TELENET GROUP HOLDING NV
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A summary of the activity of the Companys stock options
for the years ended December 31, 2005 and 2004 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
Outstanding Options | |
|
|
| |
|
|
Number of | |
|
Weighted Average | |
|
|
Options | |
|
Exercise Price | |
|
|
| |
|
| |
Balance, January 1, 2004
|
|
|
44,390 |
|
|
|
24.79 |
|
Class A Options granted
|
|
|
1,500,000 |
|
|
|
6.67 |
|
|
|
|
|
|
|
|
Balance December 31, 2004
|
|
|
1,544,390 |
|
|
|
7.19 |
|
Class B Options granted
|
|
|
1,083,000 |
|
|
|
8.33 |
|
1998 Plan & 1999 Plan options exercised
|
|
|
(44,390 |
) |
|
|
24.79 |
|
Class B options exercised
|
|
|
(62,877 |
) |
|
|
8.33 |
|
|
|
|
|
|
|
|
Balance December 31, 2005
|
|
|
2,520,123 |
|
|
|
7.34 |
|
|
|
|
|
|
|
|
The following table summarizes information about stock options
outstanding and exercisable as of December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted | |
|
|
|
|
|
|
|
|
Average | |
|
Weighted | |
|
|
Number of Options | |
|
Number of Options | |
|
Remaining | |
|
Average | |
|
|
Outstanding | |
|
Exercisable | |
|
Contractual Life | |
|
Exercise Price | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
|
|
(In euros) | |
Class A Options
|
|
|
1,500,000 |
|
|
|
1,395,807 |
|
|
|
42 months |
|
|
|
6.67 |
|
Class B Options
|
|
|
1,020,123 |
|
|
|
461,892 |
|
|
|
48 months |
|
|
|
8.33 |
|
|
|
|
Subordinated Debt Warrants |
The Company has 3,426,000 subordinated debt warrants outstanding
(the Subordinated Debt Warrants). Of these,
2,960,000 warrants relate to warrants that had previously been
issued to the Cable Partners Consortium, GIMV, the Financial
Consortium and the MICs and whose terms where restated and
amended in conjunction with the December 2003 issuance of the
Senior Notes and the Senior Discount Notes, and the modification
of the Senior Credit Facility (the Refinancing). The
remaining 466,000 Subordinated Debt Warrants were issued to GIMV
and the Financial Consortium in connection with the Refinancing
in 2003.
Each Subordinated Debt Warrant entitles the holder thereof to
three shares of Telenet Group Holding upon payment of an
exercise price of
40.
Alternatively, holders may opt for a cashless
exercise of the Subordinated Debt Warrants. In such a case, they
will be entitled to acquire a reduced number of shares of
Telenet Group Holding, using the value of their warrants
(measured by the market value of the shares of Telenet Group
Holding at the time of exercise, less the exercise price of the
warrants) to acquire shares of Telenet Group Holding at their
market value. The warrants can be exercised at any time during
the exercise period ending on August 9, 2009.
In conjunction with the Senior Credit Facility obtained in July
2002, the Company issued in August 2002 a total of 100,000
detachable warrants, which vested immediately upon issuance.
Until the expiration date in August 2007, these warrants gave
the holders the right to purchase a number of the Companys
ordinary shares for
0.01 per
warrant. The number of shares would only be known at the
exercise date as it was
IV-239
TELENET GROUP HOLDING NV
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
ultimately based on the number of outstanding shares at
August 9, 2002, adjusted by various factors, including
additions for shares issued upon the exercise of other warrants.
These warrants are no longer held by the lenders and all but
15,714 have been cancelled. The remaining 15,714 warrants were
transferred as part of the settlement of the subordinated
shareholder debts that were repaid on December 22, 2003. On
August 24, 2005, the Companys Chief Executive Officer
exercised the 15,714 Bank Warrants acquired in 2004 at a price
of 0.01 per
21 shares, and, as a result, acquired 329,994 shares.
|
|
11. |
DEBT AND OTHER FINANCING |
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Senior Credit Facility:
|
|
|
|
|
|
|
|
|
|
Tranche A
|
|
|
218,880 |
|
|
|
314,045 |
|
|
Tranche B
|
|
|
11,120 |
|
|
|
15,955 |
|
|
Tranche C2
|
|
|
|
|
|
|
110,000 |
|
|
Tranche E
|
|
|
405,000 |
|
|
|
300,000 |
|
Senior Notes
|
|
|
493,175 |
|
|
|
500,000 |
|
Senior Discount Notes(1)
|
|
|
220,861 |
|
|
|
263,150 |
|
Clientele Fee
|
|
|
42,379 |
|
|
|
43,748 |
|
Annuity Fee
|
|
|
53,822 |
|
|
|
57,281 |
|
Finance lease obligations
|
|
|
26,497 |
|
|
|
27,350 |
|
|
|
|
|
|
|
|
|
|
|
1,471,734 |
|
|
|
1,631,529 |
|
Plus: accrued interest
|
|
|
17,830 |
|
|
|
13,080 |
|
Less: deferred financing fees
|
|
|
(44,650 |
) |
|
|
(63,845 |
) |
|
|
|
|
|
|
|
|
|
|
1,444,914 |
|
|
|
1,580,764 |
|
Less: current portion
|
|
|
(156,129 |
) |
|
|
(20,009 |
) |
|
|
|
|
|
|
|
Total long-term debt
|
|
|
1,288,785 |
|
|
|
1,560,755 |
|
|
|
|
|
|
|
|
|
|
(1) |
Accreted balance of the Senior Discount Notes, converted to
Euros on December 31, 2005 and 2004 at the accounting rate
of $1.1797 to
1.00 and $1.3621
to 1.00,
respectively. |
The Companys debt is denominated in Euros with the
exception of the Senior Discount Note which is denominated in
U.S. Dollars. Fixed interest rates applied to 48.5% of the
total financial debt (2004: 46.8%). The weighted average
interest rate at year end was 9.77% on fixed interest rate loans
(2004: 9.86%) and 4.83% on floating interest rate loans (2004:
5.34%).
On December 22, 2003, Telenet Communication issued Senior
Notes with a principal amount of
500,000,
receiving net proceeds of
482,310.
Interest on the notes is payable semi-annually at an annual rate
of 9%. The notes do not have required principal repayments prior
to maturity on December 15, 2013.
Telenet Communications initiated an offer for
125,522 of
principal and accrued interest of its Senior Notes on
November 30, 2005. Under the terms of the offer, which
closed in January 2006, Telenet Communications redeemed
124,773 of
principal of the Senior Notes plus accrued interest of
749, and paid a
9.0% redemption premium of
11,230,
resulting in a total payment to holders of the Senior Notes of
136,752.
IV-240
TELENET GROUP HOLDING NV
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
On December 22, 2003, the Company issued Senior Discount
Notes at 57.298% of par value with a principal amount at
maturity of $558,000 (or
450,654 using
the exchange rate obtained upon the issuance of $1.2382 per
1.00), receiving
net proceeds of
242,527.
Interest on the notes started accreting from December 22,
2003 at an annual rate of 11.5%, compounded semi-annually.
Semi-annual interest payments commence on June 15, 2009 and
continue through June 15, 2014. There are no required
principal repayments prior to maturity.
In connection with the issuance of the Senior Discount Notes,
the Company entered into a registration rights agreement
pursuant to which it undertook to either complete a registered
exchange offer (or, if required, cause a shelf registration
statement to become effective) with respect to the Senior
Discount Notes by June 30, 2005, or to pay in cash
liquidated damages at a rate equal to 1% per annum of the
accreted value of the Senior Discount Notes until
December 31, 2005. The accreted value of the Senior
Discount notes as of June 30, 2005 was $379 million.
Because the Company has not completed a registered exchange
offer (or caused a shelf registration statement to become
effective) with respect to the Senior Discount Notes as of
June 30, 2005, it paid liquidated damages of $1,150 (or
973) to holders
of the Senior Discount Notes on December 15, 2005. Under
the terms of the registration rights agreement, the obligation
to pay liquidated damages will continue until the earlier of the
date that (i) a registered exchange offer is completed with
respect to the Senior Discount Notes, (ii) a shelf
registration statement, if requirement under the registration
rights agreement, is declared effective by the SEC, or
(iii) the period referred to in Rule 144(k) under the
Securities Act expires with respect to the Discount Notes.
On October 17, 2005, Telenet Group Holding initiated an
offer for up to 35% of the accreted value of its Senior Discount
Notes, as calculated under the terms of the indenture governing
such notes, including an adjustment for amounts redeemed under
the Change of Control Offer for the Senior Discount Notes,
described below, such that not less than 65% of the Senior
Discount Notes remains outstanding. Under the terms of the
offer, which closed on November 23, 2005, Telenet Group
Holding redeemed Senior Discount Notes with an accreted value of
$136,171
(115,233),
representing 34.6% of $393,743
(465,286), the
total accreted value of the Senior Discount Notes as of such
date, and paid an 11.5% redemption premium of $15,660
(13,252). In
addition, Telenet Group Holding paid $552
(467) in accrued
liquidated damages with respect to the redeemed Senior Discount
Notes. The redemption cost associated with this exercise was
recorded as an increase in interest expense in the fourth
quarter of 2005.
|
|
|
Change of Control Offers for the Telenet Group Holding
Senior Discount Notes and Telenet Communications Senior
Notes |
Certain of the Companys shareholders entered into an
agreement on October 14, 2005 which, among other matters,
amended certain governance terms. The Company concluded that
these changes resulted in a Change of Control within the
definitions of the relevant indentures. Therefore, on
October 17, 2005, Telenet Group Holding and Telenet
Communications initiated change of control offers for the full
accreted value and outstanding principal amount of Senior
Discount Notes and Senior Notes, respectively (the Change
of Control Offers). As per the terms of the indentures
governing the Senior Discount Notes and Senior Notes, the Change
of Control Offers were made at 101% of accreted value and
outstanding principal amount, respectively. The Change of
Control Offers expired on November 18, 2005, at which time
$2,523 (2,135)
of face value at redemption of the Senior Discount Notes and
6,825 of the
Senior Notes were tendered for redemption and settled during
November 2005 together with accreted or accrued interest, as
appropriate, the 1% redemption premium and the accrued
liquidated damages in respect of the Senior Discount Notes.
Pursuant to the Change of Control Offers, the total cost of the
Senior Discount Notes purchased was $2,559
(2,165) and the
total cost of the Senior Notes purchased was
7,165.
IV-241
TELENET GROUP HOLDING NV
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company has a senior secured facility currently providing up
to 835,000 in
committed financing from a syndicate of lenders and in various
tranches (the Senior Credit Facility). A further
150,000 in
uncommitted senior secured facilities has also been obtained by
the Company. Since the date that the Senior Credit Facility was
originally signed in July 2002, the Company has amended the
terms and structure and made partial prepayments of the Senior
Credit Facility in line with its requirements and its evolving
credit profile.
In March 2004, the Company prepaid
100,000 of the
Senior Credit Facility using proceeds of the Senior Notes issued
on December 22, 2003. On March 31, 2005, as part of a
series of amendments to its Senior Credit Facility, the Company
paid 210,000 to
partially reduce the outstanding principal of Tranches A and B
and to fully repay the outstanding principal of Tranche C2,
while at the same time drawing
105,000 under
Tranche E, resulting in a net prepayment of
105,000 under
the Senior Credit Facility. The Company cancelled
Tranche C2, including its undrawn balance, and increased
the available committed revolving credit facility under
Tranche D from
100,000 to
200,000,
resulting in an increase in undrawn commitments under the Senior
Credit Facility from
140,000 to
200,000. In
addition, the Company obtained an uncommitted acquisition and
liquidity facility of
150,000,
Tranche C, from the senior lenders and reduced the margins
applicable for Tranches A, B, D and E. As a result of these
amendments, the Company wrote off
6,799 of debt
issuance cost related to the Senior Credit Facility in the first
quarter of 2005 and capitalized new debt issuance costs for an
amount of 1,497.
As of December 31, 2005, the major terms and conditions of
the various committed tranches of the Senior Credit Facility
were as follows:
|
|
|
Tranche A: The Tranche A facility provides for
an amortizing term loan and guarantee facility expiring in 2009
for an amount of up to
218,880 (2004:
314,045).
Amounts under the facility bear interest at Euribor plus a
margin of 2.50% as of December 31, 2004 and 3% from
January 1, 2005. This margin decreases over time to the
extent that the Companys leverage is reduced. |
|
|
Tranche B: The Tranche B facility provides for
an amortizing revolving credit facility, expiring in 2009, of up
to 11,121 (2004:
15,955). Amounts
under the facility bear interest at Euribor plus a margin of up
to 2.50% as of December 31, 2004 and up to 3% from
January 1, 2005. This margin decreases over time to the
extent that the Companys leverage is reduced. |
|
|
Tranche C2: Tranche C2 was a non-amortizing
term loan with a principal amount of
150,000 which
matures in 2010. Amounts under the Tranche C2 facility
incurred interest at Euribor plus a margin of up to 3.75% (2004:
3.75%). The outstanding principal under this facility was fully
repaid on March 31, 2005. |
|
|
Tranche D: The Tranche D facility provides for
a revolving credit facility, expiring in 2009, of
200,000. Amounts
under the facility bear interest at Euribor plus a margin of up
to 3.50% (2004: 3.50%). This margin decreases over time to the
extent that the Companys leverage is reduced. On
March 31, 2005, the company increased the Tranche D
facility from
100,000 to
200,000. A
commitment fee of 0.75% is payable on the undrawn balance of
Tranche D. As of December 31, 2005, the undrawn
availability was
200,000 (2004:
100,000). |
|
|
Tranche E: The Tranche E facility provides for
a non-amortizing term loan, expiring in 2011, of
405,000. Amounts
under the facility bear interest at Euribor plus a margin of
2.50% (2004: 3.25%). On March 31, 2005 the Company
increased the Tranche E facility from
300,000 to
405,000 and the
Company drew
105,000 under
the Tranche E facility to repay
105,000 under
the Tranche C2 facility. As of December 31, 2005 and
2004, this facility was fully drawn. |
No commitment fees are payable in respect of Tranches A, B and
E. The Senior Credit Facility contains representations and
warranties, covenants, information requirements, events of
default and financial covenants.
IV-242
TELENET GROUP HOLDING NV
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The availability of the undrawn credit facilities is subject to
meeting certain covenant and access tests. The financial
covenants, which are tested on a quarterly basis, measure
performance against, among others, standards for leverage, debt
service coverage, revenues and earnings before interest, taxes,
depreciation and amortization (EBITDA). As part of
the 2005 amendment to the Senior Credit Facility, the financial
covenants are based on IFRSs as adopted by the EU. Additionally,
the agreements contain provisions requiring mandatory loan
prepayments under specific circumstances. As of
December 31, 2005 and 2004, the Company was in compliance
with all of its financial covenants.
|
|
|
Clientele and Annuity Agreements |
In 1996, the Company entered into a Clientele Agreement and an
Annuity Agreement with the Pure Intercommunale Companies
(PICs), through Interkabel Vlaanderen CVBA
(Interkabel), which is a related party of the
Company.
The clientele fee payable under the Clientele Agreement is
payable by the Company in return for access to the cable network
customer database owned and controlled by the PICs. The
clientele fee is payable as long as the Company maintains its
usage rights to the cable network, and is adjusted periodically
depending on the level of inflation. Such payments allow the
PICs to recover part of their historical investment to upgrade
the original cable network to allow for two-way communication
(the HFC Upgrade).
The present value of the clientele fee payments over the first
20 years (being the life of the longest lived assets that
are part of the HFC Upgrade) has been accounted for as network
user rights under intangible assets, and is amortized over 10 or
20 years depending on the useful life of the underlying
assets that make up the HFC Upgrade.
In accordance with the terms of the Annuity Agreement, the PICs
charge an annuity fee, which in substance covers the remaining
60% of the cost of the HFC Upgrade incurred by the PICs, to the
Company. Payments under the Annuity Agreement are due over a
period of 10 or 20 years, depending on the useful life of
the underlying assets that make up the HFC Upgrade incurred by
the PICs. The present value of the future payments under the
Annuity Agreement has been capitalized as network user rights
under intangible assets, and is amortized over 10 or
20 years depending on the useful life of the underlying
assets that make up the HFC Upgrade.
|
|
|
Finance Lease Obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present Value of Minimum | |
|
|
Minimum Lease Payments | |
|
Lease Payments | |
|
|
| |
|
| |
|
|
December 31, | |
|
December 31, | |
|
December 31, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
Within one year
|
|
|
2,159 |
|
|
|
1,902 |
|
|
|
1,184 |
|
|
|
943 |
|
In the second to fifth years, inclusive
|
|
|
11,509 |
|
|
|
10,342 |
|
|
|
8,223 |
|
|
|
6,989 |
|
Thereafter
|
|
|
22,090 |
|
|
|
24,993 |
|
|
|
17,090 |
|
|
|
19,418 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
|
35,758 |
|
|
|
37,237 |
|
|
|
26,497 |
|
|
|
27,350 |
|
Less: future finance charges
|
|
|
(9,261 |
) |
|
|
(9,887 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value of lease obligations
|
|
|
26,497 |
|
|
|
27,350 |
|
|
|
26,497 |
|
|
|
27,350 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: amount due for settlement within 12 months
|
|
|
|
|
|
|
|
|
|
|
(1,184 |
) |
|
|
(943 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount due for settlement after 12 months
|
|
|
|
|
|
|
|
|
|
|
25,313 |
|
|
|
26,407 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IV-243
TELENET GROUP HOLDING NV
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company leases certain assets under finance leases including
buildings, head-ends and certain vehicles with average lease
terms of 12, 20 and 5 years, respectively. Leases of
head-ends include the equipment used to receive signals of
various devices. These devices are used, among other things, to
transmit data, telephony and television signals. For the year
ended December 31, 2005, the average effective borrowing
rate was 3.76% (2004: 3.56%). Interest rates are fixed at the
contract date. All leases are on a fixed repayment basis and no
arrangements have been entered into for contingent rental
payments. The Companys obligations under finance leases
are secured by the lessors title to the leased assets.
Aggregate future principal payments on the total borrowings
under all of the Companys debt agreements other than
finance leases, based on contractual repayment schedules, are as
follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
On demand or within one year
|
|
|
12,342 |
|
|
|
5,986 |
|
In the second year
|
|
|
51,725 |
|
|
|
14,773 |
|
In the third year
|
|
|
52,166 |
|
|
|
71,090 |
|
In the fourth year
|
|
|
52,485 |
|
|
|
71,527 |
|
In the fifth year
|
|
|
52,199 |
|
|
|
71,841 |
|
After five years
|
|
|
1,224,321 |
|
|
|
1,368,962 |
|
|
|
|
|
|
|
|
|
|
|
1,445,238 |
|
|
|
1,604,179 |
|
|
|
|
|
|
|
|
Obligations under the Senior Notes, Senior Discount Notes and
the Senior Credit Facility are guaranteed and cross-guaranteed
by certain subsidiaries of Telenet Group Holding. The
obligations are also secured by mortgages and by pledges of
certain equity interests, material contracts, and other rights
and claims held by certain of Telenet Group Holdings
subsidiaries including, on a consolidated basis, property and
equipment of
943,919,
intangible assets of
278,347, trade
receivables of
98,409 and other
current assets of
97,894.
|
|
12. |
DERIVATIVE FINANCIAL INSTRUMENTS |
The Company seeks to reduce its foreign currency exposure
through a policy of matching, to the extent possible, assets and
liabilities denominated in foreign currencies. In addition, the
Company uses certain derivative financial instruments in order
to manage its exposure to exchange rate and interest rate
fluctuations arising from its operations and funding. The
Company has identified certain foreign exchange forward
contracts, interest rate swaps, caps and collars as cash flow
hedges and has determined that it has no significant embedded
derivative instruments that are required to be bifurcated and
measured at fair value. The Company is also exposed to certain
credit risks.
|
|
|
Foreign Currency Cash Flow Hedges |
In order to hedge the foreign exchange exposure resulting from
the issuance of U.S. dollar-denominated Senior Discount
Notes, the Company purchased a series of foreign exchange
forward contracts for a total nominal amount of $558,000, which
is the fully accreted value of the Senior Discount Notes as of
December 15, 2008 (the Full Accretion Date).
On November 23, 2005, the Company used the proceeds of the
sale of new shares in the primary offering to redeem 35% of the
accreted value of Telenet Group Holdings Senior Discount
Notes, representing
117,368 in
principal (resulting in a total redemption amount of
131,118
including the repurchase premium, accrued
IV-244
TELENET GROUP HOLDING NV
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
interest, accrued liquidated damages and based on the
transaction exchange rate of U.S. $1.1817 per euro). The
redemption reduced the outstanding accreted value on that date
from $396,264 to $257,571. The fully accreted value of the
Senior Discount Notes as of the Full Accretion Date decreased to
$362,700.
In order to align the total nominal amount of the foreign
exchange forward contracts with the outstanding debt on the Full
Accretion Date, the Company has unwound a portion of these
contracts on the early redemption date. The termination of the
contracts resulted in a settlement cost of
4,955.
The hedging instrument in this hedging relationship is the spot
value of the foreign exchange forward contracts, as defined by
the difference between the spot rate at inception and the
closing spot rate. The risk being hedged is the variability of
the Euro-equivalent cash flows related to: (i) the
anticipated fully accreted amount of the Senior Discount Notes
as of the Full Accretion Date, and (ii) the estimated early
redemption amount.
Hedge effectiveness is assessed periodically, based on the
U.S. dollar spot rate, comparing the change in spot value
of the foreign exchange forward contracts with the change in
anticipated Euro-equivalent cash flows upon the future repayment
of the fully accreted value of the Senior Discount Notes. This
implies that the impact of ineffectiveness, together with
changes in the fair value of the forward points on the foreign
exchange forward contracts, will be recorded directly through
earnings.
As of December 31, 2005 and December 31, 2004,
outstanding foreign exchange forward contracts that qualified as
cash flow hedges were as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Forward purchase contracts
|
|
|
|
|
|
|
|
|
Notional amount in U.S. dollars
|
|
$ |
362,700 |
|
|
$ |
558,000 |
|
Weighted average contract price (U.S. dollars per Euro)
|
|
|
1.1930 |
|
|
|
1.1968 |
|
Maturity
|
|
|
December 15, 2008 |
|
|
|
December 15, 2008 |
|
|
|
|
Foreign Exchange Risk Related to Operations |
The Company has used forward and option contracts in order to
limit its exposure to the U.S. dollar fluctuations against
the Euro for transactions that are part of daily operations.
These derivatives are economic hedges but have not been
accounted for as cash flow hedges.
Derivative financial instruments covering operational foreign
exchange risk exposure as of December 31, 2005 and
December 31, 2004 were as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Option contracts
|
|
|
|
|
|
|
|
|
Notional amount in U.S. dollars
|
|
$ |
17,500 |
|
|
$ |
8,000 |
|
Weighted average strike price (U.S. dollars per Euro)
|
|
|
1.17 |
|
|
|
1.27 |
|
Maturity
|
|
From January to July 2006 |
|
From January to July 2005 |
|
|
|
Interest Rate Risk Cash Flow Hedges |
The Company has entered into interest rate swaps, caps and
collars designed to hedge the interest rate exposure associated
with various floating rate debts. The differential between the
fixed rate of the swap, or the strike of the option, and the
floating interest rate multiplied by the notional amount of the
contract is the gain
IV-245
TELENET GROUP HOLDING NV
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
or loss of the contract. This gain or loss is included in
interest expense in the period for which the interest rate
exposure was hedged if the hedge is deemed to be effective.
Interest rate swaps qualifying for cash flow hedge accounting
have been designated as hedging instruments in their entirety.
The time value of cap and collar contracts has been excluded
from the designation. Hedge effectiveness is determined using
the hypothetical derivative method. Cumulative changes in the
fair value of the hedging instrument are compared to cumulative
changes in the fair value of the hypothetical derivative.
When the Company determines that a derivative is not highly
effective as a hedging instrument, hedge accounting is
discontinued prospectively. Consequently, amounts accumulated in
other comprehensive income are transferred to earnings in the
same periods during which the hedged forecasted transaction
affects earnings. When hedge accounting is discontinued because
it is no longer expected that a forecasted transaction will
occur, the Company immediately reclassifies amounts accumulated
in other comprehensive income to earnings.
During 2005, interest rate swaps for a total notional amount of
341,756 were
disqualified as hedging instruments since the hedges were
assessed to be no longer highly effective. The impact on hedging
reserves of these disqualifications is quantified in the summary
table below.
As of December 31, 2005 and December 31, 2004, the
outstanding contracts were as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005 | |
|
December 31, 2004 | |
|
|
| |
|
| |
Interest rate swaps
|
|
|
|
|
|
|
|
|
Notional amount
|
|
|
180,762 |
|
|
|
472,312 |
|
Average pay interest rate
|
|
|
4.78 |
% |
|
|
4.3 |
% |
Average receive interest rate
|
|
|
2.4 |
% |
|
|
2.1 |
% |
Maturity
|
|
|
From 2008 to 2011 |
|
|
|
From 2005 to 2011 |
|
Caps
|
|
|
|
|
|
|
|
|
Notional amount
|
|
|
59,504 |
|
|
|
738,138 |
|
Average cap interest rate
|
|
|
4.4 |
% |
|
|
4.0 |
% |
Maturity
|
|
|
From 2009 to 2017 |
|
|
|
From 2005 to 2017 |
|
Collars
|
|
|
|
|
|
|
|
|
Notional amount
|
|
|
450,000 |
|
|
|
450,000 |
|
Average floor interest rate
|
|
|
2.5 |
% |
|
|
2.5 |
% |
Average cap interest rate
|
|
|
5.4 |
% |
|
|
5.4 |
% |
Maturity
|
|
|
From 2009 to 2011 |
|
|
|
From 2009 to 2012 |
|
IV-246
TELENET GROUP HOLDING NV
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The cumulative impact of the all of the derivative instruments
described above has been allocated between hedging reserves and
earnings as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value | |
|
Hedging Reserves | |
|
Earnings | |
|
|
| |
|
| |
|
| |
January 1, 2004
|
|
|
(30,778 |
) |
|
|
(1,765 |
) |
|
|
(29,013 |
) |
Change in fair value of foreign exchange forward contracts
|
|
|
(44,660 |
) |
|
|
(36,881 |
) |
|
|
(7,779 |
) |
Change in fair value of foreign exchange forward contracts
reclassified into earnings
|
|
|
|
|
|
|
23,973 |
|
|
|
(23,973 |
) |
Change in fair value of foreign exchange option contracts
|
|
|
94 |
|
|
|
|
|
|
|
94 |
|
Change in fair value of interest rate derivatives prior to hedge
inception
|
|
|
12,166 |
|
|
|
|
|
|
|
12,166 |
|
Change in fair value of interest rate derivatives after hedge
inception
|
|
|
(17,956 |
) |
|
|
(11,954 |
) |
|
|
(6,002 |
) |
|
|
|
|
|
|
|
|
|
|
December 31, 2004
|
|
|
(81,134 |
) |
|
|
(26,627 |
) |
|
|
(54,507 |
) |
Change in fair value of foreign exchange forward contracts
|
|
|
51,576 |
|
|
|
62,161 |
|
|
|
(15,540 |
) |
Change in fair value of foreign exchange forward contracts
reclassified into earnings
|
|
|
|
|
|
|
(43,403 |
) |
|
|
43,403 |
|
Change in fair value of foreign exchange option contracts
|
|
|
251 |
|
|
|
|
|
|
|
251 |
|
Change in fair value of interest rate derivatives qualifying for
hedge accounting
|
|
|
252 |
|
|
|
(70 |
) |
|
|
322 |
|
Change in fair value of interest rate derivatives not qualifying
for hedge accounting
|
|
|
6,383 |
|
|
|
|
|
|
|
6,383 |
|
Amortization of the change in fair value of interest rate
derivatives frozen upon discontinuance of hedge accounting
|
|
|
|
|
|
|
9,017 |
|
|
|
(9,017 |
) |
|
|
|
|
|
|
|
|
|
|
December 31, 2005
|
|
|
(22,672 |
) |
|
|
1,078 |
|
|
|
(28,705 |
) |
|
|
|
|
|
|
|
|
|
|
The difference between the cumulative change in fair value of
the derivative instruments and the cumulative amounts booked in
the hedging reserve and earnings amounts to
4,955. This
corresponds to the settlement of foreign exchange forward
contracts as described in detail above.
Credit risk relates to the risk of loss that the Company would
incur as a result of non-performance by counterparties. The
Company maintains credit risk policies with regard to its
counterparties to minimize overall credit risk. These policies
include an evaluation of a potential counterpartys
financial condition, credit rating, and other credit criteria
and risk mitigation tools as deemed appropriate.
The largest share of the gross assets subject to credit risk is
accounts receivable from residential and small commercial
customers located throughout Belgium. The risk of material loss
from nonperformance from these customers is not considered
likely. Reserves for uncollectible accounts receivable are
provided for the potential loss from nonpayment by these
customers based on historical experience.
With regards to credit risk on financial instruments, the
Company maintains a policy of entering into such transactions
only with highly rated European and U.S. financial
institutions.
IV-247
TELENET GROUP HOLDING NV
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The carrying amounts and related estimated fair values of the
Companys significant financial instruments were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005 | |
|
December 31, 2004 | |
|
|
| |
|
| |
|
|
Carrying | |
|
|
|
Carrying | |
|
|
|
|
Amount | |
|
Fair Value | |
|
Amount | |
|
Fair Value | |
|
|
| |
|
| |
|
| |
|
| |
Long-term debt (including short-term maturities)
|
|
|
(1,471,734 |
) |
|
|
(1,558,466 |
) |
|
|
(1,631,529 |
) |
|
|
(1,741,770 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forwards
|
|
|
(10,904 |
) |
|
|
(10,904 |
) |
|
|
(62,480 |
) |
|
|
(62,480 |
) |
Foreign exchange options
|
|
|
27 |
|
|
|
27 |
|
|
|
(224 |
) |
|
|
(224 |
) |
Interest rate swaps
|
|
|
(7,994 |
) |
|
|
(7,994 |
) |
|
|
(14,194 |
) |
|
|
(14,194 |
) |
Caps
|
|
|
(718 |
) |
|
|
(718 |
) |
|
|
(623 |
) |
|
|
(623 |
) |
Collars
|
|
|
(3,083 |
) |
|
|
(3,083 |
) |
|
|
(3,613 |
) |
|
|
(3,613 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative instruments
|
|
|
(22,672 |
) |
|
|
(22,672 |
) |
|
|
(81,134 |
) |
|
|
(81,134 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(1,494,406 |
) |
|
|
(1,581,138 |
) |
|
|
(1,712,663 |
) |
|
|
(1,822,904 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair values of interest rate swaps and foreign exchange
forwards are calculated by the Company based on swap curves
flat, without extra credit spreads. Confirmations of the fair
values received from the contractual counterparties, which are
all commercial banks, are used to validate the internal
calculations. The fair value of derivative instruments
containing option-related features is determined by commercial
banks and is validated by management.
The fair values of our long-term debt instruments are derived as
the lesser of either the call price of the relevant instrument
or the market value as determined by quoted market prices at
each measurement date, where available, or, where not available,
at the present value of future cash flows discounted at rates
consistent with comparable maturities and with similar credit
risk to the appropriate measurement date.
The carrying amounts for financial assets classified as current
assets and the carrying amounts for financial liabilities
classified as current liabilities approximate fair value due to
the short maturity of such instruments. The fair values of other
financial instruments for which carrying amounts and fair values
have not been presented are not materially different than their
related carrying amounts.
Management has applied its judgement in using market data to
develop estimates of fair value. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts
that the Company would realize in a current market exchange.
Telenet Group Holding and its consolidated subsidiaries each
file separate tax returns in accordance with Belgian tax laws.
For financial reporting purposes, Telenet Group Holding and its
subsidiaries calculate their respective tax assets and
liabilities on a separate-return basis. These assets and
liabilities are combined in the accompanying consolidated
financial statements.
IV-248
TELENET GROUP HOLDING NV
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The tax effects of significant temporary differences and tax
loss carry-forwards are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Deferred income tax assets
|
|
|
|
|
|
|
|
|
|
Financial instruments
|
|
|
12,251 |
|
|
|
9,800 |
|
|
Provision for impairment of receivables
|
|
|
5,929 |
|
|
|
2,156 |
|
|
Other
|
|
|
|
|
|
|
125 |
|
|
Tax loss carry-forwards
|
|
|
307,349 |
|
|
|
358,997 |
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
325,529 |
|
|
|
371,078 |
|
|
|
|
|
|
|
|
Deferred income tax liabilities
|
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
1,448 |
|
|
|
5,299 |
|
|
Other
|
|
|
420 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
1,868 |
|
|
|
5,299 |
|
|
|
|
|
|
|
|
|
Net deferred income tax assets
|
|
|
323,661 |
|
|
|
365,779 |
|
|
|
|
|
|
|
|
|
Net deferred income tax recognized in the balance sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2005, Telenet Group Holding and its
subsidiaries had available combined cumulative tax loss
carry-forwards of
672,617 (2004:
1,056,185).
Under current Belgian tax laws, these loss carry-forwards have
an indefinite life and may be used to offset the future taxable
income of Telenet Group Holding and its subsidiaries. As Telenet
Group Holding and virtually all of its subsidiaries have never
realized any substantial taxable profits, no net deferred tax
asset has been recognized.
Two subsidiaries acquired in a previous business combination
made taxable profits of
37,135 (2004:
11,060) during
the year and utilized tax loss carryforwards which had not been
previously recognized as deferred tax assets. The utilization of
tax losses carried forward from previous business combinations
is recorded as a reduction of goodwill using the historic tax
rate of 40.17% applicable at the time of the acquisition while
the deferred tax asset is established using the current tax rate
of 33.99%. This results in a deferred tax expense of
14,917 (2004:
4,443).
Available tax loss carry-forwards were reduced by
381,689 during
2005 as a result of taxable profits being recognized on
permanent tax differences and adjustments related to the mergers
and disallowed expenses.
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Copyright fees
|
|
|
11,131 |
|
|
|
18,611 |
|
Employee benefit obligations
|
|
|
9,868 |
|
|
|
10,170 |
|
Other
|
|
|
2,756 |
|
|
|
2,647 |
|
|
|
|
|
|
|
|
|
|
|
23,755 |
|
|
|
31,428 |
|
|
|
|
|
|
|
|
In 2004, the Company, together with other Belgian cable
operators, concluded negotiations with certain of the
broadcasters and copyright collection agencies in Belgium
related to the majority of the outstanding claims on copyright
fees due by cable operators to the copyright collection
agencies. The Company remains in litigation with smaller
copyright collection agencies and broadcasters although it has
reached an agreement in principle on some of the outstanding
claims. The Company has accrued
22,884 (2004:
28,818) for
settlement of these
IV-249
TELENET GROUP HOLDING NV
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
fees, of which
11,753 (2004:
10,207) is
considered to be short term and is recorded under accrued
expenses and other current liabilities.
|
|
15. |
EMPLOYEE BENEFIT PLANS |
As part of the acquisition of MixtICS NV (MixtICS)
in August 2002, the Company entered into a service and transfer
agreement with Electrabel. Pursuant to this agreement,
Electrabel agreed to provide certain operational services (such
as installation, maintenance and call centre services) to the
Company from August 9, 2002 to April 1, 2004, on which
date the Electrabel employees who provided operational services
to the Company were transferred to Telenet NV.
Based on managements best estimate of the obligations
assumed for the employee benefit plans upon the transfer of
employees, which occurred on April 1, 2004, the Company
recorded a one time charge of
2,923 in the
second quarter of 2004 which was allocated between operating
costs and selling, general and administrative expenses. The
assumed employee benefit plans include long term service awards,
health care premiums, early retirement plans, death benefits and
a defined benefit pension plan, among others.
The majority of Telenets employees participate in defined
contribution plans. By law, those plans provide an average
minimum guaranteed rate of return over the employees
career equal to 3.75% on employee contributions and 3.25% on
employer contributions paid as from January 1, 2004
onwards. Since the actual rates of return have been
significantly higher, no provisions have been accounted for.
During 2005, an amount of
1,430 was paid
by the Company with respect to those plans. The accumulated plan
assets amount to
11,759 at
December 31, 2005. The Company has also recognized a
liability of
1,591 at
December 31, 2005 for long-term service awards.
The amounts recognized in the consolidated balance sheets are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit | |
|
Postretirement | |
|
|
Plans | |
|
Plans | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
Present value of funded obligations
|
|
|
4,719 |
|
|
|
2,265 |
|
|
|
|
|
|
|
|
|
Fair value of plan assets
|
|
|
(1,878 |
) |
|
|
(1,462 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,841 |
|
|
|
803 |
|
|
|
|
|
|
|
|
|
Present value of unfunded obligations
|
|
|
|
|
|
|
|
|
|
|
3,471 |
|
|
|
1,855 |
|
Unrecognized net actuarial loss
|
|
|
(1,440 |
) |
|
|
(101 |
) |
|
|
(490 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net liability in balance sheet
|
|
|
1,401 |
|
|
|
702 |
|
|
|
2,981 |
|
|
|
1,855 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amounts recognized in the consolidated income statements are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit | |
|
Postretirement | |
|
|
Plans | |
|
Plans | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
Service cost
|
|
|
2,186 |
|
|
|
1,787 |
|
|
|
984 |
|
|
|
1,788 |
|
Interest expense
|
|
|
206 |
|
|
|
77 |
|
|
|
142 |
|
|
|
67 |
|
Expected return on plan assets
|
|
|
(74 |
) |
|
|
(53 |
) |
|
|
|
|
|
|
|
|
Actuarial losses recognized in the year
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,323 |
|
|
|
1,811 |
|
|
|
1,126 |
|
|
|
1,855 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Of the charge for the year,
2,825 (2004:
3,314) is
included in costs of services provided in the consolidated
income statement,
350 (2004:
261) is included
in selling, general and administrative and
274 (2004:
91) is included
in finance cost, net.
IV-250
TELENET GROUP HOLDING NV
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Changes in the present value of the defined benefit obligation
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit | |
|
Postretirement | |
|
|
Plans | |
|
Plans | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
Opening defined benefit obligation
|
|
|
2,265 |
|
|
|
410 |
|
|
|
1,855 |
|
|
|
|
|
Service cost
|
|
|
2,186 |
|
|
|
1,787 |
|
|
|
984 |
|
|
|
1,788 |
|
Interest expense
|
|
|
206 |
|
|
|
77 |
|
|
|
142 |
|
|
|
67 |
|
Plan participants contributions
|
|
|
57 |
|
|
|
40 |
|
|
|
|
|
|
|
|
|
Actuarial loss (gain)
|
|
|
326 |
|
|
|
(23 |
) |
|
|
490 |
|
|
|
|
|
Benefits paid
|
|
|
(321 |
) |
|
|
(26 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing defined benefit obligation
|
|
|
4,719 |
|
|
|
2,265 |
|
|
|
3,471 |
|
|
|
1,855 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in the fair value of plan assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit | |
|
Postretirement | |
|
|
Plans | |
|
Plans | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
Opening fair value of plan assets
|
|
|
1,462 |
|
|
|
317 |
|
|
|
|
|
|
|
|
|
Actual return on plan assets
|
|
|
74 |
|
|
|
53 |
|
|
|
|
|
|
|
|
|
Company contributions
|
|
|
1,625 |
|
|
|
1,142 |
|
|
|
|
|
|
|
|
|
Plan participants contributions
|
|
|
56 |
|
|
|
40 |
|
|
|
|
|
|
|
|
|
Actuarial (loss) gain
|
|
|
(1,018 |
) |
|
|
(64 |
) |
|
|
|
|
|
|
|
|
Benefits paid
|
|
|
(321 |
) |
|
|
(26 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing fair value of plan assets
|
|
|
1,878 |
|
|
|
1,462 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The principal assumptions used for the purpose of the actuarial
valuations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined | |
|
Postretirement | |
|
|
Benefit Plans | |
|
Plans | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
Discount rate at December 31
|
|
|
4.00 |
% |
|
|
4.87 |
% |
|
|
4.00 |
% |
|
|
5.00 |
% |
Rate of compensation increase
|
|
|
3.11 |
% |
|
|
3.13 |
% |
|
|
|
|
|
|
|
|
Expected return on plan assets
|
|
|
4.83 |
% |
|
|
4.92 |
% |
|
|
|
|
|
|
|
|
Underlying inflation rate
|
|
|
2.00 |
% |
|
|
2.00 |
% |
|
|
2.00 |
% |
|
|
2.00 |
% |
Increase of medical benefit costs
|
|
|
|
|
|
|
|
|
|
|
3.00 |
% |
|
|
2.50 |
% |
|
|
16. |
ACCRUED EXPENSES AND OTHER CURRENT LIABILTIES |
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Customer deposits
|
|
|
25,451 |
|
|
|
29,261 |
|
Compensation and employee benefits
|
|
|
30,574 |
|
|
|
20,592 |
|
Financial instruments
|
|
|
2,465 |
|
|
|
8,333 |
|
VAT and withholding taxes
|
|
|
1,616 |
|
|
|
2,275 |
|
Copyright fees
|
|
|
11,753 |
|
|
|
10,207 |
|
Other current liabilities
|
|
|
2,270 |
|
|
|
2,950 |
|
|
|
|
|
|
|
|
|
|
|
74,129 |
|
|
|
73,618 |
|
|
|
|
|
|
|
|
IV-251
TELENET GROUP HOLDING NV
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Companys revenues were comprised of:
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended | |
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Cable television:
|
|
|
|
|
|
|
|
|
|
Basic Subscribers(1)
|
|
|
198,557 |
|
|
|
197,373 |
|
|
Premium Subscribers(1)
|
|
|
51,808 |
|
|
|
58,776 |
|
|
Distributors/ Other
|
|
|
17,211 |
|
|
|
8,817 |
|
Residential:
|
|
|
|
|
|
|
|
|
|
Internet
|
|
|
231,097 |
|
|
|
192,288 |
|
|
Telephony
|
|
|
170,293 |
|
|
|
157,213 |
|
Business
|
|
|
68,526 |
|
|
|
66,658 |
|
|
|
|
|
|
|
|
Total
|
|
|
737,492 |
|
|
|
681,125 |
|
|
|
|
|
|
|
|
Residential telephony revenue also includes interconnection fees
generated by business customers.
The Company also has unearned revenues as follows:
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Cable television:
|
|
|
|
|
|
|
|
|
|
Basic Subscribers(1)
|
|
|
107,861 |
|
|
|
104,852 |
|
|
Premium Subscribers(1)
|
|
|
3,756 |
|
|
|
7,293 |
|
|
Distributors/ Other
|
|
|
777 |
|
|
|
|
|
Residential:
|
|
|
|
|
|
|
|
|
|
Internet
|
|
|
8,079 |
|
|
|
6,163 |
|
|
Telephony
|
|
|
2,062 |
|
|
|
1,440 |
|
Business
|
|
|
1,878 |
|
|
|
2,052 |
|
|
|
|
|
|
|
|
Total
|
|
|
124,413 |
|
|
|
121,800 |
|
|
|
|
|
|
|
|
Current portion
|
|
|
112,876 |
|
|
|
113,835 |
|
|
|
|
|
|
|
|
Long-term portion
|
|
|
11,537 |
|
|
|
7,965 |
|
|
|
|
|
|
|
|
Unearned revenues are generally fees prepaid by the customers
and, as discussed in Note 2, are recognized in the
consolidated income statement on a straight-line basis over the
related service period.
|
|
(1) |
Basic and premium cable television subscribers are primarily
residential customers, but also include a small number of
business customers. |
IV-252
TELENET GROUP HOLDING NV
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended | |
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Employee costs:
|
|
|
|
|
|
|
|
|
Wages, salaries, commissions and social security
costs
|
|
|
89,203 |
|
|
|
86,233 |
|
Share options granted to directors and employees
|
|
|
2,196 |
|
|
|
1,140 |
|
Other employee benefit costs
|
|
|
18,854 |
|
|
|
20,097 |
|
|
|
|
|
|
|
|
|
Employee costs
|
|
|
110,253 |
|
|
|
107,470 |
|
Depreciation
|
|
|
159,083 |
|
|
|
159,321 |
|
Amortization
|
|
|
39,087 |
|
|
|
35,647 |
|
Amortization of broadcasting rights
|
|
|
8,144 |
|
|
|
9,361 |
|
Network operating and service costs
|
|
|
208,386 |
|
|
|
178,934 |
|
Advertising, sales and marketing
|
|
|
49,402 |
|
|
|
44,226 |
|
Other costs
|
|
|
31,563 |
|
|
|
41,513 |
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
605,918 |
|
|
|
576,472 |
|
|
|
|
|
|
|
|
The average number of full time equivalents employed by the
Company during the year ended December 31, 2005 was 1,503
(2004: 1,257).
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended | |
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Interest expense
|
|
|
142,676 |
|
|
|
168,397 |
|
Interest income
|
|
|
(3,420 |
) |
|
|
(4,552 |
) |
|
|
|
|
|
|
|
Interest expense, net
|
|
|
139,256 |
|
|
|
163,845 |
|
Net foreign exchange transaction (gains)/losses on financing
transactions
|
|
|
40,263 |
|
|
|
(27,500 |
) |
(Gains)/losses on derivative financial instruments (Note 12)
|
|
|
(25,802 |
) |
|
|
25,494 |
|
Loss on extinguishment of debt
|
|
|
39,471 |
|
|
|
|
|
|
|
|
|
|
|
|
Finance costs, net
|
|
|
193,188 |
|
|
|
161,839 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years | |
|
|
Ended | |
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Current tax expense
|
|
|
136 |
|
|
|
78 |
|
Deferred tax expense (Note 13)
|
|
|
14,917 |
|
|
|
4,443 |
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
15,053 |
|
|
|
4,521 |
|
|
|
|
|
|
|
|
IV-253
TELENET GROUP HOLDING NV
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The tax on the Companys loss before tax differs from the
theoretical amount that would arise using the Belgian statutory
tax rate applicable to profits of the consolidated companies as
follows:
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended | |
|
|
December 31 | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Loss before tax
|
|
|
(61,614 |
) |
|
|
(57,186 |
) |
|
|
|
|
|
|
|
Income tax benefit at the Belgian statutory rate of 33.99%
|
|
|
(20,943 |
) |
|
|
(19,438 |
) |
Expenses not deductible for tax purposes
|
|
|
20,738 |
|
|
|
9,756 |
|
Recognition of previously unrecognized acquired tax losses
through goodwill at the historic Belgian statutory rate of 40.17%
|
|
|
14,917 |
|
|
|
4,443 |
|
Utilization of previously unrecognized tax losses
|
|
|
(14,929 |
) |
|
|
(3,759 |
) |
Tax losses for which no deferred income tax asset was recognised
|
|
|
15,270 |
|
|
|
13,519 |
|
|
|
|
|
|
|
|
Tax expense for the year
|
|
|
15,053 |
|
|
|
4,521 |
|
|
|
|
|
|
|
|
Basic loss per share is calculated by dividing the loss
attributable to equity holders of the Company by the weighted
average number of ordinary shares during the period. Diluted
loss per share is calculated adjusting the weighted average
number of ordinary shares outstanding to assume conversion of
all dilutive potential ordinary shares. During the years ended
December 31, 2005 and 2004, the Company had six categories
of dilutive potential ordinary shares: Class A and
Class B Options, stock options under the 1999 and 1998
Plans, the Bank Warrants and the Subordinated Debt Warrants. Of
these, only the Class A and Class B Options and the
Subordinated Debt Warrants are still outstanding as of
December 31, 2005 as the other instruments were exercised
during September 2005. The effects of the dilutive potential
ordinary shares were not included in the computation of diluted
loss per share for the years ended December 31, 2005 and
2004 because they are anti-dilutive.
|
|
22. |
COMMITMENTS AND CONTINGENCIES |
|
|
|
Interconnection Litigation |
The Company has been involved in legal proceedings with Belgacom
related to the increased interconnection fees that have been
charged since August 2002 to telephone operators to terminate
calls made to end users on the Companys network.
The Company obtained approval from the Belgian Institute for
Postal Services and Telecommunications (BIPT) to
increase its interconnection rates for inbound domestic calls in
August 2002. Belgacom increased the tariffs charged to its
telephony customers calling Telenet numbers to reflect the
Companys increased termination rates.
Belgacom challenged the Companys increased interconnection
termination rates before the Commercial Court of Mechelen
(Rechtbank van Koophandel) alleging abusive pricing. Belgacom
has further challenged the BIPTs approval of the
Companys increased domestic interconnection termination
rates before the Council of State (Raad van State), the highest
administrative court in Belgium. The Council of State may affirm
the BIPTs decision or return the case to the BIPT for
reconsideration. The Council of State rejected an emergency
request from Belgacom to suspend the implementation of the
increased interconnection termination rate.
On January 20, 2004, the President of the Commercial Court
in Mechelen rendered a judgement in the case where Belgacom
contested the validity of the Companys interconnection
tariffs which was heard on
IV-254
TELENET GROUP HOLDING NV
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
September 23, 2003. The judgement stated that there is no
indication that the Companys interconnection tariffs
constitute a breach of the unfair trade practices law,
competition law or pricing regulations as invoked by Belgacom.
As a result, the judge determined that Belgacoms potential
claim is limited to a contractual matter upon which the judge
who heard the case was not competent to rule, considering the
nature of the procedure initiated by Belgacom. The judge
therefore dismissed the claim. The Companys is currently
not required to change the interconnection rates it currently
charges to Belgacom and which were approved in 2002 by the BIPT.
Belgacom appealed this judgement in April 2004. On
March 17, 2005, the Court of Appeals of Antwerp dismissed
Belgacoms claims. Although Belgacom retains the right to
further appeals on technical grounds, we do not expect that the
outcome of such further appeals would arise before 2007.
Telenet NV entered into an agreement in March 2005 to purchase
land in conjunction with the planned construction of additional
office space adjacent to the current principal offices in
Mechelen. The purchase price of the land has been agreed at
5.805, and was
paid in Februay 2006.
The Company leases facilities, vehicles and equipment under
non-cancelable operating leases. The following schedule details
the future minimum lease payments under non-cancelable capital
and operating leases:
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Within one year
|
|
|
7,762 |
|
|
|
8,082 |
|
In the second to fifth years, inclusive
|
|
|
10,849 |
|
|
|
16,061 |
|
Thereafter
|
|
|
1,146 |
|
|
|
3,082 |
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
|
19,757 |
|
|
|
27,225 |
|
|
|
|
|
|
|
|
Minimum lease payments recognized as an expense in the year
|
|
|
19,325 |
|
|
|
16,786 |
|
|
|
|
|
|
|
|
|
|
|
Related Party Identification |
The related parties of the Company mainly comprise its
shareholders that have the ability to exercise significant
influence, namely the Liberty Global Consortium, the MICs and
Electrabel as a result of its direct and indirect ownership of
the Company. Suez was deemed to be a related party as a result
of its direct ownership of the Company and its indirect
ownership of Electrabel. As a result of the sale of their
investment in the Company in December 2004, Cable Partners
Europe L.L.C. (CPE) (formerly known as Callahan
Associates International L.L.C.) and Callahan InvestCo Belgium 1
S.à.R.L. (CIB) are no longer related parties.
The MICs, Electrabel and Suez are no longer related parties as a
result of the changes in ownership at the time of the IPO in
October 2005.
Other related parties included in the tables below relate to
entities that are significantly influenced by key management of
the Company.
|
|
|
Related Party Transactions |
Transactions with CPE include payment of transaction expenses
related to the acquisition of MixtICS. In addition, Telenet
Operaties NV and CPE entered into a Strategic Services Agreement
dated March 31, 2001 (the Management
Agreement). Under the Management Agreement, CPE provided
strategic advice and
IV-255
TELENET GROUP HOLDING NV
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
assists with the expansion, development and growth of the
Company. This agreement was terminated on May 11, 2005.
Transactions with other related parties primarily relate to
leasing and derivative contracts held with a financial
institution.
The following table summarizes material related party balances:
|
|
|
Consolidated Balance Sheets |
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Purchases of property and equipment
|
|
|
|
|
|
|
|
|
|
Other related parties
|
|
|
6 |
|
|
|
17 |
|
Accounts receivable
|
|
|
|
|
|
|
|
|
|
Electrabel and Suez
|
|
|
|
|
|
|
437 |
|
|
Other related parties
|
|
|
|
|
|
|
601 |
|
Other receivables
|
|
|
|
|
|
|
|
|
|
Electrabel
|
|
|
|
|
|
|
8,039 |
|
|
Other related parties
|
|
|
1,486 |
|
|
|
86 |
|
Accounts payable
|
|
|
|
|
|
|
|
|
|
Liberty Media
|
|
|
23 |
|
|
|
|
|
|
Electrabel and Suez
|
|
|
|
|
|
|
4,019 |
|
|
CPE
|
|
|
|
|
|
|
2,753 |
|
Accrued expenses
|
|
|
|
|
|
|
|
|
|
Electrabel and Suez
|
|
|
|
|
|
|
2,250 |
|
|
Other related parties
|
|
|
974 |
|
|
|
1,166 |
|
Current portion of long-term debt
|
|
|
|
|
|
|
|
|
|
Other related parties
|
|
|
808 |
|
|
|
590 |
|
Long-term debt
|
|
|
|
|
|
|
|
|
|
Other related parties
|
|
|
19,110 |
|
|
|
19,827 |
|
Derivative financial instruments
|
|
|
|
|
|
|
|
|
|
Other related parties
|
|
|
6,255 |
|
|
|
10,838 |
|
IV-256
TELENET GROUP HOLDING NV
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes material related party
transactions for the period:
|
|
|
Consolidated Income Statements |
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended | |
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Operating
|
|
|
|
|
|
|
|
|
|
Leases and other operating expenses Electrabel and
Suez
|
|
|
(4,691 |
) |
|
|
(8,685 |
) |
|
Leases and other operating expenses Liberty
|
|
|
(1,961 |
) |
|
|
|
|
|
Management and advisory fees CPE
|
|
|
|
|
|
|
(5,441 |
) |
|
Service agreement Electrabel and Suez
|
|
|
|
|
|
|
(18,083 |
) |
|
Other operating income Electrabel and Suez
|
|
|
1,063 |
|
|
|
1,784 |
|
|
Interconnect net result Other related parties
|
|
|
(10,284 |
) |
|
|
(5,621 |
) |
|
Other operating expenses Other related parties
|
|
|
(3,501 |
) |
|
|
(2,624 |
) |
Finance costs
|
|
|
|
|
|
|
|
|
|
Interest income Electrabel and Suez
|
|
|
|
|
|
|
2,484 |
|
|
Finance income (loss) Other related parties
|
|
|
3,387 |
|
|
|
(8,077 |
) |
|
|
|
Key management compensation |
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Salaries and other short-term employee benefits
|
|
|
3,570 |
|
|
|
2,999 |
|
Post-employment benefits
|
|
|
150 |
|
|
|
85 |
|
Other long-term benefits
|
|
|
|
|
|
|
|
|
Termination benefits
|
|
|
|
|
|
|
|
|
Share-based payments
|
|
|
1,620 |
|
|
|
1,140 |
|
|
|
|
|
|
|
|
|
|
|
5,340 |
|
|
|
4,224 |
|
|
|
|
|
|
|
|
On August 24, 2005, the Companys Chief Executive
Officer also exercised the Bank Warrants as described in
Note 10.
IV-257
TELENET GROUP HOLDING NV
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Details of the Company and its subsidiaries as of
December 31, 2005 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
National | |
|
|
|
% | |
|
Consolidation | |
Company |
|
Number | |
|
Address |
|
Held | |
|
Method | |
|
|
| |
|
|
|
| |
|
| |
Telenet Group Holding NV
|
|
|
477.702.333 |
|
|
Liersesteenweg 4, 2800, Belgium |
|
|
|
|
|
|
Parent company |
|
Telenet Communications NV
|
|
|
473.416.814 |
|
|
Liersesteenweg 4, 2800, Belgium |
|
|
100 |
% |
|
|
Fully consolidated |
|
Telenet Bidco NV
|
|
|
473.416.418 |
|
|
Liersesteenweg 4, 2800, Belgium |
|
|
100 |
% |
|
|
Fully consolidated |
|
Telenet Holding NV
|
|
|
458.837.813 |
|
|
Liersesteenweg 4, 2800, Belgium |
|
|
100 |
% |
|
|
Fully consolidated |
|
Telenet NV (formerly Telenet Operaties NV)
|
|
|
439.840.857 |
|
|
Liersesteenweg 4, 2800, Belgium |
|
|
100 |
% |
|
|
Fully consolidated |
|
Telenet Vlaanderen NV
|
|
|
458.840.088 |
|
|
Liersesteenweg 4, 2800, Belgium |
|
|
100 |
% |
|
|
Fully consolidated |
|
Merrion Communications
|
|
|
6378934T |
|
|
62, Merrion Square, Dublin 2,
Ireland |
|
|
100 |
% |
|
|
Fully consolidated |
|
Telenet Solutions NV
|
|
|
447.892.550 |
|
|
De Kleetlaan 5, 1831, Belgium |
|
|
100 |
% |
|
|
Fully consolidated |
|
Telenet Solutions Luxembourg SA
|
|
|
1.999.223.4426 |
|
|
Rue de Neudorf 595, 2220
Luxembourg, Luxembourg |
|
|
100 |
% |
|
|
Fully consolidated |
|
Phone Plus SPRL
|
|
|
465.384.719 |
|
|
Chaussée de Saint-Job 638,
1180 Uccle, Belgium |
|
|
100 |
% |
|
|
Fully consolidated |
|
In order to simplify the internal corporate structure of the
Company and to align the corporate structure with the functional
operations of the Company, the Company completed the mergers of
MixtICS and PayTVCo with Telenet NV during July 2005 with effect
from January 1, 2005.
|
|
|
Redemption of Senior Notes Following Initial Public
Offering |
On January 9, 2006, the Company applied the remaining net
proceeds of its IPO towards a partial redemption of the Senior
Notes. Telenet Communications redeemed
124,773 of
principal of the Senior Notes plus accrued interest of
749, and paid a
9.0% redemption premium of
11,230,
resulting in a total payment to holders of the Senior Notes of
136,752. After
the IPO redemption and the change of control offer redemptions,
which were settled in November 2005, the outstanding balance of
the Senior Notes was
368,402.
|
|
|
Acquisition of Assets of Hypertrust |
On February 2, 2006, the Company announced the acquisition
of the assets and rights of Hypertrust, a Belgian provider of
on-line digital photography services. Hypertrusts
technology, which was previously marketed under the Pixagogo and
Photoblog brand names, will allow Telenet broadband internet and
iDTV customers to easily store, manage and share digital
photographs.
|
|
|
BIPT Proposal Regarding Interconnection Termination
Rates |
On February 7, 2006, the BIPT issued a consultation
statement on the market for fixed voice termination in which it
proposed that the Company, as well as other non-incumbent
providers of fixed line telephony, should adopt a mandated path
reducing the higher interconnection rate which we currently
charge for calls terminated on our network to the lower rate
that is charged by Belgacom over a three year period.
IV-258
TELENET GROUP HOLDING NV
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Although the Company has always projected a decrease in the
interconnect termination rates that it will receive as its
telephony customer base grows, it is expected that its future
interconnect termination revenue would decrease at a faster rate
than projected if the BIPTs consultation is adopted. The
Company believes that the BIPTs basis for its position is
not consistent with EU regulation and is contesting their
proposal.
|
|
|
Submission by Belgacom of Interconnect Case to the Belgian
Supreme Court |
On February 24, 2006, Belgacom submitted its commercial
case against Telenet regarding our interconnection termination
rates to the Belgian Supreme Court (Hof van Cassatie/ Cour de
Cassation). This followed a decision on March 17, 2005,
when the Court of Appeals of Antwerp dismissed Belgacoms
claim. The Belgian Supreme Court only has the authority to
review whether or not there has been a mistake of law or breach
of certain formal procedural requirements in the case. The
Company expects that a final decision may take as long as three
years since the Supreme Court can refer the case back to the
Court of Appeal.
|
|
|
Announcement of Mobile Services Venture with
Mobistar |
On February 14, 2006, the Company announced a series of
agreements with Mobistar, Belgiums second largest mobile
telephony operator, to establish a new mobile virtual network
operator (MVNO). The MVNO will carry Telenets branding and
use capacity on Mobistars network. We anticipate that
Telenet mobile services will become available later this year.
In order to align our corporate structure with the functional
operations of the group, we merged Telenet Solutions into
Telenet NV on December 31, 2005 with effect from
January 1, 2006. On January 31, 2006, we liquidated
Telenet Holding NV, since it no longer fulfilled any function in
our group structure.
|
|
26. |
FIRST-TIME ADOPTION OF IFRSs AS ADOPTED BY THE EU |
The consolidated financial statements have been prepared in
accordance with IFRSs as adopted by the EU, as described in
Note 2 to the consolidated financial statements. Those
principles differ in certain significant respects from
U.S. GAAP, the principles previously used by the Company.
These differences relate mainly to the items that are described
below and are summarized in the following tables. Such
differences affect both the determination of net result and
shareholders equity, as well as the classification and
format of the consolidated financial statements.
The following is a summary of the effects of the differences
between IFRSs as adopted by the EU and U.S. GAAP on the
Companys total shareholders equity as of
January 1, 2004 and December 31, 2004 and profit and
loss for the year ended December 31, 2004.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Transition to IFRS as | |
|
|
|
|
|
|
Adopted by the EU | |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Share- | |
|
|
|
IFRS as | |
|
|
|
|
Deferred | |
|
Based | |
|
Copyright | |
|
Adopted by | |
|
|
U.S. GAAP | |
|
Taxes | |
|
Payments | |
|
Fees | |
|
the EU | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Equity January 1, 2004
|
|
|
574,088 |
|
|
|
|
|
|
|
|
|
|
|
2,302 |
|
|
|
576,390 |
|
|
Net result
|
|
|
(60,518 |
) |
|
|
(684 |
) |
|
|
379 |
|
|
|
(884 |
) |
|
|
(61,707 |
) |
|
Other changes in equity
|
|
|
(23,344 |
) |
|
|
|
|
|
|
(379 |
) |
|
|
|
|
|
|
(23,723 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity December 31, 2004
|
|
|
490,226 |
|
|
|
(684 |
) |
|
|
|
|
|
|
1,418 |
|
|
|
490,960 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IV-259
TELENET GROUP HOLDING NV
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
Measurement and Recognition Differences Between IFRSs as
Adopted by the EU and U.S. GAAP |
Historically under U.S. GAAP, 100% valuation allowances
were recorded against tax losses carried forward by subsidiaries
acquired in previous business combinations. The Company started
using these tax losses carried forward in 2004 and reduced
goodwill using the current tax rate of 33.99%. IFRSs as adopted
by the EU requires the Company to utilize the tax rate in effect
at the time of the acquisition, or 40.17%, to reduce goodwill
while using the current tax rate of 33.99% to establish the
deferred tax asset resulting in additional deferred tax expense
as these tax loss carryforwards are utilized. This results in a
decrease in goodwill and an increase in deferred tax expense of
684 as of and
for the year ended December 31, 2004. There was no impact
to the opening balance sheet as the Company had not utilized any
acquired tax loss carryforwards as of January 1, 2004.
The intrinsic value method is used to account for the
Companys stock option plans under U.S. GAAP.
Accordingly, the excess of the grant date fair value of the
Companys ordinary shares over the exercise price of the
stock options is recognized as compensation expense over the
vesting period of the options. Under IFRSs as adopted by the EU,
warrants granted after November 7, 2002 that had not vested
before January 1, 2005 are recorded at the fair value of
each option granted as estimated on the date of grant using the
Black-Scholes option-pricing model. Warrants granted on or
before November 7, 2002 were not modified subsequent to
this date and, as a result, the related expense and increase in
contributed capital of
2,689 included
in the January 1, 2004 U.S. GAAP financial statements
was reversed under IFRSs as adopted by the EU.
The total cost calculated for the warrants granted after
November 7, 2002 that had not vested before January 1,
2005 is expensed over the vesting period of the respective
warrants and the increase in capital is reclassified from
additional paid in capital under U.S. GAAP to capital
reserves under IFRSs as adopted by the EU. As of and for the
year ended December 31, 2004, this results in an increase
in capital reserves of
1,140 and
decreases in contributed capital of
2,500, deferred
stock compensation of
982 and
compensation expense of
379. These
adjustments did not have tax consequences.
Under U.S. GAAP, the Company retained an accrual in other
liabilities for the gross amounts that the Company expects to
pay as a result of settlements with certain of the broadcasters
and copyright collection agencies. Under IFRSs as adopted by the
EU, the Company is required to record these amounts at the
present value of the expenditures expected to be required to
settle the obligation. This results is a decrease in accrued
copyright fees of
1,418 and
2,302 as of
December 31, 2004 and January 1, 2004, respectively,
and an increase in interest expense of
884 during the
year ended December 31, 2004. These adjustments did not
have tax consequences.
|
|
|
Presentation Differences Between IFRSs as Adopted by the
EU and U.S. GAAP |
|
|
|
D. Depreciation and Amortization Expense |
Under U.S. GAAP, the Company reported depreciation and
amortization expense as separate line items on the face of the
statement of operations. Under IFRSs as adopted by the EU, the
Company has allocated these expenses to costs of services
provided and selling, general and administrative expenses.
IV-260
TELENET GROUP HOLDING NV
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Under U.S. GAAP, the Company recorded a current asset for
prepaid content and amortized the cost to operating expenses
over the related life. Under IFRSs as adopted by the EU,
broadcasting rights are capitalized as an intangible asset when
the value of the contract is measurable upon signing and are
amortized to costs of service provided on a straight-line basis
over contractual life. The change in treatment results in a
reclassification of certain assets to intangible assets and an
accrual for unbilled broadcasting rights on the balance sheet
and classification as amortization expense on the income
statement under IFRSs as adopted by the EU.
|
|
|
F. Foreign Exchange Gains and Losses |
Under U.S. GAAP, the Company reported all foreign exchange
gains and losses within other income and loss on the statement
of operations. Under IFRSs as adopted by the EU, the Company has
allocated all foreign exchange gains and losses related to
operations to the costs of services provided and selling,
general and administrative expenses.
|
|
|
G. Employee Benefit Plans |
Under U.S. GAAP, the Company reported all expenses related
to the employee benefit plans within operating income on the
statement of operations. Under IFRSs as adopted by the EU, the
Company has allocated the expected return on plan assets and the
interest cost related to the employee benefit plans to finance
costs.
Under U.S. GAAP, the Company reported the deferred portion
of loan origination costs as an asset on the balance sheet.
Under IFRSs as adopted by the EU, the Company is required to
show these amounts as a reduction of the related debt balance.
|
|
|
I. Classification of Derivative Financial
Instruments |
Historically, the Company has presented derivative financial
instruments as current assets or current liabilities under
U.S. GAAP. IFRSs as adopted by the EU requires the Company
to classify its derivative financial instruments as current or
non-current resulting in a reclassification of long term
derivative financial instruments from current assets and
liabilities to non-current assets and liabilities.
Under U.S. GAAP, the Company has reported copyright fees as
a long term liability on the balance sheet. Under IFRSs as
adopted by the EU, the Company has reclassified the portion of
the accrual for copyright fees that is either expected to be
paid within one year after the balance sheet date or does not
have a stated payment date to short term accruals.
Under U.S. GAAP, detachable warrants to purchase shares
issued in connection with debt issuances were valued by
allocating the proceeds of the debt securities issued based on
the relative fair values of the warrants and the debt at the
time of issuance. Any resulting discount or premium on the debt
securities was recognized using the effective interest rate
method over the contractual term of the debt and the warrants
were recorded as additional paid in capital. These warrants and
the related debt instruments were retired prior to the
transition to IFRSs as adopted by the EU. Under IFRSs as adopted
by the EU, the fair value of debt securities is determined using
a market interest rate for an equivalent debt instrument. Any
resulting discount or premium on the debt securities is
recognized using the effective interest rate method over the
contractual
IV-261
TELENET GROUP HOLDING NV
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
term of the debt. The remainder of the proceeds is allocated to
the detachable warrants and is recognized and included in
shareholders equity, net of any income tax effects. As a
result of this difference in valuing the detachable warrants,
the Company has recorded the difference between the allocated
fair value under U.S. GAAP and the value as determined
under IFRSs as adopted by the EU as a reduction in capital and
retained losses as of the opening balance sheet.
Under U.S. GAAP, the Company has reported accrued interest
on the accrued expenses and other current liabilities line of
the balance sheet. Under IFRSs as adopted by the EU, the Company
has reclassified accrued interest to be shown as a component of
the related debt.
|
|
|
Explanation of material adjustments to the cash flow
statement: |
As noted above under item E. Broadcasting Rights, the
Company recorded a current asset for prepaid content and
amortized the cost to operating expenses over the related life
under U.S. GAAP. Under IFRSs as adopted by the EU,
broadcasting rights are capitalized as an intangible asset when
the value of the contract is measurable upon signing and are
amortized to costs of service provided on a straight-line basis
over contractual life. As a result of the reclassification of
certain assets to intangible assets, expenditures for these
rights are included as a cash flow from investing activities
under IFRSs as adopted by the EU rather that a cash flow from
operating activities under U.S. GAAP. There are no other
items that resulted in transfer between categories of cash flows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2004 | |
|
|
| |
|
|
|
|
Effect of Transition | |
|
|
|
|
|
|
to IFRSs as | |
|
IFRSs as Adopted by | |
|
|
U.S. GAAP | |
|
Adopted by the EU | |
|
the EU | |
|
|
| |
|
| |
|
| |
Cash flows from operating activities
|
|
|
223,138 |
|
|
|
11,166 |
|
|
|
234,304 |
|
Cash flows from investing activities
|
|
|
(141,498 |
) |
|
|
(11,166 |
) |
|
|
(152,664 |
) |
Cash flows from financing activities
|
|
|
(107,478 |
) |
|
|
|
|
|
|
(107,478 |
) |
|
|
|
Reconciliation from U.S. GAAP to IFRSs as Adopted by
the EU: |
The following presents the effect of the transition from
U.S. GAAP to IFRSs as adopted by the EU on the
Companys consolidated statements of income and
consolidated balance sheets considering all of the items
discussed previously in this note.
IV-262
TELENET GROUP HOLDING NV
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
Reconciliation of profit and loss for the year ended
December 31, 2004: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Transition to IFRSs as adopted by the EU |
|
|
|
|
|
|
|
|
|
|
|
|
|
Measurement | |
|
|
|
IFRSs as | |
|
|
|
|
and | |
|
|
|
Adopted by | |
|
|
U.S. GAAP | |
|
Recognition | |
|
Note | |
|
Presentation | |
|
Note |
|
the EU | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
| |
Revenues
|
|
|
681,125 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
681,125 |
|
Operating (excluding depreciation and amortization)
|
|
|
(247,770 |
) |
|
|
(84 |
) |
|
|
B |
|
|
|
(182,798 |
) |
|
D,E,F,G |
|
|
(430,652 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
250,473 |
|
Selling, general and administrative
|
|
|
(133,788 |
) |
|
|
463 |
|
|
|
B |
|
|
|
(12,495 |
) |
|
D,G |
|
|
(145,820 |
) |
Depreciation
|
|
|
(159,321 |
) |
|
|
|
|
|
|
|
|
|
|
159,321 |
|
|
D |
|
|
|
|
Amortization
|
|
|
(35,647 |
) |
|
|
|
|
|
|
|
|
|
|
35,647 |
|
|
D |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING PROFIT
|
|
|
104,599 |
|
|
|
379 |
|
|
|
|
|
|
|
(325 |
) |
|
|
|
|
104,653 |
|
Finance costs, net
|
|
|
(161,280 |
) |
|
|
(884 |
) |
|
|
C |
|
|
|
325 |
|
|
F,G |
|
|
(161,839 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS BEFORE INCOME TAXES
|
|
|
(56,681 |
) |
|
|
(505 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
(57,186 |
) |
Income tax expense
|
|
|
(3,837 |
) |
|
|
(684 |
) |
|
|
A |
|
|
|
|
|
|
|
|
|
(4,521 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
|
(60,518 |
) |
|
|
(1,189 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
(61,707 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
|
|
(0.70 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.71 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IV-263
TELENET GROUP HOLDING NV
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
Reconciliation of equity at December 31, 2004: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Transition to IFRSs as Adopted by the | |
|
|
|
|
|
|
EU | |
|
|
|
|
|
|
| |
|
|
|
|
|
|
Measurement and | |
|
|
|
IFRS as Adopted | |
|
|
U.S. GAAP | |
|
Recognition | |
|
Note | |
|
Presentation | |
|
Note | |
|
by the EU | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
ASSETS |
Non-current Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
960,776 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
960,776 |
|
|
Goodwill
|
|
|
1,028,145 |
|
|
|
(684 |
) |
|
|
A |
|
|
|
|
|
|
|
|
|
|
|
1,027,461 |
|
|
Other intangible assets
|
|
|
274,209 |
|
|
|
|
|
|
|
|
|
|
|
6,567 |
|
|
|
E |
|
|
|
280,776 |
|
|
Deferred finance fees
|
|
|
63,845 |
|
|
|
|
|
|
|
|
|
|
|
(63,845 |
) |
|
|
H |
|
|
|
|
|
|
Other assets
|
|
|
1,009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current assets
|
|
|
2,327,984 |
|
|
|
(684 |
) |
|
|
|
|
|
|
(57,278 |
) |
|
|
|
|
|
|
2,270,022 |
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade receivables
|
|
|
84,787 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84,787 |
|
|
Other current assets
|
|
|
23,635 |
|
|
|
|
|
|
|
|
|
|
|
(2,785 |
) |
|
|
E |
|
|
|
20,850 |
|
|
Cash and cash equivalents
|
|
|
145,188 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
145,188 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
253,610 |
|
|
|
|
|
|
|
|
|
|
|
(2,785 |
) |
|
|
|
|
|
|
250,825 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
2,581,594 |
|
|
|
(684 |
) |
|
|
|
|
|
|
(60,063 |
) |
|
|
|
|
|
|
2,520,847 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EQUITY AND LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributed capital
|
|
|
2,309,899 |
|
|
|
(2,500 |
) |
|
|
B |
|
|
|
(39,275 |
) |
|
|
B,K |
|
|
|
2,268,124 |
|
|
Deferred stock compensation
|
|
|
(982 |
) |
|
|
982 |
|
|
|
B |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other reserves
|
|
|
|
|
|
|
1,140 |
|
|
|
B |
|
|
|
|
|
|
|
|
|
|
|
1,140 |
|
|
Hedging reserves
|
|
|
(26,627 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26,627 |
) |
|
Retained loss
|
|
|
(1,792,064 |
) |
|
|
1,112 |
|
|
|
A B C |
|
|
|
39,275 |
|
|
|
B,K |
|
|
|
(1,751,677 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
490,226 |
|
|
|
734 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
490,960 |
|
Non-current Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
1,624,600 |
|
|
|
|
|
|
|
|
|
|
|
(63,845 |
) |
|
|
H |
|
|
|
1,560,755 |
|
|
Other liabilities
|
|
|
51,018 |
|
|
|
(1,418 |
) |
|
|
C |
|
|
|
62,593 |
|
|
|
I J |
|
|
|
112,193 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current liabilities
|
|
|
1,675,618 |
|
|
|
(1,418 |
) |
|
|
|
|
|
|
(1,252 |
) |
|
|
|
|
|
|
1,672,948 |
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
|
6,929 |
|
|
|
|
|
|
|
|
|
|
|
13,080 |
|
|
|
L |
|
|
|
20,009 |
|
|
Accounts payable
|
|
|
145,696 |
|
|
|
|
|
|
|
|
|
|
|
3,781 |
|
|
|
E |
|
|
|
149,477 |
|
|
Accrued expenses and other current liabilities
|
|
|
149,290 |
|
|
|
|
|
|
|
|
|
|
|
(75,672 |
) |
|
|
I,J,L |
|
|
|
73,618 |
|
|
Unearned revenue
|
|
|
113,835 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
113,835 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
415,750 |
|
|
|
|
|
|
|
|
|
|
|
(58,811 |
) |
|
|
|
|
|
|
356,939 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,091,368 |
|
|
|
(1,418 |
) |
|
|
|
|
|
|
(60,063 |
) |
|
|
|
|
|
|
2,029,887 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
2,581,594 |
|
|
|
(684 |
) |
|
|
|
|
|
|
(60,063 |
) |
|
|
|
|
|
|
2,520,847 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IV-264
TELENET GROUP HOLDING NV
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
Reconciliation of equity at January 1, 2004: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Transition to IFRSs as Adopted by the EU | |
|
|
|
|
|
|
| |
|
|
|
|
|
|
Measurement and | |
|
|
|
IFRS as Adopted | |
|
|
U.S. GAAP | |
|
Recognition | |
|
Note | |
|
Presentation | |
|
Note | |
|
by the EU | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
ASSETS |
Non-current Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
991,438 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
991,438 |
|
|
Goodwill
|
|
|
1,031,904 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,031,904 |
|
|
Other intangible assets
|
|
|
280,679 |
|
|
|
|
|
|
|
|
|
|
|
11,220 |
|
|
|
E |
|
|
|
291,899 |
|
|
Deferred finance fees
|
|
|
75,114 |
|
|
|
|
|
|
|
|
|
|
|
(75,114 |
) |
|
|
H |
|
|
|
|
|
|
Other assets
|
|
|
1,070 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,070 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current assets
|
|
|
2,380,205 |
|
|
|
|
|
|
|
|
|
|
|
(63,894 |
) |
|
|
|
|
|
|
2,316,311 |
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade receivables
|
|
|
84,783 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84,783 |
|
|
Other current assets
|
|
|
28,029 |
|
|
|
|
|
|
|
|
|
|
|
(1,487 |
) |
|
|
E |
|
|
|
26,542 |
|
|
Cash and cash equivalents
|
|
|
171,026 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
171,026 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
283,838 |
|
|
|
|
|
|
|
|
|
|
|
(1,487 |
) |
|
|
|
|
|
|
282,351 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
2,664,043 |
|
|
|
|
|
|
|
|
|
|
|
(65,381 |
) |
|
|
|
|
|
|
2,598,662 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EQUITY AND LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributed capital
|
|
|
2,307,399 |
|
|
|
|
|
|
|
|
|
|
|
(39,275 |
) |
|
|
B K |
|
|
|
2,268,124 |
|
|
Deferred stock compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other reserves
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedging reserves
|
|
|
(1,765 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,765 |
) |
|
Retained loss
|
|
|
(1,731,546 |
) |
|
|
2,302 |
|
|
|
C |
|
|
|
39,275 |
|
|
|
B K |
|
|
|
(1,689,969 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
574,088 |
|
|
|
2,302 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
576,390 |
|
Non-current Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
1,710,027 |
|
|
|
|
|
|
|
|
|
|
|
(75,114 |
) |
|
|
H |
|
|
|
1,634,913 |
|
|
Other liabilities
|
|
|
47,225 |
|
|
|
(2,302 |
) |
|
|
C |
|
|
|
18,657 |
|
|
|
I J |
|
|
|
63,580 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current liabilities
|
|
|
1,757,252 |
|
|
|
(2,302 |
) |
|
|
|
|
|
|
(56,457 |
) |
|
|
|
|
|
|
1,698,493 |
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
|
5,814 |
|
|
|
|
|
|
|
|
|
|
|
13,107 |
|
|
|
L |
|
|
|
18,921 |
|
|
Accounts payable
|
|
|
130,027 |
|
|
|
|
|
|
|
|
|
|
|
6,485 |
|
|
|
E |
|
|
|
136,512 |
|
|
Accrued expenses and other current liabilities
|
|
|
97,504 |
|
|
|
|
|
|
|
|
|
|
|
(28,516 |
) |
|
|
E,I,J,L |
|
|
|
68,988 |
|
|
Unearned revenue
|
|
|
99,358 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99,358 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
332,703 |
|
|
|
|
|
|
|
|
|
|
|
(8,924 |
) |
|
|
|
|
|
|
323,779 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,089,955 |
|
|
|
(2,302 |
) |
|
|
|
|
|
|
(65,381 |
) |
|
|
|
|
|
|
2,022,272 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
2,664,043 |
|
|
|
|
|
|
|
|
|
|
|
(65,381 |
) |
|
|
|
|
|
|
2,598,662 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IV-265
TELENET GROUP HOLDING NV
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
27. |
RECONCILIATION OF IFRSs AS ADOPTED BY THE EU TO
U.S. GAAP AND PRESENTATION OF CONDENSED CONSOLIDATED
FINANCIAL INFORMATION PREPARED IN ACCORDANCE WITH
U.S. GAAP |
As described in Note 26, the consolidated financial
statements have been prepared in accordance with IFRSs as
adopted by the EU, which differ in certain significant respects
from U.S. GAAP. These differences affect both the
determination of net loss and shareholders equity, as well
as the presentation and format of the consolidated financial
statements. The differences that result in measurement and
recognition differences between the two standards are described
below. Additional information on these items and descriptions of
the presentation differences are provided in Note 26.
|
|
|
Measurement and Recognition Differences Between IFRSs as
Adopted by the EU and U.S. GAAP |
Tax losses carried forward by subsidiaries acquired in previous
business combinations have not been recognized under either
IFRSs as adopted by the EU or U.S. GAAP as a result of
cumulative losses. The Company started using these tax losses
carried forward in 2004 and utilized the tax rate in effect at
the time of the acquisition, or 40.17%, to reduce goodwill while
using the current tax rate of 33.99% to establish the deferred
tax asset, in accordance with IFRSs as adopted by the EU. Under
U.S. GAAP, the current tax rate of 33.99% is utilized for
recognizing the deferred tax asset and for reducing goodwill
resulting in a decrease of deferred tax expense of
2,294 and
684 for the
years ended December 31, 2005 and 2004, respectively.
Under IFRS as adopted by the EU, warrants granted after
November 7, 2002 that had not vested before January 1,
2005 are recorded at the fair value of each option granted as
estimated on the date of grant using the Black-Scholes
option-pricing model. The total cost calculated is expensed over
the vesting period of the respective warrants. Under
U.S. GAAP, we use the intrinsic value method to account for
our stock option plans. Accordingly, the excess of the grant
date fair value of our ordinary shares over the exercise price
of the stock options is recognized as compensation expense over
the vesting period of the options. This results in an decrease
in compensation expense of
1,365 for the
year ended December 31, 2005 and an increase in
compensation expense of
379 for the year
ended December 31, 2004.
Under IFRS as adopted by the EU, the Company recorded the
expected amounts to be paid as a result of settlements with
certain of the broadcasters and copyright collection agencies at
their present value. Under U.S. GAAP, the Company has
retained an accrual in other liabilities for the gross amounts
resulting in a decrease in interest expense of
183 and
884 for the
years ended December 31, 2005 and 2004, respectively.
IV-266
TELENET GROUP HOLDING NV
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
Reconciliation to U.S. GAAP |
Reconciliation to U.S. GAAP of net loss and
shareholders equity are presented as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended | |
|
|
|
|
December 31 | |
|
|
|
|
| |
|
|
Note | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
Net loss in accordance with IFRSs as adopted by the EU
|
|
|
|
|
|
|
(76,667 |
) |
|
|
(61,707 |
) |
Items having the effect of (increasing) decreasing reported
net loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred taxes
|
|
|
A |
|
|
|
2,294 |
|
|
|
684 |
|
|
Stock based compensation
|
|
|
B |
|
|
|
1,365 |
|
|
|
(379 |
) |
|
Copyright fees
|
|
|
C |
|
|
|
183 |
|
|
|
884 |
|
|
|
|
|
|
|
|
|
|
|
|
Total of U.S. GAAP adjustments
|
|
|
|
|
|
|
3,842 |
|
|
|
1,189 |
|
|
|
|
|
|
|
|
|
|
|
Net loss in accordance with U.S. GAAP
|
|
|
|
|
|
|
(72,825 |
) |
|
|
(60,518 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
December 31, | |
|
|
Note | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
Shareholders equity in accordance with IFRSs as adopted by
the EU
|
|
|
|
|
|
|
709,098 |
|
|
|
490,960 |
|
Items having the effect of increasing (decreasing) reported
shareholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred taxes
|
|
|
A |
|
|
|
2,978 |
|
|
|
684 |
|
|
Copyright fees
|
|
|
C |
|
|
|
(1,235 |
) |
|
|
(1,418 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total of U.S. GAAP adjustments
|
|
|
|
|
|
|
1,743 |
|
|
|
(734 |
) |
|
|
|
|
|
|
|
|
|
|
Shareholders equity in accordance with U.S. GAAP
|
|
|
|
|
|
|
710,841 |
|
|
|
490,226 |
|
|
|
|
|
|
|
|
|
|
|
IV-267
TELENET GROUP HOLDING NV
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following presents the Companys condensed consolidated
balance sheets and condensed consolidated statements of
operations prepared in accordance with U.S. GAAP.
|
|
|
Condensed Consolidated Balance Sheets |
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
ASSETS |
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
210,359 |
|
|
|
145,188 |
|
|
Accounts receivable, net
|
|
|
98,677 |
|
|
|
84,787 |
|
|
Other current assets
|
|
|
28,950 |
|
|
|
23,635 |
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
337,986 |
|
|
|
253,610 |
|
Property and equipment, net
|
|
|
943,919 |
|
|
|
960,776 |
|
Goodwill, net
|
|
|
1,015,522 |
|
|
|
1,028,145 |
|
Intangible assets, net
|
|
|
271,065 |
|
|
|
274,209 |
|
Deferred finance costs
|
|
|
44,650 |
|
|
|
63,845 |
|
Other assets
|
|
|
780 |
|
|
|
1,009 |
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
|
2,613,922 |
|
|
|
2,581,594 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
|
138,300 |
|
|
|
6,929 |
|
|
Accounts payable
|
|
|
169,354 |
|
|
|
145,696 |
|
|
Accrued expenses and other current liabilities
|
|
|
112,324 |
|
|
|
159,497 |
|
|
Unearned revenue
|
|
|
112,876 |
|
|
|
113,835 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
532,854 |
|
|
|
425,957 |
|
Long-term debt, less current portion
|
|
|
1,333,435 |
|
|
|
1,624,600 |
|
Other liabilities
|
|
|
36,792 |
|
|
|
40,811 |
|
Shareholders equity
|
|
|
710,841 |
|
|
|
490,226 |
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
|
|
|
2,613,922 |
|
|
|
2,581,594 |
|
|
|
|
|
|
|
|
IV-268
TELENET GROUP HOLDING NV
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
Condensed Consolidated Statements of Operations |
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended | |
|
|
| |
|
|
December 31, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In thousands of euro except | |
|
|
share and per share amounts) | |
Revenues
|
|
|
737,492 |
|
|
|
681,125 |
|
Costs of services provided
|
|
|
(459,102 |
) |
|
|
(430,226 |
) |
|
|
|
|
|
|
|
Gross profit
|
|
|
278,390 |
|
|
|
250,899 |
|
Selling, general and administrative
|
|
|
(145,731 |
) |
|
|
(146,300 |
) |
|
|
|
|
|
|
|
Operating profit
|
|
|
132,659 |
|
|
|
104,599 |
|
Finance costs, net
|
|
|
(192,725 |
) |
|
|
(161,280 |
) |
|
|
|
|
|
|
|
Net loss before income tax
|
|
|
(60,066 |
) |
|
|
(56,681 |
) |
Income tax expense
|
|
|
(12,759 |
) |
|
|
(3,837 |
) |
|
|
|
|
|
|
|
Net Loss
|
|
|
(72,825 |
) |
|
|
(60,518 |
) |
|
|
|
|
|
|
|
Basic and diluted net loss per share:
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding
|
|
|
89,503,387 |
|
|
|
86,527,257 |
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
|
|
(0.81 |
) |
|
|
(0.70 |
) |
|
|
|
|
|
|
|
The Company has prepared a cash flow statement in accordance
with IAS 7 Cash Flow Statements and therefore should
not present cash flow information under U.S. GAAP.
|
|
|
Recent Accounting Pronouncements |
In June 2005, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standard (SFAS) No. 154, Accounting
Changes and Error Corrections, a replacement of Accounting
Principles Board (APB) Opinion No. 20,
Accounting Changes and SFAS No. 3,
Reporting Accounting Changes in Interim Financial
Statements. The standard applies to all voluntary changes
in accounting principle, and changes the requirements for
accounting for, and reporting of, a change in accounting
principle. Amongst other changes, SFAS No. 154
requires retroactive application to prior periods
financial statements of a voluntary change in accounting
principle unless it is impracticable. SFAS No. 154
carries forward many provisions of prior guidance including
provisions related to the reporting of a change in accounting
estimate, a change in the reporting entity, the correction of an
error and accounting changes in interim financial statements.
The standard is effective for accounting changes and corrections
of errors made in fiscal years beginning after December 15,
2005. Earlier application is permitted for accounting changes
and corrections of errors made in fiscal years beginning after
June 1, 2005. The adoption of this standard is not expected
to have a material impact.
In March 2005, the Financial Accounting Standards Board
(FASB) Staff issued Interpretation No. 47,
Accounting for Conditional Asset Retirement
Obligations (FIN 47). FIN 47
clarifies the term conditional asset retirement obligation as
used in FASB Statement No. 143, Accounting for Asset
Retirement Obligations as well as other issues related to
asset retirement obligations. FIN 47 is effective for
fiscal years ending after December 15, 2005. The adoption
of FIN 47 did not have a material impact on the
Companys consolidated results of operations or financial
position.
IV-269
TELENET GROUP HOLDING NV
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In December 2004, the FASB issued a revised Statement of
Financial Accounting Standard (SFAS)
No. 123(R), Share-Based Payment an
Amendment of FASB Statements No. 123 and 95
(SFAS No. 123(R)).
SFAS No. 123(R) establishes standards for the
accounting for transactions in which an entity exchanges its
equity instruments for goods or services or incurs liabilities
in exchange for goods or services that are based on the fair
value of the entitys equity instruments, focusing
primarily on accounting for transactions in which an entity
obtains employee services in share-based payment transactions.
SFAS No. 123(R) requires entities to measure the cost
of employee services received in exchange for an award of equity
instruments based on the grant-date fair value of the award
(with limited exceptions) and recognize the cost over the period
during which an employee is required to provide service in
exchange for the award. The Company is required to adopt
SFAS No. 123(R) effective January 1, 2006 and is
currently in the process of evaluating the impact of
SFAS No. 123(R). The adoption of
SFAS No. 123(R) did not have a material impact on the
Companys consolidated results of operations or financial
position.
On February 16, 2006, the FASB issued
SFAS No. 155, Accounting for Certain Hybrid Financial
Instruments, an Amendment of FASB Statements No. 133 and
140 (SFAS No. 55). SFAS No. 155
allows financial instruments that have embedded derivatives that
otherwise would require bifurcation from the host to be
accounted for as a whole, if the holder irrevocably elects to
account for the whole instrument on a fair value basis.
Subsequent changes in the fair value of the instrument would be
recognized in earnings. The standard also: (i) clarifies
which interest-only strips and principal-only strips are not
subject to the requirements of SFAS No. 133;
(ii) establishes a requirement to evaluate interests in
securitized financial assets to determine whether interests are
freestanding derivatives or are hybrid financial instruments
that contain an embedded derivative requiring bifurcation;
(iii) clarifies that concentrations of credit risk in the
form of subordination are not embedded derivatives; and
(iv) eliminates the prohibition on a qualifying
special-purpose entity from holding a derivative financial
instrument that pertains to a beneficial interest (that is
itself a derivative financial instrument).
SFAS No. 155 is effective for all financial
instruments acquired or issued after the beginning of an
entitys first fiscal year that begins after
September 15, 2006. Earlier adoption is permitted as of the
beginning of an entitys fiscal year, provided the entity
has not yet issued financial statements, including financial
statements for any interim period for that fiscal year. The
Company is currently in the process of evaluating the impact of
SFAS No. 155.
IV-270
Report of Independent Auditors
The Board of Directors and Shareholders of
PrimaCom AG, Mainz
We have audited the accompanying consolidated balance sheet of
PrimaCom AG, Mainz, and subsidiaries as of December 31,
2005, and the related consolidated income statement, statement
of changes in equity, and cash flow statement for the year then
ended. These financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards
generally accepted in the 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. We were not engaged to perform an audit
of the Companys internal control over financial reporting.
Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures
that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the
Companys internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audit provides 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 PrimaCom AG, Mainz, and subsidiaries at
December 31, 2005, and the consolidated results of their
operations and their cash flows for the year then ended in
conformity with International Financial Reporting Standards as
adopted by the European Union, which differ in certain respects
from generally accepted accounting principles in the United
States (see Note 23 to the consolidated financial
statements).
Ernst & Young AG
Wirtschaftsprüfungsgesellschaft
Klein Erbacher
Wirtschaftsprüfer Wirtschaftsprüfer
[German Public
Auditor] [German
Public Auditor]
Eschborn/ Frankfurt/ M., Germany
June 29, 2006
IV-271
PRIMACOM AG AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT
for the year ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
|
|
| |
|
| |
|
|
|
|
|
|
(unaudited) | |
|
|
Notes | |
|
EUR000 | |
|
EUR000 | |
Continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
118,296 |
|
|
|
121,980 |
|
Operating costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations
|
|
|
4 |
|
|
|
(40,578 |
) |
|
|
(36,261 |
) |
Selling, general and administrative
|
|
|
4 |
|
|
|
(15,368 |
) |
|
|
(14,329 |
) |
Corporate overhead
|
|
|
4 |
|
|
|
(15,205 |
) |
|
|
(21,646 |
) |
Depreciation and amortization
|
|
|
4 |
|
|
|
(42,821 |
) |
|
|
(45,600 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(113,972 |
) |
|
|
(117,836 |
) |
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
|
|
|
|
4,324 |
|
|
|
4,144 |
|
Finance costs
|
|
|
5 |
|
|
|
(67,783 |
) |
|
|
(62,432 |
) |
Other expense
|
|
|
5 |
|
|
|
(11,916 |
) |
|
|
(814 |
) |
Gain from extinguishment of debt
|
|
|
5 |
|
|
|
211,112 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
Profit/ (Loss) before tax
|
|
|
|
|
|
|
135,737 |
|
|
|
(59,102 |
) |
Income tax expense
|
|
|
6 |
|
|
|
(26,330 |
) |
|
|
(9,031 |
) |
|
|
|
|
|
|
|
|
|
|
Profit/ (Loss) for the year from continuing operations
|
|
|
|
|
|
|
109,407 |
|
|
|
(68,133 |
) |
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain/ (Loss) for the year from discontinued operations
|
|
|
7 |
|
|
|
132,158 |
|
|
|
(41,737 |
) |
|
|
|
|
|
|
|
|
|
|
Profit/ (Loss) for the year
|
|
|
|
|
|
|
241,565 |
|
|
|
(109,870 |
) |
|
|
|
|
|
|
|
|
|
|
Attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity holders of the parent
|
|
|
|
|
|
|
241,570 |
|
|
|
(109,953 |
) |
|
Minority interests
|
|
|
|
|
|
|
(5 |
) |
|
|
83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
241,565 |
|
|
|
(109,870 |
) |
|
|
|
|
|
|
|
|
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
basic, for profit/ (loss) for the year attributable
to ordinary equity holders of the parent
|
|
|
8 |
|
|
|
EUR 12.20 |
|
|
|
EUR (5.56 |
) |
basic, for profit/ (loss) from continuing operations
attributable to ordinary equity holders of the parent
|
|
|
8 |
|
|
|
EUR 5.53 |
|
|
|
EUR (3.45 |
) |
diluted, for profit/ (loss) for the year
attributable to ordinary equity holders of the parent
|
|
|
8 |
|
|
|
EUR 12.10 |
|
|
|
EUR (5.56 |
) |
diluted, for profit/ (loss) from continuing
operations attributable to ordinary equity holders
of the parent
|
|
|
8 |
|
|
|
EUR 5.48 |
|
|
|
EUR (3.45 |
) |
IV-272
PRIMACOM AG AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
at December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
|
|
| |
|
| |
|
|
|
|
|
|
(unaudited) | |
|
|
Notes | |
|
EUR000 | |
|
EUR000 | |
ASSETS |
Non-current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
9 |
|
|
|
237,164 |
|
|
|
430,743 |
|
Goodwill
|
|
|
10 |
|
|
|
204,433 |
|
|
|
359,710 |
|
Other intangible assets
|
|
|
10 |
|
|
|
3,586 |
|
|
|
42,420 |
|
Deferred tax asset
|
|
|
6 |
|
|
|
18,809 |
|
|
|
57,695 |
|
Other non-current assets
|
|
|
|
|
|
|
135 |
|
|
|
638 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
464,127 |
|
|
|
891,206 |
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade receivables
|
|
|
|
|
|
|
2,272 |
|
|
|
4,080 |
|
Other current assets
|
|
|
|
|
|
|
8,985 |
|
|
|
3,257 |
|
Cash
|
|
|
|
|
|
|
10,021 |
|
|
|
1,235 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,278 |
|
|
|
8,572 |
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
|
|
|
|
|
485,405 |
|
|
|
899,778 |
|
|
|
|
|
|
|
|
|
|
|
EQUITY AND LIABILITIES |
Equity (deficit) attributable to equity holders of the
parent
|
|
|
13 |
|
|
|
|
|
|
|
|
|
Issued capital
|
|
|
|
|
|
|
50,614 |
|
|
|
50,614 |
|
Share premium
|
|
|
|
|
|
|
361,367 |
|
|
|
361,262 |
|
Cumulated loss
|
|
|
|
|
|
|
(365,153 |
) |
|
|
(606,723 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46,828 |
|
|
|
(194,847 |
) |
Minority interests
|
|
|
|
|
|
|
429 |
|
|
|
434 |
|
|
|
|
|
|
|
|
|
|
|
Total equity (deficit)
|
|
|
|
|
|
|
47,257 |
|
|
|
(194,413 |
) |
|
|
|
|
|
|
|
|
|
|
Non-current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing loans and borrowings
|
|
|
14 |
|
|
|
315,398 |
|
|
|
0 |
|
Sale-leaseback obligations
|
|
|
|
|
|
|
28 |
|
|
|
611 |
|
Deferred tax liability
|
|
|
6 |
|
|
|
26,710 |
|
|
|
64,958 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
342,136 |
|
|
|
65,569 |
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other payables
|
|
|
15 |
|
|
|
25,207 |
|
|
|
48,178 |
|
Interest bearing loans and borrowings
|
|
|
14 |
|
|
|
18,552 |
|
|
|
957,463 |
|
Sale-leaseback obligations
|
|
|
|
|
|
|
586 |
|
|
|
966 |
|
Deferred revenue
|
|
|
|
|
|
|
1,739 |
|
|
|
2,076 |
|
Provisions
|
|
|
16 |
|
|
|
49,928 |
|
|
|
19,939 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
96,012 |
|
|
|
1,028,622 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
|
|
|
|
438,148 |
|
|
|
1,094,191 |
|
|
|
|
|
|
|
|
|
|
|
TOTAL EQUITY AND LIABILITIES
|
|
|
|
|
|
|
485,405 |
|
|
|
899,778 |
|
|
|
|
|
|
|
|
|
|
|
IV-273
PRIMACOM AG AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to equity holders of the parent | |
|
|
|
|
|
|
| |
|
|
|
|
|
|
Issued | |
|
Share | |
|
Cumulated | |
|
|
|
Minority | |
|
Total | |
|
|
Capital | |
|
Premium | |
|
Loss | |
|
Total | |
|
Interests | |
|
Equity | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
EUR000 | |
|
EUR000 | |
|
EUR000 | |
|
EUR000 | |
|
EUR000 | |
|
EUR000 | |
At January 1, 2004 (unaudited)
|
|
|
50,614 |
|
|
|
361,226 |
|
|
|
(496,770 |
) |
|
|
(84,930 |
) |
|
|
351 |
|
|
|
(84,579 |
) |
Stock option compensation
|
|
|
0 |
|
|
|
36 |
|
|
|
0 |
|
|
|
36 |
|
|
|
0 |
|
|
|
36 |
|
Loss for the year
|
|
|
0 |
|
|
|
0 |
|
|
|
(109,953 |
) |
|
|
(109,953 |
) |
|
|
83 |
|
|
|
(109,870 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2004 (unaudited)
|
|
|
50,614 |
|
|
|
361,262 |
|
|
|
(606,723 |
) |
|
|
(194,847 |
) |
|
|
434 |
|
|
|
(194,413 |
) |
Stock option compensation
|
|
|
0 |
|
|
|
105 |
|
|
|
0 |
|
|
|
105 |
|
|
|
0 |
|
|
|
105 |
|
Profit for the year
|
|
|
0 |
|
|
|
0 |
|
|
|
241,570 |
|
|
|
241,570 |
|
|
|
(5 |
) |
|
|
241,565 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2005
|
|
|
50,614 |
|
|
|
361,367 |
|
|
|
(365,153 |
) |
|
|
46,828 |
|
|
|
429 |
|
|
|
47,257 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IV-274
PRIMACOM AG AND SUBSIDIARIES
CONSOLIDATED CASH FLOW STATEMENT
for the year ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
|
|
| |
|
| |
|
|
|
|
|
|
(unaudited) | |
|
|
Notes | |
|
EUR000 | |
|
EUR000 | |
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit(+)/ Loss(-) for the year
|
|
|
|
|
|
|
241,565 |
|
|
|
(109,870 |
) |
Adjustments to reconcile profit/ loss for the year to net cash
provided by operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
4 |
|
|
|
42,821 |
|
|
|
45,600 |
|
|
Depreciation and amortization related to discontinued operations
|
|
|
7 |
|
|
|
34,263 |
|
|
|
33,344 |
|
|
Amortization of debt issuance costs
|
|
|
|
|
|
|
6,854 |
|
|
|
7,377 |
|
|
Write-off of capitalized debt issuance costs
|
|
|
5 |
|
|
|
24,652 |
|
|
|
0 |
|
|
Amortization of deferred revenue
|
|
|
|
|
|
|
(17,365 |
) |
|
|
(17,574 |
) |
|
Non-cash interest expense second secured loans
|
|
|
5 |
|
|
|
54,743 |
|
|
|
48,950 |
|
|
Stock option compensation
|
|
|
12 |
|
|
|
105 |
|
|
|
36 |
|
|
Deferred income taxes
|
|
|
6 |
|
|
|
638 |
|
|
|
1,780 |
|
|
Gain from extinguishment of second secured loans
|
|
|
5 |
|
|
|
(176,168 |
) |
|
|
0 |
|
|
Gain on sale of discontinued operations
|
|
|
7 |
|
|
|
(168,902 |
) |
|
|
0 |
|
|
Gain on fair value change of phantom options
|
|
|
5 |
|
|
|
(2,515 |
) |
|
|
0 |
|
|
Other
|
|
|
|
|
|
|
662 |
|
|
|
0 |
|
Changes in assets and liabilities,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade receivables
|
|
|
|
|
|
|
(381 |
) |
|
|
2,282 |
|
|
Other assets
|
|
|
|
|
|
|
(9,897 |
) |
|
|
3,594 |
|
|
Provisions, trade and other payables
|
|
|
|
|
|
|
22,907 |
|
|
|
1,918 |
|
|
Deferred revenue
|
|
|
|
|
|
|
20,297 |
|
|
|
17,547 |
|
|
Other
|
|
|
|
|
|
|
0 |
|
|
|
(170 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
|
|
|
|
74,279 |
|
|
|
34,814 |
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
|
|
|
|
(34,981 |
) |
|
|
(33,745 |
) |
|
Proceeds from sale of property and equipment
|
|
|
|
|
|
|
497 |
|
|
|
103 |
|
|
Proceeds from sale of discontinued operations, net of cash
disposed
|
|
|
7 |
|
|
|
500,854 |
|
|
|
0 |
|
Net cash provided by (used in) investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
466,370 |
|
|
|
(33,642 |
) |
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from interest bearing loans and borrowings
|
|
|
14 |
|
|
|
349,000 |
|
|
|
0 |
|
|
Debt issuance costs related to interest bearing loans and
borrowings
|
|
|
|
|
|
|
(13,476 |
) |
|
|
0 |
|
|
Repayments of interest bearing loans and borrowings
|
|
|
14 |
|
|
|
(866,111 |
) |
|
|
(3,389 |
) |
|
Repayments of sale-leaseback transactions
|
|
|
|
|
|
|
(963 |
) |
|
|
0 |
|
|
Other
|
|
|
|
|
|
|
(313 |
) |
|
|
(1,800 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
|
|
|
|
(531,863 |
) |
|
|
(5,189 |
) |
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
|
|
|
|
8,786 |
|
|
|
(4,017 |
) |
Cash at beginning of year
|
|
|
|
|
|
|
1,235 |
|
|
|
5,252 |
|
|
|
|
|
|
|
|
|
|
|
Cash at end of year
|
|
|
|
|
|
|
10,021 |
|
|
|
1,235 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
|
|
|
|
|
32,334 |
|
|
|
70,382 |
|
|
Income taxes paid
|
|
|
|
|
|
|
275 |
|
|
|
821 |
|
IV-275
PrimaCom AG and Subsidiaries
Notes to the Consolidated Financial Statements
All amounts in EUR000, except where stated otherwise
All amounts for 2004 are unaudited
PrimaCom AG and subsidiaries (PrimaCom,
PrimaCom Group or the Company), a German
stock corporation with its corporate headquarters in 55124
Mainz, An der Ochsenwiese 3, was formed on
December 30, 1998, by the merger of Süweda
Elektronische Medien- und Kabelkommunikations-AG
(Süweda) into KabelMedia Holding AG
(KabelMedia), two similarly sized German cable
television network operators. At the date of the merger,
KabelMedia was renamed PrimaCom AG. KabelMedia and Süweda
had been in existence since 1992 and 1983, respectively.
Since KabelMedias inception in 1992, the Company has
primarily owned, operated and acquired cable television networks
in Germany. On September 18, 2000, with the acquisition of
N.V. Multikabel (Multikabel), the Company expanded
its operations from Germany to The Netherlands. Effective
December 5, 2005 Multikabel has been sold and since then
the Company is only operating in Germany.
PrimaCom is listed in the General Standard segment of the
Frankfurt Stock Exchange. The principal activities of the
Company are further described in Note 3.
The financial statements for 2005 have been released by the
management board on June 2, 2006 in order to forward them
to the supervisory board for review.
The consolidated financial statements have been prepared on a
historical cost basis, except for derivative financial
instruments that have been measured at fair value. The
consolidated financial statements are presented in thousands of
EURO (
) and all values are rounded to the nearest thousand
except when otherwise indicated.
The consolidated financial statements of PrimaCom AG and
subsidiaries have been prepared in accordance with International
Financial Reporting Standards (IFRS) as adopted by the EU.
The consolidated financial statements comprise the financial
statements of PrimaCom AG and its subsidiaries as at
December 31, 2005 and 2004, respectively. The financial
statements of the subsidiaries are prepared for the same
reporting year as the parent Company, using consistent
accounting policies.
All intra-group balances, transactions, income and expenses and
profits and losses, resulting from intra-group transactions that
are recognized in assets, are eliminated in full.
Subsidiaries are fully consolidated from the date of
acquisition, being the date on which the Company obtains
control, and continue to be consolidated until the date that
such control ceases.
The sale of Multikabel has been recognized on the closing dated
December 5, 2005. Accordingly, the results of Multikabel
are included in the consolidated financial statements until
December 5, 2005 and are disclosed under discontinued
operations in the consolidated income statements for both years
presented (Note 7).
The financial statements have been prepared by management on a
going concern basis, which contemplates the realization of
assets and the discharge of liabilities in the normal course of
business for the foreseeable future.
IV-276
PrimaCom AG and Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
All amounts in EUR000, except where stated otherwise
All amounts for 2004 are unaudited
The Company incurred a loss of
109,870 for the
year ended December 31, 2004 and a profit of
241,565 for the
year ended December 31, 2005.
On December 9, 2004 the Company issued an Ad Hoc notice
disclosing that PrimaCom AG and PrimaCom Management GmbH, a
wholly owned subsidiary of the Company, had filed a law suit at
the District Court of Mainz against the holders of the Second
Secured Loan (the Second Secured Loan) under the
Second Secured Credit Facility Agreement dated March 26,
2002 (Note 14). The principal amount of the Second Secured
Loan was
375,000. As part
of the law suit PrimaCom asked, among other things, the court to
determine whether PrimaCom AG was obligated to pay the accrued
interest on the Second Secured Loan or whether the Second
Secured Lenders were able to enforce future interest claims. The
Ad Hoc notice explained that the lawsuit was based on expert
opinions, which determined that the Second Secured Loan had an
equity replacement character, as defined in German Company law.
On December 21, 2004, PrimaCom Management GmbH filed a
further claim at the District Court of Frankfurt am Main against
the Second Secured Lenders. In this claim, the court was asked
to determine on whether the pledges of shares in certain of the
Companys subsidiaries as collateral for the Second Secured
Loan was invalid and/or currently not enforceable.
Due to the claimed equity replacement character of the Second
Secured Loan, it would not have been permissible under German
insolvency law to continue to make interest payments as long as
and until a solution to the Companys financial crisis was
found for the Company. Accordingly, the Company did not make the
scheduled interest payments on the Second Secured Loan which was
due on December 31, 2004 and was served with a notice of
default on January 6, 2005. This non-payment of interest
also triggered a cross default of the Senior Credit Facility
borrowed in 2000 (the 2000 Senior Facility under
which PrimaCom Management GmbH was the borrower, Note 14).
On December 31, 2004, PrimaCom Management GmbH received a
waiver from the Senior Lenders for a period of sixty days for
the cross default under the 2000 Senior Facility and on
March 3, 2005 the Senior Lenders agreed to extend this
waiver until March 7, 2005. After March 7, 2005, the
Company continued not to pay any of scheduled interest payments
on the Second Secured Loans for the reasons previously stated.
In order for PrimaCom Management GmbH to be able to make use of
the 2000 Senior Facility on a monthly revolving basis, it was a
condition that no Event of Default (as defined in the 2000
Senior Credit Facility Agreement) was outstanding on the date of
a rollover of the Senior Loans. Up to September 12, 2005,
the Senior Lenders provided waivers of the cross-defaults under
the 2000 Senior Credit Facility Agreement as a result of the
non-payment by the Company of interest on the Second Secured
Lenders and other outstanding Events of Default in order to
allow PrimaCom Management GmbH to continue to be able to make
use of the 2000 Senior Facility.
A claim was also filed by the Second Secured Lenders in London
for a declaration that the provisions in the Second Secured
Facility Agreement, which oblige PrimaCom to pay interest to the
Second Secured Lenders, were valid and enforceable. However,
this case was postponed pending the outcome of the German
proceedings referred to above. Following the conclusion of the
arrangement reached in the settlement agreement referred to
below, this claim was removed by the Second Secured Lenders.
On March 8, 2005, following expiration of the standstill
period governed by the inter-creditor agreement, the Second
Secured Lenders served PrimaCom AG with a notice of default and
demand in which they declared of the Second Secured Loan
immediately due and payable together with all accrued interest
and all other sums due under the Second Secured Credit Facility
Agreement. In a separate letter, PrimaCom Management GmbH, which
was a guarantor of the Second Secured Loan, was notified of the
above event of default. Subsequently, the Second Secured Lenders
served PrimaCom AG with notices of default for failure to pay
IV-277
PrimaCom AG and Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
All amounts in EUR000, except where stated otherwise
All amounts for 2004 are unaudited
expenses, failure to execute pledges over the shares of one of
PrimaComs subsidiaries, a cross default for failure to
comply with the pro-forma debt service covenant of the 2000
Senior Credit Facility and failure to provide documents.
As governed by the inter-creditor agreement, 180 days after
notice of default dated January 6, 2005, (as referred to
above) the Second Secured Lenders served notices of default and
demand to PrimaCom Management GmbH and also commenced legal
proceedings against PrimaCom Management GmbH in which they
demanded, under the guarantee and indemnity clauses of the
Second Secured Facility, full repayment of the Second Secured
Loan plus accrued interest due under the Second Secured Facility
Agreement.
In addition to the interest obligations under the Second Secured
Credit Facility, the Company and PrimaCom Management GmbH were
also requested to comply with specific financial covenants
included in the 2000 Senior Credit Facility Agreement and the
Second Secured Credit Facility Agreement. Although the Company
and PrimaCom Management GmbH were able to comply with these
covenants through September 30, 2005, (except that the
Company was unable to comply for the pro-forma debt service
ratio covenant under the 2000 Senior Credit Facility Agreement
for the testing periods ending December 31, 2004,
March 31, 2005 and September 30, 2005), management
anticipated that the Company would not be able to comply with
certain of these covenants for the remainder of 2005.
In addition, under the amortization schedule of the 2000 Senior
Credit Facility Agreement, PrimaCom Management GmbH was required
to make repayments of principal of approximately
57,000 in 2005.
The Company also did not anticipate that operating cash flows of
the Company and PrimaCom Management GmbH would be sufficient to
meet this schedule and therefore anticipated liquidity problems
in the fourth quarter of 2005 or the first quarter of 2006.
As a result of these conditions the Company embarked on a
restructuring plan to sell its 100% subsidiary Multikabel,
use the proceeds to repay the 2000 Senior Facility, enter into a
new Senior Credit Facility Agreement and a new Mezzanine Loan
for the German business and use the proceeds to buy out the
Second Secured Loan.
On September 12, 2005, the Senior Lenders did not approve
the roll-over of the Revolving Credit under the 2000 Senior
Facility and, the Senior Loan became immediately repayable in
full.
On September 13, 2005, the District Court of Mainz rejected
PrimaComs claim against the Second Secured Lenders due to
lack of international jurisdiction. On September 16, 2005,
the District Court in Frankfurt am Main indicated that it too
was likely to reject the claim due to lack of international
jurisdiction.
On September 15, 2005, the Company announced that it had
reached agreement in principle with the owners of the Second
Secured Loan on certain conditions of a settlement. All parties
agreed that the Company would pay
375,000 to the
owners of the Second Secured Loan in compensation of all open
demands due to the owners of the Second Secured Loan. This
amount was payable by the Company by November 30, 2005. The
agreement also provided that the Company recognized a liability
of 425,000 due
to the owners of the Second Secured Loan. If the Company were
unable to pay the amount of
375,000 in
accordance with the terms of the settlement agreement (referred
to below), the owners of the Second Secured Loan would be able
to immediately execute their claims against the Company. The
agreement provided, subject to closing in accordance with a
settlement agreement with the owners of the Second Secured Loan
(referred to below), that they would agree to the sale of
Multikabel.
IV-278
PrimaCom AG and Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
All amounts in EUR000, except where stated otherwise
All amounts for 2004 are unaudited
On October 4, 2005, the Company signed standstill
agreements with the Senior Lenders under which, subject to
certain conditions, the Senior Lenders agreed to withhold from
any further actions provided that the 2000 Senior Loan was
repaid no later than November 30, 2005.
On October 6, 2005, the Company gave notice that it had
entered into a purchase agreement with Amsterdamse Beheer- en
Consultingmaatschappij B.V. and Christina Beheer- en
Adviesmaatschappij B.V., companies controlled by the global
private equity firm Warburg Pincus, regarding the indirect sale
of all shares in N.V. Multikabel as well as all debt of all
Dutch subsidiaries in the PrimaCom Group. The agreement was made
under several conditions precedent, including the merger
clearance by the Dutch cartel authority NMa, as well
as the financing of the purchase price by the purchaser and the
approval of PrimaComs existing Senior Lenders and the
Second Secured Lenders. The purchase price amounted to
515,000 and was
approved by the Companys Supervisory Board.
On October 13, 2005, the Company entered into a Settlement
Agreement with its Second Secured Lenders under the Second
Secured Credit Facility Agreement.
Under this Settlement Agreement PrimaCom agreed to withdraw the
litigation initiated by it in Germany against the Second Secured
Lenders. Once this and certain other conditions had been
satisfied on or before November 30, 2005 the Settlement
Agreement provided for:
|
|
|
the sale of PrimaComs Dutch business, Multikabel; |
|
|
the refinancing and repayment in full of the existing 2000
Senior Facility; |
|
|
a judgment in favour of the Second Secured Lenders to be
obtained in the English courts in the amount of
425,000 together
with certain declaratory relief; |
|
|
the payment of all amounts due and payable under the Settlement
Agreement, including the judgment of the English Courts referred
to above, by PrimaCom in the amount of
375,000 to the
Second Secured Lenders; |
|
|
the resolution of all litigation outstanding between PrimaCom
and the Second Secured Lenders; and |
|
|
the giving of mutual waivers and releases between PrimaCom and
the Second Secured Lenders. |
On November 4, 2005, the Company announced that the Dutch
cartel authority NMa had given merger clearance for
the indirect sales of all shares of N.V. Multikabel as well as
all debt of all Dutch subsidiaries in the PrimaCom Group to the
Amsterdamse Beheer- en Consultingmaatschappij B.V. and Christine
Beheer- en Adviesmaatschappij B.V., companies which are
controlled by the global private equity firm Warburg Pincus.
On December 5, 2005 the Company announced the successful
closing of:
|
|
|
the sale of its Dutch subsidiary Multikabel (Note 7); |
|
|
the discharge of the Second Secured Loan and all other claims of
the Second Secured Lenders through payment of
375,000 under
the terms of the Settlement Agreement; and |
|
|
the refinancing (Note 14) of the Company through a new
Senior Credit Facility (the 2005 Senior Facility) of
300,000 and a
Mezzanine Loan (the 2005 Mezzanine Loan) of
69,000 and the
repayment of the 2000 Senior Loans. |
|
|
2.2 |
First-time adoption of IFRS |
The consolidated financial statements of PrimaCom AG for the
year ended December 31, 2005 have been prepared in
accordance with IFRS for the first time whereas the consolidated
financial statements for the year
IV-279
PrimaCom AG and Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
All amounts in EUR000, except where stated otherwise
All amounts for 2004 are unaudited
ended December 31, 2004 have been prepared in accordance
with US Generally Accepted Accounting Principles (US
GAAP). The date of transition to IFRS is January 1,
2004.
|
|
|
Reconciliation of equity (deficit) |
|
|
|
|
|
|
|
|
|
|
|
January 1, | |
|
December 31, | |
|
|
2004 | |
|
2004 | |
|
|
| |
|
| |
|
|
(unaudited) | |
|
(unaudited) | |
Equity (Deficit) reported under US GAAP
|
|
|
(84,930 |
) |
|
|
(198,424 |
) |
Correction of error
|
|
|
0 |
|
|
|
3,577 |
|
Reclassification of minority interests
|
|
|
351 |
|
|
|
434 |
|
|
|
|
|
|
|
|
Equity (Deficit) reported under IFRS
|
|
|
(84,579 |
) |
|
|
(194,413 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
|
| |
|
|
(unaudited) | |
Loss for the year reported under US GAAP
|
|
|
(113,530 |
) |
Correction of error
|
|
|
3,577 |
|
Reclassification of minority interests
|
|
|
83 |
|
|
|
|
|
Loss for the year reported under IFRS
|
|
|
(109,870 |
) |
|
|
|
|
In the year ended December 31, 2004, depreciation expense
on the cable television networks was overstated by
3,577 caused by
an erroneously made journal entry. The necessary adjustments
were made to the comparative financial statements for fiscal
year 2004. This correction of error had no impact on the
financial statements for fiscal year 2005.
|
|
|
Reclassification of minority interests |
Under US GAAP the minority interests in equity have been
disclosed in a separate heading outside equity whereas under
IFRS these shares have to be disclosed within equity. Under US
GAAP the minority shares in income have been disclosed within
loss for the year whereas under IFRS the loss attributable to
equity holders of the parent and attributable to minorities has
to be disclosed separately from loss for the year.
|
|
|
Accounting for business combinations |
Under US GAAP the 1998 merger of Süweda into KabelMedia
Holding AG was accounted for under the purchase method of
accounting as a reverse acquisition by Süweda of KabelMedia
even though KabelMedia issued shares to Süwedas
shareholders as consideration in the Merger and is the surviving
legal entity. This accounting has not been changed in accordance
with IFRS 1 First-time Adoption of International Financial
Reporting Standard.
There were no other significant exceptions to the retrospective
application of IFRS.
IV-280
PrimaCom AG and Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
All amounts in EUR000, except where stated otherwise
All amounts for 2004 are unaudited
|
|
2.3 |
Significant accounting judgments and estimates |
The preparation of financial statements in conformity with IFRS
requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those
estimates.
The key assumptions concerning the future and other key sources
of estimation uncertainty at the balance sheet date, that have a
significant risk of causing a material adjustment to the
carrying amounts of assets and liabilities within the next
financial year are discussed below.
The Company determines whether goodwill is impaired at least on
an annual basis. This requires an estimation of the value in use
of the cash-generating units to which the goodwill is allocated.
Estimating the value in use requires the Company to make an
estimate of the expected future cash flows from the
cash-generating unit and also to choose a suitable discount rate
in order to calculate the present value of those cash flows. The
carrying amount of goodwill at December 31, 2005 and 2004
was 204,433 and
359,710,
respectively. More details are given in Note 11.
|
|
|
Other significant estimation uncertainties |
Further significant estimates relate to provisions, estimate of
the useful lives of tangible and intangible assets,
recoverability of trade receivables and deferred tax assets.
|
|
2.4 |
Summary of significant accounting policies |
Property and equipment is stated at cost, excluding the costs of
day-to-day servicing,
less accumulated depreciation and accumulated impairment in
value. Cost includes the cost of replacing part of such property
and equipment when that cost is incurred if the recognition
criteria are met. Repairs and maintenance are charged to expense
during the financial period in which they are incurred.
Each part of an item of property and equipment with a cost that
is significant in relation to the total cost of the item is
depreciated separately. Depreciation is calculated on a
straight-line basis over the useful life of the assets as
follows:
|
|
|
cable television networks: 12 years; |
|
|
equipment and fixtures: 5 to 10 years; |
|
|
buildings: 25 years. |
The carrying values of property and equipment are reviewed for
impairment when events or changes in circumstances indicate that
the carrying value may not be recoverable.
An item of property, plant and equipment is de-recognized upon
disposal or when no future economic benefits are expected from
its use or disposal. Any gain or loss arising on de-recognition
of the asset (calculated as the difference between the net
disposal proceeds and the carrying amount of the asset) is
included in the income statement in the year the asset is
de-recognized.
IV-281
PrimaCom AG and Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
All amounts in EUR000, except where stated otherwise
All amounts for 2004 are unaudited
The assets residual values, useful lives and methods are
reviewed, and adjusted if appropriate, at each financial year
end.
Borrowing costs that are directly attributable to the
construction of networks are capitalized as part of cost. In
2005 and 2004, the Company capitalized
1,316 and
1,142,
respectively, of such borrowing costs. The capitalization rate
used to determine the amount of borrowing cost is 12% in both
years.
Goodwill acquired in a business combination is initially
measured using the excess of the cost of the business
combination over the Companys interest in the net fair
value of the identifiable assets, liabilities and contingent
liabilities. Following initial recognition, goodwill is measured
at cost less any accumulated impairment losses. Goodwill is
reviewed for impairment annually, or more frequently if events
or changes in circumstances indicate that the carrying value may
be impaired.
For the purpose of impairment testing, goodwill acquired in a
business combination is, from the acquisition date, allocated to
each of the Companys cash-generating units that are
expected to benefit from the synergies of the combination,
irrespective of whether other assets or liabilities of the
Company are assigned to those units. Each unit to which goodwill
is so allocated represents the lowest level within the Company
at which goodwill is monitored for internal management purposes
and is a reportable segment determined in accordance with
IAS 14 Segment Reporting.
Impairment is determined by assessing the recoverable amount of
the cash-generating unit to which goodwill relates. Where the
recoverable amount of the cash-generating unit is less than the
carrying amount, an impairment loss is recognized. Where
goodwill forms part of a cash-generating unit and part of the
operation within that unit is disposed of, goodwill associated
with the operation disposed of is included in the carrying
amount of the operation when determining the gain or loss on
disposal of the operation. Goodwill disposed of in this
circumstance is measured based on the relative values of the
operation disposed of and the portion of the cash-generating
unit retained.
Other intangible assets acquired separately are measured on
initial recognition at cost. The cost of intangible assets
acquired in a business combination is fair value at the date of
acquisition. Following initial recognition, intangible assets
are carried at cost less any accumulated amortization and any
accumulated impairment losses. Internally generated intangible
assets are not capitalized and expenditure is charged against
profits in the year in which the expenditure is incurred.
The useful lives of intangible assets are assessed to be either
finite or indefinite. The Company has determined that there are
no intangible assets with indefinite useful lives.
Intangible assets with finite lives are amortized over the
useful economic life and assessed for impairment whenever there
is an indication that the intangible asset may be impaired. The
amortization period and the amortization method for an
intangible asset with a finite useful life are reviewed at least
at each fiscal year-end. Changes in the expected useful life or
the expected pattern of consumption of future economic benefits
embodied in the asset are accounted for by changing the
amortization period or method, as appropriate, and treated as
changes in accounting estimates. The amortization expense on
intangible assets with finite lives is recognized in the income
statement in depreciation and amortization.
IV-282
PrimaCom AG and Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
All amounts in EUR000, except where stated otherwise
All amounts for 2004 are unaudited
Amortization of intangible assets is calculated on a
straight-line basis over the useful life of the assets as
follows:
|
|
|
customer lists: 15 years; |
|
|
other intangible assets: 3 to 10 years. |
Gains or losses arising from de-recognition of an intangible
asset are measured as the difference between the net disposal
proceeds and the carrying amount of the asset and are recognized
in the income statement when the asset is de-recognized.
The Company assesses at each reporting date whether there is an
indication that an asset may be impaired. If any such indication
exists, or when annual impairment testing for an asset is
required, the Company makes an estimate of the assets
recoverable amount. An assets recoverable amount is the
higher of an assets or cash-generating units fair
value less costs to sell and its value in use and is determined
for an individual asset, unless the asset does not generate cash
inflows that are largely independent of those from other assets
or groups of assets. Where the carrying amount of an asset
exceeds its recoverable amount, the asset is considered impaired
and is written down to its recoverable amount. In assessing
value in use, the estimated future cash flows are discounted to
their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the
risks specific to the asset. Impairment losses of continuing
operations are recognized in the income statement in those
expense categories consistent with the function of the impaired
asset.
An assessment is made at each reporting date as to whether there
is any indication that previously recognized impairment losses
may no longer exist or may have decreased. If such indication
exists, the recoverable amount is estimated. A previously
recognized impairment loss is reversed only if there has been a
change in the estimates used to determine the assets
recoverable amount since the last impairment loss was
recognized. If that is the case the carrying amount of the asset
is increased to its recoverable amount. That increased amount
cannot exceed the carrying amount that would have been
determined, net of depreciation, had no impairment loss been
recognized for the asset in prior years. Such reversal is
recognized in profit or loss. After such a reversal the
depreciation charge is adjusted in future periods to allocate
the assets revised carrying amount, less any residual
value, over its remaining useful life.
Trade receivables, which generally are due immediately after
month end, are recognized and carried at original invoice amount
less an allowance for any uncollectible amounts. Provision is
made when there is objective evidence that the Company will not
be able to collect the debts. Bad debts are written off when
identified.
Cash in the balance sheet and in the cash flow statement
comprise cash at banks and cash in hand.
|
|
|
Interest-bearing loans and borrowings |
All loans and borrowings are initially recognized at the fair
value of the consideration received less directly attributable
transaction costs.
IV-283
PrimaCom AG and Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
All amounts in EUR000, except where stated otherwise
All amounts for 2004 are unaudited
After initial recognition, interest-bearing loans and borrowings
are subsequently measured at amortised cost using the effective
interest method.
Gains and losses are recognized in net profit or loss when the
liabilities are derecognized as well as through the amortization
process.
|
|
|
De-recognition of financial liabilities |
A financial liability is de-recognized when the obligation under
the liability is discharged or cancelled or expires. Where an
existing financial liability is replaced by another from the
same lender on substantially different terms, or the terms of an
existing liability are substantially modified, such an exchange
or modification is treated as a de-recognition of the original
liability and the recognition of a new liability, and the
difference in the respective carrying amounts is recognized in
profit or loss.
Provisions are recognized when the Company has a present
obligation as a result of a past event, it is probable that a
payment will be required to settle the obligation and a reliable
estimate can be made of the amount of the obligation. Where the
Company expects some or all of a provision to be reimbursed, for
example under an insurance contract, the reimbursement is
recognized as a separate asset but only when the reimbursement
is virtually certain. The expense relating to any provision is
presented in the income statement net of any reimbursement. If
the effect of the time value of money is material, provisions
are discounted using a current pre-tax rate that reflects, where
appropriate, the risks specific to the liability. Where
discounting is used, the increase in the provision due to the
passage of time is recognized as a borrowing cost.
|
|
|
Share-based payment transactions |
Employees (including senior executives) of the Company receive
remuneration in the form of share-based payment transactions,
whereby employees render services as consideration for equity
instruments (equity settled transactions).
The cost of equity-settled transactions with employees is
measured by reference to the fair value at the date on which
they are granted. The fair value is determined by using the
Black-Scholes option-pricing model, further details of which are
given in Note 12. In valuing equity-settled transactions,
no account is taken of any performance conditions, other than
conditions linked to the price of the shares of PrimaCom
(market conditions), if applicable.
The cost of equity-settled transactions is recognized, together
with a corresponding increase in equity, over the period in
which the performance and/or service conditions are fulfilled,
ending on the date on which the relevant employees become fully
entitled to the award (the vesting date). The
cumulative expense recognized for equity-settled transactions at
each reporting date until the vesting date reflects the extent
to which the vesting period has expired and the Companys
best estimate of the number of equity instruments that will
ultimately vest. The income statement charge or credit for a
period represents the movement in cumulative expense recognized
from the beginning to the end of that period.
The dilutive effect of outstanding options is reflected as
additional share dilution in the computation of earnings per
share (Note 8).
The Company has applied IFRS 2 to all equity settled
share-based payment transactions.
IV-284
PrimaCom AG and Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
All amounts in EUR000, except where stated otherwise
All amounts for 2004 are unaudited
The determination of whether an arrangement is, or contains, a
lease is based on the substance of the arrangement and requires
an assessment of whether the fulfillment of the arrangement is
dependent on the use of a specific asset or assets and whether
the arrangement conveys a right to use the asset.
Finance leases, which transfer to the Company substantially all
the risks and benefits incidental to ownership of the leased
item, are capitalized at the inception of the lease at the fair
value of the leased property or, if lower, at the present value
of the minimum lease payments. Lease payments are apportioned
between the finance charges and reduction of the lease liability
so as to achieve a constant rate of interest on the remaining
balance of the liability. Finance charges are charged directly
against income.
Capitalized leased assets are depreciated over the shorter of
the estimated useful life of the asset and the lease term, if
there is no reasonable certainty that the Company will obtain
ownership by the end of the lease term.
Operating lease payments are recognized as an expense in the
income statement on a straight-line basis over the lease term.
Cable Network Revenue: revenues related to video, telephony and
internet access are recognized in the period the related
services are provided to the customers over the Companys
cable networks. The majority of the subscribers are directly
debited each month by the Company.
Installation revenue (including reconnect fees) related to these
services over the Companys cable network is recognized as
revenue in the period in which the installation occurs.
Subscriber Advance Payments and Deposits: payments received in
advance for distribution services are deferred and recognized as
revenue when the associated services are provided. Deposits are
recorded as a liability upon receipt and refunded to the
subscriber upon disconnection.
Current tax assets and liabilities for the current and prior
periods are measured at the amount expected to be recovered from
or paid to the taxation authorities. The tax rates and tax laws
used to compute the amount are those that are enacted by the
balance sheet date.
Deferred income tax is provided using the liability method on
temporary differences at the balance sheet date between the tax
basis of assets and liabilities and their carrying amounts for
financial reporting purposes. Deferred tax liabilities are
recognized for all taxable temporary differences, except when a
deferred tax liability arises from the initial recognition of
goodwill from an asset or liability received in a transaction
that is not a business combination and, at the time of the
transaction, affects neither the accounting profit nor taxable
profit or loss.
Deferred income tax assets are recognized for all deductible
temporary differences, carry-forward of unused tax losses, to
the extent that it is probable that taxable profit will be
available against which the deductible temporary differences,
and the carry-forward of unused tax losses can be utilized,
except where the deferred income tax asset relating to the
deductible temporary difference arises from the initial
recognition of an asset or liability received in a transaction
that is not a business combination and, at the time of the
transaction, affects neither the accounting profit nor taxable
profit or loss.
The carrying amount of deferred income tax assets is reviewed at
each balance sheet date and reduced to the extent that it is no
longer probable that sufficient taxable profit will be available
to allow all or part of the
IV-285
PrimaCom AG and Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
All amounts in EUR000, except where stated otherwise
All amounts for 2004 are unaudited
deferred income tax asset to be utilized. Unrecognized deferred
income tax assets are reassessed at each balance sheet date and
are recognized to the extent that it has become probable that
future taxable profit will allow the deferred tax asset to be
recovered.
Deferred income tax assets and liabilities are measured at the
tax rates that are expected to apply to the year when the asset
is realized or the liability is settled, based on tax rates (and
tax laws) that have been enacted or substantively enacted at the
balance sheet date.
Deferred tax assets and deferred tax liabilities are offset, if
a legally enforceable right exists to set off current tax assets
against current tax liabilities and the deferred taxes relate to
the same taxable entity and the same taxation authority.
|
|
|
Derivative financial instruments and hedging |
The Company uses derivative financial instruments such as
interest rate swaps to hedge its risks associated with interest
rate fluctuations. In addition, so-called Phantom
options were granted to the lenders of the Company. Such
derivative financial instruments are initially recognized at
fair value on the date on which a derivative contract is entered
into and are subsequently re-measured at fair value. Derivatives
are carried as assets when the fair value is positive and as
liabilities when the fair value is negative.
Any gains or losses arising from changes in fair value on
derivatives that do not qualify for hedge accounting are taken
directly to net profit or loss for the year. The Company does
not have any derivatives that apply for hedge accounting.
|
|
2.5 |
IFRSs and IFRIC Interpretations not yet effective |
PrimaCom has not applied the following IFRSs and IFRIC
Interpretations that have been issued but are not yet effective.
|
|
|
IFRS 7 Financial instruments:
Disclosures |
In August 2005 the IASB published the standard IFRS 7
Financial instruments: Disclosures. This standard
supersedes the existing IAS 30 and adopts all provisions
regarding disclosures in the notes contained in IAS 32.
Among other changes the capital disclosures were amended or
added. This standard has completely restructured the disclosure
requirements for financial instruments. Disclosures on the
objectives, methods, risks, security and management processes
are now required. The disclosure provisions of IFRS 7 and
the modified capital disclosure requirements of IAS 1 shall
apply to periods beginning on or after January 1, 2007.
Earlier application is encouraged. The new provisions of
IFRS 7 do not affect measurement at PrimaCom Group, but
more detailed disclosures and presentations will be required.
|
|
|
IFRIC Interpretations 4, 5, 6 and 7 |
The adoption of IFRIC Interpretation 4 Determining whether
an Arrangement contains a Lease, IFRIC
Interpretation 5 Rights to Interests Arising from
Decommissioning, Restoration and Environmental Rehabilitation
Funds IFRIC Interpretation 6 Liabilities arising
from Participating in a Specific Market-Waste Electrical and
Electronic Equipment and IFRIC Interpretation 7
Applying the Restatement Approach under IAS 29
Financial Reporting in Hyperinflationary Economies is not
expected to have a material impact on PrimaComs financial
statements.
IV-286
PrimaCom AG and Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
All amounts in EUR000, except where stated otherwise
All amounts for 2004 are unaudited
Business segments are defined as distinguishable components of
an enterprise that are engaged in providing an individual
product, service or a group of related products or services that
are subject to risks and returns that are different from those
of other business segments.
PrimaComs revenues primarily include monthly subscription
fees, and to a lesser extent installation and connection fees,
related to its basic analog cable television service and high
speed Internet access. Revenue also includes monthly
subscription fees, and to a lesser extent installation and
connection fees, related to digital television service, which in
turn includes revenue from both near-video and
video-on-demand
services. Other notable sources of revenue include signal
delivery fees charged to other cable television operators for
delivery of signal to their networks and carriage fees paid by
program producers for the distribution of their programs to
customers.
Until December 5, 2005 the Company had two reportable
business segments based on geographic location which was
determined to be the primary segment reporting format: Germany
and The Netherlands (Multikabel). On December 5, 2005, the
business segment The Netherlands (Multikabel) was sold and is
therefore not longer shown as a separate segment. Accordingly,
the Company only has one business segment onwards.
Although revenues for the four product categories shown below
are regularly reviewed by the chief operating decision maker or
decision making group, these product categories do not form
separate business segments due to the insignificant size of all
product categories other than analog cable television service.
Accordingly, for internal reporting purposes, the Company does
not allocate operating costs, expenses and segment assets to
these product categories.
The Company evaluates performance and allocates resources based
on profit or loss from operations before interest, taxes,
depreciation and amortization. The accounting policies of the
reportable segments are the same as those described in the
summary of significant accounting policies.
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
|
|
(unaudited) | |
Germany
|
|
|
|
|
|
|
|
|
|
Analog cable
|
|
|
108,494 |
|
|
|
112,833 |
|
|
Digital cable
|
|
|
726 |
|
|
|
665 |
|
|
High-speed Internet
|
|
|
3,227 |
|
|
|
2,340 |
|
|
Other revenue
|
|
|
5,849 |
|
|
|
6,142 |
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
118,296 |
|
|
|
121,980 |
|
|
|
|
|
|
|
|
The revenues of the business segment in The Netherlands
(Multikabel) are reported as discontinued operations
(Note 7).
IV-287
PrimaCom AG and Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
All amounts in EUR000, except where stated otherwise
All amounts for 2004 are unaudited
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
|
|
(unaudited) | |
Germany
|
|
|
|
|
|
|
|
|
|
Total profit (loss) from continuing operations
|
|
|
109,407 |
|
|
|
(68,133 |
) |
|
Total finance cost
|
|
|
67,783 |
|
|
|
62,432 |
|
|
Total depreciation and amortization
|
|
|
42,821 |
|
|
|
45,600 |
|
The results of the business segment in The Netherlands
(Multikabel) are reported as discontinued operations
(Note 7).
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
|
|
(unaudited) | |
Germany
|
|
|
485,405 |
|
|
|
503,081 |
|
The Netherlands (Multikabel)
|
|
|
0 |
|
|
|
396,697 |
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
485,405 |
|
|
|
899,778 |
|
|
|
|
|
|
|
|
Germany
|
|
|
438,148 |
|
|
|
1,052,210 |
|
The Netherlands (Multikabel)
|
|
|
0 |
|
|
|
41,981 |
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
438,148 |
|
|
|
1,094,191 |
|
|
|
|
|
|
|
|
|
|
|
Other segment information |
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
|
|
(unaudited) | |
Germany
|
|
|
16,395 |
|
|
|
13,558 |
|
The Netherlands (Multikabel)
|
|
|
0 |
|
|
|
20,187 |
|
|
|
|
|
|
|
|
|
Total capital expenditure
|
|
|
16,395 |
|
|
|
33,745 |
|
|
|
|
|
|
|
|
Germany
|
|
|
86,992 |
|
|
|
58,143 |
|
The Netherlands (Multikabel)
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
Total non-cash expenses other than depreciation and amortization
|
|
|
86,992 |
|
|
|
58,143 |
|
|
|
|
|
|
|
|
|
|
4. |
Operating costs and expenses |
Operating costs and expenses for the years ended
December 31, 2005 and 2004 are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
|
|
(unaudited) | |
Operations expenses
|
|
|
40,578 |
|
|
|
36,261 |
|
Selling, general and administrative expenses
|
|
|
15,368 |
|
|
|
14,329 |
|
Corporate overhead expenses
|
|
|
15,205 |
|
|
|
21,646 |
|
Depreciation and amortization
|
|
|
42,821 |
|
|
|
45,600 |
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
113,972 |
|
|
|
117,836 |
|
|
|
|
|
|
|
|
IV-288
PrimaCom AG and Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
All amounts in EUR000, except where stated otherwise
All amounts for 2004 are unaudited
Operations expenses primarily include signal delivery fees paid,
Internet fees, copyright royalty expense and film license
payments. Labor, materials and other expenses related to the
repair and maintenance of PrimaComs networks are also
included in operations expenses.
In Germany, the Company continues to rely on Kabel Deutschland
and successor private operators to deliver a programming signal
to cable networks serving approximately 50% of its subscribers.
Kabel Deutschland and successor private operators continue to
own and operate the head-end and the principal transmission
lines. Cable network operators such as PrimaCom are required to
pay Kabel Deutschland a signal delivery fee pursuant to
agreements known as signal delivery contracts. The terms of
signal delivery contracts vary. Most signal delivery contracts
are for a fixed period, usually five to ten years, and are
subject to negotiated renewal. PrimaCom typically pays Kabel
Deutschland and successor private operators either a flat fee or
a fee per subscriber that is determined by reference to a
published fee schedule based on the number of homes connected to
one connection point. A number of signal delivery contracts
provide for price escalation during the first three to five
years (Bauzeitenregelung) to ease initial network development
costs. The ceilings in the majority of the escalation clauses of
these contracts have been reached.
Selling, general and administrative expenses primarily include
salaries and wages of personnel directly involved in the sales,
general and administrative functions of PrimaComs
operating companies, expenses of maintaining operating offices,
marketing expenses, costs of consultants used to support
operating activities, automobile expenses, certain cash
management expenses, billing expenses, office supplies and other
expenses associated with the operation of PrimaComs
networks and services.
Corporate overhead expenses consist of personnel expenses for
senior management, financial accounting, information technology,
product development, licensing fees paid for PrimaComs
billing, subscriber and financial accounting systems, the cost
of the corporate office and legal and accounting expenses
related to the operation of the corporate office. Non-cash
compensation expense related to the stock option plans is also
included in corporate overhead.
|
|
|
Employee benefits expense |
Employee benefits expense for the years ended December 31,
2005 and 2004 is comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
|
|
(unaudited) | |
Salaries and wages
|
|
|
14,040 |
|
|
|
14,382 |
|
Social security costs
|
|
|
2,593 |
|
|
|
2,758 |
|
Management bonus
|
|
|
11,248 |
|
|
|
0 |
|
Share-based payment plan
|
|
|
105 |
|
|
|
36 |
|
Other
|
|
|
1,699 |
|
|
|
2,327 |
|
|
|
|
|
|
|
|
|
|
|
29,685 |
|
|
|
19,503 |
|
|
|
|
|
|
|
|
Management bonus is included in other expenses (Note 5).
The average number of employees was 490 and 493 (excluding
Multikabel) in 2005 and 2004, respectively. In 2005 this
included 419 full-time and 71 part-time employees.
IV-289
PrimaCom AG and Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
All amounts in EUR000, except where stated otherwise
All amounts for 2004 are unaudited
|
|
5. |
Other income and expense |
Other expense for the years ended December 31, 2005 and
2004 is comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
|
|
(unaudited) | |
Management bonus
|
|
|
11,248 |
|
|
|
0 |
|
Legal fees
|
|
|
300 |
|
|
|
814 |
|
Other
|
|
|
368 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
11,916 |
|
|
|
814 |
|
|
|
|
|
|
|
|
In connection with the refinancing and restructuring, the
Company granted to all officers involved, 1,660,000 shares
which will be issued in 2006 and 2007. As of December 31,
2005, the Company has expensed
11,248 based on
the share price applicable to the fulfillment of certain
conditions agreed in connection with the sale of Multikabel,
including a bonus for the successful restructuring of the
Company and termination of one member of the management board.
Finance costs for the years ended December 31, 2005 and
2004 are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
|
|
(unaudited) | |
Interest on Second Secured Loan
|
|
|
54,743 |
|
|
|
48,950 |
|
Interest on other loans and borrowings
|
|
|
15,555 |
|
|
|
13,482 |
|
Reduction in fair value of Phantom Option Rights
|
|
|
(2,515 |
) |
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
67,783 |
|
|
|
62,432 |
|
|
|
|
|
|
|
|
|
|
|
Gain from extinguishment of debt |
The gain from extinguishment of debt for the year ended
December 31, 2005 is comprised of the following:
|
|
|
|
|
|
|
2005 | |
|
|
| |
Extinguishment related to the 2002 Convertible Second Secured
Loan
|
|
|
176,168 |
|
Extinguishment of cash interest related to previous financing
|
|
|
59,596 |
|
Immediate amortization of debt issuance cost related to previous
financing
|
|
|
(24,652 |
) |
|
|
|
|
Gain from extinguishment of debt
|
|
|
211,112 |
|
|
|
|
|
The extinguishment of debt is further described in Note 2.1
and in Note 14.
IV-290
PrimaCom AG and Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
All amounts in EUR000, except where stated otherwise
All amounts for 2004 are unaudited
The major components of income tax expense for the years ended
December 31, 2005 and 2004 are:
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
|
|
(unaudited) | |
Current income tax charge
|
|
|
(25,692 |
) |
|
|
(7,251 |
) |
Deferred income tax
|
|
|
(638 |
) |
|
|
(1,780 |
) |
|
|
|
|
|
|
|
Total income tax
|
|
|
(26,330 |
) |
|
|
(9,031 |
) |
|
|
|
|
|
|
|
A reconciliation between the expected tax expense (benefit)
based on Germanys domestic tax rate and the actual tax
expense for the years ended December 31, 2005 and 2004 is
as follows:
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
|
|
(unaudited) | |
Profit(+)/ Loss(-) from continuing operations before tax
|
|
|
135,737 |
|
|
|
(59,102 |
) |
Profit(+)/Loss(-) from discontinued operations before tax
|
|
|
132,158 |
|
|
|
(41,737 |
) |
|
|
|
|
|
|
|
Profit(+)/ Loss(-) before income tax
|
|
|
267,895 |
|
|
|
(100,839 |
) |
|
|
|
|
|
|
|
At Germanys statutory income tax rate of 39.7% (2004:
39.9%)
|
|
|
(106,248 |
) |
|
|
40,235 |
|
Non-taxable result from discontinued operations
|
|
|
52,414 |
|
|
|
(16,691 |
) |
Non-taxable income due to usage of loss carryforward
|
|
|
24,911 |
|
|
|
0 |
|
Non-deductible interest expense on trade taxes
|
|
|
(13,662 |
) |
|
|
(13,865 |
) |
Benefit on interCompany transactions
|
|
|
0 |
|
|
|
7,059 |
|
Change in valuation of deferred taxes
|
|
|
9,926 |
|
|
|
(29,852 |
) |
Reversal of tax accruals of prior years
|
|
|
9,977 |
|
|
|
0 |
|
Optimization of tax returns
|
|
|
0 |
|
|
|
1,736 |
|
Other
|
|
|
(3,648 |
) |
|
|
2,347 |
|
|
|
|
|
|
|
|
At the effective income tax rate of 9.8% (2004: 9.0%)
|
|
|
(26,330 |
) |
|
|
(9,031 |
) |
|
|
|
|
|
|
|
IV-291
PrimaCom AG and Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
All amounts in EUR000, except where stated otherwise
All amounts for 2004 are unaudited
Deferred income tax at December 31, 2005 and 2004 and for
the years then ended, relate to the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated | |
|
Consolidated | |
|
|
Balance Sheet | |
|
Income Statement | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
(unaudited) | |
|
|
|
(unaudited) | |
Deferred tax assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss carry-forwards
|
|
|
0 |
|
|
|
31,611 |
|
|
|
(31,611 |
) |
|
|
(2,187 |
) |
|
Property and equipment
|
|
|
18,409 |
|
|
|
25,675 |
|
|
|
(7,266 |
) |
|
|
(9,246 |
) |
|
Intangibles
|
|
|
400 |
|
|
|
409 |
|
|
|
(9 |
) |
|
|
(14 |
) |
|
Other
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
(464 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Deferred tax assets
|
|
|
18,809 |
|
|
|
57,695 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
(17,544 |
) |
|
|
(40,370 |
) |
|
|
22,826 |
|
|
|
6,715 |
|
|
Financing fees
|
|
|
(4,872 |
) |
|
|
(10,494 |
) |
|
|
5,622 |
|
|
|
2,049 |
|
|
Customer lists
|
|
|
0 |
|
|
|
(10,986 |
) |
|
|
10,986 |
|
|
|
1,424 |
|
|
Other
|
|
|
(4,294 |
) |
|
|
(3,108 |
) |
|
|
(1,186 |
) |
|
|
(57 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Deferred tax liabilities
|
|
|
(26,710 |
) |
|
|
(64,958 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax income (expense)
|
|
|
|
|
|
|
|
|
|
|
(638 |
) |
|
|
(1,780 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2005 and 2004, the Company had
available, in Germany, total tax loss carry-forwards for
corporate income tax of approximately
452,215 and
460,692,
respectively, and for trade tax of approximately
203,233 and
261,943,
respectively. Under current German tax laws, these loss
carry-forwards have an indefinite life and may be used to offset
future taxable income. Deferred tax assets have not been
recognized for losses incurred in Germany, as they may not be
used to offset taxable profits elsewhere in the PrimaCom Group
and the subsidiaries historically reported net losses from
continuing operations.
In addition, the Company had cumulative tax loss carry-forwards
under tax law in The Netherlands related to Multikabel of
approximately
160,119 as of
December 31, 2004.
IV-292
PrimaCom AG and Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
All amounts in EUR000, except where stated otherwise
All amounts for 2004 are unaudited
|
|
7. |
Discontinued operations |
On October 6, 2005 the Company gave notice that it had
entered into a purchase agreement with Amsterdamse Beheer- en
Consultingmaatschappij and B.V.Christina Beheer- en
Adviesmaatschappij B.V., companies controlled by the global
private equity firm Warburg Pincus, regarding the indirect sale
of all shares in N.V. Multikabel as well as all debt of all
Dutch subsidiaries in the PrimaCom Group. The transaction was
consummated by December 5, 2005 and resulted in a gain on
the sale of
168,902. After
deduction of cash disposed of amounting to
8,276 the net
proceeds from the sale amounted to
500,854. The
total net assets disposed of, excluding cash, amounted to
331,952 and are
comprised of the following:
|
|
|
|
|
Property and equipment
|
|
|
157,059 |
|
Goodwill
|
|
|
155,277 |
|
Other intangible assets
|
|
|
32,754 |
|
Deferred tax asset
|
|
|
31,611 |
|
Other assets excluding cash
|
|
|
6,337 |
|
|
|
|
|
Total assets disposed of
|
|
|
383,038 |
|
Deferred tax liability
|
|
|
(31,611 |
) |
Other liabilities
|
|
|
(19,475 |
) |
|
|
|
|
Total net assets disposed of
|
|
|
331,952 |
|
|
|
|
|
The results of Multikabel are included in the consolidated
financial statements until December 5, 2005 and are
reported as a discontinued operation in the consolidated income
statements for the years ended December 31, 2005 and 2004
as presented below:
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
|
|
(unaudited) | |
Revenues
|
|
|
97,079 |
|
|
|
88,733 |
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
Operations
|
|
|
(24,223 |
) |
|
|
(19,388 |
) |
Selling, general and administrative
|
|
|
(13,644 |
) |
|
|
(12,606 |
) |
Corporate overhead
|
|
|
(2,911 |
) |
|
|
(2,738 |
) |
Depreciation and amortization
|
|
|
(34,263 |
) |
|
|
(33,344 |
) |
|
|
|
|
|
|
|
|
|
|
(75,041 |
) |
|
|
(68,076 |
) |
Operating profit
|
|
|
22,038 |
|
|
|
20,657 |
|
Interest expense
|
|
|
(59,928 |
) |
|
|
(60,357 |
) |
Other income
|
|
|
1,146 |
|
|
|
0 |
|
Other expense
|
|
|
0 |
|
|
|
(2,037 |
) |
|
|
|
|
|
|
|
|
|
|
(36,744 |
) |
|
|
(41,737 |
) |
Gain on sale
|
|
|
168,902 |
|
|
|
0 |
|
|
|
|
|
|
|
|
Profit/ (loss) before tax
|
|
|
132,158 |
|
|
|
(41,737 |
) |
Income tax expense
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
Gain/ (loss) for the year from discontinued operations
|
|
|
132,158 |
|
|
|
(41,737 |
) |
|
|
|
|
|
|
|
IV-293
PrimaCom AG and Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
All amounts in EUR000, except where stated otherwise
All amounts for 2004 are unaudited
The net cash flows incurred by Multikabel are as follows:
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
|
|
(unaudited) | |
Net cash provided by (used in) operating activities
|
|
|
1,568 |
|
|
|
(7,698 |
) |
Net cash provided by (used in) investing activities
|
|
|
(18,586 |
) |
|
|
(20,187 |
) |
Net cash provided by (used in) financing activities
|
|
|
24,932 |
|
|
|
27,717 |
|
|
|
|
|
|
|
|
Net cash flow from discontinued operations
|
|
|
7,914 |
|
|
|
(168 |
) |
|
|
|
|
|
|
|
Basic earnings per share amounts are calculated by dividing net
profit (loss) for the year attributable to ordinary equity
holders of the parent by the weighted average number of ordinary
shares outstanding during the year. Diluted earnings per share
amounts are calculated by dividing the net profit attributable
to ordinary equity holders of the parent by the weighted average
number of ordinary shares outstanding during the year plus the
weighted average number of ordinary shares that would be issued
upon the conversion of all the dilutive potential ordinary
shares into ordinary shares.
The following reflects the income and share data used in the
basic and diluted earnings per share computations:
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
|
|
(unaudited) | |
Numerator:
|
|
|
|
|
|
|
|
|
|
Numerator for basic and diluted earnings per share
profit (loss) from continuing operations attributable to
ordinary equity holders of the parent
|
|
|
109,412 |
|
|
|
(68,216 |
) |
|
Numerator for basic and diluted earnings per share
profit (loss) from discontinuing operations attributable to
ordinary equity holders of the parent
|
|
|
132,158 |
|
|
|
(41,737 |
) |
|
Numerator for basic and diluted earnings per share
profit (loss) for the year attributable to ordinary equity
holders of the parent
|
|
|
241,570 |
|
|
|
(109,953 |
) |
Denominator:
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share weighted
average number of shares outstanding
|
|
|
19,798,552 |
|
|
|
19,798,552 |
|
|
Denominator for diluted earnings per share weighted
average number of shares outstanding
|
|
|
19,962,441 |
|
|
|
19,798,552 |
|
Basic earnings per share
(
) from continuing operations
|
|
|
5.53 |
|
|
|
(3.45 |
) |
Diluted earnings per share
(
) from continuing operations(A)
|
|
|
5.48 |
|
|
|
(3.45 |
) |
Basic earnings per share
(
) from discontinuing operations
|
|
|
6.68 |
|
|
|
(2.11 |
) |
Diluted earnings per share
(
) from discontinuing operations(A)
|
|
|
6.62 |
|
|
|
(2.11 |
) |
Basic earnings per share
(
) from net income/ loss
|
|
|
12.20 |
|
|
|
(5.56 |
) |
Diluted earnings per share
(
) from net income/ loss(A)
|
|
|
12.10 |
|
|
|
(5.56 |
) |
Outstanding stock options and contingent value rights are
excluded from the loss per share calculation because the effect
would be anti-dilutive.
IV-294
PrimaCom AG and Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
All amounts in EUR000, except where stated otherwise
All amounts for 2004 are unaudited
|
|
9. |
Property and equipment |
In 2005, property and equipment balances are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cable | |
|
Equipment | |
|
|
|
|
|
|
|
|
Television | |
|
and | |
|
Land and | |
|
Construction | |
|
|
|
|
Network | |
|
Fixtures | |
|
Buildings | |
|
in Process | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
At January 1, 2005, net of accumulated depreciation and
impairment
|
|
|
391,135 |
|
|
|
19,075 |
|
|
|
4,227 |
|
|
|
16,306 |
|
|
|
430,743 |
|
Additions
|
|
|
3,389 |
|
|
|
4,111 |
|
|
|
470 |
|
|
|
26,833 |
|
|
|
34,803 |
|
Disposal of Multikabel (Note 7)
|
|
|
(146,962 |
) |
|
|
(3,289 |
) |
|
|
(562 |
) |
|
|
(6,246 |
) |
|
|
(157,059 |
) |
Other disposals
|
|
|
(161 |
) |
|
|
(62 |
) |
|
|
0 |
|
|
|
(110 |
) |
|
|
(333 |
) |
Reclassifications
|
|
|
20,142 |
|
|
|
1 |
|
|
|
0 |
|
|
|
(20,143 |
) |
|
|
0 |
|
Depreciation
|
|
|
(66,163 |
) |
|
|
(4,426 |
) |
|
|
(401 |
) |
|
|
0 |
|
|
|
(70,990 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2005, net of accumulated depreciation and
impairment
|
|
|
201,380 |
|
|
|
15,410 |
|
|
|
3,734 |
|
|
|
16,640 |
|
|
|
237,164 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At January 1, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
|
832,219 |
|
|
|
75,830 |
|
|
|
6,021 |
|
|
|
16,306 |
|
|
|
930,376 |
|
Accumulated depreciation and impairment
|
|
|
(441,084 |
) |
|
|
(56,755 |
) |
|
|
(1,794 |
) |
|
|
0 |
|
|
|
(499,633 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net carrying amount
|
|
|
391,135 |
|
|
|
19,075 |
|
|
|
4,227 |
|
|
|
16,306 |
|
|
|
430,743 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
|
582,335 |
|
|
|
71,004 |
|
|
|
5,328 |
|
|
|
16,640 |
|
|
|
675,307 |
|
Accumulated depreciation and impairment
|
|
|
(380,955 |
) |
|
|
(55,594 |
) |
|
|
(1,594 |
) |
|
|
0 |
|
|
|
(438,143 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net carrying amount
|
|
|
201,380 |
|
|
|
15,410 |
|
|
|
3,734 |
|
|
|
16,640 |
|
|
|
237,164 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IV-295
PrimaCom AG and Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
All amounts in EUR000, except where stated otherwise
All amounts for 2004 are unaudited
In 2004, property and equipment balances are as follows
(unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cable | |
|
Equipment | |
|
|
|
|
|
|
|
|
Television | |
|
and | |
|
Land and | |
|
Construction | |
|
|
|
|
Network | |
|
Fixtures | |
|
Buildings | |
|
in Process | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
At January 1, 2004, net of accumulated depreciation and
impairment
|
|
|
419,635 |
|
|
|
20,960 |
|
|
|
4,493 |
|
|
|
24,510 |
|
|
|
469,598 |
|
Additions
|
|
|
4,054 |
|
|
|
3,222 |
|
|
|
77 |
|
|
|
26,379 |
|
|
|
33,732 |
|
Disposals
|
|
|
(7 |
) |
|
|
(96 |
) |
|
|
0 |
|
|
|
0 |
|
|
|
(103 |
) |
Reclassifications
|
|
|
34,583 |
|
|
|
0 |
|
|
|
0 |
|
|
|
(34,583 |
) |
|
|
0 |
|
Depreciation
|
|
|
(70,707 |
) |
|
|
(5,011 |
) |
|
|
(343 |
) |
|
|
0 |
|
|
|
(76,061 |
) |
Correction of error
|
|
|
3,577 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
3,577 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2004, net of accumulated depreciation and
impairment
|
|
|
391,135 |
|
|
|
19,075 |
|
|
|
4,227 |
|
|
|
16,306 |
|
|
|
430,743 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At January 1, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
|
792,994 |
|
|
|
73,428 |
|
|
|
5,944 |
|
|
|
24,510 |
|
|
|
896,876 |
|
Accumulated depreciation and impairment
|
|
|
(373,359 |
) |
|
|
(52,468 |
) |
|
|
(1,451 |
) |
|
|
0 |
|
|
|
(427,278 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net carrying amount
|
|
|
419,635 |
|
|
|
20,960 |
|
|
|
4,493 |
|
|
|
24,510 |
|
|
|
469,598 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
|
832,219 |
|
|
|
75,830 |
|
|
|
6,021 |
|
|
|
16,306 |
|
|
|
930,376 |
|
Accumulated depreciation and impairment
|
|
|
(441,084 |
) |
|
|
(56,755 |
) |
|
|
(1,794 |
) |
|
|
0 |
|
|
|
(499,633 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net carrying amount
|
|
|
391,135 |
|
|
|
19,075 |
|
|
|
4,227 |
|
|
|
16,306 |
|
|
|
430,743 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IV-296
PrimaCom AG and Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
All amounts in EUR000, except where stated otherwise
All amounts for 2004 are unaudited
In 2005, intangible asset balances are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer | |
|
|
|
Total Other | |
|
|
Goodwill | |
|
Lists | |
|
Other | |
|
Intangible Assets | |
|
|
| |
|
| |
|
| |
|
| |
At January 1, 2005, net of accumulated amortization
|
|
|
359,710 |
|
|
|
39,397 |
|
|
|
3,023 |
|
|
|
42,420 |
|
Additions
|
|
|
0 |
|
|
|
0 |
|
|
|
178 |
|
|
|
178 |
|
Disposal of Multikabel (Note 7)
|
|
|
(155,277 |
) |
|
|
(32,754 |
) |
|
|
0 |
|
|
|
(32,754 |
) |
Other disposals
|
|
|
0 |
|
|
|
0 |
|
|
|
(164 |
) |
|
|
(164 |
) |
Amortization
|
|
|
0 |
|
|
|
(4,947 |
) |
|
|
(1,147 |
) |
|
|
(6,094 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2005, net of accumulated amortization
|
|
|
204,433 |
|
|
|
1,696 |
|
|
|
1,890 |
|
|
|
3,586 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At January 1, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
|
455,449 |
|
|
|
61,325 |
|
|
|
11,201 |
|
|
|
72,526 |
|
Accumulated amortization
|
|
|
(95,739 |
) |
|
|
(21,928 |
) |
|
|
(8,178 |
) |
|
|
(30,106 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net carrying amount
|
|
|
359,710 |
|
|
|
39,397 |
|
|
|
3,023 |
|
|
|
42,420 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
|
286,685 |
|
|
|
2,085 |
|
|
|
11,215 |
|
|
|
13,300 |
|
Accumulated amortization
|
|
|
(82,252 |
) |
|
|
(389 |
) |
|
|
(9,325 |
) |
|
|
(9,714 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net carrying amount
|
|
|
204,433 |
|
|
|
1,696 |
|
|
|
1,890 |
|
|
|
3,586 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer lists were acquired by the Company in 2003. The
remaining amortization period of customer lists as of
December 31, 2005 is 12 years.
IV-297
PrimaCom AG and Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
All amounts in EUR000, except where stated otherwise
All amounts for 2004 are unaudited
In 2004 intangible asset balances are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer | |
|
|
|
Total Other | |
|
|
Goodwill | |
|
Lists | |
|
Other | |
|
Intangible Assets | |
|
|
| |
|
| |
|
| |
|
| |
At January 1, 2004, net of accumulated amortization
|
|
|
359,710 |
|
|
|
44,703 |
|
|
|
4,164 |
|
|
|
48,867 |
|
Additions
|
|
|
0 |
|
|
|
0 |
|
|
|
13 |
|
|
|
13 |
|
Amortization
|
|
|
0 |
|
|
|
(5,306 |
) |
|
|
(1,154 |
) |
|
|
(6,460 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2004, net of accumulated amortization
|
|
|
359,710 |
|
|
|
39,397 |
|
|
|
3,023 |
|
|
|
42,420 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At January 1, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
|
455,449 |
|
|
|
61,325 |
|
|
|
11,188 |
|
|
|
72,513 |
|
Accumulated amortization
|
|
|
(95,739 |
) |
|
|
(16,622 |
) |
|
|
(7,024 |
) |
|
|
(23,646 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net carrying amount
|
|
|
359,710 |
|
|
|
44,703 |
|
|
|
4,164 |
|
|
|
48,867 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
|
455,449 |
|
|
|
61,325 |
|
|
|
11,201 |
|
|
|
72,526 |
|
Accumulated amortization
|
|
|
(95,739 |
) |
|
|
(21,928 |
) |
|
|
(8,178 |
) |
|
|
(30,106 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net carrying amount
|
|
|
359,710 |
|
|
|
39,397 |
|
|
|
3,023 |
|
|
|
42,420 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11. |
Impairment testing of goodwill |
Goodwill acquired through business combinations has been
allocated to two individual cash-generating units, which are
reportable segments, for impairment testing as follows: Germany
and The Netherlands (Multikabel).
The recoverable amount of the Germany unit has been determined
based on a value in use calculation using cash flow projections.
The discount rate applied to cash flow projections is 8.12%,
9.25% and 9.25% as of December 31, 2005, December 31,
2004 and January 1, 2004 (date of transition to IFRS),
respectively. Cash flows beyond the
5-year period are
extrapolated using a 1.0% growth rate.
|
|
|
The Netherlands (Multikabel) |
The recoverable amount of the Netherlands (Multikabel) unit has
been determined based on a value in use calculation using cash
flow projections. The discount rate applied to cash flow
projections is 8.52% and 9.48% as of December 31, 2004 and
January 1, 2004 (date of transition to IFRS), respectively.
Cash flows beyond the
5-year period are
extrapolated using a 1.0% growth rate. Due to the sale of
Multikabel on December 5, 2005, goodwill of
155,277
allocated to this unit has been de-recognized as of that date
(Note 7).
IV-298
PrimaCom AG and Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
All amounts in EUR000, except where stated otherwise
All amounts for 2004 are unaudited
|
|
|
Carrying amount of goodwill allocated to each of the
cash-generating units |
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
|
|
(unaudited) | |
Germany
|
|
|
204,433 |
|
|
|
204,433 |
|
The Netherlands (Multikabel)
|
|
|
0 |
|
|
|
155,277 |
|
|
|
|
|
|
|
|
|
Total carrying amount of goodwill
|
|
|
204,433 |
|
|
|
359,710 |
|
|
|
|
|
|
|
|
|
|
|
Key assumptions used in value in use calculation |
The basis used for the calculation of value in use of the
reporting units is free cash flow, which has been defined as
earnings before interest, taxes and depreciation and
amortization (EBITDA) less capital expenditures and
plus or minus changes in working capital. Free cash flows were
discounted using the Companys weighted average cost of
capital (WACC).
|
|
|
Free cash flows the basis used to determine free
cash flows is a long range financial plan approved by senior
management with cash flow projections covering a 5 year
period. |
|
|
EBITDA the basis used to determine the value
assigned to planned EBITDA is the average EBITDA generated in
the year immediately before the plan period and adjusted going
forward for expected changes in penetration of the customer
base, increased penetration from new services (Internet and
Telephony), planned cost efficiencies and inflation. |
|
|
Capital expenditures Capital expenditures are based
on a planned network upgrades designed to build out our networks
and to provide new services. |
|
|
12. |
Share-based payment plans |
|
|
|
The 1999 Universal and Executive share-based payment
plans |
On February 22, 1999, the Company adopted an equity-settled
share-based payment plan for the benefit of all its employees
and the employees of its subsidiaries (the 1999 Universal
Share-based payment plan) and a share-based payment plan
for its executive officers and the executive officers of the
subsidiaries (the 1999 Executive Share-based payment
plan). The two share-based payment plans provide for the
issuance of stock options allowing eligible employees and
executive officers to acquire shares. The Company has been
authorized to issue a total of 1,000,000 shares including
300,000 shares under the 1999 Universal Share-based payment
plan and 700,000 shares under the 1999 Executive
Share-based payment plan.
The options granted in 1999 and 2000 under both the 1999
Universal Share-based payment plan and the 1999 Executive
Share-based payment plan vest over a three-year period.
One-third of the options vest on the first anniversary of the
grant and the remaining options vest in equal monthly amounts
over the following two years. The vested options are exercisable
after the second anniversary of the grant and expire on the
fifth anniversary of the grant. If the participants
employment agreement terminates before the options vest in full,
the participants vested options will be computed by
multiplying 1/36 times the number of full months of employment
between the date of the option grant and the date of
termination. Each option is exercisable only if the average
daily closing price of the shares, calculated as the average
over the five consecutive trading days on the Frankfurt Stock
Exchange immediately prior to the first option exercise, equals
at least 120% of the respective exercise price of the option.
IV-299
PrimaCom AG and Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
All amounts in EUR000, except where stated otherwise
All amounts for 2004 are unaudited
|
|
|
The 2000 Universal and Executive share-based payment
plans |
In July 2000, the Company created two new equity-settled
share-based payment plans, the 2000 Universal Share-based
payment plan with 150,000 options, and the 2000 Executive
Share-based payment plan with 350,000 options. The Company
may not grant options under the 2000 plans until all the options
under the 1999 plans have been granted.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average | |
|
|
|
|
|
|
Fair Value of | |
|
|
Number of | |
|
Weighted Average | |
|
Options Granted | |
|
|
Shares | |
|
Exercise Price | |
|
During the Year | |
|
|
| |
|
| |
|
| |
|
|
|
|
(in ) | |
|
(in ) | |
Outstanding at January 1, 2004 (date of transition to IFRS)
|
|
|
1,002,625 |
|
|
|
27.52 |
|
|
|
|
|
Granted
|
|
|
200,000 |
|
|
|
0.56 |
|
|
|
0.88 |
|
Exercised
|
|
|
0 |
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(691,785 |
) |
|
|
31.36 |
|
|
|
|
|
Forfeited
|
|
|
(50,766 |
) |
|
|
8.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2004
|
|
|
460,074 |
|
|
|
12.16 |
|
|
|
|
|
Granted
|
|
|
100,000 |
|
|
|
5.62 |
|
|
|
5.22 |
|
Exercised
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
Expired
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
Forfeited
|
|
|
(96,185 |
) |
|
|
52.54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2005
|
|
|
463,889 |
|
|
|
2.38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at December 31, 2005
|
|
|
163,889 |
|
|
|
2.63 |
|
|
|
|
|
|
|
|
Options outstanding by range of exercise price at
December 31, 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding | |
|
|
|
|
| |
|
|
|
|
Weighted | |
|
|
|
Exercisable | |
|
|
Average | |
|
|
|
| |
|
|
Remaining | |
|
Weighted | |
|
|
|
Weighted | |
Range of |
|
|
|
Contractual | |
|
Average | |
|
|
|
Average | |
Exercise |
|
Number | |
|
Life in | |
|
Exercise | |
|
Number | |
|
Exercise | |
Prices () |
|
Outstanding | |
|
Years | |
|
Price () | |
|
Outstanding | |
|
Price () | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
0.42
|
|
|
63,889 |
|
|
|
1.75 |
|
|
|
0.42 |
|
|
|
63,889 |
|
|
|
0.42 |
|
0.55-0.56
|
|
|
200,000 |
|
|
|
3.47 |
|
|
|
0.56 |
|
|
|
0 |
|
|
|
0 |
|
4.04
|
|
|
100,000 |
|
|
|
1.16 |
|
|
|
4.04 |
|
|
|
100,000 |
|
|
|
4.04 |
|
5.62
|
|
|
100,000 |
|
|
|
2.92 |
|
|
|
5.62 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
463,889 |
|
|
|
|
|
|
|
|
|
|
|
163,889 |
|
|
|
2.63 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IV-300
PrimaCom AG and Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
All amounts in EUR000, except where stated otherwise
All amounts for 2004 are unaudited
|
|
|
Compensation expense recognized under share-based payment
plans |
Compensation expense totaled
105 and
36 in 2005 and
2004, respectively.
|
|
|
Determination of fair value |
The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions used:
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
|
|
(unaudited) | |
Risk free rate of interest
|
|
|
5.5% |
|
|
|
5.5% |
|
Expected dividend yield
|
|
|
0.0% |
|
|
|
0.0% |
|
Expected life
|
|
|
3.0 years |
|
|
|
3.0 years |
|
Expected volatility
|
|
|
64.7% |
|
|
|
134.4% |
|
The Company is incorporated as an Aktiengesellschaft (hereafter
AG) under German law. Registered capital of an AG is
in the form of shares and represents negotiable securities.
Since June 5, 2003 PrimaCom was listed in the Prime
Standard of the Frankfurt Stock Exchange. On March 25, 2004
the Company applied to change from the Prime Standard to the
General Standard of the Frankfurt Stock Exchange.
Subsequent to the balance sheet date an extraordinary General
Shareholders Meeting on March 14, 2006 passed several
resolutions related to equity (Note 20).
As of December 31, 2005 and 2004 the Company has authorized
31,692,792 ordinary bearer shares with a pro rata share in the
registered capital of
2.56 per
share and has issued 19,798,552 of such shares. Each ordinary
bearer share is entitled to one vote.
The Company has several share option schemes under which options
to subscribe for the Companys shares have been granted to
employees and executive officers (Note 12).
Dividends may only be declared and paid from the accumulated
retained earnings (after deduction of certain reserves) shown in
the Companys annual German statutory unconsolidated
accounts. Such amounts differ from the total of
shareholders equity (deficit) as shown in the
consolidated financial statements as a result of the adjustments
made to present the consolidated financial statements in
accordance with IFRS. As of December 31, 2005, the
Companys German statutory accounts reflect no retained
earnings available for distribution.
IV-301
PrimaCom AG and Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
All amounts in EUR000, except where stated otherwise
All amounts for 2004 are unaudited
|
|
14. |
Interest bearing loans and borrowings |
Interest bearing loans and borrowings consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
|
|
(unaudited) | |
Borrowings under the 2000 Senior Credit Facility
|
|
|
|
|
|
|
475,835 |
|
2002 Second Secured Loan
|
|
|
|
|
|
|
481,628 |
|
Borrowings under the 2005 Senior Credit Facility:
|
|
|
|
|
|
|
|
|
|
Term A Facility
|
|
|
96,241 |
|
|
|
|
|
|
Term B Facility
|
|
|
86,612 |
|
|
|
|
|
|
Term C Facility
|
|
|
86,608 |
|
|
|
|
|
|
|
|
|
|
|
|
Total 2005 Senior Facilities
|
|
|
269,461 |
|
|
|
|
|
2005 Mezzanine Loans
|
|
|
|
|
|
|
|
|
|
Series A Notes
|
|
|
38,669 |
|
|
|
|
|
|
Alternative Equity Kicker on Series A Notes
|
|
|
7,268 |
|
|
|
|
|
|
Series B Notes
|
|
|
18,549 |
|
|
|
|
|
|
|
|
|
|
|
|
Total 2005 Mezzanine Loan
|
|
|
64,486 |
|
|
|
|
|
Overdrafts
|
|
|
3 |
|
|
|
0 |
|
|
|
|
|
|
|
|
Total interest bearing loans and borrowings
|
|
|
333,950 |
|
|
|
957,463 |
|
|
|
|
|
|
|
|
Non-current portion
|
|
|
315,398 |
|
|
|
0 |
|
|
|
|
|
|
|
|
Current portion
|
|
|
18,552 |
|
|
|
957,463 |
|
|
|
|
|
|
|
|
As discussed in Note 2.1, the refinancing of the Company
resulted in the extinguishment of the 2000 Senior Credit
Facility and the 2002 Second Secured Loan. An amount of
866,111 of the
prior financing has been repaid in December 2005 resulting in a
gain from extinguishment of debt amounting to
211,112
(Note 5).
In their place the Company entered into a new
300,000 Senior
Facility ( the 2005 Senior Credit Facility), of
which 280,000
was drawn at closing on December 5, 2005. The remaining
20,000 Credit
Facility consists of a
5,000 Revolving
Facility and an Overdraft Facility of
15,000. Further,
the Company entered into
69,000 Mezzanine
Loan (the 2005 Mezzanine Loan). Accordingly, the
total proceeds from interest bearing loans and borrowings
amounted to
349,000.
|
|
|
The 2005 Senior Credit Facility |
The drawn Credit Facility of
280,000 consists
of a 100,000
Term A Facility, a
90,000 Term B
Facility and a
90,000
Term C Facility. Principal payments on Term A Facility
are due quarterly beginning in the fourth quarter of 2006 with
the final payment due on December 31, 2012. The principal
amount of Term B and Term C Facility are due in one
lumps-sum payment on December 5, 2013 and 2014,
respectively. Interest on Term A, B and C Facilities is
payable at EURIBOR plus a margin of 2.35%, 2.85% and 3.35%,
respectively. As of December 31, 2005 Term A, B and C
Facilities bear an effective interest rate of 5.31%, 5.73% and
6.47%, respectively.
IV-302
PrimaCom AG and Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
All amounts in EUR000, except where stated otherwise
All amounts for 2004 are unaudited
Amounts outstanding under the Revolving Credit Facility bear
interest at EURIBOR plus a margin in a range of 1.65% to 2.35%,
depending on the ratio of total indebtedness of the
Companys subsidiaries to annualized earnings before
interest, tax, depreciation and amortization
(EBITDA).
The 2005 Senior Credit Facility is secured by, among other
things, liens on receivables from cable television subscribers,
concession agreements, equipment and interests in all shares of
PrimaComs subsidiaries. In addition, the Facility contains
customary operating and financial covenants, which, among other
things, require the Company to maintain specified ratios
relating to cash flow and total debt. Furthermore, there are
restrictions on incurring debt, encumbering revenues or assets,
lending funds to third parties or assuming liabilities,
disposing of properties and paying dividends or making
distributions.
Under the terms of the Senior Credit Facility, the available
commitment amount is reduced in quarterly amounts to the amounts
reflected below as of December 31 of the years indicated:
|
|
|
|
|
|
|
Available Commitment | |
Year Ended |
|
and Overdraft | |
|
|
| |
2005
|
|
|
300,000 |
|
2006
|
|
|
296,000 |
|
2007
|
|
|
280,000 |
|
2008
|
|
|
264,000 |
|
2009
|
|
|
248,000 |
|
At December 31, 2005, the Company had
20,000 unused
availability under the Credit Facility. The interest rate on
this portion of the Revolving Credit Facility was 4.76% at
December 31, 2005.
On December 5, 2005 the Company also entered into a
69,000 Mezzanine
Loan Agreement. The Mezzanine Loan consists of
50,000
Series A Notes, repayable together with accrued interests
in one amount on December 5, 2015, and
19,000
Series B Notes, repayable together with accrued interest
plus a 5% premium on December 5, 2006. The Series A
and B Notes are structurally subordinated to the year 2005
Senior Credit Facility since the obligor of the Notes is
PrimaCom AG which does not run any operational business and is
therefore dependent on distributions made by its operating
subsidiaries.
The Mezzanine loans were paid out after deduction of a discount
of 2.5% or
1,725. The
discount is amortized by the effective interest method over the
terms of the A and B Notes, respectively. The premium related to
the Series B Note is accrued by the effective interest
method over the term of the Series B Note.
The Mezzanine Loan balance bears an interest at EURIBOR plus
10.5% over the term of the loan. The 10.5% includes both a cash
interest portion and a non-cash interest portion. The cash
portion starts in December 2007 at a rate of 3.5% and increases
until 2010 to a rate of 4%. The non-cash interest portion
accrues to the outstanding loan amount and will be due upon
final repayment of the Mezzanine Loan.
As of December 31, 2005 Series A and B Notes bear an
effective interest of 13.46%, and 21.92%, respectively.
|
|
|
Alternative Equity Kicker Agreement |
As of December 31, 2005 the
50,000
Series A Note described above was linked to an
Alternative Equity Kicker Agreement under which
so-called Phantom Options were granted to the
lenders. The Company is obligated for the
10-years term of the
Series A Note to pay in cash the difference between the
current stock quotation and an amount fixed in the agreement.
IV-303
PrimaCom AG and Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
All amounts in EUR000, except where stated otherwise
All amounts for 2004 are unaudited
The Phantom Option Rights (POR) had the
following essential characteristics: a POR obligated the Company
to pay a sum of money in the amount of the difference between
the XETRA final quotation of a PrimaCom Share on the day the POR
would be exercised by the holder of the POR and;
|
|
|
5.00 if the
exercise notice was served after December 31, 2005 but
prior to or on April 21, 2006; or |
|
|
4.50 if the
exercise notice was served after April 21, 2006. |
The PORs could be exercised until the 10th anniversary of
the execution of the Alternative Equity-Kicker-Agreement (i.e.
until December 5, 2015). In addition the agreement
contained various provisions to protect the POR against dilution.
As of the closing date on December 5, 2005 the PORs were
recognized at their fair market value of
9,783 thus
reducing the fair value of the liability from the Series A
Notes. As of December 31, 2005 the fair market value of the
PORs was 7,268
and the reduction in fair value of
2,515 has been
recorded as a reduction of finance costs.
Under the terms of the Alternative Equity Kicker
Agreement the Company had the right to propose to its
General Shareholders to replace the Notes connected with the
Phantom Options by Notes with warrants. This replacement has
been approved by an Extraordinary General Shareholders
Meeting held on March 14, 2006 (Note 20) and
accordingly, the Phantom Options are not further
relevant onwards.
Transaction costs such as financing and professional fees are
deducted from the respective loans and are amortized as bank
debt interest over the term of the respective loans by the
effective interest method.
In addition, at December 5, 2005 unamortized financing and
professional fees of
24,652 relating
to the previous financing were expensed and are included in the
Income Statement in Gain on Extinguishment of Debt.
|
|
15. |
Trade and other payables |
Trade and other payables as of December 31, 2005 and 2004
are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
|
|
(unaudited) | |
Trade payables
|
|
|
5,352 |
|
|
|
11,457 |
|
Management bonus
|
|
|
11,248 |
|
|
|
0 |
|
Interest
|
|
|
1,101 |
|
|
|
22,517 |
|
Legal and accounting fees
|
|
|
1,627 |
|
|
|
4,070 |
|
Payroll
|
|
|
2,218 |
|
|
|
2,233 |
|
Multikabel (Note 7)
|
|
|
0 |
|
|
|
4,485 |
|
Other
|
|
|
3,661 |
|
|
|
3,416 |
|
|
|
|
|
|
|
|
|
|
|
25,207 |
|
|
|
48,178 |
|
|
|
|
|
|
|
|
|
|
|
Terms and conditions of the above financial
liabilities |
Trade payables are non-interest bearing and are normally settled
on 30-45 days
terms.
Management bonus is non-interest bearing and final settlement is
subject to shareholders approval (Note 20).
IV-304
PrimaCom AG and Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
All amounts in EUR000, except where stated otherwise
All amounts for 2004 are unaudited
Interest payable is settled on a 1, 2, 3 or 6 months
term on the Companys choice.
All other payables are non-interest bearing and have an average
term of 2-3 months.
Provisions are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty | |
|
Total | |
|
|
Taxes | |
|
Fees | |
|
Provisions | |
|
|
| |
|
| |
|
| |
At January 1, 2004
|
|
|
7,928 |
|
|
|
6,051 |
|
|
|
13,979 |
|
Arising during the year
|
|
|
17,913 |
|
|
|
240 |
|
|
|
18,153 |
|
Utilized
|
|
|
(441 |
) |
|
|
(73 |
) |
|
|
(514 |
) |
Unused amounts reversed
|
|
|
(11,679 |
) |
|
|
0 |
|
|
|
(11,679 |
) |
|
|
|
|
|
|
|
|
|
|
At December 31, 2004
|
|
|
13,721 |
|
|
|
6,218 |
|
|
|
19,939 |
|
Arising during the year
|
|
|
40,240 |
|
|
|
250 |
|
|
|
40,490 |
|
Utilized
|
|
|
(387 |
) |
|
|
(10 |
) |
|
|
(397 |
) |
Unused amounts reversed
|
|
|
(10,104 |
) |
|
|
0 |
|
|
|
(10,104 |
) |
|
|
|
|
|
|
|
|
|
|
At December 31, 2005
|
|
|
43,470 |
|
|
|
6,458 |
|
|
|
49,928 |
|
|
|
|
|
|
|
|
|
|
|
All provisions are current.
As a result of the restructuring of the PrimaCom Group in 2005
(Note 2.1) the Company recorded a significant gain from the
extinguishment of debt including interest liabilities payable to
the Companys former lenders. Under the German rules on
minimum taxation it is not possible to immediately offset this
gain against prior losses and consequently a tax provision of
40,093 has been
recorded. Under German tax administration rules the Company will
apply for tax exemptions for the restructuring gain.
The Company is currently in negotiations with Gesellschaft
für musikalische Aufführungs- und mechanische
Vervielfältigungsrechte (GEMA) for the payment of
current and past royalty fees. No formal settlement agreement on
final payment has been reached with GEMA so far.
|
|
17. |
Commitments and contingencies |
|
|
|
Finance lease commitments |
In March and October 1993, the Company entered into two master
lease agreements governing the terms of the majority of its
cable network sale and leaseback transactions. Under the March
1993 agreement, the sale and leaseback transactions have a lease
term of nine years and a monthly leasing rate of approximately
1.6% of the original sales price. At the end of the lease term,
the Company has the option to extend leases under this agreement
for one year or to repurchase the cable networks at the higher
of 10.0% of the original sales price or the recorded net book
value on the lessors books. Under the October 1993
agreement, the sale and leaseback transactions have a lease term
of nine years and a monthly leasing rate of approximately 1.5%
of the original sales price. The lessor has the right to require
the Company to repurchase the cable networks at the end of the
IV-305
PrimaCom AG and Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
All amounts in EUR000, except where stated otherwise
All amounts for 2004 are unaudited
lease term at an amount equal to approximately 11.5% of the
original sales price. If the lessor sale option is not
exercised, the lease automatically renews for an additional
three years.
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
|
|
(unaudited) | |
Borrowings under sale-leaseback obligations
|
|
|
614 |
|
|
|
1,577 |
|
Current portion thereof
|
|
|
586 |
|
|
|
966 |
|
|
|
|
|
|
|
|
Non-current portion
|
|
|
28 |
|
|
|
611 |
|
|
|
|
|
|
|
|
Future minimum payments under capital leases with initial or
remaining terms in excess of one year consisted of the following
at December 31, 2005 and 2004:
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
|
|
(unaudited) | |
2005
|
|
|
0 |
|
|
|
1,073 |
|
2006
|
|
|
607 |
|
|
|
607 |
|
2007
|
|
|
28 |
|
|
|
28 |
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
|
635 |
|
|
|
1,708 |
|
Less interest
|
|
|
(21 |
) |
|
|
(131 |
) |
|
|
|
|
|
|
|
Present value of minimum capitalized lease payments
|
|
|
614 |
|
|
|
1,577 |
|
|
|
|
|
|
|
|
Assets under capital leases are included within property and
equipment as follows:
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
|
|
(unaudited) | |
Cable television networks
|
|
|
29,320 |
|
|
|
29,320 |
|
Less accumulated depreciation
|
|
|
(24,307 |
) |
|
|
(22,063 |
) |
|
|
|
|
|
|
|
|
|
|
5,013 |
|
|
|
7,257 |
|
|
|
|
|
|
|
|
Depreciation expense on assets recorded under capital leases
approximated
2,447 and
2,244 in 2005
and 2004, respectively.
|
|
|
Operating lease commitments and other contractual
commitments |
The Company obtains certain programming directly from other
net-level 3 providers through various signal delivery
contracts. The signal delivery contracts with Kabel Deutschland
are generally for a fixed period of time and are subject to
negotiated renewal. Under these contracts the Company typically
pays to the vendors either a flat fee or a fee per customer that
is determined by reference to a published fee schedule. As of
December 31, 2005, the Company had a total commitment of
approximately
70,815 through
2013, the date upon which the last agreement expires. For the
years ended December 31, 2005 and 2004, total Kabel
Deutschland fees expensed amounted to approximately
22,961 and
23,609,
respectively, and are included in operations expense. Payments
for the easy.TV signal transponder for the year ended
December 31, 2005 amounted to approximately
1,362.
The Company entered into certain agreements with film providers
to purchase film rights through 2005. License expense relating
to these film right agreements was approximately
172 and
76 in 2004 and
2005, respectively.
IV-306
PrimaCom AG and Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
All amounts in EUR000, except where stated otherwise
All amounts for 2004 are unaudited
The Company leases other providers networks. Lease terms
generally range from three to five years with the option to
renew at varying terms. Rental expense was
2,322 and
2,696 in 2005
and 2004, respectively.
Future minimum payments under Kabel Deutschland commitments,
film commitments and non-cancelable operating leases with
initial or remaining terms in excess of one year consisted of
the following at December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Signal- | |
|
|
|
Operating | |
|
|
|
|
delivery | |
|
Films | |
|
Leases | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
2006
|
|
|
24,720 |
|
|
|
400 |
|
|
|
2,438 |
|
|
|
27,558 |
|
2007
|
|
|
18,456 |
|
|
|
400 |
|
|
|
1,663 |
|
|
|
20,519 |
|
2008
|
|
|
14,337 |
|
|
|
0 |
|
|
|
1,405 |
|
|
|
15,742 |
|
2009
|
|
|
13,217 |
|
|
|
0 |
|
|
|
794 |
|
|
|
14,011 |
|
2010
|
|
|
22 |
|
|
|
0 |
|
|
|
656 |
|
|
|
678 |
|
Thereafter
|
|
|
63 |
|
|
|
0 |
|
|
|
1,815 |
|
|
|
1,878 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
70,815 |
|
|
|
800 |
|
|
|
8,771 |
|
|
|
80,386 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2001, Eisenhüttenstädter Wohnungsbaugenossenschaft
e. G. applied at the regional court (Landgericht) in Frankfurt
(Oder) that its concession agreement with a term of
25 years could be terminated earlier. The court has held
that the concession agreement is terminable after 12 years
on July 30, 2003. The Company has appealed this decision to
the superior court (Oberlandesgericht) in Brandenburg, which was
dismissed on April 16, 2002. The pertinent PrimaCom Group
Company has appealed the judgment of the superior court to the
federal court of justice (Bundesgerichtshof BGH). On
December 6, 2002 the BGH reversed the judgment of the
superior court and removed the action for a new hearing and
decision since the superior court has not sufficiently analyzed
the concession agreement and an overall consideration of
services, rights and duties as well as amortization costs is
missing. The last hearing took place at the superior court in
Brandenburg on November 22, 2005 after hearing of evidence.
A new hearing has not been yet scheduled.
In January 2002, Vereinigte Wohnungsgenossenschaft Arnstadt von
1954 e.G. through which the pertinent PrimaCom Group Company
serves 3,018 subscribers sought judicial confirmation that its
concession agreement with a term of 25 years could be
terminated earlier. The last hearing at the chamber of commerce
(Kammer für Handelssachen) in Erfurt was on June 26,
2003. The new hearing scheduled for August 5, 2005 has been
canceled by the court and the rest of the proceedings was
mandated due to the ongoing settlement proceedings of the
parties.
In December 2002, the Company requested the chamber of commerce
in Berlin to declare that the
25-year-term concession
agreement with Wohnungsbaugenossenschaft Hellersdorfer
Kiez eG through which the Company has served 2,058
subscribers could not be terminated earlier. The first hearing
at the chamber of commerce (Kammer für Handelssachen) in
Berlin took place on September 3, 2003. The court
pronounced a hearing of evidence and the appointment of an
expert on November 12, 2003. The report of the expert was
submitted on March 15, 2005. A new hearing took place on
February 3, 2006 where both parties presented their
positions. A date of publication of a decision has not yet been
scheduled.
In December 2003, the Company has concluded a purchase contract
with Schellhammer GmbH in Singen regarding cable networks. The
pertinent PrimaCom Group Company withdrew from the contract
because in its opinion, Schellhammer GmbH did not attend its
contractual duties. Schellhammer GmbH filed an action against
the pertinent PrimaCom Group Company in November 2004. In August
2005, the court declared the
IV-307
PrimaCom AG and Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
All amounts in EUR000, except where stated otherwise
All amounts for 2004 are unaudited
contract withdrawal to be invalid and found in favor of the
claimant. The court decided that the pertinent PrimaCom Group
Company must pay invoices from August 2004 until September 2004
in the amount of
24. The
pertinent PrimaCom Group Company appealed this decision, which
was rejected by the appeal court on February 15, 2006.
Furthermore, Schellhammer GmbH in Singen sought confirmation in
August 2005 that the pertinent PrimaCom Group Company in August
2006 has to pay invoices from October 2004 until July 2005 in
the amount of
121. A first
hearing has been scheduled for March 10, 2006. Moreover,
the Company currently is in negotiations with Schellhammer GmbH
in connection with a possible out of court settlement.
The Company bought shares of TKG Eisenhüttenstadt. The
European Commission claims an incorrect bid. This could cause an
action before the European Court of Justice.
A shareholders lawsuit was filed against the Company. The
court has been asked to declare that the Company should not be
bound to uphold the commitments of the second secured facility
agreement which, according to the claimants, is an interference
in the Companys structure and also an interference in
shareholders rights. With the claim the Company should be
obliged to terminate the contract with the second secured
lenders. The action was withdrawn, because the parties have
reached a settlement which is described in Note 2.1.
GKNH, one of the former shareholders of the Company, started an
arbitration procedure against the Company about the costs
involved with the acquisition of Multikabel by PrimaCom. These
costs were for the account of the former shareholders, but were
invoiced to GKNH by the Company. Multikabel recharged these
costs to GKNH including VAT. Due to the fact that this former
shareholder can not deduct VAT, they dispute the invoice and
claim compensation
(483). The
Arbitrary court, after having referred both parties
unsuccessfully to the tax authorities for settlement, decided in
favor of GKNH in October 2004 and the compensation was paid.
A former Multikabel management board member has again summoned
the Company for the civil court for severance payments equal to
five years of salaries. In the previous court case the claimer
was awarded approximately 25% of the requested payments, but
based on a recent Dutch Supreme Court jurisdiction the plaintiff
sees reasons for a new case.
The Company is part to routine litigation incidental to the
normal conduct of business. In the opinion of management, the
outcome of and liabilities in excess of what has been provided
for related to these proceedings, in the aggregate, are not
likely to be material to the financial condition or results of
operations.
|
|
18. |
Related party disclosures |
|
|
|
Relationships between PrimaCom AG and its
subsidiaries |
PrimaCom AG is the ultimate parent Company of PrimaCom Group.
The consolidated financial statements include the financial
statements of PrimaCom AG and the subsidiaries listed in the
following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
Country of |
|
|
|
|
Name |
|
Incorporation |
|
2005 | |
|
2004 | |
|
|
|
|
| |
|
| |
|
|
|
|
|
|
(unaudited) | |
PrimaCom Management GmbH
|
|
Germany |
|
|
100,00 |
|
|
|
100,00 |
|
PrimaCom Region Dresden GmbH & Co. KG
|
|
Germany |
|
|
100,00 |
|
|
|
100,00 |
|
Zweite Kabelvision Management Beteiligungs GmbH & Co. KG
|
|
Germany |
|
|
100,00 |
|
|
|
100,00 |
|
PrimaCom Angelbachtal GmbH & Co. KG
|
|
Germany |
|
|
100,00 |
|
|
|
100,00 |
|
PrimaCom Verwaltungs GmbH
|
|
Germany |
|
|
100,00 |
|
|
|
100,00 |
|
PrimaCom Network & Operations GmbH
|
|
Germany |
|
|
100,00 |
|
|
|
100,00 |
|
IV-308
PrimaCom AG and Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
All amounts in EUR000, except where stated otherwise
All amounts for 2004 are unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
Country of |
|
|
|
|
Name |
|
Incorporation |
|
2005 | |
|
2004 | |
|
|
|
|
| |
|
| |
|
|
|
|
|
|
(unaudited) | |
PrimaCom Region Dresden GmbH
|
|
Germany |
|
|
100,00 |
|
|
|
100,00 |
|
PrimaCom Angelbachtal GmbH
|
|
Germany |
|
|
100,00 |
|
|
|
100,00 |
|
PrimaCom Südwest I GmbH
|
|
Germany |
|
|
100,00 |
|
|
|
100,00 |
|
PrimaCom Südwest I GmbH & Co. KG
|
|
Germany |
|
|
100,00 |
|
|
|
100,00 |
|
PrimaCom Region Magdeburg GmbH & Co. KG
|
|
Germany |
|
|
100,00 |
|
|
|
100,00 |
|
PrimaCom Region Wiesbaden GmbH
|
|
Germany |
|
|
100,00 |
|
|
|
100,00 |
|
PrimaCom Aachen GmbH
|
|
Germany |
|
|
100,00 |
|
|
|
100,00 |
|
PrimaCom Kabelprojekt GmbH
|
|
Germany |
|
|
100,00 |
|
|
|
100,00 |
|
PrimaCom Region Südwest II GmbH
|
|
Germany |
|
|
0,00 |
|
|
|
100,00 |
|
PrimaCom Projektmanagement GmbH & Co. KG
|
|
Germany |
|
|
100,00 |
|
|
|
100,00 |
|
PrimaCom Region Leipzig GmbH & Co. KG
|
|
Germany |
|
|
100,00 |
|
|
|
100,00 |
|
PrimaCom Region Berlin GmbH & Co. KG
|
|
Germany |
|
|
100,00 |
|
|
|
100,00 |
|
PrimaCom Osnabrück Beteiligungs-GmbH
|
|
Germany |
|
|
76,00 |
|
|
|
76,00 |
|
PrimaCom Osnabrück GmbH & Co. KG
|
|
Germany |
|
|
99,88 |
|
|
|
99,88 |
|
PrimaCom Nord GmbH
|
|
Germany |
|
|
0,00 |
|
|
|
100,00 |
|
PrimaCom Projektmanagement Verwaltungs GmbH
|
|
Germany |
|
|
100,00 |
|
|
|
100,00 |
|
KabelMedia Erste Fernsehkabelbeteiligungs Verwaltungs GmbH
|
|
Germany |
|
|
100,00 |
|
|
|
100,00 |
|
KabelMedia Erste Fernsehkabelbeteiligungs GmbH & Co. KG
|
|
Germany |
|
|
100,00 |
|
|
|
100,00 |
|
PrimaCom Berlin GmbH
|
|
Germany |
|
|
100,00 |
|
|
|
100,00 |
|
Kabel-Fernsehen Leipzig Verwaltungs GmbH
|
|
Germany |
|
|
100,00 |
|
|
|
100,00 |
|
PrimaCom Region Schwerin GmbH & Co. KG
|
|
Germany |
|
|
100,00 |
|
|
|
100,00 |
|
PrimaCom Region Magdeburg GmbH
|
|
Germany |
|
|
100,00 |
|
|
|
100,00 |
|
PrimaCom Schwerin GmbH
|
|
Germany |
|
|
100,00 |
|
|
|
100,00 |
|
RFH Regionalfernsehen Harz Verwaltungs-GmbH
|
|
Germany |
|
|
100,00 |
|
|
|
100,00 |
|
RFH Regionalfernsehen Harz GmbH & Co. KG
|
|
Germany |
|
|
100,00 |
|
|
|
100,00 |
|
PrimaCom Mettlach GmbH & Co. KG
|
|
Germany |
|
|
100,00 |
|
|
|
100,00 |
|
PrimaCom Nettetal GmbH & Co. KG
|
|
Germany |
|
|
100,00 |
|
|
|
100,00 |
|
PrimaCom Stormarn GmbH & Co. KG
|
|
Germany |
|
|
100,00 |
|
|
|
100,00 |
|
PrimaCom Verl GmbH & Co. KG
|
|
Germany |
|
|
100,00 |
|
|
|
100,00 |
|
primaTV broadcasting GmbH (über Treuhänder)
|
|
Germany |
|
|
100,00 |
|
|
|
100,00 |
|
PrimaCom Hessen GmbH
|
|
Germany |
|
|
100,00 |
|
|
|
100,00 |
|
PrimaCom Kabelbetriebsverwaltungsgesellschaft mbH
|
|
Germany |
|
|
100,00 |
|
|
|
100,00 |
|
PrimaCom Kabelbetriebsgesellschaft mbH & Co. KG Region
Hoyerswerda
|
|
Germany |
|
|
100,00 |
|
|
|
100,00 |
|
PrimaCom Kabelbetriebsgesellschaft mbH & Co. KG Region
Leipzig
|
|
Germany |
|
|
100,00 |
|
|
|
100,00 |
|
IV-309
PrimaCom AG and Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
All amounts in EUR000, except where stated otherwise
All amounts for 2004 are unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
Country of |
|
|
|
|
Name |
|
Incorporation |
|
2005 | |
|
2004 | |
|
|
|
|
| |
|
| |
|
|
|
|
|
|
(unaudited) | |
PrimaCom Kabelbetriebsgesellschaft mbH & Co. KG Region
Plauen
|
|
Germany |
|
|
100,00 |
|
|
|
100,00 |
|
PrimaCom Kabelbetriebsgesellschaft mbH & Co. KG Region
Berlin
|
|
Germany |
|
|
100,00 |
|
|
|
100,00 |
|
PrimaCom Kabelbetriebsgesellschaft mbH & Co. KG Region
Südwest
|
|
Germany |
|
|
100,00 |
|
|
|
100,00 |
|
PrimaCom Kabelbetriebsgesellschaft mbH & Co. KG Region
Nordwest
|
|
Germany |
|
|
100,00 |
|
|
|
100,00 |
|
Kabelcom Halberstadt Gesellschaft für
Breitbandkabel-Kommunikation mbH
|
|
Germany |
|
|
72,60 |
|
|
|
72,60 |
|
PrimaCom Netherlands Holding B.V.
|
|
The Netherlands |
|
|
0,00 |
|
|
|
100,00 |
|
Decimus GmbH
|
|
Germany |
|
|
100,00 |
|
|
|
100,00 |
|
PrimaCom Rheinland-Pfalz GmbH
|
|
Germany |
|
|
100,00 |
|
|
|
100,00 |
|
PrimaCom Niedersachsen GmbH
|
|
Germany |
|
|
100,00 |
|
|
|
100,00 |
|
N.V. Multikabel
|
|
The Netherlands |
|
|
0,00 |
|
|
|
100,00 |
|
Noord-Holland Digitaal B.V.
|
|
The Netherlands |
|
|
0,00 |
|
|
|
100,00 |
|
Communikabel N.V.
|
|
The Netherlands |
|
|
0,00 |
|
|
|
100,00 |
|
QuickNet B.V.
|
|
The Netherlands |
|
|
0,00 |
|
|
|
100,00 |
|
The companies located in The Netherlands (Multikabel) have been
sold as of December 5, 2005 (Note 7).
PrimaCom Region Südwest II GmbH and PrimaCom Nord GmbH
have been merged into PrimaCom Management GmbH in 2005 without
affecting the consolidated financial statements.
|
|
|
Transactions with other related parties |
Until December 5, 2005 the Company had a 15.7% investment
in Mediakabel B.V., a consortium of cable television operators
in the Netherlands organized to provide digital television
services. The Company paid Mediakabel B.V. digital cable
services fees of approximately
410 in 2004. No
such fees were incurred in 2005 as the Company has built its own
digital headend and transmitted the digital streams and
conditional access from Alkmaar in 2005.
The Company uses the services of BFE Nachrichtentechnik GmbH for
installation, repair and maintenance of their cable networks,
which is indirectly owned by Mr. Wolfgang Preuß who
was a member of the Companys management board until
November 30, 2005. In 2005 and 2004, the Company paid
approximately
496 and
481 for these
services, respectively.
Mr. Wolfgang Preuß is also a member of the management
board of TEKOMAG AG, which provides certain services to the
Company pursuant to the resolution of the supervisory board
dated July 15, 2004. For the years ended December 31,
2005 and 2004 the total payments to TEKOMAG AG were
approximately 34
and 11,
respectively.
Law firm Rechtsanwälte Kleber Eble & Hock, is
owned by, among others, two members of our supervisory board,
Mr. Heinz Eble and Mr. Erwin Kleber. Mr. Kleber
was a member of our supervisory board until November 30,
2005 also provides legal services to the Company. For the years
ended December 31, 2005 and 2004, the total payments to
Rechtsanwälte Kleber Eble & Hock were
approximately
170 and
138.
IV-310
PrimaCom AG and Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
All amounts in EUR000, except where stated otherwise
All amounts for 2004 are unaudited
Mr. Manfred Preuß, a brother of Mr. Wolfgang
Preuß, provides certain services to the Company pursuant to
a contract dated July 15, 2004. For the years ended
December 31, 2005 and 2004, the total payments to
Mr. Manfred Preuß were approximately
557 and
286.
Mr. Manfred Preuß joined the management board on
November 30, 2005.
|
|
|
Compensation of key management |
Compensation of key management for the years ended
December 31, 2005 and 2004 is comprised as follows:
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
|
|
(unaudited) | |
Salaries and wages
|
|
|
846 |
|
|
|
792 |
|
Social security costs
|
|
|
3 |
|
|
|
47 |
|
Management bonus
|
|
|
11,248 |
|
|
|
0 |
|
Share-based payment plan
|
|
|
105 |
|
|
|
36 |
|
Other
|
|
|
214 |
|
|
|
1,224 |
|
|
|
|
|
|
|
|
|
|
|
12,416 |
|
|
|
2,099 |
|
|
|
|
|
|
|
|
|
|
19. |
Financial instruments |
|
|
|
Financial risk management |
The Companys principal financial instruments comprise
interest bearing loans and borrowings and cash and cash
equivalents. The main purpose of these financial instruments is
to raise finance for the CompanyCompanys operations.
Due to its use of interest bearing loans and borrowings the
Company is exposed to market risk from changes in interest rates
which can impact its operating results and overall financial
condition. The CompanyCompanys 2005 Senior Credit Facility
as well as the 2005 Mezzanine Loan bears interest at variable
rates. The Company manages its exposure to these market risks
through its operating and financing activities and, when deemed
appropriate, through the use of derivative financial instruments
such as interest rate swaps, caps and collars. Further, the
Company has granted so-called Phantom Options to the
lenders of its
50,000
Series A Mezzanine Loan (Note 14).
The Company has various other financial assets and liabilities
such as trade receivables and trade and other payables, which
arise directly from its operations.
|
|
|
Concentration of credit risk |
Financial instruments that potentially subject the Company to
concentrated credit risks consist primarily of cash and cash
equivalents and trade receivables. Credit risk on trade
receivables is minimized as a result of the large and diverse
nature of the Companys customer base. The Company
maintains most of its cash and cash equivalents at international
financial institutions in Germany and the Netherlands.
|
|
|
Fair value of financial instruments |
The carrying value of financial instruments of a short-term
nature such as cash and cash equivalents, trade receivables and
trade and other payables approximate their fair value based on
the short-term maturities of these instruments. The carrying
value of the new senior and mezzanine credit facilities
approximate their fair value as these borrowings took place near
year end at market interest rates. The fair value of the
so-called
IV-311
PrimaCom AG and Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
All amounts in EUR000, except where stated otherwise
All amounts for 2004 are unaudited
Phantom Option Rights related to the
50,000
Series A Mezzanine Loan (Note 14) was
9,873 as of the
closing date on December 5, 2005 and
7,268 as of
December 31, 2005. The fair value of the Phantom
Option Rights is determined by using the Black-Scholes
option-pricing model. The reduction in fair value of
2,515 has been
recorded as a reduction of 2005 finance costs. At
December 31, 2005 and 2004 no derivative financial
instruments other than the Phantom Options referred
to above were in place.
Under the terms of the 2005 Senior Credit Facility
(Note 14) the Company is required to hedge a minimum of 50%
of the drawn facility of
280,000 within
90 days of closing. Accordingly, the Company has agreed on
an interest rate collar of
140,000 on
March, 1, 2006. The collar has a 2.50% floor, a 3.75% cap
and a term from March 6, 2006 to March 31, 2009.
Until 2004 the Company had purchased interest rate-cap and floor
agreements that limited its exposure to increasing interest
rates and were economic hedges of borrowings under its former
variable-rate revolving credit facility. These contracts did not
qualify for special hedge accounting and were therefore
marked-to-market each
period through profit (loss) as a component of finance costs.
Finance costs included an income relating to the change in fair
value of these financial instruments was approximately
1,907 in 2004.
In 2004, the Company recorded approximately
412 in
additional interest expense for payments to the counter-party as
a result of interest rates falling below the floor. All
contracts expired during 2004, therefore, none were outstanding
at December 31, 2005 and 2004.
|
|
20. |
Events after the balance sheet date |
On March 14, 2006 an extraordinary General
Shareholders Meeting of PrimaCom AG took place and the
following main resolutions were passed during that meeting.
|
|
|
Resolution on the issue of Notes with warrants |
Under the terms of the Alternative Equity Kicker
Agreement (Note 14) the Company had the right to
propose to its General Shareholders to replace the Notes
connected with Phantom Options by Notes with warrants. The
Company requested that the General Shareholders approve the
issue of notes with warrants by excluding the shareholders
pre-emptive subscription rights and creating a contingent
capital to be able to serve the options under the
Alternative Equity Kicker Agreement.
A warrant entitles the holder to subscribe for a PrimaCom share
against payment of the subscription price of:
|
|
|
5.00 if the
notes with warrants are issued after December 31, 2005 but
prior to or on April 21, 2006; or |
|
|
4.50 if the
notes with warrants are issued after April 21, 2006. |
The warrants can be exercised until the fifth anniversary of the
issue of the notes with warrants (i.e. until April 21,
2011). The warrants are protected against dilution by various
provisions.
|
|
|
Resolution on a contingent share capital increase |
In order to be able to issue the warrants under the notes with
warrants the share capital of the Company is conditionally
increased by up to
5,113 by issuing
up to 2,000,000 non par-value bearer shares representing a
pro-rata share in the share capital of the Company of
2.56. The
contingent capital increase shall take place only if and to the
extent that the warrantholders exercise their warrants and the
contingent capital is used for the issue of new shares in
accordance with the terms and conditions of the warrants.
IV-312
PrimaCom AG and Subsidiaries
Notes to the Consolidated Financial
Statements (Continued)
All amounts in EUR000, except where stated otherwise
All amounts for 2004 are unaudited
The March 14, 2006 extraordinary General Shareholders
Meeting also passed the following resolutions:
|
|
|
Resolution on extension of authorized capital and on the
supplemented exclusion of pre-emptive subscription
rights; and |
|
|
Resolution on the grant of a restructuring bonus. |
The executive board and supervisory board have declared the
conformity with the German Corporate Governance Code pursuant to
Article 161 of the Stock Corporation Act (AktG) in December
2005. The declaration was made permanently accessible to
stockholders.
The following fees were recognized in the consolidated financial
statements as expenses for PrimaCom Groups auditor,
Ernst & Young AG Wirtschaftsprüfungsgesellschaft,
in fiscal year 2005:
460 for audit
services, 0 for
audit-related services,
68 for tax
services and 0
for other services.
|
|
23. |
Summary of differences between International Financial
Reporting Standards as adopted by the European Union
IFRS and U.S. Generally Accepted Accounting
Principles (U.S. GAAP) |
The consolidated financial statements of PrimaCom AG for the
year ended December 31, 2005 have been prepared in
accordance with IFRS. Financial statements prepared in
accordance with U.S. GAAP differ in certain material
respects from those prepared in accordance with IFRS. A
description of the primary differences between IFRS and
U.S. GAAP applicable to PrimaCom AG for the years ended
December 31, 2004 and 2005 is set out below.
Debt issuance costs
Capitalized debt issuance costs are netted against interest
bearing loans and borrowings under IFRS while under
U.S. GAAP capitalized debt issuance costs are classified as
assets.
Management bonus
In 2005 the Company granted a bonus to management as outlined in
Note 5. The expense for this grant is included in other
expense under IFRS. Under U.S. GAAP, the management bonus
is included as a component of operating expense.
Minority interests
Under IFRS, minority interests are disclosed within equity in
the consolidated balance sheet and the net loss for the period
allocated to equity holders of the parent and minority interest
is disclosed separately in the consolidated income statement.
Under U.S. GAAP, the minority interests in equity are disclosed
outside of equity and losses attributable to minority interests
are not included within net loss for the period in the
consolidated income statement.
IV-313
EXHIBIT INDEX
|
|
|
|
|
Exhibit | |
|
|
No. | |
|
Description |
| |
|
|
2 Plan of Acquisition Reorganization, Arrangement,
Liquidation or Succession: |
|
2.1 |
|
|
Agreement and Plan of Merger, dated as of January 17, 2005,
among the Registrant (fka New Cheetah, Inc.), Liberty Media
International, Inc. (LMI), UnitedGlobalCom, Inc. (UGC), Cheetah
Acquisition Corp. and Tiger Global Acquisition Corp.
(incorporated by reference to Exhibit 2.1 to LMIs
Current Report on Form 8-K, dated January 17, 2005
(File No. 000-50671)) |
3 Articles of Incorporation and Bylaws: |
|
3.1 |
|
|
Restated Certificate of Incorporation of the Registrant, dated
June 15, 2005 (incorporated by reference to
Exhibit 3.1 to the Registrants Current Report on Form
8-K, dated June 15, 2005 (File No. 000-51360) (the
Merger 8-K)) |
|
3.2 |
|
|
Bylaws of the Registrant (incorporated by reference to
Exhibit 3.2 to the Merger 8-K) |
4 Instruments Defining the Rights of Securities
Holders, including Indentures: |
|
4.1 |
|
|
Specimen certificate for shares of the Registrants
Series A common stock, par value $.01 per share
(incorporated by reference to Exhibit 4.1 to the Merger 8-K) |
|
4.2 |
|
|
Specimen certificate for shares of the Registrants
Series B common stock, par value $.01 per share
(incorporated by reference to Exhibit 4.2 to the Merger 8-K) |
|
4.3 |
|
|
Specimen certificate for shares of the Registrants
Series C Common Stock, par value $.01 per share
(incorporated by reference to Exhibit 3 to the
Registrants Registration Statement on Form 8-A, dated
August 24, 2005 (File No. 000-51360)) |
|
4.4 |
|
|
Amendment and Restatement Agreement, dated March 7, 2005,
among UPC Broadband Holding B.V. (UPC Broadband) and UPC
Financing Partnership (UPC Financing), as Borrowers, the
guarantors listed therein, and TD Bank Europe Limited, as
Facility Agent and Security Agent, including as Schedule 3
thereto the Restated
1,072,000,000
Senior Secured Credit Facility, originally dated
January 16, 2004, among UPC Broadband, as Borrower, the
guarantors listed therein, the banks and financial institutions
listed therein as Initial Facility D Lenders, TD Bank Europe
Limited, as Facility Agent and Security Agent, and the facility
agents under the Existing Facility (as defined therein) (the
2004 Credit Agreement) (incorporated by reference to
Exhibit 10.32 to UGCs Annual Report on
Form 10-K, dated March 14, 2005 (File
No. 000-49658) (the UGC 2004 10-K)) |
|
4.5 |
|
|
Additional Facility Accession Agreement, dated June 24,
2004, among UPC Broadband, as Borrower, TD Bank Europe Limited,
as Facility Agent and Security Agent, and the banks and
financial institutions listed therein as Additional Facility E
Lenders, under the 2004 Credit Agreement (incorporated by
reference to Exhibit 10.2 to UGCs Current Report on
Form 8-K, dated June 29, 2004 (File
No. 000-49658)) |
|
4.6 |
|
|
Additional Facility Accession Agreement, dated December 2,
2004, among UPC Broadband, as Borrower, TD Bank Europe Limited,
as Facility Agent and Security Agent, and the banks and
financial institutions listed therein as Additional Facility F
Lenders, under the 2004 Credit Agreement (incorporated by
reference to Exhibit 10.1 to UGCs Current Report on
Form 8-K, dated December 2, 2004 (File
No. 000-49658)) |
|
4.7 |
|
|
Additional Facility Accession Agreement, dated March 9,
2005, among UPC Broadband, as Borrower, TD Bank Europe Limited,
as Facility Agent and Security Agent, and the banks and
financial institutions listed therein as Additional Facility G
Lenders, under the 2004 Credit Agreement (incorporated by
reference to Exhibit 10.39 to the UGC 2004 10-K) |
|
4.8 |
|
|
Additional Facility Accession Agreement, dated March 7,
2005, among UPC Broadband, as Borrower, TD Bank Europe Limited,
as Facility Agent and Security Agent, and the banks and
financial institutions listed therein as Additional Facility H
Lenders, under the 2004 Credit Agreement (incorporated by
reference to Exhibit 10.40 to the UGC 2004 10-K) |
|
4.9 |
|
|
Additional Facility Accession Agreement, dated March 9,
2005, among UPC Broadband, as Borrower, TD Bank Europe Limited,
as Facility Agent and Security Agent, and the banks and
financial institutions listed therein as Additional Facility I
Lenders, under the 2004 Credit Agreement (incorporated by
reference to Exhibit 10.41 to the UGC 2004 10-K) |
|
|
|
|
|
Exhibit | |
|
|
No. | |
|
Description |
| |
|
|
|
4.10 |
|
|
Amendment and Restatement Agreement, dated March 7, 2005,
among UPC Broadband and UPC Financing, as Borrowers, the
guarantors listed therein, TD Bank Europe Limited and Toronto
Dominion (Texas), Inc., as Facility Agents, and TD Bank Europe
Limited, as Security Agent, including as Schedule 3 thereto
the Restated Credit Agreement,
3,500,000,000
and US$347,500,000 and
95,000,000
Senior Secured Credit Facility, originally dated
October 26, 2000 (the October 2000 Senior Secured Credit
Facility), among UPC Broadband and UPC Financing, as Borrowers,
the guarantors listed therein, the Lead Arrangers listed
therein, the banks and financial institutions listed therein as
Original Lenders, TD Bank Europe Limited and Toronto-Dominion
(Texas) Inc., as Facility Agents, and TD Bank Europe Limited, as
Security Agent (incorporated by reference to Exhibit 10.33
to the UGC 2004 10-K) |
|
4.11 |
|
|
Amendment, dated December 15, 2005, among UPC Broadband and
UPC Financing, as Borrowers, the guarantors listed therein, and
Toronto-Dominion (Texas) LLC, as Facility Agent, to the October
2000 Senior Secured Credit Facility (incorporated by reference
to Exhibit 4.2 to the Registrants Current Report on
Form 8-K, dated December 15, 2005 (File
No. 000-51360) (the Credit Facility 8-K)) |
|
4.12 |
|
|
Amendment, dated December 15, 2005, among UPC Broadband and
UPC Financing, as Borrowers, the guarantors listed therein, and
Toronto-Dominion (Texas) LLC, as Facility Agent, to the 2004
Credit Agreement (incorporated by reference to Exhibit 4.3 to
the Credit Facility 8-K) |
|
4.13 |
|
|
The Registrant undertakes to furnish to the Securities and
Exchange Commission, upon request, a copy of all instruments
with respect to long-term debt not filed herewith. |
10 Material Contracts: |
|
10.1 |
|
|
Liberty Global, Inc. 2005 Incentive Plan (As Amended and
Restated Effective March 8, 2006) (the Incentive Plan)* |
|
10.2 |
|
|
Form of the Non-Qualified Stock Option Agreement under the
Incentive Plan (incorporated by reference to Exhibit 99.1
to the Registrants Current Report on Form 8-K, dated
August 15, 2005 (File No. 000-51360) (the Incentive
Plan 8-K)) |
|
10.3 |
|
|
Form of Stock Appreciation Rights Agreement under the Incentive
Plan (incorporated by reference to Exhibit 99.2 to the
Incentive Plan 8-K) |
|
10.4 |
|
|
Form of Restricted Shares Agreement under the Incentive Plan
(incorporated by reference to Exhibit 99.3 to the Incentive
Plan 8-K) |
|
10.5 |
|
|
Non-Qualified Stock Option Agreement, dated as of June 7,
2004, between John C. Malone and the Registrant (as assignee of
LMI) under the Incentive Plan (the Malone Award Agreement)
(incorporated by reference to Exhibit 7(A) to
Mr. Malones Schedule 13D/ A (Amendment
No. 1) with respect to the LMIs common stock, dated
July 14, 2004 (File No. 005-79904)) |
|
10.6 |
|
|
Form of Amendment to the Malone Award Agreement (incorporated by
reference to Exhibit 99.3 to the Registrants Current
Report on Form 8-K, dated December 22, 2005 (File
No. 000-51360) (the 409A 8-K)) |
|
10.7 |
|
|
Liberty Global, Inc. 2005 Nonemployee Director Incentive Plan
(As Amended and Restated Effective March 8, 2006) (the
Director Plan)* |
|
10.8 |
|
|
Form of Non-Qualified Stock Option Agreement under the Director
Plan (incorporated by reference to Exhibit 10.3 to the
Merger 8-K) |
|
10.9 |
|
|
Liberty Global, Inc. Compensation Policy for Nonemployee
Directors (As Amended and Restated Effective March 8, 2006)* |
|
10.10 |
|
|
Liberty Media International, Inc. Transitional Stock Adjustment
Plan (the Transitional Plan) (incorporated by reference to
Exhibit 4.5 to LMIs Registration Statement on
Form S-8, dated June 23, 2004 (File No. 333-116790)) |
|
10.11 |
|
|
Form of Non-Qualified Stock Option Exercise Price Amendment
under the Transitional Plan (incorporated by reference to
Exhibit 99.1 to the 409A 8-K) |
|
10.12 |
|
|
Form of Non-Qualified Stock Option Amendment under the
Transitional Plan (incorporated by reference to
Exhibit 99.2 to the 409A 8-K) |
|
|
|
|
|
Exhibit | |
|
|
No. | |
|
Description |
| |
|
|
|
10.13 |
|
|
UnitedGlobalCom, Inc. Equity Incentive Plan (amended and
restated effective October 17, 2003) (incorporated by
reference to Exhibit 10.9 to UGCs Annual Report on
Form 10-K, dated March 15, 2004 (File
No. 000-49658) (the UGC 2003 10-K)) |
|
10.14 |
|
|
UnitedGlobalCom, Inc. 1993 Stock Option Plan (amended and
restated effective January 22, 2004) (incorporated by
reference to Exhibit 10.6 to the UGC 2003 10-K) |
|
10.15 |
|
|
Form of Amendment to Stock Appreciation Rights Agreement under
the UnitedGlobalCom, Inc. 2003 Equity Incentive Plan (Amended
and Restated October 17, 2003) (incorporated by reference
to Exhibit 99.1 to the Registrants Current Report on
Form 8-K, dated November 30, 2005 (File
No. 000-51360)) |
|
10.16 |
|
|
Stock Option Plan for Non-Employee Directors of UGC, effective
June 1, 1993, amended and restated as of January 22,
2004 (incorporated by reference to Exhibit 10.7 to the UGC
2003 10-K) |
|
10.17 |
|
|
Stock Option Plan for Non-Employee Directors of UGC, effective
March 20, 1998, amended and restated as of January 22,
2004 (incorporated by reference to Exhibit 10.8 to the UGC
2003 10-K) |
|
10.18 |
|
|
UIH Latin America, Inc. Stock Option Plan, effective
June 6, 1999 (as amended December 6, 2000)
(incorporated by reference to Exhibit 10.89 to UGCs
Amendment No. 10 to its Registration Statement on Form S-1
dated December 11, 2003 (File No. 333-82776) (the UGC
Form S-1)) |
|
10.19 |
|
|
Form of Indemnification Agreement between the Registrant and its
Directors* |
|
10.20 |
|
|
Form of Indemnification Agreement between the Registrant and its
Executive Officers* |
|
10.21 |
|
|
Personal Usage of Aircraft Policy (incorporated by reference to
Exhibit 99.1 to the Registrants Current Report on
Form 8-K, dated November 15, 2005 (File
No. 000-51360) (the Aircraft 8-K)) |
|
10.22 |
|
|
Form of Aircraft Time Sharing Agreement (incorporated by
reference to Exhibit 99.2 to the Aircraft 8-K) |
|
10.23 |
|
|
Executive Service Agreement, dated December 15, 2004,
between UPC Services Limited and Charles Bracken (incorporated
by reference to Exhibit 10.15 to the UGC 2004 10-K) |
|
10.24 |
|
|
Employment Agreement, effective April 19, 2000, among UGC,
UPC and Gene Musselman (incorporated by reference to
Exhibit 10.27 to the UGC 2003 10-K) |
|
10.25 |
|
|
Addendum to Employment Agreement, dated as of September 3,
2003, among UGC, UPC and Gene Musselman (incorporated by
reference to Exhibit 10.28 to the UGC 2003 10-K) |
|
10.26 |
|
|
Contract Extension Letter dated November 2, 2005, among
UGC, UPC and Gene Musselman* |
|
10.27 |
|
|
Executive Service Agreement dated January 10, 2005, between
UPC Services Limited and Shane ONeill (incorporated by
reference to Exhibit 10.16 to the UGC 2004 10-K) |
|
10.28 |
|
|
Employment Agreement dated January 5, 2004, between the
Registrant (as assignee of UGC) and Gene W. Schneider
(incorporated by reference to Exhibit 10.5 to UGCs
Current Report on Form 8-K dated January 5, 2004 (File
No. 000-49658)) |
|
10.29 |
|
|
Letter from UGC to Gene W. Schneider, dated April 17, 2003
regarding the Split Dollar Life Insurance Agreement referenced
in Exhibit 10.29 below (incorporated by reference to
Exhibit 10.87 to the UGC Form S-1) |
|
10.30 |
|
|
Split Dollar Life Insurance Agreement dated February 15,
2001, between UGC and Mark L. Schneider, Tina M. Wildes and
Carla Shankle, as trustees under The Gene W. Schneider 2001
Trust, dated February 12, 2001 (incorporated by reference
to Exhibit 10.88 to the UGC Form S-1) |
|
10.31 |
|
|
Amended and Restated Stockholders Agreement, dated as of
May 21, 2004, among the Registrant, Liberty Media
International Holdings, LLC, Robert R. Bennett, Miranda Curtis,
Graham Hollis, Yasushige Nishimura, Liberty Jupiter, Inc., and,
solely for purposes of Section 9 thereof, Liberty Media
Corporation (Liberty Media) (incorporated by reference to
Exhibit 10.23 to Amendment No. 1 to LMIs
Registration Statement on Form 10, dated May 25, 2004
(File No. 000-50671) (the Form 10 Amendment)) |
|
|
|
|
|
Exhibit | |
|
|
No. | |
|
Description |
| |
|
|
|
10.32 |
|
|
Reorganization Agreement, dated as of May 20, 2004, among
Liberty Media, the Registrant and the other parties named
therein (incorporated by reference to Exhibit 2.1 to the
Form 10 Amendment) |
|
10.33 |
|
|
Form of Facilities and Services Agreement between Liberty Media
and the Registrant (incorporated by reference to
Exhibit 10.3 to the Form 10 Amendment) |
|
10.34 |
|
|
Agreement for Aircraft Joint Ownership and Management, dated as
of May 21, 2004, between Liberty Media and the Registrant
(incorporated by reference to Exhibit 10.4 to the
Form 10 Amendment) |
|
10.35 |
|
|
Form of Tax Sharing Agreement between Liberty Media and the
Registrant (incorporated by reference to Exhibit 10.5 to
the Form 10 Amendment) |
|
10.36 |
|
|
Form of Credit Facility between Liberty Media and the Registrant
(terminated in accordance with its terms) (incorporated by
reference to Exhibit 10.6 to the Form 10 Amendment) |
|
10.37 |
|
|
Stock and Loan Purchase Agreement, dated as of March 15,
2004, among Suez SA, MédiaRéseaux SA, UPC France
Holding BV and UGC (incorporated by reference to Exhibit 10.1 to
UGCs Current Report on Form 8-K, dated July 1,
2004 (File No. 000-49658) (the UGC July 2004 8-K)) |
|
10.38 |
|
|
Amendment to the Purchase Agreement, dated as of July 1,
2004, among Suez SA, MédiaRéseaux SA, UPC France
Holding BV and UGC (incorporated by reference to Exhibit 10.2 to
the UGC July 2004 8-K) |
|
10.39 |
|
|
Shareholders Agreement, dated as of July 1, 2004, among
UGC, UPC France Holding BV and Suez SA (incorporated by
reference to Exhibit 10.3 to the UGC July 2004 8-K) |
|
10.40 |
|
|
Amended and Restated Operating Agreement dated November 26,
2004, among Liberty Japan, Inc., Liberty Japan II, Inc., LMI
Holdings Japan, LLC, Liberty Kanto, Inc., Liberty Jupiter, Inc.
and Sumitomo Corporation, and, solely with respect to
Sections 3.1(c), 3.1(d) and 16.22 thereof, the Registrant
(incorporated by reference to Exhibit 10.27 of LMIs
Annual Report on Form 10-K, dated March 14, 2005 (File
No. 000-50671)) |
|
10.41 |
|
|
Share Purchase Agreement, dated September 30, 2005, between
Glacier Holdings S.C.A. and United ACM Holdings, Inc. (the
Cablecom Agreement) (incorporated by reference to
Exhibit 2.1 to the Registrants Current Report on
Form 8-K, dated September 30, 2005 (File
No. 000-51360) (the Cablecom 8-K)) |
|
10.43 |
|
|
Excerpts from Schedule 4.6 to the Cablecom Agreement
(incorporated by reference to Exhibit 2.2 to the Cablecom
8-K) |
|
10.44 |
|
|
Deed, dated September 30, 2005, between LMI and Glacier
Holdings S.C.A. (incorporated by reference to Exhibit 99.1
to the Cablecom 8-K) |
21 Subsidiaries of Registrant* |
23 Consent of Experts and Counsel: |
|
23.1 |
|
|
Consent of KPMG LLP** |
|
23.2 |
|
|
Consent of KPMG AZSA & Co.** |
|
23.3 |
|
|
Consent of KPMG AZSA & Co.** |
|
23.4 |
|
|
Consent of Finsterbusch Pickenhayn Sibille** |
|
23.5 |
|
|
Consent of KPMG LLP** |
|
23.6 |
|
|
Information re: Absence of Consent of Arthur Andersen LLP** |
|
23.7 |
|
|
Consent of Ernst & Young LTDA.** |
|
23.8 |
|
|
Consent of KPMG LLP** |
|
23.9 |
|
|
PricewaterhouseCoopers Bedrijfsrevisoren bcvba** |
|
23.10 |
|
|
Ernst & Young AG Wirtschaftsprüfungsgesellschaft** |
|
|
|
|
|
Exhibit | |
|
|
No. | |
|
Description |
| |
|
|
31 Rule 13a-14(a)/15d-14(a) Certification: |
|
31.1 |
|
|
Certification of President and Chief Executive Officer** |
|
31.2 |
|
|
Certification of Senior Vice President and Co-Chief Financial
Officer (Principal Financial Officer)** |
|
31.3 |
|
|
Certification of Senior Vice President and Co-Chief Financial
Officer (Principal Accounting Officer)** |
32 Section 1350 Certification** |
|
|
* |
Filed with the Registrants Form 10-K dated
March 14, 2005 |
exv23w1
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
The Board of Directors
Liberty Global, Inc.:
We consent to the incorporation by reference in the registration statements on Form S-8 (Nos.
333-125930, 333-125941, 333-125943, 333-125946, 333-125962, 333-128034, 333-128035, 333-128036,
333-128037, and 333-128038) and on Form S-3 (Nos. 333-128945, 333-128553, and 333-125927) of
Liberty Global, Inc. of our reports dated March 13, 2006, with respect to the consolidated balance
sheets of Liberty Global, Inc. and subsidiaries as of December 31, 2005 and 2004, and the related
consolidated statements of operations, comprehensive earnings (loss), stockholders equity and cash
flows for each of the years in the three-year period ended December 31, 2005, and all related
financial statement schedules, managements assessment of the effectiveness of internal control
over financial reporting as of December 31, 2005 and the effectiveness of internal control over financial reporting as of December 31, 2005, which reports
appear in the December 31, 2005 annual report on Form 10-K/A
(Amendment No. 1) of Liberty Global, Inc.
KPMG LLP
Denver, Colorado
June 29, 2006
exv23w2
Exhibit 23.2
Consent of Independent Registered Public Accounting Firm
The Board of Directors
Jupiter TV Co., Ltd.:
We consent to the incorporation by reference in the registration statements (Nos. 333-128945,
333-128553 and 333-125927) on Form S-3 and (Nos. 333-125930, 333-125941, 333-125943, 333-125946,
333-125962, 333-128034, 333-128035, 333-128036, 333-128037 and 333-128038) on Form S-8 of Liberty
Global, Inc. of our report dated March 1, 2006, with respect to the consolidated balance sheets of
Jupiter TV Co., Ltd. and subsidiaries as of December 31, 2005 and 2004, and the related
consolidated statements of operations, shareholders equity and comprehensive income, and cash flows
for each of the years in the three-year period ended December 31, 2005, which report appears in the
December 31, 2005, Annual Report on Form 10-K/A (Amendment
No. 1) of Liberty Global, Inc.
KPMG
AZSA & Co.
Tokyo, Japan
June 29, 2006
exv23w3
Exhibit 23.3
Consent of Independent Registered Public Accounting Firm
The Board of Directors
Jupiter Telecommunications Co., Ltd. and Subsidiaries:
We consent to the incorporation by reference in the registration statements (Nos. 333-128945,
333-128553 and 333-125927) on Form S-3 and (Nos. 333-125930, 333-125941, 333-125943, 333-125946,
333-125962, 333-128034, 333-128035, 333-128036, 333-128037 and 333-128038) on Form S-8 of Liberty
Global, Inc. of our report dated February 14, 2005, with respect to the consolidated balance sheets
of Jupiter Telecommunications Co., Ltd. and subsidiaries as of December 31, 2003 and 2004, and the related consolidated statements of operations, shareholders equity and cash flows
for each of the years in the two-year period ended December 31, 2004, which report appears in the
December 31, 2005, Annual Report on Form 10-K/A (Amendment
No. 1) of Liberty Global, Inc.
KPMG
AZSA & Co.
Tokyo, Japan
June 29, 2006
exv23w4
Exhibit 23.4
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Torneos y Competencias S.A.
We consent to the incorporation by reference in the registration statements on Form S-8 (Nos.
333-125930, 333-125941, 333-125943, 333-125946, 333-125962, 333-128034, 333-128035, 333-128036,
333-128037 and 333-128038) and on Form S-3 (Nos. 333-128945, 333-128553 and 333-125927) of Liberty
Global, Inc. of our report dated March 11, 2005, with respect to the consolidated balance sheets of
Torneos y Competencias S.A. and subsidiaries (the Company) as of December 31, 2004 and 2003, and
the related consolidated statements of operations and comprehensive income (loss), of changes in
stockholders equity and of cash flows for each of the years in the three-year period ended
December 31, 2004, which report appears in the December 31, 2005 Annual Report on Form 10-K/A (Amendment
No. 1) of
Liberty Global, Inc.
Our report dated March 11, 2005 contains an explanatory paragraph that states that the Company is
in default with respect to two bank loans, has certain loans that are past due, and has a net
working capital deficiency, which raise substantial doubt about its ability to continue as a going
concern. The consolidated financial statements do not include any adjustments that might result
from the outcome of that uncertainty.
Sibille (Formerly Finsterbusch Pickenhayn Sibille) (*)
Buenos Aires, Argentina
June 29, 2006
|
|
|
(*) |
|
Sibille (Formerly Finsterbusch Pickenhayn Sibille), a partnership established under Argentine law, is the
Argentine member firm of KPMG International, a Swiss cooperative |
exv23w5
Exhibit 23.5
Consent of Independent Registered Public Accounting Firm
The Board of Directors
UnitedGlobalCom, Inc.:
We consent to the incorporation by reference in the registration statements on Form S-8 (Nos.
333-125930, 333-125941, 333-125943, 333-125946, 333-125962, 333-128034, 333-128035, 333-128036,
333-128037, and 333-128038) and on Form S-3 (Nos. 333-128945, 333-128553, and 333-125927) of
Liberty Global, Inc. of our report dated March 8, 2004, with respect to the consolidated balance
sheets of UnitedGlobalCom, Inc. 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, which reports appear in the December 31, 2005
annual report on Form 10-K/A (Amendment
No. 1) of Liberty Global, Inc.
Our report refers to a change in the Companys method of accounting for goodwill and other
intangible assets in 2002, and a change in its method of accounting for gains and losses on the
early extinguishment of debt in 2003.
Our report refers to the revisions to the 2001 consolidated financial statements 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. 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.
KPMG LLP
Denver, Colorado
June 29, 2006
exv23w6
Exhibit 23.6
INFORMATION REGARDING ABSENCE OF CONSENT OF ARTHUR ANDERSEN LLP
This
Annual Report on Form 10-K/A (Amendment No. 1) includes a copy of an audit report (the Audit Report)
previously issued by Arthur Andersen LLP (Andersen) that relates to the consolidated financial
statements of UnitedGlobalCom, Inc. (UGC), as of the years ended December 31, 2001 and 2000, and
for each of the three years in the period ended December 31, 2001. The Audit Report is incorporated
by reference in the Registration Statements on Form S-8 (Nos. 333-125930, 333-125941, 333-125943,
333-125946, 333-125962, 333-128034, 333-128035, 333-128036, 333-128037, and 333-128038) and on Form
S-3 (Nos. 333-128945, 333-128553, and 333-125927). UGC has been unable to obtain the written
consent of Andersen for inclusion of the Audit Report in the Form S-8 Registration Statements. In
reliance on Rule 437a under the Securities Act of 1933, as amended (the Securities Act), the
Registrant has dispensed with the requirement to file the written consent of Andersen with respect
to the inclusion of the Audit Report in the Form S-8 and Form S-3 Registration Statements.
Section 11(a) of the Securities Act provides that if part of a registration statement at the
time it becomes effective contains an untrue statement of a material fact, or omits a material fact
required to be stated therein or necessary to make the statements therein not misleading, any
person acquiring a security pursuant to such registration statement (unless it is proved that at
the time of such acquisition such person knew of such untruth or omission) may sue, among others,
every accountant who has consented to be named as having prepared or certified any part of the
registration statement or as having prepared or certified any report or valuation for use in
connection with the registration statement, with respect to the statement in such registration
statement, report or valuation which purports to have been prepared or certified by such
accountant.
As noted above, Andersen has not consented to the inclusion of the Audit Report in this
Registration Statement. Although the resulting limitations on recovery are unclear, you may be
unable to assert a claim against Andersen under Section 11(a) of the Securities Act with respect to
transactions in common stock of the Registrant that occur pursuant to the Form S-8 and Form S-3
Registration Statements.
exv23w7
Exhibit 23.7
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS CONSENT
We consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos.
333-125930, 333-125941, 333-125943, 333-125946, 333-125962, 333-128034, 333-128035, 333-128036,
333-128037 and 333-128038) and on Form S-3 (Nos. 333-128945, 333-128553 and 333-125927) of Liberty
Global, Inc. of our report dated February 25, 2005, with respect to the consolidated financial
statements of Cordillera Comunicaciones Holding Limitada and subsidiaries as of December 31, 2003
and 2004 and for the years ended December 31, 2002, 2003 and 2004 included in the December 31, 2005
annual report on form 10-K/A (Amendment No. 1) of Liberty Global, Inc.
ERNST & YOUNG LTDA.
Santiago, Chile
June 29, 2006
exv23w8
Exhibit 23.8
KPMG LLP
Suite 2800
One Biscayne Tower
Two South Biscayne Boulevard
Miami, FL 33131
Consent of Independent Registered Public Accounting Firm
The Board of Directors
Fox Pan American Sports, LLC:
We consent to incorporation by reference into Liberty Global, Inc.s Forms S-3 (333-128945,
333-128553, 333-125927) and Forms S-8 (333-125930, 333-125941, 333-125943, 333-125946, 333-125962,
333-128034, 333-128035, 333-128036, 333-128037, 333-128038) of our report dated April 16, 2005,
with respect to the consolidated balance sheet of Fox Pan American Sports, LLC as of December 31,
2004, and the related consolidated statements of operations, changes in members (deficit) equity
and cash flows for the year then ended, which report appears in the December 31, 2005 Annual Report
on Form 10-K/A (Amendment No. 1) of Liberty Global, Inc.
Miami,
Florida
June 29, 2006
KPMG LLP, a U.S. limited liability partnership, is the U.S.
member firm of KPMG International, a Swiss cooperative.
exv23w9
Exhibit 23.9
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference in the registration statements on Form S-8 (Nos. 333-125930, 333-125941, 333-125943, 333-125946,
333-125962, 333-128034, 333-128035, 333-128036, 333-128037, and 333-128038) and on Form S-3 (Nos. 333-128945, 333-128553, and 333-125927) of Liberty Global, Inc. of our report dated June 2, 2006 relating to the consolidated
financial statements of Telenet Group Holding NV as of December 31, 2005 and 2004, and for the
years then ended, which appears in Liberty Global, Inc.s Annual Report on Form 10-K/A for the year
ended December 31, 2005.
Antwerp, Belgium, June 28, 2006
PricewaterhouseCoopers Bedrijfsrevisoren bcvba
Represented by
/s/ B. Gabriëls
exv23w10
Exhibit 23.10
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements (Form S-8 Nos.
333-125930, 333-125941, 333-125943, 333-125946, 333-125962, 333-128034, 333-128035, 333-128036,
333-128037, and 333-128038, and Form S-3 Nos. 333-128945, 333-128553, and 333-125927) of Liberty
Global, Inc. of our report dated June 29, 2006, with respect to the consolidated financial
statements of PrimaCom AG, Mainz included in Amendment No. 1 to the Annual Report on Form 10-K/A of
Liberty Global, Inc. for the year ended December 31, 2005.
Ernst & Young AG
Wirtschaftsprüfungsgesellschaft
|
|
|
Klein
|
|
Erbacher |
Wirtschaftsprüfer
|
|
Wirtschaftsprüfer |
[German Public Auditor]
|
|
[German Public Auditor] |
Eschborn/Frankfurt/M., Germany
June 29, 2006
exv31w1
Exhibit 31.1
CERTIFICATION
I, Michael T. Fries, certify that:
1. I have
reviewed this annual report on Form 10-K/A of Liberty Global, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in
this annual report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this annual
report;
4. The registrants other certifying officers and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f) for the registrant and we have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this annual report our conclusions about the effectiveness of the disclosure controls
and procedures as of the end of the period covered by this annual report based on such evaluation;
and
d) Disclosed in this annual report any change in the registrants internal control over
financial reporting that occurred during the registrants most recent fiscal quarter (the
registrants fourth fiscal quarter in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the registrants internal control over financial
reporting; and
5. The registrants other certifying officers and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing the equivalent function):
a) All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the registrants
ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrants internal control over financial reporting.
Date:
June 30, 2006
/s/ Michael T. Fries
Michael T. Fries
President and Chief Executive Officer
exv31w2
Exhibit 31.2
CERTIFICATION
I, Charles H.R. Bracken, certify that:
1. I have
reviewed this annual report on Form 10-K/A of Liberty Global, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in
this annual report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this annual
report;
4. The registrants other certifying officers and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f) for the registrant and we have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this annual report our conclusions about the effectiveness of the disclosure controls
and procedures as of the end of the period covered by this annual report based on such evaluation;
and
d) Disclosed in this annual report any change in the registrants internal control over
financial reporting that occurred during the registrants most recent fiscal quarter (the
registrants fourth fiscal quarter in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the registrants internal control over financial
reporting; and
5. The registrants other certifying officers and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing the equivalent function):
a) All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the registrants
ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrants internal control over financial reporting.
Date:
June 30, 2006
/s/ Charles H.R. Bracken
Charles H.R. Bracken
Senior Vice President and Co-Chief Financial Officer
(Principal Financial Officer)
exv31w3
Exhibit 31.3
CERTIFICATION
I, Bernard G. Dvorak, certify that:
1. I have
reviewed this annual report on Form 10-K/A of Liberty Global, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in
this annual report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this annual
report;
4. The registrants other certifying officers and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f) for the registrant and we have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this annual report our conclusions about the effectiveness of the disclosure controls
and procedures as of the end of the period covered by this annual report based on such evaluation;
and
d) Disclosed in this annual report any change in the registrants internal control over
financial reporting that occurred during the registrants most recent fiscal quarter (the
registrants fourth fiscal quarter in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the registrants internal control over financial
reporting; and
5. The registrants other certifying officers and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing the equivalent function):
a) All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the registrants
ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrants internal control over financial reporting.
Date:
June 30, 2006
/s/ Bernard G. Dvorak
Bernard G. Dvorak
Senior Vice President and Co-Chief Financial Officer
(Principal Accounting Officer)
exv32
Exhibit 32
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350,
chapter 63 of title 18, United States Code), each of the undersigned officers of Liberty Global,
Inc., a Delaware corporation (the Company), does hereby certify, to such officers knowledge,
that:
The Annual
Report on Form 10-K/A for the period ended December 31, 2005
(the Form 10-K/A) of the
Company fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange
Act of 1934 and information contained in the Form 10-K/A fairly presents, in all material respects,
the financial condition and results of operations of the Company as of December 31, 2005 and 2004,
and for the three years ended December 31, 2005.
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Dated:
June 30, 2006
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/s/
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Michael T. Fries |
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Michael T. Fries |
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Chief Executive Officer |
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Dated:
June 30, 2006
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/s/
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Charles H.R. Bracken |
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Charles H.R. Bracken |
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Senior Vice President and Co-Chief Financial Officer |
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(Principal Financial Officer) |
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Dated:
June 30, 2006
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/s/
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Bernard G. Dvorak |
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Bernard G. Dvorak |
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Senior Vice President and Co-Chief Financial Officer |
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(Principal Accounting Officer) |
The foregoing certification is being furnished solely pursuant to section 906 of the Sarbanes-Oxley
Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code)
and is not being filed as part of the Form 10-K/A or as a separate disclosure document.