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TABLE OF CONTENTS
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
ý Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
FOR THE QUARTER ENDED MARCH 31, 2005
or
o Transition
Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission File No. 000-496-58
UnitedGlobalCom, Inc.
(Exact name of Registrant as specified in its charter)
| State of Delaware | 84-1602895 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
4643 South Ulster Street, Suite 1300
Denver, CO 80237
(Address of principle executive offices)
Registrant's telephone number, including area code: (303) 770-4001
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 ý No o
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ý No o
The registrant's outstanding common stock as of April 26, 2005 consisted of:
Class A
common stock – 401,910,103 shares
Class B common stock – 10,493,461 shares
Class C common stock – 379,603,223 shares
1
UnitedGlobalCom, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except par value and number of shares)
(Unaudited)
| |
March 31, 2005 |
December 31, 2004 |
|||||||
|---|---|---|---|---|---|---|---|---|---|
| Assets | |||||||||
| Current assets: | |||||||||
| Cash and cash equivalents | $ | 1,066,084 | $ | 1,028,993 | |||||
| Restricted cash | 16,866 | 43,640 | |||||||
| Short-term liquid investments | 18,361 | 48,965 | |||||||
| Trade receivables, net | 177,375 | 184,222 | |||||||
| Other receivables | 66,874 | 134,110 | |||||||
| Other current assets, net | 150,171 | 98,525 | |||||||
| Total current assets | 1,495,731 | 1,538,455 | |||||||
| Long-term assets: | |||||||||
| Investments in affiliates, accounted for using the equity method | 311,845 | 345,790 | |||||||
| Other investments | 277,819 | 262,091 | |||||||
| Property and equipment, net | 3,984,935 | 4,193,095 | |||||||
| Goodwill | 2,176,803 | 2,170,705 | |||||||
| Intangible assets, net | 414,573 | 445,172 | |||||||
| Other assets, net | 216,646 | 178,989 | |||||||
| Total assets | $ | 8,878,352 | $ | 9,134,297 | |||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
UnitedGlobalCom, Inc.
Condensed Consolidated Balance Sheets (continued)
(In thousands, except par value and number of shares)
(Unaudited)
| |
March 31, 2005 |
December 31, 2004 |
||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Liabilities and Stockholders' Equity | ||||||||||
| Current liabilities: | ||||||||||
| Accounts payable | $ | 313,866 | $ | 345,535 | ||||||
| Accrued liabilities | 409,160 | 462,927 | ||||||||
| Subscriber advance payments and deposits | 343,903 | 332,765 | ||||||||
| Accrued interest | 32,403 | 88,608 | ||||||||
| Notes payable, related party | 103,990 | 108,414 | ||||||||
| Current portion of debt | 7,138 | 34,325 | ||||||||
| Other current liabilities | 50,784 | 49,675 | ||||||||
| Total current liabilities | 1,261,244 | 1,422,249 | ||||||||
| Long-term liabilities: | ||||||||||
| Long-term portion of debt | 4,791,246 | 4,818,583 | ||||||||
| Other long-term liabilities | 395,277 | 375,103 | ||||||||
| Total liabilities | 6,447,767 | 6,615,935 | ||||||||
| Commitments and contingencies (note 7) | ||||||||||
Minority interests in subsidiaries |
88,978 |
96,378 |
||||||||
| Stockholders' equity: | ||||||||||
| 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, 413,455,479 and 413,206,357 shares issued, respectively | 4,134 | 4,132 | ||||||||
| Class B common stock, $0.01 par value, 1,000,000,000 shares authorized, 11,165,777 shares issued | 112 | 112 | ||||||||
| Class C common stock, $0.01 par value, 400,000,000 shares authorized, 379,603,223 shares issued and outstanding | 3,796 | 3,796 | ||||||||
| Additional paid-in capital | 2,621,810 | 2,624,159 | ||||||||
| Deferred compensation | (10,671 | ) | (1,851 | ) | ||||||
| Treasury stock, at cost | (67,343 | ) | (75,844 | ) | ||||||
| Accumulated deficit | (359,173 | ) | (356,314 | ) | ||||||
| Accumulated other comprehensive income | 148,942 | 223,794 | ||||||||
| Total stockholders' equity | 2,341,607 | 2,421,984 | ||||||||
| Total liabilities and stockholders' equity | $ | 8,878,352 | $ | 9,134,297 | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
UnitedGlobalCom, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
| |
Three Months Ended March 31, |
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| |
2005 |
2004 |
||||||||
| Revenue | $ | 798,286 | $ | 547,342 | ||||||
| Operating costs and expenses: | ||||||||||
| Operating | (327,240 | ) | (214,028 | ) | ||||||
| Selling, general and administrative ("SG&A") | (191,714 | ) | (129,030 | ) | ||||||
| Depreciation and amortization (operating) | (226,899 | ) | (217,694 | ) | ||||||
| Restructuring charges and other (operating) | (4,269 | ) | (4,335 | ) | ||||||
| Stock-based compensation (SG&A) | (8,738 | ) | (61,852 | ) | ||||||
| Operating income (loss) | 39,426 | (79,597 | ) | |||||||
| Interest income | 7,071 | 3,328 | ||||||||
| Interest expense | (72,179 | ) | (71,733 | ) | ||||||
| Foreign currency transaction losses, net | (48,132 | ) | (21,852 | ) | ||||||
| Realized and unrealized gains (losses) on derivative instruments, net | 75,339 | (4,025 | ) | |||||||
| (Losses) gains on extinguishment of debt | (11,980 | ) | 31,916 | |||||||
| Gains on sale of investments | 28,300 | 46 | ||||||||
| Share in results of affiliates, net | (2,380 | ) | (2,213 | ) | ||||||
| Other expense, net | (659 | ) | (7,298 | ) | ||||||
| Income (loss) before income taxes and other items | 14,806 | (151,428 | ) | |||||||
| Income tax (expense) benefit, net | (21,903 | ) | 1,293 | |||||||
| Minority interests in losses of subsidiaries and other, net | 4,238 | 470 | ||||||||
| Net income (loss) | $ | (2,859 | ) | $ | (149,665 | ) | ||||
| Earnings per share: | ||||||||||
| Basic and diluted earnings (loss) per share | $ | (0.00 | ) | $ | (0.21 | ) | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
UnitedGlobalCom, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
(Unaudited)
| |
Three Months Ended March 31, |
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| |
2005 |
2004 |
||||||||
| Net income (loss) | $ | (2,859 | ) | $ | (149,665 | ) | ||||
| Other comprehensive income (loss): | ||||||||||
| Foreign currency translation adjustments | (91,324 | ) | (48,091 | ) | ||||||
| Net unrealized gains on available-for-sale securities | 26,575 | 19,438 | ||||||||
| Reclassification adjustment for gains on available-for-sale securities included in net income | – | – | ||||||||
| Other comprehensive income (loss) before income taxes | (64,749 | ) | (28,653 | ) | ||||||
| Provision for income taxes related to net unrealized gains on available-for-sale securities | (10,103 | ) | – | |||||||
| Other comprehensive income (loss) | (74,852 | ) | (28,653 | ) | ||||||
| Comprehensive income (loss) | $ | (77,711 | ) | $ | (178,318 | ) | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
UnitedGlobalCom, Inc.
Condensed Consolidated Statement of Stockholders' Equity
(In thousands, except number of shares)
(Unaudited)
| |
Class A Common Stock |
Class B Common Stock |
Class C Common Stock |
|
|
|
|
|
|
|
||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
|
|
Treasury Stock |
|
Accumulated Other Comprehensive Income (Loss) |
|
||||||||||||||||||||||||||||||
| |
Additional Paid-In Capital |
Deferred Compensation |
Accumulated Deficit |
|
||||||||||||||||||||||||||||||||
| |
Shares |
Amount |
Shares |
Amount |
Shares |
Amount |
Shares |
Amount |
Total |
|||||||||||||||||||||||||||
| December 31, 2004 | 413,206,357 | $ | 4,132 | 11,165,777 | $ | 112 | 379,603,223 | $ | 3,796 | $ | 2,624,159 | $ | (1,851 | ) | 13,846,976 | $ | (75,844 | ) | $ | (356,314 | ) | $ | 223,794 | $ | 2,421,984 | |||||||||||
Issuance of Class A common stock for acquisition of programming business |
– |
– |
– |
– |
– |
– |
482 |
(8,983 |
) |
(1,629,284 |
) |
8,501 |
– |
– |
– |
|||||||||||||||||||||
| Issuance of Class A common stock in connection with equity incentive plans | 212,090 | 2 | – | – | – | – | 1,014 | – | – | – | – | – | 1,016 | |||||||||||||||||||||||
| Issuance of Class A common stock in connection with 401(k) plan | 37,032 | – | – | – | – | – | 350 | – | – | – | – | – | 350 | |||||||||||||||||||||||
| Stock-based compensation, net of tax | – | – | – | – | – | – | (2,252 | ) | (286 | ) | – | – | – | – | (2,538 | ) | ||||||||||||||||||||
| Amortization of deferred compensation | – | – | – | – | – | – | – | 449 | – | – | – | – | 449 | |||||||||||||||||||||||
| Other equity transactions | – | – | – | – | – | – | (1,943 | ) | – | – | – | – | – | (1,943 | ) | |||||||||||||||||||||
| Net loss | – | – | – | – | – | – | – | – | – | – | (2,859 | ) | – | (2,859 | ) | |||||||||||||||||||||
| Unrealized gain on available-for-sale securities, net of tax | – | – | – | – | – | – | – | – | – | – | – | 16,472 | 16,472 | |||||||||||||||||||||||
| Foreign currency translation adjustments | – | – | – | – | – | – | – | – | – | – | – | (91,324 | ) | (91,324 | ) | |||||||||||||||||||||
| March 31, 2005 | 413,455,479 | $ | 4,134 | 11,165,777 | $ | 112 | 379,603,223 | $ | 3,796 | $ | 2,621,810 | $ | (10,671 | ) | 12,217,692 | $ | (67,343 | ) | $ | (359,173 | ) | $ | 148,942 | $ | 2,341,607 | |||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
UnitedGlobalCom, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
| |
Three Months Ended March 31, |
||||||||
|---|---|---|---|---|---|---|---|---|---|
| |
2005 |
2004 |
|||||||
| Cash Flows from Operating Activities | |||||||||
| Net income (loss) | $ | (2,859 | ) | $ | (149,665 | ) | |||
| Adjustments to reconcile net income (loss) to net cash flows from operating activities: | |||||||||
| Depreciation and amortization | 226,899 | 217,694 | |||||||
| Impairment of long-lived assets, restructuring charges and other | 4,269 | 4,335 | |||||||
| Stock-based compensation | (1,339 | ) | 61,852 | ||||||
| Accretion of interest on senior notes and amortization of deferred financing costs | 10,879 | 3,186 | |||||||
| Unrealized foreign currency transaction gains, net | 25,159 | 13,100 | |||||||
| Realized and unrealized (gains) losses on derivative instruments | (75,339 | ) | 4,025 | ||||||
| Losses (gains) on extinguishment of debt | 11,980 | (31,916 | ) | ||||||
| Gains on sale of investments | (28,300 | ) | (46 | ) | |||||
| Deferred income tax expense (benefit), net | 5,816 | (5,247 | ) | ||||||
| Minority interests in losses of subsidiaries and other, net | (4,238 | ) | (470 | ) | |||||
| Share in results of affiliates, net | 2,380 | 2,213 | |||||||
| Other non-cash items | – | 6,894 | |||||||
| Change in assets and liabilities: | |||||||||
| Change in receivables and other assets | 28,661 | (17,554 | ) | ||||||
| Change in accounts payable, accrued liabilities and other | (71,850 | ) | 7,370 | ||||||
| Net cash flows from operating activities | 132,118 | 115,771 | |||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7
UnitedGlobalCom, Inc.
Condensed Consolidated Statements of Cash Flows (continued)
(In thousands)
(Unaudited)
| |
Three Months Ended March 31, |
|||||||
|---|---|---|---|---|---|---|---|---|
| |
2005 |
2004 |
||||||
| Cash Flows from Investing Activities | ||||||||
| Cash paid for acquisitions, net of cash acquired | $ | (139,634 | ) | $ | – | |||
| Cash paid for acquisition, refunded by seller | 56,493 | – | ||||||
| Capital expenditures | (167,306 | ) | (80,210 | ) | ||||
| Purchases of short-term liquid investments | (16,233 | ) | (17,487 | ) | ||||
| Proceeds from sale of short-term liquid investments | 46,869 | – | ||||||
| Restricted cash released, net | 26,019 | 6,105 | ||||||
| Investments in and loans to affiliates | (907 | ) | (50 | ) | ||||
| Proceeds from sale of investments in affiliates | 35,439 | – | ||||||
| Purchase of interest rate caps and swaps | (2,559 | ) | (14,198 | ) | ||||
| Settlement of interest rate caps and swaps | (542 | ) | – | |||||
| Dividends received from affiliates | 9,840 | 4,801 | ||||||
| Other | 3,631 | 24 | ||||||
| Net cash flows from investing activities | (148,890 | ) | (101,015 | ) | ||||
| Cash Flows from Financing Activities | ||||||||
| Issuance of common stock | 1,016 | 1,076,264 | ||||||
| Proceeds from issuance of debt | 3,327,594 | 18,773 | ||||||
| Repayments of debt | (3,184,973 | ) | (113,557 | ) | ||||
| Financing costs | (44,261 | ) | (21,071 | ) | ||||
| Net cash flows from financing activities | 99,376 | 960,409 | ||||||
| Effects of Exchange Rates on Cash | (45,513 | ) | (9,741 | ) | ||||
| Increase in Cash and Cash Equivalents | 37,091 | 965,424 | ||||||
| Cash and Cash Equivalents, Beginning of Period | 1,028,993 | 310,361 | ||||||
| Cash and Cash Equivalents, End of Period | $ | 1,066,084 | $ | 1,275,785 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
8
UnitedGlobalCom, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
1. Basis of Presentation
We are an international broadband communications provider of video, voice and Internet access services with operations in 16 countries. Our wholly owned subsidiary UGC Europe, Inc. (together with its subsidiaries "UGC Europe"), our largest consolidated operation, is a pan-European broadband communications company. Through its subsidiary, United Pan-Europe Communications N.V. ("UPC"), UGC Europe provides video, high-speed Internet access and telephone services through its broadband networks in 13 European countries. UGC Europe's operations are currently organized into two principal divisions – UPC Broadband and chellomedia. UPC Broadband provides video, high-speed Internet access and telephone services to residential customers. chellomedia provides interactive digital products and services, produces and markets thematic channels and owns or manages our investments in various businesses in Europe. Our primary Latin American operation, VTR GlobalCom S.A. ("VTR"), provides video, high-speed Internet access and telephone services primarily to residential customers in Chile. We also have consolidated operations in Brazil and Peru, an approximate 19% interest in SBS Broadcasting S.A. ("SBS"), a European commercial television and radio broadcasting company, an approximate 34% interest in Austar United Communications Ltd. ("Austar United"), a pay-TV provider in Australia and an indirect approximate 19% interest in Telenet Group Holding N.V. ("Telenet"), a broadband communications provider in Belgium, in addition to various other programming and distribution investments.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") and with the instructions to Form 10-Q and Article 10 of Regulation S-X for interim financial information. Accordingly, these statements do not include all of the information required by GAAP or SEC regulations for complete financial statements. In our opinion, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005. These statements should be read together with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K/A for the year ended December 31, 2004.
The accompanying unaudited condensed 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. Certain prior year amounts have been reclassified to conform to the current year presentation.
The preparation of financial statements in conformity with 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 revenue and expenses during the reporting period. Estimates are used in accounting for, among other things, allowances for uncollectible accounts, deferred income tax valuation allowances, loss contingencies, fair values of financial instruments, asset impairments, useful lives of property, plant and equipment, restructuring accruals and other special items. Actual results could differ from those estimates.
9
Liberty Media International ("LMI") owns 53.5% of our common stock, which represents a 91.0% voting interest in us. On January 17, 2005, LMI and we entered into an agreement and plan of merger, pursuant to which we each will merge with a separate wholly owned subsidiary of a new parent company named Liberty Global, Inc. ("Liberty Global"), which has been formed for this purpose. In the mergers, each outstanding share of LMI Series A common stock and Series B common stock will be exchanged for one share of the corresponding series of Liberty Global common stock. Our stockholders may elect to receive for each share of common stock owned either 0.2155 of a share of Liberty Global Series A common stock (plus cash for any fractional share interest) or $9.58 in cash. Cash elections will be subject to proration so that the aggregate cash consideration paid to our stockholders does not exceed 20% of the aggregate value of the merger consideration payable to our public stockholders. Completion of the transactions is subject to, among other conditions, approval of both companies' stockholders, including an affirmative vote of a majority of the voting power of our Class A common stock not beneficially owned by LMI, Liberty Media Corporation ("LMC"), any of LMI's respective subsidiaries or any of the executive officers or directors of LMI, LMC, or us. We have scheduled a special meeting of stockholders on June 14, 2005 to vote on the proposed transaction.
2. Acquisitions, Dispositions and Other
Zone Vision
In January 2005, chellomedia acquired the Class A shares of Zone Vision Networks Ltd. ("Zone Vision"). The consideration for the transaction consisted of $50.0 million in cash and 1.6 million shares of our Class A common stock valued at $15.0 million. We incurred $2.2 million of direct acquisition costs related to this transaction. As part of the transaction, chellomedia contributed to Zone Vision its 49% interest in Reality TV Ltd. and chellomedia's Club channel business.
We purchased Zone Vision to complement our programming activities in Europe. As we expand our rollout of digital video and broadband Internet services, the need to develop and control content becomes increasingly important. Zone Vision is a programming company focusing on the ownership, management and distribution of pay television channels. Zone Vision owns and operates three thematic channels: Reality TV, Europa Europa and Romantica, which are broadcast in numerous countries in various languages. In addition, Zone Vision's channel representation business currently represents over 30 international channels from companies such as Discovery, Viacom, Turner, Hallmark and Eurosport.
We accounted for this transaction using the purchase method of accounting. Under the purchase method of accounting, the preliminary purchase price was allocated to the acquired identifiable tangible and intangible assets and liabilities based upon their respective fair values, and the excess of the purchase price over the fair value of such identifiable net assets was allocated to goodwill. The preliminary accounting for this transaction as reflected in these condensed consolidated financial statements is subject to adjustment based upon the final assessment of the fair values of Zone Vision's identifiable tangible and intangible assets and liabilities. Such potential adjustments could result in significant changes to the preliminary accounting for this transaction and to the impact of this transaction on our consolidated operating results.
10
The Class A Shares purchased by chellomedia represent an 87.5% interest in Zone Vision on a fully diluted basis. A group of the selling shareholders have been retained as employees of Zone Vision after the acquisition. These employees hold Class B1 Shares of Zone Vision (representing the remaining 12.5% interest in