UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): April 13, 2010
LIBERTY GLOBAL, INC.
(Exact name of registrant as specified in its charter)
Delaware | | 000-51360 | | 20-2197030 |
(State or other jurisdiction of | | (Commission | | (I.R.S. Employer |
incorporation or organization) | | File Number) | | Identification No.) |
12300 Liberty Boulevard, Englewood, Colorado 80112
(Address of principal executive offices and zip code)
Registrant’s telephone number, including area code: (303) 220-6600
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
o | | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| | |
o | | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| | |
o | | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| | |
o | | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 8.01 Other Events.
As previously reported, on January 28, 2010, Liberty Global, Inc. (LGI) acquired Unitymedia GmbH (Unitymedia) and on February 18, 2010, LGI completed the sale of three of its subsidiaries (the J:COM Disposal Group) that directly or indirectly held its 37.8% ownership interest in Jupiter Telecommunications Ltd. (J:COM). The condensed pro forma combined financial statements attached hereto reflect (i) LGI’s acquisition of Unitymedia, (ii) LGI’s sale of the J:COM Disposal Group and (iii) certain related transactions as of and for the year ended December 31, 2009.
Item 9.01 Financial Statements and Exhibits
Pro forma financial information
| Page |
| |
Headnote to Unaudited Condensed Pro Forma Combined Financial Statements | F-1 |
| |
Unaudited Condensed Pro Forma Combined Balance Sheet as of December 31, 2009 | F-3 |
| |
Unaudited Condensed Pro Forma Combined Statement of Operations for the year ended December 31, 2009 | F-4 |
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Notes to Unaudited Condensed Pro Forma Combined Financial Statements | F-5 |
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| LIBERTY GLOBAL, INC. |
| |
| |
| By: | /s/ RANDY L. LAZZELL |
| Name: Randy L. Lazzell |
| Title: Vice President |
Date: April 13, 2010
3
LIBERTY GLOBAL, INC.
UNAUDITED CONDENSED PRO FORMA COMBINED FINANCIAL STATEMENTS
General
The following unaudited condensed pro forma combined balance sheet, dated as of December 31, 2009, gives effect as of such date to (i) the January 28, 2010 acquisition of Unitymedia GmbH (Unitymedia) and March 2, 2010 repayment of its existing indebtedness and (ii) the February 18, 2010 sale of three of our subsidiaries that directly or indirectly, including through certain trust arrangements, held our 37.8% ownership interest in Jupiter Telecommunications Ltd. (J:COM) and related transactions. The following unaudited condensed pro forma combined statement of operations for the year ended December 31, 2009 gives effect to these transactions, as well as the November 2009 completion of certain financing transactions related to the acquisition of Unitymedia, as if they had been completed as of January 1, 2009. In the following text, the terms “we,” “our,” “our company” and “us” may refer, as the context requires, to Liberty Global, Inc. (LGI) or collectively to LGI and its subsidiaries. Unless otherwise indicated, convenience translations into United States (U.S.) dollars are calculated as of December 31, 2009.
The unaudited pro forma results are not necessarily indicative of the financial position and results of operations that would have occurred if such transactions had occurred on such dates. The pro forma adjustments are based on currently available information and certain assumptions that we believe are reasonable. These unaudited condensed pro forma combined financial statements include (i) historical LGI financial statement information that has been derived from and should be read in conjunction with LGI’s historical consolidated financial statements and notes thereto and (ii) historical Unitymedia financial statement information and related pro forma adjustments thereto that have been derived from unaudited condensed consolidated financial statement information prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) for the purpose of providing the necessary information to complete these unaudited condensed pro forma combined financial statements. LGI’s consolidated financial statements and notes thereto as of and for the year ended December 31, 2009 are included in LGI’s Annual Report on Form 10-K for the year ended December 31, 2009.
Although we use derivative instruments to manage our interest rate and foreign currency exposures, no pro forma adjustments have been reflected in these unaudited condensed pro forma combined financial statements with respect to new derivative instruments that were entered into in connection with the new debt issued to finance the acquisition of Unitymedia and in connection with the sale of our ownership interests in J:COM.
Unitymedia Acquisition
Acquisition
On January 28, 2010, UPC Germany GmbH (UPC Germany), our indirect wholly-owned subsidiary, paid cash of €2,006.0 million ($2,874.7 million), excluding estimated transaction costs of €39.0 million ($55.9 million), (the Unitymedia Purchase Price) to acquire from Unity Media S.C.A. all of the issued and outstanding capital stock of Unitymedia (the Unitymedia Acquisition). The Unitymedia Acquisition was effected pursuant to the terms of the Share Purchase Agreement, dated November 13, 2009 (the Purchase Agreement), between UPC Germany and Unity Media S.C.A. At closing, 3% of the purchase price was placed in escrow, for a period not to exceed 122 days, pending any claims arising under the Purchase Agreement. Any successful claims on this escrow account will be treated as adjustments to the Unitymedia Purchase Price.
Financings
The Unitymedia Purchase Price was funded with (i) €849.2 million ($1,186.6 million at the transaction date) of cash from the escrow accounts associated with the Unitymedia Senior Notes and (ii) our existing cash and cash equivalent balances. As further described below, we obtained financing for the Unitymedia Acquisition in November 2009 through (i) the issuance of the Unitymedia Senior Notes and the LGI Convertible Notes and (ii) the sale of LGI common stock in the Private Placement.
F-1
Unitymedia Senior Notes. On November 20, 2009, UPC Germany issued (i) €1,430.0 million ($2,049.3 million) principal amount of 8.125% Senior Secured Notes (the Euro Senior Secured Notes) at an issue price of 97.844%, (ii) $845.0 million principal amount of 8.125% Senior Secured Notes (the Dollar Senior Secured Notes and, together with the Euro Senior Secured Notes, the Senior Secured Notes) at an issue price of 97.844% and (iii) €665.0 million ($953.0 million) principal amount of 9.625% Senior Notes (the Senior Notes) at an issue price of 97.652% (collectively, the Unitymedia Senior Notes). The Senior Secured Notes mature on December 1, 2017 and the Senior Notes mature on December 1, 2019. Upon closing, and after deducting issuance costs of €65.1 million ($96.7 million at the transaction date), the €2,541.0 million ($3,773.5 million at the transaction date) of net proceeds from the sale of the Unitymedia Senior Notes were placed into two escrow accounts. On January 28, 2010, we used €849.2 million ($1,186.6 million at the transaction date) of cash from the escrow accounts to fund a portion of the Unitymedia Purchase Price. On March 2, 2010, (i) the remaining balances in the escrow accounts were released in connection with the repayment of Unitymedia’s existing indebtedness, (ii) the obligations under the Senior Secured Notes were assumed by Unitymedia Hessen GmbH & Co. KG (Unitymedia Hessen) and Unitymedia NRW GmbH (Unitymedia NRW) and (iii) the obligations under the Senior Notes were assumed by Unitymedia (collectively, the Debt Pushdown). Unitymedia Hessen and Unitymedia NRW are indirect subsidiaries of Unitymedia.
LGI Convertible Notes. On November 18, 2009, LGI completed the offering and sale of $935.0 million principal amount of 4.50% Convertible Senior Notes due November 15, 2016. The LGI Convertible Notes are convertible into shares of LGI common stock at the initial conversion rates of 28.2602 shares of LGI Series A common stock and 9.4201 shares of LGI Series C common stock per $1,000 principal amount (for an aggregate of 26,423,287 shares of Series A common stock and 8,807,794 shares of Series C common stock). LGI may settle its conversion obligation in shares of LGI Series A and Series C common stock, cash or any combination of the foregoing. The net proceeds from the LGI Convertible Notes of $910.8 million, after deducting the initial purchaser’s discount and related transaction costs aggregating $24.2 million, were used to fund a portion of the Unitymedia Purchase Price.
The $935.0 million principal amount of the LGI Convertible Notes was allocated between debt and equity components. The portion of the principal amount allocated to the debt component of $626.2 million was measured based on the estimated fair value of a debt instrument that has the same terms as the LGI Convertible Notes without the conversion feature. This debt component will be accreted to the principal amount to be repaid on the November 15, 2016 maturity date using the effective interest method. The stated interest rate of the LGI Convertible Notes plus the accretion of the discount results in an effective interest rate of 11.5%. The $308.8 million difference between the outstanding principal amount and the amount allocated to the debt component was recorded, net of deferred income taxes and a pro rata portion of the initial purchaser’s discount and related transaction costs, as an increase to additional paid-in capital in our consolidated statement of equity.
Private Placement Transaction. On November 18, 2009, LGI sold 4,500,000 shares of its Series A common stock and 1,500,000 shares of its Series C common stock at $21.375 per share in a private placement transaction (the Private Placement). The net proceeds of $126.6 million after commissions were used to fund a portion of the Unitymedia Purchase Price.
Sale of J:COM Disposal Group
On February 18, 2010, we sold to KDDI Corporation our ownership interests in three of our subsidiaries, including Liberty Jupiter LLC (Liberty Jupiter) (formerly Liberty Jupiter, Inc.), which held directly or indirectly, including through certain trust arrangements, our indirect ownership interests in J:COM (the J:COM Disposal Group). As part of the sale agreement, we retained the right to receive the final 2009 dividend of ¥490 ($5.26) per share attributable to our interest in J:COM, and we received this dividend in March 2010. Including both the proceeds received upon the sale and the March 2010 dividend, we realized gross cash proceeds of approximately ¥362.9 billion ($3,896.6 million). The foregoing U.S. dollar convenience translation of the gross proceeds is based on December 31, 2009 exchange rates and does not take into account a foreign currency forward contract that we entered into to fix the Japanese yen and U.S. dollar exchange rate at 90.1661 on a notional amount of ¥284.6 billion. In connection with the sale of the J:COM Disposal Group, we (i) repaid in full the ¥75 billion ($805.2 million) credit facility (the LGJ Holdings Credit Facility) of LGJ Holdings LLC (LGJ Holdings), (ii) settled the related interest rate swaps and (iii) incurred estimated transaction costs of $12.0 million. In addition, prior to closing, we acquired the noncontrolling interests in Liberty Jupiter for cash consideration of $32.0 million.
F-2
LIBERTY GLOBAL, INC.
Unaudited Condensed Pro Forma Combined Balance Sheet
December 31, 2009
| | | | | | Pro forma | |
| | | | | | Adjustments | | As adjusted
for
Unitymedia | | Adjustments | | As adjusted for
Unitymedia
Acquisition and sale
of J:COM Disposal | |
| | Historical | | Unitymedia | | Acquisition | | Sale of J:COM | | Group | |
| | LGI | | Unitymedia | | Acquisition | | LGI | | Disposal Group | | LGI | |
| | (in millions) | |
ASSETS | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 3,269.6 | | $ | 265.1 | | $ | (1,755.2 | ) (1) | $ | 1,757.4 | | $ | 3,160.9 | (3) | $ | 4,077.8 | |
| | | | | | 8.6 | (1) | | | (840.5 | ) (4) | | |
| | | | | | (30.7 | ) (2) | | | | | | |
Receivables and other current assets | | 2,008.6 | | 77.6 | | (8.6 | ) (1) | 2,077.6 | | (361.2 | ) (3) | 1,712.9 | |
| | | | | | | | | | (3.5 | ) (4) | | |
Investments | | 1,008.6 | | — | | — | | 1,008.6 | | (120.9 | ) (3) | 887.7 | |
Property and equipment, net | | 12,010.7 | | 1,918.5 | | — | | 13,929.2 | | (4,058.5 | ) (3) | 9,870.7 | |
Goodwill | | 13,353.8 | | 700.6 | | 2,660.5 | (1) | 16,714.9 | | (3,487.8 | ) (3) | 13,227.1 | |
Intangible assets subject to amortization, net | | 2,130.0 | | 858.9 | | — | | 2,988.9 | | (491.6 | ) (3) | 2,497.3 | |
Other assets, net | | 6,118.6 | | 194.2 | | (1,200.6 | ) (1) | 2,617.9 | | (214.6 | ) (3) | 2,383.0 | |
| | | | | | (2,494.3 | ) (2) | | | (20.3 | ) (4) | | |
Total assets | | $ | 39,899.9 | | $ | 4,014.9 | | $ | (2,820.3 | ) | $ | 41,094.5 | | $ | (6,438.0 | ) | $ | 34,656.5 | |
| | | | | | | | | | | | | |
LIABILITIES AND EQUITY | | | | | | | | | | | | | |
Current liabilities | | $ | 4,535.9 | | $ | 543.9 | | $ | (49.2 | ) (2) | $ | 5,030.6 | | $ | (374.3 | ) (3) | $ | 4,568.6 | |
| | | | | | | | | | (87.7 | ) (4) | | |
Long-term debt and capital lease obligations (10) | | 25,364.9 | | 3,077.8 | | (2,445.1 | ) (2) | 26,036.0 | | (2,280.1 | ) (3) | 22,950.7 | |
| | | | | | 38.4 | (1) | | | (805.2 | ) (4) | | |
Other long-term liabilities | | 3,502.0 | | 126.9 | | (11.5 | ) (1) | 3,586.7 | | (1,130.2 | ) (3) | 2,498.2 | |
| | | | | | (30.7 | ) (2) | | | 41.7 | (4) | | |
Total liabilities | | 33,402.8 | | 3,748.6 | | (2,498.1 | ) | 34,653.3 | | (4,635.8 | ) | 30,017.5 | |
| | | | | | | | | | | | | |
Common stock | | 2.6 | | — | | — | | 2.6 | | — | | 2.6 | |
Additional paid-in capital | | 4,105.5 | | — | | — | | 4,105.5 | | 32.1 | (3) | 4,137.6 | |
Accumulated deficit | | (2,287.0 | ) | — | | (55.9 | ) (1) | (2,342.9 | ) | 1,438.1 | (3) | (917.9 | ) |
| | | | | | — | | | | (13.1 | ) (4) | | |
Accumulated other comprehensive earnings, net of taxes | | 1,299.0 | | — | | — | | 1,299.0 | | (348.4 | ) (3) | 950.6 | |
Subsidiary equity | | — | | 266.3 | | (266.3 | ) (1) | — | | — | | — | |
| | 3,120.1 | | 266.3 | | (322.2 | ) | 3,064.2 | | 1,108.7 | | 4,172.9 | |
Noncontrolling interests | | 3,377.0 | | — | | — | | 3,377.0 | | (2,910.9 | ) (3) | 466.1 | |
Total equity | | 6,497.1 | | 266.3 | | (322.2 | ) | 6,441.2 | | (1,802.2 | ) | 4,639.0 | |
Total liabilities and equity | | $ | 39,899.9 | | $ | 4,014.9 | | $ | (2,820.3 | ) | $ | 41,094.5 | | $ | (6,438.0 | ) | $ | 34,656.5 | |
See notes to unaudited condensed pro forma combined financial statements.
F-3
LIBERTY GLOBAL, INC.
Unaudited Condensed Pro Forma Combined Statement of Operations
Year ended December 31, 2009
| | | | | | Pro forma | |
| | | | | | Adjustments | | As adjusted for
Unitymedia | | Adjustments | | As adjusted for
Unitymedia
Acquisition and sale
of J:COM Disposal | |
| | Historical | | Unitymedia | | Acquisition | | Sale of J:COM | | Group | |
| | LGI | | Unitymedia | | Acquisition | | LGI | | Disposal Group | | LGI | |
| | (in millions except share and per share amounts) | |
Revenue | | $ | 11,080.2 | | $ | 1,454.6 | | $ | — | | $ | 12,534.8 | | $ | (3,571.6 | ) (8) | $ | 8,963.2 | |
Operating, selling, general and administrative expenses (including stock-based compensation) (11) | | (6,332.0 | ) | (795.8 | ) | — | | (7,127.8 | ) | 2,026.4 | (8) | (5,101.4 | ) |
Depreciation and amortization | | (2,972.6 | ) | (404.1 | ) | — | (5) | (3,376.7 | ) | 890.3 | (8) | (2,486.4 | ) |
Impairment, restructuring and other operating charges, net | | (138.6 | ) | — | | — | | (138.6 | ) | 0.3 | (8) | (138.3 | ) |
Operating income | | 1,637.0 | | 254.7 | | — | | 1,891.7 | | (654.6 | ) | 1,237.1 | |
Non-operating income (expense): | | | | | | | | | | | | | |
Interest expense | | (945.7 | ) | (226.0 | ) | (361.2 | ) (6) | (1,362.0 | ) | 52.1 | (8) | (1,273.8 | ) |
| | | | | | 170.9 | (7) | | | 36.1 | (9) | | |
Realized and unrealized losses on derivative instruments, net | | (1,103.2 | ) | (34.3 | ) | 16.0 | (7) | (1,121.5 | ) | (1.3 | ) (8) | (1,113.5 | ) |
| | | | | | | | | | 9.3 | (9) | | |
Other, net | | 163.1 | | 5.1 | | — | | 168.2 | | (20.6 | ) (8) | 126.4 | |
| | | | | | | | | | (21.2 | ) (9) | | |
| | (1,885.8 | ) | (255.2 | ) | (174.3 | ) | (2,315.3 | ) | 54.4 | | (2,260.9 | ) |
Loss from continuing operations before income taxes | | (248.8 | ) | (0.5 | ) | (174.3 | ) | (423.6 | ) | (600.2 | ) | (1,023.8 | ) |
Income tax benefit | | 233.7 | | 61.7 | | 105.5 | (6) | 348.3 | | 561.9 | (8) | 901.6 | |
| | | | | | (52.6 | ) (7) | | | (8.6 | ) (9) | | |
Earnings (loss) from continuing operations | | (15.1 | ) | 61.2 | | (121.4 | ) | (75.3 | ) | (46.9 | ) | (122.2 | ) |
Net earnings attributable to non-controlling interests in our continuing operations | | (424.8 | ) | — | | — | | (424.8 | ) | 229.7 | (8) | (195.1 | ) |
Net earnings (loss) from continuing operations attributable to LGI stockholders | | $ | (439.9 | ) | $ | 61.2 | | $ | (121.4 | ) | $ | (500.1 | ) | $ | 182.8 | | $ | (317.3 | ) |
Basic and diluted loss from continuing operations attributable to LGI stockholders per share — Series A, Series B and Series C common stock | | $ | (1.64 | ) | | | | | | | | | $ | (1.16 | ) |
Weighted average common shares outstanding - basic and diluted (12) | | 268,822,323 | | | | | | | | | | 274,099,035 | |
See notes to unaudited condensed pro forma combined financial statements.
F-4
LIBERTY GLOBAL, INC.
Notes to Unaudited Condensed Pro Forma Combined Financial Statements
December 31, 2009
(1) Represent pro forma adjustments necessary to reflect the impacts of the Unitymedia Acquisition, including (i) the consideration paid by UPC Germany for Unitymedia of €2,006.0 million ($2,874.7 million), including €6.0 million ($8.6 million) used to fund Unitymedia S.C.A.’s repayment of its outstanding loans from Unitymedia as of the acquisition date, (ii) the write-off of Unitymedia’s historical goodwill and deferred financing costs of €488.9 million ($700.6 million) and €26.4 million ($37.8 million), respectively, (iii) a €26.8 million ($38.4 million) adjustment to increase Unitymedia’s long-term debt to its fair value, (iv) the elimination of Unitymedia’s equity of €185.8 million ($266.3 million) and (v) the payment of estimated direct acquisition costs of €39.0 million ($55.9 million). Deferred financing costs are included in other assets in the accompanying unaudited condensed pro forma combined balance sheet. For purposes of these unaudited condensed pro forma combined financial statements, it has been assumed that, with the exception of goodwill, deferred financing costs and long-term debt, the historical cost of Unitymedia’s existing assets and liabilities approximate their fair value. Accordingly, the entire excess consideration paid for Unitymedia of €2,345.4 million ($3,361.1 million), after the adjustment to long-term debt and the elimination of Unitymedia’s historical deferred financing costs, goodwill and equity, has been allocated to goodwill. The combined tax effect of the write-off of Unitymedia’s deferred financing costs and the fair value adjustment of long-term debt results in a decrease in deferred tax liabilities of $11.5 million and an increase in deferred tax assets of $12.6 million based on a blended statutory tax rate of 31.6%. Unitymedia’s deferred tax liabilities and deferred tax assets are included in other long-term liabilities and other assets, respectively, in the accompanying unaudited condensed pro forma combined balance sheet. The estimated expense resulting from the direct acquisition costs of $55.9 million has been reflected as a direct increase to our accumulated deficit in our unaudited condensed pro forma combined balance sheet. Due to its nonrecurring nature, this expense has not been reflected in our unaudited condensed pro forma combined statement of operations for the year ended December 31, 2009. However, the actual amount of this expense will be reflected in our historical condensed consolidated statement of operations for the three months ended March 31, 2010.
Cash flows related to the Unitymedia Acquisition are presented in U.S. dollar equivalents in the table below (in millions):
Uses: | | | |
Unitymedia Purchase Price | | $ | 2,874.7 | |
Direct acquisition costs | | 55.9 | |
Total | | $ | 2,930.6 | |
| | | |
Sources: | | | |
Amounts released from escrow accounts (a) | | $ | 1,175.4 | |
LGI cash and cash equivalents | | 1,755.2 | |
Total | | $ | 2,930.6 | |
(a) Represents the assumed €820.3 million available escrow balance related to the Unitymedia Senior Notes after providing for the repayment of Unitymedia’s existing debt and accrued interest as of December 31, 2009. The escrow account balance is included in other assets in the accompanying unaudited condensed pro forma combined balance sheet.
(2) Represents the impacts of the Debt Pushdown, including (i) the release of cash from escrow of €1,740.5 million ($2,494.3 million), (ii) the repayment of Unitymedia’s existing debt, including the principal balance of €1,679.4 million ($2,406.7 million) and the call premium of €26.8 million ($38.4 million), and (iii) the payment of the related accrued interest of €34.3 million ($49.2 million). In addition, this adjustment reflects the use of Unitymedia’s cash and cash equivalents to pay €21.4 million ($30.7 million) to settle a foreign currency swap that we were contractually required to settle in connection with the repayment of Unitymedia’s existing debt. The amount assumed to be paid to settle this swap represents the December 31, 2009 fair value of the swap, which was included in Unitymedia’s long-term liabilities.
F-5
(3) The following table reflects the combined impacts of the purchase of the noncontrolling interests in Liberty Jupiter and sale of the J:COM Disposal Group (collectively, the J:COM Transactions), as set forth below (in millions):
Cash proceeds received from sale of J:COM Disposal Group | | $ | 3,896.6 | |
Less cash paid for Liberty Jupiter noncontrolling interests (a) | | (32.0 | ) |
Less estimated transaction costs | | (12.0 | ) |
Net proceeds | | 3,852.6 | |
Book value of J:COM Disposal Group: | | | |
Cash and cash equivalents | | 691.7 | |
Receivables and other current assets | | 366.0 | |
Investments | | 120.9 | |
Property and equipment, net | | 4,058.5 | |
Goodwill | | 3,487.8 | |
Intangible assets subject to amortization | | 491.6 | |
Other assets, net | | 214.6 | |
Current liabilities | | (1,088.4 | ) |
Long-term debt and capital lease obligations | | (2,280.1 | ) |
Other long-term liabilities | | (1,055.7 | ) |
Accumulated other comprehensive earnings, net | | (348.4 | ) |
Noncontrolling interests’ share of J:COM Disposal Group net assets | | (2,910.9 | ) |
| | 1,747.6 | |
Pre-tax gain | | 2,105.0 | |
Income taxes related to sale (b): | | | |
Current deferred tax assets | | 4.8 | |
Current taxes payable | | (714.1 | ) |
Long-term deferred tax liabilities | | 211.4 | |
Long-term tax liability | | (136.9 | ) |
Additional paid-in capital | | (32.1 | ) |
| | (666.9 | ) |
Total decrease to accumulated deficit related to the J:COM Transactions | | $ | 1,438.1 | |
(a) For accounting purposes, the purchase of the 14.25% noncontrolling interest in Liberty Jupiter and the sale of the J:COM Disposal Group have been viewed as one transaction. Accordingly, the excess of the $32.0 million purchase price over the $22.2 million carrying value of the noncontrolling interests in Liberty Jupiter has been reflected as a reduction of the pre-tax gain on the sale of the J:COM Disposal Group.
(b) Represents the income tax effects of the sale of the J:COM Disposal Group based on a blended statutory tax rate of 38.0% and recognized tax attributes in existence at December 31, 2009. We believe that our actual current tax liability associated with the sale of the J:COM Disposal Group will be significantly lower than the current tax liability reflected in our December 31, 2009 unaudited condensed pro forma combined balance sheet. In this regard, based on our current expectations as to (i) the income tax attributes that will be available to us in 2010 and (ii) our other 2010 taxable activities, we believe that the taxable gain on the sale of the J:COM Disposal Group will result in U.S. tax payments during 2010 ranging from $350.0 million to $500.0 million. The increase to additional paid-in capital represents the recognition of previously unrecognized off-balance sheet tax assets related to stock-based compensation that are expected to be realized as a result of the sale of the J:COM Disposal Group.
The net after-tax gain related to the J:COM Transactions of $1,438.1 million has been reflected as a direct decrease to our accumulated deficit in our unaudited condensed pro forma combined balance sheet. Due to its nonrecurring nature, this gain has not been reflected in our unaudited condensed pro forma combined statement of operations for the year ended December 31, 2009. However, the actual amount of this gain will be reflected in our historical condensed consolidated statement of operations for the three months ended March 31, 2010.
F-6
(4) Represents the impacts of repaying the LGJ Holdings Credit Facility, including (i) the repayment of the ¥75 billion ($805.2 million) outstanding principal balance, (ii) the payment of accrued interest of $2.0 million, (iii) cash paid to settle the related interest rate swaps at their $33.3 million fair value, of which $19.0 million and $14.3 million was classified in current and long-term liabilities, respectively, (iv) a $59.5 million decrease to current taxes payable attributable to the reclassification of deferred tax assets associated with the LGJ Holdings Credit Facility and the related interest rate swaps, including $3.5 million and $56.0 million that was classified in current deferred tax assets and long-term deferred tax liabilities, respectively, (v) a $20.3 million loss on extinguishment of debt representing the write-off of related deferred financing costs and (vi) the recognition of a $7.2 million reduction of current taxes payable, representing the tax benefit associated with the debt extinguishment loss based on a blended statutory tax rate of 35.5%. The loss on extinguishment of debt has been reflected, net of the related $7.2 million tax benefit, as a direct increase to our accumulated deficit in our unaudited condensed pro forma combined balance sheet. Due to the nonrecurring nature of this item, this loss has not been reflected in our unaudited condensed pro forma combined statement of operations for the year ended December 31, 2009. However, the actual amount of this loss will be reflected in our historical condensed consolidated statement of operations for the three months ended March 31, 2010.
(5) As described in note 1, the entire excess consideration paid for Unitymedia, after the adjustment to long-term debt and the elimination of Unitymedia’s historical goodwill and deferred financing costs, has been allocated to goodwill. The final allocation will be based upon appraisals and will result in the allocation of consideration to identifiable assets and liabilities, including assets with indefinite lives. To the extent that consideration is allocated to assets with finite lives, the final allocation of the purchase price could result in additional depreciation and/or amortization expense that in turn would result in higher operating losses. For example, if $1.0 billion of the excess consideration had been allocated to property and equipment that has a weighted average life of 10 years, the accompanying unaudited condensed pro forma combined statement of operations for the year ended December 31, 2009 would have reflected (i) an increase in pro forma depreciation and amortization expense of $100.0 million, (ii) an increase in income tax benefit of $31.6 million, (iii) an increase in the pro forma net loss of $68.4 million and (iv) an increase in the pro forma loss per common share of $0.25.
(6) Represents interest expense on the Unitymedia Senior Notes and LGI Convertible Notes and related tax effects for the 2009 period that preceded the November 2009 issuance of these debt instruments, as set forth in the table below (in millions):
Unitymedia Senior Notes: | | | |
Stated interest | | $ | 282.8 | |
Accretion of original issue discount (a) | | 6.0 | |
Amortization of deferred financing costs (b) | | 7.4 | |
Total interest expense | | $ | 296.2 | |
Income tax benefit (c) | | $ | 82.4 | |
| | | |
LGI Convertible Notes: | | | |
Stated interest | | $ | 37.0 | |
Accretion of discount (a) | | 26.6 | |
Amortization of deferred financing costs (b) | | 1.4 | |
Total interest expense | | $ | 65.0 | |
Income tax benefit (c) | | $ | 23.1 | |
| | | |
Totals: | | | |
Interest expense | | $ | 361.2 | |
Income tax benefit | | $ | 105.5 | |
(a) The discount on the LGI Convertible Notes represents the difference between the debt component and the principal amount of the LGI Convertible Notes at the date of issuance, as further described in the head note to these unaudited condensed combined pro forma financial statements. This discount and the original issue discount related to the Unitymedia Senior Notes are amortized over the expected terms of the related debt using the effective interest rate method. The discounts related to the Unitymedia Senior Notes of $62.4 million and $22.4 million are being amortized over
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eight and 10 year terms of the Senior Secured Notes and the Senior Notes, respectively, and the discount related to the LGI Convertible Notes of $308.8 million is being amortized over the seven year term of the LGI Convertible Notes.
(b) Deferred financing costs are amortized over the expected terms of the related debt using the effective interest rate method. Deferred financing costs of $78.3 million and $25.7 million associated with the Unitymedia Senior Notes are being amortized over 8 and 10 year terms of the Senior Secured Notes and the Senior Notes, respectively, and the deferred financing costs of $16.2 million related to the debt component of the LGI Convertible Notes are being amortized over the seven year term of the LGI Convertible Notes.
(c) Income taxes have been provided at a blended statutory rate of 35.5% for the LGI Convertible Notes and at blended statutory rates ranging from 27.6% to 31.6% for the Unitymedia Senior Notes.
(7) Represents the elimination of Unitymedia’s historical interest expense, including accretion of original issue discounts and amortization of deferred financing costs, as a result of the repayment of its existing debt in connection with the Debt Pushdown. Also reflects the elimination of realized and unrealized losses on a foreign currency swap that we were contractually required to settle in connection with the repayment of Unitymedia’s existing debt. The income tax effects of these adjustments have been provided using blended statutory income tax rates ranging from 27.6% to 31.6%.
(8) Represents the elimination of the J:COM Disposal Group’s historical operating results as well as the related noncontrolling interests’ share of the J:COM Disposal Group’s net income. As we were contractually required to use a portion of the proceeds from the sale of the J:COM Disposal Group to repay the LGJ Holdings Credit Facility and settle the related interest rate swaps, the eliminated J:COM Disposal Group amounts include (i) interest expense of $36.1 million related to such debt repayment, (ii) realized and unrealized losses on derivative instruments, net, of $9.3 million related to such interest rate swap settlement and (iii) foreign currency transaction gains of $21.2 million related to the Japanese yen denominated LGJ Credit Facility. The foreign currency transaction gains are included in other non-operating income, net, in the our unaudited condensed pro forma combined statement of operations. The eliminated income tax expense includes $282.9 million of federal and state income tax expense resulting from LGI’s recognition during 2009 of a deferred tax liability associated with the previously unrecorded tax effect of the difference between the financial and tax accounting basis of the J:COM Disposal Group.
(9) Represents the elimination of the historical impacts of the LGJ Holdings Credit Facility from our unaudited pro forma combined statement of operations for the year ended December 31, 2009 as summarized in the table below (in millions):
LGJ Holdings Credit Facility: | | | |
Stated interest | | $ | 29.6 | |
Amortization of deferred financing costs | | 6.5 | |
Total decrease to interest expense | | $ | 36.1 | |
| | | |
Realized and unrealized losses on interest rate swaps | | $ | 9.3 | |
Foreign currency transaction gains | | $ | (21.2 | ) |
Income tax benefit (a) | | $ | (8.6 | ) |
(a) Income taxes have been provided at a blended statutory tax rate of 35.5%.
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(10) Pro forma maturities of our debt and capital lease obligations as of December 31, 2009 are presented in U.S. dollar equivalents in the table below after giving effect to (i) the consolidation of Unitymedia, (ii) the repayment of existing Unitymedia debt, (iii) the sale of the J:COM Disposal Group and (iv) the repayment of the LGJ Holdings Credit Facility as described above (in millions):
| | Debt | | Capital lease
obligations | | Total | |
Year ended December 31: | | | | | | | |
2010 | | 18.5 | | 61.5 | | 80.0 | |
2011 | | 626.1 | | 58.7 | | 684.8 | |
2012 | | 210.9 | | 57.4 | | 268.3 | |
2013 | | 2,248.1 | | 56.3 | | 2,304.4 | |
2014 | | 4,448.9 | | 58.3 | | 4,507.2 | |
Thereafter | | 14,784.8 | | 874.8 | | 15,659.6 | |
Total maturities | | 22,337.3 | | 1,167.0 | | 23,504.3 | |
Fair value adjustment and unamortized discounts | | (473.6 | ) | — | | (473.6 | ) |
Total | | $ | 21,863.7 | | $ | 1,167.0 | | $ | 23,030.7 | |
Current portion | | $ | 18.5 | | $ | 61.5 | | $ | 80.0 | |
Long-term portion | | $ | 21,845.2 | | $ | 1,105.5 | | $ | 22,950.7 | |
(11) The historical amounts of operating, selling, general and administrative expenses for LGI, Unitymedia and the J:COM Disposal Group include stock-based compensation of $129.8 million, $5.5 million and $0.7 million, respectively.
(12) The pro forma loss per common share and the weighted average common shares outstanding have been adjusted to give effect to the shares issued in the Private Placement as if such shares had been issued on January 1, 2009.
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