10-Q 1 lgisept30201210-q.htm 10-Q LGI Sept 30, 2012 10-Q

 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2012
OR
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                     to                    
Commission file number 000-51360
Liberty Global, Inc.
(Exact name of Registrant as specified in its charter)
State of Delaware
 
20-2197030
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
12300 Liberty Boulevard
Englewood, Colorado
 
80112
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code:
(303) 220-6600
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ         No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  þ        No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer  þ Accelerated Filer ¨  
Non-Accelerated Filer (Do not check if a smaller reporting company) ¨  Smaller Reporting Company  ¨
Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act.    Yes  ¨        No  þ
The number of outstanding shares of Liberty Global, Inc.’s common stock as of October 29, 2012 was:
Series A common stock — 144,191,964 shares;
Series B common stock — 10,206,645 shares; and
Series C common stock — 108,343,827 shares.
 


LIBERTY GLOBAL, INC.
INDEX
 
 
 
Page
Number
 
PART I — FINANCIAL INFORMATION
 
ITEM 1.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 
 
 
 
 
 
ITEM 2.
ITEM 3.
ITEM 4.
 
PART II — OTHER INFORMATION
 
ITEM 2.
ITEM 6.



LIBERTY GLOBAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
 
 
September 30,
2012
 
December 31,
2011
 
in millions
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
3,317.3

 
$
1,651.2

Trade receivables, net
784.6

 
910.5

Deferred income taxes
104.1

 
345.2

Current assets of discontinued operation (note 2)
—

 
275.6

Other current assets (note 4)
541.0

 
592.6

Total current assets
4,747.0

 
3,775.1

Investments (including $974.8 million and $970.1 million, respectively, measured at fair value) (notes 3 and 5)
977.2

 
975.2

Property and equipment, net (note 6)
12,924.3

 
12,868.4

Goodwill (note 6)
13,426.2

 
13,289.3

Intangible assets subject to amortization, net (note 6)
2,504.1

 
2,812.5

Long-term assets of discontinued operation (note 2)
—

 
770.1

Other assets, net (note 4)
2,038.6

 
1,918.6

Total assets
$
36,617.4

 
$
36,409.2

 


























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

1

LIBERTY GLOBAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS — (Continued)
(unaudited)
 
 
September 30,
2012
 
December 31,
2011
 
in millions
LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
558.7

 
$
645.7

Deferred revenue and advance payments from subscribers and others
645.3

 
847.6

Accrued programming
245.1

 
213.1

Accrued interest
323.4

 
295.4

Derivative instruments (note 4)
513.6

 
601.2

Current portion of debt and capital lease obligations (note 7)
292.4

 
184.1

Current liabilities of discontinued operation (note 2)
—

 
114.1

Other accrued and current liabilities
1,288.4

 
1,268.6

Total current liabilities
3,866.9

 
4,169.8

Long-term debt and capital lease obligations (note 7)
26,169.1

 
24,573.8

Long-term liabilities of discontinued operation (note 2)
—

 
746.5

Other long-term liabilities (note 4)
3,933.5

 
3,987.7

Total liabilities
33,969.5

 
33,477.8

Commitments and contingencies (notes 2, 4, 7 and 13)

 

Equity (note 9):
 
 
 
LGI stockholders:
 
 
 
Series A common stock, $.01 par value. Authorized 500,000,000 shares; issued and outstanding 144,806,371 and 146,266,629 shares, respectively
1.5

 
1.5

Series B common stock, $.01 par value. Authorized 50,000,000 shares; issued and outstanding 10,206,645 and 10,239,144 shares, respectively
0.1

 
0.1

Series C common stock, $.01 par value. Authorized 500,000,000 shares; issued and outstanding 109,373,352 and 118,470,699 shares, respectively
1.1

 
1.2

Additional paid-in capital
3,268.5

 
3,964.6

Accumulated deficit
(2,017.4
)
 
(2,671.5
)
Accumulated other comprehensive earnings, net of taxes
1,598.6

 
1,509.5

Total LGI stockholders
2,852.4

 
2,805.4

Noncontrolling interests
(204.5
)
 
126.0

Total equity
2,647.9

 
2,931.4

Total liabilities and equity
$
36,617.4

 
$
36,409.2











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

2

LIBERTY GLOBAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
 
Three months ended
 
Nine months ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
 
in millions, except share and per share amounts
 
 
 
 
 
 
 
 
Revenue (note 12)
$
2,519.1

 
$
2,418.8

 
$
7,580.6

 
$
7,106.3

Operating costs and expenses:
 
 
 
 
 
 
 
Operating (other than depreciation and amortization) (including stock-based compensation) (notes 10 and 12)
859.0

 
843.0

 
2,644.0

 
2,511.0

Selling, general and administrative (SG&A) (including stock-based compensation) (notes 10 and 12)
462.6

 
445.4

 
1,411.9

 
1,318.2

Depreciation and amortization
670.3

 
629.3

 
2,009.7

 
1,838.3

Impairment, restructuring and other operating items, net (note 2)
18.1

 
17.9

 
32.6

 
28.5

 
2,010.0

 
1,935.6

 
6,098.2

 
5,696.0

Operating income
509.1

 
483.2

 
1,482.4

 
1,410.3

Non-operating income (expense):
 
 
 
 
 
 
 
Interest expense
(408.6
)
 
(364.3
)
 
(1,228.8
)
 
(1,086.9
)
Interest and dividend income
17.8

 
28.4

 
38.7

 
62.4

Realized and unrealized gains (losses) on derivative instruments, net (note 4)
(237.2
)
 
355.1

 
(613.9
)
 
(104.0
)
Foreign currency transaction gains (losses), net
150.2

 
(787.1
)
 
154.8

 
(197.9
)
Realized and unrealized losses due to changes in fair values of certain investments and debt, net (notes 3 and 5)
(18.1
)
 
(63.4
)
 
(1.3
)
 
(205.9
)
Losses on debt modification, extinguishment and conversion, net (note 7)
(13.8
)
 
(12.3
)
 
(27.5
)
 
(218.7
)
Gains due to changes in ownership (note 2)
52.5

 
—

 
52.5

 
—

Other income (expense), net
3.4

 
(0.8
)
 
(0.6
)
 
(6.0
)
 
(453.8
)
 
(844.4
)
 
(1,626.1
)
 
(1,757.0
)
Earnings (loss) from continuing operations before income taxes
55.3

 
(361.2
)
 
(143.7
)
 
(346.7
)
Income tax benefit (expense) (note 8)
(61.1
)
 
4.4

 
(106.0
)
 
(22.6
)
Loss from continuing operations
(5.8
)
 
(356.8
)
 
(249.7
)
 
(369.3
)
Discontinued operation (note 2):
 
 
 
 
 
 
 
Earnings from discontinued operation, net of taxes
—

 
12.8

 
35.5

 
118.6

Gain on disposal of discontinued operation, net of taxes
—

 
—

 
924.1

 
—

 
—

 
12.8

 
959.6

 
118.6

Net earnings (loss)
(5.8
)
 
(344.0
)
 
709.9

 
(250.7
)
Net loss (earnings) attributable to noncontrolling interests
(16.6
)
 
10.9

 
(55.8
)
 
(87.0
)
Net earnings (loss) attributable to LGI stockholders
$
(22.4
)
 
$
(333.1
)
 
$
654.1

 
$
(337.7
)
 
 
 
 
 
 
 
 
Basic and diluted earnings (loss) attributable to LGI stockholders per share — Series A, Series B and Series C common stock (note 11):
 
 
 
 
 
 
 
Continuing operations
$
(0.08
)
 
$
(1.21
)
 
$
(1.06
)
 
$
(1.55
)
Discontinued operation
—

 
0.03

 
3.49

 
0.25

 
$
(0.08
)
 
$
(1.18
)
 
$
2.43

 
$
(1.30
)
 
 
 
 
 
 
 
 
Weighted average common shares outstanding - basic and diluted
265,597,642

 
282,326,579

 
269,309,700

 
259,617,186

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

3

LIBERTY GLOBAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS)
(unaudited)
 
 
Three months ended
 
Nine months ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
 
in millions
 
 
 
 
 
 
 
 
Net earnings (loss)
$
(5.8
)
 
$
(344.0
)
 
$
709.9

 
$
(250.7
)
Other comprehensive earnings (loss), net of taxes:
 
 
 
 
 
 
 
Foreign currency translation adjustments
14.3

 
(36.1
)
 
106.9

 
93.5

Reclassification adjustments included in net earnings (note 2)
—

 
—

 
(12.0
)
 
—

Other
—

 
(11.9
)
 
0.4

 
(18.0
)
Other comprehensive earnings (loss)
14.3

 
(48.0
)
 
95.3

 
75.5

Comprehensive earnings (loss)
8.5

 
(392.0
)
 
805.2

 
(175.2
)
Comprehensive loss (earnings) attributable to noncontrolling interests
(21.1
)
 
13.7

 
(62.0
)
 
(65.8
)
Comprehensive earnings (loss) attributable to LGI stockholders
$
(12.6
)
 
$
(378.3
)
 
$
743.2

 
$
(241.0
)






























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

4

LIBERTY GLOBAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF EQUITY
(unaudited)
 
 
LGI stockholders
 
Non-controlling
interests
 
Total
equity
 
Common stock
 
Additional
paid-in
capital
 
Accumulated
deficit
 
Accumulated
other
comprehensive
earnings,
net of taxes
 
Total LGI
stockholders
 
 
Series A
 
Series B
 
Series C
 
 
in millions
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2012
$
1.5

 
$
0.1

 
$
1.2

 
$
3,964.6

 
$
(2,671.5
)
 
$
1,509.5

 
$
2,805.4

 
$
126.0

 
$
2,931.4

Net earnings
—

 
—

 
—

 
—

 
654.1

 
—

 
654.1

 
55.8

 
709.9

Other comprehensive earnings, net of taxes
—

 
—

 
—

 
—

 
—

 
89.1

 
89.1

 
6.2

 
95.3

Repurchase and cancellation of LGI common stock (note 9)
—

 
—

 
(0.1
)
 
(620.2
)
 
—

 
—

 
(620.3
)
 
—

 
(620.3
)
LGI call option contracts (note 9)
—

 
—

 
—

 
(45.3
)
 
—

 
—

 
(45.3
)
 
—

 
(45.3
)
Stock-based compensation (note 10)
—

 
—

 
—

 
56.5

 
—

 
—

 
56.5

 
—

 
56.5

Telenet Share Repurchase Agreement (note 9)
—

 
—

 
—

 
(62.8
)
 
—

 
—

 
(62.8
)
 
2.2

 
(60.6
)
Sale of Austar (note 2)
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(84.4
)
 
(84.4
)
Distributions by subsidiaries to noncontrolling interest owners (note 9)
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(349.2
)
 
(349.2
)
Adjustments due to changes in subsidiaries’ equity and other, net
—

 
—

 
—

 
(24.3
)
 
—

 
—

 
(24.3
)
 
38.9

 
14.6

Balance at September 30, 2012
$
1.5

 
$
0.1

 
$
1.1

 
$
3,268.5

 
$
(2,017.4
)
 
$
1,598.6

 
$
2,852.4

 
$
(204.5
)
 
$
2,647.9









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

5

LIBERTY GLOBAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 
 
Nine months ended
 
September 30,
 
2012
 
2011
 
in millions
Cash flows from operating activities:
 
 
 
Net earnings (loss)
$
709.9

 
$
(250.7
)
Earnings from discontinued operation
(959.6
)
 
(118.6
)
Loss from continuing operations
(249.7
)
 
(369.3
)
Adjustments to reconcile loss from continuing operations to net cash provided by operating activities:
 
 
 
Stock-based compensation expense
90.5

 
105.7

Depreciation and amortization
2,009.7

 
1,838.3

Impairment, restructuring and other operating items, net
32.6

 
28.5

Amortization of deferred financing costs and non-cash interest accretion
47.8

 
64.3

Realized and unrealized losses on derivative instruments, net
613.9

 
104.0

Foreign currency transaction (gains) losses, net
(154.8
)
 
197.9

Realized and unrealized losses due to changes in fair values of certain investments and debt, net of dividends
6.9

 
215.8

Losses on debt modification, extinguishment and conversion, net
27.5

 
218.7

Deferred income tax expense (benefit)
156.3

 
(63.7
)
Excess tax benefits from stock-based compensation
(3.7
)
 
(33.3
)
Gains due to changes in ownership
(52.5
)
 
—

Changes in operating assets and liabilities, net of the effects of acquisitions and dispositions
(699.5
)
 
(581.8
)
Net cash provided by operating activities of discontinued operation
61.2

 
133.4

Net cash provided by operating activities
1,886.2

 
1,858.5

Cash flows from investing activities:
 
 
 
Capital expenditures
(1,450.7
)
 
(1,415.7
)
Proceeds received upon disposition of discontinued operation
1,055.4

 
—

Cash paid in connection with acquisitions, net of cash acquired
(119.2
)
 
(832.2
)
Investments in and loans to affiliates
(81.0
)
 
(29.6
)
Increase in escrow account
—

 
(1,649.3
)
Decrease in escrow account
—

 
143.0

Other investing activities, net
39.6

 
35.7

Net cash provided (used) by investing activities of discontinued operation
(260.6
)
 
42.1

Net cash used by investing activities
$
(816.5
)
 
$
(3,706.0
)
 







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

6

LIBERTY GLOBAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)
(unaudited)
 
 
Nine months ended
 
September 30,
 
2012
 
2011
 
in millions
Cash flows from financing activities:
 
 
 
Borrowings of debt
$
4,142.2

 
$
4,263.0

Repayments and repurchases of debt and capital lease obligations
(2,595.7
)
 
(3,392.6
)
Repurchase of LGI common stock
(617.2
)
 
(790.2
)
Distributions by subsidiaries to noncontrolling interests
(325.3
)
 
(388.5
)
Net cash paid related to derivative instruments
(113.1
)
 
(33.8
)
Payment of financing costs, debt premiums and exchange offer consideration
(70.6
)
 
(234.5
)
Change in cash collateral
60.5

 
—

Payment of net settled employee withholding taxes on stock incentive awards
(34.1
)
 
(77.5
)
Excess tax benefits from stock-based compensation
3.7

 
33.3

Other financing activities, net
(70.7
)
 
25.8

Net cash used by financing activities of discontinued operation
—

 
(102.5
)
Net cash provided (used) by financing activities
379.7

 
(697.5
)
Effect of exchange rate changes on cash:
 
 
 
Continuing operations
17.3

 
62.2

Discontinued operation
(9.5
)
 
11.9

Total
7.8

 
74.1

Net increase (decrease) in cash and cash equivalents:
 
 
 
Continuing operations
1,666.1

 
(2,555.8
)
Discontinued operation
(208.9
)
 
84.9

Net increase (decrease) in cash and cash equivalents
1,457.2

 
(2,470.9
)
Cash and cash equivalents:
 
 
 
Beginning of period
1,651.2

 
3,847.5

End of period
$
3,317.3

 
$
1,376.6

 
 
 
 
Cash paid for interest:
 
 
 
Continuing operations
$
1,147.7

 
$
948.4

Discontinued operation
29.0

 
42.5

Total
$
1,176.7

 
$
990.9

Net cash paid for taxes - continuing operations
$
8.0

 
$
34.6










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

7


LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements
September 30, 2012
(unaudited)



(1)    Basis of Presentation

Liberty Global, Inc. (LGI) is an international provider of video, broadband internet and telephony services, with consolidated operations at September 30, 2012 in 13 countries, primarily in Europe and Chile. In these notes, the terms “we,” “our,” “our company,” and “us” may refer, as the context requires, to LGI or collectively to LGI and its subsidiaries.

Our European and Chilean operations are conducted through our wholly-owned subsidiary, Liberty Global Europe Holding BV (Liberty Global Europe). Through Liberty Global Europe's wholly-owned subsidiary, UPC Holding BV (UPC Holding), we provide video, broadband internet and telephony services in nine European countries and in Chile. The European broadband communications and direct-to-home satellite (DTH) operations of UPC Holding and the broadband communications operations in Germany of Unitymedia KabelBW GmbH (formerly known as Unitymedia GmbH) (Unitymedia KabelBW), another wholly-owned subsidiary of Liberty Global Europe, are collectively referred to herein as the "UPC/Unity Division." UPC Holding's broadband communications operations in Chile are provided through its 80%-owned subsidiary, VTR Global Com SA (VTR). In May 2012, through our 80%-owned subsidiary, VTR Wireless SA (VTR Wireless), we began offering mobile services in Chile through a combination of our own wireless network and certain third-party wireless access arrangements. The operations of VTR and VTR Wireless are collectively referred to as the "VTR Group." Through Liberty Global Europe's 50.2%-owned subsidiary, Telenet Group Holding NV (Telenet), we provide video, broadband internet and telephony services in Belgium. On September 19, 2012 and as further described in note 2, we announced our intention to launch an offer to acquire all of the outstanding shares of Telenet that we do not already own. Our operations also include (i) consolidated broadband communications operations in Puerto Rico and (ii) consolidated interests in certain programming businesses in Europe and Latin America. Our consolidated programming interests in Europe and Latin America are primarily held through Chellomedia BV (Chellomedia), another wholly-owned subsidiary of Liberty Global Europe that also owns or manages investments in various other businesses, primarily in Europe. Certain of Chellomedia's subsidiaries and affiliates provide programming services to certain of our broadband communications operations, primarily in Europe.

On May 23, 2012, we completed the sale of our then 54.15%-owned subsidiary, Austar United Communications Limited (Austar), a provider of DTH services in Australia. Accordingly, Austar is reflected as a discontinued operation in our condensed consolidated balance sheet as of December 31, 2011 and our condensed consolidated statements of operations and cash flows for all periods presented, and the amounts presented in these notes relate only to our continuing operations unless otherwise indicated. For additional information regarding the disposition of Austar, see note 2.

Our 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 financial statements do not include all of the information required by GAAP or Securities and Exchange Commission (SEC) rules and regulations for complete financial statements. In the opinion of management, these financial statements reflect all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the results of operations for the interim periods presented. The results of operations for any interim period are not necessarily indicative of results for the full year. These unaudited condensed consolidated financial statements should be read in conjunction with our 2011 consolidated financial statements and notes thereto included in our 2011 Annual Report on Form 10-K.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Estimates and assumptions are used in accounting for, among other items, the valuation of acquisition-related assets and liabilities, allowances for uncollectible accounts, deferred income taxes and related valuation allowances, loss contingencies, fair value measurements, impairment assessments, capitalization of internal costs associated with construction and installation activities, useful lives of long-lived assets and stock-based compensation. Actual results could differ from those estimates.

Unless otherwise indicated, ownership percentages and convenience translations into United States (U.S.) dollars are calculated as of September 30, 2012.

Certain prior period amounts have been reclassified to conform to the current year presentation.

8

LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
September 30, 2012
(unaudited)



(2)    Acquisitions and Dispositions

2012 Pending Acquisitions

Telenet. On September 19, 2012, one of our wholly-owned subsidiaries (the Bidder) announced its intention to launch a voluntary and conditional cash public offer (the LGI Telenet Tender) for (i) all of Telenet's issued shares that the Bidder does not already own or that are not held by Telenet (the Telenet Bid Shares) and (ii) certain outstanding vested and unvested employee warrants (the Telenet Bid Warrants). The intended offer price for the Telenet Bid Shares is €35.00 ($45.06) per share. The intended offer prices for the Telenet Bid Warrants are expected to be calculated using the Black Scholes option pricing model and a price of €35.00 per Telenet Bid Share. We currently expect that the LGI Telenet Tender will be launched in November 2012.

The completion of the LGI Telenet Tender is subject to certain conditions, which may be waived by the Bidder either in whole or in part. If (a) as a result of the LGI Telenet Tender, we and our affiliates collectively hold at least 95% of the issued Telenet shares and (b) the Bidder acquires at least 90% of the Telenet Bid Shares, the Bidder will be permitted under Belgian law to proceed with a "squeeze out" transaction, whereby it would acquire the remaining Telenet Bid Shares and Telenet Bid Warrants that it did not acquire under the LGI Telenet Tender. In addition, following the completion of the LGI Telenet Tender and subject to the relevant legal requirements being met, we intend to request that Telenet's shares be delisted from the NYSE Euronext Brussels Stock Exchange.

If, pursuant to the LGI Telenet Tender, the Bidder acquires all of the Telenet Bid Shares and Telenet Bid Warrants, we would pay an aggregate amount of €2,040.5 million ($2,627.1 million) based on the number of Telenet Bid Shares and Telenet Bid Warrants outstanding at September 30, 2012 and excluding estimated fees and expenses. We expect to use our existing cash and cash equivalents (exclusive of cash and cash equivalents held by Telenet) and borrowings under a new €925.0 million ($1,190.9 million) facility agreement (the Telenet TO Facility) that was entered into on October 12, 2012 to fund the LGI Telenet Tender. The Telenet TO Facility (i) bears interest at a rate of EURIBOR plus 2.00%, (ii) is secured by the current and future shares of Telenet owned by the Bidder and (iii) has a maturity date of April 12, 2013, which may be extended for an additional three-month period. We expect to repay the Telenet TO Facility with a combination of our and Telenet's cash and cash equivalents following the completion of the LGI Telenet Tender. In connection with the launch of the LGI Telenet Tender, we are required to place cash into a restricted account to secure the portion of the aggregate offer consideration that is not secured by the Telenet TO Facility.

The prospectus setting out the terms of the LGI Telenet Tender is subject to approval by the applicable Belgian regulatory authority. No further regulatory approvals are required in connection with the completion of the LGI Telenet Tender.

For information regarding a self-tender offer initiated by Telenet in August 2012 and the impact of the LGI Telenet Tender on such self-tender offer, see note 9.

Puerto Rico. On June 26, 2012, one of our subsidiaries, LGI Broadband Operations, Inc. (LGI Broadband Operations), agreed with certain investment funds affiliated with Searchlight Capital Partners L.P. (Searchlight) to enter into a series of transactions (collectively, the Puerto Rico Transaction) that will result in their joint ownership of (i) Liberty Cablevision of Puerto Rico LLC (Liberty Puerto Rico), a subsidiary of LGI Broadband Operations, and (ii) San Juan Cable LLC, doing business as OneLink Communications (OneLink), a broadband communications operator in Puerto Rico. The Puerto Rico Transaction assigns an enterprise value to OneLink of $585.3 million before transaction costs.
Immediately prior to the acquisition of OneLink, LGI Broadband Operations will contribute its 100% interest in Liberty Puerto Rico, and Searchlight will contribute cash, to Leo LP, a newly formed entity. Leo LP will in turn use the cash contributed by Searchlight to fund the acquisition of 100% of the equity of OneLink from a third party for a purchase price of $87.3 million, subject to closing adjustments that generally are meant to increase the purchase price for the cash that is expected to be generated by OneLink from April 1, 2012 through the closing date. Upon completion of the Puerto Rico Transaction, (i) Leo LP will be 60%-owned by LGI Broadband Operations and 40%-owned by Searchlight and (ii) LGI Broadband Operations will have a controlling financial interest in, and will consolidate, Leo LP. We expect that the Puerto Rico Transaction will close in November 2012.
As further described in note 7, Liberty Puerto Rico entered into a new bank credit facility in August 2012, consisting of a $175.0 million term loan and a $10.0 million revolving credit facility. Upon completion of the Puerto Rico Transaction, (i) borrowings under the new term loan will become a new pari passu tranche of OneLink's existing bank credit facility, with OneLink as the borrower, and (ii) any outstanding borrowings under the new revolving credit facility will be repaid and the new revolving credit facility will be canceled.

9

LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
September 30, 2012
(unaudited)



2012 Acquisition

MGM TV. On July 30, 2012, a wholly-owned subsidiary of Chellomedia paid cash consideration of $72.2 million (including working capital adjustments, but before considering cash acquired of $8.0 million) to acquire MGM Networks, Inc. (MGM TV), an entity that owns and operates certain television channels distributed in Latin America and certain other countries outside of the U.S. (the MGM Acquisition). MGM TV's assets include an investment in MGM Networks Latin America LLC (MGM Latin America), an equity method joint venture that was then 50%-owned by one of our subsidiaries. In connection with the MGM Acquisition, we recognized a gain of $36.8 million, representing the excess of the fair value over the carrying value of our investment in MGM Latin America.

2011 Acquisitions

KBW. On December 15, 2011, UPC Germany HoldCo 2 GmbH (UPC Germany HC2), our then indirect subsidiary, acquired all of the outstanding shares of Kabel BW Musketeer GmbH (KBW Musketeer) pursuant to a sale and purchase agreement dated March 21, 2011 (the KBW Purchase Agreement) with Oskar Rakso S.àr.l. (Oskar Rakso) as the seller (the KBW Acquisition). KBW Musketeer was the indirect parent company of Kabel BW GmbH (KBW), Germany's third largest cable television operator in terms of number of subscribers. At closing, Oskar Rakso transferred its KBW Musketeer shares and assigned the balance of a loan receivable from KBW Musketeer to UPC Germany HC2 in consideration of UPC Germany HC2's payment of €1,062.4 million ($1,381.9 million at the transaction date) in cash (the KBW Purchase Price). The KBW Purchase Price, together with KBW's consolidated net debt at December 15, 2011 (aggregate fair value of debt and capital lease obligations outstanding less cash and cash equivalents) of €2,352.9 million ($3,060.7 million at the transaction date) resulted in total consideration of €3,415.3 million ($4,442.6 million at the transaction date) before direct acquisition costs. As part of an internal reorganization that was effected through a series of mergers and consolidations, KBW Musketeer and its immediate subsidiary, Kabel BW Erste Beteiligungs GmbH, were merged into UPC Germany HC2 and UPC Germany HC2 was subsequently merged into KBW. As a result of these transactions, which were effective upon registration in March 2012, UPC Germany HoldCo 1 GmbH (UPC Germany HC1) became the immediate parent company of KBW and the issuer of the KBW Senior Notes (as defined and described in note 7). As further described in note 7, we completed certain reorganization, debt exchange and debt redemption transactions in May 2012 that resulted in the immediate parent company of UPC Germany HC1 becoming part of the Unitymedia KabelBW consolidated borrowing group. Additionally, UPC Germany HC1 was merged into KBW in August 2012.

The KBW Acquisition was subject to approval by the Federal Cartel Office (FCO) in Germany, which approval was received in December 2011 upon final agreement of certain commitments we made to address the competition concerns of the FCO, as outlined below:

(a)
The basic digital television channels (as opposed to channels marketed in premium subscription packages) distributed on Unitymedia KabelBW's network will be distributed in unencrypted form commencing January 1, 2013.  This commitment is consistent with the current practice in the KBW footprint and generally covers free-to-air television channels in standard definition and high definition (HD). If, however, free-to-air television broadcasters request their HD content to be distributed in an encrypted HD package, the encryption of free-to-air HD channels is still possible. In addition, we made a commitment that, through December 31, 2016, the annual carriage fees Unitymedia KabelBW receives for each such free-to-air television channel distributed in digital or simulcast in digital and analog would not exceed a specified annual amount, determined by applying the applicable rate card systems of Unitymedia KabelBW as of January 1, 2012;

(b)
Effective January 1, 2012, Unitymedia KabelBW waived its exclusivity rights in access agreements with housing associations with respect to the usage of infrastructures other than its in-building distribution networks to provide television, broadband internet or telephony services within the building;

(c)
Effective January 1, 2012, upon expiration of the minimum term of an access agreement with a housing association, Unitymedia KabelBW will transfer the ownership rights to the in-building distribution network to the building owner or other party granting access. In addition, Unitymedia KabelBW waived its right to remove its in-building distribution networks; and

(d)
A special early termination right was granted with respect to certain of Unitymedia KabelBW's existing access agreements with the largest housing associations that cover more than 800 dwelling units and which had a remaining term of more than three years as of December 15, 2011.  The total number of dwelling units covered by the affected agreements was approximately 340,000 as of December 15, 2011.  The special termination right may be exercised on or before September 30 of each calendar

10

LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
September 30, 2012
(unaudited)



year up to the expiration of the current contract term, with termination effective as of January 1 or July 1 of the following year. If the special termination right is exercised, compensation will be paid to partially reimburse Unitymedia KabelBW for its unamortized investments in modernizing the in-building network based on an agreed formula.  Even if Unitymedia KabelBW is successful in obtaining renewals of agreements that are subject to this special termination right, any renewed contracts may contain pricing and other provisions that are less favorable to Unitymedia KabelBW than those in previous agreements.   

In January 2012, two competitors of our German cable business, including the incumbent telecommunications operator, each filed an appeal against the FCO regarding its decision to approve the KBW Acquisition. We believe that the FCO's decision will ultimately be upheld and we currently intend to support the FCO in defending the decision. In addition, we do not expect that the filing of these appeals will have any impact on the ongoing integration and development of our operations in Germany. The ultimate resolution of this matter is expected to take up to four years, including the appeals process.

The FCO has communicated to us that it is reviewing customary practices regarding the duration of contracts with multiple dwelling units for analog television services, including with respect to one such contract that the FCO had previously identified between Unitymedia KabelBW and a landlord as potentially being subject to amendment by order. The FCO indicated that the contract term of 10 years may be an infringement of European and German antitrust laws and that it is inclined to open a test case that could set a precedent for all (or almost all) market participants. We cannot predict the outcome of these FCO proceedings, however, any FCO decision that would limit the duration of our contracts with multiple dwelling units could have a material adverse impact on the financial condition and results of operations of Unitymedia KabelBW.

We have accounted for the KBW Acquisition using the acquisition method of accounting, whereby the total purchase price was allocated to the acquired identifiable net assets based on assessments of their respective fair values, and the excess of the purchase price over the fair values of these identifiable net assets was allocated to goodwill. The acquisition accounting for KBW as reflected in these condensed consolidated financial statements reflects our final assessment of the fair values of the acquired identifiable assets and liabilities.

Aster. On September 16, 2011, a subsidiary of UPC Holding paid total cash consideration equal to PLN 2,445.7 million ($784.7 million at the transaction date) in connection with its acquisition of a 100% equity interest in Aster Sp. z.o.o. (Aster), a broadband communications provider in Poland (the Aster Acquisition).  The total cash consideration, which UPC Holding initially funded with available cash and cash equivalents, included the equivalent of PLN 1,602.3 million ($513.5 million at the transaction date) that was used to repay Aster's debt immediately prior to our acquisition of Aster's equity and excludes direct acquisition costs of $6.3 million. 


11

LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
September 30, 2012
(unaudited)



Pro Forma Information

The following unaudited pro forma condensed operating results for the three and nine months ended September 30, 2011 give effect to (i) the KBW Acquisition and (ii) the Aster Acquisition, as if they had been completed as of January 1, 2010. No effect has been given to the MGM Acquisition since it would not have had a significant impact on our results of operations for the three and nine months ended September 30, 2012 and 2011. These pro forma amounts are not necessarily indicative of the operating results that would have occurred if these transactions had occurred on such date. The pro forma adjustments are based on certain assumptions that we believe are reasonable.

 
Three months ended
 
Nine months ended
 
September 30, 2011
 
September 30, 2011
 
in millions, except per share amounts
Revenue:
 
 
 
Continuing operations
$
2,663.9

 
$
7,839.5

Discontinued operation
189.1

 
552.5

Total
$
2,853.0

 
$
8,392.0

Net loss attributable to LGI stockholders
$
(374.2
)
 
$
(381.9
)
Basic and diluted loss attributable to LGI stockholders per share — Series A, Series B and Series C common stock
$
(1.33
)
 
$
(1.47
)

Dispositions

Austar. On July 11, 2011, our company and Austar entered into agreements with certain third parties (collectively, FOXTEL) pursuant to which FOXTEL agreed to acquire 100% of Austar's ordinary shares through a series of transactions (the Austar Transaction), one of which involved our temporary acquisition of the 45.85% of Austar's ordinary shares held by the noncontrolling shareholders (the Austar NCI Acquisition). On April 26, 2012, pursuant to the terms of the Austar NCI Acquisition, all of the shares of Austar that we did not already own were acquired by a new wholly-owned subsidiary of LGI (LGI Austar Holdco), with funding provided by a loan from FOXTEL. On May 23, 2012, FOXTEL acquired 100% of Austar from LGI Austar Holdco for AUD 1.52 ($1.50 at the transaction date) per share in cash, which represented a total equity sales price of AUD 1,932.7 million ($1,906.6 million at the transaction date) for the 100% interest in Austar (based on Austar ordinary shares outstanding at the transaction date) or AUD 1,046.5 million for our 54.15% interest in Austar. Upon completion of these transactions and excluding proceeds related to the Austar NCI Acquisition shares acquired in the Austar NCI Acquisition, our company realized cash proceeds equivalent to $1,056.1 million after taking into account applicable foreign currency forward contracts and before considering (i) cash paid for disposal costs and (ii) the Austar cash and cash equivalents of AUD 222.6 million ($220.5 million at the transaction date) that were included in the net assets transferred to FOXTEL. The transfer of Austar's cash and cash equivalents to FOXTEL is included in net cash used by investing activities of discontinued operation in our condensed consolidated statement of cash flows for the nine months ended September 30, 2012.

In connection with the sale of Austar, we recognized a pre-tax gain of $928.2 million that includes (i) cumulative foreign currency translation gains of $22.6 million and (ii) cumulative cash flow hedge losses of $15.1 million, each of which have been reclassified to net earnings from accumulated other comprehensive earnings. The associated deferred income tax expense of $4.1 million differs from the amount computed by applying the U.S. federal income tax rate of 35% due primarily to the fact that (i) the Austar Transaction was not subject to taxation in Australia and (ii) most elements of the Austar Transaction were not subject to taxation in the U.S. This gain, net of income taxes, is included in gain on disposal of discontinued operation, net of taxes, in our condensed consolidated statement of operations for the nine months ended September 30, 2012.

Effective December 31, 2011, we concluded that it was probable that all substantive conditions precedent to the closing of the Austar Transaction would be satisfied, and accordingly, we began reporting Austar as a discontinued operation in our condensed consolidated financial statements as of that date.


12

LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
September 30, 2012
(unaudited)



Austar's historical operating results, which are included in earnings from discontinued operation, net of taxes, in our condensed consolidated statements of operations, are summarized in the following table:
 
Three months
 
 
 
 
 
ended
 
Nine months ended
 
September 30,
 
September 30,
 
2011
 
2012 (a)
 
2011
 
in millions
 
 
 
 
 
 
Revenue
$
189.1

 
$
293.7

 
$
552.5

Operating income
$
38.8

 
$
78.7

 
$
220.2

Earnings before income taxes and noncontrolling interests
$
18.3

 
$
49.6

 
$
166.6

Income tax expense
$
5.5

 
$
14.1

 
$
48.0

Earnings from discontinued operation attributable to LGI stockholders, net of taxes
$
7.2

 
$
15.6

 
$
65.1

_______________

(a)
Represents the operating results of Austar through May 23, 2012, the date the Austar Transaction was completed.

Austar Spectrum License Sale. On February 16, 2011, Austar sold a wholly-owned subsidiary that owned certain spectrum licenses. Total sales consideration was AUD 119.4 million ($120.9 million at the transaction date), consisting of cash consideration of AUD 57.4 million ($58.1 million at the transaction date) for the share capital and a cash payment to Austar of AUD 62.0 million ($62.8 million at the transaction date) representing the repayment of the sold subsidiary's intercompany debt. In connection with the Austar spectrum license sale, Austar recognized a pre-tax gain of $115.3 million during the first quarter of 2011, which is included in earnings from discontinued operation, net of taxes, in our condensed consolidated statement of operations for the nine months ended September 30, 2011.

(3)    Investments

The details of our investments are set forth below:
 
Accounting Method
 
September 30,
2012
 
December 31,
2011
 
in millions
Fair value:
 
 
 
Sumitomo (a)
$
616.9

 
$
617.9

Other (b)
357.9

 
352.2

Total - fair value
974.8

 
970.1

Equity
1.9

 
4.5

Cost
0.5

 
0.6

Total
$
977.2

 
$
975.2

_______________ 

(a)
At September 30, 2012, we owned 45,652,043 shares of Sumitomo Corporation (Sumitomo) common stock. Our Sumitomo shares represented less than 5% of Sumitomo’s outstanding common stock at September 30, 2012. These shares secure a loan (the Sumitomo Collar Loan) to Liberty Programming Japan LLC, our wholly-owned subsidiary.

(b)
Includes various fair value investments, the most significant of which is our 25.0% interest in Canal+ Cyfrowy Sp zoo (Cyfra+), a privately-held DTH operator in Poland. During the second quarter of 2012 and 2011, we received dividends from Cyfra+ of $4.1 million and $7.9 million, respectively. These dividends have been reflected as reductions of our investment in Cyfra+.

13

LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
September 30, 2012
(unaudited)




(4)    Derivative Instruments

Through our subsidiaries, we have entered into various derivative instruments to manage interest rate exposure and foreign currency exposure with respect to the U.S. dollar ($), the euro (€), the Czech koruna (CZK), the Hungarian forint (HUF), the Polish zloty (PLN), the Romanian lei (RON), the Swiss franc (CHF), the Chilean peso (CLP) and the British pound sterling (£). We generally do not apply hedge accounting to our derivative instruments. Accordingly, changes in the fair values of most of our derivative instruments are recorded in realized and unrealized gains or losses on derivative instruments, net, in our condensed consolidated statements of operations.

The following table provides details of the fair values of our derivative instrument assets and liabilities:
 
 
September 30, 2012
 
December 31, 2011
 
Current (a)
 
Long-term (a)
 
Total
 
Current (a)
 
Long-term (a)
 
Total
 
in millions
Assets:
 
 
 
 
 
 
 
 
 
 
 
Cross-currency and interest rate derivative contracts (b)
$
103.8

 
$
584.9

 
$
688.7

 
$
155.8

 
$
544.4

 
$
700.2

Equity-related derivative contracts (c)
—

 
684.5

 
684.5

 
—

 
684.6

 
684.6

Foreign currency forward contracts
1.3

 
7.5

 
8.8

 
4.5

 
0.3

 
4.8

Other
1.5

 
2.5

 
4.0

 
1.7

 
2.1

 
3.8

Total
$
106.6

 
$
1,279.4

 
$
1,386.0

 
$
162.0

 
$
1,231.4

 
$
1,393.4

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Cross-currency and interest rate derivative contracts (b)
$
481.2

 
$
1,825.4

 
$
2,306.6

 
$
576.6

 
$
1,705.0

 
$
2,281.6

Equity-related derivative contracts (c)
24.4

 
—

 
24.4

 
23.3

 
—

 
23.3

Foreign currency forward contracts
7.2

 
0.1

 
7.3

 
0.1

 
2.7

 
2.8

Other
0.8

 
1.3

 
2.1

 
1.2

 
1.8

 
3.0

Total
$
513.6

 
$
1,826.8

 
$
2,340.4

 
$
601.2

 
$
1,709.5

 
$
2,310.7

_______________ 

(a)
Our current derivative assets are included in other current assets and our long-term derivative assets and liabilities are included in other assets, net, and other long-term liabilities, respectively, in our condensed consolidated balance sheets.

(b)
We consider credit risk in our fair value assessments. As of September 30, 2012 and December 31, 2011, (i) the fair values of our cross-currency and interest rate derivative contracts that represented assets have been reduced by credit risk valuation adjustments aggregating $36.8 million and $59.3 million, respectively, and (ii) the fair values of our cross-currency and interest rate derivative contracts that represented liabilities have been reduced by credit risk valuation adjustments aggregating $152.0 million and $255.1 million, respectively. The adjustments to our derivative assets relate to the credit risk associated with counterparty nonperformance and the adjustments to our derivative liabilities relate to credit risk associated with our own nonperformance. In all cases, the adjustments take into account offsetting liability or asset positions within a given contract. Our determination of credit risk valuation adjustments generally is based on our and our counterparties' credit risks, as observed in the credit default swap market and market quotations for certain of our subsidiaries' debt instruments, as applicable. The changes in the credit risk valuation adjustments associated with our cross currency and interest rate derivative contracts resulted in net losses of $29.9 million and $78.2 million during the three and nine months ended September 30, 2012, respectively, and net gains of $73.6 million and $104.6 million during the three and nine months ended September 30, 2011, respectively. These amounts are included in realized and unrealized gains (losses) on derivative instruments, net, in our condensed consolidated statements of operations. For further information concerning our fair value measurements, see note 5.

14

LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
September 30, 2012
(unaudited)




(c)
The fair value of our equity-related derivatives relates to the share collar (the Sumitomo Collar) with respect to the Sumitomo shares held by our company. The fair value of the Sumitomo Collar does not include a credit risk valuation adjustment as we have assumed that any losses incurred by our company in the event of nonperformance by the counterparty would be, subject to relevant insolvency laws, fully offset against amounts we owe to the counterparty pursuant to the secured borrowing arrangements of the Sumitomo Collar.

The details of our realized and unrealized gains (losses) on derivative instruments, net, are as follows:
 
Three months ended
 
Nine months ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
 
in millions
 
 
 
 
 
 
 
 
Continuing operations:
 
 
 
 
 
 
 
Cross-currency and interest rate derivative contracts
$
(281.7
)
 
$
242.4

 
$
(591.3
)
 
$
(163.7
)
Foreign currency forward contracts
(2.8
)
 
(0.7
)
 
(12.5
)
 
(45.0
)
Equity-related derivative contracts (a)
47.9

 
113.3

 
(11.7
)
 
106.3

Other
(0.6
)
 
0.1

 
1.6

 
(1.6
)
Total — continuing operations
$
(237.2
)
 
$
355.1

 
$
(613.9
)
 
$
(104.0
)
Discontinued operation
$
—

 
$
(5.4
)
 
$
4.6

 
$
(8.3
)
_______________ 

(a)
Includes activity related to the Sumitomo Collar. The 2011 nine-month period also includes a $27.5 million loss related to a total return swap entered into in connection with the KBW Purchase Agreement. This swap was ultimately terminated for no consideration in connection with the KBW Acquisition.
 
The net cash received or paid related to our derivative instruments is classified as an operating, investing or financing activity in our condensed consolidated statements of cash flows based on the objective of the derivative instrument and the classification of the applicable underlying cash flows. For cross-currency or interest rate derivative contracts that are terminated prior to maturity, the cash paid or received upon termination that relates to future periods is classified as a financing activity. The classification of these cash inflows (outflows) are as follows: 
 
Nine months ended
 
September 30,
 
2012
 
2011
 
in millions
Continuing operations:
 
 
 
Operating activities
$
(452.8
)
 
$
(499.5
)
Investing activities
23.7

 
—

Financing activities
(113.1
)
 
(33.8
)
Total — continuing operations
$
(542.2
)
 
$
(533.3
)
Discontinued operation
$
(6.6
)
 
$
(10.0
)


15

LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
September 30, 2012
(unaudited)



Counterparty Credit Risk

We are exposed to the risk that the counterparties to our derivative instruments will default on their obligations to us.  We manage these credit risks through the evaluation and monitoring of the creditworthiness of, and concentration of risk with, the respective counterparties. In this regard, credit risk associated with our derivative instruments is spread across a relatively broad counterparty base of banks and financial institutions. We and our counterparties do not post collateral or other security, nor have we entered into master netting arrangements with any of our counterparties. At September 30, 2012, our exposure to credit risk included derivative assets with a fair value of $701.5 million.

Under our derivative contracts, it is generally only the non-defaulting party that has a contractual option to exercise early termination rights upon the default of the other counterparty and to set off other liabilities against sums due upon such termination. However, in an insolvency of a derivative counterparty, under the laws of certain jurisdictions, the defaulting counterparty or its insolvency representatives may be able to compel the termination of one or more derivative contracts and trigger early termination payment liabilities payable by us, reflecting any mark-to-market value of the contracts for the counterparty. Alternatively, or in addition, the insolvency laws of certain jurisdictions may require the mandatory set-off of amounts due under such derivative contracts against present and future liabilities owed to us under other contracts between us and the relevant counterparty. Accordingly, it is possible that we may be subject to obligations to make payments, or may have present or future liabilities owed to us partially or fully discharged by set-off as a result of such obligations, in the event of the insolvency of a derivative counterparty, even though it is the counterparty that is in default and not us. To the extent that we are required to make such payments, our ability to do so will depend on our liquidity and capital resources at the time. In an insolvency of a defaulting counterparty, we will be an unsecured creditor in respect of any amount owed to us by the defaulting counterparty, except to the extent of the value of any collateral we have obtained from that counterparty.

The risks we would face in the event of a default by a counterparty to one of our derivative instruments might be eliminated or substantially mitigated if we were able to novate the relevant derivative contracts to a new counterparty following the default of our counterparty. While we anticipate that, in the event of the insolvency of one of our derivative counterparties, we would seek to effect such novations, no assurance can be given that we would obtain the necessary consents to do so or that we would be able to do so on terms or pricing that would be acceptable to us or that any such novation would not result in substantial costs to us. Furthermore, the underlying risks that are the subject of the relevant derivative contracts would no longer be effectively hedged due to the insolvency of our counterparty, unless and until we novate or replace the derivative contract.

While we currently have no specific concerns about the creditworthiness of any counterparty for which we have material credit risk exposures, we cannot rule out the possibility that one or more of our counterparties could fail or otherwise be unable to meet its obligations to us. Any such instance could have an adverse effect on our cash flows, results of operations, financial condition and/or liquidity.


16

LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
September 30, 2012
(unaudited)



Cross-currency and Interest Rate Derivative Contracts

Cross-currency Swaps:

The terms of our outstanding cross-currency swap contracts at September 30, 2012 are as follows:
Subsidiary /
Final maturity date (a)
 
Notional
amount
due from
counterparty
 
Notional
amount
due to
counterparty
 
Interest rate
due from
counterparty
 
Interest rate
due to
counterparty
 
 
in millions
 
 
 
 
 
 
 
 
 
 
 
 
 
 
UPC Holding:
 
 
 
 
 
 
 
 
 
April 2016 (b)
 
$
400.0

 
CHF
441.8

 
9.88%
 
9.87%
UPC Broadband Holding BV (UPC Broadband Holding), a subsidiary of UPC Holding:
 
 
 
 
 
 
 
 
 
October 2017
 
$
500.0

 
€
364.9

 
6 mo. LIBOR + 3.50%
 
6 mo. EURIBOR + 3.41%
November 2019
 
$
500.0

 
€
362.9

 
7.25%
 
7.74%
January 2020
 
$
197.5

 
€
150.5

 
6 mo. LIBOR + 4.92%
 
6 mo. EURIBOR + 4.91%
December 2016
 
$
340.0

 
CHF
370.9

 
6 mo. LIBOR + 3.50%
 
6 mo. CHF LIBOR + 4.01%
December 2014
 
$
171.5

 
CHF
187.1

 
6 mo. LIBOR + 2.75%
 
6 mo. CHF LIBOR + 2.95%
December 2014
 
€
898.4

 
CHF
1,466.0

 
6 mo. EURIBOR + 1.68%
 
6 mo. CHF LIBOR + 1.94%
December 2014 - December 2016
 
€
360.4

 
CHF
589.0

 
6 mo. EURIBOR + 3.75%
 
6 mo. CHF LIBOR + 3.94%
January 2020
 
€
175.0

 
CHF
258.6

 
7.63%
 
6.76%
July 2020
 
€
107.4

 
CHF
129.0

 
6 mo. EURIBOR + 3.00%
 
6 mo. CHF LIBOR + 3.28%
January 2017
 
€
75.0

 
CHF
110.9

 
7.63%
 
6.98%
July 2015
 
€
123.8

 
CLP
86,500.0

 
2.50%
 
5.84%
December 2015
 
€
69.1

 
CLP
53,000.0

 
3.50%
 
5.75%
December 2014
 
€
365.8

 
CZK
10,521.8

 
5.48%
 
5.56%
December 2014 - December 2016
 
€
60.0

 
CZK
1,703.1

 
5.50%
 
6.99%
July 2017
 
€
39.6

 
CZK
1,000.0

 
3.00%
 
3.75%
December 2014
 
€
260.0

 
HUF
75,570.0

 
5.50%
 
9.40%
December 2014 - December 2016
 
€
260.0

 
HUF
75,570.0

 
5.50%
 
10.56%
December 2016
 
€
150.0

 
HUF
43,367.5

 
5.50%
 
9.20%
July 2018
 
€
78.0

 
HUF
19,500.0

 
5.50%
 
9.15%
December 2014
 
€
400.5

 
PLN
1,605.6

 
5.50%
 
7.50%
December 2014 - December 2016
 
€
245.0

 
PLN
1,000.6

 
5.50%
 
9.03%
September 2016
 
€
200.0

 
PLN
892.7

 
6.00%
 
8.19%
July 2017
 
€
82.0

 
PLN
318.0

 
3.00%
 
5.60%
Unitymedia Hessen GmbH & Co. KG (Unitymedia Hessen), a subsidiary of Unitymedia KabelBW:
 
 
 
 
 
 
 
 
 
December 2017
 
$
845.0

 
€
569.4

 
8.13%
 
8.49%
March 2019
 
$
459.3

 
€
326.5

 
7.50%
 
7.98%

17

LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
September 30, 2012
(unaudited)



___________ 

(a)
For each subsidiary, the notional amount of multiple derivative instruments that mature within the same calendar month are shown in the aggregate and interest rates are presented on a weighted average basis. For derivative instruments that were in effect as of September 30, 2012, we present a single date that represents the applicable final maturity date.  For derivative instruments that become effective subsequent to September 30, 2012, we present a range of dates that represents the period covered by the applicable derivative instrument.

(b)
Unlike the other cross-currency swaps presented in this table, the UPC Holding cross-currency swap does not involve the exchange of notional amounts at the inception and maturity of the instrument.  Accordingly, the only cash flows associated with this instrument are interest payments and receipts.

Cross-currency Interest Rate Swaps:

The terms of our outstanding cross-currency interest rate swap contracts at September 30, 2012 are as follows:
 
Subsidiary / Final maturity date (a)
 
Notional  amount
due from
counterparty
 
Notional amount
due to
counterparty
 
Interest rate
due from
counterparty
 
Interest rate
due to
counterparty
 
 
in millions
 
 
 
 
UPC Broadband Holding:
 
 
 
 
 
 
 
 
 
July 2018
 
$
425.0

 
€
320.9

 
6 mo. LIBOR + 1.75%
 
6.08%
September 2014 - January 2020
 
$
327.5

 
€
249.5

 
6 mo. LIBOR + 4.92%
 
7.52%
December 2014
 
$
300.0

 
€
226.5

 
6 mo. LIBOR + 1.75%
 
5.78%
December 2014 - July 2018
 
$
300.0

 
€
226.5

 
6 mo. LIBOR + 2.58%
 
6.80%
December 2016
 
$
296.6

 
€
219.8

 
6 mo. LIBOR + 3.50%
 
6.75%
March 2013
 
$
100.0

 
€
75.4

 
6 mo. LIBOR + 2.00%
 
5.73%
March 2013 - July 2018
 
$
100.0

 
€
75.4

 
6 mo. LIBOR + 3.00%
 
6.97%
November 2019
 
$
250.0

 
CHF
226.8

 
7.25%
 
6 mo. CHF LIBOR + 5.01%
January 2020
 
$
225.0

 
CHF
206.3

 
6 mo. LIBOR + 4.81%
 
5.44%
December 2014
 
$
340.0

 
CLP
181,322.0

 
6 mo. LIBOR + 1.75%
 
8.76%
December 2016
 
$
201.5

 
RON
489.3

 
6 mo. LIBOR + 3.50%
 
14.01%
December 2014
 
€
134.2

 
CLP
107,800.0

 
6 mo. EURIBOR + 2.00%
 
10.00%
VTR:
 
 
 
 
 
 
 
 
 
September 2014
 
$
446.5

 
CLP
247,137.8

 
6 mo. LIBOR + 3.00%
 
11.16%
__________________

(a)
For each subsidiary, the notional amount of multiple derivative instruments that mature within the same calendar month are shown in the aggregate and interest rates are presented on a weighted average basis. For derivative instruments that were in effect as of September 30, 2012, we present a single date that represents the applicable final maturity date.  For derivative instruments that become effective subsequent to September 30, 2012, we present a range of dates that represents the period covered by the applicable derivative instrument.


18

LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
September 30, 2012
(unaudited)



Interest Rate Swaps:

The terms of our outstanding interest rate swap contracts at September 30, 2012 are as follows:
Subsidiary / Final maturity date (a)
 
Notional amount
 
Interest rate due from
counterparty
 
Interest rate due to
counterparty
 
 
in millions
 
 
 
 
UPC Broadband Holding:
 
 
 
 
 
 
 
January 2013
 
$
1,043.0

 
1 mo. LIBOR +  3.23%
 
6 mo. LIBOR +  3.03%
July 2020
 
$
1,000.0

 
6.63%
 
6 mo. LIBOR +  3.03%
January 2022
 
$
750.0

 
6.88%
 
6 mo. LIBOR +  4.89%
January 2013 - January 2014
 
$
500.0

 
1 mo. LIBOR +  3.15%
 
6 mo. LIBOR +  3.00%
January 2013
 
€
2,720.0

 
1 mo. EURIBOR +  3.60%
 
6 mo. EURIBOR +  3.13%
January 2013 - January 2014
 
€
1,000.0

 
1 mo. EURIBOR +  3.76%
 
6 mo. EURIBOR +  3.48%
December 2014
 
€
971.8

 
6 mo. EURIBOR
 
4.69%
July 2020
 
€
750.0

 
6.38%
 
6 mo. EURIBOR +  3.16%
July 2013 - December 2014
 
€
500.0

 
6 mo. EURIBOR
 
4.67%
January 2015 - December 2016
 
€
500.0

 
6 mo. EURIBOR
 
4.32%
July 2014
 
€
337.0

 
6 mo. EURIBOR
 
3.94%
January 2023
 
€
290.0

 
4.65%
 
3.25%
December 2015
 
€
263.3

 
6 mo. EURIBOR
 
3.97%
January 2023
 
€
210.0

 
6 mo. EURIBOR
 
2.88%
January 2014
 
€
185.0

 
6 mo. EURIBOR
 
4.04%
January 2015 - January 2018
 
€
175.0

 
6 mo. EURIBOR
 
3.74%
July 2020
 
€
171.3

 
6 mo. EURIBOR
 
4.32%
January 2015 - July 2020
 
€
171.3

 
6 mo. EURIBOR
 
3.95%
November 2021
 
€
107.0

 
4.73%
 
3.33%
December 2013
 
€
90.5

 
6 mo. EURIBOR
 
0.90%
December 2014
 
CHF
1,668.5

 
6 mo. CHF LIBOR
 
3.50%
January 2022
 
CHF
711.5

 
3.65%
 
2.25%
October 2012 - December 2014
 
CHF
711.5

 
6 mo. CHF LIBOR
 
3.65%
January 2015 - January 2018
 
CHF
400.0

 
6 mo. CHF LIBOR
 
2.51%
January 2015 - December 2016
 
CHF
370.9

 
6 mo. CHF LIBOR
 
3.82%
January 2015 - November 2019
 
CHF
226.8

 
6 mo. CHF LIBOR + 5.01%
 
6.88%
July 2013
 
CLP
61,500.0

 
6.77%
 
6 mo. TAB
Telenet International Finance S.àr.l. (Telenet International), a subsidiary of Telenet NV, which in turn is a subsidiary of Telenet:
 
 
 
 
 
 
 
July 2017 - July 2019
 
€
600.0

 
3 mo. EURIBOR
 
3.29%
August 2015
 
€
350.0

 
3 mo. EURIBOR
 
3.54%
August 2015 - December 2018
 
€
305.0

 
3 mo. EURIBOR
 
2.46%
November 2012
 
€
250.0

 
1 mo. EURIBOR + 0.30%
 
3 mo. EURIBOR

19

LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
September 30, 2012
(unaudited)



Subsidiary / Final maturity date (a)
 
Notional amount
 
Interest rate due from
counterparty
 
Interest rate due to
counterparty
 
 
in millions
 
 
 
 
December 2015 - June 2021
 
€
250.0

 
3 mo. EURIBOR
 
3.49%
July 2019
 
€
200.0

 
3 mo. EURIBOR
 
3.55%
January 2013
 
€
150.0

 
1 mo. EURIBOR + 0.30%
 
3 mo. EURIBOR
July 2017
 
€
150.0

 
3 mo. EURIBOR
 
3.55%
July 2017 - December 2018
 
€
70.0

 
3 mo. EURIBOR
 
3.00%
June 2021
 
€
55.0

 
3 mo. EURIBOR
 
2.29%
June 2015
 
€
50.0

 
3 mo. EURIBOR
 
3.55%
December 2017
 
€
50.0

 
3 mo. EURIBOR
 
3.52%
December 2015 - July 2019
 
€
50.0

 
3 mo. EURIBOR
 
3.40%
December 2017 - July 2019
 
€
50.0

 
3 mo. EURIBOR
 
2.99%
July 2017 - June 2021
 
€
50.0

 
3 mo. EURIBOR
 
3.00%
August 2015 - June 2021
 
€
45.0

 
3 mo. EURIBOR
 
3.20%
VTR:
 
 
 
 
 
 
 
July 2013
 
CLP
61,500.0

 
6 mo. TAB
 
7.78%
Liberty Puerto Rico:
 
 
 
 
 
 
 
June 2014
 
$
161.2

 
3 mo. LIBOR
 
5.14%
_______________

(a)
For each subsidiary, the notional amount of multiple derivative instruments that mature within the same calendar month are shown in the aggregate and interest rates are presented on a weighted average basis. For derivative instruments that were in effect as of September 30, 2012, we present a single date that represents the applicable final maturity date.  For derivative instruments that become effective subsequent to September 30, 2012, we present a range of dates that represents the period covered by the applicable derivative instrument.


20

LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
September 30, 2012
(unaudited)



Interest Rate Caps

Our purchased and sold interest rate cap contracts with respect to EURIBOR are detailed below:
 
 
September 30, 2012
Subsidiary / Final maturity date (a)
 
Notional  amount
 
EURIBOR cap rate
 
 
in millions
 
 
Interest rate caps purchased (b):
 
 
 
 
Liberty Global Europe Financing BV (LGE Financing), the immediate parent of UPC Holding:
 
 
 
January 2015 - January 2020
€
735.0

 
7.00%
Telenet International:
 
 
 
 
June 2015 - June 2017
€
50.0

 
4.50%
Telenet NV:
 
 
 
December 2017
€
2.4

 
6.50%
December 2017
€
2.4

 
5.50%
 
 
 
 
 
Interest rate cap sold (c):
 
 
 
 
UPC Broadband Holding:
 
 
 
 
January 2015 - January 2020
€
735.0

 
7.00%
 _______________

(a)
For each subsidiary, the notional amount of multiple derivative instruments that mature within the same calendar month are shown in the aggregate. For derivative instruments that were in effect as of September 30, 2012, we present a single date that represents the applicable final maturity date. For derivative instruments that become effective subsequent to September 30, 2012, we present a range of dates that represents the period covered by the applicable derivative instrument.

(b)
Our purchased interest rate caps entitle us to receive payments from the counterparty when EURIBOR exceeds the EURIBOR cap rate.

(c)
Our sold interest rate cap requires that we make payments to the counterparty when EURIBOR exceeds the EURIBOR cap rate.

Interest Rate Collars

Our interest rate collar contracts establish floor and cap rates with respect to EURIBOR on the indicated notional amounts, as detailed below:
 
 
September 30, 2012
Subsidiary / Final maturity date (a)
 
Notional
amount
 
EURIBOR floor rate (b)
 
EURIBOR cap rate (c)
 
 
in millions
 
 
 
 
UPC Broadband Holding:
 
 
 
 
 
 
January 2020
€
1,135.0

 
1.00%
 
3.54%
Telenet International:
 
 
 
 
 
 
July 2017
€
950.0

 
1.50%
 
4.00%
_______________

(a)
For each subsidiary, the notional amount of multiple derivative instruments that mature within the same calendar month are shown in the aggregate. For derivative instruments that were in effect as of September 30, 2012, we present a single date

21

LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
September 30, 2012
(unaudited)



that represents the applicable final maturity date. For derivative instruments that become effective subsequent to September 30, 2012, we present a range of dates that represents the period covered by the applicable derivative instrument.

(b)
We make payments to the counterparty when EURIBOR is less than the EURIBOR floor rate.

(c)
We receive payments from the counterparty when EURIBOR is greater than the EURIBOR cap rate.

UPC Holding Cross-Currency Options

Pursuant to its cross-currency option contracts, UPC Holding has the option to deliver U.S. dollars to the counterparty in exchange for Swiss francs at a fixed exchange rate of approximately 0.74 Swiss francs per one U.S. dollar, in the notional amounts listed below: 
 
 
Notional amount at
Contract expiration date
 
September 30, 2012
 
 
in millions
 
 
 
April 2018
$
419.8

October 2016
$
19.8

April 2017
$
19.8

October 2017
$
19.8


Foreign Currency Forwards

The following table summarizes our outstanding foreign currency forward contracts at September 30, 2012: 
Subsidiary
 
Currency
purchased
forward
 
Currency
sold
forward
 
Maturity dates
 
 
in millions
 
 
 
 
 
 
 
 
 
 
 
LGE Financing
$
4.9

 
€
3.7

 
October 2012 - October 2013
UPC Holding
$
479.0

 
CHF
415.1

 
October 2016 - April 2018
UPC Broadband Holding
$
2.0

 
CZK
37.8

 
October 2012 - May 2013
LGE Financing
€
996.0

 
$
1,285.9

 
October 2012
UPC Broadband Holding
€
39.4

 
CHF
47.2

 
October 2012 - September 2013
UPC Broadband Holding
€
22.9

 
CZK
579.8

 
October 2012 - September 2013
UPC Broadband Holding
€
39.6

 
HUF
11,500.0

 
October 2012 - September 2013
UPC Broadband Holding
€
35.6

 
PLN
149.0

 
October 2012 - September 2013
UPC Broadband Holding
€
5.9

 
RON
27.0

 
October 2012
UPC Broadband Holding
£
3.6

 
€
4.6

 
October 2012 - September 2013
Telenet NV
$
44.0

 
€
34.7

 
October 2012 - December 2013
VTR
$
31.3

 
CLP
16,013.5

 
October 2012 - September 2013


22

LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
September 30, 2012
(unaudited)



(5)    Fair Value Measurements

We use the fair value method to account for (i) certain of our investments and (ii) our derivative instruments. The reported fair values of these investments and derivative instruments as of September 30, 2012 likely will not represent the value that will be realized upon the ultimate settlement or disposition of these assets and liabilities. In the case of the investments that we account for using the fair value method, the values we realize upon disposition will be dependent upon, among other factors, market conditions and the historical and forecasted financial performance of the investees at the time of any such disposition.  With respect to our derivative instruments, we expect that the values realized generally will be based on market conditions at the time of settlement, which may occur at the maturity of the derivative instrument or at the time of the repayment or refinancing of the underlying debt instrument.

GAAP provides for a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. Level 1 inputs are quoted market prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted market prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. We record transfers of assets or liabilities in or out of Levels 1, 2 or 3 at the beginning of the quarter during which the transfer occurred. During the nine months ended September 30, 2012, no such transfers were made.

All of our Level 2 inputs (interest rate futures, swap rates, and certain of the inputs for our weighted average cost of capital calculations) and certain of our Level 3 inputs (forecasted volatilities and credit spreads) are obtained from pricing services. These inputs, or interpolations or extrapolations thereof, are used in our internal models to calculate, among other items, yield curves, forward interest and currency rates and weighted average cost of capital rates. In the normal course of business, we receive market value assessments from the counterparties to our derivative contracts. Although we compare these assessments to our internal valuations and investigate unexpected differences, we do not otherwise rely on counterparty quotes to determine the fair values of our derivative instruments. The midpoints of applicable bid and ask ranges generally are used as inputs for our internal valuations.

For our investment in Sumitomo common stock, the recurring fair value measurement is based on the quoted closing price of the shares at each reporting date. Accordingly, the valuation of this investment falls under Level 1 of the fair value hierarchy. Our other investments that we account for at fair value are privately-held companies, and therefore, quoted market prices are unavailable. The valuation technique we use for such investments is a combination of an income approach (discounted cash flow model based on forecasts) and a market approach (market multiples of similar businesses). With the exception of certain inputs for our weighted average cost of capital calculations that are derived from pricing services, the inputs used to value these investments are based on unobservable inputs derived from our assumptions. Therefore, the valuation of our privately-held investments falls under Level 3 of the fair value hierarchy. Any reasonably foreseeable changes in assumed levels of unobservable inputs would not be expected to have a material impact on our financial position or results of operations.

The recurring fair value measurement of the Sumitomo Collar is based on the binomial option pricing model, which requires the input of observable and unobservable variables such as exchange traded equity prices, risk-free interest rates, dividend yields and forecasted volatilities of the underlying equity securities. The valuation of the Sumitomo Collar is based on a combination of Level 1 inputs (exchange traded equity prices), Level 2 inputs (interest rate futures and swap rates) and Level 3 inputs (forecasted volatilities). As changes in volatilities could have a significant impact on the overall valuation, we have determined that this valuation falls under Level 3 of the fair value hierarchy. For the September 30, 2012 valuation of the Sumitomo Collar, we used estimated volatilities of 48.0% with respect to our purchased put options and 50.3% with respect to our written call options. Based on the September 30, 2012 market price for Sumitomo common stock, the purchased put options and written call options are significantly in-the-money and out-of-the-money, respectively. As such, changes in forecasted volatilities did not have a significant impact on the valuation of the Sumitomo Collar at September 30, 2012.

As further described in note 4, we have entered into various derivative instruments to manage our interest rate and foreign currency exchange risk. The recurring fair value measurements of these derivative instruments are determined using discounted cash flow models. Most of the inputs to these discounted cash flow models consist of, or are derived from, observable Level 2 data for substantially the full term of these derivative instruments. This observable data includes applicable interest rate futures and swap rates, which are retrieved or derived from available market data. Although we may extrapolate or interpolate this data, we do not otherwise alter this data in performing our valuations. We incorporate a credit risk valuation adjustment in our fair value measurements to estimate the impact of both our own nonperformance risk and the nonperformance risk of our counterparties. Our and our counterparties' credit spreads are Level 3 inputs that are used to derive the credit risk valuation adjustments with

23

LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
September 30, 2012
(unaudited)



respect to our various interest rate and foreign currency derivative valuations. As we would not expect changes in our or our counterparties' credit spreads to have a significant impact on the valuations of these derivative instruments, we have determined that these valuations fall under Level 2 of the fair value hierarchy. Our credit risk valuation adjustments with respect to our cross-currency and interest rate swaps are quantified and further explained in note 4.

Fair value measurements are also used in connection with nonrecurring valuations performed in connection with impairment assessments and acquisition accounting. These nonrecurring valuations include the valuation of reporting units, customer relationship intangible assets, property and equipment and the implied value of goodwill. The valuation of private reporting units is based at least in part on discounted cash flow analyses. With the exception of certain inputs for our weighted average cost of capital calculations that are derived from pricing services, the inputs used in our discounted cash flow analyses, such as forecasts of future cash flows, are based on our assumptions. The valuation of customer relationships is primarily based on an excess earnings methodology, which is a form of a discounted cash flow analysis. The excess earnings methodology requires us to estimate the specific cash flows expected from the customer relationship, considering such factors as estimated customer life, the revenue expected to be generated over the life of the customer, contributory asset charges, and other factors. Tangible assets are typically valued using a replacement or reproduction cost approach, considering factors such as current prices of the same or similar equipment, the age of the equipment and economic obsolescence. The implied value of goodwill is determined by allocating the fair value of a reporting unit to all of the assets and liabilities of that unit as if the reporting unit had been acquired in a business combination, with the residual amount allocated to goodwill. All of our nonrecurring valuations use significant unobservable inputs and therefore fall under Level 3 of the fair value hierarchy. We performed nonrecurring fair value measurements in connection with (i) the MGM Acquisition during the third quarter of 2012, (ii) the KBW Acquisition during the fourth quarter of 2011 and (iii) the Aster Acquisition during the third quarter of 2011. For additional information, see note 2.

A summary of the assets and liabilities that are measured at fair value on a recurring basis is as follows: 
 
 
 
Fair value measurements at  September 30, 2012 using:
Description
September 30,
2012
 
Quoted prices
in active
markets for
identical assets
(Level 1)
 
Significant
other
observable
inputs
(Level 2)
 
Significant
unobservable
inputs
(Level 3)
 
in millions
Assets:
 
 
 
 
 
 
 
Derivative instruments:
 
 
 
 
 
 
 
Cross-currency and interest rate derivative contracts
$
688.7

 
$
—

 
$
688.7

 
$
—

Equity-related derivative instruments
684.5

 
—

 
—

 
684.5

Foreign currency forward contracts
8.8

 
—

 
8.8

 
—

Other
4.0

 
—

 
4.0

 
—

Total derivative instruments
1,386.0

 
—

 
701.5

 
684.5

Investments
974.8

 
616.9

 
—

 
357.9

Total assets
$
2,360.8

 
$
616.9

 
$
701.5

 
$
1,042.4

 
 
 
 
 
 
 
 
Liabilities - derivative instruments:
 
 
 
 
 
 
 
Cross-currency and interest rate derivative contracts
$
2,306.6

 
$
—

 
$
2,306.6

 
$
—

Equity-related derivative instruments
24.4

 
—

 
—

 
24.4

Foreign currency forward contracts
7.3

 
—

 
7.3

 
—

Other
2.1

 
—

 
2.1

 
—

Total liabilities
$
2,340.4

 
$
—

 
$
2,316.0

 
$
24.4

 

24

LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
September 30, 2012
(unaudited)



 
 
 
Fair value measurements 
at December 31, 2011 using:
Description
December 31, 2011
 
Quoted prices
in active
markets for
identical assets
(Level 1)
 
Significant
other
observable
inputs
(Level 2)
 
Significant
unobservable
inputs
(Level 3)
 
in millions
Assets:
 
 
 
 
 
 
 
Derivative instruments:
 
 
 
 
 
 
 
Cross-currency and interest rate derivative contracts
$
700.2

 
$
—

 
$
700.2

 
$
—

Equity-related derivative instruments
684.6

 
—

 
—

 
684.6

Foreign currency forward contracts
4.8

 
—

 
4.8

 
—

Other
3.8

 
—

 
3.8

 
—

Total derivative instruments
1,393.4

 
—

 
708.8

 
684.6

Investments
970.1

 
617.9

 
—

 
352.2

Total assets
$
2,363.5

 
$
617.9

 
$
708.8

 
$
1,036.8

Liabilities - derivative instruments:
 
 
 
 
 
 
 
Cross-currency and interest rate derivative contracts
$
2,281.6

 
$
—

 
$
2,281.6

 
$
—

Equity-related derivative instruments
23.3

 
—

 
—

 
23.3

Foreign currency forward contracts
2.8

 
—

 
2.8

 
—

Other
3.0

 
—

 
3.0

 
—

Total liabilities
$
2,310.7

 
$
—

 
$
2,287.4

 
$
23.3


A reconciliation of the beginning and ending balances of our assets and liabilities measured at fair value on a recurring basis using significant unobservable, or Level 3, inputs is as follows:
 
Investments
 
Equity-related
derivative
instruments
 
Total
 
in millions
 
 
 
 
 
 
Balance at January 1, 2012
$
352.2

 
$
661.3

 
$
1,013.5

Losses included in net earnings (a):
 
 
 
 
 
Realized and unrealized losses on derivative instruments, net
—

 
(11.7
)
 
(11.7
)
Realized and unrealized losses due to changes in fair values of certain investments and debt, net
(0.3
)
 
—

 
(0.3
)
Foreign currency translation adjustments and other
6.0

 
10.5

 
16.5

Balance at September 30, 2012
$
357.9

 
$
660.1

 
$
1,018.0

 
_______________

(a)
Substantially all of the net losses recognized during the first nine months of 2012 relate to assets and liabilities that we continue to carry on our condensed consolidated balance sheet as of September 30, 2012.


25

LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
September 30, 2012
(unaudited)



(6)    Long-lived Assets

Property and Equipment, Net
        
The details of our property and equipment and the related accumulated depreciation are set forth below:

 
September 30,
2012
 
December 31,
2011
 
in millions
 
 
 
 
Distribution systems
$
15,146.7

 
$
14,671.4

Customer premises equipment
4,154.1

 
4,081.2

Support equipment, buildings and land
2,325.9

 
2,270.9

 
21,626.7

 
21,023.5

Accumulated depreciation
(8,702.4
)
 
(8,155.1
)
Total property and equipment, net
$
12,924.3

 
$
12,868.4


During the nine months ended September 30, 2012 and 2011, we recorded non-cash increases to our property and equipment related to (i) assets acquired under capital leases of $45.5 million and $26.8 million, respectively, and (ii) vendor financing arrangements of $152.3 million and $58.7 million, respectively. The non-cash increases related to vendor financing arrangements exclude related value-added taxes of $20.7 million and $5.6 million, respectively, which were also financed by our vendors under these arrangements.

Goodwill

Changes in the carrying amount of our goodwill during the nine months ended September 30, 2012 are set forth below:
 
January 1,
2012
 
Acquisitions
and related
adjustments
 
Foreign
currency
translation
adjustments
 
September 30,
2012
 
 
 
in millions
 
 
UPC/Unity Division:
 
 
 
 
 
 
 
Germany
$
3,703.3

 
$
(0.9
)
 
$
(24.0
)
 
$
3,678.4

The Netherlands
1,181.7

 
2.2

 
(7.8
)
 
1,176.1

Switzerland
3,026.8

 
1.1

 
(0.3
)
 
3,027.6

Other Western Europe
1,013.0

 
—

 
(6.6
)
 
1,006.4

Total Western Europe
8,924.8

 
2.4

 
(38.7
)
 
8,888.5

Central and Eastern Europe
1,404.2

 
0.8

 
68.8

 
1,473.8

Total UPC/Unity Division
10,329.0

 
3.2

 
30.1

 
10,362.3

Telenet (Belgium)
2,119.5

 
—

 
(13.8
)
 
2,105.7

VTR Group (Chile)
514.3

 
—

 
47.9

 
562.2

Corporate and other
326.5

 
67.5

 
2.0

 
396.0

Total
$
13,289.3

 
$
70.7

 
$
66.2

 
$
13,426.2


In the case of certain of our smaller reporting units, including our broadband communications operations in Hungary, the Czech Republic and Puerto Rico, a hypothetical decline of 20% or more in the fair value of any of these reporting units could result in the need to record a goodwill impairment charge. At September 30, 2012, the goodwill associated with these reporting units aggregated $926.0 million. If, among other factors, (i) our equity values were to decline significantly, or (ii) the adverse impacts of economic, competitive, regulatory or other factors were to cause our results of operations or cash flows to be worse

26

LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
September 30, 2012
(unaudited)



than anticipated, we could conclude in future periods that impairment charges are required in order to reduce the carrying values of our goodwill, and to a lesser extent, other long-lived assets.  Any such impairment charges could be significant.

At September 30, 2012 and December 31, 2011 and based on exchange rates as of those dates, the amount of our accumulated goodwill impairments was $263.5 million and $276.2 million, respectively. These amounts include accumulated impairments related to our broadband communications operations in Romania, which are included within the UPC/Unity Division's Central and Eastern Europe segment, and Chellomedia's programming operations in central and eastern Europe, which are included in our corporate and other category.

Intangible Assets Subject to Amortization, Net

The details of our intangible assets subject to amortization are set forth below: 
 
 
September 30, 2012
 
December 31, 2011
 
 
Gross carrying amount
 
Accumulated amortization
 
Net carrying amount
 
Gross carrying amount
 
Accumulated amortization
 
Net carrying amount
 
 
in millions
 
 
 
 
 
 
 
 
 
 
 
 
 
Customer relationships
 
$
4,072.1

 
$
(1,814.6
)
 
$
2,257.5

 
$
4,110.0

 
$
(1,574.0
)
 
$
2,536.0

Other
 
372.9

 
(126.3
)
 
246.6

 
376.9

 
(100.4
)
 
276.5

Total
 
$
4,445.0

 
$
(1,940.9
)
 
$
2,504.1

 
$
4,486.9

 
$
(1,674.4
)
 
$
2,812.5




27

LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
September 30, 2012
(unaudited)



(7)    Debt and Capital Lease Obligations

The U.S. dollar equivalents of the components of our consolidated debt and capital lease obligations are as follows:
 
September 30, 2012
 
 
 
Carrying value (d)
Weighted
average
interest
rate (a)
 
Unused borrowing
capacity (b)
 
Estimated fair value (c)
Borrowing
currency
 
U.S. $
equivalent
 
September 30, 2012
 
December 31, 2011
 
September 30, 2012
 
December 31, 2011
 
 
 
in millions
Debt:
 
 
 
 
UPC Broadband Holding Bank Facility
3.92
%
 
€
1,078.1

 
$
1,388.0

 
$
5,358.2

 
$
5,870.7

 
$
5,369.9

 
$
6,139.4

UPC Holding Senior Notes
8.24
%
 
 
—

 
—

 
3,029.8

 
2,137.0

 
2,842.7

 
2,083.9

UPCB SPE Notes
6.88
%
 
 
—

 
—

 
4,374.5

 
3,292.9

 
4,105.0

 
3,365.2

Unitymedia KabelBW Notes
8.02
%
 
 
—

 
—

 
7,107.8

 
3,704.0

 
6,537.6

 
3,496.9

Unitymedia KabelBW Revolving Credit Facilities
3.22
%
 
€
417.5

 
537.5

 
—

 
100.1

 
—

 
103.7

KBW Notes (e)
—

 
 
—

 
—

 
—

 
3,010.6

 
—

 
2,973.5

Telenet Credit Facility
3.61
%
 
€
158.0

 
203.4

 
1,805.3

 
1,569.0

 
1,808.6

 
1,593.7

Telenet SPE
    Notes
5.93
%
 
 
—

 
—

 
2,615.5

 
1,627.7

 
2,576.7

 
1,686.7

Sumitomo Collar Loan
1.88
%
 
 
—

 
—

 
1,307.9

 
1,305.6

 
1,203.2

 
1,216.6

Chellomedia Bank Facility (f)
—

 
 
—

 
—

 
—

 
239.8

 
—

 
245.9

Liberty Puerto Rico Bank Facility (g)
6.00
%
 
$
10.0

 
10.0

 
174.7

 
156.4

 
174.6

 
162.5

Other (h)
6.60
%
 
CLP
22,500.0

 
47.3

 
486.1

 
324.3

 
486.1

 
324.3

Total debt
6.12
%
 
 
 
 
$
2,186.2

 
$
26,259.8

 
$
23,338.1

 
25,104.4

 
23,392.3

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Capital lease obligations:
 
 
 
 
 
 
 
 
 
 
 
 
 
Unitymedia KabelBW
 
918.5

 
944.1

Telenet
 
396.7

 
387.4

Other subsidiaries
 
41.9

 
34.1

Total capital lease obligations
 
1,357.1

 
1,365.6

Total debt and capital lease obligations
 
26,461.5

 
24,757.9

Current maturities
 
(292.4
)
 
(184.1
)
Long-term debt and capital lease obligations
 
$
26,169.1

 
$
24,573.8

_______________ 

(a)
Represents the weighted average interest rate in effect at September 30, 2012 for all borrowings outstanding pursuant to each debt instrument including any applicable margin. The interest rates presented represent stated rates and do not include the impact of our interest rate derivative agreements, deferred financing costs, original issue premiums or discounts or commitment fees, all of which affect our overall cost of borrowing. Including the effects of derivative instruments, original

28

LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
September 30, 2012
(unaudited)



issue premiums and discounts and commitment fees, but excluding the impact of financing costs, our weighted average interest rate on our aggregate variable and fixed-rate indebtedness was approximately 7.5% at September 30, 2012.  For information concerning our derivative instruments, see note 4.

(b)
Unused borrowing capacity represents the maximum availability under the applicable facility at September 30, 2012 without regard to covenant compliance calculations or other conditions precedent to borrowing. At September 30, 2012, the full amount of unused borrowing capacity was available to be borrowed under each of the respective facilities except as noted below. At September 30, 2012, our availability under the UPC Broadband Holding Bank Facility (as defined below) was limited to €105.9 million ($136.3 million). When the relevant September 30, 2012 compliance reporting requirements have been completed, we anticipate that our availability under the UPC Broadband Holding Bank Facility will be limited to €467.7 million ($602.2 million). The amount included in other debt represents the unused borrowing capacity of the CLP 60.0 billion ($126.2 million) term loan bank facility of VTR Wireless (the VTR Wireless Bank Facility). Our ability to draw down the VTR Wireless Bank Facility is subject to certain conditions precedent, including the condition precedent that immediately after the drawdown there is an equity contribution to debt ratio of at least 2.33 to 1. Based on the aggregate equity contributed to VTR Wireless through September 30, 2012, we are able to draw down CLP 2.0 billion ($4.2 million) in addition to the CLP 37.5 billion ($78.9 million) already borrowed under the VTR Wireless Bank Facility at September 30, 2012.

(c)
The estimated fair values of our debt instruments were determined using the average of applicable bid and ask prices (mostly Level 1 of the fair value hierarchy) or, when quoted market prices are unavailable or not considered indicative of fair value, discounted cash flow models (mostly Level 2 of the fair value hierarchy).  The discount rates used in the cash flow models are based on the market interest rates and estimated credit spreads of the applicable entity, to the extent available, and other relevant factors. For additional information concerning fair value hierarchies, see note 5.

(d)
Amounts include the impact of premiums and discounts, where applicable.

(e)
As further described below, during the second quarter of 2012, (i) all of the KBW Notes (as defined below) were exchanged or redeemed and (ii) KBW's €100.0 million ($128.7 million) secured revolving credit facility agreement (the KBW Revolving Credit Facility) was canceled.

(f)
During the second quarter of 2012, all amounts outstanding under the senior secured credit facility of Chellomedia PFH (the Chellomedia Bank Facility) were repaid in full. In connection with this repayment, we recognized a loss on extinguishment of debt of $2.0 million, representing the write-off of deferred financing fees.

(g)
The Liberty Puerto Rico Bank Facility is the senior secured credit facility of Liberty Puerto Rico. In anticipation of the Puerto Rico Transaction, on August 13, 2012, we refinanced the then existing senior secured credit facility of Liberty Puerto Rico (the Old Liberty Puerto Rico Bank Facility). Amounts presented as of September 30, 2012 relate to the New Liberty Puerto Rico Bank Facility (as defined and described below) and amounts presented as of December 31, 2011 relate to the Old Liberty Puerto Rico Bank Facility.

(h)
The September 30, 2012 and December 31, 2011 carrying amounts include $213.3 million and $99.9 million, respectively, owed pursuant to interest-bearing vendor financing arrangements that are generally due within one year. At September 30, 2012 and December 31, 2011, the amounts owed pursuant to these arrangements include $27.7 million and $12.3 million, respectively, of value-added taxes that were paid on our behalf by the vendor. Repayments of vendor financing obligations are included in repayments and repurchases of debt and capital lease obligations in our condensed consolidated cash flow statements.

UPC Broadband Holding Bank Facility

The UPC Broadband Holding Bank Facility, as amended, is the senior secured credit facility of UPC Broadband Holding.

On February 23, 2012, UPC Broadband Holding entered into a new additional facility accession agreement (the Additional Facility AE Accession Agreement) under the UPC Broadband Holding Bank Facility.  Pursuant to the Additional Facility AE Accession Agreement, certain of the lenders under Facility S (the Rolling Lenders) rolled all or part of their existing commitments under Facility S into the new Facility AE in an aggregate amount of €535.5 million ($689.5 million). Liberty Global Services B.V.

29

LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
September 30, 2012
(unaudited)



(formerly known as UPC Broadband Operations B.V.), a wholly-owned subsidiary of UPC Broadband Holding, was the initial lender under the Additional Facility AE Accession Agreement and novated its Facility AE commitments to the Rolling Lenders.  At any time during the twelve-month period that began on February 23, 2012, upon the occurrence of a voluntary prepayment of any or all of Facility AE, UPC Financing Partnership (UPC Financing), a wholly-owned subsidiary of UPC Holding, agrees to pay a prepayment fee (in addition to the principal amount of the prepayment) in an amount equal to 1.0% of the principal amount of the outstanding Facility AE advance being prepaid, plus accrued and unpaid interest then due on the amount of the outstanding Facility AE advance prepaid to the date of prepayment. In connection with the execution of Facility AE, we incurred third-party costs of $2.0 million. These costs are included in losses on debt modification, extinguishment and conversion, net, in our condensed consolidated statement of operations for the nine months ended September 30, 2012.

The details of our borrowings under the UPC Broadband Holding Bank Facility are summarized in the following table:
 
 
 
 
September 30, 2012
Facility
 
Final maturity date
 
Interest rate
 
Facility amount
(in borrowing
currency) (a)
 
Unused
borrowing
capacity (b)
 
Carrying
value (c)
 
 
 
 
 
 
in millions
 
 
 
 
 
 
 
 
 
 
 
Q
July 31, 2014
 
EURIBOR + 2.75%
 
€
30.0

 
$
38.6

 
$
—

R
December 31, 2015
 
EURIBOR + 3.25%
 
€
290.7

 
—

 
374.3

S
December 31, 2016
 
EURIBOR + 3.75%
 
€
1,204.5

 
—

 
1,550.8

T
December 31, 2016
 
LIBOR + 3.50%
 
$
260.2

 
—

 
258.8

U
December 31, 2017
 
EURIBOR + 4.00%
 
€
750.8

 
—

 
966.7

V (d)
January 15, 2020
 
7.625%
 
€
500.0

 
—

 
643.8

W
March 31, 2015
 
EURIBOR + 3.00%
 
€
144.1

 
185.5

 
—

X
December 31, 2017
 
LIBOR + 3.50%
 
$
1,042.8

 
—

 
1,042.8

Y (d)
July 1, 2020
 
6.375%
 
€
750.0

 
—

 
965.7

Z (d)
July 1, 2020
 
6.625%
 
$
1,000.0

 
—

 
1,000.0

AA
July 31, 2016
 
EURIBOR + 3.25%
 
€
904.0

 
1,163.9

 
—

AB
December 31, 2017
 
(e)
 
$
500.0

 
—

 
487.0

AC (d)
November 15, 2021
 
7.250%
 
$
750.0

 
—

 
750.0

AD (d)
January 15, 2022
 
6.875%
 
$
750.0

 
—

 
750.0

AE
December 31, 2019
 
EURIBOR + 3.75%
 
€
535.5

 
—

 
689.5

Elimination of Facilities V, Y, Z, AC and AD in consolidation (d)
 
—

 
(4,109.5
)
Total
 
$
1,388.0

 
$
5,369.9

_______________

(a)
Except as described in (d) below, amounts represent total third-party facility amounts at September 30, 2012 without giving effect to the impact of discounts.

(b)
At September 30, 2012, our availability under the UPC Broadband Holding Bank Facility was limited to €105.9 million ($136.3 million). When the relevant September 30, 2012 compliance reporting requirements have been completed, we anticipate that our availability under the UPC Broadband Holding Bank Facility will be limited to €467.7 million ($602.2 million). Facility Q, Facility W and Facility AA have commitment fees on unused and uncanceled balances of 0.75%, 1.2% and 1.3% per year, respectively.

(c)
The carrying values of Facilities T and AB include the impact of discounts.

(d)
The UPCB SPE Notes were issued by certain special purpose entities (the UPCB SPEs) that were created for the primary purpose of facilitating the offering of certain senior secured notes (the UPCB SPE Notes). The proceeds from the UPCB

30

LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
September 30, 2012
(unaudited)



SPE Notes were used to fund additional Facilities V, Y, Z, AC and AD (each a UPCB SPE Funded Facility), with UPC Financing as the borrower. Each UPCB SPE is dependent on payments from UPC Financing under the applicable UPCB SPE Funded Facility in order to service its payment obligations under its UPCB SPE Notes. Although UPC Financing has no equity or voting interest in any of the UPCB SPEs, each of the UPCB SPE Funded Facility loans creates a variable interest in the respective UPCB SPE for which UPC Financing is the primary beneficiary, as contemplated by GAAP. As such, UPC Financing and its parent entities, including UPC Holding and LGI, are required by the provisions of GAAP to consolidate the UPCB SPEs. As a result, the amounts outstanding under Facilities V, Y, Z, AC and AD are eliminated in our consolidated financial statements. During the first quarter of 2012, we recognized losses on debt extinguishment aggregating $1.9 million, representing the write-off of deferred financing costs in connection with the prepayment of amounts outstanding under Facilities M, N and O with proceeds from certain of the UPCB SPE Notes.

(e)
Facility AB bears interest at a rate of LIBOR plus 3.50% with a LIBOR floor of 1.25%.

UPC Holding Senior Notes

On September 21, 2012, UPC Holding issued €600.0 million ($772.5 million) principal amount of 6.375% senior notes (the 6.375% Senior Notes) at an issue price of 99.094%, resulting in cash proceeds before commissions and fees of €594.6 million ($773.1 million at the transaction date). The 6.375% Senior Notes mature on September 15, 2022.

The 6.375% Senior Notes are senior obligations that rank equally with all of the existing and future senior debt of UPC Holding and are senior to all existing and future subordinated debt of UPC Holding. The 6.375% Senior Notes are secured (on a shared basis) by pledges of the shares of UPC Holding. In addition, the 6.375% Senior Notes provide that any failure to pay principal prior to expiration of any applicable grace period, or any acceleration with respect to other indebtedness of €50.0 million ($64.4 million) or more in the aggregate of UPC Holding or its Restricted Subsidiaries (as defined in the indenture governing the 6.375% Senior Notes (the 6.375% Senior Notes Indenture), including UPC Broadband Holding, is an event of default under the 6.375% Senior Notes.

At any time prior to September 15, 2017, UPC Holding may redeem some or all of the 6.375% Senior Notes by paying a “make-whole” premium, which is the present value of all scheduled interest payments until September 15, 2017 by using the discount rate (as specified in the 6.375% Senior Notes Indenture) as of the redemption date, plus 50 basis points. In addition, at any time prior to September 15, 2017, UPC Holding may redeem up to 40% of the 6.375% Senior Notes (at a redemption price of 106.375% of the principal amount, respectively) with the net proceeds from one or more specified equity offerings.

The 6.375% Senior Notes contain certain customary incurrence-based covenants. For example, the ability to raise certain additional debt and make certain distributions or loans to other subsidiaries of LGI is subject to a Consolidated Leverage Ratio test, as defined in the 6.375% Senior Notes Indenture.
 
UPC Holding may redeem some or all of the 6.375% Senior Notes at the following redemption prices (expressed as a percentage of the principal amount) plus accrued and unpaid interest and Additional Amounts (as defined in the 6.375% Senior Notes Indenture), if any, to the applicable redemption date, if redeemed during the twelve-month period commencing on September 15 of the years set forth below: 
Year
 
Redemption price
 
 
 
2017
103.188%
2018
102.125%
2019
101.063%
2020 and thereafter
100.000%

UPC Holding may redeem all of the 6.375% 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 specified changes in control, UPC Holding must offer to repurchase the 6.375% Senior Notes at a redemption price of 101%.


31

LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
September 30, 2012
(unaudited)



Unitymedia KabelBW Exchange, Special Optional Redemptions, KBW Fold-in and 2012 Unitymedia KabelBW Senior Secured Notes

Prior to the transactions described below, the KBW Notes consisted of (i) UPC Germany HC1's €680.0 million ($875.5 million) principal amount of 9.5% Senior Notes (the KBW Senior Notes) and (ii) KBW's (a) €800.0 million ($1,030.0 million) principal amount of 7.5% Senior Secured Notes (the KBW Euro Senior Secured Notes), (b) $500.0 million principal amount of 7.5% Senior Secured Notes (the KBW Dollar Senior Secured Notes and together with the KBW Euro Senior Secured Notes, the KBW Senior Secured Fixed Rate Notes) and (c) €420.0 million ($540.7 million) principal amount of Senior Secured Floating Rate Notes (the KBW Senior Secured Floating Rate Notes and together with the KBW Senior Secured Fixed Rate Notes, the KBW Senior Secured Notes).

In May 2012, Unitymedia KabelBW and certain of its subsidiaries completed (i) the exchange (the Unitymedia KabelBW Exchange) of (a) 90.9% of the outstanding principal amount of the KBW Senior Notes for an equal amount of Unitymedia KabelBW Senior Exchange Notes (as defined below) and (b) 92.5% of the outstanding principal amount of the KBW Senior Secured Notes for an equal amount of Unitymedia KabelBW Senior Secured Exchange Notes (as defined below), (ii) the redemption (the Special Optional Redemptions) of the remaining KBW Notes that were not exchanged pursuant to the Unitymedia KabelBW Exchange and (iii) a series of mergers and consolidations, pursuant to which an indirect parent company of KBW became a subsidiary of Unitymedia Hessen (the KBW Fold-in). The redemption price with respect to the Special Optional Redemptions was 101% of the applicable principal amount thereof, and such redemptions were initially funded with borrowings under the Unitymedia KabelBW Revolving Credit Facility and the New Unitymedia KabelBW Revolving Credit Facility, each as defined and described below. Additionally, in connection with the transactions described above, the KBW Revolving Credit Facility was canceled. In connection with these transactions, we recognized aggregate losses on debt modification and extinguishment of $7.0 million during the first nine-months of 2012, including $5.6 million of third-party costs (of which $2.9 million and $2.4 million were incurred during the first and second quarter of 2012, respectively) and a loss of $1.4 million representing the difference between the carrying value and redemption price of the debt redeemed pursuant to the Special Optional Redemptions.
 
The details of (i) the Unitymedia KabelBW Exchange and (ii) the Special Optional Redemptions are as follows:
 
 
Outstanding principal amount prior to the Unitymedia KabelBW Exchange
 
Principal amount exchanged pursuant to the Unitymedia KabelBW Exchange
 
Principal amount redeemed pursuant to the Special Optional Redemptions
KBW Notes
 
Borrowing currency
 
U.S. $ equivalent (a)
 
Borrowing currency
 
U.S. $ equivalent (a)
 
Borrowing currency
 
U.S. $ equivalent (a)
 
 
in millions
 
 
 
 
 
 
 
 
 
 
 
 
 
KBW Senior Notes (b)
 
€
680.0

 
$
890.0

 
€
618.0

 
$
808.8

 
€
62.0

 
$
81.2

KBW Euro Senior Secured Notes (c)
 
€
800.0

 
1,047.0

 
€
735.1

 
962.1

 
€
64.9

 
84.9

KBW Dollar Senior Secured Notes (d)
 
$
500.0

 
500.0

 
$
459.3

 
459.3

 
$
40.7

 
40.7

KBW Senior Secured Floating Rate Notes (e)
 
€
420.0

 
549.7

 
€
395.9

 
518.2

 
€
24.1

 
31.5

 
 
 
 
$
2,986.7

 
 
 
$
2,748.4

 
 
 
$
238.3

________________

(a)
Translations are calculated as of the May 4, 2012 transaction date.

(b)
The KBW Senior Notes tendered for exchange were exchanged for an equal principal amount of 9.5% senior notes issued by Unitymedia KabelBW due March 15, 2021 (the Unitymedia KabelBW Senior Exchange Notes).

(c)
The KBW Euro Senior Secured Notes tendered for exchange were exchanged for an equal principal amount of 7.5% senior secured notes issued by Unitymedia Hessen and Unitymedia NRW GmbH (each a subsidiary of Unitymedia KabelBW and together, the Unitymedia KabelBW Senior Secured Notes Issuers) due March 15, 2019 (the UM Euro Senior Secured Exchange Notes).


32

LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
September 30, 2012
(unaudited)



(d)
The KBW Dollar Senior Secured Notes tendered for exchange were exchanged for an equal principal amount of 7.5% senior secured notes issued by the Unitymedia KabelBW Senior Secured Notes Issuers due March 15, 2019 (the UM Dollar Senior Secured Exchange Notes and, together with the UM Euro Senior Secured Exchange Notes, the UM Senior Secured Fixed Rate Exchange Notes).

(e)
The KBW Senior Secured Floating Rate Notes tendered for exchange were exchanged for an equal principal amount of senior secured floating rate notes issued by the Unitymedia KabelBW Senior Secured Notes Issuers due March 15, 2018 (the UM Senior Secured Floating Rate Exchange Notes and, together with the UM Senior Secured Fixed Rate Exchange Notes, the Unitymedia KabelBW Senior Secured Exchange Notes). The UM Senior Secured Floating Rate Exchange Notes bear interest at a rate of EURIBOR plus 4.25% and interest is payable quarterly on March 15, June 15, September 15 and December 15. We refer to the Unitymedia KabelBW Senior Exchange Notes and the Unitymedia KabelBW Senior Secured Exchange Notes collectively as the "Unitymedia KabelBW Exchange Notes."

On September 19, 2012, the Unitymedia KabelBW Senior Secured Notes Issuers issued €650.0 million ($836.9 million) principal amount of 5.5% senior secured notes due September 15, 2022 (the 2012 Unitymedia KabelBW Senior Secured Notes). The net proceeds from the issuance of the 2012 Unitymedia KabelBW Senior Secured Notes were used to redeem in full the UM Senior Secured Floating Rate Exchange Notes at a redemption price of 101%, with the remaining €241.8 million ($311.3 million) available for general corporate purposes. During the third quarter of 2012, we recognized losses on debt extinguishment of $10.2 million representing the difference between the carrying value and redemption price of the debt redeemed.

The Unitymedia KabelBW Senior Exchange Notes are senior obligations of Unitymedia KabelBW that rank equally with all of the existing and future senior debt of Unitymedia KabelBW and are senior to all existing and future subordinated debt of Unitymedia KabelBW. The Unitymedia KabelBW Senior Secured Exchange Notes and the 2012 Unitymedia KabelBW Senior Secured Notes are senior obligations of the Unitymedia KabelBW Senior Secured Notes Issuers that rank equally with all of the existing and future senior debt of each Unitymedia KabelBW Senior Secured Notes Issuer and are senior to all existing and future subordinated debt of each of the Unitymedia KabelBW Senior Secured Notes Issuers.

The Unitymedia KabelBW Senior Exchange Notes (i) are secured by the same collateral that secures the €665.0 million ($856.2 million) principal amount of 9.625% senior notes issued by Unitymedia KabelBW in November 2009 (the 2009 UM Senior Notes), (ii) are guaranteed on a senior subordinated basis by the same guarantors of the 2009 UM Senior Notes, (iii) include substantially similar covenants and events of default as the 2009 UM Senior Notes and (iv) include substantially similar redemption and mandatory offer provisions as the 2009 UM Senior Notes except with respect to the redemption price and date on which the Unitymedia KabelBW Senior Exchange Notes become callable, as specified below.

The Unitymedia KabelBW Senior Secured Exchange Notes and the 2012 Unitymedia KabelBW Senior Secured Notes (i) are secured by the same collateral that secures the €1,430.0 million ($1,841.2 million) principal amount and $845.0 million principal amount of 8.125% senior secured notes issued by the Unitymedia KabelBW Senior Secured Notes Issuers in November 2009 (the 2009 UM Senior Secured Notes and, together with the 2009 UM Senior Notes, the 2009 Unitymedia KabelBW Notes), (ii) are guaranteed on a senior basis by the same guarantors of the 2009 UM Senior Secured Notes, (iii) include substantially similar covenants and events of default as the 2009 UM Senior Secured Notes and (iv) include substantially similar redemption and mandatory offer provisions as the 2009 UM Senior Secured Notes except with respect to the redemption price and date on which the Unitymedia KabelBW Senior Secured Exchange Notes and the 2012 Unitymedia KabelBW Senior Secured Notes become callable, as specified below. We refer to the 2009 Unitymedia KabelBW Notes, the Unitymedia KabelBW Exchange Notes and the 2012 Unitymedia KabelBW Senior Secured Notes collectively as the "Unitymedia KabelBW Notes."

The Unitymedia KabelBW Senior Exchange Notes are non-callable until March 15, 2016, the UM Senior Secured Fixed Rate Exchange Notes are non-callable until March 15, 2015 and the 2012 Unitymedia KabelBW Senior Secured Notes are non-callable until September 15, 2017. At any time prior to March 15, 2016, in the case of the Unitymedia KabelBW Senior Exchange Notes, March 15, 2015, in the case of the UM Senior Secured Fixed Rate Exchange Notes, and September 15, 2017, in the case of the 2012 Unitymedia KabelBW Senior Secured Notes, Unitymedia KabelBW and the Unitymedia KabelBW Senior Secured Notes Issuers (as applicable) may redeem some or all of the Unitymedia KabelBW Senior Exchange Notes, the UM Senior Secured Fixed Rate Exchange Notes or the 2012 Unitymedia KabelBW Senior Secured Notes (as applicable) by paying a “make-whole” premium, which is the present value of all remaining scheduled interest payments to the redemption date using the discount rate (as specified in the applicable indenture) as of the redemption date plus 50 basis points.


33

LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
September 30, 2012
(unaudited)



At any time prior to September 15, 2017, the Unitymedia KabelBW Senior Secured Notes Issuers may redeem up to 10% of the aggregate principal amount of the 2012 Unitymedia KabelBW Senior Secured Notes during each 12-month period commencing on September 19, 2012. The redemption price in such case would be 103% (expressed as a percentage of the principal amount thereof) plus accrued and unpaid interest and Additional Amounts (as defined in the indenture governing the 2012 Unitymedia KabelBW Senior Secured Notes), if any.

Unitymedia KabelBW and the Unitymedia KabelBW Senior Secured Notes Issuers (as applicable) may redeem some or all of the Unitymedia KabelBW Senior Exchange Notes, the UM Senior Secured Fixed Rate Exchange Notes or the 2012 Unitymedia KabelBW Senior Secured Notes at the following redemption prices (expressed as a percentage of the principal amount), plus accrued and unpaid interest and Additional Amounts (as defined in the applicable indenture), if any, to the applicable redemption date, if redeemed during the twelve-month period commencing on March 15, in the case of the Unitymedia KabelBW Senior Exchange Notes and the UM Senior Secured Fixed Rate Exchange Notes, or September 15, in the case of the 2012 Unitymedia KabelBW Senior Secured Notes, of the years set forth below:
 
 
Redemption price
Year
 
Unitymedia KabelBW Senior Exchange Notes
 
UM Senior Secured Fixed Rate Exchange Notes
 
2012 Unitymedia KabelBW Senior Secured Notes
 
 
 
 
 
 
 
2015
N.A.
 
103.750%
 
N.A.
2016
104.750%
 
101.875%
 
N.A.
2017
103.167%
 
100.000%
 
102.750%
2018
101.583%
 
100.000%
 
101.833%
2019
100.000%
 
100.000%
 
100.917%
2020 and thereafter
100.000%
 
100.000%
 
100.000%

At any time after September 19, 2013 but before September 19, 2017, the Unitymedia KabelBW Senior Secured Notes Issuers have the option, following completion of a UPC/Unitymedia KabelBW Exchange Transaction, to redeem all, but not less than all, of the 2012 Unitymedia KabelBW Senior Secured Notes. The redemption price in such case (expressed as a percentage of the principal amount thereof) would be (i) 101%, if such redemption is on or before September 19, 2014 or (ii) 102%, if such redemption is after September 19, 2014. A UPC/Unitymedia KabelBW Exchange Transaction means an exchange offer by UPC Broadband Holding or UPC Holding, as applicable, pursuant to which one or more series of senior secured notes issued by UPC Broadband Holding or senior notes issued by UPC Holding, as applicable, are, subject to certain terms and conditions (including consent by holders of a majority in aggregate principal amount of the 2012 Unitymedia KabelBW Senior Secured Notes to participate in the exchange offer), offered in exchange for the applicable Unitymedia KabelBW Notes.

KBW and its immediate parent (collectively, the New UM Guarantors) have granted, in addition to guarantees provided by Unitymedia KabelBW and/or certain of its subsidiaries, as applicable, of the 2009 UM Senior Notes and the 2009 UM Senior Secured Notes, a senior guarantee of the 2009 UM Senior Secured Notes and a senior subordinated guarantee of the 2009 UM Senior Notes.  The New UM Guarantors have also granted a senior subordinated guarantee of the Unitymedia KabelBW Senior Exchange Notes and a senior guarantee of the Unitymedia KabelBW Senior Secured Exchange Notes and the 2012 Unitymedia KabelBW Senior Secured Notes.  In addition, the New UM Guarantors have provided certain share and asset security in favor of the 2009 UM Senior Secured Notes, the Unitymedia KabelBW Senior Secured Exchange Notes and the 2012 Unitymedia KabelBW Senior Secured Notes.


34

LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
September 30, 2012
(unaudited)



The details of the Unitymedia KabelBW Notes are summarized in the following table:
 
 
 
 
 
 
September 30, 2012
 
 
 
 
 
 
Outstanding
principal amount
 
 
 
 
Unitymedia KabelBW Notes
 
Maturity
 
Interest
rate
 
Borrowing
currency
 
U.S. $
equivalent
 
Estimated
fair value
 
Carrying
value (a)
 
 
 
 
 
 
in millions
 
 
 
 
 
 
 
 
 
 
 
 
 
2009 UM Senior Notes
December 1, 2019
 
9.625%
 
€
665.0

 
$
856.2

 
$
950.4

 
$
840.0

2009 UM Euro Senior Secured Notes
December 1, 2017
 
8.125%
 
€
1,430.0

 
1,841.2

 
1,980.5

 
1,812.7

2009 UM Dollar Senior Secured Notes
December 1, 2017
 
8.125%
 
$
845.0

 
845.0

 
911.5

 
832.6

Unitymedia KabelBW Senior Exchange Notes
March 15, 2021
 
9.500%
 
€
618.0

 
795.7

 
898.1

 
793.6

UM Euro Senior Secured Exchange Notes
March 15, 2019
 
7.500%
 
€
735.1

 
946.5

 
1,040.0

 
954.5

UM Dollar Senior Secured Exchange Notes
March 15, 2019
 
7.500%
 
$
459.3

 
459.3

 
506.1

 
467.3

2012 Unitymedia KabelBW Senior Secured Notes
September 15, 2022
 
5.500%
 
€
650.0

 
836.9

 
821.2

 
836.9

 
 
 
 
 
 
 
 
$
6,580.8

 
$
7,107.8

 
$
6,537.6

_______________
 
(a)
Amounts include the impact of premiums and discounts, where applicable.

Unitymedia KabelBW Revolving Credit Facilities

On May 1, 2012, Unitymedia Hessen entered into a €312.5 million ($402.3 million) secured revolving credit facility agreement with certain lenders (the New Unitymedia KabelBW Revolving Credit Facility). On August 28, 2012, the New Unitymedia KabelBW Revolving Credit Facility was increased to €337.5 million ($434.5 million). The interest rate for the New Unitymedia KabelBW Revolving Credit Facility is EURIBOR plus a margin of 3.25%. Borrowings under the New Unitymedia KabelBW Revolving Credit Facility, which matures on June 30, 2017, may be used for general corporate and working capital purposes. In addition to customary restrictive covenants and events of default, the New Unitymedia KabelBW Revolving Credit Facility requires compliance with a Consolidated Leverage Ratio, as defined in the New Unitymedia KabelBW Revolving Credit Facility. The New Unitymedia KabelBW Revolving Credit Facility is secured by a pledge over the shares of Unitymedia KabelBW and certain other asset security of certain subsidiaries of Unitymedia KabelBW. The New Unitymedia KabelBW Revolving Credit Facility provides for an annual commitment fee of 1.25% on the unused portion. Also on May 1, 2012, Unitymedia KabelBW's existing €80.0 million ($103.0 million) secured revolving credit facility agreement (the Unitymedia KabelBW Revolving Credit Facility, together with the New Unitymedia KabelBW Revolving Credit Facility, the Unitymedia KabelBW Revolving Credit Facilities) was amended whereby the maturity date was extended to June 30, 2017 and the interest rate was reduced to EURIBOR plus a margin of 2.50%. The Unitymedia KabelBW Revolving Credit Facility is senior to (i) the 2009 Unitymedia KabelBW Notes, (ii) the Unitymedia KabelBW Exchange Notes, (iii) the 2012 Unitymedia KabelBW Senior Secured Notes and (iv) the New Unitymedia KabelBW Revolving Credit Facility. The Unitymedia KabelBW Revolving Credit Facility provides for an annual commitment fee of 1.00% on the unused portion. In connection with the Special Optional Redemptions, (i) the Unitymedia KabelBW Revolving Credit Facility was drawn in full and (ii) borrowings of €105.0 million ($137.8 million at the transaction date) were drawn against the New Unitymedia KabelBW Revolving Credit Facility. Such borrowings were repaid during the second quarter of 2012.

Telenet Credit Facility

The Telenet Credit Facility, as amended, is the senior credit facility of Telenet NV and Telenet International.

On February 29, 2012, Telenet entered into two additional facility accession agreements, the Additional Facility Q2 Accession Agreement (the Q2 Accession Agreement) and the Additional Facility R2 Accession Agreement (the R2 Accession Agreement)

35

LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
September 30, 2012
(unaudited)



under the Telenet Credit Facility. Pursuant to the Q2 Accession Agreement and the R2 Accession Agreement, certain lenders agreed to provide new term loan facilities in an aggregate principal amount of €74.0 million ($95.3 million) (Telenet Facility Q2) and €50.0 million ($64.4 million) (Telenet Facility R2), respectively. In connection with these transactions, certain lenders under the existing Telenet Facility Q and Telenet Facility R under the Telenet Credit Facility agreed to novate their existing Telenet Facility Q commitments (in an aggregate amount of €74.0 million ($95.3 million)) and their existing Telenet Facility R commitments (in an amount of €50.0 million ($64.4 million)) to Telenet Luxembourg Finance Centre S.àr.l., a subsidiary of Telenet NV, and to enter into the new Telenet Facility Q2 and Telenet Facility R2.  Telenet Facilities Q and R were reduced by the amounts of Telenet Facilities Q2 and R2 during the first quarter of 2012 using the proceeds from Telenet Facility T. Telenet Facilities Q2 and R2 were each drawn in full on August 31, 2012 and subsequently merged into Telenet Facilities Q and R, respectively.

The details of our borrowings under the Telenet Credit Facility are summarized in the following table:
 
 
 
 
September 30, 2012
Facility
 
Final maturity date
 
Interest rate
 
Facility amount
(in borrowing
currency) (a)
 
Unused
borrowing
capacity (b)
 
Carrying
value
 
 
 
 
 
 
in millions
 
 
 
 
 
 
 
 
 
 
 
M (c)
November 15, 2020
 
6.375%
 
€
500.0

 
$
—

 
$
643.7

N (c)
November 15, 2016
 
5.300%
 
€
100.0

 
—

 
128.8

O (c)
February 15, 2021
 
6.625%
 
€
300.0

 
—

 
386.3

P (c)
June 15, 2021
 
EURIBOR + 3.875%
 
€
400.0

 
—

 
515.0

Q
July 31, 2017
 
EURIBOR + 3.25%
 
€
431.0

 
—

 
555.0

R
July 31, 2019
 
EURIBOR + 3.625%
 
€
798.6

 
—

 
1,028.3

S
December 31, 2016
 
EURIBOR + 2.75%
 
€
158.0

 
203.4

 
—

T
December 31, 2018
 
EURIBOR + 3.50%
 
€
175.0

 
—

 
225.3

U (c)
August 15, 2022
 
6.250%
 
€
450.0

 
—

 
579.4

V (c)
August 15, 2024
 
6.750%
 
€
250.0

 
—

 
321.9

Elimination of Telenet Facilities M, N, O, P, U and V in consolidation (c)
 
—

 
(2,575.1
)
Total
 
$
203.4

 
$
1,808.6

 _______________

(a)
Except as described in (c) below, amounts represent total third-party facility amounts at September 30, 2012.

(b)
Telenet Facility S has a commitment fee on unused and uncanceled balances of 1.1% per year.

(c)
The Telenet SPE Notes were issued by certain special purpose entities (the Telenet SPEs) that were created for the primary purpose of facilitating the offering of certain senior secured notes (the Telenet SPE Notes). The proceeds from the Telenet SPE Notes were used to fund additional Telenet Facilities M, N, O, P, U and V (each a Telenet SPE Funded Facility), with Telenet International as the borrower. Each Telenet SPE is dependent on payments from Telenet International under the applicable Telenet SPE Funded Facility in order to service its payment obligations under its Telenet SPE Notes. Although Telenet International has no equity or voting interest in any of the Telenet SPEs, each of the Telenet SPE Funded Facility loans creates a variable interest in the respective Telenet SPE for which Telenet International is the primary beneficiary, as contemplated by GAAP. As such, Telenet International and its parent entities, including Telenet and LGI, are required by the provisions of GAAP to consolidate the Telenet SPEs. As a result, the amounts outstanding under Telenet Facilities M, N, O, P, U and V are eliminated in our consolidated financial statements.

Telenet SPE Notes

Telenet Finance V Luxembourg S.C.A. (Telenet Finance V) is a special purpose financing entity created for the primary purpose of facilitating the offerings of €450.0 million ($579.4 million) principal amount of 6.25% senior secured notes (the 6.25% Telenet Finance V Senior Notes) and €250.0 million ($321.9 million) principal amount of 6.75% senior secured notes (the 6.75% Telenet

36

LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
September 30, 2012
(unaudited)



Finance V Senior Notes, and together with the 6.25% Telenet Finance V Senior Notes, the Telenet Finance V Senior Notes). The Telenet Finance V Senior Notes are included in the Telenet SPE Notes as described above. Telenet Finance V is included in the Telenet SPE as described above.

Telenet Finance V is owned 99.9% by a foundation established under the laws of the Netherlands and 0.1% by a Luxembourg private limited liability company as general partner. On August 13, 2012, Telenet Finance V issued the 6.25% Telenet Finance V Senior Notes and the 6.75% Telenet Finance V Senior Notes, each at par, and used the proceeds to fund new Telenet Facilities U and V, respectively, each under the Telenet Credit Facility, with Telenet International as the borrower for each facility. Proceeds of Telenet Facilities U and V may be used to fund a share buy-back by Telenet and for general corporate purposes.

Telenet Finance V is dependent on payments from Telenet International under the applicable of Telenet Facility U or V of the Telenet Credit Facility in order to service its payment obligations under its Telenet Finance V Senior Notes. Although Telenet International has no equity or voting interest in Telenet Finance V, the Telenet Finance V Senior Notes create a variable interest in Telenet Finance V for which Telenet International is the primary beneficiary, as contemplated by GAAP. As such, Telenet International and its parent entities, including Telenet and LGI, are required by the provisions of GAAP to consolidate Telenet Finance V.  Accordingly, the amounts outstanding under Telenet Facilities U and V have been eliminated in our consolidated financial statements.

Pursuant to the indenture for the Telenet Finance V Senior Notes (the Telenet V SPE Indenture) and the respective accession agreements for Telenet Facilities U and V, the call provisions, maturity and applicable interest rate for Telenet Facilities U and V are the same as those of the related Telenet Finance V Senior Notes. Telenet Finance V as a lender under the Telenet Credit Facility, is treated the same as the other lenders under the Telenet Credit Facility, with benefits, rights and protections similar to those afforded to the other lenders. Through the covenants in the Telenet V SPE Indenture and the applicable security interests over (i) all of the issued shares of Telenet Finance V and (ii) Telenet Finance V's rights under Telenet Facilities U and V granted to secure the obligations of Telenet Finance V under the Telenet Finance V Senior Notes, the holders of the Telenet Finance V Senior Notes are provided indirectly with the benefits, rights, protections and covenants, granted to Telenet Finance V as a lender under the Telenet Credit Facility.

Telenet Finance V is prohibited from incurring any additional indebtedness, subject to certain exceptions under the Telenet V SPE Indenture.

Any proceeds of Telenet Facility U not used for the share buy-back will be considered Excess Offering Proceeds (as defined in the Telenet V SPE Indenture). Prior to the earlier of (i) November 16, 2012 and (ii) ten business days following the payment of the bid price to tendering shareholders in the share buy-back, Telenet NV and Telenet International may elect, at their option, one time only on five business days' notice (which notice will be irrevocable), to apply such Excess Offering Proceeds to prepay Telenet Facility U up to a principal amount of €250.0 million ($321.9 million), provided that, in any event, at least €200.0 million ($257.5 million) in principal amount of Telenet Facility U will remain outstanding immediately after such prepayment. Following such optional repayment, Telenet Finance V will redeem a corresponding amount of the 6.25% Telenet Finance V Senior Notes at a redemption price equal to 100% of the principal amount of the 6.25% Telenet Finance V Senior Notes redeemed plus accrued and unpaid interest. On September 19, 2012 and as further described in note 2, we announced our intention to launch the LGI Telenet Tender, pursuant to which we would seek to acquire all of the outstanding shares of Telenet that we do not already own.

The 6.25% Telenet Finance V Senior Notes may not be redeemed prior to August 15, 2017, except as described above and the 6.75% Telenet Finance V Senior Notes may not be redeemed prior to August 15, 2018 (each a Telenet Finance V Senior Notes Call Date). If, however, at any time prior to the applicable Telenet Finance V Senior Notes Call Date, a voluntary prepayment of all or a portion of the loans under the related Telenet Facilities U and V occurs, then Telenet Finance V will be required to redeem an aggregate principal amount of its Telenet Finance V Senior Notes equal to the principal amount of the loans so prepaid under the related Telenet Facilities U and V. The redemption price payable will equal the sum of (i) 100% of the principal amount of the Telenet Finance V Senior Notes to be redeemed, (ii) the excess of (a) the present value at such redemption date of (1) the redemption price of such Telenet Finance V Senior Notes on the applicable Telenet Finance V Senior Notes Call Date, as determined in accordance with the table below, plus (2) all required remaining scheduled interest payments thereon due through the applicable Telenet Finance V Senior Notes Call Date (excluding accrued and unpaid interest to such redemption date), computed using the discount rate specified in the applicable Telenet V SPE Indenture, over (b) the principal amount of such Telenet Finance V Senior Notes to be redeemed and (iii) accrued and unpaid interest thereon and Additional Amounts (as defined in the applicable Telenet V SPE Indenture), if any, to the date of redemption.

37

LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
September 30, 2012
(unaudited)




On or after the applicable Telenet Finance V Senior Notes Call Date, upon the voluntary prepayment of all or a portion of the loans under the related Telenet Facilities U and V, Telenet Finance V will redeem an aggregate principal amount of its Telenet Finance V Senior Notes equal to the principal amount of the loans so prepaid plus accrued and unpaid interest and Additional Amounts (as defined in the Telenet V SPE Indenture), if any, to the applicable redemption date, if redeemed during the twelve-month period commencing on August 15 of the years set forth below:

 
 
Redemption price
Year
 
6.25% Telenet Finance V Senior Notes
 
6.75% Telenet Finance V Senior Notes
 
 
 
 
 
2017
103.125%
 
N.A.
2018
102.083%
 
103.375%
2019
101.563%
 
102.531%
2020
100.000%
 
101.688%
2021
100.000%
 
100.844%
2022 and thereafter
100.000%
 
100.000%

New Liberty Puerto Rico Bank Facility

On August 13, 2012, Liberty Puerto Rico entered into a new bank credit facility (the New Liberty Puerto Rico Bank Facility), the proceeds of which were used to repay the Old Liberty Puerto Rico Bank Facility and for general corporate purposes.  The New Liberty Puerto Rico Bank Facility consists of (i) a $175.0 million senior secured term loan (the New PR Term Loan) and (ii) a $10.0 million senior secured revolving credit facility (the New PR Revolving Loan).  All amounts borrowed under the New Liberty Puerto Rico Bank Facility bear interest, at Liberty Puerto Rico's option, at either (i) LIBOR plus 4.50% with a LIBOR floor of 1.50% or (ii) Base Rate (as defined in the New Liberty Puerto Rico Bank Facility agreement) plus 3.50% with a base rate floor of 2.50%.  The New PR Term Loan, which begins amortizing at 1% per year on September 15, 2012, and the New PR Revolving Loan have final maturities on June 9, 2017. The New PR Revolving Loan has a commitment fee on unused and uncanceled balances of 1.80% per year. In connection with these transactions, we recognized aggregate losses on debt extinguishment of $4.4 million during the third quarter of 2012, including (i) $3.8 million of third-party costs incurred in connection with the New Liberty Puerto Rico Bank Facility and (ii) the write-off of deferred financing fees of $0.6 million relating to repayment of the Old Liberty Puerto Rico Bank Facility.

In connection with the above refinancing transaction, the requirement under the Old Liberty Puerto Rico Bank Facility that Liberty Puerto Rico maintain a $10 million cash collateral account to protect against losses in connection with an uninsured casualty event was terminated, and such amount was reclassified from long-term restricted cash to cash and cash equivalents in our condensed consolidated balance sheet.

In addition to customary restrictive covenants, prepayment requirements and events of default, including defaults on other indebtedness of Liberty Puerto Rico and its subsidiaries, the New Liberty Puerto Rico Bank Facility requires compliance with the following financial covenants: (i) Debt to Annualized EBITDA and (ii) Annualized EBITDA to Total Cash Interest Charges, each capitalized term as defined in the New Liberty Puerto Rico Bank Facility. The New Liberty Puerto Rico Bank Facility permits Liberty Puerto Rico to transfer funds to its parent company (and indirectly to LGI) through loans, dividends or other distributions provided that Liberty Puerto Rico maintains compliance with applicable covenants.

The New Liberty Puerto Rico Bank Facility is secured by pledges over (i) the Liberty Puerto Rico shares indirectly owned by our company and (ii) certain other assets owned by Liberty Puerto Rico. For information concerning the impact of the completion of the Puerto Rico Transaction on the New Liberty Puerto Rico Bank Facility, see note 2.

38

LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
September 30, 2012
(unaudited)




Maturities of Debt and Capital Lease Obligations

Maturities of our debt and capital lease obligations as of September 30, 2012 are presented below for the named entity and its subsidiaries, unless otherwise noted. Amounts presented below represent U.S. dollar equivalents based on September 30, 2012 exchange rates:

Debt:
 
UPC
Holding (a)
 
Unitymedia KabelBW
 
Telenet (a)
 
Other
 
Total
 
in millions
Year ended December 31:
 
 
 
 
 
 
 
 
 
2012 (remainder of year)
$
52.0

 
$
—

 
$
9.5

 
$
0.8

 
$
62.3

2013
1.0

 
—

 
9.5

 
163.5

 
174.0

2014
—

 
—

 
9.5

 
3.0

 
12.5

2015
374.3

 
—

 
9.5

 
3.1

 
386.9

2016
2,197.3

 
—

 
138.3

 
563.3

 
2,898.9

2017
2,509.5

 
2,686.2

 
564.5

 
649.9

 
6,410.1

Thereafter
7,310.6

 
3,894.6

 
3,817.8

 
252.4

 
15,275.4

Total debt maturities
12,444.7

 
6,580.8

 
4,558.6

 
1,636.0

 
25,220.1

Unamortized premium (discount)
(74.1
)
 
(43.2
)
 
1.6

 
—

 
(115.7
)
Total debt
$
12,370.6

 
$
6,537.6

 
$
4,560.2

 
$
1,636.0

 
$
25,104.4

Current portion
$
52.0

 
$
—

 
$
9.5

 
$
162.2

 
$
223.7

Noncurrent portion
$
12,318.6

 
$
6,537.6

 
$
4,550.7

 
$
1,473.8

 
$
24,880.7

 _______________

(a)
Amounts include the UPCB SPE Notes and the Telenet SPE Notes issued by the UPCB SPEs and the Telenet SPEs, respectively. As described above, the UPCB SPEs are consolidated by UPC Holding and the Telenet SPEs are consolidated by Telenet.


39

LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
September 30, 2012
(unaudited)



Capital lease obligations:
 
Unitymedia KabelBW
 
Telenet
 
Other
 
Total
 
in millions
Year ended December 31:
 
 
 
 
 
 
 
2012 (remainder of year)
$
23.6

 
$
12.5

 
$
2.6

 
$
38.7

2013
94.6

 
62.3

 
7.9

 
164.8

2014
94.4

 
61.4

 
7.2

 
163.0

2015
94.3

 
56.2

 
6.8

 
157.3

2016
94.3

 
54.5

 
5.0

 
153.8

2017
94.3

 
53.2

 
3.7

 
151.2

Thereafter
1,214.9

 
242.4

 
29.2

 
1,486.5

Total principal and interest payments
1,710.4

 
542.5

 
62.4

 
2,315.3

Amounts representing interest
(791.9
)
 
(145.8
)
 
(20.5
)
 
(958.2
)
Present value of net minimum lease payments
$
918.5

 
$
396.7

 
$
41.9

 
$
1,357.1

Current portion
$
24.5

 
$
38.4

 
$
5.8

 
$
68.7

Noncurrent portion
$
894.0

 
$
358.3

 
$
36.1

 
$
1,288.4


Non-cash Refinancing Transactions

During the nine months ended September 30, 2012 and 2011, certain of our refinancing transactions included non-cash borrowings and repayments of debt aggregating $3,461.5 million and $2,908.0 million, respectively.

Subsequent Event

For information regarding the Telenet TO Facility that was entered into subsequent to September 30, 2012, see note 2.

(8)    Income Taxes

Income tax benefit (expense) attributable to our earnings (loss) from continuing operations before income taxes differs from the amounts computed by applying the U.S. federal income tax rate of 35%, as a result of the following:
 
Three months ended
 
Nine months ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
 
in millions
 
 
 
 
 
 
 
 
Computed expected tax benefit (expense)
$
(19.4
)
 
$
126.4

 
$
50.3

 
$
121.3

Non-deductible or non-taxable interest and other expenses
(19.8
)
 
(22.4
)
 
(56.7
)
 
(74.3
)
Change in valuation allowances
(11.0
)
 
(68.8
)
 
(54.3
)
 
(56.4
)
Basis and other differences in the treatment of items associated with investments in subsidiaries and affiliates
(21.5
)
 
(1.3
)
 
(27.5
)
 
(2.9
)
International rate differences (a)
2.1

 
(25.4
)
 
(17.0
)
 
(3.9
)
Enacted tax law and rate changes
9.8

 
0.6

 
9.6

 
(0.2
)
Foreign taxes
0.1

 
(2.0
)
 
(5.4
)
 
(6.2
)
Other, net
(1.4
)
 
(2.7
)
 
(5.0
)
 
—

Total
$
(61.1
)
 
$
4.4

 
$
(106.0
)
 
$
(22.6
)

40

LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
September 30, 2012
(unaudited)



_______________

(a)
Amounts reflect statutory rates in jurisdictions that we operate outside of the U.S., all of which are lower than the U.S. federal income tax rate.

The changes in our unrecognized tax benefits are summarized below: 
 
Nine months ended
 
September 30,
 
2012
 
2011
 
in millions
 
 
 
 
Balance at January 1
$
400.6

 
$
475.0

Reductions for tax positions of prior years
(107.1
)
 
(4.6
)
Additions based on tax positions related to the current year
9.1

 
16.6

Additions for tax positions of prior years
5.0

 
2.9

Foreign currency translation
0.7

 
(0.2
)
Lapse of statute of limitations
(0.6
)
 
—

Balance at September 30
$
307.7

 
$
489.7


No assurance can be given that any of these tax benefits will be recognized or realized.

As of September 30, 2012, our unrecognized tax benefits included $247.7 million of tax benefits that would have a favorable impact on our effective income tax rate if ultimately recognized, after considering amounts that we would expect to be offset by valuation allowances.

During the next twelve months, it is reasonably possible that the resolution of currently ongoing examinations by tax authorities could result in changes to our unrecognized tax benefits related to tax positions taken as of September 30, 2012. In this regard, we expect to record an estimated $20 million to $30 million reduction during the fourth quarter of 2012 or the first quarter of 2013 related to the confirmation of the amount of a deduction taken in a prior year. Other than this reduction, which will result in a decrease to our effective tax rate, we do not expect that any changes in our unrecognized tax benefits during the next twelve months will have a material impact on our unrecognized benefits. No assurance can be given as to the nature or impact of any changes in our unrecognized tax positions during the next twelve months.

(9)    Equity

Stock Repurchases

During the first nine months of 2012, we purchased 2,715,980 shares of our LGI Series A common stock at a weighted average price of $46.62 per share and 10,248,714 shares of our LGI Series C common stock at a weighted average price of $48.18 per share, for an aggregate purchase price of $620.3 million, including direct acquisition costs. As of September 30, 2012, the remaining amount authorized under our most recent stock repurchase program was $391.0 million.

LGI Call Option Contracts

During the three months ended September 30, 2012, we entered into a number of call option contracts pursuant to which we contemporaneously (i) sold call options on 1,040,000 shares of LGI Series A common stock at exercise prices ranging from $54.73 per share to $60.76 per share and (ii) purchased call options on an equivalent number of shares of LGI Series A common stock with an exercise price of zero. The aggregate amount that we were required to pay to enter into these contracts was $58.5 million, including $11.9 million that was paid in October 2012. In connection with the September 2012 settlement of call option contracts covering 240,000 shares of LGI Series A common stock, we received aggregate cash payments of $13.2 million, including $4.4 million that was received in September 2012. The call option contracts covering the remaining 800,000 shares were settled in October 2012.


41

LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
September 30, 2012
(unaudited)



Other

Telenet. On February 17, 2012, Telenet entered into a share repurchase agreement (the Telenet Share Repurchase Agreement), pursuant to which an investment bank, on behalf of Telenet, agreed to repurchase Telenet's ordinary shares on a daily basis. The Telenet Share Repurchase Agreement, which provided for the repurchase of up to 3,000,000 Telenet ordinary shares not to exceed an aggregate cost of €50.0 million ($65.8 million), was terminated on August 13, 2012, the announcement date of the Telenet Self-Tender, as defined and described below. Under the Telenet Share Repurchase Agreement, a total of 1,449,076 shares were repurchased for total consideration of €45.7 million ($60.6 million at the applicable rate).

On August 13, 2012, Telenet announced that it would initiate a share buyback through a voluntary tender offer (the Telenet Self-Tender) for a maximum of 20,673,043 shares, or 18.3% of the outstanding share capital of Telenet as of September 30, 2012, at a price of €31.75 per share (as adjusted for the €3.25 per share capital reduction described below). As further described in note 2, on September 19, 2012, we announced our intention to launch the LGI Telenet Tender, pursuant to which we would seek to acquire all of the outstanding shares of Telenet that we do not already own. If the LGI Telenet Tender is launched and completed, the Telenet Self-Tender will be canceled.

In April 2012, Telenet's shareholders approved cash distributions of (i) €1.00 ($1.27) per share or €113.3 million ($149.6 million at the applicable rate) in the form of a gross dividend and (ii) €3.25 ($4.11) per share or €369.2 million ($488.6 million at the applicable rate) in the form of a net capital reduction. Our share of the gross dividend, which was received in May 2012, was €56.8 million ($73.7 million at the applicable rate) and the noncontrolling interest owners' share was €56.4 million ($73.2 million at the applicable rate). Our share of the capital reduction, which was accrued during the second quarter of 2012 and received in August 2012, was €184.7 million ($229.2 million at the applicable rate) and the noncontrolling interest owners' share was €181.4 million ($228.0 million at the applicable rate).

VTR. On January 26, 2012, we and the 20% noncontrolling interest owner in VTR (the VTR NCI Owner) approved a distribution of CLP 35.0 billion ($71.6 million at the applicable rate). Our share of this distribution is CLP 28.0 billion ($57.3 million at the applicable rate) and the VTR NCI Owner's share of this distribution is CLP 7.0 billion ($14.3 million at the applicable rate). During September 2012, we and the VTR NCI Owner approved an additional distribution of CLP 20.0 billion ($41.5 million at the applicable rate). Our share of this additional distribution is CLP 16.0 billion ($33.2 million at the applicable rate) and the VTR NCI Owner's share of this distribution is CLP 4.0 billion ($8.3 million at the applicable rate). During the second and third quarters of 2012, VTR paid CLP 31.0 billion ($62.9 million at the applicable rates) related to these distributions and we expect that the balance will be paid during the fourth quarter of 2012.

We and the VTR NCI Owner have agreed to proportionately fund, as required, the capital calls of VTR Wireless. During the nine months ended September 30, 2012, we and the VTR NCI Owner made capital contributions to VTR Wireless of CLP 25.6 billion ($52.4 million at the applicable rate) and CLP 6.4 billion ($13.1 million at the applicable rate), respectively.


42

LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
September 30, 2012
(unaudited)



(10)    Stock Incentive Awards

Our stock-based compensation expense is based on the stock incentive awards held by our and our subsidiaries' employees, including stock incentive awards related to LGI common stock and the shares of certain of our subsidiaries. The following table summarizes our stock-based compensation expense: 
 
Three months ended
 
Nine months ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
 
in millions
LGI common stock:
 
 
 
 
 
 
 
LGI performance-based incentive awards (a)
$
11.1

 
$
14.8

 
$
29.5

 
$
36.4

Other LGI stock-based incentive awards
11.4

 
11.9

 
34.2

 
33.3

Total LGI common stock
22.5

 
26.7

 
63.7

 
69.7

Telenet stock-based incentive awards (b)
4.4

 
5.5

 
25.2

 
34.6

Other (c)
0.3

 
1.9

 
1.6

 
5.1

Total
$
27.2

 
$
34.1

 
$
90.5

 
$
109.4

Included in:
 
 
 
 
 
 
 
Continuing operations:
 
 
 
 
 
 
 
Operating expenses
$
1.1

 
$
3.0

 
$
6.3

 
$
12.8

SG&A expenses
26.1

 
29.9

 
84.2

 
92.9

Total - continuing operations
27.2

 
32.9

 
90.5

 
105.7

Discontinued operation
—

 
1.2

 
—

 
3.7

Total
$
27.2

 
$
34.1

 
$
90.5

 
$
109.4

_______________

(a)
Includes stock-based compensation expense related to LGI performance-based restricted share units (PSUs) and, during the 2011 periods, our five-year performance-based incentive plans for our senior executives and certain key employees (the LGI Performance Plans).

(b)
During the second quarters of 2012 and 2011, Telenet modified the terms of certain of its stock option plans to provide for anti-dilution adjustments in connection with capital reductions. In connection with these anti-dilution adjustments, Telenet recognized stock-based compensation expense of $12.6 million and $15.8 million, respectively, and continues to recognize additional stock-based compensation expense as the underlying options vest.

(c)
The 2012 periods include stock-based compensation expense related to performance-based awards granted pursuant to a liability-based plan of the VTR Group.  These awards were granted during the first quarter of 2012 and, subject to the achievement of the minimum performance criteria, 50% to 150% of these awards will vest on December 31, 2013 based on the level of the specified performance criteria that is achieved through 2012.

The following table provides certain information related to stock-based compensation not yet recognized for stock incentive awards related to LGI common stock and Telenet common stock as of September 30, 2012: 
 
LGI
common
stock (a)
 
LGI
PSUs (a) (b)
 
Telenet common stock (c)
 
 
 
 
 
 
Total compensation expense not yet recognized (in millions)
$
90.0

 
$
36.4

 
$
20.7

Weighted average period remaining for expense recognition (in years)
2.8

 
1.4

 
1.5


43

LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
September 30, 2012
(unaudited)



_____________

(a)
Amounts relate to awards granted under (i) the Liberty Global, Inc. 2005 Incentive Plan (as amended and restated October 31, 2006) (the LGI Incentive Plan) and (ii) the Liberty Global, Inc. 2005 Nonemployee Director Incentive Plan (as amended and restated November 1, 2006) (the LGI Director Incentive Plan). The LGI Incentive Plan had 8,653,825 shares available for grant as of September 30, 2012. These shares may be awarded in any series of our common stock. The LGI Director Incentive Plan had 8,951,895 shares available for grant as of September 30, 2012. These shares may be awarded in any series of our common stock, except that no more than five million shares may be awarded in LGI Series B common stock.
  
(b)
Amounts relate to PSUs granted in 2012 and 2011. For information concerning the PSUs granted in 2012, see below.

(c)
Amounts relate to various equity incentive awards granted to employees of Telenet. Depending on the outcome of the LGI Telenet Tender and related transactions, all or a portion of this amount may be recognized during the period in which the LGI Telenet Tender closes. For additional information regarding the LGI Telenet Tender, see note 2.

The following table summarizes certain information related to the incentive awards granted and exercised with respect to LGI common stock:
 
Nine months ended
 
September 30,
 
2012
 
2011
Assumptions used to estimate fair value of options and stock appreciation rights (SARs) granted:
 
 
 
Risk-free interest rate
0.37 - 1.68%
 
0.93 - 3.31%
Expected life
3.3 - 7.9 years
 
3.4 - 8.7 years
Expected volatility
31.5 - 40.4%
 
35.5 - 41.8%
Expected dividend yield
none
 
none
Weighted average grant-date fair value per share of awards granted:
 
 
 
Options
$
20.00

 
$
21.41

SARs
$
14.36

 
$
15.03

Restricted shares and restricted share units
$
49.10

 
$
44.81

PSUs
$
50.18

 
$
39.98

Total intrinsic value of awards exercised (in millions):
 
 
 
Options
$
32.4

 
$
63.5

SARs
$
38.0

 
$
32.0

Cash received from exercise of options (in millions)
$
22.4

 
$
28.7

Income tax benefit related to stock-based compensation (in millions)
$
13.7

 
$
17.5


LGI PSUs

During the first nine months of 2012, our compensation committee granted to our executive officers and certain key employees a total of 427,960 LGI Series A PSUs and 427,960 LGI Series C PSUs pursuant to the LGI Incentive Plan.  Each PSU represents the right to receive one share of Series A common stock or Series C common stock, as applicable, subject to performance and vesting.  The performance period for these PSUs (the 2012 PSUs) is January 1, 2012 to December 31, 2013. As the performance measure, the compensation committee selected the compound annual growth rate in consolidated operating cash flow (OCF CAGR) from 2011 to 2013, as adjusted for events such as acquisitions, dispositions and changes in foreign currency exchange rates and accounting principles or policies that effect comparability. The target OCF CAGR selected by the committee was based upon a comparison of our 2011 actual results to those reflected in our then existing long-range plan for 2013. The target OCF CAGR is subject to upward or downward adjustment for certain events in accordance with the terms of the grant agreement. A performance range of 75% to 125% of the target OCF CAGR would generally result in award recipients earning 50% to 150% of their 2012 PSUs, subject to reduction or forfeiture based on individual performance. One-half of the earned 2012 PSUs will vest on March 31, 2014 and the balance will vest on September 30, 2014. The compensation committee also established a minimum OCF CAGR

44

LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
September 30, 2012
(unaudited)



base performance objective, subject to certain limited adjustments, which must be satisfied in order for our named executive officers to be eligible to earn any of their 2012 PSUs.

In March and April 2010, the compensation committee approved the grant to our executive officers and certain key employees of a total of 692,678 LGI Series A PSUs and 692,678 LGI Series C PSUs pursuant to the LGI Incentive Plan. The performance period for these PSUs (the 2010 PSUs) was January 1, 2010 to December 31, 2011. The final performance target as adjusted by the compensation committee was the achievement of a Target OCF CAGR (as defined in the grant agreement) of approximately 6% for the two-year performance period, determined by comparing 2011 Adjusted OCF to 2009 Adjusted OCF (each as defined in the grant agreement). In February 2012, the compensation committee determined that an OCF CAGR of 5.7% was achieved with respect to the 2010 PSUs, resulting in award recipients earning approximately 87.5% of their 2010 PSUs. One-half of the earned 2010 PSUs vested on March 31, 2012 and the balance vested on September 30, 2012.

Stock Award Activity - LGI Common Stock

The following tables summarize the stock award activity during the nine months ended September 30, 2012 with respect to LGI common stock: 
Options — LGI Series A common stock
Number of
shares
 
Weighted
average
exercise price
 
Weighted
average
remaining
contractual
term
 
Aggregate
intrinsic  value
 
 
 
 
 
in years
 
in millions
Outstanding at January 1, 2012
1,583,387

 
$
23.07

 
 
 
 
Granted
41,159

 
$
49.37

 
 
 
 
Exercised
(673,955
)
 
$
21.94

 
 
 
 
Outstanding at September 30, 2012
950,591

 
$
25.01

 
3.3
 
$
34.0

Exercisable at September 30, 2012
864,856

 
$
23.13

 
2.8
 
$
32.5

 
Options — LGI Series C common stock
Number of
shares
 
Weighted
average
exercise price
 
Weighted
average
remaining
contractual
term
 
Aggregate
intrinsic  value
 
 
 
 
 
in years
 
in millions
Outstanding at January 1, 2012
1,534,739

 
$
21.95

 
 
 
 
Granted
42,639

 
$
47.66

 
 
 
 
Exercised
(587,493
)
 
$
20.76

 
 
 
 
Outstanding at September 30, 2012
989,885

 
$
23.77

 
3.3
 
$
32.4

Exercisable at September 30, 2012
900,746

 
$
21.94

 
2.7
 
$
31.1

 

45

LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
September 30, 2012
(unaudited)



SARs — LGI Series A common stock
Number of
shares
 
Weighted
average
base price
 
Weighted
average
remaining
contractual
term
 
Aggregate
intrinsic  value
 
 
 
 
 
in years
 
in millions
Outstanding at January 1, 2012
3,694,198

 
$
29.31

 
 
 
 
Granted
1,172,896

 
$
50.07

 
 
 
 
Forfeited or expired
(134,570
)
 
$
34.16

 
 
 
 
Exercised
(698,852
)
 
$
22.35

 
 
 
 
Outstanding at September 30, 2012
4,033,672

 
$
36.39

 
5.0
 
$
97.6

Exercisable at September 30, 2012
1,307,014

 
$
27.10

 
3.8
 
$
43.4


SARs — LGI Series C common stock
Number of
shares
 
Weighted
average
base price
 
Weighted
average
remaining
contractual
term
 
Aggregate
intrinsic  value
 
 
 
 
 
in years
 
in millions
Outstanding at January 1, 2012
3,671,981

 
$
28.43

 
 
 
 
Granted
1,172,896

 
$
48.25

 
 
 
 
Forfeited or expired
(134,334
)
 
$
33.02

 
 
 
 
Exercised
(664,023
)
 
$
21.80

 
 
 
 
Outstanding at September 30, 2012
4,046,520

 
$
35.11

 
5.0
 
$
86.0

Exercisable at September 30, 2012
1,319,993

 
$
26.23

 
3.9
 
$
39.4


Restricted shares and share units — LGI Series A common stock
Number of
shares
 
Weighted
average
grant-date
fair value
per share
 
Weighted
average
remaining
contractual
term
 
 
 
 
 
 
 
in years
 
 
Outstanding at January 1, 2012
413,486

 
$
30.34

 
 
 
 
Granted
164,198

 
$
50.01

 
 
 
 
Forfeited
(17,738
)
 
$
33.90

 
 
 
 
Released from restrictions
(158,148
)
 
$
27.63

 
 
 
 
Outstanding at September 30, 2012
401,798

 
$
39.29

 
2.4
 
 

Restricted shares and share units — LGI Series C common stock
Number of
shares
 
Weighted
average
grant-date
fair value
per share
 
Weighted
average
remaining
contractual
term
 
 
 
 
 
 
 
in years
 
 
Outstanding at January 1, 2012
413,665

 
$
29.37

 
 
 
 
Granted
164,432

 
$
48.20

 
 
 
 
Forfeited
(17,738
)
 
$
32.81

 
 
 
 
Released from restrictions
(158,268
)
 
$
26.73

 
 
 
 
Outstanding at September 30, 2012
402,091

 
$
37.96

 
2.4
 
 
 

46

LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
September 30, 2012
(unaudited)



PSUs — LGI Series A common stock
Number of
shares
 
Weighted
average
grant-date
fair value
per share
 
Weighted
average
remaining
contractual
term
 
 
 
 
 
 
 
in years
 
 
Outstanding at January 1, 2012
1,049,793

 
$
33.95

 
 
 
 
Granted
427,960

 
$
51.24

 
 
 
 
Performance adjustment
(70,358
)
 
$
28.11

 
 
 
 
Forfeited
(42,676
)
 
$
42.84

 
 
 
 
Released from restrictions
(494,315
)
 
$
28.11

 
 
 
 
Outstanding at September 30, 2012
870,404

 
$
45.81

 
1.5
 
 

PSUs — LGI Series C common stock
Number of
shares
 
Weighted
average
grant-date
fair value
per share
 
Weighted
average
remaining
contractual
term
 
 
 
 
 
 
 
in years
 
 
Outstanding at January 1, 2012
1,049,793

 
$
33.03

 
 
 
 
Granted
427,960

 
$
49.12

 
 
 
 
Performance adjustment
(70,358
)
 
$
27.72

 
 
 
 
Forfeited
(42,676
)
 
$
41.19

 
 
 
 
Released from restrictions
(494,315
)
 
$
27.72

 
 
 
 
Outstanding at September 30, 2012
870,404

 
$
43.99

 
1.5
 
 

At September 30, 2012, total SARs outstanding included 12,208 LGI Series A common stock capped SARs and 12,208 LGI Series C common stock capped SARs, all of which were exercisable. The holder of an 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 holder of an LGI Series C common stock capped SAR 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.

Stock Incentive Plans - Telenet Common Stock

General. During the second quarter of 2012, Telenet modified the terms of certain of its stock incentive plans to provide for anti-dilution adjustments in connection with capital distributions that, as further described in note 9, were approved by Telenet shareholders on April 25, 2012. These anti-dilution adjustments, which were finalized on August 2012, provided for increases in the number of options outstanding and proportionate reductions to the option exercise prices such that the fair value of the options outstanding before and after the distributions remained the same for all option holders. In connection with these anti-dilution adjustments, Telenet recognized stock-based compensation expense of $12.6 million during the second quarter of 2012 and continues to recognize additional stock-based compensation expense as the underlying options vest.


47

LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
September 30, 2012
(unaudited)



Telenet Specific Stock Option Plan. Telenet has granted certain stock options to its Chief Executive Officer under a specific stock option plan (the Telenet Specific Stock Option Plan). The vesting of these options is contingent upon the achievement of certain performance criteria. The following table summarizes the activity during the nine months ended September 30, 2012 related to the Telenet Specific Stock Option Plan:
Options — Telenet ordinary shares
 
Number of
shares
 
Weighted
average
exercise price
 
Weighted
average
remaining
contractual
term
 
Aggregate
intrinsic  value
 
 
 
 
 
 
in years
 
in millions
Outstanding at January 1, 2012
522,581

 
€
20.19

 
 
 
 
Granted (a)
232,258

 
€
21.53

 
 
 
 
Net impact of anti-dilution adjustments
78,755

 
€
(1.94
)
 
 
 
 
Outstanding at September 30, 2012
833,594

 
€
18.66

 
4.9
 
€
13.5

Exercisable at September 30, 2012
—

 
€
—

 
—

 
€
—

_______________

(a)
Represents the number of options for which the performance criteria was set during the period and does not include options that have been granted subject to the determination of performance criteria. The fair value of these options was calculated on the date that the performance criteria was set using an expected volatility of 32.2%, an expected life of 4.3 years, and a risk-free return of 2.08%. The weighted average grant date fair value during 2012 was €11.85 ($15.26).


Telenet Employee Stock Warrant Plans. Telenet has granted warrants to members of senior management under various stock-based compensation plans (the Telenet Employee Stock Warrant Plans). Each warrant provides the employee with the option to acquire a new ordinary share of Telenet at a specified exercise price. The maximum aggregate number of shares authorized for issuance as of September 30, 2012 under the Telenet Employee Stock Warrant Plans is 1,595,300. Warrants generally vest at a rate of 6.25% per quarter over four years and expire on dates ranging from March 2013 to August 2016.

The following table summarizes the activity during 2012 related to the Telenet Employee Stock Warrant Plans:

Warrants — Telenet ordinary shares
Number of
shares
 
Weighted
average
exercise  price
 
Weighted
average
remaining
contractual
term
 
Aggregate
intrinsic  value
 
 
 
 
 
in years
 
in millions
Outstanding at January 1, 2012
3,884,259

 
€
14.98

 
 
 
 
Forfeited
(34,312
)
 
€
20.19

 
 
 
 
Exercised
(952,830
)
 
€
12.74

 
 
 
 
Net impact of anti-dilution adjustments
346,517

 
€
(1.34
)
 
 
 
 
Outstanding at September 30, 2012
3,243,634

 
€
13.98

 
2.2
 
€
67.7

Exercisable at September 30, 2012
2,219,783

 
€
12.54

 
2.0
 
€
49.5


(11)    Earnings (Loss) per Common Share

Basic earnings (loss) per share attributable to LGI stockholders is computed by dividing net earnings (loss) attributable to LGI stockholders by the weighted average number of common shares (excluding restricted shares) outstanding for the period. Diluted earnings (loss) per share attributable to LGI stockholders presents the dilutive effect, if any, on a per share basis of potential common shares (e.g., options, restricted shares, restricted share units and convertible securities) as if they had been exercised, vested or converted at the beginning of the periods presented.


48

LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
September 30, 2012
(unaudited)



We reported losses from continuing operations attributable to LGI stockholders for the three and nine months ended September 30, 2012 and 2011. Therefore, the potentially dilutive effect at September 30, 2012 and 2011 of (i) the aggregate number of shares issuable pursuant to outstanding options, SARs and restricted shares and share units of approximately 10.8 million and 13.0 million, respectively, (ii) the aggregate number of shares issuable pursuant to obligations that may be settled in cash or shares of approximately 3.7 million at each date and (iii) the number of shares issuable pursuant to PSUs of approximately 1.7 million and 2.1 million, respectively, were not included in the computation of diluted loss per share attributable to LGI stockholders because their inclusion would have been anti-dilutive to the computation or, in the case of PSUs, because such awards had not yet met the applicable performance criteria.

The details of our net earnings (loss) attributable to LGI stockholders are set forth below:
 
Three months ended
 
Nine months ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
 
in millions
Amounts attributable to LGI stockholders:
 
 
 
 
 
 
 
Loss from continuing operations, net of taxes
$
(22.4
)
 
$
(340.3
)
 
$
(285.6
)
 
$
(402.8
)
Earnings from discontinued operation, net of taxes
—

 
7.2

 
939.7

 
65.1

Net earnings (loss) attributable to LGI stockholders
$
(22.4
)
 
$
(333.1
)
 
$
654.1

 
$
(337.7
)


49

LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
September 30, 2012
(unaudited)



(12)    Related-Party Transactions

Our related-party transactions are as follows:

 
Three months ended
 
Nine months ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
 
in millions
Continuing operations:
 
 
 
 
 
 
 
Revenue earned from related parties (a)
$
4.2

 
$
5.0

 
$
11.8

 
$
17.9

Operating expenses charged by related parties (b)
$
9.3

 
$
9.4

 
$
29.0

 
$
28.2

 
 
 
 
 
 
 
 
Discontinued operation - Austar (c)
$
—

 
$
2.0

 
$
3.1

 
$
5.9

_______________ 

(a)
Amounts consist of revenue derived from our equity method affiliates, primarily related to management and advisory services, programming license fees and construction and network maintenance services.

(b)
Amounts consist primarily of programming costs and interconnect fees charged by certain of our investees.

(c)
Amounts represent the net of (i) programming costs charged to Austar by its equity method affiliate and (ii) reimbursements charged by Austar for marketing and director fees incurred on behalf of its equity method affiliate.

(13)    Commitments and Contingencies

Commitments

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 operating leases, programming contracts, satellite carriage commitments, purchases of customer premises equipment and other items. As of September 30, 2012, the U.S. dollar equivalents (based on September 30, 2012 exchange rates) of such commitments that are not reflected in our condensed consolidated balance sheet are as follows:
 
Payments due during:
 
 
 
Remainder
of
2012
 
Year ending December 31,
 
 
 
 
 
2013
 
2014
 
2015
 
2016
 
2017
 
Thereafter
 
Total
 
in millions
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating leases
$
48.7

 
$
130.7

 
$
104.9

 
$
95.0

 
$
77.8

 
$
65.9

 
$
295.9

 
$
818.9

Programming commitments
94.8

 
221.8

 
140.8

 
68.0

 
46.3

 
42.6

 
0.4

 
614.7

Other commitments
377.9

 
295.1

 
178.8

 
162.5

 
123.6

 
87.3

 
1,268.6

 
2,493.8

Total
$
521.4

 
$
647.6

 
$
424.5

 
$
325.5

 
$
247.7

 
$
195.8

 
$
1,564.9

 
$
3,927.4


Programming commitments consist of obligations associated with certain of our programming, studio output and sports rights contracts that are enforceable and legally binding on us in that we have agreed to pay minimum fees without regard to (i) the actual number of subscribers to the programming services, (ii) whether we terminate service to a portion of our subscribers or dispose of a portion of our distribution systems or (iii) whether we discontinue our premium film or sports services. The amounts reflected in the table with respect to these contracts are significantly less than the amounts we expect to pay in these periods under these contracts. Payments to programming vendors have in the past represented, and are expected to continue to represent in the future, a significant portion of our operating costs. In this regard, during the nine months ended September 30, 2012 and 2011, (i) the programming and copyright costs incurred by our broadband communications and DTH operations aggregated $774.0 million and $712.8 million, respectively, (including intercompany charges that eliminate in consolidation of $58.4 million and $60.7

50

LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
September 30, 2012
(unaudited)



million, respectively) and (ii) the third-party programming costs incurred by our programming distribution operations aggregated $78.4 million and $86.3 million, respectively. The ultimate amount payable in excess of the contractual minimums of our studio output contracts, which expire at various dates through 2016, is dependent upon the number of subscribers to our premium movie service and the theatrical success of the films that we exhibit.

Other commitments relate primarily to Telenet's commitments for certain operating costs associated with its leased network. Subsequent to October 1, 2015, these commitments are subject to adjustment based on changes in the network operating costs incurred by Telenet with respect to its own networks. These potential adjustments are not subject to reasonable estimation, and therefore, are not included in the above table. Other commitments also include (i) certain commitments of Telenet to purchase (a) broadcasting capacity on a digital terrestrial television (DTT) network and (b) certain spectrum licenses, (ii) certain repair and maintenance, fiber capacity and energy commitments of Unitymedia KabelBW, (iii) satellite commitments associated with satellite carriage services provided to our company, (iv) purchase obligations associated with commitments to purchase customer premises and other equipment that are enforceable and legally binding on us, (v) certain fixed minimum contractual commitments associated with our agreements with franchise or municipal authorities and (vi) commitments associated with our mobile virtual network operator (MVNO) agreements. The amounts reflected in the table with respect to our MVNO commitments represent fixed minimum amounts payable under these agreements and therefore may be significantly less than the actual amounts we ultimately pay in these periods. Commitments arising from acquisition agreements or tender offers are not reflected in the above table. For information concerning the LGI Telenet Tender and the Telenet Self-Tender, see notes 2 and 9, respectively.

In addition to the commitments set forth in the table above, we have significant commitments under derivative instruments pursuant to which we expect to make payments in future periods. For information concerning our derivative instruments, including the net cash paid or received in connection with these instruments during the nine months ended September 30, 2012 and 2011, see note 4.

We also have commitments pursuant to agreements with, and obligations imposed by, franchise authorities and municipalities, which may include obligations in certain markets to move aerial cable to underground ducts or to upgrade, rebuild or extend portions of our broadband communication systems. Such amounts are not included in the above table because they are not fixed or determinable.

Contingent Obligations

We are a party to various stockholder and similar agreements pursuant to which we could be required to make capital contributions to the entity in which we have invested or purchase another investor's interest. We do not expect any payments made under these provisions to be material in relationship to our financial position or results of operations.
 
Guarantees and Other Credit Enhancements

In the ordinary course of business, we have provided indemnifications to purchasers of certain of our assets, our lenders, our vendors and certain 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 and Regulatory Proceedings and Other Contingencies

Cignal. On April 26, 2002, Liberty Global Europe received a notice that certain former shareholders of Cignal Global Communications (Cignal) filed a lawsuit (the 2002 Cignal Action) against Liberty Global Europe in the District Court in Amsterdam, the Netherlands, claiming damages for Liberty Global Europe's alleged failure to honor certain option rights that were granted to those shareholders pursuant to a shareholders agreement entered into in connection with the acquisition of Cignal by Priority Telecom NV (Priority Telecom). The shareholders agreement provided that in the absence of an initial public offering (IPO), as defined in the shareholders agreement, of shares of Priority Telecom by October 1, 2001, the Cignal shareholders would be entitled until October 31, 2001 to exchange their Priority Telecom shares into shares of Liberty Global Europe, with a cash equivalent value of $200 million in the aggregate, or cash at Liberty Global Europe's discretion. Liberty Global Europe believes that it complied in full with its obligations to the Cignal shareholders through the successful completion of the IPO of Priority Telecom on September 27, 2001, and accordingly, the option rights were not exercisable.


51

LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
September 30, 2012
(unaudited)



On May 4, 2005, the District Court rendered its decision in the 2002 Cignal Action, dismissing all claims of the former Cignal shareholders. On August 2, 2005, an appeal against the District Court decision was filed with the Court of Appeals in Amsterdam. Subsequently, when the grounds of appeal were filed in November 2005, nine individual plaintiffs, rather than all former Cignal shareholders, continued to pursue their claims. Based on the share ownership information provided by the nine plaintiffs, the damage claims remaining subject to the 2002 Cignal Action are approximately $28 million in the aggregate before statutory interest. On September 13, 2007, the Court of Appeals in Amsterdam rendered its decision that no IPO within the meaning of the shareholders agreement had been realized and accordingly the plaintiffs should have been allowed to exercise their option rights. The Court of Appeals in Amsterdam gave the parties leave to appeal to the Dutch Supreme Court and deferred all further decisions and actions, including the calculation and substantiation of the damages claimed by the plaintiffs, pending such appeal. Liberty Global Europe filed the appeal with the Dutch Supreme Court on December 13, 2007. On February 15, 2008, the plaintiffs filed a conditional appeal against the decision with the Dutch Supreme Court, challenging certain aspects of the decision of the Court of Appeals in Amsterdam in the event that Liberty Global Europe's appeal was not dismissed by the Dutch Supreme Court. On April 9, 2010, the Dutch Supreme Court issued its decision in which it honored the appeal of Liberty Global Europe, dismissed the plaintiffs' conditional appeal and referred the case to the Court of Appeals in The Hague. It is unclear whether the Cignal shareholders will request the Court of Appeals in The Hague to render a new decision.

On June 13, 2006, Liberty Global Europe, Priority Telecom, Euronext NV and Euronext Amsterdam NV were each served with a summons for a new action (the 2006 Cignal Action) purportedly on behalf of all other former Cignal shareholders and provisionally for the nine plaintiffs in the 2002 Cignal Action. The 2006 Cignal Action claims, in addition to the claims asserted in the 2002 Cignal Action, that (i) Liberty Global Europe did not meet its duty of care obligations to ensure an exit for the Cignal shareholders through an IPO and (ii) the listing of Priority Telecom on Euronext Amsterdam NV in September 2001 did not meet the requirements of the applicable listing rules and, accordingly, that the IPO was not valid and did not satisfy Liberty Global Europe's obligations to the Cignal shareholders. Aggregate claims of $200 million, plus statutory interest, are asserted in this action, which amount includes the $28 million provisionally claimed by the nine plaintiffs in the 2002 Cignal Action. On December 19, 2007, the District Court rendered its decision dismissing the plaintiffs' claims against Liberty Global Europe and the other defendants. The plaintiffs appealed the decision of the District Court to the Court of Appeals in Amsterdam. On December 10, 2009, the Court of Appeals in Amsterdam issued a partial decision holding that Priority Telecom was not liable to the Cignal shareholders, but postponed its decision with respect to the other defendants pending receipt of the decision of the Dutch Supreme Court. The Dutch Supreme Court's April 9, 2010 decision was delivered to the Court of Appeals in Amsterdam and on September 6, 2011, the Court of Appeals in Amsterdam confirmed the decision of the District Court and dismissed all claims of the former Cignal shareholders. On December 6, 2011, the Cignal shareholders appealed the September 6, 2011 decision to the Dutch Supreme Court. The parties have filed their written submissions with the Dutch Supreme Court and a judgment is expected sometime in 2013.

In light of the September 13, 2007 decision by the Court of Appeals in Amsterdam and other factors, we recorded a provision of $146.0 million during the third quarter of 2007, representing our estimate of the loss (exclusive of legal costs, which are expensed as incurred) that we would incur upon an unfavorable outcome in the 2002 and 2006 Cignal Actions.  This provision was recorded notwithstanding our appeal of the Court of Appeals decision in the 2002 Cignal Action to the Dutch Supreme Court and the fact that the Court of Appeals decision was not binding with respect to the 2006 Cignal Action.  Notwithstanding (i) the April 9, 2010 Dutch Supreme Court decision in the 2002 Cignal Action and (ii) the September 6, 2011 decision of the Court of Appeals in Amsterdam in the 2006 Cignal Action, we do not anticipate reversing the provision until such time as the final disposition of this matter has been reached.
 
Interkabel Acquisition. On November 26, 2007, Telenet and four associations of municipalities in Belgium, which we refer to as the pure intercommunalues or the “PICs,” announced a non-binding agreement-in-principle to transfer the analog and digital television activities of the PICs, including all existing subscribers to Telenet.  Subsequently, Telenet and the PICs entered into a binding agreement (the 2008 PICs Agreement), which closed effective October 1, 2008.  Beginning in December 2007, Belgacom NV/SA (Belgacom), the incumbent telecommunications operator in Belgium, instituted several proceedings seeking to block implementation of these agreements.  It lodged summary proceedings with the President of the Court of First Instance of Antwerp to obtain a provisional injunction preventing the PICs from effecting the agreement-in-principle and initiated a civil procedure on the merits claiming the annulment of the agreement-in-principle.  In March 2008, the President of the Court of First Instance of Antwerp ruled in favor of Belgacom in the summary proceedings, which ruling was overturned by the Court of Appeal of Antwerp in June 2008.  Belgacom brought this appeal judgment before the Cour de Cassation (the Belgian Supreme Court), which confirmed the appeal judgment in September 2010.  On April 6, 2009, the Court of First Instance of Antwerp ruled in favor of the PICs and Telenet in the civil procedure on the merits, dismissing Belgacom's request for the rescission of the agreement-in-principle and

52

LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
September 30, 2012
(unaudited)



the 2008 PICs Agreement.  On June 12, 2009, Belgacom appealed this judgment with the Court of Appeal of Antwerp. In this appeal, Belgacom is now also seeking compensation for damages should the 2008 PICs Agreement not be rescinded. However, the claim for compensation has not yet been quantified. At the introductory hearing, which was held on September 8, 2009, the proceedings on appeal were postponed indefinitely at the request of Belgacom.

In parallel with the above proceedings, Belgacom filed a complaint with the Government Commissioner seeking suspension of the approval by the PICs' board of directors of the agreement-in-principle and initiated suspension and annulment procedures before the Belgian Council of State against these approvals and subsequently against the board resolutions of the PICs approving the 2008 PICs Agreement. In this complaint, Belgacom's primary argument was that the PICs should have organized a public market consultation before entering into the agreement-in-principal and the 2008 PICs Agreement.  Belgacom's efforts to suspend approval of these agreements were unsuccessful.  In the annulment cases, the Belgian Council of State decided on May 2, 2012 to refer a number of questions of interpretation of European Union (EU) law for preliminary ruling to the European Court of Justice. A ruling by the European Court of Justice should not be expected before the end of 2013. Following the ruling of the European Court of Justice, the annulment cases will be resumed with the Belgian Council of State. The Belgian Council of State will be required to follow the interpretation given by the European Court of Justice to the points of EU law in its preliminary ruling.

It is possible that Belgacom or another third party or public authority will initiate further legal proceedings in an attempt to block the integration of the PICs' analog and digital television activities or obtain the rescission of the 2008 PICs Agreement. No assurance can be given as to the outcome of these or other proceedings. However, an unfavorable outcome of existing or future proceedings could potentially lead to the rescission of the 2008 PICs Agreement and/or to an obligation for Telenet to pay compensation for damages, subject to the relevant provisions of the 2008 PICs Agreement, which stipulate that Telenet is only responsible for damages in excess of €20.0 million ($25.7 million). In light of the fact that Belgacom has not quantified the amount of damages that it is seeking and we have no basis for assessing the amount of losses we would incur in the unlikely event that the 2008 PICs Agreement were to be rescinded, we cannot provide a reasonable estimate of the range of loss that would be incurred in the event the ultimate resolution of this matter were to be unfavorable to Telenet. However, we do not expect the ultimate resolution of this matter to have a material impact on our results of operations or financial condition.

Belgium Regulatory Developments. In December 2010, the Belgisch Instituut voor Post en Telecommunicatie (the BIPT) and the regional regulators for the media sectors (together, the Belgium Regulatory Authorities) published their respective draft decisions reflecting the results of their joint analysis of the broadcasting market in Belgium. 

After a public consultation, the draft decisions were submitted to the European Commission. The European Commission issued a notice on the draft decision that criticized the analysis of the broadcasting markets on several grounds, including the fact that the Belgium Regulatory Authorities failed to analyze upstream wholesale markets. It also expressed doubts as to the necessity and proportionality of the various remedies.

The Belgium Regulatory Authorities adopted a final decision on July 1, 2011 (the July 2011 Decision) with some minor revisions. The regulatory obligations imposed by the July 2011 Decision include (i) an obligation to make a resale offer at ''retail minus'' of the cable analog package available to third party operators (including Belgacom), (ii) an obligation to grant third-party operators (except Belgacom) access to digital television platforms (including the basic digital video package) at "retail minus," and (iii) an obligation to make a resale offer at ''retail minus'' of broadband internet access available to beneficiaries of the digital television access obligation that wish to offer bundles of digital video and broadband internet services to their customers (except Belgacom). A "retail-minus" method of pricing involves a wholesale tariff calculated as the retail price for the offered service by Telenet, excluding value-added taxes and copyrights, and further deducting the retail costs avoided by offering the wholesale service (such as, for example, costs for billing, franchise, consumer service, marketing and sales). On February 1, 2012, Telenet submitted draft reference offers regarding the obligations described above. The reference offers are subject to an approval process that includes a national consultation and a notification to the European Commission before final approval by the Belgium Regulatory Authorities can occur. The final approval of the reference offers by the Belgium Regulatory Authorities is expected to occur during the first half of 2013. The July 2011 Decision provides that the regulated wholesale services must be available six months after the approval of the reference offers.

Telenet filed an appeal against the July 2011 Decision with the Brussels Court of Appeal. On September 4, 2012, the Brussels Court of Appeal rejected Telenet's request to suspend the July 2011 Decision pending the proceedings on the merits. Due to this rejection, Telenet will be required to begin the process of implementing its reference offers as soon as such reference offers are approved by the Belgium Regulatory Authorities. A final ruling on the merits can be expected during the second half of 2013.

53

LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
September 30, 2012
(unaudited)



There can be no certainty that Telenet's appeals will be successful. Accordingly, one or more of these regulatory obligations could be upheld, in present or modified form.

The July 2011 Decision aims to, and in its application may, strengthen Telenet's competitors by granting them resale access to Telenet's network to offer competing products and services notwithstanding Telenet's substantial historical financial outlays in developing the infrastructure. In addition, any resale access granted to competitors could (i) limit the bandwidth available to Telenet to provide new or expanded products and services to the customers served by its network and (ii) adversely impact Telenet's ability to maintain or increase its revenue and cash flows. The extent of any such adverse impacts ultimately will be dependent on whether the July 2011 Decision is implemented in its current form or in modified form and, if implemented, the wholesale rates established by the Belgium Regulatory Authorities, the extent that competitors take advantage of the resale access ultimately afforded to Telenet's network and other competitive factors or market developments.

Netherlands Regulatory Developments. In December 2011, the Dutch National Regulatory Authority (OPTA) completed a market assessment of the television market in the Netherlands, concluding that there were no grounds for further regulation of that market. This final assessment is not open for appeal, as confirmed by the Dutch Supreme Administrative Court on June 18, 2012. As a result, no new regulations relating to the television market may be proposed without a new analysis. On December 22, 2011, referring to its final assessment of the television market, OPTA rejected previously filed requests from a number of providers to perform a new market analysis of the television market. This decision by OPTA has been appealed by such providers to the Dutch Supreme Administrative Court. At a September 19, 2012 hearing, the Dutch Supreme Administrative Court indicated that it will publish a ruling before January 1, 2013, the date on which certain laws adopted by the Dutch Senate, as described below, are scheduled to become effective.

In May 2012, the Dutch Senate adopted laws that (i) provide the power to two authorities, OPTA and the Commissariaat voor de Media, to impose an obligation for the mandatory resale of television services and (ii) provide for “net neutrality” on the internet, including limitations on the ability of broadband service providers to delay, choke or block traffic except under specific circumstances. These laws are scheduled to become effective on January 1, 2013. We are of the opinion that the new regulations pertaining to resale are contrary to EU law and we will contest their application, along with other market participants. In addition, an implementation of a resale regime would likely take several months or more, if in fact implemented given OPTA's position on the competitiveness of the television market.  There can be no assurance however that some form of resale regime will not be ultimately imposed. The new regulation concerning “net neutrality” needs to work within a broader EU framework, requires some implementation by relevant authorities, and is subject to challenge by market participants. It is unclear therefore what its impact on the industry and our business will be at this stage, if any.

Vivendi Litigation. A wholly-owned subsidiary of our company is a plaintiff in certain litigation titled Liberty Media Corporation, et. al. v. Vivendi Universal S.A., et. al. (SDNY). The predecessor of LGI was a subsidiary of Liberty Media Corporation (Liberty Media) through June 6, 2004. In connection with Liberty Media's prosecution of the action, our subsidiary assigned its rights to Liberty Media in exchange for a contingent payout in the event Liberty Media recovered any amounts as a result of the action. Our subsidiary's interest in any such recovery will be equal to 10% of the recovery amount, including any interest awarded, less the amount to be retained by Liberty Media for (i) all fees and expenses incurred by Liberty Media in connection with the action (including expenses to be incurred in connection with any appeals and the payment of certain deferred legal fees) and (ii) agreed upon interest on such fees and expenses. On June 25, 2012, the jury awarded €765 million ($985 million) to Liberty Media. Vivendi Universal S.A. has announced its intention to appeal the jury's verdict and Liberty Media has indicated it intends to seek prejudgment interest on the jury's award. As a result, the amount that our subsidiary may ultimately recover in connection with the final resolution of the action, if any, is uncertain. Any recovery by our company will not be reflected in our consolidated financial statements until such time as the final disposition of this matter has been reached.
Other Regulatory Issues. Video distribution, broadband 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 EU. Adverse regulatory developments could subject our businesses to a number of risks. Regulation, including conditions imposed on us by competition or other authorities as a requirement to close acquisitions or dispositions, could limit growth, revenue and the number and types of services offered and could lead to increased operating costs and capital expenditures. 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.

54

LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
September 30, 2012
(unaudited)




Other. In addition to the foregoing items, we have contingent liabilities related to matters arising in the ordinary course of business including (i) legal proceedings, (ii) wage, property, sales and other tax issues and (iii) disputes over interconnection, programming, copyright and carriage fees. While we generally expect that the amounts required to satisfy these contingencies will not materially differ from the estimated amounts we have accrued, no assurance can be given that the resolution of one or more of these contingencies will not result in a material impact on our results of operations or cash flows in any given period. Due, in general, to the complexity of the issues involved and, in certain cases, the lack of a clear basis for predicting outcomes, we cannot provide a meaningful range of potential losses or cash outflows that might result from any unfavorable outcomes.

(14)    Segment Reporting

We own a variety of international subsidiaries that provide broadband communications and DTH services, and to a lesser extent, programming services. We generally identify our reportable segments as those consolidated subsidiaries that represent 10% or more of our revenue, operating cash flow (as defined below) or total assets. 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, as appropriate.

Operating cash flow is the primary measure used by our chief operating decision maker to evaluate segment operating performance. Operating cash flow is also a key factor that is used by our internal decision makers to (i) determine how to allocate resources to segments and (ii) evaluate the effectiveness of our management for purposes of annual and other incentive compensation plans. As we use the term, operating cash flow is defined as revenue less operating and SG&A expenses (excluding stock-based compensation, depreciation and amortization, provisions for litigation and impairment, restructuring and other operating items). Other operating items include (i) gains and losses on the disposition of long-lived assets, (ii) direct acquisition costs, such as third-party due diligence, legal and advisory costs, and (iii) other acquisition-related items, such as gains and losses on the settlement of contingent consideration. Our internal decision makers believe operating cash flow is a meaningful measure and is superior to available GAAP measures because it represents a transparent view of our recurring operating performance that is unaffected by our capital structure and allows management to (i) readily view operating trends, (ii) perform analytical comparisons and benchmarking between segments and (iii) identify strategies to improve operating performance in the different countries in which we operate. We believe our operating cash flow measure is useful to investors because it is one of the bases for comparing our performance with the performance of other companies in the same or similar industries, although our measure may not be directly comparable to similar measures used by other public companies. Operating cash flow should be viewed as a measure of operating performance that is a supplement to, and not a substitute for, operating income, net earnings (loss), cash flow from operating activities and other GAAP measures of income or cash flows. A reconciliation of total segment operating cash flow to our earnings (loss) from continuing operations before income taxes is presented below.
 
Segment information for the three and nine months ended September 30, 2011 has been reclassified to present Austar as a discontinued operation. We present only the reportable segments of our continuing operations in the tables below.
 
We have identified the following consolidated operating segments as our reportable segments:

•UPC/Unity Division:
• Germany
• The Netherlands
• Switzerland
• Other Western Europe
• Central and Eastern Europe

•Telenet (Belgium)

•VTR Group (Chile)

All of the reportable segments set forth above derive their revenue primarily from broadband communications services, including video, broadband internet and telephony services. Most reportable segments also provide business-to-business (B2B) services. At September 30, 2012, our operating segments in the UPC/Unity Division provided broadband communications services

55

LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
September 30, 2012
(unaudited)



in 10 European countries and DTH services to customers in the Czech Republic, Hungary, Romania and Slovakia through a Luxembourg-based organization that we refer to as "UPC DTH." Our Other Western Europe segment includes our broadband communications operating segments in Austria and Ireland. Our Central and Eastern Europe segment includes our broadband communications operating segments in the Czech Republic, Hungary, Poland, Romania and Slovakia. The UPC/Unity Division's central and other category includes (i) the UPC DTH operating segment, (ii) costs associated with certain centralized functions, including billing systems, network operations, technology, marketing, facilities, finance and other administrative functions and (iii) intersegment eliminations within the UPC/Unity Division. Telenet provides video, broadband internet and telephony services in Belgium. In Chile, the VTR Group includes VTR, which provides video, broadband internet and telephony services, and VTR Wireless, which provides mobile services through a combination of its own wireless network and certain third-party wireless access arrangements. Our corporate and other category includes (i) less significant consolidated operating segments that provide (a) broadband communications services in Puerto Rico and (b) programming and other services in Europe and Latin America and (ii) our corporate category. Intersegment eliminations primarily represent the elimination of intercompany transactions between our broadband communications and programming operations, primarily in Europe.

Performance Measures of Our Reportable Segments

The amounts presented below represent 100% of each of our reportable segment's revenue and operating cash flow. As we have the ability to control Telenet and the VTR Group, we consolidate 100% of the revenue and expenses of these entities in our condensed consolidated statements of operations despite the fact that third parties own significant interests in these entities. The noncontrolling owners' interests in the operating results of Telenet, the VTR Group and other less significant majority-owned subsidiaries are reflected in net earnings or loss attributable to noncontrolling interests in our condensed consolidated statements of operations. On September 19, 2012 and as further described in note 2, we announced our intention to launch the LGI Telenet Tender, pursuant to which we would seek to acquire all of the outstanding shares of Telenet that we do not already own.
 
Revenue
 
Three months ended
 
Nine months ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
 
in millions
UPC/Unity Division:
 
 
 
 
 
 
 
Germany
$
568.7

 
$
362.7

 
$
1,695.6

 
$
1,058.1

The Netherlands
300.3

 
321.7

 
914.7

 
959.6

Switzerland
310.2

 
344.3

 
940.9

 
970.9

Other Western Europe
205.7

 
223.1

 
621.7

 
667.4

Total Western Europe
1,384.9

 
1,251.8

 
4,172.9

 
3,656.0

Central and Eastern Europe
273.9

 
283.1

 
829.8

 
837.2

Central and other
28.6

 
31.4

 
85.1

 
93.0

Total UPC/Unity Division
1,687.4

 
1,566.3

 
5,087.8

 
4,586.2

Telenet (Belgium)
461.0

 
488.8

 
1,404.7

 
1,430.9

VTR Group (Chile)
241.0

 
231.7

 
692.3

 
674.4

Corporate and other
150.0

 
154.4

 
458.9

 
481.1

Intersegment eliminations
(20.3
)
 
(22.4
)
 
(63.1
)
 
(66.3
)
Total
$
2,519.1

 
$
2,418.8

 
$
7,580.6

 
$
7,106.3




56

LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
September 30, 2012
(unaudited)



 
Operating cash flow
 
Three months ended
 
Nine months ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
 
in millions
UPC/Unity Division:
 
 
 
 
 
 
 
Germany
$
340.9

 
$
214.8

 
$
998.1

 
$
636.7

The Netherlands
183.7

 
195.3

 
545.2

 
570.0

Switzerland
177.8

 
198.8

 
536.6

 
547.6

Other Western Europe
101.9

 
107.4

 
293.8

 
313.4

Total Western Europe
804.3

 
716.3

 
2,373.7

 
2,067.7

Central and Eastern Europe
137.7

 
144.0

 
410.2

 
413.1

Central and other
(36.2
)
 
(36.1
)
 
(116.6
)
 
(105.3
)
Total UPC/Unity Division
905.8

 
824.2

 
2,667.3

 
2,375.5

Telenet (Belgium)
240.7

 
250.8

 
713.4

 
737.7

VTR Group (Chile)
81.5

 
89.2

 
232.0

 
260.5

Corporate and other
(3.3
)
 
(0.9
)
 
2.5

 
9.1

Total
$
1,224.7

 
$
1,163.3

 
$
3,615.2

 
$
3,382.8


The following table provides a reconciliation of total segment operating cash flow from continuing operations to earnings (loss) from continuing operations before income taxes:
 
Three months ended
 
Nine months ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
 
in millions
Total segment operating cash flow from continuing operations
$
1,224.7

 
$
1,163.3

 
$
3,615.2

 
$
3,382.8

Stock-based compensation expense
(27.2
)
 
(32.9
)
 
(90.5
)
 
(105.7
)
Depreciation and amortization
(670.3
)
 
(629.3
)
 
(2,009.7
)
 
(1,838.3
)
Impairment, restructuring and other operating items, net
(18.1
)
 
(17.9
)
 
(32.6
)
 
(28.5
)
Operating income
509.1

 
483.2

 
1,482.4

 
1,410.3

Interest expense
(408.6
)
 
(364.3
)
 
(1,228.8
)
 
(1,086.9
)
Interest and dividend income
17.8

 
28.4

 
38.7

 
62.4

Realized and unrealized gains (losses) on derivative instruments, net
(237.2
)
 
355.1

 
(613.9
)
 
(104.0
)
Foreign currency transaction gains (losses), net
150.2

 
(787.1
)
 
154.8

 
(197.9
)
Realized and unrealized losses due to changes in fair values of certain investments and debt, net
(18.1
)
 
(63.4
)
 
(1.3
)
 
(205.9
)
Losses on debt modification, extinguishment and conversion, net
(13.8
)
 
(12.3
)
 
(27.5
)
 
(218.7
)
Gains due to changes in ownership
52.5

 
—

 
52.5

 
—

Other income (expense), net
3.4

 
(0.8
)
 
(0.6
)
 
(6.0
)
Earnings (loss) from continuing operations before income taxes
$
55.3

 
$
(361.2
)

$
(143.7
)
 
$
(346.7
)


57

LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
September 30, 2012
(unaudited)



Revenue by Major Category

Our revenue by major category is set forth below:  
 
Three months ended
 
Nine months ended
 
September 30,
 
September 30,
 
2012
 
2011 (a)
 
2012
 
2011 (a)
 
in millions
Subscription revenue (b):
 
 
 
 
 
 
 
Video
$
1,128.4

 
$
1,121.0

 
$
3,435.9

 
$
3,309.8

Broadband internet
602.8

 
576.8

 
1,800.2

 
1,675.4

Telephony
381.1

 
333.6

 
1,134.1

 
970.4

Total subscription revenue
2,112.3

 
2,031.4

 
6,370.2

 
5,955.6

Other revenue (c)
406.8

 
387.4

 
1,210.4

 
1,150.7

Total
$
2,519.1

 
$
2,418.8

 
$
7,580.6

 
$
7,106.3

_______________ 

(a)
Effective January 1, 2012, we began classifying the monthly revenue derived from certain small office and home office (SOHO) subscribers as subscription revenue. SOHO subscribers pay a premium price to receive enhanced service levels along with video programming, internet or telephony services that are the same or similar to the mass marketed products offered to our residential subscribers. Prior period amounts have been conformed to the current period presentation by reclassifying the corresponding SOHO revenue from other revenue to subscription revenue.

(b)
Subscription revenue includes amounts received from subscribers for ongoing services, excluding installation fees, late fees and mobile services revenue. Subscription revenue from subscribers who purchase bundled services at a discounted rate is generally allocated proportionally to each service based on the standalone price for each individual service. However, due to regulatory, billing system and other constraints, the allocation of bundling discounts may vary between our broadband communications operating segments.
 
(c)
Other revenue includes non-subscription revenue (including B2B, interconnect, carriage fee, installation and mobile services revenue) and programming revenue.


58

LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
September 30, 2012
(unaudited)



Geographic Segments

The revenue of our geographic segments is set forth below:
 
Three months ended
 
Nine months ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
 
in millions
Europe:
 
 
 
 
 
 
 
UPC/Unity Division:
 
 
 
 
 
 
 
Germany
$
568.7

 
$
362.7

 
$
1,695.6

 
$
1,058.1

The Netherlands
300.3

 
321.7

 
914.7

 
959.6

Switzerland
310.2

 
344.3

 
940.9

 
970.9

Austria
100.5

 
113.7

 
308.5

 
344.5

Ireland
105.2

 
109.4

 
313.2

 
322.9

Poland
110.6

 
94.7

 
334.8

 
277.0

Hungary
62.1

 
71.3

 
182.9

 
209.4

The Czech Republic
55.4

 
64.4

 
169.6

 
192.5

Romania
31.1

 
36.0

 
97.1

 
109.1

Slovakia
14.7

 
16.7

 
45.4

 
49.2

Other (a)
28.6

 
31.4

 
85.1

 
93.0

Total UPC/Unity Division
1,687.4

 
1,566.3

 
5,087.8

 
4,586.2

Belgium
461.0

 
488.8

 
1,404.7

 
1,430.9

Chellomedia:
 
 
 
 
 
 
 
Poland
22.3

 
24.2

 
78.9

 
87.0

The Netherlands
25.0

 
26.6

 
80.2

 
82.7

Spain
15.9

 
17.8

 
49.6

 
54.3

Hungary
13.6

 
14.5

 
43.0

 
48.7

Other (b)
35.2

 
35.6

 
94.3

 
102.1

Total Chellomedia
112.0

 
118.7

 
346.0

 
374.8

Intersegment eliminations
(20.3
)
 
(22.4
)
 
(63.1
)
 
(66.3
)
Total Europe
2,240.1

 
2,151.4

 
6,775.4

 
6,325.6

The Americas:
 
 
 
 
 
 
 
Chile
241.0

 
231.7

 
692.3

 
674.4

Other (c)
38.0

 
35.7

 
112.9

 
106.3

Total — The Americas
279.0

 
267.4

 
805.2

 
780.7

Total
$
2,519.1

 
$
2,418.8

 
$
7,580.6

 
$
7,106.3

_______________ 

(a)
Primarily represents revenue of UPC DTH from customers located in Hungary, the Czech Republic, Romania and Slovakia.

(b)
Chellomedia's other geographic segments are located primarily in the United Kingdom, Portugal, the Czech Republic, Romania, Slovakia and Italy.

(c)
Includes certain less significant operating segments that provide broadband communications in Puerto Rico and programming services in Latin America.


59

Item 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis, which should be read in conjunction with our condensed consolidated financial statements and the discussion and analysis included in our 2011 Annual Report on Form 10-K, is intended to assist in providing an understanding of our financial condition, changes in financial condition and results of operations and is organized as follows:

•
Forward-Looking Statements. This section provides a description of certain of the factors that could cause actual results or events to differ materially from anticipated results or events.
•
Overview. This section provides a general description of our business and recent events.
•
Material Changes in Results of Operations. This section provides an analysis of our results of operations for the three and nine months ended September 30, 2012 and 2011.
•
Material Changes in Financial Condition. This section provides an analysis of our corporate and subsidiary liquidity, condensed consolidated cash flow statements and contractual commitments.
•
Quantitative and Qualitative Disclosures about Market Risk. This section provides discussion and analysis of the foreign currency, interest rate and other market risk that our company faces.

The capitalized terms used below have been defined in the notes to our condensed consolidated financial statements. In the following text, the terms, “we,” “our,” “our company” and “us” may refer, as the context requires, to LGI or collectively to LGI and its subsidiaries.

Unless otherwise indicated, convenience translations into U.S. dollars are calculated as of September 30, 2012.
 
Forward-Looking Statements

Certain statements in this Quarterly Report on Form 10-Q constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. To the extent that statements in this Quarterly Report are not recitations of historical fact, such statements constitute forward-looking statements, which, by definition, involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. In particular, statements under Management's Discussion and Analysis of Financial Condition and Results of Operations and Quantitative and Qualitative Disclosures About Market Risk may contain forward-looking statements, including statements regarding business, product, foreign currency and finance strategies, our capital expenditures, subscriber growth and retention rates, competitive and economic factors, the maturity of our markets, our plans to launch Horizon TV (as described below under Overview) and introduce unencrypted digital television channels in certain countries, our assessment of the impacts of service offering changes and price increases in Switzerland, anticipated cost increases, liquidity, credit risks, foreign currency risks and target leverage levels. 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. In addition to the risk factors described in our 2011 Annual Report on Form 10-K, the following are some but not all of the factors that could cause actual results or events to differ materially from anticipated results or events:
 
•
economic and business conditions and industry trends in the countries in which we operate;
•
the competitive environment in the broadband communications and programming industries in the countries in which we operate, including competitor responses to our products and services;
•
fluctuations in currency exchange rates and interest rates;
•
instability in global financial markets, including sovereign debt issues in the EU and related fiscal reforms;
•
consumer disposable income and spending levels, including the availability and amount of individual consumer debt;
•
changes in consumer television viewing preferences and habits;
•
consumer acceptance of our existing service offerings, including our digital video, broadband internet, telephony and

60

mobile service offerings and of new technology, programming alternatives and other products and services that we may offer in the future;
•
our ability to manage rapid technological changes;
•
our ability to maintain or increase the number of subscriptions to our digital video, broadband internet, telephony and mobile service offerings and our average revenue per household;
•
our ability to provide satisfactory customer service, including support for new and evolving products and services;
•
our ability to maintain or increase rates to our subscribers or to pass through increased costs to our subscribers;
•
the impact of our future financial performance, or market conditions generally, on the availability, terms and deployment of capital;
•
changes in, or failure or inability to comply with, government regulations in the countries in which we operate and adverse outcomes from regulatory proceedings;
•
government intervention that opens our broadband distribution networks to competitors, such as the obligations imposed in Belgium and the Netherlands;
•
our ability to obtain regulatory approval and satisfy other conditions necessary to close acquisitions and dispositions and the impact of conditions imposed by competition and other regulatory authorities in connection with acquisitions, including the impact of the conditions imposed in connection with the KBW Acquisition on our operations in Germany;
•
changes in laws or treaties relating to taxation, or the interpretation thereof, in the U.S. or in countries in which we operate;
•
changes in laws and government regulations that may impact the availability and cost of credit and the derivative instruments that hedge certain of our financial risks;
•
the ability of suppliers and vendors to timely deliver quality products, equipment, software and services;
•
the availability of attractive programming for our digital video services at reasonable costs;
•
uncertainties inherent in the development and integration of new business lines and business strategies;
•
our ability to adequately forecast and plan future network requirements;
•
the availability of capital for the acquisition and/or development of telecommunications networks and services;
•
our ability to successfully integrate and realize anticipated efficiencies from the businesses we acquire;
•
problems we may discover post-closing with the operations, including the internal controls and financial reporting process, of businesses we acquire;
•
the outcome of any pending or threatened litigation;
•
the loss of key employees and the availability of qualified personnel;
•
changes in the nature of key strategic relationships with partners and joint venturers; and
•
events that are outside of our control, such as political unrest in international markets, terrorist attacks, malicious human acts, natural disasters, pandemics and other similar events.
The broadband communications services industries are changing rapidly and, therefore, the forward-looking statements of expectations, plans and intent in this Quarterly Report are subject to a significant degree of risk. These forward-looking statements and the above-described risks, uncertainties and other factors speak only as of the date of this Quarterly Report, and we expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained

61

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. Readers are cautioned not to place undue reliance on any forward-looking statement.

Overview

We are an international provider of video, broadband internet and telephony services, with consolidated operations at September 30, 2012 in 13 countries, primarily in Europe and Chile. Our European and Chilean operations are conducted through Liberty Global Europe. Through UPC Holding, we provide video, broadband internet and telephony services in nine European countries and in Chile. The European broadband communications and DTH operations of UPC Holding and the broadband communications operations of Unitymedia KabelBW in Germany are collectively referred to herein as the "UPC/Unity Division." UPC Holding's broadband communications operations in Chile are provided through VTR. In May 2012, through VTR Wireless, we began offering mobile services in Chile through a combination of our own wireless network and certain third-party wireless access arrangements. The operations of VTR and VTR Wireless are collectively referred to as the "VTR Group." Through Telenet, we provide video, broadband internet and telephony services in Belgium. Our operations also include (i) consolidated broadband communications operations in Puerto Rico and (ii) consolidated interests in certain programming businesses in Europe and Latin America. Our consolidated programming interests in Europe and Latin America are primarily held through Chellomedia, which also owns or manages investments in various other businesses, primarily in Europe. Certain of Chellomedia's subsidiaries and affiliates provide programming services to certain of our broadband communications operations, primarily in Europe.

Our analog cable service offerings include basic programming and, in some markets, expanded basic programming. 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 cable service offerings include basic and premium programming and incremental product and service offerings such as enhanced pay-per-view programming (including video-on-demand and near video-on-demand), digital video recorders and HD programming.

In September 2012, we launched "Horizon TV" in the Netherlands. Horizon TV is a family of media products that allows customers to view and share content across the television, computer, tablet and smartphone. Horizon TV is powered by a user interface that allows customers to seamlessly navigate and features an advanced set-top box that delivers not only video, but also internet and voice connections along with a wireless network for the home. The Horizon TV experience also includes online viewing of programming from a computer, tablet or smartphone. We intend to expand the availability of Horizon TV to other markets within our footprint, with launches planned for Switzerland by the end of 2012 and for Ireland and Germany during 2013.

Although our digital television signals are encrypted in most of the countries in which we operate, the basic digital television channels in our KBW footprint in Germany and in our footprint in Romania are unencrypted. In addition, the basic digital television channels in our remaining footprint in Germany and in our entire footprints in Switzerland and Austria will be unencrypted effective January 1, 2013. Where our basic digital television channels are unencrypted, subscribers who pay the monthly subscription fee for our analog package are able to watch our basic digital television channels. Premium channels and services continue to be available for an incremental monthly fee.

We offer telephony services in all of our broadband communications markets, primarily using voice-over-internet-protocol or “VoIP” technology. In addition to VTR Wireless' mobile services, we also offer mobile services using third-party networks in Belgium and, to a lesser extent, Germany, Poland, the Netherlands and Hungary.

We have completed a number of transactions that impact the comparability of our 2012 and 2011 results of operations. The most significant of these transactions were the KBW Acquisition on December 15, 2011 and the Aster Acquisition on September 16, 2011. We also completed a number of less significant acquisitions in Europe during 2011 and the first nine months of 2012.
  
In May 2012, we completed the sale of Austar and, accordingly, Austar is reflected as a discontinued operation in our condensed consolidated balance sheet as of December 31, 2011 and our condensed consolidated statements of operations and cash flows for all periods presented. In the following discussion and analysis, the operating statistics, results of operations, cash flows and financial condition that we present and discuss are those of our continuing operations unless otherwise indicated.

For further information regarding our pending and completed acquisitions and dispositions, see note 2 to our condensed consolidated financial statements.

62

We focus on achieving organic revenue and customer growth in our broadband communications operations by developing and marketing bundled entertainment and information and communications services, and extending and upgrading the quality of our networks where appropriate. As we use the term, organic growth excludes foreign currency translation effects (FX) and the estimated impact of acquisitions. While we seek to obtain new customers, we also seek to maximize the average revenue we receive from each household by increasing the penetration of our digital cable, broadband internet, telephony and, where available, mobile services with existing customers through product bundling, cross-selling and upselling, or by migrating analog cable customers to digital cable services. We plan to continue to employ this strategy to achieve organic revenue and customer growth.

Through our subsidiaries and affiliates, we are the largest international broadband communications operator in terms of subscribers. At September 30, 2012, we owned and operated networks that passed 33,744,300 homes and served 34,135,300 revenue generating units (RGUs), consisting of 18,222,600 video subscribers, 8,909,300 broadband internet subscribers and 7,003,400 telephony subscribers. Effective January 1, 2012, we began including certain SOHO RGUs in our externally-reported subscriber statistics. As a result of this change, we recorded a non-organic adjustment to increase the number of our RGUs at January 1, 2012 by 136,300.

Including the effects of acquisitions, our continuing operations added a total of 319,700 and 1,214,000 RGUs during the three and nine months ended September 30, 2012. Excluding the effects of acquisitions (RGUs added on the acquisition date), but including post-acquisition date RGU additions, our continuing operations added 319,700 and 1,128,900 RGUs (including 21,500 and 61,700 SOHO RGUs) on an organic basis during the three and nine months ended September 30, 2012. The organic RGU growth during the three and nine months ended September 30, 2012 is attributable to the growth of our (i) telephony services, which added 211,200 and 727,600 RGUs, respectively, (ii) digital cable services, which added 179,800 and 702,900 RGUs, respectively, (iii) broadband internet services, which added 198,000 and 660,000 RGUs, respectively, and (iv) DTH video services, which added 21,800 and 44,500 RGUs, respectively. The growth of our digital cable, telephony, broadband internet and DTH video services was partially offset by a decline in our analog cable RGUs of 288,500 and 998,900, respectively, and less significant declines in our multi-channel multi-point (microwave) distribution system (MMDS) video RGUs.

We are experiencing significant competition from incumbent telecommunications operators, DTH operators and/or other providers in all of our broadband communications markets. This significant competition, together with the maturation of certain of our markets, has contributed to organic declines in certain of our markets in revenue, RGUs and/or average monthly subscription revenue per average RGU (ARPU), the more notable of which include:

(i)
organic declines in (a) subscription revenue in the Czech Republic and (b) overall revenue in Hungary during the third quarter of 2012, as compared to the third quarter of 2011;
(ii)
organic declines in subscription revenue from (a) video services in Ireland, the Czech Republic, Poland and Hungary and (b) broadband internet services in Austria during the third quarter of 2012, as compared to the third quarter of 2011;
(iii)
organic declines in subscription revenue from broadband internet services in Belgium during the third quarter of 2012, as compared to the second quarter of 2012;
(iv)
organic declines during the third quarter of 2012 in (a) video RGUs in most of our markets, as net declines in our analog cable RGUs exceeded net additions to our digital cable RGUs (including migrations from analog cable) in these markets, and (b) broadband internet, telephony and total RGUs in the Czech Republic;
(v)
organic declines in ARPU from (a) broadband internet services in most of our broadband communications markets and (b) telephony services in all of our broadband communications markets during the third quarter of 2012, as compared to the third quarter of 2011; and
(vi)
organic declines in overall ARPU in Ireland, Slovakia, Hungary, Austria, the Czech Republic, Romania and Poland during the third quarter of 2012, as compared to the third quarter of 2011.

In addition to competition, our operations are subject to macro-economic and political risks that are outside of our control.  For example, high levels of sovereign debt in the U.S. and certain European countries (including Ireland and Hungary), combined with weak growth and high unemployment, could lead to fiscal reforms (including austerity measures), sovereign debt restructurings, currency instability, increased counterparty credit risk, high levels of volatility and, potentially, disruptions in the credit and equity markets, as well as other outcomes that might adversely impact our company. With regard to currency

63

instability issues, concerns exist in the eurozone with respect to individual macro-fundamentals on a country-by-country basis, as well as with respect to the overall stability of the European monetary union and the suitability of a single currency to appropriately deal with specific fiscal management and sovereign debt issues in individual eurozone countries. The realization of these concerns could lead to the exit of one or more countries from the European monetary union and the re-introduction of individual currencies in these countries, or, in more extreme circumstances, the possible dissolution of the euro entirely, which could result in the redenomination of a portion, or in the extreme case, all of our euro-denominated assets, liabilities and cash flows to the new currency of the country in which they originated. This could result in a mismatch in the currencies of our assets, liabilities and cash flows. Any such mismatch, together with the capital market disruption that would likely accompany any such redenomination event, could have a material adverse impact on our liquidity and financial condition. Furthermore, any redenomination event would likely be accompanied by significant economic dislocation, particularly within the eurozone countries, which in turn could have an adverse impact on demand for our products, and accordingly, on our revenue and cash flows. Moreover, any changes from euro to non-euro currencies within the countries in which we operate would require us to modify our billing and other financial systems. No assurance can be given that any required modifications could be made within a timeframe that would allow us to timely bill our customers or prepare and file required financial reports. In light of the significant exposure that we have to the euro through our euro-denominated borrowings, derivative instruments, cash balances and cash flows, a redenomination event could have a material adverse impact on our company.

The video, broadband internet and telephony businesses in which we operate are capital intensive. Significant capital expenditures are required to add customers to our networks and to upgrade our broadband communications networks and customer premises equipment to enhance our service offerings and improve the customer experience, including expenditures for equipment and labor costs. Significant competition, the introduction of new technologies or adverse regulatory developments could cause us to decide to undertake previously unplanned upgrades of our networks and customer premises equipment in the impacted markets. In addition, no assurance can be given that any future upgrades will generate a positive return or that we will 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. For information regarding our capital expenditures, see Material Changes in Financial Condition - Condensed Consolidated Cash Flow Statements below.

Material Changes in Results of Operations

As noted under Overview above, the comparability of our operating results during 2012 and 2011 is affected by acquisitions. In the following discussion, we quantify the estimated impact of acquisitions on our operating results. The acquisition impact represents our estimate of the difference between the operating results of the periods under comparison that is attributable to an acquisition. In general, we base our estimate of the acquisition impact on an acquired entity's operating results during the first three months following the acquisition date such that changes from those operating results in subsequent periods are considered
to be organic changes. Accordingly, in the following discussion, variances attributed to an acquired entity during the first twelve months following the acquisition date represent differences between the estimated acquisition impact and the actual results.

Changes in foreign currency exchange rates have a significant impact on our reported operating results as all of our operating segments, except for Puerto Rico, have functional currencies other than the U.S. dollar. Our primary exposure to FX risk during the three months ended September 30, 2012 was to the euro as 64.8% of our U.S. dollar revenue during that period was derived from subsidiaries whose functional currency is the euro. In addition, our reported operating results are impacted by changes in the exchange rates for the Swiss franc, the Chilean peso and other local currencies in Europe. The portions of the changes in the various components of our results of operations that are attributable to changes in FX are highlighted under Discussion and Analysis of our Reportable Segments and Discussion and Analysis of our Consolidated Operating Results below. For information concerning our foreign currency risks and the applicable foreign currency exchange rates in effect for the periods covered by this Quarterly Report, see Quantitative and Qualitative Disclosures about Market Risk — Foreign Currency Risk below.

The amounts presented and discussed below represent 100% of each operating segment's revenue and operating cash flow. As we have the ability to control Telenet and the VTR Group, we consolidate 100% of the revenue and expenses of these entities in our condensed consolidated statements of operations despite the fact that third parties own significant interests in these entities. The noncontrolling owners' interests in the operating results of Telenet, the VTR Group and other less significant majority-owned subsidiaries are reflected in net earnings or loss attributable to noncontrolling interests in our condensed consolidated statements of operations. On September 19, 2012 and as further described in note 2 to our condensed consolidated financial statements, we announced our intention to launch the LGI Telenet Tender, pursuant to which we would seek to acquire all of the outstanding shares of Telenet that we do not already own.

64

Discussion and Analysis of our Reportable Segments

General

All of the reportable segments set forth below derive their revenue primarily from broadband communications services, including video, broadband internet and telephony services. Most reportable segments also provide B2B services. At September 30, 2012, our operating segments in the UPC/Unity Division provided broadband communications services in 10 European countries and DTH services to customers in the Czech Republic, Hungary, Romania and Slovakia through UPC DTH. Our Other Western Europe segment includes our broadband communications operating segments in Austria and Ireland. Our Central and Eastern Europe segment includes our broadband communications operating segments in the Czech Republic, Hungary, Poland, Romania and Slovakia. The UPC/Unity Division's central and other category includes (i) the UPC DTH operating segment, (ii) costs associated with certain centralized functions, including billing systems, network operations, technology, marketing, facilities, finance and other administrative functions and (iii) intersegment eliminations within the UPC/Unity Division. Telenet provides video, broadband internet and telephony services in Belgium. In Chile, the VTR Group includes VTR, which provides video, broadband internet and telephony services, and VTR Wireless, which provides mobile services through a combination of its own wireless network and certain third-party wireless access arrangements. Our corporate and other category includes (i) less significant operating segments that provide (a) broadband communications services in Puerto Rico and (b) programming and other services in Europe and Latin America and (ii) our corporate category. Intersegment eliminations primarily represent the elimination of intercompany transactions between our broadband communications and programming operations, primarily in Europe.

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, excluding allocable stock-based compensation expense, as further discussed in note 14 to our condensed consolidated financial statements) as well as an analysis of operating cash flow by reportable segment for the three and nine months ended September 30, 2012 and 2011. These 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 and (iii) the organic percentage change from period to period (percentage change after removing FX and the estimated impacts of acquisitions). The comparisons that exclude FX assume that exchange rates remained constant at the prior year rate during the comparative periods that are included in each table. As discussed under Quantitative and Qualitative Disclosures about Market Risk — Foreign Currency Risk below, we have significant exposure to movements in foreign currency exchange rates. We also provide a table showing the operating cash flow margins of our reportable segments for the three and nine months ended September 30, 2012 and 2011 at the end of this section.

The revenue of our reportable segments includes revenue earned from subscribers for ongoing services, revenue earned from B2B services, interconnect fees, channel carriage fees, installation fees, mobile services revenue, late fees and advertising revenue.  Consistent with the presentation of our revenue categories in note 14 to our condensed consolidated financial statements, we use the term “subscription revenue” in the following discussion to refer to amounts received from subscribers for ongoing services, excluding installation fees, late fees and mobile services revenue. 

The rates charged for certain video services offered by our broadband communications operations in some European countries and in Chile are subject to oversight and control, either before or after the fact, based on competition law or general pricing regulations.  Additionally, in Europe, our ability to bundle or discount our services may be constrained if we are held to be dominant with respect to any product we offer.  The amounts we charge and incur with respect to telephony interconnection fees are also subject to regulatory oversight in many of our markets. Adverse outcomes from rate regulation or other regulatory initiatives could have a significant negative impact on our ability to maintain or increase our revenue. For information concerning the potential impact of adverse regulatory developments in Belgium and the Netherlands, see note 13 to our condensed consolidated financial statements.

Most of our revenue is derived from jurisdictions that administer value-added or similar revenue-based taxes.  Any increases in these taxes could have an adverse impact on our ability to maintain or increase our revenue to the extent that we are unable to pass such tax increases on to our customers.  In the case of revenue-based taxes for which we are the ultimate taxpayer, we will also experience increases in our operating expenses and corresponding declines in our operating cash flow and operating cash flow margins to the extent of any such tax increases.  In this regard, value-added tax rates increased (i) effective January 1, 2012 in Ireland, Hungary and, with respect to certain digital cable services, Belgium and (ii) effective October 1, 2012 in the Netherlands. In addition, during the fourth quarter of 2010, the Hungarian government imposed a revenue-based tax on telecommunications operators (the 2010 Hungarian Telecom Tax) that is applicable to our broadband communications operations

65

in Hungary, with retroactive effect to the beginning of 2010.  The 2010 Hungarian Telecom Tax is currently scheduled to expire at the end of 2012. The EU Commission initiated an investigation in March 2011 and, on September 29, 2011, the EU Commission requested that Hungary abolish the 2010 Hungarian Telecom Tax on the grounds that it is illegal under EU rules. On March 22, 2012, the EU Commission announced its decision to refer the matter to the European Court of Justice, as Hungary continues to impose the 2010 Hungarian Telecom Tax in violation of EU rules. The ultimate resolution of this matter may take several years, and no assurance can be given as to the outcome. Until such time as this matter is resolved, we will continue to accrue and pay the 2010 Hungarian Telecom Tax during the periods in which it is in effect. Through September 30, 2012, we have incurred total inception-to-date operating expenses of HUF 8.7 billion ($39.3 million) as a result of the 2010 Hungarian Telecom Tax. This amount includes a HUF 650.0 million ($2.9 million) reduction recorded during the second quarter of 2012 that reflects the cumulative effect of credits taken during the quarter with respect to prior period payments. The credits taken resulted from a change in our approach to determining the 2010 Hungarian Telecom Tax that was implemented on a retroactive basis during the second quarter of 2012.

During the second quarter of 2012, Hungary imposed an act that provides for a new usage-based telecommunication tax (the 2012 Hungarian Telecom Tax) on telecommunications service providers for fixed and mobile voice and mobile texting services, effective from July 1, 2012 for an indefinite period of time. Although the 2012 Hungarian Telecom Tax will result in higher costs for our broadband communications operations in Hungary, we do not expect the impact of this new tax to be material in relationship to our results of operations or cash flows. The existing 2010 Hungarian Telecom Tax remains in effect through December 31, 2012. On June 21, 2012, the EU Commission sent a letter of formal notice to Hungary with respect to the 2012 Hungarian Telecom Tax, setting out concerns regarding the compatibility of the tax with EU rules. Hungary has responded to the EU Commission and indicated that it believes the 2012 Hungarian Telecom Tax is in compliance with EU rules. The EU Commission may commence formal infringement proceedings against Hungary, which can ultimately lead to a case at the European Court of Justice.

We rely on third-party vendors for the equipment, software and services that we require in order to provide services to our customers. Our suppliers often conduct business worldwide and their ability to meet our needs are subject to various risks, including political and economic instability, natural calamities, interruptions in transportation systems, terrorism and labor issues. As a result, we may not be able to obtain the equipment, software and services required for our businesses on a timely basis or on satisfactory terms. Any shortfall in customer premises equipment could lead to delays in connecting customers to our services, and accordingly, could adversely impact our ability to maintain or increase our RGUs, revenue and cash flows.


66

Revenue of our Reportable Segments
 
Three months ended
September 30,
 
Increase (decrease)
 
Organic increase (decrease)
 
2012
 
2011
 
$
 
%
 
%
 
in millions
 
 
 
 
UPC/Unity Division:
 
 
 
 
 
 
 
 
 
Germany
$
568.7

 
$
362.7

 
$
206.0

 
56.8

 
14.5

The Netherlands
300.3

 
321.7

 
(21.4
)
 
(6.7
)
 
5.2

Switzerland
310.2

 
344.3

 
(34.1
)
 
(9.9
)
 
4.8

Other Western Europe
205.7

 
223.1

 
(17.4
)
 
(7.8
)
 
4.1

Total Western Europe
1,384.9

 
1,251.8

 
133.1

 
10.6

 
7.6

Central and Eastern Europe
273.9

 
283.1

 
(9.2
)
 
(3.2
)
 
(0.7
)
Central and other
28.6

 
31.4

 
(2.8
)
 
(8.9
)
 
2.9

Total UPC/Unity Division
1,687.4

 
1,566.3

 
121.1

 
7.7

 
6.0

Telenet (Belgium)
461.0

 
488.8

 
(27.8
)
 
(5.7
)
 
6.4

VTR Group (Chile)
241.0

 
231.7

 
9.3

 
4.0

 
6.7

Corporate and other
150.0

 
154.4

 
(4.4
)
 
(2.8
)
 
0.5

Intersegment eliminations
(20.3
)
 
(22.4
)
 
2.1

 
9.4

 
(0.6
)
Total
$
2,519.1

 
$
2,418.8

 
$
100.3

 
4.1

 
5.8

 
Nine months ended
September 30,
 
Increase (decrease)
 
Organic increase (decrease)
 
2012
 
2011
 
$
 
%
 
%
 
in millions
 
 
 
 
UPC/Unity Division:
 
 
 
 
 
 
 
 
 
Germany
$
1,695.6

 
$
1,058.1

 
$
637.5

 
60.2

 
12.0

The Netherlands
914.7

 
959.6

 
(44.9
)
 
(4.7
)
 
4.5

Switzerland
940.9

 
970.9

 
(30.0
)
 
(3.1
)
 
3.7

Other Western Europe
621.7

 
667.4

 
(45.7
)
 
(6.8
)
 
2.2

Total Western Europe
4,172.9

 
3,656.0

 
516.9

 
14.1

 
6.0

Central and Eastern Europe
829.8

 
837.2

 
(7.4
)
 
(0.9
)
 
(0.1
)
Central and other
85.1

 
93.0

 
(7.9
)
 
(8.5
)
 
0.9

Total UPC/Unity Division
5,087.8

 
4,586.2

 
501.6

 
10.9

 
4.8

Telenet (Belgium)
1,404.7

 
1,430.9

 
(26.2
)
 
(1.8
)
 
7.7

VTR Group (Chile)
692.3

 
674.4

 
17.9

 
2.7

 
6.0

Corporate and other
458.9

 
481.1

 
(22.2
)
 
(4.6
)
 
2.0

Intersegment eliminations
(63.1
)
 
(66.3
)
 
3.2

 
4.8

 
(4.2
)
Total
$
7,580.6

 
$
7,106.3

 
$
474.3

 
6.7

 
5.3


General. While not specifically discussed in the below explanations of the changes in the revenue of our reportable segments, we are experiencing significant competition in all of our broadband communications markets. This competition has an adverse impact on our ability to increase or maintain our RGUs and/or ARPU. For a description of the more notable recent impacts of this competition on our broadband communications markets, see Overview above.


67

Germany. The increases in Germany's revenue during the three and nine months ended September 30, 2012, as compared to the corresponding periods in 2011, include (i) organic increases of $52.4 million or 14.5% and $127.0 million or 12.0%, respectively, (ii) the impact of the KBW Acquisition and (iii) the impact of FX, as set forth below:
 
Three-month period
 
Nine-month period
 
Subscription
revenue (a)
 
Non-subscription
revenue (b)
 
Total
 
Subscription
revenue (a)
 
Non-subscription
revenue (b)
 
Total
 
in millions
Increase in subscription revenue due to change in:
 
 
 
 
 
 
 
 
 
 
 
Average number of RGUs (c)
$
34.9

 
$
—

 
$
34.9

 
$
90.9

 
$
—

 
$
90.9

ARPU (d)
8.7

 
—

 
8.7

 
17.1

 
—

 
17.1

Increase in non-subscription revenue (e)
—

 
8.8

 
8.8

 
—

 
19.0

 
19.0

Organic increase
43.6

 
8.8

 
52.4

 
108.0

 
19.0

 
127.0

Impact of the KBW Acquisition
200.6

 
25.7

 
226.3

 
600.1

 
76.0

 
676.1

Impact of FX
(63.5
)
 
(9.2
)
 
(72.7
)
 
(145.8
)
 
(19.8
)
 
(165.6
)
Total
$
180.7

 
$
25.3

 
$
206.0

 
$
562.3

 
$
75.2

 
$
637.5

_______________

(a)
Germany's subscription revenue includes revenue from multi-year bulk agreements with landlords, housing associations or with third parties that operate and administer the in-building networks on behalf of housing associations. These bulk agreements, which generally allow for the procurement of the basic video signals at volume-based discounts, provide access to nearly two-thirds of Germany's video cable subscribers. During the three months ended September 30, 2012, Germany's 20 largest bulk agreement accounts generated approximately 7% of its revenue (including estimated amounts billed directly to the building occupants for premium cable, broadband internet and telephony services). No assurance can be given that Germany's bulk agreements will be renewed or extended on financially equivalent terms or at all, particularly in light of the commitments we made to regulators in connection with the KBW Acquisition. In this regard, we have, among other items, agreed to grant a special termination right with respect to certain of Germany's larger bulk agreements. During the three months ended September 30, 2012, the bulk agreements that are subject to this special termination right accounted for a significant portion of the revenue associated with (i) all of Germany's bulk agreements and (ii) the 20 largest bulk agreement accounts mentioned above. For additional information, see note 2 to our condensed consolidated financial statements.

(b)
Germany's non-subscription revenue includes fees received for the carriage of certain channels included in Germany's analog and digital cable offerings. This carriage fee revenue is subject to contracts that expire or are otherwise terminable by either party at various dates ranging from 2012 through 2017. The aggregate amount of revenue related to these carriage contracts represents approximately 7% of Germany's total revenue during the three months ended September 30, 2012. Furthermore, approximately 20% of Germany's carriage fee revenue during the three months ended September 30, 2012 relates to contracts for which we have received notices to terminate effective December 31, 2012. While we have rejected these termination notices, no assurance can be given that any of Germany's carriage fee contracts will be renewed or extended on financially equivalent terms, or at all. In addition, our ability to increase the aggregate carriage fees that Germany receives for each channel is limited by certain commitments we made to regulators in connection with the KBW Acquisition. For additional information, see note 2 to our condensed consolidated financial statements.

(c)
The increases in Germany's subscription revenue related to changes in the average numbers of RGUs are attributable to increases in the average numbers of broadband internet, telephony and digital cable RGUs that were only partially offset by declines in the average numbers of analog cable RGUs. The declines in Germany's average numbers of analog cable RGUs led to declines in the average numbers of total video RGUs during the three and nine months ended September 30, 2012, as compared to the corresponding periods in 2011.

(d)
The increases in Germany's subscription revenue related to changes in ARPU are due to (i) an improvement in RGU mix, attributable to higher proportions of telephony, broadband internet and digital cable RGUs, and (ii) a net increase during

68

the three-month period and a net decrease during the nine-month period resulting primarily from the following factors: (a) lower ARPU due to decreases in telephony call volume for customers on usage-based calling plans, (b) higher ARPU from digital cable services, (c) lower ARPU due to higher proportions of customers receiving discounted analog cable services through bulk agreements, (d) higher ARPU from broadband internet services and (e) lower ARPU due to the impact of free bundled services provided to new subscribers during promotional periods. For information concerning our commitment to distribute basic digital television channels in unencrypted form in Germany commencing January 1, 2013, see note 2 to our condensed consolidated financial statements.

(e)
The increases in Germany's non-subscription revenue are primarily attributable to (i) increases in installation revenue, due to higher numbers of installations and increases in the average installation fee, (ii) increases in mobile services revenue and (iii) increases in interconnect revenue.

The Netherlands. The decreases in the Netherlands' revenue during the three and nine months ended September 30, 2012, as compared to the corresponding periods in 2011, include (i) organic increases of $16.9 million or 5.2% and $43.5 million or 4.5%, respectively, (ii) the impact of an acquisition and (iii) the impact of FX, as set forth below:
 
Three-month period
 
Nine-month period
 
Subscription
revenue
 
Non-subscription
revenue
 
Total
 
Subscription
revenue
 
Non-subscription
revenue
 
Total
 
in millions
Increase in subscription revenue due to change in:
 
 
 
 
 
 
 
 
 
 
 
Average number of RGUs (a)
$
11.1

 
$
—

 
$
11.1

 
$
35.0

 
$
—

 
$
35.0

ARPU (b)
3.8

 
—

 
3.8

 
5.3

 
—

 
5.3

Increase in non-subscription revenue (c)
—

 
2.0

 
2.0

 
—

 
3.2

 
3.2

Organic increase
14.9

 
2.0

 
16.9

 
40.3

 
3.2

 
43.5

Impact of acquisition
0.2

 
0.2

 
0.4

 
0.2

 
0.3

 
0.5

Impact of FX
(35.2
)
 
(3.5
)
 
(38.7
)
 
(80.8
)
 
(8.1
)
 
(88.9
)
Total
$
(20.1
)
 
$
(1.3
)
 
$
(21.4
)
 
$
(40.3
)
 
$
(4.6
)
 
$
(44.9
)
_______________

(a)
The increases in the Netherlands' subscription revenue related to changes in the average numbers of RGUs are attributable to increases in the average numbers of telephony, digital cable and broadband internet RGUs that were only partially offset by declines in the average numbers of analog cable RGUs. The declines in the average numbers of analog cable RGUs in the Netherlands led to declines in the average number of total video RGUs during the three and nine months ended September 30, 2012, as compared to the corresponding periods in 2011.

(b)
The increases in the Netherlands' subscription revenue related to changes in ARPU are due to the net effect of (i) improvements in RGU mix, attributable to higher proportions of digital cable, broadband internet and telephony RGUs, and (ii) net decreases resulting primarily from the following factors: (a) lower ARPU due to decreases in telephony call volume, including the impact of higher proportions of customers selecting usage-based calling plans, (b) lower ARPU due to the impact of bundling and promotional discounts and (c) higher ARPU due to January 2012 price increases for certain video services and, to a lesser extent, July 2012 price increases for bundled services.

(c)
The increases in the Netherlands' non-subscription revenue are primarily attributable to the net effect of (i) increases in B2B revenue, (ii) increases in revenue from late charges and (iii) decreases in interconnect revenue due primarily to the impact of an August 1, 2012 reduction in fixed termination rates.

For information concerning certain regulatory developments that could have an adverse impact on our revenue in the Netherlands, see note 13 to our condensed consolidated financial statements.


69

Switzerland. The decreases in Switzerland's revenue during the three and nine months ended September 30, 2012, as compared to the corresponding periods in 2011, include (i) organic increases of $16.4 million or 4.8% and $35.5 million or 3.7%, respectively, (ii) the impact of acquisitions and (iii) the impact of FX, as set forth below:
 
Three-month period
 
Nine-month period
 
Subscription
revenue
 
Non-subscription
revenue
 
Total
 
Subscription
revenue
 
Non-subscription
revenue
 
Total
 
in millions
Increase in subscription revenue due to change in:
 
 
 
 
 
 
 
 
 
 
 
Average number of RGUs (a)
$
9.0

 
$
—

 
$
9.0

 
$
22.0

 
$
—

 
$
22.0

ARPU (b)
7.8

 
—

 
7.8

 
14.0

 
—

 
14.0

Decrease in non-subscription revenue (c)
—

 
(0.4
)
 
(0.4
)
 
—

 
(0.5
)
 
(0.5
)
Organic increase (decrease)
16.8

 
(0.4
)
 
16.4

 
36.0

 
(0.5
)
 
35.5

Impact of acquisitions
1.3

 
—

 
1.3

 
3.2

 
—

 
3.2

Impact of FX
(44.3
)
 
(7.5
)
 
(51.8
)
 
(58.6
)
 
(10.1
)
 
(68.7
)
Total
$
(26.2
)
 
$
(7.9
)
 
$
(34.1
)
 
$
(19.4
)
 
$
(10.6
)
 
$
(30.0
)
_______________

(a)
The increases in Switzerland's subscription revenue related to changes in the average numbers of RGUs are attributable to increases in the average numbers of digital cable, broadband internet and telephony RGUs that were only partially offset by declines in the average numbers of analog cable RGUs. The declines in the average numbers of Switzerland's analog cable RGUs led to declines in the average numbers of total video RGUs during the three and nine months ended September 30, 2012, as compared to the corresponding periods in 2011.

(b)
The increases in Switzerland's subscription revenue related to changes in ARPU are due to the net effect of (i) improvements in RGU mix, attributable to higher proportions of digital cable, broadband internet and telephony RGUs, and (ii) net decreases resulting primarily from the following factors: (a) lower ARPU due to decreases in telephony call volume for customers on usage-based calling plans, (b) higher ARPU due to higher proportions of customers selecting higher-priced tiers of broadband internet services and, to a lesser extent, digital cable services and (c) lower ARPU due to the impact of bundling discounts.

(c)
The decreases in Switzerland's non-subscription revenue are primarily attributable to the net effect of (i) declines in revenue from usage-based wholesale residential telephony services, (ii) declines in B2B revenue and (iii) during the nine-month period, an increase in installation revenue. The declines in B2B revenue are due primarily to lower revenue from construction and equipment sales that was only partially offset by growth in B2B broadband internet and telephony services.

In October 2012, we announced an agreement with regulatory authorities in Switzerland pursuant to which we will make certain changes to our service offerings in exchange for progressive increases in the price of our basic cable connection over the next two years. In this regard, effective January 1, 2013 we will begin to offer a basic tier of digital television channels on an unencrypted basis in our Switzerland footprint and, for video subscribers who pay the required upfront activation fee, we will make available, at no additional monthly charge, a two Mbps internet connection, which is an increase from the currently offered 300 Kbps internet connection.  In addition, the price for a cable connection will increase by CHF 0.90 ($0.96) effective January 1, 2013 and a further CHF 0.60 ($0.64) effective January 1, 2014. Although the above changes in our service offerings may negatively impact certain revenue streams, we believe that the positive impact of the price increases in 2013 and 2014 will offset such negative impacts and place us in a position where we can continue to increase our revenue and RGUs in Switzerland. No assurance can be given that our assessment of the net impact of these changes in our service offerings and prices will prove to be accurate or that we will be able to continue to grow our revenue and RGUs in Switzerland.

70

Other Western Europe. The decreases in Other Western Europe's revenue during the three and nine months ended September 30, 2012, as compared to the corresponding periods in 2011, include (i) organic increases of $9.0 million or 4.1% and $14.9 million or 2.2%, respectively, and (ii) the impact of FX, as set forth below:

 
Three-month period
 
Nine-month period
 
Subscription
revenue
 
Non-subscription
revenue
 
Total
 
Subscription
revenue
 
Non-subscription
revenue
 
Total
 
in millions
Increase (decrease) in subscription revenue due to change in:
 
 
 
 
 
 
 
 
 
 
 
Average number of RGUs (a)
$
14.8

 
$
—

 
$
14.8

 
$
41.7

 
$
—

 
$
41.7

ARPU (b)
(7.6
)
 
—

 
(7.6
)
 
(26.0
)
 
—

 
(26.0
)
Increase (decrease) in non-subscription revenue (c)
—

 
1.8

 
1.8

 
—

 
(0.8
)
 
(0.8
)
Organic increase (decrease)
7.2

 
1.8

 
9.0

 
15.7

 
(0.8
)
 
14.9

Impact of FX
(23.2
)
 
(3.2
)
 
(26.4
)
 
(53.7
)
 
(6.9
)
 
(60.6
)
Total
$
(16.0
)
 
$
(1.4
)
 
$
(17.4
)
 
$
(38.0
)
 
$
(7.7
)
 
$
(45.7
)
_______________

(a)
The increases in Other Western Europe's subscription revenue related to changes in the average numbers of RGUs are attributable to increases in the average numbers of telephony, broadband internet and digital cable RGUs in each of Ireland and Austria that were only partially offset by declines in the average numbers of analog cable RGUs in each of Austria and Ireland and, to a lesser extent, MMDS video RGUs in Ireland. The declines in the average numbers of analog cable and MMDS video RGUs led to declines in the average number of total video RGUs in both Ireland and Austria during the three and nine months ended September 30, 2012, as compared to the corresponding periods in 2011.

(b)
The decreases in Other Western Europe's subscription revenue related to changes in ARPU are attributable to decreases in ARPU in each of Ireland and Austria. The decreases in Ireland's ARPU are primarily due to (i) lower ARPU due to the impact of bundling discounts and (ii) lower ARPU due to decreases in telephony call volume for customers on usage-based calling plans, including the impact of higher proportions of customers selecting usage-based calling plans. The decreases in Austria's ARPU are primarily due to (a) lower ARPU due to the impact of bundling discounts, (b) lower ARPU due to higher proportions of customers selecting lower-priced tiers of broadband internet services, (c) higher ARPU due to the third quarter 2011 implementation of an additional charge for broadband internet services and (d) lower ARPU due to decreases in telephony call volume for customers on usage-based calling plans. In addition, Other Western Europe's overall ARPU was impacted by adverse changes in RGU mix, primarily attributable to lower proportions of digital cable RGUs in Ireland.

(c)
The changes in Other Western Europe's non-subscription revenue are due primarily to the net effect of (i) declines in revenue from Austria's B2B broadband internet and telephony services and (ii) increases in installation revenue in Austria and, during the three-month period, Ireland.


71

Central and Eastern Europe. The decreases in Central and Eastern Europe's revenue during the three and nine months ended September 30, 2012, as compared to the corresponding periods in 2011, include (i) organic decreases of $2.0 million or 0.7% and $0.6 million or 0.1%, respectively, (ii) the impact of acquisitions and (iii) the impact of FX, as set forth below:
 
Three-month period
 
Nine-month period
 
Subscription
revenue
 
Non-subscription
revenue
 
Total
 
Subscription
revenue
 
Non-subscription
revenue
 
Total
 
in millions
Increase (decrease) in subscription revenue due to change in:
 
 
 
 
 
 
 
 
 
 
 
Average number of RGUs (a)
$
17.7

 
$
—

 
$
17.7

 
$
41.9

 
$
—

 
$
41.9

ARPU (b)
(19.2
)
 
—

 
(19.2
)
 
(45.3
)
 
—

 
(45.3
)
Increase (decrease) in non-subscription revenue (c)
—

 
(0.5
)
 
(0.5
)
 
—

 
2.8

 
2.8

Organic increase (decrease)
(1.5
)
 
(0.5
)
 
(2.0
)
 
(3.4
)
 
2.8

 
(0.6
)
Impact of acquisitions
29.2

 
3.7

 
32.9

 
101.5

 
15.5

 
117.0

Impact of FX
(37.6
)
 
(2.5
)
 
(40.1
)
 
(113.4
)
 
(10.4
)
 
(123.8
)
Total
$
(9.9
)
 
$
0.7

 
$
(9.2
)
 
$
(15.3
)
 
$
7.9

 
$
(7.4
)
_______________

(a)
The increases in Central and Eastern Europe's subscription revenue related to changes in the average numbers of RGUs are primarily attributable to increases in the average numbers of digital cable, telephony and broadband internet RGUs that were only partially offset by declines in the average numbers of analog cable and, to a much lesser extent, MMDS video RGUs in Slovakia. In each country within our Central and Eastern Europe segment, declines in the average numbers of analog cable RGUs led to declines in the average number of total video RGUs during the three and nine months ended September 30, 2012, as compared to the corresponding periods in 2011.

(b)
The decreases in Central and Eastern Europe's subscription revenue related to changes in ARPU are primarily due to the net effect of (i) lower ARPU due to increases in the proportions of video, broadband internet and telephony subscribers selecting lower-priced tiers of services and (ii) higher ARPU due to the impacts of lower bundling discounts. In addition, Central and Eastern Europe's overall ARPU was positively impacted by improvements in RGU mix, primarily attributable to higher proportions of digital cable and, to a lesser extent, broadband internet RGUs.

(c)
The changes in Central and Eastern Europe's non-subscription revenue are attributable to the net impact of various individually insignificant changes.



72

Telenet (Belgium). The decreases in Telenet's revenue during the three and nine months ended September 30, 2012, as compared to the corresponding periods in 2011, include (i) organic increases of $31.1 million or 6.4% and $110.3 million or 7.7%, respectively, and (ii) the impact of FX, as set forth below:
 
Three-month period
 
Nine-month period
 
Subscription
revenue
 
Non-subscription
revenue
 
Total
 
Subscription
revenue
 
Non-subscription
revenue
 
Total
 
in millions
Increase in subscription revenue due to change in:
 
 
 
 
 
 
 
 
 
 
 
Average number of RGUs (a)
$
7.3

 
$
—

 
$
7.3

 
$
21.2

 
$
—

 
$
21.2

ARPU (b)
10.2

 
—

 
10.2

 
47.5

 
—

 
47.5

Increase in non-subscription revenue (c)
—

 
13.6

 
13.6

 
—

 
41.6

 
41.6

Organic increase
17.5

 
13.6

 
31.1

 
68.7

 
41.6

 
110.3

Impact of FX
(48.0
)
 
(10.9
)
 
(58.9
)
 
(111.5
)
 
(25.0
)
 
(136.5
)
Total
$
(30.5
)
 
$
2.7

 
$
(27.8
)
 
$
(42.8
)
 
$
16.6

 
$
(26.2
)
_______________

(a)
The increases in Telenet's subscription revenue related to changes in the average numbers of RGUs are attributable to increases in the average numbers of digital cable, broadband internet and telephony RGUs that were only partially offset by declines in the average numbers of analog cable RGUs. The declines in the average numbers of Telenet's analog cable RGUs led to declines in the average numbers of total video RGUs during the three and nine months ended September 30, 2012, as compared to the corresponding periods in 2011.

(b)
The increases in Telenet's subscription revenue related to changes in ARPU are due to the net effect of (i) improvements in RGU mix, attributable to higher proportions of digital cable, broadband internet and telephony RGUs, and (ii) a net decrease during the three-month period and a net increase during the nine-month period resulting primarily from the following factors: (a) lower ARPU due to increases in the proportions of customers selecting lower-priced tiers of broadband internet services, (b) higher ARPU due to October 2011 price increases for certain analog and digital cable services and an August 2011 price increase for certain broadband internet services, (c) lower ARPU due to decreases in telephony call volume for customers on usage-based plans and (d) during the nine-month period, higher ARPU from digital cable services, due in part to increases in the number of subscribers to Telenet's premium sporting channel following the third quarter 2011 acquisition of certain Belgian football (soccer) rights.

(c)
The increases in Telenet's non-subscription revenue are due primarily to (i) increases in mobile services revenue of $8.2 million and $21.3 million, respectively, (ii) increases in interconnect revenue of $2.9 million and $9.6 million, respectively, primarily associated with growth in mobile telephony services, (iii) increases in mobile handset sales of $1.0 million and $8.4 million, respectively, and (iv) increases in the sale of set-top boxes related to a campaign to retain customers following the move of channels from the analog to the basic digital channel package, as further described in Operating Expenses of our Reportable Segments below. The increases in Telenet's mobile handset sales, which sales typically generate relatively low margins, are primarily due to increases in sales to third-party retailers. We expect the number of handsets sold by Telenet to retailers to decline significantly during the fourth quarter of 2012.

For information concerning certain regulatory developments that could have an adverse impact on our revenue in Belgium, see note 13 to our condensed consolidated financial statements.



73

VTR Group (Chile). The increases in the VTR Group's revenue during the three and nine months ended September 30, 2012, as compared to the corresponding periods in 2011, include (i) organic increases of $15.5 million or 6.7% and $40.6 million or 6.0%, respectively, and (ii) the impact of FX, as set forth below:
 
Three-month period
 
Nine-month period
 
Subscription
revenue
 
Non-subscription
revenue
 
Total
 
Subscription
revenue
 
Non-subscription
revenue
 
Total
 
in millions
Increase (decrease) in subscription revenue due to change in:
 
 
 
 
 
 
 
 
 
 
 
Average number of RGUs (a)
$
9.5

 
$
—

 
$
9.5

 
$
30.1

 
$
—

 
$
30.1

ARPU (b)
(0.5
)
 
 
 
(0.5
)
 
3.5

 
—

 
3.5

Increase in non-subscription revenue (c)
—

 
6.5

 
6.5

 
—

 
7.0

 
7.0

Organic increase
9.0

 
6.5

 
15.5

 
33.6

 
7.0

 
40.6

Impact of FX
(4.9
)
 
(1.3
)
 
(6.2
)
 
(19.9
)
 
(2.8
)
 
(22.7
)
Total
$
4.1

 
$
5.2

 
$
9.3

 
$
13.7

 
$
4.2

 
$
17.9

_______________

(a)
The increases in the VTR Group's subscription revenue related to changes in the average numbers of RGUs are primarily due to increases in the average numbers of digital cable, broadband internet and telephony RGUs that were only partially offset by declines in the average numbers of analog cable RGUs.

(b)
The changes in the VTR Group's subscription revenue related to changes in ARPU are primarily due to the positive impacts of improvements in RGU mix, attributable to higher proportions of digital cable RGUs, and a net decrease during the three-month period and a net increase during the nine-month period resulting primarily from the following factors: (i) lower ARPU due to the impact of discounts, (ii) higher ARPU due to semi-annual inflation and other price adjustments for video, broadband internet and telephony services, (iii) higher ARPU from digital cable services and (iv) lower ARPU from telephony services, primarily attributable to the net effect of (a) the negative impacts of lower volumes of calls subject to usage-based charges and (b) the positive impacts of higher proportions of customers on fixed-rate calling plans.

(c)
The increases in the VTR Group's non-subscription revenue are attributable to the net effect of (i) the May 2012 launch of mobile services by VTR Wireless, (ii) decreases in installation revenue and (iii) net decreases resulting from various individually insignificant changes.


74

Operating Expenses of our Reportable Segments
 
Three months ended
September 30,
 
Increase (decrease)
 
Organic increase (decrease)
 
2012
 
2011
 
$
 
%
 
%
 
in millions
 
 
 
 
UPC/Unity Division:
 
 
 
 
 
 
 
 
 
Germany
$
126.9

 
$
81.5

 
$
45.4

 
55.7

 
0.9

The Netherlands
83.8

 
90.8

 
(7.0
)
 
(7.7
)
 
4.1

Switzerland
87.3

 
96.3

 
(9.0
)
 
(9.3
)
 
5.8

Other Western Europe
78.1

 
84.0

 
(5.9
)
 
(7.0
)
 
5.1

Total Western Europe
376.1

 
352.6

 
23.5

 
6.7

 
4.1

Central and Eastern Europe
102.4

 
106.5

 
(4.1
)
 
(3.8
)
 
—

Central and other
25.5

 
27.9

 
(2.4
)
 
(8.6
)
 
3.2

Total UPC/Unity Division
504.0

 
487.0

 
17.0

 
3.5

 
3.1

Telenet (Belgium)
167.6

 
180.4

 
(12.8
)
 
(7.1
)
 
4.7

VTR Group (Chile)
116.4

 
99.9

 
16.5

 
16.5

 
19.3

Corporate and other
89.0

 
95.0

 
(6.0
)
 
(6.3
)
 
(1.4
)
Intersegment eliminations
(19.1
)
 
(22.3
)
 
3.2

 
14.3

 
3.8

Total operating expenses excluding stock-based compensation expense
857.9

 
840.0

 
17.9

 
2.1

 
5.1

Stock-based compensation expense
1.1

 
3.0

 
(1.9
)
 
(63.3
)
 
 
Total
$
859.0

 
$
843.0

 
$
16.0

 
1.9

 
 
 
Nine months ended
September 30,
 
Increase (decrease)
 
Organic increase (decrease)
 
2012
 
2011
 
$
 
%
 
%
 
in millions
 
 
 
 
UPC/Unity Division:
 
 
 
 
 
 
 
 
 
Germany
$
402.4

 
$
232.3

 
$
170.1

 
73.2

 
11.5

The Netherlands
267.6

 
283.7

 
(16.1
)
 
(5.7
)
 
3.4

Switzerland
270.5

 
281.7

 
(11.2
)
 
(4.0
)
 
2.8

Other Western Europe
244.0

 
259.9

 
(15.9
)
 
(6.1
)
 
3.0

Total Western Europe
1,184.5

 
1,057.6

 
126.9

 
12.0

 
4.9

Central and Eastern Europe
314.8

 
323.5

 
(8.7
)
 
(2.7
)
 
(1.0
)
Central and other
78.2

 
81.1

 
(2.9
)
 
(3.6
)
 
6.9

Total UPC/Unity Division
1,577.5

 
1,462.2

 
115.3

 
7.9

 
3.7

Telenet (Belgium)
520.2

 
510.8

 
9.4

 
1.8

 
11.6

VTR Group (Chile)
324.3

 
288.5

 
35.8

 
12.4

 
16.0

Corporate and other
276.8

 
302.3

 
(25.5
)
 
(8.4
)
 
(0.9
)
Intersegment eliminations
(61.1
)
 
(65.6
)
 
4.5

 
6.9

 
(2.4
)
Total operating expenses excluding stock-based compensation expense
2,637.7

 
2,498.2

 
139.5

 
5.6

 
6.2

Stock-based compensation expense
6.3

 
12.8

 
(6.5
)
 
(50.8
)
 
 
Total
$
2,644.0

 
$
2,511.0

 
$
133.0

 
5.3

 
 



75

General. Operating expenses include programming, network operations, interconnect, customer operations, customer care, stock-based compensation expense and other direct costs. We do not include stock-based compensation in the following discussion and analysis of the operating expenses of our reportable segments as stock-based compensation expense is not included in the performance measures of our reportable segments. Stock-based compensation expense is discussed under Discussion and Analysis of Our Consolidated Operating Results below. Programming costs, which represent a significant portion of our operating costs, are expected to rise in future periods as a result of (i) growth in digital cable services, in combination with the introduction of Horizon TV, and (ii) price increases. In addition, we are subject to inflationary pressures with respect to our labor and other costs and foreign currency exchange risk with respect to costs and expenses that are denominated in currencies other than the respective functional currencies of our operating segments (non-functional currency expenses). 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. For additional information concerning our foreign currency exchange risks see Quantitative and Qualitative Disclosures about Market Risk — Foreign Currency Risk below.

UPC/Unity Division. The UPC/Unity Division's operating expenses (exclusive of stock-based compensation expense) increased $17.0 million or 3.5% and $115.3 million or 7.9%, during the three and nine months ended September 30, 2012, respectively, as compared to the corresponding periods in 2011. These increases include $73.0 million and $225.0 million, respectively, attributable to the impact of acquisitions. Excluding the effects of acquisitions and FX, the UPC/Unity Division's operating expenses increased $15.4 million or 3.1% and $54.3 million or 3.7%, respectively. These increases include the following factors:

•
Increases in programming and related costs of $16.9 million or 11.6% and $40.3 million or 9.1%, respectively, due primarily to growth in digital video services, predominantly in Germany, Switzerland, Austria, Poland and the Netherlands. The increases in programming and related costs also reflect increases (decreases) of $0.4 million and ($3.0 million) during the three- and nine-month periods, respectively, due to the net impact of accrual releases in (i) Germany during the third quarters of 2012 and 2011 and (ii) the Netherlands during the first and second quarters of 2012 and the third quarter of 2011. These accrual releases primarily relate to the settlement or reassessment of operational contingencies;

•
Increases in network-related expenses of $6.2 million or 9.5% and $22.0 million or 11.2%, respectively, due primarily to (i) higher costs of $6.3 million due to the impact of a third quarter 2011 settlement of a claim for costs incurred in connection with faulty customer premises equipment, primarily in the Netherlands and Switzerland, (ii) increased network and customer premises equipment maintenance costs, primarily in Germany and Switzerland, (iii) lower costs of $4.2 million due to the impact of a third quarter 2012 settlement of a claim for costs incurred in connection with faulty customer premises equipment, primarily in the Netherlands, Switzerland and Poland, (iv) higher costs associated with the refurbishment of customer premises equipment, primarily in Germany, and (v) increased encryption costs, due largely to increased numbers of installed digital cable set-top boxes, primarily in Germany;

•
An increase during the nine-month period in personnel costs of $9.2 million or 3.2%, due primarily to (i) annual wage increases in the Netherlands, Germany, Switzerland and Austria and (ii) increased staffing levels at the UPC/Unity Division's central operations and the Netherlands. The increased staffing levels at the UPC/Unity Division's central operations are due in part to increased numbers of strategic initiatives. During the three-month period, personnel costs remained relatively unchanged, as the above factors were offset by individually insignificant decreases in other personnel-related costs;

•
Decreases in bad debt and collection expenses of $2.7 million or 15.9% and $9.0 million or 16.4%, respectively, primarily in Germany, Poland, the Czech Republic, Hungary, Ireland and, during the nine-month period, the Netherlands. These decreases are largely attributable to (i) improved collection experience and (ii) during the nine-month period, the $2.6 million impact of a non-recurring increase to bad debt expense that was recorded in the Netherlands during the first quarter of 2011;

•
An increase (decrease) in outsourced labor and professional fees of ($1.7 million) or (3.4%) and $8.8 million or 6.4%, respectively. The decrease during the three-month period is due primarily to lower call center costs in Switzerland, the Czech Republic and the Netherlands, partially offset by higher call center costs in Germany, primarily attributable to increases in call volumes. The increase during the nine-month period is due primarily to the net effect of (i) the aforementioned increased call center costs in Germany, (ii) lower call center costs in Switzerland and (iii) higher outsourced labor costs associated with customer-facing activities in Germany and Switzerland;

•
Decreases associated with the 2010 Hungarian Telecom Tax of $0.6 million and $3.2 million, respectively, primarily attributable to a change in our approach to determining the 2010 Hungarian Telecom Tax that was implemented on a

76

retroactive basis during the second quarter of 2012. For additional information, see Discussion and Analysis of our Reportable Segments - General; and

•
An increase during the nine-month period in interconnect and access costs of $1.6 million or 1.0%, primarily due to the net effect of (i) an increase in Germany that reflects the net impact of (a) an increase due to higher numbers of telephony subscribers and (b) a $2.9 million decrease associated with the first and second quarter 2012 release of accruals following the settlement of operational contingencies, (ii) a decrease in Austria, primarily attributable to lower usage, and (iii) a decrease in the Netherlands, due to the impact of reductions in fixed and mobile termination rates during the third quarter of 2012. During the three-month period, interconnect and access costs remained relatively unchanged as an increase in Germany was offset by decreases in the Netherlands and Austria.
 
Telenet (Belgium). Telenet's operating expenses (exclusive of stock-based compensation expense) increased (decreased) ($12.8 million) or (7.1%) and $9.4 million or 1.8% during the three and nine months ended September 30, 2012, respectively, as compared to the corresponding periods in 2011. Excluding the effects of FX, Telenet's operating expenses increased $8.5 million or 4.7% and $59.5 million or 11.6%, respectively. These increases include the following factors:

•
Increases in programming and related costs of $3.7 million or 6.5% and $32.6 million or 21.7%, respectively, due primarily to (i) an increase during the nine-month period resulting from Telenet's acquisition of the rights to broadcast certain Belgian football (soccer) matches for the three years that began in the third quarter of 2011 and (ii) increases during the three- and nine-month periods due to growth in other digital video services;

•
Increases in mobile costs of $5.4 million and $17.9 million, respectively, due primarily to (i) increased mobile handset sales to third-party retailers and (ii) higher costs associated with subscriber promotions involving free or heavily-discounted handsets;

•
Increases in costs of $2.7 million and $9.0 million, respectively, associated with a campaign to retain customers following the move of certain channels from the analog to the basic digital channel package. This campaign involved the sale and rental of used digital set-top boxes at relatively low prices. In connection with this campaign, Telenet experienced (i) increases in the costs of set-top boxes that were sold and (ii) higher outsourced labor and professional fees due primarily to increased customer-facing activities;
 
•
Increases in outsourced labor and professional fees of $1.1 million or 6.3% and $4.3 million or 8.6%, respectively, due primarily to increased call center costs, mainly associated with (i) efforts to improve service level and (ii) a higher number of calls;

•
Increases in interconnect costs of $2.6 million or 12.6% and $3.8 million or 6.1%, respectively, due primarily to the net effect of (i) subscriber growth, (ii) increased mobile call volumes and (iii) lower mobile termination rates;

•
Decreases in bad debt expense of $0.3 million and $3.3 million, respectively. The decrease during the nine-month period is due primarily to a nonrecurring adjustment recorded in the second quarter of 2012 related to the settlement of an operational contingency;

•
Decreases in network-related expenses of $3.2 million or 10.9% and $3.3 million or 3.8%, respectively, due primarily to lower costs associated with the refurbishment of customer premises equipment due primarily to the benefit of claims taken related to faulty set-top boxes;

•
Lower costs associated with the $3.0 million impact of a nonrecurring adjustment recorded during the third quarter of 2012 resulting from the reassessment of a social tariff obligation; and

•
Decreases in personnel costs of $1.0 million or 3.5% and $1.2 million or 1.4%, respectively, due primarily to the net effect of (i) increased staffing levels and annual wage increases, (ii) lower costs due to reassessments of certain post-employment benefit obligations during the third quarter of 2012 and (iii) during the nine-month period, lower bonus costs.
    

77

VTR Group (Chile). The VTR Group's operating expenses (exclusive of stock-based compensation expense) increased $16.5 million or 16.5% and $35.8 million or 12.4% during the three and nine months ended September 30, 2012, respectively, as compared to the corresponding periods in 2011. Excluding the effects of FX, the VTR Group's operating expenses increased $19.2 million or 19.3% and $46.1 million or 16.0%, respectively. These increases include the following factors:

•
Increases in VTR Wireless' mobile handset costs of $8.6 million and $12.5 million, respectively;

•
Increases in programming and related costs of $2.3 million or 6.5% and $12.2 million or 12.4%, respectively, primarily associated with growth in digital cable services;

•
Increases in interconnect and access costs of $3.8 million or 24.7% and $9.5 million or 21.3%, respectively, due primarily to (i) increases in VTR Wireless' costs, primarily attributable to (a) the impact of the May 2012 launch of mobile services and (b) the initiation of minimum payments under its roaming agreement during the first quarter of 2012, and (ii) higher costs associated with VTR's broadband internet services, as the impact of higher traffic was only partially offset by lower average rates;

•
Increases in facilities expenses of $2.2 million and $9.4 million, respectively, due primarily to higher site and tower rental costs incurred by VTR Wireless, including $0.3 million and $1.9 million, respectively, of fees incurred in connection with the termination of certain leases;

•
Increases in outsourced labor and professional fees of $2.7 million or 40.8% and $6.3 million or 29.6%, respectively, due primarily to (i) increased costs associated with VTR Wireless' network operating center and (ii) an increase in VTR's customer-facing activities; and

•
Decreases in personnel costs of $1.9 million or 13.3% and $5.8 million or 13.6%, respectively, primarily related to lower bonus costs at VTR.


78

SG&A Expenses of our Reportable Segments 
 
Three months ended
September 30,
 
Increase (decrease)
 
Organic increase (decrease)
 
2012
 
2011
 
$
 
%
 
%
 
in millions
 
 
 
 
UPC/Unity Division:
 
 
 
 
 
 
 
 
 
Germany
$
100.9

 
$
66.4

 
$
34.5

 
52.0

 
27.0

The Netherlands
32.8

 
35.6

 
(2.8
)
 
(7.9
)
 
3.1

Switzerland
45.1

 
49.2

 
(4.1
)
 
(8.3
)
 
6.4

Other Western Europe
25.7

 
31.7

 
(6.0
)
 
(18.9
)
 
(8.1
)
Total Western Europe
204.5

 
182.9

 
21.6

 
11.8

 
10.7

Central and Eastern Europe
33.8

 
32.6

 
1.2

 
3.7

 
8.5

Central and other
39.3

 
39.6

 
(0.3
)
 
(0.8
)
 
12.1

Total UPC/Unity Division
277.6

 
255.1

 
22.5

 
8.8

 
10.7

Telenet (Belgium)
52.7

 
57.6

 
(4.9
)
 
(8.5
)
 
3.4

VTR Group (Chile)
43.1

 
42.6

 
0.5

 
1.2

 
4.9

Corporate and other
64.3

 
60.3

 
4.0

 
6.6

 
8.7

Intersegment eliminations
(1.2
)
 
(0.1
)
 
(1.1
)
 
N.M.

 
N.M.

Total SG&A expenses excluding stock-based compensation expense
436.5

 
415.5

 
21.0

 
5.1

 
8.6

Stock-based compensation expense
26.1

 
29.9

 
(3.8
)
 
(12.7
)
 
 
Total
$
462.6

 
$
445.4

 
$
17.2

 
3.9

 
 
 
 
Nine months ended
September 30,
 
Increase (decrease)
 
Organic increase (decrease)
 
2012
 
2011
 
$
 
%
 
%
 
in millions
 
 
 
 
UPC/Unity Division:
 
 
 
 
 
 
 
 
 
Germany
$
295.1

 
$
189.1

 
$
106.0

 
56.1

 
25.0

The Netherlands
101.9

 
105.9

 
(4.0
)
 
(3.8
)
 
5.2

Switzerland
133.8

 
141.6

 
(7.8
)
 
(5.5
)
 
0.7

Other Western Europe
83.9

 
94.1

 
(10.2
)
 
(10.8
)
 
(2.1
)
Total Western Europe
614.7

 
530.7

 
84.0

 
15.8

 
9.8

Central and Eastern Europe
104.8

 
100.6

 
4.2

 
4.2

 
8.0

Central and other
123.5

 
117.2

 
6.3

 
5.4

 
15.9

Total UPC/Unity Division
843.0

 
748.5

 
94.5

 
12.6

 
10.5

Telenet (Belgium)
171.1

 
182.4

 
(11.3
)
 
(6.2
)
 
2.9

VTR Group (Chile)
136.0

 
125.4

 
10.6

 
8.5

 
12.6

Corporate and other
179.6

 
169.7

 
9.9

 
5.8

 
9.5

Intersegment eliminations
(2.0
)
 
(0.7
)
 
(1.3
)
 
N.M.

 
N.M.

Total SG&A expenses excluding stock-based compensation expense
1,327.7

 
1,225.3

 
102.4

 
8.4

 
9.4

Stock-based compensation expense
84.2

 
92.9

 
(8.7
)
 
(9.4
)
 
 
Total
$
1,411.9

 
$
1,318.2

 
$
93.7

 
7.1

 
 
___________

N.M. - Not Meaningful.



79

General. SG&A expenses include human resources, information technology, general services, management, finance, legal and sales and marketing costs, stock-based compensation and other general expenses. We do not include stock-based compensation in the following discussion and analysis of the SG&A expenses of our reportable segments as stock-based compensation expense is not included in the performance measures of our reportable segments. Stock-based compensation expense is discussed under Discussion and Analysis of Our Consolidated Operating Results below. As noted under Operating Expenses above, we are subject to inflationary pressures with respect to our labor and other costs and foreign currency exchange risk with respect to non-functional currency expenses. For additional information concerning our foreign currency exchange risks see Quantitative and Qualitative Disclosures about Market Risk — Foreign Currency Risk below.

UPC/Unity Division. The UPC/Unity Division's SG&A expenses (exclusive of stock-based compensation expense) increased $22.5 million or 8.8% and $94.5 million or 12.6% during the three and nine months ended September 30, 2012, respectively, as compared to the corresponding periods in 2011. These increases include $33.2 million and $100.7 million, respectively, attributable to the impact of acquisitions. Excluding the effects of acquisitions and FX, the UPC/Unity Division's SG&A expenses increased $27.2 million or 10.7% and $78.5 million or 10.5%, respectively. These increases include the following factors:

•
Increases in personnel costs of $11.5 million or 11.8% and $25.6 million or 8.7%, respectively, due largely to (i) increased staffing levels at the UPC/Unity Division's central operations due largely to increased numbers of strategic initiatives and (ii) annual wage increases, predominantly in the Netherlands, the UPC/Unity Division's central operations, Switzerland and Germany. The increases in personnel costs also include the impact of a new employee wage tax in the Netherlands, which tax is payable in 2013 and is not applicable to future years. This new employee wage tax, which was authorized in September 2012, is based on wages for the year ended December 31, 2012;

•
Increases in sales and marketing costs of $8.6 million or 9.4% and $25.0 million or 9.3%, respectively, largely due to higher costs in Germany, including higher sales commissions and, to a lesser extent, increased costs associated with rebranding and other advertising campaigns. During the nine-month period, lower advertising costs in Switzerland partially offset the increased costs in Germany;

•
Increases in outsourced labor and professional fees of $1.2 million or 6.4% and $9.4 million or 20.0%, respectively, due primarily to (i) increases in consulting costs incurred in Germany, primarily associated with integration activities related to the KBW Acquisition, and (ii) during the nine-month period, an increase in consulting costs incurred by the UPC/Unity Division's central operations in connection with the UPC/Unity Division's mobile and other strategic initiatives; and

•
Increases in facilities expenses of $2.2 million or 10.0% and $6.5 million or 10.2%, respectively, due largely to increases in costs related to the rental of office space in Germany, the UPC/Unity Division's central operations and the Netherlands.

Telenet (Belgium). Telenet's SG&A expenses (exclusive of stock-based compensation expense) decreased $4.9 million or 8.5% and $11.3 million or 6.2% during the three and nine months ended September 30, 2012, respectively, as compared to the corresponding periods in 2011. Excluding the effects of FX, Telenet's SG&A expenses increased $2.0 million or 3.4% and $5.2 million or 2.9%, respectively. These increases include the following factors:

•
An increase (decrease) in sales and marketing costs of ($0.3 million) or (1.6%) and $10.6 million or 18.8%, respectively. The increase during the nine-month period is due primarily to (i) increased sales commissions and sales call center costs related to the aforementioned campaign to retain customers following the move of channels from the analog to the basic digital channel package and (ii) higher marketing costs in connection with promotional and operational initiatives during the first half of 2012. The decrease during the three-month period is primarily due to lower marketing costs that were only partially offset by higher costs associated with the customer retention campaign mentioned above;

•
Decreases in outsourced labor and professional fees of $0.2 million or 4.2% and $7.9 million or 31.7%, respectively, due primarily to decreases in consulting costs associated with regulatory and strategic initiatives;

•
An increase (decrease) in personnel costs of $0.6 million or 2.6% and ($2.2 million) or (3.0%), respectively, due primarily to the net effect of (i) annual wage increases, (ii) lower costs due to the release of accruals during the third quarter of 2012 following the reassessment of certain post-employment benefit obligations and (iii) during the nine month period, lower bonus costs; and

•
Net increases resulting from individually insignificant changes in other SG&A expense categories.

80


VTR Group (Chile). The VTR Group's SG&A expenses (exclusive of stock-based compensation expense) increased $0.5 million or 1.2% and $10.6 million or 8.5% during the three and nine months ended September 30, 2012, respectively, as compared to the corresponding periods in 2011. Excluding the effects of FX, the VTR Group's SG&A expenses increased $2.1 million or 4.9% and $15.8 million or 12.6%, respectively. These increases include the following factors:

•
Increases in sales and marketing costs of $1.9 million or 16.4% and $11.1 million or 29.3%, respectively, due primarily to the net effect of (i) higher sales commissions paid to third parties, (ii) increased advertising campaigns at VTR Wireless, primarily associated with the launch of mobile services in May 2012, and (iii) decreased advertising campaigns at VTR. The higher sales commissions are primarily attributable to (a) increases at VTR, due primarily to higher numbers of sales generated by third-party dealers, and (b) increases at VTR Wireless, due primarily to higher sales volumes resulting from the May 2012 launch of mobile services;

•
Increases in facilities expenses of $1.8 million and $5.6 million, respectively, due primarily to higher rental and related costs associated with (i) increases in retail space used by VTR Wireless and (ii) increases in office and other space used by VTR; and

•
Decreases in personnel costs of $1.8 million or 11.0% and $3.2 million or 6.8%, respectively, resulting from the net effect of (i) lower bonus costs and, to a lesser degree, lower staffing levels at VTR and (ii) higher staffing levels and other personnel costs at VTR Wireless.



81

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. As we use the term, operating cash flow is defined as revenue less operating and SG&A expenses (excluding stock-based compensation, depreciation and amortization, provisions for litigation, and impairment, restructuring and other operating items). For additional information concerning this performance measure and for a reconciliation of total segment operating cash flow to our earnings (loss) from continuing operations before income taxes, see note 14 to our condensed consolidated financial statements.
 
Three months ended
September 30,
 
Increase (decrease)
 
Organic increase (decrease)
 
2012
 
2011
 
$
 
%
 
%
 
in millions
 
 
 
 
UPC/Unity Division:
 
 
 
 
 
 
 
 
 
Germany
$
340.9

 
$
214.8

 
$
126.1

 
58.7

 
15.7

The Netherlands
183.7

 
195.3

 
(11.6
)
 
(5.9
)
 
6.2

Switzerland
177.8

 
198.8

 
(21.0
)
 
(10.6
)
 
3.9

Other Western Europe
101.9

 
107.4

 
(5.5
)
 
(5.1
)
 
6.8

Total Western Europe
804.3

 
716.3

 
88.0

 
12.3

 
8.5

Central and Eastern Europe
137.7

 
144.0

 
(6.3
)
 
(4.4
)
 
(3.3
)
Central and other
(36.2
)
 
(36.1
)
 
(0.1
)
 
(0.3
)
 
(13.3
)
Total UPC/Unity Division
905.8

 
824.2

 
81.6

 
9.9

 
6.2

Telenet (Belgium)
240.7

 
250.8

 
(10.1
)
 
(4.0
)
 
8.2

VTR Group (Chile)
81.5

 
89.2

 
(7.7
)
 
(8.6
)
 
(6.6
)
Corporate and other
(3.3
)
 
(0.9
)
 
(2.4
)
 
N.M.

 
N.M.

Total
$
1,224.7

 
$
1,163.3

 
$
61.4

 
5.3

 
5.4

 
Nine months ended
September 30,
 
Increase (decrease)
 
Organic increase (decrease)
 
2012
 
2011
 
$
 
%
 
%
 
in millions
 
 
 
 
UPC/Unity Division:
 
 
 
 
 
 
 
 
 
Germany
$
998.1

 
$
636.7

 
$
361.4

 
56.8

 
8.3

The Netherlands
545.2

 
570.0

 
(24.8
)
 
(4.4
)
 
5.0

Switzerland
536.6

 
547.6

 
(11.0
)
 
(2.0
)
 
4.9

Other Western Europe
293.8

 
313.4

 
(19.6
)
 
(6.3
)
 
2.9

Total Western Europe
2,373.7

 
2,067.7

 
306.0

 
14.8

 
5.7

Central and Eastern Europe
410.2

 
413.1

 
(2.9
)
 
(0.7
)
 
(1.3
)
Central and other
(116.6
)
 
(105.3
)
 
(11.3
)
 
(10.7
)
 
(22.2
)
Total UPC/Unity Division
2,667.3

 
2,375.5

 
291.8

 
12.3

 
3.7

Telenet (Belgium)
713.4

 
737.7

 
(24.3
)
 
(3.3
)
 
6.2

VTR Group (Chile)
232.0

 
260.5

 
(28.5
)
 
(10.9
)
 
(8.2
)
Corporate and other
2.5

 
9.1

 
(6.6
)
 
N.M.

 
N.M.

Total
$
3,615.2

 
$
3,382.8

 
$
232.4

 
6.9

 
3.2

___________

N.M. - Not Meaningful.

82

Operating Cash Flow Margin

The following table sets forth the operating cash flow margin (operating cash flow divided by revenue) of each of our reportable segments: 
 
Three months ended
 
Nine months ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
 
%
UPC/Unity Division:
 
 
 
 
 
 
 
Germany
59.9
 
59.2
 
58.9
 
60.2
The Netherlands
61.2
 
60.7
 
59.6
 
59.4
Switzerland
57.3
 
57.7
 
57.0
 
56.4
Other Western Europe
49.5
 
48.1
 
47.3
 
47.0
Total Western Europe
58.1
 
57.2
 
56.9
 
56.6
Central and Eastern Europe
50.3
 
50.9
 
49.4
 
49.3
Total UPC/Unity Division, including central and other
53.7
 
52.6
 
52.4
 
51.8
Telenet (Belgium)
52.2
 
51.3
 
50.8
 
51.6
VTR Group (Chile)
33.8
 
38.5
 
33.5
 
38.6

The operating cash flow margins of the UPC/Unity Division improved during the three- and nine-month periods as most of the cash flow margins of the UPC/Unity Division's operating segments improved or remained relatively unchanged. The operating cash flow margins of the UPC/Unity Division were negatively impacted by increases in the operating cash flow deficit of the UPC/Unity Division's central and other category, which increases are primarily attributable to higher personnel and consulting costs, due in part to increased levels of strategic initiatives. The changes in Germany's operating cash flow margins are attributable to the net effect of (i) the positive impact of the inclusion of KBW during 2012, (ii) higher sales and marketing, customer care and programming costs, and (iii) integration costs associated with the KBW Acquisition. The changes in the operating cash flow margins for the remaining segments of the UPC/Unity Division generally represent the net impact of improved operational leverage, resulting from revenue growth that more than offset the accompanying increases in operating and SG&A expenses, and competitive and economic factors. In Belgium, Telenet's operating cash flow margin improvement during the three-month period is primarily due to improved operational leverage. During the nine-month period, the decline in Telenet's operating cash flow margin is primarily due to higher programming costs that more than offset the impact of improved operational leverage. The increase in programming costs is largely attributable to Telenet's third quarter 2011 acquisition of the rights to broadcast certain Belgian football (soccer) matches, as further described under Operating Expenses of our Reportable Segments above. In the case of Chile, the decreases in the operating cash flow margins are attributable to increases in the incremental operating cash flow deficit of VTR Wireless during the three and nine months ended September 30, 2012 that were only partially offset by improvements in the operating cash flow margins of VTR. The incremental operating cash flow deficit of VTR Wireless was $22.5 million and $58.3 million during the three and nine months ended September 30, 2012, respectively, and $5.3 million and $17.4 million during the three and nine months ended September 30, 2011, respectively. VTR Wireless' operations are expected to continue to have an adverse impact on the VTR Group's operating cash flow during the remainder of 2012 and during 2013.
For additional discussion of the factors contributing to the changes in the operating cash flow margins of our reportable segments, see the above analyses of the revenue, operating expenses and SG&A expenses of our reportable segments.


83

Discussion and Analysis of our Consolidated Operating Results

General

For more detailed explanations of the changes in our revenue, operating expenses and SG&A expenses, see the Discussion and Analysis of our Reportable Segments above. For information concerning our foreign currency exchange risks, see Quantitative and Qualitative Disclosures about Market Risk — Foreign Currency Risk below.

Revenue

Our revenue by major category is set forth below:
 
Three months ended
September 30,
 
Increase
 
Organic increase
 
2012
 
2011 (a)
 
$
 
%
 
%
 
in millions
 
 
 
 
Subscription revenue (b):
 
 
 
 
 
 
 
 
 
Video
$
1,128.4

 
$
1,121.0

 
$
7.4

 
0.7
 
2.0
Broadband internet
602.8

 
576.8

 
26.0

 
4.5
 
9.2
Telephony
381.1

 
333.6

 
47.5

 
14.2
 
10.2
Total subscription revenue
2,112.3

 
2,031.4

 
80.9

 
4.0
 
5.4
Other revenue (c)
406.8

 
387.4

 
19.4

 
5.0
 
8.2
Total
$
2,519.1

 
$
2,418.8

 
$
100.3

 
4.1
 
5.8

 
Nine months ended
September 30,
 
Increase
 
Organic increase
 
2012
 
2011 (a)
 
$
 
%
 
%
 
in millions
 
 
 
 
Subscription revenue (b):
 
 
 
 
 
 
 
 
 
Video
$
3,435.9

 
$
3,309.8

 
$
126.1

 
3.8
 
1.8
Broadband internet
1,800.2

 
1,675.4

 
124.8

 
7.4
 
9.0
Telephony
1,134.1

 
970.4

 
163.7

 
16.9
 
9.2
Total subscription revenue
6,370.2

 
5,955.6

 
414.6

 
7.0
 
5.1
Other revenue (c)
1,210.4

 
1,150.7

 
59.7

 
5.2
 
6.7
Total
$
7,580.6

 
$
7,106.3

 
$
474.3

 
6.7
 
5.3
_______________

(a)
Effective January 1, 2012, we began classifying the monthly revenue derived from certain SOHO subscribers as subscription revenue. SOHO subscribers pay a premium price to receive enhanced service levels along with video programming, internet or telephony services that are the same or similar to the mass marketed products offered to our residential subscribers. Prior period amounts have been conformed to the current period presentation by reclassifying the corresponding SOHO revenue from other revenue to subscription revenue.

(b)
Subscription revenue includes amounts received from subscribers for ongoing services, excluding installation fees, late fees and mobile services revenue. Subscription revenue from subscribers who purchase bundled services at a discounted rate is generally allocated proportionally to each service based on the standalone price for each individual service. However, due to regulatory, billing system and other constraints, the allocation of bundling discounts may vary between our broadband communications operating segments.


84

(c)
Other revenue includes non-subscription revenue (including B2B, interconnect, carriage fee, installation and mobile services revenue) and programming revenue.

Total revenue. Our consolidated revenue increased $100.3 million and $474.3 million during the three and nine months ended September 30, 2012, respectively, as compared to the corresponding periods in 2011. These increases include $266.9 million and $803.0 million, respectively, attributable to the impact of acquisitions. Excluding the effects of acquisitions and FX, total consolidated revenue increased $140.9 million or 5.8% and $379.0 million or 5.3%, respectively.

Subscription revenue. The details of the increases in our consolidated subscription revenue for the three and nine months ended September 30, 2012, as compared to the corresponding periods in 2011, are as follows:
 
Three-month period
 
Nine-month period
 
in millions
Increase (decrease) due to change in:
 
 
 
Average number of RGUs
$
109.5

 
$
297.4

ARPU
(0.1
)
 
4.0

Organic increase
109.4

 
301.4

Impact of acquisitions
231.3

 
705.0

Impact of FX
(259.8
)
 
(591.8
)
Total
$
80.9

 
$
414.6


Excluding the effects of acquisitions and FX, our consolidated subscription revenue increased $109.4 million or 5.4% and $301.4 million or 5.1% during the three and nine months ended September 30, 2012, respectively, as compared to the corresponding periods in 2011. These increases are attributable to (i) increases in subscription revenue from broadband internet services of $52.9 million or 9.2% and $151.3 million or 9.0%, respectively, as the impacts of increases in the average numbers of broadband internet RGUs were only partially offset by lower ARPU from broadband internet services, (ii) increases in subscription revenue from telephony services of $33.9 million or 10.2% and $89.5 million or 9.2%, respectively, as the impacts of increases in the average numbers of telephony RGUs were only partially offset by lower ARPU from telephony services and (iii) increases in subscription revenue from video services of $22.6 million or 2.0% and $60.6 million or 1.8%, respectively, as the impacts of higher ARPU from video services were only partially offset by declines in the average numbers of video RGUs.

Other revenue. Excluding the effects of acquisitions and FX, our consolidated other revenue increased $31.5 million or 8.2% and $77.6 million or 6.7% during the three and nine months ended September 30, 2012, respectively, as compared to the corresponding periods in 2011. These increases are primarily attributable to (i) higher revenue from mobile services and mobile handset sales in Belgium and Chile, (ii) increases in interconnect revenue, (iii) increases in programming revenue and (iv) increases in installation revenue.

For additional information concerning the changes in our subscription and other revenue, see Discussion and Analysis of Reportable Segments above. For information regarding the competitive environment in certain of our markets, see Overview and Discussion and Analysis of our Reportable Segments above.

Operating expenses

Our operating expenses increased $16.0 million and $133.0 million during the three and nine months ended September 30, 2012, as compared to the corresponding periods in 2011. These increases include $75.8 million and $227.8 million, respectively, attributable to the impact of acquisitions. Our operating expenses include stock-based compensation expense, which decreased $1.9 million and $6.5 million during the three and nine months ended September 30, 2012, respectively. For additional information, see the discussion following SG&A expenses below. Excluding the effects of acquisitions, FX and stock-based compensation expense, our operating expenses increased $42.6 million or 5.1% and $155.6 million or 6.2% during the three and nine months ended September 30, 2012, respectively, as compared to the corresponding periods in 2011. These increases primarily reflect increases in programming and other direct costs and, to a lesser extent, increases in (i) outsourced labor and professional fees, (ii) network-related expenses and (iii) interconnect and access costs. For additional information regarding the changes in our operating expenses, see Operating Expenses of our Reportable Segments above.

85


SG&A expenses

Our SG&A expenses increased $17.2 million and $93.7 million during the three and nine months ended September 30, 2012, respectively, as compared to the corresponding periods in 2011. These increases include $35.1 million and $102.5 million, respectively, attributable to the impact of acquisitions. Our SG&A expenses include stock-based compensation expense, which decreased $3.8 million and $8.7 million during the three and nine months ended September 30, 2012. For additional information, see the discussion in the following paragraph. Excluding the effects of acquisitions, FX and stock-based compensation expense, our SG&A expenses increased $35.8 million or 8.6% and $114.6 million or 9.4% during the three and nine months ended September 30, 2012, respectively, as compared to the corresponding periods in 2011. These increases primarily reflect (i) increases in sales and marketing costs, (ii) increases in personnel costs, (iii) increases in facilities expenses in the UPC/Unity Division and VTR and (iv) during the nine-month period, an increase in outsourced labor and professional fees. For additional information regarding the changes in our SG&A expenses, see SG&A Expenses of our Reportable Segments above.

Stock-based compensation expense (included in operating and SG&A expenses)

We record stock-based compensation that is associated with LGI shares and the shares of certain of our subsidiaries. A summary of the aggregate stock-based compensation expense that is included in our operating and SG&A expenses is set forth below: 
 
Three months ended
 
Nine months ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
 
in millions
LGI common stock:
 
 
 
 
 
 
 
LGI performance-based incentive awards (a)
$
11.1

 
$
14.8

 
$
29.5

 
$
36.4

Other LGI stock-based incentive awards
11.4

 
11.9

 
34.2

 
33.3

Total LGI common stock
22.5

 
26.7

 
63.7

 
69.7

Telenet stock-based incentive awards (b)
4.4

 
5.5

 
25.2

 
34.6

Other (c)
0.3

 
1.9

 
1.6

 
5.1

Total
$
27.2

 
$
34.1

 
$
90.5

 
$
109.4

Included in:
 
 
 
 
 
 
 
Continuing operations:
 
 
 
 
 
 
 
Operating expenses
$
1.1

 
$
3.0

 
$
6.3

 
$
12.8

SG&A expenses
26.1

 
29.9

 
84.2

 
92.9

Total - continuing operations
27.2

 
32.9

 
90.5

 
105.7

Discontinued operation
—

 
1.2

 
—

 
3.7

Total
$
27.2

 
$
34.1

 
$
90.5

 
$
109.4

_______________ 

(a)
Includes stock-based compensation expense related to LGI PSUs and, during the 2011 periods, the LGI Performance Plans.

(b)
During the second quarters of 2012 and 2011, Telenet modified the terms of certain of its stock option plans to provide for anti-dilution adjustments in connection with capital reductions. In connection with these anti-dilution adjustments, Telenet recognized stock-based compensation expense of $12.6 million and $15.8 million, respectively, and continues to recognize additional stock-based compensation expense as the underlying options vest.

(c)
The 2012 periods include stock-based compensation expense related to performance-based awards granted pursuant to a liability-based plan of the VTR Group.  These awards were granted during the first quarter of 2012 and, subject to the achievement of the minimum performance criteria, 50% to 150% of these awards will vest on December 31, 2013 based on the level of the specified performance criteria that is achieved through 2012.

86


For additional information concerning our stock-based compensation, see note 10 to our condensed consolidated financial statements.

Depreciation and amortization expense

Our depreciation and amortization expense increased $41.0 million and $171.4 million during the three and nine months ended September 30, 2012, respectively, as compared to the corresponding periods in 2011. Excluding the effects of FX, depreciation and amortization expense increased $123.0 million or 19.6% and $361.9 million or 19.7%, respectively, due primarily to the net effect of (i) increases associated with acquisitions, primarily in Germany, (ii) increases associated with capital expenditures related to the installation of customer premises equipment, the expansion and upgrade of our networks and other capital initiatives and (iii) decreases associated with certain assets becoming fully depreciated, largely in Belgium, Switzerland, Chile and the Netherlands.

Impairment, restructuring and other operating items, net

We recognized impairment, restructuring and other operating items, net, of $18.1 million and $32.6 million, respectively, during the three and nine months ended September 30, 2012, as compared to $17.9 million and $28.5 million, respectively, during the corresponding periods in 2011. The 2012 amounts include aggregate restructuring charges of $13.8 million and $27.7 million, respectively, associated with employee severance and termination costs related to certain reorganization activities, mostly in Germany. The 2011 amounts include direct acquisition costs of $8.5 million and $18.6 million, respectively, primarily associated with the KBW Acquisition and the Aster Acquisition.

In the case of certain of our smaller reporting units, including our broadband communications operations in Hungary, the Czech Republic and Puerto Rico, a hypothetical decline of 20% or more in the fair value of any of these reporting units could result in the need to record a goodwill impairment charge. At September 30, 2012, the goodwill associated with these reporting units aggregated $926.0 million. If, among other factors, (i) our equity values were to decline significantly, or (ii) the adverse impacts of economic, competitive, regulatory or other factors were to cause our results of operations or cash flows to be worse than anticipated, we could conclude in future periods that impairment charges are required in order to reduce the carrying values of our goodwill, and to a lesser extent, other long-lived assets.  Any such impairment charges could be significant.

Interest expense

Our interest expense increased $44.3 million and $141.9 million during the three and nine months ended September 30, 2012, respectively, as compared to the corresponding periods in 2011. Excluding the effects of FX, interest expense increased $95.7 million or 26.3% and $266.1 million or 24.5%, respectively. These increases are primarily attributable to higher average outstanding debt balances. In addition, interest expense was impacted by a slightly lower weighted average interest rate during the three-month period and a slightly higher weighted average interest rate during the nine-month period. The changes in our weighted average interest rates are primarily related to the net effect of (a) the completion of certain financing transactions that generally resulted in extended maturities and higher interest rates and (b) decreases in certain of the base rates for our variable rate indebtedness. For additional information regarding our outstanding indebtedness, see note 7 to our condensed consolidated financial statements.
    
It is possible that (i) the interest rates on any new borrowings could be higher than the current interest rates on our existing indebtedness and (ii) the interest rates incurred on our variable-rate indebtedness could increase in future periods. As further discussed under Qualitative and Quantitative Disclosures about Market Risk below, we use derivative instruments to manage our interest rate risks.

Interest and dividend income

Our interest and dividend income decreased $10.6 million and $23.7 million during the three and nine months ended September 30, 2012, respectively, as compared to the corresponding periods in 2011. These decreases are primarily attributable to the net effect of (i) decreases in interest income due to (a) lower weighted average interest rates earned on our cash and cash equivalent and restricted cash balances and (b) lower average cash and cash equivalent and restricted cash balances and (ii) increases in dividend income attributable to our investment in Sumitomo common stock.


87

The terms of the Sumitomo Collar effectively fix the dividends that we will receive on the Sumitomo common stock during the term of the Sumitomo Collar. We report the full amount of dividends received from Sumitomo as dividend income and the dividend adjustment that is payable to, or receivable from, the counterparty to the Sumitomo Collar is reported as a component of realized and unrealized gains (losses) on derivative instruments, net, in our condensed consolidated statements of operations.

Realized and unrealized gains (losses) on derivative instruments, net

Our realized and unrealized gains or losses on derivative instruments include (i) unrealized changes in the fair values of our derivative instruments that are non-cash in nature until such time as the derivative contracts are fully or partially settled and (ii) realized gains or losses upon the full or partial settlement of the derivative contracts.  The details of our realized and unrealized gains (losses) on derivative instruments, net, are as follows:
 
Three months ended
 
Nine months ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
 
in millions
 
 
 
 
 
 
 
 
Cross-currency and interest rate derivative contracts (a)
$
(281.7
)
 
$
242.4

 
$
(591.3
)
 
$
(163.7
)
Foreign currency forward contracts
(2.8
)
 
(0.7
)
 
(12.5
)
 
(45.0
)
Equity-related derivative contracts (b)
47.9

 
113.3

 
(11.7
)
 
106.3

Other
(0.6
)
 
0.1

 
1.6

 
(1.6
)
Total
$
(237.2
)
 
$
355.1

 
$
(613.9
)
 
$
(104.0
)
_______________ 

(a)
The loss during the 2012 three-month period is primarily attributable to the net effect of (i) losses associated with decreases in market interest rates in the euro, Polish zloty, Swiss franc and Hungarian forint markets, (ii) losses associated with increases in the values of the Chilean peso and Swiss franc relative to the U.S. dollar, (iii) losses associated with a decrease in the value of the U.S. dollar relative to the euro, (iv) gains associated with decreases in market interest rates in the U.S. dollar market and (v) losses associated with increases in the values of the Polish zloty and Chilean peso relative to the euro. The loss during the 2012 nine-month period is primarily attributable to the net effect of (i) losses associated with decreases in market interest rates in the euro, Hungarian forint, Swiss franc, Polish zloty and Czech koruna markets, (ii) losses associated with increases in the values of the Polish zloty, Hungarian forint, Chilean peso and Swiss franc relative to the euro, (iii) gains associated with decreases in market interest rates in the U.S. dollar market and (iv) losses associated with an increase in the value of the Chilean peso relative to the U.S. dollar. In addition, the losses during the 2012 periods include net losses of $29.9 million and $78.2 million, respectively, resulting from changes in our credit risk valuation adjustments. The gain during the 2011 three-month period is primarily attributable to the net effect of (i) losses associated with decreases in market interest rates in the euro, Swiss franc, Chilean Peso, Czech koruna and Polish zloty markets, (ii) gains associated with decreases in the values of the Chilean peso, Swiss franc and Romanian lei relative to the U.S. dollar, (iii) gains associated with decreases in the values of the Polish zloty, Hungarian forint and Chilean peso relative to the euro, (iv) gains associated with an increase in the value of the U.S. dollar relative to the euro and (v) gains associated with decreases in market interest rates in the U.S. dollar market. The loss during the 2011 nine-month period is primarily attributable to the net effect of (i) losses associated with decreases in market interest rates in the euro, Swiss franc, Chilean peso, Polish zloty and Czech koruna markets, (ii) gains associated with decreases in the values of the Polish zloty, Chilean peso and Hungarian forint relative to the euro (iii) gains associated with a decrease in the value of the Chilean peso relative to the U.S. dollar, (iv) losses associated with an increase in the value of the Swiss franc relative to the euro and (v) gains associated with decreases in market interest rates in the U.S. dollar market. In addition, the gains (losses) during the 2011 periods include net gains of $73.6 million and $104.6 million, respectively, resulting from changes in our credit risk valuation adjustments.

(b)
Includes gains (losses) related to the Sumitomo Collar. These gains (losses) are primarily attributable to (i) decreases (increases) in the market price of Sumitomo common stock and (ii) increases (decreases) in the value of the Japanese yen relative to the U.S. dollar. The 2011 nine-month period also includes a $27.5 million loss related to a total return swap entered into in connection with the KBW Purchase Agreement. This swap was ultimately terminated for no consideration in connection with the KBW Acquisition.

88


For additional information concerning our derivative instruments, see notes 4 and 5 to our condensed consolidated financial statements and Quantitative and Qualitative Disclosure about Market Risk below.

Foreign currency transaction gains (losses), net

Our foreign currency transaction gains or losses primarily result from the remeasurement of monetary assets and liabilities that are denominated in currencies other than the underlying functional currency of the applicable entity.  Unrealized foreign currency transaction gains or losses are computed based on period-end exchange rates and are non-cash in nature until such time as the amounts are settled. The details of our foreign currency transaction gains (losses), net, are as follows: 
 
Three months ended
 
Nine months ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
 
in millions
 
 
 
 
 
 
 
 
Intercompany payables and receivables denominated in a currency other than the entity’s functional currency (a)
$
115.4

 
$
(496.2
)
 
$
134.1

 
$
(143.6
)
Cash and restricted cash denominated in a currency other than the entity’s functional currency
(3.3
)
 
(19.9
)
 
26.3

 
(44.2
)
U.S. dollar denominated debt issued by European subsidiaries
63.7

 
(207.7
)
 
(16.3
)
 
52.5

Yen denominated debt issued by a U.S. subsidiary
(28.4
)
 
(51.6
)
 
15.1

 
(60.5
)
Other
2.8

 
(11.7
)
 
(4.4
)
 
(2.1
)
Total
$
150.2

 
$
(787.1
)
 
$
154.8

 
$
(197.9
)
_______________ 

(a)
Amounts primarily relate to (i) loans between our non-operating and operating subsidiaries in Europe, which generally are denominated in the currency of the applicable operating subsidiary, (ii) U.S. dollar denominated loans between certain of our non-operating subsidiaries in the U.S. and Europe and (iii) a U.S. dollar denominated loan between a Chilean subsidiary and a non-operating subsidiary in Europe. Accordingly, these amounts are a function of movements of (i) the euro against (a) the U.S. dollar and (b) other local currencies in Europe and (ii) the U.S. dollar against the Chilean peso.

For information regarding how we manage our exposure to foreign currency risk, see Quantitative and Qualitative Disclosure about Market Risk below.

Realized and unrealized losses due to changes in fair values of certain investments and debt, net

Our realized and unrealized losses due to changes in fair values of certain investments and debt include unrealized losses associated with changes in fair values that are non-cash in nature until such time as these losses are realized through cash transactions. The details of our realized and unrealized losses due to changes in fair values of certain investments and debt, net, are as follows:
 
Three months ended
 
Nine months ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
 
in millions
Investments (a):
 
 
 
 
 
 
 
Sumitomo
$
(17.0
)
 
$
(45.0
)
 
$
(1.0
)
 
$
(73.9
)
Other, net (b)
(1.1
)
 
(18.4
)
 
(0.3
)
 
(25.0
)
Debt — UGC Convertible Notes (c)
—

 
—

 
—

 
(107.0
)
Total
$
(18.1
)
 
$
(63.4
)
 
$
(1.3
)
 
$
(205.9
)

89

_______________ 

(a)
For additional information regarding our investments and fair value measurements, see notes 3 and 5 to our condensed consolidated financial statements.
  
(b)
The 2012 amounts include increases in the fair value of Chellomedia's investment in Cyfra+ that were largely offset by decreases in the fair values of certain other investments. The 2011 amounts include decreases in the fair value of Cyfra+ and certain other investments.

(c)
Represents changes in the fair value of the 1.7% euro-denominated convertible senior notes issued by UnitedGlobalCom, Inc. (UGC) (the UGC Convertible Notes), including amounts attributable to the remeasurement of the UGC Convertible Notes into U.S. dollars. The UGC Convertible Notes were converted into LGI common stock in April 2011. UGC is a wholly-owned subsidiary of LGI.

Losses on debt modification, extinguishment and conversion, net

We recognized losses on debt modification, extinguishment and conversion, net, of $13.8 million and $27.5 million during the three and nine months ended September 30, 2012, respectively, as compared to $12.3 million and $218.7 million during the three and nine months ended September 30, 2011, respectively.  The loss during the 2012 nine-month period includes (i) a loss of $10.2 million during the third quarter representing the difference between the carrying value and redemption price of the UM Senior Secured Floating Rate Exchange Notes, (ii) a loss of $7.0 million associated with the Unitymedia KabelBW Exchange and the Special Optional Redemptions, including $5.6 million of third-party costs (of which $2.9 million and $2.4 million were incurred during the first and second quarter, respectively) and a loss of $1.4 million representing the difference between the carrying value and redemption price of the debt redeemed pursuant to the Special Optional Redemptions, (iii) a loss of $4.4 million during the third quarter associated with the refinancing of the Liberty Puerto Rico Bank Facility, including (a) $3.8 million of third-party costs incurred in connection with the New Liberty Puerto Rico Bank Facility and (b) the write-off of deferred financing fees of $0.6 million relating to repayment of the Old Liberty Puerto Rico Bank Facility, (iv) the write-off of deferred financing fees of $2.0 million during the second quarter associated with the repayment of the Chellomedia Bank Facility, (v) the incurrence of third-party costs of $2.0 million during the first quarter associated with the execution of Facility AE under the UPC Broadband Holding Bank Facility and (vi) the write-off of $1.9 million of deferred financing costs during the first quarter in connection with the prepayment of amounts outstanding under Facilities M, N and O under the UPC Broadband Holding Bank Facility.

The loss during the 2011 nine-month period includes (i) a debt conversion loss of $187.2 million recognized primarily during the second quarter related to the exchange of substantially all of LGI's 4.50% convertible senior notes for LGI common stock and cash, (ii) the write-off of $15.7 million of deferred financing costs and an unamortized discount during the first quarter in connection with the prepayment of amounts outstanding under Facilities M, P, T and U under the UPC Broadband Holding Bank Facility and (iii) the write-off of $9.7 million of deferred financing costs and the incurrence of $5.4 million of third-party costs in connection with the prepayment of amounts outstanding under Telenet Facilities K, L1, G and J of the Telenet Credit Facility during the first and third quarters. For additional information, see note 7 to our condensed consolidated financial statements.

Gains due to changes in ownership

During the three months ended September 30, 2012, we recognized gains aggregating $52.5 million in connection with the acquisition of controlling interests in certain of our equity method affiliates, including a $36.8 million gain associated with MGM Latin America and a $15.7 million gain associated with a Latin American programming channel.  These gains represent the excess, at the applicable transaction dates, of the fair value over the carrying value of our investment in each of these entities.  For additional information, see note 2 to our condensed consolidated financial statements.

Income tax benefit (expense)

We recognized income tax expense of $61.1 million and income tax benefit of $4.4 million during the three months ended September 30, 2012 and 2011, respectively.


90

The income tax expense during the three months ended September 30, 2012 differs from the expected income tax expense of $19.4 million (based on the U.S. federal 35% income tax rate) due primarily to the negative impacts of (i) certain permanent differences between the financial and tax accounting treatment of items associated with investments in subsidiaries, (ii) certain permanent differences between the financial and tax accounting treatment of interest and other items and (iii) a net increase in valuation allowances.

The income tax benefit during the three months ended September 30, 2011 differs from the expected income tax benefit of $126.4 million (based on the U.S. federal 35% income tax rate) due primarily to the negative impacts of (i) a net increase in valuation allowances, (ii) statutory tax rates in certain jurisdictions in which we operate that are lower than the U.S. federal income tax rate and (iii) certain permanent differences between the financial and tax accounting treatment of interest and other items.

We recognized income tax expense of $106.0 million and $22.6 million during the nine months ended September 30, 2012 and 2011, respectively.

The income tax expense during the nine months ended September 30, 2012 differs from the expected income tax benefit of $50.3 million (based on the U.S. federal 35% income tax rate) due primarily to the negative impacts of (i) certain permanent differences between the financial and tax accounting treatment of interest and other items, (ii) a net increase in valuation allowances, (iii) certain permanent differences between the financial and tax accounting treatment of items associated with investments in subsidiaries and (iv) statutory tax rates in certain jurisdictions in which we operate that are lower than the U.S. federal income tax rate.

The income tax expense during the nine months ended September 30, 2011 differs from the expected income tax benefit of $121.3 million (based on the U.S. federal 35% income tax rate) due primarily to the negative impacts of (i) certain permanent differences between the financial and tax accounting treatment of interest and other items and (ii) a net increase in valuation allowances.

For additional information concerning our income taxes, see note 8 to our condensed consolidated financial statements.

Loss from continuing operations

During the three months ended September 30, 2012 and 2011, we reported losses from continuing operations of $5.8 million and $356.8 million, respectively, including (i) operating income of $509.1 million and $483.2 million, respectively, (ii) non-operating expense of $453.8 million and $844.4 million, respectively, and (iii) income tax benefit (expense) of ($61.1 million) and $4.4 million, respectively.
   
During the nine months ended September 30, 2012 and 2011, we reported losses from continuing operations of $249.7 million and $369.3 million, respectively, including (i) operating income of $1,482.4 million and $1,410.3 million, respectively, (ii) non-operating expense of $1,626.1 million and $1,757.0 million, respectively, and (iii) income tax expense of $106.0 million and $22.6 million, respectively.

Gains or losses associated with (i) changes in the fair values of derivative instruments, (ii) movements in foreign currency exchange rates and (iii) the disposition of assets and changes in ownership are subject to a high degree of volatility, and as such, any gains from these sources do not represent reliable sources of income. In the absence of significant gains in the future from these sources or from other non-operating items, our ability to achieve earnings from continuing operations is largely dependent on our ability to increase our aggregate operating cash flow to a level that more than offsets the aggregate amount of our (a) stock-based compensation expense, (b) depreciation and amortization, (c) impairment, restructuring and other operating items, net, (d) interest expense, (e) other net non-operating expenses and (f) income tax expenses.

Due largely to the fact that we seek to maintain our debt at levels that provide for attractive equity returns, as discussed under Material Changes in Financial Condition - Capitalization below, we expect that we will continue to report significant levels of interest expense for the foreseeable future. For information concerning our expectations with respect to trends that may affect certain aspects of our operating results in future periods, see the discussion under Overview above. For information concerning the reasons for changes in specific line items in our condensed consolidated statements of operations, see the discussion under Discussion and Analysis of our Reportable Segments and Discussion and Analysis of our Consolidated Operating Results above.

91


Discontinued operation

Our results from our discontinued operation include (i) earnings from Austar of nil and $35.5 million during the three and nine months ended September 30, 2012, respectively, as compared to $12.8 million and $118.6 million during the respective 2011 periods, and (ii) a $924.1 million after-tax gain recognized upon the May 23, 2012 completion of the Austar Transaction. The declines in Austar's earnings during the 2012 periods are due largely to (a) the $80.7 million after-tax impact of the gain on the sale of Austar's spectrum licenses that was included in Austar's results of operations during the first quarter of 2011 and (b) the sale of Austar during the second quarter of 2012. The above factors were partially offset by the impact of not recording depreciation and amortization on Austar's long-lived assets during 2012 as a result of our determination that Austar was held-for-sale effective December 31, 2011. For additional information, see note 2 to our condensed consolidated financial statements.

Net earnings (loss) attributable to noncontrolling interests

Net earnings (loss) attributable to noncontrolling interests was $16.6 million and $55.8 million during the three and nine months ended September 30, 2012, respectively, as compared to ($10.9 million) and $87.0 million during the three and nine months ended September 30, 2011, respectively. The change during the three-month period is primarily attributable to an improvement in the results of operations of Telenet. The change during the nine-month period is primarily attributable to a decline in the results of operations of Austar, as discussed in the preceding paragraph. For additional information, see note 2 to our condensed consolidated financial statements.

Material Changes in Financial Condition

Sources and Uses of Cash

Although our consolidated operating subsidiaries have generated cash from operating activities, the terms of the instruments governing the indebtedness of certain of these subsidiaries, including Telenet, UPC Holding, UPC Broadband Holding, Unitymedia KabelBW, Liberty Puerto Rico and VTR Wireless, may restrict our ability to access the assets of these subsidiaries. As set forth in the table below, these subsidiaries accounted for a significant portion of our consolidated cash and cash equivalents at September 30, 2012. In addition, our ability to access the liquidity of these and other subsidiaries may be limited by tax considerations, the presence of noncontrolling interests and other factors.

Cash and cash equivalents

The details of the U.S. dollar equivalent balances of our consolidated cash and cash equivalents at September 30, 2012 are set forth in the following table. With the exception of LGI, which is reported on a standalone basis, the amounts presented below include the cash and cash equivalents of the named entity and its subsidiaries unless otherwise noted (in millions):  
Cash and cash equivalents held by:
 
LGI and non-operating subsidiaries:
 
LGI
$
416.7

Non-operating subsidiaries
1,686.2

Total LGI and non-operating subsidiaries
2,102.9

Operating subsidiaries:
 
Telenet
1,047.1

UPC Holding (excluding VTR Group)
66.9

VTR Group (a)
29.2

Unitymedia KabelBW (b)
26.0

Liberty Puerto Rico
24.9

Chellomedia
17.7

Other operating subsidiaries
2.6

Total operating subsidiaries
1,214.4

Total cash and cash equivalents (c)
$
3,317.3


92

_______________

(a)
Includes $4.7 million of cash and cash equivalents held by VTR Wireless.

(b)
KBW became a subsidiary of Unitymedia KabelBW as a result of the May 2012 KBW Fold-in. For additional information, see note 7 to our condensed consolidated financial statements.

(c)
A significant portion of our subsidiaries' cash and cash equivalents may be used to fund the LGI Telenet Tender or the Telenet Self-Tender during the fourth quarter of 2012, as further described in notes 2 and 9, respectively, to our condensed consolidated financial statements.

Liquidity of LGI and its Non-operating Subsidiaries

The $416.7 million of cash and cash equivalents held by LGI and, subject to certain tax considerations, the $1,686.2 million of cash and cash equivalents held by LGI's non-operating subsidiaries, represented available liquidity at the corporate level at September 30, 2012. Our remaining cash and cash equivalents of $1,214.4 million at September 30, 2012 were held by our operating subsidiaries as set forth in the table above. As noted above, various factors may limit our ability to access the cash of our operating subsidiaries.

As described in greater detail below, our current sources of corporate liquidity include (i) cash and cash equivalents held by LGI and, subject to certain tax considerations, LGI's non-operating subsidiaries and (ii) interest and dividend income received on our and, subject to certain tax considerations, our non-operating subsidiaries' cash and cash equivalents and investments.

From time to time, LGI and its non-operating subsidiaries may also receive (i) proceeds in the form of distributions or loan repayments from LGI's operating subsidiaries or affiliates upon (a) the completion of recapitalizations, refinancings, asset sales or similar transactions by these entities or (b) the accumulation of excess cash from operations or other means, (ii) proceeds received upon the disposition of investments and other assets of LGI and its non-operating subsidiaries, (iii) proceeds received in connection with the incurrence of debt by LGI or its non-operating subsidiaries or the issuance of equity securities by LGI, (iv) proceeds received upon the exercise of stock options or (v) income tax refunds. No assurance can be given that any external funding would be available to LGI or its non-operating subsidiaries on favorable terms, or at all. See note 2 to our condensed consolidated financial statements for information concerning the disposition of Austar and note 9 to our condensed consolidated financial statements for information concerning recent and pending capital distributions of Telenet and VTR.

At September 30, 2012, our consolidated cash and cash equivalents balance includes $2,931.1 million that is held outside of the U.S. Based on our assessment of our ability to access the liquidity of our subsidiaries on a tax efficient basis and our expectations with respect to our corporate liquidity requirements, we do not anticipate that tax considerations will adversely impact our corporate liquidity over the next 12 months. Our ability to access the liquidity of our subsidiaries on a tax efficient basis is a consideration in assessing the extent of our stock repurchase programs.

The ongoing cash needs of LGI and its non-operating subsidiaries include (i) corporate general and administrative expenses and (ii) interest payments on the Sumitomo Collar Loan. From time to time, LGI and its non-operating subsidiaries may also require cash in connection with (i) the repayment of outstanding debt, (ii) the satisfaction of contingent liabilities, (iii) acquisitions, (iv) the repurchase of equity and debt securities, (v) other investment opportunities or (vi) income tax payments. For information regarding the LGI Telenet Tender, see note 2 to our condensed consolidated financial statements.

During the first nine months of 2012, we repurchased a total of 2,715,980 shares of our LGI Series A common stock at a weighted average price of $46.62 per share and 10,248,714 shares of our LGI Series C common stock at a weighted average price of $48.18 per share, for an aggregate purchase price of $620.3 million, including direct acquisition costs. At September 30, 2012, the remaining amount authorized under our most recent stock repurchase program was $391.0 million.


93

Liquidity of Operating Subsidiaries

The cash and cash equivalents of our operating subsidiaries are detailed in the table above. In addition to cash and cash equivalents, the primary sources of liquidity of our operating subsidiaries are cash provided by operations and, in the case of Liberty Puerto Rico, Telenet, Unitymedia KabelBW, UPC Broadband Holding and VTR Wireless, borrowing availability under their respective debt instruments. For the details of the borrowing availability of such entities at September 30, 2012, see note 7 to our condensed consolidated financial statements. The aforementioned sources of liquidity may be supplemented in certain cases by contributions and/or loans from LGI and its non-operating subsidiaries. Our operating subsidiaries' liquidity generally is used to fund capital expenditures and debt service requirements. From time to time, our operating subsidiaries may also require funding in connection with (i) acquisitions and other investment opportunities, (ii) loans to LGI or (iii) capital distributions to LGI and other equity owners. No assurance can be given that any external funding would be available to our operating subsidiaries on favorable terms, or at all. For information concerning the MGM Acquisition and the Telenet Self-Tender, see notes 2 and 9, respectively, to our condensed consolidated financial statements.

For additional information concerning our consolidated capital expenditures and cash provided by operating activities, see the discussion under Condensed Consolidated Cash Flow Statements below.

Capitalization

We seek to maintain our debt at levels that provide for attractive equity returns without assuming undue risk. In this regard, we strive to cause our operating subsidiaries to maintain their debt at levels that result in a consolidated debt balance that is between four and five times our consolidated operating cash flow. The ratio of our September 30, 2012 consolidated debt to our annualized consolidated operating cash flow for the quarter ended September 30, 2012 was 5.4x. In addition, the ratio of our September 30, 2012 consolidated net debt (debt less cash and cash equivalents) to our annualized consolidated operating cash flow for the quarter ended September 30, 2012 was 4.7x.

When it is cost effective, we generally seek to match the denomination of the borrowings of our subsidiaries with the functional currency of the operations that are supporting the respective borrowings. As further discussed under Quantitative and Qualitative Disclosures about Market Risk below and in note 4 to our condensed consolidated financial statements, we also use derivative instruments to mitigate foreign currency and interest rate risk associated with our debt instruments.

Our ability to service or refinance our debt and to maintain compliance with our leverage covenants is dependent primarily on our ability to maintain or increase the operating cash flow of our operating subsidiaries and to achieve adequate returns on our capital expenditures and acquisitions. In addition, our ability to obtain additional debt financing is limited by the leverage covenants contained in the various debt instruments of our subsidiaries. In this regard, if the operating cash flow of UPC Broadband Holding were to decline, we could be required to partially repay or limit our borrowings under the UPC Broadband Holding Bank Facility in order to maintain compliance with applicable covenants. No assurance can be given that we would have sufficient sources of liquidity, or that any external funding would be available on favorable terms, or at all, to fund any such required repayment. The ability to access available borrowings under the UPC Broadband Holding Bank Facility and/or UPC Holding's ability to complete additional financing transactions can also be impacted by the interplay of average and spot foreign currency rates with respect to leverage calculations under the indentures for UPC Holding's senior notes.

At September 30, 2012, our outstanding consolidated debt and capital lease obligations aggregated $26.5 billion, including $292.4 million that is classified as current in our condensed consolidated balance sheet and $25.6 billion that is due in 2016 or thereafter.

We believe that we have sufficient resources to repay or refinance the current portion of our debt and capital lease obligations and to fund our foreseeable liquidity requirements during the next 12 months. However, as our maturing debt grows in later years, we anticipate that we will seek to refinance or otherwise extend our debt maturities.  No assurance can be given that we will be able to complete these refinancing transactions or otherwise extend our debt maturities.  In this regard, it is not possible to predict how economic conditions, sovereign debt concerns and/or any adverse regulatory developments could impact the credit and equity markets we access and accordingly, our future liquidity and financial position.  However, (i) the financial failure of any of our counterparties could (a) reduce amounts available under committed credit facilities and (b) adversely impact our ability to access cash deposited with any failed financial institution and (ii) tightening of the credit markets could adversely impact our ability to access debt financing on favorable terms, or at all. In addition, any weakness in the equity markets could make it less attractive to use our shares to satisfy contingent or other obligations, and sustained or increased competition,

94

particularly in combination with adverse economic or regulatory developments, could have an unfavorable impact on our cash flows and liquidity.

All of our consolidated debt and capital lease obligations had been borrowed or incurred by our subsidiaries at September 30, 2012.

For additional information concerning our debt and capital lease obligations, see note 7 to our condensed consolidated financial statements.

Condensed Consolidated Cash Flow Statements

General. Our cash flows are subject to significant variations due to FX. See related discussion under Quantitative and Qualitative Disclosures about Market Risk — Foreign Currency Risk below. All of the cash flows discussed below are those of our continuing operations.

Summary. During the nine months ended September 30, 2012, we used net cash provided by our operating activities of $1,825.0 million and net cash provided by our financing activities of $379.7 million to fund net cash used by our investing activities of $555.9 million and a $1,648.8 million increase in our cash and cash equivalents (excluding a $17.3 million increase due to FX).

Operating Activities. Net cash provided by our operating activities increased $99.9 million, from $1,725.1 million during the first nine months of 2011 to $1,825.0 million during the first nine months of 2012. This increase in cash provided is primarily attributable to the net effect of (i) an increase in the cash provided by our operating cash flow and related working capital items, due largely to the impact of the KBW Acquisition, (ii) a decrease in cash provided attributable to higher cash payments for interest, due largely to the KBW Acquisition, (iii) a decrease in the reported net cash provided by operating activities due to FX, (iv) an increase in cash provided due to lower cash payments related to derivative instruments and (v) an increase in cash provided due to lower net cash payments for taxes.

Investing Activities. Net cash used by our investing activities decreased $3,192.2 million, from $3,748.1 million during the first nine months of 2011 to $555.9 million during the first nine months of 2012. This decrease in cash used is primarily attributable to (i) a decrease in cash used of $1,506.3 million related to an escrow account that was established in connection with the March 2011 execution of the KBW Purchase Agreement, (ii) a decrease in cash used of $1,055.4 million associated with cash proceeds received in connection with the Austar Transaction and (iii) a decrease in cash used of $713.0 million due to lower cash paid in connection with acquisitions, net of cash acquired. Capital expenditures increased from $1,415.7 million during the first nine months of 2011 to $1,450.7 million during the first nine months of 2012, as a net increase in the local currency capital expenditures of our subsidiaries, including increases due to acquisitions, was only partially offset by a decrease due to FX.

As further discussed and quantified below, the capital expenditures that we report in our condensed consolidated cash flow statements do not include amounts that are financed under vendor financing or capital lease arrangements. Instead, these expenditures are reflected as non-cash additions to our property and equipment when the underlying assets are delivered, and as repayments of debt when the related principal is repaid.

The UPC/Unity Division accounted for $951.2 million and $925.4 million (including $383.8 million and $233.8 million attributable to Unitymedia KabelBW, respectively) of our consolidated capital expenditures during the nine months ended September 30, 2012 and 2011, respectively. The UPC/Unity Division capital expenditure amounts exclude $163.4 million and $61.6 million, respectively, of capital additions that were financed under vendor financing or capital lease arrangements. The increase in the capital expenditures of the UPC/Unity Division (excluding the impact of capital additions financed under vendor financing or capital lease arrangements) is due primarily to the net effect of (i) a decrease due to FX, (ii) an increase in expenditures for the purchase and installation of customer premises equipment, (iii) an increase in expenditures for new build and upgrade projects to expand services and (iv) an increase in expenditures for support capital, such as information technology upgrades and general support systems.

Telenet accounted for $279.1 million and $280.0 million of our consolidated capital expenditures during the nine months ended September 30, 2012 and 2011, respectively. These amounts exclude $33.7 million and $23.8 million, respectively, of capital additions that were financed under capital lease arrangements. The decrease in Telenet's capital expenditures (excluding

95

the impact of capital additions financed under capital lease arrangements) is due primarily to the net effect of (i) an increase in expenditures for the purchase and installation of customer premises equipment, (ii) a decrease due to FX, (iii) a decrease in expenditures for support capital, such as information technology upgrades and general support systems, and (iv) an increase in expenditures for new build and upgrade projects to expand services.

The VTR Group accounted for $178.9 million and $182.3 million (including $21.1 million and $38.0 million attributable to VTR Wireless, respectively) of our consolidated capital expenditures during the nine months ended September 30, 2012 and 2011, respectively. The decrease in the capital expenditures of the VTR Group is due primarily to the net effect of (i) a decrease in expenditures related to the construction of the VTR Wireless mobile network, (ii) an increase in expenditures for the purchase and installation of customer premises equipment, (iii) an increase in expenditures for new build and upgrade projects, (iv) a decrease in expenditures for support capital, such as information technology upgrades and general support systems, and (v) a decrease due to FX.

Consistent with the disclosure provided in our 2011 Annual Report on Form 10-K, we continue to expect the percentage of revenue represented by our aggregate full year 2012 capital expenditures (excluding the estimated impact of capital additions to be financed under vendor financing or capital lease arrangements) to decline as compared to 2011. We believe that the ranges disclosed in our 2011 Annual Report on Form 10-K with respect to our segments are consistent with our latest estimates. It should be noted, however, that the disclosure provided in our 2011 Annual Report on Form 10-K set forth separate expected ranges for Unitymedia KabelBW and KBW. Subsequent to the filing of our 2011 Annual Report on Form 10-K, we completed the KBW Fold-in, whereby, among other matters, KBW became a subsidiary of Unitymedia KabelBW. Accordingly, we are providing a combined range for Unitymedia KabelBW (including KBW) of 22% to 24%. This combined range corresponds to the separate ranges disclosed in our 2011 Annual Report on Form 10-K.

Financing Activities. Net cash provided by our financing activities was $379.7 million during the first nine months of 2012, as compared to net cash used by our financing activities of $595.0 million during the first nine months of 2011. This change is primarily attributable to the net effect of (i) an increase in cash of $676.1 million related to higher net borrowings of debt, (ii) an increase in cash of $173.0 million due to lower repurchases of our LGI Series A and Series C common stock, (iii) an increase in cash of $163.9 million associated with lower payments of financing-related costs, mainly due to $187.5 million of exchange offer consideration that was paid during the second quarter of 2011, and (iv) a decrease in cash of $79.3 million due to higher cash payments related to derivative instruments. The increase in our net borrowings of debt was partially offset by a decrease due to FX.

Free cash flow

We define free cash flow as net cash provided by our operating activities, plus (i) excess tax benefits related to the exercise of stock incentive awards and (ii) cash payments for direct acquisition costs, less (a) capital expenditures, as reported in our consolidated cash flow statements, (b) principal payments on vendor financing obligations and (c) principal payments on capital leases (exclusive of our network lease in Belgium and our duct leases in Germany), with each item excluding any cash provided or used by our discontinued operations.  We believe that our presentation of free cash flow provides useful information to our investors because this measure can be used to gauge our ability to service debt and fund new investment opportunities. Free cash flow should not be understood to represent our ability to fund discretionary amounts, as we have various mandatory and contractual obligations, including debt repayments, which are not deducted to arrive at this amount. Investors should view free cash flow as a supplement to, and not a substitute for, GAAP measures of liquidity included in our consolidated cash flow statements.


96

The following table provides the details of our free cash flow:  
 
Nine months ended
 
September 30,
 
2012
 
2011
 
in millions
 
 
 
 
Net cash provided by operating activities of our continuing operations
$
1,825.0

 
$
1,725.1

Excess tax benefits from stock-based compensation
3.7

 
33.3

Cash payments for direct acquisition costs
19.5

 
17.0

Capital expenditures
(1,450.7
)
 
(1,415.7
)
Principal payments on vendor financing obligations
(59.9
)
 
(3.4
)
Principal payments on certain capital leases
(9.4
)
 
(8.2
)
Free cash flow
$
328.2

 
$
348.1


Off Balance Sheet Arrangements

In the ordinary course of business, we have provided indemnifications to purchasers of certain of our assets, our lenders, our vendors and certain other parties. We have also 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.

We are a party to various stockholder and similar agreements pursuant to which we could be required to make capital contributions to the entity in which we have invested or purchase another investor's interest. We do not expect any payments made under these provisions to be material in relation to our financial position or results of operations.

Contractual Commitments

As of September 30, 2012, the U.S. dollar equivalents (based on September 30, 2012 exchange rates) of our consolidated contractual commitments are as follows:  
 
Payments due during:
 
Total
 
Remainder
of
2012
 
Year ended December 31,
 
 
 
2013
 
2014
 
2015
 
2016
 
2017
 
Thereafter
 
 
in millions
Debt (excluding interest)
$
62.3

 
$
174.0

 
$
12.5

 
$
386.9

 
$
2,898.9

 
$
6,410.1

 
$
15,275.4

 
$
25,220.1

Capital leases (excluding interest)
15.0

 
68.7

 
71.0

 
70.1

 
71.7

 
74.2

 
986.4

 
1,357.1

Operating leases
48.7

 
130.7

 
104.9

 
95.0

 
77.8

 
65.9

 
295.9

 
818.9

Programming commitments
94.8

 
221.8

 
140.8

 
68.0

 
46.3

 
42.6

 
0.4

 
614.7

Other commitments
377.9

 
295.1

 
178.8

 
162.5

 
123.6

 
87.3

 
1,268.6

 
2,493.8

Total (a)
$
598.7

 
$
890.3

 
$
508.0

 
$
782.5

 
$
3,218.3

 
$
6,680.1

 
$
17,826.7

 
$
30,504.6

Projected cash interest payments on debt and capital lease obligations (b)
$
394.2

 
$
1,570.3

 
$
1,642.9

 
$
1,641.8

 
$
1,640.7

 
$
1,510.1

 
$
3,493.6

 
$
11,893.6

_______________ 

(a)
The commitments reflected in this table do not reflect any liabilities that are included in our September 30, 2012 balance sheet other than debt and capital lease obligations.  Our liability for uncertain tax positions in the various jurisdictions in which we operate ($272.4 million at September 30, 2012) has been excluded from the table as the amount and timing of any related payments are not subject to reasonable estimation.

97


(b)
Amounts are based on interest rates, interest rate payment dates and contractual maturities in effect as of September 30, 2012. These amounts are presented for illustrative purposes only and will likely differ from the actual cash payments required in future periods. In addition, the amounts presented do not include the impact of our interest rate derivative agreements, deferred financing costs, discounts or commitment fees, all of which affect our overall cost of borrowing.

Programming commitments consist of obligations associated with certain of our programming, studio output and sports rights contracts that are enforceable and legally binding on us in that we have agreed to pay minimum fees without regard to (i) the actual number of subscribers to the programming services, (ii) whether we terminate service to a portion of our subscribers or dispose of a portion of our distribution systems or (iii) whether we discontinue our premium film or sports services. The amounts reflected in the table with respect to these contracts are significantly less than the amounts we expect to pay in these periods under these contracts. Payments to programming vendors have in the past represented, and are expected to continue to represent in the future, a significant portion of our operating costs. In this regard, during the nine months ended September 30, 2012 and 2011, (i) the programming and copyright costs incurred by our broadband communications and DTH operations aggregated $774.0 million and $712.8 million, respectively, (including intercompany charges that eliminate in consolidation of $58.4 million and $60.7 million, respectively) and (ii) the third-party programming costs incurred by our programming distribution operations aggregated $78.4 million and $86.3 million, respectively. The ultimate amount payable in excess of the contractual minimums of our studio output contracts, which expire at various dates through 2016, is dependent upon the number of subscribers to our premium movie service and the theatrical success of the films that we exhibit.

Other commitments relate primarily to Telenet's commitments for certain operating costs associated with its leased network. Subsequent to October 1, 2015, these commitments are subject to adjustment based on changes in the network operating costs incurred by Telenet with respect to its own networks. These potential adjustments are not subject to reasonable estimation, and therefore, are not included in the above table. Other commitments also include (i) certain commitments of Telenet to purchase (a) broadcasting capacity on a DTT network and (b) certain spectrum licenses, (ii) certain repair and maintenance, fiber capacity and energy commitments of Unitymedia KabelBW, (iii) satellite commitments associated with satellite carriage services provided to our company, (iv) purchase obligations associated with commitments to purchase customer premises and other equipment that are enforceable and legally binding on us, (v) certain fixed minimum contractual commitments associated with our agreements with franchise or municipal authorities and (vi) commitments associated with our MVNO agreements. The amounts reflected in the table with respect to our MVNO commitments represent fixed minimum amounts payable under these agreements and therefore may be significantly less than the actual amounts we ultimately pay in these periods. Commitments arising from acquisition agreements or tender offers are not reflected in the above table. For information concerning the LGI Telenet Tender and the Telenet Self-Tender, see notes 2 and 9, respectively, to our condensed consolidated financial statements.
 
In addition to the commitments set forth in the table above, we have significant commitments under derivative instruments pursuant to which we expect to make payments in future periods.  For information concerning projected cash flows associated with these derivative instruments, see Quantitative and Qualitative Disclosures about Market Risk - Projected Cash Flows Associated with Derivatives below.  For information concerning our derivative instruments, including the net cash paid or received in connection with these instruments during the nine months ended September 30, 2012 and 2011, see note 4 to our condensed consolidated financial statements.

We also have commitments pursuant to agreements with, and obligations imposed by, franchise authorities and municipalities, which may include obligations in certain markets to move aerial cable to underground ducts or to upgrade, rebuild or extend portions of our broadband communication systems. Such amounts are not included in the above table because they are not fixed or determinable. 


98

Item 3.
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 financing 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. As further described below, we have established policies, procedures and processes governing our management of market risks and the use of derivative instruments to manage our exposure to such risks.

Cash and Investments

We invest our cash in highly liquid instruments that meet high credit quality standards. From a U.S. dollar perspective, we are exposed to exchange rate risk with respect to certain of our cash balances that are denominated in currencies other than the U.S. dollar. At September 30, 2012, $1,917.7 million or 57.8% and $1,274.4 million or 38.4% of our consolidated cash balances were denominated in U.S. dollars and euros, respectively. Subject to applicable debt covenants, certain tax considerations and other factors, these euro and U.S. dollar cash balances are available to be used for future liquidity requirements that may be denominated in such currencies.

We are also exposed to market price fluctuations related to our investment in Sumitomo shares. At September 30, 2012, the aggregate fair value of this investment was $616.9 million. We use the Sumitomo Collar to manage our exposure to market price fluctuations with respect to our investment in Sumitomo shares.

Foreign Currency Risk

We are exposed to foreign currency exchange rate risk with respect to our consolidated debt in situations where our debt is denominated in a currency other than the functional currency of the operations whose cash flows support our ability to repay or refinance such debt. Although we generally seek to match the denomination of our and our subsidiaries' borrowings with the functional currency of the operations that are supporting the respective borrowings, market conditions or other factors may cause us to enter into borrowing arrangements that are not denominated in the functional currency of the underlying operations (unmatched debt). In these cases, our policy is to provide for an economic hedge against foreign currency exchange rate movements by using derivative instruments to synthetically convert unmatched debt into the applicable underlying currency. At September 30, 2012, substantially all of our debt was either directly or synthetically matched to the applicable functional currencies of the underlying operations. For additional information concerning the terms of our derivative instruments, see note 4 to our condensed consolidated financial statements.

In addition to the exposure that results from the mismatch of our borrowings and underlying functional currencies, we are exposed to foreign currency risk to the extent that we enter into transactions denominated in currencies other than our or our subsidiaries' respective functional currencies (non-functional currency risk), such as equipment purchases, programming contracts, notes payable and notes receivable (including intercompany amounts) that are denominated in a currency other than the applicable functional currency. Changes in exchange rates with respect to amounts recorded in our condensed consolidated balance sheets related 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. Moreover, to the extent that our revenue, costs and expenses are denominated in currencies other than our respective functional currencies, we will experience fluctuations in our revenue, costs and expenses solely as a result of changes in foreign currency exchange rates. In this regard, we currently expect that during 2012, (i) approximately 1% to 3% of our revenue, (ii) approximately 4% to 6% of our aggregate operating and SG&A expenses (exclusive of stock-based compensation expense) and (iii) approximately 14% to 16% of our capital expenditures (excluding capital lease and vendor financing arrangements) will be denominated in non-functional currencies, including amounts denominated in (a) U.S. dollars in Chile, Europe and Argentina and (b) euros in Poland, the Czech Republic, Romania, Switzerland, Hungary and the United Kingdom. Our expectations with respect to our non-functional currency transactions during the remainder of 2012 may differ from actual results. Generally, we will consider hedging non-functional currency risks when the risks arise from agreements with third parties that involve the future payment or receipt of cash or other monetary items to the extent that we can reasonably predict the timing and amount of such payments or receipts and the payments or receipts are not otherwise hedged. In this regard, we have entered into foreign currency forward contracts covering the forward purchase of the U.S. dollar, euro and British pound sterling and the forward sale of the U.S. dollar, euro, Swiss franc, Chilean peso, Czech koruna, Polish zloty, Hungarian forint and Romanian lei to hedge certain of these risks. Certain non-functional currency risks related to our revenue, operating and SG&A expenses and capital expenditures were not hedged as of September 30,

99

2012. For additional information concerning our foreign currency forward contracts, see note 4 to our condensed consolidated financial statements.
 
We also are exposed to unfavorable and potentially volatile fluctuations of the U.S. dollar (our reporting currency) against the currencies of our operating subsidiaries and affiliates when their respective financial statements are translated into U.S. dollars for inclusion in our condensed consolidated financial statements. Cumulative translation adjustments are recorded in accumulated other comprehensive earnings (loss) as a separate component of equity. Any increase (decrease) in the value of the U.S. dollar against any foreign currency that is the functional currency of one of our operating subsidiaries or affiliates will cause us to experience unrealized foreign currency translation losses (gains) with respect to amounts already invested in such foreign currencies. Accordingly, we may experience a negative impact on our comprehensive earnings (loss) and equity with respect to our holdings solely as a result of FX. Our primary exposure to FX risk during the three months ended September 30, 2012 was to the euro as 64.8% of our U.S. dollar revenue during that period was derived from subsidiaries whose functional currency is the euro. In addition, our reported operating results are impacted by changes in the exchange rates for the Swiss franc, the Chilean peso and other local currencies in Europe. We generally do not hedge against the risk that we may incur non-cash losses upon the translation of the financial statements of our subsidiaries and affiliates into U.S. dollars. For information regarding certain currency instability risks with respect to the euro, see Management's Discussion and Analysis of Financial Condition and Results of Operations - Overview above.

The relationship between (i) the euro, the Swiss franc, the Hungarian forint, the Polish zloty, the Czech koruna, the Romanian lei, the Chilean peso and the Australian dollar and (ii) the U.S. dollar, which is our reporting currency, is shown below, per one U.S. dollar:

 
September 30, 2012
 
December 31, 2011
Spot rates:
 
 
 
Euro
0.7767

 
0.7716

Swiss franc
0.9389

 
0.9388

Hungarian forint
221.32

 
242.76

Polish zloty
3.1949

 
3.4431

Czech koruna
19.516

 
19.653

Romanian lei
3.5248

 
3.3367

Chilean peso
475.25

 
519.50

Australian dollar
0.9628

 
0.9751

 
 
Three months ended
 
Nine months ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
Average rates:
 
 
 
 
 
 
 
Euro
0.7989

 
0.7081

 
0.7803

 
0.7113

Swiss franc
0.9617

 
0.8254

 
0.9398

 
0.8791

Hungarian forint
226.04

 
194.78

 
227.17

 
193.02

Polish zloty
3.3038

 
2.9415

 
3.2828

 
2.8583

Czech koruna
20.022

 
17.271

 
19.611

 
17.328

Romanian lei
3.6146

 
3.0172

 
3.4623

 
2.9930

Chilean peso
482.11

 
471.86

 
489.08

 
474.23

Australian dollar
0.9626

 
0.9529

 
0.9668

 
0.9630



100

Inflation and Foreign Investment Risk

We are subject to inflationary pressures with respect to labor, programming and other costs. While we attempt to increase our revenue to offset increases in costs, there is no assurance that we will be able to do so. Therefore, costs could rise faster than associated revenue, thereby resulting in a negative impact on our operating results, cash flows and liquidity. The economic environment in the respective countries in which we operate is a function of government, economic, fiscal and monetary policies and various other factors beyond our control that could lead to inflation. We currently are unable to predict the extent that price levels might be impacted in future periods by the current state of the economies in the countries in which we operate.

Interest Rate Risks

We are exposed to changes in interest rates primarily as a result of our borrowing and investment activities, which include fixed-rate and variable-rate investments and borrowings by our operating subsidiaries. Our primary exposure to variable-rate debt is through the EURIBOR-indexed and LIBOR-indexed debt of UPC Broadband Holding, the EURIBOR-indexed debt of Unitymedia KabelBW and Telenet and the variable-rate debt of certain of our other subsidiaries.

In general, we seek to enter into derivative instruments to protect against increases in the interest rates on our variable-rate debt. Accordingly, we have entered into various derivative transactions to reduce exposure to increases in interest rates. We use interest rate derivative agreements to exchange, at specified intervals, the difference between fixed and variable interest rates calculated by reference to an agreed-upon notional principal amount. We also use interest rate cap and collar agreements that lock in a maximum interest rate if variable rates rise, but also allow our company to benefit, to a limited extent in the case of collars, from declines in market rates. At September 30, 2012, we effectively paid a fixed interest rate on substantially all of our variable-rate debt through the use of interest rate derivative instruments that convert variable rates to fixed rates, including interest rate caps and collars for which the specified maximum rate is in excess of the applicable September 30, 2012 base rate (out-of-the-money caps and collars). If out-of-the-money caps and collars are excluded from this analysis, the percentage of variable-rate debt effectively converted to fixed-rate debt at September 30, 2012 declines to 83%. The final maturity dates of our various portfolios of interest rate derivative instruments generally fall short of the respective maturities of the underlying variable-rate debt. In this regard, we use judgment to determine the appropriate maturity dates of our portfolios of interest rate derivative instruments, taking into account the relative costs and benefits of different maturity profiles in light of current and expected future market conditions, liquidity issues and other factors. For additional information concerning the terms of these interest rate derivative instruments, see note 4 to our condensed consolidated financial statements.

Weighted Average Variable Interest Rate. At September 30, 2012, our variable-rate indebtedness aggregated $8.2 billion, and the weighted average interest rate (including margin) on such variable-rate indebtedness was approximately 4.0%, excluding the effects of interest rate derivative agreements, financing costs, discounts or commitment fees, all of which affect our overall cost of borrowing. Assuming no change in the amount outstanding, and without giving effect to any interest rate derivative agreements, financing costs, discounts or commitment fees, a hypothetical 50 basis point (0.50%) increase (decrease) in our weighted average variable interest rate would increase (decrease) our annual consolidated interest expense and cash outflows by $41.0 million. As discussed above and in note 4 to our condensed consolidated financial statements, we use interest rate derivative contracts to manage our exposure to increases in variable interest rates. In this regard, increases in the fair value of these contracts generally would be expected to offset most of the economic impact of increases in the variable interest rates applicable to our indebtedness to the extent and during the period that principal amounts are matched with interest rate derivative contracts.

Counterparty Credit Risk

We are exposed to the risk that the counterparties to our derivative and other financial instruments, undrawn debt facilities and cash investments will default on their obligations to us. We manage the credit risks associated with our derivative and other financial instruments, cash investments and undrawn debt facilities through the evaluation and monitoring of the creditworthiness of, and concentration of risk with, the respective counterparties. In this regard, credit risk associated with our financial instruments and undrawn debt facilities is spread across a relatively broad counterparty base of banks and financial institutions. Although most of our cash currently is invested in either (i) AAA credit rated money market funds, including funds that invest in government obligations, or (ii) overnight deposits with banks having a minimum credit rating of A by Standard & Poor's or an equivalent rating by Moody's Investor Service, we are considering other alternatives for our cash investments that could provide higher returns. To date, neither the access to nor the value of our cash and cash equivalent balances have been adversely impacted by

101

liquidity problems of financial institutions. We and our counterparties do not post collateral or other security, nor have we entered into master netting arrangements with any of our counterparties.

At September 30, 2012, our exposure to credit risk included (i) derivative assets with a fair value of $701.5 million, (ii) cash and cash equivalent and restricted cash balances of $3,345.7 million and (iii) aggregate undrawn debt facilities of $2,186.2 million.

Under our derivative contracts, it is generally only the non-defaulting party that has a contractual option to exercise early termination rights upon the default of the other counterparty and to set off other liabilities against sums due upon such termination. However, in an insolvency of a derivative counterparty, under the laws of certain jurisdictions, the defaulting counterparty or its insolvency representatives may be able to compel the termination of one or more derivative contracts and trigger early termination payment liabilities payable by us, reflecting any mark-to-market value of the contracts for the counterparty. Alternatively, or in addition, the insolvency laws of certain jurisdictions may require the mandatory set-off of amounts due under such derivative contracts against present and future liabilities owed to us under other contracts between us and the relevant counterparty. Accordingly, it is possible that we may be subject to obligations to make payments, or may have present or future liabilities owed to us partially or fully discharged by set-off as a result of such obligations, in the event of the insolvency of a derivative counterparty, even though it is the counterparty that is in default and not us. To the extent that we are required to make such payments, our ability to do so will depend on our liquidity and capital resources at the time. In an insolvency of a defaulting counterparty, we will be an unsecured creditor in respect of any amount owed to us by the defaulting counterparty, except to the extent of the value of any collateral we have obtained from that counterparty.
 
The risks we would face in the event of a default by a counterparty to one of our derivative instruments might be eliminated or substantially mitigated if we were able to novate the relevant derivative contracts to a new counterparty following the default of our counterparty. While we anticipate that, in the event of the insolvency of one of our derivative counterparties, we would seek to effect such novations, no assurance can be given that we would obtain the necessary consents to do so or that we would be able to do so on terms or pricing that would be acceptable to us or that any such novation would not result in substantial costs to us. Furthermore, the underlying risks that are the subject of the relevant derivative contracts would no longer be effectively hedged due to the insolvency of our counterparty, unless and until we novate or replace the derivative contract.

While we currently have no specific concerns about the creditworthiness of any counterparty for which we have material credit risk exposures, we cannot rule out the possibility that one or more of our counterparties could fail or otherwise be unable to meet its obligations to us. Any such instance could have an adverse effect on our cash flows, results of operations, financial condition and/or liquidity.

Although we actively monitor the creditworthiness of our key vendors, the financial failure of a key vendor could disrupt our operations and have an adverse impact on our revenue and cash flows.

Sensitivity Information

Information concerning the sensitivity of the fair value of certain of our more significant derivative instruments to changes in market conditions is set forth below. The potential changes in fair value set forth below do not include any amounts associated with the remeasurement of the derivative asset or liability into the applicable functional currency. For additional information, see notes 4 and 5 to our condensed consolidated financial statements.

UPC Broadband Holding Cross-currency and Interest Rate Derivative Contracts

Holding all other factors constant, at September 30, 2012:

(i)
an instantaneous increase (decrease) of 10% in the value of the Swiss franc, Polish zloty, Hungarian forint, Czech koruna and Chilean peso relative to the euro would have decreased (increased) the aggregate fair value of the UPC Broadband Holding cross-currency and interest rate derivative contracts by approximately €430.9 million ($554.8 million);

(ii)
an instantaneous increase (decrease) of 10% in the value of the Swiss franc, Chilean peso and Romanian lei relative to the U.S. dollar would have decreased (increased) the aggregate fair value of the UPC Broadband Holding cross-currency and interest rate derivative contracts by approximately €152.9 million ($196.9 million);

102


(iii)
an instantaneous increase (decrease) of 10% in the value of the euro relative to the U.S. dollar would have decreased (increased) the aggregate fair value of the UPC Broadband Holding cross-currency and interest rate derivative contracts by approximately €240.0 million ($309.0 million);

(iv)
an instantaneous increase in the relevant base rate of 50 basis points (0.50%) would have increased the aggregate fair value of the UPC Broadband Holding cross-currency and interest rate derivative contracts by approximately €60.9 million ($78.4 million) and conversely, a decrease of 50 basis points would have decreased the aggregate fair value by approximately €61.7 million ($79.4 million); and

(v)
an instantaneous increase in UPC Broadband Holding's credit spread of 50 basis points (0.50%) would have increased the aggregate fair value of the UPC Broadband Holding cross-currency and interest rate derivative contracts by approximately €16.2 million ($20.9 million) and conversely, a decrease of 50 basis points would have decreased the aggregate fair value by approximately €16.7 million ($21.5 million).

Unitymedia KabelBW Cross-currency and Interest Rate Derivative Contracts

Holding all other factors constant, at September 30, 2012, an instantaneous increase (decrease) of 10% in the value of the euro relative to the U.S. dollar would have decreased (increased) the aggregate value of the Unitymedia KabelBW cross-currency and interest rate derivative contracts by approximately €129.6 million ($166.9 million).

Telenet Interest Rate Caps, Collars and Swaps

Holding all other factors constant, at September 30, 2012, an instantaneous increase in the relevant base rate of 50 basis points (0.50%) would have increased the aggregate fair value of the Telenet interest rate cap, collar and swap contracts by approximately €58.8 million ($75.7 million) and conversely, a decrease of 50 basis points would have decreased the aggregate fair value by approximately €60.8 million ($78.3 million).

UPC Holding Cross-currency Options

Holding all other factors constant, at September 30, 2012, an instantaneous increase of 10% in the value of the Swiss franc relative to the U.S. dollar would have decreased the aggregate fair value of the UPC Holding cross-currency options by approximately €41.7 million ($53.7 million) and conversely, a decrease of 10% would have increased the aggregate fair value by approximately €45.1 million ($58.1 million).

VTR Cross-currency and Interest Rate Derivative Contracts

Holding all other factors constant, at September 30, 2012, an instantaneous increase (decrease) of 10% in the value of the Chilean peso relative to the U.S. dollar would have decreased (increased) the fair value of the VTR cross-currency and interest rate derivative contracts by approximately CLP 27.8 billion ($58.5 million).

Sumitomo Collar

Holding all other factors constant, at September 30, 2012:

(i)
an instantaneous increase in the Japanese yen risk-free rate of 50 basis points (0.50%) would have decreased the fair value of the Sumitomo Collar by ¥1.94 billion ($24.9 million) and conversely, a decrease of 50 basis points would have increased the value by ¥2.48 billion ($31.8 million); and

(ii)
an instantaneous increase of 10% in the per share market price of Sumitomo's common stock would have decreased the fair value of the Sumitomo Collar by approximately ¥4.14 billion ($53.1 million) and conversely, a decrease of 10% would have increased the value by approximately ¥4.65 billion ($59.7 million).


103

Projected Cash Flows Associated with Derivatives

The following table provides information regarding the projected cash flows of our continuing operations associated with our derivative instruments. The U.S. dollar equivalents presented below are based on interest rates and exchange rates that were in effect as of September 30, 2012. These amounts are presented for illustrative purposes only and will likely differ from the actual cash payments required in future periods. For additional information regarding our derivative instruments, see note 4 to our condensed consolidated financial statements. For information concerning the counterparty credit risk associated with our derivative instruments, see the discussion under Counterparty Credit Risk above.  
 
Payments (receipts) due during:
 
Total
 
Remainder
of
2012
 
Year ended December 31,
 
 
 
 
2013
 
2014
 
2015
 
2016
 
2017
 
Thereafter
 
 
in millions
Projected derivative cash payments (receipts), net:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-related (a)
$
(33.4
)
 
$
414.9

 
$
508.7

 
$
149.4

 
$
236.5

 
$
66.9

 
$
136.7

 
$
1,479.7

Principal-related (b)
1.1

 
—

 
492.5

 
45.1

 
181.3

 
(126.4
)
 
(81.7
)
 
511.9

Other (c)
0.4

 
26.3

 
25.5

 
25.5

 
(225.7
)
 
(227.3
)
 
(144.4
)
 
(519.7
)
Total
$
(31.9
)
 
$
441.2

 
$
1,026.7

 
$
220.0

 
$
192.1

 
$
(286.8
)
 
$
(89.4
)
 
$
1,471.9

_______________

(a)
Includes (i) the cash flows of our interest rate cap, collar and swap contracts and (ii) the interest-related cash flows of our cross-currency and cross-currency interest rate swap contracts.

(b)
Includes the principal-related cash flows of our cross-currency and cross-currency interest rate swap contracts.

(c)
Includes amounts related to the Sumitomo Collar, and to a lesser extent, our foreign currency forward contracts. We expect to use the collective value of the Sumitomo Collar and the underlying Sumitomo shares held by our company to settle the Sumitomo Collar Loan maturities in 2016 through 2018.
        

104

Item 4.
CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures

In accordance with Exchange Act Rule 13a-15, we carried out an evaluation, under the supervision and with the participation of management, including our chief executive officer, principal accounting officer, and principal financial officer (the Executives), of the effectiveness of our disclosure controls and procedures as of September 30, 2012. In designing and evaluating the disclosure controls and procedures, the Executives recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is necessarily required to apply judgment in evaluating the cost-benefit relationship of possible controls and objectives. Based on that evaluation, the Executives concluded that our disclosure controls and procedures are effective as of September 30, 2012, in timely making known to them material information relating to us and our consolidated subsidiaries required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934.  

Changes in Internal Controls over Financial Reporting

There have been no changes in our internal controls over financial reporting identified in connection with the evaluation described above that occurred during the fiscal quarter covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.


105

PART II — OTHER INFORMATION

Item 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(c)
Issuer Purchases of Equity Securities

The following table sets forth information concerning our company's purchase of its own equity securities during the three months ended September 30, 2012: 
Period
 
Total number  of shares  purchased
 
Average  price
paid per  share (a)
 
Total number of 
shares purchased as part of publicly 
announced  plans
or programs
 
Approximate
dollar value of
shares that may
yet be  purchased
under the plans or programs
 
 
 
 
 
 
 
 
 
July 1, 2012 through July 31, 2012:
 
 
 
 
 
 
 
Series A
15,200

 
$
49.27

 
15,200

 
(b)
Series C
1,358,400

 
$
48.90

 
1,358,400

 
(b)
August 1, 2012 through August 31, 2012:
 
 
 
 
 
 
 
Series A
—

 
$
—

 
—

 
(b)
Series C
1,271,000

 
$
51.89

 
1,271,000

 
(b)
September 1, 2012 through September 30, 2012:
 
 
 
 
 
 
 
Series A
—

 
$
—

 
—

 
(b)
Series C
971,500

 
$
54.60

 
971,500

 
(b)
Total - July 1, 2012 through September 30, 2012:
 
 
 
 
 
 
 
Series A
15,200

 
$
49.27

 
15,200

 
(b)
Series C
3,600,900

 
$
51.49

 
3,600,900

 
(b)
_______________ 

(a)
Average price paid per share includes direct acquisition costs where applicable.

(b)
On December 14, 2011, our board of directors authorized a new equity repurchase program of up to $1.0 billion. At September 30, 2012, the remaining amount authorized under this program was $391.0 million.



106

Item 6.
EXHIBITS

Listed below are the exhibits filed as part of this Quarterly Report (according to the number assigned to them in Item 601 of Regulation S-K):
4 — Instruments Defining the Rights of Securities Holders, including Indentures:
 
 
4.1

 
Facility Agreement, dated October 12, 2012, among Binan Investments B.V., as Borrower; BNP Paribas as Facility Agent and Security Agent; BNP Paribas, Fortis Bank SA/NV, ING Belgium NV/SA, J.P. Morgan Securities PLC and The Royal Bank of Scotland PLC as Mandated Lead Arrangers; Fortis Bank SA/NV, ING Belgium NV/SA, J.P. Morgan Chase Bank NA, Brussels Branch and The Royal Bank of Scotland PLC, Belgium Branch as the Issuing Banks; and the financial institutions listed therein as the Original Lenders (incorporated by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K filed October 16, 2012 (File No. 000-51360)).
 
 
 
4.2

 
Telenet Additional Facility U Accession Agreement, dated August 16, 2012, among, inter alia, Telenet International as Borrower, Telenet NV and Telenet International as Guarantors, The Bank of Nova Scotia as Facility Agent, KBC Bank NV as Security Agent and the financial institutions listed therein as additional Facility U Lenders, under the Telenet Credit Facility.*
 
 
 
4.3

 
Telenet Additional Facility V Accession Agreement, dated August 16, 2012, among, inter alia, Telenet International as Borrower, Telenet NV and Telenet International as Guarantors, The Bank of Nova Scotia as Facility Agent, KBC Bank NV as Security Agent and the financial institutions listed therein as additional Facility V Lenders, under the Telenet Credit Facility.*
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**
 
 
 
 
 
 
101.INS
  
XBRL Instance Document*
 
 
101.SCH
  
XBRL Taxonomy Extension Schema Document*
 
 
101.CAL
  
XBRL Taxonomy Extension Calculation Linkbase Document*
 
 
101.DEF
  
XBRL Taxonomy Extension Definition Linkbase*
 
 
101.LAB
  
XBRL Taxonomy Extension Label Linkbase Document*
 
 
101.PRE
  
XBRL Taxonomy Extension Presentation Linkbase Document*
_______________ 
*
Filed herewith
**
Furnished herewith

107

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.
 
 
 
Dated:
November 2, 2012
  
/s/    MICHAEL T. FRIES        
 
 
  
Michael T. Fries
President and Chief Executive Officer
 
 
 
Dated:
November 2, 2012
  
/s/    CHARLES H.R. BRACKEN        
 
 
  
Charles H.R. Bracken
Executive Vice President and Co-Chief
Financial Officer (Principal Financial Officer)
 
 
 
Dated:
November 2, 2012
  
/s/    BERNARD G. DVORAK        
 
 
  
Bernard G. Dvorak
Executive Vice President and Co-Chief
Financial Officer (Principal Accounting Officer)



108

EXHIBIT INDEX
 

4 — Instruments Defining the Rights of Securities Holders, including Indentures:
 
 
4.1

 
Facility Agreement, dated October 12, 2012, among Binan Investments B.V., as Borrower; BNP Paribas as Facility Agent and Security Agent; BNP Paribas, Fortis Bank SA/NV, ING Belgium NV/SA, J.P. Morgan Securities PLC and The Royal Bank of Scotland PLC as Mandated Lead Arrangers; Fortis Bank SA/NV, ING Belgium NV/SA, J.P. Morgan Chase Bank NA, Brussels Branch and The Royal Bank of Scotland PLC, Belgium Branch as the Issuing Banks; and the financial institutions listed therein as the Original Lenders (incorporated by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K filed October 16, 2012 (File No. 000-51360)).
 
 
 
4.2

 
Telenet Additional Facility U Accession Agreement, dated August 16, 2012, among, inter alia, Telenet International as Borrower, Telenet NV and Telenet International as Guarantors, The Bank of Nova Scotia as Facility Agent, KBC Bank NV as Security Agent and the financial institutions listed therein as additional Facility U Lenders, under the Telenet Credit Facility.*
 
 
 
4.3

 
Telenet Additional Facility V Accession Agreement, dated August 16, 2012, among, inter alia, Telenet International as Borrower, Telenet NV and Telenet International as Guarantors, The Bank of Nova Scotia as Facility Agent, KBC Bank NV as Security Agent and the financial institutions listed therein as additional Facility V Lenders, under the Telenet Credit Facility.*
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**
 
 
 
101.INS
  
XBRL Instance Document*
 
 
101.SCH
  
XBRL Taxonomy Extension Schema Document*
 
 
101.CAL
  
XBRL Taxonomy Extension Calculation Linkbase Document*
 
 
101.DEF
  
XBRL Taxonomy Extension Definition Linkbase*
 
 
101.LAB
  
XBRL Taxonomy Extension Label Linkbase Document*
 
 
101.PRE
  
XBRL Taxonomy Extension Presentation Linkbase Document*
_______________ 
*
Filed herewith
**
Furnished herewith