10-Q 1 lgimarch31201310q.htm 10-Q LGI March 31, 2013 10Q

 
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 March 31, 2013
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 April 30, 2013 was:
Series A common stock — 141,164,250 shares;
Series B common stock — 10,176,295 shares; and
Series C common stock — 105,494,369 shares.
 



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




LIBERTY GLOBAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
 
 
March 31,
2013
 
December 31,
2012
 
in millions
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
2,906.8

 
$
2,038.9

Trade receivables, net
893.4

 
1,031.0

Deferred income taxes
78.0

 
98.4

Other current assets (note 4)
651.2

 
557.5

Total current assets
4,529.4

 
3,725.8

Restricted cash (notes 2 and 9)
3,556.4

 
1,516.7

Investments (including $1,806.2 million and $947.9 million, respectively, measured at fair value) (note 3)
1,807.1

 
950.1

Property and equipment, net (note 6)
13,018.5

 
13,437.6

Goodwill (note 6)
13,449.9

 
13,877.6

Intangible assets subject to amortization, net (note 6)
2,397.8

 
2,581.3

Other assets, net (note 4)
2,213.2

 
2,218.6

Total assets
$
40,972.3

 
$
38,307.7

 



























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

1


LIBERTY GLOBAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS — (Continued)
(unaudited)
 
 
March 31,
2013
 
December 31,
2012
 
in millions
LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
578.9

 
$
774.0

Deferred revenue and advance payments from subscribers and others
903.5

 
849.7

Current portion of debt and capital lease obligations (note 7)
1,065.8

 
363.5

Derivative instruments (note 4)
538.0

 
569.9

Accrued interest
324.7

 
351.8

Accrued programming
276.8

 
251.0

Other accrued and current liabilities (note 3)
2,232.0

 
1,460.4

Total current liabilities
5,919.7

 
4,620.3

Long-term debt and capital lease obligations (note 7)
29,600.1

 
27,161.0

Other long-term liabilities (note 4)
3,883.8

 
4,441.3

Total liabilities
39,403.6

 
36,222.6

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

 

Equity (note 9):
 
 
 
LGI stockholders:
 
 
 
Series A common stock, $0.01 par value. Authorized 500,000,000 shares; issued and outstanding 141,099,760 and 142,284,430 shares, respectively
1.4

 
1.4

Series B common stock, $0.01 par value. Authorized 50,000,000 shares; issued and outstanding 10,176,295 and 10,206,145 shares, respectively
0.1

 
0.1

Series C common stock, $0.01 par value. Authorized 500,000,000 shares; issued and outstanding 105,429,468 and 106,402,667 shares, respectively
1.1

 
1.1

Additional paid-in capital
2,329.2

 
2,955.6

Accumulated deficit
(2,349.7
)
 
(2,348.7
)
Accumulated other comprehensive earnings, net of taxes
1,615.4

 
1,600.5

Total LGI stockholders
1,597.5

 
2,210.0

Noncontrolling interests
(28.8
)
 
(124.9
)
Total equity
1,568.7

 
2,085.1

Total liabilities and equity
$
40,972.3

 
$
38,307.7













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
 
March 31,
 
2013
 
2012
 
in millions, except share and per share amounts
 
 
 
 
Revenue (note 12)
$
2,767.7

 
$
2,537.0

Operating costs and expenses:
 
 
 
Operating (other than depreciation and amortization) (including stock-based compensation) (notes 10 and 12)
1,027.0

 
897.7

Selling, general and administrative (SG&A) (including stock-based compensation) (notes 10 and 12)
497.9

 
471.4

Depreciation and amortization
693.1

 
670.7

Impairment, restructuring and other operating items, net (note 2)
24.3

 
2.9

 
2,242.3

 
2,042.7

Operating income
525.4

 
494.3

Non-operating income (expense):
 
 
 
Interest expense
(470.1
)
 
(418.1
)
Interest and dividend income
13.9

 
19.0

Realized and unrealized gains (losses) on derivative instruments, net (note 4)
195.8

 
(614.1
)
Foreign currency transaction gains (losses), net
(134.9
)
 
479.0

Realized and unrealized gains due to changes in fair values of certain investments, net (notes 3 and 5)
72.2

 
50.9

Losses on debt modification and extinguishment, net (note 7)
(158.3
)
 
(6.8
)
Other expense, net
(1.6
)
 
(0.3
)
 
(483.0
)
 
(490.4
)
Earnings from continuing operations before income taxes
42.4

 
3.9

Income tax expense (note 8)
(20.5
)
 
(33.1
)
Earnings (loss) from continuing operations
21.9

 
(29.2
)
Earnings from discontinued operation, net of taxes (note 2)

 
38.1

Net earnings
21.9

 
8.9

Net earnings attributable to noncontrolling interests
(22.9
)
 
(34.0
)
Net loss attributable to LGI stockholders
$
(1.0
)
 
$
(25.1
)
 
 
 
 
Basic and diluted earnings (loss) attributable to LGI stockholders per share — Series A, Series B and Series C common stock (note 11):
 
 
 
Continuing operations
$

 
$
(0.17
)
Discontinued operation

 
0.08

 
$

 
$
(0.09
)
 
 
 
 
Weighted average common shares outstanding — basic and diluted
256,902,900

 
272,973,896




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

3


LIBERTY GLOBAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(unaudited)
 
 
Three months ended
 
March 31,
 
2013
 
2012
 
in millions
 
 
 
 
Net earnings
$
21.9

 
$
8.9

Other comprehensive earnings, net of taxes:
 
 
 
Foreign currency translation adjustments
21.4

 
60.1

Other
0.1

 

Other comprehensive earnings
21.5

 
60.1

Comprehensive earnings
43.4

 
69.0

Comprehensive earnings attributable to noncontrolling interests
(29.5
)
 
(37.9
)
Comprehensive earnings attributable to LGI stockholders
$
13.9

 
$
31.1



































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, 2013
$
1.4

 
$
0.1

 
$
1.1

 
$
2,955.6

 
$
(2,348.7
)
 
$
1,600.5

 
$
2,210.0

 
$
(124.9
)
 
$
2,085.1

Net earnings

 

 

 

 
(1.0
)
 

 
(1.0
)
 
22.9

 
21.9

Other comprehensive earnings, net of taxes

 

 

 

 

 
14.9

 
14.9

 
6.6

 
21.5

Purchase of additional Telenet shares (note 9)

 

 

 
(529.2
)
 

 

 
(529.2
)
 
63.6

 
(465.6
)
Repurchase and cancellation of LGI common stock (note 9)

 

 

 
(169.0
)
 

 

 
(169.0
)
 

 
(169.0
)
LGI call option contracts (note 9)

 

 

 
56.2

 

 

 
56.2

 

 
56.2

Distributions by subsidiaries to noncontrolling interest owners (note 9)

 

 

 

 

 

 

 
(22.7
)
 
(22.7
)
Stock-based compensation (note 10)

 

 

 
13.8

 

 

 
13.8

 

 
13.8

Adjustments due to changes in subsidiaries’ equity and other, net

 

 

 
1.8

 

 

 
1.8

 
25.7

 
27.5

Balance at March 31, 2013
$
1.4

 
$
0.1

 
$
1.1

 
$
2,329.2

 
$
(2,349.7
)
 
$
1,615.4

 
$
1,597.5

 
$
(28.8
)
 
$
1,568.7










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

5


LIBERTY GLOBAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 
 
Three months ended
 
March 31,
 
2013
 
2012
 
in millions
Cash flows from operating activities:
 
 
 
Net earnings
$
21.9

 
$
8.9

Earnings from discontinued operation

 
(38.1
)
Earnings (loss) from continuing operations
21.9

 
(29.2
)
Adjustments to reconcile earnings (loss) from continuing operations to net cash provided by operating activities:
 
 
 
Stock-based compensation expense
26.8

 
27.7

Depreciation and amortization
693.1

 
670.7

Impairment, restructuring and other operating items, net
24.3

 
2.9

Amortization of deferred financing costs and non-cash interest accretion
16.3

 
16.0

Realized and unrealized losses (gains) on derivative instruments, net
(195.8
)
 
614.1

Foreign currency transaction losses (gains), net
134.9

 
(479.0
)
Realized and unrealized gains due to changes in fair values of certain investments, net
(72.2
)
 
(50.9
)
Losses on debt modification and extinguishment, net
158.3

 
6.8

Deferred income tax expense (benefit)
(38.0
)
 
132.3

Changes in operating assets and liabilities, net of the effects of acquisitions and dispositions
(211.9
)
 
(156.6
)
Net cash provided by operating activities of discontinued operation

 
51.0

Net cash provided by operating activities
557.7

 
805.8

Cash flows from investing activities:
 
 
 
Capital expenditures
(504.3
)
 
(521.3
)
Cash paid in connection with acquisitions, net of cash acquired

 
(32.3
)
Other investing activities, net
5.9

 
12.2

Net cash used by investing activities of discontinued operation

 
(53.0
)
Net cash used by investing activities
$
(498.4
)
 
$
(594.4
)
 
















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)
 
 
Three months ended
 
March 31,
 
2013
 
2012
 
in millions
Cash flows from financing activities:
 
 
 
Decrease in restricted cash related to the LGI Telenet Tender
$
1,539.7

 
$

Borrowings of debt
1,103.9

 
1,054.6

Repayments and repurchases of debt and capital lease obligations
(1,019.9
)
 
(1,106.4
)
Shares acquired related to the LGI Telenet Tender
(454.5
)
 

Repurchase of LGI common stock
(185.5
)
 
(230.5
)
Payment of financing costs and debt premiums
(181.7
)
 
(20.0
)
Payment of net settled employee withholding taxes on stock incentive awards
(13.6
)
 
(6.6
)
Change in cash collateral
(0.2
)
 
64.0

Other financing activities, net
42.7

 
0.2

Net cash provided (used) by financing activities
830.9

 
(244.7
)
Effect of exchange rate changes on cash:
 
 
 
Continuing operations
(22.3
)
 
42.5

Discontinued operation

 
2.0

Total
(22.3
)
 
44.5

Net increase in cash and cash equivalents:
 
 
 
Continuing operations
867.9

 
11.2

Discontinued operation

 

Net increase in cash and cash equivalents
867.9

 
11.2

Cash and cash equivalents:
 
 
 
Beginning of period
2,038.9

 
1,651.2

End of period
$
2,906.8

 
$
1,662.4

Cash paid for interest:
 
 
 
Continuing operations
$
467.6

 
$
377.8

Discontinued operation

 
12.5

Total
$
467.6

 
$
390.3

Net cash paid (refunded) for taxes — continuing operations
$
20.5

 
$
(1.7
)












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

7



LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements
March 31, 2013
(unaudited)



(1)    Basis of Presentation

Liberty Global, Inc. (LGI) is an international provider of video, broadband internet and telephony services, with consolidated operations at March 31, 2013 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 (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 58.4%-owned subsidiary, Telenet Group Holding NV (Telenet), we provide video, broadband internet and telephony services in Belgium. Our operations also include (i) consolidated broadband communications operations in Puerto Rico that we conduct through a 60%-owned subsidiary 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, (i) our condensed consolidated statements of operations and cash flows for the three months ended March 31, 2012 have been reclassified to present Austar as a discontinued operation and (ii) the amounts presented in these notes relate only to our continuing operations, unless otherwise noted. 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 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 2012 consolidated financial statements and notes thereto included in our 2012 Annual Report on Form 10-K/A.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Estimates and assumptions are used in accounting for, among other things, the valuation of acquisition-related assets and liabilities, allowances for uncollectible accounts, deferred income taxes and related valuation allowances, loss contingencies, fair value measurements, impairment assessments, capitalization of internal costs associated with construction and installation activities, useful lives of long-lived assets, stock-based compensation and actuarial liabilities associated with certain benefit plans. 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 March 31, 2013.

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)
March 31, 2013
(unaudited)



(2)   Acquisitions and Discontinued Operation

Pending Acquisition of Virgin Media

On February 5, 2013, we entered into an Agreement and Plan of Merger (the Virgin Media Merger Agreement) with Virgin Media Inc. (Virgin Media) and certain of our subsidiaries, pursuant to which we will acquire Virgin Media in a stock and cash merger (the Virgin Media Acquisition). Virgin Media is one of the United Kingdom’s largest providers of residential broadband internet, video and fixed-line telephony services in terms of number of customers.

Subject to the terms and conditions of the Virgin Media Merger Agreement, which has been approved unanimously by both our and Virgin Media’s board of directors:

Each share of common stock, par value $0.01 per share, of Virgin Media will be converted into the right to receive (i) 0.2582 Class A ordinary shares of a new public limited company organized under the laws of the United Kingdom (New Liberty Global), (ii) 0.1928 Class C ordinary shares of New Liberty Global and (iii) $17.50 in cash; and

Each share of Series A common stock, par value $0.01 per share, of LGI will be converted into the right to receive one Class A ordinary share of New Liberty Global; each share of Series B common stock, par value $0.01 per share, of LGI will be converted into the right to receive one Class B ordinary share of New Liberty Global; and each share of Series C common stock, par value $0.01 per share, of LGI will be converted into the right to receive one Class C ordinary share of New Liberty Global.

Each Class A ordinary share of New Liberty Global will be entitled to one vote per share, each Class B ordinary share of New Liberty Global will be entitled to ten votes per share and each Class C ordinary share of New Liberty Global will be issued without voting rights. As of March 31, 2013, there were approximately 270.5 million shares of Virgin Media common stock outstanding, 15.0 million shares of Virgin Media common stock underlying outstanding Virgin Media share awards and 52.0 million shares of Virgin Media common stock issuable upon conversion of outstanding Virgin Media convertible debt (excluding any shares issuable as a result of the make-whole premium provision of such convertible debt).

Consummation of the Virgin Media Acquisition is subject to customary conditions, including (i) regulatory and antitrust approvals, including the European Commission and competition authorities, which approvals were received in April 2013, (ii) the adoption of the Virgin Media Merger Agreement by the stockholders of LGI and Virgin Media and (iii) the approval of the shares of New Liberty Global being listed for quotation on the NASDAQ Global Select Market. The stockholder meetings for LGI and Virgin Media to consider and vote upon a proposal to approve the Virgin Media Merger Agreement and related transactions are currently scheduled to occur on June 3, 2013 and June 4, 2013, respectively. Under the Virgin Media Merger Agreement, we have agreed, among other things, to certain covenants that may place certain restrictions on us and our subsidiaries, none of which restrictions are expected to have a material adverse impact on our business or operations.

The Virgin Media Merger Agreement provides that upon termination of the Virgin Media Merger Agreement under other specified circumstances, LGI or Virgin Media may be required to pay the other party a termination fee of $470.0 million and/or reimburse the other party for its expenses, subject to a $35.0 million cap.

In connection with the execution of the Virgin Media Merger Agreement, we entered into various debt financing arrangements whereby we:

Obtained commitments from various financial institutions to provide certain subsidiaries of Virgin Media a senior credit facility (the Virgin Media Credit Facility) that will be entered into on or around the date that the Virgin Media Acquisition is completed. The Virgin Media Credit Facility will be comprised of (i) a £375.0 million ($607.1 million) sterling-denominated Term Loan A, (ii) a $2,755.0 million U.S. dollar-denominated Term Loan B (VM TLB) and (iii) a £600.0 million ($971.3 million) sterling-denominated Term Loan C. In addition, the Virgin Media Credit Facility currently provides for a £250.0 million ($404.7 million) revolving credit facility, which may be increased prior to the date the Virgin Media Acquisition is completed;


9


LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
March 31, 2013
(unaudited)



Issued, on February 22, 2013, (i) $1.0 billion 5.375% Senior Secured Notes due 2021 (the VM Dollar Senior Secured Notes) and £1.1 billion ($1.8 billion) 6.0% Senior Secured Notes due 2021 (the VM Sterling Senior Secured Notes and, together with the VM Dollar Senior Secured Notes, the VM Senior Secured Notes) and (ii) $530.0 million 6.375% Senior Notes due 2023 (the VM Dollar Senior Notes) and £250.0 million ($404.7 million) 7.0% Senior Notes due 2023 (the VM Sterling Senior Notes and, together with the VM Dollar Senior Notes, the VM Senior Notes). The VM Senior Secured Notes were issued by Lynx I Corp. (Lynx I or any successor company, the VM Senior Secured Notes Issuer) and the VM Senior Notes were issued by Lynx II Corp. (Lynx II or any successor company, the VM Senior Notes Issuer), both of which are subsidiaries of LGI. It is contemplated that the VM Senior Secured Notes and the VM Senior Notes (collectively, the VM Notes) will be pushed down to a Virgin Media successor company in connection with the closing of the Virgin Media Acquisition; and

Expect to rollover Virgin Media’s existing $2.4 billion (equivalent) Senior Secured Notes due 2018 (the VM 2018 Notes) and $905.9 million (equivalent) Senior Notes due 2019 (the VM 2019 Notes). In this respect, Virgin Media has obtained consent from holders of the VM 2018 Notes and the VM 2019 Notes to (i) waive its obligations under the respective indentures governing the VM 2018 Notes and the VM 2019 Notes to offer to repurchase such notes upon completion of the Virgin Media Acquisition, which transaction represents a “Change of Control” event under such indentures, and (ii) make certain other amendments to the respective indentures.

In a transaction that did not impact our cash and cash equivalents, the net proceeds from the VM Senior Secured Notes and the VM Senior Notes (after deducting certain transaction expenses) of $3,557.5 million (equivalent at the transaction date) were placed into segregated escrow accounts (the Virgin Media Escrow Accounts) with a trustee. Such net proceeds will be released upon closing of the Virgin Media Acquisition. If the Virgin Media Acquisition is not completed by February 4, 2014, then the VM Senior Secured Notes and the VM Senior Notes will be subject to mandatory redemption at (i) 100% of the principal amount thereof if such redemption event occurs on or before November 4, 2013 or (ii) 101% of the principal amount thereof if such redemption event occurs after November 4, 2013, in each case, plus accrued and unpaid interest thereon.

In connection with the closing of the Virgin Media Acquisition, we expect to use (i) the amounts included in the Virgin Media Escrow Accounts ($3,548.8 million at March 31, 2013), (ii) availability under the Virgin Media Credit Facility and (iii) existing liquidity of LGI and Virgin Media to fund (a) the cash component of the consideration for the Virgin Media Acquisition, (b) the repayment of Virgin Media’s existing bank credit facility, (c) amounts that may be required to repurchase Virgin Media's existing senior secured notes due 2021 and senior notes due 2022 (collectively, the VM 2021 and 2022 Notes) pursuant to the applicable “Change of Control” provisions of the underlying indentures and (d) certain fees and expenses related to the transaction.  On May 3, 2013, a notice of change of control and offer to purchase the VM 2021 and 2022 Notes was launched by Virgin Media and will remain open until midnight New York City time on June 7, 2013 unless extended or earlier terminated.

2012 Acquisition

Puerto Rico. On November 8, 2012, one of our subsidiaries, LGI Broadband Operations, Inc. (LGI Broadband Operations), completed a series of transactions (collectively, the Puerto Rico Transaction) with certain investment funds affiliated with Searchlight Capital Partners L.P. (collectively, Searchlight) that resulted in their joint ownership of (i) Liberty Cablevision of Puerto Rico LLC (Old 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. In connection with the Puerto Rico Transaction, (i) Old Liberty Puerto Rico and OneLink were merged, with OneLink as the surviving entity, and (ii) OneLink was renamed as Liberty Cablevision of Puerto Rico LLC (Liberty Puerto Rico).

Immediately prior to the acquisition of OneLink, LGI Broadband Operations contributed its 100% interest in Old Liberty Puerto Rico, and Searchlight contributed cash of $94.7 million, to Leo Cable LP (Leo Cable), a newly formed entity. Leo Cable in turn used the cash contributed by Searchlight to fund the acquisition of 100% of the equity of OneLink from a third party (the Seller) for a purchase price of $96.5 million, including closing adjustments and $1.8 million of transaction-related costs paid by Old Liberty Puerto Rico on behalf of the Seller. Such purchase price, together with OneLink’s consolidated net debt (aggregate fair value of debt and capital lease obligations outstanding less cash and cash equivalents) at November 8, 2012 of $496.0 million, resulted in total consideration of $592.5 million, excluding direct acquisition costs of $14.8 million.

The Seller agreed to retain $10.0 million of the purchase price to satisfy any claims. In the event that any claims are made under this provision, the Seller has agreed not to distribute funds until such claims are resolved.  LGI Broadband Operations has informed

10


LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
March 31, 2013
(unaudited)



the Seller of certain claims with respect to the funds retained by the Seller.   The value and resolution of these claims is under discussion.

As a result of the Puerto Rico Transaction, LGI Broadband Operations acquired a 60.0% interest, and Searchlight acquired a 40.0% interest, in Leo Cable. As LGI Broadband Operations60.0% interest represents a controlling financial interest, LGI Broadband Operations consolidates Leo Cable.

We have accounted for the Puerto Rico Transaction as the acquisition of OneLink and the effective sale of a 40.0% interest in Old Liberty Puerto Rico. The effective sale of the 40.0% interest in Old Liberty Puerto Rico was accounted for as an equity transaction.
We have accounted for the acquisition of OneLink using the acquisition method of accounting, whereby the total purchase price was allocated to the acquired identifiable net assets of OneLink 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 OneLink as reflected in these condensed consolidated financial statements is preliminary and subject to adjustment based on our final assessment of the fair values of the acquired identifiable assets and liabilities. Although most items in the valuation process remain open, the items with the highest likelihood of changing upon finalization of the valuation process include property and equipment, goodwill, cable television franchise rights, customer relationships and income taxes.

2011 Acquisition

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 approval of the Aster Acquisition by the regulatory authority in Poland was conditioned upon our agreement to dispose of certain sections of Aster’s network on or before March 5, 2013. On March 5, 2013, two subsidiaries of UPC Holding entered into a preliminary agreement with a third-party purchaser (Netia S.A.) under which UPC Holding's Polish subsidiary will (via a demerger) transfer the relevant sections of Aster's network into two special purpose vehicles and then sell these special purpose vehicles to Netia S.A. (the Aster Disposal).  Completion of the Aster Disposal is subject to the approval of the Polish regulatory authority and completion of the demerger, which is expected during the second quarter of 2013. If, however, the Polish regulatory authority does not approve the Aster Disposal, we will be required to find an alternative purchaser and will not have met the deadline to satisfy this condition.  In this case, we may be subject to fines or penalties or, in the most extreme and we believe unlikely case, the Polish regulatory authority could require us to dispose of the entire Aster network. Although unlikely, a forced disposition of the entire Aster network would be highly disruptive to our operations in Poland and would likely have an adverse impact on our results of operations and financial condition, the extent of which would depend on the relationship between the value we would receive in exchange for the Aster network and our then investment in the Aster network.

Pro Forma Information

The following unaudited pro forma condensed consolidated operating results for the three months ended March 31, 2012 give effect to the Puerto Rico Transaction as if it had been completed as of January 1, 2011. These pro forma amounts are not necessarily indicative of the operating results that would have occurred if this transaction had occurred on such date. The pro forma adjustments are based on certain assumptions that we believe are reasonable.
 
Three months ended
 
March 31, 2012
 
in millions, except per share amounts
Revenue:
 
Continuing operations
$
2,580.7

Discontinued operation
187.2

Total
$
2,767.9

 
 
Net loss attributable to LGI stockholders
$
(27.0
)
Basic and diluted loss attributable to LGI stockholders per share — Series A, Series B and Series C common stock
$
(0.10
)

11


LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
March 31, 2013
(unaudited)



Discontinued Operation

Austar. On May 23, 2012, we completed the sale of Austar, which is reflected as a discontinued operation in our condensed consolidated statements of operations and cash flows for the three months ended March 31, 2012. The operating results of Austar for the three months ended March 31, 2012 are summarized in the following table (in millions):
Revenue
$
187.2

Operating income
$
65.0

Earnings before income taxes and noncontrolling interests
$
54.0

Income tax expense
$
15.9

Earnings from discontinued operation attributable to LGI stockholders, net of taxes
$
20.6

 
(3)    Investments

The details of our investments are set forth below: 
Accounting Method
 
March 31,
2013
 
December 31,
2012
 
in millions
Fair value:
 
 
 
Ziggo (a)
$
889.8

 
$

Sumitomo (b)
574.1

 
579.7

Other (c)
342.3

 
368.2

Total — fair value
1,806.2

 
947.9

Equity
0.5

 
1.7

Cost
0.4

 
0.5

Total
$
1,807.1

 
$
950.1

_______________ 

(a)
On March 28, 2013, we acquired 25.3 million shares of Ziggo N.V. (Ziggo), a publicly-traded company in the Netherlands, at €25.00 ($32.06) per share, for a total investment of €632.5 million ($811.0 million). Ziggo is the largest cable operator in the Netherlands in terms of subscribers. As a result of this investment, we owned 12.65% of the outstanding shares of Ziggo at March 31, 2013. The acquisition of Ziggo shares was cash settled on April 4, 2013 with existing liquidity and, accordingly, as of March 31, 2013, the full amount payable for this investment is included in other accrued and current liabilities in our condensed consolidated balance sheet. Subsequent to March 31, 2013, we (i) acquired additional shares of Ziggo and (ii) entered into a limited recourse margin loan agreement with respect to our investment in Ziggo. For additional information, see note 15.

(b)
At March 31, 2013, 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 March 31, 2013. These shares secure a loan (the Sumitomo Collar Loan) to Liberty Programming Japan LLC, our wholly-owned subsidiary.

(c)
Includes various fair value investments, the most significant of which is our 17.0% interest in Canal+ Cyfrowy S.A. (Cyfra+), a privately-held DTH operator in Poland.


12


LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
March 31, 2013
(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 Swiss franc (CHF), the Chilean peso (CLP), the Czech koruna (CZK), the British pound sterling (£), the Hungarian forint (HUF), the Polish zloty (PLN) and the Romanian lei (RON). 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:
 
 
March 31, 2013
 
December 31, 2012
 
Current (a)
 
Long-term (a)
 
Total
 
Current (a)
 
Long-term (a)
 
Total
 
in millions
Assets:
 
 
 
 
 
 
 
 
 
 
 
Cross-currency and interest rate derivative contracts (b)
$
124.7

 
$
546.3

 
$
671.0

 
$
191.3

 
$
467.1

 
$
658.4

Equity-related derivative instrument (c)

 
502.5

 
502.5

 

 
594.6

 
594.6

Foreign currency forward contracts
92.8

 
16.0

 
108.8

 
0.7

 
0.4

 
1.1

Other
1.6

 
2.7

 
4.3

 
1.3

 
3.0

 
4.3

Total
$
219.1

 
$
1,067.5

 
$
1,286.6

 
$
193.3

 
$
1,065.1

 
$
1,258.4

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Cross-currency and interest rate derivative contracts (b)
$
517.9

 
$
1,758.1

 
$
2,276.0

 
$
543.2

 
$
2,156.3

 
$
2,699.5

Equity-related derivative instrument (c)
17.2

 

 
17.2

 
21.6

 

 
21.6

Foreign currency forward contracts
2.2

 

 
2.2

 
4.5

 
3.6

 
8.1

Other
0.7

 
0.7

 
1.4

 
0.6

 
0.7

 
1.3

Total
$
538.0

 
$
1,758.8

 
$
2,296.8

 
$
569.9

 
$
2,160.6

 
$
2,730.5

_______________ 

(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 March 31, 2013 and December 31, 2012, (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 $29.8 million and $17.2 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 $133.8 million and $156.5 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 a net gain (loss) of ($32.5 million) and $22.3 million during the three months ended March 31, 2013 and 2012, 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.

(c)
The fair value of our equity-related derivative instrument 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

13


LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
March 31, 2013
(unaudited)



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
 
March 31,
 
2013
 
2012
 
in millions
 
 
 
 
Continuing operations:
 
 
 
Cross-currency and interest rate derivative contracts
$
180.6

 
$
(479.1
)
Foreign currency forward contracts
102.4

 
(10.4
)
Equity-related derivative instrument (a)
(87.7
)
 
(126.5
)
Other
0.5

 
1.9

Total — continuing operations
$
195.8

 
$
(614.1
)
Discontinued operation
$

 
$
3.7

_______________ 

(a)
Represents activity related to the Sumitomo Collar.
 
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 outflows are as follows: 
 
Three months ended
 
March 31,
 
2013
 
2012
 
in millions
Continuing operations:
 
 
 
Operating activities
$
(209.2
)
 
$
(244.8
)
Financing activities
(11.1
)
 
(3.8
)
Total — continuing operations
$
(220.3
)
 
$
(248.6
)
Discontinued operation
$

 
$
(3.2
)

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 March 31, 2013, our exposure to counterparty credit risk included derivative assets with an aggregate fair value of $698.4 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

14


LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
March 31, 2013
(unaudited)



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.


15


LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
March 31, 2013
(unaudited)



Cross-currency and Interest Rate Derivative Contracts

Cross-currency Swaps:

The terms of our outstanding cross-currency swap contracts at March 31, 2013 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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Viper US MergerCo 1 LLC (Viper MergerCo) , the parent company of Lynx I and Lynx II:
 
 
 
 
 
 
 
 
 
June 2013 - June 2020
 
$
1,384.6

 
£
901.4

 
6 mo. LIBOR + 2.75%
 
6 mo. GBP LIBOR + 3.18%
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:
 
 
 
 
 
 
 
 
 
November 2019
 
$
500.0

 
362.9

 
7.25%
 
7.74%
October 2020
 
$
300.0

 
219.1

 
6 mo. LIBOR + 3.00%
 
6 mo. EURIBOR + 3.04%
October 2017
 
$
200.0

 
145.7

 
6 mo. LIBOR + 3.50%
 
6 mo. EURIBOR + 3.33%
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%

16


LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
March 31, 2013
(unaudited)



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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unitymedia Hessen GmbH & Co. KG (Unitymedia Hessen), a subsidiary of Unitymedia KabelBW:
 
 
 
 
 
 
 
 
 
January 2021
 
$
1,000.0

 
688.2

 
5.50%
 
5.58%
March 2019
 
$
459.3

 
326.5

 
7.50%
 
7.98%
_______________ 

(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 March 31, 2013, we present a single date that represents the applicable final maturity date.  For derivative instruments that become effective subsequent to March 31, 2013, 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.

17


LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
March 31, 2013
(unaudited)



Cross-currency Interest Rate Swaps:

The terms of our outstanding cross-currency interest rate swap contracts at March 31, 2013 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%
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 March 31, 2013, we present a single date that represents the applicable final maturity date.  For derivative instruments that become effective subsequent to March 31, 2013, we present a range of dates that represents the period covered by the applicable derivative instrument.

Interest Rate Swaps:

The terms of our outstanding interest rate swap contracts at March 31, 2013 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 2014
 
$
1,300.0

 
1 mo. LIBOR + 3.49%
 
6 mo. LIBOR + 3.32%
July 2020
 
$
1,000.0

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

 
6.88%
 
6 mo. LIBOR + 4.89%
January 2014
 
2,750.0

 
1 mo. EURIBOR + 3.76%
 
6 mo. EURIBOR + 3.52%
December 2014
 
971.8

 
6 mo. EURIBOR
 
2.97%
July 2020
 
750.0

 
6.38%
 
6 mo. EURIBOR + 3.16%
January 2015 - January 2021
 
750.0

 
6 mo. EURIBOR
 
2.57%
July 2013 - December 2014
 
500.0

 
6 mo. EURIBOR
 
4.67%

18


LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
March 31, 2013
(unaudited)



Subsidiary / Final maturity date (a)
 
Notional amount
 
Interest rate due from
counterparty
 
Interest rate due to
counterparty
 
 
in millions
 
 
 
 
January 2015 - December 2016
 
500.0

 
6 mo. EURIBOR
 
4.32%
July 2014
 
337.0

 
6 mo. EURIBOR
 
3.94%
January 2015 - January 2023
 
290.0

 
6 mo. EURIBOR
 
2.79%
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%
January 2015 - November 2021
 
107.0

 
6 mo. EURIBOR
 
2.89%
December 2013
 
90.5

 
6 mo. EURIBOR
 
0.90%
December 2014
 
CHF
2,380.0

 
6 mo. CHF LIBOR
 
2.81%
January 2015 - January 2022
 
CHF
711.5

 
6 mo. CHF LIBOR
 
1.89%
January 2015 - January 2021
 
CHF
500.0

 
6 mo. CHF LIBOR
 
1.65%
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.a.r.l (Telenet International):
 
 
 
 
 
 
 
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%
December 2015 - June 2021
 
250.0

 
3 mo. EURIBOR
 
3.49%
July 2019
 
200.0

 
3 mo. EURIBOR
 
3.55%
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%
_______________

(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 March 31, 2013, we present a single date that represents the applicable final maturity date.  For derivative instruments

19


LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
March 31, 2013
(unaudited)



that become effective subsequent to March 31, 2013, we present a range of dates that represents the period covered by the applicable derivative instrument.

Interest Rate Caps

Our purchased and sold interest rate cap contracts with respect to EURIBOR are detailed below:
 
 
March 31, 2013
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, a subsidiary of Telenet:
 
 
 
December 2017
2.1

 
6.50%
December 2017
2.1

 
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 March 31, 2013, we present a single date that represents the applicable final maturity date. For derivative instruments that become effective subsequent to March 31, 2013, 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:
 
 
March 31, 2013
Subsidiary / Final maturity date (a)
 
Notional
amount
 
EURIBOR floor rate (b)
 
EURIBOR cap rate (c)
 
 
in millions
 
 
 
 
UPC Broadband Holding:
 
 
 
 
 
 
January 2015 - January 2020
1,135.0

 
1.00%
 
3.54%
Telenet International:
 
 
 
 
 
 
July 2017
950.0

 
2.00%
 
4.00%

20


LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
March 31, 2013
(unaudited)



 _______________

(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 March 31, 2013, we present a single date that represents the applicable final maturity date. For derivative instruments that become effective subsequent to March 31, 2013, 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 0.7354 Swiss francs per one U.S. dollar, in the notional amounts listed below: 
 
 
Notional amount at
Contract expiration date
 
March 31, 2013
 
 
in millions
 
 
 
April 2018
$
419.8

October 2016
$
19.8

April 2017
$
19.8

October 2017
$
19.8


21


LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
March 31, 2013
(unaudited)




Foreign Currency Forwards

The following table summarizes our outstanding foreign currency forward contracts at March 31, 2013
Subsidiary
 
Currency
purchased
forward
 
Currency
sold
forward
 
Maturity dates
 
 
in millions
 
 
 
 
 
 
 
 
 
 
 
Viper MergerCo (a)
$
3,077.9

 
£
2,000.0

 
June 2013
LGE Financing
$
1,841.1

 
1,396.1

 
April 2013 - April 2014
LGE Financing
535.0

 
$
686.1

 
April 2013
UPC Holding
$
479.0

 
CHF
415.1

 
October 2016 - April 2018
UPC Broadband Holding
$
0.5

 
CZK
9.4

 
April 2013 - May 2013
UPC Broadband Holding
31.7

 
CHF
38.2

 
April 2013 - March 2014
UPC Broadband Holding
4.5

 
CZK
114.9

 
April 2013 - September 2013
UPC Broadband Holding
8.7

 
HUF
2,550.0

 
April 2013 - September 2013
UPC Broadband Holding
24.4

 
PLN
103.6

 
April 2013 - September 2013
UPC Broadband Holding
£
1.8

 
2.3

 
April 2013 - September 2013
UPC Broadband Holding
CHF
12.0

 
9.8

 
April 2013
UPC Broadband Holding
CZK
250.0

 
9.7

 
April 2013
UPC Broadband Holding
HUF
3,600.0

 
11.8

 
April 2013
UPC Broadband Holding
PLN
54.0

 
12.9

 
April 2013
UPC Broadband Holding
RON
13.0

 
2.9

 
April 2013
Telenet NV
$
29.5

 
23.2

 
April 2013 - December 2013
VTR
$
30.4

 
CLP
15,220.9

 
April 2013 - March 2014
 _______________

(a)
In the event the Virgin Media Acquisition does not close for reasons outside of our control, these contracts will be rescinded. For additional information regarding the Virgin Media Acquisition, see note 2.

(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 March 31, 2013 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 three months ended March 31, 2013, no such transfers were made.


22


LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
March 31, 2013
(unaudited)



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 investments in Ziggo and Sumitomo, the recurring fair value measurements are based on the quoted closing price of the respective shares at each reporting date. Accordingly, the valuations of these investments fall 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 March 31, 2013 valuation of the Sumitomo Collar, we used estimated volatilities of 37.6% with respect to our purchased put options and 40.0% with respect to our written call options. Based on the March 31, 2013 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 currently would not have a significant impact on the valuation of the Sumitomo Collar.

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 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 and discount rate 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

23


LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
March 31, 2013
(unaudited)



unobservable inputs and therefore fall under Level 3 of the fair value hierarchy. We did not perform significant nonrecurring fair value measurements during the three months ended March 31, 2013 or 2012. A summary of our assets and liabilities that are measured at fair value on a recurring basis is as follows:
 
 
 
Fair value measurements at  March 31, 2013 using:
Description
March 31,
2013
 
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
$
671.0

 
$

 
$
671.0

 
$

Equity-related derivative instrument
502.5

 

 

 
502.5

Foreign currency forward contracts
108.8

 

 
108.8

 

Other
4.3

 

 
4.3

 

Total derivative instruments
1,286.6

 

 
784.1

 
502.5

Investments
1,806.2

 
1,463.9

 

 
342.3

Total assets
$
3,092.8

 
$
1,463.9

 
$
784.1

 
$
844.8

 
 
 
 
 
 
 
 
Liabilities - derivative instruments:
 
 
 
 
 
 
 
Cross-currency and interest rate derivative contracts
$
2,276.0

 
$

 
$
2,276.0

 
$

Equity-related derivative instrument
17.2

 

 

 
17.2

Foreign currency forward contracts
2.2

 

 
2.2

 

Other
1.4

 

 
1.4

 

Total liabilities
$
2,296.8

 
$

 
$
2,279.6

 
$
17.2


24


LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
March 31, 2013
(unaudited)



 
 
 
 
Fair value measurements 
at December 31, 2012 using:
Description
December 31, 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
$
658.4

 
$

 
$
658.4

 
$

Equity-related derivative instrument
594.6

 

 

 
594.6

Foreign currency forward contracts
1.1

 

 
1.1

 

Other
4.3

 

 
4.3

 

Total derivative instruments
1,258.4

 

 
663.8

 
594.6

Investments
947.9

 
579.7

 

 
368.2

Total assets
$
2,206.3

 
$
579.7

 
$
663.8

 
$
962.8

Liabilities - derivative instruments:
 
 
 
 
 
 
 
Cross-currency and interest rate derivative contracts
$
2,699.5

 
$

 
$
2,699.5

 
$

Equity-related derivative instrument
21.6

 

 

 
21.6

Foreign currency forward contracts
8.1

 

 
8.1

 

Other
1.3

 

 
1.3

 

Total liabilities
$
2,730.5

 
$

 
$
2,708.9

 
$
21.6


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
instrument
 
Total
 
in millions
 
 
 
 
 
 
Balance of net asset at January 1, 2013
$
368.2

 
$
573.0

 
$
941.2

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

 
(87.7
)
 
(87.7
)
Realized and unrealized losses due to changes in fair values of certain investments, net
(1.9
)
 

 
(1.9
)
Foreign currency translation adjustments and other
(24.0
)
 

 
(24.0
)
Balance of net asset at March 31, 2013