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Liberty Global Reports Fiscal 2012 Results

Stocks in this article: LBTYA LBTYB LBTYK

About Liberty Global

Liberty Global is the leading international cable company, with operations in 13 countries. We connect people to the digital world and enable them to discover and experience its endless possibilities. Our market-leading television, broadband internet and telephony services are provided through next-generation networks and innovative technology platforms that connect 20 million customers who subscribe to 35 million services as of December 31, 2012.

Liberty Global’s consumer brands include UPC, Unitymedia, KabelBW, Telenet and VTR. Our operations also include Chellomedia, our content division, UPC Business, a commercial services division and Liberty Global Ventures, our investment fund. For more information, please visit www.lgi.com.

 
1 We began accounting for Austar United Communications Limited (“Austar”) as a discontinued operation effective December 31, 2011. The results of operations, subscriber metrics and cash flows of Austar have been classified as a discontinued operation for all periods presented. Accordingly, the financial and statistical information presented herein includes only our continuing operations, unless otherwise indicated.
 
2 Please see page 20 for the definition of revenue generating units (“RGUs”). Organic figures exclude RGUs of acquired entities at the date of acquisition, but include the impact of changes in RGUs from the date of acquisition. All subscriber/RGU additions or losses refer to net organic changes, unless otherwise noted.
 
3 For purposes of calculating rebased growth rates on a comparable basis for all businesses that we owned during 2011 and 2012, we have adjusted our historical revenue and OCF for the three months and year ended December 31, 2011 to (i) include the pre-acquisition revenue and OCF of certain entities acquired during 2011 and 2012 in the respective 2011 rebased amounts to the same extent that the revenue and OCF of such entities are included in our 2012 results, (ii) exclude a small disposition to the extent that the revenue and OCF are included in our 2011 results and (iii) reflect the translation of our rebased amounts for the 2011 periods at the applicable average exchange rates that were used to translate our 2012 results. Please see page 11 for supplemental information.
 
4 Please see page 14 for our operating cash flow definition and the required reconciliation.
 
5 Free Cash Flow (“FCF”) is defined 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 the portions of the network lease in Belgium and the duct leases in Germany that we assumed in connection with certain acquisitions), with each item excluding any cash provided or used by our discontinued operations. We also present Adjusted FCF, which adjusts FCF to eliminate the incremental FCF deficit associated with the VTR Wireless mobile initiative and, during 2011, the payments associated with the capital structure of the predecessor of Unitymedia KabelBW GmbH (“Old Unitymedia”). Please see page 16 for more information on FCF and Adjusted FCF and the required reconciliations.
 
6 On February 5, 2013, Liberty Global and Virgin Media Inc. (“Virgin Media”) (NASDAQ: VMED; LSE: VMED) announced that they have entered into an agreement, subject to shareholder and regulatory approvals, pursuant to which Liberty Global will acquire Virgin Media in a stock and cash merger. Under the terms of the agreement, Virgin Media shareholders will receive $17.50 in cash, 0.2582 Liberty Global Series A shares and 0.1928 Liberty Global Series C shares for each Virgin Media share that they hold. Please see our press release dated February 5, 2013 for further details.
 
7 Refers to cash at the parent and non-operating subsidiaries. Additionally, our cash and cash equivalents balance for these purposes includes $1,069 million of restricted cash that was released from restrictions after completion of the LGI Telenet Tender Offer (see below).
 
8 Liquidity refers to our consolidated cash and cash equivalents plus our aggregate unused borrowing capacity, as represented by the maximum undrawn commitments under our subsidiaries’ applicable facilities without regard to covenant compliance calculations.
 
9 Our fully-swapped debt borrowing cost represents the weighted average interest rate on our aggregate variable and fixed rate indebtedness (excluding capital lease obligations), including the effects of derivative instruments, original issue premiums or discounts and commitment fees, but excluding the impact of financing costs.
 
10 Certain of our business-to-business (“B2B”) revenue is derived from SOHO subscribers that pay a premium price to receive enhanced service levels along with video, internet or telephony services that are the same or similar to the mass marketed products offered to our residential subscribers. Effective January 1, 2012, we recorded non-organic adjustments to begin including the SOHO subscribers of our UPC/Unity Division in our RGU and customer counts. As a result, all mass marketed products provided to SOHOs, whether or not accompanied by enhanced service levels and/or premium prices, are now included in the respective RGU and customer counts of our broadband communications operations, with only those services provided at premium prices considered to be “SOHO RGUs” or “SOHO customers.” With the exception of our B2B SOHO subscribers, we generally do not count customers of B2B services as customers or RGUs for external reporting purposes. RGU, customer, bundling and ARPU amounts presented for periods prior to January 1, 2012 have not been restated to reflect this change.
 
11 References to western Europe include our operations in Germany, the Netherlands, Switzerland, Austria and Ireland, as well as in Belgium. References to our Western Europe reporting segment include the aforementioned countries, with the exception of Belgium.
 
12 Digital penetration is calculated by dividing the number of digital cable RGUs by the total number of digital and analog cable RGUs.
 
13 OCF margin is calculated by dividing OCF by total revenue for the applicable period.
 
14 Our property and equipment additions include our capital expenditures, as reported in our consolidated cash flow statements, and the impacts of related changes in our current liabilities and amounts that are financed under vendor financing or capital lease arrangements.
 
15 Total debt includes capital lease obligations.
 
16 On December 17, 2012, we launched a voluntary and conditional cash public offer, at an offer price of €35.00 per share, for (i) all of Telenet's issued shares that we did not already own or that were not held by Telenet and (ii) certain of Telenet’s outstanding vested and unvested employee warrants (the “LGI Telenet Tender”). Pursuant to the LGI Telenet Tender, which was completed on February 1, 2013, we acquired (i) 9,497,637 of Telenet’s issued shares, and (ii) 3,000 of the outstanding and vested warrants. In connection with the launch of the LGI Telenet Tender, we were required to place €1,143 million ($1,508 million) of cash into a restricted account. On February 1, 2013, we used €333 million ($439 million) of this restricted cash account to fund the LGI Telenet Tender and the remaining amount was released from restrictions.
 
17 The $2.2 billion amount reflects the aggregate unused borrowing capacity, as represented by the maximum undrawn commitments under our subsidiaries’ applicable facilities without regard to covenant compliance calculations. Upon completion of Q4 2012 compliance reporting, we would expect to be able to borrow approximately $1.8 billion of this aggregate borrowing capacity.
 
18 Our gross and net debt ratios are defined as total debt and net debt to annualized OCF of the latest quarter. Net debt is defined as total debt less cash and cash equivalents. Additionally, our cash and cash equivalent balance for these purposes includes approximately $1,069 million of restricted cash that was released from restrictions after completion of the LGI Telenet Tender Offer. For our adjusted ratios, the debt amount excludes the loan that is backed by the shares we hold in Sumitomo Corporation.
 

Liberty Global, Inc. Condensed Consolidated Balance Sheets

 

  December 31,
2012   2011
ASSETS

in millions

Current assets:
Cash and cash equivalents $ 2,038.9 $ 1,651.2
Trade receivables, net 1,031.0 910.5
Deferred income taxes 98.4 345.2
Current assets of discontinued operation 275.6
Other current assets   557.5     592.6
Total current assets 3,725.8 3,775.1
 
Restricted cash 1,516.7 23.3
Investments 950.1 975.2
Property and equipment, net 13,437.6 12,868.4
Goodwill 13,877.6 13,289.3
Intangible assets subject to amortization, net 2,581.3 2,812.5
Long-term assets of discontinued operation 770.1
Other assets, net   2,218.6     1,895.3
 
Total assets $ 38,307.7   $ 36,409.2

LIABILITIES AND EQUITY

Current liabilities:
Accounts payable $ 774.0 $ 645.7
Deferred revenue and advance payments from subscribers and others 849.7 847.6
Current portion of debt and capital lease obligations 363.5 184.1
Derivative instruments 569.9 601.2
Accrued interest 351.8 295.4
Accrued programming 251.0 213.1
Current liabilities of discontinued operation 114.1
Other accrued and current liabilities   1,460.4     1,268.6
Total current liabilities 4,620.3 4,169.8
 
Long-term debt and capital lease obligations 27,161.0 24,573.8
Long-term liabilities of discontinued operation 746.5
Other long-term liabilities   4,441.3     3,987.7
Total liabilities   36,222.6     33,477.8
 
 
Commitments and contingencies
 
Equity:
Total LGI stockholders 2,210.0 2,805.4
Noncontrolling interests   (124.9 )   126.0
Total equity   2,085.1     2,931.4
 
Total liabilities and equity $ 38,307.7   $ 36,409.2
 

Liberty Global, Inc.Condensed Consolidated Statements of Operations

   
 

Three months ended December 31,

Year ended December 31,

2012   2011 2012   2011
in millions, except per share amounts
 
Revenue $ 2,730.2   $ 2,404.5   $ 10,310.8   $ 9,510.8  
 
Operating costs and expenses:

Operating (other than depreciation and amortization) (including stock-based compensation)

973.5 868.4 3,617.5 3,379.4

Selling, general and administrative (including stock-based compensation)

524.2 462.2 1,936.1 1,780.4
Depreciation and amortization 681.4 618.7 2,691.1 2,457.0
Impairment, restructuring and other operating items, net   50.4     47.1     83.0     75.6  
  2,229.5     1,996.4     8,327.7     7,692.4  
Operating income   500.7     408.1     1,983.1     1,818.4  
 
Non-operating income (expense):
Interest expense (448.6 ) (368.3 ) (1,677.4 ) (1,455.2 )
Interest and dividend income 3.6 10.8 42.3 73.2

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

(456.0 ) 43.6 (1,069.9 ) (60.4 )
Foreign currency transaction gains (losses), net 281.5 (374.7 ) 436.3 (572.6 )

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

(28.6 ) 50.8 (29.9 ) (155.1 )

Gains (losses) on debt modification, extinguishment and conversion, net

(188.3 ) 0.3 (215.8 ) (218.4 )
Gains due to changes in ownership 52.5
Other income (expense), net   (3.9 )   0.3     (4.5 )   (5.7 )
  (840.3 )   (637.2 )   (2,466.4 )   (2,394.2 )
Loss from continuing operations before income taxes (339.6 ) (229.1 ) (483.3 ) (575.8 )
Income tax benefit (expense)   17.0     (209.1 )   (89.0 )   (231.7 )
Loss from continuing operations   (322.6 )   (438.2 )   (572.3 )   (807.5 )
Discontinued operation:
Earnings from discontinued operation, net of taxes 17.9 35.5 136.5
Gain on disposal of discontinued operation, net of taxes           924.1      
      17.9     959.6     136.5  
Net earnings (loss) (322.6 ) (420.3 ) 387.3 (671.0 )
Net earnings attributable to noncontrolling interests   (8.7 )   (14.7 )   (64.5 )   (101.7 )
Net earnings (loss) attributable to LGI stockholders $ (331.3 ) $ (435.0 ) $ 322.8   $ (772.7 )
 
 

Basic and diluted earnings (loss) attributable to LGI stockholders per share:

Continuing operations $ (1.27 ) $ (1.61 ) $ (2.31 ) $ (3.21 )
Discontinued operation       0.03     3.52     0.28  
$ (1.27 ) $ (1.58 ) $ 1.21   $ (2.93 )
 

Liberty Global, Inc.

Condensed Consolidated Statements of Cash Flows

 

Year ended December 31,

2012   2011
Cash flows from operating activities: in millions
Net earnings (loss) $ 387.3 $ (671.0 )
Earnings from discontinued operation   (959.6 )   (136.5 )
Loss from continuing operations (572.3 ) (807.5 )
 

Adjustments to reconcile loss from continuing operations to net cash provided by operating activities

3,430.8 3,370.2
Net cash provided by operating activities of discontinued operation   61.2     173.6  
Net cash provided by operating activities   2,919.7     2,736.3  
 
Cash flows from investing activities:
Capital expenditures (1,883.6 ) (1,927.0 )
Proceeds received upon disposition of discontinued operation, net of disposal costs 1,055.4
Cash paid in connection with acquisitions, net of cash acquired (215.7 ) (1,980.5 )
Increase in escrow account, net (127.5 )
Other investing activities, net 14.7 6.3

Net cash provided (used) by investing activities of discontinued operation, including deconsolidated cash

 

(51.7

)   18.4  

Net cash used by investing activities

 

(1,080.9

)   (4,010.3 )
 
Cash flows from financing activities:
Borrowings of debt 5,981.9 5,622.8
Repayments and repurchases of debt and capital lease obligations (4,376.1 ) (4,520.5 )
Increase in restricted cash related to the LGI Telenet Tender (1,464.1 )
Repurchase of LGI common stock (970.3 ) (912.6 )
Distributions by subsidiaries to noncontrolling interest owners (335.9 ) (417.1 )
Payment of financing costs, debt premiums and exchange offer consideration (229.8 ) (254.3 )
Contributions by noncontrolling interest owners to subsidiaries 115.1 26.7
Net cash paid related to derivative instruments (108.4 ) (80.4 )
Change in cash collateral 59.6 (64.6 )
Payment of net settled employee withholding taxes on stock incentive awards (56.8 ) (117.5 )
Excess tax benefits from stock-based compensation 7.2 37.7
Other financing activities, net (92.2 ) 34.6
Net cash used by financing activities of discontinued operation       (102.5 )

Net cash used by financing activities

  (1,469.8 )   (747.7 )
 
Effect of exchange rate changes on cash:
Continuing operations 28.2 30.0
Discontinued operation   (9.5 )   4.3  
Total   18.7     34.3  
 
Net increase (decrease) in cash and cash equivalents:
Continuing operations 387.7 (2,081.2 )
Discontinued operation  

-

 

  93.8  
Net increase (decrease) in cash and cash equivalents

387.7

(1,987.4 )
 
Cash and cash equivalents:
Beginning of year   1,651.2     3,847.5  
End of year 2,038.9 1,860.1
Less cash and cash equivalents of discontinued operation at end of year       (208.9 )
Cash and cash equivalents of continuing operations at end of year $ 2,038.9   $ 1,651.2  
 
Cash paid for interest - continuing operations $ 1,562.6 $ 1,329.2
Cash paid for interest - discontinued operation   29.0     54.2  
Total $ 1,591.6   $ 1,383.4  
Net cash paid for taxes – continuing operations $ 11.8   $ 54.9  
 

Revenue and Operating Cash Flow

In the following tables, we present revenue and operating cash flow by reportable segment of our continuing operations for the three months and year ended December 31, 2012, as compared to the corresponding prior year periods. All of the reportable segments derive their revenue primarily from broadband communications services, including video, broadband internet and telephony services. Most reportable segments also provide B2B services. At December 31, 2012, our operating segments in the UPC/Unity Division provided broadband communications services in 10 European countries and direct-to-home (“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 primarily 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. Beginning in the fourth quarter of 2012, the management responsibility for certain of our operations in Switzerland was transferred to our Austrian operations and, accordingly, such operations are now reported within our Other Western Europe segment. Segment information for all periods presented has been retrospectively revised to reflect this change. We present only the reportable segments of our continuing operations in the tables below.

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