XNAS:LBTYB Liberty Global PLC Class B Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

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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, 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 May 7, 2012 was:
Series A common stock — 145,008,757 shares;
Series B common stock — 10,229,544 shares; and
Series C common stock — 114,643,110 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)
 
 
March 31,
2012
 
December 31,
2011
 
in millions
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
1,662.4

 
$
1,651.2

Restricted cash
17.0

 
86.1

Trade receivables, net
797.5

 
910.5

Deferred income taxes
173.6

 
345.2

Current assets of discontinued operation (note 2)
317.8

 
275.6

Other current assets (note 4)
436.9

 
506.5

Total current assets
3,405.2

 
3,775.1

Investments (including $1,035.3 million and $970.1 million, respectively, measured at fair value) (note 3)
1,040.7

 
975.2

Property and equipment, net (note 6)
13,293.5

 
12,868.4

Goodwill (note 6)
13,808.5

 
13,289.3

Intangible assets subject to amortization, net (note 6)
2,792.9

 
2,812.5

Long-term assets of discontinued operation (note 2)
767.2

 
770.1

Other assets, net (note 4)
1,685.6

 
1,918.6

Total assets
$
36,793.6

 
$
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)
 
 
March 31,
2012
 
December 31,
2011
 
in millions
LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
592.5

 
$
645.7

Deferred revenue and advance payments from subscribers and others
995.3

 
847.6

Current portion of debt and capital lease obligations (note 7)
215.0

 
184.1

Derivative instruments (note 4)
593.8

 
601.2

Accrued interest
325.0

 
295.4

Accrued programming
242.6

 
213.1

Current liabilities of discontinued operation (note 2)
111.8

 
114.1

Other accrued and current liabilities
1,356.8

 
1,268.6

Total current liabilities
4,432.8

 
4,169.8

Long-term debt and capital lease obligations (note 7)
24,966.3

 
24,573.8

Long-term liabilities of discontinued operation (note 2)
750.0

 
746.5

Other long-term liabilities (note 4)
3,929.6

 
3,987.7

Total liabilities
34,078.7

 
33,477.8

Commitments and contingencies (notes 4, 7 and 13)

 

Equity (note 9):
 
 
 
LGI stockholders:
 
 
 
Series A common stock, $.01 par value. Authorized 500,000,000 shares; issued and outstanding 145,054,013 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 10,229,544 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 115,956,829 and 118,470,699 shares, respectively
1.2

 
1.2

Additional paid-in capital
3,659.9

 
3,964.6

Accumulated deficit
(2,696.6
)
 
(2,671.5
)
Accumulated other comprehensive earnings, net of taxes
1,565.7

 
1,509.5

Total LGI stockholders
2,531.8

 
2,805.4

Noncontrolling interests
183.1

 
126.0

Total equity
2,714.9

 
2,931.4

Total liabilities and equity
$
36,793.6

 
$
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
 
March 31,
 
2012
 
2011
 
in millions, except per share amounts
 
 
 
 
Revenue (note 12)
$
2,537.0

 
$
2,257.9

Operating costs and expenses:
 
 
 
Operating (other than depreciation and amortization) (including stock-based compensation) (notes 10 and 12)
897.7

 
812.0

Selling, general and administrative (SG&A) (including stock-based compensation) (notes 10 and 12)
471.4

 
417.9

Depreciation and amortization
670.7

 
589.0

Impairment, restructuring and other operating charges, net (note 2)
2.9

 
6.1

 
2,042.7

 
1,825.0

Operating income
494.3

 
432.9

Non-operating income (expense):
 
 
 
Interest expense
(418.1
)
 
(347.2
)
Interest and dividend income
19.0

 
20.2

Realized and unrealized losses on derivative instruments, net (note 4)
(614.1
)
 
(10.7
)
Foreign currency transaction gains, net
479.0

 
384.2

Realized and unrealized gains (losses) due to changes in fair values of certain investments and debt, net (notes 3 and 5)
50.9

 
(93.6
)
Losses on debt modifications and extinguishments (note 7)
(6.8
)
 
(19.3
)
Other expense, net
(0.3
)
 
(3.3
)
 
(490.4
)
 
(69.7
)
Earnings from continuing operations before income taxes
3.9

 
363.2

Income tax expense (note 8)
(33.1
)
 
(28.5
)
Earnings (loss) from continuing operations
(29.2
)
 
334.7

Earnings from discontinued operation, net of taxes (note 2)
38.1

 
89.3

Net earnings
8.9

 
424.0

Net earnings attributable to noncontrolling interests
(34.0
)
 
(81.6
)
Net earnings (loss) attributable to LGI stockholders
$
(25.1
)
 
$
342.4

 
 
 
 
Basic earnings (loss) attributable to LGI stockholders per share — Series A, Series B and Series C common stock (note 11):
 
 
 
Continuing operations
$
(0.17
)
 
$
1.22

Discontinued operation
0.08

 
0.20

 
$
(0.09
)
 
$
1.42

Diluted earnings (loss) attributable to LGI stockholders per share — Series A, Series B and Series C common stock (note 11):
 
 
 
Continuing operations
$
(0.17
)
 
$
1.05

Discontinued operation
0.08

 
0.17

 
$
(0.09
)
 
$
1.22

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,
 
2012
 
2011
 
in millions
 
 
 
 
Net earnings
$
8.9

 
$
424.0

Other comprehensive earnings (loss), net of taxes:
 
 
 
Foreign currency translation adjustments
60.1

 
(124.9
)
Other

 
(2.8
)
Other comprehensive earnings (loss)
60.1

 
(127.7
)
Comprehensive earnings
69.0

 
296.3

Comprehensive earnings attributable to noncontrolling interests
(37.9
)
 
(66.5
)
Comprehensive earnings attributable to LGI stockholders
$
31.1

 
$
229.8

































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

 

 

 

 
(25.1
)
 

 
(25.1
)
 
34.0

 
8.9

Other comprehensive earnings, net of taxes

 

 

 

 

 
56.2

 
56.2

 
3.9

 
60.1

Repurchase and cancellation of LGI common stock (note 9)

 

 

 
(232.4
)
 

 

 
(232.4
)
 

 
(232.4
)
Stock-based compensation (note 10)

 

 

 
19.4

 

 

 
19.4

 

 
19.4

Telenet Share Repurchase Agreement (note 9)

 

 

 
(68.3
)
 

 

 
(68.3
)
 
2.5

 
(65.8
)
Distributions by subsidiaries to noncontrolling interest owners (note 9)

 

 

 

 

 

 

 
(16.0
)
 
(16.0
)
Adjustments due to changes in subsidiaries’ equity and other, net

 

 

 
(23.4
)
 

 

 
(23.4
)
 
32.7

 
9.3

Balance at March 31, 2012
$
1.5

 
$
0.1

 
$
1.2

 
$
3,659.9

 
$
(2,696.6
)
 
$
1,565.7

 
$
2,531.8

 
$
183.1

 
$
2,714.9










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

5


LIBERTY GLOBAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 
 
Three months ended
 
March 31,
 
2012
 
2011
 
in millions
Cash flows from operating activities:
 
 
 
Net earnings
$
8.9

 
$
424.0

Earnings from discontinued operation
(38.1
)
 
(89.3
)
Earnings (loss) from continuing operations
(29.2
)
 
334.7

Adjustments to reconcile earnings (loss) from continuing operations to net cash provided by operating activities:
 
 
 
Stock-based compensation expense
27.7

 
33.9

Depreciation and amortization
670.7

 
589.0

Impairment, restructuring and other operating charges, net
2.9

 
6.1

Amortization of deferred financing costs and non-cash interest accretion
16.0

 
24.1

Realized and unrealized losses on derivative instruments, net
614.1

 
10.7

Foreign currency transaction gains, net
(479.0
)
 
(384.2
)
Realized and unrealized losses (gains) due to changes in fair values of certain investments and debt, net of dividends
(50.9
)
 
95.3

Losses on debt modifications and extinguishments
6.8

 
19.3

Deferred income tax expense
132.3

 
28.1

Excess tax benefits from stock-based compensation
(0.5
)
 
(20.2
)
Changes in operating assets and liabilities, net of the effects of acquisitions and dispositions
(156.1
)
 
(42.4
)
Net cash provided by operating activities of discontinued operation
51.0

 
40.5

Net cash provided by operating activities
805.8

 
734.9

Cash flows from investing activities:
 
 
 
Capital expenditures
(521.3
)
 
(489.6
)
Cash paid in connection with acquisitions, net of cash acquired
(32.3
)
 
(50.7
)
Increase in KBW Escrow Account

 
(1,649.3
)
Other investing activities, net
11.9

 
16.9

Net cash provided (used) by investing activities of discontinued operation
(24.3
)
 
101.1

Net cash used by investing activities
$
(566.0
)
 
$
(2,071.6
)
 











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,
 
2012
 
2011
 
in millions
Cash flows from financing activities:
 
 
 
Repayments and repurchases of debt and capital lease obligations
$
(1,106.4
)
 
$
(2,547.7
)
Borrowings of debt
1,054.6

 
2,929.4

Repurchase of LGI common stock
(230.5
)
 
(202.5
)
Change in cash collateral
64.0

 

Payment of financing costs and debt premiums
(20.0
)
 
(17.7
)
Payment of net settled employee withholding taxes on stock incentive awards
(6.6
)
 
(28.3
)
Excess tax benefits from stock-based compensation
0.5

 
20.2

Other financing activities, net
(0.3
)
 
0.6

Net cash used by financing activities of discontinued operation

 
(24.0
)
Net cash provided (used) by financing activities
(244.7
)
 
130.0

Effect of exchange rate changes on cash:
 
 
 
Continuing operations
42.5

 
142.2

Discontinued operation
2.0

 
4.1

Total
44.5

 
146.3

Net increase (decrease) in cash and cash equivalents:
 
 
 
Continuing operations
10.9

 
(1,182.1
)
Discontinued operation
28.7

 
121.7

Net increase (decrease) in cash and cash equivalents
39.6

 
(1,060.4
)
Cash and cash equivalents:
 
 
 
Beginning of period
1,860.1

 
3,847.5

End of period
1,899.7

 
2,787.1

Less cash and cash equivalents of discontinued operation at period end
(237.3
)
 

Cash and cash equivalents of continuing operations at period end
$
1,662.4

 
$
2,787.1

Cash paid for interest:
 
 
 
Continuing operations
$
377.8

 
$
246.0

Discontinued operation
12.5

 
14.6

Total
$
390.3

 
$
260.6

Net cash paid (refunded) for taxes - continuing operations
$
(1.7
)
 
$
14.4









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, 2012
(unaudited)



(1)    Basis of Presentation

Liberty Global, Inc. (LGI) is an international provider of video, broadband internet and telephony services, with continuing consolidated broadband communications and/or direct-to-home satellite (DTH) operations at March 31, 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 DTH operations of UPC Holding and the broadband communications operations in Germany of Unitymedia GmbH (Unitymedia) and Kabel BW GmbH (KBW), both of which are wholly-owned subsidiaries of Liberty Global Europe, are collectively referred to as the "UPC Broadband Division." UPC Holding's broadband communications operations in Chile are provided through its 80%-owned subsidiary, VTR Global Com SA (VTR). Through our 80%-owned subsidiary, VTR Wireless SA (VTR Wireless), we are undertaking the launch of 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 50.4%-owned subsidiary, Telenet Group Holding NV (Telenet), we provide video, broadband internet and telephony services in Belgium. Our continuing operations also include (i) consolidated broadband communications operations in Puerto Rico and (ii) consolidated interests in certain programming businesses in Europe and Argentina. Our consolidated programming interests in Europe 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.

Through our 54.15%-owned subsidiary, Austar United Communications Limited (Austar), we provide DTH services in Australia. Effective December 31, 2011, we began reporting Austar as a discontinued operation. Accordingly, Austar is reflected as a discontinued operation in our condensed consolidated balance sheets and 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 pending 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 March 31, 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)
March 31, 2012
(unaudited)



(2)    Acquisitions, Disposition and Discontinued Operation

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 with Oskar Rakso S.àr.l. (Oskar Rakso) as the seller (the KBW Acquisition). KBW Musketeer was the indirect parent company of 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 15). In May 2012, we completed certain reorganization, debt exchange and debt redemption transactions that resulted in the immediate parent company of UPC Germany HC1 becoming part of the Unitymedia consolidated borrowing group. For additional information, see note 15.

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 digital free-to-air television channels (as opposed to channels marketed in premium subscription packages) distributed on the networks of Unitymedia and KBW will be distributed in unencrypted form commencing January 1, 2013.  This commitment is consistent with KBW's current practice 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 received by Unitymedia and KBW 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 respective current rate card systems of Unitymedia and KBW as of January 1, 2012;

(b)
Effective January 1, 2012, Unitymedia and KBW waived their exclusivity rights in access agreements with housing associations with respect to the usage of infrastructures other than the in-building distribution networks of Unitymedia and KBW 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 or KBW, as applicable, will transfer the ownership rights to the in-building distribution network to the building owner or other party granting access. In addition, Unitymedia and KBW have waived their right to remove their in-building distribution networks; and

(d)
A special early termination right was granted with respect to certain of Unitymedia's and KBW'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, of which approximately 230,000 and 110,000 were located in the footprints of Unitymedia and KBW, respectively.  The special termination right may be exercised on or before September 30 of each calendar 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 or KBW, as applicable, for their unamortized investments in modernizing the in-building network based on an agreed formula. 

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 currently intend to support the FCO in defending the decision. In addition, we do not expect that the filing

9


LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
March 31, 2012
(unaudited)



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.

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 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 long-lived assets, goodwill and income taxes.

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

Pro Forma Information

The following unaudited pro forma condensed operating results for the three months ended March 31, 2011 give effect to (i) the KBW Acquisition and (ii) the Aster Acquisition, as if they had been completed as of January 1, 2010. 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
 
March 31, 2011
 
in millions, except per share amounts
Revenue:
 
Continuing operations
$
2,494.3

Discontinued operation
174.4

Total
$
2,668.7

Net earnings attributable to LGI stockholders
$
347.5

Earnings attributable to LGI stockholders per share — Series A, Series B and Series C common stock:
 
Basic
$
1.44

Diluted
$
1.24


Disposition

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 three months ended March 31, 2011.

Discontinued Operation

Austar. On July 11, 2011, our company and Austar entered into agreements with certain third parties (collectively, FOXTEL) pursuant to which FOXTEL would 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). The sales price under the transaction is AUD 1.52 ($1.58) in cash per share, which represents a total

10


LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
March 31, 2012
(unaudited)



equity sales price of AUD 1,932.7 million ($2,005.6 million) for a 100% interest in Austar (based on Austar ordinary shares outstanding at March 31, 2012) or AUD 1,046.5 million ($1,086.0 million) for our 54.15% interest in Austar.

The material conditions precedent to the closing of the Austar Transaction included (i) regulatory approvals regarding (a) competition, which approval was granted in April 2012 by the Australian Competition Authority and (b) foreign investment matters, which approval was received in December 2011, (ii) an independent expert's determination that the Austar Transaction is in the best interests of Austar's noncontrolling shareholders, which determination was received in December 2011, (iii) our receipt of a private letter ruling from the Internal Revenue Service confirming our intended treatment of the transaction, which ruling we received in November 2011, and (iv) approval by a majority in number of the voting noncontrolling shareholders who represent at least 75% of the votes cast by noncontrolling shareholders, which approval was received at the Austar shareholder meeting that was held on March 30, 2012.

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. It is currently expected that FOXTEL's acquisition of 100% of Austar from LGI Austar Holdco for AUD 1.52 ($1.58) per share will occur by the end of May 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.

The summarized financial position of Austar as of March 31, 2012 and December 31, 2011 is as follows:
 
March 31,
2012
 
December 31,
2011
 
in millions
 
 
 
 
Cash and cash equivalents
$
237.3

 
$
208.9

Other current assets
80.5

 
66.7

Investments
62.6

 
61.9

Property and equipment, net
243.5

 
216.7

Goodwill
334.4

 
332.7

Other assets
126.7

 
158.8

Total assets
$
1,085.0

 
$
1,045.7

 
 
 
 
Current liabilities
$
111.8

 
$
114.1

Long-term debt and capital lease obligations
702.1

 
693.8

Other long-term liabilities
47.9

 
52.7

Total liabilities
861.8

 
860.6

Total equity
223.2

 
185.1

Total liabilities and equity
$
1,085.0

 
$
1,045.7



11


LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
March 31, 2012
(unaudited)



The operating results of Austar, which are classified as a discontinued operation in our condensed consolidated statements of operations, are summarized in the following table:
 
Three months ended
 
March 31,
 
2012
 
2011
 
in millions
 
 
 
 
Revenue
$
187.2

 
$
174.4

Operating income
$
65.0

 
$
144.7

Earnings before income taxes and noncontrolling interests
$
54.0

 
$
126.5

Income tax expense
$
15.9

 
$
37.2

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

 
$
48.6

 
(3)    Investments

The details of our investments are set forth below:
 
Accounting Method
 
March 31,
2012
 
December 31,
2011
 
in millions
Fair value:
 
 
 
Sumitomo (a)
$
660.7

 
$
617.9

Other (b)
374.6

 
352.2

Total - fair value
1,035.3

 
970.1

Equity
4.8

 
4.5

Cost
0.6

 
0.6

Total
$
1,040.7

 
$
975.2

_______________ 

(a)
At March 31, 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 March 31, 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.


(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 Australian dollar (AUD). With the exception of certain of Austar's interest rate swaps, 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.


12


LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
March 31, 2012
(unaudited)



The following table provides details of the fair values of our derivative instrument assets and liabilities:
 
 
March 31, 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)
$
69.4

 
$
384.6

 
$
454.0

 
$
155.8

 
$
544.4

 
$
700.2

Equity-related derivative contracts (c)

 
556.4

 
556.4

 

 
684.6

 
684.6

Foreign currency forward contracts
1.1

 

 
1.1

 
4.5

 
0.3

 
4.8

Other
1.8

 
2.5

 
4.3

 
1.7

 
2.1

 
3.8

Total
$
72.3

 
$
943.5

 
$
1,015.8

 
$
162.0

 
$
1,231.4

 
$
1,393.4

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Cross-currency and interest rate derivative contracts (b)
$
569.9

 
$
1,742.1

 
$
2,312.0

 
$
576.6

 
$
1,705.0

 
$
2,281.6

Equity-related derivative contracts (c)
21.6

 

 
21.6

 
23.3

 

 
23.3

Foreign currency forward contracts
1.5

 
13.4

 
14.9

 
0.1

 
2.7

 
2.8

Other
0.8

 
1.2

 
2.0

 
1.2

 
1.8

 
3.0

Total
$
593.8

 
$
1,756.7

 
$
2,350.5

 
$
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 March 31, 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 $30.9 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 $255.2 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 a net gain (loss) of $22.3 million and ($25.2 million) during the three months ended March 31, 2012 and 2011, respectively. These amounts are included in realized and unrealized 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 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.


13


LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
March 31, 2012
(unaudited)



The details of our realized and unrealized losses on derivative instruments, net, are as follows:
 
Three months ended
 
March 31,
 
2012
 
2011
 
in millions
 
 
 
 
Continuing operations:
 
 
 
Cross-currency and interest rate derivative contracts
$
(479.1
)
 
$
73.0

Equity-related derivative contracts (a)
(126.5
)
 
(79.2
)
Foreign currency forward contracts
(10.4
)
 
(3.1
)
Other
1.9

 
(1.4
)
Total — continuing operations
$
(614.1
)
 
$
(10.7
)
Discontinued operation
$
3.7

 
$
2.2

_______________ 

(a) Includes 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 inflows (outflows) are as follows: 

 
Three months ended
 
March 31,
 
2012
 
2011
 
in millions
Continuing operations:
 
 
 
Operating activities
$
(244.8
)
 
$
(258.9
)
Financing activities
(3.8
)
 
0.8

Total — continuing operations
$
(248.6
)
 
$
(258.1
)
Discontinued operation
$
(3.2
)
 
$
(2.5
)

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, 2012, our exposure to credit risk included derivative assets with a fair value of $459.4 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 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.

14


LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
March 31, 2012
(unaudited)



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.

Cross-currency and Interest Rate Derivative Contracts

Cross-currency Swaps:

The terms of our outstanding cross-currency swap contracts at March 31, 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%
September 2012
 
83.1

 
CHF
129.0

 
6 mo. EURIBOR + 2.50%
 
6 mo. CHF LIBOR + 2.46%
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%

15


LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
March 31, 2012
(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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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:
 
 
 
 
 
 
 
 
 
December 2017
 
$
623.2

 
419.9

 
8.13%
 
8.49%
November 2017
 
$
221.8

 
149.5

 
8.13%
 
8.51%
KBW:
 
 
 
 
 
 
 
 
 
March 2019
 
$
500.0

 
355.4

 
7.50%
 
7.98%
Chellomedia Programming Financing Holdco BV (Chellomedia PFH), a subsidiary of Chellomedia:
 
 
 
 
 
 
 
 
 
July 2013
 
$
32.5

 
HUF
8,632.0

 
5.50%
 
9.55%
December 2013
 
$
14.7

 
PLN
50.0

 
3.50%
 
5.56%
December 2013
 
19.4

 
CZK
517.0

 
3.50%
 
4.49%
___________ 

(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, 2012, we present a single date that represents the applicable final maturity date.  For derivative instruments that become effective subsequent to March 31, 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.


16


LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
March 31, 2012
(unaudited)



Cross-currency Interest Rate Swaps:

The terms of our outstanding cross-currency interest rate swap contracts at March 31, 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
 
$
244.1

 
179.3

 
6 mo. LIBOR +  3.50%
 
7.24%
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
 
$
254.0

 
RON
616.8

 
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
 
$
451.3

 
CLP
249,766.9

 
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, 2012, we present a single date that represents the applicable final maturity date.  For derivative instruments that become effective subsequent to March 31, 2012, we present a range of dates that represents the period covered by the applicable derivative instrument.


17


LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
March 31, 2012
(unaudited)



Interest Rate Swaps:

The terms of our outstanding interest rate swap contracts at March 31, 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
 
$
1,543.0

 
1 mo. LIBOR +  3.20%
 
6 mo. LIBOR +  3.00%
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
 
2,720.0

 
1 mo. EURIBOR +  3.60%
 
6 mo. EURIBOR +  3.13%
December 2014
 
1,681.8

 
6 mo. EURIBOR
 
4.65%
July 2020
 
750.0

 
6.38%
 
6 mo. EURIBOR +  3.16%
April 2012
 
555.0

 
6 mo. EURIBOR
 
3.32%
January 2015 - December 2016
 
500.0

 
6 mo. EURIBOR
 
4.32%
April 2012 - July 2014
 
337.0

 
6 mo. EURIBOR
 
3.94%
April 2012 - December 2015
 
263.3

 
6 mo. EURIBOR
 
3.97%
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%
December 2013
 
90.5

 
6 mo. EURIBOR
 
3.84%
March 2013
 
75.4

 
6 mo. EURIBOR
 
4.24%
December 2014
 
CHF
1,668.5

 
6 mo. CHF LIBOR
 
3.50%
September 2012
 
CHF
711.5

 
6 mo. CHF LIBOR
 
2.33%
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
73,800.0

 
6.77%
 
6 mo. TAB
July 2013
 
HUF
5,908.8

 
6 mo. BUBOR
 
8.52%
July 2013
 
PLN
115.1

 
6 mo. WIBOR
 
5.41%
KBW:
 



 

 
 
March 2013
 
140.0

 
3 mo. EURIBOR
 
2.60%
March 2014
 
140.0

 
3 mo. EURIBOR
 
2.60%
March 2015
 
140.0

 
3 mo. EURIBOR
 
2.60%
Telenet International Finance S.àr.l. (Telenet International):
 
 
 
 
 
 
 
July 2017 - July 2019
 
600.0

 
3 mo. EURIBOR
 
3.29%
September 2012
 
350.0

 
3 mo. EURIBOR
 
4.35%
August 2015
 
350.0

 
3 mo. EURIBOR
 
3.54%
May 2012
 
325.0

 
1 mo. EURIBOR + 0.25%
 
3 mo. EURIBOR - 0.07%
August 2015 - December 2018
 
305.0

 
3 mo. EURIBOR
 
2.46%

18


LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
March 31, 2012
(unaudited)



Subsidiary / Final maturity date (a)
 
Notional amount
 
Interest rate due from
counterparty
 
Interest rate due to
counterparty
 
 
in millions
 
 
 
 
 
 
 
 
 
 
 
 
June 2012
 
275.0

 
1 mo. EURIBOR + 0.33%
 
3 mo. EURIBOR
November 2012
 
250.0

 
1 mo. EURIBOR + 0.30%
 
3 mo. EURIBOR
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 2012
 
100.0

 
1 mo. EURIBOR + 0.42%
 
3 mo. EURIBOR
July 2017 - December 2018
 
70.0

 
3 mo. EURIBOR
 
3.00%
September 2012 - June 2021
 
55.0

 
3 mo. EURIBOR
 
2.29%
June 2012 - 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
73,800.0

 
6 mo. TAB
 
7.78%
Liberty Cablevision of Puerto Rico Ltd. (Liberty Puerto Rico), a subsidiary of LGI:
 
 
 
 
 
 
 
June 2014
 
$
162.1

 
3 mo. LIBOR
 
5.14%
Chellomedia PFH:
 
 
 
 
 
 
 
December 2013
 
$
85.5

 
6 mo. LIBOR
 
4.98%
December 2013
 
148.8

 
6 mo. EURIBOR
 
4.14%
Austar Entertainment Pty Ltd. (Austar Entertainment), a subsidiary of Austar (b):
 
 
 
 
 
 
 
August 2013
 
AUD
500.0

 
3 mo. AUD BBSY + 0.05%
 
6.56%
August 2013 — December 2015 (c)
 
AUD
386.5

 
3 mo. AUD BBSY
 
6.09%
August 2014 (c)
 
AUD
175.9

 
3 mo. AUD BBSY
 
6.50%
August 2014 — December 2015 (c)
 
AUD
175.9

 
3 mo. AUD BBSY
 
6.25%
_______________

(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, 2012, we present a single date that represents the applicable final maturity date.  For derivative instruments that become effective subsequent to March 31, 2012, we present a range of dates that represents the period covered by the applicable derivative instrument.

(b)
As further described in note 2, we have accounted for Austar as a discontinued operation.

(c)
Austar accounts for these interest rate swaps as cash flow hedges. As of March 31, 2012, the fair value of these derivative instruments was a liability of $28.4 million, and the related balance included in our accumulated other comprehensive earnings was a loss of $19.5 million.


19


LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
March 31, 2012
(unaudited)



Interest Rate Caps

Our interest rate cap contracts establish the maximum EURIBOR rate payable on the indicated notional amount, as detailed below:
 
 
March 31, 2012
Subsidiary / Final maturity date (a)
 
Notional amount
 
Maximum rate
 
 
in millions
 
 
Liberty Global Europe Financing BV (LGE Financing), the immediate parent of UPC Holding:
 
 
 
January 2015 - January 2020
1,135.0

 
7.00%
Telenet International:
 
 
 
 
June 2012
50.0

 
3.50%
June 2015 - June 2017
50.0

 
4.50%
Telenet NV, a subsidiary of Telenet:
 
 
 
December 2017
2.8

 
6.50%
December 2017
2.8

 
5.50%
 _______________

(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, 2012, we present a single date that represents the applicable final maturity date. For derivative instruments that become effective subsequent to March 31, 2012, we present a range of dates that represents the period covered by the applicable derivative instrument.

Telenet Interest Rate Collars

Telenet's interest rate collar contracts establish the minimum and maximum EURIBOR rate payable on the indicated notional amount, as detailed below:
 
 
March 31, 2012
Subsidiary / Final maturity date
 
Notional
amount
 
Minimum
rate
 
Maximum
rate
 
 
in millions
 
 
 
 
Telenet International:
 
 
 
 
 
 
July 2017 (a)
950.0

 
1.50%
 
4.00%
 _______________

(a)
Includes four derivative instruments that mature in July 2017.


20


LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
March 31, 2012
(unaudited)



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
 
March 31, 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 March 31, 2012
Subsidiary
 
Currency
purchased
forward
 
Currency
sold
forward
 
Maturity dates
 
 
in millions
 
 
 
 
 
 
 
 
 
 
 
LGE Financing
$
14.0

 
10.1

 
April 2012 - April 2013
UPC Holding
$
479.0

 
CHF
415.1

 
October 2016 - April 2018
UPC Broadband Holding
70.2

 
CHF
84.5

 
April 2012 - March 2013
UPC Broadband Holding
6.0

 
CZK
150.6

 
April 2012 - March 2013
UPC Broadband Holding
14.2

 
HUF
4,250.0

 
April 2012 - January 2013
UPC Broadband Holding
25.7

 
PLN
109.7

 
April 2012 - March 2013
UPC Broadband Holding
CHF
102.6

 
85.1

 
April 2012
UPC Broadband Holding
CZK
327.5

 
13.2

 
April 2012
UPC Broadband Holding
HUF
3,200.0

 
10.8

 
May 2012
UPC Broadband Holding
PLN
89.0

 
21.3

 
April 2012
UPC Broadband Holding
RON
26.5

 
6.0

 
April 2012
Telenet NV
$
23.0

 
17.0

 
April 2012 - December 2012
VTR
$
35.0

 
CLP
17,674.7

 
April 2012 - March 2013

Subsequent to March 31, 2012, we entered into foreign currency forward contracts to hedge the proceeds to be received by our company upon the completion of the Austar Transaction. These forward contracts, which settle on May 24, 2012, provide for the forward sale of AUD 1,046.5 million and the forward purchase of $500.0 million and €436.6 million ($582.1 million). For information concerning the Austar Transaction, 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, 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

21


LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
March 31, 2012
(unaudited)



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, 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 March 31, 2012 valuation of the Sumitomo Collar, we used estimated volatilities of 47.2% with respect to our purchased put options and 50.2% with respect to our written call options. Based on the March 31, 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 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

22


LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements — (Continued)
March 31, 2012
(unaudited)



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 did not perform significant nonrecurring fair value measurements during the three months ended March 31, 2012 or 2011.

A summary of the assets and liabilities that are measured at fair value on a recurring basis is as follows: 
 
 
 
Fair value measurements at  March 31, 2012 using:
Description
March 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
$
454.0

 
$

 
$
454.0

 
$

Equity-related derivative instruments
556.4

 

 

 
556.4

Foreign currency forward contracts
1.1

 

 
1.1

 

Other
4.3

 

 
4.3

 

Total derivative instruments
1,015.8

 

 
459.4

 
556.4

Investments
1,035.3

 
660.7

 

 
374.6

Total assets
$
2,051.1

 
$
660.7

 
$
459.4

 
$
931.0

 
 
 
 
 
 
 
 
Liabilities - derivative instruments:
 
 
 
 
 
 
 
Cross-currency and interest rate derivative contracts
$
2,312.0

 
$

 
$
2,312.0

 
$

Equity-related derivative instruments
21.6

 

 

 
21.6

Foreign currency forward contracts
14.9

 

 
14.9

 

Other
2.0

 

 
2.0

 

Total liabilities
$
2,350.5

 
$

 
$
2,328.9

 
$
21.6

 

23


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