XNAS:LBTYB Liberty Global PLC Class B Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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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 June 30, 2012
OR
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                     to                    
Commission file number 000-51360
Liberty Global, Inc.
(Exact name of Registrant as specified in its charter)
State of Delaware
 
20-2197030
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
12300 Liberty Boulevard
Englewood, Colorado
 
80112
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code:
(303) 220-6600
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ         No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  þ        No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer  þ Accelerated Filer ¨  
Non-Accelerated Filer (Do not check if a smaller reporting company) ¨  Smaller Reporting Company  ¨
Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act.    Yes  ¨        No  þ
The number of outstanding shares of Liberty Global, Inc.’s common stock as of July 27, 2012 was:
Series A common stock — 144,488,250 shares;
Series B common stock — 10,206,645 shares; and
Series C common stock — 111,420,518 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)
 
 
June 30,
2012
 
December 31,
2011
 
in millions
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
1,908.8

 
$
1,651.2

Restricted cash
11.8

 
86.1

Trade receivables, net
757.7

 
910.5

Deferred income taxes
136.7

 
345.2

Current assets of discontinued operation (note 2)

 
275.6

Other current assets (note 4)
369.0

 
506.5

Total current assets
3,184.0

 
3,775.1

Investments (including $979.6 million and $970.1 million, respectively, measured at fair value) (notes 3 and 5)
984.9

 
975.2

Property and equipment, net (note 6)
12,700.9

 
12,868.4

Goodwill (note 6)
13,106.5

 
13,289.3

Intangible assets subject to amortization, net (note 6)
2,536.7

 
2,812.5

Long-term assets of discontinued operation (note 2)

 
770.1

Other assets, net (note 4)
1,922.7

 
1,918.6

Total assets
$
34,435.7

 
$
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)
 
 
June 30,
2012
 
December 31,
2011
 
in millions
LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
574.3

 
$
645.7

Deferred revenue and advance payments from subscribers and others
787.0

 
847.6

Accrued programming
234.4

 
213.1

Accrued interest
306.8

 
295.4

Derivative instruments (note 4)
563.9

 
601.2

Current portion of debt and capital lease obligations (note 7)
251.0

 
184.1

Current liabilities of discontinued operation (note 2)

 
114.1

Other accrued and current liabilities
1,461.7

 
1,268.6

Total current liabilities
4,179.1

 
4,169.8

Long-term debt and capital lease obligations (note 7)
23,659.2

 
24,573.8

Long-term liabilities of discontinued operation (note 2)

 
746.5

Other long-term liabilities (note 4)
3,729.5

 
3,987.7

Total liabilities
31,567.8

 
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 144,477,165 and 146,266,629 shares, respectively
1.4

 
1.5

Series B common stock, $.01 par value. Authorized 50,000,000 shares; issued and outstanding 10,213,773 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 112,651,196 and 118,470,699 shares, respectively
1.1

 
1.2

Additional paid-in capital
3,495.0

 
3,964.6

Accumulated deficit
(1,995.0
)
 
(2,671.5
)
Accumulated other comprehensive earnings, net of taxes
1,588.8

 
1,509.5

Total LGI stockholders
3,091.4

 
2,805.4

Noncontrolling interests
(223.5
)
 
126.0

Total equity
2,867.9

 
2,931.4

Total liabilities and equity
$
34,435.7

 
$
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
 
Six months ended
 
June 30,
 
June 30,
 
2012
 
2011
 
2012
 
2011
 
in millions, except share and per share amounts
 
 
 
 
 
 
 
 
Revenue (note 12)
$
2,524.5

 
$
2,429.6

 
$
5,061.5

 
$
4,687.5

Operating costs and expenses:
 
 
 
 
 
 
 
Operating (other than depreciation and amortization) (including stock-based compensation) (notes 10 and 12)
887.3

 
856.0

 
1,785.0

 
1,668.0

Selling, general and administrative (SG&A) (including stock-based compensation) (notes 10 and 12)
477.9

 
454.9

 
949.3

 
872.8

Depreciation and amortization
668.7

 
620.0

 
1,339.4

 
1,209.0

Impairment, restructuring and other operating items, net (note 2)
11.6

 
4.5

 
14.5

 
10.6

 
2,045.5

 
1,935.4

 
4,088.2

 
3,760.4

Operating income
479.0

 
494.2

 
973.3

 
927.1

Non-operating income (expense):
 
 
 
 
 
 
 
Interest expense
(402.1
)
 
(375.4
)
 
(820.2
)
 
(722.6
)
Interest and dividend income
1.9

 
13.8

 
20.9

 
34.0

Realized and unrealized gains (losses) on derivative instruments, net (note 4)
237.4

 
(448.4
)
 
(376.7
)
 
(459.1
)
Foreign currency transaction gains (losses), net
(474.4
)
 
205.0

 
4.6

 
589.2

Realized and unrealized gains (losses) due to changes in fair values of certain investments and debt, net (notes 3 and 5)
(34.1
)
 
(48.9
)
 
16.8

 
(142.5
)
Losses on debt modification, extinguishment and conversion, net (note 7)
(6.9
)
 
(187.1
)
 
(13.7
)
 
(206.4
)
Other expense, net
(3.7
)
 
(1.9
)
 
(4.0
)
 
(5.2
)
 
(681.9
)
 
(842.9
)
 
(1,172.3
)
 
(912.6
)
Earnings (loss) from continuing operations before income taxes
(202.9
)
 
(348.7
)
 
(199.0
)
 
14.5

Income tax benefit (expense) (note 8)
(11.8
)
 
1.5

 
(44.9
)
 
(27.0
)
Loss from continuing operations
(214.7
)
 
(347.2
)
 
(243.9
)
 
(12.5
)
Discontinued operation (note 2):
 
 
 
 
 
 
 
Earnings (loss) from discontinued operation, net of taxes
(2.6
)
 
16.5

 
35.5

 
105.8

Gain on disposal of discontinued operation, net of taxes
924.1

 

 
924.1

 

 
921.5

 
16.5

 
959.6

 
105.8

Net earnings (loss)
706.8

 
(330.7
)
 
715.7

 
93.3

Net earnings attributable to noncontrolling interests
(5.2
)
 
(16.3
)
 
(39.2
)
 
(97.9
)
Net earnings (loss) attributable to LGI stockholders
$
701.6

 
$
(347.0
)
 
$
676.5

 
$
(4.6
)
 
 
 
 
 
 
 
 
Basic and diluted earnings (loss) attributable to LGI stockholders per share — Series A, Series B and Series C common stock (note 11):
 
 
 
 
 
 
 
Continuing operations
$
(0.81
)
 
$
(1.41
)
 
$
(0.97
)
 
$
(0.25
)
Discontinued operation
3.41

 
0.04

 
3.46

 
0.23

 
$
2.60

 
$
(1.37
)
 
$
2.49

 
$
(0.02
)
 
 
 
 
 
 
 
 
Weighted average common shares outstanding - basic and diluted
269,398,368

 
254,181,622

 
271,186,138

 
248,074,298

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

3


LIBERTY GLOBAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS)
(unaudited)
 
 
Three months ended
 
Six months ended
 
June 30,
 
June 30,
 
2012
 
2011
 
2012
 
2011
 
in millions
 
 
 
 
 
 
 
 
Net earnings (loss)
$
706.8

 
$
(330.7
)
 
$
715.7

 
$
93.3

Other comprehensive earnings, net of taxes:
 
 
 
 
 
 
 
Foreign currency translation adjustments
32.5

 
254.5

 
92.6

 
129.6

Reclassification adjustments included in net earnings (note 2)
(12.0
)
 

 
(12.0
)
 

Other
0.4

 
(3.3
)
 
0.4

 
(6.1
)
Other comprehensive earnings
20.9

 
251.2

 
81.0

 
123.5

Comprehensive earnings (loss)
727.7

 
(79.5
)
 
796.7

 
216.8

Comprehensive earnings attributable to noncontrolling interests
(3.0
)
 
(13.0
)
 
(40.9
)
 
(79.5
)
Comprehensive earnings (loss) attributable to LGI stockholders
$
724.7

 
$
(92.5
)
 
$
755.8

 
$
137.3
































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

 

 

 

 
676.5

 

 
676.5

 
39.2

 
715.7

Other comprehensive earnings, net of taxes

 

 

 

 

 
79.3

 
79.3

 
1.7

 
81.0

Repurchase and cancellation of LGI common stock (note 9)
(0.1
)
 

 
(0.1
)
 
(434.0
)
 

 

 
(434.2
)
 

 
(434.2
)
Stock-based compensation (note 10)

 

 

 
38.1

 

 

 
38.1

 

 
38.1

Telenet Share Repurchase Agreement (note 9)

 

 

 
(68.3
)
 

 

 
(68.3
)
 
2.5

 
(65.8
)
Sale of Austar (note 2)

 

 

 

 

 

 

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

 

 

 

 

 

 

 
(338.8
)
 
(338.8
)
Adjustments due to changes in subsidiaries’ equity and other, net

 

 

 
(5.4
)
 

 

 
(5.4
)
 
30.3

 
24.9

Balance at June 30, 2012
$
1.4

 
$
0.1

 
$
1.1

 
$
3,495.0

 
$
(1,995.0
)
 
$
1,588.8

 
$
3,091.4

 
$
(223.5
)
 
$
2,867.9










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

5


LIBERTY GLOBAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 
 
Six months ended
 
June 30,
 
2012
 
2011
 
in millions
Cash flows from operating activities:
 
 
 
Net earnings
$
715.7

 
$
93.3

Earnings from discontinued operation
(959.6
)
 
(105.8
)
Loss from continuing operations
(243.9
)
 
(12.5
)
Adjustments to reconcile loss from continuing operations to net cash provided by operating activities:
 
 
 
Stock-based compensation expense
63.3

 
72.8

Depreciation and amortization
1,339.4

 
1,209.0

Impairment, restructuring and other operating items, net
14.5

 
10.6

Amortization of deferred financing costs and non-cash interest accretion
32.1

 
48.5

Realized and unrealized losses on derivative instruments, net
376.7

 
459.1

Foreign currency transaction gains, net
(4.6
)
 
(589.2
)
Realized and unrealized losses (gains) due to changes in fair values of certain investments and debt, net of dividends
(11.2
)
 
152.1

Losses on debt modification, extinguishment and conversion, net
13.7

 
206.4

Deferred income tax expense
122.4

 
77.6

Excess tax benefits from stock-based compensation
(10.0
)
 
(23.1
)
Changes in operating assets and liabilities, net of the effects of acquisitions and dispositions
(298.7
)
 
(325.4
)
Net cash provided by operating activities of discontinued operation
61.2

 
83.6

Net cash provided by operating activities
1,454.9

 
1,369.5

Cash flows from investing activities:
 
 
 
Proceeds received upon disposition of discontinued operation
1,055.6

 

Capital expenditures
(994.1
)
 
(966.9
)
Cash paid in connection with acquisitions, net of cash acquired
(48.7
)
 
(65.9
)
Increase in escrow account

 
(1,649.3
)
Decrease in escrow account

 
143.0

Other investing activities, net
7.4

 
10.4

Net cash provided (used) by investing activities of discontinued operation
(260.6
)
 
69.0

Net cash used by investing activities
$
(240.4
)
 
$
(2,459.7
)
 










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)
 
 
Six months ended
 
June 30,
 
2012
 
2011
 
in millions
Cash flows from financing activities:
 
 
 
Repayments and repurchases of debt and capital lease obligations
$
(1,858.5
)
 
$
(2,556.0
)
Borrowings of debt
1,311.9

 
3,612.5

Repurchase of LGI common stock
(428.1
)
 
(353.5
)
Distributions by subsidiaries to noncontrolling interests
(84.9
)
 
(2.4
)
Change in cash collateral
64.0

 

Payment of financing costs, debt premiums and exchange offer consideration
(29.2
)
 
(216.5
)
Payment of net settled employee withholding taxes on stock incentive awards
(28.4
)
 
(65.3
)
Excess tax benefits from stock-based compensation
10.0

 
23.1

Net cash paid related to derivative instruments
(64.9
)
 
(3.7
)
Other financing activities, net
(36.3
)
 
27.4

Net cash used by financing activities of discontinued operation

 
(50.5
)
Net cash provided (used) by financing activities
(1,144.4
)
 
415.1

Effect of exchange rate changes on cash:
 
 
 
Continuing operations
(11.9
)
 
212.1

Discontinued operation
(9.5
)
 
12.0

Total
(21.4
)
 
224.1

Net increase (decrease) in cash and cash equivalents:
 
 
 
Continuing operations
257.6

 
(565.1
)
Discontinued operation
(208.9
)
 
114.1

Net increase (decrease) in cash and cash equivalents
48.7

 
(451.0
)
Cash and cash equivalents:
 
 
 
Beginning of period
1,651.2

 
3,847.5

End of period
$
1,908.8

 
$
3,396.5

 
 
 
 
Cash paid for interest:
 
 
 
Continuing operations
$
771.3

 
$
662.3

Discontinued operation
29.0

 
28.2

Total
$
800.3

 
$
690.5

Net cash paid (refunded) for taxes - continuing operations
$
(12.4
)
 
$
21.1








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

7



LIBERTY GLOBAL, INC.
Notes to Condensed Consolidated Financial Statements
June 30, 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 June 30, 2012 in 13 countries, primarily in Europe and Chile. In these notes, the terms “we,” “our,” “our company,” and “us” may refer, as the context requires, to LGI or collectively to LGI and its subsidiaries.

Our European and Chilean operations are conducted through our wholly-owned subsidiary, Liberty Global Europe Holding BV (Liberty Global Europe). Through Liberty Global Europe's wholly-owned subsidiary, UPC Holding BV (UPC Holding), we provide video, broadband internet and telephony services in nine European countries and in Chile. The European broadband communications and DTH operations of UPC Holding and the broadband communications operations in Germany of Unitymedia GmbH (Unitymedia), another wholly-owned subsidiary of Liberty Global Europe, are collectively referred to herein as the "UPC/Unity Division." UPC Holding's broadband communications operations in Chile are provided through its 80%-owned subsidiary, VTR Global Com SA (VTR). In May 2012, through our 80%-owned subsidiary, VTR Wireless SA (VTR Wireless), we began offering mobile services in Chile through a combination of our own wireless network and certain third-party wireless access arrangements. The operations of VTR and VTR Wireless are collectively referred to as the "VTR Group." Through Liberty Global Europe's 50.4%-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.

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

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

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

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

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

8


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



(2)    Acquisitions and Dispositions

2012 Pending Acquisition

On June 26, 2012, one of our subsidiaries, LGI Broadband Operations, Inc. (LGI Broadband Operations), agreed with certain investment funds affiliated with Searchlight Capital Partners L.P. (Searchlight) to enter into a series of transactions (collectively, the Puerto Rico Transaction) that will result in their joint ownership of (i) Liberty Cablevision of Puerto Rico LLC (Liberty Puerto Rico), a subsidiary of LGI Broadband Operations, and (ii) San Juan Cable LLC, doing business as OneLink Communications (OneLink), a broadband communications operator in Puerto Rico. The Puerto Rico Transaction assigns an enterprise value to OneLink of $585.3 million before transaction costs.
Immediately prior to the acquisition of OneLink, LGI Broadband Operations will contribute its 100% interest in Liberty Puerto Rico, and Searchlight will contribute cash to Leo LP, a newly formed entity. Leo LP will in turn use the cash contributed by Searchlight to fund the acquisition of 100% of the equity of OneLink from a third party for a purchase price of $87.3 million, subject to closing adjustments that generally are meant to increase the purchase price for the cash that is expected to be generated by OneLink from April 1, 2012 through the closing date. Upon completion of the Puerto Rico Transaction, (i) Leo LP will be 60%-owned by LGI Broadband Operations and 40%-owned by Searchlight and (ii) LGI Broadband Operations will have a controlling financial interest in, and will consolidate, Leo LP.
Subject to customary closing conditions, including regulatory approvals (certain of which were received in July 2012), the Puerto Rico Transaction is expected to close in the fourth quarter of 2012.

2011 Acquisitions

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

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

9


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



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 we currently intend to support the FCO in defending the decision. In addition, we do not expect that the filing of these appeals will have any impact on the ongoing integration and development of our operations in Germany. The ultimate resolution of this matter is expected to take up to four years, including the appeals process.

The FCO has communicated to us that it is reviewing customary practices in the negotiation of length of term in contracts with multiple dwelling units for analogue television services. The FCO had previously identified one such contract between Unitymedia and a landlord as potentially being subject to amendment by order. If the FCO does issue an order requiring amendment, it could have application beyond one contract or could have broader application in the industry, or it could be limited to the single contract.

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


10


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



Pro Forma Information

The following unaudited pro forma condensed operating results for the three and six months ended June 30, 2011 give effect to (i) the KBW Acquisition and (ii) the Aster Acquisition, as if they had been completed as of January 1, 2010. 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
 
Six months ended
 
June 30, 2011
 
June 30, 2011
 
in millions, except per share amounts
Revenue:
 
 
 
Continuing operations
$
2,681.5

 
$
5,175.8

Discontinued operation
189.0

 
363.4

Total
$
2,870.5

 
$
5,539.2

Net loss attributable to LGI stockholders
$
(353.1
)
 
$
(5.4
)
Basic and diluted loss attributable to LGI stockholders per share — Series A, Series B and Series C common stock
$
(1.39
)
 
$
(0.02
)

Dispositions

Austar. On July 11, 2011, our company and Austar entered into agreements with certain third parties (collectively, FOXTEL) pursuant to which FOXTEL agreed to acquire 100% of Austar's ordinary shares through a series of transactions (the Austar Transaction), one of which involved our temporary acquisition of the 45.85% of Austar's ordinary shares held by the noncontrolling shareholders (the Austar NCI Acquisition). On April 26, 2012, pursuant to the terms of the Austar NCI Acquisition, all of the shares of Austar that we did not already own were acquired by a new wholly-owned subsidiary of LGI (LGI Austar Holdco), with funding provided by a loan from FOXTEL. On May 23, 2012, FOXTEL acquired 100% of Austar from LGI Austar Holdco for AUD 1.52 ($1.57 at the transaction date) in cash per share, which represented a total equity sales price of AUD 1,932.7 million ($1,990.7 million at the transaction date) for the 100% interest in Austar (based on Austar ordinary shares outstanding at the transaction date) or AUD 1,046.5 million for our 54.15% interest in Austar. Upon completion of these transactions and excluding proceeds related to the Austar NCI Acquisition shares acquired in the Austar NCI Acquisition, our company realized cash proceeds equivalent to $1,056.1 million after taking into account applicable foreign currency forward contracts and before considering (i) cash paid for disposal costs and (ii) the Austar cash and cash equivalents of AUD 222.6 million ($229.3 million at the transaction date) that were included in the net assets transferred to FOXTEL. The transfer of Austar's cash and cash equivalents to FOXTEL is included in net cash provided (used) by investing activities of discontinued operation in our condensed consolidated statement of cash flows for the six months ended June 30, 2012.

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

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


11


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



Austar's historical operating results, which are included in earnings (loss) from discontinued operation, net of taxes, in our condensed consolidated statements of operations, are summarized in the following table:
 
Three months ended
 
Six months ended
 
June 30,
 
June 30,
 
2012 (a)
 
2011
 
2012 (a)
 
2011
 
in millions
 
 
 
 
 
 
 
 
Revenue
$
106.5

 
$
189.0

 
$
293.7

 
$
363.4

Operating income
$
13.7

 
$
36.6

 
$
78.7

 
$
181.3

Earnings (loss) before income taxes and noncontrolling interests
$
(4.4
)
 
$
21.8

 
$
49.6

 
$
148.3

Income tax expense (benefit)
$
(1.8
)
 
$
5.3

 
$
14.1

 
$
42.5

Earnings (loss) from discontinued operation attributable to LGI stockholders, net of taxes
$
(5.0
)
 
$
9.2

 
$
15.6

 
$
57.9

_______________

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

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

(3)    Investments

The details of our investments are set forth below:
 
Accounting Method
 
June 30,
2012
 
December 31,
2011
 
in millions
Fair value:
 
 
 
Sumitomo (a)
$
633.9

 
$
617.9

Other (b)
345.7

 
352.2

Total - fair value
979.6

 
970.1

Equity
4.9

 
4.5

Cost
0.4

 
0.6

Total
$
984.9

 
$
975.2

_______________ 

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

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


12


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



(4)    Derivative Instruments

Through our subsidiaries, we have entered into various derivative instruments to manage interest rate exposure and foreign currency exposure with respect to the U.S. dollar ($), the euro (€), the Czech koruna (CZK), the Hungarian forint (HUF), the Polish zloty (PLN), the Romanian lei (RON), the Swiss franc (CHF) and the Chilean peso (CLP). 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:
 
 
June 30, 2012
 
December 31, 2011
 
Current (a)
 
Long-term (a)
 
Total
 
Current (a)
 
Long-term (a)
 
Total
 
in millions
Assets:
 
 
 
 
 
 
 
 
 
 
 
Cross-currency and interest rate derivative contracts (b)
$
75.8

 
$
572.7

 
$
648.5

 
$
155.8

 
$
544.4

 
$
700.2

Equity-related derivative contracts (c)

 
634.3

 
634.3

 

 
684.6

 
684.6

Foreign currency forward contracts
1.7

 
4.9

 
6.6

 
4.5

 
0.3

 
4.8

Other
1.6

 
2.4

 
4.0

 
1.7

 
2.1

 
3.8

Total
$
79.1

 
$
1,214.3

 
$
1,293.4

 
$
162.0

 
$
1,231.4

 
$
1,393.4

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Cross-currency and interest rate derivative contracts (b)
$
539.9

 
$
1,668.8

 
$
2,208.7

 
$
576.6

 
$
1,705.0

 
$
2,281.6

Equity-related derivative contracts (c)
22.1

 

 
22.1

 
23.3

 

 
23.3

Foreign currency forward contracts
1.2

 

 
1.2

 
0.1

 
2.7

 
2.8

Other
0.7

 
1.2

 
1.9

 
1.2

 
1.8

 
3.0

Total
$
563.9

 
$
1,670.0

 
$
2,233.9

 
$
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 June 30, 2012 and December 31, 2011, (i) the fair values of our cross-currency and interest rate derivative contracts that represented assets have been reduced by credit risk valuation adjustments aggregating $52.3 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 $195.5 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 losses of $70.6 million and $48.3 million during the three and six months ended June 30, 2012, respectively, and gains of $56.2 million and $31.0 million during the three and six months ended June 30, 2011, respectively. These amounts are included in realized and unrealized gains (losses) on derivative instruments, net, in our condensed consolidated statements of operations. For further information concerning our fair value measurements, see note 5.

(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

13


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



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 2011 six-month period also includes a $45.3 million loss related to a total return swap entered into in connection with the KBW Purchase Agreement. This swap was ultimately terminated for no consideration in connection with the KBW Acquisition.

The details of our realized and unrealized gains (losses) on derivative instruments, net, are as follows:
 
Three months ended
 
Six months ended
 
June 30,
 
June 30,
 
2012
 
2011
 
2012
 
2011
 
in millions
 
 
 
 
 
 
 
 
Continuing operations:
 
 
 
 
 
 
 
Cross-currency and interest rate derivative contracts
$
169.5

 
$
(479.1
)
 
$
(309.6
)
 
$
(406.1
)
Equity-related derivative contracts (a)
66.9

 
72.2

 
(59.6
)
 
(7.0
)
Foreign currency forward contracts
0.7

 
(41.2
)
 
(9.7
)
 
(44.3
)
Other
0.3

 
(0.3
)
 
2.2

 
(1.7
)
Total — continuing operations
$
237.4

 
$
(448.4
)
 
$
(376.7
)
 
$
(459.1
)
Discontinued operation
$
0.9

 
$
(0.7
)
 
$
4.6

 
$
(2.9
)
_______________ 

(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: 
 
Six months ended
 
June 30,
 
2012
 
2011
 
in millions
Continuing operations:
 
 
 
Operating activities
$
(245.5
)
 
$
(223.6
)
Investing activities
24.1

 

Financing activities
(64.9
)
 
(3.7
)
Total — continuing operations
$
(286.3
)
 
$
(227.3
)
Discontinued operation
$
(6.6
)
 
$
(6.4
)


14


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



Counterparty Credit Risk

We are exposed to the risk that the counterparties to our derivative instruments will default on their obligations to us.  We manage these credit risks through the evaluation and monitoring of the creditworthiness of, and concentration of risk with, the respective counterparties. In this regard, credit risk associated with our derivative instruments is spread across a relatively broad counterparty base of banks and financial institutions. We and our counterparties do not post collateral or other security, nor have we entered into master netting arrangements with any of our counterparties. At June 30, 2012, our exposure to credit risk included derivative assets with a fair value of $659.1 million.

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

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

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


15


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



Cross-currency and Interest Rate Derivative Contracts

Cross-currency Swaps:

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

 
CHF
441.8

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

 
364.9

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

 
362.9

 
7.25%
 
7.74%
January 2020
 
$
197.5

 
150.5

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

 
CHF
370.9

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

 
CHF
187.1

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

 
CHF
1,466.0

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

 
CHF
589.0

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

 
CHF
258.6

 
7.63%
 
6.76%
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%
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
 
$
845.0

 
569.4

 
8.13%
 
8.49%
March 2019
 
$
459.3

 
326.5

 
7.50%
 
7.98%

16


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



___________ 

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

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

Cross-currency Interest Rate Swaps:

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

 
320.9

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

 
249.5

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

 
226.5

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

 
226.5

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

 
219.8

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

 
75.4

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

 
75.4

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

 
CHF
226.8

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

 
CHF
206.3

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

 
CLP
181,322.0

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

 
RON
489.3

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

 
CLP
107,800.0

 
6 mo. EURIBOR + 2.00%
 
10.00%
VTR:
 
 
 
 
 
 
 
 
 
September 2014
 
$
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 June 30, 2012, we present a single date that represents the applicable final maturity date.  For derivative instruments that become effective subsequent to June 30, 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)
June 30, 2012
(unaudited)



Interest Rate Swaps:

The terms of our outstanding interest rate swap contracts at June 30, 2012 are as follows:

Subsidiary / Final maturity date (a)
 
Notional amount
 
Interest rate due from
counterparty
 
Interest rate due to
counterparty
 
 
in millions
 
 
 
 
UPC Broadband Holding:
 
 
 
 
 
 
 
January 2013
 
$
1,543.0

 
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
 
1,181.8

 
6 mo. EURIBOR
 
4.64%
July 2020
 
750.0

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

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

 
6 mo. EURIBOR
 
4.32%
July 2014
 
337.0

 
6 mo. EURIBOR
 
3.94%
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
 
0.90%
December 2014
 
CHF
1,668.5

 
6 mo. CHF LIBOR
 
3.50%
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
Unitymedia Hessen:
 
 
 
 
 
 
 
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), a subsidiary of Telenet NV, which in turn is a subsidiary of Telenet:
 
 
 
 
 
 
 
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%
August 2015 - December 2018
 
305.0

 
3 mo. EURIBOR
 
2.46%
November 2012
 
250.0

 
1 mo. EURIBOR + 0.30%
 
3 mo. EURIBOR

18


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



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

 
3 mo. EURIBOR
 
3.49%
July 2019
 
200.0

 
3 mo. EURIBOR
 
3.55%
January 2013
 
150.0

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

 
3 mo. EURIBOR
 
3.55%
July 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 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 Puerto Rico:
 
 
 
 
 
 
 
June 2014
 
$
161.7

 
3 mo. LIBOR
 
5.14%
_______________

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

Interest Rate Caps

Our interest rate cap contracts establish the maximum EURIBOR rate payable on the indicated notional amount, as detailed below:
 
 
June 30, 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 2015 - June 2017
50.0

 
4.50%
Telenet NV:
 
 
 
December 2017
2.6

 
6.50%
December 2017
2.6

 
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 June 30, 2012, we present a single date that

19


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



represents the applicable final maturity date. For derivative instruments that become effective subsequent to June 30, 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:
 
 
June 30, 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.

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
 
June 30, 2012
 
 
in millions
 
 
 
April 2018
$
419.8

October 2016
$
19.8

April 2017
$
19.8

October 2017
$
19.8



20


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



Foreign Currency Forwards

The following table summarizes our outstanding foreign currency forward contracts at June 30, 2012

Subsidiary
 
Currency
purchased
forward
 
Currency
sold
forward
 
Maturity dates
 
 
in millions
 
 
 
 
 
 
 
 
 
 
 
LGE Financing
$
4.9

 
3.6

 
July 2012 - July 2013
UPC Holding
$
479.0

 
CHF
415.1

 
October 2016 - April 2018
UPC Broadband Holding
$
2.8

 
CZK
51.9

 
July 2012 - May 2013
UPC Broadband Holding
93.9

 
CHF
112.8

 
July 2012 - June 2013
UPC Broadband Holding
7.3

 
CZK
182.0

 
July 2012 - May 2013
UPC Broadband Holding
9.9

 
HUF
2,975.0

 
July 2012 - January 2013
UPC Broadband Holding
14.3

 
PLN
61.4

 
July 2012 - March 2013
Telenet NV
$
15.0

 
11.4

 
July 2012 - March 2013
VTR
$
32.1

 
CLP
16,497.7

 
July 2012 - June 2013

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

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

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

For our investment in Sumitomo common stock, the recurring fair value measurement is based on the quoted closing price of the shares at each reporting date. Accordingly, the valuation of this investment falls under Level 1 of the fair value hierarchy. Our other investments that we account for at fair value are privately-held companies, and therefore, quoted market prices are unavailable. The valuation technique we use for such investments is a combination of an income approach (discounted cash flow model based on forecasts) and a market approach (market multiples of similar businesses). With the exception of certain inputs for our weighted average cost of capital calculations that are derived from pricing services, the inputs used to value these investments

21


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



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 June 30, 2012 valuation of the Sumitomo Collar, we used estimated volatilities of 46.1% with respect to our purchased put options and 48.2% with respect to our written call options. Based on the June 30, 2012 market price for Sumitomo common stock, the purchased put options and written call options are significantly in-the-money and out-of-the-money, respectively. As such, changes in forecasted volatilities did not have a significant impact on the valuation of the Sumitomo Collar at June 30, 2012.

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

Fair value measurements are also used in connection with nonrecurring valuations performed in connection with impairment assessments and acquisition accounting. These nonrecurring valuations include the valuation of reporting units, customer relationship intangible assets, property and equipment and the implied value of goodwill. The valuation of private reporting units is based at least in part on discounted cash flow analyses. With the exception of certain inputs for our weighted average cost of capital calculations that are derived from pricing services, the inputs used in our discounted cash flow analyses, such as forecasts of future cash flows, are based on our assumptions. The valuation of customer relationships is primarily based on an excess earnings methodology, which is a form of a discounted cash flow analysis. The excess earnings methodology requires us to estimate the specific cash flows expected from the customer relationship, considering such factors as estimated customer life, the revenue expected to be generated over the life of the customer, contributory asset charges, and other factors. Tangible assets are typically valued using a replacement or reproduction cost approach, considering factors such as current prices of the same or similar equipment, the age of the equipment and economic obsolescence. The implied value of goodwill is determined by allocating the fair value of a reporting unit to all of the assets and liabilities of that unit as if the reporting unit had been acquired in a business combination, with the residual amount allocated to goodwill. All of our nonrecurring valuations use significant unobservable inputs and therefore fall under Level 3 of the fair value hierarchy. We did not perform significant nonrecurring fair value measurements during the six months ended June 30, 2012 or 2011.


22


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



A summary of the assets and liabilities that are measured at fair value on a recurring basis is as follows: 
 
 
 
Fair value measurements at  June 30, 2012 using:
Description
June 30,
2012
 
Quoted prices
in active
markets for
identical assets
(Level 1)