Liberty Global Reports Third Quarter 2012 Results

Strongest Quarterly Rebased Revenue & OCF Growth YTD

Horizon Launch in the Netherlands Exceeds Expectations


Confirming All 2012 Guidance Targets

ENGLEWOOD, Colo.--(BUSINESS WIRE)-- Liberty Global, Inc. ("Liberty Global," "LGI," or the "Company") (NASDAQ: LBTYA, LBTYB and LBTYK), today announces financial and operating results for the third quarter ended September 30, 2012 ("Q3"). Highlights for Q3, as compared to the same period last year (unless noted), include:1

  • YTD organic RGU2 additions of 1.1 million, including 320,000 in Q3
  • Revenue of $2.52 billion, representing rebased3 growth of 6%
  • Operating Cash Flow ("OCF")4 of $1.22 billion, reflecting rebased growth of 5%
  • Operating income increased 5% to $509 million
  • YTD Adjusted Free Cash Flow ("Adjusted FCF")5 increased 4% to $440 million
  • YTD 2012 stock repurchases totaled approximately $620 million

Liberty Global President and CEO Mike Fries stated, "We delivered our strongest quarter of the year in terms of rebased revenue and OCF performance. In fact, our top-line rebased growth of 6% reflects our best quarterly performance in two years, fueled by a record number of broadband internet and telephony subscriber additions over the last twelve months. As expected, we delivered improved OCF in Q3 with 5% rebased growth on a consolidated basis and we should be able to maintain this momentum in the fourth quarter. As a result, we are confirming all of our 2012 targets today."

"Through September 30, we have added 1.1 million organic RGUs, including 320,000 in the third quarter, and we continue to balance our market leading bundles with selective price increases in markets like Germany and the Netherlands. Our recent introduction of Horizon TV in the Dutch market was a watershed event, as we have sold more than 50,000 Horizon subscriptions and had over 125,000 unique online users since launch. Looking ahead, we expect to launch Horizon TV in Switzerland later this quarter, followed by Ireland and Germany next year."

"We finished the third quarter with cash and equivalents in excess of $3 billion and total liquidity6 of more than $5 billion. As we disclosed last week, we intend to continue with the tender offer for the minority shares of Telenet and expect to officially launch the offer shortly. We have the requisite capital to not only fund the Telenet tender offer, but also complete our $1 billion stock buyback target for 2012. At September 30, we had approximately $380 million of equity to repurchase before year end, and we intend to remain active buyers of our stock during Q4."

Subscriber Statistics

At the end of Q3, we provided a total of 34.1 million services, consisting of 18.2 million video, 8.9 million broadband internet and 7.0 million telephony subscriptions to our 19.6 million unique customers. Our RGU growth during the third quarter was entirely organic, as we increased our subscriber base by 320,000 RGUs. Driven by the continued traction of our triple-play bundles, we had 45% of our customers subscribing to more than one product from us at September 30, 2012, which represents an increase of 24% (inclusive of acquisitions), as compared to our bundled customer base at September 30, 2011. As a result, our bundling ratio of 1.74 RGUs per customer has increased by 5% over the last twelve months. We still have a large single-play base of 10.8 million customers that we are focused on upselling to our advanced services.

For the three and nine months ended September 30, 2012, we generated RGU additions of 320,000 and 1.1 million, respectively, reflecting a year-over-year decline of 2% for the three-month period and an increase of 39% for the nine-month period. Our RGU additions for the three- and nine-month periods included 22,000 and 62,000, respectively, relating to small office home office ("SOHO") RGUs.7

Our RGU development in the third quarter remained healthy overall, representing our second best third quarter ever. This performance was led by our German, Belgian, Hungarian and Swiss operations, which accounted for roughly 80% of our total additions in Q3. It's worth noting that our Dutch business lost 3,000 RGUs in Q3, as compared to a gain of 38,000 in the prior year period, due largely to a reduction in the Dutch market's combined broadband and telephony additions, which totaled 18,000 in Q3 2012, as compared to 56,000 in Q3 2011. The lower result in the Netherlands reflects in large part a combination of increasing competition and the impact of a price increase on triple-play bundles.

For the three months ended September 30, 2012, we lost 90,000 video RGUs, which was largely consistent with the losses we experienced during each of the first and second quarters of 2012 and compares to video losses of 59,000 for Q3 2011. The quarterly year-over-year increase was related in part to our German video losses of 26,000 in Q3 2012 as compared to video losses of 7,000 in Q3 2011. These losses stemmed from a combination of a video price increase for certain single dwelling units and the loss of a housing association contract during the quarter. Additionally, we were also impacted by heightened competitive environments in Poland and Chile, as our Polish and Chilean net video losses increased by 18,000 and 11,000, respectively, on a year-over-year basis.

In terms of digital cable additions, we added 180,000 and 703,000 for the three- and nine-month 2012 periods, respectively, led by strong performances in our Belgian, Polish, German and Swiss operations. With this continued success, our digital base increased to 8.8 million RGUs at quarter-end, boosting our digital penetration8 above 50%. A key development for us in Q3 was the long-awaited launch of Horizon TV in the Netherlands, which will help us differentiate our product offerings not only in the Netherlands in coming quarters, but also in markets like Switzerland, Ireland and our largest market, Germany.

Our bundles continue to emphasize our speed advantage for broadband internet and our attractively-priced telephony services. For the three and nine months ended September 30, 2012, we generated broadband internet RGU additions of 198,000 and 660,000, respectively, which reflect year-over-year growth rates of 3% and 23%, respectively. In addition, we added telephony RGUs of 211,000 and 728,000 during the three- and nine-month 2012 periods, respectively, which represent year-over-year improvements of 9% and 44%.

Revenue

For the three and nine months ended September 30, 2012, our consolidated revenue increased 4% to $2.5 billion and 7% to $7.6 billion, respectively, as compared to the corresponding prior year periods. Both results were positively impacted by acquisitions, principally Kabel BW, and continued subscriber growth, as we added 1.5 million organic RGUs during the last twelve months. On a comparative basis, our revenue growth was adversely impacted by negative foreign currency ("FX") movements associated with the translation effect from a strengthening U.S. dollar. Adjusting for both the impact of acquisitions and FX, we achieved year-over-year rebased revenue growth of 6% for each of the three- and nine-month 2012 periods.

Overall, our third quarter rebased growth reflected our best top-line performance since Q3 2010. Rebased revenue growth was largely powered by western Europe9 and Chile, each of which delivered growth of 7% in the quarter, while our Central and Eastern European ("CEE") operations reported a rebased decline of 1%, which is generally consistent with recent quarters. Our western European operations of Germany, Belgium, the Netherlands and Switzerland generated rebased revenue growth of 11%, 6%, 5% and 5%, respectively. Of particular note, our German, Dutch and Swiss businesses each realized their best quarterly rebased revenue growth of the year, with our German operation achieving its best result since we acquired Unitymedia back in 2010.

Operating Cash Flow

As compared to the corresponding prior year periods, OCF increased 5% to $1.2 billion and 7% to $3.6 billion for the three and nine months ended September 30, 2012, respectively. Our OCF growth reflects the positive impacts of acquisitions and, to a lesser extent, organic growth. This growth was partially offset by the negative impact of foreign currency changes. Adjusting for both FX and acquisition effects, our year-over-year rebased OCF growth was 5% and 4% for the three and nine months ended September 30, 2012, respectively.

Our western European operations delivered quarterly rebased OCF growth of 8%, driven largely by strong performances in our German and Belgian operations, which reported 12% and 8% rebased OCF growth, respectively. In addition, both our Dutch and Swiss businesses posted healthy rebased OCF growth in Q3 of 6% and 4%, respectively, with our Dutch market posting its highest growth to-date in 2012. Similar to recent quarters, our rebased OCF growth was partially offset by both our Chilean and CEE operations, which generated declines of 7% and 3%, respectively. Of particular note, our Chilean mobile roll-out due in part to its early success in generating sales volumes, resulted in an incremental OCF deficit in Q3 2012 that was $15 million higher than the rebased OCF deficit incurred during the same period in 2011. Adjusting for the impact of Chilean mobile, LGI's consolidated year-over-year rebased OCF growth rate would have increased to 7% for Q3 from our reported 5%.

Our consolidated OCF margins10 for the three and nine months ended September 30, 2012 were 48.6% and 47.7%, respectively. These margins reflect year-over-year improvements of 50 and 10 basis points, respectively, over the corresponding prior year periods. The margin improvement in each period was aided by the consolidation of Kabel BW in 2012, offset in part by our Chilean mobile operations. As compared to our Q2 2012 OCF margin, our Q3 OCF margin was higher by 130 basis points with notable improvement evident in our western European operations. Collectively, our western European operations achieved an OCF margin of 56.6%, reflecting a 140 basis point improvement over Q2 levels.

Operating Income

For the three and nine months ended September 30, 2012, our reported operating income increased by 5% for both periods to $509 million and $1.5 billion, respectively, as compared to the respective prior year periods. The increase in each period was largely due to higher revenue and lower operating expenses measured as a percentage of revenue. These factors were partially offset by increases in our depreciation and amortization expense.

Net Earnings/Loss Attributable to LGI Stockholders

We reported a net loss attributable to LGI stockholders ("Net Loss") of $22 million or $0.08 per basic and diluted share for the three months ended September 30, 2012. This compares to a Net Loss of $333 million or $1.18 per basic and diluted share for the respective 2011 period. The year-over-year improvement in our Net Loss, among other factors, resulted from an improvement in our foreign currency transaction results that were only partially offset by changes in the mark-to-market adjustments of our derivative instruments.

On a year-to-date basis, we reported net earnings attributable to LGI stockholders ("Net Earnings") of $654 million or $2.43 per basic and diluted share for the nine months ended September 30, 2012, versus a Net Loss of $338 million or $1.30 per basic and diluted share for the corresponding 2011 period. Our Net Earnings for the nine-month period reflects the positive impact of a $924 million gain on the disposition of our Austar interest in the second quarter of 2012.

For the three and nine months ended September 30, 2012, our basic and diluted per share calculations utilized weighted average common shares of 266 million and 269 million, respectively, and 282 million and 260 million for the three and nine months ended September 30, 2011. Additionally, our 266 million shares outstanding at July 27, 2012 declined modestly to 263 million shares outstanding at October 29, 2012.

Capital Expenditures and Free Cash Flow

For the three months ended September 30, 2012, we reported capital expenditures of $457 million or 18% of revenue, as compared to $449 million or 19% of revenue for the corresponding 2011 period. For the 2012 and 2011 nine-month periods, our capital expenditures totaled $1.45 billion and $1.42 billion, respectively. As a percentage of revenue, our 2012 year-to-date capital expenditures decreased to 19% of revenue from 20% of revenue for the prior year period. The declines in our capital expenditures as a percentage of revenue for each of the three- and nine-month 2012 periods were attributable to our non-cash vendor financing and capital lease arrangements, which were $37 million and $112 million higher, as compared to the respective 2011 periods. Additionally, our total property and equipment additions, which include our capital expenditures on an accrual basis and our non-cash vendor financing and capital lease additions, represented 21% and 22% of revenue during the three and nine months ended September 30, 2012, as compared to 21% for each of the 2011 comparable periods.

In terms of our Free Cash Flow ("FCF"), we reported FCF of ($63 million) and $2 million for the three months ended September 30, 2012 and 2011, respectively. On a year-to-date basis, we generated FCF of $328 million for the 2012 period, as compared to $348 million for the 2011 period. The declines in year-over-year FCF in each period were attributable in part to the negative FCF resulting from our Chilean wireless project, as well as adverse FX movements.

Our Adjusted FCF, which primarily excludes costs associated with our Chilean wireless project, was ($26 million) for Q3 2012, as compared to $31 million for Q3 2011. For the 2012 nine-month period, we generated Adjusted FCF of $440 million, which represents a 4% increase over the comparable 2011 result. Consistent with prior years, we expect strong Adjusted FCF generation during the fourth quarter, helped in part by favorable working capital trends. Based on this expectation, we are confirming our 2012 guidance target for mid-teens Adjusted FCF growth.

Leverage and Liquidity

At September 30, 2012, we had total debt11 of $26.5 billion and cash and cash equivalents of $3.3 billion. As compared to June 30, 2012, our reported debt and cash positions increased by $2.6 billion and $1.4 billion, respectively. Besides the impact of a stronger euro relative to the U.S. dollar during the quarter, the increase in both debt and cash was largely attributable to €1.95 billion ($2.51 billion) in principal value of bond financings that we completed in Q3 at Telenet, Unitymedia KabelBW and UPC Holding.

These bond financings resulted in an increase to our cash accounts of over €1.5 billion ($1.9 billion) after deducting amounts that were used to pay fees and repay €396 million ($510 million) principal amount of floating rate notes at Unitymedia KabelBW. With respect to our cash position, other factors which partially offset the incremental cash raised from our debt financings include the cash distribution to Telenet minority shareholders of approximately €181 million ($228 million) in August and continued repurchases of LGI equity during the quarter.

In terms of our overall liquidity at quarter-end, we had approximately $5.5 billion of consolidated liquidity, consisting of $3.3 billion of cash, including $2.1 billion at the parent level,12 and $2.2 billion in aggregate borrowing capacity, as represented by the maximum undrawn commitment under each of our credit facilities.13

With respect to our consolidated leverage ratios, we ended the third quarter with reported gross and net leverage ratios14 of 5.4x and 4.7x, respectively. After excluding the $1.2 billion loan that is backed by the shares we hold in Sumitomo Corporation, our adjusted gross and net debt ratios decline to 5.2x and 4.5x, respectively, a modest increase from our second quarter levels. Of our total debt at September 30, 2012, over 95% was due in 2016 and beyond, while our fully-swapped borrowing cost15 declined to approximately 7.5% at Q3 2012 from 7.8% at Q2 2012, due to a combination of lower costs associated with our derivative instruments and the attractive pricing of our recent financing transactions.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including our expectations with respect to our 2012 outlook and future growth prospects, including our expectations for continued organic growth in subscribers, our expectations with respect to our Adjusted FCF generation during the fourth quarter of 2012, the penetration of our advanced services, and our ARPU per customer; our assessment of the strength of our balance sheet, our liquidity and access to capital markets, including our borrowing availability, potential uses of our excess capital, including for acquisitions and continued stock buybacks, our ability to continue to do opportunistic refinancings and debt maturity extensions and the adequacy of our currency and interest rate hedges; our expectations with respect to the timing and impact of our expanded roll-out of advanced products and services, including Horizon TV; our insight and expectations regarding competitive and economic factors in our markets, the availability of accretive M&A opportunities and the impact of our M&A activity on our operations and financial performance and other information and statements that are not historical fact. These forward-looking statements involve certain risks and uncertainties that could cause actual results to differ materially from those expressed or implied by these statements. These risks and uncertainties include the continued use by subscribers and potential subscribers of the Company's services and willingness to upgrade to our more advanced offerings, our ability to meet challenges from competition and economic factors, the continued growth in services for digital television at a reasonable cost, the effects of changes in technology, law and regulation, our ability to obtain regulatory approval and satisfy the conditions necessary to close acquisitions and dispositions, our ability to achieve expected operational efficiencies and economies of scale, our ability to generate expected revenue and operating cash flow, control capital expenditures as measured by percentage of revenue, achieve assumed margins and control the phasing of our FCF, our ability to access cash of our subsidiaries and the impact of our future financial performance and market conditions generally, on the availability, terms and deployment of capital, fluctuations in currency exchange and interest rates, the continued creditworthiness of our counterparties, the ability of vendors and suppliers to timely meet delivery requirements, as well as other factors detailed from time to time in the Company's filings with the Securities and Exchange Commission including our most recently filed Forms 10-K and 10-Q. These forward-looking statements speak only as of the date of this release. The Company expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein to reflect any change in the Company's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

About Liberty Global

Liberty Global is the leading international cable company, with operations in 13 countries. We connect people to the digital world and enable them to discover and experience its endless possibilities. Our market-leading television, broadband internet and telephony services are provided through next-generation networks and innovative technology platforms that connect 20 million customers who subscribe to 34 million services as of September 30, 2012.

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

1 We began accounting for Austar as a discontinued operation effective December 31, 2011. The results of operations, subscriber metrics and cash flows of Austar have been classified as a discontinued operation for all periods presented. Accordingly, the financial and statistical information presented herein includes only our continuing operations, unless otherwise indicated.

2 Please see page 20 for the definition of revenue generating units ("RGUs"). Organic figures exclude RGUs of acquired entities at the date of acquisition, but include the impact of changes in RGUs from the date of acquisition. All subscriber/RGU additions or losses refer to net organic changes, unless otherwise noted.

3 For purposes of calculating rebased growth rates on a comparable basis for all businesses that we owned during 2011 and 2012, we have adjusted our historical revenue and OCF for the three and nine months ended September 30, 2011 to (i) include the pre-acquisition revenue and OCF of certain entities acquired during 2011 and 2012 in the respective 2011 rebased amounts to the same extent that the revenue and OCF of such entities are included in our 2012 results, (ii) exclude a small disposition to the extent that the revenue and OCF are included in our 2011 results and (iii) reflect the translation of our rebased amounts for the 2011 period at the applicable average exchange rates that were used to translate our 2012 results. Please see page 11 for supplemental information.

4 Please see page 14 for our operating cash flow definition and the required reconciliation.

5 Free Cash Flow ("FCF") is defined as net cash provided by our operating activities, plus (i) excess tax benefits related to the exercise of stock incentive awards and (ii) cash payments for direct acquisition costs, less (a) capital expenditures, as reported in our consolidated cash flow statements, (b) principal payments on vendor financing obligations and (c) principal payments on capital leases (exclusive of our network lease in Belgium and our duct leases in Germany), with each item excluding any cash provided or used by our discontinued operations. We also present Adjusted FCF, which adjusts FCF to eliminate the incremental FCF deficit associated with the VTR Wireless SA ("VTR Wireless") mobile initiative and, during the 2011 period, the payments associated with the capital structure of the predecessor of Unitymedia KabelBW GmbH ("Old Unitymedia"). Please see page 16 for more information on FCF and Adjusted FCF and the required reconciliations.

6 Liquidity refers to our consolidated cash and cash equivalents plus our aggregate unused borrowing capacity, as represented by the maximum undrawn commitments under our subsidiaries' applicable facilities without regard to covenant compliance calculations.

7 Certain of our business-to-business ("B2B") revenue is derived from SOHO subscribers that pay a premium price to receive enhanced service levels along with video, internet or telephony services that are the same or similar to the mass marketed products offered to our residential subscribers. Effective January 1, 2012, we recorded non-organic adjustments to begin including the SOHO subscribers of our UPC/Unity Division in our RGU and customer counts. As a result, all mass marketed products provided to SOHOs, whether or not accompanied by enhanced service levels and/or premium prices, are now included in the respective RGU and customer counts of our broadband communications operations, with only those services provided at premium prices considered to be "SOHO RGUs" or "SOHO customers." With the exception of our B2B SOHO subscribers, we generally do not count customers of B2B services as customers or RGUs for external reporting purposes. All RGU, customer, bundling and ARPU amounts presented for periods prior to January 1, 2012 have not been restated to reflect this change.

8 Digital penetration is calculated by dividing the number of digital cable RGUs by the total number of digital and analog cable RGUs.

9 References to western Europe include our operations in Germany, the Netherlands, Switzerland, Austria and Ireland, as well as in Belgium. References to our Western Europe reporting segment include the aforementioned countries, with the exception of Belgium.

10 OCF margin is calculated by dividing OCF by total revenue for the applicable period.

11 Total debt includes capital lease obligations.

12 Refers to cash at the parent and non-operating subsidiaries.

13 The $2.2 billion amount reflects the aggregate unused borrowing capacity, as represented by the maximum undrawn commitments under our subsidiaries' applicable facilities without regard to covenant compliance calculations. Upon completion of Q3 2012 compliance reporting, we would expect to be able to borrow approximately $1.4 billion of this aggregate borrowing capacity.

14 Our gross and net debt ratios are defined as total debt and net debt to annualized OCF of the latest quarter. Net debt is defined as total debt less cash and cash equivalents. For our adjusted ratios, the debt amount excludes the loan that is backed by the shares we hold in Sumitomo Corporation.

15 Our fully-swapped debt borrowing cost represents the weighted average interest rate on our aggregate variable and fixed rate indebtedness (excluding capital lease obligations), including the effects of derivative instruments, original issue premiums or discounts and commitment fees, but excluding the impact of financing costs.

Liberty Global, Inc.

Condensed Consolidated Balance Sheets (unaudited)

   
September 30,
2012

December 31,
2011

ASSETS in millions
Current assets:
Cash and cash equivalents $ 3,317.3 $ 1,651.2
Trade receivables, net 784.6 910.5
Deferred income taxes 104.1 345.2
Current assets of discontinued operation 275.6
Other current assets   541.0     592.6
Total current assets 4,747.0 3,775.1
 
Investments 977.2 975.2
Property and equipment, net 12,924.3 12,868.4
Goodwill 13,426.2 13,289.3
Intangible assets subject to amortization, net 2,504.1 2,812.5
Long-term assets of discontinued operation 770.1
Other assets, net   2,038.6     1,918.6
 
Total assets $ 36,617.4   $ 36,409.2

LIABILITIES AND EQUITY

Current liabilities:
Accounts payable $ 558.7 $ 645.7
Deferred revenue and advance payments from subscribers and others 645.3 847.6
Accrued programming 245.1 213.1
Accrued interest 323.4 295.4
Derivative instruments 513.6 601.2
Current portion of debt and capital lease obligations 292.4 184.1
Current liabilities of discontinued operation 114.1
Other accrued and current liabilities   1,288.4     1,268.6
Total current liabilities 3,866.9 4,169.8
 
Long-term debt and capital lease obligations 26,169.1 24,573.8
Long-term liabilities of discontinued operation 746.5
Other long-term liabilities   3,933.5     3,987.7
Total liabilities   33,969.5     33,477.8
 
Commitments and contingencies
 
Equity:
Total LGI stockholders 2,852.4 2,805.4
Noncontrolling interests   (204.5 )   126.0
Total equity   2,647.9     2,931.4
 
Total liabilities and equity $ 36,617.4   $ 36,409.2
 

Liberty Global, Inc.

Condensed Consolidated Statements of Operations (unaudited)

   

 

Three months ended
September 30,

Nine months ended
September 30,

2012   2011 2012   2011
in millions, except per share amounts
Revenue $ 2,519.1   $ 2,418.8   $ 7,580.6   $ 7,106.3  
 
Operating costs and expenses:
Operating (other than depreciation and amortization) (including stock-based compensation) 859.0 843.0 2,644.0 2,511.0
Selling, general and administrative (including stock-based compensation) 462.6 445.4 1,411.9 1,318.2
Depreciation and amortization 670.3 629.3 2,009.7 1,838.3
Impairment, restructuring and other operating items, net   18.1     17.9     32.6     28.5  
  2,010.0     1,935.6     6,098.2     5,696.0  
Operating income   509.1     483.2     1,482.4     1,410.3  
 
Non-operating income (expense):
Interest expense (408.6 ) (364.3 ) (1,228.8 ) (1,086.9 )
Interest and dividend income 17.8 28.4 38.7 62.4
Realized and unrealized gains (losses) on derivative instruments, net (237.2 ) 355.1 (613.9 ) (104.0 )
Foreign currency transaction gains (losses), net 150.2 (787.1 ) 154.8 (197.9 )
Realized and unrealized losses due to changes in fair values of certain investments and debt, net (18.1 ) (63.4 ) (1.3 ) (205.9 )
Losses on debt modification, extinguishment and conversion, net (13.8 ) (12.3 ) (27.5 ) (218.7 )
Gains due to changes in ownership 52.5 52.5
Other income (expense), net   3.4     (0.8 )   (0.6 )   (6.0 )
  (453.8 )   (844.4 )   (1,626.1 )   (1,757.0 )
Earnings (loss) from continuing operations before income taxes 55.3 (361.2 ) (143.7 ) (346.7 )
Income tax benefit (expense)  

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