UPC Holding Reports First Quarter 2013 Results

UPC Holding B.V. (“UPC Holding”) is today providing selected, preliminary unaudited financial and operating information for the three months ended March 31, 2013 (“Q1 2013”). UPC Holding is a wholly-owned subsidiary of Liberty Global, Inc. (“Liberty Global”) (NASDAQ: LBTYA, LBTYB and LBTYK). A copy of this press release will be posted to Liberty Global’s website (www.lgi.com). In addition, UPC Holding’s unaudited condensed consolidated financial statements with the accompanying notes are expected to be posted prior to the end of May 2013.

Financial and operating highlights for the quarter ended March 31, 2013, as compared to the results for the same period last year (“Q1 2012”) (unless noted), include:

• Total RGUs¹ of 18.9 million, including organic RGU additions of 162,000 in Q1 2013
  • Broadband internet and telephony RGUs surpassed the 5.5 million and 4.0 million RGU milestones, respectively
• Revenue increased to €1.08 billion, reflecting rebased² growth of 3%
• Operating cash flow (“OCF”)³ improved to €512 million, representing rebased growth of 3%
• Operating income increased 14% to €271 million
• Recent refinancing transactions have improved our maturity profile, with over 90% of consolidated third-party debt not due until 2017 and beyond

Financial Results

For the three months ended March 31, 2013, our consolidated revenue increased 3% to €1.08 billion, as compared to the corresponding prior year period. This performance was driven largely by continued organic revenue growth, especially from our broadband internet offering. Adjusting for both the minor impact of acquisitions and foreign exchange movements (“FX”), we achieved year-over-year rebased revenue growth of 3% for the first three months of 2013. This result is our seventh consecutive quarter of 3% rebased revenue growth.

In terms of regional performance, our Chilean business (“VTR”), which accounted for 17% of our Q1 revenue, generated rebased revenue growth of 4% in Q1 2013, similar to VTR’s full-year 2012 rebased result. Turning to our European operations (“UPC Europe”), we delivered 3% rebased revenue growth in the quarter with our Western European region achieving 3% rebased growth and our Central and Eastern European (“CEE”) region posting 1% rebased revenue growth. In the quarter, European standouts included our Irish and Swiss businesses, which generated rebased revenue growth of 9% and 5%, respectively, as each benefitted from more than 100,000 advanced service RGU additions⁴ during the last twelve months. Furthermore, our Swiss operation continued to demonstrate strong quarterly top-line growth, supported not only by volume growth but also by a video price increase in the quarter.

As compared to the corresponding prior year period, OCF increased 3% on a reported basis to €512 million for the three months ended March 31, 2013. Similarly, our rebased OCF growth was 3%, as our Chilean operation delivered 13% rebased growth, our Western European operations generated 3% rebased growth and our CEE business posted 1% rebased growth. Similar to revenue, our Western European performance was led by our operations in Ireland and Switzerland, which generated 12% and 4% rebased OCF growth, respectively.

Notwithstanding the positive contribution from those two markets as well as Chile, our rebased OCF growth was partially muted by a flat result in the Netherlands, stemming from increased competition over the last three quarters. Within Europe, we also realized a €6 million year-over-year increase in costs in our central and other category resulting in part from our centralization and procurement initiatives. As a result of these factors, we experienced a slight contraction in our consolidated OCF margins⁵ to 47.4% during Q1 2013 from 47.6% during the corresponding prior year period.

We reported additions to property and equipment⁶ of €228 million, which represents 21% of revenue for Q1 as compared to €197 million or 19% of revenue for the corresponding prior year period. Our aggregate spend in the quarter was weighted towards customer premises equipment, which accounted for 54% of our property and equipment additions as compared to 47% for Q1 2012. This was due in part to our Horizon TV roll-out in the Netherlands and Switzerland.

Subscriber Statistics

At March 31, 2013, our 10.3 million unique customers received 18.9 million services, reflecting a 4% increase (including acquisitions) in our RGU base since March 31, 2012. On a product level, our RGU base consisted of 9.2 million video, 5.6 million broadband internet and 4.1 million telephony subscriptions at quarter-end. Bundling remains an important driver of our subscriber growth, particularly sales of triple-play product offers, as nearly one-third of our customer base, or 3.3 million customers, subscribed to our triple-play packages at March 31, 2013. In total, we finished the first quarter with aggregate bundled customers of 5.3 million (or 51% of our customer base), which reflects an approximate 350,000 customer increase (including acquisitions) over the last twelve months.

During Q1 2013, we added 162,000 RGUs, with our CEE, Chilean and Western European businesses accounting for 70,000, 50,000 and 42,000 RGUs, respectively. Our total RGU additions were lower than our Q1 2012 total of 198,000 RGU additions, primarily due to our softer performance in the Netherlands. Notably, CEE’s subscriber performance, which increased 30% year-over-year, reflected its strongest first quarter result in five years and was led by our Polish operation’s 39,000 RGU additions, which more than doubled its prior year first quarter result. This was driven by captivating triple-play offers that mainly improved churn levels, particularly in Poland’s Aster footprint. Additionally, on the back of a compelling digital video offering, our Chilean business achieved a 65% increase in RGU additions as compared to Q1 2012, realizing its best first quarter RGU result since 2007.

Our Western European operations added 42,000 RGUs in Q1 2013 as compared to 114,000 in Q1 2012. The lower growth was largely attributable to our Dutch operation, which lost 3,000 RGUs in Q1 2013, as compared to a gain of 42,000 in Q1 2012. However, this result is consistent with our Dutch subscriber performance in both the third and fourth quarters of 2012, as the Dutch market remains very competitive. To that point and subsequent to quarter-end, we further strengthened our customer proposition in the Netherlands, as we introduced basic digital unencryption and launched new triple-play bundles that include increased broadband speeds, with our primary bundle offering 100 Mbps along with the introduction of a 200 Mbps internet product in certain areas.

In terms of our products, we added 107,000 broadband internet RGUs during the quarter, as we continue to harvest the benefits of our network investments. Key contributors in Q1 2013 were our Swiss, Chilean and Polish operations. In particular, our 22,000 Swiss broadband internet additions in Q1 2013 partly resulted from the market-leading speeds included in our Horizon bundles. From a voice perspective, we added 113,000 telephony subscribers in Q1 2013, largely mirroring our broadband internet growth, as we look to upsell our single- and double-play customer base to triple-play services.

From a video standpoint, we lost 58,000 subscribers during the quarter, which was modestly better than the corresponding prior year period, with improved performances in each of Chile and CEE. A key development that has taken shape over the last six months is that we have introduced basic digital unencryption to promote the digitalization process and enhance our competitive position in a number of markets, including Switzerland, the Netherlands (as noted earlier), Austria, Romania and the Czech Republic. By unencrypting the digital signal, we are providing our customers with incremental value and an easy introduction to our basic digital video product. Furthermore, we continue to promote Horizon TV in our Dutch market and we launched this platform in January 2013 in our Swiss market. At the end of April, we had over 200,000 Horizon TV subscribers with more than 145,000 in the Netherlands and over 55,000 in Switzerland. In addition, we launched our unique Horizon Online platform with 45 channels in Ireland in mid-April and have plans to launch the full Horizon TV platform this summer in the Irish market.

Summary of Third-Party Debt and Cash and Cash Equivalents

At March 31, 2013, we reported €9.8 billion of third-party debt and €58 million of cash and cash equivalents. As compared to December 31, 2012, our third-party debt rose by €199 million. This increase in carrying value was mainly attributable to the strengthening of the U.S. dollar relative to the euro and, to a lesser extent, the incremental capital we raised during Q1 2013. The fully-swapped borrowing cost⁷ of our third-party debt balance was approximately 7.8% as of Q1 2013.

We continued to implement our strategy of extending our debt maturity schedule and capitalizing on an attractive capital market environment. In March 2013, we issued 6.75% senior notes due 2023 in the principal amounts of €450 million and CHF 350 million (€288 million). In April 2013, we used the net proceeds from the issuance to redeem in full our €300 million 8.0% senior notes due 2016 and our €400 million 9.75% senior notes due 2018. The two tranches of notes were legally discharged in March 2013.

With respect to the UPC Broadband Holding Bank Facility, in March and April 2013, we entered into two new facility accession agreements (“Facility AG” and “Facility AG1”, collectively “Facility AG”), two term loan facilities in an aggregate amount of approximately €1,554 million. Facility AG matures in 2021 and carries an interest rate of EURIBOR + 3.75%. As a result of these transactions, €145 million of Facility R, €659 million of Facility S and all €751 million of Facility U were effectively rolled into Facility AG.

Furthermore, we completed an additional facility accession agreement (“Facility AH”) in April 2013, which matures in 2021 and has an interest rate of LIBOR + 2.5% with a LIBOR floor of 0.75%. Term loan Facility AH has an aggregate principal amount of $1,305 million (€1,018 million). Following the closing of this transaction, all $260 million (€203 million) of Facility T and all $1,043 million (€813 million) of Facility X, which both carried an interest rate of LIBOR +3.5%, were effectively rolled into Facility AH. Adjusting for the impact of Facilities AG and AH, over 90% of our total debt is not due until 2017 and beyond.

The following table details the carrying value of our consolidated third-party debt and cash and cash equivalents as of the dates indicated:⁸

UPC Broadband Holding Bank Facility

The following table details the key terms of the UPC Broadband Holding Bank Facility at March 31, 2013:

The following table details the key terms of the UPC Broadband Holding Bank Facility at March 31, 2013, adjusted to reflect the impact of Facility AG and Facility AH:

Borrowing Capacity & Covenant Calculations

UPC Broadband Holding B.V. (“UPC Broadband Holding”), our wholly-owned subsidiary, is a borrower under the UPC Broadband Holding Bank Facility, which we guarantee. As of March 31, 2013, UPC Broadband Holding had maximum undrawn commitments under Facilities Q, W and AA of the UPC Broadband Holding Bank Facility of €1.1 billion. We estimate that approximately €542 million of this amount will be available upon completion of our first quarter compliance reporting requirements.

Based on the results for the quarter ended March 31, 2013 and subject to the completion of our first quarter bank reporting requirements, (i) the ratio of Senior Debt to Annualized EBITDA (last two quarters annualized), as defined and calculated in accordance with the UPC Broadband Holding Bank Facility, was 3.69x and (ii) the ratio of Total Debt to Annualized EBITDA (last two quarters annualized), as defined and calculated in accordance with the UPC Broadband Holding Bank Facility, was 4.75x.¹³

About UPC Holding

UPC Holding connects people to the digital world and enables them to discover and experience its endless possibilities. Our market-leading triple-play services are provided through next-generation networks and innovative technology platforms in 10 countries that connect 10 million customers subscribing to 19 million television, broadband internet and telephony services as of March 31, 2013.

Disclaimer

This press release contains forward-looking statements, including our expectations with respect to our strategy and future growth prospects, including our expectations for continued organic growth in subscribers and further grow the penetration of our advanced services and our assessment of our liquidity and access to capital markets, including our borrowing availability; our expectations with respect to the timing and impact of our expanded roll-out of advanced products and services, including Horizon TV; our assessment of the impacts of the unencryption of our basic digital channels; our insight and expectations regarding competitive and economic factors in our markets; 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 our services and their 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 and regulation, our ability to achieve expected operational efficiencies and economies of scale, our ability to generate expected revenue and operating cash flow, control property and equipment additions as measured by a percentage of revenue and achieve assumed margins, the impact of our future financial performance, or market conditions generally, on the availability, terms and deployment of capital, as well as other factors detailed from time to time in Liberty Global's filings with the Securities and Exchange Commission including Liberty Global’s most recently filed Forms 10-K/A and 10-Q. These forward-looking statements speak only as of the date of this release. We expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

We are required under the terms of the indentures for the UPC Holding senior notes and the UPCB Finance Limited, UPCB Finance II Limited, UPCB Finance III Limited, UPCB Finance V Limited and UPCB Finance VI Limited senior secured notes to provide certain financial information regarding UPC Holding to bondholders on a quarterly basis. UPC Broadband Holding, our wholly-owned subsidiary, is a borrower and we are a guarantor of outstanding indebtedness under the UPC Broadband Holding Bank Facility, which also requires the provision of certain financial and related information to the lenders. This press release is being issued at this time, in connection with those obligations, due to the contemporaneous release by Liberty Global of its March 31, 2013 results. The financial information contained herein is preliminary and subject to change. We presently expect to issue our March 31, 2013 unaudited condensed consolidated financial statements prior to the end of May 2013, at which time they will be posted to the investor relations section of the Liberty Global website (www.lgi.com) under the fixed income heading. Copies will also be available from the Trustee for the senior notes and the senior secured notes.

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Revenue and Operating Cash Flow

In the following tables, we present revenue and operating cash flow by reportable segment for the three months ended March 31, 2013, as compared to the corresponding prior year period. All of our reportable segments derive their revenue primarily from broadband communications services, including video, broadband internet and telephony services. All of our reportable segments also provide business-to-business services. At March 31, 2013, our operating segments in UPC Europe provided broadband communications services in nine European countries and direct-to-home (“DTH”) services to customers in the Czech Republic, Hungary, Romania and Slovakia through a Luxembourg-based organization that we refer to as "UPC DTH." Our Other Western Europe segment includes our broadband communications operating segments in Austria and Ireland. Our Central and Eastern Europe segment includes our broadband communications operating segments in the Czech Republic, Hungary, Poland, Romania and Slovakia. UPC Europe’s central and other category includes (i) the UPC DTH operating segment, (ii) costs associated with certain centralized functions, including billing systems, network operations, technology, marketing, facilities, finance and other administrative functions and (iii) intersegment eliminations within UPC Europe. VTR provides video, broadband internet and telephony services in Chile.

For purposes of calculating rebased growth rates on a comparable basis for all businesses that we owned during 2013, we have adjusted our historical revenue and OCF for the three months ended March 31, 2012 to (i) include the pre-acquisition revenue and OCF of certain entities acquired during 2012 in our rebased amounts for the three months ended March 31, 2012 to the same extent that the revenue and OCF of such entities are included in our results for the three months ended March 31, 2013 and (ii) reflect the translation of our rebased amounts for the three months ended March 31, 2012 at the applicable average foreign currency exchange rates that were used to translate our results for the three months ended March 31, 2013. The acquired entities that have been included in whole or in part in the determination of our rebased revenue and OCF for the three months ended March 31, 2012 include three small entities in Europe.

We have reflected the revenue and OCF of the acquired entities in our 2012 rebased amounts based on what we believe to be the most reliable information that is currently available to us (generally pre-acquisition financial statements), as adjusted for the estimated effects of (i) any significant differences between U.S. GAAP and local generally accepted accounting principles, (ii) any significant effects of acquisition accounting adjustments, (iii) any significant differences between our accounting policies and those of the acquired entities and (iv) other items we deem appropriate. We do not adjust pre-acquisition periods to eliminate non-recurring items or to give retroactive effect to any changes in estimates that might be implemented during post-acquisition periods. As we did not own or operate the acquired businesses during the pre-acquisition periods, no assurance can be given that we have identified all adjustments necessary to present the revenue and OCF of these entities on a basis that is comparable to the corresponding post-acquisition amounts that are included in our historical results or that the pre-acquisition financial statements we have relied upon do not contain undetected errors. The adjustments reflected in our rebased amounts have not been prepared with a view towards complying with Article 11 of Regulation S-X. In addition, the rebased growth percentages are not necessarily indicative of the revenue and OCF that would have occurred if these transactions had occurred on the dates assumed for purposes of calculating our rebased amounts or the revenue and OCF that will occur in the future. The rebased growth percentages have been presented as a basis for assessing growth rates on a comparable basis, and are not presented as a measure of our pro forma financial performance. Therefore, we believe our rebased data is not a non-U.S. GAAP financial measure as contemplated by Regulation G or Item 10 of Regulation S-K.

The selected financial data contained herein is preliminary and unaudited and subject to possible adjustments in connection with the publication of UPC Holding’s March 31, 2013 condensed consolidated financial statements. In each case, the following tables present (i) the amounts reported by each of our reportable segments for the comparative periods, (ii) the euro change and percentage change from period to period and (iii) the percentage change from period to period on a rebased basis:

* - Omitted

Operating Cash Flow Definition and Reconciliation

Operating cash flow is the primary measure used by our chief operating decision maker to evaluate segment operating performance. Operating cash flow is also a key factor that is used by our internal decision makers to (i) determine how to allocate resources to segments and (ii) evaluate the effectiveness of our management for purposes of annual and other incentive compensation plans. As we use the term, operating cash flow is defined as revenue less operating and selling, general and administrative expenses (excluding stock-based compensation, related party fees and allocations, depreciation and amortization, and impairment, restructuring and other operating items). Other operating items include (i) gains and losses on the disposition of long-lived assets, (ii) direct acquisition costs, such as third-party due diligence, legal and advisory costs, and (iii) other acquisition-related items, such as gains and losses on the settlement of contingent consideration. Our internal decision makers believe operating cash flow is a meaningful measure and is superior to available U.S. GAAP measures because it represents a transparent view of our recurring operating performance that is unaffected by our capital structure and allows management to (i) readily view operating trends, (ii) perform analytical comparisons and benchmarking between segments and (iii) identify strategies to improve operating performance in the different countries in which we operate. We believe our operating cash flow measure is useful to investors because it is one of the bases for comparing our performance with the performance of other companies in the same or similar industries, although our measure may not be directly comparable to similar measures used by other public companies. Operating cash flow should be viewed as a measure of operating performance that is a supplement to, and not a substitute for, operating income, net earnings (loss), cash flow from operating activities and other U.S. GAAP measures of income or cash flows. A reconciliation of total segment operating cash flow to our operating income is presented below.

Property and Equipment Additions and Capital Expenditures

The following table provides property and equipment additions for UPC Holding for the indicated periods:

The table below highlights the categories of our property and equipment additions for the indicated periods and reconciles those additions to the capital expenditures that we present in our condensed consolidated statement of cash flows:

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RGUs, Customers and Bundling

The following table provides information on the breakdown of our RGUs and customer base and highlights our customer bundling metrics at March 31, 2013, December 31, 2012 and March 31, 2012:

ARPU per Customer Relationship³

The following table provides ARPU per customer relationship for the indicated periods:

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Additional General Notes to Tables:

All of our broadband communications subsidiaries provide telephony, broadband internet, data, video or other business-to-business (“B2B”) services. Certain of our B2B revenue is derived from small or home office (“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. All mass marketed products provided to SOHOs, whether or not accompanied by enhanced service levels and/or premium prices, are 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.

Certain of our residential and commercial RGUs are counted on an EBU basis, including residential multiple dwelling units and commercial establishments, such as bars, hotels and hospitals, in Chile and certain commercial establishments in Europe. Our EBUs are generally calculated by dividing the bulk price charged to accounts in an area by the most prevalent price charged to non-bulk residential customers in that market for the comparable tier of service. As such, we may experience variances in our EBU counts solely as a result of changes in rates.

While we take appropriate steps to ensure that subscriber statistics are presented on a consistent and accurate basis at any given balance sheet date, the variability from country to country in (i) the nature and pricing of products and services, (ii) the distribution platform, (iii) billing systems, (iv) bad debt collection experience and (v) other factors add complexity to the subscriber counting process. We periodically review our subscriber counting policies and underlying systems to improve the accuracy and consistency of the data reported on a prospective basis. Accordingly, we may from time to time make appropriate adjustments to our subscriber statistics based on those reviews.

Subscriber information for acquired entities is preliminary and subject to adjustment until we have completed our review of such information and determined that it is presented in accordance with our policies.