UPC Holding Reports Third Quarter 2012 Results

UPC Holding Reports Third Quarter 2012 Results

AMSTERDAM--(BUSINESS WIRE)-- UPC Holding B.V. ("UPC Holding") is today providing selected, preliminary unaudited financial and operating information for the three months ("Q3") ended September 30, 2012. 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 the Liberty Global 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 November 2012.

Financial and operating highlights for the three months ended September 30, 2012, as compared to the results for the same period last year (unless noted), include:

• Organic RGU¹ additions of 123,000, bringing total RGUs to 19 million

• Strongest quarterly rebased growth in five quarters:

  • Revenue increased 6% to €1.08 billion, representing rebased² growth of 3%

  • Operating cash flow ("OCF")³ improved 7% to €537 million, reflecting rebased growth of 4%

• Operating income increased by 7% year-over-year to €271 million

• Capital expenditures as a percentage of revenue declined to 16% of revenue

• Over 95% of consolidated third-party debt is due in 2016 and beyond

Financial Results

For the three and nine months ended September 30, 2012, our consolidated revenue increased by 6% for each period to €1.08 billion and €3.18 billion respectively, as compared to the corresponding prior year periods. Both results were positively impacted by continued subscriber growth, as we added over 700,000 organic RGUs during the last twelve months, acquisitions including Aster in Poland and, to a lesser extent, favorable foreign currency ("FX") movements. Adjusting for both the impact of acquisitions and FX, we achieved year-over-year rebased revenue growth of 3% for each of the three- and nine-month 2012 periods.

Our third quarter rebased growth reflected our best top-line performance since Q2 2011 and was powered by 5% rebased revenue growth in our Western European operations. Specifically, each of our four Western European operations delivered their best quarterly rebased revenue result to date in 2012, highlighted by our two largest operations in Switzerland and the Netherlands, each posting rebased revenue growth of 5% in the quarter. Rounding out our remaining footprint, our Chilean operation ("VTR") reported Q3 rebased revenue growth of 3% and our Central and Eastern European ("CEE") operations reported a rebased decline of 1% for Q3 2012, which is generally consistent with recent quarters.

As compared to the corresponding prior year periods, OCF increased 7% for both the three and nine months ended September 30, 2012, to €537 million and €1.54 billion, respectively. Our OCF growth reflects the positive impacts of acquisitions, organic growth, and, to a lesser extent, favorable FX movements. Adjusting for acquisition and FX effects, our year-over-year rebased OCF growth was 4% and 3% for the three and nine months ended September 30, 2012, respectively. Our third quarter result, similar to that of rebased revenue, was our best performance in the last five quarters.

Rebased OCF growth in Q3 was driven by our strong performances in Chile and Western Europe, which delivered year-over-year growth of 12% and 6%, respectively. The latter performance resulted from rebased OCF growth of 7% in our Other Western Europe segment, which consists of Austria and Ireland, 6% in the Netherlands and 4% in Switzerland. Our Irish, Dutch and Austrian operations posted their highest rebased growth quarter of the year. Similar to recent quarters, our Q3 consolidated rebased growth was partially offset by a rebased OCF decline of 3% in CEE, and by increased costs in our European central and other operations in Q3 2012 as compared to Q3 2011.

For the three and nine months ended September 30, 2012 we reported consolidated OCF margins⁴ of 49.7% and 48.3%, respectively. These margins reflect modest improvements of 20 and 10 basis points, respectively, over our OCF margins of 49.5% and 48.2% for the three and nine months ended September 30, 2011. On a year-over-year basis, both our Chilean and Western European businesses achieved OCF margin increases for the three- and nine-month 2012 periods. These were partially offset by a lower margin for the CEE region in the third quarter of 2012 and by higher costs in our European central and other operations in both 2012 periods.

For the three months ended September 30, 2012, we reported capital expenditures of €168 million or 16% of revenue, as compared to €187 million or 18% of revenue for the corresponding 2011 period. For the 2012 and 2011 nine-month periods, our capital expenditures totaled €558 million or 18% of revenue and €596 million or 20% of revenue, respectively. The declines in capital expenditures as a percentage of revenue for each of the three- and nine-month 2012 periods were primarily attributable to our non-cash vendor financing arrangements which were €21 million and €70 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 vendor financing, capital lease and other non-cash additions, represented 20% and 21% of revenue for the three and nine months ended September 30, 2012, as compared to 19% and 21% for the corresponding 2011 periods.

Subscriber Statistics

At the end of Q3, we provided a total of 18.5 million services, consisting of 9.3 million video, 5.3 million broadband internet and 3.9 million telephony subscriptions to our 10.3 million unique customers. Our RGU growth during the third quarter was entirely organic, as we increased our subscriber base by 123,000 RGUs. Driven by the continued traction of our triple-play bundles, we had nearly half of our customers subscribing to more than one product at September 30, 2012, which represents an increase of 9% (inclusive of acquisitions) as compared to our bundled customer base at September 30, 2011. As a result, our bundling ratio of 1.79 RGUs per customer has increased by 5% over the last twelve months. We still have a large single-play base of 5.3 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 123,000 and 489,000, respectively, reflecting a year-over-year decline of 32% for the three-month period and an increase of 16% for the nine-month period. The RGU additions for the three- and nine-month periods included 17,000 and 49,000 RGUs, respectively, relating to the small office home office ("SOHO") RGUs⁵ of our European operations ("UPC Europe"). Our Q3 2012 RGU results faced a difficult comparison, as Q3 2011 represented our strongest Q3 in subscriber additions since Q3 2007. Notwithstanding Q3, our year-to-date RGU additions reflect our strongest result in five years for the first nine months of the year.

Our third quarter RGU additions of 123,000 consisted of 60,000 in Western Europe, 50,000 in CEE and 14,000 in Chile. Our top performing markets in total additions were Hungary, Switzerland and Ireland, which collectively accounted for roughly 71% of our RGU 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 46,000 video RGUs, which was our lowest total of 2012 to date, but higher when compared to our video losses of 32,000 for Q3 2011. The quarterly year-over-year increase in video losses was due largely to our performance in Poland and Chile, which were both impacted by heightened competitive environments, 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 RGU additions, we added 91,000 and 356,000 for the three- and nine-month 2012 periods, respectively, led by strong performances in our Polish and Swiss operations. With this continued success, our digital base passed the 5.0 million total RGU mark as of September 30, 2012 and we boosted our digital penetration⁶ to 59%, up from 52% one year ago. 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 and Ireland.

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 78,000 and 291,000, respectively. The results reflect a 25% decline compared to our strong Q3 last year, but represents a comparable year-to-date result versus 2011. In terms of telephony, we added 91,000 and 355,000 RGUs for the three- and nine-month 2012 periods, respectively, which represent a year-over-year decrease of 16% for the three-month period and an increase of 31% for the nine-month period, respectively. During the third quarter of 2012, our operations in Ireland, Hungary, Switzerland and Poland each generated combined broadband and telephony additions in excess of 24,000.

Summary of Third-Party Debt and Cash and Cash Equivalents

At September 30, 2012, we reported €9.7 billion of third-party debt and €71 million of cash and cash equivalents. As compared to June 30, 2012, our third-party debt increased 6% or €528 million, primarily as a result of the issuance of €600 million of 6.375% Senior Notes due 2022 in September 2012. The net proceeds of the offering were designated for general corporate purposes, including distributions to our parent. The increase in third-party debt was partly offset by strengthening of the euro relative to the U.S. dollar. At September 30, 2012, over 95% of our third-party debt was due in 2016 and beyond, while our fully-swapped borrowing cost⁷ declined to approximately 8.0% at Q3 2012 from 8.3% at Q2 2012, due to a combination of lower costs associated with our derivative instruments and the attractive pricing of our new debt issuance.

The following table details 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 September 30, 2012:

Borrowing Capacity & Covenant Calculations

UPC Broadband Holding B.V. ("UPC Broadband Holding"), our wholly-owned subsidiary, is a borrower of outstanding indebtedness under the UPC Broadband Holding Bank Facility, which we guarantee. As of September 30, 2012, 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 €468 million of this amount will be available upon completion of our third quarter compliance reporting requirements.

Based on the results for the quarter ended September 30, 2012 and subject to the completion of our third 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 3.72x 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 4.78x.¹²

About UPC Holding

UPC Holding connects people to the digital world and enables 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 in 10 countries that connect 10 million customers who subscribe to 19 million services as of September 30, 2012.

Disclaimer

This press release contains forward-looking statements, including our expectations with respect to our future growth prospects, our continued ability to increase our organic RGU additions 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 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 capital expenditures 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 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 September 30, 2012 results. The financial information contained herein is preliminary and subject to change. We presently expect to issue our condensed consolidated financial statements prior to the end of November 2012, 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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¹ Please see footnotes to the operating data table 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.

² 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 and (ii) 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 7 for supplemental information on rebased growth.

³ Please see page 10 for our definition of operating cash flow and a reconciliation to operating income.

⁴ OCF margin is calculated by dividing OCF by total revenue for the applicable period.

⁵ 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 UPC Europe 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.

⁶ Digital penetration is calculated by dividing the number of digital cable RGUs by the total number of digital and analog cable RGUs.

⁷ Our fully swapped debt borrowing cost represents the weighted average interest rate on our aggregate variable and fixed rate indebtedness, including the effects of derivative instruments, discounts and commitment fees, but excluding the impact of financing costs.

⁸ UPCB Finance Limited, UPCB Finance II Limited, UPCB Finance III Limited, UPCB Finance V Limited and UPCB Finance VI Limited are special purpose financing companies created for the primary purpose of issuing senior secured notes and are owned 100% by charitable trusts. We used the proceeds from the senior secured notes to fund Facilities V, Y, Z, AC and AD under the UPC Broadband Holding Bank Facility, with UPC Financing, our direct subsidiary, as the borrower. These special purpose financing companies are dependent on payments from UPC Financing under Facilities V, Y, Z, AC and AD in order to service their payment obligations under the senior secured notes. As such, these companies are variable interest entities and UPC Financing and its parent entities, including UPC Holding, are required by accounting principles generally accepted in the U.S. ("GAAP") to consolidate these companies. Accordingly, the amounts outstanding under Facilities V, Y, Z, AC and AD eliminate within our condensed consolidated financial statements.

⁹ Except as described in note 8 above, amounts represent total third-party commitments at September 30, 2012 without giving effect to the impact of discounts.

¹⁰ Facilities T and AB carrying values include the impact of discounts.

¹¹ The Facility AB interest rate includes a LIBOR floor of 1.25%.

¹² Our covenant calculations are based on debt amounts which take into account currency swaps calculated at weighted average FX rates across the period. Thus, the debt used in the calculations may differ from the debt balances reported within the financial statements.

Revenue and Operating Cash Flow

In the following tables, we present revenue and operating cash flow by reportable segment for the three and nine months ended September 30, 2012, as compared to the corresponding prior year periods. All of the reportable segments derive their revenue primarily from broadband communications services, including video, broadband internet and telephony services. Most reportable segments also provide B2B services. At September 30, 2012, 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 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 our rebased amounts for the three and nine months ended September 30, 2011 to the same extent that the revenue and OCF of such entities are included in our results for the three and nine months ended September 30, 2012 and (ii) reflect the translation of our rebased amounts for the three and nine months ended September 30, 2011 at the applicable average foreign currency exchange rates that were used to translate our results for the three and nine months ended September 30, 2012. 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 September 30, 2011 include Aster and four small entities in Europe. The acquired entities that have been included in whole or in part in the determination of our rebased revenue and OCF for the nine months ended September 30, 2011 include Aster and six small entities in Europe.

We have reflected the revenue and OCF of the acquired entities in our 2011 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 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-GAAP financial measure as contemplated by Regulation G or Item 10 of Regulation S-K.

The selected financial data contained herein is preliminary and unauditedand subject to possible adjustments in connection with the publication of UPC Holding's September 30, 2012 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: