[May 06, 2013] LIBERTY GLOBAL, INC. - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Tweet (Edgar Glimpses Via Acquire Media NewsEdge) The following discussion and analysis, which should be read in conjunction with our condensed consolidated financial statements and the discussion and analysis included in our 2012 Annual Report on Form 10-K/A is intended to assist in providing an understanding of our financial condition, changes in financial condition and results of operations and is organized as follows: • Forward-Looking Statements. This section provides a description of certain of the factors that could cause actual results or events to differ materially from anticipated results or events. • Overview. This section provides a general description of our business and recent events. • Material Changes in Results of Operations. This section provides an analysis of our results of operations for the three months ended March 31, 2013 and 2012. • Material Changes in Financial Condition. This section provides an analysis of our corporate and subsidiary liquidity, condensed consolidated cash flow statements and contractual commitments. • Quantitative and Qualitative Disclosures about Market Risk. This section provides discussion and analysis of the foreign currency, interest rate and other market risk that our company faces. The capitalized terms used below have been defined in the notes to our condensed consolidated financial statements. In the following text, the terms, "we," "our," "our company" and "us" may refer, as the context requires, to LGI or collectively to LGI and its subsidiaries. Unless otherwise indicated, convenience translations into U.S. dollars are calculated as of March 31, 2013. Forward-Looking Statements Certain statements in this Quarterly Report on Form 10-Q constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. To the extent that statements in this Quarterly Report are not recitations of historical fact, such statements constitute forward-looking statements, which, by definition, involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. In particular, statements under Management's Discussion and Analysis of Financial Condition and Results of Operations and Quantitative and Qualitative Disclosures About Market Risk may contain forward-looking statements, including statements regarding our business, product, foreign currency and finance strategies, our capital expenditures, subscriber growth and retention rates, competitive and economic factors, the maturity of our markets, anticipated cost increases, liquidity, credit risks, foreign currency risks and target leverage levels. Where, in any forward-looking statement, we express an expectation or belief as to future results or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the expectation or belief will result or be achieved or accomplished. In addition to the risk factors described in our 2012 Annual Report on Form 10-K/A, the following are some but not all of the factors that could cause actual results or events to differ materially from anticipated results or events: • economic and business conditions and industry trends in the countries in which we operate; • the competitive environment in the broadband communications and programming industries in the countries in which we operate, including competitor responses to our products and services; • fluctuations in currency exchange rates and interest rates; • instability in global financial markets, including sovereign debt issues in the EU and related fiscal reforms; • consumer disposable income and spending levels, including the availability and amount of individual consumer debt; • changes in consumer television viewing preferences and habits; 54 --------------------------------------------------------------------------------• consumer acceptance of our existing service offerings, including our digital video, broadband internet, telephony and mobile service offerings, and of new technology, programming alternatives and other products and services that we may offer in the future; • our ability to manage rapid technological changes; • our ability to maintain or increase the number of subscriptions to our digital video, broadband internet, telephony and mobile service offerings and our average revenue per household; • our ability to provide satisfactory customer service, including support for new and evolving products and services; • our ability to maintain or increase rates to our subscribers or to pass through increased costs to our subscribers; • the impact of our future financial performance, or market conditions generally, on the availability, terms and deployment of capital; • changes in, or failure or inability to comply with, government regulations in the countries in which we operate and adverse outcomes from regulatory proceedings; • government intervention that opens our broadband distribution networks to competitors, such as the obligations imposed in Belgium and the Netherlands; • our ability to obtain regulatory approval and satisfy other conditions necessary to close acquisitions and dispositions and the impact of conditions imposed by competition and other regulatory authorities in connection with acquisitions, including the impact of the conditions imposed in connection with the acquisitions of Aster and Kabel BW GmbH (KBW) on our operations in Poland and Germany, respectively; • changes in laws or treaties relating to taxation, or the interpretation thereof, in the U.S. or in countries in which we operate; • changes in laws and government regulations that may impact the availability and cost of credit and the derivative instruments that hedge certain of our financial risks; • the ability of suppliers and vendors to timely deliver quality products, equipment, software and services; • the availability of attractive programming for our digital video services at reasonable costs; • uncertainties inherent in the development and integration of new business lines and business strategies; • our ability to adequately forecast and plan future network requirements; • the availability of capital for the acquisition and/or development of telecommunications networks and services; • our ability to successfully integrate and realize anticipated efficiencies from the businesses we acquire; • problems we may discover post-closing with the operations, including the internal controls and financial reporting process, of businesses we acquire; • the outcome of any pending or threatened litigation; • the loss of key employees and the availability of qualified personnel; • changes in the nature of key strategic relationships with partners and joint venturers; and • events that are outside of our control, such as political unrest in international markets, terrorist attacks, malicious human acts, natural disasters, pandemics and other similar events. 55-------------------------------------------------------------------------------- The broadband communications services industries are changing rapidly and, therefore, the forward-looking statements of expectations, plans and intent in this Quarterly Report are subject to a significant degree of risk. These forward-looking statements and the above-described risks, uncertainties and other factors speak only as of the date of this Quarterly Report, and 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 other change in events, conditions or circumstances on which any such statement is based. Readers are cautioned not to place undue reliance on any forward-looking statement. Overview We are an international provider of video, broadband internet and telephony services with consolidated operations at March 31, 2013 in 13 countries, primarily in Europe and Chile. Our European and Chilean operations are conducted through Liberty Global Europe. Through 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 of Unitymedia KabelBW in Germany are collectively referred to herein as the "UPC/Unity Division." UPC Holding's broadband communications operations in Chile are provided through VTR. In May 2012, through 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 Telenet, we provide video, broadband internet and telephony services in Belgium. Our operations also include (i) consolidated broadband communications operations in Puerto Rico and (ii) consolidated interests in certain programming businesses in Europe and Latin America. Our consolidated programming interests in Europe and Latin America are primarily held through Chellomedia, which 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 February 5, 2013 we entered into the Virgin Media Merger Agreement, pursuant to which we agreed, subject to various conditions, including the approval of the stockholders of LGI and Virgin Media, to complete the Virgin Media Acquisition. If completed, the Virgin Media Acquisition will have a significant impact on our liquidity, financial position and results of operations. For additional information, see note 2 to our condensed consolidated financial statements. Unless otherwise noted, the following discussion and analysis of our results of operations and liquidity and capital resources focuses on our existing operations exclusive of the impact of the Virgin Media Acquisition and any forward-looking statements contained herein do not take into account the impact of the Virgin Media Acquisition. Our analog cable service offerings include basic programming and, in some markets, expanded basic programming. We tailor both our basic channel line-up and our additional channel offerings to each system according to culture, demographics, programming preferences and local regulation. Our digital cable service offerings include basic and premium programming and incremental product and service offerings such as enhanced pay-per-view programming (including video-on-demand), digital video recorders and high definition (HD) programming. In September 2012 and January 2013, we launched "Horizon TV" in the Netherlands and Switzerland, respectively. Horizon TV is a family of media products that allows customers to view and share content across the television, computer, tablet and smartphone. Horizon TV is powered by a user interface that provides customers a seamless intuitive way to access linear, time-shifted, on-demand and web-based content on the television. It also features an advanced set-top box that delivers not only video, but also internet and voice connections along with a wireless network for the home. For our Horizon TV customers, we also offer applications for various services. In the Netherlands and Switzerland, we are working to improve the customer experience, with a redesigned remote control and a software update expected within the next few months. We intend to expand the availability of Horizon TV to other markets within our footprint, with launches planned in Ireland and Germany during 2013 and in certain additional markets during 2014 and 2015. Although our digital television signals are encrypted in many of the countries in which we operate, the basic digital television channels in our entire footprints in Germany, the Netherlands, Switzerland, Austria, Romania and the Czech Republic are unencrypted. Where our basic digital television channels are unencrypted, subscribers who have the necessary equipment and who pay the monthly subscription fee for our analog package are able to watch our basic digital television channels. Regardless of whether basic digital television channels are offered on an unencrypted basis, expanded channel packages and premium channels and services continue to be available for an incremental monthly fee in all of our markets. 56 -------------------------------------------------------------------------------- We offer broadband internet services in all of our broadband communications markets. Our residential subscribers generally access the internet via cable modems connected to their personal computers at various download speeds ranging up to 200 Mbps, depending on the market and the tier of service selected. We determine pricing for each different tier of broadband internet service through analysis of speed, data limits, market conditions and other factors. We offer telephony services in all of our broadband communications markets, primarily using voice-over-internet-protocol or "VoIP" technology. In addition to VTR Wireless' mobile services, we also offer mobile services using third-party networks in Belgium and, to a lesser extent, Germany, Poland, the Netherlands and Hungary. We are exploring strategic alternatives with respect to our wireless operations in Chile, including alternatives involving the expanded use of MVNO arrangements. In the event we were to decide to expand the use of MVNO arrangements, we might determine to dispose of some or all of our wireless network. Any such disposal would entail the disposal of owned equipment and the exit of tower and related real estate operating lease agreements associated with our wireless network in Chile. At March 31, 2013, the carrying value of our owned wireless network assets in Chile was $93.3 million and the remaining payments due under our tower and real estate operating leases in Chile were $123.9 million. We expect that the disposal of any portion of the Chilean wireless network would lead to accelerated depreciation of the impacted assets and restructuring charges with respect to the remaining rentals of the impacted operating leases. Under certain circumstances, a change in our Chilean wireless strategy could also lead to a decision to prepay the VTR Wireless Bank Facility. We have completed a number of transactions that impact the comparability of our 2013 and 2012 results of operations. The most significant of these was the acquisition of OneLink on November 8, 2012. We also completed a number of less significant acquisitions in Europe during 2012 and the first three months of 2013. In May 2012, we completed the sale of Austar. Austar is reflected as a discontinued operation in our condensed consolidated statements of operations and cash flows for the three months ended March 31, 2012. In the following discussion and analysis, the operating statistics, results of operations, cash flows and financial condition that we present and discuss are those of our continuing operations unless otherwise indicated. For further information regarding our acquisitions and discontinued operation, see note 2 to our condensed consolidated financial statements. From a strategic perspective, we are seeking to build broadband communications, DTH and programming businesses that have strong prospects for future growth in revenue, operating cash flow (as defined in note 14 to our condensed consolidated financial statements) and free cash flow (as defined below under Material Changes in Financial Condition - Free Cash Flow). As discussed further under Material Changes in Financial Condition - Capitalization below, we also seek to maintain our debt at levels that provide for attractive equity returns without assuming undue risk. We focus on achieving organic revenue and customer growth in our broadband communications operations by developing and marketing bundled entertainment and information and communications services, and extending and upgrading the quality of our networks where appropriate. As we use the term, organic growth excludes foreign currency translation effects (FX) and the estimated impact of acquisitions. While we seek to obtain new customers, we also seek to maximize the average revenue we receive from each household by increasing the penetration of our digital cable, broadband internet and telephony services with existing customers through product bundling and upselling. We plan to continue to employ this strategy to achieve organic revenue and customer growth. Through our subsidiaries and affiliates, we are the largest international broadband communications operator in terms of subscribers. At March 31, 2013, we owned and operated networks that passed 34,241,400 homes and served 35,211,900 revenue generating units (RGUs), consisting of 18,210,300 video subscribers, 9,488,300 broadband internet subscribers and 7,513,300 telephony subscribers. We added 372,800 RGUs on an organic basis during the three months ended March 31, 2013, as compared to 444,900 RGUs that our continuing operations added on an organic basis during the three months ended March 31, 2012. Organic changes in RGUs exclude RGUs of acquired entities at the date of acquisition but include post-acquisition date RGU additions. The organic 57 -------------------------------------------------------------------------------- RGU growth during the three months ended March 31, 2013 is attributable to the growth of our (i) broadband internet services, which added 233,300 RGUs, (ii) telephony services, which added 231,300 RGUs, (iii) digital cable services, which added 141,700 RGUs, and (iv) DTH video services, which added 13,600 RGUs. The growth of our broadband internet, telephony, digital cable and DTH video services was partially offset by a decline in our analog cable RGUs of 245,000 and a less significant decline in our multi-channel multi-point (microwave) distribution system (MMDS) video RGUs. We are experiencing significant competition from incumbent telecommunications operators (particularly in the Netherlands and, to a lesser extent, Switzerland, where the incumbent telecommunications operators are overbuilding our networks with fiber-to-the-home (FTTH) and advanced digital subscriber line (DSL) technologies), DTH operators and/or other providers in all of our broadband communications markets. This significant competition, together with the maturation of certain of our markets, has contributed to organic declines in certain of our markets in revenue, RGUs and/or average monthly subscription revenue per average RGU (ARPU), the more notable of which include: (i) organic declines in overall revenue in Poland and during the first quarter of 2013, as compared to the first quarter of 2012; (ii) organic declines in subscription revenue from (a) video services in the Netherlands, Poland, Ireland, the Czech Republic and Hungary, (b) broadband internet services in Belgium and (c) telephony services in the Czech Republic during the first quarter of 2013, as compared to the first quarter of 2012; (iii) organic declines in (a) subscription revenue from video services in the Netherlands and Poland, (b) broadband internet and telephony services in Belgium, (c) total subscription revenue in Belgium and the Netherlands and (d) overall revenue in the Netherlands during the first quarter of 2013, as compared to the fourth quarter of 2012; (iv) organic declines in video RGUs in most of our markets during the first quarter of 2013, as net declines in our analog cable RGUs exceeded net additions to our digital cable RGUs (including migrations from analog cable) in these markets; (v) organic declines in ARPU from (a) broadband internet in the majority of our markets and (b) telephony services in all of our markets during the first quarter of 2013, as compared to the first quarter of 2012; and (vi) organic declines in overall ARPU in Ireland, Hungary, Austria, Poland, Slovakia, Romania, Belgium and the Netherlands during the first quarter of 2013, as compared to the first quarter of 2012. In addition to competition, our operations are subject to macroeconomic and political risks that are outside of our control. For example, high levels of sovereign debt in the U.S. and certain European countries (including Ireland and Hungary), combined with weak growth and high unemployment, could lead to fiscal reforms (including austerity measures), sovereign debt restructurings, currency instability, increased counterparty credit risk, high levels of volatility and, potentially, disruptions in the credit and equity markets, as well as other outcomes that might adversely impact our company. With regard to currency instability issues, concerns exist in the eurozone with respect to individual macro-fundamentals on a country-by-country basis, as well as with respect to the overall stability of the European monetary union and the suitability of a single currency to appropriately deal with specific fiscal management and sovereign debt issues in individual eurozone countries. The realization of these concerns could lead to the exit of one or more countries from the European monetary union and the re-introduction of individual currencies in these countries, or, in more extreme circumstances, the possible dissolution of the European monetary union entirely, which could result in the redenomination of a portion, or in the extreme case, all of our euro-denominated assets, liabilities and cash flows to the new currency of the country in which they originated. This could result in a mismatch in the currencies of our assets, liabilities and cash flows. Any such mismatch, together with the capital market disruption that would likely accompany any such redenomination event, could have a material adverse impact on our liquidity and financial condition. Furthermore, any redenomination event would likely be accompanied by significant economic dislocation, particularly within the eurozone countries, which in turn could have an adverse impact on demand for our products, and accordingly, on our revenue and cash flows. Moreover, any changes from euro to non-euro currencies within the countries in which we operate would require us to modify our billing and other financial systems. No assurance can be given that any required modifications could be made within a timeframe that would allow us to timely bill our customers or prepare and file required financial reports. In light of the significant exposure that we have to the euro through our euro-denominated borrowings, derivative instruments, cash balances and cash flows, a redenomination event could have a material adverse impact on our company. 58 -------------------------------------------------------------------------------- The video, broadband internet and telephony businesses in which we operate are capital intensive. Significant additions to our property and equipment are required to add customers to our networks and to upgrade our broadband communications networks and customer premises equipment to enhance our service offerings and improve the customer experience, including expenditures for equipment and labor costs. Significant competition, the introduction of new technologies, the expansion of existing technologies such as FTTH and advanced DSL technologies, or adverse regulatory developments could cause us to decide to undertake previously unplanned upgrades of our networks and customer premises equipment in the impacted markets. In addition, no assurance can be given that any future upgrades will generate a positive return or that we will have adequate capital available to finance such future upgrades. If we are unable to, or elect not to, pay for costs associated with adding new customers, expanding or upgrading our networks or making our other planned or unplanned additions to our property and equipment, our growth could be limited and our competitive position could be harmed. For information regarding our property and equipment additions, see Material Changes in Financial Condition - Condensed Consolidated Cash Flow Statements below. Material Changes in Results of Operations As noted under Overview above, the comparability of our operating results during 2013 and 2012 is affected by acquisitions. In the following discussion, we quantify the estimated impact of acquisitions on our operating results. The acquisition impact represents our estimate of the difference between the operating results of the periods under comparison that is attributable to an acquisition. In general, we base our estimate of the acquisition impact on an acquired entity's operating results during the first three months following the acquisition date such that changes from those operating results in subsequent periods are considered to be organic changes. Accordingly, in the following discussion, variances attributed to an acquired entity during the first twelve months following the acquisition date represent differences between the estimated acquisition impact and the actual results. Changes in foreign currency exchange rates have a significant impact on our reported operating results as all of our operating segments, except for Puerto Rico, have functional currencies other than the U.S. dollar. Our primary exposure to FX risk during the three months ended March 31, 2013 was to the euro as 64.0% of our U.S. dollar revenue during that period was derived from subsidiaries whose functional currency is the euro. In addition, our reported operating results are impacted by changes in the exchange rates for the Swiss franc, the Chilean peso and other local currencies in Europe. The portions of the changes in the various components of our results of operations that are attributable to changes in FX are highlighted under Discussion and Analysis of our Reportable Segments and Discussion and Analysis of our Consolidated Operating Results below. For information concerning our foreign currency risks and the applicable foreign currency exchange rates in effect for the periods covered by this Quarterly Report, see Quantitative and Qualitative Disclosures about Market Risk - Foreign Currency Risk below. The amounts presented and discussed below represent 100% of each operating segment's revenue and operating cash flow. As we have the ability to control Telenet, the VTR Group and Liberty Puerto Rico, we consolidate 100% of the revenue and expenses of these entities in our condensed consolidated statements of operations despite the fact that third parties own significant interests in these entities. The noncontrolling owners' interests in the operating results of Telenet, the VTR Group, Liberty Puerto Rico and other less significant majority-owned subsidiaries are reflected in net earnings or loss attributable to noncontrolling interests in our condensed consolidated statements of operations. Discussion and Analysis of our Reportable Segments General All of the reportable segments set forth below derive their revenue primarily from broadband communications services, including video, broadband internet and telephony services. All of our reportable segments also provide B2B services. At March 31, 2013, our operating segments in the UPC/Unity Division provided broadband communications services in 10 European countries and DTH services to customers in the Czech Republic, Hungary, Romania and Slovakia through 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. The UPC/Unity Division'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 the UPC/Unity Division. Telenet provides video, broadband internet and telephony services in Belgium. In Chile, the VTR Group includes 59 -------------------------------------------------------------------------------- VTR, which provides video, broadband internet and telephony services, and VTR Wireless, which provides mobile services through a combination of its own wireless network and certain third-party wireless access arrangements. Our corporate and other category includes (i) less significant operating segments that provide (a) broadband communications services in Puerto Rico and (b) programming and other services in Europe and Latin America and (ii) our corporate category. Intersegment eliminations primarily represent the elimination of intercompany transactions between our broadband communications and programming operations, primarily in Europe. The tables presented below in this section provide a separate analysis of each of the line items that comprise operating cash flow (revenue, operating expenses and SG&A expenses, excluding allocable stock-based compensation expense, as further discussed in note 14 to our condensed consolidated financial statements) as well as an analysis of operating cash flow by reportable segment for the three months ended March 31, 2013 and 2012. These tables present (i) the amounts reported by each of our reportable segments for the comparative periods, (ii) the U.S. dollar change and percentage change from period to period and (iii) the organic percentage change from period to period (percentage change after removing FX and the estimated impacts of acquisitions). The comparisons that exclude FX assume that exchange rates remained constant at the prior year rate during the comparative periods that are included in each table. As discussed under Quantitative and Qualitative Disclosures about Market Risk - Foreign Currency Risk below, we have significant exposure to movements in foreign currency exchange rates. We also provide a table showing the operating cash flow margins of our reportable segments for the three months ended March 31, 2013 and 2012 at the end of this section. The revenue of our reportable segments includes revenue earned from subscribers for ongoing services, revenue earned from B2B services, interconnect fees, channel carriage fees, installation fees, mobile services revenue, late fees and advertising revenue. Consistent with the presentation of our revenue categories in note 14 to our condensed consolidated financial statements, we use the term "subscription revenue" in the following discussion to refer to amounts received from subscribers for ongoing services, excluding installation fees, late fees and mobile services revenue. The rates charged for certain video services offered by our broadband communications operations in some European countries and in Chile are subject to oversight and control, either before or after the fact, based on competition law or general pricing regulations. Additionally, in Chile, our ability to bundle or discount our services is subject to certain limitations, and in Europe, our ability to bundle or discount our services may be constrained if we are held to be dominant with respect to any product we offer. The amounts we charge and incur with respect to telephony interconnection fees are also subject to regulatory oversight in many of our markets. Adverse outcomes from rate regulation or other regulatory initiatives could have a significant negative impact on our ability to maintain or increase our revenue. For information concerning the potential impact of adverse regulatory developments in Belgium and the Netherlands, see note 13 to our condensed consolidated financial statements. We rely on third-party vendors for the equipment, software and services that we require in order to provide services to our customers. Our suppliers often conduct business worldwide and their ability to meet our needs are subject to various risks, including political and economic instability, natural calamities, interruptions in transportation systems, terrorism and labor issues. As a result, we may not be able to obtain the equipment, software and services required for our businesses on a timely basis or on satisfactory terms. Any shortfall in customer premises equipment could lead to delays in connecting customers to our services, and accordingly, could adversely impact our ability to maintain or increase our RGUs, revenue and cash flows. 60 --------------------------------------------------------------------------------Revenue of our Reportable Segments Organic increase Three months ended March 31, Increase (decrease) 2013 2012 $ % % in millions UPC/Unity Division: Germany $ 618.2 $ 560.7 $ 57.5 10.3 9.5 The Netherlands 314.8 310.7 4.1 1.3 0.5 Switzerland 326.0 313.3 12.7 4.1 5.0 Other Western Europe 222.6 211.9 10.7 5.0 4.5 Total Western Europe 1,481.6 1,396.6 85.0 6.1 5.7 Central and Eastern Europe 287.8 280.9 6.9 2.5 0.8 Central and other 32.0 28.2 3.8 13.5 12.2 Total UPC/Unity Division 1,801.4 1,705.7 95.7 5.6 5.0 Telenet (Belgium) 536.2 477.5 58.7 12.3 11.5 VTR Group (Chile) 250.4 224.5 25.9 11.5 7.7 Corporate and other 199.3 151.4 47.9 31.6 (7.0 ) Intersegment eliminations (19.6 ) (22.1 ) 2.5 11.3 12.4 Total $ 2,767.7 $ 2,537.0 $ 230.7 9.1 5.9 General. While not specifically discussed in the below explanations of the changes in the revenue of our reportable segments, we are experiencing significant competition in all of our broadband communications markets. This competition has an adverse impact on our ability to increase or maintain our RGUs and/or ARPU. For a description of the more notable recent impacts of this competition on our broadband communications markets, see Overview above. Germany. The increase in Germany's revenue during the three months ended March 31, 2013, as compared to the corresponding period in 2012, includes (i) an organic increase of $53.5 million or 9.5% and (ii) the impact of FX, as set forth below: Subscription Non-subscription revenue (a) revenue (b) Total in millionsIncrease in subscription revenue due to change in: Average number of RGUs (c) $ 35.4 $ - $ 35.4 ARPU (d) 20.6 - 20.6 Decrease in non-subscription revenue (e) - (2.5 ) (2.5 ) Organic increase (decrease) 56.0 (2.5 ) 53.5 Impact of FX 3.6 0.4 4.0 Total $ 59.6 $ (2.1 ) $ 57.5 61--------------------------------------------------------------------------------_______________ (a) Germany's subscription revenue includes revenue from multi-year bulk agreements with landlords, housing associations or with third parties that operate and administer the in-building networks on behalf of housing associations. These bulk agreements, which generally allow for the procurement of the basic video signals at volume-based discounts, provide access to nearly two-thirds of Germany's video cable subscribers. Germany's bulk agreements are, to a significant extent, medium and long-term contracts, although approximately 47% of these agreements are scheduled to expire by the end of 2014. During the three months ended March 31, 2013, Germany's 20 largest bulk agreement accounts generated approximately 7% of its revenue (including estimated amounts billed directly to the building occupants for premium cable, broadband internet and telephony services). No assurance can be given that Germany's bulk agreements will be renewed or extended on financially equivalent terms or at all, particularly in light of the commitments we made to regulators in connection with the December 15, 2011 acquisition of KBW. In this regard, we have, among other items, agreed to grant a special termination right with respect to certain of Germany's existing access agreements (the Remedy HA Agreements). The total number of dwelling units covered by the affected agreements was approximately 340,000 as of December 15, 2011. At March 31, 2013, approximately 35% of the dwelling units covered by the Remedy HA Agreements remain subject to special termination rights. These dwelling units (which include agreements that are not among the 20 largest bulk agreements) accounted for approximately 1% of Germany's total revenue during the three months ended March 31, 2013. (b) Germany's non-subscription revenue includes fees received for the carriage of certain channels included in Germany's analog and digital cable offerings. This carriage fee revenue is subject to contracts that expire or are otherwise terminable by either party on various dates ranging from 2013 through 2017. The aggregate amount of revenue related to these carriage contracts represents approximately 5% of Germany's total revenue during the three months ended March 31, 2013. Public broadcasters have sent us notices purporting to terminate their carriage fee arrangements effective December 31, 2012. While we are still seeking to negotiate with the public broadcasters to reach acceptable agreements, we have rejected the termination notices and filed lawsuits for payment of carriage fees against the public broadcasters. Until such time as we resolve these disputes or obtain favorable outcomes in our lawsuits, we don't believe we meet the criteria to recognize the impacted revenue for 2013 and future periods. The aggregate amount of revenue related to these public broadcasters was $7.9 million or 1% of Germany's total revenue during the three months ended March 31, 2012. In addition, some private broadcasters are seeking to change the distribution model to eliminate the payment of carriage fees and instead require that cable operators pay license fees to the broadcasters. In light of the foregoing, no assurance can be given that any of our carriage fee contracts will be renewed or extended on financially equivalent terms, or at all. Also, our ability to increase the aggregate carriage fees that Germany receives for each channel is limited by certain commitments we made to regulators in connection with the acquisition of KBW. (c) The increase in Germany's subscription revenue related to a change in the average number of RGUs is attributable to increases in the average numbers of broadband internet, telephony and digital cable RGUs that were only partially offset by a decline in the average number of analog cable RGUs. The decline in Germany's average number of analog cable RGUs led to a decline in the average number of Germany's total video RGUs during the three months ended March 31, 2013, as compared to the corresponding period in 2012. (d) The increase in Germany's subscription revenue related to a change in ARPU is due to (i) a net increase resulting primarily from the following factors: (a) higher ARPU due to a lower negative impact from free bundled services provided to new subscribers during promotional periods, (b) higher ARPU from digital cable services, (c) higher ARPU from broadband internet services, (d) higher ARPU from analog cable services, as price increases offset lower ARPU due to higher proportions of customers receiving discounted analog cable services through bulk agreements, and (e) slightly lower ARPU from telephony services due to the net impact of (1) a decrease in ARPU associated with lower telephony call volume for customers on usage-based calling plans and (2) an increase in ARPU associated with the migration of customers to fixed-rate plans and related value-added services, and (ii) an improvement in RGU mix attributable to higher proportions of telephony, broadband internet and digital cable RGUs. (e) The decrease in Germany's non-subscription revenue is primarily attributable to the net effect of (i) a decrease in carriage fee revenue as described above, (ii) an increase in mobile services revenue and (iii) an increase in installation revenue, due to a higher number of installations and an increase in the average installation fee. 62-------------------------------------------------------------------------------- The Netherlands. The increase in the Netherlands' revenue during the three months ended March 31, 2013, as compared to the corresponding period in 2012, includes (i) an organic increase of $1.6 million or 0.5%, (ii) the impact of an acquisition and (iii) the impact of FX, as set forth below: Subscription Non-subscription revenue revenue Total in millions Increase (decrease) in subscription revenue due to change in: Average number of RGUs (a) $ 2.6 $ - $ 2.6 ARPU (b) (2.8 ) - (2.8 ) Increase in non-subscription revenue (c) - 1.8 1.8 Organic increase (decrease) (0.2 ) 1.8 1.6 Impact of an acquisition 0.4 - 0.4 Impact of FX 2.0 0.1 2.1 Total $ 2.2 $ 1.9 $ 4.1 _______________ (a) The increase in the Netherlands' subscription revenue related to a change in the average number of RGUs is attributable to increases in the average numbers of telephony, broadband internet and digital cable RGUs that were only partially offset by a decline in the average number of analog cable RGUs. The decline in the average number of analog cable RGUs led to a decline in the average number of the Netherlands' total video RGUs during the three months ended March 31, 2013, as compared to the corresponding period in 2012. (b) The decrease in the Netherlands' subscription revenue related to a change in ARPU is due to the net effect of (i) a decrease resulting primarily from the following factors: (a) lower ARPU due to a decrease in telephony call volume and higher proportions of customers selecting usage-based calling plans and (b) lower ARPU due to the impact of higher bundling and promotional discounts that more than offset the positive impacts of (1) July 2012 price increases for bundled services and a January 2013 price increase for certain analog cable services and (2) higher proportions of customers selecting higher-priced tiers of digital cable, broadband internet and telephony services, and (ii) an improvement in RGU mix, attributable to higher proportions of digital cable, broadband internet and telephony RGUs. (c) The increase in the Netherlands' non-subscription revenue is primarily attributable to the net effect of (i) an increase in installation revenue, largely related to Horizon TV, (ii) a decrease in interconnect revenue, due primarily to the impact of an August 1, 2012 reduction in fixed termination rates, and (iii) a decrease in B2B revenue. For information concerning certain regulatory developments that could have an adverse impact on our revenue in the Netherlands, see note 13 to our condensed consolidated financial statements. 63 -------------------------------------------------------------------------------- Switzerland. The increase in Switzerland's revenue during the three months ended March 31, 2013, as compared to the corresponding period in 2012, includes (i) an organic increase of $15.6 million or 5.0%, (ii) the impact of an acquisition and (iii) the impact of FX, as set forth below: Subscription Non-subscription revenue revenue Total in millionsIncrease in subscription revenue due to change in: Average number of RGUs (a) $ 8.5 $ - $ 8.5 ARPU (b) 3.7 - 3.7 Increase in non-subscription revenue (c) - 3.4 3.4 Organic increase 12.2 3.4 15.6 Impact of an acquisition 0.4 - 0.4 Impact of FX (2.8 ) (0.5 ) (3.3 ) Total $ 9.8 $ 2.9 $ 12.7 _______________ (a) The increase in Switzerland's subscription revenue related to a change in the average number of RGUs is attributable to increases in the average numbers of digital cable, telephony and broadband internet RGUs that were only partially offset by a decline in the average number of analog cable RGUs. The decline in the average number of analog cable RGUs led to a decline in the average number of Switzerland's total video RGUs during the three months ended March 31, 2013, as compared to the corresponding period in 2012. (b) The increase in Switzerland's subscription revenue related to a change in ARPU is due to the net effect of (i) an improvement in RGU mix, attributable to higher proportions of digital cable, broadband internet and telephony RGUs, and (ii) a net decrease resulting primarily from the following factors: (a) higher ARPU due to higher proportions of customers selecting higher-priced tiers of broadband internet services and, to a lesser extent, digital cable services, (b) lower ARPU due to the impact of bundling discounts and (c) lower ARPU due to a decrease in telephony call volume for customers on usage-based calling plans. (c) The increase in Switzerland's non-subscription revenue is primarily attributable to an increase in installation revenue. The increase in installation revenue is due in part to a change in how we recognize installation revenue in Switzerland as a result of a change in how we market and deliver services upon the unencryption of the basic tier of digital television channels in November 2012, as further described below. In October 2012, we announced an agreement with the Swiss Price Regulator pursuant to which we will make certain changes to Switzerland's service offerings in exchange for progressive increases in the price of Switzerland's basic cable connection over the next two years. In this regard, (i) effective November 1, 2012, we began offering a basic tier of digital television channels on an unencrypted basis in our Switzerland footprint and (ii) effective January 3, 2013, for video subscribers who pay the required upfront activation fee, we made available, at no additional monthly charge, a 2.0 Mbps internet connection, which was an increase from the previously-offered 300 Kbps internet connection. In addition, the price for a cable connection increased by CHF 0.90 ($0.95) effective January 1, 2013 and a further increase of CHF 0.60 ($0.63) will take effect on January 1, 2014. Although the above changes in Switzerland's service offerings may negatively impact certain revenue streams, we believe that the positive impact of the price increases in 2013 and 2014 will offset such negative impacts and place us in a position where we can continue to increase our revenue and RGUs in Switzerland. No assurance can be given that our assessment of the net impact of these changes in our service offerings and prices will prove to be accurate or that we will be able to continue to grow our revenue and RGUs in Switzerland. 64 -------------------------------------------------------------------------------- Other Western Europe. The increase in Other Western Europe's revenue during the three months ended March 31, 2013, as compared to the corresponding period in 2012, includes (i) an organic increase of $9.4 million or 4.5% and (ii) the impact of FX, as set forth below: Subscription Non-subscription revenue revenue Total in millions Increase (decrease) in subscription revenue due to change in: Average number of RGUs (a) $ 11.9 $ - $ 11.9 ARPU (b) (4.1 ) - (4.1 ) Increase in non-subscription revenue (c) - 1.6 1.6 Organic increase 7.8 1.6 9.4 Impact of FX 1.2 0.1 1.3 Total $ 9.0 $ 1.7 $ 10.7 _______________ (a) The increase in Other Western Europe's subscription revenue related to a change in the average number of RGUs is attributable to increases in the average numbers of telephony, broadband internet and digital cable RGUs in each of Ireland and Austria that were only partially offset by a decline in the average number of analog cable RGUs in each of Austria and Ireland and, to a lesser extent, MMDS video RGUs in Ireland. The declines in the average numbers of analog cable and MMDS video RGUs led to a decline in the average number of total video RGUs in each of Ireland and Austria during the three months ended March 31, 2013, as compared to the corresponding period in 2012. (b) The decrease in Other Western Europe's subscription revenue related to a change in ARPU is attributable to a decrease in ARPU in each of Ireland and Austria. The decrease in Ireland's ARPU is largely due to the net effect of (i) lower ARPU due to the impact of bundling discounts and (ii) higher ARPU due to higher proportions of customers selecting higher- priced tiers of digital cable and broadband internet services. The decrease in Austria's ARPU is primarily due to the net effect of (a) lower ARPU due to the impact of bundling discounts, (b) lower ARPU due to a higher proportion of customers selecting lower-priced tiers of broadband internet services and (c) higher ARPU due to price increases in January 2013 for digital and analog cable and broadband internet services. In addition, Other Western Europe's overall ARPU was impacted by adverse changes in RGU mix, primarily attributable to a lower proportion of digital cable RGUs in Ireland. (c) The increase in Other Western Europe's non-subscription revenue is due primarily to (i) an increase in Ireland's B2B telephony services and (ii) an increase in installation revenue in Ireland. 65-------------------------------------------------------------------------------- Central and Eastern Europe. The increase in Central and Eastern Europe's revenue during the three months ended March 31, 2013, as compared to the corresponding period in 2012, includes (i) an organic increase of $2.1 million or 0.8%, (ii) the impact of an acquisition and (iii) the impact of FX, as set forth below: Subscription Non-subscription revenue revenue Total in millions Increase (decrease) in subscription revenue due to change in: Average number of RGUs (a) $ 8.2 $ - $ 8.2 ARPU (b) (7.1 ) - (7.1 ) Increase in non-subscription revenue (c) - 1.0 1.0 Organic increase 1.1 1.0 2.1 Impact of an acquisition 2.3 0.1 2.4 Impact of FX 2.6 (0.2 ) 2.4 Total $ 6.0 $ 0.9 $ 6.9 _______________ (a) The increase in Central and Eastern Europe's subscription revenue related to a change in the average number of RGUs is primarily attributable to increases in the average numbers of digital cable, telephony and broadband internet RGUs that were only partially offset by declines in the average numbers of analog cable and, to a much lesser extent, MMDS video RGUs in Slovakia. In each country within our Central and Eastern Europe segment, a decline in the average number of analog cable RGUs led to a decline in the average number of Central and Eastern Europe's total video RGUs during the three months ended March 31, 2013, as compared to the corresponding period in 2012. (b) The decrease in Central and Eastern Europe's subscription revenue related to a change in ARPU is primarily due to the net effect of (i) lower ARPU due to the impact of higher bundling discounts, (ii) higher ARPU due to an increase in the proportion of broadband internet and digital cable subscribers selecting higher-priced tiers of services, (iii) lower ARPU from digital cable services and (iv) lower ARPU due to a decrease in telephony call volume for customers on usage-based calling plans. In addition, Central and Eastern Europe's overall ARPU was positively impacted by an improvement in RGU mix, primarily attributable to a higher proportion of digital cable and, to a lesser extent, broadband internet RGUs. (c) The increase in Central and Eastern Europe's non-subscription revenue is due to individually insignificant changes in various non-subscription revenue categories. 66-------------------------------------------------------------------------------- Telenet (Belgium). The increase in Telenet's revenue during the three months ended March 31, 2013, as compared to the corresponding period in 2012, includes (i) an organic increase of $55.1 million or 11.5% and (ii) the impact of FX, as set forth below: Subscription Non-subscription revenue revenue Total in millions Increase (decrease) in subscription revenue due to change in: Average number of RGUs (a) $ 8.7 $ - $ 8.7 ARPU (b) (6.5 ) - (6.5 ) Increase in non-subscription revenue (c) - 52.9 52.9 Organic increase 2.2 52.9 55.1 Impact of FX 2.4 1.2 3.6 Total $ 4.6 $ 54.1 $ 58.7 _______________ (a) The increase in Telenet's subscription revenue related to a change in the average number of RGUs is attributable to increases in the average numbers of digital cable, telephony and broadband internet RGUs that were only partially offset by a decline in the average number of analog cable RGUs. The decline in the average number of analog cable RGUs led to a decline in the average number of Telenet's total video RGUs during the three months ended March 31, 2013, as compared to the corresponding period in 2012. (b) The decrease in Telenet's subscription revenue related to a change in ARPU is due to the net effect of (i) a net decrease resulting primarily from the following factors: (a) lower ARPU due to an increase in the proportion of customers selecting lower-priced tiers of broadband internet services, (b) higher ARPU due to February 2013 price increases for certain digital cable, broadband internet and telephony services, (c) higher ARPU due to the impact of lower bundling discounts and (d) lower ARPU due to a decrease in telephony call volume for customers on usage-based plans and the negative impact of a higher proportion of customers migrating to fixed-rate calling plans, and (ii) an improvement in RGU mix, attributable to higher proportions of digital cable, broadband internet and telephony RGUs. (c) The increase in Telenet's non-subscription revenue is due primarily to (i) an increase in mobile services revenue of $29.5 million, (ii) an increase in interconnect revenue of $16.5 million, primarily associated with growth in mobile services, and (iii) an increase in mobile handset sales of $5.0 million. The increase in Telenet's mobile handset sales, which sales typically generate relatively low margins, is mostly due to an increase in sales to third-party retailers. For information concerning certain regulatory developments that could have an adverse impact on our revenue in Belgium, see note 13 to our condensed consolidated financial statements. 67 -------------------------------------------------------------------------------- VTR Group (Chile). The increase in the VTR Group's revenue during the three months ended March 31, 2013, as compared to the corresponding period in 2012, includes (i) an organic increase of $17.4 million or 7.7% and (ii) the impact of FX, as set forth below: Subscription Non-subscription revenue revenue Total in millionsIncrease in subscription revenue due to change in: Average number of RGUs (a) $ 10.2 $ - $ 10.2 ARPU (b) 0.1 - 0.1 Increase in non-subscription revenue (c) - 7.1 7.1 Organic increase 10.3 7.1 17.4 Impact of FX 7.5 1.0 8.5 Total $ 17.8 $ 8.1 $ 25.9 _______________ (a) The increase in the VTR Group's subscription revenue related to a change in the average number of RGUs is primarily due to increases in the average numbers of digital cable, broadband internet and telephony RGUs that were only partially offset by a decline in the average number of analog cable RGUs. (b) The increase in the VTR Group's subscription revenue related to a change in ARPU is due to the net effect of (i) an improvement in RGU mix, primarily attributable to a higher proportion of digital cable RGUs, and (ii) a net decrease resulting from the following factors: (a) higher ARPU due to semi-annual inflation and other price adjustments for video, broadband internet and telephony services, (b) lower ARPU from analog and digital cable services, largely due to higher proportions of customers selecting lower-priced tiers of services, (c) higher ARPU due to the impact of lower bundling and promotional discounts and (d) lower ARPU due to a decrease in telephony call volume for customers on usage-based plans. (c) The increase in the VTR Group's non-subscription revenue is attributable to the net effect of (i) a $9.3 million increase in mobile revenue (including subscription, handset sales and interconnect revenue) due to the May 2012 launch of mobile services at VTR Wireless and (ii) a decrease in fixed-line interconnect revenue at VTR. 68--------------------------------------------------------------------------------Operating Expenses of our Reportable Segments Organic increase Three months ended March 31, Increase (decrease) 2013 2012 $ % % in millions UPC/Unity Division: Germany $ 154.0 $ 139.2 $ 14.8 10.6 9.9 The Netherlands 95.3 93.3 2.0 2.1 1.4 Switzerland 92.2 90.4 1.8 2.0 2.9 Other Western Europe 86.9 84.4 2.5 3.0 2.6 Total Western Europe 428.4 407.3 21.1 5.2 4.9 Central and Eastern Europe 109.5 108.6 0.9 0.8 (1.1 ) Central and other 31.4 25.2 6.2 24.6 21.4 Total UPC/Unity Division 569.3 541.1 28.2 5.2 4.5 Telenet (Belgium) 230.9 183.4 47.5 25.9 24.9 VTR Group (Chile) 120.5 101.9 18.6 18.3 14.3 Corporate and other 121.5 91.5 30.0 32.8 (2.3 ) Intersegment eliminations (19.1 ) (21.9 ) 2.8 12.8 12.7 Total operating expenses excluding stock-based compensation expense 1,023.1 896.0 127.1 14.2 9.5 Stock-based compensation expense 3.9 1.7 2.2 129.4 Total $ 1,027.0 $ 897.7 $ 129.3 14.4 General. Operating expenses include programming and copyright, network operations, interconnect, customer operations, customer care, stock-based compensation expense and other direct costs. We do not include stock-based compensation in the following discussion and analysis of the operating expenses of our reportable segments as stock-based compensation expense is not included in the performance measures of our reportable segments. Stock-based compensation expense is discussed under Discussion and Analysis of Our Consolidated Operating Results below. Programming and copyright costs, which represent a significant portion of our operating costs, are expected to rise in future periods as a result of (i) growth in digital cable services, in combination with the introduction of Horizon TV, and (ii) price increases. In addition, we are subject to inflationary pressures with respect to our labor and other costs and foreign currency exchange risk with respect to costs and expenses that are denominated in currencies other than the respective functional currencies of our operating segments (non-functional currency expenses). Any cost increases that we are not able to pass on to our subscribers through service rate increases would result in increased pressure on our operating margins. For additional information concerning our foreign currency exchange risks see Quantitative and Qualitative Disclosures about Market Risk - Foreign Currency Risk below. 69 -------------------------------------------------------------------------------- UPC/Unity Division. The UPC/Unity Division's operating expenses (exclusive of stock-based compensation expense) increased $28.2 million or 5.2% during the three months ended March 31, 2013, as compared to the corresponding period in 2012. This increase includes $1.4 million attributable to the impact of acquisitions. Excluding the effects of acquisitions and FX, the UPC/Unity Division's operating expenses increased $24.2 million or 4.5%. This increase includes the following factors: • An increase in programming and related costs of $16.8 million or 10.6%, due predominantly to growth in digital video services in Germany, the Netherlands and Switzerland; • A decrease in interconnect costs of $6.4 million or 10.2%, due to (i) lower rates in Germany and the Netherlands and (ii) lower usage in Switzerland; • An increase in personnel costs of $5.4 million or 5.2%, due largely to the net effect of (i) annual wage increases, primarily in Germany, the Netherlands, the UPC/Unity Division's central operations and Switzerland, (ii) increased staffing levels, primarily in the UPC/Unity Division's central operations, the Czech Republic and Switzerland, and (iii) lower staffing levels in Germany as a result of outsourcing certain customer care activities to third parties; • An increase in network-related expenses of $4.8 million or 6.2%, due largely to (i) increased network maintenance costs, primarily in Germany and Switzerland, and (ii) higher costs in the UPC/Unity Division's central operations due to increased network transit requirements; • An increase in outsourced labor and professional fees of $3.1 million or 5.4%, due primarily to (i) increased costs in Germany attributable to (a) higher call volumes, due primarily to a higher proportion of calls handled by third parties, and (b) higher consulting fees related to a customer retention project, and (ii) higher outsourced labor associated with customer-facing activities in Poland; and • A decrease in the cost of customer premises equipment sold to customers of $2.6 million, primarily due to lower sales of common interface plus or "CI+" modules in Switzerland. Telenet (Belgium). Telenet's operating expenses (exclusive of stock-based compensation expense) increased $47.5 million or 25.9% during the three months ended March 31, 2013, as compared to the corresponding period in 2012. Excluding the effects of FX, Telenet's operating expenses increased $45.7 million or 24.9%. This increase includes the following factors: • An increase in interconnect and MVNO costs of $23.2 million, due primarily to (i) mobile subscriber growth and (ii) increased mobile voice and data volumes; • An increase in mobile handset costs of $18.6 million, due primarily to (i) higher costs associated with subscriber promotions involving free or heavily-discounted handsets and (ii) increased mobile handset sales to third-party retailers; • A $2.8 million decrease due to the impact of an accrual release in connection with the reassessment of an operational contingency; and • An increase in programming and related costs of $2.6 million or 4.3%, due mostly to growth in digital video services. 70-------------------------------------------------------------------------------- VTR Group (Chile). The VTR Group's operating expenses (exclusive of stock-based compensation expense) increased $18.6 million or 18.3% during the three months ended March 31, 2013 as compared to the corresponding period in 2012. Excluding the effects of FX, the VTR Group's operating expenses increased $14.5 million or 14.3%. This increase includes the following factors: • An increase in VTR Wireless' mobile handset costs of $3.4 million; • An increase in mobile access and interconnect costs of $3.2 million or 20.1%, due primarily to the impact of the May 2012 launch of mobile services; • An increase in bad debt expense and collection expenses of $2.3 million or 25.7% at VTR Wireless and, to a lesser extent, VTR. The VTR Wireless increase is largely a function of the May 2012 launch of mobile services; • An increase in programming and related costs of $1.7 million or 4.7%, primarily associated with growth in digital cable services. Although a significant portion of the VTR Group's programming contracts are denominated in U.S. dollars, the impact of foreign currency exchange rate fluctuations did not materially impact the VTR Group's programming costs during the first quarter of 2013; • An increase in personnel costs of $1.2 million or 9.2%, due primarily to increases in staffing levels at both VTR Wireless and VTR; • An increase in outsourced labor and professional fees of $1.1 million or 12.4%, resulting from the net effect of (i) increased costs associated with VTR Wireless' network operating center and (ii) a slight decrease in VTR's call center costs and customer-facing activities; and • An increase in facilities expenses of $1.0 million or 23.4%, due primarily to higher site and tower rental costs incurred by VTR Wireless. 71--------------------------------------------------------------------------------SG&A Expenses of our Reportable Segments Organic increase Three months ended March 31, Increase (decrease) (decrease) 2013 2012 $ % % in millions UPC/Unity Division: Germany $ 104.2 $ 98.5 $ 5.7 5.8 5.1 The Netherlands 34.7 34.7 - - (1.2 ) Switzerland 51.6 45.9 5.7 12.4 13.4 Other Western Europe 30.9 28.9 2.0 6.9 6.4 Total Western Europe 221.4 208.0 13.4 6.4 6.0 Central and Eastern Europe 37.7 34.7 3.0 8.6 7.3 Central and other 46.2 40.1 6.1 15.2 15.2 Total UPC/Unity Division 305.3 282.8 22.5 8.0 7.5 Telenet (Belgium) 57.8 58.3 (0.5 ) (0.9 ) (1.4 ) VTR Group (Chile) 44.7 47.4 (2.7 ) (5.7 ) (9.0 ) Corporate and other 67.7 57.1 10.6 18.6 (6.6 ) Intersegment eliminations (0.5 ) (0.2 ) (0.3 ) N.M. N.M. Total SG&A expenses excluding stock-based compensation expense 475.0 445.4 29.6 6.6 2.8 Stock-based compensation expense 22.9 26.0 (3.1 ) (11.9 ) Total $ 497.9 $ 471.4 $ 26.5 5.6 _______________ N.M. - Not Meaningful. General. SG&A expenses include human resources, information technology, general services, management, finance, legal and sales and marketing costs, stock-based compensation and other general expenses. We do not include stock-based compensation in the following discussion and analysis of the SG&A expenses of our reportable segments as stock-based compensation expense is not included in the performance measures of our reportable segments. Stock-based compensation expense is discussed under Discussion and Analysis of Our Consolidated Operating Results below. As noted under Operating Expenses of our Reportable Segments above, we are subject to inflationary pressures with respect to our labor and other costs and foreign currency exchange risk with respect to non-functional currency expenses. For additional information concerning our foreign currency exchange risks see Quantitative and Qualitative Disclosures about Market Risk - Foreign Currency Risk below. UPC/Unity Division. The UPC/Unity Division's SG&A expenses (exclusive of stock-based compensation expense) increased $22.5 million or 8.0% during the three months ended March 31, 2013, as compared to the corresponding period in 2012. This increase includes $0.5 million attributable to the impact of acquisitions. Excluding the effects of acquisitions and FX, the UPC/Unity Division's SG&A expenses increased $21.2 million or 7.5%. This increase includes the following factors: • An increase in personnel costs of $8.6 million or 8.0%, due primarily to (i) increased staffing levels, predominantly in Switzerland, Hungary and the UPC/Unity Division's central operations, and (ii) annual wage increases, primarily in the Netherlands, the UPC/Unity Division's central operations, Germany and Switzerland. The increase in personnel costs also includes the impact of a new employee wage tax in the Netherlands, which was authorized in the third quarter of 2012; • An increase in sales and marketing costs of $1.8 million or 1.8%, due largely to increased marketing costs associated with the launch of Horizon TV in Switzerland; 72--------------------------------------------------------------------------------• A decrease in outsourced labor and professional fees of $1.8 million or 9.2%, due primarily to the net effect of (i) a decrease in consulting costs in Germany, primarily associated with integration activities in the 2012 period related to the acquisition of KBW, and (ii) increased costs in the UPC/Unity Division central operations related to centralization and procurement initiatives; and • A net increase resulting from individually insignificant changes in other SG&A expense categories. Telenet (Belgium). Telenet's SG&A expenses (exclusive of stock-based compensation expense) decreased $0.5 million or 0.9% during the three months ended March 31, 2013, as compared to the corresponding period in 2012. Excluding the effects of FX, Telenet's SG&A expenses decreased $0.8 million or 1.4%. This decrease includes the following factors: • An increase in personnel costs of $1.5 million or 6.9%, due primarily to (i) annual wage increases and (ii) increased sales commissions; • A decrease in sales and marketing costs of $1.0 million or 4.7%, due primarily to the net effect of (i) lower marketing costs in connection with promotional and operational initiatives and (ii) increased third-party sales commissions, due primarily to growth in mobile services; and • A net decrease resulting from individually insignificant changes in other SG&A expense categories. VTR Group (Chile). The VTR Group's SG&A expenses (exclusive of stock-based compensation expense) decreased $2.7 million or 5.7%, during the three months ended March 31, 2013, as compared to the corresponding period in 2012. Excluding the effects of FX, the VTR Group's SG&A expenses decreased $4.3 million or 9.0%. This decrease is due primarily to lower advertising costs at each of VTR and VTR Wireless. 73--------------------------------------------------------------------------------Operating Cash Flow of our Reportable Segments Operating cash flow is the primary measure used by our chief operating decision maker to evaluate segment operating performance. As we use the term, operating cash flow is defined as revenue less operating and SG&A expenses (excluding stock-based compensation, depreciation and amortization, provisions for litigation, and impairment, restructuring and other operating items). For additional information concerning this performance measure and for a reconciliation of total segment operating cash flow to our earnings (loss) from continuing operations before income taxes, see note 14 to our condensed consolidated financial statements. Organic increase Three months ended March 31, Increase (decrease) (decrease) 2013 2012 $ % % in millions UPC/Unity Division: Germany $ 360.0 $ 323.0 $ 37.0 11.5 10.8 The Netherlands 184.8 182.7 2.1 1.1 0.4 Switzerland 182.2 177.0 5.2 2.9 3.9 Other Western Europe 104.8 98.6 6.2 6.3 5.4 Total Western Europe 831.8 781.3 50.5 6.5 6.1 Central and Eastern Europe 140.6 137.6 3.0 2.2 0.6 Central and other (45.6 ) (37.1 ) (8.5 ) (22.9 ) (21.7 ) Total UPC/Unity Division 926.8 881.8 45.0 5.1 4.6 Telenet (Belgium) 247.5 235.8 11.7 5.0 4.3 VTR Group (Chile) 85.2 75.2 10.0 13.3 9.5 Corporate and other 10.1 2.8 7.3 260.7 (215.0 ) Total $ 1,269.6 $ 1,195.6 $ 74.0 6.2 4.3 74--------------------------------------------------------------------------------Operating Cash Flow Margin The following table sets forth the operating cash flow margin (operating cash flow divided by revenue) of each of our reportable segments: Three months ended March 31, 2013 2012 % UPC/Unity Division: Germany 58.2 57.6 The Netherlands 58.7 58.8 Switzerland 55.9 56.5 Other Western Europe 47.1 46.5 Total Western Europe 56.1 55.9 Central and Eastern Europe 48.9 49.0 Total UPC/Unity Division, including central and other 51.4 51.7 Telenet (Belgium) 46.2 49.4 VTR Group (Chile) 34.0 33.5 With the exception of Telenet, the operating cash flow margins of our reportable segments remained largely consistent with the prior year period. The decline in Telenet's operating cash flow margin is primarily due to higher handset and other subscriber acquisition costs associated with the rapid expansion of Telenet's mobile business. The extent of the decline in Telenet's operating cash flow margins that will be realized from full year 2012 to full year 2013 will be largely dependent on the pace of growth and the margins of Telenet's mobile services during the remainder of 2013. The increase in the VTR Group's operating cash flow margin reflects the net effect of (i) lower advertising costs at each of VTR and VTR Wireless, (ii) growth in the negative-margin mobile services of VTR Wireless and (iii) improved operational leverage, resulting from revenue growth that more than offset the accompanying increases in operating and SG&A expenses, at VTR. During the three months ended March 31, 2013 and 2012, the incremental operating cash flow deficit of VTR Wireless was $18.6 million and $14.7 million, respectively. As discussed above under Overview, the incumbent telecommunications operator is overbuilding our network in the Netherlands using FTTH and advanced DSL technologies. As a result, the Netherlands is experiencing significant competition from this telecommunications operator and we expect that the Netherlands will be challenged to maintain its current operating cash flow margin in 2013 and future periods. For additional discussion of the factors contributing to the changes in the operating cash flow margins of our reportable segments, see the above analyses of the revenue, operating expenses and SG&A expenses of our reportable segments. 75 --------------------------------------------------------------------------------Discussion and Analysis of our Consolidated Operating Results General For more detailed explanations of the changes in our revenue, operating expenses and SG&A expenses, see the Discussion and Analysis of our Reportable Segments above. For information concerning our foreign currency exchange risks, see Quantitative and Qualitative Disclosures about Market Risk - Foreign Currency Risk below. Revenue Our revenue by major category is set forth below: Organic Three months ended March 31, Increase increase 2013 2012 $ % % in millions Subscription revenue (a): Video $ 1,212.7 $ 1,164.4 $ 48.3 4.1 1.2 Broadband internet 668.3 599.4 68.9 11.5 8.6 Telephony 410.9 376.1 34.8 9.3 7.3 Total subscription revenue 2,291.9 2,139.9 152.0 7.1 4.3 Other revenue (b) 475.8 397.1 78.7 19.8 14.6 Total $ 2,767.7 $ 2,537.0 $ 230.7 9.1 5.9 _______________ (a) Subscription revenue includes amounts received from subscribers for ongoing services, excluding installation fees, late fees and mobile services revenue. Subscription revenue from subscribers who purchase bundled services at a discounted rate is generally allocated proportionally to each service based on the standalone price for each individual service. (b) Other revenue includes non-subscription revenue (including B2B, mobile services, interconnect, carriage fee, and installation revenue) and programming revenue. Total revenue. Our consolidated revenue increased $230.7 million during the three months ended March 31, 2013, as compared to the corresponding period in 2012. This increase includes $62.5 million attributable to the impact of acquisitions. Excluding the effects of acquisitions and FX, total consolidated revenue increased $150.3 million or 5.9%. Subscription revenue. The details of the increase in our consolidated subscription revenue for three months ended March 31, 2013, as compared to the corresponding period in 2012, is as follows (in millions): Increase due to change in: Average number of RGUs $ 91.7 ARPU 0.8 Organic increase 92.5 Impact of acquisitions 42.7 Impact of FX 16.8Total increase in subscription revenue $ 152.0 Excluding the effects of acquisitions and FX, our consolidated subscription revenue increased $92.5 million or 4.3% during the three months ended March 31, 2013, as compared to the corresponding period in 2012. This increase is attributable to (i) an increase in subscription revenue from broadband internet services of $51.5 million or 8.6%, as the impact of an increase in the average number of broadband internet RGUs was only partially offset by lower ARPU from broadband internet services, 76 -------------------------------------------------------------------------------- (ii) an increase in subscription revenue from telephony services of $27.5 million or 7.3%, as the impact of an increase in the average number of telephony RGUs was only partially offset by lower ARPU from telephony services, and (iii) an increase in subscription revenue from video services of $13.5 million or 1.2%, as the impact of higher ARPU from video services was only partially offset by a decline in the average number of video RGUs. Other revenue. Excluding the effects of acquisitions and FX, our consolidated other revenue increased $57.8 million or 14.6% during the three months ended March 31, 2013, as compared to the corresponding period in 2012. This increase is primarily attributable to the net impact of (i) a $64.5 million increase in mobile revenue (including increases in subscription, interconnect and handset sales revenue) primarily in Belgium, Chile and, to a lesser extent, Germany, (ii) an increase in fixed-line interconnect revenue, (iii) a decrease in programming revenue, (iv) an increase in installation revenue and (v) a decrease in Germany's carriage fee revenue. For additional information concerning the changes in our subscription and other revenue, see Discussion and Analysis of Reportable Segments above. For information regarding the competitive environment in certain of our markets, see Overview and Discussion and Analysis of our Reportable Segments above. Operating expenses Our operating expenses increased $129.3 million during the three months ended March 31, 2013, as compared to the corresponding period in 2012. This increase includes $32.9 million attributable to the impact of acquisitions. Our operating expenses include stock-based compensation expense, which increased $2.2 million during the three months ended March 31, 2013. For additional information, see the discussion following SG&A expenses below. Excluding the effects of acquisitions, FX and stock-based compensation expense, our operating expenses increased $85.1 million or 9.5% during the three months ended March 31, 2013, as compared to the corresponding period in 2012. This increase primarily is attributable to increases in (i) direct mobile costs, primarily in Belgium, (ii) programming and other direct costs, (iii) personnel costs and (iv) network- related expenses. For additional information regarding the changes in our operating expenses, see Operating Expenses of our Reportable Segments above. SG&A expenses Our SG&A expenses increased $26.5 million during the three months ended March 31, 2013, as compared to the corresponding period in 2012. This increase includes $14.4 million attributable to the impact of acquisitions. Our SG&A expenses include stock-based compensation expense, which decreased $3.1 million during the three months ended March 31, 2013. For additional information, see the discussion in the following paragraph. Excluding the effects of acquisitions, FX and stock-based compensation expense, our SG&A expenses increased $12.4 million or 2.8% during the three months ended March 31, 2013, as compared to the corresponding period in 2012. This increase is due primarily to the net effect of an increase in personnel costs and a decrease in sales and marketing costs. For additional information regarding the changes in our SG&A expenses, see SG&A Expenses of our Reportable Segments above. 77 --------------------------------------------------------------------------------Stock-based compensation expense (included in operating and SG&A expenses) We record stock-based compensation that is associated with LGI shares and the shares of certain of our subsidiaries. A summary of the aggregate stock-based compensation expense that is included in our operating and SG&A expenses is set forth below: Three months ended March 31, 2013 2012 in millions LGI common stock: LGI performance-based incentive awards (a) $ 4.1 $ 9.5 Other LGI stock-based incentive awards 11.2 12.7 Total LGI common stock 15.3 22.2 Telenet stock-based incentive awards (b) 11.0 4.6 Other (c) 0.5 0.9 Total $ 26.8 $ 27.7 Included in: Operating expense $ 3.9 $ 1.7 SG&A expense 22.9 26.0 Total $ 26.8 $ 27.7 _______________ (a) Includes stock-based compensation expense related to LGI PSUs. (b) The amount for the 2013 period includes expense of $6.2 million related to the accelerated vesting of stock options granted under the Telenet Specific Stock Option Plan. (c) Includes stock-based compensation expense related to performance-based awards granted pursuant to a liability-based plan of the VTR Group. These awards were granted during the first quarter of 2012 and, based on the level of the specified performance criteria achieved during 2012, these awards will vest on December 31, 2013. For additional information concerning our stock-based compensation, see note 10 to our condensed consolidated financial statements. Depreciation and amortization expense Our depreciation and amortization expense increased $22.4 million during the three months ended March 31, 2013, as compared to the corresponding period in 2012. Excluding the effects of FX, depreciation and amortization expense increased $6.4 million or 0.9% due primarily to the net effect of (i) an increase associated with property and equipment additions related to the installation of customer premises equipment, the expansion and upgrade of our networks and other capital initiatives and (ii) a decrease associated with certain assets becoming fully depreciated, largely in Belgium, Switzerland and Chile. Impairment, restructuring and other operating items, net We recognized impairment, restructuring and other operating items, net, of $24.3 million during the three months ended March 31, 2013, as compared to $2.9 million during the corresponding period in 2012. The 2013 amount includes (i) direct acquisition costs of $18.8 million related to the pending Virgin Media Acquisition and (ii) $5.8 million associated with (a)employee severance and termination costs related to certain reorganization activities, primarily in Germany, and (b) the estimated additional amounts to be paid in connection with Chellomedia's contractual obligations with respect to satellite capacity that is 78 -------------------------------------------------------------------------------- no longer used by Chellomedia. The 2012 amount includes aggregate restructuring charges of $5.4 million associated with employee severance and termination costs related to certain reorganization activities, primarily in Europe. If, among other factors, (i) our equity values were to decline significantly or (ii) the adverse impacts of economic, competitive, regulatory or other factors were to cause our results of operations or cash flows to be worse than anticipated, we could conclude in future periods that impairment charges are required in order to reduce the carrying values of our goodwill, and to a lesser extent, other long-lived assets. Any such impairment charges could be significant. Telenet's intangible assets that are subject to amortization include spectrum rights with a carrying value of $75.5 million at March 31, 2013. Telenet is continuing its efforts to use this asset as initially intended by management. Depending on the outcome of these efforts and Telenet's evaluation of alternative means to use or monetize this asset, a triggering event might occur that could lead to the impairment of all or part of the carrying value of this asset. Interest expense Our interest expense increased $52.0 million during the three months ended March 31, 2013, as compared to the corresponding period in 2012. Excluding the effects of FX, interest expense increased $47.4 million or 11.3%. This increase is primarily attributable to the net impact of (i) higher average outstanding debt balances and (ii) a lower weighted average interest rate. The decrease in our weighted average interest rate is primarily related to (a) the completion of certain financing transactions that resulted in extended maturities, certain of which resulted in a decrease to our weighted average interest rate and (b) decreases in certain of the base rates for our variable rate indebtedness. For additional information regarding our outstanding indebtedness, see note 7 to our condensed consolidated financial statements. It is possible that (i) the interest rates on any new borrowings could be higher than the current interest rates on our existing indebtedness and (ii) the interest rates incurred on our variable-rate indebtedness could increase in future periods. As further discussed under Qualitative and Quantitative Disclosures about Market Risk below, we use derivative instruments to manage our interest rate risks. Interest and dividend income Our interest and dividend income decreased $5.1 million during the three months ended March 31, 2013, as compared to the corresponding period in 2012. This decrease is primarily attributable to (i) a decrease in dividend income attributable to our investment in Sumitomo common stock and (ii) a decrease in interest income due to the net effect of (a) a lower weighted average interest rate earned on our cash and cash equivalent and restricted cash balances and (b) higher average cash and cash equivalent and restricted cash balances. The terms of the Sumitomo Collar effectively fix the dividends that we will receive on the Sumitomo common stock during the term of the Sumitomo Collar. We report the full amount of dividends received from Sumitomo as dividend income and the dividend adjustment that is payable to, or receivable from, the counterparty to the Sumitomo Collar is reported as a component of realized and unrealized gains (losses) on derivative instruments, net, in our condensed consolidated statements of operations. 79 --------------------------------------------------------------------------------Realized and unrealized gains (losses) on derivative instruments, net Our realized and unrealized gains or losses on derivative instruments include (i) unrealized changes in the fair values of our derivative instruments that are non-cash in nature until such time as the derivative contracts are fully or partially settled and (ii) realized gains or losses upon the full or partial settlement of the derivative contracts. The details of our realized and unrealized gains (losses) on derivative instruments, net, are as follows: Three months ended March 31, 2013 2012 in millions Cross-currency and interest rate derivative contracts (a) $ 180.6 $ (479.1 ) Foreign currency forward contracts 102.4 (10.4 ) Equity-related derivative instrument (b) (87.7 ) (126.5 ) Other 0.5 1.9 Total $ 195.8 $ (614.1 ) _______________ (a) The gain during the 2013 period is primarily attributable to the net effect of (i) gains associated with decreases in the values of the euro and Swiss franc relative to the U.S. dollar, (ii) gains associated with decreases in the values of the Hungarian forint, Polish zloty, Swiss franc and Czech koruna relative to the euro, (iii) gains associated with increases in market interest rates in the euro and Swiss franc markets and (iv) losses associated with increases in market interest rates in the U.S. dollar market. In addition, the gain during the 2013 period includes a net loss of $32.5 million resulting from changes in our credit risk valuation adjustments. The loss during the 2012 period is primarily attributable to the net effect of (i) losses associated with increases in the values of the Polish zloty, Hungarian forint, Swiss franc, Chilean peso and Czech koruna relative to the euro, (ii) losses associated with increases in the values of the Chilean peso and Swiss franc relative to the U.S. dollar, (iii) losses associated with an increase in the value of the U.S. dollar relative to the euro, (iv) losses associated with decreases in market interest rates in the euro, Hungarian forint and Swiss franc markets and (v) gains associated with increases in market interest rates in the Chilean peso market. In addition, the loss during the 2012 period includes a net gain of $22.3 million resulting from changes in our credit risk valuation adjustments. (b) Represents losses related to the Sumitomo Collar with respect to the Sumitomo shares held by our company. These losses are primarily attributable to (i) decreases in the value of the Japanese yen relative to the U.S. dollar and (ii) increases in the market price of Sumitomo common stock. For additional information concerning our derivative instruments, see notes 4 and 5 to our condensed consolidated financial statements and Quantitative and Qualitative Disclosure about Market Risk below. 80 --------------------------------------------------------------------------------Foreign currency transaction gains (losses), net Our foreign currency transaction gains or losses primarily result from the remeasurement of monetary assets and liabilities that are denominated in currencies other than the underlying functional currency of the applicable entity. Unrealized foreign currency transaction gains or losses are computed based on period-end exchange rates and are non-cash in nature until such time as the amounts are settled. The details of our foreign currency transaction gains (losses), net, are as follows: Three months ended March 31, 2013 2012 in millions Intercompany payables and receivables denominated in a currency other than the entity's functional currency (a) $ (180.1 ) $ 278.6 U.S. dollar denominated debt issued by European subsidiaries (106.7 ) 103.0 Yen denominated debt issued by a U.S. subsidiary 86.0 83.5 Cash and restricted cash denominated in a currency other than the entity's functional currency 58.6 11.3 Other 7.3 2.6 Total $ (134.9 ) $ 479.0 _______________ (a) Amounts primarily relate to (i) loans between our non-operating and operating subsidiaries in Europe, which generally are denominated in the currency of the applicable operating subsidiary, (ii) U.S. dollar denominated loans between certain of our non-operating subsidiaries in the U.S. and Europe and (iii) a U.S. dollar denominated loan between a Chilean subsidiary and a non-operating subsidiary in Europe. Accordingly, these amounts are a function of movements of (i) the euro against (a) the U.S. dollar and (b) other local currencies in Europe and (ii) the U.S. dollar against the Chilean peso. For information regarding how we manage our exposure to foreign currency risk, see Quantitative and Qualitative Disclosure about Market Risk below. Realized and unrealized gains due to changes in fair values of certain investments, net Our realized and unrealized gains or losses due to changes in fair values of certain investments include unrealized gains or losses associated with changes in fair values that are non-cash in nature until such time as these gains or losses are realized through cash transactions. The details of our realized and unrealized gains due to changes in fair values of certain investments, net, are as follows: Three months ended March 31, 2013 2012 in millions Investments (a): Ziggo $ 79.7 $ - Sumitomo (5.6 ) 42.8 Other, net (1.9 ) 8.1 Total $ 72.2 $ 50.9 _______________ (a) For additional information regarding our investments and fair value measurements, see notes 3 and 5 to our condensed consolidated financial statements. 81--------------------------------------------------------------------------------Losses on debt modification and extinguishment, net We recognized losses on debt modification and extinguishment, net, of $158.3 million and $6.8 million during the three months ended March 31, 2013 and 2012, respectively. The loss during the 2013 period includes (i) aggregate debt extinguishment losses of UPC Holding of $85.5 million, which include (a) $35.6 million of redemption premiums related to the UPC Holding 8.0% Senior Notes and the UPC Holding 9.75% Senior Notes, (b) the write-off of $24.5 million of unamortized discount related to the UPC Holding 9.75% Senior Notes, (c) the write-off of $19.0 million of deferred financing costs associated with the UPC Holding 8.0% Senior Notes and the UPC Holding 9.75% Senior Notes and (d) $6.4 million of aggregate interest incurred on the UPC Holding 8.0% Senior Notes and the UPC Holding 9.75% Senior Notes between the respective dates that we and the trustee were legally discharged, and (ii) a debt extinguishment loss related to the redemption of a portion of Unitymedia KabelBW's euro-denominated 8.125% senior secured notes of $71.1 million, which includes (1) $50.5 million representing the difference between the principal amount and redemption price of the debt redeemed and (2) $20.6 million associated with the write-off of deferred financing costs and an unamortized discount. The loss during the 2012 period includes (i) third-party costs of $2.9 million associated a debt exchange transaction where debt issued by KBW was exchanged for new debt issued by Unitymedia KabelBW, (ii) third-party costs of $2.0 million associated with the execution of Facility AE under the UPC Broadband Holding Bank Facility and (iii) the write-off of $1.9 million of deferred financing costs in connection with the prepayment of amounts outstanding under Facilities M, N and O under the UPC Broadband Holding Bank Facility. For additional information concerning our losses on debt modification and extinguishment, net, see note 7 to our condensed consolidated financial statements. Income tax expense We recognized income tax expense of $20.5 million and $33.1 million during the three months ended March 31, 2013 and 2012, respectively. The income tax expense during the three months ended March 31, 2013 differs from the expected income tax expense of $14.8 million (based on the U.S. federal 35% income tax rate) due primarily to the negative impact of certain permanent differences between the financial and tax accounting treatment of interest and other items. The negative impact of this item was partially offset by the positive impacts of (i) statutory tax rates in certain jurisdictions in which we operate that are lower than the U.S. federal income tax rate and (ii) certain permanent differences between the financial and tax accounting treatment of items associated with investments in subsidiaries and affiliates. The income tax expense during the three months ended March 31, 2012 differs from the expected income tax expense of $1.4 million (based on the U.S. federal 35% income tax rate) due primarily to the negative impacts of (i) certain permanent differences between the financial and tax accounting treatment of items associated with investments in subsidiaries and affiliates and (ii) certain permanent differences between the financial and tax accounting treatment of interest and other items. For additional information concerning our income taxes, see note 8 to our condensed consolidated financial statements. Earnings (loss) from continuing operations During the three months ended March 31, 2013 and 2012, we reported earnings (loss) from continuing operations of $21.9 million and ($29.2 million), respectively, including (i) operating income of $525.4 million and $494.3 million, respectively, (ii) non-operating expense of $483.0 million and $490.4 million, respectively, and (iii) income tax expense of $20.5 million and $33.1 million, respectively. Gains or losses associated with (i) changes in the fair values of derivative instruments, (ii) movements in foreign currency exchange rates and (iii) the disposition of assets and changes in ownership are subject to a high degree of volatility, and as such, any gains from these sources do not represent reliable sources of income. In the absence of significant gains in the future from these sources or from other non-operating items, our ability to achieve earnings from continuing operations is largely dependent on our ability to increase our aggregate operating cash flow to a level that more than offsets the aggregate amount of our (a) 82 --------------------------------------------------------------------------------stock-based compensation expense, (b) depreciation and amortization, (c) impairment, restructuring and other operating items, net, (d) interest expense, (e) other net non-operating expenses and (f) income tax expenses. Due largely to the fact that we seek to maintain our debt at levels that provide for attractive equity returns, as discussed under Material Changes in Financial Condition - Capitalization below, we expect that we will continue to report significant levels of interest expense for the foreseeable future. For information with respect to certain trends that may affect our operating results in future periods, see the discussion under Overview above. For information concerning the reasons for changes in specific line items in our condensed consolidated statements of operations, see the above discussion and also Discussion and Analysis of our Reportable Segments above. Discontinued operation Our earnings from discontinued operation, net of taxes, of $38.1 million during the three months ended March 31, 2012 relate to the operations of Austar. As we concluded that Austar was held-for-sale effective December 31, 2011, no depreciation or amortization is included in the amount reported for the 2012 period. For additional information, see note 2 to our condensed consolidated financial statements. Net earnings attributable to noncontrolling interests Net earnings or loss attributable to noncontrolling interests include the noncontrolling interests' share of the results of our continuing and discontinued operations. Net earnings attributable to noncontrolling interests decreased $11.1 million during the three months ended March 31, 2013, as compared to the corresponding period in 2012. This decrease is primarily attributable to the net impact of (i) a decrease associated with our disposition of Austar in May 2012, (ii) an increase due to the net effect of (a) an improvement in the results of operations of Telenet and (b) the impact of a decrease in the noncontrolling interests' share of Telenet's results following the LGI Telenet Tender, (iii) a decline in the results of the VTR Group and (iv) the completion of the Puerto Rico Transaction in November 2012, as further described in note 2 to our condensed consolidated financial statements. Material Changes in Financial Condition Sources and Uses of Cash Although our consolidated operating subsidiaries have generated cash from operating activities, the terms of the instruments governing the indebtedness of certain of these subsidiaries, including Telenet, UPC Holding, UPC Broadband Holding, Unitymedia KabelBW, Liberty Puerto Rico and VTR Wireless, may restrict our ability to access the assets of these subsidiaries. As set forth in the table below, these subsidiaries accounted for a significant portion of our consolidated cash and cash equivalents at March 31, 2013. In addition, our ability to access the liquidity of these and other subsidiaries may be limited by tax considerations, the presence of noncontrolling interests and other factors. 83 --------------------------------------------------------------------------------Cash and cash equivalents The details of the U.S. dollar equivalent balances of our consolidated cash and cash equivalents at March 31, 2013 are set forth in the following table. With the exception of LGI, which is reported on a standalone basis, the amounts presented below include the cash and cash equivalents of the named entity and its subsidiaries unless otherwise noted (in millions): Cash and cash equivalents held by: LGI and non-operating subsidiaries: LGI $ 1,565.9 Non-operating subsidiaries 37.1 Total LGI and non-operating subsidiaries 1,603.0 Operating subsidiaries: Telenet 1,152.5 UPC Holding (excluding VTR Group) 50.1 Unitymedia KabelBW 33.9 VTR Group (a) 33.9 Chellomedia 28.5 Liberty Puerto Rico 4.9 Total operating subsidiaries 1,303.8Total cash and cash equivalents $ 2,906.8 _______________ (a) Includes $9.6 million of cash and cash equivalents held by VTR Wireless. Liquidity of LGI and its Non-operating Subsidiaries The $1,565.9 million of cash and cash equivalents held by LGI and, subject to certain tax considerations, the $37.1 million of cash and cash equivalents held by LGI's non-operating subsidiaries, represented available liquidity at the corporate level at March 31, 2013. Our remaining cash and cash equivalents of $1,303.8 million at March 31, 2013 were held by our operating subsidiaries as set forth in the table above. As noted above, various factors may limit our ability to access the cash of our operating subsidiaries. Our current sources of corporate liquidity include (i) cash and cash equivalents held by LGI and, subject to certain tax considerations, LGI's non-operating subsidiaries and (ii) interest and dividend income received on our and, subject to certain tax considerations, our non-operating subsidiaries' cash and cash equivalents and investments. From time to time, LGI and its non-operating subsidiaries may also receive (i) proceeds in the form of distributions or loan repayments from LGI's operating subsidiaries or affiliates upon (a) the completion of recapitalizations, refinancings, asset sales or similar transactions by these entities or (b) the accumulation of excess cash from operations or other means, (ii) proceeds received upon the disposition of investments and other assets of LGI and its non-operating subsidiaries, (iii) proceeds received in connection with the incurrence of debt by LGI or its non-operating subsidiaries or the issuance of equity securities by LGI, (iv) proceeds received upon the exercise of stock options or (v) income tax refunds. No assurance can be given that any external funding would be available to LGI or its non-operating subsidiaries on favorable terms, or at all. See note 2 to our condensed consolidated financial statements for information concerning the disposition of Austar and note 9 to our condensed consolidated financial statements for information concerning pending capital distributions of Telenet and VTR. At March 31, 2013, our consolidated cash and cash equivalents balance includes $2,871.8 million that is held outside of the U.S. Based on our assessment of our ability to access the liquidity of our subsidiaries on a tax efficient basis and our expectations with respect to our corporate liquidity requirements, we do not anticipate that tax considerations will adversely impact our corporate liquidity over the next 12 months. Our ability to access the liquidity of our subsidiaries on a tax efficient basis is a consideration in assessing the extent of our stock repurchase programs. 84 -------------------------------------------------------------------------------- The ongoing cash needs of LGI and its non-operating subsidiaries include (i) corporate general and administrative expenses and (ii) interest payments on the Sumitomo Collar Loan. In addition, LGI and its non-operating subsidiaries may require cash in connection with (i) the repayment of outstanding debt, (ii) the satisfaction of contingent liabilities, (iii) acquisitions, (iv) the repurchase of equity and debt securities, (v) other investment opportunities or (vi) income tax payments. In connection with the closing of the Virgin Media Acquisition, we expect to use (i) the amounts included in the Virgin Media Escrow Accounts ($3,548.8 million at March 31, 2013), (ii) availability under the Virgin Media Credit Facility and (iii) existing liquidity of LGI and Virgin Media to fund (a) the cash component of the consideration for the Virgin Media Acquisition, (b) the repayment of Virgin Media's existing bank credit facility, (c) amounts that may be required to repurchase the VM 2021 and 2022 Notes pursuant to the applicable "Change of Control" provisions of the underlying indentures and (d) certain fees and expenses related to the transaction. On May 3, 2013, a notice of change of control and offer to purchase the VM 2021 and 2022 Notes was launched by Virgin Media and will remain open until midnight New York City time on June 7, 2013 unless extended or earlier terminated. We believe we and Virgin Media have sufficient sources of liquidity to fund the aforementioned cash requirements. For information concerning the pending Virgin Media Acquisition, see note 2 to our condensed consolidated financial statements. During the first three months of 2013, we repurchased a total of 1,400,000 shares of our LGI Series A common stock at a weighted average price of $67.18 per share and 1,187,800 shares of our LGI Series C common stock at a weighted average price of $63.10 per share, for an aggregate purchase price of $169.0 million, including direct acquisition costs and the effects of derivative instruments. In connection with the pending Virgin Media Acquisition, which is described in note 2 to our condensed consolidated financial statements, we suspended purchases of LGI common stock under our current stock repurchase program. We expect to resume repurchasing our LGI common stock after the closing of the Virgin Media Acquisition. At March 31, 2013, the remaining amount authorized for stock repurchases was $861.8 million. Liquidity of Operating Subsidiaries The cash and cash equivalents of our operating subsidiaries are detailed in the table above. In addition to cash and cash equivalents, the primary sources of liquidity of our operating subsidiaries are cash provided by operations and, in the case of Liberty Puerto Rico, Telenet, Unitymedia KabelBW, UPC Broadband Holding and VTR Wireless, borrowing availability under their respective debt instruments. For the details of the borrowing availability of such entities at March 31, 2013, see note 7 to our condensed consolidated financial statements. The aforementioned sources of liquidity may be supplemented in certain cases by contributions and/or loans from LGI and its non-operating subsidiaries. Our operating subsidiaries' liquidity generally is used to fund capital expenditures and debt service requirements. From time to time, our operating subsidiaries may also require funding in connection with (i) acquisitions and other investment opportunities, (ii) loans to LGI or (iii) capital distributions to LGI and other equity owners. No assurance can be given that any external funding would be available to our operating subsidiaries on favorable terms, or at all. For information concerning the acquisitions of our subsidiaries, see note 2 to our condensed consolidated financial statements. For additional information concerning our consolidated capital expenditures and cash provided by operating activities, see the discussion under Condensed Consolidated Cash Flow Statements below. Capitalization We seek to maintain our debt at levels that provide for attractive equity returns without assuming undue risk. In this regard, we generally seek to cause our operating subsidiaries to maintain their debt at levels that result in a consolidated debt balance that is between four and five times our consolidated operating cash flow. However, the timing of our acquisitions and financing transactions may temporarily cause this ratio to exceed our targeted range. The ratio of our March 31, 2013 consolidated debt to our annualized consolidated operating cash flow for the quarter ended March 31, 2013 was 6.0x. This ratio is impacted by the fact that our March 31, 2013 consolidated debt includes the VM Notes related to the Virgin Media Acquisition, while our annualized consolidated operating cash flow calculation is based on our consolidated results for the quarter ended March 31, 2013, which results do not include the results of Virgin Media. In addition, the ratio of our March 31, 2013 consolidated net debt (debt less cash and cash equivalents and cash in escrow accounts related to the pending Virgin Media Acquisition) to our annualized consolidated operating cash flow for the quarter ended March 31, 2013 was 4.8x. 85 -------------------------------------------------------------------------------- When it is cost effective, we generally seek to match the denomination of the borrowings of our subsidiaries with the functional currency of the operations that are supporting the respective borrowings. As further discussed under Quantitative and Qualitative Disclosures about Market Risk below and in note 4 to our condensed consolidated financial statements, we also use derivative instruments to mitigate foreign currency and interest rate risk associated with our debt instruments. Our ability to service or refinance our debt and to maintain compliance with the leverage covenants in the credit agreements and indentures of certain of our subsidiaries is dependent primarily on our ability to maintain or increase the operating cash flow of our operating subsidiaries and to achieve adequate returns on our property and equipment additions and acquisitions. In addition, our ability to obtain additional debt financing is limited by the leverage covenants contained in the various debt instruments of our subsidiaries. For example, if the operating cash flow of UPC Broadband Holding were to decline, we could be required to partially repay or limit our borrowings under the UPC Broadband Holding Bank Facility in order to maintain compliance with applicable covenants. No assurance can be given that we would have sufficient sources of liquidity, or that any external funding would be available on favorable terms, or at all, to fund any such required repayment. The ability to access available borrowings under the UPC Broadband Holding Bank Facility and/or UPC Holding's ability to complete additional financing transactions can also be impacted by the interplay of average and spot foreign currency rates with respect to leverage calculations under the indentures for UPC Holding's senior notes. With the exception of Liberty Puerto Rico, each of our borrowing subsidiaries was in compliance with its debt covenants at March 31, 2013. As further discussed in note 7 to our condensed consolidated financial statements, we expect to obtain a waiver for a technical default with respect to the Liberty Puerto Rico Bank Facility. As such, we do not believe that we will be required to repay any portion of the Liberty Puerto Rico Bank Facility prior to the maturity dates specified in the Liberty Puerto Rico Bank Facility and, accordingly, we do not expect that this default will have a material impact on our liquidity. In addition, we do not anticipate any instances of non-compliance with respect to any of our other subsidiaries' debt covenants that would have a material adverse impact on our liquidity during the next 12 months. At March 31, 2013, our outstanding consolidated debt and capital lease obligations aggregated $30.7 billion, including $1,065.8 million that is classified as current in our condensed consolidated balance sheet and $26.6 billion that is due in 2017 or thereafter. The current amount includes $662.8 million related to the Liberty Puerto Rico Bank Facility. As further discussed in note 7 to our condensed consolidated financial statements, this debt is required to be presented as a current liability due to a technical default that has not yet been waived. As noted above, we do not expect to repay this amount prior to the maturity dates specified in the Liberty Puerto Rico Bank Facility. We believe that we have sufficient resources to repay or refinance the current portion of our debt and capital lease obligations and to fund our foreseeable liquidity requirements during the next 12 months. However, as our maturing debt grows in later years, we anticipate that we will seek to refinance or otherwise extend our debt maturities. No assurance can be given that we will be able to complete these refinancing transactions or otherwise extend our debt maturities. In this regard, it is difficult to predict how political and economic conditions, sovereign debt concerns or any adverse regulatory developments will impact the credit and equity markets we access and our future financial position. However, (i) the financial failure of any of our counterparties could (a) reduce amounts available under committed credit facilities and (b) adversely impact our ability to access cash deposited with any failed financial institution and (ii) tightening of the credit markets could adversely impact our ability to access debt financing on favorable terms, or at all. In addition, any weakness in the equity markets could make it less attractive to use our shares to satisfy contingent or other obligations, and sustained or increased competition, particularly in combination with adverse economic or regulatory developments, could have an unfavorable impact on our cash flows and liquidity. All of our consolidated debt and capital lease obligations had been borrowed or incurred by our subsidiaries at March 31, 2013. For additional information concerning our debt and capital lease obligations, see note 7 to our condensed consolidated financial statements. 86 --------------------------------------------------------------------------------Condensed Consolidated Cash Flow Statements General. Our cash flows are subject to significant variations due to FX. See related discussion under Quantitative and Qualitative Disclosures about Market Risk - Foreign Currency Risk below. All of the cash flows discussed below are those of our continuing operations. Summary. The condensed consolidated cash flow statements of our continuing operations for the three months ended March 31, 2013 and 2012 are summarized as follows: Three months ended March 31, 2013 2012 Change in millions Net cash provided by operating activities $ 557.7 $ 754.8 $ (197.1 ) Net cash used by investing activities (498.4 ) (541.4 ) 43.0 Net cash provided (used) by financing activities 830.9 (244.7 ) 1,075.6 Effect of exchange rate changes on cash (22.3 ) 42.5 (64.8 ) Net increase in cash and cash equivalents $ 867.9 $ 11.2 $ 856.7 Operating Activities. The decrease in net cash provided by our operating activities is primarily attributable to the net effect of (i) a decrease in the cash provided by our working capital items that more than offset an increase in our operating cash flow, (ii) a decrease in cash provided due to higher cash payments for interest, (iii) an increase in cash provided due to lower cash payments related to derivative instruments, (iv) a decrease in cash provided due to higher net cash payments for taxes and (v) an increase in the reported net cash provided by operating activities due to FX. Investing Activities. The decrease in net cash used by our investing activities is due primarily to the net effect of (i) a decrease in cash used associated with lower cash paid in connection with acquisitions of $32.3 million and (ii) a decrease in cash used associated with lower capital expenditures of $17.0 million. Capital expenditures decreased from $521.3 million during the first three months of 2012 to $504.3 million during the first three months of 2013, as a net decrease in the local currency capital expenditures of our subsidiaries, including increases due to acquisitions, was only partially offset by an increase due to FX. The capital expenditures that we report in our consolidated cash flow statements do not include amounts that are financed under vendor financing or capital lease arrangements. Instead, these amounts are reflected as non-cash additions to our property and equipment when the underlying assets are delivered, and as repayments of debt when the principal is repaid. In the following discussion, we present (i) our capital expenditures as reported in our consolidated cash flow statements, which exclude amounts financed under vendor financing or capital lease arrangements, and (ii) our total property and equipment additions, which include our capital expenditures on an accrual basis and amounts financed under vendor financing or capital lease arrangements. The UPC/Unity Division accounted for (i) $303.2 million and $350.4 million (including $103.1 million and $133.7 million attributable to Germany) of our consolidated capital expenditures during the three months ended March 31, 2013 and 2012, respectively, and (ii) $356.0 million and $335.0 million (including $101.5 million and $132.2 million attributable to Germany) of our consolidated property and equipment additions during the three months ended March 31, 2013 and 2012, respectively. The increase in the UPC/Unity Division's property and equipment additions is due primarily to the net effect of (i) an increase in expenditures for the purchase and installation of customer premises equipment, (ii) an increase due to FX, (iii) a decrease in expenditures for new build and upgrade projects to expand services and (iv) an increase in expenditures for support capital, such as information technology upgrades and general support systems. Telenet accounted for (i) $112.1 million and $105.1 million of our consolidated capital expenditures during the three months ended March 31, 2013 and 2012, respectively, and (ii) $99.8 million and $99.7 million of our consolidated property and equipment additions during the three months ended March 31, 2013 and 2012, respectively. The increase in Telenet's property and equipment additions is due primarily to the net effect of (i) a decrease in expenditures for new build and upgrade projects to expand services, 87 -------------------------------------------------------------------------------- (ii) an increase in expenditures for the purchase and installation of customer premises equipment, (iii) an increase due to FX and (iv) an increase in expenditures for support capital, such as information technology upgrades and general support systems. The VTR Group accounted for (i) $60.4 million and $58.3 million (including $19.5 million and $9.0 million attributable to VTR Wireless) of our consolidated capital expenditures during the three months ended March 31, 2013 and 2012, respectively, and (ii) $55.0 million and $65.4 million (including $4.0 million and $8.8 million attributable to VTR Wireless) of our consolidated property and equipment additions during the three months ended March 31, 2013 and 2012, respectively. The decrease in the VTR Group's property and equipment additions is due primarily to the net effect of (i) a decrease in expenditures for new build and upgrade projects, (ii) a decrease in expenditures related to the construction of the VTR Wireless mobile network, (iii) an increase in expenditures for the purchase and installation of customer premises equipment, (iv) a decrease in expenditures for support capital, such as information technology upgrades and general support systems, and (v) an increase due to FX. Financing Activities. The change in net cash provided (used) by our financing activities is primarily attributable to the net effect of (i) an increase in cash due to the release of restricted cash in connection with the LGI Telenet Tender of $1,539.7 million, (ii) a decrease in cash related to shares purchased in connection with the LGI Telenet Tender of $454.5 million, (iii) a decrease in cash due to higher payments for financing costs and debt premiums of $161.7 million, (iv) an increase in cash related to higher net borrowings of debt of $135.8 million, (v) a decrease in cash related to a change in cash collateral of $64.2 million and (vi) an increase in cash due to lower repurchases of our LGI Series A and Series C common stock of $45.0 million. Free cash flow We define free cash flow 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 the portions of the network lease in Belgium and the duct leases in Germany that we assumed in connection with certain acquisitions), with each item excluding any cash provided or used by our discontinued operations. We believe that our presentation of free cash flow provides useful information to our investors because this measure can be used to gauge our ability to service debt and fund new investment opportunities. Free cash flow should not be understood to represent our ability to fund discretionary amounts, as we have various mandatory and contractual obligations, including debt repayments, which are not deducted to arrive at this amount. Investors should view free cash flow as a supplement to, and not a substitute for, GAAP measures of liquidity included in our consolidated cash flow statements. The following table provides the details of our free cash flow: Three months ended March 31, 2013 2012 in millions Net cash provided by operating activities of our continuing operations $ 557.7 $ 754.8 Excess tax benefits from stock-based compensation 1.3 0.5 Cash payments for direct acquisition costs 8.5 12.9 Capital expenditures (504.3 ) (521.3 ) Principal payments on vendor financing obligations (37.0 ) (2.0 ) Principal payments on certain capital leases (3.1 ) (3.0 ) Free cash flow $ 23.1 $ 241.9 Off Balance Sheet Arrangements In the ordinary course of business, we have provided indemnifications to purchasers of certain of our assets, our lenders, our vendors and certain other parties. We have also provided performance and/or financial guarantees to local municipalities, our customers and vendors. Historically, these arrangements have not resulted in our company making any material payments and we do not believe that they will result in material payments in the future. 88 -------------------------------------------------------------------------------- We are a party to various stockholder and similar agreements pursuant to which we could be required to make capital contributions to the entity in which we have invested or purchase another investor's interest. We do not expect any payments made under these provisions to be material in relation to our financial position or results of operations. Contractual Commitments As of March 31, 2013, the U.S. dollar equivalents (based on March 31, 2013 exchange rates) of our consolidated contractual commitments are as follows: Payments due during: Remainder Year ending December 31, of 2013 2014 2015 2016 2017 2018 Thereafter Total in millions Debt (excluding interest) (a) $ 926.0 $ 71.8 $ 383.6 $ 2,444.6 $ 3,540.2 $ 845.1 $ 21,140.3 $ 29,351.6 Capital leases (excluding interest) 60.4 73.9 72.9 74.2 75.3 76.4 927.1 1,360.2 Operating leases (b) 143.9 142.4 130.3 107.9 88.0 68.7 314.3 995.5 Programming obligations 240.2 192.0 108.0 64.0 50.1 0.5 - 654.8 Other commitments 699.1 270.4 225.1 172.4 116.1 80.0 1,202.8 2,765.9 Total (c) $ 2,069.6 $ 750.5 $ 919.9 $ 2,863.1 $ 3,869.7 $ 1,070.7 $ 23,584.5 $ 35,128.0 Projected cash interest payments on debt and capital lease obligations (d) $ 1,151.4 $ 1,814.4 $ 1,813.4 $ 1,812.4 $ 1,695.2 $ 1,462.5 $ 3,985.1 $ 13,734.4 _______________ (a) The 2013 amount includes the full principal amount outstanding under the Liberty Puerto Rico Bank Facility ($661.0 million at March 31, 2013). For additional information, see note 7 to our condensed consolidated financial statements. (b) Includes amounts with respect to tower and related real estate operating lease agreements associated with our wireless network in Chile. As further described in note 6 to our condensed consolidated financial statements, we are considering strategic alternatives that could impact these leases. (c) The commitments reflected in this table do not reflect any liabilities that are included in our March 31, 2013 balance sheet other than debt and capital lease obligations. Our liability for uncertain tax positions in the various jurisdictions in which we operate ($336.9 million at March 31, 2013) has been excluded from the table as the amount and timing of any related payments are not subject to reasonable estimation. (d) Amounts are based on interest rates, interest payment dates and contractual maturities in effect as of March 31, 2013. These amounts are presented for illustrative purposes only and will likely differ from the actual cash payments required in future periods. In addition, the amounts presented do not include the impact of our interest rate derivative contracts, deferred financing costs, discounts, premiums or commitment fees, all of which affect our overall cost of borrowing. For purposes of this computation, we have included interest payments on the Liberty Puerto Rico Bank Facility based on contractual maturities notwithstanding the classification of this debt as a current liability at March 31, 2013. For additional information, see note 7 to our condensed consolidated financial statements. Programming commitments consist of obligations associated with certain of our programming, studio output and sports rights contracts that are enforceable and legally binding on us in that we have agreed to pay minimum fees without regard to (i) the actual number of subscribers to the programming services, (ii) whether we terminate service to a portion of our subscribers or dispose of a portion of our distribution systems or (iii) whether we discontinue our premium film or sports services. The amounts reflected in the table with respect to these contracts are significantly less than the amounts we expect to pay in these 89-------------------------------------------------------------------------------- periods under these contracts. Payments to programming vendors have in the past represented, and are expected to continue to represent in the future, a significant portion of our operating costs. In this regard, during the three months ended March 31, 2013 and 2012, (a) the programming and copyright costs incurred by our broadband communications and DTH operations aggregated $300.7 million and $262.5 million, respectively (including intercompany charges that eliminate in consolidation of $19.4 million and $20.2 million, respectively), and (b) the third-party programming costs incurred by our programming distribution operations aggregated $29.3 million and $26.3 million, respectively. The ultimate amount payable in excess of the contractual minimums of our studio output contracts, which expire at various dates through 2019, is dependent upon the number of subscribers to our premium movie service and the theatrical success of the films that we exhibit. Other commitments relate primarily to Telenet's commitments for certain operating costs associated with its leased network. Subsequent to October 1, 2015, these commitments are subject to adjustment based on changes in the network operating costs incurred by Telenet with respect to its own networks. These potential adjustments are not subject to reasonable estimation, and therefore, are not included in the above table. Other commitments also include (i) unconditional purchase obligations associated with commitments to purchase customer premises and other equipment and services that are enforceable and legally binding on us, (ii) certain commitments of Telenet to purchase (a) broadcasting capacity on a DTT network and (b) certain spectrum licenses, (iii) certain repair and maintenance, fiber capacity and energy commitments of Unitymedia KabelBW, (iv) satellite commitments associated with satellite carriage services provided to our company and (v) commitments associated with our MVNO agreements. The amounts reflected in the table with respect to our MVNO commitments represent fixed minimum amounts payable under these agreements and therefore may be significantly less than the actual amounts we ultimately pay in these periods. Commitments arising from acquisition agreements (including with respect to the Virgin Media Merger Agreement, as described in note 2 to our condensed consolidated financial statements) are not reflected in the above table. In addition to the commitments set forth in the table above, we have significant commitments under derivative instruments pursuant to which we expect to make payments in future periods. For information concerning projected cash flows associated with these derivative instruments, see Quantitative and Qualitative Disclosures about Market Risk - Projected Cash Flows Associated with Derivative Instruments below. For information concerning our derivative instruments, including the net cash paid or received in connection with these instruments during the three months ended March 31, 2013 and 2012, see note 4 to our condensed consolidated financial statements. We also have commitments pursuant to agreements with, and obligations imposed by, franchise authorities and municipalities, which may include obligations in certain markets to move aerial cable to underground ducts or to upgrade, rebuild or extend portions of our broadband communication systems. Such amounts are not included in the above table because they are not fixed or determinable. [ Back To TMCnet.com's Homepage ]