LIBERTY GLOBAL PLC
10-Ks and 10-Qs
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K
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þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31, 2014
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OR
Commission file number 001-35961
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from to
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Liberty Global plc
(Exact name of Registrant as specified in its charter)
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England and Wales
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98-1112770
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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38 Hans Crescent, London, England
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SW1X 0LZ
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(Address of principal executive offices)
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(Zip Code)
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Registrant’s telephone number, including area code: +44.20.7190.6449 or 303.220.6600
Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Class A Ordinary Share, par value $0.01 per share
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NASDAQ Global Select Market
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Class B Ordinary Shares, par value $0.01 per share
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NASDAQ Global Select Market
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Class C Ordinary Shares, par value $0.01 per share
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NASDAQ Global Select Market
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Securities registered pursuant to Section 12(g) of the Act: none
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
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No
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Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
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No
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Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes
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No
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Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months. Yes
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No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
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Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer, accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Check one:
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Large Accelerated Filer
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Accelerated Filer
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Non-Accelerated Filer
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Smaller Reporting Company
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Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act. Yes
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No
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State the aggregate market value of the voting and non-voting common equity held by non-affiliates, computed by reference to the price at which the common equity was last sold, or the average bid and ask price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter:
$32.5 billion
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The number of outstanding ordinary shares of Liberty Global plc as of
February 6, 2015
was:
251,290,944
Class A ordinary shares;
10,139,184
Class B ordinary shares; and
625,736,759
Class C ordinary shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the Registrant’s
2015
Annual General Meeting of Shareholders are incorporated by reference in Part III of this Form 10-K.
LIBERTY GLOBAL PLC
2014
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
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Page
Number
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PART I
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Item 1.
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Item 1A.
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Item 1B.
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Item 2.
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Item 3.
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Item 4.
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Mine Safety Disclosures
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PART II
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Item 5.
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Item 6.
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Item 7.
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Item 7A.
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Item 8.
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Item 9.
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Item 9A.
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Item 9B.
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PART III
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Item 10.
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Item 11.
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Item 12.
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Item 13.
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Item 14.
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PART IV
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Item 15.
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General Development of Business
Liberty Global plc (
Liberty Global
) is an international provider of video, broadband internet, fixed-line telephony and mobile services, serving 27.3 million customers across
14
countries at
December 31, 2014
. Through Virgin Media Inc. (
Virgin Media
) and Unitymedia KabelBW GmbH (
Unitymedia KabelBW
), each a wholly-owned subsidiary, and Telenet Group Holding N.V. (
Telenet
), a
56.6%
-owned subsidiary, we provide video, broadband internet, fixed-line telephony and mobile services in the United Kingdom (
U.K.
), Germany and Belgium, respectively. In the Netherlands, we provide video, broadband internet, fixed-line telephony and mobile services through (1) Ziggo Holding B.V (formerly known as Ziggo N.V.) (
Ziggo
), which we acquired on November 11, 2014 (see
Recent Developments—
Ziggo Acquisition
below), and (2) UPC Nederland B.V. (UPC Nederland). We also provide video, broadband internet and fixed-line telephony services in eight other European countries and mobile services in
four
other European countries. The operations of
Virgin Media
,
Unitymedia KabelBW
,
Telenet
,
Ziggo
, UPC Nederland and our other operations in Europe, including our direct-to-home satellite (
DTH
) operations based in Luxembourg, are collectively referred to herein as the
European Operations Division
. In Chile, we provide video, broadband internet, fixed-line telephony and mobile services through our wholly-owned subsidiary VTR GlobalCom SpA (
VTR
). Our consolidated operations also include the broadband communications operations in Puerto Rico that we conduct through a 60%-owned subsidiary, Liberty Cablevision of Puerto Rico (
Liberty Puerto Rico
).
As a result of a series of mergers that were completed on June 7, 2013,
Liberty Global
became the publicly-held parent company of the successors by merger of Liberty Global, Inc. (
LGI
) (the predecessor to
Liberty Global
) and
Virgin Media
. In the following text, the terms “we,” “our,” “our company” and “us” may refer, as the context requires, to
Liberty Global
(or its predecessor) or collectively to
Liberty Global
(or its predecessor) and its subsidiaries.
Unless otherwise indicated, convenience translations into United States (
U.S.
) dollars are calculated as of
December 31, 2014
, and operational data, including subscriber statistics and ownership percentages, are as of
December 31, 2014
.
Recent Developments
LiLAC Group Tracking Stock
On October 22, 2014, we announced that our board of directors had approved a plan to create a tracking stock (the LiLAC ordinary shares) for our operations in Latin America and the Caribbean (the LiLAC Group). The LiLAC Group will initially have attributed to it our 100% interest in
VTR
and our 60% interest in
Liberty Puerto Rico
. All of our businesses not attributed to the LiLAC Group will be attributed to the “Liberty Global Group”. The creation of the LiLAC Group and issuance of the LiLAC ordinary shares is subject to various conditions, including requisite approvals of the shareholders of
Liberty Global
at general and class meetings to be held on Tuesday, February 24, 2015. In connection with the proposed issuance of our LiLAC Group ordinary shares, we have filed with the Securities and Exchange Commission (SEC) a registration statement on Form S-4 and filed with the SEC and mailed to our shareholders a proxy statement/prospectus that contains additional information, including descriptions of our Latin American and Caribbean businesses, the conditions to the issuance of the LiLAC ordinary shares and our board of directors’ reasons and purposes for pursuing the transaction. If approved at the general and class meetings of our shareholders, we expect to issue the LiLAC ordinary shares during the first half of 2015.
Ziggo Acquisition
On November 11, 2014, pursuant to an agreement with respect to an offer to acquire all of the shares of
Ziggo
that we did not already own (the
Ziggo Offer
), we gained control of
Ziggo
through the acquisition of 136,603,794 additional
Ziggo
shares, which increased our ownership in
Ziggo
to 88.9%. From November 12, 2014 through November 17, 2014, we acquired 18,998,057 additional
Ziggo
shares through the
Ziggo Offer
, further increasing our ownership interest in
Ziggo
to 98.4%. These transactions are referred to as the
Ziggo Acquisition
. Under the terms of the
Ziggo Offer
,
Ziggo
shareholders who tendered their shares received (1)
0.2282
Class A ordinary shares of
Liberty Global
, (2)
0.5630
Class C ordinary shares of
Liberty Global
and (3)
€11.00
($13.71 at the applicable rates) in cash for each
Ziggo
share they tendered. Accordingly, we issued an aggregate of
35,508,342
Class A ordinary shares and
87,603,842
Class C ordinary shares pursuant to the
Ziggo Acquisition
. In connection with the completion of the
Ziggo Acquisition
, we obtained regulatory clearance from the European Commission, subject to certain conditions primarily related to (a) the sale of our Film1 pay TV channel and (b) certain carriage agreement provisions with broadcasters in the Netherlands. For more information, see
Regulatory Matters—The Netherlands
. On December 3, 2014, we initiated a statutory squeeze-out procedure in accordance with the Dutch Civil Code in order to acquire the remaining
3,162,605
Ziggo
shares not tendered through November 19, 2014. During the first quarter of 2015, we plan to combine the
Ziggo
and UPC Nederland operations.
I-3
For additional information on the above
Ziggo
transactions, including related financings, see notes
4
,
10
and
20
to our consolidated financial statements included in Part II of this Annual Report on Form 10-K. In addition, during
2014
, we completed various other smaller acquisitions in the normal course of business.
Chellomedia Disposition
We completed the sale of substantially all of our programming interests held through Chellomedia B.V. on January 31, 2014, for €750.0 million ($1,013.1 million at the applicable rate) in cash (the
Chellomedia Transaction
). The assets disposed of in the
Chellomedia Transaction
excluded
Chellomedia
’s premium sports and film channels in the Netherlands. Prior to the sale, through
Chellomedia
’s programming networks, we provided programming channels to multi-channel distribution systems owned by us and by third parties.
Financings
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VTR Financing Transactions.
On January 24, 2014,
VTR
was placed in a separate credit pool with its parent and one of our wholly-owned subsidiaries, VTR Finance B.V. (
VTR Finance
). In connection with this reorganization,
VTR Finance
and certain of its subsidiaries (including
VTR
) were extracted from the credit pool of our wholly-owned subsidiary UPC Holding B.V. (
UPC Holding
) and
VTR Finance
and certain of its subsidiaries entered into certain financing transactions. On January 24, 2014,
VTR Finance
issued
$1.4 billion
principal amount of
6.875%
senior secured notes due January 15, 2024 (the VTR Finance Senior Secured Notes). The net proceeds from the VTR Finance Senior Secured Notes were used, together with existing cash of our subsidiaries, to repay all of the outstanding indebtedness under Facilities R, S and AE of the senior secured credit facility of UPC Broadband Holding B.V., a wholly-owned subsidiary of
UPC Holding
(
UPC Broadband Holding
), in connection with the extraction of
VTR Finance
and its subsidiaries from the
UPC Holding
credit pool.
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Virgin Media 2014 Refinancings
. On March 28, 2014, Virgin Media Secured Finance PLC (
Virgin Media Secured Finance
), a wholly-owned subsidiary of
Virgin Media
, issued (1)
$425.0 million
principal amount of
5.5%
senior secured notes due January 15, 2025 (the
2025 VM 5.5% Dollar Senior Secured Notes
), (2)
£430.0 million
(
$670.0 million
) principal amount of
5.5%
senior secured notes due January 15, 2025 (together with the
2025 VM 5.5% Dollar Senior Secured Notes
, the
2025 VM Senior Secured Notes
) and (3)
£225.0 million
(
$350.6 million
) principal amount of
6.25%
senior secured notes due March 28, 2029 (the
Original 2029 VM Senior Secured Notes
). In April 2014, the net proceeds from the
2025 VM Senior Secured Notes
and the
Original 2029 VM Senior Secured Notes
were used to redeem all of
Virgin Media
’s
£875.0 million
(
$1,363.4 million
) principal amount of
Virgin Media
’s
7.0%
senior secured notes due 2018.
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In April 2014, (1)
Virgin Media Secured Finance
issued
£175.0 million
(
$272.7 million
) principal amount of
6.25%
senior secured notes due March 28, 2029 (the
Additional 2029 VM Senior Secured Notes
) at an issue price of
101.75%
and (2)
Virgin Media
entered into (a) a new
£100.0 million
(
$155.8 million
) term loan (
VM Facility D
) and (b) a new
£849.4 million
(
$1,323.5 million
) term loan (
VM Facility E
), each under the
Virgin Media
senior secured credit facility agreement, as amended and restated on June 14, 2013 (
VM Credit Facility
). In connection with these transactions, (1) certain lenders under the existing
£600.0 million
(
$934.9 million
) term loan (
VM Facility C
) under the
VM Credit Facility
effectively rolled
£500.4 million
(
$779.7 million
) of their drawn commitments to
VM Facilities D and E
and (2) the remaining outstanding balance of
VM Facility C
was repaid with existing liquidity.
VM Facilities D and E
were fully drawn in May 2014, and the net proceeds, together with the net proceeds from the Additional
2029 VM Senior Secured Notes
, were used to fully redeem
Virgin Media
’s
$1.0 billion
principal amount of
6.5%
senior secured notes due 2018.
On October 7, 2014, Virgin Media Finance PLC (
Virgin Media Finance
), a wholly-owned subsidiary of
Virgin Media
, issued (1)
£300.0 million
(
$467.4 million
) principal amount of
6.375%
senior notes due October 15, 2024 (the
2024 VM Sterling Senior Notes
) and (2)
$500.0 million
principal amount of
6.0%
senior notes due October 15, 2024 (together with the
2024 VM Sterling Senior Notes
, the
2024 VM Senior Notes
). On October 24, 2014, the net proceeds from the
2024 VM Senior Notes
were used to fully redeem (1)
Virgin Media
’s
$507.1 million
principal amount of
8.375%
senior notes due 2019 and (2) the
£253.5 million
(
$395.0 million
) principal amount of
Virgin Media
’s
8.875%
senior notes due 2019, including the related redemption premium.
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Unitymedia KabelBW December 2014 Refinancing
. On December 17, 2014, Unitymedia Hessen GmbH & Co. KG and Unitymedia NRW GmbH (each a subsidiary of
Unitymedia KabelBW
) issued (1)
€1,000.0 million
(
$1,210.1 million
) principal amount of
4.0%
senior secured notes due January 15, 2025 (the
December 2014 UM Euro Senior Secured Notes
) and (2)
$550.0 million
principal amount of
5.0%
senior secured notes due January 15, 2025 (together with the
December 2014 UM Euro Senior Secured Notes
, the
December 2014 UM Senior Secured Notes
). A portion of the net proceeds
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I-4
from the
December 2014 UM Senior Secured Notes
were used to redeem in full
Unitymedia KabelBW
’s 7.5% senior secured notes due March 15, 2019, including the related redemption premium.
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2015 Reorganization Transactions
. During the first quarter of 2015, we undertook the financing transactions described below in connection with certain internal reorganizations of our broadband and mobile communications businesses in Europe. We intend to use the proceeds from these transactions to redeem (1) in full the
UPC Holding
8.375%
senior notes due 2020, (2) in full the UPCB Finance Limited
7.625%
senior secured notes, and (3)
€560.0 million
(
$677.6 million
) of the UPCB Finance II Limited
6.375%
senior secured notes, including the related redemption premiums.
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UPC Ireland Transfer
. On February 12, 2015,
UPC Holding
transferred a controlling interest in UPC Broadband Ireland Ltd. and its subsidiaries from a subsidiary of
UPC Holding
to a subsidiary of
Virgin Media
, with the remaining noncontrolling interest transferred to another subsidiary of
Liberty Global
outside of the
UPC Holding
borrowing group. On January 28, 2015, in contemplation of the transfer of such controlling interest in UPC Broadband Ireland Ltd. and its subsidiaries:
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Virgin Media Secured Finance
issued
£300.0 million
(
$467.4 million
) principal amount of
5.125%
senior secured notes due January 15, 2025; and
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Virgin Media Finance
issued (1)
$400.0 million
aggregate principal amount of
5.75%
senior notes and (2)
£460.0 million
(
$556.6 million
) aggregate principal amount of
4.50%
senior notes, each of which are due January 15, 2025.
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NL Reorganization
.
In contemplation of the planned internal reorganization of our broadband and mobile communications businesses in the Netherlands (the NL Reorganization), pursuant to which UPC Nederland and
Ziggo
and/or their successor companies and their subsidiaries will become indirect subsidiaries of Ziggo Group Holding B.V., a wholly-owned subsidiary of
Liberty Global
that was formed subsequent to
December 31, 2014
:
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on January 29, 2015,
Ziggo Bond Finance
B.V., a special purpose financing entity, issued (1)
$400.0 million
principal amount of
5.875%
senior notes and (2)
€400.0 million
(
$484.0 million
) aggregate principal amount of
4.625%
senior notes, each of which are due January 15, 2025;
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on February 4, 2015,
Ziggo Secured Finance
B.V., a special purpose financing entity, issued
€800.0 million
(
$968.1 million
) aggregate principal amount of
3.750%
senior secured notes, which are due January 15, 2015; and
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lenders under the existing Facility AG under the
UPC Broadband Holding Bank Facility
agreed to roll €684.2 million ($827.9 million) into a new euro denominated term loan (
Facility AJ
) under the
UPC Broadband Holding Bank Facility
. The terms of
Facility AJ
will be substantially the same as the terms of Facility AG, except that the terms of
Facility AJ
will provide for the rollover of
Facility AJ
, upon completion of the NL Reorganization, into new term loans under a new senior secured credit facility with
Ziggo Secured Finance
B.V. as the borrower.
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For a further description of the terms of the above financings and certain other transactions affecting our consolidated debt in
2014
, see notes
10
and
20
to our consolidated financial statements included in Part II of this Annual Report on Form 10-K.
Equity Transactions
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Share Dividend.
On January 26, 2014, our board of directors approved a share split in the form of a share dividend (the
2014 Share Dividend
), which constitutes a bonus issue under our articles of association and English law, of one
Liberty Global
Class C ordinary share on each outstanding Class A, Class B and Class C ordinary share as of the February 14, 2014 record date. The distribution date for the
2014 Share Dividend
was March 3, 2014. As a result, the share and per share amounts presented herein and in our consolidated financial statements have been retroactively adjusted to give effect to the
2014 Share Dividend
.
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Share Repurchases.
Pursuant to our share repurchase program, during
2014
, we repurchased a total of 8,062,792
Liberty Global
Class A ordinary shares at a weighted average price of $42.19 per share and 28,401,019
Liberty Global
Class C ordinary shares at a weighted average price of $44.25 per share, for an aggregate cash purchase price of $
1,596.9 million
, including direct acquisition costs and the effects of derivative instruments. The timing of the repurchase of shares pursuant to this program is dependent on a variety of factors, including market conditions. As of
December 31, 2014
, the remaining amount authorized for share repurchases was
$1,933.7 million
. Subsequent to
December 31, 2014
, our board of directors authorized an additional $2.0 billion of availability for share repurchases.
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For a further description of our share repurchases, see note
12
to our consolidated financial statements included in Part II of this Annual Report on Form 10-K.
I-5
* * * *
Certain statements in this Annual Report on Form 10-K constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. To the extent that statements in this Annual 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 Item 1.
Business
, Item 1A.
Risk Factors
, Item 2.
Properties
, Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
and Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
may contain forward-looking statements, including statements regarding our growth prospects and our strategic, operating and finance initiatives over the next few years (including the planned network extension in the U.K.), the percentage of revenue represented by our property and equipment additions in
2015
and beyond, the amount of our anticipated non-functional currency transactions in
2015
, the future projected cash flows of our continuing operations, subscriber growth and retention rates, competitive, regulatory and economic factors, anticipated cost increases and target leverage levels, our intention to create a tracking stock with respect to our Latin America and Caribbean operations, and other information and statements that are not historical fact. 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 evaluating these statements, you should consider the risks and uncertainties discussed under Item 1A.
Risk Factors
and Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
, as well as the following list of some but not all of the factors that could cause actual results or events to differ materially from anticipated results or events:
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economic and business conditions and industry trends in the countries in which we operate;
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the competitive environment in the industries in the countries in which we operate, including competitor responses to our products and services;
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fluctuations in currency exchange rates and interest rates;
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instability in global financial markets, including sovereign debt issues and related fiscal reforms;
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consumer disposable income and spending levels, including the availability and amount of individual consumer debt;
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changes in consumer television viewing preferences and habits;
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consumer acceptance of our existing service offerings, including our digital video, broadband internet, fixed-line telephony, mobile and business service offerings, and of new technology, programming alternatives and other products and services that we may offer in the future;
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our ability to manage rapid technological changes;
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our ability to maintain or increase the number of subscriptions to our digital video, broadband internet, fixed-line telephony and mobile service offerings and our average revenue per household;
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our ability to provide satisfactory customer service, including support for new and evolving products and services;
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our ability to maintain or increase rates to our subscribers or to pass through increased costs to our subscribers;
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our ability to maintain our revenue from channel carriage arrangements, particularly in Germany;
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the impact of our future financial performance, or market conditions generally, on the availability, terms and deployment of capital;
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changes in, or failure or inability to comply with, government regulations in the countries in which we operate and adverse outcomes from regulatory proceedings;
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government intervention that opens our broadband distribution networks to competitors, such as the obligations imposed in Belgium;
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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 acquisition of Kabel BW GmbH (
KBW
) on our operations in Germany and the
Ziggo Acquisition
on our operations in the Netherlands;
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I-6
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our ability to successfully acquire new businesses and, if acquired, to integrate, realize anticipated efficiencies from, and implement our business plan with respect to, the businesses we have or may acquire, such as Ziggo;
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changes in laws or treaties relating to taxation, or the interpretation thereof, in the
U.K.
,
U.S.
or in other countries in which we operate;
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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;
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the ability of suppliers and vendors (including our third-party wireless network providers under our mobile virtual network operator (
MVNO
) arrangements) to timely deliver quality products, equipment, software, services and access;
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the availability of attractive programming for our digital video services and the costs associated with such programming, including retransmission and copyright fees payable to public and private broadcasters;
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uncertainties inherent in the development and integration of new business lines and business strategies;
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our ability to adequately forecast and plan future network requirements including the costs and benefits associated with the planned
U.K.
network extension;
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the availability of capital for the acquisition and/or development of telecommunications networks and services;
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problems we may discover post-closing with the operations, including the internal controls and financial reporting process, of businesses we acquire;
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the leakage of sensitive customer data;
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the outcome of any pending or threatened litigation;
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the loss of key employees and the availability of qualified personnel;
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changes in the nature of key strategic relationships with partners and joint venturers; and
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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.
|
The broadband distribution and mobile service industries are changing rapidly and, therefore, the forward-looking statements of expectations, plans and intent in this Annual 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 Annual 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.
Financial Information About Operating Segments
Financial information about our reportable segments appears in note
18
to our consolidated financial statements included in Part II of this Annual Report on Form 10-K.
I-7
Narrative Description of Business
Broadband Distribution
Overview
We offer a variety of broadband services over our cable distribution systems, including video, broadband internet and fixed-line telephony and, in certain of our operations, we offer mobile services. We design these services to enable our customers to access the digital world on their own terms and at their own pace. In most of our footprint, the core of our offer to customers is “triple-play”, which we use to describe bundled services of digital video, internet and fixed-line telephony in one subscription. We are enhancing this offer by expanding our services to include mobile in certain markets. Available service offerings depend on the bandwidth capacity of a particular system and whether it has been upgraded for two-way communications. In select markets, we also offer video services through
DTH
or through multichannel multipoint (microwave) distribution systems (
MMDS
). Our consumer brands include
Virgin Media
,
Ziggo
, UPC, Unitymedia Kabel BW,
Telenet
,
VTR
and in Puerto Rico, Liberty. In 2015, we will replace the UPC brand in the Netherlands with the
Ziggo
brand. Also in 2015, we will use solely the Unitymedia brand in Germany, discontinuing the Kabel BW brand. In terms of video subscribers, we operate the largest cable network in each of Austria, Belgium, Chile, the Czech Republic, Hungary, Ireland, the Netherlands, Poland, Puerto Rico, Slovakia, Switzerland and the
U.K.
and the second largest cable network in each of Germany and Romania.
I-8
The following table presents certain operating data as of
December 31, 2014
, with respect to the cable,
DTH
and
MMDS
systems of our subsidiaries in Europe, Chile and Puerto Rico. This table reflects 100% of the operational data applicable to each subsidiary regardless of our ownership percentage.
Consolidated Operating Data
at
December 31, 2014
|
|
Homes
Passed
(1)
|
Two-way
Homes
Passed
(2)
|
Customer
Relationships
(3)
|
Total
RGUs
(4)
|
Video
|
||||||||||||||||||||||||||||
|
Analog Cable Subscribers
(5)
|
Digital
Cable
Subscribers
(6)
|
DTH
Subscribers
(7)
|
MMDS
Subscribers
(8)
|
Total
Video
|
Internet Subscribers
(9)
|
Fixed-line Telephony Subscribers
(10)
|
|||||||||||||||||||||||||||
|
European Operations Division:
|
|||||||||||||||||||||||||||||||||
|
United Kingdom
|
12,627,400
|
|
12,598,400
|
|
5,016,500
|
|
12,513,500
|
|
—
|
|
3,760,300
|
|
—
|
|
—
|
|
3,760,300
|
|
4,536,600
|
|
4,216,600
|
|
|||||||||||
|
Germany
|
12,713,300
|
|
12,401,900
|
|
7,126,800
|
|
12,202,300
|
|
4,280,100
|
|
2,277,800
|
|
—
|
|
—
|
|
6,557,900
|
|
2,896,400
|
|
2,748,000
|
|
|||||||||||
|
The Netherlands (11)
|
6,982,700
|
|
6,968,000
|
|
4,291,600
|
|
9,931,400
|
|
902,100
|
|
3,387,300
|
|
—
|
|
—
|
|
4,289,400
|
|
3,066,000
|
|
2,576,000
|
|
|||||||||||
|
Belgium
|
2,916,300
|
|
2,916,300
|
|
2,066,700
|
|
4,751,500
|
|
490,100
|
|
1,576,600
|
|
—
|
|
—
|
|
2,066,700
|
|
1,530,600
|
|
1,154,200
|
|
|||||||||||
|
Switzerland (11)
|
2,193,300
|
|
2,192,400
|
|
1,433,000
|
|
2,585,200
|
|
697,800
|
|
689,300
|
|
—
|
|
—
|
|
1,387,100
|
|
729,400
|
|
468,700
|
|
|||||||||||
|
Austria
|
1,350,400
|
|
1,350,400
|
|
653,100
|
|
1,350,900
|
|
153,000
|
|
364,400
|
|
—
|
|
—
|
|
517,400
|
|
464,000
|
|
369,500
|
|
|||||||||||
|
Ireland
|
854,800
|
|
754,900
|
|
519,000
|
|
1,111,200
|
|
40,100
|
|
333,200
|
|
—
|
|
30,200
|
|
403,500
|
|
363,400
|
|
344,300
|
|
|||||||||||
|
Total Western Europe
|
39,638,200
|
|
39,182,300
|
|
21,106,700
|
|
44,446,000
|
|
6,563,200
|
|
12,388,900
|
|
—
|
|
30,200
|
|
18,982,300
|
|
13,586,400
|
|
11,877,300
|
|
|||||||||||
|
Poland
|
2,783,900
|
|
2,706,100
|
|
1,437,400
|
|
2,755,000
|
|
282,600
|
|
918,800
|
|
—
|
|
—
|
|
1,201,400
|
|
997,200
|
|
556,400
|
|
|||||||||||
|
Hungary
|
1,556,400
|
|
1,540,300
|
|
1,075,900
|
|
1,967,300
|
|
209,600
|
|
430,900
|
|
280,400
|
|
—
|
|
920,900
|
|
554,100
|
|
492,300
|
|
|||||||||||
|
Romania
|
2,405,200
|
|
2,282,800
|
|
1,186,300
|
|
1,925,200
|
|
305,600
|
|
548,400
|
|
324,800
|
|
—
|
|
1,178,800
|
|
433,500
|
|
312,900
|
|
|||||||||||
|
Czech Republic
|
1,372,700
|
|
1,282,400
|
|
716,300
|
|
1,185,900
|
|
89,600
|
|
369,500
|
|
112,000
|
|
—
|
|
571,100
|
|
445,000
|
|
169,800
|
|
|||||||||||
|
Slovakia
|
504,500
|
|
482,000
|
|
280,000
|
|
432,300
|
|
39,300
|
|
141,800
|
|
66,100
|
|
600
|
|
247,800
|
|
116,800
|
|
67,700
|
|
|||||||||||
|
Total Central and Eastern Europe
|
8,622,700
|
|
8,293,600
|
|
4,695,900
|
|
8,265,700
|
|
926,700
|
|
2,409,400
|
|
783,300
|
|
600
|
|
4,120,000
|
|
2,546,600
|
|
1,599,100
|
|
|||||||||||
|
Total European Operations Division
|
48,260,900
|
|
47,475,900
|
|
25,802,600
|
|
52,711,700
|
|
7,489,900
|
|
14,798,300
|
|
783,300
|
|
30,800
|
|
23,102,300
|
|
16,133,000
|
|
13,476,400
|
|
|||||||||||
|
Chile
|
2,978,800
|
|
2,459,700
|
|
1,225,300
|
|
2,639,300
|
|
111,600
|
|
901,900
|
|
—
|
|
—
|
|
1,013,500
|
|
932,000
|
|
693,800
|
|
|||||||||||
|
Puerto Rico
|
706,500
|
|
706,500
|
|
281,600
|
|
590,900
|
|
—
|
|
219,900
|
|
—
|
|
—
|
|
219,900
|
|
210,300
|
|
160,700
|
|
|||||||||||
|
Grand Total
|
51,946,200
|
|
50,642,100
|
|
27,309,500
|
|
55,941,900
|
|
7,601,500
|
|
15,920,100
|
|
783,300
|
|
30,800
|
|
24,335,700
|
|
17,275,300
|
|
14,330,900
|
|
|||||||||||
I-9
___________________
|
(1)
|
Homes Passed are homes, residential multiple dwelling units or commercial units that can be connected to our networks without materially extending the distribution plant, except for
DTH
and
MMDS
homes. Our Homes Passed counts are based on census data that can change based on either revisions to the data or from new census results. We do not count homes passed for
DTH
. With respect to
MMDS
, one
MMDS
customer is equal to one Home Passed. Due to the fact that we do not own the partner networks (defined below) used in Switzerland and the Netherlands (see note 11 below), we do not report homes passed for Switzerland’s and the Netherlands’ partner networks.
|
|
(2)
|
Two-way Homes Passed are Homes Passed by those sections of our networks that are technologically capable of providing two-way services, including video, internet and fixed-line telephony services.
|
|
(3)
|
Customer Relationships are the number of customers who receive at least one of our video, internet or fixed-line telephony services that we count as Revenue Generating Units (
RGU
s), without regard to which or to how many services they subscribe. To the extent that
RGU
counts include equivalent billing unit (
EBU
) adjustments, we reflect corresponding adjustments to our Customer Relationship counts. For further information regarding our
EBU
calculation, see Additional General Notes to Tables below. Customer Relationships generally are counted on a unique premises basis. Accordingly, if an individual receives our services in two premises (e.g., a primary home and a vacation home), that individual generally will count as two Customer Relationships. We exclude mobile customers from Customer Relationships. For Belgium, Customer Relationships only include customers who subscribe to an analog or digital cable service due to billing system limitations.
|
|
(4)
|
Revenue Generating Unit is separately an Analog Cable Subscriber, Digital Cable Subscriber,
DTH
Subscriber,
MMDS
Subscriber, Internet Subscriber or Fixed-line Telephony Subscriber. A home, residential multiple dwelling unit, or commercial unit may contain one or more
RGU
s. For example, if a residential customer in our Austrian system subscribed to our digital cable service, fixed-line telephony service and broadband internet service, the customer would constitute three
RGU
s. Total
RGU
s is the sum of Analog Cable, Digital Cable,
DTH
,
MMDS
, Internet and Fixed-line Telephony Subscribers.
RGU
s generally are counted on a unique premises basis such that a given premises does not count as more than one
RGU
for any given service. On the other hand, if an individual receives one of our services in two premises (e.g., a primary home and a vacation home), that individual will count as two
RGU
s for that service. Each bundled cable, internet or fixed-line telephony service is counted as a separate
RGU
regardless of the nature of any bundling discount or promotion. Non-paying subscribers are counted as subscribers during their free promotional service period. Some of these subscribers may choose to disconnect after their free service period. Services offered without charge on a long-term basis (e.g., VIP subscribers, free service to employees) generally are not counted as
RGU
s. We do not include subscriptions to mobile services in our externally reported
RGU
counts. In this regard, our
December 31, 2014
RGU
counts exclude our separately reported postpaid and prepaid mobile subscribers in the
U.K.
, Belgium, Germany, the Netherlands, Chile, Hungary, Poland, Switzerland and Austria of 3,053,000, 894,500, 309,800, 129,500, 110,500, 11,200, 10,600, 8,800 and 200, respectively. Our mobile subscriber count represents the number of active subscriber identification module (
SIM
) cards in service.
|
|
(5)
|
Analog Cable Subscriber is a home, residential multiple dwelling unit or commercial unit that receives our analog cable service over our broadband network. Our Analog Cable Subscriber counts also include subscribers who may use a purchased set-top box or other means to receive our basic digital cable channels without subscribing to any services that would require the payment of recurring monthly fees in addition to the basic analog service fee (
Basic Digital Cable Subscriber
). Our
Basic Digital Cable Subscriber
s are attributable to the fact that our basic digital cable channels are not encrypted in certain portions of our footprint and the use of purchased digital set-top boxes in Belgium. In Europe, we have approximately 110,600 “lifeline” customers that are counted on a per connection basis, representing the least expensive regulated tier of video cable service, with only a few channels.
|
|
(6)
|
Digital Cable Subscriber
is a home, residential multiple dwelling unit or commercial unit that receives our digital cable service over our broadband network or through a partner network. We count a subscriber with one or more digital converter boxes that receives our digital cable service in one premises as just one subscriber. A
Digital Cable Subscriber
is not counted as an Analog Cable Subscriber. As we migrate customers from analog to digital cable services, we report a decrease in our Analog Cable Subscribers equal to the increase in our
Digital Cable Subscriber
s. As discussed in further detail in note 5 above,
Basic Digital Cable Subscriber
s are not included in the respective
Digital Cable Subscriber
counts. Subscribers to digital cable services provided by our operations in Switzerland and the Netherlands over partner networks receive analog cable services from the partner networks as opposed to our operations.
|
|
(7)
|
DTH
Subscriber is a home, residential multiple dwelling unit or commercial unit that receives our video programming broadcast directly via a geosynchronous satellite.
|
|
(8)
|
MMDS
Subscriber is a home, residential multiple dwelling unit or commercial unit that receives our video programming via
MMDS
.
|
|
(9)
|
Internet Subscriber is a home, residential multiple dwelling unit or commercial unit that receives internet services over our networks, or that we service through a partner network. Our Internet Subscribers exclude 89,200 asymmetric digital subscriber line (
ADSL
) subscribers within our
U.K.
segment and 65,900 digital subscriber line (
DSL
) subscribers within our Austria segment that are not serviced over our networks. Our Internet Subscribers do not include customers that receive services from dial-up connections. In Switzerland, we offer a 2 Mbps internet service to our Analog and Digital Cable Subscribers without an incremental recurring fee. Our Internet Subscribers in Switzerland include 66,800 subscribers who have requested and received this service.
|
I-10
|
(10)
|
Fixed-line Telephony Subscriber is a home, residential multiple dwelling unit or commercial unit that receives voice services over our networks, or that we service through a partner network. Fixed-line Telephony Subscribers exclude mobile telephony subscribers. Our Fixed-line Telephony Subscribers exclude 59,300 and 48,400 subscribers within our segments in the
U.K.
and Austria, respectively, that are not serviced over our networks. In Switzerland, we offer a basic phone service to our Analog and Digital Cable Subscribers without an incremental recurring fee. Our Telephony Subscribers in Switzerland include 2,800 subscribers who have requested and received this service.
|
|
(11)
|
Pursuant to service agreements, Switzerland and, to a much lesser extent, the Netherlands offer digital cable, broadband internet and fixed-line telephony services over networks owned by third-party cable operators (partner networks). A partner network
RGU
is only recognized if there is a direct billing relationship with the customer. At
December 31, 2014
, Switzerland’s partner networks account for 143,600 Customer Relationships, 279,500
RGU
s, 107,700
Digital Cable Subscriber
s, 101,900 Internet Subscribers and 69,900 Fixed-line Telephony Subscribers.
|
Additional General Notes to Table:
Most of our broadband communications subsidiaries provide fixed-line telephony, broadband internet, data, video or other business services. Certain of our business service revenue is derived from small or home office (
SOHO
) subscribers that pay a premium price to receive enhanced service levels along with video, internet or fixed-line telephony services that are the same or similar to the mass marketed products offered to our residential subscribers. All mass marketed products provided to
SOHO
s, whether or not accompanied by enhanced service levels and/or premium prices, are included in the respective
RGU
and customer counts of our broadband communications operations, with only those services provided at premium prices considered to be “
SOHO
RGU
s” or “
SOHO
customers”. With the exception of our business
SOHO
subscribers, we generally do not count customers of business services as customers or
RGU
s for external reporting purposes.
Certain of our residential and commercial
RGU
s are counted on an
EBU
basis, including residential multiple dwelling units and commercial establishments, such as bars, hotels and hospitals, in Chile and Puerto Rico and certain commercial and residential multiple dwelling units in Europe (with the exception of Germany and Belgium, where we do not count any
RGU
s on an
EBU
basis). Our
EBU
s are generally calculated by dividing the bulk price charged to accounts in an area by the most prevalent price charged to non-bulk residential customers in that market for the comparable tier of service. As such, we may experience variances in our
EBU
counts solely as a result of changes in rates. In Germany, homes passed reflect the footprint, and two-way homes passed reflect the technological capability of our network up to the street cabinet, with drops from the street cabinet to the building generally added, and in-home wiring generally upgraded, on an as needed or success-based basis. In Belgium,
Telenet
leases a portion of its network under a long-term capital lease arrangement. These tables include operating statistics for
Telenet
’s owned and leased networks.
While we take appropriate steps to ensure that subscriber statistics are presented on a consistent and accurate basis at any given balance sheet date, the variability from country to country in (1) the nature and pricing of products and services, (2) the distribution platform, (3) billing systems, (4) bad debt collection experience and (5) other factors add complexity to the subscriber counting process. We periodically review our subscriber counting policies and underlying systems to improve the accuracy and consistency of the data reported on a prospective basis. Accordingly, we may from time to time make appropriate adjustments to our subscriber statistics based on those reviews.
Subscriber information for acquired entities is preliminary and subject to adjustment until we have completed our review of such information and determined that it is presented in accordance with our policies.
I-11
Residential Services
|
•
|
Video.
Our cable operations offer a full range of video services, including basic and premium programming, which can be viewed on the television and, in select markets, through internet connected devices in the home and whenever there is internet connectivity. We provide advanced service offerings, such as an electronic programming guide, high definition (
HD
) channels, digital video recorders (
DVR
) and
HD DVR
. In certain markets, our advance service offerings also include video-on-demand (
VoD
) and advance next generation set-top boxes like the multimedia home gateway “
Horizon TV
” or the “TiVo” service offered by
Virgin Media
in the
U.K.
These services, together with
DVR
and
HD DVR
functionality, give our customers the ability to control when they watch their programming. In several of our markets, we have enhanced pay-per-view programming
on channels we distribute and through
VoD
. In addition, we offer select programming in three-dimensional (3D) format to our customers who have 3D capable televisions. Several of our operations offer television applications (apps) that allow access to programming on a variety of devices, including laptops, smartphones and tablets.
|
To receive our digital services, a subscriber must either rent a set-top box from our operators, or purchase one and obtain a conditional access security card, or a “smart card”, from our operators. Neither a set-top box nor a smart card is required to receive basic digital television channels in our unencrypted footprints. Accordingly, where our basic digital television channels are unencrypted, subscribers are able to also watch our basic digital television channels, provided that they pay the monthly subscription fee for our analog package and have televisions capable of receiving digital signals. The basic digital television channels in our entire footprints in Germany, Switzerland, Austria, Poland, the Czech Republic and Romania are unencrypted as of
December 31, 2014
. In the Netherlands, the footprint of UPC Nederland is also unencrypted. We plan to unencrypt the digital versions of our basic analog tier in our entire footprint in the Netherlands in 2015 and we may take similar steps in additional markets in 2015 and future periods. Regardless of whether basic digital 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.
In some of our markets, instead of a set-top box, a subscriber may use a common interface plus (
CI+
) module to access our encrypted digital services. A
CI+
module is a small device (credit card size) that allows customers with a
CI+
enabled television set, who subscribe to, or otherwise have access to, our digital video service, to view such services without a set-top box. No set-top box,
CI+
module or smart card is required to receive our analog or unencrypted basic digital services.
Our cable operations generally offer two or three tiers of digital video programming and audio services. Subscribers to our basic digital video service pay a fixed monthly fee and generally receive at least 60
video channels and several audio services. This service also includes
VoD
access and an electronic programming guide. In our markets where our basic digital service is not encrypted, the cost of our digital service is the same cost as our analog services. In the markets where we encrypt our basic digital service, our digital service is generally offered at an incremental cost equal to or slightly higher than the monthly fee for our basic analog service. For an additional monthly charge, a subscriber may upgrade to one of our extended digital tier services and receive an increased number of video channels, including the channels in the basic tier service. A limited number of
HD
channels are generally included in our basic tiers of service. Digital subscribers may also subscribe to one or more packages of premium channels, including additional
HD
channels. In all digital tiers of service, a subscriber also has the option for an incremental monthly charge to upgrade the standard digital device to one with
DVR
or
HD DVR
capabilities, which may be rented or purchased.
Customers who subscribe to a digital tier generally receive a
VoD
enabled set-top box without an additional monthly charge. Our
VoD
services, including catch-up television, are available on a subscription basis or a transaction basis, depending on location and the tier of digital service selected by the subscriber.
In addition to our digital video services, we offer limited analog services in all of our broadband markets, except in the
U.K.
and in Puerto Rico. Subscribers to our analog video service typically receive 21 to 67 channels of video service, depending on their location. Subscribers to our digital services also receive the channels available through our analog service. In Ireland and Slovakia, we offer a limited number of video channels through
MMDS
.
Discounts to our monthly service fees are available to any subscriber who selects a bundle of two or more of our services (bundled services): video, internet, fixed-line telephony and, in certain markets, mobile services. Bundled services consist of “double-play” for two services, “triple-play” for three services and “quadruple-play” for four services.
We tailor our tiers of video services in each country of operation based on programming preferences, culture, demographics and local regulatory requirements. Our channel offerings include general entertainment, sports, movies, documentaries, lifestyles, news, adult, children and ethnic and foreign channels. In each of our markets, we also offer a variety of premium channel packages (such as sports, family and international focus) and our
VoD
service provides a wide variety of movies
I-12
and special events to meet the special interests of our subscribers. In all of our broadband operations, we continue to upgrade our systems to expand our digital services and encourage our analog subscribers to convert to a digital or premium digital service.
We offer digital video services through
DTH
satellite in the Czech Republic, Hungary, Romania and Slovakia. We offer these services through UPC DTH S.á.r.l (
UPC DTH
), a subsidiary of
UPC Holding
organized in Luxembourg, which also has a management arrangement with another subsidiary, FocusSat Romania Srl (
FocusSat
), to provide these services in Romania. Similar to our video cable services, we offer a lifeline tier of service, a basic video tier of service and, for an additional monthly charge, subscribers may upgrade to an extended tier of service and may subscribe to various premium channel packages.
|
•
|
Interactive Services.
To enhance our customers video experience, we offer “
Horizon TV
”, a next generation multimedia home gateway, in Germany, Switzerland, Ireland and in the UPC Nederland footprint of the Netherlands. Horizon TV is a central media platform that is capable of distributing video, voice and data content throughout the home and to multiple devices. It has a sophisticated user interface that enables customers to view linear channels,
VoD
programming and personal media content and to pause, replay and record programming. The
Horizon TV
platform sets up a wireless network that connects the digital video content available on the television to other devices, such as laptops, smartphones and tablets. It also integrates access to personal media content, such as photos, music and movies stored in the home network.
|
The box for
Horizon TV
has six inbuilt tuners, two of which are dedicated to channel-surfing. This allows the customer to view programming information while their current program is playing. Also, up to four programs can be recorded simultaneously and up to four devices can connect to the
Horizon TV
box at the same time and view different content. In certain markets, we offer a box for
Horizon TV
without the recording functionality. For our multimedia gateway customers, we also offer apps for various services. We intend to (1) expand the availability of
Horizon TV
to other markets within our footprint and (2) continue to improve the
Horizon TV
user experience with new functionality and software updates.
For our
Horizon TV
subscribers, we offer apps for various online services (such as YouTube, Facebook, Picasa and others). The Horizon family of products also includes an online television app for viewing on a second screen called “Horizon Go” that allows video customers to view linear channels, with many channels available outside of the home. Horizon Go also offers access to
VoD
, and, for
Horizon TV
customers, when in the home, the second screen devices also act as a remote control. We also have available through Horizon Go the ability to remotely schedule the recording of a television program on the
Horizon TV
box at home through an iOS or Android mobile digital device or an internet web browser. Other iOS and Android apps that are available allow customers to use their smartphone as an extension of their home phone line.
At
December 31, 2014
, we had 911,700
Horizon TV
subscribers. We are expanding the
Horizon TV
experience through cloud TV, including cloud
DVR
,
VoD
navigation and advanced applications. The
Horizon TV
cloud platform allows users to stream experiences to set-top boxes and
CI+
modules. It also integrates access to personal media content, such as photos, music and movies stored in the home or in the cloud, enabling access on devices both in and outside the home. In November 2014, we launched this cloud-based
Horizon TV
platform in select areas in Poland, followed by a full commercial launch in January 2015. In Poland, we had over 1,800
Horizon TV
subscribers at
December 31, 2014
. Digital video experiences are offered by us through the “TiVo” platform in the
U.K.
under a strategic partnership agreement with TiVo Inc. The TiVo boxes provide converged television and broadband internet capabilities.
In addition, we have launched our subscription
VoD
offering, which we refer to as “MyPrime”. MyPrime offers customers unlimited streaming access to a library of on-demand content. Each library has been tailored to the specific market based on available content, consumer preferences and competitive offers. Generally, the library contains 1,500 movies and 2,000 TV episodes from local and international suppliers such as ABC/Disney, NBC/Universal, CBS/Paramount, Warner TV and Sony. The MyPrime offering also includes over 500 children’s episodes. Where available, MyPrime is included with the
Horizon TV
platform services (or separately as a premium channel for non-
Horizon TV
subscribers). We have launched MyPrime in the Netherlands, Switzerland, Poland and Hungary.
|
•
|
Broadband Internet.
We offer multiple tiers of broadband internet service in all of our broadband communications markets. Depending on location, this service includes download speeds ranging from less than 1 Mbps to an ultra high-speed internet service of 500 Mbps in Hungary and Romania. To a select market in Switzerland, we also have available an ultra high-speed internet service with download speeds of up to 500 Mbps. Our key mass-market package in most of our European operations include a download speed of up to 120 Mbps. Generally, we provide our broadband internet service without any time or data volume restrictions. Our ultra high-speed internet service is based primarily on Euro
|
I-13
DOCSIS 3.0 technology, which is an international standard that defines requirements for a data transmission over a cable system. Our internet service generally includes email, address book, parental controls and online audio. We also offer value-added broadband services through certain of our operations for an incremental charge. These services include security (e.g., anti-virus and spam protection) and online storage and web spaces. In certain of our markets, we offer mobile broadband services as described under
—Mobile
below.
Our residential subscribers generally access the internet via cable modems connected to their internet capable devices, including personal computers, at various speeds depending on the tier of service selected. This standard means of access is changing as we expand our services to offer wireless networks for the home. In certain of our markets, we are deploying a community WiFi in the home (Community WiFi), which provides a seamless connectivity experience over WiFi to our customers. The Community WiFi is branded as “Wi-Free” in Belgium, Switzerland, Ireland, Poland, Hungry and Romania, as “WifiSpots” in the Netherlands and as “WiFi Buddy” in the U.K. At
December 31, 2014
, we had approximately 5.1 million WiFi access points in our European footprint. In 2015, through an agreement with Comcast Corporation, our internet customers will also have access to millions of new WiFi access points in the
U.S.
and across various European countries, for no additional costs. In the U.K.,
Virgin Media
’s customers have access to an extensive network of public WiFi access points, including in the London underground train stations.
Community WiFi is enabled by a cable modem WiFi access point (WiFi modem) in the set-top box, and starting in 2014 the
Horizon TV
box, of our internet customers. Access is free for our internet customers. The Community WiFi is created through the sharing of access to the public channel of our customers’ home wireless routers. The public channel is a separate network from the secure private network used by the customer within the home and is automatically enabled when the WiFi modem is installed. By using the WiFi modems and the
Horizon TV
box, the Community WiFi does not affect the internet speeds of our customers.
In the Netherlands, Romania and Switzerland, a subscriber must subscribe to our video service in order to subscribe to our internet service. In our other markets, our broadband internet service is available on a standalone basis or in combination with one or more of our other services. Subscribers to our internet service pay a monthly fee based on the tier of service selected. In addition to the monthly fee, customers pay an activation service fee upon subscribing to an internet service. This one time fee may be waived for promotional reasons. We determine pricing for each different tier of internet service through an analysis of speed, market conditions and other factors.
|
•
|
Telephony.
Multi-feature fixed-line telephony services are available through our managed, quality of service based voice-over-internet-protocol (
VoIP
) technology in all of our broadband communication markets. In the
U.K.
, Chile and Hungary, we also provide traditional circuit-switched fixed-line telephony services. We pay interconnection fees to telephony providers when calls by our subscribers terminate on another network and receive similar fees from providers when calls by their users terminate on our network through interconnection points.
|
Our fixed-line telephony service may be selected in several of our markets on a standalone basis and in all of our markets in combination with one or more of our other services. Our fixed-line telephony service includes a basic fixed-line telephony product for line rental and various calling plans, which may consist of any of the following: unlimited network, national or international calling, unlimited off-peak calling and minute packages, including calls to fixed and mobile phones. We also offer value added services, such as a personal call manager, unified messaging and a second or third phone line at an incremental cost. In some of our markets, we offer a phone app that allows our fixed-line telephony customers with smartphones to use their fixed-line call packages.
|
•
|
Mobile.
We offer mobile services, both data and voice, as an
MVNO
over third-party networks in the
U.K.
, Germany, the Netherlands, Belgium, Switzerland, Austria, Chile and Hungary. In Poland we have a small legacy MVNO service that we maintain for those subscribers. We plan to add
MVNO
arrangements in certain of our other broadband communication markets. The Netherlands, Belgium, Switzerland, Austria, Hungary and Chile provide their mobile telephony services as full
MVNO
s through partnerships with a third-party mobile network operator in their respective footprints. All of these operations lease the third party’s radio access network and, except for the network in the footprint of
Ziggo
, own the core network, including switching, backbone, interconnections, etc. These arrangements permit us to offer our customers in these markets all mobile services using the core network without having to build and operate a cellular radio tower network. In the
U.K.
and Germany, we provide mobile telephony as light
MVNO
s. In these countries, we lease the core network as well as the radio access network from a mobile network operator. These arrangements permit our customers in these countries to have access to the third party mobile communications services while we maintain the customer relationship. We offer our mobile services throughout the
U.K.
, Belgium, Austria and Chile. Our mobile services in Hungary are available in select areas, with full commercial launch expected in March 2015. In the Netherlands, Germany and Switzerland, we offer our mobile service to our customers located within our footprints who subscribe to at least one of our other products: video, broadband internet or fixed-line telephony.
|
I-14
Where mobile services are available within our operations, subscribers pay varying monthly fees depending on whether the mobile service is included with our fixed-line telephony service or includes mobile data services via mobile phones, tablets or laptops. Our mobile services typically include voice, short message service (or SMS) and internet or data access. Calls, both within and out of network, incur a charge or are covered under a postpaid monthly service plan. Our standalone mobile services are primarily on a postpaid basis with customers subscribing to services for periods ranging from activation for a SIM-only contract to up to 24 months, with the latter often taken with a subsidized mobile handset. In Belgium, however, our postpaid service is offered without a minimum contract term. In the
U.K.
, we also offer a prepaid service, where the customers pay in advance for a pre-determined amount of airtime or data and generally have no minimum contract term. In almost all of our markets, subscribers to a double-or triple-play bundle receive a discount on their mobile service fee.
Business Services
In addition to our residential services, we offer voice, broadband internet, data, video, wireless and cloud services to business customers and public sector organizations. Our business services are designed to meet the specific demands of the business customer. These services differ from residential services in several fundamental ways, such as bandwidth, service levels, billing, security services and the blending of public and private network features. Our business customers include
SOHO
(generally fewer than
10 employees), small business and medium and large enterprises, as well as on a wholesale basis to other operators. In addition, in some of our markets, we target specific industry segments, such as financial institutions, health care facilities, education institutions and government offices, with tailored solutions combining our standard services with value added features, such as dedicated customer care and enhanced service performance monitoring. We also offer a range of data, voice and internet services to carriers, internet service providers (
ISP
s) and mobile operators.
Our business services are designed to meet the specific demands of our business customers with a wide range of services. These services fall into five broad categories: (1)
VoIP
and circuit-switch telephony, hosted private branch exchange solutions and conferencing options, (2) data services for internet access, virtual private networks Ethernet transport and high capacity point-to-point services, (3) video programming packages and select channel lineups for targeted industries, (4) wireless services for mobile voice and data, as well as WiFi networks, and (5) value added services, including webhosting, managed security systems and storage and cloud enabled software.
Our business services are provided to customers at established prices based on the type of services received, the volume and the duration of the service agreement. SOHO and small business customers pay business market prices on a monthly subscription basis to receive enhanced service levels and business features that support their needs. For more advanced business services, these customers generally enter into a service agreement. For medium to large business customers, we enter into individual agreements that address their needs. These agreements are generally for a period of one or more years.
Technology
In almost all of our markets, our video, broadband internet and fixed-line telephony services are transmitted over a hybrid fiber coaxial cable network. This network is composed primarily of fiber optics with only the last part that connects the home to the network composed of coaxial cable. Over 97% of our network allows for two-way communications and is flexible enough to support our current services, as well as new services. In addition, the capacity available on our network increases as our analog subscribers switch to a digital service. This is because multiple digital channels can be compressed into the same space as a single analog channel in the broadcast spectrum. The available space can then be used for other purposes, such as
VoD
services and high broadband speeds.
We continue to explore new technologies that will enhance our customer’s connected entertainment experience, such as:
|
•
|
recapturing bandwidth and optimizing our networks by:
|
|
◦
|
increasing the number of nodes in our markets;
|
|
◦
|
increasing the bandwidth of our hybrid fiber coaxial cable network to 1 GHz;
|
|
◦
|
converting analog channels;
|
|
◦
|
bonding additional 3.0 channels; and
|
|
◦
|
using digital compression technologies;
|
I-15
|
•
|
increasing the efficiency of our networks by moving headend functions (encoding, transcoding and multiplexing) to the cloud;
|
|
•
|
enhancing our network to accommodate business services;
|
|
•
|
using wireless technologies to extend our services outside the home;
|
|
•
|
offering remote access to our video services through laptops, smartphones and tablets; and
|
|
•
|
developing and introducing next-generation platforms through multimedia home gateways or online media sharing and streaming or cloud based video, as well as enhanced next generation user interfaces for existing set-top boxes.
|
In addition, we may expand our hybrid fiber coaxial cable network into new market areas. For example, in 2015, we plan to undertake a network extension program in the
U.K.
See Item 7.
Overview
.
We deliver our high-speed data and fixed-line telephony over our cable network. The cable networks of our operations are connected to our “aorta” backbone, a tier 1 carrier, that permits us to serve our customers through settlement free collaboration with other carriers without the cost of using a third-party network.
Supply Sources
For our video services, we license almost all of our programming and on-demand offerings from broadcast and cable programming networks, as well as
DTH
content providers. For such licenses, we generally pay a monthly fee on a per channel or per subscriber basis. We generally enter into long-term programming licenses with volume discounts and marketing support. For on-demand programming and streaming services, we generally enter into shorter-term agreements. For our distribution agreements, we seek to include the rights to offer the licensed programming to our customers through multiple delivery platforms and through our apps for smartphones and tablets.
We purchase each type of customer premise equipment from a number of different suppliers with at least two or more suppliers for our high-volume products. Customer premise equipment includes set-top boxes, modems,
CI+
modules,
DVR
s, tuners and similar devices. For each type of equipment, we retain specialists to provide customer support. For our broadband services, we use a variety of suppliers for our network equipment and the various services we offer. Similarly, we use a variety of suppliers for mobile handsets to offer customers in our operations with mobile services.
We license software products, including email and security software, and content, such as news feeds, from several suppliers for our internet services. The agreements for these products require us to pay a per subscriber fee for software licenses and a share of advertising revenue for content licenses. For our TiVo service in the
U.K.
, we have a partnership arrangement where TiVo is the exclusive provider of the user interface software for our next generation set-top boxes, which provide converged television and broadband internet capabilities, and we are the exclusive distributor of the TiVo services and technology in the
U.K.
For our fixed-line telephony services, we license software products, such as voicemail, text messaging and caller ID, from a variety of suppliers. For these licenses we seek to enter into long-term contracts, which generally require us to pay based on usage of the services.
I-16
The following table presents certain penetration and network data as of
December 31, 2014
, with respect to the cable systems of our consolidated subsidiaries in Europe, Chile and Puerto Rico. The table reflects 100% of the data applicable to each of our subsidiaries regardless of our ownership percentage. Percentages are rounded to the nearest whole number.
Network & Product Penetration Data (%)
at
December 31, 2014
|
U.K.
|
Germany
|
The Netherlands
|
Belgium
|
Switzerland
|
Austria
|
Ireland
|
Poland
|
Hungary
|
Czech Republic
|
Romania
|
Slovakia
|
Chile
|
Puerto Rico
|
||||||||||||||
|
Liberty Global Network Data:
|
|
||||||||||||||||||||||||||
|
Two-way homes passed (HP) percentage (1)
|
100
|
98
|
100
|
100
|
100
|
100
|
88
|
97
|
99
|
93
|
95
|
96
|
83
|
100
|
|||||||||||||
|
Digital video availability percentage (2)
|
100
|
100
(9)
|
100
(10)
|
100
|
100
(9)
|
95
|
97
|
97
|
98
|
95
|
95
|
96
|
82
|
100
|
|||||||||||||
|
Broadband internet availability percentage (2)
|
100
|
98
(9)
|
100
|
100
|
100
(9)
|
100
|
88
|
97
|
99
|
95
|
95
|
93
|
83
|
100
|
|||||||||||||
|
Fixed-line telephony availability percentage (2)
|
100
|
98
(9)
|
100
|
100
|
100
(9)
|
100
|
87
|
96
|
99
|
95
|
95
|
93
|
82
|
100
|
|||||||||||||
|
|
|||||||||||||||||||||||||||
|
Bandwidth percentage (3):
|
|||||||||||||||||||||||||||
|
at least 860 MHz
|
14
|
98
|
100
|
26
|
100
|
85
|
59
|
99
|
20
|
94
|
95
|
97
|
64
|
40
|
|||||||||||||
|
750 MHz to 859 MHz
|
76
|
--
|
--
|
--
|
--
|
--
|
35
|
--
(11)
|
55
|
--
|
--
(11)
|
--
|
22
|
--
|
|||||||||||||
|
less than 750 MHz
|
10
|
2
|
--
|
74
|
--
|
15
|
6
|
1
|
25
|
6
|
5
|
3
|
14
|
60
|
|||||||||||||
|
|
|||||||||||||||||||||||||||
|
Liberty Global Product Penetration:
|
|
|
|
|
|
|
|
||||||||||||||||||||
|
Cable television penetration (4)
|
30
|
52
|
61
|
71
|
63
|
38
|
44
|
43
|
41
|
33
|
36
|
36
|
34
|
31
|
|||||||||||||
|
Digital cable penetration (5)
|
100
|
35
|
79
|
76
|
50
|
70
|
89
|
76
|
67
|
80
|
64
|
78
|
89
|
100
|
|||||||||||||
|
HD, DVR & HD DVR penetration (6)
|
86
|
46
|
31
|
100
|
89
|
79
|
89
|
93
|
42
|
47
|
23
|
35
|
41
|
55
|
|||||||||||||
|
Broadband internet penetration (7)
|
36
|
23
|
44
|
52
|
33
|
34
|
48
|
37
|
36
|
35
|
19
|
24
|
38
|
30
|
|||||||||||||
|
Fixed telephony penetration (7)
|
33
|
22
|
37
|
40
|
21
|
27
|
46
|
21
|
32
|
13
|
14
|
14
|
28
|
23
|
|||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Double-play penetration (8)
|
18
|
9
|
15
|
29
|
18
|
14
|
25
|
23
|
13
|
37
|
17
|
9
|
22
|
19
|
|||||||||||||
|
Triple-play penetration (8)
|
66
|
31
|
58
|
51
|
31
|
47
|
44
|
34
|
35
|
14
|
23
|
23
|
47
|
45
|
|||||||||||||
I-17
_____________________
|
(1)
|
Percentage of total HP that are two-way HP.
|
|
(2)
|
Percentage of total HP to which digital video (including digital
MMDS
), broadband internet or fixed telephony services, as applicable, are made available.
|
|
(3)
|
Percentage of total HP served by a network with the indicated bandwidth. HP for Ireland excludes
MMDS
HP.
|
|
(4)
|
Percentage of total HP that subscribe to cable television services (Analog Cable or Digital Cable).
|
|
(5)
|
Percentage of cable television subscribers (Analog Cable and
Digital Cable Subscriber
s) that are
Digital Cable Subscriber
s.
|
|
(6)
|
Percentage of
Digital Cable Subscriber
s with
HD
,
DVR
or
HD DVR
. This Percentage would not include subscribers who may use a purchased set-top box or other means to receive our basic digital cable channels without subscribing to any services that would require the payment of recurring monthly fees in addition to the basic analog service fee due to the fact that our basic digital cable channels are not encrypted in certain portions of our footprint.
|
|
(7)
|
Percentage of two-way HP that subscribe to broadband internet or fixed-line telephony services, as applicable.
|
|
(8)
|
Percentage of total customers that subscribe to two services (double-play customers) or three services (triple-play customers) offered by our operations (video, broadband internet and fixed-line telephony).
|
|
(9)
|
Assuming the contractual right to serve the building exists in the case of multiple dwelling units.
|
|
(10)
|
Digital video is 100% available in the Ziggo footprint and 99% available in the UPC Nederland footprint.
|
|
(11)
|
Less than 1%.
|
I-18
The following table provides information on the products and services available to our cable customers as of
December 31, 2014
. Percentages are rounded to the nearest whole number.
Video, Broadband Internet & Fixed-Line Telephony and Mobile Services
at
December 31, 2014
|
U.K.
|
Germany
|
The Netherlands
|
Belgium
|
Switzerland
|
Austria
|
Ireland
|
Poland
|
Hungary
|
Czech Republic
|
Romania
|
Slovakia
|
Chile
|
Puerto Rico
|
|||||||||||||||
|
Video services (excluding DTH):
|
||||||||||||||||||||||||||||
|
Next Generation Video (1)
|
X
|
X
|
X
|
X
|
X
|
X
(8)
|
||||||||||||||||||||||
|
VoD
|
X
|
X
|
X
|
X
|
X
|
X
|
X
|
X
|
X
|
X
|
X
|
|||||||||||||||||
|
DVR
|
X
|
X
|
X
|
X
|
X
|
X
|
X
|
X
|
X
|
X
|
X
|
X
|
X
|
X
|
||||||||||||||
|
HD
|
X
|
X
|
X
|
X
|
X
|
X
|
X
|
X
|
X
|
X
|
X
|
X
|
X
|
X
|
||||||||||||||
|
Electronic programming guide
|
X
|
X
|
X
|
X
|
X
|
X
|
X
|
X
|
X
|
X
|
X
|
X
|
X
|
X
|
||||||||||||||
|
Number of channels in basic digital tier
|
61
|
84 or 83
(4)
|
81 or 60
(5)
|
75
|
85
|
103
|
63
|
129
|
88
|
100
|
141
|
99
|
86
|
105
|
||||||||||||||
|
Number of channels in basic analog tier (2)
|
n/a
|
40 or 38
(4)
|
30 or 25
(5)
|
21
|
65
|
30
|
26
|
32 or 42
(9)
|
29
|
41
|
51
|
47
|
67
|
n/a
|
||||||||||||||
|
Number of unique channels in basic digital tier (3)
|
61
|
44 or 45
(4)
|
51 or 35
(5)
|
54
|
20
|
70
|
37
|
87 or 97
(9)
|
55
|
75
|
90
|
51
|
19
|
105
|
||||||||||||||
|
Number of HD channels
|
43
|
66 or 67
(4)
|
52 or 41
(5)
|
15
|
90
|
48
|
41
|
53
|
24
|
36
|
33
|
26
|
33
|
101
|
||||||||||||||
|
Broadband internet service:
|
||||||||||||||||||||||||||||
|
Maximum download speed offered (Mbps)
|
152
|
200
|
200 or 180
(5)
|
160
|
250
(6)
|
250
|
200
|
250
|
500
|
240
|
500
|
300
|
120
|
100
|
||||||||||||||
|
Percentage of Two-way Homes Passed with 3.0 speeds of at least 100 Mbps
|
100
|
100
|
99 or 100
(5)
|
100
|
100
|
100
|
98
|
100
|
93
|
98
|
100
|
100
|
100
|
100
|
||||||||||||||
|
Fixed-line telephony and mobile services:
|
||||||||||||||||||||||||||||
|
VoIP Fixed-line
|
(7)
|
X
|
X
|
X
|
X
|
X
|
X
|
X
|
X
|
X
|
X
|
X
|
X
|
X
|
||||||||||||||
|
Mobile (MVNO)
|
X
|
X
|
X
|
X
|
X
|
X
|
(10)
|
(11)
|
X
|
|||||||||||||||||||
I-19
___________________
|
(1)
|
Available on the
Horizon TV
platform, except in the U.K. where these services are available through TiVo.
|
|
(2)
|
Excludes the lifeline tier.
|
|
(3)
|
Excludes the channels that are also included in basic analog tier.
|
|
(4)
|
Depending on whether the subscriber is located in Baden-Württemberg, North Rhine-Westphalia or Hesse.
|
|
(5)
|
Depending on whether the subscriber is located in the UPC Nederland footprint or the Ziggo Footprint.
|
|
(6)
|
Offers 500 Mbps in a limited area.
|
|
(7)
|
Available to business customers only.
|
|
(8)
|
Launched in select areas in November 2014, with full commercial launch in January 2015.
|
|
(9)
|
Depending on location.
|
|
(10)
|
Limited to legacy subscribers.
|
|
(11)
|
Available in select areas.
|
Operations
Provided below is country-specific information with respect to the broadband communications and
DTH
services of our subsidiaries.
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United Kingdom and Ireland.
The
European Operations Division
operates a cable network in the U.K. under the
Virgin Media
brand and cable and MMDS networks in Ireland under the UPC brand (UPC Ireland). Both
Virgin Media
’s and UPC Ireland’s video services include a broad range of digital interactive services, including
VoD
, and a range of premium subscription-based and pay-per-view services.
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U.K.
Virgin Media
offers triple-play services consisting of video, internet and fixed-line telephony in parts of many metropolitan areas in England, Wales, Scotland and Northern Ireland.
Virgin Media
also offers quadruple-play services that include mobile voice and data services as an
MVNO
through an arrangement with a mobile communications provider.
As a complement to its broadband services,
Virgin Media
offers a comprehensive internet streaming video service, Virgin TV Anywhere, that allows its video customers to stream up to 103 real-time video channels and watch
VoD
content anywhere in the U.K. where they have a broadband connection. The streaming service is available at no extra cost to
Virgin Media
’s digital video customers. In addition,
Virgin Media
offers the multimedia home gateway TiVo to its digital video customers. Customers can record up to three programs simultaneously when watching an existing recording. TiVo customers can also access real-time television channels and manage their TiVo box with a laptop, smartphone or tablet. When in the home, these devices also act as a remote control for TiVo. It also offers a TiVo app for the Netflix video service that allows up to five individual profiles on a single account. At
December 31, 2014
,
Virgin Media
had 2.5 million connected TiVo customers.
Virgin Media
does not offer an analog video service.
Virgin Media
offers its subscribers premium digital channels from Sky plc (Sky) through an agreement with Sky and premium BT Sport channels through an agreement with BT Group plc (BT).
Virgin Media
subscribers may receive these channels through a smart card on
Virgin Media
’s network as part of
Virgin Media
’s services or for an incremental subscription fee. In addition,
Virgin Media
subscribers using TiVo may access internet programming services and a Eurosport app pursuant to agreements between
Virgin Media
and such service providers.
Through its twisted copper network,
Virgin Media
offers fixed-line telephony services to its residential customers. It offers its mobile service on both a prepaid and postpaid basis.
Virgin Media
’s telephony services via
VoIP
are only available to its business customers. In addition,
Virgin Media
offers mobile services and its customers have access to an extensive network of public WiFi hotspots, including in the London underground train (or Tube) stations.
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Ireland
.
UPC Ireland
’s operations are located in five regional clusters, including the capital city of Dublin and other cities, including Cork, Galway and Limerick. To complement its digital offering,
UPC Ireland
offers its digital subscribers several premium channels (sports, movies, adult, ethnic and kids).
UPC Ireland
’s services include
Horizon TV
and, at
December 31, 2014
, it had 113,000 connected
Horizon TV
subscribers. It also offers Horizon Go, giving access to linear channels and
VoD
programming. For its business customers,
UPC Ireland
has introduced a number of Community WiFi networks. In January 2015, UPC Ireland increased its fastest broadband internet download speed to 240 Mbps. Also in 2015, UPC Ireland will expand its products to include mobile services as an
MVNO
.
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Germany.
The operations of the
European Operations Division
in Germany are currently conducted under the brands Unitymedia and Kabel BW (collectively,
Unitymedia KabelBW
).
Unitymedia KabelBW
’s operations are located in the German federal states of Baden-Württemberg, North Rhine-Westphalia and Hesse and include the major cities of Cologne, Dortmund, Düsseldorf, Essen, Frankfurt, Karlsruhe, Mannheim, Stuttgart and Wiesbaden.
Unitymedia KabelBW
offers triple-play services consisting of video, internet and fixed-line telephony services in nearly all of its footprint.
Unitymedia KabelBW
offers a
CI+
module to its video cable customers for an incremental monthly charge. No set-top box,
CI+
module or smart card is, however, required to receive basic digital services because our basic digital service is unencrypted in our German footprint. In September 2013,
Unitymedia KabelBW
launched
Horizon TV
in North Rhine-Westphalia and Hesse followed by a launch in Baden-Württemberg in November 2014. At
December 31, 2014
,
Unitymedia KabelBW
had over 245,000 connected
Horizon TV
subscribers.
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Through an agreement with Sky Deutschland AG (
Sky Deutschland
),
Unitymedia KabelBW
offers its subscribers premium video channels from
Sky Deutschland
.
Unitymedia KabelBW
subscribers may receive
Sky Deutschland
channels for an incremental subscription fee through a smart card on the
Unitymedia KabelBW
network.
VoD
is available to subscribers to its digital video service on a pay-per-view basis and includes
HD
and 3D content. In addition,
Unitymedia KabelBW
offers Horizon Go, giving subscribers access to 100 linear channels of which 13 channels plus
VoD
programming may be accessed remotely.
Approximately two-thirds
of
Unitymedia KabelBW
’s video customers are in multiple dwelling units where
Unitymedia KabelBW
has the billing relationship with the landlord or housing association or with a third party (
Professional Operator
) that operates and administers the in-building network on behalf of housing associations. Many of these agreements allow
Unitymedia KabelBW
to offer its digital video, broadband internet and fixed-line telephony services directly to the end customer.
Professional Operator
s may procure the basic video signals from
Unitymedia KabelBW
at volume-based discounts and generally resells them to housing associations with whom the operator maintains the customer relationship.
Unitymedia KabelBW
has entered into agreements with
Professional Operator
s, such as Tele Columbus Multimedia GmbH, that allow
Unitymedia KabelBW
to market its digital video, broadband internet and fixed-line telephony services directly to the
Professional Operator
’s subscriber base.
Unitymedia KabelBW
has entered into various long-term agreements with the incumbent telecommunications operator, Deutsche Telekom AG (
Deutsche Telekom
), for the lease of cable duct space and hubs, as well as use of fiber optic transmission systems, towers and facility space. In addition,
Unitymedia KabelBW
purchases a portion of the electricity required for the operation of its networks through
Deutsche Telekom
under such agreements.
Unitymedia KabelBW
’s ability to offer its broadband communications services to customers is dependent on the agreements with
Deutsche Telekom
. These agreements are long-term and may only be terminated under certain limited exceptions. Any termination, however, would have a material adverse effect on the operations of
Unitymedia KabelBW
. For information on a legal action that
Unitymedia KabelBW
commenced against
Deutsche Telekom
in December 2012 regarding these agreements, see note 17 to our consolidated financial statements included in Part II of this Annual Report on Form 10-K.
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The Netherlands.
The operations of the
European Operations Division
in the Netherlands are conducted by UPC Nederland under the UPC brand and, since November 12, 2014, by
Ziggo
under the
Ziggo
brand. UPC Nederland’s operations are located in six regional clusters, including the major cities of Amsterdam and Rotterdam.
Ziggo
’s operations cover six regional areas, including the cities The Hague, Utrecht, Maastricht, Groningen and Tilburg. Both UPC Nederland and
Ziggo
(collectively, the Ziggo Group) offer video, internet, fixed-line telephony and mobile services as an
MVNO
.
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Digital subscribers may subscribe to premium channels, including HBO, Film1, Sport1, Fox Sports International and the premium football league channel, Fox Sports Eredivisie, alone or in combination, for additional monthly charges. For subscribers in the UPC Nederland footprint who want access to thousands of movies and TV series, the video service MyPrime is available.
VoD
services, including catch-up television, are available on a subscription or a transaction basis, depending on location and the tier of digital service selected by the subscriber.
VoD
services are also available to
CI+
users in the
Ziggo
footprint. A subscription-based
VoD
service is included in the extended digital tier for no additional charge. The transaction
VoD
service includes over 2,000 titles of on-demand content in the UPC Nederland footprint and over 5,000 titles in the
Ziggo
footprint.
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Horizon TV
is available to UPC Nederland customers as are applications on the gateway device that provide access to various internet services, such as YouTube and Facebook. At
December 31, 2014
, UPC Nederland had over 330,000 connected
Horizon TV
subscribers. We intend to expand the availability of
Horizon TV
to
Ziggo
customers during 2015.
Ziggo
offers its customers a cloud-based interactive television service using existing set-top boxes. By combining IP protocol with the standard set-top box, devices without built-in hardware functionality for interactivity can make use of interactive services through the cable network in the
Ziggo
footprint. Also available in the
Ziggo
footprint is a
CI+
1.3 module that enables subscribers to the digital video service to view such service without a set-top box and use a single remote control. To utilize this service,
Ziggo
customers must have a
CI+
1.3 enabled television and obtain the
CI+
1.3 module and smart card from
Ziggo
. At
December 31, 2014
,
Ziggo
had over 690,000 interactive subscribers in the
Ziggo
footprint.
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Belgium.
The operations of the
European Operations Division
in Belgium are conducted under the
Telenet
brand. At
December 31, 2014
, we owned
56.6%
of
Telenet
’s outstanding ordinary shares.
Telenet
offers quadruple-play services consisting of video, broadband internet, fixed-line telephony and mobile voice and data services in Belgium, primarily to residential customers in the Flanders region and approximately one-third of the city of Brussels. In addition, pursuant to an agreement executed on June 28, 2008 (the
PICs Agreement
) with four associations of municipalities in Belgium (the pure intercommunales or
PICs
),
Telenet
leases the
PICs
broadband communications network and, accordingly, makes its services available to all of the homes passed by the cable network owned by the
PICs
.
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Telenet
’s premium video channels include general entertainment, sports (including non-exclusive broadcasting rights for the domestic football league), documentary, foreign language, kids, music, adult and movies. In February 2013,
Telenet
launched Yelo TV. Yelo TV is an online video service that offers linear channels and
VoD
programming on a laptop, smartphone or tablet and in the home on the television via the customer’s set-top box. At
December 31, 2014
, it had over 400,000 connected Yelo TV subscribers.
Telenet
offers Yelo TV apps that allow
Telenet
’s digital video customers to remotely manage their
DVR
, view programs remotely (up to seven days after the original broadcast) and access
VoD
with a laptop, smartphone or tablet.
Telenet
also offers a
CI+
module for an incremental monthly charge to access its encrypted digital service.
Telenet
has an extensive network of Community WiFi across its footprint, branded “Wi-Free”. The Community WiFi provides free WiFi access to its customers who are traveling within its footprint.
Telenet
has approximately 1.2 million access points to the Community WiFi as of
December 31, 2014
, including approximately 2,000 public hotspots covering train stations, bars, hotels and similar public places. In addition,
Telenet
offers, individually and as a bundle, fixed-line telephony services over its network and mobile telephony services as a full
MVNO
under the “Telenet Mobile” brand name.
Telenet
has the direct customer relationship with the analog and digital video subscribers on the
PICs
network. Pursuant to the
PICs Agreement
,
Telenet
has full rights to use substantially all of the
PICs
network under a long-term capital lease. Unless extended, the
PICs Agreement
will expire on September 23, 2046, and cannot be terminated earlier (except in the case of non-payment or bankruptcy of Telenet).
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Switzerland and Austria.
The
European Operations Division
also operates a cable network in Switzerland under the UPC Cablecom brand (
UPC Cablecom
) and cable and DSL networks in Austria under the UPC brand (UPC Austria). The
DSL
services are provided over an unbundled loop or, in certain cases, over a shared access network. Both UPC Cablecom and UPC Austria offer mobile voice and data services as an
MVNO
. Customers with the necessary equipment and who subscribe to the analog service are also able to access our basic digital service, which is unencrypted in the UPC Cablecom and UPC Austria’s footprints.
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Switzerland
.
UPC Cablecom
’s operations are located in 24 of the 26 member states (Cantons) of Switzerland, including major cities such as Bern, Zürich, Lausanne and Geneva.
UPC Cablecom
’s basic video service (digital or analog) is available in any one of three languages (French, German or Italian). At the beginning of 2013,
UPC Cablecom
launched
Horizon TV
and at
December 31, 2014
, it had 223,000 connected subscribers. As a complement to its digital video service,
UPC Cablecom
also offers apps that allow its subscribers to remotely manage a
DVR
, view linear channels, replay a linear channel without recording it and access
VoD
with a laptop, smartphone or tablet anywhere a broadband or WiFi connection is available. Beginning in 2015, UPC Cablecom’s basic digital service will be a triple-play package consisting of video, broadband internet and fixed-line telephony services, plus an app to use the fixed-line telephony service on a smartphone. In addition,
UPC Cablecom
has launched a Community WiFi network throughout its footprint.
In each of its digital cable packages,
UPC Cablecom
includes the functionality for transaction-based
VoD
service (depending on location), including catch-up television and pay-per-view services, and
HD
channels. Fully integrated in
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the
VoD
service is the video library MyPrime, which
UPC Cablecom
launched in September 2014. MyPrime is included in the extended digital tiers for no additional charge. UPC Cablecom’s basic digital service is not encrypted. A
CI+
module or set-top box in combination with a smart card is, however, required to view any of
UPC Cablecom
’s encrypted digital packages with the customer paying the incremental charge over the digital entry tier’s applicable rate.
For 66% of its video subscribers,
UPC Cablecom
maintains billing relationships with landlords or housing associations, and provides basic video service to the tenants. The landlord or housing association administers the billing for the basic video service with their tenants and manages service terminations for their rental units.
UPC Cablecom
offers digital video, broadband internet and fixed-line telephony service directly to the analog cable subscribers of those partner networks that enter into service operating contracts with
UPC Cablecom
.
UPC Cablecom
has the direct customer billing relationship with these subscribers. By permitting
UPC Cablecom
to offer some or all of its digital video, broadband internet and fixed-line telephony products directly to those partner network subscribers,
UPC Cablecom
’s service operating contracts have expanded the addressable markets for
UPC Cablecom
’s digital products. In exchange for the right to provide digital products directly to the partner network subscribers,
UPC Cablecom
pays to the partner network a share of the revenue generated from those subscribers.
UPC Cablecom
also provides full or partial analog television signal delivery services, network maintenance services and engineering and construction services to its partner networks.
Austria
.
UPC Austria
’s cable operations are located in regional clusters encompassing the capital city of Vienna, the regional capitals of Graz, Innsbruck and Klagenfurt, two smaller cities and the Vorarlberg region. Three of these cities (Vienna, Wr. Neustadt and Baden), directly or indirectly, own 5% of the local operating subsidiary of
UPC Austria
serving the applicable city.
UPC Austria
’s
DSL
operations are available in the majority of Austria, wherever the incumbent telecommunications operator has implemented
DSL
technology.
UPC Austria
’s video service (digital and analog) is available primarily in the German language. Its premium packages include ethnic channels (such as Serb, Bosnian and Turkish channels), music, adult and international channels. In addition, through an agreement with
Sky Deutschland
,
UPC Austria
offers its digital subscribers a number of premium channels, including
HD
channels, from
Sky Deutschland
.
UPC Austria
also offers Horizon Go that allows its customers with double play services of video and broadband internet to access up to 55 to 100 linear channels (depending on tier of service) and
VoD
programming.
UPC Austria
offers its broadband internet service over cable and over
DSL
.
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Central and Eastern Europe.
The
European Operations Division
also operates cable networks under the UPC brand in Poland (
UPC Poland
), Hungary (
UPC Hungary
), the Czech Republic (
UPC Czech
), Romania (
UPC Romania
) and Slovakia (
UPC Slovakia
).
VoD
service, including catch-up television, is available to our subscribers in Hungary and in major metropolitan areas in Poland.
UPC Hungary
,
UPC Poland
and
UPC Romania
have each launched apps for no charge to subscribers that permit them to view the digital channel programming guide, schedule
DVR
recordings from any location, and use their smartphones as a television remote control. The
European Operations Division
also has
DTH
operations in most of these countries, which it provides through
UPC DTH
.
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Poland
.
UPC Poland
’s operations are located in regional clusters encompassing nine of the 10 largest cities in Poland, including the capital city of Warsaw and the cities of Cracow and Katowice. Customers with the necessary equipment and who have a monthly subscription to
UPC Poland
’s analog service are also able to access its basic digital service, which is unencrypted.
UPC Poland
also offers a catch-up television service and Horizon Go.
UPC Poland
launched
Horizon TV
using the cloud in select areas in November 2014 with a full commercial launch in January 2015. At
December 31, 2014
, had over 1,800 connected
Horizon TV
subscribers. The video service MyPrime became available to video subscribers in December 2014. In addition,
UPC Poland
launched Community WiFi in 2014, which is free to its broadband internet service customers subscribing to download speeds of at least 30 Mbps.
Hungary
.
UPC Hungary
’s operations are located in 23 major Hungarian towns and cities, including the capital city of Budapest and the cities of Debrecen, Miskolc, Pécs and Székesfehérvár. For its digital video subscribers,
UPC Hungary
offers a
CI+
module, which in combination with a smart card, allows the subscriber to view the digital service without the need for a set-top box. In each of its digital cable packages,
UPC Hungary
includes the functionality for transaction-based
VoD
services.
UPC Hungary
offers to its subscribers with HD set-top boxes apps for various online services (such as YouTube, Picasa, Flickr and others). It also offers the video service MyPrime and the online streaming service HBO Go. HBO Go is available at no additional charge to
UPC Hungary
customers who subscribe to the HBO channels. In November 2014,
UPC Hungary
launched mobile services as an
MVNO
in select areas and Community WiFi, which has approximately 280,000 access points in Hungary.
UPC Hungary
offers its fixed-line telephony services through circuit-switched fixed-line telephony to subscribers on its twisted copper pair network and through
VoIP
over its two-way capable cable network.
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The Czech Republic
.
UPC Czech
’s operations are located in cities and towns throughout the Czech Republic, including Prague, Brno, Ostrava and Plzen. Over 40% of the subscribers to
UPC Czech
’s digital video service receive such service through a set-top box with
HD
or
HD DVR
functionality. In November 2014,
UPC Czech
launched the online video service Horizon Go. It plans to launch
Horizon TV
based on the cloud in 2015.
UPC Czech
offers a lifeline tier and basic tier of digital programming, as well as extended tiers and premium packages. Approximately 48%
of
UPC Czech
’s digital cable subscribers receive the basic and extended tier services.
UPC Czech
’s analog service is offered only in areas where its digital service is not available and includes a lifeline tier of services.
Romania
.
UPC Romania
’s operations are located primarily in three regional clusters, which include nine
of the 12 largest cities (each with more than 150,000
inhabitants) in Romania, including the capital city of Bucharest and the cities of Cluj-Napoca, Timisoara, Iasi and Constanta.
UPC Romania
’s video service includes Romanian terrestrial broadcast channels, selected European satellite programming and other programming. In November 2014, UPC Romania launched the online video service Horizon Go.
In addition to its standard broadband internet service offerings,
UPC Romania
also offers a 256 Kbps service at no incremental charge as an inducement for customers to subscribe to certain services. Its Community WiFi services has approximately 240,000 access points in Romania.
Slovakia
.
UPC Slovakia
’s operations are located in seven regions in Slovakia, including the five largest cities of Bratislava, Kosice, Presov, Banská Bystrica and Zilina. Besides its video cable services,
UPC Slovakia
offers video services in certain areas over its
MMDS
network.
UPC Slovakia
offers almost all of the Slovakian terrestrial, cable and local channels available, selected European satellite and other programming, and audio channels. The online streaming service HBO Go is available to HBO channel subscribers. Subscribers to
UPC Slovakia
’s digital video services may receive such service through a
CI+
module in combination with a smart card without the need for a set-top box.
UPC Slovakia
’s analog service, which is not available to its
MMDS
subscribers, includes a lifeline tier of service.
UPC DTH
.
UPC DTH
, based in Luxembourg, provides
DTH
services in the countries of the Czech Republic, Hungary and Slovakia and manages the Romania
DTH
provider
FocusSat
.
UPC DTH
and
FocusSat
together provide
DTH
services to over 780,000 customers.
UPC DTH
offers a lifeline tier and either directly or through
FocusSat
a basic tier, an extended tier and premium channel options, as well as 25 free-to-air (
FTA
) television and audio channels. A subscriber to its basic tier may receive 50 to 70 digital video channels depending on their location. Its premium channel offerings cover a range of interests (such as movies, adventure, sports, adult and comedy). In 2013,
UPC DTH
launched a
CI+
module offer in the Czech Republic and Slovakia. The
CI+
module will enable its subscribers in the Czech Republic and Slovakia to receive its signals without a set-top box.
DVR
s are also available and a subscriber to the extended tier receives 10
to 14
HD
channels depending on their location. In 2014,
UPC DTH
added HBO Go for its HBO customers in Hungary, Czech Republic and Slovakia. For no additional charge, such customers may access their HBO channels anytime, anywhere on multiple devices.
Subscribers to the
DTH
services may pay either an annual fee and receive an activation card for the lifeline tier of video service or pay a monthly fee for a basic or extended tier of service.
UPC DTH
provides
DTH
services to 20% of our total video subscribers in the Czech Republic, 30% of our total video subscribers in Hungary, 27% of our total video subscribers in Slovakia and, through
FocusSat
, 28% of our total video subscribers in Romania.
UPC DTH
and
FocusSat
have agreements with Telenor Satellite Broadcasting for the lease of transponder space, including expansion capacity, on the Thor satellites. These agreements will expire on December 31, 2017, unless extended as provided in such agreements. All of
UPC DTH
’s services are on the Thor satellite system.
UPC DTH
offers both standard definition (
SD
) and
HD
services to all of its customers in Hungary, the Czech Republic, Slovakia and, through
FocusSat
, in Romania.
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Latin America.
Our Latin American operations are currently located in Chile and Puerto Rico, where we offer a variety of broadband services over our cable distribution systems, plus mobile services in Chile. Our broadband distribution business and mobile services in Chile are conducted through our wholly-owned subsidiary
VTR
. Our broadband telecommunications service in Puerto Rico is conducted through our indirect 60%-owned subsidiary
Liberty Puerto Rico
.
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Chile
.
VTR
offers triple-play services consisting of video, broadband internet and fixed-line telephony services in 34 communities within Santiago and 42 communities outside Santiago, including Chile’s largest cities, such as Iquique, Antofagasta, Concepción, Viña del Mar, Valparaiso and Rancagua, and smaller cities across Chile.
VTR
obtains programming from the United States, Europe, Argentina and Mexico.
VTR
also carries domestic Chilean cable programming, which includes local events such as football (soccer) matches and regional content.
VTR
offers a full range of digital video services, including basic and premium packages. All digital video services are encrypted and require a set-top box provided by
VTR
. In addition, digital cable customers may subscribe to one or more premium video channels, including
HD
channels for an additional monthly charge. The premium channels include
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movies, sports, kids, international and adult channels.
VoD
services, including catch-up television, are available on a subscription or a transaction basis, depending on location.
VoD
services include over 3,900 titles of on-demand content, including multi-screen features.
VTR
plans to launch
Horizon TV
through an advanced, cloud-based platform in 2015.
VTR
’s analog service is offered only in areas where its digital service is not available.
VTR
offers its broadband internet services in 34 communities within Santiago and 42
communities outside Santiago. In its highest tier of service,
VTR
offers high-speed internet service with download speeds of up to 120 Mbps. Its key mass-market package includes a download speed of up to 40 Mbps.
VTR
also offers multi-feature telephony service over its cable network to customers in 34 communities within Santiago and 42 communities outside Santiago via either circuit-switched telephony or
VoIP
, depending on location.
VTR
offers mobile voice and data services as a full
MVNO
pursuant to an arrangement with a third-party mobile telecommunications provider.
Puerto Rico
.
Liberty Puerto Rico
offers only digital broadband services and provides these services in the San Juan metropolitan area and numerous other municipalities covering two-thirds of the island.
Liberty Puerto Rico
’s video service includes a basic tier of digital programming, an extended tier and premium packages, as well as a
VoD
service. The
Liberty Puerto Rico
network includes a 360 mile fiber ring around its network providing enhanced interconnectivity points to the island’s other local and international telecommunications companies.
Liberty Puerto Rico
is exploring adding
MVNO
arrangements to its product line-up and other features of mobility to its service. For example, it recently launched Community WiFi in Plaza Las Americas, a major shopping center in San Juan. On December 9, 2014, an entity jointly-owned by us and Searchlight Capital entered into an agreement to acquire the parent of Puerto Rico Cable Acquisition Company, Inc., dba Choice Cable TV, the second largest cable and broadband services provider in Puerto Rico. This acquisition is subject to customary closing conditions, including regularity approvals, and is expected to close in the first half of 2015.
Competition
The markets for video, broadband internet, fixed-line telephony and mobile services are highly competitive and rapidly evolving. In addition, technological advances and product innovations have increased and are likely to continue to increase the number of alternative providers available to our customers. Consequently, our businesses have faced and are expected to continue to face significant competition in these markets in the countries in which they operate and specifically, as a result of deregulation, in the European Union (
EU
). The percentage information in this section reflects the data for each country regardless of the extent of our footprint in such country and is as of the date of the relevant sources listed in the following sentences. The percentage information provided below for the various countries is based on information from the subscription based website DataXis for the third quarter of
2014
. The competition in certain countries in which we operate is described more specifically after the respective competition overview on video, broadband internet, fixed-line telephony and mobile services.
Video Distribution
Our businesses compete directly with a wide range of providers of communication and entertainment services to consumers. Depending upon the country and market, these may include:
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traditional
FTA
broadcast television services;
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DTH
satellite service providers;
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other fixed-line telecommunications carriers and broadband providers, including the incumbent telephony operators offering (a)
DTH
satellite services, (b)
IPTV
over broadband internet connections using asymmetric digital subscriber line (
ADSL
) or very high-speed
DSL
technology (
VDSL
) or an enhancement to
VDSL
called “vectoring”, (c)
IPTV
over fiber optic lines where the fiber is to the home, cabinet, or building or to the node networks (fiber-to-the-home/-cabinet/-building/-node is referred to herein as
FTTx
), or (d) long-term evolution wireless service, the next generation of ultra high-speed mobile data, also called “4G” (referred to herein as
LTE
) services;
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digital terrestrial television (
DTT
) broadcasters, which transmit digital signals over the air providing a greater number of channels and better quality than traditional analog broadcasting;
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other cable operators in the same communities that we serve;
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over-the-top video content aggregators utilizing our or our competitors’ high-speed internet connections;
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satellite master antenna television systems, commonly known as “
SMATV
s”, which generally serve condominiums, apartment and office complexes and residential developments;
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MMDS
operators; and
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movie theaters, video stores, video websites and home video products.
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Our businesses also compete to varying degrees with other sources of information and entertainment, such as online entertainment, newspapers, magazines, books, live entertainment/concerts and sporting events.
We believe that our deep-fiber access provides us with several competitive advantages in the areas served by our network. For instance, our cable network allows us to concurrently deliver internet access, together with real-time television and
VoD
content at higher speeds and with less data loss than comparable services of other providers. In addition, our cable infrastructure allows us to provide “triple-play” bundled services of broadband internet, television and fixed-line telephony services without relying on a third-party service provider or network. Our capacity is dimensioned to support peak consumer demand. In serving the business market, many aspects of the network can be leveraged at very low incremental cost given that business demand peaks at a time when consumer demand is low, and peaks at lower levels than consumer demand.
Europe
In the European countries in which we operate, over 90% of the households have a television. Our principal competition in the provision of video services in our European markets has historically been from traditional
FTA
broadcasters;
DTH
satellite providers in many markets, such as the
U.K.
, Germany, Austria, Ireland, the Czech Republic and Slovakia, where we compete with long-established satellite platforms; incumbent telecommunications providers using fiber technology; and cable operators in various markets where portions of our systems have been overbuilt. In addition, in Belgium we are beginning to experience competition on own network as a result of the Belgium Regulatory Authorities granting third-party operators (including the incumbent telephony operator) access to cable operators’ networks. See
Regulatory Matters—Belgium
. Mobile broadband has gained a noticeable share of subscribers, and competition from
SMATV
or
MMDS
could also be a factor. In addition, as accessibility to video content on the internet increases, over-the-top viewing is a competitive factor. Overall, we are experiencing more and more convergence as customers are increasingly looking to receive all their media and communication services from one provider at attractive prices. As a result, our ability to offer triple-play or quadruple-play bundles is a key marketing concept to continue to attract and retain customers.
Over the last several years, competition has increased significantly from both new entrants and established competitors using advanced technologies, aggressively priced services and exclusive channel offerings. Our competitors are also improving their video platforms with next generation set-top boxes.
DTT
is a significant part of the competitive market in Europe as a result of a number of different business models that range from full blown encrypted pay television to
FTA
television. Similarly,
VDSL
, which is either provided directly by the owner of the network or by a third party, is a significant part of the competitive environment in many of our markets as are
FTTx
networks. In all of our European markets, competitive video services are offered by the incumbent telecommunications operator, whose video strategies include
DTH
,
DTT
and
IPTV
over VDSL and
FTTx
networks. The ability of incumbent operators to offer the triple-play of video, broadband internet and fixed-line telephony services and, in some countries, a quadruple-play with mobile services, is exerting growing competitive pressure on our operations, including the pricing and bundling of our video products. The providers of
DTH
satellite services, particularly in the Central and Eastern European markets, are also significant competitors. In addition, over-the-top video aggregators are becoming more active in all our markets with their
VoD
service for television series and movies, catch-up television and linear channels from broadcasters. In some cases, these over-the-top services are provided free-of-charge, or the content library of such services are offered on an unlimited basis for a monthly fee.
Our ability to continue to attract and retain customers will depend on our continued ability to acquire appealing program content and third-party programming services on acceptable financial or other terms. Some competitors, such as Swisscom AG (
Swisscom
) in Switzerland, have obtained long-term exclusive contracts for certain popular programs, which limits the opportunities for other providers, including our operations, to offer such programs. Other competitors also have obtained long-term exclusive contracts for programs, but our operations have access to certain of such programming through select contracts with these companies, including
Sky Deutschland
in Germany and Sky in the
U.K.
and in Ireland. If exclusive content offerings increase through other providers, programming options could be a deciding factor for subscribers on selecting a video service.
Portions of our systems have been overbuilt by
FTTx
networks, primarily in the Czech Republic, Romania and Slovakia and, to a lesser extent, in Hungary, the Netherlands and Switzerland. Based on research of various telecommunication publications, including by the Organization for Economic Cooperation and Development, and internal estimates, approximately 65%, 92%, and 73% of our cable networks in the Czech Republic, Romania and Slovakia, respectively, have been overbuilt by
FTTx
networks. Also, 12% of our footprint in Hungary, 28% of our footprint in the Netherlands and 37% of our footprint in Switzerland are overbuilt by
FTTx
networks. Although we have extensive
FTTx
overbuild in Switzerland, connectivity to the
FTTx
network is not available at all locations. In addition, government and quasi-government entities in certain of the countries in which we
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operate in Europe continue to invest in
FTTx
networks, creating another source of competition. In order to achieve download speeds of up to 100 Mbps or greater for customers, incumbent telecommunications operators are increasingly adopting
VDSL
with vectoring and bonding technologies as a more cost efficient solution compared to
FTTx
initiatives.
Our Central and Eastern European markets are also experiencing significant competition from other cable operators. These cable operators have significantly overbuilt our operations in Poland, Hungary, Romania and Slovakia. Based on research of various telecommunication publications, including the Organization for Economic Cooperation and Development, and internal estimates, approximately 42%, 52%, 95% and 47% of our operations in Poland, Hungary, Romania and Slovakia, respectively, are overbuilt by other cable providers.
In most of our Central and Eastern European markets, we also face intense competition from DTH services.
Digi TV
, the
DTH
platform of RCS & RDS S.A. (
Digi TV
), a Romanian cable, telephony and internet service provider is targeting our analog cable,
MMDS
and
DTH
customers with aggressively priced
DTH
packages, in addition to overbuilding portions of our cable network in Hungary and Romania. In the Czech Republic and Slovakia, SkyLink, the brand name of M7 Group SA, a European provider of
DTH
services, is a
DTH
competitor providing aggressively priced packages of video content. The incumbent telecommunications operator in Romania also operates a competing
DTH
platform.
UPC DTH
offers advanced services and functionality, including
DVR
and premium content, to most of our Central and Eastern European markets.
UPC DTH
’s share of the subscription-based television market is 8% for Hungary, 4% for the Czech Republic, 4% for Slovakia and, through
FocusSat
, 5% for Romania.
In order to gain video market share, the incumbent operators and alternative service providers in a number of our larger markets have been pricing their
DTT
,
VDSL
or
DTH
video packages at a discount to the retail price of the comparable digital cable service and, in some cases, including
DVR
s as a standard feature.
To meet the challenges in this competitive environment, we compete on value by offering advanced digital services, such as
DVR
functionality, HD,
VoD
, catch-up television and multi-media gateways. We seek to compete by accelerating the migration of our customers from analog to digital services, using such advanced digital features and offering attractive content packages and bundles of services at reasonable prices.
HD
and
DVR
s are an integral part of our digital services in all of our markets and
VoD
and catch-up television are an integral part of our digital services in most of our markets. In each of our countries we also tailor our packages to include attractive channel offerings and offer recurring discounts for bundled services and loyalty contracts. Discounts for bundled services are available in all our Europe operations. In addition, from time to time, digital channel offerings are modified by our operations to improve the quality of our programming. We also use the triple-play bundle as a means of driving video, as well as other products where convenience and price can be leveraged across the portfolio of services. In several of our markets, we have expanded our services to include mobile voice and data. We also continue to explore new technologies that will enhance our customer’s television experience. In this regard, to further enhance our digital video services, we have expanded our markets in which
Horizon TV
is available, including the recent launch of a cloud-based
Horizon TV
platform in Poland. We have also launched our on-line Horizon Go and MyPrime in a number of markets and we continue to enhance the TiVo platform in the UK and Yelo TV in Belgium.
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United Kingdom.
We are the largest cable television provider in the
U.K.
in terms of the number of video cable customers and the sole provider of video cable services in substantially all of our network area.
Virgin Media
’s video cable services are available to approximately 46% of the
U.K.
television households and it serves 14% of the total
U.K.
television market.
Virgin Media
’s digital television services compete primarily with those of Sky, which is the primary pay satellite television platform in the
U.K.
Sky has approximately 10.1 million subscribers in the
U.K.
or 37% of the total television market. Sky owns the
U.K.
rights to
SD
,
HD
and 3D versions, as the case may be, of various sports and movie programming content. Sky is both a principal competitor in the pay-television market and an important supplier of content to us.
Virgin Media
distributes several basic and premium video channels supplied by Sky. BT, which offers
VDSL
services throughout the U.K., is also a principal competitor as well as an important supplier of content to us. BT owns premium BT Sport channels, providing a range of sports content including football (soccer) from the English Premier League and, from the 2015/2016 football (soccer) season, exclusive rights to the UEFA Champions League and the UEFA Europa League. The BT Sport channels are available over BT’s
IPTV
platform, Sky’s satellite system and our cable network. BT offers customers who subscribe to their broadband service free access to the
SD
version of the BT Sport channels. In addition,
FTA
DTT
and internet-connected television services are a competitive factor. For example, Netflix, Google and Apple have all launched IPTV products.
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To compete effectively,
Virgin Media
promotes its ability to offer attractive triple-play bundles over its cable network and its multimedia platform TiVo. TiVo, together with
Virgin Media
’s
VoD
service and
DVR
functionality, allow its subscribers to personalize their programming. It also offers Virgin TV Anywhere, which allows its video subscribers to stream linear channels and access
VoD
services anywhere with WiFi connectivity. Recently,
Virgin Media
rolled back
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prices on key bundles with a 12-month service contract, increased the number of
HD
channels and offers targeted bundles for sports enthusiasts. In addition,
Virgin Media
’s quadruple-play bundles are a key market offer.
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Ireland.
UPC Ireland
is the sole provider of video cable services in Ireland.
UPC Ireland
’s video cable service is available to approximately half of the television households in Ireland and it serves 22% of the total television market.
UPC Ireland
’s primary competition for video customers is from Sky, which provides
DTH
satellite services to 39% of the television households in Ireland and launched triple-play services in 2013. Sky has announced it intends to increase its service offerings through FTTx networks in 2015.
UPC Ireland
also faces potential competition from a recently launched over-the-top video service by Eircom Limited and smaller video providers, including providers using
FTTx
networks. Although
FTA
DTT
is available in most of Ireland, primarily through Ireland’s national public broadcaster, Raidió Teilifís Éireann, competition is limited due to its small programming offering. To enhance its competitive position,
UPC Ireland
offers
Horizon TV
. With
Horizon TV
,
UPC Ireland
realigned its bundle offers, including increasing the broadband internet speed to 200 Mbps for its mass market bundles followed by another increase to 240 Mbps in January 2015. It also increased the number of its sports channels in
HD
.
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Germany.
We are the second largest cable television provider in Germany and the largest cable television provider in the federal states of Baden-Württemberg, North Rhine-Westphalia and Hesse based on the number of video cable subscribers.
Unitymedia KabelBW
’s video cable services are available to approximately 33% of the television households in Germany and it serves 17% of the total television market.
Unitymedia KabelBW
’s primary competition is from
FTA
television received via satellite.
Unitymedia KabelBW
also competes with the
IPTV
services over
VDSL
and
FTTx
and
DTH
of the incumbent telecommunications operator,
Deutsche Telekom
.
Deutsche Telekom
has approximately 2.4 million video subscribers in Germany, or 6% of the total television market, for primarily its
IPTV
services and has announced plans to cover approximately 65% of German homes with its VDSL network by 2016. We estimate it will have overbuilt nearly our entire network with VDSL by the end of 2016.
Deutsche Telekom
offers competitively priced triple-play bundles and promotional discounts for new customers. In addition, Vodafone Group Plc (Vodafone) bundles its
IPTV
service with its broadband offerings through
Deutsche Telekom
’s DSL network under a resell agreement.
Deutsche Telekom
and
Professional Operator
s compete with
Unitymedia KabelBW
for housing association contracts. Over the last few years,
Deutsche Telekom
has become increasingly competitive in this market.
Professional Operator
s typically procure the broadcast signals they distribute from
Unitymedia KabelBW
or from
DTH
providers. Certain
Professional Operator
s may also use such opportunities to build their own distribution networks or to install their own head-ends for receiving satellite signals.
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Other alternative distributors of television services are an increasing threat as well. To a lesser extent,
Unitymedia KabelBW
competes with the services of
Sky Deutschland
, which offers a digital premium subscription service to households that receive their basic television service via
FTA
satellite, cable or other technologies. Competition with
Sky Deutschland
may increase following its October 2014 launch of a standalone online video streaming service. In addition, there is a risk of competition for video services from commercial broadcasters and other content providers that currently pay
Unitymedia KabelBW
fees for transmitting their signals, but may seek to diversify their distribution on alternative platforms such as over-the-top video through high-speed internet connections. There are several over-the-top content providers, including ProSiebenSAT.1 Media AG’s Maxdome and Netflix.
To enhance its competitive position,
Unitymedia KabelBW
offers
Horizon TV
. With the launch of HorizonTV,
Unitymedia KabelBW
realigned its digital packages and created new bundle options. It also introduced Horizon Go giving customers remote access to 100 linear channels and
VoD
programming. In 2014, it also increased the number of
HD
channels to over 65 channels and expanded its
VoD
services and
HD
channels. The bundle options allow subscribers to select various combinations of services to meet their needs. Promotional discounts are typically available to new subscribers.
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The Netherlands.
We are the largest cable television provider in the Netherlands based on the number of video cable subscribers. The Ziggo Group’s video cable services are available to approximately 92% of the television households in the Netherlands and it serves 58% of the total television market. The Ziggo Group experiences most of its competition in the Netherlands from other fixed-line telecommunications carriers and broadband providers, including the incumbent telephony operator KPN. KPN offers (a) IPTV over FTTx networks, (b) IPTV through broadband internet connections using DSL, ADSL or VDSL or an enhancement to VDSL called “vectoring”, (c) DTT, and (d) LTE services. KPN provides subscription video services to 27% of the total television households in the Netherlands. Its ability to offer bundled triple-play of video, broadband internet and telephony services and a quadruple-play with mobile services, is exerting growing competitive pressure on the Ziggo Group’s operations, including the pricing and bundling of its video products. Its VDSL service includes
VoD
and DVR functionality, including restarting and second screen viewing. In addition, the FTTx networks of Reggefiber Group B.V. (a subsidiary of KPN) are a competitive factor in a number of cities and villages, where they have overbuilt portions of our network. Reggefiber Group B.V. continues to expand these networks within the Ziggo Group’s service area. In addition to KPN, the
DTH
provider CanalDigitaal, a subsidiary of M7 Group S.A.,
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I-28
is also a principal competitor. CanalDigitaal, which offers
DTH
and DTT services, provides subscription video services to 12% of the total television households in the Netherlands. In addition, mobile broadband has gained a noticeable share of subscribers, and as accessibility to video content on the internet increases, over-the-top viewing is becoming a competitive factor.
To enhance its competitive position in the UPC Nederland footprint, UPC Nederland rolled out improvements to its multimedia platform
Horizon TV
, which, together with its
VoD
service and
DVR
functionality, allows the subscribers in the UPC Nederland footprint to personalize their programming. It also launched the online service Horizon Go. UPC Nederland subscribers also have the ability to watch linear and
VoD
programming through a second screen app and to record programs remotely. In the
Ziggo
footprint,
Ziggo
expanded its interactive video options through a
CI+
1.3 module that allows subscribers to have access to a cloud-based interactive television service without the need of a set-top box with interactive functionality. In addition,
Ziggo
continues to improve the quality of its programming and modify its video options by offering attractive content packages. Also, its triple-play bundle is used as a means of driving video, as well as other products, where convenience and price can be leveraged across the portfolio of services. The bundle options give subscribers the option to select various combinations of services, including high-speed internet and fixed-line telephony options, to meet their needs. Customers may also include mobile voice and data to any bundle package.
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Belgium.
Telenet
is the sole provider of video cable services in all of its network area. Its video cable service is available to approximately 62% of the television households in Belgium and it serves approximately 44% of the total television market. It is the largest subscription television provider in Belgium based on the number of pay video subscribers.
Telenet
’s principal competitor is Belgacom NV/SA (
Belgacom
), the incumbent telecommunications operator, which has interactive digital television,
VoD
and
HD
service as part of its video offer, as well as a remote access service.
Belgacom
also offers double-play and triple-play and discounts on mobile services when taken with a triple-play offer. It also includes certain sports programming (primarily football (soccer) related) at no additional charge. Approximately 27% of total television households in Belgium subscribe to
Belgacom
’s
IPTV
services over its
DSL
and
VDSL
networks. Also, with the decision that
Telenet
and other Belgian cable operators must give alternative providers access to their cable networks,
Telenet
will be facing increased competition from these providers who may then be able to offer triple- and quadruple-play services as well. For more information, see
Regulatory Matters—Belgium.
Telenet
’s multimedia platform YeloTV, together with its extensive cable network, the broad acceptance of its basic cable television services and its extensive additional features, such as
HD
and
DVR
functionality and
VoD
offerings, allows
Telenet
to compete effectively against alternative providers. In addition,
Telenet
offers promotional discounts and competitively priced bundles.
Telenet
also continues to enhance its programming.
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Switzerland.
We are the largest cable television provider in Switzerland based on the number of video cable subscribers and the sole provider in substantially all of our network area.
UPC Cablecom
’s video cable services are available to approximately 64% of the television households in Switzerland and it serves 42% of the total television market. Our main competitor is
Swisscom
, the incumbent telecommunications operator, which provides
IPTV
services over
DSL
and
FTTx
networks to approximately 33% of all television households in Switzerland.
Swisscom
offers
VoD
services,
DVR
functionality, and
HD
channels, as well as the functionality to allow remote access to its video services, and has exclusive rights to distribute certain sports programming.
Swisscom
’s internet speeds available in its bundled offers, include up to 100 Mbps and up to 300 Mbps in areas served by its
FTTx
network.
Swisscom
continues to aggressively expand its
FTTx
network to Switzerland households in our footprint as well as in our partner network footprints. It has built its fiber-to-the-home network in several cities in cooperation with municipality-owned utility companies and, where no cooperation agreement has been reached,
Swisscom
is building its own fiber-to-the-home network. Outside of urban areas,
Swisscom
has announced that it will extend its fiber-to-the-node network by introducing vectoring, which allows
Swisscom
to offer speeds comparable to those offered by
UPC Cablecom
. Due to a small program offering, competition from terrestrial television in Switzerland is limited, with
DTT
available primarily along the borders with France and Italy.
DTH
satellite services are also limited due to various legal restrictions such as construction and zoning regulations or rental agreements that prohibit or impede installation of satellite dishes.
With respect to subscribers on partner networks,
UPC Cablecom
competes with other service providers for the contracts to serve these subscribers. To compete effectively,
UPC Cablecom
offers
Horizon TV
, which combines television, internet and fixed-line telephony on one device, giving subscribers the ability to personalize their programming. As a complement to this service,
UPC Cablecom
introduced the video service Horizon Go. It also offers promotional discounts and launched MyPrime in 2014 as an enhancement to its mid to high-end bundles.
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Austria.
In Austria, we are the largest cable television provider based on the number of video cable subscribers.
UPC Austria
’s video cable service is available to approximately 37% of the television households in Austria and it serves 14% of the total television market.
UPC Austria
’s primary competition is from
FTA
television received via satellite and DTT services by the public broadcaster. Competition from the
VDSL
services provided by the incumbent telecommunications
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I-29
operator, Telekom Austria AG (A1) (
Telekom Austria
), and from
DTH
satellite services offered by
Sky Deutschland
also continue to increase. At various times,
Telekom Austria
offers promotional discounts for its
VDSL
service, which includes advanced features, such as
VoD
, when taken as part of either a double- or triple-play bundle. To compete effectively,
UPC Austria
offers its basic digital service unencrypted and realigned its bundle offers in 2014, with promotional discounts for new customers. It also launched Horizon Go and increased internet speeds for its core triple-play bundle to a top speed of up to 250 Mbps.
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Central and Eastern Europe.
We are the largest cable television provider in Poland based on the number of video cable subscribers.
UPC Poland
’s video cable services are available to approximately 20% of the television households in Poland and it serves 9% of the total television market. In providing video services,
UPC Poland
competes primarily with
DTH
service providers, including the largest
DTH
providers, Cyfrowy Polsat SA and NC+ platform (owned by the Vivendi Group). Cyfrowy Polsat SA and NC+ serve 27% and 16%, respectively, of the television households in Poland. The
DTH
service provider Orange Poland, a subsidiary of France Telecom S.A., is another significant competitor. In addition,
UPC Poland
competes with other cable operators with triple-play services, who have overbuilt portions of
UPC Poland
’s operations. One of these companies is Vectra SA, which offers aggressively priced double- and triple-play bundles. To enhance its competitive position,
UPC Poland
launched MyPrime as an additional service in its extended tier video services. It also realigned its video offers with additional
HD
channels and launched Horizon Go. Then in January 2015, after a limited offer in select markets, it launched the
Horizon TV
cloud platform throughout its footprint.
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UPC Hungary
’s video cable service is available to approximately 42% of the television households in Hungary and it serves 17% of the total television market in Hungary. Our subsidiary,
UPC DTH
, also provides satellite services in Hungary, in competition with other
DTH
providers. One of these,
Digi TV
, is an aggressive competitor.
Digi TV
’s
DTH
services can reach all of
UPC Hungary
’s cable service area, as well as
UPC DTH
’s service area, and it has overbuilt portions of
UPC Hungary
’s cable service areas with its own cable network. As a
DTH
provider,
Digi TV
offers more HD channels, including key sports channels, than
UPC DTH
.
UPC Hungary
also faces competition from the incumbent telecommunications company
Magyar Telekom
, a subsidiary of
Deutsche Telekom
.
Magyar Telekom
offers a
VDSL
service, including a
VoD
service, to its internet subscribers. With its ability to offer bundled triple-play and quadruple-play services, including its
DTH
video content,
Magyar Telekom
is a significant competitor. To meet such competition,
UPC Hungary
emphasizes its competitively priced bundles, which have been enhanced with increased broadband speeds of up to 500 Mbps with up to 120 Mbps or 240 Mbps included in its core bundle offers. In 2014, it launched the video service MyPrime and for its HBO customers the on-line streaming service HBO Go. Of the television households in Hungary, 8% subscribe to
Digi TV
’s
DTH
service, 14% subscribe to
Digi TV
’s cable service and 20% subscribe to
Magyar Telekom
’s
DTH
or
VDSL
service.
UPC DTH
serves 7% of the television households in Hungary with its
DTH
service.
With the discontinuation of
FTA
analog services in the Czech Republic and Slovakia,
DTH
services have increased significantly in popularity, with M7 Group SA (SkyLink) being the main provider. This company provides
DTH
services to approximately 30% and 26% of the television households in the Czech Republic and Slovakia, respectively. As in Hungary,
Digi TV
is also an aggressive competitor in the Czech Republic and Romania.
Digi TV
provides
DTH
services to 5% and 17% of the television households in the Czech Republic and Romania, respectively. In Slovakia, we compete with the
DTH
service provider, Slovak Telekom a.s., a subsidiary of
Deutsche Telekom
, which offers exclusive sports channels and is expanding its
DTH
network to cover not only Slovakia but other Central and Eastern European countries as well. In Slovakia, it serves 20% of the television households.
UPC DTH
provides
DTH
services to 2%, 4% and 3% of the television households in the Czech Republic, Romania and Slovakia, respectively. To stay competitive,
UPC DTH
offers prepaid
DTH
services in the Czech Republic, as well as a prepaid product through
FocusSat
in Romania. Also, FocusSat has enhanced the channel offering in Romania, including the addition of non-exclusive broadcasting rights for domestic football league. In Romania, competition also comes from
DTH
services offered by Rom Telecom SA, the incumbent telecommunications company, with 11% of the total television households.
Of the television households in the Czech Republic, Romania and Slovakia, 10%, 12% and 8%, respectively, subscribe to our video cable service. Our cable services are available to the television households in each of these countries as follows: 30% in the Czech Republic, 33% in Romania and 22% in Slovakia. In addition to its
DTH
services in Romania,
Digi TV
continues to overbuild portions of our cable network with its own cable network.
UPC Czech
competes with the incumbent telephone company’s
VDSL
service and several other operators that provide
DTH
services and a number of local
ISP
s that provide
IPTV
services over
FTTx
networks. Providers of
IPTV
services over
FTTx
networks can reach approximately 65% of the households passed by our cable network in the Czech Republic. Of the television households in Romania, 30% subscribe to
Digi TV
’s cable service. In Slovakia, a number of
ISP
s make video services available to a majority of the homes passed by our cable networks. In particular, Slovak Telekom and Orange Slovensko a.s., a subsidiary of France Telecom S.A., have overbuilt homes passed by our cable network with their
FTTx
networks and offer triple-play packages through these networks.
I-30
FTA
broadcasters are also significant competitors in the Czech Republic and in Slovakia. Subscribers in these countries tend to be more price sensitive than in other European markets. In particular, almost 100% of the Czech Republic can receive
DTT
for free or a comprehensive satellite service for a minimal recurring monthly fee. To address such sensitivity and meet competition, our operations in Central and Eastern Europe offer enhanced digital services, such as
HD
channel offerings and, in certain markets, MyPrime, Horizon Go and expanded
VoD
services. In addition, all of these operations have realigned their bundle offers to include increased broadband internet speeds in their triple-play bundles ranging from up to 240 Mbps in the Czech Republic to 500 Mbps in Hungary and Romania. Promotional discounts are available, particularly on bundled options. Also,
CI+
cards for
DTH
only products are available in the Czech Republic and in Slovakia.
Latin America
In Latin America, our principal competition is the provision of video services from
DTH
satellite providers, where we compete with established satellite platforms, as well as other pay television providers. Over-the-top viewing is also a competitive factor. To enhance the video offerings in both Chile and Puerto Rico, we are in the process of developing cloud-based, next generation user interfaces for these operations based on advanced technologies, including
Horizon TV
.
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Chile.
In Chile, we are the largest cable television provider based on number of video cable subscribers.
VTR
’s video cable services are available to approximately 60% of the Chilean television households and it serves 21% of the total television market in Chile.
VTR
competes primarily with
DTH
service providers in Chile, including the incumbent Chilean telecommunications operator Compañia de Telecomunicaciones de Chile SA using the brand name Movistar (Movistar), Claro Chile S.A., a subsidiary of América Móvil, S.A.B. de C.V. (
Claro
), and DirecTV Chile. Movistar offers double-play and triple-play packages using
DTH
for video and
ADSL
for internet and fixed-line telephony and offers mobile services. On a smaller scale, Movistar also offers
IPTV
services over
FTTx
networks in Chile.
Claro
offers triple-play packages using
DTH
and, in most major cities in Chile, through a hybrid fiber coaxial cable network. It also offers mobile services. To a lesser extent,
VTR
also competes with video services offered by or over networks of fixed-line telecommunication providers using
DSL
or ADSL technology. Of the Chilean television households, 12%, 7% and 9% subscribe to the
DTH
services of Movistar,
Claro
and DirecTV Chile, respectively. To enhance its competitive position,
VTR
offers
VoD
, catch-up television,
DVR
functionality, premium
HD
channels, pay-per-view,
HD
receivers and a variety of premium channels as value added services that can be purchased by
VTR
’s video cable customers. These services and its variety of bundle options, including internet and telephony, enhance
VTR
’s competitive position.
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Puerto Rico.
Liberty Puerto Rico
is the largest provider of video cable services in Puerto Rico and the third largest provider of video services in Puerto Rico. Its video cable service is available to approximately 58% of the television households in Puerto Rico and it serves 18% of the total television market in Puerto Rico.
Liberty Puerto Rico
’s primary competition for video customers is from
DTH
satellite providers DirecTV and Dish Network Corporation. These competitors provide
DTH
satellite services to 25% and 24%, respectively, of the television households in Puerto Rico. Dish Network Corporation is an aggressive competitor, offering low introductory offers, free
HD
channels and in its top tier packages a multi-room
DVR
service for free. DirecTV is also a significant competitor offering similar programming in Puerto Rico compared to Dish Network. Additionally, Claro has launched an IPTV service that may become a competitive factor. In order to compete,
Liberty Puerto Rico
has increased the number of its
HD
channels, improved the functionality of its electronic program guide, and expanded its
VoD
offerings. In June 2014,
Liberty Puerto Rico
increased its internet speeds in its bundle offers with download speeds of up to 100 Mbps in its core bundles.
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Internet
With respect to broadband internet services and online content, our businesses face competition in a rapidly evolving marketplace from incumbent and non-incumbent telecommunications companies, mobile operators and cable-based
ISP
s, many of which have substantial resources. The internet services offered by these competitors include both fixed-line broadband internet services using
DSL
or
FTTx
and wireless broadband internet services, in a range of product offerings with varying speeds and pricing, as well as interactive computer-based services, data and other non-video services offered to homes and businesses. With technological developments, competition from wireless services using various advanced technologies has become significant. Recently, competitors have started offering high-speed mobile data via
LTE
wireless networks in certain of our markets. In addition, other wireless technologies, such as WiFi, are becoming more prevalent. We are also seeing intense competition in Europe from mobile carriers that offer mobile data cards allowing a laptop user to access the carrier’s broadband wireless data network with varying speeds and pricing.
Our strategy is speed leadership, including increasing the maximum speed of our connections, offering varying tiers of service and varying prices and offering a variety of bundled product offerings and a range of value added services. In most of our operations we have launched new bundling strategies, including speeds of 120 Mbps or more at mass market price points and ultra high-
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speed internet with speeds of generally up to 250 Mbps and in select markets up to 500 Mbps to compete with
VDSL
and
FTTx
initiatives. The focus continues to be on high-end internet products to safeguard our high-end customer base and allow us to become more aggressive at the low- and medium-end of the internet market. By fully utilizing the technical capabilities of Euro DOCSIS 3.0 technology, we can compete with local
FTTx
initiatives and create a competitive advantage compared to
DSL
infrastructures on a national level and
LTE
initiatives as they expand to a national level.
Europe
Across Europe, our key competition in this product market is from the offering of broadband internet products using various
DSL
-based technologies both by the incumbent phone companies and third parties. The introduction of cheaper and ever faster fixed-line broadband offerings is further increasing the competitive pressure in this market. Wireless broadband services, such as
LTE
, are also taking a foothold in a number of countries using high-speed mobile networks and high-speed downlink packet access systems.
United Kingdom and Ireland.
In the
U.K.
, we have a number of significant competitors in the market for broadband internet services. Of these broadband internet providers, BT is the largest, serving 33% of the total market in the
U.K.
Virgin Media
serves 20% of the total broadband market in the
U.K.
BT provides broadband internet access services over its own
DSL
network and is upgrading its
FTTx
network, which is available to approximately 70% of the U.K. population. BT Openreach, a division of BT, manages BT’s local access network and provides competitors, including
Virgin Media
, access to BT’s networks. BT has announced its intention to expand and accelerate
FTTx
deployments, which will allow its retail arm, and its wholesale customers, to offer ultra high-speed broadband services. Where fully deployed, operators will be able to offer download speeds of up to 330 Mbps.
Operators such as Sky, TalkTalk Telecom Group plc and Everything Everywhere Limited (EE) deploy their own network access equipment in BT exchanges via a process known as local loop unbundling (LLU). This allows an operator to reduce the recurring operating costs charged by BT by reducing the proportion of traffic that must travel directly over BT’s network. LLU deployment requires a substantial capital investment to implement and requires a large customer base to deliver a return on investment. In addition to the competition and pricing pressure in the broadband market arising from LLU, competition from mobile broadband developments, such as LTE mobile services and WiFi services, is increasing. For example, EE has announced that its LTE coverage will reach 98% of the
U.K.
population by the end of 2015.
To compete effectively,
Virgin Media
is expanding its ultra high-speed services and increasing its download speeds to up to 152 Mbps throughout it’s footprint.
Virgin Media
offers its internet service on a standalone basis or through bundled offerings that include video, fixed-line telephony and mobile voice and data services at attractive price points. Promotional discounts are available for new customers. In addition,
Virgin Media
plans to undertake a network extension program in the
U.K.
from 2015 through 2020. See Item 7,
Management’s Discussion and Analysis of Financial Condition and Results of Operations — Overview
.
Mobile providers have gained market share throughout Europe. In Ireland, mobile telephony providers
Telefónica
O2 Ireland Limited, Ireland 3 (a Hutchison Wampoa Ltd company) and Vodafone Ireland offer a range of mobile internet products at competitive prices. Outside of mobile internet,
UPC Ireland
’s most significant competitor is the fixed-line incumbent, Eircom Limited, with 41% of the broadband internet market in Ireland. In 2014, Eircom Limited increased its download speeds to up to 100 Mbps through its expanded
VDSL
network, which passes approximately 1.0 million homes at
December 31, 2014
. Eircom Limited announced plans to increase its available download speeds to up to 1 Gbps, which expansion is underway.
UPC Ireland
’s share of total broadband internet subscribers in Ireland is 32%. To compete effectively,
UPC Ireland
realigned its bundles, including increasing the download speed of its internet services to up to 200 Mbps. In 2015, it increased the download speeds of its internet services to up to 240 Mbps and it plans to introduce mobile products.
Germany.
In Germany, the competition for broadband internet services is particularly intense. For broadband internet access, DSL is the dominate technology and
Deutsche Telekom
is the primary provider. Other major competitors to our services are resellers of Deutsche Telekom’s DSL services, including United Internet AG and alternative network providers, such as
Vodafone Germany
and Telefónica Germany Holding AG (
Telefónica Germany
).
Deutsche Telekom
provides services to 43% of the broadband internet subscribers in Germany through its network. United Internet AG and
Vodafone Germany
provide services to 13% and 10%, respectively, of the broadband internet subscribers in Germany. We also face increased competition from mobile broadband operators, including
Deutsche Telekom
,
Vodafone Germany
and
Telefónica Germany
, each of which offer mobile services through
LTE
wireless systems. Both Deutsche Telekom and Vodafone Germany have announced plans to upgrade their mobile systems and increase their coverage areas. Deutsche Telekom, alone and in partnership with others, including
Vodafone Germany
, has also announced plans to use its
VDSL
network with vectoring technology, increasing its speeds to up to 100 Mbps. With its VDSL expansion plan, competition from Deutsche Telekom will increase.
Unitymedia KabelBW
serves 10% of the total broadband internet market in Germany. To compete effectively,
Unitymedia KabelBW
is expanding its ultra high-speed internet services and increased its download speeds to up to 200 Mbps, which cannot be matched by DSL operators.
Unitymedia KabelBW
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offers its internet service on a standalone basis or together with fixed-line telephony at attractive rates and through bundled offerings that include digital video and fixed-line telephony.
Unitymedia KabelBW
also offers mobile voice and data services.
The Netherlands.
In the Netherlands, we face competition from
KPN
, one of the largest broadband internet provider, and to a lesser extent, the telecommunications company, Tele2 Netherlands Holding N.V., as well as operators using LLU.
KPN
offers ultra high-speed internet services with download speeds of up to 500 Mbps on its FTTx network and up to 80 Mbps over its
DSL
network.
KPN
is the leading mobile broadband provider with its competitively priced mobile internet products and
LTE
services.
KPN
serves 42% and the Ziggo Group serves 44%, respectively, of the total broadband internet market in the Netherlands. To remain competitive, the Ziggo Group seeks to increase the maximum speed of its connections, offers varying tiers of service, prices and bundled product offerings, and a range of value added services. It is also expanding its mobile data services, including access to its Community Wifi. The bundle strategies include offering ultra high-speed internet with speeds of up to 180 Mbps in the
Ziggo
footprint and up to 200 Mbps in the UPC Nederland footprint, in each case, to compete with KPN’s VDSL and FTTx initiatives.
Belgium.
In Belgium, internet access penetration is higher than in most European markets causing intense competition between the two primary broadband internet technologies, cable and
DSL
.
Telenet
’s primary competitor is the
DSL
service provider
Belgacom
.
Belgacom
is an aggressive competitor targeting
Telenet
customers with low cost offers. Approximately 45% of Belgium’s broadband internet subscribers use
Belgacom
’s
DSL
service with download speeds up to 50 Mbps. Also, mobile internet use is increasing. To compete,
Telenet
promotes its high-speed internet with attractively priced multiple-play bundles, offering download speeds from 30 Mbps to 160 Mbps. Customers also have access to
Telenet
’s extensive Community WiFi.
Telenet
provides broadband internet service to 40% of the broadband internet market in Belgium.
Switzerland and Austria.
In Switzerland,
Swisscom
is the largest provider of broadband internet services, with an estimated market share of 54% of all broadband internet customers, and is our primary competitor.
Swisscom
internet customers have access to its video content free of charge through its internet portal. It is also expanding its
FTTx
network, through which it can offer download speeds of up to 300 Mbps and recently launched its 1 Gbps offer to customers on its new
FTTx
network.
Swisscom
FTTx
network reaches over 1.0 million homes and it plans to reach over 2.3 million homes by the end of 2015. The next significant competitor is Sunrise Communications AG with 9% of broadband internet customers. Sunrise Communications AG offers download speeds of up to 100 Mbps.
UPC Cablecom
serves 21% of broadband internet subscribers in Switzerland.
UPC Cablecom
increased its download speeds to 250 Mbps in early 2014 and seeks to distinguish itself through competitively priced bundled offerings, including digital video, fixed-line telephony services and its ultra high-speed internet services. It is also expanding its Community WiFi network and offers ultra high-speed internet with download speeds of up to 500 Mbps in select markets.
UPC Austria
’s largest competitor with respect to broadband internet services is the incumbent telecommunications company,
Telekom Austria
, with approximately 60% of the broadband internet subscribers in Austria. In addition,
Telekom Austria
is expanding its
DSL
network and planning to use
VDSL
technology with vectoring to increase its download speeds to up to 70 Mbps. Currently, it offers download speeds of up to 30 Mbps and up to 100 Mbps in select areas.
UPC Austria
’s share of such market is 19%. The mobile broadband services of
Telekom Austria
are also a competitive factor.
Telekom Austria
is the largest mobile broadband provider serving 42% of the mobile broadband subscribers that use LTE services. In addition,
UPC Austria
faces competition from LLU and other mobile broadband operators. As a result, the competition in the broadband internet market is intense. Competitors in the Austrian broadband internet market are focusing on speed and pricing to attract customers.
UPC Austria
uses its ultra high-speed internet services with access to Community WiFi and competitively priced bundles to encourage customers from other providers to switch to
UPC Austria
’s services. It also offers promotional discounts for its mid-tier service.
Central and Eastern Europe.
In Central and Eastern Europe, our principal competitors are
DSL
operators and cable companies that are overbuilding our cable network. In Poland, our principal competitors are Orange Poland and Vectra SA, both of which offer download speeds of up to 300 Mbps in parts of UPC Poland’s footprint. In Hungary, the primary competitors are the incumbent telecommunications company,
Magyar Telekom
and
Digi TV
. In addition, in all of our Central and Eastern European operations we face increased competition from mobile broadband operators. Download speeds are also a competitive factor, with competitors enhancing their networks to increase their available download speeds. In all of our Central and Eastern European markets, we are using our ultra high-speed internet service to attract and retain customers. In addition, promotional discounts are a big part of our internet service offerings, as well as with our competitors.
Latin America
In Chile,
VTR
faces competition primarily from non-cable-based internet service providers such as Movistar and
Claro
.
VTR
is experiencing increased pricing and download speed pressure from Movistar and
Claro
and more effective competition from these companies with the bundle of their internet service with other services. Mobile broadband competition is significant as well. Both Movistar and
Claro
have launched an
LTE
network for high-speed mobile data. In response to the availability of mobile data in Chile,
VTR
has more than doubled its internet speeds with a high-speed internet offering of up to 120 Mbps.
VTR
’s share
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of the broadband internet market in Chile is 38%, compared to 41% for Movistar. To compete effectively,
VTR
is expanding its two-way coverage and offering attractive bundling with fixed-line telephony and digital video service.
Fixed-Line Telephony and Mobile Services
The market for fixed-line telephony services is mature. Changes in market share are driven by the combination of price and quality of services provided and the inclusion of telephony services in bundled offerings. With respect to fixed-line telephony services, our businesses compete against the incumbent telecommunications operator in each country. These operators have substantially more experience in providing fixed-line telephony and mobile services, greater resources to devote to the provision of fixed-line telephony services and long-standing customer relationships. In addition, we compete with other
VoIP
operators offering service across broadband lines and with mobile telephony providers. Over-the-top telephony is also becoming a competitive factor. In many countries, our businesses also face competition from other cable telephony providers,
FTTx
-based providers or other indirect access providers.
Competition in both the residential and business fixed-line telephony markets is increasing due to market trends, the offering of carrier pre-select services, number portability, the replacement of fixed-line with mobile telephony, and the growth of
VoIP
services, as well as continued deregulation of telephony markets and other regulatory action, such as general price competition. Carrier pre-select allows the end user to choose the voice services of operators other than the incumbent while using the incumbent’s network. We seek to compete on pricing as well as product innovation, such as telephone apps that allow customers to make and receive calls from their fixed-line call packages on smartphones. We also offer varying plans to meet customer needs and various bundle options with our digital video and internet services. In addition, we offer mobile voice and data services in the
U.K.
, Germany, the Netherlands, Belgium, Switzerland, Austria, Chile and in select markets in Hungary. With consumers increasingly moving towards mobile services, we continue to explore opportunities to offer mobile services in our other operations and mobility applications to our other services.
Europe
Across Europe, our fixed-line and mobile telephony businesses are generally small compared to the existing business of the incumbent telephone company. The incumbent telephone companies remain our key competitors but mobile operators and other
VoIP
operators offering service across broadband lines are also significant competitors in these markets. Generally, we expect telephony markets to remain extremely competitive.
Our fixed-line telephony strategy in Europe is focused around value leadership, and we position our services as “anytime” or “any destination”. Our portfolio of calling plans include a variety of options designed to meet the needs of our subscribers. Such options include unlimited network, national or international calling, unlimited off-peak calling and minute packages, including calls to fixed and mobile phones. We also use our bundled offerings to help promote our telephony services.
In the
U.K.
, we compete primarily with BT in providing fixed-line telephony services to residential customers in the
U.K.
BT occupies an established market position as the former state provider. We also compete with other telecommunications companies that provide fixed-line telephony services directly, through LLU, or indirectly. These include TalkTalk Telecom Group plc and Sky, and mobile telephone operators such as EE and Vodafone who lease access to BT’s network. In addition, we face competition from companies offering VoIP services using the customer’s existing broadband, mobile data and WiFi connections. For our mobile service in the
U.K.
, we also face competition from these mobile network operators as well as other
MVNO
s. EE became the first
U.K.
mobile network operator to launch LTE in October 2012, with Vodafone and others launching their LTE services in 2013. EE is the largest mobile service provider. Its LTE network reaches 80% of the
U.K.
population with further expansion expected in 2015.
Virgin Media
is responding to such competition through innovative calling plans and a WiFi application that allows customers to use their fixed-line call packages on smartphones
.
It offers flexible mobile service contracts that allow customers to change services monthly and has increased its WiFi access points.
Virgin Media
’s share of the fixed-line telephony market in the
U.K.
is 15%.
Deutsche Telekom
is the dominant fixed-line telephony provider in Germany; however, telephony services provided through alternative technologies and mobile telephony services have caused competition in the telephony market to be intense. As a result, the market for residential telephony service is price sensitive. In recent years, fixed-line phone calls have been transformed into a commodity and have become increasingly dependent on a quality broadband offering, as phone is increasingly bundled with broadband internet services. Fixed-line telephony has experienced significant price erosion over the last few years, with operators increasingly offering flat-rate products. We seek to compete based on the speed of our network connections, pricing and product innovation. We also offer varying plans to meet customer needs and various bundled service options with our digital video and broadband internet services. The market share of the fixed-line telephony market for
Unitymedia KabelBW
is 8%.
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In the Netherlands,
KPN
is the dominant fixed-line telephony provider and expanded its mobile services with its
LTE
network, which is available throughout the Netherlands. All of the large multiple system operators, including the Ziggo Group, as well as
ISP
s, offer
VoIP
services. Also, Ziggo entered the mobile market as an
MVNO
in September 2013 and UPC Nederland began offering mobile in October 2014. To compete in this intense market, the Ziggo Group offers an app for Android and iOS users to make calls on their fixed rate plan via WiFi. The market share of the fixed-line telephony market for the Ziggo Group is 40% compared to 54% for KPN. In the mobile market, the Ziggo Group is small compared to the competition with less than 1% of the market.
In Belgium,
Belgacom
is the dominant fixed-line telephony provider with 64%
of the fixed-line telephony market. It is also a significant competitor in the mobile telephony market, with its LTE services. To gain market share, we emphasize customer service and provide innovative plans to meet the needs of our customers, such as a flat fee plan offered in our bundle options (free off-peak calls to fixed-lines in Belgium, plus 2,000 minutes for calls to mobile in Belgium, fixed and mobile in Europe, the
U.S.
and Canada, and fixed in Morocco and Turkey). Subscribers to our fixed-line telephony service may also make free off-peak calls to mobile lines in Belgium, Europe, the
U.S.
and Canada. We also offer competitively priced mobile telephony that include a wealth of voice minutes, text messages and mobile data. We compete with other fixed-line operators and with mobile operators, including
Belgacom
, in the provision of telephony and mobile services in Belgium.
Telenet
’s share of the fixed-line telephony market in Belgium is 25%.
In Switzerland, we are the largest
VoIP
service provider, but
Swisscom
is the dominant fixed-line telephony service provider. Sunrise Communications AG, which offers carrier pre-select services, is also a strong competitor. Each of these competitors also operate their own mobile telephony service and include their mobile products in bundles with fixed-line services. In Austria, we serve our subscribers with
VoIP
over our cable network, circuit-switched telephony services and
DSL
technology service over LLU. To meet the competition for fixed-line services,
UPC Cablecom
enhanced its portfolio with attractive bundle options as well as standalone plans with free minutes either nationally or internationally and offers mobile services, including a phone app that allows smartphone users make calls on their fixed network plan. The market share of the fixed-line telephony market for
UPC Cablecom
is 13%.
In our other European markets, the incumbent telephone companies dominate the telephony market. Most of the fixed-line competition to the incumbent telephone operators in these countries is from entities that provide carrier pre-select or wholesale line rental services. We also compete with
ISP
s that offer
VoIP
services and mobile operators. Given the increased relevance of the mobile market, we have launched mobile services as an
MVNO
in Austria and plan to expand these services to our other markets. To gain market share, we promote our
VoIP
telephony service offerings in almost all of our European markets and in some markets we have enhanced our telephony services through unlimited calling options.
Latin America
In Chile,
VTR
faces competition from the incumbent telecommunications operator, Movistar, and other telecommunications operators. Movistar has substantial experience in providing telephony services, resources to devote to the provision of telephony services and long-standing customer relationships. Competition in both the residential and business telephony markets is increasing as a result of market trends and regulatory changes affecting general price competition, number portability and the growth of
VoIP
services.
VTR
offers circuit-switched and
VoIP
telephony services over its cable network.
VTR
’s share of the residential and commercial fixed-line telephony market in Chile is 21%.
In Chile, an increasing number of consumers have gravitated towards mobile service, prompting us in 2012 to add wireless plans to our services.
Claro
, Movistar and Entel PCS Telecommunications SA are the primary companies that offer mobile telephony in Chile. Competition in the Chilean mobile services market is increasing quickly, with new competitors providing services to customers using the
MVNO
model. There are five competitors that use the
MVNO
model: Móvil Falabella, Virgin Mobile Chile, GTD—Manquehue, Nextel and Netline.
VTR
offers its mobile telephony services on a standalone basis. The mobile services of
VTR
represent less than 1% of the mobile telephony market in Chile, of which approximately 82% comprise postpaid accounts. Of these customers 86% subscribe to at least one fixed-line
VTR
service.
Regulatory Matters
Overview
Video distribution, broadband internet, fixed-line telephony and mobile businesses are regulated in each of the countries in which we operate. The scope of regulation varies from country to country, although in some significant respects regulation in European markets is harmonized under the regulatory structure of the
EU
.
I-35
Adverse regulatory developments could subject our businesses to a number of risks. Regulation, including conditions imposed on us by competition or other authorities as a requirement to close acquisitions or dispositions, could limit growth, revenue and the number and types of services offered and could lead to increased operating costs and property and equipment additions. In addition, regulation may restrict our operations and subject them to further competitive pressure, including pricing restrictions, interconnect and other access obligations, and restrictions or controls on content, including content provided by third parties. Failure to comply with current or future regulation could expose our businesses to various penalties.
Europe
Austria, Belgium, Bulgaria, Croatia, Cyprus, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and the
U.K.
are the Member States of the
EU
. As such, these countries are required to harmonize certain of their laws with certain
EU
rules. In addition, other
EU
rules are directly enforceable in those countries without any implementation at the national level. Certain
EU
rules are also applicable across the European Economic Area, whose Member States are the
EU
Member States (excluding Croatia) as well as Iceland, Liechtenstein and Norway.
In the broadcasting and communications sectors, there has been extensive
EU
-level legislative action. As a result, most of the markets in Europe in which our businesses operate have been significantly affected by the regulatory framework that has been developed by the
EU
. Regulation in Switzerland, which is not a Member State of the
EU
and is not part of the European Economic Area, is discussed separately below, as well as regulation in certain Member States in which we face regulatory issues that may have a material impact on our business.
EU Communications Regulation
The body of
EU
law that deals with communications regulation consists of a variety of legal instruments and policies (collectively referred to as the
Regulatory Framework
). The key elements of the
Regulatory Framework
are various legal measures, which we refer to as the Directives, that require Member States to harmonize their laws, as well as certain regulations that have direct effect without any specific adoption at the national level.
The
Regulatory Framework
primarily seeks open communications services markets within Europe. It harmonizes the rules within the
EU
for the establishment and operation of electronic communications networks, including cable television and traditional telephony networks, and the offer of electronic communications services, such as telephony, internet and, to some degree, television services.
On December 18, 2009, the Official Journal of the
EU
published revisions to the
Regulatory Framework
. These revisions should have been transposed into the laws of the Member States before May 25, 2011, although in practice, this process is still ongoing in certain Member States. Despite their limited nature, certain changes to the
Regulatory Framework
will affect us. For example, some new powers have been given to national regulators, such as the right to mandate access to ducts without finding operators or service providers to have “
Significant Market Power
” (defined below). This power, in particular, could require us to open our ducts to competitors and not allow us to make use of all capacity in our ducts for our own needs, or could mean we get access to ducts of third parties instead of building our own ducts. Additionally, the revisions to the
Regulatory Framework
grant enhanced powers to Member States to impose transparency obligations and quality of service requirements on
ISP
s, which may restrict our flexibility in respect of our broadband services.
Certain key provisions included in the current
Regulatory Framework
are set forth below. This description is not intended to be a comprehensive description of all regulation in this area.
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Licensing and Exclusivity.
The
Regulatory Framework
requires Member States to abolish exclusivities on communication networks and services in their territory and allow operators into their markets based on a simple registration. The
Regulatory Framework
sets forth an exhaustive list of conditions that may be imposed on communication networks and services. Possible obligations include, among other things, financial charges for universal service or for the costs of regulation, environmental requirements, data privacy and other consumer protection rules, “must carry” obligations, provision of customer information to law enforcement agencies and access obligations.
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•
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Significant Market Power
. Certain of the obligations allowed by the
Regulatory Framework
apply only to operators or service providers with “
Significant Market Power
” in a relevant market. For example, the provisions of the Access Directive allow
EU
Member States to mandate certain access obligations only for those operators and service providers that are deemed to have
Significant Market Power
. For purposes of the
Regulatory Framework
, an operator or service provider will be deemed to have
Significant Market Power
where, either individually or jointly with others, it enjoys a
|
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position of significant economic strength affording it the power to behave to an appreciable extent independently of competitors, customers and consumers.
As part of the implementation of certain provisions of the
Regulatory Framework
, each Member State’s National Regulatory Authority (
NRA
) is required to analyze certain markets predefined by the
EU
Commission to determine if any operator or service provider has
Significant Market Power
. Until November 2007, there were 18 such markets but then the
EU
Commission adopted a new recommendation reducing the list of predefined markets to seven, subject to periodic review. This adjusted recommendation led to a reduction in regulation. Some
NRA
s, however, continue to maintain their analysis of some of the markets from the original list or perform analysis of markets not listed in the recommendation which requires the
NRA
to prove that additional requirements, the so called three-criteria test, are met. In October 2014, the
EU
adjusted the recommendation by removing the telephony markets and combining the wholesale broadband access markets.
NRA
s might seek to define us as having
Significant Market Power
in any of these predefined markets or they may define and analyze additional markets. In the event that we are found to have
Significant Market Power
in any particular market, an
NRA
could impose certain conditions on us. Under the
Regulatory Framework
, the
EU
Commission has the power to veto a finding by an
NRA
of
Significant Market Power
(or the absence thereof), which power also applies with respect to market definition, in any market, regardless of whether it is a market predefined by the
EU
Commission or an additional market defined by an NRA. We have been found to have
Significant Market Power
in certain markets in which we operate and further findings of
Significant Market Power
are possible. In particular, we have been found to have
Significant Market Power
in the termination of calls on our network.
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Video Services.
The regulation of distribution, but not the content, of television services to the public is harmonized by the
Regulatory Framework
. Member States are allowed to impose on certain operators under their jurisdiction reasonable must carry obligations for the transmission of specified radio and television broadcast channels. Such obligations are required to be based on clearly defined general interest objectives, be proportionate and transparent and be subject to periodic review. We are subject to must carry regulations in all European markets in which we operate. In some cases, these obligations go beyond what we believe is allowable under the
Regulatory Framework
. To date, however, the
EU
Commission has taken very limited steps to enforce
EU
law in this area, leaving intact must carry obligations in certain Member States that are in excess of what we believe to be allowed, and we do not expect the
EU
Commission or the Member States to curtail such obligations in the foreseeable future.
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Net Neutrality/Traffic Management.
Other current regulatory debates at the
EU
and national level include net neutrality/traffic management, as well as responsibilities for
ISP
s on illegal content or activities on the internet. With respect to net neutrality/traffic management, the
EU
Commission confirmed in April 2011 that no additional
EU
regulation is needed to preserve net neutrality. The
EU
Commission made this decision after concluding that the existing provisions of the
Regulatory Framework
on consumer transparency and the ability of regulators to impose a minimum quality of service on an operator should be given time to be tested by Member States. In December 2011, the Body of European Regulators for Electronic Communications (
BEREC
), the joint body of European telecommunications regulators, published non-binding guidelines on net neutrality and transparency.
BEREC
believes that transparency and the ability for end-users to easily switch providers is vital and recommends that operators should provide clear end-user information about service limitations and actual speeds.
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While the EU has not imposed net neutrality regulation to date, it does require operators to provide clear and transparent information to customers on traffic management practices and service quality. In addition, new measures have been proposed as part of the EU’s Telecoms Single Market proposal, which would prohibit blocking and throttling of internet traffic, with the exception of congestion management. The proposals also support development of specialized, managed services delivering enhanced Quality of Service levels by ISPs, in addition to the continued delivery of best-effort internet services for all. There is significant pressure, however, to restrict the use of specialized services, which could compromise our ability to manage the content streams on our network. Negotiations between Member States are in their infancy and we currently expect these negotiations to be completed in the first half of 2015. The final outcome of this debate and its impact on our businesses is difficult to predict.
On September 11, 2013, the
EU
Commission proposed a partial reform to the
Regulatory Framework
in its proposed regulation on the European single market for electronic communications. Under
EU
law, a regulation, unlike a Directive, is required to be implemented into national law without interpretation by the respective national government. This proposal is a substantial reform to the 2009
Regulatory Framework
, notably in how regulatory powers for licensing, spectrum and consumer protection are divided between
NRA
s,
BEREC
and the
EU
Commission. The proposal does not, however, modify the
Regulatory Framework
for mandating access obligations on operators with
Significant Market Power
. With respect to broadband services, the proposal permits
ISP
s to charge content or application service providers for carriage in return for new prohibitions to the use of traffic management
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to block, slow down or degrade services or applications. There are also modifications to the rules on consumer protection that extend the circumstances under which subscribers can terminate their contracts without cost, which may restrict our flexibility in respect of our bundled service offerings. The proposed regulation is subject to approval by the European Parliament and by Member States in the European Council. While most of the proposals have not obtained the support of Member States in Council, as of January 2015, Member States have indicated they are willing to reach an agreement on reform of the roaming proposals and on a pan-European wide approach to net neutrality. A formal position among the 28 Member States may be reached by the end of February 2015, after which Member States in Council must negotiate their final position with the European Parliament before the measures can become EU law. Final adoption of these measures, if any, is not likely to occur before the second half of 2015.
EU
Broadcasting Law
Although the distribution of video channels by a cable operator is within the scope of the
Regulatory Framework
, the activities of a broadcaster are harmonized by other elements of
EU
law, in particular the Audiovisual Media Services Directive (
AVMS
). Generally, broadcasts originating in and intended for reception within an
EU
Member State must respect the laws of that Member State. Pursuant to
AVMS
, however,
EU
Member States are required to allow broadcast signals of broadcasters established in another
EU
Member State to be freely transmitted within their territory so long as the broadcaster complies with the law of their home state. This is referred to as the country of origin principle. Under
AVMS
, the country of origin principle applies also to non-linear services, such as
VoD
. Accordingly, we should be able, if we so elect, to offer our own
VoD
services across the European Economic Area based on the regulation of the country of origin. As a result, we could structure our business to have a single regulatory regime for all of our
VoD
services offered in Europe. In addition, when we offer third party
VoD
services on our network, it should be the business of the third party, in its capacity as provider of the services, and not us as the local distributor, that is regulated in respect of these services.
Although Member States were obligated to transpose the requirements of
AVMS
into national law, and this has generally been completed, the practical effect is still not clear. Uncertainty still remains about the proper treatment of
VoD
from a practical perspective. Thus, there can be no assurance that the requirements on
VoD
will, in fact, operate in the manner described above in any individual Member State. As a result, we may face inconsistent and uncertain regulation of our
VoD
service in Europe.
AVMS
also establishes quotas for the transmission of European-produced programming and programs made by European producers who are independent of broadcasters.
Other European Level Regulation
In addition to the industry-specific regimes discussed above, our European operating companies must comply with both specific and general legislation concerning, among other matters, data protection, data retention and electronic commerce. Many of these regimes are, or will be, reviewed at the
EU
level.
Our European operating companies are also subject to both national and European level regulations on competition and on consumer protection, which are broadly harmonized at the
EU
level. For example, while our operating companies may offer their services in bundled packages in European markets, they are sometimes not permitted to make a subscription to one service, such as cable television, conditional upon a subscription to another service, such as telephony. They may also face restrictions on the degree to which they may discount certain products included in the bundled packages.
The
EU
Commission is imposing more mandatory requirements and encouraging voluntary solutions regarding energy consumption of the telecommunications equipment we provide our customers. We have been participating in discussions and studies regarding energy consumption with the
EU
Commission and with experts working on their behalf. In addition, we are working with suppliers of our digital set-top boxes to lower power consumption, as well as looking at possibilities through software to lower the power consumption of the existing fleet of digital set-top boxes. We also worked with a large group of companies to create a voluntary agreement on set-top box power consumption as an alternative to regulation. The
EU
Commission formally recognized this voluntary agreement as a valid alternative to regulation on November 22, 2012. Nevertheless, legislation in this area may be adopted that could adversely affect the cost and/or the functionality of equipment we deploy in customer homes.
Pursuant to an
EU
regulation on standby power effective January 7, 2010 (the Standby Regulation), many devices are required to have either a low power standby mode or off mode unless it is inappropriate to have either such mode on the device. For this purpose, our set-top boxes and certain other equipment are equipped with an off switch. Beginning in January 2013, the Standby Regulation imposed further requirements on power management on certain devices we purchase and/or develop, which devices, namely the
Horizon TV
set-top box and any future set-top boxes, must comply with such requirements, unless it can be argued such further requirements are inappropriate. These additional requirements have necessitated additional software developments for our equipment and reduce the functionality of our equipment assuming the equipment’s default setting is maintained.
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Furthermore in August 2013, the
EU
Commission issued an amendment to the Standby Regulation called Networked Standby (No 801/2013), which became effective as of January 1, 2015, with the aim of regulating, among others, the maximum power consumption of networked consumer equipment while in the so-called Networked Standby mode. As is the case with the Standby Regulation, these additional requirements may have an impact on our costs and the customer experience.
As part of the
EU
’s Radio Spectrum Policy Program, spectrum made available through the switch off of analog television has been approved for mobile broadband use beginning January 1, 2013. This spectrum, known as the “digital dividend”, is in the 700 - 862 MHz band. The terms under which this spectrum will become available will vary among the European countries in which we operate. Certain uses of this spectrum may interfere with services carried on our cable networks. If this occurs, we may need to: (1) avoid using certain frequencies on our cable networks for certain or all of our services, (2) make some changes to our networks, or (3) change the equipment which we deploy. In approving mobile broadband, however, the Radio Spectrum Policy Program states that the new mobile services must co-exist with existing services, such as cable and
DTT
, to avoid harmful interference. As a result, we are in on-going discussions with relevant Member States and the
EU
Commission to be included in
LTE
mobile trials in order to develop mitigation techniques and to engage
NRA
s to launch regulatory dialogs with equipment manufacturers and mobile operators to develop co-existing networks. We have also requested Member States and the
EU
Commission to prepare comprehensive national impact assessments when spectrum conditions are changed to ensure that the costs to prevent interference between the various services are balanced.
United Kingdom
In the
U.K.
, the revised
Regulatory Framework
is implemented through (1) the Communications Act 2003, which regulates all forms of communications technology, whether used for telecommunications or broadcasting, and (2) the Wireless Telegraphy Act 2006, which regulates radio communications in the
U.K.
(including with respect to the spectrum, licensing arrangements, usage conditions and charges, license bidding and trading and enforcement and penalties). The Privacy and Electronic Communications Regulations 2003, as amended, implemented
EU
Directive 2002/58, which regulates the processing of personal data and the protection of privacy in the electronic communications sector.
Virgin Media
is also subject to regulation under the
U.K.
Broadcasting Acts 1990 and 1996 and other
U.K.
statutes and subordinate legislation, including the Competition Act 1998 and the Enterprise Act 2002. On-demand programming is regulated by the Authority for Television On-Demand under a co-regulatory regime with the
U.K.
Office of Communications (
Ofcom
). The regulatory regime for on-demand programming is derived from the
EU
Audiovisual Media Services Directive.
Ofcom
is the key regulatory authority for the communications sector in which
Virgin Media
operates. It is responsible for furthering the interests of consumers by promoting competition. The Competition and Markets Authority also has jurisdiction with respect to competition matters. (Pursuant to the Enterprise and Regulatory Reform Act 2013, effective April 1, 2014, the competition functions of the
U.K.
Office of Fair Trading, together with those of the
U.K.
Competition Commission, were transferred to a new
U.K.
competition authority, the Competition and Markets Authority.) The Competition and Markets Authority’s primary duty is to promote competition, both within and outside the
U.K.
, for the benefit of consumers.
Broadband Expansion.
The
U.K.
government has attempted to drive the deployment of super-fast broadband and the provision of basic broadband to 95% of the population of the
U.K.
by 2017 using money from the publicly funded BBC Licence Fee, under-spend from the Analogue TV Switch-Off Project and other sources of public investment to stimulate private investment. Two key projects are under way: (1) the Broadband Delivery Programme, which is focused on delivering broadband to areas that the market will not serve of its own accord (mainly rural areas); and (2) the Urban Broadband Fund, which is aimed at establishing “super connected” cities with internet capabilities of between 80 Mbps to 100 Mbps and comprehensive mobile broadband coverage. In 2013, the
U.K.
government announced the Superfast Extension Programme, which is designed to support the roll-out of broadband with download speeds of 30 Mbps or higher to 99% of the population of the
U.K.
by 2018.
Virgin Media
lodged a formal challenge against the
EU
Commission's decision to approve a project involving the deployment of a state-subsidized broadband network in the city of Birmingham in 2012. Based on assurances received from the
U.K.
government that no Urban Broadband Fund monies would be used to deploy telecommunications infrastructure in the
U.K.
, such that Birmingham could not implement the network for which it had received
EU
Commission approval,
Virgin Media
requested and was granted a stay in proceedings until March 31, 2015. As an alternative, the
U.K.
government launched a retail connectivity voucher scheme, in which
Virgin Media
participates.
Television and VoD Services.
Sky has market power in the wholesale supply of certain premium sports channels. As a result, Ofcom imposed a Wholesale Must Offer (WMO) regime for regulating the terms of the wholesale supply of Sky Sports 1 and 2
SD
and
HD
. A number of parties, including
Virgin Media
, appealed this decision.
In August 2012, the Competition Appeal Tribunal (CAT) overturned Ofcom’s decision, ruling that the competition concerns on which Ofcom based its decision were unfounded. BT appealed certain aspects of the CAT’s judgment to the Court of Appeal.
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In February 2014, the Court of Appeal upheld BT’s appeal. The matter has been referred back to the CAT for further consideration, and the Supreme Court has denied Sky the opportunity to appeal. The WMO requirement continues in the meantime and BT has secured an extension to cover distribution over the YouView platform. On December 19, 2014, Ofcom launched a consultation to review the WMO remedy and consider whether it remains an appropriate remedy.
In November 2014, Ofcom opened an investigation into the arrangements by which the FA Premier League collectively sells the live
U.K.
audio-visual media rights to Premier League football (soccer) matches. Ofcom’s investigation is on the basis that there are reasonable grounds to suspect that these arrangements appreciably restrict or distort competition in breach of the prohibition in Chapter I of the Act and/ or Article 101(1) of the Treaty on the Functioning of the European Union. This investigation is underway.
Broadband Services.
Ofcom
has recently finalized its triennial review of the Fixed Access markets (including Wholesale Local Access incorporating physical or passive network access via methods such as LLU and duct access) and Wholesale Broadband Access market (virtual or active network access via methods such as provision of wholesale managed service products). There has been no substantive change in its approach to regulation from the previous review period. Therefore, we do not anticipate significant consequences for
Virgin Media
’s operations.
BT has again been found to have Significant Market Power in the Wholesale Local Access market and at least one sub-national area of the Wholesale Broadband Access market and is required to provide certain products and services on regulated terms, including providing access to its ducts and poles infrastructure. Ofcom is proposing to impose new guidance regulating BT’s fiber margin. Current proposals indicate BT will not have to undertake a major repricing realignment in order to comply with this additional obligation.
Mobile Service.
As an
MVNO
,
Virgin Media
is subject to
EU
regulations relating to retail prices for roaming services. These regulations set limits on certain wholesale and retail tariffs for international mobile voice roaming, SMS tariffs and data roaming within the
EU
, provides for greater levels of transparency of retail pricing information, imposes measures to guard against bill shock in respect of data roaming and sets maximum roaming rates within the
EU
. A new measure, effective July 1, 2014, allows consumers to select an alternative provider for their
EU
roaming services. The measure is intended to increase competition for the provision of roaming services.
Mobile termination charges applied by mobile network operators are regulated by
Ofcom
under a Significant Market Power charge control condition. Under
Virgin Media
’s
MVNO
agreement, these changes in mobile termination charges are passed on to
Virgin Media
, which has experienced a reduction in revenue from such charges, although with some off-setting reductions in cost.
Ofcom
is in the process of reviewing mobile termination charges for the period of 2015-2018, and has proposed that rates be reduced to approximately half of their current levels by the end of this period.
Germany
Germany has incorporated the
EU
laws into national laws although under the German legal system competency is split between the Federal State (telecommunication law) and the German federal states (Bundesländer) (media law). The German Telecommunications Act broadly implemented the
Regulatory Framework
and covers the distribution of any signal by telecommunications networks encompassing television signals, internet data and telephony. The 2009 revisions to the
Regulatory Framework
by the
EU
were implemented by Germany in May 2012. The German Federal Network Agency (Bundesnetzagentur) is responsible
inter alia
for the regulation of the German telecommunications market. The Federal Cartel Office (
FCO
), the national competition authority (Bundeskartellamt), plays an important role with respect to infrastructure and media regulation. The
FCO
has powers to address competition issues in all markets, although in some cases, competition issues will be addressed by the German Federal Network Agency.
Regulation of the media falls within the authority of the German federal states (Bundesländer). The media laws of all 16 federal states have been partially harmonized by the State Broadcasting Treaty (Rundfunkstaatsvertrag). The State Broadcasting Treaty establishes the main framework of the German regulation of broadcast. Nearly every German state has established its own independent regulatory body, the state media authority (Landesmedienanstalt) for the regulation of the private broadcasting sector. The state media authorities are primarily responsible for licensing and supervision of commercial broadcasters and the allocation of transmission capacities for radio and television channels. They also have authority with respect to the regulation of carriage fees, conditional access systems, interfaces, the bundling of programs, and price regulation.
The allocation and use of analog cable transmission capacities for both radio and television channels in Germany is governed by the must carry rules of the respective German federal states. The allocation of digital transmission capacities for digital television and radio channels is primarily governed by the must carry rules of the State Broadcasting Treaty. The media law in the states of Baden-Württemberg, North Rhine-Westphalia and Hesse require
Unitymedia KabelBW
to carry at least 13, 24 and 28 analog channels, respectively, and also limits
Unitymedia KabelBW
’s ability to convert these analog cable channels into digital channels.
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The operation of conditional access systems for television services is governed by both the State Broadcasting Treaty and the German Telecommunications Act. Generally, operators must not unfairly obstruct or discriminate against broadcasters and other content providers through conditional access systems.
On December 15, 2011, the
FCO
approved our acquisition of the German cable network KBW (the
KBW Acquisition
), subject to our agreement with the following conditions:
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Unitymedia KabelBW
committed to the distribution of basic digital television channels (as opposed to channels marketed in premium subscription packages) on its entire network in unencrypted form. This commitment, with which we have complied, generally covers free-to-air television channels in
SD
and
HD
and is consistent with the practice that had been adopted by
KBW
prior to the
KBW Acquisition
. If, however,
FTA
television broadcasters request their
HD
content to be distributed in an encrypted
HD
package, the encryption of
FTA
HD
channels is still possible. In addition, we made a commitment that, through December 31, 2016, the annual carriage fees
Unitymedia KabelBW
receives for each such
FTA
television channel distributed in digital or simulcast in digital and analog would not exceed a specified annual amount, determined by applying the applicable rate card systems of
Unitymedia KabelBW
as of January 1, 2012.
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Effective January 1, 2012,
Unitymedia KabelBW
waived its exclusivity rights in access agreements with housing associations with respect to the usage of infrastructures other than its in-building distribution networks to provide television, broadband internet or telephony services within the building.
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Effective January 1, 2012, upon expiration of the minimum term of an access agreement with a housing association,
Unitymedia KabelBW
transferred the ownership rights to the in-building distribution network to the building owner or other party granting access. In addition,
Unitymedia KabelBW
waived its right to remove its in-building distribution networks.
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A special early termination right was granted with respect to certain of
Unitymedia KabelBW
’s existing access agreements (the
Remedy HA Agreements
) with the largest housing associations that cover more than 800 dwelling units and which had a remaining term of more than three years as of December 15, 2011. The total number of dwelling units covered by the
Remedy HA Agreements
was approximately 340,000 as of December 15, 2011. The special termination right may be exercised on or before September 30 of each calendar year up to the expiration of the current contract term, with termination effective as of January 1 or July 1 of the following year. If the special termination right is exercised, compensation will be paid to partially reimburse
Unitymedia KabelBW
for its unamortized investments in modernizing the in-building network based on an agreed formula. To the extent
Unitymedia KabelBW
is successful in obtaining renewals of the
Remedy HA Agreements
, we expect that these renewed contracts will contain pricing and other provisions that are somewhat less favorable to
Unitymedia KabelBW
than those in previous agreements. At
December 31, 2014
, approximately 10% of the dwelling units covered by the
Remedy HA Agreements
remain subject to the special termination right.
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In January 2012, two of our competitors (the
Appellants
), including the incumbent telecommunications operator, each filed an appeal (the
FCO Appeals
) against the
FCO
regarding its decision to approve the
KBW Acquisition
. On August 14, 2013, the Düsseldorf Court of Appeal issued a ruling that set aside the
FCO
’s clearance decision. Although the Düsseldorf Court of Appeal did not grant the right to appeal against its ruling to the Federal Supreme Court, on September 16, 2013, we filed a formal request to appeal to the Federal Court of Justice seeking permission to appeal the Düsseldorf Court of Appeal’s decision and our reasoned submission was filed on December 16, 2013. During the first quarter of 2014, interested third parties commented on our submission. The Düsseldorf Court of Appeal’s ruling is not legally binding until all appeals have been rejected.
During the fourth quarter of 2014, we, together with our German subsidiaries, entered into agreements with the
Appellants
, pursuant to which the
Appellants
withdrew the
FCO Appeals
and, on January 21, 2015, the
FCO
consented to the withdrawal. If the Federal Court of Justice terminates the proceedings, which we expect to occur during the first quarter of 2015, the
FCO
’s clearance decision with respect to our
KBW Acquisition
will become final (without any additional review or conditions). Upon termination of the proceedings, we have agreed to pay the
Appellants
an aggregate amount of €183.5 million ($222.0 million).
The Netherlands
The Netherlands’ electronic communications law broadly implements the
Regulatory Framework
. According to this electronic communications law, Autoriteit Consument & Markt (
ACM
), the Netherlands
NRA
, was required to perform a market analysis to determine which, if any, operator or service provider has
Significant Market Power
. In December 2011,
ACM
completed a market assessment of the television market in the Netherlands, concluding that there were no grounds for regulation of that market. As a result, no new regulations relating to the television market may be proposed without a new analysis. In particular,
ACM
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rejected previously filed requests from a number of providers to perform a new market analysis of the television market and this decision was upheld by the Dutch Supreme Administrative Court on November 5, 2012.
In May 2012, the Dutch Parliament adopted laws that provide, among other matters, the power to
ACM
to impose an obligation for the mandatory resale of television services and to the Commissariaat voor de Media to supervise such resale obligation. These laws became effective on January 1, 2013, notwithstanding the above-described November 5, 2012 decision of the Dutch Supreme Administrative Court. On January 29, 2014, a Dutch civil court, in a proceeding initiated by
UPC Nederland
, declared the resale obligation laws non-binding because they infringe
EU
law. The Dutch Government did not appeal the January 2014 decision, and the resale obligation laws were formally withdrawn on November 26, 2014. We cannot predict whether the Dutch government will seek to enact new resale obligation regulations, whether our operations may otherwise (on the basis of a market analysis by
ACM
) become subject to resale obligation regulation, or the effect on our results of operations, cash flows or financial position from any implementation of such a resale regime.
On August 5, 2013,
ACM
published its latest market analysis decision on call termination, which combines both the fixed termination market and the mobile termination market. The new tariffs became effective September 1, 2013, and apply for a three year period. The decision was appealed by various operators, including us, and on August 27, 2013, the Dutch Supreme Administrative Court decided in a preliminary decision that the decrease of cap charges should be less steep than ACM had initially determined. These revised tariffs apply until the Dutch Supreme Administrative Court arrives at a final decision in the appeal proceedings on the merits. This final decision is not expected before the end of 2015 because the Dutch Supreme Administrative Court ruled on October 15, 2014, that it wishes to pose prejudicial questions to the European Court of Justice.
On January 1, 2014, the revised must carry obligations became effective. The revised must carry obligations do not only apply to cable operators as was previously the case, but will apply to all providers of analog and digital program packages based on the principle of technology neutrality. Providers of digital program packages with 100,000 or more subscribers are subject to the obligation to provide at least 30 television channels, including as a must carry obligation six public television broadcasting channels, a limited amount of regional and local television broadcasting channels and a number of digital radio broadcasting channels. In addition, all providers of analog program packages with 100,000 or more subscribers must include at least 15 television channels, including as a must carry obligation five public broadcasting channels, a limited amount of regional and local television broadcasting channels and some analog radio broadcasting channels. The Dutch Media Authority can grant a (conditional) exemption from the obligation if the must carry obligations listed above give rise to disproportionate costs for the network operator, an impediment to innovation or other unreasonable outcomes.
There is no regulated financing mechanism in place between network operators and broadcasters. Commercial and public program providers must negotiate with network operators regarding transmission fees.
In connection with the
Ziggo Acquisition
, we obtained regulatory clearance from the EU Commission on October 10, 2014, which clearance was subject to the following commitments:
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our commitment to sell Film1 channel to a third party and to carry Film1 on our network in the Netherlands for a period of three years; and
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our commitment for a period of eight years with respect to our Ziggo Group network (1) not to enforce certain clauses currently contained in carriage agreements with broadcasters that restrict the ability of broadcasters to offer their channels and content via third party over-the-top services, (2) not to enter into carriage agreements containing such clauses and (3) to maintain adequate interconnection capacity through at least three uncongested routes into our network, at least one of which must be with a large transit provider.
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Following the
EU
Commission’s clearance of the
Ziggo Acquisition
, on October 31, 2014, ACM published as part of the fourth round of market analysis a draft of market analysis decision on LLU. In this draft decision, ACM found that there is a risk of joint dominance of KPN and us in the related retail broadband market, which would be remedied on the wholesale market for LLU where ACM found a risk of single dominance of KPN. This draft decision was subject to national consultation until December 12, 2014, followed by notification to the
EU
Commission. The final decision is expected to be published by ACM in the Spring of 2015.
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Belgium
Belgium has broadly transposed the
Regulatory Framework
into law. According to the electronic communications law of June 13, 2005, the Belgisch Instituut voor Post en Telecommunicate (the
BIPT
), the Belgian
NRA
, should perform the market analysis to determine which, if any, operator or service provider has
Significant Market Power
. In addition, the Federal Parliament prepared legislation to transpose the 2009 revisions to the
Regulatory Framework
, which became effective as of August 4, 2012.
Telenet
has been declared an operator with
Significant Market Power
on the market for call termination on an individual fixed public telephone network. As of April 1, 2012, reciprocal termination rates have been imposed, which results in
Telenet
charging the interconnection rate of the incumbent telecommunications operator,
Belgacom
.
Although no determination has been made on whether
Telenet
has
Significant Market Power
on the market for call termination on individual mobile networks, its rates will be affected by rate limitations implemented by
BIPT
. In June 2010,
BIPT
imposed a steep rate reduction that resulted in (1) an initial 45% decline effective August 1, 2010, over the then average rate and (2) a further decline in January 2013 that was approximately 79% less than the average rate implemented on August 1, 2010. As of January 1, 2013, mobile termination rates have been set by
BIPT
at 1.08 euro cents per minute, and to date, 2015 rates have not been set.
In December 2010, the
BIPT
and the regional regulators for the media sectors (together, the Belgium Regulatory Authorities) published their respective draft decisions reflecting the results of their joint analysis of the broadcasting market in Belgium. After a public consultation, the draft decisions were submitted to the
EU
Commission. The
EU
Commission issued a notice on the draft decision that criticized the analysis of the broadcasting markets on several grounds, including the fact that the Belgium Regulatory Authorities failed to analyze upstream wholesale markets. It also expressed doubts as to the necessity and proportionality of the various remedies.
The Belgium Regulatory Authorities adopted a final decision on July 1, 2011 (the July 2011 Decision) with some minor revisions. The regulatory obligations imposed by the July 2011 Decision include (1) an obligation to make a resale offer at “retail minus’’ of the cable analog package available to third party operators (including
Belgacom
), (2) an obligation to grant third-party operators (except
Belgacom
) access to digital television platforms (including the basic digital video package) at “retail minus”, and (3) an obligation to make a resale offer at “retail minus’’ of broadband internet access available to beneficiaries of the digital television access obligation that wish to offer bundles of digital video and broadband internet services to their customers (except
Belgacom
).
Telenet
submitted draft reference offers regarding the obligations described above in February 2012, in response to which the Belgium Regulatory Authorities subsequently made their observations, launched a national consultation process and consulted with the
EU
Commission. Although the
EU
Commission expressed doubts regarding the analog resale offers on August 8, 2013, the
EU
Commission did not object to the reference offers. The Belgium Regulatory Authorities published the final decision on September 9, 2013. The regulated wholesale services had to be available approximately
six months
after a third-party operator filed a letter of intent and paid an advance payment to
Telenet
. On December 27, 2013, wireless operator Mobistar SA (
Mobistar
) submitted a letter of intent and paid the advance payment on January 10, 2014.
Telenet
has implemented the access obligations as described in its reference offers and, as of June 23, 2014, access to the
Telenet
network had become operational and can be applied by
Mobistar
. In addition, as a result of the November 2014 decision by the Brussels Court of Appeal described below, on November 14, 2014, Belgacom submitted a request to
Telenet
to commence access negotiations.
On April 2, 2013, the Belgium Regulatory Authorities issued a draft decision regarding the “retail-minus” tariffs of minus 35% for basic television (basic analog and digital video package) and minus 30% for the bundle of basic television and broadband internet services. A “retail-minus” method of pricing involves a wholesale tariff calculated as the retail price for the offered service by
Telenet
, excluding value-added taxes and copyrights, and further deducting the retail costs avoided by offering the wholesale service (such as costs for billing, franchise, consumer service, marketing, and sales). On October 4, 2013, the Belgium Regulatory Authorities submitted a draft quantitative decision to the
EU
Commission in which they changed the “retail-minus” tariffs to minus 30% for basic television (basic analog and digital video package) and to minus 23% for the bundle of basic television and broadband internet services. Even though the
EU
Commission made a number of comments regarding the appropriateness of certain assumptions in the proposed costing methodology, the Belgium Regulatory Authorities adopted such retail-minus tariffs on December 11, 2013.
Telenet
filed an appeal against the July 2011 Decision with the Brussels Court of Appeal. In November 2014, the Brussels Court of Appeal rejected
Telenet
’s appeal and accepted Belgacom’s claim that it should have access to
Telenet
’s digital television platform and resale of broadband internet access in a bundle with digital video.
Telenet
is currently considering the possibility of filing an appeal against this decision with the Belgian Supreme Court.
Telenet
also filed an appeal with the Brussels Court of Appeal against the decision regarding the qualitative and quantitative aspects of the reference offers. Wireless operator Mobistar
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also filed an appeal against the decision regarding the quantitative aspects of the reference offers. A decision with respect to these appeals is not expected before the end of 2015. There can be no certainty that
Telenet
’s appeals will be successful.
The July 2011 Decision aims to, and in its application may, strengthen
Telenet
’s competitors by granting them resale access to
Telenet
’s network to offer competing products and services. In addition, any resale access granted to competitors could (1) limit the bandwidth available to
Telenet
to provide new or expanded products and services to the customers served by its network and (2) adversely impact
Telenet
’s ability to maintain or increase its revenue and cash flows. The extent of any such adverse impacts ultimately will be dependent on the extent that competitors take advantage of the resale access ultimately afforded to
Telenet
’s network and other competitive factors or market developments.
Switzerland
Switzerland has a regulatory system which partially reflects the principles of the
EU
, but otherwise is distinct from the European regulatory system of telecommunications. The Telecommunications Act (Fernmeldegesetz) regulates, in general, the transmission of information, including the transmission of radio and television signals. Most aspects of the distribution of radio and television, however, are regulated under the Radio and Television Act (Radio und Fernsehgesetz). In addition, the Competition Act and the Act on Price Surveillance are potentially relevant to our business. With respect to energy consumption of electronic home devices, the Energy Act and the revised Energy Ordinance have been applicable since January 2010 to television set-top boxes as described below.
Under the Telecommunications Act, any provider of telecommunications services needs to register with the Federal Office of Communications. Dominant providers have to grant access to third parties, including LLU access. But this access regulation is restricted to the copper wire network of the incumbent,
Swisscom
. Therefore, such unbundling obligations do not apply to
UPC Cablecom
and other cable operators. Also, any dominant provider has to grant access to its ducts, subject to sufficient capacity being available in the relevant duct. At this time, only
Swisscom
has been determined to be dominant in this regard. All operators are obliged to provide interconnection and have to ensure interoperability of services.
The Federal Council has suggested that the current Telecommunications Act be revised in two steps. First, the Federal Council plans to introduce measures to allow for easier access to the incumbent’s network, better consumer protection and some measures to decrease roaming fees. Second, the Federal Council plans to introduce an efficient access regime to the
Swisscom
network by introducing ex officio rights for the Federal Communications Commission and an ex-ante regime, regulate the roaming prices and improve the consumer and youth protection rules. This second step is not expected to start before 2018. In addition, it is expected that the conditions for a national broadband rollout will be improved by introducing access obligations to the ducts of local utilities.
Under the Radio and Television Act and the corresponding ordinance, cable network operators are obliged to distribute certain programs that contribute in a particular manner to media diversity. The Federal Government and the Federal Office of Communications can select up to 25 programs that have to be distributed in analog without the cable operator being entitled to compensation. A
new Radio and Television ordinance became effective August 1, 2012, which allows cable operators to decrease the number of obligatory channels to be broadcasted in analog. A departmental ordinance was published which eliminates this regime for all foreign broadcasters as of June 1, 2013, and all other such regulation as of January 1, 2015. Additionally, there is no legal obligation to broadcast digital and analog in parallel as long as the digital offer is comparable to analog and does not force customers to incur additional costs.
UPC Cablecom
’s retail customer prices are subject to review by the Swiss Price Regulator. In October 2012,
UPC Cablecom
announced an agreement with the Swiss Price Regulator pursuant to which
UPC Cablecom
will make certain changes to its service offerings in exchange for progressive increases in the price of its basic cable connection. In this regard, (1) effective November 1, 2012,
UPC Cablecom
began offering a basic tier of digital television channels on an unencrypted basis in its footprint and (2) effective January 3, 2013, for video subscribers who pay the required upfront activation fee,
UPC Cablecom
has made available, at no additional monthly charge, a 2 Mbps internet connection, which was an increase from the previously-offered 300 Kbps internet connection. In addition, the monthly price for a cable connection increased by CHF
0.90
(
$0.91
) effective January 1, 2013 and a further increase of CHF
0.60
(
$0.60
) took effect on January 1, 2014.
Effective October 1, 2014, the Federal Council proposed a new regulation imposing power thresholds for set-top boxes. There are some exemptions and transition periods which apply in the short term to the set-top boxes we import into Switzerland. The Swiss regulation may not be in line with
EU
regulation, and it may be reconsidered as Switzerland tries to align itself with
EU
norms. If, however, such regulation remains in force, it may have an adverse effect on the business of
UPC Cablecom
as
UPC Cablecom
may face restrictions regarding the import of set-top boxes.
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Chile
VTR
is subject to regulation and enforcement by various governmental entities in Chile including the Chilean Antitrust Authority, the Ministry of Transportation and Telecommunications (the
Ministry
) through the Chilean Undersecretary of Telecommunications (
SubTel
), the National Television Council (
CNTV
) and Chile’s National Consumer Service (
Sernac
).
In addition to the specific regulations described below,
VTR
is subject to certain regulatory conditions which were imposed by the Chilean Antitrust Authority in connection with
VTR
’s combination with Metrópolis Intercom SA in April 2005. These conditions are indefinite and include, among others, (1) prohibiting
VTR
and its control group from participating, directly or indirectly through a related person, in Chilean satellite or microwave television businesses, (2) prohibiting
VTR
from obtaining exclusive broadcast rights, except for specific events, and (3) requiring
VTR
to offer its broadband capacity for resale of internet services on a wholesale basis.
Video
The provision of pay television services requires a permit issued by the
Ministry
. Cable pay television permits are granted for an indefinite term and are non-exclusive, and, because such permits do not involve radioelectric spectrum, they are granted without ongoing duties or royalties.
VTR
has permits to provide cable pay television services in the major cities, including Santiago, and in most of the medium-sized markets in Chile.
Cable television service providers in Chile are free to define the channels and content included in their services and are not required to carry any specific programming, except as described below. However,
CNTV
may impose sanctions on providers who are found to have run programming containing excessive violence, pornography or other objectionable content. Pay television operators are directly responsible for violation of such prohibitions. Additionally, the Television Act requires pay television operators to offer a certain quota of cultural content and to distribute public interest campaigns.
The Television Act has been recently amended to establish a retransmission consent regime between broadcast television concessionaires and pay television operators. This regime provides that once a broadcast operator achieves digital coverage of 85% of the population within its concession areas, the broadcast operator may require that pay television operators enter into an agreement for the retransmission of its digital signal. In addition, the Television Act requires that the technical or commercial conditions imposed by broadcast operators not discriminate among pay television operators. Also, the Television Act establishes a must carry regime requiring pay television operators to distribute up to four local broadcast television channels in each operating area. The channels that must be carried by any particular pay television operator are to be selected by
CNTV
.
The Chilean Consumer’s Rights Protection Law contains provisions that have been interpreted by
Sernac
to require that any increase in rates exceeding inflation must be previously accepted and agreed to by subscribers. Although
VTR
disagrees with this interpretation, in July 2012,
VTR
reached an agreement with
Sernac
, which permits
VTR
to make adjustments to its published rates twice per year to adjust for inflation. In addition,
VTR
may once a year propose to its existing subscribers additional changes to their rates. If a subscriber does not accept these proposed rate changes, the subscriber is permitted to terminate its subscription contract. In addition, the agreement with
Sernac
establishes the criteria upon which
VTR
may modify its channel line-up without the consent of subscribers.
Internet
In August 2010, a law on internet neutrality was passed, which prohibits “arbitrary blockings” of legal content, applications or services and the provision of differentiated service conditions according to the origin or ownership of the content or service provided through the internet. Additionally, the law authorizes
ISP
s to take measures to ensure the privacy of their users and provide virus protection and safety processes over their network, as long as these measures do not infringe antitrust laws. Additional measures were subsequently implemented, including obligations related to consumer information, traffic management policies applied by each
ISP
and internet quality of service requirements and notices required by law concerning the effective maximum and minimum traffic speeds offered under internet access plans.
In order to protect the constitutional rights of privacy and safety of communications,
ISP
s are prohibited from undertaking surveillance measures over data content on their networks. Also, special summary proceedings have been created in order to safeguard intellectual property rights against violations committed through networks or digital systems. These proceedings include measures designed to withdraw, disqualify or block infringing content in the
ISP
’s network or systems. The law also provides for the right of intellectual property owners to judicially request from
ISP
s the delivery of necessary information to identify the provider of infringing content.
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Fixed-Line and Mobile Telephony Services
The provision of fixed-line and mobile telephony services requires a public telecommunications service concession. With respect to mobile services, in 2009,
SubTel
awarded
VTR
a license for 30 MHz of spectrum in the 1700/2100 MHz frequency band for the provision of wireless telephony services. The license has a 30-year renewable term. In 2012,
VTR
transferred this license to its affiliate VTR Wireless SpA (
VTR Wireless
) which is now a subsidiary of
VTR
known as VTR Comunicaciones SpA. On January 15, 2014,
VTR Wireless
received a letter from
SubTel
in which
SubTel
asserted that
VTR Wireless
is not in compliance with the terms of such wireless license.
SubTel
alleged that the terms of the wireless license require
VTR Wireless
to comply with certain minimum network coverage and traffic levels.
VTR
disagrees with
SubTel
’s assertions regarding the terms of the wireless license and has contested such assertions vigorously.
VTR
has concessions to provide fixed-line telephony in most major and medium-sized markets in Chile. Telephony concessions are non-exclusive and have renewable 30-year terms. The original term of
VTR
’s fixed-line telephony concessions expires in November 2025. Long distance telephony services are considered intermediate telecommunications services and, as such, are also regulated by the
Ministry
.
VTR
has concessions to provide this service, which is non-exclusive, for a 30-year renewable term expiring in September 2025. In Chile, fixed-line telephony communications between primary zones within the country were, until recently, domestic long distance calls. Then, on November 6, 2013,
SubTel
eliminated domestic long distance calls and in August 2014, it completed the process of unifying Chile into a single telephone service primary zone. We believe this new system may benefit
VTR
along with the Chilean fixed-line market as a whole in relation to
VTR
’s mobile telephony competition. Fixed-line subscribers now have the ability to make phone calls throughout Chile without incurring long-distance charges, thereby making
VTR
’s fixed-line telephony services more attractive.
There are no universal service obligations in Chile. However, local service concessionaires are obligated to provide telephony service to all customers that are within their service area or are willing to pay for an extension to receive service. All local service providers, including
VTR
, must give long distance telephony service providers equal access to their network connections at regulated prices and must interconnect with all other public services concessionaires whose systems are technically compatible.
As a general rule, fixed-line telephony service providers are free to establish the rates directly charged to their customers, unless the Chilean Antitrust Authority concludes that due to a lack of sufficient competition in the market, rates should be fixed by
SubTel
. However,
SubTel
sets the maximum rates that may be charged by each operator for interconnect charges, access charges between operators for calls originating on one network that are completed through connections with one or more networks of other providers, and charges for network unbundling services. Rate regulation on interconnection charges is applicable to all fixed-line and mobile telephony companies, including
VTR
. The determination of the maximum rates that may be charged by operators for their fixed-line or mobile services are made on a case-by-case basis by
SubTel
and are effective for five years. In September 2014,
VTR
received a tariff proposal from
SubTel
that would have retroactive effect to June 2012. The tariff proposal represents a significant reduction in the fixed-line interconnection rates currently charged by
VTR
.
VTR
is in the process of formulating its objections and comments to the tariff proposal and is currently unable to reasonably predict the outcome of the tariff-setting process. Final resolution of the tariff-setting process in Chile is expected to occur during the first half of 2015. If the September 2014 tariff proposal were ultimately to be upheld, including retroactive application to June 2012,
VTR
would be required to issue credit notes of approximately CLP
7.4 billion
(
$12.2 million
) for revenue previously recognized through
December 31, 2014
.
Other Chilean Regulation
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•
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Bundling.
On December 18, 2012, the Chilean Antitrust Authority issued its regulation governing the on-net/off-net pricing practice in the mobile telephone industry and the offering of bundled telecommunication services. Pursuant to the terms of this regulation, as revised by the Chilean Supreme Court, mobile services may be sold jointly with fixed-line services. However, promotional discounts were not permitted for these double-play offers. As for traditional bundling over the same platform (
e.g.
, bundled fixed-line services such as our double- and triple-play packages, or bundled mobile services), this regulation provides that such services may be bundled, subject to certain price limitations. These limitations require that the total price for a bundle must be greater than the standalone price for the most expensive service included in the bundle. Also, when three or more services are bundled, the price for the bundle must be greater than the sum of the standalone prices for each service in the bundle, excluding the lowest priced service.
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•
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Telecommunication Services Proposal.
In February 2014,
SubTel
published a General Telecommunication Services Ruling that regulates the offer of telecommunication services, including voice, internet access, and pay television, either alone or in bundles, from a consumer protection point of view. The new regulation introduced service billing, significant changes in contracts with customers, new requirements regarding compensation in case of service failure, and new rules regarding treatment of customers’ personal information.
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I-46
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•
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Minimum Standards on Quality of Service and Operation
. From August 5 to September 4, 2013,
SubTel
submitted for public comment a draft of the Technical Fundamental Plan on Maintenance and Public Service Telecommunications Network Managing. This draft seeks to impose minimum standards on quality of service and operation of telecommunications networks, in general, and in some particular services: voice services; text and multimedia messages services; data transmission services; minimum coverage for mobile services; and digital terrestrial television minimum coverage. We are uncertain when
SubTel
will publish the final version of the plan.
|
Employees
As of
December 31, 2014
, we, including our consolidated subsidiaries, had an aggregate of approximately 38,000
full-time equivalent employees, certain of whom belong to organized unions and works councils. Certain of our subsidiaries also use contract and temporary employees, which are not included in this number, for various projects. We believe that our employee relations are good.
Financial Information About Geographic Areas
Financial information related to the geographic areas in which we do business appears in note
18
to our consolidated financial statements included in Part II of this Annual Report on Form 10-K.
Available Information
All our filings with the SEC as well as amendments to such filings are available on our internet website free of charge generally within 24 hours after we file such material with the SEC. Our website address is
www.libertyglobal.com.
The information on our website is not part of this Annual Report on Form 10-K and is not incorporated by reference herein.
In addition to the other information contained in this Annual Report on Form 10-K, you should consider the following risk factors in evaluating our results of operations, financial condition, business and operations or an investment in the shares of our company.
The risk factors described in this section have been separated into four groups:
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•
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risks that relate to the competition we face and the technology used in our businesses;
|
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•
|
risks that relate to our operating in overseas markets and being subject to foreign regulation;
|
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•
|
risks that relate to certain financial matters; and
|
|
•
|
other risks, including risks that, among other things, relate to our capitalization and the obstacles faced by anyone who may seek to acquire us.
|
Although we describe below and elsewhere in this Annual Report on Form 10-K the risks we consider to be the most material, there may be other unknown or unpredictable economic, business, competitive, regulatory or other factors that also could have material adverse effects on our results of operations, financial condition, business or operations in the future. In addition, past financial performance may not be a reliable indicator of future performance and historical trends should not be used to anticipate results or trends in future periods.
If any of the events described below, individually or in combination, were to occur, our businesses, prospects, financial condition, results of operations and/or cash flows could be materially adversely affected.
Factors Relating to Competition and Technology
We operate in increasingly competitive markets, and there is a risk that we will not be able to effectively compete with other service providers.
The markets for cable television, broadband internet, fixed-line telephony and mobile services in many of the regions in which we operate are highly competitive. In the provision of video services, we face competition from
DTT
broadcasters, video provided over satellite platforms, networks using
DSL
, or in some cases
ADSL
, technology,
FTTx
networks and, in some countries where parts of our systems are overbuilt, cable networks, among others. Our operating businesses are facing increasing competition from video services provided by, or over the networks of, incumbent telecommunications operators and other service providers. As the availability and speed of broadband internet increases, we also face competition from over-the-top video content providers utilizing our or our competitors’ high-speed internet connections. In the provision of telephony and broadband internet
I-47
services, we are experiencing increasing competition from the incumbent telecommunications operators and other service providers in each country in which we operate, as well as mobile providers of voice and data. The incumbent telecommunications operators typically dominate the market for these services and have the advantage of nationwide networks and greater resources than we have to devote to the provision of these services. Many of the incumbent operators are now offering double-play, triple-play and quadruple-play bundles of services. In many countries, we also compete with other operators using LLU to provide these services, other facilities-based operators and wireless providers. Developments in the
DSL
and other technology used by the incumbent telecommunications operators and alternative providers have improved the attractiveness of our competitors’ products and services and strengthened their competitive position. Developments in wireless technology, such as
LTE
(the next generation of ultra high-speed mobile data), are creating additional competitive challenges.
In some of our markets, national and local government agencies may seek to become involved, either directly or indirectly, in the establishment of
FTTx
networks,
DTT
systems or other communications systems. We intend to pursue available options to restrict such involvement or to ensure that such involvement is on commercially reasonable terms. There can be no assurance, however, that we will be successful in these pursuits. As a result, we may face competition from entities not requiring a normal commercial return on their investments. In addition, we may face more vigorous competition than would have been the case if there were no government involvement.
We expect the level and intensity of competition to continue to increase from both existing competitors and new market entrants as a result of changes in the regulatory framework of the industries in which we operate, advances in technology, the influx of new market entrants and strategic alliances and cooperative relationships among industry participants. Increased competition could result in increased customer churn, reductions of customer acquisition rates for some products and services and significant price competition in most of our markets. In combination with difficult economic environments, these competitive pressures could adversely impact our ability to increase or, in certain cases, maintain the revenue, average monthly subscription revenue per average
RGU
(
ARPU
),
RGU
s, operating cash flows, operating cash flow margins and liquidity of our operating segments.
Changes in technology may limit the competitiveness of and demand for our services.
Technology in the video, telecommunications and data services industries is changing rapidly, including advances in current technologies and the emergence of new technologies. New technologies, products and services may impact consumer behavior and therefore demand for our products and services. The ability to anticipate changes in technology and consumer tastes and to develop and introduce new and enhanced products and services on a timely basis will affect our ability to continue to grow, increase our revenue and number of subscribers and remain competitive. New products and services, once marketed, may not meet consumer expectations or demand, can be subject to delays in development and may fail to operate as intended. A lack of market acceptance of new products and services that we may offer, or the development of significant competitive products or services by others, could have a material adverse impact on our revenue and operating cash flow.
Our property and equipment additions may not generate a positive return.
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 or expand our broadband communications networks and upgrade customer premises equipment to enhance our service offerings and improve the customer experience. These additions require significant capital expenditures for equipment and associated labor costs. Significant competition, the introduction of new technologies, the expansion of existing technologies, such as
FTTx
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 or extensions of our network (including the planned U.K. network extension) will generate a positive return or that we will have adequate capital available to finance such future upgrades or extensions. If we are unable to, or elect not to, pay for costs associated with adding new customers, expanding, extending 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.
We depend almost exclusively on our relationships with third-party programming providers and broadcasters for programming content, and a failure to acquire a wide selection of popular programming on acceptable terms could adversely affect our business.
The success of our video subscription business depends, in large part, on our ability to provide a wide selection of popular programming to our subscribers. We generally do not produce our own content and we depend on our agreements, relationships and cooperation with public and private broadcasters and collective rights associations to obtain such content. If we fail to obtain a diverse array of popular programming for our pay television services, including a sufficient selection of
HD
channels as well as non-linear content (such as
VoD
and
DVR
capability), on satisfactory terms, we may not be able to offer a compelling video product to our customers at a price they are willing to pay. Additionally, we are frequently negotiating and renegotiating programming agreements and our annual costs for programming can vary. There can be no assurance that we will be able to renegotiate or renew the terms of our programming agreements on acceptable terms or at all. We expect that programming and
I-48
copyright costs will continue to rise in future periods as a result of, among other factors, higher costs associated with the expansion of our digital video content, including rights associated with ancillary product offerings and rights that provide for the broadcast of live sporting events, and retransmission or copyright fees payable to public broadcasters.
If we are unable to obtain or retain attractively priced competitive content, demand for our existing and future television services could decrease, thereby limiting our ability to attract new customers, maintain existing customers and/or migrate customers from lower tier programming to higher tier programming, thereby inhibiting our ability to execute our business plans. Furthermore, we may be placed at a competitive disadvantage if certain of our competitors, for example BT and Sky in the
U.K.
, obtain exclusive programming rights, particularly with respect to popular sports and movie programming. In addition, must carry requirements may consume channel capacity otherwise available for more attractive programming.
We depend on third-party suppliers and licensors to supply necessary equipment, software and certain services required for our businesses.
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 is 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
RGU
s, revenue and cash flows. Also, if demand exceeds the suppliers’ and licensors’ capacity or if they experience financial difficulties, the ability of our businesses to provide some services may be materially adversely affected, which in turn could affect our businesses’ ability to attract and retain customers. Although we actively monitor the creditworthiness of our key third-party suppliers and licensors, the financial failure of a key third-party supplier or licensor could disrupt our operations and have an adverse impact on our revenue and cash flows. We rely upon intellectual property that is owned or licensed by us to use various technologies, conduct our operations and sell our products and services. Legal challenges could be made against our use of our or our licensed intellectual property rights (such as trademarks, patents and trade secrets) and we may be required to enter into licensing arrangements on unfavorable terms, incur monetary damages or be enjoined from use of the intellectual property rights in question.
Our businesses that offer mobile telephony and data services rely on the radio access networks of third-party wireless network providers to carry our mobile communications traffic.
Our services to mobile customers rely on the use of
MVNO
arrangements in which we utilize the radio access networks of third-party wireless network providers to carry our mobile communications traffic. If any of our
MVNO
arrangements are terminated, or if the respective third-party wireless network provider fails to provide the services required under an
MVNO
arrangement, or if a third-party wireless network provider fails to deploy and maintain its network, and we are unable to find a replacement network operator on a timely and commercial basis or at all, we could be prevented from continuing the mobile services relying on such
MVNO
arrangement. Additionally, as our
MVNO
arrangements come to term, we may not be able to renegotiate renewal or replacement
MVNO
arrangements on the same or more favorable terms.
Failure in our technology or telecommunications systems or leakage of sensitive customer data could significantly disrupt our operations, which could reduce our customer base and result in lost revenue.
Our success depends, in part, on the continued and uninterrupted performance of our information technology and network systems as well as our customer service centers. The hardware supporting a large number of critical systems for our cable network in a particular country or geographic region is housed in a relatively small number of locations. Our systems are vulnerable to damage from a variety of sources, including telecommunications failures, power loss, malicious human acts and natural disasters. Moreover, despite security measures, our servers and systems are potentially vulnerable to physical or electronic break-ins, computer viruses, worms, phishing attacks and similar disruptive actions. Furthermore, our operating activities could be subject to risks caused by misappropriation, misuse, leakage, falsification or accidental release or loss of information maintained in our information technology systems and networks and those of our third-party vendors, including customer, personnel and vendor data. As a result of the increasing awareness concerning the importance of safeguarding personal information, the potential misuse of such information and legislation that has been adopted or is being considered across all of our markets regarding the protection, privacy and security of personal information, information-related risks are increasing, particularly for businesses like ours that handle a large amount of personal customer data. Failure to comply with these data protection laws may result in, among other consequences, fines.
Despite the precautions we have taken, unanticipated problems affecting our systems could cause failures in our information technology systems or disruption in the transmission of signals over our networks or similar problems. Any disruptive situation that causes loss, misappropriation, misuse or leakage of data could damage our reputation and the credibility of our operations. Further, sustained or repeated system failures that interrupt our ability to provide service to our customers or otherwise meet our business obligations in a timely manner could adversely affect our reputation and result in a loss of customers and net revenue.
I-49
The “Virgin” brand is used by our subsidiary
Virgin Media
under licenses from Virgin Enterprises Limited and is not under the control of
Virgin Media
. The activities of the group of companies utilizing the “Virgin” brand and other licensees could have a material adverse effect on the goodwill of customers towards
Virgin Media
as a licensee and the licenses from Virgin Enterprises Limited can be terminated in certain circumstances.
The “Virgin” brand is integral to
Virgin Media
’s corporate identity.
Virgin Media
is reliant on the general goodwill of consumers towards the Virgin brand. Consequently, adverse publicity in relation to the group of companies utilizing the “Virgin” brand or its principals, particularly Sir Richard Branson, who is closely associated with the brand, or in relation to another licensee of the “Virgin” name and logo (particularly in the
U.K.
, where
Virgin Media
does business) could have a material adverse effect on
Virgin Media
’s reputation and on
Virgin Media
’s and our business and results of operations. In addition, the licenses from Virgin Enterprises Limited can be terminated in certain circumstances. For example, Virgin Enterprises Limited can terminate the licenses, after providing
Virgin Media
with an opportunity to cure, (i) if
Virgin Media
or any of its affiliates commits persistent and material breaches or a flagrant and material breach of the licenses, (ii) if Virgin Enterprises Limited has reasonable grounds to believe that the use (or lack of use) of the licensed trademarks by
Virgin Media
has been or is likely to result in a long-term and material diminution in the value of the “Virgin” brand, or (iii) if a third party who is not (or one of whose directors is not) a “fit and proper person”, such as a legally disqualified director or a bankrupt entity, acquires “control” of
Liberty Global
. Such a termination could have a material adverse effect on
Virgin Media
’s and our business and results of operations.
Factors Relating to Overseas Operations and Foreign Regulation
Our businesses are conducted almost exclusively outside of the United States, which gives rise to numerous operational risks.
Our businesses operate almost exclusively in countries outside the United States and are thereby subject to the following inherent risks:
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fluctuations in foreign currency exchange rates;
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difficulties in staffing and managing international operations;
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•
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potentially adverse tax consequences;
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•
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export and import restrictions, custom duties, tariffs and other trade barriers;
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•
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increases in taxes and governmental fees;
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economic and political instability; and
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•
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changes in foreign and domestic laws and policies that govern operations of foreign-based companies.
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Operational risks that we may experience in certain countries include disruptions of services or loss of property or equipment that are critical to overseas businesses due to expropriation, nationalization, war, insurrection, terrorism or general social or political unrest.
We are exposed to various foreign currency exchange rate risks.
We are exposed to foreign currency exchange rate risks with respect to our consolidated debt in situations where our debt is denominated in a currency other than the functional currency of the operations whose cash flows support our ability to repay or refinance such debt. Although we generally seek to match the denomination of our and our subsidiaries’ borrowings with the functional currency of the operations that are supporting the respective borrowings, market conditions or other factors may cause us to enter into borrowing arrangements that are not denominated in the functional currency of the underlying operations (unmatched debt). In these cases, our policy is to provide for an economic hedge against foreign currency exchange rate movements by using derivative instruments to synthetically convert unmatched debt into the applicable underlying currency. At
December 31, 2014
, substantially all of our debt was either directly or synthetically matched to the applicable functional currencies of the underlying operations.
In addition to the exposure that results from the mismatch of our borrowings and underlying functional currencies, we are exposed to foreign currency risk to the extent that we enter into transactions denominated in currencies other than our or our subsidiaries’ respective functional currencies (non-functional currency risk), such as equipment purchases, programming contracts, notes payable and notes receivable (including intercompany amounts). Changes in exchange rates with respect to amounts recorded in our consolidated balance sheets related to these items will result in unrealized (based upon period-end exchange rates) or realized foreign currency transaction gains and losses upon settlement of the transactions. Moreover, to the extent that our revenue, costs and expenses are denominated in currencies other than our respective functional currencies, we will experience fluctuations in our revenue, costs and expenses solely as a result of changes in foreign currency exchange rates.
In this regard, we currently expect that during
2015
, (1)
less than 1% of our revenue,
(2)
approximately 2% to 4% of our aggregate operating and SG&A expenses (exclusive of share-based compensation expense) and
(3)
approximately 7% to 9% of our property and equipment
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additions will be denominated in non-functional currencies, including amounts denominated in (a) U.S. dollars in Chile and Europe and (b) euros in Poland, the Czech Republic, Romania, Switzerland and Hungary.
Our expectations with respect to our non-functional currency transactions in 2015 may differ from actual results.
Generally, we will consider hedging non-functional currency risks when the risks arise from agreements with third parties that involve the future payment or receipt of cash or other monetary items to the extent that we can reasonably predict the timing and amount of such payments or receipts and the payments or receipts are not otherwise hedged. In this regard, we have entered into foreign currency forward contracts to hedge certain of these risks. Certain non-functional currency risks related to our revenue, operating and SG&A expenses and property and equipment additions were not hedged as of
December 31, 2014
. For additional information concerning our foreign currency forward contracts, see note
7
to our consolidated financial statements included in Part II of this Annual Report on Form 10-K.
We also are exposed to unfavorable and potentially volatile fluctuations of the
U.S.
dollar (our reporting currency) against the currencies of our operating subsidiaries when their respective financial statements are translated into
U.S.
dollars for inclusion in our consolidated financial statements. Cumulative translation adjustments are recorded in accumulated other comprehensive earnings (loss) as a separate component of equity. Any increase (decrease) in the value of the
U.S.
dollar against any foreign currency that is the functional currency of one of our operating subsidiaries will cause us to experience unrealized foreign currency translation losses (gains) with respect to amounts already invested in such foreign currencies. Accordingly, we may experience a negative impact on our comprehensive earnings (loss) and equity with respect to our holdings solely as a result of foreign currency translation. Our primary exposure to foreign currency risk from a foreign currency translation perspective is to the euro and British pound sterling and, to a lesser extent, the Swiss franc, the Chilean peso and other local currencies in Europe. We generally do not hedge against the risk that we may incur non-cash losses upon the translation of the financial statements of our subsidiaries and affiliates into
U.S.
dollars.
Our businesses are subject to risks of adverse regulation.
Our businesses are subject to the unique regulatory regimes of the countries in which they operate. Cable and telecommunications businesses are subject to licensing or registration eligibility rules and regulations, which vary by country. The provision of electronic communications networks and services requires our licensing from, or registration with, the appropriate regulatory authorities and, for telephony services, entrance into interconnection arrangements with other phone companies, including the incumbent phone company. It is possible that countries in which we operate may adopt laws and regulations regarding electronic commerce, which could dampen the growth of the internet services being offered and developed by these businesses. In a number of countries, our ability to increase the prices we charge for our cable television service or make changes to the programming packages we offer is limited by regulation or conditions imposed by competition authorities or is subject to review by regulatory authorities or is subject to termination rights of customers. In addition, regulatory authorities may grant new licenses to third parties and, in any event, in most of our markets new entry is possible without a license, although there may be registration eligibility rules and regulations, resulting in greater competition in territories where our businesses may already be active. More significantly, regulatory authorities may require us to grant third parties access to our bandwidth, frequency capacity, facilities or services to distribute their own services or resell our services to end customers. Consequently, our businesses must adapt their ownership and organizational structure as well as their pricing and service offerings to satisfy the rules and regulations to which they are subject. A failure to comply with applicable rules and regulations could result in penalties, restrictions on our business or loss of required licenses or other adverse conditions.
Adverse changes in rules and regulations could:
|
•
|
impair our ability to use our bandwidth in ways that would generate maximum revenue and operating cash flow;
|
|
•
|
create a shortage of capacity on our networks, which could limit the types and variety of services we seek to provide our customers;
|
|
•
|
strengthen our competitors by granting them access and lowering their costs to enter into our markets; and
|
|
•
|
have a significant adverse impact on our profitability.
|
Businesses, including ours, that offer multiple services, such as video distribution as well as internet and telephony, or that are vertically integrated and offer both video distribution and programming content, often face close regulatory scrutiny from competition authorities in several countries in which we operate. This is particularly the case with respect to any proposed business combinations, which will often require clearance from national competition authorities. The regulatory authorities in several countries in which we do business have considered from time to time what access rights, if any, should be afforded to third parties for use of existing cable television networks and have imposed access obligations in certain countries. This has resulted, for example, in obligations with respect to call termination for our telephony business in Europe, video must carry obligations in many markets in which we operate and video and broadband internet access obligations in Belgium.
I-51
When we acquire additional communications companies, these acquisitions may require the approval of governmental authorities (either at country or, in the case of the
EU
, European level), which can block, impose conditions on, or delay an acquisition, thus hampering our opportunities for growth. In the event conditions are imposed and we fail to meet them in a timely manner, the governmental authority may impose fines and, if in connection with a merger transaction, may require restorative measures, such as mandatory disposition of assets or divestiture of operations.
New legislation may significantly alter the regulatory regime applicable to us, which could adversely affect our competitive position and profitability, and we may become subject to more extensive regulation if we are deemed to possess significant market power in any of the markets in which we operate.
Significant changes to the existing regulatory regime applicable to the provision of cable television, telephony and internet services have been and are still being introduced. For example, in the
EU
a large element of regulation affecting our business derives from a number of Directives that are the basis of the regulatory regime concerning many of the services we offer across the
EU
. The various Directives require Member States to harmonize their laws on communications and cover issues such as access, user rights, privacy and competition. These Directives are reviewed by the
EU
from time to time and any changes to them could lead to substantial changes in the way in which our businesses are regulated and to which we would have to adapt. In addition, we are subject to review by competition or national regulatory authorities in certain countries concerning whether we exhibit
Significant Market Power
. A finding of
Significant Market Power
can result in our company becoming subject to pricing, open access, unbundling and other requirements that could provide a more favorable operating environment for existing and potential competitors.
We cannot be certain that we will be successful in acquiring new businesses or integrating acquired businesses with our existing operations, or that we will achieve the expected returns on our acquisitions.
Historically, our businesses have grown, in part, through selective acquisitions that enabled them to take advantage of existing networks, local service offerings and region-specific management expertise. We expect to seek to continue growing our businesses through acquisitions in selected markets, such as the
Virgin Media Acquisition
completed in June 2013 and the
Ziggo Acquisition
completed in November 2014. Our ability to acquire new businesses may be limited by many factors, including availability of financing, debt covenants, the prevalence of complex ownership structures among potential targets, government regulation and competition from other potential acquirers, including private equity funds. Even if we are successful in acquiring new businesses, the integration of these businesses, such as
Virgin Media
and
Ziggo
, may present significant costs and challenges associated with: realizing economies of scale in interconnection, programming and network operations; eliminating duplicative overheads; integrating personnel, networks, financial systems and operational systems; greater than anticipated expenditures required for compliance with regulatory standards or for investments to improve operating results, and failure to achieve the business plan with respect to any such acquisition. We cannot assure you that we will be successful in acquiring new businesses or realizing the anticipated benefits of any completed acquisition, including, for example, the
Virgin Media Acquisition
and the
Ziggo Acquisition
.
In addition, we anticipate that most, if not all, companies acquired by us will be located outside the United States. Foreign companies may not have disclosure controls and procedures or internal controls over financial reporting that are as thorough or effective as those required by
U.S.
securities laws. While we intend to conduct appropriate due diligence and to implement appropriate controls and procedures as we integrate acquired companies, we may not be able to certify as to the effectiveness of these companies’ disclosure controls and procedures or internal controls over financial reporting until we have fully integrated them.
The expected benefits of the Virgin Media Acquisition may not be realized.
There can be no assurance that the business objectives of our redomestication in the
U.K.
as a result of the
Virgin Media Acquisition
will be achieved, particularly as the achievement of the benefits are, in many important respects, subject to factors that we do not control. These factors include such things as the reactions of third parties with whom we enter into contracts and do business and the reactions of investors, analysts and
U.K.
and
U.S.
taxing authorities. Our ongoing expenses have increased as a result of the redomestication to the
U.K.
, including those expenses related to complying with
U.K.
corporate and tax laws. These additional expenses could serve to reduce or offset the benefits realized from the redomestication.
In addition, while we believe that, under the current
U.S.
tax statute and regulations, the
Virgin Media Acquisition
would not cause
Liberty Global
to be treated as a
U.S.
domestic corporation for federal tax purposes, the IRS may interpret the current statute and regulations differently, or the
U.S.
Congress, the IRS, the
U.K.
Parliament or
U.K.
tax authorities may enact new statutory or regulatory provisions, which, in each case, could adversely affect our status as a non-U.S. corporation, or otherwise adversely affect our anticipated global tax position. Retroactive statutory or regulatory actions have occurred in the past, and there can be no assurance that any such provisions, if enacted or promulgated, would not have retroactive application to us, the
Virgin Media Acquisition
or any of our subsequent actions. Our net income and cash flow would be reduced if we were to be subject to U.S. corporate income tax as a domestic corporation.
I-52
We may have exposure to additional tax liabilities.
We are subject to income taxes as well as non-income based taxes in the
U.K.
, the
U.S.
and many other jurisdictions around the world. Significant judgment is required in determining our worldwide provision for income taxes and other tax liabilities. In the ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain. We are regularly under audit by tax authorities in many of the jurisdictions in which we operate. Although we believe that our tax estimates are reasonable, any material differences as a result of final determinations of tax audits or tax disputes could have an adverse effect on our financial position and results of operations in the period or periods for which determination is made.
Because the majority of our subsidiaries have some or all of their ownership through
U.S.
corporations, our worldwide effective tax rate is subject to provisions of
U.S.
tax law that defer the imposition of
U.S.
tax on certain foreign active income until that income is repatriated to the United States. Any repatriation, through our
U.S.
ownership structure, of assets currently held by subsidiaries in foreign jurisdictions or recognition of income that fails to meet the
U.S.
tax requirements related to deferral of
U.S.
income tax, may result in a higher effective tax rate for our company. While the company may mitigate this increase in its effective tax rate through claiming a foreign tax credit against its
U.S.
federal income taxes or potentially have foreign or
U.S.
taxes reduced under applicable income tax treaties, we are subject to various limitations.
We are subject to changing tax laws, treaties and regulations in and between countries in which we operate, including treaties between the
U.K.
, the
U.S.
and the many other jurisdictions in which we have a presence. Also, various income tax proposals in the jurisdictions in which we operate could result in changes to the existing laws on which our deferred taxes are calculated. A change in these tax laws, treaties or regulations, or in the interpretation thereof, could result in a materially higher income or non-income tax expense. Any such material changes could cause a material change in our effective tax rate.
Further changes in the tax laws of the foreign jurisdictions in which we operate could arise as a result of the base erosion and profit shifting (BEPS) project being undertaken by the Organisation for Economic Co-operation and Development (OECD). The OECD, which represents a coalition of member countries that encompass most of the jurisdictions in which we operate, is undertaking studies and publishing action plans that include recommendations aimed at addressing what they believe are issues within tax systems that may lead to tax avoidance by companies. It is possible that jurisdictions in which we do business could react to the BEPS initiative or their own concerns by enacting tax legislation that could adversely affect us or our shareholders through increasing our tax liabilities.
Factors Relating to Certain Financial Matters
Our substantial leverage could limit our ability to obtain additional financing and have other adverse effects.
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 (as defined in note
18
to our consolidated financial statements included in Part II of this Annual Report). As a result, we are highly leveraged. At
December 31, 2014
, our outstanding consolidated debt and capital lease obligations aggregated
$46.2 billion
, including
$1,550.9 million
that is classified as current in our consolidated balance sheet and
$42.1 billion
that is not due until 2020 or thereafter. 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. As our debt maturities grow in later years, however, we anticipate that we will seek to refinance or otherwise extend our debt maturities. In this regard, we completed refinancing transactions in 2013 and 2014 that, among other things, resulted in the extension of certain of our subsidiaries’ debt maturities. No assurance can be given that we will be able to complete additional 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.
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 subsidiaries and to achieve adequate returns on our property and equipment additions and acquisitions. For example, if the operating cash flow of our subsidiary,
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. Accordingly, if our cash provided by operations declines or we encounter other material liquidity requirements, we may be required to seek additional debt or equity financing in order to meet our debt obligations and other liquidity requirements as they come due. In addition, our current debt levels may limit our ability to incur additional debt financing to fund working capital needs, acquisitions, property and equipment additions, or other general corporate requirements. We can give no assurance that any additional debt or equity financing will be available on terms that are as favorable as the terms of our existing debt or at all. During
2014
, we purchased $
1,596.9 million
(including direct acquisition costs) of
Liberty Global
Class A and Class C ordinary shares.
I-53
Any cash used by our company in connection with any future purchases of our ordinary shares would not be available for other purposes, including the repayment of debt.
Certain of our subsidiaries are subject to various debt instruments that contain restrictions on how we finance our operations and operate our businesses, which could impede our ability to engage in beneficial transactions.
Certain of our subsidiaries are subject to significant financial and operating restrictions contained in outstanding credit agreements, indentures and similar instruments of indebtedness. These restrictions will affect, and in some cases significantly limit or prohibit, among other things, the ability of those subsidiaries to:
|
•
|
incur or guarantee additional indebtedness;
|
|
•
|
pay dividends or make other upstream distributions;
|
|
•
|
make investments;
|
|
•
|
transfer, sell or dispose of certain assets, including subsidiary stock;
|
|
•
|
merge or consolidate with other entities;
|
|
•
|
engage in transactions with us or other affiliates; or
|
|
•
|
create liens on their assets.
|
As a result of restrictions contained in these credit facilities, the companies party thereto, and their subsidiaries, could be unable to obtain additional capital in the future to:
|
•
|
fund property and equipment additions or acquisitions that could improve their value;
|
|
•
|
meet their loan and capital commitments to their business affiliates;
|
|
•
|
invest in companies in which they would otherwise invest;
|
|
•
|
fund any operating losses or future development of their business affiliates;
|
|
•
|
obtain lower borrowing costs that are available from secured lenders or engage in advantageous transactions that monetize their assets; or
|
|
•
|
conduct other necessary or prudent corporate activities.
|
In addition, most of the credit agreements to which these subsidiaries are parties include financial covenants that require them to maintain certain financial ratios, including ratios of total debt to operating cash flow and operating cash flow to interest expense. Their ability to meet these financial covenants may be affected by adverse economic, competitive, or regulatory developments and other events beyond their control, and we cannot assure you that these financial covenants will be met. In the event of a default under such subsidiaries’ credit agreements or indentures, the lenders may accelerate the maturity of the indebtedness under those agreements or indentures, which could result in a default under other outstanding credit facilities or indentures. We cannot assure you that any of these subsidiaries will have sufficient assets to pay indebtedness outstanding under their credit agreements and indentures. Any refinancing of this indebtedness is likely to contain similar restrictive covenants.
We are exposed to interest rate risks. Shifts in such rates may adversely affect the debt service obligation of our subsidiaries.
We are exposed to the risk of fluctuations in interest rates, primarily through the credit facilities of certain of our subsidiaries, which are indexed to EURIBOR, LIBOR or other base rates. Although we enter into various derivative transactions to manage exposure to movements in interest rates, there can be no assurance that we will be able to continue to do so at a reasonable cost or at all. If we are unable to effectively manage our interest rate exposure through derivative transactions, any increase in market interest rates would increase our interest rate exposure and debt service obligations, which would exacerbate the risks associated with our leveraged capital structure.
We are subject to increasing operating costs and inflation risks, which may adversely affect our earnings.
While our operations attempt to increase our subscription rates to offset increases in programming and operating costs, there is no assurance that they will be able to do so. In certain countries in which we operate, our ability to increase subscription rates is subject to regulatory controls. Also, our ability to increase subscription rates may be constrained by competitive pressures. Therefore, operating costs may rise faster than associated revenue, resulting in a material negative impact on our cash flow and net earnings
I-54
(loss). We are also impacted by inflationary increases in salaries, wages, benefits and other administrative costs in certain of our markets.
Continuing uncertainties and challenging conditions in the global economy and in the countries in which we operate may adversely impact our business, financial condition and results of operations.
The current macroeconomic environment is highly volatile, and continuing instability in global markets, including the ongoing struggles in Europe related to sovereign debt issues, the risk of deflation and the stability of the euro, has contributed to a challenging global economic environment. Future developments are dependent upon a number of political and economic factors, including the effectiveness of measures by the
EU
Commission to address debt burdens of certain countries in Europe and the overall stability of the eurozone. As a result, we cannot predict how long challenging conditions will exist or the extent to which the markets in which we operate may deteriorate. Additional risks arising from the ongoing economic challenges in Europe are described below under
We are exposed to sovereign debt and currency instability risks in Europe that could have an adverse impact on our liquidity, financial condition and cash flows.
Unfavorable economic conditions may impact a significant number of our subscribers and/or the prices we are able to charge for our products and services, and, as a result, it may be (1) more difficult for us to attract new subscribers, (2) more likely that subscribers will downgrade or disconnect their services and (3) more difficult for us to maintain
ARPU
s at existing levels. Countries may also seek new or increased revenue sources due to fiscal deficits. Such actions may further adversely affect our company. Accordingly, our ability to increase, or, in certain cases, maintain, the revenue,
ARPU
s,
RGU
s, operating cash flow, operating cash flow margins and liquidity of our operating segments could be adversely affected if the macroeconomic environment remains uncertain or declines further. We are currently unable to predict the extent of any of these potential adverse effects.
We are exposed to sovereign debt and currency instability risks in Europe that could have an adverse impact on our liquidity, financial condition and cash flows.
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 several European countries in which we operate, combined with weak growth and high unemployment, could lead to fiscal reforms (including austerity measures), tax increases, 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 services, 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.
We may not freely access the cash of our operating companies.
Our operations are conducted through our subsidiaries. Our current sources of corporate liquidity include (1) our cash and cash equivalents and (2) interest and dividend income received on our cash and cash equivalents and investments. From time to time, we also receive (1) proceeds in the form of distributions or loan repayments from our subsidiaries or affiliates, (2) proceeds upon the disposition of investments and other assets and (3) proceeds in connection with the incurrence of debt or the issuance of equity securities. The ability of our operating subsidiaries to pay dividends or to make other payments or advances to us depends on their individual operating results and any statutory, regulatory or contractual restrictions to which they may be or may become subject and in some cases our receipt of such payments or advances may be limited due to tax considerations or the presence of noncontrolling interests. Most of our operating subsidiaries are subject to credit agreements or indentures that restrict sales of assets and prohibit or limit the payment of dividends or the making of distributions, loans or advances to shareholders and partners, including us. In addition, because these subsidiaries are separate and distinct legal entities they have no obligation to provide us funds for payment obligations, whether by dividends, distributions, loans or other payments.
I-55
We are exposed to the risk of default by the counterparties to our derivative and other financial instruments, undrawn debt facilities and cash investments.
Although we seek to manage the credit risks associated with our derivative and other financial instruments, cash investments and undrawn debt facilities, we are exposed to the risk that our counterparties could default on their obligations to us. Also, even though we regularly review our credit exposures, defaults may arise from events or circumstances that are difficult to detect or foresee. At
December 31, 2014
, our exposure to counterparty credit risk included (1) derivative assets with an aggregate fair value of
$1,040.9 million
, (2) cash and cash equivalent and restricted cash balances of
$1,236.5 million
and (3) aggregate undrawn debt facilities of
$3,974.1 million
. While we currently have no specific concerns about the creditworthiness of any counterparty for which we have material credit risk exposures, the current economic conditions and uncertainties in global financial markets have increased the credit risk of our counterparties and we cannot rule out the possibility that one or more of our counterparties could fail or otherwise be unable to meet its obligations to us. Any such instance could have an adverse effect on our cash flows, results of operations and financial condition. In this regard, (1) the financial failure of any of our counterparties could reduce amounts available under committed credit facilities and adversely impact our ability to access cash deposited with any failed financial institution, thereby causing a default under one or more derivative contracts, and (2) tightening of the credit markets could adversely impact our ability to access debt financing on favorable terms, or at all.
Under our derivative contracts, it is generally only the non-defaulting party that has a contractual option to exercise early termination rights upon the default of the other counterparty and to set off other liabilities against sums due upon such termination. In an insolvency of a derivative counterparty under the laws of certain jurisdictions, however, the defaulting counterparty or its insolvency representatives may be able to compel the termination of one or more derivative contracts and trigger early termination payment liabilities payable by us, reflecting any mark-to-market value of the contracts for the counterparty. Alternatively, or in addition, the insolvency laws of certain jurisdictions may require the mandatory set off of amounts due under such derivative contracts against present and future liabilities owed to us under other contracts between us and the relevant counterparty. Accordingly, it is possible that we may be subject to obligations to make payments, or may have present or future liabilities owed to us partially or fully discharged by set off as a result of such obligations, in the event of the insolvency of a derivative counterparty, even though it is the counterparty that is in default and not us. To the extent that we are required to make such payments, our ability to do so will depend on our liquidity and capital resources at the time. In an insolvency of a defaulting counterparty, we will be an unsecured creditor in respect of any amount owed to us by the defaulting counterparty, except to the extent of the value of any collateral we have obtained from that counterparty.
The risks we would face in the event of a default by a counterparty to one of our derivative instruments might be eliminated or substantially mitigated if we were able to novate the relevant derivative contracts to a new counterparty following the default of our counterparty. While we anticipate that, in the event of the insolvency of one of our derivative counterparties, we would seek to effect such novations, no assurance can be given that we would obtain the necessary consents to do so or that we would be able to do so on terms or pricing that would be acceptable to us or that any such novation would not result in substantial costs to us. Furthermore, the underlying risks that are the subject of the relevant derivative contracts would no longer be effectively hedged due to the insolvency of our counterparty, unless and until we novate or replace the derivative contract.
We may not report net earnings.
We reported losses from continuing operations of
$980.9 million
,
$882.0 million
and
$583.9 million
during
2014
,
2013
and
2012
, respectively. In light of our historical financial performance, we cannot assure you that we will report net earnings in the near future or ever.
Other Factors
The loss of certain key personnel could harm our business.
We have experienced employees at both the corporate and operational levels who possess substantial knowledge of our business and operations. We cannot assure you that we will be successful in retaining their services or that we would be successful in hiring and training suitable replacements without undue costs or delays. As a result, the loss of any of these key employees could cause significant disruptions in our business operations, which could materially adversely affect our results of operations.
John C. Malone has significant voting power with respect to corporate matters considered by our shareholders.
John C. Malone beneficially owns outstanding ordinary shares of
Liberty Global
representing 25.2% of our aggregate voting power as of February 6, 2015. By virtue of Mr. Malone’s voting power in our company, as well as his position as Chairman of our board of directors, Mr. Malone may have significant influence over the outcome of any corporate transaction or other matters submitted to our shareholders for approval. For example, under English law and our articles of association, certain matters (including amendments to the articles of association) require the approval of 75% of the shareholders who vote (in person or by proxy) on the relevant resolution, and other certain corporate transactions or matters may require the approval of at least 75% of the outstanding shares of each class of our ordinary shares. Because Mr. Malone beneficially owns more than 25% of our aggregate voting power and more than 75% of the outstanding Class B ordinary shares, he has the ability to prevent the requisite approval threshold from being met even though the other shareholders may determine that such action or transaction is beneficial for the Company.
I-56
Mr. Malone’s rights to vote or dispose of his equity interests in our company are not subject to any restrictions in favor of us other than as may be required by applicable law and except for customary transfer restrictions pursuant to equity award agreements.
It may be difficult for a third-party to acquire us, even if doing so may be beneficial to our shareholders.
Certain provisions of our articles of association and of English law may discourage, delay, or prevent a change in control of our company that a shareholder may consider favorable. These provisions include the following:
|
•
|
authorizing a capital structure with multiple classes of ordinary shares: a Class B that entitles the holders to 10 votes per share; a Class A that entitles the holders to one vote per share; and a Class C that, except as otherwise required by applicable law, entitles the holder to no voting rights;
|
|
•
|
authorizing the issuance of “blank check” shares (both ordinary and preferred), which could be issued by our board of directors to increase the number of outstanding shares and thwart a takeover attempt;
|
|
•
|
classifying our board of directors with staggered three-year terms, which may lengthen the time required to gain control of our board of directors, although under English law, shareholders of our company can remove a director without cause by ordinary resolution;
|
|
•
|
prohibiting shareholder action by written resolution, thereby requiring all shareholder actions to be taken at a meeting of the shareholders;
|
|
•
|
requiring the approval of 75% in value of the shareholders (or class of shareholders) and/or English court approval for certain statutory mergers or schemes of arrangements;
and
|
|
•
|
establishing advance notice requirements for nominations of candidates for election to our board of directors or for proposing matters that can be acted upon by shareholders at shareholder meetings.
|
Change in control provisions in our incentive plan and related award agreements may also discourage, delay, or prevent a change in control of our company, even if such change of control would be in the best interests of our shareholders.
The enforcement of civil liabilities against us may be more difficult.
Because we are a public limited company incorporated under the laws of England and Wales, investors could experience more difficulty enforcing judgments obtained against us in
U.S.
courts than would currently be the case for
U.S.
judgments obtained against a
U.S.
company. It may also be more difficult (or impossible) to bring some types of claims against us in courts sitting in England than it would be to bring similar claims against a
U.S.
company in a
U.S.
court. In particular, English law significantly limits the circumstances under which shareholders of English companies may bring derivative actions. Under English law generally, only the Company can be the proper plaintiff in proceedings in respect of wrongful acts committed against us. Our articles of association provide for the exclusive jurisdiction of the English courts for shareholder lawsuits against us or our directors.
None.
During
2014
, we leased our corporate offices in London,
U.K.
, in Englewood, Colorado and in Amsterdam, the Netherlands. All of our other real or personal property is owned or leased by our subsidiaries and affiliates.
Our subsidiaries and affiliates own or lease the fixed assets necessary for the operation of their respective businesses, including office space, transponder space, headend facilities, rights of way, cable television and telecommunications distribution equipment, telecommunications switches and customer premises equipment and other property necessary for their operations. The physical components of their broadband networks require maintenance and periodic upgrades to support the new services and products they introduce. Subject to these maintenance and upgrade activities, our management believes that our current facilities are suitable and adequate for our business operations for the foreseeable future.
From time to time, our subsidiaries and affiliates have become involved in litigation relating to claims arising out of their operations in the normal course of business. For additional information, see note
17
to our consolidated financial statements in Part II of this Annual Report on Form 10-K.
Not applicable.
I-57
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Item 5.
|
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
|
General
The capitalized terms used in Part II of this Annual Report on Form 10-K are defined in the notes to our consolidated financial statements. In the following text, the terms “we,” “our,” “our company” and “us” may refer, as the context requires, to
Liberty Global
(or its predecessor) or collectively to
Liberty Global
(or its predecessor) and its subsidiaries. All
Liberty Global
share and per share amounts presented herein have been retroactively adjusted to give effect to the
2014 Share Dividend
.
Market Information
We have three classes of ordinary shares, Liberty Global Class A, Class B and Class C, that trade on the NASDAQ Global Select Market under the symbols “LBTYA,” “LBTYB” and “LBTYK,” respectively. The following table sets forth the range of high and low sales prices of Liberty Global Class A, Class B and Class C ordinary shares for the periods indicated. For periods prior to the June 7, 2013 completion of the
Virgin Media Acquisition
, amounts represent market prices for shares of
LGI
Series A, Series B and Series C common stock.
|
|
Class/Series A
|
Class/Series B
|
Class/Series C
|
|||||||||||||||||||||
|
|
High
|
Low
|
High
|
Low
|
High
|
Low
|
||||||||||||||||||
|
Year ended December 31, 2014
|
||||||||||||||||||||||||
|
First quarter
|
$
|
46.78
|
|
$
|
40.36
|
|
$
|
46.74
|
|
$
|
41.08
|
|
$
|
44.26
|
|
$
|
39.52
|
|
||||||
|
Second quarter
|
$
|
45.61
|
|
$
|
38.49
|
|
$
|
46.07
|
|
$
|
39.48
|
|
$
|
43.59
|
|
$
|
37.38
|
|
||||||
|
Third quarter
|
$
|
44.93
|
|
$
|
41.38
|
|
$
|
46.91
|
|
$
|
42.66
|
|
$
|
43.35
|
|
$
|
39.71
|
|
||||||
|
Fourth quarter
|
$
|
51.99
|
|
$
|
41.29
|
|
$
|
53.00
|
|
$
|
40.13
|
|
$
|
49.92
|
|
$
|
40.35
|
|
||||||
|
Year ended December 31, 2013
|
||||||||||||||||||||||||
|
First quarter
|
$
|
38.15
|
|
$
|
32.96
|
|
$
|
37.12
|
|
$
|
33.00
|
|
$
|
34.95
|
|
$
|
29.67
|
|
||||||
|
Second quarter
|
$
|
41.10
|
|
$
|
35.89
|
|
$
|
40.03
|
|
$
|
36.89
|
|
$
|
37.57
|
|
$
|
32.88
|
|
||||||
|
Third quarter
|
$
|
42.33
|
|
$
|
38.69
|
|
$
|
42.46
|
|
$
|
38.81
|
|
$
|
39.29
|
|
$
|
35.55
|
|
||||||
|
Fourth quarter
|
$
|
46.27
|
|
$
|
38.94
|
|
$
|
46.08
|
|
$
|
40.15
|
|
$
|
42.94
|
|
$
|
36.51
|
|
||||||
Holders
As of
February 6, 2015
, there were 360, 44 and 432 record holders of
Liberty Global
Class A, Class B and Class C ordinary shares, respectively (which amounts do not include the number of shareholders whose shares are nominally held by banks, brokerage houses or other institutions, but include each such institution as one record holder).
Dividends
We have not paid any cash dividends on
Liberty Global
Class A, Class B and Class C ordinary shares, and we have no present intention of doing so. Payment of cash dividends, if any, in the future will be determined by our board of directors in light of our earnings, financial condition and other relevant considerations including applicable laws in England and Wales. Except as noted below, there are currently no contractual restrictions on our ability to pay dividends in cash or shares. The credit facilities to which certain of our subsidiaries are parties restrict our ability to access their cash for, among other things, our payment of cash dividends.
Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities
None.
II-1
Issuer Purchase of Equity Securities
The following table sets forth information concerning our company’s purchase of its own equity securities during the three months ended
December 31, 2014
:
|
Period
|
Total number of
shares purchased
|
Average price
paid per share (a)
|
Total number of shares
purchased as part of
publicly announced
plans or programs
|
Approximate
dollar value
of shares
that may
yet be
purchased
under the
plans or
programs
|
||||||||||||||
|
October 1, 2014 through October 31, 2014
|
Class A:
|
—
|
|
Class A:
|
$
|
—
|
|
Class A:
|
—
|
|
(b)
|
|||||||
|
Class C:
|
—
|
|
Class C:
|
$
|
—
|
|
Class C:
|
—
|
|
(b)
|
||||||||
|
November 1, 2014 through November 30, 2014
|
Class A:
|
—
|
|
Class A:
|
$
|
—
|
|
Class A:
|
—
|
|
(b)
|
|||||||
|
Class C:
|
8,869,500
|
|
Class C:
|
$
|
45.89
|
|
Class C:
|
8,869,500
|
|
(b)
|
||||||||
|
December 1, 2014 through December 31, 2014
|
Class A:
|
—
|
|
Class A:
|
$
|
—
|
|
Class A:
|
—
|
|
(b)
|
|||||||
|
Class C:
|
4,950,500
|
|
Class C:
|
$
|
48.47
|
|
Class C:
|
4,950,500
|
|
(b)
|
||||||||
|
Total — October 1, 2014 through December 31, 2014
|
Class A:
|
—
|
|
Class A:
|
$
|
—
|
|
Class A:
|
—
|
|
(b)
|
|||||||
|
Class C:
|
13,820,000
|
|
Class C:
|
$
|
46.82
|
|
Class C:
|
13,820,000
|
|
(b)
|
||||||||
_______________
|
(a)
|
Average price paid per share includes direct acquisition costs and the effects of derivative instruments, where applicable.
|
|
(b)
|
As of
December 31, 2014
, the remaining amount authorized for share repurchases was
$1,933.7 million
. Subsequent to
December 31, 2014
, our board of directors authorized an additional $2.0 billion of availability for share repurchases. For additional information, see note
12
to our consolidated financial statements.
|
II-2
Stock Performance Graph
The following graph compares the change from January 1, 2010 to
December 31, 2014
in the cumulative total shareholder return on our Class/Series A shares, our Class/Series B shares, our Class/Series C shares, the ICB 6500 Telecommunications and the Nasdaq US Benchmark TR Index (assuming reinvestment of dividends, as applicable). The graph assumes that $100 was invested on January 1, 2010.
|
|
As of December 31,
|
|||||||||||||||||||
|
|
2010
|
2011
|
2012
|
2013
|
2014
|
|||||||||||||||
|
Liberty Global Class A (a)
|
$
|
161.57
|
|
$
|
187.40
|
|
$
|
287.49
|
|
$
|
406.43
|
|
$
|
448.70
|
|
|||||
|
Liberty Global Class B (a)
|
$
|
163.09
|
|
$
|
187.22
|
|
$
|
286.07
|
|
$
|
402.04
|
|
$
|
450.13
|
|
|||||
|
Liberty Global Class C (a)
|
$
|
154.99
|
|
$
|
180.79
|
|
$
|
268.80
|
|
$
|
385.73
|
|
$
|
441.99
|
|
|||||
|
ICB 6500 Telecommunications
|
$
|
119.27
|
|
$
|
127.28
|
|
$
|
151.85
|
|
$
|
172.19
|
|
$
|
176.88
|
|
|||||
|
Nasdaq US Benchmark TR Index
|
$
|
117.55
|
|
$
|
117.91
|
|
$
|
137.29
|
|
$
|
183.26
|
|
$
|
206.09
|
|
|||||
_______________
|
(a)
|
Prior to the June 7, 2013 completion of the
Virgin Media Acquisition
, amounts represent market prices for
LGI
Series A, Series B, and Series C common stock.
|
II-3
The following tables present selected historical financial information of
Liberty Global
and its consolidated subsidiaries. The following selected financial data was derived from our consolidated financial statements as of and for the years ended
December 31, 2014
,
2013
,
2012
,
2011
and
2010
. This information is only a summary and should be read together with our
Management’s Discussion and Analysis of Financial Condition and Results of Operations
and consolidated financial statements included elsewhere herein.
|
|
December 31,
|
|||||||||||||||||||
|
|
2014
|
2013
|
2012
|
2011
|
2010
|
|||||||||||||||
|
|
in millions
|
|||||||||||||||||||
|
Summary Balance Sheet Data (a):
|
||||||||||||||||||||
|
Property and equipment, net
|
$
|
23,840.6
|
|
$
|
23,974.9
|
|
$
|
13,437.6
|
|
$
|
12,868.4
|
|
$
|
11,112.3
|
|
|||||
|
Goodwill
|
$
|
29,001.6
|
|
$
|
23,748.8
|
|
$
|
13,877.6
|
|
$
|
13,289.3
|
|
$
|
11,734.7
|
|
|||||
|
Total assets
|
$
|
72,841.9
|
|
$
|
67,714.3
|
|
$
|
38,307.7
|
|
$
|
36,409.2
|
|
$
|
33,328.8
|
|
|||||
|
Debt and capital lease obligations, including current portion
|
$
|
46,159.0
|
|
$
|
44,704.3
|
|
$
|
27,524.5
|
|
$
|
24,757.9
|
|
$
|
22,462.6
|
|
|||||
|
Total equity
|
$
|
14,116.0
|
|
$
|
11,541.5
|
|
$
|
2,085.1
|
|
$
|
2,931.4
|
|
$
|
3,457.7
|
|
|||||
|
|
Year ended December 31,
|
|||||||||||||||||||
|
|
2014
|
2013
|
2012
|
2011
|
2010
|
|||||||||||||||
|
|
in millions, except per share amounts
|
|||||||||||||||||||
|
Summary Statement of Operations Data (a):
|
||||||||||||||||||||
|
Revenue
|
$
|
18,248.3
|
|
$
|
14,474.2
|
|
$
|
9,930.8
|
|
$
|
9,930.8
|
|
$
|
7,995.2
|
|
|||||
|
Operating income
|
$
|
2,228.2
|
|
$
|
2,012.1
|
|
$
|
1,983.1
|
|
$
|
1,983.1
|
|
$
|
1,443.9
|
|
|||||
|
Loss from continuing operations (b)
|
$
|
(980.9
|
)
|
$
|
(882.0
|
)
|
$
|
(583.9
|
)
|
$
|
(801.5
|
)
|
$
|
(977.3
|
)
|
|||||
|
Loss from continuing operations attributable to Liberty Global shareholders
|
$
|
(1,028.5
|
)
|
$
|
(937.6
|
)
|
$
|
(623.7
|
)
|
$
|
(841.0
|
)
|
$
|
(889.8
|
)
|
|||||
|
Basic and diluted loss from continuing operations attributable to Liberty Global shareholders per share — Class A, Class B and Class C ordinary shares
|
$
|
(1.29
|
)
|
$
|
(1.39
|
)
|
$
|
(1.17
|
)
|
$
|
(1.59
|
)
|
$
|
(1.93
|
)
|
|||||
___________________
|
(a)
|
We acquired
Ziggo
on November 11, 2014,
Virgin Media
on June 7, 2013,
OneLink
on November 8, 2012,
KBW
on December 15, 2011,
Aster
on September 16, 2011 and
Unitymedia KabelBW
on January 28, 2010. We also completed a number of less significant acquisitions during the years presented. We sold the
Chellomedia Disposal Group
on January 31, 2014,
Austar
on May 23, 2012 and the
J:COM Disposal Group
on February 18, 2010. Accordingly, our summary statement of operations data presents the
Chellomedia Disposal Group
,
Austar
and the
J:COM Disposal Group
as discontinued operations during the applicable periods. For information regarding our acquisitions and dispositions during the past three years, see notes
4
and
5
to our consolidated financial statements.
|
|
(b)
|
Includes earnings from continuing operations attributable to noncontrolling interests of
$47.6 million
,
$55.6 million
,
$39.8 million
,
$39.5 million
and
$87.5 million
, respectively.
|
II-4
|
Item 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
The following discussion and analysis is intended to assist in providing an understanding of our financial condition, changes in financial condition and results of operations and should be read in conjunction with our consolidated financial statements. This discussion is organized as follows:
|
•
|
Overview.
This section provides a general description of our business and recent events.
|
|
•
|
Results of Operations.
This section provides an analysis of our results of operations for the years ended
December 31, 2014
,
2013
and
2012
.
|
|
•
|
Liquidity and Capital Resources.
This section provides an analysis of our corporate and subsidiary liquidity, consolidated statements of cash flows and contractual commitments.
|
|
•
|
Critical Accounting Policies, Judgments and Estimates.
This section discusses those material accounting policies that contain uncertainties and require significant judgment in their application.
|
|
•
|
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.
|
Unless otherwise indicated, convenience translations into
U.S.
dollars are calculated, and operational data (including subscriber statistics) are presented, as of
December 31, 2014
.
Overview
We are an international provider of video, broadband internet, fixed-line telephony and mobile services, with consolidated operations at
December 31, 2014
in
14
countries. Through
Virgin Media
,
Unitymedia KabelBW
and
Telenet
, we provide video, broadband internet, fixed-line telephony and mobile services in the
U.K.
, Germany and Belgium, respectively, and through
Ziggo
and
UPC Nederland
, we provide video, broadband internet, fixed-line telephony and mobile services in the Netherlands. We also provide (i) video, broadband internet and fixed-line telephony services in
eight
other European countries and (ii) mobile services in
four
other European countries. The operations of
Virgin Media
,
Unitymedia KabelBW
,
Telenet
,
Ziggo
,
UPC Nederland
and our other operations in Europe are collectively referred to herein as the “
European Operations Division
.” In Chile, we provide video, broadband internet, fixed-line telephony and mobile services through
VTR
. Our consolidated operations also include the broadband communications operations of
Liberty Puerto Rico
.
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 programming.
We have launched “
Horizon TV
” in the Netherlands, Switzerland, Ireland and Germany and cloud-based
Horizon TV
in Poland.
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. We are expanding the Horizon TV experience through cloud TV, including cloud DVR, VoD navigation and advanced applications. In November 2014, we launched this cloud-based Horizon TV platform in select areas in Poland, followed by a full commercial launch in January 2015. In addition, we have launched our subscriber-video-on-demand or “SVOD” offering, which we refer to as “
MyPrime
”.
MyPrime
is a subscription-based on-demand video library that allows customers to choose from several thousand classic films, children’s programs, series and documentaries. We have launched
MyPrime
in the Netherlands, Switzerland, Poland and Hungary. We intend to (i) expand the availability of
Horizon TV
and
MyPrime
to other markets within our footprint and (ii) continue to improve the
Horizon TV
user experience with new functionality and software updates. In the
U.K.
, our digital video experiences are offered through a “TiVo” platform that provides converged television and broadband internet capabilities.
Although our digital television signals are encrypted in many of the countries in which we operate, our basic digital television channels in Germany, Switzerland, Austria, Romania, the Czech Republic, Poland and a portion of the Netherlands 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
II-5
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. In markets where we introduce unencryption, we generally expect to experience a positive impact on our subscriber disconnect levels and a somewhat negative impact on demand for lower tiers of digital cable services.
We offer broadband internet services in all of our broadband communications markets. Our residential subscribers generally access the internet at various download speeds ranging up to 250 Mbps (500 Mbps in limited areas), depending on the market and the tier of service selected. We determine pricing for each tier of broadband internet service through analysis of speed, market conditions and other factors.
We offer fixed-line telephony services in all of our broadband communications markets, primarily using voice-over-internet-protocol or “
VoIP
” technology. In addition, we offer mobile services using third-party networks in the
U.K.
, Belgium, Germany, Chile and, to a lesser extent, Poland, Hungary, the Netherlands, Switzerland and Austria.
We have completed a number of transactions that impact the comparability of our
2014
,
2013
and
2012
results of operations, including the
Ziggo Acquisition
on November 11, 2014, the
Virgin Media Acquisition
on June 7, 2013, the
Puerto Rico Transaction
on November 8, 2012 and a number of less significant acquisitions during
2014
,
2013
and
2012
.
On January 31, 2014, we completed the
Chellomedia Transaction
and, in May 2012, we completed the sale of
Austar
. We have accounted for the
Chellomedia Disposal Group
and
Austar
as discontinued operations in our consolidated financial statements. Accordingly, (i) the
Chellomedia Disposal Group
is presented as a discontinued operation in our consolidated balance sheet as of December 31, 2013 and (ii) our consolidated statements of operations and cash flows have been reclassified to present the
Chellomedia Disposal Group
and
Austar
as discontinued operations for all applicable periods presented.
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 completed acquisitions and dispositions, see notes
4
and
5
to our consolidated financial statements.
From a strategic perspective, we are seeking to build broadband communications and mobile businesses that have strong prospects for future growth in revenue, operating cash flow (as defined in note
18
to our consolidated financial statements) and free cash flow (as defined below under
Liquidity and Capital Resources — Free Cash Flow
). As discussed further under
Liquidity and Capital Resources — Capitalization
below, we also seek to maintain our debt at levels that provide for attractive equity returns without assuming undue risk.
We strive to achieve organic revenue and customer growth in our 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, fixed-line telephony and mobile services with existing customers through product bundling and upselling.
Through our subsidiaries and affiliates, we are the largest international broadband communications operator in terms of customers. At
December 31, 2014
, we owned and operated networks that passed
51,946,200
homes and served
55,941,900
revenue generating units (
RGU
s), consisting of
24,335,700
video subscribers,
17,275,300
broadband internet subscribers and
14,330,900
fixed-line telephony subscribers. In addition, at
December 31, 2014
, we served 4,528,100 mobile subscribers.
Including the effects of acquisitions, we added a total of 7,627,700
RGU
s during
2014
. Excluding the effects of acquisitions (
RGU
s added on the acquisition date), but including post-acquisition date
RGU
additions, we added 1,278,900
RGU
s on an organic basis during
2014
, as compared to 1,294,300
RGU
s added on an organic basis during
2013
. The organic
RGU
growth during
2014
is attributable to the net effect of (i) an increase of 905,000 broadband internet
RGU
s, (ii) a decrease of 674,100 analog cable
RGU
s, (iii) an increase of 597,300 fixed-line telephony
RGU
s and (iv) an increase of 454,600 digital cable
RGU
s.
II-6
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, -cabinet, -building or -node (referred to herein as
FTTx
) 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,
RGU
s and/or average monthly subscription revenue per average
RGU
(
ARPU
), the more notable of which include:
|
(i)
|
an organic decline in overall revenue in the Netherlands during the
fourth
quarter of
2014
, as compared to the
fourth
quarter of
2013
;
|
|
(ii)
|
organic declines during the
fourth
quarter of
2014
in (a) video
RGU
s in the majority of our markets, as net declines in our analog cable
RGU
s generally exceeded net additions to our digital cable
RGU
s (including migrations from analog cable) in these markets, (b) fixed-line telephony
RGU
s in Chile and the Netherlands and (c) total
RGU
s in the Netherlands, Switzerland and Chile; and
|
|
(iii)
|
organic declines in overall cable
ARPU
in many of our markets during the
fourth
quarter of
2014
, as compared to the
fourth
quarter of
2013
.
|
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 several European countries in which we operate, combined with weak growth and high unemployment, could lead to fiscal reforms (including austerity measures), tax increases, 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. Given our significant exposure to the euro, the occurrence of any of these events within the eurozone countries could have an adverse impact on, among other matters, our liquidity and cash flows.
The video, broadband internet and fixed-line 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
FTTx
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 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.
In order to achieve what we believe will be attractive returns, we plan to undertake a network extension program in the
U.K.
pursuant to which we may connect up to an estimated four million additional homes and businesses to
Virgin Media
’s broadband communications network from 2015 through 2020 (the
U.K. Network Extension
). These additional premises were identified through a detailed review of our existing network in the
U.K.
that highlighted an opportunity to drive further scale by targeting accretive network extensions. The
U.K. Network Extension
will be completed in phases and will initially focus on the most accretive expansion opportunities. Depending on a variety of factors, including the financial and operational results of the earlier phases of the program, the
U.K. Network Extension
may be modified or cancelled at our discretion. Assuming the full completion of the
U.K. Network Extension
, we estimate that
Virgin Media
will incur total incremental property and equipment additions ranging from approximately
£2.9 billion
(
$4.5 billion
) to
£3.1 billion
(
$4.8 billion
) from 2015 through 2020, including expenditures related to (i) the build-out of
Virgin Media
’s network, which we estimate will account for approximately 80% of our total investment, and (ii) the purchase and installation of related customer premises equipment. We currently expect that these expenditures will be predominantly funded through debt financing and will (a) positively impact the organic growth in our consolidated revenue and operating cash flow, with meaningful benefits beginning in 2017, and (b) increase the percentage of revenue represented by our aggregate consolidated property and equipment additions over this time frame. Including the full estimated impact of the
U.K. Network Extension
and assuming no changes to our current long-range capital plan, we expect that our aggregate consolidated property and equipment additions as a percentage of our revenue will range from 21% to 23% during the period from 2015 through 2020. For additional information regarding our property and equipment additions, see
Liquidity and Capital Resources — Consolidated Statements of Cash Flows
below.
Including the impacts of the
U.K. Network Extension
, we expect that we will continue to generate organic growth in our consolidated revenue and operating cash flow over the next few years. We expect this growth to come primarily from (i) increases in overall
ARPU
, (ii) organic increases in our broadband internet, fixed-line telephony and digital cable
RGU
s, primarily driven
II-7
by growth in our operations in Germany, the
U.K.
and other markets, as we expect that our analog cable
RGU
s will decline during this timeframe, (iii) growth in mobile services and (iv) growth in
B2B
services. Additionally, we plan to continue to improve our competitive position through (a) the development and launch of new technology initiatives, including further launches of our
Horizon TV
platform and the continued rollout of our
SVOD
offering, and (b) further extensions and upgrades of our networks in certain of our markets, including the
U.K. Network Extension
, as described above. During this timeframe, we also expect to achieve further cost efficiencies and synergies as we continue to leverage our scale. We also expect that continued customer bundling of our broadband communications and mobile services along with our
Horizon TV
,
SVOD
and other advanced technologies will positively impact our subscriber retention rates over this timeframe. For additional information regarding our property and equipment additions, including our
2015
expectations for the
European Operations Division
and Chile, see
Liquidity and Capital Resources — Consolidated Statements of Cash Flows
below.
Our expectations with respect to the items discussed in the preceding two paragraphs are subject to competitive, economic, technological, political and regulatory developments and other factors outside of our control. Accordingly, no assurance can be given that actual results in future periods will not differ materially from our expectations.
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 is 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
RGU
s, revenue and cash flows.
Results of Operations
As noted under
Overview
above, the comparability of our operating results during
2014
,
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. Our organic growth percentages may be impacted by the fact that the numerator for the organic growth percentages includes the organic growth of the acquired entity, while the denominator may not include any amounts related to the acquired entity. Normally, any such impacts would not be significant, however, due to the size of the
Virgin Media Acquisition
, our consolidated organic growth rates for
2014
, as compared to
2013
, are significantly different from the growth rates we would have reported if we had excluded
Virgin Media
’s organic growth from these organic growth rate calculations. Accordingly, to provide an additional perspective on (i) the growth of the components of our consolidated revenue and (ii) changes in our operating expenses, SG&A expenses and operating cash flow, we present (a) organic revenue growth rates that exclude
Virgin Media
’s organic growth in a note to our consolidated product revenue table included under
Discussion and Analysis of our Consolidated Operating Results
and (b) the organic changes of our consolidated operating expenses, SG&A expenses and operating cash flow excluding the impact of
Virgin Media
in a note to the respective tables that are included in
Discussion and Analysis of our Reportable Segments
.
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 December 31, 2014 was to the euro and British pound sterling as 43.8% and 36.7% of our U.S. dollar revenue during the period was derived from subsidiaries whose functional currencies are the euro and British pound sterling, respectively.
In addition, our reported operating results are impacted by changes in the exchange rates for the Swiss franc and other local currencies in Europe, as well as the Chilean peso. 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 Annual Report on Form 10-K, 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
and
Liberty Puerto Rico
, we consolidate 100% of the revenue and expenses of these entities in our 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
,
Liberty Puerto Rico
and other less significant majority-owned subsidiaries are reflected in net earnings or loss attributable to noncontrolling interests in our consolidated statements of operations.
II-8
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 fixed-line telephony services. Most of our reportable segments also provide
B2B
services, and certain of our reportable segments provide mobile services. For detailed information regarding the composition of our reportable segments, including information regarding certain changes to our reportable segments that we made during the fourth quarter of 2014, see note
18
to our consolidated financial statements.
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 share-based compensation expense, as further discussed in note
18
to our consolidated financial statements), as well as an analysis of operating cash flow by reportable segment for (i)
2014
, as compared to
2013
, and (ii)
2013
, as compared to
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
2014
,
2013
and
2012
at the end of this section.
The revenue of our reportable segments includes revenue earned from (i) subscribers to our broadband communications and mobile services and (ii)
B2B
services, interconnect fees, installation fees, channel carriage fees, late fees and advertising. Consistent with the presentation of our revenue categories in note
18
to our 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 and late fees. In the following tables, mobile subscription revenue excludes the related interconnect revenue.
Most of our revenue is derived from jurisdictions that administer
VAT
or similar revenue-based taxes. Any increases in these taxes could have an adverse impact on our ability to maintain or increase our revenue to the extent that we are unable to pass such tax increases on to our customers. In the case of revenue-based taxes for which we are the ultimate taxpayer, we will also experience increases in our operating expenses and corresponding declines in our operating cash flow and operating cash flow margins to the extent of any such tax increases. In this regard, certain changes regarding
VAT
took effect on January 1, 2015, including (i) an increase in the
VAT
applicable to certain components of
Virgin Media
’s operations and (ii) a change in how
VAT
is calculated with respect to the operations of
UPC DTH
in Hungary, the Czech Republic and Slovakia. As compared to 2014 levels, these changes are expected to result in increases in annual
VAT
payments during 2015 ranging from approximately
£30 million
(
$47 million
) to
£35 million
(
$55 million
) for
Virgin Media
and approximately
€12 million
(
$15 million
) to
€14 million
(
$17 million
) for
UPC DTH
.
We pay interconnection fees to other telephony providers when calls or text messages from our subscribers terminate on another network, and we receive similar fees from such providers when calls or text messages from their customers terminate on our networks or networks that we access through
MVNO
or other arrangements. The amounts we charge and incur with respect to fixed-line telephony and mobile interconnection fees are subject to regulatory oversight in many of our markets. To the extent that regulatory authorities introduce fixed-line or mobile termination rate changes, we would experience prospective changes and, in very limited cases, we could experience retroactive changes in our interconnect revenue and/or costs. The ultimate impact of any such changes in termination rates on our operating cash flow would be dependent on the call or text messaging patterns that are subject to the changed termination rates. For information regarding an ongoing tariff-setting process in Chile that may impact the revenue of
VTR
, see note
17
to our consolidated financial statements.
II-9
Revenue of our Reportable Segments
Revenue —
2014
compared to
2013
|
|
Year ended December 31,
|
Increase (decrease)
|
Organic increase (decrease) (a)
|
||||||||||||||
|
|
2014
|
2013
|
$
|
%
|
%
|
||||||||||||
|
|
in millions
|
|
|||||||||||||||
|
European Operations Division:
|
|||||||||||||||||
|
U.K./Ireland (b)
|
$
|
7,409.9
|
|
$
|
4,117.4
|
|
$
|
3,292.5
|
|
80.0
|
|
4.5
|
|
||||
|
The Netherlands (c)
|
1,498.5
|
|
1,242.4
|
|
256.1
|
|
20.6
|
|
(1.3
|
)
|
|||||||
|
Germany
|
2,711.5
|
|
2,559.2
|
|
152.3
|
|
6.0
|
|
6.0
|
|
|||||||
|
Belgium
|
2,279.4
|
|
2,185.9
|
|
93.5
|
|
4.3
|
|
4.3
|
|
|||||||
|
Switzerland/Austria
|
1,846.1
|
|
1,767.1
|
|
79.0
|
|
4.5
|
|
3.1
|
|
|||||||
|
Total Western Europe
|
15,745.4
|
|
11,872.0
|
|
3,873.4
|
|
32.6
|
|
4.0
|
|
|||||||
|
Central and Eastern Europe
|
1,259.5
|
|
1,272.0
|
|
(12.5
|
)
|
(1.0
|
)
|
0.7
|
|
|||||||
|
Central and other
|
(7.1
|
)
|
(0.4
|
)
|
(6.7
|
)
|
N.M.
|
|
N.M.
|
|
|||||||
|
Total European Operations Division
|
16,997.8
|
|
13,143.6
|
|
3,854.2
|
|
29.3
|
|
3.6
|
|
|||||||
|
Chile
|
898.5
|
|
991.6
|
|
(93.1
|
)
|
(9.4
|
)
|
4.4
|
|
|||||||
|
Corporate and other
|
376.9
|
|
374.3
|
|
2.6
|
|
0.7
|
|
0.3
|
|
|||||||
|
Intersegment eliminations
|
(24.9
|
)
|
(35.3
|
)
|
10.4
|
|
N.M.
|
|
N.M.
|
|
|||||||
|
Total
|
$
|
18,248.3
|
|
$
|
14,474.2
|
|
$
|
3,774.1
|
|
26.1
|
|
3.6
|
|
||||
_______________
|
(a)
|
As further described under
Results of Operations
above, our organic revenue growth rate during
2014
is impacted by the organic growth of
Virgin Media
. Excluding the impact of
Virgin Media
, the organic increase in (i)
U.K./Ireland
’s revenue would have been 1.1% and (ii) our total revenue would have been 3.2%. For additional information, see
Discussion and Analysis of our Consolidated Results — Revenue
.
|
|
(b)
|
The amount presented for 2013 includes the post-acquisition revenue of
Virgin Media
from June 8, 2013 through December 31, 2013.
|
|
(c)
|
The amount presented for 2014 includes the post-acquisition revenue of
Ziggo
from November 12, 2014 through December 31, 2014.
|
N.M. — Not Meaningful.
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
RGU
s and/or
ARPU
. For a description of the more notable recent impacts of this competition on our broadband communications markets, see
Overview
above.
U.K./Ireland
.
The details of
U.K./Ireland
’s revenue during
2014
, as compared to
2013
, are set forth below:
|
|
Year ended December 31,
|
Increase
|
Organic increase
|
||||||||||||
|
|
2014
|
2013
|
$
|
%
|
%
|
||||||||||
|
|
in millions
|
||||||||||||||
|
U.K.
|
$
|
6,941.1
|
|
$
|
3,653.7
|
|
$
|
3,287.4
|
|
90.0
|
4.9
|
||||
|
Ireland
|
468.8
|
|
463.7
|
|
5.1
|
|
1.1
|
1.1
|
|||||||
|
Total
|
$
|
7,409.9
|
|
$
|
4,117.4
|
|
$
|
3,292.5
|
|
80.0
|
4.5
|
||||
II-10
The increase in
U.K./Ireland
's revenue during
2014
, as compared to
2013
, is primarily due to the June 2013
Virgin Media Acquisition
. The organic revenue growth rate of
U.K./Ireland
is impacted by the size and timing of the
Virgin Media Acquisition
. Accordingly, (i) we present a separate discussion and analysis for each of the
U.K.
and Ireland and (ii) the below discussion and analysis of the
U.K.
’s revenue is presented on a pro forma basis as if the results of
Virgin Media
were included for the full year 2013. We believe this pro forma analysis provides a more meaningful comparison of
Virgin Media
’s revenue.
U.K.
During
2014
,
Virgin Media
generated revenue of
$6,941.1 million
, representing a pro forma organic increase of $163.4 million or 2.5%, compared to the revenue reported by
Virgin Media
during 2013. This pro forma organic increase in
Virgin Media
’s revenue, which represents the increase that remains after eliminating the impacts of (i) a decrease of $21.4 million associated with the assumed alignment of
Virgin Media
’s policy to our policy for accounting for installation and certain nonrecurring fees received on
B2B
contracts, (ii) an acquisition and (iii)
FX
, is attributable to the net effect of (a) an increase in cable subscription revenue of $148.2 million or 3.3%, (b) a decrease in other non-subscription revenue of $90.1 million or 23.3%, (c) an increase in mobile subscription revenue of $61.9 million or 9.0% and (d) an increase in non-subscription
B2B
revenue of $43.4 million or 4.7%.
The pro forma organic increase during
2014
in
Virgin Media
’s cable subscription revenue is primarily due to an increase in
ARPU
and, to a lesser extent, the average number of
RGU
s, as an increase in the average number of broadband internet
RGU
s was only partially offset by declines in the average numbers of digital cable and fixed-line telephony
RGU
s. The increase in
ARPU
is primarily due to a net increase resulting from the following factors: (i) higher
ARPU
due to (a) February 2014 and February 2013 price increases for broadband internet, digital cable and fixed-line telephony services and (b) an October 2013 price increase for certain broadband internet services, (ii) lower
ARPU
due to the impact of higher discounts, (iii) lower
ARPU
due to lower fixed-line telephony call volumes, (iv) higher
ARPU
due to increased penetration of
Virgin Media
’s TiVo set-top boxes, (v) lower
ARPU
due to a change in legislation with respect to the charging of
VAT
, as discussed below, and (vi) higher
ARPU
due to the net effect of increases in the proportion of subscribers receiving (1) higher-priced tiers of broadband internet services in
Virgin Media
’s bundles and (2) lower-priced tiers of digital cable services in
Virgin Media
’s bundles.
The pro forma organic increase in
Virgin Media
’s mobile subscription revenue is primarily due to the net effect of (i) an increase in the number of customers taking postpaid mobile services, (ii) a decline in the number of prepaid mobile customers, (iii) July 2013 and July 2014 price increases, (iv) a decrease due to a higher proportion of
Virgin Media
’s postpaid customers taking lower-priced subscriber identification module or “SIM”-only contracts and (v) a reduction in chargeable usage, primarily attributable to the net effect of (a) a higher proportion of subscribers moving to higher-limit and unlimited usage bundles for voice and short message service (or
SMS
) and (b) an increase in the amount of chargeable data. In addition, the growth in mobile subscription revenue was partially offset by the impact of certain nonrecurring net adjustments of $6.0 million and $1.8 million during the first and second quarters of 2013, respectively, that positively impacted 2013.
The pro forma organic increase in
Virgin Media
’s non-subscription
B2B
revenue is primarily due to the net effect of (i) an increase in
B2B
data revenue primarily attributable to (a) increased volumes and (b) an increase of $17.8 million in the amortization of deferred upfront fees on
B2B
contracts and (ii) a decline in
B2B
voice revenue primarily attributable to (1) lower termination rates and (2) a decline in usage. In addition, the growth in
B2B
revenue also benefited from the impact of certain nonrecurring net adjustments of $4.8 million that negatively impacted the third quarter of 2013.
The pro forma organic decrease in
Virgin Media
’s other non-subscription revenue is primarily attributable to the net effect of (i) a decrease in interconnect revenue, primarily due to a reduction in (a) fixed-line termination rates in February 2014 and (b) mobile termination rates in April 2013, (ii) a decrease of $28.9 million related to a decline in
Virgin Media
’s non-cable subscriber base, (iii) a decrease in installation revenue and (iv) an increase in mobile handset sales primarily attributable to the net effect of (1) an $11.3 million increase related to the November 2014 introduction of a new mobile program whereby customers can elect to purchase a mobile handset pursuant to a contract that is independent of a mobile airtime services contract and (2) a decrease in sales to third-party retailers and prepaid handset sales. Under the new mobile program,
Virgin Media
generally recognizes the full sales price for the mobile handset upon delivery, regardless of whether the sales price is received upfront or in installments.
On March 19, 2014, the
U.K.
government announced a change in legislation with respect to the charging of
VAT
in connection with prompt payment discounts such as those that
Virgin Media
offers to its fixed-line telephony customers. The changes, which took effect on May 1, 2014, impacted
Virgin Media
and some of its competitors. As a result of this legislation,
Virgin Media
’s revenue was
£28.9 million
(
$45.0 million
) lower during
2014
, as compared to
2013
. For additional information regarding a potential challenge from the
U.K.
government regarding
Virgin Media
’s application of the prompt payment discount rules prior to the May 1, 2014 change in legislation, see note
17
to our consolidated financial statements.
II-11
Ireland.
The increase in Ireland’s revenue during
2014
, as compared to
2013
, includes (i) an organic increase of
$5.0 million
or 1.1%, and (ii) the impact of
FX
, as set forth below:
|
Subscription
revenue
|
Non-subscription
revenue
|
Total
|
|||||||||
|
in millions
|
|||||||||||
|
Increase (decrease) in cable subscription revenue due to change in:
|
|||||||||||
|
Average number of RGUs (a)
|
$
|
26.4
|
|
$
|
—
|
|
$
|
26.4
|
|
||
|
ARPU (b)
|
(14.2
|
)
|
—
|
|
(14.2
|
)
|
|||||
|
Total increase in cable subscription revenue
|
12.2
|
|
—
|
|
12.2
|
|
|||||
|
Decrease in B2B revenue
|
—
|
|
(2.3
|
)
|
(2.3
|
)
|
|||||
|
Decrease in other non-subscription revenue (c)
|
—
|
|
(4.9
|
)
|
(4.9
|
)
|
|||||
|
Total organic increase (decrease)
|
12.2
|
|
(7.2
|
)
|
5.0
|
|
|||||
|
Impact of FX
|
0.3
|
|
(0.2
|
)
|
0.1
|
|
|||||
|
Total
|
$
|
12.5
|
|
$
|
(7.4
|
)
|
$
|
5.1
|
|
||
_______________
|
(a)
|
The increase in Ireland’s cable subscription revenue related to a change in the average number of
RGU
s is attributable to increases in the average numbers of fixed-line telephony and broadband internet
RGU
s that were only partially offset by declines in the average numbers of analog cable
RGU
s, multi-channel multi-point (microwave) distribution system (
MMDS
) video
RGU
s and digital cable
RGU
s.
|
|
(b)
|
The decrease in Ireland’s cable subscription revenue related to a change in
ARPU
is primarily due to (i) an adverse change in
RGU
mix and (ii) a net decrease resulting from the following factors: (a) higher
ARPU
due to the inclusion of higher-priced tiers of broadband internet, video and fixed-line telephony services in Ireland’s bundles, including the impact of a price increase in March 2014, (b) lower
ARPU
due to the impact of higher bundling discounts and (c) lower
ARPU
due to a decrease in fixed-line telephony call volumes.
|
|
(c)
|
The decrease in Ireland’s other non-subscription revenue is primarily due to a decrease in installation revenue.
|
The Netherlands.
The increase in the Netherlands’ revenue during
2014
, as compared to
2013
, includes (i) an organic decrease of
$16.3 million
or
1.3%
, (ii) the impact of the
Ziggo Acquisition
and (iii) the impact of
FX
, as set forth below:
|
Subscription
revenue
|
Non-subscription
revenue
|
Total
|
|||||||||
|
in millions
|
|||||||||||
|
Increase (decrease) in cable subscription revenue due to change in:
|
|||||||||||
|
Average number of RGUs (a)
|
$
|
1.5
|
|
$
|
—
|
|
$
|
1.5
|
|
||
|
ARPU (b)
|
(3.4
|
)
|
—
|
|
(3.4
|
)
|
|||||
|
Total decrease in cable subscription revenue
|
(1.9
|
)
|
—
|
|
(1.9
|
)
|
|||||
|
Decrease in mobile subscription revenue
|
(0.2
|
)
|
—
|
|
(0.2
|
)
|
|||||
|
Total decrease in subscription revenue
|
(2.1
|
)
|
—
|
|
(2.1
|
)
|
|||||
|
Decrease in B2B revenue
|
—
|
|
(2.8
|
)
|
(2.8
|
)
|
|||||
|
Decrease in other non-subscription revenue (c)
|
—
|
|
(11.4
|
)
|
(11.4
|
)
|
|||||
|
Total organic decrease
|
(2.1
|
)
|
(14.2
|
)
|
(16.3
|
)
|
|||||
|
Impact of Ziggo Acquisition
|
262.2
|
|
30.0
|
|
292.2
|
|
|||||
|
Impact of FX
|
(21.0
|
)
|
1.2
|
|
(19.8
|
)
|
|||||
|
Total
|
$
|
239.1
|
|
$
|
17.0
|
|
$
|
256.1
|
|
||
II-12
_______________
|
(a)
|
The increase in the Netherlands’ cable subscription revenue related to a change in the average number of
RGU
s is attributable to increases in the average numbers of broadband internet, fixed-line telephony and digital cable
RGU
s that were mostly offset by a decline in the average number of analog cable
RGU
s.
|
|
(b)
|
The decrease in the Netherlands’ cable subscription revenue related to a change in
ARPU
is due to the net effect of (i) a net decrease primarily resulting from the following factors:
(a) lower
ARPU
due to the impact of increases in the proportions of subscribers receiving lower-priced tiers of broadband internet and fixed-line telephony services in the Netherlands’ bundles, (b) higher
ARPU
due to the impact of lower bundling discounts, (c) higher
ARPU
from digital cable services and (d) lower
ARPU
due to a decrease in fixed-line telephony call volumes and
(ii) an improvement in
RGU
mix.
|
|
(c)
|
The decrease in the Netherlands’ other non-subscription revenue is primarily due to lower installation revenue.
|
Germany.
The increase in Germany’s revenue during
2014
, as compared to
2013
, includes (i) an organic increase of
$153.7 million
or
6.0%
and (ii) the impact of
FX
, as set forth below:
|
Subscription
revenue (a)
|
Non-subscription
revenue (b)
|
Total
|
|||||||||
|
in millions
|
|||||||||||
|
Increase in cable subscription revenue due to change in:
|
|||||||||||
|
Average number of RGUs (c)
|
$
|
105.7
|
|
$
|
—
|
|
$
|
105.7
|
|
||
|
ARPU (d)
|
36.4
|
|
—
|
|
36.4
|
|
|||||
|
Total increase in cable subscription revenue
|
142.1
|
|
—
|
|
142.1
|
|
|||||
|
Increase in mobile subscription revenue (e)
|
5.3
|
|
—
|
|
5.3
|
|
|||||
|
Total increase in subscription revenue
|
147.4
|
|
—
|
|
147.4
|
|
|||||
|
Increase in B2B revenue
|
—
|
|
0.5
|
|
0.5
|
|
|||||
|
Increase in other non-subscription revenue (f)
|
—
|
|
5.8
|
|
5.8
|
|
|||||
|
Total organic increase
|
147.4
|
|
6.3
|
|
153.7
|
|
|||||
|
Impact of FX
|
(1.6
|
)
|
0.2
|
|
(1.4
|
)
|
|||||
|
Total
|
$
|
145.8
|
|
$
|
6.5
|
|
$
|
152.3
|
|
||
_______________
|
(a)
|
Germany’s subscription revenue includes revenue from multi-year bulk agreements with landlords or 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 approximately two-thirds of Germany’s video subscribers. Germany’s bulk agreements are, to a significant extent, medium- and long-term contracts. As of
December 31, 2014
, bulk agreements covering approximately 39% of the video subscribers that Germany serves through these agreements expire by the end of 2015 or are terminable on 30-days notice. During the three months ended
December 31, 2014
, Germany’s 20 largest bulk agreement accounts generated approximately 7% of its total revenue (including estimated amounts billed directly to the building occupants for premium cable, broadband internet and fixed-line telephony services). No assurance can be given that Germany’s bulk agreements will be renewed or extended on financially equivalent terms or at all.
|
|
(b)
|
Germany’s other 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 2015 through 2018. The aggregate amount of revenue related to these carriage contracts represented approximately 5% of Germany’s total revenue during the
three months ended December 31, 2014
. No assurance can be given that these contracts will be renewed or extended on financially equivalent terms, or at all. In 2012, public broadcasters sent us notices purporting to terminate their carriage fee arrangements effective December 31, 2012. Although we have rejected these termination notices, beginning in 2013, we ceased recognizing revenue related to these carriage fee arrangements. Also, our ability to increase the aggregate carriage fees that Germany receives for each channel is limited through 2016 by certain commitments we made to regulators in connection with the acquisition of
KBW
.
|
II-13
|
(c)
|
The increase in Germany’s cable subscription revenue related to a change in the average number of
RGU
s is attributable to increases in the average numbers of broadband internet, fixed-line telephony and digital cable
RGU
s that were only partially offset by a decline in the average number of analog cable
RGU
s.
|
|
(d)
|
The increase in Germany’s cable subscription revenue related to a change in
ARPU
is due to (i) a net increase primarily resulting from the following factors: (a) higher ARPU from broadband internet and digital cable services, (b) lower
ARPU
from fixed-line telephony services due to the net effect of (1) a decrease in
ARPU
associated with lower fixed-line telephony call volumes for customers on usage-based calling plans and (2) an increase in
ARPU
associated with the migration of customers to fixed-rate calling plans and related value-added services and (c) lower
ARPU
from analog cable services primarily due to a higher proportion of customers receiving discounted analog cable services through certain bulk agreements and lower negotiated rates through these agreements and (ii) an improvement in
RGU
mix.
|
|
(e)
|
The increase in Germany’s mobile subscription revenue is primarily due to the net effect of (i) an increase in the average number of mobile subscribers and (ii) lower
ARPU
due to the impact of an increase in the proportion of subscribers receiving lower-priced tiers of mobile services.
|
|
(f)
|
The increase in Germany’s other non-subscription revenue is attributable to the net effect of (i) a decrease in interconnect revenue of $15.6 million, primarily attributable to lower fixed-line termination rates, (ii) an increase in carriage fee revenue of $7.0 million and (iii) a net increase from individually insignificant changes in other non-subscription revenue categories. The increase during 2014, as compared to 2013, also includes an $11.4 million increase in network usage revenue related to the first quarter 2014 settlement of prior year amounts.
|
Belgium.
The increase in Belgium’s revenue during
2014
, as compared to
2013
, includes (i) an organic increase of
$94.5 million
or
4.3%
and (ii) the impact of
FX
, as set forth below:
|
Subscription
revenue
|
Non-subscription
revenue
|
Total
|
|||||||||
|
in millions
|
|||||||||||
|
Increase in cable subscription revenue due to change in:
|
|||||||||||
|
Average number of RGUs (a)
|
$
|
53.1
|
|
$
|
—
|
|
$
|
53.1
|
|
||
|
ARPU (b)
|
16.4
|
|
—
|
|
16.4
|
|
|||||
|
Total increase in cable subscription revenue
|
69.5
|
|
—
|
|
69.5
|
|
|||||
|
Increase in mobile subscription revenue (c)
|
12.9
|
|
—
|
|
12.9
|
|
|||||
|
Total increase in subscription revenue
|
82.4
|
|
—
|
|
82.4
|
|
|||||
|
Increase in B2B revenue (d)
|
—
|
|
9.4
|
|
9.4
|
|
|||||
|
Increase in other non-subscription revenue (e)
|
—
|
|
2.7
|
|
2.7
|
|
|||||
|
Total organic increase
|
82.4
|
|
12.1
|
|
94.5
|
|
|||||
|
Impact of FX
|
(0.7
|
)
|
(0.3
|
)
|
(1.0
|
)
|
|||||
|
Total
|
$
|
81.7
|
|
$
|
11.8
|
|
$
|
93.5
|
|
||
_______________
|
(a)
|
The increase in Belgium’s cable subscription revenue related to a change in the average number of
RGU
s is attributable to increases in the average numbers of fixed-line telephony, digital cable and broadband internet
RGU
s that were only partially offset by a decline in the average number of analog cable
RGU
s.
|
|
(b)
|
The increase in Belgium’s cable subscription revenue related to a change in
ARPU
is primarily due to an improvement in
RGU
mix. Excluding
RGU
mix,
ARPU
remained relatively constant primarily due to the net effect of the following factors: (i) higher
ARPU
due to (a) an increase in the proportion of subscribers receiving higher-priced tiers of services due to migrations to Belgium’s current bundle offerings and (b) February 2014 price increases for certain existing analog and digital cable, broadband internet and fixed-line telephony services,
(ii) lower
ARPU
due to the impact of higher bundling and promotional discounts, (iii) lower
ARPU
from fixed-line telephony services due to
(1) lower fixed-line telephony call volumes for customers on usage-based plans and (2) a higher proportion of customers migrating to fixed-rate calling plans
and
(iv) lower
ARPU
due to the impact of an increase in the proportion of subscribers receiving lower-priced tiers of broadband internet services in Belgium’s bundles.
|
II-14
|
(c)
|
The increase in Belgium’s mobile subscription revenue is primarily due to the net effect of (i) an increase in the average number of mobile subscribers and (ii) lower
ARPU
primarily due to (a) the impact of an increase in the proportion of subscribers receiving lower-priced tiers of mobile services and (b) a reduction in billable usage.
|
|
(d)
|
The increase in Belgium’s
B2B
revenue is primarily due to (i) higher revenue from voice, video and data services and (ii) higher wholesale revenue from mobile services.
|
|
(e)
|
The increase in Belgium’s other non-subscription revenue is primarily due to the net effect of (i) an increase in interconnect revenue of $12.2 million, primarily due to the net effect of (a) growth in mobile customers and (b) lower
SMS
usage,
(ii) a decrease in mobile handset sales of $11.7 million and (iii) an increase in set-top box sales of $6.8 million, primarily due to a digital cable migration completed during the third quarter of 2014. The decrease in Belgium’s mobile handset sales, which typically generate relatively low margins, is primarily due to a decrease 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
17
to our consolidated financial statements.
Switzerland/Austria
.
The increase in
Switzerland/Austria
’s revenue during
2014
, as compared to
2013
, includes (i) an organic increase of
$55.5 million
or
3.1%
, (ii) the impact of acquisitions and (iii) the impact of
FX
, as set forth below:
|
Subscription
revenue
|
Non-subscription
revenue
|
Total
|
|||||||||
|
in millions
|
|||||||||||
|
Increase in cable subscription revenue due to change in:
|
|||||||||||
|
Average number of RGUs (a)
|
$
|
36.4
|
|
$
|
—
|
|
$
|
36.4
|
|
||
|
ARPU (b)
|
19.1
|
|
—
|
|
19.1
|
|
|||||
|
Total increase in cable subscription revenue
|
55.5
|
|
—
|
|
55.5
|
|
|||||
|
Increase in B2B revenue (c)
|
—
|
|
6.7
|
|
6.7
|
|
|||||
|
Decrease in other non-subscription revenue (d)
|
—
|
|
(6.7
|
)
|
(6.7
|
)
|
|||||
|
Total organic increase
|
55.5
|
|
—
|
|
55.5
|
|
|||||
|
Impact of acquisitions
|
7.3
|
|
(1.7
|
)
|
5.6
|
|
|||||
|
Impact of FX
|
16.8
|
|
1.1
|
|
17.9
|
|
|||||
|
Total
|
$
|
79.6
|
|
$
|
(0.6
|
)
|
$
|
79.0
|
|
||
_______________
|
(a)
|
The increase in
Switzerland/Austria
’s cable subscription revenue related to a change in the average number of
RGU
s is attributable to increases in the average numbers of broadband internet, digital cable and fixed-line telephony
RGU
s in each of Switzerland and Austria that were largely offset by a decline in the average number of analog cable
RGU
s in each of Switzerland and Austria.
|
|
(b)
|
The increase in
Switzerland/Austria
’s cable subscription revenue related to a change in
ARPU
is due to an increase in Switzerland that was only partially offset by a decrease in Austria. The increase in Switzerland is primarily due to (i) an improvement in
RGU
mix and (ii) a net increase primarily resulting from the following factors: (a) higher
ARPU
due to the inclusion of higher-priced tiers of fixed-line telephony and broadband internet services in Switzerland’s bundles, including the impact of price increases in April 2014 and January 2014, (b) lower
ARPU
due to a decrease in fixed-line telephony call volumes and (c) lower
ARPU
due to the impact of higher bundling discounts. The decrease in Austria is primarily due to (1) a net decrease resulting from the following factors:
(A) higher
ARPU
due to a January 2014 price increase for video services, (B) lower
ARPU
due to the impact of an increase in the proportion of subscribers receiving lower-priced tiers of digital cable and fixed-line telephony services in Austria’s bundles, (C) lower
ARPU
due to the impact of higher bundling discounts and (D) lower
ARPU
due to a decrease in fixed-line telephony call volumes and (2) an adverse change in
RGU
mix.
|
|
(c)
|
The increase in
Switzerland/Austria
’s
B2B
revenue is primarily due to the net effect of (i) increased volumes in voice, data and broadband internet services in Switzerland and (ii) lower revenue from internet and voice services in Austria.
|
II-15
|
(d)
|
The decrease in
Switzerland/Austria
’s other non-subscription revenue is largely due to the net effect of (i) a decrease in installation revenue in each of Switzerland and Austria, (ii) a decrease in revenue from Austria’s non-cable subscriber base and (iii) an increase in mobile handset sales in Switzerland.
|
Central and Eastern Europe.
The decrease in Central and Eastern Europe’s revenue during
2014
, as compared to
2013
, includes (i) an organic increase of
$9.2 million
or
0.7%
and (ii) the impact of
FX
, as set forth below:
|
Subscription
revenue
|
Non-subscription
revenue
|
Total
|
|||||||||
|
in millions
|
|||||||||||
|
Increase (decrease) in cable subscription revenue due to change in:
|
|||||||||||
|
Average number of RGUs (a)
|
$
|
30.8
|
|
$
|
—
|
|
$
|
30.8
|
|
||
|
ARPU (b)
|
(16.9
|
)
|
—
|
|
(16.9
|
)
|
|||||
|
Total increase in cable subscription revenue
|
13.9
|
|
—
|
|
13.9
|
|
|||||
|
Increase in B2B revenue (c)
|
—
|
|
5.1
|
|
5.1
|
|
|||||
|
Decrease in other non-subscription revenue (d)
|
—
|
|
(9.8
|
)
|
(9.8
|
)
|
|||||
|
Total organic increase (decrease)
|
13.9
|
|
(4.7
|
)
|
9.2
|
|
|||||
|
Impact of FX
|
(20.0
|
)
|
(1.7
|
)
|
(21.7
|
)
|
|||||
|
Total
|
$
|
(6.1
|
)
|
$
|
(6.4
|
)
|
$
|
(12.5
|
)
|
||
_______________
|
(a)
|
The increase in
Central and Eastern Europe
’s cable subscription revenue related to a change in the average number of
RGU
s is primarily attributable to (i) increases in the average numbers of digital cable, broadband internet and fixed-line telephony
RGU
s in Poland, Romania, Hungary and Slovakia and (ii) an increase in the average number of
RGU
s at
UPC DTH
that were largely offset by (a) a decline in the average number of analog cable
RGU
s in Poland, Romania, Hungary and Slovakia and (b) declines in the average numbers of digital cable and fixed-line telephony
RGU
s in the Czech Republic.
|
|
(b)
|
The decrease in
Central and Eastern Europe
’s cable subscription revenue related to a change in
ARPU
is due to the net effect of (i) a decrease primarily resulting from the following factors: (a) lower
ARPU
from fixed-line telephony services, primarily due to (1) an increase in the proportion of subscribers receiving lower-priced calling plans and (2) a decrease in call volumes for customers on usage-based calling plans, (b) lower
ARPU
due to the impact of higher bundling discounts and (c) higher
ARPU
due to the inclusion of higher-priced tiers of broadband internet and digital cable services in
Central and Eastern Europe
’s bundles and (ii) an improvement in
RGU
mix.
|
|
(c)
|
The increase in
Central and Eastern Europe
’s
B2B
revenue is largely due to higher revenue from voice services in Hungary and Poland.
|
|
(d)
|
The decrease in
Central and Eastern Europe
’s other non-subscription revenue is due to
(i) a decrease in interconnect revenue, largely as a result of lower fixed-line telephony termination rates in Poland, and (ii) a net decrease resulting from individually insignificant changes in other non-subscription revenue categories.
|
II-16
Chile.
The decrease in Chile’s revenue during
2014
, as compared to
2013
, includes (i) an organic increase of
$43.4 million
or
4.4%
and (ii) the impact of
FX
, as set forth below:
|
Subscription
revenue
|
Non-subscription
revenue
|
Total
|
|||||||||
|
in millions
|
|||||||||||
|
Increase in cable subscription revenue due to change in:
|
|||||||||||
|
Average number of RGUs (a)
|
$
|
36.9
|
|
$
|
—
|
|
$
|
36.9
|
|
||
|
ARPU (b)
|
13.5
|
|
—
|
|
13.5
|
|
|||||
|
Total increase in cable subscription revenue
|
50.4
|
|
—
|
|
50.4
|
|
|||||
|
Increase in mobile subscription revenue (c)
|
7.7
|
|
—
|
|
7.7
|
|
|||||
|
Total increase in subscription revenue
|
58.1
|
|
—
|
|
58.1
|
|
|||||
|
Decrease in non-subscription revenue (d)
|
—
|
|
(14.7
|
)
|
(14.7
|
)
|
|||||
|
Total organic increase (decrease)
|
58.1
|
|
(14.7
|
)
|
43.4
|
|
|||||
|
Impact of FX
|
(128.4
|
)
|
(8.1
|
)
|
(136.5
|
)
|
|||||
|
Total
|
$
|
(70.3
|
)
|
$
|
(22.8
|
)
|
$
|
(93.1
|
)
|
||
_______________
|
(a)
|
The increase in Chile’s cable subscription revenue related to a change in the average number of
RGU
s is attributable to increases in the average numbers of digital cable, broadband internet and fixed-line telephony
RGU
s that were only partially offset by a decline in the average number of analog cable
RGU
s.
|
|
(b)
|
The increase in Chile’s cable subscription revenue related to a change in
ARPU
is due to (i) a net increase resulting from the following factors: (a) lower
ARPU
due to the impact of higher bundling and promotional discounts, (b) higher
ARPU
due to semi-annual inflation and other price adjustments for video, broadband internet and fixed-line telephony services, (c) higher
ARPU
due to the inclusion of higher-priced tiers of broadband internet and fixed-line telephony services in Chile’s bundles, (d) lower
ARPU
due to a decrease in fixed-line telephony call volumes for customers on usage-based plans and (e) higher
ARPU
from incremental digital cable services and (ii) an improvement in
RGU
mix.
|
|
(c)
|
The increase in Chile’s mobile subscription revenue is attributable to an increase in (i) the average number of postpaid subscribers, which more than offset the decrease in the average number of prepaid subscribers, and (ii) mobile
ARPU
, primarily due to a higher proportion of mobile subscribers on postpaid plans, which generate higher
ARPU
than prepaid plans.
|
|
(d)
|
The decrease in Chile’s non-subscription revenue is primarily due to decreases in (i) interconnect revenue, primarily associated with a January 2014 decline in mobile terminations rates, and (ii) prepaid mobile handset sales. For information regarding an ongoing tariff-setting process in Chile that may impact the revenue of Chile, see note
17
to our consolidated financial statements.
|
II-17
Revenue —
2013
compared to
2012
|
|
Year ended December 31,
|
Increase (decrease)
|
Organic increase (decrease)
|
|||||||||||||
|
|
2013
|
2012
|
$
|
%
|
%
|
|||||||||||
|
|
in millions
|
|
|
|||||||||||||
|
European Operations Division:
|
||||||||||||||||
|
U.K./Ireland (a)
|
$
|
4,117.4
|
|
$
|
426.4
|
|
$
|
3,691.0
|
|
N.M.
|
N.M.
|
|
||||
|
The Netherlands
|
1,242.4
|
|
1,229.1
|
|
13.3
|
|
1.1
|
(2.2
|
)
|
|||||||
|
Germany
|
2,559.2
|
|
2,311.0
|
|
248.2
|
|
10.7
|
7.2
|
|
|||||||
|
Belgium
|
2,185.9
|
|
1,918.0
|
|
267.9
|
|
14.0
|
10.3
|
|
|||||||
|
Switzerland/Austria
|
1,767.1
|
|
1,681.8
|
|
85.3
|
|
5.1
|
3.3
|
|
|||||||
|
Total Western Europe
|
11,872.0
|
|
7,566.3
|
|
4,305.7
|
|
56.9
|
5.6
|
|
|||||||
|
Central and Eastern Europe
|
1,272.0
|
|
1,231.2
|
|
40.8
|
|
3.3
|
0.9
|
|
|||||||
|
Central and other
|
(0.4
|
)
|
1.5
|
|
(1.9
|
)
|
N.M.
|
N.M.
|
|
|||||||
|
Total European Operations Division
|
13,143.6
|
|
8,799.0
|
|
4,344.6
|
|
49.4
|
4.9
|
|
|||||||
|
Chile
|
991.6
|
|
940.6
|
|
51.0
|
|
5.4
|
7.4
|
|
|||||||
|
Corporate and other
|
374.3
|
|
224.1
|
|
150.2
|
|
67.0
|
0.6
|
|
|||||||
|
Intersegment eliminations
|
(35.3
|
)
|
(32.9
|
)
|
(2.4
|
)
|
N.M.
|
N.M.
|
|
|||||||
|
Total
|
$
|
14,474.2
|
|
$
|
9,930.8
|
|
$
|
4,543.4
|
|
45.8
|
5.1
|
|
||||
_______________
|
(a)
|
The amount presented for 2013 includes the post-acquisition revenue of
Virgin Media
from June 8, 2013 through December 31, 2013.
|
N.M. — Not Meaningful.
U.K./Ireland
.
The details of
U.K./Ireland
’s revenue during
2013
, as compared to
2012
, are set forth below:
|
|
Year ended December 31,
|
Increase
|
Organic increase
|
||||||||||||
|
|
2013
|
2012
|
$
|
%
|
%
|
||||||||||
|
|
in millions
|
||||||||||||||
|
U.K.
|
$
|
3,653.7
|
|
$
|
—
|
|
$
|
3,653.7
|
|
N.M.
|
N.M.
|
||||
|
Ireland
|
463.7
|
|
426.4
|
|
37.3
|
|
8.7
|
5.3
|
|||||||
|
Total
|
$
|
4,117.4
|
|
$
|
426.4
|
|
$
|
3,691.0
|
|
865.6
|
7.2
|
||||
_______________
N.M. — Not Meaningful.
The increase in
U.K./Ireland
's revenue during
2013
, as compared to
2012
, is primarily due to the June 2013
Virgin Media Acquisition
. The organic revenue growth rate of
U.K./Ireland
is impacted by the size and timing of the
Virgin Media Acquisition
. Accordingly, (i) we present a separate discussion and analysis for each of the
U.K.
and Ireland and (ii) the below discussion and analysis of the
U.K.
’s revenue is presented on a pro forma basis as if the results of
Virgin Media
were included for the six months ended
December 31, 2013
. We believe this pro forma analysis provides a more meaningful comparison of
Virgin Media
’s revenue.
U.K.
During the six months ended
December 31, 2013
,
Virgin Media
generated revenue of $3,267.9 million, representing a 1.2% organic increase over the revenue reported by
Virgin Media
during the corresponding 2012 period, as adjusted to reflect a pro forma $64.6 million decrease in revenue associated with the assumed alignment of
Virgin Media
’s policy to our policy for accounting for installation and certain nonrecurring fees received on
B2B
contracts effective June 7, 2012. For information regarding our accounting policy for these fees, see note
3
to our consolidated financial statements. The pro forma increase in
Virgin Media
’s revenue during this period is primarily attributable to growth in the subscription revenue from
Virgin Media
’s residential broadband communications operations, primarily due to the net effect of (i) an increase in subscription revenue from video services of $55.0 million or 7.6%, as the impact of higher
ARPU
from video services was only partially offset by a decline
II-18
in the average number of
RGU
s, (ii) an increase in subscription revenue from broadband internet services of $48.2 million or 7.4%, attributable to higher
ARPU
from broadband internet services and the impact of an increase in the average number of broadband internet
RGU
s and (iii) a decrease in subscription revenue from fixed-line telephony services of $23.1 million or 2.9%, primarily attributable to lower
ARPU
from fixed-line telephony services. In addition, the decrease in subscription revenue from fixed-line telephony services includes an increase of approximately $11.3 million attributable to a reduction in
VAT
in connection with prompt payment discounts, which were offered by
Virgin Media
to customers beginning in August 2012.
Virgin Media
’s revenue from mobile services increased slightly during the six months ended
December 31, 2013
, as compared to the revenue reported by
Virgin Media
during the corresponding 2012 period, primarily due to the positive impacts of (a) an increase in the number of customers taking postpaid mobile services and (b) a July 2013 price increase that was only partially offset by the adverse impacts of (1) a decline in the revenue from prepaid mobile customers, (2) a reduction in out-of-bundle usage and (3) a higher proportion of customers on lower-priced subscriber identification module or “SIM” card only calling plans. In addition, the increase in mobile subscription revenue was negatively impacted by a favorable nonrecurring adjustment of $4.5 million that was recorded during the fourth quarter of 2012.
Virgin Media
’s
B2B
revenue increased slightly during the six months ended
December 31, 2013
, primarily due to the net effect of (A) higher recurring contractual revenue from
B2B
customers and (B) the $11.1 million negative impact of nonrecurring items, consisting of (I) a $6.2 million net favorable impact during the third and fourth quarters of 2012 and (II) a $4.9 million unfavorable impact during the third quarter of 2013.
Ireland.
The increase in Ireland’s revenue during
2013
, as compared to
2012
, includes (i) an organic increase of
$22.5 million
or
5.3%
, and (ii) the impact of
FX
, as set forth below:
|
Subscription
revenue
|
Non-subscription
revenue
|
Total
|
|||||||||
|
in millions
|
|||||||||||
|
Increase (decrease) in cable subscription revenue due to change in:
|
|||||||||||
|
Average number of RGUs (a)
|
$
|
32.7
|
|
$
|
—
|
|
$
|
32.7
|
|
||
|
ARPU (b)
|
(11.0
|
)
|
—
|
|
(11.0
|
)
|
|||||
|
Total increase in cable subscription revenue
|
21.7
|
|
—
|
|
21.7
|
|
|||||
|
Increase in B2B revenue
|
—
|
|
0.6
|
|
0.6
|
|
|||||
|
Increase in other non-subscription revenue (c)
|
—
|
|
0.2
|
|
0.2
|
|
|||||
|
Total organic increase
|
21.7
|
|
0.8
|
|
22.5
|
|
|||||
|
Impact of FX
|
13.5
|
|
1.3
|
|
14.8
|
|
|||||
|
Total
|
$
|
35.2
|
|
$
|
2.1
|
|
$
|
37.3
|
|
||
|
(a)
|
The increase in Ireland’s cable subscription revenue related to a change in the average number of
RGU
s is attributable to increases in the average numbers of fixed-line telephony, broadband internet and digital cable
RGU
s that were only partially offset by a decline in the average number of analog cable
RGU
s and, to a lesser extent,
MMDS
video
RGU
s.
|
|
(b)
|
The decrease in Ireland’s cable subscription revenue related to a change in
ARPU
is attributable to (i) an adverse change in
RGU
mix and (ii) a net decrease resulting from the following factors: (a) lower
ARPU
due to the impact of bundling discounts and (b) higher
ARPU
due to the inclusion of higher-priced tiers of broadband internet and digital cable services in Ireland’s promotional bundles.
|
|
(c)
|
The increase in Ireland’s non-subscription revenue is due to individually insignificant changes in various non-subscription revenue categories.
|
II-19
The Netherlands.
The increase in the Netherlands’ revenue during
2013
, as compared to
2012
, includes (i) an organic decrease of
$26.7 million
or
2.2%
, (ii) the impact of an acquisition and (iii) the impact of
FX
, as set forth below:
|
Subscription
revenue
|
Non-subscription
revenue
|
Total
|
|||||||||
|
in millions
|
|||||||||||
|
Increase (decrease) in cable subscription revenue due to change in:
|
|||||||||||
|
Average number of RGUs (a)
|
$
|
2.9
|
|
$
|
—
|
|
$
|
2.9
|
|
||
|
ARPU (b)
|
(26.6
|
)
|
—
|
|
(26.6
|
)
|
|||||
|
Total decrease in cable subscription revenue
|
(23.7
|
)
|
—
|
|
(23.7
|
)
|
|||||
|
Increase in mobile subscription revenue
|
0.1
|
|
—
|
|
0.1
|
|
|||||
|
Total decrease in subscription revenue
|
(23.6
|
)
|
—
|
|
(23.6
|
)
|
|||||
|
Decrease in B2B revenue (c)
|
—
|
|
(4.5
|
)
|
(4.5
|
)
|
|||||
|
Increase in other non-subscription revenue (d)
|
—
|
|
1.4
|
|
1.4
|
|
|||||
|
Total organic decrease
|
(23.6
|
)
|
(3.1
|
)
|
(26.7
|
)
|
|||||
|
Impact of an acquisition
|
0.6
|
|
—
|
|
0.6
|
|
|||||
|
Impact of FX
|
36.0
|
|
3.4
|
|
39.4
|
|
|||||
|
Total
|
$
|
13.0
|
|
$
|
0.3
|
|
$
|
13.3
|
|
||
_______________
|
(a)
|
The increase in the Netherlands’ cable subscription revenue related to a change in the average number of
RGU
s is attributable to the net effect of (i) increases in the average numbers of fixed-line telephony, broadband internet and digital cable
RGU
s and (ii) a decline in the average number of analog cable
RGU
s.
|
|
(b)
|
The decrease in the Netherlands’ cable subscription revenue related to a change in
ARPU
is due to the net effect of (i) a decrease primarily resulting from the following factors: (a) lower
ARPU
due to a decrease in fixed-line telephony call volume and (b) lower
ARPU
due to the impact of higher bundling and promotional discounts that more than offset the positive impacts of (1) the inclusion of higher-priced tiers of digital cable, broadband internet and fixed-line telephony services in the Netherlands’ promotional bundles and (2) July 2012 price increases for bundled services and a January 2013 price increase for certain analog cable services and (ii) an improvement in
RGU
mix.
|
|
(c)
|
The decrease in the Netherlands’
B2B
revenue is primarily related to lower revenue from telephony and data services.
|
|
(d)
|
The increase in the Netherlands’ other non-subscription revenue is primarily attributable to the net effect of (i) an increase in installation revenue, (ii) a decrease in interconnect revenue, primarily due to the impact of reductions in fixed termination rates that became effective on August 1, 2012 and September 1, 2013, and (iii) a decrease in
revenue from late fees.
|
II-20
Germany.
The increase in Germany’s revenue during
2013
, as compared to
2012
, includes (i) an organic increase of
$166.0 million
or
7.2%
and (ii) the impact of
FX
, as set forth below:
|
Subscription
revenue
|
Non-subscription
revenue
|
Total
|
|||||||||
|
in millions
|
|||||||||||
|
Increase in cable subscription revenue due to change in:
|
|||||||||||
|
Average number of RGUs (a)
|
$
|
125.7
|
|
$
|
—
|
|
$
|
125.7
|
|
||
|
ARPU (b)
|
64.8
|
|
—
|
|
64.8
|
|
|||||
|
Total increase in cable subscription revenue
|
190.5
|
|
—
|
|
190.5
|
|
|||||
|
Increase in mobile subscription revenue (c)
|
6.5
|
|
—
|
|
6.5
|
|
|||||
|
Total increase in subscription revenue
|
197.0
|
|
—
|
|
197.0
|
|
|||||
|
Increase in B2B revenue
|
—
|
|
2.9
|
|
2.9
|
|
|||||
|
Decrease in other non-subscription revenue (d)
|
—
|
|
(33.9
|
)
|
(33.9
|
)
|
|||||
|
Total organic increase (decrease)
|
197.0
|
|
(31.0
|
)
|
166.0
|
|
|||||
|
Impact of FX
|
74.2
|
|
8.0
|
|
82.2
|
|
|||||
|
Total
|
$
|
271.2
|
|
$
|
(23.0
|
)
|
$
|
248.2
|
|
||
_______________
|
(a)
|
The increase in Germany’s cable subscription revenue related to a change in the average number of
RGU
s is attributable to increases in the average numbers of broadband internet, fixed-line telephony and digital cable
RGU
s that were only partially offset by a decline in the average number of analog cable
RGU
s.
|
|
(b)
|
The increase in Germany’s cable subscription revenue related to a change in
ARPU
is due to (i) a net increase primarily resulting from the following factors: (a) higher
ARPU
from broadband internet services and digital cable services, (b) lower
ARPU
from fixed-line telephony services due to the net impact of (1) a decrease in
ARPU
associated with lower fixed-line telephony call volumes 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, (c) higher
ARPU
due to lower negative impact from free bundled services provided to new subscribers during promotional periods and (d) higher
ARPU
from analog cable services, as price increases more than offset lower
ARPU
due to a higher proportion of subscribers receiving discounted analog cable services through bulk agreements and (ii) an improvement in
RGU
mix.
|
|
(c)
|
The increase in Germany’s mobile subscription revenue is primarily due to the net effect of (i) an increase in the average number of mobile subscribers, (ii) a reduction in billable usage and (iii) lower
ARPU
due to the impact of an increase in the proportion of subscribers receiving lower-priced tiers of mobile services.
|
|
(d)
|
The decrease in Germany’s other non-subscription revenue is primarily attributable to the net effect of (i) a decrease in carriage fee revenue of $34.9 million, due primarily to the fact that we ceased recognizing revenue in 2013 with respect to carriage fee contracts that public broadcasters purportedly terminated effective December 31, 2012, (ii) an increase in installation revenue of $14.1 million, due to a higher number of installations and an increase in the average installation fee, and (iii) a decrease in interconnect revenue of $6.3 million.
|
II-21
Belgium.
The increase in Belgium’s revenue during
2013
, as compared to
2012
, includes (i) an organic increase of
$198.4 million
or
10.3%
and (ii) the impact of
FX
, as set forth below:
|
Subscription
revenue
|
Non-subscription
revenue
|
Total
|
|||||||||
|
in millions
|
|||||||||||
|
Increase (decrease) in cable subscription revenue due to change in:
|
|||||||||||
|
Average number of RGUs (a)
|
$
|
39.9
|
|
$
|
—
|
|
$
|
39.9
|
|
||
|
ARPU (b)
|
(15.2
|
)
|
—
|
|
(15.2
|
)
|
|||||
|
Total increase in cable subscription revenue
|
24.7
|
|
—
|
|
24.7
|
|
|||||
|
Increase in mobile subscription revenue (c)
|
114.9
|
|
—
|
|
114.9
|
|
|||||
|
Total increase in subscription revenue
|
139.6
|
|
—
|
|
139.6
|
|
|||||
|
Decrease in B2B revenue (d)
|
—
|
|
(2.7
|
)
|
(2.7
|
)
|
|||||
|
Increase in other non-subscription revenue (e)
|
—
|
|
61.5
|
|
61.5
|
|
|||||
|
Total organic increase
|
139.6
|
|
58.8
|
|
198.4
|
|
|||||
|
Impact of FX
|
59.1
|
|
10.4
|
|
69.5
|
|
|||||
|
Total
|
$
|
198.7
|
|
$
|
69.2
|
|
$
|
267.9
|
|
||
_______________
|
(a)
|
The increase in Belgium’s cable subscription revenue related to a change in the average number of
RGU
s is attributable to increases in the average numbers of digital cable, fixed-line telephony and broadband internet
RGU
s that were only partially offset by a decline in the average number of analog cable
RGU
s.
|
|
(b)
|
The decrease in Belgium’s cable subscription revenue related to a change in
ARPU
is due to the net effect of (i) a net decrease primarily resulting from following factors: (a) higher
ARPU
due to price increases associated with (1) higher-priced tiers of service in Belgium’s bundles and (2) a February 2013 increase for certain existing broadband internet, fixed-line telephony and digital cable services, (b) lower
ARPU
due to the impact of higher bundling and promotional discounts, (c) lower
ARPU
due to the impact of an increase in the proportion of subscribers receiving lower-priced tiers of broadband internet services and (d) lower
ARPU
from fixed-line telephony services due to (I) lower fixed-line telephony call volume for customers on usage-based plans and (II) a higher proportion of customers migrating to fixed-rate calling plans and (ii) an improvement in
RGU
mix. In addition, the increase in Belgium’s subscription revenue was offset by a nonrecurring adjustment recorded during the fourth quarter of 2012 to recognize $6.0 million of revenue following the implementation of billing system improvements. Most of this nonrecurring adjustment relates to revenue earned in years prior to 2012.
|
|
(c)
|
The increase in Belgium’s mobile subscription revenue is primarily due to an increase in the average number of mobile subscribers.
|
|
(d)
|
The decrease in Belgium’s
B2B
revenue is attributable to a net decrease associated with (i) a $7.7 million negative impact associated with changes in how Belgium recognizes certain up-front fees and (ii) increases in other elements of Belgium’s
B2B
revenue.
|
|
(e)
|
The increase in Belgium’s other non-subscription revenue is primarily due to the net effect of (i) an increase in interconnect revenue of $59.1 million, primarily associated with growth in mobile services, (ii) an increase in mobile handset sales of $10.3 million and (iii) a decrease of $2.4 million associated with a change in how Belgium recognizes certain up-front fees. The increase in Belgium’s mobile handset sales, which typically generate relatively low margins, is primarily due to (a) an increase in contract termination fees applicable to subsidized handsets and (b) an increase in sales to third-party retailers.
|
II-22
Switzerland/Austria
.
The increase in
Switzerland/Austria
’s revenue during
2013
, as compared to
2012
, includes (i) an organic increase of
$54.8 million
or
3.3%
, (ii) the impact of acquisitions and (iii) the impact of
FX
, as set forth below:
|
Subscription
revenue
|
Non-subscription
revenue
|
Total
|
|||||||||
|
in millions
|
|||||||||||
|
Increase in cable subscription revenue due to change in:
|
|||||||||||
|
Average number of RGUs (a)
|
$
|
40.9
|
|
$
|
—
|
|
$
|
40.9
|
|
||
|
ARPU (b)
|
12.6
|
|
—
|
|
12.6
|
|
|||||
|
Total increase in cable subscription revenue
|
53.5
|
|
—
|
|
53.5
|
|
|||||
|
Decrease in B2B revenue
|
—
|
|
(3.3
|
)
|
(3.3
|
)
|
|||||
|
Increase in other non-subscription revenue (c)
|
—
|
|
4.6
|
|
4.6
|
|
|||||
|
Total organic increase
|
53.5
|
|
1.3
|
|
54.8
|
|
|||||
|
Impact of acquisitions
|
2.3
|
|
(1.0
|
)
|
1.3
|
|
|||||
|
Impact of FX
|
23.7
|
|
5.5
|
|
29.2
|
|
|||||
|
Total
|
$
|
79.5
|
|
$
|
5.8
|
|
$
|
85.3
|
|
||
_______________
|
(a)
|
The increase in
Switzerland/Austria
’s cable subscription revenue related to a change in the average number of
RGU
s is attributable to increases in the average numbers of broadband internet, digital cable and fixed-line telephony
RGU
s in each of Switzerland and Austria that were only partially offset by a decline in the average number of analog cable
RGU
s in each of Switzerland and Austria.
|
|
(b)
|
The increase in
Switzerland/Austria
’s cable subscription revenue related to a change in
ARPU
is due to the net impact of an increase in Switzerland and a decrease in Austria. The increase in Switzerland is due to (i) an improvement in
RGU
mix and (ii) a net increase primarily resulting from the following factors: (a) higher
ARPU
due to the inclusion of higher-priced tiers of broadband internet services and, to a lesser extent, digital cable services in Switzerland’s promotional bundles, (b) lower
ARPU
due to the impact of bundling discounts, (c) higher
ARPU
due to a January 2013 price increase for a basic cable connection, as discussed below, and, to a lesser extent, a June 2013 price increase for broadband internet services, and (d) lower
ARPU
due to a decrease in fixed-line telephony call volume for customers on usage-based calling plans. The decrease in Austria is due to (1) a net decrease resulting from the following factors: (A) lower
ARPU
due to the impact of bundling discounts, (B) higher
ARPU
due to January 2013 price increases for digital and analog cable and broadband internet services and (C) lower
ARPU
due to a higher proportion of subscribers receiving lower-priced tiers of broadband internet services in Austria’s promotional bundles and (2) an adverse change in
RGU
mix.
|
|
(c)
|
The increase in
Switzerland/Austria
’s other non-subscription revenue is primarily attributable to the net effect in Switzerland of (i) an increase in installation revenue of $8.4 million, (ii) a decrease in sales of customer premises equipment, (iii) a decline in revenue from usage-based wholesale residential fixed-line telephony services and (iv) an increase in advertising revenue. The increase in installation revenue includes an increase of
$7.1 million associated with 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 November 2012 unencryption of the basic tier of digital television channels.
|
II-23
Central and Eastern Europe.
The increase in Central and Eastern Europe’s revenue during
2013
, as compared to
2012
, includes (i) an organic increase of
$11.2 million
or
0.9%
, (ii) the impact of an acquisition and (iii) the impact of
FX
, as set forth below:
|
Subscription
revenue
|
Non-subscription
revenue
|
Total
|
|||||||||
|
in millions
|
|||||||||||
|
Increase (decrease) in cable subscription revenue due to change in:
|
|||||||||||
|
Average number of RGUs (a)
|
$
|
38.0
|
|
$
|
—
|
|
$
|
38.0
|
|
||
|
ARPU (b)
|
(30.4
|
)
|
—
|
|
(30.4
|
)
|
|||||
|
Total increase in cable subscription revenue
|
7.6
|
|
—
|
|
7.6
|
|
|||||
|
Decrease in mobile subscription revenue
|
(0.4
|
)
|
—
|
|
(0.4
|
)
|
|||||
|
Total increase in subscription revenue
|
7.2
|
|
—
|
|
7.2
|
|
|||||
|
Increase in non-subscription revenue (c)
|
—
|
|
4.0
|
|
4.0
|
|
|||||
|
Total organic increase
|
7.2
|
|
4.0
|
|
11.2
|
|
|||||
|
Impact of an acquisition
|
3.1
|
|
0.1
|
|
3.2
|
|
|||||
|
Impact of FX
|
24.2
|
|
2.2
|
|
26.4
|
|
|||||
|
Total
|
$
|
34.5
|
|
$
|
6.3
|
|
$
|
40.8
|
|
||
_______________
|
(a)
|
The increase in Central and Eastern Europe’s cable subscription revenue related to a change in the average number of
RGU
s is primarily attributable to (i) increases in the average numbers of digital cable, fixed-line telephony and broadband internet
RGU
s in Poland, Romania, Hungary and Slovakia and (ii) an increase in the average number of
RGU
s at
UPC DTH
that were only partially offset by a decline in the average number of (a) analog cable
RGU
s in each country within our Central and Eastern Europe segment and (b) digital cable, fixed-line telephony and broadband internet
RGU
s in the Czech Republic.
|
|
(b)
|
The decrease in Central and Eastern Europe’s cable 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 the inclusion of higher-priced tiers of digital cable and broadband internet services in Central and Eastern Europe’s promotional bundles, (iii) lower
ARPU
from incremental digital cable services and (iv) lower
ARPU
due to a decrease in fixed-line 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.
|
|
(c)
|
The increase in Central and Eastern Europe’s non-subscription revenue is due to individually insignificant changes in various non-subscription revenue categories.
|
II-24
Chile.
The increase in Chile’s revenue during
2013
, as compared to
2012
, includes (i) an organic increase of
$69.7 million
or
7.4%
and (ii) the impact of
FX
, as set forth below:
|
Subscription
revenue
|
Non-subscription
revenue
|
Total
|
|||||||||
|
in millions
|
|||||||||||
|
Increase in cable subscription revenue due to change in:
|
|||||||||||
|
Average number of RGUs (a)
|
$
|
45.4
|
|
$
|
—
|
|
$
|
45.4
|
|
||
|
ARPU (b)
|
13.4
|
|
—
|
|
13.4
|
|
|||||
|
Total increase in cable subscription revenue
|
58.8
|
|
—
|
|
58.8
|
|
|||||
|
Increase in mobile subscription revenue (c)
|
10.2
|
|
—
|
|
10.2
|
|
|||||
|
Total increase in subscription revenue
|
69.0
|
|
—
|
|
69.0
|
|
|||||
|
Increase in non-subscription revenue (d)
|
—
|
|
0.7
|
|
0.7
|
|
|||||
|
Total organic increase
|
69.0
|
|
0.7
|
|
69.7
|
|
|||||
|
Impact of FX
|
(17.1
|
)
|
(1.6
|
)
|
(18.7
|
)
|
|||||
|
Total
|
$
|
51.9
|
|
$
|
(0.9
|
)
|
$
|
51.0
|
|
||
|
(a)
|
The increase in Chile’s cable subscription revenue related to a change in the average number of
RGU
s is due to increases in the average numbers of digital cable, broadband internet and fixed-line telephony
RGU
s that were only partially offset by a decline in the average number of analog cable
RGU
s.
|
|
(b)
|
The increase in Chile’s cable subscription revenue related to a change in
ARPU
is due to (i) a net increase resulting from the following factors: (a) higher
ARPU
due to the impact of lower bundling and promotional discounts, (b) higher
ARPU
due to semi-annual inflation and other price adjustments for video, broadband internet and fixed-line telephony services, (c) lower
ARPU
from analog and digital cable services, largely due to a higher proportion of subscribers receiving lower-priced tiers of services, (d) higher
ARPU
from broadband internet services and (e) lower
ARPU
due to a decrease in fixed-line telephony call volume for customers on usage-based plans and (ii) an improvement in
RGU
mix.
|
|
(c)
|
The increase in Chile’s mobile subscription revenue is primarily due to the May 2012 launch of mobile services at
VTR
’s mobile operations.
|
|
(d)
|
The increase in Chile’s non-subscription revenue is attributable to the net effect of (i) an increase in mobile interconnect revenue primarily due to the May 2012 launch of mobile services at
VTR
’s mobile operations, (ii) an increase in advertising revenue, (iii) a decrease in fixed-line telephony interconnect revenue, (iv) a decrease in installation revenue and (v) a net decrease resulting from individually insignificant changes in various other non-subscription revenue categories.
|
II-25
Operating Expenses of our Reportable Segments
Operating expenses —
2014
compared to
2013
|
|
Year ended December 31,
|
Increase (decrease)
|
Organic increase (decrease) (a)
|
||||||||||||||
|
|
2014
|
2013
|
$
|
%
|
%
|
||||||||||||
|
|
in millions
|
|
|
||||||||||||||
|
European Operations Division:
|
|||||||||||||||||
|
U.K./Ireland (b)
|
$
|
3,189.3
|
|
$
|
1,853.5
|
|
$
|
1,335.8
|
|
72.1
|
|
(4.1
|
)
|
||||
|
The Netherlands (c)
|
444.9
|
|
376.2
|
|
68.7
|
|
18.3
|
|
(6.0
|
)
|
|||||||
|
Germany
|
623.8
|
|
631.5
|
|
(7.7
|
)
|
(1.2
|
)
|
(1.2
|
)
|
|||||||
|
Belgium
|
890.1
|
|
875.8
|
|
14.3
|
|
1.6
|
|
1.9
|
|
|||||||
|
Switzerland/Austria
|
528.5
|
|
510.3
|
|
18.2
|
|
3.6
|
|
2.3
|
|
|||||||
|
Total Western Europe
|
5,676.6
|
|
4,247.3
|
|
1,429.3
|
|
33.7
|
|
(1.8
|
)
|
|||||||
|
Central and Eastern Europe
|
500.0
|
|
513.5
|
|
(13.5
|
)
|
(2.6
|
)
|
(1.0
|
)
|
|||||||
|
Central and other
|
65.3
|
|
56.2
|
|
9.1
|
|
16.2
|
|
17.1
|
|
|||||||
|
Total European Operations Division
|
6,241.9
|
|
4,817.0
|
|
1,424.9
|
|
29.6
|
|
(1.5
|
)
|
|||||||
|
Chile
|
392.6
|
|
467.2
|
|
(74.6
|
)
|
(16.0
|
)
|
(3.2
|
)
|
|||||||
|
Corporate and other
|
196.9
|
|
200.3
|
|
(3.4
|
)
|
(1.7
|
)
|
(2.2
|
)
|
|||||||
|
Intersegment eliminations
|
(28.6
|
)
|
(78.9
|
)
|
50.3
|
|
N.M.
|
|
N.M.
|
|
|||||||
|
Total operating expenses excluding share-based compensation expense
|
6,802.8
|
|
5,405.6
|
|
1,397.2
|
|
25.8
|
|
(0.8
|
)
|
|||||||
|
Share-based compensation expense
|
7.6
|
|
12.1
|
|
(4.5
|
)
|
(37.2
|
)
|
|||||||||
|
Total
|
$
|
6,810.4
|
|
$
|
5,417.7
|
|
$
|
1,392.7
|
|
25.7
|
|
||||||
_______________
|
(a)
|
As further described under
Results of Operations
above, the organic decrease in our operating expenses during
2014
is impacted by the organic decrease in
Virgin Media
’s operating expenses. Excluding the impact of
Virgin Media
, the organic increase (decrease) in (i)
U.K./Ireland
’s operating expenses would have been (3.4%) and (ii) our total operating expenses would have been 0.6%.
|
|
(b)
|
The amount presented for 2013 includes the post-acquisition operating expenses of
Virgin Media
from June 8, 2013 through December 31, 2013.
|
|
(c)
|
The amount presented for 2014 includes the post-acquisition operating expenses of
Ziggo
from November 12, 2014 through December 31, 2014.
|
N.M. — Not Meaningful.
General.
Operating expenses include programming and copyright, network operations, interconnect, customer operations, customer care, share-based compensation and other costs related to our operations. We do not include share-based compensation in the following discussion and analysis of the operating expenses of our reportable segments as share-based compensation expense is not included in the performance measures of our reportable segments. Share-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 the number of our digital video subscribers, (ii) higher costs associated with the expansion of our digital video content, including rights associated with ancillary product offerings and rights that provide for the broadcast of live sporting events, and (iii) rate 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 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.
II-26
European Operations Division
.
The
European Operations Division
’s operating expenses (exclusive of share-based compensation expense) increased
$1,424.9 million
or
29.6%
during
2014, as compared to 2013
. This increase includes $1,376.4
million attributable to the impact of the
Virgin Media Acquisition
, the
Ziggo Acquisition
and other less significant acquisitions. Excluding the effects of acquisitions and
FX
, the
European Operations Division
’s operating expenses decreased
$72.8 million
or
1.5%
. This decrease includes the following factors:
|
•
|
A decrease in network-related expenses of $96.4 million or 13.2%, due in part to a retroactive reduction in
U.K.
local authority charges for network infrastructure following a review by the
U.K.
government that resulted in a benefit of $46.7 million during 2014. This benefit consists of (i) a $35.3 million nonrecurring benefit related to periods prior to the third quarter of 2014, of which $33.5 million was recorded during the third quarter of 2014, and (ii) benefits of $5.6 million and $5.8 million related to the third and fourth quarters of 2014, respectively. We expect a benefit similar to the fourth quarter amount to recur in future quarters. The decrease in network-related expenses also includes the net effect of (i) decreased network and customer premises equipment maintenance costs, predominantly in Switzerland, the
U.K.
and the Netherlands, (ii) lower outsourced labor costs associated with customer-facing activities, primarily in the Netherlands and the
U.K.
, (iii) lower duct and pole rental costs, primarily in Belgium, and (iv) higher network and customer premises equipment maintenance costs, predominantly in the
European Operations Division
’s central operations;
|
|
•
|
An increase in programming and copyright costs of $58.3 million or 4.0%,
resulting from an increase in programming costs associated with (i) growth in digital video services, predominantly in the
U.K.
and Belgium and, to a lessor extent, Switzerland and Germany and (ii) increased costs for sports rights, predominantly in the
U.K.
and, to a lesser extent, Romania. These increases were partially offset by the $44.7 million net impact of certain nonrecurring adjustments related to the settlement or reassessment of operational contingencies.
The
nonrecurring adjustments recorded during 2014 resulted in lower costs of (a) $16.9 million in Belgium and $7.0 million in Poland during the first quarter, (b) $10.6 million in the
U.K.
during the second quarter, (c) an aggregate of $7.3 million in Belgium, Switzerland, Austria and the Netherlands during the third quarter and (d) $2.3 million in the Netherlands during the fourth quarter. During 2013, the aggregate impact of similar reassessments and settlements, which included increases in Belgium and Poland that were largely offset by a decrease in the Netherlands, resulted in a net cost increase of $0.6 million;
|
|
•
|
An increase in installation and other direct costs of $23.1 million associated with
B2B
services in the
U.K.
;
|
|
•
|
A decrease in outsourced labor and professional fees of $17.6 million or 5.7%, primarily due to the net effect of (i) lower call center costs, predominantly in Belgium, the
U.K.
, Switzerland and the Netherlands, (ii) lower consulting costs in Germany and Belgium and (iii) higher call center costs in Germany;
|
|
•
|
A decrease in mobile access and interconnect costs of
$17.0 million or 2.3%,
primarily due to the net effect of
(i) increased costs in the
U.K.
and Belgium attributable to mobile subscriber growth, (ii) decreased costs resulting from lower rates, primarily in the
U.K.
, Germany, Belgium and the Netherlands, (iii) lower call volumes, predominantly in the
U.K.
and, to a lesser extent, Germany, the Netherlands and Ireland, (iv) decreased costs associated with the
U.K.
’s non-cable subscriber base and (v) a $2.6 million decrease in Belgium due to the impact of an accrual release in the first quarter of 2014 associated with the reassessment of an operational contingency;
|
|
•
|
A decrease in mobile handset costs of
$15.8 million, primarily due to the net effect of (i) a decrease in mobile handset costs as a result of continued growth of SIM-only contracts, predominantly in the
U.K.
, (ii) an increase in costs associated with subscriber promotions involving free or heavily-discounted handsets in Belgium and (iii) a net increase in mobile handset sales to third-party retailers, as increases in Switzerland and the
U.K.
were only partially offset by a decrease in Belgium;
|
|
•
|
A decrease in personnel costs of $15.4 million or 2.1%,
primarily due to the net effect of
(i) decreased staffing levels,
primarily as a result of integration and reorganization activities in the
U.K.
following the
Virgin Media Acquisition
, (ii) annual wage increases, primarily in the
U.K.
, Germany, the Netherlands and Belgium, and (iii) higher incentive compensation costs, primarily in the
U.K.
Additionally, changes in the proportion of capitalizable activities during 2014 resulted in a net decrease in personnel costs, primarily due to the net effect of (a) lower costs in Germany and (b) higher costs in the
U.K.
;
|
|
•
|
A decrease in certain direct costs of $14.2 million associated with the
U.K.
’s non-cable subscriber base;
|
|
•
|
A decrease in bad debt and collection expenses of $12.6 million or 9.8%, with most of the declines occurring in Germany, the Netherlands, the Czech Republic and Hungary; and
|
II-27
|
•
|
A net increase resulting from individually insignificant changes in other operating expense categories.
|
Chile.
Chile’s operating expenses (exclusive of share-based compensation expense) decreased
$74.6 million
or
16.0%
during
2014, as compared to 2013
. Excluding the effects of
FX
, Chile’s operating expenses decreased
$15.1 million
or
3.2%
. This decrease includes the following factors:
|
•
|
An increase in programming and copyright costs of $18.1 million or 11.6%, primarily associated with (i) growth in digital cable services and (ii) a $5.2 million increase arising from foreign currency exchange rate fluctuations with respect to Chile’s
U.S.
dollar denominated programming contracts. A significant portion of Chile’s programming costs are denominated in
U.S.
dollars;
|
|
•
|
A decrease in facilities expenses $12.9 million or 81.7%, primarily due to lower tower and real estate rental costs, as the fair value of all remaining payments due under these leases was included in the restructuring charges recorded during the third and fourth quarters of 2013 in connection with certain strategic changes that were implemented with regard to Chile’s mobile operations, as further described in note
9
to our consolidated financial statements;
|
|
•
|
A decrease in outsourced labor and professional fees of $5.3 million or 13.3%, primarily attributable to the net effect of (i) lower costs associated with the network operating center related to Chile’s mobile operations, (ii) higher call center costs and (iii) the favorable impact of a $3.1 million nonrecurring charge recorded during the second quarter of 2013 to provide for Chile’s mandated share of severance and other labor-related obligations that were incurred by a
VTR
contractor in connection with such contractor’s bankruptcy;
|
|
•
|
A decrease in mobile handset costs of $5.1 million or 23.0%, primarily attributable to (i) a decrease of $4.2 million related to the impact of the liquidation or write-off of slow moving or obsolete mobile handsets and wireless network adaptors in 2013 and (ii) a decrease in mobile handset sales due to a reduced emphasis on prepaid plans;
|
|
•
|
A decrease of $4.7 million due to the favorable impact of nonrecurring adjustments during the fourth quarter of 2014 related to the reassessment of certain accrued liabilities;
|
|
•
|
An increase in personnel costs of $3.2 million or 5.8%, primarily due to the net effect of (i) higher incentive compensation costs and (ii) decreased staffing levels, primarily resulting from the strategic changes that were implemented with regard to Chile’s mobile operations;
|
|
•
|
A decrease in mobile access and interconnect costs of $2.4 million or 2.8%, primarily attributable to the net effect of (i) lower mobile access charges due to the impacts of lower contractual rates and (ii) an increase in interconnect costs resulting from the net effect of (a) higher call volumes and (b) lower rates; and
|
|
•
|
A decrease in bad debt and collection expenses of $2.2 million or 5.4%, primarily due to more selective credit acceptance policies.
|
II-28
Operating expenses —
2013
compared to
2012
|
|
Year ended December 31,
|
Increase (decrease)
|
Organic increase (decrease)
|
|||||||||||||
|
|
2013
|
2012
|
$
|
%
|
%
|
|||||||||||
|
|
in millions
|
|
|
|||||||||||||
|
European Operations Division:
|
||||||||||||||||
|
U.K./Ireland (a)
|
$
|
1,853.5
|
|
$
|
184.3
|
|
$
|
1,669.2
|
|
N.M.
|
N.M.
|
|
||||
|
The Netherlands
|
376.2
|
|
354.5
|
|
21.7
|
|
6.1
|
2.8
|
|
|||||||
|
Germany
|
631.5
|
|
548.3
|
|
83.2
|
|
15.2
|
11.4
|
|
|||||||
|
Belgium
|
875.8
|
|
734.5
|
|
141.3
|
|
19.2
|
15.4
|
|
|||||||
|
Switzerland/Austria
|
510.3
|
|
499.1
|
|
11.2
|
|
2.2
|
0.4
|
|
|||||||
|
Total Western Europe
|
4,247.3
|
|
2,320.7
|
|
1,926.6
|
|
83.0
|
8.6
|
|
|||||||
|
Central and Eastern Europe
|
513.5
|
|
482.6
|
|
30.9
|
|
6.4
|
3.5
|
|
|||||||
|
Central and other
|
56.2
|
|
40.1
|
|
16.1
|
|
40.1
|
36.1
|
|
|||||||
|
Total European Operations Division
|
4,817.0
|
|
2,843.4
|
|
1,973.6
|
|
69.4
|
8.1
|
|
|||||||
|
Chile
|
467.2
|
|
442.4
|
|
24.8
|
|
5.6
|
7.5
|
|
|||||||
|
Corporate and other
|
200.3
|
|
123.2
|
|
77.1
|
|
62.6
|
(1.0
|
)
|
|||||||
|
Intersegment eliminations
|
(78.9
|
)
|
(67.8
|
)
|
(11.1
|
)
|
N.M.
|
N.M.
|
|
|||||||
|
Total operating expenses excluding share-based compensation expense
|
5,405.6
|
|
3,341.2
|
|
2,064.4
|
|
61.8
|
7.5
|
|
|||||||
|
Share-based compensation expense
|
12.1
|
|
8.5
|
|
3.6
|
|
42.4
|
|||||||||
|
Total
|
$
|
5,417.7
|
|
$
|
3,349.7
|
|
$
|
2,068.0
|
|
61.7
|
||||||
_______________
|
(a)
|
The amount presented for 2013 includes the post-acquisition operating expenses of
Virgin Media
from June 8, 2013 through
December 31, 2013
.
|
N.M. — Not Meaningful.
European Operations Division
.
The
European Operations Division
’s operating expenses (exclusive of share-based compensation expense) increased
$1,973.6 million
or
69.4%
during
2013, as compared to 2012
. This increase includes $1,657.4 million attributable to the impact of the
Virgin Media Acquisition
and other less significant acquisitions. Excluding the effects of acquisitions and
FX
, the
European Operations Division
’s operating expenses increased
$230.6 million
or
8.1%
. This increase includes the following factors:
|
•
|
An increase in programming and copyright costs of $80.7 million or 9.3%, primarily due to growth in digital video services in Germany, the Netherlands, Belgium, Ireland and the
U.K.
In the
U.K.
and, to a lesser extent, Belgium, increased costs for sports rights also contributed to the increase. In addition, accrual releases related to the settlement or reassessment of operational contingencies gave rise to an increase in programming and copyright costs of $10.5 million, as the impact of net accrual releases that reduced the 2012 costs in Germany, the Netherlands, Poland and Belgium more than offset the impact of net accrual releases that reduced the 2013 costs in the Netherlands;
|
|
•
|
An increase in interconnect costs of $72.7 million or 23.1%, primarily due to the net effect of (i) increased costs in Belgium attributable to (a) mobile subscriber growth and (b) increased mobile voice and data volumes on a per subscriber basis and (ii) decreased costs due to lower rates in Germany and the Netherlands and lower call volumes in Switzerland;
|
|
•
|
An increase in outsourced labor and professional fees of $19.5 million or 12.0%, primarily due to (i) higher call center costs in Germany, Switzerland and the Netherlands and (ii) higher consulting costs related to (a) the
Horizon TV
platform incurred in the
European Operations Division
's central operations and (b) a customer retention project in Germany. These increases were partially offset by lower call center costs in Belgium, Hungary and the
U.K.
primarily due to reduced proportions of calls handled by third parties;
|
II-29
|
•
|
An increase in personnel costs of $14.3 million or 2.9%, primarily due to (i) annual wage increases, primarily in Germany, Belgium and the Netherlands, (ii) increased staffing levels, primarily in the
European Operations Division
’s central operations, the Netherlands and Belgium, (iii) higher costs of $3.8 million due to the impact of reimbursements received from the Belgian government during the third and fourth quarters of 2012 with respect to the employment of certain individuals with advanced degrees and (iv) higher costs of $3.1 million due to favorable reassessments of certain post-employment benefit obligations during the third and fourth quarters of 2012 in Belgium. These increases were partially offset by a decrease in personnel costs related to lower staffing levels in Germany and Ireland;
|
|
•
|
An increase in network-related expenses of $12.8 million or 2.4%, primarily due to (i) increased network and customer premises equipment maintenance costs, primarily in the Netherlands and Germany, (ii) higher outsourced labor costs associated with customer-facing activities in Germany and (iii) an increase of $2.9 million due to the net impact of favorable settlements during 2013 and 2012 for claims of costs incurred in connection with faulty customer premises equipment, primarily in Switzerland and the Netherlands. These increases were partially offset by lower costs in Belgium associated with customer-facing activities;
|
|
•
|
An increase in bad debt and collection expenses of $9.5 million or 11.0%, due to the net impact of (i) increased bad debt expenses in Germany, Belgium and Hungary, (ii) decreases in bad debt expenses in the Netherlands due to improved collection experience and (iii) an increase of $3.0 million due to the impact of a favorable nonrecurring adjustment recorded in the second quarter of 2012 related to the settlement of an operational contingency in Belgium; and
|
|
•
|
Higher costs of $4.6 million associated with the impact of favorable nonrecurring adjustments recorded by our Belgium operations during the third and fourth quarters of 2012 resulting from the reassessment of a social tariff obligation.
|
Chile.
Chile’s operating expenses (exclusive of share-based compensation expense) increased
$24.8 million
or
5.6%
during
2013
, as compared to
2012
. Excluding the effects of
FX
, Chile’s operating expenses increased
$33.1 million
or
7.5%
. This increase includes the following factors:
|
•
|
An increase in programming and copyright costs of $13.3 million or 9.0%, primarily associated with growth in digital cable services;
|
|
•
|
An increase in mobile access and interconnect costs of $9.1 million or 12.5%, primarily due to the impact of Chile’s mobile services, which launched in May 2012;
|
|
•
|
An increase in personnel costs of $7.3 million or 14.8%, largely due to higher incentive compensation costs;
|
|
•
|
A decrease in facilities expenses of $5.5 million or 25.3%, primarily due to lower tower and real estate rental costs, as the fair value of all remaining payments due under these leases was included in the restructuring charges recorded during the third and fourth quarters of 2013 in connection with certain strategic changes that were implemented with regard to Chile’s mobile operations, as further described in note
9
to our consolidated financial statements;
|
|
•
|
An increase in bad debt and collection expenses of $3.7 million or 9.8%. This increase is largely a function of the May 2012 launch of mobile services in Chile;
|
|
•
|
An increase in outsourced labor and professional fees of $3.3 million or 17.8%. This increase is primarily attributable to a $3.0 million non-recurring charge recorded during the second quarter of 2013 to provide for Chile’s mandated share of severance and other labor-related obligations that were incurred by a
VTR
contractor in connection with such contractor’s bankruptcy; and
|
|
•
|
A decrease in Chile’s mobile handset costs of $0.7 million, primarily attributable to the net effect of (i) an aggregate increase of $4.4 million related to the liquidation or write-off of slow-moving or obsolete handsets and wireless network adaptors and (ii) a decrease of $5.4 million in mobile handset sales largely due to a reduced emphasis on prepaid mobile plans.
|
II-30
SG&A Expenses of our Reportable Segments
SG&A expenses —
2014
compared to
2013
|
|
Year ended December 31,
|
Increase (decrease)
|
Organic increase (a)
|
|||||||||||||
|
|
2014
|
2013
|
$
|
%
|
%
|
|||||||||||
|
|
in millions
|
|
|
|||||||||||||
|
European Operations Division:
|
||||||||||||||||
|
U.K./Ireland (b)
|
$
|
984.9
|
|
$
|
521.1
|
|
$
|
463.8
|
|
89.0
|
|
6.2
|
||||
|
The Netherlands (c)
|
195.7
|
|
144.5
|
|
51.2
|
|
35.4
|
|
9.1
|
|||||||
|
Germany
|
409.5
|
|
386.6
|
|
22.9
|
|
5.9
|
|
5.9
|
|||||||
|
Belgium
|
264.3
|
|
260.7
|
|
3.6
|
|
1.4
|
|
1.8
|
|||||||
|
Switzerland/Austria
|
261.2
|
|
251.1
|
|
10.1
|
|
4.0
|
|
3.0
|
|||||||
|
Total Western Europe
|
2,115.6
|
|
1,564.0
|
|
551.6
|
|
35.3
|
|
5.1
|
|||||||
|
Central and Eastern Europe
|
176.5
|
|
174.0
|
|
2.5
|
|
1.4
|
|
3.3
|
|||||||
|
Central and other
|
210.3
|
|
182.5
|
|
27.8
|
|
15.2
|
|
18.8
|
|||||||
|
Total European Operations Division
|
2,502.4
|
|
1,920.5
|
|
581.9
|
|
30.3
|
|
6.3
|
|||||||
|
Chile
|
154.9
|
|
170.8
|
|
(15.9
|
)
|
(9.3
|
)
|
4.4
|
|||||||
|
Corporate and other
|
266.2
|
|
237.8
|
|
28.4
|
|
11.9
|
|
10.0
|
|||||||
|
Intersegment eliminations
|
(0.3
|
)
|
(1.2
|
)
|
0.9
|
|
N.M.
|
|
N.M.
|
|||||||
|
Total SG&A expenses excluding share-based compensation expense
|
2,923.2
|
|
2,327.9
|
|
595.3
|
|
25.6
|
|
6.6
|
|||||||
|
Share-based compensation expense
|
249.6
|
|
288.6
|
|
(39.0
|
)
|
(13.5
|
)
|
||||||||
|
Total
|
$
|
3,172.8
|
|
$
|
2,616.5
|
|
$
|
556.3
|
|
21.3
|
|
|||||
___________
|
(a)
|
As further described under
Results of Operations
above, the organic increase in our SG&A expenses during
2014
is impacted by the organic increase in
Virgin Media
’s SG&A expenses. Excluding the impact of
Virgin Media
, the organic increase in (i)
U.K./Ireland
’s SG&A expenses would have been 2.4% and (ii) our total SG&A expenses would have been 6.5%.
|
|
(b)
|
The amount presented for 2013 includes the post-acquisition SG&A expenses of
Virgin Media
from June 8, 2013 through December 31, 2013.
|
|
(c)
|
The amount presented for 2014 includes the post-acquisition SG&A expenses of
Ziggo
from November 12, 2014 through December 31, 2014.
|
N.M. — Not Meaningful.
General.
SG&A expenses include human resources, information technology, general services, management, finance, legal and sales and marketing costs, share-based compensation and other general expenses. We do not include share-based compensation in the following discussion and analysis of the SG&A expenses of our reportable segments as share-based compensation expense is not included in the performance measures of our reportable segments. Share-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.
II-31
European Operations Division
.
The
European Operations Division
’s SG&A expenses (exclusive of share-based compensation expense) increased
$581.9 million
or
30.3%
during
2014, as compared to 2013
. This increase includes $429.5 million attributable to the impact of the
Virgin Media Acquisition
, the
Ziggo Acquisition
and other less significant acquisitions. Excluding the effects of acquisitions and
FX
, the
European Operations Division
’s SG&A expenses increased
$120.1 million
or
6.3%
. This increase includes the following factors:
|
•
|
An increase in information technology-related expenses of $41.4 million or 51.2%, largely due to higher software and other information technology-related maintenance costs, primarily in the
U.K.
, the
European Operations Division
’s central operations, Germany and Belgium;
|
|
•
|
An increase in sales and marketing costs of $35.4 million or 5.3%, primarily due to the net effect of (i) higher costs associated with advertising campaigns, predominantly in the
U.K.
, Germany, the Netherlands and Switzerland, and (ii) a decrease in third-party sales commissions, primarily attributable to the net impact of (a) decreases in the
U.K.
and Switzerland and (b) an increase in Germany;
|
|
•
|
An increase in personnel costs of $32.3 million or 4.2%, due to the net effect of (i) higher incentive compensation costs predominantly in the
U.K.
and, to a lesser extent, the
European Operations Division
’s central operations and the Netherlands, (ii) decreased staffing levels in the
U.K.
as a result of integration and reorganization activities following the
Virgin Media Acquisition
, (iii) increased staffing levels in the
European Operations Division
’s central operations, Germany, the Netherlands and Switzerland, (iv) annual wage increases, mostly in the
U.K.
, the Netherlands, Germany, the
European Operations Division
’s central operations and Belgium, and (v) a $3.5 million decrease in the
European Operations Division
’s central operations due to the impact of an accrual release in the fourth quarter of
2014
associated with the settlement of an operational contingency; and
|
|
•
|
An increase in outsourced labor and professional fees of $22.0 million or 16.1%, primarily due to (i) increased consulting costs associated with scale initiatives in the areas of information technology and finance, primarily in the
European Operations Division
’s central operations, Switzerland and Germany, and (ii) a $7.3 million increase associated with a nonrecurring consulting fee incurred during the third quarter of 2014 in connection with the retroactive reduction in
U.K.
local authority charges, as discussed under
Operating Expenses of our Reportable Segments
above.
|
Chile.
Chile’s SG&A expenses (exclusive of share-based compensation expense) decreased
$15.9 million
or
9.3%
, during
2014, as compared to 2013
. Excluding the effects of
FX
, Chile’s SG&A expenses increased
$7.5 million
or
4.4%
.
This increase includes the following factors:
|
•
|
An increase in sales and marketing costs of $12.8 million or 23.9%, primarily due to the net effect of (i) higher third-party sales commissions and advertising costs related to Chile’s cable operations and (ii) lower third-party sales commissions related to Chile’s mobile operations;
|
|
•
|
A decrease in personnel costs of $2.5 million or 4.0%, primarily due to the net effect of (i) a decrease due to lower staffing levels, (ii) an increase due to higher incentive compensation costs and (iii) an increase due to higher severance costs; and
|
|
•
|
A decrease of $1.9 million due to the favorable impact of nonrecurring adjustments during the fourth quarter of 2014 related to the reassessment of certain accrued liabilities.
|
II-32
SG&A expenses —
2013
compared to
2012
|
|
Year ended December 31,
|
Increase (decrease)
|
Organic increase (decrease)
|
||||||||||||||
|
|
2013
|
2012
|
$
|
%
|
%
|
||||||||||||
|
|
in millions
|
|
|
||||||||||||||
|
European Operations Division:
|
|||||||||||||||||
|
U.K./Ireland (a)
|
$
|
521.1
|
|
$
|
53.0
|
|
$
|
468.1
|
|
N.M.
|
|
N.M.
|
|
||||
|
The Netherlands
|
144.5
|
|
137.5
|
|
7.0
|
|
5.1
|
|
1.6
|
|
|||||||
|
Germany
|
386.6
|
|
398.4
|
|
(11.8
|
)
|
(3.0
|
)
|
(5.9
|
)
|
|||||||
|
Belgium
|
260.7
|
|
242.8
|
|
17.9
|
|
7.4
|
|
4.0
|
|
|||||||
|
Switzerland/Austria
|
251.1
|
|
246.2
|
|
4.9
|
|
2.0
|
|
0.4
|
|
|||||||
|
Total Western Europe
|
1,564.0
|
|
1,077.9
|
|
486.1
|
|
45.1
|
|
(3.1
|
)
|
|||||||
|
Central and Eastern Europe
|
174.0
|
|
159.4
|
|
14.6
|
|
9.2
|
|
6.6
|
|
|||||||
|
Central and other
|
182.5
|
|
157.2
|
|
25.3
|
|
16.1
|
|
11.9
|
|
|||||||
|
Total European Operations Division
|
1,920.5
|
|
1,394.5
|
|
526.0
|
|
37.7
|
|
(0.3
|
)
|
|||||||
|
Chile
|
170.8
|
|
184.0
|
|
(13.2
|
)
|
(7.2
|
)
|
(5.7
|
)
|
|||||||
|
Corporate and other
|
237.8
|
|
183.9
|
|
53.9
|
|
29.3
|
|
14.4
|
|
|||||||
|
Intersegment eliminations
|
(1.2
|
)
|
(3.7
|
)
|
2.5
|
|
N.M.
|
|
N.M.
|
|
|||||||
|
Total SG&A expenses excluding share-based compensation expense
|
2,327.9
|
|
1,758.7
|
|
569.2
|
|
32.4
|
|
0.8
|
|
|||||||
|
Share-based compensation expense
|
288.6
|
|
101.6
|
|
187.0
|
|
184.1
|
|
|||||||||
|
Total
|
$
|
2,616.5
|
|
$
|
1,860.3
|
|
$
|
756.2
|
|
40.6
|
|
||||||
____________
|
(a)
|
The amount presented for 2013 includes the post-acquisition SG&A expenses of
Virgin Media
from June 8, 2013 through
December 31, 2013
.
|
N.M. — Not Meaningful.
European Operations Division
.
The
European Operations Division
’s SG&A expenses (exclusive of share-based compensation expense) increased
$526.0 million
or
37.7%
during
2013
, as compared to
2012
. This increase includes $491.4 million attributable to the impact of the
Virgin Media Acquisition
and other less significant acquisitions. Excluding the effects of acquisitions and
FX
, the
European Operations Division
’s SG&A expenses decreased
$4.0 million
or
0.3%
. This decrease includes the following factors:
|
•
|
A decrease in sales and marketing costs of $43.6 million or 8.6%, primarily due to (i) lower costs associated with advertising campaigns and rebranding, primarily in the
U.K.
, Germany, and the
European Operations Division
’s central operations, and (ii) lower third-party sales commissions, primarily in the Netherlands, Switzerland, Hungary, Austria and the Czech Republic;
|
|
•
|
An increase in personnel costs of $22.7 million or 4.3%, largely due to (i) increased staffing levels, primarily in Belgium, Switzerland, Germany, Hungary and the
European Operations Division
’s central operations, (ii) annual wage increases, primarily in the Netherlands, the
European Operations Division
’s central operations, Belgium, Germany and Switzerland, and (iii) higher costs of $1.4 million due to the favorable reassessment of certain post-employment benefit obligations during the third quarter of 2012 in Belgium;
|
|
•
|
An increase in information technology-related expenses of $17.4 million or 26.8%, primarily due to (i) higher software and other information technology-related maintenance costs, primarily in the
European Operations Division
’s central operations, Hungary and Germany and (ii) higher costs incurred in connection with the migration of certain operating systems in Germany;
|
|
•
|
An increase in facilities expenses of $8.4 million or 8.1%, largely due to higher rental expense in Germany and the
European Operations Division
’s central operations;
|
II-33
|
•
|
An increase in outsourced labor and professional fees of $8.3 million or 8.5%, largely due to the net effect of (i) higher consulting costs associated with certain strategic initiatives in Belgium, the
European Operations Division
’s central operations and the Netherlands and (ii) a decrease in consulting costs in Germany, primarily associated with the impact of integration activities during 2012 related to the
KBW Acquisition
; and
|
|
•
|
A net decrease resulting from individually insignificant changes in other SG&A expense categories.
|
Chile.
Chile’s SG&A expenses (exclusive of share-based compensation expense) decreased
$13.2 million
or
7.2%
during
2013
, as compared to
2012
. Excluding the effects of FX, Chile’s SG&A expenses decreased
$10.4 million
or
5.7%
. This decrease includes the following factors:
|
•
|
A decrease in sales and marketing costs of $8.8 million or 14.5%, primarily due to lower advertising costs;
|
|
•
|
An increase in personnel costs of $2.9 million or 4.7%, primarily attributable to the net effect of (i) an increase related to Chile’s cable operations, primarily due to (a) higher incentive compensation costs, (b) a combination of increased staffing levels and higher salaries and (c) higher severance, and (ii) a decrease related to Chile’s mobile operations, primarily due to lower staffing levels and bonus accruals; and
|
|
•
|
A decrease in facilities expenses of $2.3 million or 8.2%, primarily attributable to (i) a decrease related to Chile’s cable operations, primarily due to (a) lower rental costs and (b) lower insurance expenses and (ii) a decrease related to Chile’s mobile operations, as the fair value of all remaining payments due under certain facilities-related contracts were included in the restructuring charges recorded during the third and fourth quarters of 2013, as further described in note
9
to our consolidated financial statements.
|
II-34
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 share-based compensation, depreciation and amortization, provisions and provision releases related to significant 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
loss from continuing operations before income taxes, see note
18
to our consolidated financial statements.
Operating Cash Flow —
2014
compared to
2013
|
|
Year ended December 31,
|
Increase (decrease)
|
Organic increase (decrease) (a)
|
||||||||||||||
|
|
2014
|
2013
|
$
|
%
|
%
|
||||||||||||
|
|
in millions
|
|
|
||||||||||||||
|
European Operations Division:
|
|||||||||||||||||
|
U.K./Ireland (b)
|
$
|
3,235.7
|
|
$
|
1,742.8
|
|
$
|
1,492.9
|
|
85.7
|
|
13.0
|
|
||||
|
The Netherlands (c)
|
857.9
|
|
721.7
|
|
136.2
|
|
18.9
|
|
(1.0
|
)
|
|||||||
|
Germany
|
1,678.2
|
|
1,541.1
|
|
137.1
|
|
8.9
|
|
9.0
|
|
|||||||
|
Belgium
|
1,125.0
|
|
1,049.4
|
|
75.6
|
|
7.2
|
|
6.9
|
|
|||||||
|
Switzerland/Austria
|
1,056.4
|
|
1,005.7
|
|
50.7
|
|
5.0
|
|
3.6
|
|
|||||||
|
Total Western Europe
|
7,953.2
|
|
6,060.7
|
|
1,892.5
|
|
31.2
|
|
7.7
|
|
|||||||
|
Central and Eastern Europe
|
583.0
|
|
584.5
|
|
(1.5
|
)
|
(0.3
|
)
|
1.5
|
|
|||||||
|
Central and other
|
(282.7
|
)
|
(239.1
|
)
|
(43.6
|
)
|
(18.2
|
)
|
(18.6
|
)
|
|||||||
|
Total European Operations Division
|
8,253.5
|
|
6,406.1
|
|
1,847.4
|
|
28.8
|
|
6.7
|
|
|||||||
|
Chile
|
351.0
|
|
353.6
|
|
(2.6
|
)
|
(0.7
|
)
|
14.3
|
|
|||||||
|
Corporate and other
|
(86.2
|
)
|
(63.8
|
)
|
(22.4
|
)
|
(35.1
|
)
|
(33.1
|
)
|
|||||||
|
Intersegment eliminations
|
4.0
|
|
44.8
|
|
(40.8
|
)
|
N.M.
|
|
N.M.
|
|
|||||||
|
Total
|
$
|
8,522.3
|
|
$
|
6,740.7
|
|
$
|
1,781.6
|
|
26.4
|
|
6.2
|
|
||||
______________
|
(a)
|
As further described under
Results of Operations
above, the organic increase in our operating cash flow during
2014
is impacted by the organic increase in
Virgin Media
’s operating cash flow. Excluding the impact of
Virgin Media
, the organic increase in (i)
U.K./Ireland
’s operating cash flow would have been 4.6% and (ii) our total operating cash flow would have been 3.8%
|
|
(b)
|
The amount presented for 2013 includes the post-acquisition operating cash flow of
Virgin Media
from June 8, 2013 through
December 31, 2013
.
|
|
(c)
|
The amount presented for 2014 includes the post-acquisition operating cash flow of
Ziggo
from November 12, 2014 through December 31, 2014.
|
N.M. — Not Meaningful.
II-35
Operating Cash Flow —
2013
compared to
2012
|
|
Year ended December 31,
|
Increase (decrease)
|
Organic increase (decrease)
|
||||||||||||||
|
|
2013
|
2012
|
$
|
%
|
%
|
||||||||||||
|
|
in millions
|
|
|
||||||||||||||
|
European Operations Division:
|
|||||||||||||||||
|
U.K./Ireland (a)
|
$
|
1,742.8
|
|
$
|
189.1
|
|
$
|
1,553.7
|
|
N.M.
|
|
N.M.
|
|
||||
|
The Netherlands
|
721.7
|
|
737.1
|
|
(15.4
|
)
|
(2.1
|
)
|
(5.3
|
)
|
|||||||
|
Germany
|
1,541.1
|
|
1,364.3
|
|
176.8
|
|
13.0
|
|
9.3
|
|
|||||||
|
Belgium
|
1,049.4
|
|
940.7
|
|
108.7
|
|
11.6
|
|
8.0
|
|
|||||||
|
Switzerland/Austria
|
1,005.7
|
|
936.5
|
|
69.2
|
|
7.4
|
|
5.5
|
|
|||||||
|
Total Western Europe
|
6,060.7
|
|
4,167.7
|
|
1,893.0
|
|
45.4
|
|
6.2
|
|
|||||||
|
Central and Eastern Europe
|
584.5
|
|
589.2
|
|
(4.7
|
)
|
(0.8
|
)
|
(2.7
|
)
|
|||||||
|
Central and other
|
(239.1
|
)
|
(195.7
|
)
|
(43.4
|
)
|
(22.2
|
)
|
(17.7
|
)
|
|||||||
|
Total European Operations Division
|
6,406.1
|
|
4,561.2
|
|
1,844.9
|
|
40.4
|
|
4.5
|
|
|||||||
|
Chile
|
353.6
|
|
314.2
|
|
39.4
|
|
12.5
|
|
14.9
|
|
|||||||
|
Corporate and other
|
(63.8
|
)
|
(83.1
|
)
|
19.3
|
|
23.2
|
|
(27.5
|
)
|
|||||||
|
Intersegment eliminations
|
44.8
|
|
38.6
|
|
6.2
|
|
N.M.
|
|
N.M.
|
|
|||||||
|
Total
|
$
|
6,740.7
|
|
$
|
4,830.9
|
|
$
|
1,909.8
|
|
39.5
|
|
4.9
|
|
||||
_______________
|
(a)
|
The amount presented for 2013 includes the post-acquisition operating cash flow of
Virgin Media
from June 8, 2013 through
December 31, 2013
.
|
N.M. — Not Meaningful.
Operating Cash Flow Margin —
2014
,
2013
and
2012
The following table sets forth the operating cash flow margins (operating cash flow divided by revenue) of each of our reportable segments:
|
|
Year ended December 31,
|
||||
|
|
2014
|
2013
|
2012
|
||
|
|
%
|
||||
|
European Operations Division:
|
|||||
|
U.K./Ireland
|
43.7
|
42.3
|
44.3
|
||
|
The Netherlands
|
57.3
|
58.1
|
60.0
|
||
|
Germany
|
61.9
|
60.2
|
59.0
|
||
|
Belgium
|
49.4
|
48.0
|
49.0
|
||
|
Switzerland/Austria
|
57.2
|
56.9
|
55.7
|
||
|
Total Western Europe
|
50.5
|
51.1
|
55.1
|
||
|
Central and Eastern Europe
|
46.3
|
46.0
|
47.9
|
||
|
Total European Operations Division
|
48.6
|
48.7
|
51.8
|
||
|
Chile
|
39.1
|
35.7
|
33.4
|
||
With the exception of the Netherlands, the operating cash flow margins of the
European Operations Division
’s reportable segments improved or remained relatively unchanged during 2014, as compared to 2013. These results are primarily attributable to improved operational leverage, resulting from revenue growth that more than offset the accompanying net organic increase in operating and SG&A expenses.
The decline in the operating cash flow margin of the Netherlands during 2014, as compared to 2013, was due to the inclusion of the relatively lower operating cash flow margin of Ziggo from November 12, 2014 through December 31, 2014. In addition, the overall operating cash flow margin of the
European Operations Division
during 2014 was
II-36
negatively impacted by (i) the full-year inclusion of the relatively lower operating cash flow margin of
Virgin Media
and (ii) an increase in the operating cash flow deficit of the
European Operations Division
’s central and other category, primarily attributable to scale initiatives in the areas of information technology and finance.
The increase in Chile’s operating cash flow margin during 2014, as compared to 2013, is primarily attributable to improved operational leverage and the benefit of certain strategic changes that were implemented with regard to Chile’s mobile operations. For additional information regarding the changes in Chile’s mobile strategy, see note 9 to our consolidated financial statements.
During 2014, as compared to 2013, nonrecurring items favorably impacted the operating cash flow margins of the
European Operations Division
and Chile. For additional information, see the applicable discussion of revenue, operating expenses and SG&A expenses of our reportable segments above.
With the exception of Belgium, the Netherlands and
Central and Eastern Europe
, the operating cash flow margins of our reportable segments improved during
2013, as compared to 2012
. The decline in Belgium’s operating cash flow margin is primarily due to (i) increased interconnect and other costs associated with the expansion of Belgium’s mobile business, (ii) the net negative impact of certain favorable nonrecurring items recorded in Belgium during 2012, as described under the Belgium (revenue) and
European Operations Division
(operating and SG&A expenses) sections of our
Discussion and Analysis of our Reportable Segments
above, and (iii) a decrease in revenue associated with changes in how Belgium recognizes certain up-front fees. As a result of significant competition, the Netherlands experienced a decline in revenue in
2013
, which resulted in a lower operating cash flow margin during
2013, as compared to 2012
. In
Central and Eastern Europe
, competitive, economic and other factors contributed to the decline in the operating cash flow margin. In addition, the operating cash flow margin of the
European Operations Division
during
2013
was negatively impacted by (a) the inclusion of the relatively lower operating cash flow margin of
Virgin Media
from June 8, 2013 through
December 31, 2013
and (b) an increase in the operating cash flow deficit of the
European Operations Division
’s central and other category, which is primarily attributable to higher personnel and consulting costs, due in part to increased levels of strategic initiatives.
The increase in Chile’s operating cash flow margin during
2013, as compared to 2012
, reflects lower advertising costs at Chile’s cable operations and the improvement in the incremental operating cash flow deficit of Chile’s mobile operations.
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.
We expect that the
2015
operating cash flow margins of
the
European Operations Division
and Chile will increase slightly, each as compared to
2014
. In the
European Operations Division
, we expect that slight improvements in the operating cash flow margins of
U.K./Ireland
and
Switzerland/Austria
will be partially offset by a decline in the operating cash flow margin of Central and Eastern Europe. In addition, we expect that the 2015 operating cash flow margin of the Netherlands will remain relatively unchanged, as compared to 2014, as improvements from synergies associated with the integration of Ziggo are expected to offset the negative impacts of (i) the inclusion of the relatively lower operating cash flow margin of Ziggo for all of 2015 and (ii) significant competition. As discussed above under
Overview,
the incumbent telecommunications operator is overbuilding our network in the Netherlands using
FTTx
and advanced
DSL
technologies resulting in significant competition in this market. For additional information regarding the competition facing our markets, see the discussion under
Overview
and
Discussion and Analysis of our Reportable Segments - General
above.
Sustained or increased competition, particularly in combination with unfavorable regulatory, economic or political developments, could adversely impact the operating cash flow margins of our reportable segments.
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, including the impacts of nonrecurring items, see the
Discussion and Analysis of our Reportable Segments
above.
II-37
2014
compared to
2013
Revenue
Our revenue by major category is set forth below:
|
|
Year ended December 31,
|
Increase
|
Organic increase (decrease) (e)
|
|||||||||||||
|
|
2014
|
2013
|
$
|
%
|
%
|
|||||||||||
|
|
in millions
|
|
|
|||||||||||||
|
Subscription revenue (a):
|
||||||||||||||||
|
Video
|
$
|
6,544.0
|
|
$
|
5,724.1
|
|
$
|
819.9
|
|
14.3
|
0.6
|
|
||||
|
Broadband internet
|
4,724.6
|
|
3,538.7
|
|
1,185.9
|
|
33.5
|
13.6
|
|
|||||||
|
Fixed-line telephony
|
3,261.4
|
|
2,508.5
|
|
752.9
|
|
30.0
|
(0.4
|
)
|
|||||||
|
Cable subscription revenue
|
14,530.0
|
|
11,771.3
|
|
2,758.7
|
|
23.4
|
4.3
|
|
|||||||
|
Mobile subscription revenue (b)
|
1,085.6
|
|
669.9
|
|
415.7
|
|
62.1
|
10.9
|
|
|||||||
|
Total subscription revenue
|
15,615.6
|
|
12,441.2
|
|
3,174.4
|
|
25.5
|
4.6
|
|
|||||||
|
B2B revenue (c)
|
1,517.9
|
|
986.9
|
|
531.0
|
|
53.8
|
7.0
|
|
|||||||
|
Other revenue (b) (d)
|
1,114.8
|
|
1,046.1
|
|
68.7
|
|
6.6
|
(11.5
|
)
|
|||||||
|
Total revenue
|
$
|
18,248.3
|
|
$
|
14,474.2
|
|
$
|
3,774.1
|
|
26.1
|
3.6
|
|
||||
_______________
|
(a)
|
Subscription revenue includes amounts received from subscribers for ongoing services, excluding installation fees and late fees. 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. As a result, changes in the standalone pricing of our cable and mobile products or the composition of bundles can contribute to changes in our product revenue categories from period to period.
|
|
(b)
|
Mobile subscription revenue excludes mobile interconnect revenue of
$245.0 million
and
$175.2 million
during
2014
and
2013
, respectively. Mobile interconnect revenue and revenue from mobile handset sales are included in other revenue.
|
|
(c)
|
B2B
revenue includes revenue from business broadband internet, video, voice, wireless and data services offered to medium to large enterprises and, on a wholesale basis, to other operators. We also provide services to certain
SOHO
subscribers.
SOHO
subscribers pay a premium price to receive enhanced service levels along with video, broadband internet, fixed-line telephony or mobile services that are the same or similar to the mass marketed products offered to our residential subscribers. Revenue from
SOHO
subscribers, which aggregated
$204.1 million
and
$152.5 million
during
2014
and
2013
, respectively, is included in cable subscription revenue.
|
|
(d)
|
Other revenue includes, among other items,
interconnect, installation and carriage fee revenue
.
|
II-38
|
(e)
|
As further described under
Results of Operations
above, our organic revenue growth rates for
2014
, as compared to
2013
, are impacted by the organic growth of
Virgin Media
. Excluding the impacts of the organic growth of
Virgin Media
, our organic growth rates (%) for such period would have been as follows:
|
|
Subscription revenue:
|
||
|
Video
|
1.3
|
|
|
Broadband internet
|
9.0
|
|
|
Fixed-line telephony
|
1.9
|
|
|
Cable subscription revenue
|
3.7
|
|
|
Mobile
|
9.5
|
|
|
Total subscription revenue
|
3.9
|
|
|
B2B revenue
|
4.2
|
|
|
Other revenue
|
(5.2
|
)
|
|
Total revenue
|
3.2
|
|
Total revenue.
Our consolidated revenue increased
$3,774.1 million
during
2014
, as compared to
2013
. This increase includes $3,096.0 million attributable to the impact of acquisitions. Excluding the effects of acquisitions and
FX
, total consolidated revenue increased
$523.9 million
or
3.6%
.
Subscription revenue.
The details of the increase in our consolidated subscription revenue for
2014
, as compared to
2013
, is as follows (in millions):
|
Increase in cable subscription revenue due to change in:
|
|||
|
Average number of RGUs
|
$
|
347.9
|
|
|
ARPU
|
154.8
|
|
|
|
Total increase in cable subscription revenue
|
502.7
|
|
|
|
Increase in mobile revenue
|
73.0
|
|
|
|
Total increase in subscription revenue
|
575.7
|
|
|
|
Impact of acquisitions
|
2,468.9
|
|
|
|
Impact of FX
|
129.8
|
|
|
|
Total
|
$
|
3,174.4
|
|
Excluding the effects of acquisitions and
FX
, our consolidated cable subscription revenue increased
$502.7 million
or
4.3%
during
2014
, as compared to
2013
. This increase in subscription revenue is attributable to the net effect of (i) an increase from broadband internet services of
$479.7 million
or
13.6%
, primarily attributable to an increase in the average number of broadband internet
RGU
s and higher
ARPU
from broadband internet services, (ii) an increase from video services of
$32.6 million
or
0.6%
, primarily attributable to the net effect of (a) higher
ARPU
from video services and (b) a decline in the average number of video
RGU
s, and (iii) a decrease from fixed-line telephony services of
$9.6 million
or
0.4%
, primarily attributable to the net effect of (1) lower
ARPU
from fixed-line telephony services and (2) an increase in the average number of fixed-line telephony
RGU
s.
Excluding the effects of acquisitions and
FX
, our consolidated mobile subscription revenue increased
$73.0 million
or
10.9%
during
2014
, as compared to
2013
. This increase is primarily due to increases in the U.K. and, to a lesser extent, Belgium, Chile and Germany.
B2B
revenue.
Excluding the effects of acquisitions and
FX
, our consolidated
B2B
revenue increased
$68.7 million
or
7.0%
during
2014
, as compared to
2013
. This increase is primarily due to increases in the U.K. and, to a lesser extent, Switzerland and Belgium.
Other revenue.
Excluding the effects of acquisitions and
FX
, our consolidated other revenue decreased
$120.5 million
or
11.5%
during
2014
, as compared to
2013
. This decrease is primarily attributable to declines in (i) fixed-line interconnect revenue, (ii)
Virgin Media
’s non-cable subscriber base and (iii) installation revenue.
II-39
For additional information concerning the changes in our subscription and other revenue, see
Discussion and Analysis of our Reportable Segments — Revenue —
2014
compared to
2013
above. For information regarding the competitive environment in certain of our markets, see
Overview
above.
Operating expenses
Our operating expenses increased
$1,392.7 million
during
2014
, as compared to
2013
. This increase includes
$1,376.4 million attributable to the impact of acquisitions. Our operating expenses include share-based compensation expense, which
decreased
$4.5 million
during
2014
. For additional information, see the discussion under
Share-based compensation expense
below. Excluding the effects of acquisitions,
FX
and share-based compensation expense, our operating expenses decreased $45.5 million or
0.8%
during
2014
, as compared to
2013
. This decrease is primarily attributable to the net effect of (i) a decrease in network-related expenses, (ii) an increase in programming and copyright costs, (iii) a decrease in outsourced labor and professional fees, (iv) an increase in installation and other direct costs associated with
B2B
services in the
U.K.
, (v) a decrease in mobile handset costs, (vi) a decrease in mobile access and interconnect costs, (vii) a decrease in bad debt and collections expenses, (viii) a decrease in certain direct costs associated with the
U.K.
’s non-cable subscriber base and (ix) a decrease in personnel costs.
For additional information regarding the changes in our operating expenses, see
Discussion and Analysis of our Reportable Segments — Operating Expenses of our Reportable Segments
above.
SG&A expenses
Our SG&A expenses increased
$556.3 million
during
2014
, as compared to
2013
. This increase includes
$429.5 million attributable to the impact of acquisitions. Our SG&A expenses include share-based compensation expense, which decreased
$39.0 million
during
2014
. For additional information, see the discussion under
Share-based compensation expense
below. Excluding the effects of acquisitions,
FX
and share-based compensation expense, our SG&A expenses increased $152.6 million
or
6.6%
during
2014
, as compared to
2013
. This increase is primarily due to increases in (i) personnel costs, (ii) sales and marketing costs, (iii) information technology-related expenses and (iv) outsourced labor and professional fees, as increases in consulting costs associated with scale initiatives in the areas of information technology and finance were only partially offset by a decrease in integration costs. For additional information regarding the changes in our SG&A expenses, see
Discussion and Analysis of our Reportable Segments — SG&A Expenses of our Reportable Segments
above
.
Share-based compensation expense (included in operating and SG&A expenses)
We record share-based compensation that is associated with
Liberty Global
shares and the shares of certain of our subsidiaries. A summary of the aggregate share-based compensation expense that is included in our operating and SG&A expenses is set forth below:
|
|
Year ended December 31,
|
||||||
|
|
2014
|
2013
|
|||||
|
|
in millions
|
||||||
|
Liberty Global shares:
|
|||||||
|
Performance-based incentive awards (a)
|
$
|
129.9
|
|
$
|
58.6
|
|
|
|
Other share-based incentive awards
|
99.7
|
|
182.9
|
|
|||
|
Total Liberty Global shares (b)
|
229.6
|
|
241.5
|
|
|||
|
Telenet share-based incentive awards (c)
|
14.6
|
|
56.5
|
|
|||
|
Other
|
13.0
|
|
4.5
|
|
|||
|
Total
|
$
|
257.2
|
|
$
|
302.5
|
|
|
|
Included in:
|
|||||||
|
Operating expense
|
$
|
7.6
|
|
$
|
12.1
|
|
|
|
SG&A expense
|
249.6
|
|
288.6
|
|
|||
|
Total
|
$
|
257.2
|
|
$
|
300.7
|
|
|
_______________
|
(a)
|
Includes share-based compensation expense related to (i)
Liberty Global
PSU
s, (ii) the
Challenge Performance Awards
, which were issued on June 24, 2013, and (iii) for 2014, the
PGUs
.
|
II-40
|
(b)
|
In connection with the
Virgin Media Acquisition
, we issued
Virgin Media Replacement Awards
to employees and former directors of
Virgin Media
in exchange for corresponding
Virgin Media
awards.
Virgin Media
recorded share-based compensation expense of
$55.8 million
during
2014
, including compensation expense related to the
Virgin Media Replacement Awards
and new awards that were granted after the
Virgin Media Replacement Awards
were issued. During
2013
,
Virgin Media
recorded share-based compensation expense of
$134.3 million
, primarily related to the
Virgin Media Replacement Awards
, including
$80.1 million
that was charged to expense in recognition of the
Virgin Media Replacement Awards
that were fully vested on June 7, 2013 or for which vesting was accelerated pursuant to the terms of the
Virgin Media Merger Agreement
on or prior to
December 31, 2013
.
|
|
(c)
|
During 2013,
Telenet
modified the terms of certain of its share-based incentive plans to provide for anti-dilution adjustments in connection with its shareholder returns. In connection with these anti-dilution adjustments,
Telenet
recognized share-based compensation expense of
$32.7 million
and continues to recognize additional share-based compensation expense as the underlying options vest. In addition, during 2013,
Telenet
recognized expense of
$6.2 million
related to the accelerated vesting of certain options.
|
For additional information concerning our share-based compensation, see note
13
to our consolidated financial statements.
Depreciation and amortization expense
Our depreciation and amortization expense increased
$1,223.7 million
during
2014
, as compared to
2013
. Excluding the effects of
FX
, depreciation and amortization expense increased $1,131.5 million or 26.5%. This increase is primarily due to the impact of the
Virgin Media Acquisition
and, to a lesser extent, the
Ziggo Acquisition
. In addition, a net increase resulted from the following factors: (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, (ii) a decrease associated with certain assets becoming fully depreciated, primarily in the U.K., Belgium, Chile and Switzerland, and (iii) a decrease due to the impact of accelerated depreciation recorded during 2013, primarily in Chile where the acceleration was due to a change in our mobile strategy, as further discussed in note
9
to our consolidated financial statements.
Release of litigation provision
During 2007, we recorded a litigation provision of
$146.0 million
based on our assessment at the time of our loss exposure with respect to the
2002 Cignal Action
and the
2006 Cignal Action
. As further described in note
17
to our consolidated financial statements, on October 25, 2013, we received what we consider to be the final resolution of the
2006 Cignal Action
and the effective resolution of the
2002 Cignal Action
. Accordingly, we released the entire
$146.0 million
provision related to this matter during the third quarter of 2013.
Impairment, restructuring and other operating items, net
We recognized impairment, restructuring and other operating items, net, of
$536.8 million
during
2014
, as compared to
$297.5 million
during
2013
.
The
2014
amount includes (i) direct acquisition costs of $331.3 million, including (a) a
$222.0 million
settlement recorded during the fourth quarter in connection with the
FCO Appeals
, as further described in note
17
to our consolidated financial statements, and (b)
$84.1 million
associated with the
Ziggo Acquisition
, (ii) restructuring charges of
$166.9 million
, including (1) an
$86.1 million
charge recorded by
Telenet
during the first quarter of 2014 in connection with its
DTT
capacity contracts, as described below, and (2)
$60.4 million
of employee severance and termination costs related to certain reorganization activities, primarily in
the U.K., the Netherlands, Germany, Chile and the European Operations Division’s central operations
, and (iii) an impairment charge of
$68.7 million
that was recorded by
Ziggo
during the fourth quarter of 2014 to write-off certain internal-use software assets that will not be used by our combined operations in the Netherlands.
The
2013
amount includes (i) restructuring charges of
$178.7 million
, (ii) direct acquisition and disposition costs of
$64.7 million
, primarily related to the
Virgin Media Acquisition
, (iii) an impairment charge of
$73.0 million
to reduce the carrying amount of
Telenet
’s spectrum rights following
Telenet
’s determination that it would no longer be able to utilize its spectrum rights as a result of the conclusion of negotiations with network operators in Belgium and the absence of regulatory alternatives and (iv) a
$20.0 million
credit resulting from cash received from the
OneLink Seller
upon the settlement of certain claims related to the
Puerto Rico Transaction
, as further described in note
4
to our consolidated financial statements. The restructuring charges include (a)
$84.9 million
recorded by
VTR
’s mobile operations during the third and fourth quarters of 2013 as a result of the decision to cease commercial use of
VTR
’s mobile network, as further described in note
9
to our consolidated financial statements, and (b)
$77.9 million
of employee severance and termination costs related to certain reorganization and integration activities, primarily
II-41
in the
U.K.
, Germany and Chile. The restructuring charges recorded by
VTR
’s mobile operations include the fair value of (1) the remaining payments due under certain tower and real estate operating leases of
$71.5 million
and (2) certain other required payments associated with
VTR
’s mobile network.
Prior to March 31, 2014,
Telenet
operated a
DTT
business that served a limited number of subscribers. The
DTT
network was accessed by
Telenet
pursuant to third-party capacity contracts that were accounted for as operating agreements. On March 31, 2014,
Telenet
discontinued the provision of
DTT
services and, accordingly, recorded an
$86.1 million
restructuring charge during the three months ended March 31, 2014. This charge was equal to the then fair value of the remaining payments due under the
DTT
capacity contracts.
We expect to record further restructuring charges during 2015 in connection with the continued integration of
Ziggo
with
UPC Nederland
and the
European Operations Division
. For additional information regarding our restructuring charges, see note
14
to our consolidated financial statements.
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. For additional information, see
Critical Accounting Policies, Judgments and Estimates — Impairment of Property and Equipment and Intangible Assets
below.
Interest expense
Our interest expense increased
$257.8 million
during
2014
, as compared to
2013
. Excluding the effects of
FX
, interest expense increased $538.2 million or 23.5%. This increase is primarily attributable to the net impact of (i) a higher average outstanding debt balance,
largely due to (a) debt that was incurred in the first and second quarters of 2013 in connection with the
Virgin Media Acquisition
and (b) debt that was incurred in the fourth quarter of 2014 in connection with the
Ziggo Acquisition
, and (ii) a lower weighted average interest rate. The decrease in our weighted average interest rate is primarily related to (1) the completion of certain financing transactions that resulted in extended maturities and net decreases to certain of our interest rates and (2) decreases in certain of the base rates for our variable-rate indebtedness. For additional information regarding our outstanding indebtedness, see note
10
to our 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 on our variable-rate indebtedness could increase in future periods. As further discussed in note
7
to our consolidated financial statements and 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
$81.4 million
during
2014
, as compared to
2013
. This decrease is primarily attributable to (i) a decrease in dividend income related to our investment in shares of
Ziggo
, as
Ziggo
did not declare any dividends following the January 2014 execution of the
Ziggo Merger Agreement
, and (ii) a slight decrease in interest income due to a lower average cash and cash equivalent and restricted cash balance.
II-42
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:
|
|
Year ended December 31,
|
||||||
|
|
2014
|
2013
|
|||||
|
|
in millions
|
||||||
|
Cross-currency and interest rate derivative contracts (a)
|
$
|
293.6
|
|
$
|
(586.5
|
)
|
|
|
Equity-related derivative instruments (b):
|
|||||||
|
Ziggo Collar
|
(113.3
|
)
|
(152.5
|
)
|
|||
|
ITV Collar
|
(77.4
|
)
|
—
|
|
|||
|
Sumitomo Collar
|
(46.0
|
)
|
(206.4
|
)
|
|||
|
Virgin Media Capped Calls
|
0.4
|
|
(3.4
|
)
|
|||
|
Total equity-related derivative instruments
|
(236.3
|
)
|
(362.3
|
)
|
|||
|
Foreign currency forward contracts (c)
|
31.6
|
|
(72.9
|
)
|
|||
|
Other
|
(0.1
|
)
|
1.3
|
|
|||
|
Total
|
$
|
88.8
|
|
$
|
(1,020.4
|
)
|
|
_______________
|
(a)
|
The gain during
2014
is primarily attributable to the net effect of (i) gains associated with decreases in the values of the euro, British pound sterling, Chilean peso and Swiss franc relative to the
U.S.
dollar, (ii) losses associated with decreases in market interest rates in the euro, British pound sterling, Swiss franc and Chilean peso markets and (iii) gains associated with decreases in the values of the Hungarian forint and Polish zloty relative to the euro. In addition, the gain during
2014
includes a net loss of
$120.9 million
resulting from changes in our credit risk valuation adjustments. The
loss
during
2013
is primarily attributable to the net effect of (i) losses associated with increases in the values of the British pound sterling, euro and Swiss franc relative to the
U.S.
dollar, (ii) gains associated with increases in market interest rates in the British pound sterling, euro and Swiss franc markets, (iii) losses associated with increases in market interest rates in the
U.S.
dollar market, (iv) gains associated with decreases in the values of the Chilean peso, Czech koruna, Swiss franc, Polish zloty and Hungarian forint relative to the euro, and (v) gains associated with a decrease in the value of the Chilean peso relative to the
U.S.
dollar. In addition, the loss during
2013
includes a net gain
of
$15.3 million
resulting from changes in our credit risk valuation adjustments.
|
|
(b)
|
For information concerning the factors that impact the valuations of our equity-related derivative instruments, see note
8
to our consolidated financial statements.
|
|
(c)
|
Primarily includes activity with respect to the foreign currency forward contracts of
LGE Financing
, which contracts were settled during the fourth quarter of 2014, and activity during the first half of 2013 related to deal contingent forward contracts that were settled in connection with the
Virgin Media Acquisition
.
|
For additional information concerning our derivative instruments, see notes
7
and
8
to our consolidated financial statements and
Quantitative and Qualitative Disclosures about Market Risk
below.
II-43
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:
|
|
Year ended December 31,
|
||||||
|
|
2014
|
2013
|
|||||
|
|
in millions
|
||||||
|
U.S. dollar denominated debt issued by euro functional currency entities
|
$
|
(481.5
|
)
|
$
|
160.7
|
|
|
|
Intercompany payables and receivables denominated in a currency other than the entity’s functional currency (a)
|
(251.8
|
)
|
(280.0
|
)
|
|||
|
U.S. dollar denominated debt issued by a British pound sterling functional currency entity
|
(175.1
|
)
|
249.3
|
|
|||
|
U.S. dollar denominated debt issued by a Chilean peso functional currency entity
|
(137.1
|
)
|
—
|
|
|||
|
Euro denominated debt issued by a U.S. dollar functional currency entity
|
131.8
|
|
(34.6
|
)
|
|||
|
Yen denominated debt issued by a U.S. dollar functional currency entity
|
109.2
|
|
192.3
|
|
|||
|
Cash and restricted cash denominated in a currency other than the entity’s functional currency
|
(32.0
|
)
|
94.6
|
|
|||
|
British pound sterling denominated debt issued by a U.S. dollar functional currency entity
|
—
|
|
(37.3
|
)
|
|||
|
Other
|
—
|
|
4.3
|
|
|||
|
Total
|
$
|
(836.5
|
)
|
$
|
349.3
|
|
|
_______________
|
(a)
|
Amounts primarily relate to (i) loans between certain of our non-operating and operating subsidiaries in Europe, which generally are denominated in the currency of the applicable operating subsidiary, and (ii) loans between certain of our non-operating subsidiaries in the
U.S.
, Europe and Chile.
|
For information regarding how we manage our exposure to foreign currency risk, see
Quantitative and Qualitative Disclosures about Market Risk — Foreign Currency Risk
below.
Realized and unrealized
gains (losses) 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 (losses)
due to changes in fair values of certain investments, net, are as follows:
|
|
Year ended December 31,
|
||||||
|
|
2014
|
2013
|
|||||
|
|
in millions
|
||||||
|
Investments (a):
|
|||||||
|
Ziggo
|
$
|
224.0
|
|
$
|
582.9
|
|
|
|
Sumitomo
|
(99.8
|
)
|
(6.8
|
)
|
|||
|
ITV
|
54.9
|
|
—
|
|
|||
|
Other, net (b)
|
26.1
|
|
(52.0
|
)
|
|||
|
Total
|
$
|
205.2
|
|
$
|
524.1
|
|
|
_______________
|
(a)
|
For additional information regarding our investments and fair value measurements, see notes
6
and
8
to our consolidated financial statements.
|
|
(b)
|
The
2014
amount primarily includes an increase in the fair value of our investment in
ITI Neovision
.
The
2013
amount includes decreases in the fair values of our investments in
ITI Neovision
and O3B Networks Limited.
|
II-44
Losses
on debt modification, extinguishment and conversion, net
We recognized a loss on debt modification, extinguishment and conversion, net, of
$186.2 million
during
2014
. This loss includes the following:
|
•
|
a
$71.3 million
loss during the fourth quarter related to the repayment of the
2009 UM Senior Notes
, which includes (i) the payment of
$45.0 million
of redemption premium, (ii) the write-off of
$14.0 million
of deferred financing costs and (iii) the write-off of
$12.3 million
of unamortized discount;
|
|
•
|
a
$59.5 million
loss during the fourth quarter related to the repayment of the
UM Senior Secured Fixed-Rate Exchange Notes
, which includes (i) the payment of
$70.1 million
of redemption premium and (ii) the write-off of
$10.6 million
of unamortized premium;
|
|
•
|
a
$41.5 million
loss during the second quarter related to the repayment of the
UPC Holding 9.875% Senior Notes
, which includes (i) the payment of
$19.7 million
of redemption premium, (ii) the write-off of
$17.4 million
of unamortized discount and (iii) the write-off of
$4.4 million
of deferred financing costs;
|
|
•
|
a
$32.5 million
gain during the fourth quarter related to the repayment of the
2019 VM Senior Notes
, which includes (i) the write-off of
$75.2 million
of unamortized premium, (ii) the payment of
$39.3 million
of redemption premium and (iii) the write-off of
$3.4 million
of deferred financing costs;
|
|
•
|
a
$16.5 million
loss during the first quarter related to the repayment of Facilities R, S, AE and AF under the
UPC Broadband Holding Bank Facility
, which includes (i) the write-off of
$11.6 million
of deferred financing costs and (ii) the write-off of
$4.9 million
of unamortized discount;
|
|
•
|
an
$11.9 million
loss during the second quarter related to the completion of certain refinancing transactions with respect to the
Telenet Credit Facility
, which includes (i) the write-off of
$7.1 million
of deferred financing costs, (ii) the payment of
$3.6 million
of redemption premium and (iii) the write-off of
$1.2 million
of unamortized discount; and
|
|
•
|
an aggregate net loss of
$18.3 million
related to the refinancing of (i) the
Liberty Puerto Rico Bank Facility
, (ii) the
2018 VM Dollar Senior Secured Notes
, (iii) the
2018 VM Sterling Senior Secured Notes
, (iv) the
Ziggo Collar Loan
, (v) the
Ziggo Margin Loan
and (vi)
VTR
’s former term loan bank facility.
|
We recognized a loss on debt modification, extinguishment and conversion, net, of
$212.2 million
during
2013
. This loss includes the following:
|
•
|
aggregate losses of
$112.5 million
during the first and fourth quarters related to the redemption of all of
Unitymedia KabelBW
’s
2009 UM Euro Senior Secured Notes
, which includes (i) the payment of
$75.0 million
of redemption premium and (ii) the write-off of
$37.5 million
associated with deferred financing costs and unamortized discount;
|
|
•
|
an
$85.5 million
loss during the first quarter, which includes (i)
$35.6 million
of aggregate redemption premiums related to the
UPC Holding 8.0% Senior Notes
and the
UPC Holding 9.75% Senior Notes
, (ii) the write-off of
$24.5 million
of unamortized discount related to the
UPC Holding 9.75% Senior Notes
, (iii) the write-off of
$19.0 million
of aggregate deferred financing costs associated with the
UPC Holding 8.0% Senior Notes
and the
UPC Holding 9.75% Senior Notes
and (iv)
$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
|
|
•
|
an
$11.9 million
loss during the second quarter in connection with the prepayment of amounts outstanding under certain facilities of the
UPC Broadband Holding Bank Facility
, which includes (i)
$7.7 million
of third-party costs and (ii) the write-off of
$4.2 million
associated with deferred financing costs and unamortized discount.
|
For additional information concerning our losses on debt modification, extinguishment and conversion, net, see note
10
to our consolidated financial statements.
II-45
Income tax benefit (expense)
We recognized income tax benefit (expense) of
$75.0 million
and (
$355.5 million
) during
2014
and
2013
, respectively.
The income tax benefit during
2014
differs from the expected income tax benefit of
$221.7 million
(based on the
U.K.
statutory income tax rate of
21.0%
) primarily due to the net negative impact of
(i) an increase in valuation allowances,
(ii) certain permanent differences between the financial and tax accounting treatment of interest and other items and (iii) certain permanent differences between the financial and tax accounting treatment of items associated with investments in subsidiaries. The net negative impact of these items were partially offset by the net positive impact of (a) statutory tax rates in certain jurisdictions in which we operate that are different than the
U.K.
statutory income tax rate, (b) the tax effect of intercompany financing, (c) non-deductible or non-taxable foreign currency exchange results and (d) the recognition of previously unrecognized tax benefits.
The income tax expense during
2013
differs from the expected income tax benefit of
$121.1 million
(based on the
U.K.
statutory income tax rate of
23.0%
) primarily due to the net negative impact of (i) a reduction in net deferred tax assets in the
U.K.
due to enacted changes in tax law, (ii) a loss of subsidiary tax attributes due to a deemed change in control related to the
Virgin Media Acquisition
, (iii) an increase in valuation allowances, (iv) non-deductible or non-taxable foreign currency exchange results and (v) certain permanent differences between the financial and tax accounting treatment of interest and other items, including $51.1 million related to the reversal of a litigation provision in the third quarter, as further described in note
17
to our consolidated financial statements. The net negative impact of these items were partially offset by the net positive impact of (a) statutory tax rates in certain jurisdictions in which we operate that are different than the
U.K.
statutory income tax rate and (b) the tax effect of intercompany financing.
For additional information concerning our income taxes, see note
11
to our consolidated financial statements.
Loss from continuing operations
During
2014
and
2013
, we reported losses from continuing operations of
$980.9 million
and
$882.0 million
, respectively, including (i) operating income of
$2,228.2 million
and
$2,012.1 million
, respectively, (ii) net non-operating expenses of
$3,284.1 million
and
$2,538.6 million
, respectively, and (iii) income tax benefit (expense) of
$75.0 million
and (
$355.5 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 a reliable source 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) share-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
Liquidity and Capital Resources — Capitalization
below, we expect that we will continue to report significant levels of interest expense for the foreseeable future. For information concerning our expectations with respect to trends that may affect certain aspects of 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 consolidated statements of operations, see the discussion under
Discussion and Analysis of our Reportable Segments
and
Discussion and Analysis of our Consolidated Operating Results
above.
Discontinued operations
Our earnings
(loss)
from discontinued operations, net of taxes, of
$0.8 million
and (
$23.7 million
) during
2014
and
2013
, respectively, relates to the operations of the
Chellomedia Disposal Group
. In addition, we recognized an after-tax gain on the disposal of a discontinued operation of
$332.7 million
related to the January 31, 2014 completion of the
Chellomedia Transaction
. For additional information, see note
5
to our consolidated financial statements.
Net earnings attributable to noncontrolling interests
Net earnings or loss attributable to noncontrolling interests includes the noncontrolling interests’ share of the results of our continuing and discontinued operations. Net earnings attributable to noncontrolling interests decreased
$10.6 million
during
2014, as compared to 2013
, primarily due to the net effect of (i) a decline in the results of operations of
Telenet
and (ii) the impact of the
VTR NCI Acquisition
, which was completed during the first quarter of
2014
.
II-46
2013
compared to
2012
Revenue
Our revenue by major category is set forth below:
|
|
Year ended December 31,
|
Increase
|
Organic increase (decrease)
|
|||||||||||||
|
|
2013
|
2012
|
$
|
%
|
%
|
|||||||||||
|
|
in millions
|
|
|
|||||||||||||
|
Subscription revenue (a):
|
||||||||||||||||
|
Video
|
$
|
5,724.1
|
|
$
|
4,637.6
|
|
$
|
1,086.5
|
|
23.4
|
0.6
|
|
||||
|
Broadband internet
|
3,538.7
|
|
2,407.0
|
|
1,131.7
|
|
47.0
|
10.7
|
|
|||||||
|
Fixed-line telephony
|
2,508.5
|
|
1,518.9
|
|
989.6
|
|
65.2
|
4.5
|
|
|||||||
|
Cable subscription revenue
|
11,771.3
|
|
8,563.5
|
|
3,207.8
|
|
37.5
|
4.1
|
|
|||||||
|
Mobile subscription revenue (b)
|
669.9
|
|
131.5
|
|
538.4
|
|
409.4
|
102.1
|
|
|||||||
|
Total subscription revenue
|
12,441.2
|
|
8,695.0
|
|
3,746.2
|
|
43.1
|
5.6
|
|
|||||||
|
B2B revenue (c)
|
986.9
|
|
467.9
|
|
519.0
|
|
110.9
|
(2.6
|
)
|
|||||||
|
Other revenue (b) (d)
|
1,046.1
|
|
767.9
|
|
278.2
|
|
36.2
|
3.9
|
|
|||||||
|
Total
|
$
|
14,474.2
|
|
$
|
9,930.8
|
|
$
|
4,543.4
|
|
45.8
|
5.1
|
|
||||
_________________
|
(a)
|
Subscription revenue includes amounts received from subscribers for ongoing services, excluding installation fees and late fees. 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. As a result, changes in the standalone pricing of our cable and mobile products or the composition of bundles can contribute to changes in our product revenue categories from period to period.
|
|
(b)
|
Mobile subscription revenue excludes mobile interconnect revenue of
$175.2 million
and
$35.1 million
during
2013
and
2012
, respectively. Mobile interconnect revenue and revenue from mobile handset sales are included in other revenue.
|
|
(c)
|
B2B
revenue includes revenue from business broadband internet, video, voice, wireless and data services offered to medium to large enterprises and, on a wholesale basis, to other operators. We also provide services to certain
SOHO
subscribers.
SOHO
subscribers pay a premium price to receive enhanced service levels along with video, broadband internet, fixed-line telephony or mobile services that are the same or similar to the mass marketed products offered to our residential subscribers. Revenue from
SOHO
subscribers, which aggregated
$152.5 million
and
$59.7 million
during
2013
and
2012
, respectively, is included in cable subscription revenue.
|
|
(d)
|
Other revenue includes, among other items, interconnect, installation and carriage fee revenue.
|
Total revenue.
Our consolidated revenue increased
$4,543.4 million
during
2013
, as compared to
2012
. This increase includes $3,804.7 million attributable to the impact of acquisitions. Excluding the effects of acquisitions and FX, total consolidated revenue increased
$504.2 million
or
5.1%
.
II-47
Subscription revenue.
The details of the increase in our consolidated subscription revenue for
2013
, as compared to
2012
, are as follows (in millions):
|
Increase in cable subscription revenue due to change in:
|
|||
|
Average number of RGUs
|
$
|
355.6
|
|
|
ARPU
|
(3.8
|
)
|
|
|
Total increase in cable subscription revenue
|
351.8
|
|
|
|
Increase in mobile revenue
|
134.3
|
|
|
|
Total increase in subscription revenue
|
486.1
|
|
|
|
Impact of acquisitions
|
3,053.5
|
|
|
|
Impact of FX
|
206.6
|
|
|
|
Total
|
$
|
3,746.2
|
|
Excluding the effects of acquisitions and
FX
, our consolidated cable subscription revenue increased
$351.8 million
or
4.1%
during
2013
, as compared to
2012
. This increase is attributable to (i) an increase in subscription revenue from broadband internet services of
$257.0 million
or
10.7%
, as the impact of an increase in the average number of broadband internet
RGU
s was only partially offset by lower
ARPU
from broadband internet services, (ii) an increase in subscription revenue from fixed-line telephony services of
$68.5 million
or
4.5%
, as the impact of an increase in the average number of fixed-line telephony
RGU
s was only partially offset by lower
ARPU
from fixed-line telephony services, and (iii) an increase in subscription revenue from video services of
$26.3 million
or
0.6%
, as the impact of higher
ARPU
from video services was only partially offset by a decline in the average number of video
RGU
s.
Excluding the effects of acquisitions and
FX
, our consolidated mobile subscription revenue increased
$134.3 million
or
102.1%
during
2013
, as compared to
2012
, primarily in Belgium and, to a lesser extent, Chile, Germany and the U.K.
B2B
revenue.
Excluding the effects of acquisitions and
FX
, our consolidated
B2B
revenue decreased
$12.1 million
or
2.6%
during
2013
, as compared to
2012
. This decrease is primarily due to the net effect of (i) decreases in the Netherlands, Belgium, Switzerland and Austria and (ii) an increase in Germany.
Other revenue.
Excluding the effects of acquisitions and
FX
, our consolidated other revenue increased
$30.2 million
or
3.9%
during
2013
, as compared to
2012
. This increase is primarily attributable to the net effect of (i) higher interconnect and installation revenue in Belgium and (ii) a decrease in carriage fee revenue in Germany.
For additional information concerning the changes in our subscription and other revenue, see
Discussion and Analysis of our Reportable Segments — Revenue —
2013
compared to
2012
above.
Operating expenses
Our operating expenses increased
$2,068.0 million
during
2013
, as compared to
2012
. This increase includes $1,735.2 million attributable to the impact of acquisitions. Our operating expenses include share-based compensation expense, which increased
$3.6 million
during
2013
. For additional information, see the discussion under
Share-based compensation expense
below. Excluding the effects of acquisitions,
FX
and share-based compensation expense, our operating expenses increased $250.1 million or
7.5%
during
2013
, as compared to
2012
. This increase primarily is attributable to a net increase in (i) programming and copyright costs, (ii) interconnect costs, primarily in Belgium, (iii) outsourced labor and professional fees, (iv) personnel costs and (v) network-related expenses. For additional information regarding the changes in our operating expenses, see
Discussion and Analysis of our Reportable Segments — Operating Expenses of our Reportable Segments
above.
II-48
SG&A expenses
Our SG&A expenses increased
$756.2 million
during
2013
, as compared to
2012
. This increase includes $516.7 million attributable to the impact of acquisitions. Our SG&A expenses include share-based compensation expense, which increased
$187.0 million
during
2013
. For additional information, see the discussion under
Share-based compensation expense
below. Excluding the effects of acquisitions,
FX
and share-based compensation expense, our SG&A expenses increased $13.5 million or
0.8%
during
2013
, as compared to
2012
. This increase is primarily attributable to the net effect of (i) a decrease in sales and marketing costs, (ii) an increase in personnel costs, (iii) an increase in information technology-related expenses and (iv) an increase in integration costs, primarily due to costs incurred during
2013
by our corporate offices in connection with the integration of
Virgin Media
. For additional information regarding the changes in our SG&A expenses, see
Discussion and Analysis of our Reportable Segments — SG&A Expenses of our Reportable Segments
above.
Share-based compensation expense (included in operating and SG&A expenses)
A summary of the aggregate share-based compensation expense that is included in our operating and SG&A expenses is set forth below:
|
|
Year ended December 31,
|
||||||
|
|
2013
|
2012
|
|||||
|
|
in millions
|
||||||
|
Liberty Global shares:
|
|||||||
|
Performance-based incentive awards (a)
|
$
|
58.6
|
|
$
|
33.0
|
|
|
|
Other share-based incentive awards
|
182.9
|
|
46.0
|
|
|||
|
Total Liberty Global shares (b)
|
241.5
|
|
79.0
|
|
|||
|
Telenet share-based incentive awards (c)
|
56.5
|
|
31.2
|
|
|||
|
Other
|
4.5
|
|
2.2
|
|
|||
|
Total
|
$
|
302.5
|
|
$
|
112.4
|
|
|
|
Included in:
|
|||||||
|
Operating expense
|
$
|
12.1
|
|
$
|
8.5
|
|
|
|
SG&A expense
|
288.6
|
|
101.6
|
|
|||
|
Total
|
$
|
300.7
|
|
$
|
110.1
|
|
|
________________
|
(a)
|
Includes share-based compensation expense related to
Liberty Global PSU
s for both years presented and the
Challenge Performance Awards
for the applicable 2013 period.
|
|
(b)
|
In connection with the
Virgin Media Acquisition
, we issued
Virgin Media Replacement Awards
to employees and former directors of
Virgin Media
in exchange for corresponding
Virgin Media
awards. During 2013,
Virgin Media
recorded share-based compensation expense of
$134.3 million
, primarily related to the
Virgin Media Replacement Awards
, including
$80.1 million
that was charged to expense in recognition of the
Virgin Media Replacement Awards
that were fully vested on June 7, 2013 or for which vesting was accelerated pursuant to the terms of the
Virgin Media Merger Agreement
on or prior to December 31, 2013.
|
|
(c)
|
During
2013
and
2012
,
Telenet
modified the terms of certain of its share-based incentive plans to provide for anti-dilution adjustments in connection with its shareholder returns. In connection with these anti-dilution adjustments,
Telenet
recognized share-based compensation expense of
$32.7 million
and
$12.6 million
, respectively, and continues to recognize additional share-based compensation expense as the underlying options vest. In addition, during
2013
,
Telenet
recognized expense of
$6.2 million
related to the accelerated vesting of certain options.
|
For additional information concerning our share-based compensation, see note
13
to our consolidated financial statements.
Depreciation and amortization expense
Our depreciation and amortization expense increased
$1,614.9 million
during
2013
as compared to
2012
. Excluding the effects of
FX
, depreciation and amortization expense increased $1,555.0 million or 58.4%. This increase is primarily due to the net effect of (i) an increase associated with the
Virgin Media Acquisition
, (ii) an increase associated with property and equipment
II-49
additions related to the installation of customer premises equipment, the expansion and upgrade of our networks and other capital initiatives, (iii) a decrease associated with certain assets becoming fully depreciated, largely in Belgium, Chile and Switzerland and (iv) an increase due to accelerated depreciation, primarily in Chile where the acceleration is due to a change in our mobile strategy, as further discussed in note
9
to our consolidated financial statements.
Impairment, restructuring and other operating items, net
We recognized impairment, restructuring and other operating items, net, of
$297.5 million
during
2013
, as compared to
$76.2 million
during
2012
.
The
2013
amount includes (i) restructuring charges of
$178.7 million
, (ii) direct acquisition and disposition costs of
$64.7 million
, primarily related to the
Virgin Media Acquisition
, (iii) an impairment charge of
$73.0 million
to reduce the carrying amount of
Telenet
’s spectrum rights following
Telenet
’s determination that it would no longer be able to utilize its spectrum rights as a result of the conclusion of negotiations with network operators in Belgium and the absence of regulatory alternatives and (iv) a
$20.0 million
credit resulting from cash received from the
OneLink Seller
upon the settlement of certain claims related to the
Puerto Rico Transaction
, as further described in note
4
to our consolidated financial statements. The restructuring charges include (a)
$84.9 million
recorded by
VTR
’s mobile operations during the third and fourth quarters of 2013 as a result of the decision to cease commercial use of
VTR
’s mobile network, as further described in note
9
to our consolidated financial statements, and (b)
$77.9 million
of employee severance and termination costs related to certain reorganization and integration activities, primarily in the
U.K.
, Germany and Chile. The restructuring charges recorded by
VTR
’s mobile operations include the fair value of (1) the remaining payments due under certain tower and real estate operating leases of
$71.5 million
and (2) certain other required payments associated with
VTR
’s mobile network.
The
2012
amount includes (i) aggregate restructuring charges of $53.0 million, primarily associated with employee severance and termination costs related to certain reorganization activities, mainly in Germany, and (ii) $20.4 million of direct acquisition costs, primarily related to the
Puerto Rico Transaction
.
For additional information regarding our restructuring charges, see note
14
to our consolidated financial statements.
Interest expense
Our interest expense increased
$613.3 million
during
2013
, as compared to
2012
. Excluding the effects of
FX
, interest expense increased $568.8 million or 34.0%. This increase is primarily attributable to the net impact of (i) a higher average outstanding debt balance, largely due to debt incurred in connection with the
Virgin Media Acquisition
, 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 (including the financing transactions related to the
Virgin Media Acquisition
) that resulted in extended maturities and net decreases to certain of our interest rates and (b) decreases in certain of the base rates for our variable-rate indebtedness. For additional information regarding our outstanding indebtedness, see note
10
to our consolidated financial statements.
II-50
Interest and dividend income
Our interest and dividend income increased
$71.0 million
during
2013
, as compared to
2012
. This increase is primarily attributable to (i) higher dividend income related to our investment in shares of
Ziggo
(after taking into account the impact of the
Ziggo Collar
) that was only partially offset by lower dividend income related to our investment in shares of
Sumitomo
(before taking into account the impact of the
Sumitomo Collar
) and (ii) higher interest income due to the net effect of (a) higher average cash and cash equivalent and restricted cash balances and (b) lower weighted average interest rates earned on our cash and cash equivalent and restricted cash balances. For information regarding the
Ziggo Collar
and the
Sumitomo Collar
, see note
7
to our consolidated financial statements.
Realized and unrealized losses on derivative instruments, net
The details of our realized and unrealized losses
on derivative instruments, net, are as follows:
|
|
Year ended December 31,
|
||||||
|
|
2013
|
2012
|
|||||
|
|
in millions
|
||||||
|
Cross-currency and interest rate derivative contracts (a)
|
$
|
(586.5
|
)
|
$
|
(958.3
|
)
|
|
|
Equity-related derivative instruments (b):
|
|||||||
|
Sumitomo Collar
|
(206.4
|
)
|
(109.0
|
)
|
|||
|
Ziggo Collar
|
(152.5
|
)
|
—
|
|
|||
|
Virgin Media Capped Calls
|
(3.4
|
)
|
—
|
|
|||
|
Total equity-related derivative instruments
|
(362.3
|
)
|
(109.0
|
)
|
|||
|
Foreign currency forward contracts (c)
|
(72.9
|
)
|
(6.0
|
)
|
|||
|
Other
|
1.3
|
|
3.0
|
|
|||
|
Total
|
$
|
(1,020.4
|
)
|
$
|
(1,070.3
|
)
|
|
_______________
|
(a)
|
The
loss
during
2013
is primarily attributable to the net effect of (i) losses associated with increases in the values of the British pound sterling, euro and Swiss franc relative to the
U.S.
dollar, (ii) gains associated with increases in market interest rates in the British pound sterling, euro and Swiss franc markets, (iii) losses associated with increases in market interest rates in the
U.S.
dollar market, (iv) gains associated with decreases in the values of the Chilean peso, Czech koruna, Swiss franc, Polish zloty and Hungarian forint relative to the euro, and (v) gains associated with a decrease in the value of the Chilean peso relative to the
U.S.
dollar. In addition, the loss during
2013
includes a net gain
of
$15.3 million
resulting from changes in our credit risk valuation adjustments. The loss during
2012
is primarily attributable to the net effect of (a) losses associated with decreases in market interest rates in the euro, Hungarian forint,
Polish zloty, Swiss franc,
and Czech koruna markets, (b) losses associated with increases in the values of the Polish zloty, Hungarian forint, Chilean peso, Swiss franc, and Czech koruna relative to the euro, (c) losses associated with increases in the values of the Chilean peso, euro and Swiss franc relative to the
U.S.
dollar and (d) gains associated with decreases in market interest rates in the
U.S.
dollar market. In addition, the loss during
2012
includes a net loss of
$57.3 million
resulting from changes in our credit risk valuation adjustments.
|
|
(b)
|
For information concerning the factors that impact the valuations of our equity-related derivative instruments, see note
8
to our consolidated financial statements.
|
|
(c)
|
Primarily includes activity with respect to the foreign currency forward contracts of
LGE Financing
and activity during the first half of
2013
related to deal contingent forward contracts that were settled in connection with the
Virgin Media Acquisition
.
|
For additional information concerning our derivative instruments, see notes
7
and
8
to our consolidated financial statements and
Quantitative and Qualitative Disclosures about Market Risk
below.
II-51
Foreign currency transaction gains, net
The details of our foreign currency transaction gains, net, are as follows:
|
|
Year ended December 31,
|
||||||
|
|
2013
|
2012
|
|||||
|
|
in millions
|
||||||
|
Intercompany payables and receivables denominated in a currency other than the entity’s functional currency (a)
|
$
|
(280.0
|
)
|
$
|
229.3
|
|
|
|
U.S. dollar denominated debt issued by a British pound sterling functional currency entity
|
249.3
|
|
—
|
|
|||
|
Yen denominated debt issued by a U.S. dollar functional currency entity
|
192.3
|
|
135.7
|
|
|||
|
U.S. dollar denominated debt issued by euro functional currency entities
|
160.7
|
|
74.0
|
|
|||
|
Cash and restricted cash denominated in a currency other than the entity’s functional currency
|
94.6
|
|
0.5
|
|
|||
|
British pound sterling denominated debt issued by a U.S. dollar functional currency entity
|
(37.3
|
)
|
—
|
|
|||
|
Euro denominated debt issued by a U.S. dollar functional currency entity
|
(34.6
|
)
|
—
|
|
|||
|
Other
|
4.3
|
|
(1.1
|
)
|
|||
|
Total
|
$
|
349.3
|
|
$
|
438.4
|
|
|
_______________
|
(a)
|
Amounts primarily relate to (i) loans between certain of our non-operating and operating subsidiaries in Europe, which generally are denominated in the currency of the applicable operating subsidiary, and (ii) loans between certain of our non-operating subsidiaries in the
U.S.
, Europe and Chile.
|
For information regarding how we manage our exposure to foreign currency risk, see
Quantitative and Qualitative Disclosures about Market Risk — Foreign Currency Risk
below.
Realized and unrealized gains (losses) due to changes in fair values of certain investments, net
The details of our realized and unrealized gains (losses) due to changes in fair values of certain investments, net, are as follows:
|
|
Year ended December 31,
|
||||||
|
|
2013
|
2012
|
|||||
|
|
in millions
|
||||||
|
Investments (a):
|
|||||||
|
Ziggo
|
$
|
582.9
|
|
$
|
—
|
|
|
|
Sumitomo
|
(6.8
|
)
|
(38.2
|
)
|
|||
|
Other, net (b)
|
(52.0
|
)
|
28.0
|
|
|||
|
Total
|
$
|
524.1
|
|
$
|
(10.2
|
)
|
|
_______________
|
(a)
|
For additional information regarding our investments and fair value measurements, see notes
6
and
8
to our consolidated financial statements.
|
|
(b)
|
The
2013
amount primarily includes an increase in the fair value of our investment in
ITI Neovision
and O3B Networks Limited. The
2012
amount primarily includes an increase in the fair value of our investment in
ITI Neovision
.
|
Losses on debt modification, extinguishment and conversion, net
We recognized a loss on debt modification, extinguishment and conversion, net, of
$212.2 million
during
2013
. This loss includes the following:
|
•
|
aggregate losses of
$112.5 million
during the first and fourth quarters related to the redemption of all of
Unitymedia KabelBW
’s
2009 UM Euro Senior Secured Notes
, which includes (i) the payment of
$75.0 million
of redemption premium and (ii) the write-off of
$37.5 million
associated with deferred financing costs and unamortized discount;
|
II-52
|
•
|
an
$85.5 million
loss during the first quarter, which includes (i)
$35.6 million
of aggregate redemption premiums related to the
UPC Holding 8.0% Senior Notes
and the
UPC Holding 9.75% Senior Notes
, (ii) the write-off of
$24.5 million
of unamortized discount related to the
UPC Holding 9.75% Senior Notes
, (iii) the write-off of
$19.0 million
of aggregate deferred financing costs associated with the
UPC Holding 8.0% Senior Notes
and the
UPC Holding 9.75% Senior Notes
and (iv)
$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
|
|
•
|
an
$11.9 million
loss during the second quarter in connection with the prepayment of amounts outstanding under certain facilities of the
UPC Broadband Holding Bank Facility
, which includes (i)
$7.7 million
of third-party costs and (ii) the write-off of
$4.2 million
associated with deferred financing costs and unamortized discount.
|
We recognized a loss on debt modification, extinguishment and conversion, net, of
$213.8 million
during
2012
. This loss includes the following:
|
•
|
a
$175.8 million
loss during the fourth quarter associated with the redemption and repurchase of all of the
2009 UM Dollar Senior Secured Notes
and a portion of the
2009 UM Euro Senior Secured Notes
, which includes (i) the payment of
$125.9 million
of redemption premium and (ii) the write-off of
$49.4 million
associated with deferred financing costs and unamortized discount;
|
|
•
|
a
$16.3 million
loss during the fourth quarter associated with the repayment of borrowings under the
UPC Broadband Holding Bank Facility
, which includes the write-off of
$12.4 million
associated with deferred financing costs and unamortized discount in connection with the prepayment of Facility AB;
|
|
•
|
a
$10.2 million
loss during the third quarter representing the payment of redemption premium related to the
UM Senior Secured Floating-Rate Exchange Notes
; and
|
|
•
|
a
$7.0 million
loss incurred by
Unitymedia KabelBW
associated with the
Unitymedia KabelBW Exchange
and the
Special Optional Redemptions
, which includes (i)
$5.6 million
of third-party costs and (ii) the payment of
$1.4 million
of redemption premium pursuant to the
Special Optional Redemptions
.
|
For additional information concerning our losses on debt modification, extinguishment and conversion, net, see note
10
to our consolidated financial statements.
Income tax expense
We recognized income tax expense of
$355.5 million
and
$75.0 million
during
2013
and
2012
, respectively.
The income tax expense during
2013
differs from the expected income tax benefit of
$121.1 million
(based on the
U.K.
statutory income tax rate of
23.0%
) primarily due to the net negative impact of (i) a reduction in net deferred tax assets in the
U.K.
due to enacted changes in tax law, (ii) a loss of subsidiary tax attributes due to a deemed change in control related to the
Virgin Media Acquisition
, (iii) an increase in valuation allowances, (iv) non-deductible or non-taxable foreign currency exchange results and (v) certain permanent differences between the financial and tax accounting treatment of interest and other items, including $51.1 million related to the reversal of a litigation provision in the third quarter, as further described in note
17
to our consolidated financial statements. The net negative impact of these items were partially offset by the net positive impact of (a) statutory tax rates in certain jurisdictions in which we operate that are different than the
U.K.
statutory income tax rate and (b) the tax effect of intercompany financing.
The income tax expense during
2012
differs from the expected income tax benefit of
$178.1 million
(based on the
U.S.
federal
35.0%
income tax rate) primarily due to the net negative impact of (i) an increase in valuation allowances 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
11
to our consolidated financial statements.
II-53
Loss from continuing operations
During
2013
and
2012
, we reported losses from continuing operations of
$882.0 million
and
$583.9 million
, respectively, including (i) operating income of
$2,012.1 million
and
$1,983.1 million
, respectively, (ii) net non-operating expenses of
$2,538.6 million
and
$2,492.0 million
, respectively, and (iii) income tax expense of
$355.5 million
and
$75.0 million
, respectively.
Discontinued operations
Our loss from discontinued operations of
$23.7 million
during
2013
relates to the operations of the
Chellomedia Disposal Group
and our earnings from discontinued operations of
$47.1 million
during
2012
relates to the operations of
Austar
and the
Chellomedia Disposal Group
. In addition, we recognized an after-tax gain on the disposal of discontinued operations of
$924.1 million
during
2012
related to the May 23, 2012 completion of the
Austar Transaction
. For additional information, see note
5
to our consolidated financial statements.
Net earnings attributable to noncontrolling interests
Net earnings attributable to noncontrolling interests decreased
$6.3 million
during
2013
, as compared to
2012
, primarily due to the net impact of (i) 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
Telenet Tender
, (ii) a decline in the results of
VTR
and (iii) a decrease associated with our May 2012 disposition of
Austar
.
II-54
Liquidity and Capital Resources
Sources and Uses of Cash
We are a holding company that is dependent on the capital resources of our subsidiaries to satisfy our liquidity requirements at the corporate level. Although our consolidated operating subsidiaries generate cash from operating activities, each of our significant operating subsidiaries is included within one of our seven subsidiary “borrowing groups,” which borrowing groups comprise
Virgin Media
,
UPC Holding
,
Unitymedia KabelBW
,
Ziggo
,
Telenet
,
VTR Finance
and
Liberty Puerto Rico
, each together with their respective restricted subsidiaries. As set forth in the table below, our borrowing groups accounted for a significant portion of our consolidated cash and cash equivalents at
December 31, 2014
. The terms of the instruments governing the indebtedness of these borrowing groups restrict our ability to access the assets of these subsidiaries. In addition, our ability to access the liquidity of these and other subsidiaries may be limited by tax and legal considerations, the presence of noncontrolling interests and other factors. For information regarding certain financing transactions that were completed subsequent to
December 31, 2014
, see note
20
to our consolidated financial statements.
Cash and cash equivalents
The details of the
U.S.
dollar equivalent balances of our consolidated cash and cash equivalents at
December 31, 2014
are set forth in the following table (in millions):
|
Cash and cash equivalents held by:
|
|||
|
Liberty Global and unrestricted subsidiaries:
|
|||
|
Liberty Global (a)
|
$
|
41.9
|
|
|
Unrestricted subsidiaries (b) (c)
|
604.9
|
|
|
|
Total Liberty Global and unrestricted subsidiaries
|
646.8
|
|
|
|
Borrowing groups (d):
|
|||
|
Telenet
|
228.8
|
|
|
|
VTR Finance
|
85.2
|
|
|
|
UPC Holding
|
71.8
|
|
|
|
Virgin Media (c)
|
53.8
|
|
|
|
Ziggo
|
32.7
|
|
|
|
Liberty Puerto Rico
|
21.9
|
|
|
|
Unitymedia KabelBW
|
17.5
|
|
|
|
Total operating subsidiaries
|
511.7
|
|
|
|
Total cash and cash equivalents
|
$
|
1,158.5
|
|
_________________
|
(a)
|
Represents the amount held by
Liberty Global
on a standalone basis.
|
|
(b)
|
Represents the aggregate amount held by subsidiaries of
Liberty Global
that are outside of our borrowing groups.
|
|
(c)
|
The
Virgin Media
borrowing group includes certain subsidiaries of
Virgin Media
, but excludes
Virgin Media
. The
$0.8 million
of cash and cash equivalents held by
Virgin Media
is included in the amount shown for
Liberty Global
’s unrestricted subsidiaries.
|
|
(d)
|
Except as otherwise noted, represents the aggregate amounts held by the parent entity and restricted subsidiaries of each of our borrowing groups.
|
II-55
Liquidity of
Liberty Global
and its unrestricted subsidiaries
The
$41.9 million
of cash and cash equivalents held by
Liberty Global
and, subject to certain tax and legal considerations, the
$604.9 million
of cash and cash equivalents held by
Liberty Global
’s unrestricted subsidiaries, represented available liquidity at the corporate level at
December 31, 2014
. Our remaining cash and cash equivalents of
$511.7 million
at
December 31, 2014
were held by our borrowing groups as set forth in the table above. As noted above, various factors may limit our ability to access the cash of our borrowing groups. For information regarding certain limitations imposed by our subsidiaries’ debt instruments at
December 31, 2014
, see note
10
to our consolidated financial statements.
Our current sources of corporate liquidity include (i) cash and cash equivalents held by
Liberty Global
and, subject to certain tax and legal considerations,
Liberty Global
’s unrestricted subsidiaries, (ii) interest received on a note receivable from a subsidiary (outstanding principal of $9.6 billion at
December 31, 2014
) and (iii) interest and dividend income received on our and, subject to certain tax and legal considerations, our unrestricted subsidiaries’ cash and cash equivalents and investments.
From time to time,
Liberty Global
and its unrestricted subsidiaries may also receive (i) proceeds in the form of distributions or loan repayments from
Liberty Global
’s borrowing groups or affiliates, including any principal payments received on the aforementioned note receivable from a subsidiary, 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 upon the disposition of investments and other assets of
Liberty Global
and its unrestricted subsidiaries and (iii) proceeds in connection with the incurrence of debt by
Liberty Global
or its unrestricted subsidiaries or the issuance of equity securities by
Liberty Global
, including equity securities issued to satisfy subsidiary obligations. No assurance can be given that any external funding would be available to
Liberty Global
or its unrestricted subsidiaries on favorable terms, or at all. For information regarding the disposition of the
Chellomedia Disposal Group
, see note
5
to our consolidated financial statements.
At
December 31, 2014
, our consolidated cash and cash equivalents balance includes
$1,062.6 million
that is held by entities that are domiciled outside of the
U.K.
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 share repurchase program.
The ongoing cash needs of
Liberty Global
and its unrestricted subsidiaries include (i) corporate general and administrative expenses and (ii) interest payments on the
Sumitomo Collar Loan
. In addition,
Liberty Global
and its unrestricted subsidiaries may require cash in connection with (a) the repayment of outstanding debt, (b) the satisfaction of contingent liabilities, (c) acquisitions, (d) the repurchase of equity and debt securities, (e) other investment opportunities or (f) income tax payments. For information concerning the cash requirements of the
Statutory Squeeze-out
with respect to our acquisition of
Ziggo
, see note
4
to our consolidated financial statements. For information concerning our contingencies, see note
17
to our consolidated financial statements.
As a
U.K.
incorporated company, we may only elect to repurchase shares or pay dividends to the extent of our “Distributable Reserves.” Distributable Reserves, which are not linked to a
GAAP
reported amount, may be created through the earnings of the
U.K.
parent company and, amongst other methods, through a reduction in share premium approved by the English Companies Court. Based on the amounts set forth in our 2013
U.K.
Companies Act Report that was filed with the
U.K.
Companies House on May, 7, 2014, our Distributable Reserves are
$28.7 billion
. This amount does not reflect earnings, share repurchases, dividends or other activity that occurred in 2014, each of which impacts the amount of our Distributable Reserves.
During
2014
, we repurchased a total of
8,062,792
Liberty Global
Class A ordinary shares at a weighted average price of
$42.19
per share and
28,401,019
Liberty Global
Class C ordinary shares at a weighted average price of
$44.25
per share, for an aggregate purchase price of
$1,596.9 million
, including direct acquisition costs and the effects of derivative instruments. As of
December 31, 2014
, the remaining amount authorized for share repurchases was
$1,933.7 million
. Subsequent to
December 31, 2014
, our board of directors authorized an additional $2.0 billion of availability for share repurchases.
II-56
Liquidity of borrowing groups
The cash and cash equivalents of our borrowing groups are detailed in the table above. In addition to cash and cash equivalents, the primary sources of liquidity of our borrowing groups are cash provided by operations and
borrowing availability under their respective debt instruments. For the details of the borrowing availability of such entities at
December 31, 2014
, see note
10
to our consolidated financial statements. The aforementioned sources of liquidity may be supplemented in certain cases by contributions and/or loans from
Liberty Global
and its unrestricted subsidiaries. The liquidity of our borrowing groups generally is used to fund property and equipment additions and debt service requirements. From time to time, our borrowing groups may also require funding in connection with (i) acquisitions and other investment opportunities, (ii) loans to
Liberty Global
, (iii) capital distributions to
Liberty Global
and other equity owners or (iv) the satisfaction of contingencies. No assurance can be given that any external funding would be available to our borrowing groups on favorable terms, or at all. For information regarding our acquisitions and contingencies, see notes
4
and
17
to our consolidated financial statements, respectively.
For additional information regarding our consolidated cash flows, see the discussion under
Consolidated Statements of Cash Flows
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 (excluding the
Sumitomo Collar Loan
and the
ITV Collar Loan
and measured using subsidiary debt figures at swapped foreign currency exchange rates, consistent with the covenant calculation requirements of our subsidiary debt agreements) that is between four and five times our consolidated operating cash flow, although it should be noted that the timing of our acquisitions and financing transactions (including those related to the
Ziggo Acquisition
) and the interplay of average and spot foreign currency rates may impact this ratio. The ratio of our
December 31, 2014
consolidated debt to our annualized consolidated operating cash flow for the quarter ended
December 31, 2014
was 5.1x. In addition, the ratio of our
December 31, 2014
consolidated net debt (debt, as defined above, less cash and cash equivalents) to our annualized consolidated operating cash flow for the quarter ended
December 31, 2014
was 5.0x.
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
7
to our 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 our borrowing groups 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 borrowing groups. 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. At
December 31, 2014
, each of our borrowing groups was in compliance with its debt covenants. In addition, we do not anticipate any instances of non-compliance with respect to the debt covenants of our borrowing groups that would have a material adverse impact on our liquidity during the next 12 months.
At
December 31, 2014
, our outstanding consolidated debt and capital lease obligations aggregated
$46.2 billion
, including
$1,550.9 million
that is classified as current in our consolidated balance sheet and
$42.1 billion
that is not due until 2020 or thereafter. For additional information concerning our current debt maturities, see note
10
to our consolidated financial statements.
Notwithstanding our negative working capital position at
December 31, 2014
, 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 not possible to predict how political and economic conditions, sovereign debt concerns or any adverse regulatory developments could impact the credit and equity markets we access and, accordingly, our future liquidity and financial position. However, (i) the financial failure of any of our counterparties could (a) reduce amounts
II-57
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 have been borrowed or incurred by our subsidiaries at
December 31, 2014
.
For additional information concerning our debt and capital lease obligations, see notes
10
and
20
to our consolidated financial 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.
Consolidated Statements of Cash Flows —
2014
compared to
2013
Summary.
The
2014
and
2013
consolidated statements of cash flows of our continuing operations are summarized as follows:
|
Year ended December 31,
|
|||||||||||
|
2014
|
2013
|
Change
|
|||||||||
|
in millions
|
|||||||||||
|
Net cash provided by operating activities
|
$
|
5,612.8
|
|
$
|
3,921.0
|
|
$
|
1,691.8
|
|
||
|
Net cash used by investing activities
|
(2,799.6
|
)
|
(7,950.1
|
)
|
5,150.5
|
|
|||||
|
Net cash provided (used) by financing activities
|
(4,260.1
|
)
|
4,623.3
|
|
(8,883.4
|
)
|
|||||
|
Effect of exchange rate changes on cash
|
(81.9
|
)
|
85.4
|
|
(167.3
|
)
|
|||||
|
Net
increase (decrease)
in cash and cash equivalents
|
$
|
(1,528.8
|
)
|
$
|
679.6
|
|
$
|
(2,208.4
|
)
|
||
Operating Activities.
The increase in net cash provided by our operating activities is primarily attributable to the net effect of (i) an increase in the cash provided by our operating cash flow and related working capital items, largely due to the impact of the
Virgin Media Acquisition
and, to a lesser extent, the
Ziggo Acquisition
, (ii) a decrease in cash provided due to higher cash payments for interest, a significant portion of which is due to the impact of the
Virgin Media Acquisition
, (iii) an increase in the reported net cash provided by operating activities due to
FX
, (iv) a decrease in cash provided due to lower cash dividends received and (v) a decrease in cash provided due to higher cash payments related to derivative instruments.
Investing Activities.
The decrease in net cash used by our investing activities is primarily attributable to the net effect of (i) a decrease in cash used of
$4,000.1 million
associated with lower cash paid in connection with acquisitions, (ii) a decrease in cash used of
$988.5 million
associated with cash proceeds received during
2014
in connection with the Chellomedia Transaction, (iii) a decrease in cash used of
$333.7 million
associated with lower cash paid in connection with investments in and loans to affiliates and others and (iv) an increase in cash used of
$202.9 million
due to higher capital expenditures. Capital expenditures increased from
$2,481.5 million
during
2013
to
$2,684.4 million
during
2014
, primarily due to increases related to the
Virgin Media Acquisition
and, to a much lesser extent, the
Ziggo Acquisition
, that were only partially offset by a net decrease in the local currency capital expenditures of our other subsidiaries, due primarily to an increase in vendor financing during 2014 as compared to 2013.
II-58
The capital expenditures that we report in our consolidated statements of cash flows do not include amounts that are financed under capital-related 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 refer to (i) our capital expenditures as reported in our consolidated statements of cash flows, which exclude amounts financed under capital-related 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 capital-related vendor financing or capital lease arrangements. A reconciliation of our consolidated property and equipment additions to our consolidated capital expenditures as reported in our consolidated statements of cash flows is set forth below:
|
|
Year ended December 31,
|
||||||
|
|
2014
|
2013
|
|||||
|
|
in millions
|
||||||
|
Property and equipment additions
|
$
|
3,909.2
|
|
$
|
3,161.6
|
|
|
|
Assets acquired under capital-related vendor financing arrangements
|
(975.3
|
)
|
(573.5
|
)
|
|||
|
Assets acquired under capital leases
|
(127.2
|
)
|
(143.0
|
)
|
|||
|
Changes in current liabilities related to capital expenditures
|
(122.3
|
)
|
36.4
|
|
|||
|
Capital expenditures
|
$
|
2,684.4
|
|
$
|
2,481.5
|
|
|
The
European Operations Division
accounted for
$3,648.0 million
and
$2,901.0 million
of our consolidated property and equipment additions during
2014
and
2013
, respectively. The increase in the
European Operations Division
’s property and equipment additions is primarily due to the net effect of (i) an increase due to impact of the
Virgin Media Acquisition
and, to a lesser extent, the
Ziggo Acquisition
, (ii) a decrease in expenditures for the purchase and installation of customer premises equipment, (iii) an increase 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. During
2014
and
2013
, the
European Operations Division
property and equipment additions represented
21.5%
and
22.1%
of its revenue, respectively.
Chile accounted for
$195.8 million
and
$188.5 million
of our consolidated property and equipment additions during
2014
and
2013
, respectively. The increase in Chile’s property and equipment additions is primarily due to the net effect of (i) a decrease due to
FX
, (ii) an increase in expenditures for new build and upgrade projects, (iii) an increase in expenditures for support capital, such as information technology upgrades and general support systems, and (iv) an increase in expenditures for the purchase and installation of customer premises equipment. During
2014
and
2013
, Chile’s property and equipment additions represented
21.8%
and
19.0%
of its revenue, respectively.
For additional information regarding our property and equipment additions, see note
18
to our consolidated financial statements.
After giving effect to the
U.K.
Network Extension as discussed under
Overview
, we expect the percentage of revenue represented by our aggregate
2015
consolidated property and equipment additions
to range from 21% to 23%, including (i) 21% to 23% for the
European Operations Division
(including 21% to 23% for
U.K./Ireland
, 19% to 21% for Germany, 19% to 21% for Belgium, 20% to 22% for the Netherlands, inclusive of Ziggo, and 16% to 18% for
Switzerland/Austria
)
and (ii) 17% to 19% for Chile. The actual amount of our
2015
consolidated property and equipment additions and the
2015
property and equipment additions of the
European Operations Division
(including
U.K./Ireland
, Germany, Belgium, the Netherlands and
Switzerland/Austria
) and Chile may vary from expected amounts for a variety of reasons, including (a) changes in (1) the competitive or regulatory environment, (2) business plans or (3) our current or expected future operating results and (b) the availability of sufficient capital. Accordingly, no assurance can be given that our actual property and equipment additions will not vary materially from our expectations.
Financing Activities.
The change in net cash provided (used) by our financing activities is primarily attributable to the net effect of (i) a decrease in cash of
$3,652.5 million
primarily due to the release of restricted cash in June 2013 in connection with the
Virgin Media Acquisition
, (ii) a decrease in cash of
$3,095.4 million
related to lower net borrowings of debt, (iii) a decrease in cash of
$1,539.7 million
due to the release of restricted cash during 2013 in connection with the
Telenet Tender
, (iv) a decrease in cash of
$745.5 million
due to higher cash paid related to derivative instruments, (v) an increase in cash of
$526.4 million
related to lower distributions by subsidiaries to noncontrolling interests, (vi) a decrease in cash of
$427.7 million
related to higher repurchases of our shares and (vii) an increase in cash of
$200.6 million
related to a decrease in purchases of additional shares of our subsidiaries.
II-59
Consolidated Statements of Cash Flows —
2013
compared to
2012
Summary.
The
2013
and
2012
consolidated statements of cash flows of our continuing operations are summarized as follows:
|
Year ended December 31,
|
|||||||||||
|
2013
|
2012
|
Change
|
|||||||||
|
in millions
|
|||||||||||
|
Net cash provided by operating activities
|
$
|
3,921.0
|
|
$
|
2,837.5
|
|
$
|
1,083.5
|
|
||
|
Net cash used by investing activities
|
(7,950.1
|
)
|
(957.7
|
)
|
(6,992.4
|
)
|
|||||
|
Net cash provided (used) by financing activities
|
4,623.3
|
|
(1,465.1
|
)
|
6,088.4
|
|
|||||
|
Effect of exchange rate changes on cash
|
85.4
|
|
28.3
|
|
57.1
|
|
|||||
|
Net increase in cash and cash equivalents
|
$
|
679.6
|
|
$
|
443.0
|
|
$
|
236.6
|
|
||
Operating Activities.
The increase in net cash provided by our operating activities is primarily attributable to the net effect of (i) an increase in the cash provided by our operating cash flow and related working capital items, largely due to the impact of the
Virgin Media Acquisition
, (ii) a decrease in cash provided due to higher cash payments for interest, largely due to the impact of the
Virgin Media Acquisition
, (iii) an increase in the reported net cash provided by operating activities due to
FX
, (iv) a decrease in cash provided due to higher net cash payments for taxes and (v) an increase in cash provided due to lower cash payments related to derivative instruments.
Investing Activities.
The increase in net cash used by our investing activities is primarily attributable to (i) an increase in cash used of
$3,919.2 million
associated with higher cash paid in connection with acquisitions, (ii) an increase in cash used of
$1,317.9 million
associated with higher cash paid in connection with investments in and loans to affiliates and others, primarily due to the cash we paid to acquire
Ziggo
shares during 2013, (iii) an increase in cash used of
$1,055.4 million
associated with cash proceeds received in connection with the
Austar Transaction
during 2012 and (iv) an increase in cash used of
$613.2 million
associated with higher capital expenditures. Capital expenditures increased from
$1,868.3 million
during
2012
to
$2,481.5 million
during
2013
, primarily due to an increase related to the
Virgin Media Acquisition
and other less significant acquisitions that was only partially offset by a net decrease in the local currency capital expenditures of our subsidiaries.
A reconciliation of our consolidated property and equipment additions to our consolidated capital expenditures as reported in the consolidated statements of cash flows is set forth below:
|
|
Year ended December 31,
|
||||||
|
|
2013
|
2012
|
|||||
|
|
in millions
|
||||||
|
Property and equipment additions
|
$
|
3,161.6
|
|
$
|
2,258.6
|
|
|
|
Assets acquired under capital-related vendor financing arrangements
|
(573.5
|
)
|
(246.5
|
)
|
|||
|
Assets acquired under capital leases
|
(143.0
|
)
|
(63.1
|
)
|
|||
|
Changes in current liabilities related to capital expenditures
|
36.4
|
|
(80.7
|
)
|
|||
|
Capital expenditures
|
$
|
2,481.5
|
|
$
|
1,868.3
|
|
|
The
European Operations Division
accounted for
$2,901.0 million
and
$1,981.6 million
of our consolidated property and equipment additions during
2013
and
2012
, respectively. The increase in the
European Operations Division
’s property and equipment additions is primarily due to the net effect of (i) an increase due to the
Virgin Media Acquisition
and other less significant acquisitions, (ii) an increase in expenditures for support capital, such as information technology upgrades and general support systems, (iii) an increase due to
FX
, (iv) a decrease in expenditures for the purchase and installation of customer premises equipment and (v) an increase in expenditures for new build and upgrade projects to expand services. During
2013
and
2012
, the
European Operations Division
property and equipment additions represented
22.1%
and
22.5%
of its revenue, respectively.
Chile accounted for
$188.5 million
and
$243.4 million
of our consolidated property and equipment additions during
2013
and
2012
, respectively. The decrease in Chile’s property and equipment additions is primarily due to the net effect of (i) a decrease in expenditures related to the construction of
VTR
’s mobile network, (ii) a decrease in expenditures for the purchase and installation of customer premises equipment, (iii) a decrease in expenditures for new build and upgrade projects, (iv) an increase in expenditures
II-60
for support capital, such as information technology upgrades and general support systems and (v) a decrease due to
FX
. During
2013
and
2012
, Chile’s property and equipment additions represented
19.0%
and
25.9%
of its revenue, respectively.
For additional information regarding our property and equipment additions, see note
18
to our consolidated financial statements.
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 of
$3,534.2 million
primarily due to the release of restricted cash in June 2013 in connection with the
Virgin Media Acquisition
, (ii) an increase in cash of
$3,003.8 million
due to the release of restricted cash in connection with the
Telenet Tender
, (iii) an increase in cash of
$632.9 million
due to higher cash received related to derivative instruments, (iv) a decrease in cash of
$461.3 million
, substantially all of which related to shares purchased in connection with the
Telenet Tender
, (v) a decrease in cash of
$256.1 million
related to lower net borrowings of debt, (vi) a decrease in cash of
$203.0 million
related to higher distributions by subsidiaries to noncontrolling interests, (vii) a decrease in cash of
$186.9 million
related to higher repurchases of our shares and (viii) a decrease in cash of
$159.8 million
due to higher payments for financing costs, debt premiums and exchange offer consideration.
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 share-based incentive awards and (ii) cash payments for third-party costs directly associated with successful and unsuccessful acquisitions and dispositions, less (a) capital expenditures, as reported in our consolidated statements of cash flows, (b) principal payments on capital-related 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 statements of cash flows.
The following table provides the details of our free cash flow:
|
|
Year ended December 31,
|
||||||||||
|
|
2014
|
2013
|
2012
|
||||||||
|
|
in millions
|
||||||||||
|
Net cash provided by operating activities of our continuing operations
|
$
|
5,612.8
|
|
$
|
3,921.0
|
|
$
|
2,837.5
|
|
||
|
Excess tax benefits from share-based compensation
|
7.0
|
|
41.0
|
|
6.7
|
|
|||||
|
Cash payments for direct acquisition and disposition costs
|
79.7
|
|
61.0
|
|
31.5
|
|
|||||
|
Capital expenditures
|
(2,684.4
|
)
|
(2,481.5
|
)
|
(1,868.3
|
)
|
|||||
|
Principal payments on capital-related vendor financing obligations
|
(677.6
|
)
|
(320.4
|
)
|
(104.7
|
)
|
|||||
|
Principal payments on certain capital leases
|
(183.3
|
)
|
(95.8
|
)
|
(17.5
|
)
|
|||||
|
Free cash flow
|
$
|
2,154.2
|
|
$
|
1,125.3
|
|
$
|
885.2
|
|
||
II-61
Contractual Commitments
The
U.S.
dollar equivalents of the commitments of our continuing operations as of
December 31, 2014
are presented below:
|
|
Payments due during:
|
||||||||||||||||||||||||||
|
2015
|
2016
|
2017
|
2018
|
2019
|
Thereafter
|
Total
|
|||||||||||||||||||||
|
|
in millions
|
||||||||||||||||||||||||||
|
Debt (excluding interest)
|
$
|
1,350.3
|
|
$
|
360.0
|
|
$
|
917.1
|
|
$
|
248.5
|
|
$
|
604.8
|
|
$
|
41,131.5
|
|
$
|
44,612.2
|
|
||||||
|
Capital leases (excluding interest)
|
198.5
|
|
151.4
|
|
111.0
|
|
83.9
|
|
74.4
|
|
928.4
|
|
1,547.6
|
|
|||||||||||||
|
Programming commitments
|
863.9
|
|
785.4
|
|
612.7
|
|
528.0
|
|
231.4
|
|
2.0
|
|
3,023.4
|
|
|||||||||||||
|
Network and connectivity commitments
|
359.9
|
|
261.5
|
|
240.2
|
|
127.1
|
|
90.2
|
|
1,048.5
|
|
2,127.4
|
|
|||||||||||||
|
Purchase commitments
|
827.8
|
|
119.4
|
|
62.9
|
|
10.1
|
|
4.0
|
|
—
|
|
1,024.2
|
|
|||||||||||||
|
Operating leases
|
174.0
|
|
141.5
|
|
117.3
|
|
98.1
|
|
75.4
|
|
279.3
|
|
885.6
|
|
|||||||||||||
|
Other commitments
|
350.2
|
|
198.7
|
|
150.1
|
|
90.0
|
|
39.2
|
|
48.2
|
|
876.4
|
|
|||||||||||||
|
Total (a)
|
$
|
4,124.6
|
|
$
|
2,017.9
|
|
$
|
2,211.3
|
|
$
|
1,185.7
|
|
$
|
1,119.4
|
|
$
|
43,437.9
|
|
$
|
54,096.8
|
|
||||||
|
Projected cash interest payments on debt and capital lease obligations (b)
|
$
|
2,342.9
|
|
$
|
2,352.3
|
|
$
|
2,334.0
|
|
$
|
2,320.9
|
|
$
|
2,287.2
|
|
$
|
7,006.0
|
|
$
|
18,643.3
|
|
||||||
_______________
|
(a)
|
The commitments reflected in this table do not reflect any liabilities that are included in our
December 31, 2014
consolidated balance sheet other than debt and capital lease obligations. Our liability for uncertain tax positions in the various jurisdictions in which we operate ($373.3 million at
December 31, 2014
) has been excluded from the table as the amount and timing of any related payments are not subject to reasonable estimation.
|
|
(b)
|
Amounts are based on interest rates, interest payment dates and contractual maturities in effect as of
December 31, 2014
. 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 or premiums, all of which affect our overall cost of borrowing.
|
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. In addition, programming commitments do not include increases in future periods associated with contractual inflation or other price adjustments that are not fixed. Accordingly, the amounts reflected in the above table with respect to these contracts are significantly less than the amounts we expect to pay in these 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
2014
,
2013
and
2012
, the third-party programming and copyright costs incurred by our broadband communications and
DTH
operations aggregated
$2,145.0 million
,
$1,612.5 million
and
$978.4 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.
Network and connectivity commitments include (i)
Telenet
’s commitments for certain operating costs associated with its leased network, (ii) commitments associated with our
MVNO
agreements and (iii) certain repair and maintenance, fiber capacity and energy commitments of
Unitymedia KabelBW
. Subsequent to
October 1, 2015
,
Telenet
’s commitments for certain operating costs will be 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. The amounts reflected in the table with respect to certain of 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.
Purchase commitments include unconditional purchase obligations associated with commitments to purchase customer premises and other equipment that are enforceable and legally binding on us.
II-62
Commitments arising from acquisition agreements are not reflected in the above table. In addition, the table does not include our commitments with respect to the amounts we have agreed to pay to settle the
FCO Appeals
. For additional information, see note
17
to our consolidated financial statements.
In addition to the commitments set forth in the table above, we have significant commitments under (i) derivative instruments and (ii) defined benefit plans and similar agreements, pursuant to which we expect to make payments in future periods. For information regarding projected cash flows associated with these derivative instruments, see
Quantitative and Qualitative Disclosures about Market Risk — Projected Cash Flows Associated with Derivatives
below. For information regarding our derivative instruments, including the net cash paid or received in connection with these instruments during
2014
,
2013
and
2012
, see note
7
to our consolidated financial statements. For information concerning our defined benefit plans, see note
15
to our 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.
Critical Accounting Policies, Judgments and Estimates
In connection with the preparation of our consolidated financial statements, we make estimates and assumptions that affect the reported amounts of assets and liabilities, revenue and expenses and related disclosure of contingent assets and liabilities. Critical accounting policies are defined as those policies that are reflective of significant judgments, estimates and uncertainties, which would potentially result in materially different results under different assumptions and conditions. We believe the following accounting policies are critical in the preparation of our consolidated financial statements because of the judgment necessary to account for these matters and the significant estimates involved, which are susceptible to change:
|
•
|
Impairment of property and equipment and intangible assets (including goodwill);
|
|
•
|
Costs associated with construction and installation activities;
|
|
•
|
Useful lives of long-lived assets;
|
|
•
|
Fair value measurements; and
|
|
•
|
Income tax accounting.
|
We have discussed the selection of the aforementioned critical accounting policies with the audit committee of our board of directors. For additional information concerning our significant accounting policies, see note
3
to our consolidated financial statements.
Impairment of Property and Equipment and Intangible Assets
Carrying Value.
The aggregate carrying value of our property and equipment and intangible assets (including goodwill) that were held for use comprised
85.9%
of our total assets at
December 31, 2014
.
We review, when circumstances warrant, the carrying amounts of our property and equipment and our intangible assets (other than goodwill and other indefinite-lived intangible assets) to determine whether such carrying amounts continue to be recoverable. Such changes in circumstance may include, among other items, (i) an expectation of a sale or disposal of a long-lived asset or asset group, (ii) adverse changes in market or competitive conditions, (iii) an adverse change in legal factors or business climate in the markets in which we operate and (iv) operating or cash flow losses. For purposes of impairment testing, long-lived assets are grouped at the lowest level for which cash flows are largely independent of other assets and liabilities, generally at or below the reporting unit level (see below). If the carrying amount of the asset or asset group is greater than the expected undiscounted cash flows to be generated by such asset or asset group, an impairment adjustment is recognized. Such adjustment is measured by the amount that the carrying value of such asset or asset group exceeds its fair value. We generally measure fair value by considering (a) sale prices for similar assets, (b) discounted estimated future cash flows using an appropriate discount rate and/or (c) estimated replacement cost. Assets to be disposed of are carried at the lower of their financial statement carrying amount or fair value less costs to sell.
We evaluate the goodwill, franchise rights and other indefinite-lived intangible assets for impairment at least annually on October 1 and whenever other facts and circumstances indicate that the carrying amounts of goodwill and other indefinite-lived intangible assets may not be recoverable. For impairment evaluations with respect to both goodwill and other indefinite-lived
II-63
intangibles, we first make a qualitative assessment to determine if the goodwill or other indefinite-lived intangible may be impaired. In the case of goodwill, if it is more-likely-than-not that a reporting unit’s fair value is less than its carrying value, we then compare the fair value of the reporting unit to its respective carrying amount. A reporting unit is an operating segment or one level below an operating segment (referred to as a “component”). In most cases, our operating segments are deemed to be a reporting unit either because the operating segment is comprised of only a single component, or the components below the operating segment are aggregated as they have similar economic characteristics. If the carrying value of a reporting unit were to exceed its fair value, we would then compare the implied fair value of the reporting unit’s goodwill to its carrying amount, and any excess of the carrying amount over the fair value would be charged to operations as an impairment loss. With respect to franchise rights or other indefinite-lived intangible assets, if it is more-likely-than-not that the fair value of an indefinite-lived intangible asset is less than its carrying value, we then estimate its fair value and any excess of the carrying value over the fair value of the franchise right or other indefinite-lived intangible asset is also charged to operations as an impairment loss.
When required, considerable management judgment is necessary to estimate the fair value of reporting units and underlying long-lived and indefinite-lived assets. The equity of one of our reporting units,
Telenet
, is publicly traded in an active market. For this reporting unit, our fair value determination is based on quoted market prices. For other reporting units, we typically determine fair value using an income-based approach (discounted cash flows) based on assumptions in our long-range business plans and, in some cases, a combination of an income-based approach and a market-based approach. With respect to our discounted cash flow analysis used in the income-based approach, the timing and amount of future cash flows under these business plans require estimates, among other items, of subscriber growth and retention rates, rates charged per product, expected gross margin and operating cash flow margins and expected property and equipment additions. The development of these cash flows, and the discount rate applied to the cash flows, is subject to inherent uncertainties, and actual results could vary significantly from such estimates. Our determination of the discount rate is based on a weighted average cost of capital approach, which uses a market participant’s cost of equity and after-tax cost of debt and reflects the risks inherent in the cash flows. Based on the results of our
2014
qualitative assessment of our reporting unit carrying values, we determined that it was more-likely-than-not that fair value exceeded carrying value for all of our reporting units.
During the three years ended
December 31, 2014
, the most significant impairment charges that we recorded with respect to our property and equipment and intangible assets were (i) the
$73.0 million
impairment charge that
Telenet
recorded during the fourth quarter of 2013 to reduce the carrying value of the intangible assets related to certain of its spectrum rights and (ii) the
$68.7 million
impairment charge that we recorded during the fourth quarter of 2014 to reduce the carrying amount of certain of
Ziggo
’s internal-use software assets. For additional information, see note
9
to our consolidated financial statements.
Based on the results of our October 1, 2014 goodwill impairment test, a hypothetical decline of 20% or more in the fair value of one of our reporting units,
Liberty Puerto Rico
, could result in the need to record a goodwill impairment charge. At
December 31, 2014
, the goodwill associated with the
Liberty Puerto Rico
reporting unit, which is included in our corporate and other category, was
$347.0 million
. 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.
Costs Associated with Construction and Installation Activities
We capitalize costs associated with the construction of new cable transmission and distribution facilities and the installation of new cable services. Installation activities that are capitalized include (i) the initial connection (or drop) from our cable system to a customer location, (ii) the replacement of a drop and (iii) the installation of equipment for additional services, such as digital cable, telephone or broadband internet service. The costs of other customer-facing activities, such as reconnecting customer locations where a drop already exists, disconnecting customer locations and repairing or maintaining drops, are expensed as incurred.
The nature and amount of labor and other costs to be capitalized with respect to construction and installation activities involves significant judgment. In addition to direct external and internal labor and materials, we also capitalize other costs directly attributable to our construction and installation activities, including dispatch costs, quality-control costs, vehicle-related costs and certain warehouse-related costs. The capitalization of these costs is based on time sheets, time studies, standard costs, call tracking systems and other verifiable means that directly link the costs incurred with the applicable capitalizable activity. We continuously monitor the appropriateness of our capitalization policies and update the policies when necessary to respond to changes in facts and circumstances, such as the development of new products and services, and changes in the manner that installations or construction activities are performed.
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Useful Lives of Long-Lived Assets
We depreciate our property and equipment on a straight-line basis over the estimated useful life of the assets. The determination of the useful lives of property and equipment requires significant management judgment, based on factors such as the estimated physical lives of the assets, technological changes, changes in anticipated use, legal and economic factors, rebuild and equipment swap-out plans, and other factors. Our intangible assets with finite lives primarily consist of customer relationships. Customer relationship intangible assets are amortized on a straight-line basis over the estimated weighted average life of the customer relationships. The determination of the estimated useful life of customer relationship intangible assets requires significant management judgment and is primarily based on historical and forecasted subscriber disconnect rates, adjusted when necessary for risk associated with demand, competition, technological changes and other economic factors. We regularly review whether changes to estimated useful lives are required in order to accurately reflect the economic use of our property and equipment and intangible assets with finite lives. Any changes to estimated useful lives are reflected prospectively. Depreciation and amortization expense of our continuing operations during
2014
,
2013
and
2012
was
$5,500.1 million
,
$4,276.4 million
and
$2,661.5 million
, respectively. A 10% increase in the aggregate amount of the depreciation and amortization expense of our continuing operations during
2014
would have resulted in a
$550.0 million
or
24.7%
decrease in our
2014
operating income.
Fair Value Measurements
GAAP
provides guidance with respect to the recurring and nonrecurring fair value measurements and for a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. Level 1 inputs are quoted market prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted market prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability.
Recurring Valuations.
We perform recurring fair value measurements with respect to our derivative instruments and fair value method investments, each of which are carried at fair value. We use (i) cash flow valuation models to determine the fair values of our interest rate and foreign currency derivative instruments and (ii) a binomial option pricing model to determine the fair values of our equity-related derivative instruments. We use quoted market prices when available and, when not available, we use a combination of an income approach (discounted cash flows) and a market approach (market multiples of similar businesses) to determine the fair value of our fair value method investments. For a detailed discussion of the inputs we use to determine the fair value of our derivative instruments and fair value method investments, see note
8
to our consolidated financial statements. See also notes
6
and
7
to our consolidated financial statements for information concerning our fair value method investments and derivative instruments, respectively.
Changes in the fair values of our derivative instruments and fair value method investments have had, and we believe will continue to have, a significant and volatile impact on our results of operations. During
2014
,
2013
and
2012
, our continuing operations included net gains (losses) of
$294.0 million
, (
$496.3 million
) and (
$1,080.5 million
), respectively, attributable to changes in the fair values of these items.
As further described in note
8
to our consolidated financial statements, actual amounts received or paid upon the settlement of our derivative instruments or disposal of our fair value method investments may differ materially from the recorded fair values at
December 31, 2014
.
For information concerning the sensitivity of the fair value of certain of our more significant derivative instruments to changes in market conditions, see
Quantitative and Qualitative Disclosures About Market Risk — Sensitivity Information
below.
Nonrecurring Valuations.
Our nonrecurring valuations are primarily associated with (i) the application of acquisition accounting and (ii) impairment assessments, both of which require that we make fair value determinations as of the applicable valuation date. In making these determinations, we are required to make estimates and assumptions that affect the recorded amounts, including, but not limited to, expected future cash flows, market comparables and discount rates, remaining useful lives of long-lived assets, replacement or reproduction costs of property and equipment and the amounts to be recovered in future periods from acquired net operating losses and other deferred tax assets. To assist us in making these fair value determinations, we may engage third-party valuation specialists. Our estimates in this area impact, among other items, the amount of depreciation and amortization, impairment charges and income tax expense or benefit that we report. Our estimates of fair value are based upon assumptions we believe to be reasonable, but which are inherently uncertain. A significant portion of our long-lived assets were initially recorded through the application of acquisition accounting and all of our long-lived assets are subject to impairment assessments. For additional information, see notes
4
,
8
and
9
to our consolidated financial statements.
II-65
Income Tax Accounting
We are required to estimate the amount of tax payable or refundable for the current year and the deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts and income tax basis of assets and liabilities and the expected benefits of utilizing net operating loss and tax credit carryforwards, using enacted tax rates in effect for each taxing jurisdiction in which we operate for the year in which those temporary differences are expected to be recovered or settled. This process requires our management to make assessments regarding the timing and probability of the ultimate tax impact of such items.
Net deferred tax assets are reduced by a valuation allowance if we believe it more-likely-than-not such net deferred tax assets will not be realized. Establishing or reducing a tax valuation allowance requires us to make assessments about the timing of future events, including the probability of expected future taxable income and available tax planning strategies. At
December 31, 2014
, the aggregate valuation allowance provided against deferred tax assets was
$6,679.4 million
. The actual amount of deferred income tax benefits realized in future periods will likely differ from the net deferred tax assets reflected in our
December 31, 2014
balance sheet due to, among other factors, possible future changes in income tax law or interpretations thereof in the jurisdictions in which we operate and differences between estimated and actual future taxable income. Any of such factors could have a material effect on our current and deferred tax positions as reported in our consolidated financial statements. A high degree of judgment is required to assess the impact of possible future outcomes on our current and deferred tax positions.
Tax laws in jurisdictions in which we have a presence are subject to varied interpretation, and many tax positions we take are subject to significant uncertainty regarding whether the position will be ultimately sustained after review by the relevant tax authority. We recognize the financial statement effects of a tax position when it is more-likely-than-not, based on technical merits, that the position will be sustained upon examination. The determination of whether the tax position meets the more-likely-than-not threshold requires a facts-based judgment using all information available. In a number of cases, we have concluded that the more-likely-than-not threshold is not met and, accordingly, the amount of tax benefit recognized in our consolidated financial statements is different than the amount taken or expected to be taken in our tax returns. As of
December 31, 2014
, the amount of unrecognized tax benefits for financial reporting purposes, but taken or expected to be taken on tax returns, was
$513.5 million
, of which
$332.9 million
would have a favorable impact on our effective income tax rate if ultimately recognized, after considering amounts that we would expect to be offset by valuation allowances.
We are required to continually assess our tax positions, and the results of tax examinations or changes in judgment can result in substantial changes to our unrecognized tax benefits.
We have taxable outside basis differences on certain investments in non-
U.S.
subsidiaries. We do not recognize the deferred tax liabilities associated with these outside basis differences when the difference is considered essentially permanent in duration. In order to be considered essentially permanent in duration, sufficient evidence must indicate that the foreign subsidiary has invested or will invest its undistributed earnings indefinitely, or that earnings will be remitted in a tax-free liquidation. If circumstances change and it becomes apparent that some or all of the undistributed earnings will be remitted on a taxable basis in the foreseeable future, a net deferred tax liability must be recorded for some or all of the outside basis difference. The assessment of whether these outside basis differences are considered permanent in nature requires significant judgment and is based on management’s intentions to reinvest the earnings of a foreign subsidiary indefinitely in light of anticipated liquidity requirements and other relevant factors. At
December 31, 2014
, income and withholding taxes for which a net deferred tax liability might otherwise be required have not been provided on an estimated
$11.1 billion
of cumulative temporary differences on non-
U.S.
entities. If our plans or intentions change in the future due to liquidity or other relevant considerations, we could decide that it would be prudent to repatriate significant funds or other assets from one or more of our subsidiaries, even though we would incur a tax liability in connection with any such repatriation. If our plans or intentions were to change in this manner, the recognition of all or a part of these outside basis differences could have an adverse impact on our consolidated net loss.
For additional information concerning our income taxes, see note
11
to our consolidated financial statements.
II-66
|
Item 7A
|
.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
We are exposed to market risk in the normal course of our business operations due to our investments in various foreign countries and ongoing investing and financing activities. Market risk refers to the risk of loss arising from adverse changes in foreign currency exchange rates, interest rates and stock prices. The risk of loss can be assessed from the perspective of adverse changes in fair values, cash flows and future earnings. As further described below, we have established policies, procedures and processes governing our management of market risks and the use of derivative instruments to manage our exposure to such risks.
Cash and Investments
We invest our cash in highly liquid instruments that meet high credit quality standards. We are exposed to exchange rate risk to the extent that the denominations of our cash and cash equivalent balances, revolving lines of credit and other short-term sources of liquidity do not correspond to the denominations of our and our subsidiaries’ short-term liquidity requirements. In order to mitigate this risk, we actively manage the denominations of our cash balances in light of our and our subsidiaries’ forecasted liquidity requirements. At
December 31, 2014
,
$455.1 million
or
39.3%
and
$409.9 million
or
35.4%
of our consolidated cash balances were denominated in euros and
U.S.
dollars, respectively.
We are also exposed to market price fluctuations related to our investments in
ITV
and
Sumitomo
shares. At
December 31, 2014
, the aggregate fair value of these investments was
$871.2 million
and
$473.1 million
, respectively. All of our
ITV
and
Sumitomo
shares are held through the
ITV Collar
and the
Sumitomo Collar
, respectively. For information concerning the terms of the
ITV Collar
and the related
ITV Collar Loan
, and the
Sumitomo Collar
and the related
Sumitomo Collar Loan
, see note
7
to our consolidated financial statements. For those shares that are held through the
ITV Collar
and the
Sumitomo Collar
, our exposure to market risk is limited. For additional information concerning our investments in
ITV
and
Sumitomo
shares, see note
6
to our consolidated financial statements.
Foreign Currency Risk
We are exposed to foreign currency exchange rate risk with respect to our consolidated debt in situations where our debt is denominated in a currency other than the functional currency of the operations whose cash flows support our ability to repay or refinance such debt. Although we generally seek to match the denomination of our and our subsidiaries’ borrowings with the functional currency of the operations that are supporting the respective borrowings, market conditions or other factors may cause us to enter into borrowing arrangements that are not denominated in the functional currency of the underlying operations (unmatched debt). In these cases, our policy is to provide for an economic hedge against foreign currency exchange rate movements by using derivative instruments to synthetically convert unmatched debt into the applicable underlying currency. At
December 31, 2014
, substantially all of our debt was either directly or synthetically matched to the applicable functional currencies of the underlying operations.
For additional information concerning the terms of our derivative instruments, see note
7
to our consolidated financial statements.
In addition to the exposure that results from the mismatch of our borrowings and underlying functional currencies, we are exposed to foreign currency risk to the extent that we enter into transactions denominated in currencies other than our or our subsidiaries’ respective functional currencies (non-functional currency risk), such as equipment purchases, programming contracts, notes payable and notes receivable (including intercompany amounts). Changes in exchange rates with respect to amounts recorded in our consolidated balance sheets related to these items will result in unrealized (based upon period-end exchange rates) or realized foreign currency transaction gains and losses upon settlement of the transactions.
Moreover, to the extent that our revenue, costs and expenses are denominated in currencies other than our respective functional currencies, we will experience fluctuations in our revenue, costs and expenses solely as a result of changes in foreign currency exchange rates
.
In this regard, we currently expect that during
2015
, (i)
less than 1% of our revenue,
(ii)
approximately 2% to 4% of our aggregate operating and SG&A expenses (exclusive of share-based compensation expense) and
(iii)
approximately 7% to 9% of our property and equipment additions will be denominated in non-functional currencies, including amounts denominated in (a) U.S. dollars in Chile and Europe and (b) euros in Poland, the Czech Republic, Romania, Switzerland and Hungary.
Our expectations with respect to our non-functional currency transactions in 2015 may differ from actual results.
Generally, we will consider hedging non-functional currency risks when the risks arise from agreements with third parties that involve the future payment or receipt of cash or other monetary items to the extent that we can reasonably predict the timing and amount of such payments or receipts and the payments or receipts are not otherwise hedged. In this regard, we have entered into foreign currency forward contracts to hedge certain of these risks. Certain non-functional currency risks related to our revenue, operating and SG&A expenses and property and equipment additions were not hedged as of
December 31, 2014
. For additional information concerning our foreign currency forward contracts, see note
7
to our consolidated financial statements.
II-67
We also are exposed to unfavorable and potentially volatile fluctuations of the
U.S.
dollar (our reporting currency) against the currencies of our operating subsidiaries when their respective financial statements are translated into
U.S.
dollars for inclusion in our consolidated financial statements. Cumulative translation adjustments are recorded in accumulated other comprehensive earnings (loss)
as a separate component of equity. Any increase (decrease) in the value of the
U.S.
dollar against any foreign currency that is the functional currency of one of our operating subsidiaries will cause us to experience unrealized foreign currency translation losses (gains) with respect to amounts already invested in such foreign currencies. Accordingly, we may experience a negative impact on our comprehensive earnings (loss) and equity with respect to our holdings solely as a result of
FX
.
Our primary exposure to FX risk during the three months ended December 31, 2014 was to the euro and British pound sterling as 43.8% and 36.7% of our U.S. dollar revenue during the period was derived from subsidiaries whose functional currencies are the euro and British pound sterling, respectively.
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. We generally do not hedge against the risk that we may incur non-cash losses upon the translation of the financial statements of our subsidiaries and affiliates into
U.S.
dollars. For information regarding certain currency instability risks with respect to the euro, see
Management’s Discussion and Analysis of Financial Condition and Results of Operations - Overview
above.
The relationship between (i) the euro, the British pound sterling, the Swiss franc, the Hungarian forint, the Polish zloty, the Czech koruna, the Romanian lei and the Chilean peso and (ii) the
U.S.
dollar, which is our reporting currency, is shown below, per one
U.S.
dollar:
|
As of December 31,
|
|||
|
2014
|
2013
|
||
|
Spot rates:
|
|||
|
Euro
|
0.8264
|
0.7252
|
|
|
British pound sterling
|
0.6418
|
0.6036
|
|
|
Swiss franc
|
0.9939
|
0.8886
|
|
|
Hungarian forint
|
261.44
|
215.62
|
|
|
Polish zloty
|
3.5397
|
3.0135
|
|
|
Czech koruna
|
22.914
|
19.828
|
|
|
Romanian lei
|
3.7059
|
3.2434
|
|
|
Chilean peso
|
606.90
|
525.45
|
|
|
|
Year ended December 31,
|
||||
|
|
2014
|
2013
|
2012
|
||
|
Average rates:
|
|||||
|
Euro
|
0.7537
|
0.7530
|
0.7779
|
||
|
British pound sterling
|
0.6074
|
0.6396
|
0.6310
|
||
|
Swiss franc
|
0.9152
|
0.9268
|
0.9376
|
||
|
Hungarian forint
|
232.73
|
223.58
|
225.02
|
||
|
Polish zloty
|
3.1553
|
3.1601
|
3.2539
|
||
|
Czech koruna
|
20.758
|
19.559
|
19.555
|
||
|
Romanian lei
|
3.3494
|
3.3273
|
3.4682
|
||
|
Chilean peso
|
570.76
|
495.45
|
486.26
|
||
Inflation and Foreign Investment Risk
We are subject to inflationary pressures with respect to labor, programming and other costs. While we attempt to increase our revenue to offset increases in costs, there is no assurance that we will be able to do so. Therefore, costs could rise faster than associated revenue, thereby resulting in a negative impact on our operating results, cash flows and liquidity. The economic environment in the respective countries in which we operate is a function of government, economic, fiscal and monetary policies and various other factors beyond our control that could lead to inflation. We are unable to predict the extent that price levels might be impacted in future periods by the current state of the economies in the countries in which we operate.
II-68
Interest Rate Risks
We are exposed to changes in interest rates primarily as a result of our borrowing and investment activities, which include fixed-rate and variable-rate investments and borrowings by our borrowing groups. Our primary exposure to variable-rate debt is through the EURIBOR-indexed and LIBOR-indexed debt of
UPC Broadband Holding
, the LIBOR-indexed debt of
Virgin Media
and
Ziggo
, the EURIBOR-indexed debt of
Telenet
and
Unitymedia KabelBW
and the variable-rate debt of certain of our other subsidiaries.
In general, we seek to enter into derivative instruments to protect against increases in the interest rates on our variable-rate debt. Accordingly, we have entered into various derivative transactions to reduce exposure to increases in interest rates. We use interest rate derivative contracts to exchange, at specified intervals, the difference between fixed and variable interest rates calculated by reference to an agreed-upon notional principal amount. We also use interest rate cap and collar agreements that lock in a maximum interest rate if variable rates rise, but also allow our company to benefit, to a limited extent in the case of collars, from declines in market rates. At
December 31, 2014
, we effectively paid a fixed interest rate on 94% of our total debt after considering the impact of our interest rate derivative instruments that convert variable rates to fixed rates, including interest rate caps and collars for which the specified maximum rate is in excess of the applicable
December 31, 2014
base rate (out-of-the-money caps and collars). If out-of-the-money caps and collars are excluded from this analysis, the percentage of our total debt on which we effectively paid a fixed interest rate at
December 31, 2014
declines to 92%. The final maturity dates of our various portfolios of interest rate derivative instruments generally fall short of the respective maturities of the underlying variable-rate debt. In this regard, we use judgment to determine the appropriate maturity dates of our portfolios of interest rate derivative instruments, taking into account the relative costs and benefits of different maturity profiles in light of current and expected future market conditions, liquidity issues and other factors. For additional information concerning the terms of these interest rate derivative instruments, see note
7
to our consolidated financial statements.
Weighted Average Variable Interest Rate.
At
December 31, 2014
, our variable-rate indebtedness aggregated $16.8 billion, and the weighted average interest rate (including margin) on such variable-rate indebtedness was approximately 3.7%, excluding the effects of interest rate derivative contracts, financing costs, discounts or commitment fees, all of which affect our overall cost of borrowing. Assuming no change in the amount outstanding, and without giving effect to any interest rate derivative contracts, financing costs, discounts or commitment fees, a hypothetical 50 basis point (0.50%) increase (decrease) in our weighted average variable interest rate would increase (decrease) our annual consolidated interest expense and cash outflows by $84.0 million. As discussed above and in note
7
to our consolidated financial statements, we use interest rate derivative contracts to manage our exposure to increases in variable interest rates. In this regard, increases in the fair value of these contracts generally would be expected to offset most of the economic impact of increases in the variable interest rates applicable to our indebtedness to the extent and during the period that principal amounts are matched with interest rate derivative contracts.
Counterparty Credit Risk
We are exposed to the risk that the counterparties to the derivative instruments of our subsidiary borrowing groups will default on their obligations to us. We manage these credit risks through the evaluation and monitoring of the creditworthiness of, and concentration of risk with, the respective counterparties. In this regard, credit risk associated with our derivative instruments is spread across a relatively broad counterparty base of banks and financial institutions. Collateral is generally not posted by either party under the derivative instruments of our subsidiary borrowing groups. Most of our cash currently is invested in either (i) AAA credit rated money market funds, including funds that invest in government obligations, or (ii) overnight deposits with banks having a minimum credit rating of A by Standard & Poor’s or an equivalent rating by Moody’s Investor Service. To date, neither the access to nor the value of our cash and cash equivalent balances have been adversely impacted by liquidity problems of financial institutions.
At
December 31, 2014
, our exposure to counterparty credit risk included (i) derivative assets with an aggregate fair value of
$1,040.9 million
, (ii) cash and cash equivalent and restricted cash balances of
$1,236.5 million
and (iii) aggregate undrawn debt facilities of
$3,974.1 million
.
Each of our subsidiary borrowing groups have entered into derivative instruments under master agreements with each counterparty that contain master netting arrangements that are applicable in the event of early termination by either party to such derivative instrument. The master netting arrangements under each of these master agreements are limited to the derivative instruments governed by the relevant master agreement within each individual borrowing group and are independent of similar arrangements of our other subsidiary borrowing groups.
Under our derivative contracts, it is generally only the non-defaulting party that has a contractual option to exercise early termination rights upon the default of the other counterparty and to set off other liabilities against sums due upon such termination.
II-69
However, in an insolvency of a derivative counterparty, under the laws of certain jurisdictions, the defaulting counterparty or its insolvency representatives may be able to compel the termination of one or more derivative contracts and trigger early termination payment liabilities payable by us, reflecting any mark-to-market value of the contracts for the counterparty. Alternatively, or in addition, the insolvency laws of certain jurisdictions may require the mandatory set off of amounts due under such derivative contracts against present and future liabilities owed to us under other contracts between us and the relevant counterparty. Accordingly, it is possible that we may be subject to obligations to make payments, or may have present or future liabilities owed to us partially or fully discharged by set off as a result of such obligations, in the event of the insolvency of a derivative counterparty, even though it is the counterparty that is in default and not us. To the extent that we are required to make such payments, our ability to do so will depend on our liquidity and capital resources at the time. In an insolvency of a defaulting counterparty, we will be an unsecured creditor in respect of any amount owed to us by the defaulting counterparty, except to the extent of the value of any collateral we have obtained from that counterparty.
In addition, where a counterparty is in financial difficulty, under the laws of certain jurisdictions, the relevant regulators may be able to (i) compel the termination of one or more derivative instruments, determine the settlement amount and/or compel, without any payment, the partial or full discharge of liabilities arising from such early termination that are payable by the relevant counterparty or (ii) transfer the derivative instruments to an alternative counterparty.
Although we actively monitor the creditworthiness of our key vendors, the financial failure of a key vendor could disrupt our operations and have an adverse impact on our revenue and cash flows.
Sensitivity Information
Information concerning the sensitivity of the fair value of certain of our more significant derivative instruments to changes in market conditions is set forth below. The potential changes in fair value set forth below do not include any amounts associated with the remeasurement of the derivative asset or liability into the applicable functional currency. For additional information, see notes
7
and
8
to our consolidated financial statements.
Virgin Media
Cross-currency and Interest Rate Derivative Contracts
Holding all other factors constant, at
December 31, 2014
:
|
(i)
|
an instantaneous increase (decrease) of 10% in the value of the British pound sterling relative to the
U.S.
dollar would have decreased (increased) the aggregate fair value of the
Virgin Media
cross-currency and interest rate derivative contracts by approximately
£458 million
(
$714 million
); and
|
|
(ii)
|
an instantaneous increase (decrease) in the relevant base rate of 50 basis points (0.50%) would have increased (decreased) the aggregate fair value of the
Virgin Media
cross-currency and interest rate derivative contracts by approximately
£47 million
(
$73 million
).
|
UPC Broadband Holding
Cross-currency and Interest Rate Derivative Contracts
Holding all other factors constant, at
December 31, 2014
:
|
(i)
|
an instantaneous increase (decrease) of 10% in the value of the Swiss franc, Polish zloty, Hungarian forint, Czech koruna and Chilean peso relative to the euro would have decreased (increased) the aggregate fair value of the
UPC Broadband Holding
cross-currency and interest rate derivative contracts by approximately
€439 million
(
$531 million
);
|
|
(ii)
|
an instantaneous increase (decrease) of 10% in the value of the euro relative to the
U.S.
dollar would have decreased (increased) the aggregate fair value of the
UPC Broadband Holding
cross-currency and interest rate derivative contracts by approximately
€243 million
(
$294 million
);
|
|
(iii)
|
an instantaneous increase (decrease) of 10% in the value of the Swiss franc and Romanian lei relative to the
U.S.
dollar would have decreased (increased) the aggregate fair value of the
UPC Broadband Holding
cross-currency and interest rate derivative contracts by approximately
€118 million
(
$143 million
); and
|
|
(iv)
|
an instantaneous increase in the relevant base rate of 50 basis points (0.50%) would have increased the aggregate fair value of the
UPC Broadband Holding
cross-currency and interest rate derivative contracts by approximately
€78 million
(
$94 million
) and conversely, a decrease of 50 basis points (0.50%) would have decreased the aggregate fair value by approximately
€87 million
(
$105 million
).
|
II-70
Ziggo
Cross-currency Derivative Contracts
Holding all other factors constant, at
December 31, 2014
:
|
(i)
|
an instantaneous increase (decrease) of 10% in the value of the euro relative to the
U.S.
dollar would have decreased (increased) the aggregate fair value of the
Ziggo
cross-currency derivative contracts by approximately
€228 million
(
$276 million
); and
|
|
(ii)
|
an instantaneous increase (decrease) in the relevant base rate of 50 basis points (0.50%) would have increased (decreased) the aggregate fair value of the
Ziggo
cross-currency and interest rate derivative contracts by approximately
€125 million
(
$151 million
).
|
Unitymedia KabelBW
Cross-currency Derivative Contracts
Holding all other factors constant, at
December 31, 2014
an instantaneous increase (decrease) of 10% in the value of the euro relative to the
U.S.
dollar would have decreased (increased) the aggregate fair value of the
Unitymedia KabelBW
cross-currency derivative contracts by approximately
€242 million
(
$293 million
).
Telenet
Interest Rate Caps, Collars and Swaps
Holding all other factors constant, at
December 31, 2014
, an instantaneous increase in the relevant base rate of 50 basis points (0.50%) would have increased the aggregate fair value of the
Telenet
interest rate cap, collar and swap contracts by approximately
€64 million
(
$77 million
) and, conversely, an instantaneous decrease of 50 basis points would have decreased the aggregate fair value by approximately
€81 million
(
$98 million
).
VTR
Cross-currency Derivative Contracts
Holding all other factors constant, at
December 31, 2014
, an instantaneous increase (decrease) of 10% in the value of the Chilean peso relative to the
U.S.
dollar would have decreased (increased) the aggregate fair value of the
VTR
cross-currency derivative contracts by approximately CLP
110.2 billion
(
$182 million
).
ITV Collar
Holding all other factors constant, at
December 31, 2014
, an instantaneous increase of 10% in the per share market price of
ITV
’s ordinary shares would have decreased the fair value of the
ITV Collar
by approximately
£45 million
(
$70 million
) and, conversely, a decrease of 10% would have increased the fair value by approximately
£43 million
(
$67 million
).
Sumitomo Collar
Holding all other factors constant, at
December 31, 2014
, an instantaneous increase (decrease) of 10% in the per share market price of
Sumitomo
’s common stock would have decreased (increased) the fair value of the
Sumitomo Collar
by approximately
¥5.3 billion
(
$44 million
).
II-71
Projected Cash Flows Associated with Derivative Instruments
The following table provides information regarding the projected cash flows of our continuing operations associated with our derivative instruments. The
U.S.
dollar equivalents presented below are based on interest rates and exchange rates that were in effect as of
December 31, 2014
. These amounts are presented for illustrative purposes only and will likely differ from the actual cash payments required in future periods. For additional information regarding our derivative instruments, including our counterparty credit risk, see note
7
to our consolidated financial statements. For information concerning the counterparty credit risk associated with our derivative instruments, see the discussion under
Counterparty Credit Risk
above.
|
|
Payments (receipts) due during:
|
Total
|
|||||||||||||||||||||||||
|
|
2015
|
2016
|
2017
|
2018
|
2019
|
Thereafter
|
|||||||||||||||||||||
|
|
in millions
|
||||||||||||||||||||||||||
|
Projected derivative cash payments (receipts), net:
|
|||||||||||||||||||||||||||
|
Interest-related (a)
|
$
|
269.9
|
|
$
|
294.9
|
|
$
|
168.4
|
|
$
|
134.6
|
|
$
|
72.8
|
|
$
|
234.2
|
|
$
|
1,174.8
|
|
||||||
|
Principal-related (b)
|
249.3
|
|
27.8
|
|
173.4
|
|
(87.3
|
)
|
(63.3
|
)
|
(986.3
|
)
|
(686.4
|
)
|
|||||||||||||
|
Other (c)
|
15.0
|
|
(156.2
|
)
|
(124.3
|
)
|
(60.9
|
)
|
—
|
|
—
|
|
(326.4
|
)
|
|||||||||||||
|
Total
|
$
|
534.2
|
|
$
|
166.5
|
|
$
|
217.5
|
|
$
|
(13.6
|
)
|
$
|
9.5
|
|
$
|
(752.1
|
)
|
$
|
162.0
|
|
||||||
_______________
|
(a)
|
Includes (i) the cash flows of our interest rate cap, collar and swap contracts and (ii) the interest-related cash flows of our cross-currency and interest rate swap contracts.
|
|
(b)
|
Includes the principal-related cash flows of our cross-currency contracts.
|
|
(c)
|
Includes amounts related to our equity-related derivative instruments and, to a lesser extent, our foreign currency forward contracts. We may elect to use cash or the collective value of the related shares and equity-related derivative instrument to settle the
ITV Collar Loan
and the
Sumitomo Collar Loan
.
|
II-72
The consolidated financial statements of Liberty Global are filed under this Item, beginning on page II-76. Financial statement schedules are filed under Item 15 of this Annual Report on Form 10-K.
|
Item 9.
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|
None.
|
Item 9A.
|
CONTROLS AND PROCEDURES
|
Evaluation of disclosure controls and procedures
In accordance with Exchange Act Rule 13a-15, we carried out an evaluation, under the supervision and with the participation of management, including our chief executive officer, principal accounting officer, and principal financial officer (the Executives), of the effectiveness of our disclosure controls and procedures as of
December 31, 2014
. In designing and evaluating the disclosure controls and procedures, the Executives recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is necessarily required to apply judgment in evaluating the cost-benefit relationship of possible controls and objectives. Based on that evaluation, the Executives concluded that our disclosure controls and procedures are effective as of
December 31, 2014
, in timely making known to them material information relating to us and our consolidated subsidiaries required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934.
Internal control over financial reporting
(a) Management’s Annual Report on Internal Control over Financial Reporting
Management’s annual report on internal control over financial reporting is included herein on page II-74.
(b) Attestation Report of the Independent Registered Public Accounting Firm
The attestation report of KPMG LLP is included herein on page II-75.
(c) Changes in Internal Control over Financial Reporting
There have been no changes in our internal controls over financial reporting identified in connection with the evaluation described above that occurred during the fourth fiscal quarter covered by this Annual Report on Form 10-K that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
|
Item 9B.
|
OTHER INFORMATION
|
Not applicable.
II-73
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Securities Exchange Act of 1934. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of internal control over financial reporting as of
December 31, 2014
, using the criteria in
Internal Control-Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management believes that our internal control over financial reporting was effective as of
December 31, 2014
. The effectiveness of our internal control over financial reporting has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report included herein.
Our evaluation of internal control over financial reporting did not include the internal control of Ziggo Holding B.V. (
Ziggo
), which we acquired in 2014. The aggregate amount of total assets and revenue of
Ziggo
included in our consolidated financial statements as of and for the year ended December 31, 2014 was
$15,426.7 million
and
$272.0 million
, respectively.
II-74
Report of Independent Registered Public Accounting Firm
The Board of Directors
Liberty Global plc:
We have audited Liberty Global plc and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2014, based on criteria established in
Internal Control — Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission
.
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on criteria established in
Internal Control — Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management’s evaluation of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2014 excluded Ziggo Holding B.V. (
Ziggo
), which was acquired in 2014. Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of this entity. The aggregate amount of total assets and revenue of
Ziggo
included in the consolidated financial statements of the Company as of and for the year ended December 31, 2014 was
$15,426.7 million
and
$272.0 million
, respectively.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of the Company as of December 31, 2014 and 2013, and the related consolidated statements of operations, comprehensive earnings (loss), equity and cash flows for each of the years in the three-year period ended December 31, 2014, and the related financial statement schedules I and II, and our report dated
February 12, 2015
expressed an unqualified opinion on those consolidated financial statements.
/s/ KPMG LLP
Denver, Colorado
February 12, 2015
II-75
Report of Independent Registered Public Accounting Firm
The Board of Directors
Liberty Global plc:
We have audited the accompanying consolidated balance sheets of Liberty Global plc and subsidiaries (the Company) as of December 31, 2014 and 2013, and the related consolidated statements of operations, comprehensive earnings (loss), equity and cash flows for each of the years in the three-year period ended December 31, 2014. In connection with our audits of the consolidated financial statements, we also have audited financial statement schedules I and II. These consolidated financial statements and financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2014 and 2013, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2014, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2014, based on criteria established in
Internal Control — Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated
February 12, 2015
expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
/s/ KPMG LLP
Denver, Colorado
February 12, 2015
II-76
LIBERTY GLOBAL PLC
|
December 31,
|
|||||||
|
2014
|
2013
|
||||||
|
|
in millions
|
||||||
|
ASSETS
|
|||||||
|
Current assets:
|
|||||||
|
Cash and cash equivalents
|
$
|
1,158.5
|
|
$
|
2,701.9
|
|
|
|
Trade receivables, net
|
1,499.5
|
|
1,588.7
|
|
|||
|
Derivative instruments (note 7)
|
446.6
|
|
252.1
|
|
|||
|
Deferred income taxes (note 11)
|
290.3
|
|
226.1
|
|
|||
|
Prepaid expenses
|
189.7
|
|
238.2
|
|
|||
|
Current assets of discontinued operation (note 5)
|
—
|
|
238.7
|
|
|||
|
Other current assets
|
335.9
|
|
236.9
|
|
|||
|
Total current assets
|
3,920.5
|
|
5,482.6
|
|
|||
|
Investments (including $1,662.7 million and $3,481.8 million, respectively, measured at fair value) (note 6)
|
1,808.2
|
|
3,491.2
|
|
|||
|
Property and equipment, net (note 9)
|
23,840.6
|
|
23,974.9
|
|
|||
|
Goodwill (note 9)
|
29,001.6
|
|
23,748.8
|
|
|||
|
Intangible assets subject to amortization, net (note 9)
|
9,189.8
|
|
5,795.4
|
|
|||
|
Long-term assets of discontinued operation (note 5)
|
—
|
|
513.6
|
|
|||
|
Other assets, net (notes 7, 9 and 11)
|
5,081.2
|
|
4,707.8
|
|
|||
|
Total assets
|
$
|
72,841.9
|
|
$
|
67,714.3
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
II-77
LIBERTY GLOBAL PLC
CONSOLIDATED BALANCE SHEETS — (Continued)
|
December 31,
|
|||||||
|
2014
|
2013
|
||||||
|
|
in millions
|
||||||
|
LIABILITIES AND EQUITY
|
|||||||
|
Current liabilities:
|
|||||||
|
Accounts payable
|
$
|
1,039.0
|
|
$
|
1,072.9
|
|
|
|
Deferred revenue and advance payments from subscribers and others
|
1,452.2
|
|
1,406.2
|
|
|||
|
Current portion of debt and capital lease obligations (note 10)
|
1,550.9
|
|
1,023.4
|
|
|||
|
Derivative instruments (note 7)
|
1,043.7
|
|
751.2
|
|
|||
|
Accrued interest
|
690.6
|
|
598.7
|
|
|||
|
Accrued programming and copyright fees
|
368.5
|
|
359.1
|
|
|||
|
Current liabilities of discontinued operation (note 5)
|
—
|
|
127.5
|
|
|||
|
Other accrued and current liabilities (notes 11 and 14)
|
3,045.4
|
|
2,344.0
|
|
|||
|
Total current liabilities
|
9,190.3
|
|
7,683.0
|
|
|||
|
Long-term debt and capital lease obligations (note 10)
|
44,608.1
|
|
43,680.9
|
|
|||
|
Long-term liabilities of discontinued operation (note 5)
|
—
|
|
19.8
|
|
|||
|
Other long-term liabilities (notes 7, 11, 14 and 15)
|
4,927.5
|
|
4,789.1
|
|
|||
|
Total liabilities
|
58,725.9
|
|
56,172.8
|
|
|||
|
Commitments and contingencies (notes 4, 7, 10, 11, 15, 17 and 20)
|
|
|
|||||
|
Equity (note 12):
|
|||||||
|
Liberty Global shareholders:
|
|||||||
|
Class A ordinary shares, $0.01 nominal value. Issued and outstanding 251,167,686
and 222,081,117 shares, respectively
|
2.5
|
|
2.2
|
|
|||
|
Class B ordinary shares, $0.01 nominal value. Issued and outstanding 10,139,184
and 10,147,184 shares, respectively
|
0.1
|
|
0.1
|
|
|||
|
Class C ordinary shares, $0.01 nominal value. Issued and outstanding 630,353,372
and 556,221,669 shares, respectively
|
6.3
|
|
5.6
|
|
|||
|
Additional paid-in capital
|
17,070.8
|
|
12,809.4
|
|
|||
|
Accumulated deficit
|
(4,007.6
|
)
|
(3,312.6
|
)
|
|||
|
Accumulated other comprehensive earnings, net of taxes
|
1,646.6
|
|
2,528.8
|
|
|||
|
Treasury shares, at cost
|
(4.2
|
)
|
(7.7
|
)
|
|||
|
Total Liberty Global shareholders
|
14,714.5
|
|
12,025.8
|
|
|||
|
Noncontrolling interests
|
(598.5
|
)
|
(484.3
|
)
|
|||
|
Total equity
|
14,116.0
|
|
11,541.5
|
|
|||
|
Total liabilities and equity
|
$
|
72,841.9
|
|
$
|
67,714.3
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
II-78
LIBERTY GLOBAL PLC
|
Year ended December 31,
|
|||||||||||
|
|
2014
|
2013
|
2012
|
||||||||
|
|
in millions, except share and per share amounts
|
||||||||||
|
Revenue (note 18)
|
$
|
18,248.3
|
|
$
|
14,474.2
|
|
$
|
9,930.8
|
|
||
|
Operating costs and expenses:
|
|||||||||||
|
Operating (other than depreciation and amortization) (including share-based compensation) (note 13)
|
6,810.4
|
|
5,417.7
|
|
3,349.7
|
|
|||||
|
Selling, general and administrative (SG&A) (including share-based compensation) (note 13)
|
3,172.8
|
|
2,616.5
|
|
1,860.3
|
|
|||||
|
Depreciation and amortization
|
5,500.1
|
|
4,276.4
|
|
2,661.5
|
|
|||||
|
Release of litigation provision (note 17)
|
—
|
|
(146.0
|
)
|
—
|
|
|||||
|
Impairment, restructuring and other operating items, net (notes 4, 9, 14 and 17)
|
536.8
|
|
297.5
|
|
76.2
|
|
|||||
|
16,020.1
|
|
12,462.1
|
|
7,947.7
|
|
||||||
|
Operating income
|
2,228.2
|
|
2,012.1
|
|
1,983.1
|
|
|||||
|
Non-operating income (expense):
|
|||||||||||
|
Interest expense
|
(2,544.7
|
)
|
(2,286.9
|
)
|
(1,673.6
|
)
|
|||||
|
Interest and dividend income
|
31.7
|
|
113.1
|
|
42.1
|
|
|||||
|
Realized and unrealized gains (
losses)
on derivative instruments, net (note 7)
|
88.8
|
|
(1,020.4
|
)
|
(1,070.3
|
)
|
|||||
|
Foreign currency transaction gains (losses), net
|
(836.5
|
)
|
349.3
|
|
438.4
|
|
|||||
|
Realized and unrealized
gains (losses)
due to changes in fair values of certain investments, net (notes 6 and 8)
|
205.2
|
|
524.1
|
|
(10.2
|
)
|
|||||
|
Losses on debt modification, extinguishment and conversion, net (note 10)
|
(186.2
|
)
|
(212.2
|
)
|
(213.8
|
)
|
|||||
|
Other expense, net
|
(42.4
|
)
|
(5.6
|
)
|
(4.6
|
)
|
|||||
|
(3,284.1
|
)
|
(2,538.6
|
)
|
(2,492.0
|
)
|
||||||
|
Loss from continuing operations before income taxes
|
(1,055.9
|
)
|
(526.5
|
)
|
(508.9
|
)
|
|||||
|
Income tax benefit (
expense)
(note 11)
|
75.0
|
|
(355.5
|
)
|
(75.0
|
)
|
|||||
|
Loss from continuing operations
|
(980.9
|
)
|
(882.0
|
)
|
(583.9
|
)
|
|||||
|
Discontinued operations (note 5):
|
|||||||||||
|
Earnings (loss) from discontinued operations, net of taxes
|
0.8
|
|
(23.7
|
)
|
47.1
|
|
|||||
|
Gain on disposal of discontinued operations, net of taxes
|
332.7
|
|
—
|
|
924.1
|
|
|||||
|
333.5
|
|
(23.7
|
)
|
971.2
|
|
||||||
|
Net earnings (loss)
|
(647.4
|
)
|
(905.7
|
)
|
387.3
|
|
|||||
|
Net earnings attributable to noncontrolling interests
|
(47.6
|
)
|
(58.2
|
)
|
(64.5
|
)
|
|||||
|
Net earnings (loss) attributable to Liberty Global shareholders
|
$
|
(695.0
|
)
|
$
|
(963.9
|
)
|
$
|
322.8
|
|
||
|
Basic and diluted earnings (loss) attributable to Liberty Global shareholders per share (note 3):
|
|||||||||||
|
Continuing operations
|
$
|
(1.29
|
)
|
$
|
(1.39
|
)
|
$
|
(1.17
|
)
|
||
|
Discontinued operations
|
0.42
|
|
(0.04
|
)
|
1.77
|
|
|||||
|
$
|
(0.87
|
)
|
$
|
(1.43
|
)
|
$
|
0.60
|
|
|||
|
Weighted average ordinary shares outstanding - basic and diluted
|
798,869,761
|
|
672,348,540
|
|
534,641,440
|
|
|||||
The accompanying notes are an integral part of these consolidated financial statements.
II-79
LIBERTY GLOBAL PLC
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS)
|
Year ended December 31,
|
|||||||||||
|
|
2014
|
2013
|
2012
|
||||||||
|
|
in millions
|
||||||||||
|
Net earnings (loss)
|
$
|
(647.4
|
)
|
$
|
(905.7
|
)
|
$
|
387.3
|
|
||
|
Other comprehensive earnings (loss), net of taxes (note 16):
|
|||||||||||
|
Foreign currency translation adjustments
|
(935.9
|
)
|
900.8
|
|
98.0
|
|
|||||
|
Reclassification adjustments included in net earnings (loss)
|
124.4
|
|
(0.7
|
)
|
(12.1
|
)
|
|||||
|
Pension-related adjustments and other
|
(71.2
|
)
|
11.3
|
|
5.4
|
|
|||||
|
Other comprehensive earnings (loss)
|
(882.7
|
)
|
911.4
|
|
91.3
|
|
|||||
|
Comprehensive earnings (loss)
|
(1,530.1
|
)
|
5.7
|
|
478.6
|
|
|||||
|
Comprehensive earnings attributable to noncontrolling interests
|
(47.1
|
)
|
(41.3
|
)
|
(64.8
|
)
|
|||||
|
Comprehensive earnings (loss) attributable to Liberty Global shareholders
|
$
|
(1,577.2
|
)
|
$
|
(35.6
|
)
|
$
|
413.8
|
|
||
The accompanying notes are an integral part of these consolidated financial statements.
II-80
LIBERTY GLOBAL PLC
CONSOLIDATED STATEMENTS OF EQUITY
|
|
Liberty Global shareholders
|
Non-controlling
interests
|
Total
equity
|
||||||||||||||||||||||||||||||||
|
|
Common stock
|
Additional
paid-in
capital
|
Accumulated
deficit
|
Accumulated
other
comprehensive
earnings,
net of taxes
|
Total Liberty Global shareholders
|
||||||||||||||||||||||||||||||
|
|
Series A
|
Series B
|
Series C
|
||||||||||||||||||||||||||||||||
|
|
in millions
|
||||||||||||||||||||||||||||||||||
|
Balance at January 1, 2012
|
$
|
1.5
|
|
$
|
0.1
|
|
$
|
5.2
|
|
$
|
3,960.6
|
|
$
|
(2,671.5
|
)
|
$
|
1,509.5
|
|
$
|
2,805.4
|
|
$
|
126.0
|
|
$
|
2,931.4
|
|
||||||||
|
Net earnings
|
—
|
|
—
|
|
—
|
|
—
|
|
322.8
|
|
—
|
|
322.8
|
|
64.5
|
|
387.3
|
|
|||||||||||||||||
|
Other comprehensive earnings, net of taxes (note 16)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
91.0
|
|
91.0
|
|
0.3
|
|
91.3
|
|
|||||||||||||||||
|
Repurchase and cancellation of LGI common stock (note 12)
|
(0.1
|
)
|
—
|
|
(0.1
|
)
|
(980.5
|
)
|
—
|
|
—
|
|
(980.7
|
)
|
—
|
|
(980.7
|
)
|
|||||||||||||||||
|
LGI call option contracts (note 12)
|
—
|
|
—
|
|
—
|
|
(53.2
|
)
|
—
|
|
—
|
|
(53.2
|
)
|
—
|
|
(53.2
|
)
|
|||||||||||||||||
|
Share-based compensation (note 13)
|
—
|
|
—
|
|
—
|
|
70.4
|
|
—
|
|
—
|
|
70.4
|
|
—
|
|
70.4
|
|
|||||||||||||||||
|
Telenet Share Repurchase Agreement (note 12)
|
—
|
|
—
|
|
—
|
|
(62.8
|
)
|
—
|
|
—
|
|
(62.8
|
)
|
2.2
|
|
(60.6
|
)
|
|||||||||||||||||
|
Sale of Austar (note 5)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(84.4
|
)
|
(84.4
|
)
|
|||||||||||||||||
|
Puerto Rico Transaction (note 4)
|
—
|
|
—
|
|
—
|
|
48.3
|
|
—
|
|
—
|
|
48.3
|
|
48.2
|
|
96.5
|
|
|||||||||||||||||
|
Distributions by subsidiaries to noncontrolling interest owners (note 12)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(351.3
|
)
|
(351.3
|
)
|
|||||||||||||||||
|
Adjustments due to changes in subsidiaries’ equity and other, net
|
—
|
|
—
|
|
—
|
|
(31.2
|
)
|
—
|
|
—
|
|
(31.2
|
)
|
69.6
|
|
38.4
|
|
|||||||||||||||||
|
Balance at December 31, 2012
|
$
|
1.4
|
|
$
|
0.1
|
|
$
|
5.1
|
|
$
|
2,951.6
|
|
$
|
(2,348.7
|
)
|
$
|
1,600.5
|
|
$
|
2,210.0
|
|
$
|
(124.9
|
)
|
$
|
2,085.1
|
|
||||||||
The accompanying notes are an integral part of these consolidated financial statements.
II-81
LIBERTY GLOBAL PLC
CONSOLIDATED STATEMENTS OF EQUITY — (Continued)
|
|
Liberty Global shareholders
|
Non-controlling
interests
|
Total
equity
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
|
Ordinary Shares
|
Common stock
|
Additional
paid-in
capital
|
Accumulated
deficit
|
Accumulated
other
comprehensive
earnings,
net of taxes
|
Treasury shares, at cost
|
Total Liberty Global shareholders
|
||||||||||||||||||||||||||||||||||||||||||||
|
|
Class A
|
Class B
|
Class C
|
Series A
|
Series B
|
Series C
|
|||||||||||||||||||||||||||||||||||||||||||||
|
|
in millions
|
||||||||||||||||||||||||||||||||||||||||||||||||||
|
Balance at January 1, 2013
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
1.4
|
|
$
|
0.1
|
|
$
|
5.1
|
|
$
|
2,951.6
|
|
$
|
(2,348.7
|
)
|
$
|
1,600.5
|
|
$
|
—
|
|
$
|
2,210.0
|
|
$
|
(124.9
|
)
|
$
|
2,085.1
|
|
||||||||||||
|
Net loss
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(963.9
|
)
|
—
|
|
—
|
|
(963.9
|
)
|
58.2
|
|
(905.7
|
)
|
|||||||||||||||||||||||||
|
Other comprehensive earnings, net of taxes (note 16)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
928.3
|
|
—
|
|
928.3
|
|
(16.9
|
)
|
911.4
|
|
|||||||||||||||||||||||||
|
Shares issued in connection with the Virgin Media Acquisition and impacts of related change in parent entity (notes 1 and 4)
|
2.1
|
|
0.1
|
|
5.6
|
|
(1.4
|
)
|
(0.1
|
)
|
(5.1
|
)
|
9,374.1
|
|
—
|
|
—
|
|
—
|
|
9,375.3
|
|
—
|
|
9,375.3
|
|
|||||||||||||||||||||||||
|
Revaluation of VM Convertible Notes in connection with the Virgin Media Acquisition (notes 4 and 10)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
1,660.0
|
|
—
|
|
—
|
|
—
|
|
1,660.0
|
|
—
|
|
1,660.0
|
|
|||||||||||||||||||||||||
|
Repurchase and cancellation of Liberty Global and LGI shares (note 12)
|
(0.1
|
)
|
—
|
|
(0.1
|
)
|
—
|
|
—
|
|
—
|
|
(1,151.7
|
)
|
—
|
|
—
|
|
—
|
|
(1,151.9
|
)
|
—
|
|
(1,151.9
|
)
|
|||||||||||||||||||||||||
|
Distributions by subsidiaries to noncontrolling interest owners (note 12)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(542.7
|
)
|
(542.7
|
)
|
|||||||||||||||||||||||||
|
Purchase of additional Telenet shares (note 12)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(525.7
|
)
|
—
|
|
—
|
|
—
|
|
(525.7
|
)
|
63.5
|
|
(462.2
|
)
|
|||||||||||||||||||||||||
|
Share-based compensation (note 13)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
206.3
|
|
—
|
|
—
|
|
—
|
|
206.3
|
|
—
|
|
206.3
|
|
|||||||||||||||||||||||||
|
Exchange of VM Convertible Notes (note 10)
|
0.1
|
|
—
|
|
0.1
|
|
—
|
|
—
|
|
—
|
|
113.5
|
|
—
|
|
—
|
|
—
|
|
113.7
|
|
—
|
|
113.7
|
|
|||||||||||||||||||||||||
|
Adjustments due to changes in subsidiaries’ equity and other, net
|
0.1
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
181.3
|
|
—
|
|
—
|
|
(7.7
|
)
|
173.7
|
|
78.5
|
|
252.2
|
|
|||||||||||||||||||||||||
|
Balance at December 31, 2013
|
$
|
2.2
|
|
$
|
0.1
|
|
$
|
5.6
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
12,809.4
|
|
$
|
(3,312.6
|
)
|
$
|
2,528.8
|
|
$
|
(7.7
|
)
|
$
|
12,025.8
|
|
$
|
(484.3
|
)
|
$
|
11,541.5
|
|
||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
II-82
LIBERTY GLOBAL PLC
CONSOLIDATED STATEMENTS OF EQUITY — (Continued)
|
|
Liberty Global shareholders
|
Non-controlling
interests
|
Total
equity
|
||||||||||||||||||||||||||||||||||||
|
|
Ordinary Shares
|
Additional
paid-in
capital
|
Accumulated
deficit
|
|
Accumulated
other
comprehensive
earnings,
net of taxes
|
Treasury shares, at cost
|
|
Total Liberty Global
shareholders
|
|||||||||||||||||||||||||||||||
|
|
Class A
|
Class B
|
Class C
|
||||||||||||||||||||||||||||||||||||
|
|
in millions
|
||||||||||||||||||||||||||||||||||||||
|
Balance at January 1, 2014
|
$
|
2.2
|
|
$
|
0.1
|
|
$
|
5.6
|
|
$
|
12,809.4
|
|
$
|
(3,312.6
|
)
|
$
|
2,528.8
|
|
$
|
(7.7
|
)
|
$
|
12,025.8
|
|
$
|
(484.3
|
)
|
$
|
11,541.5
|
|
|||||||||
|
Net loss
|
—
|
|
—
|
|
—
|
|
—
|
|
(695.0
|
)
|
—
|
|
—
|
|
(695.0
|
)
|
47.6
|
|
(647.4
|
)
|
|||||||||||||||||||
|
Other comprehensive loss, net of taxes (note 16)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(882.2
|
)
|
—
|
|
(882.2
|
)
|
(0.5
|
)
|
(882.7
|
)
|
|||||||||||||||||||
|
Repurchase and cancellation of Liberty Global ordinary shares (note 12)
|
—
|
|
—
|
|
(0.2
|
)
|
(1,596.7
|
)
|
—
|
|
—
|
|
—
|
|
(1,596.9
|
)
|
—
|
|
(1,596.9
|
)
|
|||||||||||||||||||
|
VTR NCI Acquisition (note 12)
|
—
|
|
—
|
|
0.1
|
|
185.3
|
|
—
|
|
—
|
|
—
|
|
185.4
|
|
(185.4
|
)
|
—
|
|
|||||||||||||||||||
|
Shares issued in connection with the Ziggo Acquisition (note 4)
|
0.3
|
|
—
|
|
0.8
|
|
4,904.7
|
|
—
|
|
—
|
|
—
|
|
4,905.8
|
|
1,080.6
|
|
5,986.4
|
|
|||||||||||||||||||
|
Ziggo NCI Acquisition and impact of Statutory Squeeze-out (note 4)
|
—
|
|
—
|
|
0.1
|
|
663.8
|
|
—
|
|
—
|
|
—
|
|
663.9
|
|
(1,080.6
|
)
|
(416.7
|
)
|
|||||||||||||||||||
|
Share-based compensation (note 13)
|
—
|
|
—
|
|
—
|
|
216.0
|
|
—
|
|
—
|
|
—
|
|
216.0
|
|
—
|
|
216.0
|
|
|||||||||||||||||||
|
Adjustments due to changes in subsidiaries’ equity and other, net (note 12)
|
—
|
|
—
|
|
(0.1
|
)
|
(111.7
|
)
|
—
|
|
—
|
|
3.5
|
|
(108.3
|
)
|
24.1
|
|
(84.2
|
)
|
|||||||||||||||||||
|
Balance at December 31, 2014
|
$
|
2.5
|
|
$
|
0.1
|
|
$
|
6.3
|
|
$
|
17,070.8
|
|
$
|
(4,007.6
|
)
|
$
|
1,646.6
|
|
$
|
(4.2
|
)
|
$
|
14,714.5
|
|
$
|
(598.5
|
)
|
$
|
14,116.0
|
|
|||||||||
The accompanying notes are an integral part of these consolidated financial statements.
II-83
LIBERTY GLOBAL PLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
Year ended December 31,
|
||||||||||
|
|
2014
|
2013
|
2012
|
||||||||
|
|
in millions
|
||||||||||
|
Cash flows from operating activities:
|
|||||||||||
|
Net earnings (loss)
|
$
|
(647.4
|
)
|
$
|
(905.7
|
)
|
$
|
387.3
|
|
||
|
Loss (earnings) from discontinued operations
|
(333.5
|
)
|
23.7
|
|
(971.2
|
)
|
|||||
|
Loss from continuing operations
|
(980.9
|
)
|
(882.0
|
)
|
(583.9
|
)
|
|||||
|
Adjustments to reconcile loss from continuing operations to net cash provided by operating activities:
|
|||||||||||
|
Share-based compensation expense
|
257.2
|
|
300.7
|
|
110.1
|
|
|||||
|
Depreciation and amortization
|
5,500.1
|
|
4,276.4
|
|
2,661.5
|
|
|||||
|
Release of litigation provision
|
—
|
|
(146.0
|
)
|
—
|
|
|||||
|
Impairment, restructuring and other operating items, net
|
536.8
|
|
297.5
|
|
76.2
|
|
|||||
|
Amortization of deferred financing costs and non-cash interest accretion
|
84.3
|
|
78.0
|
|
65.7
|
|
|||||
|
Realized and unrealized losses (gains) on derivative instruments, net
|
(88.8
|
)
|
1,020.4
|
|
1,070.3
|
|
|||||
|
Foreign currency transaction losses (gains), net
|
836.5
|
|
(349.3
|
)
|
(438.4
|
)
|
|||||
|
Realized and unrealized losses (gains) due to changes in fair values of certain investments, including impact of dividends
|
(203.7
|
)
|
(523.1
|
)
|
19.6
|
|
|||||
|
Losses on debt modification, extinguishment and conversion, net
|
186.2
|
|
212.2
|
|
213.8
|
|
|||||
|
Deferred income tax expense (benefit)
|
(350.6
|
)
|
18.6
|
|
36.0
|
|
|||||
|
Excess tax benefits from share-based compensation
|
(7.0
|
)
|
(41.0
|
)
|
(6.7
|
)
|
|||||
|
Changes in operating assets and liabilities, net of the effects of acquisitions and dispositions:
|
|||||||||||
|
Receivables and other operating assets
|
860.5
|
|
866.7
|
|
785.0
|
|
|||||
|
Payables and accruals
|
(1,017.8
|
)
|
(1,208.1
|
)
|
(1,171.7
|
)
|
|||||
|
Net cash provided (used) by operating activities of discontinued operations
|
(9.6
|
)
|
10.3
|
|
82.2
|
|
|||||
|
Net cash provided by operating activities
|
5,603.2
|
|
3,931.3
|
|
2,919.7
|
|
|||||
|
Cash flows from investing activities:
|
|||||||||||
|
Capital expenditures
|
(2,684.4
|
)
|
(2,481.5
|
)
|
(1,868.3
|
)
|
|||||
|
Investments in and loans to affiliates and others
|
(1,016.6
|
)
|
(1,350.3
|
)
|
(32.4
|
)
|
|||||
|
Proceeds received upon disposition of discontinued operations, net of disposal costs
|
988.5
|
|
—
|
|
1,055.4
|
|
|||||
|
Cash paid in connection with acquisitions, net of cash acquired
|
(73.3
|
)
|
(4,073.4
|
)
|
(154.2
|
)
|
|||||
|
Other investing activities, net
|
(13.8
|
)
|
(44.9
|
)
|
41.8
|
|
|||||
|
Net cash used by investing activities of discontinued operations, including deconsolidated cash
|
(3.8
|
)
|
(14.9
|
)
|
(123.2
|
)
|
|||||
|
Net cash used by investing activities
|
$
|
(2,803.4
|
)
|
$
|
(7,965.0
|
)
|
$
|
(1,080.9
|
)
|
||
The accompanying notes are an integral part of these consolidated financial statements.
II-84
LIBERTY GLOBAL PLC
CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)
|
|
Year ended December 31,
|
||||||||||
|
|
2014
|
2013
|
2012
|
||||||||
|
in millions
|
|||||||||||
|
Cash flows from financing activities:
|
|||||||||||
|
Repayments and repurchases of debt and capital lease obligations
|
$
|
(11,316.1
|
)
|
$
|
(8,318.6
|
)
|
$
|
(4,373.6
|
)
|
||
|
Borrowings of debt
|
9,572.4
|
|
9,670.3
|
|
5,981.4
|
|
|||||
|
Repurchase of Liberty Global and LGI shares
|
(1,584.9
|
)
|
(1,157.2
|
)
|
(970.3
|
)
|
|||||
|
Payment of financing costs, debt premiums and exchange offer consideration
|
(379.8
|
)
|
(389.6
|
)
|
(229.8
|
)
|
|||||
|
Purchase of additional shares of subsidiaries
|
(260.7
|
)
|
(461.3
|
)
|
—
|
|
|||||
|
Net cash received (paid) related to derivative instruments
|
(221.0
|
)
|
524.5
|
|
(108.4
|
)
|
|||||
|
Change in cash collateral
|
(58.7
|
)
|
3,593.8
|
|
59.6
|
|
|||||
|
Distributions by subsidiaries to noncontrolling interest owners
|
(11.7
|
)
|
(538.1
|
)
|
(335.1
|
)
|
|||||
|
Decrease (increase) in restricted cash related to the Telenet Tender
|
—
|
|
1,539.7
|
|
(1,464.1
|
)
|
|||||
|
Contributions by noncontrolling interest owners to subsidiaries
|
—
|
|
22.2
|
|
115.1
|
|
|||||
|
Other financing activities, net
|
0.4
|
|
137.6
|
|
(139.9
|
)
|
|||||
|
Net cash used by financing activities of discontinued operations
|
(1.2
|
)
|
(7.4
|
)
|
(4.7
|
)
|
|||||
|
Net cash provided (
used)
by financing activities
|
(4,261.3
|
)
|
4,615.9
|
|
(1,469.8
|
)
|
|||||
|
Effect of exchange rate changes on cash:
|
|||||||||||
|
Continuing operations
|
(81.9
|
)
|
85.4
|
|
28.3
|
|
|||||
|
Discontinued operations
|
—
|
|
—
|
|
(9.6
|
)
|
|||||
|
Total
|
(81.9
|
)
|
85.4
|
|
18.7
|
|
|||||
|
Net increase (decrease) in cash and cash equivalents:
|
|||||||||||
|
Continuing operations
|
(1,528.8
|
)
|
679.6
|
|
443.0
|
|
|||||
|
Discontinued operations
|
(14.6
|
)
|
(12.0
|
)
|
(55.3
|
)
|
|||||
|
Net increase (decrease) in cash and cash equivalents
|
(1,543.4
|
)
|
667.6
|
|
387.7
|
|
|||||
|
Cash and cash equivalents:
|
|||||||||||
|
Beginning of year
|
2,701.9
|
|
2,038.9
|
|
1,651.2
|
|
|||||
|
End of year
|
1,158.5
|
|
2,706.5
|
|
2,038.9
|
|
|||||
|
Less cash and cash equivalents of discontinued operations at end of year
|
—
|
|
(4.6
|
)
|
—
|
|
|||||
|
Cash and cash equivalents of continuing operations at end of year
|
$
|
1,158.5
|
|
$
|
2,701.9
|
|
$
|
2,038.9
|
|
||
|
Cash paid for interest:
|
|||||||||||
|
Continuing operations
|
$
|
2,376.7
|
|
$
|
2,148.8
|
|
$
|
1,562.7
|
|
||
|
Discontinued operations
|
—
|
|
—
|
|
28.9
|
|
|||||
|
Total
|
$
|
2,376.7
|
|
$
|
2,148.8
|
|
$
|
1,591.6
|
|
||
|
Net cash paid for taxes:
|
|||||||||||
|
Continuing operations
|
$
|
97.3
|
|
$
|
97.5
|
|
$
|
0.3
|
|
||
|
Discontinued operations
|
2.2
|
|
11.7
|
|
11.5
|
|
|||||
|
Total
|
$
|
99.5
|
|
$
|
109.2
|
|
$
|
11.8
|
|
||
The accompanying notes are an integral part of these consolidated financial statements.
II-85
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements
December 31, 2014
,
2013
and
2012
(
1
)
Basis of Presentation
Liberty Global plc (
Liberty Global
) is a public limited company organized under the laws of England and Wales. As a result of a series of mergers that were completed on June 7, 2013,
Liberty Global
became the publicly-held parent company of the successors by merger of Liberty Global, Inc. (
LGI
) (the predecessor to
Liberty Global
) and Virgin Media Inc. (
Virgin Media
). In these notes, the terms “we,” “our,” “our company” and “us” may refer, as the context requires, to
Liberty Global
(or its predecessor) or collectively to
Liberty Global
(or its predecessor) and its subsidiaries.
We are an international provider of video, broadband internet, fixed-line telephony and mobile services, with consolidated operations at
December 31, 2014
in
14
countries. Through
Virgin Media
and Unitymedia KabelBW GmbH (
Unitymedia KabelBW
), each a wholly-owned subsidiary, and Telenet Group Holding NV (
Telenet
), a
56.6%
-owned subsidiary, we provide video, broadband internet, fixed-line telephony and mobile services in the United Kingdom (
U.K.
), Germany and Belgium, respectively. In the Netherlands, we provide video, broadband internet, fixed-line telephony and mobile services through (i) Ziggo Holding B.V. (
Ziggo
), formerly known as Ziggo N.V., which, as described in note
4
, we acquired on November 11, 2014, and (ii) UPC Nederland B.V. (
UPC Nederland
). We also provide (i) video, broadband internet and fixed-line telephony services in
eight
other European countries and (ii) mobile services in
four
other European countries. The operations of
Virgin Media
,
Unitymedia KabelBW
,
Telenet
,
Ziggo
,
UPC Nederland
and our other operations in Europe are collectively referred to herein as the “
European Operations Division
.” In Chile, we provide video, broadband internet, fixed-line telephony and mobile services through VTR GlobalCom SpA (
VTR
). Our consolidated operations also include the broadband communications operations of Liberty Cablevision of Puerto Rico LLC (
Liberty Puerto Rico
), an entity in which we hold a
60.0%
ownership interest.
At December 31, 2013, we owned programming interests in Europe and Latin America that were held through Chellomedia B.V. (
Chellomedia
). Certain of Chellomedia’s subsidiaries and affiliates provided programming services to certain of our broadband communications operations, primarily in Europe. On January 31, 2014, we completed the sale of substantially all of
Chellomedia
’s assets (the
Chellomedia Disposal Group
). On May 23, 2012, we completed the sale of our then
54.15%
-owned subsidiary, Austar United Communications Limited (
Austar
), a provider of direct-to-home (
DTH
) services in Australia. We have accounted for the
Chellomedia Disposal Group
and
Austar
as discontinued operations in our consolidated financial statements. Accordingly, (i) the
Chellomedia Disposal Group
is presented as a discontinued operation in our consolidated balance sheet as of December 31, 2013, (ii) our consolidated statements of operations and cash flows have been reclassified to present the
Chellomedia Disposal Group
and
Austar
as discontinued operations for all periods presented and (iii) the amounts presented in these notes relate only to our continuing operations, unless otherwise noted. For additional information regarding our discontinued operations, see note
5
.
On January 26, 2014, our board of directors approved a share split in the form of a share dividend (the
2014 Share Dividend
), which constitutes a bonus issue under our articles of association and English law, of
one
Liberty Global
Class C ordinary share on each outstanding
Liberty Global
Class A, Class B and Class C ordinary share as of the February 14, 2014 record date. The distribution date for the
2014 Share Dividend
was March 3, 2014. All
Liberty Global
share and per share amounts presented herein have been retroactively adjusted to give effect to the
2014 Share Dividend
.
Unless otherwise indicated, ownership percentages and convenience translations into United States (
U.S.
) dollars are calculated as of
December 31, 2014
.
II-86
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
(
2
)
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update No. 2014-09,
Revenue from Contracts with Customers
(
ASU 2014-09
), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers.
ASU 2014-09
will replace existing revenue recognition accounting principles generally accepted in the United States (
GAAP
) when it becomes effective, currently scheduled for January 1, 2017. Early application is not permitted. This new standard permits the use of either the retrospective or cumulative effect transition method. We are currently evaluating the effect that
ASU 2014-09
will have on our consolidated financial statements and related disclosures. We have not yet selected a transition method nor have we determined the effect of the standard on our ongoing financial reporting.
(
3
)
Summary of Significant Accounting Policies
Estimates
The preparation of financial statements in conformity with
GAAP
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Estimates and assumptions are used in accounting for, among other things, the valuation of acquisition-related assets and liabilities, allowances for uncollectible accounts, programming and copyright expenses, deferred income taxes and related valuation allowances, loss contingencies, fair value measurements, impairment assessments, capitalization of internal costs associated with construction and installation activities, useful lives of long-lived assets, share-based compensation and actuarial liabilities associated with certain benefit plans. Actual results could differ from those estimates.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation.
Principles of Consolidation
The accompanying consolidated financial statements include our accounts and the accounts of all voting interest entities where we exercise a controlling financial interest through the ownership of a direct or indirect controlling voting interest and variable interest entities for which our company is the primary beneficiary. All significant intercompany accounts and transactions have been eliminated in consolidation.
Cash and Cash Equivalents and Restricted Cash
Cash equivalents consist of money market funds and other investments that are readily convertible into cash and have maturities of three months or less at the time of acquisition. We record money market funds at the net asset value reported by the investment manager as there are no restrictions on our ability, contractual or otherwise, to redeem our investments at the stated net asset value reported by the investment manager.
Restricted cash consists of cash held in restricted accounts, including cash held as collateral for debt and other compensating balances. Restricted cash amounts that are required to be used to purchase long-term assets or repay long-term debt are classified as long-term assets. All other cash that is restricted to a specific use is classified as current or long-term based on the expected timing of the disbursement. At
December 31, 2014
and
2013
, our aggregate current and long-term restricted cash balances aggregated
$78.0 million
and
$23.3 million
, respectively.
Our significant non-cash investing and financing activities are disclosed in our consolidated statements of equity and in notes
4
,
5
,
9
, and
10
.
Trade Receivables
Our trade receivables are reported net of an allowance for doubtful accounts. Such allowance aggregated
$116.1 million
and
$122.6 million
at
December 31, 2014
and
2013
, respectively. The allowance for doubtful accounts is based upon our assessment of probable loss related to uncollectible accounts receivable. We use a number of factors in determining the allowance, including,
II-87
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
among other things, collection trends, prevailing and anticipated economic conditions and specific customer credit risk. The allowance is maintained until either receipt of payment or the likelihood of collection is considered to be remote.
Concentration of credit risk with respect to trade receivables is limited due to the large number of customers and their dispersion across many different countries worldwide. We also manage this risk by disconnecting services to customers whose accounts are delinquent.
Investments
We make elections, on an investment-by-investment basis, as to whether we measure our investments at fair value. Such elections are generally irrevocable. We generally elect the fair value method for all investments, except those investments over which we exercise significant influence. For investments over which we have significant influence, we consider statutory reporting obligations, the significance of transactions between our company and our equity affiliates and other factors in determining whether the fair value should be applied. We generally will not elect the fair value option if we are required to account for an investment under the equity method of accounting under statutory reporting obligations. In addition, we generally do not elect the fair value option for those significant-influence investments with which
Liberty Global
or its consolidated subsidiaries have significant related-party obligations.
Under the fair value method, investments are recorded at fair value and any changes in fair value are reported in realized and unrealized gains or losses due to changes in fair values of certain investments, net, in our consolidated statements of operations. All costs directly associated with the acquisition of an investment to be accounted for using the fair value method are expensed as incurred. Under the equity method of accounting, investments are recorded at cost and are subsequently increased or reduced to reflect the share of income or losses of the investee. All costs directly associated with the acquisition of an investment to be accounted for using the equity method are included in the carrying amount of the investment. For additional information regarding our fair value and equity method investments, see notes
6
and
8
.
Dividends from publicly-traded investees are recognized when declared as dividend income in our consolidated statements of operations. Dividends from privately-held investees generally are reflected as reductions of the carrying values of the applicable investments.
Realized gains and losses are determined on an average cost basis. Securities transactions are recorded on the trade date.
Financial Instruments
Due to the short maturities of cash and cash equivalents, restricted cash, short-term liquid investments, trade and other receivables, other current assets, accounts payable, accrued liabilities, subscriber advance payments and deposits and other current liabilities, their respective carrying values approximate their respective fair values. For information concerning the fair values of certain of our investments, our derivatives and debt, see notes
6
,
7
and
10
, respectively. For information concerning how we arrive at certain of our fair value measurements, see note
8
.
Derivative Instruments
All derivative instruments, whether designated as hedging relationships or not, are recorded on the balance sheet at fair value. If the derivative instrument is not designated as a hedge, changes in the fair value of the derivative instrument are recognized in earnings. If the derivative instrument is designated as a fair value hedge, the changes in the fair value of the derivative instrument and of the hedged item attributable to the hedged risk are recognized in earnings. If the derivative instrument is designated as a cash flow hedge, the effective portions of changes in the fair value of the derivative instrument are recorded in other comprehensive earnings or loss and subsequently reclassified into our consolidated statements of operations when the hedged forecasted transaction affects earnings. Ineffective portions of changes in the fair value of cash flow hedges are recognized in earnings. We generally do not apply hedge accounting to our derivative instruments. For information regarding our derivative instruments, including our policy for classifying cash flows related to derivative instruments in our consolidated statements of cash flows, see note
7
.
II-88
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. We capitalize costs associated with the construction of new cable transmission and distribution facilities and the installation of new cable services. Capitalized construction and installation costs include materials, labor and other directly attributable costs. Installation activities that are capitalized include (i) the initial connection (or drop) from our cable system to a customer location, (ii) the replacement of a drop and (iii) the installation of equipment for additional services, such as digital cable, telephone or broadband internet service. The costs of other customer-facing activities such as reconnecting customer locations where a drop already exists, disconnecting customer locations and repairing or maintaining drops, are expensed as incurred. Interest capitalized with respect to construction activities was not material during any of the periods presented.
Capitalized internal-use software is included as a component of property and equipment. We capitalize internal and external costs directly associated with the development of internal-use software. We also capitalize costs associated with the purchase of software licenses. Maintenance and training costs, as well as costs incurred during the preliminary stage of an internal-use software development project, are expensed as incurred.
Depreciation is computed using the straight-line method over the estimated useful life of the underlying asset. Equipment under capital leases is amortized on a straight-line basis over the shorter of the lease term or estimated useful life of the asset. Useful lives used to depreciate our property and equipment are assessed periodically and are adjusted when warranted. The useful lives of cable distribution systems that are undergoing a rebuild are adjusted such that property and equipment to be retired will be fully depreciated by the time the rebuild is completed. For additional information regarding the useful lives of our property and equipment, see note
9
.
Additions, replacements and improvements that extend the asset life are capitalized. Repairs and maintenance are charged to operations.
We recognize a liability for asset retirement obligations in the period in which it is incurred if sufficient information is available to make a reasonable estimate of fair values. Asset retirement obligations may arise from the loss of rights of way that we obtain from local municipalities or other relevant authorities. Under certain circumstances, the authorities could require us to remove our network equipment from an area if, for example, we were to discontinue using the equipment for an extended period of time or the authorities were to decide not to renew our access rights. However, because the rights of way are integral to our ability to deliver broadband communications services to our customers, we expect to conduct our business in a manner that will allow us to maintain these rights for the foreseeable future. In addition, we have no reason to believe that the authorities will not renew our rights of way and, historically, renewals have been granted. We also have obligations in lease agreements to restore the property to its original condition or remove our property at the end of the lease term. Sufficient information is not available to estimate the fair value of our asset retirement obligations in certain of our lease arrangements. This is the case for long-term lease arrangements in which the underlying leased property is integral to our operations, there is not an acceptable alternative to the leased property and we have the ability to indefinitely renew the lease. Accordingly, for most of our rights of way and certain lease agreements, the possibility is remote that we will incur significant removal costs in the foreseeable future and, as such, we do not have sufficient information to make a reasonable estimate of fair value for these asset retirement obligations.
As of
December 31, 2014
and
2013
, the recorded value of our asset retirement obligations was
$65.1 million
and
$79.3 million
, respectively.
Intangible Assets
Our primary intangible assets relate to goodwill, customer relationships and cable television franchise rights. Goodwill represents the excess purchase price over the fair value of the identifiable net assets acquired in a business combination. Customer relationships and cable television franchise rights were originally recorded at their fair values in connection with business combinations.
Goodwill and other intangible assets with indefinite useful lives are not amortized, but instead are tested for impairment at least annually. Intangible assets with finite lives are amortized on a straight-line basis over their respective estimated useful lives to their estimated residual values, and reviewed for impairment.
II-89
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
We do not amortize our franchise rights and certain other intangible assets as these assets have indefinite lives. For additional information regarding the useful lives of our intangible assets, see note
9
.
Impairment of Property and Equipment and Intangible Assets
We review, when circumstances warrant, the carrying amounts of our property and equipment and our intangible assets (other than goodwill and other indefinite-lived intangible assets) to determine whether such carrying amounts continue to be recoverable. Such changes in circumstance may include, among other items, (i) an expectation of a sale or disposal of a long-lived asset or asset group, (ii) adverse changes in market or competitive conditions, (iii) an adverse change in legal factors or business climate in the markets in which we operate and (iv) operating or cash flow losses. For purposes of impairment testing, long-lived assets are grouped at the lowest level for which cash flows are largely independent of other assets and liabilities, generally at or below the reporting unit level (see below). If the carrying amount of the asset or asset group is greater than the expected undiscounted cash flows to be generated by such asset or asset group, an impairment adjustment is recognized. Such adjustment is measured by the amount that the carrying value of such asset or asset group exceeds its fair value. We generally measure fair value by considering (a) sale prices for similar assets, (b) discounted estimated future cash flows using an appropriate discount rate and/or (c) estimated replacement cost. Assets to be disposed of are carried at the lower of their financial statement carrying amount or fair value less costs to sell.
We evaluate the goodwill, franchise rights and other indefinite-lived intangible assets for impairment at least annually on October 1 and whenever other facts and circumstances indicate that the carrying amounts of goodwill and other indefinite-lived intangible assets may not be recoverable. For impairment evaluations with respect to both goodwill and other indefinite-lived intangibles, we first make a qualitative assessment to determine if the goodwill or other indefinite-lived intangible may be impaired. In the case of goodwill, if it is more-likely-than-not that a reporting unit’s fair value is less than its carrying value, we then compare the fair value of the reporting unit to its respective carrying amount. A reporting unit is an operating segment or one level below an operating segment (referred to as a “component”). In most cases, our operating segments are deemed to be a reporting unit either because the operating segment is comprised of only a single component, or the components below the operating segment are aggregated as they have similar economic characteristics. If the carrying value of a reporting unit were to exceed its fair value, we would then compare the implied fair value of the reporting unit’s goodwill to its carrying amount, and any excess of the carrying amount over the fair value would be charged to operations as an impairment loss. With respect to franchise rights or other indefinite-lived intangible assets, if it is more-likely-than-not that the fair value of an indefinite-lived intangible asset is less than its carrying value, we then estimate its fair value and any excess of the carrying value over the fair value of the franchise right or other indefinite-lived intangible asset is also charged to operations as an impairment loss.
Income Taxes
Income taxes are accounted for under the asset and liability method. We recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts and income tax basis of assets and liabilities and the expected benefits of utilizing net operating loss and tax credit carryforwards, using enacted tax rates in effect for each taxing jurisdiction in which we operate for the year in which those temporary differences are expected to be recovered or settled. We recognize the financial statement effects of a tax position when it is more-likely-than-not, based on technical merits, that the position will be sustained upon examination. Net deferred tax assets are then reduced by a valuation allowance if we believe it is more-likely-than-not such net deferred tax assets will not be realized. Certain of our valuation allowances and tax uncertainties are associated with entities that we acquired in business combinations. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period that includes the enactment date. Deferred tax liabilities related to investments in foreign subsidiaries and foreign corporate joint ventures that are essentially permanent in duration are not recognized until it becomes apparent that such amounts will reverse in the foreseeable future. Interest and penalties related to income tax liabilities are included in income tax expense. For additional information on our income taxes, see note
11
.
Defined Benefit Plans
Certain of our subsidiaries maintain various employee defined benefit plans. Certain assumptions and estimates must be made in order to determine the costs and future benefits that will be associated with these plans. These assumptions include (i) the estimated long-term rates of return to be earned by plan assets, (ii) the estimated discount rates used to value the projected benefit obligations and (iii) estimated wage increases. We estimate discount rates annually based upon the yields on high-quality fixed-income investments available at the measurement date and expected to be available during the period to maturity of the
II-90
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
benefits under the applicable defined benefit plan. For the long-term rates of return, we consider relevant factors such as discount rates and estimated returns on the subsidiaries’ targeted and actual asset allocations. To the extent that net actuarial gains or losses exceed 10% of the greater of plan assets or plan liabilities, such gains or losses are amortized over the average future service period of plan participants. For additional information, see note
15
.
Foreign Currency Translation and Transactions
The reporting currency of our company is the
U.S.
dollar. The functional currency of our foreign operations generally is the applicable local currency for each foreign subsidiary and equity method investee. Assets and liabilities of foreign subsidiaries (including intercompany balances for which settlement is not anticipated in the foreseeable future) are translated at the spot rate in effect at the applicable reporting date. With the exception of certain material transactions, the amounts reported in our consolidated statements of operations are translated at the average exchange rates in effect during the applicable period. The resulting unrealized cumulative translation adjustment, net of applicable income taxes, is recorded as a component of accumulated other comprehensive earnings or loss in our consolidated statements of equity. With the exception of certain material transactions, the cash flows from our operations in foreign countries are translated at the average rate for the applicable period in our consolidated statements of cash flows. The impacts of material transactions generally are recorded at the applicable spot rates in our consolidated statements of operations and cash flows. The effect of exchange rates on cash balances held in foreign currencies are separately reported in our consolidated statements of cash flows.
Transactions denominated in currencies other than our or our subsidiaries’ functional currencies are recorded based on exchange rates at the time such transactions arise. Changes in exchange rates with respect to amounts recorded in our consolidated balance sheets related to these non-functional currency transactions result in transaction gains and losses that are reflected in our consolidated statements of operations as unrealized (based on the applicable period end exchange rates) or realized upon settlement of the transactions.
Revenue Recognition
Service Revenue — Cable Networks.
We recognize revenue from the provision of video, broadband internet and fixed-line telephony services over our cable network to customers in the period the related services are provided. Installation revenue (including reconnect fees) related to services provided over our cable network is recognized as revenue in the period during which the installation occurs to the extent these fees are equal to or less than direct selling costs, which costs are expensed as incurred. To the extent installation revenue exceeds direct selling costs, the excess revenue is deferred and amortized over the average expected subscriber life.
Sale of Multiple Products and Services.
We sell video, broadband internet, fixed-line telephony and, in certain markets, mobile services to our customers in bundled packages at a rate lower than if the customer purchased each product on a standalone basis. Revenue from bundled packages generally is allocated proportionally to the individual services based on the relative standalone price for each respective service.
Mobile Revenue — General.
Arrangement consideration from mobile contracts is allocated to the airtime service element and the handset service element based on the relative standalone prices of each element. The amount of arrangement consideration allocated to the handset is limited to the amount that is not contingent upon the delivery of future airtime services. Certain of our operations that provide mobile services offer handsets under a subsidized contract model, whereby upfront revenue recognition is limited to the upfront cash collected from the customer as the remaining monthly fees to be received from the customer, including fees that may be associated with the handset, are contingent upon delivering future airtime services. At certain of our operations, mobile customers may choose to enter into two distinct contractual relationships: (i) a mobile handset contract and (ii) a mobile airtime services contract. Under the mobile handset contract, the customer takes full title to the handset upon delivery and typically has the option to either (a) pay for the handset in cash upon delivery or (b) pay for the handset in installments over a contractual period. Under these arrangements, the handset installments payments are not contingent upon delivering future airtime services and the arrangement consideration allocated to the handset is not limited to the upfront cash collected.
Mobile Revenue — Airtime Services.
We recognize revenue from mobile services in the period the related services are provided. Revenue from pre-pay customers is recorded as deferred revenue prior to the commencement of services and revenue is recognized as the services are rendered or usage rights expire.
II-91
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
Mobile Revenue — Handset Revenue.
Arrangement consideration allocated to handsets is recognized as revenue when the goods have been delivered and title has passed. For customers under a mobile handset installment contract that is independent of a mobile airtime services contract, revenue is recognized upon delivery only if collectibility is reasonably assured. Our assessment of collectibility is based principally on internal and external credit assessments as well as historical collection information for similar customers. To the extent that collectibility of installment payments from the customer is not reasonably assured upon delivery of the handset, handset revenue is recognized on a cash basis as customer payments are received.
Business-to-Business (
B2B
) Revenue.
We defer upfront installation and certain nonrecurring fees received on
B2B
contracts where we maintain ownership of the installed equipment. The deferred fees are amortized into revenue on a straight-line basis over the term of the arrangement or the expected period of performance.
Promotional Discounts.
For subscriber promotions, such as discounted or free services during an introductory period, revenue is recognized only to the extent of the discounted monthly fees charged to the subscriber, if any.
Subscriber Advance Payments and Deposits.
Payments received in advance for the services we provide are deferred and recognized as revenue when the associated services are provided.
Sales, Use and Other Value-Added Taxes (
VAT
).
Revenue is recorded net of applicable sales, use and other value-added taxes.
Share-Based Compensation
We recognize all share-based payments to employees, including grants of employee share incentive awards based on their grant-date fair values and our estimates of forfeitures. We recognize the fair value of outstanding awards as a charge to operations over the vesting period. The cash benefits of tax deductions in excess of deferred taxes on recognized share-based compensation expense are reported as a financing cash flow.
We use the straight-line method to recognize share-based compensation expense for our outstanding share awards that do not contain a performance condition and the accelerated expense attribution method for our outstanding share awards that contain a performance condition and vest on a graded basis.
We have calculated the expected life of options and share appreciation rights (
SAR
s) granted by
Liberty Global
to employees based on historical exercise trends. The expected volatility for
Liberty Global
options and
SAR
s is generally based on a combination of (i) historical volatilities of
Liberty Global
ordinary shares for a period equal to the expected average life of the
Liberty Global
awards and (ii) volatilities implied from publicly traded
Liberty Global
options.
Under U.K. corporate law, we are required to issue new shares of
Liberty Global
ordinary shares when
Liberty Global
options or
SAR
s are exercised and when restricted share units (
RSU
s) and performance-based restricted share units (
PSU
s) vest. Although we repurchase
Liberty Global
ordinary shares from time to time, the parameters of our share purchase and redemption activities are not established solely with reference to the dilutive impact of our share-based compensation plans.
For additional information regarding our share-based compensation, see note
13
.
Litigation Costs
Legal fees and related litigation costs are expensed as incurred.
Earnings or Loss per Ordinary Share
Basic earnings or loss per share attributable to
Liberty Global
shareholders is computed by dividing net earnings or loss attributable to
Liberty Global
shareholders by the weighted average number of ordinary shares (excluding restricted shares) outstanding for the period. Diluted earnings or loss per share attributable to
Liberty Global
shareholders presents the dilutive effect, if any, on a per share basis of potential ordinary shares (e.g., options,
SAR
s, restricted shares,
RSU
s and convertible securities) as if they had been exercised, vested or converted at the beginning of the periods presented.
II-92
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
We reported losses from continuing operations attributable to
Liberty Global
shareholders during
2014
,
2013
and
2012
. Therefore, the potentially dilutive effect at
December 31, 2014
,
2013
and
2012
of (i) the aggregate number of shares issuable pursuant to outstanding options,
SAR
s,
PSAR
s (as defined in note
13
) and restricted shares and
RSU
s of approximately
39.1 million
,
40.3 million
and
19.7 million
, respectively, (ii) the number of shares issuable pursuant to
PSU
s and
PGUs
(as defined in note
13
) of approximately
5.4 million
,
3.7 million
and
3.0 million
, respectively, and (iii) the aggregate number of shares issuable pursuant to obligations that may be settled in cash or shares of approximately
2.6 million
,
2.6 million
and
7.3 million
, respectively, were not included in the computation of diluted loss per share attributable to
Liberty Global
shareholders because their inclusion would have been anti-dilutive to the computation or, in the case of certain
PSU
s, because such awards had not yet met the applicable performance criteria.
The details of our net earnings (loss) attributable to
Liberty Global
shareholders are set forth below:
|
|
Year ended December 31,
|
||||||||||
|
|
2014
|
2013
|
2012
|
||||||||
|
|
in millions
|
||||||||||
|
Amounts attributable to Liberty Global shareholders:
|
|||||||||||
|
Loss from continuing operations
|
$
|
(1,028.5
|
)
|
$
|
(937.6
|
)
|
$
|
(623.7
|
)
|
||
|
Earnings (loss) from discontinued operations
|
333.5
|
|
(26.3
|
)
|
946.5
|
|
|||||
|
Net earnings (loss) attributable to Liberty Global shareholders
|
$
|
(695.0
|
)
|
$
|
(963.9
|
)
|
$
|
322.8
|
|
||
(
4
)
Acquisitions
Pending 2015 Acquisition
On December 9, 2014, one of our subsidiaries, together with investment funds affiliated with Searchlight Capital Partners, L.P. (collectively,
Searchlight
), entered into an agreement to acquire
100%
of the parent of Puerto Rico Cable Acquisition Company Inc., dba Choice Cable TV (
Choice
), the second largest cable and broadband services provider in Puerto Rico (the
Choice Acquisition
). The transaction values Choice at an enterprise value, before transaction costs, of approximately
$272.5 million
. Most of the purchase price is expected to be funded through
$257.5 million
of committed facilities under the
Liberty Puerto Rico Bank Facility
, as defined and described in note
10
. The
Choice Acquisition
is subject to customary closing conditions, including regulatory approvals, and is expected to close in the first half of 2015. Upon completion of the
Choice Acquisition
,
Choice
’s operations will be combined with those of
Liberty Puerto Rico
, and the combined business will be
60%
-owned by our company and
40%
-owned by
Searchlight
.
2014 Acquisition
Ziggo
.
On November 11, 2014 (the
Ziggo Acquisition Date
), pursuant to an Agreement and Plan of Merger (the
Ziggo Merger Agreement
) with respect to an offer to acquire all of the shares of
Ziggo
that we did not already own (the
Ziggo Offer
), we gained control of
Ziggo
through the acquisition of
136,603,794
additional
Ziggo
shares, which increased our ownership interest in
Ziggo
to
88.9%
(the
Ziggo Acquisition
). From November 12, 2014 through November 19, 2014, we acquired
18,998,057
additional
Ziggo
shares, further increasing our ownership interest in
Ziggo
to
98.4%
(the
Ziggo NCI Acquisition
). We have accounted for the
Ziggo Acquisition
using the acquisition method of accounting and the
Ziggo NCI Acquisition
as the acquisition of a noncontrolling interest.
Ziggo
is a provider of video, broadband internet, fixed-line telephony and mobile services in the Netherlands. We acquired
Ziggo
in order to achieve certain financial, operational and strategic benefits through the integration of
Ziggo
with
UPC Nederland
and our other European operations.
Pursuant to the
Ziggo Merger Agreement
,
Ziggo
shareholders who tendered their
Ziggo
shares received an offer price of (i)
0.2282
Liberty Global
Class A ordinary shares, (ii)
0.5630
Liberty Global
Class C ordinary shares and (iii)
€11.00
(
$13.71
at the applicable rates) in cash for each
Ziggo
share that they tendered. In connection with the completion of the
Ziggo Acquisition
and the
Ziggo NCI Acquisition
, we (i) issued an aggregate of
35,508,342
Liberty Global
Class A and
87,603,842
Liberty Global
Class C ordinary shares and (ii) paid aggregate cash consideration of
€1,711.6 million
(
$2,133.6 million
at the applicable rates) to holders of
Ziggo
ordinary shares.
II-93
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
On December 3, 2014, we initiated a statutory squeeze-out procedure in accordance with the Dutch Civil Code (the
Statutory Squeeze-out
) in order to acquire the remaining
3,162,605
Ziggo
shares not tendered through November 19, 2014. Under the
Statutory Squeeze-out
,
Ziggo
shareholders other than
Liberty Global
will receive cash consideration. We have submitted
€39.78
(
$48.14
) per share as the suggested cash consideration to be paid in the
Statutory Squeeze-out
. This suggested per share consideration is subject to confirmation of the applicable court in the Netherlands. Effective upon the commencement of the
Statutory Squeeze-out
, the remaining noncontrolling interest in
Ziggo
became mandatorily redeemable, and accordingly, is reflected as a liability that is included in other accrued and current liabilities in our consolidated balance sheet. The difference between the carrying value of the noncontrolling interest immediately prior to the date that the noncontrolling interest became mandatorily redeemable and the expected redemption value of
€125.8 million
(
$152.2 million
) was reflected as a
$2.6 million
decrease to additional paid-in capital in our consolidated statement of equity. The
Statutory Squeeze-out
is expected to be completed during the third quarter of 2015.
In connection with the completion of the
Ziggo Acquisition
, we obtained regulatory clearance from the
European Commission
on October 10, 2014, subject to the following commitments:
|
•
|
our commitment to divest our
Film1
channel to a third party and to carry
Film1
on our network in the Netherlands for a period of
three years
; and
|
|
•
|
our commitment for a period of
eight years
with respect to our network in the Netherlands (i) not to enforce certain clauses currently contained in carriage agreements with broadcasters that restrict the ability of broadcasters to offer their channels and content via over-the-top services, (ii) not to enter into carriage agreements containing such clauses and (iii) to maintain adequate interconnection capacity through at least three uncongested routes into our network in the Netherlands, at least one of which must be with a large transit provider.
|
For accounting purposes, the
Ziggo Acquisition
was treated as the acquisition of
Ziggo
by
Liberty Global
. In this regard, the equity and cash consideration paid to acquire
Ziggo
plus the fair value of our pre-existing investment in
Ziggo
on the
Ziggo Acquisition Date
is set forth below (in millions):
|
Liberty Global Class A ordinary shares (a)
|
$
|
1,448.7
|
|
|
Liberty Global Class C ordinary shares (a)
|
3,457.1
|
|
|
|
Cash (b)
|
1,872.9
|
|
|
|
Fair value of pre-existing investment in Ziggo (c)
|
2,015.4
|
|
|
|
Total
|
$
|
8,794.1
|
|
_______________
|
(a)
|
Represents the value assigned to the
31,172,985
Liberty Global
Class A and
76,907,936
Liberty Global
Class C ordinary shares issued to
Ziggo
shareholders in connection with the
Ziggo Acquisition
through the
Ziggo Acquisition Date
. These amounts are based on (i) the exchange ratios specified by the
Ziggo Merger Agreement
, (ii) the applicable closing per share prices of
Liberty Global
Class A and Class C ordinary shares and (iii)
136,603,794
ordinary shares of
Ziggo
tendered in the
Ziggo Offer
through the
Ziggo Acquisition Date
.
|
|
(b)
|
Represents the cash consideration paid in connection with the
Ziggo Acquisition
.
|
|
(c)
|
Represents the fair value of the
41,329,850
million shares of
Ziggo
held by
Liberty Global
and its subsidiaries immediately prior to the
Ziggo Acquisition
.
|
II-94
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
We have accounted for the
Ziggo Acquisition
using the acquisition method of accounting, whereby the total purchase price was allocated to the acquired identifiable net assets of
Ziggo
based on assessments of their respective fair values, and the excess of the purchase price over the fair values of these identifiable net assets was allocated to goodwill. A summary of the purchase price and the preliminary opening balance sheet for the
Ziggo Acquisition
as of the
Ziggo Acquisition Date
is presented in the following table. The preliminary opening balance sheet is subject to adjustment based on our final assessment of the fair values of the acquired identifiable assets and liabilities. Although most items in the valuation process remain open, the items with the highest likelihood of changing upon finalization of the valuation process include property and equipment, goodwill, intangible assets associated with customer relationships and income taxes (in millions):
|
Cash and cash equivalents (a)
|
$
|
1,889.7
|
|
|
Other current assets
|
69.6
|
|
|
|
Property and equipment, net
|
2,714.9
|
|
|
|
Goodwill (b)
|
7,724.3
|
|
|
|
Intangible assets subject to amortization (c)
|
5,000.9
|
|
|
|
Other assets, net
|
394.6
|
|
|
|
Current portion of debt and capital lease obligations
|
(604.0
|
)
|
|
|
Other accrued and current liabilities
|
(443.5
|
)
|
|
|
Long-term debt and capital lease obligations
|
(5,351.5
|
)
|
|
|
Other long-term liabilities
|
(1,520.3
|
)
|
|
|
Noncontrolling interest (d)
|
(1,080.6
|
)
|
|
|
Total purchase price (e)
|
$
|
8,794.1
|
|
_______________
|
(a)
|
The
Ziggo Acquisition
resulted in
$16.8 million
of net cash received after deducting the cash consideration paid in the
Ziggo Acquisition
.
|
|
(b)
|
The goodwill recognized in connection with the
Ziggo Acquisition
is primarily attributable to (i) the ability to take advantage of
Ziggo
’s existing advanced broadband communications network to gain immediate access to potential customers and (ii) substantial synergies that are expected to be achieved through the integration of
Ziggo
with
UPC Nederland
and our other European operations.
|
|
(c)
|
Amount primarily includes intangible assets related to customer relationships. As of the
Ziggo Acquisition Date
, the weighted average useful life of
Ziggo
’s intangible assets was approximately
ten years
.
|
|
(d)
|
Represents the fair value of the noncontrolling interest in
Ziggo
as of the
Ziggo Acquisition Date
.
|
|
(e)
|
Excludes direct acquisition costs of
$84.1 million
incurred through
December 31, 2014
, which are included in impairment, restructuring and other operating items, net, in our consolidated statement of operations.
|
We have accounted for the
Ziggo NCI Acquisition
as an equity transaction, with the carrying amount of the noncontrolling interest adjusted to reflect the change in ownership of
Ziggo
. The difference between the fair value of consideration paid and the amount by which the noncontrolling interest was adjusted has been recognized as additional paid-in capital in our consolidated statement of equity. The impact of the
Ziggo NCI Acquisition
is summarized in the following table (in millions):
|
Reduction of noncontrolling interests
|
$
|
927.2
|
|
|
Additional paid-in capital
|
23.5
|
|
|
|
Fair value of consideration paid (a)
|
$
|
950.7
|
|
_______________
|
(a)
|
Represents (i) the value assigned to the
4,335,357
Liberty Global
Class A and
10,695,906
Liberty Global
Class C ordinary shares issued to
Ziggo
shareholders and (ii) cash consideration of
€209.0 million
(
$260.7 million
at the applicable rates)
|
II-95
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
paid to
Ziggo
shareholders, based on the
18,998,057
ordinary shares of
Ziggo
tendered in connection with the
Ziggo NCI Acquisition
.
The cash consideration paid in the
Ziggo Acquisition
and the
Ziggo NCI Acquisition
was funded with a combination of debt and our existing liquidity. For information regarding the various debt financing arrangements that we entered into in connection with the execution of the
Ziggo Merger Agreement
and the completion of the
Ziggo Acquisition
and the
Ziggo NCI Acquisition
, see note
10
. For information regarding additional debt financing transactions involving
Ziggo
and
UPC Nederland
that we completed during the first quarter of 2015, see note
20
.
2013 Acquisition
Virgin Media
.
On June 7, 2013, pursuant to an Agreement and Plan of Merger (the
Virgin Media Merger Agreement
) with
Virgin Media
and following receipt of regulatory and shareholder approvals, we acquired
Virgin Media
in a stock and cash merger (the
Virgin Media Acquisition
).
Virgin Media
is one of the
U.K.
’s largest providers of residential broadband internet, television, fixed-line telephony and mobile services in terms of number of customers. We acquired
Virgin Media
in order to achieve certain financial, operational and strategic benefits through the integration of
Virgin Media
with our existing European operations.
Pursuant to the
Virgin Media Merger Agreement
:
|
•
|
Each share of common stock of
Virgin Media
was converted into the right to receive (i)
0.2582
Class A ordinary shares of
Liberty Global
, (ii)
0.6438
Class C ordinary shares of
Liberty Global
and (iii)
$17.50
in cash (collectively, the
Virgin Media Merger Consideration
); and
|
|
•
|
Each share of Series A common stock of
LGI
was converted into the right to receive
one
Class A ordinary share of
Liberty Global
; each share of Series B common stock of
LGI
was converted into the right to receive
one
Class B ordinary share of
Liberty Global
; and each share of Series C common stock of
LGI
was converted into the right to receive
one
Class C ordinary share of
Liberty Global
.
|
In connection with the completion of the
Virgin Media Acquisition
, we issued
70,233,842
Class A and
175,122,182
Class C ordinary shares to holders of
Virgin Media
common stock and
141,234,331
Class A,
10,176,295
Class B and
362,556,220
Class C ordinary shares to holders of
LGI
Series A, Series B and Series C common stock, respectively.
In connection with the execution of the
Virgin Media Merger Agreement
, we entered into various debt financing arrangements. For additional information, see note
10
.
In a transaction that did not impact our cash and cash equivalents, the net proceeds (after deducting certain transaction expenses)from the February 2013 issuance of the
April 2021 VM Senior Secured Notes
and
2023 VM Senior Notes
(each as defined and described in note
10
) of
$3,557.5 million
(equivalent at the transaction date) were placed into segregated escrow accounts (the
Virgin Media Escrow Accounts
) with a trustee. Such net proceeds were released in connection with the closing of the
Virgin Media Acquisition
.
The
Virgin Media Acquisition
and related refinancing transactions were funded with a combination of (i) the proceeds from the
Virgin Media Escrow Accounts
, (ii) borrowings under the
VM Credit Facility
(as defined and described in note
10
) and (iii) our and
Virgin Media
’s existing liquidity.
For accounting purposes, the
Virgin Media Acquisition
was treated as the acquisition of
Virgin Media
by
Liberty Global
(as the successor to
LGI
). In this regard, the equity and cash consideration paid to acquire
Virgin Media
is set forth below (in millions):
|
Class A ordinary shares (a)
|
$
|
2,735.0
|
|
|
Class C ordinary shares (a)
|
6,369.9
|
|
|
|
Cash (b)
|
4,760.2
|
|
|
|
Fair value of the vested portion of Virgin Media stock incentive awards (c)
|
270.4
|
|
|
|
Total equity and cash consideration
|
$
|
14,135.5
|
|
II-96
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
_______________
|
(a)
|
Represents the value assigned to the
70,233,842
Class A and
175,122,182
Class C ordinary shares issued to
Virgin Media
shareholders in connection with the
Virgin Media Acquisition
. These amounts are based on (i) the exchange ratios specified by the
Virgin Media Merger Agreement
, (ii) the closing per share price on June 7, 2013 of Series A and Series C
LGI
common stock of
$38.94
and
$36.37
, respectively, and (iii) the
272,013,333
outstanding shares of
Virgin Media
common stock at June 7, 2013.
|
|
(b)
|
Represents the cash consideration paid in connection with the
Virgin Media Acquisition
. This amount is based on (i) the
$17.50
per share cash consideration specified by the
Virgin Media Merger Agreement
and (ii) the
272,013,333
outstanding shares of
Virgin Media
common stock at June 7, 2013.
|
|
(c)
|
Represents the portion of the estimated fair value of the
Virgin Media
stock incentive awards that are attributable to services provided prior to the June 7, 2013 acquisition date. The estimated fair value is based on the attributes of the
13.03 million
outstanding
Virgin Media
stock incentive awards at June 7, 2013, including the market price of the underlying
Virgin Media
common stock. The outstanding
Virgin Media
stock incentive awards at June 7, 2013 include
9.86 million
stock options that have been valued using Black Scholes option valuations. In addition,
Virgin Media
’s stock incentive awards at June 7, 2013 included
3.17 million
restricted stock units that included performance conditions and, in certain cases, market conditions. Those restricted stock units with market conditions have been valued using Monte Carlo simulation models.
|
We have accounted for the acquisition of
Virgin Media
using the acquisition method of accounting, whereby the total purchase price was allocated to the acquired identifiable net assets of
Virgin Media
based on assessments of their respective fair values, and the excess of the purchase price over the fair values of these identifiable net assets was allocated to goodwill. A summary of the purchase price and opening balance sheet for the
Virgin Media Acquisition
at the June 7, 2013 acquisition date is presented in the following table. The opening balance sheet presented below reflects our final purchase price allocation (in millions):
|
Cash and cash equivalents
|
$
|
694.6
|
|
|
Other current assets
|
932.2
|
|
|
|
Property and equipment, net
|
9,863.1
|
|
|
|
Goodwill (a)
|
9,000.8
|
|
|
|
Intangible assets subject to amortization (b)
|
3,925.8
|
|
|
|
Other assets, net
|
4,259.4
|
|
|
|
Current portion of debt and capital lease obligations
|
(1,184.5
|
)
|
|
|
Other accrued and current liabilities (c) (d)
|
(1,892.2
|
)
|
|
|
Long-term debt and capital lease obligations
|
(8,477.4
|
)
|
|
|
Other long-term liabilities (c)
|
(1,326.3
|
)
|
|
|
Additional paid-in capital (e)
|
(1,660.0
|
)
|
|
|
Total purchase price (f)
|
$
|
14,135.5
|
|
_______________
|
(a)
|
The goodwill recognized in connection with the
Virgin Media Acquisition
is primarily attributable to (i) the ability to take advantage of
Virgin Media
’s existing advanced broadband communications network to gain immediate access to potential customers and (ii) substantial synergies that were expected to be achieved through the integration of
Virgin Media
with our other broadband communications operations in Europe.
|
|
(b)
|
Amount primarily includes intangible assets related to customer relationships. At June 7, 2013, the weighted average useful life of
Virgin Media
’s intangible assets was approximately
seven years
.
|
|
(c)
|
No amounts were allocated to deferred revenue with respect to the then ongoing performance obligations associated with
Virgin Media
’s
B2B
service contracts, as the remaining fees to be received under these contracts approximated fair value given our estimates of the costs associated with these performance obligations.
|
II-97
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
|
(d)
|
Amount includes a
$35.6 million
liability that was recorded to adjust an unfavorable capacity contract to its estimated fair value. This amount was amortized
through the March 31, 2014 expiration date of the contract as a reduction of
Virgin Media
’s operating expenses so that the net effect of this amortization and the payments required under the contract approximated market rates. During the period from June 8, 2013 through
December 31, 2013
and the year ended
December 31, 2014
,
$22.8 million
and
$12.8 million
, respectively, of this liability was amortized as a reduction of operating expenses in our consolidated statements of operations.
|
|
(e)
|
Represents the equity component of the
VM Convertible Notes
(as defined and described in note
10
). During the period from June 7, 2013 through
December 31, 2013
,
94.4%
of the
VM Convertible Notes
were exchanged for Liberty Global Class A and Class C ordinary shares and cash pursuant to the terms of the
VM Convertible Notes Indenture
. For additional information, see note
10
.
|
|
(f)
|
Excludes direct acquisition costs of
$51.5 million
, which are included in impairment, restructuring and other operating items, net, in our consolidated statements of operations.
|
2012 Acquisitions
Puerto Rico.
On November 8, 2012, one of our subsidiaries, LGI Broadband Operations, Inc. (
LGI Broadband Operations
), completed a series of transactions (collectively, the
Puerto Rico Transaction
) with certain investment funds affiliated with
Searchlight
that resulted in their joint ownership of (i) Liberty Cablevision of Puerto Rico LLC (
Old Liberty Puerto Rico
), a subsidiary of
LGI Broadband Operations
, and (ii) San Juan Cable, LLC, doing business as OneLink Communications (
OneLink
), a broadband communications operator in Puerto Rico. In connection with the
Puerto Rico Transaction
, (i)
Old Liberty Puerto Rico
and
OneLink
were merged, with
OneLink
as the surviving entity, and (ii)
OneLink
was renamed
Liberty Puerto Rico
.
Immediately prior to the acquisition of
OneLink
,
LGI Broadband Operations
contributed its
100%
interest in
Old Liberty Puerto Rico
, and
Searchlight
contributed cash of
$94.7 million
, to Leo Cable LP (
Leo Cable
), a newly formed entity.
Leo Cable
in turn used the cash contributed by
Searchlight
to fund the acquisition of
100%
of the equity of
OneLink
from a third party (the
OneLink Seller
) for a purchase price of
$96.5 million
, including closing adjustments and
$1.8 million
of transaction-related costs paid by
Old Liberty Puerto Rico
on behalf of the
OneLink Seller
. Such purchase price, together with
OneLink
’s consolidated net debt (aggregate fair value of debt and capital lease obligations outstanding less cash and cash equivalents) at November 8, 2012 of
$496.0 million
, resulted in total consideration of
$592.5 million
, excluding direct acquisition costs of
$18.1 million
, which are included in impairment, restructuring and other operating items, net, in our consolidated statement of operations.
In November 2013,
LGI Broadband Operations
reached a settlement agreement with respect to certain claims against the
OneLink Seller
, pursuant to which, among other matters,
LGI Broadband Operations
received a cash payment of
$20.0 million
. This amount is included as a credit within impairment, restructuring and other operating items, net, in our consolidated statement of operations, and the cash received is included within cash provided by operating activities in our consolidated statement of cash flows.
As a result of the
Puerto Rico Transaction
,
LGI Broadband Operations
acquired a
60.0%
interest, and
Searchlight
acquired a
40.0%
interest, in
Leo Cable
. As
LGI Broadband Operations
’
60.0%
interest represents a controlling financial interest,
LGI Broadband Operations
consolidates
Leo Cable
.
We have accounted for the
Puerto Rico Transaction
as the acquisition of
OneLink
and the effective sale of a
40.0%
interest in
Old Liberty Puerto Rico
. The effective sale of the
40.0%
interest in
Old Liberty Puerto Rico
was accounted for as an equity transaction. We have accounted for the acquisition of
OneLink
using the acquisition method of accounting.
II-98
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
A summary of the purchase price and opening balance sheet for
OneLink
at the
November 8, 2012
acquisition date is presented in the following table. The opening balance sheet presented below reflects our final purchase price allocation (in millions):
|
Cash and cash equivalents
|
$
|
4.4
|
|
|
Other current assets (a)
|
19.2
|
|
|
|
Property and equipment, net
|
150.2
|
|
|
|
Intangible assets subject to amortization (b)
|
90.5
|
|
|
|
Intangible assets not subject to amortization - cable television franchise rights
|
285.0
|
|
|
|
Goodwill (c)
|
226.1
|
|
|
|
Other assets, net
|
1.2
|
|
|
|
Current portion of debt and capital lease obligations
|
(3.5
|
)
|
|
|
Other current liabilities (a)
|
(54.1
|
)
|
|
|
Long-term debt and capital lease obligations
|
(496.9
|
)
|
|
|
Deferred tax liabilities
|
(125.6
|
)
|
|
|
Total purchase price
|
$
|
96.5
|
|
_______________
|
(a)
|
Other current liabilities include an accrual for a loss contingency that was measured based on our best estimate of the probable loss. The
OneLink Seller
partially indemnified us for the outcome of this loss contingency and, accordingly, other current assets includes an indemnification asset, measured using the same basis as the associated loss contingency.
|
|
(b)
|
Amount primarily includes intangible assets related to customer relationships. At
November 8, 2012
, the weighted average useful life of
OneLink
’s intangible assets was approximately
10 years
.
|
|
(c)
|
The goodwill recognized in connection with the
Puerto Rico Transaction
is primarily attributable to (i) the ability to take advantage of the existing advanced broadband communications networks of
OneLink
to gain immediate access to potential customers and (ii) substantial synergies that were expected to be achieved through the integration of
OneLink
with our existing broadband communications operations in Puerto Rico.
|
Pro Forma Information
The following unaudited pro forma consolidated operating results give effect to (i) the acquisition of 100% of
Ziggo
and (ii) the
Virgin Media Acquisition
, as if they had been completed as of January 1,
2013
.
These pro forma amounts are not necessarily indicative of the operating results that would have occurred if these transactions had occurred on such date. The pro forma adjustments are based on certain assumptions that we believe are reasonable.
|
Year ended December 31,
|
|||||||
|
|
2014
|
2013
|
|||||
|
|
in millions, except per
share amounts
|
||||||
|
Revenue:
|
|||||||
|
Continuing operations
|
$
|
20,095.7
|
|
$
|
19,301.2
|
|
|
|
Discontinued operations
|
26.6
|
|
408.6
|
|
|||
|
Total
|
$
|
20,122.3
|
|
$
|
19,709.8
|
|
|
|
Net loss attributable to Liberty Global shareholders
|
$
|
(1,223.0
|
)
|
$
|
(1,200.2
|
)
|
|
|
Basic and diluted loss attributable to Liberty Global shareholders per share
|
$
|
(1.35
|
)
|
$
|
(1.30
|
)
|
|
Our consolidated statement of operations for
2014
includes revenue and net loss
of
$272.0 million
and
$98.7 million
, respectively, attributable to
Ziggo
.
II-99
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
The following unaudited pro forma consolidated operating results give effect to (i) the
Virgin Media Acquisition
and (ii) the
Puerto Rico Transaction
, as if they had been completed as of January 1,
2012
. These pro forma amounts are not necessarily indicative of the operating results that would have occurred if these transactions had occurred on such date. The pro forma adjustments are based on certain assumptions that we believe are reasonable.
|
|
Year ended December 31,
|
||||||
|
|
2013
|
2012
|
|||||
|
|
in millions, except per
share amounts
|
||||||
|
Revenue:
|
|||||||
|
Continuing operations
|
$
|
17,239.1
|
|
$
|
16,465.0
|
|
|
|
Discontinued operations
|
408.6
|
|
673.7
|
|
|||
|
Total
|
$
|
17,647.7
|
|
$
|
17,138.7
|
|
|
|
Net earnings (loss) attributable to Liberty Global shareholders (a)
|
$
|
(1,300.4
|
)
|
$
|
3,701.5
|
|
|
|
Basic earnings (loss) attributable to Liberty Global shareholders per share (a)
|
$
|
(1.63
|
)
|
$
|
4.48
|
|
|
|
Diluted earnings (loss) attributable to Liberty Global shareholders per share (a)
|
$
|
(1.63
|
)
|
$
|
4.39
|
|
|
|
(a)
|
The 2012 amounts reflect the impact of a
$4,144.9 million
release of valuation allowances on
Virgin Media
’s deferred tax assets. This release was included in
Virgin Media
’s historical results for the fourth quarter of 2012.
|
Our consolidated statement of operations for
2013
includes revenue and net loss of
$3,653.7 million
and
$987.8 million
, respectively, attributable to
Virgin Media
.
(
5
)
Discontinued Operations
Chellomedia Disposal Group
. On January 31, 2014, we completed the sale of the
Chellomedia Disposal Group
to AMC Networks Inc. for
€750.0 million
(
$1,013.1 million
at the applicable rate) in cash (the
Chellomedia Transaction
). Accordingly, the
Chellomedia Disposal Group
is reflected as a discontinued operation in our consolidated statements of operations and cash flows for all periods presented. The assets disposed of pursuant to the
Chellomedia Transaction
exclude
Chellomedia
’s premium sports and film channels in the Netherlands. In connection with the sale of the
Chellomedia Disposal Group
, we recognized a pre-tax gain of
$342.2 million
. This pre-tax gain is net of a
$64.0 million
cumulative foreign currency translation loss, which was reclassified to net loss from accumulated other comprehensive earnings. The associated income tax expense of
$9.5 million
differs from the amount computed by applying the
U.K.
statutory income tax rate in effect at the time of
21.5%
primarily due to the fact that (i) the transaction was not subject to taxation in the
U.K.
and (ii) most elements of the transaction were not subject to taxation in the Netherlands or the
U.S.
The net after-tax gain of
$332.7 million
is included in gain on disposal of discontinued operations, net of taxes, in our consolidated statement of operations.
Certain of our broadband communications operations will continue to receive programming services from the
Chellomedia Disposal Group
through contracts that were negotiated as part of the disposal. As such,
Liberty Global
will have continuing cash outflows associated with the
Chellomedia Disposal Group
through at least 2017. However, our involvement as an ongoing customer of the
Chellomedia Disposal Group
does not disqualify discontinued operations classification because (i) the ongoing cash outflows are not considered significant to the
Chellomedia Disposal Group
and (ii)
Liberty Global
does not possess any rights within the ongoing contractual arrangements that would allow us to exert influence over the
Chellomedia Disposal Group
.
II-100
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
The summarized financial position of the
Chellomedia Disposal Group
as of December 31, 2013 is as follows (in millions):
|
Assets:
|
|||
|
Cash and cash equivalents
|
$
|
4.6
|
|
|
Other current assets
|
234.1
|
|
|
|
Investments
|
21.1
|
|
|
|
Property and equipment, net
|
43.1
|
|
|
|
Goodwill
|
224.4
|
|
|
|
Other assets
|
225.0
|
|
|
|
Total assets (a)
|
$
|
752.3
|
|
|
Liabilities:
|
|||
|
Current liabilities
|
$
|
127.5
|
|
|
Other long-term liabilities
|
19.8
|
|
|
|
Total liabilities (a)
|
147.3
|
|
|
|
Total equity
|
605.0
|
|
|
|
Total liabilities and equity
|
$
|
752.3
|
|
______________
|
(a)
|
Excludes intercompany payables and receivables that are eliminated within
Liberty Global
’s consolidated financial statements.
|
Austar
. On July 11, 2011, our company and
Austar
entered into agreements with certain third parties (collectively,
FOXTEL
) pursuant to which
FOXTEL
agreed to acquire
100%
of
Austar
’s ordinary shares through a series of transactions (the
Austar Transaction
), one of which involved our temporary acquisition of the
45.85%
of
Austar
’s ordinary shares held by the noncontrolling shareholders (the
Austar NCI Acquisition
). On April 26, 2012, pursuant to the terms of the
Austar NCI Acquisition
, all of the shares of
Austar
that we did not already own
were acquired by a new wholly-owned subsidiary of
Liberty Global
(
LGI Austar Holdco
), with funding provided by a loan from
FOXTEL
. On May 23, 2012,
FOXTEL
acquired
100%
of
Austar
from
LGI Austar Holdco
for AUD
1.52
(
$1.50
at the transaction date) per share in cash, which represented a total equity sales price of AUD
1,932.7 million
(
$1,906.6 million
at the transaction date) for the
100%
interest in
Austar
(based on
Austar
ordinary shares outstanding at the transaction date) or AUD
1,046.5 million
for our
54.15%
interest in
Austar
. Upon completion of these transactions and excluding proceeds related to the shares acquired in the
Austar NCI Acquisition
, our company realized cash proceeds equivalent to $
1,056.1 million
after taking into account applicable foreign currency forward contracts and before considering cash paid for disposal costs.
In connection with the sale of
Austar
, we recognized a pre-tax gain of
$928.2 million
that includes (i) cumulative foreign currency translation gains of
$22.6 million
and (ii) cumulative cash flow hedge losses of
$15.1 million
, each of which have been reclassified to net earnings from accumulated other comprehensive earnings. The associated deferred income tax expense of
$4.1 million
differs from the amount computed by applying the
U.S.
federal income tax rate of
35%
primarily due to the fact that (i) the
Austar Transaction
was not subject to taxation in Australia and (ii) most elements of the
Austar Transaction
were not subject to taxation in the
U.S.
This gain, net of income taxes, is included in gain on disposal of discontinued operations, net of taxes, in our consolidated statement of operations.
II-101
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
The combined operating results of the
Chellomedia Disposal Group
(
2014
,
2013
and
2012
) and
Austar
(
2012
) are classified as discontinued operations in our consolidated statements of operations and are summarized in the following table:
|
Year ended December 31,
|
|||||||||||
|
2014 (a) (b)
|
2013 (b)
|
2012 (b) (c)
|
|||||||||
|
in millions
|
|||||||||||
|
Revenue
|
$
|
26.6
|
|
$
|
408.6
|
|
$
|
673.7
|
|
||
|
Operating income
|
$
|
0.6
|
|
$
|
12.1
|
|
$
|
78.7
|
|
||
|
Earnings (loss) before income taxes and noncontrolling interests
|
$
|
0.9
|
|
$
|
(1.0
|
)
|
$
|
75.2
|
|
||
|
Income tax expense
|
$
|
(0.1
|
)
|
$
|
(22.7
|
)
|
$
|
(28.1
|
)
|
||
|
Earnings (loss) from discontinued operations attributable to Liberty Global shareholders, net of taxes
|
$
|
0.8
|
|
$
|
(26.3
|
)
|
$
|
22.4
|
|
||
______________
|
(a)
|
Includes the operating results of the
Chellomedia Disposal Group
through January 31, 2014, the date the
Chellomedia Disposal Group
was sold.
|
|
(b)
|
Excludes the
Chellomedia Disposal Group
's intercompany revenue and expenses that are eliminated within
Liberty Global
's consolidated financial statements.
|
|
(c)
|
Includes the operating results of
Austar
through May 23, 2012, the date the
Austar Transaction
was completed.
|
(
6
)
Investments
The details of our investments are set forth below:
|
December 31,
|
||||||||
|
Accounting Method
|
2014
|
2013
|
||||||
|
|
in millions
|
|||||||
|
Fair value:
|
||||||||
|
Ziggo:
|
||||||||
|
Not subject to re-use rights (34.1 million shares at December 31, 2013)
|
$
|
—
|
|
$
|
1,560.1
|
|
||
|
Subject to re-use rights (22.9 million shares at December 31, 2013)
|
—
|
|
1,049.4
|
|
||||
|
Total — Ziggo
|
—
|
|
2,609.5
|
|
||||
|
ITV — subject to re-use rights
|
871.2
|
|
—
|
|
||||
|
Sumitomo
|
473.1
|
|
572.9
|
|
||||
|
Other
|
318.4
|
|
299.4
|
|
||||
|
Total — fair value
|
1,662.7
|
|
3,481.8
|
|
||||
|
Equity
|
145.1
|
|
8.9
|
|
||||
|
Cost
|
0.4
|
|
0.5
|
|
||||
|
Total
|
$
|
1,808.2
|
|
$
|
3,491.2
|
|
||
|
Discontinued operation — Investments held by the Chellomedia Disposal Group
|
$
|
—
|
|
$
|
21.1
|
|
||
II-102
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
Fair Value Investments
Ziggo
. Prior to the November 11, 2014 completion of the
Ziggo Acquisition
, we accounted for our investment in shares of
Ziggo
as a fair value investment. For additional information regarding the
Ziggo Acquisition
, see note
4
.
At
December 31, 2013
, we owned
57,000,738
shares of
Ziggo
, representing
28.5%
of the then outstanding shares of
Ziggo
. In April 2013, LGE HoldCo V BV, our wholly-owned subsidiary, entered into a limited recourse margin loan agreement (the
Ziggo Margin Loan
) with respect to a portion of our investment in
Ziggo
and, in July 2013, we entered into a share collar (the
Ziggo Collar
) and secured borrowing arrangement (the
Ziggo Collar Loan
) with respect to a portion of our owned
Ziggo
shares. All but
4,743,738
of the
Ziggo
shares that we owned at
December 31, 2013
were pledged as collateral under one or the other of the
Ziggo Collar
and
Ziggo Collar Loan
. During 2013, we received aggregate cash dividends from
Ziggo
of
$78.4 million
after taking into account the impact of the
Ziggo Collar
. In connection with the
Ziggo Acquisition
, the
Ziggo Collar
was terminated and the
Ziggo Collar Loan
was settled. For additional information on the
Ziggo Collar
and
Ziggo Collar Loan
, see note
7
. As described in note
10
, we repaid the
Ziggo Margin Loan
during the first quarter of 2014.
The summarized financial condition of
Ziggo
as of
December 31, 2013
is set forth below (in millions):
|
Current assets
|
$
|
261.9
|
|
|
Long-term assets
|
6,131.5
|
|
|
|
Total assets
|
$
|
6,393.4
|
|
|
Current liabilities
|
$
|
539.3
|
|
|
Long-term liabilities
|
4,516.0
|
|
|
|
Owners’ equity
|
1,338.1
|
|
|
|
Total liabilities and owners’ equity
|
$
|
6,393.4
|
|
The summarized results of operations of
Ziggo
for the periods indicated are set forth below:
|
2014 (a)
|
2013 (b)
|
||||||
|
in millions
|
|||||||
|
Revenue
|
$
|
1,876.9
|
|
$
|
1,570.7
|
|
|
|
Operating income
|
$
|
336.0
|
|
$
|
418.5
|
|
|
|
Net earnings (loss)
|
$
|
(230.3
|
)
|
$
|
199.1
|
|
|
_______________
|
(a)
|
Amounts relate to the period from January 1, 2014 through the
Ziggo Acquisition Date
.
|
|
(b)
|
Amounts relate to the period from March 28, 2013 (the date of our initial investment in
Ziggo
) through
December 31, 2013
.
|
ITV
. On July 17, 2014, we acquired an aggregate of
259,820,065
shares of ITV plc (
ITV
) from British Sky Broadcasting Group plc at a price of
£1.85
(
$3.14
at the transaction date) per share, for a total investment of
£480.7 million
(
$816.3 million
at the transaction date).
ITV
is a commercial broadcaster in the
U.K.
Our
ITV
shares represent
6.4%
of the total outstanding shares of
ITV
as of September 30, 2014, the most current publicly-available information. All of our
ITV
shares are subject to a share collar (the
ITV Collar
) and pledged as collateral under a secured borrowing arrangement (the
ITV Collar Loan
). Under the terms of the
ITV Collar
, the counterparty has the right to re-use all of the pledged
ITV
shares. For additional information regarding the
ITV Collar Loan
and the
ITV Collar
, including a description of the related re-use rights and the impact of the
ITV Collar
on the dividends we receive on our
ITV
shares, see note
7
.
Sumitomo
. At
December 31, 2014
and
2013
, we owned
45,652,043
shares of Sumitomo Corporation (
Sumitomo
) common stock. Our
Sumitomo
shares represented less than
5%
of
Sumitomo
’s outstanding common stock at
December 31, 2014
. These shares secure the
Sumitomo Collar Loan
, as defined and described in note
7
.
II-103
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
Other
. Includes various fair value investments, the most significant of which is our
17.0%
interest in ITI Neovision S.A. (
ITI Neovision
)
(formerly Canal+ Cyfrowy S.A.), a privately-held
DTH
operator in Poland.
Equity Method Investments
All3Media
. As of
December 31, 2014
, our most significant equity method investment is our investment in All3Media Holdings Limited (
All3Media
), an independent television, film and digital production and distribution company in the
U.K.
Our investment in
All3Media
is held through our
50.0%
interest in DLG Acquisition Limited (
DLG
), a joint venture between one of our subsidiaries and a subsidiary of Discovery Communications, Inc. (
Discovery
). In September 2014, we and a subsidiary of
Discovery
each contributed
£90.0 million
(
$147.2 million
at the transaction date) to
DLG
in connection with
DLG
’s acquisition of
100%
of
All3Media
.
Chellomedia Disposal Group
Substantially all of the investments held by the
Chellomedia Disposal Group
were measured at fair value. The investments held by the
Chellomedia Disposal Group
at
December 31, 2013
are included in long-term assets of discontinued operations on our consolidated balance sheet. For additional information regarding the
Chellomedia Disposal Group
, see note
5
.
(
7
)
Derivative Instruments
In general, we seek to enter into derivative instruments to protect against (i) increases in the interest rates on our variable-rate debt and (ii) foreign currency movements, particularly with respect to borrowings that are denominated in a currency other than the functional currency of the borrowing entity. In this regard, through our subsidiaries, we have entered into various derivative instruments to manage interest rate exposure and foreign currency exposure with respect to the
U.S.
dollar ($), the euro (€), the British pound sterling (£), the Swiss franc (CHF), the Chilean peso (CLP), the Czech koruna (CZK), the Hungarian forint (HUF), the Polish zloty (PLN) and the Romanian lei (RON). We generally do not apply hedge accounting to our derivative instruments. Accordingly, changes in the fair values of most of our derivative instruments are recorded in realized and unrealized gains or losses on derivative instruments, net, in our consolidated statements of operations.
The following table provides details of the fair values of our derivative instrument assets and liabilities:
|
|
December 31, 2014
|
December 31, 2013
|
|||||||||||||||||||||
|
|
Current
|
Long-term (a)
|
Total
|
Current
|
Long-term (a)
|
Total
|
|||||||||||||||||
|
|
in millions
|
||||||||||||||||||||||
|
Assets:
|
|||||||||||||||||||||||
|
Cross-currency and interest rate derivative contracts (b)
|
$
|
443.6
|
|
$
|
913.7
|
|
$
|
1,357.3
|
|
$
|
248.4
|
|
$
|
520.8
|
|
$
|
769.2
|
|
|||||
|
Equity-related derivative instruments (c)
|
—
|
|
400.2
|
|
400.2
|
|
—
|
|
430.4
|
|
430.4
|
|
|||||||||||
|
Foreign currency forward contracts
|
2.5
|
|
—
|
|
2.5
|
|
2.6
|
|
—
|
|
2.6
|
|
|||||||||||
|
Other
|
0.5
|
|
0.9
|
|
1.4
|
|
1.1
|
|
0.9
|
|
2.0
|
|
|||||||||||
|
Total
|
$
|
446.6
|
|
$
|
1,314.8
|
|
$
|
1,761.4
|
|
$
|
252.1
|
|
$
|
952.1
|
|
$
|
1,204.2
|
|
|||||
|
Liabilities:
|
|||||||||||||||||||||||
|
Cross-currency and interest rate derivative contracts (b)
|
$
|
1,027.4
|
|
$
|
1,443.9
|
|
$
|
2,471.3
|
|
$
|
727.2
|
|
$
|
2,191.4
|
|
$
|
2,918.6
|
|
|||||
|
Equity-related derivative instruments (c)
|
15.3
|
|
73.1
|
|
88.4
|
|
15.6
|
|
101.3
|
|
116.9
|
|
|||||||||||
|
Foreign currency forward contracts
|
0.8
|
|
—
|
|
0.8
|
|
8.2
|
|
12.0
|
|
20.2
|
|
|||||||||||
|
Other
|
0.2
|
|
0.1
|
|
0.3
|
|
0.2
|
|
0.6
|
|
0.8
|
|
|||||||||||
|
Total
|
$
|
1,043.7
|
|
$
|
1,517.1
|
|
$
|
2,560.8
|
|
$
|
751.2
|
|
$
|
2,305.3
|
|
$
|
3,056.5
|
|
|||||
II-104
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
_______________
|
(a)
|
Our long-term derivative assets and liabilities are included in other assets, net, and other long-term liabilities, respectively, in our consolidated balance sheets.
|
|
(b)
|
We consider credit risk in our fair value assessments. As of
December 31, 2014
and
2013
, (i) the fair values of our cross-currency and interest rate derivative contracts that represented assets have been reduced by credit risk valuation adjustments aggregating
$30.9 million
and
$9.8 million
, respectively, and (ii) the fair values of our cross-currency and interest rate derivative contracts that represented liabilities have been reduced by credit risk valuation adjustments aggregating
$64.6 million
and
$173.0 million
, respectively. The adjustments to our derivative assets relate to the credit risk associated with counterparty nonperformance and the adjustments to our derivative liabilities relate to credit risk associated with our own nonperformance. In all cases, the adjustments take into account offsetting liability or asset positions within a given contract. Our determination of credit risk valuation adjustments generally is based on our and our counterparties’ credit risks, as observed in the credit default swap market and market quotations for certain of our subsidiaries’ debt instruments, as applicable. The changes in the credit risk valuation adjustments associated with our cross-currency and interest rate derivative contracts resulted in net gains (losses) of (
$120.9 million
),
$15.3 million
and (
$57.3 million
) during
2014
,
2013
and
2012
, respectively. These amounts are included in realized and unrealized gains (losses) on derivative instruments, net, in our consolidated statements of operations. For further information concerning our fair value measurements, see note
8
.
|
|
(c)
|
Our equity-related derivative instruments include the fair value of (i) the
ITV Collar
(as described below) at
December 31, 2014
, (ii) the share collar (the
Sumitomo Collar
) with respect to the
Sumitomo
shares held by our company, (iii) the
Virgin Media Capped Calls
(as defined and described below) and (iv) the
Ziggo Collar
(as described below) at
December 31, 2013
. The fair values of our equity collars do not include credit risk valuation adjustments as we assume that any losses incurred by our company in the event of nonperformance by the respective counterparty would be, subject to relevant insolvency laws, fully offset against amounts we owe to such counterparty pursuant to the related secured borrowing arrangements.
|
The details of our realized and unrealized gains (losses) on derivative instruments, net, are as follows:
|
|
Year ended December 31,
|
||||||||||
|
|
2014
|
2013
|
2012
|
||||||||
|
|
in millions
|
||||||||||
|
Cross-currency and interest rate derivative contracts
|
$
|
293.6
|
|
$
|
(586.5
|
)
|
$
|
(958.3
|
)
|
||
|
Equity-related derivative instruments:
|
|||||||||||
|
Ziggo Collar
|
(113.3
|
)
|
(152.5
|
)
|
—
|
|
|||||
|
ITV Collar
|
(77.4
|
)
|
—
|
|
—
|
|
|||||
|
Sumitomo Collar
|
(46.0
|
)
|
(206.4
|
)
|
(109.0
|
)
|
|||||
|
Virgin Media Capped Calls
|
0.4
|
|
(3.4
|
)
|
—
|
|
|||||
|
Total equity-related derivative instruments
|
(236.3
|
)
|
(362.3
|
)
|
(109.0
|
)
|
|||||
|
Foreign currency forward contracts
|
31.6
|
|
(72.9
|
)
|
(6.0
|
)
|
|||||
|
Other
|
(0.1
|
)
|
1.3
|
|
3.0
|
|
|||||
|
Total
|
$
|
88.8
|
|
$
|
(1,020.4
|
)
|
$
|
(1,070.3
|
)
|
||
The net cash received or paid related to our derivative instruments is classified as an operating, investing or financing activity in our consolidated statements of cash flows based on the objective of the derivative instrument and the classification of the applicable underlying cash flows. For derivative contracts that are terminated prior to maturity, the cash paid or received upon termination that relates to future periods is classified as a financing activity. The classification of these cash inflows (outflows)
are as follows:
II-105
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
|
|
Year ended December 31,
|
||||||||||
|
|
2014
|
2013
|
2012
|
||||||||
|
|
in millions
|
||||||||||
|
Operating activities
|
$
|
(445.7
|
)
|
$
|
(402.1
|
)
|
$
|
(435.5
|
)
|
||
|
Investing activities
|
(30.2
|
)
|
(66.5
|
)
|
23.7
|
|
|||||
|
Financing activities
|
(221.0
|
)
|
524.5
|
|
(108.4
|
)
|
|||||
|
Total
|
$
|
(696.9
|
)
|
$
|
55.9
|
|
$
|
(520.2
|
)
|
||
Counterparty Credit Risk
We are exposed to the risk that the counterparties to the derivative instruments of our subsidiary borrowing groups will default on their obligations to us. We manage these credit risks through the evaluation and monitoring of the creditworthiness of, and concentration of risk with, the respective counterparties. In this regard, credit risk associated with our derivative instruments is spread across a relatively broad counterparty base of banks and financial institutions. Collateral is generally not posted by either party under the derivative instruments of our subsidiary borrowing groups. At
December 31, 2014
, our exposure to counterparty credit risk included derivative assets with an aggregate fair value of
$1,040.9 million
.
Each of our subsidiary borrowing groups have entered into derivative instruments under master agreements with each counterparty that contain master netting arrangements that are applicable in the event of early termination by either party to such derivative instrument. The master netting arrangements under each of these master agreements are limited to the derivative instruments governed by the relevant master agreement within each individual borrowing group and are independent of similar arrangements of our other subsidiary borrowing groups.
Under our derivative contracts, it is generally only the non-defaulting party that has a contractual option to exercise early termination rights upon the default of the other counterparty and to set off other liabilities against sums due upon such termination. However, in an insolvency of a derivative counterparty, under the laws of certain jurisdictions, the defaulting counterparty or its insolvency representatives may be able to compel the termination of one or more derivative contracts and trigger early termination payment liabilities payable by us, reflecting any mark-to-market value of the contracts for the counterparty. Alternatively, or in addition, the insolvency laws of certain jurisdictions may require the mandatory set off of amounts due under such derivative contracts against present and future liabilities owed to us under other contracts between us and the relevant counterparty. Accordingly, it is possible that we may be subject to obligations to make payments, or may have present or future liabilities owed to us partially or fully discharged by set off as a result of such obligations, in the event of the insolvency of a derivative counterparty, even though it is the counterparty that is in default and not us. To the extent that we are required to make such payments, our ability to do so will depend on our liquidity and capital resources at the time. In an insolvency of a defaulting counterparty, we will be an unsecured creditor in respect of any amount owed to us by the defaulting counterparty, except to the extent of the value of any collateral we have obtained from that counterparty.
In addition, where a counterparty is in financial difficulty, under the laws of certain jurisdictions, the relevant regulators may be able to (i) compel the termination of one or more derivative instruments, determine the settlement amount and/or compel, without any payment, the partial or full discharge of liabilities arising from such early termination that are payable by the relevant counterparty or (ii) transfer the derivative instruments to an alternative counterparty.
II-106
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
Details of our Derivative Instruments
In the following tables, we present the details of the various categories of our subsidiaries’ derivative instruments. For each subsidiary, the notional amount of multiple derivative instruments that mature within the same calendar month are shown in the aggregate and interest rates are presented on a weighted average basis. In addition, for derivative instruments that were in effect as of
December 31, 2014
, we present a single date that represents the applicable final maturity date. For derivative instruments that become effective subsequent to
December 31, 2014
, we present a range of dates that represents the period covered by the applicable derivative instruments.
Cross-currency and Interest Rate Derivative Contracts
Cross-currency Swaps:
The terms of our outstanding cross-currency swap contracts at
December 31, 2014
are as follows:
|
Subsidiary /
F
inal maturity date
|
Notional
amount
due from
counterparty
|
Notional
amount
due to
counterparty
|
Interest rate
due from
counterparty
|
Interest rate
due to
counterparty
|
||||||||
|
|
in millions
|
|
|
|||||||||
|
Virgin Media Investment Holdings Limited (VMIH), a subsidiary of Virgin Media:
|
||||||||||||
|
February 2022
|
$
|
1,400.0
|
|
£
|
873.6
|
|
5.01%
|
5.49%
|
||||
|
June 2020
|
$
|
1,384.6
|
|
£
|
901.4
|
|
6 mo. LIBOR + 2.75%
|
6 mo. GBP LIBOR + 3.18%
|
||||
|
October 2020
|
$
|
1,370.4
|
|
£
|
881.6
|
|
6 mo. LIBOR + 2.75%
|
6 mo. GBP LIBOR + 3.10%
|
||||
|
January 2021
|
$
|
500.0
|
|
£
|
308.9
|
|
5.25%
|
6 mo. GBP LIBOR + 2.06%
|
||||
|
October 2022
|
$
|
450.0
|
|
£
|
272.0
|
|
6.00%
|
6.43%
|
||||
|
January 2022
|
$
|
425.0
|
|
£
|
255.8
|
|
5.50%
|
5.82%
|
||||
|
April 2019
|
$
|
291.5
|
|
£
|
186.2
|
|
5.38%
|
5.49%
|
||||
|
November 2016 (a)
|
$
|
55.0
|
|
£
|
27.7
|
|
6.50%
|
7.03%
|
||||
|
October 2019
|
$
|
50.0
|
|
£
|
30.3
|
|
8.38%
|
8.98%
|
||||
|
October 2019 - October 2022
|
$
|
50.0
|
|
£
|
30.7
|
|
6.00%
|
5.75%
|
||||
|
UPC Broadband Holding BV (UPC Broadband Holding), a subsidiary of UPC Holding BV:
|
||||||||||||
|
July 2018
|
$
|
525.0
|
|
€
|
396.3
|
|
6 mo. LIBOR + 1.99%
|
6.25%
|
||||
|
January 2020
|
$
|
327.5
|
|
€
|
249.5
|
|
6 mo. LIBOR + 4.92%
|
7.52%
|
||||
|
January 2015 - July 2021
|
$
|
312.0
|
|
€
|
240.0
|
|
6 mo. LIBOR + 2.50%
|
6 mo. EURIBOR + 2.87%
|
||||
|
January 2015
|
$
|
300.0
|
|
€
|
226.5
|
|
6 mo. LIBOR + 1.75%
|
5.78%
|
||||
|
October 2020
|
$
|
300.0
|
|
€
|
219.1
|
|
6 mo. LIBOR + 3.00%
|
6 mo. EURIBOR + 3.04%
|
||||
|
January 2017 - July 2021
|
$
|
262.1
|
|
€
|
194.1
|
|
6 mo. LIBOR + 2.50%
|
6 mo. EURIBOR + 2.51%
|
||||
|
November 2019
|
$
|
250.0
|
|
€
|
181.5
|
|
7.25%
|
7.74%
|
||||
|
November 2021
|
$
|
250.0
|
|
€
|
181.4
|
|
7.25%
|
7.50%
|
||||
|
July 2018
|
$
|
200.0
|
|
€
|
151.0
|
|
6 mo. LIBOR + 3.00%
|
7.31%
|
||||
|
January 2020
|
$
|
197.5
|
|
€
|
150.5
|
|
6 mo. LIBOR + 4.92%
|
6 mo. EURIBOR + 4.91%
|
||||
|
July 2021
|
$
|
128.0
|
|
€
|
97.2
|
|
6 mo. LIBOR + 2.50%
|
6 mo. EURIBOR + 2.90%
|
||||
II-107
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
|
Subsidiary /
F
inal maturity date
|
Notional
amount
due from
counterparty
|
Notional
amount
due to
counterparty
|
Interest rate
due from
counterparty
|
Interest rate
due to
counterparty
|
||||||||
|
|
in millions
|
|
|
|||||||||
|
January 2015 - July 2018
|
$
|
100.0
|
|
€
|
75.4
|
|
6 mo. LIBOR + 1.75%
|
5.77%
|
||||
|
December 2016
|
$
|
340.0
|
|
CHF
|
370.9
|
|
6 mo. LIBOR + 3.50%
|
6 mo. CHF LIBOR + 4.01%
|
||||
|
January 2017 - July 2021
|
$
|
300.0
|
|
CHF
|
278.3
|
|
6 mo. LIBOR + 2.50%
|
6 mo. CHF LIBOR + 2.46%
|
||||
|
November 2019
|
$
|
250.0
|
|
CHF
|
226.8
|
|
7.25%
|
6 mo. CHF LIBOR + 5.01%
|
||||
|
January 2020
|
$
|
225.0
|
|
CHF
|
206.3
|
|
6 mo. LIBOR + 4.81%
|
5.44%
|
||||
|
January 2015 - July 2021
|
$
|
200.0
|
|
CHF
|
186.0
|
|
6 mo. LIBOR + 2.50%
|
6 mo. CHF LIBOR + 2.55%
|
||||
|
January 2015
|
$
|
171.5
|
|
CHF
|
187.1
|
|
6 mo. LIBOR + 2.75%
|
6 mo. CHF LIBOR + 2.95%
|
||||
|
July 2020
|
$
|
201.5
|
|
RON
|
489.3
|
|
6 mo. LIBOR + 3.50%
|
11.34%
|
||||
|
January 2015
|
€
|
898.4
|
|
CHF
|
1,466.0
|
|
6 mo. EURIBOR + 1.68%
|
6 mo. CHF LIBOR + 1.94%
|
||||
|
January 2015 - January 2021
|
€
|
720.8
|
|
CHF
|
877.0
|
|
6 mo. EURIBOR + 2.50%
|
6 mo. CHF LIBOR + 2.62%
|
||||
|
January 2015 - September 2022
|
€
|
383.8
|
|
CHF
|
477.0
|
|
6 mo. EURIBOR + 2.00%
|
6 mo. CHF LIBOR + 2.22%
|
||||
|
January 2015 - January 2017
|
€
|
360.4
|
|
CHF
|
589.0
|
|
6 mo. EURIBOR + 3.75%
|
6 mo. CHF LIBOR + 3.94%
|
||||
|
April 2018
|
€
|
285.1
|
|
CHF
|
346.7
|
|
10.51%
|
9.87%
|
||||
|
January 2020
|
€
|
175.0
|
|
CHF
|
258.6
|
|
7.63%
|
6.76%
|
||||
|
January 2015 - July 2021
|
€
|
161.4
|
|
CHF
|
187.1
|
|
6 mo. EURIBOR + 2.35%
|
6 mo. CHF LIBOR + 2.76%
|
||||
|
July 2020
|
€
|
107.4
|
|
CHF
|
129.0
|
|
6 mo. EURIBOR + 3.00%
|
6 mo. CHF LIBOR + 3.28%
|
||||
|
January 2017
|
€
|
75.0
|
|
CHF
|
110.9
|
|
7.63%
|
6.98%
|
||||
|
December 2015
|
€
|
69.1
|
|
CLP
|
53,000.0
|
|
3.50%
|
5.75%
|
||||
|
January 2015
|
€
|
365.8
|
|
CZK
|
10,521.8
|
|
5.48%
|
5.99%
|
||||
|
January 2015 - January 2020
|
€
|
318.9
|
|
CZK
|
8,818.7
|
|
5.58%
|
5.44%
|
||||
|
January 2015 - January 2017
|
€
|
60.0
|
|
CZK
|
1,703.1
|
|
5.50%
|
6.99%
|
||||
|
July 2017
|
€
|
39.6
|
|
CZK
|
1,000.0
|
|
3.00%
|
3.75%
|
||||
|
January 2015
|
€
|
260.0
|
|
HUF
|
75,570.0
|
|
5.50%
|
9.40%
|
||||
|
January 2015 - January 2017
|
€
|
260.0
|
|
HUF
|
75,570.0
|
|
5.50%
|
10.56%
|
||||
|
December 2016
|
€
|
150.0
|
|
HUF
|
43,367.5
|
|
5.50%
|
9.20%
|
||||
|
July 2018
|
€
|
78.0
|
|
HUF
|
19,500.0
|
|
5.50%
|
9.15%
|
||||
|
January 2015
|
€
|
400.5
|
|
PLN
|
1,605.6
|
|
5.50%
|
7.50%
|
||||
|
January 2015 - January 2017
|
€
|
245.0
|
|
PLN
|
1,000.6
|
|
5.50%
|
9.03%
|
||||
|
September 2016
|
€
|
200.0
|
|
PLN
|
892.7
|
|
6.00%
|
8.19%
|
||||
|
January 2015 - January 2020
|
€
|
144.6
|
|
PLN
|
605.0
|
|
5.50%
|
7.98%
|
||||
|
July 2017
|
€
|
82.0
|
|
PLN
|
318.0
|
|
3.00%
|
5.60%
|
||||
|
December 2015
|
CLP 53,000.0
|
|
€
|
69.1
|
|
5.75%
|
3.50%
|
|||||
II-108
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
|
Subsidiary /
F
inal maturity date
|
Notional
amount
due from
counterparty
|
Notional
amount
due to
counterparty
|
Interest rate
due from
counterparty
|
Interest rate
due to
counterparty
|
||||||||
|
|
in millions
|
|
|
|||||||||
|
Amsterdamse Beheer-en Consultingmaatschappij BV (ABC B.V.), a subsidiary of Ziggo:
|
||||||||||||
|
January 2022
|
$
|
2,350.0
|
|
€
|
1,727.0
|
|
6 mo. LIBOR + 2.75%
|
4.56%
|
||||
|
Unitymedia Hessen GmbH & Co. KG (Unitymedia Hessen), a subsidiary of Unitymedia KabelBW:
|
||||||||||||
|
January 2023
|
$
|
1,652.9
|
|
€
|
1,252.5
|
|
5.67%
|
4.50%
|
||||
|
January 2021
|
$
|
797.1
|
|
€
|
546.5
|
|
5.50%
|
5.60%
|
||||
|
VTR:
|
||||||||||||
|
January 2022
|
$
|
1,400.0
|
|
CLP
|
760,340.0
|
|
6.88%
|
10.94%
|
||||
_______________
|
(a)
|
Unlike the other cross-currency swaps presented in this table, the identified cross-currency swap does not involve the exchange of notional amounts at the inception and maturity of the instrument. Accordingly, the only cash flows associated with this instrument are interest payments and receipts.
|
Interest Rate Swaps:
The terms of our outstanding interest rate swap contracts at
December 31, 2014
are as follows:
|
Subsidiary / Final maturity date
|
Notional amount
|
Interest rate due from
counterparty
|
Interest rate due to
counterparty
|
|||||
|
|
in millions
|
|
|
|||||
|
VMIH:
|
||||||||
|
October 2018
|
£
|
2,155.0
|
|
6 mo. GBP LIBOR
|
1.52%
|
|||
|
January 2021
|
£
|
650.0
|
|
5.50%
|
6 mo. GBP LIBOR + 1.84%
|
|||
|
January 2021
|
£
|
650.0
|
|
6 mo. GBP LIBOR + 1.84%
|
3.87%
|
|||
|
December 2015
|
£
|
600.0
|
|
6 mo. GBP LIBOR
|
2.90%
|
|||
|
April 2018
|
£
|
300.0
|
|
6 mo. GBP LIBOR
|
1.37%
|
|||
|
UPC Broadband Holding:
|
||||||||
|
July 2020
|
$
|
1,000.0
|
|
6.63%
|
6 mo. LIBOR + 3.03%
|
|||
|
January 2022
|
$
|
750.0
|
|
6.88%
|
6 mo. LIBOR + 4.89%
|
|||
|
January 2015
|
€
|
1,554.0
|
|
1 mo. EURIBOR + 3.75%
|
6 mo. EURIBOR + 3.56%
|
|||
|
January 2015 - January 2016
|
€
|
1,554.0
|
|
1 mo. EURIBOR + 3.75%
|
6 mo. EURIBOR + 3.58%
|
|||
|
January 2015
|
€
|
1,364.8
|
|
6 mo. EURIBOR
|
3.44%
|
|||
|
July 2020
|
€
|
750.0
|
|
6.38%
|
6 mo. EURIBOR + 3.16%
|
|||
|
January 2015 - January 2021
|
€
|
750.0
|
|
6 mo. EURIBOR
|
2.57%
|
|||
|
January 2015 - December 2016
|
€
|
500.0
|
|
6 mo. EURIBOR
|
4.32%
|
|||
|
January 2015 - January 2023
|
€
|
290.0
|
|
6 mo. EURIBOR
|
2.79%
|
|||
|
December 2015
|
€
|
263.3
|
|
6 mo. EURIBOR
|
3.97%
|
|||
|
January 2023
|
€
|
210.0
|
|
6 mo. EURIBOR
|
2.88%
|
|||
|
January 2015 - January 2018
|
€
|
175.0
|
|
6 mo. EURIBOR
|
3.74%
|
|||
|
January 2015 - July 2020
|
€
|
171.3
|
|
6 mo. EURIBOR
|
3.95%
|
|||
II-109
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
|
Subsidiary / Final maturity date
|
Notional amount
|
Interest rate due from
counterparty
|
Interest rate due to
counterparty
|
|||||
|
|
in millions
|
|
|
|||||
|
July 2020
|
€
|
171.3
|
|
6 mo. EURIBOR
|
4.32%
|
|||
|
January 2015 - November 2021
|
€
|
107.0
|
|
6 mo. EURIBOR
|
2.89%
|
|||
|
January 2015
|
CHF
|
2,380.0
|
|
6 mo. CHF LIBOR
|
2.81%
|
|||
|
January 2015 - January 2022
|
CHF
|
711.5
|
|
6 mo. CHF LIBOR
|
1.89%
|
|||
|
January 2015 - January 2021
|
CHF
|
500.0
|
|
6 mo. CHF LIBOR
|
1.65%
|
|||
|
January 2015 - January 2018
|
CHF
|
400.0
|
|
6 mo. CHF LIBOR
|
2.51%
|
|||
|
January 2015 - December 2016
|
CHF
|
370.9
|
|
6 mo. CHF LIBOR
|
3.82%
|
|||
|
January 2015 - November 2019
|
CHF
|
226.8
|
|
6 mo. CHF LIBOR + 5.01%
|
6.88%
|
|||
|
ABC B.V.:
|
||||||||
|
January 2022
|
€
|
1,566.0
|
|
6 mo. EURIBOR
|
1.66%
|
|||
|
Telenet International Finance S.a.r.l (Telenet International), a subsidiary of Telenet:
|
||||||||
|
June 2023
|
€
|
500.0
|
|
3 mo. EURIBOR
|
1.45%
|
|||
|
July 2017 - June 2022
|
€
|
420.0
|
|
3 mo. EURIBOR
|
2.08%
|
|||
|
June 2021
|
€
|
400.0
|
|
3 mo. EURIBOR
|
0.41%
|
|||
|
July 2017 - June 2023
|
€
|
382.0
|
|
3 mo. EURIBOR
|
1.89%
|
|||
|
July 2017
|
€
|
150.0
|
|
3 mo. EURIBOR
|
3.55%
|
|||
|
August 2015 - June 2022
|
€
|
55.0
|
|
3 mo. EURIBOR
|
1.81%
|
|||
|
June 2015
|
€
|
50.0
|
|
3 mo. EURIBOR
|
3.55%
|
|||
Interest Rate Caps
Our purchased and sold interest rate cap contracts with respect to
EURIBOR
at
December 31, 2014
are detailed below:
|
|
December 31, 2014
|
|||||
|
Subsidiary / Final maturity date
|
Notional amount
|
EURIBOR cap rate
|
||||
|
|
in millions
|
|
||||
|
Interest rate caps purchased (a):
|
||||||
|
Liberty Global Europe Financing BV (LGE Financing), the immediate parent of UPC Holding BV:
|
||||||
|
January 2015 - January 2020
|
€
|
735.0
|
|
7.00%
|
||
|
Telenet International:
|
||||||
|
June 2015 - June 2017
|
€
|
50.0
|
|
4.50%
|
||
|
Telenet NV, a subsidiary of Telenet:
|
||||||
|
December 2017
|
€
|
0.6
|
|
6.50%
|
||
|
December 2017
|
€
|
0.6
|
|
5.50%
|
||
|
Interest rate cap sold (b):
|
||||||
|
UPC Broadband Holding:
|
||||||
|
January 2015 - January 2020
|
€
|
735.0
|
|
7.00%
|
||
II-110
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
_______________
|
(a)
|
Our purchased interest rate caps entitle us to receive payments from the counterparty when
EURIBOR
exceeds the
EURIBOR
cap rate.
|
|
(b)
|
Our sold interest rate cap requires that we make payments to the counterparty when
EURIBOR
exceeds the
EURIBOR
cap rate.
|
Interest Rate Collars
Our interest rate collar contracts establish floor and cap rates with respect to
EURIBOR
on the indicated notional amounts at
December 31, 2014
, as detailed below:
|
|
December 31, 2014
|
|||||||
|
Subsidiary / Final maturity date
|
Notional
amount
|
EURIBOR floor rate (a)
|
EURIBOR cap rate (b)
|
|||||
|
|
in millions
|
|
||||||
|
UPC Broadband Holding:
|
||||||||
|
January 2015 - January 2020
|
€
|
1,135.0
|
|
1.00%
|
3.54%
|
|||
|
Telenet International:
|
||||||||
|
July 2017
|
€
|
650.0
|
|
2.00%
|
4.00%
|
|||
_______________
|
(a)
|
We make payments to the counterparty when
EURIBOR
is less than the
EURIBOR
floor rate.
|
|
(b)
|
We receive payments from the counterparty when
EURIBOR
is greater than the
EURIBOR
cap rate.
|
Equity-Related Derivative Instruments
Ziggo Collar
and Secured Borrowing
. In July 2013, Liberty Global Incorporated Limited (
Liberty Global Limited
), our wholly-owned subsidiary, paid a net option premium of
€38.6 million
(
$51.0 million
at the transaction date) to enter into the
Ziggo Collar
with respect to the then owned
24,957,000
Ziggo
shares. The
Ziggo Collar
was comprised of (i) purchased put options exercisable by
Liberty Global Limited
and (ii) sold call options exercisable by the counterparty. Prior to the
Ziggo Acquisition
, the
Ziggo Collar
effectively hedged the value of a portion of our investment in
Ziggo
shares from significant losses due to market price decreases below the put option price while retaining a portion of the gains from market price increases up to the call option price.
The
Ziggo Collar
and related agreements also provided
Liberty Global Limited
with the ability to effectively finance the purchase of certain of its
Ziggo
shares pursuant to the
Ziggo Collar Loan
. In this regard, in July 2013, we borrowed
€617.1 million
(
$816.4 million
at the transaction date) under the
Ziggo Collar Loan
, including
€486.4 million
(
$643.5 million
at the transaction date) of non-cash borrowings that were used to finance the acquisition of
Ziggo
shares. At December 31, 2013, borrowings under the
Ziggo Collar Loan
were secured by
24,957,000
shares of
Ziggo
that were placed into a custody account. The
Ziggo Collar Loan
was issued at a discount with a
zero
coupon rate and an average implied yield of
45
basis points (
0.45%
). Under the terms of the
Ziggo Collar
, the counterparty had the right to re-use most of the
Ziggo
shares held in the custody account (up to an estimated
22.9 million
shares at
December 31, 2013
), but we had the right to recall the shares that were re-used by the counterparty subject to certain costs. Pursuant to the terms of the
Ziggo Collar
, we lent to the counterparty
15.7 million
Ziggo shares (the
Lent Shares
) on October 10, 2014. In addition, the counterparty had the right to retain dividends on the
Ziggo
shares that the counterparty would need to borrow from the custody account to hedge its exposure under the
Ziggo Collar
(an estimated
18.7 million
shares at
December 31, 2013
). In January 2014, we settled a portion of the
Ziggo Collar
and
Ziggo Collar Loan
such that the number of
Ziggo
shares covered by these instruments was reduced to
19,965,600
. Upon completion of the
Ziggo Acquisition
(see note
4
), the
Ziggo Collar
was terminated, the
Ziggo Collar Loan
was settled and the counterparty was relieved of its obligation to redeliver to us the
Lent Shares
.
II-111
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
ITV Collar
and Secured Borrowing
. In July 2014,
Liberty Global Limited
entered into the
ITV Collar
with respect to all
259,820,065
of our
ITV
shares. The
ITV Collar
is comprised of (i) purchased put options exercisable by
Liberty Global Limited
and (ii) written call options exercisable by the counterparty. The
ITV Collar
effectively hedges the value of our investment in
ITV
shares from significant losses due to market price decreases below the put option price while retaining
a portion of the gains from market price increases up to the call option price. For additional information regarding our investment in
ITV
, see note
6
.
The
ITV Collar
and related agreements also provided
Liberty Global Limited
with the ability to effectively finance the purchase of its
ITV
shares pursuant to the
ITV Collar Loan
. In this regard, in July 2014, we borrowed
£446.9 million
(
$764.5 million
at the transaction date) under the
ITV Collar Loan
. At
December 31, 2014
, borrowings under the
ITV Collar Loan
were secured by all
259,820,065
of our
ITV
shares, which have been placed into a custody account. The
ITV Collar Loan
was issued at a discount with a
zero
coupon rate and an average implied yield of 173 basis points (
1.73%
). The
ITV Collar Loan
, which has an average maturity of three years and contains no financial covenants, provides for customary representations and warranties, events of default and certain adjustment and termination events. Under the terms of the
ITV Collar
, the counterparty has the right to re-use the pledged
ITV
shares held in the custody account, but we have the right to recall the shares that are re-used by the counterparty subject to certain costs. In addition, the counterparty retains dividends on the
ITV
shares that the counterparty would need to borrow from the custody account to hedge its exposure under the
ITV Collar
(an estimated
205 million
shares at
December 31, 2014
).
Sumitomo Collar
and Secured Borrowing.
The
Sumitomo Collar
is comprised of purchased put options exercisable by Liberty Programming Japan LLC (
Liberty Programming Japan
), a wholly-owned subsidiary, and written call options exercisable by the counterparty with respect to all of the common shares of
Sumitomo
owned by
Liberty Programming Japan
. The
Sumitomo Collar
effectively hedges the value of our investment in
Sumitomo
shares from losses due to market price decreases below a per share value of
¥2,118.50
(
$17.68
) while retaining gains from market price increases up to a per share value of
¥2,787.50
(
$23.26
). At
December 31, 2014
, the market price of
Sumitomo
common stock was
¥1,242.00
(
$10.36
) per share. The
Sumitomo Collar
provides for a projected gross cash ordinary dividend to be paid per
Sumitomo
share during the term of the
Sumitomo Collar
. If the actual dividend paid does not exactly match the projected dividend, then an adjustment amount shall be payable between the parties to the
Sumitomo Collar
depending on the dividend actually paid by
Sumitomo
. The Sumitomo Collar may, at the option of
Liberty Programming Japan
, be settled in
Sumitomo
shares or in cash. The
Sumitomo Collar
also includes a purchased fair value put option, which effectively provides
Liberty Programming Japan
with the ability to sell the
Sumitomo
shares when the market price is trading between the put and call strike prices. The
Sumitomo Collar
matures in
five
equal semi-annual installments beginning on May 22, 2016. The fair value of the
Sumitomo Collar
as of
December 31, 2014
was a net asset of
$351.1 million
.
The
Sumitomo Collar
and related agreements also provide
Liberty Programming Japan
with the ability to borrow funds on a secured basis. Borrowings under these agreements, which are secured by a pledge of
100%
of the
Sumitomo
shares owned by
Liberty Programming Japan
, bear interest at
1.883%
, mature in
five
equal semi-annual installments beginning on
May 22, 2016
, and are included in long-term debt and capital lease obligations in our consolidated balance sheets. During 2007,
Liberty Programming Japan
borrowed
¥93.660 billion
(
$757.6 million
at the transaction date) under these agreements (the
Sumitomo Collar Loan
). The pledge arrangement entered into by
Liberty Programming Japan
provides that
Liberty Programming Japan
will be able to exercise all voting and consensual rights and, subject to the terms of the
Sumitomo Collar
, receive dividends on the
Sumitomo
shares.
Virgin Media Capped Calls
.
During 2010,
Virgin Media
entered into conversion hedges (the
Virgin Media Capped Calls
) with respect to the
VM Convertible Notes
, as defined and described in note
10
, in order to offset a portion of the dilutive effects associated with conversion of the
VM Convertible Notes
. We account for the
Virgin Media Capped Calls
at fair value using a binomial pricing model and changes in fair value are reported in realized and unrealized gains or losses on derivative instruments, net, in our consolidated statements of operations. The
Virgin Media Capped Calls
mature on dates ranging from September 30, 2016 to November 10, 2016.
As further described in note
10
, most of the
VM Convertible Notes
were exchanged for
Liberty Global
Class A and Class C ordinary shares and cash pursuant to the terms of the
VM Convertible Notes Indenture
(as defined in note
10
). Accordingly, during 2013, we settled
93.8%
of the notional amount of the
Virgin Media Capped Calls
for cash proceeds of
$534.8 million
.
II-112
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
Foreign Currency Forwards
The following table summarizes our outstanding foreign currency forward contracts at
December 31, 2014
:
|
Subsidiary
|
Currency
purchased
forward
|
Currency
sold
forward
|
Maturity dates
|
|||||||
|
|
in millions
|
|
||||||||
|
UPC Broadband Holding
|
$
|
0.8
|
|
CZK
|
14.9
|
|
January 2015 - March 2015
|
|||
|
UPC Broadband Holding
|
€
|
63.8
|
|
CHF
|
76.0
|
|
January 2015 - December 2015
|
|||
|
UPC Broadband Holding
|
€
|
4.5
|
|
CZK
|
123.3
|
|
January 2015 - March 2015
|
|||
|
UPC Broadband Holding
|
€
|
4.1
|
|
HUF
|
1,275.0
|
|
January 2015 - March 2015
|
|||
|
UPC Broadband Holding
|
€
|
12.0
|
|
PLN
|
51.0
|
|
January 2015 - March 2015
|
|||
|
UPC Broadband Holding
|
£
|
1.2
|
|
€
|
1.4
|
|
January 2015 - March 2015
|
|||
|
UPC Broadband Holding
|
CHF
|
67.0
|
|
€
|
55.7
|
|
January 2015
|
|||
|
UPC Broadband Holding
|
CZK
|
300.0
|
|
€
|
10.9
|
|
January 2015
|
|||
|
UPC Broadband Holding
|
HUF
|
7,400.0
|
|
€
|
23.6
|
|
January 2015
|
|||
|
UPC Broadband Holding
|
PLN
|
90.0
|
|
€
|
20.9
|
|
January 2015
|
|||
|
UPC Broadband Holding
|
RON
|
31.0
|
|
€
|
6.9
|
|
January 2015
|
|||
|
VTR
|
$
|
52.4
|
|
CLP
|
31,739.4
|
|
January 2015 - December 2015
|
|||
(
8
)
Fair Value Measurements
We use the fair value method to account for (i) certain of our investments and (ii) our derivative instruments. The reported fair values of these investments and derivative instruments as of
December 31, 2014
likely will not represent the value that will be paid or received upon the ultimate settlement or disposition of these assets and liabilities. In the case of the investments that we account for using the fair value method, the values we realize upon disposition will be dependent upon, among other factors, market conditions and the forecasted financial performance of the investees at the time of any such disposition. With respect to our derivative instruments, we expect that the values realized generally will be based on market conditions at the time of settlement, which may occur at the maturity of the derivative instrument or at the time of the repayment or refinancing of the underlying debt instrument.
GAAP
provides for a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. Level 1 inputs are quoted market prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted market prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. We record transfers of assets or liabilities in or out of Levels 1, 2 or 3 at the beginning of the quarter during which the transfer occurred. During
2014
, no such transfers were made.
All of our Level 2 inputs (interest rate futures, swap rates and certain of the inputs for our weighted average cost of capital calculations) and certain of our Level 3 inputs (forecasted volatilities and credit spreads) are obtained from pricing services. These inputs, or interpolations or extrapolations thereof, are used in our internal models to calculate, among other items, yield curves, forward interest and currency rates and weighted average cost of capital rates.
In the normal course of business, we receive market value assessments from the counterparties to our derivative contracts. Although we compare these assessments to our internal valuations and investigate unexpected differences, we do not otherwise rely on counterparty quotes to determine the fair values of our derivative instruments. The midpoints of applicable bid and ask ranges generally are used as inputs for our internal valuations.
For our investments in
ITV
and
Sumitomo
, the recurring fair value measurements are based on the quoted closing price of the respective shares at each reporting date. Accordingly, the valuations of these investments fall under Level 1 of the fair value hierarchy. Our other investments that we account for at fair value are privately-held companies and, therefore, quoted market prices are unavailable. The valuation technique we use for such investments is a combination of an income approach (discounted cash flow model based on forecasts) and a market approach (market multiples of similar businesses). With the exception of certain
II-113
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
inputs for our weighted average cost of capital calculations that are derived from pricing services, the inputs used to value these investments are based on unobservable inputs derived from our assumptions. Therefore, the valuation of our privately-held investments falls under Level 3 of the fair value hierarchy. Any reasonably foreseeable changes in assumed levels of unobservable inputs for the valuations of our Level 3 investments would not be expected to have a material impact on our financial position or results of operations.
The recurring fair value measurement of our equity-related derivatives are based on binomial option pricing models, which require the input of observable and unobservable variables such as exchange traded equity prices, risk-free interest rates, dividend yields and forecasted volatilities of the underlying equity securities. The valuations of our equity-related derivatives are based on a combination of Level 1 inputs (exchange traded equity prices), Level 2 inputs (interest rate futures and swap rates) and Level 3 inputs (forecasted volatilities). As changes in volatilities could have a significant impact on the overall valuations, we have determined that these valuations fall under Level 3 of the fair value hierarchy. For the
December 31, 2014
valuation of the
ITV Collar
, we used estimated volatilities ranging from
23.8%
to
27.3%
.
At
December 31, 2014
, the valuations of the
Sumitomo Collar
and the
Virgin Media Capped Calls
were not significantly impacted by forecasted volatilities.
As further described in note
7
, we have entered into various derivative instruments to manage our interest rate and foreign currency exchange risk. The recurring fair value measurements of these derivative instruments are determined using discounted cash flow models. Most of the inputs to these discounted cash flow models consist of, or are derived from, observable Level 2 data for substantially the full term of these derivative instruments. This observable data includes most interest rate futures and swap rates, which are retrieved or derived from available market data. Although we may extrapolate or interpolate this data, we do not otherwise alter this data in performing our valuations. We incorporate a credit risk valuation adjustment in our fair value measurements to estimate the impact of both our own nonperformance risk and the nonperformance risk of our counterparties. Our and our counterparties’ credit spreads represent our most significant Level 3 inputs, and these inputs are used to derive the credit risk valuation adjustments with respect to our various interest rate and foreign currency derivative valuations. As we would not expect changes in our or our counterparties’ credit spreads to have a significant impact on the valuations of these derivative instruments, we have determined that these valuations fall under Level 2 of the fair value hierarchy. Our credit risk valuation adjustments with respect to our cross-currency and interest rate swaps are quantified and further explained in note
7
.
Fair value measurements are also used in connection with nonrecurring valuations performed in connection with impairment assessments and acquisition accounting. These nonrecurring valuations include the valuation of reporting units, customer relationship intangible assets, property and equipment and the implied value of goodwill. The valuation of private reporting units is based at least in part on discounted cash flow analyses. With the exception of certain inputs for our weighted average cost of capital and discount rate calculations that are derived from pricing services, the inputs used in our discounted cash flow analyses, such as forecasts of future cash flows, are based on our assumptions. The valuation of customer relationships is primarily based on an excess earnings methodology, which is a form of a discounted cash flow analysis. The excess earnings methodology requires us to estimate the specific cash flows expected from the customer relationship, considering such factors as estimated customer life, the revenue expected to be generated over the life of the customer, contributory asset charges, and other factors. Tangible assets are typically valued using a replacement or reproduction cost approach, considering factors such as current prices of the same or similar equipment, the age of the equipment and economic obsolescence. The implied value of goodwill is determined by allocating the fair value of a reporting unit to all of the assets and liabilities of that unit as if the reporting unit had been acquired in a business combination, with the residual amount allocated to goodwill. All of our nonrecurring valuations use significant unobservable inputs and therefore fall under Level 3 of the fair value hierarchy. During
2014
and
2013
, we performed nonrecurring valuations for the purpose of determining the acquisition accounting for the
Ziggo Acquisition
and the
Virgin Media Acquisition
, respectively.
We used discount rates of
8.5%
and
9.0%
, respectively, for our valuations of the customer relationships acquired as a result of these acquisitions. For additional information, see note
4
.
II-114
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
A summary of our assets and liabilities that are measured at fair value on a recurring basis is as follows:
|
|
|
Fair value measurements at December 31, 2014 using:
|
||||||||||||||
|
Description
|
December 31,
2014 |
Quoted prices
in active
markets for
identical assets
(Level 1)
|
Significant
other
observable
inputs
(Level 2)
|
Significant
unobservable
inputs
(Level 3)
|
||||||||||||
|
|
in millions
|
|||||||||||||||
|
Assets:
|
||||||||||||||||
|
Derivative instruments:
|
||||||||||||||||
|
Cross-currency and interest rate derivative contracts
|
$
|
1,357.3
|
|
$
|
—
|
|
$
|
1,357.3
|
|
$
|
—
|
|
||||
|
Equity-related derivative instruments
|
400.2
|
|
—
|
|
—
|
|
400.2
|
|
||||||||
|
Foreign currency forward contracts
|
2.5
|
|
—
|
|
2.5
|
|
—
|
|
||||||||
|
Other
|
1.4
|
|
—
|
|
1.4
|
|
—
|
|
||||||||
|
Total derivative instruments
|
1,761.4
|
|
—
|
|
1,361.2
|
|
400.2
|
|
||||||||
|
Investments
|
1,662.7
|
|
1,344.3
|
|
—
|
|
318.4
|
|
||||||||
|
Total assets
|
$
|
3,424.1
|
|
$
|
1,344.3
|
|
$
|
1,361.2
|
|
$
|
718.6
|
|
||||
|
Liabilities - derivative instruments:
|
||||||||||||||||
|
Cross-currency and interest rate derivative contracts
|
$
|
2,471.3
|
|
$
|
—
|
|
$
|
2,471.3
|
|
$
|
—
|
|
||||
|
Equity-related derivative instruments
|
88.4
|
|
—
|
|
—
|
|
88.4
|
|
||||||||
|
Foreign currency forward contracts
|
0.8
|
|
—
|
|
0.8
|
|
—
|
|
||||||||
|
Other
|
0.3
|
|
—
|
|
0.3
|
|
—
|
|
||||||||
|
Total liabilities
|
$
|
2,560.8
|
|
$
|
—
|
|
$
|
2,472.4
|
|
$
|
88.4
|
|
||||
II-115
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
|
|
|
Fair value measurements
at December 31, 2013 using:
|
||||||||||||||
|
Description
|
December 31,
2013 |
Quoted prices
in active
markets for
identical assets
(Level 1)
|
Significant
other
observable
inputs
(Level 2)
|
Significant
unobservable
inputs
(Level 3)
|
||||||||||||
|
|
in millions
|
|||||||||||||||
|
Assets:
|
||||||||||||||||
|
Derivative instruments:
|
||||||||||||||||
|
Cross-currency and interest rate derivative contracts
|
$
|
769.2
|
|
$
|
—
|
|
$
|
769.2
|
|
$
|
—
|
|
||||
|
Equity-related derivative instrument
|
430.4
|
|
—
|
|
—
|
|
430.4
|
|
||||||||
|
Foreign currency forward contracts
|
2.6
|
|
—
|
|
2.6
|
|
—
|
|
||||||||
|
Other
|
2.0
|
|
—
|
|
2.0
|
|
—
|
|
||||||||
|
Total derivative instruments
|
1,204.2
|
|
—
|
|
773.8
|
|
430.4
|
|
||||||||
|
Investments
|
3,481.8
|
|
3,182.4
|
|
—
|
|
299.4
|
|
||||||||
|
Total assets
|
$
|
4,686.0
|
|
$
|
3,182.4
|
|
$
|
773.8
|
|
$
|
729.8
|
|
||||
|
Liabilities - derivative instruments:
|
||||||||||||||||
|
Cross-currency and interest rate derivative contracts
|
$
|
2,918.6
|
|
$
|
—
|
|
$
|
2,918.6
|
|
$
|
—
|
|
||||
|
Equity-related derivative instrument
|
116.9
|
|
—
|
|
—
|
|
116.9
|
|
||||||||
|
Foreign currency forward contracts
|
20.2
|
|
—
|
|
20.2
|
|
—
|
|
||||||||
|
Other
|
0.8
|
|
—
|
|
0.8
|
|
—
|
|
||||||||
|
Total liabilities
|
$
|
3,056.5
|
|
$
|
—
|
|
$
|
2,939.6
|
|
$
|
116.9
|
|
||||
A reconciliation of the beginning and ending balances of our assets and liabilities measured at fair value on a recurring basis using significant unobservable, or Level 3, inputs is as follows:
|
Investments
|
Equity-related
derivative
instruments
|
Total
|
|||||||||
|
|
in millions
|
||||||||||
|
Balance of net assets at January 1, 2014
|
$
|
299.4
|
|
$
|
313.5
|
|
$
|
612.9
|
|
||
|
Termination and other activity related to Ziggo Collar (a)
|
—
|
|
212.5
|
|
212.5
|
|
|||||
|
Gains (losses) included in loss from continuing operations (b):
|
|||||||||||
|
Realized and unrealized losses
on derivative instruments, net
|
—
|
|
(236.3
|
)
|
(236.3
|
)
|
|||||
|
Realized and unrealized
gain
due to changes in fair values of certain investments, net
|
26.1
|
|
—
|
|
26.1
|
|
|||||
|
Foreign currency translation adjustments, dividends and other, net
|
(7.1
|
)
|
22.1
|
|
15.0
|
|
|||||
|
Balance of net assets at December 31, 2014
|
$
|
318.4
|
|
$
|
311.8
|
|
$
|
630.2
|
|
||
_______________
|
(a)
|
For additional information regarding the
Ziggo Collar
, see note
7
.
|
|
(b)
|
With the exception of a
$113.3 million
loss that we incurred during 2014 with respect to the
Ziggo Collar
, substantially all of these net losses relate to assets and liabilities of our continuing operations that we continue to carry on our consolidated balance sheet as of
December 31, 2014
.
|
II-116
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
(
9
)
Long-lived Assets
Property and Equipment, Net
The details of our property and equipment and the related accumulated depreciation are set forth below:
|
Estimated useful
life at
December 31, 2014
|
December 31,
|
||||||||
|
2014
|
2013
|
||||||||
|
|
in millions
|
||||||||
|
Distribution systems
|
3 to 30 years
|
$
|
26,286.5
|
|
$
|
25,193.2
|
|
||
|
Customer premises equipment
|
3 to 5 years
|
6,213.9
|
|
6,126.0
|
|
||||
|
Support equipment, buildings and land
|
3 to 50 years
|
4,024.4
|
|
3,581.9
|
|
||||
|
36,524.8
|
|
34,901.1
|
|
||||||
|
Accumulated depreciation
|
(12,684.2
|
)
|
(10,926.2
|
)
|
|||||
|
Total property and equipment, net
|
$
|
23,840.6
|
|
$
|
23,974.9
|
|
|||
Depreciation expense of our continuing operations related to our property and equipment was
$4,401.6 million
,
$3,499.6 million
and
$2,201.4 million
during
2014
,
2013
and
2012
, respectively. Depreciation expense of our discontinued operations related to our property and equipment was
nil
,
$11.5 million
and
$12.3 million
during
2014
,
2013
and
2012
, respectively.
At December 31,
2014
and
2013
, the amount of property and equipment, net, recorded under capital leases was
$1,580.8 million
and
$1,877.3 million
, respectively. Most of these amounts relate to assets included in our distribution systems category. Depreciation of assets under capital leases of our continuing operations is included in depreciation and amortization in our consolidated statements of operations.
During
2014
,
2013
and
2012
, we recorded non-cash increases to our property and equipment related to assets acquired under capital leases of
$127.2 million
,
$143.0 million
and
$63.1 million
, respectively. In addition, during
2014
,
2013
and
2012
, we recorded non-cash increases related to vendor financing arrangements of
$975.3 million
,
$573.5 million
and $
246.5 million
, respectively, which exclude related
VAT
of
$114.9 million
,
$46.0 million
and
$28.5 million
, respectively, that were also financed by our vendors under these arrangements.
Most of our property and equipment is pledged as security under our various debt instruments. For additional information, see note
10
.
In May 2012, we began offering mobile services in Chile through a combination of our own wireless network and a third-party wireless access arrangement. During the second quarter of 2013, we began exploring strategic alternatives with respect to
VTR
’s mobile operations, including alternatives that involved the use of expanded mobile virtual network operator (
MVNO
) arrangements. Effective April 1, 2013, we reduced the useful lives of certain of
VTR
’s network equipment to reflect our then expectation that we would enter into a new
MVNO
arrangement and cease commercial use of
VTR
’s mobile network during the fourth quarter of 2013. In September 2013,
VTR
(i) completed the process of migrating its mobile traffic to a third-party wireless network pursuant to its existing roaming agreement and (ii) ceased commercial use of its mobile network, which resulted in a further reduction in the useful lives of the aforementioned network equipment. As a result of these reductions in useful lives,
VTR
’s mobile operations recognized aggregate incremental depreciation expense of
$98.3 million
during 2013. In connection with the foregoing, we have recorded restructuring charges totaling
$84.9 million
during the third and fourth quarters of 2013. These restructuring charges include the fair value of (i) the remaining payments due under certain tower and real estate operating leases of
$71.5 million
and (ii) certain other required payments associated with
VTR
’s mobile network. In December 2013,
VTR
amended its existing roaming agreement with an agreement that provides for a full
MVNO
relationship. For information regarding our restructuring charges, see note
14
.
During the fourth quarter of 2014, we recorded a
$68.7 million
impairment charge to reduce the carrying amount of certain of
Ziggo
’s internal-use software assets to zero. This internal-use software has no future service potential for
Liberty Global
as it will not be used by our combined operations in the Netherlands.
II-117
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
Goodwill
Changes in the carrying amount of our goodwill during
2014
are set forth below:
|
January 1,
2014
|
Acquisitions
and related
adjustments
|
Foreign
currency
translation
adjustments and other
|
December 31,
2014 |
||||||||||||
|
|
in millions
|
||||||||||||||
|
European Operations Division:
|
|||||||||||||||
|
U.K./Ireland
|
$
|
9,844.2
|
|
$
|
2.1
|
|
$
|
(601.2
|
)
|
$
|
9,245.1
|
|
|||
|
The Netherlands
|
1,260.4
|
|
7,724.3
|
|
(379.7
|
)
|
8,605.0
|
|
|||||||
|
Germany
|
3,939.4
|
|
—
|
|
(482.5
|
)
|
3,456.9
|
|
|||||||
|
Belgium
|
2,255.1
|
|
—
|
|
(276.2
|
)
|
1,978.9
|
|
|||||||
|
Switzerland/Austria
|
4,031.1
|
|
2.3
|
|
(441.5
|
)
|
3,591.9
|
|
|||||||
|
Total Western Europe
|
21,330.2
|
|
7,728.7
|
|
(2,181.1
|
)
|
26,877.8
|
|
|||||||
|
Central and Eastern Europe
|
1,520.1
|
|
8.3
|
|
(226.3
|
)
|
1,302.1
|
|
|||||||
|
Total European Operations Division
|
22,850.3
|
|
7,737.0
|
|
(2,407.4
|
)
|
28,179.9
|
|
|||||||
|
Chile
|
508.5
|
|
—
|
|
(68.2
|
)
|
440.3
|
|
|||||||
|
Corporate and other
|
390.0
|
|
—
|
|
(8.6
|
)
|
381.4
|
|
|||||||
|
Total
|
$
|
23,748.8
|
|
$
|
7,737.0
|
|
$
|
(2,484.2
|
)
|
$
|
29,001.6
|
|
|||
Based on the results of our October 1, 2014 goodwill impairment test, a hypothetical decline of
20%
or more in the fair value of one of our reporting units,
Liberty Puerto Rico
, could result in the need to record a goodwill impairment charge. At
December 31, 2014
, the goodwill associated with the
Liberty Puerto Rico
reporting unit, which is included in our corporate and other category, was
$347.0 million
. 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.
At
December 31, 2014
and
2013
and based on exchange rates as of those dates, the accumulated goodwill impairments of our continuing operations were
$209.7 million
and
$239.6 million
, respectively. These amounts represent accumulated impairments related to our broadband communications operations in Romania, which operations are included within the
European Operations Division
’s
Central and Eastern Europe
segment.
II-118
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
Changes in the carrying amount of our goodwill during
2013
are set forth below:
|
January 1,
2013
|
Acquisitions
and related
adjustments
|
Reclassification of Chellomedia Disposal Group to discontinued operations
|
Foreign
currency
translation
adjustments and other
|
December 31,
2013 |
|||||||||||||||
|
|
|
in millions
|
|
||||||||||||||||
|
European Operations Division:
|
|||||||||||||||||||
|
U.K./Ireland
|
$
|
235.5
|
|
$
|
9,000.8
|
|
$
|
—
|
|
$
|
607.9
|
|
$
|
9,844.2
|
|
||||
|
The Netherlands
|
1,206.2
|
|
—
|
|
—
|
|
54.2
|
|
1,260.4
|
|
|||||||||
|
Germany
|
3,770.3
|
|
—
|
|
—
|
|
169.1
|
|
3,939.4
|
|
|||||||||
|
Belgium
|
2,158.3
|
|
—
|
|
—
|
|
96.8
|
|
2,255.1
|
|
|||||||||
|
Switzerland/Austria
|
3,903.9
|
|
0.6
|
|
—
|
|
126.6
|
|
4,031.1
|
|
|||||||||
|
Total Western Europe
|
11,274.2
|
|
9,001.4
|
|
—
|
|
1,054.6
|
|
21,330.2
|
|
|||||||||
|
Central and Eastern Europe
|
1,509.5
|
|
—
|
|
—
|
|
10.6
|
|
1,520.1
|
|
|||||||||
|
Total European Operations Division
|
12,783.7
|
|
9,001.4
|
|
—
|
|
1,065.2
|
|
22,850.3
|
|
|||||||||
|
Chile
|
558.0
|
|
—
|
|
—
|
|
(49.5
|
)
|
508.5
|
|
|||||||||
|
Corporate and other
|
535.9
|
|
77.2
|
|
(223.4
|
)
|
0.3
|
|
390.0
|
|
|||||||||
|
Total
|
$
|
13,877.6
|
|
$
|
9,078.6
|
|
$
|
(223.4
|
)
|
$
|
1,016.0
|
|
$
|
23,748.8
|
|
||||
Intangible Assets Subject to Amortization, Net
The details of our intangible assets subject to amortization are set forth below:
|
Estimated useful life at December 31, 2014
|
December 31, 2014
|
December 31, 2013
|
|||||||||||||||||||||||
|
Gross carrying amount
|
Accumulated amortization
|
Net carrying amount
|
Gross carrying amount
|
Accumulated amortization
|
Net carrying amount
|
||||||||||||||||||||
|
|
in millions
|
||||||||||||||||||||||||
|
Customer relationships
|
4 to 15 years
|
$
|
12,142.5
|
|
$
|
(3,056.3
|
)
|
$
|
9,086.2
|
|
$
|
8,116.7
|
|
$
|
(2,458.4
|
)
|
$
|
5,658.3
|
|
||||||
|
Other
|
2 to 15 years
|
235.4
|
|
(131.8
|
)
|
103.6
|
|
288.1
|
|
(151.0
|
)
|
137.1
|
|
||||||||||||
|
Total
|
$
|
12,377.9
|
|
$
|
(3,188.1
|
)
|
$
|
9,189.8
|
|
$
|
8,404.8
|
|
$
|
(2,609.4
|
)
|
$
|
5,795.4
|
|
|||||||
In December 2013,
Telenet
’s management determined that it would no longer be able to utilize its spectrum rights as a result of the conclusion of negotiations with network operators in Belgium and the absence of regulatory alternatives. This resulted in a triggering event with respect to the intangible asset related to
Telenet
’s spectrum rights and, after performing an impairment analysis,
Telenet
recorded an impairment charge of
$73.0 million
during the fourth quarter of 2013 to reduce the carrying amount of this intangible asset to zero.
II-119
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
Amortization of intangible assets with finite useful lives of our continuing operations was
$1,098.5 million
,
$776.8 million
and
$460.1 million
during
2014
,
2013
and
2012
, respectively. Amortization of intangible assets with finite useful lives of our discontinued operations was
nil
,
$17.6 million
and
$17.3 million
during
2014
,
2013
and
2012
, respectively. Based on the amortizable intangible asset balances of our continuing operations at
December 31, 2014
, we expect that amortization expense will be as follows for the next five years and thereafter. The
U.S.
dollar equivalents of such amortization expense amounts as of
December 31, 2014
are presented below (in millions):
|
2015
|
$
|
1,406.8
|
|
|
2016
|
1,360.6
|
|
|
|
2017
|
1,226.4
|
|
|
|
2018
|
1,089.2
|
|
|
|
2019
|
1,086.8
|
|
|
|
Thereafter
|
3,020.0
|
|
|
|
Total
|
$
|
9,189.8
|
|
Other Indefinite-lived Intangible Assets
At
December 31, 2014
and
2013
, franchise rights and other indefinite-lived intangible assets aggregating
$557.0 million
and
$470.2 million
, respectively, were included in other assets, net, in our consolidated balance sheets.
II-120
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
(
10
)
Debt and Capital Lease Obligations
The
U.S.
dollar equivalents of the components of our consolidated debt and capital lease obligations are as follows:
|
|
December 31, 2014
|
Estimated fair value (c)
|
Carrying value (d)
|
|||||||||||||||||||||||
|
Weighted
average
interest
rate (a)
|
Unused borrowing capacity (b)
|
|||||||||||||||||||||||||
|
Borrowing currency
|
U.S. $
equivalent
|
December 31,
|
December 31,
|
|||||||||||||||||||||||
|
2014
|
2013
|
2014
|
2013
|
|||||||||||||||||||||||
|
in millions
|
||||||||||||||||||||||||||
|
Debt:
|
||||||||||||||||||||||||||
|
VM Notes
|
5.83
|
%
|
—
|
|
$
|
—
|
|
$
|
8,461.0
|
|
$
|
9,188.7
|
|
$
|
8,060.7
|
|
$
|
9,150.1
|
|
|||||||
|
VM Credit Facility
|
3.78
|
%
|
£
|
660.0
|
|
1,028.4
|
|
4,734.9
|
|
4,388.9
|
|
4,804.0
|
|
4,352.8
|
|
|||||||||||
|
VM Convertible Notes (e)
|
6.50
|
%
|
—
|
|
—
|
|
178.7
|
|
164.1
|
|
56.8
|
|
57.5
|
|
||||||||||||
|
UPC Broadband Holding Bank Facility
|
3.56
|
%
|
€
|
1,046.2
|
|
1,266.0
|
|
3,156.4
|
|
5,717.8
|
|
3,179.2
|
|
5,671.4
|
|
|||||||||||
|
UPC Holding Senior Notes
|
7.16
|
%
|
—
|
|
—
|
|
2,603.6
|
|
3,297.4
|
|
2,391.6
|
|
3,099.2
|
|
||||||||||||
|
UPCB SPE Notes
|
6.88
|
%
|
—
|
|
—
|
|
4,279.0
|
|
4,536.5
|
|
4,009.4
|
|
4,219.5
|
|
||||||||||||
|
Unitymedia KabelBW Notes
|
5.75
|
%
|
—
|
|
—
|
|
7,869.3
|
|
8,058.2
|
|
7,400.9
|
|
7,651.9
|
|
||||||||||||
|
Unitymedia KabelBW Revolving Credit Facilities
|
2.63
|
%
|
€
|
220.0
|
|
266.2
|
|
319.4
|
|
—
|
|
338.8
|
|
—
|
|
|||||||||||
|
Ziggo Credit Facility
|
3.63
|
%
|
€
|
650.0
|
|
786.5
|
|
4,663.0
|
|
—
|
|
4,710.8
|
|
—
|
|
|||||||||||
|
Ziggo Notes
|
6.82
|
%
|
—
|
|
—
|
|
1,082.3
|
|
—
|
|
1,077.0
|
|
—
|
|
||||||||||||
|
Telenet SPE Notes
|
5.93
|
%
|
—
|
|
—
|
|
2,450.4
|
|
2,916.5
|
|
2,299.0
|
|
2,759.2
|
|
||||||||||||
|
Telenet Credit Facility
|
3.44
|
%
|
€
|
322.9
|
|
390.8
|
|
1,633.4
|
|
1,956.9
|
|
1,638.6
|
|
1,936.9
|
|
|||||||||||
|
VTR Finance Senior Secured Notes
|
6.88
|
%
|
—
|
|
—
|
|
1,439.4
|
|
—
|
|
1,400.0
|
|
—
|
|
||||||||||||
|
Sumitomo Collar Loan (f)
|
1.88
|
%
|
—
|
|
—
|
|
818.0
|
|
939.3
|
|
787.7
|
|
894.3
|
|
||||||||||||
|
Liberty Puerto Rico Bank Facility
|
5.20
|
%
|
$
|
40.0
|
|
40.0
|
|
666.2
|
|
666.2
|
|
672.0
|
|
665.0
|
|
|||||||||||
|
ITV Collar Loan (f)
|
1.73
|
%
|
—
|
|
—
|
|
678.2
|
|
—
|
|
667.0
|
|
—
|
|
||||||||||||
|
Vendor financing (g)
|
3.45
|
%
|
—
|
|
—
|
|
946.4
|
|
603.1
|
|
946.4
|
|
603.1
|
|
||||||||||||
|
Other (h)
|
9.28
|
%
|
(i)
|
196.2
|
|
171.5
|
|
1,795.4
|
|
171.5
|
|
1,795.1
|
|
|||||||||||||
|
Total debt
|
5.13
|
%
|
$
|
3,974.1
|
|
$
|
46,151.1
|
|
$
|
44,229.0
|
|
44,611.4
|
|
42,856.0
|
|
|||||||||||
|
Capital lease obligations:
|
||||||||||||||||||||||||||
|
Unitymedia KabelBW (j)
|
810.1
|
|
952.0
|
|
||||||||||||||||||||||
|
Telenet (k)
|
413.4
|
|
451.2
|
|
||||||||||||||||||||||
|
Virgin Media
|
255.3
|
|
373.5
|
|
||||||||||||||||||||||
|
Other subsidiaries
|
68.8
|
|
71.6
|
|
||||||||||||||||||||||
|
Total capital lease obligations
|
1,547.6
|
|
1,848.3
|
|
||||||||||||||||||||||
|
Total debt and capital lease obligations
|
46,159.0
|
|
44,704.3
|
|
||||||||||||||||||||||
|
Current maturities
|
(1,550.9
|
)
|
(1,023.4
|
)
|
||||||||||||||||||||||
|
Long-term debt and capital lease obligations
|
$
|
44,608.1
|
|
$
|
43,680.9
|
|
||||||||||||||||||||
II-121
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
_______________
|
(a)
|
Represents the weighted average interest rate in effect at
December 31, 2014
for all borrowings outstanding pursuant to each debt instrument, including any applicable margin. The interest rates presented represent stated rates and do not include the impact of our interest rate derivative instruments, deferred financing costs, original issue premiums or discounts or commitment fees, all of which affect our overall cost of borrowing. Including the effects of derivative instruments, original issue premiums and discounts and commitment fees, but excluding the impact of financing costs, our weighted average interest rate on our aggregate variable- and fixed-rate indebtedness was
6.0%
at
December 31, 2014
. For information concerning our derivative instruments, see note
7
.
|
|
(b)
|
Unused borrowing capacity represents the maximum availability under the applicable facility at
December 31, 2014
without regard to covenant compliance calculations or other conditions precedent to borrowing. At
December 31, 2014
, the full amount of unused borrowing capacity was available to be borrowed under each of the respective subsidiary facilities based on the applicable leverage and other financial covenants, except as noted below. At
December 31, 2014
, our availability under the
UPC Broadband Holding Bank Facility
and the
Unitymedia KabelBW Revolving Credit Facilities
(each as defined and described below) was limited to
€906.7 million
(
$1,097.2 million
) and
€15.1 million
(
$18.3 million
), respectively. When the relevant
December 31, 2014
compliance reporting requirements have been completed and assuming no changes from
December 31, 2014
borrowing levels, we anticipate that our availability under the
UPC Broadband Holding Bank Facility
and the
Unitymedia KabelBW Revolving Credit Facilities
will be limited to
€889.1 million
(
$1,075.9 million
) and
€123.7 million
(
$149.7 million
), respectively. In addition to the limitations noted above, the debt instruments of our subsidiaries contain restricted payment tests that limit the amount that can be loaned or distributed to other
Liberty Global
subsidiaries and ultimately to
Liberty Global
. At
December 31, 2014
, these restrictions did not impact our ability to access the liquidity of our subsidiaries to satisfy our corporate liquidity needs beyond what is described above, except that the availability to be loaned or distributed by
Virgin Media
and
Ziggo
was limited to
£508.8 million
(
$792.8 million
) and
€37.1 million
(
$44.9 million
), respectively. When the relevant
December 31, 2014
compliance reporting requirements have been completed and assuming no changes from
December 31, 2014
borrowing levels, we anticipate that the availability of
Virgin Media
and
Ziggo
will be limited to
£525.7 million
(
$819.1 million
) and
€11.4 million
(
$13.8 million
), respectively. For information concerning transactions completed subsequent to
December 31, 2014
that could have an impact on unused borrowing capacity, see note
20
.
|
|
(c)
|
The estimated fair values of our debt instruments were determined using the average of applicable bid and ask prices (mostly Level 1 of the fair value hierarchy) or, when quoted market prices are unavailable or not considered indicative of fair value, discounted cash flow models (mostly Level 2 of the fair value hierarchy). The discount rates used in the cash flow models are based on the market interest rates and estimated credit spreads of the applicable entity, to the extent available, and other relevant factors. For additional information concerning fair value hierarchies, see note
8
.
|
|
(d)
|
Amounts include the impact of premiums and discounts, where applicable.
|
|
(e)
|
The amount reported in the estimated fair value column for the
VM Convertible Notes
(as defined and described below) represents the estimated fair value of the remaining
VM Convertible Notes
outstanding as of
December 31, 2014
, including both the debt and equity components.
|
|
(f)
|
For information regarding the
Sumitomo Collar Loan
and the
ITV Collar Loan
, see note
7
.
|
|
(g)
|
Represents amounts owed pursuant to interest-bearing vendor financing arrangements that are used to finance certain of our property and equipment additions. These obligations are generally due within
one
year. At
December 31, 2014
and
2013
, the amounts owed pursuant to these arrangements include
$101.7 million
and
$47.3 million
, respectively, of
VAT
that was paid on our behalf by the vendor. Repayments of vendor financing obligations are included in repayments and repurchases of debt and capital lease obligations in our consolidated statements of cash flows.
|
|
(h)
|
The
December 31, 2013
amounts include (i) outstanding borrowings of
$113.1 million
under
VTR
’s then-existing CLP
60.0 billion
(
$98.9 million
) term loan bank facility, (ii)
$852.6 million
related to the
Ziggo Collar Loan
and (iii)
$634.3 million
related to the
Ziggo Margin Loan
. In January 2014, all outstanding amounts under
VTR
’s term loan bank facility were repaid and this facility was cancelled. In connection with this transaction, we recognized a loss on debt modification, extinguishment and conversion, net, of
$2.0 million
related to the write-off of deferred financing costs. During the first
|
II-122
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
quarter of 2014, we used existing cash to repay the full amount of the
Ziggo Margin Loan
that was secured by a portion of our investment in
Ziggo
. In connection with this transaction, we recognized a loss on debt modification, extinguishment and conversion, net, of
$2.3 million
related to the write-off of deferred financing costs. Upon completion of the
Ziggo Acquisition
, the
Ziggo Collar
was terminated and the
Ziggo Collar Loan
was settled. In connection with this transaction, we recognized a loss on debt modification, extinguishment and conversion, net, of
$4.0 million
related to the payment of redemption premium. For information regarding our investment in
Ziggo
, see note
6
.
|
(i)
|
Unused borrowing capacity relates to the senior secured revolving credit facility of entities within
VTR
, which includes a
$160.0 million
U.S. dollar facility (the
VTR Dollar Credit Facility
) and a CLP
22.0 billion
(
$36.2 million
) Chilean peso facility (the
VTR CLP Credit Facility
and, together with the
VTR Dollar Credit Facility
, the
VTR Credit Facility
), each of which were undrawn at
December 31, 2014
.
|
|
(j)
|
Primarily represents
Unitymedia KabelBW
’s obligations under duct network lease agreements with Telekom Deutschland GmbH (
Deutsche Telekom
), an operating subsidiary of Deutsche Telekom AG, as the lessor. The original contracts were concluded in 2000 and 2001 and have indefinite terms, subject to certain mandatory statutory termination rights for either party after a term of
30 years
. With certain limited exceptions, the lessor generally is not entitled to terminate these leases. For information regarding litigation involving these duct network lease agreements, see note
17
.
|
|
(k)
|
At
December 31, 2014
and
2013
,
Telenet
’s capital lease obligations included
€328.6 million
(
$397.6 million
) and
€309.0 million
(
$373.9 million
), respectively, associated with
Telenet
’s lease of the broadband communications network of the
four
associations of municipalities in Belgium, which we refer to as the pure intercommunalues or the “
PICs
.” All capital expenditures associated with the
PICs
network are initiated by
Telenet
, but are executed and financed by the
PICs
through additions to this lease that are repaid over a
15
-year term. These amounts do not include
Telenet
’s commitment related to certain operating costs associated with the
PICs
network. For additional information regarding this commitment, see note
17
.
|
VM Notes
On March 28, 2014, Virgin Media Secured Finance PLC (
Virgin Media Secured Finance
), a wholly-owned subsidiary of
Virgin Media
, issued (i)
$425.0 million
principal amount of
5.5%
senior secured notes due January 15, 2025 (the
2025 VM 5.5% Dollar Senior Secured Notes
), (ii)
£430.0 million
(
$670.0 million
) principal amount of
5.5%
senior secured notes due January 15, 2025 (the
2025 VM 5.5% Sterling Senior Secured Notes
and, together with the
2025 VM 5.5% Dollar Senior Secured Notes
, the
2025 VM Senior Secured Notes
) and (iii)
£225.0 million
(
$350.6 million
) principal amount of
6.25%
senior secured notes due March 28, 2029 (the
Original 2029 VM Senior Secured Notes
). In April 2014, the net proceeds from the
2025 VM Senior Secured Notes
and the
Original 2029 VM Senior Secured Notes
were used to redeem all of the
£875.0 million
(
$1,363.4 million
) principal amount of
7.0%
senior secured notes due 2018 (the
2018 VM Sterling Senior Secured Notes
). In connection with these transactions, we recognized a gain on debt modification, extinguishment and conversion, net, of
$5.2 million
, which includes (i) the write-off of
$61.8 million
of unamortized premium, (ii) the payment of
$51.3 million
of redemption premium and (iii) the write-off of
$5.3 million
of deferred financing costs.
In April 2014,
Virgin Media Secured Finance
issued
£175.0 million
(
$272.7 million
) principal amount of
6.25%
senior secured notes due March 28, 2029 (the
Additional 2029 VM Senior Secured Notes
and, together with the
Original 2029 VM Senior Secured Notes
, the
2029 VM Senior Secured Notes
) at an issue price of
101.75%
. The net proceeds from the
Additional 2029 VM Senior Secured Notes
, together with the proceeds from
VM Facilities D and E
(as defined and described below), were used to fully redeem the
$1.0 billion
principal amount of
6.5%
senior secured notes due 2018 (the
2018 VM Dollar Senior Secured Notes
). In connection with this transaction, we recognized a loss on debt modification, extinguishment and conversion, net, of
$5.4 million
, which includes (i) the write-off of
$33.9 million
of unamortized premium, (ii) the payment of
$32.4 million
of redemption premium and (iii) the write-off of
$6.9 million
of deferred financing costs.
On October 7, 2014, Virgin Media Finance PLC (
Virgin Media Finance
), a wholly-owned subsidiary of
Virgin Media
, issued (i)
£300.0 million
(
$467.4 million
) principal amount of
6.375%
senior notes due October 15, 2024 (the
2024 VM Sterling Senior Notes
) and (ii)
$500.0 million
principal amount of
6.0%
senior notes due October 15, 2024 (the
2024 VM Dollar Senior Notes
and, together with the
2024 VM Sterling Senior Notes
, the
2024 VM Senior Notes
). On October 24, 2014, the net proceeds from the
2024 VM Senior Notes
were used to fully redeem (i) the
$507.1 million
principal amount of
8.375%
senior notes due 2019 (the
2019 VM Dollar Senior Notes
) and (ii) the
£253.5 million
(
$395.0 million
) principal amount of
8.875%
senior notes due 2019
II-123
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
(the
2019 VM Sterling Senior Notes
and, together with the
2019 VM Dollar Senior Notes
, the
2019 VM Senior Notes
). In connection with these transactions, we recognized a gain on debt modification, extinguishment and conversion, net, of
$32.5 million
, which includes (i) the write-off of
$75.2 million
of unamortized premium, (ii) the payment of
$39.3 million
of redemption premium and (iii) the write-off of
$3.4 million
of deferred financing costs.
The details of the outstanding senior notes of
Virgin Media
as of
December 31, 2014
are summarized in the following table:
|
|
|
|
Outstanding principal
amount |
|
|
|||||||||||||||
|
VM Notes
|
Maturity
|
Interest
rate |
Borrowing
currency |
U.S. $
equivalent |
Estimated
fair value |
Carrying
value (a) |
||||||||||||||
|
|
|
|
in millions
|
|||||||||||||||||
|
2022 VM Senior Notes:
|
||||||||||||||||||||
|
2022 VM Dollar Senior Notes
|
February 15, 2022
|
4.875%
|
$
|
118.7
|
|
$
|
118.7
|
|
$
|
113.9
|
|
$
|
119.6
|
|
||||||
|
2022 VM Dollar Senior Notes
|
February 15, 2022
|
5.250%
|
$
|
95.0
|
|
95.0
|
|
90.5
|
|
95.8
|
|
|||||||||
|
2022 VM Sterling Senior Notes
|
February 15, 2022
|
5.125%
|
£
|
44.1
|
|
68.7
|
|
69.7
|
|
69.3
|
|
|||||||||
|
2023 VM Senior Notes:
|
||||||||||||||||||||
|
2023 VM Dollar Senior Notes
|
April 15, 2023
|
6.375%
|
$
|
530.0
|
|
530.0
|
|
555.8
|
|
530.0
|
|
|||||||||
|
2023 VM Sterling Senior Notes
|
April 15, 2023
|
7.000%
|
£
|
250.0
|
|
389.5
|
|
425.1
|
|
389.5
|
|
|||||||||
|
2024 VM Senior Notes:
|
||||||||||||||||||||
|
2024 VM Dollar Senior Notes
|
October 15, 2024
|
6.000%
|
$
|
500.0
|
|
500.0
|
|
525.0
|
|
500.0
|
|
|||||||||
|
2024 VM Sterling Senior Notes
|
October 15, 2024
|
6.375%
|
£
|
300.0
|
|
467.4
|
|
504.8
|
|
467.4
|
|
|||||||||
|
January 2021 VM Senior Secured Notes:
|
||||||||||||||||||||
|
January 2021 VM Sterling Senior Secured Notes
|
January 15, 2021
|
5.500%
|
£
|
628.4
|
|
979.1
|
|
1,055.0
|
|
992.2
|
|
|||||||||
|
January 2021 VM Dollar Senior Secured Notes
|
January 15, 2021
|
5.250%
|
$
|
447.9
|
|
447.9
|
|
468.0
|
|
460.1
|
|
|||||||||
|
April 2021 VM Senior Secured Notes:
|
||||||||||||||||||||
|
April 2021 VM Sterling Senior Secured Notes
|
April 15, 2021
|
6.000%
|
£
|
1,100.0
|
|
1,713.9
|
|
1,810.3
|
|
1,713.9
|
|
|||||||||
|
April 2021 VM Dollar Senior Secured Notes
|
April 15, 2021
|
5.375%
|
$
|
1,000.0
|
|
1,000.0
|
|
1,033.1
|
|
1,000.0
|
|
|||||||||
|
2025 VM Senior Secured Notes:
|
||||||||||||||||||||
|
2025 VM 5.5% Sterling Senior Secured Notes
|
January 15, 2025
|
5.500%
|
£
|
430.0
|
|
670.0
|
|
694.7
|
|
670.0
|
|
|||||||||
|
2025 VM 5.5% Dollar Senior Secured Notes
|
January 15, 2025
|
5.500%
|
$
|
425.0
|
|
425.0
|
|
440.1
|
|
425.0
|
|
|||||||||
|
2029 VM Sterling Senior Secured Notes
|
March 28, 2029
|
6.250%
|
£
|
400.0
|
|
623.2
|
|
675.0
|
|
627.9
|
|
|||||||||
|
Total
|
$
|
8,028.4
|
|
$
|
8,461.0
|
|
$
|
8,060.7
|
|
|||||||||||
_______________
|
(a)
|
Amounts include the impact of premiums, where applicable, including amounts recorded in connection with the acquisition accounting for the
Virgin Media Acquisition
.
|
The
2022 VM Senior Notes
, the
2023 VM Senior Notes
and the
2024 VM Senior Notes
were issued by
Virgin Media Finance
and are collectively referred to as the “
VM Senior Notes
.” The
January 2021 VM Senior Secured Notes
, the
April 2021 VM Senior Secured Notes
, the
2025 VM Senior Secured Notes
and the
2029 VM Senior Secured Notes
were issued by
Virgin Media Secured Finance
and are collectively referred to as the “
VM Senior Secured Notes
” and, together with the
VM Senior Notes
, the
VM Notes
).
The
VM Senior Notes
are unsecured senior obligations of
Virgin Media Finance
that rank equally with all of the existing and future senior debt of
Virgin Media Finance
and are senior to all existing and future subordinated debt of
Virgin Media Finance
.
II-124
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
The
VM Senior Notes
are guaranteed on a senior basis by
Virgin Media
and certain subsidiaries of
Virgin Media
, and on a senior subordinated basis by
VMIH
and Virgin Media Investments Limited (
VMIL
).
The
VM Senior Secured Notes
are senior obligations of
Virgin Media Secured Finance
that rank equally with all of the existing and future senior debt of
Virgin Media Secured Finance
and are senior to all existing and future subordinated debt of
Virgin Media Secured Finance
. The
VM Senior Secured Notes
are guaranteed on a senior basis by
Virgin Media
and certain subsidiaries of
Virgin Media
(the
VM Senior Secured Guarantors
), and are secured by liens on substantially all of the assets of
Virgin Media Secured Finance
and the
VM Senior Secured Guarantors
(except for
Virgin Media
).
The
VM Notes
contain certain customary incurrence-based covenants. For example, the ability to raise certain additional debt and make certain distributions or loans to other subsidiaries of
Liberty Global
is subject to a consolidated gross leverage ratio test (or a consolidated net leverage ratio test with respect to the
2024 VM Senior Notes
, the
2025 VM Senior Secured Notes
and the
2029 VM Senior Secured Notes
), in each case, as specified in the applicable indenture. In addition, the
VM Notes
provide that any failure to pay principal prior to expiration of any applicable grace period, or any acceleration with respect to other indebtedness of
£50.0 million
(
$77.9 million
) (or
£75.0 million
(
$116.9 million
) with respect to the
2024 VM Senior Notes
, the
2025 VM Senior Secured Notes
and the
2029 VM Senior Secured Notes
) or more in the aggregate of
Virgin Media
and/or certain of its subsidiaries (as specified under the applicable indenture), is an event of default under the
VM Notes
.
Subject to the circumstances described below, the
VM Notes
are non-callable prior to the applicable call date as presented in the below table. At any time prior to the respective call date,
Virgin Media Secured Finance
or
Virgin Media Finance
may redeem some or all of the applicable notes by paying a “make-whole” premium, which is the present value of all remaining scheduled interest payments to the applicable call date using the discount rate (as specified in the applicable indenture) as of the redemption date plus
50
basis points (25 basis points in the case of the
January 2021 VM Senior Secured Notes
).
|
VM Notes
|
Call Date
|
|
|
2022 VM Senior Notes
|
(a)
|
|
|
2023 VM Senior Notes
|
April 15, 2018
|
|
|
2024 VM Senior Notes
|
October 15, 2019
|
|
|
January 2021 VM Senior Secured Notes
|
(a)
|
|
|
April 2021 VM Senior Secured Notes
|
April 15, 2017
|
|
|
2025 VM Senior Secured Notes
|
January 15, 2019
|
|
|
2029 VM Senior Secured Notes
|
January 15, 2021
|
|
_______________
|
(a)
|
The
2022 VM Senior Notes
and the
January 2021 VM Senior Secured Notes
are non-callable. At any time prior to maturity, some or all of these notes may be redeemed by paying a “make-whole” premium, which is the present value of all remaining scheduled interest payments to February 15, 2022 in the case of the
2022 VM Senior Notes
or January 15, 2021 in the case of the
January 2021 VM Senior Secured Notes
.
|
II-125
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
Virgin Media Secured Finance
or
Virgin Media Finance
(as applicable) may redeem some or all of the
April 2021 VM Senior Secured Notes
, the
2023 VM Senior Notes
, the
2024 VM Senior Notes
, the
2025 VM Senior Secured Notes
or the
2029 VM Senior Secured Notes
at the following redemption prices (expressed as a percentage of the principal amount) plus accrued and unpaid interest and additional amounts (as specified in the applicable indenture), if any, to the applicable redemption date, if redeemed during the twelve-month period commencing on October 15, in the case of the
2024 VM Senior Notes
, or April 15, in the case of the
April 2021 VM Senior Secured Notes
and the
2023 VM Senior Notes
and January 15, in the case of the
2025 VM Senior Secured Notes
and the
2029 VM Senior Secured Notes
of the years set forth below:
|
Redemption price
|
||||||||||||||||
|
Year
|
April 2021 VM Dollar Senior Secured Notes
|
April 2021 VM Sterling Senior Secured Notes
|
2023 VM Dollar Senior Notes
|
2023 VM Sterling Senior Notes
|
2024 VM Dollar Senior Notes
|
2024 VM Sterling Senior Notes
|
2025 VM Senior Secured Notes
|
2029 VM Senior Secured Notes
|
||||||||
|
2015
|
N.A.
|
N.A.
|
N.A.
|
N.A.
|
N.A.
|
N.A.
|
N.A.
|
N.A.
|
||||||||
|
2016
|
N.A.
|
N.A.
|
N.A.
|
N.A.
|
N.A.
|
N.A.
|
N.A.
|
N.A.
|
||||||||
|
2017
|
102.688%
|
103.000%
|
N.A.
|
N.A.
|
N.A.
|
N.A.
|
N.A.
|
N.A.
|
||||||||
|
2018
|
101.344%
|
101.500%
|
103.188%
|
103.500%
|
N.A.
|
N.A.
|
N.A.
|
N.A.
|
||||||||
|
2019
|
100.000%
|
100.000%
|
102.125%
|
102.333%
|
103.000%
|
103.188%
|
102.750%
|
N.A.
|
||||||||
|
2020
|
100.000%
|
100.000%
|
101.063%
|
101.667%
|
102.000%
|
102.125%
|
101.833%
|
N.A.
|
||||||||
|
2021
|
N.A.
|
N.A.
|
100.000%
|
100.000%
|
101.000%
|
101.063%
|
100.000%
|
103.125%
|
||||||||
|
2022
|
N.A.
|
N.A.
|
100.000%
|
100.000%
|
100.000%
|
100.000%
|
100.000%
|
102.083%
|
||||||||
|
2023
|
N.A.
|
N.A.
|
N.A.
|
N.A.
|
100.000%
|
100.000%
|
100.000%
|
101.042%
|
||||||||
|
2024 and thereafter
|
N.A.
|
N.A.
|
N.A.
|
N.A.
|
N.A.
|
N.A.
|
100.000%
|
100.000%
|
||||||||
If
VMIH
or
Virgin Media Finance
(as applicable) or the restricted subsidiaries (as specified in the applicable indenture) sell certain assets,
Virgin Media Secured Finance
or
Virgin Media Finance
must offer to repurchase the relevant
VM Notes
at par, or if Virgin Media Communications Limited (
Virgin Media Communications
), a wholly-owned subsidiary of
Virgin Media
, or certain of its subsidiaries experience changes in control (as specified in the applicable indenture),
Virgin Media Secured Finance
or
Virgin Media Finance
(as applicable) must offer to repurchase all of the relevant
VM Notes
at a redemption price of
101%
.
For information regarding certain senior notes issued by
Virgin Media Secured Finance
and
Virgin Media Finance
subsequent to
December 31, 2014
, see note
20
.
VM Credit Facility
On June 7, 2013,
VMIH
, together with certain other subsidiaries of
Virgin Media
as borrowers and guarantors (the
Virgin Media Credit Facility Borrowers
), entered into a new senior secured credit facility agreement, as amended and restated on June 14, 2013 (the
VM Credit Facility
), pursuant to which the lenders thereunder agreed to provide the borrowers with (i) a
£375.0 million
(
$584.3 million
) term loan (
VM Facility A
), (ii) a
$2,755.0 million
term loan (
VM Facility B
), (iii) a
£600.0 million
(
$934.9 million
) term loan (
VM Facility C
) and (iv) a
£660.0 million
(
$1,028.4 million
) revolving credit facility (the
VM Revolving Facility
). With the exception of the
VM Revolving Facility
, all available amounts were borrowed under the
VM Credit Facility
in June 2013.
In April 2014,
Virgin Media
entered into (a) a new
£100.0 million
(
$155.8 million
) term loan (
VM Facility D
) and (b) a new
£849.4 million
(
$1,323.5 million
) term loan (
VM Facility E
), each under the
VM Credit Facility
. In connection with these transactions, (1) certain lenders under the then-existing
VM Facility C
effectively rolled
£500.4 million
(
$779.7 million
) of their drawn commitments under
VM Facility C
to
VM Facilities D and E
and (2) the remaining outstanding balance of
VM Facility C
was repaid with existing liquidity.
The
VM Credit Facility
requires that certain of the
Virgin Media Credit Facility Borrowers
that generate not less than
80%
of such group’s EBITDA (as specified in the
VM Credit Facility
) in any financial year, guarantee the payment of all sums payable
II-126
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
under the
VM Credit Facility
and such group members are required to grant first-ranking security over all or substantially all of their assets to secure the payment of all sums payable. In addition, the holding company of each borrower must give a share pledge over its shares in such borrower.
In addition to mandatory prepayments which must be made for certain disposal proceeds (subject to certain de minimis thresholds), the lenders may cancel their commitments and declare the loans due and payable after
30
business days following the occurrence of a change of control in respect of
VMIH
, subject to certain exceptions.
The
VM Credit Facility
contains certain customary events of default, the occurrence of which, subject to certain exceptions and materiality qualifications, would allow the lenders to (i) cancel the total commitments, (ii) accelerate all outstanding loans and terminate their commitments thereunder and/or (iii) declare that all or part of the loans be payable on demand. The
VM Credit Facility
contains certain representations and warranties customary for facilities of this type, which are subject to exceptions, baskets and materiality qualifications.
The
VM Credit Facility
restricts the ability of the
Virgin Media Credit Facility Borrowers
and certain of their subsidiaries to, among other things, (i) incur or guarantee certain financial indebtedness, (ii) make certain disposals and acquisitions and (iii) create certain security interests over their assets, in each case, subject to carve-outs from such limitations.
The
VM Credit Facility
requires the borrowers to observe certain affirmative undertakings or covenants, which covenants are subject to materiality and other customary and agreed exceptions. In addition, the
VM Credit Facility
also requires compliance with various financial covenants such as senior net debt to annualized EBITDA and total net debt to annualized EBITDA, each as specified in the
VM Credit Facility
.
In addition to customary default provisions, the
VM Credit Facility
provides that any event of default with respect to indebtedness of
£50.0 million
(
$77.9 million
) or more in the aggregate of
Virgin Media Finance
and its subsidiaries is an event of default under the
VM Credit Facility
.
The
VM Credit Facility
permits the
Virgin Media Credit Facility Borrowers
and certain of their subsidiaries to make certain distributions and restricted payments to its parent company (and indirectly to
Liberty Global
) through loans, advances or dividends subject to compliance with applicable covenants.
The details of our borrowings under the
VM Credit Facility
as of
December 31, 2014
are summarized in the following table:
|
Facility
|
Maturity
|
Interest rate
|
Facility amount
(in borrowing
currency)
|
Unused
borrowing
capacity
|
Carrying
value (a)
|
|||||||||||
|
|
|
|
in millions
|
|||||||||||||
|
A
|
June 7, 2019
|
LIBOR + 3.25%
|
£
|
375.0
|
|
$
|
—
|
|
$
|
584.3
|
|
|||||
|
B
|
June 7, 2020
|
LIBOR + 2.75% (b)
|
$
|
2,755.0
|
|
—
|
|
2,744.0
|
|
|||||||
|
D
|
June 30, 2022
|
LIBOR + 3.25% (b)
|
£
|
100.0
|
|
—
|
|
155.4
|
|
|||||||
|
E
|
June 30, 2023
|
LIBOR + 3.50% (b)
|
£
|
849.4
|
|
—
|
|
1,320.3
|
|
|||||||
|
VM Revolving Facility (c)
|
June 7, 2019
|
LIBOR + 3.25%
|
£
|
660.0
|
|
1,028.4
|
|
—
|
|
|||||||
|
Total
|
$
|
1,028.4
|
|
$
|
4,804.0
|
|
||||||||||
_______________
|
(a)
|
The carrying values of VM Facilities B, D and E include the impact of discounts.
|
|
(b)
|
VM Facilities B, D and E each have a LIBOR floor of
0.75%
.
|
|
(c)
|
The
VM Revolving Facility
has a fee on unused commitments of
1.3%
per year.
|
II-127
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
VM Convertible Notes
In April 2008,
Virgin Media
issued
$1.0 billion
principal amount of
6.50%
convertible senior notes (the
VM Convertible Notes
), pursuant to an indenture (as supplemented, the
VM Convertible Notes Indenture
). The
VM Convertible Notes
mature on November 15, 2016, unless the
VM Convertible Notes
are exchanged or repurchased prior thereto pursuant to the terms of the
VM Convertible Notes Indenture
.
As a result of the application of acquisition accounting in connection with the
Virgin Media Acquisition
, the
$2,716.8 million
estimated fair value of the
VM Convertible Notes
at June 7, 2013 was allocated between the respective debt and equity components. The portion allocated to the debt component of
$1,056.8 million
was measured based on the estimated fair value of a debt instrument that has the same terms as the
VM Convertible Notes
without the conversion feature. The amount allocated to the debt component resulted in a premium to the principal amount of the
VM Convertible Notes
. The
$1,660.0 million
portion allocated to the equity component was recorded as an increase to additional paid-in capital in our consolidated statement of equity.
The
VM Convertible Notes
are exchangeable under certain conditions for (subject to further adjustment as specified in the
VM Convertible Notes Indenture
and subject to
Virgin Media
’s right to settle in cash or a combination of
Liberty Global
ordinary shares and cash)
13.4339
of our Class A ordinary shares,
33.4963
of our Class C ordinary shares and
$910.51
in cash (without interest) for each
$1,000
in principal amount of
VM Convertible Notes
exchanged. The circumstances under which the
VM Convertible Notes
are exchangeable are more fully described in the
VM Convertible Notes Indenture
, including, for example, based on the relationship of the value of the
Virgin Media Merger Consideration
to the conversion price of the
VM Convertible Notes
. Based on the trading prices of our Class A and Class C ordinary shares during a specified period, as provided for in the
VM Convertible Notes Indenture
, the
VM Convertible Notes
are currently exchangeable.
During the 2013 period following the
Virgin Media Acquisition
, an aggregate of
$944.2 million
principal amount of
VM Convertible Notes
had been exchanged following the
Virgin Media Acquisition
for
13.1 million
Class A and
9.8 million
Class C ordinary shares and
$885.1 million
of cash. The difference between the cash portion of the exchange consideration and the aggregate
$998.8 million
fair value of the exchanged
VM Convertible Notes
on the exchange dates resulted in a net increase to equity of
$113.7 million
. No gain or loss on extinguishment was recorded for these exchanges as the debt component of the
VM Convertible Notes
was measured at fair value shortly before the exchanges pursuant to the application of acquisition accounting in connection with the
Virgin Media Acquisition
. After giving effect to all exchanges completed through
December 31, 2014
, the remaining principal amount outstanding under the
VM Convertible Notes
was
$54.8 million
.
The
VM Convertible Notes
are senior unsecured obligations of
Virgin Media
that rank equally in right of payment with all of
Virgin Media
’s existing and future senior and unsecured indebtedness and rank senior in right to all of
Virgin Media
’s existing and future subordinated indebtedness. The
VM Convertible Notes
are effectively subordinated to all existing and future indebtedness and other obligations of
Virgin Media
’s subsidiaries. The
VM Convertible Notes Indenture
does not contain any financial or restrictive covenants. The
VM Convertible Notes
are non-callable.
UPC Broadband Holding Bank Facility
The
UPC Broadband Holding Bank Facility
, as amended from time to time, is the senior secured credit facility of
UPC Broadband Holding
, our wholly-owned subsidiary. The security package for the
UPC Broadband Holding Bank Facility
includes a pledge over the shares of
UPC Broadband Holding
and the shares of certain of
UPC Broadband Holding
’s majority-owned operating companies. The
UPC Broadband Holding Bank Facility
is also guaranteed by UPC Holding B.V. (
UPC Holding
), the immediate parent of
UPC Broadband Holding
, and is senior to other long-term debt obligations of
UPC Broadband Holding
and
UPC Holding
. The agreement governing the
UPC Broadband Holding Bank Facility
contains covenants that limit, among other things,
UPC Broadband Holding
’s ability to merge with or into another company, acquire other companies, incur additional debt, dispose of assets, make distributions or pay dividends, provide loans and guarantees and enter into hedging agreements. In addition to customary default provisions, including defaults on other indebtedness of
UPC Broadband Holding
and its subsidiaries, the
UPC Broadband Holding Bank Facility
provides that any event of default with respect to indebtedness of (i)
€50.0 million
(
$60.5 million
) or more in the aggregate of (a) Liberty Global Europe LLC (the indirect parent of Liberty Global Europe Holding BV,
Liberty Global Europe
), (b) any other company of which
UPC Broadband Holding
is a subsidiary and which is a subsidiary of
Liberty Global Europe
and (c) UPC Holding II BV (a subsidiary of
UPC Holding
) and (ii)
€15.0 million
(
$18.2 million
) or more in the aggregate of any member of the
UPC Broadband Holding
borrower group, is an event of default under the
UPC Broadband Holding Bank Facility
.
II-128
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
The
UPC Broadband Holding Bank Facility
permits
UPC Broadband Holding
to transfer funds to its parent company (and indirectly to
Liberty Global
) through loans, advances or dividends provided that
UPC Broadband Holding
maintains compliance with applicable covenants. If a change of control occurs, as specified in the
UPC Broadband Holding Bank Facility
, the facility agent may (if required by the majority lenders) cancel each facility and declare all outstanding amounts immediately due and payable. The
UPC Broadband Holding Bank Facility
requires compliance with various financial covenants such as: (i) senior debt (after deducting cash and cash equivalent investments) to annualized EBITDA, (ii) EBITDA to total cash interest, (iii) EBITDA to senior debt service, (iv) EBITDA to senior interest and (v) total debt (after deducting cash and cash equivalent investments) to annualized EBITDA, each term as specified in the
UPC Broadband Holding Bank Facility
.
The covenant in the
UPC Broadband Holding Bank Facility
relating to disposals of assets includes a basket for permitted disposals of assets, the annualized EBITDA of which does not exceed a certain percentage of the annualized EBITDA of the
UPC Broadband Holding
borrower group, each term as specified in the
UPC Broadband Holding Bank Facility
. The
UPC Broadband Holding Bank Facility
includes a recrediting mechanism, in relation to the permitted disposals basket, based on the proportion of net sales proceeds that are (i) used to prepay facilities and (ii) reinvested in the borrower group.
The
UPC Broadband Holding Bank Facility
includes a mandatory prepayment requirement of four times annualized EBITDA of certain disposed assets. The prepayment amount may be allocated to one or more of the facilities at
UPC Broadband Holding
’s discretion and then applied to the loans under the relevant facility on a pro rata basis, as specified in the
UPC Broadband Holding Bank Facility
. A prepayment may be waived by the majority lenders subject to the requirement to maintain pro forma covenant compliance. If the mandatory prepayment amount is less than
€100.0 million
(
$121.0 million
), then no prepayment is required (subject to pro forma covenant compliance). No such prepayment is required to be made where an amount, equal to the amount that would otherwise be required to be prepaid, is deposited in a blocked account on terms that the principal amount deposited may only be released in order to make the relevant prepayment or to reinvest in assets in accordance with the terms of the
UPC Broadband Holding Bank Facility
, which expressly includes permitted acquisitions and capital expenditures. Any amounts deposited in the blocked account that have not been reinvested (or contracted to be so reinvested), within 12 months of the relevant permitted disposal, are required to be applied in prepayment in accordance with the terms of the
UPC Broadband Holding Bank Facility
.
The details of our borrowings under the
UPC Broadband Holding Bank Facility
as of
December 31, 2014
are summarized in the following table:
|
Facility
|
Maturity
|
Interest rate
|
Facility amount
(in borrowing
currency) (a)
|
Unused
borrowing
capacity (b)
|
Carrying
value (c)
|
|||||||||||
|
|
|
|
in millions
|
|||||||||||||
|
V (d)
|
January 15, 2020
|
7.625%
|
€
|
500.0
|
|
$
|
—
|
|
$
|
605.0
|
|
|||||
|
Y (d)
|
July 1, 2020
|
6.375%
|
€
|
750.0
|
|
—
|
|
907.5
|
|
|||||||
|
Z (d)
|
July 1, 2020
|
6.625%
|
$
|
1,000.0
|
|
—
|
|
1,000.0
|
|
|||||||
|
AC (d)
|
November 15, 2021
|
7.250%
|
$
|
750.0
|
|
—
|
|
750.0
|
|
|||||||
|
AD (d)
|
January 15, 2022
|
6.875%
|
$
|
750.0
|
|
—
|
|
750.0
|
|
|||||||
|
AG (e)
|
March 31, 2021
|
EURIBOR + 3.75%
|
€
|
1,554.4
|
|
—
|
|
1,877.2
|
|
|||||||
|
AH
|
June 30, 2021
|
LIBOR + 2.50% (f)
|
$
|
1,305.0
|
|
—
|
|
1,302.0
|
|
|||||||
|
AI
|
April 30,2019
|
EURIBOR + 3.25%
|
€
|
1,046.2
|
|
1,266.0
|
|
—
|
|
|||||||
|
Elimination of Facilities V, Y, Z, AC and AD in consolidation (d)
|
—
|
|
(4,012.5
|
)
|
||||||||||||
|
Total
|
$
|
1,266.0
|
|
$
|
3,179.2
|
|
||||||||||
_______________
|
(a)
|
Except as described in (d) below, amounts represent total third-party facility amounts at
December 31, 2014
without giving effect to the impact of discounts.
|
|
(b)
|
At
December 31, 2014
, our availability under the
UPC Broadband Holding Bank Facility
was limited to
€906.7 million
(
$1,097.2 million
). When the relevant
December 31, 2014
compliance reporting requirements have been completed, we
|
II-129
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
anticipate that our availability under the
UPC Broadband Holding Bank Facility
will be limited to
€889.1 million
(
$1,075.9 million
). Facility AI has a fee on unused commitments of
1.3%
per year.
|
(c)
|
The carrying values of Facilities AG and AH include the impact of discounts.
|
|
(d)
|
As further discussed in the below description of the
UPCB SPE Notes
, the amounts outstanding under Facilities V, Y, Z, AC and AD are eliminated in
Liberty Global
’s consolidated financial statements.
|
|
(e)
|
For information regarding certain financing transactions subsequent to
December 31, 2014
whereby, among other items, a portion of Facility AG was rolled into a new facility, see note
20
.
|
|
(f)
|
Facility AH has a
LIBOR
floor of
0.75%
.
|
Refinancing Transactions.
During
2014
,
2013
and
2012
, we completed a number of refinancing transactions that generally resulted in additional borrowings or extended maturities under the the
UPC Broadband Holding Bank Facility
. In connection with these transactions, we recognized losses on debt modification, extinguishment and conversion, net, of
$16.5 million
,
$11.9 million
and
$16.3 million
during
2014
,
2013
and
2012
, respectively. These losses include (i) write-offs of deferred financing costs and unamortized discounts of
$16.5 million
,
$4.2 million
and
$14.3 million
, respectively, and (ii)
nil
,
$7.7 million
and
$2.0 million
of third-party debt modification costs, respectively.
UPC Holding Senior Notes
2014 Transactions.
During April 2014, we used existing cash to fully redeem
UPC Holding
’s
$400.0 million
principal amount of
9.875%
senior notes due 2018 (the
UPC Holding 9.875% Senior Notes
). In connection with this transaction, we recognized a loss on debt modification, extinguishment and conversion, net, of
$41.5 million
, which includes (i) the payment of
$19.7 million
of redemption premium, (ii) the write-off of
$17.4 million
of unamortized discount and (iii) the write-off of
$4.4 million
of deferred financing costs.
2013 Transactions.
On March 26, 2013,
UPC Holding
issued (i)
€450.0 million
(
$544.5 million
) principal amount of
6.75%
senior notes (the
UPC Holding 6.75% Euro Senior Notes
) and (ii) CHF
350.0 million
(
$352.1 million
) principal amount of
6.75%
senior notes (the
UPC Holding 6.75% CHF Senior Notes
and, together with the
UPC Holding 6.75% Euro Senior Notes
, the
UPC Holding 6.75% Senior Notes
).
On April 25, 2013, the net proceeds from the issuance of the
UPC Holding 6.75% Senior Notes
were used to redeem in full (a)
UPC Holding
’s
€300.0 million
(
$363.0 million
) principal amount of
8.0%
senior notes due 2016 (the
UPC Holding 8.0% Senior Notes
) and (b)
UPC Holding
’s
€400.0 million
(
$484.0 million
) principal amount of
9.75%
senior notes due 2018 (the
UPC Holding 9.75% Senior Notes
). Our obligations with respect to the
UPC Holding 8.0% Senior Notes
and the
UPC Holding 9.75% Senior Notes
were legally discharged with the trustee on March 26, 2013 and March 27, 2013, respectively, in connection with the issuance of the
UPC Holding 6.75% Senior Notes
. The trustee, in turn, paid all amounts due to the holders of the
UPC Holding 8.0% Senior Notes
and
UPC Holding 9.75% Senior Notes
on April 25, 2013. We incurred aggregate debt extinguishment losses of
$85.5 million
during the first quarter of 2013, which includes (i)
$35.6 million
of redemption premium related to the
UPC Holding 8.0% Senior Notes
and the
UPC Holding 9.75% Senior Notes
, (ii) the write-off of
$24.5 million
of unamortized discount related to the
UPC Holding 9.75% Senior Notes
, (iii) 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 (iv)
$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, as described above.
We collectively refer to the
UPC Holding 6.75% Senior Notes
,
UPC Holding
’s
€600.0 million
(
$726.0 million
) principal amount of
6.375%
senior notes due 2022 (the
UPC Holding 6.375% Senior Notes
) and
UPC Holding
’s
€640.0 million
(
$774.4 million
) principal amount of
8.375%
senior notes due 2020 (the
UPC Holding 8.375% Senior Notes
) as the “
UPC Holding Senior Notes
.”
II-130
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
The details of the
UPC Holding Senior Notes
as of
December 31, 2014
are summarized in the following table:
|
|
|
Outstanding principal
amount
|
|
|
||||||||||||||
|
UPC Holding Senior Notes
|
Maturity
|
Borrowing
currency
|
U.S. $
equivalent
|
Estimated
fair value
|
Carrying
value (a)
|
|||||||||||||
|
|
|
in millions
|
||||||||||||||||
|
UPC Holding 8.375% Senior Notes
|
August 15, 2020
|
€
|
640.0
|
|
$
|
774.4
|
|
$
|
833.4
|
|
$
|
774.4
|
|
|||||
|
UPC Holding 6.375% Senior Notes
|
September 15, 2022
|
€
|
600.0
|
|
726.0
|
|
786.8
|
|
720.6
|
|
||||||||
|
UPC Holding 6.75% Euro Senior Notes
|
March 15, 2023
|
€
|
450.0
|
|
544.5
|
|
597.3
|
|
544.5
|
|
||||||||
|
UPC Holding 6.75% CHF Senior Notes
|
March 15, 2023
|
CHF
|
350.0
|
|
352.1
|
|
386.1
|
|
352.1
|
|
||||||||
|
Total
|
$
|
2,397.0
|
|
$
|
2,603.6
|
|
$
|
2,391.6
|
|
|||||||||
_______________
|
(a)
|
Amounts include the impact of discounts, where applicable.
|
Each issue of the
UPC Holding Senior Notes
are senior obligations that rank equally with all of the existing and future senior debt and are senior to all existing and future subordinated debt of
UPC Holding
. The
UPC Holding Senior Notes
are secured (on a shared basis) by pledges of the shares of
UPC Holding
. The
UPC Holding Senior Notes
contain certain customary incurrence-based covenants. For example, the ability to raise certain additional debt and make certain distributions or loans to other subsidiaries of
Liberty Global
is subject to a consolidated leverage ratio test, as specified in the applicable indenture. In addition, the
UPC Holding Senior Notes
provide that any failure to pay principal prior to expiration of any applicable grace period, or any acceleration with respect to other indebtedness of
€50.0 million
(
$60.5 million
) or more in the aggregate of
UPC Holding
or its restricted subsidiaries (as specified in the applicable indenture), including
UPC Broadband Holding
, is an event of default under the
UPC Holding Senior Notes
.
At any time prior to
August 15, 2015
, in the case of the
UPC Holding 8.375% Senior Notes
,
September 15, 2017
, in the case of the
UPC Holding 6.375% Senior Notes
, and
March 15, 2018
, in the case of the
UPC Holding 6.75% Senior Notes
,
UPC Holding
may redeem some or all of such
UPC Holding Senior Notes
by paying a “make-whole” premium, which is the present value of all scheduled interest payments until
August 15, 2015
,
September 15, 2017
or
March 15, 2018
(as applicable) using the discount rate (as specified in the applicable indenture) as of the redemption date, plus
50
basis points.
UPC Holding
may redeem some or all of the
UPC Holding Senior Notes
at the following redemption prices (expressed as a percentage of the principal amount) plus accrued and unpaid interest and additional amounts (as specified in the applicable indenture), if any, to the applicable redemption date, if redeemed during the twelve-month period commencing on
August 15
, in the case of the
UPC Holding 8.375% Senior Notes
, September 15, in the case of the
UPC Holding 6.375% Senior Notes
, and March 15, in the case of the
UPC Holding 6.75% Senior Notes
, of the years set forth below:
|
|
Redemption Price
|
|||||
|
Year
|
UPC Holding 8.375%
Senior Notes
|
UPC Holding 6.375%
Senior Notes
|
UPC Holding 6.75% Senior Notes
|
|||
|
2015
|
104.188%
|
N.A.
|
N.A.
|
|||
|
2016
|
102.792%
|
N.A.
|
N.A.
|
|||
|
2017
|
101.396%
|
103.188%
|
N.A.
|
|||
|
2018
|
100.000%
|
102.125%
|
103.375%
|
|||
|
2019
|
100.000%
|
101.063%
|
102.250%
|
|||
|
2020
|
100.000%
|
100.000%
|
101.125%
|
|||
|
2021 and thereafter
|
N.A.
|
100.000%
|
100.000%
|
|||
II-131
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
If all or substantially all of the assets of
UPC Holding
and certain of its subsidiaries are disposed of or any other change of control (as specified in the applicable indenture) is triggered,
UPC Holding
must offer to repurchase all of the relevant
UPC Holding Senior Notes
at a redemption price of
101%
of the principal amount of such
UPC Holding Senior Notes
.
For information regarding certain financing transactions completed subsequent to
December 31, 2014
that impact the
UPC Holding Senior Notes
, see note
20
.
UPCB SPE Notes
UPCB Finance Limited (
UPCB Finance I
), UPCB Finance II Limited (
UPCB Finance II
), UPCB Finance III Limited (
UPCB Finance III
), UPCB Finance V Limited (
UPCB Finance V
) and UPCB Finance VI Limited (
UPCB Finance VI
and, together with
UPCB Finance I
,
UPCB Finance II
,
UPCB Finance III
and
UPCB Finance V
, the
UPCB SPE
s) are all special purpose financing entities that are owned
100%
by charitable trusts. The
UPCB SPE
s were created for the primary purposes of facilitating the offerings of
€500.0 million
(
$605.0 million
) principal amount of
7.625%
senior secured notes (the
UPCB Finance I Notes
),
€750.0 million
(
$907.5 million
) principal amount of
6.375%
senior secured notes (the
UPCB Finance II Notes
),
$1.0 billion
principal amount of
6.625%
senior secured notes (the
UPCB Finance III Notes
),
$750.0 million
principal amount of
7.25%
senior secured notes (the
UPCB Finance V Notes
) and
$750.0 million
principal amount of
6.875%
senior secured notes (the
UPCB Finance VI Notes
and, together with the
UPCB Finance I Notes
, the
UPCB Finance II Notes
, the
UPCB Finance III Notes
and the
UPCB Finance V Notes
, the
UPCB SPE Notes
), respectively. The
UPCB Finance I Notes
, the
UPCB Finance II Notes
, the
UPCB Finance III Notes
, the
UPCB Finance V Notes
and the
UPCB Finance VI Notes
were issued on January 20, 2010, January 31, 2011, February 16, 2011, November 16, 2011 and February 7, 2012, respectively.
The
UPCB Finance I Notes
were issued at an original issue discount of
0.862%
, resulting in cash proceeds before commissions and fees of
€495.7 million
(
$699.7 million
at the transaction date). The
UPCB Finance II Notes
,
UPCB Finance III Notes
,
UPCB Finance V Notes
and
UPCB Finance VI Notes
were each issued at par.
UPCB Finance I
,
UPCB Finance II
,
UPCB Finance III
,
UPCB Finance V
and
UPCB Finance VI
used the proceeds from the (i)
UPCB Finance I Notes
and available cash, (ii)
UPCB Finance II Notes
, (iii)
UPCB Finance III Notes
, (iv)
UPCB Finance V Notes
and (v)
UPCB Finance VI Notes
to fund new additional Facilities V, Y, Z, AC and AD, respectively, (each, a
UPCB SPE Funded Facility
, and together, the
Funded Facilities
) under the
UPC Broadband Holding Bank Facility
, with UPC Financing Partnership (
UPC Financing
) as the borrower. The proceeds from the
Funded Facilities
generally were used to repay amounts outstanding under the
UPC Broadband Holding Bank Facility
.
Each
UPCB SPE
is dependent on payments from
UPC Financing
under the applicable
UPCB SPE Funded Facility
in order to service its payment obligations under each respective
UPCB SPE Note
. Although
UPC Financing
has no equity or voting interest in any of the
UPCB SPE
s, each of the
UPCB SPE Funded Facility
loans creates a variable interest in the respective
UPCB SPE
for which
UPC Financing
is the primary beneficiary, as contemplated by
GAAP
. As such,
UPC Financing
and its parent entities, including
UPC Holding
and
Liberty Global
, are required by the provisions of
GAAP
to consolidate the
UPCB SPE
s. As a result, the amounts outstanding under the
Funded Facilities
are eliminated in
Liberty Global
’s consolidated financial statements.
Pursuant to the respective indentures for the
UPCB SPE Notes
(the
UPCB SPE Indenture
s) and the respective accession agreements for the
Funded Facilities
, the call provisions, maturity and applicable interest rate for each
UPCB SPE Funded Facility
are the same as those of the related
UPCB SPE Notes
. The
UPCB SPE
s, as lenders under the
UPC Broadband Holding Bank Facility
, are treated the same as the other lenders under the
UPC Broadband Holding Bank Facility
, with benefits, rights and protections similar to those afforded to the other lenders. Through the covenants in the applicable
UPCB SPE Indenture
s and the applicable security interests over (i) all of the issued shares of the relevant
UPCB SPE
and (ii) the relevant
UPCB SPE
’s rights under the applicable
UPCB SPE Funded Facility
granted to secure the relevant
UPCB SPE
’s obligations under the relevant
UPCB SPE Notes
, the holders of the
UPCB SPE Notes
are provided indirectly with the benefits, rights, protections and covenants granted to the
UPCB SPE
s as lenders under the
UPC Broadband Holding Bank Facility
.
The
UPCB SPE
s are prohibited from incurring any additional indebtedness, subject to certain exceptions under the
UPCB SPE Indenture
s.
II-132
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
The details of the
UPCB SPE Notes
as of
December 31, 2014
are summarized in the following table:
|
|
|
Outstanding principal
amount
|
|
|
||||||||||||||||
|
UPCB SPEs
|
Maturity
|
Interest rate
|
Borrowing
currency
|
U.S. $
equivalent
|
Estimated
fair value
|
Carrying
value (a)
|
||||||||||||||
|
|
|
in millions
|
||||||||||||||||||
|
UPCB Finance I Notes
|
January 15, 2020
|
7.625%
|
€
|
500.0
|
|
$
|
605.0
|
|
$
|
631.9
|
|
$
|
601.9
|
|
||||||
|
UPCB Finance II Notes
|
July 1, 2020
|
6.375%
|
€
|
750.0
|
|
907.5
|
|
954.0
|
|
907.5
|
|
|||||||||
|
UPCB Finance III Notes
|
July 1, 2020
|
6.625%
|
$
|
1,000.0
|
|
1,000.0
|
|
1,054.4
|
|
1,000.0
|
|
|||||||||
|
UPCB Finance V Notes
|
November 15, 2021
|
7.250%
|
$
|
750.0
|
|
750.0
|
|
821.7
|
|
750.0
|
|
|||||||||
|
UPCB Finance VI Notes
|
January 15, 2022
|
6.875%
|
$
|
750.0
|
|
750.0
|
|
817.0
|
|
750.0
|
|
|||||||||
|
Total
|
$
|
4,012.5
|
|
$
|
4,279.0
|
|
$
|
4,009.4
|
|
|||||||||||
_______________
|
(a)
|
Amounts include the impact of discounts, where applicable.
|
Subject to the circumstances described below, the
UPCB Finance I Notes
are non-callable until
January 15, 2015
, the
UPCB Finance II Notes
and the
UPCB Finance III Notes
are non-callable until
July 1, 2015
, the
UPCB Finance V Notes
are non-callable until November 15, 2016 and the
UPCB Finance VI Notes
are non-callable until January 15, 2017 (each a
UPCB SPE Notes Call Date
). If, however, at any time prior to the applicable
UPCB SPE Notes Call Date
, all or a portion of the loans under the related
UPCB SPE Funded Facility
are voluntarily prepaid (an
Early Redemption Event
), then the applicable
UPCB SPE
will be required to redeem an aggregate principal amount of its
UPCB SPE Notes
equal to the aggregate principal amount of loans so prepaid under the related
UPCB SPE Funded Facility
. In general, the redemption price payable will equal the sum of (i)
100%
of the principal amount of the applicable
UPCB SPE Notes
to be redeemed, (ii) the excess of (a) the present value at such redemption date of (1) the redemption price of such
UPCB SPE Notes
on the applicable
UPCB SPE Notes Call Date
, as determined in accordance with the table below, plus (2) all required remaining scheduled interest payments thereon due through the applicable
UPCB SPE Notes Call Date
(excluding accrued and unpaid interest to such redemption date), computed using the discount rate specified in the applicable
UPCB SPE Indenture
, over (b) the principal amount of such
UPCB SPE Notes
to be redeemed and (iii) accrued but unpaid interest thereon and additional amounts (as specified in the applicable
UPCB SPE Indenture
), if any, to the applicable redemption date (the
Make-Whole Redemption Price
). However, in the case of an
Early Redemption Event
with respect to Facility Z, AC or AD occurring prior to the applicable
UPCB SPE Notes Call Date
, the redemption price payable upon redemption of an aggregate principal amount of the relevant
UPCB SPE Notes
not exceeding
10%
of the original aggregate principal amount of such
UPCB SPE Notes
during each twelve-month period commencing on February 16, 2011, in the case of Facility Z, November 16, 2011, in the case of Facility AC, or February 7, 2012, in the case of Facility AD, will equal
103%
of the principal amount of the relevant
UPCB SPE Notes
redeemed plus accrued and unpaid interest thereon and additional amounts, if any, to the applicable redemption date. The redemption price payable for any principal amount of such
UPCB SPE Notes
redeemed in excess of the
10%
limitation will be the
Make-Whole Redemption Price
.
II-133
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
Upon the occurrence of an
Early Redemption Event
on or after the applicable
UPCB SPE Notes Call Date
, the applicable
UPCB SPE
will redeem an aggregate principal amount of its
UPCB SPE Notes
equal to the principal amount of the related
UPCB SPE Funded Facility
prepaid at the following redemption prices (expressed as a percentage of the principal amount), plus accrued and unpaid interest and additional amounts, (as specified in the applicable
UPCB SPE Indenture
), if any, to the applicable redemption date, if redeemed during the twelve-month period commencing on January 15, in the case of the
UPCB Finance I Notes
and the
UPCB Finance VI Notes
, July 1, in the case of the
UPCB Finance II Notes
and the
UPCB Finance III Notes
, and November 15, in the case of the
UPCB Finance V Notes
, of the years set forth below:
|
Redemption Price
|
||||||||||
|
Year
|
UPCB Finance I Notes
|
UPCB Finance II Notes
|
UPCB Finance III Notes
|
UPCB Finance V Notes
|
UPCB Finance VI Notes
|
|||||
|
2015
|
103.813%
|
103.188%
|
103.313%
|
N.A.
|
N.A.
|
|||||
|
2016
|
102.542%
|
102.125%
|
102.208%
|
103.625%
|
N.A.
|
|||||
|
2017
|
101.271%
|
101.063%
|
101.104%
|
102.417%
|
103.438%
|
|||||
|
2018
|
100.000%
|
100.000%
|
100.000%
|
101.208%
|
102.292%
|
|||||
|
2019
|
100.000%
|
100.000%
|
100.000%
|
100.000%
|
101.146%
|
|||||
|
2020 and thereafter
|
100.000%
|
100.000%
|
100.000%
|
100.000%
|
100.000%
|
|||||
For information regarding certain financing transactions completed subsequent to
December 31, 2014
that impact the
UPCB SPE Notes
, see note
20
.
Unitymedia KabelBW Notes and KBW Notes
Unitymedia KabelBW Exchange
,
Special Optional Redemptions
and
KBW Fold-in
. Prior to the exchange and redemption transactions described below, the
KBW Notes
consisted of (i) UPC Germany HoldCo 1 GmbH’s
€680.0 million
(
$822.8 million
) principal amount of
9.5%
senior notes due 2021 (the
KBW Senior Notes
) and (ii) the following notes issued by Kabel BW GmbH (
KBW
): (a)
€800.0 million
(
$968.1 million
) principal amount of
7.5%
senior secured notes due 2019 (the
KBW Euro Senior Secured Notes
), (b)
$500.0 million
principal amount of
7.5%
senior secured notes due 2019 (the
KBW Dollar Senior Secured Notes
and together with the
KBW Euro Senior Secured Notes
, the
KBW Senior Secured Fixed-Rate Notes
) and (c)
€420.0 million
(
$508.2 million
) principal amount of senior secured floating-rate notes due 2018 (the
KBW Senior Secured Floating-Rate Notes
and together with the
KBW Senior Secured Fixed-Rate Notes
, the
KBW Senior Secured Notes
).
In May 2012,
Unitymedia KabelBW
and certain of its subsidiaries completed (i) the exchange (the
Unitymedia KabelBW Exchange
) of (a)
90.9%
of the outstanding principal amount of the
KBW Senior Notes
for an equal amount of
UM Senior Exchange Notes
(as defined and described below) and (b)
92.5%
of the outstanding principal amount of the
KBW Senior Secured Notes
for an equal amount of
UM Senior Secured Exchange Notes
(as defined and described below), (ii) the redemption (the
Special Optional Redemptions
) of the remaining
KBW Notes
that were not exchanged pursuant to the
Unitymedia KabelBW Exchange
and (iii) a series of mergers and consolidations, pursuant to which an indirect parent company of
KBW
became a subsidiary of
Unitymedia Hessen
(the
KBW Fold-in
). The redemption price with respect to the
Special Optional Redemptions
was
101%
of the applicable principal amount thereof, and such redemptions were initially funded with borrowings under the
Unitymedia KabelBW Revolving Credit Facilities
(as defined and described below). In connection with these transactions, we recognized aggregate losses on debt modification, extinguishment and conversion, net, of
$7.0 million
during 2012, which includes (i)
$5.6 million
of third-party costs and (ii)
$1.4 million
of redemption premium pursuant to the
Special Optional Redemptions
.
II-134
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
The details of (i) the
Unitymedia KabelBW Exchange
and (ii) the
Special Optional Redemptions
are as follows:
|
Outstanding principal amount prior to the Unitymedia KabelBW Exchange
|
Principal amount exchanged pursuant to the Unitymedia KabelBW Exchange
|
Principal amount redeemed pursuant to the Special Optional Redemptions
|
|||||||||||||||||||||||
|
KBW Notes
|
Borrowing currency
|
U.S. $ equivalent (a)
|
Borrowing currency
|
U.S. $ equivalent (a)
|
Borrowing currency
|
U.S. $ equivalent (a)
|
|||||||||||||||||||
|
in millions
|
|||||||||||||||||||||||||
|
KBW Senior Notes (b)
|
€
|
680.0
|
|
$
|
890.0
|
|
€
|
618.0
|
|
$
|
808.8
|
|
€
|
62.0
|
|
$
|
81.2
|
|
|||||||
|
KBW Euro Senior Secured Notes (c)
|
€
|
800.0
|
|
1,047.0
|
|
€
|
735.1
|
|
962.1
|
|
€
|
64.9
|
|
84.9
|
|
||||||||||
|
KBW Dollar Senior Secured Notes (d)
|
$
|
500.0
|
|
500.0
|
|
$
|
459.3
|
|
459.3
|
|
$
|
40.7
|
|
40.7
|
|
||||||||||
|
KBW Senior Secured Floating-Rate Notes (e)
|
€
|
420.0
|
|
549.7
|
|
€
|
395.9
|
|
518.2
|
|
€
|
24.1
|
|
31.5
|
|
||||||||||
|
Total
|
$
|
2,986.7
|
|
$
|
2,748.4
|
|
$
|
238.3
|
|
||||||||||||||||
_______________
|
(a)
|
Translations are calculated as of the May 4, 2012 transaction date.
|
|
(b)
|
The
KBW Senior Notes
tendered for exchange were exchanged for an equal principal amount of
9.5%
senior notes issued by
Unitymedia KabelBW
due March 15, 2021 (the
UM Senior Exchange Notes
).
|
|
(c)
|
The KBW Euro Senior Secured Notes tendered for exchange were exchanged for an equal principal amount of
7.5%
senior secured notes issued by
Unitymedia Hessen
and Unitymedia NRW GmbH (each, a subsidiary of
Unitymedia KabelBW
and, together, the
UM Senior Secured Notes Issuer
s) due March 15, 2019 (the
UM Euro Senior Secured Exchange Notes
).
|
|
(d)
|
The
KBW Dollar Senior Secured Notes
tendered for exchange were exchanged for an equal principal amount of
7.5%
senior secured notes issued by the
UM Senior Secured Notes Issuer
s due March 15, 2019 (the
UM Dollar Senior Secured Exchange Notes
and, together with the
UM Euro Senior Secured Exchange Notes
, the
UM Senior Secured Fixed-Rate Exchange Notes
). In
December 31, 2014
, the
UM Senior Secured Fixed-Rate Exchange Notes
were redeemed in full as described below.
|
|
(e)
|
The
KBW Senior Secured Floating-Rate Notes
tendered for exchange were exchanged for an equal principal amount of senior secured floating-rate notes issued by the
UM Senior Secured Notes Issuer
s due March 15, 2018 (the
UM Senior Secured Floating-Rate Exchange Notes
and, together with the
UM Senior Secured Floating-Rate Exchange Notes
, the
UM Senior Secured Exchange Notes
). The
UM Senior Secured Floating-Rate Exchange Notes
, prior to their redemption as described below, bore interest at a rate of
EURIBOR
plus
4.25%
.
|
December 2014 UM Senior Secured Notes
. On December 17, 2014, the
UM Senior Secured Notes Issuer
s issued (i)
€1,000.0 million
(
$1,210.1 million
) principal amount of
4.0%
senior secured notes due January 15, 2025 (the
December 2014 UM Euro Senior Secured Notes
) and (ii)
$550.0 million
principal amount of
5.0%
senior secured notes due January 15, 2025 (the
December 2014 UM Dollar Senior Secured Notes
and, together with the
December 2014 UM Euro Senior Secured Notes
, the
December 2014 UM Senior Secured Notes
).
A portion of the net proceeds from the
December 2014 UM Senior Secured Notes
were used to redeem in full the
UM Senior Secured Fixed-Rate Exchange Notes
. In connection with this transaction, we recognized a loss on debt extinguishment of
$59.5 million
, which includes (i) the payment of
$70.1 million
of redemption premium and (ii) the write-off of
$10.6 million
of unamortized premium.
October 2014 UM Senior Notes
. On October 22, 2014,
Unitymedia KabelBW
issued
$900.0 million
principal amount of
6.125%
senior notes due January 15, 2025 (the
October 2014 UM Senior Notes
). On November 7, 2014, the net proceeds from the
October 2014 UM Senior Notes
were used to fully redeem
Unitymedia KabelBW
’s
€665.0 million
(
$804.7 million
) principal amount of
9.625%
senior notes (the
2009 UM Senior Notes
). In connection with this transaction, we recognized a loss on debt extinguishment of
$71.3 million
, which includes (i) the payment of
$45.0 million
of redemption premium, (ii) the write-off of
$14.0 million
of deferred financing costs and (iii) the write-off of
$12.3 million
of unamortized discount.
II-135
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
November 2013 UM Senior Secured Notes
. On November 21, 2013, the
UM Senior Secured Notes Issuer
s issued
€475.0 million
(
$574.8 million
) principal amount of
6.25%
senior secured notes due January 15, 2029 (the
November 2013 UM Senior Secured Notes
).
A portion of the net proceeds from the issuance of the
November 2013 UM Senior Secured Notes
were used to redeem all of the then outstanding
2009 UM Euro Senior Secured Notes
(as defined and described below). In connection with this transaction, we recognized a loss on debt extinguishment of
$41.4 million
, which includes (i) the payment of
$24.5 million
of redemption premium and (ii) the write-off of
$16.9 million
associated with deferred financing costs and unamortized discount.
April 2013 UM Senior Secured Notes
. On April 16, 2013, the
UM Senior Secured Notes Issuer
s issued
€350.0 million
(
$423.5 million
) principal amount of
5.625%
senior secured notes due April 15, 2023 (the
April 2013 UM Senior Secured Notes
).
January 2013 UM Senior Secured Notes
. On January 21, 2013, the
UM Senior Secured Notes Issuer
s issued
€500.0 million
(
$605.0 million
) principal amount of
5.125%
senior secured notes due January 21, 2023 (the
January 2013 UM Senior Secured Notes
). The net proceeds from the issuance of the
January 2013 UM Senior Secured Notes
were used to redeem
a portion of the
€1,430.0 million
(
$1,730.4 million
) principal amount of
8.125%
senior secured notes (the
2009 UM Euro Senior Secured Notes
). In connection with this transaction, we recognized a loss on debt extinguishment of
$71.1 million
, which includes (i) the payment of
$50.5 million
of redemption premium and (ii) the write-off of
$20.6 million
associated with deferred financing costs and unamortized discount.
December 2012 UM Senior Secured Notes
. On December 14, 2012, the
UM Senior Secured Notes Issuer
s issued
$1.0 billion
principal amount of
5.5%
senior secured notes due January 15, 2023 (the
December 2012 UM Dollar Senior Secured Notes
) and
€500.0 million
(
$605.0 million
) principal amount of
5.75%
senior secured notes due January 15, 2023 (the
December 2012 UM Euro Senior Secured Notes
and, together with the
December 2012 UM Dollar Senior Secured Notes
, the
December 2012 UM Senior Secured Notes
), each at par. The net proceeds from the issuance of the
December 2012 UM Senior Secured Notes
were used to purchase and redeem (i) all of the
$845.0 million
principal amount
8.125%
senior secured notes (the
2009 UM Dollar Senior Secured Notes
) and (ii)
€524.0 million
(
$634.1 million
) of the
2009 UM Euro Senior Secured Notes
. In connection with these transactions, we recognized a loss on debt extinguishment of
$175.8 million
, which includes (i) the payment of
$125.9 million
of redemption premium and (ii) the write-off of
$49.4 million
associated with deferred financing costs and unamortized discount.
September 2012 UM Senior Secured Notes
. On September 19, 2012, the
UM Senior Secured Notes Issuer
s issued
€650.0 million
(
$786.5 million
) principal amount of
5.5%
senior secured notes due September 15, 2022 (the
September 2012 UM Senior Secured Notes
). The net proceeds from the issuance of the
September 2012 UM Senior Secured Notes
were used to redeem in full the
UM Senior Secured Floating-Rate Exchange Notes
at a redemption price of
101%
, with the remaining
€241.8 million
(
$292.6 million
) available for general corporate purposes. In connection with this transaction, we recognized a loss on debt extinguishment of
$10.2 million
representing the payment of redemption premium.
We refer to the
UM Senior Exchange Notes
, the
September 2012 UM Senior Secured Notes
, the
December 2012 UM Senior Secured Notes
, the
January 2013 UM Senior Secured Notes
, the
April 2013 UM Senior Secured Notes
, the
November 2013 UM Senior Secured Notes
, the
October 2014 UM Senior Notes
and the
December 2014 UM Senior Secured Notes
, collectively, as the “
Unitymedia KabelBW Notes
.”
II-136
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
The details of the
Unitymedia KabelBW Notes
as of
December 31, 2014
are summarized in the following table:
|
|
|
|
Outstanding principal
amount
|
|
|
||||||||||||||||
|
Unitymedia KabelBW Notes
|
Maturity
|
Interest
rate
|
Borrowing
currency
|
U.S. $
equivalent
|
Estimated
fair value
|
Carrying
value (a)
|
|||||||||||||||
|
|
|
|
in millions
|
||||||||||||||||||
|
UM Senior Exchange Notes
|
March 15, 2021
|
9.500
|
%
|
€
|
618.0
|
|
$
|
747.7
|
|
$
|
837.9
|
|
$
|
746.1
|
|
||||||
|
September 2012 UM Senior Secured Notes
|
September 15, 2022
|
5.500
|
%
|
€
|
650.0
|
|
786.5
|
|
843.5
|
|
786.5
|
|
|||||||||
|
December 2012 UM Dollar Senior Secured Notes
|
January 15, 2023
|
5.500
|
%
|
$
|
1,000.0
|
|
1,000.0
|
|
1,046.3
|
|
1,000.0
|
|
|||||||||
|
December 2012 UM Euro Senior Secured Notes
|
January 15, 2023
|
5.750
|
%
|
€
|
500.0
|
|
605.0
|
|
657.9
|
|
605.0
|
|
|||||||||
|
January 2013 UM Senior Secured Notes
|
January 21, 2023
|
5.125
|
%
|
€
|
500.0
|
|
605.0
|
|
646.6
|
|
605.0
|
|
|||||||||
|
April 2013 UM Senior Secured Notes
|
April 15, 2023
|
5.625
|
%
|
€
|
350.0
|
|
423.5
|
|
461.1
|
|
423.5
|
|
|||||||||
|
November 2013 UM Senior Secured Notes
|
January 15, 2029
|
6.250
|
%
|
€
|
475.0
|
|
574.8
|
|
654.5
|
|
574.8
|
|
|||||||||
|
October 2014 UM Senior Notes
|
January 15, 2025
|
6.125
|
%
|
$
|
900.0
|
|
900.0
|
|
932.6
|
|
900.0
|
|
|||||||||
|
December 2014 UM Euro Senior Secured Notes
|
January 15, 2025
|
4.000
|
%
|
€
|
1,000.0
|
|
1,210.0
|
|
1,237.2
|
|
1,210.0
|
|
|||||||||
|
December 2014 UM Dollar Senior Secured Notes
|
January 15, 2025
|
5.000
|
%
|
$
|
550.0
|
|
550.0
|
|
551.7
|
|
550.0
|
|
|||||||||
|
Total
|
$
|
7,402.5
|
|
$
|
7,869.3
|
|
$
|
7,400.9
|
|
||||||||||||
_______________
|
(a)
|
Amounts include the impact of discounts, where applicable.
|
The
UM Senior Exchange Notes
and the
October 2014 UM Senior Notes
are senior obligations of
Unitymedia KabelBW
that rank equally with all of the existing and future senior debt of
Unitymedia KabelBW
and are senior to all existing and future subordinated debt of
Unitymedia KabelBW
. The
UM Senior Exchange Notes
and the
October 2014 UM Senior Notes
are guaranteed on a senior subordinated basis by various subsidiaries of
Unitymedia KabelBW
and are secured by a first-ranking pledge over the shares of
Unitymedia KabelBW
and junior-priority share pledges and other asset security of certain subsidiaries of
Unitymedia KabelBW
.
The
September 2012 UM Senior Secured Notes
, the
December 2012 UM Senior Secured Notes
, the
January 2013 UM Senior Secured Notes
, the
April 2013 UM Senior Secured Notes
, the
November 2013 UM Senior Secured Notes
and the
December 2014 UM Senior Secured Notes
are (i) senior obligations of the
UM Senior Secured Notes Issuer
s that rank equally with all of the existing and future senior debt of each
UM Senior Secured Notes Issuer
and are senior to all existing and future subordinated debt of each of the
UM Senior Secured Notes Issuer
s and (ii) are secured by a first-ranking pledge over the shares of
Unitymedia KabelBW
and the
UM Senior Secured Notes Issuer
s and certain other share and/or asset security of
Unitymedia KabelBW
and certain of its subsidiaries.
The
Unitymedia KabelBW Notes
contain certain customary incurrence-based covenants. For example, the ability to raise certain additional debt and make certain distributions or loans to other subsidiaries of
Liberty Global
is subject to a consolidated leverage ratio test, as specified in the applicable indenture. The
Unitymedia KabelBW Notes
provide that any failure to pay principal prior to expiration of any applicable grace period, or any acceleration with respect to other indebtedness of
€25.0 million
(
$30.3 million
) (or
€75.0 million
(
$90.8 million
) with respect to the
October 2014 UM Senior Notes
and the
December 2014 UM Senior Secured Notes
) or more in the aggregate of
Unitymedia KabelBW
or a
UM Senior Secured Notes Issuer
or any of the restricted subsidiaries (as specified in the applicable indenture) is an event of default under the
Unitymedia KabelBW Notes
.
Subject to the circumstances described below, the
Unitymedia KabelBW Notes
are non-callable prior to the applicable call date as presented in the below table. At any time prior to the respective call date,
Unitymedia KabelBW
or
UM Senior Secured Notes Issuer
s may redeem some or all of the applicable notes by paying a “make-whole” premium, which is the present value of
II-137
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
all remaining scheduled interest payments to the applicable call date using the discount rate (as specified in the applicable indenture) as of the redemption date plus
50
basis points.
|
Unitymedia KabelBW Notes
|
Call Date
|
|
|
UM Senior Exchange Notes
|
March 15, 2016
|
|
|
September 2012 UM Senior Secured Notes
|
September 15, 2017
|
|
|
December 2012 UM Senior Secured Notes
|
January 15, 2018
|
|
|
January 2013 UM Senior Secured Notes
|
January 21, 2018
|
|
|
April 2013 UM Senior Secured Notes
|
April 15, 2018
|
|
|
November 2013 UM Senior Secured Notes
|
January 15, 2021
|
|
|
October 2014 UM Senior Notes
|
January 15, 2020
|
|
|
December 2014 UM Senior Secured Notes
|
January 15, 2020
|
|
Unitymedia KabelBW
or the
UM Senior Secured Notes Issuer
s (as applicable) may redeem some or all of the
Unitymedia KabelBW Notes
at the following redemption prices (expressed as a percentage of the principal amount) plus accrued and unpaid interest and additional amounts (as specified in the applicable indenture), if any, to the applicable redemption date, if redeemed during the twelve-month period commencing on March 15, in the case of the
UM Senior Exchange Notes
, September 15, in the case of the
September 2012 UM Senior Secured Notes
, January 15, in the case of the
December 2012 UM Senior Secured Notes
, the
November 2013 UM Senior Secured Notes
, the
October 2014 UM Senior Notes
and the
December 2014 UM Senior Secured Notes
, January 21, in the case of the
January 2013 UM Senior Secured Notes
, or April 15, in the case of the
April 2013 UM Senior Secured Notes
, of the years set forth below:
|
|
Redemption Price
|
|||||||||||||||||||
|
Year
|
UM Senior Exchange Notes
|
September 2012
UM Senior Secured Notes
|
December 2012
UM Dollar Senior Secured Notes
|
December 2012
UM Euro Senior Secured Notes
|
January 2013 UM Senior Secured Notes
|
April 2013 UM Senior Secured Notes
|
November 2013 UM Senior Secured Notes
|
October 2014 UM Senior Notes
|
December 2014 UM Euro Senior Secured Notes
|
December 2014 UM Dollar Senior Secured Notes
|
||||||||||
|
2016
|
104.750%
|
N.A.
|
N.A.
|
N.A.
|
N.A.
|
N.A.
|
N.A.
|
N.A.
|
N.A.
|
N.A.
|
||||||||||
|
2017
|
103.167%
|
102.750%
|
N.A.
|
N.A.
|
N.A.
|
N.A.
|
N.A.
|
N.A.
|
N.A.
|
N.A.
|
||||||||||
|
2018
|
101.583%
|
101.833%
|
102.750%
|
102.875%
|
102.563%
|
102.813%
|
N.A.
|
N.A.
|
N.A.
|
N.A.
|
||||||||||
|
2019
|
100.000%
|
100.917%
|
101.833%
|
101.917%
|
101.708%
|
101.875%
|
N.A.
|
N.A.
|
N.A.
|
N.A.
|
||||||||||
|
2020
|
100.000%
|
100.000%
|
100.917%
|
100.958%
|
100.854%
|
100.938%
|
N.A.
|
103.063%
|
102.000%
|
102.500%
|
||||||||||
|
2021
|
N.A.
|
100.000%
|
100.000%
|
100.000%
|
100.000%
|
100.000%
|
103.125%
|
102.042%
|
101.333%
|
101.667%
|
||||||||||
|
2022
|
N.A.
|
N.A.
|
100.000%
|
100.000%
|
100.000%
|
100.000%
|
102.083%
|
101.021%
|
100.667%
|
100.833%
|
||||||||||
|
2023
|
N.A.
|
N.A.
|
N.A.
|
N.A.
|
N.A.
|
N.A.
|
101.042%
|
100.000%
|
100.000%
|
100.000%
|
||||||||||
|
2024 and thereafter
|
N.A.
|
N.A.
|
N.A.
|
N.A.
|
N.A.
|
N.A.
|
100.000%
|
100.000%
|
100.000%
|
100.000%
|
||||||||||
KBW
and its immediate parent (collectively, the
New UM Guarantors
) have granted, in addition to guarantees provided by
Unitymedia KabelBW
and/or certain of its subsidiaries, a senior guarantee of the
September 2012 UM Senior Secured Notes
, the
December 2012 UM Senior Secured Notes
, the
January 2013 UM Senior Secured Notes
, the
April 2013 UM Senior Secured Notes
, the
November 2013 UM Senior Secured Notes
and the
December 2014 UM Senior Secured Notes
. The
New UM Guarantors
have also granted a senior subordinated guarantee of the
UM Senior Exchange Notes
and the
October 2014 UM Senior Notes
. In addition, the
New UM Guarantors
have provided certain share and asset security in favor of the
September 2012 UM Senior Secured Notes
, the
December 2012 UM Senior Secured Notes
, the
January 2013 UM Senior Secured Notes
, the
April 2013 UM Senior Secured Notes
, the
November 2013 UM Senior Secured Notes
and the
December 2014 UM Senior Secured Notes
.
If all or substantially all of the assets of (i)
Unitymedia KabelBW
and certain of its subsidiaries or (ii) the
UM Senior Secured Notes Issuer
and certain of their subsidiaries are disposed of or any other change of control (as specified in the relevant
Unitymedia KabelBW Notes
) is triggered,
Unitymedia KabelBW
or the
UM Senior Secured Notes Issuer
s (as applicable) must offer to
II-138
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
repurchase all of the relevant
Unitymedia KabelBW Notes
at a redemption price of
101%
of the principal amount of such
Unitymedia KabelBW Notes
.
Unitymedia KabelBW Revolving Credit Facilities
During the third quarter of 2014,
Unitymedia Hessen
completed the refinancing of its then existing
€337.5 million
(
$408.4 million
) and
€80.0 million
(
$96.8 million
) revolving credit facilities (the
Old Unitymedia KabelBW Revolving Credit Facilities
). Pursuant to this refinancing, the respective commitments of the lenders under the
Old Unitymedia KabelBW Revolving Credit Facilities
were cancelled and
Unitymedia Hessen
entered into (i) a new
€80.0 million
(
$96.8 million
) super senior secured revolving credit facility agreement (the
UM Super Senior Secured Facility
) and (ii) a new
€420.0 million
(
$508.2 million
) senior secured revolving credit facility agreement (the
UM Senior Secured Facility
and, together with the
UM Super Senior Secured Facility
, the
Unitymedia KabelBW Revolving Credit Facilities
). At
December 31, 2014
, we had
€280.0 million
(
$338.8 million
) outstanding under the
Unitymedia KabelBW Revolving Credit Facilities
and our availability was limited to
€15.1 million
(
$18.3 million
). When the relevant
December 31, 2014
compliance reporting requirements have been completed and assuming no changes from
December 31, 2014
borrowing levels, we anticipate that our availability will be limited to
€123.7 million
(
$149.7 million
).
The
UM Super Senior Secured Facility
bears interest at
EURIBOR
plus a margin of
2.25%
, matures in December 2020 and has a fee on unused commitments of
0.9%
per year. The
UM Senior Secured Facility
bears interest at
EURIBOR
plus a margin of
2.75%
, matures in December 2020 and has a fee on unused commitments of
1.1%
per year. The
UM Super Senior Secured Facility
is senior with respect to the priority of proceeds received from the enforcement of shared collateral to (i) the
Unitymedia KabelBW Notes
and (ii) the
UM Senior Secured Facility
. The
Unitymedia KabelBW Revolving Credit Facilities
may be used for general corporate and working capital purposes.
In addition to customary restrictive covenants and events of default, the
Unitymedia KabelBW Revolving Credit Facilities
require compliance with a consolidated net leverage ratio, as specified in the applicable facility, in the event that the outstanding borrowings under either facility are more than
33.3%
of the total commitments. The
Unitymedia KabelBW Revolving Credit Facilities
are secured by a pledge over the shares of the borrower and certain other asset security of certain subsidiaries of
Unitymedia KabelBW
. The
Unitymedia KabelBW Revolving Credit Facilities
permit
Unitymedia KabelBW
to transfer funds to its parent company (and indirectly to
Liberty Global
) through loans, dividends or other distributions provided that
Unitymedia KabelBW
maintains compliance with applicable covenants. If a change of control occurs, as specified in the
Unitymedia KabelBW Revolving Credit Facilities
, each lender may cancel its commitments and declare all outstanding amounts immediately due and payable.
Ziggo Credit Facility
On January 27, 2014, in connection with our then pending acquisition of
Ziggo
,
Ziggo B.V.
and certain of its subsidiaries entered into (i) a U.S. dollar-denominated term loan facility in an aggregate principal amount of
$2,350.0 million
(the
Ziggo Dollar Facility
), (ii) a euro-denominated term loan facility in an aggregate principal amount of
€1,566.0 million
(
$1,895.0 million
) (the
Ziggo Euro Facility
) and (iii) an aggregate
€650.0 million
(
$786.5 million
) in revolving credit facilities (the
Ziggo Revolving Facilities
, as further described below). The
Ziggo Dollar Facility
, the
Ziggo Euro Facility
and the
Ziggo Revolving Facilities
are collectively referred to as the “
Ziggo Credit Facility
.”
Ziggo B.V.
is a wholly-owned subsidiary of Ziggo Bond Company B.V. (
Ziggo Bondco
), which is a wholly-owned subsidiary of
Ziggo
.
Also on January 27, 2014, LGE HoldCo VII B.V., our wholly-owned subsidiary, entered into (i) a
€434.0 million
(
$525.2 million
) term loan facility (the
Ziggo Acquisition Facility
) and (ii) a euro-denominated revolving credit facility in an aggregate principal amount of
€650.0 million
(
$786.5 million
) (the
Ziggo Acquisition Revolving Facility
). Upon completion of the
Ziggo Acquisition
(a) the
Ziggo Acquisition Facility
was rolled into the
Ziggo Euro Facility
and (b) the
Ziggo Acquisition Revolving Facility
was cancelled.
II-139
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
The details of our borrowings under the
Ziggo Credit Facility
as of
December 31, 2014
are summarized in the following table:
|
Facility
|
Maturity
|
Interest rate
|
Facility amount
(in borrowing
currency)
|
Unused
borrowing
capacity
|
Carrying
value (a)
|
|||||||||||
|
|
|
|
in millions
|
|||||||||||||
|
Ziggo Euro Facility
|
January 15, 2022
|
EURIBOR + 3.00%
|
€
|
2,000.0
|
|
$
|
—
|
|
$
|
2,395.5
|
|
|||||
|
Ziggo Dollar Facility
|
January 15, 2022
|
LIBOR + 2.75%
|
$
|
2,350.0
|
|
—
|
|
2,315.3
|
|
|||||||
|
Ziggo Revolving Facilities
|
June 30, 2020
|
(b)
|
€
|
650.0
|
|
786.5
|
|
—
|
|
|||||||
|
Total
|
$
|
786.5
|
|
$
|
4,710.8
|
|
||||||||||
_______________
|
(a)
|
Amounts include the impact of discounts, where applicable.
|
|
(b)
|
The
Ziggo Revolving Facilities
include (i) a
€600.0 million
(
$726.0 million
) facility that bears interest at EURIBOR plus a margin of
2.75%
and has a fee on unused commitments of
1.1%
per year and (ii) a
€50.0 million
(
$60.5 million
) facility that bears interest at EURIBOR plus a margin of
2.00%
and has a fee on unused commitments of
0.8%
per year.
|
The
Ziggo Credit Facility
requires that certain subsidiaries of
Ziggo
(as specified in the applicable indenture) that generate not less than
80%
of such group’s EBITDA (as specified in the
Ziggo Credit Facility
) in any financial year, guarantee the payment of all sums payable under the
Ziggo Credit Facility
and such group members are required to grant first-ranking security over all or substantially all of the assets to secure the payment of all sums payable. In addition, the holding company of each borrower must give a share pledge over its shares in such borrower and all rights under subordinated shareholder funding must be pledged.
In addition to mandatory prepayments which must be made for certain disposal proceeds (subject to certain de minimis thresholds), the facility agent may (if required by the majority lenders) cancel their commitments and declare the loans due and payable after
30
business days following the occurrence of a change of control.
The
Ziggo Credit Facility
contains certain customary events of default, the occurrence of which, subject to certain exceptions and materiality qualifications, would allow the lenders to (i) cancel the total commitments, (ii) accelerate all outstanding loans and terminate their commitments thereunder and/or (iii) declare that all or part of the loans be payable on demand. The
Ziggo Credit Facility
contains certain representations and warranties customary for facilities of this type, which are subject to exceptions and materiality qualifications.
The
Ziggo Credit Facility
restricts the ability of the borrowers to, among other things, (i) incur or guarantee certain financial indebtedness, (ii) make certain disposals, distributions and acquisitions and (iii) create certain security interests over their assets, in each case, subject to carve-outs from such limitations.
The
Ziggo Credit Facility
requires the borrowers to observe certain affirmative undertakings, which are subject to materiality and other customary and agreed exceptions. In addition, the
Ziggo Credit Facility
also requires compliance with certain financial covenants such as a senior net debt leverage ratio and a total net debt leverage ratio, as specified in the indenture.
The
Ziggo Credit Facility
permits certain members of the Ziggo borrowing group to make certain distributions and restricted payments to its parent company (and indirectly to
Liberty Global
) through loans, advances or dividends, subject to compliance with applicable covenants.
For information regarding certain
financing transactions impacting the Ziggo borrowing group completed subsequent to
December 31, 2014
, see note
20
.
II-140
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
Ziggo Notes
At
December 31, 2014
, the following senior notes of certain
Ziggo
subsidiaries were outstanding:
|
•
|
€743.1 million
(
$899.2 million
) principal amount of
7.125%
senior notes due May 15, 2024 (the
Ziggo 2024 Euro Senior Notes
); and
|
|
•
|
€71.7 million
(
$86.8 million
) principal amount of
3.625%
senior secured notes due March 27, 2020 (the
Ziggo 2020 Euro Senior Secured Notes
).
|
The
Ziggo 2024 Euro Senior Notes
and the
Ziggo 2020 Euro Senior Secured Notes
are collectively referred to as the “
Ziggo Notes
”.
The details of the
Ziggo Notes
as of
December 31, 2014
are summarized in the following table:
|
|
|
|
Outstanding principal
amount
|
|
|
|||||||||||||||
|
Ziggo Notes
|
Maturity
|
Interest
rate
|
Borrowing
currency
|
U.S. $
equivalent
|
Estimated
fair value
|
Carrying
value (a)
|
||||||||||||||
|
|
|
|
in millions
|
|||||||||||||||||
|
Ziggo 2020 Euro Senior Secured Notes
|
March 27, 2020
|
3.625%
|
€
|
71.7
|
|
$
|
86.8
|
|
$
|
88.7
|
|
$
|
89.3
|
|
||||||
|
Ziggo 2024 Euro Senior Notes
|
May 15, 2024
|
7.125%
|
€
|
743.1
|
|
899.2
|
|
993.6
|
|
987.7
|
|
|||||||||
|
Total
|
$
|
986.0
|
|
$
|
1,082.3
|
|
$
|
1,077.0
|
|
|||||||||||
_______________
|
(a)
|
Amounts include the impact of premiums, where applicable.
|
The
Ziggo 2020 Euro Senior Secured Notes
are senior secured obligations of
Ziggo B.V.
and are guaranteed on a senior secured basis by various subsidiaries of
Ziggo B.V.
The
Ziggo 2020 Euro Senior Secured Notes
are non-callable. At any time prior to maturity,
Ziggo B.V.
may redeem some or all of the
Ziggo 2020 Euro Senior Secured Notes
by paying a “make-whole” premium, which is the present value at such redemption date using the discount rate (as specified in the applicable indenture) as of the redemption date plus
50
basis points.
The
Ziggo 2024 Euro Senior Notes
are senior obligations of
Ziggo Bondco
and are secured by a pledge of the shares of
Ziggo Bondco
. The
Ziggo 2024 Euro Senior Notes
are non-callable until May 15, 2019. At any time prior to May 15, 2019,
Ziggo Bondco
may redeem some or all of the
Ziggo 2024 Euro Senior Notes
by paying a “make-whole” premium.
Ziggo Bondco
may redeem some or all of the
Ziggo 2024 Euro Senior Notes
at the following redemption prices (expressed as a percentage of the principal amount) plus accrued and unpaid interest and additional amounts (as specified in the applicable indenture), if any, to the redemption date, if redeemed during the twelve-month period commencing on May 15 of the years set forth below:
|
Year
|
Redemption
price
|
|
|
2019
|
103.563%
|
|
|
2020
|
102.375%
|
|
|
2021
|
101.188%
|
|
|
2022 and thereafter
|
100.000%
|
|
The
Ziggo 2024 Euro Senior Notes
contain certain customary incurrence-based covenants that restrict the ability of
Ziggo Bondco
and certain subsidiaries to raise certain additional debt and make certain distributions or loans to other subsidiaries of
Liberty Global
.
II-141
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
If
Ziggo B.V.
or
Ziggo Bondco
sell certain assets or experience changes in control (as specified in the applicable indenture)
Ziggo B.V.
or
Ziggo Bondco
must offer to repurchase all of the relevant
Ziggo Notes
at a redemption price of
101%
.
For information regarding certain
financing transactions completed subsequent to
December 31, 2014
that impact the Ziggo borrowing group, see note
20
.
Telenet Credit Facility
The
Telenet Credit Facility
, as amended, is the senior secured credit facility of
Telenet International
. In addition to customary restrictive covenants, prepayment requirements and events of default, including defaults on other indebtedness of
Telenet
and its subsidiaries, the
Telenet Credit Facility
requires compliance with a net total debt to consolidated annualized EBITDA covenant and a consolidated EBITDA to total cash interest covenant, each as specified in the
Telenet Credit Facility
. Under the
Telenet Credit Facility
, members of the borrower group are permitted to make certain distributions and restricted payments to its shareholders subject to compliance with applicable covenants. The
Telenet Credit Facility
is secured by (i) pledges over the shares of
Telenet NV
and certain of its subsidiaries, (ii) pledges over certain intercompany and subordinated shareholder loans and (iii) pledges over certain receivables, real estate and other assets of
Telenet NV
,
Telenet International
and certain other
Telenet
subsidiaries. The agreement governing the
Telenet Credit Facility
contains covenants that limit, among other things,
Telenet
’s ability to merge with or into another company, acquire other companies, incur additional debt, dispose of assets, make distributions or pay dividends, provide loans and guarantees and enter into hedging agreements. In addition to customary default provisions, including defaults on other indebtedness of
Telenet
and its subsidiaries, the
Telenet Credit Facility
provides that any event of default with respect to indebtedness of
€50.0 million
(
$60.5 million
) or more in the aggregate of
Telenet
and certain of its subsidiaries is an event of default under the
Telenet Credit Facility
. If a change of control occurs, as specified in the
Telenet Credit Facility
, the facility agent may (if required by the majority lenders) cancel the total commitments and declare all outstanding amounts immediately due and payable.
The details of our borrowings under the
Telenet Credit Facility
as of
December 31, 2014
are summarized in the following table:
|
Facility
|
Maturity
|
Interest rate
|
Facility amount
(in borrowing
currency) (a)
|
Unused
borrowing
capacity (b)
|
Carrying
value
|
|||||||||||
|
|
|
|
in millions
|
|||||||||||||
|
M (c)
|
November 15, 2020
|
6.375%
|
€
|
500.0
|
|
$
|
—
|
|
$
|
605.0
|
|
|||||
|
O (c)
|
February 15, 2021
|
6.625%
|
€
|
300.0
|
|
—
|
|
363.0
|
|
|||||||
|
P (c)
|
June 15, 2021
|
EURIBOR + 3.875%
|
€
|
400.0
|
|
—
|
|
484.0
|
|
|||||||
|
S
|
December 31, 2016
|
EURIBOR + 2.75%
|
€
|
36.9
|
|
44.7
|
|
—
|
|
|||||||
|
U (c)
|
August 15, 2022
|
6.250%
|
€
|
450.0
|
|
—
|
|
544.5
|
|
|||||||
|
V (c)
|
August 15, 2024
|
6.750%
|
€
|
250.0
|
|
—
|
|
302.5
|
|
|||||||
|
W (d)
|
June 30, 2022
|
EURIBOR + 3.25%
|
€
|
474.1
|
|
—
|
|
572.5
|
|
|||||||
|
X
|
September 30, 2020
|
EURIBOR + 2.75%
|
€
|
286.0
|
|
346.1
|
|
—
|
|
|||||||
|
Y (d)
|
June 30, 2023
|
EURIBOR + 3.50%
|
€
|
882.9
|
|
—
|
|
1,066.1
|
|
|||||||
|
Elimination of Telenet Facilities M, O, P, U and V in consolidation (c)
|
—
|
|
(2,299.0
|
)
|
||||||||||||
|
Total
|
$
|
390.8
|
|
$
|
1,638.6
|
|
||||||||||
_______________
|
(a)
|
Except as described in (c) below, amounts represent total third-party facility amounts at
December 31, 2014
.
|
|
(b)
|
Telenet Facilities S and X each have a fee on unused commitments of
1.1%
per year.
|
|
(c)
|
As described below, the amounts outstanding under Telenet Facilities M, O, P, U and V are eliminated in
Liberty Global
’s consolidated financial statements.
|
II-142
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
|
(d)
|
The carrying values of Telenet Facilities W and Y include the impact of discounts.
|
Refinancing Transactions.
In April 2014,
Telenet
entered into
Telenet Facility W
and
Telenet Facility Y
. The net proceeds from these issuances, along with available cash and cash equivalents, were used to (i) fully redeem the outstanding amounts under existing Facilities Q, R and T under the
Telenet Credit Facility
and (ii) fully repay the
€100.0 million
(
$121.0 million
) outstanding principal amount under Telenet Facility N to Telenet Finance Luxembourg II S.A. (
Telenet Finance II
) and, in turn,
Telenet Finance II
used the proceeds to fully redeem its
5.3%
senior secured notes due November 2016 (the
Telenet Finance II Notes
).
Telenet Finance II
was a special purpose financing entity that, prior to the redemption of the
Telenet Finance II Notes
, was consolidated by
Telenet
. In addition, the commitments under
Telenet
’s then existing revolving credit facility (
Telenet Facility S
) were reduced from
€158.0 million
(
$191.2 million
) to
€36.9 million
(
$44.7 million
) and
Telenet
entered into
Telenet Facility X
. In connection with these transactions, we recognized a loss on debt modification, extinguishment and conversion, net, of
$11.9 million
, which includes (a) the write-off of
$7.1 million
of deferred financing costs, (b) the payment of
$3.6 million
of redemption premium and (c) the write-off of
$1.2 million
of unamortized discount.
Telenet SPE Notes
Telenet Finance Luxembourg S.C.A. (
Telenet Finance
), Telenet Finance III Luxembourg S.C.A. (
Telenet Finance III
), Telenet Finance IV Luxembourg S.C.A. (
Telenet Finance IV
) and Telenet Finance V Luxembourg S.C.A. (
Telenet Finance V
and, together with
Telenet Finance
,
Telenet Finance II
,
Telenet Finance III
and
Telenet Finance IV
, the
Telenet SPE
s) are all special purpose financing entities that are owned
100%
by certain third parties. The
Telenet SPE
s were created for the primary purposes of facilitating the offerings of
€500.0 million
(
$605.0 million
) principal amount of
6.375%
senior secured notes (the
Telenet Finance Notes
),
€300.0 million
(
$363.0 million
) principal amount of
6.625%
senior secured notes (the
Telenet Finance III Notes
),
€400.0 million
(
$484.0 million
) principal amount of floating-rate senior secured notes (the
Telenet Finance IV Notes
),
€450.0 million
(
$544.5 million
) principal amount of
6.25%
senior secured notes (the
6.25% Telenet Finance V Notes
) and
€250.0 million
(
$302.5 million
) principal amount of
6.75%
senior secured notes (the
6.75% Telenet Finance V Notes
and, together with the
6.25% Telenet Finance V Notes
, the
Telenet Finance V Notes
). We refer to the
Telenet Finance Notes
, the
Telenet Finance III Notes
, the
Telenet Finance IV Notes
and the
Telenet Finance V Notes
collectively as the “
Telenet SPE Notes
.”
On November 3, 2010, February 15, 2011 and June 15, 2011, the applicable
Telenet SPE
issued the
Telenet Finance Notes
, the
Telenet Finance III Notes
and the
Telenet Finance IV Notes
and, on August 13, 2012,
Telenet Finance V
issued the
6.75% Telenet Finance V Notes
and the
6.25% Telenet Finance V Notes
, respectively. The proceeds from these
Telenet SPE Notes
were used to fund the respective new Facilities M, O, P, U and V of the
Telenet Credit Facility
, the proceeds of which were in turn generally applied to repay amounts outstanding under the
Telenet Credit Facility
.
Each
Telenet SPE
is dependent on payments from
Telenet International
under the applicable facility (each, a
Telenet SPE Funded Facility
) of the
Telenet Credit Facility
in order to service its payment obligations under its
Telenet SPE Notes
. Although
Telenet International
has no equity or voting interest in any of the
Telenet SPE
s, each of the
Telenet SPE Funded Facility
loans creates a variable interest in the respective
Telenet SPE
for which
Telenet International
is the primary beneficiary, as contemplated by
GAAP
. As such,
Telenet International
and its parent entities, including
Telenet
and
Liberty Global
, are required by the provisions of
GAAP
to consolidate the
Telenet SPE
s. Accordingly, the amounts outstanding under Facilities M, O, P, U and V have been eliminated in
Liberty Global
’s consolidated financial statements.
Pursuant to the respective indentures for the
Telenet SPE Notes
(the
Telenet SPE Indenture
s) and the respective accession agreements for the Telenet SPE Funded Facilities, the call provisions, maturity and applicable interest rate for each
Telenet SPE Funded Facility
are the same as those of the related
Telenet SPE Notes
. The
Telenet SPE
s, as lenders under the
Telenet Credit Facility
, are treated the same as the other lenders under the
Telenet Credit Facility
, with benefits, rights and protections similar to those afforded to the other lenders. Through the covenants in the applicable
Telenet SPE Indenture
and the applicable security interests over (i) all of the issued shares of the relevant
Telenet SPE
and (ii) the relevant
Telenet SPE
’s rights under the applicable
Telenet SPE Funded Facility
granted to secure the obligations of the relevant
Telenet SPE
under the relevant
Telenet SPE Notes
, the holders of the
Telenet SPE Notes
are provided indirectly with the benefits, rights, protections and covenants, granted to the
Telenet SPE
s as lenders under the
Telenet Credit Facility
.
The
Telenet SPE
s are prohibited from incurring any additional indebtedness, subject to certain exceptions, under the
Telenet SPE Indenture
s.
II-143
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
Subject to the circumstances described below, the
Telenet Finance Notes
may not be redeemed prior to November 15, 2015, the
Telenet Finance III Notes
may not be redeemed prior to February 15, 2016, the
Telenet Finance IV Notes
may not be redeemed prior to June 15, 2014, the
6.25% Telenet Finance V Notes
may not be redeemed prior to August 15, 2017 (except as described above) and the
6.75% Telenet Finance V Notes
may not be redeemed prior to August 15, 2018 (each a
Telenet SPE Notes Call Date
). If, however, at any time prior to the applicable
Telenet SPE Notes Call Date
, a voluntary prepayment of all or a portion of the loans under the related
Telenet SPE Funded Facility
occurs, then the applicable
Telenet SPE
will be required to redeem an aggregate principal amount of its
Telenet SPE Notes
equal to the principal amount of the loans so prepaid under the related
Telenet SPE Funded Facility
. The redemption price payable will equal the sum of (i)
100%
of the principal amount of the applicable
Telenet SPE Notes
to be redeemed, (ii) the excess of (a) the present value at such redemption date of (1) the redemption price of such
Telenet SPE Notes
on the applicable
Telenet SPE Notes Call Date
, as determined in accordance with the table below, plus (2) all required remaining scheduled interest payments thereon due through the applicable
Telenet SPE Notes Call Date
(excluding accrued and unpaid interest to such redemption date), computed using the discount rate specified in the applicable
Telenet SPE Indenture
, over (b) the principal amount of such
Telenet SPE Notes
to be redeemed and (iii) accrued and unpaid interest thereon and additional amounts (as specified in the applicable
Telenet SPE Indenture
), if any, to the applicable redemption date.
On or after (i) the applicable
Telenet SPE Notes Call Date
, upon the voluntary prepayment of all or a portion of the loans under the related
Telenet SPE Funded Facility
, the applicable
Telenet SPE
will redeem an aggregate principal amount of its
Telenet SPE Notes
equal to the principal amount of the loans so prepaid and (ii) in the case of the
Telenet SPE Notes
, additional amounts (as specified in the applicable
Telenet SPE Indenture
), if any, to the applicable redemption date, if redeemed during the twelve-month period commencing on (a) November 15 for the
Telenet Finance Notes
, (b) February 15 for the
Telenet Finance III Notes
, (c) June 15 for the
Telenet Finance IV Notes
and (d) August 15 for the
Telenet Finance V Notes
, of the years set forth below:
|
|
Redemption Price
|
|||||||||
|
Year
|
Telenet
Finance
Notes
|
Telenet
Finance III
Notes
|
Telenet
Finance IV
Notes
|
6.25% Telenet
Finance V
Notes
|
6.75% Telenet
Finance V
Notes
|
|||||
|
2015
|
103.188%
|
N.A.
|
101.000%
|
N.A.
|
N.A.
|
|||||
|
2016
|
102.125%
|
103.313%
|
100.000%
|
N.A.
|
N.A.
|
|||||
|
2017
|
101.063%
|
102.209%
|
100.000%
|
103.125%
|
N.A.
|
|||||
|
2018
|
100.000%
|
101.104%
|
100.000%
|
102.083%
|
103.375%
|
|||||
|
2019
|
100.000%
|
100.000%
|
100.000%
|
101.563%
|
102.531%
|
|||||
|
2020
|
100.000%
|
100.000%
|
100.000%
|
100.000%
|
101.688%
|
|||||
|
2021
|
N.A.
|
100.000%
|
100.000%
|
100.000%
|
100.844%
|
|||||
|
2022 and thereafter
|
N.A.
|
N.A.
|
N.A.
|
100.000%
|
100.000%
|
|||||
The details of the
Telenet SPE Notes
as of
December 31, 2014
are summarized in the following table:
|
|
|
Outstanding
principal amount
|
|
|
|||||||||||||||||
|
Telenet SPEs Notes
|
Maturity
|
Interest rate
|
Borrowing
currency
|
U.S. $
equivalent
|
Estimated
fair value
|
Carrying
value
|
|||||||||||||||
|
|
|
in millions
|
|||||||||||||||||||
|
Telenet Finance Notes
|
November 15, 2020
|
6.375%
|
€
|
500.0
|
|
$
|
605.0
|
|
$
|
639.8
|
|
$
|
605.0
|
|
|||||||
|
Telenet Finance III Notes
|
February 15, 2021
|
6.625%
|
€
|
300.0
|
|
363.0
|
|
387.0
|
|
363.0
|
|
||||||||||
|
Telenet Finance IV Notes
|
June 15, 2021
|
EURIBOR + 3.875%
|
€
|
400.0
|
|
484.0
|
|
487.0
|
|
484.0
|
|
||||||||||
|
6.25% Telenet Finance V Notes
|
August 15, 2022
|
6.250%
|
€
|
450.0
|
|
544.5
|
|
595.9
|
|
544.5
|
|
||||||||||
|
6.75% Telenet Finance V Notes
|
August 15, 2024
|
6.750%
|
€
|
250.0
|
|
302.5
|
|
340.7
|
|
302.5
|
|
||||||||||
|
Total
|
$
|
2,299.0
|
|
$
|
2,450.4
|
|
$
|
2,299.0
|
|
||||||||||||
II-144
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
VTR Finance Senior Secured Notes
On January 24, 2014, VTR Finance B.V. (
VTR Finance
) issued
$1.4 billion
principal amount of
6.875%
senior secured notes due January 15, 2024 (the
VTR Finance Senior Secured Notes
) pursuant to an indenture dated January 24, 2014 (the
VTR Indenture
). The net proceeds from the issuance of the
VTR Finance Senior Secured Notes
were used, together with existing cash of our subsidiaries, to repay all of the outstanding indebtedness under Facilities R, S and AE of the
UPC Broadband Holding Bank Facility
in connection with the extraction of
VTR Finance
and its subsidiaries from the
UPC Holding
credit pool.
Taking into account the derivative contracts that we entered into in connection with the
VTR Finance Senior Secured Notes
, our effective borrowing cost for the
VTR Finance Senior Secured Notes
is
10.94%
.
The
VTR Finance Senior Secured Notes
are senior obligations of
VTR Finance
and rank equally with all other existing and future debt of
VTR Finance
that is not subordinated in right of payment to the
VTR Finance Senior Secured Notes
and senior in right of payment to all existing and future subordinated debt of
VTR Finance
. The
VTR Finance Senior Secured Notes
are secured by a first-ranking pledge over all the shares of
VTR Finance
and
VTR Finance
’s subsidiary, United Chile LLC.
At any time prior to January 15, 2019,
VTR Finance
may redeem some or all of the
VTR Finance Senior Secured Notes
by paying a “make-whole” premium, which is the present value of all remaining scheduled interest payments to January 15, 2019 using the discount rate (as specified in the
VTR Indenture
) as of the applicable redemption date plus
50
basis points.
At any time prior to January 15, 2019,
VTR Finance
may redeem during each twelve-month period commencing on January 24, 2014 up to
10%
of the principal amount of the
VTR Finance Senior Secured Notes
at a redemption price equal to
103%
of the principal amount thereof plus accrued and unpaid interest.
VTR Finance
may redeem all or part of the
VTR Finance Senior Secured Notes
at the following redemption prices (expressed as a percentage of the principal amount) plus accrued and unpaid interest and additional amounts (as specified in the
VTR Indenture
), if any, to the applicable redemption date, if redeemed during the
twelve
-month period commencing January 15 of the years set forth below:
|
Year
|
Redemption
price
|
||
|
2019
|
103.438
|
%
|
|
|
2020
|
102.292
|
%
|
|
|
2021
|
101.146
|
%
|
|
|
2022 and thereafter
|
100.000
|
%
|
|
VTR Credit Facility
The
VTR Credit Facility
is the senior secured credit facility of
VTR
and certain of its subsidiaries and consists of the
VTR Dollar Credit Facility
and the
VTR CLP Credit Facility
. The
VTR Dollar Credit Facility
and the
VTR CLP Credit Facility
have fees on unused commitments of
1.1%
and
1.34%
per year, respectively. The interest rate for the
VTR Dollar Credit Facility
is LIBOR plus a margin of
2.75%
. The interest rate for the
VTR CLP Credit Facility
is the applicable interbank offered rate for Chilean pesos in the relevant interbank market plus a margin of
3.35%
. Borrowings under the
VTR Dollar Credit Facility
and the
VTR CLP Credit Facility
mature in January 2020 and January 2019, respectively.
Liberty Puerto Rico Bank Facility
At
December 31, 2014
, the
Liberty Puerto Rico Bank Facility
consists of (i) a
$530.0 million
first lien term loan that matures on January 7, 2022 (the
LPR Term Loan B
), (ii) a
$145.0 million
second lien term loan that matures on July 7, 2023 (the
LPR Term Loan C
) and (iii) a
$40.0 million
revolving credit facility (the
LPR Revolving Loan
), which revolving facility was undrawn at
December 31, 2014
. The net proceeds from
LPR Term Loan B
and
LPR Term Loan C
were used to repay all amounts previously outstanding under the
Liberty Puerto Rico Bank Facility
. The
LPR Term Loan B
and
LPR Term Loan C
, each of which were issued at
99.5%
of par, bear interest at LIBOR plus
3.50%
and LIBOR plus
6.75%
, respectively, and are subject to a LIBOR floor of
1.0%
. The
LPR Revolving Loan
, which matures on July 7, 2020 and bears interest at LIBOR plus
3.50%
, has a fee on unused
II-145
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
commitments of
0.50%
or
0.375%
depending on the consolidated total net leverage ratio (as specified in the
Liberty Puerto Rico Bank Facility
).
In addition to customary restrictive covenants, prepayment requirements and events of default, including defaults on other indebtedness of
Liberty Puerto Rico
and its subsidiaries, the
Liberty Puerto Rico Bank Facility
requires compliance with the following financial covenants: (i) consolidated total net leverage ratio and (ii) consolidated first lien net leverage ratio, each as specified in the
Liberty Puerto Rico Bank Facility
. The
Liberty Puerto Rico Bank Facility
permits
Liberty Puerto Rico
to transfer funds to its parent company (and indirectly to
Liberty Global
) through loans, dividends or other distributions provided that
Liberty Puerto Rico
maintains compliance with applicable covenants.
The
Liberty Puerto Rico Bank Facility
is secured by pledges over (i) the
Liberty Puerto Rico
shares indirectly owned by our company and (ii) certain other assets owned by
Liberty Puerto Rico
.
In December 2014, we entered into additional facilities under the
Liberty Puerto Rico Bank Facility
in connection with our execution of the agreement to acquire
Choice
. These facilities provide for
$257.5 million
of aggregate borrowing availability subject to the completion of the
Choice Acquisition
. For additional information regarding the
Choice Acquisition
, see note
4
.
Refinancing Transactions.
During 2014 and 2012, we completed refinancing transactions that generally resulted in additional borrowings or extended maturities under the
Liberty Puerto Rico Bank Facility
. In connection with these transactions, we recognized losses on debt modification, extinguishment and conversion, net, of
$9.8 million
and
$4.4 million
during 2014 and 2012, respectively. These losses include (i) third-party costs of
$7.1 million
and
$3.8 million
, respectively, (ii) the write-offs of deferred financing costs of
$3.6 million
and
$0.6 million
, respectively and (iii) the write-offs of unamortized premiums of
$0.9 million
and
nil
, respectively.
Maturities of Debt and Capital Lease Obligations
Maturities of our debt and capital lease obligations as of
December 31, 2014
are presented below for the named entity and its subsidiaries, unless otherwise noted. Amounts presented below represent
U.S.
dollar equivalents based on
December 31, 2014
exchange rates:
Debt:
|
Virgin Media
|
UPC
Holding (a)
|
Unitymedia KabelBW
|
Ziggo
|
Telenet (b)
|
Other
|
Total
|
|||||||||||||||||||||
|
|
in millions
|
||||||||||||||||||||||||||
|
Year ending December 31:
|
|||||||||||||||||||||||||||
|
2015
|
$
|
406.5
|
|
$
|
436.0
|
|
$
|
455.5
|
|
$
|
—
|
|
$
|
9.0
|
|
$
|
43.3
|
|
$
|
1,350.3
|
|
||||||
|
2016
|
—
|
|
—
|
|
—
|
|
—
|
|
9.0
|
|
351.0
|
|
360.0
|
|
|||||||||||||
|
2017
|
—
|
|
—
|
|
—
|
|
—
|
|
9.0
|
|
908.1
|
|
917.1
|
|
|||||||||||||
|
2018
|
—
|
|
—
|
|
—
|
|
—
|
|
9.0
|
|
239.5
|
|
248.5
|
|
|||||||||||||
|
2019
|
584.3
|
|
—
|
|
—
|
|
—
|
|
20.5
|
|
—
|
|
604.8
|
|
|||||||||||||
|
Thereafter
|
12,262.7
|
|
9,595.4
|
|
7,402.5
|
|
5,755.9
|
|
4,040.2
|
|
2,074.8
|
|
41,131.5
|
|
|||||||||||||
|
Total debt maturities
|
13,253.5
|
|
10,031.4
|
|
7,858.0
|
|
5,755.9
|
|
4,096.7
|
|
3,616.7
|
|
44,612.2
|
|
|||||||||||||
|
Unamortized premium (discount)
|
19.8
|
|
(15.2
|
)
|
(1.6
|
)
|
31.9
|
|
(3.4
|
)
|
(32.3
|
)
|
(0.8
|
)
|
|||||||||||||
|
Total debt
|
$
|
13,273.3
|
|
$
|
10,016.2
|
|
$
|
7,856.4
|
|
$
|
5,787.8
|
|
$
|
4,093.3
|
|
$
|
3,584.4
|
|
$
|
44,611.4
|
|
||||||
|
Current portion (c)
|
$
|
408.6
|
|
$
|
436.0
|
|
$
|
455.5
|
|
$
|
—
|
|
$
|
9.0
|
|
$
|
43.3
|
|
$
|
1,352.4
|
|
||||||
|
Noncurrent portion
|
$
|
12,864.7
|
|
$
|
9,580.2
|
|
$
|
7,400.9
|
|
$
|
5,787.8
|
|
$
|
4,084.3
|
|
$
|
3,541.1
|
|
$
|
43,259.0
|
|
||||||
II-146
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
_______________
|
(a)
|
Amounts include the
UPCB SPE Notes
issued by the
UPCB SPE
s. As described above, the
UPCB SPE
s are consolidated by
UPC Holding
.
|
|
(b)
|
Amounts include certain senior secured notes issued by special purpose financing entities that are consolidated by
Telenet
.
|
|
(c)
|
Includes the
$338.8 million
principal amount outstanding under the revolving credit facilities of our subsidiaries.
|
Capital lease obligations:
|
Unitymedia KabelBW
|
Telenet
|
Virgin Media
|
Other
|
Total
|
|||||||||||||||
|
|
in millions
|
||||||||||||||||||
|
Year ending December 31:
|
|||||||||||||||||||
|
2015
|
$
|
88.7
|
|
$
|
66.7
|
|
$
|
122.7
|
|
$
|
22.3
|
|
$
|
300.4
|
|
||||
|
2016
|
88.7
|
|
65.2
|
|
69.5
|
|
20.1
|
|
243.5
|
|
|||||||||
|
2017
|
88.7
|
|
63.4
|
|
29.6
|
|
13.1
|
|
194.8
|
|
|||||||||
|
2018
|
88.7
|
|
60.0
|
|
6.6
|
|
5.8
|
|
161.1
|
|
|||||||||
|
2019
|
88.7
|
|
49.6
|
|
4.4
|
|
2.9
|
|
145.6
|
|
|||||||||
|
Thereafter
|
965.9
|
|
252.5
|
|
222.1
|
|
21.8
|
|
1,462.3
|
|
|||||||||
|
Total principal and interest payments
|
1,409.4
|
|
557.4
|
|
454.9
|
|
86.0
|
|
2,507.7
|
|
|||||||||
|
Amounts representing interest
|
(599.3
|
)
|
(144.0
|
)
|
(199.6
|
)
|
(17.2
|
)
|
(960.1
|
)
|
|||||||||
|
Present value of net minimum lease payments
|
$
|
810.1
|
|
$
|
413.4
|
|
$
|
255.3
|
|
$
|
68.8
|
|
$
|
1,547.6
|
|
||||
|
Current portion
|
$
|
27.1
|
|
$
|
41.3
|
|
$
|
111.6
|
|
$
|
18.5
|
|
$
|
198.5
|
|
||||
|
Noncurrent portion
|
$
|
783.0
|
|
$
|
372.1
|
|
$
|
143.7
|
|
$
|
50.3
|
|
$
|
1,349.1
|
|
||||
Non-cash Refinancing Transactions
During
2014
,
2013
and
2012
, certain of our refinancing transactions included non-cash borrowings and repayments of debt aggregating
$5,418.8 million
,
$5,061.5 million
and
$3,793.4 million
, respectively. During 2013, we also recorded a
$3,557.5 million
non-cash increase to our debt as a result of certain financing transactions completed in contemplation of the execution of the
Virgin Media Merger Agreement
. For additional information, see note
4
.
II-147
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
(
11
)
Income Taxes
As a result of the
Virgin Media Acquisition
, pursuant to which
Liberty Global
became the publicly-held parent company of the successors by merger of
LGI
and
Virgin Media
, our statutory tax rate changed during 2013 from the
U.S.
federal income tax rate of
35.0%
to the
U.K.
statutory income tax rate. The
U.K.
statutory income tax rate is currently
21.0%
.
Liberty Global
has filed income tax returns in the
U.K.
and
U.S.
for 2014 and 2013, and
LGI
will continue to file consolidated income tax returns in the
U.S.
The income taxes of
Liberty Global
and its subsidiaries are presented on a separate return basis for each tax-paying entity or group.
The components of our loss from continuing operations before income taxes are as follows:
|
|
Year ended December 31,
|
||||||||||||
|
|
2014
|
2013
|
2012
|
||||||||||
|
|
in millions
|
||||||||||||
|
U.S.
|
$
|
(1,105.6
|
)
|
$
|
(306.3
|
)
|
$
|
(73.3
|
)
|
||||
|
The Netherlands
|
(644.5
|
)
|
—
|
|
799.9
|
|
—
|
|
(152.3
|
)
|
|||
|
U.K.
|
585.7
|
|
(976.0
|
)
|
(11.6
|
)
|
|||||||
|
Switzerland
|
326.1
|
|
284.3
|
|
274.8
|
|
|||||||
|
Germany
|
(294.7
|
)
|
—
|
|
(355.8
|
)
|
—
|
|
(498.4
|
)
|
|||
|
Belgium
|
21.5
|
|
—
|
|
89.5
|
|
—
|
|
96.9
|
|
|||
|
Other
|
55.6
|
|
(62.1
|
)
|
(145.0
|
)
|
|||||||
|
Total
|
$
|
(1,055.9
|
)
|
$
|
(526.5
|
)
|
$
|
(508.9
|
)
|
||||
II-148
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
Income tax benefit (expense) consists of:
|
Current
|
Deferred
|
Total
|
|||||||||
|
|
in millions
|
||||||||||
|
Year ended December 31, 2014:
|
|||||||||||
|
Continuing operations:
|
|||||||||||
|
U.K.
|
$
|
(2.1
|
)
|
$
|
113.4
|
|
$
|
111.3
|
|
||
|
U.S. (a)
|
(22.5
|
)
|
129.6
|
|
107.1
|
|
|||||
|
Belgium
|
(138.7
|
)
|
31.7
|
|
(107.0
|
)
|
|||||
|
Switzerland
|
(76.8
|
)
|
3.1
|
|
(73.7
|
)
|
|||||
|
The Netherlands
|
11.1
|
|
42.5
|
|
53.6
|
|
|||||
|
Germany
|
(22.6
|
)
|
37.0
|
|
14.4
|
|
|||||
|
Other
|
(24.0
|
)
|
(6.7
|
)
|
(30.7
|
)
|
|||||
|
Total — continuing operations
|
$
|
(275.6
|
)
|
$
|
350.6
|
|
$
|
75.0
|
|
||
|
Discontinued operations
|
$
|
—
|
|
$
|
(0.1
|
)
|
$
|
(0.1
|
)
|
||
|
Year ended December 31, 2013:
|
|||||||||||
|
Continuing operations:
|
|||||||||||
|
U.K
|
$
|
(2.4
|
)
|
$
|
(245.2
|
)
|
$
|
(247.6
|
)
|
||
|
Belgium
|
(97.1
|
)
|
(16.2
|
)
|
(113.3
|
)
|
|||||
|
The Netherlands
|
0.5
|
|
97.3
|
|
97.8
|
|
|||||
|
Switzerland
|
(53.6
|
)
|
(4.4
|
)
|
(58.0
|
)
|
|||||
|
Germany
|
(13.2
|
)
|
(38.1
|
)
|
(51.3
|
)
|
|||||
|
U.S. (a)
|
(106.0
|
)
|
104.9
|
|
(1.1
|
)
|
|||||
|
Other
|
(65.1
|
)
|
83.1
|
|
18.0
|
|
|||||
|
Total — continuing operations
|
$
|
(336.9
|
)
|
$
|
(18.6
|
)
|
$
|
(355.5
|
)
|
||
|
Discontinued operations
|
$
|
(20.5
|
)
|
$
|
(2.2
|
)
|
$
|
(22.7
|
)
|
||
|
Year ended December 31, 2012:
|
|||||||||||
|
Continuing operations:
|
|||||||||||
|
Germany
|
$
|
4.0
|
|
$
|
119.6
|
|
$
|
123.6
|
|
||
|
The Netherlands
|
(8.2
|
)
|
(67.6
|
)
|
(75.8
|
)
|
|||||
|
Switzerland
|
(8.7
|
)
|
(63.7
|
)
|
(72.4
|
)
|
|||||
|
Belgium
|
(1.5
|
)
|
(54.5
|
)
|
(56.0
|
)
|
|||||
|
U.S. (a)
|
38.2
|
|
(44.6
|
)
|
(6.4
|
)
|
|||||
|
U.K.
|
(0.1
|
)
|
(0.7
|
)
|
(0.8
|
)
|
|||||
|
Other
|
(62.7
|
)
|
75.5
|
|
12.8
|
|
|||||
|
Total — continuing operations
|
$
|
(39.0
|
)
|
$
|
(36.0
|
)
|
$
|
(75.0
|
)
|
||
|
Discontinued operations
|
$
|
(14.8
|
)
|
$
|
(13.3
|
)
|
$
|
(28.1
|
)
|
||
_______________
|
(a)
|
Includes federal and state income taxes. Our
U.S.
state income taxes were not material during any of the years presented.
|
II-149
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
Income tax benefit (expense) attributable to our loss from continuing operations before income taxes differs from the amounts computed using the applicable income tax rate as a result of the following factors:
|
|
Year ended December 31,
|
||||||||||
|
|
2014
|
2013
|
2012
|
||||||||
|
|
in millions
|
||||||||||
|
Computed “expected” tax benefit (a)
|
$
|
221.7
|
|
$
|
121.1
|
|
$
|
178.1
|
|
||
|
Change in valuation allowances (b):
|
|||||||||||
|
Decrease
|
(373.1
|
)
|
(112.6
|
)
|
(148.3
|
)
|
|||||
|
Increase
|
11.9
|
|
31.7
|
|
25.6
|
|
|||||
|
International rate differences (b) (c):
|
|||||||||||
|
Increase
|
266.4
|
|
148.2
|
|
60.6
|
|
|||||
|
Decrease
|
(27.6
|
)
|
(50.8
|
)
|
(81.8
|
)
|
|||||
|
Non-deductible or non-taxable interest and other expenses (b):
|
|||||||||||
|
Decrease
|
(236.5
|
)
|
(133.5
|
)
|
(84.7
|
)
|
|||||
|
Increase
|
58.0
|
|
85.2
|
|
2.4
|
|
|||||
|
Tax effect of intercompany financing
|
166.9
|
|
82.7
|
|
—
|
|
|||||
|
Basis and other differences in the treatment of items associated with investments in subsidiaries and affiliates
|
(135.4
|
)
|
(4.0
|
)
|
(24.6
|
)
|
|||||
|
Non-deductible or non-taxable foreign currency exchange results (b):
|
|||||||||||
|
Increase
|
71.9
|
|
0.5
|
|
—
|
|
|||||
|
Decrease
|
(16.3
|
)
|
(56.1
|
)
|
(10.4
|
)
|
|||||
|
Recognition of previously unrecognized tax benefits
|
29.5
|
|
—
|
|
—
|
|
|||||
|
Enacted tax law and rate changes (d)
|
23.9
|
|
(377.8
|
)
|
12.3
|
|
|||||
|
Change in subsidiary tax attributes due to a deemed change in control
|
—
|
|
(88.0
|
)
|
—
|
|
|||||
|
Other, net
|
13.7
|
|
(2.1
|
)
|
(4.2
|
)
|
|||||
|
Total income tax benefit (expense)
|
$
|
75.0
|
|
$
|
(355.5
|
)
|
$
|
(75.0
|
)
|
||
_______________
|
(a)
|
The statutory or “expected” tax rates are the
U.K.
rate of
21.0%
, the
U.K.
rate of
23.0%
and the
U.S.
rate of
35.0%
for
2014
,
2013
and
2012
, respectively.
|
|
(b)
|
Country jurisdictions giving rise to increases are grouped together and shown separately from country jurisdictions giving rise to decreases.
|
|
(c)
|
Amounts reflect adjustments (either an increase or a decrease) to “expected” tax benefit for statutory rates in jurisdictions in which we operate outside of the
U.K.
for 2014 and 2013 and outside of the
U.S.
for 2012.
|
|
(d)
|
In April 2014, the
U.K.
corporate income tax rate decreased from
23.0%
to
21.0%
, with a further decline to
20.0%
scheduled for April 2015. Substantially all of the impact of these rate changes on our deferred tax balances was recorded in the third quarter of 2013.
|
II-150
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
The current and non-current components of our deferred tax assets
are as follows:
|
|
December 31,
|
||||||
|
|
2014
|
2013
|
|||||
|
|
in millions
|
||||||
|
Current deferred tax assets
|
$
|
290.3
|
|
$
|
226.1
|
|
|
|
Non-current deferred tax assets (a)
|
2,587.0
|
|
2,641.8
|
|
|||
|
Current deferred tax liabilities (a)
|
(0.6
|
)
|
(1.5
|
)
|
|||
|
Non-current deferred tax liabilities (a)
|
(2,369.4
|
)
|
(1,554.2
|
)
|
|||
|
Net deferred tax asset
|
$
|
507.3
|
|
$
|
1,312.2
|
|
|
_______________
|
(a)
|
Our current deferred tax liabilities are included in other accrued and current liabilities, and our non-current deferred tax assets and liabilities are included in other assets, net, and other long-term liabilities, respectively, in our consolidated balance sheets.
|
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below:
|
|
December 31,
|
||||||
|
|
2014
|
2013
|
|||||
|
|
in millions
|
||||||
|
Deferred tax assets:
|
|||||||
|
Net operating loss and other carryforwards
|
$
|
6,637.9
|
|
$
|
7,286.1
|
|
|
|
Property and equipment, net
|
3,469.2
|
|
3,470.7
|
|
|||
|
Debt
|
1,189.0
|
|
837.7
|
|
|||
|
Derivative instruments
|
345.9
|
|
518.4
|
|
|||
|
Intangible assets
|
149.6
|
|
187.5
|
|
|||
|
Other future deductible amounts
|
265.3
|
|
265.0
|
|
|||
|
Deferred tax assets
|
12,056.9
|
|
12,565.4
|
|
|||
|
Valuation allowance
|
(6,679.4
|
)
|
(7,052.8
|
)
|
|||
|
Deferred tax assets, net of valuation allowance
|
5,377.5
|
|
5,512.6
|
|
|||
|
Deferred tax liabilities:
|
|||||||
|
Intangible assets
|
(2,338.2
|
)
|
(1,471.1
|
)
|
|||
|
Property and equipment, net
|
(1,861.4
|
)
|
(1,945.3
|
)
|
|||
|
Investments
|
(367.6
|
)
|
(400.7
|
)
|
|||
|
Derivative instruments
|
(142.7
|
)
|
(129.5
|
)
|
|||
|
Other future taxable amounts
|
(160.3
|
)
|
(253.8
|
)
|
|||
|
Deferred tax liabilities
|
(4,870.2
|
)
|
(4,200.4
|
)
|
|||
|
Net deferred tax asset
|
$
|
507.3
|
|
$
|
1,312.2
|
|
|
Our deferred income tax valuation allowance decreased
$373.4 million
in
2014
. This decrease reflects the net effect of (i) foreign currency translation adjustments, (ii) the net tax expense related to our continuing operations of
$361.2 million
, (iii) acquisitions, (iv) expiration of net operating losses and (v) other individually insignificant items.
Virgin Media
had property and equipment on which future
U.K.
tax deductions can be claimed of
$21.6 billion
and
$22.2 billion
at
December 31, 2014
and
2013
, respectively. The maximum amount of these “capital allowances” that can be claimed in any one year is
18%
of the remaining balance, after additions, disposals and prior claims. The tax effects of these capital allowances are included in the
2014
and
2013
deferred tax assets related to property and equipment, net, in the above table.
II-151
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
At
December 31, 2014
, our unrecognized excess tax benefits aggregated
$141.7 million
. These excess tax benefits, which represent tax deductions in excess of the financial reporting expense for share-based compensation, will not be recognized for financial reporting purposes until such time as these tax benefits can be realized as a reduction of income taxes payable. The tax effects of these unrecognized excess tax benefits are not included in the above table.
The significant components of our tax loss carryforwards and related tax assets at
December 31, 2014
are as follows:
|
Country
|
Tax loss
carryforward
|
Related
tax asset
|
Expiration
date
|
|||||||
|
|
in millions
|
|
||||||||
|
U.K.
|
$
|
21,119.2
|
|
$
|
4,223.8
|
|
Indefinite
|
|||
|
The Netherlands
|
3,025.8
|
|
756.4
|
|
2015-2023
|
|||||
|
Germany
|
2,670.1
|
|
424.8
|
|
Indefinite
|
|||||
|
U.S.
|
1,550.3
|
|
405.1
|
|
2019-2034
|
|||||
|
Luxembourg
|
1,030.7
|
|
301.2
|
|
Indefinite
|
|||||
|
France
|
585.1
|
|
201.4
|
|
Indefinite
|
|||||
|
Belgium
|
506.3
|
|
172.1
|
|
Indefinite
|
|||||
|
Ireland
|
466.0
|
|
58.2
|
|
Indefinite
|
|||||
|
Hungary
|
209.8
|
|
39.9
|
|
2025
|
|||||
|
Other
|
240.7
|
|
55.0
|
|
Various
|
|||||
|
Total
|
$
|
31,404.0
|
|
$
|
6,637.9
|
|
||||
Our tax loss carryforwards within each jurisdiction combine all companies’ tax losses (both capital and ordinary losses) in that jurisdiction, however, certain tax jurisdictions limit the ability to offset taxable income of a separate company or different tax group with the tax losses associated with another separate company or group. The majority of the tax losses shown in the above table are not expected to be realized, including certain losses that are limited in use due to change in control or same business tests.
We intend to indefinitely reinvest earnings from certain non-
U.S.
operations except to the extent the earnings are subject to current income taxes. At
December 31, 2014
, income and withholding taxes for which a net deferred tax liability might otherwise be required have not been provided on an estimated
$11.1 billion
of cumulative temporary differences (including, for this purpose, any difference between the aggregate tax basis in stock of a consolidated subsidiary and the corresponding amount of the subsidiary’s net equity determined for financial reporting purposes) on non-
U.S.
entities. The determination of the additional withholding tax that would arise upon a reversal of temporary differences is impractical to estimate as it is subject to offset by available foreign tax credits and subject to certain limitations.
In general, a
U.K.
or
U.S.
corporation may claim a foreign tax credit against its income tax expense for foreign income taxes paid or accrued. A
U.S.
corporation may also claim a credit for foreign income taxes paid or accrued on the earnings of a foreign corporation paid to the
U.S.
corporation as a dividend.
Our ability to claim a foreign tax credit for dividends received from our foreign subsidiaries or foreign taxes paid or accrued is subject to various significant limitations under
U.S.
tax laws including a limited carry back and carry forward period. Some of our operating companies are located in countries with which the
U.K.
or
U.S.
does not have income tax treaties. Because we lack treaty protection in these countries, we may be subject to high rates of withholding taxes on distributions and other payments from these operating companies and may be subject to double taxation on our income. Limitations on the ability to claim a foreign tax credit, lack of treaty protection in some countries, and the inability to offset losses in one jurisdiction against income earned in another jurisdiction could result in a high effective tax rate on our earnings. Since a significant portion of our revenue is generated outside of the
U.K.
and substantially all of our revenue is generated outside the
U.S.
, including in jurisdictions that do not have tax treaties with the
U.K.
or
U.S.
, these risks are greater for us than for companies that generate most of their revenue in the
U.K.
or
U.S.
or in jurisdictions that have these treaties.
Through our subsidiaries, we maintain a presence in many countries. Many of these countries maintain highly complex tax regimes that differ significantly from the system of income taxation used in the
U.K.
and the
U.S.
We have accounted for the
II-152
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
effect of these taxes based on what we believe is reasonably expected to apply to us and our subsidiaries based on tax laws currently in effect and reasonable interpretations of these laws. Because some jurisdictions do not have systems of taxation that are as well established as the system of income taxation used in the
U.K.
,
U.S.
or tax regimes used in other major industrialized countries, it may be difficult to anticipate how other jurisdictions will tax our and our subsidiaries’ current and future operations.
Although we intend to take reasonable tax planning measures to limit our tax exposures, no assurance can be given that we will be able to do so.
We and our subsidiaries file consolidated and standalone income tax returns in various jurisdictions. In the normal course of business, our income tax filings are subject to review by various taxing authorities. In connection with such reviews, disputes could arise with the taxing authorities over the interpretation or application of certain income tax rules related to our business in that tax jurisdiction. Such disputes may result in future tax and interest and penalty assessments by these taxing authorities. The ultimate resolution of tax contingencies will take place upon the earlier of (i) the settlement date with the applicable taxing authorities in either cash or agreement of income tax positions or (ii) the date when the tax authorities are statutorily prohibited from adjusting the company’s tax computations.
In general, tax returns filed by our company or our subsidiaries for years prior to 2008 are no longer subject to examination by tax authorities. Certain of our subsidiaries are currently involved in income tax examinations in various jurisdictions in which we operate, including Germany (2008 through 2010), the Netherlands (2011 through 2014), Slovakia (2011), Switzerland (2011 through 2012) and the
U.S.
(2009 through 2014). Except as noted below, any adjustments that might arise from the foregoing examinations are not expected to have a material impact on our consolidated financial position or results of operations. In the
U.S.
, the consolidated income tax returns of
LGI
for 2009 through 2014 are under examination and, during the fourth quarter of 2013, we received two notifications from the Internal Revenue Service (
IRS
) regarding proposed adjustments to the 2010 and 2009 taxable income of
LGI
. We are in discussions with the
IRS
with respect to these proposed adjustments. While we believe that the resolution of these proposed adjustments will not have a material impact on our consolidated financial position, results of operations or cash flows, no assurance can be given that this will be the case given the amounts involved and the complex nature of the related issues.
The changes in our unrecognized tax benefits are summarized below:
|
2014
|
2013
|
2012
|
|||||||||
|
|
in millions
|
||||||||||
|
Balance at January 1
|
$
|
490.9
|
|
$
|
359.7
|
|
$
|
400.6
|
|
||
|
Additions for tax positions of prior years
|
64.5
|
|
41.5
|
|
5.5
|
|
|||||
|
Reductions for tax positions of prior years
|
(50.2
|
)
|
(14.2
|
)
|
(124.2
|
)
|
|||||
|
Additions based on tax positions related to the current year
|
38.2
|
|
102.3
|
|
89.9
|
|
|||||
|
Foreign currency translation
|
(27.0
|
)
|
7.9
|
|
2.9
|
|
|||||
|
Lapse of statute of limitations
|
(1.9
|
)
|
(6.3
|
)
|
(15.0
|
)
|
|||||
|
Settlements with tax authorities
|
(1.0
|
)
|
—
|
|
—
|
|
|||||
|
Balance at December 31
|
$
|
513.5
|
|
$
|
490.9
|
|
$
|
359.7
|
|
||
No assurance can be given that any of these tax benefits will be recognized or realized.
As of
December 31, 2014
, our unrecognized tax benefits included
$332.9 million
of tax benefits that would have a favorable impact on our effective income tax rate if ultimately recognized, after considering amounts that we would expect to be offset by valuation allowances and other factors.
During
2015
, it is reasonably possible that the resolution of ongoing examinations by tax authorities as well as expiration of statutes of limitation could result in significant reductions to our unrecognized tax benefits related to tax positions taken as of
December 31, 2014
. The amount of any such reductions could range up to
$230 million
. Other than the potential impacts of these ongoing examinations and the expected expiration of certain statutes of limitation, we do not expect any material changes to our
II-153
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
unrecognized tax benefits during
2015
. No assurance can be given as to the nature or impact of any changes in our unrecognized tax positions during
2015
.
During
2014
,
2013
and
2012
, the income tax benefit (expense) of our continuing operations includes net income tax expense of
$10.9 million
,
$14.0 million
and
$7.7 million
, respectively, representing the net accrual of interest and penalties during the period. Our other long-term liabilities include accrued interest and penalties of
$51.7 million
at
December 31, 2014
.
(
12
)
Equity
Capitalization
Our authorized share capital consists of an aggregate nominal amount of
$20.0 million
, consisting of any of the following: (i)
Liberty Global
Class A ordinary shares,
Liberty Global
Class B ordinary shares and
Liberty Global
Class C ordinary shares, each with a nominal value of
$0.01
per share, (ii)
Liberty Global
preferred shares, with a nominal value of
$0.01
per share, the issuance of one or more classes or series of which as may be authorized by the board of directors, and (iii) any other shares of one or more classes as may be determined by the board of directors or by the shareholders of
Liberty Global
.
Under
Liberty Global
’s Articles of Association, holders of
Liberty Global
Class A ordinary shares are entitled to
one
vote for each such share held, and holders of
Liberty Global
Class B ordinary shares are entitled to
10
votes for each such share held, on all matters submitted to a vote of
Liberty Global
shareholders at any general meeting (annual or special). Holders of
Liberty Global
Class C ordinary shares are not entitled to any voting powers.
Each
Liberty Global
Class B ordinary share is convertible into one
Liberty Global
Class A ordinary share at the option of the holder.
One
Liberty Global
Class A ordinary share is reserved for issuance for each
Liberty Global
Class B ordinary share that is issued (
10,139,184
shares issued as of
December 31, 2014
). At
December 31, 2014
, there were (i)
1,726,259
and
3,946,192
Liberty Global
Class A and Class C ordinary shares, respectively, reserved for issuance pursuant to outstanding stock options, (ii)
8,396,737
and
23,055,293
Liberty Global
Class A and Class C ordinary shares, respectively, reserved for issuance pursuant to outstanding
SAR
s and
PSAR
s, and (iii)
2,554,963
,
1,000,000
and
3,829,770
Liberty Global
Class A, Class B and Class C ordinary shares, respectively, reserved for issuance pursuant to outstanding
PSU
s,
PGUs
and
RSU
s.
Subject to any preferential rights of any outstanding class of our preferred shares, the holders of
Liberty Global
Class A, Class B and Class C ordinary shares will be entitled to such dividends as may be declared from time to time by our board of directors from funds available therefor. Except with respect to certain share distributions, whenever a dividend is paid to the holder of one class of our ordinary shares, we shall also pay to the holders of the other classes of our ordinary shares an equal per share dividend. There are currently no contractual restrictions on our ability to pay dividends in cash or shares.
In the event of our liquidation, dissolution and winding up, after payment or provision for payment of our debts and liabilities and subject to the prior payment in full of any preferential amounts to which our preferred shareholders may be entitled, the holders of
Liberty Global
Class A, Class B and Class C ordinary shares will share equally, on a share for share basis, in our assets remaining for distribution to the holders of
Liberty Global
ordinary shares.
Acquisition of Interests in
VTR
and
VTR Wireless
On March 14, 2014, a subsidiary of
VTR Finance
acquired each of the
20.0%
noncontrolling ownership interests in
VTR
and VTR Wireless SpA (
VTR Wireless
) from Inversiones Corp Comm 2 SpA (the
VTR NCI Acquisition
), formerly known as Corp Comm S.A. (the
VTR NCI Owner
).
VTR Wireless
was an indirect subsidiary of
Liberty Global
that was merged with a subsidiary of
VTR
in December 2014. The consideration for the
VTR NCI Acquisition
was satisfied by the allotment and issuance of
10,091,178
Liberty Global
Class C ordinary shares to the
VTR NCI Owner
. The
VTR NCI Acquisition
has been accounted for as an equity transaction, the net effect of which was to record the issued
Liberty Global
Class C shares at the
$185.4 million
carrying value of the acquired noncontrolling interests.
II-154
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
Share Repurchases
During
2014
,
2013
and
2012
, our board of directors authorized various share repurchase programs, the most recent of which provides for the repurchase of up to
$4.5 billion
(before direct acquisition costs) of
Liberty Global
Class A and/or Class C ordinary shares. Under these plans, we receive authorization to acquire up to the specified amount of
Liberty Global
Class A and Class C ordinary shares or other authorized securities from time to time through open market or privately negotiated transactions, which may include derivative transactions. The timing of the repurchase of shares or other securities pursuant to our equity repurchase programs, which may be suspended or discontinued at any time, is dependent on a variety of factors, including market conditions. As of
December 31, 2014
, the remaining amount authorized for share repurchases was
$1,933.7 million
. Subsequent to
December 31, 2014
, our board of directors authorized an additional
$2.0 billion
of availability for share repurchases.
As a
U.K.
incorporated company, we may only elect to repurchase shares or pay dividends to the extent of our “Distributable Reserves.” Distributable Reserves, which are not linked to a
GAAP
reported amount, may be created through the earnings of the
U.K.
parent company and, amongst other methods, through a reduction in share premium approved by the English Companies Court. Based on the amounts set forth in our 2013
U.K.
Companies Act Report that was filed with the
U.K.
Companies House on May, 7, 2014, which are our most recent “Relevant Accounts” for the purposes of determining our Distributable Reserves under U.K. law, our Distributable Reserves are
$28.7 billion
. This amount does not reflect earnings, share repurchases, dividends or other activity that occurred in 2014, each of which impacts the amount of our Distributable Reserves.
The following table provides details of our share repurchases during
2014
,
2013
and
2012
:
|
|
Liberty Global Class A ordinary shares or LGI Series A common stock
|
Liberty Global Class C ordinary shares or LGI Series C common stock
|
|
|||||||||||||||
|
Purchase date
|
Shares
purchased
|
Average price
paid per share (a)
|
Shares
purchased
|
Average price
paid per share (a)
|
Total cost (a)
|
|||||||||||||
|
|
|
|
|
|
in millions
|
|||||||||||||
|
Shares purchased pursuant to repurchase programs during:
|
||||||||||||||||||
|
2014
|
8,062,792
|
|
$
|
42.19
|
|
28,401,019
|
|
$
|
44.25
|
|
$
|
1,596.9
|
|
|||||
|
2013
|
6,550,197
|
|
$
|
37.70
|
|
24,761,397
|
|
$
|
36.55
|
|
$
|
1,151.9
|
|
|||||
|
2012
|
5,611,380
|
|
$
|
27.30
|
|
32,782,838
|
|
$
|
25.24
|
|
$
|
980.7
|
|
|||||
______________
|
(a)
|
Includes direct acquisition costs and the effects of derivative instruments, where applicable.
|
Call Option Contracts
From time to time, we enter into call option contracts pursuant to which we contemporaneously (i) sell call options on shares of
Liberty Global
ordinary shares and (ii) purchase call options on an equivalent number of shares of
Liberty Global
ordinary shares with an exercise price of
zero
. These contracts can result in the receipt of cash and shares of
Liberty Global
ordinary shares. Shares acquired through the exercise of the call options are included in our share repurchases and the net gain on cash settled contracts is recorded as an increase to additional paid-in capital in our consolidated statements of equity.
Other
Telenet Tender
.
On December 17, 2012, Binan Investments B.V. (
Binan
), our wholly-owned subsidiary, launched a voluntary and conditional cash public offer (the
Telenet Tender
) for (i) all of
Telenet
’s issued shares that
Binan
did not already own or that were not held by
Telenet
(the
Telenet Bid Shares
) and (ii) certain outstanding vested and unvested employee warrants (the
Telenet Bid Warrants
). The offer price for the
Telenet Bid Shares
was
€35.00
(
$42.35
) per share. The offer prices for the
Telenet Bid Warrants
, which were calculated using the Black Scholes option pricing model and a price of
€35.00
for each of the Telenet Bid Shares, ranged from
€13.48
(
$16.31
) per share to
€25.47
(
$30.82
) per share.
II-155
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
Pursuant to the
Telenet Tender
, which was completed on
February 1, 2013
, we paid aggregate consideration of
€332.5 million
(
$454.6 million
at the transaction date) to acquire (i)
9,497,637
of the
Telenet Bid Shares
, increasing our ownership interest in
Telenet
’s issued and outstanding shares at such date to
58.4%
, and (ii)
3,000
of the
Telenet Bid Warrants
. As we owned a controlling financial interest in
Telenet
prior to the launch of the
Telenet Tender
, we accounted for the impact of the acquisition of the additional
Telenet
shares as an equity transaction.
Telenet Share Repurchases.
From time to time, Telenet’s shareholders approve share repurchase programs. Under these programs, Telenet is able to acquire outstanding shares of up to a certain maximum threshold within a given period of time following the approval date.
Subsidiary Distributions.
During 2013 and 2012,
Telenet
and
VTR
made certain cash distributions to their respective shareholders. Our share of these distributions was eliminated in consolidation and the noncontrolling interest owners’ share of these distributions was reflected as a charge against noncontrolling interests in our consolidated statements of equity.
Restricted Net Assets
The ability of certain of our subsidiaries to distribute or loan all or a portion of their net assets to our company is limited by the terms of applicable debt facilities.
At
December 31, 2014
, substantially all of our net assets represented net assets of our subsidiaries that were subject to such limitations.
(
13
)
Share-based Compensation
Our share-based compensation expense is based on the share-based incentive awards held by our and our subsidiaries’ employees, including share-based incentive awards related to
Liberty Global
shares and the shares of certain of our subsidiaries. The following table summarizes our share-based compensation expense:
|
|
Year ended December 31,
|
||||||||||
|
|
2014
|
2013
|
2012
|
||||||||
|
|
in millions
|
||||||||||
|
Liberty Global shares:
|
|||||||||||
|
Performance-based incentive awards (a)
|
$
|
129.9
|
|
$
|
58.6
|
|
$
|
33.0
|
|
||
|
Other share-based incentive awards
|
99.7
|
|
182.9
|
|
46.0
|
|
|||||
|
Total Liberty Global shares (b)
|
229.6
|
|
241.5
|
|
79.0
|
|
|||||
|
Telenet share-based incentive awards (c)
|
14.6
|
|
56.5
|
|
31.2
|
|
|||||
|
Other
|
13.0
|
|
4.5
|
|
2.2
|
|
|||||
|
Total
|
$
|
257.2
|
|
$
|
302.5
|
|
$
|
112.4
|
|
||
|
Included in:
|
|||||||||||
|
Continuing operations:
|
|||||||||||
|
Operating expense
|
$
|
7.6
|
|
$
|
12.1
|
|
$
|
8.5
|
|
||
|
SG&A expense
|
249.6
|
|
288.6
|
|
101.6
|
|
|||||
|
Total - continuing operations
|
257.2
|
|
300.7
|
|
110.1
|
|
|||||
|
Discontinued operations (d)
|
—
|
|
1.8
|
|
2.3
|
|
|||||
|
Total
|
$
|
257.2
|
|
$
|
302.5
|
|
$
|
112.4
|
|
||
_______________
|
(a)
|
Includes share-based compensation expense related to (i)
Liberty Global
PSU
s for all periods presented, (ii) a challenge performance award plan issued on June 24, 2013 for certain executive officers and key employees (the
Challenge Performance Awards
) and (iii) for 2014, the Performance Grant Units (
PGUs
), as described below. The
Challenge Performance Awards
include performance-based share appreciation rights (
PSAR
s) and
PSU
s.
|
|
(b)
|
In connection with the
Virgin Media Acquisition
, we issued
Liberty Global
share-based incentive awards (
Virgin Media Replacement Awards
) to employees and former directors of
Virgin Media
in exchange for corresponding
Virgin Media
|
II-156
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
awards.
Virgin Media
recorded share-based compensation expense of
$55.8 million
during
2014
, including compensation expense related to the
Virgin Media Replacement Awards
and new awards that were granted after the
Virgin Media Replacement Awards
were issued. During
2013
,
Virgin Media
recorded share-based compensation expense of
$134.3 million
, primarily related to the
Virgin Media Replacement Awards
, including
$80.1 million
that was charged to expense in recognition of the
Virgin Media Replacement Awards
that were fully vested on June 7, 2013 or for which vesting was accelerated pursuant to the terms of the
Virgin Media Merger Agreement
on or prior to
December 31, 2013
.
|
(c)
|
Represents the share-based compensation expense associated with
Telenet
’s share-based incentive awards, including (i) warrants and employee stock options with
1,082,322
awards outstanding as of
December 31, 2014
at a weighted average exercise price of
€27.17
(
$32.88
), (ii) an employee share purchase plan, (iii) performance-based specific stock option plans for the Chief Executive Officer with
565,000
awards outstanding as of
December 31, 2014
at a weighted average exercise price of
€37.43
(
$45.29
) and (iv) performance-based stock options with
87,529
awards outstanding as of
December 31, 2014
. During 2013 and 2012,
Telenet
modified the terms of certain of its share-based incentive plans to provide for anti-dilution adjustments in connection with its shareholder returns. In connection with these anti-dilution adjustments,
Telenet
recognized share-based compensation expense of
$32.7 million
and
$12.6 million
, respectively, and continues to recognize additional share-based compensation expense as the underlying options vest. In addition, during 2013,
Telenet
recognized expense of
$6.2 million
related to the accelerated vesting of certain options.
|
|
(d)
|
Amounts relate to the share-based compensation expense associated with the
Liberty Global
share-based incentive awards held by certain employees of the
Chellomedia Disposal Group
.
|
The following table provides certain information related to share-based compensation not yet recognized for share-based incentive awards related to
Liberty Global
ordinary shares as of
December 31, 2014
:
|
Liberty
Global
ordinary shares (a)
|
Liberty Global performance-
based awards (b)
|
||||||
|
Total compensation expense not yet recognized (in millions)
|
$
|
132.7
|
|
$
|
162.5
|
|
|
|
Weighted average period remaining for expense recognition (in years)
|
2.6
|
|
1.3
|
|
|||
_______________
|
(a)
|
Amounts relate to awards granted or assumed by
Liberty Global
under (i) the Liberty Global 2014 Incentive Plan, (ii) the Liberty Global 2014 Nonemployee Director Incentive Plan, (iii)
the Liberty Global, Inc. 2005 Incentive Plan
(as amended and restated effective
June 7, 2013
) (the
Liberty Global 2005 Incentive Plan
), (iv)
the Liberty Global, Inc. 2005 Nonemployee Director Incentive Plan
(as amended and restated effective
June 7, 2013
) (the
Liberty Global 2005 Director Incentive Plan
) and (v) certain other incentive plans of
Virgin Media
, including
Virgin Media
’s 2010 stock incentive plan (the
VM Incentive Plan
). All new awards are granted under the Liberty Global 2014 Incentive Plan or the Liberty Global 2014 Nonemployee Director Incentive Plan. The Liberty Global 2014 Incentive Plan, the Liberty Global 2014 Nonemployee Director Incentive Plan, the
Liberty Global 2005 Incentive Plan
, the
Liberty Global 2005 Director Incentive Plan
and the
VM Incentive Plan
are described below.
|
|
(b)
|
Amounts relate to (i) the
Challenge Performance Awards
, (ii)
PSU
s and (iii) the
PGUs
, as defined and described below.
|
II-157
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
The following table summarizes certain information related to the incentive awards granted and exercised with respect to
Liberty Global
ordinary shares:
|
|
Year ended December 31,
|
||||||||||
|
|
2014
|
2013
|
2012
|
||||||||
|
Assumptions used to estimate fair value of options, SARs and PSARs granted:
|
|||||||||||
|
Risk-free interest rate
|
0.81 - 1.77%
|
0.36 - 1.27%
|
0.37 - 1.68%
|
||||||||
|
Expected life (a)
|
3.1 - 5.1 years
|
3.2 - 7.1 years
|
3.3 - 7.9 years
|
||||||||
|
Expected volatility (a)
|
25.1 - 28.7%
|
26.5 - 35.8%
|
28.0 - 40.4%
|
||||||||
|
Expected dividend yield
|
none
|
none
|
none
|
||||||||
|
Weighted average grant-date fair value per share of awards granted:
|
|||||||||||
|
Options
|
$
|
11.40
|
|
$
|
11.09
|
|
$
|
10.00
|
|
||
|
SARs
|
$
|
8.93
|
|
$
|
8.36
|
|
$
|
7.18
|
|
||
|
PSARs
|
$
|
8.15
|
|
$
|
8.31
|
|
$
|
—
|
|
||
|
RSUs
|
$
|
40.68
|
|
$
|
35.74
|
|
$
|
24.57
|
|
||
|
PSUs and PGUs
|
$
|
42.47
|
|
$
|
34.94
|
|
$
|
25.09
|
|
||
|
Total intrinsic value of awards exercised (in millions):
|
|||||||||||
|
Options
|
$
|
126.6
|
|
$
|
175.0
|
|
$
|
43.9
|
|
||
|
SARs
|
$
|
48.7
|
|
$
|
73.2
|
|
$
|
52.0
|
|
||
|
PSARs
|
$
|
0.4
|
|
$
|
—
|
|
$
|
—
|
|
||
|
Cash received from exercise of options (in millions)
|
$
|
54.8
|
|
$
|
81.0
|
|
$
|
25.6
|
|
||
|
Income tax benefit related to share-based compensation (in millions)
|
$
|
54.6
|
|
$
|
48.0
|
|
$
|
16.1
|
|
||
_______________
|
(a)
|
The 2013 ranges shown for these assumptions exclude the awards for certain former employees of
Virgin Media
who were expected to exercise their awards immediately or soon after the
Virgin Media Acquisition
. For these awards, the assumptions used for expected life and volatility were essentially nil.
|
Share Incentive Plans — Liberty Global Ordinary Shares
Incentive Plans
As of
December 31, 2014
, we are authorized to grant incentive awards under the Liberty Global 2014 Incentive Plan and the Liberty Global 2014 Nonemployee Director Incentive Plan. Generally, we may grant non-qualified share options,
SAR
s, restricted shares,
RSU
s, cash awards, performance awards or any combination of the foregoing under any of these incentive plans (collectively, awards). Ordinary shares issuable pursuant to awards made under these incentive plans will be made available from either authorized but unissued shares or shares that have been issued but reacquired by our company. Awards may be granted at or above fair value in any class of ordinary shares. The maximum number of Liberty Global shares with respect to which awards may be issued under the Liberty Global 2014 Incentive Plan and the Liberty Global 2014 Nonemployee Director Incentive Plan is
100 million
(of which no more than
50 million
shares may consist of Class B ordinary shares) and
10 million
, respectively, in each case, subject to anti-dilution and other adjustment provisions in the respective plan. As of
December 31, 2014
, the Liberty Global 2014 Incentive Plan and the Liberty Global 2014 Nonemployee Director Incentive Plan had
89,582,279
and
9,745,984
ordinary shares available for grant, respectively.
Awards under the
Liberty Global 2005 Incentive Plan
and the
Liberty Global 2005 Director Incentive Plan
issued prior to
June 2005
are fully vested and expire
10
years after the grant date. In connection with the
Virgin Media Acquisition
, we assumed the
VM Incentive Plan
. Awards under the
VM Incentive Plan
issued prior to June 7, 2013 have a
10
-year term and become fully exercisable within
five years
of continued employment. Certain performance-based awards that were granted during the first quarter of 2013 were canceled upon completion of the
Virgin Media Acquisition
. These canceled awards were subsequently replaced by
PSU
s that were granted under the
VM Incentive Plan
on June 24, 2013. For the remaining performance-based awards
II-158
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
that were outstanding prior to June 7, 2013, the performance objectives lapsed upon the completion of the
Virgin Media Acquisition
and such awards vest on the third anniversary of the grant date.
No
further awards will be granted under the
Liberty Global 2005 Incentive Plan
, the
Liberty Global 2005 Director Incentive Plan
or the
VM Incentive Plan
.
Awards (other than performance-based awards) under the
Liberty Global 2005 Incentive Plan
issued after
June 2005
and under the
VM Incentive Plan
after June 7, 2013 generally (i) vest
12.5%
on the six month anniversary of the grant date and then vest at a rate of
6.25%
each quarter thereafter and (ii) expire
seven
years after the grant date. Awards (other than
RSU
s) issued after
June 2005
under the
Liberty Global 2005 Director Incentive Plan
generally vest in
three
equal annual installments, provided the director continues to serve as director immediately prior to the vesting date, and expire
10
years after the grant date.
RSU
s vest on the date of the first annual general meeting of shareholders following the grant date. These awards may be granted at or above fair value in any class of ordinary shares.
Awards (other than performance-based awards) under the Liberty Global 2014 Incentive Plan generally (i) vest
12.5%
on the six month anniversary of the grant date and then vest at a rate of
6.25%
each quarter thereafter and (ii) expire
seven
years after the grant date. Awards (other than
RSU
s) issued under the Liberty Global 2014 Nonemployee Director Incentive Plan generally vest in
three
equal annual installments, provided the director continues to serve as director immediately prior to the vesting date, and expire seven years after the grant date.
RSU
s vest on the date of the first annual general meeting of shareholders following the grant date. These awards may be granted at or above fair value in any class of ordinary shares.
Performance Awards
The following is a summary of the material terms and conditions with respect to our performance-based awards for certain executive officers and key employees. These awards were granted under the Liberty Global 2014 Incentive Plan, the
Liberty Global 2005 Incentive Plan
and the
VM Incentive Plan
.
Liberty Global PSU
s.
PSU
s are granted to executive officers and key employees annually based on a target annual equity value for each executive and key employee, of which approximately
two-thirds
would be delivered in the form of an annual award of
PSU
s and approximately
one-third
in the form of an annual award of
SAR
s. Each
PSU
represents the right to receive
one
Class A or Class C ordinary share, as applicable, subject to performance and vesting. Generally, the performance period for the
PSU
s covers a
two
-year period and the performance target is based on the achievement of a specified compound annual growth rate (
CAGR
) in a consolidated operating cash flow metric (as defined in the applicable underlying agreement), adjusted for events such as acquisitions, dispositions and changes in foreign currency exchange rates that affect comparability (
OCF CAGR
), and the participant’s annual performance ratings during the
two
-year performance period. A performance range of
75%
to
125%
of the target
OCF CAGR
generally results in award recipients earning
50%
to
150%
of their respective
PSU
s, subject to reduction or forfeiture based on individual performance. The
PSU
s generally vest
50%
on each of March 31 and September 30 of the year following the end of the performance period.
Liberty Global Challenge Performance Awards
. Effective June 24, 2013, our compensation committee approved the
Challenge Performance Awards
, which consisted solely of
PSAR
s for our senior executive officers and a combination of
PSAR
s and
PSU
s for our other executive officers and key employees. Each
PSU
represents the right to receive
one
Class A ordinary share or
one
Class C ordinary share, as applicable, subject to performance and vesting. The performance criteria for the
Challenge Performance Awards
will be based on the participant’s performance and achievement of individual goals in each of the years 2013, 2014 and 2015. Subject to forfeitures and the satisfaction of performance conditions,
100%
of each participant’s
Challenge Performance Awards
will vest on June 24, 2016. The
PSAR
s have a term of
seven years
and base prices equal to the respective market closing prices of the applicable class on the grant date.
Liberty Global Performance Grant Award.
Effective May 1, 2014, our compensation committee authorized the grant of
PGUs
to our Chief Executive Officer, comprising a total of
one million
Class A
PSU
s and
one million
Class B
PSU
s. The
PGUs
, which were subject to a performance condition that was achieved in 2014, will vest in
three
equal annual installments commencing on March 15, 2015.
II-159
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
Share-based Award Activity - Liberty Global Ordinary Shares
The following tables summarize the share-based award activity during
2014
with respect to
Liberty Global
ordinary shares:
|
Options — Class A ordinary shares
|
Number of
shares
|
Weighted
average
exercise price
|
Weighted
average
remaining
contractual
term
|
Aggregate
intrinsic value
|
||||||||
|
|
|
|
in years
|
in millions
|
||||||||
|
Outstanding at January 1, 2014
|
2,708,445
|
|
$
|
16.12
|
|
|||||||
|
Granted
|
78,677
|
|
$
|
42.54
|
|
|||||||
|
Cancelled
|
(51,826
|
)
|
$
|
22.49
|
|
|||||||
|
Exercised
|
(1,009,037
|
)
|
$
|
14.61
|
|
|||||||
|
Outstanding at December 31, 2014
|
1,726,259
|
|
$
|
18.01
|
|
5.4
|
$
|
55.6
|
|
|||
|
Exercisable at December 31, 2014
|
1,125,619
|
|
$
|
13.84
|
|
4.5
|
$
|
40.9
|
|
|||
|
Options — Class C ordinary shares
|
Number of
shares
|
Weighted
average
exercise price
|
Weighted
average
remaining
contractual
term
|
Aggregate
intrinsic value
|
||||||||
|
|
|
|
in years
|
in millions
|
||||||||
|
Outstanding at January 1, 2014
|
7,031,369
|
|
$
|
14.95
|
|
|||||||
|
Granted
|
157,346
|
|
$
|
40.86
|
|
|||||||
|
Cancelled
|
(128,419
|
)
|
$
|
21.13
|
|
|||||||
|
Exercised
|
(3,114,104
|
)
|
$
|
12.54
|
|
|||||||
|
Outstanding at December 31, 2014
|
3,946,192
|
|
$
|
17.67
|
|
5.7
|
$
|
120.9
|
|
|||
|
Exercisable at December 31, 2014
|
2,452,721
|
|
$
|
13.72
|
|
4.8
|
$
|
84.8
|
|
|||
|
SARs — Class A ordinary shares
|
Number of
shares
|
Weighted
average
base price
|
Weighted
average
remaining
contractual
term
|
Aggregate
intrinsic value
|
||||||||
|
|
|
|
in years
|
in millions
|
||||||||
|
Outstanding at January 1, 2014
|
4,168,758
|
|
$
|
24.78
|
|
|||||||
|
Granted
|
2,192,672
|
|
$
|
40.90
|
|
|||||||
|
Forfeited
|
(203,409
|
)
|
$
|
32.22
|
|
|||||||
|
Exercised
|
(550,033
|
)
|
$
|
21.97
|
|
|||||||
|
Outstanding at December 31, 2014
|
5,607,988
|
|
$
|
31.07
|
|
4.8
|
$
|
107.3
|
|
|||
|
Exercisable at December 31, 2014
|
2,527,237
|
|
$
|
23.25
|
|
3.6
|
$
|
68.1
|
|
|||
II-160
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
|
SARs — Class C ordinary shares
|
Number of
shares
|
Weighted
average
base price
|
Weighted
average
remaining
contractual
term
|
Aggregate
intrinsic value
|
||||||||
|
|
|
|
in years
|
in millions
|
||||||||
|
Outstanding at January 1, 2014
|
12,437,530
|
|
$
|
23.87
|
|
|||||||
|
Granted
|
4,408,368
|
|
$
|
39.07
|
|
|||||||
|
Forfeited
|
(566,688
|
)
|
$
|
22.52
|
|
|||||||
|
Exercised
|
(1,590,165
|
)
|
$
|
20.92
|
|
|||||||
|
Outstanding at December 31, 2014
|
14,689,045
|
|
$
|
28.49
|
|
4.5
|
$
|
291.2
|
|
|||
|
Exercisable at December 31, 2014
|
7,308,864
|
|
$
|
21.95
|
|
3.5
|
$
|
192.7
|
|
|||
|
PSARs — Class A ordinary shares
|
Number of
shares
|
Weighted
average
base price
|
Weighted
average
remaining
contractual
term
|
Aggregate
intrinsic value
|
||||||||
|
|
|
|
in years
|
in millions
|
||||||||
|
Outstanding at January 1, 2014
|
2,817,498
|
|
$
|
35.07
|
|
|||||||
|
Granted
|
10,000
|
|
$
|
43.58
|
|
|||||||
|
Forfeited
|
(29,376
|
)
|
$
|
35.03
|
|
|||||||
|
Exercised
|
(9,373
|
)
|
$
|
35.03
|
|
|||||||
|
Outstanding at December 31, 2014
|
2,788,749
|
|
$
|
35.10
|
|
5.5
|
$
|
42.1
|
|
|||
|
Exercisable at December 31, 2014
|
7,499
|
|
$
|
35.03
|
|
1.8
|
$
|
0.1
|
|
|||
|
PSARs — Class C ordinary shares
|
Number of
shares
|
Weighted
average
base price
|
Weighted
average
remaining
contractual
term
|
Aggregate
intrinsic value
|
||||||||
|
|
|
|
in years
|
in millions
|
||||||||
|
Outstanding at January 1, 2014
|
8,452,494
|
|
$
|
33.44
|
|
|||||||
|
Granted
|
30,000
|
|
$
|
43.03
|
|
|||||||
|
Forfeited
|
(88,127
|
)
|
$
|
33.41
|
|
|||||||
|
Exercised
|
(28,119
|
)
|
$
|
33.41
|
|
|||||||
|
Outstanding at December 31, 2014
|
8,366,248
|
|
$
|
33.48
|
|
5.5
|
$
|
124.1
|
|
|||
|
Exercisable at December 31, 2014
|
22,498
|
|
$
|
33.41
|
|
1.8
|
$
|
0.3
|
|
|||
II-161
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
|
RSUs — Class A ordinary shares
|
Number of
shares
|
Weighted
average
grant-date
fair value
per share
|
Weighted
average
remaining
contractual
term
|
|||||
|
|
|
|
in years
|
|||||
|
Outstanding at January 1, 2014
|
725,676
|
|
$
|
35.48
|
|
|||
|
Granted
|
226,069
|
|
$
|
41.77
|
|
|||
|
Forfeited
|
(44,428
|
)
|
$
|
33.32
|
|
|||
|
Released from restrictions
|
(342,047
|
)
|
$
|
35.07
|
|
|||
|
Outstanding at December 31, 2014
|
565,270
|
|
$
|
38.27
|
|
4.6
|
||
|
RSUs — Class C ordinary shares
|
Number of
shares
|
Weighted
average
grant-date
fair value
per share
|
Weighted
average
remaining
contractual
term
|
|||||
|
|
|
|
in years
|
|||||
|
Outstanding at January 1, 2014
|
1,944,468
|
|
$
|
32.79
|
|
|||
|
Granted
|
460,866
|
|
$
|
40.14
|
|
|||
|
Forfeited
|
(122,418
|
)
|
$
|
30.93
|
|
|||
|
Released from restrictions
|
(895,913
|
)
|
$
|
32.36
|
|
|||
|
Outstanding at December 31, 2014
|
1,387,003
|
|
$
|
35.59
|
|
4.5
|
||
|
PSUs and PGUs — Class A ordinary shares
|
Number of
shares
|
Weighted
average
grant-date
fair value
per share
|
Weighted
average
remaining
contractual
term
|
|||||
|
|
|
|
in years
|
|||||
|
Outstanding at January 1, 2014
|
924,648
|
|
$
|
32.05
|
|
|||
|
Granted
|
1,518,276
|
|
$
|
42.74
|
|
|||
|
Performance adjustment (a)
|
(138,668
|
)
|
$
|
26.17
|
|
|||
|
Forfeited
|
(40,627
|
)
|
$
|
35.77
|
|
|||
|
Released from restrictions
|
(273,936
|
)
|
$
|
26.24
|
|
|||
|
Outstanding at December 31, 2014
|
1,989,693
|
|
$
|
41.34
|
|
1.8
|
||
|
PGUs — Class B ordinary shares
|
Number of
shares
|
Weighted
average
grant-date
fair value
per share
|
Weighted
average
remaining
contractual
term
|
|||||
|
|
|
|
in years
|
|||||
|
Outstanding at January 1, 2014
|
—
|
|
$
|
—
|
|
|||
|
Granted
|
1,000,000
|
|
$
|
44.55
|
|
|||
|
Outstanding at December 31, 2014
|
1,000,000
|
|
$
|
44.55
|
|
2.2
|
||
II-162
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
|
PSUs — Class C ordinary shares
|
Number of
shares
|
Weighted
average
grant-date
fair value
per share
|
Weighted
average
remaining
contractual
term
|
|||||
|
|
|
|
in years
|
|||||
|
Outstanding at January 1, 2014
|
2,744,452
|
|
$
|
29.99
|
|
|||
|
Granted
|
1,048,614
|
|
$
|
39.83
|
|
|||
|
Performance adjustment (a)
|
(416,004
|
)
|
$
|
24.73
|
|
|||
|
Forfeited
|
(112,487
|
)
|
$
|
33.15
|
|
|||
|
Released from restrictions
|
(821,808
|
)
|
$
|
24.79
|
|
|||
|
Outstanding at December 31, 2014
|
2,442,767
|
|
$
|
36.71
|
|
1.3
|
||
_______________
|
(a)
|
Represents the reduction in
PSU
s associated with the first quarter
2014
determination that
66.3%
of the
PSU
s that were granted in
2012
(the
2012 PSU
s) had been earned. As of
December 31, 2014
, all of the earned
2012 PSU
s have been released from restrictions.
|
(
14
)
Restructuring Liabilities
A summary of changes in our restructuring liabilities during
2014
is set forth in the table below:
|
Employee
severance
and
termination
|
Office
closures
|
Contract termination and other
|
Total
|
|||||||||||||
|
|
in millions
|
|||||||||||||||
|
Restructuring liability as of January 1, 2014
|
$
|
26.6
|
|
$
|
14.9
|
|
$
|
72.0
|
|
$
|
113.5
|
|
||||
|
Restructuring charges
|
60.4
|
|
9.5
|
|
97.0
|
|
166.9
|
|
||||||||
|
Cash paid
|
(66.3
|
)
|
(10.8
|
)
|
(34.4
|
)
|
(111.5
|
)
|
||||||||
|
Ziggo liability at acquisition date
|
8.2
|
|
—
|
|
—
|
|
8.2
|
|
||||||||
|
Foreign currency translation adjustments and other
|
(1.3
|
)
|
(1.1
|
)
|
(18.6
|
)
|
(21.0
|
)
|
||||||||
|
Restructuring liability as of December 31, 2014
|
$
|
27.6
|
|
$
|
12.5
|
|
$
|
116.0
|
|
$
|
156.1
|
|
||||
|
Current portion
|
$
|
27.5
|
|
$
|
4.4
|
|
$
|
20.4
|
|
$
|
52.3
|
|
||||
|
Noncurrent portion
|
0.1
|
|
8.1
|
|
95.6
|
|
103.8
|
|
||||||||
|
Total
|
$
|
27.6
|
|
$
|
12.5
|
|
$
|
116.0
|
|
$
|
156.1
|
|
||||
Prior to March 31, 2014,
Telenet
operated a digital terrestrial television (
DTT
) business that served a limited number of subscribers. The
DTT
network was accessed by
Telenet
pursuant to third-party capacity contracts that were accounted for as operating agreements. On March 31, 2014,
Telenet
discontinued the provision of
DTT
services and, accordingly, recorded an
$86.1 million
restructuring charge during the three months ended March 31, 2014. This charge was equal to the then fair value of the remaining payments due under the
DTT
capacity contracts.
Our restructuring charges during
2014
include
$17.5 million
,
$11.2 million
,
$10.7 million
,
$10.1 million
and
$9.8 million
of employee severance and termination costs related to reorganization and integration activities, primarily in
the U.K., the Netherlands, Germany, Chile and the European Operations Division’s central operations
, respectively.
II-163
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
A summary of changes in our restructuring liabilities during
2013
is set forth in the table below:
|
Employee
severance
and
termination
|
Office
closures
|
Contract termination
|
Total
|
|||||||||||||
|
|
in millions
|
|||||||||||||||
|
Restructuring liability as of January 1, 2013
|
$
|
39.7
|
|
$
|
4.0
|
|
$
|
13.1
|
|
$
|
56.8
|
|
||||
|
Restructuring charges
|
77.9
|
|
(0.1
|
)
|
100.9
|
|
178.7
|
|
||||||||
|
Cash paid
|
(91.5
|
)
|
(14.1
|
)
|
(17.6
|
)
|
(123.2
|
)
|
||||||||
|
Virgin Media liability at acquisition date
|
0.1
|
|
23.3
|
|
—
|
|
23.4
|
|
||||||||
|
Foreign currency translation adjustments and other
|
1.2
|
|
1.8
|
|
(11.4
|
)
|
(8.4
|
)
|
||||||||
|
Reclassification of Chellomedia Disposal Group to discontinued operations
|
(0.8
|
)
|
—
|
|
(13.0
|
)
|
(13.8
|
)
|
||||||||
|
Restructuring liability as of December 31, 2013
|
$
|
26.6
|
|
$
|
14.9
|
|
$
|
72.0
|
|
$
|
113.5
|
|
||||
|
Current portion
|
$
|
26.5
|
|
$
|
13.2
|
|
$
|
25.8
|
|
$
|
65.5
|
|
||||
|
Noncurrent portion
|
0.1
|
|
1.7
|
|
46.2
|
|
48.0
|
|
||||||||
|
Total
|
$
|
26.6
|
|
$
|
14.9
|
|
$
|
72.0
|
|
$
|
113.5
|
|
||||
As further described in note
9
, we recorded restructuring charges totaling
$84.9 million
during the third and fourth quarters of 2013 as a result of
VTR
’s decision to cease commercial use of its mobile network. These restructuring charges include the fair value of (i) the then remaining payments due under
VTR
’s tower and real estate operating leases of
$71.5 million
and (ii) certain other required payments associated with
VTR
’s mobile network. In addition, our restructuring charges during
2013
include
$46.1 million
,
$14.1 million
and
$8.1 million
of employee severance and termination costs related to reorganization and integration activities in the
U.K.
, Germany and Chile, respectively.
(
15
)
Defined Benefit Plans
Certain of our subsidiaries in Europe maintain various funded and unfunded defined benefit plans for their employees. Annual service cost for these employee benefit plans is determined using the projected unit credit actuarial method. The subsidiaries that maintain funded plans have established investment policies for plan assets. The investment strategies are long-term in nature and designed to meet the following objectives:
•
Ensure that funds are available to pay benefits as they become due;
•
Maximize the total returns on plan assets subject to prudent risk taking; and
•
Preserve or improve the funded status of the trusts over time.
Our subsidiaries review the asset allocation within their respective portfolios on a regular basis. Generally, the portfolios will be rebalanced to a target allocation when an individual asset class approaches its minimum or maximum targeted level. Allocations to real estate occur over multiple time periods. Assets targeted to real estate, but not yet allocated, are invested in fixed income securities with corresponding adjustments to fixed income rebalancing guidelines.
II-164
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
The following is a summary of the funded status of our defined benefit plans:
|
Year ended December 31,
|
|||||||
|
2014
|
2013
|
||||||
|
in millions
|
|||||||
|
Projected benefit obligation at beginning of period
|
$
|
1,163.0
|
|
$
|
384.6
|
|
|
|
Acquisition (a)
|
—
|
|
687.1
|
|
|||
|
Service cost
|
22.3
|
|
25.8
|
|
|||
|
Prior service cost
|
0.8
|
|
—
|
|
|||
|
Interest cost
|
42.9
|
|
26.8
|
|
|||
|
Actuarial loss (gain)
|
149.7
|
|
(4.8
|
)
|
|||
|
Participants’ contributions
|
11.9
|
|
11.8
|
|
|||
|
Benefits paid
|
(38.7
|
)
|
(28.1
|
)
|
|||
|
Effect of changes in exchange rates
|
(104.3
|
)
|
59.8
|
|
|||
|
Projected benefit obligation at end of period
|
$
|
1,247.6
|
|
$
|
1,163.0
|
|
|
|
Accumulated benefit obligation at end of period
|
$
|
1,226.1
|
|
$
|
1,144.7
|
|
|
|
Fair value of plan assets at beginning of period
|
$
|
1,057.0
|
|
$
|
310.9
|
|
|
|
Acquisition (a)
|
—
|
|
626.0
|
|
|||
|
Actual earnings
of plan assets
|
114.6
|
|
37.0
|
|
|||
|
Group contributions
|
68.2
|
|
44.6
|
|
|||
|
Participants’ contributions
|
11.9
|
|
11.8
|
|
|||
|
Benefits paid
|
(37.9
|
)
|
(27.6
|
)
|
|||
|
Effect of changes in exchange rates
|
(91.1
|
)
|
54.3
|
|
|||
|
Fair value of plan assets at end of period
|
$
|
1,122.7
|
|
$
|
1,057.0
|
|
|
|
Net liability (b)
|
$
|
124.9
|
|
$
|
106.0
|
|
|
_______________
|
(a)
|
The
2013
amount relates to the
Virgin Media Acquisition
.
|
|
(b)
|
The net liability related to our defined benefit plans is included in other long-term liabilities in our consolidated balance sheets.
|
II-165
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
The change in the amount of net actuarial gain (loss) not yet recognized as a component of net periodic pension costs in our consolidated statements of operations is as follows:
|
Pre-tax amount
|
Tax benefit (expense)
|
Net-of-tax amount
|
|||||||||
|
|
in millions
|
||||||||||
|
Balance of net actuarial loss at January 1, 2013
|
$
|
(5.2
|
)
|
$
|
1.6
|
|
$
|
(3.6
|
)
|
||
|
Net actuarial
gain
|
12.7
|
|
(1.4
|
)
|
11.3
|
|
|||||
|
Amount recognized as a component of net loss attributable to Liberty Global shareholders
|
(0.8
|
)
|
0.1
|
|
(0.7
|
)
|
|||||
|
Changes in ownership and other
|
(0.6
|
)
|
0.2
|
|
(0.4
|
)
|
|||||
|
Balance of net actuarial gain at December 31, 2013
|
6.1
|
|
0.5
|
|
6.6
|
|
|||||
|
Net actuarial
loss
|
(87.6
|
)
|
16.7
|
|
(70.9
|
)
|
|||||
|
Amount recognized as a component of net loss attributable to Liberty Global shareholders
|
(1.7
|
)
|
0.3
|
|
(1.4
|
)
|
|||||
|
Changes in ownership and other
|
0.2
|
|
—
|
|
0.2
|
|
|||||
|
Balance of net actuarial loss at December 31, 2014
|
$
|
(83.0
|
)
|
$
|
17.5
|
|
$
|
(65.5
|
)
|
||
We expect that the amount of net actuarial gain or loss to be recognized in our
2015
consolidated statement of operations will not be significant.
The measurement dates used to determine our defined benefit plan assumptions were
December 31, 2014
and
December 31, 2013
. The actuarial assumptions used to compute the net periodic pension cost are based on information available as of the beginning of the period, specifically market interest rates, past experience and management’s best estimate of future economic conditions. Changes in these assumptions may impact future benefit costs and obligations. In computing future costs and obligations, the subsidiaries must make assumptions about such items as employee mortality and turnover, expected salary and wage increases, discount rate, expected long-term rate of return on plan assets and expected future cost increases.
The expected rates of return on the assets of the funded plans are the long-term rates of return the subsidiaries expect to earn on their trust assets. The rates of return are determined by the investment composition of the plan assets and the long-term risk and return forecast for each asset category. The forecasts for each asset class are generated using historical information as well as an analysis of current and expected market conditions. The expected risk and return characteristics for each asset class are reviewed annually and revised, as necessary, to reflect changes in the financial markets. To compute the expected return on plan assets, the subsidiaries apply an expected rate of return to the fair value of the plan assets.
The weighted average assumptions used in determining benefit obligations and net periodic pension cost are as follows:
|
December 31,
|
|||||
|
2014
|
2013
|
||||
|
Expected rate of salary increase
|
2.6
|
%
|
3.1
|
%
|
|
|
Discount rate
|
2.6
|
%
|
3.8
|
%
|
|
|
Expected rate of return on plan assets
|
4.0
|
%
|
5.1
|
%
|
|
II-166
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
The components of net periodic pension cost recorded in our consolidated statements of operations are as follows:
|
Year ended December 31,
|
|||||||
|
2014
|
2013
|
||||||
|
in millions
|
|||||||
|
Service cost
|
$
|
22.3
|
|
$
|
25.8
|
|
|
|
Interest cost
|
42.9
|
|
26.8
|
|
|||
|
Expected return on plan assets
|
(53.7
|
)
|
(30.0
|
)
|
|||
|
Other
|
(1.9
|
)
|
(1.1
|
)
|
|||
|
Net periodic pension cost
|
$
|
9.6
|
|
$
|
21.5
|
|
|
The asset allocation by asset category and by fair value hierarchy level (as further described in note
8
) of our plan assets is as follows:
|
|
December 31, 2014
|
||||||||||||||
|
|
Total
|
Level 1
|
Level 2
|
Level 3
|
|||||||||||
|
|
in millions
|
||||||||||||||
|
Equity securities
|
$
|
353.8
|
|
$
|
353.8
|
|
$
|
—
|
|
$
|
—
|
|
|||
|
Debt securities
|
318.8
|
|
318.8
|
|
—
|
|
—
|
|
|||||||
|
Insurance contract (a)
|
158.0
|
|
—
|
|
—
|
|
158.0
|
|
|||||||
|
Hedge funds
|
136.5
|
|
120.1
|
|
16.4
|
|
—
|
|
|||||||
|
Guarantee investment contracts
|
86.0
|
|
86.0
|
|
—
|
|
—
|
|
|||||||
|
Real estate
|
39.9
|
|
32.9
|
|
—
|
|
7.0
|
|
|||||||
|
Other
|
29.7
|
|
29.7
|
|
—
|
|
—
|
|
|||||||
|
Total
|
$
|
1,122.7
|
|
$
|
941.3
|
|
$
|
16.4
|
|
$
|
165.0
|
|
|||
|
|
December 31, 2013
|
||||||||||||||
|
|
Total
|
Level 1
|
Level 2
|
Level 3
|
|||||||||||
|
|
in millions
|
||||||||||||||
|
Equity securities
|
$
|
344.3
|
|
$
|
344.3
|
|
$
|
—
|
|
$
|
—
|
|
|||
|
Debt securities
|
275.5
|
|
275.5
|
|
—
|
|
—
|
|
|||||||
|
Insurance contract (a)
|
153.4
|
|
—
|
|
—
|
|
153.4
|
|
|||||||
|
Hedge funds
|
133.1
|
|
117.8
|
|
15.3
|
|
—
|
|
|||||||
|
Guarantee investment contracts
|
83.0
|
|
83.0
|
|
—
|
|
—
|
|
|||||||
|
Real estate
|
36.7
|
|
28.9
|
|
—
|
|
7.8
|
|
|||||||
|
Other
|
31.0
|
|
31.0
|
|
—
|
|
—
|
|
|||||||
|
Total
|
$
|
1,057.0
|
|
$
|
880.5
|
|
$
|
15.3
|
|
$
|
161.2
|
|
|||
_______________
|
(a)
|
Relates to the purchase of an insurance contract authorized by the trustee of one of our defined benefit plans. The insurance contract will pay an income stream to the plan that is expected to match all future cash outflows with respect to certain liabilities. The fair value of this insurance contract is presented as an asset of the plan and is measured based on the future cash flows to be received under the contract discounted using the same discount rate used to measure the associated liabilities.
|
II-167
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
A reconciliation of the beginning and ending balances of our plan assets measured at fair value using Level 3 inputs is as follows (in millions):
|
Balance at January 1, 2014
|
$
|
161.2
|
|
|
Actual return on plan assets:
|
|||
|
Gains relating to assets still held at year-end
|
14.6
|
|
|
|
Purchases, sales and settlements of investments, net
|
(1.2
|
)
|
|
|
Foreign currency translation adjustments
|
(9.6
|
)
|
|
|
Balance at December 31, 2014
|
$
|
165.0
|
|
The trustees of the defined benefit pension plans have in place weighted average target asset allocations of
27%
equities,
26%
bonds,
20%
insurance contracts,
11%
hedge funds,
8%
guarantee investment contracts,
5%
real estate and
3%
other at
December 31, 2014
. As markets move relative to each other, the asset allocation may move away from the target investment strategy.
Rebalancing of the assets may be carried out from time to time by the trustees.
Based on
December 31, 2014
exchange rates and information available as of that date, our subsidiaries’ contributions to their respective defined benefit plans in
2015
are expected to aggregate
$58.5 million
.
As of
December 31, 2014
, the benefits that we currently expect to pay during the next ten years with respect to our defined benefit plans are as follows (in millions):
|
2015
|
$
|
33.2
|
|
|
2016
|
$
|
31.2
|
|
|
2017
|
$
|
32.5
|
|
|
2018
|
$
|
31.9
|
|
|
2019
|
$
|
32.2
|
|
|
2020 through 2024
|
$
|
176.5
|
|
(
16
)
Accumulated Other Comprehensive Earnings
Accumulated other comprehensive earnings included in our consolidated balance sheets and statements of equity reflect the aggregate impact of foreign currency translation adjustments, unrealized gains and losses on cash flow hedges and pension-related adjustments. The changes in the components of accumulated other comprehensive earnings, net of taxes, are summarized as follows:
|
|
Liberty Global shareholders
|
|
|
|||||||||||||||||||||
|
|
Foreign
currency
translation
adjustments
|
Unrealized
gains
(losses) on
cash flow
hedges
|
Pension-
related
adjustments
|
Accumulated
other
comprehensive
earnings
|
Non-controlling
interests
|
Total
accumulated
other
comprehensive
earnings
|
||||||||||||||||||
|
|
in millions
|
|||||||||||||||||||||||
|
Balance at January 1, 2012
|
$
|
1,529.7
|
|
$
|
(10.5
|
)
|
$
|
(9.7
|
)
|
$
|
1,509.5
|
|
$
|
(23.1
|
)
|
$
|
1,486.4
|
|
||||||
|
Sale of Austar
|
—
|
|
—
|
|
—
|
|
—
|
|
60.1
|
|
60.1
|
|
||||||||||||
|
Other comprehensive earnings
|
74.4
|
|
10.5
|
|
6.1
|
|
91.0
|
|
0.3
|
|
91.3
|
|
||||||||||||
|
Balance at December 31, 2012
|
1,604.1
|
|
—
|
|
(3.6
|
)
|
1,600.5
|
|
37.3
|
|
1,637.8
|
|
||||||||||||
|
Other comprehensive earnings
|
918.1
|
|
—
|
|
10.2
|
|
928.3
|
|
(16.9
|
)
|
911.4
|
|
||||||||||||
|
Balance at December 31, 2013
|
2,522.2
|
|
—
|
|
6.6
|
|
2,528.8
|
|
20.4
|
|
2,549.2
|
|
||||||||||||
|
Other comprehensive loss
|
(810.1
|
)
|
—
|
|
(72.1
|
)
|
(882.2
|
)
|
(0.5
|
)
|
(882.7
|
)
|
||||||||||||
|
Balance at December 31, 2014
|
$
|
1,712.1
|
|
$
|
—
|
|
$
|
(65.5
|
)
|
$
|
1,646.6
|
|
$
|
19.9
|
|
$
|
1,666.5
|
|
||||||
II-168
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
The components of other comprehensive earnings, net of taxes, are reflected in our consolidated statements of comprehensive earnings (loss). The following table summarizes the tax effects related to each component of other comprehensive earnings, net of amounts reclassified to our consolidated statements of operations:
|
Pre-tax
amount
|
Tax benefit
(expense)
|
Net-of-tax
amount
|
||||||||||
|
|
in millions
|
|||||||||||
|
Year ended December 31, 2014:
|
||||||||||||
|
Foreign currency translation adjustments
|
$
|
(816.4
|
)
|
$
|
6.3
|
|
$
|
(810.1
|
)
|
|||
|
Pension-related adjustments
|
(89.9
|
)
|
17.3
|
|
(72.6
|
)
|
||||||
|
Other comprehensive loss
|
(906.3
|
)
|
23.6
|
|
(882.7
|
)
|
||||||
|
Other comprehensive earnings attributable to noncontrolling interests (a)
|
0.8
|
|
(0.3
|
)
|
0.5
|
|
||||||
|
Other comprehensive loss attributable to Liberty Global shareholders
|
$
|
(905.5
|
)
|
$
|
23.3
|
|
$
|
(882.2
|
)
|
|||
|
Year ended December 31, 2013:
|
||||||||||||
|
Foreign currency translation adjustments
|
$
|
896.4
|
|
$
|
4.4
|
|
$
|
900.8
|
|
|||
|
Pension-related adjustments
|
12.1
|
|
(1.5
|
)
|
10.6
|
|
||||||
|
Other comprehensive earnings
|
908.5
|
|
2.9
|
|
911.4
|
|
||||||
|
Other comprehensive earnings attributable to noncontrolling interests (b)
|
17.3
|
|
(0.4
|
)
|
16.9
|
|
||||||
|
Other comprehensive earnings attributable to Liberty Global shareholders
|
$
|
925.8
|
|
$
|
2.5
|
|
$
|
928.3
|
|
|||
|
Year ended December 31, 2012:
|
||||||||||||
|
Foreign currency translation adjustments
|
$
|
76.0
|
|
$
|
(0.6
|
)
|
$
|
75.4
|
|
|||
|
Cash flow hedges
|
15.1
|
|
(4.6
|
)
|
10.5
|
|
||||||
|
Pension-related adjustments
|
6.0
|
|
(0.6
|
)
|
5.4
|
|
||||||
|
Other comprehensive earnings
|
97.1
|
|
(5.8
|
)
|
91.3
|
|
||||||
|
Other comprehensive loss attributable to noncontrolling interests (b)
|
0.1
|
|
(0.4
|
)
|
(0.3
|
)
|
||||||
|
Other comprehensive earnings attributable to Liberty Global shareholders
|
$
|
97.2
|
|
$
|
(6.2
|
)
|
$
|
91.0
|
|
|||
_______________
|
(a)
|
Amounts represent the noncontrolling interest owners’ share of our pension-related adjustments.
|
|
(b)
|
Amounts represent the noncontrolling interest owners’ share of our foreign currency translation adjustments and pension-related adjustments.
|
II-169
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
(
17
)
Commitments and Contingencies
Commitments
In the normal course of business, we have entered into agreements that commit our company to make cash payments in future periods with respect to programming contracts, network and connectivity commitments, purchases of customer premises and other equipment, non-cancelable operating leases and other items. The
U.S.
dollar equivalents of such commitments as of
December 31, 2014
are presented below:
|
|
Payments due during:
|
|
|||||||||||||||||||||||||
|
|
2015
|
2016
|
2017
|
2018
|
2019
|
Thereafter
|
Total
|
||||||||||||||||||||
|
|
in millions
|
||||||||||||||||||||||||||
|
Continuing operations:
|
|||||||||||||||||||||||||||
|
Programming commitments
|
$
|
863.9
|
|
$
|
785.4
|
|
$
|
612.7
|
|
$
|
528.0
|
|
$
|
231.4
|
|
$
|
2.0
|
|
$
|
3,023.4
|
|
||||||
|
Network and connectivity commitments
|
359.9
|
|
261.5
|
|
240.2
|
|
127.1
|
|
90.2
|
|
1,048.5
|
|
2,127.4
|
|
|||||||||||||
|
Purchase commitments
|
827.8
|
|
119.4
|
|
62.9
|
|
10.1
|
|
4.0
|
|
—
|
|
1,024.2
|
|
|||||||||||||
|
Operating leases
|
174.0
|
|
141.5
|
|
117.3
|
|
98.1
|
|
75.4
|
|
279.3
|
|
885.6
|
|
|||||||||||||
|
Other commitments
|
350.2
|
|
198.7
|
|
150.1
|
|
90.0
|
|
39.2
|
|
48.2
|
|
876.4
|
|
|||||||||||||
|
Total (a)
|
$
|
2,575.8
|
|
$
|
1,506.5
|
|
$
|
1,183.2
|
|
$
|
853.3
|
|
$
|
440.2
|
|
$
|
1,378.0
|
|
$
|
7,937.0
|
|
||||||
_______________
|
(a)
|
The commitments reflected in this table do not reflect any liabilities that are included in our
December 31, 2014
consolidated balance sheet.
|
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. In addition, programming commitments do not include increases in future periods associated with contractual inflation or other price adjustments that are not fixed. Accordingly, the amounts reflected in the above table with respect to these contracts are significantly less than the amounts we expect to pay in these 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
2014
,
2013
and
2012
, the third-party programming and copyright costs incurred by our broadband communications and
DTH
operations aggregated
$2,145.0 million
,
$1,612.5 million
and
$978.4 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.
Network and connectivity commitments include (i)
Telenet
’s commitments for certain operating costs associated with its leased network, (ii) commitments associated with our
MVNO
agreements and (iii) certain repair and maintenance, fiber capacity and energy commitments of
Unitymedia KabelBW
. Subsequent to
October 1, 2015
,
Telenet
’s commitments for certain operating costs will be 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. The amounts reflected in the table with respect to certain of 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.
Purchase commitments include unconditional purchase obligations associated with commitments to purchase customer premises and other equipment that are enforceable and legally binding on us.
Commitments arising from acquisition agreements are not reflected in the above table. In addition, the table does not include our commitments with respect to the amounts we have agreed to pay to settle the
FCO Appeals
, as defined and described below.
In addition to the commitments set forth in the table above, we have significant commitments under (i) derivative instruments and (ii) defined benefit plans and similar agreements, pursuant to which we expect to make payments in future periods. For
II-170
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
information regarding our derivative instruments, including the net cash paid or received in connection with these instruments during
2014
,
2013
and
2012
, see note
7
. For information regarding our defined benefit plans, see note
15
.
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.
Rental expense of our continuing operations under non-cancelable operating lease arrangements amounted to
$268.3 million
,
$238.6 million
and
$197.4 million
during
2014
,
2013
and
2012
, respectively. It is expected that in the normal course of business, operating leases that expire generally will be renewed or replaced by similar leases.
We have established various defined contribution benefit plans for our and our subsidiaries’ employees. The aggregate expense of our continuing operations for matching contributions under the various defined contribution employee benefit plans was
$63.2 million
,
$48.2 million
and
$26.4 million
during
2014
,
2013
and
2012
, respectively.
Guarantees and Other Credit Enhancements
In the ordinary course of business, we may provide indemnifications to our lenders, our vendors and certain other parties and 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.
Legal and Regulatory Proceedings and Other Contingencies
Interkabel Acquisition.
On
November 26, 2007
,
Telenet
and the
PICs
announced a non-binding agreement-in-principle to transfer the analog and digital television activities of the
PICs
, including all existing subscribers to
Telenet
. Subsequently,
Telenet
and the
PICs
entered into a binding agreement (the
2008 PICs Agreement
), which closed effective
October 1, 2008
. Beginning in December
2007
, Belgacom NV/SA (
Belgacom
), the incumbent telecommunications operator in Belgium, instituted several proceedings seeking to block implementation of these agreements. It lodged summary proceedings with the President of the Court of First Instance of Antwerp to obtain a provisional injunction preventing the
PICs
from effecting the agreement-in-principle and initiated a civil procedure on the merits claiming the annulment of the agreement-in-principle. In March
2008
, the President of the Court of First Instance of Antwerp ruled in favor of
Belgacom
in the summary proceedings, which ruling was overturned by the Court of Appeal of Antwerp in June
2008
.
Belgacom
brought this appeal judgment before the Cour de Cassation (the
Belgian Supreme Court
), which confirmed the appeal judgment in September 2010. On
April 6, 2009
, the Court of First Instance of Antwerp ruled in favor of the
PICs
and
Telenet
in the civil procedure on the merits, dismissing
Belgacom
’s request for the rescission of the agreement-in-principle and the
2008 PICs Agreement
. On
June 12, 2009
,
Belgacom
appealed this judgment with the Court of Appeal of Antwerp. In this appeal,
Belgacom
is now also seeking compensation for damages should the
2008 PICs Agreement
not be rescinded. However, the claim for compensation has not yet been quantified. At the introductory hearing, which was held on
September 8, 2009
, the proceedings on appeal were postponed indefinitely at the request of
Belgacom
.
In parallel with the above proceedings,
Belgacom
filed a complaint with the Government Commissioner seeking suspension of the approval by the
PICs
’ board of directors of the agreement-in-principle and initiated suspension and annulment procedures before the Belgian Council of State against these approvals and subsequently against the board resolutions of the
PICs
approving the
2008 PICs Agreement
. In this complaint,
Belgacom
’s primary argument was that the
PICs
should have organized a public market consultation before entering into the agreement-in-principal and the
2008 PICs Agreement
.
Belgacom
’s efforts to suspend approval of these agreements were unsuccessful. In the annulment cases, the Belgian Council of State decided on May 2, 2012 to refer a number of questions of interpretation of European Union (
EU
) law for preliminary ruling to the European Court of Justice. On November 14, 2013, the European Court of Justice ruled that a majority of the reasons invoked by the PICs not to organize a market consultation were not overriding reasons of public interest to justify abolishing the
PICs
’ duty to organize such consultation. The annulment case was subsequently resumed with the Belgian Council of State, which was required to follow the interpretation given by the European Court of Justice with respect to the points of
EU
law. On January 16, 2014, the Advocate General with the Council of State recommended that the decisions of the board of the
PICs
not to organize a public market consultation be annulled, and on May 27, 2014, the Belgian Council of State ruled in favor of
Belgacom
and annulled (i) the decision of the
PICs
not to organize a public market consultation and (ii) the decision from the
PICs
’ board of directors to approve the
2008 PICs Agreement
.
II-171
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
The Belgian Council of State ruling did not annul the
2008 PICs Agreement
itself.
Belgacom
may now resume the civil proceedings that are still pending with the Court of Appeal of Antwerp in order to have the
2008 PICs Agreement
annulled and claim damages.
It is possible that
Belgacom
or another third party or public authority will initiate further legal proceedings in an attempt to annul the
2008 PICs Agreement
. No assurance can be given as to the outcome of these or other proceedings. However, an unfavorable outcome of existing or future proceedings could potentially lead to the annulment of the
2008 PICs Agreement
and/or to an obligation of
Telenet
to pay compensation for damages, subject to the relevant provisions of the
2008 PICs Agreement
, which stipulate that
Telenet
is only responsible for damages in excess of
€20.0 million
(
$24.2 million
). In light of the fact that
Belgacom
has not quantified the amount of damages that it is seeking and we have no basis for assessing the amount of losses we would incur in the unlikely event that the
2008 PICs Agreement
were to be annulled, we cannot provide a reasonable estimate of the range of loss that would be incurred in the event the ultimate resolution of this matter were to be unfavorable to
Telenet
. However, we do not expect the ultimate resolution of this matter to have a material impact on our results of operations, cash flows or financial position.
Deutsche Telekom
Litigation.
On December 28, 2012,
Unitymedia KabelBW
filed a lawsuit against
Deutsche Telekom
in which
Unitymedia KabelBW
asserts that it pays excessive prices for the co-use of
Deutsche Telekom
’s cable ducts in
Unitymedia KabelBW
’s footprint. The Federal Network Agency approved rates for the co-use of certain ducts of
Deutsche Telekom
in March 2011. Based in part on these approved rates,
Unitymedia KabelBW
is seeking a reduction of the annual lease fees (approximately
€76 million
(
$92 million
) for 2012) by approximately
two-thirds
and the return of similarly calculated overpayments from 2009 through the ultimate settlement date, plus accrued interest. While we expect a decision by the court of first instance during the first half of 2015, the resolution of this matter may take several years and no assurance can be given that
Unitymedia KabelBW
’s claims will be successful. Any recovery by
Unitymedia KabelBW
will not be reflected in our consolidated financial statements until such time as the final disposition of this matter has been reached.
Vivendi Litigation.
A wholly-owned subsidiary of our company is a plaintiff in certain litigation titled Liberty Media Corporation, et. al. v. Vivendi S.A. and Universal Studio. A predecessor of
Liberty Global
was a subsidiary of Liberty Media Corporation (
Liberty Media
) through June 6, 2004. In connection with
Liberty Media
’s prosecution of the action, our subsidiary assigned its rights to
Liberty Media
in exchange for a contingent payout in the event
Liberty Media
recovered any amounts as a result of the action. Our subsidiary’s interest in any such recovery will be equal to
10%
of the recovery amount, including any interest awarded, less the amount to be retained by
Liberty Media
for (i) all fees and expenses incurred by
Liberty Media
in connection with the action (including expenses to be incurred in connection with any appeals and the payment of certain deferred legal fees) and (ii) agreed upon interest on such fees and expenses. On January 17, 2013, following a jury trial, the court entered a final judgment in favor of the plaintiffs in the amount of
€944 million
(
$1,142 million
), including prejudgment interest. Vivendi S.A. and Universal Studios have filed a notice of appeal of the court’s final judgment to the Second Circuit Court of Appeals. As a result, the amount that our subsidiary may ultimately recover in connection with the final resolution of the action, if any, is uncertain. Any recovery by our company will not be reflected in our consolidated financial statements until such time as the final disposition of this matter has been reached.
Liberty Puerto Rico
Matter.
Liberty Puerto Rico
, as the surviving entity in the
Puerto Rico Transaction
, is a party to certain claims previously asserted by the incumbent telephone operator against
OneLink
based on alleged conduct of
OneLink
that occurred prior to the acquisition of
OneLink
(the
PRTC Claim
). This claim included an allegation that
OneLink
acted in an anticompetitive manner in connection with a series of legal and regulatory proceedings it initiated against the incumbent telephone operator in Puerto Rico beginning in 2009. In March 2014, a separate class action claim was filed in Puerto Rico (the
Class Action Claim
) containing allegations substantially similar to those asserted in the
PRTC Claim
, but alleging ongoing injury on behalf of a consumer class (as opposed to harm to a competitor). The former owners of
OneLink
have partially indemnified us for any losses we may incur in connection with the
PRTC Claim
up to a specified maximum amount. However, the indemnity does not cover any potential losses resulting from the
Class Action Claim
.
Liberty Puerto Rico
has recorded a provision and a related indemnification asset representing its best estimate of the net loss that it may incur upon the ultimate resolution of the
PRTC Claim
.
While
Liberty Puerto Rico
expects that the net amount required to satisfy these contingencies will not materially differ from the estimated amount it has accrued, no assurance can be given that the ultimate resolution of these matters will not have an adverse impact on our results of operations, cash flows or financial position in any given period.
Netherlands Regulatory Developments
. In December 2011, the Autoriteit Consument & Markt (
ACM
) completed a market assessment of the television market in the Netherlands, concluding that there were no grounds for regulation of that market. On December 22, 2011, referring to its final assessment of the television market,
ACM
rejected previously filed requests from a
II-172
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
number of providers to perform a new market analysis of the television market. This decision by
ACM
was appealed by such providers to the Dutch Supreme Administrative Court. On November 5, 2012, the Dutch Supreme Administrative Court rejected the appeals against
ACM
’s decision.
In May 2012, the Dutch Parliament adopted laws that provide, among other matters, the power to
ACM
to impose an obligation for the mandatory resale of television services and to the Commissariaat voor de Media to supervise such resale obligation. These laws became effective on January 1, 2013, notwithstanding the above-described November 5, 2012 decision of the Dutch Supreme Administrative Court. On January 29, 2014, a Dutch civil court, in a proceeding initiated by
UPC Nederland
, declared the resale obligation laws non-binding because they infringe
EU
law. The Dutch Government did not appeal the January 2014 decision, and the resale obligation laws were formally withdrawn on November 26, 2014. We consider the withdrawal of the resale obligation laws to be the final resolution of this matter.
Belgium Regulatory Developments.
In December 2010, the Belgisch Instituut voor Post en Telecommunicatie and the regional regulators for the media sectors (together, the
Belgium Regulatory Authorities
) published their respective draft decisions reflecting the results of their joint analysis of the broadcasting market in Belgium.
After a public consultation, the draft decisions were submitted to the
European Commission
. The
European Commission
issued a notice on the draft decision that criticized the analysis of the broadcasting markets on several grounds, including the fact that the
Belgium Regulatory Authorities
failed to analyze upstream wholesale markets. It also expressed doubts as to the necessity and proportionality of the various remedies.
The
Belgium Regulatory Authorities
adopted a final decision on July 1, 2011 (the
July 2011 Decision
) with some minor revisions. The regulatory obligations imposed by the
July 2011 Decision
include (i) an obligation to make a resale offer at “retail minus’’ of the cable analog package available to third party operators (including
Belgacom
), (ii) an obligation to grant third-party operators (except
Belgacom
) access to digital television platforms (including the basic digital video package) at “retail minus,” and (iii) an obligation to make a resale offer at “retail minus’’ of broadband internet access available to beneficiaries of the digital television access obligation that wish to offer bundles of digital video and broadband internet services to their customers (except
Belgacom
).
Telenet
submitted draft reference offers regarding the obligations described above in February 2012, in response to which the
Belgium Regulatory Authorities
subsequently made their observations, launched a national consultation process and consulted with the
European Commission
. Although the
European Commission
expressed doubts regarding the analog resale offers on August 8, 2013, the
European Commission
did not object to the reference offers. The
Belgium Regulatory Authorities
published the final decision on September 9, 2013. The regulated wholesale services had to be available approximately
six months
after a third-party operator filed a letter of intent and paid an advance payment to
Telenet
. On December 27, 2013, wireless operator Mobistar SA (
Mobistar
) submitted a letter of intent and paid the advance payment on January 10, 2014.
Telenet
has implemented the access obligations as described in its reference offers and, as of June 23, 2014, access to the
Telenet
network had become operational and can be applied by
Mobistar
. In addition, as a result of the November 2014 decision by the Brussels Court of Appeal described below, on November 14, 2014, Belgacom submitted a request to Telenet to commence access negotiations.
On April 2, 2013, the
Belgium Regulatory Authorities
issued a draft decision regarding the “retail-minus” tariffs of minus
35%
for basic television (basic analog and digital video package) and minus
30%
for the bundle of basic television and broadband internet services. A “retail-minus” method of pricing involves a wholesale tariff calculated as the retail price for the offered service by
Telenet
, excluding
VAT
and copyrights, and further deducting the retail costs avoided by offering the wholesale service (such as costs for billing, franchise, consumer service, marketing and sales). On October 4, 2013, the
Belgium Regulatory Authorities
notified a draft quantitative decision to the
European Commission
in which they changed the “retail-minus” tariffs to minus
30%
for basic television (basic analog and digital video package) and to minus
23%
for the bundle of basic television and broadband internet services. Even though the European Commission made a number of comments regarding the appropriateness of certain assumptions in the proposed costing methodology, the Belgium Regulatory Authorities adopted such “retail-minus” tariffs on December 11, 2013.
Telenet
filed an appeal against the
July 2011 Decision
with the Brussels Court of Appeal. On November 12, 2014, the Brussels Court of Appeal rejected
Telenet
’s appeal of the
July 2011 Decision
and accepted
Belgacom
’s claim that
Belgacom
should be allowed access to Telenet’s, among other operators, digital television platform. Telenet is currently considering the possibility to file an appeal against this decision with the
Belgian Supreme Court
.
Telenet
also filed an appeal with the Brussels Court of Appeal
II-173
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
against the decision regarding the qualitative and the quantitative aspects of the reference offers. Wireless operator
Mobistar
also filed an appeal against the decision regarding the quantitative aspects of the reference offers. A decision with respect to these appeals is not expected before the end of 2015. There can be no certainty that
Telenet
’s appeals will be successful.
The
July 2011 Decision
aims to, and in its application may, strengthen
Telenet
’s competitors by granting them resale access to
Telenet
’s network to offer competing products and services notwithstanding
Telenet
’s substantial historical financial outlays in developing the infrastructure. In addition, any resale access granted to competitors could (i) limit the bandwidth available to
Telenet
to provide new or expanded products and services to the customers served by its network and (ii) adversely impact
Telenet
’s ability to maintain or increase its revenue and cash flows. The extent of any such adverse impacts ultimately will be dependent on the extent that competitors take advantage of the resale access ultimately afforded to
Telenet
’s network and other competitive factors or market developments.
FCO
Regulatory Issues.
Our 2011 acquisition of the German cable network
KBW
(the
KBW Acquisition
) was subject to the approval of The Federal Cartel Office (the
FCO
) in Germany, which approval was received in December 2011. In January 2012,
two
of our competitors (collectively, the
Appellants
), including the incumbent telecommunications operator, each filed an appeal (collectively, the
FCO Appeals
) against the
FCO
regarding its decision to approve our
KBW Acquisition
. On August 14, 2013, the Düsseldorf Court of Appeal issued a ruling that set aside the
FCO
’s clearance decision. Although the Düsseldorf Court of Appeal did not grant the right to appeal against its ruling to the Federal Supreme Court, on September 16, 2013, we filed a formal request to appeal to the Federal Court of Justice seeking permission to appeal the Düsseldorf Court of Appeal’s decision and our reasoned submission was filed on December 16, 2013. During the first quarter of 2014, interested third parties commented on our submission. The Düsseldorf Court of Appeal’s ruling is not legally binding until all appeals have been rejected.
During the fourth quarter of 2014, we, together with our German subsidiaries, entered into agreements with the
Appellants
pursuant to which the
Appellants
withdrew the
FCO Appeals
and, on January 21, 2015, the
FCO
consented to the withdrawal. If the Federal Court of Justice terminates the proceedings, which we expect to occur during the first quarter of 2015, the
FCO
’s clearance decision with respect to our
KBW Acquisition
will become final (without any additional review or conditions). Upon termination of the proceedings, we have agreed to pay the
Appellants
an aggregate amount of
€183.5 million
(
$222.0 million
). This amount, which was recorded during the fourth quarter of 2014, is included in impairment, restructuring and other operating items, net, in our consolidated statement of operations. Once the
FCO Appeals
are withdrawn, we will consider this matter to be closed.
Financial Transactions Tax.
Eleven
countries in the
EU
, including Belgium, Germany, Austria and Slovakia, are participating in an enhanced cooperation procedure to introduce a financial transactions tax (
FTT
). Under the draft language of the
FTT
proposal, a wide range of financial transactions could be taxed at rates of at least
0.01%
for derivative transactions based on the notional amount and
0.1%
for other covered financial transactions based on the underlying transaction price. Each of the individual countries would be permitted to determine an exact rate, which could be higher than the proposed rates of
0.01%
and
0.1%
. Any implementation of the
FTT
could have a global impact because it would apply to all financial transactions where a financial institution is involved (including unregulated entities that engage in certain types of covered activity) and either of the parties (whether the financial institution or its counterparty) is in one of the
eleven
participating countries. Although ongoing debate in the relevant countries demonstrates continued momentum around the
FTT
, uncertainty remains as to when the
FTT
would be implemented and the breadth of its application. Based on our understanding of the current status of the potential
FTT
, we do not expect that any implementation of the
FTT
would occur before 2016. Any imposition of the
FTT
could increase banking fees and introduce taxes on internal transactions that we currently perform. Due to the uncertainty regarding the
FTT
, we are currently unable to estimate the financial impact that the
FTT
could have on our results of operations, cash flows or financial position.
Virgin Media VAT
Matters.
Virgin Media
’s application of the
VAT
with respect to certain revenue generating activities has been challenged by the
U.K.
tax authorities.
Virgin Media
has estimated its maximum exposure in the event of an unfavorable outcome to be
£40.3 million
(
$62.8 million
) as of
December 31, 2014
.
No
portion of this exposure has been accrued by
Virgin Media
as the likelihood of loss is not considered to be probable. A court hearing was held at the end of September 2014 in relation to the
U.K.
tax authorities’ challenge and the court’s decision is expected at some point prior to March 31, 2015.
On March 19, 2014, the
U.K.
government announced a change in legislation with respect to the charging of
VAT
in connection with prompt payment discounts such as those that
Virgin Media
offers to its fixed-line telephony customers. The changes, which took effect on May 1, 2014, impacted
Virgin Media
and as a result of this legislation,
Virgin Media
’s revenue was
£28.9 million
(
$45.0 million
) lower during
2014
, as compared to
2013
. Recent correspondence from the
U.K.
government indicates that it may seek to challenge
Virgin Media
’s application of the prompt payment discount rules prior to the May 1, 2014 change in legislation.
II-174
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
If such a challenge were to be issued by the
U.K.
government,
Virgin Media
could be required to make a payment of the challenged amount in order to make an appeal.
Virgin Media
currently estimates that the challenged amount could be up to approximately
£65 million
(
$101 million
) before any penalties or interest. Any challenge and subsequent appeal would likely be subject to court proceedings that could delay the ultimate resolution of this matter for an extended period of time.
No
portion of this potential exposure has been accrued by
Virgin Media
as no claim has been asserted or assessed and the likelihood of loss is not considered to be probable.
Cignal.
On April 26, 2002,
Liberty Global Europe
received a notice that certain former shareholders of Cignal Global Communications (
Cignal
) filed a lawsuit (the
2002 Cignal Action
) against
Liberty Global Europe
. On June 13, 2006,
Liberty Global Europe
, Priority Telecom NV, Euronext NV and Euronext Amsterdam NV were each served with a summons for a new action (the
2006 Cignal Action
) purportedly on behalf of all other former
Cignal
shareholders and provisionally for the
nine
plaintiffs in the
2002 Cignal Action
. During the third quarter of 2007, we recorded a litigation provision of
$146.0 million
based on our assessment at the time of our loss exposure with respect to the
2002 Cignal Action
and the
2006 Cignal Action
. On October 25, 2013, we received what we consider to be the final resolution of the
2006 Cignal Action
and the effective resolution of the
2002 Cignal Action
. Accordingly, we released the entire
$146.0 million
provision related to this matter during the third quarter of 2013.
Other Regulatory Issues.
Video distribution, broadband internet, fixed-line telephony, mobile and content businesses are regulated in each of the countries in which we operate. The scope of regulation varies from country to country, although in some significant respects regulation in European markets is harmonized under the regulatory structure of the
EU
. Adverse regulatory developments could subject our businesses to a number of risks. Regulation, including conditions imposed on us by competition or other authorities as a requirement to close acquisitions or dispositions, could limit growth, revenue and the number and types of services offered and could lead to increased operating costs and property and equipment additions. In addition, regulation may restrict our operations and subject them to further competitive pressure, including pricing restrictions, interconnect and other access obligations, and restrictions or controls on content, including content provided by third parties. Failure to comply with current or future regulation could expose our businesses to various penalties. In this regard, during September 2014,
VTR
received a tariff proposal from the Chilean regulatory authority that would have retroactive effect to June 2012. The tariff proposal represents a significant reduction in the fixed-line interconnection rates currently charged by
VTR
.
VTR
is in the process of formulating its objections and comments to the tariff proposal and is currently unable to reasonably predict the outcome of the tariff-setting process.
VTR
has continued to recognize fixed-line interconnect revenue at the currently enacted rates. Final resolution of the tariff-setting process in Chile is expected to occur during the first half of 2015. If the September 2014 tariff proposal were ultimately to be upheld, including retroactive application to June 2012,
VTR
would be required to issue credit notes of approximately CLP
7.4 billion
(
$12.2 million
) for revenue previously recognized through
December 31, 2014
.
We have security accreditations across a range of
B2B
products and services in order to increase our offerings to public sector organizations in the
U.K.
These accreditations are granted subject to periodic reviews of our policies and procedures by
U.K.
governmental authorities. If we were to fail to maintain these accreditations or obtain new accreditations when required, it could impact our ability to provide certain offerings to the public sector.
Other.
In addition to the foregoing items, we have contingent liabilities related to matters arising in the ordinary course of business including (i) legal proceedings, (ii) issues involving
VAT
and wage, property and other tax issues and (iii) disputes over interconnection, programming, copyright and carriage fees. While we generally expect that the amounts required to satisfy these contingencies will not materially differ from any estimated amounts we have accrued, no assurance can be given that the resolution of one or more of these contingencies will not result in a material impact on our results of operations, cash flows or financial position in any given period. Due, in general, to the complexity of the issues involved and, in certain cases, the lack of a clear basis for predicting outcomes, we cannot provide a meaningful range of potential losses or cash outflows that might result from any unfavorable outcomes.
II-175
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
(
18
)
Segment Reporting
We generally identify our reportable segments as those consolidated subsidiaries that represent
10%
or more of our revenue, operating cash flow (as defined below) or total assets. In certain cases, we may elect to include an operating segment in our segment disclosure that does not meet the above-described criteria for a reportable segment. We evaluate performance and make decisions about allocating resources to our operating segments based on financial measures such as revenue and operating cash flow. In addition, we review non-financial measures such as subscriber growth, as appropriate.
Operating cash flow is the primary measure used by our chief operating decision maker to evaluate segment operating performance. Operating cash flow is also a key factor that is used by our internal decision makers to (i) determine how to allocate resources to segments and (ii) evaluate the effectiveness of our management for purposes of annual and other incentive compensation plans. As we use the term, operating cash flow is defined as revenue less operating and SG&A expenses (excluding share-based compensation, depreciation and amortization, provisions and provision releases related to significant litigation and impairment, restructuring and other operating items). Other operating items include (a) gains and losses on the disposition of long-lived assets, (b) third-party costs directly associated with successful and unsuccessful acquisitions and dispositions, including legal, advisory and due diligence fees, as applicable, and (c) other acquisition-related items, such as gains and losses on the settlement of contingent consideration. Our internal decision makers believe operating cash flow is a meaningful measure and is superior to available
GAAP
measures because it represents a transparent view of our recurring operating performance that is unaffected by our capital structure and allows management to (1) readily view operating trends, (2) perform analytical comparisons and benchmarking between segments and (3) identify strategies to improve operating performance in the different countries in which we operate. We believe our operating cash flow measure is useful to investors because it is one of the bases for comparing our performance with the performance of other companies in the same or similar industries, although our measure may not be directly comparable to similar measures used by other public companies. Operating cash flow should be viewed as a measure of operating performance that is a supplement to, and not a substitute for, operating income, net earnings or loss, cash flow from operating activities and other
GAAP
measures of income or cash flows. A reconciliation of total segment operating cash flow to our loss from continuing operations before income taxes is presented below.
During the fourth quarter of 2014, we began presenting (i) our operating segments in the
U.K.
and Ireland as one combined reportable segment, (ii) our operating segments in Switzerland and Austria as one combined reportable segment and (iii) our
UPC DTH
operating segment, as described below, as part of our
Central and Eastern Europe
reportable segment. These changes were made as a result of internal changes in organizational structures, changes in how these segments are evaluated and monitored by the chief operating decision maker and the integration of certain functions within these reportable segments. Previously, (a) our operating segments in the
U.K.
and Switzerland were each separate reportable segments, (b) our operating segments in Ireland and Austria were combined into one reportable segment, “Other Western Europe,” and (c) our
UPC DTH
operating segment was included in the
European Operations Division
’s central and other category. Segment information for all periods presented has been revised to reflect the above-described changes. We present only the reportable segments of our continuing operations in the tables below.
As of
December 31, 2014
, our reportable segments are as follows:
|
•
|
European Operations Division
:
|
|
•
|
U.K./Ireland
|
|
•
|
The Netherlands
|
|
•
|
Germany
|
|
•
|
Belgium
|
|
•
|
Switzerland/Austria
|
|
•
|
Central and Eastern Europe
|
|
•
|
Chile
|
All of the reportable segments set forth above derive their revenue primarily from broadband communications services, including video, broadband internet and fixed-line telephony services. Most of our reportable segments also provide
B2B
services and certain of our reportable segments provide mobile services. At
December 31, 2014
, our operating segments in the
European Operations Division
provided broadband communications services in
12
European countries and
DTH
services to customers in the Czech Republic, Hungary, Romania and Slovakia through a Luxembourg-based organization that we refer to as “
UPC DTH
.”
II-176
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
Our Central and Eastern Europe segment includes (i) our broadband communications operating segments in the Czech Republic, Hungary, Poland, Romania and Slovakia and (ii) our
UPC DTH
operating segment. The
European Operations Division
’s central and other category includes (a) costs associated with certain centralized functions, including billing systems, network operations, technology, marketing, facilities, finance and other administrative functions, and (b) intersegment eliminations within the
European Operations Division
. In Chile, we provide video, broadband internet, fixed-line telephony and mobile services. Our corporate and other category includes (A) less significant consolidated operating segments that provide (I) broadband communications services in Puerto Rico and (II) programming and other services and (B) our corporate category. Intersegment eliminations primarily represent the elimination of intercompany transactions between our broadband communications and programming operations.
Performance Measures of Our Reportable Segments
The amounts presented below represent
100%
of each of our reportable segment’s revenue and operating cash flow. As we have the ability to control
Telenet
and
Liberty Puerto Rico
, we consolidate
100%
of the revenue and expenses of these entities in our 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
,
Liberty Puerto Rico
and other less significant majority-owned subsidiaries are reflected in net earnings or loss attributable to noncontrolling interests in our consolidated statements of operations.
|
Year ended December 31,
|
|||||||||||||||||||||||
|
|
2014
|
2013
|
2012
|
||||||||||||||||||||
|
|
Revenue
|
Operating cash flow
|
Revenue
|
Operating cash flow
|
Revenue
|
Operating cash flow
|
|||||||||||||||||
|
|
in millions
|
||||||||||||||||||||||
|
European Operations Division:
|
|||||||||||||||||||||||
|
U.K./Ireland (a)
|
$
|
7,409.9
|
|
$
|
3,235.7
|
|
$
|
4,117.4
|
|
$
|
1,742.8
|
|
$
|
426.4
|
|
$
|
189.1
|
|
|||||
|
The Netherlands (b)
|
1,498.5
|
|
857.9
|
|
1,242.4
|
|
721.7
|
|
1,229.1
|
|
737.1
|
|
|||||||||||
|
Germany
|
2,711.5
|
|
1,678.2
|
|
2,559.2
|
|
1,541.1
|
|
2,311.0
|
|
1,364.3
|
|
|||||||||||
|
Belgium
|
2,279.4
|
|
1,125.0
|
|
2,185.9
|
|
1,049.4
|
|
1,918.0
|
|
940.7
|
|
|||||||||||
|
Switzerland/Austria
|
1,846.1
|
|
1,056.4
|
|
1,767.1
|
|
1,005.7
|
|
1,681.8
|
|
936.5
|
|
|||||||||||
|
Total Western Europe
|
15,745.4
|
|
7,953.2
|
|
11,872.0
|
|
6,060.7
|
|
7,566.3
|
|
4,167.7
|
|
|||||||||||
|
Central and Eastern Europe
|
1,259.5
|
|
583.0
|
|
1,272.0
|
|
584.5
|
|
1,231.2
|
|
589.2
|
|
|||||||||||
|
Central and other
|
(7.1
|
)
|
(282.7
|
)
|
(0.4
|
)
|
(239.1
|
)
|
1.5
|
|
(195.7
|
)
|
|||||||||||
|
Total European Operations Division
|
16,997.8
|
|
8,253.5
|
|
13,143.6
|
|
6,406.1
|
|
8,799.0
|
|
4,561.2
|
|
|||||||||||
|
Chile
|
898.5
|
|
351.0
|
|
991.6
|
|
353.6
|
|
940.6
|
|
314.2
|
|
|||||||||||
|
Corporate and other
|
376.9
|
|
(86.2
|
)
|
374.3
|
|
(63.8
|
)
|
224.1
|
|
(83.1
|
)
|
|||||||||||
|
Intersegment eliminations (c)
|
(24.9
|
)
|
4.0
|
|
(35.3
|
)
|
44.8
|
|
(32.9
|
)
|
38.6
|
|
|||||||||||
|
Total
|
$
|
18,248.3
|
|
$
|
8,522.3
|
|
$
|
14,474.2
|
|
$
|
6,740.7
|
|
$
|
9,930.8
|
|
$
|
4,830.9
|
|
|||||
______________
|
(a)
|
The amounts presented for 2013 include the post-acquisition revenue and operating cash flow of
Virgin Media
from June 8, 2013 through December 31, 2013.
|
|
(b)
|
The amounts presented for 2014 include the post-acquisition revenue and operating cash flow of
Ziggo
from November 12, 2014 through December 31, 2014.
|
|
(c)
|
The intersegment eliminations that are applicable to revenue are primarily related to transactions between our
European Operations Division
and our continuing programming operations. The intersegment eliminations that are applicable to operating cash flow are related to transactions between our
European Operations Division
and the
Chellomedia Disposal Group
, which eliminations are no longer recorded following the completion of the
Chellomedia Transaction
on January 31, 2014.
|
II-177
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
The following table provides a reconciliation of total segment operating cash flow from continuing operations to loss from continuing operations before income taxes:
|
|
Year ended December 31,
|
||||||||||
|
|
2014
|
2013
|
2012
|
||||||||
|
|
in millions
|
||||||||||
|
Total segment operating cash flow from continuing operations
|
$
|
8,522.3
|
|
$
|
6,740.7
|
|
$
|
4,830.9
|
|
||
|
Share-based compensation expense
|
(257.2
|
)
|
(300.7
|
)
|
(110.1
|
)
|
|||||
|
Depreciation and amortization
|
(5,500.1
|
)
|
(4,276.4
|
)
|
(2,661.5
|
)
|
|||||
|
Release of litigation provision
|
—
|
|
146.0
|
|
—
|
|
|||||
|
Impairment, restructuring and other operating items, net
|
(536.8
|
)
|
(297.5
|
)
|
(76.2
|
)
|
|||||
|
Operating income
|
2,228.2
|
|
2,012.1
|
|
1,983.1
|
|
|||||
|
Interest expense
|
(2,544.7
|
)
|
(2,286.9
|
)
|
(1,673.6
|
)
|
|||||
|
Interest and dividend income
|
31.7
|
|
113.1
|
|
42.1
|
|
|||||
|
Realized and unrealized gains (losses) on derivative instruments, net
|
88.8
|
|
(1,020.4
|
)
|
(1,070.3
|
)
|
|||||
|
Foreign currency transaction gains (losses), net
|
(836.5
|
)
|
349.3
|
|
438.4
|
|
|||||
|
Realized and unrealized gains (losses) due to changes in fair values of certain investments, net
|
205.2
|
|
524.1
|
|
(10.2
|
)
|
|||||
|
Losses on debt modification, extinguishment and conversion, net
|
(186.2
|
)
|
(212.2
|
)
|
(213.8
|
)
|
|||||
|
Other expense, net
|
(42.4
|
)
|
(5.6
|
)
|
(4.6
|
)
|
|||||
|
Loss from continuing operations before income taxes
|
$
|
(1,055.9
|
)
|
$
|
(526.5
|
)
|
$
|
(508.9
|
)
|
||
II-178
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
Balance Sheet Data of our Reportable Segments
Selected balance sheet data of our reportable segments is set forth below:
|
Long-lived assets
|
Total assets
|
||||||||||||||
|
|
December 31,
|
December 31,
|
|||||||||||||
|
|
2014
|
2013
|
2014
|
2013
|
|||||||||||
|
|
in millions
|
||||||||||||||
|
European Operations Division:
|
|||||||||||||||
|
U.K./Ireland
|
$
|
21,754.2
|
|
$
|
24,322.1
|
|
$
|
25,487.2
|
|
$
|
30,598.8
|
|
|||
|
The Netherlands
|
17,092.7
|
|
2,496.5
|
|
17,387.0
|
|
2,845.3
|
|
|||||||
|
Germany
|
9,117.9
|
|
10,754.7
|
|
9,512.8
|
|
11,968.2
|
|
|||||||
|
Belgium
|
4,149.5
|
|
4,737.4
|
|
4,828.8
|
|
5,909.2
|
|
|||||||
|
Switzerland/Austria
|
5,300.9
|
|
5,961.8
|
|
5,643.9
|
|
6,484.8
|
|
|||||||
|
Total Western Europe
|
57,415.2
|
|
48,272.5
|
|
62,859.7
|
|
57,806.3
|
|
|||||||
|
Central and Eastern Europe
|
2,459.9
|
|
2,898.7
|
|
2,566.4
|
|
3,127.4
|
|
|||||||
|
Central and other
|
499.4
|
|
463.5
|
|
2,613.2
|
|
1,639.1
|
|
|||||||
|
Total European Operations Division
|
60,374.5
|
|
51,634.7
|
|
68,039.3
|
|
62,572.8
|
|
|||||||
|
Chile
|
1,017.3
|
|
1,139.7
|
|
1,513.2
|
|
1,628.9
|
|
|||||||
|
Corporate and other
|
1,197.2
|
|
1,214.9
|
|
3,289.4
|
|
2,760.3
|
|
|||||||
|
Total - continuing operations
|
62,589.0
|
|
53,989.3
|
|
72,841.9
|
|
66,962.0
|
|
|||||||
|
Discontinued operation (a)
|
—
|
|
513.6
|
|
—
|
|
752.3
|
|
|||||||
|
Total
|
$
|
62,589.0
|
|
$
|
54,502.9
|
|
$
|
72,841.9
|
|
$
|
67,714.3
|
|
|||
______________
|
(a)
|
At December 31, 2013, the long-lived assets and total assets of the
Chellomedia Disposal Group
are presented in long-term assets of discontinued operation in our consolidated balance sheet.
|
II-179
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
Property and Equipment Additions of our Reportable Segments
The property and equipment additions of our reportable segments (including capital additions financed under vendor financing or capital lease arrangements) are presented below and reconciled to the capital expenditure amounts included in our consolidated statements of cash flows. For additional information concerning capital additions financed under vendor financing and capital lease arrangements, see note
9
.
|
|
Year ended December 31,
|
||||||||||
|
|
2014
|
2013
|
2012
|
||||||||
|
|
in millions
|
||||||||||
|
European Operations Division:
|
|||||||||||
|
U.K./Ireland (a)
|
$
|
1,506.7
|
|
$
|
827.5
|
|
$
|
74.5
|
|
||
|
The Netherlands (b)
|
268.0
|
|
242.4
|
|
221.8
|
|
|||||
|
Germany
|
574.5
|
|
543.4
|
|
559.5
|
|
|||||
|
Belgium
|
448.9
|
|
453.7
|
|
440.0
|
|
|||||
|
Switzerland/Austria
|
327.2
|
|
306.4
|
|
292.8
|
|
|||||
|
Total Western Europe
|
3,125.3
|
|
2,373.4
|
|
1,588.6
|
|
|||||
|
Central and Eastern Europe
|
264.8
|
|
271.6
|
|
248.7
|
|
|||||
|
Central and other
|
257.9
|
|
256.0
|
|
144.3
|
|
|||||
|
Total European Operations Division
|
3,648.0
|
|
2,901.0
|
|
1,981.6
|
|
|||||
|
Chile
|
195.8
|
|
188.5
|
|
243.4
|
|
|||||
|
Corporate and other
|
65.4
|
|
72.1
|
|
33.6
|
|
|||||
|
Property and equipment additions
|
3,909.2
|
|
3,161.6
|
|
2,258.6
|
|
|||||
|
Assets acquired under capital-related vendor financing arrangements
|
(975.3
|
)
|
(573.5
|
)
|
(246.5
|
)
|
|||||
|
Assets acquired under capital leases
|
(127.2
|
)
|
(143.0
|
)
|
(63.1
|
)
|
|||||
|
Changes in current liabilities related to capital expenditures
|
(122.3
|
)
|
36.4
|
|
(80.7
|
)
|
|||||
|
Total capital expenditures
|
$
|
2,684.4
|
|
$
|
2,481.5
|
|
$
|
1,868.3
|
|
||
______________
|
(a)
|
The amount presented for 2013 includes the post-acquisition property and equipment additions of
Virgin Media
from June 8, 2013 through December 31, 2013.
|
|
(b)
|
The amount presented for 2014 includes the post-acquisition property and equipment additions of
Ziggo
from November 12, 2014 through December 31, 2014.
|
II-180
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
Revenue by Major Category
Our revenue by major category is set forth below:
|
|
Year ended December 31,
|
||||||||||
|
|
2014
|
2013
|
2012
|
||||||||
|
|
in millions
|
||||||||||
|
Subscription revenue (a):
|
|||||||||||
|
Video
|
$
|
6,544.0
|
|
$
|
5,724.1
|
|
$
|
4,637.6
|
|
||
|
Broadband internet
|
4,724.6
|
|
3,538.7
|
|
2,407.0
|
|
|||||
|
Fixed-line telephony
|
3,261.4
|
|
2,508.5
|
|
1,518.9
|
|
|||||
|
Cable subscription revenue
|
14,530.0
|
|
11,771.3
|
|
8,563.5
|
|
|||||
|
Mobile subscription revenue (b)
|
1,085.6
|
|
669.9
|
|
131.5
|
|
|||||
|
Total subscription revenue
|
15,615.6
|
|
12,441.2
|
|
8,695.0
|
|
|||||
|
B2B revenue (c)
|
1,517.9
|
|
986.9
|
|
467.9
|
|
|||||
|
Other revenue (b) (d)
|
1,114.8
|
|
1,046.1
|
|
767.9
|
|
|||||
|
Total revenue
|
$
|
18,248.3
|
|
$
|
14,474.2
|
|
$
|
9,930.8
|
|
||
_______________
|
(a)
|
Subscription revenue includes amounts received from subscribers for ongoing services, excluding installation fees and late fees. 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. As a result, changes in the standalone pricing of our cable and mobile products or the composition of bundles can contribute to changes in our product revenue categories from period to period.
|
|
(b)
|
Mobile subscription revenue excludes mobile interconnect revenue of
$245.0 million
,
$175.2 million
and
$35.1 million
during
2014
,
2013
and
2012
, respectively. Mobile interconnect revenue and revenue from mobile handset sales are included in other revenue.
|
|
(c)
|
B2B
revenue includes revenue from business broadband internet, video, voice, wireless and data services offered to medium to large enterprises and, on a wholesale basis, to other operators. We also provide services to certain small office and home office (
SOHO
) subscribers.
SOHO
subscribers pay a premium price to receive enhanced service levels along with video, broadband internet, fixed-line telephony or mobile services that are the same or similar to the mass marketed products offered to our residential subscribers. Revenue from
SOHO
subscribers, which aggregated
$204.1 million
,
$152.5 million
and
$59.7 million
during
2014
,
2013
and
2012
, respectively, is included in cable subscription revenue.
|
|
(d)
|
Other revenue includes, among other items,
interconnect, installation and carriage fee revenue
.
|
II-181
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
Geographic Segments
The revenue of our geographic segments is set forth below:
|
|
Year ended December 31,
|
||||||||||
|
|
2014
|
2013
|
2012
|
||||||||
|
|
in millions
|
||||||||||
|
European Operations Division:
|
|||||||||||
|
U.K. (a)
|
$
|
6,941.1
|
|
$
|
3,653.7
|
|
$
|
—
|
|
||
|
Germany
|
2,711.5
|
|
2,559.2
|
|
2,311.0
|
|
|||||
|
Belgium
|
2,279.4
|
|
2,185.9
|
|
1,918.0
|
|
|||||
|
Switzerland
|
1,414.4
|
|
1,332.1
|
|
1,259.8
|
|
|||||
|
The Netherlands (b)
|
1,498.5
|
|
1,242.4
|
|
1,229.1
|
|
|||||
|
Ireland
|
468.8
|
|
463.7
|
|
426.4
|
|
|||||
|
Poland
|
469.9
|
|
460.4
|
|
450.0
|
|
|||||
|
Austria
|
431.7
|
|
435.0
|
|
422.0
|
|
|||||
|
Hungary
|
310.2
|
|
313.8
|
|
298.9
|
|
|||||
|
The Czech Republic
|
221.0
|
|
248.9
|
|
253.4
|
|
|||||
|
Romania
|
173.3
|
|
163.8
|
|
149.4
|
|
|||||
|
Slovakia
|
74.5
|
|
74.6
|
|
70.5
|
|
|||||
|
Other
|
3.5
|
|
10.1
|
|
10.5
|
|
|||||
|
Total European Operations Division
|
16,997.8
|
|
13,143.6
|
|
8,799.0
|
|
|||||
|
Chile
|
898.5
|
|
991.6
|
|
940.6
|
|
|||||
|
Puerto Rico
|
306.1
|
|
297.2
|
|
145.5
|
|
|||||
|
Other, including intersegment eliminations
|
45.9
|
|
41.8
|
|
45.7
|
|
|||||
|
Total
|
$
|
18,248.3
|
|
$
|
14,474.2
|
|
$
|
9,930.8
|
|
||
_______________
|
(a)
|
The amount presented for 2013 reflects the post-acquisition revenue of
Virgin Media
from June 8, 2013 through December 31, 2013.
|
|
(b)
|
The amount presented for 2014 reflects the post-acquisition revenue of
Ziggo
from November 12, 2014 through December 31, 2014.
|
II-182
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
The long-lived assets of our geographic segments are set forth below:
|
|
December 31,
|
||||||
|
|
2014
|
2013
|
|||||
|
|
in millions
|
||||||
|
European Operations Division:
|
|||||||
|
U.K.
|
$
|
21,098.3
|
|
$
|
23,570.6
|
|
|
|
The Netherlands
|
17,092.7
|
|
2,496.5
|
|
|||
|
Germany
|
9,117.9
|
|
10,754.7
|
|
|||
|
Switzerland
|
4,218.9
|
|
4,745.7
|
|
|||
|
Belgium
|
4,149.5
|
|
4,737.4
|
|
|||
|
Austria
|
1,082.0
|
|
1,216.1
|
|
|||
|
Poland
|
983.5
|
|
1,178.5
|
|
|||
|
Ireland
|
655.9
|
|
751.5
|
|
|||
|
The Czech Republic
|
580.4
|
|
679.7
|
|
|||
|
Hungary
|
535.7
|
|
640.6
|
|
|||
|
Romania
|
209.1
|
|
226.0
|
|
|||
|
Slovakia
|
110.5
|
|
131.0
|
|
|||
|
Other (a)
|
540.1
|
|
506.4
|
|
|||
|
Total European Operations Division
|
60,374.5
|
|
51,634.7
|
|
|||
|
Puerto Rico
|
1,128.3
|
|
1,131.9
|
|
|||
|
Chile
|
1,017.3
|
|
1,139.7
|
|
|||
|
U.S. and other (b)
|
68.9
|
|
83.0
|
|
|||
|
Total - continuing operations
|
62,589.0
|
|
53,989.3
|
|
|||
|
Discontinued operation (c)
|
—
|
|
513.6
|
|
|||
|
Total
|
$
|
62,589.0
|
|
$
|
54,502.9
|
|
|
_______________
|
(a)
|
Primarily represents long-lived assets of the
European Operations Division
’s central operations, which are located in the Netherlands.
|
|
(b)
|
Primarily represents the assets of our corporate offices.
|
|
(c)
|
At December 31, 2013, the long-lived assets of the
Chellomedia Disposal Group
are presented in long-term assets of discontinued operation in our consolidated balance sheet.
|
II-183
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
(
19
)
Quarterly Financial Information (Unaudited)
|
|
2014
|
|||||||||||||||
|
|
1
st
quarter
|
2
nd
quarter
|
3
rd
quarter
|
4
th
quarter
|
||||||||||||
|
|
in millions, except per share amounts
|
|||||||||||||||
|
Revenue
|
$
|
4,533.7
|
|
$
|
4,602.2
|
|
$
|
4,497.2
|
|
$
|
4,615.2
|
|
||||
|
Operating income
|
$
|
581.7
|
|
$
|
669.5
|
|
$
|
703.7
|
|
$
|
273.3
|
|
||||
|
Net earnings (loss) attributable to Liberty Global shareholders
|
$
|
(78.8
|
)
|
$
|
(249.9
|
)
|
$
|
157.1
|
|
$
|
(523.4
|
)
|
||||
|
Basic and diluted earnings (loss) attributable to Liberty Global shareholders per share (note 3)
|
$
|
(0.10
|
)
|
$
|
(0.32
|
)
|
$
|
0.20
|
|
$
|
(0.62
|
)
|
||||
|
|
2013
|
|||||||||||||||
|
|
1
st
quarter
|
2
nd
quarter
|
3
rd
quarter
|
4
th
quarter
|
||||||||||||
|
|
in millions, except per share amounts
|
|||||||||||||||
|
Revenue
|
$
|
2,671.9
|
|
$
|
3,057.8
|
|
$
|
4,276.5
|
|
$
|
4,468.0
|
|
||||
|
Operating income
|
$
|
528.2
|
|
$
|
445.1
|
|
$
|
521.2
|
|
$
|
517.6
|
|
||||
|
Net loss attributable to Liberty Global shareholders
|
$
|
(1.0
|
)
|
$
|
(11.6
|
)
|
$
|
(830.1
|
)
|
$
|
(121.2
|
)
|
||||
|
Basic and diluted loss attributable to Liberty Global shareholders per share (note 3)
|
$
|
—
|
|
$
|
(0.02
|
)
|
$
|
(1.04
|
)
|
$
|
(0.16
|
)
|
||||
II-184
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
(
20
)
Subsequent Events
Overview
During the first quarter of 2015, we undertook the financing transactions described below in connection with certain internal reorganizations of our broadband and wireless communications businesses in Europe. These internal reorganizations include:
|
•
|
the transfer on February 12, 2015 of a controlling interest in UPC Broadband Ireland Ltd. and its subsidiaries from a subsidiary of
UPC Holding
to a subsidiary of
Virgin Media
(the
UPC Ireland Transfer
), with the remaining noncontrolling interest transferred to another subsidiary of
Liberty Global
outside the
UPC Holding
borrowing group; and
|
|
•
|
the planned first quarter 2015 internal reorganization of our broadband and wireless communications businesses in the Netherlands (the
NL Reorganization
), pursuant to which
UPC Nederland
and
Ziggo
and/or their successor companies and their subsidiaries will become indirect subsidiaries of Ziggo Group Holding B.V. (
Ziggo Group Holding
), a wholly-owned subsidiary of
Liberty Global
that was formed subsequent to
December 31, 2014
. Currently,
UPC Nederland
is a wholly-owned subsidiary of
UPC Holding
.
|
UPC Ireland Transfer
In contemplation of the
UPC Ireland Transfer
, certain subsidiaries of
Virgin Media
issued the following senior notes on January 28, 2015:
|
•
|
Virgin Media Secured Finance
issued
£300.0 million
(
$467.4 million
) principal amount of
5.125%
senior secured notes due January 15, 2025 (the
2025 VM 5.125% Senior Secured Notes
); and
|
|
•
|
Virgin Media Finance
issued (i)
$400.0 million
principal amount of
5.75%
senior notes (the
2025 VM Dollar Senior Notes
) and (ii)
€460.0 million
(
$556.6 million
) principal amount of
4.50%
senior notes (the
2025 VM Euro Senior Notes
and, together with the
2025 VM Dollar Senior Notes
, the
2025 VM Senior Notes
), each of which are due January 15, 2025.
|
A portion of the proceeds from the
2025 VM 5.125% Senior Secured Notes
and the
2025 VM Senior Notes
, along with a portion of the
Proceeds Loans
(as defined and described below) will ultimately be used to redeem (a) the full principal amount of the
UPC Holding 8.375% Senior Notes
, (b) the full principal amount of the
UPCB Finance I Notes
and (c)
€560.0 million
(
$677.6 million
) principal amount of the
UPCB Finance II Notes
, including the related redemption premiums.
The
2025 VM 5.125% Senior Secured Notes
contain terms that are similar to the
VM Senior Secured Notes
with respect to ranking and covenant requirements and are guaranteed on the same basis as the
VM Senior Secured Notes
. The
2025 VM Senior Notes
contain terms that are similar to the
VM Senior Notes
with respect to ranking and covenant requirements and are guaranteed on the same basis as the
VM Senior Notes
. For more information, see note
10
.
Subject to the circumstances described below, the
2025 VM 5.125% Senior Secured Notes
and the
2025 VM Senior Notes
are non-callable until January 15, 2020. At any time prior to January 15, 2020,
Virgin Media Secured Finance
or
Virgin Media Finance
(as applicable) may redeem some or all of the
2025 VM 5.125% Senior Secured Notes
and
2025 VM Senior Notes
by paying a “make-whole” premium, which is the present value of all remaining scheduled interest payments to the first call date using the discount rate (as specified in the indenture) as of the redemption date plus
50
basis points.
II-185
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
Virgin Media Secured Finance
or
Virgin Media Finance
(as applicable) may redeem some or all of the
2025 VM 5.125% Senior Secured Notes
or the
2025 VM Senior Notes
at the following redemption prices (expressed as a percentage of the principal amount) plus accrued and unpaid interest and additional amounts (as specified in the indenture), if any, to the redemption date, if redeemed during the
twelve
-month period commencing on January 15 of the years set forth below:
|
Redemption price
|
||||||
|
Year
|
2025 VM 5.125% Senior Secured Notes
|
2025 VM Dollar Senior Notes
|
2025 VM Euro Senior Notes
|
|||
|
2020
|
102.563%
|
102.875%
|
102.250%
|
|||
|
2021
|
101.708%
|
101.917%
|
101.500%
|
|||
|
2022
|
100.854%
|
100.958%
|
100.750%
|
|||
|
2023 and thereafter
|
100.000%
|
100.000%
|
100.000%
|
|||
Prior to January 15, 2020, during each 12-month period commencing on the date on which the
2025 VM 5.125% Senior Secured Notes
and the
2025 VM Senior Notes
are issued, each of
Virgin Media Secured Finance
or
Virgin Media Finance
may redeem up to
10%
of the principal amount of the
2025 VM 5.125% Senior Secured Notes
and the
2025 VM Senior Notes
, respectively, at a redemption price equal to
103%
of the principal amount thereof plus accrued and unpaid interest up to (but excluding) the redemption date.
In addition, for a period of six months from the date on which the
2025 VM 5.125% Senior Secured Notes
and the
2025 VM Senior Notes
are issued,
Virgin Media Secured Finance
or
Virgin Media Finance
may redeem the
2025 VM 5.125% Senior Secured Notes
and the
2025 VM Senior Notes
, respectively, at par.
If
Virgin Media Secured Finance
or
Virgin Media Finance
(as applicable) or the restricted subsidiaries (as specified in the indenture) sell certain assets,
Virgin Media Secured Finance
or
Virgin Media Finance
must offer to repurchase the
2025 VM 5.125% Senior Secured Notes
or the
2025 VM Senior Notes
, as applicable, at par, or if
Virgin Media Communications
or certain of its subsidiaries experience changes in control (as specified in the indenture)
Virgin Media Secured Finance
or
Virgin Media Finance
(as applicable) must offer to repurchase the
2025 VM 5.125% Senior Secured Notes
and the
2025 VM Senior Notes
at a redemption price of
101%
.
NL Reorganization
In contemplation of the
NL Reorganization
, we formed
two
special purpose financing entities, Ziggo Bond Finance B.V. (
Ziggo Bond Finance
) and its subsidiary, Ziggo Secured Finance B.V. (
Ziggo Secured Finance
and, together with
Ziggo Bond Finance
, the
Ziggo SPEs
) for the primary purpose of facilitating (i) the issuance of the
Ziggo SPE Notes
and (ii) the creation of the
New Ziggo Credit Facility
(each as defined and described below). The
Ziggo SPEs
are wholly-owned by a Dutch foundation.
Ziggo SPE Notes
. On January 29, 2015,
Ziggo Bond Finance
issued (i)
$400.0 million
aggregate principal amount of
5.875%
senior notes (the
Ziggo 2025 Dollar Senior Notes
) and (ii)
€400.0 million
(
$484.0 million
) aggregate principal amount of
4.625%
senior notes (the
Ziggo 2025 Euro Senior Notes
and, together with the
Ziggo 2025 Dollar Senior Notes
, the
Ziggo 2025 Senior Notes
), in each case due January 15, 2025.
On February 4, 2015,
Ziggo Secured Finance
issued
€800.0 million
(
$968.1 million
) aggregate principal amount of
3.750%
senior secured notes (the
Ziggo 2025 Senior Secured Notes
and, together with the
Ziggo 2025 Senior Notes
, the
Ziggo SPE Notes
) due January 15, 2015.
Pending consummation of the
NL Reorganization
, the net proceeds of the
Ziggo SPE Notes
(the
Escrowed Proceeds
) were placed into certain escrow accounts. The release of the
Escrowed Proceeds
is subject to the satisfaction of certain conditions, including the certification that the
NL Reorganization
will be consummated within three business days following the release of the
Escrowed Proceeds
. If the conditions to the release of the
Escrowed Proceeds
have not been satisfied on or prior to July 31, 2015, the
Ziggo SPE Notes
will be subject to a special mandatory redemption (the
Special Mandatory Redemption
) at a redemption price equal to
100%
of the aggregate initial issue price of the
Ziggo SPE Notes
plus accrued and unpaid interest from the issue date to such special mandatory redemption date and additional amounts, as specified in the applicable indenture, if any.
II-186
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
Upon release of the
Escrowed Proceeds
(i)
Ziggo Secured Finance
will use the proceeds of the
Ziggo 2025 Senior Secured Notes
to fund one or more proceeds loans denominated in euro, in an aggregate amount equal to the principal amount of the
Ziggo 2025 Senior Secured Notes
(the
Senior Secured Proceeds Loans
) to one or two subsidiaries of
Ziggo Group Holding
in such capacity a
Senior Secured Proceeds Loan Borrower
), subject to the terms of a senior secured proceeds loan facility (the
Senior Secured Proceeds Loan Facility
) and (ii)
Ziggo Bond Finance
will use the proceeds of the
Ziggo 2025 Senior Notes
to fund one or more proceeds loans denominated in U.S. dollars, in an amount equal to the principal amount of the
Ziggo 2025 Dollar Senior Notes
, and one or more proceeds loans denominated in euro, in an amount equal to the principal amount of the
Ziggo 2025 Euro Senior Notes
(together, the
Senior Proceeds Loans
, and along with the
Senior Secured Proceeds Loans
, the
Proceeds Loans
) to one or two subsidiaries of
Ziggo Group Holding
(each in such capacity a
Senior Proceeds Loan Borrower
, and together with the
Senior Secured Proceeds Loan Borrowers
, the
Proceeds Loan Borrowers
), subject to the terms of a senior proceeds loan facility. A portion of the proceeds from the
Proceeds Loans
, along with a portion of the
2025 VM 5.125% Senior Secured Notes
and the
2025 VM Senior Notes
, will ultimately be used to redeem (a) the full principal amount of the
UPC Holding 8.375% Senior Notes
, (b) the full principal amount of the
UPCB Finance I Notes
and (c)
€560.0 million
(
$677.6 million
) principal amount of the
UPCB Finance II Notes
, including the related redemption premiums.
Each of the
Ziggo SPEs
is dependent on payments from the applicable
Proceeds Loan Borrowers
in order to service its payment obligations under the applicable
Ziggo SPE Notes
. None of the
Proceeds Loan Borrowers
or any of their respective subsidiaries guarantee or provide any credit support for the
Ziggo SPEs
’ obligations under the
Ziggo SPE Notes
, however certain subsidiaries of
Ziggo Group Holding
agreed to be bound by the covenants in the indentures governing the
Ziggo SPE Notes
. Although the
Proceeds Loan Borrowers
have no equity or voting interest in any of the
Ziggo SPEs
, each of the
Proceeds Loans
creates a variable interest in the respective
Ziggo SPE
for which the applicable
Proceeds Loan Borrower
is the primary beneficiary, as contemplated by
GAAP
. As such, the
Proceeds Loan Borrowers
and their parent entities, including
Ziggo Group Holding
and
Liberty Global
, are required by the provisions of
GAAP
to consolidate the
Ziggo SPEs
. Accordingly, the amounts outstanding under the
Proceeds Loans
will be eliminated in
Liberty Global
’s consolidated financial statements.
Subject to the
Special Mandatory Redemption
and the circumstances described above, the
Ziggo SPE Notes
are non-callable until January 15, 2020. At any time prior to January 15, 2020,
Ziggo Secured Finance
or
Ziggo Bond Finance
may redeem some or all of the
Ziggo SPE Notes
(as applicable) by paying a “make-whole” premium, which is the present value of all remaining scheduled interest payments to the first call date using the discount rate (as specified in the applicable indenture) as of the redemption date plus
50
basis points.
Ziggo Secured Finance
or
Ziggo Bond Finance
may redeem some or all of the
Ziggo SPE Notes
(as applicable) at the following redemption prices (expressed as a percentage of the principal amount) plus accrued and unpaid interest and additional amounts (as specified in the applicable indenture), if any, to the redemption date, if redeemed during the
twelve
-month period commencing on January 15 of the years set forth below:
|
Redemption price
|
||||||
|
Year
|
Ziggo 2025 Dollar Senior Notes
|
Ziggo 2025 Euro Senior Notes
|
Ziggo 2025 Senior Secured Notes
|
|||
|
2020
|
102.938%
|
102.313%
|
101.875%
|
|||
|
2021
|
101.958%
|
101.542%
|
101.250%
|
|||
|
2022
|
100.979%
|
100.771%
|
100.625%
|
|||
|
2023 and thereafter
|
100.000%
|
100.000%
|
100.000%
|
|||
Prior to January 15, 2020, the
Proceeds Loan Borrowers
may instruct the applicable
Ziggo SPE
during each 12-month period commencing on the date on which the
Ziggo 2025 Senior Secured Notes
are issued, to redeem up to
10%
of the principal amount of the
Ziggo 2025 Senior Secured Notes
at a redemption price equal to
103%
of the principal amount thereof plus accrued and unpaid interest up to (but excluding) the redemption date.
If
Ziggo Secured Finance
or
Ziggo Bond Finance
or the restricted subsidiaries experience changes in control (as specified in the applicable indenture)
Ziggo Secured Finance
or
Ziggo Bond Finance
(as applicable) must offer to repurchase the
Ziggo SPE Notes
at a redemption price of
101%
.
II-187
LIBERTY GLOBAL PLC
Notes to Consolidated Financial Statements — (Continued)
December 31, 2014, 2013 and 2012
The call provisions, maturity and applicable interest rate for each of the
Proceeds Loans
will be substantially the same as those of the applicable series of the
Ziggo SPE Notes
described above.
The
Ziggo 2025 Senior Notes
are senior obligations of
Ziggo Bond Finance
that rank equally in right of payment with all existing and future senior debt of
Ziggo Bond Finance
and senior to all existing and future subordinated debt of
Ziggo Bond Finance
that is not subordinated to the
Ziggo 2025 Senior Notes
. The
Ziggo 2025 Senior Secured Notes
are senior obligations of
Ziggo Secured Finance
that rank equally in right of payment with all existing and future senior debt of
Ziggo Secured Finance
and are senior to all existing and future subordinated debt of
Ziggo Secured Finance
that is not subordinated to the
Ziggo 2025 Senior Secured Notes
. Upon the release of the
Escrowed Proceeds
, the
Ziggo SPE Notes
will be secured by a first-ranking security interest over (i) all of the issued shares of the applicable
Ziggo SPE
and (ii) the applicable
Ziggo SPE
’s rights to and benefits from the applicable
Proceeds Loans
.
The
Senior Secured Proceeds Loans
will be senior obligations of the
Senior Secured Proceeds Loan Borrowers
. The
Senior Secured Proceeds Loans
will rank equally with all existing and future senior debt of the
Senior Secured Proceeds Loan Borrowers
and senior to all future subordinated debt of the
Senior Secured Proceeds Loan Borrowers
. The obligations of a
Senior Secured Proceeds Loan Borrower
under a
Senior Secured Proceeds Loan
will be guaranteed on a senior secured basis by the other
Senior Secured Proceeds Loan Borrower
that is not a borrower of such
Senior Secured Proceeds Loan
.
The
Senior Proceeds Loans
will be senior obligations of the
Senior Proceeds Loan Borrowers
. The
Senior Proceeds Loans
will rank equally with all existing and future senior debt of the
Senior Proceeds Loan Borrowers
and senior to all future subordinated debt of the
Senior Proceeds Loan Borrowers
. The obligations of a
Senior Proceeds Loan Borrower
under a
Senior Proceeds Loan
will be guaranteed on a senior basis by the other
Senior Proceeds Loan Borrower
that is not a borrower of such
Senior Proceeds Loan
.
New Ziggo Credit Facility
. In connection with the
NL Reorganization
, lenders under the existing Facility AG under the
UPC Broadband Holding Bank Facility
agreed to roll
€684.2 million
(
$827.9 million
) into a new euro denominated term loan (
Facility AJ
) under the
UPC Broadband Holding Bank Facility
. The terms of
Facility AJ
will be substantially the same as the terms of Facility AG, except that the terms of
Facility AJ
will provide for the rollover of
Facility AJ
, upon completion of the
NL Reorganization
, into new term loans (the
SPV Term Loans
) under a new senior secured credit facility with
Ziggo Secured Finance
as the borrower (the
New Ziggo Credit Facility
). If the
NL Reorganization
is completed,
Facility AJ
will roll into the
SPV Term Loans
on a cashless basis (the
SPV Credit Facility Rollover
). As a result of the
SPV Credit Facility Rollover
, one or more receivables will be created owing from
UPC Nederland
to
Ziggo Secured Finance
. These receivables will be funded on a cashless basis as one or more facilities (the
Rollover Loans
) subject to the terms of the
Senior Secured Proceeds Loan Facility
. The
New Ziggo Credit Facility
, if entered into, will rank equally with the
Ziggo 2025 Senior Secured Notes
, including with respect to the proceeds of enforcement of the
Notes Collateral
, and the
Rollover Loans
will rank equally with the
Senior Secured Proceeds Loans
.
II-188
The capitalized terms used in Part III of this Annual Report on Form 10-K are defined in the notes to our consolidated financial statements. In the following text, the terms, “we,” “our,” “our company” and “us” may refer, as the context requires, to
Liberty Global
(or its predecessor) or collectively to
Liberty Global
(or its predecessor) and its subsidiaries.
Except as indicated below, the following required information is incorporated by reference to our definitive proxy statement for our
2015
Annual Meeting of Shareholders, which we intend to hold during the second quarter of
2015
.
|
Item 10.
|
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
|
Item 11.
|
EXECUTIVE COMPENSATION
|
|
Item 12.
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|
|
The information required by Item 201(d) of Regulation S-K is included below and accordingly will not be incorporated by reference to our definitive proxy statement.
|
|
|
Item 13.
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
|
|
Item 14.
|
PRINCIPAL ACCOUNTANT FEES AND SERVICES
|
We intend to file our definitive proxy statement for our
2015
Annual Meeting of shareholders with the Securities and Exchange Commission on or before April 30,
2015
.
III-1
|
Item 12.
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS
|
Securities Authorized for Issuance Under Equity Compensation Plans
The capitalized terms used in Item 12 of this Annual Report on Form 10-K are defined in the notes to our consolidated financial statements. In the following text, the terms “we,” “our,” “our company” and “us” may refer, as the context requires, to
Liberty Global
(or its predecessor) or collectively to
Liberty Global
(or its predecessor) and its subsidiaries. The following table sets forth information as of
December 31, 2014
with respect to our ordinary shares that are authorized for issuance under our equity compensation plans.
Equity Compensation Plan Information
|
Plan Category
|
Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights (1)(2)
|
Weighted average
exercise price of
outstanding
options, warrants
and rights (1)(2)
|
Number of
securities
available for
future issuance
under equity
compensation
plans (excluding
securities
reflected in the
first column)
|
|||||||
|
Equity compensation plans approved by security holders:
|
||||||||||
|
Liberty Global 2014 Incentive Plan (3):
|
||||||||||
|
Liberty Global Class A ordinary shares
|
2,088,604
|
|
$
|
40.94
|
|
89,582,279
|
|
|||
|
Liberty Global Class C ordinary shares
|
4,180,201
|
|
$
|
39.12
|
|
|||||
|
Liberty Global 2014 Director Incentive Plan (4):
|
||||||||||
|
Liberty Global Class A ordinary shares
|
78,677
|
|
$
|
42.54
|
|
9,745,984
|
|
|||
|
Liberty Global Class C ordinary shares
|
157,346
|
|
$
|
40.86
|
|
|||||
|
Liberty Global 2005 Incentive Plan (5):
|
||||||||||
|
Liberty Global Class A ordinary shares
|
6,044,868
|
|
$
|
29.31
|
|
—
|
|
|||
|
Liberty Global Class C ordinary shares
|
18,085,297
|
|
$
|
28.08
|
|
|||||
|
Liberty Global 2005 Director Incentive Plan (5):
|
||||||||||
|
Liberty Global Class A ordinary shares
|
410,368
|
|
$
|
18.98
|
|
—
|
|
|||
|
Liberty Global Class C ordinary shares
|
1,199,864
|
|
$
|
18.67
|
|
|||||
|
VM Incentive Plan (5):
|
||||||||||
|
Liberty Global Class A ordinary shares
|
1,500,479
|
|
$
|
19.60
|
|
—
|
|
|||
|
Liberty Global Class C ordinary shares
|
3,378,777
|
|
$
|
20.14
|
|
|||||
|
Equity compensation plans not approved by security holders:
|
||||||||||
|
None
|
—
|
|
|
—
|
|
|||||
|
Totals:
|
||||||||||
|
Liberty Global Class A ordinary shares
|
10,122,996
|
|
99,328,263
|
|
||||||
|
Liberty Global Class C ordinary shares
|
27,001,485
|
|
||||||||
____________
|
(1)
|
This table includes
SAR
s with respect to
5,607,988
and
14,689,045
Liberty Global
Class A and Class C ordinary shares, respectively, and
PSAR
s with respect to
2,788,749
and
8,366,248
Liberty Global
Class A and Class C ordinary shares, respectively. Upon exercise, the appreciation of a
SAR
, which is the difference between the base price of the
SAR
and the then-market value of the underlying class of
Liberty Global
ordinary shares or in certain cases, if lower, a specified price, may be paid in shares of the applicable class of
Liberty Global
ordinary shares. Based upon the respective market prices of
Liberty Global
Class A and Class C ordinary shares at
December 31, 2014
and excluding any related tax effects,
2,137,152
and
6,026,872
Liberty Global
Class A and Class C ordinary shares, respectively, would have been issued if all outstanding
SAR
s had been exercised on
December 31, 2014
. For further information, see note
13
to our consolidated financial statements.
|
III-2
|
(2)
|
In addition to the option,
SAR
and
PSAR
information included in this table, there are outstanding under the various incentive plans RSU awards (including
PSU
s and
PGUs
) with respect to an aggregate of
2,554,963
Liberty Global
Class A ordinary shares, 1,000,000
Liberty Global
Class B ordinary shares and
3,829,770
Liberty Global
Class C ordinary shares.
|
|
(3)
|
The Liberty Global 2014 Incentive Plan permits grants of, or with respect to,
Liberty Global
Class A, Class B or Class C ordinary shares subject to a single aggregate limit of 100 million shares (of which no more than 50 million shares may consist of Class B shares), subject to anti-dilution adjustments. As of
December 31, 2014
, an aggregate of
89,582,279
ordinary shares were available for issuance pursuant to the incentive plan. For further information, see note
13
to our consolidated financial statements.
|
|
(4)
|
The Liberty Global 2014 Nonemployee Director Incentive Plan permits grants of, or with respect to,
Liberty Global
Class A, Class B or Class C ordinary shares subject to a single aggregate limit of 10 million shares, subject to anti-dilution adjustments. As of
December 31, 2014
, an aggregate of
9,745,984
ordinary shares were available for issuance pursuant to the Liberty Global 2014 Nonemployee Director Incentive Plan. For further information, see note
13
to our consolidated financial statements.
|
|
(5)
|
On January 30, 2014, our shareholders approved the Liberty Global 2014 Incentive Plan and the Liberty Global 2014 Nonemployee Director Incentive Plan and, accordingly, no further awards will be granted under the
Liberty Global 2005 Incentive Plan
, the
Liberty Global 2005 Director Incentive Plan
or the
VM Incentive Plan
.
|
III-3
|
Item 15.
|
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
|
(a) (1) FINANCIAL STATEMENT
The financial statements required under this Item begin on page II-76 of this Annual Report on Form 10-K.
(a) (2) FINANCIAL STATEMENT SCHEDULES
The financial statement schedules required under this Item are as follows:
|
Schedule I - Condensed Financial Information of Registrant (Parent Company Information):
|
|
|
Liberty Global plc Condensed Balance Sheets as of December 31, 2014 and 2013 (Parent Company Only)
|
|
|
Liberty Global plc Condensed Statements of Operations for the year ended December 31, 2014 and the period from June 8, 2013 to December 31, 2013 (Parent Company Only)
|
IV-10
|
|
Liberty Global plc Condensed Statements of Cash Flows for the year ended December 31, 2014 and the period from June 8, 2013 to December 31, 2013 (Parent Company Only)
|
IV-11
|
|
Liberty Global, Inc. Condensed Statements of Operations for the period from January 1, 2013 through June 7, 2013 and the year ended December 31, 2012 (Parent Company Only)
|
IV-12
|
|
Liberty Global, Inc. Condensed Statements of Cash Flows for the period from January 1, 2013 through June 7, 2013 and the year ended December 31, 2012 (Parent Company Only)
|
IV-13
|
|
Schedule II - Valuation and Qualifying Accounts
|
|
|
Separate Financial Statements of Subsidiaries Not Consolidated and 50 Percent or Less Owned Persons:
|
|
|
Ziggo N.V.:
|
|
|
Report of Independent Auditors’
|
|
|
Consolidated Balance Sheet as of December 31, 2013
|
|
|
Consolidated Statement of Income for the year ended December 31, 2013
|
|
|
Consolidated Statement of Comprehensive Income for the year ended December 31, 2013
|
|
|
Consolidated Statement of Changes in Shareholders’ Equity for the year ended December 31, 2013
|
|
|
Consolidated Statement of Cash Flows for the year ended December 31, 2013
|
|
|
Notes to Consolidated Financial Statements
|
|
(a) (3) EXHIBITS
Listed below are the exhibits filed as part of this Annual Report on Form 10-K (according to the number assigned to them in Item 601 of Regulation S-K):
|
2 -- Plan of acquisition, reorganization, arrangement, liquidation or succession:
|
||
|
2.1
|
|
Agreement and Plan of Merger, dated as of February 5, 2013, among Virgin Media Inc. (Virgin Media), Liberty Global, Inc. (LGI), Lynx Europe Limited, Lynx US MergerCo 1 LLC, Lynx US MergerCo 2 LLC, Viper US MergerCo 1 LLC and Viper US MergerCo 2 LLC (incorporated by reference to Exhibit 2.1 to LGI’s Current Report on Form 8-K filed February 7, 2013 (File No. 000-51360)).
|
|
2.2
|
|
Amendment No. 1, dated as of March 6, 2013, to the Agreement and Plan of Merger, dated as of February 5, 2013, among LGI, Virgin Media, Liberty Global Corporation Limited (formerly named Lynx Europe Limited), Lynx US MergerCo 1 LLC, Lynx US MergerCo 2 LLC, Viper US MergerCo 1 LLC and Viper US MergerCo 2 LLC (incorporated by reference to Exhibit 2.1 to LGI’s Current Report on Form 8-K filed March 8, 2013 (File No. 000-51360)).
|
|
3 -- Articles of Incorporation and Bylaws:
|
||
|
3.1
|
|
Articles of Association of Liberty Global plc, adopted by Special Resolutions passed on May 30, 2013 (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed June 7, 2013 (File No. 001-35961) (the June 7, 2013 8-K)).
|
IV-1
|
4 -- Instruments Defining the Rights of Securities Holders, including Indentures:
|
||
|
4.1
|
|
Deed of Amendment and Restatement, dated May 10, 2006, among UPC Broadband Holding BV (UPC Broadband Holding) and UPC Financing Partnership (UPC Financing) as Borrowers, the guarantors listed therein, and the Senior Hedging Banks listed therein, with Toronto Dominion (Texas) LLC as Facility Agent, and TD Bank Europe Limited as Existing Security Agent, amending and restating the senior secured credit agreement originally dated January 16, 2004, as amended and restated from time to time among the Borrower, the guarantors as defined therein, the Facility Agent and the Security Agent and the bank and financial institutions acceding thereto from time to time (the UPC Broadband Holding Bank Facility) (incorporated by reference to Exhibit 4.4 to LGI’s Annual Report on Form 10-K filed February 22, 2012 (File No. 000-51360) (the LGI 2011 10-K)).
|
|
4.2
|
|
Amendment Letter dated June 9, 2009, among UPC Broadband Holding and UPC Financing as Borrowers, Toronto Dominion (Texas) LLC, as Facility Agent, and the guarantors listed therein to the UPC Broadband Holding Bank Facility (incorporated by reference to Exhibit 4.1 to LGI’s Current Report on Form 8-K filed June 10, 2009 (File No. 000-51360)).
|
|
4.3
|
|
Additional Facility V Accession Agreement, dated January 20, 2010, among UPC Financing as Borrower, UPC Broadband Holding, Toronto Dominion (Texas) LLC as Facility Agent, TD Bank Europe Limited as Security Agent, and UPCB Finance Limited as an Additional Facility V Lender, under the UPC Broadband Holding Bank Facility (incorporated by reference to Exhibit 4.4 to the LGI’s Current Report on Form 8-K filed January 21, 2010 (File No. 000-51360)).
|
|
4.4
|
|
Indenture dated January 31, 2011, among UPCB Finance II Limited, The Bank of New York Mellon as trustee, registrar, transfer agent, principal paying agent and security agent (incorporated by reference to Exhibit 4.1 to LGI’s Current Report on Form 8-K filed February 1, 2011 (File No. 000-51360) (the LGI January 2011 8-K)).
|
|
4.5
|
|
Additional Facility Y Accession Agreement, dated January 31, 2011, among UPC Financing as Borrower, UPC Broadband Holding, The Bank of Nova Scotia as Facility Agent and Security Agent and UPCB Finance II Limited as an Additional Facility Y Lender, under the UPC Broadband Holding Bank Facility (incorporated by reference to Exhibit 4.2 to the LGI January 2011 8-K).
|
|
4.6
|
|
Indenture dated February 16, 2011, among UPCB Finance III Limited, The Bank of New York Mellon as trustee, registrar, transfer agent, principal paying agent and security agent, and The Bank of New York Mellon, London Branch, as Transparency Directive Agent (incorporated by reference to Exhibit 4.1 to LGI’s Current Report on Form 8-K filed February 17, 2011 (File No. 000-51360) (the LGI February 2011 8-K)).
|
|
4.7
|
|
Additional Facility Z Accession Agreement, dated February 16, 2011, among UPC Financing as Borrower, UPC Broadband Holding, The Bank of Nova Scotia as Facility Agent and Security Agent and UPCB Finance III Limited as an Additional Facility Z Lender, under the UPC Broadband Holding Bank Facility (incorporated by reference to Exhibit 4.2 to the LGI February 2011 8-K).
|
|
4.8
|
|
Additional Facility AC Accession Agreement, dated November 16, 2011, among UPC Financing Partnership, as Borrower, UPC Broadband Holding BV, The Bank of Nova Scotia, as Facility Agent and Security Agent, and UPCB Finance V Limited, as an Additional Facility AC Lender, under the UPC Broadband Holding Bank Facility (incorporated by reference to Exhibit 4.47 to the LGI 2011 10-K).
|
|
4.9
|
|
Additional Facility AD Accession Agreement, dated February 7, 2012, among UPC Financing Partnership, as Borrower, UPC Broadband Holding BV, The Bank of Nova Scotia, as Facility Agent and Security Agent, and UPCB Finance VI Limited, as an Additional Facility AD Lender, under the UPC Broadband Holding Bank Facility (incorporated by reference to Exhibit 4.48 to the LGI 2011 10-K).
|
|
4.10
|
|
Additional Facility AG Accession Agreement, dated March 26, 2013, among UPC Financing Partnership as Borrower, The Bank of Nova Scotia as Facility Agent and Security Agent and Liberty Global Services B.V. as Additional Facility AG Lender, under the UPC Broadband Holding Bank Facility (incorporated by reference to Exhibit 4.1 to LGI’s Current Report on Form 8-K filed March 28, 2013 (File No. 000-51360)).
|
|
4.11
|
|
Additional Facility AH Accession Agreement, dated April 19, 2013, among UPC Financing Partnership, The Bank of Nova Scotia as Facility Agent and Security Agent and Liberty Global Services B.V. as Additional Facility AH Lender, under the UPC Broadband Holding Bank Facility (incorporated by reference to Exhibit 4.1 to LGI’s Current Report on Form 8-K filed April 23, 2013) (File No. 000-51360)).
|
|
4.12
|
|
Additional Facility AG1 Accession Agreement, dated April 29, 2013, among UPC Financing Partnership as Borrower, The Bank of Nova Scotia as Facility Agent and Security Agent and Liberty Global Services B.V. as Additional Facility AG1 Lender, under the UPC Broadband Holding Bank Facility (incorporated by reference to Exhibit 4.1 to LGI’s Current Report on Form 8-K filed May 2, 2013 (File No. 000-51360)).
|
|
4.13
|
|
Additional Facility AI Accession Agreement, dated May 14, 2013, among UPC Financing Partnership, The Bank of Nova Scotia as Facility Agent and Security Agent and each of the Additional Facility AI Lenders listed in Schedule 1 thereto, under the UPC Broadband Holding Bank Facility (incorporated by reference to Exhibit 4.2 to LGI’s Current Report on Form 8-K filed May 16, 2013 (File No. 000-51360)).
|
|
4.14
|
|
Additional Facility AI2 Accession Agreement, dated November 19, 2014, among UPC Financing Partnership, The Bank of Nova Scotia as Facility Agent and Security Agent and the Additional Facility AI Lender listed in Schedule 1 thereto, under the UPC Broadband Holding Bank Facility (incorporated by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K filed November 21, 2014 (File No. 001-35961)).
|
IV-2
|
4.15
|
|
Amendment and Restatement Letter dated October 15, 2013, among The Bank of Nova Scotia, as Facility Agent, UPC Broadband Holding B.V., UPC Financing Partnership, as Borrowers, and the Guarantors listed therein (incorporated by reference to Exhibit 4.1 to LGI’s Current Report on Form 8-K filed October 21, 2013 (File No. 001-35961)).
|
|
4.16
|
|
€2,300,000,000 Credit Agreement, originally dated August 1, 2007, and as amended and restated by supplemental agreements dated August 22, 2007, September 11, 2007, October 8, 2007 and June 23, 2009, among Telenet Bidco NV (now known as Telenet NV) as Borrower, Toronto Dominion (Texas) LLC as Facility Agent, the parties listed therein as Original Guarantors, ABN AMRO Bank N.V., BNP Paribas S.A. and J.P. Morgan PLC as Mandated Lead Arrangers, KBC Bank NV as Security Agent, and the financial institutions listed therein as Initial Original Lenders (the Telenet Credit Facility) (incorporated by reference to Exhibit 4.1 to LGI’s Current Report on Form 8-K filed June 26, 2009 (File No. 000-51360) (the LGI June 2009 8-K)).
|
|
4.17
|
|
Supplemental Agreement dated June 23, 2009, between Telenet Bidco NV (now known as Telenet NV) and Toronto Dominion (Texas) LLC as Facility Agent relating to the Telenet Credit Facility (incorporated by reference to Exhibit 4.2 to the LGI June 2009 8-K).
|
|
4.18
|
|
Supplemental Agreement to the Telenet Credit Facility, dated October 4, 2010, among, inter alia, Telenet NV as Guarantor, and Security Provider and The Bank of Nova Scotia as Facility Agent (incorporated by reference to Exhibit 4.8 to LGI’s Current Report on Form 8-K filed October 8, 2010 (File No. 000-51360)).
|
|
4.19
|
|
Additional Facility M Accession Agreement, dated November 3, 2010, among, inter alia, Telenet International as Borrower, Telenet NV and Telenet International as Guarantors, The Bank of Nova Scotia as Facility Agent, KBC Bank NV as Security Agent and Telenet Finance Luxembourg S.C.A. as an additional Facility M Lender, under the Telenet Credit Facility (incorporated by reference to Exhibit 4.50 to LGI’s Annual Report on Form 10-K filed February 24, 2011 (File No. 000-51360) (the LGI 2010 10-K)).
|
|
4.20
|
|
Additional Facility O Accession Agreement, dated February 15, 2011, among, inter alia, Telenet International as Borrower, Telenet NV and Telenet International as Guarantors, The Bank of Nova Scotia as Facility Agent, KBC Bank NV as Security Agent and Telenet Finance III Luxembourg S.C.A. as an additional Facility O Lender, under the Telenet Credit Facility (incorporated by reference to Exhibit 4.52 to the LGI 2010 10-K).
|
|
4.21
|
|
Telenet Additional Facility P Accession Agreement, dated June 15, 2011, among, inter alia, Telenet International as Borrower, Telenet NV and Telenet International as Guarantors, The Bank of Nova Scotia as Facility Agent, KBC Bank NV as Security Agent and Telenet Luxembourg Finance Center S.â.r.l. as an additional Facility Q Lender, under the Telenet Credit Facility (incorporated by reference to Exhibit 4.1 to LGI’s Quarterly Report on Form 10-Q filed August 2, 2011 (File No. 000-51360)).
|
|
4.22
|
|
Telenet Additional Facility S Accession Agreement, dated July 29, 2011, among, inter alia, Telenet International as Borrower, Telenet NV and Telenet International as Guarantors, The Bank of Nova Scotia as Facility Agent, KBC Bank NV as Security Agent and the financial institutions listed therein as additional Facility S Lenders, under the Telenet Credit Facility (incorporated by reference to Exhibit 4.1 to LGI’s Current Report on Form 8-K filed July 29, 2011 (File No. 000-51360)).
|
|
4.23
|
|
Telenet Additional Facility U Accession Agreement, dated August 16, 2012, among, inter alia, Telenet International as Borrower, Telenet NV and Telenet International as Guarantors, The Bank of Nova Scotia as Facility Agent, KBC Bank NV as Security Agent and the financial institutions listed therein as additional Facility U Lenders, under the Telenet Credit Facility (incorporated by reference to Exhibit 4.2 to LGI’s Quarterly Report on Form 10-Q filed November 5, 2012 (File No. 000-51360) (the LGI November 5, 2012 10-Q)).
|
|
4.24
|
|
Telenet Additional Facility V Accession Agreement, dated August 16, 2012, among, inter alia, Telenet International as Borrower, Telenet NV and Telenet International as Guarantors, The Bank of Nova Scotia as Facility Agent, KBC Bank NV as Security Agent and the financial institutions listed therein as additional Facility V Lenders, under the Telenet Credit Facility (incorporated by reference to Exhibit 4.3 to the LGI November 5, 2012 10-Q).
|
|
4.25
|
|
Telenet Additional Facility W Accession Agreement, dated April 9, 2014, among, inter alia, Telenet International as Borrower, Telenet NV and Telenet International as Guarantors, The Bank of Nova Scotia as Facility Agent, KBC Bank NV as Security Agent and the financial institutions listed therein as Additional Facility W Lenders, under the Telenet Credit Facility (incorporated by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K filed April 15, 2014 (File No.001-35961) (the April 15, 2014 8-K)).
|
|
4.26
|
|
Telenet Additional Facility Y Accession Agreement, dated April 9, 2014, among, inter alia, Telenet International as Borrower, Telenet NV and Telenet International as Guarantors, The Bank of Nova Scotia as Facility Agent, KBC Bank NV as Security Agent and the financial institutions listed therein as Additional Facility Y Lenders, under the Telenet Credit Facility (incorporated by reference to Exhibit 4.2 to the April 15, 2014 8-K).
|
|
4.27
|
|
Telenet Additional Facility X Accession Agreement, dated April 11, 2014, among, inter alia, Telenet International as Borrower, Telenet NV and Telenet International as Guarantors, The Bank of Nova Scotia as Facility Agent, KBC Bank NV as Security Agent and the financial institutions listed therein as Additional Facility X Lenders, under the Telenet Credit Facility (incorporated by reference to Exhibit 4.3 to the April 15, 2014 8-K).
|
|
4.28
|
|
Senior Indenture dated May 4, 2012, between Unitymedia GmbH, The Bank of New York Mellon, London Branch and Credit Suisse, London Branch (relating to the UM Senior Exchange Notes) (incorporated by reference to Exhibit 4.2 to LGI’s Current Report on Form 8-K filed May 8, 2012 (File No. 000-51360)).
|
IV-3
|
4.29
|
|
Indenture dated December 17, 2014 between Unitymedia Hessen GmbH & Co. KG, Unitymedia NRW GmbH, The Bank of New York Mellon, London Branch, as trustee, transfer agent and principal paying agent, The Bank of New York Mellon as New York paying agent and New York transfer agent, The Bank of New York Mellon (Luxembourg) S.A. as registar and Credit Suisse AG, London Branch, as security trustee (incorporated by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K/A filed December 18, 2014 (File No. 001-35961)).
|
|
4.30
|
|
Indenture for 6.50% Convertible Senior Notes due 2016, dated as of April 16, 2008, between Virgin Media Inc. and The Bank of New York, as trustee (including form of 6.50% Convertible Senior Note due 2016) (incorporated by reference to Exhibit 4.1 to Virgin Media’s Current Report on Form 8-K filed on April 16, 2008 (File No. 000-50886) (the Virgin Media April 2008 8-K)).
|
|
4.31
|
|
Registration Rights Agreement for 6.50% Convertible Senior Notes due 2016, dated as of April 16, 2008, between Virgin Media and Goldman, Sachs & Co., Deutsche Bank Securities Inc. and J.P. Morgan Securities Inc. (incorporated by reference to Exhibit 4.2 to the Virgin Media April 2008 8-K).
|
|
4.32
|
|
Supplemental Indenture, dated as of June 7, 2013, among Liberty Global plc, Viper US MergerCo 1 Corp. (now known as Virgin Media) and The Bank of New York Mellon, as Trustee, to the Indenture dated as of April 16, 2008 for 6.50% Convertible Senior Notes due 2016 (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed June 12, 2013 (File No. 001-35961) (the June 12, 2013 8-K)).
|
|
4.33
|
|
Second Supplemental Indenture, dated as of March 3, 2014, among Virgin Media Inc., the Registrant and the Bank of New York Mellon as trustee to the Indenture, dated as of April 16, 2008, as amended and supplemented, for the Virgin Media 6.5% Convertible Senior Notes due 2016 (incorporated by reference to Exhibit 4.4 to the Registrant’s Quarterly Report on Form 10-Q filed May 6, 2014 (File No. 001-35961) (the May 6, 2014 10-Q)).
|
|
4.34
|
|
Registration Agreement dated as of March 14, 2014, by and between the Registrant and Inversiones Corp Comm 2 SpA (incorporated by reference to Exhibit 4.2 to the Registrant’s Registration Statement on Form S-3 filed March 14, 2014 (File No. 333-194555)).
|
|
4.35
|
|
Indenture, dated as of March 3, 2011, among Virgin Media Secured Finance PLC, the guarantors party thereto, The Bank of New York Mellon as trustee and paying agent and The Bank of New York Mellon (Luxembourg) S.A. as Luxembourg paying agent (incorporated by reference to Exhibit 4.1 to Virgin Media’s Current Report on Form 8-K filed on March 3, 2011 (File No. 000-50886)).
|
|
4.36
|
|
Indenture dated February 22, 2013, between, among others, Lynx I Corp., as issuer, The Bank of New York Mellon, London Branch, as trustee, transfer agent and principal paying agent and The Bank of New York Mellon, as paying agents and Newco security trustee (incorporated by reference to Exhibit 4.1 to LGI’s Current Report on Form 8-K/A filed February 27, 2013 (File No. 000-51360) (the LGI February 2013 8-K/A)).
|
|
4.37
|
|
Indenture, dated as of February 22, 2013, among Lynx II Corp., as issuer, The Bank of New York Mellon, London Branch, as trustee, transfer agent and principal paying agent and The Bank of New York Mellon, as paying agents and Newco security trustee (incorporated by reference to Exhibit 4.2 to the LGI February 2013 8-K/A).
|
|
4.38
|
|
First Supplemental Indenture, dated as of June 7, 2013, between, among others, Virgin Media Secured Finance PLC, Virgin Media and The Bank of New York Mellon as trustee, to the Indenture dated as of March 3, 2011 for Virgin Media 5.25% Senior Secured Notes and 5.50% Senior Secured Notes each due 2021 (incorporated by reference to Exhibit 4.12 to the June 12, 2013 8-K).
|
|
4.39
|
|
Accession Agreement, dated as of June 7, 2013, among Virgin Media Secured Finance PLC, as acceding issuer, Lynx I Corp. and The Bank of New York Mellon, as trustee (incorporated by reference to Exhibit 4.13 to the June 12, 2013 8-K).
|
|
4.40
|
|
First Supplemental Indenture, dated as of June 7, 2013, between, among others, Virgin Media Secured Finance PLC and The Bank of New York Mellon, as trustee, to the Indenture dated as of February 22, 2013 for Lynx I Corp. 5⅜% Senior Secured Notes and 6.00% Senior Secured Notes each due 2021 (incorporated by reference to Exhibit 4.15 to the June 12, 2013 8-K).
|
|
4.41
|
|
Accession Agreement, dated as of June 7, 2013, among Lynx II Corp., Virgin Media Finance PLC and The Bank of New York Mellon, as trustee and paying agent (incorporated by reference to Exhibit 4.16 to the June 12, 2013 8-K).
|
|
4.42
|
|
First Supplemental Indenture, dated June 7, 2013, between, among others, Virgin Media Finance PLC, Virgin Media and The Bank of New York Mellon, as trustee and paying agent, to the Indenture dated as of February 22, 2013 Lynx II Corp. 6⅜% Senior Notes and 7.00% Senior Notes each due 2023 (incorporated by reference to Exhibit 4.19 to the June 12, 2013 8-K).
|
|
4.43
|
|
Senior Facilities Agreement, dated as of June 7, 2013, among, among others, Virgin Media Finance PLC, certain other subsidiaries of Virgin Media and the lenders thereto (the VMF Senior Facilities Agreement) (incorporated by reference to Exhibit 4.19 to the June 12, 2013 8-K).
|
|
4.44
|
|
Amendment, dated June 14, 2013, to the Senior Facilities Agreement, between, among others, Virgin Media Investment Holdings Limited, certain other subsidiaries of Virgin Media and the lenders thereto (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed June 21, 2013 (File No. 001-35961)).
|
IV-4
|
4.45
|
|
Virgin Additional Facility D Accession Agreement, dated April 17, 2014, among, inter alia, Virgin Media SFA Finance Limited as Borrower, certain other subsidiaries of Virgin Media, The Bank of Nova Scotia as Facility Agent and the financial institutions listed therein as Additional Facility D Lenders, under the VMF Senior Facilities Agreement (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed April 23, 2014 (File No. 001-35961) (the April 23, 2014 8-K)).
|
|
4.46
|
|
Virgin Additional Facility E Accession Agreement, dated April 17, 2014, among, inter alia, Virgin Media SFA Finance Limited as Borrower, certain other subsidiaries of Virgin Media, The Bank of Nova Scotia as Facility Agent and the financial institutions listed therein as Additional Facility E Lenders, under the VMF Senior Facilities Agreement (incorporated by reference to Exhibit 4.2 to the April 23, 2014 8-K).
|
|
4.47
|
|
Indenture dated March 28, 2014 between Virgin Media Secured Finance PLC, The Bank of New York Mellon, London Branch, as trustee, transfer agent and principal paying agent, The Bank of New York Mellon as paying agent, and The Bank of New York Mellon (Luxembourg) S.A., as registrar (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K/A filed April 3, 2014 (File No. 001-35961)).
|
|
4.48
|
|
Indenture dated January 28, 2015 between Virgin Media Secured Finance PLC, The Bank of New York Mellon, London Branch, as trustee and paying agent and The Bank of New York Mellon (Luxembourg) S.A., as registrar and transfer agent (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K/A filed February 3, 2015 (File No. 001-35961) (the February 3, 2015 8-K/A)).
|
|
4.49
|
|
Indenture dated January 28, 2015 between Virgin Media Finance PLC, The Bank of New York Mellon, London Branch, as trustee and principal paying agent, The Bank of Mellon as paying agent and Dollar Notes transfer agent and registrar and The Bank of New York Mellon (Luxembourg) S.A., as Euro Notes registrar and transfer agent (incorporated by reference to Exhibit 4.2 to the February 3, 2015 8-K/A).
|
|
4.50
|
|
Registration Rights Agreement dated November 18, 2009, between the Registrant, SPO Partners II, L.P. and San Francisco Partners, L.P. (incorporated by reference to Exhibit 4.2 to LGI’s Current Report on Form 8-K/A filed November 19, 2009 (File No. 000-51360)).
|
|
4.51
|
|
Indenture dated January 24, 2014, between VTR Finance B.V., the Bank of New York Mellon, London Branch, as trustee and security agent, and the Bank of New York Mellon as paying agent, registrar and transfer agent (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed January 24, 2014 (File No. 001-35961)).
|
|
4.52
|
|
Indenture dated January 29, 2015 between Ziggo Bond Finance B.V., Deutsche Trustee Company Limited as trustee and security trustee, Deutsche Bank Trust Company Americas as Dollar Notes paying agent, registrar and transfer agent, Deutsche Bank AG London Branch as Euro Notes paying agent and Deutsche Bank Luxembourg S.A. as Euro Notes registrar and transfer agent (incorporated by reference to Exhibit 4.3 to the February 3, 2015 8-K/A).
|
|
4.53
|
|
Indenture dated February 4, 2015 between Ziggo Secured Finance B.V., Deutsche Trustee Company Limited as trustee and security trustee, Deutsche Bank AG London Branch as paying agent and Deutsche Bank Luxembourg S.A. as registrar and transfer agent (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K/A filed February 10, 2015 (File No. 001-35961)).
|
|
4.54
|
|
Senior Facilities Agreement, dated January 27, 2014, as amended and restated by a Supplemental Agreement dated February 10, 2014, between, among others, Amsterdamse Beheer-En Consultingmaatschappij B.V., Ziggo B.V., certain subsidiaries of Ziggo, Bank of America Merrill Lynch International Limited and Credit Suisse AG, London Branch as global coordinators, and the other lenders thereto (the Ziggo Senior Facilities Agreement).*
|
|
4.55
|
|
The Registrant undertakes to furnish to the Securities and Exchange Commission, upon request, a copy of all instruments with respect to long-term debt not filed herewith.
|
|
10 -- Material Contracts:
|
||
|
10.1
|
|
Deed of Assumption of Liberty Global plc, dated June 7, 2013 (incorporated by reference to Exhibit 10.1 to the June 7, 2013 8-K).
|
|
10.2
|
|
Liberty Global 2014 Incentive Plan (Effective March 1, 2014) (the Incentive Plan) (incorporated by reference to Appendix A to the Registrant’s Proxy Statement on Schedule 14A filed December 19, 2013 (File No. 001-35961) (the 2013 Proxy Statement)).
|
|
10.3
|
|
Liberty Global 2014 Nonemployee Director Incentive Plan (Effective March 1, 2014) (the Director Plan) (incorporated by reference to Appendix B to the 2013 Proxy Statement).
|
|
10.4
|
|
Form of Performance Share Units Agreement under the Incentive Plan (incorporated by reference to Exhibit 10.6 to the May 6, 2014 10-Q).
|
|
10.5
|
|
Form of Non-Qualified Share Option Agreement under the Director Plan (incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q filed August 5, 2014 (File No. 001-35961) (the August 5, 2014 10-Q)).
|
|
10.6
|
|
Form of Restricted Share Units Agreement under the Director Plan (incorporated by reference to Exhibit 10.4 to the August 5, 2014 10-Q).
|
|
10.7
|
|
Form of Share Appreciation Rights Agreement under the Incentive Plan (incorporated by reference to Exhibit 10.5 to the August 5, 2014 10-Q).
|
|
10.8
|
|
Form of Restricted Share Units Agreement under the Incentive Plan (incorporated by reference to Exhibit 10.6 to the August 5, 2014 10-Q).
|
IV-5
|
10.9
|
|
Liberty Global, Inc. 2005 Incentive Plan (as amended and restated effective June 7, 2013) (the 2005 Incentive Plan) (incorporated by reference to Exhibit 10.2 to the June 7, 2013 8-K).
|
|
10.10
|
|
Liberty Global, Inc. 2005 Nonemployee Director Incentive Plan (as amended and restated effective June 7, 2013) (the 2005 Director Plan) (incorporated by reference to Exhibit 10.3 to the June 7, 2013 8-K).
|
|
10.11
|
|
Virgin Media 2010 Stock Incentive Plan (as amended and restated effective June 7, 2013) (incorporated by reference to Exhibit 10.4 to the June 7, 2013 8-K).
|
|
10.12
|
|
Form of Non-Qualified Share Option Agreement under the 2005 Director Plan (incorporated by reference to Exhibit 10.6 to the Registrant’s Quarterly Report on Form 10-Q filed August 1, 2013 (File No. 001-35961) (the August 1, 2013 10-Q)).
|
|
10.13
|
|
Liberty Global Compensation Policy for Nonemployee Directors effective June 26, 2014 (incorporated by reference to Appendix A to the Registrant’s Proxy Statement on Schedule 14A filed April 30, 2014 (File No. 001-35961)).
|
|
10.14
|
|
Form of Deed of Indemnity between Liberty Global and its Directors and Executive Officers (incorporated by reference to Exhibit 10.10 to the June 7, 2013 8-K).
|
|
10.15
|
|
Form of the Non-Qualified Stock Option Agreement under the 2005 Incentive Plan (incorporated by reference to Exhibit 10.2 to the LGI 2010 10-K).
|
|
10.16
|
|
Form of Stock Appreciation Rights Agreement under the 2005 Incentive Plan (incorporated by reference to Exhibit 10.3 to LGI’s Quarterly Report on Form 10-Q filed May 7, 2008 (File No. 000-51360) (the LGI May 7, 2008 10-Q)).
|
|
10.17
|
|
Form of Restricted Shares Agreement under the 2005 Incentive Plan (incorporated by reference to Exhibit 10.4 to the LGI 2010 10-K).
|
|
10.18
|
|
Form of Restricted Share Units Agreement under the 2005 Incentive Plan (incorporated by reference to Exhibit 10.1 to the LGI May 7, 2008 10-Q).
|
|
10.19
|
|
Form of Restricted Shares Agreement under the 2005 Director Plan (incorporated by reference to Exhibit 10.8 to the LGI 2011 10-K).
|
|
10.20
|
|
Form of Restricted Share Units Agreement under the 2005 Director Plan (incorporated by reference to Exhibit 10.2 to LGI’s Quarterly Report on Form 10-Q filed August 4, 2009 (File No. 000-51360)).
|
|
10.21
|
|
Liberty Global Challenge Performance Award Program for executive officers under the 2005 Incentive Plan (description of said program is incorporated by reference to the description thereof included in Item 5.02(e) of the Registrant’s Current Report on Form 8-K filed June 28, 2013 (File No. 001-35961)).
|
|
10.22
|
|
Form of Performance Share Appreciation Rights Agreement under the 2005 Incentive Plan (incorporated by reference to Exhibit 10.5 to the August 1, 2013 10-Q).
|
|
10.23
|
|
Liberty Global 2014 Annual Cash Performance Award Program for executive officers under the Incentive Plan (description of said program is incorporated by reference to the description thereof included in Item 5.02(e) of the Registrant’s Current Report on Form 8-K filed April 4, 2014 (File No. 001-35961) (the April 4, 2014 8-K)).
|
|
10.24
|
|
Liberty Global 2014 Performance Incentive Plan for executive officers under the Incentive Plan (a description of said plan is incorporated by reference to the description thereof included in Item 5.02(e) of the April 4, 2014 8-K).
|
|
10.25
|
|
Liberty Global, Inc. 2013 Annual Cash Performance Award Program for executive officers under the Incentive Plan (description of said program is incorporated by reference to the description thereof included in Item 5.02(e) of the LGI’s Current Report on Form 8-K filed April 4, 2013 (File No. 000-51360) (the April 4, 2013 8-K)).
|
|
10.26
|
|
Liberty Global, Inc. 2013 Performance Incentive Plan for executive officers under the 2005 Incentive Plan (a description of said plan is incorporated by reference to the description thereof included in Item 5.02(e) of the April 4, 2013 8-K).
|
|
10.27
|
|
Form of Performance Share Units Agreement under the 2005 Incentive Plan (incorporated by reference to Exhibit 10.5 to LGI’s Quarterly Report on Form 10-Q filed May 4, 2011 (file No. 000-51360) (the LGI May 4, 2011 10-Q)).
|
|
10.28
|
|
Form of Share Grant and Restricted Shares Award in Settlement of Performance Share Units Agreement under the 2005 Incentive Plan (incorporated by reference to Exhibit 10.18 to LGI’s Annual Report on Form 10-K/A filed February 13, 2013 (File No. 000-51360) (the LGI 2012 10-K)).
|
|
10.29
|
|
Deferred Compensation Plan (adopted effective December 15, 2008; Amended and Restated as of January 1, 2013) (incorporated by reference to Exhibit 10.19 to the LGI 2012 10-K).
|
|
10.30
|
|
Form of Deferral Election Form under the Deferred Compensation Plan (incorporated by reference to Exhibit 10.20 to the LGI 2012 10-K).
|
|
10.31
|
|
Nonemployee Director Deferred Compensation Plan (As Amended and Restated Effective December 14, 2013) (incorporated by reference to Exhibit 10.25 to the 2013 10-K).
|
|
10.32
|
|
Form of Deferral Election Form under the Nonemployee Director Deferred Compensation Plan (incorporated by reference to Exhibit 10.26 to the 2013 10-K).
|
|
10.33
|
|
Personal Usage of Aircraft Policy, amended and restated (incorporated by reference to Exhibit 10.7 to the LGI May 4, 2011 10-Q).
|
|
10.34
|
|
Form of Aircraft Time Sharing Agreement (900EX) (incorporated by reference to Exhibit 10.29 to the LGI 2012 10-K).
|
IV-6
|
10.35
|
|
Form of Aircraft Time Sharing Agreement (7X) (incorporated by reference to Exhibit 10.30 to the LGI 2012 10-K).
|
|
10.36
|
|
Employment Agreement dated as of April 30, 2014, by and among the Registrant, LGI and Michael T. Fries (incorporated by reference to Exhibit 10.7 to the May 6, 2014 10-Q).
|
|
10.37
|
|
Form of Performance Grant Award Agreement under the Incentive Plan dated as of April 30, 2014, between the Registrant and Michael T. Fries (incorporated by reference to Exhibit 10.8 to the May 6, 2014 10-Q).
|
|
10.38
|
|
Executive Service Agreement, dated December 15, 2004, between UPC Services Limited and Charles Bracken (incorporated by reference to Exhibit 10.36 to LGI’s Annual Report on Form 10-K filed February 24, 2010) (File No. 000-51360)).
|
|
10.39
|
|
Executive Services Agreement effective January 1, 2011, between Liberty Global Europe BV and Diederik Karsten (incorporated by reference to Exhibit 10.45 to the LGI 2010 10-K).
|
|
10.40
|
|
Trade Mark Licence, dated as of April 3, 2006, between Virgin Enterprises Limited and NTL Group Limited (incorporated by reference to Exhibit 10.2 to Virgin Media’s Quarterly Report on Form 10-Q filed on August 9, 2006 (File No. 000-50886)).
|
|
10.41
|
|
Amendment Letter No. 1, dated February 8, 2007, to the Trade Mark Licence between Virgin Enterprises Limited and Virgin Media Limited dated April 3, 2006 (incorporated by reference to Exhibit 10.5 to Virgin Media’s Quarterly Report on Form 10-Q filed on August 8, 2007 (File No. 000-50886)).
|
|
10.42
|
|
Amendment Letter No. 2, dated October 1, 2007, to the Trade Mark Licence between Virgin Enterprises Limited and Virgin Media Limited dated April 3, 2006 (incorporated by reference to Exhibit 10.6 to Virgin Media’s Quarterly Report on form 10-Q filed on November 8, 2007 (File No. 000-50886)).
|
|
10.43
|
|
Trade Mark Licence between Virgin Enterprises Limited and Virgin Media Limited dated December 16, 2009 (incorporated by reference to Exhibit 10.83 to Virgin Media’s Annual Report on Form 10-K filed on February 26, 2010 (File No. 000-50886)).
|
|
10.44
|
|
Merger Protocol dated January 27, 2014, among LGE Holdco VII B.V., Ziggo N.V. and the Registrant (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed January 31, 2014 (File No. 001-35961)).
|
|
21 -- List of Subsidiaries*
|
||
|
23 -- Consent of Experts and Counsel:
|
||
|
23.1
|
|
Consent of KPMG LLP*
|
|
23.2
|
|
Consent of Ernst & Young Accountants LLP*
|
|
31 -- Rule 13a-14(a)/15d-14(a) Certification:
|
||
|
31.1
|
|
Certification of President and Chief Executive Officer*
|
|
31.2
|
|
Certification of Senior Vice President and Co-Chief Financial Officer (Principal Financial Officer)*
|
|
31.3
|
|
Certification of Senior Vice President and Co-Chief Financial Officer (Principal Accounting Officer)*
|
|
32 -- Section 1350 Certification **
|
||
|
101.INS
|
XBRL Instance Document*
|
|
|
101.SCH
|
XBRL Taxonomy Extension Schema Document*
|
|
|
101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase Document*
|
|
|
101.DEF
|
XBRL Taxonomy Extension Definition Linkbase*
|
|
|
101.LAB
|
XBRL Taxonomy Extension Label Linkbase Document*
|
|
|
101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase Document*
|
|
________________
*
Filed herewith
** Furnished herewith
IV-7
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
LIBERTY GLOBAL PLC
|
|
|
Dated:
|
February 12, 2015
|
|
/s/ BRYAN H. HALL
|
|
|
Bryan H. Hall
Executive Vice President, General Counsel and Secretary
|
||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
|
Signature
|
Title
|
Date
|
||
|
/s/ JOHN C. MALONE
|
Chairman of the Board
|
February 12, 2015
|
||
|
John C. Malone
|
||||
|
/s/ MICHAEL T. FRIES
|
President, Chief Executive Officer and Director
|
February 12, 2015
|
||
|
Michael T. Fries
|
||||
|
/s/ ANDREW J. COLE
|
Director
|
February 12, 2015
|
||
|
Andrew J. Cole
|
||||
|
/s/ JOHN P. COLE
|
Director
|
February 12, 2015
|
||
|
John P. Cole
|
||||
|
/s/ MIRANDA CURTIS
|
Director
|
February 12, 2015
|
||
|
Miranda Curtis
|
||||
|
/s/ JOHN W. DICK
|
Director
|
February 12, 2015
|
||
|
John W. Dick
|
||||
|
/s/ PAUL A. GOULD
|
Director
|
February 12, 2015
|
||
|
Paul A. Gould
|
||||
|
/s/ RICHARD R. GREEN
|
Director
|
February 12, 2015
|
||
|
Richard R. Green
|
||||
|
/s/ DAVID E. RAPLEY
|
Director
|
February 12, 2015
|
||
|
David E. Rapley
|
||||
|
/s/ LARRY E. ROMRELL
|
Director
|
February 12, 2015
|
||
|
Larry E. Romrell
|
||||
|
/s/ J.C. SPARKMAN
|
Director
|
February 12, 2015
|
||
|
J.C. Sparkman
|
||||
|
/s/ J. DAVID WARGO
|
Director
|
February 12, 2015
|
||
|
J. David Wargo
|
||||
|
/s/ CHARLES H.R. BRACKEN
|
Executive Vice President and Co-Chief Financial
|
February 12, 2015
|
||
|
Charles H.R. Bracken
|
Officer (Principal Financial Officer)
|
|||
|
/s/ BERNARD G. DVORAK
|
Executive Vice President and Co-Chief Financial
|
February 12, 2015
|
||
|
Bernard G. Dvorak
|
Officer (Principal Accounting Officer)
|
|||
IV-8
LIBERTY GLOBAL PLC
SCHEDULE I
(Parent Company Information - See Notes to Consolidated Financial Statements)
CONDENSED BALANCE SHEETS
(Parent Company Only)
|
December 31,
|
|||||||
|
2014
|
2013
|
||||||
|
|
in millions
|
||||||
|
ASSETS
|
|||||||
|
Current assets:
|
|||||||
|
Cash and cash equivalents
|
$
|
36.7
|
|
$
|
290.7
|
|
|
|
Interest receivables — related-party
|
448.7
|
|
247.1
|
|
|||
|
Other receivables — related-party
|
157.8
|
|
260.4
|
|
|||
|
Current notes receivable — related-party
|
5,666.8
|
|
—
|
|
|||
|
Other current assets
|
7.5
|
|
9.6
|
|
|||
|
Total current assets
|
6,317.5
|
|
807.8
|
|
|||
|
Long-term notes receivable — related-party
|
9,656.9
|
|
9,557.6
|
|
|||
|
Investments in consolidated subsidiaries, including intercompany balances
|
750.0
|
|
1,742.8
|
|
|||
|
Other assets, net
|
4.2
|
|
3.0
|
|
|||
|
Total assets
|
$
|
16,728.6
|
|
$
|
12,111.2
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|||||||
|
Current liabilities:
|
|||||||
|
Accounts payable
|
$
|
46.4
|
|
$
|
11.4
|
|
|
|
Other payables — related-party
|
105.3
|
|
47.1
|
|
|||
|
Debt — related-party
|
679.2
|
|
—
|
|
|||
|
Accrued liabilities and other
|
16.0
|
|
6.7
|
|
|||
|
Total current liabilities
|
846.9
|
|
65.2
|
|
|||
|
Long-term notes payable — related-party
|
18.9
|
|
18.6
|
|
|||
|
Other long-term liabilities — related-party
|
1,146.6
|
|
—
|
|
|||
|
Other long-term liabilities
|
1.7
|
|
1.6
|
|
|||
|
Total liabilities
|
2,014.1
|
|
85.4
|
|
|||
|
Commitments and contingencies
|
|
|
|||||
|
Shareholders’ equity:
|
|||||||
|
Class A ordinary shares, $0.01 nominal value. Issued and outstanding 251,167,686 and 222,081,117
shares, respectively
|
2.5
|
|
2.2
|
|
|||
|
Class B ordinary shares, $0.01 nominal value. Issued and outstanding 10,139,184 and 10,147,184
shares, respectively
|
0.1
|
|
0.1
|
|
|||
|
Class C ordinary shares, $0.01 nominal value. Issued and outstanding 630,353,372 and
556,221,669 shares, respectively
|
6.3
|
|
5.6
|
|
|||
|
Additional paid-in capital
|
17,070.8
|
|
12,809.4
|
|
|||
|
Accumulated deficit
|
(4,007.6
|
)
|
(3,312.6
|
)
|
|||
|
Accumulated other comprehensive earnings, net of taxes
|
1,646.6
|
|
2,528.8
|
|
|||
|
Treasury shares, at cost
|
(4.2
|
)
|
(7.7
|
)
|
|||
|
Total shareholders’ equity
|
14,714.5
|
|
12,025.8
|
|
|||
|
Total liabilities and shareholders’ equity
|
$
|
16,728.6
|
|
$
|
12,111.2
|
|
|
IV-9
LIBERTY GLOBAL PLC
SCHEDULE I
(Parent Company Information - See Notes to Consolidated Financial Statements)
CONDENSED STATEMENTS OF OPERATIONS
(Parent Company Only)
|
Period from
|
|||||||
|
June 8,
|
|||||||
|
Year ended
|
2013 through
|
||||||
|
December 31,
|
December 31,
|
||||||
|
|
2014
|
2013
|
|||||
|
|
in millions
|
||||||
|
Operating costs and expenses:
|
|||||||
|
Selling, general and administrative (including share-based compensation)
|
$
|
43.0
|
|
$
|
9.7
|
|
|
|
Related-party fees and allocations
|
151.8
|
|
54.9
|
|
|||
|
Other operating expenses
|
3.5
|
|
—
|
|
|||
|
Operating loss
|
(198.3
|
)
|
(64.6
|
)
|
|||
|
Non-operating income (expense):
|
|||||||
|
Interest income, net
|
812.1
|
|
468.3
|
|
|||
|
Realized and unrealized gains (losses) on derivative instruments, net
|
13.7
|
|
(4.5
|
)
|
|||
|
Foreign currency transaction losses, net
|
(58.2
|
)
|
—
|
|
|||
|
Other expense, net
|
(8.1
|
)
|
—
|
|
|||
|
759.5
|
|
463.8
|
|
||||
|
Earnings before income taxes and equity in losses of consolidated subsidiaries, net
|
561.2
|
|
399.2
|
|
|||
|
Equity in losses of consolidated subsidiaries, net
|
(1,120.8
|
)
|
(1,306.3
|
)
|
|||
|
Income tax expense
|
(135.4
|
)
|
(105.8
|
)
|
|||
|
Net loss
|
$
|
(695.0
|
)
|
$
|
(1,012.9
|
)
|
|
IV-10
LIBERTY GLOBAL PLC
SCHEDULE I
(Parent Company Information - See Notes to Consolidated Financial Statements)
CONDENSED STATEMENTS OF CASH FLOWS
(Parent Company Only)
|
Period from
|
|||||||
|
|
June 8,
|
||||||
|
Year ended
|
2013 through
|
||||||
|
December 31,
|
December 31,
|
||||||
|
|
2014
|
2013
|
|||||
|
|
in millions
|
||||||
|
Cash flows from operating activities:
|
|||||||
|
Net loss
|
$
|
(695.0
|
)
|
$
|
(1,012.9
|
)
|
|
|
Adjustments to reconcile net loss to net cash provided by operating activities:
|
|||||||
|
Equity in losses of consolidated subsidiaries, net
|
1,120.8
|
|
1,306.3
|
|
|||
|
Share-based compensation expense
|
20.2
|
|
3.5
|
|
|||
|
Related-party fees and allocations
|
151.8
|
|
54.9
|
|
|||
|
Other operating expenses
|
3.5
|
|
—
|
|
|||
|
Realized and unrealized losses (gains) on derivative instruments, net
|
(13.7
|
)
|
4.5
|
|
|||
|
Foreign currency transaction losses, net
|
58.2
|
|
—
|
|
|||
|
Deferred income tax benefit
|
(3.6
|
)
|
(0.4
|
)
|
|||
|
Changes in operating assets and liabilities:
|
|||||||
|
Receivables and other operating assets
|
0.2
|
|
(104.9
|
)
|
|||
|
Payables and accruals
|
(65.3
|
)
|
2.6
|
|
|||
|
Net cash provided by operating activities
|
577.1
|
|
253.6
|
|
|||
|
Cash flows from investing activities:
|
|||||||
|
Distributions and advances from subsidiaries and affiliates, net
|
(368.3
|
)
|
949.0
|
|
|||
|
Other investing activities, net
|
1.8
|
|
(11.3
|
)
|
|||
|
Net cash provided (used) by investing activities
|
(366.5
|
)
|
937.7
|
|
|||
|
Cash flows from financing activities:
|
|||||||
|
Repurchase of Liberty Global shares
|
(1,584.9
|
)
|
(971.8
|
)
|
|||
|
Borrowings of related-party debt
|
1,221.5
|
|
—
|
|
|||
|
Repayments of related-party debt
|
(542.3
|
)
|
—
|
|
|||
|
Proceeds received from subsidiaries in connection with the issuance of Liberty Global shares
|
435.1
|
|
—
|
|
|||
|
Proceeds from issuance of Liberty Global shares upon exercise of stock options
|
54.8
|
|
78.1
|
|
|||
|
Proceeds (payments) associated with call option contracts, net
|
(41.7
|
)
|
4.1
|
|
|||
|
Other financing activities, net
|
(6.6
|
)
|
(11.0
|
)
|
|||
|
Net cash
used
by financing activities
|
(464.1
|
)
|
(900.6
|
)
|
|||
|
Effect of exchange rate changes on cash
|
(0.5
|
)
|
—
|
|
|||
|
Net
increase (decrease)
in cash and cash equivalents
|
(254.0
|
)
|
290.7
|
|
|||
|
Cash and cash equivalents:
|
|||||||
|
Beginning of period
|
290.7
|
|
—
|
|
|||
|
End of period
|
$
|
36.7
|
|
$
|
290.7
|
|
|
IV-11
LIBERTY GLOBAL, INC.
SCHEDULE I
(Parent Company Information - See Notes to Consolidated Financial Statements)
CONDENSED STATEMENTS OF OPERATIONS
(Parent Company Only)
|
Period from
|
|||||||
|
January 1,
|
|||||||
|
2013 through
|
Year ended
|
||||||
|
June 7,
|
December 31,
|
||||||
|
|
2013
|
2012
|
|||||
|
|
in millions
|
||||||
|
Operating costs and expenses:
|
|||||||
|
Selling, general and administrative (including stock-based compensation)
|
$
|
43.5
|
|
$
|
98.1
|
|
|
|
Depreciation and amortization
|
0.3
|
|
0.8
|
|
|||
|
Other operating charges
|
48.1
|
|
—
|
|
|||
|
Operating loss
|
(91.9
|
)
|
(98.9
|
)
|
|||
|
Non-operating expense:
|
|||||||
|
Interest expense, net
|
(0.7
|
)
|
(0.1
|
)
|
|||
|
Other expense, net
|
(0.1
|
)
|
(0.5
|
)
|
|||
|
(0.8
|
)
|
(0.6
|
)
|
||||
|
Loss before income taxes and equity in earnings of consolidated subsidiaries, net
|
(92.7
|
)
|
(99.5
|
)
|
|||
|
Equity in earnings of consolidated subsidiaries, net
|
120.0
|
|
390.7
|
|
|||
|
Income tax
benefit
|
21.7
|
|
31.6
|
|
|||
|
Net earnings
|
$
|
49.0
|
|
$
|
322.8
|
|
|
IV-12
LIBERTY GLOBAL, INC.
SCHEDULE I
(Parent Company Information - See Notes to Consolidated Financial Statements)
CONDENSED STATEMENTS OF CASH FLOWS
(Parent Company Only)
|
Period from
|
|||||||
|
|
January 1,
|
||||||
|
2013 through
|
Year ended
|
||||||
|
June 7,
|
December 31,
|
||||||
|
|
2013
|
2012
|
|||||
|
|
in millions
|
||||||
|
Cash flows from operating activities:
|
|||||||
|
Net earnings
|
$
|
49.0
|
|
$
|
322.8
|
|
|
|
Adjustments to reconcile net earnings to net cash used by operating activities:
|
|||||||
|
Equity in earnings of consolidated subsidiaries, net
|
(120.0
|
)
|
(390.7
|
)
|
|||
|
Stock-based compensation expense
|
11.5
|
|
33.0
|
|
|||
|
Depreciation and amortization
|
0.3
|
|
0.8
|
|
|||
|
Other operating charges
|
48.1
|
|
—
|
|
|||
|
Deferred income tax expense (benefit)
|
(21.9
|
)
|
111.7
|
|
|||
|
Excess tax benefits from stock-based compensation
|
—
|
|
(2.6
|
)
|
|||
|
Changes in operating assets and liabilities:
|
|||||||
|
Receivables and other operating assets
|
(7.2
|
)
|
(27.1
|
)
|
|||
|
Payables and accruals
|
(23.8
|
)
|
(71.4
|
)
|
|||
|
Net cash used by operating activities
|
(64.0
|
)
|
(23.5
|
)
|
|||
|
Cash flows from investing activities:
|
|||||||
|
Distributions and advances from subsidiaries and affiliates, net
|
163.1
|
|
855.1
|
|
|||
|
Capital expenditures
|
(0.7
|
)
|
(2.0
|
)
|
|||
|
Net cash provided by investing activities
|
162.4
|
|
853.1
|
|
|||
|
Cash flows from financing activities:
|
|||||||
|
Repurchase of LGI common stock
|
(185.4
|
)
|
(970.3
|
)
|
|||
|
Proceeds (payments) related to call option contracts for LGI common stock
|
55.5
|
|
(52.1
|
)
|
|||
|
Payment of net settled employee withholding taxes on stock incentive awards
|
(13.1
|
)
|
(22.1
|
)
|
|||
|
Proceeds from issuance of LGI common stock upon exercise of stock options
|
2.9
|
|
25.6
|
|
|||
|
Excess tax benefits from stock-based compensation
|
—
|
|
2.6
|
|
|||
|
Net cash used by financing activities
|
(140.1
|
)
|
(1,016.3
|
)
|
|||
|
Net decrease in cash and cash equivalents
|
(41.7
|
)
|
(186.7
|
)
|
|||
|
Cash and cash equivalents:
|
|||||||
|
Beginning of period
|
69.4
|
|
256.1
|
|
|||
|
End of period
|
$
|
27.7
|
|
$
|
69.4
|
|
|
IV-13
LIBERTY GLOBAL PLC
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
|
|
Allowance for doubtful accounts — Trade receivables
|
|||||||||||||||||||||
|
|
Balance at
beginning
of period
|
Additions to
costs and
expenses
|
Acquisitions
|
Deductions
or write-offs
|
Foreign
currency
translation
adjustments
|
Disposals/ discontinued operations
|
Balance at
end of
period
|
|||||||||||||||
|
|
in millions
|
|||||||||||||||||||||
|
Year ended December 31:
|
||||||||||||||||||||||
|
2012
|
$
|
144.0
|
|
66.4
|
|
4.0
|
|
(113.6
|
)
|
2.2
|
|
—
|
|
$
|
103.0
|
|
||||||
|
2013
|
$
|
103.0
|
|
113.3
|
|
12.9
|
|
(98.1
|
)
|
1.7
|
|
(10.2
|
)
|
$
|
122.6
|
|
||||||
|
2014
|
$
|
122.6
|
|
119.1
|
|
7.9
|
|
(120.5
|
)
|
(13.0
|
)
|
—
|
|
$
|
116.1
|
|
||||||
IV-14
Report of Independent Auditors’
To: The Board of Management and Supervisory Board of Ziggo N.V.
We have audited the accompanying consolidated financial statements of Ziggo N.V., which comprise the consolidated balance sheet as of December 31, 2013, and the consolidated statement of income, comprehensive income, changes in shareholders’ equity and cash flows for the year then ended, and the related notes to the consolidated financial statements.
Management’s Responsibility
Management is responsible for the preparation and fair presentation of these financial statements in conformity with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free of material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Ziggo N.V. at December 31, 2013, and the consolidated income results and its cash flows for the year then ended in conformity with U.S. generally accepted accounting principles.
Amsterdam, June 4, 2014
Ernst & Young Accountants LLP
IV-15
ZIGGO N.V.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2013
in millions, except share and per share amounts
|
ASSETS
|
|||
|
Current assets:
|
|||
|
Cash
|
€
|
77.4
|
|
|
Trade receivables, net
|
44.9
|
|
|
|
Deferred income taxes (note 7)
|
42.2
|
|
|
|
Prepaid expenses
|
14.2
|
|
|
|
Other current assets
|
11.2
|
|
|
|
Total current assets
|
189.9
|
|
|
|
Property and equipment, net (note 5)
|
1,560.0
|
|
|
|
Goodwill (note 5)
|
1,793.8
|
|
|
|
Intangible assets subject to amortization, net (note 5)
|
1,054.7
|
|
|
|
Other assets, net
|
38.1
|
|
|
|
Total assets
|
€
|
4,636.5
|
|
The accompanying notes are an integral part of these consolidated financial statements.
IV-16
ZIGGO N.V.
CONSOLIDATED BALANCE SHEET – (Continued)
DECEMBER 31, 2013
in millions, except share and per share amounts
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|||
|
Current liabilities:
|
|||
|
Accounts payable
|
€
|
88.2
|
|
|
Deferred revenue
|
120.2
|
|
|
|
Accrued value-added taxes
|
43.7
|
|
|
|
Accrued interest
|
38.8
|
|
|
|
Other accrued and current liabilities (note 3)
|
100.2
|
|
|
|
Total current liabilities
|
391.1
|
|
|
|
Long-term debt and capital lease obligations (note 6)
|
3,107.8
|
|
|
|
Deferred tax liability (note 7)
|
125.0
|
|
|
|
Other long-term liabilities (note 3)
|
42.2
|
|
|
|
Total liabilities
|
3,666.1
|
|
|
|
Commitments and contingencies (notes 3, 6 and 10)
|
|||
|
Shareholders’ equity (note 8):
|
|||
|
Ordinary shares, €1.00 nominal value. Authorized 800,000,000 shares; issued and outstanding 200,000,000 and 199,998,194 shares, respectively
|
200.0
|
|
|
|
Additional paid-in capital
|
3,205.0
|
|
|
|
Accumulated deficit
|
(2,433.7
|
)
|
|
|
Accumulated other comprehensive loss, net of taxes
|
(0.9
|
)
|
|
|
Total shareholders’ equity
|
970.4
|
|
|
|
Total liabilities and shareholders’ equity
|
€
|
4,636.5
|
|
The accompanying notes are an integral part of these consolidated financial statements.
IV-17
ZIGGO N.V.
CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 2013
in millions, except share and per share amounts
|
Revenue (note 2)
|
€
|
1,568.2
|
|
|
Operating costs and expenses:
|
|||
|
Operating (other than depreciation and amortization)
|
510.2
|
|
|
|
Selling, general and administrative (SG&A) (including share-based compensation) (note 9)
|
188.0
|
|
|
|
Depreciation and amortization
|
444.7
|
|
|
|
1,142.9
|
|
||
|
Operating income
|
425.3
|
|
|
|
Non-operating income (expense):
|
|||
|
Interest expense
|
(210.8
|
)
|
|
|
Interest income
|
1.0
|
|
|
|
Loss on debt extinguishment (note 6)
|
(42.7
|
)
|
|
|
Realized and unrealized gains on derivative instruments, net (note 3)
|
29.1
|
|
|
|
Share of results of affiliates, net
|
(9.1
|
)
|
|
|
(232.5
|
)
|
||
|
Income before income taxes
|
192.8
|
|
|
|
Income tax benefit (note 7)
|
16.5
|
|
|
|
Net income
|
€
|
209.3
|
|
|
Basic and diluted income per share
|
€
|
1.05
|
|
|
Weighted average ordinary shares outstanding – basic and diluted
|
199,998,116
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
IV-18
ZIGGO N.V.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
YEAR ENDED DECEMBER 31, 2013
in millions
|
Net income
|
€
|
209.3
|
|
|
Other comprehensive income – cash flow hedges, net of taxes
|
3.4
|
|
|
|
Comprehensive income
|
€
|
212.7
|
|
The accompanying notes are an integral part of these consolidated financial statements.
IV-19
ZIGGO N.V.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
YEAR ENDED DECEMBER 31, 2013
in millions
|
|
Shareholders’ capital
|
Additional paid-in capital
|
Accumulated deficit
|
Accumulated other comprehensive loss, net of taxes
|
Total shareholders’ equity
|
||||||||||||||
|
Balance at January 1, 2013
|
€
|
200.0
|
|
€
|
3,500.0
|
|
€
|
(2,568.5
|
)
|
€
|
(4.3
|
)
|
€
|
1,127.2
|
|
||||
|
Net income
|
—
|
|
—
|
|
209.3
|
|
—
|
|
209.3
|
|
|||||||||
|
Other comprehensive income
|
—
|
|
—
|
|
—
|
|
3.4
|
|
3.4
|
|
|||||||||
|
Dividends paid
|
—
|
|
(295.5
|
)
|
(74.5
|
)
|
—
|
|
(370.0
|
)
|
|||||||||
|
Share-based compensation
|
—
|
|
0.5
|
|
—
|
|
—
|
|
0.5
|
|
|||||||||
|
Balance at December 31, 2013
|
€
|
200.0
|
|
€
|
3,205.0
|
|
€
|
(2,433.7
|
)
|
€
|
(0.9
|
)
|
€
|
970.4
|
|
||||
The accompanying notes are an integral part of these consolidated financial statements.
IV-20
ZIGGO N.V.
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2013
in millions
|
Cash flows from operating activities:
|
|||
|
Net income
|
€
|
209.3
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|||
|
Share-based compensation expense
|
0.5
|
|
|
|
Depreciation and amortization
|
444.7
|
|
|
|
Loss on debt extinguishment
|
42.7
|
|
|
|
Realized and unrealized gains on derivative instruments, net
|
29.1
|
|
|
|
Deferred income tax benefit
|
(18.7
|
)
|
|
|
Share of results of affiliates, net
|
9.1
|
|
|
|
Changes in operating assets and liabilities:
|
|||
|
Receivables and other operating assets
|
(62.0
|
)
|
|
|
Payables and accruals
|
(8.7
|
)
|
|
|
Net cash provided by operating activities
|
646.0
|
|
|
|
Cash flows from investing activities:
|
|||
|
Capital expenditures
|
(342.2
|
)
|
|
|
Cash paid in connection with acquisitions, net of cash acquired
|
(15.2
|
)
|
|
|
Contribution to affiliate
|
(7.9
|
)
|
|
|
Other investing activities, net
|
(0.4
|
)
|
|
|
Net cash used by
investing activities
|
(365.7
|
)
|
|
|
Cash flows from financing activities:
|
|||
|
Borrowings of debt
|
1,378.5
|
|
|
|
Repayments of debt
|
(1,288.3
|
)
|
|
|
Payment of dividends
|
(370.0
|
)
|
|
|
Payment of financing costs
|
(13.4
|
)
|
|
|
Other financing activities, net
|
(2.1
|
)
|
|
|
Net cash used by financing activities
|
(295.3
|
)
|
|
|
Net decrease in cash
|
(15.0
|
)
|
|
|
Cash:
|
|||
|
Beginning of year
|
92.4
|
|
|
|
End of year
|
€
|
77.4
|
|
|
Cash paid for interest
|
€
|
190.8
|
|
|
Net cash paid for taxes
|
€
|
—
|
|
The accompanying notes are an integral part of these consolidated financial statements.
IV-21
ZIGGO N.V.
Notes to Consolidated Financial Statements
December 31, 2013
(1)
Basis of Presentation
Ziggo N.V. (Ziggo) is a public limited company in the Netherlands. Ziggo is the owner and operator of a broadband cable network in the Netherlands, and provides video, broadband internet, fixed-line telephony and mobile services to households and businesses in the Netherlands under the brand name Ziggo. In the following text, the terms “we,” “our,” “our company” and “us” may refer, as the context requires, to Ziggo or collectively to Ziggo and its subsidiaries.
These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP).
Our functional currency is the euro (€).
These consolidated financial statements reflect our consideration of the accounting and disclosure implications of subsequent events through June 4, 2014, the date of issuance.
(2)
Summary of Significant Accounting Policies
Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Estimates and assumptions are used in accounting for, among other things, the valuation of acquisition-related assets and liabilities, allowances for uncollectible accounts, programming and copyright expenses, deferred income taxes and related valuation allowances, loss contingencies, fair value measurements, impairment assessments, capitalization of internal costs associated with construction and installation activities, useful lives of long-lived assets and share-based compensation. Actual results could differ from those estimates.
Principles of Consolidation
The accompanying consolidated financial statements include our accounts and the accounts of all voting interest entities where we exercise a controlling financial interest through the ownership of a direct or indirect controlling voting interest and variable interest entities for which our company is the primary beneficiary. All intercompany accounts and transactions have been eliminated in consolidation.
Trade Receivables
Our trade receivables are reported net of an allowance for doubtful accounts. Such allowance aggregated €4.6 million at December 31, 2013. The allowance for doubtful accounts is based upon our assessment of probable loss related to uncollectible accounts receivable. We use a number of factors in determining the allowance, including, among other things, collection trends, prevailing and anticipated economic conditions and specific customer credit risk. The allowance is maintained until either receipt of payment or the likelihood of collection is considered to be remote.
Concentration of credit risk with respect to trade receivables is limited due to the large number of customers. We also manage this risk by disconnecting services to customers whose accounts are delinquent.
Financial Instruments
Due to the short maturities of trade and other receivables, other current assets, accounts payable, accrued liabilities and other current liabilities, their respective carrying values approximate their respective fair values. For information concerning the fair values of our derivatives and debt, see notes 3 and 6, respectively. For information concerning how we arrive at certain of our fair value measurements, see note 4.
IV-22
ZIGGO N.V.
Notes to Consolidated Financial Statements
December 31, 2013
Derivative Instruments
We no longer apply hedge accounting to any of our derivative instruments. Accordingly, all derivative instruments are recorded on the balance sheet at fair value and changes in fair value are recognized in income. The amounts accumulated in other comprehensive income for derivative instruments that were previously designated as hedges are reclassified into income over the same time period that the hedged item affects our income. For information regarding our derivative instruments, including our policy for classifying cash flows related to derivative instruments in our consolidated statement of cash flows, see note 3.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. We capitalize costs associated with the construction of new cable transmission and distribution facilities and the installation of new cable services. Capitalized construction and installation costs include materials, labor and other directly attributable costs. Installation activities that are capitalized include (i) the initial connection (or drop) from our cable system to a customer location, (ii) the replacement of a drop and (iii) the installation of equipment for additional services, such as digital cable, telephone or broadband internet service. The costs of other customer-facing activities, such as reconnecting customer locations where a drop already exists, disconnecting customer locations and repairing or maintaining drops, are expensed as incurred. Interest capitalized with respect to construction activities was €12.6 million during 2013.
Capitalized internal-use software is included as a component of property and equipment. We capitalize internal and external costs directly associated with the development of internal-use software. We also capitalize costs associated with the purchase of software licenses. Maintenance and training costs, as well as costs incurred during the preliminary stage of an internal-use software development project, are expensed as incurred.
Depreciation is computed using the straight-line method over the estimated useful life of the underlying asset. Equipment under capital leases is amortized on a straight-line basis over the shorter of the lease term or estimated useful life of the asset. Useful lives used to depreciate our property and equipment are assessed periodically and are adjusted when warranted. The useful lives of cable distribution systems that are undergoing a rebuild are adjusted such that property and equipment to be retired will be fully depreciated by the time the rebuild is completed. For additional information regarding the useful lives of our property and equipment, see note 5.
Additions, replacements and improvements that extend the asset life are capitalized. Repairs and maintenance costs are expensed as incurred.
Intangible Assets
Our primary intangible assets relate to goodwill and customer relationships. Goodwill represents the excess purchase price over fair value of the identifiable net assets acquired in a business combination. Customer relationships were originally recorded at their fair value in connection with business combinations.
Goodwill and other intangible assets with indefinite useful lives are not amortized, but instead are tested for impairment at least annually. Intangible assets with finite lives are amortized on a straight-line basis over their respective estimated useful lives to their estimated residual values, and reviewed for impairment when a triggering event occurs.
For additional information regarding the useful lives of our intangible assets, see note 5.
Impairment of Property and Equipment and Intangible Assets
We review, when circumstances warrant, the carrying amounts of our property and equipment and our intangible assets (other than goodwill and other indefinite-lived intangible assets) to determine whether such carrying amounts continue to be recoverable. Such changes in circumstance may include, among other items, (i) an expectation of a sale or disposal of a long-lived asset or asset group, (ii) adverse changes in market or competitive conditions, (iii) an adverse change in legal factors or business climate in the markets in which we operate and (iv) operating or cash flow losses. For purposes of impairment testing, long-lived assets are grouped at the lowest level for which cash flows are largely independent of other assets and liabilities, generally at or below the reporting unit level (see below). If the carrying amount of the asset or asset group is greater than the expected undiscounted cash flows to be generated by such asset or asset group, an impairment adjustment is recognized. Such adjustment is measured by the amount that the carrying value of such asset or asset group exceeds its fair value. We generally measure fair value by considering (a) sale prices for similar assets, (b) discounted estimated future cash flows using an appropriate discount rate and/or
IV-23
ZIGGO N.V.
Notes to Consolidated Financial Statements
December 31, 2013
(c) estimated replacement cost. Assets to be disposed of are carried at the lower of their financial statement carrying amount or fair value less costs to sell.
We evaluate goodwill and other indefinite-lived intangible assets for impairment at least annually on December 31 and whenever other facts and circumstances indicate that the carrying amounts of goodwill and other indefinite-lived intangible assets may not be recoverable. For impairment evaluations with respect to both goodwill and other indefinite-lived intangibles, we first make a qualitative assessment to determine if the goodwill or other indefinite-lived intangible may be impaired. In the case of goodwill, if it is more-likely-than-not that a reporting unit’s fair value is less than its carrying value, we then compare the fair value of the reporting unit to its respective carrying amount. A reporting unit is an operating segment or one level below an operating segment (referred to as a “component”). We operate as a single reporting unit for purposes of the goodwill impairment test due to the revenue interdependency of our products. If the carrying value of our operations were to exceed its fair value, we would then compare the implied fair value of our goodwill to its carrying amount, and any excess of the carrying amount over the fair value would be charged to income as an impairment loss. With respect to other indefinite-lived intangible assets, if it is more-likely-than-not that the fair value of an indefinite-lived intangible asset is less than its carrying value, we then estimate its fair value and any excess of the carrying value over the fair value of the indefinite-lived intangible asset is also charged to income as an impairment loss.
Income Taxes
Income taxes are accounted for under the asset and liability method. We recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts and income tax basis of assets and liabilities and the expected benefits of utilizing net operating loss and tax credit carryforwards, using enacted tax rates in effect for each taxing jurisdiction in which we operate for the year in which those temporary differences are expected to be recovered or settled. We recognize the financial statement effects of a tax position when it is more-likely-than-not, based on technical merits, that the position will be sustained upon examination. Net deferred tax assets are then reduced by a valuation allowance if we believe it more-likely-than-not such net deferred tax assets will not be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred tax liabilities related to investments in foreign entities and foreign corporate joint ventures that are essentially permanent in duration are not recognized until it becomes apparent that such amounts will reverse in the foreseeable future. Interest and penalties related to income tax liabilities are included in income tax expense.
We and most of our subsidiaries are part of a Dutch tax fiscal unity (the Dutch Fiscal Unity) for corporate income tax purposes. For additional information regarding our income taxes, see note 7.
Segments
We operate in one geographical area, the country of the Netherlands. We operate in one segment, within which we provide video, broadband internet, fixed-line telephony and mobile services to households and businesses.
Our revenue by major category during 2013 is as follows (in millions):
|
Subscription revenue (a):
|
|||
|
Video
|
€
|
614.9
|
|
|
Broadband internet
|
464.4
|
|
|
|
Fixed-line telephony
|
312.1
|
|
|
|
Total subscription revenue
|
1,391.4
|
|
|
|
Other revenue (b)
|
176.8
|
|
|
|
Total revenue
|
€
|
1,568.2
|
|
__________________
|
(a)
|
Subscription revenue includes amounts received from subscribers for ongoing services, excluding installation and late fees. 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, among other items, business-to-business revenue, revenue from the sale of goods and late fees.
|
IV-24
ZIGGO N.V.
Notes to Consolidated Financial Statements
December 31, 2013
Revenue Recognition
Service Revenue – Cable Networks.
We recognize revenue from the provision of video, broadband internet and fixed-line telephony services over our cable network to customers in the period the related services are provided. Installation revenue (including reconnect fees) related to services provided over our cable network is recognized as revenue in the period during which the installation occurs to the extent these fees are equal to or less than direct selling costs, which costs are expensed as incurred. To the extent installation revenue exceeds direct selling costs, the excess revenue is deferred and amortized over the average expected subscriber life.
Sale of Multiple Products and Services.
We sell video, broadband internet and fixed-line telephony services to our customers in bundled packages at a rate lower than if the customer purchased each product on a standalone basis. Revenue from bundled packages generally is allocated proportionally to the individual services based on the relative standalone price for each respective service.
Promotional Discounts.
For subscriber promotions, such as discounted or free services during an introductory period, revenue is recognized only to the extent of the discounted monthly fees charged to the subscriber, if any.
Deferred Revenue.
Payments received in advance or advance billings for the services we provide are deferred and recognized as revenue when the associated services are provided.
Sale of Equipment.
We recognize revenue from the sale of goods when the significant risks and rewards of ownership of the goods have passed to the buyer, which is generally upon delivery of the goods.
Sales, Use and Other Value-Added Taxes
. Revenue is recorded net of applicable sales, use and other value-added taxes.
Share-based Compensation
We recognize all share-based payments to employees, including grants of employee share incentive awards, based on their fair values and our estimates of forfeitures. We recognize the fair value of outstanding share-based payments as a charge to income over the vesting period. We use the straight-line method to recognize share-based compensation expense for our outstanding share awards.
Although we generally expect to use shares that have been issued but reacquired by us to settle outstanding share awards upon vesting, we may also issue new ordinary shares to the extent available.
For additional information regarding our share-based compensation, see note 9.
Litigation Costs
Legal fees and related litigation costs are expensed as incurred.
Income per Ordinary Share
Basic income per share is computed by dividing net income by the weighted average number of ordinary shares (excluding restricted shares) outstanding for the period. Diluted income per share presents the dilutive effect, if any, on a per share basis of potential ordinary shares as if they had been exercised, vested or converted at the beginning of the periods presented. We had no potentially dilutive ordinary shares as of and for the year ended December 31, 2013.
IV-25
ZIGGO N.V.
Notes to Consolidated Financial Statements
December 31, 2013
(3)
Derivative Instruments
In general, we seek to enter into derivative instruments to protect against increases in the interest rates on our variable-rate debt. In this regard, we have entered into various derivative instruments to manage interest rate exposure. As of the date of our debt refinancing in October 2010, we do not apply hedge accounting to any new derivative instruments. Accordingly, since October 2010, changes in the fair values of our derivative instruments are recorded in realized and unrealized gains or losses on derivative instruments, net, in our consolidated statement of income. Prior to October 2010, the effective portion of the net fair value adjustments associated with our derivative instruments was reflected in other comprehensive income. This other comprehensive income is being reclassified into income in the same periods as the underlying interest expense on the hedged interest rate payments.
The following table provides details of the fair values of our derivative instrument liabilities as of December 31, 2013:
|
|
Current
|
Long-term
|
Total
|
||||||||
|
in millions
|
|||||||||||
|
Liabilities – Interest rate swap derivative contracts (a)
|
€
|
(8.3
|
)
|
€
|
(21.2
|
)
|
€
|
(29.5
|
)
|
||
_______________
|
(a)
|
Our current and long-term derivative instrument liabilities are included in other accrued and current liabilities and other long-term liabilities, respectively, in our consolidated balance sheet.
|
The impact of credit risk on our derivative valuations as of December 31, 2013 is insignificant. For further information concerning our fair value measurements, see note 4.
Our realized and unrealized gains on derivative instruments, net, were €29.1 million during 2013.
The net cash received or paid related to our derivative instruments is classified as an operating or financing activity in our consolidated statement of cash flows based on the classification of the applicable underlying cash flows. For derivative contracts that are terminated prior to maturity, the cash paid or received upon termination that relates to future periods is classified as a financing activity. During 2013, the total net cash inflows associated with our derivative instruments of €29.1 million were classified within cash provided by operating activities.
The terms of our outstanding interest rate swap contracts at December 31, 2013 are as follows:
|
Final maturity date (a)
|
Notional amount
|
Interest rate due from counterparty
|
Interest rate due to counterparty
|
|||||
|
in millions
|
||||||||
|
March 2014
|
€
|
1,000.0
|
|
3 mo. EURIBOR
|
3.58%
|
|||
|
March 2014
|
€
|
750.0
|
|
0.19%
|
3 mo. EURIBOR
|
|||
|
March 2014 – March 2017
|
€
|
500.0
|
|
3 mo. EURIBOR
|
1.97%
|
|||
|
May 2014 – May 2024
|
€
|
900.0
|
|
6 mo. EURIBOR
|
2.28%
|
|||
_______________
|
(a)
|
The notional amount of multiple derivative instruments that mature within the same calendar month are shown in the aggregate and interest rates are presented on a weighted average basis. In addition, for derivative instruments that were in effect as of December 31, 2013, we present a single date that represents the applicable final maturity date. For derivative instruments that become effective subsequent to December 31, 2013, we present a range of dates that represents the period covered by the applicable derivative instruments.
|
(4)
Fair Value Measurements
We use the fair value method to account for our derivative instruments. The reported fair values of these derivative instruments as of December 31, 2013 likely will not represent the amount that will be paid or received upon the ultimate settlement of these derivative instruments, as we expect the values realized generally will be based on market conditions at the time of settlement, which may occur at the maturity of the derivative instrument or at the time of the repayment or refinancing of the underlying debt instrument.
IV-26
ZIGGO N.V.
Notes to Consolidated Financial Statements
December 31, 2013
U.S. GAAP provides for a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. Level 1 inputs are quoted market prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted market prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. We record transfers of assets or liabilities in or out of Levels 1, 2 or 3 at the beginning of the quarter during which the transfer occurred. During 2013, no such transfers were made.
All of our Level 2 inputs (interest rate futures and swap rates) and certain of our Level 3 inputs (credit spreads) are obtained from pricing services. These inputs, or interpolations or extrapolations thereof, are used in our internal models to calculate, among other items, yield curves and forward interest rates.
In the normal course of business, we receive market value assessments from the counterparties to our derivative contracts. Although we compare these assessments to our internal valuations and investigate unexpected differences, we do not otherwise rely on counterparty quotes to determine the fair values of our derivative instruments. The midpoints of applicable bid and ask ranges generally are used as inputs for our internal valuations.
As further described in note 3, we enter into derivative instruments to manage our interest rate risk. The recurring fair value measurements of these derivative instruments are determined using discounted cash flow models. Most of the inputs to these discounted cash flow models consist of, or are derived from, observable Level 2 data for substantially the full term of these derivative instruments. This observable data includes applicable interest rate futures and swap rates, which are retrieved or derived from available market data. Although we may extrapolate or interpolate this data, we do not otherwise alter this data in performing our valuations. We incorporate a credit risk valuation adjustment in our fair value measurements to estimate the impact of both our own nonperformance risk and the nonperformance risk of our counterparties. Our and our counterparties’ credit spreads are Level 3 inputs that are used to derive the credit risk valuation adjustments with respect to our various interest rate and foreign currency derivative valuations. As we would not expect changes in our or our counterparties’ credit spreads to have a significant impact on the valuations of these derivative instruments, we have determined that these valuations fall under Level 2 of the fair value hierarchy.
Fair value measurements are also used in connection with nonrecurring valuations performed in connection with impairment assessments and acquisition accounting. During 2013, we did not perform any material nonrecurring fair value measurements.
(5)
Long-lived Assets
Property and Equipment, Net
The details of our property and equipment and the related accumulated depreciation as of December 31, 2013 are set forth below:
|
Estimated useful life
|
Amounts
|
||||
|
in millions
|
|||||
|
Distribution systems
|
3 to 20 years
|
€
|
5,184.4
|
|
|
|
Support equipment, buildings and land
|
3 to 20 years
|
602.1
|
|
||
|
5,786.5
|
|
||||
|
Accumulated depreciation
|
(4,226.5
|
)
|
|||
|
Total property and equipment, net
|
€
|
1,560.0
|
|
||
Depreciation expense related to our property and equipment was €272.1 million during 2013.
Goodwill
Changes in the carrying amount of our goodwill during 2013 are set forth below (in millions):
|
Balance at January 1, 2013
|
€
|
1,782.4
|
|
|
Acquisition
|
11.4
|
|
|
|
Balance at December 31, 2013
|
€
|
1,793.8
|
|
IV-27
ZIGGO N.V.
Notes to Consolidated Financial Statements
December 31, 2013
Intangible Assets Subject to Amortization, Net
The details of our intangible assets subject to amortization and the related accumulated amortization as of December 31, 2013 are set forth below:
|
Estimated useful life
|
Amounts
|
||||
|
in millions
|
|||||
|
Customer relationships
|
4.5 to 14 years
|
€
|
2,406.7
|
|
|
|
Accumulated amortization
|
(1,352.0
|
)
|
|||
|
Total
|
€
|
1,054.7
|
|
||
Amortization of intangible assets with finite useful lives was €172.6 million during 2013. Based on the amortizable intangible asset balances at December 31, 2013, we expect that amortization expense will be as follows for the next five years and thereafter (in millions):
|
2014
|
€
|
173.0
|
|
|
2015
|
173.0
|
|
|
|
2016
|
173.0
|
|
|
|
2017
|
169.2
|
|
|
|
2018
|
157.4
|
|
|
|
Thereafter
|
209.1
|
|
|
|
Total
|
€
|
1,054.7
|
|
Impairments
No impairments of our goodwill were required to be recorded in connection with our December 31, 2013 impairment test. If, among other factors, (i) our equity value was to decline significantly or (ii) the adverse impacts of economic, competitive, regulatory or other factors were to cause our income results 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.
(6)
Debt and Capital Lease Obligations
Our consolidated debt and capital lease obligations as of December 31, 2013 are as follows:
|
Weighted
average interest rate (a) |
Unused borrowing capacity (b)
|
Estimated fair value (c)
|
Carrying value (d)
|
||||||||||||
|
|
in millions
|
||||||||||||||
|
Debt:
|
|||||||||||||||
|
8.0% Senior Notes
|
8.000
|
%
|
€
|
—
|
|
€
|
1,285.3
|
|
€
|
1,203.4
|
|
||||
|
6.125% Senior Secured Notes
|
6.125
|
%
|
—
|
|
770.5
|
750.0
|
|||||||||
|
3.625% Senior Secured Notes
|
3.625
|
%
|
—
|
|
752.3
|
748.6
|
|||||||||
|
Facility A Loan
|
1.984
|
%
|
—
|
|
150.0
|
150.0
|
|||||||||
|
Revolving Credit Facility (e)
|
1.984
|
%
|
145.0
|
|
255.0
|
255.0
|
|||||||||
|
Total
|
5.712
|
%
|
€
|
145.0
|
|
€
|
3,213.1
|
|
3,107.0
|
||||||
|
Capital lease obligations
|
0.8
|
|
|||||||||||||
|
Total debt and capital lease obligations
|
3,107.8
|
|
|||||||||||||
|
Current maturities
|
—
|
|
|||||||||||||
|
Long-term debt and capital lease obligations
|
€
|
3,107.8
|
|
||||||||||||
IV-28
ZIGGO N.V.
Notes to Consolidated Financial Statements
December 31, 2013
_______________
|
(a)
|
Represents the weighted average interest rate in effect at December 31, 2013 for borrowings outstanding pursuant to each debt instrument. The interest rates presented represent stated rates and do not include the impact of applicable interest rate derivative contracts, deferred financing costs or commitment fees, all of which affect our overall cost of borrowing.
|
|
(b)
|
Unused borrowing capacity represents the maximum availability under the Revolving Credit Facility, as defined and described below, at December 31, 2013 without regard to covenant compliance calculations or other conditions precedent to borrowing. At December 31, 2013, the full amount of the Revolving Credit Facility was available to be drawn.
|
|
(c)
|
The estimated fair values of our debt instruments were determined using the average of applicable bid and ask prices (mostly Level 1 of the fair value hierarchy). For additional information concerning fair value hierarchies, see note 4.
|
|
(d)
|
Amounts for the 8.0% Senior Notes and the 3.625% Senior Secured Notes, each as defined and described below, include the impact of discounts.
|
|
(e)
|
The Revolving Credit Facility has a commitment fee on unused and uncancelled balances of 0.6125% per year.
|
8.0% Senior Notes
In May 2010, Ziggo Bond Company B.V. (Ziggo Bond Company), an indirect, wholly-owned subsidiary of Ziggo, issued €1,208.9 million principal amount of unsecured senior notes (the 8.0% Senior Notes) at an issue price of 99.271%. The 8.0% Senior Notes have a nominal interest rate of 8.0% and are due in 2018. Interest on the 8.0% Senior Notes is payable semi-annually on May 15 and November 15.
The 8.0% Senior Notes are senior unsecured obligations of Ziggo Bond Company and are guaranteed on a senior subordinated basis by all of the subsidiaries of Ziggo Bond Company.
6.125% Senior Secured Notes
In October 2010, Ziggo Finance B.V. issued €750.0 million principal amount of 6.125% senior secured notes due in 2017 (the 6.125% Senior Secured Notes). Ziggo Finance used the proceeds from the 6.125% Senior Secured Notes to fund a facility (the Facility E Loan) under the Senior Credit Facility, as defined and described below, with certain of our subsidiaries as the borrowers. The amount outstanding under the Facility E Loan is eliminated in our consolidated financial statements.
Interest on the 6.125% Senior Secured Notes is payable semi-annually on May 15 and November 15.
The 6.125% Senior Secured Notes are general obligations of Ziggo Finance and are secured by a first ranking security interest over all of the capital stock and bank accounts of Ziggo Finance and a first ranking interest over Ziggo Finance’s rights as a lender under the Facility E Loan.
3.625% Senior Secured Notes
In March 2013, Ziggo B.V., our indirect wholly-owned subsidiary, issued €750.0 million principal amount of 3.625% senior secured notes (the 3.625% Senior Secured Notes) at an issue price of 99.8% with a nominal interest rate of 3.625%, due in 2020. Interest on the 3.625% Senior Secured Notes is payable annually on March 27.
The 3.625% Senior Secured Notes are senior secured obligations of Ziggo and are guaranteed on a senior secured basis by our subsidiaries, ABC B.V., Torenspits II B.V. and by the issuer’s subsidiaries, Ziggo Netwerk B.V. and Ziggo Netwerk II B.V.
The 3.625% Senior Secured Notes are secured by Ziggo’s assets including (i) mortgage on all registered properties, related movable assets, the network-related elements and the claims and (ii) pledges on all bank accounts, intellectual property rights, receivables and movable assets.
At any time prior to May 14, 2014 in the case of the 8.0% Senior Notes, November 13, 2013 in the case of the 6.125% Senior Secured Notes or at any time in the case of the 3.625% Senior Secured Notes, all or part of the 8.0% Senior Notes, the 6.125% Senior Secured Notes or the 3.625% Senior Secured Notes may be redeemed at a redemption price equal to 100% of the principal amount thereof plus accrued and unpaid interest, if any, plus an applicable redemption premium, as defined in the applicable indenture. At any time on or after May 14, 2014 in the case of the 8.0% Senior Notes and November 13, 2013 in the case of the 6.125% Senior Secured Notes, some or all of the 8.0% Senior Notes or the 6.125% Senior Secured Notes may be redeemed at a
IV-29
ZIGGO N.V.
Notes to Consolidated Financial Statements
December 31, 2013
redemption premium specified in the applicable indenture. The 8.0% Senior Notes, the 6.125% Senior Secured Notes and the 3.625% Senior Secured Notes each contain certain customary incurrence-based covenants that may restrict the ability of the applicable issuer to incur additional debt, pay dividends and make distributions of certain other restricted payments, among other items.
Senior Credit Facility
During 2013, we entered into a new credit facility that includes (i) a €150.0 million term loan (the Facility A Loan), due in March 2018, which bears interest at EURIBOR plus 1.75%, and (ii) a €400.0 million revolving credit facility (the Revolving Credit Facility and, together with the Facility A Loan, the Senior Credit Facility), due in March 2018, which bears interest at EURIBOR plus 1.75%. At December 31, 2013, €255.0 million was drawn under the Revolving Credit Facility. The proceeds from the Senior Credit Facility, together with the net proceeds from the 3.625% Senior Secured Notes, were used to repay in full outstanding amounts under our previous senior credit agreement. In connection with this transaction, we recognized a loss on debt extinguishment of €42.7 million, primarily associated with the write-off of deferred financing costs.
In addition to voluntary prepayments, the lenders under the Senior Credit Facility may cancel their commitments and require the repayment of any amounts due upon the occurrence of a change in control, as defined in the indenture to the Senior Credit Facility.
The Senior Credit Facility contains certain customary events of default, the occurrence of which, subject to certain exceptions
and materiality qualifications, would allow the lenders to (i) cancel the total commitments, (ii) accelerate all outstanding loans and terminate their commitments thereunder and/or (iii) declare that all or part of the loans be payable on demand. The Senior Credit Facility contains certain representations and warranties customary for facilities of this type, which are subject to exceptions, baskets and materiality qualifications.
The Senior Credit Facility is secured by the same security package as the 3.625% Senior Secured Notes.
We are required to comply on a quarterly basis with certain covenants, including interest coverage and net leverage ratios, set by the lenders of the Senior Credit Facility. We were in compliance with these financial covenants as of December 31, 2013.
Maturities of Debt
Maturities of our debt as of December 31, 2013 are presented below (in millions):
|
Year ending December 31:
|
|||
|
2014
|
€
|
—
|
|
|
2015
|
—
|
|
|
|
2016
|
—
|
|
|
|
2017
|
750.0
|
|
|
|
2018
|
1,613.8
|
|
|
|
Thereafter
|
750.0
|
|
|
|
Total debt maturities
|
3,113.8
|
|
|
|
Unamortized discount
|
(6.8
|
)
|
|
|
Total debt
|
€
|
3,107.0
|
|
|
Current portion
|
€
|
—
|
|
|
Noncurrent portion
|
€
|
3,107.0
|
|
Subsequent Events
For information concerning certain financing transactions completed subsequent to December 31, 2013, see note 11.
(7)
Income Taxes
We and most of our subsidiaries are part of a Dutch Fiscal Unity headed by us. The standard conditions for a Dutch Fiscal Unity stipulate that all companies included in the fiscal unity are jointly and severally liable for all tax liabilities borne by the
IV-30
ZIGGO N.V.
Notes to Consolidated Financial Statements
December 31, 2013
parent company until the tax unit ceases to exist. The company’s corporate income tax calculations take into account all tax attributes of the Ziggo Dutch Fiscal Unity.
Income tax benefit (expense) consists of the following during 2013 (in millions):
|
Current income tax expense
|
€
|
(2.2
|
)
|
|
Deferred income tax benefit
|
18.7
|
|
|
|
Total income tax benefit
|
€
|
16.5
|
|
Income tax benefit attributable to our income before income taxes differs from the amounts computed by using the applicable statutory tax rate in the Netherlands of 25% during 2013 as a result of the following (in millions):
|
Computed “expected” tax expense
|
€
|
(48.2
|
)
|
|
Innovation tax facilities (a)
|
67.0
|
|
|
|
Basis and other differences in the treatment of items associated with investments in subsidiaries and affiliates
|
(2.3
|
)
|
|
|
Impact of non-deductible items
|
(0.1
|
)
|
|
|
Research and development deduction
|
0.1
|
|
|
|
Total income tax benefit
|
€
|
16.5
|
|
_______________
|
(a)
|
Pursuant to a February 2013 agreement with the Dutch tax authorities, taxes on certain profits attributable to innovation have been reduced to an effective tax rate of 5% instead of the statutory rate of 25%. The agreement reduces the effective tax rate going forward, and includes retrospective application to the three-year period ended December 31, 2012. The amount reflected in the table includes adjustments to our tax liability attributable to the four-year period ended December 31, 2013.
|
The current and non-current components of our deferred tax assets and liabilities as of December 31, 2013 are as follows (in millions):
|
Current deferred tax assets
|
€
|
42.2
|
|
|
Non-current deferred tax liabilities
|
(125.0
|
)
|
|
|
Net deferred tax liability
|
€
|
(82.8
|
)
|
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of December 31, 2013 are presented below (in millions):
|
Deferred tax assets:
|
|||
|
Net operating losses
|
€
|
126.0
|
|
|
Property and equipment, net
|
52.4
|
|
|
|
Derivative instruments
|
7.3
|
|
|
|
Deferred tax assets
|
185.7
|
|
|
|
Valuation allowance
|
(0.8
|
)
|
|
|
Deferred tax assets, net of valuation allowance
|
184.9
|
|
|
|
Deferred tax liabilities:
|
|||
|
Intangible assets
|
(267.7
|
)
|
|
|
Deferred tax liabilities
|
(267.7
|
)
|
|
|
Net deferred tax liability
|
€
|
(82.8
|
)
|
We had €500.9 million of tax loss carryforwards and €126.0 million in related tax assets at December 31, 2013, which expire from 2015 though 2019.
We and the Dutch tax authorities have reached agreement on all income tax filings through 2009.
IV-31
ZIGGO N.V.
Notes to Consolidated Financial Statements
December 31, 2013
(8)
Shareholders’ Equity
Ziggo is incorporated as a public limited liability company under Dutch law. Our registered capital consists entirely of ordinary shares. The authorized capital is divided into 200 million shares of €1.00 nominal value each.
During 2013, we declared and paid dividends of €370.0 million, or €1.85 per share, of which €295.5 million was paid from additional paid-in capital.
As of December 31, 2013, 1,806 of our ordinary shares were held in treasury with a cost basis of €33 thousand.
(9)
Share-based Compensation
Our share-based compensation expense is related to performance-based restricted share units (PSUs) that have been granted to our employees under the below-described Long-Term Incentive Plan. In 2013, we recognized share-based compensation expense of €0.5 million associated with our PSUs, all of which was recognized as SG&A expense in our consolidated statement of income. The weighted average grant-date fair value of PSUs granted during 2013 was equal to €14.13 per PSU. Fair value is determined based on our share price on the grant date, adjusted downward for the effects of market conditions, the treatment of dividends during the vesting period and post-vesting restrictions on selling vested shares.
The following table provides certain information related to share-based compensation not yet recognized for share incentive awards as of December 31, 2013:
|
Total compensation expense not yet recognized (in millions)
|
€
|
0.8
|
|
|
Weighted average period remaining for expense recognition (in years)
|
1.5
|
|
|
Long-Term Incentive Plan
In 2012, our Supervisory Board authorized a Long-Term Incentive Plan (LTIP) as part of our remuneration policy, under which the members of the Board of Management are eligible to receive PSUs. Each PSU represents the right to receive one ordinary share of Ziggo, subject to meeting certain performance and market conditions and vesting criteria. Performance is measured on an annual basis based on the achievement of certain revenue, EBITDA (operating income plus depreciation and amortization), cash flow and customer satisfaction targets. The market condition is based on the relative performance of our share price as compared to a peer group. At the start of each calendar year, PSUs will be granted to our chief executive officer equal to 155% of his base salary and to the other members of the Board of Management equal to 140% of their base salaries. For 2013, the grant date was February 15. The allocation of shares based on the actual performance versus the targets can vary between 0% and 150%. Accordingly, based on the maximum potential allocation of 150% of the granted PSUs, the maximum number of PSUs awarded ranges between 210% and 232.5% of base salary divided by the grant date fair value of the performance share.
The PSUs vest over a three-year period commencing with the start of the performance period and provided that the member of the Board of Management is still employed by Ziggo. After vesting, the shares are subject to a one-year retention period, during which the shares may not be transferred, assigned to any third party, encumbered or otherwise disposed of, except to the extent necessary to settle any tax obligation resulting from the LTIP. The PSUs are not considered potential dilutive ordinary shares as we are required to repurchase shares in the open market in order to settle any vested PSUs.
See note 11 for the impacts to the LTIP upon the successful completion of the acquisition of our company by Liberty Global plc (Liberty Global).
IV-32
ZIGGO N.V.
Notes to Consolidated Financial Statements
December 31, 2013
Share-Based Award Activity
The following table summarizes the share-based award activity during the year ended December 31, 2013 with respect to our PSUs:
|
Number of
shares |
Weighted
average grant-date
fair value
per share
|
Weighted
average remaining contractual term |
|||||||
|
|
|
in years
|
|||||||
|
Outstanding at January 1, 2013
|
50,442
|
|
€
|
12.56
|
|
2
|
|
||
|
Performance and market adjustments
|
3,207
|
|
€
|
11.82
|
|
1
|
|
||
|
Granted
|
54,063
|
|
€
|
15.73
|
|
2
|
|
||
|
Outstanding at December 31, 2013
|
107,712
|
|
€
|
14.13
|
|
1.5
|
|
||
(10)
Commitments and Contingencies
Commitments
In the normal course of business, we have entered into agreements that commit us to make cash payments in future periods with respect to purchases of customer premises and other equipment, non-cancelable operating leases and programming contracts. Our commitments as of December 31, 2013 are presented below:
|
|
Payments due during:
|
|
|||||||||||||||||||||||||
|
|
2014
|
2015
|
2016
|
2017
|
2018
|
Thereafter
|
Total
|
||||||||||||||||||||
|
|
in millions
|
||||||||||||||||||||||||||
|
Purchase commitments
|
€
|
76.7
|
|
€
|
—
|
|
€
|
—
|
|
€
|
—
|
|
€
|
—
|
|
€
|
—
|
|
€
|
76.7
|
|
||||||
|
Operating leases
|
16.0
|
|
13.2
|
|
10.0
|
|
8.6
|
|
7.0
|
|
10.4
|
|
65.2
|
|
|||||||||||||
|
Programming commitments
|
31.2
|
|
10.9
|
|
3.9
|
|
—
|
|
—
|
|
—
|
|
46.0
|
|
|||||||||||||
|
Total (a)
|
€
|
123.9
|
|
€
|
24.1
|
|
€
|
13.9
|
|
€
|
8.6
|
|
€
|
7.0
|
|
€
|
10.4
|
|
€
|
187.9
|
|
||||||
_______________
|
(a)
|
The commitments reflected in this table do not reflect any liabilities that are included in our December 31, 2013 consolidated balance sheet.
|
Purchase commitments include unconditional purchase obligations associated with commitments to purchase customer premises and other equipment that are enforceable and legally binding on us.
Operating leases include leases for buildings, certain office equipment and vehicles and various maintenance and support contracts for the support of network equipment. Lease terms generally range from three to five years with the option of renewal for varying terms. Rental expense under non-cancelable operating lease arrangements amounted to €21.1 million during 2013. It is expected that in the normal course of business, operating leases that expire generally will be renewed or replaced by similar leases.
Programming commitments consist of obligations associated with certain of our programming 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 or (ii) whether we terminate service to a portion of our subscribers or dispose of a portion of our distribution systems. The amounts reflected in the table with respect to these contracts are significantly less than the amounts we expect to pay in these 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, our programming and copyright costs aggregated €177.1 million during 2013.
In addition to the commitments set forth in the table above, we have commitments under derivative instruments. Such amounts are not included in the above table because they are not fixed or determinable. For information concerning our derivative instruments, including the net cash paid or received in connection with these instruments during 2013, see note 3.
IV-33
ZIGGO N.V.
Notes to Consolidated Financial Statements
December 31, 2013
Guarantees and Other Credit Enhancements
In the ordinary course of business, we may provide indemnifications to our lenders, our vendors and certain other parties and performance and/or financial guarantees to local municipalities, our customers and vendors. Historically, these arrangements have not resulted in us making any material payments and we do not believe that they will result in material payments in the future.
Legal and Regulatory Proceedings and Other Contingencies
We have contingent liabilities related to matters arising in the ordinary course of business. While we generally expect that the amounts required to satisfy these contingencies will not materially differ from any estimated amounts we have accrued, no assurance can be given that the resolution of one or more of these contingencies will not result in a material impact on our income, cash flows or financial position in any given period. Due, in general, to the complexity of the issues involved and, in certain cases, the lack of a clear basis for predicting outcomes, we cannot provide a meaningful range of potential losses or cash outflows that might result from any unfavorable outcomes.
(11)
Subsequent Events
On January 27, 2014, we reached a conditional agreement (the “Merger Protocol”) on a recommended offer (the Offer) pursuant to which Liberty Global will acquire all of our shares that Liberty Global does not already own in a stock and cash transaction. After careful consideration, our Board of Management and Supervisory Board believe the Offer to be in the best interests of our company and stakeholders, including our shareholders, and have agreed to fully and unanimously support and recommend the Offer for acceptance to our shareholders. This potential change in ownership is still awaiting the acceptance of shareholders and approval by the requisite authorities. Based on the required steps and subject to the necessary approvals, we and Liberty Global anticipate that the Offer will close during the second half of 2014.
In relation to the Offer, we have refinanced our outstanding debt. The following steps have been taken since the announced offer on January 27, 2014:
|
•
|
The Revolving Credit Facility and the Facility A Loan have been refinanced through a senior debt Facility B1 Loan (the Facility B1 Loan) on February 26, 2014;
|
|
•
|
We have redeemed €678.0 million of the 3.625% Senior Secured Notes through a new senior debt Facility B2 Loan (the Facility B2 Loan) on February 27, 2014. The remainder of the 3.625% Senior Secured Notes are still outstanding;
|
|
•
|
The 6.125% Senior Secured Notes have been refinanced through the Facility B1 Loan on March 4, 2014;
|
|
•
|
We commenced an offer to exchange up to €934 million aggregate principal amount of the 8.0% Senior Notes. As of the February 24, 2014 closing date of the exchange offer, an aggregate principal amount of €743 million has been validly tendered and accepted. The exchanged principal amount and the outstanding principal amount post exchange have been deposited in an escrow account until successful completion of the Offer. Upon closing of the Offer, new 2024 Notes will be issued by Liberty Global and the remainder of the current outstanding amount for the 8.0% Senior Notes will be called and refinanced through a Facility B3 Loan (the Facility B3 Loan).
|
|
•
|
The U.S. dollar exposure and variable interest rate exposure on the Facility Loans, as defined below, have been hedged as of March 6, 2014. The mark-to-market positions for all interest rate hedges, including the forward rate hedges, which were outstanding as of December 31, 2013, have been settled for cash.
|
The Facility B1 Loan, Facility B2 Loan and Facility B3 Loan (collectively, the Facility Loans) have a duration of 8 years and are composed of a euro and U.S. dollar component. The euro components have an interest rate of EURIBOR plus a margin of 2.75% to 3.00%, depending on our leverage. The U.S. dollar components have an interest rate of LIBOR plus a margin of 2.50% to 2.75%, depending on our leverage. Both the EURIBOR and LIBOR components have a floor of 0.75%.
Also in relation to the Offer, we and Liberty Global have agreed that PSUs granted under the LTIP in 2012 and 2013, as well as any PSU grants in 2014 and 2015, will be cancelled upon successful completion of the Offer, without any compensation being due to the relevant person, provided that:
|
•
|
50% of the PSUs granted in 2012 and 2013 will be treated as if they had vested upon successful completion of the Offer in respect of which the members of the Board of Management, and former members of the Board of Management and
|
IV-34
ZIGGO N.V.
Notes to Consolidated Financial Statements
December 31, 2013
the other participants, will be entitled to the consideration provided by the Offer as if those persons had tendered those vested shares under the Offer; and
|
•
|
Liberty Global shall or shall ensure that the relevant subsidiary of the Liberty Global group, shall, subject to the Liberty Global 2014 Incentive Plan, replace 100% of the PSUs granted in 2014.
|
IV-35
EXHIBIT INDEX
|
2 -- Plan of acquisition, reorganization, arrangement, liquidation or succession:
|
||
|
2.1
|
|
Agreement and Plan of Merger, dated as of February 5, 2013, among Virgin Media Inc. (Virgin Media), Liberty Global, Inc. (LGI), Lynx Europe Limited, Lynx US MergerCo 1 LLC, Lynx US MergerCo 2 LLC, Viper US MergerCo 1 LLC and Viper US MergerCo 2 LLC (incorporated by reference to Exhibit 2.1 to LGI’s Current Report on Form 8-K filed February 7, 2013 (File No. 000-51360)).
|
|
2.2
|
|
Amendment No. 1, dated as of March 6, 2013, to the Agreement and Plan of Merger, dated as of February 5, 2013, among LGI, Virgin Media, Liberty Global Corporation Limited (formerly named Lynx Europe Limited), Lynx US MergerCo 1 LLC, Lynx US MergerCo 2 LLC, Viper US MergerCo 1 LLC and Viper US MergerCo 2 LLC (incorporated by reference to Exhibit 2.1 to LGI’s Current Report on Form 8-K filed March 8, 2013 (File No. 000-51360)).
|
|
3 -- Articles of Incorporation and Bylaws:
|
||
|
3.1
|
|
Articles of Association of Liberty Global plc, adopted by Special Resolutions passed on May 30, 2013 (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed June 7, 2013 (File No. 001-35961) (the June 7, 2013 8-K)).
|
|
4 -- Instruments Defining the Rights of Securities Holders, including Indentures:
|
||
|
4.1
|
|
Deed of Amendment and Restatement, dated May 10, 2006, among UPC Broadband Holding BV (UPC Broadband Holding) and UPC Financing Partnership (UPC Financing) as Borrowers, the guarantors listed therein, and the Senior Hedging Banks listed therein, with Toronto Dominion (Texas) LLC as Facility Agent, and TD Bank Europe Limited as Existing Security Agent, amending and restating the senior secured credit agreement originally dated January 16, 2004, as amended and restated from time to time among the Borrower, the guarantors as defined therein, the Facility Agent and the Security Agent and the bank and financial institutions acceding thereto from time to time (the UPC Broadband Holding Bank Facility) (incorporated by reference to Exhibit 4.4 to LGI’s Annual Report on Form 10-K filed February 22, 2012 (File No. 000-51360) (the LGI 2011 10-K)).
|
|
4.2
|
|
Amendment Letter dated June 9, 2009, among UPC Broadband Holding and UPC Financing as Borrowers, Toronto Dominion (Texas) LLC, as Facility Agent, and the guarantors listed therein to the UPC Broadband Holding Bank Facility (incorporated by reference to Exhibit 4.1 to LGI’s Current Report on Form 8-K filed June 10, 2009 (File No. 000-51360)).
|
|
4.3
|
|
Additional Facility V Accession Agreement, dated January 20, 2010, among UPC Financing as Borrower, UPC Broadband Holding, Toronto Dominion (Texas) LLC as Facility Agent, TD Bank Europe Limited as Security Agent, and UPCB Finance Limited as an Additional Facility V Lender, under the UPC Broadband Holding Bank Facility (incorporated by reference to Exhibit 4.4 to the LGI’s Current Report on Form 8-K filed January 21, 2010 (File No. 000-51360)).
|
|
4.4
|
|
Indenture dated January 31, 2011, among UPCB Finance II Limited, The Bank of New York Mellon as trustee, registrar, transfer agent, principal paying agent and security agent (incorporated by reference to Exhibit 4.1 to LGI’s Current Report on Form 8-K filed February 1, 2011 (File No. 000-51360) (the LGI January 2011 8-K)).
|
|
4.5
|
|
Additional Facility Y Accession Agreement, dated January 31, 2011, among UPC Financing as Borrower, UPC Broadband Holding, The Bank of Nova Scotia as Facility Agent and Security Agent and UPCB Finance II Limited as an Additional Facility Y Lender, under the UPC Broadband Holding Bank Facility (incorporated by reference to Exhibit 4.2 to the LGI January 2011 8-K).
|
|
4.6
|
|
Indenture dated February 16, 2011, among UPCB Finance III Limited, The Bank of New York Mellon as trustee, registrar, transfer agent, principal paying agent and security agent, and The Bank of New York Mellon, London Branch, as Transparency Directive Agent (incorporated by reference to Exhibit 4.1 to LGI’s Current Report on Form 8-K filed February 17, 2011 (File No. 000-51360) (the LGI February 2011 8-K)).
|
|
4.7
|
|
Additional Facility Z Accession Agreement, dated February 16, 2011, among UPC Financing as Borrower, UPC Broadband Holding, The Bank of Nova Scotia as Facility Agent and Security Agent and UPCB Finance III Limited as an Additional Facility Z Lender, under the UPC Broadband Holding Bank Facility (incorporated by reference to Exhibit 4.2 to the LGI February 2011 8-K).
|
|
4.8
|
|
Additional Facility AC Accession Agreement, dated November 16, 2011, among UPC Financing Partnership, as Borrower, UPC Broadband Holding BV, The Bank of Nova Scotia, as Facility Agent and Security Agent, and UPCB Finance V Limited, as an Additional Facility AC Lender, under the UPC Broadband Holding Bank Facility (incorporated by reference to Exhibit 4.47 to the LGI 2011 10-K).
|
|
4.9
|
|
Additional Facility AD Accession Agreement, dated February 7, 2012, among UPC Financing Partnership, as Borrower, UPC Broadband Holding BV, The Bank of Nova Scotia, as Facility Agent and Security Agent, and UPCB Finance VI Limited, as an Additional Facility AD Lender, under the UPC Broadband Holding Bank Facility (incorporated by reference to Exhibit 4.48 to the LGI 2011 10-K).
|
|
4.10
|
|
Additional Facility AG Accession Agreement, dated March 26, 2013, among UPC Financing Partnership as Borrower, The Bank of Nova Scotia as Facility Agent and Security Agent and Liberty Global Services B.V. as Additional Facility AG Lender, under the UPC Broadband Holding Bank Facility (incorporated by reference to Exhibit 4.1 to LGI’s Current Report on Form 8-K filed March 28, 2013 (File No. 000-51360)).
|
|
4.11
|
|
Additional Facility AH Accession Agreement, dated April 19, 2013, among UPC Financing Partnership, The Bank of Nova Scotia as Facility Agent and Security Agent and Liberty Global Services B.V. as Additional Facility AH Lender, under the UPC Broadband Holding Bank Facility (incorporated by reference to Exhibit 4.1 to LGI’s Current Report on Form 8-K filed April 23, 2013) (File No. 000-51360)).
|
|
4.12
|
|
Additional Facility AG1 Accession Agreement, dated April 29, 2013, among UPC Financing Partnership as Borrower, The Bank of Nova Scotia as Facility Agent and Security Agent and Liberty Global Services B.V. as Additional Facility AG1 Lender, under the UPC Broadband Holding Bank Facility (incorporated by reference to Exhibit 4.1 to LGI’s Current Report on Form 8-K filed May 2, 2013 (File No. 000-51360)).
|
|
4.13
|
|
Additional Facility AI Accession Agreement, dated May 14, 2013, among UPC Financing Partnership, The Bank of Nova Scotia as Facility Agent and Security Agent and each of the Additional Facility AI Lenders listed in Schedule 1 thereto, under the UPC Broadband Holding Bank Facility (incorporated by reference to Exhibit 4.2 to LGI’s Current Report on Form 8-K filed May 16, 2013 (File No. 000-51360)).
|
|
4.14
|
|
Additional Facility AI2 Accession Agreement, dated November 19, 2014, among UPC Financing Partnership, The Bank of Nova Scotia as Facility Agent and Security Agent and the Additional Facility AI Lender listed in Schedule 1 thereto, under the UPC Broadband Holding Bank Facility (incorporated by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K filed November 21, 2014 (File No. 001-35961)).
|
|
4.15
|
|
Amendment and Restatement Letter dated October 15, 2013, among The Bank of Nova Scotia, as Facility Agent, UPC Broadband Holding B.V., UPC Financing Partnership, as Borrowers, and the Guarantors listed therein (incorporated by reference to Exhibit 4.1 to LGI’s Current Report on Form 8-K filed October 21, 2013 (File No. 001-35961)).
|
|
4.16
|
|
€2,300,000,000 Credit Agreement, originally dated August 1, 2007, and as amended and restated by supplemental agreements dated August 22, 2007, September 11, 2007, October 8, 2007 and June 23, 2009, among Telenet Bidco NV (now known as Telenet NV) as Borrower, Toronto Dominion (Texas) LLC as Facility Agent, the parties listed therein as Original Guarantors, ABN AMRO Bank N.V., BNP Paribas S.A. and J.P. Morgan PLC as Mandated Lead Arrangers, KBC Bank NV as Security Agent, and the financial institutions listed therein as Initial Original Lenders (the Telenet Credit Facility) (incorporated by reference to Exhibit 4.1 to LGI’s Current Report on Form 8-K filed June 26, 2009 (File No. 000-51360) (the LGI June 2009 8-K)).
|
|
4.17
|
|
Supplemental Agreement dated June 23, 2009, between Telenet Bidco NV (now known as Telenet NV) and Toronto Dominion (Texas) LLC as Facility Agent relating to the Telenet Credit Facility (incorporated by reference to Exhibit 4.2 to the LGI June 2009 8-K).
|
|
4.18
|
|
Supplemental Agreement to the Telenet Credit Facility, dated October 4, 2010, among, inter alia, Telenet NV as Guarantor, and Security Provider and The Bank of Nova Scotia as Facility Agent (incorporated by reference to Exhibit 4.8 to LGI’s Current Report on Form 8-K filed October 8, 2010 (File No. 000-51360)).
|
|
4.19
|
|
Additional Facility M Accession Agreement, dated November 3, 2010, among, inter alia, Telenet International as Borrower, Telenet NV and Telenet International as Guarantors, The Bank of Nova Scotia as Facility Agent, KBC Bank NV as Security Agent and Telenet Finance Luxembourg S.C.A. as an additional Facility M Lender, under the Telenet Credit Facility (incorporated by reference to Exhibit 4.50 to LGI’s Annual Report on Form 10-K filed February 24, 2011 (File No. 000-51360) (the LGI 2010 10-K)).
|
|
4.20
|
|
Additional Facility O Accession Agreement, dated February 15, 2011, among, inter alia, Telenet International as Borrower, Telenet NV and Telenet International as Guarantors, The Bank of Nova Scotia as Facility Agent, KBC Bank NV as Security Agent and Telenet Finance III Luxembourg S.C.A. as an additional Facility O Lender, under the Telenet Credit Facility (incorporated by reference to Exhibit 4.52 to the LGI 2010 10-K).
|
|
4.21
|
|
Telenet Additional Facility P Accession Agreement, dated June 15, 2011, among, inter alia, Telenet International as Borrower, Telenet NV and Telenet International as Guarantors, The Bank of Nova Scotia as Facility Agent, KBC Bank NV as Security Agent and Telenet Luxembourg Finance Center S.â.r.l. as an additional Facility Q Lender, under the Telenet Credit Facility (incorporated by reference to Exhibit 4.1 to LGI’s Quarterly Report on Form 10-Q filed August 2, 2011 (File No. 000-51360)).
|
|
4.22
|
|
Telenet Additional Facility S Accession Agreement, dated July 29, 2011, among, inter alia, Telenet International as Borrower, Telenet NV and Telenet International as Guarantors, The Bank of Nova Scotia as Facility Agent, KBC Bank NV as Security Agent and the financial institutions listed therein as additional Facility S Lenders, under the Telenet Credit Facility (incorporated by reference to Exhibit 4.1 to LGI’s Current Report on Form 8-K filed July 29, 2011 (File No. 000-51360)).
|
|
4.23
|
|
Telenet Additional Facility U Accession Agreement, dated August 16, 2012, among, inter alia, Telenet International as Borrower, Telenet NV and Telenet International as Guarantors, The Bank of Nova Scotia as Facility Agent, KBC Bank NV as Security Agent and the financial institutions listed therein as additional Facility U Lenders, under the Telenet Credit Facility (incorporated by reference to Exhibit 4.2 to LGI’s Quarterly Report on Form 10-Q filed November 5, 2012 (File No. 000-51360) (the LGI November 5, 2012 10-Q)).
|
|
4.24
|
|
Telenet Additional Facility V Accession Agreement, dated August 16, 2012, among, inter alia, Telenet International as Borrower, Telenet NV and Telenet International as Guarantors, The Bank of Nova Scotia as Facility Agent, KBC Bank NV as Security Agent and the financial institutions listed therein as additional Facility V Lenders, under the Telenet Credit Facility (incorporated by reference to Exhibit 4.3 to the LGI November 5, 2012 10-Q).
|
|
4.25
|
|
Telenet Additional Facility W Accession Agreement, dated April 9, 2014, among, inter alia, Telenet International as Borrower, Telenet NV and Telenet International as Guarantors, The Bank of Nova Scotia as Facility Agent, KBC Bank NV as Security Agent and the financial institutions listed therein as Additional Facility W Lenders, under the Telenet Credit Facility (incorporated by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K filed April 15, 2014 (File No.001-35961) (the April 15, 2014 8-K)).
|
|
4.26
|
|
Telenet Additional Facility Y Accession Agreement, dated April 9, 2014, among, inter alia, Telenet International as Borrower, Telenet NV and Telenet International as Guarantors, The Bank of Nova Scotia as Facility Agent, KBC Bank NV as Security Agent and the financial institutions listed therein as Additional Facility Y Lenders, under the Telenet Credit Facility (incorporated by reference to Exhibit 4.2 to the April 15, 2014 8-K).
|
|
4.27
|
|
Telenet Additional Facility X Accession Agreement, dated April 11, 2014, among, inter alia, Telenet International as Borrower, Telenet NV and Telenet International as Guarantors, The Bank of Nova Scotia as Facility Agent, KBC Bank NV as Security Agent and the financial institutions listed therein as Additional Facility X Lenders, under the Telenet Credit Facility (incorporated by reference to Exhibit 4.3 to the April 15, 2014 8-K).
|
|
4.28
|
|
Senior Indenture dated May 4, 2012, between Unitymedia GmbH, The Bank of New York Mellon, London Branch and Credit Suisse, London Branch (relating to the UM Senior Exchange Notes) (incorporated by reference to Exhibit 4.2 to LGI’s Current Report on Form 8-K filed May 8, 2012 (File No. 000-51360)).
|
|
4.29
|
|
Indenture dated December 17, 2014 between Unitymedia Hessen GmbH & Co. KG, Unitymedia NRW GmbH, The Bank of New York Mellon, London Branch, as trustee, transfer agent and principal paying agent, The Bank of New York Mellon as New York paying agent and New York transfer agent, The Bank of New York Mellon (Luxembourg) S.A. as registar and Credit Suisse AG, London Branch, as security trustee (incorporated by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K/A filed December 18, 2014 (File No. 001-35961)).
|
|
4.30
|
|
Indenture for 6.50% Convertible Senior Notes due 2016, dated as of April 16, 2008, between Virgin Media Inc. and The Bank of New York, as trustee (including form of 6.50% Convertible Senior Note due 2016) (incorporated by reference to Exhibit 4.1 to Virgin Media’s Current Report on Form 8-K filed on April 16, 2008 (File No. 000-50886) (the Virgin Media April 2008 8-K)).
|
|
4.31
|
|
Registration Rights Agreement for 6.50% Convertible Senior Notes due 2016, dated as of April 16, 2008, between Virgin Media and Goldman, Sachs & Co., Deutsche Bank Securities Inc. and J.P. Morgan Securities Inc. (incorporated by reference to Exhibit 4.2 to the Virgin Media April 2008 8-K).
|
|
4.32
|
|
Supplemental Indenture, dated as of June 7, 2013, among Liberty Global plc, Viper US MergerCo 1 Corp. (now known as Virgin Media) and The Bank of New York Mellon, as Trustee, to the Indenture dated as of April 16, 2008 for 6.50% Convertible Senior Notes due 2016 (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed June 12, 2013 (File No. 001-35961) (the June 12, 2013 8-K)).
|
|
4.33
|
|
Second Supplemental Indenture, dated as of March 3, 2014, among Virgin Media Inc., the Registrant and the Bank of New York Mellon as trustee to the Indenture, dated as of April 16, 2008, as amended and supplemented, for the Virgin Media 6.5% Convertible Senior Notes due 2016 (incorporated by reference to Exhibit 4.4 to the Registrant’s Quarterly Report on Form 10-Q filed May 6, 2014 (File No. 001-35961) (the May 6, 2014 10-Q)).
|
|
4.34
|
|
Registration Agreement dated as of March 14, 2014, by and between the Registrant and Inversiones Corp Comm 2 SpA (incorporated by reference to Exhibit 4.2 to the Registrant’s Registration Statement on Form S-3 filed March 14, 2014 (File No. 333-194555)).
|
|
4.35
|
|
Indenture, dated as of March 3, 2011, among Virgin Media Secured Finance PLC, the guarantors party thereto, The Bank of New York Mellon as trustee and paying agent and The Bank of New York Mellon (Luxembourg) S.A. as Luxembourg paying agent (incorporated by reference to Exhibit 4.1 to Virgin Media’s Current Report on Form 8-K filed on March 3, 2011 (File No. 000-50886)).
|
|
4.36
|
|
Indenture dated February 22, 2013, between, among others, Lynx I Corp., as issuer, The Bank of New York Mellon, London Branch, as trustee, transfer agent and principal paying agent and The Bank of New York Mellon, as paying agents and Newco security trustee (incorporated by reference to Exhibit 4.1 to LGI’s Current Report on Form 8-K/A filed February 27, 2013 (File No. 000-51360) (the LGI February 2013 8-K/A)).
|
|
4.37
|
|
Indenture, dated as of February 22, 2013, among Lynx II Corp., as issuer, The Bank of New York Mellon, London Branch, as trustee, transfer agent and principal paying agent and The Bank of New York Mellon, as paying agents and Newco security trustee (incorporated by reference to Exhibit 4.2 to the LGI February 2013 8-K/A).
|
|
4.38
|
|
First Supplemental Indenture, dated as of June 7, 2013, between, among others, Virgin Media Secured Finance PLC, Virgin Media and The Bank of New York Mellon as trustee, to the Indenture dated as of March 3, 2011 for Virgin Media 5.25% Senior Secured Notes and 5.50% Senior Secured Notes each due 2021 (incorporated by reference to Exhibit 4.12 to the June 12, 2013 8-K).
|
|
4.39
|
|
Accession Agreement, dated as of June 7, 2013, among Virgin Media Secured Finance PLC, as acceding issuer, Lynx I Corp. and The Bank of New York Mellon, as trustee (incorporated by reference to Exhibit 4.13 to the June 12, 2013 8-K).
|
|
4.40
|
|
First Supplemental Indenture, dated as of June 7, 2013, between, among others, Virgin Media Secured Finance PLC and The Bank of New York Mellon, as trustee, to the Indenture dated as of February 22, 2013 for Lynx I Corp. 5⅜% Senior Secured Notes and 6.00% Senior Secured Notes each due 2021 (incorporated by reference to Exhibit 4.15 to the June 12, 2013 8-K).
|
|
4.41
|
|
Accession Agreement, dated as of June 7, 2013, among Lynx II Corp., Virgin Media Finance PLC and The Bank of New York Mellon, as trustee and paying agent (incorporated by reference to Exhibit 4.16 to the June 12, 2013 8-K).
|
|
4.42
|
|
First Supplemental Indenture, dated June 7, 2013, between, among others, Virgin Media Finance PLC, Virgin Media and The Bank of New York Mellon, as trustee and paying agent, to the Indenture dated as of February 22, 2013 Lynx II Corp. 6⅜% Senior Notes and 7.00% Senior Notes each due 2023 (incorporated by reference to Exhibit 4.19 to the June 12, 2013 8-K).
|
|
4.43
|
|
Senior Facilities Agreement, dated as of June 7, 2013, among, among others, Virgin Media Finance PLC, certain other subsidiaries of Virgin Media and the lenders thereto (the VMF Senior Facilities Agreement) (incorporated by reference to Exhibit 4.19 to the June 12, 2013 8-K).
|
|
4.44
|
|
Amendment, dated June 14, 2013, to the Senior Facilities Agreement, between, among others, Virgin Media Investment Holdings Limited, certain other subsidiaries of Virgin Media and the lenders thereto (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed June 21, 2013 (File No. 001-35961)).
|
|
4.45
|
|
Virgin Additional Facility D Accession Agreement, dated April 17, 2014, among, inter alia, Virgin Media SFA Finance Limited as Borrower, certain other subsidiaries of Virgin Media, The Bank of Nova Scotia as Facility Agent and the financial institutions listed therein as Additional Facility D Lenders, under the VMF Senior Facilities Agreement (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed April 23, 2014 (File No. 001-35961) (the April 23, 2014 8-K)).
|
|
4.46
|
|
Virgin Additional Facility E Accession Agreement, dated April 17, 2014, among, inter alia, Virgin Media SFA Finance Limited as Borrower, certain other subsidiaries of Virgin Media, The Bank of Nova Scotia as Facility Agent and the financial institutions listed therein as Additional Facility E Lenders, under the VMF Senior Facilities Agreement (incorporated by reference to Exhibit 4.2 to the April 23, 2014 8-K).
|
|
4.47
|
|
Indenture dated March 28, 2014 between Virgin Media Secured Finance PLC, The Bank of New York Mellon, London Branch, as trustee, transfer agent and principal paying agent, The Bank of New York Mellon as paying agent, and The Bank of New York Mellon (Luxembourg) S.A., as registrar (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K/A filed April 3, 2014 (File No. 001-35961)).
|
|
4.48
|
|
Indenture dated January 28, 2015 between Virgin Media Secured Finance PLC, The Bank of New York Mellon, London Branch, as trustee and paying agent and The Bank of New York Mellon (Luxembourg) S.A., as registrar and transfer agent (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K/A filed February 3, 2015 (File No. 001-35961) (the February 3, 2015 8-K/A)).
|
|
4.49
|
|
Indenture dated January 28, 2015 between Virgin Media Finance PLC, The Bank of New York Mellon, London Branch, as trustee and principal paying agent, The Bank of Mellon as paying agent and Dollar Notes transfer agent and registrar and The Bank of New York Mellon (Luxembourg) S.A., as Euro Notes registrar and transfer agent (incorporated by reference to Exhibit 4.2 to the February 3, 2015 8-K/A).
|
|
4.50
|
|
Registration Rights Agreement dated November 18, 2009, between the Registrant, SPO Partners II, L.P. and San Francisco Partners, L.P. (incorporated by reference to Exhibit 4.2 to LGI’s Current Report on Form 8-K/A filed November 19, 2009 (File No. 000-51360)).
|
|
4.51
|
|
Indenture dated January 24, 2014, between VTR Finance B.V., the Bank of New York Mellon, London Branch, as trustee and security agent, and the Bank of New York Mellon as paying agent, registrar and transfer agent (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed January 24, 2014 (File No. 001-35961)).
|
|
4.52
|
|
Indenture dated January 29, 2015 between Ziggo Bond Finance B.V., Deutsche Trustee Company Limited as trustee and security trustee, Deutsche Bank Trust Company Americas as Dollar Notes paying agent, registrar and transfer agent, Deutsche Bank AG London Branch as Euro Notes paying agent and Deutsche Bank Luxembourg S.A. as Euro Notes registrar and transfer agent (incorporated by reference to Exhibit 4.3 to the February 3, 2015 8-K/A).
|
|
4.53
|
|
Indenture dated February 4, 2015 between Ziggo Secured Finance B.V., Deutsche Trustee Company Limited as trustee and security trustee, Deutsche Bank AG London Branch as paying agent and Deutsche Bank Luxembourg S.A. as registrar and transfer agent (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K/A filed February 10, 2015 (File No. 001-35961)).
|
|
4.54
|
|
Senior Facilities Agreement, dated January 27, 2014, as amended and restated by a Supplemental Agreement dated February 10, 2014, between, among others, Amsterdamse Beheer-En Consultingmaatschappij B.V., Ziggo B.V., certain subsidiaries of Ziggo, Bank of America Merrill Lynch International Limited and Credit Suisse AG, London Branch as global coordinators, and the other lenders thereto (the Ziggo Senior Facilities Agreement).*
|
|
4.55
|
|
The Registrant undertakes to furnish to the Securities and Exchange Commission, upon request, a copy of all instruments with respect to long-term debt not filed herewith.
|
|
10 -- Material Contracts:
|
||
|
10.1
|
|
Deed of Assumption of Liberty Global plc, dated June 7, 2013 (incorporated by reference to Exhibit 10.1 to the June 7, 2013 8-K).
|
|
10.2
|
|
Liberty Global 2014 Incentive Plan (Effective March 1, 2014) (the Incentive Plan) (incorporated by reference to Appendix A to the Registrant’s Proxy Statement on Schedule 14A filed December 19, 2013 (File No. 001-35961) (the 2013 Proxy Statement)).
|
|
10.3
|
|
Liberty Global 2014 Nonemployee Director Incentive Plan (Effective March 1, 2014) (the Director Plan) (incorporated by reference to Appendix B to the 2013 Proxy Statement).
|
|
10.4
|
|
Form of Performance Share Units Agreement under the Incentive Plan (incorporated by reference to Exhibit 10.6 to the May 6, 2014 10-Q).
|
|
10.5
|
|
Form of Non-Qualified Share Option Agreement under the Director Plan (incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q filed August 5, 2014 (File No. 001-35961) (the August 5, 2014 10-Q)).
|
|
10.6
|
|
Form of Restricted Share Units Agreement under the Director Plan (incorporated by reference to Exhibit 10.4 to the August 5, 2014 10-Q).
|
|
10.7
|
|
Form of Share Appreciation Rights Agreement under the Incentive Plan (incorporated by reference to Exhibit 10.5 to the August 5, 2014 10-Q).
|
|
10.8
|
|
Form of Restricted Share Units Agreement under the Incentive Plan (incorporated by reference to Exhibit 10.6 to the August 5, 2014 10-Q).
|
|
10.9
|
|
Liberty Global, Inc. 2005 Incentive Plan (as amended and restated effective June 7, 2013) (the 2005 Incentive Plan) (incorporated by reference to Exhibit 10.2 to the June 7, 2013 8-K).
|
|
10.10
|
|
Liberty Global, Inc. 2005 Nonemployee Director Incentive Plan (as amended and restated effective June 7, 2013) (the 2005 Director Plan) (incorporated by reference to Exhibit 10.3 to the June 7, 2013 8-K).
|
|
10.11
|
|
Virgin Media 2010 Stock Incentive Plan (as amended and restated effective June 7, 2013) (incorporated by reference to Exhibit 10.4 to the June 7, 2013 8-K).
|
|
10.12
|
|
Form of Non-Qualified Share Option Agreement under the 2005 Director Plan (incorporated by reference to Exhibit 10.6 to the Registrant’s Quarterly Report on Form 10-Q filed August 1, 2013 (File No. 001-35961) (the August 1, 2013 10-Q)).
|
|
10.13
|
|
Liberty Global Compensation Policy for Nonemployee Directors effective June 26, 2014 (incorporated by reference to Appendix A to the Registrant’s Proxy Statement on Schedule 14A filed April 30, 2014 (File No. 001-35961)).
|
|
10.14
|
|
Form of Deed of Indemnity between Liberty Global and its Directors and Executive Officers (incorporated by reference to Exhibit 10.10 to the June 7, 2013 8-K).
|
|
10.15
|
|
Form of the Non-Qualified Stock Option Agreement under the 2005 Incentive Plan (incorporated by reference to Exhibit 10.2 to the LGI 2010 10-K).
|
|
10.16
|
|
Form of Stock Appreciation Rights Agreement under the 2005 Incentive Plan (incorporated by reference to Exhibit 10.3 to LGI’s Quarterly Report on Form 10-Q filed May 7, 2008 (File No. 000-51360) (the LGI May 7, 2008 10-Q)).
|
|
10.17
|
|
Form of Restricted Shares Agreement under the 2005 Incentive Plan (incorporated by reference to Exhibit 10.4 to the LGI 2010 10-K).
|
|
10.18
|
|
Form of Restricted Share Units Agreement under the 2005 Incentive Plan (incorporated by reference to Exhibit 10.1 to the LGI May 7, 2008 10-Q).
|
|
10.19
|
|
Form of Restricted Shares Agreement under the 2005 Director Plan (incorporated by reference to Exhibit 10.8 to the LGI 2011 10-K).
|
|
10.20
|
|
Form of Restricted Share Units Agreement under the 2005 Director Plan (incorporated by reference to Exhibit 10.2 to LGI’s Quarterly Report on Form 10-Q filed August 4, 2009 (File No. 000-51360)).
|
|
10.21
|
|
Liberty Global Challenge Performance Award Program for executive officers under the 2005 Incentive Plan (description of said program is incorporated by reference to the description thereof included in Item 5.02(e) of the Registrant’s Current Report on Form 8-K filed June 28, 2013 (File No. 001-35961)).
|
|
10.22
|
|
Form of Performance Share Appreciation Rights Agreement under the 2005 Incentive Plan (incorporated by reference to Exhibit 10.5 to the August 1, 2013 10-Q).
|
|
10.23
|
|
Liberty Global 2014 Annual Cash Performance Award Program for executive officers under the Incentive Plan (description of said program is incorporated by reference to the description thereof included in Item 5.02(e) of the Registrant’s Current Report on Form 8-K filed April 4, 2014 (File No. 001-35961) (the April 4, 2014 8-K)).
|
|
10.24
|
|
Liberty Global 2014 Performance Incentive Plan for executive officers under the Incentive Plan (a description of said plan is incorporated by reference to the description thereof included in Item 5.02(e) of the April 4, 2014 8-K).
|
|
10.25
|
|
Liberty Global, Inc. 2013 Annual Cash Performance Award Program for executive officers under the Incentive Plan (description of said program is incorporated by reference to the description thereof included in Item 5.02(e) of the LGI’s Current Report on Form 8-K filed April 4, 2013 (File No. 000-51360) (the April 4, 2013 8-K)).
|
|
10.26
|
|
Liberty Global, Inc. 2013 Performance Incentive Plan for executive officers under the 2005 Incentive Plan (a description of said plan is incorporated by reference to the description thereof included in Item 5.02(e) of the April 4, 2013 8-K).
|
|
10.27
|
|
Form of Performance Share Units Agreement under the 2005 Incentive Plan (incorporated by reference to Exhibit 10.5 to LGI’s Quarterly Report on Form 10-Q filed May 4, 2011 (file No. 000-51360) (the LGI May 4, 2011 10-Q)).
|
|
10.28
|
|
Form of Share Grant and Restricted Shares Award in Settlement of Performance Share Units Agreement under the 2005 Incentive Plan (incorporated by reference to Exhibit 10.18 to LGI’s Annual Report on Form 10-K/A filed February 13, 2013 (File No. 000-51360) (the LGI 2012 10-K)).
|
|
10.29
|
|
Deferred Compensation Plan (adopted effective December 15, 2008; Amended and Restated as of January 1, 2013) (incorporated by reference to Exhibit 10.19 to the LGI 2012 10-K).
|
|
10.30
|
|
Form of Deferral Election Form under the Deferred Compensation Plan (incorporated by reference to Exhibit 10.20 to the LGI 2012 10-K).
|
|
10.31
|
|
Nonemployee Director Deferred Compensation Plan (As Amended and Restated Effective December 14, 2013) (incorporated by reference to Exhibit 10.25 to the 2013 10-K).
|
|
10.32
|
|
Form of Deferral Election Form under the Nonemployee Director Deferred Compensation Plan (incorporated by reference to Exhibit 10.26 to the 2013 10-K).
|
|
10.33
|
|
Personal Usage of Aircraft Policy, amended and restated (incorporated by reference to Exhibit 10.7 to the LGI May 4, 2011 10-Q).
|
|
10.34
|
|
Form of Aircraft Time Sharing Agreement (900EX) (incorporated by reference to Exhibit 10.29 to the LGI 2012 10-K).
|
|
10.35
|
|
Form of Aircraft Time Sharing Agreement (7X) (incorporated by reference to Exhibit 10.30 to the LGI 2012 10-K).
|
|
10.36
|
|
Employment Agreement dated as of April 30, 2014, by and among the Registrant, LGI and Michael T. Fries (incorporated by reference to Exhibit 10.7 to the May 6, 2014 10-Q).
|
|
10.37
|
|
Form of Performance Grant Award Agreement under the Incentive Plan dated as of April 30, 2014, between the Registrant and Michael T. Fries (incorporated by reference to Exhibit 10.8 to the May 6, 2014 10-Q).
|
|
10.38
|
|
Executive Service Agreement, dated December 15, 2004, between UPC Services Limited and Charles Bracken (incorporated by reference to Exhibit 10.36 to LGI’s Annual Report on Form 10-K filed February 24, 2010) (File No. 000-51360)).
|
|
10.39
|
|
Executive Services Agreement effective January 1, 2011, between Liberty Global Europe BV and Diederik Karsten (incorporated by reference to Exhibit 10.45 to the LGI 2010 10-K).
|
|
10.40
|
|
Trade Mark Licence, dated as of April 3, 2006, between Virgin Enterprises Limited and NTL Group Limited (incorporated by reference to Exhibit 10.2 to Virgin Media’s Quarterly Report on Form 10-Q filed on August 9, 2006 (File No. 000-50886)).
|
|
10.41
|
|
Amendment Letter No. 1, dated February 8, 2007, to the Trade Mark Licence between Virgin Enterprises Limited and Virgin Media Limited dated April 3, 2006 (incorporated by reference to Exhibit 10.5 to Virgin Media’s Quarterly Report on Form 10-Q filed on August 8, 2007 (File No. 000-50886)).
|
|
10.42
|
|
Amendment Letter No. 2, dated October 1, 2007, to the Trade Mark Licence between Virgin Enterprises Limited and Virgin Media Limited dated April 3, 2006 (incorporated by reference to Exhibit 10.6 to Virgin Media’s Quarterly Report on form 10-Q filed on November 8, 2007 (File No. 000-50886)).
|
|
10.43
|
|
Trade Mark Licence between Virgin Enterprises Limited and Virgin Media Limited dated December 16, 2009 (incorporated by reference to Exhibit 10.83 to Virgin Media’s Annual Report on Form 10-K filed on February 26, 2010 (File No. 000-50886)).
|
|
10.44
|
|
Merger Protocol dated January 27, 2014, among LGE Holdco VII B.V., Ziggo N.V. and the Registrant (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed January 31, 2014 (File No. 001-35961)).
|
|
21 -- List of Subsidiaries*
|
||
|
23 -- Consent of Experts and Counsel:
|
||
|
23.1
|
|
Consent of KPMG LLP*
|
|
23.2
|
|
Consent of Ernst & Young Accountants LLP*
|
|
31 -- Rule 13a-14(a)/15d-14(a) Certification:
|
||
|
31.1
|
|
Certification of President and Chief Executive Officer*
|
|
31.2
|
|
Certification of Senior Vice President and Co-Chief Financial Officer (Principal Financial Officer)*
|
|
31.3
|
|
Certification of Senior Vice President and Co-Chief Financial Officer (Principal Accounting Officer)*
|
|
32 -- Section 1350 Certification **
|
||
|
101.INS
|
XBRL Instance Document*
|
|
|
101.SCH
|
XBRL Taxonomy Extension Schema Document*
|
|
|
101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase Document*
|
|
|
101.DEF
|
XBRL Taxonomy Extension Definition Linkbase*
|
|
|
101.LAB
|
XBRL Taxonomy Extension Label Linkbase Document*
|
|
|
101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase Document*
|
|
_______________
|
*
|
Filed herewith
|
|
**
|
Furnished herewith
|
TABLE OF CONTENTS
Part IItem 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsItem 4. Mine Saftey DisclosuresPart IIItem 5. Market For Registrant S Common Equity, Related Shareholder Matters and Issuer Purchases Of Equity SecuritiesItem 6. Selected Financial DataItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresItem 9B. Other InformationPart IIIItem 10. Directors, Executive Officers and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships and Related Transactions, and Director IndependenceItem 14. Principal Accountant Fees and ServicesItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Shareholder MattersPart IVItem 15. Exhibits, Financial Statement Schedules